TODAY’S STUDY: EV PREDICTIONS, EV PREDICTIONS

People have probably always gone off the deep end trying to predict the behavior of the public at large. From Mad Men’s Don Draper to Egypt’s Hosni Mubarak, the smart guys turn out not to be. The CIA didn't foresee the fall of the Soviet Union and Pharoah never saw Moses coming. From the Dewey Defeats Truman 1948 newspaper headline to the South's 1861 bravado to the Pope's disregard for Galileo, sure things often prove not to be.

In the study highlighted below, there is a list of predictions about how plug-in vehicles will appeal to the world’s car buyers. There is little agreement between them. Only the marketplace can decide and the marketplace is only just beginning to produce results. Will it be a million plug-ins in 2020? 4 million?

The most astute insight is this: The higher the price of oil, the more plug-ins will sell. And the recent MidEast political upheavals, which drove the price of oil to the hundred-dollar-a-barrel level, have once again demonstrated how vulnerable the oil price is.

This is the only sure thing: The relationship that develops over the next ten years between drivers and the plug will be remembered by history long after the institutes prediciting which way it will go have been forgotten.

Plug-in Electric Vehicles: A Practical Plan for Progress; The Report of an Expert Panel
Gurminder Bedi, et. al., February 2011 (School of Public and Environmental Affairs at Indiana University)

Executive Summary

Despite the rapid economic growth of China and India, the United States is by far the world’s largest consumer of oil, accounting for more than 20% of the 87 million barrels per day that are used around the world. America’s dependence on oil has contributed to a suite of economic, security, geopolitical, and environmental problems, and, thus, there is growing national interest in reducing petroleum use.

The transportation sector of the U.S. economy is a focal point for policymakers because it accounts for 27% of U.S. greenhouse gas emissions (the gases linked to global climate change) and 70% of U.S. petroleum consumption. A majority of the oil in the transport sector is used to power light-duty vehicles such as cars, sport-utility vehicles, vans, and pickup trucks. Previous efforts to find alternatives to oil have not been highly successful, and thus the U.S. transportation system remains more than 90% dependent on petroleum. Absent effective countermeasures, oil consumption rates and greenhouse gas emissions are projected to grow in the United States and globally in the decades to come.

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A variety of alternatives to petroleum are under consideration, including biofuels, natural gas, hydrogen, and electricity. Each of these alternatives has benefits and limitations in different applications, and each may have some role to play in the decades ahead. But the requirements for any viable alternative to gasoline are becoming more demanding. Gasoline engines are becoming significantly more fuel-efficient due to innovative refinements, while conventional hybrid engines and advanced diesel engines are increasing their market shares.

Plug-in electric vehicles (PEVs) are nonetheless coming to dealer showrooms. General Motors Corporation is offering the 2011 Chevrolet Volt, while Nissan Corporation is offering the 2011 LEAF, vehicles that rely primarily or exclusively on electricity. Some plug-in vehicles are considered “battery electric vehicles” (BEVs), since they rely entirely on electricity (e.g., the LEAF), while others are called “plug-in hybrid electric vehicles” (PHEVs), since they still rely partly on conventional fuels (gasoline and diesel). Both BEVs and PHEVs are called “plug-in electric vehicles” because they are designed to be recharged by plugging into the power grid. Note that a conventional hybrid electric vehicle (HEV), such as the Toyota Prius, is powered by batteries and gasoline but is not considered a PEV because it does not have the plug-in feature.

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Powering vehicles with electricity is of significant interest because innovation in battery technology, if dramatic enough, could constitute a breakthrough in the search for ways to reduce petroleum use. In 2009, the U.S. federal government highlighted electricity as a promising alternative to petroleum for transport purposes. An official domestic goal of putting one million plug-in electric vehicles on the road by 2015 was established, and a variety of public policies to encourage electrification has been implemented by federal, state, and local governments.

Some government support for the introduction of PEVs into the marketplace is warranted because firms are unable to capture all the benefits that their research and development (R&D) efforts produce. Suppliers and manufacturers are likely to underinvest in innovative initiatives to offer PEVs. Private underinvestment in R&D is the primary justification for public policy designed to stimulate private R&D through instruments such as low-volume production grants and loan guarantees, tax incentives, and public-private partnerships.

