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Tuesday, January 23, 2007

The Automotive Angle of the SOTU Speech

A quick take on the policy proposals that the White House has posted as part of the State Of The Union Speech.

PRESIDENT BUSH'S DOMESTIC AGENDA

Energy

President Bush Will Ask Congress And America's Scientists, Farmers, Industry Leaders, And Entrepreneurs To Join Him In Pursuing The Goal Of Reducing U.S. Gasoline Usage By 20 Percent In The Next Ten Years – Twenty In Ten.

America Will Reach The President's Twenty In Ten Goal By:

  • Increasing The Supply Of Renewable And Alternative Fuels By Setting A Mandatory Fuels Standard To Require 35 Billion Gallons Of Renewable And Alternative Fuels In 2017 – Nearly Five Times The 2012 Target Now In Law. In 2017, this will displace 15 percent of projected annual gasoline use.
This sounds like increased mandatory ethanol mix, as well as possible mandates of biodiesel. Unless an open international market in ethanol and biodiesel is permitted, fuel prices will likely go up.
  • Reforming And Modernizing Corporate Average Fuel Economy (CAFE) Standards For Cars And Extending The Current Light Truck Rule. In 2017, this will reduce projected annual gasoline use by up to 8.5 billion gallons, a further 5 percent reduction that, in combination with increasing the supply of renewable and alternative fuels, will bring the total reduction in projected annual gasoline use to 20 percent.
Not much detail here, but likely it means "increase CAFE", which is a mixed bag. On one hand, it will make cars more expensive or less powerful. On the other hand, more regulation means more competitive advantage to the established players, and a steeper hill to climb for the Chinese.
  • Congress Must Reform CAFE For Passenger Cars. The Administration has twice increased CAFE standards for light trucks using an attribute-based method. An attribute-based system (for example, a size-based system) reduces the risk that vehicle safety is compromised, helps preserve consumer choice, and helps spread the burden of compliance across all product lines and manufacturers. Congress should authorize the Secretary of Transportation to apply the same kind of attribute-based method to passenger cars.
So cars would be graded approximately by weight (footprint = wheelbase x track) rather than all being required to average out to the same number. This is a smarter way to do CAFE (a smarter way to do a stupid thing) because it takes size into account. However, we don't know yet how hard the new rule will push on fuel economy.

The President's Plan Will Help Confront Climate Change By Stopping The Projected Growth Of Carbon Dioxide Emissions From Cars, Light Trucks, And SUVs Within 10 Years.

The President's Plan To Strengthen America's Energy Security Also Includes:

  • Stepping Up Domestic Oil Production In Environmentally Sensitive Ways
Good. Supply and demand--reduce demand, but also increase supply. Require more ethanol mixing, but reduce the price of the major component to offset some of the pain.
  • Doubling The Current Capacity Of The Strategic Petroleum Reserve (SPR) To 1.5 Billion Barrels By 2027. Doubling the SPR alone will provide approximately 97 days of net oil import protection, enhancing America's ability to respond to potential oil disruptions.
Interesting. The SPR is not just used to control market prices, and Bush didn't seem to suggest that it would be. Is he preparing for another possible embargo from the Arabs over war policy? The turmoil in the Persian Gulf caused by a war with Iran would certainly cause a huge spike in oil prices. Update: I did a little reading about the SPR, it only has a capacity of 700 million barrels, in underground caverns. To double it would take a long time.

So, overall it looks not too bad but also not great for the auto industry. CAFE pressure will increase, which will cause vehicles to be more expensive as more technology (hybrids, turbos, direct injection, etc.) is thrown at the problem. A quick answer will be to sell more cars with less powerful engines, so as a result the V6 and V8 options may become pricier. OTOH, CAFE will help keep the Chinese out longer.

Increased mandatory use of ethanol will cause fuel prices to go up (also corn) but may be offset by additional supply, if Congress agrees (unlikely). Increased fuel prices will encourage a mix of smaller vehicles--more pain for the midsize/large truck based SUVs, and fullsized pickup trucks.

5 comments:

sh said...

With its typical Bush-bashing bias, Time Magazine's Kluger critiques the SOTU energy proposal in Bush Goes Green?.

(Of course, he shows a photo of a San Franciscan crew cut pumping Big Oil SoCal into his car, photographed at a low angle to make it appear longer - 'nuff of that.)

"The symbolic significance of the battle always far exceeded the relatively small amount of oil locked up there [ANWR]"

Let's see, according to Wikipedia:
- Drilling proposals anticipate drilling in less than 8% of ANWR.
- Jobs To Be Created Between 250,000 and 735,000 (Democratic Congressmen opposed to the proposed drilling endorsed an estimate that up to 65,000 new jobs)
- 1998 USGS study indicated at least 5.7 billion (95% probability) and possibly as much as 16.0 billion (5% probability) barrels

So, with less that a tenth of ANWR, we get a potential yield of ten SRRs.

