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A Car Subsidy That Makes Sense

Wednesday, May 18, 2011

Electric cars have many faults. Converting cars to run on compressed natural gas would do justice to both physical and geopolitical reality.

Both federal and state governments have been frantically pushing the electric automobile as part of the Great Green Future. But continuing reports on the electric vehicle (EV) make it clear that it faces a rocky road ahead. First, it turns out that Chevy Volt sales have been dismal—reaching a low of just 281 sold in the month of February. This, please note, with extensive federal subsidies. (The Nissan leaf sold even worse that month—67 vehicles total). Not helping sales is the recent story that a Volt may have set fire to its owners’ garage while recharging.

Problems with EVs seem to be causing doubts all over. No less a luminary than Bill Ford, grandson of Henry Ford and CEO of the eponymous automobile company, noted recently that while electric vehicles continue to be the “focus of investment,” the EV’s future is unclear. “We’ve made a big bet on electric … but the pace at which that develops, I think anyone who can tell that is lying.”

Since most electricity in America is derived from burning coal, you could say that that EVs are mainly coal-powered vehicles.

The problems, he rightly notes, are primarily the short range of all today’s EVs between charges, and the length of the charging process. Again quoting the intellectually honest Ford, “Prior to the Model T, a third of all vehicles in this country were electric … this isn’t a new technology.” The reason it died away is the same as today: the need for and length of charging, he said, adding that it is uncertain whether the United States has the electric grid necessary to support a massive number of EVs on the road.

Many other severe problems face EVs. First, the electricity that charges EV batteries is expensive already and in many states in short supply. We will only get more of it in the short term by burning coal. Indeed, since most electricity in America is derived from burning coal, you could say that EVs are mainly coal-powered vehicles. (The fact that EVs are only environmentally helpful when the electricity comes from no- or low-carbon sources is amply explored in economist Amy Kaleita’s paper, “Car-Tastrophe: How Federal Policy Can Help, Not Hinder, the Greening of the Automobile.”)

Moreover, it costs energy to mine metals for and manufacture the batteries, which are (when no longer chargeable) a hazardous waste.

The purpose of this article is to suggest a more reasonable alternative, one that does justice to both physical and geopolitical reality.

Cars can be converted to run on compressed natural gas for about one-forth the subsidy for electric cars.

As background, I first need to review the current status of what is proving to be America’s saving grace in energy: natural gas. Robert Bryce has surveyed recent developments in natural gas in his recent paper, “Ten Reasons Why Natural Gas Will Fuel the Future.” He begins by noting that in the last five years, two technological breakthroughs have made accessible vast new fields of natural gas locked up in geological formations of “low permeability,” such as shale fields, tar sands, and coal beds. (The natural gas and oil extracted from these sources is called “unconventional.”) In fact, the current International Energy Agency’s (IEA) estimate of the world’s resources of natural gas is now double what it was just three years ago.

The two technologies that have undergone the most innovative recent breakthroughs are horizontal drilling and hydraulic fracturing, or “fracking.” In fact, under the latest IEA estimate, with the fields now open to utilization because of these new technologies, the world now has gas resources of about 32,000 trillion cubic feet, equivalent to 6 trillion barrels of oil.

Let me briefly highlight Bryce’s points.

• First, natural gas is already saving Americans money. The price reduction in natural gas over the last two years alone saved consumers about $65 billion a year on their energy bills.

We are subsidizing EVs at upwards of $7,500 per vehicle.

• Second, Bryce notes the sad fact that the nuclear reactor problems caused by the huge earthquake in Japan has soured (at least temporarily) the public on nuclear power. Environmentalists around the world have rallied to shut down existing plants. But the electricity supplied by nuclear power (about 20 percent of America’s electricity, and much higher in other countries, such as France, where it is about 85 percent) would have to be replaced, either directly by inexpensive and relatively clean natural gas, or by grotesquely expensive wind and solar power. But those latter sources are only intermittent, so they must be backed up by power plants fueled by gas or some other fossil fuel. Gas is the preferred solution.

• Third, natural gas is so abundant that its global use is increasing rapidly. Over the last 35 years, global gas consumption has jumped more than 150 percent, a faster growth in use than that of any other energy source besides nuclear. However, in spite of this growth, the IEA’s chief economist says the world has an excess of gas now, and will have for the next decade at least. In addition to the rapid growth of unconventional gas production, there has been a concomitant rush of major discoveries of conventional natural gas reservoirs.

Chevy Volt sales have been dismal—reaching a low of just 281 sold in the month of February. This with extensive federal subsidies. The Nissan leaf sold even worse that month—67 vehicles total.

• Fourth, there is a nice positive side effect of the growth in unconventional gas production: it is driving a growth in unconventional oil production as well. Just as fracking releases shale gas, it releases shale oil as well. Unconventional oil fields are being exploited from the Bakken shale field in North Dakota to new spots in the Permian Basin, the oldest oil filed exploited in the United States.

