By
all accounts, Shai Agassi, the founder and original CEO of Better
Place, Israel's bankrupt electric car company, is an extremely
charismatic man. His charm had politicians, venture capitalists,
celebrities and non-automotive industry reporters slobbering over him.
Everyone wanted to get their picture taken with the man who would
transform Israel's auto industry into the first electric powered
industry in the world and transform the start-up nation into the
transportation hothouse for the world.
Agassi's vision was simple and easy to understand.
By
2020, half of Israel's cars would be battery powered electric cars
supplied by his company, Better Place. We would replace our internal
combustion engines, powered by oil produced by our worst enemies, with
batteries produced by Better Place. Better Place would overcome the
technological deficits of batteries that are only capable of powering a
car for short distances by building battery changing stations throughout
the country. Instead of filling up our tanks with gas, we would replace
our battery.
The
only ones not convinced by Agassi's plans were people who actually
understand the car market generally and the Israeli car market in
particular.
Automotive industry reporters
warned as early as 2008 that Israeli drivers would need incentives to
buy into a new technology. Cars in Israel are prohibitively expensive.
The government charges 82 percent customs duties on imported cars. If
electric cars could be cheap cars, then they had a chance of succeeding.
To
help Better Place succeed, the government gave the company a massive
discount on import taxes. Better Place, which signed a deal with Renault
to produce a battery-charged model of the Fluence family car, paid only
10% import duties for the car.
Instead of
passing the savings off on its customers, Better Place cars cost the
same amount as regular gasoline powered cars. And that's not including
the cost of the battery or the monthly subscription to Better Place
battery charging services.
So there was no economic incentive to buy the car.
Many
have chalked the failure of Better Place up to its poor management. And
no doubt Agassi's management skills didn't hold a candle to his skill
as a salesman. The company's business model was an incoherent study in
overreach and hubris.
But the fact remains, the car was too expensive.
And that makes some sense. Building a whole national infrastructure for electric cars is expensive.
The
only incentives Better Place gave consumers were ideological. And as it
worked out, only 900 people were willing to pay full price to own a car
whose actual battery life was between 100 and 120 kilometers, just to
reduce their carbon footprint or to screw the Arabs.
To
summarize, the government gave Better Place a massive tax break.
Investors poured $840 million into the company. The media showered the
company in fabulous free PR.
And in four years, it only managed to sell 900 cars.
That
tells you something about economics.The iron rule of supply and demand
is foolproof. If the price is too high, people won't buy your product.
And if the ticket price of being the pioneers in a risky market, of
having to go out of your way to get to the battery swap stations, and of
swapping your battery three to four times more often than you have to
fill up your gas tank is the same as the price of a normal car, then no
one will want to be a pioneer. And no one did.
Indeed,
according to Channel 2, more than a hundred of the 900 owners of Better
Place cars worked for the company. And the majority of the other owners
purchased the electric car as a second or third car.
People
warn that Better Place's failure will harm the reputation of Israel's
hi-tech economy. But these warnings make little sense. Better Place
wasn't a hi-tech firm. It was an electric car company. And it wasn't
selling new technology.
It simply packaged old failed technology in a new way.
What
failed with Better Place wasn't the idea of Israeli hi-tech prowess and
ingenuity. What failed - again - was the notion that there is a way to
use alternative energy sources - like electricity - to replace the
internal combustion engine. And there isn't. There isn't because laws of
supply and demand govern the economics of the car industry even when
Shai Agassi is the one selling alternative economic laws.
One
of the attractive aspects of the alternative fuels market is that it
allows people who care about security to partner with radical
environmentalists who oppose the consumption of oil.
No
other issue brings far-right security hawks together with far-left
environmentalists. And while most environmentalists are unmoved by the
presence of conservative hawks in their coalitions, conservatives are
overjoyed at the opportunity to rub shoulders with members of Greenpeace
and the Sierra Club. Maybe one of the reasons that many security hawks
remain enamored of alternative fuels despite their clear inability to
replace oil on an open market is because they are unwilling to abandon
their one common cause with the Left.
But the time has come to abandon the environmentalists.
Israel
has the means to achieve energy independence and pave the way for the
free world to neutralize the economic power of the Islamic world.
Unlike
the situation with Better Place, economic laws of supply and demand
work in favor of Israel's energy solution. The only force standing in
the way is a coalition of radical environmentalists who oppose all oil
consumption because they believe that the greatest threat to the world
is global warming. They don't want cheap oil.
They
want oil at $500/barrel. They don't want clean oil at cheap prices.
They want us all to live in crowded cities, become vegetarians and
travel around on mass transit or ride bicycles.
