EVs and The Service Station of the Future

Tesla Motors is apparently in talks with Sheetz, Inc. to install electric vehicle (EV) Superchargers in the latter's chain of gas stations. This caught my eye, because I was involved in a much earlier effort to install EV recharging facilities in service stations in the late 1990s. It wasn't just ahead of its time; it was stymied by some of the same economic challenges noted in the Washington Post article, as well as physical and regulatory issues that weren't mentioned.

The logic of an alliance between Tesla and gasoline retailers like Sheetz seems sound. Tesla embarked on its strategy to build a network of quick-rechargers in order to sell more cars. Its Superchargers are likely to be more effective in that role if they're installed in places that are both convenient to highways and offer a variety of other amenities for drivers, while they wait 15 minutes or more to top up their car's range. High-volume fuel retailers like Sheetz have already optimized their sites for convenience of location, and they have a wider range of food and beverage choices than the average gas station.

They also provide another essential feature: space. When Texaco was evaluating adding rechargers for GM's ground-breaking EV1 electric car to its Southern California retail network nearly 20 years ago, the fire marshals with whom we met insisted that high-voltage electricity and pumps dispensing volatile fuels like gasoline could not share the same pump island. They had to be widely separated for safety, and few of our L.A. locations had large enough footprints for that. Sheetz, by contrast, typically has large stations--many in rural or suburban locations--that could accommodate EV charging without endangering customers filling up with gas or diesel.

Another obstacle I encountered at Texaco was that EV rechargers are expensive, while electricity is cheap. Even if you're allowed to charge customers for it--we weren't, for regulatory reasons--it takes a lot of usage to pay back the substantial investment in equipment and installation. With EV sales still occupying a small niche in the market, that calculation hasn't changed much in the intervening decades. However, Tesla's primary motivation isn't to make money selling electricity, but to generate profits and support its stock price by selling more premium EVs. I would hate to see the standalone P&L for Tesla's growing Supercharger network, but that's beside the point.

This resolves a major hurdle for Sheetz and other fuel retailers that might want to add EV recharging to expand their customer base, or "green up" their image to enhance the loyalty of current customers, especially among Millennials. The profitability of such an investment would still be questionable, even if they sold EV owners lots of premium coffee and snacks while they wait. But if someone else is footing most of the bill for the added hardware, the extra revenue in the convenience store is all upside.

The service station of the future has been slower arriving than my colleagues and I envisioned when we developed Texaco's first global scenarios for the future of energy nearly twenty years ago. Sales of EVs and cars running on hydrogen have not grown as fast as we expected, while the improving performance of gasoline cars has raised the bar for alternative vehicles. However, current trends suggest that our vision of facilities offering a diverse mix of transportation energy was more premature than wrong. I will be very interested to see how Tesla and Sheetz or others move ahead with this idea.

Making Petrochemicals from CO2

• R&D is under way in Germany to see whether CO2 emitted from power plants or other facilities could become a useful feedstock for manufacturing chemicals.

• This could have several advantages over producing fuels from CO2, while providing modest emission reduction benefits.

A recent article in Chemical & Engineering News described current German research and development work focused on devising new industrial processes for making organic chemicals from CO2. These public/private partnerships capitalize on that country’s long expertise in industrial chemistry and its highly successful chemical sector. They are also extremely timely, not just because of growing concern about steadily increasing levels of CO2 in the atmosphere, but because Germany’s “Energiewende”, which includes the rapid phase-out of nuclear power, appears to be raising the country’s emissions as it relies increasingly on coal for baseload electricity generation.

In my last post I explained why it is unlikely that fossil fuels could be phased out rapidly enough to threaten the current valuations of oil and gas firms. But if carbon-based fuels will be with us for some time, that leaves open the large question of what to do about the CO2 emitted when they are burned, particularly from stationary installations like factories and power plants. The long-mooted approach of carbon capture and sequestration (CCS) still faces significant obstacles in terms of cost and social acceptance. That makes CO2 utilization efforts such as those underway in Germany especially intriguing as a way of turning lemons into lemonade.

It’s impossible to predict today whether any of the CO2 utilization processes that German companies and universities are pursuing will ever become commercial. However, they share some key advantages over “classic” CCS and various efforts to produce fuels and other chemicals from CO2 captured directly from the atmosphere:

1. Producing chemicals, rather than fuels, finesses a fundamental obstacle to recycling CO2. Thermodynamics dictate that reversing the results of combustion requires more energy than the fuels released when burned. As long as most energy globally comes from fossil fuels, it will be hard to come out ahead from an energy, emissions or cost perspective when turning CO2 back into fuels. However, if the output is valuable chemicals, that energy deficit might not be such a hindrance.
2. The target chemicals for these projects, including polyols, polypropylene carbonate, and acrylates, are widely used and have a global market. While most don’t quite fall into the category of premium specialty chemicals, they are unlikely to become as commoditized as motor fuels. So while cost is an important consideration, there’s probably a bit more leeway for a new process to compete and become successful.
3. The scale of production for these chemicals is much smaller than for motor fuels, by orders of magnitude. That means that a company investing in producing them from CO2 can hope to capture meaningful revenue and market share with a manageable scale-up from the laboratory. Yet they’re not so small that a single new plant on a scale large enough to demonstrate CO2 utilization would swamp the global market and destroy the margins that made the investment attractive in the first place.
4. These projects appear to be focused mainly on using the CO2 effluent from other industrial processes or power generation, ranging from 4-14% for power plants and up to 90% for some industrial processes, rather than having to collect it from the atmosphere, where it is present at just 0.04%. Starting with a CO2 concentration 100-1000 times higher than in air entails much less surface area for absorption, and likely lower energy consumption and overall capture cost.
5. Germany is committed to significant CO2 reduction, but the German public seems uncomfortable with the prospect of burying CO2 underground. Lacking large numbers of mature oil fields that could be revived by CO2 injection, a commercial-scale CO2 utilization industry would solve Germany’s problem of what to do with at least some of the CO2 it will eventually want to capture from the country's coal- and gas-fired power plants and other sources. 

As promising as these efforts look, they are unlikely to reduce global CO2 emissions by enough to meet current goals. While chemical markets are big enough to take up some captured-and-converted CO2, they are much smaller than the global fossil fuel consumption responsible for most man-made CO2 emissions. If carbon capture really took off, the volumes of concentrated CO2 involved would require multiple additional large-scale dispositions including enhanced oil recovery, fuel production–perhaps driven by advanced nuclear power–underground burial, and possibly chemical sequestration as carbonate rock.

In the meantime, turning some CO2 that would otherwise end up in the atmosphere into organic chemicals that will end up in more durable products seems worth pursuing. If these processes can become commercial, they will help move us in the right direction, and more cost-effectively than some other approaches receiving large ongoing government subsidies, rather than the modest seed money involved in these cases. I’ll be very interested to see how these efforts turn out.

A different version of this posting was previously published on Energy Trends Insider.

Will Self-Driving Cars Revolutionize Vehicle Efficiency?

• Innovators are developing the systems necessary for cars to drive themselves. Some, including Google, have already staged impressive demonstrations.
• However, synergies with alternative fuels appear modest, and the largest efficiency gains from self-driving cars are likely to be deferred until they dominate the market.  

Self-driving cars, also referred to as autonomous cars, have been in the news for several years. Interest in them spiked in September 2012, when Google announced it would make the technology available to the public within five years. Yet while this could be revolutionary in many ways, the most relevant question for us here concerns their potential to reduce transportation energy demand. At this point the likely effects of self-driving cars on fuel consumption and fuel choice appear less spectacular and more uncertain than their other selling points.

Although the entire concept of a self-driving car might seem science-fictional, it shouldn't greatly surprise anyone who has reflected on the implications of drone aircraft, GPS, smartphones, and the increasing electronification of average cars for the last several decades. From that perspective, the most important constraints on their emergence probably depend less on technology than on social and regulatory factors.

The development of self-driving cars and their precursors has been embraced by some of the biggest names in the global automotive industry, including GM, Toyota, Audi, BMW, Volvo, and Nissan, which announced plans to make the technology available across its entire product line sometime in the next decade. (Nissan also recently reported that its EV sales are lagging years behind plan.)

