Agassi does not intend to make electric cars. Wisely, he is leaving this to the auto industry. He is focusing on the batteries. He’ll lease them to anybody with an appropriate car and he’ll develop large networks of ‘filling stations’ where the driver can quickly take out a discharged battery and swap it for a fully charged version on long journeys. By 2010, he wants a hundred thousands electric cars on the roads of California and elsewhere.

The obstacles are huge. Although lithium-iron-phosphate battery technology is improving rapidly, and will continue to do so for decades, full-size car batteries now cost at least €7,000. Getting mainstream manufacturers to build large volumes of electric cars that will take his batteries is another formidable challenge. Third, he has to persuade retailers to install the equipment to swap batteries automatically.

But our weary European scepticism needs to be rested for a moment. The long-run economics favour this idea. My sums suggest that at current UK petrol prices it costs at least six times more to drive a mile on petrol than it does on electricity. Battery prices will fall and performance will improve. At some point it is going to be so much cheaper to power a car with electrons rather than octane that even the slothful auto industry will switch. When the market has tipped it won’t be long before passenger cars are all electric. Agassi may be too early, and his business model may require too much capital, but electric cars are coming soon.

***

GM designed an electric car in the 1990s. Several hundred EV1s were built and leased to generally enthusiastic owners. The cars were costly for GM to build, had a range of only 60 miles or so, and took a long time to recharge. The company abandoned the project and crushed all the cars.

Probably as a result of the perceived failure of the EV1, the idea of the all-electric car lost momentum. Attention switched to petrol-electric hybrids, such as the Prius, and the hugely eccentric idea of hydrogen fuelling. Conventional hybrids do not take electricity from the mains to power the car; they use petrol for much of the time. Energy is captured from the braking process and stored as electricity in an on-board battery to power the car when at low speeds.

More recently, engineers and car companies have started to investigate recharging the batteries of hybrid cars using mains electricity. These so-called ‘plug-in hybrids’ use electricity most of the time, particularly for town driving, and only have a petrol engine for long-distance travel or when recharging is impossible. The article on Hillary Clinton’s climate change plans in this edition of Carbon Commentary refers to her enthusiasm for plug-in hybrids. She also sees them as an important asset in smoothing the power needs of local electricity grids. When community demand is high and batteries are fully charged, the grid will start co-opting power from cars parked in driveways but connected to the mains.

Most major automobile manufacturers have development programmes for hybrid cars. Technological progress continues to be slightly disappointing. Light diesel cars now have CO2 emissions that match the Prius, although the Toyota car offers far greater comfort and is a more potent status symbol among the urban elite.

Small but increasing numbers of purely electric cars are being sold in the UK. The G-Wiz is increasingly visible on London streets, not least because it is taxed as a quadricycle, not a ‘proper’ car. The UK retailer says that it sells ‘one or two a day’ in London. 900 out of the 2,000 G-Wiz cars in the world are driven around the city, free of any congestion charge, and with electricity top-ups in some central London car parks. The range of the car is about 70 miles with a top speed of 45mph, though with commendable honesty the retailer stresses that it should probably be kept on congested, and slow-moving, urban roads. In fact, the average speed recorded by G-Wiz cars in London is a sedate 10mph.

Smart is just about to launch an electric version of its existing cars. Press comment suggests that the new Smart will manage a top speed of about 50mph and last for 70 miles between charges. At about 5 hours, charging time is still depressingly long.

The engineering of all electric cars is moving fast. Several models are slated for launch in the States that can manage far higher top speeds and longer cycles between charging. The Tesla is an expensive ($100,000) sports car that claims acceleration better than a Porsche at the same time as fuel costs of less than 1p per mile. The manufacturer claims that the lithium ion batteries are fully charged in three and a half hours and deliver a range of 245 miles. The marketing of this beautiful car glorifies speed – a far different approach to the virtuous but slightly dull retailers of cars like the £8,000 G-Wiz.

So what is Shai Agassi trying to do?
The detail on Agassi’s scheme is sparse. The idea is to set up a network of sites, powered by solar energy at which drivers can swap batteries. The driver never owns the battery, but leases the right to have one in his or her vehicle. Most of the time, the car user will not need to switch batteries. They will usually be charged overnight at home, or during the day at the workplace, through ordinary domestic power sockets.

He has raised $200m from venture capital sources and from Morgan Stanley. One of the key investors is Vantage Point Ventures, also a backer of Tesla cars. For a start-up company, an injection of $200m is a huge sum of money, but the capital needs of a business like this are going to be phenomenal. At today’s prices, each battery costs €7,000, and if the entire sum raised were used to buy batteries, it could only equip a few tens of thousand cars. But of course the money won’t all go to buying batteries. This task – essentially a conventional leasing activity – will be taken on by Morgan Stanley once the business model is proved. Agassi’s venture needs the money to begin to build a network of re-charging sites.

