Modern diesels have undergone a major transformation in their emissions profiles during the past 20 years. Both the European Union (EU) and North America have implemented stringent light duty vehicle (LDV) emissions regulations covering diesel vehicles, as well as diesel fuel. At the same time, regulators in the EU and North America have passed more stringent emissions standards for medium duty (MD) diesel vehicles. These regulations have led to the introduction of clean diesel vehicles.
A clean diesel vehicle is classified as one that meets standards for nitrogen oxides (NOx) or particulate matter (PM) emissions set by the U.S. Environmental Protection Agency's (EPA) Tier Two standards or the EU's Euro-5 standards. Both represent a dramatic reduction from previous emissions levels allowed, since the EU-5 standards reduce NOx levels by over 50% and the PM levels by around 96% from the EU-1 standards in effect in 1992.
Demand for diesel cars is primarily driven by their fuel economy. A diesel vehicle typically gets 20% to 40% better fuel economy than a comparable gasoline car. This factor has made diesel cars tremendously popular in Europe, where they have accounted for around 50% of LDV sales over the past several years. Due to Europe's very high fuel prices, the price premium of a diesel car can be paid off quickly.
However, other markets that have not traditionally been strong diesel markets are beginning to open up now, according to our latest research. North America, in particular, has been a weak market for diesel LDVs for 20 years. This is largely due to the historically low gasoline prices in the U.S., which has not spurred drivers to purchase more fuel efficient vehicles of any type, including diesel. Diesel cars also acquired a bad reputation in the U.S. as being smelly, dirty and unreliable; this reputation will have to be overcome by exposure to the new generation of diesel cars.
Diesel prices are typically slightly higher than gasoline prices in the U.S., in contrast to much of the rest of the world. Also in contrast to many other countries, the U.S. LDV emissions regulations do not treat gasoline and diesel cars separately, and U.S. NOx levels for LDVs are very low and challenging for diesel vehicles to meet.
In 2011, the diesel market began to show signs of revival, with 27% growth over 2010. The overall LDV market in the U.S. grew by just 10%, and hybrid vehicle sales actually dipped slightly.
Going forward, the U.S. should see continued demand for all fuel-efficient technologies, including diesel and hybrid. From 2012 to 2018, North America will experience a cumulative growth rate of 22%, with the U.S. leading Canada. Between 2012 and 2018, diesels will capture a slightly higher percentage of new vehicle sales than hybrids will, although both will remain niche drivetrains.
Globally, clean diesel LDV sales are expected grow from 9.1 to 12 million, representing a CAGR of 4.8%. Western Europe will continue to constitute the majority of clean diesel sales even while it experiences slower growth over this period, as diesel captures slightly less market share than it has over the past decade. This will be due to increasing availability of fuel-efficient alternatives to diesel and the anticipated increase in diesel prices. Nevertheless, Western Europe will remain, by far, the biggest market for clean diesel LDVs, accounting for around 50% of global sales.
Medium- and heavy-duty
The MD and HD vehicle market is dominated by diesel fuel, as diesel provides better performance characteristics for heavier-duty operations than it does for LD. Three key markets – North America, Europe and Japan – mandate clean diesel engines for MD and HD vehicles.
In these markets, diesel will see its market share erode slightly, as hybrid, plug-in and natural gas vehicles begin to see more demand. This will be driven largely by new fuel economy regulations governing MD vehicles in these regions.
In North America and Europe, clean diesel will drop from close to 99% market share to 93% in North America and 91% in Western Europe. Hybrid, plug-in, natural gas and conventional gasoline vehicles will all begin to see greater market share as OEMs comply with new rules on fuel economy and emissions. These alternatives will all remain niche products in this sector.
Biodiesel has proven itself viable as a renewable fuel that can be produced from vegetable oils, animal fats or greases. Biodiesel is most often blended with petroleum diesel in ratios of 2% (B2), 5% (B5) or 20% (B20). It can also be used as pure biodiesel (B100).
Low-level biodiesel blends like B2 through B5 are popular fuels in the trucking industry because biodiesel has excellent lubricating properties. Therefore, use of the blends can be beneficial for engine performance.
Biodiesel has largely remained a cottage industry, especially in the U.S.. Due to less regulation and fewer policy constraints than some other fuels, a number of producers, ranging from local co-ops to industrial-scale production facilities, have emerged to meet local demand.
As a result of production and blending mandates, global biodiesel use is projected to reach 16.5 billion gallons in 2018, representing a CAGR of 11.16 % (in contrast to the global diesel demand growth rate of just 1%). This is a higher growth rate than for global diesel demand, which is anticipated to grow at a rate of just 1%.
The U.S. and the EU represent the most aggressive mandates, but blending targets and mandates throughout Latin America and Asia Pacific are expected to drive increased production within the regions. As a result, demand for biodiesel is anticipated to grow at a higher rate than overall diesel fuel demand, largely due to production and blending mandates.