I read Bob Herbert's excellent columns in The New York Times on a regular basis. This outspoken progressive is one of my favorite writers. In today's Op-Ed piece, he really outdoes himself. I urge you to check it out.

http://www.nytimes.com/2008/07/01/opinion/01herbert.html

The populist rhetoric is that we should throw those responsible for high gas prices in jail.

Ok fine. We need 600 million jail cells.

Many folks probably have the sense by now that if we paid for alternative energy like we pay for gasoline then we wouldn't be in the predicament we are now today.

Reality has caught up to that intuition..  Few have noticed it, but at $4.00 per gallon, we have passed a tipping point in financing alternative energy and electric cars.  Consider the seemingly naive questions: Wouldn't it be great if gas only when up by 10% a year, not 30%?  Wouldn't it be great if we could buy an electric car for the same price as a gasoline car, only we get to fill it up at a discount- say $3.80 per gallon?  Wouldn't it be great if the electricity that fueled these cars came from alternative energy that would help fight the climate change that  threatens more extreme weather like floods and intense hurricanes?

Well, dust off your spreadsheets, because the numbers add up now.  This may be a very dull way of going about changing the world, but hey- whatever works, right? 

Here's the deal:  Electric cars cost a lot more than gasoline versions of the same.  Here's what they have to do:  The average US cars does about 33 miles per day, and uses 1.6 gallons*.  To go a similar distance, the average electric vehicle equivalent would need 16Kilowatts of power**, and assuming that batteries cannot be discharged more than 50%, a commuter car that charged at work would require a 16KWH battery. 

It is possibly not too surprizing that GM's revolutionary electric vehicle, the Volt  has a battery around that size- a 16KWH Lithium Ion battery.  Now as everyone that has bought batteries for electronics knows, Lithium Ion batteries are very expensive.  Automotive versions cost about $1 per watt.  When  production volumes are high, producers figure they can get that down to 63 or even 50 cents per watt hour, but today, the added cost of the battery adds $16,000 to a $24,000 car.  GM is expecting the price of the Volt to be around that: $40,0000.  It's no wonder that folks are skeptical about how well these will sell in a recession.  A $5000 tax credit means maybe if all goes well, the car costs you $35K.  Big deal, it might as well have been $100K- it is way out of normal people's pain threshold, but multimillionaire republican senators tend to forget that sort fo thing.

Anyway, now for some fun with numbers..  The rabbit you will see pulled out of the hat is this:  The customer can buy an electric vehicle for near the same price as what they would pay for the gasoline version:  example cost of Volt would not be $40,000 but $28,000.  As far as the customer is concerned, the battery is free, and in return they are asked to pay for the battery and the clean energy for the car at the equivalent of $3.80 per "gallon" of gas.  No loan payments to bother with- it is pay as you go- coming out of the electricy bill  Regardless how high gas prices go in the future, the price of the vehicle energy goes up no more than 10 % per year.  So next year when people are paying $5.50 per gallon, you are paying $4.18 per equivalent gallon.  My bet is that a lot of folks would dump their gas hogs and jump at that kind of car deal.

So ok now the boring part- how it actually works.  We take McCain's $5000 tax break and instead of paying for a car that basically runs on coal (not real bright Senator), we use the same money as a force multiplier, by paying for the interest on a loan that covers the cost of the battery.  We don't cover the entire price of the battery because that would be a disincentive for innovations in battery technology.  So we cover 70% of the battery cost.  So in the case of the volt, instead of paying for $16,000 for the 16KWH battery, we cover only $12000 of the cost.  This loan is much like government sponsored student loans, and these typically have interest rates in the 7.5% range.  Spread over the 10 year life of the battery, the cost of the accumulated  interest would be $5045.  ***

The customer is not troubled with the loan.  It is repaid via a surcharges on the electricity used to recharge the battery.  It is paid in the first year at the rate equivalent of $3.80 per gallon of gas.  Only electricity going into the car is charged at this higher rate.  Residential electricity is paid at the normal local rate.  The electricity with surcharge in the first year charged at 38 cents per KWH.  By government requirement, the utility is entitled to 34 cents of that surcharge in order to cover the cost of alternative energy generation.  If they fail to generate sufficient alternative energy, they are not entitled to the 34 cent premium rate.  This guaranteed premium rate gives strong incentives for suppliers to build alternative capacity.  The incentive is reliable and capital loans for generation capacity based on that rate are low risk because the rate is not a government revenue subsidy as in the German system. 

In the first years, not much surplus remains from the surcharge to pay for the battery.  However in subsequent years, since the rate escalates at 10% to distantly track the price of gasoline, the battery is paid off at a quicker rate.  In the 9th year, the principle $12,000 is recovered, and the vehicle then goes back to paying only 34 cents per KWH (around $3.40 per gallon, at a time when gasoline may easily be above $10 per gallon.) 

