Local spending multiplier implications for vehicle electrification

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Local Spending Multiplier Effects, Net Job Impacts, and How EVs Can Save the World

Justin Lowell-Bellew

Some say vehicle electrification will destroy jobs. Others claim vehicle electrification  is a panacea. Both are at right. In this report, we set out to answer two primary questions and build a balanced evaluation of the net impact of vehicle electrification on jobs. Entwined with the net jobs question is that of the community multiplier effect and its magnitude for different stakeholders. This, in turn, is inextricably linked to reducing our dependence on foreign oil.

A better understanding of local spending multiplier impact may also enrich the understanding of the same stakeholders interested in net job findings, including both municipally-owned and investor-owned utilities trying to allocate resources to maximize service and profits, lawmakers at local, state, and federal levels struggling to balance budgets, as well as economists and members of communities nationwide with skin in the game.

Objective information on these issues will help inform policy to most effectively fund EV infrastructure initiatives that ensure the greatest good for as many stakeholders as possible, including utilities, consumers, and Venture Capitalists who have invested in closely related smart grid and demand response initiatives.

As EVs hit the streets, EVSE (Electric Vehicle Supply Equipment) installations are sure to either directly precede or follow. Most customers purchasing an EV have also purchased a home charging station. For electric fleets, the charging infrastructure often precedes delivery of the vehicles. Such infrastructure and its installation imply job creation. We’ll need people to install charging stations in homes, at businesses, and in public spaces, people to manufacture the EVSE and EV components, sell equipment, etc.


Sunil Sharan, director of the Smart Grid Initiative at GE from 2008 to 2009, wrote in the Washington Post that  smart meters will represent a net job loss of approximately 26,400 via automation of meter reading, once done by people. He goes on to say, “Electric vehicles represent another promising green sector, but even if the vehicles were rolled out in substantive quantities, jobs would be created mainly in research and development and infrastructure support, and there, too, only in the hundreds or maybe even thousands. Manufacturing jobs would grow only incrementally since electric vehicle production will for the most part cannibalize that of gasoline-powered cars.” Shara’s is an important criticism echoed in theWall Street Journal, where Jack Oliphint questioned the logic of smart meter initiatives:

“There's no mystery about how you save energy," says the 71-year-old retired furniture salesman.  "You turn down the air conditioner and shut off some lights. I don't need an expensive meter to do that."

Such basic observations about smart meters overlook more nuanced implications of the broad landscape of vehicle electrification into which they fit, though the two are often confused as one and the same. Dramatic reduction in cost of vehicle operation, for example, is likely to result in indirect job creation, especially as prices at the pump rise and electricity rates remain relatively stable and low. For more on this concept, see RMI’s newest work: Reinventing Fire.

Multibillion dollar infrastructure overhaul, new services to support EVs, increased spending on domestic energy, and significant efficiency gains in transportation mean more sustainable jobs – though not exclusively sustainable in the sense of being “green.” The jobs implied in vehicle electrification efforts are sustainable in the sense that they are likely to be long-term jobs and those that are impossible to ship abroad: electricians, construction workers, etc. For every one charging station shipped by Coulomb Technologies, for example, three people are put to work: one to build it and two to install it.

Further, the Electrification Coalition (EC), in their report on the economic impact of their Electrification Roadmap indicates that, “If implemented, the policies in the EC policy case would increase total U.S. employment by approximately 1.9 million jobs in 2030 compared to the base case. This is equivalent to reducing the unemployment rate by more than 1 percent.”(p18) EC projects an increase in manufacturing jobs of 560,000 over the same horizon. This thorough report discusses wide-ranging initiatives, including vehicle electrification and smart grid initiatives like smart meters.

Jeff St. John of Seeking Alpha cites a GridWise article that indicates smart grid initiatives will yield net positive job impacts. This analysis is backed by IBM, who forecasts 239,000 jobs created over a five-year horizon. While such projections go beyond the scope of EVs, the two (distinct) opportunities -- vehicle electrification and smart grid initiatives -- are closely related.

Looking at specific cases of the EV industry driving economic development helps to inform the job creation argument. EnerDel added 1,400 jobs in 2010 at their Indiana-based EV Lithium-ion battery plant and plans to add 3,000 additional jobs to meet growing demand. According to a company representative, California based EVSE OEM Coulomb Technologies has grown from 2 to 100 jobs over the early stages of vehicle electrification efforts.