"The energy industry loves nukes and clean coal, and if they have to make a little room at the table for windmills and solar panels,"

With exceptions, of course, of Mass & Calif because it would detract from the natural beauty of the leftist utopian landscapes.

"What the President didn't do after all this ambitious call to arms was put forward any serious ideas — or even any unserious ones — about how to make it happen.
Remember all that talk about hydrogen cars? Get yours yet? No, and you're not likely to for a very long time either."


I'm not really sure what his complaint/expectation is here. Chimpy McHitler wakes up with energy-saving ideas as brilliant as the Guinness Bros, yet represses them for the sake of the petrochemical industry?
Hydrogen is the defacto answer? Says who?
What with tuition doubling every five years, where is the university research in all these bastions of liberal thought? Oh, yeah, switchgrass.

"But again, the substance is lacking, at least so far. It's one thing to call for a 20% savings in fuel; it's quite another thing to demand the hard, politically costly choices to make that happen, such as a pump tax with real bite or a significant increase in mandatory mileage standards."
For every lower- and middle-class fool, but give us our intellectuals, Hollywood and political elites in limos and SUVs, please.

HoosierDaddy said...

The Chinese mostly make small cars don't they? I'm sure thepowertrains won't be high tech, but it's not that hard to get decent economy out of a compact. Safety standards could be a big obstacle (forcing more more extensive redesigns of bodies). I'd bet on one or two more deals like DaimlerChrysler-Chery in the next couple years.

Anonymous said...

A.P. -
This is off topic, but thought you might enjoy it (not).
Check out the comments section.
http://www.youtube.com/watch?v=KNE0os3f3VY

Saw one commercial in Alaska -- "Citgo, the no profit oil company".

sh said...

http://hotair.com/archives/2007/02/02/video-hillary-wants-to-take-oil-profits-and-put-them-in-strategic-energy-fund/

Speaking at the DNC’s winter meeting, Hillary Clinton said she wants to profits from oil companies and “put them into a strategic energy fund.” Lock box, anyone?

Flashback: “We’re going to take things away from you on behalf of the common good.” (h/t Texas Rainmaker)
link

link

sh said...

link

An unpublished federal report appears to undermine the belief that commercially available ethanol-blended fuel produces cleaner emissions than regular gasoline.

Many Canadians believe filling up with ethanol-blended gasoline reduces the emission of greenhouse gases that damage the environment.

Advertising sponsored by the Canadian Renewable Fuels Association encourages the idea, telling Canadians renewable fuels are "good for the environment," and even some provincial governments, including Manitoba and Saskatchewan, say the fuel "burns cleaner" than gasoline.

The federal Conservative government committed $2 billion in incentives for ethanol, made from wheat and corn, and biodiesel in last week's budget.

But based on Ottawa's own research, critics say the investment is based more on myth than hard science.

'Not a lot of difference'
Scientists at Environment Canada studied four vehicles of recent makes, testing their emissions in a range for driving conditions and temperatures.

"Looking at tailpipe emissions, from a greenhouse gas perspective, there really isn't much difference between ethanol and gasoline," said Greg Rideout, head of Environment Canada's toxic emissions research.

"Our results seemed to indicate that with today's vehicles, there's not a lot of difference at the tailpipe with greenhouse gas emissions."

The study found no statistical difference between the greenhouse gas emissions of regular unleaded fuel and 10 per cent ethanol blended fuel.

Although the study found a reduction in carbon monoxide, a pollutant that forms smog, emissions of some other gases, such as hydrocarbons, actually increased under certain conditions.

Bill Rees, an ecology professor at the University of British Columbia and longtime opponent of ethanol, has read the report and thinks Canadians need to know its conclusions.

"I must say, I'm a little surprised at that, because it seems to fly in the face of current policy initiatives," he said.

"People are being conned into believing in a product and paying for it through their tax monies when there's no justifiable benefit and indeed many negative costs."

Other benefits: minister
Federal Environment Minister John Baird said he knows about the report, which was commissioned under the previous Liberal government. However, he said, he is looking at the big picture.

"I think there's an issue between the tailpipe and the whole cycle," he said. "The whole cycle is better than the tailpipe."

Other ethanol proponents agreed, saying tailpipe emissions are not the only statistic that matters.

Ethanol is made from a renewable resource, they noted, and — although there is much scientific debate on this point — they argue ethanol produces fewer greenhouse gases when the entire production cycle, from gathering to refinement to emissions, is taken into account.