Oil and gasoline prices, low since 2008, are projected to rise again, rapidly returning our oil addiction to the national spotlight. Analysts say that oil prices are heading toward $100 a barrel, and former Shell Oil chief Carl Larry warns that we could see $5 a gallon gas by 2012. Inevitably, the price increases will inspire calls to reduce our dependence on oil, and Congress will consider some legislation to do just that. But as we try to make progress on oil alternatives, we need to bear in mind the lessons of low gas prices. Otherwise, we are doomed to repeat the same debilitating cycle of energy politics we've been trapped in for years.
Here's how that cycle goes: High oil prices make energy alternatives a top political priority, as they did before the 2008 price drop, but the urgency is suddenly forgotten when these prices collapse. That's not just short-sighted -- it's bad policy. Unless we can finally extend our national attention span beyond the latest price rise, the inevitable 2011 push for alternative energy isn't going to be any more fruitful than the last few times we tried.
Anyone who was buying gas in the early 1980s will recall when surging oil prices (reaching, in April 1980, a high of $103/barrel in today's dollars) prompted a variety of reforms, including President Carter's establishment of the Synthetic Fuels Corporation. But oil prices tumbled in the mid-1980s, national attention on energy issues dissipated, and President Reagan canceled the synthetic fuels program. In the early and mid 2000s, sustained price increases, hitting $145 a barrel in 2008, revitalized interest in how to promote alternatives to oil. But when the U.S. financial crisis pushed down oil prices in 2008, alleviating our oil dependence once again became a lower priority.
"Energy policy traditionally tends to be, particularly when it comes to liquid fuels, something we do when prices are high," Roger Ballentine, the president of the consulting firm Green Strategies, Inc., told me. "When prices are high, that provides an immediate political feedback that provides political cover for taking steps to address the issue."
Fears over climate change have gotten energy issues some political attention during the last few years, but it's been the wrong kind of attention to specifically address oil dependence, which is a liquid fuels problem. Both parties have confused this point, with Democrats suggesting that solar and wind power can reduce oil dependence, while Republicans point to nuclear power as an oil alternative. But U.S. oil dependence is not about the country's power grid; it's about the transportation sector. As Ken Silverstein, the editor-in-chief of EnergyBiz Insider, noted: "Oil, in this country, now comprises 2 percent of total electric generation. But it still provides 96 percent of the fuel in the transportation sector." Most electricity generation comes from a combination of coal, natural gas, nuclear, and renewable sources--not from oil. Until there is widespread electrification of the transportation sector, solar, wind, hydro or nuclear power cannot alleviate the U.S.'s oil dependence.
There are three kinds of problems with U.S. oil dependence: environmental (particularly climate change), economic, and national security. But the solutions to these three problems are sometimes at odds. Since the drop in oil prices, much of the political focus on energy policy has been on (unsuccessfully) trying to pass a bill to address climate change. While addressing climate change is one of the key challenges that will define our generation, a climate bill would have had little to no immediate impact on the national security problems related to oil dependence, and was in fact projected to incur measurable economic costs.
The past two years have seen some policy advances, but Congress' two major efforts will have a rather limited (albeit positive) immediate impact on oil dependence. First, it passed policies designed to promote auto efficiency. Ambitious new Corporate Average Fuel Economy (CAFE) standards, which mandate fuel economy increases of a third by 2016 and 40 percent by 2020, are the centerpiece of these efforts. "The time period since 2008 hasn't been a complete missed opportunity in that two years ago there was still enough momentum to move forward on efficiency gains," Susan Tierney, managing principal at the consulting firm Analysis Group, told me. "Because of CAFE standards, I think this period is a really mixed bag."
The second set of policies is designed to electrify the transportation sector. That includes plug-in hybrid electric vehicles (PHEVs), which can literally be plugged into the power grid and run off electricity for miles before burning a drop of petroleum. The administration's stimulus bill included $400 million for electrifying transportation, and the White House separately announced $2.4 billion in grants toward the manufacturing and deployment of next-generation batteries and electric vehicles.
However, some analysts warn that electrification of the transportation sector will be slow, and thus the impact on oil dependence limited, especially in the near-term. "Everybody imagines that in five years you'll see electric vehicles driving all over the place. The fact is that it will take longer than they think," David Victor, a professor at the University of California San Diego's School of International Relations and Pacific Studies, told me. Kateri Callahan, the president of the Alliance to Save Energy, shared his skepticism. "The battery is expensive," she told me, "and it doesn't deliver what you'd get from liquid fuels in terms of range. In order for an expensive item to displace an existing product, it has to offer more for the consumer." It is not clear that electric vehicles do so.
But the government has missed some big opportunities, particularly when it comes to drop-in alternatives to oil, such as biofuels. Biofuels have been held back by a "chicken-and-egg" dilemma. That is, the market for biofuels is too small because so few people have flex-fuel cars, which means that filling stations have little incentive to carry biofuels, which in turn discourages people from buying flex-fuel cars.
In 2008, a potential solution to this problem won widespread support among politicians in both parties: the Open Fuel Standard Act. The bill would have required that at least 50 percent of each light-duty automobile manufacturer's annual inventory be "fuel-choice enabling" (that is, either flex-fuel vehicles or cars capable of operating on biodiesel) by 2012, and that at least 80 percent of these inventories be fuel-choice enabling by 2015. In other words, it would have forced automakers to give new car owners the ability to fill their tanks with alternative fuels if they chose. This probably would have driven up biofuel consumption, and may have helped next-generation biofuel projects to look more attractive to investors.
Many analysts view the Open Fuel Standard Act as an important step because it challenges the monopoly that oil enjoys over the transportation sector by paving the way for biofuels to compete at the pump. Gal Luft, executive director for the Institute for the Analysis of Global Security, said, "The most important thing is to stop this horrible folly of putting out cars that can run on nothing but oil. Everybody talks about the oil problem, but meanwhile you're committing yourself to it by ensuring that the transportation sector can run on nothing else."
Ultimately, energy policy has not been through a completely lost period since the drop in oil prices in 2008. But there have been notable failures, and we could have accomplished more. As prices rise, energy will again return to the top of the political agenda. And as it does, there will be renewed calls for more aggressive policies to promote oil alternatives. If we are to see those efforts through, Congress needs to remember that the battle for real energy security is going to take longer than the next two or three year price surge.
Images: 1. David McNew/Getty Images; 2. Exhibit at the First Symposium on Low Pollution Power Systems Development, the U.S. National Archives.
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