Net job impacts are often disregarded in the popular press in favor of simple, one-sided claims about jobs lost or jobs created and, as a consequence, are poorly understood.  Accurately quantifying the indirect impacts of reductions in (fuel) cost to the consumer is a difficult undertaking. One easy-to-understand example of indirect job creation is operational costs. The average cost of operation per mile for a vehicle powered by gasoline at $3.00 per gallon is ~10 cents as opposed to an EV, which costs only ~2.5 cents.(p16) At $4.00 or $5.00 per gallon, these differences are only more magnified, contributing to the case for vehicle electrification. An important consideration on the other side of the argument is that the up-front price premium for EVs in today’s market makes this operational cost advantage accessible only to those who can afford to front the price premium of EVs.

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In the context of the big picture, the magnitude of this difference can be better appreciated; “Cumulatively, during the 2010-2030 period, households would experience an increase of $4.6 trillion (2008 dollars) in aggregate income if they switched to EVs—money that can be saved or spent on other goods and services.” (p18)
The transition from internationally sourced petroleum to local or regional electricity distribution suggests two unexplored questions;

• Does EV fleet implementation provide a positive community multiplier effect?

Answering this question requires, at minimum, a high-level overview of the community multiplier effect and some back-of-the-envelope figures to provide perspective for the magnitude of the implications:https://lh4.googleusercontent.com/lB0NM8Q6yimlm2epU8EjWZlsgvQ1_7BEs3Fm8nfvC-OjKP151nB_5Ti985s_fsXsQnbIy4QFQrTAqxvs_kWR9zGlaRUCfI7SrrX_K0peDISb3biKNM8">

Local Multiplier Effect. Graphic from Yes! Magazine 2007

This leaves the question,

• Does EV adoption create net jobs?

Initial signs indicate that the short answer is “yes”.

The Transition to Sustainable Alternatives Can Be Profitable

For utilities, the transition from internal combustion engines to EVs can even be profitable, as demonstrated in the Silver Springs Network report (p12). Vehicle energy consumption represents an enormous market opportunity for domestic businesses, primarily utilities. Approximately 74% of the sector is private, or investor-owned utilities (IOUs); the remainder is mostly municipally-owned utilities (MOUs).# To quantify the market opportunity, it helps to look at the macro-level picture:

“Light-duty vehicles [US fleet = 250M] today are the largest energy consumers in the transportation sector, which is the most significant sector of the economy that relies on some form of energy other than electricity...If 150 million light-duty GEVs each consume 8kWh of power a day, that would represent an additional 440 billion kWh of power consumed each year... While adding millions of GEVs as customers is a great opportunity for utilities, it will require them to address several issues. Some utilities will have to upgrade the distribution level transformers to ensure reliable service to homes and other charging locations. Along with investments in smart meters and smart charging software, utilities will need to invest in IT infrastructure to support a range of smart grid applications including GEVs.” (EC p15)

To gauge the effects of early stage efforts in this space, we reached out to such stakeholders to get quantified responses with respect to their experience of vehicle electrification impacts on net jobs. Based on the following questions, on a scale from 1 (strongly disagree) to 5 (strongly agree), the only non-polar answer is whether it is well established that vehicle electrification efforts have had an impact on jobs. This seems to be a function of community awareness more than actual impact: “Awareness in the community at-large is minimal.” It [MM1] may also imply the importance of coordinating PR and marketing efforts to make the community aware of the impacts of vehicle electrification on jobs in any given community.

More than 50 members of the vehicle electrification stakeholder community, including academics, utilities, consultants, economic development agents and EVSE OEMs were surveyed. The data is representative of each of these categories from roughly 20 respondents.

 

It is important to note that those who were contacted were members of PGR’s network and would be predisposed to respond that vehicle electrification efforts had a net positive impact on jobs, because they are more likely to be involved with early stage efforts. Those who responded self-selected and might be further predisposed in a similar vain. That said, vehicle electrification is in its infancy, so anyone involved at this stage is an important data point. This serves as a baseline for further research as the market evolves. One such important next (research) step is to conduct an IMPLAN analysis to quantify the economic impacts of such a transition. Such an analysis might be interesting for vertically integrated utilities like Bonneville Power(,…&…*), who build and own their own plants…

Those surveyed strongly agreed (4.4) that vehicle electrification efforts in their area had been responsible for creating new jobs and that, it seems reasonable that continued vehicle electrification efforts will bring net job gains for their communities (4.3).

They also strongly disagreed that vehicle electrification efforts had been responsible for destroying jobs (1.5) and that the net effect of such efforts had a negative effect on jobs (1.4).

