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Integrated Fuels and Vehicles Roadmap to 2030+ xxx subtitle xxx

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STUDY

Integrated Fuels and Vehicles

Roadmap to 2030+

Presentation handout

April 27, 2016

2 STUDY

Integrated Fuels and Vehicles Roadmap to 2030+

1. Background and Motivation

In October 2014, the 2030 Climate and Energy Policy Framework set a binding target of 40% for the

reduction of greenhouse gas (GHG) emissions in 2030 compared to 2005, along with non-binding

targets for renewable energy and energy efficiency improvements. The overall 40% GHG reduction

target includes a 30% reduction for non-ETS sectors that includes transport.

The absence of a long-term regulatory framework – standards for new vehicle GHG emissions,

carbon intensity of fuels and use of renewable fuels are defined only until 2020/2021 – is creating

uncertainty for investment in low carbon vehicle and fuel technologies. This study proposes a view

on technical achievability, infrastructure requirements, customer acceptance and costs to society of

GHG abatement measures to derive supporting policies.

For this purpose, Roland Berger defined an Integrated Roadmap for EU Road Transport

Decarbonization to 2030 and beyond. The study was commissioned to identify possible reductions

in GHG emissions by considering the key elements of technical achievability, infrastructure needs,

customer acceptance and which policies, currently being pursued, would lead to greater integration

between the automotive and fuel sectors in order to meet the challenging decarbonization goals set

out to 2030 and beyond. This study aims to provide an integrated roadmap taking into account the

feasibility of all fuel and vehicle technologies along with infrastructure needs and the recommended

policy framework beyond 2020. A key consideration was to identify a roadmap with the lowest,

achievable GHG abatement costs to society.

Existing data and views from a very broad range of accepted studies and stakeholders were used in

the performance of this study.

2. Modelling approach and assumptions for reference case

The study quantifies, in a realistic reference case, potential GHG emission reductions under the

current regulatory framework with predicted market improvements. The abatement effect of

enabling vehicle and fuel technologies is assessed with a comprehensive vehicle fleet and fuel

model for EU-28, covering GHG emissions from passenger cars, light commercial vehicle and other

commercial vehicles as well as indirect emissions from fuel and electricity production.

For the model, the likely powertrain mix for different vehicle groups until 2030 has been derived.

These powertrain mix forecasts are based on projected fuel and vehicle costs for conventional

internal combustion engines (ICE), mild and full hybrids, and alternative powertrains such as plug-in

hybrids (PHEV), battery electric vehicles (BEV), natural gas vehicles (CNG) and fuel cell electric

vehicles (FCV). The reference case predicts, within two different scenarios for oil price development

and battery technology progress, an expected market development for each technology under the

current regulatory framework. For the reference case, the model assumed extension of the existing

legislation to 2030, without the addition of any other policies.

After comparing transport sector emissions under the current regulatory framework with the 2030

GHG emissions reduction targets1, technologies were identified to achieve additional GHG

1 The Climate & Energy Policy Framework from 2014 aims to achieve a 30% reduction in GHG emissions below the 2005

level until 2030 in non-ETS sectors. The 2011 White Paper for Transport defines transport emissions to be calculated on a

tank-to-wheel basis.

3 STUDY


abatement at the lowest cost to society. In order for these technologies to contribute to the

abatement of road transport sector GHG emissions, the recommended policies need to address the

current obstacles these technologies face.

Figure 1: Approach for development of integrated roadmap

Source: Roland Berger

3. GHG emissions reduction towards 2030 in reference case

Based on assumptions developed in conjunction with a wide range of stakeholder input and

reference studies regarding vehicle fleet development and the current regulatory framework, the

study has shown that the road transport sector will

> Significantly reduce tank-to-wheel GHG emissions by 2030 to 647 Mton CO2e/a. This represents

a reduction of 29% compared to 2005 levels and is close to the reference level chosen for this

study of -30% vs 2005 based on tank-to-wheel emissions. The reference level was set based on

the 2030 non ETS target and the EC White Paper 2011 methodology of measuring transport

emissions (tank-to- wheel).

The study also shows that the continuation of the current policies for vehicle emissions and

renewable fuels obligations will deliver well-to-wheel GHG emission reduction from 1,100 Mton

CO2e/a in 2015 to 862 Mton CO2e/a.in 2030.

