Friday, March 31, 2006

More Carbon Magic

Without the unique chemical bonding properties of carbon, life--including us--couldn't exist. These same properties explain why carbon's possible combinations with only a few other simple atoms, including hydrogen, oxygen, nitrogen and sulfur, seem nearly infinite, giving rise to the fields of organic chemistry, biochemistry and biotechnology, and supplying 85% of the world's current energy needs. But in spite of that remarkable complexity, until recently we thought that pure carbon only appeared in a couple of forms, the graphite and diamonds we've known about for ages, plus the "fullerenes": Buckyballs and Buckytubes (also known as carbon nanotubes) that were discovered in the 1980s and early 1990s. Now there seems to be another form, graphene, with some very interesting properties, including perhaps some nifty energy-saving ones.

I'm embarrassed to say I first read about this in the Economist last week, but a little Googling turned up many other references. It was apparently discovered in 2004, which is an eye-blink ago in science but eons in Web terms. How does anyone stay abreast of everything that's happening?

Initial thoughts about graphene seem to be focused on its potential as a sort of room-temperature superconductor, apparently passing along electric currents at relativistic velocities. This may have exciting applications in electronics, as well as for reducing the losses associated with long-distance power transmission. But it is early days. After more than a decade of research graphene's cousin, carbon nanotubes, is showing promise, among other things as a low-cost, low-weight storage medium for hydrogen for use in cars and other applications. They may also have a role in helping sequester carbon dioxide and thus keeping it out of the atmosphere, where it warms us up. They could also be the key to creating cables with enough tensile strength to build a "space elevator," which would enable us to put things--and people--in earth orbit without using rockets.

If the properties and versatility of graphene turn out to be anything like the fullerenes, it's a reasonable bet that some very interesting and unexpected possibilities will emerge. It's at least something else to track.

Thursday, March 30, 2006

Performance per Gallon

Today's New York Times reports on two aspects of the revised Corporate Average Fuel Economy (CAFE) standards that go into effect in two years. In the business section, they describe the rule changes, which raise the average mileage requirement in the "light truck" category from 21.6 to 24 mpg. On the front page, however, they focus on the way that engine and vehicle technology improvements since the the 1970s have favored performance over economy. They suggest that, had priorities been different, today's cars would use 20% less fuel than they do, saving nearly as much oil as we currently import from the Middle East. While the modifications to CAFE fall well short of what many environmental and energy security advocates have called for, they represent a significant change in the political landscape of this issue.

When CAFE standards were established during the Ford administration, immediately following the Arab Oil Embargo, it was appropriate to hold light trucks to a lower standard than cars. At the time, these vehicles only accounted for less than 15% of the total vehicle fleet in this country, compared to nearly 36% today. The vast majority of light trucks were pick-ups and vans used by farms and businesses, not SUVs bought as substitutes for sedans and station wagons. The technology of the day couldn't meet the same gas mileage standards imposed on cars and still deliver the performance needed for commerce.

The second Times article demonstrates how dramatically the situation has changed. Current model SUVs weighing 5,000 lbs. accelerate better that some of the "muscle cars" of the past, at least when compared to the rather anemic performance cars available in the mid-1970s, when emissions controls had forced manufacturers to reduce compression ratios and de-tune engines to suit the needs of early catalytic converters.

In some respects, the changes to CAFE represent a milestone. For years the so-called "SUV gap", the difference in standards between passenger cars and light trucks, had been off-limits, because it was regarded as a major engine of profits and jobs in the US car industry. Addressing this gap indicates the seriousness of the current energy situation. It also reflects the erosion of Detroit's advantage in this market segment and the wider array of technology options available to boost SUV mileage, including hybridization and a host of less expensive tweaks. But it misses the fact that SUVs could get much better mileage today, if only consumers didn't expect these vehicles to deliver 0-60 performance similar to that of a sports coupe.

To put the impact of the SUV trend into perspective, we've added approximately 100 million net vehicles since 1975, and 65% of the increase is in light trucks and SUVs. On a massive scale, consumers have chosen trucks over cars, negating the original justification for holding trucks to a lower mileage standard. But now the argument of economic necessity has shifted from protecting trucks and commercial truck buyers to cutting oil imports, and SUVs will have to adjust. All that remains is the much tougher challenge of shifting the preferences of consumers away from the big, heavy vehicles they've selected in overwhelming numbers since the mid-1980s, when the last energy crisis ended.

Tuesday, March 28, 2006

Royalty Woes

An editorial on oil industry royalty relief in today's New York Times seems worth at least a brief comment. Although I disagreed with their stance and even their portrayal of the royalty relief measures passed during a period of extremely low oil prices in the late 1990s, I concur with the sense of their position on new royalty relief.

When the industry insisted that the federal government live up to its word and continue the promised relief on offshore oil and gas royalties for wells drilled at a time when they couldn't have been justified otherwise, that was appropriate and principled. Legislators seeking to renege on those promises were flat wrong, because changed industry circumstances weren't included as an out when those deals were struck. The go-forward case is quite another matter. Obtaining new relief, unrelated to the 1990s wells, only serves to reinforce the public's perception of an industry driven by avarice. It is unseemly, and companies ought to willingly renegotiate royalty relief provisions included in the recent energy bill, at least to the degree of acceding to a price ceiling beyond which relief is phased out.

The inclusion of such measures in the Energy Policy Act of 2005 came as a surprise to me, as it did to many others. I recently read a suggestion that the text of every law passed in the Congress should be required to be read before a quorum of each house. As impractical as that may be, it would certainly foreclose the possibility of any legislators claiming ignorance of the provisions of bills on which they voted. It might also result in laws that could be read and understood by the public at large.

Sustainable Business

Today’s Wall Street Journal includes an interesting op-ed co-authored by Al Gore. It urges businesses to incorporate the principles of sustainability into their accounting and accountability systems, with respect to their environmental, social and ethical performance. Mr. Gore provides several examples of firms that are already doing this, with varying degrees of governmental stimulus nudging them along.

I was struck by two aspects of this piece. First, the general tone seems conciliatory and the measures it advocates fairly uncontroversial, at least from the perspective of large, international enterprises, many of which are currently addressing these issues in a variety of ways. Probably the most helpful suggestion he could make at this point would be for the creation of consistent standards for measuring sustainability.

I also suspect neither Mr. Gore nor his critics are prepared for the possibility that the cost of meeting recognizing many of these externalities may not be as large as he implies, nor the role of regulation quite so positive in optimizing the planetary balance. Consider the greenhouse gas emissions from automobiles. If I lived in Europe, I would pay approximately $1,200 more per year in fuel taxes, most of it intended to discourage me from driving and to thereby reduce both my petroleum consumption and CO2 emissions. Instead, I pay TerraPass $40 per year to negate my CO2 liability. While this doesn’t cause me to drive less, it leaves me with $1,160 after tax dollars with which to buy organic produce, donate to charity, or invest in my retirement savings. Markets are all about price discovery, and they often shatter the best ex ante estimates of economists and pundits.

Finally, I have to wonder if this op-ed represents a softening of the strident anti-business tone that alienated many centrist voters during Vice President Gore's 2000 campaign. As someone reminded me the other day, in 2008 Mr. Gore will have been out of office precisely as long as Richard Nixon in 1968, another sitting vice president who failed in his first bid for the presidency.

