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Accenture report finds that China may scale deployment of disruptive transport technologies faster than US but that US is more likely to generate a breakthrough solution

19 January 2011

China could lead the efforts to roll out electric vehicles and deploy disruptive new transport technologies at scale more quickly than the United States, according to a new report by Accenture that compares the two countries.

However, the US will be better placed to create new innovations across many platforms (advanced combustion engines, electric and advanced biofuels) that can be integrated into the existing fuel supply infrastructure, according to the report. The US, for example, could lead a global biotechnology-based agricultural revolution that will generate a greater range of biofuel breakthroughs.

Who will win the race? The oversimplified short answer is that, assuming continued long-term government support for alternative energy and allocation of funds to R&D and deployment, our expectation is that China will be able to achieve its targets faster, but in a narrower field of technologies. While the United States may be slower in its development, its openness to new and disruptive technologies is more likely to generate a breakthrough solution.

The assumption of continued government support (however fragmented, in the case of the United States) is critical. The scale of funding needed to deliver the capital projects that will deliver these new fuels and infrastructure is enormous. However, investment will come only if policy signals are clear and long-term. But assuming this policy stability, the current activity in the United States and China will fundamentally change the future of transportation fuels.

—The United States and China: The Race to Disruptive Transport Technologies

The report, The US and China: the race to disruptive transport technologies, concludes that China’s state-backed focus on electric vehicles (EVs), its domestic supplies of lithium and current battery production capability will give it a competitive advantage over the US in EVs. The US’ market led-approach will result in a more gradual development of new technologies.

The rise of new fuel technologies and greater fuel efficiency will give both countries greater energy independence. The reduction in gasoline demand in the US could be up to 22 billion gallons per year by 2030 if vehicle miles travelled (VMT) remained roughly the same as today, according to an Accenture scenario analysis.

This could cut crude oil imports by 1 billion barrels per year, a 34% reduction from the 3.3 billion barrels imported in 2009. China, which imports over half its petroleum demand, could reduce its crude oil imports by 676 million barrels per year by 2020, a drop of 21% from today, according to the report.

The rise of new fuels will have a negative impact on the US refining industry, the report finds. Increased fuel efficiency standards and the blending of biofuels could replace more than 30% of US gasoline and diesel demand by 2030 relative to 2010 if VMT stays the same. The reduction in gasoline demand will impact US refineries currently configured to maximize gasoline production and favor those refineries that can more easily adjust their product mix.

In China there will be no losers, the report says. Even though China intends for alternative energy to make up 30% of transport fuels by 2020, Accenture estimates that car ownership will almost triple between now and 2020 to approximately 200 million, creating growth for the biofuel, EV and oil industries.

The US already has a competitive advantage in agriculture and conditions that make it the home of completely new technologies, but China’s policy decisiveness will allow it to scale specific new transport technologies more rapidly. However, these respective strengths will not guarantee long term competitiveness and policy makers and investors in both countries will need to put in place major structural changes to ensure their industries adapt and can compete globally.

—Melissa Stark, global lead of the Clean Energy Practice at Accenture

Implications for US competitiveness include:

  • New transport fuels will make the US refining industry less competitive in the face of falling gasoline demand and crude oil imports. This structural change in fuel demand will favor larger, more complex refineries with lower marginal costs and production flexibility to make different product slates including “fuel switching” or the ability to incrementally increase diesel production (or gasoline) if demand dictates.

  • Disparate federal funding will disadvantage the US. Although the government has committed billions, the support is spread across many technologies, versus approximately $15 billion the Chinese Government has committed to EV deployment for the next 10 years.

  • The US EV industry faces strong competition from China, Japan and Korea which already account for 60% of the US’s rechargeable battery imports. The US will depend almost entirely on lithium imports from Asia and Latin America (China supplies a fifth of the world’s batteries and its reserves of lithium can support 450 million vehicles).

Implications for China’s competitiveness include:

  • China’s progress in new fuels could be constrained by supply chain bottlenecks, such as feedstock availability for cellulosic ethanol and high battery unit costs. Financial incentives will need to be more precisely targeted to these specific parts of the value chain.

