Environmentalists support a major phase-down of fossil fuels (with the near-term excep-tion of natural gas) and substitution of favored“nonpolluting” energies to conserve depletableresources and protect the environment. Yet ener-gy megatrends contradict those concerns. Fossil-fuel resources are becoming more abundant, notscarcer, and promise to continue expanding astechnology improves, world markets liberalize,and investment capital expands. The conversionof fossil fuels to energy is becoming increasinglyefficient and environmentally sustainable inmarket settings around the world. Fossil fuelsare poised to increase their market share if envi-ronmentalists succeed in politically constraininghydropower and nuclear power.

Artificial reliance on unconventional energiesis problematic outside niche applications.Politically favored renewable energies for gener-ating electricity are expensive and supply con-strained and introduce their own environmentalissues. Alternative vehicular technologies are, at

best, decades away from mass commercializa-tion. Meanwhile, natural gas and reformulatedgasoline are setting a torrid competitive pace inthe electricity and transportation markets,respectively.

The greatest threat to sustainable energy forthe 21st century is the global warming scare.Climate-related pressure to artificially con-strain use of fossil fuels is likely to subside inthe short run as a result of political constraintsand lose its “scientific” urging over the longerterm. Yet an entrenched energy intelligentsia,career bureaucrats, revenue-seeking politicians,and some Kyoto-aligned corporations supportan interventionist national energy strategybased on incorrect assumptions. A “realitycheck” of the increasing sustainability of con-ventional energy, and a better appreciation ofthe circumscribed role of backstop technolo-gies, can reestablish the market momentum inenergy policy and propel energy entrepreneur-ship for the new millennium.

The Increasing Sustainabilityof Conventional Energy

by Robert L. Bradley Jr.

Robert L. Bradley Jr. is president of the Institute for Energy Research in Houston, Texas, and an adjunct scholar ofthe Cato Institute. An earlier version of this paper was presented at the 17th Congress of the World Energy Councilin Houston, Texas, in September 1998.

Executive Summary

April 22, 1999No. 341

Introduction

Joseph Stanislaw of Cambridge EnergyResearch Associates envisions the energycompany of the 21st century operating undertwo essential assumptions:

• Oil, gas, and coal are virtuallyunlimited resources to be used inany combination.

• “Supply security” becomes ”envi-ronmental security.” Technologyhas made it possible to burn allfuels in an environmentallyacceptable manner.1

Although overshadowed by the post-Kyoto interest in carbon-free energy sources,the technology of fossil-fuel extraction, com-bustion, and consumption continues torapidly improve. Fossil fuels continue to havea global market share of approximately 85percent,2 and all economic and environmen-tal indicators are positive. Numerous techno-logical advances have made coal, natural gas,and petroleum more abundant, more versa-tile, more reliable, and less polluting thanever before, and the technologies are beingtransferred from developed to emerging mar-kets. These positive trends can be expected tocontinue in the 21st century.

Unconventional energy technologies bydefinition are not currently competitive withconventional energy technologies on a sys-temic basis. Oil-based transportation holds asubstantial advantage over vehicles poweredby electricity, natural gas, propane, ethanol,methanol, and other energy exotics in almostall world markets. In the electricity market,natural gas combined-cycle generation has acommanding lead over the three technolo-gies most supported by environmentalists—wind, solar, and biopower—even after correct-ing for the estimated cost of negative exter-nalities.3 Where natural gas is not indige-nous, liquefied natural gas is becoming asubstitute fuel of choice. In less developednations such as China and India, oil and coaloften set the economic standard as a central-

station electricity source, not biopower andintermittent alternatives such as energy fromsunlight and naturally blowing wind.

Can the unconventional energies favoredby the environmental lobby to meet the emis-sion-reduction targets of the Kyoto Protocol(essentially requiring the United States toreduce fossil-fuel emissions by one-third by2012) mature into primary energy sources inthe next decades or later in the 21st century?Or will such alternatives continue to be sub-sidy dependent in mature markets and nicheor bridge fuels in remote or embryonic mar-kets? This study addresses those questions,

The first section examines trends in fossil-fuel supply and concludes that, contrary topopular belief, fossil fuels are growing moreabundant, not scarcer, a trend that is likely tocontinue in the foreseeable future.

The second section investigates the “nega-tive externalities” of fossil-fuel consumptionand finds that they are largely internalizedand becoming more so. Thanks to techno-logical advances and improved practices,environmental quality has continued toimprove to such an extent that increased fossil-fuel consumption is no longer incompatible withecological improvement. Moreover, America’sreliance upon imported oil should not be ofmajor foreign policy or economic concern.

The third section considers the econom-ic competitiveness of non-fossil-fuel alter-natives for electricity generation and findsthat a national transition from natural gas,coal, oil, and nuclear power to wind, solar,geothermal, and biomass is simply not con-ceivable today or in the near term ormidterm without substantial economic andsocial costs.

The fourth section examines the eco-nomic competitiveness of non-fossil-fuelalternatives for transportation markets andconcludes that rapidly improving gasoline-based transportation is far more economi-cally and socially viable than alternative-fueled vehicles for the foreseeable future.

The fifth section examines America’sfailed legacy of government intervention inenergy markets and concludes that environ-

2

Natural gascombined-cycle

generation has acommandinglead over the

three technologiesmost supported byenvironmentalists.

mentalists and some energy planners havefailed to learn the lessons of the past.

The sixth section investigates the scienceof global warming and the economics ofreducing greenhouse gas emissions. Theissue is important because many analystsbelieve that only by significantly reducing theuse of fossil fuels can we stop global warm-ing. The magnitude, distribution, and timingof anthropogenic warming, however, contra-dict the 1980s and early 1990s case for alarmabout climate. Furthermore, the cost of dis-placing fossil fuels with politically correctrenewable alternatives is so steep that thecosts of preventing anthropogenic warmingswamp the benefits.

The Growing Abundanceof Fossil Fuels

Only a few years ago academics, busi-nessmen, oilmen, and policymakers werealmost uniformly of the opinion that the

age of energy scarcity was upon us and thatthe depletion of fossil fuels was imminent.4

While some observers still cling to that viewtoday, the intellectual tide has turnedagainst doom and gloom on the energyfront. Indeed, resource economists arealmost uniformly of the opinion that fossilfuels will remain affordable in any reason-ably foreseeable future.

Resources As Far As the Eye Can SeeProven world reserves of oil, gas, and coal

are officially estimated to be 45, 63, and 230years of current consumption, respectively(Figure 1). Probable resources of oil, gas, andcoal are officially forecast to be 114, 200, and1,884 years of present usage, respectively.5

Moreover, an array of unconventionalfossil-fuel sources promises that, whencrude oil, natural gas, and coal becomescarcer (hence, more expensive) in thefuture, fossil-fuel substitutes may still bethe best source fuels to fill the gap beforesynthetic substitutes come into play.

3

230

63 45

1884

200114

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Proved Reserves

Probable Resources

Figure 1World Fossil-Fuel Reserves and Resources

Proved ReservesProbable Resoures

Sources: U.S. Department of Energy; Oil & Gas Journal; World Oil; Enron Corp.;World Energy Council.

Coal Natural Gas Crude Oil

The most promising unconventional fos-sil fuel today is orimulsion, a tarlike sub-stance that can be burned to make electricityor refined into petroleum. Orimulsionbecame the “fourth fossil fuel” in the mid-1980s when technological improvementsmade Venezuela’s reserves commerciallyexploitable. Venezuela’s reserve equivalent of1.2 trillion barrels of oil exceeds the world’sknown reserves of crude oil, and other coun-tries’ more modest supplies of the naturalbitumen add to the total.

With economic and environmental (post-scrubbing) characteristics superior to thoseof fuel oil and coal when used for electricitygeneration, orimulsion is an attractive con-version opportunity for facilities located nearwaterways with convenient access toVenezuelan shipping. While political opposi-tion (in Florida, in particular) has slowed theintroduction of orimulsion in the UnitedStates, orimulsion has already penetratedmarkets in Denmark and Lithuania and, to alesser extent, Germany and Italy. India couldsoon join that list. Marketing issues aside,this here-and-now fuel source represents anabundant backstop fuel at worst and a signif-

icant extension of the petroleum age at best.6

The significance of orimulsion for theelectricity-generation market may bematched by technological breakthroughscommercializing the conversion of naturalgas to synthetic oil products. For remotegas fields, gas-to-liquids processing canreplace the more expensive alternative ofliquefaction. In mature markets with airquality concerns, such as in California, nat-ural gas could become a key feedstock fromwhich to distill the cleanest reformulatedgasoline and reformulated diesel fuel yet.7 Ahalf dozen competing technologies havebeen developed, several by oil majors whoare committing substantial investments rel-ative to government support. The wide-spread adaptation of gas-to-oil technolo-gies could commercialize up to 40 percentof the world’s natural gas fields that hither-to have been uneconomic.8

In addition to orimulsion and synthesizednatural gas, tar sand, shale oil, and variousreplenishable crops also have great promise,however uneconomic they now are, giventoday’s technology and best practices (Figure2).9 Michael Lynch of the Massachusetts

4

CrudeOil

Orimulsion

Synthetic Oil

Agricultural Oils

Conventional

Nonconventional

“Depletable”

Infinite

Figure 2Resource Pyramid: Oil

Institute of Technology estimates that morethan 6 trillion barrels of potentially recover-able conventional oil and another 15 trillionbarrels of unconventional oil (excluding coalliquefaction) are identifiable today, an esti-mate that moves the day of reckoning forpetroleum centuries into the future.1 0

The gas resource base is similarly loadedwith potential interfuel substitutions, withadvances in coal-bed methane and tight-sandsgas showing immediate potential and synthet-ic substitutes from oil crops having long-runpromise (Figure 3). If crude oil and naturalgas are retired from the economic playingfield, fossil fuels boast a strong “bench” ofclean and abundant alternatives. Even thecautious Energy Information Administrationof the U.S. Department of Energy concededthat “as technology brings the cost of pro-ducing an unconventional barrel of oil closerto that of a conventional barrel, it becomesreasonable to view oil as a viable energysource well into the twenty-second century.”1 1

Technological Advances andIncreasing Resources

Despite a century of doom and gloom

about the imminent depletion of fossil-fuelreserves, fossil-fuel availability has beenincreasing even in the face of record con-sumption. World oil reserves today aremore than 15 times greater than they werewhen record keeping began in 1948; worldgas reserves are almost four times greaterthan they were 30 years ago; world coalreserves have risen 75 percent in the last 20years.1 2 Thus, today’s reserve and resourceestimates should be considered a mini-mum, not a maximum. By the end of theforecast period, reserves could be the sameor higher depending on technologicaldevelopments, capital availability, publicpolicies, and commodity price levels.

Technological advances continue to sub-stantially improve finding rates and individ-ual well productivity.1 3 Offshore drilling wasonce confined to fields several hundred feetbelow the ocean, for instance, but offshoredrilling now reaches depths of several thou-sand feet. Designs are being considered fordrilling beyond 12,000 feet.1 4

Predictably, advances in production tech-nology are driving down the cost of findingoil. In the early 1980s finding costs for new

5

NaturalGas

Gasified Coal

Gas Hydrates

Synthetic Gas

Conventional

Nonconventional

“Depletable”

Infinite

Figure 3Resource Pyramid: Gas

crude oil reserves averaged between $11.50and $12.50 per barrel in the United Statesand most areas of the world. In the mid-1990s finding costs had fallen to around $7per barrel despite 40 percent inflation in theinterim. In the United States alone, findingcosts dropped 40 percent between 1992 and1996.1 5That is perhaps the best indicator thatoil is growing more abundant, not scarcer.

Finally, the amount of energy needed toproduce a unit of economic goods or serviceshas been declining more or less steadily.1 6Newtechnologies and incremental gains in pro-duction and consumption efficiency makethe services performed by energy cheapereven if the original resource has grownmore (or less) expensive in its own right.1 7

Understanding Resource AbundanceHow is the increasing abundance of fossil

fuels squared with the obviously finite natureof those resources?1 8 “To explain the price ofoil, we must discard all assumptions of afixed stock and an inevitable long-run riseand rule out nothing a priori,” says M. A.Adelman of MIT. “Whether scarcity has beenor is increasing is a question of fact.Development cost and reserve values are bothmeasures of long-run scarcity. So is reservevalue, which is driven by future revenues.”1 9

Natural resource economists have beenunable to find a “depletion signal” in thedata. A comprehensive search in 1984 bytwo economists at Resources for the Futurefound “gaps among theory, methodology,and data” that prevented a clear delineationbetween depletion and the “noise” of tech-nological change, regulatory change, andentrepreneurial expectations.2 0 A morerecent search for the depletion signal byRichard O’Neill et al. concluded:

Care must be taken to avoid theseductiveness of conventional wis-dom and wishful thinking. While thetheory of exhaustible resources isseductive, the empirical evidencewould be more like the bible story ofthe loaves and fishes. What matters is

not exhaustible resource theories(true but practically dull) but gettingsupply to market (logistics) withoutdisruption (geopolitics). While it iseasy to see how political events maydisrupt supply, it is hard to contrivean overall resource depletion effect onprices.

2 1

The facts, however, are explainable. SaysAdelman:

What we observe is the net result oftwo contrary forces: diminishingreturns, as the industry moves fromlarger to smaller deposits and frombetter to poorer quality, versusincreasing knowledge of science andtechnology generally, and of localgovernment structures. So far,knowledge has won.2 2

Human ingenuity and financial where-withal, two key ingredients in the supplybrew, are not finite but expansive. The mostbinding resource constraint on fossil fuels isthe “petrotechnicals” needed to locate andextract the energy.2 3 Congruent withAdelman’s theory, wages in the energy indus-try can be expected to increase over time,while real prices for energy can be expectedto fall under market conditions. Under polit-ical conditions such as those that existedduring the 1970s, however, the record ofenergy prices can be quite different.

There is no reason to believe that energyper se (as opposed to particular energysources) will grow less abundant (moreexpensive) in our lifetimes or for futuregenerations. “Energy,” as Paul Ballonoff hasconcluded, “is simply another technologi-cal product whose economics are subject tothe ordinary market effects of supply anddemand.”2 4 Thus, a negative externality can-not be assigned to today’s fossil-fuel con-sumption to account for intergenerational“depletion.” A better case can be made thata positive intergenerational externality iscreated, since today’s base of knowledge

6

Fossil-fuel avail-ability has been

increasing even inthe face of record

consumption.

and application subsidizes tomorrow’sresource base and consumption.

The implication for business decision-making and public policy analysis is that“depletable” is not an operative concept forthe world oil market as it might be for anindividual well, field, or geographical section.Like the economists’ concept of “perfectcompetition,” the concept of a nonrenewableresource is a heuristic, pedagogical device—anideal type—not a principle that entrepreneurscan turn into profits and government offi-cials can parlay into enlightened interven-tion. The time horizon is too short, and tech-nological and economic change is too uncer-tain, discontinuous, and open-ended.

The Shrinking (Negative)Externalities of Fossil-fuel

Consumption

Fossil fuels are not being depleted andwill probably continue to grow even moreplentiful for decades to come. But now thatthe traditional rationale for a government-assisted transition to unconventional fuelsis removed, new rationales have arisen.Does our reliance on imported oil risk thenation’s economic security? Is not fossil-fuel consumption at the heart of most envi-ronmental problems, and can we “save” theenvironment only by repairing to uncon-ventional energies? This section examinesthose questions and finds that the econom-ic and environmental externalities of fossil-fuel consumption are vastly overstated anddwindling in importance.

The Chimera of Energy SecurityAlthough the underlying physical stock

of crude oil has always been plentiful, crit-ics can point to interruptions in oil importsto the United States and other net import-ing regions as the operative constraint.Energy security became a concern in theUnited States and other industrializednations with the “oil shocks” and oil prod-

uct shortages of 1973–74 and 1979.Enhancing “energy security” has been amajor mission of the U.S. Department ofEnergy and the International EnergyAgency of the Organization for EconomicCooperation and Development ever sincethe troubled 1970s.

Energy security, like resource exhaustion,has proven to be an exaggerated rationale forgovernment intervention in petroleum mar-kets (such as emergency price and allocationregulation, publicly owned strategic oilreserves, international contingency supply-sharing agreements, and crash programs tofund new electricity sources or transporta-tion alternatives). The lesson from the 1970senergy crises is that government price andallocation regulation can turn the process ofmicroeconomic adjustment to higher energyprices into a “macroeconomic” crisis of phys-ical shortages, industrial dislocations, lostconfidence, and social instability.2 5 The “oilcrises that were not,” during the Iran-IraqWar of 1980–81 and the UN ban on Iraqi oilexports of a decade later, demonstrated thatfreer markets can anticipate and amelioratesudden supply dislocations without physicalshortages, the need for price and allocationregulation, or strategic petroleum reservedrawdowns.2 6

The international petroleum market issubject to geopolitics, which will occasional-ly lead to supply disruptions and temporari-ly higher world prices. But the risk of higherprices must be balanced with the normalcyof price wars and a “buyers’ market,” givenan abundant resource base and natural pecu-niary incentives to find and market hydro-carbons. Markets learn, adjust, and improveover time as technology and wealth expand.“Market learning” from the 1970s has result-ed in increased energy efficiency; greaterdiversity of supply; enlarged spot-markettrading, futures trading, and risk manage-ment; and greater integration and alignmentof producer interests with consumer inter-ests.2 7 Future oil crises like those of the 1970sare highly improbable because of the amelio-rating effects of the new market institutions.

7

“Depletable” isnot an operativeconcept for theworld oil market.

Transient price flare-ups as a result of politi-cally driven supply reductions are, of course,possible. In the developed world, such“worst-case” events for motorists are notqualitatively, or even quantitatively, differentfrom abnormally cold winters for naturalgas consumers and abnormally hot sum-mers for electricity users. They are transienteconomic burdens, not macroeconomic ornational security events worthy of proactive“energy policy.”

World oil markets are more fluid andefficient than ever before, and this improve-ment can be expected to continue as moreeconomies are liberalized in future decades.Any alleged “energy security premium,”making the social cost of oil greater than itsprivate cost, is small and largely internal-ized by the market.2 8 Thus investments suchas the U.S. Strategic Petroleum Reserve,which holds oil with an embedded cost sev-eral times the recent market price of crudeoil in present dollars, and international oil-sharing agreements in the event of a short-fall, such as those under the auspices of the

International Energy Agency, are unneces-sary, create bad incentives, and are poten-tially costly as well.

Air Pollution: A Vanishing Problem?Technology has a remarkable record not

only in unlocking, upgrading, and market-ing fossil-fuel resources but also in control-ling air emissions upon combustion. Theprogress of the United States in reducingoutdoor air pollutants is a political, techno-logical, and economic achievement that wasaccomplished despite growing industrializa-tion and robust energy usage. In the UnitedStates between 1970 and 1997 significantreductions were recorded for carbon monox-ide, volatile organic compounds, sulfur diox-ide (SO2), particulate matter, and lead. Onlynitrogen oxides (NOx) increased in that peri-od, but under the Regional Transport Ruleand Acid Rain program NOx emissions areexpected to decline2 9 (Figure 4). Summarizedthe Environmental Protection Agency,“Since 1970, national total emissions of thesix criteria pollutants declined 31 percent,

8

0

50

100

150

200

250

Carbon

Monoxide

Nitrogen Oxides Sulfur Dioxide VOCs Particulate

Matter

Lead

1970 1997

-32%

+11% -35% -38%

-25%

-98%

Figure 4U.S. Air Emissions Summary: 1970–97 (million short tons)

Source: Environmental Protection Agency.

while U.S. population increased 31 percent,gross domestic product increased 114 per-cent, and vehicle miles traveled increased 127percent.”3 0

Emission reductions by power plants andon-road vehicles have been an important partof the above improvement. Emissions of car-bon monoxide and volatile organic com-pounds from on-road vehicles dropped 43percent and 60 percent, respectively, between1970 and 1997. Emissions of particulate mat-ter from on-road vehicles fell 40 percent inthe same period. Lead emissions from vehi-cles were virtually eliminated, dropping from172 thousand short tons in 1970 to only 19short tons in 1997. Nitrogen oxide emissionsfrom vehicles fell slightly in the same 27-yearperiod. On the power plant side, while NOxemissions increased 26 percent, emissions ofSO2, particulate matter, and lead fell by 25percent, 84 percent, and 80 percent, respec-tively, between 1970 and 1997.3 1

Entrepreneurial responses to future airquality regulations can be expected toresult in improved air quality and not bestymied by technological barriers so long asthe regulations are based on sound scienceand realistic marketplace economics, notpunitive disrespect for the energy and end-use sectors.

Indoor air quality has not shown theimprovement of outdoor air quality and, infact, has worsened. State and federal energypolicies subsidizing home and building insu-lation in the name of energy conservation areat issue. Ben Lieberman explained:

Insufficiently ventilated offices andresidences use less energy for heatingand cooling . . . [but] also hold inmore airborne pollutants, such asbiological contaminants, volatileorganic compounds, and formalde-hyde. Consequently, those and othercompounds sometimes reach indoorconcentrations that can cause physi-cal discomfort, or more serious ill-nesses. Indoor air pollution and itshealth effects are in large part an

unintended consequence of theenergy efficiency crusade.

3 2

The EPA has recognized that “indoor lev-els of many pollutants may be two to fivetimes, and on occasion more than one hun-dred times, higher than outdoor levels,” animportant problem, since people spend farmore time indoors than outdoors.

