Winning the Hardware Software Game Winning the Hardware-Software Game

Using Game Theory to Optimize the Pace of New Technology Adoption

Innovators of new technology systems requiring users to combine components from several different providers (e.g., hardware, software or content, accessories) often face delays in adoption of their new systems. Users will not buy the hardware until enough software or content is available, while at the same time software or content providers will not provide content until enough users have adopted the new system. Winning the Hardware-Software Game examines the dynamics of this adoption process and provides methods for optimizing the pace of adoption of new technology systems.     Read more...

 

Terminology/Technical Information

Players in the Electric Vehicle Game

Current Stages of Adoption of Electric Vehicles

Advantages and Disadvantages of Electric Vehicles

Energy Inputs and Emissions Costs of Electric Vehicles

Should the Construction of Electric Charging Stations be Subsidized by the Public?

 

 

A recent article in the WSJ, “U.S. Utilities Push the Electric Car” by Cassandra Sweet, notes that electric companies nationwide are seeking to charge electricity consumers extra fees to fund construction of electric vehicle charging stations by the electric companies. The rationale is that having more charging stations available will speed adoption of electric vehicles by consumers, thereby leading to fewer pollutant emissions, and thus higher air quality for everyone.

Should all electricity consumers be required to pay the construction costs of electric vehicle charging stations?

The answer to this question requires understanding the underlying distribution of the private and social costs and benefits associated with manufacture and use of conventional versus electric vehicles.

Terminology/Technical Information

Let’s start with some technical information. The two main points to note here are:

•  The category of electric vehicles contains several different technologies currently in various stages of development.

•  The category of electric vehicle charging stations also contains several different technologies currently in various stages of development.

The following definitions are taken from the International Energy Agency (IEA):

Electric Vehicle (EV): A general term used to describe any car that uses a power source to drive an electric motor for propulsion.

•  Battery Electric Vehicle (BEV): An all-electric vehicle propelled by an electric motor powered by energy stored in an on-board battery.

•  Fuel Cell Electric Vehicle (FCEV): A vehicle that runs on a fuel cell that generates an electrical current by converting the chemical energy of a fuel, such as hydrogen, into electrical energy.

•  Hybrid Electric Vehicle (HEV): A vehicle that combines a conventional internal combustion engine (ICE) propulsion system with an electric propulsion system to achieve improvements in fuel economy.

•  Plug-in Hybrid Electric Vehicle (PHEV): A hybrid electric vehicle with a high-capacity rechargeable battery that is capable of using electricity as its primary propulsion source. The internal combustion engine typically assists in recharging the battery or serves as a back-up when the battery is depleted.

Electric Vehicle Supply Equipment (EVSE): Delivers electrical energy from an electricity source to charge an EV’s batteries. It communicates with the EV to ensure that an appropriate and safe flow of electricity is supplied. EVSE units are commonly referred to as “charging stations” or “charging points” and include the connectors, conductors, fittings and other associated equipment.

•  Fast Charging: Also known as “DC quick charging”, fast charging stations provide a direct current of electricity to the vehicle’s battery from an external charger. Charging times can range from 0.5 to 2 hours for a full charge.

•  Slow Charging: The most common type of charging provides alternating current to the vehicle’s battery from an external charger. Charging times can ranges from 4 to 12 hours for a full charge.

Further information on EV charging infrastructure comes fromTom Saxton “Understanding Electric Vehicle Charging”

Level 1 charging is the technical jargon for plugging your car into an ordinary household outlet. For a Leaf, this means about 4.5 miles of range per hour of charging, or about 22 hours for a full charge.

Level 2 allows for a wide range of charging speeds, all the way up to 19.2 kilowatts (kW), or about 70 miles of range per hour of charging… However, the charging stations being put in with federal grant money don't support the full range of Level 2 charging and max out at 6.6 kW or around 26 miles of range per hour of charging.

DC Fast Charging, the fastest type of charging currently available. It provides up to 40 miles of range for every 10 minutes of charging.

 

Players in the Electric Vehicle Game

The actions of Vehicle Manufacturers, Vehicle Users, and Fuel Providers constitute a game, because the actions each player takes affect all of the other players’ payoffs (profits and utility).

The value chains for Electric Vehicles (EV), Hybrid (Gas & Electric) Vehicles and Traditional or Conventional (Gas) Vehicles (CV) are depicted, respectively, in the top, middle, and bottom panels of Figure 2.

