 This is Think Tank Hawaii. Community matters here. Okay, we're back. We're live with Lucien Puliarisi of EPRNC. EPRNC is an energy policy research think tank organization in Washington, D.C. Except the fact is that every time I talk to Lucien, he's at another conference in some farthrows of the universe. I never know where he's going to be, but I've just surmised that this time, Lucien, you're actually in Washington. What do you think? I am in Washington and it's raining cats and dogs outside. Looks like a rainforest. If it's of any help, I just want to let you know that in Honolulu the weather is absolutely perfectly beautiful. I'm sure that's true. Anyway, so every couple of weeks, Lou and me, we get together, we talk about energy. We call this show Energy in America. I've been doing it for a while and it's really interesting to see his viewpoint and see sort of the national conversation on this. And we've covered a lot of things over the past year and I really appreciate his coming around to discuss what EPRNC is thinking and doing these days, either in Washington or anywhere else. And this time we're going to talk about a subject that is really in the news a lot these days and that's the CAFE standards. Because the President has decided to, what? I guess the Barack Obama was trying to lift them to something like 50, 60 miles a gallon and the President 30 miles a gallon. And the Trump administration says no, we're not so sure about that and put that increase on ICE. And then some number of states led by California have indicated they don't care what the President says, they are going to maintain an increase in the CAFE standards anyway. So here we are with a national debate, yeah? Right, so I think that we talked about CAFE, the corporate average fuel economy standards in the past and now there's a lot more new information out and I thought we would go through that and help the listeners see the difference between the kind of political fight and what are the real issues on this sort of very important public policy concern. So what I want to do today is for sort of take the listeners through some just basic information, set up the problem and then at the second part of the program we'll talk about what the data actually show us and maybe give us an insight about how we ought to really proceed. So let's put the first figure up which shows the sales of Zev, which means zero emission vehicle. Now zero emission vehicle, think of a Tesla. It's basically a battery electric vehicle, also called a BEV of Zev, right? And there's also something in this table called PHEVs, which are plug-in hybrid electric vehicles. This is like your hybrid, a lot of cars which have... Toyota was the leader in that, yeah. Toyota has one. And then we have FCBs which are fuel cell vehicles. So I just want to give everyone a source of the magnitude. So if you look at the total sales of ICDs, which is internal combustion vehicles, right? In the U.S. that's moved, and that's the right-hand side of the column. That's moved from about in 2011 from, say, oh, I don't know, 12 million vehicles a year up to 16 now in 2017. So that's the whole internal combustion cars and light trucks. In 2017 we're about 16 million units. And all the alternative vehicles, the Zevs, which are the green, the plug-in electric vehicles, which are the blue and the fuel cells, which are almost non-existent, they really don't get above 2017. They're about 200,000 units. So it's still a very small part, right? Interesting how the BEVs and the PHEVs have become, since 2013, about equal in the marketplace. And the FCVs, like those are hydrogen, I guess, they are really, really minimal. Exactly. We don't have a lot of fueling capacity for them. They're very exotic. And there aren't that many that are available. So I just want to give the audience a sense of what we're talking about. We're talking about a small set of folks. Now, if we go to figure two, this is data from the U.S. Department of Energy. And it shows kind of what will the fleet look like under existing policies, right? Under existing policies of conventional cars and light trucks. And in that would be some plug-in, you know, some hybrids and stuff. And zero emission vehicles. And it's very important here to also see that there's a lot of discussion about how the electric cars are going to take over. But if you look at the official data from the U.S. government, you understand that, you know, the U.S. fleet doesn't get that much bigger. It gets a little bit bigger, just from like 220 to 250 million cars. But the portion of that that is zero emission vehicles remains quite small. And as it's going to become apparent as we talk, the real issue is how fast the fleet of conventional cars and light trucks turns over. That turns out to be much more important for air quality and carbon than the rate at which you introduce new, exotic zero emission vehicles. Because the old cars have greater emissions, yeah. Exactly. And new internal combustion engines are very, very clean and getting better. You recall we had this story about the 1968 Mustang, which generated about one ton of pollutants, you know, not... I do remember that, yeah, yeah. And now the new one, over 100,000 miles, the new one's 10 pounds. Okay, so that, I want you to know, because this is a big... There are two big issues in CAFE that rarely get discussed by policymakers. One is what we call the rebound effect. If you get a car that's more efficient, you drive it more. And the other one is what we call kind of attribution substitution. If you buy an electric car, you find families that buy electric cars. They also buy a big SUV. So it's not... How interesting. That one is really interesting. It's a compensation they may have balanced. Exactly. Attribution substitution, we call it. Okay, so I think that these figure... These should... These are real phenomena that take place in the marketplace. But policymakers like to stick their head in the sand and pretend it doesn't really exist. But it's a