The New Climate Villain Is Cheap Oil

Long-term climate prospects brightened somewhat in 2015. Pope Francis put climate care on the moral and political agenda. President Obama rejected the Keystone XL dirty-oil pipeline. Denialist heads of state were routed in Canada and Australia, and their brethren in the U.S. faced growing ridicule. To cap it off, nearly 200 nations signed the UN Paris accord, committing to cutting emissions. Meanwhile, U.S. coal use took another double-digit plunge. And U.S. electricity generation from zero-carbon photovoltaic solar cells continued to soar and has now grown 20-fold in just five years.

Alas, there’s one bummer in this rosy picture, and it’s a big one: cheap gasoline.

After years of steady gains, average gas mileage of new vehicles purchased in the U.S. fell last year by nearly a mile per gallon, according to data from the University of Michigan’s Transportation Research Institute.

Through September, total miles driven in the U.S. were up 3.5 percent — the biggest rise in decades.

Cheap gas is driving both trends. The average price of gas sold in the U.S. through October 2015 was 25 percent below the 2014 price — the steepest drop in at least 70 years. Americans responded precisely as predicted in Econ 101: by driving more and dumping sedans for SUV’s and pickups.

These twin developments put U.S. gasoline consumption on track to rise at least 3 percent last year. That’s a clear setback for climate. The additional carbon dioxide from the rebound in U.S. gasoline use in 2015 will be the equivalent of a full year’s emissions from nine coal-fired power plants. (My yardstick is 600 megawatts per plant, operating at 70 percent capacity factor. See note at end of post for link to calculations.) And that doesn’t count “upstream” emissions from refining crude oil into gasoline.

Can we be sure this year’s increase in gasoline use is entirely due to the drop in price? Not completely. But the inference is strong.

First, gasoline usage is at least mildly price-sensitive. Based on gasoline’s long-run price-elasticity, a 25 percent drop in price would touch off a 10 percent increase in usage. The entire jump in demand wouldn’t be seen overnight, of course; the lower price would take a decade or so to work its way through car buyers’ purchase decisions and households’ and businesses’ location choices. The 3 percent uptick last year is in line with what one would expect in the initial year.

Second, U.S. gasoline consumption stayed within a fairly narrow band from 2008 to 2014. Prices at the pump held steady as well, except during the worst months of the Great Recession. What was different last year was the plunge in price.

U.S. miles driven are on course to rise 3.5 percent in 2015

The 2015 jump in CO2 emissions from gasoline is troubling enough. What’s really worrisome is that cheap oil — hence, cheap gasoline — looks like it’s going to be with us for awhile. So say the experts who prepare the government’s Annual Energy Outlook forecast. I recently compared two AEO forecasts of gasoline prices in 2025: the 2012 forecast which preceded the price collapse, and the 2015 forecast which reflects it. Correcting for inflation, the government now projects a 29 percent lower price of gas in 2025 than it projected four years ago.

When you run the lower price forecast through the price-elasticity for gasoline, you get this startling projection: in 2025, U.S. motorists will buy — and burn — nearly 13 percent more gasoline than would have been expected under the earlier (higher) price forecast. The associated rise in U.S. CO2 emissions in 2025 because gas will be cheaper will be huge: it equates to the annual output of 36 coal-fired power plants.

But let’s not stop there. Cheaper crude oil brings not just cheaper gas but cheaper diesel and cheaper jet fuel. I’ve run the reduced 2025 AEO price forecasts for all petroleum products through their respective price-elasticities, and the result is truly scary: Compared to projected 2025 emissions with the pre-plunge price trajectory, lower petroleum prices will result in 450 million metric tons of additional U.S. CO2 emissions in that year.

U.S. miles driven were on course to rise 3.5 percent in 2015.

The increase will equal 8 to 9 percent of today’s U.S. CO2 emissions from all fossil-fuel burning. That will undo almost all of the vaunted reductions in U.S. emissions since 2005. It will be the emissions equivalent of 100 additional coal-fired power plants. And that’s just for the U.S.

The antidote is a carbon tax — either a straight-up carbon tax or a hybrid one that surcharges petroleum products. A surcharge would reflect non-climate harms from oil consumption like traffic congestion while also placing a charge on oil revenues’ corruption of governance in the U.S. and the Middle East.

Former U.S. Treasury Secretary Larry Summers wrote last January that cheap oil created a political opportunity for a carbon tax. I followed that with a call to First Tax Oil, Then Carbon. But to my knowledge no one has quantified how dire the need is — until now.

