I deo - An Assessment of Alternative Fuel Vehicle Technology and the Use of Policy Instruments

The Car of Tomorrow

An Assessment of Alternative Fuel Vehicle Technology and the Use of Policy Instruments to Facilitate the Implementation

Harald Ims & Harald Jacobsen

Supervisor: Associate Professor Tor Fredriksen

MSc Thesis – Major in Strategy and Management

NORGES HANDELSHØYSKOLE

This thesis was written as a part of the Master of Science in Economics and Business Administration program - Major in Strategy and Management. Neither the institution, nor the advisor is responsible for the theories and methods used, or the results and conclusions drawn, through the approval of this thesis.

«That the automobile has practically reached the limit of its development is suggested by the fact that during the past year no improvements of a radical nature have been introduced» 

Scientific American, Jan. 2 edition, 1909

Preface

A strong shared interest in environmental issues and technological innovation initiated a collaboration between the authors, which resulted in this thesis. The process included a great deal of work collecting data and selecting valid and useful information. At times the amount of data was overwhelming with new discoveries continually affecting our points of view. We are very pleased with our choice of study and satisfied with the outcome. 

We hereby thank our supervisor, Associate Professor Tor Fredriksen, for his wise guidance, friendly and professional support, and for his encouragement during more challenging stages of the process. 

We also want to thank (in alphabetical order): 

Andrew Burnham (Fuel and Vehicle Systems Analyst at Argonne National Laboratory), Tomas Levin (Research fellow at the Foundation for Scientific and Industrial Research (SINTEF)), Lars Jacob T. Pedersen (Research fellow at the Norwegian School of Economics and Business Administration (NHH)), Martin Sjøgård (Norwegian University of Science and Technology (NTNU)). We deeply appreciate their willingness to answer our questions and their valuable contribution to our thesis.

 

Abstract

This master’s thesis assesses different alternative fuels and fuel vehicles in a European context in short and medium term. We apply a contextualised GREET model to determine the energy usage, emissions and technological improvement of eight selected vehicles running on four different fuels. In addition we use a payback analysis to determine the payback period of each alternative. The results show that diesel vehicles outperform petrol vehicles. Plug-in hybrids look promising, but their efficiency improvement from 2010 to 2020 is modest compared to some of the other technologies. The battery electric vehicle and fuel cell vehicle are the cleaner and more efficient technologies in 2020, however the FCV involves a high degree of uncertainty within our timeframe. We therefore select HEV, PHEV and BEV as our preferred alternatives. Using a stakeholder approach, we identify barriers to the implementation of our selected technologies. To overcome these barriers we apply a selection of policy options.

 

Table of Contents

PREFACE ............................................................................................................................................. 1

ABSTRACT........................................................................................................................................... 2

TABLE OF CONTENTS ..................................................................................................................... 3

TABLE OF FIGURES .......................................................................................................................... 7 LIST OF ABBREVIATIONS AND ACRONYMS ............................................................................ 9

1.             INTRODUCTION .................................................................................................................... 12

1.1                  MOTIVATION .......................................................................................................................... 12

1.2                  RESEARCH QUESTION ............................................................................................................ 14

1.3                  INTRODUCTION TO ALTERNATIVE FUEL VEHICLES ................................................................ 15

1.4                  INTRODUCTION TO THE EU .................................................................................................... 15

1.5                  STRUCTURE ............................................................................................................................ 17

2.             THEORY ................................................................................................................................... 18

2.1                  LIFE CYCLE ASSESSMENT ...................................................................................................... 18

2.1.1             Well-to-Wheel ............................................................................................................. 19

2.2                  TECHNOLOGY AND INNOVATION ............................................................................................ 20

2.3                  PORTER’S FIVE FORCES ......................................................................................................... 22

2.4                  ALLIANCES AND ACQUISITIONS ............................................................................................. 25

2.5                  CO-OPETITION ........................................................................................................................ 26

2.6                  ENVIRONMENTAL POLICY AND INDUSTRIAL INNOVATION ..................................................... 27

2.7                  STAKEHOLDERS ..................................................................................................................... 29

2.8                  STAKEHOLDER BARRIERS ...................................................................................................... 30

2.9                  POLICY MEASURES ................................................................................................................ 33

2.10              THE ROAD AHEAD ............................................................................................................ 34

3.             METHODOLOGY ................................................................................................................... 35

