Week 8 - Chapter 13 Flashcards
Freight transport
energy put to use in moving goods
Passenger transport
energy put to use in moving people
Internal combustion engine (ICE)
While early versions of autonomously powered carriages (automobiles) had been developed over the nineteenth century, Karl Benz is considered the inventor of the modern car, which he patented in 1879 and commercialized over the next couple of decades. This vehicle used an internal combustion engine (ICE), which ignited a light distillate of oil—gasoline—in a sealed container, which turned a driveshaft and brought power to the wheels. In 1892, fellow German Rudolf Diesel developed a variation on the engine design to use heavier distillates of oil (paraffin oil, now known as diesel fuel) in a more efficient combustion process. Both gasoline and diesel engines are in common use today for automobiles.
Light-duty vehicles (LDVs)
The technology of automobiles progressed rapidly, with improved efficiency, durability, and comfort, and expanded to include both cars and light trucks, collectively referred to as light-duty vehicles (LDVs). However, it was the expansion of manufacturing technology that helped make the automobile mainstream by driving dramatic improvements in manufacturing efficiency and reducing the cost for potential buyers. American industrialists Ransom Olds and Henry Ford pioneered the use of assembly lines and interchangeable parts to standardize and speed up vehicle manufacturing, making these vehicles accessible to the growing number of middle-class consumers.
Heavy-duty vehicles (HDVs)
Given that a primary motivation for using road vehicles is to move bulk goods and materials, larger autonomous vehicles were quickly developed with bigger and more powerful engines, wheels, and structural support to haul heavier weights. Just like in the development of the automobile, early attempts included horse-powered and steam-powered vehicles but quickly switched to the internal combustion engine, starting with Karl Benz’s first internal combustion engine truck in 1895. Originally, these trucks were powered by gasoline engines but switched to the diesel engine in Europe by 1950 and in the United States by 1970.3 Since their invention, trucks have become larger, more efficient, safer, and more specialized for specific purposes, though their basic function remains the same. These vehicles are sometimes referred to as heavy-duty vehicles, or HDVs.
Torque
The breakdown of energy used by mode of transportation shows that land-based transport across LDVs, trucks, trains, and buses make up almost three-quarters of the total energy use, and these modes of transportation are largely powered by the combined use of gasoline and diesel fuel. Gasoline-powered vehicles dominate LDVs, with some regional exceptions, so gasoline makes up the largest share of fuel use in the mix. Diesel fuels tend to be used for heavier commercial and industrial applications such as heavy trucks, trains, and buses due to their engine designs, which allow higher torque (power at low speeds) and higher compression ratios.
Transportation networks
The analysis of transportation is incomplete if considering simply the need for transportation services and the vehicles and fuels used to supply them. For their use, vehicles require an infrastructure, the existence of which is as critical to transportation services as the vehicles themselves. This infrastructure not only consists of the ability to operate vehicles or to load and unload vehicles but also includes the infrastructure necessary to fuel them, maintain them, and safely direct their activities across an integrated transit network.
Without this vital infrastructure, the ability to cost-effectively provide transportation services is greatly impaired. Constraints on the use of this infrastructure (sometimes referred to as a transportation bottleneck) can be just as limiting to the operation and delivery of transportation services as insufficient vehicle capacity or constraints on energy inputs.
Collectively, this infrastructure can be thought of as overlapping and connected transportation networks. Regardless of which mode of transportation is being analyzed, some of the common transportation network infrastructure elements include:
■ Ports and stations—These facilities allow the efficient loading and transfer of people and goods from one node to another or from one mode of transportation to another. Airports, seaports, train stations, bus stations, truck depots, and even automobile parking lots all function as vital transportation network hubs.
■ Rails, roads, and lanes—The transit infrastructure connecting these hubs varies by transportation mode but includes rail lines and roads as well as sea lanes and air routes for marine and aviation applications, respectively. Some of this infrastructure is very capital intensive, such as laying a network of highways or railways or even building canals for ships, while others require less physical capital and more standard setting and management, described below. These assets must be maintained or risk gradual or sudden loss of utilization over time.
