Environmental Economics
Alternative Fuels in Transportation
Peter Baumann
May 16, 2011
Hybrid and Hybrid/Electric Vehicles
This paper will focus on the economic and environmental feasibility and outlooks for Hybrid Vehicles and All Electric Vehicles on today’s global market. By examining current applications of hybrid and electric technology we will see that Hybrid technology coupled with Plug-In Electric innovation are the most suitable, realistic fuel technology alternative. While energy independence will assert itself in the near future we need to increase demand now for vehicles that rely less on petroleum products. Diversifying where we harness energy is a critical challenge in improving our future energy environment as well as our future energy economy, because electricity is capable of being produced through a variety of processes Hybrid and Electric vehicles are key to diversification. Hybrid technology is rapidly becoming the affordable, desirable option to conventional engine vehicles. This report will look at several published papers by the International Energy Agency (IEA), the U.S. Energy Information Administration (EIA) as well as the U.S. Department of Energy (DOE) in hopes to clarify and explain the significant factors involved in the Hybrid Electric transportation industry and their implications and impacts on our current energy economy and environment.
Hybrid Electric Vehicles (HEVs) are no longer a thing of the future and haven’t been for some time now. Toyota, Honda and even a proposed Ford hybrid have or will be available in the near future. As concerns about our global and local environment, energy security and economic stability have prompted a noticeable demand for more fuel-efficient vehicles within the current transportation framework HEVs have been garnering more and more attention. HEV vehicles combine aspects of both battery-powered electric vehicles and conventional combustion engine vehicles into one system. Typically a hybrid vehicle will utilize battery power to obtain a minimum state of charge that allows the engine to operate on a combination of battery power and internal combustion power that greatly reduces the amount of gasoline used in operation. When running on internal combustion, energy produced is used to recharge the electric battery. Some hybrid vehicles are capable of using this battery exclusively, however this is often only effective for short trips at low speeds as it relies completely on the power of the battery component.
How can hybrid vehicles sustain such efficient operation when compared to a conventional engine vehicle? According to the International Energy Agencies Hybrid Implementation Agreement the extra costs of an electric motor and battery in an HEV make sense because most internal combustion engines in conventional vehicles are largely inefficient on their own. Less than 20% of the energy produced after combustion is actually used to drive the wheels of the vehicle, most of what is produced is lost as heat. Conventional car engines are also typically more powerful than needed to keep the vehicle traveling at a specific speed for a specific amount of time. This is due solely to the fact that a large amount of power is needed for acceleration, when the car is not accelerating the engine is working far below its capacity and loses energy when idling, braking and driving at low speeds.[1] This problem is addressed in the fundamental design of Hybrid vehicles; because HEVs use an electric motor to assist in acceleration there is really no need for a large, inefficient internal combustion engine. The combustion engines found in most Hybrid vehicles are much, much smaller, and can be shut off and immediately started again if the vehicle needs to idle. When braking, the electric motor actually captures the energy generated from the motion of the car and feeds it back into the battery. When driving slowly HEVs will use only their electric motor, allowing them to operate at close to 90% efficiency, when higher speeds are required the combustion engine is utilized.
The future outlook for Hybrid vehicles is and has been very positive. A recent report conducted by the IEA predicts that by 2012 the global sales figure for hybrid vehicles may have tripled to 2.2 million units, while growth may inevitably by production volume and practical restrictions such as limited production volume of batteries[2]. Hybrid Vehicles can easily out perform conventional cars and often exceed customer expectations for efficiency, in countries with high gasoline prices, average savings are typically sufficient to pay back the extra price of the Hybrid in about 8 years. This period is expected to fall to 3-5 years as manufacturing volumes increase and as gasoline prices increase. Hybrid vehicles are also practical in a variety of applications including mid priced and high priced passenger vehicles, city buses and municipal vehicles and delivery trucks. While hybrid technologies have fewer advantages in large, heavy trucks that require constant speeds over long distances or smaller passenger cars that are already moderately fuel efficient and do not warrant the extra purchase cost.[3]
Hybrid vehicles are not a huge innovation technologically, rather a modification of existing technology to create something economically and environmentally viable. This offers advantages to the hybrid economic market being that most of the infrastructure for the development and manufacturing of these vehicles already exists. Changes can also be introduced gradually and technical problems and high warranty costs after a few years are reduced. With economic benefits also come environmental benefits. Reduction in air pollutants, noxious pollutants, and GHG emissions, hybrid vehicles will also be able to run on biodiesel, ethanol and natural gas making them potentially more environmentally friendly than some all-electric battery powered vehicles that rely primarily on electricity produced by coal-fired power plants. Improving upon battery technologies will become a key component in the future success of hybrid and electric vehicles in the near future. Engineering cars that pay for themselves within the shortest time frame but also keep their value in the long run will prove an attractive quality for hybrids in the future.
