Do High Diesel Prices, Or Consumer "Hostilities," Keep 65 Mile-Per-Gallon Sedans Off The US Market?

Mike reported to us, earlier, that Ford will not be selling its 5-seat, 65mpg Fiesta diesel sedan model in the USA. See Ford Introduces 63.6 MPG ECOnetic Diesel Fiesta... Only in Europe ... for technical details on the vehicle.

Business Week offers interesting explanations for why Ford Motor Co. is instead making a gasoline version for the US market, cutting the vehicle's efficiency back significantly. As the 65 mpg diesel version currently is made and offered in Europe only, the devalued US dollar figures into the decision not to import them to the USA. That is certainly understandable.

But, some of the other cited reasons for Ford not building or selling the diesel version in the USA seem like hooey: like the claim that US consumers are 'hostile to diesel.' Via::Business Week, The 65 mpg Ford the U.S. Can't Have. The claim of 'consumer hostility' is reminiscent of Detroit car-maker logic regarding the continued manufacture of gas-guzzling SUVs in the face of a fuel price crisis: 'we make what American consumers want,...blah blah.' Everyone knows that SUVs and MegaTrucks are far more profitable per unit sold than sedans. But we never hear that explanation.

And, it reminds this writer of a long-ago boss who, faced with the late 1980s propagation of personal computers in the workplace, mandated that his reports all 'compose first their memos and reports with pen on a yellow pad, because that's how we do things here.'

Even more interesting is this explanation, from Business Week, as to why diesel fuel costs significantly more than gasoline in the USA.

Taxes aimed at commercial trucks mean diesel costs anywhere from 40 cents to $1 more per gallon than gasoline.

Others sources such as Energy Tomorrow state that the tax-associated price differential for diesel is closer to 6 cents per a gallon.

The relatively large US-pump price spread between diesel and gasoline is reported elsewhere to be due mainly to high demand outside the US for diesel fuel, and because of increased costs for US-based refiners to meet low-sulfur diesel standards (the stinky stuff was cheaper to make). Now that is a causal analysis that fits with the facts on the ground, and free market forces, especially because it accomodates the well-documented trend that Chinese and European diesel demand growth is dwarfing that of the US.

In other words, other nations want the good stuff (diesel) and our refiners are willing to sell it to the highest bidder.

Demand for diesel has been growing strongly throughout the world, so finding additional diesel fuel to import has become more difficult. Strong economic growth in developing countries, droughts in some areas that spurred a need for greater back-up generation, and preparations for the Olympics in Beijing have all added to world demand for diesel. Europe has also been moving steadily towards greater use of diesel.

What about comparing the US price spread to that in Canada? Several Canadian sources, such as Toronto Gas Prices, indicate a far smaller price spread between gasoline and diesel. Why is that? Is something fishy, or do Canadians not have to meet a low sulfur diesel standard? Do they not export their diesel?

Setting aside the question of "why," perhaps the high US price difference between the two fuels is the reason why the SmartCar sold in the US also has a relatively inefficient gasoline engine instead of the highly efficient diesel it was originally designed for. A trend seems in evidence.

Trucker Feel The Pain More Than Most...Do They Know Why?
Do you guys and gals who make a living driving diesel know any more about what gives with the high US diesel prices?

Given that most diesel fuel is consumed by commercial vehicles, the political risk of selling diesel at a higher price in the USA is low: there are just not enough truck driver voters to make a huge difference. That would not be the case if millions of average income (read this as non-Mercedes owning if you like) Americans relied heavily on diesel fuel for daily transportation.

Possible Solutions
Refineries can be re-tooled, and operated differently, depending upon whether marketers wish to "tip" production toward getting more gasoline per barrel, or more diesel per barrel of oil. Of course, if they are already operating at or near peak capacity there is little incentive to change over unless the profit margin for diesel is substantially higher. That is the dilemma which flows from the low sulfur diesel fuel standard now in place.

One possible solution lies in providing Federal tax incentives for refiners to make more low sulfur diesel.

Along with tax incentives for refining diesel, if it's mainly increasing demand for diesel in Europe and China that's driving up prices in the USA, let's levy an export tax for a phase in period...until diesel sedans can capture a significant US market share. Why should the USA support the rest of the world having a fuel choice, before the folks at home have one?

Hostile toward diesel, indeed. Looking for affordable transportation is more like it.

Update: There could be a partial "regulatory" reason why US diesel making capacity has not been increased as much as it might have in responses to demand growth. In order to significantly change an industrial facility, a modification to the air discharge permit must also be applied for. When that amendment application is in process, the fugitive and stack emissions from the facility must be projected, using the best available technology. Here's a hint at why that might be a problem for some facilities:

A study by the Alberta Research Council that investigated the plume of contaminants emanating from a Canadian oil refinery using high-tech sniffing equipment found the facility dramatically underestimated its releases of dangerous air pollutants.
The refinery, which wasn't identified but is believed to be in Alberta, released 19 times more cancer-causing benzene than it reported under Environment Canada disclosure regulations, about 15 times more smog-causing volatile organic compounds, and nine times more methane, a greenhouse gas, according to the study.
The testing is believed to be the first at a North American refinery using the sophisticated technology relying on lasers, and is considered state-of-the art. The technology, developed by British Petroleum, has been in widespread use in Europe for nearly two decades.
Via::Toronto Globe and Mail and Environment Reporter.

And, no, we're not advocating a Federal de-regulatory action. Refiners should implement best available pollution control and process technologies over a reasonable period; and, US consumers should pay the price, in exchange for a more healthful air quality. All the more reason to buy efficient vehicles, ride bikes, and expand mass transit.

Image credit::Business Week

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Tags: Diesel