Transportation Energy Market Transportation Energy Market Transitions:Transitions:

an Environmental Perspectivean Environmental Perspective

John M. DeCiccoJohn M. DeCiccoSenior Fellow Senior Fellow ▪ ▪ Automotive StrategiesAutomotive Strategies

Environmental Defense FundEnvironmental Defense Fund

MIT / Ford / Shell Research WorkshopMIT / Ford / Shell Research Workshop Dearborn, MichDearborn, Michigan ▪ June 9, 2009igan ▪ June 9, 2009

22

Clarity on GoalsClarity on Goals

• Distinguish Distinguish MEANSMEANS from from ENDSENDS

• AFVs (non-fossil, non-carbon) are means AFVs (non-fossil, non-carbon) are means toto

▸ energy securityenergy security

▸ climate protectionclimate protection

▸ economic benefitseconomic benefits

• Is AFV transition really "vital" -- should it Is AFV transition really "vital" -- should it be the premise of analysis? be the premise of analysis?

33

Environmental GoalsEnvironmental Goals

• Climate protection is now top priorityClimate protection is now top priority▸ Work from global carbon budget to avoid Work from global carbon budget to avoid

high risk of disruptive global warminghigh risk of disruptive global warming▸ "Deep reductions" by mid-century (e.g., "Deep reductions" by mid-century (e.g.,

80%)80%)▸ Continue progress on established metrics Continue progress on established metrics

(air/water quality, ecosystem protection)(air/water quality, ecosystem protection)

• Carbon budget implies cap framework; Carbon budget implies cap framework; trading allows flexibilitytrading allows flexibility▸ problem: poor policy design match for problem: poor policy design match for

transportation markets transportation markets ▸ or,or, a need to develop new mechanisms a need to develop new mechanisms

44

Fuel Price Volatility vs. Carbon PriceFuel Price Volatility vs. Carbon Price

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1950 1960 1970 1980 1990 2000 2010

Rea

l Gas

olin

e Pri

ce ($2007/g

al)

Average price 1970-Average price 1970-2008:2008:

$2.03 ±0.51 (2007$/gal)$2.03 ±0.51 (2007$/gal)

With carbon With carbon price of $22/ton price of $22/ton

COCO22

55

Energy Policy LessonsEnergy Policy Lessons

• Based on balance of competing interestsBased on balance of competing interests

• No well-defined objective function (how do No well-defined objective function (how do you measure "security" or you measure "security" or "independence"?)"independence"?)

• Has generally provided economic efficiency, Has generally provided economic efficiency, "normally" low private costs, but … "normally" low private costs, but …

• RD&D, incentives & mandates policies for RD&D, incentives & mandates policies for alternative transportation energy sources alternative transportation energy sources have not seen success to date (Brazil?)have not seen success to date (Brazil?)

66

Trends in Design-Related Impacts of U.S. Trends in Design-Related Impacts of U.S. AutomobilesAutomobiles

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1970 1980 1990 2000 2010

IND

EX

(19

70=1

)

VMTVMT

Oil & COOil & CO22

FatalitiesFatalities

Air PollutionAir 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

77

The "control system" The "control system" mattersmatters

PROCESSPROCESSINPUTINPUT OUTPUTOUTPUT

PROCESSPROCESSINPUTINPUT OUTPUTOUTPUT

FEEDBACKFEEDBACK

OPEN OPEN LOOPLOOP

CLOSED CLOSED LOOPLOOP

88

Control models for existing Control models for existing policiespolicies

• Road safety:Road safety: open loop; performance goals are only open loop; performance goals are only weakly stated and not enforceable.* weakly stated and not enforceable.*

• Air quality:Air quality: closed loop; Clean Air Act requires closed loop; Clean Air Act requires legally enforceable attainment of health-based legally enforceable attainment of health-based standards.standards.

• Energy:Energy: open loop at best; well-defined open loop at best; well-defined performance objectives are not specified in law. performance objectives are not specified in law.

Traditional energy policy approaches seem Traditional energy policy approaches seem unlikely to suffice for the goal of climate unlikely to suffice for the goal of climate protection, and it's fair to question just how protection, and it's fair to question just how well they will ever work for energy security and well they will ever work for energy security and economic goals. economic goals. *Here, *Here, enforceableenforceable pertains to the social goal, not the technical pertains to the social goal, not the technical regulations. regulations.

99

Clarity on FrameworkClarity on Framework

• Is the current framing of the problem, Is the current framing of the problem, based on technical factors characterizing based on technical factors characterizing the system, adequate for generating the the system, adequate for generating the insights needed? insights needed?

• "Alternative" (e.g., non-petroleum, or non-"Alternative" (e.g., non-petroleum, or non-fossil, "carbon free" energy carrier, etc.) is fossil, "carbon free" energy carrier, etc.) is example of "technological determinism"example of "technological determinism"

▸ Means to end, but if pathways and Means to end, but if pathways and scenarios are all defined in terms of scenarios are all defined in terms of "alternatives," are we missing "alternatives," are we missing opportunities? opportunities?

1010

GHG EmissionsGHG Emissions

Travel Travel ActivityActivity Vehicle Vehicle

EfficiencyEfficiency

Fuel GHG Fuel GHG IntensityIntensity

Traditional Factors for AnalyzingTraditional Factors for AnalyzingTransportation GHG EmissionsTransportation GHG Emissions

1111

Shifting the FocusShifting the Focus

• from from FactorsFactors

▸ which no single actor can fully influencewhich no single actor can fully influence

• to to ActorsActors

▸ all of whom make decisions that all of whom make decisions that influence GHG emissions in some wayinfluence GHG emissions in some way

Can we create "feedback loops" that guide all Can we create "feedback loops" that guide all actors according to well-defined metrics tied to actors according to well-defined metrics tied to end goals end goals (as opposed to trying to guide changes in (as opposed to trying to guide changes in factors toward presumed means to the end)? factors toward presumed means to the end)?

1212

Actors Who Influence Automotive GHG Actors Who Influence Automotive GHG EmissionsEmissions

AutomakersAutomakers

Land Use and InfrastructureLand Use and InfrastructurePlanners and ProvidersPlanners and Providers

Fuel SuppliersFuel Suppliers

$$

$$ $$

ConsumersConsumers

Established Market Established Market RelationshipsRelationships

1313

What are the future relationships that might What are the future relationships that might transform auto-related markets?transform auto-related markets?

AutomakersAutomakers

Land Use and InfrastructureLand Use and InfrastructurePlanners and ProvidersPlanners and Providers

Fuel SuppliersFuel Suppliers

$$

$$ $$

ConsumersConsumersINTELLIGENT INTELLIGENT

INFRASTRUCTURINFRASTRUCTURESES

ENERGIZED ENERGIZED INFRASTRUCTURINFRASTRUCTUR

ESES

VEHICLE-FUEL VEHICLE-FUEL SYSTEMSSYSTEMS

1414

Toward "Synergy" ScenariosToward "Synergy" Scenarios

• New markets will require new relationships New markets will require new relationships that add value along multiple dimensionsthat add value along multiple dimensions

▸ What carbon (GHG) metrics make sense, and What carbon (GHG) metrics make sense, and can the carbon market be helpful? can the carbon market be helpful?

▸ Energy security: role for "50-250" strategies? Energy security: role for "50-250" strategies? (robust over $50—$250 per bbl price variation)(robust over $50—$250 per bbl price variation)

▸ Where will new bases for customer value be Where will new bases for customer value be found (found (hint:hint: not likely in energy per se) not likely in energy per se)

• Can the modeling explore these questions? Can the modeling explore these questions?