The Top 5 Issues in LCFVs This Week: The Three Amigos Weigh in on Fuel Efficiency

07.01.16 | Blog | By:

Happy July 4th to all my U.S. friends and clients! Here’s my weekly take on the five most interesting developments in low carbon fuels and vehicles trends:

  1. EPA’s fuel economy technical assessment report is due any day now ― let the strategic positioning begin!
  2. That includes our North American leaders who committed to harmonizing fuel economy and other transport-related initiatives to collectively mitigate climate change…
  3. …While a UK study suggests a NOx tax for new diesel vehicles as a way to encourage consumers to choose cleaner vehicles…
  4. But, a new study highlighted by the Washington Post this week notes the impossibility of achieving the targets set under the Paris Agreement with the measures that have been proposed ― what now?
  5. Meantime, the Wall Street Journal reported that Exxon is now taking a more proactive position on a carbon tax…could it have something to do with the outcome of the U.S. presidential election?

1. The Alliance Highlights the Realities of the U.S. Car Market, While the World Energy Council Pushes EVs to Close the CAFE Gap and Ceres Says the Detroit Three Will Remain Profitable with the Standards as They Are

Whew, it’s been quite a week for declarations, announcements and analyses on future fuel economy standards in both the U.S. and timely, too, as U.S. EPA’s technical assessment report on fuel economy is due any time now. Read all about it here.

2. Fuel Efficiency and Other Transport Commitments at the North American Leaders Summit

Even the “Three Amigos” weighed in on fuel efficiency this week, with Presidents Obama and Nieto and Prime Minister Trudeau agreeing to align fuel efficiency and/or GHG standards out to 2025 and 2027, respectively. This is no surprise as the Mexican and Canadian governments had already announced their intention to follow the U.S.’ lead.  They also agreed to align ultra-low sulfur fuel standards by 2018 (15 ppm for diesel; 10 ppm for gasoline).

Though it took more than 10 years to fully implement ultra low sulfur diesel (ULSD) in Mexico due to delays in upgrading PEMEX refineries, all projects are expected be complete sometime in 2018. And they need to be so that automakers can meet both emissions standards and these fuel efficiency/GHG standards.  Other commitments included reducing GHGs from maritime shipping and carbon-neutral growth in the aviation sector.

Missing was a recommendation from the Center for American Progress (in collaboration with its partners) to collaborate on electrifying the transportation sector. The paper notes, “For example, the leaders could encourage state and provincial leaders to open interstate and interprovincial agreements—such as the Pacific Coast Collaborative—to Mexico, other U.S. states, and Canadian provinces.

In addition, the three nations could also expand the West Coast Electric Highway—a network of public DC fast chargers for electric vehicles—through Canada and Mexico. This could be replicated on other routes in North America as well. The leaders could also work with automakers across the continent to standardize charging infrastructure, given that not every charging site is accessible to all electric vehicles.”  Without specifically saying “EV” the three leaders ultimately agreed on:

  • Accelerating deployment of clean vehicles in government fleets;
  • Working collaboratively with industry to encourage the adoption of clean vehicles by identifying initiatives to support consumer choice;
  • Encouraging public and private infrastructure investments to establish ‎North American refueling corridors for clean vehicles;
  • Working to align applicable regulations, codes and standards where appropriate;
  • Fostering research, development, and demonstration activities for new clean technologies.

The foregoing is safer territory to tread, and one reason is that Mexico is not ready for widespread adoption of EVs at this time. Even hybrids are a tough sell in the Mexican market, let alone EVs, and they compete with luxury models there. Costs are a huge consideration and the car companies have told me that customers will even ask to strip out standard safety features simply to save money on the cost of the vehicle!

