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.


EU Tackles Smart Grid Cyber Security, Gradually

— March 14, 2012

The European Union has intelligently chosen to start building smart grid cyber security from the ground up, looking first for smaller local successes rather than one EU-wide attempt to boil the ocean, security-wise.  Where they can use existing documents, such as U.S. standards, they do so.  One European utility voluntarily submitted itself to a NERC CIP audit and pronounced itself pleased with the resulting baseline:  “It’s the best yardstick available,” An official told me at a recent workshop. Again the attitude of extreme pragmatism shines through.

The conference, the European Union workshop “Cyber Security Challenges of Smart Grids,” capped off a project launched last summer by the European Network and Information Security Agency, ENISA, that aimed to take stock of risks to smart grids, understand existing national initiatives, pilot projects, and standardization initiatives, and develop a set of recommendations for the 27 member nations of the European Union.  Input has been drawn from a wide range of stakeholders, with over 50 responses received and 23 interviews performed.  A number of sources from outside the European Union (including me) were asked to respond.

Seated at the round table in Brussels’ Centre Albert Borschette were security officers from European transmission and distribution operators, security product managers from control system vendors, systems integrators, ENISA personnel, and related EU agencies working on similar initiatives.  There was a sense of urgency in the room; this was not a group of bureaucrats having a nice chat.  One member of the EU’s Energy Directorate-General said bluntly, “The days of duplicated efforts are over.  There are not the resources to do that anymore.”  Those are words I’m more accustomed to hear in private industry.

ENISA has what might seem a Sisyphean task ahead.  Not only must it coordinate the approach to smart grid cyber security across a domain of nearly 500 million people, but the agency also has to please (or placate) 27 sovereign governments.  While the EU continues to express – as it did at this meeting – admiration for U.S. government deliverables such as the NERC CIP reliability standards and the NISTIR 7628 documents, we should recall that here in the United States we only have to deal with one sovereign government.

Roadblocks remain.  The question of who is accountable for grid stability and security is thornier than you might imagine.  Is it the grid operator (and if yes, which one), the local or national government, the military, or someone else altogether?  And who gets to make that decision anyway?  The few times that dates were mentioned at all at the forum, the timeframes suggested to complete activities such as “discuss this” or “foster that” were mind-boggling.  With Stuxnet perhaps 4 years old, can a union of 27 nations create, agree, and implement a set of meaningful recommendations before the next Stuxnet?  Or before the next five Stuxnets?


Submeters Surface in Energy Management Plans

— March 14, 2012

Although it’s by no means one of the newest technologies in today’s energy management toolbox, submeters are starting to play an increasingly important role in the drive to squeeze every bit of efficiency out of buildings.  While sleek energy visualization dashboards have been all the rage at events like the annual Consumer Electronics Show, submeters are quietly working behind the scenes, providing facility managers with deep, actionable insight into how energy is used in their buildings and how it can be optimized.

Historically, submetering technology has fallen into two broad categories.  The first is basic tenant billing or cost allocation, in which submeters measure the energy consumption of individual building tenants, pieces of equipment, or individual buildings within a larger campus, typically in kilowatt-hours.  The second is deeper energy and power quality monitoring that tracks a wider range of concerns such as current and voltage, particularly in commercial and industrial facilities.

However, submetering has to date been far from mainstream practice.  Since submeters alone do not save energy but can be used as a tool to identify energy-saving opportunities, some building owners have been reluctant to pay the up-front costs associated with their installation.  And installing submeters is illegal in commercial buildings in some states, and banned by many utilities out of fear that landlords will form micro-utilities and overcharge their tenants for energy.

The market for submetering technology and services, however, has heated up over the last few years.  Submeters are right at the heart of a paradigm shift in the way executives think about energy, from an unavoidable cost of doing business to an asset to be managed.  “You can’t manage what you don’t measure” has become a rallying cry for companies and organizations focused on reducing their energy consumption, and few technologies are better poised to measure how energy is used in buildings than submeters.  Much of the activity is focused on submetering’s energy and power quality functions, leveraging submeters’ ability to provide real-time monitoring of HVAC, lighting, and other critical equipment and systems.  An effective submeter system is like having an army of energy auditors with deep analytical capabilities taking building energy measurements every 15 minutes.  That level of monitoring and control holds great appeal to business decision-makers.

Major acquisitions in the last few years, such as Honeywell’s acquisition of E-Mon and Leviton’s acquisition of IMS, both in 2010, suggest that energy efficiency service providers see submetering as a crucial part of the energy management equation.  Today, submetering can save building owners 10-15% on energy consumption just by diagnosing inefficiencies in the way buildings are operated and commissioned.  In the long term, submetering will continue to be an indispensable technology for corporate energy management initiatives.


