EXECUTIVE SUMMARY
Chasing carbon, we’re often told, will get us over
oil, too. Most of the rest of the world doesn’t believe
it. About 80 percent of the world’s people live in
poor countries that are as eager as we are to get beyond
oil. The people who can least afford to be wrong have also
accepted the inconvenient economic truth: coal, gas, and
uranium are the only practical, affordable substitutes for
oil, and will remain so for a very long time to come. They’re
cheaper, and plentiful supplies are scattered all over the
planet.
Oil can be beaten. Its share of the U.S. energy market
peaked just shy of 50 percent in 1977; today, it’s
under 40 percent. The global trends have been similar. Gas
and coal grabbed half of what oil lost. Uranium took the
rest. Oil now depends on transportation for over 70 percent
of U.S. demand. A similar blend of coal-gas-uranium electricity
and straight gas can squeeze oil off the highway, too.
Natural gas currently powers about 10 million vehicles
worldwide—most notably buses and urban fleets of trucks
and delivery vehicles. Oil owes much of its hegemony on
our own U.S. highways to decades of bungled government policy
that left vast amounts of gas stranded underground and countless
potential buyers unable to buy it at any price. Getting
gas to the highway was never a priority.
It should have been. Gas-handling technologies had improved
quite enough to make natural gas a practical alternative
when the Arabs embargoed their oil in 1973. Larger vehicles
can easily accommodate the larger tanks that compressed
gas requires to provide acceptable range. In much of the
world, gas is cheaper. At current levels of production,
gas could power all our U.S. wheels, and we could almost
certainly increase production enough to cover all the wheels
and all current uses too.
Electric cars are certainly coming as well, and the poor
will embrace them too when the hardware gets cheap enough.
But no foreseeable battery pack is going to move forty-ton
trucks cross-country, batteries will remain impractical
for most heavy-duty vehicles of any size, and the cheapest
way to light the grid is to burn coal.
Absent new carbon mandates, gas will first be used to displace
oil. Carbon mandates will instead promote the use of gas
to displace coal—a policy that will be quietly welcomed
by the autocrats who control 80 percent of the world’s
easily accessible oil. The world’s poor will ignore
the mandates and adopt ostensibly greener technologies only
piecemeal. As a result, the most touted hardware will probably
end up raising carbon emissions, not lowering them. Using
gas to beat oil is the best carbon strategy because it costs
less, not more, so the 80 percent of the planet that emits
more than half of the greenhouse gas can embrace it, too.
Our fossil-fuel policy should be to continue developing
gas-extraction technologies, promote their use in the United
States, and by improving what we already do so well, help
kick oil out of hundreds of millions of furnaces and engines
worldwide. At home and abroad, the less affluent will be
delighted to join the rich in swatting down oil with cheaper
gas, and will reduce carbon emissions as they do.
ABOUT THE AUTHOR
Peter W. Huber is a senior fellow at the Manhattan
Institute and a columnist for Forbes magazine. He
is the author of numerous books and articles on energy,
the environment, science and technology, legal policy, scientific
evidence, and telecommunications. He taught mechanical engineering
at the Massachusetts Institute of Technology, and clerked
for Judge Ruth Bader Ginsburg at the D.C. Circuit Court
of Appeals and for Justice Sandra Day O’Connor at the
U.S. Supreme Court. He has a Ph.D. from MIT and a J.D. from
Harvard Law School. His most recent book, co-authored with
Mark P. Mills, is The Bottomless Well (Basic Books,
2005).
ACKNOWLEDGMENTS
The author gratefully acknowledges the research assistance
provided by Elma Demir.
The Center for Energy Policy and the Environment is supported
in part by the Robert and Ardis James Foundation.
Washington’s latest fuel-economy mandate—36 miles
per gallon by 2016—looks timid beside India’s
new Tata Nano, which gets 50 today. The Nano won’t,
however, reduce India’s oil imports or carbon emissions.
It’s a much better car than Henry Ford’s Model
T, it gets two to three times better mileage, and sells
for about one-eighth the price. It is, in short, just the
kind of car that will allow India and much of the rest of
the world to start catching up with America’s wheel
count: five cars and two trucks or buses for every ten citizens.
Look for 2 billion new cars added to the planet’s present
fleet of 500 million, 800 million new trucks and buses to
join the 200 million already rolling, soaring demand for
oil, sky-high prices, more cash for the oil nasties, and
more carbon in the air.
