The risk of climate change has a lot of people around the world scared. Scared to the point that some governments are even planning to ban petroleum powered vehicles. Both the France and the United Kingdom have recently passed legislation that will ban gas and diesel powered vehicles in 2040, a mere 23 years from now. Norway and India plan to do it even sooner, as early as 2025.
Should the USA be doing the same? Some people emphatically say we should, especially liberals and progressives. Conservatives are equally emphatic that it shouldn't happen.
Like others, I want us to get as quickly as possible to a world in which petroleum powered vehicles are a distant memory, but placing governmental bans isn't the best way to get there. Rather than imposing bans, governments would do much better if they instead focused their efforts on helping Silicon Valley create an electric powered future. Let me explain why.
The question of the best way to get to an all electric vehicle future actually is a great example of a bigger question: what is the proper role of government in fostering technological change?
Let me begin by noting the two ends of the spectrum. At one end are those who believe that governments should be leading the effort. Those leaning towards that end of the spectrum tend to believe that the Federal government needs to be heavily involved in addressing climate change, coordinating efforts with other governments. At the other extreme are those who believe that governmental efforts don't tend to be particularly effective. Unfortunately, I believe many have mis-characterized the debate about the Paris Climate Treaty, claiming that if one believes in climate change, then one must believe in the Paris Climate Treaty, and if one doesn't believe in the Paris Climate Treaty, then one must be a climate change denier.
That's a false dichotomy. One can be 100% committed to fighting climate change without necessarily believing in the Paris Climate Treaty. I'm one of those people. It's not that I don't like the Paris Accord, it's just that I think it isn't going to solve the problem the way so many people think it will.
Let me be clear, we absolutely need to solve the problem of climate change, so what's the best way to do it? Instead of relying upon governmental mandates to abolish petroleum powered vehicles, I think we should our efforts on helping Silicon Valley solve the problem. They have the means to get the job done.
What I mean by this is that we should do everything we can to help Silicon Valley – and other entrepreneurial hubs both around the USA and around the world – to come up with solutions. As part of that effort, governments at all levels should help to create the conditions that will help entrepreneurs in places like Silicon Valley succeed.
So just what has made Silicon Valley, and other entrepreneurial hubs, successful? It's a combination of the following factors: 1) strong, research based universities such as Stanford; 2) a community that encourages entrepreneurship; 3) a strong group of venture capital and angel investors; 4) a welcoming environment for well educated foreigners; and 5) an environment that encourages experimentation and rapid recovery from failure. Silicon Valley has all of these things, in spades, but other such communities have emerged. Interestingly, a strong one is now emerging in, of all places, Paris, France.
How has government helped Silicon Valley and its counterparts? Surprisingly, it's role has been both positive and negative. On the positive side, the government has provided basic research funding to major universities such as Stanford. It's also provided funding to help the Departments of Defense and Energy, as well as NASA. These have provided positive spillover effects. The other positive thing government has done is to encourage foreign students to attend US universities, then permit them to stay after graduation.
But government has also had a negative effect on Silicon Valley. It's a ridiculously expensive place to live, in part because zoning regulations have constricted the housing supply and driven up prices; and taxes in California are absurdly high. Now, the government is going a step further by trying to restrict immigration, having the unintended effect of driving promising foreign students away from US universities.
What is Silicon Valley's role in creating the electric vehicle industry? In a word, it's Tesla, founded by Elon Musk. Musk is, himself, an immigrant to the USA who attended Stanford. The company has revolutionized the industry by developing amazing new battery technology. Of course, Tesla isn't the only company involved in this. In fact, now that Tesla has taken the lead in the industry, the traditional auto industry is responding in kind. All you need to do is look at the offerings of the major auto companies today to realize the landscape has dramatically changed, in just a few years.
All electric and hybrid vehicles are growing rapidly, but they're still a pretty small portion of the overall market. What assurance do we have that they'll become the dominant form of transport? Don't we still need governments to ban petroleum powered vehicles?
The reason I don't think governmental bans are the appropriate path to take is because they smack of "industrial policy" – the idea that government bureaucrats can sit in an office and determine what the economy should look like, and who the winners and losers should be. The argument in favor of industrial policy is that government actions can help direct where the economy can and should be going. Unfortunately, it doesn't work. In fact, the Brookings Institution, a liberal leaning think tank, has done a study suggesting three key reasons why it doesn't work. Unfortunately, as Brookings notes, industrial policy often has lots of unintended consequences.
One unintended consequence could be that government backs the wrong technology and/or the wrong company. So we could end up eliminating petroleum powered vehicles, but then be stuck with lousy, underpowered electric vehicles that nobody likes: America's version of the Lada, the auto of the old Soviet Union (see photo above). Bet you'd really be excited to have that vehicle in your driveway! Governments have an awful record of picking winning technology for the marketplace.
