Alternative Fuels:Alternative Fuels: What have we · PDF fileAlternative Fuels:Alternative...

Alternative Fuels:Alternative Fuels:Alternative Fuels:Alternative Fuels:What have we learned?What have we learned?

David L. GreeneDavid L. GreeneCorporate Fellow, Oak Ridge National LaboratoryCorporate Fellow, Oak Ridge National Laboratory

Senior Fellow, Howard H. Baker, Jr. Center for Public Policy, U. of TennesseeSenior Fellow, Howard H. Baker, Jr. Center for Public Policy, U. of Tennessee

ARPAARPA eeARPAARPA--eeTransportation Behavior and New Technology WorkshopTransportation Behavior and New Technology Workshop

Berkeley, CaliforniaBerkeley, CaliforniaMarch 16, 2012March 16, 2012

The great energy transformations of the past were driven by The great energy transformations of the past were driven by technological change and market forces. technological change and market forces.

Creating a transition for the public good poses a new challenge.Creating a transition for the public good poses a new challenge.

Biomass

Coal Petroleum

Animals

NaturalGas

s

Nuclear

22

Source: A. Grubler, 2007, International Institute for Applied Systems Analysis.

Our transportation sectorOur transportation sector consumes more petroleum than consumes more petroleum than any other nation’s entire economy: 6,500 gallons per second.any other nation’s entire economy: 6,500 gallons per second.But petroleum also provides 95% of global transport energyBut petroleum also provides 95% of global transport energyBut petroleum also provides 95% of global transport energy.But petroleum also provides 95% of global transport energy.

35

Transportation Energy Use by Type of Energy

30

35

20

25

les

15Exajou

Electricity

BioFuel

Petroleum

5

10Natural Gas

Coal

01950 1960 1970 1980 1990 2000 2010

Energy Information Administration, Annual Energy Review 2010, table 2.1e.

What is an alternative fuel?What is an alternative fuel?What is an alternative fuel?What is an alternative fuel? Notionally:Notionally:yy

•• Not derived from petroleumNot derived from petroleum•• Provides Provides public benefitspublic benefits::

Fewer conventional pollutant emissionsFewer conventional pollutant emissions Reduces oil dependenceReduces oil dependence Reduces greenhouse gas emissionsReduces greenhouse gas emissions Reduces greenhouse gas emissionsReduces greenhouse gas emissions

What is petroleum?What is petroleum?•• Conventional v. unconventionalConventional v. unconventional•• Other liquid hydrocarbonsOther liquid hydrocarbons•• Synthetic v. refinedSynthetic v. refined

Running out of or into petroleum?Running out of or into petroleum?Continuing current trends, the world will have used well Continuing current trends, the world will have used well ggover half of all conventional oil resources before 2050.over half of all conventional oil resources before 2050.

The The path of least resistance path of least resistance is fuels from unconventional is fuels from unconventional fossil resources at prices the world is willing to payfossil resources at prices the world is willing to payfossil resources at prices the world is willing to pay. fossil resources at prices the world is willing to pay.

Source: International Energy Agency, World Energy Outlook 2008, OECD, Paris.

What is an alternative fuel?What is an alternative fuel?EPACT 1992/1999EPACT 1992/1999

BiodieselBiodiesel Natural gasNatural gas

PropanePropane PropanePropane ElectricityElectricity HydrogenHydrogen HydrogenHydrogen Alcohols (ethanol, methanol, Alcohols (ethanol, methanol, isobutanolisobutanol, etc.), etc.) Gasoline + >=85% alcohol blendsGasoline + >=85% alcohol blends xTLxTL Fuels (GasFuels (Gas--ToTo--Liquids, CoalLiquids, Coal--ToTo--Liquids)Liquids) PP--series fuels series fuels

((NGL E OH M h l h d fNGL E OH M h l h d f ))((NGLs+EtOH+MethyltetrahydrofuranNGLs+EtOH+Methyltetrahydrofuran))

…you have seen this 1,000 times: alcohols have lower energy density, …you have seen this 1,000 times: alcohols have lower energy density, gaseous fuels less range and higher storage costs, electricity in gaseous fuels less range and higher storage costs, electricity in g g g g yg g g g y

batteries less range, higher storage costs and longer recharging time.batteries less range, higher storage costs and longer recharging time.

http://www.toyota-global.com/innovation/vision/oil_alternative_fuels.html

McNutt and Rogers (2004) summarized the McNutt and Rogers (2004) summarized the b t l f d b lt ti f lb t l f d b lt ti f lobstacles faced by alternative fuels.obstacles faced by alternative fuels.