Chasing carbon, we’re often told, will get us over
oil, too. Most of the rest of the world doesn’t believe
it. About 80 percent of the world’s people live in
poor countries that are as eager to get over oil as we are—they,
too, want to escape the economic clutches of autocrats who
rule 10 percent of the people but control 80 percent of
the easily accessible oil. The poor, however, have made
clear that they won’t be spending what money they have
curbing carbon, though collectively they emit more greenhouse
gas than we do and their emissions are rising much faster.
The people who can least afford to be wrong have accepted
the inconvenient economic truth: coal, gas, and uranium
are the only practical, affordable substitutes for oil and
will remain so for a very long time to come.
Earth to the carbon police: kill oil first. Do that, and
you’ll kill some carbon too. Chase carbon willy-nilly
instead, and the poor will ignore you, oil will thrive,
the oil nasties will celebrate, and carbon emissions will
rise, not fall.
SQUEEZING OIL
Rich and poor alike have been trying to get over oil since
the Arab oil embargo of 1973. We failed—global consumption
has risen 40 percent. But we succeeded, too—oil’s
share of both the global and the U.S. energy pies is down
more than ten points and continues to drop. Gas and coal
grabbed half of what oil lost, and uranium took the rest.
Electricity producers ditched oil almost completely. Taking
into account the electricity generated with those three
fuels, coal, gas, and uranium have crushed oil in markets
that (putting aside oil used as a feedstock in the petrochemical
industry) account for over 70 percent of total U.S. energy
consumption. Gas alone now dwarfs oil in both the residential
and commercial sectors and is about even in the industrial
sector.
There’s no mystery why. Coal and uranium are far cheaper
than oil in meeting base-load demand for electricity. Gas
has chased oil out of the smaller electric power plants
that burn higher-grade fuel to meet intermittent periods
of peak demand because even the very crudest fraction of
crude—“residual fuel oil” —is usually
quite a bit more expensive. Diesel and gasoline, oil’s
higher-grade components, cost even more, and the gap has
widened as oil prices have spiked upward. Huge deposits
of easily mined coal are found all over the planet. Gas
is equally ubiquitous, easier to extract than oil, easier
to transport than coal, and burns more cleanly than both.
Uranium is readily available from stable, reliable suppliers
in Canada, Australia, and elsewhere.
So we’ve got oil cornered. Squeezed out of much of
the rest of the energy market by the closing jaws of straight
gas and coal-gas-uranium electricity, oil now depends on
transportation for over 60 percent of global demand, closer
to 70 percent of U.S. demand, and closer to 80 percent of
the demand for oil that’s used for energy rather than
as feedstock for the petrochemical industry. And the jaws
of gas and electricity can squeeze oil off the highway,
too.
GAS AND PIPES
The squeeze should have started long ago. With the technology
available in the days of Ford’s Model T, using liquid
fuels made it much easier to get lots of energy quickly
and securely on board. But gas-handling technologies had
improved quite enough to make natural gas a practical alternative
when the Arabs embargoed their oil in 1973. With minor changes
in design, today’s truck and car engines can run equally
well on gas: major manufacturers have had no trouble modifying
existing diesel engines to run on gas and bolting them on
to existing engine mounts in trucks and buses. Larger vehicles
can easily accommodate the larger tanks that compressed
gas requires to provide acceptable range. And in much of
the world, gas is cheaper.
This is why other countries got the squeezing started some
time ago. Natural gas currently powers about 10 million
vehicles worldwide—most notably buses and urban fleets
of trucks and delivery vehicles. About half are in South
America, the Indian subcontinent, and other parts of Asia.
If gas had been ubiquitously available at U.S. gas pumps
all along, it would already be powering many of our own
wheels, too. Being able to drive only 150 miles rather than
300 between refueling is a showstopper if the pumps are
151 miles apart, but only a modest inconvenience if fuel
is available every fifteen miles. And as millions of shoppers
prove when they trek to distant Wal-Marts every weekend,
modest inconvenience isn’t enough to maintain big price
spreads.
Oil does still have one big advantage over gas—with
existing tanks it can pack roughly twice as much energy
into the same weight and space. That’s a real but by
no means decisive advantage in designing practical vehicles—but
it has been a huge advantage in dealing with the government.
From the beginning, oil’s portability allowed it to
move from the wellhead to end users without waiting for
a go-ahead from the authorities—oil can easily move
on the same waterways and tracks as other goods, and then
in tanker trucks that use the same roads as the cars they
fuel. Gas can’t. Thin, slippery, and hard to contain,
it depends on pipes that run across public land, so it moves
only when and where the government says it should. Getting
new pipes approved has never been easy, and the process
has spawned all sorts of regulatory mischief.
