Navigant Research Blog

On Emissions Limits, California Goes its Own Way

— March 14, 2012

Earlier this year, the California Air Resources Board (CARB) completely revamped its passenger vehicle emissions control regulations. The new Advanced Clean Cars program, which covers model years 2017–2025, combines several regulatory schemes into the new program: the Low Emission Vehicle (LEV) program, which governs tailpipe regulations for light duty vehicles; the Clean Fuels Outlet regulation, a largely dormant effort to promote alternative fuel availability; and the most famous, or infamous, component, the ZEV mandate requiring automakers to produce vehicles with no tailpipe emissions.

California already has a reputation for marching to a different drummer, and this new program confirms that stereotype.

First, while it is now practically verboten to talk about carbon reduction at the national levels of U.S. government, California is openly embracing the idea.  Previously, the LEV and ZEV programs only addressed criteria pollutants.  The Advanced Clean Cars program expands the regulations to cover greenhouse gases (GHG) emissions.  By 2025, under the new regulations, passenger cars’ CO2 emissions will drop 34% from that of 2016 models.  The program is intended to help reduce GHG emissions in the state to 80% below 1990 levels by 2050.  In its scope and ambition, the new program resembles the carbon reduction goals and strategies being enacted in Europe more than anything happening elsewhere in the United States right now.

Second, the ZEV mandate remains a top-down, “technology forcing” regulation, contra a general preference for policies that simply allow new technologies to flourish.  While opponents of the ZEV mandate have painted it as an inflexible government “stick,” the Air Resources Board has always been open to modifying the mandate in response to changes in the technology landscape.  This flexibility helps explain the mandate’s remarkable resilience.  Consider that it was enacted in 1990, when the Soviet Union was intact, Tim Berners-Lee had just proposed something called the World Wide Web, and the Toyota Prius was just a gleam in an engineer’s eye.

The Air Resources Board has reconfigured the mandate to support the state’s 2050 GHG emissions target. CARB claims that the only way to meet the target is if ZEVs make up around 87% of the passenger vehicle fleet in California by 2050, as shown in the graphic below.

To get there, sales of ZEVs must ramp up dramatically from 2018 to 2025.  The mandate essentially requires that 500,000 ZEVs be produced cumulatively as of 2025, reaching 15.4% of new car sales as of 2025.  CARB’s scenario for the ramp-up projects that around 70,000 plug-in vehicles will be sold in California as of 2018.  This figure is close to Pike’s own forecasts for California.  We projected annual PEV sales to reach over 300,000 in the U.S. by 2017, and California will constitute almost 25% of those sales, as projected in last year’s Electric Vehicle Geographic Forecasts report.

Finally, CARB is practically the lone holdout among U.S. policymaking bodies in continuing to support fuel cell technology.  The ruling keeps fuel cells cars on equal footing with battery cars for earning ZEV credits.  More importantly, the board has revamped the Clean Fuels Outlet (CFO) program to support hydrogen fuelling deployment.  The lack of hydrogen infrastructure, and lack of incentives to deploy it absent large numbers of FCVs on the roads, is one of the key barriers to the fuel cell car market.  CARB is using the CFO to address that problem.  The new rule mandates that major refiners or importers of gasoline provide hydrogen fuelling when just 10,000 fuel cell vehicles are on the roads in a particular air basin.  Not surprisingly, this rule is receiving major pushback from the oil companies.

The new program faces a number of challenges.  First, there is controversy over a provision that lets automakers reduce the number of ZEVs they make if they “over-comply” with the overall GHG fleet standard. Second, the ambitions of this new program may come into conflict with the realities of the California state budget.  Third, it’s impossible to predict how the technology mix will really look in 2050.  The California plan essentially requires most of the fleet to be battery- or fuel cell-powered, with all hybrids and conventional gas cars basically obsolete by 2050.  2050 is a long way off and there are all sorts of things that could derail such a prediction, not the least of which is the actual progress of fuel cell and battery technology. But give CARB credit for thinking big.