■ Transportation network management—Managing these transportation networks requires a set of rules for behavior, ranging from speed limits to docking criteria to vehicle performance standards. The goals of these rules may be to ensure overall network or asset utilization efficiency, traffic management, pollution limitations, or local community or user protection from potential risks. Network management can function either as a decentralized network with many uncoordinated individual users across a large network, such as with roads and cars or in international shipping, or it can function as a more centralized network when precision and coordination is required, such as for air traffic control or rail dispatch.
■ Fueling infrastructure—Unlike other networks that may also have hubs, connections, and network management, transportation networks also have deep structural linkages to the energy supply required to power vehicles. Fueling infrastructure has to be deployed throughout the network, often at hubs for fleet and industrial transportation options or along routes for more distributed networks such as for automobile travel. In addition to providing the fueling locations, standardized design for fueling devices and fuel types is necessary to ensure that fueling is possible and the fuels are optimized for the precise vehicle and engine in which they will be used.
Codependence
The development of this transportation network infrastructure is not independent of the development of the vehicles and fuels that use them. Precise choices of infrastructure elements have always been informed by the types of vehicles and fuels that use them and, conversely, additional vehicles have been deployed where infrastructure elements were available to allow their efficient use. This has created an architecture founded on codependence, where the physical capital of vehicles and infrastructure has each had to develop simultaneously and now rely on the existence of the other for continued efficient operation.
Codependence creates the condition that changing aspects of one of these types of capital may only proceed as long as it takes into consideration the existence and capacity of the other. Vehicle innovations (for example, larger planes and ships or alternative-fuel engines) must ensure access to the necessary infrastructure to operate them (e.g., correctly sized airports or wide-enough canals or advanced fueling stations); conversely, new infrastructure must be developed with consideration for the projected fleet of vehicles that use them, which will by necessity include a large part of any existing fleet of vehicles. Given that the decision makers for investment and vehicles and infrastructure are not always the same people, the potential for poor investment exists without effective communication.
In economics, two goods that have to be consumed at the same time are known as complementary goods. Technically, this refers to the case in which the elasticity of demand is negative across the two goods (cross-elasticity). For example, a rising price of one good that causes a reduction of demand for it therefore causes a reduction in the consumption of the other good, and vice versa. Codependence of different parts of energy and capital in energy system supply chains arises from this complementary relationship. Rising prices for gasoline may reduce the demand not only for that fuel but also for vehicles and infrastructure that use gasoline. Conversely, categorically more expensive vehicles may reduce the purchase of those vehicles and reduce demand for fuel, as well as the need for fueling infrastructure to provide energy to those vehicles. The development of these supply chain components proceeds in tandem, often ensuring balanced growth among the components.
Asset lock-in
The story gets more complicated when combining features of complementary assets with highly capital-intensive investment—such as vehicles and fueling infrastructure—where the high fixed cost and low marginal cost of this capital means that the marginal cost of operating these assets is very low. In other words, once vehicles and infrastructure are in place, they typically are cheap to dispatch and create a situation where it is cheap to continue using the existing assets as long as the complementary assets are in place. For example, as long as adequate highways and gasoline fueling infrastructure exists, the marginal decision to purchase or use a gas-powered vehicle is made easier and cheaper. Conversely, choosing to purchase alternative transportation vehicles, such as electric transportation or natural gas–powered vehicles, may be more expensive or riskier by comparison if that infrastructure is not currently or readily available.
What arises in this case is a form of asset lock-in, or path dependence, where vehicle and infrastructure owners continue to reinforce their existing choices due to their complementary nature—more cars leads to more fuel stations and highways, which leads to more cars, and so on. At the same time, new vehicle technologies have a much higher competitive hurdle if they must simultaneously deploy their complementary assets and infrastructure. Because of this, innovations that can retain or use components of the incumbent infrastructure may find easier early success in penetration vs. those that need distinctly new infrastructure—at least until the emerging technology economics are compelling enough to overcome this lock-in.