3 3While

this could lead to a heavy-handed expansionof regulation in an attempt to correct theunintended consequences of previous regula-tion, it may also be addressed by relaxingbuilding codes and removing subsidies to letindividuals decide between heavy insulationand letting more (increasingly cleaner) out-side air indoors.

Cleaner ElectricityMore electricity is being produced with

less pollution in the United States despite theoldest and most polluting coal plants beingexempted from the emissions reductionsrequired under the Clean Air Act of 1990.Electricity generation increased 14 percentbetween 1989 and 1996, while NOx emis-sions increased 3 percent and SO2 emissionsfell 18 percent.3 4 Those changes resulted pri-marily from

• a one-fourth increase in nuclear out-put,

3 5

• a nearly 50 percent increase in theamount of coal being “scrubbed” byhigh-tech pollution control technolo-gies,

36 and

• a drop in sulfur content of coal (a near-ly one-half drop in sulfur content ofcoal was registered between 1972 and1994 alone).

3 7

Lower emissions from retrofitted oil andgas units, and the entry of gas plants in placeof more polluting coal units, are also impor-tant factors in pollution reduction.3 8 Theenvironmental advantages of natural gasover coal in modern facilities have led manyenvironmentalists to welcome gas as a“bridge fuel” to a “sustainable” energy mar-

9

Future oil criseslike those of the1970s are highlyimprobable.

ket, displacing coal and oil before being dis-placed itself by renewables later in the nextcentury.3 9

Natural gas combined-cycle and cogenera-tion technologies also have some environ-mental advantages over their renewablerivals. A state-of-the-art natural gas plant canfavorably compare with wind farms in termsof land disturbance, wildlife impacts, visualblight, noise, and front-end (infrastructure-related) air emissions. Back-end air emissionreductions are where wind turbines muststake their entire environmental claim.4 0

Solar farms (in contrast to distributed solarapplications) are so land intensive, resourceintensive, and economically impractical thatChristopher Flavin of the WorldwatchInstitute has stated a preference for on-sitepower generation options, including naturalgas microturbines.4 1

Coal-fired electricity generation is far lesspolluting today than it was in the 1970s.However, it originally was the most pollutingtechnology of all fossil-fuel alternatives andremains so today, relative to modern oil andnatural gas technologies. In one sense that isa problem; in another sense it is an opportu-nity for further reductions of emissions tohelp produce what is rapidly becoming anenvironmentally benign mix of electricity-generating resources as defined by environ-mental regulators themselves.

Cleaner VehiclesThe internal combustion engine and

“antiseptic automobile traffic” solved theenvironmental problem of “horse emissions”earlier this century. James Flink explained:

In New York City alone at the turn ofthe century, horses deposited on thestreets every day an estimated 2.5 mil-lion pounds of manure and 60,000gallons of urine, accounting for abouttwo-thirds of the filth that littered thecity’s streets. Excreta from horses inthe form of dried dust irritated nasalpassages and lungs, then became asyrupy mass to wade through and

track into the home whenever itrained. New York insurance actuarieshad established by the turn of the cen-tury that infectious diseases, includ-ing typhoid fever, were much morefrequently contracted by livery stablekeepers and employees than by otheroccupational groups. . . . The flies thatbred on the ever present manureheaps carried more than thirty com-municable diseases. . . . Traffic wasoften clogged by the carcasses of over-worked dray horses that dropped intheir tracks during summer heatwaves or had to be destroyed afterstumbling on slippery payments andbreaking their legs. About 15,000dead horses were removed from thestreets of New York each year. Urbansanitation departments, responsiblefor daily cleaning up of this mess,were not only expensive but typicallygraft- and corruption-ridden. . . .These conditions were characteristicin varying degree of all of our largeand medium-sized cities.

4 2

The internal combustion engine wouldcreate its own emission problems, but nearlya century after its introduction it has becomefar more environmentally benign and is con-tinually proving itself compatible withimproving environmental conditions.

Vehicle pollution has declined in recentdecades thanks to a combination of greaterfuel efficiency per vehicle, cleaner motorfuels, and onboard technological improve-ments, such as catalytic converters. Thosedevelopments mean that more cars andincreased travel mileage no longer increasepollution in the aggregate. As older cars leavethe fleet, progressively cleaner cars are takingtheir place. New passenger cars in the UnitedStates have reduced major emissions by morethan 90 percent. A newer car making the 230-mile trip from Washington, D.C., to NewYork City, for example, emits less pollutionthan a gasoline-powered lawnmower emitscutting an average-sized yard. Appreciated

10

Indoor air quali-ty has not shownthe improvement

of outdoor airquality.

another way, sports utility vehicles todayemit less pollution than small cars did sever-al decades ago.4 3

The big three domestic automakers(Chrysler, Ford, and General Motors) haveannounced a National Low EmissionVehicle program for year-2001 models (andas early as model-year 1999 in theNortheast). Those vehicles will emit, onaverage, 99 percent less smog-forminghydrocarbon emissions than cars made inthe 1960s. Car size and comfort will not beaffected. The new technology incorporatesupgraded catalytic converters, improvedcomputer engine control, and enhanced air-fuel mixtures—all for about $60 a car.4 4

The motivation for automakers to intro-duce cars that exceed federal standards is toprepare for the next generation of federalrequirements and discourage states fromimplementing zero-emission vehicle (ZEV)mandates. The only ZEV is the electric vehi-cle, which qualifies only because it is notpenalized by the air emissions associatedwith its upstream electricity-generationphase. California already has rescinded itsrequirement that 2 percent of all vehiclessold in 1998 be ZEVs and postponed itsrequirement that 5 percent of all vehiclessold in 2001 be ZEVs. The 2003 ZEVrequirement, 10 percent of all new vehiclesales, remains on the books in California asdo ZEV requirements in New York,Massachusetts, Maine, and Vermont. Theautomakers’ National Low EmissionVehicle program will apply to 45 states andany other states that abandon their ZEVrequirements.

Reformulated FuelsReformulated gasoline, coupled with

advances in internal combustion engine tech-nology, has been setting the competitivestandard for transportation energy in theUnited States since the early 1970s, and par-ticularly in the 1990s. That began on the firstday of 1992 when the California AirResources Board (CARB) of the CaliforniaEnvironmental Protection Agency required

the manufacture and sale of the nation’s firstreformulated gasoline (known as Phase 1reformulated gasoline). The new gasoline—atan incremental cost of 1 to 2 cents per gal-lon4 5—lowered Reid vapor pressure, phasedout lead, and added engine deposit controladditives. Federal gasoline regulation pur-suant to the Clean Air Amendments of 1990followed later the same year. In November1992, 39 cities in 20 states not in compliancewith the Clean Air Act began using gasolineblended with oxygenates, primarily MTBEbut also ethanol, during the four-month win-ter driving season to reduce carbon monox-ide emissions. Major East Coast cities wereprominently represented, as was the entirestate of California. An increased cost of sever-al cents per gallon and a 1 percent to 4 per-cent loss of fuel mileage initially resulted.4 6

The winter oxygenated-gasoline programof 1992 was supplemented on January 1,1995, with a federal year-round reformulatedgasoline requirement for nine areas aroundthe country with the worst ozone (summer-time urban smog) problems, as well as other“opt-in” areas. Six southern California coun-ties formed the largest geographical concen-tration in the program, and 15 other stateswere represented as well. Compared withconventional gasoline, EPA Phase 1 reformu-lated gasoline reduced benzene (a carcino-gen), lowered Reid vapor pressure specifica-tions by reducing butane, increased oxy-genates, and reduced heavy metal content.The reduction of emissions of volatile organ-ic compounds contributing to summer smogand the reduction of year-round toxic emis-sions were achieved at an initial premium of2 to 5 cents per gallon in addition to someloss in fuel efficiency. Refiners reported thechangeover as “blissfully uneventful,” whileconsumers reported no operational prob-lems with the cleaner reconstitution.4 7

The Natural Resources Defense Councilpraised the reformulated oil product:

Changing fuel formulations is anessential element to improving airquality, in part because it has immedi-

11

Reformulatedgasoline has beensetting the com-petitive standardfor transporta-tion energy in theUnited States.

ate results: it reduces dangerous airtoxics and ozone-forming substanceseven from old cars. New vehicle tech-nology, by contrast, affects the airquality slowly as new vehicles are pur-chased and older vehicles are gradual-ly retired.

4 8

Effective June 1, 1996, CARB requiredeven cleaner reformulated gasoline (knownas Phase 2 reformulated gasoline) to furtheraddress ozone precursors. Six counties insouthern California and the greaterSacramento area were subject to both EPAPhase 1 and CARB Phase 2 reformulatedgasoline requirements. The new blend wastwice as effective at reducing smog as wasEPA Phase 1 reformulated gasoline andreduced SO2 emissions as well. The addedcost was estimated at between 3 and 10 centsper gallon with a slight loss of fuel economy.That made the total estimated cost increasefor reformulated gasoline over the cost ofpre-1995 grade gasoline in Californiabetween 5 and 15 cents per gallon with a 3percent loss of fuel efficiency.

4 9Californians

were paying around 15 cents per gallon,inclusive of fuel efficiency loss, more thanthey had paid for 1980s pre-reformulatedgasoline,

5 0an “environmental premium” that

can be expected to fall over time as refinerycosts are amortized and technologyimproves. Meanwhile, southern Californiahas registered a 40 percent drop in peakozone levels since the late 1970s.

5 1

The next requirement, effective January 1,2000, will mandate the use of EPA Phase 2reformulated gasoline in all areas nowrequired to use EPA Phase 1 reformulatedgasoline. The new gasoline will reduce NOxand volatile organic compounds in particu-lar. The EPA is considering new rules (Tier 2standards) to become effective in model-year2004 or later to bring light-duty trucks(including sports utility vehicles) under thesame emission standards as passenger vehi-cles and reduce the sulfur content of gaso-line.

A federal low-sulfur reformulated diesel

program took effect for the entire countryon October 1, 1993. On the same day CARBadopted for California a tighter standardthat also required a reduction in aromatics.CARB’s clean diesel standard applied to off-road vehicles as well as to on-road vehicles.5 2

The CARB standard was calculated toreduce SO2, particulate matter, and NOxby 80 percent, 20 percent, and 7 percent,respectively, at an initial incremental cost ofaround 6 cents per gallon.5 3 Improvedengine technology, which has increased theenergy efficiency of diesel from 37 percentto 44 percent in the last 20 years, has alsoreduced emissions.54 Those improvementsmay be matched by innovations of newalliances between General Motors andAmoco and GM and Isuzu to develop clean-er diesel fuels and diesel engines, respective-ly, in the years ahead.5 5

Internationally, leaded gasoline has beenphased out of 20 countries, but high leadcontent is still common in many areas ofAsia, Africa, Latin America, and EasternEurope. As older cars with more sensitivevalve systems leave the fleet and more sophis-ticated refineries are constructed that cansubstitute other octane boosters for lead,more countries will phase out leaded gaso-line. Reformulated gasoline and diesel stan-dards are beginning to be introduced in morewealthy nations such as Finland, Sweden,Norway, Japan, and across Europe. In the2000–2005 period, Latin America andCaribbean countries will introduce standardsfor all motor fuels, and Europe is scheduledto introduce tighter standards. The cleantransportation movement is an internationalphenomenon, not just a U.S. initiative.5 6

The Controlled Problem of Oil SpillsMajor oil spills such as those at Torrey

Canyon (1967) and Santa Barbara (1969) andfrom the Valdez (1989) tainted the upstreamoperations of the oil industry as environmen-tally problematic, downstream combustionaside. Yet trends have been positive in thisarea as well. The quantity of oil spilled in U.S.waters has fallen by 67 percent in the most

12

The quantity of oilspilled in U.S.

waters has fallen by67 percent in the

last five years.

recent five years compared with the five pre-vious years when comprehensive record keep-ing began. Even subtracting the 10.8 milliongallons of oil leaked from the Valdez from thebase period, spillage fell by more than 50 per-cent. The spillage in 1996 of 3.2 million gal-lons was approximately one-thousandth of 1percent of the 281 billion gallons moved andconsumed in the United States. Moreover,what is spilled is controlled more quickly andhas less impact on the ecosystem owing toimproved cleanup technology such as biore-mediation.

5 7

Those advances have been accelerated bythe problems the industry has experienced.Just months after the Valdez accident, theAmerican Petroleum Institute, concludingthat government and industry had neither“the equipment nor the response personnelin place and ready to deal with catastrophictanker spills” in U.S. waters, recommendedforming an industrywide oil-spill responseorganization. The result was a $400 million,20-member organization—the PetroleumIndustry Response Organization—financedfrom a small fee levied on transported tankerbarrels.

5 8The group was reorganized in 1990

as the Marine Spill Response Corporation,and a $1 billion five-year commitmentensued.

5 9Federal legislation was passed (the

Oil Pollution Act of 1990) that required dou-ble hulls in new tankers operating in domes-tic waters to provide greater protection incase of accidents. Not only the local environ-ment but ecotourism is booming in PrinceWilliam Sound in Alaska thanks to themonies collected and the attention gained asa result of the Valdez oil spill.

6 0Thus, a worst-

case environmental event turned out to be atemporary problem that in the longer runhas proven positive for the local environmentand the environmental movement in theUnited States.

The Competitive Quandaryof “Green” Electricity

Unfortunately, few analysts outside the

energy field fully grasp the explosion of tech-nological advances in conventional electricitygeneration. Such progress easily compareswith the technological progress of unconven-tional energies, given that the starting pointof conventional energies was so far ahead. Soeven if the rate of improvement (or rate ofgrowth) of an unconventional technology isgreater over a certain time frame, the relativeend points are what are relevant.

To use an analogy, a weekend athletecould achieve greater improvement thancould a professional athlete as the result offull-time training for a given period of time,but it would be incorrect to infer that the rateof progress implies that the amateur’simprovement is sustainable or that the pro-fessional athlete will eventually be displaced.The same may be true today of alternativeenergy technologies, most of which havelonger histories and more competitive chal-lenges than is commonly realized in ourpoliticized context.

The Emergence of NaturalGas–Fired Technologies

Natural gas technologies are setting thecompetitive standard for all conventionalenergies in the electric market wheremethane reserves are abundant. In NorthAmerica, gas-fired combined-cycle plants cangenerate large quantities of electricity ataround 3 cents per kilowatt-hour (kWh)where demand conditions support continu-ous (“baseload”) operation.6 1 Smaller gasunits can also be constructed without a greatloss of scale economies, allowing the flexibil-ity to meet a range of market demands.6 2

Quicker construction and less capital outlayfigure into those economies.

Even as stand-alone, off-grid generators,natural gas microturbines sized from 500watts to several hundred kilowatts can pro-duce electricity for as little as 4.5 cents perkWh on a fully utilized basis where generatedsteam is utilized in addition to electricity.Moderate usage (a lower capacity factor)without cogeneration doubles the nominalcost.6 3 Rapidly improving microturbine tech-

13

Even as stand-alone, off-gridgenerators, natur-al gas microtur-bines can pro-duce electricityfor as little as 4.5cents per kWh.

nologies offer self-generating opportunitiesfor large commercial and industrial cus-tomers facing high electric rates (with orwithout a stranded cost recovery surcharge),an argument supportive of rate deregulationof the electricity grid.6 4

On the other extreme are combined-cycle plants run on liquefied natural gas.The hardware required to liquefy the gas fortanker shipment and vaporize the gas foruse in a combined-cycle plant increases thecost to around 5 cents per kWh,6 5 about 50percent more than the cost of using naturalgas. This price, however, is still competitivewith coal in some applications and is belowthe cost of nuclear power.

Electricity generation from natural gas isthe cleanest fossil-fuel option. Gas-fired com-bined-cycle plants produce substantially lessair pollution and less solid waste than doscrubbed coal plants and oil-fired powerplants.

6 6Nitrogen oxides, the major emission

of gas plants, have been substantially reducedin recent decades by technological upgrades.That is why the environmentally consciousCalifornia Energy Commission (CEC) con-cluded that gas plants were both privatelyand socially the least cost generating optionfor the state.6 7

The superior economics of gas-fired gen-eration explains why the large majority ofnew capacity being built in North America isgas fired, not coal fired.6 8 State-of-the-artscrubbed-coal plants and advanced light-water reactor nuclear plants can produceelectricity at around 4.5 cents per kWh and7.5 cents per kWh, respectively, costs 50 per-cent and 133 percent greater than those ofbaseload natural gas combined-cycle units.

6 9

A 1996 study by two researchers at theElectric Power Research Institute concludedthat the costs of an advanced nuclear powerplant built after the turn of the century hadto be “sufficiently less” than 4.3 cents perkWh “to offset the higher capital investmentrisk associated with nuclear plant deploy-ment.”7 0 At least in North America, and alsoin much of Europe and in South Americanwhere natural gas is becoming more avail-

able, the environmental debate between con-ventional energies is being settled on eco-nomic and not political grounds.

Arlon Tussing and Bob Tippee summa-rized the success of gas technologies relativeto coal and nuclear research:

The use of gas-fired combustion tech-nology in the production of electricpower is the leading natural gas suc-cess story of the 1980s. Despite thehuge research budgets committed inthe 1970s and 1980s by the U.S.Department of Energy and theElectric Power Research Institute toimprove coal and nuclear-generationtechnologies, the greatest technologi-cal breakthroughs in generatordesign stemmed from the efforts ofthe aircraft industry to improve jetengines. . . . The result was the devel-opment of smaller, more dependable,and more fuel-efficient jet turbines,which were manufactured in suffi-ciently large numbers so that partssupply and maintenance were greatlysimplified.

7 1

Jason Makansi summarized the currentcompetitive picture of natural gas versuscoal:

Advanced coal technologies—ultra-supercritical steam generators, state-of-the-art circulating fluidized-bedboilers, integrated gasification/com-bined cycle, and pressurized flu-idized-bed combustion combined-cycle—look good compared to theconventional pulverized coal–firedplant, which has been the workhorseof electric power generation fordecades. Gains in efficiency and over-all environmental performance aresignificant. . . . [Yet] none of thesecoal-based options provide anywherenear the efficiency, simplicity, flexibil-ity, and emissions profile of today’snatural gas–fired combined-cycles. . . .

14

The CaliforniaEnergy Commis-

sion concludedthat gas plants wereboth privately and

socially the leastcost generating

option for the state.

For new plants, coal continues todominate only in countries with (1)protectionist tendencies for impor-tant indigenous industries, such asGermany [and Great Britain], or (2)surging economic growth and mas-sive domestic supplies, such as Chinaand India. Coal is also an importantfactor in new construction for coun-tries such as Japan and Korea, whichimport most or all their energy. . . . Inmost other countries with healthycoal industries, large [coal] projectstend to get pushed farther out on theplanning horizon [because of compe-tition from gas technologies].7 2

If you cannot beat them, join them. Astrategy to reduce emissions at existing coalplants is cofiring: for less than $25 per kWhnatural gas is burned along with coal in theprimary combustion zone of a boiler toreduce SO2 emissions and increase electricityoutput. Optimized cofiring can reduce emis-sions more than proportionally to the emis-sion reduction associated with the percent-age of natural gas used. Another option is gasreburning by which NOx as well as SO2 emis-sions are reduced.7 3

Advances in Nuclear Plant DesignThe size of the world’s nuclear power

industry qualifies uranium as a conventionalenergy source that complements fossil fuels.Nuclear fuel is also the largest emission-freeenergy source for electricity generation in theworld, even after accounting for the “embed-ded energy” pollution associated with infra-structure (primarily cement). While fossil-fuel alternatives, as well as hydroelectricity,have eclipsed nuclear fuel on economicgrounds in many regions, nuclear plants arebecoming more standardized and economi-cal. For large-scale needs in future centuries,nuclear technologies may be the leadingbackstop to fossil fuels for primary electricitygeneration.7 4

The performance of nuclear power isimproving with existing units and new-gen-

eration technologies. Of the United States’103 operating reactors, more than 90 per-cent have improved capacity, safety, andcost factors.7 5 In the eight-year period end-ing in 1997, average plant capacity factorsand total output per facility increased by 7percent and 6 percent, respectively. Totaloutput increased 9 percent as well, owing toa net increase of three units.76 Between 1990and 1996 (the last year for which informa-tion is available), the average productioncost (marginal cost) of U.S. plants fell 21percent.77 The Department of Energyexpects continued increases in operatingefficiencies through its 2020 forecast peri-od. However, the average is for fewer unitsbecause of the retirement of uneconomiccapacity and an absence of new entrybecause of cheaper fossil-fuel alternativesand political opposition.7 8

New advanced light-water reactor designshave been certified for the market, led by the600-megawatt Westinghouse design and two1,350-megawatt designs by General Electricand Combustion Engineering. An overarch-ing goal of the new designs is standardiza-tion and simplification to reduce costs,speed construction, improve reliability, andensure safety. While domestic interest in newnuclear capacity is absent, overseas businessis bringing the new technology to market. In1996 a new generation of nuclear plantdesign came of age with the completion of a1,356-megawatt advanced boiling-waterreactor in Japan. The plant took four and ahalf years to build (compared with some U.S.nuclear plants that took 11 years or more toconstruct) and came in under budget. Itsstandardized design will minimize mainte-nance and reduce worker risks during itsfuture decades of operation.7 9 A new designfor U.S. operation based on “simplificationand a high degree of modularity” couldreduce construction time to three years,according to the Electric Power ResearchInstitute.8 0 This is a very aggressive estimatefor the near future, however.

