Top 5: The SUV Conundrum

02.16.21 | Blog | By:

Hello friends! Here’s my monthly take on five most interesting developments in fuels and vehicles trends. What I try to do each month is select stories, studies and other interesting items that you may not have seen elsewhere but that really represents an important issue or trend that I think you would want to know about. Or, I try to poke behind the hype to provide a deeper understanding of what’s happening. Items I selected this month include:

  • SUV CO2 Emissions: While CO2 emissions decreased across the board last year as the pandemic raged and we all stayed home, SUV emissions actually increased.
  • Benchmarking Oil Carbon Intensity?: It could be just around the corner.
  • EV Charging in the EU: ACEA and other groups say the EU needs 1 million public EV charge points by 2024, quadrupling the current number.
  • Decarbonizing Transport in the U.S.: Even with a massive uptake in EV sales, advocates say the U.S. can’t achieve decarbonization unless we stop driving along and switch to public transportation, walking and cycling.
  • Net Zero EU Aviation: Groups released a plan for achieving net zero by 2050 that, among other provisions, would require a major scale up in sustainable aviation fuel (SAF).

1. NPR: The Pandemic Drastically Cut Emissions From Cars. The Lone Exception? SUVs. – This article notes that wealthy countries reduced emissions in almost every sector of their economies except one: SUVs in transport. According to a recent IEA post, carbon emissions from SUVs increased by 0.5% in 2020, even though the world’s energy-related emissions overall fell by 7%. In fact, the IEA says in 2020 the decline in oil use thanks to electric vehicles “was completely cancelled out by the growth in SUV sales over the same period.”

The chart below shows CO2 emissions by sector for both advanced and emerging economies and shows the increase for SUV-based emissions and decline in the other categories. Emissions from SUVs have nearly tripled over the past decade, owing to their increasing popularity around the world, which has outpaced the growth of other segments of the auto market. Today, SUV emissions are comparable to those of the entire maritime industry, including international shipping, according to IEA.

As I’ve said before, it’s not just a U.S. issue. It’s now a global issue. IEA says that SUVs set new records for market share in the U.S., the EU, China and India increasing to 42% in 2020. Passenger car sales by size and powertrain are shown in the figure below. In the EU, the share of SUVs rose by around 3 percentage points in 2020 to 39%; a similar increase was seen in China. For both the U.S. and the EU, SUVs were the biggest contributor to CO2 emissions growth between 2010 and 2020. In China, heavy industry, SUVs and trucks are the only sectors whose CO2 emissions are expected to grow between 2019 and 2020.

What’s the answer? The article notes tougher fuel economy and CO2 standards on SUVs as an option, as well as policies that would shift consumers into using other forms of transport such as cycling, public transit and walking. I see the latter as important but unrealistic because of how some drivers use their SUVs as noted in the article (e.g., versatile usable cargo areas, better ability to view the road). I see the former as an almost certainty in the three main markets cited.

Another option? Electric SUVs. There will be several models on the market in the next few years. But that presents challenges as well. IEA notes, “In 2020, an average battery-powered electric car was equipped with around 50 kilowatt hours (kWh) of battery capacity, which is 22% smaller than the average battery needed for an electric SUV. Higher sales of electric SUVs rather than smaller electric cars would increase electricity demand for charging vehicles and also demand for raw materials such as lithium, nickel and cobalt.”

2. Hellenic Shipping News: Oil Prices Are Ripe for a ‘Carbon Intensity’ Benchmarking –  This article notes that “establishing upstream carbon intensity of individual sources of crude (and gas) will be the first step in enabling markets to quantify a differential between the price of a ‘standard barrel’ and the price of a carbon adjustment.” The authors note that many Middle East crudes (I would note, especially from Saudi Arabia) have a lower carbon intensity than crudes from other geographies.

An example given was a crude like Abu Dhabi’s Upper Zakum which would have a carbon intensity (CI) approximately 9.5 kg CO2eq/b lower than the estimated global average. Using the current EUA carbon price of around $30/MT, Upper Zakum would attract a premium of $0.28/barrel. Conversely, Iraq’s flaring-intensive Kirkuk field would fetch a discount of $0.75/barrell due to its higher-than-average carbon intensity.

Could we see countries going in this direction? I think so. The authors note:

“As the market for low-carbon oil matures, prices will likely reflect the associated upstream carbon intensity, with crudes of lower carbon intensity trading at a premium to those of higher carbon intensity. Setting carbon intensity specification and default intensity for crudes without auditable data will drive up the value of lower carbon-intensive crudes and incentivize market participation. Providing greater transparency into the carbon intensity of upstream oil production will help producers access markets, better understand the risk of stranded and underutilized assets, and evaluate price risk as they seek to navigate the energy transition.”

