Does Anyone Really Know How Much Electricity Goes into Cars?
There are lots of government policies that economists like to roll their collective eyes about and use as examples of bad incentives in economics textbooks. In many cases these policies are well intentioned, and may even be the best option in a second (or third, or fourth) best policy world, but we just can’t let it go. For many environmental economists, the Low Carbon Fuel Standard (LCFS) provides just such a target-rich environment. A wide list of criticisms have been made by Holland, Hughes, Knittel and others, but these high-level concerns can at times seem abstract.
Periodically, however, one comes across details about the implementation of a policy that can take you through-the-looking-glass and starkly illustrate what economists have been complaining about. One such case is the relationship between two of economist’s favorite boogeymen: the LCFS and incentives to drive electric cars.
The LCFS is intended to transition an economy from petroleum-based transportation fuels to alternative fuels that have a lower carbon-intensity (CI). One criticism of the LCFS is that it targets only one element of transportation-based carbon emissions; the CI of the fuel. It doesn’t reward driving a more fuel-efficient vehicle. It doesn’t reward driving less. In fact, in some cases it can reward driving a less efficient vehicle more often.
The LCFS works by charging firms for selling high CI fuels (fuels whose carbon content is above the standard) and using those funds to reward firms who sell lower CI fuels (whose carbon content is below the standard). In theory, competition would force sellers to pass this value on to customers in the form of lower fuel prices, thereby increasing demand for lower CI fuels and the vehicles that can use them.
Gasoline is a high carbon fuel. Electricity is a low-carbon fuel, but only when it is used in vehicles. Firms that sell gasoline pay a surcharge for LCFS compliance. Firms that sell electricity earn credits, when the juice goes to transportation. This is where the trouble starts. For most EV owners who charge at home, no one actually knows how much electricity goes to transportation. Most homes have just one electric meter, and it is costly to put in a separate service dedicated to vehicle charging.
Despite this lack of information, LCFS credits are being awarded every year to electricity distribution companies. PG&E just held an auction to sell off 65,000 of them. How does the State know how many credits PG&E should get? It appears that it assumes that the juice used by the handful of vehicles that do have their own meter is the same, on average, as that used by each of the other EVs. If you take the average daily charging of the metered vehicles, and multiply that by the number of vehicles in a distribution company region, then you get the amount of electricity that is assumed to be distributed for the purposes of home EV charging.
All sorts of potential problems can result. The metered vehicles are not a random sample. EV owners who do the most home charging have the most incentive to pony up for faster charging units and dedicated meters. And utilities may have an incentive to put the heavy charging vehicles on meters and keep the lighter ones off them. What if the metered vehicles are all long-range Teslas and the non-metered ones are all less-used Leafs? Or what if the metered vehicles do all their charging at home, and others utilize remote charging far more often? This system could also subtly disadvantage commercial EV charging operations, whose output is fully measured and (I would hope) isn’t going into DVRs.
Now, a reader may be tempted to say that EVs are still a small share of the transportation market, and a small fudge of the accounting can’t matter that much in the big scheme of things. Even if this overstates the value of EVs, this can help accelerate their adoption. If those arguments sound familiar, it’s because they were (and continue to be) made in defense of net-metering of residential solar systems. Those small fudges have grown to the point that we now talk about the uncertain financial future of distribution utilities.
How much money are we talking about? A Leaf, driven 12,ooo miles, uses about 3600 KWh per year, a Tesla probably about 4500 KWh per year. At a $100 LCFS price, the subsidy amounts to 8 cents/KWh. This, by the way, is about the marginal cost of electricity in California. If California reaches its goal of 1.5 Million EVs by 2025, that could mean upwards of $500 million in LCFS credits going to EV “fuel” that is poorly measured and possibly manipulable. Maybe EV credits for distribution utilities constitute a regulatory “make-up call” for net metering.
The only way to really know how much juice is going into the vehicles would be to either require separate meters in every home with an EV, or (my preference) have each EV submit to an onboard computer meter-read once a year. One could get an odometer reading off every vehicle, but not all miles travelled use the same amount of juice. The differences can be large. However, even if we can establish a system that accurately measures the juice going into a car, that may not guarantee that this would measure the juice going to driving. If there is enough of a rate difference, folks could get very creative with the home appliances they run through their car.
