Wednesday, November 29, 2006

The new bipartisan theme enveloping Capitol Hill these days is called “25-by-‘25.” The idea is that the United States should — and can — use renewable fuels to supply 25 percent of the country’s energy needs by 2025. Currently, renewable fuels account for only 6 percent of the nation’s energy, so ramping it up to 25 percent is certainly an ambitious and desirable goal. But is it feasible?

Historically, the problem with renewable fuels comes down to a matter of cost and efficiency. For instance, ethanol, a corn-based fuel long heralded by environmentalists as the wave of the future, has never proved economically viable, despite decades of government subsidies. The cost to produce ethanol combined with the amount of energy available in a gallon make it a poor replacement for gasoline. Wind and solar energy suffer from similar problems, but those are compounded by the simple fact that one cannot strap a wind turbine to a car engine.

However, a new RAND Corp. study finds that “25-by-‘25” is, in fact, economically possible. Using 1,500 economic simulations based on future costs of renewable and nonrenewable energy technologies, RAND researchers found that “renewable energy is shown in the simulations to lower total expenditures in virtually all cases in which current energy prices and technology trends continue.” Even using the worst-case scenario simulations, the study found no more than a 6 percent change in energy expenditures, or about $75 billion in 2025. Best-case scenarios found that renewable fuels could reduce energy expenditures by about 3 percent, or $40 billion.

Al Gore would be happy to hear that the RAND study also found that in 2025, under the 25 percent renewables goal, carbon dioxide emissions from both the electricity and fuel industries would fall by 1 billion tons. This, the study notes, would be equivalent to eliminating one-seventh of the total U.S. carbon dioxide emissions for that year and two-thirds of the projected increase expected between now and 2025. Greater energy independence and saving the planet at no extra cost — what’s not to like?

For starters, the RAND study assumes several things. First, it assumes oil and natural-gas prices will remain high, thereby further eroding their price advantage over renewables. Second, it assumes that progress in renewable technologies will continue along historical trends, leading to lower costs and greater efficiency. Finally, it assumes progress will continue on making ethanol from sources other than corn, such as wood chips and farm waste.

These aren’t necessarily unreasonable assumptions, but, as the RAND study acknowledges, changes in any one category can lead to radically different results. Specifically, the study points to its use of the Energy Information Administration’s forecast of oil prices. In 2005, EIA estimated the price per barrel of oil in 2025 at $33. This year, however, its estimate rose to $54 per barrel. This underscores the uncertainty. “Other well-regarded and frequently cited long-term forecasts for natural gas prices vary by more than 100 percent,” the researchers warn. “Even experts disagree about the future of energy prices.” Congress would be well advised to heed the warning before drafting a 20-year plan based on 2006 forecasts.

We should also look at where renewable technology is today to see how far we have to go. In a recent analysis, Dennis Avery of the Competitive Enterprise Institute highlighted the problem of driving the nation’s cars with corn. He notes that the United States needs to produce more than 5 gallons of ethanol to replace the energy in one gallon of gasoline. So, with current technologies, the Energy Policy Act of 2005, which mandates 7.5 billion gallons of corn ethanol production in 2012, would reduce oil imports by less than 0.5 percent. Mr. Avery also cites a University of Minnesota study in February which found that if all the current output of U.S. corn and soybeans were put into biofuels, it would replace only 12 percent of our gasoline demand.

Mr. Avery also identifies a land problem. To replace 10 percent of U.S. gasoline consumption with corn ethanol, farmers would have to plant 55 million more acres of corn in addition to the 80 million acres they’re already planting. “Where would we plant the additional corn?” he asks. Good question, considering there are only around 30 million acres of underused cropland in the United States. Another good question is what would the environmentalists say when Uncle Sam starts chopping down millions of acres of forestland.

As we said, it is not unreasonable to assume that the United States can overcome these technological hurdles. But that doesn’t make them any less considerable. Nor should we forget that the federal government has been subsidizing the renewable energy industry for decades with very little to show for it. “25-by-‘25” is a noble idea, but one which also still needs some careful consideration.

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