Transportation Energy Market Transitions: an Environmental Perspective John M. DeCicco Senior Fellow ▪ Automotive Strategies Environmental Defense Fund MIT / Ford / Shell Research Workshop Dearborn, Mich igan ▪ June 9, 2009

2 Clarity on Goals Distinguish MEANS from ENDSDistinguish MEANS from ENDS AFVs (non-fossil, non-carbon) are means toAFVs (non-fossil, non-carbon) are means to ▸ energy security ▸ climate protection ▸ economic benefits Is AFV transition really "vital" -- should it be the premise of analysis?Is AFV transition really "vital" -- should it be the premise of analysis?

3 Environmental Goals Climate protection is now top priorityClimate protection is now top priority ▸ Work from global carbon budget to avoid high risk of disruptive global warming ▸ "Deep reductions" by mid-century (e.g., 80%) ▸ Continue progress on established metrics (air/water quality, ecosystem protection) Carbon budget implies cap framework; trading allows flexibilityCarbon budget implies cap framework; trading allows flexibility ▸ problem: poor policy design match for transportation markets ▸ or, a need to develop new mechanisms

4 Fuel Price Volatility vs. Carbon Price Average price : $2.03 ±0.51 (2007$/gal) With carbon price of $22/ton CO 2

5 Energy Policy Lessons Based on balance of competing interestsBased on balance of competing interests No well-defined objective function (how do you measure "security" or "independence"?)No well-defined objective function (how do you measure "security" or "independence"?) Has generally provided economic efficiency, "normally" low private costs, but …Has generally provided economic efficiency, "normally" low private costs, but … RD&D, incentives & mandates policies for alternative transportation energy sources have not seen success to date (Brazil?)RD&D, incentives & mandates policies for alternative transportation energy sources have not seen success to date (Brazil?)

6 Trends in Design-Related Impacts of U.S. Automobiles VMT Oil & CO 2 Fatalities Air Pollution Source: Derived from DOT, DOE, and EPA statistics. Each index is based on national totals, i.e., total tons of carbon or pollution and total fatalities. The air pollution index represents a health damage-weighted composite of light duty vehicle criteria-related emissions. Relative nationwide total (not per-mile) values

7 The "control system" matters PROCESS INPUTOUTPUT PROCESS INPUTOUTPUT FEEDBACK OPEN LOOP CLOSED LOOP

8 Control models for existing policies Road safety: open loop; performance goals are only weakly stated and not enforceable.*Road safety: open loop; performance goals are only weakly stated and not enforceable.* Air quality: closed loop; Clean Air Act requires legally enforceable attainment of health-based standards.Air quality: closed loop; Clean Air Act requires legally enforceable attainment of health-based standards. Energy: open loop at best; well-defined performance objectives are not specified in law.Energy: open loop at best; well-defined performance objectives are not specified in law. Traditional energy policy approaches seem unlikely to suffice for the goal of climate protection, and it's fair to question just how well they will ever work for energy security and economic goals. *Here, enforceable pertains to the social goal, not the technical regulations.

9 Clarity on Framework Is the current framing of the problem, based on technical factors characterizing the system, adequate for generating the insights needed?Is the current framing of the problem, based on technical factors characterizing the system, adequate for generating the insights needed? "Alternative" (e.g., non-petroleum, or non- fossil, "carbon free" energy carrier, etc.) is example of "technological determinism""Alternative" (e.g., non-petroleum, or non- fossil, "carbon free" energy carrier, etc.) is example of "technological determinism" ▸ Means to end, but if pathways and scenarios are all defined in terms of "alternatives," are we missing opportunities?

10 GHG Emissions Travel Activity Vehicle Efficiency Fuel GHG Intensity Traditional Factors for Analyzing Transportation GHG Emissions

11 Shifting the Focus from Factorsfrom Factors ▸ which no single actor can fully influence to Actorsto Actors ▸ all of whom make decisions that influence GHG emissions in some way Can we create "feedback loops" that guide all actors according to well-defined metrics tied to end goals (as opposed to trying to guide changes in factors toward presumed means to the end)?

12 Actors Who Influence Automotive GHG Emissions Automakers Land Use and Infrastructure Planners and Providers Fuel Suppliers $$ Consumers Established Market Relationships

13 What are the future relationships that might transform auto-related markets? Automakers Land Use and Infrastructure Planners and Providers Fuel Suppliers $$ Consumers INTELLIGENT INFRASTRUCTURES ENERGIZED INFRASTRUCTURES VEHICLE-FUEL SYSTEMS

14 Toward "Synergy" Scenarios New markets will require new relationships that add value along multiple dimensionsNew markets will require new relationships that add value along multiple dimensions ▸ What carbon (GHG) metrics make sense, and can the carbon market be helpful? ▸ Energy security: role for "50-250" strategies? (robust over $50—$250 per bbl price variation) ▸ Where will new bases for customer value be found (hint: not likely in energy per se) Can the modeling explore these questions?Can the modeling explore these questions?