As Fuel Prices Fall, Will Push For Alternatives Lose Steam?

Demand for electric cars like this Saturn hybrid may flag if gas prices keep sliding.
Demand for electric cars like this Saturn hybrid may flag if gas prices keep sliding. (By Justin Sullivan -- Getty Images)
By Steven Mufson
Washington Post Staff Writer
Monday, October 20, 2008

Just four months ago, a conference here on electric cars drew four times as many people as expected. District fire marshals ordered some of the crowd to leave, and the atmosphere was more like that of a rock concert than an energy conference. A brief film depicted an electric car owner driving off with a beautiful woman to the strains of "The Power of Love" while her original companion struggles to pay for gasoline. The audience cheered.

One discordant note in the series of enthusiastic speeches came from Bill Reinert, one of the Toyota Prius designers. He cautioned that designing and ramping up production of a new car takes five years.

"If oil goes down to $60 or $70 a barrel and gasoline gets back to $2.50 a gallon, and that very possibly could happen," he said, "will that demand stay the same or will we shift back up?"

It didn't take five years to hit those numbers. One type of oil shock has given way to another. Even more swiftly than the price of oil rose, it has tumbled to the range that seemed far-fetched when Reinert spoke and oil was more than $130 a barrel. Now that drop threatens a wide variety of game-changing plans to find alternatives to oil or ways to drastically reduce U.S. consumption.

"Declining oil prices can give us an artificial and temporary sense that reducing oil consumption and energy consumption is an issue we can put off," said Greg Kats, a managing director of Good Energies, a multibillion-dollar venture capital firm that invests in global clean energy.

The credit crisis is compounding that threat by making it more difficult to finance capital-intensive projects, whether they are new auto assembly lines or solar panels or wind turbines. General Motors has been touting the Chevy Volt as the first mass-marketed, plug-in hybrid vehicle. GM, which has been holding merger talks with Chrysler, believes the project will help justify federal financing. It hopes to deliver the car by the end of 2010.

Tesla Motors, a maker of a handful of pricey electric sports cars, had planned to unveil a cheaper sedan next year. But on Thursday it delayed the new model because of trouble lining up financing. It also said it would close two offices and has replaced its chief executive.

The uncertain future of electric cars points to a sticky aspect of the global oil equation. The price of oil can change rapidly, but responses that would cut petroleum use take time. As oil prices climbed, major automakers including GM, Mitsubishi, Renault-Nissan and Toyota moved ahead with plans to produce plug-in vehicles. But the first of those cars won't be ready for a couple of years. What the price of oil will be then, and what consumers' appetite for plug-in cars will be then, is anybody's guess.

Focusing on Efficiency

Doing something about the amount of gasoline Americans use is essential to defusing future oil shocks. The American motorist is among the most profligate in the world. More than one out of every nine barrels of oil produced worldwide ends up in the gas tanks of cars in the United States. The amount of petroleum burned by U.S. motorists exceeds the entire crude oil output of Saudi Arabia, and that has propped up demand -- and prices.

Yet U.S. cars are among the least fuel efficient in the world. "The U.S. dependence on oil imports is based on waste, not on needs," said Paolo Scaroni, chief executive of Italian oil giant Eni.

Electric cars aren't the only answer. More efficient cars, whether better combustion engines or hybrids like the Prius, may be a cheaper way to achieve big fuel savings.

Some firms are creating substitute fuels such as ethanol derived from corn or diesel derived from algae. Biofuel players range from the oil majors, such as BP and Royal Dutch Shell, to ethanol giants VeraSun Energy and Poet, to tiny firms like Solarzyme, which started in its founders' garage five years ago and is now testing an algae catalyst in a large commercial vat. Many firms are working on cellulosic ethanol, derived from organic materials such as grasses or wood chips, but those factories are still in the pilot or demonstration stage.

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