Top 5: What Decarbonizing Transport Could Look Like for the Refining Industry

Hello friends! Here’s my monthly take on five most interesting developments in fuels and vehicles trends. What I try to do each month is select stories, studies and other interesting items that you may not have seen elsewhere but that really represents an important issue or trend that I think you would want to know about. Or, I try to poke behind the hype to provide a deeper understanding of what’s happening. Items I selected this month include:

• Clean Fuels for All: European refiners have offered their plan to decarbonize by 2050, and it includes biofuels and advanced alternative fuels.
• Ford Isn’t Worried: About low gas prices affecting EV uptake, that is. If you make a cool product, people will want to buy it. Meantime, Bloomberg and IEA have released their annual analyses on EVs.
• AVs and Road Safety: Autonomous vehicles might prevent only around a third of all crashes if automated systems drive too much like people, a new study says.
• The Pandemic and Our Travel Patterns: Nearly six months on, snapshots of global data, collected in this interesting article, paint a picture of where, how, and why cities stopped moving, and what the future may hold for transport in cities moving forward.
• ZEV Trucks: New research calculates that California’s Advanced Clean Trucks rule proposal will generate between US$7-$12 billion in overall economic savings by 2040 and would also help create a market for up to 500,000 new electric trucks across the state.

1. EURACTIV: Europe’s Oil Refiners Outline Path to Climate Neutrality by 2050 – FuelsEurope, the European oil refining industry association, last week outlined a €650 billion plan to completely decarbonize transport fuels by 2050. In its “Clean Fuels for All” plan that will rely heavily on low carbon fuels to deliver on the decarbonization target though acknowledging that electrification of road transport will result in contraction to a level that is about a third of today’s demand, the article quotes Secretary General John Cooper noting.

The figure below summarizes the industry’s proposed plan and addresses the road transport, aviation and maritime sectors. The plan relies on 1G biofuels, hydrotreated vegetable oil (HVO), fuels from lignocellulosic residues and waste, electrofuels and carbon capture and storage to reach the decarbonization target by 2050.  According to FuelsEurope, this pathway will require €30-40 billion in investment over the next 10 years to scale up biofuel and electrofuel plants that could produce up to 30 MToe/y in 2030, with the first-of-a-kind biomass-to-liquid and e-fuel plants coming into operation no later than 2025.

Source: FuelsEurope Clean Fuels for All plan, June 2020

Policy principles accompanied the plan, including:

• The creation of a market for low-carbon fuels, with a significant carbon-price signal (the article references €200 per tonne), is a prerequisite to unlock investments in low-carbon technologies and fuels.
• The CO2 standards in vehicles must be amended, whereby the actual Tank-to-Wheel (TTW) approach currently in place is corrected by considering the CO2 footprint of fuels.
• All overlapping fuel policies should be reformed or simplified, such as Fuel Quality Directive (FQD) which regulates the GHG intensity of fuels brought into the market, and the Renewable Energy Directive (RED) which mandates a share of renewable content in transport fuels.
• Fuel taxation should be revised by accounting for the carbon-intensity, to incentivize investments in advanced renewable fuels.

If U.S. refiners (or for that matter, global refiners) want to know what could lie ahead for them and what it might take to move toward decarbonization and what that looks like in terms of fuels, watch the Europeans.

2. GreenCar Reports: Ford Isn’t Worried about Low Gas Prices Fueling EV Avoidance – Why not? Because people like cool stuff, and EVs such as Ford’s MachE are, well, cool. This article quotes Ford’s global director of electrification, Mark Kaufman saying, “Ford’s perspective is in order to meet that demand, you’ve got to really come up with a compelling reason for the customers to buy—so exciting products, great capability, new functionality that you can’t quite get with a conventionally powered vehicle for us are all ways that we can help manage that transition to the end of the decade.” Meeting stringent CO2/zero emission vehicle (ZEV) standards around the world, including in several U.S. states, will be another driver.

Ford is now expecting that by 2030 up to a third of all vehicles sold globally could be EVs. That’s close to what Bloomberg New Energy Finance forecasts in their Electric Vehicle Outlook 2020 report, released earlier this month. Globally, it sees 28% of passenger vehicles electric in 2030, versus 2.7% in 2020. The U.S. market will climb from less than 2% in 2020 up to about 26%. Meantime, IEA released its annual Global EV Outlook this month, finding that:

• Total passenger car sales volumes were depressed in 2019 in many key countries. In the 2010s, fast-growing markets such as China and India for all types of vehicles had lower sales in 2019 than in 2018. Against this backdrop of sluggish sales in 2019, the 2.6% market share of electric cars in worldwide car sales constitutes a record. China (at 4.9%) and Europe (at 3.5%) achieved new records in electric vehicle market share in 2019. The figure below shows the global EV car stock from 2010-2019.