Regulatory streamlining and a politicalresolution of the nuclear waste problem are

15

More than 90percent ofnuclear powerplants in theUnited Stateshave improvedcapacity, safety,and cost factors.

necessary but not sufficient conditions forthe United States to join Asian countries ininstalling a new generation of nuclear reac-tors. The other hurdles for nuclear power aremarket related. Gas-fired plants are not onlysubstantially cheaper but can be flexiblysized to meet the demand of a variety of mar-kets. Coal at present is also substantiallycheaper than nuclear fuel for large-sizedunits (small coal plants have severe scale dis-economies and are rarely constructed).Nuclear power will also need to outgrow itsfederal insurance subsidy (the Price-Anderson Act) as the U.S. court systemmoves toward more rational liability laws.

8 1

The Economic Resilience of Coal-Fired Electricity

The economics of coal-fired generationeclipses that of natural gas (and liquefiednatural gas) in some major internationalmarkets such as China and India because ofthose countries’ huge indigenous coalreserves relative to methane. Yet reliance oncoal in Asia has created severe air qualityproblems, which call for installing the latestemission-control technologies to reduceparticulates and NOx in particular.8 2 China,for example, has shown rudimentary inter-est in a “clean coal technology system withcoal preparation as the starting point, high-efficiency combustion of coal as the core,coal gasification as the precursor and minearea pollution control as the main compo-nent.”8 3 That would narrow but not elimi-nate the cost advantage of coal over naturalgas and liquefied natural gas plants inthose areas.

The price of coal for electricity genera-tion has been declining over time as a resultof falling upstream minemouth prices,reduced midstream transportation costs,and improving downstream combustiontechnology. The U.S. Department of Energyidentified technological advances in under-ground mining, large-scale surface mining,higher labor productivity, and the consoli-dation of coal transportation as “revolu-tionizing economies of scale in mining,

marketing, and shipping coal in the largequantities required by electricity generationplants.”8 4 Numerous improvements such asmodularity of plant design have loweredcost and enhanced energy conversion effi-ciencies,8 5 but environmental retrofits havecanceled out some of this improvement.

Abandoning coal altogether to reducecarbon dioxide (CO2) emissions is not war-ranted if economics dictates otherwise. It iseconomically wasteful to substitute alterna-tive energies with an additional cost that isgreater than the externality associated withthe traditional pollutants. Sound economiccalculation will prevent developing coun-tries, which can least afford it, from substi-tuting for superior energy technologies oth-ers that are inferior in terms of quantity,reliability, and cost.8 6

Renewable Energies: Ancient to OldA salient historical insight for the cur-

rent debate over renewable energy is howold hydropower is and how both wind andsolar enjoyed free-market sustainabilityuntil cheaper and more flexible fossil fuelscame of age. A history of energy use inEngland revealed that in 1086 more than 6thousand watermills and windmills dottedthe landscape.8 7 The long history of windand solar in the United States was docu-mented by a Greenpeace study:

In the late 1800s in the UnitedStates, solar water-heaters wereintroduced commercially becausethey offered hot water convenientlyinside a building without the trou-ble of heating it on a stove or on afire out of doors. Despite cheap fos-sil fuel and the invention of thedomestic water-heater, solar water-heaters enjoyed commercial viabilitywell into the 1940s. . . . Five decadesago, wind systems were fairly com-mon in many countries for water-pumping and mechanical power,and some small-scale electric-powergeneration. Then, except in certain

16

Abandoning coalaltogether to

reduce carbondioxide emissionsis not warranted.

limited locations, cheap fossil fuelswiped them from the market.8 8

Hydropower predated fossil fuels on theworld stage as noted by the WorldwatchInstitute,8 9 and hydroelectric constructionpeaked during the New Deal in the UnitedStates. Continuous geothermal productiondates from 1913 and became a mature indus-try prior to the 1970s.9 0 Biopower is theyoungest member of the renewable family,having emerged in systemic fashion duringand immediately after the 1970s energy crisis.

Subsidized Renewables:A Legacy of Falling Short

Shell, the world’s second largest energycompany, has announced an expansioninto biopower, solar, and possibly wind onthe assumption that fossil fuels will becomescarcer in the “next few decades.”9 1 BritishPetroleum is increasing its long-standinginvestment in solar energy on the premisethat man-made global warming is a poten-tially major social problem.9 2 Enron Corp.entered into solar energy in 1995 and windenergy in 1997 to complement its focus onthe cleanest burning of the fossil fuels, nat-ural gas.9 3

To environmentalists critical of fossilfuels, this burst of interest on the part ofsome of the world’s prominent energy com-panies signals the beginning of the end of thefossil-fuel era. Yet these ventures are verymodest compared with overall corporateinvestment in energy9 4 and are inspired asmuch by transient government subsidies andpublic relations as by underlying economics.To put the issue in perspective, the highlypublicized $500 million that Shell has com-mitted to spend over five years on interna-tional renewable projects is half as much asthe company’s far less publicized budget todevelop three previously located deepwaterGulf of Mexico oil and gas fields.9 5

Unconventional energy sources havelong mesmerized both government and—toa lesser but still real extent—private investors.Investments in these technologies in the

last quarter century have, with few excep-tions, been disappointing, as a historicalreview shows.

As fossil-fuel prices began their ascent in1973, a solar-energy boom began in theUnited States and abroad. By the mid-1970smore than a hundred companies, manyresponding to government subsidies andpreferences, had entered the business of con-verting the sun’s energy into electricity orsubstituting it for electricity altogether.Some of the biggest names in the energybusiness—Exxon, Shell, Mobil, ARCO, andAmoco—were among the entrants. Morethan a dozen other large oil companies hadpatents or were conducting research in thefield. Other companies, such as GeneralElectric, General Motors, Owens-Illinois,Texas Instruments, and Grumman, enteredthe solar collector heating and cooling mar-ket or the photovoltaics market, or both. Thehead of Royal Dutch Shell’s solar subsidiarydeclared in late 1980, “The solar electric mar-ket could explode.”9 6

Declining energy prices in the 1980s setback an industry that, like synthetic fuels(discussed below), never approached eco-nomic viability even when fossil-fuel priceswere at their peak. While the use of solarpower in niche markets and some remoteapplications remained viable, central-sta-tion electricity generation was anotherstory. Few, if any, major solar companiesshowed a profit in the 1980s, althoughsome survived. Fortune in 1979 stated, “Ithas proved harder than the pioneer imag-ined to overcome the inherent difficultiesof harnessing an energy form that is stu-pendous in the aggregate, but dilutes in anygiven setting.”9 7 The verdict was the samemore than a decade later. The liquidation inDecember 1991 of Luz International, previ-ously the world’s leading solar power devel-opment firm, marked the end of an era.

The wind power boom started a few yearslater than the solar boom, but the resultswere the same. First-generation technologywas very expensive, and unintended environ-mental consequences affecting land and

17

Investments insubsidized renew-able technologieshave, with fewexceptions, beendisappointing.

birds emerged. The first-generation problemsrequired a government-funded $100 millioncleanup and repowering effort in California,the heart of the U.S. wind industry.9 8

Oil companies did not diversify into thewind industry as they had into solar power.Profitable sites and applications for windpower were narrower even than those forsolar power, although wind power had oneclear advantage over its renewable rival—itwas substantially less uneconomic as asource of electricity for the power grid.Nonetheless, the economics of wind powerremained relatively poor, particularly com-pared with the economics of natural gascombined-cycle generation, which wasrapidly improving. The bankruptcy in 1996of the world’s largest wind developer,Kennetech, like the bankruptcy of solarindustry leader Luz five years before,marked the end of an era.

The heavy political promotion of windand solar power in the 1970s and 1980scannot be characterized as successful.Billions of taxpayer, ratepayer, and investordollars were lost, bearing little fruit exceptfor experience. But for proponents of alter-native energy, hope springs eternal. Twodecades of “broken wind turbines, boon-doggle wind farm tax shelters, and leakysolar hot-water heaters” are ancient history.“The world today,” the faithful believe, “isalready on the verge of a monumental ener-gy transformation . . . [to] a renewable ener-gy economy.”9 9

A survey of today’s leading renewablealternatives, however, demonstrates that thispredicted transformation is just as question-able now as it was two or more decades ago.

Solar and Wind as Kyoto EnergiesWind and solar power are the two energy

sources most favored by the environmentalcommunity to displace fossil fuels to helpmeet the goals of the Kyoto Protocol. Othersources have met with greater environmen-tal ambivalence if not concern. Biopower isan air emission renewable energy sourcethat can contribute to deforestation.1 0 0

Geothermal sites are often located in pro-tected, pristine areas and so create land-useconflicts, and toxic emissions and deple-tion can occur.1 0 1 Hydroelectric power is theleast environmentally favored member ofthe renewable energy family owing to itsdisruption of natural river ecosystems.1 0 2

Nuclear power, although it is air emissionfree like renewable energy after plant con-struction, is less popular than hydroelec-tricity with mainstream environmentalistsand is rejected because of its risk profileand waste disposal requirements.1 0 3

The respective costs of wind and solarhave dropped by an estimated 70 percentand 75 percent since the early 1980s.1 0 4

Extensive government subsidies forresearch on and development and commer-cialization of these technologies—muchgreater than for other renewables and fossilfuels on an energy production basis—havebeen a primary reason for this substantialimprovement.1 0 5 Mass production has result-ed in fewer material requirements, moreproduct standardization, automated man-ufacturing, and improved electronics.Larger wind farms have also introducedeconomies of scale. Improvements in infor-mation management, just-in-time invento-ry techniques, and lower energy costs—fac-tors at work across the economy—have alsobeen responsible for the reduced infrastruc-ture cost of these two alternative energysources. One recent study of wind tech-nologies concluded:

[Wind] costs have declined fromaround US$ 0.15–0.25 per kWh to theUS$ 0.04 to 0.08 per kWh today infavorable locations. Technical devel-opments have been rapid and impres-sive, most notably in the areas ofincreased unit size, more efficientblade designs, use of light-weight butstronger materials, variable speeddrives, and the elimination of reduc-tion-gear mechanisms through theintroduction of electronic controls forfrequency and voltage regulation.1 0 6

18

Geothermal sitesare often located

in protected,pristine areas.

But that is only half the story. The long-awaited commercial viability of wind andsun as primary energy sources has been setback by natural gas combined-cycle andcogeneration technologies. Natural gastechnology today can produce electricity athalf the cost (or less) and with more flexi-bility and reliability than power generatedfrom well-sited wind farms on a tax-equal-ization basis.1 0 7 The competitive gap withsolar power is much more pronounced,since solar power is triple (or more) the costof well-sited wind. Simply put, the techno-logical improvements in wind and solarpower have also occurred for traditionalfuels. In Europe, for example, an executiveof Siemens AG recently reported that pricesof electricity from fossil-fuel plants havefallen by an estimated 50 percent in the lastfive years alone.1 0 8

This competitive gap, which environmen-talists once thought to be surmountable,may persist for a long time. A joint study in1997 by the Alliance to Save Energy, theAmerican Council for an Energy-EfficientEconomy, the Natural Resources DefenseCouncil, Tellus Institute, and the Union ofConcerned Scientists concluded:

Although the cost of renewable elec-tric generating technologies hasdeclined substantially and their per-formance has improved, the cost ofcompeting fossil technologies hasalso fallen. In particular, the averageprice of natural gas paid by electricutilities has been low (about$2.30/MMBtu) since the mid-1980sand is widely expected to remain sofor the next 10 years or longer.1 0 9

A factor as important as cost and relia-bility for national energy policy is the enor-mous quantity disparity between gas-firedelectricity (and other fossil alternatives) andsolar- and wind-generated energies. A singlelarge combined-cycle gas plant can producemore electricity than all the wind and solarfacilities in the United States combined.

One of the world’s largest gas-fired com-bined-cycle plants, the 1,875-megawattTeesside plant in England, produces moreelectricity each year than the world’s mil-lions of solar panels and 30,000 wind tur-bines combined—and on fewer than 25acres of land.

The quantity differential partiallyreflects relative capacity factors, which arearound 95 percent for baseload gas com-bined-cycle plants and 20 percent to 40 per-cent for solar and wind that operate onlywhen the natural energy source is avail-able.

1 1 0It also reflects siting prerequisites in

light of natural conditions and consumerdemand. A wind site, for example, musthave steady high winds, be away from largebird populations, avoid slopes that mayerode, and be in remote (and sometimespristine) areas because of high noise levelsand poor aesthetics. Yet for economics’sake, wind farms need to be near popula-tion centers that have a power deficitbecause of high transmission investmentcosts and physical losses of electricity.1 1 1

This combination works against manysites, making well-sited wind, ironically, a“depletable” energy option. So while idealwind sites may generate grid power at a costonly double that of new technologies usingnatural gas, other sites, for example, onesfrom which the electricity must be trans-ported long distances, worsen this alreadysizable cost disadvantage. Consequently,wind is not a generic resource like a conven-tional energy. Wind sets up a growing eco-nomic and environmental conflict as moreand more sites must be tapped to meetexternal political demands.

Other Renewables Also ProblematicThe other basket of “renewable” alterna-

tives to fossil fuels—geothermal, hydropower,biopower, and fuel cells—may be even lesslikely to gain market share in the foreseeablefuture than are wind and solar power.

Geothermal and hydroelectricity aremore akin to conventional energies than tounconventional ones. Each has a long his-

19

The commercialviability of windand sun as prima-ry energy sourceshas been set backby natural gascombined-cycleand cogenerationtechnologies.

tory of economic competitiveness that pre-dates the air quality movement, although intoday’s political discussion they are oftenlumped together with wind and solar poweras renewables for “sustainable energy devel-opment.” Ironically, wind and solar advo-cates who do not favor hydroelectricity(which comprises almost 90 percent of totalworld renewable generation) can be said tobe more critical of renewable fuels per sethan are fuel-neutral, free-market energyproponents.

The most prominent of existing “exotic”renewable fuels is biopower. Biopower isbiomass converted to electricity (often,municipal garbage converted to electricityin incinerator plants) as opposed to thesimple burning of wood, dung, and otherwaste feedstocks for cooking and heating.Today, biopower is the second largestrenewable energy next to hydropower in theUnited States and the world.

Although scattered biopower projectsexisted before 1978, it was the Public UtilityRegulatory Policies Act of 1978 that putthis energy source on the map.1 1 2 That fed-eral law, which applied to other renewablesand certain nonutility nonrenewables,required utilities to purchase power from“qualifying facilities” at the utility’s “avoid-ed cost,” which in an era of higher fuelprices locked in favorable economics for thewaste-to-energy plants. These first-genera-tion plants have been characterized by their“high costs and efficiency disadvantages” incomparison with conventional energies.1 1 3

Like nuclear power, the biopower industryis an artificial creation of government poli-cy and would never have emerged as a sig-nificant energy source in a free market.

Biopower plants are more expensivethan well-sited wind projects but far lessexpensive than solar plants. The currentgeneration of biopower projects has an esti-mated cost of around 8 cents per kWh ver-sus wind plants at around 6 cents per kWh(prime sites without tax preferences) andsolar at 30 cents per kWh or more.1 1 4 Asnoted earlier, the environmental lobby has

serious misgivings about biopower as amajor electricity alternative because of apotential problem of deforestation, occa-sional competition with recycling facilitiesfor waste disposal, and air emissions.

Fuel cells, while perhaps further frommarket penetration than other renewables,hold potentially greater promise. Severalfuel-cell technologies are commerciallyavailable for distributed generation so longas a liquid fuel is available. The electro-chemical devices that convert energy toelectricity and usable heat without requir-ing combustion are actually a competitor towind and solar projects on the one handand gas microturbines and diesel genera-tors on the other.

Fuel cells have a number of technicaland environmental advantages. They donot have moving parts and are easy tomaintain. They can be sized for a home orfor a large industrial facility. Fuel cells canbe run on a variety of fuels, includingmethane, natural gas, and petroleum.(Natural gas is the most probable inputwhere it is available.) They are noiseless.They convert energy into electricity relative-ly more efficiently than do other generationprocesses. And since fuel cells are moreenergy efficient and do not require com-bustion, they are environmentally superiorto fossil-fuel plants and microturbines.1 1 5

Those advantages are lost on the econom-ic side. The average cost of a fuel cell today isaround $3,000 per kWh when $1,000 perinstalled kWh is necessary for market pene-tration. Subsidies from the Department ofEnergy for as much as one-third of the totalinstallation cost ($1,000 per kWh) have beennecessary to attract interest.116 The fuel cellfor stationary electricity generation is a back-stop energy source that competes againstunconventional technologies more than con-ventional ones at present. To break into themarketplace, fuel cells must become compet-itive against another natural gas user—micro-turbines. But “where very strict air emissionsrequirements apply, fuel cells may be the onlyoption for distributed generation.”1 1 7

20

Biopower plantsare more

expensive thanwell-sited windprojects but far

less expensivethan solar plants.

Distributed Energy: How Big a Market Niche?

In dispersed developing markets whereelectricity is being introduced, distributedgeneration (power that is distributed locallyand does not come through a regional grid) istypically more economical and practical thancentral-station, long-distance transmissionof electricity. Since some renewable energytechnologies have proven adaptable to mar-kets where transmission and distribution ofelectricity are relatively nonexistent, environ-mentalists hold out the hope that distributedenergy (which is becoming more economicalrelative to centrally dispatched power) willrevolutionize electricity markets and usher ina new era of decentralized industrializedrenewable energy.

Renewable energy is not dominant inoff-grid areas and may not be in the future.Traditionally, propane- and diesel-firedgenerators have been the most economicpower option. Improvements in solar tech-nology have made this technology increas-ingly viable in remote markets, but theintermittency problem requires very expen-sive battery technologies to ensure reliableelectricity service.1 1 8

Niche markets for solar power have grownover time and today range from the hand-held calculator to data-gathering oceanbuoys to space satellites. Wind power is oftenthought of as distributed generation, but alimited number of homes or businesses arelocated in perpetually windy areas necessaryto give the turbines a capacity factor highenough to make them viable and competitivewith other distributed options.

Distributed generation is more expensiveand problematic than central-station genera-tion where demand conditions can supportboth.1 1 9Thus, as a developing region maturesand gains greater economic infrastructure,first-generation electricity sources may giveway either to a distributed generationupgrade or to central generation. Just as bicy-cles and motorbikes are a bridge to automo-biles and trucks in many developing regions,solar panels or a wind turbine may become a

bridge technology to gas-fired (or oil-fired)microturbines or much larger combined-cycle or cogeneration plants. Thus somerenewable technologies could be bridgesources to conventional energies rather thanthe other way around.

Will Subsidies Rescue Nonhydro Renewables?

The competitive predicament of renew-able energy—reflecting both the economic, ifnot the environmental, problems of windpower, solar power, and biopower and envi-ronmentalist opposition to hydropower—could lead to a decline in renewable capacityin the United States. While “green pricing”and a new round of government subsidies areproviding some support, older projects arecoming off-line because subsidies are expir-ing, and new projects are encounteringfinancing difficulties in an increasingly com-petitive electricity market. Only a nationalquota for qualifying renewables, a federal“Renewables Portfolio Standard,” can saveunconventional energies from the “harshrealities” of competition, concluded a studyby two advocates of renewable energy.1 2 0 TheDepartment of Energy in a business-as-usualscenario predicts an overall decline of renew-ables from 12.5 percent to 9.2 percent ofdomestic consumption by 2020 due to flathydropower and geothermal power andaggressive entry by fossil fuels, natural gas inparticular.1 2 1 On the other hand, quotarequirements and cash subsidies for qualify-ing renewables as part of state-level restruc-turing proposals are coming to the rescue.1 2 2

The Uncompetitiveness ofAlternative-Fueled Vehicles

Although conventional fuels have a sig-nificant advantage over unconventionalfuels in the electricity market, their advan-tage is even more pronounced in the trans-portation market. Of the world’s approxi-mately 650 million motor vehicles, fewerthan 1.5 million (0.2 percent) are not gaso-

21

The Departmentof Energy pre-dicts a decline ofrenewables from12.5 percent to9.2 percent ofdomestic con-sumption by2020.

line or diesel powered. Liquefied petroleumgas or compressed natural gas powersalmost all alternatively fueled vehicles. Thisgives fossil fuels more than a 99.9 percentshare of the world motor vehicle trans-portation market, a market share notunlike their share in California or theUnited States as a whole.1 2 3

The cost of buying, driving, and maintain-ing gasoline-powered vehicles has steadilydeclined over time. Adjusted for inflationand taxes, the price of a gallon of motor fuelin 1995 was the lowest in the recorded histo-ry of U.S. gasoline prices. The weighted aver-age price of gasoline of $1.27 per gallon1 2 4

included 45 cents of local, state, and federaltaxes, leaving the “free-market price” of crudeacquisition, refining, and marketing atbetween 80 cents and 85 cents per gallon.Some of the “free-market price” includes theaforementioned “environmental premium,”given that environmental compliance costsare built into the price.

