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114 This appendix reviews the current status of vehicles that run on conventional fuels as well as potential developments that could affect their cost and performance in the future. â¢ Conventional fuels. These include gasoline and diesel fuel, both of which are refined from crude oil. Increas- ingly, conventional fuels are blended with small amounts of biofuelsâfor example, âE10â refers to gasoline with 10% ethanol as an oxygenate. Gasoline or diesel with modest blends of biofuels, given their common use today, are con- sidered as conventional fuels for the sake of this discussion; blends with much higher biofuel content, such as âE85,â are discussed separately in Appendix C, which focuses on biofuels. â¢ Conventional vehicles. These are defined as relying on an ICE to burn liquid fuels, including spark-ignition engines for gasoline and compression-ignition engines for diesel. Also included in this category are most current hybrid-electric vehiclesâthose that are unable to plug in to receive additional grid powerâsince all of their power ultimately derives from the combustion of conventional fuels. Plug-in hybrids and battery electric vehicles, which in contrast receive some or all of their power from the grid, are discussed in Appendix D, which focuses on elec- tric vehicles. By these definitions, nearly all passenger vehicles and light-duty trucks on the road today can be classified as con- ventional vehicles that run on conventional fuels. Relative to alternative fuels and vehicle technologies, conventional vehicles have traditionally offered travel at lower cost and accommodated longer ranges between refueling stops. The markets for conventional fuel distribution, new vehicles, and vehicle maintenance have been well established for many decades. Stricter federal fuel economy standards through 2025, which should act to reduce the per-mile energy cost of driving, and the possibility of a long-run trend toward moderate oil prices could reinforce continued reliance on conventional vehicles in the decades to come. On the other hand, there are several factors that could promote a shift away from conventional vehicles more rapidly than expected: â¢ The future price of petroleum. Higher prices for petroleum- based fuels could arise through market forces tied to increases in demand relative to supplies or through tax policies (i.e., fuel-tax increases) that increase the cost of petroleum relative to other transportation fuels. â¢ Increasing concern over climate change, air quality, and energy security. Efforts at the federal, state, and local levels to address climate change and energy security concerns may involve regulatory actions to promote a transition to lower-carbon fuel sources. â¢ Advancements in alternative fuels and vehicle tech- nologies. As other fuel and vehicle technologies develop and reduce costs, conventional options may become less attractive to consumers in comparison. A.1 Production, Distribution, and Refueling Gasoline and diesel fuel are generally derived from con- ventional and unconventional crude oil, although synthetic alternativesâsuch as from coal-to-liquid and gas-to-liquid technologiesâare also possible. Reserves of crude oil are dis- tributed around the globe. While the United States currently produces a considerable amount of oil from domestic wells, oil must still be imported to meet domestic demand. Once extracted from a reserve, crude oil is transported to refineries where it is processed into gasoline, diesel, and other refined petroleum products. After refining occurs, the fuel is trans- ported, primarily via pipelines and then trucks, to refueling stations. A p p e n d i x A Conventional Fuels and Vehicles
115 A.1.1 Crude Oil Production Crude oil is a mixture of hydrocarbons produced through geologic processes acting on organic matter. Crude oil also contains such trace elements as sulfur, nitrogen, salts, and heavy metals. Concentrations of sulfur can vary from close to zero to several percent. Low-sulfur oils are termed âsweet,â and high-sulfur oils are termed âsourâ crudes. In general, sweet crudes have a sulfur content below 0.5% by mass and are more easily converted to gasoline (Young 2006). Global production of oil and liquid hydrocarbons was 89.1 million barrels per day (mbd) in 2012. Of that amount, the United States produced 11.1 mbd, or 12% of the world total. Members of the Organization of the Petroleum Export- ing Countries (OPEC), comprising Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela, accounted for 41% of pro- duction worldwide. Output from former Soviet republicsâ primarily Russia, Azerbaijan, and Kazakhstanâaccounted for another 15%, exceeding the supply from Saudi Arabia, the largest OPEC producer. Other important sources are the North Sea, Canada, Mexico, and China. Between 1985 and 2006, U.S. output gradually declined as consumption rose, requiring increased imports of crude oil and finished products. In contrast, Russia and the other former Soviet republics have boosted output above past peaks during this period. Between 2006 and 2012, however, aided by new technologies for exploiting tight oil resources, U.S. produc- tion increased by almost 34%, helping to reduce the need for imports (EIA 2013b). The EIA now projects that U.S. crude oil production will continue to rise through 2020, spurred by increased demand and enabled by enhanced oil recovery techniques and more production from offshore and tight oil resources. After 2020, however, output is projected to decline back toward 2012 production levels, which stood at about 6.3 mbd (EIA 2013a). Outside the United States, increases in production are pro- jected to come from OPEC, especially the states bordering the Persian Gulf, from Russia and other former Soviet republics, and from new producers in Africa and Latin America. These suppliers are expected to provide the increase in oil output needed to satisfy the anticipated rise in global consumption through 2040 (EIA 2013a). A.1.2 Additional Sources of Crude Oil and Crude Oil