Could China's EVs Lead to Peak Oil Demand?

• China's decision on whether and when to ban cars burning gasoline and diesel could alter our view of how far we are from a peak in global oil demand.
• Even though the likely date of such a peak is highly uncertain, the idea of an impending peak could significantly affect investments and other decisions.

A few months ago the British government made headlines when it announced it would ban new gasoline and diesel cars, starting in 2040. That move, which apparently excludes hybrid cars, is further fallout from the 2015 Dieselgate emissions-cheating scandal.

Now it appears that China is preparing to issue a similar ban. With around 30% of global new-vehicle sales, China could upend the plans and economics of the world's fuel and automobile industries. However, it is less obvious that this would lead directly to the arrival of "peak demand" for oil, an idea that has largely displaced earlier thoughts of Peak Oil related to supply.

Some background is in order, because the two concepts are easy to confuse. Peak Oil, which gained considerable traction with investors and the public in the 2000s, was based on the undoubted fact that the quantity of oil in the earth's crust is finite, at least on a human time-scale. Its proponents argued that we were nearing a geological limit on oil production, and that quite soon oil companies and OPEC nations wouldn't be able to sustain their current production, let alone continue adding to it every year.

The presumption that such a peak was imminent has been pretty clearly refuted by the shale revolution, the first stages of which had already begun when Peak Oil was still fashionable. In fact, humanity has only extracted a small percentage of the world's oil resources. We continue to find both additional resources and new ways to extract more from previously identified resources. Global proved oil reserves--a measure of how much can be produced economically with current technology--have more than doubled since 1980, while production (and consumption) grew by 34%.

For that matter, many of the shale plays that today produce a total of more than 4 million barrels per day had been known for decades. Petroleum engineers just didn't see how to produce oil from them in commercial volumes and at a cost that could compete with other sources like oil fields in deep water.

The first mention I heard of "peak demand" was at an IHS investment conference in 2009, when supply-focused Peak Oil was still king. At the time, it was a novel idea, since only a year earlier, oil prices crested just short of $150 per barrel on the back of surging demand and, to some extent the expectation of Peak Oil, and were only tamed by the unfolding global financial crisis.

Peak demand proposes that consumption of petroleum and its products will reach its maximum extent within a few decades, and thereafter plateau or fall. Crucially, it doesn't depend on a single theory, but on a combination of factors that are easily observable, though still uncertain in their future progression: meaningful improvements in fuel economy, even for large vehicles; policies and regulations to decarbonize the global energy system in response to climate change; an apparent decoupling of GDP and energy consumption; and the rise of partially and fully electrified vehicles.

That brings us back to the implications of a ban on internal combustion engine (ICE) cars in China. Considering that China has accounted for roughly a third of the increase in global oil consumption since 2014, this has to be reckoned as one of the larger uncertainties about future oil demand. Even if we're only talking about the equivalent of a couple of million barrels per day of lost demand growth by 2030, OPEC's ongoing struggle to balance a market that has been oversupplied by less than that amount puts the potential impact for oil investment and economics into sharp relief.

China has every incentive to take this step. Its urban air pollution is on a scale that cities like London and L.A. haven't experienced since the 1950s or 1960s. The country's 2015 pledge to limit greenhouse gas emissions was a centerpiece, and arguably the sine qua non, of the Paris climate agreement. If that weren't enough, the country's dependence on oil imports is exploding in much the same way as the US's did in the early-to-mid 2000s.

Perhaps I'm cynical to think that the last point weighs most heavily on China's policy-makers, just as US energy debates hinged on energy security concerns until quite recently. China's oil demand continues to grow, with over 20 million new cars and trucks reaching its roads each year, and the vast majority of them still needing gasoline or diesel fuel. Meanwhile, its oil production is going sideways, at best, as its mature oil fields decline.

Moreover, despite the country's large unconventional oil resource potential there does not seem to be a shale light at the end of their tunnel, because most of the conditions that supported the shale revolution here don't apply within China's state-dominated system. What it does have is plenty of electricity, and multiple ways to generate a lot more.

Let's concede that China's grid electricity, on which most of those EVs would be running, is among the highest in the world in emissions of both CO2 and local air pollutants. Switching China's new cars from gasoline and diesel to electricity won't constitute a big environmental win, initially or perhaps ever. Even under the relatively generous assumptions used in a recent analysis on Bloomberg, it will take the average EV in China 7 years to repay its extra lifecycle carbon debt, unless the country's electricity mix becomes much greener.

That seems realistic but almost beside the point, if China's main aim is to shore up its worsening energy security. Nor should we ignore the industrial-policy angle in such a move. China set out to dominate the global solar equipment market and can claim success, at least based on sales. If EVs catch on as many expect, the ultimate global market for them would be a sizable multiple of last year's $116 billion figure for global solar investment, only part of which relates to solar cell and module manufacturing, where China leads.

So let's assume 100% EVs is a given in China from some point in the next two decades. Does that spell the end of global oil demand growth in roughly the same timeframe? A number of recent forecasts, including those from Shell and Statoil, reached that conclusion even before the news about China's future car market.

It's not hard to envision this point of view solidifying into conventional wisdom, with interesting implications. Among other things, it could result in further cuts to investment in oil exploration and production that various experts including the International Energy Agency already worry could lead to another big oil price spike--well before EVs take off in a big way. It could also reduce R&D and investment in improvements to the conventional cars that will account for the large majority of car fleets and new car sales for some time to come, with adverse consequences for emissions.

When I consider these forecasts I'm struck by how early we are in this particular transition. Global EV sales are still only around 1% of global car sales, and petroleum products account for all but a small sliver of the global transportation energy market. As fellow energy blogger Robert Rapier recently noted on Forbes, "China is a long way from reining in its oil consumption growth."

Meanwhile, the nascent competition between petroleum liquids and electricity in transportation will occur against the backdrop of a much more complex reshuffling of the entire global energy mix. The current stage of that larger transition involves the rejection of coal and its replacement by natural gas and intermittent renewable energy: wind and solar electricity.

An excellent article by John Kemp in Reuters last week placed the shift away from coal in the context of a long sequence of historical energy transitions. As he noted, "Each step in the grand energy transition has seen the dominant fuel replaced by one that is more convenient and useful." Although there are other, compelling rationales for a move in the direction of electric vehicles backed by wind and solar power, it is extremely difficult to see that combination today in the terms Mr. Kemp used.

Pairing EVs with vehicle autonomy might create a product that is indeed more convenient and useful than current ICE cars with their effectively unlimited range and short refueling times. Perhaps it will require packaging self-driving EVs into mobility-on-demand services to beat that standard. It remains to be seen whether such a package would be technically or commercially viable, since even Tesla's "Autopilot" feature is still a far cry from such level 4 or 5 autonomy.

