TRB Environment Energy Conference - NCSU

0©Copyright 2010 The Martec Group, Inc. All Rights Reserved©Copyright 2010 The Martec Group, Inc. All Rights Reserved

California LCFS and theLong Road to ZEV

TRB Environment & Energy Conference

June 8, 2010

1©Copyright 2010 The Martec Group, Inc. All Rights Reserved

What is our national objective?

Stabilize and reduce GHG emissions

Reduce consumption of petroleum . .. . . enhance energy security

Provide the greatest good at thelowest societal cost . . .

. . . Expand national wealth & prosperity of the U.S.

EPA Wedge Analysis

First 14 years: ‐1.4%Second 30 years: ‐5.2%


1994

LEV I• NOx limits reduced 50%

• Vehicles and fuels regulated as a system

CAA Sec. 209(a)• CA authority to regulate light duty vehicle criteria emissions

• PGM ‐based catalytic converter introduced

LEV II• NOx limits reduced 75%

• Near harmonization with Federal Tier 2 regulations

2004

ZEV• 10% sales mandate overturned

• Mandate met with credits oAT‐PZEVoPZEVoNG oFuel Cell

2005

GHG• AB 1493 • AB 32• SB 375• Cap & Trade• Low Carbon Fuel Standard

• Renewable Portfolio Standard

2009 2010

LEV III• NOx and NMOG reductions to near zero

• 2009‐2020 = 45% GHG reduction

1975

CARB has approved the Low Carbon Fuel Standard (LCFS) for implementation in 2011.

California Regulation of Mobile Source Emissions

The mission to reduce urban smog has morphed into the control of all energy consumption.


CAFE Certification: 2 Cycle

• Test cycles created in 1975• Prime emphasis is city driving (55/45)• 38 mph average speed • No A/C, radio, lights, heat

Real World Label: 5‐Cycle

• Updated in 2006 under pressure from Congress

• Prime emphasis is highway driving (43/57)

• Accessories are recognized

Both EPA and NHTSA are interested in developing programs that employ test procedures that are morerepresentative of real world driving conditions . . . This is an important issue, and the agencies intend to address itin the context of a future rulemaking to address standards for model year 2017 and thereafter.

The gap between EPA’s lab certification tests and real world MPG/CO2performance is widening.


Ethanol blends reduce energy density and fuel economy – not comprehendedon 2‐cycle tests.

75,000

85,000

95,000

105,000

115,000

125,000

135,000

Low

er H

eatin

g Va

lue

per G

allo

n

CAFEIndolene

RFG E10 E85 CAFE B5 B20

‐2.4%

‐27.8%

‐0.4% ‐1.4%Gasoline ULSD

Renewable Fuels Energy Density per Gallon

‐5.8%

E15

‐3.4%

Not comprehended in 5‐cycle label methodology


2‐cycle lab certification test cycles are being exploited, increasing off‐cycle emissions.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%+46%

Gas FleetIndolene

Gas FleetE10

No. 1 HEVE10

+ 24%

1.6XCycle Beating

Effect

Incr

ease

in Off‐Cycle

CO

2 Em

issi

ons

Lab Certification vs. Off‐Cycle Emissions Gap

+28%

‐ 4.9 mpg ‐ 5.5 mpg ‐ 22.4 mpg

4. Off‐cycle Technology Credits Further, any credits for these off‐cycle technologies must be based on real‐world GHG reductions not captured on the current 2‐cycle tests and verifiable test methods, and represent average U.S. driving conditions. ‐ Proposed rule page 162


CA LCFS exists within a national renewable fuels program regulatingdifferent outcomes.

• Life cycle CO2 reduced 10% on an energy equivalent basis

• Each fuel pool regulated individually• Back‐end loaded: 2014‐2020 CAGR = (1.49%)

RFS: Forces Renewable Gallons LCFS: Forces Life Cycle CO2 Reduction

• Oil replacement policy pre‐dating CO2• Energy security – monopsony• Important linkage to job creation and U.S. balance of trade improvement

National E10


RFS2 measures ethanol‐equivalent gallons – renewable diesel’s high energydensity fundamentally shifts compliance economics.

RFS2 Standard

RFS2 Ethanol‐Equivalent Billion Gallons

Cellulosic Billions of Gallons

R‐Diesel

Ethanol

Fischer‐Tropsch BTL diesel is expected to account for 70% of the cellulosic fuel requirement by 2022. National B10.

30.5B real gallons = 36B ethanol‐equivalent gallons

EPA Expected RFS2 Compliance

National E15 in 2022

National E10


‐$0.20

‐$0.10

$0.00

$0.10

$0.20

$0.30

$0.40

2006 2010 2014 2018 2022 2026 2030

EPA will allow midlevel blends making E85 a dead fuel and sweeping awaypromised CO2 credits with it.

Source: EIA Annual Energy Forecast Reference Case

E85 Energy Equivalent Pump Price/gal. Over (Under) E10 – EIA AEO 2010

Parity

E15 midlevel blends allowed: • E85 price no longer needs to attract customers to comply with RFS2

• Significant US and CA FFV credits vaporize without E85 fuel

• $ billions of FFV vehicle hardware wasted

• < 1% stations have E85 pumps• GM, Ford, Chrysler commit to > 50% FFVs


85

87

89

91

93

95

97

99

2010 2012 2014 2016 2018 2020

LCFS Compliance With Alternative Fuel Pathways

Under LCFS, fuels are no longer fungible commodities.

