“When David Sandalow writes about energy and the environment, we should all pay close attention.”
– Al Gore endorsement, 2007
The term energy encompasses a plethora of technologies, and each attracts the gimlet eye of Big Brother.
In recent years environmental groups have been very successful in insinuating themselves into the halls of government so that today there is a revolving door between government and the environmental movement. And it’s just like the revolving door between the government and other key industries, such as banking and the military-industrial complex.
Government would have us believe that a new regulation is the result of some great, objective, and careful investigation. But mostly these regulations and spending programs are foisted upon us by the people who only yesterday were nothing more than lobbyists for some fervently held cause. There has been no new data, but yesterday’s lobbyists are today carrying the mantle of great authority and prestige because they have become high-level government bureaucrats.
We economists call such lobbying “rent seeking” and those who engage in it are “rent seekers.” Rather than seeking the cooperation of other men in the free market, a rent seeker lobbies government to impose some special privilege. The cost of the rent seeker’s efforts is greatly reduced because he need convince only a few elected officials or government bureaucrats rather than the entire market. His job is made all the easier by the knowledge that the elected official or government bureaucrat can grant the privilege with no cost to himself.
When a rent-seeker gets a job in government itself, well, the fox is in the henhouse. Officials move billions of dollars and coerce millions of people with no responsibility whatsoever. If a program fails to achieve its grand design, no government official suffers the consequences. Furthermore, failed regulations are seldom repealed, because, despite the net burden to the economy, a few new constituents do benefit and lobby mightily to keep them in place.
A Revolving-Door Lobbyist for the All-Electric Car
Such is the case, as recently reported by AP, of a lobbyist for an all-electric car.
“Leading the Charge” glorifies Mr. David Sandalow, Assistant Secretary for Policy and International Affairs at the U.S. Department of Energ, and former EVP at the World Wildlife Fund, and an avid advocate for the all-electric car. Hybrid cars usually recharge their batteries only while operating on their gasoline-powered engines, but Mr. Sandalow has converted his Toyota Prius hybrid into a plug-in hybrid at the cost of $9,000. Now he can recharge his car’s battery from his home electrical outlet.
Mr. Sandalow is very proud that his daily five-mile commute (a ten-mile round trip) can be accomplished with a gasoline-refueling stop only “about once every month or two.” Nevertheless his car needs to recharge after only 30 miles of travel, so he advocates that the government pursue developing a battery that will allow 100 miles between rechargings.
The government itself estimates the cost of such a battery at around $33,000 per battery. How the government knows this when no such battery yet exists was left unclear.
The article reassures us that government tax credits and stimulus funds will reduce the cost to the consumer to around $10,000 per battery. But we Austrian-school economists know that government subsidies do not lower costs; they only change who pays. So it is disingenuous to say that government subsidies will lower the cost of such a battery.
So taxpayer forgotten, Mr. Sandalow estimates that his electricity transportation cost is equivalent to buying gasoline at 75¢ per gallon.
Recoup Your Investment in Only 132 Years!
One does not need to be a Brookings Institute scholar like Mr. Sandalow — specializing in “oil dependence, electric vehicles, and climate change” — to see why no one will willingly purchase an all-electric car, much less the one million that President Obama wants on the nation’s highways in five years. (Call me cynical, but this number does not sound as if it were the result of a scientific analysis either.)
First of all, the cost of anything is that which is foregone by the purchase. In other words, when we buy something, we cannot spend this money on other things. That is what our cost is.
In the case of Mr. Sandalow, his $9,000 investment cost him 3,000 gallons of gasoline at the current price of roughly $3 per gallon. Assuming Mr. Sandalow’s Toyota Prius gets only 20 miles per gallon, he could have driven his car for 60,000 miles. Since his commute is 10 miles per day, Mr. Sandalow’s conversion cost is the amount of gasoline he could have purchased to drive to work for 22.7 years.
But that is not the only cost; the cost of electricity, which Mr. Sandalow estimates to be the equivalent of 75¢ per gallon gasoline, has yet to be considered. This expense adds an additional $2,250 to his commute — 60,000 miles divided by 20 miles per gallon times .75 = $2,250. Stated another way, he could have purchased another 750 gallons of gasoline and commuted to work for another 5.7 years, or 28.4 years total.
