The tragic explosion that killed 11 people and led to millions of gallons of oil spilling into the Gulf of Mexico has many people, even die-hard auto enthusiasts, arguing that we should undertake a crash program to find alternatives to petroleum to fuel our transportation system. While it is nice to fantasize that some sort of “race-to-the-moon” research program will uncover magically new energy sources and technologies, realistically it isn’t going to happen.
Here is how the world works. You use the cheap resources first. The income you make from using those resources allows you to build up wealth. When resources start getting more expensive, you don’t hardly notice because you are wealthy enough that the higher-cost resources actually require a smaller share of your income than the low-cost resources once did. Eventually, you find new technologies and substitute resources that would have seemed prohibitively expensive when you were starting out, but now their adaptation causes barely a hiccup in the economy.
Oil critics will argue that, when the environmental costs are counted, oil is more expensive than first thought. That may be. But instead of trying to pay those costs from the outset, we first became a wealthy society, thanks in part to cheap oil, and then applied some of that wealth to reducing air pollution and solving other environmental problems. As bad as the Gulf oil spill may be, I suspect BP will eventually cap the well (update: looks like it has already happened) and, no matter how many billions it may cost, largely restore the ecosystems and compensate those who were harmed. This may add a few cents per gallon to the world price for gasoline, but consumers will absorb that just like they absorbed the cost of catalytic converters and other technologies aimed at reducing air pollution.
Right now, the outlook for alternative fuels at prices competitive with oil does not look all that great. While electrics and plug-in hybrids receive lots of media attention, these cars cost far more than gasoline-powered cars, and are sold at prices only barely made palatable thanks to tax rebates of as much as $7,500. The so-far limited range of these cars means they will be mainly for in-town use and can’t serve as an all-around car like so many internal-combustion vehicles.
Instead of trying to replace oil-powered vehicles all together, it makes more sense to encourage more fuel-efficient vehicles. We know that, when gas prices go up, people buy more fuel-efficient cars and, when they go down, they buy bigger cars. When these trends disguise is that, when prices are down, the bigger cars people buy are still getting more fuel-efficient in terms of ton-miles per gallon.
The results of this trend can be seen in the 2011 Ford Mustang, which is rated at 31 mpg on the highway even though it has a 305-horsepower engine. By comparison, my 1986 Mazda 626 gets about the same mpg with a 93-horsepower engine (turbo models had 120 horsepower). The 626 was built on the same platform and in the same factory as the Ford Probe, which was originally intended to be branded a Mustang.
Unlike General Motors, Nissan, and certain other manufacturers, Ford has effectively decided that its near-term future will be in more fuel-efficient gasoline-powered vehicles, such as its 40-mpg Fiesta, not electric power. Even after a $7,500 rebate, the Nissan Leaf costs almost twice as much as a Fiesta, and for the savings in fuel costs to cover that extra price, buyers will have to drive the Leaf nearly 200,000 miles — by which time battery replacements will have added to the Leaf’s cost. Add to that the inconvenience of a car that can only go about 100 miles on a charge and it is hard to see why anyone would want one for anything but the smugness factor.
Meanwhile, European manufacturers have further increased fuel economy by substituting Diesel for gasoline engines. As previously noted here, MIT economists expect that, by 2030, the average new Diesel-powered car can easily get more than 80 mph.
The foreign-oil bugaboo is mainly a way of saying that oil prices are geopolitically volatile. But even during temporary price peaks, gasoline remains less expensive than most of the alternatives. If prices ever permanently exceed $100 per barrel, America’s shale oils will be economically accessible. Due to the abundance of such fuel, I don’t think prices will permanently rise to $200 per barrel in the lifetimes of anyone reading this blog.
As a rule of thumb, gasoline costs about one-fortieth the price of a barrel of oil plus about 75 cents per gallon. This means that, even at $200 a barrel, gasoline will cost less than $6 a gallon, which is more than Americans are used to paying but a lot less than Europeans, who drive for almost 80 percent of their travel, pay. By switching from vehicles that get the current average of 20.6 mph to ones getting an average of a little over 40 mph, we can pay $6 a gallon without reducing the amount we drive.
Most of the environmental problems from auto exhaust have pretty much been solved. Auto manufacturers today are making many partial zero-emission vehicles today that pollute only about 1 percent as much as cars made 40 years ago. As these cars replace older cars on the highway, automotive-air pollution will virtually become a thing of the past. Similarly, almost all alternative fuels emit greenhouse gases, and making cars more fuel-efficient may still be the best way to deal with this problem.
Of course, the oil spill in the Gulf of Mexico is a tragedy. But it seems unlikely that the world will leave oil in the ground. The question is not whether to extract it, but at what rate it should be extracted. Government subsidies to electric and other alternative-fueled cars will have only a tiny influence on that rate.
In short, not only will autos remain the dominant form of travel, I suspect that oil will remain the dominant way to power such autos until at least 2100. By that time, better battery technologies, lighter-weight materials, and other technological advances may make electricity or some other alternative fuel feasible at not much greater cost than gasoline today.
I have no objection to private parties doing research in and bringing to market alternative-fueled vehicles. But the government should not favor these vehicles with special tax breaks, research programs, or other subsidies. Government agencies and politicians should pay more attention to promoting universal mobility than to getting people out of their cars or finding alternative ways to power those cars.