Navigant Research Blog

European Turn from Diesel Unlikely Due to Scandals

— April 10, 2017

The revelation of Volkswagen’s (VW’s) diesel emissions cheating is nearing its second anniversary and the automaker is well along in the settlement process. Yet, skepticism about diesel remains strong. Global governments have maintained a steady stream of inquiries into diesel automaker environmental compliance efforts. The latest investigatory announcements are emerging in France and Germany, where diesels accounted for over 50% and 45% of the 2016 market, respectively. Fiat Chrysler Automobiles NV (FCA), VW, Groupe Renault, and the PSA Group are being investigated in France, while Daimler is under investigation in Germany.

Surprisingly, the sustained scrutiny of diesel has not gutted sales in Europe at a high level. A rising vehicle market on the continent lifted all powertrains, including diesel, last year, though diesel’s rise was markedly low compared to other powertrains. The relatively low rise might be partially attributed to ongoing scrutiny, but this would ignore the fact that diesel share has been falling in Europe since its peak in 2011 at over 55%.

In 2011, diesel accounted for around three out of four vehicle sales in Belgium, France, Luxembourg, Ireland, Spain, and Norway. The next year saw the first deployment of plug-in EVs (PEVs); since then, diesel sales have dropped considerably. Diesel share lost over 20 percentage points in France and Belgium, over 15 in Spain, and over 10 in Luxembourg. Ireland remains unchanged, but Norway, which has the highest level of PEV adoption at 24%, is down by over 45 percentage points. Diesel share in the region is down 6 points overall and plug-ins have been the primary beneficiary, growing from effectively nothing in 2011 to around 1.3% in 2016. Hybrids have also made headway, especially in 2016, moving from 1.3% to over 1.5%.

Across the pond, impacts from the diesel cheat are more striking. VW previously led the diesel car market, and its retreat has had a substantial impact. That impact was partly offset by the introduction of diesel SUVs and trucks from FCA (now also under investigation by the US Department of Justice, the Securities and Exchange Commission, and several state attorneys general), General Motors (GM), and Jaguar Land Rover (JLR). Overall, diesel sales fell 30% in 2016. Unlike in Europe, plug-ins have had less of an impact in the United States on diesel. This is largely due to the fact that diesel in the United States is competing in larger vehicle classes where plug-ins do not perform well. Instead, PEV gains are mainly affecting the once robust US hybrid market that is primarily dominated by small vehicles, where PEVs have the strongest value propositions.

What this means is that, assuming ongoing US investigations do not uncover new revelations that would take the new class of larger diesel vehicles from FCA, GM, and JLR off the market, diesel is likely to return to its marginal pre-VW-scandal share in the United States with some upward potential. But in Europe, dominated as it is by smaller vehicles, diesel sales may continue to fall as other fuel efficient options compete in those segments.

 

Carbon Tax Plan Proposed by Climate Leadership Council

— February 15, 2017

Climate change is a big area of political strife. It was during the election and remains so during the opening weeks of the new administration. While the major political parties generally disagree on the issue and the measures necessary for addressing it, climate change is not a partisan topic. On February 8, a group of Republicans proposed a tax on CO2 emissions in exchange for the repeal of other regulations on the industry. The proposal is led by James Baker III, former Secretary of State under President George H.W. Bush, and other members of the Climate Leadership Council. Founded by Ted Halstead, the Climate Leadership Council is an international research and advocacy organization with aims to organize global leaders around new climate solutions based on carbon dividends modified for each of the largest greenhouse gas (GHG) emitting regions.

The Proposal

The Carbon Dividends Plan is based on four main areas:

  • Gradually Increasing Carbon Tax: A $40 tax on every metric ton of CO2 would be imposed and increased steadily over time.
  • Carbon Dividends for All Americans: The estimated revenue of $200 to $300 billion per year generated from this carbon tax would be paid out to Americans through dividend checks, administered by the Social Security Administration. On average, a family of four would receive $2,000 under the plan.
  • Border Carbon Adjustments: The plan proposes border adjustments that would increase the costs of exports and imports to/from countries that do not have a comparable carbon tax.
  • Significant Regulatory Rollback: The majority of the Environmental Protection Agency’s (EPA’s) regulatory authority over CO2 emissions would be phased out, including an outright appeal of the Clean Power Plan (CPP).

The Importance

Many Republicans, including President Trump, are publicly opposed to actions on climate change. The Climate Leadership Council is made up of a number of prominent Republicans who are not only publicly in favor of action supporting the climate, but also have created a proposal to do so. Besides Baker and Halstead, authors of the proposal include Henry Paulson, Secretary of the Treasury under President George W. Bush; Martin Feldstein, Chairman of the President’s Council of Economic Advisers under President Ronald Reagan; George Shultz, Secretary of State under President Reagan; and N. Gregory Mankiw, Chairman of the President’s Council of Economic Advisers under President George W. Bush.

The Impacts

The plan would repeal the CPP put in place by President Obama to reduce carbon pollution and reduce the EPA’s influence on GHG emissions, and will likely see opposition. However, President Trump already plans to repeal the CPP, and while it is unclear if he will be successful, the Carbon Dividends Plan is not needed to assist in that repeal. While the dividends paid back to consumers help with the increased cost of energy, many can argue this would be better if used for increasing renewable energy. If the proposal is rejected and the CPP repealed without an alternative plan in place, it is unlikely actions on climate change will be taken at a federal level.

