A driver fuels a natural-gas-powered car. Alternatives to oil are less attractive to investors during the credit crisis and oil slump. But the longer-term outlook is good, experts say. (Marcio Jose Sanchez/AP)
Are alternative fuels reliving the 1980s?
Today’s slumping oil prices may undermine viability of alt-fuel programs – again.
By Mark Clayton | Staff writer of The Christian Science Monitor/ November 6, 2008 edition
Melanie Stetson Freeman/The Christian Science Monitor/File
This experimental installation atop MIT’s power plant in Cambridge, Mass., used sunlight, algae, and flue gases to grow a biofuel that could be turned into a diesel substitute. The algae also absorbed carbon dioxide and neutralized nitrous oxide.
Staff writer Mark Clayton talks about whether or not efforts to develop alternative fuels in the US will continue, now that oil prices are dropping.
Staff writer Mark Clayton
Tumbling gas-pump prices make motorists smile, but not Peter Vanderzee. They remind him how falling oil costs sank his effort to unshackle the United States from Middle East oil two decades ago.
As project manager for two large alternative-energy projects under President Carter’s US Synthetic Fuels program launched in 1980, Mr. Vanderzee was pushing his team to make methanol from coal for auto fuel.
But in 1985, just as his technology was starting to produce results, oil plummeted. In today’s inflation-adjusted dollars, oil went from $53 a barrel to $28, with pump prices falling from $2.20 a gallon to $1.60. The next year, President Reagan pulled the plug on the US Synfuels program.
“It was a huge letdown,” Vanderzee recalls. “We had the technology ready to go. But Mideast crude oil suppliers decided the US was serious about our program and just didn’t want the US making alternatives to oil. So they pumped more oil and lowered the price.”
Oil prices last week hovered just over $60 a barrel after peaking around $140 this summer. Will today’s falling oil prices also bury fledgling efforts to convert the US auto fleet from gas guzzling SUVs into fuel-sipping hybrids? Will investors still want to invest in advanced biofuels? Will the new president slow the push for energy security?
“If I were Saudi Arabia and I wanted to undermine alternative energy,” says Robert Wescott, former chief economist for the President’s Council of Economic Advisers, “my optimal pricing strategy would be $100 per barrel for the first year, second year, third year, and fourth – and drop it to $10 on the fifth year.” Why?
“You would capture lots of revenue, but flatten the alternative-energy sector every fifth year – at least enough to scare off investors and ensure that alternatives don’t get a foothold.”
But even if falling oil prices sap political will and investor confidence, critical differences between today and the 1980s make it less likely that US policy or investment in oil alternatives will falter, he and others say.
“I worry much less today than I did back then,” says Amory Lovins, who became a leading US voice on energy efficiency after the 1970s oil crises, “because what’s different today is that our concerns about energy security and climate change are much broader and more intense.”
Falling oil prices “will make the problem harder and slower to deal with,” says the cofounder of the Rocky Mountain Institute, an energy think tank. But because the last few years have seen “the rise of such a vibrant efficiency and renewable sector … this time it’s not going away. We can take a hit and still bounce back.”
Can the US set and meet quotas?
Right now, he says, it’s the credit crisis, not sinking oil prices, that is cooling investors on alternative energy. But corn-based ethanol, advanced cellulosic ethanol, and coal- and oil-shale-to-fuel are feeling the pinch, too, experts say.
In the farm belt, many ethanol producers are barely making money, caught between high prices for corn feedstock and much lower gasoline prices. Back in the 1980s, there were more than 100 ethanol facilities. After the 1985-86 price drop, only about a dozen survived.
“When oil prices dropped, it killed that push to ethanol – and you could have that happen again,” says Chad Hart, an agricultural economist at Iowa State University. But there is a safety net this time, he and others agree: the US Renewable Fuel Standard (RFS). Today the US produces 9 billion gallons of ethanol from corn but under RFS is mandated to make 36 billion gallons by 2022.
That demand, most of which must by law come from cellulosic ethanol and advanced biofuels, is aimed at reducing greenhouse gas emissions and improving US energy security. The RFS currently pays gasoline blenders a hefty 51-cents-per-gallon subsidy for every gallon of ethanol they use.
“Things are fundamentally different than they were in the 1980s, especially with respect to fuels policy,” says Bob Dinneen, president of the Renewable Fuels Association. “We now have the RFS in place. So no matter what happens, we have a foundation, a safety net.”
To meet RFS requirements, investors must pour billions into cellulosic ethanol plants. How eager they will be to do so is a question. Today, about 30 cellulosic projects are in various stages of development nationwide. Investors are wary. Among six large DOE-sponsored projects, two big investors have recently pulled out.
