National Review Online, June 3, 2022

Central planning is not exactly the best way of organizing an economy (#understatement). That’s true, whether we look at the colossal failures of communism or, for that matter, many less ambitious attempts to manage an economy by decree.

Central planning lite (or relatively lite) has been a feature of the energy “transition” now underway in much of the West for some time. As this transition proceeds, the difficulties flowing from its reliance on aggressive, unrealistic and arrogant directives from above are becoming all too apparent, from the woes associated with wind energy — a technology clearly not ready to fulfill the role assigned to it by the climate technocracy — to growing evidence that forcing people away from conventional autos into electric vehicles is going to lead to immense problems that appear not to have been anticipated. (This may a charitable explanation. Perhaps those in charge were well aware of the problems but were determined to press on regardless. Omelets, eggs, we know that script.)

If, however, we give climate policymakers the benefit of the doubt or, in other words, accept that they simply did not foresee the problems now coming into view, their failure to do so should not come as too much of a shock. Central planners cannot reasonably be expected to anticipate all the difficulties that may emerge as their grand projects move along. In a way (again, to be charitable) they cannot be blamed for that, but they can be blamed for embarking on such undertakings in the first place. For governments to try to force through such projects with no recognition of what is actually feasible is an invitation to disaster, and it’s an invitation that will be accepted. If governments believe that such projects are necessary, and if their voters agree, it is infinitely better to signal the general direction of change, provide for wide discretion on issues such as timing, and leave it at that.

Friedrich von Hayek put it this way The Fatal Conceit: The Errors of Socialism (1988):

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.

It’s not a big leap from talk of a fatal conceit to looking at the increasing pressure on drivers to switch to electric vehicles (EVs) at a pace that appears to bear no relation to what can realistically be achieved, at least without massive disruption. Markets are immensely responsive and immensely adaptive, but that does not mean that they can respond to every bureaucratic whim.

To be clear, there is nothing wrong with the idea of EVs, which, in fact, preceded vehicles powered by the internal combustion engine. Nor is there anything necessarily wrong with governments giving a modest nudge (favorable tax treatment, say) to help boost demand for such cars. That’s up to them and, more specifically, the voters who elect them. They may be wrong, but that should be their mistake to make. This issue is too big to be resolved by a corporatist cabal of stakeholder capitalists, activist investors (playing political games with other people’s money), NGOs, and regulators.

If the EVs work well enough, the prices are good enough, their running costs are attractive enough, their environmental benefits are appealing enough, and the infrastructure (charging stations and the grid) is reliable enough, a healthy market will develop for them, and, as teething problems emerge, that market will probably sort them out.

Unfortunately, that natural process is not being given the time it needs. California is looking at a ban on the sale of new gas or diesel-powered cars by 2035. But, if that law is passed, the ratchet will start turning before then.

From Cal Matters (no relation):

If enacted, 35% of new cars, SUVs and small pickups sold in the state must be zero-emission starting with 2026 models, then increasing yearly, reaching 51% of all new car sales in 2028, 68% in 2030 and 100% in 2035. Of those, 20% can be plug-in hybrids.

Only about 2% of cars on California’s roads were zero emissions in 2020.

Quite how these interim targets will be achieved will be interesting to see.

Automakers — what else are they going to say — expressed their enthusiasm:

An alliance representing nearly all automakers said in a statement Wednesday that they are “committed to electrification and a net-zero carbon transportation future.” Many major manufacturers, including General Motors, have already announced goals to ramp up clean-car models on a similar timeframe.

But there’s a but . . .

But the automakers added that it’s critical for governments to ensure that “everything from (electric car) infrastructure, demand, critical minerals and supply chain are in place.” Even then, the companies said the state’s proposed rules “will be extremely challenging even in California and may not be achievable” in other states.

Oh.

There has to be “demand” for these products. Who’d have thunk it?

By “infrastructure,” the automakers are presumably referring (above all) to a good charging network.

One of the biggest roadblocks could be the lack of charging stations for electric cars. Nearly 1.2 million chargers will be needed for the 8 million zero-emission vehicles expected in California by 2030, according to a state report. Right now, there are only about 70,000 with another 123,000 on the way, falling far short.

Then there’s the small matter of city dwellers in apartment buildings (or even smaller units with only roadside parking) with no obvious access to at-home charging facilities.

Or have central planners decided that such folk have no real need for cars anyway? After all, they have topnotch (and secure) public transit and bargain-priced taxis.

Surely not!

Those auto manufacturers must be hoping that an electrical grid will be in place able to cope with the extra demand that all those EVs will put on it, and that the days when people have to worry about a faltering grid reliant on inherently unstable renewable energy and distinctly shaky backup will soon be over? Good luck with that!

So how about those “critical minerals?”

Um…

Let’s start with lithium, a key metal for EVs’ batteries.

Annie Lee, writing for Bloomberg:

Elon Musk wants to mine it, China is scouring Tibet for it, battery makers are crying out for it. Lithium, the wonder metal at the heart of the global shift to electric cars, is in a full-blown crisis. Demand has outstripped supply, pushing prices up almost 500% in a year and hindering the world’s most successful effort yet to halt global warming.

