advice from a fake consultant

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Tuesday, June 24, 2008

On Buying Out The Fleet, Or, Here’s A Gas War We Can Win

There is no way to save us from our dependence on oil, we are told, except to drill for more oil wherever it can be found—and some will even tell us it’s possible that there’s so much oil not yet discovered off the coast that all our problems will be over once we poke a few holes in the ground and git ‘er done.

Of course, it’s also possible there are monkeys to be found in certain of my body cavities…and I’m hoping most fervently that no one proposes drilling in my ANWAR in an effort to find out.

But what if there was another way?

What if we could afford to convert our gas-powered cars to something else…something that could reduce our national gasoline consumption by 70%?

Something we could put into place just as quickly as offshore wells could be drilled—and maybe even faster.

A “Manhattan Project” of fleet conversion, if you will.

Well, Gentle Reader, I think we can—and today we examine a way it might be done.

Those who are regular readers in this space probably recognize this as the part of the diary where we introduce background information while keeping the plan a bit of a secret…just to build the suspense…but today, let’s do the opposite: let’s open with a plan, and then provide the supporting numbers.

So here it is: Americans are quite familiar with the concept of paying farmers to not grow crops—why not apply the same logic to this problem? To be more specific, I’m proposing we subsidize drivers, through loans and grants, to get out of gasoline cars and into electric, just as quickly as we can—and to apply the money that will be saved on gas and other expenses to repay the investments needed…meaning that over time this could be an idea that’s either revenue neutral or net positive, depending on the future price of gas.

To examine how the numbers work out, let’s begin with the costs of today’s cars:

The first, and most obvious, is oil itself…and the State Department estimates we spent about $400 billion on imported oil in 2007.

The cost of making fuel substitutes is adding up as well, and experts point to ethanol as one substitute that imposes many costs, some of which are as yet unquantifiable, but clearly substantial. Among those costs is a subsidy of nearly 50 cents per gallon paid to ethanol producers that will cost us roughly $4 billion this year-and we expect that amount to grow to $7 billion a year by the middle of next decade, if production estimates prove correct.

Then there’s automobile maintenance. The American Automobile Association reports that maintaining a car and keeping it in tires averages five and a half cents per mile—and the Department of Transportation estimates Americans drove more than 3 trillion miles in 2006. Multiply the two and we apparently spend somewhere around $165 billion annually on maintenance.

Like it or not, we must acknowledge that we also spent some portion of our military budget on “oil security”. The 2007 Defense Department budget request—without the War Supplemental requests—came in at $471 billion. Supplemental requests ware estimated to be another $90 billion. A charitable estimate might assign 30% of that number to “oil security”, adding roughly $175 billion more annually to our oil costs. An estimate of 50% equals more or less $280 billion annually. We’ll use the lower number today.

Add these together, and we spend at least $735 billion, plus an unknown amount from additional “ethanol costs”, to drive gasoline powered cars annually.

So what would it cost to replace them?

In my proposal, the Federal Government would provide a grant of $15,000 to the owners of the 136.5 million cars on the roads (that’s a 2005 number), which would basically pay off the loans on those cars. They would have to be turned over to the Government for scrapping. (Any leftover money would have to be spent on the replacement car.) That’s just about $2 trillion over the 10-year life of the program…or $200 billion a year.

Additionally, I would provide low-interest loans of up to $30,000 to purchase a new electric car. (Just for reference, you can buy a Prius for $23,770.) At 5% interest, that’s a maximum $150 billion “carrying cost” annually…but if the loans are priced at 5%, it’s a virtual wash. (There will be some losses for delinquencies—but as with student loans, the IRS can help with collections…)

We will have to upgrade the electric grid to provide about 17% more power than it does today, and based on the Edison Electric Institute’s numbers that means we need to provide about 180,000 megawatts (MW) of new capacity.

Is it possible to generate that much power using a no-fuel source like, maybe…windmills? The answer seems to be: yes. The Pacific Northwest alone has the potential to generate 137,000 of those 180,000 MW—and beyond that there’s tons of wind potential on the Great Plains…and believe it or not, even Texas (yes, I said Texas...) now sees wind farming as a cash crop.

