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R OCKY M OUNTAIN I NSTITUTE Legislative Briefing The Transportation Efficiency Prize Honolulu January 20, 2005 How Hawaii can Win the Oil EndGame The United States can get completely off oil and revitalize its economy—led by business for profit

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Honolulu January 20, 2005

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Legislative Briefing

The Transportation

Efficiency Prize


January 20, 2005

how hawaii can win the oil endgame
How Hawaii can Win the Oil EndGame
  • The United States can get completely off oil and revitalize its economy—led by business for profit
  • States are the laboratories of change that will bring this about
  • Hawaii is well positioned to be among the leaders

Hawaii Energy Commitee Briefing

winning the game restoring competitiveness and eliminating oil dependence
Winning the Game: restoring competitiveness and eliminating oil dependence
  • National competitiveness and national security at risk
  • Why should we care?
    • Japan, EU, China will eat Detroit’s jobs for lunch
    • Energy insecurity, price volatility, and climate concerns, perhaps depletion
    • Save net $70 billion/yr by 2025, create 1 million net jobs
  • How do we win?
    • Reduce congestion through mass transportation and smart planning
    • Efficient end-use can save half the oil at $12 a barrel
    • Biofuels substitute for another fourth
    • Longer term: the hydrogen transition fueled by saved gas

Hawaii Energy Commitee Briefing


Existing technologies can save 26% of oil use cheaply ($6/bbl), and State of the Art technologies could save 52% of 2025 oil for only $12/bbl

Oil Saved by Full Deployment in 2025 (Million Barrels/Day)

Conventional Wisdom (Avg. CSE = $6/bbl)

State of the Art

(Avg. CSE = $12/bbl)

EIA 2025 Crude Oil Price

Cost of Saved Energy

(2000 $/bbl RAC on the short-run margin)

25% of 2025 Baseline Use

50% of 2025 Baseline Use

Hawaii Energy Commitee Briefing

given the barriers to efficiency what is the role of state government
Four Major Market Failures

Most customers have very high implicit discount rates when buying energy efficiency

Most equipment/vehicle makers and their customers, even sophisticated ones, lack good information on alternatives, especially in end-use efficiency

Oil is priced below its societal cost

Externalities include military/security, environmental, net subsidies, and diplomatic/geopolitical

The “Creative Destruction Problem”: Organizational and cultural and institutional obstacles make it difficult for large companies to adopt disruptive innovations

Given the barriers to efficiency, what is the role of state government?

Government can accelerate market adoption by:

Stimulating Demand

Setting an Example

Providing better information

Hawaii Energy Commitee Briefing

to get real security hawaii needs to back out the entire barrel of crude oil

Residual Fuel

Motor Gasoline

Jet Fuel

Distillate Fuel





To get real security, Hawaii needs to back out the entire barrel of crude oil

Hawaii Fuel Use Model

Total Petroleum Usage in 2003

(MM Barrels)









Crude Oil Imports

Refined Products

  • 48.6 MM barrels
  • 22% US
  • 78% Foreign

Other ProductsImports (000s barrels)

7.9 MM barrels

- 40% US

- 60%Foreign


Sources: DBEDT (2004), *EIA

Hawaii Energy Commitee Briefing

Hawaii’s has a unique situation: passenger vehicles represent 80% of the fleet and 50% of new cars are rental vehicles

Vehicle Fleet – State of Hawaii (2003)

  • Total Cars Registered (000s): 1,045
    • Passenger: 828
    • Light Trucks: 115
    • Heavy Trucks: 60
    • Trailers: 26
    • Motorcycles: 11
  • Miles Driven (MM miles): 9,058 (1)
  • Average fleet efficiency (mpg) 20.8 (2)
  • Motor Fuel Equiv. Consumption (MM gallons): 434

New Cars

Scrappage (3)

Passenger: 35,927

Trucks: 9,127

Vehicles: 65,000

Rental Cars

Passenger: 37,525

Trucks: 349


(1) Miles driving based on average 9.058 miles driven per year by vehicle – assumes all vehicles except trailers and vehicles subject to scrappage Source: 2000 Hawaii Strategy Plan, DBEDT

(2) Based on overall fleet except for trailers in the State of Hawaii in 2000. Source: 2000 Hawaii Strategy Plan, DBEDT

