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CREATING THE CLEAN ENERGY ECONOMYAnalysis of theElectric VehicleIndustry

Creating the Clean EnergyEconomyAnalysis of the Electric Vehicle IndustryPrimary AuthorsJennifer Todd is an Economic Development Associate at IEDC. Jess Chen is a Research Fellow anda PhD candidate at American University. Frankie Clogston is an IEDC Consultant and a PhDcandidate at Johns Hopkins University.Primary EditorsLiz Thorstensen, Vice President of Knowledge Management & Economic Development Practice, TyeLibby, Associate, Knowledge Management and DevelopmentAcknowledgementsIEDC is grateful to the Rockefeller Brothers Fund for its generous support of this research project.Special thanks Lauren Avioli, Emily Brown, and Patrick McHugh for research support, and MishkaParkins, who provided technical assistance for the creative design of the report. Copyright 2013 International Economic Development CouncilThis report was made possible by a grant from the Rockefeller Brothers Fund.

International Economic Development CouncilIEDC is the world's largest membership organization serving the economic developmentprofession, with over 4,500 members, and a network of over 25,000 economic developmentprofessionals and allies. From public to private, rural to urban, and local to international, ourmembers represent the entire range of economic development experience. IEDC is dedicated tohelping economic developers do their job more effectively and raising the profile of theprofession. When we succeed, our members create more high-quality jobs, develop more vibrantcommunities, and generally improve the quality of life in their regions.The issue of sustainability has been designated a strategic priority by the IEDC Board ofDirectors. Further, sustainability and policy responses to climate change are growing issues for ourmembers. Through a range of services, including: conferences, training courses, webinars,publications, research and technical assistance efforts, we are striving to be on the cutting edgeof understanding the opportunities and challenges stemming from sustainability, climate changeand economic transformation. For more information about IEDC visit www.iedconline.orgPaul Krutko, FMPresident and Chief Executive Officer,Ann Arbor SPARKChairman of the IEDC BoardJay C. Moon, CEcD, FMPresident and CEO,Mississippi Manufacturers AssociationImmediate Past Chairman of the IEDC BoardJeffrey A. Finkle, CEcDPresident & CEOInternational Economic Development CouncilInternational Economic Development Council734 15th Street NW / Suite 900Washington, DC 20005www.iedconline.org Phone: (202) 223-7800 Fax: (202) 223-4745

TA B LE O F CO NT E NTSIntroduction to Electric Vehicles . 4Job Creation Potential of Electric Vehicles . 12The State of the U.S. Electric Vehicle Market . 23Hurdles and Solutions: Electric Vehicles Market . 61Reduce the Cost of PEVs . 63Expand Charging Infrastructure . 73Educate Consumer Perception . 83Convention Gas Cars: Lessons for Electric Vehicles . 90INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL3

INTR O DU CTIO N T O ELE CT R ICV EH ICL E SOf all the oil consumed in the U.S., 70 percent is used for transportation. Further, passengervehicles use 70 percent of transportation oil.1 Globally, a rising middle class in China and India iscausing demand for passenger cars to balloon, and with it, demand for oil. By 2050, there maybe as many as 1.5 billion cars on the road, compared to 750 million in 2010.2This type of demand represents both a challenge and an opportunity to capitalize on new vehicletechnologies, and in the process, reap substantial economic development benefits. In a worldwhere oil is a limited resource, an alternate source of transportation fuel – electricity – is not onlya smart investment, but as some would say, it is an inevitable one. Further, the switch to electricvehicles will generate demand for existing jobs and create new jobs as well. As study after studyconfirms, job growth in electric vehicle industries will outweigh any reduction of jobs in traditionalfuel industries, resulting in net job growth. Electric vehicles create additional economicdevelopment opportunities by improving quality of life, reducing energy spending, anddecreasing reliance on foreign oil.The Importance of Electric Vehicles to Economic DevelopmentLike any transformative new technology, electric vehicles create a variety of potent economicdevelopment challenges and opportunities. While the electric vehicle market is still at a relativelyearly stage of development, it is poised to reshape industries and communities the world over.This section provides a quick overview of the potential benefits of electric vehicles so thateconomic developers can better assess what the evolution of this market will mean to their specificlocal communities.Harvard Kennedy School, Belfer Center for Science and International Affairs. (2011, July). Will Electric CarsTransform the U.S. Car Market? Cambridge: Lee, H. & Lovellette, G. Retrieved eb.pdf2 Harvard Kennedy School, Belfer Center for Science and International Affairs. (2011, July). Will Electric CarsTransform the U.S. Car Market? Cambridge: Lee, H. & Lovellette, G. Retrieved eb.pdf1INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL4

