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Over a Barrel

Experts say we're about to run out of oil. But we're nowhere near having another technology ready to take its place.

In truth, even as the president was promising better living through hydrogen, the reality of a hydrogen economy was moving farther and farther away. While the basic technology remains prom-ising, making hydrogen turns out to be far more difficult than advertised. The easiest and by far cheapest method -- splitting natural gas into carbon and hydrogen -- is hampered by domestic shortages of natural gas. And while it is possible to extract hydrogen from water using renewably generated electricity, that concept suffers from the power-density problem. Studies by Jim MacKenzie, a veteran energy analyst with the World Resources Institute, show that a solar-powered hydrogen economy in the United States would require at least 160,000 square miles of photovoltaic panels -- an area slightly larger than the state of California -- and would increase national water consumption by 10 percent. "We could do it," MacKenzie told me last year. "But it would be expensive."

But hydrogen's biggest problem is the fuel cell itself, which, despite decades of research, is still too expensive and unreliable to compete with the internal combustion engine. As of last year, the best fuel cells were still 10 times as costly as an equivalently powered gasoline engine. Hydrogen advocates argue that once fuel cells can be mass-produced, costs will drop dramatically. Yet while that's true, it's also true that gasoline engines will also improve over time -- in fact, they already have. With the gasoline-electric hybrid, for example, the internal combustion engine has, in a stroke, doubled its fuel economy and halved its emissions -- but without forcing consumers to use a complicated new technology or fuel. Barring some technological breakthrough that dramatically lowers costs or improves performance, the fuel cell may remain one step behind the gasoline engine for a long time, further delaying the moment it can begin displacing its hydrocarbon rival.

This, then, is the central dilemma facing the architects of the next energy economy. Left to themselves, markets will indeed move us to new energy technologies, but these technologies may not be the ones we ultimately want or need. For example, while the hybrid does cut emissions and fuel use, as Ballard's Campbell testily points out, hybrids "still require fossil fuel" and thus can only be an interim solution. To be sure, interim solutions are essential, but if we concentrate only on half-measures, long-term technologies may not become economically viable fast enough to stave off an implosion of our energy system -- be it from runaway climate change in 2015 or the collapse of the Saudi government in 2005.

Thus a true energy revolution -- one that begins moving away from fossil fuels entirely -- can't succeed or even get started until we can somehow induce the market to "see" the true costs of energy, and, specifically, just how environmentally and politically expensive "cheap" fossil fuels really are.

One approach would be to copy the European Union's "cap-and-trade" system, which sets a cap on how much CO2 companies can emit, but allows firms that cut emissions faster to sell their carbon "credits" to companies that can't. As carbon becomes a cost to avoid, companies have a huge incentive to cut CO2 emissions -- first by burning hydrocarbons more efficiently, but eventually by developing technologies and fuels that are entirely carbon-free.

What the European experience suggests, however, is that even if the United States were to adopt a cap-and-trade regime (which the Bush administration has been in no hurry to do), the markets would still need help developing these new technologies -- especially in the early, expensive stages of development. With massive public investment, new energy technologies could be advanced to the point that private companies were willing to take the risks and bring them to market. The fuel cell is an ideal candidate. Another is something called cellulosic ethanol, a bio-fuel that is almost as energy-dense as gasoline, but that burns more cleanly and can be refined into hydrogen. Unlike traditional, corn-brewed ethanol, which is so uneconomical that it requires permanent federal subsidies, cellulosic ethanol is made from a specially bred crop, known as switchgrass, that thrives on marginal lands, needs little water and no fertilizer, and is easily processed into fuel. "Once we have mature cellulosic ethanol technology," says Lee Lynd, a researcher at Dartmouth College and one of the top bio-fuels experts in the world, "we could reasonably expect the new fuel to cost no more than gasoline to produce." Under some scenarios, by 2025 up to one-fifth of all cars and light trucks could be running on cellulosic ethanol. The point, says Lynd, is that "if the world is looking for an alternative to gasoline, hydrogen is not the only candidate."

Of course, market-altering steps like these would require a phenomenal amount of political will, which thus far has been lacking. Despite expressing interest in a carbon-trading regime before 9/11, the Bush administration refused to push for such a system for fear it would alienate utilities and coal states. (When John Kerry said that he backed a carbon-trading regime, Bush's energy secretary, Spencer Abraham, thundered that such a plan "would likely devastate the coal sector.") Most energy experts say the U.S. government would need to spend on the order of $5-$10 billion a year for several decades to have any hope of boosting promising new energy technologies into viability. (For comparison, last year the government spent roughly $900 million on research into renewables, hydrogen, and efficiency -- chump change compared with the billions the U.S. has spent in research on fossil fuels and especially nuclear energy.)

Still, as the price of oil and natural gas has skyrocketed, and as the risks of continued reliance on producers like Iraq and Russia have become more obvious, some energy advocates have begun to quietly wonder whether the political currents might begin to run the other way. According to David Portalatin, an auto industry analyst with the NPD Group, a sizable number of consumers have reported that they would definitely buy a more fuel-efficient car or begin taking mass transit if gas prices stayed high for at least 12 months. Portalatin sees this as a significant change in attitude. Whether and how soon we can expect consumers to take the next step -- actually buying the hybrid -- won't be clear until quarterly sales data are in. But Portalatin says that consumer anxiety is much higher than a year ago. "If prices remain high and if consumers follow through on what they told us, then, yes, we'll get there."

The danger, of course, is that the same economic currents that are pushing America into a new energy consciousness may themselves become too strong to control. High oil prices could indeed unlock the political logjam that has long blocked developments in alternative energy. Yet keep in mind that those high prices aren't benign; rather, they reflect an energy market that might be so close to a meltdown that no amount of research dollars, carbon policies, or energy consciousness will make much of a difference. Supply and demand are today so tightly balanced that even the smallest incident in an oil-producing country could send prices into the stratosphere, destroying economies and forcing big, oil-dependent nations like the United States and China to opt for emergency short-term fixes -- fixes that aren't likely to involve methodical programs to improve automotive efficiency or develop cost-effective ethanol. Rather, once the United States finds itself in a real energy emergency, it will do what desperate states have always done when resources turn scarce: fight for them. In other words, the most pressing question may not be whether we have the right technologies, but whether we have enough time.

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