3.1                  RESEARCH DESIGN ................................................................................................................ 35

3.2                  DATA COLLECTION ............................................................................................................... 36

3.3                  ANALYSIS .............................................................................................................................. 38

4.             MODEL .................................................................................................................................... 39

4.1                  CONSEPTUAL FRAMEWORK ................................................................................................... 39

4.2                  PRESENTATION OF THE GREET MODEL ................................................................................ 40

4.3                  PRESENTATION OF MODIFICATIONS MADE ............................................................................ 40

4.4                  EXPLANATION AND PRESENTATION OF THE DIMENSIONS ...................................................... 42

5.             DIFFERENT FUELS AND ENGINE TECHNOLOGIES ................................................... 44

5.1                  INTRODUCTION ...................................................................................................................... 44

5.2                  ALTERNATIVE FUELS ............................................................................................................ 44

5.2.1             Petrol .......................................................................................................................... 44

5.2.2             Diesel ......................................................................................................................... 44

5.2.3             Natural Gas ................................................................................................................ 45

5.2.4             Liquefied Petroleum Gas ............................................................................................ 45

5.2.5             Biomass/Biofuel .......................................................................................................... 46

5.2.6             Hydrogen .................................................................................................................... 49

5.2.7             Electricity ................................................................................................................... 50

5.2.8             Overview of Selected Fuels ........................................................................................ 51

5.3                  ENGINE AND VEHICLE TECHNOLOGIES .................................................................................. 52

5.3.1             The Internal Combustion Engine ............................................................................... 52

5.3.2             Flexible-Fuel Vehicle ................................................................................................. 53

5.3.3             The Electric Powertrain ............................................................................................. 54

5.3.4             Hybrid Electric Vehicle .............................................................................................. 55

5.3.5             Battery Electric Vehicle .............................................................................................. 57

5.3.6             Fuel Cell ..................................................................................................................... 61

5.3.7             Other Technologies ..................................................................................................... 62

5.3.8             Overview Well-to-Wheels Pathways ........................................................................... 63

5.4                  SELECTION PROCESS OF THE VEHICLE TECHNOLOGIES .......................................................... 63

5.5                  PRESENTATION OF THE RESULTS ............................................................................................ 66

5.5.1             Economy ...................................................................................................................... 66

5.5.2             Efficiency .................................................................................................................... 69

5.5.3             Environment ................................................................................................................ 72

5.5.4             Technology .................................................................................................................. 74

5.5.5             Overview of the Results ............................................................................................... 75

5.5.6             Implications of The Results ......................................................................................... 76

6.             INTRODUCING AFVS TO THE EUROPEAN MARKET ................................................. 79

6.1                  INTRODUCTION OF STAKEHOLDERS ....................................................................................... 79

6.1.1             Fuel manufacturer ...................................................................................................... 79

6.1.2             Fuel distribution .......................................................................................................... 80

6.1.3             Vehicle manufacturer .................................................................................................. 81

6.1.4             Vehicle distribution ..................................................................................................... 83

6.1.5             Vehicle purchaser ....................................................................................................... 83

6.1.6             The government ........................................................................................................... 84

6.1.7             Stakeholder Barriers ................................................................................................... 85

6.2                  POLICY OPTIONS TO OVERCOME STAKEHOLDER BARRIERS ..................................................... 88

6.2.1             Cost Premium .............................................................................................................. 91

6.2.2             Battery technology ...................................................................................................... 93

6.2.3             Infrastructure ............................................................................................................. 95

7.             CONCLUSIONS AND RECOMMENDATIONS ................................................................. 98

8.             FURTHER RESEARCH ....................................................................................................... 101

APPENDICES .................................................................................................................................. 103 ENDNOTES ...................................................................................................................................... 106

REFERENCES ....................................................................................................................................115

Table of Figures

Figure 1-1: Impact of Adaptation Measures on Damage due to Low and High Sea Level

Rise. Costs With and Without Adaptation Measures ............................................................. 16

Figure 2-1: Graphical Representation of the Well-to-Wheel Life Cycle Analysis ................ 19

Figure 2-2: Patterns of Dominant Business Model Development .......................................... 20

Figure 2-3: Product, Process, and Strategic Innovation over the Life Cycle ......................... 22

Figure 2-4: Porters Five Forces and the Influence of the Government .................................. 24

Figure 2-5: The Life Cycle of Alliances and Acquisitions .................................................... 25