Lack of refueling infrastructureLack of refueling infrastructure Lack of refueling infrastructureLack of refueling infrastructure Lack of vehicles engineered to operate on Lack of vehicles engineered to operate on

the fuelthe fuel High costHigh cost Difficulty breaking into an established Difficulty breaking into an established

marketmarket Perceived or real issues of safety and Perceived or real issues of safety and

reliabilityreliabilityreliabilityreliability Lack of driving rangeLack of driving range

McNutt, B. and D. Rodgers, 2004. “Lessons Learned from 15 Years of Alternative Fuels Experience: 1988 to 2003”, in D. Sperling and J.S. Cannon, eds., The Hydrogen Energy Transition, Elsevier, London.

They noted the following key elements of They noted the following key elements of early and continuing efforts to expand theearly and continuing efforts to expand theearly and continuing efforts to expand the early and continuing efforts to expand the

use of alternative fuels.use of alternative fuels.

Research and developmentResearch and development Demonstration projectsDemonstration projects Fleet deploymentFleet deployment Niche market developmentNiche market development PublicPublic--private partnershipsprivate partnerships PublicPublic private partnershipsprivate partnerships

The U.S. Alternative Fuels and Data Center lists The U.S. Alternative Fuels and Data Center lists 26 federal and 543 state laws, regulations and26 federal and 543 state laws, regulations and26 federal and 543 state laws, regulations and 26 federal and 543 state laws, regulations and

incentives for alternative fuels. incentives for alternative fuels.

CAFE credits for AFVs (AMFA 1988): CAFE credits for AFVs (AMFA 1988): •• MPG based on petroleum onlyMPG based on petroleum only

Dual and FFVs assumed to use 50% AFDual and FFVs assumed to use 50% AF•• Dual and FFVs assumed to use 50% AFDual and FFVs assumed to use 50% AF

Energy Policy Act 1992:Energy Policy Act 1992:•• Fleet requirements for feds states & fuel providersFleet requirements for feds states & fuel providersq pq p•• Grants to state & local governmentsGrants to state & local governments•• 10% AF use by 2000, 30% by 201010% AF use by 2000, 30% by 2010

Various tax creditsVarious tax credits Various tax creditsVarious tax credits•• $0.54/gal. ethanol motor fuel tax exemption.$0.54/gal. ethanol motor fuel tax exemption.•• Now supported by RFS2, ethanol near 10% blend limitNow supported by RFS2, ethanol near 10% blend limit

Tighter emissions standards and reformulated Tighter emissions standards and reformulated gasoline nearly eliminated the emissionsgasoline nearly eliminated the emissionsgasoline nearly eliminated the emissions gasoline nearly eliminated the emissions

advantages of methanol, propane and CNG.advantages of methanol, propane and CNG.

MTBE from 1% to over 4% by 1995MTBE from 1% to over 4% by 1995 MTBE from 1% to over 4% by 1995.MTBE from 1% to over 4% by 1995. Ethanol 0.5% to 2% by 2000.Ethanol 0.5% to 2% by 2000. FFV production maxed out 1.5 MPG CAFE credit FFV production maxed out 1.5 MPG CAFE credit FFV production maxed out 1.5 MPG CAFE credit FFV production maxed out 1.5 MPG CAFE credit

but the growth of E85 stations did not keep pace.but the growth of E85 stations did not keep pace.