Sunday, March 26, 2006

Selling Energy Programs

I've been thinking for a while about what it would take to convince Americans of the need for a major effort on energy, aimed at slowing the growth of consumption, ramping up alternatives and getting our imports under control. Explaining the true scale of the challenge would risk having us give up before we start, while deliberately exaggerating the potential of new technology and minimizing the practical constraints on its deployment entails other dangers. Is there another, more effective path between these two?

As an example of how long it could take for major changes to take effect, consider the impact of automobile fleet replacement ratios. The US car fleet of 230 million vehicles turns over at about 7% per year, with less than half of those actually wrecked, crushed or exported. If every new car sold from 2006 on were a hybrid getting 50 mpg, the average fuel economy for the whole fleet could rise to about 39 mpg in 10 years, up from about 25 today. However, as impressively as hybrid sales have grown, they will still make up less than 5% of US car sales this year. If it took them 10 years to grow to 50% of the market--still a very aggressive assumption--then total fleet fuel economy in 2015 would be closer to 30 mpg. That's a significant improvement, but it translates it into a reduction in oil imports of about 2 million barrels per day (MBD). Measured against forecasted imports of 10.5 MBD, this falls far short of energy independence. Even turning all those hybrids into 100 mpg plug-ins would only close the gap by another 2 MBD.

So how does one reconcile figures like this with statements from groups such as the Geo-greens suggesting energy independence is achievable soon enough to have an effect on our geopolitical dealings? Now, the Geo-greens include some very savvy folks, who surely understand the dynamics described above, along with the other obstacles that would have to be overcome. Have they simply concluded that the public can't grasp anything more nuanced than energy independence?

There's an art to setting goals, and one of the first principles is making even stretch objectives achievable by some means short of a miracle. The downside of stretching unrealistically far is often disengagement and demoralization. Despite predictions of energy independence going back to the Ford and Carter administrations, we have experienced 20 consecutive years in which the percentage of our energy imports as a share of total energy consumption (in all forms) grew, rather than shrank. Although we made progress on this measure from 1975 to 1985 ,
we've given it all back, and then some. And while we have more viable alternatives than we did then, in the interim the relative size of the challenge has doubled, and its absolute magnitude has tripled.

A New York Times op-ed on the applicability of Abraham Lincoln's style to modern American electoral politics suggests an approach that seems equally applicable to energy. "Prudent idealism" could straddle the extremes of paralyzingly discouraging analysis and persuasion by blatant over-simplification. Instead of proclaiming that renewable energy and plug-in hybrids can somehow make the US independent of foreign energy suppliers within any reasonable timeframe, it ought to be possible to get the public excited about the potential for change, without raising expectations destined for disappointment.

So what can we say? First, I believe we are actually witnessing the early stages of a radical transformation in how we obtain and use energy, the largest such change in a century. Technologies like wind and solar power are starting to be deployed on a large enough scale to matter, and others just emerging from laboratories and from energy and biotech start-up companies have the potential to make us much less dependent on fossil fuels. As a byproduct, they will reduce our contribution to climate change by drastically cutting the greenhouse gas emissions associated with transportation and other economic activities.

But that's only half the story. It is equally true that it will take a generation for these changes to make a serious dent in the environmental and geopolitical problems we associate with fossil fuel use, and perhaps another generation for these technologies to grow to the scale of our present use of coal or natural gas, let alone oil. The inescapable corollary to this is that we will use more fossil fuels, not less, for the next couple of decades, even as this transition gathers steam. That means it's just as important to think about where we will find the oil and gas we will use in 2020, as to promote the massive expansion in renewable energy we will need, too.

And between those two poles of promise and practicality stretches a fertile expanse of business opportunities and useful tools for changing our relationship with the countries that supply us with conventional fuels. That seems nearly as exciting as energy independence, and it can be done in the real world. Now, that is hardly a simple platform, but it's not beyond our ability to explain, or the public's to grasp. And it doesn't resort to xenophobia or populism to make its case.

Please note: I'm currently traveling on business, so postings will be a bit erratic this week.

Friday, March 24, 2006

The Comet Did It!

Since first reading about it in the 1970s, I've been intrigued by the Tunguska Event. It's one of those fascinating blends of fact and speculation that science has never been able to clear up completely. This much is known: in 1908 something exploded over a thinly-populated part of Siberia, flattening trees and throwing up huge amounts of dust. Explanations for the phenomenon have included an impact by an asteroid, a comet, a miniature black hole, and even an odd variation on an earthquake. Whatever caused it, it was a remarkable occurrence and unique in recorded history. Now, a Russian scientist has analyzed temperature data before and after Tunguska and concluded that it may have triggered the climate change we are now observing, by changing the distribution of water and ice crystals in the upper atmosphere. Could there be anything to this?

As Chaos Manor, the blog where I ran across this, points out, the response from climate scientists has been quick and dismissive, though their arguments seem heavy on handwaving and light on actual analysis. That doesn't mean they are wrong, however. It would be highly coincidental and awfully convenient if the whole problem of climate change could be blamed on a single event a century ago--especially such a mysterious one--letting all of us off the hook for our emissions of greenhouse gases. Things are rarely that simple.

At the same time, there's no question about the relative importance of water vapor as the primary greenhouse gas in the atmosphere, and anything that changed its proportions or distribution could indeed upset the climate, at least for a while. I'm skeptical, though, that Tunguska was large enough to do this, when volcanic eruptions and numerous atmospheric H-bomb tests in the 1950s and early 1960s, including a 50 megaton Russian test, presumably weren't.

So why even mention this item? It reminds us that we still don't know as much as we'd like about the complex interactions of the earth and its atmosphere. That shouldn't deter us from taking steps to manage the human contribution to the greenhouse effect, because that is still the explanation that best fits the observable evidence. But it does justify working concurrently on adaptation to climate change, in case it turns out that our emissions aren't the main show, or that we can't do enough to mitigate them.

Thursday, March 23, 2006

Peak Oil Millenarianism has become a trove of good energy topics. As I was reading their take on Peak Oil, a subject on which I've ruminated extensively here, I had a minor revelation: Peak Oil is shaping up as the next Y2K. By that, I'm not just referring to the potential consequences of a peak in global oil production, which some forecasters predict will occur within the next few years. I see the resemblance to Y2K in much broader terms, as a major phenomenon with dramatic, but highly uncertain outcomes, operating simultaneously on the levels of reality and perception. That makes it even more interesting, but also more problematic.

  1. Though hardly as precisely specified as midnight January 1, 2000, Peak Oil threatens us with an imminent global systemic breakdown. The Salon article suggests that our food supplies could dry up, workers' jobs vanish, and the world descend into chaos and resource wars. This sort of thing gets your attention.
  2. As with Y2K, it's possible that if we were to undertake the anticipatory remedies that experts prescribe--in this case massive investments in energy efficiency and alternative energy production--it might be impossible after the fact to ascertain whether Peak Oil would have ever caused the outcomes that have been predicted, and we'll be saddled with second-guessing about whether we should have bothered.
  3. Peak Oil also seems to be spawning a survivalist mentality, demonstrated at least anecdotally by the San Francisco lawyer who has set up a website devoted to this and plans to "drop out" to a remote, self-contained farm.
  4. Peak Oil, like Y2K before it, has become a publishing and media goldmine.
  5. The final similarity may be the most sobering. We're going to know soon enough whether the pessimists or the optimists are right. It could turn out to be a major upheaval or an embarrassing fizzle. This won't be as black and white as it was for Y2K, but if we get to 2010 without an observable Peak--or unambiguous evidence of one in sight--the window of belief in this phenomenon, which has been around for decades in various forms, will likely close for another generation.

