Design strategies

Some argue that radically new vehicle design strategies could have a huge impact on vehicle efficiency. One of the best-known proponents, Amory Lovins of Rocky Mountain Institute, recently argued that "designing and making cars differently emphasizing ultralight weight, ultralow drag, an integrated design can reduce required propulsive power by about two-thirds." He further argues that "new manufacturing and design methods can also make these radically more efficient vehicles cost-competitive and uncompromised."25

Such claims so far exist mainly at the "concept car" level. By way of comparison, "GM introduced the first fuel cell-powered concept vehicle nearly 40 years ago," as the company stated in a recent advertisement.26 Radically different car designs not only require taking head-on the huge incumbent advantage of the sunk cost in the existing vehicle manufacturing infrastructure which is especially problematic since early models of new vehicles typically have not achieved economies of scale and thus have a large cost disadvantage. At the same time, radically new vehicles must overcome obstacles related to public acceptance and concerns about safety

It may be that ultralight weight cars can be built as safe as existing cars, but the overwhelming public perception is that heavier cars are safer. There is little evidence at least in United States that people are ready to embrace ultralight weight cars. While small city cars that are commonly found in foreign capitals are not exactly the same as an ultralight, their complete absence from US roads suggests that the introduction of vehicles that weigh the same as city cars, even if they are larger, will be a difficult sell unless there is a fundamental change in the car-buying public. Until we see ultralight weight vehicles from multiple car companies succeed in the US market, it would be unwise to basic government policy on the hope of their success.

Currently, there is scattered anecdotal information that oil at $40 a barrel and gasoline at $2 a gallon is slowing sales of large SUVs (such as GM's Hummer) and spurring buyer interest in hybrids.28 The fuel bill for the average American car is only about $100 a month, so even significant increases in the price of gasoline have small impacts on the budgets of consumers or the total annual operating costs of a vehicle. That is perhaps a key reason why for many years fuel economy has ranked relatively low on the list of desired attributes for a car. It is also a reason why gasoline taxes are not a potent policy tool.

Much higher oil prices could certainly influence consumer behavior to choose a different mix of vehicles. However, the rule of thumb is that a $1 a barrel price increase translates into a price increase of about 2.4 cents per gallon of gasoline.29 So oil prices would have to approach $80 a barrel before the United States even saw gasoline prices near European levels. It seems unlikely such prices will be seen anytime soon for sustained period of time, especially since many forms of unconventional oil are already becoming economical at current prices, and technology continues to 8 improve to lower their cost.

30 Rather than an oil peak, we may well see an oil plateau, where carbon-intensive unconventional oil hold off the inevitable decline in conventional oil. We believe that it is far more likely that global warming will be the catalyst for behavior change. Certainly there is little if any evidence today that global warming influences the car purchases of U.S. consumers. And given how slowly the climate changes, it could well be two decades (or more) before climate change becomes so painfully obvious as to change the way people think about their major energy-consuming purchases.

If we are going to avoid serious climate change, the government needs to act now, rather than waiting and hoping for a major, permanent change in the public's vehicle tastes. If their were a carbon cap or tax resulting in a price for carbon of $50 per metric ton, that would add 1.3 cents per kilowatt-hour for coal power plants with 34% efficiency, 0.5 cents per kilowatt-hour for natural gas power plants with 53% efficiency, and only 12.5 cents per gallon to gasoline.31 So again it would probably take a prohibitively high price for carbon to drive gasoline prices just to European levels.

A cap and trade system phased in predictably over an extended period of time that led to a moderate price for carbon, $50 to $100 a ton, is probably a critical strategy for driving fuel switching in the electricity and industrial sector, but its effect on the price of gasoline (and electricity for that matter) would be too small to encourage much efficiency. Thus achieving significant greenhouse gas reductions in the transportation sector in the medium-term will almost certainly require government mandates or regulations aimed at raising the average fuel economy of the fleet.