3. ACEA: EU Should Target 1M EV Public Chargers By 2024, Say Carmakers, Environmentalists and Consumer Groups – While U.S. President Joe Biden has called for funding the addition of 500,000 of public charging points in the U.S., the EU auto industry, environmental and consumer groups this month called for 1 million charge points in the region by 2024 and 3 million by 2029. Public charging availability really is an issue in the EU right now. There are 224,538 charge points across the region currently. And, while in the U.S., about 60% of households live in single-family homes that can conceivably charge or add home charging, that number is just over 30% in the EU. To get serious EV uptake and surmount consumer concerns about charging availability, public charging needs to increase.

The groups have asked the European Commission to replace the current Alternative Fuels Infrastructure Directive (AFID) with a regulation that would help harmonize re-charging standards, payment methods for consumers, tariff transparency, maintenance, and other issues across the EU common market. They also note the suggested targets should be allocated to each country based on a simple and fair methodology accounts for factors like how much private charging is available and the number of public chargers should increase in line with the number of EVs on the road. They also note the EU should set targets for fast and ultra-fast chargers in urban areas and should set a target of around 1,000 hydrogen stations by 2029.

4. Bloomberg CityLab: To Meet Climate Goals, Think Outside the Electric Car – The authors of this opinion piece point out the transport decarbonization challenge the U.S. has in stark terms:

“The truth is very simple: If we continue to design our communities and transportation systems to require more driving alone, even if it’s in an electric car, it makes decarbonization far harder. According to Rocky Mountain Institute’s analysis, the U.S. transportation sector needs to reduce carbon emissions 43% by 2030 in order to align with 1.5°C climate goals — requiring that we put 70 million EVs on the road and reduce per-capita vehicle miles traveled (VMT) by 20% in the next nine years. Even under the most ambitious EV adoption scenarios, we must still reduce driving. And while 2020 saw a Covid-induced drop in VMT, SUV sales continue to climb, and so too will VMT.”

The authors propose the following as a response:

  • End the practice of allowing states to build new fossil-fuel-intensive highways or expansions while ignoring the backlog of maintenance needs for our deteriorating existing roads and bridges. Repair must be the first priority.
  • Policymakers at the federal, state, and local levels should immediately prioritize funding to encourage more trips taken by walking, biking or other non-automotive means.
  • Federal and state governments should increase investments in public transit infrastructure.
  • Cities and states could enable more location-efficient, mixed-use, infill, and inclusive housing by legalizing more types and sizes of housing.

5. Climate Action: Europe’s Aviation Sector Launches Ambitious Plan to Reach Net Zero by 2050 – The EU aviation sector announced its Destination 2050 plan this month to achieve net zero by 2050. By 2030, the groups say net CO2 emissions from intra-European flights would be reduced by 55% compared to 1990 levels through a combination of fleet renewal, sustainable aviation fuel (SAF), operational improvements and the EU Emissions Trading System (ETS) – in line with the new EU climate goal for 2030. The roadmap is summarized in the graphic below and summarizes the mix of actions the industry will need to undertake, supported by policy.

The plan notes SAFs deliver a major contribution to achieving net zero carbon emissions in 2050:

“The supply of SAF may increase from 3 Mt in 2030 to 32 Mt in 2050, equal to 83% of the total kerosene consumption. The SAF contribution is directly linked to the development of industrial production capacity and strongly influenced by a supporting long-term policy framework. SAF contribution in 2030 may be increased if a strong political support is given to SAF development. Over time, life-cycle CO2 reduction increases to nearly 100% while production costs decrease.”

The figure below shows the potential contribution of SAF under the plan. To effectively address the price difference with fossil fuel throughout the value chain and thereby make SAF more affordable, the group says policies need to include measures to de-risk investments and boost production and off-take. These measures could include financial incentives (e.g., carbon pricing, subsidies, auctioning mechanisms and capital grants) and regulatory measures such as the implementation of an EU wide blending obligation. The timing and conditions for implementing these measures are currently being investigated in ReFuelEU Aviation.

To further reduce cost and increase emissions reductions, a transparent monitoring and accounting framework should be implemented, similar to the framework for renewable electricity. This would give airlines the possibility to claim the use of SAF in the most economically efficient way across the fleet, regardless of where SAF has been physically uplifted.

Members of the initiative include: Airports Council International Europe (ACI EUROPE), AeroSpace and Defence Industries Association of Europe (ASD Europe), Airlines for Europe (A4E), Civil Air Navigation Services Organisation (CANSO) and European Regions Airline Association (ERA).

 

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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