I spent the better part of today editing a draft of the upcoming NAATBatt white paper on distributed energy storage (DES).  The white paper will argue that the principal barrier to DES deployment is that the technology appears uneconomic to utilities and to utility regulators because it is impossible for ratepayers who invest in DES systems to recover the value of the benefits such systems provide to consumers around the country, as opposed to those consumers who, through their utility bills, pay for the DES system.  This is the Tragedy of the Commons, as Garret Hardin termed it, turned on its head.

Among the common, national benefits of DES technology the white paper will identify is DES’s ability to help reduce the cost to consumers of electric vehicles (EVs).  The EV cost reduction effect of DES arises from its positive impact on the volume of advanced battery production (by increasing advanced battery production, DES helps manufacturers achieve economies of scale and reduce unit cost) and on its ability to provide a market for second use EV batteries (thereby providing a residual value to the vehicle that EV purchasers can capture).

But reducing the cost of EVs is only important if deploying EVs is important and has value to the nation as a whole.  In reading the draft of the white paper, I noted that the writer had included the usual statistics illustrating U.S. dependence on foreign oil.  Among those statistics are that the U.S. imports about 11.8 million barrels of oil per day, comprising about half of domestic petroleum demand; that about 70% of that petroleum is used in the transportation sector; and that about 60% of the oil used in the transportation sector is used as gasoline in light vehicles.  Those statistics support the argument that reducing oil imports is an important national goal and that EVs can help reduce those imports.

But in reading the draft it struck me that the most important statistic was missing—and is in fact missing in most of the discussions I hear about the importance of EVs.  The missing statistic is that nearly 100% of the U.S. light vehicle fleet is dependent upon petroleum-based fuels.  This complete dependence, and the monopoly pricing power that it gives petroleum producers around the world, is the central reason why EVs are important and why their deployment is so critical to our national well-being.

To be sure, increasing the fuel efficiency of the U.S. light vehicle fleet is important.  EVs can be an important tool in achieving that goal, though they are but one of many tools available to auto makers and, perhaps, not yet the most cost effective tool in the shed.

But increased fuel efficiency of light vehicles will not solve the problem that has bedeviled our nation for decades:  the long-term hemorrhage of American jobs and capital to petroleum producers.   If our light vehicle fleet is 100% dependent on petroleum-based fuels, reducing use of those fuels will neither save money nor reduce vulnerability to supply disruptions in the long run.  As in any market controlled by a monopoly, the monopolist has the option to raise its prices as demand declines.  The consumer cannot come out ahead by conservation alone.

It is not enough that the U.S. reduce its use of petroleum; the complete dependence of the U.S. light vehicle fleet on petroleum must be broken.  Only by breaking that complete dependence oil, not by simply reducing the volume of its use, can the monopoly pricing power of petroleum producers be brought to an end.  Today that monopoly is the single greatest threat to the American economy and national security.  EVs are the only realistic tool we have to break it.