The United States has conducted a broad and The United States has conducted a broad and expanding alternative fuel program since 1988.expanding alternative fuel program since 1988.expanding alternative fuel program since 1988. expanding alternative fuel program since 1988. What has been the result? What has been the result? (McNutt & Rodgers, 2004)(McNutt & Rodgers, 2004)

No significant change in alternative fuel useNo significant change in alternative fuel use No significant change in alternative fuel use.No significant change in alternative fuel use. Cleaner conventional fuels and significantly lower Cleaner conventional fuels and significantly lower

vehicle emissions.vehicle emissions.•• In 1999 the Toyota In 1999 the Toyota PriusPrius and Honda Insightand Honda Insight•• Honda’s lowHonda’s low--emission Accord produced tailpipe emission Accord produced tailpipe

emissions cleaner that the ambient L A airemissions cleaner that the ambient L A airemissions cleaner that the ambient L.A. air.emissions cleaner that the ambient L.A. air.

Millions of alternative fuel compatible vehicles on Millions of alternative fuel compatible vehicles on the road dominated by ethanol compatible the road dominated by ethanol compatible

hi lhi lvehicles.vehicles. Better understanding of alternative and Better understanding of alternative and

conventional fuel markets, and consumerconventional fuel markets, and consumer--conventional fuel markets, and consumerconventional fuel markets, and consumerproducer behavior.producer behavior.

The Renewable Fuels Standard 2 focuses on GHG emissions. The Renewable Fuels Standard 2 focuses on GHG emissions. CellulosicCellulosic biofuelbiofuel is off to a very slow start The 2011is off to a very slow start The 2011Cellulosic Cellulosic biofuelbiofuel is off to a very slow start. The 2011 is off to a very slow start. The 2011

requirement of 250 million gallons was reduced to 6.6 million.requirement of 250 million gallons was reduced to 6.6 million.

bl l l i

35

40

EPA Renewable Fuels Volume Requirements

Total Renewable Fuel

25

30

35

Gallons

Advanced Biofuel

Cellulosic biofuel

-20% GHG

-50% GHG

-60% GHG

15

20

lions of G

60% GHG

0

5

10Bil

0

2008 2010 2012 2014 2016 2018 2020 2022

California’s Low Carbon Fuels Standard combines California’s Low Carbon Fuels Standard combines ff b d l ti d i i t dib d l ti d i i t diperformanceperformance--based regulation and emissions trading.based regulation and emissions trading.

Goal: reduce transportation GHG emissions while Goal: reduce transportation GHG emissions while Goal: reduce transportation GHG emissions while Goal: reduce transportation GHG emissions while equalizing MSC across fuels and suppliers.equalizing MSC across fuels and suppliers.

Argument over ability to estimate ILUCArgument over ability to estimate ILUCInsufficient knowledge makes it difficult to realize the Insufficient knowledge makes it difficult to realize the •• Insufficient knowledge makes it difficult to realize the Insufficient knowledge makes it difficult to realize the ideal of fuel neutrality.ideal of fuel neutrality.

•• But the RFS 2 has the same problem.But the RFS 2 has the same problem.

Last year’s ruling by federal judge:Last year’s ruling by federal judge: Last year’s ruling by federal judge:Last year’s ruling by federal judge:

“impermissibly treads into the province and powers of our “impermissibly treads into the province and powers of our federal government, reaches beyond its boundaries to federal government, reaches beyond its boundaries to

regulate activity wholly outside of its borders.”regulate activity wholly outside of its borders.”

If the standard is not applied nationwide the If the standard is not applied nationwide the potential for leakage is significant.potential for leakage is significant.p g gp g g

Lesson 1:Lesson 1:The incumbent technology will adapt.The incumbent technology will adapt.

Oil prices statistically appear to be a random walk, but they respond Oil prices statistically appear to be a random walk, but they respond to market changes and the limits on OPEC’s market powerto market changes and the limits on OPEC’s market powerto market changes and the limits on OPEC s market power.to market changes and the limits on OPEC s market power.Low oil prices can strand investments in alternative fuels.Low oil prices can strand investments in alternative fuels.

World Crude Oil Prices 1930 2010

$100

$120

World Crude Oil Prices, 1930‐2010

$ 2009 After OPECAlgeria

$80

$100

Barrel

$ NominalAlgeria Angola Ecuador Iran Iraq

$40

$60

Dollars per Iraq

Kuwait Libya Nigeria Qatar

$20

$40

2009

Before OPEC

Qatar Saudi Arabia UAE Venezuela

$0

1930 1940 1950 1960 1970 1980 1990 2000 2010

Source: BP Statistical Review 2010.Venezuela

Lesson 2:Lesson 2:M k t d ’t ilM k t d ’t ilMass markets don’t necessarily grow Mass markets don’t necessarily grow

out of niche markets.out of niche markets.