The wisdom of the electric vehicle industry has always been that the battery is part of the car. Agassi says that drivers need not own the battery. The battery is the gasoline of an electric car, and you buy gasoline when you need it, not when you first buy the car. This is the key insight – removing the cost of the battery from the purchase price will bring the vehicle cost down, eventually to a lower price than the equivalently specified car. An electric vehicle doesn’t need an expensive engine and a troublesome transmission system. There may be as few as a dozen moving parts.

Crucially, Agassi believes that the auto industry is about to tip away from gasoline and towards electric power. His theory is based on three elements:

• The price of oil is going to go up. ‘Peak Oil’ is here.
• The operating characteristics of batteries for electric cars are all moving favourably. Cost and weight are down. Power (think of this as the capability to accelerate a car) and storage capacity (the distance you can drive) are going up.
• Third, the cost of renewable technologies to generate the electricity for the battery is also falling fast.

The price of oil is going up
The world oil market can’t quite understand what is happening to the price of a barrel. Industry experts mutter crossly about an unwarranted speculative premium. Nevertheless, the $100 hurdle looks as though it may be crossed, taking the oil price to a level not seen in real terms since the 1970s. Part of the reason that Agassi’s plan attracted substantial attention in the US is that the country is rattled by the spike in the price of this most vital of American commodities. In the UK and elsewhere, our interest in the price of oil is muffled by the falling value of the dollar and the limited impact seen so far at the petrol station.

In the 1970s the very high price of oil (even more important to the economy then than now) pushed politicians and auto companies into improving fuel economy standards. The fuel economy performance since the late 1980s has barely changed in the US. The increase in the price of gasoline may push automakers and consumers into more efficient models. This would tend to mute the future interest in Agassi’s scheme but the reaction times of Detroit seem to exceed those of any other major industry in the world.

Batteries are getting better
The early electric cars were powered by lead acid batteries, the technology still used for starter motors in most vehicles. They were superseded by nickel metal hydride batteries. Recently, the industry began to experiment with lithium ion, the same technology that powers laptops and mobile phones. The performance has improved markedly, but concerns persist over the safety of large lithium ion arrays. It is not long since we had an outbreak of exploding laptop batteries and conventional lithium iron cells can, in theory, release a huge amount of heat very quickly.

Agassi is going for the next step up – lithium iron phosphate batteries. Here the risk of catastrophic malfunction is lower, although the performance is slightly less good than conventional lithium ion. Companies like Lithium Technology Corp already make car-sized agglomerations of lithium iron phosphate batteries. This company claims it can produce a 25 kWh battery weighing 200kg that would take a car 160 miles.

Agassi’s venture is reliant on what he sees as the Moore’s Law of battery improvements: a 50% decline in cost per kWh every five years. It seems a reasonable assumption to make. The industry is bullish it can achieve better performance with lithium iron phosphate and large amounts of US government money are being ploughed into companies in the field.

The costs of renewables are falling
Agassi’s venture is vague on the third leg of the business case. It seems that he believes that the company will need to invest in large numbers of sites that recharge batteries. Drivers straying from their home or workplace will need access to fully charged cells. In California, his company can use solar electricity for the task of recharging. I am sure Agassi is right that the cost of solar photo-voltaic installations are likely to fall at least as fast as the cost of batteries. Within five years we are likely to see very substantial improvements in the price per watt as advances in silicon nanotechnology allow PV panels to be made from paper-thin silicon, rather than the expensive blocks of today.

Why does he need to recharge the batteries using solar energy? What is wrong with simply plugging into the conventional electricity distribution system? The answer seems to be that he is concerned that the Californian power grid is simply not robust enough to provide even the very limited amount of power that is likely to be needed. Frequent summer ‘brown-outs’ might make it impossible to obtain enough power.

The big problem is going to be the size of the solar installations necessary to recharge a bank of tens of batteries. Very approximately, current technology needs a square metre to collect a kilowatt. A battery needing 25 kWh of charge over a period of five hours would be taking 2.5 kW. Even at the middle of the day, when the panels will be working at full capacity, one battery will need almost 30 square metres of PV panels. Charge fifty batteries at the same time and you need the whole roof of a large commercial building. (Advances in solar PV technology will lower the cost, but may not decrease the surface area needed to generate electricity.)