The macro-level takeaways are that vehicle electrification efforts are net job creators, not net job destroyers.

 

The survey questions follow:

1) Vehicle electrification efforts in my area have been responsible for creating new jobs.

The intent of this question was to determine whether there had been (gross) job creation in the respondent’s community. The average score was 4.44, which indicates strong agreement that vehicle electrification efforts have resulted in job creation in the communities of those who responded to the survey.

2) Vehicle electrification efforts in my area have been responsible for destroying jobs.

The intent of this question was to determine whether there had been a perception of (gross) job loss in the respondent’s community. The average score was 1.47, which indicates strong disagreement that vehicle electrification efforts have resulted in job loss in the communities of those who responded to the survey.

3) The net effect of vehicle electrification efforts on jobs in my area has been negative.

The intent of this question was to determine whether there had been a perception of (net) job loss in the respondent’s community. The average score was 1.4, which indicates strong disagreement that vehicle electrification efforts have resulted in net job loss in the communities of those who responded to the survey.


4) It is well-established in my community that vehicle electrification efforts have had an impact on jobs.

The intent of this question was to determine whether there was a decisive impact on jobs, for better or worse, in the respondent’s community. The average score was 3.2, which indicates neutrality with respect to the perception that vehicle electrification efforts have had any impact on jobs in the communities of those who responded to the survey.


5) Based on vehicle electrification efforts in my area, it seems reasonable that continued such efforts will bring net job gains for our community.

The intent of this question was to determine whether continued efforts, similar to those undertaken, would result in net job gains in the respondent’s community. The average score was 4.33, which indicates strong agreement in the belief that continued vehicle electrification efforts would likely result in net job creation in the communities of those who responded to the survey.
https://lh4.googleusercontent.com/F53rHy-RdaN77vX29qlbpfMGQF2jM6nOMRp5mAts3wWMY0fa0rDCXda0eOo0ksFmk1DfZc1Lz65dxMPNV5F1yUK26j69e4UYwuMY1KNX5D4HslaW9gA">
Such evolution seems likely, considering that there are trillions of dollars at stake. A transition of spending from oil to electricity as transportation energy offers an opportunity for domestic utilities to capture a share of the $615 Million Americans spend on gasoline each day for their cars and light trucks. $615 Million daily works out to $224 Billion in annual spending. A meaningful portion of this represents a significant outflow for the US economy. By contrast, spending on electricity would remain predominantly inside the US. Quantifying exactly how much is an important next step suggested by this research.

The sources of energy that power the US electrical grid are domestic[J2]  and break down as follows:https://lh4.googleusercontent.com/6RKsAA3p4FTlA4RNoPzEXf46i0hNMqtKPB4QoIDZSb92f-WcFKge9gb8OXrIRxqy347fLzfh8YtMMKFXIvi63R7zIQOFI1-TJ9SoXeZzmDVyIe-mXKI">[MM3] 

While petroleum is not an important part of electricity generation in the US, the above graph may help us to understand where the stresses and opportunities in the system are likely to be, in the coming decades. An important factor to consider, here, is the opportunity to reduce conversion losses.[MM4] 

What, then, are the business and policy implications relative to infrastructure jobs and local spending multiplier effects (see previous graphic from Yes! Magazine)? At a macroeconomic level, the US could stand to significantly reduce imports (oil) and boost local economies by supporting locally and regionally-produced energy, which will likely follow ageneration mix very similar to the figure, above, in the near term. Due to a combination of efficiency gains (EV more efficient than ICE) and cost difference (electricity cheaper than gas per vehicle mile travelled), roughly three quarters  of $224B or $168 billion would be recaptured by the United States economy, annually.  Would supporting energy produced closer to home help the US realize domestic benefits similar to those realized by Arizona through a shift in procurement from chain stores to local businesses in the context of retail office supplies on a much, much larger scale?  
[MM5] 
In the Arizona procurement study, three analogous vendors were evaluated:

• Wist: locally owned & operated office supply store, with 100% of its operations in Arizona
• Office Max: Illinois-headquartered with one distribution center in Arizona
• Staples: Massachusetts-headquartered with no footprint in Arizona besides retail stores

In the context of $5M worth of office supply purchases over a year, the differences in “localness” represented the difference between 33.4% reaching Arizona residents under the local model (Wist), 11.6% under the Office Max model, and practically none remains in-state under the Staples model.

