By Robert Auers and John Auers
We’ve spent a lot of time over the last few weeks reviewing the refinery construction landscape and how that might impact the supply side of the refined product markets. Today, we move over to the demand side of the equation as we consider the push for the displacement of gasoline powered vehicles with EVs. In thinking about this subject, we’re reminded of the lyrics from the early 80s MTV hit by Eddy Grant, “Electric Avenue.” It seems that everybody thinks, “We Gonna Rock Down to Electric Avenue,” which is bound to lead to a peak in petroleum demand. We’ve already thrown some “cold water” on this notion in a blog we did comparing the cost competitiveness of Electric Vehicles (EVs) against that of Internal Combustion Engine Vehicles (ICEVs) (August 22, 2017), with our analysis showing significant and continuing economic benefits for the petroleum fueled vehicles; however, the case for EVs is primarily being made with environmental arguments not economic ones. Proponents push the concept that EVs are significantly “greener” and have a lower carbon footprint than ICEVs or hybrids, and therefore justify government mandates, subsidies and credits as necessary to stem the tide of carbon caused global warming. But is this “conventional wisdom” really true, especially as we consider advances in ICE and hybrid technologies and if a holistic approach is taken and true “lifecycle” CO2 emissions are considered? This is the question we attempt to answer in today’s blog.
We evaluated the lifecycle CO2 emissions for six different vehicles: A Toyota Prius Prime (PHEV with 25 miles of all-electric range), a Toyota Prius 3 (traditional hybrid), a Tesla Model 3, a Toyota Corolla Sedan, a BMW 330i Sedan, and a Ford F-150 2.7L V6 2WD. We used four cases for electrical grid CO2 intensity – a low case of 200 lbs. CO2/MWh, which represents the CO2 intensity of the Washington State grid (the least carbon intensive in the U.S.), a medium case of 900 lbs. CO2/MWh, which approximates the U.S. average, a high case of 2,000 lbs. CO2/MWh, which approximates the electrical grids in the coal dependent states in the Appalachians and Ohio River Valley, and a hypothetical future case of 500 lbs. CO2/MWh, which represents an optimistic future average U.S. electrical grid carbon intensity, assuming continued increases in renewable and combined-cycle natural gas power generation at the expense of coal power generation. Note, we are not forecasting that the U.S. electric grid will be able to achieve this level of carbon intensity at any specific point in time; but rather, we are simply using it to represent a very optimistic case for the increased penetration of renewable energy in the coming decades.
Gasoline carbon intensity is assumed to be 17.9 lbs. CO2/gal. from combustion plus 3.5 lbs. CO2/gal. from crude oil extraction, transportation and refining. We used EPA fuel economy ratings for each vehicle and assumed each vehicle travels 13,333 miles per year with 15-year vehicle life (equal to a 200,000 mile vehicle life). We assumed that vampire drain (battery drain when vehicle is not in use) for the Model 3 amounts to 1.5 kWh/day, which equates to an effective 2,100 mile (16%) increase in vehicle miles travelled per year. Vampire drain primarily results from battery management systems that maintain the battery temperature within a specified range and fire monitoring and suppression equipment used to mitigate the potential fire hazard from Li-ion batteries. For the Prius Prime, we assumed that vampire drain only amounts to 0.34 kWh/day (an effective 480 extra electric-mode vehicle miles traveled per year) due to Prius Prime’s much smaller battery capacity as compared to the Model 3 (8.8 kWh vs 60 kWh). We should note that the base Model 3 battery (which likely will not exist for at least another nine months) will officially be rated at 50 kWh, but Tesla typically uses batteries with larger-than-stated capacity to lengthen the useful life of the battery. Electric transmission losses are assumed to be 7%, and battery charging efficiency is equal to 88% (with the rest being lost to heat). These numbers are in line with what we’ve been able to locate in previous studies and online forums. We assigned a factor, which is applied to both gasoline and electric driving mode, to each vehicle to account for decreased efficiency in extreme temperatures. This factor is used to account for the fact that EV and hybrid performance deteriorates much more significantly in cold (and, to a lesser extent, in hot) weather than does traditional ICE performance. As an example, EV range decreases by about 30-35% in 30º F weather, whereas ICEV range (on a single tank of gas) would only decrease by about 6-8%. The factor represents an effective increase in annual vehicle miles traveled. For instance, if this factor were 1.1 in our 13,333 miles/year case, this would be equivalent to driving 14,666 miles/year with the EPA rated fuel economy. We assumed that the Prius Prime is driven in electric mode for 60% of total miles travelled. Since all other cars were either fully electric or fully gasoline-powered, this did not apply to the other five vehicles we studied.