Substitutes Most of the oil extracted by humans to date has been drawn from readily accessible reservoirs using well-established drill- ing and extraction technologies. While these will remain important in the coming decades, there will also be a greater role for emerging sources of crude oil and synthetic substitutes to meet rising global demand. Several options are possible. Producers might employ enhanced recovery techniques such as CO2 injection to extract more oil from existing wells, or they might drill for oil in harder-to-reach locations, such as ultra-deepwater and Arctic resources. Another option would be to expand production of petroleum from oil sands and tight oil resources. Oil shale could also be developed. Finally, there are processes by which other energy feedstocks, includ- ing coal and natural gas, might be converted to liquid fuels (IEA 2012). The emergence and successful application of technolo- gies to extract petroleum from such sources has been an important development in recent years, stimulating upward revisions in oil reserve estimates. In a recent analysis, the International Energy Agency estimated that global proven oil reserves, defined as the amount of oil that could likely be produced under current economic conditions with available technology, stood at 1.7 billion barrels in 2011 (IEA 2012). This corresponds to a proven reserves-to-production ratio, one indicator of future production potential, of about 55; that is, proven reserves should allow for continued production at current rates for about 55 years. In the same analysis, IEA estimated the quantity of tech- nically recoverable reserves, defined as the amount of oil that could likely be recovered with existing technology irre- spective of price, at about 5.9 trillion barrels, for a reserves- to-production ratio of almost 200 years. This estimate includes 2.7 trillion barrels of technically recoverable conventional oil along with 3.2 trillion barrels from unconventional sources such as tight oil, kerogen, and extra-heavy oil and bitumen. Synthetic petroleum from coal-to-liquid or gas- to liquid technologies could further expand the potential supply (IEA 2012). To put these numbers in perspective, cumulative oil pro- duction in the industrial era has been a little over 1 trillion barrels (IEA 2008). As such, there appears to be no imminent danger of running out of oil anytime soon. On the other hand, there are reasons, such as concerns over climate change, why society might not develop all of the remaining fossil-based resources. Additionally, the per-barrel production costs for some unconventional petroleum resources and substitutes are expected to be considerably higher than for conventional oil. As the production cost curve rises, this could create an oppor- tunity for renewable energy to substitute for fossil-based fuels on a cost-competitive basis. Still, emerging fossil-fuel sources remain the subject of considerable attention within the energy industry, and in the remainder of this section a closer look is taken at four existing or potential options that are highly rel- evant in the U.S. context. In addition to conventional on- and offshore petroleum reserves, North America has vast reserves of four important fossil-fuel resources that can be exploited or processed to
116 produce crude or synthetic crude substitutes. These are tight oil, oil sands, oil shale, and coal. (The United States also has significant reserves of natural gas, which can be processed into liquid fuels; natural gas is discussed in Appendix B.) Tight oil and Canadian oil sands already represent important sources of active production in North America, whereas oil shale and coal-to-liquid technology will require significant investment and sustained high oil prices to be considered viable substitutes. Tight oil. âTight oilâ refers to light crude oil trapped in low-permeability rock formations, often shale or tight sand- stone. Advances in drilling technologies, including hydraulic fracturing and horizontal drilling, have had a major effect on the production and recoverable supply of tight oil in recent years. While there are tight oil resources scattered around the globe, the United States boasts significant reserves. Important sources include the Bakken Shale in parts of Montana, South Dakota, Saskatchewan, and Manitoba; the Niobrara Forma- tion underlying much of the Great Plains of the United States and Canada; and the Barnett Shale and Eagle Ford Forma- tions in Texas. Tight oil production in the United States rose from nearly zero in 1999 to about 1.2 million barrels per day in 2011. From 2012 to 2040, EIA estimates that more than 25 billion barrels of tight oil will be produced (EIA 2013a). Oil sands. Oil sands are deposits of bitumen in sand or porous rock. Bitumen is a mixture of hydrocarbons that is solid or semi-solid at normal temperatures and pressures. Bitumen can be mined and brought to a central processing facility for upgrading, or it can be extracted in situ by injecting steam into the deposit, heating the bitumen, and coaxing it to flow to a well. (The in situ process uses about a barrel of water per bar- rel of crude, with much less impact on the land, but also emits more greenhouse gases due to the production of steam.) The bitumen may need to be upgraded before it can substitute for conventional crude oil. Upgraded bitumen is often referred to as synthetic crude oil. The worldâs most significant deposits of oil sands are in Canada. The United States also has appreciable deposits of bitumen in Utah, with measured reserves of 8 to 12 billion barrels. Recently, the United States has leased several tracts in Utah for exploration and testing of extraction techniques. While oil sands are prevalent in North America, the extraction of oil sands has raised concerns with regard to groundwater contamination and land reclamation (Toman et al. 2008). Oil shale. Sedimentary rock containing solid bituminous materials is known as oil shale (Bartis et al. 2005). These materials may be heated and extracted from the rock and then subsequently