How Hawaii can Win the Oil EndGame
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How Hawaii can Win the Oil EndGame
The United States
can get completely
off oil and revitalize
its economy—led by
business for profit
States are the
laboratories of
change that will
bring this about
Hawaii is well
positioned to be
among the leaders
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 1
Winning the Game: restoring competitiveness and
eliminating oil dependence
National competitiveness and national security at risk
Why should we care?
– Japan, EU, China will eat Detroit’s jobs for lunch
– Energy insecurity, price volatility, and climate concerns, perhaps depletion
– Save net $70 billion/yr by 2025, create 1 million net jobs
How do we win?
– Reduce congestion through mass transportation and smart planning
– Efficient end-use can save half the oil at $12 a barrel
– Biofuels substitute for another fourth
– Longer term: the hydrogen transition fueled by saved gas
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 2
Existing technologies can save 26% of oil use cheaply ($6/
bbl), and State of the Art technologies could save 52% of
2025 oil for only $12/bbl
Oil Saved by Full Deployment in 2025 (Million Barrels/Day)
$50
Conventional Wisdom (Avg.
CSE = $6/bbl)
(2000 $/bbl RAC on the short-run margin)
State of the Art
$30
(Avg. CSE = $12/bbl)
EIA 2025 Crude Oil
Price
Cost of Saved Energy
$10
0 5 10 15
-$10
25% of 2025 50% of 2025
Baseline Use Baseline Use
-$30
-$50
-$70
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 3
Given the barriers to efficiency, what is the role of state
government?
Four Major Market Failures
Most customers have very high implicit
discount rates when buying energy efficiency
Most equipment/vehicle makers and their Government can
customers, even sophisticated ones, lack accelerate market
good information on alternatives, especially in adoption by:
end-use efficiency
Stimulating Demand
Oil is priced below its societal cost
Setting an Example
– Externalities include military/security,
environmental, net subsidies, and Providing better
diplomatic/geopolitical information
The “Creative Destruction Problem”:
Organizational and cultural and institutional
obstacles make it difficult for large companies
to adopt disruptive innovations
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 4
To get real security, Hawaii needs to back out the entire
barrel of crude oil
Hawaii Fuel Use Model
Total Petroleum Usage in 2003
(MM Barrels)
Residual Fuel
13.2
Motor Gasoline
10.7
Jet Fuel
15.5
Crude Oil
Imports Distillate Fuel 7.2
Refined
Products
48.6 MM barrels LPG 0.6
– 22% US
– 78% Foreign
Asphalt* 0.3
Other Products
Imports
(000s barrels) 0.1
Lubricants*
7.9 MM barrels
- 40% US 0.9
- 60%Foreign Other
48.5
Sources: DBEDT (2004), *EIA
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 5Hawaii’s has a unique situation: passenger vehicles
represent 80% of the fleet and 50% of new cars are rental
vehicles
Vehicle Fleet – State of Hawaii (2003)
Total Cars Registered (000s): 1,045
– Passenger: 828
New Cars – Light Trucks: 115
– Heavy Trucks: 60
Passenger: 35,927 – Trailers: 26 Scrappage (3)
Trucks: 9,127
– Motorcycles: 11
Vehicles: 65,000
Miles Driven (MM miles): 9,058 (1)
Rental Cars
Average fleet efficiency (mpg) 20.8 (2)
Passenger: 37,525
Motor Fuel Equiv. Consumption (MM gallons): 434
Trucks: 349
Notes:
(1) Miles driving based on average 9.058 miles driven per year by vehicle – assumes all vehicles except trailers and vehicles subject to scrappage
Source: 2000 Hawaii Strategy Plan, DBEDT
(2) Based on overall fleet except for trailers in the State of Hawaii in 2000. Source: 2000 Hawaii Strategy Plan, DBEDT
(3) Scrappage based on US national scrappage rate of 75.3% of new registered vehicles
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 6The energy cost burden to the state will increase: Hawaii will
consume 510 MM gallons/y of motor fuel by 2024 (17%
increase)
Hawaii Estimated Consumption of Motor Fuel
Base Case – If Light Vehicles Reach Equivalent Penetration Rates as National Average
600 Hawaii Cumulative Fuel Consumption through 2023: 9,507 MM gallons
Commercial Fleet
Annual Consumption of Gasoline Equivalent
