For years there has been a tremendous regulatory push toward high-efficiency vehicles, using less fuel for comparable performance and simultaneously producing lower carbon output. That push has also encouraged—often through government support—a range of alternatives to conventional fossil fuels. The last eight years of the Obama administration only accelerated these efforts, largely through federal agency regulations.

Most prominent among these regulations are the Corporate Average Fuel Economy (CAFE) standards. First enacted by the United States Congress in 1975, the standards are focused on the fuel efficiency of light-duty vehicles (LDV). In 2011, the Obama administration raised average mileage requirements to 54.5 miles per gallon for cars and light-duty trucks by model year 2025.

Similar Environmental Protection Agency (EPA) and National Highway Traffic Safety Administration (NHTSA) regulations have already passed through a largely manageable Phase 1 and are set to impact medium-duty vehicles (MDV) and heavy-duty vehicles (HDV)—typically commercial—in a far more aggressive manner by 2027. Phase 2 calls for an average efficiency increase of 22.8% among all classes.

The result is a future fuels environment that will most certainly impact fuel marketers, retailers, consumers and commercial fleet operators, but one that is currently uncertain in the likely ramifications. To try to gain some clarity, the Fuels Institute commissioned a study focused on what these audiences can expect in the fairly near future.

Founded by the National Association of Convenience Stores (NACS) in 2013, the Fuels Institute is a nonprofit organization dedicated to evaluating issues affecting the vehicles and fuels markets. It commissions comprehensive, fact-based research projects that are designed to answer questions—not to advocate for a specific outcome.

The Fuels Institute partnered with Navigant Research to develop a forecast of vehicle sales and registrations, segregated by primary fuel type and powertrain, through 2025. The institute has released this study in three segments. The first is titled, “Tomorrow’s Vehicles – An Overview of Vehicle Sales and Fuel Consumption Through 2025,” the second is titled, “Tomorrow’s Vehicles – A Projection of the Light Duty Vehicle Fleet Through 2025” and the third segment is titled, “Tomorrow’s Vehicles – A Projection of the Medium and Heavy Duty Vehicle Fleet Through 2025.”

All three segments are free to download after providing some simple registration information, and provide far more detail than what is covered in this article. Those whose livelihood depends on making the right calls relative to fuel marketing, fuel retailing and fleet operations would be hard-pressed to find a better deal on such thoroughly developed information. The observations noted here are for the U.S. market, but the report also covers projections for the Canadian market.

 

What Is the General Takeaway?

“Things are going to change in a very measured, predictable fashion, and these individuals and groups that are out there saying ‘mass change in 10 years’ are not being realistic,” said John Eichberger, Executive Director of the Fuels Institute. “We are starting to develop plenty of information that contradicts those positions.”

In fact, when looking at the range of graphs presented throughout the reports, it can be hard to spot the change. Some alternatives such as hydrogen, which represents a fraction of 1% of the market today, will merely have a larger fraction of 1% of the market by 2025.

The report indicates that gasoline and diesel, and similarly ethanol and biodiesel, will remain the dominant fuels into the near future. Gasoline and ethanol demand is projected to decrease, but only by a compound annual growth rate (CAGR) of -0.2% in the base scenario and -0.3% in the aggressive scenario. The aggressive scenario represents a more rapid increase in the price of oil and a more significant decrease in battery cost compared to the base scenario.

Largely due to increases in heavy-duty class consumption, diesel and biodiesel consumption is expected to rise to a level approximately 14% and 12% higher than 2016 levels in the base and aggressive scenarios, respectively, according to the report.

 

Light-Duty Vehicle Market

Although the overall change the LDV market in this timeframe is expected to be moderate, some interesting trends were identified in the LDV market.

According to the report, plug-in battery electric vehicle sales (including plug-in hybrids) are expected to increase to over 5% and over 8% of the LDV market in the base and aggressive scenarios, respectively. That still represents less than 2% of the vehicles expected to be on the road at that time. However, this period may represent the lull before more aggressive growth occurs.

“I think just after this period, around 2025 – 2030, battery technology is going to get much better,” said Eichberger. “We’re going to get that 300 – 350 mile range and 15-minute recharge capacity, and that’s going to make it a technology that satisfies 95% – 98% of consumer needs.”

He noted that if the limited but compounded growth rate for electrics continues, by 2030 these vehicles are going to have greater than a 10% market share of new sales, perhaps even 15% – 20%, and be 5% – 10% of the vehicles on the road. Eichberger projects that by 2035, those numbers are going to grow much faster.

“I think by 2030 the auto companies will make money on electric vehicles to where government support might not be required,” Eichberger explained. “I think by 2030 – 2035, this is a free-standing, competitive market. But at the same time, what we’re showing in this report is that it’s just a seed for future market development. We’re not going feel an impact in the next 12 – 15 years. When we start feeling it, it’s going to be minimal at the beginning but it will ramp up as everything does. The market changes slowly. Even out to 2050, we’re still going to driving internal combustion engines, and they could still be 50% or more of the market.”