Figure 2-6: The Value net ...................................................................................................... 26

Figure 2-7: Major Stakeholders in the Automobile Industry ................................................. 29

Figure 2-8: Overview of Stakeholder Barriers #1 .................................................................. 31

Figure 2-9: Overview of Stakeholder Barriers #2 .................................................................. 32

Figure 2-10: Overview of Policy Measures #1 ...................................................................... 33

Figure 2-11: Overview of Policy Measures #2 ...................................................................... 33

Figure 2-12: Overview of Policy Measures #3 ...................................................................... 33

Figure 5-1: Net Benefit of Biofuels in the EU ....................................................................... 46

Figure 5-2: EU Energy Mix 2008 ........................................................................................... 50

Figure 5-3: Summarization of Different Fuel Types .............................................................. 51

Figure 5-4: Comparison of Different Electric Powertrain Configurations. ............................ 54

Figure 5-5: Categorisation and Description of Different Electric Powertrains. ..................... 55

Figure 5-6: Illustration of the AC and DC Controller ............................................................ 58 Figure 5-7: Energy Density and Cost Comparison of Battery Technologies ......................... 59

Figure 5-8: Cost and Density Development of the Li Ion Battery ......................................... 59

Figure 5-9: Lithium Carbonate Required vs. Current Production .......................................... 60

Figure 5-10: The Basics of a Hydrogen Fuel Cell ................................................................. 61

Figure 5-11: Well-to-Wheels Pathways ................................................................................. 63

Figure 5-12: Payback Analysis of the Different Vehicle Alternatives. .................................. 67

Figure 5-13: Payback comparison of the different vehicle alternatives. ................................ 68

Figure 5-14: Well-to-Wheel Analysis of Energy Efficiency ................................................. 69

Figure 5-15: Overview over Well-to-Wheel Energy Efficiency ............................................ 70

Figure: 5-16 Overview of detailed energy usage ................................................................... 71

Figure: 5-17 Comparison of energy usage of the vehicles ..................................................... 72

Figure 5-18: Greenhouse Gas Emissions WTW Split up ....................................................... 73

Figure 5-19: Green house gas emissions comparison WTW ................................................. 74

Figure 5-20:  Comparison of Technological Improvement .................................................... 75

Figure 5-21: Overview of the Results .................................................................................... 76

Figure 5-22: Summary of Different Target Scenarios ........................................................... 78

Figure 6-1: Overview of the Most Important Stakeholder Barriers ....................................... 87

List of Abbreviations and Acronyms

AC      Alternating Current      AER Average Electric Range           AFV   Alternative Fuel Vehicle             ANL Argonne National Laboratory              

B100 100 % Biofuel    B20 20 % Biofuel       

BEV                Battery Electric Vehicle                                               

BFV                 Bifuel Vehicle                                                              

BG                   Biogas                                                                          

Btu                   British Thermal Unit                                                   1 Btu = 1.055 Kj

BYD                Build Your Dreams                                                      

CARB             California Air Resources Board                                   

CBG Compressed Biogas  CD Charge Depleting      

CHG               Compressed Hydrogen Gas                                         

CIDI                Compression Ignition Direct Injection                        

CNG               Compressed Natural Gas                                             

CO2                 Carbon Dioxide                                                           

CONCAWE Conservation of Clean Air and Water in Europe           

CS	Charge Sustaining
DC	Direct Current
DI	Direct Injection
DME	Dimethyl Ether
DOE	Department of Energy
E85	Ethanol 85 %
ETBE	Ethyl TERT-Butyl Ether
EtOH	Ethanol
EU	European Union
EUCAR	European Council for Automotive R&D
Eur	Euro
FAEE	Fatty Acid Ethyl Ester
FCV	Fuel Cell Vehicle
FFV	Flexi-Fuel Vehicle
G-C	Grid-Connected
GHG	Greenhouse Gas
G-I	Grid-Independent
GM	General Motors
GNP	Gross National Product
GREET	Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation
GW	Gigawatt
H2	Hydrogen

H2O               Water                                                                           

HEV    Hybrid Electric Vehicle           HHV Higher Heating Value              IC             Internal Combustion    

ICE                Internal Combustion Engine                                        

ICEV Internal Combustion Engine Vehicle  IEA    International Energy Agency  

IPCC The Intergovernmental Panel on Climate Change       ISO    International Standards Organization    