In my view, the real reason why solar energy is part of the current plan is that Agassi needed a software component to the business plan to show why he, an SAP veteran, should run an automobile venture. The press statements make play of the software needed to run the ‘grid’ that he plans to link the recharging sites. I think that this is nonsense – the sooner he drops the idea of solar PV on every recharging point the better. It adds to the complexity and difficulty of the business. If solar energy makes financial sense in five years, then he can build a huge central facility to ‘offset’ the amount used to charge the batteries. To build solar-powered charging stations now is unlikely to make sense, and significantly raises his overall capital need – never a good idea in a start-up.

Does the idea make sense?
If a 25 kWh battery can propel a car for 160 miles, then at current UK retail electricity prices, the fuel cost is 1.5p per mile. For a typical family car, the petrol cost may be close to ten times this level.

The average UK car does about 9, 000 miles a year. (The figure is much higher in the States.) The petrol cost is about £1,000, compared to less than £150 for a car whose battery is always charged at home at standard UK electricity prices. The fuel cost advantage is clear, at least in countries with high-price petrol.

What about the cost of the battery? At €7,000 (Agassi’s figure), the pay-back period would be about six years, if the cost of the battery were entirely additional. If, instead, the cost of the car were reduced because it no longer needs an engine or transmission, the economics may become really compelling. They are likely to become more so as time passes.

There is thus only one real question: can the famously persuasive Shai Agassi get volume car makers to build cars with no internal combustion engine, but with an electric motor and a hole where the battery goes? The chances of Detroit starting to eat its own lunch seem remote, but Asian car-makers may grasp the opportunity gratefully.

What is the effect on emissions of moving from petrol to an electric car?
A typical UK car produces about 180g of CO2 per kilometre. (Remember that an internal combustion engine is only about 25% efficient at turning chemical energy into motion.) An electric car with an advanced battery running on a charge from the UK grid will have responsibility for average emissions of about 35g per kilometre, or about one fifth as much.

Why not the UK, rather than the US?
Many UK cars never travel on long trips. Petrol prices are almost double the US figure. When charged at night, some drivers could benefit from the extremely low overnight power prices on dual-rate tariffs. Electric cars are exempt from London’s congestion charge (£8 a day). And, eventually, wind power can be used to charge the batteries at the refuelling stations on major roads. If Agassi’s idea makes sense in California, it has very compelling economics here.

Mrs Clinton espouses a cap-and-trade system for US emissions. Unlike the EU’s approach, she proposes to auction the permits. She will continue the disastrous US policy of encouraging the conversion of corn to bioethanol. She looks to renewable electricity to provide 25% of US power.

She will add to federal expenditure on R+D, but the number proposed is insufficient to have much effect. She stresses the high cost of energy (gas, motor fuels and electricity) to American citizens but not does mention that the impact of her measures will be to increase energy costs, not reduce them.

Mrs Clinton’s plan is calm and measured. Contrast her statesmanlike tone with David Crane, the CEO of a large electricity generating company, in a 14 October article in the Washington Post. Crane writes, ‘We are not running out of time, we have run out of time’ [his italics]. He argues that the US government should put an immediate price on carbon emissions to incentivise a rapid switch to carbon capture and storage in the US power sector. His tone is desperate: ‘I am a carboholic’ but I want to stop, he writes. We could all do with a similar sense of urgency from Mrs Clinton.

***

Cap-and-trade

What she says
Cap-and-trade systems such as the European Emissions Trading Scheme allocate permits to polluters. Clinton will introduce a similar scheme in the States. In the EU, the permits are largely handed out free to the major CO2 producers. Clinton says she will auction the permits and use a small part of the revenue for a new R+D fund.

What she doesn’t say

1. There’s no indication of much of the US economy she intends to cover. In the EU, the scheme takes in about 50% of total greenhouse gas output.
2. Similarly, she offers no clue as to how tight the cap will be. For example, she might have said that she would auction permits for 2bn tonnes of CO2 output across industries that currently produce 2.5bn tonnes. Nor does she say how fast she will reduce the allocation.
3. She gives no indication of how much revenue she expects.

Electricity consumption
What she says
She will introduce measures that will reduce energy consumption by 20% below the forecast figures for 2025. 25% of electricity will come from renewable sources. She offers no encouragement to the nuclear industry.

What she doesn’t say

1. A 25% reduction in electricity consumption will still leave electricity use slightly higher in 2025 than it is today.
2. If 25% of electricity is to come from renewable sources, then 70% of the investment in power generation from today onwards will have to be devoted to non-fossil fuel technologies. There is no current sign of this happening and a major change of direction will be required.
3. The US Energy Information Agency (EIA) suggests that a target of 25% renewables will add about 6% to electricity prices. The Clinton plan doesn’t mention this.

