More Gas for Washington
By Arnold Kling
The Washington Post reports,
A who’s who of right-leaning military hawks — including former CIA director R. James Woolsey and Iraq war advocate Frank J. Gaffney Jr. — has joined with environmental advocates such as the Natural Resources Defense Council to lobby Congress to spend $12 billion to cut oil use in half by 2025.
One of the hawks, Max Boot, writes,
Coming soon are hybrids that can be plugged into a 120-volt outlet to recharge like a cellphone. They’ll get even better mileage.
Add in “flexible fuel” options that already allow many cars to run on a combination of petroleum and fuels like ethanol (derived from corn) and methanol (from natural gas or coal), and you could build vehicles that could get — drum roll, please — 500 miles per gallon of gasoline. That’s not science fiction; that’s achievable right now.
A car’s annual fuel cost is ($/gallon) times (gallons/mile) times miles. So, if we drive a car 10,000 miles a year and gas costs $2.50 per gallon, then our annual fuel cost is $25,000 times the gallons per mile. If gallons/mile goes from .04 yesterday (25 miles to the gallon) to .002 “right now,” our fuel bill goes from $1000 to $50 (assuming we do not increase our driving). Converting these annual savings to a present value by multiplying by 10 (corresponding to an interest rate of roughly 10 percent), we would pay $9,500 more for a car that gets 500 miles to a gallon than for a car that gets 25 miles to the gallon.
The auto companies sell 15 million vehicles a year. If they could get $10,000 more per car, that would be $150 billion more per year in revenue. If the economics of the fuel-efficient car do not work for $150 billion per year, then a $12 billion subsidy spread over several years is not going to make much difference.
Meanwhile, sending more money to Washington is like sending more coal to Newcastle.
UPDATE: Peter Huber and Mark Mills write,
Once you’ve got the wheels themselves running on electricity, the basic economics strongly favor getting that electricity from the grid if you can. Burning $2-a-gallon gasoline, the power generated by current hybrid-car engines costs about 35 cents per kilowatt-hour. Many utilities, though, sell off-peak power for much less: 2 to 4 cents per kilowatt-hour. The nationwide residential price is still only 8.5 cents or so. (Peak rates in Manhattan are higher because of the city’s heavy dependence on oil and gas, but not enough to change the basic arithmetic.) Grid kilowatts are cheaper because cheaper fuels generate them and because utility power plants run a lot more efficiently than car engines.
They argue that nuclear power is the most plausible source for electricity.
For Discussion. Have the “right-leaning military hawks” addressed Oil Econ 101?