Play with the figures yourself, the spreadsheet is a Google Doc- you will find additional citations and can copy and mess with the figures and change the assumptions if you wish. See it here

And that my friends is how we make electric batteries affordable, and incent the fueling of our electric vehicles with alternative energy. 

Note, for simplicity, I omitted a detail regarding energy usage.  16.7 KWHs are required for the equivalent of 1.67 gallons of gas, but this includes the energy wasted during charging which is about 15 to 20%.  So the actual battery size would be slightly smaller,  between 13 and 14 KWHs.  The program was designed to pay less than full price for the battery to incent further battery development.  If this discount is moved to 80 or 90%, the figures are identical.  Of course, a more attractive program is possible if the discount is kept at 70%, and this can be worked out by copying the formulas to one's own spreadsheet on google.

* Average vehicle goes 12,000 miles per year according to DOE [source].  In 2004, the MPG average for passenger vehicles 22.5 mpg, and "other 4 wheel vehicles" which was 16.2mpg [source].  Since 56.1% of vehicles were "passenger" and 37.8% were "other 4 wheel" vehicles according to the Bureau of Transportation Statistics [source]. Given the 12,000 mileage, that means the average car went 32.9 miles and consumed around 1.6 gallons of gasoline.

** The rule of thumb for converting automotive kilowatt hours needed to do the same work that a gallon of gas will do is: 1 KWHours =  .1 gallon of Gasoline.  So, for 1.6 gallons of gas, we need a 16 KWH battery. 

*** To verify this, use an amortization calculator such as this one.  Principle=11742, Annual interest rate 7.5%, Payments per year 365, number of payments 3650.  Solve.  You will see total interest paid over the life of the loan is $4938.  This is the cost of the program, and is the same as McCain's $5000 tax credit. 

While I support conservation as a minor component of our energy independence efforts, it has limits.  Pious ears do not want to hear the blasphemy that there is a point where conservation is more wasteful than generation.  I see fellow environmentalists fall into this trap, taking it as an article of faith that energy waste of any sort is always foolish.  That is a crucial error in conservation dogmatism, to say nothing of the central fallacy that conservation is somehow primary to energy independence or a CO2 free generation policy.

Although I bring up solar as a favorite example, the untapped power resources of ocean and wind (including high altitude) also vastly dwarf our energy demand.  But to drill down on solar as an example, most conservation advocates I read posts from have little grasp the magnitude of the power available.  They seem to have the notion that somehow US solar production would need to displace other uses anytime in the foreseeable future.  This is seriously mistaken.  One recent blog entry on Grist had the following surprizing statement:

"If we started covering large swathes of real estate with solar panels, we would find competition arising from other competing uses of that real estate."

There happen to be 250 thousand square miles in Nevada and Arizona deserts alone whose solar energy is now being used to heat sand.  What uses of this land would be displaced?    Folks that have any doubts about the energy available from this land should take a look at this Scientific American article.   Every year, 1320 trillion kilowatt hours of power in the form of solar radiation falls on this tiny fraction of the US and is used to heat rocks and scrub.  Our entire electrical output from all coal, gas fired plants and nukes etc is just 4 trillion KWHs.   So do the math.  Even if this small fraction of available wasteland were used by low efficiency thin film cells, we would have 40 times the entire electrical capacity of the US.  No Coal, No nukes, no gasoline for cars. 

Sure- there is ridiculous waste in construction today.  If insulation costs 20 cents per watt saved in heating costs, then it is wasteful to spend 50 cents per watt on thin film solar cells in the desert to generate that watt of power.  But what happens when these savings have all been identified and the cost of conserving an additional watt of heating goes up to 80 cents per watt? 

When the cost of conservation is higher than the cost of production, then conservation is more wasteful.   But if folks want to beat the prohibitionist drum attempting to shame people that it never "OK to waste energy", I doubt there is much to quench their missionary zeal.  Let me point out that this activity is in fact an indulgence in puritanical dogma, not sober thinking about energy policy. 

Allow me to pivot from this to make a final observation on the political consequences of this mistaken theme.  Jimmy Carter happens to be one of my heroes, but he erred when he allowed Reagan to take ownership of the theme of infinite expanses awaiting American ingenuity and industriousness to unlock.  Carter was prescient in his early grasp that we were running up against some hard limits, but if like him we allow themes of limits to be defined as our central message, then we run a campaign not against Reagan or whomever the republican is, but against fundamental American cultural themes such as Manifest Destiny and infinite horizons that are burned into the national psyche.  Ignoring the substantial force of these themes at your extreme political peril.  If you want to swing the center, you can't fall into the trap Carter fell into.