Only stiff rules will drive car makers to see past the petrol

The government is in a deep hole over cars and carbon emissions. The doubling of the oil price in the past year has seen petrol prices soar to around £1.20 a litre. Ministers are fretting about a planned 2p increase in fuel duty this autumn and about their earlier decision to impose big increases in car tax for gas guzzlers. The scope of the latter is so draconian that humble family cars will be caught in the net. Applying it to older vehicles seems clumsy – punishing past acts rather than trying to influence future behaviour. On one hand, environmentalists are rightly calling for no let-up on taxes designed to cut emissions by making people drive less. On the other, road hauliers, motorists and sundry other interest groups are up in arms about the costs imposed on them. But it’s only by piling on tax pressure that more efficient alternatives come about.

This is the right time to be taxing to encourage cleaner fuels, because the industry is at last bringing out cleaner cars, after a century addicted to gasoline. One hundred years ago this October Henry Ford’s Model T launched the mass motor industry. Simple and rugged enough for country tracks, it was also the world’s first flex-fuel vehicle. Its engine could run on petrol or ethanol; Ford thought that farmers might prefer to make their own fuel from corn. In fact it was already as economical with either fuel as the average American car today. Although engines have become more efficient, cars have become heavier and made to go faster – wasting the improvements solely on speed.

Until the Model T, nine out of 10 cars were electric. Gasoline-powered vehicles came to dominate as oil was found in Texas, and the battery-powered starter motor made internal combustion cars easier and safer to start, without dangerous backfires. Now the car industry looks set for another revolution.

Modern electric cars began with General Motors’ EV-1, designed largely in Norfolk at the Lotus factory in the early 1990s. The acceleration was striking; so was the speed with which the power needle went from full to empty. Heavy batteries, slow charging and corporate indifference ensured the EV1 was a flop. GM, Ford and Chrysler – America’s big three manufacturers – were toying with clean car technology simply to be seen doing something. Vice-president Al Gore gave them $1bn for greener vehicles, which they gratefully pocketed without producing anything worthwhile.

Governments should avoid throwing money at carmakers. The best policy is a pincer movement: imposing tighter emissions rules to force technology change, and taxes that encourage consumers to adopt alternatives. However much they moan, manufacturers know that they can deliver the improvements if they have to. The worst kind of policy is throwing subsidies at supposed solutions such as biofuels. By imposing rules that biofuels must be blended into ordinary petrol or diesel, all the European commission is doing is subsidising farmers. Biofuels will be a sensible alternative only when the cost of making them from plant stalks and other farm waste comes down, as technology improves.

The most hopeful sign across the board is that the car industry, led by Toyota, has realised that it is in its own interest to develop alternative technologies that really work to cut carbon emissions. Toyota has sold a million of its conventional petrol-electric hybrid cars, and other manufacturers are piling in with their versions. GM yesterday reaffirmed bringing to market its Volt plug-in hybrid in 2010 – and said it might ditch its gas-guzzling Hummers.

The Volt is an example of the latest twist in the hybrid – it can be plugged into the mains overnight, and equipped with a battery that can provide a range greater than 30 miles; the petrol engine is only a stand-by if the battery runs down.

Battery-powered vehicles, even if the electricity comes from coal-fired power stations, are more energy efficient than internal combustion engines; if the electricity comes from nuclear or renewables, there is no carbon emission at all.

Beyond the plug-in hybrid or battery-only car being developed by Renault and others, there is the fuel-cell electric vehicle, running on hydrogen and emitting only water vapour from its exhaust pipe. Makers such as Toyota, Honda and Mercedes believe that the car of the future will be powered by hydrogen fuel cells within 20 years, and costs are coming down as parts suppliers develop mass production techniques.

Oil and energy companies are working with Mercedes and others to create a «hydrogen highway» carving through Germany from north to south. The European commission and the German government are putting about a billion euros into developing the network. Even if making hydrogen consumes electricity, the fuel cell is still more efficient than internal combustion engines.

No one can be sure if electric cars, biofuels or hydrogen power are the answer to cutting emissions. What seems to be happening is that these different technologies are competing with each other to improve the carbon footprint of road transport. The tougher the rules, the harder car companies will work to find alternatives. And high petrol prices are already changing US motorists: in March they drove about 10% less than a year earlier, and sales of gas-guzzling SUVs have tumbled. Meanwhile, even if oil eases back to around $100 a barrel, the days of cheap motoring are over.

Iain Carson, a business writer for the Economist and co-author of Zoom: The Global Race to Fuel the Car of the Future.