  • China’s investment and policy-driven approach will need to be supplemented by more consumer oriented business models and innovation that build on a greater understanding of consumer demand.

  • China must supplement its advantages in rapid implementation with greater investment in core technology innovation. More transparent IP processes, talent strategy and incentive policies are required to attract funding of new fuel industries.

The US has to manage the transition of its legacy infrastructure to one that will accommodate new fuels to ensure that this transition occurs at the lowest possible investment cost. The US does not have a blank piece of paper while China, in many ways, does. China’s challenge is to balance implementation with innovation if it is to compete well in the long term race for new transport technologies. Both countries need to leverage their respective advantages.

—Melissa Stark

Other key findings of the report include:

  • Greenhouse gas reduction, although important, is not the key driver in either country. As Accenture has discussed in past studies, what is important for governments is the domestic agenda and setting policy that balances three key objectives: energy security, improving economics and climate change.

  • Trading relationships and trade flows will change. The ramifications of these technologies scaling could lead to potential shifts in power around the globe and a changed picture of trade with and between the United States and China.

  • Opportunities exist for US and China collaboration. Considerable overlap exists between the United States and China interest areas around alternative transport fuels. Increased collaboration could strengthen relations and/or create increased mutual co-dependence between the two countries. The Joint US-China Collaboration on Clean Energy (JUCCCE) is one example.

The Accenture report also provides recommendations for oil companies and electricity utilities to exploit new opportunities. For oil companies, these include reviewing operating models to create closer links with agriculture to secure supply of biofuel feedstock, and the disposal of marginal assets that hold back competitiveness. As China’s oil companies expand globally, they will need to improve their merger and acquisition strategies and post merger implementation.

Accenture also recommends that electricity utilities proactively manage the opportunities and challenges presented by electrification of transport. Given uncertain consumer demand, utilities will have to improve their understanding of consumer preferences for EVs to mitigate the high risks associated with infrastructure investments.

Electricity distributors should also increase low voltage energy storage investments to mitigate the volatile demand of EV charging and the intermittent supply of renewable energy. Proactive management on this level will further position utilities to capture market opportunities related to electrification of transport.

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January 19, 2011 in China, Electric (Battery), Engines, Forecasts, Fuels, Policy | Permalink | Comments (11) | TrackBack (0)

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Comments

The willingness to innovate and produce products cheaply will give China the advantage in producing cheap electric automobiles. The belief of radical environmentalists in the US that more energy cannot be used and their other beliefs such as prevent all mining and energy production in the US will eliminate any industrial activities from the US. Then the Mexicans and the US citizens can go to China to find jobs. ..HG..

There are major differences driving future innovations in USA and China.

1. China's very large population to feed will restrict the use of agriculture based fuels. That is a positive situation because agriculture should not be used to feed gas guzzlers.

2. USA's smaller population will (does) unfortunately allow the use of corn and other edibles to produce liquid fuels. Continued use of food stocks for liquid fuel will put more and more pressure on all food price. Food price could go up at a much faster unacceptable rate.

3. Decision making in China is much faster and for longer terms due to a very different political system.

4. Decision making in USA is a the mercy of speculators and lobbyists, is very slow and is very short term.

5. China will progressively replace imported crude oil with e-power from 100+ new nuclear plants.

6. USA will talk about new nuclear plants for the next 50 years but very few will be built due to objections from oil, coal and corn lobbies.

7. China is introducing, in a single decade, 30,000+ Km of new high speed e-trains with more to come.

8. USA will talk about high speed e-trains but will not build more than 500 km in the next 10 years or.

9. USA is talking a lot about e-vehicles, but with the exception of Tesla's 1000 units, not many are being built.

10. China has already built 1000 times more e-vehicles.

11. China's economy is growing at double digit rates while USA's is closer to zero to two percent for the last 10 years.

This list could go on for many pages.

I think you will be shocked at what happens in the us over the next 40 years. I think everyone is greatky underestimating what americans can do when they finaly decide what they realy wana do.