In June 2016, the House approved a non-binding resolution condemning the idea of a carbon tax. The measure passed 237-163 and was intended to make it more difficult for those that voted against a carbon tax to do so again. President Trump also opposes a carbon tax, believing that President Obama’s CPP was a regulatory overreach of power. It seems unlikely that the current administration and Republication-controlled Congress would vote in favor of such a proposal, although there is hope that some type of alternative could be offered in its place. No matter what the outcome of the Carbon Dividends Plan, there will be many arguing both for and against it.

 

Costs of Fossil Fuel Use on Society Much Higher Than Expected

— November 11, 2016

Electric Vehicle 2According to a new report from the American Lung Association (ALA), if the climate and health costs of gasoline-powered vehicles were accounted for, the average 16-gallon gasoline tank fill-up would cost an additional $18.42 for consumers (that’s on top of the average price of $35.68, raising the total price to around $54). The ALA estimates that these health expenses account for $11.82 per tank and $6.55 for climate costs. Because these costs are not being accounted for, the public is essentially subsidizing the use of gasoline-powered vehicles through higher healthcare costs and an increased need for climate adaptation efforts.

Carbon Tax and Transport Technology Solutions

While the possibility of a carbon tax being instituted in the United States is highly unlikely in the near term, several other countries around the world have begun to mandate these programs in order to assign a dollar value cost to fossil fuel use that affects public health. Canada announced last month that a national carbon price will be implemented in 2018. The Canadian government has proposed a minimum price of C$10 ($7.50) per ton of carbon pollution in 2018, rising by C$10 each year to a maximum of C$50 ($37) per ton by 2022.

Advanced transportation technologies also offer an opportunity to reduce the health and climate impacts of personal vehicles. While EV adoption continues to be a modest portion of overall vehicle sales, there are some encouraging signs for growth when considering studies on consumer behavior and the enormous interest. According to PlugInsights Research, once drivers have bought or leased an EV, 97% do not go back to gasoline-powered vehicles.

The survey indicates that once drivers have experienced the benefits of EVs, such as reduced operation and maintenance costs, they are extremely unlikely to return to combustion engines. There are also currently over 400,000 reservations for the Tesla Model 3, which looks to be the first mass-market EV designed to drastically increase the number of EV adopters. As suggested by the survey, high Model 3 sales could play a significant role in getting more consumers engaged and committed to the electric driving experience. Additionally, new transport solutions such as Hyperloop One’s high-speed tubes could drastically reduce the need for personal vehicles and help cut down on the health and climate impacts of cars.

 

If $9 Billion of Renewable Energy Is Curtailed in 2030, What Opportunities Will Emerge? Part 2

— October 4, 2016

Cyber Security MonitoringThe first part of this blog covered the growing trend of renewables curtailment. This second post will cover the solutions that are turning curtailment from a problem into an opportunity.

Many solutions have been proposed to address the integration of renewables into the energy sector. The first two, transmission upgrades and storage technologies, tend to get a lot of media attention. However, these can be seen as “necessary but not sufficient” options in the race to integrate renewables. Flexible gas generation technologies will also play a growing role in the grid of the future.

Transmission upgrades connect renewables to more loads and diversify generation resources. Germany, with 26% of its generation coming from intermittent sources in 2015, has been building out transmission to connect the windy south of the country to the industrial north. As in many global markets, transmission expansion is subject to NIMBYism, and in Germany’s case is being forced underground, which is more expensive. California, with 14% of its generation from intermittent sources in 2015, may be expanding its independent system operator (ISO) into a regional organization across the climatologically diverse Western Interconnection, though the decision has been delayed for further review. And China, generating just around 3% of its electricity from wind in 2015, still curtailed billions of dollars of wind power in recent years and is quickly pushing to interconnect it with load.

Storage technologies are growing quickly, as well. Hydroelectric storage is a cheap and clean technology that nonetheless sometimes battles drought-related, environmental, and even methane emissions concerns. Batteries, including lithium ion and other types, are rightly making news as costs fall and policies like incentives and storage mandates drive the market toward rapid growth. These and related storage technologies, including compressed air storage, are growing quickly and will become a major part of our electric grids.

Flexible Solutions

Flexible gas-based generation solutions tend to get less media attention but will also be crucially important in the flexibility of the grid.

  • A 2016 National Renewable Energy Laboratory (NREL) report suggested that for California to accommodate 50% of its generation coming from solar PV, a wide range of changes would need to take place. Notably, flexible thermal generators and combined heat and power (CHP) plants were mentioned as a key necessity, even if the amount of energy storage is boosted by more than 10 times what is outlined in the current mandate.
  • A 2015 report by the Union of Concerned Scientists on California’s grid states that under a 50% Renewable Portfolio Standard (RPS) scenario, curtailment could be cut from 4.8% to 3.2% if natural gas resources are able to turn down to half-power.
  • A 2015 report points out that Denmark was able to generate 39% of its electricity from wind thanks in large part to flexible district energy CHP resources. These district energy systems are in some way the core of Denmark’s grid and are expected to become electricity consumers rather than producers during times of high wind generation.
  • A 2016 report funded by the German government suggests that power-to-heat will be more important than batteries in balancing that country’s grid in the future.

Most of these reports suggest that fossil-based sources will fuel this generation, though carbon-neutral biogas and hydrogen are taking strides to catch up too. These gas-based technologies have the dual benefit of boosting grid flexibility while (in most cases) decarbonizing heating, an area of growing concern. As a complement to the transmission and battery storage changes making headlines, these sources are set to become key contributors in the grid of the future.

 

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