Whatever its scientific foundations, it's clear that Peak Oil feeds the innate human tendency towards millenarianism and catastrophism. There's even some recent thought that those of us who came of age in the 1970s and 1980s may be particularly predisposed to this, having experienced oil shocks, Vietnam, Watergate, the Cold War, the Iran hostage crisis, and, I would add, dozens of cheesy disaster movies.

There is some good news, though. The fundamental basis of Peak Oil theory is that once the Peak hits, we will still have half the world's oil left, a quantity equal to all the oil used from Drake's Well in 1859 until the Peak year of 20xy. Look at the most aggressive Hubbert curves and you will see that for 20 years after a peak we'd still have as much oil as we used in the 1980s, and for another decade or two there'd still be as much as we used in 1960. In addition, there's a lot of empirical evidence that a global peak would not come in the form of a sudden collapse, but a long, gradual plateau. M. King Hubbert's original contribution was in accurately predicting the year of peak US oil production, but his assessment of the subsequent rate of decline was overly pessimistic.

We would still face severe economic shocks, should a Peak occur soon. Oil prices would spike, even before an actual Peak, the first time that demand growth permanently outstrips the growth in supply. But that's a very different proposition than the simplistic notion of the taps suddenly running dry. Current global oil reserves stand at 1.2 trillion barrels, while annual global consumption is running at roughly 30 billion barrels. Even after discounting OPEC's reserves by half, I take some comfort from the fact that the US has produced a cumulative 192 billion barrels of oil from proved reserves that never exceeded 40 billion barrels.

There may be one more analogy to Y2K. It's generally accepted that, although Y2K never manifested in its worst form, anywhere, the precautionary investment in upgraded information and communications technology has paid enormous dividends. Premature assumptions of an imminent peak in global oil production may be just what's needed to galvanize governments and consumers to begin the decades of preparations that the SAIC report on Peak Oil suggests are necessary to avoid its worst consequences. So while I'm a skeptic, I also see that a bit of Peak Oil hype now might not be the worst thing in the world, unless it sets up a backlash after the next set of milestone dates passes without a Peak.

Wednesday, March 22, 2006

Earmarking Alternative Energy

Here's another interesting energy-related article from Salon, this one describing a potential biofuels industry in Maine, based on the conversion of trees and sawmill scrap into ethanol and biodiesel. It sounds wonderfully bucolic, and it is loaded with ingredients that voters love: energy independence, jobs, and environmental stewardship. What legislator could resist setting aside a bit of money for this? But is it worth the candle?

Before digging into the numbers, I should mention that the biofuels technologies involved hold great promise. When produced from materials other than food crops, ethanol and biodiesel can provide significant net energy benefits, though their costs aren't yet competitive with petroleum products on an apples-to-apples, i.e. pre-motor fuels tax basis. Despite my overall preference for setting targets instead of choosing technologies, this is a generally worthy area for federal R&D.

Turning to the specifics, the article suggests that within 15 years Maine could produce half its motor and heating fuel needs from this source, though it also points out that this approach would be not necessarily be suited to less heavily forested states. Maine accounts for 0.9 % of the US landmass, but only 0.4 % of our population. Accordingly, the implied biofuels volume translates into 46,000 barrels per day, or about 0.2 % of total US oil demand. Although small in absolute terms, this is substantial relative to the current biofuels industry, with total US ethanol production amounting to 220,000 barrels per day in 2004. Still, no matter how you slice it, the potential impact of the Maine biofuels initiative on our national energy supply and demand balance is quite modest.

Now, I've frequently taken issue with those who've argued against an oil or gas project on the basis that its contribution would be insignificant relative to total US demand, so I'm not about to commit that sin myself. Our energy supply is made up of tens of thousands of parts, few of which are material compared to the whole. But that doesn't mean that a small project's total cost shouldn't be commensurately modest, particularly given the real risk in this case that some of the key technologies involved may not actually work out.

It turns out that this effort is getting about a million dollars of Department of Energy money directed via the Congressional "earmark" process. A megabuck isn't very much in the context of either the total federal budget or the world of energy investments. However, the earmark tag makes me wonder if the Maine projects in question were really the biofuels technology demonstration projects the DOE would have chosen without intervention by a couple of pivotal moderate Republican Senators. As a result, as I said recently about a much larger, highly controversial energy project in my own back yard, I don't have enough information to know if this effort is a winner or a dog, but I have just enough to raise some questions.

Tuesday, March 21, 2006


Last summer I suggested that it would be a great idea for the government to establish incentives for energy technology milestones, along lines similar to the X-Prize. As either a supplement to or substitute for funding specific technologies, this approach would set out the results we want and the reward for delivering them, and then let ingenuity and the magic of the market deliver something we might not get any other way. Well, private enterprise has jumped ahead, with the same organization that set up the X-Prize for space announcing an X-Prize for cars.

As reported in the Detroit Free Press, it appears that the X-Prize Foundation is attempting to spur development of an automobile that would get the equivalent of over 200 miles per gallon of gasoline. The winner will probably be subjected to a test of commerciality and affordability, such as selling 10,000 units before qualifying for the $25 million prize. (Final rules and criteria will apparently be announced within a few months.) The result might resemble the plug-in hybrid cars I mentioned yesterday, or it could be something radically different.

Just as a $10 million prize for reaching sub-orbital space wasn't intended to send NASA and its major contractors into a frenzy, neither is the X-Prize for cars liable to excite GM, Ford, or Toyota. Instead, this approach relies on the equivalent of Wozniak and Jobs in a garage somewhere, dancing a jig at the prospect of lining up support for something they are probably already doing on a shoestring.

Perhaps that isn’t very practical, when a new car factory costs upwards of a billion dollars, and the cost of merely tooling up for a new model can hit a hundred million. But at the same time, if a 200 mpg car that people would buy is possible with anything close to current technology, the chances of it being produced by companies with billions invested in the status quo--and in their own ideas about shifting it--seem low. That's not because these companies buy up ideas like this and suppress them, as countless conspiracy theories suggest, but because this kind of radical innovation doesn't usually flourish in organizations with a principal focus on capital discipline and detailed strategic planning and a deeply embedded corporate culture.

This X-Prize will also provide the acid test for ideas that have been floating around for years. Amory Lovins, for example, has long suggested that the auto industry is ripe for a bottom-up revolution, using small-scale manufacturing techniques, new materials and highly efficient next-generation power sources. I wouldn't be surprised if his organization, the Rocky Mountain Institute, had some influence in the creation of this prize. If not, I'll bet they're giving serious thought to how they might win it.

Monday, March 20, 2006

Plug-In Campaign

I've mentioned plug-in hybrid cars in several previous postings. This idea has been one of the main energy transformational technologies cited by the Geo-green movement, which aligns environmentalists with those concerned about national security, the War on Terror and the US trade balance. Now there's a grassroots campaign working to stimulate demand for this technology. They call themselves Plug-In Partners and aim to coordinate "local and state governments, utilities, and environmental, consumer and business organizations." Intriguingly, they suggest that these vehicles will be able to recharge their batteries overnight at the cost equivalent of gasoline at about $0.75/gallon. Overall, this is a pretty good idea, but it has a few problems that will need to be addressed before it is ready for the mass market.