And even if EVs win the battle for car consumers with sustained help from governments, electricity is still an energy carrier, not an energy source. Renewables may go a long way toward replacing coal in the next two decades, but dispensing with both coal's 28% contribution to global primary energy consumption and oil's 33% in such a short interval looks like a massive stretch. Before the transition to EVs is complete, we may see at least some of them running on electricity generated by gas turbines burning petroleum distillates such as kerosene. (The environmental impacts of such a linkage would be significantly lower than running a fleet of EVs on coal.)

So while China's likely ban on internal combustion engine cars certainly looks like a key step on the path to peak oil demand, it could just as easily force oil producers to find new markets. That happened over a century ago, when a much smaller oil industry saw kerosene lose out to electric lighting and was farsighted or lucky enough to shift its focus to fueling Mr. Ford's new automobiles.

Peak demand for oil definitely lies somewhere in our future, regardless of China's future vehicle choices.  However, as a long-time practitioner of scenario planning, my faith in precise forecasts extrapolated from current facts and trends is limited. Whether we are close to peak demand or, as with a global peak in oil supply, continue to push it farther off, will remain subject to uncertainties that won't be resolved for some time. Our best indication of either peak--demand or supply--will come when we have passed it. However, the idea of an impending peak has shown great potential to affect markets and decisions in the meantime.

Rare Earths Not So Rare?

• The bankruptcy of the main US producer of "rare earth" materials signals the end of a multi-year crisis over their global supply and cost.

The announced Chapter 11 filing of US-based rare earths mining and refining company Molycorp effectively marks the end of a crisis that managed to escape the notice of most people. Rare earths are elements of low abundance, compared to the ores of metals like iron and copper. Despite their relative scarcity, they have proved extremely useful in industrial applications including renewable energy technologies. Five years ago it appeared that China had cornered the market on rare earths and was exercising its market power to, among other aims, lure businesses reliant on these minerals to shift their operations to China.

Molycorp's modernization of its rare earth mine in California and subsequent expansion into other aspects of the business were responses to a perceived global crisis. China's restrictions on rare earth exports threatened the economic competitiveness of hybrid and electric cars, wind turbines, non-silicon solar cells, compact fluorescent lighting (CFL), and other devices of interest to energy markets and policy makers.

The situation also raised concerns in the defense industry, due to the importance of rare earth metals and alloys in the manufacture of missile components, radar and sonar equipment, and other military hardware. Governments created or expanded strategic stockpiles for these materials, and took other steps to manage their reliance on supplies from China.

However, as reported by the Council on Foreign Relations last fall, the effectiveness of efforts by the Chinese government to leverage their control of rare earth supplies was short-lived. Its policies led to mostly market-based responses, involving both supply and demand, that undermined China's near-monopoly and ultimately contributed to Molycorp's present financial difficulties.

Molycorp wasn't the only company to bring new supplies into production, or the only one to struggle as the crisis unwound. New supplies were already in the pipeline at the time China restricted its exports, in reaction to price spikes that preceded the policy as global demand bumped up against the output of China's mines and processing facilities. Nor was government control of China's fragmented rare earth industry sufficient to prevent continued exports exploiting loopholes of the restrictions.

Finally, and probably most importantly for both China-based and non-China-based producers, innovators in the industries using these materials found ways to make do with lower proportions of rare earths in permanent magnet motors and generators, or to do without them altogether.

The upshot from an energy perspective is that if anything will slow the expansion of wind and solar power, hybrid cars and EVs, and other alternative energy and energy-saving technologies, it is unlikely to be a shortage of rare earths. They may be rare relative to other industrial commodities, but in the small proportions used it seems they are not rare enough to pose more than a temporary bottleneck.

What Will Fuel Today's Advanced Vehicles?

Last month I attended the annual "policy day" at the Washington Auto Show, which typically emphasizes green cars and related technology. This year it included several high-profile awards and announcements, along with a keynote address by US Secretary of Energy Ernest Moniz.  Yet while the environmental benefits of EVs and other advanced vehicles are a major factor in their proliferation, I didn't hear much about how the energy for these new car types would be produced.

The green car definition used by the DC car show encompasses hybrids, plug-in electric vehicles (EVs), fuel cell cars, and advanced internal-combustion cars including clean diesels. One trend that struck me after missing last year's show was that most of the green cars on display have become harder to distinguish visually from conventional models. For Volkswagen's eGolf EV, which shared North American Car of the Year honors in Detroit with its gas and diesel siblings, and Ford's Fusion energi plug-in hybrid the differences are mainly under the hood, rather than in the sheet-metal.

Of course some new models looked every bit as exotic as you might expect. That included BMW's i8 plug-in hybrid, which beat Tesla's updated 2015 Model S as Green Car Journal's "Green Luxury Car of the Year", and Toyota's Mirai fuel-cell car. The Mirai is expected to go on sale this fall in California, still the nation's leading green car market due to its longstanding Zero-Emission Vehicle mandate focused on tailpipe emissions. 

BMW i8 plug-in hybrid

Toyota Mirai fuel-cell car

Many of these cars have electric drivetrains, increasingly seen as the long-term alternative to petroleum-fueled cars. Although Secretary Moniz pointed out that the US government isn't attempting to pick a vehicle technology winner, there seemed to be a definite emphasis on vehicle electrification and much less on biofuels than in past years.

Another announcement at last month's session addressed where such vehicles might connect to the grid. BMW and VW have partnered with Chargepoint, an EV infrastructure company, to install high-voltage fast-chargers in corridors along the US east and west coasts to facilitate longer-range travel by EV. In making the announcement BMW's representative indicated that EVs will need fast recharging in order to compete with low gasoline prices. With the relative cost advantage of electricity having become a lot less compelling than when gasoline was near $4 per gallon, EV manufacturers need to mitigate the convenience concerns raised by cars with typical ranges of 100 miles or less. 

Getting energy to these cars more conveniently still leaves open the basic question of the ultimate source of that energy.  Perhaps one reason this isn't discussed much is that unlike for gasoline or diesel-powered cars, there's no simple answer. The source of US grid electricity varies much more than for petroleum fuels: by location, by season, and by time of day. However, even in California, which on average now gets 30% of its electricity from renewable sources and has set its sights on 50% from renewables by 2030, the marginal kilowatt-hour (kWh) of demand is likely met by power plants burning natural gas, due to their flexibility. That's especially true if many of these cars will be recharged near peak-usage times, instead of overnight as the EV industry expects.

Based on data from the EPA's fuel economy website, most of the plug-in cars I saw at the Washington Auto Show use around 35 kWh per 100 miles of combined driving. That reflects notionally equivalent miles-per-gallon figures ranging from 76 for the BMW i8 to 116 mpg for the eGolf. On that basis an EV driven 12,000 miles a year would increase natural gas demand at nearby power plants by around 30 thousand cubic feet (MCF) per year. That equates to 40% of the annual natural gas consumption of a US household in 2009. 

To put that in perspective, if we attained the President's goal of one million EVs on the road this year--a figure that may not be achieved until the end of the decade--they would consume about 30 billion cubic feet (BCF) of gas annually, or a little over 0.1% of US natural gas production. With plug-in EVs making up just 0.7% of US new-car sales in 2014, they are unlikely to strain US energy supplies anytime soon. 

