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The Top 5: California Cap & Trade Extended, What Does It Mean for Fuels?

07.20.17 | Blog | By:

Happy Thursday friends!  Here’s my monthly take on the five most interesting developments in future fuels and vehicles trends in July in more of a condensed form so that you can easily scan and jump to the item(s) that are of most interest to you. Items I selected this month run the gamut from California’s cap and trade program, electric vehicles, autonomous mobility, biofuels and air pollution.

1. The Hill: California Votes to Extend Cap and Trade ― California lawmakers voted overwhelmingly to extend the state’s cap-and-trade program for GHGs through 2030 earlier this week. The bipartisan, supermajority votes in both the state Assembly and Senate late Monday gave a major victory to Governor Jerry Brown who wheeled, dealed, prodded, protested, shamed and cajoled legislators, the business community and others to make it happen. The supermajority vote stands as an insurance policy against a future legal challenge; the program has already survived a legal challenge from industry that argued the program was a tax and thus, under the state’s constitution required a two-thirds vote from both chambers. The Low Carbon Fuels Standard (LCFS) program was codified into law as well.

Why it’s significant for fuels and vehicles: Among other things, the two initiatives repeatedly cited by researchers and international organizations in facilitating the commercialization low carbon transport technologies such as biofuels and EVs are the removal of fossil fuel subsidies and cap and trade, a carbon tax or similar scheme. California has one out of two, and that will bode well for advanced alternative fuels and EVs in that market. With the program likely safe from future litigation, long-term certainty can be provided to regulated parties in the state — and other states/provinces/countries that wish to follow California’s lead and even join a regional trading program that has been discussed. Moreover, while California only represents 1% of the world’s GHG emissions, the governor and others in the state want to see deep decarbonization happen ― globally. And they’re determined to lead the charge.

2. ifo Group Munich: Consequenses of a Potential Ban on New Cars And Light Trucks with Combustion Engines ― What are the consequences, exactly of a ban on the German market? Mixed. This report, prepared by ifo Group for the German Association of the Automotive Industry (VDA) notes that more than 600,000 jobs, or 10%, of jobs in German in manufacturing would currently be directly or indirectly affected by a ban. Moreover, €48 billion of gross value added would be impacted. However, for cars, ifo Group’s model predicts a cumulative 32% reduction in CO2 emissions within the forecast horizon (2030-2050) due to implementation of the ban compared to the BAU scenario.

Why it’s significant for fuels and vehicles: As I have pointed out numerous times and continue to track for Future Fuels Outlook clients, cities and countries continue to line up around car bans as a solution to worsening air pollution, its associated (and growing) health impacts, GHG emissions and traffic congestion mitigation (see posts May 25, 2017; Dec. 8. 2016; Oct. 24, 2016; June 10, 2016). It’s also a strategy to facilitate the growth of the EV market. The attention last year was on cities such as Paris, London, Mexico City and Barcelona, but now countries such as Germany and just recently, France and India have jumped into the fray. I expect other countries will follow their lead. Get enough countries together that really follow through (and that is debatable right now) and you have a major dent in oil and liquid fuels demand (and that include biofuels) in the passenger car market at least.

Some cities, like Oslo, have found it impractical to ban cars and citizens have raised a ruckus in protest. Instead, they are going another route: eliminating parking. As I’ve noted before (see post Apr. 13, 2017), cities are beginning to revise and eliminate requirements that buildings have a certain number of parking spaces. Just this week, Mexico City signed new regulations eliminating such requirements. Others are eliminating parking spaces in favor of more green spaces.

3. Bloomberg: Big Oil Just Woke Up to Threat of Rising Electric Car Demand ― OPEC quintupled its forecast for sales of plug-in EVs projecting that they will reduce oil demand 8 million barrels by 2040, more than the current combined production of Iran and Iraq. Meantime, Bloomberg New Energy Finance (BNEF) came out with its annual EV forecast projecting that 530 million plug-in EVs on the road by 2040, or a third of worldwide total number of cars and representing 54% of all new car sales. That’s an aggressive increase from its projection last year, which was that EVs would represent 35% of all new car sales by that same year. Read more about this and why it’s significant for fuels and vehicles here.

4. The Guardian: Polluted Air ‘Poisoning Thousands’ Across North of England, Warns Report ― “Air pollution is the tobacco of the 21st century,” according to an analysis by the Institute for Public Policy Research (IPPR) North which says that while there has been a growing concern about the problem in London, many residents in regional towns and cities in the UK are unaware of the threat to their health.

Why it’s significant for fuels and vehicles: “Too often the attention focuses on unclean air in the capital, but the reality is that it’s poisoning thousands in our regional cities too,” Darren Baxter, an IPPR researcher, told The Guardian. “Michael Gove [the new environment secretary] must show that the government is not prepared to sit on its hands while up to 40,000 people are killed every year from dirty air. We need to see radical plans to ditch diesel, introduce incentives for electric cars and bring in clean air zones in our major cities.” Need I say more? The issue is also a strong undercurrent behind the move to ban cars as well.

But here’s what’s interesting. Two studies were released this month about the blending of biofuels and their positive impacts on air quality. First, in a study published in the ACS journal Energy & Fuels, a team from the University of Vermont found that PM from the combustion of biodiesel blends may be 50–80% less toxic per unit PM mass emitted than PM from petroleum diesel, depending on feedstock. Second, the concentration of ultrafine particles less than 50 nanometers in diameter rose by one-third in the air of São Paulo, Brazil, when higher ethanol prices induced drivers to switch from ethanol to gasoline, according to a new study by a Northwestern University. “The push we are seeing in large cities away from gasoline and toward vehicles powered by ethanol, electricity or a mix of the two will result in a reduction of these ultrafine particles. This likely comes with a health benefit — these particles, below one micron, have the potential to get deeply into your lungs,” said Franz M. Geiger, professor of chemistry in Northwestern’s Weinberg College of Arts and Sciences.

When I asked panelists on a panel I moderated at the recent Advanced Biofuels Leadership Conference why they don’t do more to tout the clean air, pollution reducing benefits of their products to policymakers and the public at large since they have a great story to tell, they literally stared at me like I had a third head. No one, except the panelist from Neste, got where I was going. With all the focus on climate change and issues such as indirect land use change, I don’t hear much of anything about the clean air benefits of biofuels in the public space. No one talks about it (except the Urban Air Initiative in the case of ethanol), and yet air pollution is the tobacco of the 21st century.

5. Futurism: Elon Musk: “Almost All Cars Produced Will Be Autonomous in 10 Years”― “In 10 years, half of all production will be EV,” Elon Musk told the governors [at a National Governor’s Association meeting]. “I think almost all cars produced will be autonomous in 10 years, almost all. It will be rare to find one that is not, in 10 years. New vehicle production is only about five percent of the size of the vehicle fleet,” Musk explained, and because a car or truck can last for 15 to 20 years, it will take some time for the old to be replaced by the new. “Even when new vehicle production switches over to electric or autonomous…that still means the vast majority of the fleet is not,” he noted. He predicted that eventually “all transport will go fully electric” with the exception of spacecraft.

Why it’s significant for fuels and vehicles: Musk’s prediction are around the same time that BNEF predicts the EV market really taking off. Add to it autonomous mobility, and mobility as a service (MaaS) will take off as well ala the RethinkX study (clients see post May 11, 2017) denting oil demand in the passenger car fleet.

 

Tammy Klein is a consultant and strategic advisor providing market and policy intelligence and analysis on transportation fuels to the auto and oil industries, governments, and NGOs. She writes and advises on petroleum fuels, biofuels, alternative fuels, automotive fuels, and fuels policy.

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