JET     Joint European Commission    JRC   Joint Research Centre              

Kj                   Kilojoule                                                                      

KWH             Kilowatt-hour                                                              

LCA    Life Cycle Assessment            LHV Lower Heating Value  

Li                   Lithium                                                                        

LNG   Liquid Natural Gas      LPG   Liquid Petroleum Gas              M&A             Mergers & Acquisitions             

M                   Million                                                                         

M85               Methanol 85 %                                                             

MDI               Motor Development International                               

Mile                                                                                                   1 Mile = 1.609 Km

Mj                  Megajoule                                                                    

MPG              Miles per Gallon                                                         1 MPG = 0.425 Km/l

MSc               Master of Science                                                        

MT                Megatonnes                                                                  

MTBE           Methyl Tert-Butyl Ether                                              

MTE Million Tonnes  NG Natural Gas          

NHH              Norges Handelshøgskole                                             

NiCd              Nickel Cadium                                                             

NiMH Nickel Metal Hybrid    Nox    Nitrogen Oxide            

O2                  Oxygen                                                                                                              

Organization of the Petroleum Exporting

OPEC            Countries                                                                      

PB                  Payback                                                                        

PEM              Proton Exchange Membrane                                        

PHEV            Plug-in Hybrid Electric Vehicle                                  

PSI                 Pounds per Square Inch                                              1 PSI = 0.069 BAR

PTT Plant-to-Tank      PTT Pump-to-Tank    PTW Plan-to-Wheel  PTW Pump-to-Wheel  

R&D   Research and Development     SA      Strategic Alliances       

SCiB                Super Charge Ion Battery                                            

SI                     Spark Ignition                                                              

SIDI                 Spark Ignition Direct Injection                                    

TTW Tank-to-Wheel  U.K. United Kingdom           

U.S.                 United States of America                                            

UN                   United Nations                                                             

VMT                Vehicle Miles Travelled                                               

VW Volkswagen         WH Watt Hour           

WTT Well-to-Tank      WTW Well-to-Wheel             

WWF World Wide Fund for Nature              ZEV   Zero-Emissions Vehicle           

                         

1.    Introduction

1.1    Motivation

Transportation has been one of the main drivers of the economic growth of the industrialised world, allowing for more efficient movement of people and goods. The development since the Roman Empire paved roads to allow armies to travel at greater speed to the breakthrough of the T-Ford around 1910¹ has been nothing less than remarkable. The beginning of the 20^th century represents a historic crossroads for vehicle technology. Electric powered vehicles became increasingly expensive, cities became interconnected leading to the need of longerrange vehicles², and at the same time oil production rose significantly³. In 1912 an electric roadster sold at more than 2.5 times the price of a gasoline car⁴. The discovery of Texas crude oil led to a reduction in gasoline prices making it affordable for the average consumer.

The rest is history.

The Intergovernmental Panel on Climate Change (IPCC) has concluded that most of the observed increase in global average temperatures since the mid-20^th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations.⁵ This increase in temperature leads to a rise in sea levels and shortage of freshwater in some of the poorest areas of the world, like Africa. The transportation sector is responsible for a large portion of the global GHG emissions. More than 800 million cars and light trucks⁶ account for the majority of the emissions from the transportation sector. The pollution from these cars affects air quality, especially in main metropolitan areas⁷.

According to Kendall (2008), 95 % of the primary energy consumed in the transportation sector is fuel derived from crude oil. Crude oil is a finite resource and therefore cannot be extracted indefinitely. The estimated occurrence of peak oil, the point in time when the maximum rate of global petroleum extraction is reached⁸, varies among experts and analysts. The creator of the peak oil theory, M. King Hubbert, has designed a bell-shaped production curve which indicates peak oil is upon us⁹. OPEC, on the other hand, has suggested that peak oil might never occur¹⁰. What is certain, however, is that today’s oil consumption cannot be maintained in the long run. 

The Hirsch report (Hirsch, 2005) assumes an increase of 50% in world oil demand by 2025 (Hirsch, 2005, p. 12). A summary of the report, published in October 2005 for the Atlantic Council stated that oil production is in decline in 33 of the world’s 48 largest oil producing countries¹¹. These countries include superpowers U.S. and Russia¹². Taken into consideration that the U.S., China, Japan, Germany, South Korea, France, India, Italy, and Spain constitute the largest net importing countries of oil¹³, it seems clear that there exists a strategic aspect, where reducing one’s dependency on a scarce resource is the desirable outcome for the world.