Renewable Fuels
What she says
Her target is ‘60bn gallons’ of ethanol and bio-diesel. She intends to set a target that will oblige biofuels producers to show that each gallon of biofuel uses 80% less fossil fuel in its cultivation and manufacture.

What she doesn’t say

1. 60bn US gallons is approximately 25% of motor fuel use by 2025, according to Energy Information Agency projections. The number of miles travelled in 2025 will be about 40% greater than today, if EIA forecasts are correct. Therefore, even this volume of biofuels will not by itself reverse the need for rising oil consumption.
2. There is no mention of the impact on prices, either of fuel at the petrol pump, or of agricultural commodities. In a document from earlier this year, the EIA (a part of the US government and thus not necessarily opposed the expansion of biofuels) said that the target chosen by Mrs Clinton would result in a doubling of corn prices. If made from corn, the biofuels would require about 80% of today’s total US crop.
3. The target for improving the fossil fuel efficiency of making biofuels is highly ambitious. At the moment, the fossil fuels savings from manufacturing biofuels are extremely limited. To get to the point at which 2 units of fossil fuel are used to make 10 units of bioethanol requires technical advances beyond those that can currently be envisaged. The current boom in ethanol production is adding noticeably to natural gas demand as plants need heat and power to turn corn starch into a useable fuel.
4. Bioethanol is heavily subsidised. According to the EIA it will not be cost-competitive until 2015. So Mrs Clinton’s plan will either raise fuel prices or require more federal subsidy. This point is not discussed.

Fuel efficiency standards for automobiles
What she says
The failure to improve the fuel efficiency of US cars over the past fifteen years is one of the most damaging failures of national policy. Mrs Clinton looks to more than double economy standards by 2030. She rails against ‘the untenable foreign trade situation in which the United States transfers funds that are borrowed from China to Saudi Arabia’ to pay for its oil.

What she doesn’t say
The proposed standards only bring the US fuel economy standards in 2030 to approximately the level today of the best European and Asian cars.

R+D
What she says
$5bn a year will be spent on energy research and development, a multiple of what is spent today. Money will largely come from the oil companies. She says that they need ‘to do their share in funding clean energy’.

What she doesn’t say
Total Federal funding of R+D is about $140bn a year, of which the bulk goes on defence-related projects. NASA gets over $12bn to plan, inter alia, for future trips to the moon. Alternative energy research in Mrs Clinton’s administration is to get less than 40% of this particular allocation.

‘Smart grids’ in large cities
What she says
Mrs Clinton looks forward to the creation of 10 ‘smart grid’ cities. These cities will invest in technologies for reducing and smoothing the demand on electricity generators. She wants to implement technologies that allow electricity pricing to vary according to the level of local demand. She is keen on using the batteries of ‘plug-in’ hybrid cars to return power to the electricity grid when it is in short supply. (For more details on electric cars, please the article on Shai Agassi in this edition of Carbon Commentary.)

She says that demand reduction programmes can reduce total demand by 5%.

What she doesn’t say
She suggests that using the batteries of cars will provide $2,000-$4,000 a year of income to hybrid car owners and be an important means of avoiding costly peaks in demand, particularly during the air conditioning season. This is an unrealistically large figure and could only conceivably be achieved if the large batteries of an all-electric car were discharged and recharged several times a day at times of high and low prices respectively. This is impossible, even in theory.

Other main points

She argues for:

1. A federal mortgage bank to provide loans for energy efficiency improvements.
2. A major attempt to improve the energy efficiency of the 20m worst insulated homes.
3. A job training programme to equip 100,000 people with the skills to install and maintain low-carbon technologies and energy efficiency measures.
4. Investment in public transport (the sums mentioned are utterly derisory).
5. 10 large carbon capture and storage projects. The UK has proposed one.
6. Improved energy efficiency standards for home appliances. The US Energy Star programme has been effective and robust. There is great merit in tightening standards and making them apply to a wider range of standards. But energy efficiency is currently fighting a losing war against the expansion of the number and size of appliances in US (and European) homes.

Mrs Clinton’s plans are evidence of the growing seriousness with which global warming is treated in the US. Some of her proposals are good and will use sensible market mechanisms to reduce energy use below what it might otherwise be. But the reader of her climate change proposals is left with the feeling that the measures were thrown together without much careful thought, and certainly not with any acknowledgement that cutting emissions 80% in 40 or so years is a difficult and painful task.

The BBC survey suggested that over 80% of UK people are ‘ready to make significant changes in the way I live to help prevent global warming’. Nearly 90% think that changes in lifestyle will be necessary to address the problem. These numbers are approximately the same as among urban Chinese and only marginally higher than the US.