The Energy Department’s target is to bring cellulosic ethanol costs down to about $1 per gallon so it can compete with corn ethanol. That’s the equivalent of $40 to $50 a barrel – a rough target for venture capitalists, too.
At a recent conference on algae-based biofuels, a noted venture capitalist set $50 a barrel for oil as the base line his investments must beat, says Nathanael Greene, senior biofuels policy analyst for the Natural Resources Defense Council, who attended the conference.
When the RFS was put in place, cellulosic ethanol investors thought $70 to $80 per barrel was the price threshold at which to jump in, says Paul Winters, a spokesman for the Biotechnology Industry Organization (BIO), which represents cellulosic ethanol producers. “Now that those investors have jumped in and oil prices are falling, they’re not sure what the base number is going to be.”
With such uncertainty, federal loan guarantees will be critical, a spokesman for a major cellulosic ethanol producer wrote in response to a BIO survey.
“With the collapse of the credit markets, access to capital has become and will likely remain much more difficult to access,” the spokesman wrote in an e-mail shared by Mr. Winters. “The high price of oil has been a trigger for the current melt-down that we are facing by sucking a lot of oxygen out of the US economy.”
Gas-sipping cars may be vulnerable
Fuel-efficient vehicle technology also looks acutely vulnerable to falling oil prices. Cash-strapped auto giant General Motors last week announced it was suspending new product development efforts, including several hybrid models.
But GM will continue developing the plug-in hybrid Chevrolet Volt, which could go 40 miles on one charge. Energy security experts say such capability is vital since it would replace imported oil with power from the electrical grid derived from coal, natural gas, wind, and other domestically derived sources.
But will GM stay with the Volt if oil prices drop further? Will consumers pay $40,000 for it if gas is $2.50 per gallon?
“With the economy in the dumps and gas prices coming down, people right now are thinking ‘I’ll hold onto my car and drive it less … rather than moving to a more fuel-efficient
car,’ ” says Bradley Berman, editor and founder of Hybridcars.com, a website that focuses on hybrid vehicle trends.
For the US auto industry, recession may be a greater threat than cheap gas.
“Interest in hybrids is not anymore at the fever pitch with long lines, but it remains solid,” Mr. Berman says. “A lot of people still want higher fuel economy just to save money.”
The big question, he says, is what happens when the economy strengthens and people start buying cars again. Will they buy fuel-efficient vehicles – and will Detroit offer them in volume?
“There’s going to be plenty of demand to absorb the initial ability of car companies to produce these new fuel-efficient vehicles,” says Reid Detchon, executive director of the Energy Future Coalition, a coalition of energy security experts and environmental groups who favor a shift to 25 percent renewable energy by 2025.
“If gas prices do go under $2 a gallon, well, there would be less excitement about plug-in hybrids,” Mr. Detchon admits. “But there’s really a lot less concern about gas prices these days – and a lot more about US energy security. That’s a big difference from the 1980s. So I think that detaching the US from dependence on Middle Eastern oil will continue to be a concern that will drive policy.”
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Comments
2. Bruce | 11.06.08
Amen to a carbon tax to keep fuel prices high to allow alternative energy to get established and be able to complete. But it needs to be replaced w/ a reduction in personal income taxes so that consumers aren’t negatively impacted… Denmark is a good example as set forth in Thomas Friedman’s article in the New York Times of Aug 8, 2008 entitled “Flush with Energy”. We need government to lead and finally put together a real energy policy.
3. Rob in Atlanta | 11.06.08
Every time our government suggests increasing average car fuel efficiency (CAFE standards) Automakers & their lobbyists say that would cause huge job losses, huge cost increases, and reductions in safety. YET, these seem to all be exaggerated. We are so creative & industrious as a people, when there have been big boosts in fuel economy requirements, NEW technology has been employed to PREVENT big losses in safety, jobs or cost increases.
We need LAWS that move big companies in the right long-term direction, and create a level playing field so the free market can innovate the best solutions to new higher fuel economy requirements. And the national academy of science knows there is technology available to do much better. But change is costly and risky, so they won’t do it until government or customers require it.
Requiring 20% of electricity to be made from renewable sources could be similarly good legislation. Government (and it’s people) need to set the priorities, then the market can be a good servant and get it done efficiently.
4. Robert M. | 11.07.08
I would not mind pay an additional tax on gasoline so long as it RESPONSIBLY applied to developing alternative fuels and efficient vehicles. But, I would prefer that diesel remain at a lower price so farmers can afford to grow the cellulose that may be needed. Right now, the market price for corn has gone down drastically. Many farmers will barely make more than it cost to grow it. Seed, fertilizer and fuel prices have been at an all time high this year.
