October 10, 2008
Incentives may accelerate diesel penetration in US auto market
Analysis of:
IRS, EPA Helping Diesel Cars? | www.dieselprogress.com
This analysis is solely the work of the author. It has not been edited or endorsed by GLG.
Implications: Diesels are ~25% more fuel efficient vs. gas but cost more to build. Diesel fuel prices above unleaded in the US have dampened hopes for greater diesel share as mpg advantages are diluted. Government incentives to help offset sticker price penalties for diesel may help future prospects as fuel price parity returns.
Analysis: European energy policies tax gasoline at much higher levels than the US and EU emissions regulations help encourage the use of diesels. With the engine's significant advantage in fuel efficiency, diesels have captured over 50% of many European car markets. US emissions regulations are much tougher for diesels to meet, requiring extra SCR catalysts to meet tailpipe NOx limits.
Analysis: European energy policies tax gasoline at much higher levels than the US and EU emissions regulations help encourage the use of diesels. With the engine's significant advantage in fuel efficiency, diesels have captured over 50% of many European car markets. US emissions regulations are much tougher for diesels to meet, requiring extra SCR catalysts to meet tailpipe NOx limits.
Recent price trends for diesel fuel have seen levels ~10% or more above gasoline while historic prices have been below unleaded. Some of this is due to refinery bottlenecks for the Ultra-Low Sulfur Diesel fuel [ULSD] required for 2007 emissions system compatibility. Expectations are that diesel fuel prices may return to normal levels vs. gasoline post 2010 as ULSD capacity is debottlenecked and refineries rebalance some cracking mix to increase diesel output.
Even with price parity vs. gasoline the diesel engine enjoys 20% - 30% higher efficiency, making it a clear choice for mpg and greenhouse gas objectives. Sticker prices for diesels will be in the range of $1K - $3K higher vs. comparable gasoline engines after the emissions system is included. Recently the IRS announced tax credits up to $1800 for several Mercedes diesel models under the Qualified Alternative Motor Vehicle Credit that were certified by the EPA to meet the rigorous US emisision standards. These were the first non-hybrid models to qualify for such credits.
With 35 mpg CAFE standards, and the first ever CO2 greenhouse gas regulation forthcoming, diesels may play a more prominent role regardless of fuel cost.
"Diesel passenger vehicles are one important piece of the future technology puzzle," said Margo Oge, Director of EPA's Office of Transportation and Air Quality. "Clean diesel is a viable, efficient technology to help improve our air quality and energy security."
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