The different sets of players in the game are depicted in the columns of Figure 2:

•  Car Manufacturers (column [A]),

•  Car Users (column [B]), and

•  Fuel Providers (columns [C])

These value chains illustrate the flows of social and private benefits and costs between the various players. The two different types of arrows in Figure 2 represent the two different types of costs and benefits, private and social, as indicated in Figure 1:

Figure 1

 

Figure 2

Automobile Value Chain Sources:

•  Electric Vehicles Sales (EV + PHEV) as of July 2014: http://en.wikipedia.org/wiki/Plug-in_electric_vehicles_in_the_United_States

•  Traditional and Hybrid Vehicles Sales, 1999 – 2013: http://en.wikipedia.org/wiki/Hybrid_electric_vehicles_in_the_United_States

•  Electricity Source Distribution: http://www.eia.gov/tools/faqs/faq.cfm?id=427&t=3

 

Let’s now consider the objectives, costs, and benefits for each set of players in the game.

Vehicle Manufacturers

Vehicle Manufactures purchase resources and use them to manufacture vehicles. The goal of Vehicle Manufacturers is to maximize profits.

The private and social costs associated with acquiring resources and manufacturing vehicles are:

•  Private Costs: The payments the Manufacturers make to acquire resources from Suppliers and the (time and) money costs incurred to manufacture vehicles (e.g., rent, labor, utilities, etc.).

•  Social Costs: The pollutant emissions associated with acquiring resources and manufacturing vehicles.

•  Private Benefits: The payments the Vehicle Users make to acquire vehicles from Manufacturers.

•  Social Benefits: Social activity (job creation, technological advancement, etc.) associated with manufacturing vehicles.

Vehicle Users

Vehicle Users purchase vehicles from Vehicle Manufacturers and they purchase fuel from Fuel Providers (Gas and Electric Companies, via Electric Charging Stations and Gas Stations). Vehicles Users use vehicles for productive (and non-productive) activities. The goal of Vehicle Users is to pay as little as possible to purchase, operate, and maintain the vehicles that best satisfy their needs (transportation, quality of transportation, social status, etc.).

The private and social costs associated with purchasing and using vehicles are:

•  Private Costs: The payments Users make (i) to Manufacturers to acquire (and maintain) vehicles and (ii) to Fuel Providers to acquire fuel.

•  Social Costs: The pollutant emissions associated with using and disposing of vehicles.

•  Private Benefits: The utility Users receive from (i) paying as little as possible to purchase, operate, maintain, and dispose of their vehicles, and (ii) engaging in (productive) activities that owning the vehicle enables them (transportation, quality of transportation, social status, etc.).

•  Social Benefits: Benefits associated with productive activity undertaken by Vehicle Users that are not captured by Vehicle Users.

Fuel Providers

Fuel Providers generate fuel and supply it to Vehicle Users through Electric Charging Stations and Gas Pumps. The goal of Fuel Providers is to maximize profits.

The private and social costs associated with generating fuel and supplying it to Vehicle Users are

•  Private Costs: The payments Fuel Providers make to acquire resources, generate fuel, and deliver fuel to Vehicle Users.

•  Social Costs: The pollutant emissions associated with acquiring resources, generating fuel, and delivering fuel to Vehicle Users

•  Private Benefits: The profits Fuel Providers receive from delivering fuel to Vehicle Users.

•  Social Benefits: Social activity (job creation, technological advancement, etc.) associated with generating fuel and delivering it to Vehicle Users.

 

Current State of Adoption of Electric Vehicles

The next step is to consider the current state of adoption of hybrid and electric vehicles.

Figures 3 and 4 display annual sales of hybrid and electric vehicles by manufacturer.

Figure 3

 

Figure 4

Hybrid vehicle sales between 1999 and 2013 total 3.1 million, with Toyota Prius sales accounting for half of all sales of hybrids. The top three groups of hybrid vehicles in terms of sales, Toyota Prius; Toyota Avalon, Camry, and Highlander; and Honda Accord, Civic, CR-Z, and Insight, together comprise 75% of the market for hybrid sales.

Electric Vehicle sales (0.23 million vehicles) are divided between all-electric vehicles (0.10 million vehicles) and plug-in hybrid vehicles (0.13 million vehicles). The Nissan Leaf and Tesla Model S account for 85% of sales of all-electric vehicles. The Chevy Volt accounts for half of all sales of plug-in hybrids, and together with the Toyota Prius PHV account for 77% of all sales of plug-in hybrids.

Total 1999 – 2013 sales of all vehicles is 212.33 million. So Hybrid Vehicles account for 1.45% of total 1999 – 2013 vehicle sales, and Electric Vehicles account for (roughly, since the time period is off) 0.1% of total vehicle sales.

