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July 13, 2008

A Clean Break

This election season has seen a lot of hand-wringing about the price of oil. McCain and Clinton had their foolish1 gas tax holiday proposals. More recently, Republicans have renewed calls to throw open ANWR and offshore coastal areas to drilling (at the same time as they call for a moratorium on new solar power plants, out of concern for the possible environmental impact [sic]).

None of this is going to make a whit of difference in the short term. Nor is it going to affect the long-term trend, namely that worldwide demand for oil is increasing faster than worldwide supply (the reserves in ANWR and offshore are too small to affect that picture).

Rather than get depressed, I’ve been thinking about what the Israelis are doing. Israel doesn’t have any domestic reserves to tap into. And their dependence on imported oil comes with — shall we say — a certain geopolitical cost. Instead, they’ve decided to cut to the chase and eliminate gasoline-powered vehicles. They’re going all-electric. By 2018.

Here is a video presentation by the CEO of Project Better Place, which is spearheading the construction of the relevant infrastructure. In brief, the plan goes as follows.

  1. Separate ownership of the car from ownership of the battery.
    • As anyone with an older laptop can attest, rechargeable NiMH and Li-on batteries don’t last forever. Uncertainty over the battery lifetime is a huge headache for automakers contemplating selling electric cars to the consumer, and for consumers contemplating buying one. At some, unknown, point in the future, that $10K battery is going to need replacing. Now, that’s not your problem.
    • This also neatly solves another problem: batteries recharge slowly. How can electric vehicles travel long distances, longer than the cruising range on a single charge (200 km, for the NEC batteries they’re planning on using)?
  2. Put in place an infrastructure for recharging batteries.
    • Electrical outlets in the parking lots where you work, where you shop, and at home, will “top up” the battery charge. For short-haul trips, you’ll almost always have a full battery, without any special effort on your part.
    • For longer-haul trips, you just drive into a Swap Station (which looks something like an automated car wash). Out goes the old battery, in goes a freshly-charged new one, and off you go. Since you don’t own the battery, you don’t care.
  3. Split the Israeli excise tax on cars into two brackets, with a 60% differential between them: 10% for an electric vehicle, 70% for a gasoline-powered one. And then raise both rates, as people shift from gasoline to electric vehicles, so as to be revenue neutral, but keeping the 60% differential. By 2018, no one will want a gasoline-powered car. But if you did, you’d pay 130% tax, instead of the 70% paid by electric car buyers.

    This creates a powerful incentive to be an early-adopter. Wait around, while all your neighbours buy electric vehicles, and you’ll pay a lot more.

  4. Generate the needed electricity from renewable sources. This involves adding an additional 0.5% of green power to the electrical grid, each year, for the next decade.
  5. A subscription model. Like a cell-phone provider, they provide the network of Swap Stations and public recharging outlets. You, the consumer, contract with them for service. Sign a contract for long enough (6 years, in the case of Israel), and they give you an electric vehicle … for free.

Renault-Nissan is building the cars. NEC is delivering the batteries. Deliveries start, in quantity, in 2011. Project Better Place raised the $500 million, needed to put the network infrastructure in place, $200 million in the initial seed round (the largest venture capital seed round in history). And investor dollars have continued to pour in. Construction starts now.

Other countries are planning on emulating the Israeli model. Will the US sign on2? Don’t ask … you’re liable to get depressed again.


1 Like President Bush’s fetish for hydrogen-powered cars, McCain’s prize for a better electric battery is largely a gimmick to distract from the fact that he’s opposed to anything, like raising CAFE Standards, which would improve matters in the short-term. The best “prize” for building a better battery is to create a market for one. Which is what the Israelis are doing.

2 The US doesn’t have a 70% excise tax on cars. But it does offer a generous tax credit for hybrid vehicles. All that’s needed is to maintain a large differential, in some revenue-neutral fashion, over the changeover period. Fat chance of seeing this from a Republican Administration. But Democrats might, just, be persuadable.

Posted by distler at July 13, 2008 12:45 PM

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Re: A Clean Break

Do you have further details on the nature of this subscription model? Specifically is what you are getting for your subscription
- battery insurance and
- the right to plug into a network of outlets and
- the right (when you need “gas” fast) the right to swap your battery for a fully charged one at various places?

Or, like a cell contract, does it *also* include the electricity you get when you plug in your car?

My point is that I would damn well hope that the contract does *not* make the price of electricity effectively free, for all the very obvious reasons; but the analogy with cell phones provides worrying analogies.

Cell contracts are all about bundling and disguising costs, so that at the end of the day you have no idea what actually costs what, and no incentive to limit your usage of such items as are bundled in your contract. If we are supposed to be relying on “the magic of the market” to incentivize lower energy usage, that ain’t going to work if I can’t separate the price of electricity from the price of insurance, from the price of various services. Neither are good things going to happen if my contract basically says “go ahead, use up 1000km worth of electricity every month, you’ve paid for it anyway”.

