Rapid Substitution provides an important argument in favor of subsidies for electric vehicles. Expanded EV subsidies would encourage mass adoption of EVs causing oil and gasoline prices to drop. The drop in oil and gasoline prices has a huge benefit to consumers and businesses and is an important justification for subsidizing EVs.
The same argument applies to funding other infrastructure that displaces oil consumption such as Greenways, bike lanes and reliable public transportation.
One way to take advantage of an oil price crash due to an inelastic oil supply is through a floating tax. A tax based on these principles presents the US Federal Government with an opportunity to generate tens of billions of dollars in new revenue.
If, for example, Congress were to establish a floating tax that would be automatically implemented when the cost of oil drops below a certain level (say $50/barrel), the Federal government would raise billions of dollars that could be re-invested in other clean energy efforts. Here’s how that math works.
In 2019, American consumers (including business and government entities) spent around $479 billion on oil products. If the price of oil were to drop by fifty percent to $32 a barrel, consumers would be paying around $240 billion for their oil and not spending another $240 billion!
At that point, the Federal government triggers the floating tax, collecting the difference between $32 and $50. That’s $18 per barrel!
Unlike traditional carbon taxes, this price floor on oil would be less likely to cause public outrage. As oil prices fall below $50/barrel, consumers and businesses will be paying lower prices at the pump and focus less on the fact that global oil prices have fallen even lower.
To provide further context for what these prices mean for consumers at the pump, in May 2017, oil prices averaged around $50/barrel. That month, US consumers paid an average of $2.30 per gallon of gasoline. In November 2019, the average price of oil was $64 per barrel, and the price at the pump was $2.50 per gallon.
Obviously, numerous details must be worked out in order to implement this tax. Where in the value chain would the tax be implemented? Would it float daily, weekly or monthly?
Transitioning from carbon-based to a mostly electric economy means that a lot of stuff (solar panels, heat pumps, electric vehicles etc.) will have to be built.
To get an idea of the scale of the transition required, consider the case of electric vehicles – in 2020, 296,000 plug-in light duty electric vehicles were sold in the US, out of a total market of around 15 million light-duty vehicles (cars, SUVs, light trucks). Eventually most new vehicles will need to be electric. That requires a giant increase in manufacturing capacity, major disruptions to existing supply chains, new requirements for workers, and a host of other issues. It’s also a huge opportunity, as some industries grow and others are created.
Ensuring this energy transition maximizes benefits and minimizes costs will require some entity to manage the transition. Examples of similar project managers from US history include:
The War Production Board during World War II which supervised the Arsenal of Democracy
The Texas Railroad Commission which effectively controlled oil production and oil prices during the middle decades of the 20th century Ron Klain’s role as White House Ebola Response Coordinator A National Climate Advisor with expanded powers.
Another example of a similar role is W. Edwards Deming’s work on Total Quality Management and the rebuilding of industry in Japan after World War II.
Some entity needs the authority and responsibility to manage the energy transition in order to maximize benefits and minimize disruptions to daily life. There will certainly be big changes to both the economy and how we live our lives. The private sector has an important role in innovation and deployment of clean energy technologies. However, without an enabling policy environment the transition will be too slow and the cost of energy will be too high. With the right leadership and policy environment clean energy can improve our quality of life.
It’s not all about cars! Electric buses can save transit authorities millions and help curb pollution. Electric buses must be part of the energy transition.
There are several reasons to focus on replacing fossil-fueled buses, beginning with the fact that transportation is the number one source of emissions in the U.S. and is, therefore, the area most in need of redress. Heavy-duty vehicles (such as transit buses) account for a disproportionate amount of those emissions—only 5% of vehicles on the road, heavy-duty vehicles constitute 25% of transportation emissions. That’s because they drive more miles than passenger vehicles and are less efficient with their fuel consumption.
The average transit bus, for example, drives 44,000 miles each year, while getting only 3.3 mpg—that’s almost four times as many miles as the average passenger vehicle while only one-seventh the fuel efficiency. Key to Rapid Substitution, converting a transit bus which consumes roughly twenty-nine times as much oil each year than a typical passenger vehicle (317 barrels of oil vs. 11) is a huge step towards keeping oil in the ground.
By replacing fossil-fueled buses with zero-emission buses, one therefore eliminates a significant amount of oil consumption and thus GHG emissions: in Pittsburgh, PA, for example, electrifying all 750 transit buses would eliminate the demand for 235,500 barrels of oil each year thus preventing an estimated 23,000 tons of GHG gas emissions yearly.
There are also meaningful benefits to public health and standard of living, as many studies link particulate matter (like that emitted from diesel buses) to heart and lung disease. Eliminating particulate matter caused by diesel has the biggest positive impact on lower-income communities and communities of color, which are disproportionately affected by poor air quality.
While there are multiple options for zero/low emission buses which address Rapid Substitution, this article is focusing on battery electric buses (BEBs) as they are growing in popularity and also improve the user experience for riders, drivers and passersby, via quieter, cleaner, and smoother rides.
The most immediate measure that can decrease oil demand is working from home, using public transit, and using e-bikes or scooters as micro mobility solutions. Long-term, better urban planning can help negate the need for the use of cars.
One reason that e-scooters and e-bikes are so logical is that most car trips are short and can be easily replaced with other modes of transportation. According to the 2017 National Highway Transportation Survey, 60% of car trips in the US were 5 miles or less. With the right combination of protected bike lanes, sidewalks, and neighborhood greenways many of those trips could be made by e-scooter, bike, e-bike, or simply walked. The planning and infrastructure required to make it easy to take short trips by e-scooter also make it easier to get around by walking or biking. Think about how much more pleasant it would be to get around if even half of the drivers on short trips switched to e-scooters or e-bikes!
Another benefit to switching short trips from cars to micromobility options is that it could mean cheaper gasoline for those who stay in their cars. The reason is obvious, but often overlooked. Less driving means less demand for gasoline and less demand means lower prices. The impact is exaggerated by the nature of the oil industry. Oil production projects take years to develop and it’s a slow and expensive process for oil companies to increase or decrease their production. That’s why oil prices crashed when the start of the COVID-19 pandemic abruptly reduced oil demand and it’s why oil prices are so high as demand is increasing after oil companies reduced supply in 2020.