A Tale of Two Commodities

— March 14, 2012

Dominated by sugarcane in Brazil and corn in the U.S., the global ethanol industry was worth $66 billion dollars in 2011.  While it was the worst of times for the Brazilian sugarcane ethanol industry, for U.S. corn ethanol, it was the best of times.

According to estimates compiled by Pike Research in our report Biofuels Markets and Technologies, U.S. ethanol production reached 13.6 billion gallons per year (BGY), up from 13.2 BGY in 2010.  Brazil, a biofuels pioneer that turned sugarcane-derived ethanol into a mainstream automotive fuel in the 1970s, saw production drop from 6.9 BGY in 2010 to 6.4 BGY last year.

But all this may be changing.  Although collectively, the two leading biofuel markets accounted for 85 percent of global ethanol production, policy momentum suggests that history will not be repeating itself.

Brazil Sticks to its Guns

Looking to reverse a relatively dismal 2011 for the industry in which diminished output resulted in the importation of U.S. ethanol for the first time ever, the Brazilian government recently announced a $38 billion subsidy program to drive expansion through 2015.  The government hopes to stimulate private sector investment and increase ethanol production to the tune of 50 to 55 percent of its overall gasoline market.

For the global biofuels industry, there is much riding on this expansion.  A forthcoming Pike Pulse report, which looks at Big Oil’s impact on the commercialization of biofuels, estimates that Royal Dutch Shell, BP, Total, and Petrobras have collectively sunk nearly $20 billion into the market in a race for dominance in the most efficient ethanol market in the world.

Raizen, a joint venture between Shell and Cosan Industria & Comercio in Brazil, is projecting to process 9 percent more sugarcane this season in April than a year earlier, according to a company spokesman.  Petrobras, meanwhile, has committed $1.3 billion to deliver 1.5 billion gallons of ethanol to the market by 2015.

Pike Research expects production within the country to more than double by 2021, reaching at least 16 BGY, with exports meeting expanding demand in other markets as well.

U.S. Charts a New Course

North of the equator, meanwhile, a paradigm shift has rewritten the rules for an industry that has enjoyed unparalleled success over the past decade.  Riding $6 billion worth of subsidies, strong mandates, and sheer grit, ethanol derived from corn starch grew into the most dominant biofuels pathway by volume in world.  But more recently, corn starch ethanol’s association with rising food prices and environmental maladies has tarnished its reputation.  Even leaving these concerns aside, most now agree that corn starch ethanol is one of the least efficient pathways to biofuels at scale.

Nor is it the panacea to energy security as many proponents argue.  Last month, Bloomberg reported that the price of ethanol in the United States was following the price of oil higher.  Although a number of variables may lead to higher ethanol prices – improving economic conditions in the U.S. and increasing import demand from China, for instance – a heavy reliance on petrochemical-based fertilizer amendments for growing corn and for shipping the finished product exposes biofuels production to the whims of the oil markets.

Responding to these difficult realities, policymakers have replaced the foundational policies that led to corn starch ethanol’s decade-long ascent with strong support for advanced biofuel pathways from cellulosic, waste, algae, and other non-food feedstocks.  This trend is at least partly responsible for the scrapping of Volumetric Ethanol Excise Tax Credit (VEETC) – a key credit extended to ethanol producers – as part of a political gamble in favor of policies expanding ethanol’s broader market potential.

E10 (a blend of 10 percent ethanol and 90 percent gasoline), which is currently distributed at the majority of gas stations in the continental U.S., is fast approaching a so-called “blend wall,” in which production exceeds the volume of fuel that can legally be blended into the U.S. gasoline market.  Advocates are currently pushing for E15, which if approved by the EPA, would allow producers to expand production to keep pace with the Renewable Fuel Standard’s (RFS) 15 billion gallon per year cap on ethanol derived from corn starch.

Outside of that, there are currently few options available to soak up extra ethanol production.  Unlike Brazil, flex fuel vehicles (FFV) have struggled mightily in the U.S.  Less than 1 percent of refueling stations nationwide currently carry E85 (a blend of 85 percent ethanol and 15 percent gasoline) pumps, with most vehicle owners refueling with gasoline or E10.

If that sounds confusing, that’s because it is.  U.S. biofuels policy is piecemeal and fragmented.  Meanwhile, the industry is currently caught in a production bind.  Between blend walls and disappointing advanced biofuels production volumes, even the industry’s backbone, the Renewable Fuel Standard (RFS), is at risk of being scrapped.

Despite advanced biofuel’s long-term promise, Pike Research expects ethanol production to stumble mid-decade in the U.S., achieving more modest growth than its counterpart in Latin America through 2020.


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