Lastly, we made an assumption for manufacturing-related CO2 emissions associated with each vehicle evaluated. These values for each vehicle are shown in the table below. We looked at several studies in estimating the increased CO2 emissions for EV manufacturing as compared to ICEV manufacturing. These included a Swedish study that estimated 150-200 kg CO2/kWh battery capacity, a Union of Concerned Scientists study that gave only vague (but optimistic) conclusions, and a study published on shrinkthatfootprint.com. Due to the recent run-up in crude and product prices, we assumed a gasoline price of $3.00/gal. and an electricity price $0.13/kWh in calculating future fuel costs. We chose not to include other costs (such as maintenance and insurance) in the analysis due to the fact that they are, at best, difficult to estimate. Note that we used prices for well-optioned versions of all vehicles (generally the highest level trim); and for the Model 3, we included only the premium package and paint. We notably excluded the long-range battery, enhanced autopilot, full self-driving, and premium wheels. If one was to add at least some of these options to their Model 3, the purchase price could be considerably higher. We also assumed that all charging was done at home, not at higher cost superchargers. Also, the long-range battery would likely add a considerable amount (likely 3-4 tons) of CO2 emissions associated with vehicle manufacturing. We did not include the benefit of any government incentives in the vehicle purchase price due to the fact that we view them as unsustainable. Table 1 below details all remaining assumptions and the results of the analysis. Figure 1 (below the table) summarizes graphically the results of our analysis for the average and optimistic future electrical grid intensity cases.
The data shows that the Prius Prime (plug-in hybrid) is the least carbon intensive, beating out the full BEV Model 3, given current average U.S. electric grid carbon intensity and our other assumptions. Additionally, the Prius 3 (traditional hybrid) is only just behind the Prius Prime in terms of carbon intensity and still manages to beat out the Model 3 in lifetime CO2 emissions. Further, even if the U.S. is able to reduce the carbon intensity of the electric grid by another 45% (a very optimistic assumption), the full BEV Model 3 would still offer essentially zero additional benefit in lifetime carbon footprint relative to the Prius Prime PHEV, and only a rather modest 14 ton CO2 emissions reduction relative to the Prius 3 over the lifetime of the vehicles. This compares to a 43 ton reduction in lifetime CO2 emissions that results from the switch from a Ford-150 to a Toyota Corolla and a 24 ton reduction resulting from the switch from a Corolla to a Prius 3. Also, note that this is a hypothetical case that would be very favorable toward EVs and assumes that the U.S. continues to make significant progress in retiring coal power generation facilities and replacing them with renewables and combined cycle natural gas. It should also be mentioned here that we have not discussed the negative impacts associated with cobalt mining, an essential component in EV batteries. By far, the largest source of this element is the Democratic Republic of Congo, where significant environmental, health and human rights issues result from this activity.
In light of the dubious environmental benefits, the current hefty government incentives given to EVs seem to be difficult to justify. We estimate that each new BEV sold in the U.S. receives average total incentives of $10,000-15,000, between the $7,500 federal tax credit, various state tax credits, ZEV quotas in various states, and other federal, state, and local incentives that encourage EV adoption. Many other countries offer comparable (and often more generous) subsidies for EVs. Further, we believe the global growth in EV sales around the world is due almost entirely to the existence of these subsidies. Denmark, which began phasing out all EV subsidies in 2016, presents an excellent example of what can happen to EV sales when subsidies are removed. Danish EV sales for the past three years are presented in Figure 2 below.
As a result of this analysis, we conclude that the current growth rate (~50% YoY for the past three years) in global EV sales is not only unsustainable but not justified. Most governments simply do not have the ability or the will to continue to fund EV subsidy programs at current levels if the existing EV sales growth trajectory continues. Moreover, the environmental justification for EVs seems to be based on shaky ground, as EVs provide no environmental benefit over far less expensive gasoline-powered hybrid vehicles available for sale today. Lastly, we believe the government subsidies are the primary driver behind current global EV sales growth, and that a reduction or removal in government subsidies could cause global EV sales growth to come to a halt or possibly even turn negative. Continued advancements in battery technology will likely eventually cause EV costs to come down below those of their ICEV competitors, but we believe the day when proponents can truly, “Rock Down to Electric Avenue,” much less “Take it Higher” is still far in the future.
TM&C constantly monitors changes and projected changes in pricing and supply and demand across the globe for diesel and other petroleum products. Our projections take into account changing rules and regulations, technological advancements, production and transportation costs, demographics, changes in consumer behavior, and other factors impacting supply and demand. We include our independent analyses of these impacts in our semiannual Crude and Refined Products Outlook, typically issued in February and August. In addition, our Worldwide Refinery Construction Outlook provides a detailed list of global proposed refinery construction projects and an estimated likelihood for the eventual completion of each. More information on these publications and our other work involving oil industry developments and dynamics can be obtained by contacting us, visiting our website at turnermason.com or calling Cindy Parker at 214-754-0898.