Scenario A: low oil price, high battery cost Scenario B: high oil price, low battery cost 1) EU 2030 Climate & Energy Policy Framework (2014)

GHG emissions

reference case 2030

GHG emissions

today

Additional abatement

potential until 2030

GHG emissions

reference case 2020/21

GH

Gem

issi

ons

Reference case GHG emission reduction (2 scenarios within current regulatory framework)

Additional cost-efficient GHG emission reduction until 2030 (and beyond) and supporting policies

Vehicle fleet and fuel model for EU28

Gap to TTWreduction aspiration

Indirect emission

(WTT)

HDVs

LCVs

Pass. cars

Scenario

A

B

Cost-efficientabatement measures

Supportingpolicies

EU 2030 Energy and Climate Package (2014) aspiration of -30% GHG emission vs. 2005

Direct emission

(TTW)

4 STUDY


Figure 2: EU-28 road transport sector GHG emissions1)

in reference case (Scenario A: low oil price) [Mton CO2e/a]

Source: UNFCCC/EEA; EU 2030 Climate & Energy Framework; Roland Berger

The study shows that moving forward from 2015 optimized ICEs (gasoline and diesel) and biofuels

usage are the major contributors to the sector's GHG emission reduction with significant

improvements and the subsequent penetration of effective technologies into the fleet. Despite the

expected reduction in cost of alternative technologies, the share of alternative new car sales will

remain relatively small and their influence on overall emissions currently remains marginal. Even

until 2030 many alternative powertrain technologies such as PHEV, BEV and FCV lack relative cost

competitiveness but are important corner stones in vehicle manufacturers' CO2 emission

compliance strategies.

Figure 3: Road transport direct GHG emissions by influencing factor 2015 vs. 2030 [Mton CO2e/a]


1) Fleet emissions of passenger cars and commercial vehicles, excluding two-wheelers, biofuels considered TTW carbon-neutral 2) Scenario A: low oil price, high battery cost 3) Based on EU 2030 Climate & Energy Framework (2014) reduction aspiration for non-ETS sectors

800

900

700

600

1,100

1,200

1,300

1,000

0

100

500

400

300

200

-22%

2030202520202015

862

-23%

1,100

2010

1,143

2005

1,196

TTW GHGemission reduction aspiration 30% vs. 20053) to 639 Mton CO2e

Indirect emissions (well-to-tank)

Direct emissions (tank-to-wheel)

vehicles built before 2015vehicles built since 2015

Development under current regulatory framework

Historical

913

838

6472)

872

GHG emission reduction aspiration road transport 2030

-29%

-28%

Improvements

vs. 2015 vs. 2005

-28-9-3-1

1831

-64

-163-11-7-1

35

-158

-21Passenger cars (PC)

Commercial vehicles (CV)

∑ -191

LargerFleet

More/less mileage2)

Higher ICEefficiency3)

MoreMH and FH3)

More BEVs/ PHEVs/CNGs3)

Morebiofuels4)

Overall effect

1) Biofuels accounted as TTW zero CO2 emission 2) Average annual mileage per vehicle 3) Higher penetration in fleet compared to 2015 (fleet renewal effect)4) Increasing E10 share in gasoline fuel until 2030, increasing FAME and HVO shares in Diesel fuels

ICE – Internal combustion engine MH – Mild hybrid FH – Full hybrid BEV – Battery electric vehicle PHEV – Plug-in Hybrid electric vehicle CNG – Compressed natural gas

5 STUDY


Bringing optimized ICEs as well as alternative fuels and powertrain technologies to market

represents a major challenge for the oil and auto industries and will account for EUR 380-390 bn of

cumulated incremental powertrain costs from 2015 until 2030 (average incremental powertrain cost

2020 vs 2010: approx. EUR 1,700 per vehicle)

The incremental powertrain costs identified have the following overall effects:

> Cumulated GHG abatement of approx. 1,100 Mton CO2e/a,

> Fuel cost savings between EUR 170 and 220 bn and

> Average societal abatement cost of approx. ~ 150- 200 EUR/ton CO2e after deduction of fuel

savings depending on the oil price scenario

Figure 4: Effect of current policy framework for GHG emission abatement – Low oil price scenario


4. Additional potential for GHG abatement: 2030 and beyond

For passenger cars to deliver further reduction of GHG emissions until 2030 by, it is cost-efficient

for society to promote

1. Uptake of higher advanced ethanol blends, such as E10, E20 for gasoline,

2. Uptake of drop-in advanced and waste based biofuels for diesel such as R332 and co-

processing of renewable feedstock in refinery units and

3. Uptake ultra-high efficient hybridized powertrains, such as mild hybrids and full hybrids

as these technologies are not yet fully capitalizing full GHG emission reduction potential in terms of

deployment under the current regulatory framework.

