CA GHG Standards: Can the Auto Industry Survive Pavley?

1. CA GHG Standards: Can the Auto Industry Survive Pavley? K.G. Duleep Managing Director, EEA An ICF International Company

2. EISA and its Effect • In 2007, Congress passed EISA, requiring at least 40% improvement over 2007 FE levels of about 24 mpg CAFÉ for Cars + Light trucks, by 2020 – about 4% per year non-compounded. • Congress also required NHTSA to make the standards “attribute” based so that manufacturers offering products with different attributes comply with different standards. • NHTSA proposed a set of standards for the 2011 to 2015 period that increase FE by more than 4% a year(?) over that period ICF International Inc.

3. Proposed 2015 CAFE Standards ICF International Inc.

4. California GHG Standards • California has enacted a set of GHG standards for the 2010 – 2016 period and EPA may approve these standards soon. • Tailpipe GHG emissions are proportional to fuel consumption for a given fuel, hence the claim that California standards are fuel economy standards in disguise. • If the standard is interpreted as a tailpipe CO2 standard then the equivalent fuel economy standard is ~43mpg for cars but only 26.7 mpg for trucks ICF International Inc.

5. Provisions of the CA GHG Standard • However, the CA GHG regulation provides credits for air-conditioner improvements (not tested on the fuel economy cycle) and alternative fuel use. • The credits are relatively large and the AC credit alone can reduce the 2016 requirement to 40.5 mpg for cars and 25.5 mpg for trucks. • Ethanol (E85) use provides a huge 26% credit, and if 10% of new cars and trucks use E85 in 2016, standards are reduced by another 1 mpg • Unlimited trading between car and light truck GHG emissions is allowed. ICF International Inc.

6. Federal FE and CA GHG Standards • Comparing the CAFÉ standard to the CA GHG standard requires a number of assumptions on fleet sales mix in 2015, AC credits and Flex-fuel vehicle and EV sales. • Reasonable assumptions regarding the variables of interest show that on a car + light truck fleet basis, the two standards are not very different and can be reconciled from a FE viewpoint. • However, the CA standards do provide additional GHG benefits from AC units and encourage alternative fuel use. ICF International Inc.

7. Hypothetical 2015 Comparison ICF International Inc.

8. Outline of Presentation • Focus of this presentation is potential to meet the 40% improvement in fuel economy mandated by EISA by 2020. • Potential to meet interim standard that is front loaded for 2015 examined. • Principal focus is on technology availability and cost to meet standards. • Focus on consumer reaction to standards and mix shifting also briefly described. • Fuel prices assumed to be below $2.80 per gallon in 2020, per EIA 2008 forecast. ICF International Inc.

9. Improving Vehicle Fuel Economy • Methods to improve vehicle fuel economy are well understood from knowledge of energy loss • General methods are - improve engine peak efficiency potential - reduce losses at light load from throttling - reduce weight, drag and rolling resistance - reduce accessory load and eliminateidle ICF International Inc.

10. EEA/ICF Methodology • We monitor technology developments worldwide through the trade press and key international conferences. • Preliminary analysis of potential based on research papers and prototype data. • Extensive follow up on technology attributes and lead time with manufacturers and Tier I suppliers. • All cost data obtained from high level contacts at Tier I suppliers, who are now major technology developers. ICF International Inc.

11. Short Term Engine Technologies • Technologies in the pipeline now - Variable Valve Lift ( 2-step/ continuous) - Gasoline Direct Injection with CR increased by ~2 points (lean burn longer term for US, used in Europe) - Cylinder cutout ( V6/8 only) - Turbo- GDI- VVT combination - Reduced Engine Friction ICF International Inc.

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13. 2015 Engine Technology Potential ICF International Inc.

14. Mid-term Engine Technology • Most promising development is cam-less valve actuation which offers potential to reduce throttling loss to near zero, and make Atkinson cycle possible at light load. • Cam-less engine will be key enabler for gasoline HCCI in longer term • “Half cam-less” engine will enter production in 2014/2015 in luxury cars with about 15%+ FE improvement at a cost of $500 to $700. • More advanced valve strategies may allow mixed mode 2-stroke/ 4-stroke engines by 2020. ICF International Inc.