This report examines public policies toward PEVs, taking into account the promise and limitations of PEVs, recent improvements in battery technology, market dynamics, and the proliferation of policies around the world that promote the use of PEVs. Our focus is primarily near term (i.e., 2011-25), recognizing that the transportation electrification process will evolve in stages based on the learning that occurs in the years and decades ahead. The report represents the views of the Transport Electrification Panel (TEP), a group of experts from multiple disciplines and organizations commissioned by the Indiana University School of Public and Environmental Affairs (IU SPEA). TEP’s work has been supported by a team of graduate students and faculty from IU SPEA, but the findings and recommendations in this report are strictly those of TEP.

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Report Findings

1. The U.S. PEV Industry in the Global Market.

Virtually all major vehicle manufacturers and several start-up companies are offering—or are planning to offer soon—a PEV for sale in the U.S. market. PEV offerings have also been announced throughout Europe and Asia. While U.S. automakers are working on PEVs, the U.S. electric vehicle industry lags behind other regions—particularly Asia—in the areas of battery manufacturing, supply chain development, and raw materials production. PEVs may never dominate the mass vehicle market, but it is possible—some experts say likely— that they will capture a significant share (5-15%) of the market over the next 15 to 20 years.

2. Policy Instruments.

Recent public policies in the United States and other countries have improved the prospects for initial commercialization of PEVs. These policies include generous tax credits for consumers and producers, new regulations of vehicle manufacturers, special access to high occupancy vehicle (HOV) lanes and city parking, loan guarantees and subsidies for companies in the PEV industry, grants for recharging infrastructure, and federal R&D support for more advanced battery technologies. California’s Zero Emission Vehicle (ZEV) program has been an influential driver of the recent product offerings by some automakers. Many countries have established short-term vehicle production targets comparable to those of the United States. Policies in some European countries, China, and Japan focus directly on promoting PEVs, while the European Union (EU) has focused on technology-neutral measures (e.g., carbon emissions limitations on new vehicle sales). Japan and South Korea have emerged as leaders in battery R&D, with the United States also becoming a significant R&D supporter.

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3. National Goal of One Million Plug-In Electric Vehicles.

When the U.S. government established the goal of putting one million PEVs on the road by 2015, both the future of the technology and the financial capability of the U.S. auto industry were uncertain. The production intentions of automakers are currently insufficient to meet the 2015 goal, and even the current plans for production volume may not be met. Automakers could ramp up PEV production if consumer demand proves to be larger than expected. However, consumer demand for PEVs is quite uncertain and, barring another global spike in oil prices, may be limited to a minor percentage of new vehicle purchasers (e.g., early technology adopters and relatively affluent urban consumers interested in a “green” commuter car).

4. Market Drivers.

Four market factors, each of which can be influenced by public policy, present the greatest potential for altering the competitive position of PEVs in the vehicle market: (1) energy prices; (2) battery characteristics (safety, reliability, and production costs); (3) the availability of convenient and affordable recharging infrastructure; and (4) the pace of progress with PEVs compared to competing technologies, such as refinements to the internal combustion engine, conventional hybrids, advanced biofuels, natural gas vehicles, and fuel cell vehicles.

5. Early Adopters vs. Mainstream Car Buyers.

One key reason that mass commercialization of PEVs may proceed slowly over the next decade is that mainstream retail purchasers of new vehicles differ from the relatively small number of enthusiastic “early adopters.” Mainstream car buyers are careful about investing in new technologies that are not fully understood. There are a variety of uncertainties about exactly how much money will be saved by PEVs (savings depend on uncertain forecasts of fuel and electricity prices), how reliable and safe the batteries will be, how convenient and costly it will be to recharge a PEV, how easy it will be to have the vehicle serviced, and how difficult it will be to resell the vehicle. Although proponents of PEVs are making progress in resolving these uncertainties, consumers will ask many questions before purchasing a PEV and will wait to hear from others who choose to experiment with a PEV.

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6. The Need for “Truth in Advertising.”