Electric Vehicles Create JobsAt this point it is difficult to reliably estimate the total job creation potential of electric vehicles.More electric vehicles, however, would also likely lead to some job losses in the oil industry. Withthat said, there is good reason to expect that electrification of personal transportation can drivejob creation in a host of industries. More efficient automobiles require more technology, which aredesigned and produced by adding workers to the auto industry.3 Many of these jobs would becreated in industrial sectors closely tied to auto manufacturing, advanced batteries, and researchand development.Moreover, electric vehicles are much cheaper to operate than conventional vehicles. Drivers whoswitch to electric vehicles will have more disposable income to spend in other sectors of theeconomy, such as housing and services. Spending in these sectors keeps more wealth moving withinlocal economies and will drive job creation in sectors not immediately connected to producingelectric vehicles.These ideas are summed up in the different types of job creation. Direct jobs are created throughincreased production by firms that make PEVs, PEV components, and PEV infrastructure. Indirectjobs are those tied to firms that supply to these direct producers. Further, higher employment indirect and indirect jobs leads to more spending in the broader economy. These create inducedjobs in industries like food, clothing, and entertainment. One leading estimate of total job creationfrom PEVs – direct, indirect, and induced – is that provided by the BlueGreen Alliance/AmericanCouncil for an Energy-Efficient Economy. The organization predicts that the new federal vehiclestandards passed in 2012 will result in the creation of 570,000 jobs, including 50,000 in vehiclemanufacturing.4Electric Vehicle Infrastructure Improves Quality of LifeEarly adopters of electric vehicles face significant constraints in where they can live and work.Before charging infrastructure becomes widespread, communities that can offer adequatecharging locations and PEV purchase incentives will have an advantage in attracting andBlueGreen Alliance/American Council for Energy-Efficient Economy. (June 2012). Gearing Up: Smart StandardsCreate Good Jobs Building Cleaner Cars. Washington, D.C. Retrieved from 2/06/BGA-Auto-Report.pdf4 Ibid.3INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL5

retaining workers who want to make the switch to electrified transportation. Critically, from aneconomic development perspective, there is good reason to expect that early adopters of electricvehicles will also be highly talented workers. Surveys of buyers who preordered the Nissan Leafindicate they are an educated and tech-savvy group. In fact, the average Leaf buyer is: Around 45 years old, Owns a home and a garage, Makes about 125,000 a year, Is college-educated, and Already owns a fuel-efficient vehicle such as the Toyota Prius.5Surveys by the University of Michigan and Pike Research found that the more education a personhas, the more likely he or she is to be interested in purchasing a plug-in hybrid vehicle.6 Those withhigher income are also more likely to purchase a PEV.7 However, a Deloitte survey found thateven these early adopters are sensitive to government incentives and overall cost considerations. 8Thus, communities that adopt charging infrastructure and offer purchase incentives can strengthentheir appeal to these educated, wealthier workers.Electric Vehicles Can Reduce Reliance on Foreign OilAccording to the U.S. Energy Information Administration, over 80 percent of the cost of a gallonof gas immediately leaves the local economy.9 Further, higher gas prices means retailers typicallycharge a lower markup in an attempt to compete, thereby reducing local profits even more. 10Gordon-Bloomfield, N. (2010, September 10). Just Who is a Typical 2011 Nissan Leaf Buyer? We Find Out. GreenCar Reports. Retrieved from http://www.greencarreports.com/news/1049202 d-out6 University of Michigan. (2009). Plug-In Hybrid Electric Vehicles. Ann Arbor: Curtin, R., Shrago, Y., & Mikkelson, J.Retrieved from http://www.ns.umich.edu/Releases/2009/Oct09/PHEV Curtin.pdf,Pike Research. (2011). Electric Vehicle Consumer Survey. Boulder: Vyas, C., Hurst, D. & Gartner, J. Retrieved nt/uploads/2011/12/EVCS-11-Executive-Summary.pdf7 Ibid.8 Deloitte. (April 2011). Gaining Traction: Will consumers ride the electric vehicle wave? Retrieved df9 U.S. Energy Information Administration. (2012, September 10). Gasoline and Diesel Fuel Update. Retrieved fromhttp://www.eia.gov/petroleum/gasdiesel/10 National Association of Convenience Stores. (2011). NACS Annual Fuels Report 2011. Retrieved igns/GasPrices 2011/Documents/GasPriceKit2011.pdf5INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL6

