Assessing Opportunities for Alternative Fuel Distribution Programs (2013)

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38 The objective of this section is to help airports identify the costs, benefits, and other key con- siderations associated with alternative fuel distribution programs. The workbook spreadsheet has templates to help with this evaluation. This section provides a methodology for evaluating the strengths and weaknesses of each option. This step also highlights those items that warrant more detailed analysis. Table 5 lists the items that the researchers considered to be most important. The first two categories, environmental and economic, vary significantly for each alternative fuel and should be reviewed accordingly. For the remaining categories, the discussion is not divided by alternative fuel, because the observations apply, in general, to all of them. Water impact (increasingly referred to as the “water-energy-food nexus”) is rapidly emerging as an important criterion due to water’s importance for agriculture, numerous industrial pro- cesses, and life itself. However, it is difficult to evaluate due to the limited information on water impacts. Although water is not specifically addressed in the following sections, the impact of a fuel on the availability of water is of increasing importance and should be kept in mind. Please refer to the discussion in Section 5.5.3.2 for a summary of currently available information. Each airport is unique, and some of these differences, such as size and governance structure, will be important factors in how alternative fuel distribution programs can be evaluated and implemented. The guidelines and considerations presented here are expressed in general terms in order to apply to the majority of circumstances, although local conditions and circumstances will influence their applicability. S e c t i o n 5 Evaluation Framework Step B: What Are the Key Considerations for Evaluating Distribution Options? Category Subcategory See Section Environmental Local air quality (e.g., PM, NOx) 5.1 Greenhouse gases 5.1 Economic Fuel cost 5.1 Vehicle cost 5.1 Infrastructure cost 5.1 Additional jobs 5.1 Social and Community 5.2 Financial and Commercial 5.3 Legal and Regulatory FAA regulations 5.4 Local, state, and federal regulations 5.4 Stakeholder Engagement and Community Acceptance Stakeholder engagement 5.5 Community outreach 5.5 Table 5. Main considerations for comparative evaluation of alternative fuel distribution programs.

evaluation Framework Step B 39 5.1 Environmental and Economic Considerations The evaluation of environmental and economic considerations associated with alternative fuels and their distribution are discussed in this section. The following categories are included: • Environmental considerations – Potential change in PM and NOx emissions – Potential change in life-cycle GHG emissions • Economic considerations – Relative cost of fuel – Relative cost of vehicle/plant – Relative cost to upgrade existing vehicle/plant – Additional infrastructure storage cost – Additional facilities cost (e.g., refueling station) – Additional jobs The criteria for this discussion were based on the team’s expert knowledge and professional judgment and information gained from related studies (AEA 2008; AEA 2009; DfT 2010), a key study being ACRP Project 02-23, documented in ACRP Web-Only Document 13: Alterna- tive Fuels as a Means to Reduce PM2.5 Emissions at Airports (Peace et al. 2012). ACRP 02-23 developed a mechanism for evaluating alternative fuels based on their capacity to reduce PM2.5, their capacity to reduce other pollutants’ emissions, and potential issues regarding use of those alternative fuels such as their associated costs. Most of the criteria listed above were developed in ACRP 02-23, with the exception of “additional jobs.” Information related to emissions from ethanol was largely obtained from a literature review (AEA 2008); data pertaining to LPG and CNG were obtained from sources cited in the text or the FAA’s Emissions Dispersion Mod- eling System (EDMS) databases; and information on green diesel and other biodiesels was pri- marily obtained from EPA sources (EPA 2002). Other data, such as the cost of fuel and the availability of alternatively fueled vehicles and buildings, were obtained from studies previously cited. The comparison of fuel costs is on an energy-equivalent per-gallon basis. Other references are also listed where appropriate. A resource for estimating emissions is the Argonne National Laboratory’s Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model (ANL 2011). The GREET model estimates emission data for a number of different fuels based on specific assump- tions about feedstocks, supply chains, vehicles, and other pertinent information. The GREET model allows the estimation of both tailpipe or wake emissions and life-cycle emissions. Tailpipe or wake emissions are those that occur where the fuel is burned by the final users (e.g., cars, truck, aircraft), while life-cycle emissions include all the emissions associated with the feedstock, production, handling, and use of the fuel. Thus, tailpipe emissions may be essentially the same for different fuels, while life-cycle emissions may be very different. For example, there are no tailpipe emissions associated with the use of electricity to power vehicles, but life-cycle CO2 emis- sions can be very different depending on how the electricity is generated (e.g., hydroelectric vs. coal-fired power plants). Readers are encouraged to use GREET and modify its assumptions, as needed, for estimates applicable to their local conditions. 5.1.1 Alternative Jet Fuel 5.1.1.1 Relative Change in PM and NOx Emissions Alternative jet fuels have the potential to significantly reduce emissions of SOx and PM. This reduction is primarily because alternative jet fuels are virtually sulfur free and have a lower

40 Assessing opportunities for Alternative Fuel Distribution Programs aromatic content. SOx and hydrocarbon aromatics are precursors and indicators of the forma- tion of PM2.5. Tests by the U.S. Air Force (USAF) indicate that PM2.5 is significantly lower in alternative fuels compared to conventional jet fuel (Miller et al. 2011). NOx emissions attributable to aviation activities are widely variable by aircraft type. This vari- ability is because NOx production is closely tied to the temperature of combustion and the tech- nologies associated with a particular engine (Starik 2008). Therefore improvements in engine and aircraft technology are likely to reduce future NOx emissions. 5.1.1.2 Relative Change in Life-Cycle GHG Emissions Life-cycle GHG emissions for conventional jet fuel using traditional crude sources are esti- mated at 87.5 grams of CO2 equivalent per megajoule (MJ) of energy (Stratton et al. 2010). The life-cycle emissions for alternative jet fuels vary significantly and depend on how the fuel is gen- erated and what degree of land use change is required to support the cultivation of feedstocks. Figure 4 shows the ranges of estimated GHG emissions of alternative jet fuels based on different feedstocks. Note that the life-cycle analysis for GHG for both FT and HEFA fuels are shown as a range. This range is primarily caused by variations in land use necessary to make an area suitable for cultivation. Changes in land use affect the life-cycle emissions of plant-based fuels more than any other single factor. A greater change in land use to support a given feedstock would result in greater life-cycle GHG emissions. 5.1.1.3 Relative Cost of Fuel While the cost of alternative jet fuel will vary significantly, it is currently more expensive than conventional jet fuel. This high cost is due to a variety of factors, including the new state of the technology, high upfront capital costs for alternative fuel production facilities, and the challenge of securing feedstock that can meet performance and financial benchmarks. The challenges associated with feedstocks for alternative jet fuel are numerous. Some feed- stocks compete with food and others are expensive due to their current tight and highly competi- tive markets. Many of the new feedstocks are still experimental. Others are produced in limited volumes. Still others have supply chain inefficiencies that must be solved. All of these factors contribute to the present high cost of alternative jet fuel. However, as the technology matures and feedstock supplies develop, the cost is expected to decrease. Crude to conventional jet fuel Coal and Biomass (w/ CCS) Salicornia to HEFA and FT fuel Crude to ULS jet fuel Oil sands to jet fuel Oil shale to jet fuel Natural gas to FT fuel Coal to FT fuel (no CCS) Switchgrass to FT fuel Soy oil to HEFA Palm oils to HEFA Rapeseed oil to HEFA Jatropha oil to HEFA Algae oil to HEFA -1 0 1 2 3 4 5 6 7 8 Figure 4. Relative life-cycle GHG emissions of several pathways for alternative jet fuels (conventional jet fuel 5 1.0; adapted from Stratton et al. 2010).