2 Diesel fuel with 7% FAME and 26% HVO

20100 302,0001,0000

+1,687

-150 -100 -50 0 -30 0-20 -10

∑ EUR 383 bncumulated

Target achievement increases PT cost by EUR 1,687 and…

…incurs EUR 383 bnadditional costs for society

…abates CO2e 1,090 MtonGHG emissions

…saves EUR 167 bn fuel costs for society

Additional powertraincosts (society) p.a.

WTW GHG abatement p.a.

∑ CO2e 1,090 Mtoncumulated

Fuel cost savings p.a.Average additional powertraincost per vehicle

∑ EUR 167 bncumulated

EUR/ton CO2e 198GHG abatement costs

2010

2030

2020

95g/km

[EUR/vehicle] [EUR bn] [EUR bn][CO2e]

EUR 216 bn net costs (EUR 383 bn powertrain costs - EUR 167 bn fuel savings) from 2010 to 2030=

CO2e 1,090 Mton avoided GHG emissions from 2010 to 2030

6 STUDY


Figure 5: WTW GHG abatement costs pathways, C-segment PCs 2030 [EUR/ton CO2e]


In commercial vehicle segments Light Commercial Vehicle (LCV), Medium Duty Trucks (MDT) and

Heavy Duty Trucks (HDT), additional cost-efficient GHG abatement is possible through

> Higher uptake of drop-in advanced biofuels for diesel

> New HD truck concepts with increased gross vehicle weight and higher maximal length for

improved aerodynamics with even negative abatement cost.

Alternative powertrain (e.g. BEV, PHEV) measures in these segments are very costly to 2030 due

to high adaptation and integration cost.

-100

0

100

200

300

400

500

600

700

800

D P

HE

V B

7

D M

H B

7

D F

H B

7

FC

V H

2 50

/50

BE

V S

R E

U-m

ix4)

D R

335)

6)

BE

V L

R E

U-m

ix4)

D B

7

CN

G b

f NG

EU

-mix

3)

FH

E52)

MH

E5

PH

EV

E52)

E85

E20

E10

Abatement costs1) [EUR/ton CO2e]

Gasolineblending

Diesel drop-in

Gasoline hybridization

GasolinePHEV

CNG Dieselhybridization

FCVBEV DieselPHEV

Diesel

PTFuel

1) Compared to optimized Gasoline powertrain 2030 using E5, all technologies with 250,000 km lifetime mileage 2) 30% e-driving, higher e-driving share reduces abatement costs3) Large range between scenarios driven by decoupling effect of natural gas price 4) Risk of higher abatement costs due to need of second battery over lifetime, SR – short range with 35 kWh battery capacity, LR – long range with 65 kWh battery capacity, both using 2030 EU mix electricity, 5) Diesel fuel with 7% FAME and 26% HVO6) Abatement cost in existing vehicle: -67 EUR/ton CO2 (high oil price), 7 EUR/ton CO2 (low oil price)

Performance oriented implementation

Performance oriented implementation

@70 USD/bbl

@113 USD/bblNot cost efficient until 2030

Recommended until 2030

7 STUDY


Figure 6: WTW GHG abatement costs pathways of medium- and heavy duty vehicle 2030 [EUR/ton CO2e]


The identified cost-efficient abatement technologies in passenger cars and commercial vehicles

allow approximately 34 Mton CO2e/a of additional WTW GHG emission reductions down to 828

Mton CO2e/a in 2030.

