The Future of Energy
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The Seven Myths of Energy Independence

Why forging a sustainable energy future is dependent on foreign oil

Myth #3
Conservation Is a "Personal Virtue"

By now it should be clear not only that energy independence is prohibitively costly, but that the saner objective—energy security—won't be met through some frantic search for a fuel to replace oil, but by finding ways to do without liquid fuel, most probably through massive increases in energy efficiency.

This isn't a popular idea with Dick Cheney, who before 9/11 famously said that "conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy." Nor among traditional energy players, who desperately want to find something to sell us if oil becomes untenable—and don't really care if that something is hydrogen or ethanol or pig manure. But for the rest of us, the logic of conservation is pretty hard to argue with. Better energy efficiency is one of the fastest ways to reduce not only energy use, but pollution and greenhouse gas emissions: According to a new study by McKinsey & Company, if the United States aggressively adopted more efficient cars, factories, homes, and other infrastructure, our CO2 emissions could be 28 percent below 2005 levels by 2030. And saving energy is almost always cheaper than making it: There is far more oil to be "found" in Detroit by designing more fuel-efficient cars than could ever be pumped out of anwr. And because transportation is the biggest user of oil—accounting for 7 of every 10 barrels we burn—any significant reduction in the sector's appetite has massive ramifications. Even the relatively unambitious 2007 energy bill, which raises fuel-economy standards from 25 mpg to 35 mpg by 2020, would save 3.6 million barrels a day by 2030. And if we persuaded carmakers to switch to plug-in hybrids, we could cut our oil demand by a staggering 9 million barrels a day, about 70 percent of our current imports.

Such a shift would impose massive new demand on an electric grid already struggling to meet need, but plug-in hybrids actually stretch the grid's existing capacity. Charged up at night, when power demand (and thus prices) are low, plug-in hybrids exploit the grid's large volume of unused (and, until now, unusable) capacity. Such "load balancing" would let power companies run their plants around the clock (vastly more cost-effective than idling plants at night and revving them up at dawn); as important, it would substantially boost the grid's overall output. According to the Department of Energy, with such load balancing, America's existing power system could meet current power demands and generate enough additional electricity to run almost three-quarters of its car and light-truck fleet. That alone would be enough to drop oil consumption by 6.5 million barrels a day, or nearly a third of America's current demand.

Granted, this switch to electric-powered cars wouldn't be free. Seventy percent of America's electricity is made from high-carbon fuels like natural gas and especially coal, which is why the power sector emits 40 percent of all U.S. carbon emissions. Just 8.4 percent comes from renewable sources, and most of that is environmentally dubious hydroelectric; wind, solar, geothermal, and biomass together supply 2.4 percent, and despite rapid growth, their share of the power market will remain small for decades. Even so, an electric or plug-in hybrid fleet is still probably the most environmentally plausible path away from oil. Why? Because kilowatt for kilowatt, turning fossil fuels into electricity in massive centralized power plants and then putting that juice into car batteries is more efficient than burning fossil fuels directly in internal combustion engines, and thus generates fewer CO2 emissions per mile traveled. (Our existing fleet generates a third of America's CO2 emissions.) The doe found that replacing three-quarters of the U.S. fleet with plug-in hybrids would cut vehicle CO2 emissions by 27 percent nationwide—40 percent or more if the country's power system were upgraded to match California's low-carbon grid. And once the new fleet is in place, there is nothing stopping us from upgrading our power sources to truly renewable systems.

Federal Funding for Renewable-Energy R&D
$ millions, in 2005 dollars

Renewable-Energy R&D

Seeing Green
Where the clean-energy money is—and isn't

Dept. of Energy solar budget, 2008: $168 million

Venture capital investment in solar, 2006: $264 million

Dept. of Energy renewable-energy budget, 2008: $1.7 billion

Venture capital investment in renewable energy, 2006: $2.4 billion

Federal ethanol subsidies, 2006: $6 billion

Federal coal subsidies, 2006: $8 billion

Federal oil and gas subsidies, 2006: $39 billion

Worldwide investment in renewable energy, 2007: $71 billion

Myth #4
We Can Go It Alone

Given America's reliance on imported oil, it seems safe to assume that if we succeeded in getting such dramatic reductions, whatever sacrifices we'd made would be more than compensated for by our new immunity to the nastiness of world oil markets. Let Saudi Arabia cut its production. Let Hugo Chávez sell his oil to China. Such maneuvers no longer matter to Fortress America.

And yet, no country can really hope to improve its energy security by acting alone. True, cutting our own oil use would bring great things here at home, everything from cleaner air and water to lower noise pollution. But we'd be surprised by how little our domestic reductions changed the rest of the world—or improved our overall energy security.

