Cheapest Gasoline Ever?

Last week the Energy Information Administration  (EIA) reported that the $2.43 per gallon average US retail price for regular gasoline in 2015 was the lowest since 2009. A quick look at the EIA's handy page for comparing nominal and real fuel prices over time shows that last year's average, when adjusted for inflation, was actually the cheapest since 2004. A recent article suggested that current prices are lower than those in the mid-1960s, in the heyday of the American love affair with driving. I've lost the link, but that factoid checks out, too. However, even this understates the bargain currently on offer at the gas pump.

The price of gasoline is still one of the most visible prices in the US, prominently displayed on gas station signage and roadside billboards across the country. However, it only captures one aspect of how much motorists really pay, just as measuring fuel economy in miles per gallon misses the economic impact of driving. A few years ago I ran across a metric that combines these factors into a simple gauge of driving cost: miles per dollar, or mp$.

The chart below incorporates EIA data on inflation-adjusted fuel cost and data from the National Highway Transportation Safety Agency (NHTSA) on actual fleet corporate average fuel economy (CAFE) performance for each model year of passenger cars--not SUVs or light trucks--to display average mp$ for the last four decades.

Taking last week's average price of $2.03 for unleaded regular and using 36.4 mpg for the 2013 model year (the latest on NHTSA's site), today's fuel cost of driving is cheaper than at any time since 1978--and maybe ever. The 18 miles per dollar I calculated just beats the previous peak of mp$ in the late 1990s, when fuel economy was around 28 mpg and gas prices averaged barely over $1, due to the effects of the Asian Economic Crisis. By comparison, the $0.31 per gallon that motorists paid in 1965 was downright expensive, after adjusting for inflation and factoring in the low-to-mid-teens fuel economy of cars of the day.

Miles per dollar is also handy for comparing driving cost on gasoline to the cost of operating vehicles that use other fuels or electricity. When I first looked at miles per dollar in 2008, electric vehicles were significantly cheaper, per mile driven, than cars running on gasoline or diesel, even hybrid cars like the Prius. That gap still exists, but it has narrowed. At an US average residential electricity price of $0.126/kilowatt-hour last year, a Nissan Leaf or Chevrolet Volt would get around 26 mp$. However, in New England and other parts of the country with significantly higher-than-average electricity prices, the miles of driving that an EV can deliver per dollar of energy used could be less than that for gasoline in some locations.

A few caveats are in order. Based on data from the Transportation Research Institute at the University of Michigan, new-car fuel economy has slipped 0.8 mpg since oil prices started falling in the summer of 2014. And in any case, new cars are typically more efficient than the entire US car fleet, which includes older vehicles and substantial numbers of SUVs and light trucks. The Consumer Price Index is also an imperfect tool for comparing prices over long periods of time, because the Bureau of Labor Statistics periodically changes the components of the "basket" of goods and services that go into calculating the CPI.

None of those issues seems big enough to alter the basic conclusion that the gasoline cost of driving is exceptionally, perhaps historically cheap at the moment. If oil prices stay "lower for longer", as some experts expect,  changing the make-up--and thus the emissions--of the US car fleet is likely to be an uphill battle.

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.

Comparing Driving Costs of EVs and Conventional Cars

• A new Department of Energy website helps consumers compare the energy costs of EVs to non-plug-in cars by converting kilowatt-hours into "eGallons".
• How valid this proxy is depends heavily on assumptions about the cars being compared to EVs.  If hybrids set the bar, then DOE's eGallon prices are significantly understated.

I’ve been looking through a new website developed by the US Department of Energy (DOE) to assist consumers in comparing the energy costs of driving an electric vehicle (EV), relative to posted gasoline prices in their state. I heard about this site at the US Energy Information Administration’s (EIA) annual energy conference in Washington, DC last month. It sounded like a handy tool for both current EV owners and those considering buying one, but I couldn’t help thinking about it in the context of a presentation I saw at the same conference on the cost effectiveness of federal tax credits for EV purchases. A key question in both instances concerns just what kind of car is being replaced by that new EV.

The website uses simple math, together with the EIA’s continuously updated data on gasoline and electricity prices around the country, to come up with a national and state-by-state price for an “eGallon”. This imaginary construct is essentially the quantity of electricity that would take a typical EV as far as a gallon of gasoline would take the average new conventional car. As the text points out, it’s hard for consumers to calculate this for themselves. They see gasoline prices everywhere they drive but must dig through their utility bills to find their electricity price–not always obvious–and then might not know how to compare the two.