The price of regular unleaded gasolineaveraged $1.12 per gallon in 1998—a newrecord low and less than half the price of

1981’s high (in present dollars) of $2.39 pergallon, despite a higher burden of state andfederal taxes (Figure 5).1 2 5 Of the many retailliquid products, only low-grade mineralwater is cheaper than motor fuel today.1 2 6

This points to the triumph of technology inconverting crude oil into motor fuel andother products, a story not unlike the one ofimproving economies of turning natural gas,oil, and coal into electricity.1 2 7

The affordability of motor fuel has alsoimproved in terms of work-time pricing (theamount of work time an average laborermust put in to buy an asset). In the 1920s agallon of gasoline cost more than 30 minutesof labor time. In the mid-1990s the cost was6 minutes and falling.1 2 8

The declining work-time cost of an auto-mobile, even with numerous advances invehicle comfort and environmental perfor-mance, has been documented by W. MichaelCox and Richard Alm:

In the currency of work time, today’sFord Taurus costs about 17 percentless than the celebrated 1955 Fairlane

22

$0.25

$0.43

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

1920 1981 1998

Tax

Base Price$2.19

$2.31

$1.12

Figure 5U.S. Gasoline Price Comparison (1998 $/gallon)

Sources: American Petroleum Institute; Energy Information Administration.

and more than 70 percent less thanthe first Model T, introduced in 1908.And that’s without any adjustmentfor quality. Early cars rarely had anenclosed body, tires couldn’t beremoved from rims and buyers had topurchase a separate anti-kickbackdevice to prevent broken arms.Today’s models embody literally hun-dreds of standard features—from air-conditioning and antilock brakes tocomputer-controlled carburetors [andinjection systems] and CD players—making driving safer, more economi-cal and more fun.1 2 9

“Price war” conditions for automobilesales beginning in 1997 and continuing into1999, coming on top of intense gasolinecompetition, are continuing this trend.1 3 0

The price of renting an automobile, notonly buying one, has significantly declined.The Cox and Alm study found that carrentals in 1997 were 60 percent cheaper thanin 1970 in terms of work-time pricing.1 3 1

The economic and efficiency progress ofthe internal combustion engine can beexpected to continue. Direct fuel injection aswell as turbochargers to improve combustionand intercoolers are promising technologiesfor diesel engines.1 3 2 Continuous transmis-sion has great promise for reformulatedgasoline engines as well. Improving today’senergy conversion efficiency factors ofaround 24 percent for gasoline and 44 per-cent for diesel will be an important compo-nent of future emissions reduction.1 3 3

A survey of the various alternatives tofossil-fueled transportation, on the otherhand, suggests that the market dominanceof conventional vehicles will continue longinto the foreseeable future.

EthanolEthanol is a high-octane motor fuel

derived from grain and waste products, pri-marily corn, and mixed with 15 percent gaso-line (“E85”). Special governmental treatmentof ethanol began with a federal tax exemp-

tion in 1906, and farm states such asNebraska subsidized the fringe substitutefor conventional motor fuel during theGreat Depression. Despite encouragementfrom the U.S. Department of Agriculture,ethanol produced from surplus grain provedto be no match for the surplus of crude oilthat came from the new discoveries in Texas,Oklahoma, and other states in the 1920s and1930s.1 3 4

The subsidy floodgates for ethanolopened during the 1970s energy crises whentax breaks and government grants forethanol conversion projects become com-monplace. The Biomass Energy and AlcoholFuels Act of 1980 earmarked $900 millionfor ethanol projects and set a goal for thefarm fuel to capture 10 percent of the entireU.S. motor fuel market by 1990.1 3 5 Despitesuch government support, ethanol blendswould be as much as twice the cost of gaso-line on an energy-equivalent basis. Ethanol’smarket share in 1990 was four-tenths of 1percent (0.4 percent),1 3 6 making the legisla-tive goal 25 times greater than the actualresult. The market share of transportationbiomass has not appreciably changeddespite state and federal tax subsidies of 54cents per gallon.1 3 7

Current interest on the part of Ford andChrysler in “alternative-fuel flexible” vehi-cles that can run on either ethanol or gaso-line is due more to the desire to use a loop-hole to achieve compliance with the corpo-rate average fuel economy (CAFE) mini-mum mileage standards than to true con-sumer demand. In fact, ethanol flexiblevehicles register 25 percent less fuel econo-my than do vehicles running on CARBPhase 2 reformulated gasoline—with noreduction in air emissions per mile.1 3 8

Adding to the problem, only 40 service sta-tions in the Midwest sell ethanol, ensuringthat the several hundred thousand alterna-tive vehicles produced by the two automak-ers will run exclusively on gasoline.1 3 9

Ethanol output, even after receiving pref-erential tax subsidies, can be disrupted byhigh corn prices, as occurred in 1996.1 4 0

23

The economicand efficiencyprogress of theinternal combus-tion engine canbe expected tocontinue.

Ethanol also has an “embedded fuel” prob-lem, since the created energy is largely can-celed by the energy used to plant, harvest, fer-ment, and distribute the agricultural fuel.

1 4 1

Environmentalists have not given ethanola free ride despite qualifying it as a renewableresource. One analysis complained that“heavy use of fossil fuels by current agricul-tural practices renders ethanol . . . from cornfermentation . . . non-sustainable as now pro-duced.”1 4 2 As it does on the electricity-genera-tion side, “sustainability” would requirerenewable energy inputs and a “closed loopsystem” in which the agricultural inputs weregrown in proportion to usage.

The major environmental problem ofethanol combustion is the higher evapora-tive emissions of smog-producing volatileorganic compounds, which must be bal-anced against ethanol’s reduction of theother smog precursor, NOx. The recentextension of ethanol’s federal tax breakfrom 2000 to 20071 4 3 was more a victory foragricultural interests for than the environ-mental community, which has traditionallybeen ambivalent if not hostile toward thismotor-fuel alternative.1 4 4

MethanolMethanol is a sister fuel to ethanol and

can be distilled from natural gas, coal, orwood products mixed with 15 percent gaso-line to produce a fuel known as M85. In the1970s and 1980s, methanol attracted largegovernment favor as a more viable and near-term choice than other alternative-fuel vehi-cle technologies. In a congressional hearingin 1986, General Motors called methanol“America’s energy ‘ace in the hole,’” while theAmerican Automobile Association describedit as “the number one alternative fuel of thefuture.” The EPA also tagged methanol as“the most promising alternative to motorvehicle fuel for this country.”1 4 5

The political home for methanol in thesehigh-water years was the CEC, the nation’slargest state energy agency in the world’sthird largest transportation market (afterRussia and the rest of the United States).

Under the leadership of Charles Imbrecht,the CEC was attracted to a liquid fuel thatcould promote “energy security” by erodingthe 99 percent market share of petroleum,while offering the near-term potential ofreducing ozone-forming emissions by 50 per-cent, compared with gasoline vehicles, andreducing particulate emissions by 100 per-cent, compared to diesel vehicles.1 4 6

Government-subsidized vehicle purchasesand conversions and public-private partner-ships with ARCO, Chevron, and Exxon tooffer methanol in service stations wereundertaken. Distributions from thePetroleum Violation Escrow Account (moneycollected from oil companies to settle dis-putes under the federal oil price regulation ofthe 1970s) also helped fund this alternative-fuel program.

Despite a 100-million-mile demonstra-tion program with “no negative results,”1 4 7

the methanol initiative proved to be more ofa pilot exercise than a jump-start to a massmarket. The political hope and favor formethanol would fade in the 1990s as succes-sive reformulations of gasoline and improve-ments in onboard vehicle technology signifi-cantly reduced emissions at an affordablecost with no inconvenience to motorists.

More important, however, was the factthat consumers were discouraged by a varietyof additional costs of methanol, includingcar conversion, higher fuel costs, more fre-quent oil changes, and lower vehicle resalevalue. A General Services Administrationstudy in 1991 estimated that those extrasamounted to a $8,000 premium comparedwith a conventional vehicle.

1 4 8Because

methanol fuel tanks were necessarily muchlarger than gasoline tanks (because of thelower energy density of methanol), motoristswere also faced with less storage space inmethanol-fueled cars. The absence of flameluminosity during methanol combustionalso posed a safety problem.

The beginning of the end for methanol asa viable transportation alternative came inlate 1993 when the Los Angeles CountyMetropolitan Transit Agency terminated its

24

The major environmental

problem ofethanol combus-tion is the higher

evaporative emissions of

smog-producingvolatile organic

compounds.

$102 million methanol bus program in favorof the latest diesel options. Breakdowns wereoccurring in the city’s 133 methanol busestwice as often as in conventional diesel busesbecause of the corrosive effect of methanolon engine parts. Seattle and Marin County(California) also dropped their methanol busprograms for the same reason.1 4 9

The CEC’s 20-year push for methanolhas been quietly abandoned. Whereas in1993 the CEC had predicted a million vehi-cles would be fueled by methanol by theyear 2000, the number across the UnitedStates is around 20,000 and falling.Methanol was not even mentioned as atransportation-fuel alternative in the mostrecent California Energy Plan,1 5 0 testament tothe perils of picking winners and losersbefore the marketplace does.

Electric VehiclesElectric vehicles once dominated the

mechanized transportation market in theUnited States. A study from the RenewableEnergy Policy Project summarized:

In 1900, electric vehicles outnum-bered gasoline vehicles by a factor oftwo to one; an electric race car heldthe world land speed record. Theirquiet, smooth ride and the absence ofdifficult and dangerous hand crankstarters made electric vehicles the carof choice, especially among the urbansocial elite. Early in this century, therewere more than one hundred electricvehicle manufacturers.

Improvements in the internal combustionengine and plentiful oil and oil productsreversed the competitive equation. The samestudy explained:

The weight, space requirements,long recharging time, and poordurability of electric batteries under-cut the ability of electric cars to com-pete with much more energy-densegasoline, an energy carrier manufac-

tured from crude oil. One pound ofgasoline contained as much chemi-cal energy as the electricity held inone hundred pounds of the lead acidbatteries then in use. Refueling a carwith gasoline was measured in min-utes, on-board storage was a snap,supplies appeared to be limitless,and long-distance fuel delivery wasrelatively cheap and easy. With theseattributes, gasoline dominated thefuel marketplace. By 1920, electriccars had virtually disappeared.1 5 1

The Worldwatch Institute has also docu-mented the rise and fall of electric vehicles.“Although electric cars and a variety ofother [alternative-fuel] vehicles were popu-lar at the turn of the century,” summarizedChristopher Flavin and Nicholas Lenssen,“they were pushed aside by improvementsin the internal combustion engine and thefalling price of the gasoline used to runit.”1 5 2 Disputing the claim that the electricvehicle is the car for the 21st century, theAmerican Petroleum Institute noted that itwas “more suitable for the late 19th centu-ry, when society was geographically com-pact and people tended to travel muchshorter distances.”1 5 3

Electric cars entering the commercialmarket today are much more costly and lessconvenient to operate than conventionalvehicles. Since introducing its electric vehi-cle in late 1996, General Motors has soldthat model (EV1) to carefully screened,upper-income customers who treat the carsmore as showpieces than as substitutes fortheir conventional vehicles. The select cus-tomers receive a variety of subsidies andspecial services. In return for its substantialinvestment, General Motors receives favor-able publicity and goodwill from regulatorsweighing a “zero emission vehicle” man-date, as they are in California. Ordinaryconsumers receive little: the cars are moreexpensive even with subsidies, require extraexpenses such as home recharging facilities,are less safe (40 percent lighter than regular

25

The CEC’s 20-year push formethanol hasbeen quietlyabandoned.

vehicles), and are less convenient because ofthe lack of driving range and the necessityof long refueling times. New batteryoptions to increase driving range aggravatethe cost disadvantage.1 5 4

Electric vehicles are touted as being 97percent cleaner than conventional vehicles.But studies have shown that the tradeoffswith economics and convenience are notmatched by emission reductions, since mostof the electricity is generated by fossil fuels.1 5 5

Environmentalist Amory Lovins has calledelectric vehicles “elsewhere emission” vehi-cles.1 5 6 A team of experts from theMassachusetts Institute of Technology con-cluded that electric vehicles yield an “imper-ceptible overall environmental benefit” sinceup to 65 percent of fossil energy is lost whenburned to generate electricity, and 5 percentto 10 percent of the generated electricity islost in transmission and distribution.1 5 7

Battery wastes are another unique envi-ronmental problem with electric vehicles,given that gasoline is now lead free.Complained Dan Becker of the Sierra Club,“[Electric vehicle] batteries are filled withbadness—things like lead and cadmium.”1 5 8

Sodium-sulfur batteries and other substi-tutes introduce their own set of environmen-tal and safety problems.1 5 9 But even if theenvironmental problems with batteries areovercome, their sheer size, weight, andexpense are formidable arguments againsttheir replacing the $50 fuel tank of conven-tional vehicles.1 6 0 Operational problems withbatteries in cold-weather climates add tothose problems.1 6 1

A hybrid electric vehicle, which com-bines an internal combustion engine withbattery-powered electronics, showspromise, particularly in heavy-duty trucksusing diesel. Onboard recharging offersadvantages over dedicated electric vehicles.Yet the use of diesel or gasoline reduces thealleged environmental benefits of onboardrecharging, and the complexity of thehybrid design results in a significant costpremium compared with conventionalvehicles. That is why a study by a committee

of the National Academy of Sciences andthe National Academy of Engineering criti-cized the technology as not environmental-ly cost-effective.1 6 2

Natural Gas and Propane VehiclesLike electric vehicles and solar and wind

applications, gas-powered vehicles wereonce economically viable without govern-ment subsidy. At the turn of the centurydemonstration coal-gas vehicles could befound in major metropolitan areas.Decades later propane vehicles becamecommonplace in rural settings (farms inparticular) where refueling limitations wereless of a constraint and the fuel was notsubject to motor fuels taxation. Vehiclesfueled by compressed natural gas have beenfewer and more recent.1 6 3

Largely because of ratepayer subsidies,which allowed utilities to pass fleet conver-sion costs on to their captive customers, anumber of natural gas distribution compa-nies converted fleet vehicles to natural gasand erected related infrastructure in the1970s and early 1980s. But conversionsproved to be technologically problematic aswell as expensive and inconvenient relativeto conventional vehicles.1 6 4 The effort alsolost momentum as gasoline and dieselprices fell beginning in 1981.

In the late 1980s a second effort to pro-mote natural gas vehicles commenced withgreater emphasis on dedicated vehiclesthan on converted conventional vehicles. Inaddition to support from state utility regu-lators, subsidies and vehicle purchase man-dates from the federal government (such asthose in the Energy Policy Act of 1992) wereadopted. Falling natural gas prices andplentiful supply were also coming into play.The improved position of natural gas vehi-cles was evident when the CEC reported inthe 1995 Fuels Report:

In the late 1980s, methanol was tout-ed as the alternate fuel of choice in thetransportation sector. Now naturalgas is beginning to assume that role,

26

EnvironmentalistAmory Lovins

has called electricvehicles “else-

where emission”vehicles.

not only in California but in the restof the United States.1 6 5

By the mid-1990s it was evident that nat-ural gas and propane vehicles were winningthe alternative-fuel battle but losing themotor fuel war. While Ford, GeneralMotors, Chrysler, Honda, Toyota, andVolvo offered select natural gas models aseither dedicated or dual-fuel vehicles, salesto the general public were rare, and com-mercial fleet sales were difficult. Whilesome fleets were converting in the worst airquality markets such as Los Angeles andNew York City, fleet conversions were morethe result of mandates or special incentivesthan of market calculation. Several thou-sand dollars in up-front costs for dedicatedor converted vehicles, a lack of refuelinginfrastructure and maintenance facilities,limited driving range, extra onboard stor-age requirements, extra weight lowering carperformance, and falling gasoline anddiesel prices were barriers to entry. A studyby Battelle Memorial Institute determinedthat the overall cost of using compressednatural gas in FedEx’s Los Angeles fleet wasslightly greater than that of propane andsubstantially more than that of using refor-mulated gasoline.1 6 6

The one advantage of natural gas andpropane—their substantially lower cost pergallon equivalent—was due more to gaso-line and diesel taxes than to the gases’inherent energy and technology character-istics. Had enough market share beengained, chances are that motor fuel taxa-tion would have been extended to naturalgas and propane to reduce if not eliminatethis benefit.

In a strategy shift in 1995, the Natural GasVehicle Coalition, the Gas Research Institute,and the American Gas Association deempha-sized both the passenger market and govern-ment mandates:

The high fuel-use vehicle marketoffers the greatest potential. . . . Themost economical approach to

achieving success in the high fuel-use market is to target fleets.Emphasis will be on developingproducts and technologies that sat-isfy customer needs. . . . This strategydoes not encourage additional gov-ernment mandates, or broad rate-based financing by the gas industryfor NGV refueling infrastructure. . . .NGVs must . . . meet the needs of itsstakeholders and the marketplace.1 6 7

A number of developments were behindthe retreat to a niche market. Some nonat-tainment areas such as Houston tried andabandoned gas-powered vehicles in theirlight-duty and heavy-duty fleets. EnronCorp., the “world’s first natural gas major,”abandoned its transportation program in1995 after two years of effort. The competi-tion from reformulated gasoline in recon-figured engines was also rapidly raising thebar. A headline on page 1 of the February19, 1996, issue of Natural Gas Week told thispart of the story: “NGVs Pushed to theBack Seat as RFG Takes Over FavoredRole.”

Dedicated natural gas vehicles havelower air emissions than do vehicles run onreformulated gasoline, but they also have anumber of economic disadvantages thattypically restrict their market niche to fleetvehicles in select urban areas. There is littlereason for ordinary motorists to pay a$1,000–$1,500 premium for a dedicatedmethane vehicle (a premium that would becloser to $3,500–$5,000 without subsidies)that has less range and less trunk space anddoes not have a national refueling net-work.1 6 8 There is even less reason to convertvehicles from gasoline or diesel to naturalgas or propane because vehicles run onthose fuels have higher costs and pooreroperating characteristics than do dedicatedvehicles. A more robust market exists forheavy-duty dedicated vehicles that can becentrally refueled and maintained whereheavy concentrations of diesel particulateemissions are displaced.

27

By the mid-1990sit was evidentthat natural gasand propanevehicles were win-ning the alterna-tive-fuel battlebut losing themotor fuel war.

Natural gas and propane vehicles havefound commercial viability in certainregions of the world where gasoline anddiesel taxes are high compared with theUnited States. Argentina, Italy, and Russiaaccount for 90 percent of the world’s alter-native-fuel vehicles; in the United States,large subsidies have spawned limited activi-ty in only the most air-polluted markets inthe country, such as Los Angeles and NewYork City. Yet of the approximately 400,000alternative-fuel vehicles in the UnitedStates (a portion of which are dual fuel butmay not be actually using alternative fuels),90 percent are fueled by propane, com-pressed natural gas, or a close substitute.1 6 9

Hydrogen Fuel-Cell VehiclesBecause of the above problems of “con-

ventional” alternatives to fossil-fueled vehi-cles, the environmental community hasincreasingly embraced a completely newtransportation technology—the hydrogenfuel-cell vehicle.

Potentially reducing emissions by asmuch as 90 percent or more compared withconventional vehicles, the hydrogen fuel-cell vehicle—which uses a chemical reactionwith hydrogen and oxygen to produce elec-tricity to create horsepower—has become apopular technology in theory for meetingthe aggressive goals for climate stabiliza-tion in the 21st century.

Like wind, solar, and electricity for trans-portation, the fuel cell is hardly a revolu-tionary technology. It was invented in 1839,and laboratories have been testing fuel cellsfor more than a century. Hydrogen fuel-cellvehicles were first designed and introducedin Germany in the 1920s and 1930s. Large-scale testing was a casualty of the war, andfor the next few decades further develop-ment languished. A review of America’senergy resources and technology for a U.S.Senate subcommittee in 1962 reported:

The fuel cell is still an experimentalidea, although close to some specialcommercial applications. . . . Specialty

applications, where convenience ismore important than cost, couldbecome important soon. . . . Someexperts believe such cells may bedeveloped within a decade; othersbelieve this is far too optimistic. Thefuel cell for the home or for automo-tive use seems a long way off. In gen-eral there is more optimism about thefuel cell than about any of the othernew energy conversion schemes.1 7 0

In the last two decades, prototype vehicleshave been built and demonstrated in theUnited States, Germany, Japan, and severalother countries. The U.S. space programproved to be the first commercial market forfuel cells, albeit a government-created one.

Mercedes Benz, Toyota, and Chryslerhave been at the forefront of studyingtransportation-based fuel cells, and Fordand General Motors have joined in as well.The Department of Energy has steadilyincreased funding for its NationalHydrogen Program, and a 1996 federallaw—the Hydrogen Future Act—set forth afive-year, $100 million research and devel-opment program.1 7 1

A group of researchers at DirectedTechnologies, under contract to theDepartment of Energy, has unveiled “a tech-nically and economically plausible marketpenetration plan that moves smoothly andseamlessly from today’s total dependence onfossil fuel for transportation to a sustainableenergy system based on renewable hydro-gen.”1 7 2 The authors added, “Hydrogen inany realistic scenario will undoubtedly beproduced initially from fossil fuels, beforehydrogen produced by renewable energysources becomes cost competitive.”1 7 3 Thusin the first decades of any transportationmakeover, fossil fuels will still be dominant.

Hydrogen fuel-cell vehicles, despite hav-ing the advantages of simplified enginedesign, better fuel economy, and fewergreenhouse gas emissions, face a dauntingproblem. Gasoline-powered vehicles areentrenched with a huge sunk-cost asset

28

Like wind, solar,and electricity for

transportation,the fuel cell is hard-ly a revolutionary

technology.

base, general consumer goodwill, andrapidly improving technologies. The opti-mal hydrogen choice (direct hydrogen fuel-cell vehicles) is simply not achievable with-out staggering transition costs; it wouldrequire an entirely new refueling infrastruc-ture, entailing an investment of tens of bil-lions of dollars in the United States alone.

