When politicians and environmental activists hammer the table about the need to break our so-called “addiction to oil” — as they are doing with increased fervor in response to the oil spill in the Gulf of Mexico — they seldom spend much time explaining exactly how we should go about doing so. About 70 percent of the oil we consume goes into the transportation sector, so wind, solar, and nuclear power plants are of little help. Ethanol, methanol, compressed natural gas, all-electric vehicles, and hydrogen-powered fuel cells might someday do the trick, but at present, those fuels and technologies are far too expensive and environmentally problematic to substitute for gasoline.
Hybrid-electric vehicles such as the Toyota Prius are much beloved by the table-pounders, but alas, even under the optimistic assumption that a third of new cars sold in 2020 will be hybrids, U.S. oil consumption will be reduced by only 200,000 barrels a day — to less than 1 percent below what it would have otherwise been. Despite these limitations, the addiction-busters are increasingly enamored with the next step in hybrid technology: plug-in hybrid-electric vehicles (PHEVs).
There are two basic kinds. One is the PHEV-10, the first of which is basically a Prius with a larger battery pack and power cord that is scheduled for release by Toyota in 2012. It will run for ten miles (thus the “10” in the name) on lithium-ion batteries before the gasoline engine kicks in and recharges it. The other type, the PHEV-40, is typified by the much-ballyhooed Chevy Volt, which has a 40-mile battery range and is scheduled for release later this year.
Both George W. Bush and Barack Obama have asked for — and gotten — tax credits to subsidize the purchase of these vehicles, favorable taxpayer-financed loans to auto companies so that they can build the requisite manufacturing facilities, and a host of expensive favors in the tax and regulatory codes. But a new report from the National Research Council (NRC) of the National Academy of Sciences, however, suggests that PHEVs may well be another in a long list of failed government attempts to redesign our cars. The study, titled “Transitions to Alternative Transportation Technologies — Plug-In Hybrid Electric Vehicles,” is brutal.
Simply put, these cars are not affordable. A PHEV-10 will likely be $8,800 more expensive than an equivalent midsize (non-hybrid) car when it comes to the market. A PHEV-40 will likely carry a $24,400 premium. These cars use less gas, but you’d have to own one for decades for the fuel savings to make up for the higher purchase price.
So, why would consumers buy them? Well, many won’t. Some, however, will pay extra to feel environmentally virtuous and take the federal subsidies to help cover the cost. But those subsidies would have to be immense to move substantial numbers of PHEVs into the market, according to the NRC — about $133 billion ($5,000–$6,000 per vehicle), not counting the infrastructural investments necessary, which will add another $1,000 per car. Hence, while the subsidies that have already been made available are quite impressive, they are still short of what will be needed to translate wish into reality.
We often hear, of course, that once the production lines are going strong, cost reductions will follow and technological improvements and innovations are inevitable. The NRC, however, begs to differ. The main cost item here is the lithium-ion battery pack, and “Li-ion batteries based on similar technology are already being produced in great numbers and are well along their learning curves. The steep early drop in cost often experienced with new technologies is not likely. The incremental cost to manufacture these vehicles is expected to decline by about one-third by 2020 but only slowly thereafter . . . the potential for dramatic [cost] reductions appears limited.”
Would a sharp, prolonged, and unexpected increase in oil prices make these vehicles economical? The NRC doesn’t think so: “The adverse consequences of such an event for the health of the economy could leave consumers without sufficient financial resources to purchase large numbers of PHEVs.”
Even when subsidies are no longer theoretically necessary (that is, when the fuel savings can reasonably be said to balance out the higher purchase price, defined by NRC as 2028 for PHEV-10s and 2047 for PHEV-40s), will large numbers of consumers buy vehicles with such steep up-front costs? Even at that point, you could buy a conventional car, park the extra money in a savings account, and earn more money than you’d have saved in gas with a PHEV. Also, you might not be wild about having to plug in your car every day, particularly when it will take almost four hours to recharge a mid-size PHEV-10 battery pack on a standard outlet and 14 hours to recharge a mid-size PHEV-40. Sure, you can upgrade an outlet to provide more juice, but if you’re a home owner, that’s another $2,100 out of your pocket. And if a substantial number of drivers decide to fire up those batteries during the daytime when they’re at work or play — instead of at night, when electricity usage drops — billions of dollars will be necessary to upgrade the electricity grid.
We are “addicted” to oil for a reason: It’s a heck of a lot cheaper to move our cars with gasoline than by any other means. That most of us prefer relatively cheap to relatively expensive transportation is not an “addiction,” really — it’s an exercise in economic self-interest. It’s hard to find evidence in this report that the same could be said for policies forcing PHEVs onto otherwise unwilling consumers.
– Jerry Taylor and Peter Van Doren are senior fellows at the Cato Institute. Peter Van Doren is also editor of Cato’s Regulation magazine.