 

Advantages & Disadvantages of Electric Vehicles

The major advantages generally cited for electric vehicles include:

•  Gas Savings

•  Lower Emissions

The major disadvantages generally cited for electric vehicles include:

•  Limited Range

•  High Price

•  Slow Rate of Charging

•  Lack of Charging Stations

An additional disadvantage to investing in (hybrid or all-) electric vehicles, as mentioned by Cassandra Sweet in the initially referenced WSJ article, is that as fuel economy standards for conventional cars increase, the savings associated with using less/no gas in hybrid or electric vehicles may decrease. Of course, fuel economy in hybrid and electric cars will likely increase along with that in traditional vehicles as the respective technologies improve. What will be important, then, are three factors: (i) the relative differences in fuel economies between traditional and electric cars, as well as (ii) any changes in the relative prices of gas and electricity, together with (iii) the changing nature of the pollution content of electricity. As electricity companies switch to cleaner sources of power, the emissions associated with using hybrid and electric cars will decrease. However, cleaner energy tends to costs more, so the costs of charging will simultaneously increase. Fewer emissions but higher fuel costs will change the balance of costs and benefits associated with hybrid/electric relative to those of traditional vehicles.

As an example, CarsDirect.com had this to say about the advantages and disadvantages of electric vehicles:

Advantages

•  The number one advantage of an electric vehicle is that no gas is required...

•  You can plug the car into any outlet of the proper voltage and charge the car. Electricity is much cheaper than gas, and the savings will be dramatic.

•  Electric cars give off no emissions. Electric cars are even better than hybrids in this regard…

•  Safety is a big concern with these vehicles. However, the fluid batteries actually take impact better than a fully made gas car, and can help even more in the event of an accident

Disadvantages

•  The first disadvantage is price. Electric car batteries are not cheap, and the better the battery, the more you will pay...

•  Even though it is a quiet ride, silence can be seen as a disadvantage. People like to hear cars when they are coming up behind them or beside them, and you can't hear if an electric car is near you. This has been known to lead to accidents.

•  Most cars take a long time to recharge their batteries...

•  Most electric cars currently on the road do not have long ranges...

Further, AutoTrader.com had this to say about the advantages and disadvantages of electric cars:

Benefits

•  The biggest benefit of electric cars is obvious: You no longer need gas...

•  Beyond the fuel-saving benefit, EVs offer another major cost savings: maintenance. Since an EV is fully electric, it no longer uses oil to lubricate the engine. That means oil changes are a thing of the past. The same is true for a lot of other expensive engine work that could afflict a gas-powered car...

•  Electric vehicles aren't just less costly to own, they're often inexpensive to buy, too. .. [once] you factor in the available tax credits...

•  …For many drivers, just knowing that they're doing their part to save the planet will be reason enough to take the leap into an EV.

Disadvantages

•  The main disadvantages of electric car ownership concern range anxiety: the fear you'll run out of juice when you're nowhere near a charging station...

•  Another big disadvantage is that many drivers will have to install a charging station at home. It's not necessary, however, as you can simply charge your EV at work or at various public charging stations. But most shoppers will want a charging station at home, cutting into the cost savings from owning an EV in the first place.

•  Although EV ownership eliminates many maintenance hassles, such as oil changes, it can also lead to big expenses... Overall battery life is expected to be around a decade, and replacement battery packs can be costly...

•  Finally, EV ownership doesn't eliminate fuel costs entirely… electricity isn't free...

 

Energy Inputs and Emissions Costs of Electric Vehicles

It’s no big surprise that one of the most widely touted benefits of electric vehicles is their lower emissions (lower social costs). But how much lower are they?

Renault published a Lifecycle Study that compares the pollutant emissions of electric vehicles with those of diesel- and gas-fueled vehicles. The results of the study, provided by Clean Technica, are summarized in Figure 5. More specifically, Figure 5 shows the relative social costs by type of player – corresponding to the columns in Figure 1 – of Vehicle Manufacturers, Vehicle Users, and Fuel Providers.

Figure 5

Source: http://cleantechnica.com/2013/07/24/electric-cars-cleaner-than-oil-and-gas-renault-stanford-studies/

I like Figure 5 because it shows the difference between the source of emissions (manufacturing stage versus usage stage versus fueling stage) for gas and electric vehicles. In particular, Figure 5 illustrates that electric vehicles generate relatively more emissions during the manufacturing stage, whereas gas vehicles generate relatively more emissions during the usage stage. Further discussion of the Renault Study is presented below and in Figure 10.

