Obama, Hybrids, and Electric Vehicles

By Tom Tanton -- April 12, 2010

Last week whilePresident Obama was touring a factory in Charlotte, N.C., one of the workers asked the President why he didn’t use an electric limousine. According to the LA Times , the President, who had just made his customary speech extolling renewable energy and green jobs, said there’s not much he can do to wring more fuel efficiency from the armored limousines that drive him around. He had asked the Secret Service about converting to hybrid vehicles, the president said, but was told that it’s not possible.

“It’s because the cars that I’m in are like tanks,” Obama said.

But he did emphasize that he ordered a tripling of the number of hybrid vehicles in the federal government’s massive fleet. That’s our proactive president where image, not the cost to taxpayers, is what matters.

The event was also, unintentionally, a microcosm of federal policy missteps driven by the lack of concern of regulators to the myriad performance demands of the auto buying public. If the President has unique needs for performance, isn’t it possible others do as well? What about considerations that go beyond fuel economy?

Electric Vehicles (Remember the Biofuels Bust?)

Today’s favorite among the political cognoscenti are electric vehicles and hybrids cars. They are riding high, as noted by the New York Times, while tax subsidies have made them appear a realistic option. But the increased attention will undoubtedly highlight flaws of this fuel source in comparison with gasoline.

The attention being paid to the electric vehicle industry also irritates the biofuel industry, whose own overheated market was abruptly halted in 2007, with subsequent bankruptcies and a fall from grace, after nexus were drawn between biofuels and higher food prices, and between some biofuels and increased greenhouse gas emissions.

Biofuels went from hero to zero, along with billions in investments in factories and farms to produce the fuels. Yet gasoline-powered cars may trump both biofuels and electric/hybrids for decades as the least-worst option. Not only do they fit within existing infrastructure, but wider adoption of more efficient conventional cars will help to curb carbon emissions and oil dependence. Of course, the lower energy content of most biofuels also conflicts with increasingly stringent mileage standards.

Are EVs Really the Future?

So will EVs, hybrids, biofueled or improved conventional cars dominate the future? The uncertainty is striking for a $5 trillion global auto and fuel supply market where there is agreement only that the number of cars will keep increasing, perhaps doubling to two billion by 2050, driven largely by the surging Chinese and Indian middle classes.

Last week, the United States announced new fuel efficiency standards, following similar rules in Europe. Green cars took center stage at auto shows in New York, Geneva and Detroit, including all-battery cars; hybrid varieties that switch between electricity and gasoline; and small (some really, really small), more fuel-efficient conventional cars. But battery-only electric vehicles are expensive.

As reported in the Times:

Mitsubishi Motors and Nissan Motor announced prices for their battery-only electric cars, which are in production already or about to be introduced. Before government subsidies, the Mitsubishi i-MiEV will sell for about $42,000, and the Nissan Leaf for just a few dollars less. And a single charge allows for a driving range of about 160 kilometers, or 100 miles, far less than for a gasoline-powered car. American consumers typically expect to exceed 300 miles on one tankful.

The average refill time for a tankful of gasoline is about ten minutes, not the several hours needed for an EV charge. The time value of refilling is absent from most economic analysis of vehicle technology, but even a once every two weeks instead of once every three, can add to the cost of fuel. For alternative fuels, any temporary price advantage can be quickly eaten up by convenience costs.

Hybrid gasoline-electric cars overcome the range problem but are still pricey because of their complexity and battery costs. Sales of gasoline-electric hybrid vehicles are expected to reach about 1.3 percent of an estimated 67 million light vehicle sales this year, according to J.D. Power and Associates. Battery-powered, all-electric vehicles are expected amount to about 20,000 units but by 2015 could have a market share of 0.3 percent. Toyota’s recent safety-related public relations nightmare with the hybrid Prius is sure to affect the hybrid market by some, as yet unknown, amount.

Don’t Forget Improving Gasoline Vehicles

Gasoline may continue to dominate both alternatives in the car market, especially if oil price increases are muted by efficiency drives or expanded domestic production. Automakers are already making smaller engines that are more powerful and more efficient, while the carbon emissions savings of both electric cars and biofuels are disputed.

“I think oil-based transport fuels have such a competitive advantage and dominance that you need a compelling argument to move to something different, and the case has not been made for what that is,” said Chris Mottershead, vice principal of research and innovation at King’s College London and formerly consultant on climate change at BP.

