Grunty Yank Tank

Monday 20 February 2023

Sales of plug-in electric vehicles have finally crossed above the key 5% market share level, in the United States. In contrast to the other two largest global vehicle markets, China and the EU, model choice and pricing options have historically been poor in the US, making for a long, slow crawl towards EV adoption. The past two years however have seen EV sales skyrocket in California, the largest EV sub-market, and accordingly the old adage applies: as goes the Golden State, so goes the country. Now that EV have crossed this important threshold, you can expect them to grow similarly to other technologies that have reached this same take-off point.

But it’s also the case that EV market share in the US has feasted, in part, on a slumping overall market, where total light-duty vehicle sales continue to decline from a high of 17.47 million in 2016, to just 13.79 million last year. Accuracy demands, therefore, we acknowledge how a shrinking base makes for a lower hurdle to achieve the 5% market share level. That said, readers of The Gregor Letter will recognize an additional dynamic here. As we’ve seen in wind, solar, and now battery storage, weakness in overall market conditions only lightly affect (if at all) the deployment of new energy technologies. The cleaner solutions simply press onward.

Just to add some absolute numbers to the picture, the US put a fresh 918,464 plug-ins on the road last year, according to Argonne National Laboratory which now helpfully tracks the sales data. Meanwhile, California accounted for a chunky third of those sales at 345,818 units, according to state data. Back to the market share figures: while plug-ins have now reached 6.66% of US light-duty sales, they have reached a whopping 18.8% of California vehicle sales. That places California, unsurprisingly, in the same league as China and the EU, where EV market share reached 25% and 22% respectively in 2022.

There’s another, less discussed metric that needs to be considered as EV finally get going in the US, however, and that’s the stark difference in the fuel-efficiency of the existing US fleet compared to China, and the EU. You see, while it’s amazing how fast EV adoption is taking place in China and the EU, those existing ICE fleets have significantly higher average fuel efficiency. Accordingly, the volume of future road-fuel demand that’s being snuffed out with every EV sale in the EU (39.2 MPG fleet average) and in China (32.7 MPG fleet average) is not as large, as it will be in the US (22.9 MPG fleet average). This may feel like a topsy-turvy inversion to some readers, but this adheres to a phenomenon seen everywhere along the journey to decarbonization: the biggest emissions reductions are to be found where combustion and emissions are the worst! Want to hit power sector emissions hard? Hit coal power hard. Want to hit ICE emissions hard? Hit American gas-guzzlers hard!

I was once told a hilarious story by a group of New Zealanders who, in their younger days, took a summer-long trip to the US and bought a used American station wagon at the outset, which they sold three months later at the end of their holiday. Their term for the wagon, which insatiably consumed gallons and gallons of gasoline: a grunty Yank Tank. The implications for road fuel demand are far more profound if the US is now indeed on the verge of more rapid EV adoption.

Let’s make up a simple table therefore, showing the volume of gasoline consumed across the three major car markets, to drive a standard 300 miles between fill-ups. (data on average fleet MPG comes via IEA.org and the US Dept. of Transportation). As you can see, if every million new EV in Europe will dent future petrol demand in the EU, then every million new EV in the United States will rip a hole in future demand.

US oil consumption peaked 18 years ago, in 2005. Since that time consumption has fallen some, but has mostly oscillated. So, we cannot yet expect that US EV adoption, at just over 6% of market share, is going to move the needle enough to trigger a broader decline in US oil consumption. The legacy ICE fleet is vast. And the lifespan of ICE vehicles is lengthening. However, in California, where road fuel demand has also been on a plateau for many years, gasoline consumption probably has entered decline. Not a steep or rapid decline, but a decline nevertheless. (see: the 12 December 2022 issue of The Gregor Letter, End of the Road.)

Once the US gets to higher levels of EV adoption, we should be prepared for a more rapid hit to US gasoline consumption trends. That it takes 13 gallons of petrol to go 300 miles in the US is a ripe, juicy target for transport electrification.

Grunty Yank Tank: we salute you.

AI generated image from DALL-E, using the following prompt: rising emissions from natural gas.

Trading a coal problem for a natural gas problem seemed like a good deal a decade ago. But now we see that both the United States, and the rest of the world, are building up a very substantial new path dependency on natural gas. The Gregor Letter took a first look at this problem in the previous issue, Bad Natty Emissions. Overall, three main themes are at play:

• Natural gas has now been fully globalized through a titanic rise in LNG export capacity, which smooths the path to even higher levels of adoption, and subsequent dependency.

• The extraordinary success in killing coal in the US and Europe has smothered policy makers with a sense of progress, while distracting attention from the relentless embedding of natural gas not only into powergrids, but myriad other industrial applications. Notably, the global stagnation of nuclear power growth also goes unmentioned but is a critical piece to understanding how natural gas has feasted on coal’s carcass.

• There remains a persistent belief and expectation that the rapid growth of wind, solar, and batteries will blunt natural gas growth when such an outcome has not happened, is not happening, and the sightlines to the belief this will eventually happen are murky at best.

Let’s begin with a portrait of how the US electricity system has evolved over the past decade. In the US, coal’s decline, wind+solar’s advance, and nuclear’s stagnation is a pretty good proxy to the portrait of natural gas and its robust growth globally.

As you can see above, wind and solar growth is super impressive, and we should be excited that wind and solar are able to keep pressing forward at such a strong rate, and now, from a higher base. But coal’s dramatic decline creates a gap simply too hard to fill by wind and solar. And, with zero help from nuclear, that means natural gas growth is going from strength to strength. What people need to understand far better, when looking at a chart like this, is that all that trailing growth in natural gas is an investment in future natural gas dependency. As The Gregor Letter has tirelessly pointed out—whether in global coal or global oil—it takes one herculean step to halt further growth, and perhaps an even bigger herculean step to trigger actual declines. Dependency is powerful: incumbency, path dependency, whatever term you prefer. Once you embed an energy source in a large system, a whole array of ancillary support gathers around that energy source. Roots get put down.