The site’s documentation indicates the eGallon calculation is based on the average energy usage of five specific EVs, including the Chevrolet Volt, Nissan Leaf, and Ford Focus EV, along with the 2012 EPA fleet average fuel economy for what EPA defines as small and mid-size cars. The result is side-by-side postings of the US average gasoline and eGallon prices, plus a drop-down menu to replicate that for each state. The site also includes the chart below, comparing these two prices over the last decade.

Two facts become immediately apparent. First, electricity is generally a cheaper fuel for cars than retail gasoline. That’s true for a variety of reasons, including the higher end-use efficiency of electric motors compared to internal combustion engines and the lower cost of most of the fuels used to generate electricity in the US. For example, the natural gas burned in power plants sold for the equivalent of $ 20.40 per barrel last year, while the global benchmark for oil averaged nearly $112/bbl. It also appears to be less volatile, at least at the level of national averages.

However, just as there’s no single gasoline price for the whole country, neither is there a single electricity price. Even the state averages used by the DOE to calculate eGallon prices mask a bewildering variety of regional electricity price tariffs and tiers. So your cost to recharge an EV might not just vary by location, but by time of year, time of day, and the specific rate plan that applies to you.

My main concern about the site derives from something much simper: the big central assumption that EVs compete with the average cars sold in America last year. According to the eGallon site, the average small-to-medium US car in 2012 got 28.2 miles per gallon (mpg) in combined city and highway driving. Using that figure, and with residential US electricity prices averaging 11.6 ¢/kilowatt-hour (kWh) in March 2013, the national eGallon price for March would have been $1.14/gal., compared to $3.71/gal. for unleaded regular gasoline. But what if we assumed that the cars most often compared to a new EV were not average cars, but other efficient cars, as logic and my intuition suggest? If we substituted the fuel economy data for a conventional Ford Focus or Toyota Prius hybrid, the eGallon price would jump to $1.26 or $2.03, respectively.

In some respects this result is fairly obvious. If you were already contemplating buying a hybrid, an EV won’t save you as much as if you were thinking of buying a conventional mid-size sedan. However, this distinction is important enough that the DOE should consider refining its eGallon calculator. EVs are much like wind and solar installations that cost more than conventional alternatives, but are expected to produce over their lifetimes economic or environmental benefits that offset those higher costs. The attractiveness of that big up-front investment is directly proportional to those benefits. I don’t have the data that would clarify the actual comparisons EV buyers are making, but someone must, perhaps including DOE. And it turns out that this isn’t just important for calculations like eGallon, but also for assessing the cost-effectiveness of federal EV policy.

That brings me to the Congressional Budget Office’s analysis of federal EV tax credits last fall. The report merits a posting of its own, but one nugget I gleaned from the presentation at the EIA Conference was that the CBO found that the current federal credit of up to $7,500 per car was still insufficient to make most EVs cost-competitive on a full-life basis with conventional cars. Yet despite this, the effective cost to taxpayers of each gallon of gasoline saved by a Leaf-type EV was well over $6 when compared to conventional cars getting average fuel economy, and over $10 vs. high fuel-economy compact cars. That’s assuming they save any gas at all, because of the way the Corporate Average Fuel Economy rules have been structured. Implied costs for greenhouse gas emissions avoidance were even more startling, at over $400/ton of CO2 in most cases.

The desirability of a tool like “eGallon” is rooted in the convoluted way we talk about transportation fuel economy and energy costs in this country. Miles per gallon is itself a poor metric, compared to something like gallons per 100 miles, or even miles per dollar. That's because it obscures the high value of modest improvements in high-consumption vehicles, while exaggerating the value of shifting from very efficient to ultra-efficient cars. It’s also more useful for policy makers than consumers, who are ultimately concerned about outcomes in dollars per mile or dollars per trip.

Recognizing the impracticality of training 300 million consumers to think about this subject differently, eGallon might prove useful, but only as long as it is grounded in the best information we have about the vehicle choices that potential EV buyers are actually considering. Since current EV incentives apparently provide a poor return to taxpayers, an overly simplistic tool that drives consumers too far in that direction might be worse than not having such a tool at all.

A different version of this posting was previously published on Energy Trends Insider.

Flex-Fuel Competition for OPEC?

An op-ed in this morning's Wall St. Journal by former CIA Director James Woolsey makes an interesting and seemingly pragmatic suggestion for improving America's energy security. Instead of pushing new energy sources or new fuels, he seeks to break OPEC's cartel power by ensuring that US motorists have more choice at the pump, facilitated by flexible fuel vehicles (FFVs) that can operate on a variety of energy sources. The analogy to the electricity grid, in which no single source of generation can hold the entire market hostage, is clear. The question is whether this is really as useful as it sounds, to the point of justifying legislation that would force carmakers to make fuel flexibility the default, rather than an option on new cars.