It's also worth assessing how much gasoline these EVs will displace. That requires careful consideration of the more conventional models with which each EV competes. While a Tesla Model S surely lures buyers away from luxury-sport models like the BMW 6-series, thus saving around 500 gallons per year, an e-Golf likely replaces either a diesel Golf or a Prius-type hybrid, saving 250-300 gallons per year.  A million EVs saving an average of 350 gallons each per year would reduce US gasoline demand by 22,000 barrels per day, or 0.25%.

At this point the glass for electric vehicles seems both half-full and half-empty. The number of attractive plug-in models expands every year, as does the public recharging infrastructure to serve them. However, they still depend on generous tax credits and must now compete with gasoline near $2 per gallon. More importantly, at current levels their US sales are too low to have much impact on emissions or oil use for many years.

 

A different version of this posting was previously published on the website of Pacific Energy Development Corporation.

A123 Bankruptcy Casts Doubts on EV Goals

The theory was that the federal government could guide an entire US electric vehicle (EV) industry into existence by orchestrating a constellation of grants, loans and loan guarantees to manufacturers and infrastructure developers, along with generous tax credits for purchasers.  That vision was attractive, because EVs have the potential to be an important element of a long-term strategy to counter climate change and bolster energy security. However, yesterday's bankruptcy of battery-maker A123 Systems, Inc. provides a costly reality check. Along with the earlier bankruptcy of another advanced battery firm, Ener1, and disappointing battery-EV sales, it raises new doubts concerning both the government's model of industrial development and the achievability of President Obama's goal of putting one million EVs on the road by 2015. 

A123 was built around a novel lithium-ion battery technology developed at MIT.  For a time they were the darling of the advanced battery sector, with a market capitalization above $2 billion following its 2009 initial public offering. That IPO came on the heels of A123's receipt of a $249 million stimulus grant from the Department of Energy and $100 million of refundable tax credits from the state of Michigan. Subsequently, though, they experienced low sales and a costly battery recall that contributed to their signing a memorandum of understanding with China's Wanxiang Group to sell an 80% interest in the company for around $450 million.  Instead, it now appears that Johnson Controls, a diversified company that was the recipient of a $299 million DOE advanced battery grant of its own, will end up acquiring A123's assets for around $125 million.  Johnson is apparently providing "debtor-in-possession" financing for A123's Chapter 11 process.  It's not clear whether Johnson would be able to draw down the unused portion of A123's federal grant.

Because of the government's close involvement with A123, and in particular its structuring of aid to A123 in a manner that left taxpayers without any call on the firm's assets ahead of suitors like Johnson Controls or Wanxiang, this event is inherently political.  I was a little surprised it didn't come up in last night's presidential debate.  If it does become a "talking point" in the next two weeks, however, I'd prefer to see the conversation focus on the real issues it raises.  The reasons for A123's failure appear very different from those behind the much-discussed failure of loan-guarantee recipient Solyndra.  While the latter ultimately called into question the judgment of officials who loaned money to Solyndra when that company's business model was already doomed, A123 highlights the much deeper challenges involved in attempting to conjure an entire industry out of thin air.

The earlier failure of GM's electric vehicle effort in the 1990s, the EV-1, demonstrated the chicken-and-egg nature of EV sales: Vehicle sales depended on recharging infrastructure that in turn depended on robust vehicle sales to justify infrastructure investment.  But at least GM could begin then by relying on a mature lead-acid battery industry.  Those batteries turned out to be inadequate to meet consumers' expectations of range and recharging convenience, which led to the creation of another chicken-and-egg dependence for the new EV industry: carmakers needed a reliable supply of advanced batteries from producers who couldn't invest in the capacity to make them, without knowing that vehicle sales would consume enough batteries to turn a profit.  So in 2009 the administration set out to short-circuit all those inter-dependencies by simultaneously funding the key elements of these loops, including advanced battery makers.  It makes me wonder if anyone involved had any direct manufacturing experience--a natural doubt considering that the entire US auto industry was restructured in 2009 by a task force without a single member who had worked in any manufacturing business, let alone the auto industry. 

The main causes of A123's failure appear to have involved basic manufacturing issues of capacity utilization and quality control.  The company wasn't selling enough batteries to cover its costs, and too many of the batteries it sold came back in an expensive recall.  They weren't the first business to experience such growing pains, but their challenges were compounded by the burden of a manufacturing line that had been sized to meet the demand of an EV market that hasn't yet materialized. US EV sales through September amounted to just 31,000 vehicles, or less than 0.3% of total US car sales.  The picture looks even worse if you subtract out sales of GM's Volt and Toyota's plug-in version of its Prius, the gasoline engines of which provide essentially unlimited range, circumventing the limitations of today's batteries.  I think there's a strong argument that the government's assistance to A123 was actually a key factor in leading them to bankruptcy, by prompting A123 to grow much faster than could have been justified to its bankers or private investors.

Perhaps it's some consolation that A123's technology has apparently been snapped up by a competitor, rather than going the way of Solyndra's odd solar modules.  Yet that outcome hardly justifies the casual dismissal of A123's fate by a DOE spokesman as a common occurrence in an emerging industry.  That sort of talk merely perpetuates the perception of cluelessness fostered by Energy Secretary Chu's failure to hold anyone accountable for the Solyndra debacle.  Yes, companies in emerging industries fall by the wayside, but the preferred response would be to examine what happened and apply the lessons learned to the rest of the "venture capital portfolio" with which the administration's industrial policy has saddled the DOE.  With EV sales still low and several key EV makers experiencing delays and production problems, a thorough public review of the entire EV strategy is in order.

Election 2012: Romney on Energy

After last week's review of President Obama's energy record and campaign materials on energy, Governor Romney's energy plans present a sharp contrast. They are based on a fundamentally different view of energy and the economy, relying on markets to allocate capital to the most productive opportunities, rather than on government to guide a mix of public and private investments along specific paths towards designated ends. They also emphasize technologies that are already deployed at scale today, not those still under development or striving to attain scale. Implicitly, the Romney plan prioritizes supplying the energy for a robust economic recovery over programs designed to address long-term environmental challenges like climate change. These positions present voters with a serious and consequential choice on November 6th.

The Romney campaign's website on energy arrays the candidate's ideas mainly in words, rather than with the kind of images and interactive features that dominate the Obama campaign's sites. Energy is the first plank of Governor Romney's five-point "Plan for a Stronger Middle Class", though it requires a little work to explore the details of his energy program. A list of bullet points  is backed up by a lengthy policy paper with numerous references to external sources, but you have to look for it.

The Romney energy plan focuses mainly on oil, gas, coal and nuclear energy, which together meet 91% of current US primary energy demand and which the Department of Energy projects will still provide nearly 90% in 2020 under the policies in place today. You won't find much on his campaign's website about the new renewables that generated electricity equivalent to 2% of our energy use last year, beyond a critique of the administration's investment in Solyndra and a commitment to R&D on new energy technologies.