evaluation Framework Step B 41 5.1.1.4 Relative Cost of Vehicle/Plant As discussed in Section 2.1, alternative jet fuels are drop-in fuels and, therefore, no changes to the transportation, storage, and distribution infrastructure or aircraft is required. 5.1.1.5 Relative Cost to Upgrade Existing Vehicle/Plant Minimal because alternative jet fuel is drop-in. 5.1.1.6 Additional Infrastructure Storage Cost Minimal because alternative jet fuel is drop-in. 5.1.1.7 Additional Facilities Cost (e.g., Refueling Station) Minimal because alternative jet fuel is drop-in. 5.1.1.8 Additional Jobs The use of alternative jet fuel is likely to create few airport-related jobs. 5.1.2 Green Diesel 5.1.2.1 Relative Change in PM and NOx Emissions Similar to alternative jet fuel, green diesel is chemically very similar to its conventional equiva- lent and has the potential to provide some environmental benefits. For example, the low hydro- carbon and sulfur content of green diesel are likely to result in lower secondary PM emissions as well as lower sulfur emissions. In contrast, the levels of carbonaceous PM are unlikely to be substantially different. Emissions of NOx are more dependent on the temperature at which the fuel is burned and not the fuel formulation, so NOx emissions are unlikely to be affected. 5.1.2.2 Relative Change in Life-Cycle GHG Emissions The life-cycle emissions for green diesel vary significantly. They depend on how the fuel is generated and what degree of land use change is required to support the cultivation of feedstocks. 5.1.2.3 Relative Cost of Fuel Green diesel is fully interchangeable with petroleum-derived diesel. Production of green diesel is not yet widespread so prices tend to be higher than conventional diesel; however, as in the case of alternative jet fuel, as the industry matures and more processing capacity is installed, the price of the fuel is expected to decrease. 5.1.2.4 Relative Cost of Vehicle/Plant Green diesel is fully interchangeable with petroleum-derived diesel, and no modifications are required for diesel engines to use green diesel. Some additional maintenance may be required, such as changing filters, due to green diesel’s lower aromatic content. 5.1.2.5 Relative Cost to Upgrade Existing Vehicle/Plant Green diesel is fully interchangeable with petroleum-derived diesel, and no modifications are required for diesel engines to use green diesel. Some additional maintenance may be required, such as changing filters, due to its lower aromatic content. 5.1.2.6 Additional Infrastructure Storage Cost No additional infrastructure is required beyond what already exists for petroleum-derived diesel. This is because the two fuels are so chemically similar and can be used in conventional vehicles.

42 Assessing opportunities for Alternative Fuel Distribution Programs 5.1.2.7 Additional Facilities Cost (e.g., Refueling Station) The similarity of green diesel to petroleum-derived diesel, as discussed in previous sections, means that no additional facilities are required. 5.1.2.8 Additional Jobs Changing from petroleum-derived diesel to blends containing green diesel will not create any additional on-airport jobs. 5.1.3 Biodiesel 5.1.3.1 Relative Change in PM and NOx Emissions Changes in PM and NOx emissions depend on blend strength and vehicle technology, particu- larly fuel delivery systems and combustion chamber design. A 2002 EPA summary suggests that using B20 may increase NOx emissions by around 2% (EPA 2002). A more recent study (AEA 2008) suggests that using B15 leads to changes in NOx emissions of +1% for heavy-duty vehicles, and no change for passenger cars. 5.1.3.2 Relative Change in Life-Cycle GHG Emissions The life-cycle emissions savings depend on the production and transportation emissions that come from the growing and processing of the crops, in addition to the tank-to-wheel technology. 5.1.3.3 Relative Cost of Fuel B20 is typically competitive with conventional diesel. As of January 2012, a gallon of B20 cost $3.95 compared to $3.86 for conventional diesel. When normalizing for energy content, a gallon of B20 cost $4.02 (DOE 2012b). 5.1.3.4 Relative Cost of Vehicle/Plant Most new vehicles can use blends up to about 20%, thereby avoiding incremental cost. How- ever, older vehicles using higher blends require modifications. 5.1.3.5 Relative Cost to Upgrade Existing Vehicle/Plant Because most new vehicles can use blends up to 20%, any upgrade cost would be purely to support blends higher than this. The upgrade costs should be nominal since they usually result from changing internal engine parts, such as filters. 5.1.3.6 Additional Infrastructure Storage Cost For blends up to 20%, no additional infrastructure beyond what already exists for petroleum- derived diesel is necessary; however, due to warranty restrictions for some vehicles, it is likely that additional tanks will be required for storage for higher blends as both standard diesel and biodiesel blends would need to be offered separately. 5.1.3.7 Additional Facilities Cost (e.g., Refueling Station) Potentially there is the need to install additional pumps for high blends; however, this depends on current pump availability. 5.1.3.8 Additional Jobs No additional on-airport jobs are likely, other than during the construction of the infrastructure.

evaluation Framework Step B 43 5.1.4 Ethanol 5.1.4.1 Relative Change in PM, NOx and GHG Emissions Most research has shown that for ethanol blends up to 25% (E25), there is a meaningful reduction in PM relative to gasoline. There is less consensus on ethanol’s impact on NOx and hydrocarbon emissions (AEA 2008). For the E85 blend, the review of available data indicated no change in the emission factors of NOx or hydrocarbons, but a 20% reduction in PM emissions. 5.1.4.2 Relative Change in Life-Cycle GHG Emissions The life-cycle GHG emissions depend on the production and transportation emissions that come from the growing and processing of the crops, in addition to transportation to the refueling station. 5.1.4.3 Relative Cost of Fuel Ethanol is generally blended with gasoline. Based on the discussion in Section 2.4.3, E85 has a fuel economy penalty that is constant at around 30%. In addition, the price differential between E85 and gasoline fluctuates and, at the time of writing, favored E85 by about 10%. To achieve parity, the price differential needs to be at around 30%. As of January 2012, a gallon of E85 cost $3.14, compared to $3.37 for a gallon of conventional gasoline. Taking into account the energy differential between the two fuels, an energy-equivalent gallon of E85 cost $4.44 (DOE 2012b). 5.1.4.4 Relative Cost of Vehicle/Plant A variety of vehicles are currently available as E85 or FFVs for blends above 10%. They gen- erally cost approximately the same as a gasoline vehicle. Blends of 10% or less can be used in gasoline vehicles without any modifications. 5.1.4.5 Relative Cost to Upgrade Existing Vehicle/Plant Nearly all gasoline vehicles are capable of using ethanol blends of up to 10%, but higher blends require an FFV or dedicated E85-fueled engine. 5.1.4.6 Additional Infrastructure Storage Cost In terms of storage and distribution, the needs of ethanol are substantially different from gas- oline. The key issue is miscibility with water. Generally, ethanol is kept in separate storage tanks at wholesalers because it attracts water. It is blended with gasoline just before delivery to retailers or to industrial customers. Therefore the additional infrastructure cost can range from $40,000 to $200,000 (Loveday 2011). Of this total cost, $35,000 to $70,000 is associated with the cost of the tanks themselves, while the rest is associated with other parts of the system (Lemas 2012). To partially offset this, the current administration is offering incentives for installing E85 pumps. 5.1.4.7 Additional Facilities Cost (e.g., Refueling Station) Potentially there is the need to install additional pumps for high blends; however, this depends on current pump availability, because a premium-grade pump may be switched to deliver high- strength ethanol blends. 5.1.4.8 Additional Jobs Few, if any, additional jobs will be created at the airport because most fuel pumps are operated by the customer and most high ethanol blend pumps will be placed at an existing refueling sta- tion. Apart from routine operation, there would be temporary additional jobs created to install the new capacity (tanks and pumps) prior to them coming on-line.