Competition can be a powerful force, and Mr. Woolsey is correct that gasoline and other petroleum-based transportation fuels have had little competition at the point of sale to consumers. Even with ethanol making up 10% of most of the gasoline in the US, 94% of the energy we use for transportation still comes from oil. The idea of "multiple choice energy", which was the name of one of the corporate energy scenarios that I helped develop at Texaco more than a decade ago, is alluring. It's not hard to envision consumers being able to choose among gasoline, diesel, ethanol, other biofuels, natural gas (compressed or liquefied), electricity, hydrogen, and even exotic hydrogen-storing compounds such as ammonia borane, which recently appeared on my radar screen. As it has been for decades, however, the central problem is creating a market for these alternatives. That requires both cars and infrastructure.

Mr. Woolsey and his co-author are focused on the car side of the equation, suggesting that a $100 fix could enable most cars to run "a variety of liquid fuels in addition to gasoline." To make this happen, they espouse the Open Fuel Standard Act, a piece of legislation that has been floating around since at least late 2008 and that would mandate this hardware for all new cars. Then they extend this argument into natural gas vehicles and plug-in hybrid cars, both options costing a great deal more than $100 per car. While plug-in hybrids certainly provide very effective energy competition for oil, their cost and complexity ensure that their market penetration will be a long, slow process, pushing any real competitive benefits perhaps a couple of decades into the future. Nor do the natural gas cars I'm aware of--also much more expensive than simple FFVs--provide such a point-of-sale fuel arbitrage capability, because once converted to run on CNG or LNG, there's no going back to gasoline. (This feat isn't technically impossible, just impractical.) So for the near-to-medium term the main competition available would be from fuels like E85 and methanol.

I've written extensively about E85, a blend of 85% ethanol and 15% gasoline. The gist of it is that E85 has failed to take off so far, not because there aren't enough FFVs that can run on it--there are already millions on the road--but because its availability is limited and, more importantly, because its current pricing represents a poor value proposition for consumers. A gallon of E85 contains 27% fewer BTUs of energy than a gallon of gasoline with its typical 10% ethanol content. In cars not specially tuned to make the most of E85's high octane, that translates directly into a corresponding fuel economy penalty. So for E85 to be attractive to consumers, it should sell for at least 25% less than unleaded regular gasoline. As reflected on an industry website tracking E85 prices, that's only the case in a few locations, with the national discount currently averaging 16%. So on a miles per dollar basis, E85 is currently about 15% more expensive than gasoline. That doesn't sound like something that is likely to cause OPEC ministers to lose sleep.

Why is E85 so expensive? It's not mainly due to its limited availability, although its smaller scale relative to gasoline distribution probably costs it a few extra cents per gallon. Fundamentally, it's because ethanol prices reflect high input costs, including corn. Even at the current futures price on the Chicago exchange this morning of $2.72/gal., which does not include transportation and blending costs that can easily add another dime or more, wholesale ethanol costs 85% as much as wholesale gasoline, equating to 87% on an E85 basis. It's hard to see how you could start there and end up with pricing on the forecourt that offers a big enough discount to compensate consumers for the fuel economy penalty and the more frequent refueling that results from it. And in fact, EPA analysis of refueling data for 2008 found that it "equates to an estimated 4% E85 refueling frequency for those FFVs that have reasonable access to the fuel." So without a fundamental change in the pricing relationship, it's not clear that either more FFVs or even more E85 pumps will result in consumers purchasing large volumes of E85.

Mr. Woolsey's arguments about fuel competition make intuitive sense, although it does not necessarily follow that legislation requiring carmakers to produce more FFVs would achieve the results he suggests, particularly when GM, Ford and Chrysler have already agreed that half the cars they produce will be flex-fuel capable by 2012. $100 per car isn't an astronomical sum for this kind of experiment, but is there really a compelling reason to make it compulsory, rather than a matter of consumer choice?

Super Bowl Diesel

In addition to a pair of well-matched teams and a sufficient dose of fourth-quarter suspense concerning the outcome, yesterday's Super Bowl was the first in several years to feature an ad meriting comment in an energy blog. The subject of the ad was the new Audi A3 TDI clean diesel car, which was recently named "Green Car of the Year" for 2010. I was intrigued by the ad's tagline of "Green has never felt so right", positioning the car as painlessly green. Having had the opportunity to drive one at the recent Washington Auto Show, I can attest that the A3's environmental credentials come wrapped in a very attractive package, requiring no sacrifice other than the sticker price. Even if the comparison to a variety of intrusive green practices lampooned in reductio ad absurdem fashion may have annoyed some observers, the positive side of the message seemed smart and timely: Diesel cars are available now in appealing models delivering greatly-reduced fuel consumption and emissions, but without requiring major behavioral changes on the part of their owners.

