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Transition towards a hydrogen-based passenger car transport: comparative policy analysis
Abstract
Major OECD countries including Germany and Japan have put in place a wide range of policy instruments addressing Zero Emission Vehicle (ZEV) deployment. This paper draws a cross-country comparison between those instruments that support in particular the deployment of Fuel Cell Electric Vehicle (FCEV). We analyse the existing policy framework in favour of FCEV and hydrogen infrastructure deployment. We develop and calculate ex-post policy efficiency indicators and rank countries, which are the most active in promoting FCEV. The comparison stands on a series of complementary indicators including vehicle Affordability, Annual Advantage in TCO, State Financial Participation and infrastructure Coverage and Availability. We show that FCEV possession price is lower in Denmark, Norway and Japan, and is higher elsewhere. A high possession price of FCEV could be compensated with advantage in running cost within ten years notably in France, Sweden and California. Analysis shows that the most generous incentives to promote hydrogen vehicles deployment are available in countries using price- based policy instruments design (like subsidies in Japan or tax exemptions in Denmark). These instruments allow maximising short-term FCEV deployment rate. Denmark and Japan emerge as the best providers of favourable conditions for the hydrogen mobility deployment. These countries lead according to both vehicle- and infrastructure-related indicators and concentrate their efforts on coordinated ramp-up of vehicles and infrastructure.
Introduction
The transport sector is the second biggest emitter of greenhouse gas (GHG) emissions after energy industries. While other sectors reduce their emissions, emissions of the transport sector continue to increase. Among all transport modes passenger transport contributes most to that growth. That is why introduction of zero emission vehicles (ZEV) in the passenger car sector is important. Even if the passenger car market in developed countries is not expected to increase, there is a need for programs reducing the corresponding GHG emissions in order to achieve the global GHG targets for 2050. The benefits from these programs will spread out to non-OECD countries where road emissions are bound to increase. Recent research shows that both Fuel Cell Electric Vehicles (FCEV) and Battery Electric Vehicles (BEV) can play a critical role in decarbonising the transport sector both on global (Anandarajah, McDowall, & Ekins, 2013; Oshiro & Masui, 2014; Franc, 2015) and national (Grahn & Williander, 2009) levels.
The market force alone is not sufficient to initiate the transition towards the ZEV technology and thus public support is crucial during initial deployment stages. ZEV deployment suffers from economies of scale market failure. Economies of scale (particularly increasing returns to scale) refer to a situation where the average cost of producing a unit decreases as the rate of output increases (due to a fixed cost for example). Along with economies of scale, there is a “chicken-and-egg” problem, whereby multiple actors that must simultaneously invest and ramp up production in order to commercialize a new technology. This problem is extremely relevant for FCEV, which requires deployment of a new costly infrastructure. Such investment project requires inter-industry cooperation, which delays necessary investment. Moreover, under certain conditions the initial sunk costs cannot be recouped through pure market equilibrium behaviours. Many authors have highlighted a necessity of public intervention during early deployment stages (Beltramello, 2012; Bleijenberg et al.; 2013; Egenhofer, 2011; Saugun, 2013; Bruegel institute, 2012). Public support at the beginning of the deployment period helps to attain an initial critical mass of stations and vehicle stock.
Once a critical mass is reached the need for public intervention will be significantly reduced thanks to learning-by-doing effect. The idea behind learning-by-doing is that the cost of producing goods declines with the cumulative production of goods. In other words, the act of producing more ZEV increases the stock of cumulative experience of the car manufacturer and thus leads to decline in future costs. However, the learning-by-doing ensures a long-term cost reduction only when the problem of economies of scale has been overcome due to public support and when a market kick-off has taken place.
In order to initiate a market kick-off, the critical mass of stations and vehicle stock could be attained through two mechanisms: first, vehicle deployment push; second, infrastructure deployment pull. Indeed, State could implement policy instruments targeting either vehicles or infrastructure deployment in order to solve chicken-and-egg dilemma (Plotkin, 2007; Bento, 2008). In the first case, State acts mainly on the demand side of the problem and addresses consumers by creating monetary and non-fiscal incentives in order to make FCEV possession more attractive. The associated demand for refuelling is supposed to push the corresponding infrastructure deployment. In the second case, State acts more on the supply side of the problem by inducing infrastructure deployment through subsidies or coordinated public-private partnerships, which in its turn will pull the demand for vehicles.
A complementarity between State support for vehicles supply and infrastructure deployment is supposed. The intuition to be verified within this analysis is that a coordinated ramp-up of vehicles and infrastructure deployment is the most complete approach to deal with chicken-and-egg dilemma.