E.ON’s segmentation has over 20% of the UK already taking serious and possibly costly personal action related to climate change. Less than 15% actively reject any need to act now.

***

BBC World Service recently published the results of a large worldwide survey on climate change issues. It gathered data from over 20 countries but the results I write about in this section are from the US, urban Chinese and UK responses. For clarity, I have generally grouped the responses into percentages that ‘agree’ or ‘disagree’ although respondents will have usually been offered a wider range of options. I have omitted ‘don’t knows’.

Human activity is a significant cause of global warming

More people in China think that human activity is responsible than in the UK or the US.

Is it necessary to take steps to reduce the impact of human activities?

The Chinese are more inclined to believe it is necessary to take major steps to do something about climate change. In the UK and the US, the percentage of people saying nothing needs to be done is well below the percentage of ‘deniers’. Many of the sceptics still want to do something. This is not irrational. We insure our houses even though the chance of damage is tiny.

Developing nations should not be expected to limit their emissions

A large majority in China agree that developing nations should limit emissions. The other countries also have a strong view that developing countries need to bear some of the burden.

To encourage individuals to use less, the costs of energy should be increased

Even in America there is a two-to-one majority in favour of increasing the price of carbon-based energy.

Changes in lifestyle and behaviour are necessary to reduce global warming gases

The view that lifestyle changes are necessary is more strongly held than that carbon-based energy prices should be increased.

Taxes on carbon fuels should be raised

The Chinese are much more in favour of using taxes than the UK and US. In the UK and US these numbers are substantially below the percentages of people who think that is necessary to raise energy prices.

In some further questions those opposing tax increases were asked whether using the money to support renewables and energy efficiency would change their view. About half of the opponents in the UK and US changed their mind to support higher taxes in these cases.

Ready to make significant changes to the way I live to help prevent global warming

About 80% of people are prepared to make significant changes to lifestyle. The percentages ‘strongly’ agreeing with this statement were 43% in the US, 47% in China and 37% in the UK. The percentage of people apparently really committed to doing something is lowest in the UK, though still a large fraction of the population. This is consistent with the results from the HSBC poll reported on in an earlier edition of Carbon Commentary.

The overall conclusions from the BBC survey
Opinions vary across the world, but a clear majority is in favour of the view that humankind is responsible and that lifestyles will have to change to meet the challenge. There is no evidence to support the view that people in China are any less prepared to bear some burden than respondents in the UK and US.

The E.ON survey
E.ON published a long document summarising several pieces of research it has carried out this year.

Children’s views
The report looks first at the attitudes of children and young people to climate change, showing a higher degree of concern than among older people. Paul Golby, CEO of E.ON UK, writes:

‘Not only are children most worried about global warming and climate change…but they are also convinced we won’t be able to solve the problem for them.’

73% of children believe that all energy should come from renewable sources. 69% ‘believe that they have a responsibility to encourage others to recycle and save energy’.

My interpretation of E.ON’s commentary is that levels of knowledge about climate change are surprisingly low, but there is a substantial degree of generalised anxiety about the problem.

Adult segmentation
The second issue of Carbon Commentary carried an article on the results of segmentation studies by Henley Centre and Marks & Spencer. M&S sees the following segments:

• A: Green zealots: people who will actively seek out the most ethically and environmentally responsible products. Climate change is particularly important issue to these people.
• B: Those interested and concerned, but often uncertain how to shop to achieve their ethical objectives.
• C: Aware of the problem, not certain that their actions can have much effect or that they need to shop differently.
• D: Struggling, do not give high priority to issues covered in Plan A.

The company assessed the percentages in each segment as follows:

E.ON cuts the population into five types, not four:

• Type 1: ‘Clued up about environmental issues and recognises the direct impact the UK’s energy consumption has on climate change.’
• Type 2: ‘They believe people are damaging the environment and are taking some tentative easy steps to reduce their impact.’
• Type 3: ‘This segment seems happy for others to save the planet, with their support. They have taken few, if any, steps themselves.’
• Type 4: ‘The issue is generally not that important to them.’
• Type 5: ‘They disagree that humanity is to blame for climate change…They don’t recognise any need to act now.’

Types 4 and 5 seem very similar to Marks & Spencer’s group D: both with about 25-30% of the population. These people will not be receptive to marketing offers that focus on the climate change benefits of a product or service. Type 1 is an extended version of M&S’s group A, less committed than the ‘zealots’ of A, but still well informed and worried. Type 1 people will respond well to green offers. The marketing challenge will be to get people in Types 2 and 3 to match their concerns over climate change with purchasing decisions that match their own attitudes.