Transportation Sector isn't Driving Green Economy

Europe in the age of austerity is slashing subsidies for renewable energy programs. The IEA argues that as renewables become more affordable, government support is waning. This trend suggests at least parts of the economy are starting to witness a sea change in how governments are fueling growth. With the share of renewables in the global energy mix increasing, the playing field with hydrocarbons is becoming more even. But until those trends start to spill over to the transportation sector, global ambitions for a low-carbon economy may be stifled.

The International Energy Agency expects renewable energy to account for more than 30 percent of global electricity production by 2035. This would represent more than a 10 percent increase from current levels. Maria van der Hoeven, executive director of the IEA, credits much of that momentum with government incentives. Solar power, for example, is backed to the point that it started something of a trade war between Beijing and Western economies.

But those subsidies are disappearing. Madrid's decision to slash subsidies this year in a budget-cutting measure pushed Spain out of the renewable energy Top 10.  Germany, on pace to become Europe's renewable energy leader, is cutting its support for solar energy by 30 percent and Britain, Italy and Switzerland are all considering similar action. Van der Hoeven, however, notes this isn't so much about waning support for renewables as it is a sign that renewables are "coming of age."

That may very well be, but the renewable energy debate thus far has focused mostly on electricity. By some measurements, electricity use accounts for roughly 30 percent of global energy consumption. Transportation accounts for much of the rest. Van der Hoeven notes that while $66 billion of the government incentives were backing renewable energy in 2010, that represented only 20 percent of the $409 billion spent on fossil fuels that same year. That suggests the global economy is still driven largely by oil and most of that oil, about 70 percent, goes toward the transportation sector.

If renewable are truly coming of age, as Van der Hoeven suggests, then some of that subsidy-backed price reduction should spill over to automobiles. The much-lauded Chevy Volt still runs around $30,000, however. In the United States, most consumers would rather purchase a heavy-duty pick-up truck that gets around 20 miles-per-gallon for about $7,000 less than the Volt, tax incentives be damned. And, horsepower aside, the 1908 Ford Model-T got around 28 mpg. While to some extent, that's comparing apples to oranges, it also highlights a flaw in green-energy logic. Why throw the most political weight behind the part of the economy that uses up the least amount of oil?

If there's anything that $4 gasoline teaches those of us wading through the U.S. economy it's that at some point, consumers start to think greener than they do with $3.50 gasoline. Until that mindset changes and consumers start wondering why they're still using the same basic technology to get around that they did more than 100 years ago, the economy will still drive on oil.

By. Daniel J. Graeber of Oilprice.com