What this discussion illustrates are two of the shortcomings of the LCFS. First it applies only to one sector (transportation) and only the fuels content of that sector. Second, it subsidizes the consumption of carbon-creating energy, if that energy is used in transportation. Electricity used for plasma televisions is bad, creates carbon, and is discouraged by CA policy. The same electricity used for driving a quarter mile up the block for milk, with the AC blasting and the windows open is good, and rewarded by CA policy.
These inconsistencies may be tolerable at small scales, but as the transportation system integrates with the electricity and natural gas systems, regulating the same energy in different ways depending upon its usage will be untenable. If only there were policies that could reward and penalize fuel sources consistently, no matter what their use was…..
[Thanks to Nick Bowden from the TTP program at UC Davis for collecting a lot of the policy details in this post, any errors are my own.]
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It should be highlighted that PG&E offers EV owners with a residential electric account a unique rebate funded through the Low Carbon Fuel Standard. Rebate is called the Clean Fuel Rebate program.
Additional information located at their website at https://www.pge.com/en_US/residential/solar-and-vehicles/options/clean-vehicles/electric/clean-fuel-rebate-for-electric-vehicles.page?WT.mc_id=Vanity_cleanfuelrebate-ev
Our Fiat 500 EV has used only 3,000 kwh for 13,000 miles (over two years). Now I’m trying to figure out how, as Jim says, to run home appliances through the car. 🙂
Good points about the need to meter loads more precisely and differentiating between grid sourced electricity and on-site solar, etc. Some technologies already exist out there – e.g.. a series of smart-grid EV charging systems from emotorwerks.com, etc. [disclosure: I work for the company – would be happy to answer any questions via PM]. Some cool things already done with this tech – CO2 minimization of EV charging based on marginal CO2 emissions by CAISO generators: http://spectrum.ieee.org/energywise/energy/the-smarter-grid/watttime-the-tool-that-tells-you-when-to-charge-your-ev-to-keep-it-green
At least to the degree that the LCFS promotes EVs, we can expect GHG reductions in CA.
The problems with the LCFS, however, are much more fundamental: a fuel system doesn’t have a meaningful carbon intensity “property” in the first place.
Consider the main “low-carbon” fuels used in the LCFS: land-competitive biofuels. This class of fuels potentially induces land-use change (LUC) emissions, but quantifying this is a wicked problem requiring a highly precise prediction of the net change in global emissions (the numerator) mediated through global markets over 30 years (in the CA method), which will vary with assumptions about future policies, crop yields, climate feedbacks, technology change, and so on, as well as estimating how much fuel will ultimately be associated with a given increment of LUC (the denominator). Change any number of assumptions and you can flip the sign of benefits for a fuel system. Modeling corn ethanol in the GCAM model, for example, can produce results ranging from ~10 to ~150 g CO2e/MJ over a range of assumptions. And there’s no way to be sure this range includes the correct value.
This isn’t just a biofuel or LUC problem, either. LCAs by different analysts routinely produce results for the same nominal system, and most of these results are not actually predictive of environmental outcomes because they exclude market-mediated effects and estimate average rather than marginal emissions.
In my experience, it’s been difficult to get some economists to recognize this fundamental problem. The critiques have (naturally) focused on economics, while taking the fuel ratings at face value. Perhaps the belief in performance-based regulation runs so deep that the need for a meaningful performance metric is overlooked. I’d love to hear back from economists on this.
(FWIW, see http://www.plevin.com/publications for papers on all of the above.)
Right on, Rich. But you’re too polite. You say, “a fuel system doesn’t have a meaningful carbon intensity ‘property’ in the first place.” I’ll restate that point more bluntly: The CI “regulated” by the LCFS is an utterly fictitious notion. Indeed it is an example of a fallacy of reification [https://en.wikipedia.org/wiki/Reification_(fallacy)].
So what we have here from yet another well-meaning economist is a discussion that treats a figment of LCA modelers’ imaginations as if it were a widget, i.e., a tangible quantity that has some measurable meaning in the real world. A CI does not.
That won’t prevent the policy from having perverse effects of the sort described. But it does mean that the LCFS may well be worsening GHG emissions in addition to whatever financial shenanigans it might foster.
