Policies for the U.S. Light Duty Vehicle Sector: Technical and Policy Considerations Sanya Carley Associate Professor School of Public and Environmental Affairs Indiana University Collaborators: Denvil Duncan, John D. Graham, Saba Siddiki, Nikos Zirogiannis This work is funded by a grant from the Alliance of Automobile Manufacturers

Light duty vehicle standards 2017-2025 National Highway Traffic Safety Administration: 54.5 miles per gallon (MPG) Environmental Protection Agency: 163 g/mi CO2 Agencies’ mid-term regulatory reviews regarding 2022-2025 implementation period Source of image: http://www.nytimes.com/2012/08/29/business/energy-environment/obama-unveils-tighter-fuel-efficiency-standards.html

Fuel Economy Targets for 2017-2025 CARS LIGHT TRUCKS Source: NRC (2015) 

CAFE MPG Target Curves for Passenger Cars Nearly 50% Increase – 2016 to 2025 Source: Wally Wade (2016)

Fuel Economy Standards Across the World

Fuel Economy Standards for Light-Duty Vehicles, Selected Countries

A 2016 Perspective

Zero Emissions Vehicle (ZEV) States These 10 states account for approximately 30% of national vehicle sales market Source of image: http://www.c2es.org/us-states-regions/policy-maps/zev-program

Electric Vehicle Sales (To meet a 15.4% requirement in 30% of U.S. Auto Market) 114,000 785,400

Multipliers and GHG Credit Each battery electric vehicle (BEV) and fuel cell vehicle (FCV) counts as 2 vehicles between 2017-2021

Multipliers and GHG Credit 0 CO2 e 0 CO2 e BEVs and FCVs counted as emitting zero grams CO2 equivalent per mile between 2017-2021

Multipliers and GHG Credit 0 g/mi + 0 g/mi 0 CO2 e 368 g/mi 368 g/mi 0 CO2 e 368 g/mi 368 g/mi Average: 245 g/mi

Multipliers and GHG Credit 0 g/mi + 0 g/mi 0 CO2 e 736 g/mi 0 CO2 e 736 g/mi Average: 368 g/mi

Benefits and Challenges to Manufacturers Some auto manufacturers can accumulate and sell credits in both the ZEV and the CAFE program In electric vehicle is, on average, >$10,000 more to produce (NRC, 2015) ZEV sales: currently allowed a travel provision 2018-2021: regional compliance pools 2022 onward: must be sold within ZEV states

Could ZEV Have Implications for the Geographic Distribution of U. S Could ZEV Have Implications for the Geographic Distribution of U.S. Manufacturing? Source of image: Center for Automotive Research

2015 Global Lithium-Ion Battery Sales, by MWh Source of data: http://cleantechnica.com/2016/03/26/top-ev-battery-producers-2015-vs-2014-top-10-list/

Percentage of US Electric Vehicle U.S. Sales, 2010 - Sept 2016

Top EV Manufacturers and Production Location Percentage of U.S. EV Sales, 2010 - Sept 2016 Top EV Manufacturers and Production Location Model Total US Sales % US Market Assembly Location Battery Manufacturer Chevy Volt 104,750 20.3% Michigan (Detroit) LG Chem (Korea) Nissan Leaf 98,810 19.1% Tennessee (Smyrna) AESC Tesla 96,860 18.8% California (Freemont) Panasonic (Japan) Ford electric Vehicles 76,601 17% Mexico LG Chem, Panasonic, Samsung (Korea) Source of data: insideEVs.com/scorecard

Source: NHTSA RIA (2012), Table 13, p. 49

Unexpected Changes in Global Oil Market, 2012-2015 Slowdown in global demand for oil (especially China) “Shale revolution” of oil and gas production in North America Saudi Arabia decides against any production cutbacks

Trends in World Oil Price Source of image: Energy Information Administration, https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=D

Fuel Prices Source: EIA. (2012). Annual energy outlook 2012 with projections to 2035.; EIA. (2015). Annual energy outlook 2015 with projections to 2040.

