Reinventing the Wheels

New ways to design, manufacture, and sell cars can make them ten times more fuel-efficient, and at the same time safer, sportier, more beautiful and comfortable, far more durable, and probably cheaper. Here comes the biggest change in industrial structure since the microchip
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The Cost of Inaction

The potential public benefits of hypercars are enormous—in oil displacement, energy security, international stability, forgone military costs, balance of trade, climatic protection, clean air, health and safety, noise reduction, and quality of urban life. Promptly and skillfully exploited, hypercars could also propel an industrial renewal. They're good news for industries (many of them now demilitarizing) such as electronics, systems integration, aerospace, software, petrochemicals, and even textiles (which offer automated fiber-weaving techniques). The talent needed to guide the transition is abundant in American labor, management, government, and think tanks, but it's not yet mobilized. The costs of that complacency may be high.

Cars and light trucks use about 37 percent of the nation's oil, about half of which is imported at a cost of around $50 billion a year. We Americans recently put our sons and daughters in 0.56 mpg tanks and 17-feet-per-gallon aircraft carriers because we hadn't put them in 32 mpg cars—sufficient, even if we'd done nothing else, to have eliminated the need for American oil imports from the Persian Gulf. Of course, more than just oil was at stake in the Gulf War, but we would not have sent half a million troops there if Kuwait simply grew broccoli. Even in peacetime the direct cost to the nation of Persian Gulf oil—mostly paid not at the pump but in taxes for some $50 billion a year in military readiness to intervene in the Gulf—totals nearly $100 a barrel of crude, making it surely the costliest oil in the world.

Had we simply kept on saving oil as effectively after 1985 as we had saved it for the previous nine years, we wouldn't have needed a drop of oil from the Persian Gulf since then. But we didn't—and it cost us $23 billion for extra imports in 1993 alone. Gulf imports were cut by about 90 percent from 1977 to 1985 (chiefly by federal standards that largely or wholly caused new-car efficiency to double from 1973 to 1986). Yet they are now reapproaching a historic high—the direct result of twelve years of a national oil policy consisting mainly of weakened efficiency standards, lavish subsidies, and the Seventh Fleet.

The national stakes therefore remain large. And even though the PNGV is starting to re-create Detroit's sense of adventure, hypercars still face formidable obstacles, both culturally within the auto industry and institutionally in the marketplace. Whether or not their advantages make their ultimate adoption certain, the transition could be either unnecessarily disruptive, shattering industrial regions and job markets, or unnecessarily slow and erratic in capturing the strategic benefits of saving oil and rejuvenating the economy. Auto makers should be given strong incentives to pursue the leapfrog strategy boldly, and customers should be encouraged to overcome their well-known lack of interest in buying fuel-thrifty cars in a nation that insists on gasoline cheaper than bottled water.

Market Conditioning and Public Policy

The usual prescription of economists, environmentalists, and the Big Three- though, it seems, a politically suicidal one—is stiff gasoline taxes. After painful debate Congress recently raised the gasoline tax by 4.3 cents a gallon, leaving the price, corrected for inflation, the lowest both in the industrial world and in U.S. history. But in Western Europe and Japan taxes that raise the price of motor fuel to two or four times that in the United States have long been in place, with unspectacular results. Gasoline costing two to five dollars a gallon has modestly reduced distances driven but has had less of an effect on the efficiency of new cars bought. New German and Japanese cars are probably less efficient than American ones, especially when performance, size, and features are taken into account. Costlier fuel is a feeble incentive to buy an efficient car, because the fuel-price signal is diluted (in the United States today, by seven to one) by the other costs of owning and running a car. It is, as well, weakened by high consumer discount rates over a brief expected ownership, and often vitiated by company-owned cars and other distortions that shield many drivers from their cars' costs.

This market failure could be corrected by strengthening government efficiency standards. But standards, though effective and a valuable backstop, are not easy to administer, can be evaded, and are technologically static: they offer no incentive to keep doing better. Happily, at least one market-oriented alternative is available: the "feebate."

