[Caoimhan]

This article discusses a number of technologies that have been discussed here, as well as some of the economic issues surrounding those technologies. I think it's a very well written piece.
$this->bbcode_second_pass_quote('', 'S')ource: Wall Street Journal 12/14/2005; Author: Holman W. Jenkins Jr.
(Copyright (c) 2005, Dow Jones & Company, Inc.)
Since we're still on the subject of fuel mileage -- or at least still responding to email after a column two weeks ago on the Toyota Prius -- let's spill a few more gallons of petroleum-based ink.

The Prius is a nifty gadget and comes with lots of extras. But Toyota markets the vehicle on its fuel efficiency, and fans tout its fuel efficiency. And our point was to debunk the idea that saving gasoline is a virtue independent of economics, such that it makes sense, say, to spend a buck to reduce gas use by 50 cents.

Edmunds.com, the auto shopper site, guided us to Honda's Civic and Toyota's Corolla as conventional alternatives to the hybrid Prius. This was the source of our claim that the Prius retails for $9,500 more than comparable vehicles. In its own research, Edmunds concluded a Prius owner would have to drive 66,500 miles per year or gasoline would have to jump to $10 for the purchase to pay off.

But don't take our word for it. Kazuo Okamoto, Toyota's research chief, recently told the Financial Times that, in terms of fuel efficiency, "the purchase of a hybrid car is not justified."

Now, as an economic matter, overpaying for the privilege of saving gasoline is simply a subsidy to other gasoline consumers. Also as a regulatory matter: Thanks to the special genius of our corporate fuel economy rules, Prius buyers directly underwrite Toyota's ability to sell more SUVs and pickups in the U.S. market without paying the fines that Mercedes, BMW and Volvo long ago accepted as a cost of doing business in the U.S.

But doesn't saving oil have benefits beyond the dollars saved -- for instance, postponing the doom of civilization?

No: If Prius owners consume less, there's less demand, prices will be lower and somebody else will step up to consume more than they would at the otherwise higher price. That's the price mechanism at work. Oil is a fantastically useful commodity. Humans can be relied upon to consume all the oil they'd be willing to consume at a given price.

But wouldn't using less oil make us less dependent on Mideast imports?

Just the opposite: In the nature of things, the cheapest oil is consumed first, and Mideast oil is the cheapest. Drive a Hummer if you want to reduce America's reliance on Arab oil. Indeed, if we could all just pull together and drive gasoline prices high enough, we'd be able to satisfy all our fuel needs next door from Canadian oil sands.

Let it also be noted our primary political interest in the Middle East over the past 50 years has been Israel, which has no oil. Even Saddam would have been delighted to sell us all the oil we wanted if we had been prepared to acquiesce in his extracurricular depredations. Our attempt to reform Iraqi society is costing us many multiples of the real value of Iraqi oil exports to the world market.

To wit, let's not underestimate the degree to which our overseas entanglements are despite our interest in oil, rather than because of it.

Not that Toyota is to blame for the mystification of energy economics, which is a hardy perennial without which the nation's pundits could hardly make their gardens bloom on a semi-weekly schedule year after year. Take a bit of fluff from a group called 40mpg.org, a subsidiary of the Civil Society Institute. It recently put out a list of 89 vehicles made by major global auto makers that rate 40 miles per gallon or better.

These cars include the Ford Fiesta, Volkswagen Lupo and Toyota Yaris, none of which is available in the U.S. Only two vehicles sold in the U.S. get 50 mpg or better, compared to 39 such cars overseas. The group underlined its polemical point with a poll purporting to show that 88% of Americans believe "U.S. consumers should be able to get the best of the more fuel-efficient vehicles that already are available in other countries."

Try not to be bowled over by the paradox: In the hyper-competitive U.S. car market, manufacturers are withholding fuel-efficient cars that Americans would be eager to buy.

All this really proves is the pollster's facility for getting large majorities to affirm views at odds with their own behavior. Such fuel scrimpers sell in Europe because gas retails $5 a gallon, thanks to petrol taxes that feed the welfare state and keep the autobahns clear of poor people. Americans make an equally sensible decision, in dollars and cents, when they skip over fuel efficiency in favor of features more important to them, such as size, comfort and horsepower.

Several Prius partisans emailed to say they purchased their cars not to save money but to save the earth, or at least make a statement about doing so. That's a perfectly good reason to buy a car (as is wanting to meet girls). However, we doubt their Hollywood coreligionists would be so keen on solidarity if it meant driving around town in a Ford Fiesta.

In any case, fuel economy plays an ambiguous role in the fight against air pollution. Our considerable progress against the traditional pollutants has come by specifying allowable emissions per mile driven, not per gallon consumed. Meanwhile, CAFE rules raise the cost of a car while reducing the cost of operating it. Being rational even when they don't meant to be, consumers respond by getting more use of out their cars -- driving 15,000 miles per year, up from 10,000 since the rules were adopted. (And auto makers have met this demand by greatly improving vehicle reliability.)

That leaves carbon dioxide, aka greenhouse gas, to support the increasingly rickety rationale for treating fuel efficiency as a socially desirable end in itself. Here, we can only suggest Prius fans might do the planet more good by convincing the American public of the merits of nuclear energy, the closest thing to a genuinely "green solution" to energy challenges in the real world.

[emersonbiggins]

$this->bbcode_second_pass_quote('Caoimhan', 'S')uch fuel scrimpers sell in Europe because gas retails $5 a gallon, thanks to petrol taxes that feed the welfare state and keep the autobahns clear of poor people.

