Shocked: The Surprising Effect Climate Change Policy Has on Energy Costs

May 22nd, 2012

We have all seen and felt it before; we pull into our local gas station only to find the prices have risen substantially. Our fill-up cost has just jumped from $50 to $60, or from $60 to $80 or more. Multiplied across the economy, this price spike has large implications.

Just as the individual driving the large SUV feels the pain at the pump more than someone driving a sub-compact or plug-in vehicle, an economy without smart energy policies will feel the pain of an oil price spike more than one with a plan to reduce energy demand.  A recent Energy Policy journal article, co-authored by Energy Independence Now’s Policy Director, Remy Garderet, along with Chris Busch, (Center for Resource Solutions), and James Fine (Environmental Defense Fund), represents the first scholarly paper to quantify the impact of oil price spikes on the economy.

Specifically, “The upside hedge value of California’s global warming policy given uncertain future oil prices” quantifies the impact of California’s AB 32 policy, which was a 2006 Assembly Bill that established statewide regulations, programs, and market mechanisms to reduce California’s greenhouse gas emissions to 1990 levels by 2020.

This paper is the first of its kind to introduce a key concept: policies designed to reduce emissions and energy use protects consumers from exposure to price shocks. These oil price shocks severely impact California’s economy because our demand exceeds production, leaving us dependent on oil imports and exposed to price changes. At the current price of $100 a barrel for imported oil, California spends $33 billion annually, or $90 million everyday.  The California Air Resources Board (CARB) estimates, however, that with growing demand and rising prices, in 2020, California will be spending $49.2 billion per year on oil imports, or $134 million each day.

Currently, one of the greatest threats to California’s economic security is our dependence on imported oil and gasoline, a fact that is unlikely to change significantly in the near term. What we pay for our oil is often completely out of our hands. Macroeconomic models of the future ignore this uncertainty as well as the likelihood of future price shocks. A price shock is any sharp, rapid increase in the price of a product.

Since 1995, Americans have experienced 10 such spikes. Although policymakers have little control over the forces that create these shocks (oil is a global commodity with many market forces controlling its price), they must start considering how to limit price shock impact. This is where AB 32’s upside hedge value—the avoided expense to Californians during a price shock—comes into play.

Since AB32 reduces the demand for oil, it also reduces our vulnerability to a price shock, creating an upside hedge value. According to Garderet, Busch, and Fine’s analysis, this upside hedge value is bounded from a low of $2.4 billion to a high of $5.2 billion in 2020.  In other words, without AB 32, California’s economy would likely loose $2.4 to $5.2 billion in 2020 alone.

Calculating the upside hedge value relied on four steps:

1. Identify AB 32-induced changes in energy use

-Uses a macroeconomic model with a detailed model of energy supply and demand to predict what the economy would look like in 2020 without AB 32 implementation

2. Develop retail gasoline and diesel price spike scenarios

-Uses historical real-world shocks to create an instantaneous rise of retail gasoline and diesel prices on January 1, 2020 that remains at that level for a full year (moderate shock=25% increase; large=50% increase)

3. Develop range for price elasticity of demand

-Considering the short-term changes to avoid driving consumers would make due to a sudden price shock, including cycling, walking, and/or using public transit more and the long-term changes such as moving closer to travel destinations or buying an energy efficient vehicle

4. Calculate the upside hedge value

-Multiply the price change and the quantity change to calculate the value of energy savings

For climate change and energy reduction policies to take hold across the country, policy makers need to understand the hidden benefit that climate change policies can have on future energy costs. As this recent Energy Policy article shows, in the case of AB 32, we have a win-win-win situation: it’s reducing Californian reliance on foreign oil, reducing domestic greenhouse gas emissions, and saving us money!

Clean Cars for California

February 7th, 2012

On January 28th, 2012, the California Air Resources Board unanimously voted to adopt the Advanced Clean Cars Program, which represents the most comprehensive effort in the world to set society on path to end our dependence on oil.  It’s a tremendous victory for California residents and consumers, with national and global benefits and implications. By 2025 in California:

  • One in seven new cars sold will be zero-emission (battery electric or hydrogen fuel cell electric) or plug-in hybrid vehicles, and approximately 1.4 million of these vehicles will be on the road;
  • Greenhouse gases will be reduced by 52 million tons, the equivalent of taking 10 million cars of the road;
  • Tailpipe emissions of soot and smog forming emissions will be cut by 75%;
  • California drivers will save $5 billion in operating costs, with average consumers seeing nearly $6,000 in fuel cost savings over the life the advanced car (compared to added upfront costs of approximately $2,000); and
  • 21,000 jobs will be added in California, rising to 37,000 in 2030.

