The first of four reports focusing on how the electricity to charge electric vehicles is generated, comparing their overall efficiency and carbon footprint with internal combustion engine vehicles.
US Electric Vehicle Market
As the prominence of electric vehicles (EVs) grows in the global automotive industry, this technology will raise important questions regarding energy consumption and investment. The International Energy Agency (IEA) data suggests that the cumulative global EV fleet stood at 5.1m by the end of 2018, and Wood Mackenzie forecast this number will reach 300m by 2040.
From the US alone, electric vehicles account for 22% of the global electric fleet, with 1.1m vehicles on the road by the end of 2018. The market growth, however, is slower than in China and Europe. While the US added 330k vehicles in 2019, China and Europe sold 1.2m and 465k respectively. A similar argument applies to electric vehicles as a percentage of the US auto market. The market share of electric vehicles grew in China, from 2.30% to 4.70% between 2017 and 2019 alone. Growth in the US was more subdued, rising from 1.26% to 1.9% of the total auto fleet in the same period. California drives most of the new market growth due to its zero-emission vehicle mandates; however, other areas of the country are slower in their EV adoption, forecasting the overall EV sales share to increase to only 8% of the US vehicle market in 2030.
Long-term Passenger EV Adoption, Forecast by Region
EV adoption is forecast to pick-up in the mid-2020s, before decelerating in the late 2030s
Despite strong global growth in the electric vehicles market, the current share of the global car fleet remains low exemplified by Bloomberg New Energy Finance data suggesting that the EV market share stood at less than 0.5% in 2018. The industry is still in its infancy, global environmental concerns are increasing, and the time available to minimise global warming is limited, which could increase the EV adoption rate. BNEF has an optimistic outlook and believes that EVs will constitute 57% of all passenger vehicle sales by 2040. This increase in EV market penetration will have a variety of implications for the energy sector. The International Energy Agency (IEA) suggests that market growth could displace 2.5m bpd of oil consumption by 2030. Most developed energy markets, including the US, have enough electricity capacity to supply a fully electric fleet. Across emerging markets, the near-term funding headwinds prevail, limiting their power to expand green financing. However, thanks to renewable energy trends becoming more cost-efficient, we see emerging markets driving most of the global demand for cleaner energy in the long-term.
Electric Car Sales and Market Shares 2013-2018
China posts the highest growth, with Europe and the US following closely behind.
Applied Energy research suggests EVs hold lower costs of ownership in comparison to the traditional internal combustion engine (ICE) autos. We would attribute this to government subsidies that provide a discount to EV ownership via tax credits and other incentives. Indeed, US federal tax credits are set to phase out once EV producers’ sales hit 200,000, a benchmark Tesla has already met. China, however, decided to pause on the New Energy Vehicle (NEV) subsidy cuts in 2020, as sales dropped from 1.3m in 2018 to 1.2m in 2019.
As EV prices continue to decline, we expect purchase decisions to rely on battery quality and composition, the availability of support infrastructure rather than vehicle specifications and design. Wood Mac’s research indicates that the average battery pack price will need to fall to $100/kWh, in order to compete with internal combustion engines (ICE) vehicles on a commercial basis; this may not be until 2027. In the long run, we see batteries with increased energy density as imperative to the EV market, as they extend the vehicle’s driving range. Ultimately, the quality of the battery will be a key driver for vehicle purchases.
Similar arguments apply for emissions associated with vehicle use. When on the road, EVs exert no tailpipe emissions and are thought to be more environmentally friendly than the ICE autos. While this may be true, further attention should be paid to the electricity generation process needed for EV charging. This process can generate significant environmental impacts which are much harder to measure than the emissions produced by gasoline or diesel engines; offsetting EVs advantage with respect to CO2 emissions.
The presidential election provides an interesting obstacle for the energy market, with President Trump favouring fossil fuels and a Democrat candidate likely to run on a pro-environment campaign. After decades of progress in energy conservation made in the US, minimal attempts have been made to resolve environmental issues under Trump’s presidency. In fact, fossil fuel policy has become increasingly loose, outlined by the withdrawal from the Paris Agreement and loosening of the emission standards.