Fueling rate
Choice of fuel may also influence the type and cost-effectiveness of the fueling of the vehicles. Even when all the fuels are available for a customer to use, the form that those fuels take (as well as their density) may significantly alter the time and cost necessary to refuel a vehicle. Liquid fuels (specifically, those that are liquid at ambient temperatures) tend to be the fastest (the fueling rate) and most cost-effective to transfer from one container to another. Given that the fueling rate is derived by an amount of energy over unit of time, it can be thought of as a power rating in fuel transfer from one location to the other as shown in the Metrics Sidebar below.
Total cost of ownership (TCO)
The first step in understanding the economics of various fuel and transportation options is to standardize the units of comparison. Any such standardization must include not only the cost of purchasing the device (and related necessary fueling components) but also of operating it. Understanding the cost of operation must also include understanding the amount and type of use that it undergoes.
One method of establishing the cost of transportation is to calculate the total cost of ownership (TCO). This method has many similarities to the levelized cost of energy (LCOE) calculation and can be used to understand the cost of many capital assets beyond transportation, including machinery or other devices. As applied to vehicles, TCO includes:
–Fixed costs
–WACC
–Asset life
–Terminal value
–Performance variables
–Fuel consumption
–Distance traveled
–Driving behavior
–Operating costs
–Fuel costs
–Maintenance expense
–Cost of operation
Fuel efficiency
Worldwide, there are two main methods of reporting the relationship of a vehicle’s fuel usage and distance traveled. The standard metric of measuring this in the United States, the United Kingdom, and a smattering of other countries like India, Saudi Arabia, Mexico, and Brazil is through a fuel efficiency measure, or distance traveled per unit of fuel. In the United States and the United Kingdom, this unit is in miles per gallon (mpg), and elsewhere is measured in kilometers per liter (km/L).
Elsewhere in the world, this relationship is determined through a fuel consumption measure, which inverts the relationship and shows distance traveled per standard unit of fuel. Typically, this follows the metric system and is reported as liters per 100 kilometers (L/100 km), but can also be seen on current US fuel economy labels such as those in Figure 13.4 reported as gallons per 100 miles.
Design efficiency
All vehicles have a relatively narrow range of the relationship between fuel used and the distance covered. This measure is usually established at the time of design and engineering of the vehicle (design efficiency), independently tested through rigorous protocols, and generally expected to be similar across all vehicles of the same type and make. (See the following Metrics Sidebar comparing the metrics of miles per gallon versus gallons per mile for some insight into appropriate metric design.)
Operating efficiency
Two vehicles that have the same design efficiency and travel the same distance could still have very different fuel use, operating costs, and wear and tear on the equipment. Most of these differences result from how the vehicle is operated and can collectively be thought of as operating efficiency factors. Common examples include city driving vs. highway driving, which can result in very different fuel consumption over the same distance. Operating the vehicle above or below the recommended speed limits can also dramatically change the operating efficiency.
Corporate average fuel economy (CAFE) standards
In transportation, setting appropriate levels of device performance is often handled through fuel economy standards. A fuel economy standard establishes a fleetwide average fuel economy level and relies on vehicle manufacturers to sell a mix of vehicles, all of which meet or exceed that target. Not doing so can result in penalties or restrictions on vehicle sales. The standards can be calculated using subtly different methods, and they may alternatively rely on a test for the fleet’s average emission levels (emission standards) in some jurisdictions. Versions of these standards have been widely adopted around the world in the last four decades to gently force the fleet of vehicles to gradually increase in efficiency as new, more efficient vehicles are added.
