Perspective: Which road leads to energy independence?

perspective Energy independence is a hot topic these days. The latest round of conflict in the Middle East, combined with Venezuela's active courting of anti-American sentiment, is another reminder of how problematic our reliance on foreign oil has become.

Not surprisingly, competing interests make the path to independence less clear. But is it really that hard?

There are no panaceas. But there is a case to be made that the knowledge and technology exist today to solve the problem. The question is, how do we get there?

To start, people must agree on the problem. Energy independence is really about displacing imported oil for transportation. Electricity is primarily generated, priced and distributed domestically. Oil on the other hand is a global commodity for which the value is set by global markets.

OPEC countries produce 40 percent of the world's oil and hold almost 70 percent of remaining reserves. As we saw in the 1970s, it only takes a single digit decrease in oil supply to trigger price shocks. It's no wonder then that oil has become a global source of conflict. But drilling more oil at home won't solve the problem. The U.S. will never produce or store enough oil to offset OPEC's market power.

The U.S. will never produce or store enough oil to offset OPEC's market power.

What we need is a substitute.

Fortunately, both economic and environmental interests are all pushing us toward alternatives. Despite talk about future technologies, several easy steps can be taken that would secure independence today.

• Step one: Get our house in order.

The U.S. gasoline market is fragmented. Petroleum interests typically blame varying state fuel standards. To be sure these varying standards do contribute to supply constraints and volatile prices. However, this all could be solved if the federal government would regulate to the highest state standard rather than the lowest common denominator. The higher standards cost refiners pennies per gallon, while volatility costs consumers far more. Common standards, as the network industry knows well, make market entry for innovators that much easier.

• Step two: Harness existing resources.

Biofuels, and corn-based ethanol in particular, are already competitive with petroleum. In fact, long-term contracts for corn ethanol and biodiesel are lower than for gasoline or diesel and have been for several years. However, it is largely thanks to the federal Renewable Fuels Standard (RFS) that we use ethanol at all. Natural incentives in the fuel industry do not encourage supply-extending alternatives. Of course, some people flip a lid at the idea of a mandate. But the RFS provides needed market certainty--albeit only 3 percent of the market--that encourages private investment in new technologies and production, and ultimately helps reduce prices. States and the federal government should be encouraged to increase requirements aggressively to encourage even more investment in the sector.

• Step three: Develop our "bio-reserves."

Corn ethanol and soy biodiesel can provide a portion of the solution. With current yields and maximizing land use, ethanol and biodiesel could supply 15 percent to 20 percent of our total fuel demand. The next step is to more economically unlock the energy potential in the cellulose that makes up most organic matter.

Ethanol from cellulose could provide another 30 percent of our fuel needs, according to a recent report from the Department of Energy. (Click here for PDF.) This is where one has to think about the transition as a continuum. If we had said back in the 1980s that it wasn't worth developing home computers because RAM cost more than its weight in gold, you probably would be reading this article in print. Likewise, corn ethanol may be a bit clunky. But like the early PCs, it helps establish a market that drives research investment into far cleaner, more plentiful cellulose ethanol.

Corn ethanol may be a bit clunky. But like the early PCs, it helps establish a market that drives research investment into far cleaner, more plentiful cellulose ethanol.

Cellulose ethanol is not a pipedream. One leading researcher recently suggested that just $1.7 billion in R&D investment would make cellulose competitive. This is about the same amount we spend each week in Iraq. A broad range of companies and university labs are developing cheaper enzymes, catalysts and fermentation processes today. And thanks to corn, when cellulose arrives, the market will exist.

• Step four: Commit to flex-fuel vehicles and plug them in.

Every vehicle on the road today can run on up to 10 percent ethanol (gasoline) or 5 percent biodiesel (diesel), and manufacturers are increasing production of flex-fuel vehicles that can handle 85-percent-plus blends. These vehicles cost less than $150 more to manufacture. Consumers need to start demanding them. Flex-fuel vehicles open the door to biofuels without binding us to a specific path. Once they're on the road, fuel retailers will finally be able to justify investing in pump retrofits to provide 85 percent ethanol fuel, known as E85, and allow consumers to make the choice at the pump.

By adding more batteries and a plug to today's hybrids, groups such as CalCars have managed to reach the equivalent of 100 mpg. The major automakers have been slow to adopt plug-in capabilities, but Saab recently displayed a flex-fuel hybrid with plug-in capability. Plug-in hybrids, combined with flex-fuel vehicles, offer the potential to displace more than 70 percent of current U.S. oil demand, replacing much of it with power from the grid that currently costs the equivalent of 60 cents to $1.30 per gallon.

In shifting the energy burden from fuels to the grid, there are obviously challenges. Interconnection, grid reliability and generation capacity all come to mind. But there is also enormous opportunity for innovation, and these challenges are far more resolvable than the crisis we now face in the Middle East. Wind, solar, nuclear, biomass and even advanced coal can all provide cleaner, domestic and more economic power sources than petroleum.

The private sector needs to embrace higher standards and innovate to meet them most efficiently. If we can do that, energy independence is in fact well within our reach.

Biography
Will Coleman is a graduate student in the Energy and Resources Group at U.C. Berkeley. He is founder of U.C. Berkeley's Haas Energy & Resources Collaborative. He also is an associate at Mohr Davidow Ventures.

More Perspectives

[Pixelslave]

Hybrid

The fact is, even the hybrids, which many people say they don't save much gas, really do use a lot less gasoline. I have a Highlander Hybrid, I pay around 35% to 40% less for gas this year than last year (with a regular Highlander.) My driving habbit is similar to last year, but I still use less gas. Yes, it may not worth the extra cost to buy a hybrid (but it does look like I can earn it back in about 4 years if gas price stays at an average of $3), it reduces oil consumption. Just imagine everyone in the country uses a hybrid, that's 35% reduction of gasoline used by cars in US!