We need alternative fuels. But, we have to protect our industries in the mean time.
5. Lee Brewer | 11.07.08
Keeping the pump price high regardless of the price per barrel of oil, is the answer. New USA action-programs will need the income from this, to develop or enhance alternative energy incentives or we will simply transfer the “oil-problem” to our grandchildren.
Even today there are viable actions we can take. The government will need to use this higher fuel pricing windfall income to provide tax credits for: diesel cars (they get 30% plus better mpg), provide $3,000 for each of 2 years for engine conversion to compressed natural gas, and provide that same level of tax credit for purchasers of hydrogen propelled cars. The extra income left over will be needed to help “gas stations add diesel, CNG and hydrogen fuel delivery systems. For 10 years trucking companies should receive new engine rebates to change over engines. Lastly we should use part of the windfalls to finance more container rail shipping systems and new higher speed track and drop points.
We should also be subsidizing development of non-silicone alternative substrates for solar cells - preferably steel so that entire home roofs could be 100% solar cell. These will be needed to help recharge electric and hybrid cars.
Lastly we should call back from retirement the few American nuclear engineers yet alive, to start training programs for young engineers so that they can design and build our safe-style nuclear plant designs. For example making ultra-quality earthquake proof welds joining two 10 ft thick steel plates to each other is not a skill we have readily available.
I am 70 and living on a small fixed income, I know these ideas will be very tough for me to afford, but I believe our nation needs this. This is a directional change in thinking that we can all believe in….
6. Tom N | 11.07.08
The problem with subsidies or taxes is that they move money from one person’s pocket to another without improving the efficiency of the system. If I get a tax rebate to buy an expensive car, then government taxes need to be higher on someone to pay for the subsidy which goes to the auto industry. But the auto industry has done nothing to lower the price and actually has an incentive to keep the price higher because of the rebate.
People argue that a more efficient car saves everyone money but the payback is so long that the car itself is old and worn out by the time the savings is realized.
Finally, taxing gas to keep prices stable is hard on those people who do have any choice but continue to drive long distances in gas guzzling cars. We laugh at SUVs but most poor people are driving older cars which also have poor gas mileage and they can’t afford to buy hybrids.
7. 33Nick | 11.07.08
If we could put the same amount of energy in research and development on clean, renewable energies and further develop battery technology, we would ween ourselves away from dubious countries with shady ties to global security threats. And, with one stone two birds, we would improve world wide pollution which is a drain on healthcare.
Never underestimate man phenomenal capacity to surmount any obstacles.
8. 33Nick | 11.07.08
If we could put the same amount of energy in research and development on clean, renewable energies and further develop battery technology, we would ween ourselves away from dubious countries with shady ties to global security threats. And, with one stone two birds, we would improve world wide pollution which is a drain on healthcare.
Never underestimate man phenomenal capacity to surmount any obstacles.
9. 33Nick | 11.07.08
If we could put the same amount of energy in research and development on clean, renewable energies and further develop battery technology, we would ween ourselves away from dubious countries with shady ties to global security threats. And, with one stone two birds, we would improve world wide pollution which is a drain on healthcare.
Never underestimate man phenomenal capacity to surmount any obstacles.
10. TomT | 11.07.08
TomM - good comments. I am also against a gas tax, however, intrisically they are a good idea for all the reasons that pro-gas-taxers have mentioned. The problem lies in the practical and equitable administration of the revenues from the tax. Our governement is fundamentally corrupt, not on an individual basis, but as a collective. They should not be given more candy to eat. First, they need to restore trust by getting spending under control and earmarking eliminated, without raising any new taxes. When this responsibility is proven by action first, then I’d be more than happy to allow congress to raise my taxes on gas and pay extra at the pump to fund transportation R&D and increased road budgets. I don’t believe that the sky is falling so much that we can’t wait for and demand that this happen.
Never underestimate mans phenomenal capacity to spend your money unwisely once publicly elected.
11. Charles | 11.08.08
The last four new petrol cars I bought; a 78 that got 32 mpg, an 85 that got 28mpg, a 92 that got 24mpg, and a 98 minivan that gets 18mpg, are consistent with the trends through the years. More stringent air quality and safety standards are the reason for the decline, along with the demand for more goodies like power everything, stereos and heated seats etc. Nobody wants a spartan car like the 68 VW bugs anymore. These are the stumbling blocks to most auto power plants (engines). The best technology would be a compressed air engine with electric drive/assist, and/or a lng/propane engine. What is needed is more a super capacitor than a battery. The best recent development in energy is the separation between the energy producers and delivery systems. Prehaps the worst damage the Iranians could wreak on our economy would be home or truck sized nuclear powered engines for transportation and remote power. Sadly the most predictable bet would be whatever concentrates money into the fewest hands.
