The Free-Market Path to Electric Cars
In his state of the union address, President Obama set a national goal to have 1 million electric cars on the road by 2015 through a series of incentives and tax credits. These new products, however, have not managed to compete on a broad scale with traditional automobiles. With that apparent conundrum in mind, the Program on America and the Global Economy (PAGE) hosted a discussion entitled "The Free Market Path to Electric Cars" on Thursday, April 14 to discuss the prospects for electric vehicles in the next decade. Kent Hughes, PAGE director, moderated the event.
Peter Huber, a senior fellow at the Manhattan Institute, opened by signaling that the "stupid, foolish efforts to tax and subsidize what we drive" would not suffice to make electric cars a player in the automobile market. Instead he suggested that a variety of laissez-faire mechanisms could help leverage the vehicles from novelty to reality. Huber brought a toy replica of a Komatsu mining truck—a giant pickup with 12-foot wheels—to demonstrate how a large, powerful car that uses an electrical drive train can run more efficiently with less fuel.
However, Huber pointed to several obstacles that prevent electric cars from reaching a wider market. He noted that "the expensive part is getting electricity from the curb to the wheels," and the electrical grid is not yet prepared to deal with electric cars. Battery technology presents another roadblock, as most current models are heavy and slow to recharge. Huber emphasized that "the cost lies in the batteries" that generally run around $10,000. He estimated that $1 trillion of investment in battery technology and infrastructure would be needed for electric vehicles to become competitive.
The electric grid presents one of the areas where electric vehicles can take advantage of efficiencies inherent in the system. There is a glut of "idle capital" in the electric grid's wires that "stands idle about half the time, and could charge almost all the miles for all cars on the road" if properly managed. Huber argued that this unused power could potentially be captured by batteries. Despite many efforts, the power companies have yet to find an efficient way to conserve this unused power, making it a highly perishable good. Huber suggested that the utilities have a strong incentive to make this unused power commercially accessible, and ought to consider electric cars as the perfect market for their grid excess. If price controls were not issued by a utilities commissioner, he argued, the companies could price their product as airlines do with last-minute seats, selling more power more efficiently.
In place of subsidies or incentives, Huber suggested that utilities ought to be driving the transition to electric cars. Given the incentives for electric companies to sell their excess power, they ought to "meet halfway" with the auto makers. Without private sector initiative the cost will remain high, and Huber offered his cell phone as an example of a product where the company pays for the initial product in order to gain a long-term customer.
Ultimately, Huber argued that governments should avoid tariffs and the kind of industry protection that prevented the merger of telecommunications and computers. Instead, he said that electric companies should be able to operate as private contractors and pocket profits from an expanded infrastructure, as the government allowed telecom companies to do when it enlarged the broadband network.
Max Parness, an Energy and Switzer Fellow at MIT, tempered some of Huber's economics with commentary on the implications of the free-market path. First off, Parness pointed out that the environmental promise of electric vehicles can be suspect if they receive their power from coal. Drivers' "range anxiety" also raises questions of where to place the car-charging infrastructure, how much to install, and who will pay. Lastly, a charging electric vehicle draws about as much power as a household, and Parness stressed that the current transformers cannot support that demand.
As Huber pointed out, it is "not clear at the moment if we should go all the way down the road towards electric." Given their importance and volatility, Parness agreed that it is "hard to say where battery prices will go." While the mechanisms could exist for electric vehicles to become widely used through free-market growth, he invoked a degree of skepticism.
By: John Coit
Kent Hughes, Director, Program on America and the Global Economy