China Looks to Cap Energy Consumption

— March 1, 2012

In a webinar earlier this year, my colleague Kerry-Ann Adamson forecast that that governments will move toward a more prescriptive approach to energy policy.  In other words, they will not simply set broad efficiency or emissions targets but will specifically identify the clean energy technologies to reach those targets.  Examples are Australia, with its recommendations for distributed generation and solar power to meet energy efficiency goals, and the EU countries, which Kerry-Ann says will adopt increasingly prescriptive policies to achieve the EU’s mind-boggling goal of cutting carbon emissions by over 80% by 2050.

We can add China to that list, if reports are accurate that the country is considering putting a cap on energy consumption.  You read that right: a national cap on energy consumption.

It’s challenging to pin down details of this reported proposal.  From my reading of China’s 12th Five-Year Plan, which covers 2011 to 2015, the country is still focused on energy-intensity targets, not absolute caps.  The highlights from the English translation that I found are that, from 2010 to 2015, energy consumption per unit of GDP is targeted to drop by 16%, while CO2 emissions per unit of GDP will decrease by 17%.  Another major goal over the next five years is energy diversification.  The plan sets a target for non-fossil fuel resources to rise from 8.3% to 11.4% of primary energy consumption between 2010 to 2015.

Reports of the possible national cap seem to have come from public statements by officials at China’s National Energy Administration (NEA).  According to China Daily, in 2011 a National Energy Administration official said that China was considering a limit on energy consumption for localities, with a goal of “cap[ping] its total energy consumption at four billion tons of coal equivalent by 2015.“  Other reports confirm this.  It has also been reported that renewable energy will be excluded from the cap.

As yet, I have not seen an official policy announcement with details as to how the cap would be implemented.  Certainly the five-year plan goals confirm that China is hoping to shift from a pure growth mode to a sustainable growth model: the five-year plan also calls for a much less heated 7% growth rate in GDP to go along with the focus on decreasing energy intensity.  But setting a cap on the total energy consumption would be an extraordinary step, albeit one that seems to fit within China’s form of “communist capitalism.”  But in trying to build a more sustainable economy, China still faces many of the same pressures that capitalist democracies face.  For example, large swathes of the country have not developed to a modern standard of living and are not likely to be willing to slow their efforts to do so.  Moreover, energy consumption in China is dominated by coal, one of its few domestic energy sources, and it will not be easy to wean the country off this plentiful energy source.  The Guardian recently reported that the energy cap is provoking much debate from provincial governments that want to grow faster than the national government target would allow.  This will be a fascinating story to watch this year, and even more fascinating to see how China might implement a national cap should such a policy come to fruition.


Going Green a Win-Win For Fleet Operators

— February 7, 2012

Over the past few weeks I’ve been crunching some numbers on how alternative fuel vehicles compare on lifetime ownership costs.  I am doing this not because I am a masochist, but for an upcoming Pike Research report on Total Cost of Ownership (TCO) estimates for fleet operators.  The initial results demonstrate yet again the basic advantage of going small for fleets that want to save on fuel costs – but they also reveal that small isn’t the only way.

My analysis dovetails nicely with a recent report by Automotive Fleet on the top five concerns facing commercial fleet operators.  According to the survey, three of the top five issues that fleet operators expect to grapple with in 2012 are:

  • Cost-reduction.
  • Fuel price volatility
  • Implementing green fleet initiatives

As Pike’s past analysis on the potential market for hybrid electric vehicles in fleet operations makes clear, fleet operators have been struggling with these issues for several years.  Fleet operators are increasingly looking to reduce their fleets’ environmental footprint, either as part of their own “green ethos” or due to legislative or regulatory requirements.   At the same time they need to keep an eye on costs, since their primary responsibility is the bottom line.  So, are these priorities in conflict or can they work together?  The simple answer is , a bit of both.

Fuel costs are one of the biggest, if not the biggest, items in fleet operators’ annual budgets.  So, if going green also means lower fuel costs, fleet operators win on both counts.  The preliminary results from my analysis confirm that if fleets want to go green and keep costs down, their best bet is to stay small.  This analysis looked at vehicle cost, maintenance, fuel costs, and available tax incentives  – in order to keep the comparison focused on the trade-offs in switching fuels and propulsion technologies.  Two of the lowest cost options were the small hybrid cars (sized like the Honda Civic, for example) and the compact gas car.  Even at today’s low gas prices, the small hybrid managed to best a comparably-sized gas car in total ownership costs over a 120,000-mile life, and if gas prices rise, as they almost certainly will, this benefit will increase.  Some of the other very low TCO options were the compact CNG (compressed natural gas) sedan and the small to mid-sized battery EV with its $7500 federal tax credit.