[NewWorldDan]

Alt Fuels

1. Common ground on fuel standards would be a good thing. I'm leary of a federal standard, but states could work together to get the number of fuel standards reduced significantly. For example, California, due to its geography, needs very clean burning fuels. Other areas might only need lower standards. A one size fits all approach is a dangerous thing.

2. Ethanol is a terrible fuel. It gets terrible mileage. To be competitive, Ethanol needs to be priced at about two-thirds the cost of gasoline.

3. Biodiesel, on the other hand, is by nearly any measure superior to conventional diesel. The problem with biodiesel is that we just can't grow enough vegetable oil to produce enough of it. The gene splicers need to get into action and invent a really good fuel crop. The oil yield on soybeans is terrible. We use soybeans for oil becaues they're easy to grow and we don't know what else to do with them.

4. Hybrids are overrated. The mileage is good, but they have their own issues. As a consumer, my confidance in them is not that high. A diesel can get comparable mileage and diesels are known for their durability.

5. Flex fuel vehicles: see ethanol.

6. Plug in hybrids. These also have their issues. High quality batteries that can be recharged thousands of times aren't cheap. And don't forget the cost of generating electricity when computing that mileage.

Finally, don't over estimate the governments ability to bring about change. People drive the cars they do and use the fuels they do for their own reasons. About the only need for government intervention might be to provide funding for the development of fuel crops. And even that's debatable.

[Gray K]

Look at the long term!

One. Fuel price should match enengy content:
Fuel type BTU/US gal Octane(RON) % to Gasol.
Diesel 147,000 25(*) +17.6
Gasoline 125,000 91?98 0.0
Gasohol (E10) 120,900 93/94 -3.3
(E85) 90,400 -28.0
LPG 95,475 115 -23.6
Ethanol (E100) 84,400 129 -32.5
Methanol(M100) 62,800 123 -49.8
Methanol (M85) 72,130 -48.0
Two. Only Power from Solar, Wind, Water & Nuclear will outlast fossil fuels and none of them can be easily used in an automobile. Much of the world's attention has been directed toward hydrogen because it can be made from water and can be stored and shipped. However, both of these are very difficult. In a vehicle it can be directly converted to electricity using fuel cells.
Three. (Reference the recent book of Dr. Prof. Olah, et al at UCLA) But hydrogen can be combined with carbon monoxide to get CH3OH, methanol, which is easy to store and to burn. (It's good enough for the Indy race cars.) It can also be used in it's own fuel cell. It is currently the cheapest to make (from natural gas) but also can be sythesized from hydrogen and CO2.

[Björn Lundahl]

People do not realize that gas, in a free market, does not suddenly run out

Gas does not suddenly, in a free market run out. Prices today reflect ?expectations? of the available supply and demand for goods and services ?today and tomorrow?. If, for instance, the expectation is that oil supply will decrease or will be less than demand in ten years time, it will influence oil prices today. Prices today will go up. People will have the incentive to conserve (demand will decrease) and to develop new alternatives. Actually, we are probably conserving too much, because of OPEC and Governments taxations are keeping prices higher than they otherwise would be. ?That oil soon runs out? is a political slogan that keeps coming up to keep politicians busy. This political slogan sounds true and will, therefore, ?in the political market? sell. Only true markets can handle this sort of complex things. Compared to markets, Governments are too simple minded and primitive, because of the fact; they lack the essential tools that are needed to solve these kind of ?problems?. They primitively, for example, regulate car manufacturers (and in the end consumers) to produce cars which improve gas mileage and impose upon people speed limits, without knowing if these actions are good or bad. Only markets can tell if conservations are good or bad, because market prices gives people the necessary signals of supply and demand, and people can therefore compare these prices to their own values if they are profitable or not to realize. The essential tools that are needed (which Governments are always lacking) are, as mentioned, ?market forces and the market price mechanism?. Without these mechanisms nothing can be done. For example, a scientist will not reach the truth in trying to calculate physical available quantities and compare that to what he expects physical demand will be. It is silly, it is static and mechanistic. Every individual and every business around the whole world, with all different knowledge, all the time, and in all possible situations, and which are directly influenced of higher prices, will conserve and try out alternatives. Even people and businesses that are not directly influenced of higher oil prices, also, have incentives to find out alternatives. These things happen all the time with all goods, services, capital and raw materials, and it run smoothly without us even noticing it. If Governments were going to replace the markets, we would probably end up with no available goods and services at all! In a sense, this would solve the ?conservation problem? (joke). To make an example of this lack of knowledge and the belief that you can ignore markets, look at the so called ?Club of Rome?, a group that made fools of themselves in the 70s with their book
?Limits to growth? (http://www.answers.com/the+club+of+rome?gwp=11&ver=2.0.0.453&method=3). If they were right, we would probably barely, even, live today!

Björn Lundahl
Göteborg Sweden

[m_albertson]

Cellulosic Ethanol Has No Enemies

Well, maybe cellulosic ethanol does have one enemy...the oil industry. However, lately even the oil industry is getting in on the frenzy. Chevron, BP and others have been doing their own cellulosic ethanol research. It reminds me of when National Cash Register (NCR) began to research a new technology called computers. Don't we all wish we would have invested in computer stocks when they first launched? I've been trying to find investment opportunities in the emerging cellulosic ethanol industry. So far, this web site has provided the best info: www.InvestInCellulosicEthanol.com . I was surprised to read that even Alan Greenspan is a supporter/believer in cellulosic ethanol.