On March 16th at the House of Lords in London, the Windsor Energy Group hosted an expert discussion on the factors driving demand in electrified powertrains.  As a consultative group consisting representatives from different national governments and energy companies, its aim is to inform on the issues and challenges facing its members.



The expert panel at this particular discussion comprised of: 
• Alejandro Agag, CEO of the FIA Formula E electric racing car series; 
• Lord Drayson, a former British science minister and racing driver; 
• Norbert Rücker, head of commodity research at the investment bank Julius Baer; 
• Dr. Greg Offer, senior lecturer at the faculty of engineering for Imperial College London; 
• Anthony Thomson, vice-president for business development and marketing for electric vehicle wireless charging at Qualcomm; and 
• Lilli Matson, head of strategy and outcome planning for Transport For London.

Related Strategy Analytics blogs:
• The UK Showcasing Electrified Powertrain Development
• CO2 Drive Causes Paris Smog – Resulting Changes That Could Affect Automotive

Related Strategy Analytics reports:
• FIA Formula E and SAE J-2954 Standard Advance Qualcomm’s Position in Wireless Charging Electric Vehicles
• 2017: The "Important Year" For Wireless Charging In Electric Vehicles

But this recent discussion also points to a growing concern over the effects of air pollution from combustion engines and that the stabilization of oil prices will mean that governments should not rely on high fuel prices to persuade consumers to choose fuel efficient, low emitting powertrains for their next vehicle purchase.

Medical journals have suggested that it took 30 years to link smoking as the cause of lung cancer before action was taken by governments to dissuade consumers in purchasing tobacco.  There was also a similar time period for the link in asbestos to appear.  There is also the fear that almost invisible emissions of PM 2.5 (Particulate Matter at 2.5 microns in diameter) may bring a detrimental effect on health for many years to come.
• If such a health issue does occur, it may result in a class action law suit that would be damaging to the automotive industry, in much the same way the Volkswagen diesel scandal is having on that auto maker.  
• Some attendees in the discussion agreed that such a law suit could trigger further acceleration towards electrification.  Volkswagen’s response to the diesel scandal is to develop a new platform designed specifically for electrified powertrains, called MEB (Modularen ElektrifizierungsBaukasten) first previewed on the Budd-e concept car at CES 2016.  Sister brand Audi has announced a €3 billion (US$3.4 billion) investment in electrification and digitalization, while Skoda announced a forthcoming Superb plug-in hybrid (PHEV) sedan.  One of the reasons behind the scandal was that Volkswagen was unable to develop a diesel powertrain that could profitably meet the tougher US mandate on nitrogen oxides (NOx).
• A study by King’s College on London’s air pollution found that the city’s premier shopping hub, Oxford Street, to be world’s worst for NOx, gases that are known to cause cancer.  As quoted by Thomson of Qualcomm, the World Health Organization estimated that, in 2010, the European economy fell by US$1.6 trillion caused from 600,000 premature deaths – an equivalent of 10 percent of the entire Gross Domestic Product of the European Union.
• Fellow attendee, Simon Birkett – founder and director of Clean Air London, claimed that only 7 percent of areas in London that breach European mandates on air pollution are being affected by the forthcoming Ultra Low Emission Zone (ULEZ) proposals to ban combustion engines by 2020.  
• Like a number of European cities, London will force taxis to run on zero emissions by 2018.  Transport For London is implementing more buses to run on pure electric, series hybrid and hydrogen fuel cell (FCV) powertrains.  
• If the measures in city centers are not regarded as being sufficient, then I feel that they will be implemented over a wider area than those areas already being proposed. Furthermore, the increasing urbanization, particularly in the emerging markets, would mean a greater urgency in incentivizing and mandating zero emissions transportation. 

According to Rücker of Julius Baer, the notion of “peak oil” supply is now false and that fuel prices are likely to remain stable for the foreseeable future.  This could lead to a Catch-22 situation where fuel prices have long been the key driver for electric vehicles.
• When oil prices recovered in the mid-1980s, from US$100 a barrel, development on electric vehicles was curtailed.
• Recent crude oil prices have stayed stable for the last 18 months, at around US$40 a barrel.  Demand from China has fallen, allied with new supplies coming from Iran, which is no longer subject to trade embargos, and from the break-up of energy monopolies and the sale of exploration sites in Mexico.  
• The threat of spikes in the oil price will be unlikely, given the growing demand in alternative fuels and electrified transportation.  
• Fuel demand in China will be tempered by the chronic air pollution in its cities, with other emerging markets likely to follow suit with heavy government incentives and mandates.  
• The cost in producing batteries for electric vehicles is decreasing, while more models enter the market.  This increases the desirability of electric vehicles to consumers.  
• Future autonomous ride-sharing vehicles are also likely to adopt electric powertrains, with added impetus from young consumers who are more willing to use ride-sharing schemes over owning their own vehicles. 
• As a result, the Julius Baer demand forecast for oil will peak in 15-20 years’ time.

From the growing concerns over air pollution in the backdrop of low fuel prices, it is in my opinion that governments need to widen and target their strategies to incentivize and mandate the use of alternative fuel and electric vehicles and not be too reliant on fuel prices to promote purchases of fuel efficient, low emitting vehicles.  
• As can be seen in the US market, low gasoline prices can only promote consumers to purchase less fuel efficient light trucks and SUVs – the average fuel economy of US light vehicles has stubbornly stayed at around 25 mpg (9.4 l/100 km) for the last 3 years.  Sales of the Toyota Prius have fallen against the previous year.
• By contrast, in many European countries, the consumer is heavily taxed – both on fuel sales, which make long journeys and inefficient vehicles expensive, and on vehicle purchases based on fuel consumption and carbon dioxide (CO2) emissions.  Government policies are now being focused away from high NOx and PM emitting diesel powertrains and more towards pure electric vehicles, with FCVs and PHEVs as temporary measures when infrastructures are being built.
• For example, the UK has moved away from taxing vehicles based on CO2 emission bands annually and more towards the “bonus-malus” or showroom-based tax, with a crippling £2,000 (US$2,878) charged on the most polluting vehicles and just £10 (US$14) for certain PHEVs and no tax for EVs, allied with a £4,500 (US$6,475) purchasing subsidy for EVs and £2,500 (US$3,597) for PHEVs.  I also believe that there should be an additional surcharge for diesel powertrains because of their higher NOx and PM emissions.  Many European governments are also increasing their tax rates on diesel fuel sales.
• Japan also promotes FCVs – as these vehicles are essentially hybrids with a hydrogen fuel cell, the hope is that improving battery technology would enable a full transition towards pure electric vehicles.    
• Vehicles that do not comply with the Euro-4 equivalent emission standard have been banned from entering Beijing and those that do not comply with Euro-5 are banned from entering the Fourth Ring Road, similar to the proposed ULEZ in European cities banning the use of combustion engines.  I propose the London Congestion Charge Zone on non-EVs to widen further. 
• However, the measures do not tackle the existing fleet of more polluting vehicles already on the roads, which could become more affordable because of low fuel prices and rapid depreciation.  I believe that a scrappage incentive should be offered for these vehicles and lower emissions overall.
• References to government incentives and mandates can be found in the Strategy Analytics EV/HEV Technologies Supply & Fitment Database.