# Presentation: 434556

## Endogenous Market TransitionsInsights from Modeling Alternative and Hydrogen Fuels and Vehicles(TAFV and HyTrans)

**Paul Leiby**
**Oak Ridge National Laboratory**
**April 21, 2006**
**Washington, DC**
**Presented at the DOE/EPA Workshop**
**Modeling the Oil Transition**

## Market Tensions & Tradeoffs During Transition to Alternative Motor Fuel

**Speed of introduction**
**Scale economies of fuel production plant**
**Offering fuel to a wide region and market**
**Variety and diversification of fuel/ vehicle techs produced**
**Diversity of vehicle-models**
**     ****offered within tech**
**Retail fuel availability**

**Slow capital turnover, adj. costs**
**Investment risk                Distance to market ****(distributed?)**
**Initially targeting high demand-density markets                  **
**Learning and Tech progress in given tech**
**Vehicle-plant scale econ**
**Station size or utilization rate, delivery network **

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

## Market Tensions & Tradeoffs During Transition to Alternative Motor Fuel

**Speed of introduction**
**Scale economies of fuel production plant**
**Offering fuel to a wide region and market**
**Variety and diversification of fuel/ vehicle techs produced**
**Diversity of vehicle-models**
**     ****offered within tech**
**Retail fuel availability**

**Slow capital turnover, adj. costs**
**Investment risk                Distance to market ****(distributed?)**
**Initially targeting high demand-density markets                  **
**Learning and Tech progress in given tech**
**Vehicle-plant scale econ**
**Station size or utilization rate, delivery network **

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

## Market Tensions & Tradeoffs During Transition to Alternative Motor Fuel

**Speed of introduction**
**Scale economies of fuel production plant**
**Offering fuel to a wide region and market**
**Variety and diversification of fuel/ vehicle techs produced**
**Diversity of vehicle-models**
**     ****offered within tech**
**Retail fuel availability**

**Slow capital turnover, adj. costs**
**Investment risk                Distance to market ****(distributed?)**
**Initially targeting high demand-density markets                  **
**Learning and Tech progress in given tech**
**Vehicle-plant scale econ**
**Station size or utilization rate, delivery network **

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

**2/3 of LDV fuel is used in <10% of the land area (EPA data)**

## Market Tensions & Tradeoffs During Transition to Alternative Motor Fuel

**Speed of introduction**
**Scale economies of fuel production plant**
**Offering fuel to a wide region and market**
**Variety and diversification of fuel/ vehicle techs produced**
**Diversity of vehicle-models**
**     ****offered within tech**
**Retail fuel availability**

**Slow capital turnover, adj. costs**
**Investment risk                Distance to market ****(distributed?)**
**Initially targeting high demand-density markets                  **
**Learning and Tech progress in given tech**
**Vehicle-plant scale econ**
**Station size or utilization rate, delivery network **

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

## Market Tensions & Tradeoffs During Transition to Alternative Motor Fuel

**Speed of introduction**
**Scale economies of fuel production plant**
**Offering fuel to a wide region and market**
**Variety and diversification of fuel/ vehicle techs produced**
**Diversity of vehicle-models**
**     ****offered within tech**
**Retail fuel availability**

**Slow capital turnover, adj. costs**
**Investment risk                Distance to market ****(distributed?)**
**Initially targeting high demand-density markets                  **
**Learning and Tech progress in given tech**
**Vehicle-plant scale econ**
**Station size or utilization rate, delivery network **

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

## Technological Cost Reduction for New Vehicles

**Learning & Unlearning w/ Stock on Road**

**   ****Scale w/ Annual Production/Plant**

**  ****Tech Change w/ Passage of Time (Yr)**

- Vehicle technologies improve by 3 mechanisms:
**Retail Price   =**
**   ****Scale**** ****× ****Learning**** × ****Tech Change**** **
**           ****× ****Scenario Ref Price**

**Future FCV**

**Gasoline SI ICE**

**Notes:**
On vehicle technology side.  Currently we represent technology as a drivetrain.
Thanks to advice we have received, we are changing that to a component based model.
Unstead of drive train, there are stacks, batteries, motors.  In this way the technologies interact with one another.
Curves that we have derived from information from Phil Patterson, showing rapid technological progress.
Learning and scale
Model does have these dynamic effects that the more you produce, the cheaper the vehicle, large scale cheaper the vehicle.
======
Tech progress occurs strictly as a function of time.
Tech change curves are for large scale advance level of learning.
Cheaper to produce later, all else equal.