44 Assessing opportunities for Alternative Fuel Distribution Programs 5.1.5 CNG 5.1.5.1 Relative Change in PM and NOx Emissions If CNG is used to replace diesel in appropriate vehicles, there would be reductions in NOx and PM emissions. If CNG is used to replace gasoline, then there is likely to be a moderate reduction in PM. 5.1.5.2 Relative Change in Life-Cycle GHG Emissions There is the potential for GHG emissions reductions on a life-cycle basis, but this is subject to assumptions regarding extraction, processing, and transportation. 5.1.5.3 Relative Cost of Fuel Cost competitiveness and availability are CNG’s main strengths. As of January 2012, the price of CNG with energy equivalent to a gallon of gasoline was only $2.13 compared to $3.37 for an actual gallon of gasoline and $3.86 for a gallon of diesel. The price of CNG containing the same amount of energy as a gallon of diesel was $2.38 (DOE 2012b). 5.1.5.4 Relative Cost of Vehicle/Plant Currently, there is only one CNG-powered light-duty vehicle that is sold in the United States—the Honda Civic GX. This automobile has a retail price of $25,000, which is $6,000 to $8,000 more than the gasoline-powered Honda Civics (Honda 2012). 5.1.5.5 Relative Cost to Upgrade Existing Vehicle/Plant The average cost of CNG conversions of gasoline vehicles is $12,000 to $18,000 (DOE 2011f). This relatively high cost is primarily due to the expense associated with the high- pressure storage system. 5.1.5.6 Additional Infrastructure Storage Cost There is a relatively extensive low-pressure natural gas infrastructure already in place. There- fore, the additional infrastructure storage cost is low. 5.1.5.7 Additional Facilities Cost (e.g., Refueling Station) For vehicle use, there is the safety requirement of providing compressed gas at around 3,000 psi. There are a variety of possibilities for refueling vehicles with CNG, including a small com- pressor connected to a main gas supply, or low-pressure storage tank, and trickle filling a light commercial vehicle overnight at a cost of around $10,000. The minimum amount for a perma- nent facility refueling heavy-duty vehicles is in the region of $200,000, whereas a large station serving dozens of vehicles may cost in the region of $750,000 (AEA 2011). 5.1.5.8 Additional Jobs Few additional jobs are likely to be created at an airport. For routine operation, the number of jobs is assumed to be low, because it is assumed that the additional CNG filling points will be placed on the same site as the liquid fuel pumps at an existing refueling station. It is anticipated that a few additional filling points will not require further staff to be employed. However, there would be temporary additional jobs created to install the new capacity prior to the filling points becoming available for routine filling of vehicles. 5.1.6 LPG 5.1.6.1 Relative Change in PM and NOx Emissions When LPG is used to replace gasoline, there is likely to be a moderate reduction in PM.

evaluation Framework Step B 45 5.1.6.2 Relative Change in Life-Cycle GHG Emissions There is the potential for GHG emissions reductions on a life-cycle basis, but this is subject to assumptions regarding extraction, processing, and transportation. 5.1.6.3 Relative Cost of Fuel A gallon of LPG has around 75% of the energy of a gallon of gasoline, so price per gallon must be lower in order for the fuel to be economically competitive. As of January 2012, a gallon of LPG cost $3.08, compared to $3.37 for a gallon of gasoline and $3.86 for a gallon of diesel. On an energy-equivalent basis, however, LPG cost $4.26 per gallon compared to gasoline and $4.75 per gallon compared to diesel. 5.1.6.4 Relative Cost of Vehicle/Plant There are currently no light-duty LPG vehicles on the market in the United States. 5.1.6.5 Relative Cost to Upgrade Existing Vehicle/Plant The cost to convert a vehicle from gasoline to LPG is estimated at $4,000 to $12,000 (DOE 2011f). 5.1.6.6 Additional Infrastructure Storage Cost Approximately 2,600 existing vehicle refueling stations provide LPG for road vehicles (DOE 2011b). Therefore, the additional infrastructure cost would be comparable to adding a new gasoline product line. This cost was taken as $40,000 to $200,000 for E85 (see Section 5.1.4), and it is assumed a similar figure applies to the addition of LPG to an existing refueling station. According to CleanFUEL USA, a company that markets LPG fueling systems, the cost of a typical 2,000-gallon LPG fueling system with a single pump is approximately $100,000, 35% of which is associated with the tank itself. For a larger, 10,000-gallon system, that cost is approximately $150,000 as of March 2012, with half of the total cost attributed to the cost of the tank alone (Lemas 2012). 5.1.6.7 Additional Facilities Cost (e.g., Refueling Station) As demand for LPG increases, additional pumps may need to be added, as well as advanced fuel control systems for operators with multiple fuel systems. These pumps generally cost approximately $5,000 each, while adding an advanced fuel control system to a base LPG installation will add $15,000 to $20,000 to the price (Lemas 2012). 5.1.6.8 Additional Jobs The use of LPG will produce few additional jobs at the airport. 5.1.7 Electricity 5.1.7.1 Relative Change in PM and NOx Emissions Electric vehicles generate zero NOx and significantly fewer PM emissions than gasoline or diesel engines at the point of use. (All vehicles, including electric vehicles, generate some PM associated with brake and tire wear.) 5.1.7.2 Relative Change in Life-Cycle GHG Emissions Potential life-cycle GHG reductions depend on how the electricity is generated. 5.1.7.3 Relative Cost of Fuel In terms of cents per kilowatt-hour, the cost of electricity is highly variable and typically ranges from 4.07 to 28.10, with the average price being 9.83 cents per kilowatt-hour in 2010

46 Assessing opportunities for Alternative Fuel Distribution Programs (EIA 2011a). This compares with the average price of $26.67 per million BTU (DOE 2012b) (equivalent to 9.10 cents per kilowatt-hour) for gasoline. However, the cost of fuel does not tell the entire story, as electric engines are significantly more efficient at converting potential energy to useful work than are conventional gasoline internal combustion engines. DOE estimates that 75% of the potential energy from an electric motor will be used to power the wheels, while only 20% of the potential energy from an internal combustion engine will be used (DOE 2012d). This disparity means that, when accounting for differences in engine efficiency, the effective average cost for electricity will generally be less than that of gasoline. 5.1.7.4 Relative Cost of Vehicle/Plant The capital costs of electric vehicles are generally higher than their gasoline or diesel equiva- lents. Two examples of light-duty electric vehicles currently on the U.S. market are the Nissan Leaf (Nissan 2012), which sells for more than $32,000 and the Chevrolet Volt, which sells for just over $40,000 (GM 2012). Both of these subcompact cars are $15,000 to $20,000 more expensive than their closest gasoline-powered competitors. These high upfront costs can be offset by lower operating costs (e.g., fuel, maintenance, and repair) of equivalent gasoline or diesel equivalents. 5.1.7.5 Relative Cost to Upgrade Existing Vehicle/Plant It is not normally feasible to upgrade an existing internal combustion engine to run on electricity. 5.1.7.6 Additional Infrastructure Storage Cost See next section. 5.1.7.7 Additional Facilities Cost (e.g., Refueling Station) For recharging of electric vehicles, assuming that trickle charging can be used and spare capac- ity already exists, little additional infrastructure development is needed. However, issues may arise from parking vehicles or equipment for long periods during recharging, implying some mix of mobile and stationary charging stations. Single-port, level 2 charging stations start at approximately $2,000 each, and a DC fast charge station starts at about $50,000 (McKuen 2011). Finding adequate space for the charging stations and vehicles can be an issue and needs to be investigated. Additionally, if an airport’s peak power capacity is insufficient for the anticipated level of usage, then further costs will be incurred via the necessary expansion of the power infra- structure. Gate electricity and PCA supply for reducing APU usage are likely to require more infrastructure development than smaller-vehicle recharging points. 5.1.7.8 Additional Jobs There would be temporary additional jobs created to meet the infrastructure requirements prior to this energy source coming on-line. In the long term, the use of electricity is unlikely to create any airport-related jobs. 5.1.8 General Observations A number of observations can be seen from the information presented in this section: • Alternative fuels have the potential to provide environmental benefits. Specific benefits, espe- cially life-cycle GHG emissions reductions, will depend on many factors and must be analyzed on a case-by-case basis. • Drop-in alternative fuels, such as alternative jet fuel and green diesel, have the cost advantage of not requiring any changes to the existing storage and distribution infrastructure and equip- ment (e.g., aircraft, engines, GSE). Some alternative fuels require small changes or modifica- tions to existing equipment and infrastructure (e.g., vehicle components for B20 and storage