(3) Scrappage based on US national scrappage rate of 75.3% of new registered vehicles

Hawaii Energy Commitee Briefing

The energy cost burden to the state will increase: Hawaii will consume 510 MM gallons/y of motor fuel by 2024 (17% increase)

Hawaii Estimated Consumption of Motor Fuel

Base Case – If Light Vehicles Reach Equivalent Penetration Rates as National Average

Hawaii Cumulative Fuel Consumption through 2023: 9,507 MM gallons

Commercial Fleet

Light Duty Trucks

Annual Consumption of Gasoline Equivalent (MM Gallons)

Fleet Fuel Efficiency 2004: 20.8 mpg

Fleet Fuel Efficiency 2024: 26.0 mpg

Passenger Vehicles

  • Assumes scrappage rate of 75.40% of new registered vehicle. Source:
  • Assumes growth of vehicle fleet of 1% per year
  • Based on expected distribution of 79% passenger vehicles, 17% light trucks and 4% commercial/heavy vehicles. Source: HI Strategy Report 2000
  • Assumes 92.6% of vehicles powered by motor gasoline, and remainder powered by diesel and LPG, Source: Hi Strategy Report 2000
  • Assumes average miles driven per vehicle of 9.058 miles/year. Source: HI Strategy Report 2000

Hawaii Energy Commitee Briefing

why drive mass transportation and smart growth reduce demand for vehicle travel
Why Drive? Mass transportation and smart growth reduce demand for vehicle travel
  • Congestion is imposing high costs to our society and our positioning in the tourism market
  • Mass transit alternatives are cheaper than building more roads and are well known, but must be funded
    • Light rail on Oahu
    • Bus service on neighbor islands
  • Tax increases should equitably support transit improvement in all counties
  • Smart growth and planning to provide employee housing close to work, solving both the transportation and the housing crisis

Hawaii Energy Commitee Briefing

three options to stimulate demand for more efficient vehicles



Feebate & Scrappage

$1000 Tax Credit

Three options to stimulate demand for more efficient vehicles

Policy Impact to Gasoline & Diesel Consumption


Feebate Only

Annual Consumption of Gasoline Equivalent (MM Gallons)

$1000 Tax Rebate

Feebate + Acc. Scrappage

Motor Fuel Consumption (2004-2023) MM Gallons

Motor Fuel Savings


MM Gallons

Fleet Efficiency (mpg)













Hawaii Energy Commitee Briefing


Policy Impact



Cum. Gallons Saved (MM)

# of Add’l Vehicles Scrapped

# New Vehicles Receiving Incentives

HI Taxpayer Savings ($MM)

CO2 Reduced (Mtons)

Gasoline Tax Forgone ($MM)

Scrappage Costs ($MM)

Incentive Costs ($MM)

Accelerate HEV adoption up to 10% penetration using feebates as incentive







Accelerate HEV adoption up to 10% penetration using feebates and accelerate scrappage to 95% of new cars (30% increase over current rates)









Accelerate HEV adoption up to 10% penetration using a $1000 tax rebate as incentive







Our finding is that feebates plus scrappage are cost effective policy measures, so long as each sunset once the goals are achieved


Assumes 5% discount rate, 1% inflation rate for motor fuel gasoline

Assumes scrappage program of $500 per car, and tax credits of $1,000 per HEV

Hawaii Energy Commitee Briefing

policy goals criteria
Policy goals & criteria
  • Reduce Hawaii’s oil dependency
  • Align new-car purchaser’s incentives with the true cost to society

Policy Goals

  • Simple to understand and implement
  • Cost effective
  • Inexpensive to administer
  • Revenue-neutral
  • Automatic sunset
  • Progressive or at least not regressive


Some Suggested Criteria

Hawaii Energy Commitee Briefing

transportation efficiency policy options
Transportation Efficiency Policy Options

High Impact




CO2 Emissions Standards

Mass Transit


Tax Credits


Cost &





Easy &



State Procurement

Increases Gasoline Taxes

Tire Labeling

HOV /Parking


Public Information Campaigns

Low Impact

Hawaii Energy Commitee Briefing

traditional policy options

Focus Here

Traditional policy options
  • Provide alternative means for mobility
    • Critical need to reduce congestion
    • Cheaper than adding more roads

