Gasoline is cheap. Electricity is expensive. Bad environmental policy contributed to both outcomes
Have you noticed the modern practice of counting the benefits of environmental policies in “cars-off-the-road” units? When the Tories launched their massive support program for ethanol fuels, they claimed it would cut greenhouse gas emissions by an amount equivalent to taking one million cars off the road. One million!
Sounds impressive, but all it really tells you is how clean cars have become. On a per-mile basis, cars today emit about one one-hundredth the amount of air contaminants they generated back in the 1960s. A policy that would be equivalent to taking ten 1967 Mustangs off the road would be equivalent to taking a thousand new Corollas off the road. Same policy, but the currency has been devalued, so to speak.
Or, going to extremes, converting even one light fixture over to LED would be equivalent to taking every single electric car off the road.
Which brings us to the curious absence of electric cars on the road, despite the massive efforts of governments to get them on it. Who killed the electric car? That’s the famous title of a 2006 documentary about the refusal of auto companies to bring an early battery-powered vehicle to market. A favourite of green conspiracy-theorists, it pointed the finger at big American car companies and their pals in big oil. Facing the emergence of a supposedly profitable and superior battery-powered car, the traditional auto industry players conspired to kill it so they could carry on making and selling dirty old gas-powered motor vehicles and the fuel to run them.
Common sense ought to tell you that this is not the reason the electric car failed. When a profitable new technology appears, large incumbent industries are not able simply to block it from the market by buying the prototypes and destroying them. After all, the big American car companies failed in the 1980s to stop upstart Japanese auto firms from taking half their market share with inexpensive, better-made units. Likewise, record companies could not stop online music streaming, taxi companies haven’t stopped Uber, cable companies cannot stop Netflix, camera makers could not stop smart phones, the Post Office could not stop email and so forth. Better and cheaper products will get onto the market regardless of how big and powerful the incumbents are.
Moreover, the large incumbents are often best able to adopt the technology and profit from selling the new products themselves. The key is profitability. If the new products are better and cheaper than the current ones, and if it is profitable to make them, then it is as much in the interest of the incumbents to produce them as it would be for anyone else. In any case, as long as it is profitable for anyone, the products will get onto the market.
So who killed the electric car? Anyone minded to do so only needed to come up with a scheme to cause electricity prices to soar and conventional gasoline prices to collapse. Accomplish this, and nobody will give up regular cars that run on cheap gas in favour of ones that require a crushingly expensive electrical recharge. But since 2006, that is precisely what has happened. In Ontario, as in many other jurisdictions gripped with green energy mania, electricity prices have more than doubled and are still going higher. Meanwhile the price of oil peaked at around US$140 per barrel in 2008 but has plunged to US$30 today and isn’t going up any time soon. That is why electric cars are toast.
As reported by Bloomberg news on Jan. 7, even as U.S. auto sales hit a record high in 2015, demand for electric vehicles fell by 17 per cent. Automakers are already taking losses on these vehicles, which they are forced to sell to comply with misguided government mandates. Despite the implicit subsidy, consumers can do the math and prefer the savings, convenience and reliability of ordinary gasoline-powered cars.
So who engineered this calamity? I suggest (only a little tongue-in-cheek) that it was none other than Al Gore, along with his allies in the environmental movement. In the aftermath of Gore’s 2006 global warming doom-flick An Inconvenient Truth, and his massively-funded worldwide policy advocacy, governments around the world embraced renewables, especially wind and solar energy. Everywhere this has been tried, the result has been soaring electricity prices. You won’t get people into electric cars if they can’t afford to plug them in.
Meanwhile the environmental movement’s fanatical opposition to building pipelines to get Alberta oil into the U.S. was one of the reasons American oil producers had to innovate, developing horizontal drilling, fracking and other new recovery technologies. These, in turn, flooded the market with new sources of oil and gas from unconventional geological formations. Rising U.S. production eventually forced Saudi Arabia to follow suit, which in turn has led to the collapse in the price of crude, though this latter result was amplified considerably by shrinking demand in China.
Gasoline is cheap. Electricity is expensive. Bad environmental policy contributed to both outcomes. And it also contributed to the U.S. and Canadian governments adopting a requirement that automakers have to get the average fuel economy ratings of their sales fleet to 54.5 miles per gallon (mpg) by 2025, up from 24.7 mpg today. With gas so cheap, average fuel economy is falling, not rising, which is creating a massive regulatory liability for the auto sector.
So governments put in place environmental policies that make it nearly impossible to sell electric vehicles, then added mandates that require automakers to sell millions more of them at steep losses. Pretty soon they’ll be counting the effects of policies, not in terms of the number of autos taken off the road, but the number of autoworkers who lost their jobs.
Ross McKitrick is research chair in energy, ecology and prosperity, Frontier Centre for Public Policy.