Suppliers to the OEMs are also making important contributions. I vividly recall driving a car equipped with radar adaptive-cruise control and other then-cutting-edge safety features in city traffic at the 2009 D.C. Auto show, courtesy of Robert Bosch, LLC. All I had to do was tap the gas pedal to engage the system and then steer, while the car did the rest. Systems like this are already appearing in production models.

The two main ways in which self-driving cars could affect future transportation energy usage involve making the operation of vehicles more efficient and enabling bigger changes in vehicle design than would otherwise be feasible. Some of these benefits would start to accrue from the day the first autonomous car left a dealership, but most would require either a critical mass of such cars in the fleet, or overwhelming dominance of the fleet. That could happen sooner in fast-growing developing countries, where legacy fleets are smaller, than in the developed world.

Consider operational changes first. Highway fuel economy could be improved by 20% by means of "drafting"--one car using the car ahead to reduce wind resistance--in automated , self-organized "platoons" of multiple cars. This, together with the avoidance of collisions, would also reduce traffic congestion, variously estimated at costing up to 2.9 billion gallons of fuel each year in the US, or up to 2% of US gasoline demand. The combined potential of these savings, assuming 100% market penetration of autonomous cars, might reach 10 billion gallons per year, a quantity larger than the gasoline displaced by corn ethanol in the US.  Of course achieving such savings depends on having large numbers of self-driving cars on the road; imagine the risks if a daring driver in a conventional car attempted to join a platoon of tightly packed autonomous cars.

The efficiency gains from unattended autonomous parking don't require critical mass, and they might be significant, especially in congested urban areas, where one study suggested parking consumes up to 40% of gasoline used. However, most of these potential fuel savings could also be achieved through simpler and more easily implemented means, such as parking-space sensors and smartphone apps. And while self-driving cars might make car-sharing more popular, fewer vehicles wouldn't automatically translate into less fuel consumption if the same or more miles are driven.

The second major category of energy savings is associated with structural changes made possible by self-driving cars, mainly resulting in smaller and lighter vehicles. If cars no longer collided with each other or with inanimate objects, they wouldn't need to be nearly as robust. Saving weight saves lots of fuel. Yet it's hard to see how this process could begin before autonomous cars reached nearly 100% market penetration, since for many years they must share the road with millions of cars driven by fallible humans.

Nor is it obvious that self-driving cars would be infallible. We've already seen ordinary models exhibit random self-starting, due to malfunctioning of remote starter systems that would make up just one small subsystem of an extraordinarily complex self-driving architecture.

Some have suggested that the downsizing and weight savings facilitated by autonomous cars would hasten the adoption of battery-electric cars. The cost of today's EVs is driven largely by battery size, which is in turn a function of the vehicle's weight and its desired performance. A smaller, lighter car could make do with a smaller, cheaper battery pack. Cheaper EVs might well sell faster. However, if that must wait until enough self-driving cars are on the road for downsizing and radical lightening to become safe, it's a reasonable bet that improvements in battery technology in the intervening decades will have largely bypassed this potential benefit.

In the interim, while there might be some less-significant synergies between EVs and autonomous vehicles, neither technology is likely to depend on the other for its attraction to potential buyers. Nor do I see any obvious benefits from self-driving cars for helping alternative fuels like CNG, LNG or biofuels to gain market share.

On balance, if the average medium-term unique fuel savings of self-driving cars are limited to the 10-15% that I calculate--impressive but not game-changing--then  the opportunities to improve safety and driver productivity seem like much more important motivators for this technology, for now. I also discovered a fair amount of skepticism about how soon fully autonomous cars would be widely acceptable to both consumers and regulators. Today's energy concerns might look quaint by the time such cars arrive in sufficient numbers to have a meaningful impact on them.

A different version of this posting was previously published on the website of Pacific Energy Development Corporation.

Ex-Shell Chief Hofmeister Promotes US Fuel Diversity

Alternative fuels have lost some of their luster in the US, lately, for understandable reasons.  Oil production here is booming based on shale resources that keep expanding, while the market for ethanol, our most successful alternative fuel, has stalled at the long-anticipated "blend wall", resulting in ethanol plant closures and bankruptcy filings.  More advanced cellulosic biofuel is still only available in minute quantities, and last year's sales of electric vehicles will displace less than 24 million gallons per year of gasoline--around 0.02% of US gasoline demand.  With all this in mind, it seemed like an excellent time to speak with former Shell Oil Company President John Hofmeister, who recently joined the advisory board of the Fuel Freedom Foundation, a group dedicated to expanding fuel diversity. 

I don't conduct many interviews for Energy Outlook, but I wouldn't have missed the opportunity to discuss energy with Mr. Hofmeister.  Given the focus of Fuel Freedom Foundation, which arranged the call, I started by asking him what kind of changes he expects in the US fuel mix over the next 10 years.  Mr. Hofmeister replied that his outreach efforts at Fuel Freedom, together with Citizens for Affordable Energy, which he founded after retiring as head of Shell's US operations, are intended to "make sure something has changed 10 years out. Left to our own devices, not much will change."  With plans and "enablers of change" from government, he sees an opportunity to "transform the nation in 10 years." He went on to describe what that transformation might include, in the form of further decreases in our dependence on imported oil and more "inward investment".  He also clarified that he includes domestic oil in his list of alternatives. 

When I asked him about the barriers impeding the fuel diversity that he advocates, he immediately mentioned the interest groups that spring up, pro and con, whether concerning oil, natural gas, the lifecycle and materials for advanced vehicle batteries, or infrastructure for hydrogen fuel cell vehicles.  He would like to see federal and state governments enable change and "tell the interest groups to back off."  He observed that despite the shale revolution, "we still rely on imports and can't agree on creating new markets for natural gas" or to build the Keystone XL pipeline.  These disagreements stifle development. Together with federal regulation of hydraulic fracturing, this results in "government as disabler", not enabler of change.

We had a lively conversation about some of the specific fuels that would make up the more diverse mix Mr. Hofmeister would like to see in the marketplace, such as methanol, ethanol, natural gas and electricity.  I expressed some of my own concerns about the energy-equivalent cost of methanol and the safety risks involved in its use on the service station forecourt.  He replied that with expanded supply based on abundant US natural gas, the price of methanol could fall significantly from today's level of $1.60/gal. (equivalent to wholesale gasoline at $3.25/gal.)  That's certainly conceivable, because at a typical 70% conversion efficiency, the natural gas feedstock to produce a gallon of methanol would only cost about $0.37 at recent industrial gas prices.  He also envisioned fuels like this being dispensed in a closed system, to maximize safety.

We discussed natural gas as a bridge fuel for vehicles and whether it might be hard to get off this bridge, later.  In response he pointed to what he called the "EV lifestyle"--the improved convenience and driveability already experienced by EV owners who don't need extended driving ranges--and seemed to agree with my own view of electrification as  a given in the long-run.  He also suggested that this transition could be promoted by a coherent and comprehensive plan.  Earlier, he had pointed out that the administration's "all of the above" approach was just a concept, not a plan, because it lacks the targets, milestones and accountability necessary for a real plan--a point on which an ex-CEO and current strategist were bound to agree.

I couldn't end the interview without asking Mr. Hofmeister whether the tremendous recent turnaround in US oil production had led him to alter his idea, expressed in various talks and in his book, "Why We Hate the Oil Companies," for the US to establish an energy equivalent of the Federal Reserve Bank.  "I'm convinced it's the way to go," he said. "There's too much politics in energy policy now." He believes an "Energy Reserve Board" would stimulate the economy with investments focused on short, medium and long-term goals.  "What energy needs is consistency."

My half-hour conversation with him validated my view that John Hofmeister isn't your typical oil guy.  His ideas are grounded in the scale and complexity of the energy industry, but not bound by its conventional wisdom.  Although I didn't agree with all of them--particularly concerning the degree of government intervention necessary--his responses to my questions were forthright and reflected long and careful analysis, along with a strong sense of the benefits available to the US from a more rational and planned approach to our national energy endowment and opportunities.