evaluation Framework Step B 47 tanks for E85), while others require either dedicated vehicles and/or infrastructure (e.g., E85, CNG, LPG, electricity). • CNG has a significant price advantage compared to other conventional and alternative fuels. Alternative jet fuel and green diesel are not yet commercially available in significant quantities. Current projections indicate that their initial price will be higher and decrease over time as more capacity comes on-line. Other alternative fuels (e.g., E85, B20, LPG, electricity) have been available at commercial scale for many years and their price histories are well documented. • Few additional jobs, other than construction, are expected from the operation of alternative fuel distribution programs at airports. 5.1.9 Life-Cycle Evaluation There are important trade-offs to consider when evaluating alternative fuels. Some alterna- tive fuels are cheaper than conventional fuels, but the infrastructure requirements are more costly, as is the case of CNG. As a result, it is important to conduct a life-cycle evaluation of the program’s costs and benefits. A detailed discussion of life-cycle evaluation for all the fuels included in this document is not within the scope of the program. However, the following case studies and tools offer information on life-cycle cost-benefit evaluations: • Vehicle and Infrastructure Cash-Flow Evaluation Model (DOE 2012c) • Business Case for Compressed Natural Gas in Municipal Fleets (Johnson 2010) • E85 Retail Business Case: When and Why to Sell E85 (Johnson and Melendez 2007) • Cost Benefit Analysis Modeling Tool for Electric vs. ICE Airport Ground Support Equipment— Development and Results (Morrow et al. 2007) • Technical Support for Development of Airport GSE Emissions Reductions (EPA 1999) • ACRP Report 78: Airport Ground Support Equipment (GSE): Emission Reduction Strategies, Inventory, and Tutorial (CDM Federal Programs Corporation et al. 2012) 5.2 Social and Community Benefits In addition to the environmental and economic benefits highlighted in the previous section, there are other social and community benefits associated with alternative fuel distribution pro- grams. These benefits include diversification away from conventional petroleum-based fuels, improved reliability and security of supply, support of energy independence as imports of for- eign petroleum decrease, and reduced volatility of the price of fuel. These benefits are described in more detail in Section 1.2. 5.3 Financial and Commercial Considerations This section provides guidelines for evaluating financial and commercial considerations of alternative fuels distribution programs. These guidelines are intended to be sufficiently general to apply to all alternative fuels. However, it is important to note that some alternative fuels have higher risks than others and that these distinctions matter when evaluating financing decisions. The financial risk associated with an alternative fuel decreases significantly when it has been proven at commercial scale. As a result, fuels are divided in two broad categories: • Commercial scale—fuels that are already being produced in commercial quantities, with known costs and developed markets and distribution infrastructure: – Electricity – CNG

48 Assessing opportunities for Alternative Fuel Distribution Programs – LPG – Biodiesel (B20) – Ethanol (E85) • Pre-commercial scale—next-generation transportation fuels that are not yet commercially available: – Alternative jet fuel – Green diesel This section also presents information on public programs that are designed to finance alter- native fuel distribution programs. These programs include ones administered by the USDA, DOE, and FAA. 5.3.1 Financial Considerations for Attracting Financing For a program to attract financing, the promoters must demonstrate that they understand the program’s risks and have a means of eliminating them. These risks can be characterized as technology, management, financial, policy, feedstock, engineering, and construction: • Technology—This is likely to be the most significant risk of a next-generation fuel. For a fuel to be economically competitive with traditional fuels, it must be produced profitably at com- mercial scale and, at the time of the publication of this document, few next-generation fuels have been produced at a commercial scale. As a result, the technology is considered unproven by the financial community, and a financier will require a guarantee from an entity that has the resources to repay the loan if the technology has problems. • Management—Exceptional management is essential to the successful implementation of new technology programs, and this skill is usually demonstrated via a history of successfully imple- menting new programs which have similar risks. • Financial—Alternative fuel programs will typically require significant amounts of capi- tal (tens or perhaps hundreds of millions of dollars) to be realized. Securing the neces- sary funds for a program of this size is a challenging task, especially for small or start-up companies. • Policy—Governmental policy has a major impact on the likely profitability of a refinery and the cost of most alternative fuels. Because a fuel refinery has an economic life of over 20 years, the policies that are important to the program’s success should have stability for a comparable period. • Feedstock—For some alternative fuels, feedstocks account for the majority of the cost of the final product. As a result, it is important to be confident that there will be sufficient feedstock to supply the refinery at competitive prices for the refinery’s life. • Engineering—The firm that designs the infrastructure must have the skills appropriate for the technology and the site and also have the financial strength to guarantee its work. • Construction—Similarly, the construction firm must have the skill to convert the engineer- ing design into a plant within the contracted timeframe and have the financial strength to guarantee its work. In addition to the seven risks mentioned above, an airport should review the following items when considering alternative fuel distribution programs: • Are customers willing to enter into binding purchase agreements to reduce the financial risks and improve a program’s financial viability? Do fuel buyers need to assume all the risk in a cost-plus contract or a fixed price agreement, or will the various participants in the program share the risks?

