The new study by David Greene, Sangsoo Park and Changzheng Liu is a follow-on to their earlier analysis of the transition to electric drive vehicles in California. That study concluded that, given market assumptions from a National Research Council study, benefits would likely exceed costs by roughly an order of magnitude.

However, that earlier study also found that targeted, temporary transition policies would be required; internalizing external costs alone would likely be inadequate. The new report follows up on that analysis by estimating the effects of the timing and intensity of policies, and also adds uncertainty about technological progress to the prior study's analysis of uncertainty about market response.

The new report is based on a scenario in the first report in which the ZEV standards are enforced through 2025, continued at the 2025 level through 2030, and then ended. The rest of the US is assumed to follow the lead of California, adopting similar policies and deploying refueling infrastructure, but five years later than California.

The new study explores four issues raised by, but not addressed in the earlier work:

1. Quantifying the effects of network external benefits and other positive feedbacks over time;

2. Measuring the effect of the timing of transition policies on the transition’s net present value;

3. Measuring the effect of the intensity of transition policies on the transition's net present value;

4. Quantifying the effects of uncertainties about technological progress and market behavior on the net present value of the transition.

For the analysis, the researchers used the Light-duty Alternative Vehicles and Energy Transitions (LAVE-Trans) model; this was also used in the NRC report. At the heart of the model are consumers’ choices among alternative drive-train technologies. Choices are influenced by prices and attributes of the technologies as well as their familiarity and availability of fuel. Price is a key factor.

The authors calibrated LAVE-Trans to the 2011 Annual Energy Outlook Reference Case projections of vehicles sales, vehicle use, energy use, and energy prices.

Among the other findings of the analysis were:

• Simulation of uncertainty about both technology and the market produced positive net present values in more than 90% of the runs. Mean net present value was approximately $600 billion

• The frequency of negative outcomes was less than 10%, despite a tendency to overestimate costs.

• 90% of the simulations showed annual losses through 2020. Expected annual values became positive only in 2025.

The transition to electric-drive vehicles is a massive endeavor that requires special public policy initiatives beyond those normally required to address environmental problems. while it is highly beneficial in both the short and the long run to internalize external costs, there is an additional need for temporary policies to overcome transition barriers by inducing positive feedback mechanisms. Vehicle subsidies or regulatory requirements and deployment of infrastructure are critical components of transition policy.

Policies must be implemented in the face of substantial uncertainty as to their outcome and, thus, should be modified over time as knowledge is gained and circumstances change. Provided that electric drive technology progresses as the NRC “Transitions” report anticipates, the temporary transition policies can be ended after a decade or so, leaving in place a self-sustaining electric drive vehicle market.

The risks of the transition to electric drive can be reduced by improving knowledge of transition barriers and processes, and by periodic reassessment and adaptation based on what has been learned. The limitations of current knowledge and analytical tools together with inherent uncertainty about future markets and technology imply that results of analyses such as this one should not be considered definitive. On the other hand, given the premises, assumptions and representation of likely uncertainty described in this report, it appears that the reward of a transition to electric drive vehicles are likely to justify the cost of the effort several times over.

—Greene et al.

Resources

• David Greene, Sangsoo Park, Changzheng Liu (2014) “Transitioning to Electric Drive Vehicles: Public Policy Implications of Uncertainty, network Externalities, Tipping Points and Imperfect Markets”