Wednesday, March 05, 2008


For a long time, I have been writing about how "far off" we have gotten from the "fundamentals". A regular reader just sent an article from the Wall Street Journal that shows how silly the "peak oil argument" is. The article relates how the world has used only 1 trillion of the 12 to 16 trillions of barrels of oil under the earths surface. As techniques are improved, more of this oil will be recoverable.

One of the things I have written about is the move toward electric and hybrid electric vehicles. Economically these vehicles make no sense what so ever (they hold promise based on the hope that mass production will bring down costs but the current cost is extreme). It is a good argument that the coal burned to produce electricity for a car cost less than the cost of oil burned in a car but batteries are expensive. The capital cost of electrics and hybrid electrics is still too high. Dramatic improvements have been made but even $100 oil requires a "casting off of fundamentals" for one to "go electric".

As I wrote the other day, there is a lot of activity in this area. Every major car company is building or planning to build some sort of electric vehicle. These plans have been made primarily for psychological (public relation) reasons. "Green mania" has taken hold. Elementary school kids around the globe have been taught that the world will end because of greedy, dirty men. Cities, such as New York, have mandated "green taxis". If a car company wants to feed off the government trough, and now a days virtually every company feeds off the government trough, it must be part of the "green in-crowd".

Batteries are horrible for the environment. A mandate to cut emissions in California is a mandate to push pollution to some place else. Yes, I do envision the time when batteries will help shave the peak loads at power plants at low enough cost to make battery power competitive. However, the reason most cars are powered by gasoline is because nature has provided substantial quantities of cheap oil. It took thousands of years for this oil to be produced. Using competing technologies while there are trillions of barrels of the "good stuff" still available is a psychological answer to a political question. It is not an answer to a rational economic question.