Hybrid fuel-cell vehicles (fueled by a liq-uid) could use the existing service-stationinfrastructure if they used gasoline,methanol, or diesel for onboard conversionto hydrogen. But such vehicles wouldrequire complicated engine designs withlower fuel-cell performance, have greaterweight and need more space, and have over-all higher vehicle cost. In either case, achicken-and-egg problem exists betweenproducing enough hydrogen vehicles tolower cost and having costs low enough toencourage mass consumption and produc-tion. In the case of direct hydrogen designs,today’s hydrogen (produced primarily fromnatural gas) costs more than $9 per gallonof gasoline equivalent because of its limitedscale of production.1 7 4

This predicament points toward onenecessity—massive government involve-ment over and above a large private effort.The authors of the Department of Energystudy state, “Government incentives suchas the California zero emission vehicle(ZEV) mandate will probably be necessaryto stimulate initial [fuel-cell vehicle] mar-kets, in addition to government-supportedresearch, development and demonstrationprojects.”1 7 5 Even under an aggressive sce-nario of government subsidies ($400 mil-lion by 2008 in this case) and mandates andprivate-sector investment, 1 to 2 millionvehicles at most would be operating at theclose of the Kyoto Protocol budget period(2012), according to this study. Only in the2020-30 period would 10 to 30 millionvehicles be hydrogen powered, still leavingfossil fuels with a 95 percent market shareof the domestic auto fleet.1 7 6

A study by five environmental groups in1997 concluded that hydrogen fuel-cell vehi-

cles would begin to be marketed in 2010 at a$10,000 premium per vehicle over conven-tional vehicles.1 7 7Given that the vehicle todaycould cost $200,000, aggressive assumptionsare being made here as well.1 7 8

Any analysis forecasting a transition tohydrogen fuel-cell vehicles must be consid-ered with utmost caution. One researcherfrom Argonne National Laboratory explained:

The idea that anyone can successful-ly project what fuel cell costs aregoing to be in 6–12 years . . . seems aludicrous proposition. . . . Commer-cialization means virtually every-thing about current cells mustchange drastically. Furthermore, notonly the fuel cell must change—we’vegot to drive down the costs of allparts of the electric drive train, thatis, motor, power electronics, etc.—orconsign fuel cells to a niche market.Nevertheless, someone willing tostring together a prodigious numberof “what if” calculations can comeup with a semi-rationale approach totaking a stab at a number.1 7 9

Hope, hedging, and public relations—inaddition to a dose of venture capitalism—spring eternal. Exxon, ARCO, Shell, Chrysler,and other companies are studying hydrogenand fuel-cell technology as a potential sourceof energy for transportation in the next cen-tury.1 8 0 General Motors and Ford haveannounced production of a hydrogen fuel-cell vehicle by 2004.1 8 1 The most aggressiveinitiative belongs to Daimler Benz (Chrysler’snew European parent) that has announced agoal of having 100,000 fuel-cell vehicles onthe road by 2005 and has entered into a $325million program with Ballard Power Systemsto that end.1 8 2

“The hydrogen economy,” summarizedThe Economist, “will be a consequence not ofthe running out of oil, but of the develop-ment of the fuel cell—just as the oil economywas not a consequence of coal running out,but of the fact that the internal-combustion

29

Today hydrogencosts more than$9 per gallon ofgasoline equiva-lent because of itslimited scale ofproduction.

engine was a better technology than thesteam engine.”1 8 3 Such optimism is temperedby the realization that the hydrogen dream ismore than a half century old and the petrole-um-based transportation market growsstronger economically and technologically bythe day, despite disproportionately large gov-ernment support for rival technologies. Everyyear adds 50 million new conventional vehi-cles, and a net gain of approximately 15 mil-lion to 20 million vehicles, to a global fleet of650 million passenger cars and commercialvehicles.1 8 4 With gasoline and diesel becom-ing cheaper and cleaner, and conventionalautomobile technology meeting the needs ofboth lower income and higher income con-sumers, hydrogen technologies will have tocatch a rising star.

The Failure ofGovernment-Promoted

Alternative EnergyAs demonstrated in the last section, a

mountain of subsidies, preferences, and gov-ernment-promoted advocacy campaigns hasfailed to sustainably commercialize alterna-tive energy in the marketplace. The marketshare of alternative energies in the trans-portation economy is not large enough to bereportable; excluding environmentally incor-rect hydropower, government-sponsoredrenewables account for about 2 percent ofthe electricity sector.1 8 5 The failure of alterna-tive fuels cannot be seen as a failure of gov-ernment will. As discussed below, even themost aggressive government interventionshave failed to significantly tilt the energyeconomy, given the economic and social pre-miums required by nonfossil substitutes.

The California ExperienceCalifornia, the world’s eighth largest econ-

omy, provides a useful test case for the propo-sition that, with enough government favor,alternative fuels could reasonably competewith fossil fuels. In terms of investment andexperimentation with alternative energy,

California has led the nation and the world inratepayer and taxpayer financing over the lastquarter century. Wind power, solar power,biopower, and geothermal power have beengenerously subsidized for electricity genera-tion. Ethanol, methanol, natural gas, andelectricity have received government largessefor transportation.

While many of the subsidies are continu-ing, the verdict is all but in. The victor on thetransportation side is reformulated gasolineand the revamped internal combustionengine, which have proven to be technologi-cally feasible at reasonable cost.1 8 6 The CEChas put alternative transportation fuels onnotice in its latest energy plan:

California . . . must consider thecosts to create new or flexible fuelinfrastructures to support new alter-native-fuel delivery systems, particu-larly for personal transportation.Alternative fuels will not be viableunless they are readily available andcompetitively priced.1 8 7

The victor on the electricity side is naturalgas combined-cycle technologies—despite$540 million in ratepayer subsidies ear-marked for qualifying renewables in the nextfour years. The CEC states:

By 2015, California is expected toincrease its consumption of naturalgas by 1,500 million cubic feet a dayor 23 percent. New power plants arelikely to be fueled by natural gasbecause of economic and environ-mental benefits. In many cases, thesenew efficient plants will replacepower plants that use as much astwice the fuel-equivalent per kilo-watt-hour generated.1 8 8

The state’s energy conservation policy,liberally subsidized through a several-bil-lion-dollar ratepayer cross-subsidy for morethan two decades,1 8 9 has also moved towardthe market.

30

Gasoline anddiesel are becom-

ing cheaper andcleaner, and

conventionalautomobile tech-

nology is meetingthe needs of both

lower incomeand higher income

consumers.

Policies directing conservation andefficiency programs over the past 20years have changed from “use lessfuel” to “use energy more effective-ly.” . . . Sustainable changes in theenergy services market . . . favor thevoluntary adoption of more efficientproducts and services.1 9 0

A representative of the South Coast AirQuality Management District in Californiatestified before Congress in 1993 thatbetween 10 percent and 30 percent of thestate’s transportation market would be pow-ered by an alternative fuel by the turn of thecentury.1 9 1 A small fraction of 1 percent ofthe market is now expected to be powered bynatural gas, methanol, and electricity com-bined. This collapse of the alternative-fuelmarket is not cause for environmental regret,given the positive contribution of reformu-lated motor fuels and changes in enginedesign. This is not to say that challenges donot remain but that traditional alternativescan be revamped to be the least cost solutionin a technologically dynamic world.

Synthetic Fuel ProductionAlthough it is hardly part of the “alter-

native energy” dialogue today, the cam-paign to promote renewable energy is strik-ingly similar to the campaign a few decadesago to promote synthetic fuels. The spec-tacular and costly failure of syn-fuels, how-ever, is a lesson that has unfortunately beenignored by today’s energy planners.

Synthetic fuels attracted many of the“biggest and brightest” energy investors inthe 1970s and 1980s. The idea of convertingcoal and other solids into oil, despite havingfailed as a U.S. government programbetween 1944 and 1955,1 9 2 was consideredripe for technological exploitation, givenhigh and rising oil and gas prices under the“theory of exhaustible resources.” Producingsynthetic oil and gas was thought of simplyas an engineering challenge, solvable by newincrements of entrepreneurial will andfinancial capital.

The result was the $88 billion federalSynthetic Fuels Corporation, established in1980 as “the cornerstone of U.S. energy poli-cy.” The corporation set a production goal of2 million barrels of syn-fuel a day by 1992.1 9 3

Shell, Exxon, Mobil, Chevron, Union Oil,Occidental, Ashland, Tenneco, Transco, andother firms championed the effort from theprivate side with their own investments,sometimes without government help. Exxonchairman C. C. Garvin in 1980 reflectedindustry opinion when he estimated thatU.S. syn-fuel production could reach as highas 4 million to 6 million barrels per day by2000.1 9 4His company’s planned internationalsyn-fuel investments of $18 billion, almostdouble that amount in today’s dollars,reflected his belief.1 9 5

Falling crude oil prices in the early 1980sshook the popular vision. Planned invest-ments were scaled back or scrapped, and theSynthetic Fuels Corporation was abolishedin December 1985 with most of its moniesunused. Some projects lingered as technolog-ical successes before economic reality wonout. Shell, for instance, did not close its pri-vately funded coal gasification project until1991, and Unocal terminated its oil shaleplant a year later. The only syn-fuel projectleft today is the $2.1 billion Great Plains CoalGasification Project in North Dakota, whichsurvived on the strength of $700 in federaltax credits and a high-priced syn-gas pur-chase contract after the original owners losttheir equity investment.1 9 6 The plant was soldby the Department of Energy to a consor-tium of North Dakota electric cooperativesfor a mere $85 million. The difference was acombination of investor ($550 million) andtaxpayer loss.1 9 7

The failed economic experiment with syn-thetic fuels can be blamed on the technologi-cal limitations of synthetic fuel processes.But the deeper reasons for failure are relevantto today’s subsidized renewable energydebate:

• Pervasive government interventionmade oil and gas prices artificially high

31

The spectacularand costly failureof syn-fuels is alesson that hasbeen ignored bytoday’s energyplanners.

relative to the price of coal, and deregu-lation and market adjustments not onlyreturned prices to “normal” levels butmade hydrocarbon prices lower thanthey would have been without the ini-tial government intervention (theboom-bust price cycle).

• Technological improvement was occur-ring with both conventional andunconventional energies, not justunconventional energies.

• Rising energy prices were increasing notonly revenue from the sale of syntheticsbut also the cost of making them, giventhe sensitivity of capital-intensive syn-thetic fuel plants to energy costs.

Those reasons may apply to the next gen-eration of government-subsidized energiesbeing touted as substitutes for crude oil, nat-ural gas, and coal.

Energy Technologies—Environmental Motivations

Despite the demonstrable failure of gov-ernment intervention to assist politicallyfavored fuels, environmentalists continue tohold out hope and to strike an optimisticpose on the basis of a particular interpreta-tion of technological progress. The words ofChristopher Flavin and Seth Dunn of theWorldwatch Institute typify the environmen-talist rejoinder.

Although some economists arguethat it will be expensive to developalternatives to fossil fuels—and thatwe should delay the transition as longas possible—their conclusions arebased on a technological pessimismthat is out of place in today’s world.Just as automobiles eclipsed horses,and computers supplanted typewrit-ers and slide rules, so can the advanceof technology make today’s energysystems look primitive and uneco-nomical. The first automobiles andcomputers were expensive and diffi-cult to use, but soon became practical

and affordable. The new energy tech-nologies are now moving rapidlydown the same engineering costcurves.1 9 8

Yet the 20th century has time and againrevealed most alternative and unconven-tional energy technologies to be “primitive”and “uneconomical” compared with fossil-fuel technologies, particularly for trans-portation but also for the stationary mar-ket. Alternative energy technologies are notnew; they have a long history. As theDepartment of Energy stated back in 1988,“The use of renewable energy dates back toantiquity.”1 9 9 Conventional energy tech-nologies, on the other hand, are not miredin the past. They have been setting a torridpace for unconventional energies and canbe expected to continue to do so in thedecades ahead, if not longer.

Environmentalists are quite discriminat-ing with their “technological optimism”;they will have none of it for fossil fuels andeven less for nuclear power. In 1988 theSierra Club opposed congressional interestin subsidizing research on a “safe” nuclearplant, since “we have doubts that develop-ment of such a plant is possible.”2 0 0 Adecade later more than 100 environmentalorganizations railed against a $30 millionproposed allocation in the Clinton admin-istration’s $6.3 billion Climate ChangeAction Plan (.5 percent) to help extend theoperating life of existing nuclear plants. Intheir judgment, the risk of radiation poi-soning was as great as or greater than thatof global warming.2 0 1 Would mainstreamenvironmentalists support ongoingresearch by Pacific Gas and ElectricCompany to seed clouds to increase rainfallto increase hydroelectricity output,2 0 2 orwould they reject enhancing this renewableresource as an intervention by man innature? In reality, opponents of fossil fuelsand nuclear energy—and even hydroelec-tricity—can be characterized as pessimisticabout the most prolific technologies in theelectricity market today.

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The 20th centuryhas revealed

most alternativeand unconven-

tional energytechnologies to

be “primitive” and“uneconomical.”

The same pessimism—or disinterest—applies to geoengineering approaches toaddress atmospheric concentrations of CO2instead of reducing fossil energy combustion.The National Academy of Sciences conclud-ed in a 1992 study that such geoengineeringoptions as reforestation, stimulating oceanbiomass with iron, and screening sunlight“have large potential to mitigate greenhousewarming and are relatively cost-effective incomparison to other mitigation options.”2 0 3

This raises the following question: are thereal concern and mission of mainstreamenvironmentalism to reduce climate changeand eliminate the risk of radiation or toarrest the high levels of global developmentand population sustainability that increas-ingly abundant energy affords?

Environmentalist and fossil fuel criticPaul Ehrlich believes that “giving societycheap, abundant energy . . . would be theequivalent of giving an idiot child amachine gun.”2 0 4 And when cold fusionseemed briefly to be the ultimate renewableenergy, the environmental movementrecoiled in concern. Jeremy Rifkin spoke formany when he told the Los Angeles Timesthat cold fusion was “the worst thing thatcould happen to our planet.”2 0 5

The cold, hard fact remains that the main-stream environmental movement supportsthose carbon-free energies that are the mostexpensive and the least reliable. Wind andsolar power are not only costly on a per unitbasis but have low capacity factors, are siteconstrained, and are intermittent. Nuclearand hydro, which enjoy much less environ-mentalist support, on the other hand, can beflexibly generated on a mass scale.

Indeed, higher prices and less availabilitytranslate into less usage, which is conserva-tion by another name (enforced conserva-tion). Ehrlich and others have complainedabout the environmental impact of energyfrom any source:

No way of mobilizing energy is freeof environmentally damaging sideeffects, and the uses to which energy

from any source is put usually havenegative environmental side effectsas well. Bulldozers that ran onhydrogen generated by solar powercould still destroy wetlands and old-growth forests.2 0 6

Ehrlich has stated elsewhere, “In a countrylike the United States, there is not the slight-est excuse for developing one more squareinch of undisturbed land.”2 0 7 To Ehrlich theinherent energy use of such developmentwould be environmentally destructive as well.Yet a moratorium on development, ironically,would condemn renewable energy technolo-gies in particular, since they require muchmore space and pristine acreage than do con-ventional power plants per unit of output.2 0 8

Another example of the environmentaltension created by environmentalist energygoals was stated by a former executive of USElectricar: “I worry that the focus on produc-ing zero-emission cars distracts us from con-centrating on redeveloping decent mass tran-sit.”2 0 9 If the most optimistic scenarios withhydrogen fuel-cell vehicles play out in severaldecades and inexpensive, environmentallybenign driving becomes the norm, will envi-ronmentalists rejoice or be concerned aboutthe side effects of affordable, decentralizedmobility?

All energy technologies should be evalu-ated realistically in the short run and opti-mistically but realistically in the longer run.In this sense one can be optimistic about allenergies and their technologies, conven-tional and unconventional, yet still appreci-ate the current sizable competitive edge ofthe former. Such an appreciation is not acall for companies to forgo being “venturecapitalists” to seek out new energy tech-nologies and alternatives that currently areout of the market. The public policy issue isnot whether the completely new shouldoverthrow the old. There is always thechance that revolution will join day-by-dayevolution. The call is to establish and pro-tect market institutions to encourageresearch and development in a nonpolitical

33

The mainstreamenvironmentalmovement sup-ports those car-bon-free energiesthat are the mostexpensive and theleast reliable.

setting to reduce inefficiency and waste,given that human wants are greater thanthe resources to meet them.2 1 0

Global Warming: The LastChallenge to Fossil Fuels?

The greatest threat to fossil fuels’ marketshare in the 21st century comes not fromcompeting energies but from politicians andspecial interests professing concern aboutanthropogenic global warming. Acceleratingaccumulation of CO2 (the chief industrialgreenhouse gas) in the atmosphere is primar-ily the result of fossil-fuel consumption.Fossil fuels, however, cannot be “reformulat-ed”—nor their emissions “scrubbed”—toremove CO2. Mark Mills explains:

Carbon dioxide emissions are theintended outcome of oxidizing thecarbon in the fuel to obtain energy.There is thus no avoiding, or cleaningup, carbon from the fuel source. Thisperhaps obvious, but oft ignored,reality highlights the reason thatrestraints on carbon dioxide emis-sions are, by definition, restraints onthe use of energy for society. There arethus only three ways to [significantly]reduce carbon emissions: regulateCO2, raise the price of carbon fuels todiscourage use, or offer non-carbonalternatives.2 1 1

For most of its scientific history CO2 hasbeen considered an environmental tonic,enhancing photosynthesis to increase plantbiomass and agricultural yields.2 1 2 Carbondioxide and other heat-trapping gases werealso credited with warming the earth to makeit habitable—the incontrovertible “green-house effect” theorem. Carbon dioxide hasnever been considered a pollutant that affectshuman health like particulate matter, lead,carbon monoxide, volatile organic com-pounds, or NOx—all regulated by the EPA.

Atmospheric levels of CO2 have increased

30 percent or more since the IndustrialRevolution, and the “warming potential”weighting of all six greenhouse gases hasincreased around 50 percent in the same peri-od.2 1 3 Virtually all scientists believe that adoubling of greenhouse gas concentrationsin the atmosphere, estimated to occur over a70- to 150-year period, would increase globalaverage temperatures, other things being thesame.2 1 4 Consensus evaporates, however, onthe magnitude, distribution, and timing ofwarming and how much other emissions,such as man-made sulfate aerosols or evenconventional urban smog, might offset thepotential warming.2 1 5

The controversy also extends to publicpolicy. If harmful climate effects are possible,are the costs of mitigation greater than thoseof a strategy of unabated economic develop-ment and social adaptation (a wealth-is-health approach)? If a mitigation strategy isfollowed, is the least cost strategy to trans-form the energy economy to reduce carbonsources or to substitute geoengineering tech-niques, such as tree planting and seeding theocean with iron to increase carbon sinks? Apolitical question is the role of the UnitedStates in such efforts. While the UnitedStates is the leading emitter of greenhousegases in the world, America vitally con-tributes to a robust carbon cycle. A recentstudy found that North America is a net car-bon sink,2 1 6 which in the parlance of the cli-mate change debate would make Americaand Canada a net “global cooling region.”

Declining Estimates of Future WarmingThe warming estimates, made by general

circulation climate models, of increasedanthropogenic greenhouse gas concentra-tions in the atmosphere have declined in thelast 5 to 10 years. Whereas the estimate ofwarming from a doubling of CO2 in theatmosphere was often around 4°C in the1980s models, estimates from newer models,such as the latest iteration at the NationalCenter for Atmospheric Research in Boulder,Colorado, are closer to 2°C.2 1 7The latest “bestguess” Intergovernmental Panel on Climate

34

For most of itsscientific history

C O2 has beenconsidered an

environmentaltonic.

Change (IPCC) forecast for the year 2000 is2°C, an almost 40 percent drop since the firstIPCC estimate in 1990.2 1 8

The downward revisions to date havebeen primarily due to a lower assumedatmospheric buildup of greenhouse gasesand the inclusion of the alleged warmingoffset factor of sulfate aerosols. More realis-tic model equations and calculationsresponsible for determining climate sensi-tivity (discussed below) remain to be incor-porated. One-half of the predicted warmingin the revised models is still substantiallygreater than the recorded warming, given a50 percent increase in greenhouse gasbuildup to date (Figure 6). This suggeststhat further downward revisions may benecessary.2 1 9

Defenders of the models argue that a lageffect produced by ocean absorption ofheat energy reconciles the past and por-

tends an acceleration of warming in the sec-ond half of the greenhouse gas doublingperiod.2 2 0 The “unrealized warming” has lednoted modeler James Hansen to predictthat the greenhouse “signal” of heat anddrought will “increase notably” in the com-ing years.2 2 1 Separating the recent El Niñoeffect from the “record” warming will bethe difficult first step in testing the Hansenprediction, at least in the short run.

Lags or not, two recent developments mayportend a further reduction in model warm-ing estimates. First, the rate of greenhousegas buildup has been even slower thanassumed because of flat methane emissions,a phaseout of chlorofluorocarbons, andgreater biomass intake of CO2.2 2 2Second, thecrucial water vapor climate feedback, whichin climate models doubles the warming esti-mated from doubled CO2 alone, is likely tohave been overestimated.2 2 3

35

0

0.5

1

1.5

2

2.5

3

3.5

MPI UKMO NCAR GISS 1890-1997

Deg

rees

Fah

renh

eit

2.9°F 2.9°F

1.8°F

2.7°F

1.1°F

Model Predicted

Actual

Post-1945

Pre-1945

Figure 6Model Warming vs. Recorded Warming under 50 Percent Greenhouse Gas Buildup Assumption

Source: Author’s calculations.

