Climate change is tying together the fates of two very different industries

Climate-driven objectives are tying together the fates of two very different industries: vehicle manufacturers and energy utility companies. A key factor in their joint future will be close collaboration and coordination on electric vehicles. Success will require a joint leap of faith.

Electric vehicles, after all, account for less than 3% of all vehicle sales in the US. That said, vehicle manufacturers and utilities are aware of — and are influenced by — the very robust global push for environmentally friendly solutions. Because of this, vehicle manufacturers are in a tough spot. From a technological standpoint, simply converting to electric vehicles does not necessarily equate to a reduction in overall CO2 levels. In fact, some indicators suggest that next-generation technologies for internal combustion engine vehicles might be more efficient at reducing overall CO2 emissions in the near-term.

Given the complexity and cost associated with meeting consumer expectations and regulatory requirements over the next few decades, it is unlikely to be economically feasible for vehicle manufacturers to invest in both the latest technology for efficient internal combustion engine vehicles and electric vehicles. As a result, we are at a turning point. General Motors recently announced plans to move to an all-electric line-up. If that decision is any indication, it appears that vehicle manufacturers have determined that the world is going to move in that direction. Sustainable success for the company means putting everything into electric vehicles.

Vehicles of all kinds account for approximately 23% of the CO2 pumped into the environment in the US, according to the Environmental Protection Agency. That’s a significant figure, but small enough to require tough questions to be asked about whether simply switching from internal combustion to electric will meaningfully reduce the impact of greenhouse gases — especially in the targeted time-frame of 2050.

In the long run, reducing CO2 levels will depend on where and how electricity is generated. It will be vital to plan and develop a national electric infrastructure carefully to ensure efficiency. Every step of energy conversion has an impact on the efficiency of energy distribution. For instance, generating electricity from natural gas — which is generally considered to be cleaner than burning coal or other petroleum products — still produces CO2. Energy is lost at every step of conversion from one form to another. Natural gas becomes electricity (but with loss), then it runs through a series of conversions from one voltage to another and experiences additional transmission losses. The electricity is then transmitted into a car battery where it is finally converted into the physical energy to propel the vehicle.

There are plenty of scenarios in which it is possible that less CO2 would be emitted if a vehicle just ran on petrol. The implication is clear — if there is no comprehensive national infrastructure for clean energy, the desired payoff from electric vehicles will be missed.

Even though the momentum behind electric vehicles is growing, driven by an interest in reducing fossil fuel usage, a critical mass of consumers is unconvinced of the ownership benefits. High on the list of electric-vehicle consideration challenges is the critical issue of consumer apprehensions regarding charging options and convenience. This is an area where utilities will have to play a role by broadening the availability and speed of charging. Utilities will also have to accelerate the shift to electricity generation that minimises or eliminates CO2 emissions.

Utilities have an immense opportunity to redefine their role in the economy, as cars and trucks make the switch from petrol and diesel to electricity. The shift will create a new category of utility customer that will generate brand new revenue streams. Success will hinge on whether utilities can effectively build an infrastructure and electricity generating capacity that supports the full life-cycle of demand, including peak times during moments of environmental stress.

The good news is that electric vehicles should create demand during times of day that have been considered fallow. As most electric-vehicle charging takes place overnight, utilities will be able to increase off-peak consumption allowing them to take advantage of capital that has typically been best monetised during the daytime.

In the meantime, utilities would be well advised to work with vehicle manufacturers to understand demand projections and develop charging strategies and invest in infrastructure that is optimised for an electric-vehicle future. The imperative for the vehicle manufacturing industry is equally urgent. Almost everything known about cars is going to shift dramatically. The technologies that are most complex, such as powertrains, will be irrelevant in a future in which personal transport is dominated by electric vehicles. New market entrants will not need to address sophisticated internal combustion and multi-speed transmissions. Vehicle manufacturers (new and old) will be able to start from a blank slate to produce a new generation of uniquely interesting electric vehicles that better serve modern consumers.

Society is not going to back down from movement towards reducing greenhouse gas emissions. Vehicle manufacturers and utilities will need to focus their resources through this period of transition in an intelligent and coordinated manner to emerge on the other side with a profitable and sustainable business model.

Doug Betts is president of global automotive at JD Power.

This. article was published by MarketWatch.

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