More Gas about Global Warming

With gas prices running around $2 per gallon, our economy is performing a wonderful natural experiment on global warming policy.

Proponents of the infamous Kyoto Protocol on global warming argue that this is about the price that is required in order to reduce our emissions of carbon dioxide to 7 percent below where they were in 1990, as mandated by the treaty. This price, they argue, will change behavior. Mainly, people will buy more economical cars.

It’s impossible to meet Kyoto’s mandates, which start in 2008. There’s simply not enough time to ratchet down emissions so quickly. In response, Sens. John McCain, Arizona Republican, and Joe Lieberman, Connecticut Democrat, have authored slightly less stringent legislation, dubbed “Kyoto Lite,” which sets the emissions targets and timetables back a few years.

Well, thanks to the wonders of a tight gas supply (the last oil refinery was built in the United States decades ago) and increasing demand (developing China, for example), in the last year we have seen the price rise advocated by the supporters of Kyoto and Kyoto Lite in order to substantially reduce gasoline use.

They were wrong. People are increasing their purchases of gas-hogs and buying relatively fewer of the new gas-electric hybrids.

Trucks use more gas than cars. In September, U.S. truck sales were over 828,147, up 13 percent from last year. 608,424 cars were sold, down 2 percent. (That’s right: we buy more trucks than cars, in part because that minivan is a “truck,” but that’s another story.)

Then there’s the green suburban myth about a tremendous demand for hybrid gas-electric vehicles. According to The Washington Post on August 24, “The [hybrid Toyota] Prius has been the fastest-selling car in the country for 10 straight months.” The Post cited the prestigious J.D. Power corporation for this data, and this story has been repeated everywhere. I heard it a while back on Clark Howard’s popular financial radio show.

It isn’t true. It’s not even close to true. I have no idea where it came from. Toyota sells about 10 times more Camrys a month (35,000) than it does Priuses. Toyota sells over 21,000 pickup trucks a month. They’re great vehicles, but their V6 and V8 engines, which are in the majority, will only get you miles per gallon (mpg) in the high teens if driven gingerly. For comparison, September Prius sales were 4,309. Car and Driver got 52 mpg driving theirs around town. The company expects to sell 45,000 in the entire year.

It claims it could sell 100,000. But even if that’s true, it’s not a large number. Toyota and Honda combine to sell around 800,000 Camrys and Accords every year.

Speaking of Honda, they’ll be lucky to move 25,000 hybrid Civics this year, despite the fact that Car and Driver got 53 mpg out of theirs in town. My local dealer is (slowly) selling them for $1,000 off the sticker price, which means a premium of about $1,500 over a comparable conventionally-powered model.

Is the problem that the hybrids are, well, pretty much dogs off the starting line? That will be tested soon, but the preliminary figures don’t look good. This December, Honda will sell a hybrid Accord, their bread-and-butter machine. In an attempt to shed the nerdy, torpid image of the other hybrids, they’re mating the electric technology to a V-6. Early reviews say it is a silky-smooth rocket. A driver like me will easily pull 40 mpg out of its 255 horsepower, probably the most economical power train of that magnitude ever built for mass production. It’s way cushy, and therefore liable to commit fratricide on its more expensive Acura brethren. Expected annual sales: a mere 20,000. Price premium over its comparable non-hybrid: $4,000.

So much for the notion that $2 a gallon will dramatically reduce our consumption of gasoline. When offered hybrid cars and expensive gas, people are buying V8 pickups instead.

Economists argue that prices may have to be viewed as permanently high in order for people to change their purchasing patterns. But it is a fact that hybrid sales peak with short-term price changes. Honda’s first hybrid, the Insight, had its best month during the last gas run-up. (It is very expensive to produce this car, and since then Honda has ground production down to near zero). So there is a response to the short-term, but it’s just underwhelming.

Think back to the 1970s. On an inflation-adjusted basis, gas was about $4 a gallon in today’s dollar. When the first high-quality Japanese econos hit the U.S., they were snapped up immediately. Now with the advent of high quality hybrids, there’s no similar response. Obviously the price of gas is simply not high enough.

Years ago, Time Magazine claimed that a majority of Americans were willing to pay 50 cents more (in today’s dollars) for a gallon of gas if it would fight global warming.

Well, we now know that this is just another environmental myth. Because when the price of gas goes up by that same amount, truck sales go up, car sales down, and hybrid sales are a drop in the gas can.