For forty years, the pipe police figured they should also
regulate retail gas prices. For twenty-five, they felt they
ought to regulate wholesale rates at the wellhead, too.
For nine, they barred construction of new gas-fired electric
power plants and restricted the use of gas in industrial
boilers in order to protect other users from higher gas
prices. All this left vast amounts of gas stranded underground
and countless potential buyers unable to buy it at any price.
To this day, gas costs twice as much in pipe-poor parts
of the country as it does in states that produce it, or
that are crossed by major trunk lines, or that have friendly
pipe regulators. Fickle changes in the regulatory winds
have caused scarcities, gluts, and boom-and-bust price instabilities
as ruinous in gas markets as any ever orchestrated by OPEC
for oil.
Gas should have been unleashed to fight oil in 1973, but
Washington had other ideas. The authorities capped oil prices,
rationed gasoline, issued the first fuel-economy mandates,
exempted ethanol from federal automotive fuel taxes, instructed
electric utilities and large industrial users to lay off
both oil and gas to save oil for driving and gas for home
heating, and launched a $20 billion program to convert coal
to liquid fuel. The price caps and rationing precipitated
huge lines at gas stations, and were soon abandoned. The
fuel-use restrictions were repealed a decade later. Coal
liquefaction was a bust. And oil’s share of the U.S.
energy market peaked just shy of 50 percent in 1977.
As the price of oil then fell back to Earth, the energy
constables shifted their attention from dollars to environmental
currencies. The gas-fired electric power plant outlawed
earlier by the fuel-use law now became sort of mandatory,
and there was a spasm of green interest in powering cars
with gas, too. The free-market faithful and the gas-is-greener
crowd joined forces to deregulate gas, but at such a glacial
pace that the market couldn’t react until the 1990s,
by which time the Asian economic crisis was driving the
price of oil down toward the historical low it hit in 1998.
Ramping up production takes years in an industry where both
supply and demand depend completely on the ubiquity of government-approved
pipes.
All the regulatory obstacles notwithstanding, gas has been
much cheaper than gasoline, and significantly cheaper than
diesel, for most of the last thirty years. Stationary users
switched to gas one furnace or boiler at a time, when the
natural gas pipes finally arrived and the old hardware was
ready to be junked. New power plants and factories were
deliberately sited near big pipes. But getting natural gas
to the highway so it could compete head-to-head against
oil was never a policy, still less a priority. Oil owes
much of its hegemony on our highways to decades of bungled
government policy. If natural gas were readily available
on the highway today, many trucks and buses—and quite
a few cars too—would be tanking up on it within ten
years.
CARBON AND MONEY
Absent new carbon mandates, gas will first be used to displace
oil. Using gas to displace 4 billion barrels of oil a year—roughly
what it takes to power all U.S. wheels—would save $100
billion or so a year on the highway, while using it to displace
an equivalent amount of coal would cost us $100 billion
or so on the grid, the exact numbers depending on the prevailing
price of each fuel. The carbon police, by contrast, will
aim to kill coal first. As they see things, no fossil fuel
is good, but gas is the least bad and coal is the worst,
so the best use of gas is to displace coal. Nuclear power,
though carbon-free, is disliked for other reasons. So carbon
mandates will, above all, promote the use of gas to displace
coal. The oil nasties will quietly welcome this development.
The world’s poor will ignore the mandates and adopt
ostensibly greener technologies only piecemeal: as a result,
the most touted hardware will probably end up raising total
carbon emissions, not lowering them.
The great green hope, it seems, is to get us all cruising
down that ribbon of highway on electric wheels powered from
a grid lit by wind and sun. Until we get there, efficiency
mandates will curb emissions from cars and trucks, and liquid
biofuels will displace a chunk of oil and zero out net carbon
emissions as they do. But how will these hopes play out
in New Delhi and Beijing?
The poor love efficiency even more than we do, and they
excel at making the most out of the least. As discussed
by Marvin Harris in Cows, Pigs, Wars, and Witches, the sanctity
of the cow in India protects an animal that feeds largely
on waste and weeds, serves as “the Indian peasant’s
tractor, thresher, and family car,” provides milk to
a protein-poor economy, and produces tens of millions of
tons of dung used as fuel for cooking. The hyperefficient
cow thus sustains more Indians, more cows, and more total
energy consumption, not less. Indians still like their cows,
but many would now prefer to drive a Nano, and will be able
to all the sooner because twice the mileage cuts the per-mile
price of gasoline in half.
