Hybrid Cars, Cleantech, & $40 a Barrel of Oil – Can They Work in a Slow Economy?

A question of more than passing interest to vehicle owners is at what point the price of gasoline becomes so high that owning an electric vehicle becomes a compelling investment. How that question is answered has implications not only for the emerging EV industry, but cleantech in general. To what extent will low energy prices combined with a slow economy result in entire sectors of cleantech slipping into dormancy, if not oblivion? Here are three factors worth considering:

Hybrids never made sense economically, and probably never will unless they cost virtually the same as conventional automobiles. Even when gasoline cost nearly $5.00 per gallon, a high mileage hybrid vehicle was not an investment that could be justified for economic reasons. Suppose a hybrid vehicle averages 50 miles per gallon and costs $10,000 more than a conventional vehicle that gets 25 miles per gallon. This means the hybrid incurs fuel costs of $.10 per mile, and the conventional vehicle incurs fuel costs of $.20 per mile. In turn, this means at a savings of $.10 per mile in fuel costs through driving the hybrid instead of the conventional vehicle, one would have to drive 100,000 miles before they would break even. At $2.00 per gallon, or even $3.00 per gallon, even moderately higher costs for a hybrid vehicle can never be recovered. In general, cleantech products that require a premium over conventional products are not going to survive in this economy. Now that Americans have belatedly realized that accumulating debt is the same thing as spending money, they are only going to be buying things they really need, at a price or payback they can afford.

The recession is just beginning. For example, a typical Californian household can now expect to pay $250/month for electricity and natural gas, at least $250/month for water & garbage service, $250/month for internet, cable, and telephones, and at least $500/month for health insurance. If they own two cars, they can still expect costs of about $250 per month just for car insurance and registration fees. If they “only” owe $250K on their home, they can expect mortgage, insurance and property taxes to add at least another $2,000 per month to their cost of living. This means with no children, no car payments, and no credit card debt, a household has to gross, before taxes, about $60,000 per year. Add decent instead of minimal health insurance coverage, an overpriced home, dependent children, a car payment, and food, clothing, and other basic necessities, and the average middle-class California household now requires an annual income of at least $120,000 per year to stay even. All of the costs cited here are double what they were 10 years ago (despite private sector worker’s incomes remaining flat by comparison), and the reason they were allowed to get so high is because Americans were encouraged in every manner possible to go deep into debt and spend, spend, spend – and this drove the cost of living so high that even ordinary Americans who didn’t accumulate irresponsible levels of debt can barely survive, let alone those tens of millions who are in debt up to their eyeballs.

Will climate change legislation still happen? Don’t count on it. The elites – big government, big labor, and big business, in that order – who enriched themselves, or empowered themselves, or briefly postponed their accountability, or all of the above, by building an economy on unsustainable debt, now wish to further consolidate their power by imposing “carbon taxes.” Based on what is perhaps the biggest and most regressive fraud in the history of the world, the notion that anthropogenic CO2 is going to cause catastrophic climate change, America is supposedly on the brink of transferring additional wealth out of the hands of the crippled masses of ordinary Americans, so it can trickle upwards into the hands of attorneys, CPAs, corrupt or naive scientists, the public sector, select big businesses, bankers, insurance companies, environmental nonprofits, and the “international community.” Despite relentless propaganda, scare tactics, and demonization of any voice of sanity or moderation, it is quite likely Americans will finally realize who the bad guys and liars and opportunists really are, and rise up to stop this giant scam in its tracks. What will that mean for cleantech? What will it mean for environmentalism?

Bob Lutz, Vice Chairman, General Motors
A man who calls it as he sees it.

Bob Lutz, the outspoken and brilliant Vice Chairman of General Motors, who once quite correctly referred to global warming panic as a “crock of shit,” commented recently on the futility of trying to impose fuel efficiency when the price of gasoline is down to $1.50 per gallon: “If you want to fight national obesity,” he said, “you have to increase the price of fatty foods. But the US won’t do that so they force the clothing manufacturers to produce only small sizes.” Along with Mr. Lutz’s insightful comment we might add the following well worn cliche, namely, “you can’t squeeze blood from a turnip.” If a cleantech product or service can’t offer the consumer tangible benefits despite cheap conventional energy and a depressed economy, it is probably going to go away.

Cleantech is indeed challenged as never before, and perhaps what is most regrettable is that for every cleantech business model dependent on unsustainable debt and unfounded fearmongering, there are cleantech businesses that promise undeniably good things; energy independence, elimination of toxic materials and toxic waste, abundant water and healthier food, cleaner air, and in rare and inspiring cases, actual cost savings and viable paybacks. Hopefully as the cleantech bubble deflates, all of these genuinely innovative enhancements to our way of life and our planet will live on, and acquire sustainable momentum when the global economy inevitably recovers.

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