The program rightly focuses industry efforts on both incremental and transformative change.  On the incremental side, the Low Emission Vehicle (LEV) regulations set targets for automakers to improve the efficiency and emissions systems associated with internal combustion engines, which are likely to be at least part of our transportation portfolio well into the future.  The Zero Emissions Vehicle (ZEV) and Clean Fuels Outlet (CFO) regulations aim to spur the commercialization of ZEVs, which do not rely on petroleum and offer a clear path to clean, sustainable transportation.

Interestingly, automakers all expressed general support of these rules. This marks a tremendous sea change from the past, when automakers nearly unanimously opposed past ZEV and LEV rulings. Why the change of heart?

The times have changed.  Nearly all of the regulated companies have made substantial investments in the advanced technologies the regulations will require.  Nissan and GM have released the Leaf and Volt, respectively, with the aim of making money.  Upstarts such as Tesla, CODA, and Fisker are challenging the traditional players with their clean technologies. And the summer 2011 fuel economy agreement between the federal government, ARB, and automakers set the table for collaboration and cooperation.

Now the oil industry is the laggard.  The Clean Fuels Outlet will require major oil refiner/importers to install hydrogen fuel stations (and potentially battery electric charging stations) to fuel ZEVs that the auto companies project they will produce.  In the very worst-case scenario, the CFO would cost oil companies less than a day’s worth of profits.  At best, any investment the oil companies make would be recovered with profits increasing over the years. Regardless, the oil companies are threatening legal action; much like the auto companies did at the advent of ZEV.

While the CFO saga will continue to play out as the rules become finalized, Energy Independence Now will be working behind the scenes to ensure that the rules set the floor for advanced technology deployment, not the ceiling. We have our work cut out for us, but the recent ARB action represents significant milepost on the way to sustainable transportation.

Gasoline Prices Worldwide and Its New, Greener Competitors

February 6th, 2012

Well into the second month of the New Year, Americans continue to feel that all too familiar sting at the gas pumps. Though it is very clear that citizens remain unhappy about the current cost of fuel found at gas stations nationwide, Californians coming in at about $3.71 per gallon of regular unleaded, they may find themselves frowning a little less often once they hear how much other countries are paying for that same gallon. The US national average for regular unleaded as of January 25th was $3.39 per gallon, about $0.28 higher than prices last year at this time. Canada faces an average national price of about $4.67 per gallon with Japan reaching approximately $6.98 per gallon according to a report conducted by the International Energy Agency in December of 2011. France, Germany and Italy saw unleaded premium prices (95 RON) of $7.40, $7.51, and $7.83 per gallon respectively with the United Kingdom following at about $6.42 per gallon as of January. The IEA also reported Spain reaching a price of $6.44 per gallon with Australia’s national average trailing in at $5.45 per gallon. Lastly, Mexico currently pays a very tempting $2.86 per gallon for regular unleaded as a result of federally funded gasoline subsidies – a program whose extent remains uncertain.  

So with the majority of the world paying much more at the pump, why is it that our prices remain so low in comparison? Well for one thing, the governments in these countries with higher prices tax far more per gallon than our own does. For instance, Germany, the UK, and Japan pay $4.42, $4.76, and $3.10 in taxes alone respectively, while the US only pays about $0.41 for every gallon purchased as of the end of 2011. Furthermore, subsidies offered to the oil industry by the national government also work to keep US prices low through corporate income tax breaks, tax-free construction bonds, and the funding of programs that mainly benefit motorists and the oil industry.  

