Why cheap gasoline is a setback for going green

The Globe and Mail

Barack Obama can expect a hero’s welcome when he visits the Detroit auto show for the first time as U.S. President this week. The Detroit Three auto makers owe their current glory to Mr. Obama’s 2009 bailouts of General Motors and Chrysler and the domestic oil boom that occurred on his watch. Almost 650,000 U.S. auto jobs have been added since he took office. New-car sales set records on both sides of the Canada-U.S. border in 2015, after hitting near three-decade lows in 2009.

There is just one very big thing wrong with this picture. Mr. Obama’s grand plan for sparking a transportation revolution with hefty subsidies for electric cars and increasingly stringent fuel-economy standards has been entirely overwhelmed by surging U.S. oil production (and the resulting low gas prices) and consumers’ love of SUVs and pickups, which generate the highest profit margins for auto makers, but which consume the most gas and produce the highest carbon emissions.

The average fuel efficiency of new vehicles sold in the United States fell throughout 2015 to hit 24.9 miles per gallon (9.45 litres per 100 kilometres) in December. Auto makers were supposed to market 2016 fleets with an average fuel economy of 35.5 mpg (6.6L/100km) under a 2011 agreement with the Obama administration that the Canadian government also signed on to. They won’t even come close. The average mileage of cars sold this year is expected to fall again.

The transportation sector accounts for more than a quarter of U.S. greenhouse-gas emissions and a similar, if somewhat smaller, proportion in Canada. This requires the auto industry to be a key partner of governments in reaching emissions-reductions targets. Both Canada and the United States have been banking on higher sales of compact cars and electric vehicles to attain their targets.

Instead, the subcompact-car market is comatose and EV sales are on life support. Both categories of vehicles experienced declining sales in 2015. Despite offering more EV models every year, the auto makers are deeply conflicted when it comes to promoting these vehicles. They lose money on most EVs. And because no large auto maker produces its own batteries, the costliest component in an EV, they prefer selling cars with the gas-powered engines they do design and manufacture. It’s a question of control.

EVs were a tough sell when gas was at $4 (U.S.) a gallon ($1.05 a litre) in the United States. With gas below $2 a gallon, they’re an afterthought. Regulations in California, where auto makers must sell an increasing proportion of EVs or buy credits to offset the sale of gas-guzzlers, have provided some support. But the EV market remains a niche sector that mostly caters to well-heeled Tesla fanatics.
Fewer than 120,000 of the 17.4 million new cars sold in the United States in 2015 were all-electric models. Fewer than 6,000 EVs were sold in Canada in the first 11 months of 2015, accounting for 0.33 per cent of all new-car sales. Adding in sales of hybrids bumps the figures up somewhat, but not enough to signify real change.

Expect auto makers to push for a relaxation of fuel-economy standards that are supposed to reach 54.5 mpg (4.3L/100km) by 2025, wreaking havoc with North American greenhouse-gas targets. Without exponentially higher gas taxes and massively larger tax rebates for electric cars, neither of which are likely any time soon, there is little prospect of consumer uptake of EVs.

Even in China, which has the most lucrative electric-vehicle incentives on the planet, EVs accounted for fewer than 200,000 (according to the most liberal estimates) of the record 21.1 million passenger cars sold last year. EV enthusiasts call China a great success. If that’s what success looks like, the planet is truly in trouble.

In November, the Paris-based International Energy Agency predicted that oil prices of around $50 (U.S.) per barrel through to 2020 would dramatically stall development of low-emissions vehicles, leading the world to forgo “around $800-billion-worth of efficiency improvements in cars, trucks, aircraft and other end-use equipment, holding back the much-needed energy transition.”

When even the greenest president ever touts low gas prices as great news – “Gas under two bucks ain’t bad either,” Mr. Obama said in touting his achievements in last week’s State of the Union address – you can hardly blame U.S. consumers for going on a joy ride. Their love affair with the internal-combustion engine is stronger than ever. That’s what saving the auto industry gets you.


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