Lesson 3:Lesson 3:Fleets are often not the best place toFleets are often not the best place toFleets are often not the best place to Fleets are often not the best place to nurture alternative fuels and vehicles.nurture alternative fuels and vehicles.

Lesson 4:Lesson 4:Lesson 4:Lesson 4:The political system has not yet shown The political system has not yet shown

illi t i i ifi tilli t i i ifi ta willingness to impose significant a willingness to impose significant visible costs on private players.visible costs on private players.

Lesson 5:Lesson 5:Lesson 5:Lesson 5:Unregulated and unsubsidized private Unregulated and unsubsidized private

sector investment in refuelingsector investment in refuelingsector investment in refueling sector investment in refueling infrastructure has been very limited.infrastructure has been very limited.

(vehicle manufacturing)(vehicle manufacturing)

L 6L 6Lesson 6:Lesson 6:Mainstream consumers are unwilling to Mainstream consumers are unwilling to

accept the disadvantages of alternative fuels.accept the disadvantages of alternative fuels.

The social benefits of alternative fuels are not The social benefits of alternative fuels are not valued by mainstream consumers.valued by mainstream consumers.yy

Lesson 7:Lesson 7:CCCoordination between auto and oil Coordination between auto and oil

industries is vital.industries is vital.

Lesson 8:Lesson 8:In both the auto and oil industriesIn both the auto and oil industriesIn both the auto and oil industries, In both the auto and oil industries,

scale is critically important.scale is critically important.

McNutt and Rodgers conclusions McNutt and Rodgers conclusions ill lid dill lid dstill seem valid today.still seem valid today.

Lower energy density fuels significantly raise the Lower energy density fuels significantly raise the gy y g ygy y g ycost of infrastructure and impose ongoing time cost of infrastructure and impose ongoing time costs on consumers.costs on consumers.Th i t l i t b fit f AFV t Th i t l i t b fit f AFV t The incremental private benefits of AFVs to The incremental private benefits of AFVs to consumers are likely to be small. Policies to consumers are likely to be small. Policies to value the social benefits will be needed.value the social benefits will be needed.

Infrastructure development may be the limiting Infrastructure development may be the limiting factor. Private sector investment is likely to be factor. Private sector investment is likely to be inadequate to traverse the “valley of death”inadequate to traverse the “valley of death”inadequate to traverse the valley of death .inadequate to traverse the valley of death .

What’s different:What’s different:•• Climate ChangeClimate ChangeClimate ChangeClimate Change•• SustainabilitySustainability

Achieving climate protection goals will likely require a largeAchieving climate protection goals will likely require a large--scale energy transition. There are real economic barriers scale energy transition. There are real economic barriers gygy

to displacing the incumbent technology.to displacing the incumbent technology.

Lack of scale economiesLack of scale economies Lack of scale economiesLack of scale economies Need for learning by doingNeed for learning by doing Lack of choice diversityLack of choice diversityyy Risk aversion Risk aversion Fuel availability “chicken or egg”Fuel availability “chicken or egg” Uncertainty of technological changeUncertainty of technological change Petroleum price responsePetroleum price response

k t i f ti k t i f ti + market imperfections+ market imperfections•• ExternalitiesExternalities•• Energy efficiency paradox (behavioral economics)Energy efficiency paradox (behavioral economics)gy y p ( )gy y p ( )•• Monopoly power in world oil marketsMonopoly power in world oil markets

Upfront costs of a fuel transition can prevent or Upfront costs of a fuel transition can prevent or significantly delay the transitionsignificantly delay the transitionsignificantly delay the transition.significantly delay the transition.