The shortage of lithium is so acute that in China, which makes about 80% of the world’s lithium-ion batteries, the government corralled suppliers and manufacturers to demand “a rational return” to lower prices. Analysts at Macquarie Group Ltd. warned of a “a perpetual deficit,” while Citigroup Inc. nearly doubled its price forecast for 2022, saying an “extreme” rally could be coming.

The consequences of failure to produce enough lithium are potentially devastating. Global investment in EVs has grown faster than any other new-energy sector over the past few years, outstripping even wind and solar power. Current lithium spot prices could add up to $1,000 to the cost of a new vehicle, Benchmark Mineral Intelligence said. Along with higher prices of other raw materials, that is reversing years of falling prices as EVs race to become cost-competitive with gasoline-powered cars. If battery makers can’t get enough lithium, it would curb the expansion of clean-energy vehicles, making it harder to meet global emissions targets.

Needless to say, the pandemic and the Russian war on Ukraine have made things worse for battery-makers, Lee reports, causing difficulties with “supplies of other ingredients they need, including nickel, graphite and cobalt.”

Bloomberg:

A surge in battery metal prices means it could take several years longer for electric vehicles to become as affordable as conventional cars, according to BloombergNEF.

Prices of lithium, cobalt and nickel have soared in the past year, eating into EV makers’ margins at a crucial point in the development of the burgeoning industry.

The Californian authorities do admit that EVs are a tad more expensive than their conventional equivalents, but that, they tell us, is going to change.

Cal Matters:

Electric cars now cost more to purchase, but price drops plus savings on gas and maintenance would add up, saving consumers an estimated $3,200 over ten years for a 2026 car and $7,500 for a 2035 car, the air board calculated.

All will be well.

Meanwhile, via Bloomberg:

For now, the base case for EV sales remains unchanged, but green inflation — a term for the sharp rise in energy transition-related prices — could put “negative downward pressure on EV penetration,” Yuzawa said.

According to data from Cox Automotive, the average transaction price for a new EV in the US climbed to more than $65,000 in April, up 16% from a year earlier. That outpaced gains in total new vehicle prices over the same period and placed EVs squarely in the same price bracket as luxury cars.

To be fair that price tag — an average — is swollen by the degree to which electric cars have been marketed as an upscale product (there are a number of cheaper alternatives), but still . . .

And I wonder how the time spent waiting to recharge the car once on a long journey will be costed?

I touched on some of these issues in an earlier post.

California will not be alone (New York, its regular partner in idiocy, is also shooting for 2035), and others too are along for the ride.

But there’s always one lemming that wants to be first off the cliff.

NBC:

Washington state plans to ban most non-electric vehicles by 2030, according to a newly signed bill by Gov. Jay Inslee.

The bill says that all vehicles of the model year 2030 or later that are sold, purchased, or registered in the state must be electric.

But maybe I shouldn’t be so negative. At least EVs will hasten in a happy era when the West is not dependent on our strategic rivals for crucial raw materials.

Or maybe not. Ambrose Evans-Pritchard, writing in The Daily Telegraph:

“The economies of the future will no longer rely on coal and oil, but on lithium for batteries; on silicon metal for chips; on rare earth permanent magnets for electric vehicles and wind turbines,” [Ursula von der Leyen, the European Commission’s president told the World Economic Forum in Davos.

“The green and digital transitions will massively increase our need for these materials. However, access is not a given. For many of them, we rely on a handful of producers in the world. We must avoid falling into the same trap as with oil and gas,” she said.

It may already be too late to prevent a chronic supply crunch through the 2020s. The International Energy Agency says China controls half the world’s capacity for lithium refining and produces three quarters of all lithium-ion batteries. “Today it’s about oil, tomorrow it will be about lithium supplies,” said Fatih Birol of the IEA.

China already has a strategic lock hold over rare earth metals used across the spectrum of advanced technology, not just for green energy and artificial intelligence, but also for military lasers, missiles, and satellites. Beijing is fast acquiring dominance over global supply of cobalt and graphite. Over 98pc of permanent magnets – typically requiring neodymium – come from China.

Prices of lithium carbonate have risen almost tenfold this year. Cobalt is up by 150pc, and nickel futures have almost doubled. The IEA calculates that the “cathode materials” in battery packs for electric cars have jumped from 5pc to 20pc of the total cost in less than a decade.

Nato secretary general Jens Stoltenberg issued equally stark warnings in Davos over the risks of sleep walking into an invidious dependence on China, arguing that the invasion of Ukraine had exposed the pitfalls of naïve free trade with antagonistic powers that do not pull their punches. There must be no equivalent of the Nord Stream 2 pipeline debacle in dealings with Beijing.

Too late, I think (more here), and much more in a piece that we ran this week by Joel Kotkin.

Here’s one extract:

The ever-quickening pace of mandates for electric cars, with little in the way of new electric capacity, seems likely to serve Chinese interests more than ours. Beijing maintains almost total domination of the solar-panel industry — its battery capacity is now roughly four times ours, a gap projected to expand by 2030. They also have effective control of the requisite rare-earth minerals and the technology for processing them.

Indeed, given China’s growing dominance in computer production (and its drive to control semiconductors as well), the future of American automobile production could very well consist of slapping a Chinese computer to a Chinese battery with some bent metal, arguably also sourced there, around it.

This is a lightly edited extract from National Review’s Capital Letter, June 3, 2022