GM Opel Zafira Fuel Cell Prototype
This Opel Zafira represents the current state-of-the-art for GM fuel cell technology. Ironically, efforts like this may undermine GM's law suit against CARB.

2003:Automaker Armageddon?

Review of Air Resource Board staff response of GM's Impact study.

By Bill Moore

On its face, GM's argument against California's ZEV mandate seems logical enough. It goes something like this.

The ZEV mandate will force up new car and truck prices. This is result in not only fewer, newer, lower-emission vehicles being bought, but will keep older, more polluting vehicles on the roads of California longer.

The net result would be more pollution, not less; the exact opposite of what the ZEV mandate was meant to achieve.

To underpin its argument, GM relied on a January, 2001 report entitled, entitled "Impacts of Alternative ZEV Sales Mandates on California Motor Vehicle Emissions: A Comprehensive Study", co-authored by National Economic Research Associates, Inc. and Sierra Research, Inc.

ARB's staff contends that NERA/SR's "Impact" study relies on a number of linked assumptions, each of which depends on those of the previous model. [Download ARB Staff Response PDF]. The chain begins with the "New Vehicle Market Model," which assumes the price of new cars will be forced up as carmakers pass on their higher development and manufacturing costs to consumers in California. In its executive summary Staff writes:

"The output from this model feeds into the Fleet Population Model, which estimates the effect of changes in the new vehicle market on the entire motor vehicle fleet. The VMT Model determines the extent to which ZEVs would replace non-ZEV vehicle miles of travel. The Emissions Model estimates the effect of changing fleet composition on fleetwide emissions."

It is these assumptions that ARB's staff took nine months to analyze and reply to. The conclusions they reached will not set well at NERA/SR or General Motors. Here is what they concluded:

Taking each point in succession, ARB agrees that implementation of the mandate will, in all likelihood, increase new car prices in California. It calculates that this will amount to from $25-$40 per vehicle, not the $250-$400 estimated by NERA/SR. The difference is due, in part, to the fact that carmakers will be allowed to substitute Partial ZEV's (PZEV) under the current mandate rules.

It works out like this. For every one hundred vehicles sold in California starting in 2003, ten of them must be zero emissions vehicles. However, ARB included a provision that allows -- initially, at least -- six of those vehicles can be PZEVs similar to the Nissan Sentra, only with even lower evaporative emissions. ARB reduced its incremental cost of manufacturing PZEV technology from $500 per vehicle to $200 "due to a better understanding of the technologies that will be employed."

ARB's report states, "The cost of going to a zero evaporative system from the near zero systems is now estimated to be $10 per vehicle. Taking all of these factors into account, staff now estimates that the necessary hardware modifications to meet PZEV requirements will range from $60 to $85 per vehicle." Staff also included $125-$150 in warranty costs. Manufacturers of PZEVs are required to insure that these vehicles can operate150,000 miles as partial zero emission vehicles, which will require extended servicing and maintenance of the emission system.

The total estimated incremental cost now is expected to be between $185 and $235, with the average being considered $200.

In one respect, NERA/SR can't be faulted entirely. They based many of their numbers on those originally proposed by the ARB, itself. "Impact's" authors also accepted many of ARB's own assumptions, which have since been modified.

Case in point. The inclusion of Advanced Technology PZEVs -- another class of vehicles with even lower emissions -- and a proposed efficiency multiplier has reduced the number of vehicles that NERA/SR originally assumed would have to be built by 21%. ARB now estimates only 35,454 will need to be sold in 2007, the reference year of the "Impact" report.

Here too, NERA/SR and ARB differ on the incremental costs of AT PZEVs, which both assume will be advanced hybrid-electric designs. The former calculates the cost at $2500, while ARB estimates it at just over $1000. This amounts to a $49 million difference between the two when calculated against the projected 35,454 AT PZEVs ARB calculates would have to be sold in 2007. ARB's staff also points out that the very analysts NERA/SR cite estimate the incremental cost for a Prius-like vehicle at $2300.

But it is in the area of ZEVs that the differences become dramatic. It's long been assumed that battery electric vehicles were the only type of vehicle that qualifies as a Zero Emission Vehicle, though all admit that it is only "zero" at the local source. Its electricity must come from somewhere and usually that somewhere is a distant fossil fuel power plant. EV advocates hasten to point out that this electricity can also come from non-polluting renewable sources like hydroelectric power plants, geothermal, wind and sunlight.

And while tremendous advances have been made in electric drive technology, battery technology still lags in energy and power density, as well as price. As a result, NERA/SR based its definition of a ZEV as a full functioning battery electric vehicle with a range of 190 miles. They calculated the incremental cost of these vehicles at over $40,000 apiece, most of this in battery costs. NERA/SR believes that while these vehicles are more expensive than "city" class EVs, they also qualify for more credits under the ZEV mandate and therefore manufacturers like GM would have to build fewer of them.

However, ARB staff took exception to the assertion that costs of EV technology would remain significant high through 2020 with incremental costs dropping to just $32,000 by then. ARB used GM's on public statements to underpin its own estimates. Here is what they wrote:

Not only is ARB confident that the cost of EV components will continue to fall, but they further support their argument with more public announcements by GM about its breakthrough fuel cell efforts like those utilized in the Open Zafira. Again referring to recent GM press releases, ARB writes: ARB cites these two examples "to demonstrate that the NERA/Sierra assumption of no future improvement or cost reduction in ZEV technology is implausible and unreasonable."

In contrast, ARB cites Arthur D. Little's projections for fuel cell system costs as being somewhere from $9,300 to $11,000 depending on the type of stack used. While this is still significantly higher than the $750 it costs for a conventional gasoline engine, it is one-quarter the cost cited by NERA/SR. Assuming all manufacturers pursued a hydrogen fuel cell strategy, they would need to build -- by ARB's calculaton -- a total of just 8,000 fuel cell ZEVs in 2010.

ARB's response is also critical of NERA/SR's use of sales numbers during the Memorandum of Agreement (MOA) period starting in 1996 to 2000. Carmakers like GM have long argued that the low sales numbers of ZEVs during this period demonstrate there is little market for these type vehicles. ARB's staff, however, points out the many shortcomings of the MOA, which they allege cannot be relied upon to make sales and price projections. They cite similar conclusions reached by the Green Car Institute report:

"EV sales under the Memoranda of Understanding (MOA) period have not produced a true market. Automaker goals, where they are apparent form marketing programs, were focused on a relatively quick completion of MOA goals as opposed to building and sustaining a market for EVs."

The bottom line is EVs will probably not cost as much as NERA/SR assumes and this, in turn, impacts every other argument set forth in their "Impact" study. If EVs don't cost as much, then it can't be assumed that all car prices will go up and that older vehicles will stay on the road longer.

ARB staff contends that even if their cost estimates are low, there is little incentive for carmakers to pass on their costs to consumers due to the highly competitive nature of the automobile industry. Instead, carmakers and dealers have a wide variety of incentive tools to stimulate sales and remain competitive.

"Assuming for the sake of argument that manufacturers are able to pass along all of their increased costs (which staff believes is unlikely)," ARB writes, "the resulting price increases as estimated by the NERA/Sierra model still are quite small. Over the 2003-2020 time period, the 'ZEV tax' per vehicle ranges from $277 to $416 in the NERA/Sierra base case and from $26 to $36 using ARB assumptions. At these levels, such price increases can get lost in the "noise" of other marketing techniques."

Considering the leeway now written into the mandate, automakers have a number of options available to them for compliance. While it won't be "business as usual" in California come 2003, it also doesn't appear that it will be the automaker's Armageddon either.

The real beneficiaries of the mandate will be the people of California. They will enjoy of cleaner air even with the small number of EV's required under the mandate. ARB's response summarizes that using NERA/SR's methodology and its own assumptions, the "ZEV program results in an emission decrease of 0.32 tons per day in 2010 and 1.57 tons per day in 2020."

"Thus the basic conclusion of the NERAS/Sierra report -- that the ZEV program results in an emission increase due to reduced fleet turnover -- does not hold," concludes the ARB staff.


Times Article Viewed: 6377
Published: 10-Nov-2001


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