A Late Christmas Gift for Renewable Energy

The US Senate's "fiscal cliff" package wasn't exactly eight maids a-milking--the traditional gift for the eighth day of Christmas--though it did apparently resolve the impending "milk cliff".  Of greater relevance, the "tax extender" portion of the American Taxpayer Relief Act of 2012 passed by both the Senate and House of Representatives represented a gift to renewable energy producers and developers worth around $18 billion.  Two-thirds of that is attributable to the extension and modification of the Production Tax Credit (PTC) for wind and other renewable electricity projects. Renewable energy technologies have gained another year of generous support from US taxpayers.  What remains to be seen is whether this win represents a last hurrah for the current US approach to renewable energy subsidies as lawmakers focus on shrinking an increasingly unsustainable federal budget deficit.

Based on the analysis of the bill provided in the Wall St. Journal, other energy-related beneficiaries  included producers of cellulosic and algae-based biofuels, blenders of conventional biodiesel and other alternative fuels, purchasers of 2- and 3-wheeled electric vehicles, as well as various energy efficiency investments including efficient homes and appliances.  Renewables should also benefit from other provisions of the bill, including a one-year extension of 50% bonus depreciation on project investments and a two-year extension of the 20% R&D tax credit. 

Of course the problem with all of this is that it sets up additional cliffs at the end of 2013 and 2014, and thus perpetuates the expiration-anxiety roller-coaster that has confounded both manufacturers and investors in these technologies. Part of the blame for that rests with the process by which the Congress drafts and enacts such legislation.  However, it's also a function of the unwillingness of current beneficiaries to shift their lobbying efforts to support realistic and predictable phaseouts of these subsidies, in light of renewables' improving competitiveness with conventional energy and the magnitude of future US fiscal problems.  Considering that the current PTC for wind power is worth the equivalent of about 90% of today's futures price for natural gas, a proposal by the wind trade association for a six-year phaseout ending at 60% strikes me as too much like St. Augustine's plea for chastity.

The high-pressure negotiations to avert the fiscal cliff provided a poor venue for producing genuine tax reform, while giving supporters of the status quo a golden opportunity to attach measures such as these "extenders" that couldn't be amended before the expiration of the current Congress.  The non-partisan Congressional Budget Office estimated that this bill actually increased federal spending by a net $330 billion over 10 years and added nearly $4 trillion to the deficit, compared to going over the cliff.  It's not clear that the even higher-stakes debt-ceiling debate slated for early in the new Congress will be any more conducive to solving these challenges. But whether then or later in the session, it's going to become harder to avoid some form of tax reform and spending discipline that considers all energy subsidies in the context of their direct costs and indirect revenues. I'll be surprised if the current subsidies for renewables can escape again without major adjustments to reduce their high effective cost per unit of energy produced and increase their long-term bang for the buck. 

Does the Gas Tax Belong in the Fiscal Cliff Fix?

Recently I've seen several articles along the lines of this one from CNN, suggesting that an increase in the federal gasoline tax might be included in negotiations to avert the impending US "fiscal cliff".  While the gap between the gas tax, which was last raised in 1993, and highway repair costs grows each year, that's not just because past Congresses and administrations have been reluctant to hike it again.  As I've discussed in previous posts, gas tax revenue is declining for structural reasons related to curtailed driving, rising fuel economy and alternative fuel vehicles.  Simply adding another 10-15 ¢ per gallon to the current 18.4 ¢ tax wouldn't solve the long-term problem, although it would raise enough revenue to allow us to continue to ignore these growing challenges for a few years.  For that and other reasons, changing the gas tax deserves closer scrutiny than the waning hours of a preoccupied lame-duck Congress can provide.

Yesterday I attended another excellent event held by Resources for the Future in Washington, DC.  This one was devoted to "The Future of Fuel."  The panel discussion began with a presentation of the current energy forecast of the Energy Information Agency (EIA) highlighting the shifting energy mix the agency expects between now and 2035.  Although the slide deck didn't include the chart below, taken from EIA's 2012 Annual Energy Outlook, I couldn't help thinking of it in the context of both yesterday's meeting and the question of future fuel tax revenues. 

The EIA forecasts US gasoline demand to decline by about 8% from current levels by 2035 as cars meeting the new federal fuel economy standard enter the fleet, along with small but growing numbers of vehicles running on electricity and other non-petroleum fuels. An 8% drop in gasoline sales--and thus gas tax revenues--doesn't sound large until you realize that the current gas tax system was predicated on consistently rising gasoline sales as a means of expanding revenues. That's crucial, because highway construction and maintenance costs rise each year, too.  If gasoline sales were still growing at the 1% annual rate typical when the gas tax was last increased, gas tax revenues would be at least 37% higher by 2035 than the level the EIA would now project.

Stepping back from the details, the government faces a fundamental disconnect between its need to raise sufficient funds from the gas tax to cover the cost of maintaining the nation's road network and explicit federal policies aimed at reducing our consumption of the fuels being taxed.  Another one-time bump in the gas tax, whether of 5¢, 10¢ or 15¢ per gallon, will again be overtaken by the combined forces of inflation and declining volumes.  Fortunately, this problem is well-understood and a number of solutions are under consideration.  Inconveniently, many of them involve basic and controversial changes in how the road tax would be collected, such as shifting to a mileage-based tax assessed via annual inspections or real-time GPS monitoring. 

No one should expect or desire the 112th Congress to resolve these issues between now and the end of its term in January, particularly when the money at stake represents such a tiny fraction of either the fiscal cliff's package of tax increases and spending cuts or of the entire federal deficit.  I'm also not sure that reforming the gas tax belongs within the larger federal tax reform effort that should be undertaken next year, because the issues involved are so different from those associated with revamping the business, income, and payroll taxes.  Even a temporary fuel surtax would likely encounter strong opposition, due to its regressive nature and coincidence with gasoline prices that, despite recent declines, remain at or near seasonal record highs.  Unlike the rest of the fiscal cliff, this might just be one can that would benefit from being kicked down the road, at least past the current crisis.

Carmageddon, Hybrid Cars and Diamond Lanes

The looming "Carmageddon" in Los Angeles made the front page of today's Wall St. Journal, as residents there brace for the two-plus day closure of ten miles of the famed San Diego Freeway (I-405) this weekend. The disruption is apparently required to allow for some demolition necessary for the construction of new high-occupancy vehicle (HOV) lanes on the 405. As locals assess their alternate routes--there are many--they might also want to spend some time thinking about who will be allowed to drive in those new HOV lanes. California recently decided to deny ordinary (non-plug-in) hybrid cars that privilege, in preference to plug-ins and other alternatively fueled vehicles. The new policy and the one it replaces both reflect muddled thinking, but I would argue that abandoning hybrids at this juncture is a mistake, at least if saving gas is still a priority in the Golden State.

I routinely commuted on that stretch of the 405 between the Santa Monica Freeway (I-10) and the Ventura Freeway (US-101) when I lived on the West Side and worked in Mid-Wilshire and later in the San Fernando Valley. I carpooled for part of that time but for most of it, like most other Angelenos, I drove alone. I would have found the option of going solo in the HOV lanes a very appealing way to avoid the frequent stop-and-go traffic, and that's why offering that right to hybrid cars has been a useful non-cash incentive to boost their sales. State officials apparently concluded that normal hybrids are now commonplace, so the incentive should be shifted to the even more efficient cars now becoming available. They have emissions data on their side, because California's electricity mix is dominated by hydropower, nuclear and efficient gas turbines, plus a growing contribution of non-hydro renewables, though it also includes some imported coal-fired power from the Four Corners region. A plug-in should indeed emit less CO2 (directly and indirectly) than a Prius-type hybrid under those conditions.

What I think the state's regulators have missed, however, is that simpler hybrids, which currently enjoy no other incentives, still look like an equally effective way to save gasoline. That's particularly true if most buyers of plug-in cars are choosing them in preference to non-plug-in hybrids, rather than instead of gas-guzzling conventional cars. It comes down to the simple, but often counter-intuitive math of fuel economy the way we calculate it in the US, yielding diminishing gallon savings for increasing miles per gallon (see chart below.) Consider a 50 mpg hybrid that replaces a 25 mpg conventional car. Driven 12,000 miles per year, this choice saves 240 gallons per year. Trading in that hybrid for a plug-in like a Nissan Leaf only saves an additional 240 gallons per year, while a Chevy Volt would save somewhat less than that, unless it were never filled up.