Note: MPI = Max Planck Institute, UKMO = United Kingdom Meteorological Office, NCAR =National Center for Atmospheric Research, GISS = Goddard Institute for Space Studies.

Benign—or Positive—Warming TrendsGiven the observed surface warming of

the last half century, and particularly of thelast two decades, the distribution of the pre-dicted warming would be relatively benign,occurring in the coldest air masses during thecoldest times of the year and more often dur-ing the night than during the day. Maximumsummer temperatures, which are of more dis-comfort and create more negative climateconsequence in many areas of the world, havebeen less affected.2 2 4

Other unresolved issues are important inthe debate over climate change and publicpolicy. The apparent incongruence betweensteadily rising CO2 levels and surface tem-peratures for much of the present century,namely the “overwarming” prior to 1945 and“global cooling” between 1945 and 1975, hasled to ad hoc adjustment factors in the cli-mate models with sulfate aerosols to recon-cile the data with predicted results.

There is also a well-known discrepancybetween atmospheric temperature readingsby satellite and balloon sensors (showing aslight cooling in the lower troposphere,where the models predict a stronger “green-house signal” than at the surface) and sur-face thermometer readings, which show awarming trend over the past 20 years. Biascorrections in the satellite data have less-ened the discrepancy, but significant differ-ences remain that, if verified, would suggestthat either the surface warming has beenoverstated or the surface warming has notbeen driven by anthropogenic greenhousegas buildup—both signaling vindication forthe skeptics of warming alarmism.2 2 5

In addition to the increase of surface tem-peratures at a fraction of the rate predicted bygeneral circulation models in the last fivedecades (0.15°C), sea levels have risen onlymodestly (only seven inches over the last cen-tury), and extreme-weather events have notoccurred with any more frequency than inthe past.2 2 6 Critics ask, where is the alarmist“greenhouse signal,” given a 50 percentbuildup of the warming potential of green-house gases in the atmosphere to date?

The best argument for climate alarmismmay not be what is known but what is notknown—climate “surprises” from “rapidlyforced nonlinear systems.”2 2 7 Yet as climatemodel revision and actual data lower thewarming estimates, the potentially negativeclimatic “surprises” predicated on highwarming evaporate also. That leaves thepositive “surprises” from a higher level ofCO2 in the atmosphere: a decreasing diur-nal cycle, a moderately warmer and wetterclimate, and enhanced photosynthesis for aricher biosphere.

Scientific revisions in the last decadehave moderated the case for climate changealarmism. Scientific thought today favorsgreater movement toward the lower end ofthe warming estimates from climate mod-els. The scientific justification for the KyotoProtocol is more than just unsettled. It isspeculative and unconvincing, given actualweather records to date and ongoing scien-tific revisions. The more settled side of thescientific debate, the positive effects ofhigher CO2 concentrations on plant life,strongly favors the status quo even beforethe political and energy-economic dimen-sions of the climate change issue are exam-ined. But for purposes of analysis, astronger scientific case currently exists forassigning a positive externality value toCO2 than for assigning a negative one.

Kyoto QuandariesThe Kyoto Protocol, which requires signa-

tory Annex 1 (developed) countries to reduceglobal greenhouse emissions by an average of5.2 percent from 1990 levels in the 2008–12budget period, begins the process of stabiliz-ing atmospheric concentrations of anthro-pogenic greenhouse gases believed to beresponsible for problematic climate change.Approximately 134 developing countries areexempt, including China, which is projectedto surpass the United States as the world’sleading CO2 emitter in the coming decades.The Department of Energy and the Clintonadministration project that exemptnon–Annex 1 countries will emit more CO2

36

Scientific revi-sions in the last

decade have mod-erated the case for

climate changealarmism.

than will covered Annex 1 countries begin-ning sometime between 2015 and 2020.2 2 8

Both the exemptions for developing coun-tries and the inertia of past and currentgreenhouse gas emissions limit the climaticimpact of a “perfect” Kyoto. Full compliancewith the protocol would reduce anthro-pogenic warming (as estimated by the cli-mate models) by only 4 percent to 7 percent(0.1°C–0.2°C) by the year 2100.2 2 9That is whyone prominent climate modeler has estimat-ed that “thirty Kyotos” are necessary to effec-tively address the alleged problem.2 3 0 Thus,the environmental benefits achieved by fullcompliance with the treaty are infinitesimaland probably not even measurable—at leastfor “many decades.”2 3 1

What are the costs of complying with thetreaty? Carbon dioxide emissions cannot bereduced without reducing fossil-fuel con-sumption.2 3 2 So the question is, how expen-sive would it be to reduce fossil-fuel con-sumption to 7 percent below 1990 levels (oraround 30 percent below what would oth-erwise have been consumed by 2012)?2 3 3

Close examination of the Clinton admin-istration’s economic projections regardingreductions in greenhouse gas emissionsreveals that “the political struggle over U.S.compliance with the Kyoto Protocol is reallya fight about the future of the coal-fired gen-eration of electricity,” according to PeterVanDoren.2 3 4 Some administration officialsbelieve that coal-fired power plants can becheaply replaced by natural gas–fired powerplants; others in the administration are lesscertain.2 3 5 The belief that politically favoredrenewable energy sources represent low-cost,“silver bullet” solutions to global climatechange is not taken seriously even by thepresident’s own Council of EconomicAdvisers, as discussed below.

The absence of a viable supply-side strat-egy option places the burden of meeting theKyoto Protocol requirements squarely onthe demand side. Yet there is no economi-cally viable solution based on substantialabsolute reductions in energy usage despitethe fantastic pronouncements from Amory

Lovins, such as “America’s energy-savingpotential—sufficient ‘to cut industrial ener-gy use in half’ . . . tags along [with Kyotocompliance] almost for free.”2 3 6 Even a farmore modest assertion by a U.S. Departmentof Energy technology group that govern-ment-directed energy efficiency invest-ments could substantially assist in meetingthe Kyoto Protocol’s emission-reductionrequirements2 3 7 was downplayed by theCouncil of Economic Advisers in its July1998 report on minimizing compliancecosts with the Kyoto Protocol.2 3 8 The coun-cil’s dismissal of such an approach proba-bly was due to the Department of Energy’sunderstatement of the costs of energy effi-ciency subsidies and mandates and a grossoverstatement of the potential for reduc-tions in energy consumption.2 3 9

Increased energy efficiency or loweredenergy intensity per unit of output does nottranslate into reduced energy consumptionper se. Despite a one-third reduction inenergy intensity in the United States since1973, total domestic energy use has risen 20percent.2 4 0 The rise has been due to robusteconomic growth (gross domestic productdoubled in that period) and new applica-tions using the energy “saved” from tradi-tional applications (consumer substitutionand wealth effects). Such energy-growthfactors can be expected to continue indefi-nitely in free-market economies.

As long as electricity rates fall, all otherthings being equal, ratepayers will consumemore at the margin. Overall, national elec-tricity rates are expected to fall in real termsby 20 percent to 40 percent over the nexttwo decades as competition and customerchoice drive average costs down towardmarginal costs by increasing the utilizationrate of surplus capacity and attracting newlow-cost capacity.2 4 1 Falling electricity rateswill increase energy demand, and greaterusage, in turn, will lower rates further.2 4 2

Both economic growth and competitiveelectric rates will work against “conserva-tion for its own sake.”

37

The absence of aviable supply-sidestrategy optionplaces the burdenof meeting theKyoto Protocolrequirementssquarely on thedemand side.

Emissions Trading: The Great Escape?It is an open secret that remixing energy

supply and reducing net energy use are notcapable of meeting America’s obligationunder the Kyoto Protocol, short of politi-cally intolerable economic hardship. That iswhy the Clinton administration is countingheavily on “effective international trading”of CO2 emission permits.2 4 3Such trading inthe Clinton administration’s estimate isresponsible for lowering the cost of compli-ance as much as 80 percent to 85 percent.2 4 4

The use of a 1990 baseline in the KyotoProtocol creates a large pool of emissionscredits for Russia, Germany, and other coun-tries that have reduced emissions for reasonsunrelated to climate change policy. Americanindustry could purchase “cheap” Russianemission credits to avoid more costly mea-sures, such as internal emissions reductions.So the emission reductions that Russiamight not have used itself for many yearsallow present emissions—though at somecost compared with there being no tradingrequirement at all. That is why a number ofmainstream environmental groups, theEuropean Union, and environmental minis-ters of the G-8 industrialized nations haveraised the concern that emissions tradingwould promote business as usual instead ofsubstantial emissions reductions in theUnited States in the first (and probably theeasiest) budget period, 2008–12.2 4 5

Emissions trading can be described as“market conforming” and “efficient” to theextent that the lowest cost emission reduc-tions can be discovered, as opposed to amandated facility-specific approach, underwhich particular firms must rigidly reduceemissions. But such a program assumesthat the transaction costs (monitoring andenforcement costs) of an international pro-gram with more than 160 sovereign nations(and the enforcement weapon of interna-tional trade restrictions) do not sabotagethe economic gains of the program.2 4 6

Moreover, an international trading regimemust include a large pool of developingnations to secure low-cost emissions reduc-

tions. With most developing countries cur-rently unwilling to join such a tradingregime, the benefits of emissions tradingwill be greatly attenuated.

Free-Market “No Regrets” PoliciesFossil fuels are compatible with environ-

mental quality and otherwise “sustainable”for several reasons. First, the science is muchmore settled with respect to the benefits ofhigher atmospheric levels of CO2 for plantgrowth and food supply than it is withrespect to the ecological harms from man-caused climate change. Second, a moderatelywarmer and wetter world is economically andenvironmentally better. Third, robust energymarkets and economic growth would sub-stantially eradicate “poverty pollution.”2 4 7

Bringing hundreds of millions of individualsinto the modern world with electricity andtransportation energy is not an “unsustain-able” extension of the fossil-fuel age but aprerequisite to improving living standards sothose people can afford a better environment.Substituting affordable, sophisticated fossilenergy for the burning wood or dung indoorsto heat, cook, and light is essential to thisend.2 4 8For today’s several billion mature ener-gy users, on the other hand, energy upgradesof appliances and fuel inputs will improvemobility, convenience, and comfort just asthey have in the past. Increasing energyaffordability will also promote universalwater desalinization, irrigating (“greening”)massive areas of barren desert, and develop-ment and implementation of electrotech-nologies that improve the environment inmany subtle ways.2 4 9

The greater the cost and improbability ofsuccess of a proposed course of action, themore compelling is a public policy of wealthcreation in an energy-rich economy. Violatingmarket preferences by mandating inferiorenergies and forcing energy conservation(energy rationing) reduces the wealth andsocietal resiliency that may be needed toadapt to whatever uncertainties the futureholds and to deal with major social problems,including the possible negative effects of cli-

38

Positive economicand environmen-tal trends suggest

that fossil fuelswill be increasing-

ly sustainable inthe 21st century.

mate change, whether natural or anthro-pogenic in origin. Turning scientific inchesinto public policy miles to “stabilize climate”is not prudent under the precautionary prin-ciple or any other standard of social welfare.

Conclusion

The following conclusions and hypothe-ses can be drawn from this essay:

• Despite a one-third reduction in ener-gy intensity in the United States since1973, total domestic energy use hasrisen 20 percent.

• Improving trends with oil, gas, andcoal will require that the break-through “discontinuities” needed forsubstitute technologies to becomecompetitive grow over time.

• The weakening scientific case for dan-gerous climate change makes the glob-al warming issue a transient politicalproblem for fossil fuels rather than adeath warrant.

• The Kyoto-inspired energy strategy ofmass energy conservation and substi-tutions of preferred renewable ener-gies will self-destruct if the enablingtechnologies do not improve enoughto ensure affordability and conve-nience for consumers. Reduced livingstandards in the developed world andcontinued poverty in the developingworld are not politically or ethicallytolerable.

• “Green pricing” in electricity marketswill be increasingly problematic andultimately unsustainable because ofinternalized externalities with fossilfuels, subjective consumer preferences,and the necessity of political interven-tion to define what is “green.”

• Currently uneconomical energy tech-nologies are backstop sources for thefuture. At present they include synthet-ic oil and gas from coal, central-station

wind and solar electricity, biopower,fuel cells, and renewable-energy-pow-ered and electric vehicles. Because of rel-ative economics, nuclear power isalready a backstop technology for newcapacity in the United States and otherareas of the world with abundant fossilfuels.

• The increasing range of backstop ener-gies enhances “energy security” oververy long time horizons, although suchsecurity can be and has been “over-bought” by government policies in thenear term.

• The market share of fossil-fuel energy islikely to increase in the 21st century ifthe environmental movement succeedsin discouraging existing and new capac-ity of the two largest carbon-free energysources, hydroelectricity and nuclearpower. This is because of sheer relativesize: the current world market share ofhydropower and nuclear power is thir-teen times greater than that of nonhy-dro renewables.

• Major economic and environmentaladvances are as likely (and perhapsmore likely) to occur within the fossil-fuel family as outside it. One promis-ing possibility for early in the nextcentury is commercially convertingnatural gas into cleaner reformulatedgasoline and diesel fuel.

• The intermittent characteristic of windand solar energy could make those ener-gies bridge fuels to conventional energyin nonelectrified regions of the world. Ifso, those technologies would remain asbackstop rather than primary energiesin the 21st century.

• The range of viable solar applicationscan be expected to increase over time,especially as space commercializationand remote ocean and desert activitiesaccelerate in the 21st century. Windturbines, despite being substantiallycheaper than solar technology inwindy areas, may have a more limitedfuture in an economically and envi-

39

Despite a one-third reduction inenergy intensityin the UnitedStates since 1973,total domesticenergy use hasrisen 20 percent.

ronmentally conscious world becauseof siting constraints.

The Petroleum Economist’s headline for1998 projects, “Ever Greater Use of NewTechnology,”2 5 0 will also characterize futureyears, decades, centuries, and millenniaunder market conditions. If the “ultimateresource” of human ingenuity is allowed freerein, energy in its many and changing formswill be more plentiful and affordable forfuture generations than it is now, althoughnever “too cheap to meter” as was once fore-cast for nuclear power. For the nearer andmore foreseeable term, all signs point towardconventional energies’ continuing to ride thetechnological wave, increasing the prospectsthat when energy substitutions occur, thewinning technologies will be different fromwhat is imagined (and subsidized by govern-ment) today. Such discontinuities will occurnot because conventional energies failed butbecause their substitutes blossomed.

40

The intermittentcharacteristic of

wind and solarenergy could

make those ener-gies bridges to

conventionalenergy.

The author would like to thank Harry Chernoff(Science Applications International Corpora-tion), Michael Lynch (Massachusetts Instituteof Technology), Lee Papayoti (Enron Corp.),Jerry Taylor (Cato Institute), and Tom Tanton(California Energy Commission) for helpfulcomments.

1. Joseph Stanislaw, “Emerging Global EnergyCompanies: Eye on the 21st Century,” CambridgeEnergy Research Associates, 1995, p. 6.

2. World non-fossil-fuel consumption of 15 per-cent in 1996 was composed of nuclear at 6 per-cent; hydropower at 8 percent; and wind, solar,geothermal, and biopower at 1.5 percent. EnergyInformation Administration, International EnergyOutlook 1998 (Washington: U.S. Department ofEnergy, 1998), p. 135. Wood or dung (biomass)burned for home heating or cooking, not countedas energy usage in this breakout, would addapproximately 5 percent to this total.Intergovernmental Panel on Climate Change,Climate Change 1995: Impacts, Adaptations, andMitigation (Cambridge: Cambridge UniversityPress, 1996), p. 83.

3. Robert L. Bradley Jr.,“Renewable Energy: NotCheap, Not ‘Green,’” Cato Institute PolicyAnalysis, no. 280, August 27, 1997, pp. 53–55;and Paul Ballonoff, Energy: Ending the Never-Ending Crisis (Washington: Cato Institute, 1997),pp. 52–56.

4. M. A. Adelman, The Genie Out of the Bottle: WorldOil since 1970 (Cambridge, Mass.: MIT Press,1995), pp. 101–5, 163–66, 177–78, 189–90, 205–8,211–13, 217, 220–22, 249, 253, 273, 283–84.

5. Energy Information Administration, Inter-national Energy Annual 1996 (Washington: U.S.Department of Energy, 1998), pp. 13, 26, 31, 109,111; EIA, International Energy Outlook 1998, pp.37–38, 51; Enron Corp., 1997 Energy Outlook(Houston: Enron Corp., 1997), p. 11; and WorldEnergy Council, 1995 Survey of Energy Resources(London: WEC, 1995), pp. 32–35. To cover all theconventional energies, uranium reserves andresources are equal to 84 years and 127 years ofpresent usage, respectively, under a medium priceassumption, and under high prices potentialresources are estimated at approximately 450years at present consumption rates. Organizationfor Economic Cooperation and Development,Nuclear Energy Agency, and International AtomicEnergy Agency, Uranium: 1995 Resources, Productionand Demand (Paris: OECD, 1996), pp. 26–27, 32;

EIA, Nuclear Power Generation and Fuel Cycle Report1997 (Washington: U.S. Department of Energy,1997), p. 103.

6. Jack Belcher, “The Fourth Fossil Fuel,” Hart’sEnergy Market, October 1996, pp. 24–27; PeterEisen, “Orimulsion Gets Badly Needed Break inEurope,” Oil Daily, February 27, 1998, p. 3; and“Orimulsion Gets Break in India,” Oil Daily, July10, 1998, p. 7.

7. Safaa Founda, “Liquid Fuels from NaturalGas,” Scientific American, March 1998, pp. 92–95.

8. Martin Quinlan, “Gas-to-Liquid ProcessesApproaching Commercial Viability,” PetroleumEconomist, December 1997, pp. 18–20.

9. For an example of a vegetable-oil-poweredmotor vehicle in recent use, see Julian Simon, TheUltimate Resource 2 (Princeton, N.J.: PrincetonUniversity Press, 1996), p. 564. Crop oil is alsomentioned by Simon, pp. 16, 181.

10. Michael Lynch, Facing the Elephant: Oil MarketEvaluation and Future Oil Crises (Boulder, Colo.:International Research Center for Energy andEconomic Development, 1998), p. 2.

11. EIA, International Energy Outlook 1998, pp. 3, 38.

12. See endnote 5 for citations on reserve revi-sions.

13. See the technology articles in American Oil andGas Reporter 41, nos. 4 and 7 (April and July 1998).

14. Conference brochure, “Deepwater ’98,” ThirdAnnual Conference sponsored by the StrategicResearch Institute, October 26–28, 1998.

15. Arthur Andersen and Co., Oil & Gas ReserveDisclosures (Houston, Tex.: Arthur Andersen,1985), p. S-41; and Arthur Andersen and Co., Oil& Gas Reserve Disclosures (Houston, Tex.: ArthurAndersen, 1997), p. 10.

16. IPCC, Climate Change 1995: Impacts, Adapta-tions, and Mitigation, pp. 83–84.

17. See Simon, part 1.

18. It is assumed that fossil fuels are “nonre-newable” since “the world is currently using fos-sil fuels 100,000 times faster than they are beingrecreated by natural forces.” James Cannon,“Clean Hydrogen Transportation: A MarketOpportunity for Renewable Energy,” RenewableEnergy Policy Project Issue Brief, April 1997, p.3. Is this bedrock assumption always right? Therobust replenishment of supply behind theincreasing reserve figures could be due to more

41

Notes to Policy Analysis No. 341

than just increasing extraction percentages andlocating new reservoirs of a “fixed” (in a mathe-matical, not an economic, sense) biogenic sup-ply of decayed plants and animals. Some scien-tists suspect that oil and gas may have abiogenicorigins deep in the earth. Carbon, some suspect,can move upward from the earth’s crust toreplenish the near-surface supplies of petrole-um and gas accessible by the drill bit. If so, sub-stantial upward revisions would need to bemade to the resource base, replacing estimatesin the hundreds of years with estimates in thethousands of years, or even making probableresource estimates obsolete. See Thomas Gold,“An Unexplored Habitat for Life in theUniverse,” American Scientist, September–October1997, pp. 408–11. Empirical support for thathypothesis is described in “Gas Traces Found,Siljan Well Aims for 24,600 Ft.,” Oil and GasJournal, February 2, 1987, p. 18.

19. Adelman, The Genie Out of the Bottle, p. 22.

20. Douglas Bohi and Michael Toman,Analyzing Nonrenewable Resource Supply(Washington: Resources for the Future, 1984),p. 139.

21. Richard O’Neill et al., “Shibboleths, Loavesand Fishes: Some Updated Musings on FutureOil and Natural Gas Markets,” U.S. FederalEnergy Regulatory Commission, Office ofEconomic Policy, discussion paper, December 31,1996, p. 22.

22. M. A. Adelman, “Trends in the Price andSupply of Oil,” in The State of Humanity, ed.Julian Simon (Cambridge, Mass.: Blackwell,1995), p. 292.

23. Chevron, for example, failed to meet its $6 bil-lion capital budget for oil exploration and pro-duction in 1997 because of a lack of qualifiedstaff, not drilling prospects. Loren Fox, “HelpWanted: Oil-Industry Professionals,” Wall StreetJournal, December 26, 1997, p. B4.