The cell phone model does not inspire confidence. While cell phones have done some great things, these are also the people who charge like 1000 times more for certain classes of data than for others (eg SMS vs internet data) and have strongly encouraged frivolous and frequently moronic uses of a limited resource (bandwidth).

Posted by: Maynard Handley on July 13, 2008 10:31 PM | Permalink | Reply to this

Re: A Clean Break

I was unable to find details of their subscription model. So take this with a grain of salt.

I assume you would be billed for the electricity (either when you plug into their network of outlets, or when you swap an empty battery for a full one). One of the places you would most frequently “plug in” is at home, and you certainly pay for the electricity there. So it would not make sense to make the electricity “free” elsewhere (creating the perverse incentive not to plug in at home).

I think what you are subscribing to is the battery. They own it; you get to use it (or another one, that you exchange for it, whenever you enter a swap station) for the life of the contract. And, while you’re subscribed, you get to use their network to recharge it, though you’ll pay for the electricity.

In fact, it would seem to me to be advantageous to allow multiple suppliers of electrical outlets (Mall owners, the owners of office and apartment complexes, …) and then to aggregate those charges on your monthly bill.

That way, one gets far better coverage, far more quickly. And the end-user doesn’t have to hassle with a zillion micro-payments (a kilowatt-hour here, 20 kilowatt-hours there, …).

In that way, it would work a lot like the way access and line charges work in today’s cell phone (and, for that matter, landline) networks. The proceeds from your monthly bill are split between multiple service-providers. But all the micro-payment details are “hidden” from the end-user.

Posted by: Jacques Distler on July 13, 2008 11:12 PM | Permalink | PGP Sig | Reply to this

Uh oh!

Mmmm. Bad news.

In a panel discussion at the Brookings Institute, Agassi indicates that one of their subscription plans will include the electricity.

This makes no sense to me. Unlike the example of unlimited calling on the cell phone network, this actually costs real money.

The marginal cost of carrying another call on the cell network is near zero. All the costs are fixed costs (of the network infrastructure). As a provider, it makes sense to charge a large, fixed, fee for essentially “unlimited” access.

But the electricity for their electric vehicles costs 6¢ per mile. I don’t see any way an unlimited plan can make financial sense.

Posted by: Jacques Distler on July 14, 2008 8:35 AM | Permalink | PGP Sig | Reply to this

Re: A Clean Break

“Generate the needed electricity from renewable sources. This involves adding an additional 0.5% of green power to the electrical grid, each year, for the next decade.”

This is the crucial step without which all the others make no sense. But, I wonder, how are they going to do this? As far as I know, nobody has been able to do it yet. Can they generate enough solar energy to sustain all of the transportation in their country?

Posted by: Shlomo on July 15, 2008 12:57 PM | Permalink | Reply to this

Re: A Clean Break

“Makes no sense” is a little bit of an overstatement. But you’re right that burning fossil fuels in an electrical power plant is not much of an improvement over burning them in an internal combustion engine.

There are two factors which work in their favour.

  1. Automobiles account for “only” 6% of total energy consumption. Over a decade, that’s a very modest per-year addition of capacity to the electrical grid. Doable, they say, from green sources.
  2. Most of this power will be required at night (when everyone’s car is plugged in at home). This is currently an off-peak period for electrical demand. Most power plants cycle down late at night. A single 2 MW wind power plant could operate full-tilt (if you’ll pardon the pun) at night, and supply the energy needed for 3000 cars. France, which gets most of its electricity from nuclear power, could supply all of the needed additional generating capacity, without — apparently — building a single new nuclear plant.

More broadly, though, we should be working as hard as possible to bring as much non-CO2-emitting generating capacity as possible. One hopes that that would cover the additional demand from replacing gasoline-powered cars by electric vehicles, and then some.

Posted by: Jacques Distler on July 15, 2008 1:49 PM | Permalink | PGP Sig | Reply to this

Re: A Clean Break

“non-CO2-emitting”

I thought your arguments concerned energy independence and viability of a country in a difficult geo-strategic spot. What does this have to do with CO2 emissions?

Posted by: Tyler on July 15, 2008 6:14 PM | Permalink | Reply to this

Re: A Clean Break

I’m sorry. I guess I was unclear.

I’m reporting what the Israelis are actually doing. They are going to meet the additional electric power needs with solar-thermal generation. Denmark, which has signed-on to do the same thing, is going to use wind power.

Maybe you think burning whale blubber, or coal, or something, is the best way to generate the needed addtional electricity.

Here in Texas, we’re big on wind. T. Boone Pickens is building a 4 GW wind farm in West Texas. ERCOT is talking about upgrading the grid to handle 24 GW of wind generation from the Panhandle. That’s enough power for 36 million cars — 15% of the total US fleet.

