THE POWER OF POWER: The Domestic Dilemma

Sunday, March 1, 2009

In 1973, President Richard Nixon announced the formation of Project Independence to develop domestic fuel supplies that would alleviate the country’s reliance on Middle Eastern oil by the end of the decade. At a time when the United States imported about a third of the petroleum it consumed, the plan was a response to an OPEC embargo on U.S. oil exports, which created gasoline shortages, long lines at service stations and soaring prices.

Yet Project Independence never materialized; 36 years later, we import roughly two-thirds of our oil.

Each president who followed Nixon also promoted some form of energy autonomy, including Jimmy Carter’s “moral equivalent of war” and Bill Clinton’s proposal to tax oil, natural gas and coal to reduce consumption and discourage petroleum imports. President Barack Obama has called for essentially the same thing, with added emphasis on cleaner energy from more renewable domestic sources, to cut greenhouse gases and create jobs.

Among many challenges facing America, a renewed energy crusade generates optimism about the economy, the war and the environment. That’s because “energy independence is an emotionally compelling concept,” says Jason Grumet, executive director of the bipartisan and nonprofit National Commission on Energy Policy. With a promise of bolstering national and economic security, energy independence has great appeal in a country that’s so often a convenient target for unstable governments that oversee many oil-exporting nations. But Grumet also believes that the very idea of complete domestic energy independence is “a vestige of a world that no longer exists.”

No Convenient Truths. Energy is a topic rife with uncertainties, a business both local and global that’s perhaps the most complicated kettle of fish ever concocted by mankind. It’s also the sector most likely to steer our country out of economic crisis and back toward prosperity.

As Grumet suggests, much has changed since the 1970s. While the Middle East is still the world’s most important oil-producing region, large volumes are now produced by Angola, Brazil and many other nations – all feeding oil into a global market with robust trading.

Of the roughly 8 million barrels of crude imported into the United States each day, more than 3 million come from Canada and Mexico – hardly adversaries. While Saudi Arabia and Venezuela account for about 2.5 million barrels per day of U.S. imports, they’re among 15 countries that collectively supply most of the nation’s crude. And though America hasn’t imported a drop of Iranian oil since 1979, the embargo has had relatively little impact on the economies of either country.

That’s because oil is what economists call a “fungible” commodity; if crude isn’t sold to one buyer, it will simply move to another. If Venezuela decides that it doesn’t want to sell its oil to the United States, then companies elsewhere will buy that oil, freeing up still other cargoes from Indonesia or Nigeria to be purchased by U.S. firms. Because oil production is so dispersed, embargoes are not overly effective.

It’s true that if a major producer were to withhold its oil from the world market, the shortage could punish the United States. But the producer’s national treasury would also suffer. Should a military conflict close off the Strait of Hormuz (a narrow channel between the Persian Gulf and the Gulf of Oman), the entire world would feel the pain of blocked oil flow from the region. Energy vulnerabilities are not unique to the United States.

America produces much more domestic energy than is widely recognized. The domestic and foreign crude that accounts for about 40 percent of our national energy use is refined into transportation fuels, heating oil and chemicals. Electricity represents the majority of energy consumption in America, nearly all of which is generated from U.S. resources. If electricity meets 60 percent of our energy needs, and a third of our oil comes from domestic fields, the total energy shortfall is not much more than 25 percent.

Oil imports are expensive, whether they cost $50 or $100 per barrel. Since governments control 90 percent of global production, U.S. motorists send dollars directly to other national treasuries. Opening new U.S. areas for exploratory drilling could eventually lead to reduced imports. Nothing, however, will cut the nation’s need for oil anytime soon.

Environmentalists put great stake in fuel-efficient hybrid and plug-in electric cars, which may reduce gasoline demand. But any attempt to phase out fossil fuels runs smack into a dilemma: electric motor technology simply can’t produce enough energy to move heavy trucks and aircraft, which need diesel and jet fuel.

The truth is that there are two entirely different dimensions to the energy business. One is the oil that’s turned into transportation fuels. The other includes the coal, gas, nuclear plants and hydroelectric dams that make electricity. Mixing the debates over the two is an all?too-common mistake.

The Age of Electricity. Developing electric vehicles is very much in the nation’s best interest, since – at its end use – electricity is the cleanest form of energy ever harnessed. But like sausage, the making of electricity isn’t always so pleasant up close. About half of the nation’s electricity comes from thermal plants that burn domestic coal to make steam that drives turbines, a process that disturbs landscapes and produces more carbon dioxide than all of the nation’s trucks and automobiles combined. Yet another 20 percent of our electricity comes from nuclear plants, which produce no greenhouse gases but yield spent uranium, the disposal of which is an environmental issue unto itself. And before the nation plunges into building huge wind farms, there’s the matter of an electric system that’s in perilous shape.