The concept is fairly simple. Take a hybrid car, which supplements its internal combustion engine with a battery and electric motor, and give it two additional components: a bigger battery, to allow it to drive for 20-60 miles without consuming any gasoline, and a plug to recharge it from an outlet, rather than waiting to store up braking energy as present hybrids must do. What could be wrong with that, beyond the cost of the additional hardware inflating the purchase price?

I see two pitfalls at this point. First, you have the complex question of the relative efficiency and cleanliness of the source of electricity used. Typically, recharging overnight would mean using "baseload" power. Depending where you live, that could come from nuclear plants, coal powerplants or hydroelectric dams. You might get a bit of wind power in there, too, but clearly no solar in the dark. So in most cases, plug-in hybrids won't use "alternative energy"--unless you count nukes as such--but rather exchange one conventional fuel for another. The environmental consequences of that switch are not as straightforward as you might think. In any case, though substituting electricity for gasoline seems entirely reasonable, I'm not sure I want to subsidize it by taxing gasoline but not taxing the coal that ends up powering plug-in hybrids.

That leads to my second concern. If these vehicles are really successful, as they would have to be to make a dent in our energy problems, pretty soon the agencies responsible for keeping the roads repaired will go broke, because they rely on motor fuel taxes for their funding. Initially, we can choose to subsidize the situation I described above and let plug-in hybrids pay no more for their power than you pay to run your toaster, but then pretty soon we must come up with a different way to collect the money for maintaining our highways. We will either have to get very clever about this, or pay for roads out of income or property taxes. That won't be popular.

The picture gets even more interesting when you add the possibility of making the plug-in hybrid into a flexible fuel vehicle, able to run on ethanol. That raises the usual concerns about the efficiency of ethanol production and its associated subsidies, and ought to be the subject for another day.

On balance, I think this is a very promising technology that could change the energy equation in the US, as well as globally. If it works here, consider its impact in China. But before it goes "pro", its supporters will have to work out the issues described above, and they won't be doing this in a vacuum. Plug-ins must compete with other choices, including European-style diesel cars, which cost much less and deliver impressive fuel economy. Don't forget that the first 20 mpg improvement in gas mileage is worth much more to the average consumer than the next 60 mpg increment. That stacks the deck in favor of diesels and regular hybrids, and against more complex and costly solutions, such plug-in hybrids or fuel cells.

Friday, March 17, 2006

Toward a Modus Vivendi

In 1683 a Turkish army stood at the gates of Vienna for the second time in 150 years. Its defeat by Austrian and Polish forces destroyed the Ottoman dream of expanding further into Europe and began the unraveling of their empire. A bit more than three centuries later, the Austrian energy company OMV has acquired a controlling interest in Petrol Ofisi, the largest Turkish fuel distributor. This represents one of those interesting little turnabouts of history, but it's also symbolic of the choices we face in the ongoing friction between Islam and the West. Contrast the normalcy of the OMV/Ofisi transaction with the xenophobia that greeted the Dubai Ports World acquisition of P&O's seaport interests in the US. Which is the better model for our future relationship with the Islamic world?

Clearly this issue isn't confined to energy, but its energy dimension is disproportionately large, because of the accident of geology that left 60% of the world's remaining conventional oil under the sands of Arabia and the Near East. It's understandable and appropriate that 9/11 and the Iraq War have changed our relationship with the Middle East in profound ways, in both directions. We need to think carefully, though, about how we'd like this to look in the future, and the degree to which our actions reflect that vision.

There are so many contradictory views on this, but I'm struck by one set, in particular. Tom Friedman of the Times, for whom I have a high regard, was courageous in his criticism of the public and political reaction to the ports deal. His editorial, "Dubai and Dunces" (Times Select subscription required) minced no words describing our hypocrisy. Good for him. Yet the Geo-green strategy that he has heralded in a series of articulate columns is built around the deliberate intention of driving oil prices down to a level of pain sufficient to force the Saudis and other oil-rich Arab countries to rethink everything they are doing. Diversification of energy supplies to manage our risks is one thing; a technology-driven reverse embargo is quite another, even if I'm skeptical about its effectiveness.

For good or ill, energy will remain the region's primary entre to the global economy for some time. Pursuing a policy of drying up their trade flows--as an explicit goal, rather than as a side-effect of addressing our greenhouse gas emissions or some other energy-related problem--seems to fit better with a 19th century mercantilist approach, rather than the 21st century, WTO/globalization mindset we espouse to them.

This doesn't remotely let the Arab world off the hook for nurturing a death cult like Al Qaeda or for explaining a century and a half of underperformance solely in terms of colonialism and conspiracy theories. But the sooner we realize that the world economy cannot do without the energy resources these countries own, and that isolating them isn't in our interest any more than it is in theirs, then the more realistic we are likely to be about evaluating the costs and benefits of a connection such as the one we've just foregone with Dubai. Ultimately, we need to decide whether we want our future relationship with the Middle East to look more like the OMV/Petrol Ofisi deal, or the Battle of Vienna.

Thursday, March 16, 2006

Who's Responsible?

A friend sent me a link to a fascinating story in Salon (you may have to watch an ad to read the article) that describes an intriguing form of leverage on companies that emit large quantities of greenhouse gases, yet refuse to acknowledge the problem. The article suggests that companies such as Exxon might respond to hints that their Directors & Officers insurance policies, which are essential to recruiting and maintaining high-quality boards, might not cover them if they were sued for the consequences of climate change. This is fascinating speculation, but it fails to address the larger issue of who should really be held responsible for all these emissions. Hint: it isn't only the companies who produce the fuels we burn.

The insurance industry has long been at the leading edge of business sensitivity to climate change; they know they will bear the cost of the increasingly frequent extreme weather predicted as a consequence of sustained climate change. So it's no surprise to me that they should worry about the possibility that their fossil-fuel company clientele might eventually be sued for contributing to a hurricane or flood, irrespective of the reality that weather and climate are distinctly different things.

For that matter, I have warned oil company colleagues and clients for years that they need to worry not only about the emissions for which they are directly responsible, from operating oil & gas wells, pipelines, and refineries, but also the much larger quantities resulting from the end uses of petroleum products. However, my warnings weren't based on a conviction that this is where the responsibility ought to fall. Rather, they arose from my assessment of the horribly skewed tort system in this country, which creates incentives for plaintiffs to sue on the flimsiest logic, on the chance that some jury might be gullible enough to buy it. During my years in the UK I was impressed by their defense against this gambit; you must weigh the merits of your case pretty carefully, if you risk having to pay the defendant's legal costs in the event you lose.

So to whom do we look, if not to Exxon, Shell, Chevron, et al? I think BP poses exactly the right question in new ads that ask, "What's your carbon footprint?" Like it or not, we cannot divorce ourselves from our responsibility for the emissions we create. Who chose the car I bought, instead of a hybrid? Who decides whether I drive to the grocery store or walk instead? Not the government, and certainly not the oil company whose gas I buy. Recognizing my own responsibility, I purchased a Terra Pass, to offset my car's greenhouse gas emissions.

No matter how much delight some might take in seeing Big Oil's top executives sworn in for another Senate hearing on high gas prices, the energy industry is not the tobacco industry to be handed over to the tender mercies of the plaintiff's bar. In spite of the President's recent comments about oil addiction, oil is not some optional vice; it remains the cornerstone of the global economy and the sine qua non of life in the early 21st century. That won't always be true, and much of this blog is devoted to a ongoing discussion on how and when such a transition might take place. In the meantime, each of us contributes to climate change every day. Blaming it all on the companies that sell us fuel is just a handy way to rationalize the status quo, as if our own choices had no impact.