Posted by: Jacques Distler on July 15, 2008 9:19 PM | Permalink | PGP Sig | Reply to this

Re: A Clean Break

I can’t help but think a lot of this problem will go away when the US settles on one or two viable nuclear power plant designs and actually sticks with it and enforces it through the redtape.

The economic burden of commissioning them should decrease as you start hitting economies of scale. You’re still looking at implementation on the order of a decade or more, and wind/solar should offset the interim. Still its a logistical nightmare.

Anyway I agree ultimately with the philosophy that the Israelis are pursuing. Its a rather ambitious but semi-utalitarian and Pigouvian point of view that I find rather appealing.

Posted by: Haelfix on July 15, 2008 11:32 PM | Permalink | Reply to this

Re: A Clean Break

On a personal note, this is quite the change compared to my childhood. I remember people looking to the US (and to a lesser extent to Europe), for progressive ideas to emulate (not just on technology), which resulted a little bit in a culture of imitation. It is refreshing then to see Israel taking the initiative, but also sad to see the technological superpower stuck behind the times. Hopefully that will change soon.

Posted by: Moshe on July 17, 2008 12:57 PM | Permalink | Reply to this

Re: A Clean Break

The ‘unlimited’ subscription option might work simply because no-one can drive more than a certain number of hours per day and stay sane. Estimate that number of hours, divide by some reasonable factor and that’s the cost of an ‘unlimited’ subscription.

However, it doesn’t make any sense to give everyone the same subscription regardless of how much they usually drive. Infrequent users should of course pay less.

There is an obvious reason why an electric vehicle plan that works in Israel is very unlikely to work in the US. Namely, it’s quite difficult to drive more than 100km in any direction within Israel, especially if you prefer to reach some kind of town at the end of the journey. Whereas the long-distance road trip, typically crossing large stretches of barely-inhabited farmland, is a basic part of American culture.

Posted by: Thomas D on July 27, 2008 4:10 PM | Permalink | Reply to this

Re: A Clean Break

Anyway, you knew that. So perhaps the first application of widespread pure electric car technology in the US would be in a dense metropolitan area: Greater Boston for instance? LA is an outside possibility - NOT dense, but air quality is an argument.

Realistically you’d have to stop at hybrids, since rather few people in the US want to give up the possibility of driving much farther than the state boundary.

Posted by: Thomas D on July 27, 2008 4:20 PM | Permalink | Reply to this

Re: A Clean Break

The ‘unlimited’ subscription option might work simply because no-one can drive more than a certain number of hours per day and stay sane. Estimate that number of hours, divide by some reasonable factor and that’s the cost of an ‘unlimited’ subscription.

That’s exactly the point. It’s pretty darned easy to estimate the value of such a subscription. Every car has an odometer, so most people have a pretty good idea how many miles they drive, on average, per month. Multiply that by 6¢/mile, and you have a pretty good idea of the value.

Not so with other things, like cell-phone usage, or per-byte charges for internet access. Clay Shirky’s The Case Against Micropayments is a classic essay explaining why people prefer “unlimited” plans in situations like that.

This, however, seems like an instance where electricity costs are fairly predictable. Hence the rationale for an ‘unlimited’ plan is rather weak.

There is an obvious reason why an electric vehicle plan that works in Israel is very unlikely to work in the US. Namely, it’s quite difficult to drive more than 100km in any direction within Israel, especially if you prefer to reach some kind of town at the end of the journey. Whereas the long-distance road trip, typically crossing large stretches of barely-inhabited farmland, is a basic part of American culture.

Denmark and Portugal are also fairly small countries.

But that’s not a-priori the impediment. What you need is an assurance that, wherever you’re headed, you’ll run into a swap station every 70 km or so.

If you’re driven through the Arizona desert, you’ve seen signs on the side of the highway that say

Next Gas, 100 Miles

Most places, though, gas stations are more closely spaced than that.

Building the kind of infrastructure that would be required for electric vehicles is a much more daunting task in a country this size, than in Israel or Denmark.

But even in those countries, no one would put up the money to build the recharging/swap infrastructure, if they could not be sure the demand would be there. Hence the crucial role of goverment (tax) policy in motivating consumers to switch (and to switch earlier, rather than later).

Realistically you’d have to stop at hybrids …

I’m pretty convinced that even the US will, eventually, go all-electric. The only question is: will they be be among the first or among the last to convert?

Posted by: Jacques Distler on July 27, 2008 11:45 PM | Permalink | PGP Sig | Reply to this

Re: A Clean Break

The ‘unlimited’ subscription option might work simply because no-one can drive more than a certain number of hours per day and stay sane. Estimate that number of hours, divide by some reasonable factor and that’s the cost of an ‘unlimited’ subscription.

The problem with flat-rate electricity is that it makes the marginal cost of driving zero and that’s bad for the environment. Already with gas vehicles, the marginal cost of driving is too low to disincentivize driving enough from the environmental point of view.

Posted by: Henri Sivonen on July 28, 2008 8:58 AM | Permalink | Reply to this

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