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Surging US SUV Sales: Why Increased Engine Performance May Augur Badly for Climate Targets

LOS ANGELES, CA - APRIL 25:  Surface street traffic corsses above the US 101 freeway on April 25, 2013 in Los Angeles, California. The nation's second largest city, Los Angeles, has again been ranked the worst in the nation for ozone pollution and fourth for particulates by the American Lung Association in it's annual air quality report card. Ozone is a component of smog that forms when sunlight reacts with hydrocarbon and nitrous oxide emissions. Particulates pollution includes substances like dust and soot.   (Photo by David McNew/Getty Images)

Surface street traffic crosses above the US 101 freeway on April 25, 2013 in Los Angeles, California. (Photo by David McNew/Getty Images)

In the US, total greenhouse gas emissions (GHG) from the transportation sector (27 percent in 2013) are closely trailing greenhouse gas emissions from the electricity sector (31 percent in 2013). According to the US EPA, the majority of such transportation-related CO2 emissions result from the “combustion of petroleum-based products, like gasoline, in internal combustion engines” with the largest emitters being “passenger cars and light-duty trucks, including sport utility vehicles, pickup trucks, and minivans.”

In its latest update the EIA calculated that “about 136.78 billion gallons (or 3.26 billion barrels) of gasoline were consumed in the US in 2014.” This translates to a daily average of about 374.74 million gallons (or 8.92 million barrels). The annual 2014 total is only about 4 percent off the 2007 record high of about 142.35 billion gallons (or 3.39 billion barrels) consumed.

Additionally, in the current comparatively low oil price environment – vis-à-vis crude oil prices hovering persistently around the US$100 per barrel mark in the recent past – falling gasoline prices at the pump tend to spur consumers to travel more in their vehicles (measured in “mileage driven”) and therefore to consume more gasoline – on balance even with fuel efficiency gains. Consequently, we should expect US gasoline consumption figures for 2015 to come close or surpass the 2007 record high.

Meanwhile, US car sales in the first couple of months of 2015 seem to have benefited from the low oil price environment too. The trend here is clear – Americans are again exhibiting (see SUV US Sales, 2005-2015 here) their persistent love of larger vehicles.

April 2015 Year-to-Date SUV and CUV Sales Rankings – Top 13 Best-Selling SUVs in the US

roman SUV1Source: Automakers & ANDC via Timothy Cain (Good Car Bad Car); Check out the Top 92 best-selling SUVs in America with every SUV ranked here.

Demand for sports utility vehicles (SUVs) as well as crossover utility vehicles (CUVs) surged in 2015, registering year-on-year double-digit percentage gains while sales of small and mid-size passenger cars decreased slightly.

roman suv2 US Passenger Vehicle Sales

Source: Motor Intelligence via Trefis

However, it would be shortsighted to attribute this phenomenon to lower gasoline prices alone even though they do play a crucial role in changing the public’s perception and consumer sentiment.

It is safe to say that such gas-guzzlers will remain en vogue irrespective of higher crude oil prices in the longer term because customers seem to prefer attractively styled, safer, generally more spacious and, above all, all-terrain vehicles with more engine power.

Moreover, the EIA forecasts in its latest Short-Term Energy Outlook (STEO) Brent crude oil prices to average US$61/bbl in 2015 and US$67/bbl in 2016. Note, the 2016 price forecast is now US$3/bbl lower than in May’s STEO. With respect to US regular gasoline monthly average retail prices, the EIA expects monthly average gasoline prices to decline from their May level of US$2.72/gallon through the rest of 2015, averaging US$2.43/gallon during the second half of the year. Further out, the EIA projects US regular gasoline retail prices to average US$2.55/gallon in 2016 – a reflection of the projected continued low oil price environment. US gasoline prices exhibit price linkage to Brent crude oil.

Thus, US customers can be expected to keep up the demand for higher engine power SUVs and crossovers because they expect to make up initially higher acquisition costs with better fuel efficiency and lower gasoline prices at the pump for the foreseeable future. So, while this is good news for the automotive industry, it appears to be an underappreciated problem for the climate. It may come as a surprise for the Obama administration, but mitigating US greenhouse gas emissions is not all about coal and power generation. The transportation sector deserves a long and hard look to make sure that emissions reduction progress in the electricity sector is not negated by transportation sector increases.

In this context, the German Federal Statistical Office (Destatis) quantifies the impact of rising SUV sales in Germany on the climate by looking at average engine performance of newly registered vehicles and their concomitant carbon dioxide emissions over time. Destatis said in a recent press release that new registrations for the year 2013 had “an engine performance of 101 kW (137 hp)” meaning that “average engine performance of newly registered vehicles increased significantly from 2005 to 2013.” The press release elaborates on that further:

“In 2005, it had been just under 91 kW (123 hp). In arithmetic terms, fuel consumption thus was 3.8 billion litres higher in 2013 and carbon dioxide emissions increased by 9.5 million tonnes compared with 2005. The increased consumption was mainly due to the segment of sport utility vehicles (SUVs) and off-road vehicles, a segment characterised by high engine power and high fuel consumption. If the vehicle fleet’s engine performance had remained unchanged, it would have been possible to save 12.0% of CO2 emissions in 2013 despite increasing numbers of vehicles. In fact, however, CO2 emissions decreased by just 1.6%.”

Note, the overall decrease in CO2 emissions can be attributed to fuel economy improvements, and in particular, to an increased switching from gasoline-powered to diesel cars in Germany (See respective Destatis tables with more details and numbers in German here). The latter, using one of the most efficient and energy-dense fuels on the market, helps save fuel costs in the long run and also gives drivers better mileage per gallon.

As such, given the proliferation of larger vehicles in the US due to comparatively cheaper fuel costs and American preferences being distinctly different from European preferences and needs in terms of vehicle purchases, the US transportation sector and especially SUV and CUV sales may make or break US climate plans and targets in the future given the sheer scale of the US auto market.

Moreover, consider the potential impact on carbon dioxide emissions as charted in the German report. If climate change is such a high priority for the current US administration, then the transportation sector’s contribution to carbon dioxide emissions needs to be properly addressed and dramatically reduced. Recent moves to limit carbon emissions from the air transport sector are a step in this direction.

However, it is disingenuous to simply create one big climate villain – the coal industry – for ‘Climate PR’ purposes. In fact, the coal industry will help to keep the lights in coming decades in the US and around the globe as confirmed by every available and reputable study given coal’s continuous and significant share of global electricity production, not to mention the volume of new plants being constructed in the developing world.

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