The Coal ‘Punarjanma’: Let’s celebrate ‘Koyla Oorja’ for Electric Vehicles !

The Coal ‘Punarjanma’: Let’s celebrate ‘Koyla Oorja’ for Electric Vehicles !

Ganga Prasad G. Rao

Energy, Environmental and Mineral Economist

gprasadrao.blogspot.com

gprao64.blogspot.com

gprasadrao@hotmail.com

Electric Vehicles, EVs, were the fad .... yesterday. Sliding, and fast, from Concept Car to Rich man’s fancies, to engaging the real-life choices of the white-collared, these vehicles run on power stored in built-in rechargeable batteries. Bypassing IC-engines, these emission-less vehicles nonetheless cause emissions remotely, many-a-times in other jurisdictions when they draw upon Fossil fuel-fired power through inter-jurisdictional, inter-national, or inter-continental power grids¹. Despite this Local-Remote trade-off, policymakers consider EVs as one among many control options available to urban air pollution management. Such justification, however, is seriously misguided for several reasons. Many nations that would implement EVs, are well-endowed in Coal and Lignite resources. Some among them are likely endowed in EV Battery-constituting mineral resources as well. In the context of rapid advances in, both, Battery technology, and EVs themselves, the populist, technological and capital market pressures that pervade the Nominal paradigm induce Governments to adopt programs that sponsor EVs, thus facilitating an exploitation of the nations’ coal and mineral resources, and boosting returns to the technology while offering the Public enhanced transportation choice and flexibility. Unfortunately, such Keynesian sectoral interventions engender environmental (and pecuniary) externalities. Whereas environmental externalities result from demand-induced enlargement of CO2-intensive thermal power generation², the pecuniary externalities involve impacts upon the fleet of motor fuel-propelled automobiles and the fuelling infrastructure that supports it. This blog examines environmental risks triggered by Coal and Lignite interests when they respond to nominal market incentives, and strategize with populist, political Governments to expand in to the EV segment worldwide. It explores the outlines of a couple of preliminary solutions that could form the basis for a robust EV-focussed strategy that obtains an incrementally more sustainable transportation network than under a laissez faire policy toward an emerging technology sector.

As EVs gain wider acceptance from an improvement in battery range, efficiency and life, as they add Product Quality, PQ, features that appeal to Consumer’s yearnings for luxury and reliability (such as automated driving³), the emphasis placed on lowest cost source of power would progressively shrink. In other words, Consumers would, across years and decades of income and wealth enlargements, care more about safety and performance, and increasingly less about efficiency⁴and consequently, the implicit cost of recharging their batteries⁵, or the travel cost as measured in price-per-mile. That PQ -cum- upscale Lifestyle⁶-induced indifference to charging costs would permit a host of EV Battery recharge⁷network operators to enter the market – from those that source power from Renewables and Natural gas, to those that contract with externality-intensive thermal generators to offer power at lower or matching prices⁸. Concomitantly, the price-induced substitution response could also induce Consumers to switch to PQ-bundled⁹, lower-priced, but externality-intensive fossil-fuel power. Whether for reasons to limit charging costs, or, for reasons insensitivity to charging costs, an environmentally-blind offering of EV Recharge Power outlets has the potential to enlarge criteria emissions regionally, and GHG emissions globally. The prognosis for the environment from Government-sponsored introduction and enlargement of the Electric Vehicle fleet is, to put it mildly, troubling, and hence, deserving of immediate attention.

The problems with designing a policy response around Battery charging EV stations are mani-fold. First, Power Generation, Transmission and Distribution have been unbundled in many countries worldwide. Such unbundling commoditizes power generation and blinds the downstream entity – whether Transmitter, Distributor, or Consumer to the source and nature of power. Second, Power generating firms typically and for risk-diversification reasons, own a diverse set of generating assets that operate on various fuels – renewable, nuclear, and non-renewable. Power transmission grids are common carriers; they transmit power fed to the grid from various sources, and convey them to a multitude of drawal or consumption points. Even if a ‘Green-Power only’ firm fed its generation to the grid, one cannot physically¹⁰ensure such power reaches the Consumer. Concomitantly, no consuming entity can claim to be exclusively sourcing ‘Green Power’ from such generator firms. Finally, EV Charging Networks may, or may not choose to limit themselves to contracting with one Power Generator/Supplier/Marketer, or a Green/Non-Green power generator, or marketer. For all these reasons, the power that recharges the Motorists’ EV batteries at Recharge Outlets, cannot, as matters stand today, be branded exclusively Green. The salient implication of these complexities is the difficulty in designing an environmentally-discriminating policy that ensures an efficient, competitive and sustainable expansion of this nascent technology.