Contra to President Trump’s belief, the Earth has warmed by about 1 degree since the times of the Industrial Revolution. In 2018, The Intergovernmental Panel on Climate Change warned that emitted pollution needs to fall by 45% by 2030 for global warming to not reach critical 1.5 degrees by 2030. This is critical times, especially since the Earth just endured its hottest month in history and an alarming number of natural disasters are damaging the most important natural resources. Globally, around 25% of greenhouse gas emissions come from electricity and heat production, the second-largest emissions contributor after transportation. The goal that the governments should strive to achieve is power sustainability and flexibility.
Difference between potential and installed wind power capacity in 2018 (in MW)
The West Coast has the biggest potential for wind capacity expansion
This year alone, the Trump administration introduced a number of policies stifling environmental conservation progress, ranging from a rollback of methane-emissions rules to a relaxation in power plant emission limits. However, the biggest step in his attack to climate change was taken on September 2019, when Trump formally revoked California’s right to set its own vehicle emission standards. The outcome could divide the US auto market, with some manufacturers following stricter standards than others, diffusing conformity in the industry.
Although Trump has called to slash clean energy public spending, there are ways to tackle emissions without the need to build new costly renewable plants. In the US, there is spare renewable capacity across in many states. The country has an abundance of renewable energy resources, especially with wind power on the West Coast. According to National Renewable Energy Laboratory, the US onshore wind power capacity could generate 37PWh p.a., nine times larger than current US electricity consumption.
The United States is the world’s second-largest energy market. According to BP, 91.3QBtu of primary energy was consumed in 2018, 30% less than in China. Following rising energy demands in 2005, the US has pushed for higher natural gas and oil production and became the biggest natural gas producer in 2009, according to the EIA. As a developed and energy established economy, total electricity generation at utility-scale has stayed relatively flat since 2010, averaging at 4,080 billion kWh annually up to 2017. This trend was broken in 2018 as severe weather fluctuations affected power demand in the US, stretching generation to a record high of 4,178 billion kWh.
Sources of US Electricity Generation Forecast, 2019
The US electric grid is mostly filled with fossil fuels to generate electricity.
In the US, around 38% of net generated electricity comes from natural gas, closely followed by coal and nuclear. Low prices and lower carbon emissions relative to other fossil fuels have encouraged a rapid growth in natural gas demand, and in 2019, it not only replaced most of the coal generation but also filled most of the additional electricity demand. As a result, it offset some of the climate impacts made by coal, leading to a reduction in power sector emissions by almost 10% (Rhodium Group estimates). The EIA believes that this trend will continue in the long-term, with electricity demand posting 1% p.a. growth until 2050. According to McKinsey, natural gas demand will continue to grow at 0.7% p.a. on average until 2035 as it fills the gap until renewable energy sources surpass fossil fuels.
Petroleum (and other liquid fuel) net imports have trended lower in recent years to 2.983mbpd as of February 2020, down from 8.325mbpd in January 2017; however, only 1% of it is used in electricity generation. After the rise of OPEC, price shocks in the 70s, and America’s heavy dependence on the commodity, the grid has been adjusted to other fuels, mostly natural gas and coal. However, states that lack easy access to renewable and natural gas energy rely on oil to supply their grid. For instance, due to its unique logistics challenges, two-thirds of Hawaii’s grid is fuelled by petroleum.
The share of renewables for electricity generation increased to 17% in 2019, from 8.91% in 2007, and we expect this will continue in the long-term. Since the re-enactment of investment tax credit policy in 2006, solar power has experienced the fastest growth of all sectors at 59% p.a., according to the Solar Energy Industries Association (SEIA). The EIA indicates that solar energy will overtake wind and coal energy by 2025 and mid-2030 respectively to become the world’s second-largest energy source after gas. It’s probable that the extended renewable tax credit system and declining capital costs will result in strong growth for both solar and wind energy in the long term.
U.S. Renewable Energy Generation by Source
Solar's share is seen to outpace the rest of the energy sources in the mid-2030s.
We see natural gas as a prominent source of electricity generation in the long-term. Compared to other energy sources, natural gas can be added in smaller increments to meet grid requirements. Most importantly, it produces fewer emissions than coal and petroleum and therefore has lower compliance costs with environmental regulations. Renewables, especially wind and solar, are seen quickly catching up with natural gas; to outpace other fossil fuels. We do not anticipate a US nuclear revival as an increasing number of power plants retire each year. However, despite booming innovations in energy technology aimed to ‘clean’ the existing grid, stronger electricity demand for both transportation and electricity generation purposes will create further headwinds for environmental conservation.
