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Guest Editorial: An Open Fuel Standard is Key to Energy Independence
by Gal Luft

Two recent policy announcements revealed the Obama Administration's core strategy in addressing the nation's growing dependence on oil. On March 31, 2010, President Barack Obama announced that his Administration would allow new oil exploration along the Atlantic Coast and in the eastern Gulf of Mexico. The following day, the Administration announced new mandatory fuel efficiency standards of 35.5 miles per gallon (mpg) average within six years, up nearly 10 mpg from now.

By simultaneously promoting supply-side solutions (“drill, baby, drill”) and demand-side solutions like increased efficiency, Mr. Obama is throwing bones to the two camps that for decades have dominated the nation's energy debate. This may be smart politics, but when it comes to effectiveness – though there is nothing wrong fundamentally with either efficiency or drilling – both policies will do very little to address America's energy security challenge, as they fail to address the root of the problem: oil's virtual monopoly over transportation fuel (only 2 percent of U.S. oil demand is due to electricity generation).

Last year, the U.S. Energy Information Administration (EIA) estimated that opening the Outer Continental Shelf to exploration would affect oil prices by 11 cents per barrel by 2020, which would translate to less than a penny per gallon. On the flip side, going on an efficiency diet would not even offset the growth in demand due to natural growth.

Furthermore, consider OPEC's response. As Anne Korin and I described in our book "Turning Oil into Salt: Energy Independence through Fuel Choice," the history of the past 30 years shows that when non-OPEC producers increase their production, OPEC responds with production cuts, essentially keeping the same amount of oil in the market. Conversely, when we use less due to higher gasoline taxes, stricter fuel efficiency standards or simply in response to a hike in gasoline prices, as was the case in 2008, OPEC again cuts its production. In other words – when we drill more, OPEC drills less; when we use less, OPEC drills less.

While both drilling and efficiency promise little relief, with growing instability in the Middle East and millions of Chinese and Indians moving from bicycles to cars, it is almost a given that we will face further painful oil crises as the decade progresses. Contrary to popular belief, our oil dependence problem is not a function of the amount of oil we consume or import (we don't care how many bananas we consume or how many computers we import) , but about the fact that oil is a strategic commodity second to none. More than 95 percent of transportation energy is petroleum-based. Therefore, solutions that perpetuate the petroleum standard rather than producing new vehicles in a way that enables fuel competition are vastly insufficient.

A transformational approach is needed.

Until the 19th Century, salt had a position similar to that of oil today because it was the only means of preserving food. Salt-rich countries had inordinate power on the world stage. Wars were fought over salt. Today, salt is still a useful commodity for a range of purposes. We import much of our salt, but canning, electricity and refrigeration decisively ended its monopoly over food preservation, diminishing its strategic importance.

To truly address our oil dependence problem, we must do to oil what was once done to salt: strip it of its strategic status and turn it into just another commodity.

The cheapest and easiest technology to strip oil of its strategic status is the flex fuel vehicle. This technology, which costs between zero and an extra $100 per new vehicle, enables cars to run on any blend of gasoline and alcohol fuels like ethanol or methanol. Such fuels can be made cheaply from a variety of non-petroleum energy sources ranging from coal to natural gas to biomass. In the future, technologies to produce alcohol fuels from carbon dioxide may offer an elegant way to achieve energy independence while reducing greenhouse gas emissions.

An Open Fuel Standard ensuring that every new car sold in the U.S. be gasoline-ethanol-methanol flexible will immediately break oil’s virtual monopoly over transportation fuels, enabling Americans to make their own fuel choices at the pump. In some parts of the country corn ethanol would make more sense, in others it would be methanol made from biomass, natural gas, or coal.

In recent years, the U.S. ethanol industry has been exposed to criticism for insisting on maintaining the tariff on imported sugarcane ethanol. For some it looks odd that the U.S. imposes a tariff on alternative fuel coming from friendly countries, while no such tariffs are imposed on imported oil from hostile ones. This criticism is likely to grow when Iran begins to import Brazilian ethanol to alleviate its gasoline dependence in light of forthcoming U.S. sanctions. The spectacle of Brazilian ethanol benefiting the Mullah’s regime rather than American motorists will not strengthen the U.S. corn ethanol industry’s public image. But with the Open Fuel Standard there would be no need to fight the tariff. With tens of millions of new flex fuel cars on the road capable of running on up to 85 percent alcohol, within a few years the market for alcohol will be large enough for everybody to profit and there will be no need for various ethanol producers to fight each other over slices of a small government mandated alternative fuel pie.

It gets even better. Since no automaker can give up on the U.S. market, the Open Fuel Standard will essentially become an international standard, creating a global gigantic market for alcohol fuels including in numerous countries where ethanol currently plays no role. If every car sold around the world was flex fueled, gasoline would have to compete at the pump against a variety of alternative fuels, and the oil barons in the Middle East would be challenged by fuels made elsewhere, including in poor countries in Africa, Latin America, and South Asia.

An Open Fuel Standard will also eliminate once and for all the perpetual need to recalibrate the blend wall – a major policy priority of the U.S. ethanol industry. Ethanol groups are currently lobbying hard to lift the blend wall from 10 percent to 15 percent, but few years after they succeed the industry will again hit the new wall. Then what? With flex fuel vehicles and blender pumps, consumers will be able to make a daily choice at the pump among E10, E15, E50, E85, or any other blend. To paraphrase President Ronald Reagan’s 1987 Berlin speech: it’s time to “tear down this wall” altogether.

President Obama has expressed several times his support for flex fuel vehicles. So did Secretary of Energy Steven Chu and Secretary of Interior Ken Salazar. A bipartisan bill, the Open Fuel Standard Act (S.835 and H.R.1476), which requires that 50 percent of new cars be flex fuel by 2012, was introduced before both the House and the Senate. Now that Mr. Obama has satisfied the wishes of both drillers and dieters, it’s time for him to focus on the third leg of the stool and ask Congress to enable Americans what they need and deserve most – fuel choice at the pump.

About the Author:

Gal Luft is Executive Director of the Institute for the Analysis of Global Security and co-chair of the Set America Free Coalition. He is co-author of “Turning Oil into Salt: Energy Independence through Fuel Choice” (2009).

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The American Coalition for Ethanol publishes Ethanol Today magazine each month to cover the biofuels industryís hot topics, including cellulosic ethanol, E85, corn ethanol, food versus fuel, ethanolís carbon footprint, E10, E15, and mid-range ethanol blends.
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