Energy Efficient Vehicles and Medical Justice's Energy Application

Two Shots On Goal

All car manufacturers are working feverishly on launching new energy efficient vehicles. These companies are infusing significant resources into accomplishing a tall task. If any pull it off, it could radically restructure their position in the automobile universe. Although high gasoline prices auger rising demand for cost-effective alternatives, the near-term pressure has abated, and our memories are short. In addition, consumers do not have enough disposable income to contemplate purchase of a new car. Further, high gas prices have caused their existing gas-guzzlers to depreciate quickly, providing less value for trade-in. And credit has tightened- interest rates are trending in the opposite direction of liquidity.

Tom Friedman recently said, if you don't have leverage- get some. What might change the general environment and position any one energy efficient vehicle for success is tinkering with another variable- gasoline prices. In summer 2008, American politicians debated whether a gas tax holiday makes sense. They were both right and wrong at the same time. Eliminating the tax, even for a short while, would drive up demand- leaving the overall cost unchanged over time. Conversely, European style gasoline prices would worsen the recession overnight.

There is a third way. Do not tax every transaction at the pump at the same rate. If the goal is to persuade individuals to consume less- adjust the tax based on prior consumption. For example, the first ten gallons of gasoline in the week would impose zero tax; the next ten gallons would impose $0.50 tax; any additional consumption - $2.00 a gallon. The following week, the process would reset. These numbers are merely for illustration and could be adjusted weekly until consumption is decreased to some target. Exceptions could be made for commercial drivers and the indigent. Pure libertarians could opt out by paying the highest rate all the time. And, most importantly, individuals could now leverage their value in a carpool besides just bringing gas money. A driver and a passenger in a carpool could travel twice as far at the lowest possible rate- effectively converting a 15MPG car into a 30MPG car.

Medical Justice has broadened its work on healthcare applications to enable such a system. In this model, the consumer's driver's license is scanned at the pump. This information goes to a database and compares the current purchase of gasoline with past purchase to output the proper "progressive" tax calculated at the time of purchase. Payment is made at the pump. Do not tax the gasoline itself. Tax the user for his consumption.

How is this relevant to the auto manufacturers? To make new technologies cost effective, the spread between the cost of doing nothing (keeping the gas guzzler and paying higher yearly costs for gasoline) and the cost of taking action (upfront cost of efficient vehicle plus lower yearly costs for gasoline) must narrow. For example, in 2008, the extra cost for hybrid technology is $5k. Even at $4 per gallon, the "break-even" point is many years down the road. At $3 a gallon, the beak-even point stretches. But, if nonlinear pricing were imposed for gasoline, the true gas guzzler (driven solo), when traded-in for an energy efficient vehicle would reach this break-even point much sooner.

The car manufacturers are seeking government assistance to retool for the 21st Century. This help should be conditioned on their new role in overall energy strategy. The car manufacturers can become self-sustaining by having a second source of revenue- at the pump. Consumers would be driven to the emerging technology (gas savers) or the manufacturer would receive a "transaction fee" at the pump from those who still insist on driving gas guzzlers. The transaction fee, in a sense, would subsidize its "innovative energy efficient vehicles" until economies of scale brought the price down enabling mass purchase.  The car manufacturer would profit from those who buy a new energy efficient vehicle and, paradoxically, from those who don't. That is leverage.