Among the details of his plan are support for expanded offshore drilling, including areas such as offshore Virginia that were originally in the Obama administration's early-2010 offshore development blueprint, along with a comprehensive assessment of US resources using current technology, rather than further extrapolations based on 1980s technology. Governor Romney proposes expanding energy cooperation with both Canada and Mexico and would approve the entire Keystone XL pipeline. His goal of attaining North American energy independence is aggressive, yet recent analysis by Citigroup puts it within the realm of possibility. It appears to be based on an assessment by Wood Mackenzie, a top-notch energy consultancy, indicating that US oil and natural gas liquids output could expand by 7.6 million barrels per day, with 6.7 million of that coming from federal lands and waters currently off-limits to development. That compares to US net petroleum imports of 8.5 million barrels per day in 2011.

Another aspect of the plan aimed at streamlining the permitting of energy projects could be just as useful for utility-scale renewable energy projects as for oil and gas exploration and production. Regulatory and permitting delays are among the key reasons it takes longer and costs more to develop crucial energy and infrastructure projects here than in many of the countries against which our competitive standing has been slipping. Governor Romney also proposes giving states greater control of permitting on their non-park federal lands. That could substantially increase energy access and output, especially in the west, where the federal government owns over 280 hundred million acres, or 37% of those 11 states, net of tribal lands.

There are also some missing elements. I would have liked to see more about how renewables fit into Governor Romney's vision. He apparently supports the Renewable Fuels Standard but is silent about the increasingly urgent need to reform it. He is on record against the extension of the wind Production Tax Credit (PTC), a 20-year old subsidy roughly equivalent to the current price of natural gas, yet misses the opportunity to explain how all types of energy would be treated under his proposal to reduce corporate income tax rates while broadening the tax base--policy-speak for closing loopholes and eliminating incentives. In last night's debate he said, referring to the $2.8 billion in annual tax incentives for oil and gas identified by the Department of Energy, "... if we get that tax rate from 35 percent down to 25 percent, why that $2.8 billion is on the table. Of course it's on the table. That's probably not going to survive (if) you get that rate down to 25 percent." I'd also like to hear more about how Governor Romney would address greenhouse gas emissions once the economy returns to stronger growth.

Superficially, much of the Romney energy agenda evokes a return to the pre-2008 status quo: heavy on oil, gas and coal, light on renewables, and largely ignoring climate change. I see it from a different perspective: When Barack Obama began running for President in 2007, the US was considered by many to be tapped out on conventional energy, with domestic oil and natural gas production exhibiting signs of deep and permanent decline. In that context it made sense to look beyond those resources to the potential of renewable energy and vehicle electrification, even if the transition involved would be lengthy. That approach also appeared synergistic with reducing greenhouse gas emissions, and a strategy was born. In the meantime, however, it turned out that US oil and gas were far from exhausted, and the most productive new energy technology of this decade wasn't wind, solar or biofuels, but the combination of hydraulic fracturing ("fracking") and horizontal drilling that has unlocked hundreds of trillions of cubic feet of shale gas and tens of billions of barrels of shale oil or "tight oil" resources. Since 2008 the expansion of shale gas drilling has added as much new US energy production as over 250,000 MW of wind turbines or solar panels--8x the wind and solar power added in the same interval. To the surprise of many, the big global energy opportunity of the 20-teens is US hydrocarbons. The Romney plan reflects the unexpected energy transformation we're experiencing.

As in 2008, this blog isn't in the business of endorsing candidates. Energy remains an issue that, like the Cold War, demands bi-partisan cooperation and some level of consistency from one administration or Congress to the next. However, that doesn't prevent me from observing that the energy agendas of the two campaigns are not equally well-suited for a period of serious US fiscal constraints and shrinking federal discretionary expenditures, in which our energy security and economic growth will still depend largely on fossil fuels. In that context, it's highly relevant that the "all of the above" credentials of one candidate depend on oil and gas outcomes that his policies did little to support. Of course, energy isn't the only issue that matters, but then you wouldn't be reading this if you didn't think it was important.

Five Stars for Robert Rapier's "Power Plays"

It's a pleasure to have the opportunity to recommend a new book by a fellow energy blogger, especially when the blogger in question has the kind of deep, hands-on industry experience that makes Robert Rapier's work so authoritative.  Robert has been communicating about a variety of energy-related topics for years, first at his own "R-Squared Energy" site, where I encountered him in about 2006, and lately at Consumer Energy Report and at The Energy Collective. You should not assume from the book's title, "Power Plays: Energy Options in the Age of Peak Oil" or the image on its cover that it is just another in a long line of recent bestsellers proclaiming an imminent and permanent global oil crisis.  Robert's description of the risks of peak oil is nuanced and balanced, as is his assessment of the many other timely subjects included in the book.  The chapter on "Investing in Cleantech" is worth the price of the entire book for would-be inventors and investors, as well as for those setting or administering government renewable energy policies and programs. 

In some respects this is the hardest kind of book for me to review.  It covers much of the same territory as my own writing, drawing on similar educational and career experiences, so I'm hardly representative of its intended or ideal audience.  It is also very close to the book that I've long been tempted to write, myself, after well over a thousand blog posts on the same set of topics and issues.  With those caveats, I enjoyed reading "Power Plays", mainly because despite superficial similarities, our perspectives are still different enough that I found it thought-provoking.  I even picked up a few new facts.  And I should make it very clear that although the book certainly reflects the large body of writing Robert has produced over the last half-dozen years or so, it does not read like a collection of recycled blog posts.  It is also as up-to-date as any project like this could be, including assessments of the Keystone XL pipeline controversy, the Fukushima nuclear disaster, and other recent events.

"Power Plays" is structured as an overview of the complex set of energy sources and applications in use today, including their intimate connection to domestic and geopolitics.  (The book includes a sobering, non-partisan analysis of the efforts of eight US presidents to promote energy independence.)  It is also based on an explicit point of view about the need to reduce our dependence on fossil fuels and to attempt to mitigate human influence on climate change, while being exceptionally realistic about our available options and likely success.  Robert has definite ideas on energy policies that would be useful, particularly in guiding our long transition away from oil.  I don't agree with all of them, but they're well-reasoned and well-articulated. 

The book is also very sound on the facts.  I didn't spot any notable errors, with the possible exception of a brief explanation of why hybrid cars are more efficient than conventional cars--in my understanding this derives from the optimization of engine output and the recycling of energy otherwise lost in braking, rather than from inherent differences in energy conversion efficiencies between electric and combustion motors.  Otherwise, aside from the natural differences of interpretation one would expect, Robert delivers 250 pages of straight talk about energy.