One of the bigger losers in this scenario is hydrogen. The cost and infrastructure challenges hydrogen faces are not being overcome at nearly the same pace as the advancements in electric vehicle battery technology.

One LDV offering expected to see a significant drop off by 2025 is flex-fuel vehicles (FFV). This category is projected to decline from roughly 10% of sales today to around 1% of sales in 2025 due to the expiration of an important automaker CAFE credit in 2019. While producing an FFV is not significantly more expensive than a conventional counterpart, getting FFVs certified is exceptionally expensive.

“You have to certify your emissions profile on multiple levels of ethanol blend,” Eichberger noted. “That is tens of thousands of dollars per model. But more importantly, without the CAFE credit, these automakers need to get more efficient, which means an increased use of direct injection or turbo-boosted engines. If you have a flex-fuel component that gets a lot more complicated.”

 

Commercial Vehicle Market

As noted, current Phase 2 regulations on MDVs and HDVs are projected to provide a nearly 23% improvement in efficiency by model year 2027. As with LDVs, the impact of this on the current fuel mix is not extraordinary. Today, gasoline and diesel-powered vehicles combine to make up more than 96% market share of all MDV and HDV vehicle sales.

That market share is expected to decrease slightly by 2025 to 93% in the base scenario and 92% in the aggressive scenario. The report notes that the vehicles making up this loss will likely be hybrid or compressed natural gas (CNG) vehicles. As noted earlier, diesel fuel volumes will be increasing slightly as the HDV sector is expected to increase in total numbers even as the mixes of power plant types change.

“I guess the one thing to take away is CNG has, among the alternatives, a reasonably strong presence,” said Eichberger. “But it doesn’t grow into domination even in the aggressive scenario. And it’s down from when we did this three years ago. We know why—the price competitiveness relative diesel is not as beneficial as it was a few years ago and investments have dried up.”

He noted that it is generally difficult to forecast natural gas vehicles, particularly in the LDV class, because so many solutions are aftermarket. “Individual fleets have to make those decisions, and it’s not usually the original equipment manufacturers (OEM),” Eichberger said. “So predicting that type of investment is tricky. I think [the projection] is pretty reasonable given the price relationship between the fuel and the very conservative forecast, and it’s justified with what we’re seeing today.”

 

New Octane Fuel?

One factor not taken into account is the movement to develop a new, high-octane replacement fuel. Until solid movement begins, including such a fuel in the mix would be premature. However, Eichberger noted that progress was being made.

“We’re finally starting to get some coalescence among the auto industry about what they want. And it’s starting to look more and more like a 100RON fuel,” he said. “We have our octane study ongoing; it’ll be available in the first quarter next year. We’re modeling formulations of fuels to achieve the characteristics that would make it successful in the marketplace. What will have to happen then is engines will have to perform as designed on the high-octane fuel, but perform tolerably and safely on premium so the consumer knows they can always refuel. But, if they want full performance, they have to buy the new fuel.”

 

Will the Regulations Hold Up Under Trump?

The Trump administration has indicated a desire to tone down, and in some cases reverse, the more aggressive environmental regulations pushed through under the Obama administration. This has included revisiting the CAFE standards.

“The administration’s actions to date have been misconstrued,” Eichberger explained. “They have not said we’re going to roll back the regulations, and they have not started the rulemaking to roll back the regulations. They reconstituted the midterm review process that the prior administration shortchanged. Let’s say that the administration does decide to take the current CAFE standards and stretch them out. Change that 2025 target, maybe reduce a little bit, maybe stretch it out to 2030—what’s the impact?”

He noted that the automakers are not just serving the American market; they have to satisfy European specifications, which tend to be aggressive, as well as Asian markets. The North American market is approximately 20% of the global sales market, while Europe is larger than North America and Asia is close to 48%.

In a similar vein, California and 10 other states—largely in the Northeast—have made commitments to aggressive emission and efficiency standards at the state level. That most certainly will influence the automakers as they develop both international and domestic product lines.

“So, they’re going to continue to advance technology to improve efficiency and emissions. Despite what may happen with CAFE standards in the United States, Americans are going to benefit from that technological advancement,” said Eichberger.

There has not been much discussion on the relatively new (2016) Phase 2 MDV and HDV standards, but truck manufacturers have been expressing some concern about the complexity of the next-generation technological approaches required to meet them. That is especially the case where carbon dioxide (CO2) requirements meet California’s push for more stringent nitrogen oxide (NOx) requirements, which causes technical issues.

“The heavy-duty sector is going to be very different from the light-duty sector,” Eichberger noted. “Because our economy runs on the back of diesel, I would not be surprised to see a relaxation on the HDV side, provided it doesn’t result in an increase in emissions. I would not be surprised to see some slowdown, but probably not a rollback.”

You can download the series of “Tomorrow’s Vehicles” reports and others at www.FuelsInstitute.org.

You can download the each report here: