The Golden State could blaze a trail for other parts of the US, as new regulations and the spread of electric vehicles reduce its gasoline demand by between 9% and 13% by 2020
New York and London, 18 March 2014 ‒ California may cut its transport fuel consumption by more than a billion gallons per year by 2020 as a result of policy initiatives and local support for electric and high-efficiency vehicles, according to research from Bloomberg New Energy Finance.
The analysis puts forward two scenarios for the development of gasoline demand in the state over the next seven years. The base-case scenario sees consumption falling from 12.3bn gallons in 2014, to 11.2bn gallons in 2020, a reduction of 9%. In a slightly more aggressive scenario, in which efficiency standards are strictly met, the drop in demand would be 1.7bn gallons, or 13%.
Salim Morsy, advanced transportation analyst at Bloomberg New Energy Finance, said: “California will experience a significant shift in the make-up of both transport fuel demand and the composition of the vehicle fleet. A drop in net fossil fuel demand may put pressure on California oil refiners’ margins in the coming seven years.”
The research highlights several influences on the California transport market that are likely to be important. Federal fuel efficiency regulations, commonly known as CAFE standards (1), will be the primary factor behind the erosion of demand, bolstered by the California zero-emissions vehicle program, the federal Renewable Fuel Standard (RFS) and California Low Carbon Fuel Standard (LCFS).
These will encourage Californians to drive vehicles with low gasoline consumption per mile, including hybrid electric-gasoline cars and gas-fueled models ‒ and, in the case of the RFS, the use of ethanol and other biofuels. In addition, there will be greater penetration of cars with no tailpipe emissions at all entering the vehicle fleet – such as plug-in electric vehicles. In 2013, some 20,000 plug in hybrid and 22,000 electric vehicles were sold in California, according to the California New Car Dealers Association. The two totals together represent 2.5% of new light vehicle sales for the year.
A significant reduction in gasoline consumption in the most populous US state would not be unprecedented – since 2002 gasoline demand has dropped by more than 3bn gallons per year, as consumers have opted to drive fewer miles, partly in response to increases in fuel prices, and the fleet has become more efficient.
However, Harry Boyle, head of applied research at Bloomberg New Energy Finance, commented: “There are currently four distinct pieces of regulation that will expedite change for the Golden State before 2020, in addition to one clear economic consideration. The will is there to operate more electric vehicles, consume gasoline more economically, blend the right type of biofuels and do it at more affordable levels for the consumer.”
A White Paper summarizing the analysis on California’s evolving transport fuel market has been published today and is available at http://about.bnef.com/white-papers/. Many of the issues surrounding the evolution of the transport system will be debated by senior industry figures at the Bloomberg New Energy Finance Summit in New York on 7-9 April. For further information on the Summit, see http://about.bnef.com/summit/.