Saturday, December 30, 2006

Gentlemen, Start Your Plug-Ins

December 30, 2006;

An oil and security task force of the Council on Foreign Relations
recently opined that "[t]he voices that espouse 'energy independence'
are doing the nation a disservice by focusing on a goal that is
unachievable over the foreseeable future . . ." Others have also
said, essentially, that other nations will control our transportation
fuel -- get used to it. Yet House Democrats have announced a push for
"energy independence in 10 years," and last month General Motors
joined Toyota and perhaps other auto makers in a race to produce
plug-in hybrid vehicles, hugely reducing the demand for oil. Who's
right -- those who drive toward independence or those who shrug?

Bet on major progress toward independence, spurred by market forces
and a portfolio of rapidly developing oil-replacing technologies.

In recent years a number of alternatives to conventional oil have
come to the fore -- oil sands, oil shale, coal-to-diesel and
coal-to-methanol technologies. But their acceptability to a new
Congress, quite possibly the next president, and a public
increasingly concerned about global warming will depend on their
demonstrating affordable and effective methods of sequestering the
carbon they produce or otherwise avoiding carbon emissions.

Ethanol's appeal rose a few years ago when it became clear that
genetically modified biocatalysts could break down the cellulose in
biomass and thus enable ethanol's production from a wide range of
plant life. This means that, compared with corn, little fossil fuel
is needed during biomass cultivation and land use presents much less
of a problem. Indeed two years ago the National Energy Policy
Commission (NEPC), making reasonable assumptions about improved
vehicle efficiency and biomass yields over the next 20 years,
estimated that just 7% of U.S. farmland (the amount now in the Soil
Bank) could produce enough biomass to provide half the fuel needed by
U.S. passenger vehicles, and that production costs for cellulosic
ethanol were headed downward toward around 70 cents per gallon.
Further, conversion of only a portion of industrial, municipal and
animal wastes -- using thermal processes now coming into commercial
operation -- appears to be able to yield an additional several
million barrels a day of diesel or, with some processes, methanol.

But in spite of the technological promise of alternative liquid
fuels, skeptics rightly point out that it will take time to build
production facilities and learn the practicalities of operating
biorefineries and shifting industry from hydrocarbons to
carbohydrates. Most of all there is a sense of investor caution,
driven by memories of the mid-'80s and the late '90s when sharp drops
in oil prices, driven in part by increased production from Saudi
reserves, bankrupted such undertakings as the Synfuels Corporation.
Also, industry support for moving away from oil dependence has long
been weak outside agribusiness, and consumers see little immediate
savings from using alternative liquid fuels.

All this is likely to change decisively, because electricity is about
to become a major partner with alternative liquid fuels in replacing oil.

The change is being driven by innovations in the batteries that now
power modern electronics. If hybrid gasoline-electric cars are
provided with advanced batteries (GM's announcement said its choice
would be lithium-ion) having improved energy and power density --
variants of the ones in our computers and cell phones -- dozens of
vehicle prototypes are now demonstrating that these "plug-in hybrids"
can more than double hybrids' overall (gasoline) mileage. With a
plug-in, charging your car overnight from an ordinary 110-volt socket
in your garage lets you drive 20 miles or more on the electricity
stored in the topped-up battery before the car lapses into its normal
hybrid mode. If you forget to charge or exceed 20 miles, no problem,
you then just have a regular hybrid with the insurance of liquid fuel
in the tank. And during those 20 all-electric miles you will be
driving at a cost of between a penny and three cents a mile instead
of the current 10-cent-a-mile cost of gasoline.

Utilities are rapidly becoming quite interested in plug-ins because
of the substantial benefit to them of being able to sell off-peak
power at night. Because off-peak nighttime charging uses unutilized
capacity, DOE's Pacific Northwest National Laboratory estimates that
adopting plug-ins will not create a need for new base load
electricity generation plants until plug-ins constitute over 84% of
the country's 220 million passenger vehicles. Further, those plug-ins
that are left connected to an electrical socket after being fully
charged (most U.S. cars are parked over 20 hours a day) can
substitute for expensive natural gas by providing electricity from
their batteries back to the grid: "spinning" reserves to help deal
with power outages and regulation of the grid's voltage and amperage.

Once plug-ins start appearing in showrooms it is not only consumers
and utility shareholders who will be smiling. If cheap off-peak
electricity supplies a portion of our transportation needs, this will
help insulate alternative liquid fuels from OPEC market manipulation
designed to cripple oil's competitors. Indian and Chinese demand and
peaking oil production may make it much harder for OPEC today to use
any excess production capacity to drive prices down and destroy
competitive technology. But as plug-ins come into the fleet low
electricity costs will stand as a substantial further barrier to such
market manipulation. Since OPEC cannot drive oil prices low enough to
undermine our use of off-peak electricity, it is unlikely to embark
on a course of radical price cuts at all because such cuts are
painful for its oil-exporter members. Plug-ins thus may well give
investors enough confidence to back alternative liquid fuels without
any need for new taxes on oil or subsidies to protect them.

Environmentalists should join this march with enthusiasm. Replacing
hydrocarbons with fuels derived from biomass and waste reduces
vehicles' carbon emissions very substantially. And replacing gasoline
with electricity further brightens the environmental picture. The
Environmental and Energy Study Institute has shown that, with today's
electricity grid, there would be a national average reduction in
carbon emissions by about 60% per vehicle when a plug-in hybrid with
20-mile all-electric range replaces a conventional car.

Subsidizing expensive substitutes for petroleum, ignoring the massive
infrastructure costs needed to fuel family cars with hydrogen,
searching for a single elegant solution -- none of this has worked,
nor will it. Instead we should encourage a portfolio of inexpensive
fuels, including electricity, that requires very little
infrastructure change and let its components work together: A 50 mpg
hybrid, once it becomes a plug-in, will likely get solidly over 100
mpg of gasoline (call it "mpgg"); if it is also a flexible fuel
vehicle using 85% ethanol, E-85, its mpgg rises to around 500.

The market will likely operate to expand sharply the use of these
technologies that are already in pilot plants and prototypes and
heavily reduce oil use in the foreseeable future. And given the array
of Wahhabis, terrorists and Ahmadinejad-like fanatics who sit atop
the Persian Gulf's two-thirds of the world's conventional oil, such
reduction will not be a disservice to the nation.

Mr. Woolsey, co-chair of the Committee on the Present Danger, was
Director of Central Intelligence from 1993 to 1995.

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