January 12, 2012

Will EVs and hybrids take off quickly? (part 2)

Probably not soon. Even though hybrids and EVs are competitive with conventional ICE vehicles, they won't sell well until until they're clearly cheaper. Hybrids and EVs are much cheaper, if we include all of the external costs of oil - oil wars, pollution, etc, etc. But that's not priced into the vehicles:


"The challenge with selling hybrids is that gasoline engines have become more efficient and the cost of hybrids haven't come down fast enough to justify the added expense for many buyers, said David Champion, senior director of the Auto Test Center at the Yonkers, New York, magazine Consumer Reports.

He pointed to Honda Motor Co.'s Civic, which gets 32 mpg in combined city and highway mileage, and the Civic hybrid, which gets 44 mpg. The hybrid version of the car saves a consumer $322 in fuel a year, according to the Environmental Protection Agency. Given the added sticker price, it would take more than six years to get the money back on a similarly equipped car at today's fuel prices.

Mike Jackson, chief executive of Fort Lauderdale, Florida auto retail chain AutoNation Inc., said that 75 percent of customers come into his showrooms and want to talk about hybrids. Only about 2.5 percent of AutoNation sales are hybrids. "What happens from the 75 percent consideration to the 2.5 percent commitment?" Jackson said in an interview. "They look at the price premium for the technology, which is already subsidized and discounted, and say 'the payback period is too long; not for me.' It's a back-of-the envelope conversation on the part of the American consumer."


"The battery in an electric car still adds $10,000 to the price of a car at current technology costs and it will be difficult to reduce that penalty in the near future, he said."


Change is difficult: for most people to move to something new requires a strong incentive, not something that seems roughly as good as what they have now.

An EV will save about $2,000 per year over the average US vehicle - the $20,000 savings over 10 years is clearly worth it, but a 5 year payback just feels too long for the average consumer.

January 9, 2012

What should energy books convey?

They should spend some time discussing markets.

Market critics need to be reminded of the virtues of markets: they're decentralized and can start working very quickly; they process an enormous amount of information into a simple price signal; with time to work, and with proper regulation they're extremely powerful, increasing supply, reducing consumption and implementing alternatives and substitutes; and they prevent the shortages, hoarding and misallocation of investment that can come from price controls, subsidies and rationing.

Market enthusiasts need to be reminded of the failures and shortcomings of unregulated markets: they don't include externalities like pollution (including climate change) and security concerns ($2T oil wars, anyone); price signals can take time to bring a response (i.e., short-term elasticity can be very low, and capital expenditure and turnover takes time); and poor consumers are affected by ability to pay.

Pigovian taxes (like a carbon, or fuel tax) are a marvelous compromise between the extremes of stifling regulation and the excesses of unbridled big business: they use price signals to direct investment where it needs to go.

Unfortunately, Pigovian taxes effectiveness means that the legacy industries that they would hurt fight against them desperately. They much prefer subsidies, and Cap and Trade's slowness and labyrinthian complexity and susceptibility to manipulation suits them just fine.

We need more democracy, to lessen the power of entrenched minorities that fight change behind the scenes. We need better media (internet?) to fight the misinformation broadcast by these minorities and their allies (Fox news, anyone?).

Markets sometimes seem to not work because market participants don't have good information: if communication about energy does nothing else but convince people that high oil prices are here to stay, and that they should move from short-term non-responses to long-term aggressive adaptation, it will have succeeded.