Most communities are not significant producers of oil and gas for personal transportation, whichmeans that when local residents spend money at the gas pump, much of that wealth exits the localeconomy.Savings on gas can add up to significant benefits to regional economies. Not all of the savings willbe spent locally, but even a fraction of what is spent annually on personal transportation has thepotential to bolster job growth and build wealth within local economies. A study by the CaliforniaElectric Transportation Coalition found that each dollar saved from gas spending and spent onother household goods and services generates 16 jobs in the state. 11 A few specific examplesunderscore how significant the import substitution effect of electric vehicles can be. New Yorkersdrive much less than the average U.S. metro resident, which keeps 19 billion each year flowingwithin the local economy.12 In Portland, Oregon, residents drive only four miles less per day thanthe national urban average, but the fuel savings still result in 2.6 billion dollars each yearstaying local.13With savings of these magnitudes being realized by trimming only a few miles off the nationaldriving average, it is clear that decreasing operational costs of vehicles can add up to massiveamounts of wealth staying local and creating jobs. Electric vehicles prevent local wealth frombeing literally pumped away and, as these examples make clear, the gains to local economiescan be significant.Electric Vehicles Can Decrease Utility PricesElectric vehicles have the potential to decrease, or at least moderate the growth of, utility rates.For a technology that will increase total demand for electricity, this may seem counter-intuitive.The reason that electric vehicles may actually decrease utility rates lies in daily oscillations inpower consumption. Electric vehicles typically charge at night, when electricity is cheapest toCalifornia Electric Transportation Coalition. (2012). Plug-in Electric Vehicle Deployment in California: An EconomicJobs Assessment. Retrieved from conomic-Jobs-AssessmentExec-Summary.pdf12 Cortright, J. (2010, April). New York City’s Green Dividend. CEOs for Cities. Retrieved fromhttp://www.ceosforcities.org/pagefiles/NYCGD elctrnc FINAL.pdf13 Cortright, J. (2007, June 28). Portland’s Green Dividend. CEOs for Cities. Retrieved .pdf11INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL7