Now let’s move on to the $33,000 battery. Hold onto your hats! At $3 per gallon, Mr. Sandalow could have purchased 11,000 gallons of gasoline and driven his Toyota Prius for 220,000 miles. But, again, he would have had to buy electricity at the equivalence of 75¢ per gallon, which would have cost him another $8,250. With this additional money he could have driven another 55,000 miles, or 275,000 miles total. This would allow our intrepid energy saver to drive to work for 104 years. (Of course, this cost assumes that one $33,000 battery will last for that many miles. If two batteries are required, you can double the cost and the years required to break even.)
So, by converting his car to a plug-in hybrid for $9,000, buying a yet-to-be produced 100-mile range battery for $33,000, and buying electricity for the equivalence of 75¢ per gallon of gasoline, Mr. Sandalow could have purchased enough $3 per gallon gasoline to enable him to drive to work for 132 years!
Trust Only the Free Market
I have looked at the all-electric car calculation only from the point of view of the consumer. I have not touched upon the nation’s capacity to generate enough electricity to recharge those one million batteries so desired by President Obama. And one can merely speculate on whether producing this additional amount of electricity will cause more smokestack pollution than the tailpipe pollution it supposedly will prevent. Certainly this is not a debate in which real-world-oriented economists would engage.
I also neglected the role of interest rates, just for the sake of argument. In other words, in addition to all the other costs I have listed above, we also need to include the time-value of money. Once we include this factor, we see that the switch to an all-electric car would never “pay for itself,” even in 132 years.
As Ludwig von Mises makes clear in chapter 8 of Human Action, the only basis of economic calculation is money prices via a free market. This does not mean that unlimited pollution from power plants or automobile tailpipes is permissible. Property rights and one’s health may not be abridged by another’s pollution. But it does mean that a basis already exists for deciding upon the wisdom of an all-electric car — the free market.
Patrick Barron has taught at the Graduate School of Banking, University of Wisconsin-Madison for the last 23 years and currently teaches a course in Austrian-school economics at the University of Iowa (blog here). He has lectured at the European Parliament offices in Brussels, Belgium and in Strasbourg, France on the benefits of free markets in societal problems. An earlier version of this piece ran at Mises.org.]
Often overlooked in the promotion of such schemes as over-emphasizing electric cars today are the realistic time frames required for these to become feasible.
As desirable as the electrification of transportation might be, extensive commercialization in the short to medium term (think in terms of a few decades, say 30 years or so) is a veiled attempt to justify massive implementation of wind power today, and to thereby appear to be doing something valuable. The technological advances required in transportation, the energy conversion infrastructure changes required to support them, and the necessary associated societal changes are many generations in the future, not a decade or two. Some may not be realizable for most of the 21st century.
To properly understand our feasible energy options, large segments of our society need an infusion of the understanding of energetics, ably provided by Vaclac Smil. See http://www.vaclavsmil.com/
1. Americans who are collecting unemployment pay taxes on that income. (I never did understand this but that’s the way they do it.)
2. Some hybrids plus the soon to be available Nissan Leaf and Chevy Volt qualify the buyer for a tax credit of up to $7500.
Ergo, unemployed Americans are (through their tax payments) subsidizing the purchases of other Americans who are both employed and earning higher than average incomes. So much for promoting the general welfare.
Yes, I realize the tax code and government policy subsidizes other things, like home purchases etc. I just happen to think it’s egregious that people who are unemployed are essentially being told by their government “Sorry you’re out of work, but at least Mr. and Mrs. Jones have a nice shiny new hybrid car to show for your efforts. Maybe through some unknown chain of causation (kind of like the butterfly flapping its wings thing) that it might result in a job for you somewhere down the line. And please don’t ask us how making your food and fuel more expensive with ethanol subsidies is good for you because we don’t really have an answer for that.
A Swiftian analysis–hoisting yet another pretentious “energy” scheme by its own petard while challenging the reader to make deeper, more discerning judgments about the idea’s worth.
Culinary doyens like Sandalow, who rely on style rather than substance, should taste their own Modest Proposals before requiring everyone to partake of their banquet fare.
Interesting article, and good to put some practical numbers on the claims. If the commute were longer, but still able to be done on electricity alone, the numbers wouldn’t be quite so bad (meaning we start to offset the $3/gallon a lot more).