But it wasn’t just the small cars that could help fleet operators reduce fuel costs while operating cleaner.  At the mid-sized sedan level, the hybrid option still showed lower lifetime costs than a comparable gas car. And this is without the benefit of a tax credit, as these have expired for conventional hybrids.  Hybrids will, of course, pay back their price premium even more quickly with higher fuel prices – making hybrid adoption a strategy for hedging against future increases in the price of gas, and addressing fleet operators’ third major challenge, fuel volatility.

The final note here is that, while operating costs and total lifecycle costs may be lower with hybrids and other alternative fuel options, the fleet operators still face a challenge in fronting the initial higher vehicle costs.  This is where the desire to go green and watch the bottom line come into conflict.  And why fleets look for grants that can offset the initial price premium and help them make the business case for buying hybrids.  What my analysis shows so far is, hybrids can pay off the investment for fleets that keep their vehicles for a long time.


Smart Energy Investments Paying Off

— January 23, 2012

It’s that time of year when everyone makes their predictions for the year, including Pike Research.  I recently attended the World Resources Institute’s overview of the top Stories to Watch in 2012, which is a little different than the typical year-ahead projections.  WRI is not primarily trying to make predictions; instead, the organization tries to provide a “roadmap” of the top issues or events that are likely to be significant in 2012.  It is worth checking out the full list, but there were two that jumped out as being particularly interesting and relevant to Pike Research’s own predictions on The Year Ahead in Cleantech, outlined in our January webinar.  I’ll examine the first one in today’s blog, and cover the second in my next post.

WRI asked whether 2012 might be the year that investment in renewables surpasses fossil fuel investment.  This idea pivots off of a Bloomberg New Energy Finance report that estimated global investment in renewables in 2010 at $211 billion – and, more importantly, not far off comparable investments in fossil fuels for that year.  The growth trends for renewables vs. fossil fuels were dramatically different, with investments in renewables showing roughly a 30% compound annual growth rate (CAGR) from 2004 to 2010, compared to fossil fuels at around a 7.7% CAGR.  The Bloomberg analysis includes all biomass, geothermal and wind generation projects of more than 1MW; all hydro projects of between 0.5 and 50MW; all solar projects of more than 0.3MW; all marine energy projects; and all biofuel projects with a capacity of 1 million liters or more per year.

It’s interesting is to compare this to Pike Research’s forecasts for revenue from renewables.  Interesting, but somewhat challenging, as Bloomberg looks at a slightly different set of renewables than Pike Research does – for example, Bloomberg includes small hydro, which is a relatively mature market and therefore not part of Pike’s global forecasts for new energy.  Even so, we can expect to see revenues somewhat lagging the investment numbers, as it will typically take several years for investments to bring returns.

Pike Research has projected total 2012 revenue for the Smart Energy sectors that we cover as $298 billion.  If you take out the sectors that are definitely not in Bloomberg’s numbers – energy storage plus energy efficiency applications like combined heat and power (CHP) and fuel cells – you get projected 2012 revenues of around $235 billion.  This is still not apples to apples, but it does suggest that previous years’ investments are showing major returns.

The graph below shows the total projected revenue pie broken out by sector.  Solar is still the biggest revenue generator – not surprising given that it is a comparatively “older” technology that has been seeing major investments for many years.

But it’s also important to note the sheer number of clean energy options not counted in Bloomberg’s investment figure, like energy storage (ESS), CHP, fuel cells, and virtual power plants.  (Bloomberg’s report does reference other sectors but does not focus on them.)  While the traditional “renewable vs fossil fuels” comparison is cleaner to make and easier to explain, it’s important to keep an eye on these other applications and technologies.  They may not be the major revenue generators yet, but they’re all showing serious growth that will have an impact on energy markets.


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