Initial consumer experiences with PEVs—their real-world driving range, cost, safety, reliability, and ease of recharging and resale—will exert a significant influence over mainstream consumers’ perceptions of PEVs. If customer expectations are inflated (by automakers, dealers, power companies, environmental groups, and/or government officials) relative to what is actually experienced, the reputational damage to the technology could be significant and possibly irreparable. News stories are already describing the “hype” associated with the campaign for PEVs.

7. BEVs vs. PHEVS.

BEVs have some clear advantages over PHEVs: they offer greater potential for energy security benefits by eliminating the vehicle’s use of petroleum; they have no tailpipe emissions; they eliminate the complexity and cost of the internal combustion engine; and the electric drive system is relatively simple to design, produce, and service. However, the obstacles to mass commercialization of BEVs are even greater than the obstacles for PHEVs. Given the high cost of battery production, a BEV that approaches affordability (with generous tax credits) has a driving range of about 70-100 miles on a full charge. The battery pack takes a long time to fully recharge (usually overnight), and even using an expensive commercial recharger takes considerably longer than refilling a standard gasoline tank. Although typical daily travel patterns in the United States lie well within the 100-mile range, most vehicle purchasers desire a full-function vehicle that can meet their predictable peak travel demands (i.e., their longest trips, such as weekend and holiday road trips). With its battery pack complemented by a small gasoline or diesel engine, a PHEV can make use of the existing refueling infrastructure to achieve driving ranges of 300 miles by featuring conventional refueling capabilities in addition to recharging the battery. An affordable BEV cannot match this range or speed of refueling, so BEVs may not achieve mass commercialization until there are breakthroughs in battery technology, though they may succeed in niche markets such as commuter vehicles for affluent multi-vehicle households or urban pick-up and delivery vehicles.

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8. Recharging Infrastructure.

Both PHEVs and BEVs are designed with the intention of using residential recharging as the primary refueling method, but BEVs also depend on the emergence of some recharging stations in the community. The obstacles to residential recharging are less challenging than community recharging, but more imperative to overcome. The biggest barriers to residential recharging are faced by those consumers who would otherwise find PEVs most attractive: urban dwellers with short commutes, who often lack garages or convenient access to an electrical outlet. Additionally, most municipal regulations and permitting processes are not yet designed with PEVs in mind and present a bureaucratic obstacle to the timely and efficient installation of residential recharging units. Workplace recharging will also be helpful and is already sponsored by some employers, but will occur less frequently than residential recharging. Retail outlets may have commercial incentives to install recharging facilities if sufficient demand develops, but the short-term need for community recharging is limited, installation remains expensive, and bureaucratic and technological obstacles persist.

9. Battery Innovation.

There are promising prospects for advancements in battery technology that improve performance and reduce costs, and breakthroughs in advanced battery chemistries remain a distinct possibility. Significant cost reductions in battery technology have already been achieved. Additional battery R&D may achieve even greater cost reductions, perhaps more significant than the cost reductions expected through economies of scale and “learning by doing” in the production process. While refinements of lithium-ion battery technology may prove sufficient for mass commercialization of PHEVs, a new type of energy storage will likely be required so that BEVs can satisfy the cost and range preferences of mainstream consumers.

10. Environmental Impacts.

A comprehensive environmental evaluation of PEVs must consider the fact that production of electricity will generate risks to the environment that will vary in nature and magnitudes depending on the source of power. The potential impacts of PEVs on climate change are of particular concern. Given the current mix of electricity sources in the United States, use of a PEV will emit far fewer greenhouse gases than the current average gasoline engine, but may not be better than HEVs that do not need to be recharged. As long as electricity production depends heavily on high-carbon energy sources, the net effect of PEVs on greenhouse gases will be limited and will vary by region. As electricity production shifts to lower carbon-emitting sources, the environmental promise of PEVs will be enhanced significantly.