Moreover, plug-ins didn't lack for incentives already. In addition to the federal tax credit of up to $7,500 per car, California offers its own rebate of up to $5,000 for qualifying plug-ins, which also receive discounted rates for electricity. Then there's the money the state is investing in recharging infrastructure. Whether or not the aggregate level of incentives is justified on grounds of economics, environmental and energy security benefits, throwing the HOV benefit on top of them seems like an unnecessary gilding of the lily. The 85,000 hybrids that were given the sticker allowing HOV access for solo drivers still represent a tiny fraction of the state's 39 million registered motor vehicles, and offering 40,000 new stickers for EVs won't make a noticeable dent in California's emissions, or its 40 million gallon-per-day gasoline consumption.

I don't know whether this weekend's Carmageddon will live up to its name, or like L.A.'s 1984 Summer Olympics result in lighter-than-normal traffic because motorists had enough notice to allow them to plan ahead. Yet it does seem that continuing to offer HOV access for non-plug-in hybrids would provide a meaningful incentive for a class of gas-saving vehicles that still represents only around 3% of US car sales, at no cash cost to the state. And if the state is truly concerned that a growing hybrid population could choke the HOV lanes and make them less useful for everyone, an even better option would be to auction the stickers, with only buyers of hybrids, plug-ins and other alternative fuel cars eligible to bid. The proceeds might be sufficient to relieve the state's battered budget of a large portion of the cost of the cash subsidies they're already paying on plug-in cars.

Fueling the Aerotropolis

Roger Cohen's column in Monday's New York Times sent my mind spinning with its portrayal of a global network of airport-based businesses and organizations that might have closer links to airports a country or continent away than with the traditional urban centers for which these facilities are often named. I'm embarrassed to admit that it was the first time I had run across the "Aerotropolis" concept, which has apparently been around since 2000. Its implications are thought-provoking, not least for their impact on energy and the environment.

The term aerotropolis was apparently coined by a professor at the University of North Carolina business school; it's also the title and subject of his new book. It evokes a retro-1920s science fiction vision of gleaming cities connected by flying cylinders, crossed with the gritty reality of the modern airport and its environs. I wasn't surprised to learn that a third of world trade-- though just 1% by weight--moves by air, but the idea of a hospital integrated into an airport in Hyderabad, India, or an entire city in South Korea growing up around the Incheon International Airport was new to me. The possibilities seem endless, though I can't think about them without also considering where the energy to facilitate the implied explosion of air travel and air freight will come from.

A few years ago, I would have said that air travel was even more closely linked to petroleum than are automobiles. That's not because alternative aviation fuels seemed impossible--quite the contrary--but because the aviation world has historically been understandably cautious and conservative about what goes into the engines that power aircraft. From a technical standpoint, jet turbines offer a great deal more fuel flexibility than the internal combustion engines under the hoods of most automobiles. However, while a fuel failure in your car is a major inconvenience, a fuel failure at 30,000 feet is catastrophic. In some respects the alacrity with which the aviation industry has begun to embrace alternative fuels is nearly as big a surprise as the shale gas revolution, and perhaps ultimately as transformative. Airlines and militaries have entered partnerships and set targets for integrating alternative jet fuel into their consumption, and supplies are gradually appearing.

Scale remains an issue. Kerosene-based jet fuel accounted for 7% of US petroleum consumption last year, down from nearly 8.5% a decade ago, as air carriers have transitioned to more efficient aircraft and higher load factors. That's still a big volume, though it turns out to be easier to make suitable kerosene substitutes from a variety of sources, including natural gas, coal and biomass, than to make comparable substitutes for gasoline. Nor does jet fuel produced from camelina seeds, algae, or the gasification and FT-synthesis of bulk biomass, natural gas or even animal fat entail the kind of performance penalties inherent in our primary gasoline alternative, ethanol. Delivering on this potential will require significant investment, but of a magnitude that seems much more achievable than what is required for many other renewable energy goals.

Another important aspect of scale concerns the logistics of gathering enough biomass to produce meaningful quantities of "biojet". The government of Ontario Province just awarded Rentech, Inc., a company with long expertise in gasification and fuel synthesis, a 1.3 million ton-per-year supply of forest waste and other biomass from Canada's Crown Forests, specifically for the production of renewable jet fuel. The proposed facility would produce around 22 million gallons per year of biojet, along with another 11 million gallons of non-jet products. That equates to roughly 1% of Canada's current jet fuel consumption. Canada might have enough forest biomass available to produce a sizable fraction of its jet fuel needs from such sources, but other countries don't, so it's fortunate that alternative jet fuel can be made through so many different pathways.

That's also fortunate for the aerotropolis concept, because without an incremental supply of non-petroleum jet fuel, meeting the energy needs inherent in this idea without dramatic increases in aviation's current approximately 3% share of global greenhouse gas emissions could become a major obstacle within just a few years. With sufficient supplies of renewable and gas-to-liquids jet fuel, the concept might even be able to withstand a peak in global oil output, even if the price of such alternatives seems likely to track that of oil-based jet fuel.

Twilight of the Ethanol Subsidy?

The current tax credit for blending grain ethanol into gasoline, the Volumetric Ethanol Excise Tax Credit (VEETC), has outlived its usefulness. That's not just because I consider it unwise to subsidize any industry to such a generous extent for more than thirty years, but also because the passage of the ambitious federal Renewable Fuels Standard in 2007 made it redundant. Refiners aren't just paid to blend ethanol into gasoline; they're required by law to do so. One of the trade associations for the ethanol industry reached a similar conclusion last year, though presumably for different reasons. Nevertheless, the politics of such a big change looked dire. Now it appears that the unthinkable might be happening with the introduction of two separate bills in the Senate, one of which would scale back the ethanol credit significantly, while the other would eliminate it outright.

The tougher of the two bills comes from a pair of Senators representing states that consume far more ethanol than they produce. In fact, I couldn't find a single ethanol plant in Oklahoma, which Senator Coburn (R) represents. Whether the Feinstein-Coburn bill stands a chance or not, I'm much more interested in the equally bi-partisan measure from two farm state senators, Kent Conrad (D-ND) and Charles Grassley (R-IA). As described in the press, it would reduce the VEETC from $0.45 per gallon this year to $0.20/gal. for 2012 and $0.15/gal. for 2013, after which it would fall to a level indexed to oil prices. At the current price of West Texas Intermediate, it would be zero.

Of course the context for the Conrad-Grassley bill is that without legislative action the current blenders credit is due to expire completely at the end of this year. However, we've been in this position before, more than once, and each time the tax credit was rolled over with a few minor tweaks, such as the cut from $0.51/gal. to $0.45/gal. in 2008. My default assumption has been for a similar rollover this year, but with support from the largest ethanol trade groups in the country, the provisions of the Conrad-Grassley Bill appear to have become the new default. The bill also extends some tax credits for cellulosic biofuel and alternative fuel refueling facilities, including E85, and reduces the ethanol import tariff modestly, starting in 2012.

Although outright termination of the corn ethanol tax credit would be justifiable, it would also be highly disruptive to an industry that we've encouraged for so long, and that has struggled with thin margins even with the tax credit in place. A phase-out seems reasonable and would at least save taxpayers up to $3.3 billion next year and more the following year, depending on how much ethanol is actually sold and how many retailers take advantage of the incentives for installing E85 facilities. There's an argument that this might result in higher prices at the pump, as refiners' blending costs rise, though any such impact is likely to be lost in the noise of normal fuel price volatility.

Winding down this subsidy in an orderly fashion is important, but it's even more important that we learn the lessons it teaches. The cultivation of corn and its conversion to ethyl alcohol are subject to natural limits of scale that are lower than those for wind and solar power or plug-in electric cars, all of which also benefit from generous subsidies. Our pockets simply aren't deep enough to repeat our experience with ethanol subsidies with these other energy alternatives. In an era of fiscal limits, alternative energy tax incentives that are orders of magnitude higher per BTU or kilowatt-hour than those enjoyed by conventional energy sources should only be offered for a limited time, and then phased out on a predictable schedule before they take on the mantle of permanent entitlements.