In the same vein as the Renault Study, the California Air Resources Board (CARB) commissioned a Lifecycle Study, published in June 2012 (CARB 2012 Lifecycle Study), of the energy inputs and emissions outputs associated with the manufacture, use, and disposal of Electric Vehicles (BEV), Hybrid Vehicles, and Conventional Vehicles (CV). The CARB 2012 Lifecycle Study partitions the costs associated with the manufacture, transportation, usage, and disposal of vehicles into three categories:

•  Lifetime Energy Inputs (my Figure 6 = CARB 2012 Lifecycle Study Figure 1))

•  Lifetime Greenhouse Gas Emissions (GHG) (my Figure 7 = CARB 2012 Lifecycle Study Figure 2)

•  Lifetime Non-Greenhouse Gas Emissions (non-GHG) (my Figures 8 -9 = CARB 2012 Lifecycle Study Figures 3-4)

Lifecycle Energy Inputs

The results of the CARB 2012 Lifecycle Study comparing lifecycle energy inputs for Conventional Vehicles, Hybrids, and Electric Vehicles is presented in Figure 6.

Figure 6

Source: CARB 2012 Lifecycle Study

The energy inputs comparison presented in Figure 6represent private costs. More specifically,

•  Vehicle Manufacturers pay the energy input costs associated with generating resources when they buy the resources needed to manufacture vehicles from Resource Suppliers.

•  Vehicle Manufacturers pay the energy input costs associated with manufacturing vehicles when they pay their utility bills.

•  Both of the energy input costs associated with generating resources and manufacturing vehicles are then passed onto Vehicle Users in the vehicle purchase price when Users purchase vehicles from Manufacturers.

•  Fuel Suppliers pay the energy input costs associated with generating fuel and transporting it to fueling stations.

•  And finally, Fuel Suppliers pass on these fuel-related energy input costs to Vehicle Users when Vehicle Users purchase fuel at pumping/charging stations from Fuel Suppliers.

The contrast between the purple and red sections in Figure 6 reflect the same issue I noted above in Figure 5, that electric vehicles create relatively more emissions during the production stage, whereas gas vehicles create relatively more emissions during the usage stage.

The other important point to note from Figure 6 is that the gains achieved in terms of using fewer energy inputs when moving from Conventional Vehicles (CV) to Hybrids is much larger than the energy input gains achieved when moving from Hybrids to All-Electric Vehicles (BEV).

Lifecycle Greenhouse Gas Emissions

The results of the CARB 2012 Lifecycle Study comparing lifecycle greenhouse gas emissions (GHG) for Conventional Vehicles, Hybrids, and Electric Vehicles is presented in Figure 7.

Figure 7

Source: CARB 2012 Lifecycle Study

The GHG emissions comparison presented in Figure 7 represent social costs. In particular, when Vehicle Manufacturers purchase resources from suppliers, the prices they pay do not capture the costs associated with the GHG emissions released during the generation of those resources. Likewise, when Vehicle Manufacturers use resources to manufacture vehicles, the utility costs they pay do not capture the costs associated with the GHG emissions released during the generation of that electricity. And when Vehicle Manufacturers transport vehicles to Vehicle Users, they do not capture the costs associated with the GHG emissions released during that vehicle transport. Nor are the costs associated with GHG emissions released during the generation and supply of fuel to Vehicle Users captured by Fuel Suppliers. Or are the costs associated with GHG emissions released during the usage and disposal of vehicles captured by Vehicle Users.

Both the Renault and CARB Studies are consistent in their findings that Electric Vehicles produce more emissions than Conventional Vehicles during the manufacturing stage, whereas Conventional Vehicles produce more GHG emissions during the usage phase.

The Renault Study does not report results for Hybrids, but the CARB Study does. The CARB Study results indicate that total lifecycle GHG emissions for Hybrids falls in-between those for Conventional Vehicles and Electric Vehicles, where the reduction in GHG emissions achieved when moving from Conventional Vehicles to Hybrids is greater than that achieved when moving from Hybrids to Electric Vehicles.

Lifecycle Non-Greenhouse Gas Emissions

The results of the CARB 2012 Lifecycle Study comparing lifecycle non-greenhouse gas emissions (non-GHG) – specifically, VOC, CO, NOx, PM2.5, PM10, SOx – for Conventional Vehicles and Electric Vehicles is presented in Figures 8 and 9. The Study did not report results for Hybrids. Note that the scales on Figures 8 and 9 do not match – emissions from CVs are an order of magnitude greater than those for EVs. Note also that the red columns in Figure 8 correspond to vehicle usage (my blue stage), while the blue columns in Figure 8 correspond to “Feedstock Extraction,” that is the manufacturing phase (my green stage). The red columns in Figure 9 correspond to vehicle usage (my blue stage), while the blue columns in Figure 9 correspond to “Production of Energy,” that is the fuel phase (my yellow stage).

Figure 8

Source: CARB 2012 Lifecycle Study

 

Figure 9

Source: CARB 2012 Lifecycle Study

Parallel to the GHG emissionscomparison presented in Figure 7, the non-GHG emissions presented in Figures 8and 9represent social costs.