In some ways we find ourselves at a crossroads for vehicle technology yet again. This time, however, the prerequisites are different. The aspects introduced above give notice of a necessary shift in the automobile industry. A just question is how?

While crude oil has had a substantial influence on the development of a number of technologies through the rise of the modern world, it might actually have put obstacles in the way of the oil-dependent vehicle technology. It is the authors’ opinion that if vehicle technology had developed at the speed of computer processors, we might as well have been flying cars as opposed to driving them years ago. In short- and medium term other technologies are more likely to take up competition with the internal combustion engine vehicle. At this point, opinions as to what is the best alternative technology vary. Battery electric vehicles, plug-in hybrid electric vehicles, hydrogen fuel cell vehicles, and bifuel vehicles are all considered promising. Can either of these outperform the ICEV?

Governments can play a key role in stimulating innovation of new technologies that can reduce the dependency of fossil fuel, as well as arrange for a transition of alternative fuel vehicles by reducing entry barriers. The EU has recently introduced joint efforts to reduce emissions from light-duty vehicles, e.g. through setting emission performance standards¹⁴. A number of policy options, such as regulatory standards, tax incentives, and fuel pricing measures, are available in the government tool box. There are, however, a number of stakeholders that can affect the process, and governments need to take this into consideration. 

1.2    Research Question

This thesis compares different vehicle- and fuel technologies in an attempt to determine which is the most promising as a worthy competitor to the fossil-fuelled ICEV in the European market. The different technologies are compared in four dimensions: economy, efficiency, environment and technology. Secondly the thesis tries to identify stakeholder barriers that may impede a transition of the new technologies, and suggests how governments can make use of policy options to overcome these barriers.

Our research question is: Which vehicle and fuel technologies are the best options for the European mass market, and how can European governments use policy instruments to facilitate the implementation of these technologies?

By best we mean a balanced way of trying to identify and optimise certain goals or criteria which from a contextual point of view are regarded as appropriate responses to the serious environmental challenges we face in our time. By options we assume that we for the time being have several real choices. We will investigate some of the most relevant choices limiting the alternatives to the most interesting from a practical point of view. 

Our research question is twofold: While the first part has a strong technical/economical/environmental orientation, the second part involves a stronger political/sociological dimension. We believe that these two principally different but equally important parts should be dealt with simultaneously. In some sense the part of the problem statement concerning implementation is the most difficult one. However, through the institutions of the European Union we have policy instruments that may be very useful in order to make a difference. In our research we will try to investigate how policy instruments can be used constructively to implement the main results we obtain from the first part in our problem statement.  We have a clear focus on the methodological measuring of different alternatives, rather than a thorough theoretical analysis. This is described in more detail in the Methodology chapter.

1.3    Introduction to Alternative Fuel Vehicles

An AFV is a vehicle that runs on other fuels than solely petrol or diesel¹⁵. Since the automobile became popular in the beginning of the 20^th century, various versions of AFVs have been introduced to the market. However, no personal AFVs have experienced success over time or in global market shares. The last 10-15 years, public awareness of the environmental issues have once again made AFVs popular. The introduction of the Prius Hybrid in 1997 is probably the best example. New technologies that may make an impact in the future are the Plug-in Hybrid, electric vehicles, or vehicles on biofuels or CNG. Fuel cell technology is also promising in a longer view. Nevertheless, AFVs only constitute a niche market globally today. This is mainly because AFVs usually have some shortcomings compared to petrol vehicles, as for instance higher price, shorter range or weaker performance. If we look to Brazil, we see that active government policies can quickly change the market mix of AFVs. Ethanol gained a larger market share than petrol in 1980 after the Brazilian government launched the National Fuel Alcohol Program in the mid 70’s¹⁶. 

1.4    Introduction to The EU

The European Commission, which acts as the EU’s executive arm¹⁷ and seeks to uphold the interests of the Union as a whole¹⁸, make use of Green and White papers to address ideas and proposals which are of interest for the Union. While green papers set out a range of ideas presented for public discussion and debate, white papers contain an official set of proposals in specific policy areas and are used as vehicles for their development.¹⁹ The EU has agreed to cut GHG emissions by at least 20 % of 1990 levels by 2020 (30 % if the rest of the world follows up)²⁰. Since it will take time to restore the balance in the ecosystem and reduce the increase in temperature, cutting GHG emissions quickly is of utmost importance.  Figure 1-1 illustrates costs of different scenarios with regards to rise in sea levels and whether or not actions are taken.  

