Next generation fuel taxation is coming

By John Beaty.

Current events seem to be pushing us toward a future fueled by something other than traditional petroleum-based hydrocarbons.

A major UN report released earlier this month says humanity still has a chance to avoid the worst impacts of global warming if we act quickly to start implementing the carbon-reducing technologies that exist. already. However, we have reached a point where “it’s now or never”, said a British researcher who oversaw the report.

At the same time, the war in Ukraine has caused Western industrialized countries – particularly in Europe – to seek ways to wean themselves off their reliance on cheap oil and natural gas from places like Russia.

One of the fastest ways to reduce our use of petroleum-derived hydrocarbons is to replace hydrocarbons extracted from the ground with hydrocarbons derived from organic sources. We already do this in North America and Europe, although not without controversy.

Today, there are a number of alternative hydrocarbon sources being discussed – even pure hydrogen itself is used as fuel. All of this means, of course, that it’s only a matter of time before state and local governments start discussing how to tax these next-generation fuels.

We’ve been on this road before

Here’s a fun fact you can drop off at a post-COVID-19 holiday gathering: Rudolf Diesel’s first prototype internal combustion engine, which debuted at the 1900 Paris World’s Fair, ran at peanut oil. Fiscal policies, in fact, played a big role in determining the fuels that would fuel the automotive revolution.

Many early prototype automobiles ran on plant-derived alcohol or ethanol, but in the United States these fuels were subject to federal liquor taxes (a legacy of taxes paid for the Civil War), unlike petroleum-derived kerosene and gasoline. This led inventors like Charles Duryea and Henry Ford in the 1890s to focus their initial efforts on gasoline-powered vehicles.

President Theodore Roosevelt lifted the tax on alcohol-based fuels in 1906, but ethanol producers were slow to expand to meet demand – and when huge oil reserves were discovered in Texas, gasoline has become the readily available fuel of choice for automobiles in the United States. . In 1911, the state of Oregon levied the first excise tax on it; by 1932, all of the then-existing states, the District of Columbia, and finally the federal government all followed suit.

The oil problems of the 21st century

There is a political debate about climate change, but the science seems pretty clear: either we do something quickly to reduce the amount of carbon we put into the atmosphere, or our grandchildren and great-grandchildren will suffer. the consequences of living on a warmer planet.

Cars are a huge source of carbon – the average car emits 4.6 metric tons of carbon dioxide into the atmosphere annually, and there are more than 1.4 billion vehicles in the world. This has led to a big push towards zero-emission vehicles, which we discussed in a blog post earlier this year.

But while zero-emission vehicles are a huge step in the right direction, there are some major practical issues that stand in the way. We do not yet have a national network of electric charging stations, especially in rural areas. California has the most aggressive laws for zero-emission vehicles, but it also has a rickety power grid. And while battery technology is improving rapidly, we’re still decades away from having all-electric planes capable of carrying hundreds of passengers from New York to Paris, or even from Houston to Los Angeles.

Energy independence = national security

The war in Ukraine has also brought to light a major problem with Europe’s dependence on petroleum-based fuels: most of them come from Russia. So while it may be desirable to “definance” Russia’s war effort by cutting off exports from its main source of cash, it’s hard to do when you’re in Europe importing close to 2 .2 million barrels of oil per day. Germany, in particular, gets 30% of its oil from Russia, and bankers warn that cutting that figure to zero would send the country into recession.

Even so, Poland has announced its intention to end Russian oil imports by the end of the year, and Lithuania has already ended it. Other European Union member states are looking to replace Russian fuel with oil from other sources – or perhaps next-generation fuel substitutes.

Currently, the most common biomass-derived fuel is ethanol. In the United States, it is usually mixed into gasoline in proportions that vary from state to state and according to the time of year, but generally range from 10% to 15%. Ethanol is also used in this way in Europe, but in Brazil, where ethanol made from sugar cane is cheap and relatively abundant, it is often used alone in cars tuned to run on this fuel.