Cheap oil will make a mockery of just about every scenario to move the U.S. and other countries decisively off carbon fuels. Except scenarios based on carbon taxes.

Note: Calculations of increased oil consumption, resulting increase in CO2 emissions, and coal-plant equivalents, may be found in CTC’s carbon-tax spreadsheet model (Excel file). An earlier version of this post was published on the Carbon Tax Center’s website in December.

32 thoughts on The New Climate Villain Is Cheap Oil

  1. Maybe it’s just the conspiracy theorist in me but it seems every time electric cars are starting to take hold the price of gasoline magically comes down. That said, even with today’s prices TCO of ownership of an EV is still less than a gas car. The purchase price would be less also if they were made in similar numbers.

    I personally don’t feel cheap oil is going to last anyway. The easy to tap wells are rapidly running dry. Once they do, all that’s left is harder to get at (i.e. more expensive) crude oil. At that point either oil prices will rise enough for oil companies to make a profit on this oil, or they’ll stop producing oil, forcing us to alternatives. For what it’s worth, alternative energy sources are becoming competitive even with cheap oil. The almighty dollar might be what gets us off fossil fuels rather than any climate change legislation.

    On another note, nobody should be able to buy SUVs, pickups, or other similar vehicles unless they can demonstrate a business need for them. CO2 emissions aside, these things are dangerous to everyone else on the roads. They should be treated as such, including perhaps banning them altogether from urban areas where they don’t really have any viable reason to be.

  2. The TCO of ownership of an EV is only less than that a gas car on a scale large enough to matter if a few factors are present: you have somewhere to charge it at home (not true for most apartment dwellers), electricity is cheap (it’s not in NY, for example; counting delivery and other per/KwH charges, you’re looking at 30 cents/KwH (almost triple the national average). Also, Electric cars depreciate… quite a bit, and extremely fast. Also, at this point even future electric cars (Bolt, Model 3, etc.) are only competing with the mid-range (not the low-end) market.

    Electric cars are perfect for suburbs; where commutes are <25miles and everyone has their own driveway to charge in. They'll be a tougher sell in rural areas for obvious reasons. In cities; the wealthy house owning folk could get an electric car, but everyone else will stick to gas or hybrid until the infrastructure is really built up and you can charge at any parking spot (this won't be for a while).

    In the tri-state area, you're not going to save money with an e-car. A good reason to get one is because they're silent, or because they have great torque from a standstill, or for environmental reasons, or to support the technology in general. If your goal is saving money, you'd be much better off buying a cheap economical compact car or small sedan.

  3. The good news here is that the AEO was totally wrong about prices in 2015 and is likely just as wrong about prices in 2025

  4. Thankfully some apartment complexes managed by larger firm are starting to add chargers to their garages. I wouldn’t have thought my building would get one, but now we have half a dozen. If we go back to having a car, we’d probably go electric or at least plug-in hybrid.

  5. I’d love to have a tesla, however, the man made climate change fraudulent policies will raise electricity prices ( and other energy prices too ), and how are people going to afford to charge their cars?
    Lets keep in mind here even if coal, or petroleum isn’t used, natural gas is still a fossil fuel!
    As for Suv’s, I have owned mine since 2008, it is nice to have 4 heel drive in the snow belt, it is also nice to be able to put larger things in back, or on top, instead of paying someone to deliver things.
    As for higher gas prices, I do remember paying almost 70 dollars for a full fill up.
    I also bought an 80 watt solar panel in July 2015 ( I plan on expanding my solar system this year ), as I am not giving up air conditioning, or living in a house, or an SUV.

  6. That’s a great resource if you can get it! However, in a city like NY (the one I’m most familiar with), you have roughly 4 million on-street parking spots, most of which are used daily… Additionally, many, many older apartments have no garage/parking on premises, and new ones that are getting built… well, streetsblog itself advocates getting rid of parking requirements for new buildings…

    Most apartment dwellers here probably won’t be able to get regular, reliable access to a charger, so it seems at least for a while, electric cars won’t be used as much where they’re needed the most; in dense urban cores.

  7. Nationally, most people who have cars tend to be homeowners, even in NYC, so the charging issue is mostly moot. Since the grid runs everywhere, it’s not as big a deal as you think to install charging stations as quickly as people want them. As for NYC, frankly you don’t need to have any car here, electric or otherwise, but it’s a great idea to start mandating for commercial fleets to be converted to electric. Those constitute the majority of vehicle miles in NYC. Converting them to electric would reduce noise levels and eliminate pollution.

