Fuel for Thought in China

Since late last year, many of the country's largest cities have often been blanketed by nasty smog. The poor air quality has spurred debate over the most effective ways to cut pollution.

One of the bigger questions is how to better control emissions from the more than 240 million vehicles on China's roads.

Auto emissions in Beijing, Shanghai and the Pearl River Delta region contribute up to 34% of PM2.5 pollution, research by Michael Walsh, former head of the International Council on Clean Transportation showed. (PM2.5 refers to fine particulate matter of 2.5 microns in diameter or less that is easily absorbed into the lungs and can cause breathing problems, among other health issues.)

Along with existing policies to control car use, there have been public calls for the government to improve fuel quality by reducing sulfur and manganese content in gas and diesel.

Different fuel standards are applied in different regions of the country. In May, the capital adopted on the strictest, the Beijing V standard, which mirrors Europe's Euro V. The standard caps sulfur content at less than 10 parts per million (ppm), whereas the National IV regime in place in cities like Shanghai has a 50 ppm limit. Some regions using even lower standards.

The State Council, China's cabinet, plans to apply the Beijing standard to the entire nation, calling it National V. A special committee has been formed to work on the draft of the new standard.

In February, the cabinet said that National IV standard would be adopted nationwide by 2014, and National V would come into effect in 2017.

Obstinate octane However, no consensus has been reached on the National V standard, and refiners, auto manufacturers and government agencies are debating key issues.

Disagreements have arisen on the extent of cuts to sulfur and manganese levels, and how to share the inevitable cost increases.

A committee under the General Administration of Quality Supervision, Inspection and Quarantine held a meeting in December with representatives from refining companies, auto manufacturers and environmental protection organizations to discuss a draft of the National V standard.

The hope was to finalize the standard this year, but debates over abandoning a manganese additive used at refineries and lowering octane ratings were intense.

Pollution from vehicles mainly comes from sulfur and manganese in fuel. Reducing sulfur in crude oil requires a hydrogenation process, while removing manganese would mean stopping the use of MMT, which is used as a lead-free, octane-enhancing additive in gas.

Reducing the levels of both would sacrifice octane content in fuel and lead to lower octane ratings.

Almost all auto makers are opposed to lowering octane ratings, because this may lead to problems such as engine knocking and increased fuel consumption. An auto engineering researcher at Tsinghua University said reducing octane goes against developments in automobile technology that pursue higher engine efficiency and lower fuel consumption.

Tsinghua research shows that a reduction of one to two octane levels would lead to 1% to 2% more fuel consumption. Requirements in the draft of the National V standard would cut octane levels by three to four digits due to the reduction of sulfur and manganese.

That would make it more difficult for auto companies to meet fuel efficiency targets set by the State Council, goals that are linked to government subsidies.

"The impact on auto industry is huge," said a government official who participated in the drafting of National V standard.

Who pays? Refiners counter that the quality of the country's crude oil makes meeting environmental standards, while keep octane levels unchanged unrealistic.

Chen Weidong, chief energy researcher at China National Offshore Oil Corp. (CNOOC), says most of the country's oil imports come from the Middle East and South America. They were $3 to $4 dollars cheaper than other types on the international market, but had higher sulfur content.

Also, the country's refining capacity was mainly designed to process high-sulfur oil, and switching to other types of crude would require new facilities and investments.

Retaining octane levels while meeting higher environmental standards would indeed require extra investments, Cao Xianghong, a member of the fuel standard drafting committee, said. That would put pressure on refiners, especially smaller privately owned companies.

This raises a big question: Who pays?

The key obstacle to improving fuel quality was the price issue, said Jiang Kejuan, director of the Energy System Analysis Center under the National Development and Reform Commission. Without increased financial support it would be difficult for China Petrochemical Corp. (Sinopec Group) and China National Petroleum Corp. (CNPC) to upgrade.

In many countries, the costs for improving fuel were usually shared by the state, refiners and consumers, said Sinopec's Fu Weizeng, a technology official at Sinopec. The state usually uses tax incentives to encourage upgrades, but China hasn't taken that step yet.

At the December meeting, the State Council said fuel prices would be adjusted according to costs for higher quality fuels, but didn't elaborate on what support the government might offer.

In Beijing, most of the cost increases have been passed on to consumers. After the capital implemented the higher Beijing V standard in May, octane levels fell slightly, but the cost to drivers remained the same. This was tantamount to raising prices for consumers.

Moreover, an employee of an auto company said problems with cars that were supposed to use 93 octane fuel that switched to 92 wouldn't be covered by the warranty.

Indeed, in all the bargaining the voice of consumers hasn't been heard. The 37-member committee responsible for drafting the new standard is comprised mostly of representatives from the refining industry. The rest are from the auto industry, environmental organizations and the quality watchdog.

Jiang said talks would continue. "We hope that all the controversies in Beijing can be solved first and then we can extend the National V standard nationwide," he said.

In the meantime, residents of the country's largest cities are left to grapple with worsening air quality.