Audi's "Green Police" ad, with a musical riff on Cheap Trick's classically-catchy "Dream Police" tune, was a marked contrast to the 2006 Super Bowl ads for Ford's Escape Hybrid and Toyota's Prius Hybrid, both of which appealed to green values of ecological and inter-generational responsibility. By contrast the A3 ad was consistent with the sharper edge of many others in yesterday's broadcast, which included several ads that pushed the boundaries of good taste. But while the New York Times found it "misguided"--heaven forbid that anyone poke fun at meticulously separating our recyclables and choosing the socially-correct shopping bags and energy-saving light bulbs--the ad showed up in at least one top-10 list and topped the voting on the Wall St. Journal's website as of this morning. Without digging a lot deeper, though, I can't tell if that's because it reached its intended audience with its messages that diesels are back, are much more refined than the soot-spewing diesels of the 1970s, and can now actually be considered green. Perhaps many viewers just thought it was clever, or resonated with its critique of some of the lifestyle changes we've been asked to make for the sake of the environment.

In any case, it's interesting to note that the US market share for light-duty diesel cars has been creeping up gradually, apparently matching or exceeding that of hybrids last year. The folks from Bosch, which supplies much of the high-tech gear for the advanced diesel engines under the hood of the Audi A3 TDI, VW Jetta diesel, and other, mostly European-based diesel models that have appeared in the US--including the awesomely-powerful BMW 335d that I also drove at the car show courtesy of Bosch--mentioned figures indicating that the new diesels beat most hybrids on lifecycle ownership costs, mainly due to higher resale value. (Diesel engines are usually good for hundreds of thousands of miles of use, and they don't require expensive battery pack replacement.) Their most obvious selling point is still fuel economy, with the A3 TDI rated at 30 mpg city/42 mpg highway.

That translates into significantly higher miles per dollar, even with diesel fuel selling for modestly more than regular gasoline. It's worth noting that the current diesel premium over unleaded regular of about $0.13 per gallon works out to about 5%, which is much less than the typical 30% fuel economy benefit for diesel relative to the comparable gasoline-powered model. That differential averaged $0.12/gal. for 2009, a far cry from the $0.57/gal. premium in 2008, when the tail end of the economic bubble pushed diesel up against its supply limits here and globally. However, even when the recovery picks up, we're unlikely to see that differential widen to anything like its former level, because the overhang in global refinery capacity has grown so large, and many of the new refineries and refinery expansions coming onstream, including the one at Marathon's Garyville, Louisiana plant, are focused on maximizing diesel production.

At a time when hybrids are still experiencing growing pains, and the market penetration of battery electric cars (EVs) and alternative fuels like E85 depends to a large extent on nearly non-existent infrastructure for recharging or refueling, diesel has a window of opportunity combining new technology with nearly-ubiquitous infrastructure. That same opportunity led to sales of diesel cars in Europe exceeding those of gasoline cars, until a presumably-temporary dip last year. It remains to be seen whether the same phenomenon will happen here, or if consumers will be content to stick with gasoline or jump directly to electricity. I also remain perplexed that neither Ford nor GM has brought any of its successful European diesel passenger car models to the US as a quick and cost-effective way to comply with the new fuel economy rules.

The Demise of MPG

Even before the advent of partially- or fully-electric cars, it was becoming increasingly apparent that the old fuel economy metric of miles per gallon isn't as useful for measuring energy consumption in vehicles as when it was first codified in the original Corporate Average Fuel Economy standard in the 1970s. That is due in part to the proliferation of new fuels--E85, LPG, LNG, CNG, methanol, and hydrogen--but also because expressing the relationship between distance and volume in this way obscured the diminishing returns to higher levels of fuel economy. As a Wall St. Journal column earlier this week put it, adding electricity into the mpg mix, "risks giving consumers inaccurate information about the financial and environmental costs of driving." But if we need a new metric, what should it measure?

I've been interested in this issue for some time, and GM's recent announcement that its new Volt plug-in hybrid achieves 230 mpg in city driving prompted some further thought. I don't doubt the accuracy of that figure or the thought that GM's engineers put into bridging this new vehicle type into a system that was designed when the average US fuel economy was 13.1 mpg and unleaded gasoline was the newest fuel around. Yet all this figure tells us is how much liquid fuel the car's generator would consume over a carefully-chosen driving interval, completely ignoring the electricity--with its cost and consequences--required to deliver that result. Nissan's Twittered riposte that it's new Leaf electric car gets 367 mpg is even less useful, because the assumptions behind it are not clear--and might just ignore some basic engineering realities.

