We've been asked by several partners to see about modeling a market driven approach for improved fuel economy. This would a representation of a tailpipe CO2 standard, which is a common policy in the US, Europe and elsewhere. Innovation in optimization passes in the model now make modeling this a feasibility.
This policy is met through a credit mechanism where vehicle manufacturers need to generate or procure credits such that they can demonstrate compliance with the rule across the entire fleet.
In the model, we can estimate this through a credit market for new vehicle sales with a feedback that increases the efficiency of new vehicles:
1) We set the standard like an RPS standard.
2) We develop an optimization loop like with the RPS that finds a credit price that meets the standard
3) There are several mechanisms for compliance:
a. The credit price is used as an incentive to lower the cost of vehicles, with a multiplier based on the vehicles efficiency. For example, a BEV or FCEV would probably get a full credit, a PHEV would get a partial credit, and a gasoline vehicle would get no credit if it is below the standard.
b. The credit price can be used to estimate a percent improvement in new vehicle fuel economy for gasoline vehicles. For example, see Table 8.4b and previous tables/graphs from this study: https://nap.nationalacademies.org/download/21744#. Roughly speaking a value of ~$120/% increase in fuel economy is a reasonable value for 2025 and beyond, though we could use the data to plot a curve instead of a fixed value. We use the credit price to compute the percentage increase in ICE vehicle efficiency. The cost of the vehicle goes up accordingly (I believe this is the case, but it could also be the case that the manufacturers eat the cost of the requirement, as they would with lowering the price of ZEVs... need to think about this one a bit).
c. We then have a new vehicle pass that integrates the cost of the of new vehicles, and we compute the weighted average tailpipe CO2 value. If we fail to meet the target, the model raises the price, as with the RPS pass, and vice versa if we exceed the target. Ultimately, the model will land on a price makes new ICE vehicles more efficient (and more expensive potentially) and causes a greater share of FCEV/PHEV/BEV to be purchased by lowering their costs.
All in all, it looks very similar to the RPS mechanism, though more simplified.
We've been asked by several partners to see about modeling a market driven approach for improved fuel economy. This would a representation of a tailpipe CO2 standard, which is a common policy in the US, Europe and elsewhere. Innovation in optimization passes in the model now make modeling this a feasibility.
This policy is met through a credit mechanism where vehicle manufacturers need to generate or procure credits such that they can demonstrate compliance with the rule across the entire fleet.
In the model, we can estimate this through a credit market for new vehicle sales with a feedback that increases the efficiency of new vehicles:
1) We set the standard like an RPS standard. 2) We develop an optimization loop like with the RPS that finds a credit price that meets the standard 3) There are several mechanisms for compliance: a. The credit price is used as an incentive to lower the cost of vehicles, with a multiplier based on the vehicles efficiency. For example, a BEV or FCEV would probably get a full credit, a PHEV would get a partial credit, and a gasoline vehicle would get no credit if it is below the standard. b. The credit price can be used to estimate a percent improvement in new vehicle fuel economy for gasoline vehicles. For example, see Table 8.4b and previous tables/graphs from this study: https://nap.nationalacademies.org/download/21744#. Roughly speaking a value of ~$120/% increase in fuel economy is a reasonable value for 2025 and beyond, though we could use the data to plot a curve instead of a fixed value. We use the credit price to compute the percentage increase in ICE vehicle efficiency. The cost of the vehicle goes up accordingly (I believe this is the case, but it could also be the case that the manufacturers eat the cost of the requirement, as they would with lowering the price of ZEVs... need to think about this one a bit). c. We then have a new vehicle pass that integrates the cost of the of new vehicles, and we compute the weighted average tailpipe CO2 value. If we fail to meet the target, the model raises the price, as with the RPS pass, and vice versa if we exceed the target. Ultimately, the model will land on a price makes new ICE vehicles more efficient (and more expensive potentially) and causes a greater share of FCEV/PHEV/BEV to be purchased by lowering their costs.
All in all, it looks very similar to the RPS mechanism, though more simplified.