Cumulative PV Capacity by Country
China and India's solar capacity potential is forecasted to outpace the US and Japan
Given the rapid rate of renewable energy penetration into the grid, we remain hopeful that the US will continue to stay on track towards a carbon-free goal, which could be accelerated with an environmentally conscious government. At the moment, private investment has been integral to new development in conservation technology in the US. This has been affirmed recently by figures suggesting that oil, gas investment has been increasing for the last three years, and clean energy has sourced more than $300b worth of investment between 2010 and 2019. Indeed, in the immediate term, the uncertainty surrounding the US energy mix remains unclear - the battle between public and private money on renewables.
The US electric grid is comprised of two major sectors: Western and Eastern, along with two independent grids in Texas and Alaska. The national grid provides 830 gigawatts worth of electricity; however, there is a significant lack of storage systems to sustain increasing energy demands. This issue is especially prevalent in California which has set a mandate for 100% carbon-free electricity by 2045, a goal that could only be achieved through further investment in energy storage.
Net Generation of Electric Power by Energy Source, by all sectors.
Over the last decade, coal has been replaced with natural gas for electricity generation.
Thanks to falling capital costs of wind and solar power, deploying renewable energy is more affordable than ever. This provides a great opportunity for using stored renewable energy during periods of peak electricity demand; stored energy can provide an instant supply of power which can relieve stress on the electric grid. At the moment, the US relies on natural gas to balance the grid during the times of great demand. Yet as battery prices decline and become more efficient in storing higher power for longer periods of time, we see a more sustainable shift towards renewables as an intermittent source.
Unsurprisingly, California is one of the leading states in transitioning to battery storage as a means of electric supply. In its 4-year pilot scheme starting 2019, the California Independent System Operator (ISO) is connecting flow batteries to the grid in an attempt to increase storage capacity and improve cost efficiency for storage systems. The flow batteries will provide 2MW & 8MWh of energy, enough to power 1,000 homes for 4 hours. They differ from regular batteries due to energy being stored as an electrolyte; extending their lifetime.
Another solution to reduce emissions is carbon capture, which is currently in its infant stages; however, if the technology takes off, it could reduce greenhouse gas emissions substantially. This technology is especially important in areas where there is not enough renewable energy potential. The IEA concluded that carbon capture and storage (CCS) technologies could contribute to a 19% reduction in global CO2 by 2050; as well provide an affordable solution to an already high level of emissions.
Finally, smart grid technology is seen to improve energy efficiency and help reduce energy waste without significant construction required. At the time of writing, 6.1% of all power is lost as the electricity physically runs through the lines, creating heat and generating noise. Smart grid technology negates this issue and introduces a two-way communication system between different geographic locations; allowing for a more time-distance efficient energy transmission. This technology would let consumers choose their energy sources to power their houses or charge their vehicles. However, as of now, the grid infrastructure is expensive and encourages a lengthy implementation process. Ultimately, the smart grid will have greater long-term benefits, as it helps use distributive power generation, and benefit the environment by reducing waste.
According to the Centre for Climate and Energy Solutions, US net emissions have declined by 10.2% from 2005 to 2018; however, the transport sector remains the biggest polluter amongst other energy-demanding sectors, contributing 29% of greenhouse gas emissions, closely followed by electric power generation. This highlights the limited progress made in transitioning the general public from internal combustion to electric vehicles. We note that most of the transport-related emissions are produced by the internal combustion engine vehicles, whereas electric vehicle emissions come in the form of vehicle and battery manufacturing, as well as charging from an electric grid.
According to the US Department of Energy, gasoline-powered cars produce nearly three times more annual emissions than pure electric vehicles, taking into account current electricity makeup. Their well-to-wheel calculations include emissions related to fuel production, process, distribution, and refining, as well as tailpipe production from driving the US average mileage. Overall, the national average is 4,358 pounds of CO2 – equivalent emissions for a typical all-electric vehicle p.a. as compared to the average gasoline-powered car which produces 11,435 pounds of CO2. In the state-by-state case, different carbon-intensive electricity grids, generating varying levels of CO2 emissions.
