The environmental consequences of cheap oil
The economic effects of plunging oil prices is a bad news/good news story. The bad news is that world stocks are taking a beating, especially those of energy companies, with crude oil selling for less than $30 a barrel. The good news is that gas is cheaper at the pump: The national average for a gallon of gas in the U.S. is below $2 a gallon for the first time since 2009, and USA Today quoted Wall Street analysts predicting gas heading toward $1 a gallon. People can afford to fill up the tank and hit the road.
But be careful what you wish for. Cheaper oil has environmental ramifications, too. It means fewer fuel-efficient vehicles on the road and less plastic recycling, as it’s less expensive to make products such as shopping bags from new plastic than it is to re-use recycled plastic.
After a long period of slow sales, sport utility vehicles and other gas hogs are selling big again. According to a story on TheDetroitBureau.com, vehicle sales are shifting from passenger cars to pickups, vans, and utility vehicles. “We see a lot of growth. SUVs were 30 percent of the industry last year but could go to 40 percent” before the end of the decade, said the website, which covers the automotive industry and bills itself as “the voice of the automotive world.”
“With fuel prices as they are, consumers are voting for SUVs,” Ford Motor Company Executive Vice President Joseph R. Hinrichs said during an interview at the North American International Auto Show in Detroit. Hinrichs, with his title of “president of the Americas,” is in charge of all auto development and sales in North and South America. In fact, Ford is planning on introducing four new SUVs to its line over the next few years.
And Ford’s not the only one. “Key competitors, from General Motors to Volkswagen and Kia, are getting ready to expand their own SUV and CUV [crossover utility vehicle] lines to meet market expectations,” says the DetroitBureau story. “They’re encouraged to bring on more SUV models not only by strong sales in the U.S., but by growing sales in overseas markets, including both Europe and China.”
Haven’t we been here before? Didn’t SUV sales boom in the 1990s (and heavily contribute to global warming), only to droop during times of higher gas prices and economic recessions?
It’s auto show season nationwide. The biggie, the North American International Auto Show, has just wrapped up its two-week run in Detroit. Nearly 50 other big shows are scheduled coast to coast throughout the year, with 21 major ones planned by the end of February.
Given that SUVs and other big vehicles are so much less fuel efficient than their smaller counterparts, the automakers’ incentive to expand the SUV lines remains what it always has been—financial. “On average, utes command a higher price—and deliver stronger margins—than the more traditional passenger car models motorists might otherwise choose,” the DetroitBureau story says. Why sell a Ford Fusion for $22,000 when you can sell a Ford Expedition for $45,000? Why sell a Cadillac ATS Coupe for $38,000 when you can sell a Cadillac Escalade for $75,000?
To be sure, both big and small vehicles are more fuel efficient than they used to be, as President Obama reminded people when he visited Detroit and its auto show. The Obama administration set standards to double the fuel economy of passenger vehicles by 2025 and established the first-ever fuel economy standards for medium and heavy-duty trucks. The new standards are expected “to lower CO2 emissions by approximately 1 billion metric tons, cut fuel costs by about $170 billion, and reduce oil consumption by up to 1.8 billion barrels over the lifetime of the vehicles sold under the program,” according to figures from the National Traffic Safety Highway Administration. “These reductions are nearly equal to the greenhouse gas emissions associated with energy use by all U.S. residences in one year.”
The goal is to manufacture cars that get an average of 54.5 miles per gallon by 2025. Even the 2016 goals were ambitious: The average fuel economy for cars had to improve from 27.5 mpg, where it has been since 1990, to 35.5 mpg by 2016. When the 2016 standards were announced, a report in Car and Driver described them this way: “A mandate of 35.5 mpg by 2016 is like fighting obesity by outlawing large clothing.”
Did the auto industry deliver? Not quite yet, but it’s getting there. The University of Michigan Transportation Research Institute issues monthly sales-weighted Corporate Average Fuel Economy (CAFE) performance numbers, and the latest figures show a definite upward trend in fuel efficiency, from 25.5 mpg in 2007 to 31.0 mpg at the end of 2015.
But that’s an average, meaning that small cars are doing the heavy lifting in the fuel efficiency department. A non-hybrid Ford Fusion gets a combined city-highway average of 26 mpg; a Ford Expedition gets 17 mpg. (A hybrid Ford Fusion gets 44 mpg.) A four-cylinder Cadillac ATS Coupe gets 26 combined mpg; a Cadillac Escalade, 17 mpg.
DetroitBureau.com offers some words of warning:
The surge in SUV sales isn’t entirely a positive development for the industry. It does raise challenges for an industry struggling to adapt to tougher emissions and fuel economy regulations. That could force makers to either hold down sales artificially or adopt more expensive powertrain technologies, such as plug-in hybrid and pure battery-electric systems, insiders warn.One of the risks is that these technologies won’t deliver the sort of driving dynamics and features buyers expect in a utility vehicle. Meanwhile, the higher costs of those technologies could turn off potential customers, dragging down sales.