relevant issue that should be discussed. Because as I say, the fight is over where these, you know, these dinosaurs that want to get rid of CAFE and the environmentalists will wear white hats and really know what they're doing. Okay, so it's really never that simple. So what do you think motivated the administration to knock off the plan to go to... Was it 50 miles a gallon? Was it 50 or more? I think there's... Yeah, I mean, actually there's a difference between what the kind of institutional number is and what the on-road number is. And I don't want to... We don't want to get into that debate now. But almost... When we had the crisis, the financial crisis in 2008 and GM almost went broke or they went into bankruptcy. The auto signed up for everything. But all the heavy lifting in terms of CAFE was back loaded, right? It starts now. And it's a very steep, costly curve. Very steep, yeah. So they just, you know, they had a very high discount rate. The way I would deal with that in 2018. Well, 2018 is here. And I think the autos have been very careful. They have been saying, we want to preserve a national standard. We want you to negotiate with California. But we don't want to kind of give up on fuel efficiency. We want to continue to make progress. You know, let me ask you this question. I really hadn't thought about this before. Maybe you know the answer. So, okay, to get to a higher standard costs more money. Yes. What does an automobile manufacturer put that money into? What kind of technology is so expensive? Do we have the technology or do we have to invent the technology? Is it a special alloy? What is it? You can get the technology across the entire frame. The tires, brakes, the way you build the air conditioning, the materials. And by the way, we didn't get into, we didn't get into safety, which is a whole other program. But the evidence suggests that if you, if you, and what's going on, I'm going to give you a couple other things. If you buy a smaller, more fuel efficient car, you also face a higher risk of death. You need to understand that. Because it's lighter and it doesn't have so much protection. Yeah. Yeah. And because the way CAFE works, right, because the CAFE is not, it's fleet-wide, but it's based on the footprint of the models you make. That it's becoming one way the auto manufacturers will adjust to the CAFE standard. Even the existing CAFE standard is to make less low-margin sedans and more SUVs. Because in, for example, the state of California, whenever you sell an internal combustion vehicle into California, you face a compliance cost, a compliance penalty, which has to do with the ZED requirement. And if you don't make enough Zeds and sell enough of them in California, you have to buy the credits from, well, death line. That leads us to our next figure. So the next figure shows you how much the federal government, I'm not talking about the state of Hawaii or California, which also provide direct consumer subsidies, but how much the federal tax credits for Zeds were between 2011 and 2017. And you can see that on those six years, seven years, the federal government has spent $4.6 billion. So you have to ask yourself, that's a lot of money, even in Hawaii. And this shows you the distribution in figure three by manufacturer. And under the law, they lose these credits when they hit 200,000 units of total production. And right now they're lobbying to continue this subsidy. So one of the ways to kind of meet the more stringent standards is to continue the subsidies for the ZED program. And actually if you extended those ZED credits out to 2048, you could probably rebuild the U.S. Naval fleet three times over. It would be $100 billion. Oh boy. So that's interesting. So this is to support the industry, or I guess it's also to incentivize efficient vehicles? Yes, to incentivize electric vehicles. Even the internal combustion engine is efficient, but not as efficient, not as... Low emission. Not as efficient. Yeah, it's not as low emission, but it's close. But all these things occur at the margin. That's very important. And then I guess before we break it, let's look at figure four quickly. And one of the features that I think... I put this one here. This shows the Nissan LEAF range as a function of outside temperature. And I just thought this would be a useful graph to show our friends in Hawaii, because you know that the range is a function of outside temperature. And as you get to 70 and 80, even 90 degrees, the range of your automobile declines rather dramatically. This is actually not just for the Nissan LEAF. It's also true for the Tesla and all of them. So the battery is not as efficient. Whatever it is, the drive is not as efficient if it's warmer outside. Is there a way to... Is anybody considered using air conditioning or some device to reduce the temperature so that the car will be more efficient? You know, they've sort of used... You're using the air conditioner yourself. I'm just adding to the... I don't think they got... I mean, it's a basic thermodynamics problem. You can't really fix it. You might be able to get a bigger battery at some point, but you can't really fix that. You can fix it with materials and stuff over time, but it's very marginal. Okay. Very interesting. Yeah. So what I want to do next, then, is... and you let me know whether we should break now or keep going. Let's take a break now, Lou. That's Lou Paterisi. He's the CEO of E-prink. We're doing energy in America. Today, we're talking about the CAFE standards. That means corporate average fuel economy, and there's a national debate going on because the administration would like to leave them as they are rather than increase them as the Obama administration wanted to do. We'll be right back after this short break to find out more from Lou. This is Think Tech Hawaii, raising public awareness. Hi, I'm Bill Sharp, host of Asian Review here on Think Tech Hawaii. Join me every Monday afternoon from 5 to 5.30 Hawaii Standard Time for an insightful discussion of