upgraded into a substitute for crude oil. Like oil sands, oil shale may be surface mined or extracted in situ. Most recent activity has been focused on develop- ing technologies for in situ extraction, none of which have yet been tested at commercial scale. Advancement of these technologies could result in oil shale being competitive with conventional petroleum. The largest oil shale deposits are in the United States, prin- cipally in the Green River Formation covering portions of Colorado, Utah, and Wyoming. The resources in the Green River Formation are equivalent to as much as 2 trillion bar- rels of oil. Recoverable resources would be considerably less, likely in the range of 500 billion to 1 trillion barrels (Bartis et al. 2005). Interest in oil shale development began in the early 1980s but then subsided, temporarily, with lower world oil prices during the 1990s. The rise in oil prices over the past decade, however, has stimulated renewed interest in develop- ing the resource. The principal uncertainties surrounding the development of oil shale are land use and ecological impacts, air quality, greenhouse gas emissions, water quality, water consump- tion, and production costs. The most serious environmental impacts of oil shale development appear to be disturbance of the land (Bartis et al. 2005) and the climate concerns appli- cable to fossil fuels more generally. Coal-to-liquid technology. It is also possible to produce liquid fuels from coal. The most mature technique for doing so is indirect liquefaction, in which the coal is gasified to produce synthesis gas, which in turn is converted to hydro- carbons in a reactor. The best known method for this is Fischer-Tropsch (FT) synthesis, developed in the 1920s. The only commercial coal FT plant in the world, operated by Sasol in South Africa, produces approximately 160,000 bar- rels per day of synthetic fuels and chemicals (Bartis, Camm, and Ortiz 2008). Coal-to-liquid production appears to be economically fea- sible at crude oil prices above $55 to $65 per barrel. With the vast coal resources that exist in the United States, liquid fuels produced from coal could displace 10% to 15% of con- ventional fuel demand and provide significant economic and national security benefits (Bartis, Camm, and Ortiz 2008). There are three principal uncertainties complicating the development of coal-to-liquid fuel. First is the production cost, which remains uncertain because of the relative lack of experience with modern technologies for producing liquid fuels from coal. Second, the commercial viability of coal-to- liquid fuel depends directly on the world price of crude oil, which is highly uncertain over the time frame required to recover the investment in a production facility. Third, absent systems for capturing and sequestering carbon dioxide, coal- derived fuels would have roughly double the life-cycle green- house gas emissions of conventional fuels (Bartis, Camm, and Ortiz 2008), which is highly problematic from a climate perspective.
117 Despite a dip in the mid-1980s, global oil demand rose from 63.1 mbd in 1980 to a peak of 85.9 mbd in 2007. It sub- sequently declined to 84.7 mbd in 2009 as a result of the global economic slowdown, then climbed to more than 88 mbd in 2011. The United States remains the largest oil consumer in the world, accounting for 21% of global demand in 2012. The share of global consumption attributed to the United States and other developed nations, however, has been falling. China, the largest consumer of oil among the developing nations, has increased consumption at an average annual rate of 5.5% since 1980, accounting for 12% of global demand, or 10.2 mbd, in 2012 (EIA 2013b). Much of the rise in U.S. oil consumption in the past decades can be attributed to passenger vehicles. The transportation sector accounts for more than two-thirds of oil use in the United States, and light-duty vehicles (passenger cars and light trucks) consume nearly two-thirds of the transportation total. Whereas total U.S. consumption increased about 16% between 1980 and 2010, use by the light-duty vehicle fleet rose by over 40% (ORNL 2012). Figure A.1 provides an overview of U.S. oil production and consumption by sector since 1980. As the figure shows, consumption has generally trended up over time, albeit with some declines during recessionary periods. Production, in contrast, declined at a fairly steady pace between the mid-1980s and latter part of the first decade of this century, at which point the advent of tight oil and enhanced oil recovery techniques along with higher oil prices enabled and stimulated greater production. As recently as 1988, the United States produced enough oil to meet its trans- portation needs but not enough to meet total U.S. consump- tion. By 2002, it no longer produced enough oil to meet the needs of just the light-duty vehicle fleet (passenger cars and light trucks), let alone other modes of transport. However, this trend is now reversing due to increased U.S. production and a modest falloff in oil consumption by the light-duty vehicle fleet (ORNL 2012). To bridge the difference between production and consump- tion, the United States must import petroleum. In 2011, accord- ing to EIA (2012), the United States imported 11.4 mbd of crude oil and petroleum products, with 40% coming from OPEC nations, 24% from Canada, 11% from Mexico, and the remaining 25% from other countries. U.S. reliance on imported oil has declined in recent years due to both increased production and reduced consumption. This trend could per- sist in future years if U.S. production continues to rise through 2020 as projected by EIA (2013a). Major energy forecasting institutions project continued increases in global oil demand. In their reference-case sce- nario, for example, EIA (2013a) expects that the total world demand for liquid fuels will rise from 86.75 mbd in 2010 to 111.93 mbd in 2040. More than 97% of this increase will A.1.3 Refining and Production of Conventional Fuels Gasoline and diesel, among other products, are refined from