Mass Transportation

  • LEV/HEV Fleet Percentage Quotas
    • Enacted to meet emissions standards
    • Hawaii scale unlikely to sway manufacturers


  • Increase gasoline taxes
    • Reduces consumption
    • Marginally effective when prices are already high and politically unpopular


  • Mandate HI government fleet new purchases
    • Mandate minimum efficiency for new purchases
    • Demonstrates leadership

Procurement Scale

Hawaii Energy Commitee Briefing

measures to improve existing fleet efficiency

Focus Here

Measures to improve existing fleet efficiency
  • Standardize Tire Rolling resistance and noise labeling
    • 20% reduction in rolling resistance creates 5% fuel savings in cars, and 4-12% fuel savings in heavy trucks
    • Prices are similar for low or high Crr tires

Tire Rolling Resistance

  • Public Information Campaign
    • Incremental cost is 10-15%, 5% savings possible
    • Mandating viscosity impractical

Low Viscosity Oils

Proper Tire Inflation

  • Public Information Campaign
    • Proper inflation reduces fuel use 2%, 30% of tires not inflated

Hawaii Energy Commitee Briefing

innovative policy options
Innovative policy options
  • Stimulates demand for new vehicles
    • Revenue and Size neutral
    • Requires exemption for federal preemption



  • Pay to take least efficient cars off the road
    • Accelerates capital stock turnover

Subsidies or

Tax Credits

  • Provide Tax Credits for Efficient Vehicles
    • Make dependent on engine technology, sunset after 10% penetration rate
  • Implement pay-as-you-drive (PAYD) or pay-at-the-pump (PATP) auto-insurance
    • Creates marginal decrease in driving
    • Both have welfare benefits from linking cost of insurance more closely to VMT
    • PATP induces switching to more efficient vehicles due to taxation aspect – giving larger reduction

Higher Prices via Insurance


Hawaii Energy Commitee Briefing

summary of state actions
Summary of State Actions


How it Works

States Using It


  • Revenue neutral rebate for more efficient vehicles paid for by fee on less efficient vehicles
  • DC*, MD**

Tax Credit or Rebate for High Efficiency Vehicles

  • Tax credit or rebate for the purchase of a high efficiency vehicle
  • Tax credit or rebate for the conversion of a vehicle to operate on AF
  • AZ, CA, CO, CT, DC, GA, IL, KS, KT, LA, MD, ME, MT, NC, NJ, NM, NY, OK, OR, PA, RI, UT, WI, WV

Tax Credit or Rebate for Alternative Fuels or AF Production

  • Tax credit or rebate for biofuels, CNG, LPG
  • AR, CT, DE, HI, ND, KS, MN, MS, ND, RI, SD, TX, VA, WA

Tax Credit, Rebates or Grants for AFV Refueling Station

  • Tax credits, rebates or grants for AF refueling stations
  • CO, CT, HI, IN, KS, LA, ME, NJ, NY, OK, OR, RI

Government Purchase of Efficient or AFVs

  • Funds or mandates to purchase AFVs or efficient vehicles in state, country or school fleet
  • AZ, CA, CO, DC, DE, FL, GA, IA, IL, IN, KS, MA, MD, ME, MI, MN, MO, MT, NC, NM, NJ, NV, NY, OK, OR, RI, SC, TX, UT, VT, WA, WI, WV

Emissions Standards

  • Quota based LEV or LEV standards on cars sold to alleviate air pollution
  • CA, NY

Hawaii Energy Commitee Briefing

blueprint for action what the legislature can do
Blueprint for Action: What the Legislature can do
  • Pick Up the Low Hanging Fruit
    • AFV/HEV access to HOV lanes, special parking access
    • Mandate state procurement of efficient vehicles
    • Run state fleet on biofuel blends B20 or W85 (when available)
  • Fund mass transit alternatives
  • Leverage actions of larger states
    • Alliance with other states seeking exemption from preemption on feebates or mirror alternative legislative remedies that are not preempted
    • Adopt labeling program for tires (under development in CA)
  • Provide near term tax incentives for HEVs and AFVs
    • Provide $1,000 state tax credit from 2006-2009
    • Sunset after penetration reaches 10% or feebates are allowed

