• Projected new U.S. CAFE standards would cost U.S. industry 30% increase in powertrain costs
• Campaign for Better Transport issues pre-Budget brief on spending and taxation on transport
• Biofuel Industry associations urge OECD to disavow critical report

Global Insight reports that one of the most interesting presentations at its latest annual conference in Detroit was from Phil Gott, Director of Automotive Consulting, of how automakers will be able to meet the stringent new fuel economy regulations in the United States.

Gott has completed a study that examines the ramifications of the passage of a bill currently under consideration in the U.S. Congress. Currently, corporate average fuel economy (CAFE) standards are set at an average of 24.6 miles per gallon (mpg)—a combination of 27.5 mpg for passenger cars and 22.2 mpg for light trucks. The Senate bill calls for an increase to 35 mpg combined (42.1 mpg for cars, 28.7 mpg for trucks) by 2020, which is generally considered by automakers and industry to be unattainable. Two competing bills in the House of Representatives are being considered: HR 1506 (the "Markey bill") calls for even more stringent standards, upping combined CAFE ratings to 35 mpg by 2019, with a combination of 43.3 mpg for cars and 27.6 mpg for trucks; while HR 2927 (the "Hill-Terry bill") is supported by the industry, and calls for an increase to 32-35 mpg by 2022, with provisos that permit special allowances for automakers under certain new conditions.

Gott's study assumes that the requirement will be 35 mpg combined (45 mpg for cars, 30 mpg for light trucks) by 2020. From that starting point, he examined the market today, including the segments offered in the U.S. market, those vehicles' efficiency, weight, size, and performance, and determined that 35 mpg is 15% better than the fuel economy of the four most fuel-efficient models available today, on average. If the entire passenger car fleet is considered, 35 mpg combined represents an increase of almost 42% from the average 2006 level.

Based on a study carried out by Global Insight Director of North American Research Rebecca Lindland of American consumer preferences in relation to small cars, it was then assumed that U.S. consumers are not going to make a dramatic shift towards smaller cars, as they simply do not fulfil the needs of American consumers.

So, given the assumptions that American consumers will want to maintain their lifestyle, behavioural modification through taxation will not occur (unlikely, given the U.S. political administration's aversion to taxation), and fuel prices will remain elevated at their current levels, what needs to happen to the vehicles themselves in order to meet the government's likely new standards? Or as Gott puts it, "What combination of segments, engines, and drivetrains would give you the lowest-risk, lowest-cost path to 35 miles per gallon by 2020?"

Gott's study concludes that nothing short of a massive shift in powertrain technologies would be required to meet the new CAFE standards. By 2020, nearly two-thirds of the U.S. vehicle fleet will need to be powered by a direct-injection engine (either gasoline or diesel), downsized from the current displacements and turbocharged. Diesel would need to comprise one-third of the market. Half of all vehicles would need to be one of the four forms of hybrid, and half of those hybrids would also need to be diesel-equipped.

According to Gott, the variable cost impact necessary to introduce such a shift from port-injected gasoline engines (the vast majority of U.S. powertrains) to the new configurations would require a “staggering” amount of investment. Automakers would face powertrain costs that are a minimum of 30% more expensive than the current lowest-cost technology, costs that would very likely be passed on to consumers.

But the even bigger impact would come from the investment required in order to build the infrastructure that can make the new technologies.

Automakers would have to make a capital investment in components to install direct-injection technology on 8 million engines for the U.S. market, invest in component plants and suppliers to make components for an additional 8 million hybrids, and construct the equivalent of eight new diesel-engine manufacturing plants at a cost of nearly US$1 billion each, not including associated fuel-injection and emissions controls systems manufacturing. Suppliers would have to be able to make up to 12 million turbochargers a year, or more if two-turbo systems become more common.

Investment in plants, technology, research, and products that can fulfil these goals would have to start occurring now. According to Gott, new drivetrain technologies routinely require 10-15 years before they achieve "mainstream" status in the market, such as the advent of port fuel injection, four-valve cylinder heads, front-wheel-drive, etc.

