Economics of Clean Fuels and Vehicles

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1 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

2 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. 2

3 Today s Presentation I. Results from NESCAUM s 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 3

4 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.,

5 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) Industrial 10% Residential 12% Industrial Processes 4% Commercial 7% NE/MA Total GHGs by Sector, 2007 Agriculture 2% Fugitive Waste Emissions 3% 1% Transportation 33% Electricity Generation Source Data: World Resources Institute, %

6 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.

7 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

8 I. Results from Clean Fuels Economic Analysis,

9 What Would a 10% Clean Fuels Standard Require? Achieving a 10% reduction in CI in transportation fuels by 2022 would require: Fuels, Vehicles, and Infrastructure Required to Meet 10% CFS 10-Year Totals Low High Alternative Vehicles 4 million 11 million Advanced biofuels, in 1 Bgal 9 Bgal excess of RFS2 Natural gas 6 Bgge 17 Bgge Investment in new charging/fueling infrastructure $8B $14B Source: NESCAUM analysis, Note: gge = gal gas-equivalent. 9

10 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 Reductions in Gasoline and Diesel Use % Change from Business-as-Usual Value of Gas and Diesel Savings 10-Year Totals Low High 25 Bgal 40 Bgal -8% -13% $87B $137B Source: NESCAUM analysis, 2010.

11 Quadrillion Btu Fuel Diversification by 2022 under 10% CFS 4.5 High Oil Price % 7.5% 12% 6.7% 7.1% 3.6% 12% 12% 3.0% 3.4% % % 78% 81% Biofuels Energy Natural Gas Energy Electricity Energy Petroleum Energy BAU (No LCFS) Electricity Future Natural Gas Future Biofuels Future Source: NESCAUM analysis, 2010.

12 CO2 Equivalent Emissions (MMT) GHG Reductions by 2022 under 10% CFS 410 High Oil Price BAU (No LCFS) Electricity Future Natural Gas Future Biofuels Future Source: NESCAUM analysis, 2010.

13 II. What We ve Learned Since Then Vehicle and Fuel Economics, circa

14 Federal regulations are improving conventional vehicle fuel economy rapidly Source: Balon, T (2011), MJ Bradley and Associates LLC. 14

15 And the economics of conventional and alternative vehicles are changing quickly also.. Vehicle Technology Fuel 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 electricity: 60 Greater than the $10,700 $0.03 / g.g.e. $7500 Federal Tax Credit gasoline: 40 Assumed Lifetime Plug-in hybrid electric (PHEV) with electricity: 60 $7500 Federal Tax Credit gasoline: 40 $3,200 $0.03 / g.g.e. 3 years Battery electric (BEV) without $7500 Federal Tax Credit 116 $14,300 $0.02 / g.g.e. 9 years Battery electric (BEV) with $7500 Federal Tax Credit 116 $6,800 $0.02 / g.g.e. 4 years Hydrogen fuel cell 39 $53,900 Unknown Greater 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,

16 Economics of electric vehicles lag conventional and NG vehicles if not subsidized Source: NESCAUM analysis,

17 Electric vehicle costs are still driven by high battery costs Source: McKinsey and US Energy Information Administration. 17

18 Costs of fast-charging EV infrastructure are hard to recoup without charging more for electricity Type of EV Installation Electric Vehicle Charger Cost Charging Time AC Level I $ hrs AC Level II $ 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 Sources: 1) SAE 2011; 2)Sperling and Gordon 2012; 3) MJ Bradley and Associates LLC

19 Given where cars reside, slow-charging can accommodate the majority of charging needs Source: Society of Automotive Engineers

20 III. How Clean are Clean Fuels? Implications for Regional GHG and Air Quality Goals 20

21 Biofuels One acre cropland devoted to corn ethanol.06 forest.24 grassland converted to agriculture Produces ~400 gallons/yr ethanol ~30 metric tons CO 2 released Saves ~1 metric ton CO 2 emissions annually -29 CO 2 Net GHG Emissions Source: California Air Resources Board 2009, based on GTAP modeling. 21

22 % Well-to-wheels natural gas leak rate Natural Gas EPA s 2009 estimate Years until net climate benefits achieved Source: Alvarez et al. PNAS

23 U.S. contribution to net radiative forcing 20 YEARS 100 YEARS 1.5% -6.2%.3% -3.3% 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% Source: Steven Hamburg, Env. Defense Fund, 2012.

24 Electricity Source: MJ Bradley and Associates, LLC

25 GHG Bottom Line for Transportation Sector: Even with wide-scale electrification and an aggressive reduction in miles travelled Source: NESCAUM analysis, achieving an 80% reduction in GHG emissions from transport by 2050 is a huge challenge.

26 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 26

27 Questions? Michelle Manion: CFS reports and other materials available at: 27