The present study focuses on a short-term policy impact and evaluates a relative advantage within a set of different countries. Today, the deployment of ZEV has started thanks to a voluntary policy action. There is no common target, policy or strategy for the FCEV and BEV deployment. The long-term structural effects such as creation of new products in response to legislation (for, example, emergence of Nissan Leaf to comply with ZEV regulation in California) are not considered in this paper.
Recent papers provide a qualitative overview of policies promoting BEV worldwide (Leurent & Windisch, 2011; Tietge, Mock, Lutsey, & Campestrini, 2016; Trigg, Telleen, Boyd, & Cuenot, 2013). Some works (ACEA, 2014; ICCT, 2014) focus more generally on ZEV and overview existing CO2-based vehicle taxation schemes, which could be applicable to both BEV and FCEV. This paper suggests a classification, which allows a quantitative analysis of existing policy instruments. Identified classes of Quotas, Monetary, Fiscal and Non-Fiscal incentives for vehicle deployment are further divided in price-based and quantity-based policy instruments groups. This classification enables to develop a set of indicators, which could be used in future ex-post policy analysis, when enough empirical data on FCEV deployment will be available.
This study focuses on large and luxury cars segments, for which FCEV is the lowest-carbon solution for long trips (McKinsey & Company, 2010). FCEV ensures a long-range autonomy and a short refuelling time compared to BEV and makes the use of FCEV similar to its gasoline substitute.
This paper focuses on FCEV and gives a perspective on a supportive policy framework for a new FCEV model launch on the example of Toyota Mirai. Toyota launched the sales of Mirai in Japan in December 2015. Initially, sales were limited to government and corporate customers and were not available to individual customers. As of December 2014, domestic orders had already reached over 400 Mirais, surpassing Japan’s first-year sales target, and as a result, there was a waiting list of more than a year. It will be interesting to evaluate future diffusion of this technology within the framework of current analysis.
Two deployment strategies have been used for FCEV. The first one consists in deploying a captive fleet. A captive fleet is a group of vehicles possessed by one large entity (e.g. companies, governmental agencies with large delivery fleet). This approach greatly facilitates forecast of fuel consumptions, and the deployment needs for the network. The second strategy relies on public subsidies to quickly set up a large infrastructure, with a possible first focus on clusters and later expansions to interregional roads. In this case, State proves its engagement in ZEV deployment for car manufacturers and customers and reduces the uncertainty related to mass market FCEV deployment.
Indicators developed in this paper are inspired by classical industrial indicators (such as Capex, Opex, Pay Back Period, and Cumulated State Subsidy). The proposed set includes vehicle-related indicators such as Affordability, Annual Advantage in Running Cost, Total Cost of Ownership (TCO) Convergence, Advantage in TCO, Static CO2 price and State Financial Participation; and infrastructure-related indicators such as Coverage and Availability. These indicators allow comparing incentives targeting consumers at the moment of vehicle purchase and maintenance; evaluating State financial implication; and making an assessment of hydrogen refuelling infrastructure deployment. Countries with the highest values of these indicators appear at the top of the final ranking and are supposed to provide the most favourable conditions for the FCEV deployment.
A few papers focus on FCEV and make a qualitative overview of public policies supporting its deployment (Bleischwitz & Bader, 2010; Ogden, Yang, Nicholas, & Fulton, 2014). The quantitative framework developed in this paper enables ranking of national policies according to the developed indicators and identifying countries with the most favourable FCEV deployment conditions. The scope of this paper covers France, Germany, Denmark, Norway, Japan, and California.
The most favourable policy framework for hydrogen mobility deployment is observed in Denmark and Japan. These countries are leaders according to both vehicle- and infrastructure-related indicators and concentrate their efforts on coordinated ramp-up of vehicles and infrastructure.
The paper is structured as follows. Section 2 describes the methodology of cross-country comparison of policy instruments supporting FCEV. Section 3 describes the framework of the FCEV deployment in different countries; quantifies incentives targeting the consumer at the moment of vehicle purchase and maintenance; and evaluates State financial Participation. It also compares price- and quantity-based approaches for policy instruments design. Section 4 makes an assessment of hydrogen refuelling infrastructure deployment. Section 5 provides a ranking of national policies in seven countries according to the set of developed indicators and identifies countries leading the FCEV deployment. Section 6 concludes.
