We need an energy revolution in this country, and it doesn’t look like we’ll get it any time soon. Not to mention an energy policy from the government. The world is desperate for clean energy sources, and real, workable solutions seem far off. Meanwhile, big oil price spikes are not only possible but likely. Their effects could be shocking, and the auto industry is on the front line.
In the last Green Update we talked about some ways the energy problem was affecting the car industry. Let’s continue and then finish with a short discussion of what seems to lie ahead.
Aren’t the car producers taking all these supply-and-demand problems into account?
Well, yes, they are, and that’s one reason they went for the much stricter CAFE regs that were recently passed. They also know there’s a limit to the extent that many people in the U.S. can cut back on the miles they drive. Carmakers are working to improve the efficiency of internal combustion engines, but that takes you only so far.
High battery and development costs are keeping EVs out of the hands of all but a few committed buyers. Cars today are chock-full of “improvements” designed to attract buyers in a highly competitive global market. McKinsey says (see automotive sector sidebar—requires registration, but it’s free) that the industry
has responded in the past by pushing design improvements and productivity gains that make room for costly new content, including technology required for meeting regulatory standards. Here’s one example: if you adjust for inflation the cost of a 2001 Toyota Camry, you see that by 2010, the price of the car to US consumers had actually dropped by $2,500 in real terms—although the 2010 Camry was better equipped and 10 percent more fuel efficient.
Well, yes, but after ten years one would hope to see a much better than 10 percent fuel efficiency gain!
If oil prices rise dramatically—say, to $150 a barrel, as they may well do—you will see equally dramatic changes in the auto industry and in driver behavior. We’ve seen these in the past, but this time there will likely be no turning back to conspicuous, devil-may-care consumption.
The International Energy Agency has been sounding the alarm. The interview below with Fatih Birol, its chief economist, was done last May, and the situation hasn’t changed.
Why are prices destined to rise so much?
Weak inflation and high unemployment force the Federal Reserve to keep money cheap and the dollar depreciating—and this creates higher oil prices. Add in the following:
- tremendous increases coming in global demand (increasing by 40 percent by 2035, says Bloomberg)
- Middle East disruptions likely to continue
- the Fukushima setback to nuclear power
- the climate-change fears (including problems with coal and fracking for natural gas), and
- OPEC’s unwillingness to release any more oil.
Once the oil spike does occur, you’ll hear the outraged outcries from Main Street to Capitol Hill. Such a price hike may be the only way we can get carmakers and consumers to draw down on demand and finally get a serious, workable energy policy that includes all resources and all transportation.
Is it possible, given the total dysfunction of our political system, to get a real, workable energy policy? Even with price hikes?