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Thursday, April 26, 2012

Hybrids and Hype

At one time not too many years ago, car buyers had two choices in hybrids: the Toyota Prius and the Honda Civic. The first models were introduced in 2000 and 2002, respectively, and both cars initially received Environmental Protection Agency (EPA) ratings of 52 and 51 miles per gallon (MPG), respectively. Now hybrids come in a variety of models—from downscale (Civic) to medium scale (Ford Fusion) to upscale (Cadillac Escalade)—from most major automobile manufacturers, all claiming that their cars are exceptionally “green” for their sizes.

Car companies all suggest that hybrids will help stave off global warming, prevent New York City (and the rest of the country’s coastline) from flooding, and save the polar bears and the arctic ice shelves to boot. They assume that their hybrids’ EPA-advertised improvements in gas mileage (of more than of 10 percent, depending on model) over conventional combustion-engine-only counterparts will more or less be realized along with a reduction in CO2 emissions.

Such will not be the case, for several good reasons. Indeed, hybrid purchases might very well contribute, albeit marginally, to the “browning” of the planet, especially when their production and purchases are subsidized through car manufacturer bailouts and “green” stimulus schemes, and tax credits for car buyers.

First, most car buyers now understand (or should understand) that EPA mileage estimates for cars are a mirage, or an exaggerated estimate of the mileage that can be expected from cars in real-life (not laboratory or test-track) driving conditions. According to the best available research, which is somewhat dated, the EPA has overstated the fuel economy of hybrids by more than that of combustion-only engines. Before 2008, when cars and trucks sold were subject to the revised EPA test methods to determine fuel economy estimates, the EPA mileage for hybrids overstated the real-life mileage by at least 20 percent. The EPA has since lowered its fuel economy estimates by as much as 20 percent, but the estimates remain higher than the mileage received by most drivers on their daily drives.

In early 2012 a lawyer won a $10,000 settlement from Honda in small-claims court in part because she was unable to get more than 28 miles per gallon in her Civic hybrid after she accepted a recommended software upgrade that was supposed to improve the car’s fuel economy. The lawyer’s fuel economy experience is a third lower than the 44 highway miles per gallon Honda advertises now. (One of the authors, McKenzie, has a Civic hybrid and has consistently gotten less than 40 miles per gallon on the flattest of highways and has gotten below 34 miles a gallon in a combination of city-street and highway driving.)

Obscured Costs

Second, additional hybrid production has energy and environmental consequences that government policies designed to spur their sales obscure. Hybrids are generally several thousand dollars more expensive to produce than their combustion-engine-only counterparts in any event. The production and disposal of hybrids’ banks of batteries guzzle additional energy, giving rise to additional greenhouse gases. Those batteries, filled with toxic acid that eats steel, can also cause serious future environmental problems relating to their energy-dense disposal processes when they are replaced after eight to ten years (according to a 2011 New York Times report, disposing of these batteries is a problem with, at best, only a partial and inadequate solution to date). Producing more hybrids than would have been produced without the government policies means consuming more energy-dense steel and other materials as well, resulting in additional CO2 emissions before the hybrids even reach showroom floors. Tax credits, HOV-lane usage rights, and other forms of subsidy hide many of these costs, however, making hybrids more attractive to consumers (and producers, who can pocket more profits with taxpayers picking up the tab for so many of the costs).

Third, to the extent that hybrids actually increase the mileage per gallon of gasoline, they lower the cost of driving per mile. The lower (marginal) cost of driving miles will cause many hybrid owners to drive more miles than they would have had the hybrids not been available. Researchers have found that although their commuting habits are similar to those of drivers of combustion-engine-only cars, hybrid owners drive 25 percent more miles on pleasure trips than their counterparts. The Congressional Budget Office has estimated that 40 percent of the maximum fuel economy improvement from hybrids can go up in the exhaust from more miles driven.

Also, obesity research shows that a reduction in the cost of driving will cause people to walk less and to go out to eat more frequently, consuming more calories that are energy dense and packing on the pounds that cause the consumption of more gasoline and jet fuel just to transport the added calories around. Moreover, the added body weight can show up in a host of medical maladies that, through added medical treatments, can soak up energy-dense resources, which can have their own browning effects.

Fourth, when only Civics and Prius hybrids were available, car buyers had no opportunity to trade off gas mileage in hybrids for larger hybrids with greater comfort and lower fuel efficiencies than the Civic and the Prius. Now, with the growing array of hybrids in larger sizes with more comfort but lower gas mileage, many would-be Civic and Prius owners can be expected to move up-market, with the result that they increase their good feelings of being “environmentally friendly,” all the while increasing their fuel consumption over what they would have consumed had they stayed with smaller hybrids. Even some would-be buyers of smaller combustion-engine-only cars can be enticed to pay the higher prices (especially when government subsidies are available) for more upscale, less fuel-efficient hybrid models, which can have an array of creature comforts that consumed a lot of energy in their production. These hybrid buyers can actually lower their fuel economy per mile and add to greenhouse gases.

Of course, there is likely to be an offset to these negative effects, as buyers of large cars switch from large combustion-engine-only cars to large hybrids. However, the net environmental consequences of the shifts in car purchases remain up in the air, depending on the magnitude of the opposing shifts in car-buying decisions and on the energy density of the added real resources that must be used in large hybrid production.

Fifth, when hybrid owners are allowed to ride in HOV lanes without passengers, as they were for several years in California, the result can be that many commuters who shared rides will drive alone, which means they increase the travel time for all in the HOV lanes and thus increase the energy consumed by the remaining ride-sharing cars in the HOV lanes.

The advent of all-electric cars is similarly unlikely to be the environmental boon that has been advertised by global-warming theologians. They, too, have all the offsets noted for hybrids. In addition, they will draw their power from the electric grid, with costly (meaning energy-dense) resource-consuming grid connections, many of the electric generating plants being powered by various grades of “dirty” coal. Electric-car buyers may ride with wonderful “green feelings” and with pats on their backs from approving environmental friends because no greenhouse gases are coming out of the rear ends of their cars. All the while both the electric-car buyers and their approving friends conveniently ignore the greenhouse gases spewing from far-away coal-fired generators. Out of sight, out of mind—but no less brown.

More Coal

Roughly half of all the electricity generated in the United States is produced from coal. Research shows that all-electric cars that charge their batteries off coal-fired generators emit 6.5 ounces of carbon per mile, half the emissions of gasoline-powered cars. However, much if not all of the pollution gap will evaporate in the exhaust from electric cars’ greater energy-dense production costs and battery replacements and from more miles driven, given the 25 percent lower (marginal) cost of miles driven. Few environmental pundits seem to realize that the tens of thousands of dollars in added costs to build the sporty Tesla translate into a lot of additional energy consumption. No matter, as electric vehicles increase their presence in the United States, abetted by green subsidies, new coal-fired turbines will inevitably be brought on line, with progressively dirtier coal being used to fire the growing count of coal-fired turbines.

Our point in this commentary is not that reducing energy consumption is a bad goal for car buyers and the planet. It would be good, but only when the goal is actually achieved. Unfortunately, not all supposedly alternative sources of energy have the intended effects, and some may have, on balance, perverse effects obscured by government green policies. Higher production costs for hybrids and prices for them that are artificially distorted by explicit or implicit subsidies are tipoffs that they (and other green products) will have perverse environmental effects.

  • Richard McKenzie, an economics professor and the Walter B. Gerken Professor of Enterprise and Society, has authored 30 books and is a nationally recognized authority on the Microsoft anti-trust case. His research focuses on economic policy issues. He is currently writing a book on In Search of a Defense of Rational Behavior in Economics.