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Economics of the Oil Alternatives

Economics of the Oil Alternatives

Article #: 23443  
Issue Date: 11 / 2003
Author: Sallie Baliunas
Sallie Baliunas is environmental-science host of TechCentralStation.com.
Currently, there are two options: the already available hybrid car and the more radical electrified car.

       In the early 1800s, most of America's energy needs were met using animal and human labor plus wood, a renewable resource. As energy became more affordable and available, it relieved the need for human and animal labor while increasing wealth. Gains in wealth have spurred improvements in human and environmental welfare. Not only is energy essential to life, it has reduced poverty and starvation while lengthening life span.
       Energy is consumed in the United States for electricity generation and transportation, plus industrial, residential, and commercial use. Petroleum currently provides the largest share of energy use--nearly 40 percent--followed by natural gas at around 25 percent and coal at 23 percent.
       About two-thirds of the petroleum, or crude oil, used in the United States is employed as gasoline, diesel, and jet fuel that transports goods to market and people to jobs, schools, and leisure activities. Currently, cars, light trucks, vans, heavy trucks, aircraft, and boats are powered almost exclusively by petroleum.
       The United States uses just under 20 million barrels of petroleum per day, and slightly over half that quantity is imported. At present, 13 million barrels per day are used for transport. The Energy Information Administration (EIA) estimates that by 2020 America will require more petroleum--the bulk of it imported--with approximately 21 million barrels of petroleum needed per day for transportation alone. The EIA estimates that petroleum will remain roughly a 40 percent share of expanded energy use.
       Many concerns about future petroleum use have been voiced, for example, that oil will run out, that tailpipe pollutants from vehicles that rely on petroleum products dirty the environment, and that carbon dioxide from the combustion of petroleum products could lead to catastrophic global warming. Perhaps reliance on petroleum imports from rogue and unstable governments could threaten national security. Also, a diversified energy portfolio with a reduced dependence on foreign and domestic supplies of petroleum may help suppress energy-supply risk and price gyrations.
       Such concerns may or may not have merit in facts. Nonetheless, what can be said about the technology and economics of reducing petroleum use in the United States?
       The U.S. Bureau of Transportation Statistics reports that over 2.7 trillion miles were traveled in 2001. Compared to 1980, that is a 44 percent increase in the miles traveled per person, and the trend is expected to continue in the next two decades. As mentioned above, transportation relies almost entirely on petroleum products, with light vehicles--cars, light trucks, and vans that run on gasoline--taking the largest share of the products made from a barrel of crude oil. Thus, one way to reduce petroleum usage would be to replace gasoline as a fuel in light vehicles with something affordable, effective, safe, and reliable.
       Consider two technologies. First is the already available hybrid car, which improves fuel efficiency by moving the vehicle along with a combination of a gasoline engine and batteries. Second is the more radical electrified car, which eliminates the gasoline tank and runs on an advanced battery like the hydrogen fuel cell.
       Hybrid vehicles
       Hybrid technology is not new. During World War II submarines ran on diesel engines while cruising at or just below the surface; the diesels charged banks of batteries that propelled the subs underwater, where the diesels are inoperable. Hybrid cars also integrate, through use of computer control, a gasoline engine, a set of batteries, and one or more electric motors. The engine charges the batteries, and the car can be propelled by the gasoline engine alone, the battery-powered electric motor(s), or the two together. Because batteries are charged by the operation of the vehicle, the hybrid does not draw charge from an electrical outlet, an inconvenience of conventional electric vehicles.
       The hybrid vehicle concept squeezes miles from gasoline in other ways. The electric motor may grab energy typically squandered as heat in braking to charge the batteries in a concept called regenerative braking. Hybrids can shut down the gasoline motor when idling, for example, at a long stoplight.
       Hybrids are lightweight and shaped to reduce aerodynamic drag. Some have a more efficient, electronically controlled variable-gearing transmission. Low-drag, stiff tires also increase fuel efficiency, but they may not be best for road adherence in snowy weather. Some of these concepts can and have been used in improving gas mileage in fully gasoline-powered vehicles. For example, Honda's Insight and Civic and Toyota's Prius travel over 50 miles per gallon in freeway use. GM and Ford will soon be offering hybrid SUVs; Ford's 2004 Escape SUV may deliver 40 miles per gallon in city driving.
       One drawback of hybrids is the purchase price, which is $2,000 to $3,000 higher than that of conventional vehicles. Offsetting the higher vehicle price would be the lowered cost of gasoline per mile. If the cars were kept long enough, their batteries would need to be replaced, at a cost of approximately $2,000.
       With excellent fuel economy and low emission of pollutants, hybrids seem to answer several concerns about petroleum. Still, while consumer ability to buy the more expensive vehicles may rise with planned purchase subsidies like tax credits, that strategy may not be so petroleum saving. Hybrid vehicles save gasoline use as long as the number of miles traveled over the life of a car remains the same. If history repeats, that optimism fails.
       In the nineteenth century, British economist Stanley Jevons noted that as the steam engine improved to deliver more and cheaper power, humans didn't conserve the power but put it to more uses. "Jevon's Paradox" is not a paradox--there are no paradoxes in nature--but a statement of how humans tend to expand uses for energy as it becomes more affordable and available in order to generate more economic resources and improve life.
       Gasoline, even near current pump prices of $2 per gallon, is still a historical bargain. Compare this to the Arab oil embargo of 1973--74, when prices at the pump went from 30 cents to about $1.20. Add efficiency gains, whether through mandated fuel efficiency standards, market demands, or technology, and a trip of fixed miles gets cheaper in terms of gasoline. With lowered fuel costs, a family earner might choose to live farther from work to be near an excellent school system, because the cost per trip would be the same. Or a landscaper might travel farther, for the same gasoline cost, to more lucrative jobs that would enhance company profitability.
       Conservation through improved fuel efficiency as a strategy for slowing future petroleum usage may be undone by human nature. A more certain way to save petroleum is through the unpopular but historically successful practice of higher gasoline costs, including added taxes, to force use changes. Another way is through increased petroleum prices brought about by scarcity. High fuel costs generate societal economic losses, however, especially for fixed- and low-income households.
       Hydrogen fuel cell
       What about a revolutionary, nonpetroleum concept in transportation, such as vehicles powered by fuel cells? One power storage device employed in the Apollo space program over 30 years ago, the hydrogen fuel cell, uses hydrogen to store energy and releases primarily water. In a vehicle, an advanced fuel cell would emit essentially no ingredients for smog, plus no carbon dioxide during travel. Still, hydrogen fuel cells have significant energy, economic, and environmental costs.
       Hydrogen exists primarily bound in compounds like water. While seawater is plentiful, a substantial amount of energy is needed to separate its hydrogen and oxygen. Starting and ending with water as a supply of hydrogen means that fuel cells always use more energy than they provide.
       The energy needed to get hydrogen by splitting it from water would come from the U.S. power supply. Thus, with fuel cell vehicles the dependence would be switched from petroleum to the power grid.
       Decreasing vehicle petroleum use substantially by way of fuel cells would require great expansion of the U.S. electrical capacity, which is expected to grow 30 percent in the next 20 years in the absence of electrifying vehicles. At present, most U.S. electrical consumption is met by coal and natural gas, two fossil fuels that emit carbon dioxide.
       Over the entire cycle of manufacturing and using hydrogen in fuel cell vehicles, more carbon dioxide would be emitted than for an efficient gasoline or diesel engine. Pollutants emitted from tailpipes would be lowered for fuel cell vehicles but would be displaced to electrical-generating facilities.