Both the Renault and CARB Studies are consistent in reporting that non-GHG emissions are generated (i) by Conventional Vehicles to a minor degree during the manufacturing stage, (ii) by Conventional Vehicles during the usage stage, (iii) by Electric Vehicles during the fueling stage, and by Electric Vehicles to a minor degree during the usage stage

Now let’s consider what the profile of non-GHG emissions would look like for Hybrid Vehicles.

Since Hybrids contain electric batteries, non-GHG emissions associated with the manufacture of Hybrids should be more similar to those for Electric Vehicles than those for Conventional Vehicles. This suggests there would only minimal amounts of non-GHG emissions associated with the manufacture of Hybrids

Since Hybrids require gasoline to run their internal combustion engines and charge their electric batteries, non-GHG emissions associated with the fueling of Hybrids should be more similar to those for Conventional Vehicles than those for Electric Vehicles. This suggests there would be only minimal amounts of non-GHG emissions associated with the fueling of Hybrid Vehicles

Since Hybrids use a combination of internal combustion engine and electric battery,non-GHG emissions associated with the use of Hybrids should be relatively midway between those for Electric Vehicles and those for Conventional Vehicles. This suggests there would be more than moderate amounts of non-GHG emissions associated with the usage of Hybrids.

Taken together, my inferred profile of non-GHG emissions associated with the lifecycle of Hybrid Vehicles would be between that of Conventional and Electric Vehicles, but closer to that for Electric Vehicles than that for Conventional Vehicles.

Reconciliation the Emissions Studies Results

Further details and reconciliation of the two studies is presented in Figure 10.

Figure 10

Ok, here’s what I’ve been able to digest.

Finding 1:  Electric Vehicles have lower total energy and emissions costs than Conventional Vehicles

When considering the total energy and emissions costs associated with the lifecycle of Conventional, Hybrid, and Electric Vehicles, Electric Vehicles have lower total energy and emissions costs than Hybrids, which, in turn, have lower total energy and emissions costs than Conventional Vehicles:

(1) CV Energy/Emissions > Hybrid Energy/Emissions > EV Energy/Emissions

When considering the different stages of vehicle lifecycles – manufacturing, fueling, and usage – however, the social costs analysis doesn’t always favor Electric Vehicles.

In particular, during the manufacturing stages, making the battery constitutes the biggest difference between manufacturing Conventional and (Hybrid and All-) Electric vehicles. Since the batteries in Electric Vehicles require more energy inputs than do those in Conventional Vehicles, Electric Vehicle energy inputs and emissions are greater during the manufacturing stage than they are for Conventional Vehicles.

Manufacturing:

(2) EV Energy/Emissions > Hybrid Energy/Emissions > CV Energy/Emissions

Generally speaking, pollution comes from the stage in which resources (gas, coal, etc.) are burned to create energy.

In Traditional Vehicles, resources (fossil fuels) are stored in the vehicle (gas tank) and burned during use. In Electric Vehicles, resources (both fossil and renewable fuels) are burned to create energy, which is then stored in the vehicle (the battery) and retrieved during use.

So then during the fuel stage, Traditional and Hybrid Vehicles store fuel, whereas All-Electric Vehicles store energy. Since energy is more energy/emissions intensive than fuel, there are more energy inputs and emissions in Electric Vehicles in the fuel stage than there are in Conventional Vehicles:

Fuel:

(3) EV Energy/Emissions > Hybrid Energy/Emissions > CV Energy/Emissions

During the usage stage, Conventional Vehicles burn fuel, whereas Electric Vehicles retrieve energy. Since burning fuel is more energy/emissions intensive than retrieving energy, there are more energy inputs and emissions in Conventional Vehicles during the usage stage than there are in Electric Vehicles

Usage:

(4) CV Energy/Emissions > Hybrid Energy/Emissions > EV Energy/Emissions

And since the burning of fossil fuels creates more emissions than do the mixes of fuels used to create electricity for electric vehicles (fossil and renewable fuels), the emissions of Conventional Vehicles during the usage stage are greater than those of Electric Vehicles during the fueling stage:

(5) CV Energy/Emissions > EV Energy/Emissions

Finding 2: The Difference in Emissions between Traditional Vehicles and Hybrids Is Greater Than Difference in Emissions between Hybrids and Electric Vehicles.

Results from the CARB Study indicate that total lifecycle emissions for hybrids fall in-between those for conventional vehicles and those for electric vehicles, where the reduction in GHG emissions when moving from conventional vehicles to hybrids is greater than that when moving from hybrids to electric vehicles.

Finding 3: Future Trends Will Probably Favor Electric Vehicles relative to Conventional Vehicles

The relationships (1) – (5) hold now, but will they continue to hold in the future? We can be pretty sure of several relevant trends:

•  Trend 1:  As technology improves (and regulations mandate) for Traditional and Electric Vehicles, energy efficiency will improve. That is, it will take less energy to power vehicles for a given distance.

