Navigant Research Blog

Political Theater and the Car Market

— February 28, 2012

Since 2008, the world of automotive manufacturing has collided in a more direct way with United States politics than arguably at any other point in history.  Faced with collapsing markets, General Motors and Chrysler gave in to the need for public support.  This combined with a political swing to the right in the 2010 mid-term elections has set the stage for political backlash for the big automakers and for new startup companies that took advantage of government loans and grants.  Even companies who don’t make headlines, like Ford and Nissan, are not immune to the politics as they are recipients of Advanced Technologies Vehicle Manufacturing (ATVM) loans.

This political backlash was never more on display than it was when GM and the National Highway Traffic Safety Administration were called into a congressional hearing over the Volt battery fires.  Subcommittee hearings, regardless of party lead, are often just a platform for grandstanding and political theater, and this one was no exception.  Listening to the hearing it became clear that Chairman Jim Jordan had little patience for NHTSA when an opportunity to criticize President Obama’s push towards clean energy presented itself.  For his part, GM CEO Daniel Akerson scored a high entertainment-value quote of his own when he said the now oft-repeated statement: “We did not develop the Chevy Volt to be a political punching bag. We engineered the Volt to be a technological wonder….”

In his opening remarks, Representative Dennis Kucinich all but declared the hearing pointless when he stated that, “a very detailed 135 page final report by [NHTSA] on its investigation into the Volt battery fire, which was made public on Friday, provides detailed answers to the question that this hearing seems to ask.”  The title of the hearing was “What did NHTSA know about the Volt vehicle fires & when did they know it?”  Perhaps the most perplexing statement from the whole hearing came from Representative Mike Kelly, the owner of a Chevrolet car dealership, who showed an improbable lack of knowledge about automobile development: “This is a halo car, not so much for General Motors but for this administration.  Taxpayer dollars are used to subsidize a product.  If General Motors thought this was a good investment, they would have launched it themselves.”  Thus implying that somehow, between 2009 and the fall of 2010, the Obama administration compelled GM to develop the Volt.

If you missed this piece of theater, don’t worry, this being an election year, there is plenty more to come.  A new transportation and energy bill passed out of a House committee in early February, but was subsequently broken up into parts.  The massive bill has many policies aimed at reducing gas and diesel prices and cutting spending on transportation, including reducing gasoline taxes, increasing truck weight limits, expanding offshore oil and gas drilling, approving the Keystone XL pipeline, and opening some leases in the Arctic National Wildlife Refuge in Alaska to oil drilling, as well as eliminating mass transit subsidies and removing funding for Safe Routes to Schools and Transportation Enhancement grants (where most pedestrian and bicycling infrastructure comes from).  There are also Republican-introduced bills that would eliminate any electric vehicle incentives (H.R. 3768 from Rep. Kelly) and would create a $1 billion (yes, with a “B”) cash prize for the automaker that sells 60,000 100mpg cars (H.R. 3872).  Meanwhile, a bipartisan Senate transportation bill is now being held hostage in a procedural move by Senator Rand Paul to secure a vote on ending foreign aid to Egypt.  Meanwhile, high-end EV maker Fisker Automotive is working to renegotiate loans with the DOE.  Like just about every other PEV automaker, Fisker has missed its target dates for launching a new model (the Karma), but in Fisker’s case these missed dates have put much of the DOE financing for its next model, the Nina, in jeopardy.  In the wake of the DOE reneging on Severstal’s $730 million loan for constructing an advanced lightweight steel plant in the U.S., it’s safe to assume that the negotiation seems destined to become mired in politics.  

Unfortunately, PEVs and ATVM loans seem inevitably destined to become political footballs.  And the theatrics of the process can have an impact on the attitude towards PEVs and contribute to mainstream buyers’ wariness toward them.


Where the Jobs Will Be

— February 27, 2012

Last month in his State of the Union speech, Barack Obama touted the potential of the clean energy sector as a source of rising employment for the United States.

“We should put more Americans to work building clean energy facilities, and give rebates to Americans who make their homes more energy efficient, which supports clean energy jobs,” the President said.

Plenty of controversy exists over how many jobs emerging cleantech businesses actually generate. “Congress is holding the fate of more than 40,000 jobs in the clean energy industry in its hands – right now – as they hem, haw, and delay deciding whether to renew critical energy financing provisions such as the Production Tax Credit (PTC) for onshore wind, the ‘1603’ grants that have created jobs in the solar sector, access to the Investment Tax Credit (ITC) for offshore wind projects, and credits for efficient manufacturing, homes, and appliances,” wrote Mary Anne Hitt, director of the Sierra Club’s Beyond Coal Campaign, on Huffington Post last week.

The maps below shed a bit more light on the relationship between jobs and investments in clean energy. The first is the well-known Renewable Energy Map, created in 2009 by the Natural Resources Defense Council:

The interactive map shows existing and planned (as of 2009) projects in wind, solar, biofuel, and geothermal power (the image above shows only wind power). The number of projects has increased significantly since then, while the relative geographic distribution has changed little.

The second map was created by Richard Florida, of The Atlantic, and his colleagues Charlotta Mellander and Zara Matheson. It shows the projected percentage increase in blue collar jobs in the United States from 2010 to 2020.