Methodology
The aim of this paper is to provide a quantitative analysis of public policy instruments in favour of FCEV deployment and to identify countries with the most favourable conditions for this deployment. The paper analysis follows thee steps:
(i) analysis of existing policy framework in favour of ZEV (and notably FCEV) and infrastructure deployment;
(ii) calculation of ex-post policy efficiency indicators; and
(iii) ranking of national policies in seven countries (France, Germany, Denmark, Norway, Japan, and California).
Because there is no common binding policy target for ZEV deployment and the policy action is voluntary, this paper focuses on a short-term analysis and evaluates a relative ranking of seven countries. The top three countries, with the highest value of indicators, are selected for every indicator. The leaders of FCEV deployment are defined as countries, which appear at the top of the ranking in the summary table.
Vehicle comparison
In order to better quantify policy incentives, representative vehicles from luxury car segment were selected for a comparison exercise: Toyota Mirai for FCEV and Mercedes CLS for Internal Combustion Engine (ICE) vehicle. Technical characteristics of these vehicles could be found in Appendix A.
In order to allow for a fair comparison of incentives across countries, the following assumption is made: the selected vehicle models are available in all countries under consideration and vehicle prices (excluding taxes and subsidies) are identical to the vehicle base price in Germany. But really, the vehicle prices and availability vary in different countries according to the manufacturers’ model and pricing strategies.
The comparison of incentives is based on simulation of vehicle-related costs for the two representative vehicles within existing legislation in favour of ZEV.3 The summarised data on CO2-related vehicle costs are available in tax overviews (ACEA, 2014; ICCT, 2014) and ZEV legislation, which is specific for each country.4
Impact on the consumer
In order to address consumer, State put in place a wide range of incentives at the moment of vehicle purchase and maintenance. The consumer could perceive the effort of State promoting ZEV by attributing the advantage to the initial investment (possession price) or to the dynamic component of TCO (running cost):
Total Cost of Ownership (TCO) = Possession price + Running cost
TCO is calculated according to a standard approach and is equal to the sum of annualized Possession price and annual Running cost.
Possession Price is the sum of vehicle base price, VAT and registration tax. The annualized Possession price (I) is calculated as: ! = ! »#$##% »& ! »#$% ∗ (!!!! ») ,
where ! = !!! is a discount factor. The discount rate r is assumed to be equal to 4%.
Running Cost includes maintenance cost in parts and servicing, fuel cost based on the vehicle fuel economy and mileage, and vehicle annual taxes. The annual insurance cost is supposed to be the same for ZEV and ICE.5 The annual Running Cost is estimated for one year of vehicle use (10,000 km). Assumptions on technical characteristics of vehicles (notably, fuel consumption) and on fuel prices are detailed in Appendix A. The maintenance of FCEV is supposed to be 20% less expensive than the one of ICE, because of less rotating mechanism in the electric engine and absence of oil (McKinsey, 2010).
This static evaluation suffers less from the uncertainty related to future policy evolution and future fuel market prices, compared to studies evaluating dynamic indicators, like 4-years total cost of ownership (Mock & Yang, 2014). Indeed, it is difficult to predict the exact date and nature of change in future policies targeting ZEV and its medium- and long-term impact. Moreover, fuel price itself is subject to a high uncertainty related to volatile market conditions and hardly predictable exogenous shocks.
State intervention
The effort of the State promoting FCEV could be evaluated with its financial participation. This financial effort often aims to balance TCO between FCEV and its ICE substitute. TCO could be affected through the following policy instruments:
– Direct subsidy in order to increase ZEV affordability and reduce a price gap between FCEV and its ICE substitute. It could be evaluated with the amount of subsidy or ecological bonus;
– Advantage in one-time purchase or registration taxes. It could be evaluated with an opportunity cost: amount of ICE taxes or TVA in certain countries, which could be received if ICE vehicle was introduced instead of FCEV;
-Advantage in annual taxation. It could be evaluated in the same way as advantage in one-time vehicle-related taxes.
One of the main motivations of State introducing FCEV is to reduce current and future CO2 emissions. For this reason Static CO2 Price could be a suitable indicator to evaluate an initial State’s commitment to promote FCEV. However, this indicator does not take into account all the advantages of state promoting ZEV: job creation, oil import independence, etc. (Cambridge Econometrics, 2013).
Table of contents :
Introduction
Chapter I Transition Towards a Hydrogen-Based Passenger Car Transport: Comparative Policy Analysis
Chapter II Defining the Abatement Cost in Presence of Learning-by-doing: Application to the Fuel Cell Electric Vehicle
Chapter III The Role of Learning-by-Doing in the Adoption of a New Green Technology: the Case of Linear LBD
Academic Conclusion
Industry Collaboration
Industrial Conclusion
Bibliography