•   Trend 2:  As energy mixes become cleaner, so too will electricity production. That is, there will be fewer emissions associated with the generation of a given amount of electricity.

•  Trend 3:  Since renewable energy will continue to be more costly than fossil fuel energy (when you eliminate all the subsidies to renewable energy) at least in the near future, then as energy mixes become cleaner, electricity prices will increase.

The cost of gas versus electricity requirements to power a vehicle will vary depending on the pattern of vehicle usage and, of course, on the relative price of gas versus electricity in a given region. However, generally speaking, excluding the costs of charging infrastructure, the costs of using electricity to power an electric vehicle are roughly a third of the costs of powering a traditional vehicle.

It is difficult to predict which type of vehicle, gas or electric, Trend 1 will favor. As such, the expected impact of Trend 1 on relationships (1) – (5) is neutral.

Trend 2 will decrease emissions associated with electric vehicles during the fuel stage. This will increase the benefits of adopting electric vehicles relative to those of conventional vehicles.

Trend 3 will increase costs associated with electric vehicles during the fuel stage, which will decrease the benefits of adopting electric vehicles relative to those of adopting conventional vehicles. However, given the large cost advantage of using electricity instead of gas to power a vehicle, the impact of Trend 3 should not have a significant impact on deterring adoption of electric vehicles.

When taken together, then, the three trends suggest that future changes in technology and resources prices will probably increase the private and social benefits of electric vehicles relative to those of conventional vehicles.

Finding 4:  The difference in Social Costs for the Lifecycle of a Traditional Vehicle and that of an Electric Vehicle is

•  CO2e: 31 MT (valued at $312)

•  VOC: 0.04 MT

•  CO: 0.53 MT

•  NOx: 0.07 MT

•  PM10: 0.03 MT

•  PM2.5: 0.01 MT

•  SOx: 0.01 MT

The energy and emissions costs associated with the lifecycles (manufacture, fueling, and use) of all types of vehicles include

•  Lifecycle Energy Inputs

•  Lifecycle Greenhouse Gas Emissions

•  Lifecycle Non-Greenhouse Gas Emissions

Since the costs associated with energy inputs are captured by private parties during the vehicles’ lifecycles, they are private, not social costs. As such, any differences in energy inputs between conventional and electric vehicles should not be considered in an analysis of social costs.

Since the costs associated with lifecycle GHG emissions are not directly captured by any (participating) private parties, they are social costs. We can estimate the value of the social costs associated with lifetime GHG emissions of conventional and electric vehicles. The EU established a market to set a price on GHG emissions. In particular, in “The Falling Price of Carbon Credits”, April 21, 2013, the NYT reports,

The European Union’s Emissions Trading System was intended to reduce carbon dioxide emissions by setting a market price on them. The system, set up in three phases, requires polluters to acquire credits to offset their emissions. A glut of credits, combined with lower demand because of the weak economy, has driven down the price to close to zero.

Yet, a more recent article published in January 2014, “Value of the World’s Carbon Markets to Rise Again in 2014”, suggests that the 2014 average price will rise to “EUR 7.5 per tonne this year, compared with just under EUR 5 per tonne today.” At today’s (September 3, 2014) exchange rate, €1 = $1.31, that would put the expected 2014 price of a one metric ton (MT) of carbon at $9.75. We can then use this price to value the lifetime GHG emissions associated with conventional vehicles, hybrids, and electric vehicles reported in the CARB 2012 Lifecycle Study. These GHG values are presented in Figure 11.

Figure 11

According to the calculations, estimates of the social cost of lifecycle GHG emissions associated with conventional vehicles is $614, hybrids is $400, and electric vehicles is $312.

Since the costs associated with lifecycle non-GHG emissions are not directly captured by any (negotiating) private party, they are social costs. However, we cannot directly estimate the value of non-GHG emissions, since there is no established price. Figure 12 provides the approximate difference between lifecycle non-GHG emissions for traditional vehicles and those for electric vehicles that were reported in the CARB Study.

Figure 12

 

Should the Construction of Electric Charging Stations Be Subsidized by the Public?

When considering the total energy and emissions costs (i.e. the total social costs) associated with the lifecycles of conventional, hybrid, and electric vehicles, electric vehicles have lower total social costs than hybrids, which, in turn, have lower total social costs than conventional vehicles. Knowing this, should the public subsidize the construction of electric charging stations?

Social welfare will be improved by having the public subsidize the construction of electric charging stations, if the following conditions all hold:

•  The value of historical public subsidies for the development, manufacture, and usage of electric vehicles has not covered or does not cover the full social value of having the public adopt and use electric vehicles;

•  The construction of electric charging stations will have a significant, positive impact on the adoption and use of electric vehicles; and

•  The construction of electric charging stations would not have been undertaken in the absence of the public subsidies.