Without access to Nissan's calculation, I can only guess at how they might have arrived at it by backing into it. (Skip this if you hate numbers.) Start with the fact that each gallon of petroleum gasoline (without ethanol) carries 115,000 BTUs of energy. At an official conversion of 3412 BTUs per kilowatt-hour (kWh), that equates to 33.7 kWh per gallon, so 367 mpg implies that the Leaf would go nearly 11 miles per kWh. That's pretty amazing by itself, considering that the Volt is generally expected to go between 4 and 6 miles per kWh. It also suggests that the Leaf would be using less than half of its 24 kWh Lithium Ion battery pack to deliver its advertised 100 mile range. But even if this is all correct, there's a basic problem with the calculation; in the real world it can take a lot more than 3,412 BTUs of primary energy to generate one kWh of electricity, depending on how you do it. If the power source is surplus wind, solar or nuclear power that wasn't already being used to displace power generated from fossil fuels, the BTUs required could be effectively zero. Otherwise, for power generated from coal or natural gas they would range between 6,000-12,000 BTU/kWh. Even assuming a relatively conservative 8,000 BTU/kWh for the natural gas turbines that provide the incremental power supply for many markets, the resulting equivalent mpg falls from 367 to 156 mpg. But that still doesn't tell us enough, in my estimation.

The problem here is the existence of a variety of perspectives on vehicle energy efficiency with competing information needs. From the standpoint of energy policy, we are most concerned about annual oil consumption and greenhouse gas emissions. We already have a new federal mileage standard that is set in terms of grams of CO2-equivalent per mile, which gets at the latter issue. The EPA's current mpg methodology based on liquid fuels comes close to addressing the former, though the increasing contribution of biofuels renders it suspect. Unfortunately, any standard or metric that treats non-petroleum energy as essentially free seems certain to result in colossal unintended consequences, as non-oil energy sources ramp up. The engineer in me would argue strongly for something like the MPGe calculation used for the Automotive X-Prize, comparing all the energy delivered to the car in any form with how far the car went. However, from a consumer perspective that still seems overly complex and opaque. While I would certainly prefer the inverted form of fuel economy--gallons per 100 miles--to our current mpg, it's hard to beat miles per dollar as a means of comparing how much it will cost the average driver to operate any of these new cars.

Money is the common denominator for most of the things we consume, so why shouldn't it be for vehicle energy, as well? At current pump prices, an average American passenger car goes about 9.5 miles per dollar (mp$), while a Prius-type hybrid approaches 20 mp$. If we factor in electricity at the national average retail price of $0.11/kWh, then the Chevrolet Volt would deliver something in the vicinity of 30 mp$, if I've correctly understood how they arrived at their 230 mpg figure, while the Leaf might yield as much as 99 mp$--though my natural skepticism about its unofficial claims leads me to suspect it would be closer to 45 mp$. Of course, when you have to pay $5,000-10,000 extra for a battery pack, you'd certainly hope the operating cost per mile would be a lot lower than for a conventional car. And that's precisely the kind of comparison that a truly useful fuel economy metric should facilitate.

In the near term, the EPA should continue its work on adapting the familiar mpg metric to a new world of more diverse vehicle technologies, but for the longer term it ought to convene other government agencies, car and fuel companies, universities, and consumer groups for the purpose of developing a new and more helpful set of metrics that would tell consumers what they need to know about costs and consequences as the car fleet undergoes its long transition toward an uncertain destination.

"Over a Barrel" - Part II

Picking up where I left off in Friday's posting addressing the issues raised by ABC's recent "Over a Barrel" report, concerning what Americans ought to know about oil, let's turn to the products that we get from it. Over the course of a century and a half of production--this month marks the sesquicentennial of Drake's well--petroleum has provided us with a cornucopia of fuels, lubricants, and raw materials for industry, many of which grew out of the search for substitutes for other, scarcer commodities or the availability of low-value byproducts from earlier, less-sophisticated refining techniques. In recent years, however, we've acquired a greater awareness of oil's adverse consequences, and it has attracted its first serious competition in many decades in its primary transportation fuels market.