In the United States, this policy is known as Corporate Average Fuel Economy, or CAFE, standards. The standards were established in response to the first oil crisis in the 1970s (discussed in Chapter 14), requiring new cars to nearly double their fleet efficiency by the early 1980s. The vehicle standards were extended to light trucks, albeit at a lower level of fuel efficiency, starting in the early 1980s. The oil price collapse in the 1980s, partly due to global efficiency improvements and oil-based transportation (partly an unintended consequence of the policy—see the Economics Box on p. 638), led to a period of reduced political motivation to require additional increases in CAFE standards. A return to rising oil prices in the late 1990s led to the establishment of more stringent truck standards in 2005 followed by tougher passenger vehicle standards a few years later. Figure 13.6 shows these changing US standards for cars and trucks, along with the actual fleet performance observed over that time.
Unintended consequences
However, all policies have unintended consequences, and CAFE standards are no different. Some that have arisen from this policy include:
–modified consumption choices
–fleet safety implications
–rebound effect
Rebound effect
■ Rebound effect—Due to the rapid increase in average fuel economy between the late 1970s and early 1980s, petroleum demand dropped quickly and resulted in substantially lower oil prices (see Figure 13.6). By the mid-1980s, these lower prices incentivized increasing fuel consumption (along with an increasing willingness to purchase SUVs) due to a process known as the rebound effect.
Resource efficiency by definition leads to lower prices than would otherwise be observed and, absent other restrictions, will directly and indirectly incentivize increased consumption of that good. The amount of rebound (or return of some of the efficiency gains) can vary widely depending on the technology or circumstance. This phenomenon was first described by William Stanley Jevons in 1865, and so it is sometimes called the Jevons paradox.
Usage fees
After achieving a clear understanding of the traffic delays and system constraints, various solutions that may address them include:
■ Usage fees—One of the most basic ways to change behavior is to institute a cost for performing an activity. Many transportation infrastructure assets require such payment, including toll roads that charge for access to certain highways, docking fees for ships, and gate charges for airlines at airports. Users who are willing to pay higher prices can get access to the best services, with the expectation that this value will be recouped in reduced congestion or more efficient delivery of transportation services.
Congestion charges
After achieving a clear understanding of the traffic delays and system constraints, various solutions that may address them include:
Congestion charges—A variation on the concept of usage fees is to manage peak demand through an even higher congestion charge. By increasing the cost of accessing congested transportation infrastructure like city centers or congested hubs at peak times, users can alter their transportation patterns to use this infrastructure at off-peak times or resort to paying higher prices where the value allows it.
Fuel taxes
Fuel taxes are taxes assessed on the fuels used in transportation, designed to provide revenue to support transportation network expenses but also often intended to alter certain behaviors or reduce their negative repercussions, like congestion and pollution correlated with driving. Fuel taxes are typically assessed as a fixed amount on top of the cost of delivered fuel and can vary widely by country, as seen in Figure 13.9. Taxes of this type are relatively easily collected due to the static nature of the fueling infrastructure and may differ by specific fuel type, depending on the goals and intended outcomes of the policymaker—fuels that support agricultural activity or meet basic necessities may be treated differently from those used for general transportation, for example.
In transportation, one of the most common excise taxes is the fuel tax levied on top of the cost of fuel purchased by a vehicle operator. As shown in Figure 13.9, this can vary dramatically from jurisdiction to jurisdiction and has the dual effect of making transportation services more expensive (and presumably more efficient) and raising revenue. In the United States, this fuel tax is set aside for infrastructure investment in highways, roads, and bridges.
Excise tax
In economics, an excise tax is a tax on some kind of activity, including sale or production of a specific good or service. Typically, this type of tax has a direct relationship to the amount of production, often being levied per unit of output, as opposed to a licensing fee or other registration payment. There can be many different purposes for instituting an excise tax, including to generate revenue, to offset the externalities or emissions costs of some activity, or to dissuade people from engaging in a certain behavior. Some of the most common forms of excise tax include sin taxes (taxes on tobacco, alcohol, and gambling), airline taxes, and landfill taxes.
