Will the environment fall victim to the economy? 4

darryl-and-the-teslaMy friend Darryl who recently left his job as the SVP of marketing at Tesla Motors has been doing a lot of blogging in recent weeks, and I find myself strongly agreeing with much of what he says.  I’ve expressed many of the same ideas in my posts on AutoblogGreen and Autoblog, drawing a great deal of derision from some very earnest but in my opinion extremely naive readers.

I’m all for vastly more efficient and cleaner transportation for a number of reasons. I think burning fossil fuels is unsustainable from both an environmental and political/strategic perspective.  Unfortunately for every person who happily rides to work on their bicycle in 10 degree weather, there are hundreds whose focus is much more self-centered.  The reality is people buy the most car they can afford on the day they buy, without regard to future consequences.  In his latest blog post Darryl explains some of the economic theories behind all of this.

When gas is cheap they buy more powerful vehicles and only when fuel prices go up do they buy more efficient vehicles.  People have now become accustomed to better equipped cars and they expect a certain feature level for their dollar. If gas is cheap they will buy a thirstier better equipped vehicle over a more efficient model with fewer features.  The current economic climate will only make things far worse as increasing unemployment makes people reluctant to buy anything.

As much as people want electric vehicles to be mainstream, batteries are simply far too expensive and heavy to be widely used yet.  In light of this in order to make any progress on reducing fossil fuel use and carbon dioxide emissions, we need to take the most cost effective approaches as well as provide incentives and disincentives.

First up for disincentives we must let go of the idea of cheap gas forever.  Gas needs to taxed up to at least $4-5 per gallon. Since this will disproportionately affect lower income people the tax system needs adjustments to compensate. The upper cap on the incredibly regressive payroll taxes needs to be increased  and the first $10-15,000 needs to be exempted.  As long as gas is cheap increasing fuel economy mandates on manufacturers will only kill those companies because no one will want to buy the cars they are forced to build. We must created demand for efficiency through increased fuel prices. The idea of increased fuel taxes is finally gaining some steam at least online including over at Mark’s blog, although politicians still don’t seem too hot on the idea.

Because of the sluggish state of the general economy not much of anything is selling right now anyway. To compensate for that more positive incentives are needed to stimulate demand.  The extra revenue from the fuel tax could be used to fund rebates for more efficient vehicles as well as public transportation.

We also need to acknowledge the work being done by companies like Ford and Honda. A year ago Ford recognized that in order to make any real dent in fuel use and emissions it was critically important to find the most cost effective solutions. While electric vehicles reduce direct emissions to zero, there are still emissions from the power sources if coal or natural gas is the fuel.  The high cost also means that the numbers of such vehicles will remain for low for the foreseeable future meaning the overall effect on emissions will be negligible.

Ford developed turbocharged direct injection engines that they are labeling as EcoBoost. These engines reduce fuel consumption by 15-20 percent and Ford expects to be selling half a million of these engines annually within a couple of years. The extra cost will be far lower in the near term and have more overall impact in the near term while the cost and capacity of batteries is driven down.  Similarly Honda has developed a cost reduced version of its hybrid system for the new Insight that will debut next year.

Ford already has a full hybrid system in the Escape and Fusion, but those vehicles will only sell 50,000 units a year because of the cost.

Even efforts such as Honda’s hybrid and Ford’s EcoBoost won’t make a difference if no one can afford to buy. With the economy in the dumper, people will simply vote with their wallets and keep driving their existing vehicles and use the cheapest energy available. That means concerns about the environment will evaporate just as fast as SUV sales in the past year.

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4 thoughts on “Will the environment fall victim to the economy?

  • Chuck McKinnon


    I’m sure you recognize that the gas tax you’re suggesting is a market distortion: inflating the price of something in abundant supply in order to create artificial scarcity, and by so doing make an incentive to create alternatives.

    Computer programmers have a saying: premature optimization is the root of all evil. I think that applies here. When oil and gas really do become scarce, there’s no reason to believe that investment, ingenuity and impressive engineering won’t come up with good alternatives. But markets are efficient: they’re not going to sink large sums of money into solving what is (today) a solved problem; that money is going to go elsewhere.

    It’s true that governments distort markets like this all the time (though rarely to the degree you’re suggesting), but the question proponents need to answer in order for their proposal to be taken seriously is: why create artificial incentives now (at a significant risk to various sectors of the existing economy) when the real incentives will arrive on their own, gradually, over the next several decades? Why optimize prematurely?

    If the answer is AGW, that case (again, as you likely know) is considerably harder to make than it was four or five years ago: the Earth’s been in a ten-year cooling trend while CO2 emissions have risen; solar activity is at a standstill; 250 more scientists than last year have signed onto the US Senate’s report dissenting from the IPCC consensus; the current financial “crisis” has politicians loathe to impose new taxes (especially consumption taxes).

    I respect your principled stand, but I believe that in this as in so many other cases, the market will adapt in due time. Put more bluntly, I agree that people will only change their behaviour when the pain threshold is high enough. I simply disagree that we need to do anything to accelerate the day that pain arrives.

  • Sam Post author

    Chuck, I’m well aware that a gas tax is a market distortion. All taxes distort the market in one way or another. However, there is a problem that most people overlook with the efficient markets argument. Free markets are actually only efficient when there are enough players on both the supply and demand side to prevent anyone from manipulating the market price. The problem is that in an era of huge corporations and relatively few suppliers, the market is fairly easily manipulated.

    As for the real incentives arriving gradually over decades, the aforementioned argument about artificial markets, was quite clearly demonstrated over the course of the past 12 months. The rapid runup and decline of oil prices showed that this is not likely to be a gradual process on its own.

    Finally on the subject of global warming/climate change/whatever, that may be argued. However, there are other good reasons including national security and economic stability that provide perhaps an even better rationale for increased efficiency.

    The problem is the auto industry is so capital intensive and has such long lead times, that as we’ve seen it’s hard to adapt quickly enough to the kinds of fluctuations that we’ve seen recently. Providing a tax based mechanism to filter out some of the volatility would provide some breathing room to manufacturers allowing them to adjust and produce products that meet the desired goals of improved efficiency and reduced emissions of all kinds, both noxious and greenhouse gas.