Simulated Auto Industry Cash Flow From Sale of Hydrogen Fuel Cell Vehicles, No Policy Case

$3

Cash Flow for H2 Transition Scenario

150

-$1

$0

$1

$2

2010 2015 2020 2025

of D

olla

rs

Scenario3Scenario2Scenario1

-50

0

50

100

2005 2010 2015 2020 2025

dolla

rs/y

ear

Capital

O&M

-$4

-$3

-$2

-$1

Billi

ons

o

-250

-200

-150

-100

Mill

ion

d

H2 sales

Cash flow

Cumulative cash-$5 Year flow Ogden and Nicholas, 2011.Greene et al., 2008

NRC 2008

NRC 2010

Technological progress is uncertain.Technological progress is uncertain.(And the incumbent technology will adapt.)(And the incumbent technology will adapt.)

Cost Estimates of Automotive Fuel Cell Systems at Full Scale and Learning (DTI 2011 2009) and Extrapolations

$275

$250

$300

and Learning (DTI, 2011, 2009) and Extrapolations

DTI Estimates

Power

$200

kW

Quadratic

Logarithmic

Exponential

$106$$100

$150

Dollars per Exponential

$94$75

$61

$51$48$50

$100

$02002 2004 2006 2008 2010 2012 2014 2016 2018 2020

There is great uncertainty about the value of the There is great uncertainty about the value of the i l b fit lli l b fit llsocial benefits, as well.social benefits, as well.

Range of Estimatesof Social Cost of CO2

$120

$140

Range of Estimates of Social Cost of CO2

3% 95th

2.5% Ave.

$80

$100

er Ton

3% Ave.

5% Ave.

$40

$60

2007

$ pe

$0

$20

$40

$02010 2015 2020 2025 2030 2035 2040 2045 2050

Interagency Working Group on the Social Costs of Carbon, U.S. Government, Feb., 2010.

Can this problem be solved by internalizing externalities? Can this problem be solved by internalizing externalities? Maybe, but very likely not.Maybe, but very likely not.

(Benefits could be 10X costs.)(Benefits could be 10X costs.)

WORSE (hi h t)But we are

WORSE (higher cost)But we are actually HERE and the alternative is THERETHERE

Markets think they Markets think they are HERE and the alternative is THERE

BETTER (lower cost)

It’s a network market.It’s a network market.““S ti l d ti t l t lti l t tiS ti l d ti t l t lti l t ti ilib iilib i i t thi t th““Sequential adoption translates multiple static Sequential adoption translates multiple static equilibriaequilibria into the into the

adoption dynamics characteristic of network markets: adoption dynamics characteristic of network markets: early instability early instability and later lockand later lock--inin.” (Farrell and Klemperer, 2007, p. 1975).” (Farrell and Klemperer, 2007, p. 1975)

Looked at another way, the reductions in transition Looked at another way, the reductions in transition costs created by early adopters become costs created by early adopters become external external benefits.benefits.•• Learning by Learning by doingdoing

•• Scale economiesScale economies

•• Diversity of choiceDiversity of choicee s ty o c o cee s ty o c o ce

•• Learning on demand side (early adopter, etc.)Learning on demand side (early adopter, etc.)

•• Chicken or egg (fuel availabilityChicken or egg (fuel availability))

Another refueling/recharging station produces indirect Another refueling/recharging station produces indirect Another refueling/recharging station produces indirect Another refueling/recharging station produces indirect external benefits for vehicle owners.external benefits for vehicle owners.

Another vehicle on the road makes alternative fuels Another vehicle on the road makes alternative fuels stations more profitable.stations more profitable.pp

Early adopters: pioneers who will change the world?Early adopters: pioneers who will change the world?

Thank you.Thank you.

Carbon ReservoirsAtmosphere 800 GtC (2004)

BiomassBiomass500500 GtCGtC

OilOil270270 GtCGtC

N. GasN. Gas260~260 GtCGtC~500 ~500 GtCGtC

SoilsSoils

~270 ~270 GtCGtC~260 ~260 GtCGtC

~1,500 ~1,500 GtCGtC

CoalCoal5,000 to 8,000 GtC5,000 to 8,000 GtC

14

Unconventional Fossil Fuels15,000 to 40,000 GtC Source: Edmonds, 2005Source: Edmonds, 2005

The proposed 2017The proposed 2017--2025 US standards appear to put light2025 US standards appear to put light--duty vehicles on a path toward an 80% reduction in COduty vehicles on a path toward an 80% reduction in COduty vehicles on a path toward an 80% reduction in COduty vehicles on a path toward an 80% reduction in CO22

emissions through 2025. What then? emissions through 2025. What then?

