1. Alternative fuels and technologies
Policies for successful introduction
Bas van Bree, Ingo Bunzeck
Energy research Centre of the Netherlands (ECN)
Unit Policy Studies
Brussels, 1 March 2011

2. Alternative technologies and fuels face barriers on their way to the market
Market share
How can policy stimulate the introduction of alternative fuels and technologies in passenger road transport?
Commercialisation
LPG
Early market
CNG
1st gen Biofuels
Demonstration
R&D
HEV
PHEV
H2FC EV
2nd gen Biofuels
Time

3. Alter-Motive Work packages
WP1: EEG Management
WP2: EEG
Review of historical
developments
WP6: EEG
Deriving scenarios and
Action plan
WP3: BSR
Technology and fuel
assessment
WP7: KISE Communication & Dissemination
WP8: EEG Common Dissemination activities
WP4: FGM-AMOR
Development and
analysis of case studies
WP5: ECN
Evaluation of policy
effectiveness

4. Fiscal policy is the main policy instrument creating a playing field
17 EU countries have implemented CO2 differentiation in taxation
There is evidence that fiscal policy affects:
Car ownership
Car use
CO2 emissions
[Nordisk Ministerråd, 2008]
Source: ACEA Pocket Guide 2010

5. In current fiscal policy (in NL), tariffs differ per fuel
Alternative fiscal policies could possibly help to provide a more level playing field
In current fiscal policy (in NL), tariffs differ per fuel
A more level playing field is possible, e.g. by using WTW emissions as a basis
This does not ensure competitiveness of alternative fuels
Dutch registration tax as function of CO2 emissions
Diesel
Petrol
LPG
exemption

6. Barriers are technology-specific and phase-dependent
R&D
Demonstration
Early markets
Commercialization
Electric vehicles
Battery safety
Unknown user behaviour
High vehicle price
Availability of rare metals
Biofuel blends
Fuel prod. cost (feedstock)
Lack of standards
Feedstock availbility
LPG
Filling station coverage
Time
» Specific policy package per fuel required «

7. Barriers are technology-specific and phase-dependent
R&D
Demonstration
Early markets
Commercialization
Electric vehicles
Battery safety
Unknown user behaviour
High vehicle price
Availability of rare metals
Biofuel blends
Fuel prod. cost (feedstock)
Lack of standards
Feedstock availbility
LPG
Filling station coverage
Time
» Policy package needs to be adapted over time «

8. Policy objectives, success factors, effectiveness measures depend on innovation phase
R&D
Address technological issues
Focus
Mass
Investment
# completed projects
Demo
Involvement key players
Coordination
Early market
Increase market share
Strong incentives
Removal other barriers
Market share
Mass market
Competi-tiveness
Competitive price
Enforceable obligations
No more (costly) support
POLICY
OBJECTIVE
KEY SUCCESS FACTORS
demonstration, objective: also prove business case
mass market
1) cost reductions result in competitiveness
2) obligation divides costs in reasonable way
mass market: no more costly support, but market share remains
two examples: biofuels & EVs
biofuels -> early market
EVs -> demonstration (entering early market)
EFFECTIVE-
NESS
MEASURE

9. Biofuels
Biofuels are in the early market phase Key policies are tax reductions and obligations

10. Tax exemptions have not been equally effective in all countries
Biofuels
Tax exemptions have not been equally effective in all countries
possible explanations
1) other policies (but not for costs!)
2) consumer preferences (different elasticities in different countries)
Sources: Kutas et al. (2007), ACEA, IEA

11. Biofuel policy in Germany proved too expensive
Biofuels
Biofuel policy in Germany proved too expensive

12. Biofuel policy in Germany proved too expensive
Biofuels
Biofuel policy in Germany proved too expensive
Lost tax income in 2006: 4.7%
Tax exemption replaced by obligation

13. Government (i.e. all taxpayers) pays
Biofuels
Main issue for biofuels is who should bear costs in anticipation of the (cheaper) 2nd generation
Major barriers
Fuel cost relative to conventional
Minor barriers
Vehicle cost premium
Dedicated infrastructure
Policy recommendations
Tax break (or subsidy)
Obligation
only for high blends
Government (i.e. all taxpayers) pays
Motorists pay

14. To overcome the ‘blend wall’ additional measures are required
Biofuels
To overcome the ‘blend wall’ additional measures are required
Major barriers
Fuel cost relative to conventional
Minor barriers
Vehicle cost premium
Dedicated infrastructure
Policy recommendations
Tax break (or subsidy)
Obligation
Need to anticipate future developments
only for high blends
market for high blends may develop by itself (although kick start is required)

15. EVs
Electric vehicles are in the demonstration phase Countries are taking strategic positions
R&D expenditures (2009)
Demo expenditures (2009)
Early market expenditures (2009)
Amounts include tax exemptions (registration & ownership)
Note: The expenditures of the British and Dutch R&D programmes are unknown.
Note: Different scales on the vertical axes.