3. Green Budget Europe/University College London: Tackling Air Pollution from Diesel Cars through Tax: Options for the UK

Following on the heels of Volkswagen’s admission that diesel passenger cars may not have a future in the U.S. (or elsewhere, for that matter ― see last week’s post), and its $15 billion settlement with U.S. regulators over its use of defeat devices to cheat on emissions tests, this study suggests a taxing the nitrogen oxide (NOx) pollution created by diesel vehicles. This “NOx Registration Tax” would be levied on new vehicles with the rate proportional to real-world NOx emissions with four different options presented in the following chart:

Source: GreenBudget Europe

I include this because just as there was fuel tax differentiation in the EU to encourage the uptake of diesel and the purchase of diesel vehicles 10-15 years ago, there is now an effort to reverse that trend. A lot of focus has been on policy measures to support EVs and charging infrastructure, but I would not be surprised to see something like this adopted as policy not just in the UK ― but in the EU (and maybe beyond) as well.

4. Wall Street Journal: Exxon Touts Carbon Tax to Oil Industry – What Does it Mean?

The fact that Exxon supports a carbon tax is not new, as the Wall Street Journal notes in its story on the issue from yesterday. What is new is that the company has moved from a passive to a more active position of late. The story notes the connection to recent multiple attorney’s general investigations on the question of whether the company covered up what it knew about global warming and that the company is pressured to show more concern for the issue. But I wonder if that isn’t the reason at all. Rather, my theory is that it concerns something else: the presidential election.

I wonder if Exxon may have run the numbers and read the tea leaves and determined that it’s very unlikely a Republican will end up in the White House. Given the state of the campaign, Republicans could also lose the Senate and House.  Meantime, former candidate and Senator Bernie Sanders is pushing hard to the left on climate issues. And thus, Exxon has perhaps concluded that now is the time to cut the best deal possible on the carbon tax.

Moreover, and as pointed out by the Journal, the Paris Agreement and continued global momentum to address climate change is an important factor as well. And that momentum is likely to get stronger in the coming years. The multiple state attorney general investigations are no doubt a major factor as well. All theory aside, the real question is whether the rest of the industry will see it Exxon’s way on the carbon tax.

5. Washington Post: The World Has the Right Climate Goals — but the Wrong Ambition Levels to Achieve Them

While the 2°C target in the Paris Agreement is the right one to meet, actually hitting it is the real problem. The article notes that pre- and post-analyses of the Paris Agreement by organizations such as the IEA have found that countries’ commitments and tactics to cut emissions were not enough and that more ambitious action would be needed.  This has now been confirmed (again) by a study in Nature, where researchers reexamined individual country pledges — also known as Intended Nationally Determined Contributions (INDCs) — but also conducting a meta-analysis of all the past analyses that have already determined that the Paris pledges fall short.

In fact, the study notes these pledges are likely to leave temperatures at 2.6-3.1°C warmer than pre-industrial levels by the year 2100, assuming that the pledges themselves are adopted and only their unconditional parts are realized. Moreover, the study found the full carbon “budget” left to emit if to stay below 2°C could be emitted by 2030. From the transport perspective, I estimate in a review of INDC plans about 20 countries have committed to beginning or increasing biofuels blending, implementing strong fuel economy standards, enacting measures to support EVs (and even require them) and improve public transport.

Then there are the stationary source measures many countries are putting into place (or plan to) requiring renewables. Government and industry are spending billions and barely making a dent. This was highlighted today in a column by Bjorn Lomborg in the Wall Street Journal, who estimated more like $1-2 trillion annually through the rest of the century. Lomborg says our money would be better spent ramping up clean energy R&D, pointing to Bill Gates’ Breakthrough Coalition, which has committed $7 billion already, as a good example of a better way forward.

A similar point was made by Varun Sivaram and Terryn Norris in a recent Foreign Affairs article: “[f]ighting climate change successfully will certainly require sensible government policies to level the economic playing field between clean and dirty energy, such as putting a price on carbon dioxide emissions. But it will also require policies that encourage investment in new clean energy technology, which even a level playing field may not generate on its own.”

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