petroleum. Refineries perform three standard processes: sep- aration, conversion, and blending (Young 2006). The funda- mental refining process is fractional distillation, which involves separating petroleum into different products based on their boiling temperatures. Common conversion processes include cracking, in which longer hydrocarbons are broken down into smaller hydrocarbons; hydroprocessing, in which hydrogen is added to molecules; and isomerization, in which the structure of the hydrocarbon molecules is modified. In the final process, blending, intermediate products at the refinery are mixed into retail products, including gasoline, diesel, jet fuel, lubricating oils, asphalt cement, and petroleum coke. To address air quality issues, refiners face certain formula- tion requirements for gasoline and diesel. Gasoline may have to meet specifications regarding the quantity of aromatic compounds, which do not burn completely and in turn affect air quality adversely, or include oxygenates such as ethanol. These specifications vary by state and by season. U.S. refiners are also required to produce fuels with low levels of sulfur: 30 parts per million (ppm) for gasoline and 15 ppm for on- road diesel fuel (Young 2006, Hileman et al. 2009). There were 139 operating refineries in the United States as of 2013, with a total production capacity of 16.8 mbd (EIA 2013c). At that time, the most recent U.S. refinery was activated in 2008, but the majority of U.S. refinery capacity is several decades old. A.1.4 Distribution and Refueling Once refined, conventional fuels must be distributed to demand centers. Major movements of petroleum products occur by pipeline, ocean tanker, and barge. Distribution of pro- cessed fuels typically occurs by rail freight and tanker truck. The distribution system for gasoline and diesel fuel in the United States is well established relative to other fuels dis- cussed in this report. For example, API reports that the num- ber of gasoline and diesel stations in the United States exceeds 150,000 (API 2013). A.1.5 Oil Consumption U.S. oil consumption is closely related to the state of the economy. Consumption declined considerably, for example, in the recession of the early 1980s, declined modestly in the recession of the late 1980s and early 1990s, and experienced a steep decline in 2008 and 2009 with the recent severe recession. U.S. consumption has since begun to climb again, though it remains below its 2007 peak.
118 As suggested in the figure, oil and fuel prices are subject to significant volatilityâmuch more so than for other manu- factured goods and servicesâdue to the inelastic nature of short-run oil supply and demand. Households find it diffi- cult to forgo many tripsâmost notably, those to work and school and to purchase necessities. Faced with higher fuel prices for extended periods of time, however, consumers do change behavior. They purchase more fuel-efficient vehicles, take public transportation, and shorten trips. They may even move or change jobs so as to be closer to work. Such changes were witnessed during 2008 in the United States, just prior to the recession, as consumers faced historically high gasoline prices of $4.00 per gallon and higher. While not shown in this figure, the 1970s were also charac- terized by extreme volatility in world oil markets. Two major crisesâthe Arab oil embargo of 1973 and the Iranian Revolu- tion in 1979âled to rapidly escalating oil costs. Following this turbulence, the price of oil declined considerably and remained relatively stable for much of the next 25 years. Recent years, however, have witnessed a return of high and volatile oil prices. Owing in part to surging demand in developing nations such as China and India, world oil prices reached historic highs in the 2007 through 2008 period, only to decline precipitously again with the ensuing recession. The future prices of oil, gasoline, and diesel are uncertain. Factors affecting supply and demand for petroleum are global economic conditions, geopolitical events, the response of demand to prices, OPEC decisions regarding production tar- gets, and advances in certain extraction technologies, among come from developing countries (specifically, from those countries that are not members of the Organisation for Eco- nomic Co-operation and Development at present). Much of the focus in developed nations is on using oil and other resources more efficiently, thereby accommodating modest rates of growth with little effect on petroleum consumption. Among developing nations, in contrast, more significant economic growth and income gains are projected to lead to increased expenditures on automobiles, air travel, and other goods that involve consumption of refined oil products. A.1.6 Oil, Gasoline, and Diesel Prices The price of conventional fuels depends on the underlying price of oil and the costs of refining, blending, distributing, and marketing fuel to consumers, along with any applicable taxes. Of these, the cost of oil is the most significant compo- nent. As of May 2013, according to EIA (2013e) data, the price of oil accounted for about 67% of the average retail price of gasoline in the United States with taxes included, at $3.62 per gallon, and for about 62% of the average retail price of diesel, at $3.87 per gallon. As a general rule, and not surprisingly, the share of gasoline and diesel prices attributed to the under- lying cost of oil increases with higher oil prices and decreases with lower oil prices. Figure A.2 shows how world oil prices (on the left axis) and the average retail price for gasoline and diesel in the United States (on the right axis, inclusive of applicable taxes), both in 2013 dollars, have fluctuated together over the past 30 years. Source: Based on data from ORNL (2012, Figure 1.6 and Table 1.15). 0 5 10 15 20 25 30 1980 1985 1990 1995 000 2005 2010 M ill io n Ba rr el s p er D ay Electric Utilities Residential and Commercial Industrial Other TransportaÂon Light Duty Vehicles U.S. Petroleum ProducÂon 2 Figure A.1. U.S. oil production and consumption, 1980â2010.