12. jp | 11.08.08
crb is going down which will effect the dollar, which will effect both inflation & long term rates.
This in turn effects lending for all effective low cost alternative energy projects. The last thing needed
Is more taxes in a down market.
13. Joe J | 11.08.08
If you haven’t yet, watch the documentary named “Who killed the electric car?” After watching that, this whole situation will make sense. Death to big oil! They are the ones who are causing all of these problems.
14. Joe J | 11.08.08
O and did I mention, big oil has a part in everything. Big oil influences politics with their excess of money, owns many of the possibilities for alternative cars (they own the effective lithium ion batteries which could easily power electric vehicles), and they influence whoever or whatever else they want with bribes, so that they may make more money.
15. ntopics | 11.09.08
I’m glad to see folks fight back against
dirty energy sources. This is the attitude
we all should have to become more energy independent.
thanks from tony
16. whs806 | 11.09.08
The main reason ethanol is a sham is because it produces very little if any net energy gain. It is simply a government program that makes food more expensive but does not help our energy crisis! Time for it to go!
17. John | 11.10.08
From reading the comments it looks like Americans need to take back their goverment from the lobbyists…
18. Dopey | 11.10.08
Anyone who thinks that oil prices will stay low is deluded. Global depletion virtually guarantees $10 a gallon within 10 years. Crazy to kill a multi-year development stone dead because of a brief dip in prices. This is exactly the kind of nonsense from GM which has got them in this mess. They don’t really deserve a handout. Let them go and give a fraction of the money to Tesla Motors instead.
19. John | 11.11.08
The US Department of Engergy’s National Laboratories have brought countless achievements to America in the spirit of providing affordable, plentiful and ecnviornmentally friendly alternative fuels. Emphasis is on countless. The next Administration needs to oerform a cold reboot on DOE Labs for the billions they’ve spent to produce virtually nothing of energy value-added for American taxpayers.
20. Atlanta, GA USA | 11.11.08
I can’t support a rise in gas taxes in order to promote faster development of alternative fuels. Raising gas taxes in the US will not work as effectively as it has in Europe and the comparison should not be made. Europeans have much more public transport available to them and their older cities allow their citizens to live close to jobs. The ever-expanding US landscape where developers seem intent on bulldozing every tree in order to build a new house or a store compels the majority of Americans to live many miles from their jobs. Until US employers allow more work-from-home, jobs and homes are closer together and public transport more developed, raising gasoline taxes in the USA will only add to the growing financial burdens of the average citizen… who sees prices for everything rising while his/her income does not.
21. BlackHat | 11.11.08
I thought this was the Land of the FREE, Home of the Brave. You people think bigger government and higher taxes are the answer to everything. Here’s a tip: If you don’t like the US being a free country, change your address to a small nation in Europe. Stop trying to control my life by allowing the government to increase the taxes on the things I like and the things I need, just because you don’t like them or need them. I bet most of you learned all you need to know about the environment and the government form the Liberal Indoctrination Society (public school system.) Know wander you cnat splel or punct-you-ate.
Trackbacks/Pingbacks
2. Green Blogs » Blog Archive » Today in Biofuels Opinion: “If I were Saudi Arabia and I wanted to undermine alternative energy” | 11.07.08
3. Green Blogs » Blog Archive » Ethanol facing return of 1980s bust, with oil price drop? Lovins, Dineen weigh in on alt energy outlook | 11.07.08
4. Today in Biofuels Opinion: “If I were Saudi Arabia and I wanted to undermine alternative energy” | Barack Obama | 11.07.08
5. Today in Biofuels Opinion: “If I were Saudi Arabia and I wanted to undermine alternative energy” | John McCain | 11.07.08
7. Today in Biofuels Opinion: “If I were Saudi Arabia and I wanted to undermine alternative energy” | Ethanol | 11.08.08
8. Ethanol facing return of 1980s bust, with oil price drop? Lovins, Dineen weigh in on alt energy outlook | Ethanol | 11.10.08
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1. Pete Sandfort | 11.06.08
Federal fuel tax rates should have made all fuels high priced decades ago like Europe. If gas taxes made fuel about $4 per gallon, the balance of trade improves, pollution is reduced, dependence on foreign oil declines, federal taxes increase, and alternative energy sources are encouraged. President Carter and his four replacements recommended this but were squashed by big oil and big auto. Time to bite the bullet and increase fuel tax to solve all these problems in one fell swoop.