The Certification Route

Consider then, a strategy built around Government-certification of ‘Green Power’ whether in its production, or in its distribution to end-users. Networked EV-Charging stations, belonging to equity-capitalized firms, would seek ‘Green’ Government-certification – certification obtained for securing a power-sourcing contract¹¹with one or more Renewable/Green Power-certified firm(s). Motorists may thus be satisfied that despite the multi-asset nature of generation and the commoditization through the grid, the power they charge their EV batteries with, is substantially Green Power that doesn’t aggravate the Climate Change externality. The Green-certification¹²obtains the EV Charging Outlet firms a means to attract environmentally-conscious customers, and enables them to stake a strategic niche in the aggregate market for EV Recharging. Given any such firm would need to have an uneconomically-large network of charging outlets to offer reliable service to its motorist-customers, one could further imagine such firms adopting an ATM-network like business model in which charging at within-network outlets is substantially more affordable than charging through outlets that subscribe to other, Green or non-Green Charging firms. Notwithstanding these complexities, this proposal obtains a preliminary segregation of Green EV customers seeking an environmentally-credible offering from environmentally-insensitive EV customers; it also offers a mechanism to incrementally attract more EV Motorists in to the Green Power network.

The GO Cause Bond Alternative

Alternatively, and should Government certification be not as credible or practical, one could consider a non-governmental (GO) alternative designed around an existing Environmental Cause Bond such as is the 370ppm Cause Bond. Under this design, EV Recharge Outlet firms would subscribe as strategic OC-OE Partners to the Cause Bond. It’d be necessary for EV Charging firms to seek, compute and report the carbon-intensiveness of the power they source from multiple power suppliers on the grid. The Administrator of the Environmental Cause Bond would then impose a variable and dynamic environmental cess by the average carbon-intensiveness of aggregate power purchased and supplied to EV Motorists by the EV Charging firm. Green-sourced power would attract zero Cess, perhaps even a Cause Bond-sponsored Cause-Refund¹³, whereas carbon-intensive charging power would be charged an Environmental Cess that internalizes the cumulative, irreversible climate change externality it causes in its generation and consumption¹⁴.

Capital Restructuring – An ‘IO Solutionne’ ?

If Alice in Wonderland sold a million copies, surely one could do better with a solution to an enlargement of a global externality from an emerging technology? A Nominal Equity-dominated thermal power generation sector has been the bane of environmentalists who have watched the sector feed off the global equity markets and, until recently, expand even as the CO2 emissions it vents has caused ambient concentrations to cross the 400ppm and advance perilously toward the catastrophic Climate Tipping point. The Nominal incentives that pervade the Equity markets, perhaps have caused thermal-asset owning Power generating firms to deny shareholder dividends in their quest to harvest and reinvest retained earnings, and seek capital appreciation from an expansion of market size and share. Consequently, in the absence of environmental regulations and financial dis-incentives, thermal generation and coal mining could continue to fuel a further expansion of Climate change externalities. In this context, let’s consider a ‘grand’ solution to the GHG externality due thermal power generation by leveraging an opportunity-cum-threat around the growth of the EV Recharging sector.

Consider a typical Power-generating firm in the Capital markets, comprised in various proportions of Nominal ZS PV Equity and Corporate Bonds¹⁵. If one could aggregate all Nominal Equity-cum-Corporate Bond-constituted, coal-based thermal power firms as ‘Unsustainable Capital’ in the market, then and applying a ‘Bond-conversion’ strategy that converts the largest fraction of Equity over to Environmental Cause Bonds¹⁶while retaining Corporate Bond as is, and channels the rest, in a ‘FV Mirror ZS-Hive Strategy’, as Seed Capital in to EV Charging Network firms, would obtain us an industrial structure that is, simultaneously, environmentally sustainable in conventional power generation, and market competitive in emerging technology. Constituted of Environmental Long Cause Bonds and Social Short Corporate Bonds, the bulk of thermal generation capacity worldwide, protected from the rigors of Nominal competition for Capital Appreciation, would attenuate in growth to the extent the former dominated the latter. EV Charging Networks, as inheritors of the Nominal engine from the erstwhile Equity-based thermal generation capital, would compete in the emerging technology-driven market by seeking to expand their market with higher efficiency and product/niche-differentiation. Motorists would choose across different EV-Charging Networks fuelled by Fossil power or Renewable power, either guided by the Government-issued Green Certification, or paying post-purchase a differential Environmental Cess as imposed by the Cause Bond of whose Bond Capital they are constituted to different extents.

To sum it up.....