119 fuels and vehicle technologies, this could enable petroleum- fueled vehicles to maintain their current cost advantage, even with potentially higher gasoline and diesel costs. Over time, automobiles purchased by U.S. consumers have improved greatly in terms of their power, size, and safety. As documented by Knittel (2011) and others, however, the fuel economy of the U.S. fleet achieved only modest gains from the mid-1980s to the early 2000s, due in part to such factors as low and reasonably stable fuel prices and relatively stagnant federal CAFE standards. Over this period, technology innova- tions for vehicles focused primarily on attributes other than fuel economy, such as performance and utility (EPA 2013). The average fuel economy of the U.S. new automobile fleet increased by less than 15% from 1980 to 2004. Over this same period, the average horsepower of new passenger cars increased by 80% and the average curb weight increased by 12%. These increases have been even more pronounced for light-duty trucks (SUVs, vans, and pickups), with average horsepower increasing by 99% and average weight increasing by 26% from 1984 to 2004. Concurrently, consumers began to purchase a greater number of light-duty trucks in relation to passenger cars, with the formerâs market share increasing others. Since it is difficult to resolve these uncertainties, efforts to forecast the supply and demand for petroleum and refined products typically involve the use of discrete scenarios of petro- leum prices. In essence, a forecasting agency projects alternate prices of petroleum and employs an econometric model to simulate worldwide supply and demand under the different scenarios (Hileman et al. 2009). The EIAâs Annual Energy Outlook presents three price scenarios: a reference case representing an extrapolation of current trends, a low-price case in which non-OPEC petroleum resources are developed to ease the pressure on prices, and a high-price case that involves worldwide restrictions on the production of conventional petroleum liquids. Table A.1 shows how the price of imported oil and the retail price of gasoline, in constant 2011 dollars, is expected to change between 2010 and 2040 under these three scenarios. A.2 Vehicle Technologies While many expect oil prices to rise in future years, conven- tional vehicles are likely to achieve much higher levels of fuel economy as well. Barring dramatic advances in alternative Table A.1. Future oil and gasoline price projections for 2040. Year/Scenario Price of Imported Crude Oil (2011 $ per Barrel) Price of Gasoline (2011 $ per Gallon, with Taxes) 2010 77.49 2.88 2040 â Low oil price scenario 70.93 2.64 2040 â Reference scenario 154.96 4.32 2040 â High oil price scenario 228.39 5.86 Source: EIA (2013a). Figure A.2. Imported oil prices and U.S. gasoline and diesel prices, 1980â2012. Source: Based on data from EIA (2013d). 0.00 0.75 1.50 2.25 3.00 3.75 4.50 0.00 20.00 40.00 60.00 80.00 100.00 120.00 1980 1990 2000 2010 Price perGallon (2013 $)Pr ice pe rB ar re l( 20 13 $) Imported Crude Oil Price U.S. Retail Gasoline Price U.S. Retail Diesel Price
120 requirement for passenger vehicles (EPA and NHTSA 2012). To meet the higher standards, auto manufacturers will likely pursue a range of strategies, including improved aerodynam- ics, lightweight materials, advanced engine and transmission technologies, and hybridization. To varying degrees, some of these strategies should be transferrable to alternative-fuel vehicles as well. Aerodynamic improvements. Over time, vehicles have become more aerodynamic, but further improvements are possible. The development of tires with less rolling resis- tance may also play a role in improving fuel economy. Lightweight materials. The integration of new lightweight parts made from aluminum, magnesium, plastics, and other materials in conventional vehicles can also help reduce fuel use. A 10% reduction in vehicle weight, for example, has the potential to improve fuel economy by 4% to 8% (Kobayashi, Plotkin, and Ribeiro 2009). In their recent book Reinventing Fire, Amory Lovins and the Rocky Mountain Institute (2011) describe the significant âlightweightingâ of vehicles, enabled by carbon fiber materials, as a crucial step for radically improv- ing the fuel economy of conventional vehicles in the near term and enabling their replacement by cost-competitive electric and hydrogen vehicles over the longer term. The logic for the latter is that lighter vehicles would require much less battery or fuel-cell capacity, in turn reducing the costs of these alter- natives. And because of the strength of carbon fiber, future vehicles could be both lighter and safer than todayâs models. Advanced direct injection engines and transmissions. Direct injection diesel engine vehicles have become common in Europe and yield about 35% greater fuel economy than con- ventional gasoline engines (Kobayashi, Plotkin, and Ribeiro 2009). Diesel-fueled vehicles have not yet been widely adopted in the United States, in part because it is costly to configure the technology to comply with stringent U.S. emission control regulations. However, gasoline direct injection systems have achieved greater market share in the United States and were installed in nearly a quarter of vehicles in model year 2012 (EPA 2013). Other advances to turbocharged direction injec- tion engines and advanced six- and seven-speed transmissions are being developed, with significant potential for improved fuel economy and performance. Turbochargers were installed on 9% of vehicles in model year 2012, while transmissions with six or more speeds and continuously variable transmis- sions cumulatively accounted for about a quarter of the mar- ket share in model year 2012 (EPA 2013). Hybrid-electric systems. Hybrid-electric systems, which in addition to the ICE