• Fifth, U.S. unconventional gas production is in turn driving the U.S. petrochemical industry and the global oil industry to greater heights of production. The U.S. production on natural gas liquids such as ethane hit a new high of 2 million barrels per day in late 2010. This spurred petrochemical companies such as CP Chem and Eastman Chemical to restart dormant plants, and Dow to expand production.

• Sixth, the United States is uniquely positioned to shift to natural gas. The United States is now both the biggest producer and consumer of natural gas. It has the world’s biggest natural gas distribution system, with the most pipeline miles (2.2 million) and the most storage capacity (4 trillion cubic feet, ten times that of France). And we have the biggest and most transparent liquid gas market.

• Seventh, as the Environmental Protection Agency and other regulatory bodies continue to put pressure on coal power, more of our electric power will come from natural gas.

• Eighth, low prices in natural gas translate into lower prices for electricity.

The current International Energy Agency estimate of the world’s resources of natural gas is now double what it was just three years ago.

• Ninth, the trend towards increasing decarbonization and urbanization points towards natural gas. Decarbonization refers to a historical trend over the last two centuries observed by a group of scientists towards human use of the cleanest (defined as lowest ratio of carbon “C” to hydrogen “H”) fuel readily available at a given time. For much of man’s existence, wood was the most widely used fuel. Wood has a C:H ratio of 10:1. Then came the rise of coal, with a C:H of 2:1. Coal was in turn replaced by oil, with a C:H of about 1:2. Natural gas has a C:H of 1:4. It produces less carbon dioxide than any other fossil fuel when burned. Add to this the historical trend towards people in highly urbanized areas, which again calls for decreasing pollution, and the arrows turn to natural gas.

• Finally, Bryce makes the simple point that the global appetite for reliable, clean electricity is growing. From 1990 to 2007, world electricity usage increased nearly 70 percent (or about three times as fast as oil usage). The IEA projects growth of another 80 percent over the next quarter century.

Let me now connect the dots. In our effort to lessen dependence on foreign oil and lower pollution levels, we are subsidizing EVs at upwards of $7,500 per vehicle. But the cars are flops with the public, because of their limitation on battery capacity and their overall expense. Worse, EVs do not contribute much to cleaning up the environment, because they use mainly coal-derived electricity and the batteries are highly toxic.

Natural gas produces less carbon dioxide than any other fossil fuel when burned.

Meanwhile, we are in the middle of a turning point in energy history, where more and more conventional and unconventional reservoirs of natural gas are being discovered and exploited. In addition to all this, coal—of which America has about a 200-year supply—can be used to produce natural gas as well. Under present air quality regulations, it is cheaper to burn coal directly, but if in the future air quality standards get tighter, it might prove cost-effective to use coal to produce natural gas.

What’s more, natural gas can easily power cars and buses reasonably cheaply and has no air pollution as a byproduct—just water vapor and carbon dioxide. In fact, natural gas already powers much of our bus fleet nationwide. Cars can be converted to run on compressed natural gas (CNG)—or to run on either gasoline or CNG—for about one-fourth the subsidy for EVs.

Once a vehicle is converted to CNG, the owner needs access to appropriate high-pressure CNG pumps. Some gas stations have CNG pumps already, and CNG pumps can be purchased for the owners’ homes (if they have natural gas service, which most do) for a one-time cost of about one-fourth the subsidy we give to EVs. And once about a fifth of all gas stations in an area install CNG pumps, no more homes in that area would need them.

The problem is the short range of all today’s electric cars between charges and the length of the charging process.

If large numbers of car buyers come to desire CNG-powered cars, major automakers would soon start offering CNG-powered cars direct from the factory. Unlike hybrids or EVs, CNG-powered cars should be cheaper to manufacture, because they would not need catalytic converters (unless they were dual-powered CNG/gasoline vehicles).

So, my suggestion is simple. Why not pass a federal law simply allowing taxpayers to get a tax credit for converting their cars to CNG, and companies to get one for converting buses and trucks to CNG? And allow individuals and gas stations that choose to install CNG pumps to write off the cost of installing them? That would begin to cut back on the amount of oil we import from abroad, as well as further clean our air.

As a general policy, I oppose subsidies. But given the fact that our society has chosen to subsidize senseless automotive technologies such as EVs, it makes sense to subsidize a sensible one as well.

Gary Jason is a contributing editor to LibertyUnbound.

FURTHER READING: Kenneth Green and Steven Hayward describe a “Double A Energy Policy,” Mark Ellis and Michael Rosen explain “Clean Coal: The Fallows Fallacy,” and Max Schulz discusses “The Quiet Energy Revolution.” Mark Perry says “Tap Natural Gas for Energy,” Hayward reveals “The Gas Revolution,” and Nick Schulz outlines “Keeping the Government’s Foot Off the Natural Gas.”

Image by Rob Green/Bergman Group.

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