Commercial Airlines were an emerging technology a good 100+ years ago; today they constitute one of the global-growth engines that contributes as significantly to the economy as it harms the environment. In a similar vein, EVs and its offshoot, the EV Recharging Network, constitute a nascent Sector that in the decades ahead, could potentially convert a significant share of fossil-fuelled Motor-vehicles and the billions of Land VMT they travel, to its domain. Land-based motor transportation continues to expand – both in terms of vehicles owned and miles driven, in developing nations of Asia, Arabia, the CIS nations and Africa. If, as is likely, EVs constitute both, the incremental to the existing automobile market, and a partial replacement to the existing motor-fuelled fleet that turns over annually, then the environmental risk from an expanding EV-driven VMT from charging EV batteries with low-priced ‘dirty power’ is very, very real. This blog, for all its nebulousness, has offered 3 inter-related resolutions that, to varying extents, attenuate the externality-enlarging incentives of the nominal capital markets while retaining a fair measure of market-freedom and consumer choice. Implemented wisely, these proposals could bring about a sustainable EV-cum-EV Charging market that efficiently discriminates against the more environmentally-profligate EVs and power suppliers, and facilitates an organized and sustainable expansion of the EV technology. More significantly, it’d anticipate a particularly onerous environmental externality in its initial stages and abate it short of adding to our Climate woes. It is for the politically- and financially-empowered national and multi-lateral institutions and policy makers to evaluate these alternatives and guide their implementation, so the global society obtains a environmentally-sustainable and technically-efficient transportation alternative.

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1The international and inter-continental nature of power grids effectively removes fossil fuel resource constraints by permitting the remote generation and transmission of power. Much as demand for gas-based space heating in Europe permitted developement of remote gas fields in interior Russia, so too, an expanding EV-Recharging market could motivate expansion of existing thermal generation, or the start-up of new ones.

2beyond the externalities associated with mining coal and Lithium resources.

3Automated driving, by removing driver fatigue as a limiting factor, is conducive to longer driving. It implies inter-modal substitution in travel, and an expansion of ‘Land VMT’.

4As most of us are well-aware, safety, reliability and performance correlate inversely with achieved fuel efficiency.

5The allusion here is to private charging costs relative other costs of owning and operating an EV. Motorists are uninformed about the source and nature of the power that recharges their EV batteries. Under a laissez faire policy, they’d care even less about environmental externalities – whether criteria pollutants from remote power generators, or Climate Change externality causing GHG emissions that result from charging EV batteries with fossil-fuel fired power.

6Quite apart from the Rich living upscale EV-Lifestyles, there might exist a section of the middle-class society that wishes to be ‘Green’, but doesn’t have either the information, or the options to exercise their preference at the recharging outlet.

7Note, this blog does not differentiate materially between fixed batteries that must be recharged at specified outlets, and charged batteries that may be bought off the shelf, and replaced in the Automobile Battery Bay. The latter introduces additional complexities as concerns the environmental attributes of power consumed to charge the battery.

8There are other substantive issues as concerns how Government subsidies for Renewable and Non-Renewable energy and ESH standards for Nuclear power would affect competitiveness at retail battery charging stations.

9As, for example, Recharge networks that claim 24-hr reliability, or fast-charging capability not offered by competitors drawing power from an environmentally-different source of power.

10One could however claim a de-facto equivalent by drawing as much power as was fed in (whether concomitantly, or within a reasonably short time period).

11The sourcing contract would specify and certify that a significantly large fraction of power drawn by the EV Charging Outlet firm would be sourced from one or more Renewable Power Generators, and that the latter group, would at all times, and on a monthly-averaged basis, be generating more power than is consumed by the aggregate of contracts entered in to with EV-Charging outlet firms.

12Also applicable to EV-Batteries sold off the shelf.

13This Refund-ZS-Charge system is reasonably transparent and easy to implement. Implemented post purchase, it has the potential to induce Motorists to alter their recharging decisions to the extent their preferences, prices and incomes. EV Recharging Outlets, drawing power from non-fossil fuel generators, would respond by netting out the Charge against their price, and/or offering other PQ attributes.

14The Cess could be calibrated by separately evaluating the aggregate power transactions of individual EV Recharging firms against Cause Bond ETV and FV Gold Collateral Futures/Options of the same horizon.

15These Nominal Corporate Bonds, distinct from Real Cause Bonds, would imbue a ‘Real Nominal AO ZS Mirror ---> Private Real Short Corporate Bonds’ character (Such Bonds likely serve as ‘Real Volatility Counterweights’ in FV to PV Nominal Monetizations?). When Real Short Corporate Bonds are combined in various proportions opposite Public Long Real Cause Bonds, the Power generating firms so constituted would mirror the hybrid mix of Capital, permitting an advantageous volatility-banding of long environmental causes opposite short social imperatives.

16This operation is elaborated upon in a previous blog post: ‘Stop the Run-away Train that Climate Change is..... How ‘bout a bowl of Restructured Capital Soup’?, gprao64.blogspot.com.