Q7.2 How much will this technology add to the cost of a vehicle?

A7.2 The goal of PNGV is that the cost of the car is no more than a conventional vehicle. It is projected that the fuel cell technology, when fully developed and with economies of scale resulting from mass production, will not result in any overall cost increase compared to conventional vehicles. PNGV cost targets reflect this philosophy. Great progress has been made in approaching these cost targets, although significant progress remains to be made.

Q7.3 When do you expect to see mass production of fuel-cell equipped vehicles? A7.3 As discussed in answer 7.1, automobiles equipped with this technology are projected to be available commercially (and mass-produced) between 2005 and 2010.

Q7.4 What do you expect will be the market penetration for this vehicle in the next decade to 15 years?

A7.4 If fuel cell technology provides the same vehicle performance and cost that today's consumers demand, but with greater fuel economy and greatly reduced emissions, it is quite likely that fuel cell vehicles will achieve substantial market penetration in all classes of light duty passenger vehicles (which includes light duty trucks). One study, published by the National Renewable Energy Laboratory, predicted that after initial market introduction, a penetration of 24% could be achieved in 20 years.

Five-Lab Study Carbon Charge

Q8.

A8.

The Five-Lab Study indicates that the only way that carbon emissions in 2010 can return to the 1990 level (i.c., 1.34 billion metric tons) is through the imposition of a $50 per ton "carbon charge." How does such a “carbon charge" differ from a carbon tax?

As a point of clarification, the Five-Lab Study does not indicate that the only way that carbon emissions in 2010 can return to the 1990 level (i.e., 1.34 billion metric tons) is through the imposition of a $50 per ton "carbon charge." Rather, the study presents one of many possible scenarios that could return carbon emissions to 1990 levels in the year 2010.

In the Five-Lab study, a "carbon charge" refers to the market price of a tradable emission permit under a system whereby the U.S. establishes a national cap for CO2 emissions. (There are several different variations of such a system). In contrast to a carbon tax, the Internal Revenue Service collects no tax under a cap and trade system, and only the

Five-Lab Study Carbon Reduction by Sector and by Technology

Q9. Table 1-4 on page 1.12 of the Five-Lab report, “Potential Annual Reductions in Carbon Emission in 2010, Compared to the Business-As-Usual Forecast in 2010," shows carbon reduction by sector and by technology. However, on page 1.11, it says that "one should not ascribe too much significance to specific entries in Table 1.4."

A9.

If we can't believe any of the specific entries, how can we have any confidence in the total reduction, which is presumably built up from the specific entries?

The phrase "one should not ascribe too much significance to the specific entries" was intended to indicate that there is uncertainty regarding the precise mix of high-efficiency and low-carbon technologies which would emerge under any of the scenarios presented.

There are many different technologies, both on the supply and demand side of the energy system, that will compete to achieve carbon reductions in an environment in which policies and economic signals favor such reductions. As such, we do not intend the results in the table to be taken as a prediction of one technology over another.

Five-Lab Study and Energy Information Administration Analysis

Q10. The Energy Information Administration, in its July 1997 report Issues in Midterm Analysis and Forecasting 1997, p. 39, indicates that carbon emissions continue to increase in each sector even under its "Rapid Technology" scenario, and forecast that carbon emissions would rise to 1.64 billion metric tons in 2010-some 300 million metric tons more than the Five-Lab study estimate.

How do you reconcile this inconsistency between the official government estimate that already incorporates optimistic technology assumptions and the Five-Lab result?

A10. The Rapid Technology Case of the Energy Information Administration (EIA) study and the results of the Five-Lab Study were developed independently, for different purposes, and using different modeling systems and technology and market assumptions. The EIA Rapid Technology Case is most comparable to the "efficiency case" of the Five-Lab study. The EIA study introduction states (page 1): "The assumptions analyzed in this [EIA] study were developed by the Energy Information Administration and are not based on U.S. research and development programs or their funding levels." On page 2, the EIA study states that:

“Although advanced cost and performance characteristics of technologies were represented no attempt was made to analyze the potentially best technologies achievable through research. Also, the study did not incorporate all possible new technologies or the greatest possible improvements in all technologies. The goals of this study were (1) to analyze the potential role of technological progress on energy supply, consumption and prices in U.S. energy markets and (2) and to assess how 'success' on one side of the U.S. supply or demand equation may reduce the potential 'benefits' on the other side."

There is no inconsistency between the EIA's projections and the scenarios of the Five-Lab study:

In its "efficiency case" the Five-Lab study shows about the same amount of carbon reductions as EIA's Rapid Technology scenario. In both scenarios, no carbon cap and trade system is assumed. The "efficiency case" assumes that the United States increases its emphasis on energy efficiency through enhanced public and privatesector efforts. Further, the U.S. reduces but does not eliminate various market barriers and lags to the adoption of cost-effective energy efficiency technology.

