May 2008 Newsletter

In preparing a comprehensive, common-sense energy strategy for release in the United States this summer, the Institute for 21st Century Energy has reached one overarching conclusion about the U.S. approach to energy:  A stovepipe view of energy has resulted in a patchwork of disjointed, uncoordinated policies with unintended consequences.

The unintended consequences of U.S. energy laws enacted in 2005 and 2007 are rooted in a quick-fix mentality that ignores a key part of the world’s new energy reality: There is no single energy technology or source that will satisfy rapidly growing energy demand while addressing legitimate environmental concerns.

Still, the two most recent U.S. energy laws mandate a rapid increase in the use of renewable fuels in gasoline.  Between 2012 and 2022, these laws will double the country’s production of corn-based ethanol--a renewable fuel that is the third largest market for U.S. corn behind exports and animal feed.  The 2005 and 2007 laws were meant to lessen U.S. dependence on foreign oil and lower U.S. greenhouse gas emissions. Unfortunately, the growth of corn-based ethanol in gasoline has done little to achieve either goal.

Policymakers failed to fully examine or engage in rational dialogue about the impacts  these new mandates might have on consumers, the economy, and the environment.

First, making corn-based ethanol is an energy intensive process that many argue offsets the greenhouse gas benefit that comes from using less gasoline.  Second, cars and trucks that run with ethanol blended gasoline achieve lower fuel economy because ethanol has less energy content than conventional gasoline.  Finally, our elected leaders imposed the renewable fuels mandate at the same time Europe did and as developing nations, like China and India, were increasing their meat consumption--which requires more animal feed and corn.  While the U.S. renewable fuels mandates are not the sole cause of rising food prices, they are contributing to them and we are now seeing riots in some poor countries and urgent challenges to United Nations humanitarian efforts.

Full disclosure of the limits of current ethanol technology would have likely meant a more transparent debate on corn-based fuels. In a politically charged environment and 24-hour news cycle, quick fixes are the temptation. But when lawmakers are pushing policies on the critical challenge of energy, they owe their constituents a thoughtful cost benefit analysis.

Given what we know about the energy and environmental costs of corn-based ethanol, Congress should reexamine the structure of the existing federal renewable fuels incentives. Does it make sense to have a 51-cent per gallon federal subsidy on a fuel that has garnered billions of dollars in venture capital? Worldwide investment in biofuels is expected to reach $100 billion by 2010.

A close look at the subsidy is a step in the right direction. Members of Congress should also closely examine what more we need to do to get beyond this transition fuel and stimulate the development of the second generation of biofuels derived from plant waste, municipal waste, and even algae. And when they do, Congress should fund a comprehensive study of how much energy the United States and other countries can realistically produce from biofuels and what tradeoffs they present.

We need to transform our energy production and consumption and we have to do it smartly and in step with what technology can deliver. Our commitment to innovative energy technologies must be sustained and sweeping to transform fuel and power for the 21st Century.

Best Regards,

Jim Jones  

WHAT'S HAPPENING AT THE ENERGY INSTITUTE

• President and CEO General James L. Jones spoke to participants of a Financial Services Roundtable conference in Dana Point, California.
• General Jones spoke to participants of a World Affairs Council conference in Monterey, California.
• Executive Vice President Karen Harbert addressed the Milken Institute Global Conference in Los Angeles on the worldwide energy challenges.
• General Jones, Ms. Harbert, and Vice President Fred Smith participated in an energy conference call with about 100 state and local Chambers of Commerce.
• Mr. Smith spoke to representatives of the Dayton, Ohio, Chamber of Commerce about the Institute's programs and activities.
• Mr. Smith chaired an energy meeting on China with participants from the Departments of State, Treasury, and Commerce. He also traveled to China for planning meetings on a Beijing Energy Forum scheduled for May 20 and feeding into the U.S.-China Strategic Economic Dialogue.

FUEL FOR THOUGHT: ETHANOL
1. The United States is the world’s largest producer of fuel ethanol, according to the Renewable Fuels Association.
2. Ethanol is the third largest use of U.S. corn behind livestock feed and exports
3. In 2006, the United States produced 4.86 billion gallons of ethanol, an increase of 24 percent from 2005 levels.
4. Although ethanol reduces some vehicle emissions, it yields up to 30 percent less energy than gasoline.
5. E-85 is the cleanest ethanol-based fuel, but 30 states have fewer than 10 stations that sell it. Only two states, Minnesota and Illinois, have more than 100 E-85 stations.