 

Figure 1-1: Impact of Adaptation Measures on Damage due to Low and High Sea

Level Rise. Costs With and Without Adaptation Measures

Source: The EU Commission: Green paper 2007

Today, roughly half of the EU’s gas consumption comes from just three countries. This number is expected to increase to 80 % for gas and 90 % for oil within 2030.²¹²² Transportation accounts for 30 % of final energy consumption in the EU-25, making it the largest consumer²³. Passenger cars constituted 74 % of all passenger transport in 2004 (EU25)²⁴. While GHG emission from energy production, services and industry decline, the emission from transport has increased significantly²⁵. Passenger cars hence have a considerable potential for reduction of GHG emissions as well as of oil/gas consumption in the EU. To address this issue the EU has specified a target of 95g/km for light duty vehicles for the year 2020²⁶.

1.5    Structure

Chapter 1 aims to motivate the thesis, and presents the research question. Chapter 2 contains a theoretical overview of the pieces from which our frame of reference is derived. In Chapter 3 the methodology, including the research design of the thesis is presented. A presentation of the construction of our model follows in Chapter 4. Chapter 5 starts out with a presentation of the different fuels, engine and vehicle technologies and moves on to the results and comments on the results. In Chapter 6 different stakeholders and a selection of the most important stakeholder barriers are presented. This part is meant to give an insight into what governments need to assess when creating policies. The second part of the chapter suggests policy options to reduce the most important barriers for our selected tecnologies. Our conclusions and recommendations are summed up in Chapter 7. Chapter 8 is devoted to our suggestions of further research.

2.    Theory

In this chapter, we cover the most important theory that we make use of directly or indirectly in our analysis. First we present the life cycle assessment, focusing on a Well-to-Wheel evaluation. This covers the environmental effects of a product’s life, from cradle to grave. Then we take a closer look at innovation and technology, and how it can lead to new technologies or the rebirth of existing ones, and the different phases a technology goes through. Next we link this together with the Porter’s Five Forces and discover how new innovations can become or improve substitutes, which can affect the degree of rivalry within the industry and even take over the industry. We also introduce the government, which can also influence the competition, by for instance improving substitutes’ chances to enter. This brings us further to how the new and existing companies can use mergers and acquisitions to strengthen or maintain their position, depending on which phase they are in, and how companies not only compete, but also cooperate. Lastly we take a closer look at who the stakeholders may be, which barriers they may need to overcome, and how the government can influence the stakeholders and barriers.

2.1    Life Cycle Assessment

Life Cycle analysis, also known as Life Cycle assessment, has gained more attention the last couple of decades and emerged as a response to an increasing environmental awareness amongst the public, industry and governments²⁷. A definition is given by Christiansen et al (1995, p. 12): A Life Cycle Assessment is a process to evaluate the environmental burdens associated with a product system, or activity by identifying and quantitatively or qualitatively describing the energy and materials used, and wastes released to the environment, and to assess the impacts of those energy and materials uses and releases to the environment. The assessment includes the entire life cycle of the product or activity, encompassing extracting and processing raw materials; manufacturing; distribution; use, reuse, maintenance; recycling and final disposal; and all transportations involved. LCA addresses environmental impacts of the system under study in the areas of ecological systems, human health and resource depletion. It does not address economic or social effects.

The procedures of the life cycle assessment (LCA) are part of the ISO 14000 environmental management standards, and a life cycle assessment is typically carried out in four different phases: 1. The goal and scope of the study, 2. The life cycle inventory with data collection, description and verification, 3. Life cycle impact assessment and 4.  The interpretation of the LCA. However, an LCA may be difficult to calculate accurately, and social implications are usually not accounted for.²⁸ 

2.1.1   Well-to-Wheel

A variant of LCA is the WTW analysis. It shows the specific LCA of the efficiency of fuels used for road transportation²⁹. In this model, the WTW is usually split up in well-to-tank (WTT) and tank to wheel (TTW). For an electric vehicle, it would be split up into well-toplant (WTP) and plant to wheel (PTW). Through a WTW analysis, the total emissions and energy consumption for a vehicle can for instance be calculated, accounting for the feedstock and fuel production, and not just the emissions and consumption during vehicle operation. The overall efficiency of the fuel can also be calculated, providing a better picture than just checking the TTW efficiency. A graphical representation of a WTW LCA is illustrated below:

 

Figure 2-1: Graphical Representation of the Well-to-Wheel Life Cycle Analysis 

Source: Kendell, G. 2008: Plugged in- The end of the oil age. WWF-World Wide Fund for Nature

While a life cycle assessment and Well-to-Wheel analysis can be useful in determining the environmental effects and efficiencies of for instance an alternative fuel, it says little about the future potential, which requires a closer look.