15. Valeo Electromagnetic Camless Valve Actuation Schematic ICF International Inc.

16. 2025 Engine Technology Potential ICF International Inc.

17. Transmission Technology • While more gear ratios and wider ratio range allows better matching of engine to load, reduction of internal losses (especially in the torque converter) is also important. • Future transmission options seem to be shaping up as follows: - Six/Seven speed automatics for RWD and larger FWD cars - CVT for smaller FWD cars and small trucks - AMT (6-/ 7-speed) for sporty cars. ICF International Inc.

18. Transmission Technology Benefits ICF International Inc.

19. Reducing Vehicle Energy Demand • Weight reduction is possible but quite expensive. While up to 20% weight reduction is technically possible, only 5 to 10% may be practical at reasonable cost ~ $60 per percent • Drag and rolling resistance reductions of 10 to 20% can be achieved by 2020. • Driving the accessories electrically is more efficient than belt drive, since accessories can be used ‘on-demand’. Electric Power Steering and Water Pump are the most effective. ICF International Inc.

20. Idle Stop- Start • New “intelligent” starter motor design pre engages engine when stopped, resulting in faster, quieter start, even with 14V system. • Electrical system must be upgraded with additional battery to withstand start cycles. • System will also require electrical AC drive and transmission pump + “hill holder” for automatic transmissions. • Electrical upgrades will facilitate electric accessories such as power steering and water pump, with additional FE benefit. ICF International Inc.

21. Idle Stop Start System ICF International Inc.

22. Maximum Potential of Conventional Technology (FE Increase) ICF International Inc.

23. Summary of Conventional Technology Potential • Overall, the sum of all conventional technologies can lead to a 33 + 3% FE increase by 2020 and possibly, up to 50 + 5 % FE increase by 2030. • The inability of manufacturers to change technology rapidly will limit the reduction actually attainable to lower values. • Major conclusion is that hybrids and diesels are required to meet the 40% improvement goal for 2020 and will require a market penetration of 12 to 15% combined. • Of course, consumer preference changesto 2020 can help or hurt these values. ICF International Inc.

24. Types of Hybrids • Meeting the 40% 2020 requirement and future requirements will require relatively rapid transition to electric drive -100% by 2030? • A large number of “hybrid” designs have been unveiled, each with unique attributes. • Four types that will be in the US market and span the range of designs • Belt drive Alternator Starter (BAS) • Crankshaft mounted single motor (IMA) • Dual Motor “full” hybrids (Prius/Escape) • Plug-in hybrid vehicles. ICF International Inc.

25. Common Attributes of Hybrids • Hybrids must fully exploit all synergies with drive train and accessories to provide large improvements in fuel economy. • Hybrids provide large fuel economy gains only in stop-and go driving. • Benefits deteriorate in very hot/cold weather due to space conditioning needs. • Hybrids not suited for cargo hauling or high continuous load operation. • Different geographies and densities provide different opportunities for different designs. ICF International Inc.

26. Hybrid System Benefits • BAS systems using existing 14V electrical system can be cheap but it will provide limited FC reduction, ~ 15% • The Toyota system can be very efficient with FC reduction approaching 45% but has the disadvantages of high price, ~US$5000-7000 • One- motor systems of the Honda IMA type could be more cost effective than other types while offering significant FC reduction, ~30%. • Different manufacturers have very different assesments of what will ultimately succeed. ICF International Inc.

27. Plug-in Hybrids • Definition of PHEV varies on vehicle capability in all-electric mode. • Type, range in (semi) EV mode and battery cost issues dominate technical debate. • However, consumer acceptance and likely level of electricity use issues are probably more important than technical issues. • At present, difficult to make any economic case for purchase even with off-peak electricity. • GHG benefits are currently quite small in the US relative to a hybrid, and de-carbonization of the electric sector needs to occur first. ICF International Inc.

28. Electric Vehicles • Li-Ion Battery technology has now advanced to the point where 200+km range is possible, but cost is still high. ZEV mandate requires such vehicles in large numbers by 2020. • EV costs are being driven by idea that they should replace rather complement typical cars and offer all their attributes. • City car type EV designs can be inexpensive and very efficient, and can serve urban commuters or be a rental vehicle. • However, ideal applications mirror those situations well served by mass transit. Hence, City EVs may have unintended consequences of shifting people away from mass transit! ICF International Inc.