WTW gCO2e/MJ

Gasoline pool

Diesel pool

MW Corn Ethanol E100

E15 CellulosicEthanol(CA farmed trees)

2010 CA grid Electricity 124.1

Brazilian E15 (Sugarcane)10% Grid Energy LDV(2020 CA Grid)

Washington State Gasoline Blendstock


0 25 50 75 100

Midwestern Corn

Brazilian Sugarcane

Cellulosic ‐ CA Farmed Trees

Under LCFS, the price of Brazilian ethanol can sell at prices far above MWcorn ethanol . . . CA cellulosic 3X higher than sugarcane ethanol.

iLUC

gCO2e/MJ

LCFS Carbon Intensity of Ethanol and EPA 2022 Delivered Costs/gal.

$1.72/gal

$1.72/gal

$1.49/gal

Capital Invested:

Shell $1.6B

DOE $1.6B


California’s long march toward vehicle electrification continues.

Battery EV

AT‐PZEV

“In an attempt to leapfrog Toyota, GM has devoted significantresources to the Chevy Volt. While the Volt holds promise, it iscurrently projected to be much more expensive than itsgasoline‐fueled peers and will likely need substantial reductionsin manufacturing cost in order to become commercially viable.”

White House Auto Task ForceGM Viability Determination

3.30.09

Battery EV

Fuel Cell EV

$8‐15B . . . and counting

Grid ConnectedPHEV

“. . . because these cars won't leave the showroom unlessconsumers buy them, the Recovery Act includes a new taxcredit of $7,500 to encourage Americans to plug one in athome.”

President Obama3.19.09

http://upload.wikimedia.org/wikipedia/commons/4/44/Recycle001.svg

http://www.hybridcarblog.com/uploaded_images/hyundai_tuscon_fuel_cell_vehicle-763036.jpg


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

LCFS is strongly linked to CARB’s ZEV sales mandate.

Light Duty EER

CARB PHEV 2‐Cycle FE Test – compared to 2006 average car.

Charge Depleting PHEV5‐cycle

Charge Sustaining5‐cycle

124.1 gCO2e/MJ 2010 CA Grid3.0 EER

WSPA* study showed 5‐cycle fuel economy is appropriate real‐world measure ‐ not 2‐cycle lab.

CARB 2020 LD Fleet Market Share Assumptions – ZEV Technologies Low High

PHEV 4% 20%

BEV 1.3 6.7

FCEV 1% 3.7%

*Western States Petroleum Association

Not indexed to improving fleet average under Pavley and EPA rules .

41.37


Vehicle depreciation is not comprehended in federal or state CO2 rulemaking.

VehicleRetail Price

5‐CycleMPG

Residual Percent

68k Miles 100k Miles

Prius $25,002 47 40% 29%

Camry L4 $21,291 25 41% 31%

Corolla $16,652 28 43% 32%

Miles

Based on Manheim Auction results. Vehicle sales tax and maintenance costs are not captured in this analysis.

Residual Value Performance at Mileage – 1/2009 – 3/2010


Prius depreciates at a faster rate than Camry, sharply eroding the economicsof fuel savings.

$(3,000)

$(2,000)

$(1,000)

$‐

$1,000

$2,000

$3,000

Manheim Action results from Jan 2009 to March 2010. 8.5% discount factor represents new car bank rate.

14,000 28,000 42,000 55,000 68,000

Miles

Total

Residual Tax: ($1.72)GallonSaved

1,231 Gallons Saved

Residual Value Performance

Fuel Savings

Consumers Who Selected Prius Over Camry L4


Compared to the Corolla, Prius deprecation destroys all fuel expense savings.

$(6,000)

$(5,000)

$(4,000)

$(3,000)

$(2,000)

$(1,000)

$‐

$1,000

$2,000

$3,000

14,000 28,000 42,000 55,000 68,000

Miles

Total

Residual Tax: ($5.37)GallonSaved

939 Gallons Saved

Residual Value Performance

Fuel Savings

Manheim auction results from Jan 2009 to March 2010. 8.5% discount factor represents new car bank rate.

Consumers Who Selected Prius Over Corolla


The EV range and cost relationship with ICE has changed little in 100 years.

1913

Detroit Electric$2,60060 miles

Model T$650180 miles

“ A mileage radius farther than you will ever care to travel in a day.”

1/3 range4X cost

ICE vehicle rangeEV range

2010

Nissan Leaf$33,000

100 miles

Nissan Versa$12,000

400 miles

“We expect the battery to have a lifespan of about 5 years. Like any battery, time and age will lead to a corresponding decrease in range.”

1/4 range3X cost

EPA2‐CycleTest


To expand American prosperity, policies must achieve the greatest good atthe lowest societal cost.

Summary

1. Antiquated 2‐cycle test procedures lead to massive off‐cycle CO2 emissions• Widening gap between promise and delivery on fleet emissions in the real‐world.• Policy makers will be accountable in barrels and tonnes.

2. LCFS exists within a national RFS2 framework• Fundamentally different objectives.• Fuels no longer fungible in CA – competition for low CO2 fuels in CA will test the prices

consumers can bear at the pump.• CA likely to lead nation on E15 blends with falling energy density per gallon for CA

consumers. Not revealed in label fuel economy reporting.

3. Once E15 is allowed, E85 will become a dead fuel• $ billions of FFV hardware wasted.• Future FFV credits available under CO2 rules will evaporate.

4. Inferior residual value performance is a hidden tax on consumers• Battery is source of inferior HEV performance in secondary market.• Hidden tax can eliminate all fuel expense savings derived from the technology.• In all likelihood, PHEVs and BEVs will experience heavy depreciation in a nation where

the average vehicle is 9.4 years old.

martecgroup.com

TRB Environment Energy Conference - NCSU

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