Storing Wind Power in Gasoline

I just read an intriguing article by the inventor of a scheme for using the energy in off-peak wind power to recycle waste CO2 into hydrocarbon fuels like gasoline or diesel. If it works, it would be a clever way to finesse the energy storage challenge that has hampered wider application of intermittent energy sources such as wind, and it appears to rely on largely proven chemistry and technology. Like so many other novel energy ideas I encounter, it almost sounds too good to be true. In this case determining whether it is or isn't depends less on the technology involved than on an assessment of the markets that the developer's company, Doty Energy, would have to tap for its inputs. In a nutshell, I question whether it's possible to base a new fuels industry on the assumption that off-peak wind power will always remain dirt cheap.

The basic opportunity on which Dr. Doty's "Windfuels" concept seeks to capitalize is that because wind turbines don't necessarily generate power when the grid needs it, and because it's currently expensive to store electricity unless you have a hydropower dam and the right topography handy, much of the off-peak wind power the grid can accept is sold for a song, while some is "curtailed", or rejected by the grid entirely. With a substantial supply of wind power costing just a penny per kilowatt-hour (kWh), it might be possible to convert that excess wind energy into chemicals, effectively storing it in the form of gasoline, diesel or jet fuel.

The process described on the company's website marries three distinct segments, including electrolytic generation of hydrogen--an off-the-shelf item--Fischer-Tropsch synthesis of hydrocarbons--proven in a variety of applications since before World War II--and the conversion of CO2 and hydrogen into synthesis gas using the reverse of the standard water-gas shift reaction that is in wide use in the chemical and refining industry. The company must prove that it can master the latter step and integrate these components successfully into a scheme that is ultimately driven by an intermittent and unreliable energy source, off-peak wind generation. The operational challenges that presents might be surmounted by means of pressurized hydrogen storage, as suggested in the flow diagram provided in a company presentation, but the economic obstacles involved seem less straightforward.

Assuming this process could be made to work effectively and efficiently, its inputs and intermediate steps raise questions about the cost and value of these streams. The biggest probably relates to the long-term availability of cheap off-peak wind power itself. Based on cumulative capacity and output, the average capacity factor of US wind generation in 2009 was around 27%. I don't know how much of that was off-peak, but it was probably less than half. While Doty Energy sees an opportunity to arbitrage between wind power at 1¢/kWh and gasoline that currently wholesales for an energy-equivalent price of 7¢/kWh, developers of electrical energy storage systems see an arbitrage opportunity between cheap off-peak power (from any source) and peak power markets in excess of 20¢/kWh, or occasionally much more. Even if Doty's process, which it claims is 50% efficient overall, worked as well as energy storage technologies such as compressed air energy storage (CAES), it seems likely that the future competition for that off-peak wind power from various applications would drive up its price. The economics of CAES might not be harmed much by having to buy off-peak power at 3¢/kWh, but that would be a deal-breaker for Windfuels, unless gasoline prices were much higher than today's.

Then there's the question of how to value that hydrogen, once you've made it. Even with plenty of 1¢ wind power to generate the H2, its value is what it could be sold for. The vast majority of hydrogen today is produced from natural gas, and it can be worth as much as $10/kg at a commercial hydrogen station. That's the energy equivalent of 30¢/kWh. If electrolysis of off-peak wind power is such a good source of hydrogen, why not just stop there and sell the hydrogen into its large existing commercial and industrial market, without having to build the rest of the conversion hardware for making hydrocarbons?

Perhaps my receptiveness to the Windfuels concept was affected by the inventor's arguments slamming practically all other energy alternatives besides his, including biofuels (conventional, cellulosic and algae-based), hydrogen, solar power (ground-based PV, solar thermal and space solar power), nuclear (fission and fusion), unconventional hydrocarbons and electric vehicles as impractical or uneconomic. I suppose that might be an effective way to drum up financing in some quarters. Yet while I've expressed skepticism or reservations about certain of these approaches myself, it seems absurd to set up an untried process as the only viable alternative to our current energy sources, particularly for transportation energy. The good news is that Doty Energy has the same opportunity to prove its concept in the marketplace of ideas and financing as the thousands of others that have emerged in the last few years. Making it through all those gates and hurdles will be the only test of the viability of Windfuels that really matters.

Ammonia As An Alternative Fuel?

In the last seven years I've written extensively about a wide variety of alternative fuels, including ethanol, methanol, and higher alcohols like butanol, along with compressed and liquefied natural gas (CNG and LNG), hydrogen, and electricity, but I find I haven't said anything about anhydrous ammonia. It turns out that there is a small but enthusiastic group of people promoting its use as an alternative fuel, going back to at least the 1940s. Much of the recent interest in this stems from the fact that ammonia releases little or no greenhouse gas when burned, and that it's possible to produce it by means that involve minimal GHG emissions throughout its lifecycle. However, when you dig into this a little deeper, you discover that almost all ammonia today is produced by the Haber process, using hydrogen sourced from natural gas. And if that weren't enough of a deterrent, the physical properties of ammonia render it an unattractive candidate for a mass-market fuel.

So-called "green ammonia" would avoid natural gas by substituting hydrogen from electrolysis using wind, solar or other renewable electricity. As long as natural gas remains abundant, it's hard to envision this growing beyond a small niche, because the price of ammonia will ultimately be set by the price of natural gas, which remains a cheaper source of hydrogen than electricity from any source, let alone from expensive renewable power sources. Moreover, electricity is fungible, and the best use of renewable or other low-emission power (e.g., nuclear) is probably in backing out power from higher-emitting sources, rather than diverting it into inefficient production of chemicals. As a result green ammonia, like green power, would require subsidies for at least the near-to-medium term if it is to compete with conventional ammonia, which seems like a crucial prerequisite for competing with conventional fuels. And without green ammonia, the whole rationale for an ammonia fuel-and-vehicle network looks questionable--why not just use the gas as CNG or LNG instead, with a fraction of the headaches?

Even if that weren't the case, ammonia faces serious obstacles as a consumer fuel, compared to either conventional fuels or to many other alternatives. Start with energy density, which is less than half that of gasoline by weight, and about 40% by volume. So a gallon of ammonia would only take you about 40% as far as a gallon of gas, even if you could burn pure ammonia in your engine--and from what I've read it still requires help from another fuel to sustain combustion. (That means two fuel tanks, which constitutes another major hurdle with consumers.)

Then there are the economics. Ammonia itself isn't exactly cheap, if you adjust for its energy content. The price of bulk ammonia for agricultural use appears to be around $550-$600/ton, which equates to $1.55-1.70/gal. But when you factor in its lower energy density, that raises it to at least $3.85/gal. of gasoline equivalent, without any fuel taxes. And while a distribution system exists to supply farms with ammonia, this is a long way from what would be required to fuel anything beyond farm vehicles. Because ammonia boils well below ambient temperature, it must either be refrigerated or stored under pressure, and dispensed through special equipment. And if all that weren't daunting enough for any service station owner considering adding an ammonia pump on the forecourt, the safety aspects of ammonia handling look even worse.

A glance at a typical material safety data sheet (MSDS) for anhydrous ammonia reveals that the recommended exposure limits are very low, under 50 parts per million in air, and the consequences of exposure include caustic burns and much more serious outcomes. Gasoline has its own issues, but spilling some on your hand won't send you to the hospital, and a larger spill or leak doesn't require first responders in hazmat suits. I simply can't imagine any fuel retailer wanting to take on the liabilities that would go along with this, even if there were an attractive margin in it, which there doesn't appear to be.

I concluded long ago that we're heading into a period of much greater fuel diversity, and that certainly seems to be true, with LNG catching on for big-rig trucks and CNG for a few cars but more fleet vehicles and buses, and even hydrogen appearing in a few places for fuel cell vehicles. However, it's very hard to imagine a substance with as many drawbacks as ammonia coming into wide use for consumers or even fleets. Our range of alternative fuel options seems sufficiently broad already, without having to consider a fuel that turns into a poison gas at atmospheric pressure and temperature.