Wednesday, March 15, 2006

Recycling the Petrodollars

The phrase in the title was on everyone's lips in the 1970s energy crisis. Living in L.A. at the time, I remember lavish homes in Beverly Hills bought by Arab sheikhs, flush with oil money. That doesn't seem to be happening this time. Instead, we see Arab firms such as Dubai Ports World acquiring established western firms like P&O and generally investing in things with inherent value. But as an excellent op-ed from the Wall Street Journal pointed out last week, the current wave of oil profits in the Persian Gulf may be laying the groundwork for the next crisis, one potentially much more serious than the recent "ports crisis."

I haven't spent as much time thinking about the possible consequences of this tidal wave of cash as I should have. The author of "The Seven Pillars of Folly" has, though, and what he observes is alarming. He sees a regional speculative bubble, driven by oil profits and the vicarious liquidity enjoyed by the Gulf countries whose currencies are linked to the US dollar. This seems to have created both equity and real estate booms, both of which Mr. Chancellor regards as having reached precarious points. A collapse of one or both could undermine the few islands of stability in the region and send oil prices even higher, as a secondary effect of the political turmoil following a collapse.

Not all this money is flowing into skyscrapers and speculation, though. The growth of the fertilizer industry in Saudi Arabia has global implications, even if the market capitalization of Sabic, the partially-privatized Saudi state chemicals company, were to crash a la Dot Bomb. The demise of Global Crossing and its peers left behind a pennies-on-the-dollar global fiber optic infrastructure that became the key ingredient in the large-scale offshoring of US service jobs to India. In the same way, these new fertilizer plants will survive whatever fate awaits Sabic and could depress global fertilizer prices for years. That could spell the end of a US fertilizer and petrochemical industry founded on natural gas at $0.50-1.00/million BTUs, which now trades for $6-10/MMBTU.

So as if there weren't enough to worry about in the most volatile region in the world, between the insurgency in Iraq, infrastructure terrorism in Saudi, and the prospect of a nuclear Iran, we must now pay attention to the property market in Dubai and the stock market in Riyadh. Am I the only one who misses the simplicity of the Cold War?

Tuesday, March 14, 2006

Peak Times

It's been a while since I've written about Peak Oil, but while I was busily engaged on a consulting project last week, the New York Times published a lengthy editorial on the subject, framing it as one of the two biggest risks, along with climate change, to our energy status quo. Unfortunately, the editorial itself is locked up inside Times Select, which I hope the Times will eventually realize is a lousy way to make money but a great way to reduce the influence of their editors and columnists such as Tom Friedman.

In terms of content, the editorial lays out its case in some detail, and fairly understandably. It would have been even better if it had been proofread by someone who knew when they should be saying billion instead of million or trillion, or that a human generation spans 20-25 years, not 60. But these are quibbles; otherwise, it's a useful compendium of Peak Oil thinking, referencing M. King Hubbert, Kenneth Deffeyes, and Matthew Simmons--plus skeptics such as CERA's Daniel Yergin. It touches on the year 2000 USGS study of the earth's total oil endowment and describes the uncertainties about the ability of Saudi Arabia to sustain, let alone increase their production. It also makes the key point that the critical moment is not when the earth's last barrel of oil is extracted, but when the growth of oil supply can no longer keep pace with the growth in demand. In short, if you previously knew nothing about Peak Oil, it would be a good, concise place to start.

Despite this, it includes one assertion of fact that I believe to be totally incorrect and misleading. While striking an appropriate note of skepticism about the short-term impact of hydrogen fuel cells and other advanced technologies that will take years to percolate into the system, it mistakenly lumps unconventional hydrocarbons such as oil sands into the same pot and claims, "Unconventional oil won't be available in large enough quantities to make a real difference until well down the road." In fact, Canada's oil sands operations are expected to add their second million barrels per day of output over the next five years, an increment larger than the entire current production from the Alaskan North Slope. That makes them significant in my book. Together with gas-to-liquids plants that turn natural gas into high-quality synthetic diesel, these unconventional hydrocarbons may not save us, but they have the potential to alter the Peak Oil equation in ways that Hubbert's disciples seem to have underestimated.

That doesn't mean we should be profligate in our use of oil. I have my own skepticism about the industry's ability to keep pace, but this owes little to uncertain geological timetables and more to entirely comprehensible problems of geopolitics and capital allocation. Everything I see says that, if oil supplies fall short within the next decade, it won't be because the oil isn't in the ground. It will happen because the people who own it didn't want to invite in the companies with the capital and expertise to bring it to market, or they didn't like the rule of law and split of earnings necessary to attract international investment. The consequences of that scenario would be every bit as disruptive to the global economy as Peak Oil, but they would have their roots in markets and governments, not in mysterious and intractable forces of nature.

Monday, March 13, 2006

Sound Future?

Opposition to the proposed local LNG terminal has taken an interesting turn, as described in Sunday's New York Times. Previously, a variety of groups had argued against the Broadwater project primarily on the grounds of its environmental impact on Long Island Sound. Now, several of the organizations fighting Broadwater have commissioned a market study from a regulatory and litigation-support consultancy, Synapse Energy Economics of Cambridge, MA. The report suggests that the Greater New York City market (including Connecticut) can be served at least as well by Canadian LNG terminals, and that Broadwater's demand estimates are exaggerated. My detailed comments on the Synapse report appeared on Sphere, a blog devoted to issues affecting the Sound. Rather than rehashing what I said there, I'll step out on a limb with a prediction.

I usually prefer to weigh all risks and consider multiple scenarios, but this situation is beginning to look predictable. Opponents have lined up the Senators of the two (blue) states affected, at a moment when Republicans who might be more inclined to see it built seem in disarray. They have astutely put forward an apparently credible study that shifts the argument away from issues that could be labeled as NIMBY, and focuses on supply and demand projections that can only be validated after the years in question have passed. Broadwater was fighting an uphill battle from the start, and they may struggle on, but I will be greatly surprised if this project is actually built.

Unfortunately, the only two reliable data points I have, my monthly gas bill and my monthly electricity bill, tell me that this area desperately needs its own supply of gas from international sources, to bring its disproportionate energy costs back into line with the rest of the country. Although Broadwater might not be exactly the right project and couldn't help for at least 3 years, I take scant comfort in the alternatives proposed by Synapse, including large-scale efficiency projects and power plant re-powering.

I also wonder if either side has sufficiently accounted for the likely consequences of years of sustained high gas and electricity prices in the area. Synapse's projections could eventually appear to have been validated--and Broadwater's proved wrong--not because the former was more thorough, but because the uncertainties about gas supply without Broadwater will limit the growth of the regional economy and create a self-fulfilling prophesy. At the same time, inertia and the flip side of the same uncertainties will probably suppress the alternatives suggested by Synapse. The region will thus end up even more reliant on gas imports from Canada and the US Gulf Coast, without any recourse other than austerity.

Paradoxically, if Broadwater were built and turned out to be as unnecessary as its opponents now argue, it could be very beneficial for the region, while its a impact on Long Island Sound would be much less than feared. Residents and businesses would benefit from Broadwater's ability to deflate price spikes with a few well-timed cargoes, but its overall under-utilization would minimize its effect on the environment and shipping in the Sound. That might not be very good for Broadwater's parent companies, but that's their risk to worry about. The bottom line is that opponents can't have it both ways: either the terminal will be fully employed and bring dozens of LNG cargoes a year into the Sound--with whatever environmental consequences that entails--or it will be mostly idle, and thus have little impact beyond the visual.