evaluation Framework Step B 49 • Which stakeholders have the greatest interest in the program, and does that interest translate into their willingness to take a greater share of the risk? • Which of the seven risks (technology, management, financial, policy, feedstock, engineering, and construction) are significant and how will they be mitigated? • What is the availability of feedstocks, is its supply reliable, and is its future cost known? • Are new technologies for production of alternative fuels likely to impact the program’s economic viability? Are there upcoming production methods that could divert feedstocks to more efficient processes, or reduce the cost of competing fuels, especially for alternative jet fuels? • What is the program’s overall environmental sustainability, including water use, land use, and life-cycle GHG benefits? Is the program likely to face local or national opposition that could increase its risk? • Have all regulatory, permitting, and social equity issues been identified and satisfactorily addressed? • If existing or new federal, state, and local governmental policy is important to the program’s economic viability, can the policy be changed during the program’s life, and how would that affect the program’s viability? • What is the quality and depth of the team that will manage this program? • Can the required financing be found? 5.3.2 Public Financial Support for Alternative Fuel Programs To date, developers for alternative fuel programs have looked to government programs for both grants and loan guarantees to help reduce risks. Public sources of financing include local, regional, and federal governments. Diverse local and regional initiatives exist to support regional economic development, and the involvement of an airport may enhance access to such support. The alternative transportation fuel industry is currently a high priority for the federal govern- ment, which, primarily through the USDA and DOE, is providing incentives such as grants, loans, loan guarantees, subsidies, and tax credits. Some of these programs are outlined in the following paragraphs (Miller et al. 2011): 5.3.2.1 EPA Renewable Fuel Standards The EPA’s Renewable Fuel Standard (RFS) RFS-2 sets out the minimum volume of renewable fuels that producers must produce by year into the future (EPA 2010b). Compliance is tracked through the issuance of a renewable identification number (RIN) for those fuels as they are produced, and obligated parties can purchase RINs from other producers rather than produce renewable fuels in order to meet their obligations in a given year. While aviation does not have a required biofuel contribution under RFS-2, producers of renewable aviation fuels that meet the standards set in RFS-2 are able to claim RINs and can sell them to others, effectively reducing the cost of alternative jet fuel. The value of RINs is largely determined by the market; in theory, the maximum value is the difference between the cost of producing renewable fuel and regular fuel, but actual value is driven by supply and demand. 5.3.2.2 USDA Programs The USDA offers extensive support programs to encourage rural development (USDA 2010b) and is committed to supporting the development of alternative aviation fuel as part of these initiatives. The Biorefinery Assistance Loan Guarantee Program in Section 9003 of the 2008 Farm Bill is of particular relevance to a developer of an alternative fuel refinery (USDA 2010c). This program, administered by USDA Rural Development, provides loan guarantees for the construction or retrofitting of rural biorefineries to assist in the development of new technolo- gies for advanced biofuel made from renewable biomass other than corn (USDA 2010a). Such

50 Assessing opportunities for Alternative Fuel Distribution Programs loan guarantees can be used to support private sector loans and are intended to make obtaining financing easier by reducing the risks a banker would have to assume. The Bioenergy Program for Advanced Biofuels in Section 9005 of the 2008 Farm Bill gives the Secretary of Agriculture broad discretion to create a program to provide production pay- ments to eligible advanced biofuel producers “to support and ensure an expanding production of advanced biofuels” (USDA 2011). The proposed rules allow payments to qualifying bioenergy producers of an as-yet-to-be-determined amount based on the funding for the program and the total amount of qualifying bioenergy produced—in BTUs—by all qualified producers. The researcher’s understanding is that producers will get paid a pro rata share of the total funding depending on their share of eligible advanced BTUs produced in a given year. This is effectively a price support program for producers, but sources of biorefinery equity or debt are not expected to take these payments into account because they will change over time depending on how much bioenergy is produced. The Biomass Crop Assistance Program in Section 9011 of the 2008 Farm Bill provides own- ers with dollar-for-dollar matching payments for the sale and delivery of eligible material to a biomass conversion facility (USDA 2009). The program also supports “establishing and pro- ducing eligible crops for the conversion to bioenergy through project areas and on contract acreage up to 5 years for annual and non-woody perennial crops or up to 15 years for woody perennial crops.” These payments are limited to $45 per dry ton. They effectively subsidize the cost of feedstocks for advanced alternative fuel production, which could reduce the cost of the alternative fuel. 5.3.2.3 Carbon Markets One approach to encouraging a reduction in GHG emissions is “cap-and-trade,” whereby a carbon market is created by “capping” the amount of CO2 that regulated industries are allowed to emit and requiring them to obtain permits for the CO2 they do emit. Over time, the cap on CO2 is incrementally reduced, requiring regulated entities to obtain (“trade” for) an increas- ing amount of permits to cover their CO2 emissions. In theory, such a market-driven scheme results in a cost-efficient way of reducing GHG emissions by allowing businesses to purchase the right to emit CO2 from others if that is cheaper than investing in the technology to reduce their own emissions. Because renewable fuels generally are expected to have lower GHG emissions (measured on a life-cycle basis), it is anticipated that users will be able to reduce their carbon emissions. Thus, under a “cap-and trade” regulatory regime, alternative fuels may have a cost advantage over traditional petroleum-based fuels if they have a lower GHG footprint. Such a market—the European Union Emissions Trading System—has been in operation for carbon-intensive industries in the European Union since 2005 and is being expanded to include aviation in 2012. Many airlines and governments throughout the world have voiced their oppo- sition to the system and its ultimate viability remains in doubt. In the United States, although a carbon market has been much discussed, the federal government has not acted to implement carbon-reduction targets at the national level. However, California recently adopted the first carbon emission regulations in the United States for industries within the state, instituting a cap- and-trade market that was introduced in the Global Warming Solutions Act of 2006, commonly known as AB 32 (CAEPA 2009). This act mandates a reduction in carbon emissions back to 1990 levels by 2020. Beginning in 2013, the state’s largest carbon emitters will be required to meet the caps or buy credits if they cannot. The second phase, beginning in 2015, is expanded to include producers of transportation fuels, although aviation is not included in AB 32. 5.3.2.4 Biofuel Tax Incentives The federal government, through the Internal Revenue Service, has provided price support in the past to encourage development of ethanol and diesel from agricultural sources. The pro-

evaluation Framework Step B 51 grams introduced in 2005 (in the American Jobs Creation Act of 2004 and Energy Policy Act of 2005; apart from the Small Ethanol Producer Credit, which was introduced in 1990 in the Omnibus Budget Reconciliation Act of 1990) provided as much as $1.00 per gallon tax credits for road transportation fuels. They have now expired, causing disruptions in the marketplace for these products. The 2008 farm bill contains provisions that extend and modify tax credits on cellulosic ethanol, which is intended to spur investment in ethanol produced from cellulosic feedstocks rather than from corn starch. 5.3.3 Funding Overview of the Airport Improvement Program FAA grant funding opportunities for fuel storage and dispensing systems at airports are very limited. In general, the FAA’s Airport Improvement Program (AIP) makes grant funding avail- able only for non-revenue-producing airport projects, such as runways and taxiways. There is a provision in FAA Order 5100.38C, Airport Improvement Program Handbook, that allows for certain revenue-producing aeronautical support facilities at non-primary airports to obtain AIP grant funding (FAA 2005a). AIP funds can be used for fuel facilities serving aeronautical users, but alternative fuel systems are not eligible. Airport sponsors are required to ensure that adequate provisions for financing higher priority airfield projects are in place prior to applying for grant funding for fuel facilities. Non-primary commercial service airports are defined as airports that have fewer than 10,000 annual enplanements. Additionally, airports participating in the Military Airport Program are eligible to receive federal funding to support fuel facilities, regardless of whether they are primary or non-primary airports. Refer to FAA Order 5100.38C, Airport Improvement Program Handbook (http://www.faa.gov/airports/aip/aip_handbook/), for specifics on eligibility of fuel storage and dispensing systems. The FAA’s VALE program is a separate component of AIP. VALE funds projects that reduce ground emissions at commercial service airports located in areas that are in non-attainment or maintenance status with National Ambient Air Quality Standards (NAAQS) when con- verting from conventional fuels to certain eligible alternative fuels. The VALE program can fund eligible alternative fuel vehicles, equipment, and infrastructure when there is a demon- strated emissions benefit. For example, VALE could fund projects such as electric vehicles and rechargers, CNG buses, and CNG refueling facilities. Refer to the VALE Technical Report (http://www.faa.gov/airports/environmental/vale/) for specifics on program eligibility and application requirements. Many states have individual grant programs, usually funded with fuel tax revenues, which allow for grant support of revenue-producing facilities such as fuel facilities; however, most of these programs are targeted to the smaller commercial service airports and GA facilities. For airports that are able to secure AIP grant funding for fuel facilities or any other project, the airport sponsor must agree to certain legal obligations, known as FAA grant assurances (FAA 2005b). The current list includes 39 such obligations which require the recipients to maintain and operate their facilities safely and efficiently and in accordance with specified conditions. These assurances may be attached to the grant application for federal assistance and become part of the final grant offer or may be included in restrictive covenants to property deeds. The duration of these obligations depends on the type of recipient, the useful life of the facility being developed, and other conditions stipulated in the assurances. Refer to FAA Order 5190.6, Airport Compliance Manual (http://www.faa.gov/airports/resources/publications/orders/compliance_5190_6/), for more specifics on grant assurances. For more information on AIP grant funding and grant assurances, airports are encouraged to contact their local FAA office. Contact information for the FAA regional offices is available at http://www.faa.gov/about/office_org/headquarters_offices/arp/regional_offices/.

