Biomass co-utilization with unconventional fossil fuels to advance energy security and climate policy

This report addresses potential synergies in the co-development of unconventional fossil fuels— particularly liquid fuels from coal and from ultra-heavy petroleum, such as bitumen from Canadian oil sands—and bioenergy to advance the twin goals of energy and climate security. While many opportunities for synergy exist, it is naïve to imagine that hard trade-offs can be avoided. Wise policy must take these trade-offs seriously in order to find ways to advance both goals efficiently. The report reaches two broad technical conclusions. First, integration of bio-energy into unconventional fuel production chains can ease intrinsic trade-offs between energy security and climate risk. Trade-offs remain, however. Since bioenergy resources are limited, understanding the relative efficiencies of biomass utilization in achieving various ends is critical. In general, the direct use of biomass along with CO₂ capture and storage (CCS) in the electric power sector provides the most climate benefit per unit biomass, while use of biomass in biofuel production or co-production of with unconventional fossil fuels produces the most transportation fuel—and therefore energy security benefit—per unit biomass. Second, under plausible regulatory instruments, such as a low carbon fuel standard (LCFS) on lifecycle greenhouse gas (GHG) emissions, co-utilization of bio-energy could dramatically increase the amount of unconventional fuel production permitted. The extent to which this is true depends on the details of the accounting rules. Rules that allow the “negative emissions” arising from the combination of bio-energy and CCS to be attributed wholly to the liquid fuel production, even in cases where there is co-production of electricity, will maximize coproduction of unconventional fossil fuels with biofuels under a LCFS. This outcome is more an artifact of accounting rules than an actual reduction of the underlying trade-offs between climate and energy security. It suggests that policies may be more economically efficient if they are closer to setting transparent, economy-wide economic incentives for liquid fuel production (energy security) and for GHG emissions reductions (climate security). The conclusion that economy-wide single-purpose constrains are economically efficient methods of achieving policy goals is anodyne. What’s new is the idea that production systems that blend biofuels and unconventional fossil fuels may be particularly hard to regulate efficiently using a LCFS. We review previous analysis of potential biomass supply. While it is clear that bio-energy could make a substantial contributions to energy and climate security goals, there are two intrinsic factors that make bio-energy somewhat less economically effective than it may otherwise appear. First, the diffuse nature of biomass supply combined with its low energy density, which makes long-range transport difficult compared to fossil fuels, implies that (i) feedstock markets will tend to be localized, compromising markets efficiency and (ii) that dedicated bio-energy conversion facilities will not be able to realize economies of scale comparable to fossil energy systems, decreasing effective conversion efficiencies and increasing costs. Second, biomass has highly variable fuel characteristics, suggesting that feedstock markets may be further localized and fragmented and that usable biomass resources may be substantially less than current resource assessments indicate. viii When considering co-utilization of bio-energy and fossil fuels, we find that performance metrics defined on a biomass specific basis (e.g., emission benefit per ton of biomass) are better tools for policy decisions than end-product specific metrics (e.g., tons carbon equivalent per unit of fuel energy). This is because biomass supply is fundamentally limited by inherently diffuse solar energy and access to agricultural inputs to production and because liquid fuels and their emissions intensities are naturally blended in the tank or more generally in the atmosphere, limiting the utility of product-specific metrics. Moreover, biomass-specific metrics enable meaningful comparisons across end products, such as electricity and fuels, and limit the confounding effects of market-specific price uncertainty.