“But that is not the only cost; the cost of electricity, which Mr. Sandalow estimates to be the equivalent of 75¢ per gallon gasoline, has yet to be considered.” This seems much higher than other figures I’ve seen. Is he including the cost of the battery in this $0.75 figure, or is that the electricity for charging alone?
Without defending the economic wisdom of Dr. Sandlow’s choice (I think this has been adequately dissected), is the author completely unfamiliar with the notion of early adopters of a technology, or how these folks whose cost thresholds are far above that of the average consumer are essential for early products to break into the market? This isn’t an argument for subsidy or anything else, but simply a comment on the nature of how technology is introduced into the market – while it’s fun to ridicule the lack of break-even on Dr. Sandlow’s investment, the fact is that early adopters are an essential part of the very free market process that Mr. Baron extols.
Further, the comment about the “increase in smokestack pollution” ignores the very notion that highly economical alternatives to energy from coal (and natural gas exist) – such as nuclear power. Then again, one can be well-apprised of his technological ignorance given his sniffing at the failure of the Fast Breeder Reactor – which was killed not for technical, but rather political reasons.
One might hope for better-informed analysis of energy technology on a blog this is ostensibly about energy itself.
The early adopter argument apples more to free markets than government-pick-em situations such as electric cars. Also, note the perennial problems of battery technology–one recognized by Thomas Edison back in 1896 (see here).
Nuclear power? Nuclear is to power generation what the electric vehicle is transportation–uneconomic and government-dependent. Jerry Taylor has evaluated nuclear’s relative economics here.
Besides the battery costs we will have to produce much more electric power to charge those batteries.
It has been calculated that an electric car that drives 15.000 km per year needs 5 Gw of electric power.
However due to grid transportation losses the amount of power to fill up this car battery is a staggering 11 Gw.
M A D N E S S
Sorry, Gw = Mw off course.
Here is a link to a battery about the subject
Not only will all those plug-in electric cars require more power generation to charge them, they will also require a matching improvement in the distribution grid itself. This would not be a cheap or easy undertaking itself. Electric cars merely shift the “problem” of energy supply from the gasoline station to the electric power station, much the way the con-man shifts the pea under different thimbles to keep you confused.
But wait! There’s more! (in my best telemarketer voice)
“How Electric Cars Could Become a Giant Battery for Renewable Energy”
And now for a bitter dose of reality:
How China will hold hostage these “best laid plans”
The Great Battery Race
Report: China to reduce rare earths exports
Just like the 2008 recession and the wall street/bank scams; nobody in DC will investigate this because people from both parties will go to jail:
For each 1/2 MPG of improvement in vehicle efficiency per model of car, Detroit insiders lose 4 billion dollars in oil industry kickbacks. 100 MPG cars have been demonstrated for decades but Detroit has refused to make them because of the kickbacks. But now the insiders are switching to electric because oil is running out and causing too much cancer. BUT: A large part of the electric car projects are just a scam to get a certain group of VC’s to control the lithium fields in Afghanistan! He who controls the electric cars controls the trillions of dollars of lithium revenues. It is just like oil all over again. The U.S. Department of Energy had one guy, who George Bush appointed running $25B worth of taxpayer money. He was working with 3 other guys in this small group who gave the money only to hooked n car companies who they could control the battery orders for and thus control the Lithium profits. Steve Rattner has written his book: Overhaul to try to save his name and makehimself lok like a hero yet the SEC has charged him with investment fraud and bribery of officials. The press says he is a crook who operated for back-office investors like these:
Dmitry Medvedev Came to Silicon Valley on June 22, 2010 and met with some of the venture capital companies that helped lobby the leverage for the electric car companies that just got funded. Only the car companies got funded that would play in this scheme.
Ener1 Battery Systems who got zillions of the dollars from DOE per the Loan Guarantee and ATVM Director Seward.
Is controlled in part by Russian “business man” Boris Zingarevich.
Who is best friends with the Russian Dmitry Medvedev, who arranged for all of Russia to extend current agreements signed with foreign automakers between 2005 and 2008 granting preferential duties on imported components for eight years in return for sourcing 30 percent of parts locally, according to the Industry and Trade Ministry. Once those arrangements expire, the carmakers would need to commit to buying 60 percent of components in Russia within six years to get more tax breaks.
Dmitry also appears to own interest in lots of Lithium processing and mining company technology in Russia which is pretty close to Afghanistan.
