Who wants to kill the electric car? Apparently, a lot of people do. During the 1920’s, the Milburn electric cars were popular, particularly with the ladies who didn’t like cranking gasoline engines to start them. In 1928, General Motors bought the Milburn out and it disappeared. In 1996, the EV1 electric cars appeared on roads in California. They were quiet and fast and produced no exhaust fumes. They were manufactured by GM under a mandate to reduce vehicle emissions. Ten years later, these futuristic cars were almost completely gone. A documentary, Who Killed the Electric Car , determined that the batteries were not the problem but that the culprits were mainly oil companies who stood to lose enormous profits if EV sales took off and GM, who didn’t think they would make enough profit from the car. If GM had developed and improved the EV1, they might not have gone bankrupt.
House Of Cards: Much of the damage to the EV1 was done by misinformation directed at politicians, regulatory agencies, and the consumer. The same campaign is being used against the new crop of electric cars. In a Seeking Alpha article, Why The Electric Vehicle House Of Cards Must Fall, John Petersen continues the tactic. First, Mr. Petersen determines the value of an electric car by using an “analysis that starts with a $19,000 gasoline powered vehicle, deducts the costs of unnecessary internal combustion drivetrain components and then adds the incremental costs of necessary electric drivetrain components.” This analysis found a $38,800 cost for an electric vehicle. That cost is not unreasonable but the analysis is something like taking a conventional oven, stripping it, and adding parts to convert it to a microwave. There are many hybrids and electric cars on the market that have an MSRP much less than $38,800, such as the 4 passenger Mitsubishi MiEV which is rated at 112 MPGe and listed at $21,625. The price of the vehicles will certainly come down, as Department of Energy Secretary Steven Chu said at the Detroit Auto Show he expects the cost for electric car batteries to drop from a whopping $12,000 in 2008, to $3500 by 2015 and $1500 by 2020. Currently there are waiting lists to purchase many electric cars and hybrids because of high demand, so there is little chance for price negotiations.
The article goes on, “Electric drive proponents are selling a house of cards based on fundamentally flawed assumptions and glittering generalities that have nothing to do with real world economics. Their elegant theories and justifications cannot withstand paper, pencil and a four function calculator.” However, Mr. Petersen bases his economic analysis on his $38,800 cost and a list of subsidies from what he calls an “extraordinary article”, The Real Costs of Alternative Energy by Alex Planes . Fortunately for the future of electric cars, Mr. Planes’ real costs are extraordinarily misleading.
Subsidies: Mr. Planes says, “a clear-headed look at the true costs of energy is something many — including our political leaders — sorely need.” He goes on,“Subsidies are just one of the costs of supporting alternative energy, but are they worth it?” Using U.S. Energy Information Administration data, Mr. Planes calculates the subsidies to energy sources in terms of the dollars per barrel of oil equivalencies. The subsidies he comes up with are coal: $0.39, oil and gas: $0.28, solar: $63, and wind $32.59. Based on his values, he says renewable energy’s costs to the government are “in some cases so high, and the actual energy returns so low, that it hardly seems worth the investment. Solar’s pitiful slice of American power use — less than a single day’s worth of oil consumption — is underwritten by enough taxpayer money to simply buy most of the power outright and provide it to taxpayers for free.” Subsidies are a poor way to estimate “true costs” as they are more indicative of the perceived future value of the resource to society.
True Cost? The reason Mr. Planes article is extraordinarily wrong is that he does not really give you the “true cost” of the use of fossil fuels. The true cost of a resource includes not only the price but also the cost of cleaning up the environment and disposing of the waste. Fossil fuels dispose of their waste by releasing it into the air which causes damage to the environment and health problems for many Americans. We are in effect subsidizing the fossil fuel industry by the cost of allowing them to freely discharge their wastes into the environment. Any effort to determine the “real cost” of subsidies should include health and environmental costs. Mr. Planes says in the comments section of his article that he perhaps should rewrite his article to include what he calls the external costs. In the meantime, many people are using his incomplete analysis to disparage sustainable energy sources.
A Truer Cost: It is difficult to come up with an exact value for the “real subsidies” to the fossil fuel industry, but it is possible to estimate their magnitude. Top economists such as Britain’s Nicholas Stern, using the results from formal economic models, estimates that if we don’t limit our carbon emissions, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more in the future, and we would run the additional risk of an environmental catastrophe.
