Approaches to America’s Energy Crisis

Skyrocketing oil prices ensure that it is no longer novel to say that America faces an energy crisis. While the economic consequences of our oil dependence are the most obvious, the dangers extend far beyond that. In my last policy briefing, I examined the national security implications of our oil dependence and the connection between high oil prices and worldwide food prices. Confronting the energy challenge requires a wise mix of short-term, medium-term, and long-term policies that take into account our energy needs and both national security and ecological considerations. Unfortunately, despite the attention now devoted to this issue, many politicians and pundits continue to offer dead-end strategies that fail to properly diagnose the roots of the problem. This policy briefing will clarify the nature of our energy crisis, and examine several approaches to energy policy before suggesting a viable short-term strategy.

Renewable Energy

Some commentators have called for renewable energy, such as solar, wind, and hydro power as an alternative to our dependence on oil. For example, in a 2007 Foreign Affairs article critiquing the U.S.’s emphasis on corn-based ethanol, C. Ford Runge and Benjamin Senauer suggest that the U.S. should limit its dependence on fossil fuels by, among other things, “promoting alternative sources of energy, such as solar and wind power.” While development of renewables should indeed be an important part of U.S. energy policy, commentators like Runge and Senauer completely misapprehend the connection between renewables and oil dependence.

It is critical to understand that our oil dependence is not related to the country’s electricity supply, but rather the transportation sector. As Ken Silverstein, the editor-in-chief of EnergyBiz Insider, notes: “Oil, in this country, now comprises 2 percent of total electric generation. But it still provides 96 percent of the fuel in the transportation sector.”

The majority of electric generation comes from a combination of coal, natural gas, nuclear, and renewable sources—and not from oil. Conversely, solar power, wind power, and hydro power are uniquely ill-suited for powering an automobile fleet. It is true that many astute commentators favor the electrification of the transportation sector—for example, through plug-in hybrids or electric cars. However, policies designed to electrify the transportation sector will not require a great deal of new electricity generation in the immediate future. Not only are electrically-charged cars more efficient than those that run off gasoline (according to a 2001 Argonne National Laboratory study, a car charged by electricity will use only 46% of the energy of a car running on gasoline), but most of these cars will be plugged in during off-peak hours. In her book Plug-In Hybrids, Sherry Boschert explains the significance of the time that these cars would charge:

Wally Rippel, an engineer with AeroVironment, calculated that if all 200 million cars in America were electric, they’d use about 20% of the electricity being generated today. Plug-in hybrids would use far less. That doesn’t mean we’d need to build 20% more power plants, though. Plug-in cars get recharged mainly at night, when many plants either waste the energy they produce or power down without shutting off completely, because there’s less demand than during the day. This “excess capacity” at night (the amount of power that could be generated) was enough in 2000 to accommodate more than 43 million electric vehicles, the US Department of Energy estimated. Since plug-in hybrids would recharge with a quarter or half of the amount of electricity needed by electric vehicles, we wouldn’t need any new power plants until well over 80 million of them are on the road. Those kinds of numbers don’t happen overnight.

Thus, development of renewable energy is almost entirely unrelated to the specific problem of oil dependence, particularly in the short term.

Domestic Oil Exploration

Politicians and pundits alike have called for increases in domestic oil exploration, and conservative talk radio is filled with pronouncements that this is the road to American energy independence. Certainly, President Bush’s recent supplications before Saudi Arabia’s King Abdullah aimed at increasing Saudi oil production emphasize the dangerous—and indeed, humiliating—situation the U.S. faces. But it is important not to oversell the benefits of domestic exploration.

The debate about drilling for oil in the Arctic National Wildlife Refuge (ANWR) is emblematic of the broader debate about domestic exploration. Ducking the environmental questions, what would the effect on U.S. supplies be if we were to drill for oil in ANWR? About 10.4 billion barrels are technically recoverable there, while the U.S. consumes about 7.5 billion barrels of oil each year. Thus, even if all the oil in ANWR were to become immediately available, it would only satisfy the U.S.’s needs for about a year and a half. Of course, not all the oil will be immediately available, even after drilling begins. For this reason, the Energy Information Administration estimates that ANWR exploration will likely only cut crude oil prices by 75 cents per barrel by 2025.

