This week, the Trump administration announced its plans to reopen the mid-term evaluation of fuel economy standards for 2022-2025. This particular review comes at a critical time as autonomous vehicles and ridesharing technologies are sweeping into the mobility system—yet there’s no certainty about how they will change transportation, and they aren’t currently factored into existing regulations.
New technologies could have massive implications for the automotive and energy industries as a whole, which has prompted analysts to sketch out what that future might look like. Tiffany Groode, a Director at IHS Energy and the head of its Automotive Long-Term Planning and Scenarios Service, previewed the company’s perspectives at the CERAWeek conference in Houston last week and explored how new vehicle technologies will play out in the energy space. The forthcoming report, “Reinventing the Wheel,” sees two scenarios which Groode teased at the conference. In the Rivalry scenario, IHS’s reference case, driverless cars fail to spark an immediate mobility revolution but an evolutionary change occurs over time, and only 10 percent of the fleet and 25 percent of total U.S. auto sales are electric vehicles by 2040. In the same reference case, 40 percent of China’s EV sales are electric.
In the “Autonomy” scenario, 60 percent of the U.S. market is electric by 2040, and 75 percent of the Chinese market is autonomous and electric.
IHS also sees a revolutionary case, the Autonomy scenario, in which accelerated change drives a revolution that disrupts the entire transportation sector. In this scenario, 60 percent of the U.S. market is electric by 2040, and 75 percent of the Chinese market is autonomous and electric. Chinese gasoline demand in this scenario is the same in 2040 as it was in 2012, reducing global oil demand by 3 mbd from what is currently projected.
There is also a consensus emerging in the auto industry that widespread EV-AV adoption will hinge on fleet deployment. According to Groode, two factors drive EV sales at the moment—battery costs and consumer perception. Fleet operators make decisions based on cost per mile and factor in the lower maintenance costs and other business advantages of EVs.
Groode also emphasized the potential demand upside from autonomy. IHS expects vehicle miles travelled and auto sales to increase and sees the impact on fuel demand resulting from “the types of miles being done, and who’s doing them,” arguing that “mobility as a service” will spur more miles on the road. That’s why China’s vehicle market will see greater impacts from this shift than the U.S.—mobility as a service drives a greater share of demand.
The core concept of IHS’s view, which is that fleet deployment of AVs will be required to move the transportation sector away from petroleum in a significant way, is reiterated in recent analyses from BP and the National Renewable Energy Laboratory (NREL). BP’s latest annual energy outlook found that ridesharing and autonomous vehicles will only curb fuel demand if they are combined with alternative powertrains—gasoline-powered AVs will be slightly more efficient than today’s cars but those gains will be offset by increased travel demand. Similarly, NREL published a report on the impact of AVs on fuel demand and found that because AVs will boost vehicle miles travelled the impact on fuel demand could go either way—reducing oil demand by up to 40 percent through efficiency gains and use of alternative fuels, or increasing it by 300 percent.
Autonomous vehicles are the rooster
According to Larry Burns, advisor to Waymo and former General Motors Corporate Vice President for R&D and Planning, widespread fleet deployment of autonomous electric vehicles is an inevitability, and he can’t envision a path to failure.
Electric vehicles, and the infrastructure needed to support them, have always been described as a chicken-and-egg scenario where a critical mass of both is needed to encourage investment in and adoption of the other. “I love this chicken-and-egg analogy but I think we’re forgetting that we need a rooster,” Burns told the audience at CERAWeek. “Autonomous vehicles are the rooster.”
“I love this chicken-and-egg analogy but I think we’re forgetting that we need a rooster,” Burns told the audience at CERAWeek. “Autonomous vehicles are the rooster.”
Burns also takes a highly optimistic approach towards the potential societal benefits and the new technology ecosystem that can emerge. “The system I envision will eliminate most of the reasons that currently exist for regulating vehicles—emissions, safety, and our oil dependence will all be solved,” he said. “We’re surprisingly close to the technology working and it will be 90 percent safer than human drivers. Google is building the world’s best driver and it’s also going to be the world’s lowest cost driver.”
Burns estimates that the combination of fuel economy, electrification, renewable fuels, and other policy changes will result in a 30-40 percent reduction in oil demand even with 2 percent global GDP growth.
It’s going to happen in the cities
Another emerging consensus in this space is that automated electric vehicles will happen in urban areas. A panel at the C3 Group’s Connected Mobility Showcase at SXSW in Austin in the days following CERAWeek agreed that fleet operators in individual cities will deploy fleets of shared AVs that is tailored to the needs of the individual region.
