In 1990, as part of its effort to meet federal clean air standards, California adopted a requirement that effectively requires automobile companies to offer electric vehicles (EV) for sale there beginning in 1998. Subsequently, similar legislation was passed in several northeastern states. However, the automobile companies believed that without suitable advanced batteries, EVs would be expensive and limited in performance and therefore difficult to sell in the quantities mandated by the states. To address this need for advanced batteries by jointly sponsoring research, Chrysler, Ford, and General Motors established the United States Advanced Battery Consortium (USABC) in early 1991. Because EVs could help reduce mobile-source air pollution while allowing electric utilities to utilize excess capacity during off-peak hours, the Electric Power Research Institute (EPRI), along with several individual utility companies, agreed to participate in the consortium in mid-1991. Then, responding to a legislative mandate to pursue the benefits of EVs, DOE agreed to cooperate with the consortium’s research effort in late 1991. The relationship between DOE and the three automotive partners in the USABC is governed by a cooperative agreement. This agreement requires DOE to be substantially involved in managing the program and explains how it should be involved. (App. I provides information on DOE’s role in managing the consortium.) In addition, the cooperative agreement spells out the details of other important issues, such as the ownership of new technology developed under the program and the potential recoupment, or repayment, of DOE’s investment in the program. (App. II provides information on repayment provisions applicable to both DOE and the three USABC partners.) The consortium carries out its work through contracts with seven battery firms and through cooperative research and development agreements (CRADA) with five of DOE’s national laboratories. In some instances, the consortium has selected two battery developers to work on the same technology to encourage competition, enhance the chances for success, and potentially provide the automobile companies with multiple battery suppliers. The five DOE national laboratories were generally selected on the basis of past experience with promising technologies and/or their ability to objectively test battery hardware. (App. IV provides details on the consortium’s contracts and CRADAs.) According to USABC’s original budget proposal, the consortium hoped to obtain about 28 percent of the total program budget, or about $74 million, from the battery developers through cost-sharing provisions in their contracts. However, the cost-sharing percentages vary for each developer, and some developers may eventually join or leave the program. Therefore, the exact cost-sharing percentages for the industry participants will not be known until the end of the program. DOE’s national laboratories did not provide any more funding beyond the 50-percent share committed by DOE. On the one hand, advanced batteries meeting USABC’s long-term goals have not yet been proven technically feasible. On the other hand, batteries meeting the consortium’s mid-term goals, while potentially achievable, will not enable EVs to offer performance or costs comparable to those of gasoline-powered vehicles and therefore offer limited market potential. (Information on the consortium’s long-term and mid-term goals can be found in app. V.) The automobile companies established USABC because they believed that existing battery technologies would result in EVs with limited driving range—generally well under 100 miles and sometimes as short as 30 miles, depending upon the terrain and weather conditions. Moreover, existing batteries would have to be replaced frequently, greatly increasing the operating cost of EVs. According to DOE and consortium officials, the automakers did not believe such vehicles would be acceptable to consumers and therefore originally proposed that the consortium set its sights strictly on long-term goals. Batteries meeting these goals would store enough energy and power to give EVs the driving range and acceleration of gasoline-powered vehicles at approximately the same lifetime costs. Such EVs would be fully competitive with conventional vehicles. However, during early discussions with DOE officials in charge of this program, it became clear to the automobile companies that long-term batteries were unlikely to become practical in time to help address the states’ EV mandates. In fact, DOE officials who had considerable experience with advanced battery research convinced the automobile companies that considerable uncertainty existed as to whether long-term batteries could be successfully developed. DOE suggested that it would be prudent to also pursue a second set of more readily achievable mid-term goals. DOE stated that (1) mid-term batteries were worth pursuing in their own right because they are significantly better than current technology; (2) developing a successful mid-term battery could help reestablish a strong domestic battery industry; and (3) mid-term batteries could enable the automakers to gather data on the performance of EVs that would apply to long-term batteries if and when they are developed. As a consequence, the consortium adopted both the long-term goals originally championed by the automobile companies and a more readily achievable set of mid-term goals recommended by DOE. At that