Effect of Fuel Economy Standards on Light duty Vehicle

1400

1600

.

Effect of Fuel Economy Standards on Light‐duty Vehicle GHG Emissions

NoMitigation

1000

1200

1400

ons CO

2Eq

No Mitigation

AEO 2011

New Standards

600

800

n Metric To One 80% Path

0

200

400

Million

2010 2015 2020 2025 2030 2035 2040 2045 2050

Argonne’s Multipath study, like MIT’s Argonne’s Multipath study, like MIT’s On the Road in On the Road in 20352035 foresees gradual improvements in technology but foresees gradual improvements in technology but g p gyg p gy

not enough to make their prices less than an ICE.not enough to make their prices less than an ICE.

Long‐run Cost Estimates of ANL 2009 Multipath Study

$40 000

$45,000

$50,000

Markup

$30,000

$35,000

$40,000 Markup

Glider Cost

Other

Exhaust

Fuel System

$15 000

$20,000

$25,000Fuel System

High V Energy Storage

Transmission

Controller Inverter

M

$5,000

$10,000

$15,000 Motor

Generator

Fuel Cell

Engine

$02015 2030 2045 2015 2030 2045 2015 2030 2045 2015 2030 2045 2015 2030 2045

ICE 2007 EV FCV HEV PHEV40

Other estimates show BEVs and FCVs eventually Other estimates show BEVs and FCVs eventually b i h th ICE d HEVb i h th ICE d HEVbecoming cheaper than ICEs and HEVs.becoming cheaper than ICEs and HEVs.

Estimated Incremental RPEs for Advanced Technologies

$14,000

Expected Progress (German, 2011), 1.3 Markup

ICE

HEV$29 500

$10,000

$12,000

ehicle

HEV

CNG ICE

CNG HEV

PHEV

$29,500

$6,000

$8,000

10 Dollars per V BEV

FCV

$2,000

$4,000

201

$02010 2015 2020 2025 2030 2035 2040 2045 2050

Is a transition Is a transition to to alternative energy vehicles alternative energy vehicles likely to be worth it?likely to be worth it?likely to be worth it?likely to be worth it?

Based on the NRC 2009 study of “maximum Based on the NRC 2009 study of “maximum practicable” hydrogen fuel cell vehicles study.practicable” hydrogen fuel cell vehicles study. Rough estimation based on figures 6.32 and 6.33:Rough estimation based on figures 6.32 and 6.33:

Approx. 20 Approx. 20 GigatonsGigatons cumulative COcumulative CO22 reduction by reduction by 20502050

Approx. 50 billion barrels of reduced petroleum Approx. 50 billion barrels of reduced petroleum consumptionconsumption

C ti t d ll & C ti t d ll & di t ddi t d Converting to dollars & Converting to dollars & undiscounted:undiscounted: CO2 at $50/tonCO2 at $50/ton $$1 Trillion1 Trillion Oil security at $20/bblOil security at $20/bbl $$1 Trillion1 Trillion Oil security at $20/bblOil security at $20/bbl $$1 Trillion1 Trillion

Very roughly, estimated Very roughly, estimated excess cost of transition excess cost of transition appears to be an order appears to be an order of of magnitude smaller than magnitude smaller than the estimated value the estimated value of public of public benefits (assuming benefits (assuming the estimated value the estimated value of public of public benefits (assuming benefits (assuming technology development is successful).technology development is successful).

If the external benefits of early adoption were “visible” If the external benefits of early adoption were “visible” there there would would bb i t l “ illii t l “ illi tt ”” f l i hi l if l i hi l ibe be a a societal “willingnesssocietal “willingness--toto--pay” pay” for placing more vehicles in for placing more vehicles in

operation operation as well as consumers’ “willingnessas well as consumers’ “willingness--toto--accept” accept” a vehiclea vehicle..