Better to have Silicon Valley get us to the electric-powered future, with government lending a hand.
But if government doesn't mandate the change, how do we know it will happen? Moreover, if we don't mandate it, what might prevent it from happening? In the case of electric vehicle adoption, there are four potential impediments: 1) range anxiety; 2) cost; 3) convenience; and 4) resale anxiety. Let's consider each.
"Range anxiety" is the fear that you'll run out of power while driving and won't have easy access to a recharging station. Up until recently, all electric vehicles had a range of under 100 miles. That's changing rapidly with newer models getting over 200 miles. The related problem is a lack of charging stations, as well as the speed of recharging. Mobile phone apps are beginning to appear that show a driver where the nearest recharging station is. That should certainly help. High speed recharging stations are also starting to appear. New, home-based charging systems are also appearing.
The second big problem is the cost of all electric and hybrid vehicles. Up until now, they've simply cost too much, and adoption has been limited. Yes, Tesla has a very high powered all-electric roadster, but you have to live in a fairly exclusive zip code to afford it. Newer models, however, are appearing that will solve that problem.
While purchase cost has been an impediment, it's becoming very clear that the cost to power an electric vehicle is a good deal less than one with an internal combustion engine. The US Department of Energy cost calculator compares the costs of gasoline versus electric. At the time of writing, the US average cost of gas was $ 2.50/gallon. The cost to drive an electric vehicle the same distance, however, was $ 1.21, less than half. Maintenance costs on an electric motor are a good deal less than a gas powered engine.
Here's a quick analysis to compare costs. The average American driver travels 12,000 miles/year. According to the American Automobile Association, it costs the average auto owner 59.2 cents/mile, $ 7,104/year. So for an electric vehicle to be competitive, it must cost less than that. Using the cost calculator from the Department of Energy, the average cost to power an all electric vehicle the same average 12,000 miles/year would be $ 484. The average automobile in the USA is 11.5 years old. Assuming the average person owns a vehicle just 10 years, and the average electric vehicle cost $ 35,000 to buy, then the cost of owning and operating an all electric vehicle should be substantially less than the gas powered equivalent.
The operating cost differential may create interesting new opportunities for electric vehicle leasing. Instead of selling electric vehicles, entrepreneurs might take a page out of the Uber or Lyft playbook and lease vehicles by the mile. In other words, rather than buying a vehicle, one might agree to purchase 12,000 miles of vehicle usage in a given time period, electric costs included. With the upcoming advent of self-driving vehicles, that's probably just what Uber and Lyft will offer. The lower per mile operating cost of the electric vehicle should pretty well assure adoption.
Convenience is the third issue. Unquestionably, it's still easier to pull your automobile up to a gasoline pump to refill it. Recharging your electric vehicle is a little harder. Hybrids provide an excellent interim solution to that problem. Creating a broad network of high speed charging stations will take time, but appears on the horizon. Tesla already has a network in place. But the Uber or Lyft alternative could easily solve the convenience issue. Why bother owning your car when you can call up any type of all electric vehicle from Uber or Lyft, have the vehicle at your home or place of business within five minutes, then simply pay by the mile? What could be more convenient than that?
Not only that, but let's go back to the average cost of owning your gas powered auto - $ 7,104/year. Let's assume you want to get that down to $ 6,000/year, a 15.5% reduction. If you could contract with Uber or Lyft to provide you transport at 50 cents/mile, you'd get your cost reduction, as well as eliminate all the other hassles of auto ownership. The question is, could Uber or Lyft make money? If the power to go 12,000 miles only costs $ 484, and there's a robot driving the car, they should make a bundle if the all in cost is 50 cents/mile driven.
The fourth concern is an interesting one. Researchers several years ago found that resale value might inhibit the growth of electric vehicles. This shouldn't be surprising for a very small market. However, as the size of the electric market grows, it should be less and less of a problem.
The numbers cited above should make it abundantly clear that all electric vehicles make compelling sense. We really don't need governments to ban gasoline and diesel powered vehicles. Savvy consumers will produce the same result.
So I'm confident we can look forward to an electric vehicle powered future. What is, however, a little less certain, is the power source of all that energy. It won't be petroleum, but will it instead be coal and natural gas from the power plant? Many people are very concerned that it will be the former. I don't think so, and the reason I don't think so follows the same reasoning presented above.
We really don't need governments to ban coal plants. That's because the economics of renewal energy are far more compelling than coal. We can ensure that if we focus on encouraging Silicon Valley to make ongoing innovations in renewable energy. They've been doing it, and more won't hurt.
At the end of the day, the solution to greenhouse gases is better technology, not more government. The best role government can play is to help ensure the success of places like Silicon Valley, not by mandating what vehicles we'll drive, or what power sources we'll use. If we focus on that, other things will take care of themselves. Let the French and the Brits ban the internal combustion engine. We'll still beat them.