Under the feebate system, when you buy a new car, you pay a fee or get a rebate. Which and how big depends on how efficient your new car is. Year by year the fees pay for the rebates. (This is not a new tax. In 1990 the California legislature agreed, approving a "Drive+" feebate bill by a seven-to-one margin, although outgoing Governor George Deukmejian vetoed it.) Better still, the rebate for an efficient new car could be based on how much more efficient it is than an old car that's scrapped (not traded in). A rebate of several thousand dollars for each 0.01-gallon-per-mile difference would pay about $5,000 to $15,000 of the cost of an efficient new car. That would rapidly get efficient, clean cars on the road and inefficient, dirty cars off the road (a fifth of the car fleet produces perhaps three fifths of its air pollution). The many variants of such "accelerated-scrappage" incentives would encourage competition, reward Detroit for bringing efficient cars to market, and open a market niche in which to sell them. Feebates might even break the political logjam that has long trapped the United States in a sterile debate over higher gasoline taxes versus stricter fuel-efficiency standards—as though those were the only policy options and small, slow, incremental improvements were the only possible technical ones.

Perhaps people would buy hypercars, just as they switched from vinyl records to compact discs, simply because they're a superior product: cars that could make today's most sophisticated steel cars seem clunky and antiquarian by comparison. If that occurred, gasoline prices would become uninteresting. Scholastic debates about how many price elasticities can dance on the head of a pin would die away. The world oil price would permanently crash as superefficient vehicles saved as much oil as OPEC now extracts. Feebates would remain helpful in emboldening and rewarding Detroit for quick adaptation, but perhaps would not be essential. The ultralight hybrid would sweep the market. What then?

Then we would discover that hypercars cannot solve the problem of too many people driving too many miles in too many cars; indeed, they could intensify it, by making driving even more attractive, cheaper, and nearly free per extra mile driven. Having clean, roomy, safe, recyclable, renewably fueled 300 mpg cars doesn't mean that eight million New Yorkers or a billion still-carless Chinese can drive them. Drivers would no longer run out of oil or air but would surely run out of roads, time, and patience. Avoiding the constraint du jour requires not only having great cars but also being able to leave them at home most of the time. This in turn requires real competition among all modes of access, including those that displace physical mobility, such as telecommunications. The best of them is already being where we want to be—achievable only through sensible land use.

Such competition requires a level playing field with honest pricing, so that drivers (and everyone else) will both get what they pay for and pay for what they get. But least-cost choices are inhibited today by central planning and socialized financing of car-based infrastructure, such as roads and parking, while alternative modes must largely pay their own way. Happily, emerging policy instruments could foster and monetize fair competition among all modes of access. Some could even make markets in "negamiles" and "negatrips," wherein we could discover what it's worth paying people to stay off the roads so that we needn't build and mend them so much and suffer delays and pollution. Congestion pricing, zoning reforms, parking feebates, pay-at-the-pump car insurance, commuting-efficient mortgages, and a host of other innovations beckon state, local, and corporate experimenters. Yet unless basic and comprehensive transport and land-use reforms emerge in parallel with hypercars, cars may become apparently benign before we've gotten good enough at not needing to drive them—and may thus derail the reformers.

If the technical and market logic sketched here is anywhere near right, we are all about to embark on one of the greatest adventures in industrial history. Whether we will also have the wisdom to build a society worth driving in—one built around people, not cars—remains a greater challenge. As T. S. Eliot warned, "A thousand policemen directing the traffic / Cannot tell you why you come or where you go."

Amory B. Lovins and L. Hunter Lovins are the cofounders and directors of Rocky Mountain Institute, a nonprofit resource-policy center in Snowmass, Colorado. Amory Lovins is a MacArthur fellow and an Onassis laureate. Amory Lovins and Hunter Lovins have shared the Mitchell Prize and the Right Livelihood Award.
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