Hawaii Energy Commitee Briefing


The $3 Billion Efficiency Prize and Real Security:Backing out: 8 Million barrels of crude oil saved (15% of crude imports) from efficiency alone

Efficiency Impact

Reference Consumption

Million barrels


Savings by 2025

Million Barrels



Residual Fuel




Motor Gasoline




Jet Fuel




Crude Oil Saved

Refined Products

Distillate Fuel

>19% (1)






8 MM Barrels











Source:RMI Analysis, note: additional distillate would be importedExpectation is that renewables would save more residual fuel oil(1) Additional diesel savings possible from new truck designs



Hawaii Energy Commitee Briefing

why should you care enough to act
Why should you care enough to act?

Hawaii Energy Commitee Briefing



Hawaii Energy Commitee Briefing

how feebates work
How feebates work

How Feebates Result in a More Fuel-Efficient Fleet of Vehicles (1)

Feebate Price Incentives

Improved Fuel Economy of Vehicle Fleet

Short-Run Change in Sales Mix

Long-Run Change in Product Mix

  • Rebates reduce the price consumers pay for fuel-efficient vehicles
  • Fees increase the price consumers pay for inefficient vehicles
  • Available selection of vehicles (including the fuel economy of individual models) is unchanged, but price incentives encourage consumers to purchase the cheaper, more fuel-efficient vehicles
  • The selection of new vehicles being marketed changes: Manufacturers make vehicles that are more fuel efficient because the resulting increase in the feebates helps pay for additional fuel-economy technology

Source: Davis, W.B., Levine, M.B., and Train, K.T., “Effects of Feebates on Vehicle Fuel Economy, Carbon Dioxide Emissions, and Consumer Surplus”, DOE, February 1995, p. 3, Fig. 1-1

Hawaii Energy Commitee Briefing

feebate schedules examples 1 500 discount paid for by 800 fee on new cars
Feebate schedules examples: $1,500 discount paid for by $800 fee on new cars

Example of Feebate Schedule (1)

Source: Davis, W.B., Levine, M.B., and Train, K.T., “Effects of Feebates on Vehicle Fuel Economy, Carbon Dioxide Emissions, and Consumer Surplus”, DOE, February 1995, p. 5, Fig. 1-2

Hawaii Energy Commitee Briefing


Shredding scrapped tires into asphalt can halve asphalt use, double road’s life, and offset some of Hawaii gasoline tax lossAsphalt Rubber (AR) pavement is a winner versus traditional Asphalt (A) pavement

AR repaving reduces cost substantially…

  • Use LESS asphalt per lane-mi: From ~180 to ~120 bbl…
    • Same lane-width & density, only ~1/2 as thick (from average of ~4” to ~2” pavement thickness)
  • … yet DOUBLE LIFE (from 7-10 to 15-20 yrs), and…
  • … LOWER costs:
    • Up-front cost down ~35% from $70k to $45k/lane-mi
    • Life-cycle cost advantage even better

For Hawaii, 2025 (1)

  • Annual saving in resurfacing from $17M to $21M (49%-61% vs. today)
  • This would offset 10% of gasoline tax revenue shortfall from efficiency gains

… and could have significant effect by 2025:

  • US today: 300 M total scrapped tires per year
    • 96M/yr currently not used — would satisfy ~40% of current re-pavement demand
  • 65% of re-pavement by 2025 assuming fixed supply proportion
  • Lowers national paving costs by $11 billion ($53BN to $42BN/yr)

(1) Assumes approx 2/3 of 3R (Restoration, Rehabilitation, and Resurfacing) budget for Hawaii is used for resurfacing.

Source: (1) RMI analysis / RMI US Asphalt Model (2) Jung, J-S., Kaloush, K E., and Way, G.B., "Life Cycle Cost Analysis: Conventional versus Asphalt Rubber Pavements", Arizona State University, August 2002. (3), assuming 50% of HI 3R state funds go towards re-paving existing and new roads; from figures Tables SF12AP1 through SF12AP6. (4) “US Scrap Tire Markets 2001”, Rubber Manufacturer Association, December 2002

Hawaii Energy Commitee Briefing