Economic and environmental effects of the FQD on crude oil production from tar sands

In this report CE Delft, together with Carbon Matters,  has investigated the production of  unconventional crudes in Canada and Venezuela and exports of these crudes to the EU. In addition we examined the potential economic and environmental impact of the proposed EU FQD measures on the production of crudes from tar sands and on new tar sand exploration projects.

CE Delft has analysed for Transport & Environment (T&E) the impact by using a dedicated cost model. For existing projects, the model determines the effect on the basis of marginal production costs. For planned projects the model used the net present value (NPV) of proposed investments. The impacts were determined for a range of crude oil prices and FQD price effects. Combined, for existing and new projects together, the maximum effect would be at a price level at 60 $/bbl, with savings of up to 19 Mt CO2/y at an FQD price differential of 3 €/bbl. This overall effect would be substantial and come on top of the total emission reduction effect of the FQD of 60 Mt CO2/y, which will be achieved mostly by the blending of low-carbon fuels and reduced flaring and venting.

As part of the reduction of transport greenhouse gas (GHG) emissions, the revised FQD obliges fuel suppliers to reduce these emissions by 6% by 2020 on a well-to-wheel basis. The EU is currently developing a methodology to differentiate fossil fuels on the basis of  feedstock and GHG emissions. In the proposal, diesel produced from tar sands, has been given a default emission value of 108.5 gCO2 eq/MJ, while diesel from conventional crude was set at 89.1 gCO2 eq/MJ. The Commission’s proposal is currently undergoing an impact assessment and is expected to be resubmitted to the Council later this year (2013).