It would be great to see an economist team with a physical scientist (who can help the economist measure the key quantity of concern, which is actual physical tons of CO2) and perform an evaluation of the tangible GHG impacts of the LCFS to date insofar as they are directly estimable. Some crucial ones are directly estimable even though a full impact assessment still requires modeling many significant induced effects as Rich notes. My educated guess is that a bounding analysis will reveal that the LCFS has worsened net GHG emissions relative to a no-LCFS counterfactual scenario, although how much it has increased emissions will be highly uncertain. But one may well be able to fairly confidently reject a hypothesis that the effect of the LCFS was either zero or beneficial for GHG mitigation.
It seems to me that this discourse ignores entirely the environmental benefits if the electricity source is solar, particularly if it is coming off the residential roof. This sounds too much like a pitch for the fossil fuel industry. Tell me you are not being subsidized please.
Has anyone compared the annual sales of certain EVSE charging companies, like Chargepoint, Blink or EVgo with the amount of sales claimed by the utility? It might be an interesting point of comparison to tie back to the LCFS, since these EVSE companies often buy electricity directly from the utility and resell it to the EV owner.
I really appreciate this blog, and most of your posts, James, but don’t really buy this one. It seems like a typical economic perfect-enemy-of-the-good argument. A comprehensive carbon cap is of course more efficient than a transport-specific policy. However, most transport emissions abatement (especially from fuel switching) has too high a marginal abatement cost to be triggered by an economy wide cap. One could surely argue that this abatement therefore shouldn’t occur, but in a state where almost 40% of emissions come from transport, it’s worth having sector-specific policies that will start to push that needle in the near-term. LCFS isn’t being implemented instead of a carbon tax, it operates alongside one to push some abatement into transport fuels. The comparator isn’t a carbon tax, as you imply, but the federal Renewable Fuel Standard (and it’s EU cousin the RED). I hope you’d agree that the LCFS is a far better approach.
Sure, assigning default kWh values to EV charging is imperfect, but not massively. Someone at ARB presumably decided it wasn’t cost effective or politically attractive to require separate metering for now. In the future, we’ll probably have a system to meter EV usage, but not because of LCFS; we’ll have such a system so that we can use price signals and smart tech to manage EV charging to provide stability and renewables penetration on the grid. We also don’t tax EV charging to pay for roads as we do gasoline – a probably regressive transfer from ICE owners to EV owners.
I think the solar analogy is apt; we’ve been subsidizing rooftop solar directly, and by not charging its owners for the grid they depend on, but the arguments you point out about solar and net metering are good ones. We have come to a place where that technology is mature enough that we need to be thinking about the other problems (duck curve, utility business model shifts, etc) associated with it, but that’s not a reason not to have supported its development.
Policy makers tend to be pretty myopic, particularly if they can claim victory in the short term and the escape blame for the long-term detrimental impacts of their short-term folly. For their part, consumers are quite adept at exploiting any loopholes in the rules, and they’re almost as good at pushing the envelope of what’s ethical when taking advantage of government largesse.
Finally, It seems to me that California simply cannot resist setting up as many “incentive” mechanisms, each with its own set of mind-numbingly complex administrative rules, as it possible can. Of course there’s plenty of overlap and many of the mechanisms are in conflict with one another. It makes a lot of work for bureaucrats, analysts and consultants but as Jim’s article points out, I’m not so sure it helps achieve the policy objectives.
Massachusetts in its implementation of its Global Warming Solutions Act (GWSA) via Gov Charlie Baker’s Executive Order 569 is wrestling with just these questions. They understand they need to decarbonize the transportation sector via electrification. This may not be as relevant to your post as this is being done by administrative order, although incentives are intended to be a big part of it, e.g., https://mor-ev.org/.
However, what you point out applies to other zero Carbon sectors. It is known (no ref handy; it’s at home) that people who have solar panels tend to be less conscientious about energy efficiency than others. This is part of the argument in favor of feed-in tariffs versus net metering, as long, of course, as benefits to grid and everyone else is fairly reflected in the tariffs.
However, realistically, taxes and penalties for use of bad things are very unpopular these days, and their effect depends upon the elasticity in the price for the product penalized. Incentives and rewards less so.