29. Diesel Issues • Unlike a hybrid, the diesel’s fuel efficiency benefit is more robust across all driving conditions and under load. • Cost and benefit on cycle comparable to IMA hybrid, but GHG benefit is lower due to higher carbon content of fuel. • Terrific low-end torque makes it well suited to cargo hauling and towing . • Diesel fuel subsidy in EU and some developing countries creates incorrect incentives for light vehicle dieselization. Some studies show diesels in EU have double the VMT of gasoline! ICF International Inc.

30. Diesel Costs and Benefits • Current diesel engines add $1500 (4 cyl.) to 3000 (V-8) for the engine alone and another $700 to $1200 for emissions after-treatment. • FE can be increased by 30 to 35% in combination with other changes. • Significant additional improvement is possible with a diesel- hybrid combination, with some cost reduction in emission control. • Diesel market in the US seems to be fading with rapidly rising diesel fuel prices. ICF International Inc.

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32. Technology Summary • Conventional technology improvements for gasoline vehicles continue to be far more cost-effective than alternatives. • Improvements of about 33% can be realized with conventional technology, which falls short of the 40% requirement by 2020 • Hybrids will need to penetrate 10 to 15% of the market to meet the 40% target. The simpler Honda type system may become dominant by 2020. • Diesel LDV market faces major questions with diesel fuel price hike and we predict restricted share of about 5%. ICF International Inc.

33. Market Issues for 2015 & 2020 • Raising prices beyond ‘free market’ levels results in consumers moving to smaller vehicles and purchasing fewer vehicles. • Proposed DOT standards are by vehicle footprint or size so that relative stringency of standards is an issue in determining comparative costs by size. • The proposed 2015 standards for cars has a very ‘steep’ curve that requires 32 mpg to 42 mpg over a small footprint range. This could invite gaming or selling larger vehicles ICF International Inc.

34. Market Issues- Continued • Without gaming, CAFE standards appear to have only small effects on mix shift. On the other hand, Pavley could cause mix shifts towards larger trucks due to the easier GHG standard for these vehicles. • The last 6 to 7% FE improvement obtained from diesels and hybrids are relatively expensive and may not occur by market pull alone, requiring a subsidy. • In CA, the ZEV mandate and the LCFS provide additional complicating parameters. ICF International Inc.

35. Will the Big 3 Survive Pavley? • Main reason behind current predicament of the Big 3 goes back to 9/11. GM initiated a round of very deep discounts to pump up sales and Ford and Chrysler matched these discounts. • While this helped sales volume, Big 3 profits were razor thin even as industry had good times and imports were making record profits. • Erosion of brand value prevented Big 3 from raising prices in 2004-2005. When industry volumes started falling in 2006, Big 3 started making big losses. ICF International Inc.

36. GM & Ford: Vehicle Sales and Profits for North America ICF International Inc.

37. Will the Big 3 Survive Pavley? • While the current predicament has little to do with regulations, future CAFÉ and Pavley regulations may affect viability. • Both CAFÉ and Pavley (and the ZEV mandate) will force diesels/ hybrids beyond free market levels and the subsidy required is a concern. • CAFÉ has an attribute based standard which is helpful, but high absolute standards for trucks which hurt Big 3. • Pavley has a single number standard which hurts but a relatively low standard for larger trucks which helps. ICF International Inc.

38. Summary • Meeting the 2020 EISA requirements is feasible for most full line manufacturers without heavy reliance on hybrid or diesel technology. • Overall vehicle average price increase is estimated to be about $2100 over current vehicles, which is less than value of lifetime fuel savings even with gasoline at $2.50. • Attribute based FE curve shapes will strongly influence mix shifting by consumers, • Proposed 2015 CAFE standards appear feasible for cars but are quite difficult for light trucks, given lead time and technology constraints. ICF International Inc.

39. Summary- Continued • The Pavley standards are not that different from CAFÉ standards (yet?) in fuel economy space • Other CA standards, notably the ZEV mandate and the LCFS, may make compliance with Pavley easier even in 2015. • Domestic industry’s survival is both hurt and helped by Pavley relative to the Federal 35 mpg mandate for 2020. • Ultimately, moving both Pavley and Federal standards to an attribute based standard may help harmonization and industry survival. ICF International Inc.