Using 5% of the US GDP for 2010 would give an environmental cost of $727 billion. The American Lung Association estimates that the EPA’s proposed guidelines for particulates could prevent 38,000 heart attacks and premature deaths, 1.5 million cases of acute bronchitis and aggravated asthma, and 2.7 million days of missed work or school. They estimate the economic benefits associated with reduced exposure to soot to reach as much as $281 billion annually. Those two add up to about $1.01 trillion, and when divided by the 13541 million barrels of oil equivalent given in Mr. Planes article for coal, gas and oil together amounts to an additional subsidy of $73.9 per barrel of oil equivalent. The subsidies to wind and solar electric energy do not look so bad if you actually use fossil fuels: $74, solar: $63, and wind: $32.59. The calculations do not include all the environmental and health costs, but they do give an idea of how much we are subsidizing the fossil fuel industries by ignoring the damage to people’s health and the environment. Then there is the added risk of an environmental catastrophe.
Disclosures: In an apparent effort to be evenhanded, as required by Motley Fool, Mr. Planes then concludes, “Wind and solar power have their drawbacks, but continue to make notable improvements year after year. However, neither option can yet provide the clean, constant, and convenient power the world demands. Natural gas offers the best opportunity for the near term. It’s plentiful, well-developed, and efficient, and will take on greater importance as dirtier hydrocarbons lose market share. ” Mr. Planes then offers you a free analysis of an “exciting opportunity to play the natural gas boom, by investing in a small company turning our oil-guzzling vehicle fleet into clean-burning natural gas machines.” He disclosed that he holds no stock in natural gas vehicles, but he may not be disclosing a bias against renewable energy. He refers to one of Robert Bryce’s books in his paper and his analysis sounds much like those in Mr. Bryce’s “Power Hungry: The Myths of ‘Green Energy’ and the Real Fuels of the Future”. In Mr. Bryce’s 5 Myths about Green Energy, he attacks green energy using false comparisons, misquotes, scientific inaccuracies, and the omission of pertinent facts. It is not surprising that Mr. Bryce is not a fan of green energy as he is a senior fellow at the Manhattan Institute, which receives large donations from the Koch Foundation and Exxon/Mobile.
Mr. Petersen, using Mr. Plane’s analysis, finds, “The law of economic gravity cannot be ignored and will not be mocked. Shiny new electric vehicles from General Motors, Ford Nissan, Toyota, Tesla Motors and a host of privately held wannabe’s like Fisker Motors and Koda are doomed to catastrophic failure. Their component suppliers will fare no better. There is no amount of political or wishful thinking that can change the inevitable outcome.” When Mr. Petersen was asked about the omission of health and environmental costs in a comment on his article, he replied he was only interested in “hard authoritative numbers.”
Obscenity? Mr. Petersen goes on, “The ultimate obscenity is that a conversion from gasoline drive to electric drive will not reduce the total amount of energy used in transportation. It merely shifts the energy burden from lightly subsidized oil and gas to more heavily subsidized energy from coal, nuclear and renewables.” Not really. The amount of energy used would be reduced even if using electricity from traditional coal fired power plants to charge the electric vehicle. Coal-fired power plants have a thermodynamic efficiency of about 30%. Electric motors are now about 90% efficient in converting electric energy to work and when considering friction, power line transmission losses, energy lost when the batteries are charged, and the energy gained by regenerative braking, the overall efficiency of using coal to run electric cars comes out around 20%. Internal combustion engines have a thermodynamic efficiency of about 15% but drive train losses reduce that to an overall efficiency around 10%. These efficiencies are reasonable as a paper by Stanford University comparing “source to wheel efficiencies” rated the electric Tesla at 1.145 km/MJ of and the gasoline powered Honda Civic at 0.515 km/MJ. At current prices, that figures out to about 5 cents/mile for the Tesla and about 12 cents/mile for the Honda.
Using sustainable energy sources to charge the batteries would be the ideal case as the “energy source to wheel” efficiency would be 60 to 80% and the carbon emissions would be greatly reduced. There would be a substantial savings in energy and carbon emissions even if using electric cars charged using coal-fired power plants. Electric vehicles have the added advantage that the infrastructure to charge the batteries is already in place. The electric car does not seem to be built on such a house of cards as Mr. Petersen’s article suggests.
An article titled Investors See Climate Opportunity to Make Money, Create Jobs, reports 450 large institutional investors who control more than $20 trillion worldwide, agree “climate change is a risk to avoid and also an opportunity to make a good return on investments.” It reports “Global clean-energy investments reached $260 billion in 2011, some five times more than the $50 billion in 2005.” Our energy needs will best be served by a mixture of traditional and alternate energy sources and we should not let pessimistic analyses keep us from investing in and developing the alternate sources.
* Revised to include a more recent Stern Report on 01/22/2012.
(c) 2012 J.C. Moore