Future outlooks for hybrid technology reside at local, state and governmental levels. Improved vehicle technologies increase energy diversity and efficiency, environmental health and overall quality of life. With large quantities of hybrid vehicles available for purchase in today’s market is has become the responsibility of the consumer to make a responsible decision regarding their environment. Conventional vehicles impose upon society expensive externalities that are not paid for by the consumer who chose to buy the vehicle but by the government. The external costs associated with air pollution, imported petroleum and climate change effects should be more than enough justification for employing hybrid vehicles in governmental and municipal vehicle fleets. This measure can work to offset the impacts of preexisting conventional vehicles as well as create market volume capable of allowing manufacturers to reduce costs and create more affordable, attractive hybrid vehicles. Unlike costly prospective alternatives (solar, hydrogen, fuel cell) Hybrid technology is a reality, for this reason alone it is the best option for improving our energy situation in the short term as Hybrid vehicles can be easily altered to run on biofuels and natural gas. In the long term, or over the course of 20 years the costs of fuel cell technologies and long life batteries may become price competitive where they are not currently.[4]
Before moving on to All Electric and Plug-In vehicles it is important to understand some of the fundamentals behind battery-powered vehicles and the true implications of relying heavily on a battery for transportation. Currently there exist two viable battery options for use in hybrid and all electric vehicles. The first being a nickel metal hydride battery or (NiMH) and a lithium-ion battery alternative or (Li-Ion). Both batteries have their own specific strengths and weaknesses depending on their individual applications. NiMH batteries are cheaper to produce per kilowatt-hour, less labor intensive and have a proven safety record in vehicle applications already. NiMH batteries are cheap and safe but relatively heavy and have limited storage capability. Li-Ion batteries have a much larger storage capacity and are significantly lighter however they are not as safe and have limitations regarding overall lifetime and cycle life. While most manufacturers have made up their minds regarding battery usage based on specific desires, the general consensus is that Lithium Ion batteries hold more promise for future vehicle applications. As the industry progresses both economically and technologically we will see vast improvements to battery life, cycle, safety and capacity. Where battery technology today is a limiting factor in viability of Hybrid vehicles, manufacturers are fairly certain technological advances will allow for full lines of affordable efficient vehicles as the market opens up.
Plug-In Hybrid Electric Vehicles or “PHEVs” are like Hybrid Electric Vehicles in that they both have gains over conventional engine vehicles in fuel economy and environmental friendliness however PHEVs can also substitute electrical power for gasoline power while drawing electricity from a wall socket or fast charging high voltage socket. For this portion of the paper a report by the U.S. Energy Information Administration titled “Economics of Plug-In Hybrid Electric Vehicles” released in 2009 will be referenced almost exclusively. PHEVs are often designed to travel in “all electric” mode depending on their intended design. Typically PHEVs will incorporate a number into the name of their design in order to specify the number of miles a vehicle can travel on a single charge, for example PHEV-10 can travel 10 miles when in all electric mode while PHEV-40 can travel 40 miles. PHEV-40 will have a much higher price tag and a much more expensive battery. As battery technology advances electric vehicles will see swift increases in market share as well as consumer affordability with decreases in price and cost of production. [5]
Aside from the environmental benefits offered by electric vehicles there are strong economic drivers as well. As the EIA’s report states, in general consumers will be more willing to purchase PHEVs rather than conventional gasoline powered vehicles if the economic benefits of doing so exceed the cost incurred. To make sense of this statement we must provide an understanding of the economic benefits and costs in relation to consumer acceptance. On average and with equivalence to gasoline a PHEV’s charge depleting battery system (from start to finish) gets around 105 mpg and well above even the most efficient petroleum based engines available. When mixed with ethanol, gasoline or biodeisel a PHEV owner can expect 42-45 mpg. As a result of these factors fuel economy is obviously greater with a PHEV than a conventional engine. While the economic advantages are obvious over the long run, up front, similar to HEVs, PHEV’s are much more expensive than conventional engine vehicles. This is again because of battery technology and limits to battery growth and range, however, a battery greatly reduces the amount of parts that need to be maintained, oiled and lubricated cutting down on yearly maintenance costs as well [6]
