Navigant Research Blog

How Can the United States Pay for Road Upkeep?

— July 17, 2014

More vehicles throng U.S. roads each year, expansion necessary to support them and with less money to fund road repairs.  The root of the problem is that road construction funds are largely derived from taxes on gasoline and diesel fuel, and U.S. consumption of both is declining and will continue to decline.  The increasing fuel economy of new vehicles combined with rising penetrations of alternative fuel vehicles (AFVs) is having a marked impact on U.S. fuel demand.

In the upcoming report Global Fuel Consumption, Navigant Research forecasts that liquid fuels (gasoline, diesel, and biofuels) consumed by U.S. vehicles will decrease from approximately 160 billion gallons in 2014 to around 104 billion gallons in 2035.  Meanwhile, forecasts from the Navigant Research reports Light Duty Vehicles and Medium and Heavy Duty Vehicles indicate that the U.S. vehicle fleet will grow from approximately 250 million to nearly 270 million in 2027 before beginning a slow decline.

More per Gallon

If the status quo funding mechanism is maintained, annual federal gasoline and diesel tax revenue will decline from current levels of about $30 billion to near $20 billion in 2035.  Meanwhile, over the same time period, the fleet of vehicles in use will grow by 10 million.  However, in the near term, the federal Highway Trust Fund and Mass Transit Fund are headed for insolvency before the end of the year.

A number of short-term funding options have been proposed that will likely push a decision on a long-term solution out past the November mid-term elections.  However, one long-term solution emerged last month from two U.S. senators who proposed raising the federal gasoline and diesel tax by $0.06 per gallon over 2 years and then indexing the tax to inflation for following years.  The tax has been stagnant since 1993, at $0.184/gallon of gasoline and $0.244/gallon of diesel.  Raising it would probably be the easiest long-term solution to implement, since the machinery for tax collection is already in place.

U.S. Federal Gasoline/Diesel Tax Revenue and Vehicles in Use, United States: 2014-2035

(Source: Navigant Research)

What this proposal has in ease of implementation, though, it lacks in political appeal and fairness.  Taxes are a bitter pill for any Republican member to swallow, and pushing through a hike on gasoline and diesel, no matter how small or sensible, is likely to be impossible.  Additionally, as the tax stands now and the proposal will maintain, motorists who drive newer fuel efficient vehicles pay less tax.  Those who drive AFVs pay no tax per mile driven, despite the fact that they are using the same roads as owners of less fuel efficient conventional vehicles who bear more of the tax burden.  Since the tax was designed to make those who use the road pay for the road, the above scenario is an unintended consequence to the advantage of alternative fuel and fuel efficient vehicle owners.

Dollars per Mile

In early 2009, Secretary of Transportation Ray LaHood recommended that the federal government should look into a vehicle miles traveled (VMT) tax.  The VMT tax would clock vehicle owners’ mileage and then tax them on a per-mile basis.  While this solution would not be easy to implement, it would be a fair way of collecting taxes in line with the original purpose of federal gasoline and diesel taxes.  It could also be used as a tool to manage traffic along specific congested corridors.

Despite the suitability of a VMT tax, it is unlikely it will emerge as a legitimate policy option in the near term, due to a lack of political support and a tested method for implementation.  Rather, owners of older conventional vehicles will likely pay more at the pump – or traffic is only going to get worse.

 

EV Emissions Reconsidered

— July 2, 2014

Quantifying the degree to which plug-in electric vehicles (PEVs) improve ambient air quality conditions over conventional gas or diesel-powered vehicles is an important, but difficult, question to answer.  An interview with Electric Power Research Institute’s (EPRI’s) Marcus Alexander, who will discuss the preliminary findings of a study seeking to clarify how PEVs affect environmental conditions at EPRI’s Plug-In 2014 Conference in San Jose, demonstrates the complexity of this subject.

Much of the calculation has to do with where the PEV is driven, as this dictates the carbon intensity of the electric grid used to power the vehicle.  However, in most locations throughout the United States and the globe, the operating emissions of a PEV versus a conventional vehicle on a per-mile basis lean either substantially or marginally toward conventional vehicles.