As a longer-term requirement (beyond 2030) for the EU road transport sector, the only

combinations of fuel and vehicle pathway technologies that are technically able to realize "ultra-low

carbon mobility" are

> Highly-efficient conventional powertrains fuelled with advanced and waste based biofuels

> PHEVs fuelled with advanced biofuels and renewable or carbon free electricity

> BEVs fuelled with renewable or carbon free electricity

> FCVs fuelled with renewable hydrogen

These vehicle and fuel technology combinations would allow average vehicle CO2 emissions of the

fleet to come down to below 40 gCO2/km, which could lead to overall fleet GHG emission reductions

below the expected level for 2050 (60% reduction compared to 1990 as defined in in the EC White

Paper 2011).

1,400

1,600

1,200

1,000

800

600

400

200

0

-200

-400

-600

HDHDHD FCVHVO Drop-

in (R33)

HD LNGHD CNGMD CNGMD BEVHD MHMD MHHVO100

Abatement costs [EUR/ton CO2e]

1) Medium duty 2) Heavy duty 3) Exclusion of HD BEV due to incompatibility of BEV range with long haul requirements 4) High CO2 abatement costs for CNG and LNG within MD/HD/City Bus s result from low quantities of vehicles (missing economies of scale) and CO2 abatement potential compared to Diesel is small (<5% savings/km) 5) High system cost and low lifetime mileage in medium duty trucks causes very high abatement cost , therefore incompatibility 6) Increased efficiency due to aerodynamic measures to reduce drag 7) Length and gross vehicle weight increase, increased transport efficiency by 10%

@70 USD/bbl

@113 USD/bblNot cost efficient until 2030

Recommended until 2030

Dieselbiofuel

Mild Hybrid BEV3) CNG4) LNG Fuel Cell5) Increased vehicle length6)

Increased size7)

>1,550EUR/ton CO2e

>1,330EUR/ton CO2e

>2,580EUR/ton CO2e

8 STUDY


Figure 7: WTW GHG efficiencies by technology1), average C-segment vehicle 2030 [g/km]


5. Policy recommendation

The current regulatory framework does not fully address all the barriers preventing a higher

penetration of biofuels and hybrids for passenger cars to achieve the 2030 GHG reduction target. It

is recommended that additional policies are introduced to provide greater investor certainty and

improve consumer demand for these lower cost abatement options.

In many commercial vehicles the implementation of efficiency technology in powertrains is driven by

Total Cost of Ownership (TCO) – Only in LCVs, the implementation of fuel-saving measures

segment is supported by the current regulations. But, at vehicle level, an adaption of the regulatory

framework on current vehicle length and weight limitation is necessary.

0

20

40

60

80

100

120

140

SNG3)CNG

(EU-mix)

BEV

(green

electricity)

BEV

(2030

EU-mix)

ICE with

renewable

fuels

FCV

(H2 wind

electrolysis)

FCV

(H2 50/50

mix)

PHEV2)FH

(fossil)

Diesel

(fossil)

Gasoline

(fossil)

Tank-to-wheelWell-to-tank

For ultra-low-carbon mobility beyond 2030, technologies with average TTW GHG emissions below ~40 g/km are required in EU fleet

Conventional ICE

1) Biofuel adjusted 2) With 30% electric driving 3) If NG is produced via power-to-gas from renewable electricity TTW = 0

Zero emission possible if green electricity is used for H2 conditioning

✓ ✓✓

✓ = Potential vehicle/fuel combination for low-carbon economy

Renewable fuels counted zero on TTW side

✓

Allowed average vehicle CO2 emission in fleet in 2050 for compliance with reference emissions

In all technologies significant vehicle efficiency improvements are included

9 STUDY


Figure 8: Key obstacles cost-efficient abatement options


Until 2030, in addition to continuation of current policies for fuels and vehicles new demand- and

supply-side policy measures are needed at EU and member state level to address the obstacles

preventing further market penetration of low abatement cost options and to enable these

technologies (e.g. biofuels and hybrids). This integrated approach aims to:

> Create a long-term sustainable market (demand-side) to

– Encourage consumers to buy carbon-saving vehicle technologies

– Incentivize fuel customers to choose low carbon fuels by providing a strong price signal either

via a tax exemption of biofuel content in market fuels in combination with an additional CO2

based taxation component or via a fuel taxation bonus depending on the biofuel content in

combination with an additional CO2 based taxation component

– Improve customers awareness about technological benefits of efficient powertrains and cost-

attractiveness

> Create planning security for investments by fuel suppliers and OEMs (supply-side) to