24. Ballonoff, p. 21.

25. Robert L. Bradley Jr., The Mirage of Oil Protection(Lanham, Md.: University Press of America, 1989),pp. 129–39.

26. Robert L. Bradley Jr., “What Now for U.S. EnergyPolicy? A Free-Market Perspective,” Cato InstitutePolicy Analysis no. 145, January 29, 1991.

27. Bradley, The Mirage of Oil Protection, pp. 139–66.

28. Douglas Bohi and Michael Toman, TheEconomics of Energy Security (Boston: Kluwer

Academic Publishers, 1996), pp. 124–29.

29. Environmental Protection Agency, NationalAir Quality Emissions Trends Report, 1997 (Wash-ington: EPA, 1999), www.epa.gov/ttn/chief/trends97/emtrnd.html; and David Mintz, statisti-cian, Environmental Protection Agency, commu-nication with the author, February 16, 1999.

30. Available at www.epa.gov/airprogm/oar/aqtrnd97/trendsfs.html.

31. Ibid.

32. Ben Lieberman, “Air Pollution—The InsideStory,” Regulation, Spring 1998, pp. 12–13.

33. Quoted in ibid. See also Ben Lieberman,“The First Family’s Asthma Problems,” CEI onPoint, February 26, 1999.

34. EIA, Annual Energy Review 1997 (Washington:Department of Energy, 1998), pp. 211, 313.

35. Ibid., p. 9.

36. Ibid., p. 315.

37. Data Resource International, Energy Choices ina Competitive Era (Alexandria, Va.: Center forEnergy and Economic Development, 1995). p. 3-3.

38. Natural gas combined-cycle units emitbetween 50 percent and 100 percent less pollu-tants than a similarly sized coal plant with today’sbest technologies. Bradley, “Renewable Energy,”pp. 50–52.

39. Christopher Flavin and Nicholas Lenssen,Power Surge: Guide to the Coming Energy Revolution(New York: W. W. Norton, 1994), pp. 91–92; andRoss Gelbspan, The Heat Is On (New York:Addison-Wesley, 1997), pp. 8, 187–89.

40. Robert L. Bradley Jr., “Defining Renewables as‘Green’ Not Necessarily Final Verdict,” Natural GasWeek, September 15, 1997, p. 2.

41. Christopher Flavin, Comments at a confer-ence on the Department of Energy NationalEnergy Modeling System, March 30, 1998,Washington, D.C. Flavin would prefer distributedsolar to distributed natural gas, however.

42. James Flink, The Automobile Age (Cambridge,Mass.: MIT Press, 1988), p. 136.

43. American Automobile ManufacturersAssociation, “Automakers Have Made GreatStrides in Reducing Emissions,” www.aama.com/environmental/autoemissions3.html.

42

44. American Automobile ManufacturersAssociation, “Super Clean Cars Are Coming toHouston,” Press release, April 28, 1998; andTraci Watson and James Healey, “Clean CarsOut Sooner, Say Big 3,” USA Today, February 5,1998, p. 1A.

45. Kevin Cleary, staff engineer, Fuels Section,California Air Resources Board, communicationwith the author, March 4, 1999.

46. Caleb Solomon, “Clean Gasoline MakesDebut This Weekend,” Wall Street Journal, October30, 1992, pp. B1, B14; and California EnergyCommission, Fuels Report 1995 (Sacramento:CEC, 1995), p. 24.

47. Ibid., pp. 24–26; California Air ResourcesBoard, “Comparison of Federal and CaliforniaReformulated Gasoline,” Fact Sheet 3, February1996; and CARB, California RFG Forum, February1995, p. 1.

48. Quoted in CARB, California RFG Forum,August 1995, p. 3.

49. CARB, “Comparison of Federal and CaliforniaReformulated Gasoline,” p. 1.

50. Kevin Cleary, communication with theauthor, March 8, 1999.

51. Sam Atwood, spokesperson, South Coast AirQuality Management District, CaliforniaEnvironmental Protection Agency, communica-tion with the author, March 4, 1999.

52. CEC, Fuels Report 1993 (Sacramento: CEC,1994), pp. 24, 32.

53. Tony Brasil, air resources engineer, CARB,communication with the author, September 4,1998. Combined with the EPA requirement, theCalifornia standard reduced particulate matter anextra 5 percent.

54. “Diesel Will Continue to Be Heavy-Duty Fuelof Choice, House Told,” New Fuels & VehiclesReport, March 27, 1998, p. 9.

55. Rebecca Blumenstein, “GM and AmocoExpected to Unveil Clean-Fuel Effort,” WallStreet Journal, February 4, 1998, p. A10; GregoryWhite, “GM, Isuzu Investing $320 Million toBuild Advanced Diesel Engines for GMPickups,” Wall Street Journal, September 9, 1998;and “Diesel Will Continue to Be Heavy-DutyFuel of Choice,” p. A4.

56. EIA, International Energy Outlook 1998,pp. 40–47.

57. American Petroleum Institute, PetroleumIndustry Environmental Performance, 6th AnnualReport (Washington: API, 1998), pp. 34, 37; andEnvironmental Protection Agency, UnderstandingOil Spills and Response (Washington: EPA, 1993).

58. Steering Committee Report, Recommendationson the Implementation of PIRO, January 5, 1990.

59. Robert Aldag, president, Marine PreservationAssociation, conversation with the author,October 8, 1998.

60. Timothy Egan, “An Alaskan ParadiseRegained,” New York Times, August 9, 1998,pp. 13, 23.

61. Henry Linden, “Operational, Technologicaland Economic Drivers for Convergence of theElectric Power and Gas Industries,” ElectricityJournal, May 1997, p. 18; and JohannesPfeifenberger et al., “What’s in the Cards forDistributed Generation,” Energy Journal, SpecialIssue, 1998, p. 4.

62. A study by Data Resource International esti-mated that technological trends would result inan optimum size for gas plants of 150megawatts. DRI, Convergence of Gas & Power:Causes and Consequences (Boulder, Colo.: DRI,1997), p. 3-40.

63. Gerald Cler and Nicholas Lenssen, DistributedGeneration: Markets and Technologies in Transition(Boulder, Colo.: E Source, 1997), pp. 10, 19.

64. Clyde Wayne Crews, “Electric Avenues: Why‘Open Access’ Can’t Compete,” Cato InstitutePolicy Analysis no. 301, April 13, 1998, pp.10–11. The ability of residential and small com-mercial users to profitably utilize microturbinesis more distant than that of larger users owingto remaining scale diseconomies and sunk costsenjoyed by the incumbent provider.

65. Kenneth Lay, “Change and Innovation: TheEvolving Energy Industry,” Division 3 keynoteaddress, World Energy Congress, September 14,1998, Houston, Tex.

66. Bradley, “Renewable Energy,” pp. 50–52.

67. Ibid., pp. 53–55.

68. Jason Makansi, “Advanced Coal Systems FaceStiff Barriers to Application,” Electric PowerInternational, December 1997, pp. 27–34. On theimproving retrofits of existing gas turbine tech-nology, see CarolAnn Giovando, “ExploreOpportunities for Today’s Steam Turbine,” Power,July–August 1998, pp. 28–39.

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69. Judah Rose, “Comparative Costs of NewPowerplants—Overseas Economics,” Presenta-tion by ICF Resources, April 1997; and JoshSpencer, ICF Resources, communication with theauthor, February 18, 1998. A 1995 study by DRIestimated the cost of electricity from new coalplants (in 1993 dollars) at between 4.3 cents and5.1 cents per kWh. DRI, Energy Choices in aCompetitive Era, p. TA-15.

70. J. Santucci and G. Sliter, “Ensuring theEconomic Competitiveness of Advanced LightWater Reactors,” Paper presented at TOPNUX’96, Paris, September 1996, p. 1. Copy inauthor’s files.

71. Arlon Tussing and Bob Tippee, The NaturalGas Industry (Tulsa: PennWell Books, 1995),p. 54.

72. Makansi, pp. 27–28.

73. Enron Corp., The Natural Gas Advantage:Strategies for Electric Utilities in the 1990s (Houston:Enron, 1992), pp. 2–8.

74. This could be true if for no other reason thanthe “act of God” limitations of wind and solar—intermittent stillness for wind and darkness andintermittent cloudiness for solar.

75. World Association of Nuclear Operators,“1998 Performance Indicators for the U.S.Nuclear Utility Industry,” http://www.nei.org/library/tmiframe.html.

76. EIA, Annual Energy Review 1997, pp. 7,241, 243.

77. Nuclear Energy Institute, Strategic Plan forBuilding New Nuclear Power Plants (Washington:Nuclear Energy Institute, 1998), pp. III-4 and III-5.

78. EIA, Annual Energy Outlook 1998, p. 54.

79. Nuclear Energy Institute, Nuclear Energy,fourth quarter 1994; and Nuclear EnergyInstitute, Nuclear Energy Insight 1996, February1996, pp. 1–2.

80. “EPRI Unveils New Reactor DesignStandardization to Improve Safety,” ElectricPower Alert, July 1, 1998, pp. 27–28. A naturalgas combined-cycle plant of the same size canstill be built in two-thirds of this time.

81. As the Department of Energy has noted,“Without [the Price-Anderson Act of 1957], thenuclear power industry would not have developedor grown.” U.S. Department of Energy, UnitedStates Energy Policy: 1980–1988 (Washington: DOE,1988), p. 105.

82. For a description of the environmental andeconomic features of a modern coal plant avail-able to the international market, see Cat Jones,“Shinchi Leads Way for Large Advanced Coal-Fired Units,” Electric Power International ,September 1997, pp. 36–41.

83. Deren Zhu and Yuzhuo Zhang, “Major Trendsof New Technologies for Coal Mining andUtilization beyond 2000—Technical Scenario ofthe Chinese Coal Industry,” Proceedings: 17thCongress of the World Energy Council (London: WorldEnergy Council, 1998), vol. 5, p. 93.

84. EIA, International Energy Outlook 1998, p. 78.

85. DRI, Energy Choices in a Competitive Era, p. 4-3.

86. Chinese and Indian energy planners providean example of energy exploitation. They madewind and solar investments that had high capaci-ty ratings but produced little energy. See EIA,International Energy Outlook 1998, pp. 103–4.

87. Roger Fouquet and Peter Pearson, “AThousand Years of Energy Use in the UnitedKingdom,” Energy Journal 19, no. 4 (1998): 7.

88. Carlo LaPorta, “Renewable Energy: RecentCommercial Performance in the USA as anIndex of Future Prospects,” in Global Warming:The Greenpeace Report, ed. Jeremy Leggett(Oxford: Oxford University Press, 1990), pp.235, 242–43.

89. Flavin and Lenssen, p. 189.

90. Paul Druger and Carel Otte, eds., GeothermalEnergy: Resources, Production, Stimulation (Stanford,Calif.: Stanford University Press, 1973), pp. 21–58.

91. “Shell Gets Serious about Alternative Power,”Petroleum Economist, December 1997, p. 38; andKimberly Music, “Shell Pledges to Focus onRenewable Energy,” Oil Daily, October 17, 1997,p. 1.

92. John Browne, Climate Change: The New Agenda(London: British Petroleum Company, 1997).

93. Enron Corp., “Enron Forms Enron RenewableEnergy Corp.; Acquires Zond Corporation,Leading Developer of Wind Energy Power,” Pressrelease, January 6, 1997.

94. Total international energy investment, esti-mated by the World Energy Council to be $1 tril-lion annually, would make planned investmentsin wind, solar, geothermal, and biopower minus-cule. Commercial energy financing only, estimat-ed to be around $150 billion in 1995 alone, wouldput nonhydro renewable investment at a fraction

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of 1 percent, comparable to the world marketshare of wind, solar, and geothermal combined.Martin Daniel, “Finance for Energy,” FT EnergyWorld, Summer 1997, p. 5; and EIA, InternationalEnergy Annual 1996, p. 20.

95. Shell International Limited, “Shell InvestsUS$0.5 Billion in Renewables,” Press release,October 16, 1997; and Sam Fletcher, “Shell toSpend $1 Billion on 3 Deep Gulf Fields,” Oil Daily,March 20, 1998, p. 1.

96. Quoted in Amal Nag, “Big Oil’s Push intoSolar Irks Independents,” Wall Street Journal,December 8, 1980, p. 31.

97. Charles Burck, “Solar Comes Out of theShadows,” Fortune, September 24, 1979, p. 75.

98. Paul Gipe, “Removal and Restoration Costs:Who Will Pay?” Wind Stats Newsletter, Spring1997, p. 1. See also Bradley, “Renewable Energy,”pp. 20–22.

99. John Berger, Charging Ahead: The Business ofRenewable Energy and What It Means for America(New York: Henry Holt, 1997), pp. 4–5. This bookprovides an in-depth look at the personal hard-ships, financial precariousness, shifting govern-ment subsidies, and occasional environmentaldegradation associated with unconventionalenergy development in this period.

100. Flavin and Lenssen, pp. 176–77. Biopowercan be carbon neutral if its inputs are replanted tocreate sinks (a “closed loop” system), leaving costand quantity as the major issues.

101. EIA, Renewable Energy Annual 1995 (Washing-ton: U.S. Department of Energy, 1995), p. 78; andBradley, “Renewable Energy,” pp. 33–34.

102. Ibid., pp. 26–28.

103. See, for example, Rebecca Stanfield, “LethalLoophole: A Comprehensive Report on America’sDirtiest Power Plants and the Loophole ThatAllows Them to Pollute” United States PublicInterest Research Group, Washington, June 1998,p. 11.

104. Kenneth Lay, “The Energy Industry in theNext Century: Opportunities and Constraints,”in Energy after 2000, ed. Irwin Stelzer (Seville,Spain: Fundacion Repsol, 1998), p. 23.

105. Expenditures of the Department of Energy,since its creation, on wind and solar energy haveaveraged, respectively, nearly 4 cents and 23 centsper kWh produced. Other renewable and fossil-fuel technologies for electricity generation haveaveraged less than 1 cent per kWh. Bradley,

“Renewable Energy,” pp. 55, 63.

106. M. L. Legerton et al., “Exchange ofAvailability/Performance Data and Informationon Renewable Energy Plant: Wind Power Plants,”Paper presented to the 17th Congress of theWorld Energy Council, September 15, 1998, pp.5–6. This cost estimate is exclusive of major taxpreferences.

107. Bradley, “Renewable Energy,” pp. 7–12.

108. Adolf Huitti, “Challenges of the Power PlantMarket,” in World Energy (New York: McGraw-Hill, 1998), p. 55.

109. Alliance to Save Energy et al., EnergyInnovations: A Prosperous Path to a Clean Environment(Washington: ASE, June 1997), p. 37. See alsoAdam Serchuk and Robert Means, “Natural Gas:Bridge to a Renewable Energy Future,” REPP IssueBrief, May 1997. The Department of Energy in itsmost recent 20-year forecast states, “Low fossil fuelprices are expected to continue to hamper thedevelopment of renewable energy sources.” EIA,International Energy Outlook 1998, p. 5.

110. In 1996 wind and solar plants operated at 22percent and 31 percent capacity factors, respec-tively. EIA, Renewable Energy Annual 1997(Washington: Government Printing Office, 1998),p. 12.

111. The lower energy loss of natural gas trans-portation relative to electricity transmission dic-tates that gas power plants be located close totheir market. Wind and solar farms, on the otherhand, often have to be away from their marketcenters and must have their transmission linessized at peak output despite their low averagecapacity factor. Ballonoff, p. 47.

112. U.S. Department of Energy and ElectricPower Research Institute (EPRI), Renewable EnergyTechnology Characterizations (Pleasant Hill, Calif.:EPRI, 1997), p. 2-1.

113. Ibid.

114. The biopower cost estimate is the bottom ofthe range for existing plants given by DOE andEPRI and a current estimate by the EIA. Ibid.; andRoger Diedrich, industry analyst, EIA, conversa-tion with the author, September 1, 1998. For windand solar estimates, see Pfeifenberger et al., p. 4.See also Bradley, “Renewable Energy,” p. 11, forwind power; and Solarex, “Everything YouAlways Wanted to Know about Solar Power,”Company pamphlet, March 1997, p. 3, for solarpower. The 6 cents per kWh for wind at idealU.S. sites with scale economies is exclusive not

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only of the 10-year federal tax credit (approxi-mately 1.7 cents per kWh today) but also ofaccelerated depreciation (a 5-year rather than a20-year write-off of capital costs).

115. Flavin and Lenssen, pp. 101–2; and NelsonHay, ed., Guide to New Natural Gas UtilizationTechnologies (Atlanta: Fairmont, 1985), pp. 323–31.

116. Cler and Lenssen, pp. 13, 28; Gerald Cler andMichael Shepard, “Distributed Generation: GoodThings Are Coming in Small Packages,” TechUpdate, November 1996, pp. 14–16; and “UtilitiesBenefit in DOE Grants for Fuel Cells,” Gas Daily,August 23, 1996, p. 6.

117. Cler and Lenssen, p. 27.

118. Battery storage devices to hold electricityfrom ten seconds to two hours cost between $400and $1,000 per kilowatt. DOE and EPRI, p. A-4.Battery costs alone are as much as or more thanthe installment cost of distributed oil and gasgeneration, making the competitive viability ofintermittent energies decades away at best.

119. Yves Smeers and Adonis Yatchew,“Introduction, Distributed Resources: Toward aNew Paradigm of the Electricity Business,” EnergyJournal, Special Issue, 1998, p. vii. See also RobertSwanekamp, “Distributed Generation: OptionsAdvance, But toward What Pot of Gold?” Power,September–October 1997, pp. 43–52.

120. Nancy Rader and William Short,“Competitive Retail Markets: Tenuous Groundfor Renewable Energy,” Electricity Journal, April1998, pp. 72–80.

121. EIA, Annual Energy Outlook 1998, p. 57.

122. Of the 17 states that had announced arestructuring of their electric industry as of early1998, 8 had a renewable quota requirement, 3 hadfinancial subsidies in addition to a quota require-ment, and 5 had financial incentives for renew-ables only. For a list of those states and programs,see Bentham Paulos, “Legislative Help Grows atState and Federal Level,” Windpower Monthly, April1998, pp. 52, 54.

123. American Automobile ManufacturersAssociation, Motor Vehicle Facts & Figures, 1997(Washington: AAMA, 1997), p. 44.

124. American Petroleum Institute, How Much WePay for Gasoline: 1997 Annual Review (Washington:API, April 1998), p. i.

125. Ibid., pp. ii–iii; and EIA, Monthly EnergyReview, February 1999, p. 114. In a free-marketsystem, electronic road billing would replace

pump taxation as the primary incremental cost ofdriving, outside of vehicle costs and (free-market)fuel costs. See generally, Gabriel Roth, Roads in aMarket Economy (United Kingdom: AveburyTechnical, 1996).

126. See, for example, a spot check of 25 liquidproducts at a Philadelphia grocery store inInterfaith Coalition on Energy, “The Cost of aGallon of Gasoline,” Comfort & Light Newsletter,Spring 1998, p. 2.

127. A recent advertisement by Mobil describedthe goal of new-generation refineries as produc-ing “a new breed of fuels that burn cleaner andmore efficiently, lubricants that last longer andchemicals that are recyclable” from advancedcompositional modeling and molecular engineer-ing (membrane and catalyst technologies). Mobil,“Technology: Transforming Tomorrow’sRefineries,” New York Times, September 17, 1998,p. A31.

128. W. Michael Cox and Richard Alm, “TimeWell Spent: The Declining Real Cost of Living inAmerica,” in Federal Reserve Bank of Dallas, 1997Annual Report (Dallas: Federal Reserve Bank ofDallas, 1998), p. 11.

129. Ibid.

130. See, for example, New York Times reprint,“Ford Motor Co. Plans to Reduce Average Priceon ’99 Cars, Trucks,” Houston Chronicle, August 11,1998, p. 4C.

131. Cox and Alm, p. 11.

132. Arthur Cummins, “Diesel Vehicles, inGreener Mode, May Stage Comeback,” WallStreet Journal, April 9, 1998, p. B4. Mainstreamenvironmentalists overrate the environmentalpotential of diesel relative to gasoline, citing thelower CO2 emissions of the former. Carbondioxide, as will be discussed, is not a pollutant,compared with other emissions that are greaterwith diesel technology.

133. “Diesel Will Continue to be Heavy-Duty Fuelof Choice,” p. 9.

134. Robert L. Bradley Jr., Oil, Gas, and Government:The U.S. Experience, (Lanham, Md.: Rowman &Littlefield, 1996), pp. 1744–45.

135. Public Law 96-294, 94 Stat. 611 (1980).

136. EIA, Annual Energy Review 1997, pp. 37, 251.

137. American Petroleum Institute, “AlternativeFuels,” p. 2.

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138. Auto/Oil Air Quality Improvement ResearchProgram, Final Report, January 1997, pp. 4, 26–27.

139. Complained Daniel Becker of the SierraClub, “Ford’s announcement about making carsfor which there is not fuel is a cynical ploy to avoidviolating a law.” Quoted in Keith Bradsher, “Fordto Raise Output Sharply of Vehicles That UseEthanol,” New York Times, June 4, 1997, p. A1.

140. EIA, Renewable Energy Annual 1997, p. 13.

141. National Academy of Sciences, PolicyImplications of Greenhouse Warming (Washington:National Academy Press, 1992), p. 342.

142. Cannon, p. 2. Farm equipment uses dieselfuel.

143. Public Law 105-78, 112 Stat. 107 at 502 (1998).

144. See, for example, Matthew Wald, “It BurnsMore Cleanly, but Ethanol Still Raises Air-QualityConcerns,” New York Times, August 3, 1992, p. D1.