“Quietly and without a great deal of public or government concern, the infrastructure of the nation’s massive power grid is crumbling,” explains Kurt Yeager, the former head of the Electric Power Research Institute, and now the executive director of the Galvin Electricity Initiative, a nonprofit effort started by business legend Robert Galvin, the former chairman of Motorola. “The grid is comprised of technologies that Thomas Edison would recognize in an instant. Most of its generation plants, millions of relays, controls, transformers and power lines are nearly 50 years old, and near the end of their useful life.”

Consequently, the system is unreliable. Roughly 500,000 Americans a day spend at least two hours without electricity in their homes and businesses, failures that cost U.S. business no less than $150 billion a year. The system is also inefficient. At conventional coal-fired plants, for example, more than 60 percent of the energy in each ton of coal is lost into the atmosphere through smokestacks and cooling towers in the form of heat, emissions and warm water. When electricity is moved long distances over transmission lines made from copper cables – just like a century ago – still more power is lost as heat – often 10 percent of what’s being carried. In some cases, more than 90 percent of the thermal units that go into making electricity never light a room or run a motor.

Utility executives figure that replacing the existing infrastructure will cost $900 billion over the next 12 years. But Yeager and Galvin are calling for a reinvention of the electrical system, which may eventually cost a bit less. By developing vast networks of “micro-grids” powered by smaller, localized sources of electricity such as wind farms and solar panels, which are connected to a renovated main grid through smart and digital computer controls, the system can make better use of alternative fuels.

Many of the technologies for such a system already exist. But their adoption is hindered by utility regulations that served the nation well for 120 years but are now outdated. The prospect of a reinvented electrical infrastructure has perhaps greater potential than ever because it falls into line with Obama’s vision for a greener economy, and the jobs that would be created in the conversion.

Coal, Wind, Nuke. The United States could conceivably eliminate all oil imports by converting its abundant reserves of coal and oil shale to liquid motor fuels. But even with proven and experimental technologies, the economic and environmental price would be breathtaking. Consequently, if the nation is ever to approach energy independence, we’ll likely need both nuclear and coal-fired power plants.

The U.S. nuclear industry may be poised for a revival, following the lead of Europe. Operating nearly 200 plants, Europe has proven the utility and durability of well-built reactors. France, for instance, produces more than three-quarters of its electrical needs with nuclear facilities; with willpower, the United States could follow that path. But like many other European countries, France must also import oil to make the gasoline and diesel that propel its cars and trucks. Moreover, for home heating and additional electricity generation, Europe imports considerable natural gas from Russia.

Back home, a variety of environmental groups are promoting “clean coal technology,” in which carbon emissions are captured and sequestered in old oil reservoirs. The technology, however, has not been proven. Moreover, not a single clean-coal plant has been built in the United States, primarily because of economics.

Wind has been touted as a replacement for coal and nuclear facilities, but as with ethanol, any alternative comes with its own issues. Billionaire oilman T. Boone Pickens has recently proposed an ambitious plan to build thousands of windmills across the blustery plains of America, from Texas to North Dakota. However, these rural areas are much farther from population centers than most coal and nuclear plants. “This is still the kind of big thinking that our nation needs,” Yeager says. “But until we also have a sound transmission system, the investments won’t produce the best results.”

Pickens’ wind investment is on hold, as are several large solar power projects, mainly because of the falling price of natural gas late in 2008. Domestic gas is burned to produce 18 percent of the country’s electricity. The dramatic price decline that occurred late last year actually made it cheaper to produce power with gas than with any alternatives.

In order to have energy alternatives compete in the long term, the federal government could directly subsidize wind and solar projects (or find indirect methods to make them competitive) by creating a tax on carbon emissions, as former Vice President Al Gore has proposed. Such a carbon-emissions tax would make all energy more expensive, a troubling thought during times when consumers are struggling to find ways to recover from the current recession.

William Anderson, an economics professor at Frostburg State University in Maryland, wrote in a paper last year for the Future of Freedom Foundation, “Politicians and other alternative energy advocates ... cannot simply wish alternatives into being without looking at the costs involved.”

At this point in our nation’s geopolitical history, it is clear that the United States government must act soon – and dramatically – if it wants to stabilize our energy economy, and start to reverse its longstanding and unwise dependence on foreign energy producers, as President Nixon intended back in 1973.

Jay Stuller is the co-author of “Perfect Power: How the Microgrid Revolution Will Unleash Cleaner, Greener and More Abundant Energy,” published last August by McGraw-Hill.