- The Current and Future State of American Energy
       Major use of fuel cells would also require a vast hydrogen supply system, roughly similar to the gasoline system. Vehicles would need to refill with hydrogen--possibly as liquid, an expensive form that exists only at temperatures near absolute zero (-400 degrees F). Otherwise, the hydrogen gas would tend to escape to space.
       Could alternative power be used to supply hydrogen to vehicles, thus reducing petroleum use, carbon dioxide emission, and smog-producing compounds from vehicles? Not at any reasonable cost.
       Nonfossil-fuel electrical generation includes nuclear and hydroelectric power, whose expansion in capacity seems unpopular. Wind and sunshine are free but costly to harness for power. As intermittent sources of power, both are unable to produce electricity that is reliable, sufficient, and affordable.
       Rapid surges through the grid, for example, as wind blows and dies, must be quickly balanced by rapidly adding or removing power from conventional sources. Thus, coal, nuclear, natural gas, and hydro facilities must be kept spinning in reserve to match demand and keep the grid safe.
       Sunshine and wind are also dilute sources of power. Solar and wind facilities require tens of thousands of square miles of landscape to produce an appreciable amount of hydrogen. Solar panels densely spaced on the land would produce a severe environmental impact.
       Wind turbines must be spaced apart and require large tracts of land covered with structures taller than the Statue of Liberty. Wind farm siting must be planned carefully. Wind farms, for example, require roads, fire-fighting facilities, and high-power transmission lines to carry the electricity to their customers. Spinning blades may kill birds, produce vertigo flicker in some susceptible individuals, and send low-frequency vibrations through the ground to be felt some distance away.
       Owing to their economic and environmental costs, solar and wind are not forecast to provide major amounts of power in the next 20 years.
       Onboard converter
       In the near term, the likeliest option for the fuel cell vehicle is an onboard converter that plucks hydrogen from natural gas. The technology does produce carbon dioxide emission, however, and its use would lead to questions about the possible security risks of an expanded role for natural gas. An added concern is the expansion of pipeline infrastructure for delivery of great quantities of natural gas.
       For at least the next decade, fuel cells, unless their hydrogen is supplied through nuclear power, will not replace fossil fuels without major environmental and economic impact. Costly hybrid vehicles may make transportation less affordable for fixed- and low-income households; subsidies for the vehicles would have economic costs and could even undermine petroleum conservation efforts.
       Petroleum seems to be indispensable to prosperity, health, welfare, and a clean environment. Even as petroleum use has increased dramatically, the emissions of six important (criteria) pollutants monitored by the EPA have declined. Technological advances have continued to deliver greater economic output per amount of energy used. Technology may make reductions in carbon dioxide emission affordable.
       The National Academy of Engineering ranks the electrification of the United States as the greatest engineering achievement of the twentieth century. Following electrification are the automobile and airplane, energy-using achievements that have helped to generate prosperity. Those great achievements were made possible by fossil fuels, especially petroleum, as the largest share of energy supply for the United States and the world. The debt owed to petroleum is immense, as it has reduced the coarseness of nature and contributed much to the blossoming of humanity.

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