The Public Is Already Substantially Subsidizing EV

Social welfare will be improved by having the public subsidize the construction of electric charging stations, if the value of historical public subsidies for the development, manufacture, and usage of electric vehicles has not covered or does not cover the full social value of having the public adopt and use electric vehicles.

However, the public has subsidized and continues to subsidize the development, manufacture, and usage of electric vehicles through various sources, including Federal, State, and Local Governments (i.e., taxpayers) and all Conventional and Hybrid Vehicle Users.

•  Subsidies to Electric Vehicle Developers and Manufacturers from the US Government

According to an editorial in the Washington Times, the Federal Government has provided tens of billions of dollars to Electric Vehicle Developers in subsidies and loans:

The 2009 stimulus bill poured $2 billion into the development and manufacture of electric-car batteries and other components, and the Energy Department’s “advanced-technology vehicle manufacturing program” offers up to $25 billion in direct federal loans to electric car makers. Moreover, $400,000 has been wasted on “education projects” to promote electric cars.

•  Subsidies to Electric Vehicle Users from Federal, State, and Local Governments

Federal, State, and Regional Government subsidies [I provide incentives for the State of CA as an example; other states offer similar incentives] to Electric Vehicle Users are summarized in Figure 13 for Users of the Tesla Model S and the Nissan Leaf:

Figure 13

Subsidies for other models of electric vehicles are similar to those presented in Figure 13.

•  Subsidies to Electric Vehicle Users from Conventional Vehicle Users

Federal, state and local governments add taxes to gas prices to fund the construction and maintenance of transportation infrastructure. Since Electric Vehicle Users don’t use gas, Conventional and Hybrid Vehicle Users, who do use gas, subsidize transportation infrastructure for Electric Vehicle Users. Estimates of the lifecycle gas taxes paid, presented in Figure 14, are $3,641 for Conventional Vehicle Users and $2,257 for Hybrid Vehicle Users.

Figure 14

Given that electric vehicles are already subsidized to the tune of tens of thousands of dollars per vehicle, surely the added social costs of traditional vehicles over electric vehicles have already been more than covered.

Lack of Charging Stations Isn’t the Only Barrier to Further Adoption of Electric Vehicles

Social welfare will be improved by having the public subsidize the construction of electric charging stations, if doing so will have a significant, positive impact on the adoption and use of electric vehicles.

The major disadvantages generally cited for electric vehicles include limited range, high price, slow rate of charging, and lack of charging stations. In particular, lack of charging stations is not currently the only major stumbling block to the further adoption of electric vehicles.

It is thus not clear that increasing the number of charging stations alone will have a significant impact on speeding the rate of adoption of electric vehicles.

Charging Station Infrastructure Companies Have an Incentive to Construct Charging Stations

Social welfare will be improved by having the public subsidize the construction of electric charging stations, if the construction of electric charging stations would not have been undertaken in the absence of the public subsidies.

As Cassandra Sweet mentions in her WSJ article, the demand for electricity has plateaued, so electric companies are seeking new sources of revenues:

As products from light bulbs to refrigerators become more energy efficient, U.S. electricity usage has gone flat, threatening the future of utilities. The prospect of more electric cars on the road—and plugged into power sockets when they aren't—could revive demand for power.

Demand for electricity to charge electric vehicles would certainly provide a new revenue source for electric companies. However, according to a Bain & Company industry brief, “Is Your Electric Vehicle Strategy Shock-Proof”, electric vehicles do not use enough electricity to make its supply an exceedingly profitable venture for electric companies. As such, and especially given the low rate of current penetration of electric vehicles, it is doubtful that electric companies would currently benefit much from investing in the installation of charging stations without being able to offload the costs of installation onto electricity users (or someone else).

On the other hand, in its industry brief, Bain & Company lists one of the six “most promising bets” as having private (infrastructure) companies install and operate charging stations themselves:

Installation and operation of private charging points:

Private charging points offer a quicker path to revenues. They require fewer security and safety features than public charging points and are often cheaper to install and maintain. Besides, anyone who buys an electric vehicle is likely to pay the extra money to install a charging point.

It appears, then, that it is quite likely that the installation of electric charging stations could very well be undertaken by private interests even in the absence of public subsidies.

Conclusion

In the section above, Current State of Adoption of Electric Vehicles, we saw that Hybrid Vehicles account for 1.45% of total 1999 – 2013 vehicle sales, and Electric Vehicles account for roughly 0.1% of total vehicle sales. In other words, the adoption of Hybrid Vehicles has gained some momentum, but adoption of Electric Vehicles is still in its infancy.