With the US national average price of gasoline expected to be even higher in 2013, Americans may find themselves looking for even the smallest amount of relief when it comes to transportation fuel costs. Surprisingly and fortunately, it can be found in the very alternative fuels that were once believed to be more expensive than their conventional counterparts. According to a recent report conducted by the US Department of Energy in October of 2011, ethanol (E85) and compressed natural gas (CNG) averaged $3.19 per gallon and $2.09 per gasoline gallon equivalent (GGE), respectively. Similarly, propane averaged $3.06 per gallon and biodiesel (B20) averaged $3.91 per gallon – with ethanol, propane and biodiesel showing a decrease in national averages from the last fuel report. Furthermore, the costs associated with driving a plug-in hybrid electric vehicle (PHEV) are equivalent to about $0.75 per gallon of gasoline according to a study done by the Electric Power Research Institute (EPRI) in 2007. Though the years to come may not bode well for conventional fuel prices, American citizens who currently depend on gasoline have cheaper, alternative fuel options that they can migrate to with their next vehicle. These fuel advances have come a long way and are far more appealing than they once were: they can increase energy independence, decrease emissions, and save consumers money.   

By Christine Jaramillo

The Vast Majority of Voters Support Increased Fuel Economy Standards

January 6th, 2012

As gas price increases continue to creep up on us in the wake of the New Year, the majority of affiliates across the main political parties surprisingly find themselves in support of a common ideal. In a statewide survey conducted in July of 2011 by the Public Policy Institute of California (PPIC) on opinions regarding the environment, it was found that an astonishing 84% of state residents favored the requirement of automakers to significantly improve the fuel efficiencies of their vehicles. More specifically, 90% of Democrats, 81% of Independents and 76% of Republicans shared this particular view. Californians also demonstrated strong support (80%) for an increase in federal funding of the development of renewable energy sources such as solar, hydrogen and wind technologies. In light of the formal address made by President Obama on July 29th announcing the newly agreed upon plans proposing more stringent fuel economy and greenhouse gas standards, this collective and majority opinion could not have come at a better time. According to the latest Kelly Blue Book consumer survey taken in May 2011, “the vast majority of car shoppers (84%) said that gas prices have influenced [their] vehicle considerations… [and] indicated that better fuel economy was their main reason for planning to purchase their next vehicle.” Automotive companies manufacturing such fuel efficient vehicles have the numbers to prove it too. As of May 2011, GM, Honda and Nissan all show increasing trends in market sales of their hybrids as well as their other fuel efficient vehicle models. Taking all of these factors into account, the transition to better transportation energy practices is very promising and becoming more feasible.

By Christine Jaramillo

The 2011 LA Auto Show and What’s in Store for Roads Worldwide

December 20th, 2011

Car buyers everywhere have every reason to be excited. Whether they’re browsing for luxury, power, performance, or efficiency – they can expect to find themselves frequenting the gas pumps a little less often over the next coming years. The 2011 LA Auto Show officially opened to the public on November 18th and concluded exhibit viewings on the 27th.  Despite the premiere of a staggering 1,000 new vehicles, the most notable aspect about this year’s show was the significant increase in vehicle fuel efficiency across the board in all categories. In light of Obama’s new fuel efficiency standard of 54.5 mpg by 2025, car manufacturers wasted no time in working towards this goal with design innovations appearing in both their debut models as well as models already in production. The show displayed a total of 15 vehicles with 40 plus mpg, 35 hybrid and plug-in hybrid vehicles, 9 clean diesel vehicles, 7 electric vehicles, 13 alternative fuel vehicles and 2 fuel cell vehicles.

In the spirit of competition, Best of Show recognitions were made and selected based on fuel efficiency, tailpipe emissions, and incorporation of innovative technologies that allowed vehicles to meet California’s Clean Car Standards. For the Working Truck category, the blue ribbon went to the Ford F-150 with EcoBoost, followed by the Toyota Tacoma as the runner up. For the Sporting Car category, the blue ribbon went to the Honda CR-Z Hybrid Coupe followed by the Mazda3 SKYACTIV as the runner up. For the Non-Sporting (midsize) Car category, the blue ribbon was awarded to the 2013 Chevy Malibu Eco with the 2012 Toyota Prius Plug-in placed as runner up. For the Herding Car (SUV/Minivan) category, the blue ribbon was awarded to the 2013 Ford C-MAX Energi Plug-in Hybrid with the Toyota Prius V placed as runner up. And lastly, for the Compact (or subcompact) Car category the blue ribbon went to the Hyundai Elantra followed by the BMW i3 as the runner up. Vehicles and technologies recognized for Best of Show are either currently on the market or expected to be on the market within the next 2 years.

