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The Biden administration tries to lead by example on EVs

The US Postal Service has chosen a new fleet of mostly gasoline-fueled vans. The government is trying to change that plan

1 minute read

The unofficial motto of the US Postal Service is a quote from Herodotus’ Histories: “Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.” The context is a description of the network of messengers that the Persian emperor Xerxes used to send word home after his fleet had been shattered at the battle of Salamis in 480 BCE. The USPS in recent years has not been quite so turbulent, but it has definitely felt like an embattled empire, attacked over issues including the quality of its service, its finances, and its 10-year strategic plan.

The latest conflict to flare up over the USPS has been over its plans to update its delivery fleet with up to 165,000 new vans, 90% of them with gasoline engines. It is an argument that goes to the heart of the Biden administration’s hopes of using its purchasing power to accelerate the adoption of electric vehicles. As the Environmental Protection Agency put it recently, the USPS contract is an “unparalleled opportunity for the federal government to lead by example on climate and clean energy innovation”.

The USPS accounts for almost a third of the federal government’s vehicles, but operates as an independent agency. A year ago, it signed a contract for new vans from the Wisconsin-based manufacturer Oshkosh Defense, with the intention that initially only 10% of them would be electric.

This month, that plan was strongly criticised by the White House and the EPA, which described the environmental impact statement supporting the Oshkosh contract as “seriously deficient”. Brenda Mallory, chair of the White House Council on Environmental Quality, underlined the importance of the issue to President Joe Biden, writing to Louis DeJoy, the Postmaster General: “This transition to a modern, clean and efficient USPS vehicle fleet is a top priority of the Biden administration.”

For the administration, post vans look like a great opportunity. “This is the low-hanging fruit,” says Ram Chandrasekaran, Wood Mackenzie’s head of road transportation. “They know where the vans are going to drive and they know where the vans are going to park every night. And they are only looking for a 70-mile range.” It is hard to think of a role where EVs would have a better chance of meeting the requirements.

The USPS case against going electric is based on cost. The environmental impact statement supporting the Oshkosh contract suggests that buying 75,000 vans — the likely size of the first phase of purchases — would cost $9.3 billion if they had internal combustion engines, but $11.6 billion if they were battery electric.

The data and assumptions underlying this calculation are opaque, however, and covered in an appendix with only three pages of information. It is unclear how the USPS models crucial variables such as future vehicle costs and gasoline prices. The EPA argues that the postal service failed to disclose critical features of the Oshkosh contract, and “important data and economic assumptions are missing.” It called on the USPS to revise its calculations and then submit them for public scrutiny.

The market for electric light goods vehicles is in its infancy in the US, but is set to grow rapidly, with new models becoming available. The USPS has said one of the issues with buying electric is that it needs a right-hand drive vehicle, to make it safer and easier for drivers to drop off the mail, and electric RHD vehicles are “not currently available or otherwise marketed by commercial manufacturers for future development.” That is a puzzling statement, given that Ford has launched an electric Transit for the UK market.

It is possible that the USPS position is a negotiating tactic to secure more funding from Congress. Its environmental impact statement notes that the Oshkosh contract includes “the flexibility to increase the percentage of BEVs should additional funding become available”. The proposed Build Back Better Act, which was supported by the Biden administration but failed to pass in the Senate last year, included $6 billion for the USPS, which could have been used to electrify the fleet. Congress may need to vote for that extra money for the DeJoy and his team change their minds.

Failure to electrify the USPS fleet would be a very public symbolic defeat for President Biden. However, the case for using electric light trucks for many commercial uses is increasingly compelling. Wood Mackenzie analysts expect their market share to rise rapidly in the US over the coming decade, whatever happens at the postal service.

The share of EVs in light commercial vehicle sales in the US  will grow from 2.5% next year to about 52% in 2033, on Wood Mackenzie’s forecasts. Companies including Amazon, WalMart and FedEx have been announcing orders for electric vans, raising questions about whether manufacturers can keep up with demand. Volume production will bring economies of scale and help keep downward pressure on costs, making EVs increasingly competitive. Despite the Biden administration’s wish to “lead by example”, it may be the private sector that ends up setting the pace on electrifying light goods vehicles.