Next-generation fuels emit carbon into the environment, no doubt. But for the most part, it is carbon that plants have extracted from the environment during their lifetime. Thus, burnt ethanol is net neutral, in terms of carbon – as opposed to petrofuels, which release ancient carbon that has been locked away underground for millions of years.

The big downside to ethanol is that most of it is made from plants that humans eat – corn, wheat, oilseeds. Critics accuse wealthy Western countries of taking food that could go to poor children and turning it into fuel to power their cars and even planes. But there are alternatives – lots of them.

Next generation alternative fuels

In the Pacific Northwest, much research has been done on the use of logging and agricultural debris to generate biofuels, and even whole trees grown to be converted into biofuels. Currently, investors are pouring money into a plant that would create jet fuel from plant materials; Delta Air Lines has signed a memorandum of understanding to purchase this fuel. Canadian companies are working to convert waste – especially recycled plastics, textiles and wood – into biofuels using chemical catalysts.

Other researchers focus on using animal carcasses as raw material. If you’ve ever made beef or chicken broth from scratch, you’ll recognize the process: boil bones and other leftovers to extract fats, and those lipids become the raw material for generating biodiesel.

Efforts are even being made to convert animal waste into biofuels. (One of the more disappointing proposals is to feed the house fly larvae pig manure and then process the larval bodies – which contain over 20% lipids at this stage – to create raw materials for the biodiesel.) Livestock in the United States generate more than 1 billion tons of manure per year, which means there is an abundant supply of raw materials – and the process has the added benefit of bypassing the release of methane into the atmosphere. Methane, which is a more potent greenhouse gas than carbon, is created by the natural breakdown of manure in the environment.

Hydrogen is not hot air

Hydrogen is another potential non-petroleum energy source. We are already seeing hydrogen cars in California and the beginnings of an infrastructure to support them. Without diving too deep into the physics of it, hydrogen fuel cells work when you combine hydrogen and oxygen atoms in a controlled way. The resulting reaction produces a steady stream of electrons, which can power a battery or an electric motor and water. (You know, that good old H20.)

Again, this is not new technology. The first demonstrations of hydrogen fuel cells date back to the 1950s. Proponents point out that hydrogen is the most abundant element in the universe, so it is inconceivable that we will ever run out of it, and as they emit water, hydrogen vehicles do not aggravate our climate problems.

There are, however, two major drawbacks. For starters, hydrogen is violently explosive, so it requires very careful handling and containment. (Remember those news reels about the Hindenburg disaster? That’s what happens when hydrogen explodes.)

And right now, the most common way to create pure hydrogen is to use electricity to split water molecules into their building blocks – and that electricity, more often than not, is generated at using fossil fuels, which negates much of the benefits of hydrogen as a fuel. The source.

For hydrogen to work, we will need major investments in zero-emission or carbon-neutral electricity generation.

New generation fuels are coming, taxes too

Modern science has refined these treatment techniques and made them more effective. But as we discussed, the idea of ​​creating ethanol fuels from plant materials or biodiesel fuels from animal fats is not new. It’s just that for most of the last century, petroleum-based fuels were relatively cheap and plentiful, so there was little incentive to implement any of these processes.

This is changing and the costs of using petroleum-based carbon fuels are increasing, be it financial cost, environmental cost or political cost.

For now, these next-generation fuels are untaxed, at least with the same kinds of excise taxes we’re used to with oil and gas.

But it’s only a matter of time. Just as we saw 15 years ago when ethanol fuel additives were new, once regulators and legislators begin to see that fuel excise tax revenues are falling due to of these alternative fuels, they will act to extend the taxes to them. After all, states and local governments will have to continue paying for road construction and maintenance, whether the fuel in our tanks comes from the ground or from a tree.

It’s still unclear what those taxes will look like, but it wouldn’t be surprising if Oregon or one of its West Coast neighbors – particularly California – were first to act, just as Oregon has was the first to levy a tax on gasoline more than a century ago. West Coast states are leaders in the development of next-generation fuels and zero-emission vehicles, so it stands to reason that the first next-generation fuel tax policies will come from there.

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