However, there are nuances to this equation beyond simple pounds of pollutant emitted per unit of energy consumed.  For instance, when a conventional vehicle consumes a gallon of gasoline or diesel, the pollutant emissions calculation is fairly straightforward.

Net Zero

Additionally, the pound of pollutant emitted varies considerably from the mobile source (vehicle) to the stationary source (power plant).  For example, Alexander states that carbon monoxide and volatile organic compounds are more tightly linked to vehicles than power plants, while sulfur dioxide emissions are associated with fossil fuel combustion at power plants.  Supplanting gas or diesel miles driven with electric miles driven can therefore reduce emissions of particular pollutants while increasing others.

However, when a PEV consumes a kilowatt-hour (kWh) of electricity, it may have a net zero impact on pollutant emissions, depending on a complex interaction of emissions regulations and available generation capacity.  Growth of wind generation over the last decade has created excess capacity, often at night when the wind blows strongest and demand is lowest.  Data from the U.S. Energy Information Administration (EIA) indicates that in 2012, net generation exceeded net load by around 2.3%.  Navigant Research estimates in the report Electric Vehicle Market Forecasts that nearly 300,000 PEVs will be in use in the United States in 2014.  Assuming an average annual PEV mileage of 12,000 and the EIA’s projections on electricity energy demand in the United States, PEVs would represent less than 0.03% of total U.S. electricity demand.

New Sources

Further, while the emissions profile of burning 1 gallon of gasoline will stay relatively consistent over time, the emissions profile of consuming 1 kWh of electricity from the grid will change as new generation assets are added to the grid and old assets retired.  In the last 2 years, nearly 15,000 MW of coal generation has been retired, with a little over 5,000 MW added.  Over the same period, 22,000 MW of renewables generation were added.  If U.S. electricity demand stays on the plateau of the last decade, the replacement of aging high-emissions assets in favor of renewables will be much easier, and the grid’s emissions profile is likely to change quickly.

EPRI’s study seeks to quantify these factors and others (such as energy consumption from lithium ion battery development) to provide the most accurate analysis of how existing PEV technologies will influence environmental conditions.  Alexander clarifies that this study, while quite comprehensive, does not investigate potential opportunities presented by PEVs, such as utilizing them for grid energy storage or ancillary services, that have yet to become market realities.  Findings from the study will be fundamental to defining the efficacy of PEVs in attaining a number of U.S. goals for air quality standards and carbon emissions reductions.

 

Shifting Its Fleet, Toyota Strives for ZEV Mandates

— June 9, 2014

In mid-May, the news broke that Toyota has, for the time being, backed out of battery electric vehicles (BEVs) in favor of plug-in hybrid electric vehicles (PHEVs) and fuel cell vehicles (FCVs).  The company ended production of the small Scion eQ in 2012, and will end production of the RAV4 EV in 2014.  The move is not much of a surprise, since the original plan was to sell only 2,600 RAV4 EVs in California from 2012 through 2014 to comply with the California Zero Emission Vehicle (ZEV) program.  Toyota now plans to stay in compliance by introducing its first FCV in California.  That will be Toyota’s only vehicle falling within the definition of ZEV, as defined by the California ZEV program.

The ZEV program mandates automaker development and deployment of a number of fuel efficiency vehicle technologies to California and seven other states.  A specific regulation mandates that large automakers must sell a minimum amount of ZEVs as a percentage of their total sales in these eight states or be fined for non-compliance. Vehicles falling under the ZEV definition are BEVs and FCVs, and automakers subject to this requirement as of 2013 include Chrysler, Ford, GM, Honda, Nissan, and Toyota.

At face value, these regulations would mean that these six automakers would have to sell around 30,000 ZEVs in 2015 in California alone.  This, however, is not the case.  The ZEV program is governed by a system of credits that may be traded between any automaker or third party.  Therefore, if a large automaker is unable to meet its ZEV mandated requirement in a given year, it may buy ZEV credits from an automaker that has a surplus of credits.