Four
years ago, Israel discovered that it is sitting on top of a massive
amount of oil. South of Jerusalem, in the Shfela Basin beginning around
15 km. from Kiryat Gat, Israel has an estimated 150 billion barrels of
oil - or 60% of Saudi Arabia's reserve capacity. The oil is located in
shale rock located 300 meters below ground. It is separated from
Israel's underground aquifer by 200 meters of impermeable rock on either
side.
If tapped into, Israel's domestic oil
supply could provide us with energy independence for hundreds of years.
At the initial stage, we could produce enough to satisfy entirely the
IDF's fuel requirements - 50,000 barrels a day. And we could refine it
at Ashdod without even having to expand our refining capacities. In
later stages, we could produce enough oil to satisfy the entire
country's consumption needs of 80 million barrels a year.
A
visit with the senior executives of Israel Energy Initiatives is
frustrating journey into Israel's political pathologies. IEI holds the
license to develop Israel's shale oil deposit. CEO Relik Shafir, a
retired air force brigadier- general, explains that due to a well-funded
campaign of radical environmentalists directed by Greenpeace in Turkey,
IEI has entered a "Kafkaesque regulatory universe," where a pilot
project to demonstrate its technology has been held up for four years.
First
through petitions to the Supreme Court spearheaded by the far-left, New
Israel Fund-supported Adam Teva V'Din environmentalist movement, IEI's
pilot project was delayed for a year. The pilot, which will take three
years, involves demonstrating IEI's technology for oil extraction by
extracting 500 barrels from a test area south of Beit Shemesh.
The
Supreme Court found in favor of IEI, but required the government to
rewrite the law governing oil explorations. Radical environmentalists at
the Environmental Protection Ministry coupled with incompetent
bureaucrats at the Ministries of Justice, Energy and Interior delayed
the project for another three years by delaying the drafting process.
Now
the law has passed. And all that stands between IEI and the pilot
program is the Jerusalem Planning Board. The board will likely begin
deliberations on the plans in the fall.
IEI's
chief scientist, Harold Vinegar, worked as chief scientist for Royal
Dutch Shell. There Vinegar developed the technology for shale oil
extraction. To transform the shale rock into liquid crude oil, shale oil
needs to be heated to 300 degrees Celsius. Heated at that temperature,
in three years, the rocks melt into liquid fuel that is extracted
through production wells.
Vinegar developed the
means to heat the rocks inside the earth with heaters dropped 300
meters. Due to the shale rock's isolation from the aquifers, and the
fact that 9 meters from the heated area, the rock temperature remains 25
degrees Celsius, IEI's technologies will have no impact on the
environment, either below or above the surface.
The
basic rationale of the environmentalists' campaign against IEI's pilot
is to kill Israel's ability to develop its oil fields before the public
realizes what is involved. Once the pilot is approved, assuming it lives
up to IEI's projections that it will be able to mass produce oil at
$40/barrel, public support for the initiative will be so great, and the
economic logic of moving forward will be so overwhelming, that the
project with be unstoppable.
Unlike Better Place, IEI won't need a charismatic salesman from Silicon Valley to sell its product.
Today
Israel pays $100 per barrel for Brent crude, or NIS 2.2 per liter.
Consumers pay NIS 8 per liter at the gas pump, which includes refining
and transport costs and taxes. If Israel produced its own fuel, although
the government would certainly continue to overtax it, and it would
still need to be refined and transported, there can be little doubt that
the price for consumers would be significantly lower. And most
important, the supply would be guaranteed.
One
of the IEI's minor investors is Australian news mogul Rupert Murdoch.
Murdoch is interested in IEI because there are also massive deposits of
oil shale in Australia. If IEI's pilot is successful, Australia will
doubtlessly follow Israel's lead in developing its own energy
independence through oil shale development.
Unlike
the situation with Better Place, there is no hype surrounding IEI -
except the negative hype generated by the radical environmentalists.
For
an oil company sitting on the license area covering an estimated 40
billion barrels of oil, IEI's appearance is shockingly modest. Whereas
Better Place wasted tens of millions on glamorous offices and a huge
workforce, IEI office suites are as plain as can be. President Effi
Eitam, former minister of national infrastructure, works in a tiny,
cluttered office and sits behind a nondescript desk on an inexpensive
chair. Employees work in cubicles.
IEI has not
waged a campaign to counter the environmentalist propaganda because it
believes that the facts will speak for themselves. The minute IEI is
able to run its pilot, it is convinced that the public will back it.
Whether or not this is the proper strategy will be determined in the
coming months by the Jerusalem Planning Committee.
In
the meantime, due to shale oil fracking, the US has moved from net oil
importer to net oil exporter in five years. In the same period, Israel
has seen IEI's pilot delayed year after year as politicians and
reporters have followed alternative fuel pied pipers into bankruptcy.
© 2013 Caroline Glick
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