Although this situation may seem of interest only to readers in the Long Island Sound region, it raises much broader concerns. Any large energy project can be torpedoed by arguing that we could do all sorts of things to reduce demand, instead. However, unless there is an organized, sustained and well-funded effort to bring that about, demand will merely fluctuate in line with price, and consumers will continue struggling to pay energy bills and industries will move offshore, because our energy supplies failed to keep pace with demand.

Friday, March 10, 2006

Connective Tissue

Yesterday I saw a report of an interesting development in alternative energy at GE. As described in this article in Technology Review, GE says it has invented a device that reduces the cost of producing hydrogen from water using electricity. Electrolysis is hardly new and is already in use in a number of applications where electricity is cheap or natural gas unavailable. Despite this, GE's announcement could be significant for several reasons, including the implications for their own business portfolio.

First, the hydrogen production costs cited in GE's announcement would make electrolysis much more competitive with other sources. Although most commercially-produced hydrogen today is extracted from natural gas, electrolytic hydrogen represents a potential bridge between stationary power generation and transportation energy. That could reduce our consumption of petroleum in the future. It's also significant in the context of our current shaky natural gas supply and demand balance. Any incremental gas for hydrogen production in the US would likely have to be imported as LNG, with all the issues that raises.

This development could also be of value to some of GE's other businesses. Most of the energy technologies in their portfolio produce electricity--rather than fuels--based on coal gasification, gas turbines, wind turbines and solar power. That list suggests they have more than a passing interest in expanding the potential market for these technologies beyond the stationary power sector and into transportation. That could take many years, but in the near term there is already a large and profitable market for the provision of hydrogen for industrial use. That market currently relies on expensive natural gas. Before getting too excited about the possibilities, though, I'd like to understand the assumptions they used in coming up with that $3 per kg cost figure.

Thursday, March 09, 2006

Toward A Much Cheaper Lunch

In the course of a recent scan through last year's postings, I ran across one on a real long-shot: so-called "sonofusion", which would use sound waves to fuse hydrogen atoms and release significant net energy without the elaborate apparatus of other high-temperature fusion techniques--and potentially at much lower cost than any current energy source. This got me thinking about the consequences of an order-of-magnitude breakthrough in energy cost. Clearly, it's going to take a lot more work on sonofusion to see whether it can deliver that, or if it's yet another dead end. But that doesn't prevent us form considering what might happen if it or some other energy "wild card" appeared in the next few years.

Start with the present slate of alternatives. Whether we're looking at wind, solar, biomass, wave power, or even Clean Coal, oil sands, and advanced nuclear fission, they all offer, at best, the potential to be roughly competitive with current oil, gas and coal. They may hold out the promise of fewer environmental consequences, including greenhouse gas emissions, but no one is talking about a factor-of-ten cut in the price of energy, even after applying efficiency improvements.

Why is that significant? It makes all the trade-offs difficult and the rate of change inherently lower than if an innovation were really being pulled through the market, rather than relying on subsidies and mandates. For example, it keeps hydrogen for cars expensive, after factoring in the energy losses associated with producing and distributing it. A radically cheaper primary energy source would put hydrogen into the game much quicker, by enabling it to be burned in internal combustion engines at a lower cost than gasoline. Of course, H2 would still face the infrastructural and social hurdles I mentioned two weeks ago, so our hypothetical quantum leap might be even better news for plug-in hybrid cars, which use existing gasoline and electricity infrastructure. Who could argue with shifting the transportation energy burden to electricity, if it were backed up by cheap, clean and limitless power from a new source?

Looking beyond transportation, dirt-cheap energy could create an economic revolution. Energy is still a key economic input, even though the marginal energy consumption for a dollar of GDP has been falling steadily, at least in the industrialized countries. The impact would be biggest in large developing countries, which are still well behind on that curve, and stand to burn vast quantities of incremental oil, gas and coal as they move towards Western levels of per capita income.

OK, we've heard all this before. I can remember the promotional films in grade school (on actual 16mm acetate film, not video) about nuclear power that would be too cheap to meter. Why even bother thinking about this, now? For several reasons. First, I think we're falling back into an economics of scarcity and the mindset that goes with it. We may have a few rough years ahead, but that doesn't mean we've looped back to a 1970s, "Limits to Growth" world. In addition, while we can't bank on a breakthrough and must certainly make plans that are workable without one, we shouldn't plan our energy future in such a way as to make it much harder to accommodate a breakthrough, should one occur. This goes back to the "options thinking" I'm so fond of. Pathways that create multiple possibilities--more branches--are generally worth more than those that don't. It also says that as a society we should continue funding a reasonable number of real long-shots, particularly if the up-front cost is low. Sonofusion sounds wacky, but it sure would change the game.

Update: A reader kindly pointed me to this, reporting that one of the sonofusion scientists is under investigation. While this makes sonofusion look even shakier, I don't think it changes my basic point about long shots.

Wednesday, March 08, 2006

Independence or Egotism?

How appropriate that Russia's turn as head of the G-8 group of industrialized nations should coincide with our present emphasis on energy, considering Russia's vast potential to expand oil and gas production and balance declining non-OPEC supplies elsewhere. President Putin marked the occasion with an op-ed in the Wall Street Journal, reprinted in a variety of other sources. In it he characterizes the growing focus on energy independence--and I suspect he is thinking particularly of its US incarnation--as "energy egotism." Ignoring the source for a moment, he has a point.

I liked Mr. Putin's emphasis on the need for global, rather than national energy security. In my view, that's the right level to target, because the energy options available globally greatly exceed those available to almost any individual country, particularly in the industrialized world, and the consequences of increasing energy use have also become global. He rightly points out that access to energy is a key issue not only for the G-8, but for developing countries large and small, and for the billions without reliable or affordable energy.

Globalization, rather than autarky, looks like the better path for energy and the environment, and I believe that's true whether your orientation is nationalist or multi-lateralist. Solutions that focus exclusively on high-cost local energy sources will create an unnecessary brake on economic growth, while many of the best applications of renewable and other advanced energy technology will be found in developing, rather than developed countries.

Unfortunately, Mr. Putin's timely message will be diluted by the inconsistencies between what he has articulated and the policies that his administration has pursued within Russia and in its energy trade with its neighbors. He has re-consolidated a large fraction of the energy industry under state control. He has also not pressed aggressively enough for the liberalization of access by foreign firms, clear and strong property laws, and reformed corporate governance that are part and parcel of the globalizing economy. If Mr. Putin wants to be taken seriously as a statesman and leader in this area, he must show that he follows his own advice where he has direct control, not just oratorical influence.

Tuesday, March 07, 2006

Nuclear Timeline

The controversy over Iran's nuclear program continues, with the IAEA board meeting in Vienna and Iran apparently arresting someone for spying on their classified--but peaceful--nuclear activities. Meanwhile, in a lengthy article on the history of Iran's nuclear efforts, the New York Times has asked what may be the most interesting question in the entire matter: why doesn't Iran already have nukes? Their answers shed useful light on the uncertainties involved but may risk getting lost in the details. A simple reality check is in order.

Few of us are in a position to assess directly the technical challenges facing Iran--assuming they are pursuing nuclear weapons and not merely protecting their own future fuel rights, as they have repeatedly asserted. The last sixty years, however, provide several useful data points for comparison.

