MIT Study: Widespread Acceptance of Alternative Fuel Vehicles Will Require Decades of Subsidies and Targeted Programs
2 June 2007
A study by MIT researchers concludes that marketing programs and subsidies will need to be in place for decades in order for the adoption and long-term market penetration of alternative fuel vehicles to become significant and self-sustaining.
Jeroen Struben and John Sterman of MIT’s Sloan School are developing a behavioral, dynamic model to explore the possible transition from internal combustion engine (ICE) vehicles to alternative fuel vehicles (AFV) such as hybrids, plug-in hybrids, natural gas vehicles, flex-fuel vehicles and hydrogen fuel cell vehicles.
Results show that there is a tipping point in the diffusion of AFVs: successful adoption of alternative vehicles requires policies, such as subsidies for alternative vehicles and fueling infrastructure, that persist long enough to push the AFV installed base over a critical threshold. Efforts falling short of the tipping point will not lead to sustained adoption. We show that the time required to achieve self-sustaining adoption is long—on the order of several decades—primarily due to the long life of vehicles.
Current alternative fuel vehicle technologies face a number of significant challenges that the gasoline internal combustion engine did not when it emerged in the market more than a century ago in competition with steam and electric vehicles.
The current enormous size of the automobile industry and support infrastructure creates a wide range of powerful positive feedback processes, including vehicle improvements and cost reductions driven by scale economies; R&D; and improving vehicle performance, sometimes through the spillover of innovations developed for alternative fuel vehicles to the dominant ICE platform.
More subtly, the current low functionality and high cost of alternatives, and low gasoline taxes, are endogenous consequences of the dominance of the internal combustion engine and the petroleum industry, transport networks, settlement patterns, technologies, and institutions with which it has co-evolved. The success of internal combustion suppresses the emergence of alternatives, maintaining the dominance of ICE.
These feedbacks mean, as we argue here, that achieving self-sustaining adoption would be difficult even if AFV performance equaled that of ICE today. The challenge facing policymakers seeking to promote a transition to sustainable alternative vehicles is how to overcome the barriers created by these feedbacks.
The researchers suggest that the potential for self-sustaining adoption of AFVs may be greater in developing markets such as China and India where the installed base of ICE vehicles is smaller and growth is faster. Growth in the total vehicle market speeds adoption of AFVs.
The mature markets of US, Europe and Japan, however, face greater challenges, especially given the long life of vehicles. Policies aimed at removing older ICE vehicles from the market therefore could have high leverage, the authors suggest. A sustained increase in the price of oil might stimulate sufficient adoption of AFVs to push past the tipping point, they note.
The long time required for the AFV market to develop in the simulations, however, suggests that a successful transition to AFVs will likely require policies that raise the real price of gasoline to levels that reflect its fully internalized cost, thus providing the persistent incentive favoring AFVs needed to reach the tipping point.
This research was supported by the Project on Innovation in Markets and Organizations at the MIT Sloan School of Management, the National Renewable Energy Laboratory and Shell Hydrogen.
“Transition Challenges for Alternative Fuel Vehicle and Transportation Systems” (May 2007); Struben, Jeroen J.R. and Sterman, John; MIT Sloan Research Paper No. 4587-06
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