Oh my... The politically correct editors (or CCP agents)at GCC completely removed my comment. Progressive.

All I said was - China is a basket case when it comes to passenger EVs. Their only EV built by battery maker BMG has gone belly up before it got started.

The passenger EV industry in China is in such bad shape the CCP government has just contracted with GM to build the official EV using GM technology. And the top selling cars in China are a big luxury sedan made by Buick.

Gentlemen, the first sign of a failing society is censorship. You ought look deep into the psyche that is unwilling to hear the opinions of others.

Errata: BMG should be the battery maker BYD...

Yes, censorship seems to happen quite a bit, especially if you are trying to explain the nuances of market based economies.

Anywho, I tend to agree with Harvey in this instance. Our government is an inbred organization that fights all day about social matters, the color of one's skin, and who's the biggest victim in the US. We spend about 2T a year on socialism and debt interest, both of those budget items divert money from the most important transportation tasks we have before us. Our government has failed to inform the people how serious our balance of trade issues are. Our representatives say dumb things like high oil prices will fix our balance of trade and create create green jobs. The volatile oil spike in 2008 sparked a liquidity crisis that collapsed our over stimulated housing sector, and created 10% unemployment. Our military spending is geared too much towards equipment stockpiling and logistics, instead of technological development.

We can have alternative energy before this decade is out, imo. The question remains whether people will use green energy has a technological imperative to inspire people to change their consumptive habits and use their imagination to create new technologies and products, or whether people will continue to abuse green energy as a segue for social engineering legislation and social control.

Here are a few unanswered questions about USA's future innovation implementation.

1) Will using more food stocks to produce liquid fuels double or triple food prices in the next 3 to 5 years.

2) How many Americans will be able to afford much high food prices and what will they have to cut to compensate? What effects will it have of their standards of living.

3) Will resistance to changes and coal-oil-corn lobbies delay mass production of electrified vehicles by 10 to 20 years?

4) Will resistance to change together with interested lobbies and speculators extend the mass production of large gas (or NG) guzzlers for another 50 years?

5) Will more and more USA innovators take their ideas and technologies to Asia to be mass produced?

6) Will USA have to import its own innovations from Asia?

7) Will USA be able to support continued higher trade deficits for decades without drastic effect on the value of the $$.

8) Will USA wake up and embark on the current worldwide electrification revolution before it has fallen too far behind.

9) Will USA be able to update its own political system before speculators and lobbyists have drained it of most of its assets.

10) Are Americans ready to face realities and to do whatever is required to change old and current ways to better compete in a growing world economy.

I am not convinced that it is a US vs China ballgame. The whole asian subcontinent is ripe for infrastructure, technology, consumer upsurge and wealth generation. The US is a more stagnant EU-like alsoran - which is fine. Like a retiring worker after a long, productive life, the US should just enjoy the fruits of its labors by buying Asian manufactured goods based on a nice personal income of services, hobby-farming, and tourism. No need to get your hands dirty anymore US. The blue collar world is beneath you - leave it to the younger and faster societies to break their backs on manufacturing and environmental degradation. Time to retire the pride and live the good life.

China - young??? The Xia Dynasty claims to begin in 21st century BC... The Great Wall was begun in 221 BC.

No. China is OLD. That's O-L-D. And tired. And desperately in need of new ideas. But they have serious problems grasping those ideas and ways to implement them:

http://www.autoblog.com/2010/10/27/big-trouble-in-little-china-byd-profit-falls-99-percent/

IF they have the capacity to be honest, they too can recover. But stealing technology, censorship, and abuse of Human Rights will keep them nowhere.

The pendulum is moving for both nations but in different direction. One is on the up swing and the other is on the downward swing. The next change in direction may be in one or two centuries.

Although new types of vehicles are promising and can recreate our roadways, I see the US producing much higher quality, more fuel efficient cars in the interim period, mastering further the internal combustion engine. While those in the appropriate areas work on new kinds of engines, it wouldn't hurt to improve our current gasoline engines, such as I have suggested and found a way to do, as I state in this video: http://www.youtube.com/watch?v=YNsR8Aip0MA

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