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Recommendations

1. Technology-Neutral Policies.

Policymakers should generally pursue energy security and environmental goals through technology-neutral policies, thereby allowing the marketplace for fuels and vehicles to determine which technologies are superior. The following fuel-saving policy instruments are typically considered technology-neutral: a gasoline tax; a national fuel efficiency standard that allows manufacturers to trade compliance credits; and a “feebate” incentive system for fuel efficiency, where buyers of high-mileage cars are awarded a rebate while buyers of low-mileage cars pay a fee. Policymakers must recognize that innovative, emerging technologies are at different stages along their learning and cost-reduction curves, and it is difficult for innovators, including commercial “first movers,” to fully capture the benefits of their risk-taking. Thus, technology-neutral public policies will not always be technology-neutral in their practical effects. Some technology-specific policies are needed to allow emerging technologies to compete with mature technologies. If technology-neutral policies are not adopted, perhaps due to political opposition, and instead technology specific policies are enacted, they should be designed to be as cost-effective as possible. Before any policies are enacted that might seem to promote PEVs specifically, the benefits of fleet electrification need to be compared to those from competing technologies. Given the technological and market unknowns, it may be wise for policymakers and businesses to invest in a mix of emerging technologies (non-PEVs and PEVs) until R&D and real-world experience establish which technologies are superior in specific applications. Any targeted public assistance for PEVs should be limited in both duration and production volumes. These programs should also be monitored and evaluated regularly to ensure accountability and effectiveness.

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2. National Demonstration of PEVs.

A federally supported, national PEV demonstration program should be implemented to help overcome the information barriers faced by the PEV industry today. A de facto demonstration is already underway as private and governmental efforts prepare target communities for PEVs. Yet these efforts have not been combined and coordinated in a focused national program aimed at “learning by doing.” In order to resolve uncertainties about PEVs, it is crucial that the demonstrations gather data from consumers, dealers, manufacturers, utilities, retailers, and municipalities. Without key data, the opportunity to learn about the real-world experience with PEVs—successes, burdens, and mistakes—will be foregone, and unnecessary public uncertainty, confusion, and debate will continue. In the design of a cost-effective national demonstration program, the following program characteristics should be considered:

• A focus on a limited number of designated communities (five to 20, depending on community size) with a range of climates, demographic and housing characteristics, public transit systems, and electric utility and regulatory systems.

• A strong partnership between national laboratories, universities, municipalities, and private actors is needed to collect high-quality data. The demonstration communities, and especially the data-gathering exercises within them, must be large enough to support statistically significant sample sizes, and the original data and findings must be shared widely with researchers and practitioners.

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• In order for a demonstration community to provide useful data, it should have as many of the following characteristics as possible:
o streamlined permitting procedures to facilitate recharging;
o time-of-use data gathering and electricity pricing capability;
o a priority placed on residential recharging infrastructure coupled with some workplace and community recharging;
o guidance materials available regarding niche fleet markets where PEVs may be particularly promising because routes are short and recharging can be performed at a central location (e.g., urban pick-up and delivery vehicles);
o data gathering activity on vehicle purchasing and leasing, driving patterns, servicing and recharging behaviors, and the evolution of public perceptions and attitudes; and
o action plans and evaluation activities that coordinate the vital roles of motorists, car dealers, automakers and suppliers, utilities, regulators, fleet buyers, and universities.

Such a demonstration program should be monitored by independent analysts to ensure that community demonstrations do not proliferate to the point that they represent a bias toward PEVs.

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3. Global Leadership Position in Technology, Manufacturing, and Public Policy.

The U.S. automotive, battery, and electric power industries, in collaboration with the U.S. government and universities, should seek to establish a global leadership position in electric mobility, especially in advanced energy storage technologies and production of batteries and related components. Constructive steps have already been taken toward fostering a U.S.-based supply chain for PEVs and expanding R&D into advanced batteries and other power train components. The track record of policies toward PEVs needs to be evaluated and, where necessary, refined as technology and market conditions change. Thus, the national demonstration and R&D program should be seen not just as a strategy to pursue worthy energy security and environmental goals, but also as a strategy to help revitalize the U.S. manufacturing sector.