Afghanistan is: the “Saudi Arabia’ of lithium”. American geologists have discovered huge mineral deposits (Many $1 trillion of dollars worth) throughout Afghanistan, according to the New York Times. Lithium, gold, cobalt, copper, iron, among other valuable minerals are lying beneath what is already a war-torn country with little history with mining. Off and on over the decades, geologists—Soviet, Afghan, American—would investigate and chart some of Afghanistan’s mineral wealth, only to put the work on hold as violent conflict erupted. Now, corruption, in-fighting between the central and district governments, foreign interests, and greater zeal from the Taliban might come into play to disrupt a potential economy evolving around these natural resources. With the Ministry of Mines, a Pentagon task force is now helping organize a way of handling the mineral development and bidding rights. How this unfolds socially, environmentally and politically should be interesting.
The New York Times reports: The value of the newly discovered mineral deposits dwarfs the size of Afghanistan’s existing war-bedraggled economy, which is based largely on opium production and narcotics trafficking as well as aid from the United States and other industrialized countries. Afghanistan’s gross domestic product is only about $12 billion. The two most prevalent minerals are copper and iron. Niobium, used for making superconducting steel, has also been found.
The effort to get that money for Ener1 was strong armed by Republican Sen. Richard G. Lugar, one of the deans of Congress, and his junior colleague, Democratic Sen. Evan Bayh.
Richard Lugar and Lachlan Seward co-managed the Chrysler Bail-out.
Lachlan Seward was appointed by George Bush to run all of the tens of billions for the DOE ATVM and Loan Guarantee Programs. He & Matt Rogers gave most of the money away to their closely aligned interests and negated competing applicants. —
Another place near Afghanistan that there is lot’s of Lithium is in Mongolia. Blum Capital has targeted the Lithium fields in Mongolia, said to be the second largest fields after Afghanistan in the region. Mongolia touches Russia so mining and equipment access could first take place there via Russia. China wants the Mongolian Lithium too so there is some two-way bidding that each country (Russia and China) do not know about. The owner of Blum Capital is Senator Feinsteins husband. She recently made him the Goodwill Ambassador to Mongolia.
Blum’s wife, Senator Dianne Feinstein, has received scrutiny due to her husband’s government contracts and extensive business dealings with China and her past votes on trade issues with the country. Blum has denied any wrongdoing, however. Critics have argued that business contracts with the US government awarded to a company (Perini) controlled by Blum may raise a potential conflict-of-interest issue with the voting and policy activities of his wife. URS Corp, which Blum had a substantial stake in, bought EG&G, a leading provider of technical services and management to the U.S. military, from The Carlyle Group in 2002; EG&G subsequently won a $600m defense contract. In 2009 it was reported that Blum’s wife Sen. Dianne Feinstein introduced legislation to provide $25 billion in taxpayer money to the Federal Deposit Insurance Corp, a government agency that had recently awarded her husband’s real estate firm, CB Richard Ellis, what the Washington Times called “a lucrative contract to sell foreclosed properties at compensation rates higher than the industry norms.
Pan American Lithium Corp is led by Andrew Brodkey, CEO, President and Director – who has 25 years in the mining industry as a mining engineer, lawyer and senior executive with a focus on corporate legal and business development activities at major mining companies with an emphasis on Latin America, including Magma Copper Company and BHP Copper Inc. Mr. Brodkey also created the International Mining & Metals Group of CB Richard Ellis, Inc (“CBRE”). He and Mr. Blum work together on Lithium deals
” In 2009 the University of California Board of Regents, of which Blum is a member, voted to increase student registration fees (roughly the Univ. of California equivalent of tuition) by 32%. Shortly thereafter, Blum Capital Partners purchased additional stock in ITT Tech, a for-profit educational institution. These events suggest a conflict of interest on Blum’s part. Also see: http://la.indymedia.org/news/2010/09/242044.php and http://www.floppingaces.net/2007/04/02/the-silence-on-the-feinstein-c/ and http://www.washingtontimes.com/news/2009/apr/21/senate-husbands-firm-cashes-in-on-crisis/
America “should” get all the Lithium before the competing empires get it but this private group of special interest manipulators should not get to take billions of dollars of taxpayer money to set themselves up with a personal arrangement at the expense of the taxpayers and the American companies they killed off by their manipulations. That is the bad thing that is happening here.”
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