The gasoline we put in our cars, the diesel that fuels trucks and buses and heats many homes, especially in the Northeast, and the jet fuel we can sometimes smell when the plane on which we're traveling has just refueled together accounted for 74% of the 19.5 million barrels per day of petroleum products consumed in the US last year. Throw in propane, lubricants, asphalt, petrochemical feedstocks and solvents, and you're up to around 90%, with most of the remainder coming out as heavy fuel oil for ships, petroleum coke (a solid, coal-like fuel,) and the fuel used by refineries in their processing. The average US refinery is 90% efficient, meaning that 90% of the energy that goes into it comes out in the products it sells, while the other 10% is consumed along the way. Greenhouse gas emissions follow a similar pattern, with the majority occurring not during processing but in the subsequent use of the products.

That's a crucial factor in the effort to reduce emissions. In the recent estimate of last year's US CO2 emissions, nearly 80% of oil's 42% share of the CO2 emitted by fossil fuels came from the combustion of transportation fuels. That means that by far the largest opportunities to reduce emissions from oil are associated with vehicle efficiency, not changes in refinery processes, which are already quite efficient. So while reducing direct refinery emissions by 1/3 would only cut total oil-related emissions by about 3%, increasing the efficiency of cars, trucks and planes by 1/3 would reduce those emissions by 26%. That is a realistic possibility, because most of our vehicles use these fuels so inefficiently. Although we can't easily reduce the 20 lb. of CO2 emitted from the combustion of each gallon of gasoline, we can certainly reduce the number of gallons we burn per mile.

If you asked most people why gasoline has been such a successful fuel for the last century, you'd get a variety of answers, including some entertaining conspiracy theories, but relatively few would zero in on the fuel's remarkable capacity to deliver lots of energy in a compact and easily portable form. Every gallon of E10 gasoline (10% ethanol blend) you put into your car carries roughly 110,000 BTUs, compared to 82,000 BTUs for the E85 ethanol/gasoline blend, or 66,000 BTUs for an 85% methanol/gasoline blend. Those extra BTUs translate into range and convenience, even though the typical internal combustion engine vehicle throws away roughly 80% of them as waste heat and other losses. That's why there's such a big opportunity for hybrids, advanced engines and transmissions, and other technologies to improve the fuel economy of most cars, if consumers are willing to pay the higher up-front costs. It's sobering to think that the advanced battery pack for GM's highly-anticipated Volt plug-in hybrid will hold the energy equivalent of just a half-gallon of gasoline, though the car's electric motor will use that energy much more efficiently than an internal combustion engine would.

So what are you buying when you fill up at the pump? If you watched "Over a Barrel", you probably got the impression that you are paying for an entirely generic fuel, a moderate slice of taxes and dealer margin, and a whole bunch of advertising and other marketing expenses. That's misleading on a couple of levels. It's true that the basic fuel is indeed generic--"fungible" in industry parlance--for the very good reason that this facilitates efficient pipeline shipment and inter-company purchases and exchanges to cover refinery problems and demand fluctuations, while reducing bulk transportation costs. However, there are real differences in the additives injected when the tank truck picks up a load of fuel at the distribution terminal, when the fuel becomes some company's branded product. If you own a newer car with a sophisticated engine, spending a little more to get a major oil company's additive package could pay off in better performance and reduced maintenance costs down the line.

But while the company from which you buy your gas might not have refined every gallon themselves, they must still stand behind it, and in my estimation that's the most important extra you're paying for. If you get a tank of bad gas or one blended with 20% ethanol instead of 10% and need to have your car's entire fuel system rebuilt, you stand a much better chance of getting compensated for the repair by a major gasoline brand than an independent or discount station. I consider myself fairly thrifty, but that's worth an extra 5-10 cents per gallon to me. I'll admit to a bias against buying gas from even a big supermarket chain for the same reason.

Finally, in terms of competition, it's ironic that the most viable competitor to gasoline at the moment is another petroleum product, diesel, which has captured half the new-car market in Europe and is getting a closer look here, thanks to some new technology. While biofuels hold great promise, they are still only available in relatively modest quantities, as explained in Friday's posting, and more as "hamburger helper" for traditional fuels than as fully independent alternatives to oil. While ethanol advocates would doubtless take issue with the characterization of E85 as a failure, so far, its sales have probably been hampered more by its poor value proposition--offering fewer miles per dollar than conventional fuels--than by infrastructure constraints and limited numbers of flexible fuel vehicles. In the long run, electricity looks like the strongest challenger, assuming battery prices come down and mainstream consumers find the trade-offs involved in recharging in hours rather than refueling in a few minutes acceptable.

