9/29/08 Blueprint for War on Our Energy Dependencies

By Peter Forman
Published: September 29, 2008
New York—In war, if you fight it well, you throw everything you've got against the enemy. 

You create a comprehensive battle plan, with tough choices, some sacrifices, and backup plans in case "Plan A" falls through.

In the war on our energy dependencies, we are not only failing to fight with all we've got, we are failing to do ANYTHING —except fund the enemy.
 
Our leaders continue to propose solutions that are partial, short-sighted, or ineffective.
In other News Analyses, we have covered some solutions that are not complete solutions — drilling, natural gas, and nuclear energy. While we have no problem with these, per se, they (unfortunately) are not solutions. 

For the war on energy dependencies to be successful, it must be grounded in these strategies:

1) Plans should be based on the reasonable and likely expected behaviors of consumers and businesses.  To expect most to act in other than their short-term self-interest is to ignore reality.

 

2) Any "solutions" that simply defer our day of reckoning and/or perpetuate our long-term oil dependencies are tolerable only so long as they are PART OF LONG-TERM "DEMAND DESTRUCTION."

a. (Demand destruction means what it sounds like, the elimination of the demand for oil or, as we like to call it, the path to "move beyond oil.")

 

3) Solutions should be as free-market as is reasonably possible.  Governments are not good at picking technology lanes.  Let the free market bear the risk of failure and reap the benefits (along with us) of market success.

a. In other words, don't risk my tax dollars.

b. Through tax and energy policies, create a business environment that encourages businesses to invest and risk.

 

4) Be politically realistic.  An ideal plan that cannot be passed legislatively is worse than a compromise that is passed into law.

 

5) Believe in the power of competition.  Use the media industry as an example.  One can get news from radio, TV, Internet, newspapers, magazines, etc...  These media duke it out, at their own risk, to our societal benefit. Analogously, we need a diverse energy infrastructure where there is more than one source of fuel for the transportation sector — one in which the cartels of the world do not manipulate your wallet and your security.

 

Ok, so what are the details of a legislative plan that gets us there? 

 

A) Encourage adoption of low/no-emission vehicles

a. Incent consumers to purchase and manufacturers to produce low/no emission cars and light trucks. The technologies are evolving, but if the suppliers have confidence on the demand side of the equation, they will invest heavily to win market share.

b. Be technology agnostic.  Electric, Flex-fuels, Hydrogen, Compressed air, or other new and undiscovered technologies — let the marketplace decide.

c. $5000-$7500 consumer tax credit to purchase low/no-emission vehicles of any type

           i. As already proposed by some of our leaders, this is a part of "creating demand" for the new technologies.  We don't like tax incentives as a rule of thumb, but sometimes in war, you need to invest in transformative technologies.

           ii. While these evolving technologies (like the coming electric cars) may not be right for everyone, there are clearly subsets of the driving population for whom they would work.  As an example, a two-car family could have one traditional car for long trips and one electric car for the spouse that travels 50 miles a day roundtrip to an office.

           iii. Create incentives for private fleets and mandates for government fleets to move to these new low/no emission vehicles.

 

B) Introduce Fuel Competition

a. Fact: You can power your car today in any way you wish — so long as it is with gasoline.

b. Flex Fuel Vehicles (FFVs) can run on any combination of alcohol, butanol, methanol, and gasoline, creating diversity of fueling options.  It would cost about $100 to modify new cars (at the factory) to be Flex-Fuel.  Small investment; big yield.  (For those concerned about the effects on food prices, which we do not concur with, please see this News Analysis.)

c. The proposed Open Fuel Standards Act would require that car manufacturers, over time, make 80% of new vehicles flex-fuel compatible. Support it!

d. Provide 50% investment tax credit for existing gas stations to install flex fuel pumps and mandate the pumps in new stations.

e. Flex fuel vehicles have a chicken and egg problem — consumers won't demand FFVs if there are no pumps with alternative fuels, and gas stations won't install pumps if there is no demand.  While the Open Fuel Standards Act would help on the demand side, this tax credit/mandate would further encourage stations to make the transition sooner.

f. Eliminate $0.54/gallon tariff on imported ethanol

           i. There is no tax on imported oil.  We should level the playing field and give the global biofuels market an equal opportunity.

           ii. Let's pay the farmers in impoverished countries for fuel they grow, rather than paying them not to grow poppy and other undesirable plants.

 
C) Start Reforming Electricity Generation

a. Although oil fuels only 2% of the electrical grid, in the long run electricity generation will be a concern if we move to electric cars.  But in the near term we won't need new power plants until about 75% of existing cars are replaced with electric vehicles as most recharging occurs off-peak when the power plants are under-utilized.

b. The following is a compromise that we should be willing to back to achieve bi-partisan support: Incentives for power generators (e.g., ConEd and Keyspan/National Grid) to produce electricity using ABDFF (Anything But Dirty Fossil Fuels)

           i. ABDFF encompasses wind, solar, hydro, tidal, methanol, ethanol, clean-coal, waste-conversion, nuclear (for those who wish it), and others unknown and to be discovered.

           ii. Allow different fuels for different communities -- let each choose its own.  What works for me may not work for you.

           iii. This is a bi-partisan approach that is clean, secure, and economical.  It is also free-market enhancing (the entry to the grid already comprises competitive fuel sources).

 
D) Other

a. Increased domestic drilling is not a primary solution.  It perpetuates the dependence, and likely will have very little effect on gas prices or the fight for energy independence (see News Analysis on drilling).  However, when the above long-term legislation is passed, drilling should be pursued as the backup plan in case "Plan A" fails or falls behind.

b. Conservation.  We should encourage tactics that reduce our consumption. But we can only conserve up to a point.  And there are fewer and fewer savings to be had.

 
Summary
America is like a business that needs to invest in a company-wide capital project.
But no one department or group can afford to do so on behalf of the whole company.
It takes leadership from the top to make the investment that has a positive return-on-investment.  Changing America's energy infrastructure will pay for itself by keeping petrodollars in the U.S., creating new industries, driving employment, reducing the demands on us in the Middle East, weakening those hostile to us, strengthening the currency, and so forth.  It IS an investment.
Failure to act is to watch our future decline.
IF we act now, we have the promise of a stronger America, a wealthier America, a cleaner world, and an opportunity to continue to project the values that we hold so dear to the rest of the world.
For our futures and those of our children, it is time that we move beyond oil.

 

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