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Economics of Clean Fuels and Vehicles

Michelle Manion, Matt Solomon, Brian Keaveny, Andrew Dick, Jason Rudokas

NESCAUM (Northeast States for Coordinated Air Use Management)

NEG/ECP Alternative Fuel Vehicles Conference 2012

Montreal, Canada 27 September 2012

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Background

NESCAUM: founded in 1968 to provide technical and analytic support on regional air quality issues to regulators in 8 northeastern states (6 New England states + NY and NJ).

July 2009: NESCAUM published technical analysis of a “low carbon fuel standard” (LCFS) for 11 Northeast/mid-Atlantic states.

August 2011: NESCAUM published an economic analysis of various regional Clean Fuels scenarios.

2012: NESCAUM is currently updating our estimates of the economics of clean fuels and clean vehicle technologies.

Today’s Presentation I. Results from NESCAUM’s 2009-2010 economic analysis of a regional Clean Fuels Standard

II. Vehicle and Fuel Economics 2012: “What We’ve Learned Since Then”

III. How Clean Are Clean Fuels? Implications for Regional GHG and Air Quality Goals

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Demand for Transportation Fuels in Northeast/Mid-Atlantic States Together, eleven NE/MA states

form the largest market for transportation fuels in the US: NE/MA population, 2010: 63 million 38 million light-duty vehicles 0.9 million medium- and heavy-duty

vehicles Appx. 500 billion vehicle miles

traveled (18% of US total)

By 2013, NE/MA demand for petroleum-based fuels is projected to be: 27 Bgal gasoline (18% of US total) 6 Bgal on-road diesel (13% of US total)

Source(s): EIA, 2010; VISION-NE, 2010; Commerce

Dept., 2010.

Transportation Sector GHG Emissions in NE/MA States GHG emissions from the

transportation sector are significant, increasing, and hard-to-address;

Largest single GHG-emitting sector, at 33% of total GHG emissions in NE/MA states;

Growing at a faster rate than other sectors (e.g., electricity generation)

Transportation33%

Electricity Generation

28%

Residential12%

Industrial10%

Commercial7%

Industrial Processes

4%

Waste3%

Agriculture2% Fugitive

Emissions1%

NE/MA Total GHGs by Sector, 2007

Source Data: World Resources Institute, 2010

Addressing Fuel Use and GHG Emissions from Transportation

Policy approaches need to target 3 different drivers of fuel use and GHG emissions from transportation:

1. Vehicle technology (fuel economy standards, etc.)

2. Miles traveled (smart growth, public transit, etc.)

3. Fuels (fuels performance standard, RFS2)

A Clean Fuels Standard (CFS) is designed to address #3—GHG emissions from fuels—and is complementary to #1, vehicle performance standards (i.e., CAFÉ) and #2, transit/smart growth strategies.

What is a Clean Fuels Standard (CFS)? CFS is a GHG performance standard for fuels that doesn’t “pick

winners” or limit sales of any fuel

Regulates “carbon intensity” or lifecycle GHG emissions from fuels

CFS for NE/MA states is similar (but not identical) in concept to California’s Low Carbon Fuel Standard

Requires displacement of conventional fuels (gasoline and

diesel) with low-carbon substitutes such as: Electricity

Natural gas

Biofuels, conventional and advanced

Hydrogen

I. Results from Clean Fuels Economic Analysis, 2010

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What Would a 10% Clean Fuels Standard Require? Achieving a 10% reduction in CI in transportation fuels by 2022

would require:

10-Year Totals Fuels, Vehicles, and Infrastructure Required

to Meet 10% CFS

Low High

Alternative Vehicles 4 million 11 million

Advanced biofuels, in excess of RFS2

1 Bgal 9 Bgal

Natural gas 6 Bgge 17 Bgge

Investment in new charging/fueling infrastructure

$8B $14B

Source: NESCAUM analysis, 2010. Note: gge = gal gas-equivalent.

What Benefits Would a 10% Clean Fuels Standard in NE/MA States Provide? Projected savings in gasoline and diesel demand would be a key benefit

to the region, which imports virtually all petroleum needed for transportation.

Fuel Savings Under 10%

CFS

10-Year Totals

Low High

Reductions in Gasoline and Diesel Use

25 Bgal 40 Bgal

% Change from Business-as-Usual

-8% -13%

Value of Gas and Diesel Savings

$87B $137B

Source: NESCAUM analysis, 2010.

Fuel Diversification by 2022 under 10% CFS

94%

73%78% 81%

6.7%

3.0% 3.4%12%

12% 12%

4.9%

7.5%7.1%

3.6%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

BAU (No LCFS) Electricity Future Natural Gas Future Biofuels Future

Qu

ad

rill

ion

Btu

High Oil Price

Biofuels Energy Natural Gas Energy

Electricity Energy Petroleum Energy

Source: NESCAUM analysis, 2010.