time, consortium officials believed that the mid-term goals could be reached within the 1990s, making mid-term batteries available within the approximate time frame when the states’ EV mandates would take effect. EVs with long-term batteries are expected to be competitive with gasoline-powered vehicles in terms of performance and cost. If that goal is achieved, such EVs could significantly penetrate the consumer vehicle market. Significant EV sales could reduce petroleum use and increase energy security by replacing imported and domestic petroleum fuels used by conventional vehicles with electricity, which is generated mostly with domestically produced fuels. In addition, the air quality benefits that could follow from replacing petroleum would support important national environmental objectives. The emissions from a relatively small number of stationary electricity generating plants can be more easily controlled than the emissions from a large number of conventional vehicles. However, it remains unclear whether the feasibility of a long-term battery will be demonstrated. The consortium’s original goal was to demonstrate the design feasibility of a long-term battery pack by 1994. Had this goal been achieved, pilot-plant production could potentially have begun several years later, leading to full-scale production early in the next decade. As of mid-1995, long-term battery research still involved small cells with about 1,000 times less energy than a vehicle-size battery pack. However, under the best-case scenario, if breakthroughs are achieved, a battery pack for one type of long-term battery could be proven feasible by 1998. This scenario could lead to pilot-plant production by 2000 and to full production by the middle of the next decade. According to USABC officials, batteries that achieve the mid-term goals are likely to be feasible but vehicles with them will have a much shorter driving range than gasoline-powered vehicles and are likely to cost more. The officials added that while such performance may help in meeting the states’ mandates, they do not believe these vehicles will perform well enough to have wide appeal to large numbers of consumers. Consequently, they do not believe that sales in excess of the state-mandated quantities are likely. The driving range of EVs with mid-term batteries is expected to be about 100 miles under realistic conditions that require extra power for such things as heating, cooling, and climbing hills. According to officials of the consortium’s Management Committee, this range will be acceptable only to a limited number of consumers. Also, automobile companies’ market research indicates that consumers will be unwilling to pay a high premium for EVs with limited range. According to the consortium’s cost estimates, during the early years of commercialization, before full-scale production is achieved, a mid-term battery pack alone would cost from $9,000 to $15,000. Even after full-scale production is achieved, the consortium’s latest estimate is that such batteries would cost about $7,000. This figure exceeds the mid-term cost goal by about $2,500. Therefore, particularly during these early years, the automobile companies believe that large subsidies will be needed to sell even the mandated quantities of EVs. Furthermore, according to consortium officials, government and industry have so far been unable or unwilling to offer adequate subsidies. The only currently available federal subsidy, provided under the Energy Policy Act of 1992, is limited to a $4,000 tax credit per vehicle and may be reduced below that amount for several reasons. Consortium officials also contend that state and local governments have not stepped forward to offer significant subsidies for EVs. DOE officials in charge of the program are more optimistic than consortium officials about the prospects for EVs with mid-term batteries. In commenting on our draft report, DOE stated that light-duty vans and passenger cars with mid-term batteries can achieve a reliable range from 70 to over 100 miles, respectively, on a single charge. They believe these vehicles will satisfy the needs of many fleet operators as well as private consumers whose daily driving distances are relatively short. For example, DOE officials believe that electric vehicles with mid-term batteries might be successful in niche markets, such as electric utility fleets. They also believe that full-scale production and lower cost can be achieved relatively quickly through such strategies as developing other customers for mid-term batteries in the recreational vehicle and foreign EV markets. Using this approach, DOE officials have estimated that with the federal incentive, an EV with a mid-term battery will exceed the cost of a gasoline-powered vehicle by only about $2,500. They believe sales incentives from the automobile companies themselves would be sufficient to address this remaining cost increment. Despite DOE’s estimates, consortium officials doubt that EVs with mid-term batteries can achieve any significant market penetration. While mid-term batteries would extend the range of EVs beyond that provided by using existing batteries, the consortium and DOE both agree that these EVs would not be comparable in performance to gasoline-powered vehicles and would cost more. Both the consortium and DOE also believe that significant market penetration would be required to achieve any widespread benefits in terms of energy security or environmental improvement.