– In transportation, one of the most common excise taxes is the fuel tax levied on top of the cost of fuel purchased by a vehicle operator. As shown in Figure 13.9, this can vary dramatically from jurisdiction to jurisdiction and has the dual effect of making transportation services more expensive (and presumably more efficient) and raising revenue. In the United States, this fuel tax is set aside for infrastructure investment in highways, roads, and bridges.
– Other forms of excise tax emerge throughout the transportation system as well. Congestion taxes may be levied for accessed infrastructure under heavy usage, again for the dual purpose of reducing demand and raising revenues. Usage fees also show up for accessing public or semi-public infrastructure, such as airports and marine ports. Finally, under some proposals, a carbon tax levied per unit of carbon emissions in the oil or fuel supply chain can also be considered an excise tax.
Bunker fuels
Many benefits of efficient ocean shipping, however, are offset by the dominant use of very dirty fuels. The fuels used in OGVs tend to be derived from heavy fuel oil, and they range in grades from lighter marine gas oil (equivalent to #2 fuel oil) to intermediate fuel oil to heavy fuel oil, which is nearly pure residual oil. When these fuel oils and residuals are used on ships, they are collectively referred to as bunker fuels. Bunker fuels are heavier, less efficiently combusted, and full of contaminants such as sulfur- and nitrogen-containing compounds, and its inefficient combustion creates substantial volatile organic compounds (VOCs) and particulate emissions. Because of this, the global shipping fleet emits approximately 3% of carbon emissions, but it emits 13% of the nitrogen oxides and 12% of the sulfur oxides from all activities worldwide.
One of the main reasons that ships use these fuels is that they are cheap. In addition, there is a lack of control on polluting behavior of ship operators in international waters. Because the activities of ships are partially regulated by the laws of their home country and partly by their current location, these ships operate mostly in an extraterritoriality vacuum of regulation and oversight. The International Maritime Organization (IMO) has established some standards in the International Convention for the Prevention of Pollution from Ships, also called MARPOL, notably allowing jurisdictions to establish emission control areas around ports and sensitive ecological areas to limit many kinds of air pollution. MARPOL also regulates the discharge of waste, ballast water, and garbage by all ocean vessels.
Deadweight tonnage
Tonnage is typically a measure of volume in ships, and the gross tonnage is the volumetric area of the entire ship from hull to hull and bottom (keel) to the top of the funnel. The net tonnage is a measure of just the cargo-bearing areas within that volume, ignoring the structural components of the ship. These measures are used to understand the relative size of ships, the amount of space they take in port, and the logistical management requirements. These measurements are typically in a cubic volume measure, like m3.
A related, but different, figure refers to the deadweight tonnage, which measures the displacement that a ship has, or the amount of water it displaces when loaded vs. when unloaded. Because a ship that is loaded more heavily with cargo, people, fuel, and other consumables displaces more water, this measurement is a measure of weight, and so is measured in tons. Deadweight tonnage specifically refers to the amount of weight loaded on board not counting the ship itself, which is known as the lightweight.
Rolling stock
Aftermarket
For vehicles already in service, many of the improvements described above are still available, though the cost-benefit ratio is typically smaller than installing them on a new vehicle. These aftermarket improvements can target powertrain improvements, add aerodynamic components, or use fuel additives to squeeze marginal efficiency out of the truck’s operation. While often available, aftermarket improvements suffer from a few difficulties that limit truck owner and operator use, including the short lifespan (and even shorter ownership span) for most HDVs. Vehicle owners also worry about downtime and performance risk for expensive vehicle assets, so the required return threshold for adopting aftermarket solutions is very high.
Intermodal transport
Freight moving through the global supply chain rarely relies on a single mode of transportation for the entire journey. Goods that move over very long distances may in fact use all of the modes of freight described in this section in a single transit, starting on the truck at the source, being loaded onto a ship, being transferred to a train in the delivery port, and then back to a truck for final delivery. One approach is to synchronize the modes to minimize transit time and actual contact with the cargo when switching among modes of transport, also called intermodal transport.