Payback Period Analysis for a consumer investing a $2,000 premium in a fuel efficient vehicle

Payback Period Analysis for a consumer investing a $5,000 premium in a fuel efficient vehicle

Payback Period Analysis for a consumer investing a $10,000 premium in a fuel efficient vehicle (PEV)

Consumer Preferences Consumer preferences for vehicles are changing Demand is greater for light trucks than for cars Decline in sales of hybrids, diesels, and electric vehicles Resale values changing Market Share of Passenger Cars vs. Light Trucks Source of data: Ward’s Auto. (2016, January 22). U.S. vehicle sales by vehicle type and source, 1931-2015

Direct Manufacturing Cost and Total Cost for CAFE compliance of a Midsize Car based on NHTSA estimates Source: NRC (2015)

Direct Manufacturing Cost and Total Cost for CAFE compliance of a Midsize Car based on NRC estimates Source: NRC (2015)

Conclusions Must consider important implications about the interactions between the ZEV and CAFE programs Many important changes have occurred since the 2012 rules were finalized, such as gas prices Necessary to revise our expectations about how these programs will perform

Appendix

Bibliography Bureau of Economic Analysis. (2016). Interactive access to industry economic accounts data: GDP by industry [Data file]. Retrieved from: http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=51&isuri=1&5101=1&5114=a&5113=22r&5 California Air Resources Board. (2011b). Staff report: Initial statement of reasons. Advanced Clean Cars. 2012 Proposed amendments to the California Zero Emission Vehicle Program regulations. Retrieved from http://www.arb.ca.gov/regact/2012/zev2012/zevisor.pdf Center for Automotive Research (2011). The U.S. automotive market and industry in 2025. Retrieved from http://www.cargroup.org/assets/files/ami.pdf Center for Automotive Research. (2015). Contribution of the automotive industry to the economies of all fifty states and the United States. Retrieved from http://www.autoalliance.org/files/dmfile/2015-Auto-Industry-Jobs-Report.pdf112=1&5111=1997&5102=15 Department of Transportation. (2012). Corporate average fuel economy standards for MY 2017-MY 2025 passenger cars and light trucks. Final Regulatory Impact Analysis. Retrieved from www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/FRIA_2017-2025.pdf Energy Information Administration. (2016). Short term energy outlook. Retrieved from http://www.eia.gov/forecasts/steo/ Environmental Protection Agency/ Department of Transportation. (2012). 2017 and later model year light-duty vehicle greenhouse gas emission standards and CAFE Standards; Final rule. Federal Register. Retrieved from http://www.federalregister.gov Hill, K., Menk, D. M., Cregger, J. (2015). Assessment of tax revenue generated by the automotive sector for the year 2013. Center for Automotive Research. Ann Arbor, Michigan. National Research Council. (2015a). Cost, effectiveness, and deployment of fuel economy technologies for light duty vehicles. Washington, DC: The National Academies Press. Wagner, D., Nusinovich, P., & Plaza-Jennings, E. (2012). The effect of proposed MY 2017-2025 corporate average fuel economy (CAFE) standards on the new vehicle market population. National Automobile Dealers Association. Retrieved from http://www.nadafrontpage.com/upload/wysiwyg/The%20Effect%20of%20Proposed%20MY%202017-2025%20CAFE%20Standards%20on%20New-Vehicle%20Market.pdf

Revival of the U.S. Auto Sector * *estimated Source: Statista U.S. Light Truck Sales and U.S. Car Sales

Importance of the Automobile Sector Industry sectors Percent of US Gross Output for 2014 Manufacturing 20% Finance, insurance, real estate, rental and leasing 17% Government 11% Wholesale trade 5% Retail trade Construction 4% Motor vehicle manufacturing 2% Source: BEA 2016

Recent NRC Cost Estimates for Greener Automotive Technology Selected Technologies* Incremental Cost to the Consumer** (2007 dollars) Cars Light Trucks Clean diesel engine $3,600 $4,500 Conventional hybrid engine $5,500 Plug-in hybrid EV $7,800 $10,500 Plug-in battery EV $16,000 $24,000 *based on 2035 estimates of technology **relative to a baseline 2005 standard gasoline vehicle Source: NRC, Assessment of Fuel Economy Technologies for Light-Duty Vehicles, Table H.4

Source: NRC (2015)

Impact of Gas Prices on Consumer Payback Suppose you are deciding between a 30 mpg gasoline car and a plug-in electric vehicle with a $12,000 premium: If gasoline = $2.50/gal: If gasoline = $4.25/gal: Holding car for 10y, driving 12,000 mi/y, using discount rate of 5%, and assuming free electricity You would save money by purchasing the EV under the high gas scenario but lose money under the low gas scenario