Commentary

For Now, Gasoline Is Our Only Cheap Fuel

This article originally appeared in the Arizona Republic, May 7, 2006
When politicians talk about energy independence, (usually in the context of the dubious, “the answer to all our problems is…”), the conversation quickly turns to renewable energy. And rightly so.

The United States consumes a bit beyond 20 million barrels of oil every day, but it produces only about 5 million barrels a day. At present, there is no way to achieve self-sufficiency regardless of how carefully we pinch our gasoline pennies or how aggressively we unleash the domestic oil industry.

Accordingly, if we want to achieve energy independence, it’s going to mean giving up oil and moving to something else.

Conservatives often talk about nuclear energy as the best prescription for energy independence. Liberals, on the other hand, rhapsodize about the glories of solar and wind power. But no matter how you feel about those technologies, they have virtually no impact on energy independence or the price of gasoline.

That’s because we use oil primarily to make transportation fuels and chemicals, whereas we use nuclear, solar and wind power to generate electricity. Until we achieve some fairly arresting breakthroughs in battery-powered technology - or unless we’re going to strap windmills on to the top of our cars, make automobiles out of solar panels or shove a fission reactor under every hood - most of the alternative fuels we’re betting on to break our so-called oil addiction are placebos.

Unfortunately, there is nothing on the horizon that comes close to gasoline as far as cost and performance is concerned. Consider the fact that taxes in Europe put gasoline prices at $5 to $8 per gallon. If alternatives to gasoline had economic merit, they would surely have arisen in Europe.

Ethanol made out of corn is probably the closest thing we have to a domestic alternative to gasoline. But no matter how nice “growing our own fuel” might be in theory, it’s uneconomically expensive in fact. Even after 30 years of lavish federal subsidy, ethanol (defined as fuel that is nine parts gasoline and one part ethanol) has only managed to capture a bit more than 3 percent of the automotive fuels market, and even industry participants concede if the subsidies and consumption mandates were removed today, the entire industry would collapse.

One might think the current run on gasoline prices would have substantially narrowed the cost gap, but one would be wrong. It takes a tremendous amount of energy to grow corn and a lot of energy to distill it into ethanol and get it into the market. Accordingly, rising energy prices has made ethanol more expensive.

Growing corn to meet a tiny fuels market is one thing, harvesting enough corn and building the infrastructure necessary to displace serious amounts of gasoline is another. The legislative prohibition on the fuel additive MTBE and mandated consumption orders imposed by the 2005 energy bill have led to a surge of demand for ethanol and the price has responded accordingly.

Both higher production costs and surging demand explain why the price of pure ethanol has increased from $1.40 per gallon in May 2005 to about $2.75 per gallon in recent weeks. Ethanol deliveries for June 6, 2006 are going for about $2.67 per gallon, whereas wholesale unleaded gasoline is selling for about $2.09 on that same date.

Ethanol proponents frequently point to Brazil as an example of how low-cost ethanol production is possible with the more aggressive subsidies and mandates.

But production costs are lower in Brazil because the industry there is using sugarcane, not corn, as a fuel input. Ethanol from sugar has about eight times the energy content of ethanol from corn, but unfortunately, the U.S. is one of the most costly sources of sugar in the world. So unless global warming grants us the heat and humidity of Brazil, that country’s experience has no bearing on what we might expect from the ethanol sector here at home.

Technological breakthroughs in the ethanol business are of course possible. And beyond harnessing oil and plants for fuel, we can move cars by compressed natural gas, hydrogen (via fuels cells), coal (by turning the black rock into liquid hydrocarbons) and, of course, with electricity.

For the time being, however, cheap fuel means gasoline. Mandating a switch given current technology would increase, not decrease, pump prices.

Jerry Taylor is a senior fellow specializing in energy policy and environmental protection.