52 Assessing opportunities for Alternative Fuel Distribution Programs 5.3.4 Clean Cities Clean Cities is a government-industry partnership sponsored by the DOE to promote means to reduce the use of petroleum-derived fuels in the transportation sector (DOE 2012a). Clean Cities has nearly 100 coalitions all over the United States working on bringing together govern- ment agencies and private companies to develop plans to promote advanced transportation alternative fuels. Clean Cities helps create opportunities for alternative fuel vehicles, fuel econ- omy, idle reduction, and other emerging transportation technologies. Airports are encouraged to contact their local Clean Cities coordinators, where available, to inquire about possible proj- ects and collaborations. A list of Clean Cities coordinators is available from the DOE (2012a). 5.4 Legal and Regulatory Considerations 5.4.1 FAA and Associated Airport Regulations There is a significant number of FAA and other regulations that influence the way airports operate and how infrastructure is developed. These regulations can be very site specific and are further influenced by local regulatory bodies. A full discussion of these rules and regulations is outside of the scope of this guidebook; however, Section 6 is devoted entirely to criteria for locat- ing alternative fuel distribution programs on an airport site. That section presents and discusses the major considerations from an airport planning and regulatory perspective that should be taken into account when evaluating these programs. 5.4.2 Regulatory and Policy Framework on Alternative Jet Fuels The regulatory and policy framework for alternative jet fuels is very dynamic and evolves continuously as the industry itself grows and develops. The federal government as well as state and local entities has several programs to promote alternative jet fuels. These programs include collaboration between the U.S. Navy and the USDA and DOE to invest up to $510 million over 3 years in partnership with the private sector to support production of alternative jet and marine fuels (White House 2011). A recent ACRP publication (Miller et al. 2011) describes in more detail many of the regulations, policies, and other incentives in the United States supporting the development of alternative jet fuels. Other recommended sources for the latest information about alternative jet fuels were listed in Section 1.7. 5.4.3 Regulatory and Policy Framework on Other Alternative Fuels The regulatory and policy framework for other alternative fuels is complex, because many regulations and policies are fuel specific and vary from state to state. For example, as of Novem- ber 2011, there were 34 federal and 426 state incentives and laws for ethanol and 37 federal and 434 state incentives and laws for biodiesel (see Table 6). Jurisdiction Ethanol Biodiesel Natural Gas LPG Electric Vehicles Federal 34 37 27 26 22 State (total for all states) 426 434 359 287 335 State (average by state) 8 8 7 5 6 Table 6. Number of incentives and laws related to alternative fuels by jurisdiction (DOE 2011a).

evaluation Framework Step B 53 The DOE’s Alternative Fuels Data Center (AFDC; http://www.afdc.energy.gov/afdc/) is an excellent resource for identifying and tracking federal and state incentives and laws that apply to alternative fuels and vehicles. This website has an entire section dedicated to incentives and laws that can be searched by technology and fuel, incentive, and state. It also has information that will help find incentives and laws at the local level. The organization of the portion of the AFDC website dedicated to incentives, laws, and regulations is given in Figure 5. Airports are encouraged to use this website as their first step in identifying incentives and laws applicable to them. 5.5 Stakeholder Engagement and Community Acceptance 5.5.1 Stakeholder Engagement Stakeholder support is very important when evaluating alternative fuel distribution programs. An airport must have a clear picture of what its customers and other constituents need before allocating scarce resources. It is also helpful to understand institutional barriers and motivations of all stakeholders that may contribute to the program’s success. Many stakeholders are likely to become involved in alternative fuel distribution programs and can contribute to the airport’s knowledge. Airports will benefit from identifying all the stake- holders and understanding their needs. Following is a list of stakeholders along the entire supply chain, from feedstock suppliers to end users, who are likely to be important to most programs, but airports are encouraged to consider unique local circumstances: • Feedstock suppliers • Fuel producers • Fuel handlers Alternative Fuels Data Center Federal Incentives and Laws State Incentives and Laws State Selection Incentives Laws and Regs. Programs State Incentives Laws & Regs. Figure 5. Organization of Laws and Incentives web pages on Alternative Fuels Data Center website (http://www.afdc. energy.gov/afdc/).

54 Assessing opportunities for Alternative Fuel Distribution Programs • Third-party concession operators • Airports • End users • Vehicle and equipment manufacturers • Unions • Government entities – Municipalities – Metropolitan Planning Organizations – Counties – States – Federal government • Funding sources – Public – Private • Non-governmental organizations • Community groups Alternative fuel distribution programs need active stakeholders’ support. Stakeholders have different motivations and needs for participating in an alternative fuel program. A “motiva- tion” is defined as a reason for pursuing alternative fuels, and “need” is defined as the required outcome to enable support of the idea. The following list provides examples of motivations and needs by type of stakeholder. • Feedstock suppliers – Motivations: market diversification for existing production, new market opportunities. – Needs: higher financial returns than available from supplying traditional feedstock to exist- ing customers, mechanisms to protect financial returns (e.g., crop insurance). • Fuel producers – Motivations: support of existing customers, new market opportunities. – Needs: public/private sector financing, long-term supply and offtake contracts that match the terms of the financing arrangements, returns appropriate to the program’s risk. • Fuel handlers – Motivations: support of existing customers, new market opportunities. – Needs: partnership with producers and end users. • Third-party concession operators – Motivations: support of existing customers, new market opportunities. – Needs: partnerships with producers, airports, and end users; long-term contract arrange- ments that match terms of financing; returns according to the risk of the program. • Airports – Motivation: support of existing customers, diversification of revenue streams, achievement of environmental goals, community outreach. – Needs: ability to demonstrate economic and environmental benefits, minimization of infrastructure and fleet costs, long-term financial viability of the program. • End users – Motivations: environmental targets, diversification of fuel supply, energy security. – Needs: alternative fuel cost that is competitive in terms of price with conventional fuel, 100% confidence that alternative fuels are compatible with infrastructure and equipment. • Vehicle and equipment manufacturers – Motivations: support of existing customers, new market opportunities. – Needs: partnerships with airports, end users, and third-party providers.