Given the relatively closer proximity of the generation portfolio to the customer, vertically integrated MOUs [MM6] between who and who are most similar to the local company Wist, which retained 33.4% of revenues in the community, compared to 11.6% for Office Max. Office Max is, in this metaphor, the corollary for investor owned utilities, who are more likely to have a greater percentage of their generation portfolio located at a greater average distance from the population served, relative to the vertically integrated, municipally owned or co-op structured utility. Staples, then, is the equivalent of oil companies[MM7] , where revenues are, in this case, flowing out of the US, compared to out of the state of Arizona in the Procurement Matters study.

To draw the comparison on the back of the envelope for oil using the same multipliers, if a utility retained 11.6% or 33.4% of the spending on vehicle energy in the community (in this case the US rather than a specific state), it would represent the following annual amounts retained: at 11.6% = $26 Billion, or at 33.4% = $75 Billion - enough to pay current veterans benefits for a year or finance in one year the anticipated utilities infrastructure overhaul of the entire United States, which could not be achieved without employing significant domestic labor.

To recap:

Wist - 33.4%	Vertically integrated MOUs or co-op utilities
Office Max - 11.6%	Typical IOU (Investor Owned Utility)
Staples - ~0%	Oil Company

https://lh5.googleusercontent.com/akfI1_h6ENXQmv2J24c3R2n8yvyXoF4dSyLYEWD-MFTD18FMwNMW7IPLPjPvCTPrdblFhs1cwC5gsniSlgn6sa9BPbrVnZxl9Zex9tZfuqu6S2PBY9M">

In order to fully account for cash flows and spending multiplier implications, one would have to consider the geographic distribution of shareholders for IOUs relative to oil companies and the geographic distribution of the generation portfolio.

One example follows:

BP is 38% owned by US-based shareholders. This means that the majority of shareholders are located outside the US. This may be a feather in the hat of municipally owned and investor owned utilities lobbying for state or federal funds. Domestic utilities, [MM8] in a scenario where hundreds of billions of dollars of consumer spending were reallocated to their services from oil companies each year, would at some point reinvest in infrastructure, smart grid technology, and increased generation capacity, all of which benefit domestic stakeholders. Not only would this create jobs for construction workers, electricians, accountants, and other standard utility employees, but it would leverage efficiency gains, enabling redistribution of wealth to those spending transportation dollars more efficiently, which would ostensibly increase American capacity for saving, consumption, and investment to the reserved applause of domestic economists.

Relative to imported oil, a transition to domestically produced electricity as an energy source to move our vehicles promises to:

• Reduce our dependence on foreign oil[MM9] ,
• Reduce the 12-15% of defense spending ($67.5B- $83B, annually) committed to protecting the supply chain of that oil (p7 EC Roadmap, per RAND Corporation)  
• Increase discretionary spending: electric miles cost 2.5 cents versus gas driven miles which cost 10 cents with gas at $3.00. Most projections use $3 gas. At the time of this writing, the national average is approaching $5 per gallon, which makes the projections for a transition from oil to electricity to move vehicles much more profitable.
• Improve US GDP by
• reducing oil imports
• increasing the proportion of domestic energy production
• increasing disposable household income

“...the typical household would ultimately benefit from $3,687 of extra disposable income to spend on non-energy goods and services, or savings.”

By extension, the localization of energy spending (from foreign oil to domestically produced electricity) sets in motion powerful yet seldom contemplated community spending multiplier effects. This is particularly true for utilities where the generation portfolio occurs at a short distance from the customers served. At the national level, the stakes are in the trillions of dollars, but even hundreds of millions, re-levered through local spending multipliers can have significant impacts on state and local economies.

The next time you’re at the pump, imagine your dollars flowing into the gas station and out to UK-, Dutch-, or Venezuela-based headquarters and to the sources of oil, depicted in the map, below, made interactive by the MOVE[MM10]  team at RMI. This is the current model, where price volatility and non-domestic sources of energy are harmful to our economy. (ECER) P31 [MM11] “The U.S. trade deficit in crude oil and refined products reached $388 billion in 2008 – 56 percent of the total trade deficit. Moreover, every recession since 1970 has been preceded by an oil price spike.”

https://lh4.googleusercontent.com/eRGHcC3GLC87pr8Pour_sq7k4J5tbXXSkkIVTwdLAoteG4VIMZMZb1mPxBp1_qqYw0N2lOAaZHAk-ghWksOwllNPLIS-9NM8HZB4suCjdJwz_yITbVI">