Biofuels have other problems. Almost all the world’s
ethanol is produced by the United States (from cheap corn)
and by Brazil (from cheap sugar) and almost none by people
who still strain to eke calories out of their fields. Biodiesel
can be produced from inedible sources as well, but the enzymes
that melt fuel out of cellulose don’t care whether
it comes from an agricultural waste pit, a virgin prairie,
or a rain forest. It will also take vast amounts of new
cellulose to make a serious dent in oil—combustible
biomass currently supplies about one-third as much energy
as humanity gets from oil. And calling things renewable
doesn’t mean they get renewed—the developing world
is cutting down old trees much faster than it’s growing
new ones. On the global greenhouse ledger, agriculture,
forestry, and deforestation already cost the planet more
than twice as much as transportation.
How about electric cars? Efficiency mandates are pushing
the developed world toward hybrid-electric cars in any event,
and hybrids can easily start plugging in. Humanity already
funnels as much energy into its grids as into its wheels,
and could easily boost generating capacity enough to power
the wheels, too. And because huge power plants burn cheaper
fuel and run much more efficiently than car engines, they
can power vehicles very cheaply, if there’s a cheap
way to get the power to the wheels.
The cheapest way to light the grid, however, is to burn
coal. Every few years, China and India are building as much
new coal-fired capacity as we currently operate nationwide.
It makes economic sense to use gas only in smaller plants
that run intermittently to meet peak loads: and even then,
peak power is so expensive that the poor settle for rolling
blackouts instead. California has the greenest grid in the
country—almost half the electricity it generates comes
from gas and almost none from coal—and its power costs
twice as much as Indiana’s, which is mostly coal. The
indubitably green World Wildlife Fund concludes that rolling
on electricity rather than gasoline will lower carbon emissions
even in Indiana because higher power-plant efficiency more
than offsets the dirtier fuel. But rolling on a less efficient
and even more coal-rich grid in China might well end up
less green than rolling on gasoline.
Unwelcome though the fact may be, coal, gas, and uranium
are the only fuels big enough to have a noticeable impact
on oil and carbon in the foreseeable future. Since 1973,
the growth in total energy consumption has far exceeded
the growth in energy supplied by biomass, waste, geothermal,
solar, wind, and tidal power. Optimistic projections about
rising market share in decades to come routinely fail to
mention that the market’s total size is projected to
grow even faster: so in absolute terms, the renewables continue
to lose ground. Carbon fuels—fresh plants and fossilized
ones—supplied 97 percent of the world’s energy
in 1973 and 91 percent in 2006, with almost all the drop
caused by the rise of nuclear power. Since 1973, uranium
has delivered the only significant global reduction—about
5 percent—in carbon emissions per unit of energy supplied.
All along, green pundits have had spreadsheets proving that
wind, sun, and other keen new alternatives were already
cheaper than the old-guard fuels, or soon would be. But
wind, sun, and the rest weren’t visible on the global
pie chart in 1973, and they still aren’t today.
SQUEEZING OIL
OFF THE HIGHWAY
A blend of gas and grid will end up squeezing the oil out
of most of the wheels, just as it will continue to squeeze
oil out of the residential, commercial, and industrial sectors
of the world’s economies. Stationary users have relied
more heavily on electricity than gas; on the world’s
highways, gas has already achieved much more than electricity,
and will have to do all the heavy lifting for the foreseeable
future. Electricity may very well end up powering many smaller,
light-duty vehicles. But no foreseeable battery pack is
going to move forty-ton trucks cross-country, and batteries
will remain impractical for most heavy-duty vehicles of
any size.
If we choose to extract it and get it to our wheels, there’s
plenty of gas to power them. Oil’s share of domestic
U.S. energy production peaked in 1954, gas production overtook
oil for the first time in 1970, U.S. fields now provide
more than twice as much gas as oil, and the gap will widen
fast from here on out. At current levels of production,
gas could power all our U.S. wheels, and we could almost
certainly increase production enough to cover all the wheels
as well as all current uses. Deregulated gas got its first
real chance to take on oil at its worst only recently, as
oil prices shot up from the 1998 historical low to the 2008
historical high. Gas delivered—so well that we’re
now at the threshold of the biggest shift in energy markets
since Colonel Edwin Drake struck oil in Pennsylvania in
1859.
Until very recently, most of our gas came from huge bubbles
trapped under caps of impervious rock —producers didn’t
bother with the “tight” gas locked up in the pores
of shale rock. Now they’re pumping high-pressure water
to create webs of tiny cracks in the rock through which
the gas then readily flows to the main bore hole. Thin,
slippery, and hard-to-contain, it turns out, has one big
upside: gas, unlike coal and oil, really wants to get out
of the ground, and it was soon whistling out of new shale
fields in Louisiana, Texas, Arkansas, and Pennsylvania.