It all started when the US created a nuclear weapon from scratch in three years, using 1940s technology. That required bringing together many of the smartest physicists in the world and building an industrial base that siphoned off a sizeable share of the country's GDP. They cracked the basic science and engineering problems, and they did it with slide rules and graph paper. This was a stupendous achievement, but I believe it's the wrong way to think about what Iran is doing. Trinity and Hiroshima established the critical "existence proof" of nuclear weapons, and a variety of other countries have replicated this feat without resorting to quite the scale of effort necessary the first time.

The USSR provides a much better comparison, though scale limits its usefulness. Russia developed and tested its own bomb within 7 years from the start of the Manhattan Project, in the face of determined US efforts to deny them this technology. While they were able to marshal the scientific and physical resources of an enormous country for the effort, they also benefited from a broad flow of scientific and engineering data obtained by their espionage on the Manhattan Project. This is thoroughly documented in an excellent book by Richard Rhodes, "Dark Sun."

Britain and France also developed nuclear weapons, but their programs seem less comparable to Iran's. The UK actively participated with and was assisted by the US, while France had an active nuclear science program going back to the end of World War II--even though it took until 1960 to explode their first bomb. China and India may be closer to the mark, but both benefited from significant technology transfer. The recent example of Pakistan, though, seems applicable on many grounds.

In 26 years from inception to first test, a country roughly comparable to Iran was able to develop the required infrastructure, solve all the associated technical and logistical challenges, and explode a Hiroshima-style bomb based on the enriched Uranium path that is the current focus of international concern in Iran. They did this with a bit of foreign assistance and some smart scientists, including the now-infamous A.Q. Khan. In fact, Pakistan is thought to have had the ability to produce a bomb at least a decade before its first test in 1998. That brings the timeline for the core of their program down to about a dozen years.

Iran's case is unique in several respects, but the similarities are real, and it enjoys important advantages over Pakistan in terms of finance and in not being a pioneer, even within its class of medium-large developing countries. So while experts may argue about precisely when Iran might be able to build a nuclear weapon, history suggests that the smart money would bet on a decade or less. At the same time, careful analysis of the factors that have prevented Iran from succeeding where Pakistan did might point the way towards keeping things that way.

Monday, March 06, 2006

Port Jitters

The controversy over the slated takeover of key US port operations by a company from Dubai has the media asking about foreign involvement at ports around the country. I don't see any need to weigh in on the larger issue, but I want to point out a glaring omission in an article in the Sunday New York Times on the situation in Connecticut, "Who Is Minding the State's Ports?" They correctly reported that a company called Motiva operates portions of the ports of New Haven and Bridgeport, and that Motiva is partly owned by the Saudi national oil company, Saudi Aramco. Unfortunately, the article omits any perspective on how this came to be. A little more curiosity on the part of the reporter would have dissipated the air of concern and the implication that this arrangement was never vetted.

I wouldn't blame the article's author, if she had been confused by the complexity of the chain of transactions involved. The key lies in the historic ownership of these facilities by Texaco, hardly a foreign or obscure name. In the aftermath of the company's Pennzoil-related bankruptcy, Texaco established a joint venture with Saudi Aramco in 1988. This alliance encompassed Texaco's petroleum refining and marketing assets east of the Mississippi (more or less,) including a large network of distribution terminals along the east coast. Texaco contributed the facilities and the people; Saudi Aramco put up cash and a long-term crude oil supply. The new company was called Star Enterprise, and its formation was big news in its day.

Fast forward to 1997 and the leading edge of the industry consolidation that continues to this day. Shell and Texaco agreed to combine their US refining and marketing activities in two joint ventures, the first, called Equilon Enterprises LLC, covering the territory in which Texaco had retained 100% ownership of its downstream system, and the second, Motiva Enterprises LLC, combining the former Star Enterprise with Shell's downstream assets in the eastern half of the country. Ownership of the latter was split between Shell, Texaco and Aramco. This deal was heavily scrutinized by the FTC and the affected states. Finally, when Texaco merged with Chevron in 2001, an FTC Consent Decree required Chevron to sell Texaco's interest in these two JVs to their partners. That's how a joint venture owned by an Anglo-Dutch firm and the Saudi state oil company ended up with parts of two Connecticut ports.

Now, although I probably paid more attention to these transactions than most, having worked for Texaco throughout the period in question, I recall clearly that these deals made national headlines and attracted intense regulatory scrutiny. So a Saudi company acquired an interest in these ports, not in the dead of the night, but in a sequence of three high-profile deals, dating back two decades. I am surprised to hear that my Congressman and both US Senators seem to have been unaware of any of this.

Had the Times wished to reassure the public about the safety of the Connecticut ports, they could have pointed out that the same people have been running them since at least 1988, and that the vast majority of the personnel involved are Americans who can trace their employment back to Texaco or Shell. Does it really matter to the day-to-day operations that half the shares of Motiva are owned by the Saudis, when decisions are made either locally or at the Houston headquarters of the venture? If anything, Motiva may have a higher US content than other, more recognizably "American" firms running similar facilities, because it is constrained by its charter to operate only within the US.

Friday, March 03, 2006

A Lovely Scheme

A few years ago, I ran across a novel with an irresistible title, by an author previously unknown to me. "The Fools in Town Are On Our Side" got me hooked on the late Ross Thomas, who wrote twisty thrillers of the "guilty pleasure" variety. Yesterday, a friend referred me to an article in Time Magazine describing a scheme that would warm the hearts of Artie Wu and Quincy Durant, the two confidence men who were Mr. Thomas's greatest creations. The article describes the exploitation of a loophole in the tax code by producing synthetic fuels that only meet the definition under the most generous interpretation possible, along with current efforts to pry the loophole open even wider, rather than closing it.

Briefly described, the scheme takes advantage of incentives put in place during the 1970s to stimulate synthetic fuels production in this country. The government provides tax credits to companies in the synfuels industry to guarantee a floor price high enough to make the fuels attractive to produce. Coal gasification, coal liquefaction and the production of synthetic liquids from oil shale were major beneficiaries of this program in the early 1980s. The scheme described by Time, however, involves nothing more elaborate than treating coal in a minimal fashion that still leaves it in solid form, then marketing it as a synthetic fuel and pocketing the tax credits. The new wrinkle exposed by Time involves an amendment to this year's Reconciliation Bill that would maximize these credits by assessing them against oil prices in 2004, rather than the much higher prices prevailing in 2005 and 2006. Hundreds of millions of dollars are at stake.

Let me state clearly that I don't know anything about this beyond what I read in Time, nor can I vouch for any of the reported facts. My reason for drawing your attention to this is not to stir up outrage, though there would be ample cause, if the allegations proved true. Rather, I think this is a wonderful example of how well-intended energy programs can be exploited for purposes entirely contrary to what their supporters and the lawmakers who enacted them had in mind. It serves as a timely reminder--with all sorts of proposals floating around to push new energy technology, promote biofuels, and generally foster "energy independence"--that a potentially significant fraction of the funds targeted for these areas could end up bankrolling simple greed, without advancing our energy interests in the slightest, unless we're very careful about how we specify these programs.