Light-weighting
The weight and size of vehicles can be further reduced; studies have shown that substantial improvements in aluminum, carbon fiber, and engine design could reduce vehicle weight by half, improve mileage, and even improve safety.27 This process of light-weighting vehicles can be combined with engine and aerodynamic improvements to increase vehicle efficiency by as much as 50% compared to current levels, though continued testing to ensure the durability, safety, and performance of these vehicles will be needed to convince automakers and regulators to allow wide-scale adoption.28
Passenger loading factor
Passenger load factor is a measure of the utilization rate (as a percentage) of a given transportation service over a unit of time. It is conceptually similar to the capacity factor, or load factor, for power plants introduced in a Metrics Sidebar in Chapter 4. Just as a power plant’s load factor calculates the ratio of its actual power production to its theoretical total power production (if run all the time), the transportation equivalent is the ratio of the actual capacity in passenger-miles (or passenger-kilometers, pkm) to the total available capacity (if the transport mode was used at full capacity all of the time). For example, a subway line that runs at full capacity half the time and at half capacity for the remainder would have a passenger load factor of 75%.
In 2015, in the United States, airlines achieved a load factor above 85% for domestic flights and above 80% for international flights.29 The load factor for domestic flights has steadily risen since 2002. However, for international flights, though also rising over the same period, it peaked in 2013 at 82.11%.
Load factors vary widely by transportation type and country, with airlines boasting some of the highest utilization rates. For example, Amtrak, which covers US passenger rail, has load factors around 50% with significant seasonal variation up to 55%.30 In the United States, the commuter rail has load factor ranges between 35 and 40%, heavy and light rail around 25%, and buses near 10%.31
Infrastructure assets
Infrastructure assets are forms of physical capital that provide essential transportation or distribution services to a captive customer base or population and often create both direct and indirect benefits for users and local populations. Some of these include:
■ Transportation assets—Roads, bridges, tunnels, ports, airports, rail lines
■ Energy assets—Electricity generation (including renewables generation and storage), transmission and distribution
■ Pipelines—Oil and natural gas transportation
■ Environmental assets—Water utilities, water treatment plants, distribution facilities
Infrastructure assets are a unique asset class and cannot be viewed simply as a sum of cash flows that can be left for private-sector financing opportunities. In addition to their specific direct transformations of goods and services, infrastructure assets encompass social and other nonmonetary benefits linked to economic growth that fall under government authority. To understand how capital can be successfully deployed to invest in infrastructure, it is important to understand the key characteristics and risks of these long-lived assets, their certain payment obligations, and the mechanisms for public and private participation, including a public-private partnership (PPP).
Public-private partnership (PPP)
Constraints on public involvement have created opportunities for private-sector participation through innovations developed to overcome those limitations. Successful public-private partnership (PPP) projects use private-sector financial resources in varying degrees across the financing and operation of infrastructure assets to complement public-sector investment. Together, these resources accelerate infrastructure development by providing investors with confidence across the project’s commercial and technical feasibility, its risk allocation, public-sector contractual commitment and capacity, and a conducive and an enabling institutional and legal environment.37
The public component of PPPs can range greatly based on the country, project, and public entity. As described above, it can assume the form of direct financial support, contingent support, or in-kind support in support of the PPP or to attract further lending. Additionally, public financial institutions act as a leverage point for governments to mobilize private investment. Governments may engage financial institutions in local financial markets where financing is not otherwise available for infrastructure projects or where these institutions can help mobilize local investment capacity while mitigating associated risks.
Establishing a good working relationship between public and private partners is essential, but the exact mechanisms can vary widely. Contract models for PPPs allow project sponsors to balance the attractiveness of the project to the private sector while protecting public interests and keeping overall economic costs low.38 Figure 13.21 illustrates a spectrum of infrastructure arrangements and the various agreements that can be utilized. Along the spectrum, risk assumed by the private sector also increases. These aspects of financing, operation, and ownership help define the specific engagement mechanisms that can be used to successfully deploy these infrastructure assets.