– Enable the development of advanced biofuel production by providing a strong and sustained

price signal for the product through tax exemptions or bonus/malus systems as for incentivise

consumer demand

– Support the use of the Innovation Fund for investments in innovations in low carbon

technologies. The Innovation Fund should be used to fund capex and opex for initial

advanced biofuel plants (fuel supplier/biofuel suppliers)

– Increase the production of cost-efficient vehicles as well as highly efficient conventional

technologies and fuel compatibility of vehicles (OEMs)

1) incl. other registration cost (e.g. purchasing taxes)

Fuel with high advanced biofuel share

MHs and FHs for passenger vehicle

Highly efficient truck concepts

Remaining uncertainty regarding sustainable demand (price and volume)

Technology hurdles for advanced generation

Cost competitiveness vs. conventional fuels (in all scenarios)

High purchasing cost1) for customers and lack of TCObenefits

Uncertain vehicle compatibility/lack of fuel standards

Lack of customer technology awareness and knowledge

Lack of customer technology awareness and knowledge

Regulatory limitation of vehicle length and weight

10 STUDY


Figure 9: Overview of key obstacles of pathway technologies: high biofuels share fuels, MHs/FHs and new truck concepts


Policy recommendations beyond 2030

In line with the long-term EU vision of a low-carbon society, it is further necessary to develop

instruments that drive progress towards cost-effective ultra-low-carbon mobility. It is recommended

that policy makers consider placing fuels in a market based mechanism (MBM) as complementary

policy to vehicle emission standards, fuels and infrastructure policies. Initially, the MBM should be

designed to recycle the revenues from the sale of allowances for fuels to provide the funding

needed to bring new low carbon fuels and vehicles to market. Once low carbon fuels and vehicles

can be deployed affordably en masse, the MBM can be the primary GHG reduction policy and other

policies (vehicle efficiency, fuels etc.) can be removed.

Taxation as powerful financial instrument is in responsibility of member states, additional regulation and liabilities can be introduced on EU level

Highly efficient trucks

Fuel with high biofuel share

Additional regulation/ liabilities

> Adjustments in truck length and weight regulation

> Set tailpipe emission to zero for the renewable part of the fuel that the vehicle is compatible with, above 2020 levels – define reference fuels accordingly

MHs/FHs power-trains for PC

Additional financial instruments

> Introduce additional fuel taxation componentsenabling a price advantage for fuels with high advanced biofuel share, e.g.

– Biofuel bonus/malus + CO2 component

– Biofuel tax exemption + CO2 component

> Support the use the Innovation Fund for invest-ments in innovations in low carbon technologies

> Change existing vehicle taxation towards a CO2 based taxation, e.g.

– CO2 based vehicle registration tax

– CO2 based annual vehicle tax

– CO2 based vehicle usage tax

Additional other policies

> Introduce CO2 labeling for fuels

> Offer/support "customer education" for biofuels

> Make fuel taxation transparent to customer (e.g. at gas station)

> Introduce cost/TCO labeling for vehicles

Existing supportive policies at fuel supply side (e.g. transport RED targets, provision within DAFI/AFID) and vehicle side kept unaltered

11 STUDY


Figure 10: Market-based mechanisms as future policies for long-term GHG emission reduction

Source: European Commission, ZEW, ICCT, IW Köln, Roland Berger

To achieve the target of a cost-effective and transparent reduction in GHG emissions, the following

design principles of a market based mechanism are recommended:

> Fuel suppliers should be the obligated party

> All emissions allowances need to be purchased via government auction and can be traded

> Only CO2 emissions from the combustion of fuels should be included in the cap and should be

calculated based on average TTW emissions (CO2/unit volume for gasoline and diesel)

> Biofuels should be accounted for as zero CO2 TTW emissions for the part that the vehicle is

compatible with above 2020 levels and only those that meet agreed sustainability criteria should

be allowed for compliance

> Funds from auctioning allowances for fuels should be used to provide time limited support for

both the additional policies for advanced biofuels, hybrids or ultralow carbon technologies as well

as R&D into these technologies

Long-term policy requirements

> The required additional GHG emission abatement beyond 2030 require additional supporting policies1)

> Market-based mechanisms (MBM) are an option as complementary policy to vehicle CO2

standards, fuels and infrastructure policies

> Initially, MBM should be used to generate revenues to fund new low carbon vehicle and fuel technology to reach market competitiveness