So to all those prospective buyers looking to purchase the greenest car of 2012 – look no further. The Honda Civic Natural Gas won the 2012 Green Car of the Year Award and boasts the cleanest-running internal combustion engine certified by the U.S. Environmental Protection Agency. The model gets 48 mpg on the highway and releases tailpipe emissions at levels that render it untouchable by any competing engines of its kind. Automotive manufacturing companies are making extensive improvements in vehicle fuel economy and couldn’t be doing it at a better time. With gasoline prices expected to reach record highs in 2012, the demand for more efficient and cleaner-burning cars by drivers all over the world could not be more present.             

By Christine Jaramillo

Zero Emissions Vehicles For All Drivers

October 24th, 2011

In our society's quest for energy independence, its important to remember that no one solution is going solve our oil addiction problem.  We consume A LOT of oil. People naturally have different driving habits and transportation needs. To truly reach a sustainable transportation system, we need to have zero emissions vehicles that can meet the driving demand of all drivers. This means zero tailpipe emissions today,and moving towards zero energy production emissions in the future. Check out this EIN video to learn more:

For a list of references for facts stated in the video, please click here.

Clean Cars, Clean Air, a Healthier California – As Told by Our Doctors

August 4th, 2011

For 45 years, the state of California has made remarkable progress towards improving air quality via the implementation of critical standards and regulations. California, the pioneer state for tailpipe emission standards, now faces another critical set of decisions later this fall that could significantly impact the health of its residents as well as the production of, and transition to, cleaner vehicles. CARB will be voting on important updates to the Clean Cars Program that aim to reduce toxic vehicle emissions, decrease greenhouse gas emissions, and improve the availability of infrastructure that properly supports clean, alternative fuel cars. As expected however, advocates for more stringent standards are not met without opposition – placing the California Air Resources Board in familiar territory: balancing health, environmental, and economic well-being.

Physicians and other health professionals are some of the major players in support of strengthening federal air quality regulations, particularly vehicle emissions, and continue to rally ever increasing numbers – with good reason. California can successfully claim all 10 of the nation’s smoggiest counties and thus, some of the worst air pollution in the country. The major cause? Over 30 million registered vehicles and the staggering amounts of traffic pollution that they produce. Support from the medical sector continues to call public attention to poor air quality and its direct relation to negative health impacts, both acute and chronic. These effects include respiratory diseases such as asthma, bronchitis, emphysema and many others – with the most serious being lung cancer and premature death. The populations most susceptible to emission-related illnesses are children, the elderly and those with preexisting respiratory conditions. According to a study done in 2010 by the RAND Corporation, “unhealthy air days caused 33,000 Emergency Room visits and hospitalizations at a cost of almost $200 million dollars from 2005-2007”. According to “The Road to Clean Air” study conducted by the American Lung Association, California could potentially reduce all major air pollution-related health problems by as much as 70% – a change that proves both economically and socially beneficial. With the overall well-being of society in mind, health professionals as well as the American Lung Association continue to push for the protection and maintenance of strict air quality regulations. However, automotive manufacturers and their employees express concern to such firm standards, particularly the steep increases in Corporate Fuel Economy Standards (CAFE) and increasingly stringent GHG emissions standards.

The major cause of automaker hesitation to higher standards stems from their concern of the potential impact such changes may have on sales and jobs. The redesign of vehicles to effectively boost fuel economy through the use of lighter but more expensive materials may stress automakers’ margins – the driving notion that propagates concern among union members that company jobs will be the first aspect effected. Federal officials, automakers as well as representatives from the United Auto Workers (UAW) have been continually meeting and discussing feasible CAFE standards that will not result in a misbalance of the equally important priorities involved with these future updates. “We want to get it right…” stated the Transportation Secretary, Ray LaHood who is optimistic that new, fuel efficiency standards in agreement with both automaker and regulator goals will be settled for the 2017-2025 timeframe. The secretary went on to say that “current talks with companies have focused solely on finding the right standard” and as of July 29th, such a compromise was finally reached. In an address made by President Obama, he confirmed that “by 2025, the average fuel economy of [newly manufactured] vehicles will nearly double to almost 55 miles per gallon…[saving] a typical family more than $8,000 in fuel costs over time”. Now the Air Resources Board looks ahead to amend California’s Low-Emission Vehicle (LEV) regulations with the intent of implementing more stringent GHG and tailpipe emission standards for new passenger vehicles. This proposed set of amendments is known as LEV III and also includes efforts found in the Zero Emission Vehicle (ZEV) program. If passed, the integration of these 3 programs: smog, GHG and ZEV will place additional pressure on automakers to meet both the new state and federal standards. However,  “most vehicle manufacturers agree…these technologies will be necessary to meet climate goals by 2050” though consumers can expect to see an increase in sticker price. Nevertheless, in a report compiled by GO60mpg, a joint effort comprised of numerous environmental organizations, calculations show that “for most consumers who finance the purchase of a new [fuel efficient] vehicle, the fuel savings will be greater than the additional cost”. A thought prospective car owners should definitely keep in mind, especially with continually increasing gasoline prices.