4. International Collaboration.

Although the focus should be on advancing U.S. leadership and competitiveness in this dynamic field, there is also a need for some international collaboration. Historically, different vehicle standards have been a barrier to international trade, making it difficult for companies to transfer innovations from one national market to another. The EU, Asia, and North America are adopting somewhat different technical procedures and public policies toward PEVs. Areas ripe for cooperation include codes and standards for recharging, approaches to measuring vehicle fuel efficiency, and emissions measurement, including test conditions. A regular international exchange of information about the formulation of successful PEV demonstrations and public policies is also appropriate. Since China and the United States have some common national interests in reducing petroleum use and have facilitated constructive corporate partnerships in vehicle technology and production, the China-U.S. dialogue on PEVs should be encouraged to continue, assuming intellectual property rights are respected.

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5. Cost-Effective Consumer Incentive Programs.

For investors in emerging technologies, there can be a “valley of death” between the market acceptance of early adopters and widespread commercialization. Without some public assistance through this valley, emerging technologies with long-term promise may be discarded prematurely. In this regard, PHEVs may be closer than BEVs to overcoming the valley, since the current energy storage capabilities for BEVs are inadequate. While generous volume-limited tax credits have already been established for consumers who purchase a PEV (e.g., up to $7,500 at the federal level and an additional $5,000 in a few states), the following targeted, cost-effective measures to boost consumer demand for PEVs are worthy of consideration:

• government and commercial fleet purchases;

• PEV access to HOV lanes and parking in congested urban areas;

• battery warranty adjustments or guarantees; and

• targeted public information programs to dispel myths and reduce confusion.

6. Support for Recharging Infrastructure.

Private investments in recharging infrastructure may prove to be too small to support adequate demonstrations due to high initial costs for recharging infrastructure, few “first mover” advantages, relatively low energy prices in the United States, long payback periods, and uncertainty about the volume of future PEVs on the road. Significant public funding of recharging infrastructure has already been appropriated, and it is not yet clear whether more funding is necessary. Since some retailers (e.g., shopping malls) may have adequate business incentives to offer recharging stations to help attract and retain customers, relatively little infusion of public funds should be aimed at community recharging facilities. As additional public cost-sharing of recharging is provided, the cost-effectiveness criterion suggests that the highest priority should be residential recharging, followed by stations at workplaces and then community stations. Excessive spending on community stations may result in severely underutilized infrastructure, which can damage public support for PEVs.

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7. Modernizing the Electric Power System.

Even a partial shift from petroleum to electricity as a transportation fuel will have ramifications for the operation and growth of the electric power system. Detailed knowledge of the power grid is required to ensure that outages are avoided. To optimize the benefits of electrification, public policies should be adopted to:

• accelerate “smart grid” research, standards, and implementation;

• expand the availability of lower electricity prices during off-peak periods to enhance consumers’ willingness to charge their vehicles at night, and include continuous time-of-use pricing adjustments where acceptable;

• increase the availability of metering, recharging, and vehicle technologies that will enable these time-of-use adjustments to electricity prices; and

• encourage or require enhanced efficiency and the movement toward a cleaner power generation system in order to reduce upstream emissions associated with PEVs in the form of greenhouse gases and conventional pollutants.

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8. Long-Term R&D Commitments.

Lithium-ion batteries may never have adequate energy density to independently power a household’s primary multi-purpose vehicle. Although there have been significant improvements in battery technology since the 1990s, policymakers should consider a large increase in federal R&D investments into innovative battery chemistries, prototyping, and manufacturing processes. A broader selection of R&D grantees, with even more vigorous competition, is appropriate compared to past practices. Sustained investment in R&D, including both public and private funds, is crucial as the United States seeks to establish a leadership position in the growing global market for advanced battery technologies and related components. The potential spillover benefits in the economy from R&D and manufacturing leadership deserve serious consideration by policymakers, even though public R&D decisions will be made in a troubled federal fiscal situation. In order to determine the appropriate scale of R&D expansion, the expected payoffs from long-term R&D investments in energy storage techniques should be compared to the anticipated payoffs from R&D investments in other advanced fuels and propulsion systems.

Countries around the world are jockeying for position in the emerging PEV industry. The time for the United States to secure a leadership position in the global market for PEVs is now. This report provides an expert panel’s view of how the United States can secure this role in a cost-effective manner.