Now imagine plugging one quarter of those dollars back into your local or regional economy through the utility, saving one quarter, and spending the remaining half as reallocated discretionary income: an uncontested boon to any economy, felt primarily through indirect jobs. Kansas City recognizes (p6) that plug-in vehicles improve “energy security by reducing demand for foreign oil and replacing it with domestic fuel sources” and that, “increased economic activity and jobs will result from this new industry segment”. (p19)
[MM12] 
This is consistent with our findings. A review of the popular press and outreach to utilities, cities known to be active in early stage vehicle electrification efforts, economic development groups, and individuals on the ground employed due to early stage EV-related initiatives tells a consistent story. Vehicle electrification efforts are net creators of jobs, not destroyers, and development of this sector is likely to continue to create net jobs.[MM13] 

Conversations with half a dozen utilities, representing 40 million+ customers, indicate that very few additional jobs have been created exclusively for vehicle electrification efforts during the earliest stages of electric vehicle (EV) fleet rollouts.[MM14]  Exceptions are primarily small teams responsible for EV initiatives and electricians employed to install charging stations. Many of the utilities [MM15] surveyed have EV teams, preparing their communities for the addition of what amounts to millions of water-heater-sized additions to their systems but at this point, EV market penetration is low enough to keep these teams low-priority. Vehicle electrification is barely on the radar of utilities. At this early stage, direct job implications are likely to remain minute until adoption is scaled up, likely over the coming decade, to a meaningful percentage of fleet penetration. The few direct jobs created are primarily manufacturing jobs for EVSE and installation jobs. As EV adoption ramps up, these jobs and indirect jobs should show a marked increase, though indirect jobs will be less distinctive and will likely be spread over more traditional positions, along the distribution described in the ASES report[MM16] . One challenge that looms on the other side of this equation [MM17] is that the Department of Transportation derives its road funding from gas taxes. Utilities with time of use rates specific to EVs may have an easier time building in a fee to replace the gas tax derived fees than those who do not offer a separate rate plan for EVs. Smart grid initiatives will also help identify and distinguish EV demand and enable such tariffs to be exacted without major disruption to the funding system currently in place.

It stands to reason that smaller, vertically integrated utilities would deliver proportionately higher local spending multipliers, given the inherently more local nature of their model and tighter geographical footprint[MM18] . This phenomenon requires further research for detailed confirmation. It may reveal measurable and unconsidered additional incentives[MM19]  important to utilities and government stakeholders; unexamined drivers for these constituents which can be quantified and better understood [MM20] may help to inform and drive business and policy decisions.

This report was made possible with the help of many people, including the following:

Rocky Mountain Institute

Matt Mattila

Jay Tankersley

Ben Holland

Hutch Hutchinson

Michael Kinsley

Michael Shuman

Mile High Business Alliance

Skip Laitner

Dan Houston

Molly Miller

Yes! Magazine

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Bibliography:

American Solar Energy Society. Renewable Energy and Energy Efficiency: Economic Drivers for the 21st Century. Roger Bezdek, Principal Investigator, Management Information Services, Inc. 2007.

BP.com ownership statistics as of 12/31/2010. Accessed 5/17/2011.

Electrification Coalition. Electrification Roadmap, Nov 2009.

Ener1.com - History. Accessed 5/17/2011.

Green Car Congress. “EnerDel and Wanxiang, Largest Tier 1 Parts Supplier in China, Forming Joint Venture for Co-Production of Li-ion Cells and Packs.” May 27, 2010. Accessed 5/17/2011.

Kanellos, Michael. Nov 24, 2008. “Smart Grid Coalition Seeks Tax Breaks for Negawatts” found on greentechmedia.com. Accessed 5/17/2011.

Local Multiplier Effect. Graphic from Yes! Magazine 2007.

Procurement Matters: The Local Impact of Local Suppliers. Civic Economics: Dan Houston and Nov. 2007.

Sharan, Sunil. Feb 26, 2010. “The Green Jobs Myth” found on WashingtonPost.com. Accessed 5/17/2011.

Silver Spring Networks whitepaper, The Dollars - and Sense - of EV Smart Charging: Thinking Through the Options for Utility Integration of Electric Vehicles. Dec. 2010.

Smith, Rebecca. Apr. 27, 2009. “Smart Meter, Dumb Idea?” found on Wall Street Journal Online. 5/17/2011.

St. John, Jeff. SeekingAlpha.com “Smart Grid Backers Push for Job Growth.” Jan 8, 2009. Acessed 5/17/2011.

Reinventing Fire.