Though automakers’ express valid and genuine concerns, history has shown us that seemingly ‘impossible’ air quality standards have been instated and successfully practiced despite initial uncertainties. The state of California experienced that firsthand with, for example, the requirement of pollution-reducing catalytic converters in new cars and the adoption of the smog check program. The mistake is made in the assumption that it is an either/or decision. It is not a choice between the health of the public and economic prosperity, but rather how soon we hope and want to see changes for the better. Now having reached an agreement, a collective effort can be made on all parts. As demonstrated in the past but not without its challenges, meeting these new regulations still remains an accomplishable goal. Through this progress, physicians and other supporters can hope to see the clear skies and improved air quality they’ve been working toward.

By Christine Jaramillo

Hydrogen Fuel Cell Progress: A Showcase

July 5th, 2011

At the end of June, the California Air Resources Board (CARB) hosted a Hydrogen and Fuel Showcase to educate board members on the incredible progress hydrogen and fuel cell technology has made under the Zero Emissions Vehicle program.  Check out Remy Garderet (EIN’s Policy Director) at the event in this video clip:

His points are well put; CARB’s Zero Emission Vehicle Program helped drive substantial investment into fuel-cell-electric-vehicles (FCEVs), as well as battery-electric-vehicles (BEVs).  As a result, consumer ready, zero-emissions products are ready to be launched. Without strong government policy, much of this progress simply would not have been made.

We need continued strong policy signals to ensure the successful deployment of these technologies and the infrastructure needed to support them. EIN is working hard to ensure that by 2025, 1 in 5 vehicles on car lots will be able to run on hydrogen or electricity.  Because of these recently showcased technology advancements, this vision is attainable.  We can now realistically hope that your next vehicle will be powered by hydrogen, electricity, or both.

Exciting Changes at EIN

July 1st, 2011

After nearly 10 years as EIN’s Executive Director, Daniel Emmett has transitioned from this role and into an advisory position as EIN’s Board President.  With this change, EIN is very pleased to announce Tyson Eckerle as EIN’s new Executive Director. EIN’s Board is extremely excited at the prospect of him leading the organization. Through this transition, Tyson will not be alone in leading EIN’s efforts.  Remy Garderet will continue to serve as EIN’s Policy Director, and Daniel will remain accessible to the EIN team to offer strategy and policy advice, and grow support for the organization. Although Daniel’s presence in day-to-day operations will be greatly missed, EIN staff remains strongly committed to the critical work of the organization and will continue to be dedicated in working towards energy independence, cleaner air, and a sustainable future.

To read more about the EIN staff, check out the updated staff page under About Us on the EIN website.

In addition to the staffing changes, EIN has returned to its roots at its old offices on Bond Ave in Santa Barbara, California. The formal mailing address can be found on the Contact Us section of the EIN website.

A Tale of Three Stations, and the Progression of California’s Hydrogen Infrastructure

May 24th, 2011

As the early market for Hydrogen Infrastructure continues to develop, EIN staff took a roadtrip to witness some key milestones in the transition away from our dependence on oil.

Our first stop took us to Torrance, California, for May 10th grand opening of the world’s first pipeline fed hydrogen-fueling station.  The station was developed in a partnership between Toyota, Air Products, Shell, South Coast Air Quality Management District and the Department of Energy. Approximately 50 representatives from key stakeholder groups attended the grand opening, including individuals from fuel providers, station operators, environmental NGOs, vehicle manufacturers, media, and government. The facility has a fueling capacity of approximately 50 kilograms per day; enough fuel to fully support over 80 cars based on UCI’s National Fuel Cell Research Center data on average fuel use.