And EPA has to move slowly. As related in USA Today:

Electric-vehicle provisions in federal fuel-economy and emission rules announced last week already threaten to shatter the uneasy truce among automakers, environmentalists and the Obama administration. The rules, proposed by the Obama administration in the fall, set a 35.5 mpg average for the U.S. auto industry by 2016. One of the only questions that remained about the final rules was how automakers would be credited for their electric vehicles in meeting emissions goals. Credits could be used by an automaker to offset emissions by its non-electric vehicles. In an apparent compromise, the Environmental Protection Agency capped at 200,000 per maker the number of electric vehicles that could be credited with a 0-gram rating for carbon dioxide (CO2) through 2016. Additional EVs would be charged some responsibility for the CO₂ created while producing the electricity to charge them.

The news story continued with the politics of the issue:

Some environmentalists say the credits will reward automakers for building cars they would have built anyway. But the Union of Concerned Scientists’ Jim Kliesch says at least regulators put a limit on the credits — to do otherwise would “significantly erode” the savings. “The issue is really: We want a true accounting of emissions,” he says. “If substantial credit is given, it should not continue” forever.

Gloria Bergquist, spokeswoman for the Alliance of Automobile Manufacturers, which favored no limit, says capping the credits impedes President Obama’s goal of having a million electric cars on the road by 2015. Automakers also argue that emissions not created by operation of the vehicles shouldn’t be their problem. “There is no precedent for holding companies responsible for the CO₂ generated by electric utilities. We do not determine what happens from the plug to the utility plant,” Bergquist says. “It’s unfair to base our compliance on what is entirely outside our control.” The alliance, which represents all major automakers except Honda, notes the industry will sell 12 million vehicles this year and at least 60 million from 2012 through 2016.

Don’t Forget Hybrids’ Rare Earth Problem

The life cycle issue is being replayed not only in electric vehicles. Hybrids are coming under increasing scrutiny as well. As Ken Maize wrote on Master Resources, here, last month,

Another supply-chain mineral that may give pause to U.S. green power developers is lithium, not a rare earth by chemical or physical definition, but a crucial ingredient in the batteries that are the heart of planned electric vehicles. The lithium problem is located in Bolivia, and it is political.

Today, most of the world’s lithium carbonate, the chemical compound that is the basis of the lithium component of the lithium-ion battery, comes from salt flats in Chile’s Atacama Desert, according to the U.S. Geologic Survey. But the Saudi Arabia of lithium lies across the border in Bolivia on the Uyuni Salt Flats.

Bolivia, one of the poorest countries in South America, has never developed a lithium production capacity. It hopes to benefit from what many analysts believe is a coming worldwide boom in automotive electric batteries, driven by the development of electric cars. If the boom occurs, it will require lithium far beyond the resources of the Chilean desert, according to expert analysts.

Maize adds:

If Bolivia is unable to exploit its lithium resources, and the market for lithium carbonate tightens, that will drive up the costs of the already-expensive lithium-ion batteries, used extensively in laptop computers and cell phones, and the only choice today for electric vehicle propulsion. Electric cars, where the buyer’s price tag (probably in the range of $40,000 per car) is largely driven by the battery cost, may again stagnate in a consumer-driven market. Large government subsidies—maybe $10,000 per vehicle in state and federal tax breaks—could reduce the final cost to a range that meets the market demands for new cars, according to automotive analysts.

And we should not forget that environmental safeguards in poor, and socialist, countries are typically not up to par compared to those in free societies and free markets. Socialist countries idea of “green jobs” generally tend toward military-favored olive drab.

Remember Ethanol Flunked AB32

Ethanol as a fuel substitute has also fallen from grace, at least in California. On April 23, 2009, the California Air Resources Board (CARB) approved a Low Carbon Fuel Standard (LCFS) regulation, as part of the AB32 Global Warming Solutions Act. As part of the Board Hearing, the Board approved Resolution 09-31. The Resolution includes a number of provisions related to ongoing work on the LCFS, including a provision that relates to land use and indirect effect analysis of transportation fuels [ i.e., life cycle carbon emissions from upstream fuel production on farms that were formerly rainforests.]