Source: IEA, Global EV Outlook, June 2020

• China cut electric car purchase subsidies by about half in 2019 (as part of a gradual phase out of direct incentives set out in 2016). The US federal tax credit program ran out for key electric vehicle automakers such as General Motors and Tesla (the tax credit is applicable up to a 200 000 sales cap per automaker). These actions contributed to a significant drop in electric car sales in China in the second half of 2019, and a 10% drop in the United States over the year. With 90% of global electric car sales concentrated in China, Europe and the United States, this affected global sales and overshadowed the notable 50% sales increase in Europe in 2019, thus slowing the growth trend.

• The Covid-19 pandemic will affect global electric vehicle markets, although to a lesser extent than it will the overall passenger car market. Based on car sales data during January to April 2020, our current estimate is that the passenger car market will contract by 15% over the year relative to 2019, while electric sales for passenger and commercial light-duty vehicles will remain broadly at 2019 levels.

• The infrastructure for electric-vehicle charging continues to expand. In 2019, there were about 7.3 million chargers worldwide, of which about 6.5 million were private, light-duty vehicle slow chargers in homes, multi-dwelling buildings and workplaces.

3. Insurance Institute for Highway Safety (IIHS): Self-driving Vehicles Could Struggle to Eliminate Most Crashes – Autonomous vehicles (AVs) might prevent only around a third of all crashes if automated systems drive too much like people, according to a new study from the Insurance Institute for Highway Safety. According to a national survey of police-reported crashes, driver error is the final failure in the chain of events leading to more than 9 out of 10 crashes.

But the Institute’s analysis suggests that only about a third of those crashes were the result of mistakes that AVs would be expected to avoid simply because they have more accurate perception than human drivers and aren’t vulnerable to incapacitation. To avoid the other two-thirds, they would need to be specifically programmed to prioritize safety over speed and convenience. “Building self-driving cars that drive as well as people do is a big challenge in itself,” says IIHS Research Scientist Alexandra Mueller, lead author of the study. “But they’d actually need to be better than that to deliver on the promises we’ve all heard.”

4. Bloomberg CityLab: Pandemic Travel Patterns Hint at Our Urban Future – Nearly six months on, snapshots of global data, collected in this interesting article, paint a picture of where, how, and why cities stopped moving, and what the future may hold for transport in cities moving forward. The figure below shows that while walking, driving and transit decreased as COVID-19 proliferated, there really were differences.

Source: Bloomberg CityLab, June 2020

For example, while declines in walking were larger than they were for driving, the most dramatic was on public transit. Some city governments explicitly told residents to avoid subways and buses if they could to reduce transmission risk. Among them was New York City, where about 56% of commuters normally use transit. Now, as driving and walking start to rebound around the world, public transit use has barely returned in many places, the article notes.

Travel on newer forms of mobility was also hit hard, the article notes. In April, Uber’s gross global ride-hailing bookings fell by as much as 80% compared to the previous year. An April analysis of credit card data by the New York Times found that spending on electric scooter rentals had fallen the most of all modes, by nearly 100%, though part of that was because operators pulled out of many cities while laying off large numbers of their workforce. One countercurrent was in bicycling. Bike-share systems around the world gained popularity as commuters shied away from public transit.

As stay-at-home orders lift and economies pick up pace, preliminary signs of a post-COVID transportation landscape have begun to emerge. Yet, like the pandemic itself, they point to divergent outcomes. Experts are pointing to other non-motorized modes of tansport – and more driving. Driving is rebounding all over the world, and it could eventually return stronger than ever, depending on how long commuters remain wary of public transit, the article notes.

There are early signs of this in some Chinese cities, the first to confront the coronavirus and some of the first to reopen shuttered economies. For example, by mid-June, weekday morning rush hour traffic in Shenzhen had risen 18% over its levels from the same time in 2019, according to TomTom’s global traffic index. Vehicle sales are also creeping upwards across China, as has global demand for gasoline.

5. GreenCar Congress: Study Finds California Advanced Clean Trucks Rule Will Generate $7-12B in Overall Savings by 2040 – New research from Energy Innovation and the Environmental Defense Fund calculates that California’s Advanced Clean Trucks rule proposal—the first of its kind in the US—will generate between $7-$12 billion in overall economic savings by 2040 and would also help create a market for up to 500,000 new electric trucks across the state for EV truck makers such as Tesla and Nikola. The study also calculated a reduction in CO2e emissions of more than 17 million metric tons, creating nearly $9 billion in public health benefits, including nearly 1,000 avoided premature deaths through 2040. The new rule, expected to be approved by the California Air Resources Board on June 25, would require 60% of new medium- and heavy-duty trucks sold in the state to be zero emission vehicles by 2035.

Tammy Klein is a consultant and strategic advisor providing market and policy intelligence and analysis on transportation fuels to the auto and oil industries, governments, and NGOs. She writes and advises on petroleum fuels, biofuels, alternative fuels, automotive fuels, and fuels policy.