GHG Reductions by 2022 under 10% CFS

330

340

350

360

370

380

390

400

410

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

CO

2 E

qu

iva

len

t E

mis

sio

ns

(M

MT

)

High Oil Price

BAU (No LCFS)

Electricity Future

Natural Gas Future

Biofuels Future

Source: NESCAUM analysis, 2010.

II. “What We’ve Learned Since Then” — Vehicle and Fuel Economics, circa 2012

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Federal regulations are improving conventional vehicle fuel economy rapidly…

14 Source: Balon, T (2011), MJ Bradley and Associates LLC.

And the economics of conventional and alternative vehicles are changing quickly also..

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Vehicle TechnologyFuel Economy

(mpg)

Incremental

Cost

(2012$)

Infrastructure

Cost

(2012$ per gallon

of gasoline

equivalent)

Payback Period

under High Oil

Prices

Base vehicle compliant with CAFE 25 ~~~ ~~~ ~~~

High fuel economy ICE passenger vehicle 30 ($7,900) ~~~ Instant Payback

Plug-in hybrid electric (PHEV) without

$7500 Federal Tax Credit

electricity: 60

gasoline: 40$10,700 $0.03 / g.g.e.

Greater than the

Assumed Lifetime

Plug-in hybrid electric (PHEV) with

$7500 Federal Tax Credit

electricity: 60

gasoline: 40$3,200 $0.03 / g.g.e. 3 years

Battery electric (BEV) without

$7500 Federal Tax Credit116 $14,300 $0.02 / g.g.e. 9 years

Battery electric (BEV) with

$7500 Federal Tax Credit116 $6,800 $0.02 / g.g.e. 4 years

Hydrogen fuel cell 39 $53,900 UnknownGreater than the

Assumed Lifetime

Light-duty natural gas 23 $8,000 $0.26 / g.g.e. 7 years

Natural gas single unit short-haul truck 9 $32,700 $0.29 / g.g.e. 6 years

Natural gas transit bus 7 $52,700 $0.28 / g.g.e. 12 years

Natural gas refuse truck 5 $31,600 $0.22 / g.g.e. 1 year

Source: NESCAUM analysis, 2012.

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Source: NESCAUM analysis, 2012.

Economics of electric vehicles lag conventional and NG vehicles if not subsidized

Electric vehicle costs are still driven by high battery costs…

17 Source: McKinsey and US Energy Information Administration.

Costs of fast-charging EV infrastructure are hard to recoup without charging more for electricity…

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Sources: 1) SAE 2011; 2)Sperling and Gordon 2012;

3) MJ Bradley and Associates LLC 2011.

Type of EV Installation Electric Vehicle

Charger Cost Charging Time

AC Level I $0 10-14 hrs

AC Level II $500 5-6 hrs

AC Level II+ $2,500 to 1-3 hrs

$10,000+

DC "Fast Charger" $25,000+ 1/4 to 1/2 hrs

~$0.40

/kWh

Given where cars reside, slow-charging can accommodate the majority of charging needs…

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Source: Society of Automotive Engineers 2011.

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III. How Clean are “Clean” Fuels? Implications for Regional GHG and Air Quality Goals

Biofuels

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Saves

~1 metric ton

CO2

emissions

annually

Produces

~400

gallons/yr

ethanol

.06 forest

.24 grassland

converted to

agriculture

~30 metric

tons CO2

released

One acre

cropland

devoted to

corn ethanol

-29 CO2 Net

GHG Emissions

Source: California Air Resources Board 2009, based on GTAP modeling.

Natural Gas

Source: Alvarez et al. PNAS 2012. 22

% W

ell-

to-w

heels

natu

ral gas leak r

ate

Years until net climate benefits achieved

EPA’s 2009 estimate

U.S. contribution to net radiative forcing

FUEL MIX

75% of HD (diesel) to

natgas and 10% of LD

(gasoline) to natgas

BASELINE

No leak rate reduction

(2.8% ~ EPA 2009

estimate)

POLICY

leak rate reduction from

2.8% to 1%

20 YEARS 100 YEARS

1.5%

-6.2%

.3%

-3.3%

Source: Steven Hamburg, Env. Defense Fund, 2012.

Electricity

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Source: MJ Bradley and Associates, LLC 2011.

GHG “Bottom Line” for Transportation Sector: Even with wide-scale electrification and an aggressive reduction in miles travelled…

…achieving an 80% reduction in GHG emissions from transport by 2050 is a huge challenge.

Source: NESCAUM analysis, 2012.

Policy Goals for Near-term Biofuels:

Set strong incentives for waste-based fuels while advanced cellulosic biofuel production ramps up

Electricity/electric vehicles:

Work with the utilities and utility regulators on:

Pricing/rate design

Judicious investments in charging infrastructure

Natural gas:

Set incentives for best management practices across the industry

Improve empirical basis for lifecycle GHG emissions estimates

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Questions?

Michelle Manion: mmanion@nescaum.org

CFS reports and other materials available at: www.nescaum.org