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Top 5: China’s EV Share – What Does It Mean for the U.S.?

Welcome to my monthly take on the top five developments in transport energy trends, tailored specifically for Transport Energy Outlook members. Each month, I select news, studies, and insights that may not have made it to mainstream attention but highlight key issues or trends I believe you’ll find important. This month’s highlights include:

  • China EV Share and National Security: China’s strategic push for EV adoption to reduce oil dependence highlights its alignment of national security with energy policy, contrasting sharply with U.S. vulnerabilities in its energy transition, where premature oil production cuts could undermine economic and geopolitical stability.
  • OEMs Form EU CO2 Compliance Strategy: Mercedes-Benz, Volvo, and Polestar plan to form an open carbon credit pool to comply with EU CO2 regulations and avoid sanctions while aligning with transparency rules. Meantime, the Commission wants to have a Strategic Dialogue on the state of the industry this month.
  • DOE Provides SAF Grand Challenge Progress Report: The U.S. aims to produce 3 billion gallons of SAF by 2030, with significant advancements in production, policy, and technology despite ongoing commercialization challenges.
  • U.S. Geological Survey’s Gold Hydrogen Map: A groundbreaking map identifies natural hydrogen reserves in at least 30 U.S. states, potentially revolutionizing the country’s energy landscape.
  • SkyNRG Highlights ReFuelEU and RED Disparities: SkyNRG highlights how EU feedstock inconsistencies under the Renewable Energy Directive undermine the ReFuelEU initiative’s goals for a level SAF playing field.

1. Thinking on Energy: China EV Share Tops 50% but Just Maybe It’s More About National Security and Not about Climate Change –  China’s rapid adoption of EVs, reaching over 50% of new vehicle sales by the end of 2024, is often viewed as a significant step toward combating climate change.

This note, from fuel industry veteran Doug Haugh, points out that in reality (or at least in addition) this shift may be more strategically aligned with national security objectives. As the world’s largest oil importer, China is vulnerable to potential oil embargoes, which could severely impact its economy and military operations. To mitigate this risk, China is focusing on reducing its dependence on imported oil by electrifying its transportation sector.

This strategy includes expanding domestic power generation capacity, notably through coal, nuclear, solar, and wind energy, and developing a robust domestic battery manufacturing industry. By aligning national security with economic interests, China aims to strengthen its position in the global automotive market, leveraging its capacity to produce and export EVs at scales and prices unmatched by other regions. Doug notes, “Secure your national security and economic interests all while the world celebrates your progress, now that’s a well aligned and executed strategy.”

I would build on this and make another point to members: Trump or no Trump, the U.S. faces a serious strategic dilemma as it navigates the energy transition. While China aggressively electrifies its transportation sector to reduce reliance on imported oil, it maintains energy security by balancing renewables, coal, and nuclear power.

In contrast, a precipitous decline in U.S. oil production, before fully establishing robust renewable energy infrastructure, ensuring grid reliability and domestic supply chains for critical minerals, could lead to increased dependence on foreign oil and materials—many controlled by geopolitical rivals like China. The U.S. needs all the electricity it can get to power AI, especially with the new $500 billion initiative announced by President Trump this week. As I’ve pointed out in recent newsletters, the economic opportunity of AI (according to Citi) has been estimated at US$7 trillion. Cutting oil production without having these other fundamentals in place weakens both U.S. national and energy security, as well as its leverage in global energy markets. Climate warriors seem to miss this point entirely.

If the U.S. reduces domestic oil production too quickly, it could leave the country economically and geopolitically vulnerable. I think the Trump Administration recognizes this very clearly hence the “drill baby, drill” messaging to the public, and the recent executive order Declaring a National Emergency which cites the nation’s inadequate energy infrastructure and reliance on foreign energy sources as threats to national and economic security. There’s lots of language in there relating to shoring up the grid, by the way.

The order directs federal agencies to utilize all lawful emergency authorities to expedite the identification, leasing, production, transportation, refining, and generation of domestic energy resources, including on federal lands. It includes critical minerals as well. This initiative aims to lower energy costs, bolster energy independence, and enhance the nation’s geopolitical standing by increasing energy exports. Additionally, the order mandates a review of existing policies to identify and eliminate obstacles to domestic energy development, signaling a significant policy shift toward expanding fossil fuel production and reducing regulatory constraints on energy infrastructure.

2. Mobility Europe: Mercedes-Benz Reveals Strategy to Avoid Sanctions Under the “CAFE” Regulation: Who Is Behind It? – While there is much fiddling with climate and energy policy in the states, there seems to be some fiddling going on in the EU right now. According to this article, OEMs are considering the creation of a fund to purchase carbon credits in order to avoid the sanctions outlined in the European CO2 regulation which took effect on January 1st. Recall that under that regulation, an average limit of 93.6 grams of CO2 per kilometer was set for all cars sold within the EU. It represents a reduction of 23.5 grams compared to the previous limit of 115.1 grams.

Regulation (EU) 2019/631, allows manufacturers to collaborate (or create “pools”) to meet the established limits. The article notes there are two main types of pools: closed ones, which are composed of manufacturers from the same corporate group, and open ones, which include companies from different groups. In the case of Mercedes-Benz, Volvo, and Polestar, their intention to form an open pool aligns with the EU’s transparency and fair competition regulations.

Meantime, the European Commission is launching a Strategic Dialogue that will be held January 30 to discuss the future of the auto industry. The Strategic Dialogue will be chaired by President von der Leyen and consist of regular meetings bringing together industry representatives (manufacturers, suppliers), social partners, Commissioners and other stakeholders, including from civil society. Key discussion points will include innovation, clean transition and decarbonization, competitiveness and resilience, trade relations and international “level playing field”, and regulatory streamlining and process optimization. Will there be a roll back of CO2 standards, similar to what is going to happen in the U.S.? I’m doubtful given who’s in charge. But what we could see are richer subsidies for EVs – already proposed by German Chancellor Olaf Scholz in Davos this week. Let us see how the EU public reacts to that!