I am not suggesting a direct relationship here, and the data is so complex as to be open to various interpretations. (Is the increase foreseen in the Detroit area, for instance, dependent on a continued resurgence of the U.S. automaking industry?) And, of course, renewable energy projects tend to go where the wind, solar, and geothermal resources already exist. There is, though, a rough correspondence: the highest blue-collar job growth will be in a line roughly tracking the Eastern Seaboard south to North Carolina, in specific pockets along Florida’s Atlantic coast, the Gulf Coast, and across Texas, in a few scattered areas in the inter-mountain West, particularly in Arizona (a fascinating development with strong implications for both political parties), and in parts of central and northern California. The overlay with renewable energy projects is intriguing enough to suggest that, if you’re going to be looking for a working class job in the next eight years, you might want to go where the clean energy investment is going.


How Green is Your EV?

— February 24, 2012

The American Council for an Energy-Efficient Economy just released its annual guide to the greenest vehicles.  For the first time, an electric vehicle (the Mitsubishi i-MiEV) ranked highest.  This factoid stirred up for me an issue that is not discussed often enough, and is understood even less.  When driving an EV, where you charge the batteries will determine whether or not the vehicle is greener than driving a gasoline car.

An EV powered by the average U.S. grid works out to about 207 grams of CO2 per mile, while the average new light duty vehicle sold in 2012 in the US emits 263 grams, according to the EPA.  So on average, driving electric is greener than driving a 33 mpg car.

However, in states with generation mix that includes a lot of renewables (hydro, wind or solar) or nuclear power, the carbon footprint of driving electric is clearly cleaner than your average automobile.  In states where coal is still king, the carbon footprint of an EV can actually be worse.

To illustrate the carbon footprint by state, below is a comparison of the emissions of an i-MiEV when driven in five states that are greener than the average and five states where you’d be better off driving a car with a fuel-efficient internal combustion engine.

As an alternative, customers in many states can choose to purchase electricity from renewable sources, which is the greenest way to drive.  Or, you can install solar panels on your roof, and net out more clean energy produced than consumed.

This state by state breakdown is really the tip of the iceberg when it comes to understanding true EV emissions.  Significant differences in carbon density occur between utilities within a state (such as hydro-rich western Oregon versus the coal-dependent eastern part of the state).

Also, the time of day that you charge can have a great influence on the generation mix too, as some regional grids with substantial amounts of solar can be relatively green at mid-day.  Since most EV charging is expected to occur overnight, states with higher percentages of wind power at night would enable greener EV driving.

As I’ve explained before, our knowledge about how green the grid is at any moment in time is woefully inadequate today.  In general, though, you can be confident that going electric is better, from a carbon emissions standpoint, than driving your old gas-guzzler.


The Top Three Factors that Could Increase Fuel Cell Adoption Rates

— February 24, 2012

In forecasting changes in the fuel cell sector Pike Research takes a somewhat conservative approach to modelling growth.  The chart below is derived from data published in the Pike Research Fuel Cell and Hydrogen Annual Report 2011 and shows steady annual growth out to 2015. 

In advance of production of our updated Fuel Cell and Hydrogen Annual Report 2012, it’s useful to look at the most important flex points in the model that could significantly steepen the adoption curve for fuel cell systems. 

1.  Materials Breakthrough

There are clearly a number of areas in which a breakthrough in materials technology could have a significant impact on the cost of the fuel cell, thereby increasing the rate of adoption.  These include platinum thrifting ‑ i.e., removing the unused platinum on the catalyst surface ‑ increasing the durability of low platinum cathodes, improving the recyclability of the membrane, and increasing the efficiency of the stack.

Clearly with any new technology there are two standard ways of reducing costs.  The first is reducing the costs of materials or components, and the second is shifting to mass production.  Bringing down the current cost of fuel cells (estimated in the upcoming Pike Research report, “The Fuel Cell Stack Supply Chain: Opportunities and Constraints in Early Market Applications,” as $1,700 per kW) will require both.

But what is the likelihood of material breakthroughs?

 The amount of money spent by national governments on R&D is a poor proxy for likelihood of material breakthroughs, but we can look at intellectual property.  The number of patents applied for, as well as granted, related to fuel cell materials is cause for optimism that breakthrough materials are in the pipeline.

2.  Policy

Clearly if a government decides that it wants to bring fuel cell powered systems into the market, market forcing policy is one of the quickest ways of doing this.  Today Japan, South Korea, and Germany all have what could be classed as pro-fuel cell market forcing policy covering residential combined heat and power (resCHP) systems, fuel cell vehicles, and backup power systems. 

What is the likelihood of other countries also adopting pro-fuel cell policies?  Direct policy that selects one technology over others is unlikely in most countries, but we are likely to see government policy directed at encouraging the adoption of systems in specific markets in which fuel cells are attractive. 

3.  Stigmatization of competing technologies

Sadly, the third of the flex points focuses on the failure of another technology.  Known as “technology stigmatization”, this is when a technology is tainted, in the eyes of the public, due to fears of safety. 

The most recent example that had a clear impact on the fuel cell industry was the Japanese earthquake and tsunami and the resulting nuclear accident at Fukushima-Daiichi.  Soon thereafter Japan enacted a no-new-nuclear policy, Germany said it would close all of its nuclear capacity by 2022, and Scotland also shut its gates to new nuclear plants.  In Japan, available subsidies for the purchase and installation of residential combined heat and power fuel cells were snapped up, and soaring demand forced manufacturers to bring in extra capacity.  

Additional technology stigmatization events in the energy sector would make it more likely that fuel cells technology will be drawn into the market faster.  The flip side of this, or course, is that a serious incident involving fuel cells will slow or even halt the diffusion of the technology.


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