Eating the Seed Corn

Some days it's hard to find a salient topic on which to blog. Today I'm spoiled for choice but wish I weren't, at least in the case of one of the three I considered. The full implications of the Deepwater Horizon disaster won't be known until rescue efforts end, the well is brought under control, and the resulting oil spill contained. That doesn't prevent speculation and knee-jerk responses, but I'll reserve my analysis until the facts are clearer. Meanwhile, the EU has been forced to release yet another study finding that many biofuels could be worse for the environment than the petroleum products they are intended to replace. I'll say more about the issues that raises, soon. For today, I want to focus on the challenge that Bill Gates highlighted in an op-ed published in today's Washington Post, concerning the need for significantly more energy R&D spending by the US government.

Since recently turning his attention to energy, Bill Gates has made some astute observations about it, while falling into few of the traps that await those attempting to transfer their high-tech experience to this much larger, more basic industry. Past remarks suggest he grasps the scale of the problem. His recommendation for more innovation and explanation for why energy R&D has been underfunded by the public and private sectors are apt, though I'm less sure that the R&D investment rates of firms whose business is selling technology provide quite the right basis of comparison for an industry that produces vast quantities of interchangeable commodities. Nevertheless, he's right that discovering and developing revolutionary energy technologies is beyond the scope of most companies that operate on a scale to be able to afford the sums required. Most R&D by major oil & gas or power generation companies is devoted to improving what they're already doing, for good reasons. Things that don't deliver prompt results inflate costs without providing immediately-offsetting benefits, making companies pursuing such efforts less competitive in the market and often less attractive to investors.

Government doesn't have these constraints, and historically it has been a relatively uncontroversial role of government, even in the US, to devote significant resources to long-term projects. (The old Bell Labs looks like an exception, until you consider that most of its truly ground-breaking work in basic science was undertaken when its corporate parent functioned as a tightly-regulated monopoly--effectively an extension of government.) Mr. Gates suggests that spending less than $3 billion per year on clean energy research is inadequate, and I must agree. However, Gates stops short of explaining that the federal government already spends much more than that on clean energy, but that most of it is focused on the deployment of current technologies. As of its most recent update, the US Treasury had issued more than $3 billion in Renewable Energy Grants to wind, solar, biomass and geothermal project developers under the stimulus, and this is just a fraction of what the government is now spending on direct and indirect subsidies, tax incentives, loans and loan guarantees to support the deployment of corn ethanol and advanced biofuels; wind turbines, solar panels and the factories to make them; factories to build electric vehicles and the advanced batteries to power them; as well as new nuclear power plants, to name a few.

The innovation imperative articulated by Bill Gates thus stands in tension with a range of policies focused on overcoming the market barriers that current alternative energy technologies face. For some of these technologies, the case for providing temporary subsidies to enable them to become sufficiently established to benefit from economies of scale and experience-curve effects is solid. The same can be said for assisting a new generation of nuclear power plants that are so expensive that no company can risk its entire future to build the first one. This logic is much less compelling for conventional biofuels that are still not competitive without subsidies that are now in their fourth decade, or federal loans to finance EV factories for companies that have made just a handful of hand-built cars in their entire existence.

Without a major new funding source dedicated to long-term federal energy R&D, and in an era of increasingly-unsustainable budget deficits, the choice between energy R&D and the deployment of existing energy technologies becomes a zero-sum game. Eating the seed corn in this manner is indefensible, particularly when we realize that deploying today's technologies is very unlikely to yield a technology breakthrough of the kind that real energy transformation will ultimately require. While hardly simple or easy, the remedy is relatively obvious. If we agree that we need more federal research on new energy technologies that could supplant conventional energy sources on the basis of superior performance, and not just lower emissions, then we must wean current alternative energy technologies off massive subsidies as quickly as possible--in a few years at most, except for those that have been feeding at the federal trough for decades. Those should begin to be phased out at once. And if we agree that climate change is a serious risk that we must address urgently, then putting a price on the emissions contributing to it would ensure that the companies making and installing today's wind turbines, solar panels, and other technologies would have a decent chance of surviving the elimination of the direct subsidies upon which they depend, but that will eventually squeeze out R&D spending.

Super Bowl Diesel

In addition to a pair of well-matched teams and a sufficient dose of fourth-quarter suspense concerning the outcome, yesterday's Super Bowl was the first in several years to feature an ad meriting comment in an energy blog. The subject of the ad was the new Audi A3 TDI clean diesel car, which was recently named "Green Car of the Year" for 2010. I was intrigued by the ad's tagline of "Green has never felt so right", positioning the car as painlessly green. Having had the opportunity to drive one at the recent Washington Auto Show, I can attest that the A3's environmental credentials come wrapped in a very attractive package, requiring no sacrifice other than the sticker price. Even if the comparison to a variety of intrusive green practices lampooned in reductio ad absurdem fashion may have annoyed some observers, the positive side of the message seemed smart and timely: Diesel cars are available now in appealing models delivering greatly-reduced fuel consumption and emissions, but without requiring major behavioral changes on the part of their owners.

Audi's "Green Police" ad, with a musical riff on Cheap Trick's classically-catchy "Dream Police" tune, was a marked contrast to the 2006 Super Bowl ads for Ford's Escape Hybrid and Toyota's Prius Hybrid, both of which appealed to green values of ecological and inter-generational responsibility. By contrast the A3 ad was consistent with the sharper edge of many others in yesterday's broadcast, which included several ads that pushed the boundaries of good taste. But while the New York Times found it "misguided"--heaven forbid that anyone poke fun at meticulously separating our recyclables and choosing the socially-correct shopping bags and energy-saving light bulbs--the ad showed up in at least one top-10 list and topped the voting on the Wall St. Journal's website as of this morning. Without digging a lot deeper, though, I can't tell if that's because it reached its intended audience with its messages that diesels are back, are much more refined than the soot-spewing diesels of the 1970s, and can now actually be considered green. Perhaps many viewers just thought it was clever, or resonated with its critique of some of the lifestyle changes we've been asked to make for the sake of the environment.

In any case, it's interesting to note that the US market share for light-duty diesel cars has been creeping up gradually, apparently matching or exceeding that of hybrids last year. The folks from Bosch, which supplies much of the high-tech gear for the advanced diesel engines under the hood of the Audi A3 TDI, VW Jetta diesel, and other, mostly European-based diesel models that have appeared in the US--including the awesomely-powerful BMW 335d that I also drove at the car show courtesy of Bosch--mentioned figures indicating that the new diesels beat most hybrids on lifecycle ownership costs, mainly due to higher resale value. (Diesel engines are usually good for hundreds of thousands of miles of use, and they don't require expensive battery pack replacement.) Their most obvious selling point is still fuel economy, with the A3 TDI rated at 30 mpg city/42 mpg highway.

That translates into significantly higher miles per dollar, even with diesel fuel selling for modestly more than regular gasoline. It's worth noting that the current diesel premium over unleaded regular of about $0.13 per gallon works out to about 5%, which is much less than the typical 30% fuel economy benefit for diesel relative to the comparable gasoline-powered model. That differential averaged $0.12/gal. for 2009, a far cry from the $0.57/gal. premium in 2008, when the tail end of the economic bubble pushed diesel up against its supply limits here and globally. However, even when the recovery picks up, we're unlikely to see that differential widen to anything like its former level, because the overhang in global refinery capacity has grown so large, and many of the new refineries and refinery expansions coming onstream, including the one at Marathon's Garyville, Louisiana plant, are focused on maximizing diesel production.

At a time when hybrids are still experiencing growing pains, and the market penetration of battery electric cars (EVs) and alternative fuels like E85 depends to a large extent on nearly non-existent infrastructure for recharging or refueling, diesel has a window of opportunity combining new technology with nearly-ubiquitous infrastructure. That same opportunity led to sales of diesel cars in Europe exceeding those of gasoline cars, until a presumably-temporary dip last year. It remains to be seen whether the same phenomenon will happen here, or if consumers will be content to stick with gasoline or jump directly to electricity. I also remain perplexed that neither Ford nor GM has brought any of its successful European diesel passenger car models to the US as a quick and cost-effective way to comply with the new fuel economy rules.