evaluation Framework Step B 55 • Unions – Motivations: support of environmental targets and job diversification and specialization. – Needs: conviction that high-paying jobs will be preserved or added and quality of work life and benefits will stay high. • Government entities (municipalities, Metropolitan Planning Organizations, counties, states, federal government) – Motivations: meet policy objectives, respond to constituents’ needs. – Needs: understanding of quantifiable and non-quantifiable economic and political benefits. • Funding sources (private sector) – Motivations: diversification, new market opportunities. – Needs: guaranteed rates of return appropriate to the program’s risks. • Funding sources (public sector) – Motivations: support policy objectives, respond to constituents’ needs. – Needs: consistency with the political agenda of the entity, consistency with legislative mandates, and best use of limited available funds. • Non-governmental organizations – Motivations: ensure alternative fuels provide benefits to the environment and the community. – Needs: conviction that alternative fuel provides benefits compared to conventional options. • Community groups – Motivations: ensure alternative fuels provide benefits to the environment and the community. – Needs: reassurance that jobs will not be lost or that jobs will be created, that property values will not decrease or that they could increase, and that the physical environment will be safe, clean, and attractive. The motivations and needs of stakeholders can be identified and documented using Table 7. This table provides a detailed template that can be useful to understand the needs of each stake- holder, to determine whether or not the program meets those needs, and to identify exactly what specific actions must be taken to ensure the stakeholder actively and energetically supports the program. 5.5.2 Addressing Particular Concerns of Airport Leadership Given the dynamic nature of the alternative fuel landscape, airport leaders should prog- ress cautiously when considering significant changes in fuel sources. The following paragraphs briefly discuss relevant items that need to be addressed when considering an alternative fuel program. 5.5.2.1 Technical Concerns That Alternative Fuels Are Safe Because alternative fuels may be new to many airports, knowledge about developments and the current status of alternative fuel among airport leadership, in particular alternative jet fuel, may be low. There is the risk that confusion about the benefits and challenges of different alter- native fuels may make it difficult to obtain support for them. Addressing these concerns requires thoughtful explanations from sources that airport executives deem credible. 5.5.2.2 Need for Solid Political and Economic Support Given that many alternative fuel programs require significant investments, airport executives will require solid evidence of political consensus and the potential for economic support. This is especially true for alternative fuels that do not yet have a commercial track record and will likely need public-sector financial support for the first few facilities.

56 Assessing opportunities for Alternative Fuel Distribution Programs 5.5.2.3 Organizational Challenges of Institutions That Can Be Large and Conservative Most airports are conservative institutions whose core business is safely transporting people. Airport executives of both public and privately owned airports must respond to, and balance, the needs of many constituents that include political figures, community activists, and cus- tomers. As a result, decision-making processes are generally complex and lengthy, especially in large airports. This challenge is best addressed with a pragmatic approach to airport stakeholder engage- ment. This involves identifying the airport’s decision-making process and mapping all key individuals who make or critically influence decisions. Decision-makers and influencers can be found at all levels, including boards of directors, senior managers, employees, and union representatives. Each individual’s support must be gauged, and a plan must be developed to secure energetic support. Of particular importance is to recognize the organizational structure of the airport as there are many different alternatives. These can range from an airport being run by independent authorities to airports being part of a city or regional government. How the organizational struc- ture affects priorities and decision making is important to understand as airport leaders can strengthen their proposals for alternative fuel programs by extending them to, or being part of, wider initiatives that may be undertaken by other city, local, or regional entities. Stakeholder Information Response Stakeholder (Name of entity): Role in program: (e.g., airport, airline, feedstock supplier, fuel producer, municipality/local government, public/private sector funder) Stakeholder mission Economic Non-economic Is program consistent with mission? (yes, maybe/not sure, no) Explanation “Hurdle rate”—specific minimum requirements that program must meet to obtain stakeholder's participation Economic Non-economic Does program meet hurdle rate? (yes, maybe/not sure, no) Explanation Stakeholder concerns and risks Economic Non-economic Has an engagement strategy been developed? (yes, maybe/not sure, no) Explanation Actions required to obtain/enhance stakeholder participation Economic Non-economic Has a plan been developed to obtain/enhance stakeholder participation? (yes, maybe/not sure, no) Explanation Stakeholder decision-making process Is the stakeholder’s internal and external decision-making process fully understood? (yes, maybe/not sure, no) What needs to be done/who needs to be consulted to understand decision-making process? Explanation Table 7. Stakeholder needs analysis.

evaluation Framework Step B 57 5.5.3 Community Acceptance Alternative fuel distribution programs can provide many benefits to the airport and sur- rounding communities; however, some programs may create concerns. A recommended course of action is to acknowledge these concerns and to provide sufficient information to the com- munity to discuss them. The assistance of outside experts may be required to resolve many of these complex questions. 5.5.3.1 Food versus Fuel Questions related to the use of agricultural food commodities for the production of alter- native fuels have given rise to the concern of “food versus fuel.” The debate seems to have originated after a spike in animal feed costs and food prices in 2008 and the rapid develop- ment and expansion of the corn ethanol industry. Currently, 30% of the domestic corn crop is used for ethanol production, which has caused concern that the use of corn as a feedstock for alternative fuel production will lead to higher food prices and perhaps even compromise food supplies. Others argue that the rapid increase in food prices in 2008 was the result of high energy costs, not corn ethanol production. The issue has become very political and there is little consensus regarding the impact of alternative fuel production on food production and prices. To avoid the controversy surrounding the food-versus-fuel debate, some organizations and user groups, such as the CAAFI and other stakeholders in the U.S. airline industry, support the use of feedstocks that do not compete with food availability. Therefore, these entities promote feedstocks that are not used for human food production and that, according to some, would not have an impact on food prices or security. Examples of these feedstocks include agricultural residues (e.g., wheat straw, corn stover), dedicated energy crops (switchgrass), woody biomass, municipal solid waste (MSW), alternative oilseed feedstocks (e.g., algae, Jatropha), and non- food oilseeds (e.g., mustard seed, Camelina) (Miller et al. 2011). Nevertheless, these non-edible feedstocks can have direct and indirect impacts on the food supply. For further discussion of this complex topic, see Miller et al. (2011). 5.5.3.2 Water-Energy-Food Nexus The “water-energy-food nexus” refers to the inextricable links between water, energy, and food. Although GHG impact has been the primary environmental focus of fuels to date, the importance of water scarcity, energy-based water consumption, and their impact on the world’s food supply have emerged as critical issues. Increasing water scarcity and decreasing water tables are evident in many parts of the world, notably the Ogallala Aquifer, which underlies much of the U.S. breadbasket (McGuire 2001). Expected global population growth, coupled with increas- ing wealth and its corresponding impact on energy and food demand, will further stress already- strained global freshwater resources. As a result, the water-energy-food nexus has risen to the top of global environment, policy, and business agendas. Manifestations include public debates on the following issues: food versus fuel, hydraulic fracturing of shale rock formations to release oil and gas, and current and poten- tial energy shortages due to lack of water to cool power plants. Therefore, evaluations of alternative fuel programs must consider the program’s impact on water resources associated with that fuel’s complete supply chain. In particular, consideration should be given to water as (1) a production constraint, (2) a risk to business continuity and cost, (3) a critical environmental resource, and (4) potential source of political and public scrutiny. In addition, alternative fuel program evaluations ought to assume increased water scarcity in the years ahead.