Learning and unlearning curve.
Done as a function of stock on the road.

Q: What are elasticities related to?

Q: [Santini] Can you mark where you are on Scale and Learning curves with X’s

## Market Tensions & Tradeoffs During Transition to Alternative Motor Fuel

**Speed of introduction**
**Scale economies of fuel production plant**
**Offering fuel to a wide region and market**
**Variety and diversification of fuel/ vehicle techs produced**
**Diversity of vehicle-models**
**     ****offered within tech**
**Retail fuel availability**

**Slow capital turnover, adj. costs**
**Investment risk                Distance to market ****(distributed?)**
**Initially targeting high demand-density markets                  **
**Learning and Tech progress in given tech**
**Vehicle-plant scale econ**
**Station size economies, utiliza-tion rates, delivery network **

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

- Vs.

## HYTRANS MODEL STRUCTURE

- Production
- Models

- H2A Hydrogen
- Delivery
- Models

- Hydrogen
- Infrastructure
- Investment

- Hydrogen
- Availability

- Price of
- Hydrogen

- PSAT ASCM
- Vehicle
- Attributes

- Vehicle
- Choice
- Model

- Make & Model
- Diversity

- AEO Energy
- Scenarios

- Vehicle
- Sales by
- Technology

- Hydrogen
- Use

- Vehicle
- Stock &
- Fuel Use

- LDV
- Sales

- Non-Transport
- Hydrogen Use

- Vehicle
- Supply Model
- Tech. Change
- Learning
- Scale Econ.

- H2 Feedstock
- Supply Curves

**HYTRANS MODEL STRUCTURE**

- GHG
- Emissions

**Notes:**
A schematic of the model, does not have all the arrows.  Point I’d like to make is that we derive inputs from other models.
In process of incorporating the HDSAM models.
Draw on many of the other analytic efforts going on that are sponsored by the Dept of Energy, and use them in our model.

## Lesson: Transitional barriers matter “Market barriers to significant alternative fuel and vehicle use are substantial” (Leiby and Rubin 2000, Greene, Leiby, Bowman and Tworek 2005)

- Lesson: Transitional barriers matter **“Market barriers to significant alternative fuel and vehicle use are substantial”**** ****(Leiby and Rubin 2000, Greene, Leiby, Bowman and Tworek 2005)**

***No Transitional Barriers***

- Source: Leiby, P.N. Leiby, D.L. Greene and Harry Vidas. 1996.*

**2010 Alternative Fuel Demand Shares, Base Case, No New Policies**

## Lessons from Transition Modeling of Alternative and Hydrogen Motor Fuels (TAFV and HyTrans)

**Barriers particularly large for**
**Fuels requiring distinct, costly vehicle technology**
**Gaseous fuels**
**(storage and delivery issues)**
**Fuels/vehicles in early technological stage**

## Find Can achieve transitions with

**Marked technological progress**
**Targeted, temporary transitional policy *****and***
**Sustained higher oil prices or carbon/security incentives**

- HyTrans Case of H2-FCV Introduction Program 3, Followed by $1.5K Subsidy for FCVs.  Greene, Leiby, Bowman Tworek 2006

- H2-FCV

- Gaso-HEV

- Gaso-conventional

## Contribution of Market Equilibrium Transition Modeling Approach

**Full problem too rich (hard) for any single model/approach**
**Each has purpose, insights**
**Least-cost Market balancing approach**
**Provides ****consistent, theory-based discipline**** for integrating components and tradeoffs,**
**Must be augmented with represent key transitional considerations**
**Endogenous prices and quantities**** over time**
**Allows normative analysis: ****estimates net benefits**

## Continued Modeling of Transition – Challenges

**Uncertainty**
**Expectations/foresight**
**Positive-reinforcing factors**
**Lock-in/lock-out**
**More than one equilibrium**
**Long-range (> 50 yr) planning, discounting**