In the Five-Lab report, two other cases show carbon reductions greater than both the "efficiency case" and EIA's Rapid Technology scenario. These cases are dubbed the $25 permit and the $50 permit "high-efficiency/low-carbon" cases and assume a carbon permit price resulting from a domestic trading scheme for carbon emissions with a cap on U.S. emissions. In addition, these two cases assume a set of policies to promote research, development, demonstration and diffusion of low-carbon technologies that is more significantly vigorous than in the efficiency case. Although some of the EIA Rapid Technology Cases assumed reduction or elimination of market barriers and cost and performance improvements, the causes for such changes were not identified. The purpose of these sensitivity cases was to examine what the market response might be given such changes in consumer behavior.

Transportation

Q11. The Five-Lab study states on page 5.3 that, for the transportation sector, “because the outcomes postulated in the high-efficiency/low-carbon sector scenario require technology breakthroughs, they require a certain degree of luck to be achieved by 2010.

What are some of the other sectors that will require “luck” to achieve technological breakthroughs?

All. "Luck" in this context merely means the likelihood of realizing technology breakthroughs depends to a certain degree on serendipity, a phenomenon that characterizes most innovation. In the sectors other than transportation, the Five-Lab study does not posit "luck" as a prerequisite to achieving carbon reductions. However, because of the nature of research and development, there can be no absolute guarantee that a specific technology breakthrough will occur in a specific sector within a specific time period.

Q12. The transportation analysis in the Five-Lab Study assumes “significant policies" must be used to ensure that new automotive fuel economy technologies are implemented after they are invented. Could you please describe these policies?

A12. Some of the possible significant policies which could be used alone or in combination with others include:

Incentive policies such as tax rebates for high MPG vehicles,

• Incentive policies to encourage manufacturers to produce and sell high MPG vehicles, such as investment tax credits.

A domestic trading scheme for carbon emissions with a cap on U.S. emissions, and

· Public information and education, as well as green marketing.

Q13. If new automotive fuel economy technologies are really cost-effective, as the report implies, won't competitive market forces be sufficient to drive their implementation, and if not, why not?

A13. Yes, the market will in part drive the implementation of cost-effective, fuel-efficient technologies. Green marketing strategies have a proven track record of tapping into consumers' preferences for a clean environment. As people become more aware of the importance of climate change mitigation, demand for "cleaner" cars will increase. Moreover, polls of our Nation's citizens clearly show strong support for clean air measures. The policies discussed in answer 12 will help shape market outcomes for environmental benefit.

Q14. Is it true that a $50 per tonne “carbon charge” translates into about a 13-cent per gallon price increase?

Q14.1 In your view, would this provide sufficient incentive to consumers to increase significantly the demand for new vehicles?

A14.1 No, other policies will also be needed such as those discussed in answer 12. Also, the Five-Lab study shows the importance of a vigorous program of research, development, demonstration and diffusion of low-carbon technologies.

Q14.2 How much would gasoline prices have to rise to motivate a 55 percent increase in new car fuel economy, used in this scenario?

A14.2 We did not analyze this issue because we believe that the necessary increase in fuel economy could occur through a vigorous set of research, development, demonstration and diffusion of low-carbon technologies and policies such as those

Q14.3 Could the same increase be achieved through regulation, and if so, how? Through an increase in the Corporate Average Fuel Economy (CAFE) standards?

A14.3 Yes, the increase could be achieved through fuel economy standards, although we did not analyze or suggest the implementation of this or any other specific policy.

Q15. The Five-Lab Study is conflicting on the issue of how improved fuel economy can be achieved. Page 5.1 suggests that improved technological efficiency is the biggest factor while page 5.7 suggests that it is weight reduction. Do you think achieving future improvements in fuel economy will require weight reductions and what will that mean for auto safety and utility?

A15. Yes, we believe that the use of lighter weight materials will be part of the technological improvements in future vehicles, but we expect that these vehicles will be as safe or safer than today's vehicles. The new materials will be lighter yet stronger than steel. Our program goal is to develop a more fuel efficient vehicle with no sacrifice in performance, safety or cost.

Market Forces

Q16. If there were truly cost-effective technologies that reduce energy use or carbon emissions and save money at the same time, then why won't they be developed by the market economy and purchased by consumers? Are you trying to tell us that DOE and their Labs are so much smarter that the business world and consumers, and if so, what is the basis for such a statement?

A16. The Department of Energy does not believe that its laboratories are smarter than our Nation's consumers or business world. However, there is virtually universal agreement among economists that the market alone would yield suboptimal research and development activity. Moreover, in the case of energy-related R&D, there has been a precipitous decline in research investments in the last several years.

Industry support of technology development is often hindered by a focus on short-term profitability, a lack of resources, the inability of individual firms to capture the full benefits of specific technology improvements, or the general under investment in research that benefits the common good more than the corporate bottom line. From its unique position within the mixed (market) economy, the Department can catalyze and facilitate public/private partnerships in research and development which improves our Nation's energy productivity, strengthens our economy and improves living standards.

In addition, the Department's programs can help in overcoming market barriers that inhibit economic investment in efficient technologies and practices. The ability of market forces to motivate economically desirable energy-efficiency investments can be impaired by poor information, the conflicting motivations of owners and renters, inadequate financing, inaccessible accounting of external benefits or costs, and many other factors. Energy policies that focus on specific “market imperfections" can improve the effectiveness of market forces and lead to lasting improvements in energy and economic efficiency.