$ Required subsidy per vehicle(willingness to accept)

SocialSurplus (willingness to accept)

External benefits per vehicle(willingness to pay)

Consumers’ SurplusPt

Number of Vehicles Year t

(willingness to pay)

0 Nt Number of Vehicles, Year t

The transition process contains important positive The transition process contains important positive feedbacks loops, making it path dependent. feedbacks loops, making it path dependent. p g p pp g p p

Parameters& Policies

Technical Attributes& Prices Of Vehicles

Innovators& Majority

BaselineProjectionsj y j

Vehicle ChoiceCalibration

Vehicle Choice &Utility Decompositiony p

Vehicle SalesEnergy

Vehicle Stock

Vehicle Use

Infrastructure& Costs

Results Summary e c e Use

Energy UsePHEV Energy Use

esu ts Su a y

ScenariosSt d

GHG EmissionsStored

FOR EXAMPLE, 1,000 hydrogen stations are put in service by 2016, FOR EXAMPLE, 1,000 hydrogen stations are put in service by 2016, when masswhen mass--produced fuel cell vehicles are first available to the public. produced fuel cell vehicles are first available to the public.

Manufacturers heavily subsidize the first few vehicles sold, then the Manufacturers heavily subsidize the first few vehicles sold, then the y ,y ,government provides a $7,500 tax credit which is phased out by 2026.government provides a $7,500 tax credit which is phased out by 2026.

Vehicle Subsidies, Stations Mandated/Subsidized

600

700

$0

$5,000

2010 2020 2030 2040 2050

For illustrative purposes only.

400

500

‐$10,000

‐$5,000

ons

cle

Car FCV

Trk FCV

200

300

‐$20,000

‐$15,000

umbe

r of Statio

Dollars per Veh

ic

Car PHEV

Trk PHEV

Car BEV

Trk BEV

100

200

‐$30,000

‐$25,000

NuD

Stations

‐100

0

‐$40,000

‐$35,000

Although it takes 10 years to reach 10% of the market, fuel Although it takes 10 years to reach 10% of the market, fuel cell vehicles eventually reach an 80% market share.cell vehicles eventually reach an 80% market share.yy

90%

Vehicle Technology Market Shares

70%

80%

90%


50%

60%

ar Sales (%

)

t FCV h

30%

40%

Share of New

Ca current FCV share

current EV share

current PHEV share

10%

20%

S

0%2010 2015 2020 2025 2030 2035 2040 2045

The reduction in GHG emissions versus 2005 is almost 80%.The reduction in GHG emissions versus 2005 is almost 80%.

0%

Changes in Petroleum Use and GHG Emissions


‐20%

‐10%

0%

Changes in Emissions

Changes in Petroleum Consumption


‐40%

‐30%

on from

2005

Consumption

70%

‐60%

‐50%

rcen

t Red

uctio

‐90%

‐80%

‐70%

Per

‐100%2010 2020 2030 2040 2050

Take away the subsidies but keep the preTake away the subsidies but keep the pre--installed installed infrastructure and the transition disappearsinfrastructure and the transition disappearsinfrastructure and the transition disappears.infrastructure and the transition disappears.

0 014%


0.012%

0.014%


0.008%

0.010%

Sales (%

)

0.006%

hare of N

ew Car current FCV share

current EV share

current PHEV share

0.002%

0.004%

Sh

0.000%2010 2015 2020 2025 2030 2035 2040 2045

Take away the preTake away the pre--installed infrastructure but keep the installed infrastructure but keep the subsidies. The response is highly nonsubsidies. The response is highly non--linear with strong linear with strong g yg y gg

positive feedbacks.positive feedbacks.

0 014%


0.012%

0.014%


0.008%

0.010%

Sales (%

)

0.006%

hare of N

ew Car current FCV share

current EV share

current PHEV share

0.002%

0.004%

Sh

0.000%2010 2015 2020 2025 2030 2035 2040 2045

Without any market interventions to break down the Without any market interventions to break down the transition barriers costs decline over time, mostly due to transition barriers costs decline over time, mostly due to , y, y

technological progress, but not nearly enough.technological progress, but not nearly enough.