Looking at the bigger picture, the United States has about 30 billion barrels of proved reserves. In contrast, the five Middle Eastern countries with the most proved reserves—Saudi Arabia, Iran, Iraq, Kuwait, and UAE—have over 700 billion barrels. Even if domestic exploration is spectacularly successful, OPEC will still easily be able to set the worldwide price of oil—and thus the price that Americans pay for their oil.

Conservation

Many commentators have pushed for conservation and improvements in energy efficiency in response to rising oil prices. Recall that the U.S.’s oil dependence is a problem of the transportation sector. Thus, energy efficient homes, offices, and bulbs will not address our oil dependence. The only conservation measures that will immediately address U.S. oil dependence are those imposed on the U.S. vehicle fleet. Corporate Average Fuel Economy (CAFE) standards that were enacted by Congress in 1975 more than doubled the efficiency of the new car fleet for passenger cars, which rose from 12.9 mpg in 1974 to 27.5 by 1985. The fuel economy for light duty trucks rose to 22.2 mpg by 2007. The CAFE standard was recently bolstered again, to a 35 mpg standard by 2020.

There are two problems with a conservation-based approach that leaves oil as the dominant energy currency. First, the number of cars on U.S. roads is expected to increase due to population growth and other factors. As a result, some credible estimates of the effect of an increase in average fuel economy akin to previous CAFE gains have held that it would not actually reduce U.S. oil consumption—but rather would only reduce the expected rate of increase. A second and larger problem is that worldwide oil consumption is set to explode. Worldwide consumption increased by 11.4% between 2001 and 2006, and OPEC projects that it will increase by another 30 million barrels per day by 2030. American efficiency gains will be dwarfed by surging worldwide demand, and thus will be unable to reverse skyrocketing oil prices.

This is not meant to discount conservation as a strategy. Like renewable energy, improvements in efficiency should be part of a sound U.S. energy policy, and truly impressive gains are technologically feasible now through plug-in hybrids and electric cars. But the global picture of a world growing thirstier for oil despite the U.S.’s best conservation efforts points to the need to look beyond oil, for economic and geopolitical reasons.

Hydrogen Fuel Cells

One alternative to oil’s dominance that has often been trotted out—not least by the Bush administration—is the “hydrogen economy.” Australian electrochemist John Bockris, who is credited with coining this phrase in the 1970s, summarized in 2002 what it would entail: “Boiled down to its minimalist description, the ‘Hydrogen Economy’ means that hydrogen would be used to transport energy from renewables (at nuclear or solar sources) over large distances; and to store it (for supply to cities) in large amounts.” The transportation sector would be transformed as cars and light trucks are powered by hydrogen fuel cells. In late 2002, secretary of energy Spencer Abraham suggested that the hydrogen economy would solve many of the dilemmas of the present age:

Imagine a world running on hydrogen later in this century: Environmental pollution will no longer be a concern. Every nation will have all the energy it needs available within its borders. Personal transportation will be cheaper to operate and easier to maintain. Economic, financial, and intellectual resources devoted today to acquiring adequate energy resources and to handling environmental issues will be turned to other productive tasks for the benefit of the people. Life will get better.

Indeed, the Bush administration invested heavily in hydrogen research, as did Clinton’s Department of Energy before it. Unfortunately, however, hydrogen is unlikely to have a cognizable impact for at least three decades—and any moves toward a hydrogen economy involve massive infrastructural and other investments.

Joseph J. Romm served in a number of high-level positions in the Clinton administration’s Department of Energy, and during this time helped to significantly increase the budget for fuel cells and hydrogen R&D. In 2005 he published the definitive book The Hype About Hydrogen, which makes a number of important points about why the promise of a hydrogen economy is being overstated.