145. Methanol: Fuel of the Future, Hearing before theSubcommittee on Fossil and Synthetic Fuels, 99thCong., 1st sess. (Washington: GovernmentPrinting Office, 1986), pp. 43, 80, 114.

146. Ibid., pp. 52–53; and “Methanol: Alcohol-Based Fuel Has Powerful Ally,” Houston Post,September 17, 1989, p. A-14.

147. Charles Imbrecht, Statement, in AlternativeAutomotive Fuels: Hearings before the Subcommittee onEnergy and Power of the House Committee on Energyand Commerce, 100th Cong., 1st sess.(Washington: Government Printing Office, 1988),pp. 336–46.

148. American Petroleum Institute, “MethanolVehicles,” GSA Response no. 464, August 23,1991, p. 1. Methanol-flexible vehicles would regis-ter 40 percent less fuel economy than vehiclesusing CARB Phase 2 reformulated gasoline.

149. Matthew Trask, “Methanol PowerExperiment Called a Failure,” California EnergyMarkets, December 23, 1993, p. 2.

150. CEC, California Oxygenate Outlook (Sacramento:CEC, 1993), pp. 19, 65; and CEC, The CaliforniaEnergy Plan 1997 (Sacramento: CEC, 1998), pp.18–19, 32–33. The CEC’s first step in abandon-ing methanol was to state in a December 1995study that natural gas was overtaking methanolas the alternate fuel of choice in California andelsewhere in the country.

151. Cannon, p. 3-4.

152. Flavin and Lenssen, p. 200.

153. American Petroleum Institute, “AlternativeFuels: Myths and Facts,” August 8, 1995, p. 4.

154. Andrea Adelson, “Not One of Your BigJump-Starts,” New York Times, May 7, 1997, p.C1; Rebecca Blumenstein, “Electric Car DrivesFactory Innovations,” Wall Street Journal, February27, 1997, B1; and Rebecca Blumenstein, “GM toPut New Batteries in Electric Cars to IncreasePer-Charge Driving Range,” Wall Street Journal ,November 10, 1997, p. A13. As of 1996, thecumulative private and public investment inelectric vehicles was nearly $1 billion, “roughlyequal to half of the National ScienceFoundation’s entire research budget.” Richardde Neufville et al., “The Electric Car Unplugged,”Technology Review, January 1996, p. 32.

155. Peter Passell, “Economic Scene,” New YorkTimes, August 29, 1996, p. C2.

156. Quoted in American Petroleum Institute,“Alternative Fuels,” p. 3.

157. Neufville et al., p. 33.

158. Quoted in Dan Carney, “Once on Fast Trackto Future, Electric Cars Take Wrong Turn,”Houston Post, December 12, 1993, p. A17.

159. Timothy Henderson and Michael Rusin,Electric Vehicles: Their Technical and Economic Status(Washington: American Petroleum Institute,1994), chapter 2.

160. Michael McKenna, “Electric Avenue,”National Review, May 29, 1995, p. 38.

161. K. H. Jones and Jonathan Adler, “Time toReopen the Clean Air Act: Clearing Away theRegulatory Smog,” Cato Institute Policy Analysisno. 233, July 11, 1995, p. 18.

162. Cited in “Science Panel Knocks Hybrid-Electric Cars,” Oil Daily, April 20, 1998, p. 1.

163. Internationally, “operating experience withcars using [compressed natural gas] is fairly exten-sive, going back to the 1920s in Italy.” RobertSaunders and Rene Moreno, “Natural Gas as aTransportation Fuel,” in Natural Gas: Its Role andPotential in Economic Development, ed. WalterVergara (Boulder, Colo.: Westview, 1990), p. 251.

164. Reported one leading company in the effort:“[Natural gas vehicle conversions in the 1970s]died due to . . . oil carry over into the fuel systemsand the difficulties of trying to get a mechanical-ly ignitioned carbureted engine to run on dualfuels acceptably.” Eric Heim, “Pacific Gas &

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Electric,” in Utility Strategies for MarketingCompressed Natural Gas: Proceedings (Arlington, Va.:Natural Gas Vehicle Coalition, 1991).

165. CEC, Fuels Report 1995, p. 53.

166. “NGVs Seen as Average, or Worse, in FedExTest,” Gas Daily, April 17, 1995, p. 3. The test wasdone for 1992-model vehicles.

167. Natural Gas Vehicle Coalition et al., NGVIndustry Strategy, May 1995, p. 16.

168. EIA, Annual Energy Outlook 1998, p. 46. Thepremium without subsidies is an estimate fromHarry Chernoff, senior economist, ScienceApplications International Corporation, commu-nication with the author, October 13, 1998.

169. Within the alternative-fuel-capable family,methanol (M85) has a 5 percent market sharewith 21,000 vehicles, ethanol a 3 percent sharewith 11,000 vehicles, and electricity a 1 percentshare with 5,000 vehicles. EIA, Alternatives toTraditional Transportation Fuels 1996 (Washington:Government Printing Office, 1997), p. 16.

170. Report of the National Fuels and Energy StudyGroup, pp. 297–98.

171. Cannon, pp. 9–10; Joseph Norbeck et al.,Hydrogen Fuel for Surface Transportation (Warren-dale, Pa: Society of Automotive Engineers, 1996),pp. 397–406.

172. C. E. Thomas et al., “Market PenetrationScenarios for Fuel Cell Vehicles,” InternationalJournal of Hydrogen Energy 23, no. 10 (1998): 949.

173. Ibid.

174. Ibid., p. 957.

175. Ibid., p. 949. The authors add, “Governmentalone has the charter to develop those technolo-gies that will benefit society, including reducedenvironmental impact and reduced dependenceon imported fossil fuels.”

176. Ibid., p. 963. This assumes that, on the basisof a 1995 actual 200 million fleet, the total U.S.fleet could be as high as 250 million vehicles inthis period.

177. Alliance to Save Energy et al., p. 76.

178. Keith Naughton, “Detroit’s ImpossibleDream?” Business Week, March 2, 1998, p. 68.

179. Steve Plotkin, communication with theauthor, July 27, 1998.

180. Matthew Wald, “In a Step toward a BetterCar, Company Uses Fuel Cell to Get Energyfrom Gasoline,” New York Times, October 21,1997, p. A10.

181. Rebecca Blumenstein, “Auto IndustryReaches Surprising Consensus: It Needs New En-gines,” Wall Street Journal, January 5, 1998, p. A1.

182. California Environmental ProtectionAgency, “Proposed Amendments to CaliforniaExhaust, Evaporative, and Onboard RefuelingVapor Recovery Emission Standards and TestProcedures for Passenger Cars, Light-Duty Trucksand Medium-Duty Vehicles,” November 5, 1997,p. 11.

183. “The Third Age of Fuel,” The Economist,October 25, 1997, p. 16. Optimistic forecasts forhydrogen vehicles have a long—and wrong—histo-ry. For example, a study by Frost and Sullivan in1989 predicted “significant movement” awayfrom fossil fuels to hydrogen by the year 2000. J.E. Sinor Consultants, The Clean Fuels Report(Niwot, Colo.: J. E. Sinor, 1990), pp. 102–3.

184. American Automobile ManufacturersAssociation, World Motor Vehicle Data(Washington: AAMA, 1997), pp. 3, 8.

185. EIA, Annual Energy Review 1997, pp. 177, 211.

186. A current challenge for reformulated gaso-line is the alleged contamination of drinkingwater by a popular oxygenate, methyl tertiarybutyl ether (MTBE), a problem currently beingdebated in the state. If the problem is found to bemore associated with leaking from undergroundgasoline tanks than with the fuel additive itself,the problem will be self-correcting under existingregulation.

187. CEC, California Energy Plan 1997, p. 30.

188. Ibid., p. 29.

189. Robert Bradley Jr., “California DSM: APyrrhic Victory for Energy Efficiency?” PublicUtilities Fortnightly, October 1, 1995, p. 41.

190. Ibid., p. 12. The “sustainable changes” referto open-access transmission under which cus-tomers can purchase their own electricity and out-source their entire energy function to energy ser-vice companies.

191. Paul Wuebben, Statement, in AlternativeFuels: Hearing before the House Subcommittee onEnergy and Commerce, 103d Cong., 1st sess.(Washington: Government Printing Office, 1994),p. 7.

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192. Bradley, Oil, Gas, and Government, pp. 569–75.

193. Ibid., p. 579.

194. Quoted in Ted Wett, “Synfuel’s FutureHinges on Capital, Cooperation,” Oil and GasJournal, June 16, 1980, p. 55.

195. Peter Nulty, “The Tortuous Road toSynfuels,” Fortune, September 8, 1980, p. 64.

196. Robert Bradley, Energy Choices and MarketDecision Making (Houston: Institute for EnergyResearch, 1993), pp. 16–17.

197. “FERC Law Judge Holds That SettlementsNegotiated by Pipeline Purchasers of SNG PlantOutput with Dakota Gasification and DOE WereImprudent,” Foster Report, no. 2062, January 4,1996, pp. 1–3.

198. Christopher Flavin and Seth Dunn, RisingSun, Gathering Winds: Policies to Stabilize the Climateand Strengthen Economies (Washington: World-watch Institute, 1997), pp. 20-21.

199. U.S. Department of Energy, United StatesEnergy Policy: 1980/1988, p. 109.

200. Sierra Club, Letter to the Honorable TimWirth, July 27, 1988, reprinted in National EnergyPolicy Act of 1988 and Global Warming: Hearingsbefore the Senate Committee on Energy and NaturalResources, 100th Cong., 2d sess. (Washington:Government Printing Office, 1989), p. 481.

201. “Environmentalists Blast Nuclear Fundingin Clinton Budget Proposal,” Electric Power Alert,February 11, 1998, pp. 32–33.

202. PG&E Corporation, 1997 EnvironmentalReport (San Francisco: PG&E, 1998), p. 6.

203. National Academy of Sciences, p. 691. Seealso Fred Singer, “Control of Atmospheric CO2through Ocean Fertilization: An Alternative toEmission Controls,” in Global Warming: TheContinuing Debate, ed. Roger Bate (Cambridge:European Science and Environment Forum,1998), pp. 118–26.

204. Paul Ehrlich,”An Ecologist’s Perspective onNuclear Power,” Federal Academy of SciencePublic Issue Report, May–June 1975, p. 5.

205. Quoted in Paul Ciotti, “Fear of Fusion:What If It Works?” Los Angeles Times, April 19,1989, p. 5-1.

206. Paul Ehrlich et al., “No Middle Way on theEnvironment,” Atlantic Monthly, December 1997,p. 101.

207. Quoted in Jonathan Adler, Environmentalismat the Crossroads (Washington: Capital ResearchCenter, 1995), p. 116.

208. “To replace one 650-megawatt coal-burn-ing power station, you would need to set up aline, almost 100 kilometers long, of 900 wind-mills of the type that EDF is going to build inMorocco in the Tetouan region, or you couldconstruct a 100-kilometer-long, 30-meter-widehighway of solar panels. And we should not for-get that between now and 2020, world needs forenergy supplies will increase to 4,600 times thispower level.” Francois Ailleret, “The NuclearOption,” in McGraw-Hill’s World Energy (NewYork: McGraw-Hill, 1998), p. 94.

209. Quoted in Abba Anderson, “US Electricar:An Inside View,” California Energy Markets, April28, 1995, p. 6. US Electricar’s story is not unlikethat of Luz and Kenetech on the renewable ener-gy front: “fat travel budgets to promote thecompany internationally, soaring warrantycosts due to faulty equipment and unrealizedsales.” Oscar Suris, “Morgan’s Drive withElectricar Runs Out of Gas,” Wall Street Journal ,March 23, 1995, pp. B1, B6.

210. See Irwin Stelzer and Robert Patton, TheDepartment of Energy: An Agency That Cannot BeReinvented (Washington: American EnterpriseInstitute, 1996), pp. 28–40.

211. Mark Mills, A Stunning Regulatory Burden: EPADesignating CO2 as a Pollutant (Chevy Chase, Md.:Mills McCarthy & Associates, 1998), p. 4.

212. “[Higher CO2 produces] a positive net trans-fer of organic carbon from dead vegetative tissueto living vegetative tissue [to] . . . increas[e] theplanet’s abundance of living plants. And with thatincrease in plant abundance should come animpetus for increasing the species richness or bio-diversity.” Sherwood Idso, CO2 and the Biosphere:The Incredible Legacy of the Industrial Revolution (St.Paul: University of Minnesota Press, 1995), p. 30.See also, generally, Sylvan Wittwer, Food, Climate,and Carbon Dioxide (New York: Lewis, 1995).

213. IPCC, Climate Change 1995: The Science ofClimate Change, pp. 3–4; and Molly O’Meara, “TheRisks of Disrupting Climate,” World*Watch,November–December 1997, p. 12.

214. For example, “skeptic” scientists RichardLindzen, Fred Singer, and Patrick Michaels esti-mate a warming of .3°C, .5°C, and 1–1.5°C,respectively. Richard Lindzen, MassachusettsInstitute of Technology, communication withthe author, June 15, 1998; Fred Singer, Scienceand Environmental Policy Project, communica-

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tion with the author, December 8, 1998; andPatrick Michaels, Sound and Fury: The Science andPolitics of Global Warming (Washington: CatoInstitute, 1992), p. 187.

215. Richard Kerr, “Greenhouse Forecasting StillCloudy,” Science, May 16, 1997, pp. 1040–42; FredPearce, “Greenhouse Wars,” New Scientist, July19, 1997, pp. 38–43; and James Hansen,“Climate Forcings in the Industrial Era,”Proceedings of the National Academy of Sciences,October 1998, pp. 12753–58.

216. S. Fan et al., “A Large Terrestrial Sink inNorth America Implied by Atmospheric andOceanic Carbon Dioxide Data and Models,”Science, October 16, 1998, pp. 442–46.

217. “[The NCAR] 2°C warming is very similar toa number of GCMs that have recently repeatedtheir sensitivity simulations.” Jeff Kiehl, head,Climate Modeling Section, National Center forAtmospheric Research, communication with theauthor, August 14, 1998.

218. IPCC, Climate Change, pp. xxx, 138–39; IPCC,Climate Change 1995: The Science of Climate Change,pp. 5–6; and World Climate Report, January 5, 1998,pp. 1–2. Steven Schneider’s statement in 1990that model forecasts of temperature could as eas-ily be revised upward as downward has beenproven wrong to date—the revisions of the IPCCand most models have been downward. StevenSchneider, “The Science of Climate-Modeling anda Perspective on the Global-Warming Debate,”Global Warming: The Greenpeace Report, p. 60.

219. Patrick Michaels, “Long Hot Year: LatestScience Debunks Global Warming Hysteria,”Cato Institute Policy Analysis no. 329, December31, 1998, pp. 2, 5.

220. John Houghton, Global Warming: The CompleteBriefing (Cambridge: Cambridge University Press,1997), p. 85; and Gerald North, “Global ClimateChange,” in The Impact of Global Warming on Texas,ed. Gerald North (Austin: University of TexasPress, 1995), p. 7.

221. James Hansen et al., “A Common-SenseClimate Index: Is Climate Changing Noticeably?”Proceedings of the National Academy of Sciences, April1998, p. 4113.

222. Ibid., pp. 4118–20.

223. Warming estimates would be reduced byeither a negative, a neutral, or a weak positivewater vapor feedback in climate models. For anegative-to-neutral feedback hypothesis, seeRichard Lindzen, “Can Increasing Carbon

Dioxide Cause Climate Change?” Proceedings ofthe National Academy of Sciences, August 1997, pp.8335–42. For evidence of a weak positive feed-back, see R. W. Spencer and W. D. Braswell,“How Dry Is the Tropical Free Troposphere?Implications for Global Warming Theory,”Bulletin of the American Meteorological Society, July1997, pp. 1097–1106.

224. IPCC, Climate Change 1995: The Science ofClimate Change, pp. 27, 144–45, 172, 294. Seealso David Eastering et al., “Maximum andMinimum Temperature Trends for the Globe,”Science, July 18, 1997, pp. 364–67; and ThomasKarl et al., “Trends in High-Frequency ClimateVariability in the Twentieth Century,” Nature,September 21, 1995, pp. 217–20.

225. “A Heated Controversy,” The Economist,August 15, 1998, pp. 66–68.

226. IPCC, Climate Change 1995: The Science ofClimate Change, pp. 29–30, 173.

227. Ibid., p. 7.

228. Council of Economic Advisers, Administra-tion Economic Analysis: The Kyoto Protocol and thePresident’s Policies to Address Climate Change, July1998, p. 11, http://www.whitehouse.gov/WH/New/html/Kyoto.pdf.

229. T. M. L. Wigley, “The Kyoto Protocol: CO2,C H4, and Climate Implications,” GeophysicalResearch Letters, July 1, 1998, pp. 2285–88.

230. Jerry Mahlman, director, Geophysical FluidDynamics Laboratory, Princeton University,quoted in David Malakoff, “Thirty KyotosNeeded to Control Warming,” Science, December19, 1997, p. 2048.

231. Wigley, p. 2287.

232. In the United States in 1990, 83 percent ofgreenhouse emissions were from fossil-fuel con-sumption. EIA, Impacts of the Kyoto Protocol on U.S.Energy Markets and Economic Activity (Washington:U.S. Department of Energy, 1998), p. xiii.

233. Ibid. Sink creation and a weighting of the sixgreenhouse gases for the United States wouldlower the obligation to 3 percent below 1990 lev-els according to the Clinton administration. TheKyoto Protocol and Its Economic Implications, Hearingbefore the Subcommittee on Energy and Power of theHouse Committee on Commerce, 105th Cong., 2dsess. (Washington: Government Printing Office,1998), pp. 58–59.

234. Peter VanDoren, “The Costs of ReducingCarbon Emissions: An Examination of

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51

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Administration Forecasts,” Cato InstituteBriefing Paper no. 44, March 11, 1999, p. 8.

235. Ibid.

236. Amory Lovins and L. H. Lovins, Climate:Making Sense and Making Money (Old Snowmass,Colo.: Rocky Mountain Institute, 1997), p. 2.

237. Interlaboratory Working Group on Energy-Efficient and Low-Carbon Technologies, Scenariosof U.S. Carbon Reductions: Potential Impacts of Energy-Efficient and Low Carbon Technologies by 2010 andBeyond (Oak Ridge National Laboratory,Lawrence Berkeley National Laboratory, PacificNorthwest National Laboratory, National Renew-able Energy Laboratory, and Argonne NationalLaboratory, September 1997).

238. Council of Economic Advisers.

239. Ronald Sutherland, “A Critique of the ‘FiveLab’ Study,” American Petroleum Institute,Washington, June 1998.

240. EIA, Monthly Energy Review, June 1998, p. 16.

241. The low estimate is from the Department ofEnergy. Annual Energy Outlook 1998, p. 52. Thehigh estimate is from Michael Maloney andRobert McCormick, Customer Choice, CustomerValue: Lessons for the Electric Industry (Washington:Citizens for a Sound Economy, 1996), p. x.

242. Economists Maloney and McCormick esti-mate that electricity generation could increase asmuch as 25 percent without any new capacity,which would lower rates for end-users between 13percent and 25 percent. In the long run, ratescould fall by more than 40 percent with a similarincrease in output, both from fully utilized exist-ing plants and new (gas-fired) capacity generatingelectricity at 3 cents per kWh. Maloney andMcCormick, pp. viii–x.

243. The “effective international trading”assumption was stated by Janet Yellen, chair,Council of Economic Advisers, in The KyotoProtocol and Its Economic Implications, p. 35.

244. J. W. Anderson, “Two New Reports ProjectMuch Higher Climate Costs Than White HouseEstimates,” Resources for the Future, June 11, 1998,www.weathervane.rff.org/negtable/accfd.html.

245. “G-8 Members Take Swing at U.S. Plan forGreenhouse Emissions Trading,” Electric PowerAlert, April 22, 1998, p. 26; and Michael Tomanand Jean-Charles Hourcade, “InternationalWorkshop Addresses Emissions Trading among‘Annex B’ Countries,” Resources for the Future,Weathervane Web site, August 11, 1998. See alsothe full-page advertisement protesting the “U.S.unrestricted trading plan,” described as a “loop-hole that will undermine the Kyoto globalwarming treaty,” by 10 environmental organiza-tions, including the Sierra Club, Friends of theEarth, the National Wildlife Federation, andOzone Action. New York Times, June 11, 1998,p. C28.

246. William Niskanen, “Too Much, Too Soon: Isa Global Warming Treaty a Rush to Judgment?”Jobs & Capital, Fall 1997, pp. 17–18.

247. Gro Harlem Brundtland, Our CommonFuture (Geneva: World Commission on Environ-ment and Development, 1987), p. 28. Economicgrowth has become a plank in mainstream sus-tainable development theory to eliminate pover-ty pollution. See President’s Council onSustainable Development, Sustainable Development(Washington: Government Printing Office, 1996),p. iv. Al Gore, Earth in the Balance (New York:Plume, 1992), p. xv, also prioritizes economicgrowth.

248. The World Resources Institute et al., WorldResources 1998–99 (New York: Oxford UniversityPress, 1998), pp. 65–66, 80–81.

249. Simon, p. 162; and Mark Mills, “HealthyChoices in Technologies,” Study for the WesternFuels Association, April 1997.

250. “Ever Greater Use of New Technology,”Petroleum Economist, December 1997, pp. 8–17.