If the technologies described above are to be available in the quantities mentioned, pretty much the only reasonable way to achieve the likely government standards, massive investments must be made now in order to begin heading down that road. But the big problem is that none of the domestic U.S. automakers has the kind of cash on-hand necessary to undertake that kind of endeavour. Neither has the government shown a willingness to foot any significant portion of the bill either.

This leaves the situation in limbo, with a worrying combination of a populace that resists increased taxes to bring about behavioural change, a cash-strapped domestic industry just trying to stay afloat amid stiff international competition and detrimental economic conditions, and a political body that has proven itself more than capable of creating standards meant to show action on climate change with little in the way of support for making these attainable.

It is highly unlikely that any true changes will come about to CAFE standards before the end of the George W. Bush administration; certainly any legislation passed by Congress will receive a presidential veto, as President Bush has stated that he feels that new mandates should come from experts at the Environmental Protection Agency and the National Highway Traffic Safety Administration, and not from Congress. However, the writing on the wall says that CAFE increases are only a matter of time, and action will thus soon have to be taken one way or another to pursue these new technologies.

(globalinsight.com, 5 October)

Adding to the news late last week that £16bn will be invested in the cross-London rail link, the Campaign for Better Transport sets out in a briefing what the Spending Review and Pre-Budget Report due this week might mean for transport spending and taxation.

The Campaign expects an interim report from Professor Julia King, who is conducting a review for the DfT and Treasury on “decarbonising road transport”. Some possibilities for the spending review include:

A purchase tax on new cars with high charges for gas guzzlers and low or even negative charges for low emission vehicles. The Conservatives’ quality of life commission suggested this as a “showroom tax”, and a leaked paper in the Sunday Times said that this was being seriously considered by the Treasury.

As an alternative to this, higher vehicle duty: previous budgets have raised the tax on high emission vehicles but only to £400 a year (the industry according to the Campaign says it would need to be £2,000 a year to make a real difference)

More company car tax reforms, including changing car allowances for business use of private cars to reflect fuel efficiency and emissions.

The Renewable Fuels Association (RFA) and the European Bioethanol Fuel Association (eBIO) have called on the Organisation for Economic Cooperation and Development (OECD) to disavow a paper issued last month critical of world ethanol production. The paper, written by the Chair of the Round Table on Sustainable Development at the OECD, explicitly states that it does “not necessarily reflect the views of the OECD or the governments of its Member countries.” Yet, say the biofuels trade bodies, media reports have been portraying the paper as the official position of OECD.

Either way, adverse comment on the results and implications of using food crops for biofuel production have multiplied, before and since the OECD paper was published.

Meanwhile, Robert Vierhout, Secretary General of the European Bioethanol Fuel Association, told a conference last week that rising prices for feedstocks for first-generation biofuels such as wheat and palm oil were prompting biofuels producers to shelve planned plants and cut output at existing facilities. In Germany in particular, reduced tax incentives for biodiesel have reduced demand and Karl Giersberg, the CFO of EOP Biodiesel has suggested that up to half Germany’s current, under-used biodiesel capacity might disappear unless the regulatory environment improves in the next two years.

With rising concern about the environmental and food supply implications of the use of food crops for road fuel, fresh investment may be needed in second-generation cellulosic biofuel feedstocks and refining technologies. One option reported by Reuters’ Planet Ark service on 5 October is a grain-free sorghum variety developed by Ceres, Inc. and Texas A&M University, which grows to 20 ft , produces yields faster than switchgrass, and can be cultivated with less water and fertilizer than maize, to produce four times the ethanol yield per acre of maize; half the cost of a cellusic biofuel refinery is said to be in the harvesting and transport of the feedstock.

- The lead front page story in The Guardian of 6 October covers the first-ever manufacture by genome researcher Craig Venter and colleagues of an artificial chromosome. Venter speculates that designer genomes could lead to alternative energy sources including butane or propane made entirely from sugar, and articifical bacteria which could be deployed to mop up excess CO2,