One word of warning along those lines: If you come to this book as a firm and uncritical advocate of any particular energy technology to the exclusion of most others, you should prepare either to have your feathers ruffled or find yourself questioning some of your beliefs.  That is particularly true for renewable energy and biofuels, which constitute Robert's current main focus as Chief Technology Officer of a forestry and renewable energy company.  On the other hand, if you'd like to learn more about why fuels like corn ethanol are less-than-ideal substitutes for oil, and why cellulosic biofuel is more challenging to produce and scale up than the promoters of many start-up companies would like you to think, this is a great place to start.  And in addition to the obligatory assessment of vehicle electrification and electric trains, his chapter on oil-free transportation features a serious discussion of bicycling and walking, something it might never have occurred to me to include.  All of this is handled with rigor, ample references, and a leavening of tables and graphs that shouldn't overwhelm those who are more comfortable with words than numbers or data.

I highly recommended "Power Plays" for my readers.  It is available in print and e-book formats from Barnes & Noble and Amazon, where it has garnered exclusively five-star ratings at this point.  I intend to post my own five-star review there when time permits. 

Libya's Ripples for Energy Markets

The unrest that began in Tunisia and Egypt has now destabilized a country that exports important quantities of petroleum, and the oil market is reacting in earnest. With Libya in violent turmoil, UK Brent crude traded above $108 per barrel today, and even West Texas Intermediate (WTI), which has been massively discounted due to excessive inventory at its Cushing, OK delivery point, hit $98 in early trading before falling back to the mid-$90s. Unless events in Libya resolve quickly and positively, oil's price moves will shortly translate into higher gasoline prices. As I considered these events over breakfast, it also struck me that GM and Nissan could turn out to be very lucky indeed in launching their electric vehicles now, instead of a year or two ago when gas prices were lower and less volatile.

The media commentary I've seen so far concerning Libya's oil production has missed some key details that explain why a disruption of exports that in theory can be covered by OPEC's ample spare capacity--currently at a multiple of Libya's output--could be disproportionately large. Instead of focusing on Libya having Africa's largest oil reserves--a fact that is important for the long run but essentially irrelevant in the current situation--what matters is production and exports, and especially the location and quality of the latter. Libya produces around 1.7 million bbl/day of crude oil and exports much of that, due to its small domestic market. As oil companies evacuate personnel, that output will drop, and exports from Libya's ports are at risk of disruption by the chaos unfolding there. The majority of those exports stay in the Mediterranean, where they are key inputs for Italian, French and Spanish refiners. Very little of it comes to the US, for which Libyan oil made up less than 1% of our imports in 2009. So any effect on US markets will be indirect, but no less dramatic for that.

On the surface, OPEC is more than capable of making up for the loss of a bit over 1 million bbl/day from the market, if it wished. However, most of the cartel's roughly 5 million bbl/day spare capacity is on the Arabian peninsula--near another focus of instability in Bahrain, which is no longer an oil exporter. Nor is most of OPEC's remaining capacity of a quality comparable to the typically light, sweet crude types that constitute most of Libya's output. These crudes are well-suited for making the diesel favored in Europe, and it would be difficult for many European refiners to switch on short notice to a diet richer in Saudi grades that are higher in sulfur.

Various analysts have noted that US gas prices were already reflecting higher world oil prices, rather than the lagging WTI indicator. With April gasoline futures trading above $2.75/gal. on the NYMEX this morning, that would yield an effective average US retail unleaded regular price of around $3.45/gal, after factoring in excise and sales taxes and typical dealer margin. That's well above the $3.18/gal. average that the Lundberg Survey reported for last week. It would also be the highest average at the pump since October 2008, when prices were unraveling from their $4-plus peak of that summer.

It's too soon to predict an imminent return to those heights, although no one can gauge what will happen next in Libya, where it's not even clear who's in charge at the moment. (It does seem safe to predict that the US will not lead a NATO invasion of Libya, as Fidel Castro has apparently warned.) Still, it is worth thinking about how consumers might react if the current chaos persisted. The last time gas prices rose sharply, we saw significant drops in both US vehicle miles traveled and gasoline consumption. We also observed a noticeable increase in the sales of hybrid cars, which have lagged recently. There were no mass-market electric vehicles available at the time, but it doesn't require a leap of faith to envision a healthy boost in EV sales from their low initial levels, too. That would be good for both GM and Nissan, which have invested enormous sums--and their corporate reputations--bringing their Volt and Leaf models to market. It might not be so positive for sales of clean diesels, despite their high efficiency, if constraints on Libyan oil tighten European diesel supplies and drive up world diesel prices.

Events in North Africa and the Middle East will determine how high oil and gasoline prices rise in the weeks ahead. If Libya's dictator departs as readily as President Mubarak did, things could settle down quickly, unless the unrest spreads to another major oil producer. It's still too early to call this a new oil crisis, but it's not too soon to consider our options if it proved to be one. Although that would be a very unwelcome shock to an economy just regaining some momentum, we have many more options than in 1979, when the Iranian Revolution sent oil prices to levels that it took nearly three decades to exceed, in real terms.

EV Rebates vs. Tax Credits

Having recently taken a hard look at the cost/benefit of the proposed expansion of federal electric vehicle tax credits up to $19 billion, it naturally caught my attention when I heard that the President was proposing to convert the present system of tax credits into point-of-sale rebates for EVs. Legislation has apparently been introduced to put that into effect, along with a significant expansion of federal grants to manufacturers of EV batteries and other components. Aside from my sense that taxpayers have already subsidized that industry sufficiently for its current stage of development, I have distinctly mixed feelings on the EV tax credit conversion, which seems likely to increase the cost of the program, though it would also increase its fairness.

When the Congress originally established this benefit under the TARP bill in October 2008, it opted for the most conservative of the three main ways it could have provided incentives to purchasers of electric vehicles. First, it chose tax credits rather than cash rebates. That at least provides a time value of money benefit to the government, though it opens the door to a certain amount of fraud. Tax credits also ensure that purchasers must be serious about their investment, since they have to pay more of their own money up front and then wait to recover it when they file their next tax return. But Congress raised the bar even higher by choosing to make the EV tax credits non-refundable. That means that not only must you wait to file your taxes to get the benefit, but the credit cannot exceed your annual tax liability in order to take advantage of the full amount. The last time I checked, that implied that a typical EV buyer would need to earn at least $55,000 per year if single, or $75,000 if married filing jointly--after normal deductions and exemptions. That makes buying an EV with the government's assistance a distinctly middle- to upper-middle-class proposition, at least.

The main advantage of turning the tax credit into a rebate is in making it available to more people, and in the process putting more EVs into the hands of less affluent buyers. That works two ways, by expanding the pool of those who would qualify for the incentive, and also by making it easier for buyers to qualify for financing an EV purchase by reducing the amount that had to be financed. I could envision this putting more people in EVs, sooner than under the current system. Of course that's also its chief drawback, from a taxpayer and federal borrowing perspective. The faster the money is spent, the quicker the deficit grows, or the more taxes must go up--or other programs be cut--to pay for it. It also appears that car dealers are less than enthusiastic about becoming the gatekeepers for this benefit.