The U.S. pipe network has been dramatically expanded and
extended in the last decade, and the building continues.
U.S. shale rock probably contains enough gas to displace
all of our current levels of oil consumption for the next
fifty years. Or, alternatively, all of our coal consumption
for the next century.
The global numbers are on the same track. Gas-bearing coal
and shale are distributed around the globe. Oil supplied
three times as much energy as gas in 1973; that ratio has
been cut in half. Oil production has risen about 40 percent
since 1973; gas production almost tripled. The oil nasties
nominally control huge amounts of gas trapped in bubbles
above their oil but can’t move it cheaply to major
buyers. Asia, South America, and Africa all have significant
proven reserves of conventional gas and almost certainly
also have huge amounts of gas in shale and deposits that
now look a lot less tight than they did a decade ago.
With gas, as with electricity, rising demand will help
push prices down, not up, for years to come, if the pipe
police cooperate. Linking more sources of gas to more users
will simultaneously expand supply by opening up new fields
and push down delivery costs by making more efficient use
of expensive pipes. Delivery currently accounts for as much
as 50 percent of the final price paid by residential consumers,
who buy gas mainly for heating in winter; utilities and
large industrial users pay much less because cost drops
sharply when bigger pipes are used at full capacity more
of the time. By consolidating a lot of steady demand at
a single point, vehicle-refueling stations have recently
begun to provide gas almost as cheaply as utilities.
There’s plenty of fuel on the electricity side of
the jaws, too. Happily, from a carbon perspective, the developing
world loves uranium almost as much as coal. By 2020 or so,
a new reactor will be starting up somewhere in the world
every five to six days. China alone plans to build another
hundred for itself in the next twenty years. A coal grid
with 20 percent uranium is as carbon-lean as one that’s
half gas, and when they can afford to, most countries will
also opt to generate another 10 to 20 percent of their power
with gas, to take care of peak loads. Or perhaps even more.
Now that the world is extracting gas from seemingly solid
rock, almost anything is possible. In the right places,
after the much lower delivery costs and the exceptionally
high efficiency and low cost of gas-fired generators have
been taken into account, the very cheapest gas is approaching
price parity with coal.
SETTING AN EXAMPLE
It’s often suggested that if America just sets the
right carbon example, the rest of the world will follow.
But most of the rest of the world is still far more interested
in saving money. Most of the planet’s grids will be
lit mostly by coal for most of this century because coal
is so abundant and cheap. More uranium —the example
that the rest of the world is setting and we are largely
ignoring—is the one proven, cost-competitive way to
boot a lot of coal, and thus carbon, off the grid. Using
gas to beat oil is the best carbon strategy because it costs
less, not more, so the 80 percent of the planet that emits
more than half of the greenhouse gas can embrace it, too.
The developing world is setting the example here too, wherever
it pumps natural gas into its heavy iron. For now, the only
American example the world’s poor are clearly eager
to emulate is the one featuring five cars and two trucks
for every ten citizens.
By throttling the gas market for so long, bad policy did
much to establish oil’s lock on our U.S. wheels, and
oil might yet lock up much of the rest of the world’s,
as well. Oil owns our wheels because we got started much
earlier, our great-grandparents preferred liquids, the authorities
throttled gas when our grandparents and parents were buying
cars, and we now have a couple of trillion dollars tied
up in liquid wheels. Nobody will deliver gas to gas stations
until there are vehicles to buy it, and few will buy the
vehicles until there’s gas everywhere to buy.
To kick off competition this late in the day, Washington
will have to take some affirmative steps to restart the
clock. By doing that, we might in fact help the rest of
the world get over oil—and some carbon too. Promote
private and public investment in new links to connect our
vast supplies of stranded gas to our trucks and heavy-duty
vehicles. Facilitate diesel-to-gas and gasoline-to-gas vehicle
conversions. Accelerate the replacement of old fleets with
new gas-powered vehicles. Continue developing the know-how
that squeezes gas out of the earth—we already lead
the world here, and by improving what we already do so well,
we can help kick oil out of hundreds of millions of furnaces
and engines worldwide. At home and abroad, the less affluent
will be delighted to join the rich in swatting down oil
with cheaper gas.
The oil nasties are sitting on a terrifying amount of oil
wealth. Someone will eventually buy their oil regardless,
but 90 percent of the world will be better off if the nasties
get only $10 trillion for it later, not $60 trillion sooner,
and Americans will certainly be better off if those trillions
aren’t ours.