    I’m not seeing why electric vehicles would depreciate any faster than gas vehicles. If anything, looking at the railroad world electric locomotives tend to remain in service 40 or 50 years, compared to only about 20 for diesel locomotives. With fewer parts to break, no good reason the same wouldn’t apply to EVs.

    Even at $0.30/kW-hr, it still costs less to drive an EV. Do the math. An EV travels roughly 3 to 5 miles per kW-hr, depending upon weight, speed, and aerodynamics. Worst case then it’s costing ten cents per mile at NYC electric prices. However, if you install solar panels you can essentially get your “fuel” for free. NYC is one place where solar panels make economic sense given the high costs of electricity. A gas car getting 20 mpg at today’s prices (which won’t last) would cost the same as a worst-case EV. Note that not too many vehicles manage 20 mpg under NYC’s stop-and-go driving conditions.

    Once you factor maintenance you’re way ahead even if energy costs turn out to be the same. The obvious downside, for now anyway, is the higher purchase price. However, as I said earlier, if made in similar numbers EVs would actually cost less than gas cars. That alone might get many people to buy them.

  8. A fair percentage of electricity in the US is generated by non-fossil fuel means. Even if it’s not, when you do the math EVs still put less CO2 into the air per mile than gas cars. They also pollute far less. A power plant can have all sorts of big, expensive pollution controls which aren’t feasible on a car. Moreover, power plants emit their pollution in remote areas where fewer people are exposed. Gas cars in cities emit all their pollution right in a population center where it does the most harm. Then there’s also the noise pollution from gas cars.

    SUVs can be made electric also. Granted, they’ll use more kW-hr per mile than a Tesla but an electric SUV is a huge improvement over a gas one in terms of pollution, noise, and operating costs.

    Nobody is asking you to give up living in a house or air conditioning. However, we need design our creature comforts to use far less energy than they now do. It has nothing to do with global warming, either. Burning fossil fuels for energy is bad on many levels, including for national security. We’re sending billions of dollars each year to nations which harbor terrorists. We need to turn this faucet off yesterday. The only way we can do that is by first reducing energy demand, then getting as many things off fossil fuel as possible. 9/11 should have been a wake up call for everyone but it was ignored. 15 years later very little has changed. It’ll probably take an incident or two of nuclear terrorism to finally wake people up for good. The US should have stopped buying Middle Eastern oil right after 9/11.

  9. Nationally; absolutely, electric is the way to go, no question about that, especially if you live in a multi-car household and have access to a gas car for road trips.

    However, I’m focusing on the city issue.

    Leaving aside the issue of whether you need a car in a city, taking nyc as an example: we have about 2.5 million cars registered in the 5 boros alone. The carging infrastructure to support that isn’t here yet, and won’t be for quite some time, as it would really take a huge investment on the part of the city to install chargers at each/most street parking spaces.

    As for mpg; if the goal is to save gas, comparing an EV to a 20mpg car (about what a base trim mustang gets in the city) isn’t quite fair; a better comparison would be a prius, which gets 51mpg in stop and go traffic. At 4kwh/mile, an ev costs $7.50 to drive 100 miles, while a prius (using about 2 gallons of fuel) takes between $4-$8, depending on the price of gas.

    As for depreciation: Lithium batteries can only withstand about 500 charge cycles before starting to degrade drastically. So taking for example, a Nissan leaf, with it’s 100 mile range, that’s 50k miles; not that much.

    As for EV’s costing less than gas cars; someday, but not too soon. The main cost is the battery at the moment. That will get cheaper, but considering you can get a Versa (35mpg combined) for $12k at the moment… EV’s won’t be able to compete on price in the short term.

    An aside about noise levels: (small) engines with functional mufflers are pretty darn quiet these days, almost all of the noise from cars is the road noise of tire/road contact, not the roar of the engine. Sure, EV’s are silent from an engine perspective, but how loud is a regular econobox when idling?

  10. If enough people owned electrics, most gas stations would also have electric charging stations. Granted, it would likely cost more than home charging but it would also be faster. Also, gas stations get electricity at industrial rates. They might still be able to charge the same kW-hr rate a residential user pays while making a profit.

    Your info on lithium batteries is out of date. I’ve read somewhere that they’ll last several hundred thousand miles. Also, you can partially get around the number of cycles issue by installing a larger battery. The battery in the Leaf is ridiculously small. Think more of what Tesla is doing. 300 miles range. Some of the newer lithium designs can get upwards of 2,000 cycles. That’s 600,000 miles before the battery needs to be changed. Designs getting 10K cycles are on the horizon. It may well be that the battery will be worth something long after the rest of the car is junk. In any case, you definitely don’t need to change out batteries at 50K miles on state-of-the-art electrics.