So kudos to the U.S. auto industry for bouncing back from near oblivion, with U.S. auto sales at an all-time high of 17.4 million in 2015. Kudos to American autoworkers for being back at work—there are 640,000 more people working in the industry today than there were in 2009. Kudos to the Obama administration for rescuing the auto industry with an economic bailout (sorry, GOP, the $79.7 billion in loans have been repaid) and for upping fuel economy standards. Let’s just remember the environmental cost.
The auto show in Detroit also is a big economic boon for the city—several hundred thousand people come to the Motor City to see the latest models, spending money at Detroit’s restaurants, hotels, and other businesses. “Last year, more than 808,775 people attended the show over the nine days that it’s open to the public, the most in 12 years,” reported the Detroit Free Press. Attendance at this year’s show portends to be even bigger.
Meanwhile, what of sales of more fuel-efficient cars, including hybrids and electric vehicles? A mid-2015 report from the Detroit News reported that sales were tumbling. “Despite hefty discounts, low gas prices and aging EV [electronic vehicle] models are helping to drag down sales of fuel-sipping, plug-in electric hybrids and full-electric cars. They are also being hurt by a consumer shift away from cars toward crossover and sport utility vehicles.”
According to 2015 sales figures from Automotive News, sales of regular (meaning smaller) cars dipped 2.3 percent from 2014 figures. Sales of pickups, SUVs and vans were up by 7.7 percent. And sales of crossover vehicles, built on a car platform but with SUV features, jumped by 18 percent.
It’s not just an American phenomenon. An editorial in the Guardian reports on British car-buying habits.
Cheap oil encourages waste; worse, it discourages investment in a more efficient “energy infrastructure.” Renewables, as well as upgrades to clean up fossil fuel power stations, yield less return. Drivers feel less pressed to trade in their SUV for a G-Wiz [a small micro-electric car], and car manufacturers are less inclined to concentrate R&D on fuel economy.
Here’s another downside to cheap oil—the effect on recycling plastic bags. Let’s (hopefully!) assume many of you carry reusable bags on trips to the grocery store or local farmers’ markets. But it’s inevitable to end up with plastic bags from many retailers, even though some municipalities are trying to ban them or at least cut down on their use.
So unless you use plastic bags to pick up after your dog, you bundle them up and drop them off at a local grocery with a large container that accepts bags for recycling. Problem solved, right?
Except that those bags don’t always end up being recycled. About half of them end up in landfills, according to a representative of Sims Recycling Solutions, a global leader in recycling electronics as well as plastic bags. It’s cheaper for plastics companies to simply make new bags than to use recycled material.
During a recent interview with NPR, Tom Outerbridge, who runs a Sims Recycling plant in Brooklyn, New York, said the ever-lower price of oil was making it harder and harder for recyclers to find buyers for plastic bags. This is from an interview with Stacey Vanek Smith from NPR’s Planet Money team:
SMITH: It costs about as much to clean and sort a plastic bag as it does a detergent bottle, but you get way less plastic from the bag.
OUTERBRIDGE: This is really the bottom of the barrel in terms of the plastics market. The value of it is relatively low, which means we can’t afford to put a lot of time and money into trying to recycle it.
SMITH: And so then what happens to the plastic bags if you can’t sell them?
OUTERBRIDGE: We will certainly—you can get to the point where these are going to the landfill.
There are upsides to cheap oil, which discourages investment in more expensive and often dirtier methods of fossil fuel extraction. Many companies, such as BP, are cutting operations in deep-water oil drilling. Shale oil producers also are hurting, according to Reuters. “Across oil fields from Texas to North Dakota, fears are growing that crude’s plunge below $30 a barrel is more than just another market milestone and marks a countdown to an endgame for many shale producers that so far have braved the 18-month downturn.”
And growth in renewable energy is still skyrocketing, as wind and solar power are used more for electricity than for transportation. The U.S. Energy Information Administration predicts that renewable energy as a whole will grow by 9.5 percent in 2016. That growth should continue, as Congress passed an extension and modification of federal tax credits for new wind and solar generators through 2019 and beyond. “Wind capacity, which starts from a significantly larger installed capacity base than solar, grew by 13 percent in 2015, and it is forecast to increase by 14 percent in 2016,” the EIA says.
In what could be an ironic twist, the Guardian editorial saw a roundabout environmental benefit to cheap oil, one that needs to be undertaken by world leaders. “Bargain-basement energy should also be the spur for far-sighted politicians to act on carbon pricing and other regulations and taxes that can’t be done when prices are high. In Paris last month, world leaders wrote post-dated cheques to the planet. Cheap oil is the opportunity to make a down payment.”
Originally published on Daily Kos on Jan. 24, 2016.