In brief

The French government has set out its strategic response to the energy crisis gripping Europe: a massive expansion of nuclear power. President Emmanuel Macron said on Thursday that the country would build at least six new reactors, and possibly as many as 14. The nuclear investment programme can only be a long-term solution to the crisis of high gas and power prices, however: the first new reactor would be scheduled to come on stream in 2035. The strategy also includes taking solar capacity to over 100 gigawatts, and 40 GW of offshore wind.

President Macron was speaking in Belfort, an industrial city in eastern France that is home to sites for manufacturing power equipment that were acquired by General Electric when it bought Alstom in 2015. EDF of France announced this week that it was buying part of GE’s steam power business that makes equipment for nuclear plants. Jean-Bernard Lévy, EDF’s chief executive, said: “The climate emergency is reaffirming the role of nuclear energy. EDF is proud to contribute to the achievement of carbon neutrality by preserving this technology.”

In the UK, the government has been responding to the energy crisis with some more immediate measures. Kwasi Kwarteng, the energy secretary, said he would step up the frequency of auctions for companies offering to supply low-carbon power, from once every two years to once a year. The move was welcomed by the UK renewables industry. Kwarteng said the change showed the UK was “hitting the accelerator on domestic electricity production to boost energy security, attract private investment and create jobs in our industrial heartlands.”

BP and TotalEnergies announced earnings for 2021, with big jumps in profitability thanks to higher oil and gas prices. The companies also gave progress reports on their journeys towards net zero, reiterating and in some cases stepping up their targets for emissions reduction and diversification into low-carbon energy.

And finally: what is being called a “huge step” for research into the putative energy source of the future, fusion power. Scientists in the EUROfusion consortium said this week that they had achieved a record output from the Joint European Torus (JET) device near Oxford, England. The JET released a record 59 megajoules of sustained heat energy over a period of five seconds, equivalent to fusion power of about 11 megawatts. That total output was more than double the previous record of 21.7 megajoules, set back in 1997.

The researchers said their results were a “major boost” for ITER, the larger and more sophisticated version of JET that is under construction in the south of France. Bernard Bigot, director-general of ITER, said: “A sustained pulse of deuterium-tritium fusion at this power level – nearly industrial scale – delivers a resounding confirmation to all of those involved in the global fusion quest.”

Ian Chapman, chief executive of the UK Atomic Energy Authority, said: “These landmark results have taken us a huge step closer to conquering one of the biggest scientific and engineering challenges of them all.” However, JET, like other fusion experiments, still consumes more power than it produces. If fusion is to play any role in meeting global energy demand, it will need to reach the point where the power output is greater than the input. The cynics’ line is that commercial fusion generation is still about 30 years away: it always has been, and it always will be.

Other views

Elena Belletti and Rachel Schelble — Voluntary carbon markets: here to stay?

Simon Flowers — The domino effect of the Ukraine crisis on gas and LNG

Gavin Thompson — Why a carbon-neutral Winter Olympics matters to China

Clyde Russell — LNG market dynamics may be shifting to geopolitical drivers

Chris Bryant — A renewable energy bubble is hit by the perfect storm

Gillian Tett — Beware the algorithms driving up oil prices

Bernard Weinstein — The US government should end its war on natural gas

Quote of the week

“If Russia invades, that means tanks and troops crossing the border of Ukraine again, then there will be no longer a Nord Stream 2… We will bring an end to it.” — President Joe Biden, at a joint briefing with Germany’s new chancellor Olaf Scholz, warned that a Russian conflict with Ukraine could obstruct one of Moscow’s key energy policy objectives. Last year the Biden administration accepted the pipeline as a “fait accompli” despite US opposition, but the international context has clearly changed. But while Scholz has promised to stand united with the US, and repeated a commitment to “act together and… take all the necessary steps,” he has stopped short of an explicit threat to stop Nord Stream 2 coming into service.

Chart of the week

I wrote last week about activity and production trends in the Permian Basin, currently the most prolific oil play in the US. This is from another perspective on the basin by Pablo Prudencio, a senior research analyst with our US Lower 48 supply team. For the listed companies, which account for about three-quarters of production in the region, output has been broadly flat for the past couple of years. The same is true for many privately-held companies. But a group of 30 fast-growing private companies, which Pablo has called “Private Drillers, Inc”, has been powering ahead. That group of companies has quadrupled its gross operated oil and gas production  in the Permian over the past five years, making it the main driver of output growth in the region. The fast-growing group includes a mix of family-owned companies and firms funded by private equity or other financial backers.