include an electric motor, battery, power electronics (including an inverter), braking-energy recovery systems, and a control system to manage the battery-engine- transmission system, have been available for more than a decade and continue to become more advanced. The fuel economy benefits of hybrid-electric systems are significant. The Toyota from 20% of all light-duty vehicle sales in 1980 to 51% in 2004 (Knittel 2011). These past U.S. trends contrast sharply with the experience in European nations, where much higher fuel taxes, and in turn retail fuel prices, have motivated con- sumers to favor vehicles with greater fuel economy than those purchased in the United States. Knittel (2011) analyzed vehicle model-level data and found that if weight, horsepower, and torque were held at their 1980 levels, fuel economy for both passenger cars and light trucks could have increased by nearly 50% between 1980 and 2006. But because vehicle advancements were used to improve other aspects of vehicles, such as power and acceleration, fuel econ- omy only increased by 15% over that period. Beginning in 2005, the combined fuel economy for cars and light trucks began to rise more steadily, increasing from 19.9 mpg in 2005 to 23.8 mpg in 2012 (EPA 2013). Several factors contributed to this trend. The production of light- duty trucks as a share of all light-duty vehicles peaked in 2004 at 48% and has since declined to 42% in 2011. In a related development, fuel prices increased rapidly and grew more volatile from the early 2000s up until the recession in 2008, and this led some consumers to choose vehicles with greater fuel economy. Most recently, federal fuel economy standards for light-duty trucks and automobiles have been set at more- stringent levels. As of 2012, the estimated fuel economy of cars was 27.3 mpg, while the estimated fuel economy of trucks was 19.4 mpg (EPA 2013). Most of the light-duty vehicles currently marketed in the United States have a conventional powertrain incorporating an ICE running on either gasoline or, less commonly, diesel. HEVs are also being marketed by an increasing number of auto manufacturers. HEVs incorporate an ICE supplemented with an electric propulsion system, the latter powered by electricity captured through regenerative braking. The net effect is to increase the overall fuel economy of the vehicle by recycling energy that otherwise would have been lost to the system. Hybrids accounted for 3.7% of the new light-duty vehicle market as of 2012 (EPA 2013). While previous improvements in automotive technology have, until just the past few years, been largely channeled into greater weight and improved performance rather than greater fuel economy, this will almost certainly change in the coming decades. To begin with, higher fuel prices could create a financial incentive for consumers to choose vehicles capable of more miles per gallon, and some consumers might be motivated by broader social goals related to energy secu- rity and climate mitigation. Even absent such motivations, however, the most recent revisions to federal CAFE stan- dards, announced in 2011 and finalized in 2012, require auto manufacturers to steadily increase the fuel economy of their light-duty models, culminating in an average fuel economy rating of 54.5 mpg by 2025âroughly double the current
121 the 1990s, and the early 2000s. In recent years, however, with mounting concerns over energy security and climate change, CAFE standards have once again been viewed as an attrac- tive policy tool for improving fuel economy, stimulating an ambitious series of legislative and administrative actions. Federal legislation passed in 2007 resulted in a mandate for a 40% gain in fuel economy by 2020, translating to an aver- age of 35.5 mpg for the combined fleet of passenger cars and light-duty trucks. In 2009, the Obama administration moved up the compliance deadline for the new standards to 2016, then subsequently instituted an even more aggressive set of requirements beginning in 2017 and culminating in the tar- get of 54.5 mpg by 2025 (EPA and NHTSA 2012). Previous standards had a single target for all passenger vehicles and another for all light-duty trucks. Beginning in model year 2008, though, automakers could optionally com- ply with standards based on vehicle footprint (width multi- plied by wheel base), and footprint-based standards became required starting in the 2011 model year (EPA 2013). Thus, smaller passenger cars must on average have higher fuel econ- omy than larger passenger cars. The often-quoted figures of 35.5 mpg in 2016 and 54.5 mpg in 2025 thus represent aver- ages based on expected sales volumes for different sizes of passenger cars and light-duty trucks. As vehicles with higher fuel economy are integrated into the vehicle mix to meet higher CAFE standards, the cost of driving is expected to decline under stable fuel prices. For example, NHTSA projects that consumers of 2025 new light- duty vehicles will save between $5,200 and $6,600 in fuel expenses over the life of the vehicle compared to fuel costs for a vehicle designed to meet the standard in 2010 (EPA and NHTSA 2012). It is not clear, of course, that fuel costs will remain stable in the future. If one is interested in the question of how overall expenditures on fuel are likely to evolve over time, it is neces- sary to consider both changes in fuel economy and changes in fuel price. As noted earlier, the most recent reference-case forecast from EIA (2013a) suggests that the price of gaso- line could increase to $4.32 per gallon (in 2011 dollars) by 2040, with low and high oil price scenarios corresponding to $2.64 to $5.86 per gallon, respectively. If fuel costs fall within the higher end of this range, the potential reductions in fuel expenditures stemming from improved fuel economy could be