[Wildwell]

*sigh* Sounds like another load of excuses not to do anything...A few factual errors there: First up, I recently read a report that the 'tax credits' welfare system was enabling less well off people to run cars more, so the welfare state is clogging up the highways. Next according to Leeds University, in a report called 'Surface Transport Costs and Charges study' in high tax Britain:

Cars cover between 33 to 45% of costs, with a similar range of ratios for vans. HGVs (trucks) cover between 40 to 75% and buses and coaches 65 to 80%. And In 1998, rail passengers covered approximately 85% of costs, with rail freight revenues exceeding costs by just over 10%. BTW rail fares have just gone up 6% above the rate of inflation this last year, so those passengers are more than covering their true costs. As for everyone else, even here, in free market terms, we are subsidising it!

Obviously if the US government wishes to subsidise large cars even more, and give the oil and auto companies breaks that's up to them. Large cars might be important now, but post peak they will become an utter liability on ordinary people, car companies should make more efficient models available and let people choose.

[Caoimhan]

I agree that that little section is a little disingenuous. I know plenty of "poor people" who drive in Europe. They just don't do it very often. The public transit is robust enough to provide adequate transportation for them to get to work. They break out the car occasionally to head to a recreation location.

The way it's worded, it makes it seem like it's being done by design, merely to keep the poor off the roads. While that may be an effect of high gas prices, it's not necessarily done for that purpose.

[tsakach]

$this->bbcode_second_pass_quote('', '
')Kazuo Okamoto, Toyota's research chief, recently told the Financial Times that, in terms of fuel efficiency, "the purchase of a hybrid car is not justified."

[Hegel]

Comparing everyday BMWs with a sports-car like the Corvette??

Am I missing something here?

[Daryl]

Author is a straight up auto industry hack. Had no idea they loved Jevon's Paradox so much.

[Caoimhan]

$this->bbcode_second_pass_quote('tsakach', '')$this->bbcode_second_pass_quote('', '
')Kazuo Okamoto, Toyota's research chief, recently told the Financial Times that, in terms of fuel efficiency, "the purchase of a hybrid car is not justified."

[Daryl]

$this->bbcode_second_pass_quote('Caoimhan', '')$this->bbcode_second_pass_quote('tsakach', '')$this->bbcode_second_pass_quote('', '
')Kazuo Okamoto, Toyota's research chief, recently told the Financial Times that, in terms of fuel efficiency, "the purchase of a hybrid car is not justified."

[Caoimhan]

I think it's ludicrous that you condsider this an auto-industry propoganda piece. This takes the auto industry pretty soundly to task.

[emersonbiggins]

$this->bbcode_second_pass_quote('Caoimhan', 'I') think it's ludicrous that you condsider this an auto-industry propoganda piece. This takes the auto industry pretty soundly to task.

[TommyJefferson]

Good article Caoimhan.

I laugh when I see Prius owners on other forums strutting about, looking down their noses at the heathens as they crow about how much money they are saving due to high fuel prices.

If pressed hard by a knowledgeable person, they finally admit that a Prius actually costs more to operate than a non-hybrid, does not help the environment, and really they just purchased one to look cool among their tree hugger friends.

I've seen it many times. The positive image the general public has about hybrids is a thin veneer. Yet, hybrid owners never hesitate to exploit it for their vanity. I admit, I enjoy seeing them called out.

[cube]

Is it me being paranoid or has there been an unusually large number of American op-ed writers in the auto industry that have been downplaying hybrids? Maybe it's b/c American car companies have no vested interest in hybrids b/c they're still trying to push their SUV's out of the dealerships. Maybe it's b/c American car companies completely missed the boat and didn't see the hybrid craze comming. While the Japanese were quietly developing hybrid technology 10 years ago GM and Ford were cooking up plans for larger SUV's.

Talk about a case of bad business strategy. This reminds me of the American music industry today feeling extremely bitter over Apple itunes/ipod's success with internet music downloads. Had the music industry spent their money on developing an internet download service 5 years ago instead of sending an army of lawyers to bust college students and ram music CD's down their throats....they could of created their own version of the "ipod"....and apple computer company as we know it today would probably be bankrupt instead of enjoying it's smashing success.

Is the music industry feeling sore?
Is GM and Ford feeling sore that they have to give "employee discounts" to everybody to sell their SUV's while the Japanese have customers on waiting lists to buy their cars?

[emersonbiggins]

$this->bbcode_second_pass_quote('cube', '
')Is GM and Ford feeling sore that they have to give "employee discounts" to everybody to sell their SUV's while the Japanese have customers on waiting lists to buy their cars?

[Daryl]

$this->bbcode_second_pass_quote('Caoimhan', 'I') think it's ludicrous that you condsider this an auto-industry propoganda piece. This takes the auto industry pretty soundly to task.

[Kingcoal]

Wow, I'm so relieved!

[Eli]

That is a typical report find a reason for the decline whatever it may be it really doesn't matter.

The real reason we are seeing oil going down is because of margin calls and their are many people now betting we are headed into a recession and think we will have significant decline in oil demand.

These are professional traders I am talking about, a lot of them however have no idea what the fundamentals are behind oil.

[kevincarter]

Yeah, they'll increase production and everything will get back to normal... Didn't they already said they were going to increase something like 600k barrels a day and then they decreased something like 200k?

[lorenzo]

Luckily, this blackmail, this idiocy of a small group of dictators opening their mouths and traders falling for it, will soon end.

OPEC will soon lose its monopoly, and then this speculative madness will finally end, once and for all:

http://peakoil.com/fortopic33699.html

[DantesPeak]

Quite a vague statement:


$this->bbcode_second_pass_quote('', 'T')he markets may have stumbled on a possible trigger to induce some justified profit-taking," said Edward Meir, an analyst at MF Global, in a research note. "This is coming our way from none other than the Saudis, who let it be known over the weekend that the cartel, in fact, could 'discuss' a quota release, although it was not clear to which meeting they were referring to," Mr. Meir said.