Multiple Eggs, Multiple Baskets
Posted June 23, 2010 at 10:35 am 
Filed in: In light of a recent Senate Committee on Energy and Natural Resources hearing of testimony on a bill that would incentivize the mass deployment of electric vehicles across the country, it is interesting to assess the argument that government should avoid favoring any particular technology in its quest to find the treatment for America’s oil addiction, and instead institute technology-neutral policies geared towards allowing the free market to eventually cure the addiction.
Many have argued that the government should not be in the business of “picking winners and losers,” by funneling money into select technologies. Federal support provided to selected industries on the basis of uncertain future developments, some argue, is an inefficient allocation of taxpayer money. For instance, at the Committee hearing, David Friedman of the Union of Concerned Scientists decried the government’s inconsistent “mix of policy approaches over the past forty years that has shifted from synthetic fuels to methanol to batteries to corn ethanol to hydrogen fuel cells to cellulosic biofuels and now back to batteries.” Rather, a common argument is that the government should avoid placing “all its eggs in one basket,” and instead institute a comprehensive energy policy that simply puts a price on carbon, and funds research and development of new technologies. This way, rather than the overbearing hand of government, the free market would dictate clean energy’s future.
This argument seems perhaps most potent upon consideration of the government’s enormously costly subsidization of the corn ethanol industry and its outcome, which thus far can be characterized as disappointing at best. The United States currently provides three forms of incentives to the corn ethanol industry: (1) tax incentives of $0.45 per-gallon; (2) blending and use mandates, wherein an increasing proportion of motor fuel must be ethanol-based, and (3) trade restrictions, where, for instance, a $0.54 per-gallon tariff exists on imported ethanol. According to the Food and Agriculture Policy Research Institute at the University of Missouri these policies will cost taxpayers roughly $36.5 billion between 2011 and 2015.
Despite these enormous costs, whether the United States has received enough benefits to justify this investment remains uncertain. For one, it is unclear whether corn ethanol yields a positive amount of net energy overall, and some studies have asserted that it requires 30% more energy to produce than it creates. On the other hand, a study released recently by the Department of Agriculture reports that corn in fact supplies twice the amount of energy that is required to make it. Ethanol production is also very land intensive. Today, corn ethanol production consumes over 10 million hectares of land (an area the size of Virginia), consuming about 33 percent of U.S. corn grain, as reported in the Harvard International Review. Despite this, U.S. ethanol production represents just 1.3 percent of total oil consumption in the United States. Some studies have suggested that diverting this crop away from food production, at least in part, led to the high food prices of 2008 that resulted in widespread rioting in some developing countries. Studies have argued that corn ethanol may in fact have a greater environmental impact than gasoline, and as a whole, this remains unclear.
The purpose of this description is not to chastise corn ethanol, but rather to provide context for the common argument that the government must avoid “picking winners and losers” in energy technology. Ultimately, the jury is still out on corn ethanol, and hopefully advanced biofuels will emerge on a larger scale to help address many of these issues. The information above, however, illustrates the potential folly of premature large-scale governmental support of nascent energy technologies.
What is vitally needed, in contrast to that which corn ethanol promotion has thus far delivered, is not a policy that expensively, and only incrementally, reduces oil’s proportion of America’s overall energy use. In light of the disastrous Gulf of Mexico spill, and in an era of depleting oil reserves and increasing costs, the government must advance policy that can radically shift energy use away from oil, and in a relatively short period of time.
Electrification provides this solution, because rather than concentrating federal financial “eggs” into one “basket” of electric vehicles, it in truth does just the opposite—forming the bridge, which is today absent, between transportation and a diverse set of U.S. energy resources. Today, renewable energies do not substitute for oil in any meaningful way, because while these sources generate electricity, oil is used almost entirely for transportation. As a result, the impressive gains the United States has experienced in clean electricity over the past decade, while delivering environmental benefits, do almost nothing to treat our addiction to oil.
With electric cars, our transportation fleet is immediately connected to the diverse sources that provide us with electricity, including abundant natural gas, nuclear energy, and the rapidly growing renewable energy sector. The United States should be broadening, rather than concentrating its energy resource base. Electrification, and government investment in the deployment of electric vehicles and infrastructure commits us to this path, enabling us to capitalize on America’s increasingly diverse, clean, efficient and domestic portfolio of energy resources.
Poignantly, Senator Byron Dorgan concluded the Committee hearing commenting, reluctance in “picking winners and losers is usually an excuse for doing nothing. God forbid we should actually have a plan for what will happen.”
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