|The Mission of the Manhattan Institute is
foster greater economic choice and
By Peter Huber
Most instant pundits missed the cagey phrasing of the two sound bites that made headlines the next morning. "America is addicted to oil, which is often imported from unstable parts of the world," President Bush declared in his State of the Union message Tuesday night. But new technologies, he went on, will allow us to "replace more than 75% of our oil imports from the Middle East by 2025." The president did not say that oil supplies most of our energy, nor that most of our oil comes from bad places. Nor did he propose any gush of new federal spending on pie-in-the-sky "alternative" fuels.
The U.S. annually consumes about seven billion barrels of oil (BBO), and 11 BBO equivalents (BBOE) of coal, gas, uranium and hydroelectric power. Over 80% of the total comes from North America. The U.S., Canada and Mexico -- our three largest suppliers, in that order -- supply about 60% of our oil. Persian Gulf states send us less than one BBO. To reach the president's 75% target today, we would have to shift only about 5% of our consumption from the oil to the not-oil side of the 18 BBOE energy ledger. We could do that quite easily.
Why haven't we already? Pound for pound, liquid hydrocarbons deliver far more cheap, instantly accessible energy than any other fuel, and the pounds matter a lot when you're moving. Outside the transportation sector they matter much less. That's why our energy economy is dominated by much cheaper, not-oil fuels. The U.S. and Canada have vast supplies of coal and uranium, and the technology for extracting and using them continues to improve rapidly.
So we have a bipolar energy economy, with the problems centered on the oil side of the divide. A truly integrated energy market, with robust competition across the board, would solve everything. Technologies that make that possible are already being deployed in factories and on the highway, and more are coming fast. While the president nodded to wind, solar and ethanol last Tuesday, his administration continues to push mainly for technologies to help speed that integration.
Begin with the easy part, as the president did, in his speech and also in a supplement released in tandem by the White House. Mr. Bush proposed modest new support for the development of technology to help displace gas-fired electricity with "clean coal," "safe nuclear" and "revolutionary solar and wind technologies." Wind and solar combined currently deliver about 0.02 BBOE a year, so the green revolution won't arrive any time soon. But we do use about seven BBOE of coal, uranium and natural gas to generate electricity. Simply shifting the mix toward coal and uranium, and away from natural gas will curb demand for oil -- significantly in the short term, and dramatically down the line.
The one BBOE of natural gas currently used to generate electricity could instead be powering heavy trucks, delivery vehicles and buses -- which currently burn about 1.5 BBO of oil. These vehicles can easily be modified to run on natural gas; quite a few already have been. We use another one BBO of natural gas for industrial, commercial and residential heating -- much of which can be replaced with electrically powered heaters, microwave systems, lasers and other high-intensity radiators. By pushing natural gas off the grid, out of the factory and onto the highway, coal and uranium in the power plant substitute for oil on the street. As the White House supplement makes clear, natural gas -- not ethanol, wind or solar -- is the core of the administration's oil strategy.
When he addressed transportation directly, the president pointed first to hybrid cars and their batteries. Cars and SUVs currently burn three BBO a year. Plug-in hybrids offer a reasonably near-term promise of a second major bridge between the grid and the highway. Hybrids on the road today have only enough battery to move a car five miles or so, but most trips are shorter than that, and there are abundant opportunities to recharge when cars are parked. Every kilowatt-hour of recharging from the grid could displace about a pint of gasoline. And grid power is much cheaper than the electricity generated by a hybrid's onboard engine.
All fancier schemes for displacing oil with new-fangled fuels have to be gauged against these serious benchmarks. Yes, farmers and chemical engineers grow carbohydrates and turn them into hydrocarbons. We already use over 10% of the annual U.S. corn crop (one-third of it from Iowa) to produce an amount of ethanol equivalent to 0.05 BBO; production could be multiplied tenfold if we grew crops on another 40 million acres that we currently pay farmers not to cultivate. On Tuesday, President Bush announced additional support for technologies that will produce ethanol, not just from corn but also from waste biomass and switch grass. These technologies, the president declared, could be "practical and competitive" within six years.
Perhaps, or perhaps not. The question isn't whether carbohydrates can be turned into hydrocarbons, it's whether corn and wood will ever be as cheap and easy starting points as fossils. Alberta's tar sands, for example, currently yield about 0.4 BBO per year, contain 180 BBO recoverable with current technology, and hold another 1,000 BBO (at least) that will become accessible as technology improves.
The president also reaffirmed his support for the ambitious hydrogen technology program he announced in 2003. Over the longer term, hydrogen might indeed emerge as a third bridge between the electric and transportation sectors, serving as a battery-like storage medium to power cars. But the 0.1 BBOE a year of hydrogen that we currently produce (for industrial uses) costs four to eight times more than North Sea oil, and is 10 times more expensive to store. And the hydrogen comes either from natural gas, or from water split apart with electricity. Which lead us back again, directly or indirectly, to coal and uranium.
Die-hard greens hate the grid because it is lit mainly by those two fuels. But the grid is in fact the most fuel-agnostic component of our energy infrastructure. Power plants can spin their turbine-generators with steam -- which they can produce by burning coal, gas, oil, wood, trash or other combustibles; or they can replace the furnace with a uranium reactor; or they can replace the steam with water or wind. Solar cells skip the turbine too, transforming sun directly into electricity. Technologies rapidly emerging allow us to turn electricity around to attack raw fuels used elsewhere. Not all raw fuels of course -- just the ones that worry us. Morning-after sound bites notwithstanding, that's what the president was mainly talking about last Tuesday. He's on the right track.
Mr. Huber, a fellow of the Manhattan Institute, is the co-author (with Mark P. Mills) of "The Bottomless Well" (Basic Books, 2005).
©2006 The Wall Street Journal
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