Weak Energy Week

This has been “Energy Week” for President Bush as he barnstormed around the country in follow-up to his State of the Union message that we need to break our so-called “addiction” to oil.<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />

But the habit that really needs breaking is his apparent addiction to the notion that government, rather than free markets, will solve our energy problems.

The president proclaimed in the State of the <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Union that, “We will also fund additional research in cutting-edge methods of producing ethanol, not just from corn but from wood chips and stalks or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years.”

He echoed that theme in Milwaukee this week stating, “We must diversify away from oil for national and economic security. The more ethanol we use, the less crude oil we consume.”

Touting ethanol is certainly good politics—particularly in Midwestern corn-growing states that already welcome significant taxpayer subsidies and regulatory mandates for ethanol. But ethanol isn’t necessarily good economics.

Researchers from Cornell University and the University of California-Berkeley analyzed energy input-yield ratios and reported last July that producing ethanol from corn requires 29 percent more energy than can be derived from the resulting fuel—the switch grass and wood chips ratios are worse (45 percent and 57 percent, respectively).

It’s no wonder that subsidies and mandates are the lifeblood of the ethanol industry. It would be terrific if President Bush’s goal of making ethanol “competitive” in six years could be achieved, but that’s unlikely.

Ethanol was first touted during the 1970s as a potentially cost-effective way to reduce our dependency on foreign oil. But billions and billions of research dollars later, that simply hasn’t panned out and there’s no indication that the next six years will produce results substantially different from those of the past three decades.

The president also announced this week increased funding for research into longer-lasting batteries for hybrid cars. But before President Bush spends more taxpayer money chasing inefficient technology, he ought to review the analysis Edmunds.com published last year about the cost-effectiveness of hybrid cars.

Edmunds.com reported that “during the first five years of ownership, a hybrid can cost as much as $5,283 more than its non-hybrid counterpart.” For the buyer of Toyota Prius to “break even” as compared to purchasing a Toyota Corolla, for example, fuel would either have to cost $10.10 per gallon or a driver would have to drive more than 66,500 miles per year, according to the analysis.

Ironically, any such longer-lasting—and probably more expensive—batteries supported by President Bush will only make the hybrid break-even points more difficult to achieve.

Worse yet, taxpayers already subsidize this hybrid inefficiency to the tune of a $3,150 tax credit for each person buying a hybrid car.

President Bush is also pushing solar and wind power. But according to utility company Duke Power, the cost of electricity from solar power technology costs about $0.25 per kilowatt-hour (kWh), while electricity from Duke’s power plants costs only $0.07/kWh. “The sun's rays are free, but the equipment to convert them to electricity can be quite expensive,” says Duke.

Despite claims from the wind power industry and its government supporters, it’s not clear that wind power is truly competitive cost-wise compared to traditional power plants. Moreover, wind power only works when the wind is blowing at a sufficiently high speed—and no government program can make the wind blow. Aficionados call wind an “intermittent” power source—a euphemism for “unreliable.”

President Bush said in his State of the Union address that we ought to “move beyond a petroleum-based economy and make our dependence on Middle Eastern oil a thing of the past.”

While we certainly ought to minimize our vulnerability to Middle East instability, that doesn’t necessarily mean that we must rush to embrace not-ready-for prime-time technologies. President Bush could reduce the importance of Middle Eastern oil by just two political acts.

First, he ought to support proposed legislation to open the Outer Continental Shelf to oil and gas drilling—the OCS holds enough natural gas resources, for example, to satisfy all commercial needs for almost 30 years, according to the U.S. Chamber of Commerce.

Next, the president ought to oppose proposed legislation that would impose windfall profits taxes on oil producers—a 1980s’ strategy that only increased our dependence on foreign oil.

According to a 1990 report by the Congressional Research Service, the tax reduced domestic oil production by 3 to 6 percent, and increased oil imports by 8 to16 percent. “This made the U.S. more dependent upon imported oil,” noted the CRS. [emphasis added]

Technology will be the solution to our ever-increasing need for affordable and available energy. But it’s not clear that the government ought to be in the game of picking energy winners and losers—especially when its penchant is to pick the “losers” and hamper the “winners.”

Let’s allow competitive markets to do what they do best. Otherwise, we’ll be spending an awful lot of time trying to “break even” in our hybrid cars.