Having generally supported the earlier "cash for clunkers" rebates, I was initially somewhat receptive to this idea, even if I didn't see similarly unique circumstances to justify it. However, I'd be a lot more enthusiastic if I thought the change were mainly driven by the imperative to improve our energy security--a logic negated by the paltry amount of oil the first few million EVs will save--instead of shoring up a somewhat arbitrary target that was announced in the recent State of the Union address and has attracted a fair amount of skepticism, including from the car industry that is supposed to execute it. In the end I come down on the side of my fellow taxpayers on this one. Let's leave the tax credit as is and allow the early adopters who qualify for the current version to help bring down the cost of EVs, so that more price-sensitive buyers won't need a $7,500 rebate to afford one later.

The Energy Transition Is Already Underway

Lately I've been struck by the number of new groups and proposals calling for America to begin the transition to cleaner energy. We even heard this call from the Oval Office several weeks ago. Yet while there's clearly much more to be done to wean ourselves from our reliance on oil and other high-carbon fuels, I'm baffled by the suggestion that this process didn't actually begin long ago--not just in the last year and a half--with policies and R&D initiatives put in place by at least the previous two administrations. Perhaps it's fashionable to ignore our progress to date, because acknowledging it serves as a reminder that the process will require decades to complete, and that the end-point might not resemble the one we imagined when we began.

Let's start by recognizing that a massive energy transition is already well under way on many fronts, including the development of advanced biofuels, nearly-mature wind power, highly fuel-efficient vehicles, electric vehicles, solar power that's not just a science fair project, and a range of other technologies and policies for reducing oil consumption and greenhouse gas emissions. These didn't just appear spontaneously; most required literally decades of effort to get to this point. So if we're already headed down this path, rather than arguing about starting out should we rather be asking how much we can do now to accelerate this shift?

Take fuel economy, which seems simple, because we all understand miles per gallon, or think we do. But how many people realize that the incremental fuel savings from higher mpg shrink as mpg increases? The chart below shows the annual fuel consumption for a car driving 12,000 miles per year, about the national average, versus fuel economy in mpg. The improvement in Corporate Average Fuel Economy of new cars between 1978 and 2008, from about 20 mpg to 27 mpg, has already saved a very substantial 160 gal/yr per car, while the increase to 34 mpg by 2016, the new CAFE target, will save another 90 gal/yr. However, advancing from there to 44 mpg, roughly equivalent to the 2012 EU target of 130 grams of CO2 per kilometer, would save only an extra 80 gal/yr. That's no reason not to move ahead with more efficient cars, but we must recognize that we've already captured the steep part of a curve that is now flattening out, as the cost/benefit of each successively-harder increment diminishes, unless they burn no oil at all. That's where biofuels and EVs come in.
The Renewable Fuels Standard established by Congress in 2007 calls for a quantity of advanced and cellulosic biofuels by 2022 that exceeds what we currently get from corn ethanol. The problem is that at this point, after many years of hard work developing these technologies, there is not a single commercial-scale cellulosic biofuel facility design that has been built, tested and certified for profitable replication on the scale required, despite a special production tax credit of $1.01/gal. Nor do I conclude that's for lack of the government, private investors and big companies like ExxonMobil, Chevron, Shell, and BP throwing plenty of R&D dollars at the challenge. Within a few years we might be at the point at which billions of extra dollars for advanced biofuels would result in hundreds of such facilities actually being built, but then plenty of experts thought we would already be at that point by now, including the EPA, which had to ratchet back its cellulosic ethanol quota for this year from a level equal to the annual output of one corn ethanol plant to the quantity that a corn ethanol plant produces every three weeks or so.

The prospect for EVs looks more immediate--though still on a relatively small scale--with GM and Nissan launching flagship models later this year. However, as I noted in a recent webinar, every million EVs running entirely on electricity would save 31,000 barrels per day of gasoline, or about 0.3% of our current usage, and that's assuming they would replace cars getting today's average mpg, rather than Prius-type non-plug-in hybrids, as seems likelier to me. It's going to take a whale of a lot of EVs to make a real difference, and it's not yet obvious that offering more than the current $7,500 in consumer tax credits to buy them, or handing out more than the billions that have already been given to car companies--including some that have never built a mass-produced car--is going to put a lot more of these vehicles on the road in the next few years than would happen under existing policies that are still playing out.

However attractive energy visions such as the President's might be, even to me, there are practical limits to additional activism at a point when so many wheels have already been set in motion. I do understand that the nation is riveted by the oil spill, and that transforming this interest into support for a broader energy agenda could be a once-in-a-generation opportunity. At the same time, I worry about an approach that relies on expanding already-unsustainable financial incentives for clean energy deployment at a time when the deficit has taken on the aspect of a black hole threatening to devour our future, energy and otherwise. To see the energy transition really take off, we must reach the point at which the alternatives are unambiguously better/faster/cheaper than oil, or can at least match its cost and convenience in its primary transportation energy uses, and are not merely better for the environment--as important as that is. We're not there yet, but we've clearly already begun the journey.

Energy Outlook will be on holiday the rest of this week and through the July 4th weekend.

Revulsion vs. Hard Choices

I don't know anyone who could gaze at the images of oil-slimed pelicans, gulls, and sea turtles and not feel revulsion and regret. Yet beyond the urgent need to plug the gushing well, protect the coastline and fisheries, and restore the Gulf Coast environment as rapidly as possible, we cannot allow our entirely appropriate emotional response to this tragedy to overwhelm our judgment. As bad as this spill is, our long-term challenges of energy security and climate change remain worse. We would only compound the damage if we allowed our reaction to this spill and its ripples beyond oil to further confuse our energy policies.

In his column in yesterday's Washington Post, Robert Samuelson sharply criticized the President's effort to harness the public's frustration and outrage against the spill into support for his energy and climate change agenda. Mr. Samuelson raised some very salient points concerning the difficulties of attempting to reduce our consumption of fossil fuels at the same time we must meet the expanding energy needs of a growing economy and population. However, I think he missed the deeper contradiction that has been created by the "strange bedfellows" coalitions that have formed since the middle of the last decade, marrying concerns about climate change to the urgent necessity of improving our energy security. As long as the shared enemy was foreign oil--from "countries that don't like us"--these groups could emphasize the overlaps in their positions and mostly ignore the resulting inconsistencies. But with the reaction to the spill turning the political tide against domestic oil as well as the imported kind--and perhaps, by extension, against natural gas derived from the hydraulic fracturing of shale reservoirs--the convenient overlap between climate policy and energy security could vanish.

If that sounds counter-intuitive, perhaps it's because so much of what we've been told by our leaders concerning our energy options has ignored the fundamental mismatch of scale between fossil fuels and our rapidly-growing renewable energy sources. Consider that while US ethanol production has grown by an astonishing 660% since 2000--an average of 23% per year--it still equates to just 2.4% of our annual oil consumption. Non-hydropower renewables, including wind power, which has grown by an even more remarkable 34% per year since 2000, made up just 3.6% of US electricity supply last year. These facts are crucial to the debate, not because these energy sources should be regarded as inconsequential, but because at their current and anticipated near-future output renewables provide a form of energy currency that can only be spent once. If we want to expand wind, solar, geothermal and biomass power to reduce the greenhouse gas emissions from coal-fired power generation, we cannot spend them again on powering electric vehicles to displace petroleum-based transportation fuels. If we want to leverage biofuels to back out imported oil, we can't spend the same biofuels to take the place of oil we won't be getting from offshore wells we aren't drilling. Someday, biofuels and renewable electricity sources may have grown enough to take on all comers, but that day remains over the horizon. And while nuclear power is already contributing on a much larger scale, its expansion will take many years, particularly if we begin retiring older nuclear power plants like Vermont Yankee in the interim.

