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Future of Fuel: The Foundation for Growth

Published:

February 24, 2021

Category:

Alternative Fuel

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As OEMs, policy makers and organizations work in conjunction to bring forth sustainable developments, the transportation sector has continued to make significant strides forward. In this edition of Future of Fuel, our focus is centered around three new themes shaping the industry: battery advancements, policy drivers under the new Biden administration and developments for autonomous commercial vehicles. Continue reading to learn why these themes will impact the industry moving forward.

Theme #1: Advancements in Battery Storage, Pricing and Recycling

With more OEMs committing to EV production, additional funding has come online to support battery developments. Compared to 2019, funding for battery storage and the smart grid has grown upwards of 112%. Further, in 2020 significant venture capital funding was allocated towards lithium-ion batteries, followed by solid state, energy storage and flow batteries. Much of this funding came from companies including Northvolt, QuantumScape, Zenobe Energy, ProLogium Technology and Form Energy.

Also, while battery pack prices were cited below $100/kWh for the first time in 2020, the market average sits at $137/kWh. However, it is predicted that by 2023, average battery prices will be close to $100/kWh – a crucial price point for automakers. At this price, EVs can be produced and sold at the same price (and with the same margin) of internal combustion vehicles in select markets.

Over the past decade, the world’s lithium-ion production capacity has increased tenfold to meet the growing demand for electric vehicles. But – as models from that first production cycle reach the end of their lifespan, organizations are turning to battery recyclers such as Li-Cycle and Redwood Materials. In fact, in 2019, the Department of Energy chose the Argonne National Laboratory to lead its ReCell Center’s efforts to improve lithium-ion recycling techniques.

Theme #2: Policy Drivers Under the New Biden Administration

Driving these decarbonization strategies, the new Biden administration has set forth a sustainability agenda – likely to include policies, regulations and laws to combat climate change prior to the 2022 midterm elections. Of these policies, it is expected many will focus on decarbonizing the transportation sector and promoting EV adoption. This is seen through recently introduced legislation requiring the EPA to act on the stalled Renewable Fuel Standard (RFS) pathway petitions and applications to include e-RINs.

Relative to key policy makers, on February 9, 2021, the U.S. Senate Environment and Public Works Committee approved the nomination of Michael Regan as the new EPA administrator in a 14-6 vote. Also, on January 22, 2021, the Senate Finance Committee approved Janet Yellen as U.S. Treasury secretary in a 26-0 vote. During her confirmation hearing, Yellen voiced her support of carbon pricing, for which she is not alone. The Climate Action Rebate Act of 2019 was introduced into the Senate – proposing a $15/mt carbon tax in the upstream sector (which would double annually) to reduce emissions to 55% of 2017 levels by 2030 and by 100% by 2050. Only once emissions are reduced to 10% of 2017 levels will this carbon tax increase stop. Additionally, this bill provides a tax refund for carbon capture and sequestration operations and would redistribute 70% of the tax revenue to those in low- and middle-income brackets.

But, that’s not all – the support for carbon taxation continues. The Stemming Warming and Augmenting Pay Act (SWAP Act) proposes a $30/mt carbon tax in the upstream sector that would increase 5% per year to reduce emissions by 42% by 2030. The resulting tax revenue would be split three ways with 70% going to reduce payroll tax, 10% for Social Security recipients and 20% to aid climate programs and low-income earners. Varying slightly, the Raise Wages, Cut Carbon Act of 2019 (RWCC Act) proposes a $40/mt carbon tax in the upstream sector, which would increase 2.5% each year until emissions were reduced to 20% of 2005 levels. Under the RWCC Act, tax revenues would also be split three ways with 85% used to reduce payroll taxes, 10% going towards Social Security recipients and 6% used to assist low-income earners. However, while many proposals for a carbon tax exist, a formal policy has not yet been adopted within the United States.

Theme #3: Autonomous Commercial Vehicles Developments

In conjunction with the above advancements, talks around autonomous commercial vehicles are continuing to emerge – and gain traction. As of January 20, 2021, Paccar’s shares increased 3% after announcing their partnership with Aurora: the autonomous driving start-up backed by Amazon. Since 2017, Aurora has been working to create the first fleet of self-driving semis. In fact, in December of 2020, Aurora acquired Uber’s self-driving unit after giving up 26% equity. Then, in October of 2020, Daimler’s AG commercial truck unit and Alphabet’s Waymo announced their collaboration to develop a self-driving Class 8 semi-truck where Waymo will apply their automated system to Daimler’s Freightliner Cascadia.

As these three themes continue to unfold in the coming months, policy and technology advancements will enable greater adoption of alternative fuels across market sectors. Tune in to our next edition of Future of Fuel to watch as the market continues to evolve. Until then – reach out and we can help you build a customized fueling strategy.

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