500
Light Duty Trucks
400
(MM Gallons)
300
Passenger Vehicles
200 Fleet Fuel Efficiency 2004: 20.8 mpg
Fleet Fuel Efficiency 2024: 26.0 mpg
100
0
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
(1) Assumes scrappage rate of 75.40% of new registered vehicle. Source: NADA.org
(2) Assumes growth of vehicle fleet of 1% per year
(3) Based on expected distribution of 79% passenger vehicles, 17% light trucks and 4% commercial/heavy vehicles. Source: HI Strategy Report 2000
(4) Assumes 92.6% of vehicles powered by motor gasoline, and remainder powered by diesel and LPG, Source: Hi Strategy Report 2000
(5) Assumes average miles driven per vehicle of 9.058 miles/year. Source: HI Strategy Report 2000
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 7Why Drive? Mass transportation and smart growth reduce
demand for vehicle travel
Congestion is imposing high costs to our society and our
positioning in the tourism market
Mass transit alternatives are cheaper than building more roads
and are well known, but must be funded
– Light rail on Oahu
– Bus service on neighbor islands
Tax increases should equitably support transit improvement in
all counties
Smart growth and planning to provide employee housing close
to work, solving both the transportation and the housing crisis
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 8Three options to stimulate demand for more efficient
vehicles
Policy Impact to Gasoline & Diesel Consumption
600
Annual Consumption of Gasoline Equivalent
Baseline
500
Feebate Only
400
(MM Gallons)
300 $1000 Tax Rebate
Feebate + Acc. Scrappage
200
100
0
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Motor Fuel Savings
Motor Fuel Consumption Fleet Efficiency
2004-2023
(2004-2023) MM Gallons (mpg)
MM Gallons
Baseline 9,507 26
Feebate 7,656 1,851 35
Feebate & Scrappage 6,329
8,699 3,178 40
$1000 Tax Credit 7,647 1,860 37
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 9Our finding is that feebates plus scrappage are cost effective
policy measures, so long as each sunset once the goals are
achieved
Policy Impact Benefit Costs
Cum. # New HI Gasoline
Gallons # of Add’l Vehicles Taxpayer CO2 Tax Scrappage Incentive
Saved Vehicles Receiving Savings Reduced Forgone Costs Costs
(MM) Scrapped Incentives ($MM) (Mtons) ($MM) ($MM) ($MM)
Accelerate HEV adoption up to 10%
penetration using feebates as 1,851 – 28,609 2,081 14.9 262 – 0
incentive
Accelerate HEV adoption up to 10%
penetration using feebates and
accelerate scrappage to 95% of 3,178 342,697 77,860 4,093 25.6 518 106 0
new cars (30% increase over
current rates)
Accelerate HEV adoption up to 10%
penetration using a $1000 tax 1,860 – 36,887 2,057 15.0 258 – 32
rebate as incentive
Note:
Assumes 5% discount rate, 1% inflation rate for motor fuel gasoline
Assumes scrappage program of $500 per car, and tax credits of $1,000 per HEV
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 10Policy goals & criteria
Reduce Hawaii’s oil dependency
Policy Goals
Align new-car purchaser’s incentives
with the true cost to society
Simple to understand and implement
Cost effective
Inexpensive to administer
Some Suggested Politically
Criteria Viable
Revenue-neutral
Automatic sunset
Progressive or at least not regressive
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 11Transportation Efficiency Policy Options
TOUGH CHOICES High Impact CLEAR WINNERS
CO2
Emissions Feebates
Standards
HEV/AFV Mass Transit
Tax Credits
Scrappage
Cost &
Implementation LOW HANGING FRUIT
Hard/ AVOID Easy &
Expensive State Cheap
Procurement
Increases
Gasoline
Taxes Tire Labeling
HOV /Parking
Preferences
Public
Information
Campaigns
Low Impact
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 12Traditional policy options
Provide alternative means for mobility
Mass Transportation – Critical need to reduce congestion
– Cheaper than adding more roads
LEV/HEV Fleet Percentage Quotas
Quotas – Enacted to meet emissions standards
– Hawaii scale unlikely to sway manufacturers
Increase gasoline taxes
– Reduces consumption
Pricing
– Marginally effective when prices are already high
and politically unpopular
Mandate HI government fleet new purchases
Procurement Scale – Mandate minimum efficiency for new purchases
– Demonstrates leadership
Focus Here
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 13Measures to improve existing fleet efficiency
Standardize Tire Rolling resistance and noise
labeling
Tire Rolling – 20% reduction in rolling resistance creates 5%
Resistance fuel savings in cars, and 4-12% fuel savings in
heavy trucks
– Prices are similar for low or high Crr tires
Public Information Campaign
Low Viscosity Oils – Incremental cost is 10-15%, 5% savings possible
– Mandating viscosity impractical
Public Information Campaign
Proper Tire Inflation – Proper inflation reduces fuel use 2%, 30% of tires
not inflated
Focus Here
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 14Innovative policy options
Stimulates demand for new vehicles
– Revenue and Size neutral
Feebates
– Requires exemption for federal preemption
Pay to take least efficient cars off the road
Scrappage
– Accelerates capital stock turnover
Provide Tax Credits for Efficient Vehicles
Subsidies or
Tax Credits – Make dependent on engine technology, sunset after
10% penetration rate
Implement pay-as-you-drive (PAYD) or pay-at-the-
pump (PATP) auto-insurance
– Creates marginal decrease in driving
Higher Prices via
Insurance – Both have welfare benefits from linking cost of
insurance more closely to VMT
Focus
– PATP induces switching to more efficient vehicles due
to taxation aspect – giving larger reduction
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 15Summary of State Actions
Incentive/Regulation How it Works States Using It
Feebate Revenue neutral rebate for more efficient vehicles paid DC*, MD**
for by fee on less efficient vehicles
Tax Credit or Rebate for Tax credit or rebate for the purchase of a high AZ, CA, CO, CT, DC, GA, IL,
High Efficiency Vehicles efficiency vehicle KS, KT, LA, MD, ME, MT,
Tax credit or rebate for the conversion of a vehicle to NC, NJ, NM, NY, OK, OR,
operate on AF PA, RI, UT, WI, WV
Tax Credit or Rebate for Tax credit or rebate for biofuels, CNG, LPG AR, CT, DE, HI, ND, KS,
Alternative Fuels or AF MN, MS, ND, RI, SD, TX,
Production VA, WA
Tax Credit, Rebates or Tax credits, rebates or grants for AF refueling stations CO, CT, HI, IN, KS, LA, ME,
Grants for AFV Refueling NJ, NY, OK, OR, RI
Station
Government Purchase of Funds or mandates to purchase AFVs or efficient AZ, CA, CO, DC, DE, FL,
Efficient or AFVs vehicles in state, country or school fleet GA, IA, IL, IN, KS, MA, MD,
ME, MI, MN, MO, MT, NC,
NM, NJ, NV, NY, OK, OR,
RI, SC, TX, UT, VT, WA, WI,
WV
Emissions Standards Quota based LEV or LEV standards on cars sold to CA, NY
alleviate air pollution
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 16Blueprint for Action: What the Legislature can do
Pick Up the Low Hanging Fruit
– AFV/HEV access to HOV lanes, special parking access
– Mandate state procurement of efficient vehicles
– Run state fleet on biofuel blends B20 or W85 (when available)
Fund mass transit alternatives
Leverage actions of larger states
– Alliance with other states seeking exemption from preemption on feebates
or mirror alternative legislative remedies that are not preempted
– Adopt labeling program for tires (under development in CA)
Provide near term tax incentives for HEVs and AFVs
– Provide $1,000 state tax credit from 2006-2009
– Sunset after penetration reaches 10% or feebates are allowed
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 17The $3 Billion Efficiency Prize and Real Security:
Backing out: 8 Million barrels of crude oil saved
(15% of crude imports) from efficiency alone
Efficiency Impact Reference Efficiency
% Consumption Savings by 2025
Savings Million barrels Million Barrels
Residual
Fuel 23% 13.2 (3.0)
Motor
Gasoline 28% 10.6 (3.1)
Jet Fuel 5% 15.5 (0.7)
Crude Oil Distillate
Saved Fuel >19% 7.2 (1.2)
(1)
Refined
Products
LPG 0% 0.6
8 MM Barrels
Asphalt 50% 0.3 (0.2)
Lubricants 0% 0.1
Other 0% 0.9
Source:RMI Analysis, note: additional distillate would be imported
Expectation is that renewables would save more residual fuel oil 48.3 (8.2)
(1) Additional diesel savings possible from new truck designs
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 18Why should you care enough to act?
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 19Appendix
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 20How feebates work
How Feebates Result in a More Fuel-Efficient Fleet of Vehicles (1)
Improved Fuel Economy of Vehicle Fleet
Feebate Price Incentives
Short-Run Change in Sales Mix Long-Run Change in Product Mix
Rebates reduce the price Available selection of vehicles The selection of new vehicles
consumers pay for fuel- (including the fuel economy of being marketed changes:
efficient vehicles individual models) is Manufacturers make vehicles
unchanged, but price incentives that are more fuel efficient
Fees increase the price encourage consumers to because the resulting increase
consumers pay for inefficient purchase the cheaper, more in the feebates helps pay for
vehicles fuel-efficient vehicles additional fuel-economy
technology
Source: Davis, W.B., Levine, M.B., and Train, K.T., “Effects of Feebates on Vehicle Fuel Economy, Carbon Dioxide Emissions, and Consumer Surplus”,
DOE, February 1995, p. 3, Fig. 1-1
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 21Feebate schedules examples: $1,500 discount paid for by
$800 fee on new cars
Example of Feebate Schedule (1)
Source: Davis, W.B., Levine, M.B., and Train, K.T., “Effects of Feebates on Vehicle Fuel Economy, Carbon Dioxide Emissions, and Consumer Surplus”,
DOE, February 1995, p. 5, Fig. 1-2
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 22Shredding scrapped tires into asphalt can halve asphalt use,
double road’s life, and offset some of Hawaii gasoline tax loss
Asphalt Rubber (AR) pavement is a winner versus traditional Asphalt (A) pavement
AR repaving reduces cost substantially…
Use LESS asphalt per lane-mi: From ~180 to ~120 bbl…
– Same lane-width & density, only ~1/2 as thick (from average of
~4” to ~2” pavement thickness)
… yet DOUBLE LIFE (from 7-10 to 15-20 yrs), and…
… LOWER costs: For Hawaii, 2025 (1)
– Up-front cost down ~35% from $70k to $45k/lane-mi
Annual saving in resurfacing
– Life-cycle cost advantage even better from $17M to $21M
(49%-61% vs. today)
… and could have significant effect by 2025:
This would offset 10% of
gasoline tax revenue shortfall
US today: 300 M total scrapped tires per year from efficiency gains
– 96M/yr currently not used — would satisfy ~40% of current re-
pavement demand
65% of re-pavement by 2025 assuming fixed supply proportion
Lowers national paving costs by $11 billion ($53BN to $42BN/yr)
(1) Assumes approx 2/3 of 3R (Restoration, Rehabilitation, and Resurfacing) budget for Hawaii is used for resurfacing.
Source: (1) RMI analysis / RMI US Asphalt Model (2) Jung, J-S., Kaloush, K E., and Way, G.B., "Life Cycle Cost Analysis: Conventional versus Asphalt
Rubber Pavements", Arizona State University, August 2002. (3) http://wwwcf.fhwa.dot.gov/ohim/hs99/hm51r.htm, assuming 50% of HI 3R state funds go
towards re-paving existing and new roads; from figures Tables SF12AP1 through SF12AP6. (4) “US Scrap Tire Markets 2001”, Rubber Manufacturer
Association, December 2002
ROCKY MOUNTAIN INSTITUTE
Hawaii Energy Commitee Briefing 23You can also read