A Sales Challenge

Further complicating this program is the fact that not all ZEVs sold receive the same number of credits.  For instance, a RAV4 EV receives 3 credits, a Tesla Model S receives 4 (it used to receive 7), and an FCV with a range of over 300 miles receives 9 credits.  This essentially means that the sale of one FCV by Toyota in 2015 would be worth the sale of 3 RAV4 EVs.  Therefore, Toyota does not actually have to produce and sell enough ZEVs to reach 3% of its total number of vehicles sold in 2015, as the ZEV program states – which would be good news for Toyota.  It does, however, mean that the company needs to start selling around 1,000 FCVs annually in just California for the next 5 years or it will likely have to start buying ZEV credits.

1,000 FCVs may not sound like much, considering Toyota sold slightly over 1,000 RAV4 EVs last year.  However, FCVs have considerable market challenges that BEVs do not, including:

  • Hydrogen infrastructure is expensive to build and few stations exist today, while electrical infrastructure is cheap and ubiquitous, including in homes.
  • The cost savings of driving on hydrogen rather than gasoline are questionable, while the cost savings for driving on electricity are significant and well documented.
  • Lastly, the first FCVs are anticipated to be far costlier than BEVs.

The advantage an FCV offers is a range over 300 miles and fast refuel times.  Toyota bets this advantage is substantial enough to drive sufficient consumer interest to achieve compliance targets.  If Toyota is wrong, the abandonment of the company’s BEV compliance programs will prove extra costly.

 

Energy Consumption Falling in the Transportation Sector

— May 21, 2014

Climate change has been in the news a lot lately due to recently published reports from the United Nations, the White House, NASA, and myriad other scientific institutions that have highlighted the consequences of increasing levels of CO2 in the Earth’s atmosphere.  While there are many ways to reduce per capita energy consumption, one of the greatest opportunities lies in making light duty vehicles (LDVs) more energy efficient.  In no other sector is the potential for reduction so high and the pathway to achievement so accessible.

Not all energy consumption is carbon intense, but an overwhelming majority of the energy consumed in the transportation sector, born from the burning of oil, is.  Burning a gallon of gasoline (with 10% ethanol) consumes around 112,000 BTUs of energy and emits 8,887 grams of CO2.  It’s also estimated that gasoline requires around 6 kWh (20,500 BTUs) of grid-sourced electricity to refine 1 gallon of gasoline from crude oil, and the 2010 emissions factor of the U.S. grid was estimated to be 690 grams/kWh.

The Widening Gap

Given the average fuel economy of 24.7 mpg for new LDVs in 2013, the average new car in the United States consumes 5,364 BTUs/mile, emitting roughly 527 grams of CO2/mile.  The fuel economy of 2013 models has improved from the prior year by 1.2 mpg, meaning that the average car purchased in 2013 saves 274 BTUs/mile and 27 grams of CO2/mile over 2012 models, an improvement of nearly 5%.

Navigant Research estimates that, thanks to Corporate Average Fuel Economy (CAFE) standards, the average fuel economy of a new LDV will be 52% higher in 2025 than in 2013.  This means that the average new LDV will use 1,836 fewer BTUs/mile and emit 180 fewer grams of CO2/mile than 2013 models, equaling improvements of roughly 66%.

Meanwhile, the sales-weighted average of a 2013 battery electric vehicle (BEV) had a 3.1 miles/kWh rating.  This means that 2013 BEVs consume 1,100 BTUs/mile and emit roughly 222 grams of CO2/mile, a reduction of nearly 80% in energy consumption and nearly 58% in carbon emissions from conventional 2013 cars.

These calculations do not include full lifecycle emissions and energy consumption characteristics of either the gasoline or electricity supply chain; a more comprehensive analysis would no doubt improve the returns of BEVs over conventional petroleum-powered vehicles.  Additionally, a static figure of 690 grams/kWh is used to assess grid-sourced carbon emissions.  The carbon emissions intensity of the grid varies significantly by location, as seen here, and the grid will become much cleaner over time due to increased penetrations of wind and solar in the generation portfolio – furthering the energy and emissions efficiency gap between gasoline and electricity as a fuel.

 

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