Lined up and waiting to be the first vehicles to fill at each one of the four hydrogen pumps were vehicles from major automakers GM, Honda, Kia, Mazda, Mercedes, and Toyota. With a single hydrogen fill-up, these vehicles can travel as far as conventional gasoline or diesel vehicles (250-400 miles depending on the model), and can refill with hydrogen in as little as 3 minutes, offering petroleum free driving without sacrificing range or time.

The station was built on Toyota’s corporate head quarters with a lease from Shell, which operates and owns the station in conjunction with Air Products, the supplier. The Air Products hydrogen pipeline feeds into Torrance from the company’s Wilmington and Carson, California centralized production facilities. And while the hydrogen produced at these centralized production facilities is made by the steam methane reformation (SMR) of natural gas, a fossil fuel, the greenhouse gas (GHG) reductions on a well-to-wheels basis are still substantial, around 55% compared to a conventional vehicle.

While producing hydrogen from natural gas in the early market is the most economical pathway, it is a bridge technology to the ultimate goal of renewable hydrogen production. Our second stop took us to a station designed to do just that, create 100-percent renewable hydrogen. The Orange County Sanitation District’s Wastewater Treatment Facility in Fountain Valley uses biogas collected from the water treatment process to create hydrogen.

At this facility, anaerobic digesters process waste sewage from orange county to produce biogas, which, after clean-up, has the same chemical characteristics as natural gas. This biogas is run through a stationary molten carbonate fuel cell creating hydrogen, electricity, and heat.  Remarkably, the fuel cell can be adjusted to produce mostly hydrogen or all electricity, depending on demand. The hydrogen is pumped to a publicly accessible on-site hydrogen refueling station for the fill-up of fuel cell vehicles.

The Figure below shows the technological processes used at the sanitation district to produce hydrogen and electricity from wastewater sludge:

The process emits virtually zero toxic emissions or particulate matter, and eliminates a majority of the GHG associated with producing the hydrogen or electricity. According to Air Products, the facility can produce up to 100kg of renewable hydrogen per day, enough fuel to fully support over 160 cars, while simultaneously producing up to 300kW of power with upwards of 60% efficiency (typical natural gas turbines are less than 40%). When the station opens in July, it will mark an important milestone in the transition of light duty vehicle fuel production. Renewable hydrogen production will be a key component of California’s ability to meet its GHG reduction goals of the transportation sector.

While these hydrogen production and fuel cell vehicle technologies exist today, they are still in large part in early market demonstrations. Unfortunately, in order for EIN staff to return to the lovely confines of our office we stopped at none other than a gasoline station on our trip home, where we paid $4.29 per gallon.  To move beyond petroleum, we need a collaborative effort between industry groups, automakers, environmental NGOs, and government to ensure that these potential revolutionary technologies maintain their momentum all the way to the mainstream consumer.

Barriers to mass adoption still exist, the largest of which is probably the need for a coordinated effort between fuel providers, automakers and the government to avoid a chicken-or-egg dilemma, but this is not to say that barriers such as this cannot, will not, or should not be overcome.  We have done it before, when the automobile overtook the horse as a primary mode of transportation, and can do it again.

Just as the automobile offered an exciting change to consumers over 100 years ago, hydrogen fuel cell electric vehicles (FCEVs), provide something brand new, yet this time, familiar.  It is difficult to describe the sensational feeling you get from seeing the technology demonstrated by any one of the number of hydrogen fuel cell electric vehicles first hand. Unless you have had the opportunity to ride in or drive any one of these remarkable vehicles, it is hard to fathom the driving performance, look, sound, and feel of them. And it is even more amazing to realize that the technology exists today, to transition our society completely away from dependence on oil.  We continually hear that it will take miracles for this to occur; it won’t take miracles, just perseverance. With the opening of the pipeline fed station in Torrance, and the coming opening of the biogas fed station in Fountain Valley, we are one step closer to capitalizing on the potential that hydrogen and fuel cell vehicles offer.

Here are some other photos from the Torrance Hydrogen Station Grand Opening:

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