partially offset. Still, drivers would pay much less than they would with higher fuel prices absent fuel economy improvements. A.3.3 Operational Performance Petroleum-fueled ICE vehicles, as the established incum- bent technology, set the benchmark for operational per- formance to which drivers have become accustomed. They Prius, for example, offers a 40% to 50% fuel economy gain in comparison to otherwise comparable conventional alterna- tives (Kobayashi, Plotkin, and Ribeiro 2009). Although hybrid vehicles entail a premium cost of several thousand dollars, the development of more hybrid options presents a significant opportunity for auto manufacturers to progress toward the more-stringent CAFE standards unfolding through 2025. A.3 Cost and Performance The phasing in of more-stringent federal CAFE standards will result in vehicles that consume less fuel per mile driven, in turn decreasing the cost of driving and reducing emissions of local and global pollutants. At the same time, vehicles with higher fuel economy, other factors held equal, tend to be more costly to produce. As a consequence, the cost of purchasing a new vehicle may rise somewhat in the future as manufacturers comply with tighter CAFE requirements. A.3.1 Vehicle Cost In the future, vehicles will likely need to integrate advanced technologies such as lighter-weight materials and hybrid- electric drivetrains to comply with new CAFE standards. Because these technologies generally cost more than exist- ing standard systems, the cost of purchasing new vehicles is expected to increase as a result of the more-stringent CAFE standards. For example, NHTSA estimates that the average cost for a 2025 vehicle that meets CAFE standards will be about $2,000 more than a vehicle capable of meeting the less- demanding 2016 standards (EPA and NHTSA 2012). A.3.2 Energy Cost of Travel Congress enacted CAFE standards in 1975 following the 1973â1974 Arab oil embargo. One of the specific motivations, along with the broader goal of energy security, was to help reduce the energy cost of travel for consumers. CAFE stan- dards require that automobile manufacturersâ sales-weighted average fuel economy meet or exceed a specified minimum value each year. Manufacturers failing to achieve this require- ment must pay fines based on the number of vehicles sold and the extent to which the standard has been missed. These fines are effectively a tax on the fuel economy of the engine. The standards have historically differed for passenger cars and light trucks. CAFE standards were increased rather aggressively through the late 1970s and early 1980s, but then remained relatively static for the next 20 years. Low and stable oil prices, in combi- nation with debates over the economic merits and resistance from the auto manufacturing industry, derailed a number of efforts to further strengthen the standards in the late 1980s,
122 estimates of actual, as opposed to EPA-rated, fuel economy. (EPA ratings assume a particular driving profile and are usu- ally higher than actual mileage under realistic driving condi- tions.) Following the method used in the NRC (2013) report, future EPA/CAFE fuel economy estimates were reduced by 17% to derive on-road fuel economy estimates. After specifying the current and hypothetical future con- ventional vehicles, the team used the GREET emissions fac- tors to estimate the per-mile CO2-equivalent greenhouse gas emissions for each of the current and future options, which are depicted in Figure A.3. The numbers presented are for well-to-wheels emissionsâthat is, they include emissions from extracting, refining, transporting, and ultimately com- busting the fuel. The numbers do not, in contrast, include GHGs from the production of the vehicle, which would be necessary to incorporate for a full life-cycle emissions analysis. As indicated in the figure, reasonably anticipated improve- ments in fuel economy for conventional vehicles should help reduce the carbon intensity of vehicle travel by 2050. Even in the base case, a conventional gasoline-fueled vehicle in 2050 would emit just over a third of the greenhouse gases per mile of travel compared to a typical vehicle on the road today; for a future hybrid vehicle in the optimistic case, the GHG emis- sions would only be about 20% of that for a current gasoline- provide good power and acceleration, driving ranges in excess of 300 miles, and refueling times lasting no more than a few minutes. A.3.4 Greenhouse Gas Emissions The phasing in of more-stringent CAFE standards is expected to reduce greenhouse gas emissions per vehicle mile of travel, which vary in proportion to fuel consumption. To examine potential reductions in GHGs for conventional vehi- cles in the 2050 time frame, the research team conducted an exercise relying on emissions factors from ANLâs Greenhouse Gases, Regulated Emissions, and Energy Use in Transporta- tion (GREET) model (ANL 2012). The team first considered the fuel economy for a mid-size passenger vehicle with recent (2010) gasoline, diesel, or hybrid technology. Next, drawing on common expectations reported within the technical literature, the team constructed two scenarios for the potential improve- ment in fuel economy for each of these technologies by 2050, including a base case and an optimistic case. Projected values, again calibrated for a mid-sized passenger car, were based on recent NRC (2013) and ANL (2011) analyses. The assumed fuel economy levels for recent and future vehicles used in the exercise are listed in Table A.2. Note that the numbers refer to Vehicle Technology 2010 mpg 2050 mpg (Base) 2050 mpg (Optimistic) Gasoline ICE 24.8 72 91 Diesel ICE 30.1 73 108 Gasoline hybrid-electric 34.7 93 121 Source: Computations by authors based on data from ANL (2012) and NRC (2013). Table A.2. Fuel economy assumptions for conventional vehicle comparisons. Figure A.3. GHG reduction prospects for conventional vehicles in 2050. Source: Computations by authors based on data from ANL (2012) and NRC (2013). 0 100 200 300 400 500 Hybrid Electric Diesel Gasoline Grams CO2-Equivalent per Mile of Travel (well-to-wheels) 2010 2050 Base 2050 OpÂmistic
