Wednesday, January 24, 2007

Union on Energy

Although much of the world was watching last night's State of the Union Address to hear what the President would say about Iraq, the leadup to the speech included a remarkable amount of speculation and pre-positioning about its energy and environmental focus. Yesterday's Wall Street Journal included op-eds from a technology expert and an energy expert, taking opposite sides of the independence argument, a day after a technology icon highlighted our consistent failure to attain the energy independence goals set by past administrations. And all of this was taking place against the backdrop of our growing national concern about climate change, creating the realistic prospect that the US might finally enact legislation to reduce greenhouse gas emissions. What we heard last night was a set of proposals for expanding the current biofuels mandate, modestly increasing fuel economy standards, and doubling the Strategic Petroleum Reserve, accompanied by a one-sentence nod to climate change. While I suspect that there might indeed be a bi-partisan consensus available to enact legislation along the lines the President described, we need to ask whether these measures and the priorities implicit in them are sufficiently aligned with our real problems.

Between the new Congress and the Administration, energy independence and climate change are competing for primacy over energy policy, and it's crucial we make the right choice about which should come first. Focusing on climate change as the primary issue would automatically address our energy security, by getting the growth of demand under control--targeting emissions reductions through greater energy efficiency--and by making alternative energy of all types more competitive with traditional fuels. Of course, this runs afoul of two key legs of the energy independence platform, by putting coal-generated electricity and corn-based ethanol on a more level and less advantageous playing field, relative to other options. The President's target of 35 billion gallons per year of biofuels creates a big bet that cellulosic ethanol technology will mature and decline in cost in time to prevent a catastrophic collision between our fuel and food needs. However favorable the odds might seem to some, this is still a bet, not a certainty.

By putting energy independence ahead of climate change, we run the risk of investing too heavily in technologies that, while gradually reducing our dependence on unstable suppliers of foreign oil, will deliver little in the way of verifiable reductions in our overall greenhouse gas emissions, which are equivalent across all sources. Merely shifting them from tailpipes to smoke stacks will not avert the consequences of climate change, unless it creates a net energy efficiency gain and an actual--as opposed to theoretical--opportunity to sequester the carbon emitted by large central sources. At a minimum, a shift to more ethanol and plug-in hybrids would require expanded production or imports of natural gas, to limit the degree to which coal must take up the slack for the additional electricity generation and process heat required.

Stricter Corporate Average Fuel Economy standards may seem a motherhood and apple pie solution, but with gasoline prices falling, it's not at all apparent that consumers will line up to buy the more efficient vehicles that carmakers must offer. Without a higher gasoline tax, or a comprehensive carbon-cap system that raises gasoline prices, gasoline demand will continue to increase, as a growing population of consumers drives more and heavier vehicles farther each year.

As to increasing the SPR, there are good reasons to consider this, but not on the basis of simply expanding the current reserve, which can only pump out at a rate equivalent to 40% of our imports, and which provides no coverage for the Northeast or West Coast. Instead, as I've suggested periodically, we should be providing refiners with appropriate targets and incentives to hold larger stocks in their own facilities and nearby, where they would be less vulnerable to disruption by terrorists or hurricanes, and capable of serving parts of the country that cannot be reached by pipeline from South Louisiana or East Texas. See Monday's posting for more thoughts on an updated SPR.

One of my consistent themes in this blog for the last several years--probably sparked by vivid memories of growing up in that inauspicious decade--is that we are not reliving the 1970s. Despite superficial similarities in the alignment of an unpopular war, an unpopular president, and an apparent energy crisis, we have better options than we did then, at least for energy. Ethanol and the SPR are the last holdovers from the first energy crisis, before the advent of hybrid cars and fuel cells--or even personal computers--and pre-dating our recognition of global warming. Rather than picking technologies, it's time to create the necessary targets for emissions and efficiency, instead. The President's goal of reducing gasoline consumption by 20% within 10 years is a step in the right direction, even if it's not directly focused on climate change. It is specific, measurable, and attainable--though probably just barely. What's required now is an overarching goal to arrest the growth of greenhouse gas emissions over the same period, and reduce them in absolute terms in the following decade.

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