58 Assessing opportunities for Alternative Fuel Distribution Programs At the same time, the limited availability of information to perform such evaluations must be recognized. In a 2011 paper, the World Policy Institute and EBG Capital note that non-politicized, peer-reviewed, current data are scarce and call for future researchers to systematically explore data weaknesses including in areas such as non-irrigated and second- and third-generation bio- fuels, the range of alternative feedstocks, and emerging technologies (Glassman et al. 2011). That study also distinguished between the consumption, withdrawal, and quality of water: “Consumption” refers to water that disappears or is diverted from its source, for example by evaporation, incorporation into crops or industrial processes, drinking water, etc. The source may or may not eventu- ally be replenished. If replenished, the process could potentially take many years—decades, centuries, or longer. “Withdrawal” refers to water that is essentially “sucked up” for a given use, but then returned to its source; the quality of the returned water may or may not be the same as it was prior to removal. “Quality” is an umbrella term that can refer to pollutants that enter the water; changes to oxygen content, salinity, and acidity; temperature changes; destruction of organisms that live in the water; and so on. There are no recent cross-cutting studies that systematically evaluate the water impact of vari- ous forms of conventional and emerging fuels. The following discussion is therefore based on emerging areas of consensus and identified unresolved issues based on the patchy and frequently outdated information available to date; it should therefore be revised as additional research is conducted. The most useful way to consider the impact of the water-energy-food nexus on the fuels within the scope of this guidebook is to group the fuels into three categories: • Hydrocarbon-based fuels, including CNG, LPG, natural gas, oil, or coal to fuel via FT • Crop-based fuels, including biodiesel and ethanol • Electricity, including thermoelectric (nuclear, coal, gas, oil), hydroelectric, solar thermal, solar photovoltaic, and wind From there, the framework systematically addresses the impact of each category on water consumption, water withdrawal, and water quality; it also identifies key unanswered questions. Summary-level highlights are indicated in the following sections. Hydrocarbon-Based Fuels. Water consumption of natural gas and petroleum serve as the reference point against which alternative fuels are compared. According to the DOE (2006), natural gas is the most water-efficient of any transportation fuel. The extraction and production of natural gas consumes approximately 2 gallons of water per million BTUs of energy content. By comparison, petroleum consumes approximately 12 gallons per million BTUs. This information is based on traditional production methods. However the lowest-cost and most easily accessible oil and gas reserves have been depleted, which is forcing oil and gas companies to use increasingly prevalent “unconventional” methods of extracting oil and gas that are buried deeper in the earth, further offshore, or trapped in rocks such as shale that do not as easily release their hydrocarbons. For oil, these methods include min- ing and refining a tar-like oil mixed with sand such as in the Canadian oil sands and “enhanced oil recovery” techniques that involve injecting water, CO2, and other solvents to move the petro- leum into a well that lifts it to the surface. Technological advances and cost reductions in another unconventional technique called “hydraulic fracturing” have led to dramatic increases in both oil and gas production from very dense shale rock formations that were previously unprofitable to drill. Hydraulic fracturing involves injecting water under very high pressure to fracture the shale rock, which releases the oil and gas trapped within. It is clear that all these unconventional techniques are more water consumptive than traditional oil and gas extraction methods, and some forms of enhanced oil recovery are particularly so (Mielke et al. 2010). The water intensity

evaluation Framework Step B 59 of hydraulic fracturing per BTU is unresolved, and its pollution impact is a particularly heated area of public debate. For hydrocarbons, water impact is largely driven by extraction. Converting natural gas to CNG; producing LPG from molecules of propane and butane, which are closely related to natural gas; or converting hydrocarbons to alternative aviation fuel are not believed to materially impact water consumption per BTU. Incremental FT water consumption relative to traditional oil and gas is driven by cooling; however, this water is largely recaptured, which reduces net impact. Crop-Based Fuels. As cited by the DOE (2006), agriculture and meat production are responsible for more than 80% of freshwater consumption, primarily via evaporation and irri- gation. In arid or water-stressed environments, weather patterns can carry water vapor away; the amount that falls back to its source is insufficient to replace what was removed. To the extent possible, users should probe where energy crops are grown and attempt to understand the impact of the incremental energy crop on both local freshwater resources and the broader water systems of which they are a part. In 2006, the National Labs concluded that the best available data at that time indicated that first-generation irrigated corn and soy-based biofuels consume thousands of times more fresh- water than petroleum or natural gas per BTU of energy produced (DOE 2006). In addition, irri- gation generally consumes large amounts of energy and emits ancillary carbon emissions. Most corn- and soy-based biofuels are not irrigated. Nonetheless evaporation drives consumption, and non-irrigated biofuels remain substantially more water intensive than traditional oil and gas. Crops grown in water-abundant regions could potentially constitute a net transfer of water to more water-stressed areas because of the water embedded in the crop, whereas the reverse could be true if crops are grown in water-stressed areas. There are also important pollution and health concerns regarding the impact of pesticides, biocides, fertilizers, and runoff resulting from agricultural practices. Substantial effort is under way to develop second- and third-generation biofuels that require less water. However, it is important to recognize that even if they do not directly compete with food, they may utilize the same water resources or impact the same water systems that food crops draw upon. Even if contemplated energy crops grown on marginal land do not divert land from food production, they could nonetheless potentially impact local freshwater resources and systems. For example, if grown inappropriately in sensitive areas there is a potential as with any crop to contribute to accelerated rates of desertification; on the other hand, there may be oppor- tunities to stabilize and strengthen local soils. Some parties are concerned that energy crops that are not believed to compete with food may still indirectly divert arable land from food production and drive deforestation. Forests are a primary source of fresh water so their clearance constitutes an additional impact. The extent of this impact from these potential land use changes is an unresolved issue. Evaluating the water impact of feedstock derived from agricultural waste products involves considering the water impact of the underlying crop. To the extent that MSW feedstock is com- posed of food, its water impact also reflects the underlying crops or meat. For crop-based fuels, water impact is largely driven by agricultural production. The conversion of crops to fuels, including via HEFA, is not believed to materially impact water consumption per BTU—even including the water it consumes as part of the process. Similarly for emerging production pathways such as ATJ and FTJ, water consumption is driven by the agricultural prod- ucts from which alcohol and sugar feedstocks, respectively, are primarily derived; technological efforts to develop non-agriculture-based feedstocks could potentially lower water impact. PRJ’s water impact is largely driven by underlying sewage sludge feedstock; similar to FT, PRJ requires incrementally more water per BTU than traditional oil or gas for cooling; however, this water is largely recaptured, which reduces net water impact.

60 Assessing opportunities for Alternative Fuel Distribution Programs Electricity. As cited by the DOE (2006), electricity production consumes roughly 20% of freshwater that is not consumed by agriculture and meat. The water impact of electricity depends on how the electricity was produced. The vast majority of electricity production is from thermoelectric power generation such as by burning coal, gas, or oil or via nuclear reaction. Water consumption is largely driven by the need to cool the hot turbines in these thermoelectric power plants. According to the World Policy Institute, “natural gas-fired power plants are the most water-efficient conventional electricity generators. Coal and nuclear consume two and three times, respectively, more water per unit of electricity” (Glassman et al. 2011). The water impact of renewable electricity varies widely. The installed base of solar-thermal electricity is five times more water consumptive per megawatt-hour than electricity from a natu- ral gas-fired power plant. Solar photovoltaic and wind-powered electricity consume minimal amounts of water. From a life-cycle perspective, photovoltaic solar cell production is highly toxic and can lead to significant water pollution in countries without stringent environmental policies or enforcement. The water impact of biomass-derived electricity must consider the water impact of the feedstock. Hydroelectric water consumption is driven by evaporation from the large artificial reservoirs they require. Depending on the methodology used to allocate the reservoir to alternative uses such as irrigation, fishing, recreation, etc., water impact varies widely—from zero water con- sumption to thousands of times more water consumption than natural gas per megawatt-hour.