123 A.4.1 Future Market Projections Many of the fuel and vehicle experts interviewed during the early stages of the project indicated that a major shift away from petroleum over the next several decades would be unlikely to occur unless the price of petroleum increases significantly. Higher prices for petroleum-based fuels could arise through market forces such as rapidly increasing global demand or through tax policies (e.g., fuel-tax increases, a carbon tax) that increase the cost of petroleum relative to other transportation fuels. Projections in the most recent Annual Energy Outlook from EIA (2013a) likewise assume continued dominance for petroleum. EIAâs reference-case scenario envisions that about 18.3 million new light-duty vehicles will be sold in 2040. Of these, about 89% are expected to be gasoline- or diesel-fueled ICEs or HEVs. If you include flex-fuel vehicles, which are capable of running on 85% ethanol blends but in practice often rely on conventional gasoline blends instead, the total share comes to about 96%. A.4.2 Factors Affecting Market Prospects In Appendices B, C, D, and E are presented market adop- tion projections for several alternative fuels. Many of these projections are rather optimistic. Significant market success for any of the alternative fuels would obviously be incompat- ible with the continuing dominance of petroleum. Some of the factors that could diminish the current market share for petroleum in the next 30 to 50 years are policies that strongly favor alternative-fuel vehicles: for example, alternative-fuel vehicle purchasing subsidies, mandates for the production of certain alternative fuels (such as biofuels), and mandates requiring auto manufacturers to produce a certain percent- age of alternative-fuel vehicles. Major breakthroughs in the cost and performance of alternative-fuel vehicle technolo- gies could likewise make conventional vehicles relatively less attractive to consumers. References ANL. 2011. Light-Duty Vehicle Fuel Consumption Displacement Potential up to 2045, ANL/ESD/11-4. ANL. 2012. The Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET), Fuel Cycle Model version 1 2012. U.S. Department of Energy. API. 2013. Oil & Natural Gas Overview: Service Station FAQs. http:// www.api.org/oil-and-natural-gas-overview/consumer-information/ service-station-faqs (accessed July 20, 2013). Bartis, J. T., F. Camm, and D. S. Ortiz. 2008. Producing Liquid Fuels from Coal: Prospects and Policy Issues. RAND Corporation, Santa Monica. Bartis, J. T., T. LaTourrrette, L. Dixon, D. J. Peterson, and G. Cecchine. 2005. Oil Shale Development in the United States: Prospects and Policy Issues. RAND Corporation, Santa Monica. fueled ICE vehicle. One scenario under which the greenhouse gas emissions performance of future conventional vehicles could possibly worsen would involve lower than anticipated gains in fuel economy along with a shift from conventional petroleum to coal-to-liquid fuel without carbon capture and sequestration (Mashayekh et al. 2012). Note that the gasoline test cases are used again in the sub- sequent examinations of potential greenhouse gas emission reductions for natural gas, biofuels, electric vehicles, and hydrogen (see Appendices B, C, D, and E). The intent is to offer a fair comparison between how a future alternative-fuel vehicle might compare against a future petroleum-powered vehicle, not just how it compares to todayâs conventional vehicles. A.3.5 Local Air Pollutant Emissions Most local air pollutant emissions, such as VOCs, CO, NOx, fine and very fine PM (PM10 and PM2.5), and SOx, can be expected to decline with greater fuel economy. Unlike GHG emissions, however, which vary in direct proportion to fuel con- sumption, local air pollutants can be further reduced through the application of various emission control strategies. Examples are highly efficient combustion systems to minimize exhaust pollution, vapor recovery systems to capture evaporating gas- oline, computer technologies to monitor and control engine performance, and effective after-treatment technologies such as catalytic converters and particulate filters (EPA 2012). Under the authority of the Clean Air Act, the EPA has pro- mulgated increasingly stringent emissions requirements for on- and off-road vehicles over the years, and the California Air Resources Board has the authority to set even stricter requirements for vehicles to be sold in California (EPA 2012). In response, automakers will typically select a combination of control strategies to meet applicable emission require- ments in the most cost-effective manner. As such, while con- ventional vehicles are likely to emit less local air pollutants in future decades, the magnitude of the declines will depend more on regulatory decisions than on fuel economy gains. A.4 Market Prospects Petroleum is an entrenched fuel with well-established pro- duction, distribution, and refueling infrastructure. Markets for conventional vehicles are mature, and they have enjoyed decades of prominence. Factors that could enhance the pros- pects for continued reliance on conventional petroleum- fueled vehicles include further fuel economy improvements under the more-stringent upcoming CAFE standards, the possibility of future oil prices stabilizing or declining, and the chance that alternative fuels and vehicle technologies will fail to achieve the necessary breakthroughs to become cost- competitive with conventional vehicles.
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