If "Over a Barrel" accurately reflected Americans' frustration at being dependent on a commodity they feel they no longer control, it also highlighted oil's continuing indispensability. Petroleum and its products aren't about to disappear any time soon, though their dominance is starting to slip. From all indications, US oil demand has peaked, and the industry's remaining growth prospects are centered on developing Asia. The pressure to reduce oil consumption in developed countries is growing, and alternatives that were once dismissed will soon erode oil's share of the transportation energy market. However, absent a technology breakthrough, that transition seems likely to stretch out for decades, and it's a virtual certainty that the economics and geopolitics of oil will continue to frustrate us for many years to come.

Diesel Economics

Over the weekend I was thinking more about the diesel cars I test drove at the Washington, DC Auto Show last week. They certainly performed at least as well as their non-diesel counterparts--better if you count the big boost in torque from a diesel, compared to a gasoline engine of comparable size. The economic advantages of owning one weren't quite so obvious, particularly in light of the persistent price premium for diesel fuel over gasoline. While many see diesels as a less-expensive alternative to hybrid cars, I think it's more accurate to view them as offering an entirely different value proposition that must be evaluated on its own merits.

Diesel cars provide significantly better fuel economy than their gasoline-powered peers, but as with a hybrid, this comes along with a somewhat higher purchase price. Anyone contemplating buying one must go through a similar assessment of likely economic return, including the complicating factor of tax credits. I chose to make this comparison for the VW Jetta TDI diesel that I drove, which is conveniently available in a similar non-diesel version. According to the EPA's fuel economy website, and using a standard 55% highway, 45% city driving mix, the Jetta TDI averages 35 mpg, compared to 25 mpg for the standard 2.5 liter gasoline engine version, when both are equipped with automatic transmissions. Based on these figures, and despite diesel fuel currently costing nearly 20% more than gasoline, on average, this translates to 15.6 miles per dollar for the diesel model, compared to 13.2 mp$ on gasoline. At 12,000 miles per year of driving, the TDI would save around $140/year. VW's website indicates a base price for the TDI of $22,270, or $2,175 more than the most comparable non-diesel model, the Jetta SE. While that premium is about half as big as the typical hybrid/non-hybrid premium, the simple payout is a disappointing 15 years. Factor in the $1,300 tax credit for clean diesels, and it shrinks to about six years.

So much for the basic economics. Where the discussion gets more interesting is in the uncertainties involved. Someone buying a hybrid car today would be unlikely to cite current gasoline prices as a key influence. Hybrid sales fell dramatically at the end of last year, as gas prices plummeted. However, few people expect gas prices to remain this low indefinitely. Either they will rise in tandem with a recovering economy, or they will increasingly reflect the environmental and energy security externalities of oil, in the form of a higher gas tax, a carbon tax, or the pass-through of emissions costs under cap & trade. In effect, a hybrid car is a bet on future gas prices, combined with an assessment of the value of its reduced CO2 emissions. Diesels offer a similar bet on CO2; dieselization has been the EU's main CO2 reduction strategy for transportation for the last decade, facilitated by tax incentives at the pump in many countries. They represent a somewhat different bet on fuel prices, however.

As with gasoline, the price of diesel fuel varies with the price of crude oil. Since the phase-in to Ultra-Low Sulfur Diesel (15 ppm S, max) in mid-2006, the wholesale price of diesel fuel in the US has averaged about 120% of the price of light, sweet crude oil, based on futures prices on the New York Mercantile Exchange. Pump prices for diesel over the last two years have averaged around 170% of crude oil, but with a wider variation than for wholesale prices, ranging from a low of 150% at last summer's peak of oil prices to around 220% today. As oil prices go up, diesel prices go up, too, though not quite as fast. When oil prices fall, diesel prices fall, but not as fast or as far. Buying a diesel car thus provides a partial hedge against oil prices through improved fuel economy, though the diesel buyer is making another bet that the hybrid buyer isn't: that the gap between diesel fuel and gasoline won't expand and erode the cost benefit of diesel's fuel economy edge. On average, diesel sold for 17% more than gasoline last year, on par with the current premium. It's hard to gauge the prospects for that relationship in the current economy, when demand for everything looks weak. But with Europe still shifting its passenger car fleet toward diesel, and diesel becoming the fuel of choice globally--if not yet in the US--I certainly wouldn't bet on that differential narrowing appreciably any time soon, even if some big refinery expansions on the Gulf Coast are focused on improving diesel yields.