In the future, technological development will see related engine combustion emissions fall by about 1.9% p.a. through to 2040, whereas carbon dioxide emissions from pure EVs will fall anywhere from 3% to 10% p.a., largely due to grid decarbonisation, according to BNEF.
Thus the choice between hybrids, PEVs and fully electric models depends on the type of energy sourced for electricity generation in a given state: California, where 40% of the grid is fuelled by renewables, could cut annual pollution made by one vehicle by about 66% by switching from hybrid to fully electric, however with West Virginia’s electricity production being 92% coal-powered, the same transition will lead to a 46% increase. Hawaii’s emission growth would be much smaller, thanks to its dependence on petroleum.
Annual Emissions per Vehicle, National vs by State
The switch away from the hybrid toward a cleaner version produces more emissions in West Virginia and Hawaii than in California.
To see the impact of each energy source’s emission contribution, the EIA measured the discrepancies between fossil fuels when burned to create electricity. When natural gas is used to create electricity, 117lbs of CO2 are released into the atmosphere per million Btu, which is the equivalent to 293kwh. This is compared to gasoline (without ethanol) which releases 157.2lbs of CO2 and 161.3lbs for diesel. The four types of coal produce different emission rates, but the average of the four is 216lbs of CO2 per million Btu.
Nevertheless, the good news is that no matter where you live in the United States, electric vehicles charged by the grid have lower global warming emissions than the average gasoline-based vehicle sold today. The discrepancies in emissions produced arise when choosing between plug-in, hybrid or fully electric across the country: in some states it is best to stay away from a fully electric model if it means charging from a heavily carbonised grid.
On the other hand, trucks and other heavy-duty vehicles produce more than half of the transport-related emissions today than light-duty cars. While the studies mentioned discuss average emissions for a light-duty vehicle, we believe that new technologies should target heavy-duty vehicles as this is where the largest amount of emissions could be saved.
Ultimately, we believe that despite the most optimistic estimates of electric vehicle prices and demand figures, emissions will continue to decline only modestly, as American customers still favour more heavy-duty vehicles. This would put America far behind on the Paris Agreement expectations by 2020 and 2025, however, luckily for the US, with great attempts made to roll back fuel efficiency standards, there are a limited number of environment targets left to attain.
U.S. passenger-vehicle fuel forecast
More fuel is displaced in the long-term as EVs share in the auto market grows
As electric vehicles continue to advance in quality, a combination of improved charging infrastructure and falling battery prices allow a greater reason than ever to be interested in new EVs emerging in the market. Many nations are supporting the movement by creating stricter emission standards and building the necessary infrastructure to ensure this sustainable transition. However, despite some governments’ willingness to support the electric car market, the US has not been able to meet such standards. Emission regulations relaxation, as well as withdrawals from the climate change agreements, have been a dominant feature of Donald Trump’s presidency. As a result, the current state of the grid remains essentially unchanged, and the future transition will fall behind the Paris agreement standards. We see natural gas contributions driving most of the new demand for electricity, at least until renewable energy catches up with the rest of the fossil fuels.
In regards to vehicle tailpipe emissions, electric cars generation stands near to zero as compared to pure combustion engine models. However, given the national grid makeup, the real difference in emissions generated depends on the type of vehicle used and the state it is charged in. Indeed, the choice between a hybrid and a pure electric model is heavily dependent on the share of fossil fuels used in the state’s electricity generation. This has been clearly demonstrated by Hawaii and West Virginia, the states in which fossil fuel contribution is high enough to defeat the point of transitioning away from plug-in to pure EVs for conservation purposes. Thus, some consumers will have to make a conscious decision to avoid electric models if it means contributing less to greenhouse gas emissions. At last, we believe that a combination of both public and private funding and incentives will ease the transition away from fossil fuels toward cleaner energy use. However, ultimately, the future of personal transport is in the hands of a country’s respective government and, by extension, its approach to environmental solutions.
US Short-Term Passenger EV sales by drivetrain
US BEV Sales
Public charging outlets installed globally
Share of oil displaced by electric vehicles, by region
Electricity Net Generation: Electric Power Sector