The first problem, once again, is the small-planet nature of energy. America may be the biggest user of oil, but the price we pay is determined by global demand, and demand is being driven largely by booming Asia, which is only too happy to burn any barrel we manage to conserve or replace. Second, any shift to alternatives or better efficiency will take years and perhaps decades to implement. The U.S. car fleet, for example, turns over at a rate of just eight percent a year. That's as fast as consumers can afford to buy new cars and manufacturers can afford to make them, which means that—even in a fantasy scenario where the cars were already designed, the factories retooled, and the workers retrained—it would still take 12 years to deploy a greener fleet.

Most forecasts fail to acknowledge how slowly such changes could actually occur. Sure, if the United States could cut its oil consumption overnight by 9 million barrels, or 6.5 million barrels, or even 3.6 million barrels, it would have a staggering impact on oil prices. But barring a global depression, demand won't ever drop so rapidly; instead, our demand reductions will be incremental and thus effectively canceled out by the expected demand growth in other, less efficiency-minded countries like China. Berkeley's Borenstein, for example, estimates that the 3.6 million barrels the United States would save by 2030 under the 2007 energy bill will be more than offset by growth in demand elsewhere. Put another way, we could all squeeze into smaller cars and still be paying $4 for a gallon of gasoline.

To be sure, energy security isn't defined solely by cheap energy, and in fact, a great many enviros and energy wonks like oil at $100 a barrel, as it seems to be the only thing keeping more of us from buying Hummers. But high prices are killing our other energy-security objectives. High prices mean that money is still flowing into rogue states. High oil prices also imply tight oil markets, prone to massive price swings that are painful for consumers and make it virtually impossible for companies and governments to forecast their future energy costs—and so correctly gauge how much to invest in next-generation energy technologies. And no matter how clean and carbon free the United States becomes, if China and India are still burning massive volumes of oil we haven't done much to improve long-term security of any kind.

The only way to achieve real energy security is to reengineer not just our energy economy but that of the entire world. Oil prices won't fall, evil regimes won't be bankrupt, and sustainability won't be possible—until global oil demand is slowed. And outside of an economic meltdown, the only way it can be is if the tools we deploy to improve our own security can be somehow exported to other countries, and especially developing countries.

Energy globalism doesn't mean that every new energy gadget or fuel we invent has to work in Beijing or Burkina Faso. It does, however, suggest that our current energy strategy, tailored primarily to our own markets and our own technical capabilities, will be next to useless in an energy economy that is increasingly global—and that at least some of our energy investments should be compatible with regions where natural resources are strained, governments are poor, and consumers don't have access to home-equity lines of credit.

Myth #5
Some Geek in Silicon Valley Will Fix the Problem

So, what kinds of technologies would qualify under this more global strategy? Although corn and even cane ethanol are dubious—arable land in most of the developing world is already far too scarce—cellulosic ethanol has definite potential. Plug-in hybrids are probably too expensive for most Third World consumers, but have possibilities in the megacities of Asia and Latin America.

In the near term, however, the most practical energy export will be efficiency. China is so woefully inefficient that its economy uses 4.5 times as much energy as the United States for every dollar of output. This disparity explains why China is the world's second-biggest energy guzzler, but also why selling China more efficient technologies—cars, to be sure, but also better designs for houses, buildings, and industrial processes—could have a huge impact on global energy use and emissions.

As a bonus, such exports would likely be highly profitable. Japan, whose economy is nine times as energy efficient as China's, sees enormous economic and diplomatic opportunities selling its expertise to the Chinese, and America could tap into those opportunities as well—provided technologies with export potential get the kind of R&D support they need. Yet this isn't assured. You may have read that the volume of venture capital flowing into energy-technology companies is at a record high. But much of this capital is flowing into known technologies with rapid and assured payoffs—such as corn ethanol—instead of more speculative, but potentially more useful, technologies like cellulosic ethanol.

Once upon a time, America compensated for investor reluctance with gobs of federal money. But though President Bush routinely promises to spend more on alternative energy, little new money has appeared; federal spending on solar research, for example, is well short of that in the Clinton years, and the $148 million Bush pledged for solar back in 2006 was, in inflation-adjusted terms, less than half of what we spent annually in the 1970s. Other technologies suffer as well. Senator Richard Lugar, an Indiana Republican who has long argued for a global approach to energy security, notes that despite Bush's stated support for cellulosic ethanol, the Energy Department's "glacial implementation" of R&D loan guarantees has turned off potential investors. "The project is moving forward," Lugar says, "but critical time was lost."

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