So how much would it cost to build all that capacity? 229 MW of wind capacity installed near Whisky Dick, Washington (how cool is that…I got to say “Whiskey Dick” in a serious story…) is costing Puget Sound Energy $380 million. Based on that number it should cost about $299 billion for the new wind turbines--assuming no “bulk discounts” or decreases in price as the technology advances. Add 50% for new transmission and distribution, and you get roughly $450 billion…which is about $45 billion a year over 10 years

Having demonstrated that it’s possible to make this change, we need to take some time to address the biggest problem that prevent us from simply “flipping the switch” and putting this plan in place.

What is it? Batteries. To make a long story short, batteries for different types of electric car applications demand either high power or long-lasting power—and a battery that can provide both is usually too heavy and emits too much waste heat (the more heat, of course, the more energy lost, making the battery less efficient).

Charging time is another issue. To charge batteries quickly requires high voltage, and a nation of rapid charging cars could have problems delivering enough power through the electrical grid as it’s currently designed…and at the moment, charging batteries using 120V current takes hours, not minutes.

But there’s good news on the horizon—and a company that is the world leader in the batteries that power cordless tools is one of the companies that thinks they can advance the state of the art. A123 Systems makes the batteries that power one of the most impressive of today’s electric cars, the Tesla.

A123 Systems put 6,831 AA battery-sized batteries in a car that’s a very close cousin of the Lotus Elise (the cars’ chassis are built on adjacent assembly lines) and the resulting car is quite amazing.

220 miles on a charge (this is a plug-in car…no gasoline engine of any kind); and performance that is shocking to those who think of electric cars as inherently boring and lacking in performance. What do I mean by shocking? Well, the car has been slowed down quite a bit by the introduction of the new monospeed transmission, so acceleration from 0-60 mph is now up to 3.9 seconds from 3.2.

It seems to be able to turn a bit of a corner as well…as this video demonstrates…

Of course, this is a $100,000 car—and without backup power, you better not travel more than 219 miles to the next outlet, or it might be tow time.

More typical performance is found in the Subaru R1e—an all-electric plug-in car that is a variant on a car currently available in Japan, which can travel at speeds up to 65 mph for 50 miles before needing a charge.

Both of these cars appear to require less than $2 a day for charging for most electric consumers in the US.

Eventually the market may move to “series hybrid” electrics, which, like railroad locomotives, use small fossil-fueled engines to run a generator that provides the electricity for the car. The Chevy Volt, expected on the market for the 2010 model year, is such a car. The company reports the first 40 miles of travel would use the plug-in batteries only, and beyond that the engine kicks in to spin the generator (and recharge the battery), which gives the car a range of 640 miles on 12 gallons of fuel.

Which brings us to the final question: how fast could such a conversion occur?

The Census Bureau tells us that 12,087,000 cars, more or less, were manufactured in the US in 2006. If we instituted a lottery system (or something similar) to choose who gets ‘em first, it should take about 10 years to replace the fleet—and if we allow consumers to buy US and foreign-made cars under the terms of the program, the conversion could occur considerably faster.

So that’s it.

I’m proposing we buy out gasoline cars with borrowed money, and I’m suggesting that 70% of the $400 billion we spend annually on gas, as well as most of the $165 billion we spend each year to fix gasoline engines could be saved by the conversion, helping to repay the costs incurred…I’m proposing that we lend ourselves the money to buy new electric cars—but I expect that money to be repaid by the owners of those cars—I’m further suggesting we can “windmill” our way into providing the additional generating capacity required, and I’m suggesting that we justify this highly unusual intrusion by the government into the private economy on National Security grounds…because reducing our gasoline consumption by 70% makes our OPEC friends 70% less powerful…and also puts us at a competitive advantage compared to China and any other country who hasn’t yet broken their oil addiction.

And if all that wasn’t enough, it’s also one enormous public works project that can’t help but create hundreds of thousands of long-term jobs in our very beaten-down manufacturing sector.

Obama, are you listening?

AUTHOR”S NOTE: George Carlin has left us…with a few thoughts on the American Dream that offer a far better eulogy than anything I could ever provide.

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