When most of us think about alternative energy, we envision small companies pursuing highly innovative and risky new technologies and processes. We imagine scientists working diligently in private and government labs to squeeze out extra layers of efficiency and cost-effectiveness for solar collectors, advanced batteries, and hydrogen storage and conversion. But we need to realize that others will gaze longingly at the impressive line of zeroes in those appropriation figures and concoct ways to siphon off a bit for themselves.

That doesn't mean we should reduce or cancel these programs, but it does argue for an approach to energy incentives that would be much harder for the unethical to exploit. Rather than paying for activities that may add little or nothing to our supplies or efficiency, we should be rewarding results that are objectively measurable in incremental BTUs and kiloWatts. Specifying means, instead of outcomes, exposes us to inefficiency and worse.

Thursday, March 02, 2006

As Far As The Eye Can See

I've commented several times on the ongoing struggle of the Cape Wind project off Nantucket to get past local opposition to the "environmental profile" of the proposed offshore wind turbine array. The battle has taken another twist, with the prospect of a Congressional amendment regulating the proximity of wind turbines to shipping lanes. Rather than playing another riff on my frequent anti-NIMBY refrain, it occurs to me that part of the problem here arises from a fundamental misunderstanding of the nature of renewable energy. In a nutshell, the inherent properties of fossil fuels have spoiled us and made it difficult to grasp the compromises associated with other energy sources.

This is an extension of some of the ideas in a recent posting on geothermal energy. A couple of probing responses forced me to do some homework I should have done previously. It turns out that our civilization uses quantities of energy on roughly the same order of magnitude as the entire energy flux generated by the molten core of the earth. That sounds counter-intuitive, but it makes sense when you consider that fossil fuels are really--as we've heard so many times--concentrated sunlight. When you unpack that cliche, you realize that by consuming in a century or two the results of millions and millions of years of gradual, inefficient-but-cumulatively-monumental energy storage processes, we are able to "live large"--to use energy on a planetary scale without having to collect it concurrently from the sun and the earth.

That might sound very abstract, but it has a profoundly practical effect. It means that replacing a meaningful fraction of our energy supply with renewable sources--those tied in real time to the sun, the wind, and the earth's own heat--will fundamentally change our relationship with energy. We're accustomed to sourcing our energy far from where most of us live, in oil fields, gas wells and coal mines all over the world--but typically distant from urban concentrations. The portion we're used to seeing around us is just distribution infrastructure--power lines, gas stations, and the occasional pipeline or refinery. Renewable energy on a large scale will change that situation utterly. We will go from a world of energy-at-a-distance to energy-all-around-us.

Consider wind turbines. A state-of-the-art turbine generates between 3 and 5 Megawatts of electricity, when the wind blows. A natural gas-fired power plant, on the other hand, generates anywhere from 500 to 1000 MW, and can do so around the clock, more than 90% of the year. Replacing fossil fuels with wind, in this instance, means building 800 or so structures, each taller than the Statue of Liberty (ground to torch.) If we wanted to replace all of the fossil fuels used in US power generation, it would require over 300,000 of these installations.

Nor am I singling out wind. Do the math for solar, geothermal, wave power, or anything else you like, and you'll see that, to have a material impact at the scale the human race uses energy, we will need lots of them, everywhere. Biofuels? Great stuff, but plan on devoting a lot of land to them. How much? Well, replacing the entire global output of petroleum would require around 5 billion acres, at current yields. This works out to about half of all land currently under cultivation. By comparison, drilling in ANWR and offshore Florida is quite unobtrusive, because those nasty old hydrocarbons are still the most concentrated forms of energy around, other than Uranium.

Now, you might read this as an attempt to make renewable energy look impossible, or at least extremely unattractive. Far from it. It's meant as a reality check. Opting to make renewables a major part of our future energy supply requires setting aside our tender sensibilities and being confronted on a daily basis with the real-world foundation of the energy-consuming pyramid atop which we sit. Unless, of course, the goal is only enough renewable energy to make us feel good, but not enough to matter.

Wednesday, March 01, 2006

Gas Tax Poll

The latest poll on Americans' attitudes toward an increased tax on gasoline provides the typical Rorshach blot result: there's something here to support every pundit's ex ante view of the issue. Tom Friedman of the NY Times sees it as clear evidence that only a bit of leadership is required, and the country will line up behind higher gas prices and queue to buy more efficient vehicles, which, by the way, the poll suggested carmakers should be forced to produce. I know this is an idea I should either be for or against, but I find it hard to muster enthusiasm for more than neutrality, because I regard an increased gas tax as such a mixed blessing.

There's little doubt that higher gas prices would reduce demand over time. We saw evidence of this in the short-term adjustments to the Katrina price spike last summer. We also have the example of the late 1970s and early 1980s. Gas taxes are certainly one way to get prices up and keep them there, separating them from the underlying roller-coaster of crude oil prices and refining margins. They would also provide extra revenue for a government stuck with intractable deficits. Each 10 cents of new federal gasoline tax would raise about $14 billion a year. And as I suggested recently, they are a lot better for the economy than more extreme measures such as an oil import tariff. Unfortunately, I'm just not sure raising the gas tax would be quite the panacea its supporters imagine.

First, there's already no shortage of fuel-efficient car models on the market. If consumers had simply bought cars--not hybrids, but the sedans and station wagons already widely available--instead of SUVs for the last 20 years, we would currently use over 400,000 barrels per day less gasoline, roughly 5% less than we do now. Nor is automobile fuel economy necessarily the key issue; Americans now drive 2000 miles per year more than they did in 1985, and that costs us an extra million barrels per day of fuel. Backing that down will require not just more frugal vehicles, and lots of them; it will entail serious lifestyle adjustments.

Nor is it clear that even steep gas taxes can, by themselves, deliver meaningful levels of energy independence. We have to look to Europe to see why. European gas taxes are far in excess of what we levy, here. Gas in Europe today costs between $5 and $6/gallon, and the difference is essentially all tax. That means that European gas taxes are running at $3-4/gallon, compared to combined US state and federal gas taxes of $0.25-0.60/gallon. Despite this difference, which has been sustained at proportional levels for many years, Europe remains more dependent on oil imports than the US, with nearly a third coming from the Middle East.

Raising gas taxes also requires serious consideration regarding the taxes on other fuels. If diesel is left alone, to protect interstate trucking, we will start down the path of automobile dieselization in the manner of Europe. Diesel cars are nearly as efficient as hybrids at a much lower cost premium, but they increase emissions of some local pollutants. And should corn ethanol be given an even larger subsidy, by exempting it from any gas tax increase? Even in light of the latest findings that it creates about a 20% net energy gain vs. gasoline, grain ethanol production is already subsidized to the tune of more than $1 billion per year, at the current rate of $0.51/gallon. That's sufficiently generous for an program that benefits agricultural interests more than energy. What about natural gas? Should it be further advantaged relative to taxed gasoline, or is it senseless to promote its use in cars when we aren't even sure we will have enough in the future to heat our homes and run our industries? As you can see, this isn't just a simple question of raising taxes on one fuel.

The poll does suggest that Americans would support a gas tax, if they saw the proceeds helping to fund alternative energy R&D or reducing climate change. However, I'd be a lot more convinced of the durability of those views, if every price spike didn't prompt such an outcry about gouging, and calls for releasing oil from the Strategic Petroleum Reserve, in order to shield consumers from the impact of higher prices. Either high gas prices are good--regardless of the cause--or they are bad. If the proof is in what we do, not what we say, then the new poll results need to be viewed with a very jaundiced eye, especially for something the results of which are so far from the slam-dunk its proponents suggest.