2.2    Technology and Innovation

Technology can be defined as all the knowledge, products, processes, tools, methods, and systems employed in the creation of goods or in providing services (Khalil, 2000). One model on how technology might develop is expressed through Patterns of Dominant Business Model Development³⁰. The four ways are gradual development, continuous development, discontinuous development and hypercompetitive development³¹. 

 

Figure 2-2: Patterns of Dominant Business Model Development

Source: Meyer, R. (2007): Mapping the Mind of the Strategist. A Quantitative Methodology for Measuring the Strategic Beliefs of Executives

A mature industry, such as the car industry, is usually known for gradual development, where the large automakers apparently have been in a stalemate. However, the rise of new competitors from low cost countries (China and India) and small companies with innovative technologies often constitute a threat. In addition, we have new threats like the recent major financial challenges for some of the dominating auto companies, as well as much stricter environmental standards. Those threats may shift the gradual development towards the discontinuous or even hypercompetitive development. 

Innovation can be described as the managed effort of an organization to develop new products or services or new uses for existing products or services (Griffin, 2001). A definition of product innovation is: a change in the physical characteristics of a product or service or the creation of a new one (Griffin, 2001). Process innovation can be defined as a change in the way a product or service is manufactured, created, or distributed (Griffin, 2001). J. Utterback and W. Abernathy have combined these two in their model of dynamics in industry (Utterback, 1994). Utterback argues that major innovations for both products and processes share an important relation and follow a general pattern over time, dividing these phases into the Fluid phase, where the product innovation is high and process innovation low; the Transitional phase, where the product innovation slows down and the process innovation speeds up; before reaching the Specific phase, where both innovations slow down. 

A third element in this model could be strategic innovation, which can be defined as the creation  of growth strategies, new product categories, services or business models that change the game and generate significant new value for consumers, customers and the corporation (Palmer, D. & Kaplan, S., 2007). Then we would obtain a model as described by R. Grant (2002). An illustration of a full product life cycle would look like this:

 

Figure 2-3: Product, Process, and Strategic Innovation over the Life Cycle Source: Grant, R. (2002) & J. Utterback, (1994)

Here we see how strategic innovation becomes a more important instrument towards the last life cycle phase.  Firstly, product innovation has created the competitive technology, and through process innovation the processes have become leaner for large scale production. When the technology or product has become well established, strategic innovation becomes more important where even more of the technologies’ potential can be utilised or maintained through strategic key decisions. Now we see how the alternative technologies develop independently, but which forces are influencing it and how do they link together? It is time to take a look at some of the most important forces shaping an industry.

 

2.3    Porter’s Five Forces

To assess the competitive environment within an industry, we can apply Porter’s Five Forces. We consider this model to be well known, and will not go into an indepth explanation of the forces. Instead we will present how it can be adapted to suit our area of focus. We will focus on the substitutes, as the AFVs can be considered as substitutes to conventional vehicles running on petrol and diesel. One can argue that AFVs should be categorised as rivals rather than substitutes. However, this depends on how broadly we define the industry boarders in the first step of a Porter analysis. Looking at the vehicle industry through the last 100 years, it seems clear that AFVs have played a minor role in the competitive environment. Although they serve the same purpose, the AFVs make use of different technologies. Further the AFVs have so far struggled to meet the requirements that consumers have had to cars. We therefore choose to look at AFVs as a substitute, and not a rival to the traditional ICEVs. Our focus area is therefore on the substitute’s possibility to enter the industry, and how it will affect the rivalry. 

The government potentially has great influence over the shaping and reshaping of an industry like the automobile industry. Through the use of incentives, regulative policies, subsidies and taxes they can play a major role facilitating a new technological alternative. By using appropriate policy instruments they can favour the entry of a substitute. If e.g. governments introduce tough regulations that are hard to meet by the industry, they may actually force existing companies to focus on substitute technology, cannibalizing their own market share.