In 2011, General Motors (GM) failed to meet its projected sales volume of 10,000 for the Chevy Volt, shipping a mere 7,671 of the vehicles. Moreover, between December 2010 and May 2012, Nissan was only able to sell 32,000 Leafs. To put things in perspective, GM sold 415,130 Silverados in 2011 alone. However, in 2011, the federal government provided approximately $135 million in subsidies to purchasers of these electric cars. If the Obama Administration reaches its goal of getting 1 million “green” automobiles on the road by 2015, then the cost of the subsidies will rise to $10 billion.
The reason that subsidizing industries or products is frowned upon by many experts is that the costs imposed on taxpayers outweigh the gains of those participating in the subsidized market. But make no mistake; the subsidies increase the producer surplus, which is why firms invested in green energy are so supportive of them. The problem with subsidizing electric cars boils down to this – electric vehicles are not economically competitive.
The cost of one barrel of crude on August 2, 2012 was $87.13, significantly less than it cost on March 9, 2012, when prices were sitting at $107.40 per barrel. This is important because as long as oil prices remain relatively low, electric vehicles, and “green” industries in general, will remain uncompetitive. In other words, as long as gas prices hover around $3.55, people will continue to shun electric cars. Those hoping for a “green revolution” will also be disappointed to hear that world oil production is set to rise of the next decade. Harvard’s Belfer Center released a report earlier this summer predicting that the current world oil production capacity of 93 mbd would increase 110.6 mbd by 2020. Leonardo Maugeri, author of the report and former oil-industry executive, speculated an increased production capacity could lead to a “glut of overproduction and a steep dip in oil prices.”
So, if the Obama Administration really wanted to make electric cars the future of driving, all they would have to do is drive up the oil prices. Since the oil prices are fine as they are, this rushed revolution would have to be caused through artificial means. For instance, provoking Iran into blocking the Strait of Hormuz would be an easy way to make electric cars more competitive with normal cars. If this had been done on July 11, 2008, when oil prices were already at $145.08 per barrel, the “green revolution” may have actually taken off. But Obama wouldn’t dare do that, for one simple reason – oil companies have more lobbying clout than the green industry. Just to highlight this point, Obama alone has received 1,626 contributions totaling $933,443 from oil and gas companies since 2008.
But what purpose do the subsidies serve? Basically, the government has been pouring taxpayers money into green projects, which they know will fail, and, in return, the producers profiting off of the subsidies have been providing reelection funds to the politicians. Since 2008, GM has provided Obama with 116 campaign contributions totaling $47,375. Nissan hasn’t been as generous, but has rewarded Obama with 28 contributions totaling $22,225 for the same period. Just as a fun fact, I would like to note that, in 2009, Obama invited Carlos Ghosn, CEO of Nissan, to run General Motors. The Obama Administration has essentially been converting taxpayers’ money into campaign contributions. The best part is, Obama has been able to do this while convincing voters that he really only cares about the environment.
Adam Ondo | University of Rochester | @JoplinMaverick
The “Green” alternative energy projects have created another unintended consequence that is unpalatable in my opinion. The giant wind turbines are killing birds of all kinds, along with other airborne species, in record numbers. These giant machetes are decimating Gods’ magnificent creations that will never come back to their successful numbers. What price are we willing to pay for these dreadful slaughters before we say “STOP?”…enough already. I do not hear a “peep,” from the Audobon Society, anywhere on the news circuits on this tragedy. This year, my hummingbird summer visitors number 6. In all the past summers, we have enjoyed at least 12 to 16. This just breaks my heart! I beg Gods’ forgiveness for the people ignoring the unintended consequences the turbine blades have caused. There is plenty of evidence and many photos posted to prove the slaughter. Shame, shame, on the people ignoring this and pushing for more and more of them. If birds go, humans will follow. There will be rats, snakes, mosquitos and much worse. All for “Grrreeen.” Pity! Unforgivable!
Nice job with the research. Well presented. There is one more area that is usually missed in these conversations: Research would show that there is actually a net loss in energy savings building an electric or hybrid car as compared to building a 40mpg conventional drive car (Hyundai Elantra, for example). The cost of producing a product is largely comprised of the cost of the energy to build the product. In this case, there are approximately 25 pounds of rare earth minerals required to manufacture the hybrid drive components in each Prius. It takes massive mining and refining costs to obtain 25 pounds of rare earth minerals from thousands of tons of raw ore. Also, this mining is devastating to the environment where the mining takes place. However, since approximately 85% of these minerals are mined in China, the environmental impact is simply ignored in the equation.
That would be an interesting research aspect if you have the time to pursue it and note your resources.
Thank you,
Jason
Jason,
Thanks for underscoring that important piece of information. I neglected arguments about the actual benefits of hybrid cars because I was focused more on the political aspects, but your point is very good. I will have to check it out, because the mining does probably increase the costs to the point that the costs outweigh the benefits.
Sincerely,
Adam