3. U.S. DOE: SAF Grand Challenge Progress Report (2021-2024) – This report from the U.S. Department of Energy outlines significant advancements in decarbonizing aviation through SAF production and adoption. Spearheaded by the U.S. Departments of Energy (DOE), Transportation (DOT), and Agriculture (USDA), with support from the Environmental Protection Agency (EPA), the initiative seeks to achieve 3 billion gallons of domestic SAF production by 2030 and 35 billion gallons by 2050, targeting at least a 50% lifecycle GHG reduction compared to conventional fuels. The figure below compares SAF production potential and actual SAF produced to date.

Key findings include the following:

  • Production Growth: Annual U.S. SAF production increased from 5 million gallons in 2021 to 26 million gallons in 2023, with a total of 93 million gallons produced and imported by late 2024. Most SAF is derived from fat, oil, and grease feedstocks using the Hydroprocessed Esters and Fatty Acids (HEFA) pathway.
  • GHG Reductions: SAF usage reduced U.S. aviation GHG emissions by more than 750,000 metric tons through September 2024.
  • Potential Production: By 2030, 2.6–4.9 billion gallons of SAF could be produced annually, contingent on favorable policy and market conditions.

The report notes advances in the following areas:

  1. Feedstock Innovation:
    • USDA invested over $200 million in projects supporting SAF feedstock production and supply chains, including climate-smart agricultural practices.
    • DOE’s Biomass Resource Hub Initiative and Regional Biomass Research Centers aim to enhance feedstock availability.
  2. Conversion Technology:
    • $112 million was allocated to develop biological and thermochemical SAF conversion technologies.
    • DOE funded multiple pilot and demonstration-scale projects to improve cost efficiency and scalability.
  3. Supply Chain Development:
    • BETO invested $151 million in biorefinery projects to accelerate SAF production.
    • FAA launched the Fueling Aviation’s Sustainable Transition (FAST) program, allocating $242.8 million for SAF-related infrastructure projects.
  4. Policy and Valuation:
    • SAF tax credits under the Inflation Reduction Act (IRA) incentivize production, with guidance on lifecycle GHG reduction modeling and climate-smart feedstock practices.
  5. End-Use Enablement:
    • FAA supported the qualification of additional SAF pathways, fostering compatibility with existing aviation infrastructure.

The report identifies barriers to SAF commercialization, including policy uncertainty, insufficient financial support, and competition with renewable diesel production. Recommendations include:

  • Enhanced coordination among federal agencies to streamline SAF production and certification.
  • Long-term policy frameworks to ensure investment stability.
  • Expansion of public-private partnerships to scale production and address economic hurdles.

4. Live Science: Giant Reserves of ‘Gold’ Hydrogen May Be Lurking Beneath at Least 30 US States, 1st-of-Its-Kind Map Reveals – The U.S. Geological Survey (USGS) has released a groundbreaking map identifying potential natural hydrogen (“gold” hydrogen) reserves across at least 30 U.S. states. A reproduction follows below. The map is graded from white to dark blue, with dark blue indicating areas that are highly prospective, meaning they are very likely to hold vast hydrogen reserves, and white indicating areas that are not prospective.

Potential Hydrogen Reserves in the U.S.

Source: USGS, January 2025

This map highlights regions where geological conditions—such as hydrogen sources, reservoir rocks, and natural seals—converge to trap hydrogen gas underground. Notably, areas with high potential include most of Michigan, eastern Kentucky, southern North Dakota, and parts of Kansas, Colorado, Wyoming, Iowa, and Oklahoma. This discovery challenges the longstanding belief that naturally occurring hydrogen doesn’t accumulate in significant quantities for energy use. The identification of these reserves could have substantial implications for the U.S. energy landscape. Drill, baby drill…for hydrogen?

5. SkyNRG: How the Renewable Energy Directive Undermines the ReFuelEU Level Playing Field Philosophy – This report from SAF marketer SkyNRG critiques how the Renewable Energy Directive (RED) undermines the ReFuelEU Aviation initiative’s aim of creating a level playing field for sustainable aviation fuel (SAF) in Europe. While ReFuelEU mandates SAF supply and relies on RED for greenhouse gas methodologies and eligible feedstocks, disparities arise due to RED’s Annex IX feedstock categories and Member State interpretations. Feedstocks in Annex IX undergo rigorous evaluation for sustainability and market impact, but opaque definitions and inconsistent national applications distort the SAF market.

According to SkyNRG, some Member States lack transparency, maintain differing approved feedstock lists, or interpret Annex IX categories variably, fostering uncertainty for suppliers. This leads to uneven SAF supply, pricing, and trading conditions. Examples provided include inconsistent definitions for feedstocks like soap stock derivatives and advanced biofuels, which some nations approve while others exclude. This flexibility allows loopholes that disrupt ReFuelEU’s intent and impede SAF standardization as a commodity. The report argues these discrepancies inflate costs for airlines and deter investments in SAF.

To address these issues, the company recommends that the European Commission publish a new implementing act to harmonize Member State interpretations of Annex IX, enforce transparency in feedstock approvals, and establish clear guidance for defining and accepting feedstocks under RED. These actions aim to restore fairness, enhance supply dynamics, and support the intended goals of ReFuelEU, according to SkyNRG. Whether that happens is unclear, but it seems to me the Commission has an opportunity to act to shore up RED and ReFuelEU as well as to establish dominance in SAF that we may not see in the U.S. with the new Administration.