The primary problem with a transportation sector based around hydrogen fuel cells is the massive costs it would entail. As British Petroleum’s chief scientist noted in 2003, for hydrogen to succeed as a transportation fuel “it has to be available in 30 to 50% of the retail network from the day the first mass manufactured cars hit the showrooms.” Romm estimates that this fueling infrastructure “could cost more than a half trillion dollars.” The vehicles themselves would also be quite expensive, as Romm notes:

In December 2002, Yozo Kami, Honda’s engineer in charge of fuel cells, said it would take at least ten years to bring the sticker price of a fuel cell vehicle down to $100,000—and as of 2003 Honda had one of the least expensive prototype fuel cell vehicles (FCVs). A major analysis for the U.S. Department of Energy (DOE) concluded in 2002 that even using relatively optimistic assumptions about technological improvement, “factory costs of future FCVs would likely be 40-60% higher than [for] conventional vehicles.”

Add to that the cost of producing hydrogen. If hydrogen were produced from renewable sources, as John Bockris has suggested, Romm estimates that production costs would be between $10 to $20 per gallon of gasoline equivalent.

And a final cost to consider is the lifetime of fuel-cell vehicles. F. David Doty, the president of Doty Scientific, writes that “[w]e’re still waiting to see a fuel-cell vehicle driven from Miami to Maine via the Smoky Mountains in the winter. Then, we need to see one hold up to a 40-minute daily commute for more than two years with minimal maintenance, and come through a highway accident with less than $200K in damages.”

Because of the time it would take to develop the hydrogen economy and the costs that it would entail, Romm’s initial enthusiasm for hydrogen has largely dissipated. He now recommends that hydrogen and fuel cell R&D be capped at FY2004 levels, along with a policy of “sharply increasing funding for biofuels” and starting a major new initiative for the development of plug-in hybrids.

Conclusion

Former CIA director R. James Woolsey and Institute for the Analysis of Global Security co-director Anne Korin noted in late 2007 that salt was a strategic commodity until the end of the nineteenth century “because it was the only means of preserving meat. Odd as it seems today, salt mines conferred national power and wars were even fought over control of them.” Obviously, electricity and refrigeration transformed that state of affairs by offering alternative means of preserving meat. Woolsey and Korin argue that the same must be done to oil, and examine some technological means of doing so:

By moving toward utilizing the batteries that have been developed for modern electronics we can rather soon have “plug-in hybrids” that travel 20-40 miles on an inexpensive charge of night-time off-peak electricity at a small fraction of gasoline’s cost. (After driving that distance plug-ins keep going as ordinary hybrids.) Dozens of ordinary hybrids converted to plug-ins now on the road are getting in the range of 100 mpg of gasoline. And millions of flexible-fuel vehicles are also now in the fleet. Producing them adds costs well under $100 and they can use up to 85-percent ethanol (before long to be made from biomass rather than corn)—methanol, butanol, and other alternative fuels produced from grasses and even waste. A flex-fuel plug-in hybrid that gets 100 mpg and, when it needs liquid fuel, uses only 15-percent gasoline, is approaching a utility of 500 mpg. Other oil-breaking technologies are coming.

Indeed, breaking oil’s monopoly over the transportation sector is critical. This is why a strategy based solely around domestic exploration or conservation is insufficient: it may offer a short-term reprieve, but in the long term we will remain dependent on oil. At worst, such an approach could leave us more dependent on OPEC down the road if it forestalls efforts at moving away from oil as the dominant energy currency.

One important policy for the government to pursue is a flexible-fuel vehicle mandate requiring that all new cars sold in the U.S. be capable of running from any combination of gasoline and alcohol fuels (ethanol and methanol). Flexible-fuel vehicle technology currently exists, and only costs the auto manufacturer about $100 more per car. Such a mandate has the substantial advantage of creating competitors to oil in the transportation sector—and moving toward the world envisioned by Woolsey and Korin wherein oil is not the sole strategic resource for our transportation needs. Future policy briefings will address this mandate in greater detail.

Ultimately, navigating our way out of the energy crisis will involve a wise mix of policies. Development of renewable energy sources, conservation, and domestic oil exploration should all play an important role in the broader picture. But it is important to understand that the U.S.’s oil dependence poses unique dangers—and further, to understand what policies will and will not address this dangerous dependence.