Dollar Equivalent Utility Index for HydrogenFuel Cell Passenger Cars

$140,000

$160,000

Dollar Equivalent Utility Index for Hydrogen Fuel Cell Passenger Cars


$100,000

$120,000

10 Dollars)

Diversity

Majority

Fuel Availability

$60,000

$80,000

ity In

dex (201 Fuel Availability

Maintenance

Refueling Time

Range

E C t

$20,000

$40,000Utili Energy Cost

Price

$02010 2015 2020 2025 2030 2035 2040 2045 2050

The innovators and early adopters drive the early market.The innovators and early adopters drive the early market.y p yy p y


$140,000

$160,000


$100,000

$120,000

2010

Dollars)

Diversity

Innovator

Fuel Availability

$60,000

$80,000

tility In

dex (2 Maintenance

Refueling Time

Range

Energy Cost

$20,000

$40,000Ut

Price

$02010 2015 2020 2025 2030 2035 2040 2045 2050

PrePre--installation of refueling infrastructure and vehicle installation of refueling infrastructure and vehicle subsidies are effective even though majority consumers’ subsidies are effective even though majority consumers’

risk aversion, lack of diversity in vehicle choices, and risk aversion, lack of diversity in vehicle choices, and higher fuel costs must still be overcome.higher fuel costs must still be overcome.

$140,000

$160,000



$100,000

$120,000

$ 0,000

Dollars)

Diversity

Majority

$60,000

$80,000

$ ,

y In

dex (2010

Fuel Availability

Maintenance

Refueling Time

Range

$20,000

$40,000Utility

Energy Cost

Price

$02010 2015 2020 2025 2030 2035 2040 2045 2050

Important questions remain to be answered.Important questions remain to be answered.Important questions remain to be answered.Important questions remain to be answered.

How can we accomplish largeHow can we accomplish large--scale energy scale energy p gp g gygytransitions for the public good?transitions for the public good?•• Are there ways to transform the market so that Are there ways to transform the market so that

positive external benefits are valued?positive external benefits are valued?pp•• How can the private benefits of alternative How can the private benefits of alternative

technologies be made known and enhanced?technologies be made known and enhanced?•• How can we cope with technology & market How can we cope with technology & market •• How can we cope with technology & market How can we cope with technology & market

uncertainties?uncertainties?•• What are the robust, efficient supporting policies?What are the robust, efficient supporting policies?

How much can we reduce uncertainty about the How much can we reduce uncertainty about the How much can we reduce uncertainty about the How much can we reduce uncertainty about the transition processes and parameters so that we transition processes and parameters so that we better understand the challenges?better understand the challenges?

Two NRC studies and one DOE study concluded that Two NRC studies and one DOE study concluded that transition costs, though they may persist for a decade or transition costs, though they may persist for a decade or , g y y p, g y y p

so, may be a small fraction of total so, may be a small fraction of total social+privatesocial+private benefits. benefits.

C d fi f i i

$50,000

$60,000

Costs and Benefits of Transition


$40,000

$50,000

Millions of $

GHG Mitigation

Petroleum Reduction

$20,000

$30,000

esen

t Value

in M

Uncounted Energy

Surplus Change

Subsidies

Total NPV

$0

$10,000

2010 2020 2030 2040 2050

Net Pre

Total NPV

‐$10,000

Thesis: We lack a public policy paradigm and the Thesis: We lack a public policy paradigm and the analytical tools to manage such a large scaleanalytical tools to manage such a large scaleanalytical tools to manage such a large scale analytical tools to manage such a large scale

energy transition for the public good.energy transition for the public good.

Technological outcomes are uncertain.Technological outcomes are uncertain. Energy prices are uncertain.Energy prices are uncertain.gy pgy p Magnitudes of the market barriers are Magnitudes of the market barriers are

uncertain.uncertain. Consumer values are uncertain.Consumer values are uncertain. Value of public goods also uncertain.Value of public goods also uncertain.p gp g And yet, solutions appear to require And yet, solutions appear to require

urgent, transforming action.urgent, transforming action.

Petroleum also provides 95% of the energy for global Petroleum also provides 95% of the energy for global transporttransporttransport. transport.

5050

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