Natural gas operates in a similar realm of hard choices, though on a larger scale. It currently accounts for nearly one-fourth of our total energy consumption. Last year, with electricity demand down and gas prices at less than half their level of just a few years ago, natural gas-fired power generation made significant inroads into the market share of coal-fired power. That was good for consumers and good for the environment, but it was only possible as a result of the dramatic resurgence of US gas production from the development of shale gas supplies. Together with coal bed methane and gas from tight sands, these unconventional sources now make up half our domestic natural gas output. Yet as with renewables, if we want to use this additional gas to reduce the 40% of US CO2 emissions coming from the power sector, we can't employ the same gas to displace gasoline in cars or diesel in trucks. And without the contribution of shale gas made possible by "fracking", gas would likely be too expensive to substitute for either oil or coal.

We have a wealth of new and old options for addressing both our greenhouse gas emissions and our reliance on imported oil. However, at this point that bounty of choices does not extend to backing out all oil while still reducing emissions. With biofuels and renewable electricity already fully committed to our established energy priorities, our only large-scale option for foregoing the enormous energy resources embodied in the deepwater oil reservoirs of the Gulf Coast--other than simply ramping up oil imports--would require converting coal into liquid fuels. We have off-the-shelf technology to do this, but unfortunately not yet to contain the large increase in CO2 emissions that would accompany such a strategy. Perhaps before we commit ourselves to anything beyond the shortest suspension of deepwater drilling necessary to ensure that it can proceed safely, we should clarify what our national energy priorities really are. A change in the implicit direction in which we've been heading could have far-reaching and enormously expensive consequences, including for the environment.

Setting Energy Goals

With the failure over the weekend of BP's "top kill" effort, the odds that the oil will continue flowing until relief wells can be completed--in months, rather than days--have gone up considerably. In addition to the accumulating economic and environmental consequences, that also means that media attention on the oil spill and the questions it raises about US energy policy will remain front and center for at least that long. In the absence of any formal effort to guide the discussion, we're likely to end up with the usual array of random energy musings and rants, built around an understandable, if unrealistic message of ending our reliance on oil now. That would be a shame, because this sad situation gives us a unique opportunity to refine our thinking about our energy future when much of the country is focused on it.

One comment that I've heard frequently in the last few weeks is that this spill serves as a reminder that oil companies are drilling in depths of a mile or more of water, far offshore, because the easy oil is mostly gone. There's more than a grain of truth in that view, though the full picture turns out to be rather more complicated. While it's certainly true that the mature oil regions of the US have been drilled like a pincushion for 150 years, and that many of the large, important undeveloped oil resources we know about are on the Outer Continental Shelf, there's still a lot of oil in other places, both onshore and in the nearer offshore, in shallower water, that we've chosen not to exploit. Access has driven development at least as much as geology in the last decade or two. In the US, we've made an implicit decision to focus oil and gas development on the Gulf Coast, not because it had the most resources--though it has plenty--or because it was less-densely populated , but presumably because it had already been developed so extensively. In effect, this approach sacrificed the Gulf Coast--whether that sacrifice was ever envisioned in quite the terms we're seeing today--to give us the oil we needed while preserving the beaches and viewscapes of our other coasts.

There's also an international dimension to this issue of access. At the same time the US offshore oil industry has been constrained in a box with only one open end pointed toward ever deeper water, the publicly-traded international oil companies have been progressively squeezed out of world-class oil opportunities elsewhere, as a result of full or partial nationalization and through competition with national oil companies that are guided not by market forces, but by geopolitical ones. As a result of these parallel trends, the major oil companies have focused their efforts where they retained both access and some key advantages over many of their state-owned competitors, usually in the form of technology or management of complex projects. In other words, they've been pushed to the frontiers, such as the deepwater Gulf of Mexico.

While many lament the powerlessness of the US government to plug the leaking well, and some like Admiral Allen ponder whether the government should acquire that capability for itself--a topic for a future posting--we shouldn't ignore that even without banning deepwater drilling the federal government has the power to shift the industry toward less-risky opportunities by expanding its access to onshore and near-offshore resources that are more attractive and less difficult, but have been restricted for years.

Another common response to the spill relates to the incentives for moving away from oil. If we just had more incentives for biofuels and for electric vehicles, goes this thinking, we could quickly wean ourselves off oil and not only do away with the need to import it, but also to drill for it in such challenging locations close to home. While many of my recent postings have been aimed at showing why this can't happen quickly, I want to disassociate myself from what Tom Friedman calls the "petro-determinist" approach. I'm not here to tell you that breaking our addiction to oil is impossible; if I thought that I wouldn't have spent much of my career working on or promoting alternatives to oil. At the same time, with the current euphoria for cleantech and green jobs, someone needs to remind us that if breaking our oil addiction requires a 12-step program, we are only on about step 2. More importantly, it matters how we get there: Not all paths are equally valuable, and we don't have good enough information to determine which ones will work best in replacing a hydrocarbon-based energy system that evolved over the better part of a century.

Consider vehicle electrification, which depends on batteries. If the goal is putting the largest number of mainly-electric vehicles on the road in the shortest time, then we might be on the right track, handing out extremely generous tax credits for consumers to buy fully- or partially-electric vehicles, along with billions of dollars in manufacturing tax credits, grants, loans and loan guarantees for the factories to build those cars and the batteries they require, in addition to installing the recharging infrastructure they'll need. But if our goal is to reduce oil consumption and the emissions that accompany it, then this approach could be counterproductive, particularly if growing concerns about the availability and sourcing of the crucial raw materials necessary to build today's state-of-the-art electric vehicle batteries are correct. Simply put, the batteries in a Prius-style hybrid that never plugs in save many more annual gallons of oil per kWh of onboard storage than the batteries in a plug-in hybrid (PHEV) or full EV. That's true for two reasons that are a function of physics, rather than economics: a) fuel economy is subject to diminishing returns, in which moving from 25 mpg to 50 mpg saves twice as much total fuel as going from 50 mpg to 100 mpg and b) PHEVs and EVs require a lot more battery capacity per car than conventional hybrids.

What both of these examples share in common is that focusing on specific paths instead of outcomes can be counterproductive and multiply risk, instead of reducing it. An oil policy that started with the recognition that we must produce significant quantities of oil domestically during a lengthy transition to alternative and renewable energy sources, and that asked where the best-placed resources were to provide that supply with the least risk, might arrive at a different answer than one that resulted from a series of isolated decisions to place a growing sequence of oil resources off-limits. Likewise, a fuel economy and emissions-reduction strategy centered on annual fuel savings, rather than rewarding consumers and carmakers for concentrating the largest number of batteries into each vehicle, would better leverage vehicle-electrification technology to reduce our reliance on oil. That's particularly relevant when batteries look like a short-to-medium term constraint and their raw materials might impose longer-term limits until we have better battery technology based on cheap and plentiful raw materials.