Contemporary Asian Affairs. There's so much to discuss, and the guests that we have are very, very well informed. Just think we have the upcoming negotiation between President Trump and Kim Jong-un, the possibility of Xi Jinping, the leader of China, remaining in power forever. We'll see you then. Okay, we're back real live. Lou was telling me he's solution to all of this during the break, and you're going to have to wait a couple of minutes to hear it. Lou, you wanted to track through some other slides. Why don't you do that now? Yeah, so I think one of the issues is if you have a kind of carbon theory of value, in other words, if your policy is just to worry about carbon and nothing else, you can get yourself kind of wrapped around the axle. And one of the things I want to show you is some recent work by John Lesser at the Manhattan Institute. Actually, this report is available to all your listeners quite easily. But let's look at figure five. Five, yeah. So as you know, this is not really a problem in the Hawaiian Islands, but particulates. You see this very dark fog in China. We have eruptions now, so we ought to be all the more concerned about the air. Well, I don't think the volcano is subject to EPA, so that's a problem. And the particulates that we were about are the ones that are called 2.5, 2.5 microns. Those have health effects. So the first, if we look at figure five, this says, okay, as we go out to 2048 and we take the Energy Information Agency data and we say, okay, for every new internal combustion vehicle that's produced, we're going to substitute a zero-mission vehicle. We're just going to end the model substitute and see what happens to the environmental consequences. And we're going to do it across the whole system, refineries and power plants. So if you look at this chart here, figure five, it shows particulate matter using 2014 average emission rates. And the vertical scale here are the tons of particulate matter emitted into the atmosphere and what that happens over time. But if you see the red line, that shows you under this model in which instead of producing internal combustion vehicles, we keep substituting zebs across the whole period to 2050. And you can see that the particulate matter from zero emission vehicles is much higher by 2048 and the calculus across the thing is quite remarkable. And then if you look at the blue line, that particulate matter, if we didn't substitute, but we continue to produce internal combustion vehicles, including particulates generated by refineries. And you might ask, well, why is this happening? And the reason this is happening is because even to 2048, a substantial portion of our power is generated by both coal and natural gas. Natural gas doesn't produce that much in particulates, but coal does. So if you don't use a full system analysis, if you don't look at the full fuel cycle, you're going to get fooled by this. So let me say that I can understand. So if you have all these electric cars and they're being supplied with electricity from coal-burning plants, then you have... Well, just from whatever the average fuel mix is in the U.S. under the EIA forecast, which is pretty good. But if we had renewables supplying those cars, as is the whole of Hawaii, then there would be no emissions on either side of the equation. Let's give it strength. No one cares. The world climate does not care what Hawaii does. It has no effect. It's irrelevant. Actually, a totally crazy discussion. You are too small. We're talking about the whole U.S. here. Who cares what happens in Hawaii? That is irrelevant. That's just... We're just a bunch of environmentalists over here. You can run a coconut or I don't care. You're just going to spend money that people don't have. Okay, that's fine. Okay, so I live in a national or even international. What you're saying is that even if you have electric cars and you're generating power from fuels that leave particulates in the air, you have a lot of particulates going forward. And even under aggressive renewable programs, which we have, by 2050 you're still going to have coal in the mix. I think we talked about this last time. You're not going to substantially... You're not going to increase the coal production or the coal combustion, and its percentages are going to decline, but it's still going to be there. Now, let's look at figure... Oh, it says figure. That was a mistake. The next figure five, okay? Which is comparison of carbon dioxide emissions in ZED and internal combustion vehicles. And this one here does show if, as we go out to 2048, for every time I produce an internal combustion vehicle, instead I substituted that for a zero-emission vehicle, I can in fact reduce CO2, right? If you look at this chart, you can see the green line, right? That the green line shows CO2 emissions go from... Zero is just the base here. So you have an increment of 100 million tons, right? In 2050. And if you include refineries with existing EPA standards, right? So if you use a kind of more higher standard, instead of the 2021 standard too, but a more rigorous standard, it's not quite as much, right? And if you go to the red line, you can see that... You could probably say that a ZEV-only strategy would reduce carbon dioxide emissions by about 100 million tons by 2050. And that leads me to the last table, which is called figure six, right? Which shows that U.S. greenhouse gas emissions by economic sector, right? 