Presenting new research findings from advanced travel data firm INRIX, Avery Ash, autonomous vehicle market strategist at the company, argues that certain cities will be hotbeds of AV deployment due to the type of trips that occur in them. “Shared-use vehicles will be a highly effective deployment of autonomous vehicles, where shorter, intra-city trips can maximize occupancy and efficiency, which means safer, faster and more convenient travel for users,” he said.
In INRIX’s findings, the top five cities that are best suited for early deployment are New Orleans, Albuquerque, Tucson, Portland, and Omaha.
Can the oil industry handle the change?
During CERAWeek, the consensus of oil industry executives and watchers in conference keynotes was that there is no significant downside risk to demand that will damage the industry. But the estimates put forward by BP and IHS show the possibility for electric-autonomous vehicles to create a black swan event that drives a decrease in oil demand, even if deployment only occurs in urban areas. For an industry that has depends on continued global demand growth, and small dislocations between supply and demand can cause tremendous price swings that decimate producers when they push towards the downside, thus the fallout from the projections by Burns and IHS’s Autonomy scenario could represent a major blind spot for the industry. Globally, urban areas account for 67–76 percent of final energy consumption, according to the National Academy of Sciences. Most U.S. oil consumption is concentrated in a select number of urban areas, according to research conducted by the NRDC.
Returning to first principles on fuel economy
In contrast to Burns’ perspective, other analysts argue that the auto industry won’t necessarily evolve towards an urbanized, efficient mobility system on its own. The current trends in transportation point to a need for policies to encourage and support urban deployment in a way that helps society benefit from AVs, rather than push towards sprawl, waste, and inefficiency.
According to Dr. Chris Atkinson, Program Director at the Advanced Research Projects Agency-Energy (ARPA-E) and head of the NEXTCAR program, “There is significant funding going into connected and automated vehicles. But AV technology is being developed primary for safety purposes. ARPA-E recognizes that connected and automated vehicles are occurring but what’s only been loosely defined is how these technologies will apply to improving the fuel efficiency of individual vehicles, and by extension the entire vehicle fleet.”
Atkinson added, “If you look at upcoming fuel efficiency standards, they are complex and interesting and clearly save us a significant amount of energy. But those regulations as currently envisaged don’t take into account the potential benefits of connectivity and automation. We see a glaring omission on the part of the automakers and others and we elected to develop this area of research which we see as enormously valuable towards reducing the energy consumption of the future vehicle fleet.”
The technologies in the NEXTCAR program are projected to add a 20 percent efficiency improvement to future vehicles if the projects are commercialized.
As the Trump administration reopens its mid-term review, SAFE urges regulators to take this time to not only evaluate the existing rules but also examine the connected and autonomous vehicle technologies that are not currently factored into the standards.
As the Trump administration reopens its mid-term review, SAFE urges regulators to take this time to not only evaluate the existing rules but also examine the connected and autonomous vehicle technologies that are not currently factored into the standards. SAFE also argues it is necessary to consider regulating the entire system rather than individual vehicles. To quantify and understand how to regulate the modern system that is emerging rather than continue to focus on regulating individual vehicles, SAFE encourages regulators to do the following:
- Incentivize development of more efficient autonomous vehicles: Just as fuel efficiency standards have led to more efficient engines, regulators must develop ways to measure fuel efficiency implications of advanced driver assist features and autonomous vehicles, which will incentivize software developers to create self-driving algorithms that improve fuel efficiency.
- Account for the “off-cycle” benefits of autonomy: Once quantifiable, gains from autonomy— such as reduced congestion due to better traffic routing and reduced accident frequency resulting from improved safety—should also be accounted for.
- Recognize the different use profiles of shared and privately-owned vehicles: A shared vehicle, autonomous or otherwise, may drive 10 times as many miles in a year than a privately-owned vehicle. Fuel efficiency standards should recognize the increased impact of shared vehicles and increase their representation in calculating fleet-wide average fuel economies. This could be accomplished by including a credit multiplier for vehicle sales to a fleet operator.
Environmentalists and other advocates of efficient and alternative fuel vehicles see the Trump administration’s moves this week as a sign that he intends to weaken the standards. To meet Trump’s own goals to eliminate dependence on OPEC oil, demand side solutions will be necessary, and autonomous, electric vehicles create a tremendous opportunity to slash oil consumption—if properly implemented.