To Bury CO2 or Recycle It

While not the most powerful of the greenhouse gases produced by humanity, CO2 is certainly the most prevalent, if you don't count water vapor. To a very large extent, addressing climate change depends on three main strategies for dealing with the excess CO2 our activities emit: avoiding its creation by switching to other energy sources, such as renewables or nuclear power; capturing and storing it in trees, other vegetation or underground; and recycling it into useful fuels and products. Most of the work to date on the third option has focused on biofuels, which employ photosynthesis to convert CO2 into vegetable oils or fermentable sugars. However, another strategy now attracting interest involves non-photosynthetic pathways for turning CO2 back into hydrocarbons. If practical, this approach has much to recommend it, though the laws of Thermodynamics suggest it will always require more energy than the resulting fuels can deliver when used. A recent conversation with the CEO and CTO of Carbon Sciences, Inc., a start-up pursuing CO2-to-fuel technology, shed some interesting light on the subject.

The magnitude of global emissions of CO2 makes managing them a daunting prospect. Carbon Capture and Sequestration (CCS), which creates an artificial carbon cycle, has garnered much political and financial support in the last year, though it is still in the development stage and faces significant hurdles. CO2-to-fuel conversion offers another interesting option, because it could either work in parallel to CCS to enhance the reduction of emissions from fossil-fuel power plants and other stationary sources, or in competition with sequestration as an outlet for the captured CO2 from such facilities. If the resulting synthetic fuel displaced a like quantity of petroleum, natural gas or coal, the effect on the atmosphere would be largely equivalent to CCS and likely better than conventional biofuels, which appear to result in substantial non-combustion releases of CO2 and other GHGs. Fuels produced from recycled CO2 could finesse many of the NUMBY concerns about CCS while beating corn ethanol and some biodiesel on overall "green-ness" and compatibility with existing fuel infrastructure and transportation fleets. So why aren't we already doing this?

The answer is simple. When we burn the carbon compounds found in fossil fuels, they produce CO2 and a specific quantity of energy that is unique for each molecule. Turning CO2 back into the original fuel compound requires the input of that same amount of energy--that's from the First Law of Thermodynamics--and in practice a bit more, thanks to the Second Law. Chemists have known for a long time that CO2 could be converted into fuel and chemicals, but outside the laboratory this wasn't regarded as useful, because it inherently consumed more energy than it could return. Biofuels get caught up in this same conundrum, though in their case much of the energy required is supplied by the sun, rather than from other fuels and energy inputs we must produce. So I was quite intrigued when I received an email inviting a conversation with the CEO of Carbon Sciences, the start-up I mentioned earlier, which claims to have solved this problem using "biocatalysts", nanotechnology, and a unique multi-step process.

The company's website includes animation showing how this would work, though from my perspective it omits the key factor: where does the energy come from to drive the process? Catalysts and enzymes can reduce the threshold for the reaction to take place and improve its speed--the reaction kinetics, in engineering terms--so that what would otherwise take nature years or millennia to produce can be accomplished in a commercially-practical interval. However, catalysts can't alter the basic energy requirement of the reaction. What is the source of that energy?

My discussion with Carbon Sciences' CEO Byron Elton and Chief Technology Officer Naveed Aslam, Ph.D. assuaged my immediate concern that this was yet another perpetual motion machine dressed up with technical jargon and fancy graphics. They struck me as pragmatic and realistic about the challenges they face, though with the customary optimism required for entrepreneurial risk-taking. Dr. Aslam clarified that their process for converting CO2 to methanol for later conversion into hydrocarbons or petrochemicals involves a hydrogen-and-energy carrier molecule that must be regenerated from a "sacrificial substrate." That substrate effectively provides the energy required for uplifting the CO2, which is at a very low energy state, and acts as the fuel source for the whole sequence. The value of the entire CO2-to-fuel process in energy, economic and emissions terms thus hinges on the characteristics, cost and supply potential of this energy-donating material.

The process developed by Carbon Sciences can apparently use a variety of substances for this purpose, which is fortunate. Initial laboratory tests apparently involved glucose, a commercially-available sugar, but the company is now using another, undisclosed feedstock because of their concerns that glucose supplies couldn't keep up with a large-scale CO2-to-fuel industry without affecting food prices. Dr. Aslam indicated that in the long run they would likely use a mineral-based compound that was widely available. Without knowing the specific chemical involved, it's impossible to assess the overall energy balance, lifecycle emissions, or usefulness of the process, but I at least came away with a sense that Mr. Elton and Dr. Aslam understand the constraints involved very well.

And while the global supply of CO2 certainly looks large enough, it has to be provided in the right form: highly concentrated and free of contaminants that could degrade their catalyst or retard the reaction rate. That is a very different requirement from biofuels that extract their CO2 from the air, and it would put CO2-to-fuel in direct competition with carbon sequestration and enhanced oil recovery, which also effectively produces incremental fuel from CO2. It's not obvious to me which technology will advance the fastest, offer the largest overall CO2 reduction, or the most attractive economics. Markets are usually the best way to sort that out, if given the right signals.

Nor are Carbon Sciences the only ones working on this problem. A team at Sandia Laboratory has been developing a "Sunshine to Petrol" system using CO2 and concentrated sunlight, while the new Advanced Research Projects Agency-Energy (ARPA-e) is looking into a variety of novel ways to convert CO2 into fuel without photosynthesis.

It's important to note that Carbon Sciences' conversion technology is still at an early phase of development--lab-scale, rather than demonstration-scale. "Milliliters per day" won't solve our energy or emissions problems, but if this can be scaled up to many thousands of barrels per day with a cheap and readily-available source of chemical energy and a suitable supply of CO2, it has the potential to deliver fuels that are 100% compatible with our current infrastructure and vehicle fleets. That's a big advantage, and it would certainly explain the interest that Carbon Sciences has apparently been getting from large energy firms. I was told that Carbon Sciences hopes to develop a commercially-attractive package by the third quarter of 2010 and are exploring a "strategic partnership" to take the process--and the company--to the next phase. They have also applied for DOE technology funding under the category of "Innovative Concepts for Beneficial Uses of CO2". I will be watching their progress with great interest.

Since I don't expect to post again until next week, I'd like to wish my readers a Merry Christmas and happy Boxing Day.

I also have a housekeeping matter to bring to your attention. Haloscan, the comment system I have used since 2004, is being discontinued. I must decide by Monday whether to switch to Haloscan's successor, Echo, use Blogger's comment feature, or find another comment platform. Although I will do my best to ensure the migration of the many thousands of comments you've left here, I can't guarantee it. If there are any you'd like to refer to again, I encourage you to copy them to another medium.

The Water Behind Ethanol

US ethanol producers didn't need more bad news. Despite federal and state blending subsidies and a steadily increasing federal mandate for the use of their product, the US ethanol industry has been suffering badly from low margins in the wake of last year's oil-price collapse. A number of companies, large and small, have been forced to seek Chapter 11 bankruptcy protection. The bankrupt VeraSun, a former industry leader, recently sold seven of its plants to independent oil refiner Valero, and several others to its creditors. But while last year's "food vs. fuel" controversy has largely died down, thanks to lower corn prices, a new study from the University of Minnesota suggests that some ethanol production uses even more water than previously estimated--as much as 2,000 gallons of it for every gallon of ethanol produced in states where crops must be irrigated. This finding further undermines the environmental benefits of a fuel that saves significant amounts of oil but requires large inputs of natural gas and other fossil fuels, and thus offers only modest greenhouse gas improvements over gasoline.

As with its other environmental liabilities, most of ethanol's water impact occurs upstream of the ethanol plant. Process water for slurrying corn and boiling, fermenting and distilling fuel ethanol only accounted for 3% of the total water consumption analyzed by Chiu, Walseth and Suh in their paper, "Water Embodied in Bioethanol in the United States". They also reported a remarkably wide range for the ratio of total water consumption (irrigation and process) per unit of produced ethanol by state: under 10:1 in Iowa, Kentucky and Ohio, and over 1000:1 in California, Colorado, New Mexico and Wyoming. Fortunately the latter states contributed just 3% of the 2007 ethanol production tallied in the study, resulting in a national average of 142 gallons of water per gallon of ethanol. However, two significant ethanol-producing states, Kansas and Nebraska, accounted for 14% of ethanol production but more than half of all US water consumed for ethanol, with ratios above 500:1. A useful chart in MIT's Technology Review illustrates these variations from state to state.