16. EVs
The relative importance of the various barriers for EVs is unclear, but costs will be (very) important
Barriers
Battery capacity
Unknown user behaviour
Vehicle cost
Lack of charging infrastructure
Vehicle model availability
Policy recommendations
Measures to address barriers in all phases
Appropriate mix depends on local circumstances & on insights from ongoing research

17. EVs
Different barriers become important in different phases of the innovation process
Barriers
Battery capacity
Unknown user behaviour
Vehicle cost
Lack of charging infrastructure
Vehicle model availability
Policy recommendations
Measures to address barriers in all phases
Appropriate mix depends on local circumstances & on insights from ongoing research
R&D
Demo
Early market

18. EVs
Different barriers can be solved in different phases in the innovation process
R&D: Techn. development
Demo: Fast charging, battery swapping
EM: User behaviour
Barriers
Battery capacity
Unknown user behaviour
Vehicle cost
Lack of charging infrastructure
Vehicle model availability
Policy recommendations
Measures to address barriers in all phases
Appropriate mix depends on local circumstances & on insights from ongoing research
R&D: Techn. development
EM: Battery leasing
EVs can move into early market phase without solving all barriers due to
- use of existing infrastructure
- possibility to deal with technological limitations by ‘early adopters’
Need for measures (R&D, demo) simultaneously
General expectation that first volumes (which will generate cost reductions) will require government support (‘kick start’)

19. Policy measures can serve to…
Conclusions
Technology-specific measures are needed to address technology-specific barriers
Policy packages need to ‘follow’ the development of a technology over time
Policy measures can serve to…
…trigger ‘learning-by-doing’
…‘kick start’ a market (which does not ensure a lasting market)
Effectiveness depends on providing a good incentive, including the creation of a solid investment perspective
future research
1) differences in policy effectiveness (e.g. biofuels tax exemptions): consumer preferences, entrepreneurship, combination with additional policy, …
2) differences in elasticities for fuels, countries, etc.

20. Thank you for your attention!
Ingo Bunzeck
Bas van Bree

21. Acknowledgment
ALTER-MOTIVE is funded by the European Commission within the Intelligent Energy Europe Programme contract IEE/07/807/SI

22. ALTER-MOTIVE: Has the wheel already been invented?
BACKUP SLIDES

23. Biofuels
Biofuel policy in the UK did initially not provide a sufficiently strong incentive

24. Sweden has a very comprehensive policy to stimulate biofuels

25. French biofuel policy limits budget impact, but also market shares
Biofuels
French biofuel policy limits budget impact, but also market shares

26. CNG
CNG is on the brink of commercialization Low taxation is combined with additional measures

27. CNG
CNG is on the brink of commercialization Low taxation is combined with additional measures
Mainly biogas

28. Example: Germany slowly but steadily increases CNG market share
Main instruments: low taxation & vehicle subsidies
Some incentives to stimulate infrastructure buildup
New vehicle model introductions have significant impact
Cost advantage:
€0,57/lt petrol-equiv
€0,23/lt diesel-equiv

29. All major barriers: chicken-egg dynamic
CNG
Low taxation is a key policy, but needs to be complemented by other measures
All major barriers: chicken-egg dynamic
Major barriers
Fuel costs relative to conventional fuels
Vehicle model availability
Dedicated infrastructure
Minor barriers
(none)
Policy recommendations
Tax break
Investment subsidy
Covenants with industry
Provide favourable investment perspective

30. LPG
LPG is a mature technology and can be stimulated by tax reductions only
Eastern Europe: cheap conversion

31. LPG market share increase in France was triggered by tax measures

32. LPG market share in Poland has been in decline in recent years

33. LPG market share has been in decline for several years

34. LPG requires a significant discount over conventional fuels
Major barrier
Fuel costs relative to conventional fuels
Minor barriers
Vehicle conversion costs
Dedicated infrastructure
Policy recommendations
Tax break (or subsidy)

35. LPG does not require specific policies for infrastructure buildup
Major barrier
Fuel costs relative to conventional fuels
Minor barriers
Vehicle conversion costs
Dedicated infrastructure
Policy recommendations
Tax break (or subsidy)
If fuel costs are sufficiently low, the market will take care of infrastructure buildup.

36. Hydrogen faces major barriers that relate to a chicken-egg dynamic
Vehicle cost
Infrastructure
Vehicle model availability
Policy recommendations
Cooperation with industry (PPP, covenants)
Tax breaks & subsidies (vehicles & fuel)
Investment subsidy & accelerated depreciation
chicken-and-egg more severe than for CNG (risk)

37. EU unlikely to fund early market
Hydrogen
National policies are likely required to help hydrogen in the early market phase
Barriers
Vehicle cost
Infrastructure
Vehicle model availability
Policy recommendations
Cooperation with industry (PPP, covenants)
Tax breaks & subsidies (vehicles & fuel)
Investment subsidy & accelerated depreciation
EU unlikely to fund early market
chicken-and-egg more severe than for CNG (risk)