According the Lawrence Livermore Laboratory Energy & Environment Department’s 2004 study on U.S. Energy fuel source and uses as of 2002, nearly all of the oil that the U.S. imports is used for transportation (see chart). Therefore, the most effective way of reducing our over-reliance on foreign oil is to make the vehicles more fuel-efficient.
While making vehicles more fuel-efficient is nothing new, the method I propose to achieve this could be.
Proposal
1. Provide the U.S. automakers with a special government contract to build extremely fuel-efficient hybrid electric-gasoline flex-fuel vehicles for the U.S. Government, through the existing GSA vehicle purchasing program and through U.S. Postal Service. (According to the GSA website, the U.S. government purchases 60,000 vehicles each year. According to the USPS 2007 fact sheet, they own and operate more than 216,000 vehicles. Combined, they would provide sufficient critical mass for the automakers to build and sell extremely fuel-efficient hybrid electric-gasoline flex-fuel vehicles.)
Current technology permits building 100+ MPH plug-in hybrid electric-gasoline flex-fuel vehicles of all shapes and sizes for approximately $3,000 (small sedan) to $5,000 (SUV) more per vehicle. The government contract and grant will speed the mass building of these vehicles, even if the U.S. Government has to provide the cost difference of $3,000 to $5,000 per the hybrid electric-gasoline vehicle to the auto maker.
Based on the an estimate of 114,000 hybrid electric-gasoline flex-fuel vehicles a year (60,000 vehicles for the GSA and assuming replacement of 1/4 of the USPS fleet annually, or 54,000 vehicles), the annual grant to the U.S automakers will range from $342 million to $570 million. While this is a lot, it is far less than the $4 billion to $7 billion that we spend annually in grant and incentives to the corn ethanol program.
2. As a condition of the special contract, give the automakers financial incentives and grants to build new factories solely in the U.S. to build the new extremely fuel-efficient hybrid electric-gasoline flex-fuel vehicles. This condition will force the U.S. automakers to bring jobs back into the states that lost auto jobs to Mexico and Canada.
The U.S. government can reallocate 50% of the current spending on corn ethanol program to building new, state-of-the-art automobile factories (new parts factories and assembly plants) in the rust belts that are experiencing high unemployment. Based on the overall cost of the newest U.S. based automobile assembly plant – the Kia plant in Georgia, the cost of a new plant is approximately $1.2 billion. Once again, it is a large sum but, again, less than the current subsidy to the corn ethanol.
Diverting 50% of the current corn ethanol subsidy will result in $2 billion to $3.5 billion annually to building 100+ MPH plug-in hybrid electric-gasoline flex-fuel vehicles. At a cost of approximately $1.2 billion to $2 billion, it is conceivable to build two to three new automobile plants dedicated to building 100+ MPH plug-in hybrid electric-gasoline flex-fuel vehicles.
3. As a further incentive for buyers of the plug-in hybrid electric-gasoline flex-fuel vehicles, provide a government rebate, not tax credit, but a rebate similar to the 2008 tax rebate, say $3,000 per vehicle to every purchaser of a plug-in hybrid electric-gasoline vehicle. Make this rebate available to individuals and corporate fleets for the first three years of the program. (This tax rebate is better than the current tax credit of $250 to $3,400 for hybrid cars.
By making the government rebate of $3,000 per plug-in hybrid electric-gasoline vehicle available to everyone for the first three years, demand for these vehicles will be very high as the cost of owning these vehicles will be less than a comparable gas powered vehicle. Assuming an annual production of 200,000 cars per year for the first three years, the cost of the rebate may run about $774 million over three years (600,000 vehicles less 342,000 vehicles purchased by the GSA and USPS over three years, or 258,000).
4. After the initial start-up period of three years, expand the production of plug-in hybrid electric-gasoline flex-fuel vehicles into other states by building more assembly plants and ramp up production to meet growing demands.
According to a WSJ report, more than 15 million vehicles are sold every year. 
The combined efforts of the government grants to the U.S. automakers and the a government rebate to the purchasers of the plug-in hybrid electric-gasoline flex-fuel vehicles would highly likely capture 10% of all vehicle sales, or approximately 1.5 million plug-in hybrid electric-gasoline flex-fuel vehicles. At an average MPG (miles per gallon) of 100, these vehicles would burn only about 25% of the gasoline of a comparable gas powered vehicle. In 2007, the average MPG of all vehicles sold in the U.S. up to October was 26.7 MPG. Assuming average miles traveled annually of 12,000 miles, this would result in a savings of approximately 112 gallons of fuel per vehicle a year, or 168.5 million gallons of fuel per year, overall[i].
Since it takes 1 barrel of oil to produce 19.5 gallons of gasoline, a savings of 168.5 million gallons of gasoline will result in the savings of 8.64 million barrels of oil, or about a day’s worth of foreign oil import. While this seems small, it is highly symbolic in that the U.S. is actually reducing its consumption of oil due to increased fuel efficiency.
Benefits Of The Proposal
- If 1.5 million cars sold in the U.S. were plug-in hybrid electric-gasoline flex-fuel vehicles , we would realize a savings of 168.5 million gallons of gasoline a year. This would reduce our CO2 output by 1.5 million metric tonnes, equivalent to CO2 absorbed by 1.86 million acres of 25-year old growth of trees[ii]
- Sale of 1.5 million plug-in hybrid electric-gasoline vehicles would result in an immediate increase in the overall average MPG from 26.7 MPG to 34 MPG[iii]. Tremendous increase in average MPG without using any C.A.F.E. measures.
- There is no need for any complicated tax credit formulae currently in place
- The U.S. Government can realize savings through elimination of the C.A.F.E. system, an overly complicated and bureaucratic system that penalizes rather than rewards automobile manufacturers. According to a 2004 Heartland Institute report, the cost of increasing the C.A.F.E. standard to 31.3 MPG for cars and 24.5 MPG for light trucks will costs a total of $3.6 billion. This does not even include the cost incurred by the government in legislating, drafting, and enforcing the regulations. Add in the cost of lobbyists on, both sides – pro and con - and this overall cost of the C.A.F.E. can easily top $5 billion
- This will not compete with the current ethanol program as the plug-in hybrid electric-gasoline flex-fuel vehicles would be able to use 100% ethanol, as production of ethanol ever reach critical mass
Ed Kim
riskyops.blogspot.com
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[i] Calculation: 12,000 miles / 26.7 MPG = 449.4 gallons; 25% of this = 112.4 gallons; 112.4 * 1.5 million vehicles = 168,539,326 gallons a year saved
[ii] Calculation: 3,269,662,921 pounds of CO2 saved from 1.5 million plug-in hybrid electric-gasoline flex-fuel vehicle / 1,760 pounds of CO2 by 25-year old growth of trees (source: Tufts University) = 1,857,763 acres equivalent
[iii] Calculation: 15,100,000 vehicles sold in 2007in the U.S. less 1.5 million plug-in hybrid electric-gasoline flex-fuel vehicle = 13,600,000 vehicles. (13,600,000 vehicles x 26.7 avg. MPG + 1,500,000 plug-in hybrid electric-gasoline flex-fuel vehicle x 100 MPG)/15,100,000 vehicles = 34 overall MPG. Sphere: Related Content
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