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By Robert Rapier on Oct 7, 2008 with no responses

Why Energy Independence Eludes the U.S.

The following is an essay I wrote by request for another website. Regular readers won’t see anything they haven’t seen before, but I figured I would go ahead and post here as well. It is a condensed version of some of the topics I have hit here several times.

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Every president since Nixon has promised to make the U.S. energy independent. Yet each successive administration has seen us become ever more dependent upon fossil fuels extracted from foreign lands. Why does a noble goal such as energy independence elude the U.S.? Let’s investigate.

Money Talks

The U.S. is an energy hog. We are 5% of the world’s population, and we consume 25% of the world’s oil. We consume on average double the amount of oil of the average European, and six times the amount of oil of the average Brazilian. I will get to Brazil in a moment, but why should we consume so much more oil than Europeans? Are they simply that much more enlightened than we Americans? One could make that argument, but as someone who has lived in Europe on multiple occasions, I don’t think that’s it. I think it’s simply that people respond to price.

European governments have placed very high taxes on gasoline for many years. And in order to favor more efficient diesel engines, they provided favorable tax treatment for diesel fuel. These policies have had the effect of causing people to demand mass transit, it caused them to drive more efficient vehicles (with far more diesels operating than in the U.S.), and it caused them to live close to where they work. The overall impact is that Europeans use less oil, which also means their economies aren’t quite as sensitive to spiraling oil prices. They are not immune to higher prices, but if gasoline prices increase by $1/gallon, the impact on the average European is far less than on the average American.

Biofuel Myths

One thing high gas taxes in Europe didn’t do was to enable biofuels to gain solid footing as an alternative fuel source. Only mandates have boosted the market share for biofuels. Why? When gasoline prices reached $10/gallon this summer in parts of Europe, why didn’t we see biofuels ride to the rescue? Two reasons. First, the energy inputs into most biofuels amount to a large fraction of their overall energy content. Thus, when oil prices rise, the cost to produce biofuels rises in tandem. Second, the true cost to produce biofuels in most locations is substantially greater than it is to produce oil. Of course many producers and hypesters will claim otherwise. But the truth is that we have directly subsidized corn ethanol for 30 years. It is no closer to being able to stand on its own, subsidy and mandate-free, than it was 30 years ago. We have been working on cellulosic ethanol for 40 years. But the cost of production is too closely tied to the cost of fossil fuels like oil and natural gas because the energy inputs are so substantial.

Brazil Did It

Sugarcane ethanol can be produced efficiently and sustainably. I have been to a sugarcane ethanol plant in India, and I quizzed them intensely on their energy inputs into the process. Their energy inputs consist mainly of bagasse (sugarcane residue) that is burned for boiler fuel. Sugarcane is removed from the field during harvesting, and the bagasse is waste left at the factory after processing. The bagasse is burned for fuel, and the ash is mixed with compost from the process and returned to the soil.

Some claim that this is how Brazil reached energy independence, and the U.S. should follow Brazil’s lead. This is a myth. While Brazil is the #2 producer of ethanol in the world (the U.S. is already the #1 producer of ethanol), fossil fuels still provide 90% of their energy requirements. Brazil did recently declare energy independence – but not because of ethanol. Brazilian President Luiz da Silva made the announcement of energy independence in 2006 on the P-50 oil rig in the Albacora Leste field in the Atlantic Ocean.

So what of it? Ethanol still played a vital role in helping Brazil achieve energy independence. But the U.S. is a different ballgame entirely. The biggest problem is that in the U.S., each person uses 25 barrels of oil each year, but we produce only 6. In Brazil, each person uses 4, but they produce 3. They produce 75% of the oil they use, and in the U.S. we produce 25% of what we use. So sugarcane ethanol – which is produced with much lower fossil fuel inputs than corn ethanol – has a very small gap to fill in Brazil. In the U.S., we have a huge gap between what we use and what we produce. There is no proven biofuel technology that can economically bridge that gap.

Tax Fossil Fuels

If we can’t bridge the gap, perhaps we can make the gap smaller. How? There are many things we need to do, but I will focus on one. This summer when gasoline prices were setting new records, Americans began to conserve. They drove fewer miles. They bought more efficient cars. They embraced mass transit. As a result of high prices, we finally responded. Thus, I would argue that we need to keep fossil fuel prices high. I have proposed that we increase taxes on fossil fuels, and at the same time reduce income tax rates to prevent the taxes from being regressive. I would strive to make the fossil fuel tax revenue neutral, while providing an incentive to conserve.

There are two major advantages. First, people will know that fossil fuels are going to continue to be more expensive, and they can begin to plan accordingly. People who have been holding out for lower gas prices can finally join the people who have already begun major conservation efforts. Second, it levels the playing field for alternatives and for mass transit. Alternative energy is currently expensive relative to fossil fuels, but I would argue that this is partly because we don’t pay the true price for fossil fuels. For instance, we pay no price for carbon emissions. By raising fossil fuel taxes, those alternatives with low fossil fuel inputs will gain an advantage.

Conclusion

Why does energy independence elude us? In a nutshell, because we are unwilling to pay the price. The political parties make energy independence promises, because 1). We love to hear them; and 2). They (and we) are naïve about the difficulty of achieving the goal. Republicans tend to think we can drill our way to independence, and Democrats overrate the ease at which alternative energy can displace fossil fuels. The fact is, we love our cheap fossil fuels (and ironically loathe the companies that bring them to us).

But if we are to achieve energy independence we will need to use less. We will need to sacrifice. We will most importantly require bold leadership, because there is no easy way to get there. This is clear, given the inability of one administration after another to make headway in that direction. The thing that these administrations lacked was a serious policy designed to cut into our fossil fuel consumption. And the only proven method of getting us to collectively use less gasoline is by making it more expensive.