1990 to 2016. And what I want you to understand about the charts you saw in the previous figure is that even if we did a full-scale ZEV program, replacing every internal combustion vehicle with a zero-emission vehicle, we would not reduce our carbon footprint by more than one half of 1%. So the bottom line of this story is this is a very expensive program with a very low yield. And you can go ahead and characterize Trump's program as some kind of Neanderthal crazy idea. But in fact, the data supports a more robust debate on this issue. And that debate should suggest that at the margin, if we think we want to control... First, anything we do should look at the full band of environmental consequences, sulfur, particulate, nitrogen oxides. We should look at lithium and cobalt, mining tails and all that. So we should have a more robust discussion on the total life cycle environmental consequences. Yeah, I certainly agree that you have to consider both the source of the electrical power and the car and have to net that out to see what you're really getting. But isn't the obvious answer to make the source of the power renewable between now and 2050? Yeah, but we know that that's not possible. It might be possible in Hawaii, but as I said, who cares? It's not possible for the U.S. It's just not going to happen. Yes, if pigs could fly, that would be fine. But that's not what's going to happen. We know from the EIA data that even under the best case scenario and we know from the work out at Stanford that we're not going to get there. We're not going to get to a fully renewable system in the U.S. by 2050. And by the way, that is absolutely the case for the rest of the world. Yes, I would assume. But so the big question is to go back to the break now and find out, this is the big cliffhanger question, Lou, we need to go back to what you were saying in the break and find out from you your idea for an alternative solution. I actually can hardly wait for this discussion. Can you tell us? The alternative solution is to stop throwing your money away and put it into programs that actually yield something useful, which is probably get on the gradient to reduce emissions from the power sector. That's the big... We can continue to do research and make progress on zero-emission vehicles. We ought to definitely do that. But we should quit taking money from the middle class and giving it to the upper class so they can drive Tesla. That is a really bad policy. And my view... You're just talking about instead of putting all this money into reducing emissions from the cars that people drive around the country, why don't we put some money into reducing emissions and particularly particulates from the power generating units in the country? Is that what you're saying? I don't think particulates aren't the problem. It's carbon, right? We can see here that we have fairly strict standards on particulates and on sulfur. But if you generate more power and you're going to need to generate a lot more power to run the Zebs, even with this dream about we'll only charge them at night when people are sleeping and we have battery power and the wind is blowing. Any realistic assessment suggests that it's a global problem that the problem ought to focus on the highest return of carbon emission reductions and that's probably not a Zeb program or a stringent cafe program for the US. Those funds would be better spent somewhere else. Probably in the power sector in China or Indonesia or other places in the Pacific. One last question for you actually is there are other things coming down the pipe between now and 2048, 2050. For example, automated cars and these cars where you rent a slice of time in the car, a rideshare and they're a multimodal thing. I can't say that they're happening all over the country but I imagine they're happening at least in some cities in the country. They're happening here or at least there's a lot of talk about it. So transportation is going to change. For Hawaii that is a big piece of fossil fuel right now and I wonder if it's the same elsewhere and whether these numbers, expectations, forecasts are building in the notion of changing models of transportation. So I do think that an autonomous vehicle whether you use an internal combustion vehicle or an electric car, autonomous vehicles do offer enormous tectonic shifts in a way but it's unclear yet whether they mean people will use the vehicles more or less. The conventional wisdom is people will use their cars less but a highly efficient autonomous vehicle system might actually take people out of mass transit and into vehicles which are going to be low cost and cheap. So once again, I think you always have to be careful that any kind of, this is like thinking fast, thinking slow. You have a conventional wisdom about something. You say let's do that but sometimes you have to slow down and look at the problem and say well maybe it's not really what we thought. Maybe we have to have an intelligent way to, you know a systematic way to deal with this problem. Well is this conversation taking place now? I mean California has led ten or more states in order to do the high standards anyway. I don't know if there are other states coming on board. I don't know if this is going to be in the courts. How is this conversation going to be taking place? Well it would go into the courts but basically this has become a political issue between California and Trump in my view. And what's going to happen in the midterm elections is, and you know one of the things that's happening in order to meet this standard, we don't have time to talk about this now but the auto companies are going to produce less sedan. It just doesn't make sense for them to produce sedan. They're lower margin and they have a high compliance requirement. So they're going to produce more SUVs that have a higher margin and a bigger footprint which gives them a little bit of a break. And I think this is going to be fought out politically. And so in the midterm elections in 2018 I expect to hear, I expect to see Trump tweeting, Nancy in all the districts, all the swing districts where people have lost the pickups, Nancy Pelosi and Chuck Schumer want to tell you what kind of car to drive and they're going to make it much more expensive. Not for me. I bet you're absolutely right. I think we can absolutely expect those tweets. Well, thank you. Great discussion. Important issue. I always enjoy these discussions with you. Okay, great. Okay, energy in America. Lupo Urizi of E-Bring in Washington. Thank you so much, Lou. All right, Jay, take care. Bye-bye.