> Once low carbon vehicle and fuel technologies are competitive, MBM can become the primary GHG reduction policy replacing other vehicle efficiency, fuels related policies

Design principles for a market-based mechanism

The following design principles ensure cost-effective and transparent GHGemissions reduction

> Fuels suppliers should be the obligated party

> All emissions allowances need to be purchased and can be traded

> Only direct CO2 emissions (TTW) should be included in the cap

> Biofuels (meeting sustainability criteria) should be accounted for as zero TTW CO2 emissions

1) EC White Paper (from 2011) suggests a 60% GHG emission reduction by 2050 with respect to 1990

12 STUDY


6. Summary Integrated Fuels and Vehicles Roadmap to 2030+

> On the basis of a detailed EU28 road fleet model developed by Roland Berger it appears

that by extending existing policy measures to 2030, the road transport sector can reduce

TTW emissions by ~29% to 2030 (vs. 2005) reaching almost the 2030 aspiration – Compared

to today, 2030 WTW GHG emissions should reduce by 238 Mton, thereof 191 Mton reduction

are direct emissions

> Abating ~1,100 Mton CO2 emissions cumulative in passenger cars from 2010 to 2030 reflects

cost to society of an estimated ~200 EUR/ton CO2e this includes significant cost incurred by

vehicle manufactures and fuel suppliers

> Identified cost-efficient abatement pathways (fuels with higher biofuel shares, hybridization in

passenger cars and highly efficient truck concepts) would allow additional GHG abatement of

approximately 34 Mton CO2e until 2030. This reflects an annual emission saving forecast in

2030, which will further reduce post-2030 with the deployment of these technologies in the fleet

> Additional policies are needed to address obstacles to the deployment of low-carbon

pathway technologies such as

– supporting development of advanced biofuels via price signal to the biofuel/fuel industry

– an adjusted fuel and vehicle taxation (e.g. excise duty exemption or taxation

bonus/malus on advanced bio-components in fuels in combination with a CO2 based

taxation component)

– adjusted regulations regarding biofuel's TTW emissions (set tailpipe emission to zero

for the renewable part of the fuel that the vehicle is compatible with above 2020 levels and

to define reference fuels accordingly) to accelerate the penetration of vehicles that are

compatible with higher concentrations of biofuels

– adjusted regulations of truck length and weight limits to improve aerodynamic efficiency

and transport efficiency by increased payload levels

– making low-carbon technology benefits more transparent to the customer

> In the long term, market-based mechanisms (MBM) are an option as complementary policy

to vehicle CO2 standards, which would provide Member States with funds to support new

ultra-low-carbon vehicle and fuel technologies – In the long term MBM can become primary

GHG reduction policy

13 STUDY


Publisher

Roland Berger GmbH

Sederanger 1

80538 Munich

Germany

+49 89 9230-0

www.rolandberger.com

Disclaimer

This study has been prepared for general guidance only. The reader should not act on any

information provided in this study without receiving specific professional advice.

Roland Berger GmbH shall not be liable for any damages resulting from the use of information

contained in the study.

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14 STUDY


ement summary

EU28 targets a 80-95% reduction of total GHG until 2050 vs. 1990 levels

Transport sector is required to reduce

- 30% until 2030 vs. 2005 levels (non ETS from ESD)

- 60% until 2050 vs. 1990 levels (Transport White Paper)

With >270 m vehicles in car parc in 2030/2050 and the CO2 reduction limits of ICE, today's

dominant ICE needs to be replaced by carbon-friendlier technologies

The market on its own will achieve 25% reduction until 2030 vs. 2005 levels, falling about

5% short of the non-ETS sector target (both in low- and high-oil price scenarios)

Cost-efficient CO2-friendly technologies for 2030

- Mild- and Full-Hybrids can contribute

- Biofuels can contribute

- CNG can contribute

But to achieve 2050 targets, these technologies are not enough

Only BEV and FCEV have the potential to achieve near-zero WTW emissions

Technologies for 2050

- Infrastructure build-up required today

- BEV short-medium range

- FCEV medium-long range

- LNG for HD

study integrated fuels and vehicles roadmap to 2030+ · and battery technology progress, ... ghg...

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