These findings add to an already daunting list of concerns about the long-term sustainability of an alternative energy policy that has so far relied mainly on biofuel produced from a food crop requiring extremely high inputs of water and natural-gas-derived fertilizer. The water dependency of corn ethanol looks even more unsustainable under various scenarios of climate change, which ironically this fuel is intended to help mitigate. Simply put, if water in the West and Southwest is likely to be in even tighter supply in the future, the last thing we should be doing with it is to divert it to the production of such a water-intensive oil substitute. The urgency of converting biofuel production to cellulosic feedstocks requiring little or no irrigation is high, at least for those states with water:ethanol ratios above the national average, but unfortunately urgency and bigger research budgets don't guarantee making today's demonstration-scale cellulosic ethanol technologies economical at larger scales. Breakthroughs don't arrive on demand.

The results of Chiu, Walseth and Suh provide further support for a thorough reevaluation of US biofuel policies. Rather than trying to squeeze ever more ethanol into gasoline, with uncertain consequences for motorists, and stretching our agricultural resources by expanding unsustainable crop-based biofuels of questionable value for reducing greenhouse gas emissions, the administration should ask the Congress for authority to freeze the conventional ethanol portion of the Renewable Fuel Standard at its current level of 10.5 billion gallons for 2009. That still represents a 9% increase over 2008's consumption of 9.6 billion gallons, which took well over a trillion gallons of water to produce. Further increases should await either economic cellulose-based biofuel, or the imposition of prudent standards limiting the embodied water and fossil-energy content of this fuel. That won't help today's overbuilt ethanol industry, but it would ensure that its survivors enjoy a more viable, sustainable future.

Tempering Optimism with Patience

We've all heard the President-elect mention the need for patience in confronting our economic problems, echoed by countless commentators elaborating on the scale of the challenge involved. If I could offer him one piece of advice on Inauguration Day, it would be to ask the American public for the same degree of patience in transforming our energy economy. It took a century to evolve into its present shape, and its major hardware has lifetimes ranging from ten to sixty years. Despite the great progress and truly impressive growth of alternative energy over the last few years, displacing our reliance on conventional energy is not the task of a few months or years, no matter how much of the planned stimulus package is ultimately devoted to making a down payment on this transformation.

Along with that advice, I would point out two related facts to our new President. First, while doubling our renewable energy production in three years is an appropriately bold initial goal, it would be next to impossible if it included the hydropower dams that make up the largest current component of our renewable energy supplies. Wind and solar power have been growing at rates that should make it quite feasible to deliver a further doubling of their output in three years, if the new administration can find smart ways to restore the flow of financing that is so crucial for these projects. Yet wind, solar and geothermal power still accounted for less than 1.5% of the electricity generated in the US for the first nine months of 2008, while hydro provided 6.7%. Since I don't hear anyone calling for a slew of big, new hydroelectric dams--the trend seems rather in the opposite direction--we would need to double wind, solar and geothermal roughly five successive times to equal the 1.5 trillion kilowatt-hours of electricity generated from coal in the same period. Efficiency and conservation might conceivably reduce the required number of doublings to four; however, each doubling will get progressively harder, as wind and solar grow out of the niches within which their cyclical and intermittent output has been relatively manageable.

The other fact concerns oil and the fuels we derive from it. President Obama might consider asking Dr. Chu a few questions on the subject of why hydrocarbon fuels have been so successful for the last hundred years. The answers have at least as much to do with chemistry and physics as they do with economics and domestic and geopolitics. Each gallon of gasoline delivers 115,000 BTUs, the equivalent of 33.7 kWh. It takes 1.5 gallons of ethanol or roughly 740 pounds of lithium ion batteries to deliver the same amount of energy to a car. The only reason it is even possible to conceive of an electric vehicle with comparable range to a gasoline-powered car is that current internal combustion engines waste about 80% of the energy in gasoline, while electric motors are more than 90% efficient. Petroleum products constitute a remarkable energy source and storage system, albeit a finite one, and replacing both attributes of oil at once will be exceedingly difficult. If we weren't so concerned about the energy security and environmental consequences of their use, it would be hard to justify such an uphill battle at all.

Attaining our energy goals will require healthy doses of both optimism and patience: optimism to remind us that none of the obstacles along the way looks insurmountable in the long run, and patience because those obstacles will not be conquered in four years or likely even eight. I still subscribe to the old notion that "a goal without a plan is just a wish." We need tangible plans to manage the transition from the old energy to the new, and to manage our expectations along the way. That's the best recipe I can offer for avoiding disappointing voters and consumers, when the promised energy transformation isn't complete by the end of President Obama's first term in office.

When Is Cheaper Oil Bad?

Talk about a reversal of fortunes. A mere two months since oil was flirting with $150 per barrel, OPEC is considering production cuts to defend a $100 price floor and reputable journals are suggesting that $80 could soon be in sight. Whether this is interpreted as the popping of a speculative commodities bubble or the market's rational response to slowing demand from a weakening global economy, cheaper oil would present policy makers with a dilemma. In particular, it could force some of them to consider unpopular steps to rein in demand, since the market may stop doing that for them.

Cheap is in the eye of the beholder. Not many years ago, forecasts of $80/bbl oil seemed unrealistically high, and $100 belonged in the realm of fantasy. The inflation-adjusted high from the last energy crisis equates to around $94/bbl in 2008 dollars, so until oil finally crossed the $100 mark, we could comfort ourselves with comparisons suggesting that our problems hadn't yet attained the same scale as in the 1970s and '80s. When crude oil approached $120 in April, the average US gasoline pump price hit $3.50/gallon, and US demand began to drop with a vengeance, compared to the prior year. The shock waves from $4 gasoline in June and July are still reverberating. Yet if crude continued its slide and ended up near $80, and refining margins remained as weak as they have been, we would shortly see pump prices beginning with a "2", again.

The benefits for the US economy would be substantial. At $80/bbl, our national oil import bill would be more than $150 billion per year lower than with $120 oil. Gasoline at $2.75/gal., instead of $3.75, represents a $140 billion boost for consumers, larger than the proposed second stimulus package. Lower prices, however, would also inevitably lead to higher demand. That might begin to strengthen oil prices again, creating something of a roller-coaster effect. More importantly for those concerned about climate change, it might reduce the urgency of the switch to more fuel-efficient vehicles, putting a greater burden on other planned policies to manage US greenhouse gas emissions.

Some of the other implications of a respite from high oil prices look helpful and less politically stressful. US carmakers need a couple of years to retool to produce more efficient cars here, similar to the ones they already make in Europe. As long as the oil-price decline was broadly viewed as temporary, resulting from factors likely to reverse again, once the global economy resumed strong growth, they wouldn't be tempted to ease up on their efforts. And they must still meet a 35 mile-per-gallon fleet-average fuel economy standard within a few years. The same logic would probably hold for airlines that need time--and profits--to bring more fuel-efficient planes into their fleets and reconfigure their route systems.

Nor would lower oil prices necessarily be bad for the alternative energy sector. Ethanol makers are expanding production to fill a federal mandate, and their sales to refiners and gasoline blenders wouldn't be hurt much if ethanol reverted to costing more than wholesale unleaded gasoline. And renewable electricity technologies such as wind or solar power should be largely unaffected, since their output doesn't compete with oil, and their funding doesn't derive from it--yet.

On balance, then, the negatives of falling oil prices might be felt most severely by two groups with as little in common as one could possibly imagine: oil companies and politicians. As long as oil prices were going up, Senators, Representatives and presidential candidates could support measures to reduce greenhouse gas emissions, while simultaneously arguing that fuel prices were too high. Now, if oil prices keep dropping, the disconnect between lower fuel prices and lower emissions will become more evident. Environmental groups would push harder for Congress to enact measures to control CO2, such as cap & trade or a carbon tax, either of which would translate into higher prices at the gas pump. That would confront our leaders with the stark choice between publicly supporting steps that would certainly raise gasoline prices, or setting aside concerns about climate change in the interests of helping a weak US economy. I take no delight in that prospect.