    Sure, EV’s are silent from an engine perspective, but how loud is a regular econobox when idling?

    Most city driving entails regular acceleration from stop lights. That’s noisy with any ICE vehicle. I’m also thinking more in terms of electifying fleets, something which is quite feasible in the very near term. Buses, garbage trucks, UPS/Fedex/USPS trucks are all naturals for being electric. All make a ton of noise now. Moreover, these vehicles don’t have the weight issues cars do as far as carrying lots of batteries to get whatever range is needed. The diesel engines alone weigh a few tons. You can pack in a lot of batteries without increasing the weight.

  11. The only real climate villains are the republican puppets that cater to the corporate fossil fuel interests. They lie for their sponsors and block emission reducing legislation.

    Join the efforts to expose, confront, and replace any law maker unwilling to deal with this very real global crisis.

    Learn more.
    Google search –> AAAS Climate Change What We Know

  12. Dwell time is an issue with the gas station model for charging electric cars: a Tesla supercharger (pretty much as good as it gets) takes 40 mins to charge up to 80%, and another 35min to get to 100%. that’s a huge amount of time. Plus, gas stations are likely to get 220, not DC chargers, which will take far longer. I maintain that without being reasonably sure that you can charge your car where it parks at night, it’s not practical to get an electric car.

    I double checked the charge cycles, and it seems to be in the 400-1000 range. For a leaf thats 40k-100k miles, for a tesla (265 mile epa rated range), that’s 106k-265k miles. And of course you don’t have to change them at that point, however, we were talking about depreciation; which a degraded battery affects… a lot.

    I’ll disagree with the noisyness of ICE vehicles. Next time you get a chance; pay attention to a new-ish compact car (versa, spark, corolla, etc.) (make sure it has it’s stock exhaust, some people change those out because they have no concern for others). They’re pretty quiet. and pretty quickly the road noise totally overwhelms the anemic engine noise.

    Totally agree with you on fleets; garbage trucks especially tend to be unbearably loud and dirty, and are prime candidates for electrification, and they can be charged back at their depot.

  13. Remember that EV batteries which may get to the point where they’re too depleted for use in EVs will still have considerable resale value. Number of cycles is highly dependent of lots of things but in general it’s fair to say the useful life of the battery will typically exceed the life of the car. For what it’s worth, a lot of EV manufacturers are warrantying their batteries for 100K miles or more just to give prospective buyers peace of mind.

    I’ll disagree with the noisyness of ICE vehicles. Next time you get a chance; pay attention to a new-ish compact car (versa, spark, corolla, etc.) (make sure it has it’s stock exhaust, some people change those out because they have no concern for others).

    But that’s only a small percentage of vehicles. It seems to me most people who own compact vehicles also tend to be the types who drive them only when they have to. At any given time some large percentage of vehicles on the roads are SUVs, pickups, sports cars, etc. Those all tend to be noisier than compacts, both in terms of engine noise and wind/tire noise. Of course, the noise from large diesel vehicles overwhelms everything else, which is why I suggested those should be the first to be converted to electric.

  14. A good point. Apartment complexes with onsite parking that provide electric chargers are indeed in the minority and will be for the foreseeable future.

    And while it would be awesome to see plug-in vehicle penetration in the urban core, urban areas well served by transit (I believe most of NYC would qualify) should have less need for private vehicles in the first place. Of course, it would be great to see ZipCar and other carshare services roll out electric vehicles across their fleets, especially considering they not only serve urban areas, but also enjoy semi-permanent/static parking spaces.

  15. Just curious, why wasn’t a battery swapping system implemented? Stop at a station, leave your battery, get another one, move on. Someone else gets yours. Should take seconds, not an hour.

    There is precedent for that kind of system regarding fuel and gas containers.

  16. It may be in the future, but at this time; each e-car has a different size/type of battery pack. Plus, a tesla battery pack weighs about 1200lbs; you’d need some specialized equipment at each swap station to replace that quickly and safely.

    A slightly more complex issue with swapping batteries is the ownership model. Does the dealer own the batteries or does the car owner? Who pays for it if it breaks or degrades? Will tesla service nissan batteries, etc?