generate. By balancing the demand for electricity between day and night, electric vehiclesdecrease the average cost of electricity. Thus, overall rates decrease.One potential future technology allows vehicles to feed electricity back into the grid, a reversecharge system known as “vehicle to grid” (V2G). Peak hours of electricity demand generally occurin the early to mid-afternoon, when most commuter vehicles are sitting idle and can feed powerback into the grid.14 Conversely, electric vehicles are generally charging in the later-evening,overnight, and in the early morning, when there is excess generation capacity in the grid. As aresult, large-scale deployment of electric vehicles will allow utilities to dispense with power plantsthat are currently only needed to satisfy peak demand, a prospect that could substantiallydecrease operating costs and therefore utility rates. Further, V2G can accommodate greater useof clean energy. Electric vehicles primarily charge from late afternoon to early morning, a periodduring which a greater portion of energy is generated from clean energy resources such as wind.Initial studies estimate that electric vehicle owners can make 300 to 500 per year throughV2G.15 However, this may differ from grid to grid. Electric vehicles may earn more by providinga backup power source for quick-response utility markets. These markets include “spinningreserves” generation, which provide immediate backup power for 10 minute spurts, andfrequency regulation, which balances generation to ensure an even electricity flow through outletsat all times. Frequency regulation requires adjusting output about 400 times a day, and electricvehicles can respond within seconds to this need. It is possible that electric vehicles can earn up to 5,000 a year in frequency regulation markets.16 Nuuve Corporation, a leading V2G pilotprogram, is currently testing 30 electric vehicles for the frequency regulation market in Denmarkand expects to pay electric vehicle owners up to 10,000 over the lifetime of the car.17V2G applications are still in the concept stage, and some issues have yet to be addressed.Specifically, large-scale deployment of electric vehicles presents a substantial burden on the grid.If charging times are not coordinated, utilities may need to add additional capacity – whichwould actually raise rates. Coordinating PEV charging is one of primary hurdles that current PEVIbid.Ferber, D. (2011, October 31). Vehicle-to-Grid: A New Spin on Car Payments. Miller-McCune. Retrieved le-to-grid-a-new-spin-on-car-payments-36697/16 Ibid.17 Ibid.1415INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL8

infrastructure demonstration projects are exploring (see Current Hurdles section of this report).Nonetheless, V2G is a potentially transformative technology that could make electric vehicles agame-changer for both the transportation and energy industries.This report will review the current state of the U.S. electric vehicles market and discuss strategiestoward large-scale adoption of electric vehicles. Although the market faces several hurdles at thisstage of development, concerted efforts by key stakeholders can help electric vehicles become aself-sustaining market in the near-term future.INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL9

Definitions for this ReportHybrid Electric Vehicles: Electric vehicles that employ both electric and gas power. The onboardbattery helps gas to be used more efficiently, while gas recharges the battery.Battery Electric Vehicles (BEVs): Electric vehicles that are solely electricity-powered and have nobackup fuel source.Extended-Range Electric Vehicles (EREVs): A vehicle that is powered by battery for a certainnumber of miles. Gasoline then powers an electric generator for the next several hundred miles ofextended-range driving.Definition of Electric Vehicles for this ReportThis report focuses on the mass deployment of plug-inelectric vehicles (PEVs), which includes both BEVs andplug-in hybrids. Although more conventional hybrids,light duty vehicles, and fuel-efficient gas cars providevaluable fuel savings and environmental benefits, theyrely heavily on gas and thus should be considered apreliminary step toward a more visionary transportationsolution. Because battery electric vehicles and plug-inhybrids are impacted by similar charging infrastructureand battery technology, they will share many of thesame hurdles and corresponding solutions that are jointlyaddressed in this report.INTERNATIONAL ECONOMIC DEVELOPMENT COUNCILPlug-In Hybrids (PHEVs): A subsetof hybrids that allows batteries tobe recharged by plugging into anexternal electricity source. PEVscan operate on a combination ofelectricity and gasoline, dependingon the vehicle’s configuration andpower needs.Other RA: American Recovery andReinvestment Act10

Summary of Hurdles and ED StrategiesThe table below summarizes the primary hurdles to PEV deployment and the proposed economicdevelopment strategies to overcome these hurdles. While these are discussed in detail in Section 3of this report, challenges can be summarized in three main hurdles: the high cost of PEVs, thelimited charging infrastructure currently available, and consumer misperceptions about theoperation of PEVs. However, economic developers can and are taking strides to reduce thesebarriers. Section 3 presents examples and case studies of each economic development initiative.Hurdles to Development and SolutionsLimited charginginfrastructureHigh cost of PEVsDemand Side Strategies Provide tax incentives forpurchaseAlleviate batteryownership riskProvide non-financialincentivesEncourage utility ratediscountsTransition governmentfleets to PEVsEncourage PEV cabs Invest in chargers in publicspacesProvide incentives forinstalling chargersCollaborate with privatecharging station providersStreamline local zoningand permittingDisseminate information oncharger locationsConsumer misperceptions Develop a consumereducation planEstablish publicdemonstration of PEVsMark