Hybrids: Dependency and Developments

An article from MSNBC provides a good summary of how dependent any major shift in the US to alternative fuels will be on the automotive industry.

Alternative energy sources have failed to supplant oil for another very simple reason. About two-thirds of the oil consumed in the U.S. is used as a transportation fuel. So far, only biofuels — like ethanol made from corn — are available to displace petroleum as a vehicle fuel. But ethanol and biodiesel are only economical thanks to heavy subsidies. Some researchers say that these biomass fuels require more for fossil energy to make than they produce. In any case, even if ethanol production doubles to 7.5 billion gallons in 2012 — as called for the in the recent energy bill — that would represent only about 5 percent of the fuel consumed by U.S. motorists today.

Other renewable energy sources (like wind and solar) and non-oil fossil fuels (like natural gas or coal) and nuclear will also displace little oil because they are used almost exclusively to generate electricity. Less than 2 percent of the 20 million barrels a day of petroleum products consumed in the U.S. is used to supply power.

Electric or hybrid cars will be one of the driving forces behind any substantial shift to alternative fuels. Given the compelling popular and economic reasons for such a shift within the US, it is a little surprising that of the first three hybrids available in America, all were made by Japanese manufactures (Honda Civic Hybrid and Insight and Toyota Prius). However, while not exactly at the vanguard of hybrid technology, it is encouraging that US firms recently introduced, or will shortly, several hybrid models.

As the The New York Times reported over the weekend, US manufacturers will face new German competition in the hybrid space. According to the article, both Volkswagon and BMW will begin developing hybrid vehicles – BMW by joining an existing partnership between DaimlerChrysler and General Motors and Volkswagon through work with a Chinese automaker for initial distribution in China (with plans to ultimately distribute in the US and Europe). Since both manufacturers had previously responded to rising oil prices with their diesel models (diesel engines are more efficient than gasoline engines), this shift seems particularly significant.

Volkswagon’s aspirations in China underscore the fact that diesel may not be an appropriate solution to high oil prices for cities contending with pollution, such as Beijing (critics have concerns over diesel emissions). As demand continues to grow, it would not be surprising if emerging markets consistently vocalized a preference for hybrid over diesel engines due to pollution concerns. The joint-venture between BMW, DaimlerChrysler and General Motors also suggests the potential depth of the hybrid market in the developed US and European markets, where these automakers have an enormous combined presence.