  17. Probably not a great idea because it would be cumbersome, and likely a lot more expensive than home charging, negating one of the big advantages of EVs, namely lower energy costs. Also, as we increase range, the need for fast charging rapidly becomes moot, other than for the tiny minority without access to charging where they park (and nationally it is a tiny minority despite the situation which might exist in places like NYC).

    Anyway, the best policy for cities isn’t keep the number of private autos the same but electrify all of them. Rather, we should electrify both public and private fleets in the short term, and strongly discourage private automobile ownership in the medium term. We can do this by reducing parking and mandating electric cars. If a person has no place to charge, they just won’t be able to drive in the city. That would certainly give incentives to install charging stations as rapidly as possible.

  18. I’ve noticed. It actually seems a bit late now, but is the sort of thing that might have worked if it had been considered before. We had the service station infrastructure (gas stations), so such specialized infrastructure could have been made normal.

    The owner can own it until he swaps it. Part of the change out fee can be insurance against breakage, which spreads the risk out over all drivers, which should reduce costs. I don’t think that is a big problem.

  19. EVs will probably raise energy costs for non-drivers. But I’d think a battery swap could happen as quickly as filling the pump, maybe with the caveat that the driver can’t do it himself.

    Obviously I agree, POVs should be reduced, not encouraged.

  20. I don’t think anyone pursued the battery swap idea because the technology was pointing in the direction of it just not being needed on a large scale, if at all. Besides faster charging batteries, and batteries with more range, inductive on-the-fly charging is not that far away. If you can recharge while moving along a highway, even if it’s only for a few minutes at time, you might never deplete your battery.

    I’m not so sure EVs would raise energy costs overall. Consider that gas stations and in general the entire refining industry are huge consumers of electricity. If fact, when I looked at the numbers I thought about how ridiculous it was. I think we were using nearly as much electricity to refine crude oil and pump gasoline as we might have to charge batteries to move those cars. And then there’s the fact power stations have excess capacity at night which EVs might allow them to sell. My wild guess is when everything is considered it’ll be a wash.

  21. Not really. People who can afford it are still moving to downtown. (Same as it has been for most of history, with a short 100 year break.)

  22. So vote for Bernie Sanders. Polls say he’ll trounce Trump in the general election if he can just win the nomination.

    P.S. four years is approximately when the Saudis have to raise oil prices.

    P.P.S. Cheap gas doesn’t seem to be having any effect whatsoever on the booming electric car industry, or on the booming solar panel industry, or on the booming wind turbine industry.

  23. Wind power is now absolutely the cheapest way to generate electricity. Solar power (utility-scale) in the sunbelt is close behind. Solar already won an open bid (cheaper than fossil fuels) in Colorado, and has been winning them routinely in sunnier areas. In many areas natural gas (methane) is third; though in some areas near coal mines, coal is still third cheapest.

    Look up Lazard’s Levelized Cost of Energy analysis.

    Electricity demand is going way down thanks to LED lighting, heat pumps, and other efficiency improvements.

    So don’t worry about the electricity prices. And buy a Tesla when you get the chance and the money: the Model S has more cargo space than most SUVs, and the Model X five-seat model has even more space.

    Also, if you haven’t done it already, consider replacing your air conditioning with a split-system reversible heat pump — much more efficient than old-fashioned A/C, and doubles as a backup heating system.

  24. (a) it’s surprisingly cheap to install charging points, much cheaper than you think; $200 all-in is typical if you don’t gold-plate it. They’re just electrical outlets.
    (b) lithium batteries can take upwards of 200,000 charge cycles before deteriorating.

    Perhaps you’ve gotten confused by the early failure of a lot of lithium-ion batteries due to *lack of temperature control*. Every time they go outside their preferred ideal temperature range the lifespan gets shortened, and it gets shortened by a *lot*. The Nissan Leaf doesn’t thermally manage its batteries properly and suffers a LOT from this.

  25. Batteries are expensive enough that people want to keep “their” battery, which they’ve taken care of, rather than getting a battery which some other person abused and mistreated. Same reason a lot of people won’t buy used cars. (I also noted above that lifespan of lithium-ion batteries is *very* dependent on how they’re taken care of. You can shorten the life a lot by taking them outside their favored temperature range, overcharging them, allowing the charge level to drop too low, etc. etc. etc.)

  26. I calculated it out: converting the entire US vehicle fleet to electric would raise US electricity usage by less than 10%.

    Insignificant. We’re saving more than that by switching our lighting to LEDs.

  27. New compact cars are loud compared to a Tesla. Any gas car is loud compared to a Tesla. It is what it is.

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