Electric vehicles represent one of the most promising technologies for reducing oil use and cutting emissions. A new study on e-mobility from the World Energy Council looks at fuel economy targets in the world’s biggest car markets – the EU, US and China – and identifies ways for increasing the numbers of electric vehicles in order to close the emissions gap and meet fuel economy standards. Policymakers, utilities, consumers and vehicle manufacturers all have a part to play. Article courtesy World Energy Focus.
The EU, US and China, the world’s largest car markets with collective annual demand of over 40 million passenger vehicles, have all set fuel economy improvement targets of approximately 30% for cars from 2014 to 2020 (as measured in gCO2/km) – remarkable for their similarity and ambition.
However, as the World Energy Council’s Director of Policy and Scenarios, Professor Karl Rose comments: “I’m not sure how many realise that the standards that are being set are out of range of the internal combustion engine. You have to look at the numbers to see what the implications are. In order to close the emissions gap, you need e-mobility in a central role in any policy and technology portfolio.”
As battery prices come down, electric vehicles will be the more economical option by about 21 percent
This what is called the ‘EV gap’: it refers to the electric vehicle (EV) sales required to meet fuel economy targets for passenger cars. In the EU, the EV gap is 1.4 million (10% of the estimated 2020 passenger car sales), in the US, it is closer to 0.9 million (11% of the projected 2020 passenger car sales), and in China, it is about 5.3 million (22% of the projected passenger car sales). Closing the ‘EV gap’ could make a significant impact towards country-level CO2 emissions reduction goals.
But what do consumers want? A lot is going to depend on the costs. And the new study has some interesting results on this. According to Ted Walker, Managing Director in Accenture’s North America Utilities Strategy practice group, who participated in the study: “The fuel price spread between gasoline and electricity isn’t all that big. So for now, TCOA (total cost of ownership) is about the same, but projecting five years ahead, as battery prices come down, electric vehicles will be the more economical option by about 21 percent.”
Then of course there is the question of what is called ‘range anxiety’. Justin Davidson, Senior Manager in Accenture’s Strategy Practice, notes that “although upfront cost of ownership plays the largest role in consumer decision-making, another major factor is the customer’s ‘range anxiety’. This is a real issue. But looking at the average commute, 70 percent can be met currently by electric vehicles.”
“What we need is for government to make investments in infrastructure – to stop talking and start doing”
Various incentives – including tax breaks and free parking – have been used by governments to support EV take-up. However, as Davidson says, “In terms of consumer incentives, it’s a chicken and egg situation – TCOA versus charging solutions. Which comes first? Really it is both.”
An opportunity for partnership
Combining consumer incentives with charging solutions can provide ‘an opportunity for vehicle manufacturers and utility electricity providers to partner to deliver a superior value proposition to consumers’, according to the report. Walker explains: “It’s important to have comprehensive charging access solutions, but also to align incentives such as cheap night time electricity with current incentives such as tax breaks.”
Policymakers take note: standardisation will be a key factor in enabling cooperation between utilities and manufacturers. Walker says: “There’s a many-to-many solution (vehicle types to utilities) which needs to happen. Standards will encourage more interoperability here. If you look at the United States, there are competing networks but there are also aggregators that allow more convenience for the consumer, which is very important.”
And EV charging networks may look quite different to traditional hydrocarbon refuelling. Allison Myers, Strategy Consultant at Accenture, says: “Charging an EV is not the same as refuelling at a gas station. A mind-shift is necessary here. The ability to charge at home is actually the most important, followed by the workplace.”
“In general, their strategy is defensive and it can be difficult to determine who is sincere”
But how eager are utilities to engage? Rose says: “Overall, utilities are reluctant to move in this direction. I’m the chairman of a utility here in Austria, and we are currently investing millions in a nationwide charging network. It’s a huge gamble – but we’re doing it because the government is not doing anything. What we need is for government to make investments in infrastructure – to stop talking and start doing.”
Vehicle manufacturers are also slow to capitalise on this new market opportunity, according to Rose. “In general, their strategy is defensive and it can be difficult to determine who is sincere. I think that Toyota is sincere, and that the French manufacturers are really trying and offering many new models – they understand that this is a future they need to be part of.”
In fairness to the manufacturers, change on this scale is not instantaneous. Walker: “Manufacturers can ramp up only so fast. It might take ten years to increase production to 500,000 vehicles per year.”
Industries: Vehicle manufacturers will need to respond to regulatory pressures and shift their product portfolio to avoid material penalties. There is an opportunity for vehicle manufacturers and utility electricity providers to partner to deliver a superior value proposition to consumers.
Utilities: Electricity demand attributed to new EVs can be managed with proper planning by utilities (expected annual incremental generation requirements fall below 0.5% of 2014 total electricity generation in all three markets analysed) and could be further mitigated at the local level with emerging technologies such as vehicle-to-grid (V2G) solutions.
Policymakers: Ensure that consumer and manufacturer incentives align with new or considered emissions standards. Monitor effects of increased electricity demand to preserve the integrity of grid operations.
Regulators: Examine how the proposed fuel economy requirements can be matched with incentive programmes (financial and operational) and collaborate with industry in order to realise desired reductions in CO2.
At the country level, the report cites successful EV initiatives in New Zealand and Norway. Myers notes: “Solutions can be provided more easily in smaller countries which are more homogeneous – it’s easier to raise awareness and build the infrastructure.”
Norway’s model of tax breaks, subsidies and preferential treatment of EV drivers on the road has led to EVs capturing over 20% of new vehicles sold in in 2015. Low cost hydro powered electricity and no domestic car manufacturers to protect were distinct advantages in achieving this degree of market penetration. In 2015, Norway was the 4th biggest EV market in the world – behind China, the US and the Netherlands.
“I think via different pathways all three will mind the emissions gap”
But what of the three biggest car markets in the world – the EU, US and China: who will be successful in closing the gap?
Davidson speaks for the team at Accenture: “We think all three can close the gap, but for different reasons. China has a much bigger target to meet. But its policymakers have a much higher degree of control. China can steer the ship and meet goals purely by mandate. Here in the US, it’s more of an innovation story. Tesla, Ford and others are investing in the belief that this will be a mass market product. The EU has demonstrated the most seriousness on emissions as a societal issue. For example, Norway is considering banning the sale of internal combustion engine vehicles by 2025, and it wouldn’t be a surprise if other countries followed suit. So I think via different pathways all three will mind the emissions gap.”
This article was first published on World Energy Focus, the free monthly magazine of the World Energy Council produced by Energy Post.
World Energy Council’s report E-mobility – Closing the Emissions Gap can be freely downloaded.