Incentives are also offered to prospective buyers of PHEV vehicles. The EIEA2008 grants a tax credit of $2500 for PHEVs with at least 4 kilowatt-hours of battery capacity (PHEV-10) while larger batteries earn an additional $417 per kilowatt-hour up to a maximum of $7500 (equivalent to a PHEV-40 battery). This credit applies to 2015 or until 250,000 eligible PHEV vehicles are sold[7]. Additionally ARRA2009, enacted in February 2009 modifies this tax credit to allow the minimum battery size earning additional credits is 5 Kilowatt-hours and the maximum allowable remains unchanged. The ARRA also extended from 250,000 sold to 200,000 vehicles sold per manufacturer. By incentivizing the sales of PHEV vehicles in the near term manufacturers will experience earlier economies of scale through greater sales, allowing battery systems technology to be developed while battery costs decrease, with the success of this plan manufacturers hope to offer more affordable PHEVs by 2030, when economies of scale have been fully realized.[8]
Even with the current and future benefits of PHEV vehicles some uncertainty resides in the possibility of PHEV vehicles staying cost competitive with conventional vehicles on the market. Especially vehicles that are relatively fuel efficient in their own right. Even in 2030 the additional cost of a PHEV is projected to be higher than total fuel savings unless gasoline prices are around 6$ per gallon. This poses a significant problem for PHEV vehicles, assuming that upfront costs limit the number of potential PHEV buyers, sales volumes may not be sufficient to induce the economies of scale assumption calculated by the EIA for 2030. With uncertainty surrounding lithium-ion batteries, HEV competition, diesels and grid-independent gasoline hybrid competition PHEVs are facing a somewhat uncertain future. While battery technology continues to progress with the HEV application and growing market PHEVs run the risk of remaining economically stifled until better batteries are available.[9] Supporting and cultivating a green image for PHEVs is essential to the viability of the market.
Our energy future depends largely on our ability to harness sustainable and diverse power through affordable means and existing infrastructure. Hybrid Electric and Plug-In Electric vehicles afford us the capability to transition from a heavily petroleum dependent transportation industry to a less dependent, increasingly diverse energy economy. As seen in both the EIA and IEA reports, creating a Hybrid economy is not only possible but also predictable. Largely a reinvention and combination of preexisting systems, Hybrids need no new technological inventions or infrastructure constructions making them less expensive than other alternative fuel technologies. While Hybrid and Electric vehicles are currently gaining shares of the market a swift and overwhelming shift is predicted to occur as dwindling oil reserves begin to drive oil prices up. Stimulating this economy today is the best way to ensure that the technology to become
totally energy independent is available tomorrow.
References
1.) Maples, John, and Nicolas Chase. "Economics of Plug-In Hybrid Electric Vehicles."(2009): 1. Rpt. in Issues in Focus. U.S. Energy Information Administration.Web. Mar.-Apr. 2011.
2.) IEA/IA HEV: Hybrid Electric Vehicles." International Energy Agency Implementing Agreement on Hybrid and Electric Vehicles. 3 Nov. 2010. Web. 16 May 2011.
3.) Outlook for Hybrid and Electric Vehicles. Rep. International Energy Administration,1 Apr. 2009. Web. Apr.-May 2011.
[1] IEA/IA HEV: Hybrid Electric Vehicles." International Energy Agency Implementing Agreement on Hybrid and Electric Vehicles. 3 Nov. 2010. Web. 16 May 2011.
[2] Outlook for Hybrid and Electric Vehicles. Rep. International Energy Administration, 1 Apr. 2009. Web. Apr.-May 2011.
[3] IEA/IA HEV: Hybrid Electric Vehicles." International Energy Agency Implementing Agreement on Hybrid and Electric Vehicles. 3 Nov. 2010. Web. 16 May 2011.
[4] IEA/IA HEV: Hybrid Electric Vehicles." International Energy Agency Implementing Agreement on Hybrid and Electric Vehicles. 3 Nov. 2010. Web. 16 May 2011.
[5] Maples, John, and Nicolas Chase. "Economics of Plug-In Hybrid Electric Vehicles." (2009): 1. Rpt. in Issues in Focus. U.S. Energy Information Administration. Web. Mar.-Apr. 2011.
[6] Same as above
[7] Same as above
[8] Same as above
[9] Maples, John, and Nicolas Chase. "Economics of Plug-In Hybrid Electric Vehicles." (2009): 1. Rpt. in Issues in Focus. U.S. Energy Information Administration. Web. Mar.-Apr. 2011.
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