In the section above, Reconciliation the Emissions Studies Results, we saw that the reduction in GHG emissions when moving from conventional vehicles to hybrid vehicles is greater than that when moving from hybrid vehicles to electric vehicles.

Society will thus continue to benefit from the reduction in emissions associated with the continued adoption of hybrids without having to invest in any new infrastructure.

In the section above, Advantages & Disadvantages of Electric Vehicles, we saw that the major advantages generally cited for Electric Vehicles include gas savings and lower emissions. The major disadvantages generally cited for electric vehicles include limited range, high price, slow rate of charging, and lack of charging stations. So there are several hurdles yet to overcome before electric vehicles will gain adoption momentum.

In the section above, Terminology/Technical Information, we saw that there are several different technologies currently being developed for Electrical Vehicles, as well as for the charging infrastructure. The spate of model releases over the past few years suggests that the technology is changing relatively rapidly. In particular, the development of battery technology is being furiously attacked by researchers, so improvements that will increase the range of and/or speed of charging should be imminent.

Taken together, all these facts suggest that at this point in time, electricity users should not be forced to subsidize the installation of electric vehicle charging stations. Rather, we should wait until improvements in the technology have reduced the disadvantages associated with using electric vehicles, so that more people will be willing to adopt them and thus be able to benefit from the installation of new infrastructure.

More Blogs

Playing the Restaurant Delivery Game

07-11-2017 - Hits:314 - Ruth Fisher - avatar Ruth Fisher

Remember when restaurant delivery options included Domino’s, Pizza Hut, or Papa John’s? No longer! These pizza restaurants still have a majority share of the restaurant delivery market. However, GrubHub, Eat24, DoorDash, UberEats, and other restaurant delivery platforms are expanding users’ choices beyond just pizza. This analysis examines the Restaurant Delivery Game:...

Read more

Playing the Platform Game

08-10-2017 - Hits:491 - Ruth Fisher - avatar Ruth Fisher

The purpose of this analysis is to better understand the dynamics of internet platforms. The analysis considers the three basic types of platforms: Vendors (WalMart, Apple, Pandora, etc.) Social Media (Facebook, LinkedIn, YouTube, etc.) Matchmakers (eBay, Uber, etc.) And will seek to address such issues as Who are the different players in each type of...

Read more

Overview of Technology System Dynamics

25-09-2017 - Hits:505 - Ruth Fisher - avatar Ruth Fisher

This is a presentation I’m preparing for “Tech Startup Conference: Artificial Intelligence” being held on September 26, 2017. 1. Issues Covered Adoption of New Technology Systems: What does it take for new technologies to become successfully adopted in the marketplace? Why do some technologies become adopted while others do not? Value Creation: How...

Read more

Persuasion Technologies in the Digital Age: The Good, The Bad, and the Ugly

05-09-2017 - Hits:860 - Ruth Fisher - avatar Ruth Fisher

Persuasion technologies include methods and techniques derived from behavioral psychology and behavioral economics used to shape the choices people make. The favorable environment for using such methods, enabled by people’s increasing use of computers and smartphones, has led to the proliferation of their use by software developers. Like any technology, persuasion...

Read more

How Have Retail Sales Changed Over the Last 25 Years?

18-08-2017 - Hits:284 - Ruth Fisher - avatar Ruth Fisher

This brief analysis examines how retail sales have changed over the past 25 years, both in size and distribution. As seen in Figure 1, total retail sales have grown by 2.7% - 2.8% per year, excluding the short drop in spending during the Financial Crisis (2007 – 2009). Figure 1  

Read more

Playing the Amazon Monopoly Game

28-07-2017 - Hits:501 - Ruth Fisher - avatar Ruth Fisher

Amazon Ecosystem Components Amazon Segments Amazon Sales, Income, and Margins Amazon Methods of Competition Anti-Trust Issues   Amazon is leaving a large pile of battered companies in its wake as it increasingly steals sales away from traditional bricks and mortar companies and decimates their market shares. Some of the better-known victims include: Barnes & Noble (books)...

Read more

Do We Shape Technology, or Does Technology Shape Us?

25-07-2017 - Hits:493 - Ruth Fisher - avatar Ruth Fisher

I have always thought about technology as a tool that we develop and improve and customize and adapt to use to help us do whatever it is we want to do faster and easier and better. In other words, we shape and control technology. However, recently I’ve come to realize that...

Read more

Considerations for a Single-Payer Healthcare System in the US

06-07-2017 - Hits:451 - Ruth Fisher - avatar Ruth Fisher

This analysis considers how the US healthcare system would change if we were to transition from the current multi-payer system to a single-payer system. The analysis first presents facts that will be important in considering what a single-payer system might look like. Then, given these facts, the analysis considers specific...

Read more