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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)

Almost all of those alternatives rely on federal subsidies or are counting on lower costs as technology evolves. The cheaper oil gets, the bigger those technological improvements need to be to compete.

The electric car has the potential for making a bigger impact than alternative fuels because it would be powered by the electricity grid, which relies on a mix of coal, nuclear, natural gas and renewable energy sources. Moreover, recharging an electric car is much cheaper than refueling a gasoline car.

Its proponents say the electric car has transformative potential that other transportation alternatives lack. "We want customers to see the Volt as the game changer it is, not only for the technology, but also for business, and maybe more importantly for the way the world drives," said Troy A. Clarke, president of GM North America.

"Reducing our oil dependency meaningfully in the U.S., under any scenario, requires radically improving the efficiency of our vehicles," says Saurin D. Shah, a vice president at investment firm Neuberger Berman who expects an explosion of hybrid and plug-in cars by 2030. He predicts hybrid and electric cars will replace conventional vehicles as swiftly as electric locomotives replaced steam-driven ones.

But because their batteries are expensive, plug-in cars are going to cost as much as $8,000 more than conventional gasoline cars. The lower the price of gasoline, the longer it is going to take for fuel savings to make up for the car purchase premium. That is one reason why Democratic presidential candidate Sen. Barack Obama (Ill.) has proposed a $7,000 tax credit for consumers who buy electric cars. Republican presidential hopeful Sen. John McCain (Ariz.) favors a $5,000 tax credit for cars with ultra-low emissions.

A Long Road to Transition

More than a decade ago, GM killed an electric car called the EV1; the company said motorists weren't interested, but many analysts said a hidebound GM lacked interest. The car ended up as an expensive public-relations debacle. It didn't help that oil prices at the time had collapsed.

But even if oil prices are high, there are bumps in the road to a plug-in automobile future.

If large numbers of electric cars are plugged in at the wrong time of day, they could strain utility capacity. "Today, our electric grid cannot support massive quantities of plug-in hybrid vehicles very well," said Peter Darbee, chief executive of Pacific Gas and Electric. Depending on a utility's fuel mix, plug-in vehicles could boost particulates, or soot. And only half of Americans have electrical outlets where they park their cars at night, according to a major auto firm executive.

Electric vehicles might not solve all strategic issues, either. James Woolsey, former head of the CIA, promotes electric cars because, he says, "We can, we should, and we must, as a major national priority . . . absolutely, totally, completely destroy oil's monopoly" to break the U.S. dependence on foreign oil.

But Irving Mintzer, an energy expert, notes that most electric vehicle motors contain rare elements such as neodymium, and about 95 percent of the world's supply currently comes from China. The United States might swap one form of dependence for another, he said.

And then there is the question of consumer tastes and habits.

Alan L. Madian, director of consulting firm LECG, notes that it takes time for motorists to get used to new types of cars; it has taken a decade for Toyota to sell 1 million Priuses, less than 1 percent of the cars on the road. Madian said that even with "heroic" assumptions about the sales of new electric cars, they would make up 50 percent of new vehicles by 2030 and only 8 percent of cars on the road.

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