Will Hybrids Solve Our Oil Problems?

The EPA and DOE yesterday released the 2007 Top Fuel Economy List which featured the Toyota Prius hybrid as the car with the best fuel economy at 60 mpg city/51 mpg highway (at least based on current official EPA reported mileage, which is higher than real world mileage according to most tests). This brought to mind a recent report I received from AllianceBernstein entitled Ending Oil’s Stranglehold on Transportation and the Economy: The Emergence of Hybrid Vehicles, which makes the case that hybrids will greatly reduce our dependency on oil in the coming decades.

Today, transportation accounts for about 50% of oil demand. Of that, 45% is accounted for by light-duty vehicles (cars, SUV's, minivans, and light trucks). AllianceBernstein figures that light-duty vehicles will use less oil by 2030 than they do today. After reaching 21.5 million barrels a day in 2010, close to what the International Energy Agency projects, they figure demand will fall to 16.1 million barrels a day (half of what the IEA predicts). This is despite the increase in number of vehicles. The difference: better fuel economy due primarily to hybrids.

Hybrids are predicted to gain mass acceptance not only due to lower costs due to fuel efficiency gains, but also due to superior features, including faster acceleration and lower emissions. They also don't face some of the hurdles that alternative fuel (such as ethanol) vehicles do--you can use them just like you use a "regular" car now, you don't need a new infrastructure to deliver an alternative fuel. Their main drawback right now is the price premium, which is expected to drop rapidly since a large component of the cost is electronics and batteries.

The next step beyond our current hybrids is plug-ins. While today's production hybrids cannot use electrical power alone for significant distances, that changes once higher capacity batteries (which will be charged by plugging in, rather than solely through regenerative braking and the gas engine) become more affordable. According to AllianceBernstein, 40% of Americans travel 20 miles or less a day and 60% travel 30 miles or less. If a plug-in hybrid could go just 20-30 miles on a charge, many people would never have to use gas for routine driving, but still have it available anytime they needed it for longer trips. You can see how that would greatly increase MPG. There are already some people who have modified their Prius' in this way (albeit at a high cost).
The report considers the implications:

If most consumers recharge the batteries in their plug-in vehicles from the electrical grid, the fuel ultimately powering their vehicle is likely to be coal, natural gas or uranium, rather than oil...This could reshape the foreign policies of such oil-importing countries and regions as the US, Japan, Western Europe, China and India. The economic and political implications for the few oil-rich exporting nations, by contrast, are likely to be grim. Indeed, the transition to hybrid power could change the world!

That would be great news for us. I'm wondering, though, if there's a self-limiting mechanism in this march towards hybrids. As the recent volatility in gas prices have shown, we seem to worry only when the prices are high and quickly forget about the long-term when prices are low and oil is plentiful. If hybrids do help to keep a cap on gas prices by lowering demand, that would make hybrids themselves less attractive, slowing the development of economies of scale.

Maybe an increase in gas taxes would help? I'm sure that would be politically impossible right now but perhaps concerns about security in the Middle East will be enough to tip the balance in the near future.