I continue to regard clean diesels as an attractive alternative, and I wish more of them were available in the US, including from GM and Ford, which offer some very nice diesel models in Europe. If I were considering buying one, I would make sure to look beyond its fuel economy benefits, which might end up little better than a wash, to consider its other pros and cons. That includes well-to-wheels CO2 emissions that are roughly 20% lower than from a comparable gasoline-based vehicle, improved range, which translates into fewer trips to the gas station, and demonstrated durability and resale value. Depending on where you live, diesel might be a bit harder to find than gasoline, though not nearly as hard as finding E-85. Rather than seeing diesels as a direct competitor to hybrids, I think they broaden the market for highly fuel-efficient cars, by appealing to a different segment that is more focused on value and perhaps less worried about a return to $140 oil.

Miles Per Dollar

Have you ever encountered an idea so blindingly simple and obvious that you slapped your forehead in frustration that it didn't occur to you first? I had one of those moments the other day, reading an article that popped up on my personalized MSN portal, concerning fuel economy comparisons. The link appears broken, but the gist of author's argument was that if we focused on how many miles our vehicles travel on a dollar's worth of fuel, rather than per gallon, we might make fewer unnecessary trips and choose more efficient vehicles to start with. I agree with that logic, though from my perspective "mp$" could be even more useful as we enter a world in which the gallons we're using aren't directly comparable, and as electricity enters the transportation mainstream, resisting easy conversion to gallons without heroic assumptions and creating potentially over-optimistic assessments of the overall efficiency of plug-in hybrid cars.

As fuel diversity increases, the utility of measuring vehicle energy efficiency in terms of miles per gallon (mpg) diminishes, unfortunately coinciding with a much greater emphasis on mpg thanks to last year's Energy Bill that raised the required new car fleet standard to 35 mpg. This is more than a technicality, when you consider that carmakers get to count "flexible fuel vehicles" (FFVs) that can run on E-85 or gasoline as though they achieved higher mileage on ethanol, rather than about a quarter less. The Energy Bill, which included provisions strongly promoting E-85 and FFVs, at least limited the contribution of this factor to 1.2 mpg of a carmaker's average through 2014, phasing out to zero in 2020.

I could not find any cars that were available in all possible energy permutations, but the 2008 Chevrolet Tahoe large SUV came close. It's available in gasoline, FFV and hybrid versions. With retail gasoline averaging $2.96/gal. this week and E-85 at $2.48/gal. (both varying widely by state,) and using the EPA's fuel economy estimates for this vehicle on both fuels, the "mp$" comparison is interesting:

• Tahoe V8 on gasoline: 5.4 mp$
• Tahoe V8 on E-85: 4.8 mp$
• Tahoe Hybrid on gasoline: 7.1 mp$

While I'm sure there are locations where E-85 would have an advantage over regular gasoline, that requires it to be priced in a way that fully reflects its 25% lower energy content.

The next comparison is between gasoline and diesel, which has been significantly more expensive than gasoline this winter. There are a few manufacturers with comparable cars available in both fuels, including Mercedes and Volkswagen. Since I couldn't find 2008 diesel results for VW, I picked the former's E-series sedan to compare. Since the gasoline E350 requires premium fuel, I added $0.25/gal. to the US average price.

• E350 6-cyl. on premium gasoline: 5.9 mp$
• E320 Bluetec turbodiesel: 7.9 mp$

Finally, let's compare a Prius-style hybrid with the likely result for a plug-in hybrid, such as the Chevrolet Volt. In the absence of actual efficiency data for the Volt, I assume it would be comparable to the Prius on gasoline. Electric efficiency should be around 4 miles per kilowatt-hour. The average residential electricity price last year was 10.7 cents/kWh, with some markets considerably above that and others offering time-of-day pricing that would allow for overnight recharging at a lower price, so the following is a rough estimate:

• Prius or Volt on regular gasoline: 15.5 mp$
• Volt on residential electricity: 37.4 mp$
• Volt in 50/50 driving mix: 22.0 mp$ (very impressive, but not quite the 100 mpg equivalent often touted)

Miles per dollar has much to recommend it, particularly for its simplicity and alignment with the priority consumers put on value. However, it also has two key disadvantages. Unlike mpg, it changes every time fuel prices do, so any comparisons based on mp$ are only snapshots at a point in time. Nor does it address the emissions associated with that dollar's worth of energy, though mpg doesn't do that, either. A carbon tax or cap-and-trade system would help align fuel prices with their environmental consequences and make the resulting mp$ comparisons reflect both price and emissions. In that case, mp$ would be a significant improvement over mpg, particularly in helping consumers cut through an increasingly complex set of different fuel and power-train options. And while I don't expect Congress to rewrite the new CAFE standard in mp$ terms, or carmakers to embrace a metric that calls some of their marketing into question, how hard would it be for consumer-oriented car websites to display mp$ alongside mpg? More information might just lead to better decisions.