Previously a favored substitute, ethanol was found to increase carbon emissions, largely because of the upstream life cycle impacts. The Board-approved resolution reads:

BE IT FURTHER RESOLVED that the Board directs the Executive Officer to convene an expert workgroup to assist the Board in refining and improving the land use and indirect effect analysis of transportation fuels and return to the Board no later than January 1, 2011 with regulatory amendments or recommendations, if appropriate, on approaches to address issues identified. This workgroup should evaluate key factors that might impact the land use values for biofuels including agricultural yield improvements, co-product credits, land emission factors, food price elasticity, and other relevant factors. The Executive Officer shall coordinate this effort with similar efforts by the U.S. Environmental Protection Agency (U.S. EPA), European Union, and other agencies pursuing a low carbon fuel standard. (emphasis added)

The Lesson: Politics Picks Losers

So yet another politically favored technology went from hero by political fiat to zero by government fiat, but only after millions were invested by the private sector.

I’ve written on the unintended (but not unanticipated) consequences of pushing alternatives to gasoline, but not so eloquently as William Griesinger, here, at Master Resources.

Biofuel mandates in the U.S. suffer from a high-octane blend of politics and special interest agendas that have corrupted physical science, economic analysis, and the policy prescriptions alike. This is the predictable outcome when process and policy are de-linked from basic economics and marketplace realities. Unintended consequences and distortions always result.

Historian, professor and author Burton Folsom in his book, The Myth of the Robber Barons, makes an important distinction between “market entrepreneurs” and “political entrepreneurs.” Market entrepreneurs compete by utilizing their own funds, resources and private investment in an effort to create and market a superior product. Political entrepreneurs, on the other hand, fund their business models off of government subsidies, federal protections and vote buying.

This is a useful distinction to keep in mind when evaluating the perverse outcomes of the subsidized U.S. ethanol industry where the participants consist mainly of political entrepreneurs. …

In addition, aside from the major distribution infrastructure deficiencies, our federal policy geniuses failed to consider an even more basic impediment to exceeding 10% ethanol-blended fuels: Automobile manufacturers will not extend warranties on engines or parts in vehicles that use more than 10% ethanol content in fuel. The only exception is flex-fuel vehicles (FFV) designed to run on E-85 (85% ethanol content). Unfortunately, FFVs represented only 3% of the car fleet as of March 2009. Oops

Griesinger continues with the somewhat older story of MTBE,

Many readers may recall the introduction of MTBE (methyl tertiary butyl ether) in the late 1990s as an EPA-approved additive to gasoline. It was approved to blend with gasoline in order to attain new federally mandated specifications to oxygenate gasoline in order to meet more stringent air quality standards. MTBE turned out to be fraught with detrimental environmental effects. It was determined to be easily soluble in water and toxic. Its eventual presence in groundwater systems raised red flags and its use was abandoned under threat of product liability lawsuits.

The incestuous nature of “science” and politics is not isolated nor short term. As Ken Green points out,

To those who have a memory that transcends more than a few weeks, recent events in the auto sector must induce a great feeling of irony.

Back in August of 2008, then-candidate Obama called for 1 million plug-in hybrid vehicles to be on the road by 2015.

To that end, then-candidate Obama called for:

*$4 billion in tax credits to American automakers to retool plants for the production of plug-in hybrid cars capable of 150 miles to the gallon;

*A $7,000 tax credit for consumers who bought early model plug-in vehicles; and

*Candidate Obama vowed that half of all cars purchased by the federal government would be plug-in hybrids or all-electric by 2012.

As both candidate and president, Obama has repeatedly raised plug-in hybrids as a vital technology for greening Detroit.

Fast forward to a recent item in the Wall Street Journal, which tells us that “In a five-page analysis of GM’s viability, the [Obama car] team critiqued GM’s marquee next-generation project, the electric-powered Chevy Volt, as “too expensive to be commercially successful in the short-term.”

Conclusion

Would it be too much to ask that comprehensive economic, strategic and life cycle analysis be done before new mandates and subsidies are imposed on a transportation system that works reasonably well for most consumers, including even the President’s limousine-tank? Is doing it right too complex for a cadre of bureaucrats? Unfortunately, the answer is yes—only the free market can deal with the complexity, as it always has.

As we enter another campaign season, we are sure to hear rhetoric that “we need to run government more like a business.” All too often though, the business of government is building stranded assets—the billions of dollars from the private sector in alternative fuel production, in infrastructure, and in retooling by the automakers.