If the Gulf Coast spill represents another crisis too important to waste, then it's also one that is too important to relegate to unfocused wishes for an oil-free world within the next few years. The best "use" of the spill is to convene a concrete national conversation on how to provide the US with energy that is as affordable and environmentally-acceptable as we can realistically make it in the in the short, medium and long-term. That will require examining all the trade-offs involved, as well as how the balance between conventional energy and renewables and other alternatives is likely to shift in the years ahead. If that did nothing else but get us clearly focused on outcomes, rather than picking our favorite pathways, then it might constitute a positive outcome from an otherwise miserable episode in our nation's energy history.

FYI, tomorrow (June 2) at 1:00 PM EDT I'll be on a webinar panel hosted by The Energy Collective to discuss the implications of the oil spill for the future of energy. If you're interested, please sign up using this link.

910 Miles Per Gallon*

Yesterday provided one of those occasional treats that makes blogging about energy so enjoyable. In conjunction with the Washington Auto Show, I had the opportunity to drive a demonstration version of the eagerly-awaited Chevrolet Volt around an impromptu test track, accompanied by the Volt's Vehicle Line Director, Tony Posawatz, who answered every question that occurred to me and many that didn't. The experience was exhilarating. For a bona fide car of the future the Volt--even in "pre-production" form--looked and handled like a real car that I could imagine myself driving around town or on a long trip, aside from its impressive technology and efficiency. That's an important distinction, since to be truly successful the Volt and its eventual siblings must be able to compete beyond a niche market of green-oriented consumers.

My test-drive of the Volt was the latest in a series of advanced vehicle experiences that includes driving a Fuel Cell Equinox a couple of years ago and goes back to a spin around Phoenix behind the wheel of an EV-1, GM's first electric vehicle, in the late 1990s. I asked Tony to what extent the Volt incorporated EV-1 technology, and his answer confirmed that while no actual parts were shared, its design philosophy and engineering DNA owe much to that earlier effort.

At first, when I drove the Volt onto the big, empty parking lot where GM had set up its test track for the DC Auto Show, I was disappointed that I didn't sense that immediate high-torque response I recalled from the EV-1--the kick that my GM contacts at the time called the "EV-1 grin." Then Tony pressed the "sport" button, and the grin was back. While my Acura might be able to beat the Volt's 0-60 miles-per-hour acceleration by several seconds, most drivers should be quite satisfied with the Volt's responsiveness and handling, even when compared to the entry-level luxury cars with which the Volt's expected price puts it into contention--and which its energy efficiency beats hands down.

The technical aspects of the Volt are fascinating, starting with the battery pack, which consists of 400 lb. of Lithium-ion batteries configured as "prismatic cells" that facilitate easier heat management than some other designs. That's a critical factor for battery life, since the battery must dissipate a fair amount of heat during its charge/discharge cycles, and its performance and efficiency are affected by ambient temperature. When plugged in, some of the energy the Volt draws from the grid is used to "condition" the battery, not just recharge it. That should help GM deliver on its expectation that the car's battery pack should last for 10 years and 150,000 miles of normal driving, over which its capacity would gradually decline, while still ultimately retaining at least 70% for later use in other, non-automotive applications. The potential after-life value of the battery could be a critical element of the lifecycle economics of a plug-in hybrid or Range-Extended Electric Vehicle like the Volt.

I was particularly interested in the battery's recharging requirements, in relation to the energy density concerns I discussed in last Tuesday's posting. The Volt recharges in two modes: At 240 V and drawing between 15-30 amps, it takes up to 3 hours to restore the roughly 50% of the battery pack's 16 kWh maximum charge used in "charge-depleting" operation--that first 40 miles or so of battery-only driving that provides the car's main selling point. Recharging on 120 V household current takes more like 8 hours. I was somewhat surprised that Tony seemed to share my view that Volt drivers are unlikely to wait until the middle of the night to recharge their cars, unless their highest priority is minimizing their electricity costs (and possibly emissions.) He has apparently been using a Volt on weekends and cited the benefits of daytime recharging at home or office to keep the battery ready for use, consistent with the main purpose of owning such a car.

The switchover from battery-only operation to driving with the onboard generator running was one of the key features I was anticipating, based on my concern that the Volt would ultimately be handicapped in low-battery, "charge-sustaining" operation by its reliance on a fairly small 4-cylinder engine. After all, the performance expectations in the category the Volt aspires to are set by powerful engines similar to the V-6 in my Acura TL, which delivers 270 peak horsepower. Well, you could have fooled me. The Volt I drove yesterday was intentionally given just enough battery charge to last about 3 miles, and when I passed that point and the little engine fired up, there was no discernible change in performance. That's apparently because the car is never really driven by the engine alone, since the battery is never completely drained. The accelerator controls only the flow of current from the battery to the electric motor; meanwhile the car's software runs the engine as needed to keep the battery charged to acceptable levels, but not to recharge it fully. That's a subtle distinction, because when I pushed the car hard in this mode, I heard the engine rev up noticeably with that characteristic 4-banger tone that provided the one discordant note in an otherwise near-luxury experience. But the trade-off was evident when I pulled the car into its tent shelter and switched it off. The cumulative fuel economy display on the dash read a whopping 910 mpg.

That result prompted an interesting discussion about what fuel economy really means in a car like this, which dutifully calculated mpg based on the tiny amount of gasoline consumed in the last lap of several miles of mostly battery-powered driving. I got a sense that GM recognizes the shortcomings of mpg in measuring such a vehicle's energy usage, though they are clearly quite focused on it as the primary metric of both consumers and the existing and proposed federal fuel economy standards. But even knowing intellectually that the car's electric efficiency, which Tony confirmed is in the range of 200-250 Watt-hours per mile, or 4-5 miles per kWh, equates to roughly 58-72 miles per gasoline-gallon-equivalent of natural gas going into a gas turbine power plant somewhere, that 910 mpg still got my attention with its implication of very rare visits to the gas station.

Recently, I indicated that while plug-in hybrids and full EVs might not yet be ready for the mass market, they do look ready for "innovators and early adopters", the folks who routinely queue up for the latest iPhone and long ago swapped out their cable set-top boxes for streaming video. If the pre-production car I drove yesterday, with the further refinements Tony Posawatz hinted would be incorporated between now and then, was any indication, the production cars that reach showrooms late this year should have early adopters salivating in anticipation, particularly with help from a federal tax credit that maxes out at $7,500 per car and for which the Volt should qualify in full. Based on his comments and my own experience with the car, there's every indication that the Volt is on track to meet its late-2010 launch target. I will be eagerly awaiting the first comment reporting that one of my readers has bought one.