If the US has an energy policy — a big if — that policy turns on two factors. One, reducing energy imports; and two, reducing environmentally harmful emissions. How the US will reach those goals remains a subject of debate, but the US Department of Energy has put a stake in the ground.

The US DoE has conducted its first-ever “Quadrennial Technology Review” (QTR) and the final report was released yesterday.  While the report doesn’t break any new ground, it does shift the field more than a little toward electric vehicles.

The shift is good for Honda Motor Corp. (NYSE: HMC) and its Civic hybrid, Toyota Motor Corp. (NYSE: TM) and its Prius, General Motor Co. (NYSE: GM) and its Chevy Volt, Ford Motor Co. (NYSE: F) and its Fusion, and even Nissan Motors (OTC: NSANF). The shift away from liquid fuels will affect ethanol makers like Archer Daniels Midland Co. (NYSE: ADM) and Valero Energy Corp. (NYSE: VLO), and a non-committal position on natural gas won’t be much help to Clean Energy Fuels Corp. (NASDAQ: CLNE).

For example, it has long been believed that reducing emissions from stationary sources like power generation plants and industrial plants would be the simplest way to cut overall emissions. Stationary sources account for about 70% of all greenhouse gas emissions in the US.

The QTR wants to put more emphasis on reducing consumption and emissions on the transportation sector. One element of the strategy to change the US transportation sector is to spend more effort on putting more electric vehicles on US roads. From the report:

“DOE is underinvested in the transportation sector relative to the stationary sector (energy efficiency, grid, and electric power). Yet, reliance on oil is the greatest immediate threat to U.S. economic and national security, and also contributes to the long-term threat of climate change. Vehicle efficiency has the greatest short- to mid-term impact on oil consumption. Electrification will play a growing role
in both efficiency and fuel diversification. DOE has particular capabilities in these areas. Within our transportation activities, we conclude that DOE should gradually increase its effort on vehicle efficiency and electrification relative to alternative fuels.”

Unpacking that paragraph leads to a couple of conclusions. First, our oil-driven economy threatens US economic security and the chosen method to fight that is to increase vehicle efficiency. Boosting the Corporate Average Fuel Economy (CAFE) standard to 54.5 miles/gallon by 2025 nearly doubles current fuel economy mandates. The QTR estimates that improvements in vehicle efficiency could save 2 million barrels of oil a day within a decade. That’s about 15% of current US consumption.

The second conclusion one could draw from the cited paragraph is that electricity will be given precedence over other alternative fuels. These other fuels are presumably liquids like algae-derived biofuel and ethanol. As the report notes, “Increasing the production of any alternative hydrocarbon fuel to meaningfully displace petroleum-derived fuels would require dramatic increases in feedstock production.”

The report is even more explicit later, “Because ethanol is neither a total drop-in fuel nor ideal for the heavy-duty vehicle market, and because it already has substantial investment from the private sector, DOE will not give high priority to R&D activities in conversion pathways to produce ethanol.” Technologies such as coal-to-liquids, gas-to-liquids and coal-and-biomass-to-liquids are won’t get any support because their carbon emissions are worse than conventional fuels.

Natural gas as a transportation fuel gets a wave, but no ringing endorsement: “DOE will support the development of new technologies that may make natural gas more applicable for transport. However, there are challenges for natural gas use in transport: infrastructure and competing demand from electrical, heat, and chemical uses.”

The QTR’s view of electric vehicles seems to be that in the short- to medium-term, hybrid electric and plug-in hybrids will reduce oil consumption, but in the long-term, all-electric vehicles are the preferred option because they “de-couple light-duty vehicles from the volatile global oil market.” And it’s there that the DoE wants to focus its efforts.

Paul Ausick

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