CONGRESS IS BATTLING over whether to approve the Keystone XL oil pipeline, proposed for the heart of the country.  The project has clear value to the United States. Yet, with all the amped-up rhetoric, it is important to remember what the project would not do. It would not endow the United States with “energy security” in the sense that most Americans understand the phrase and that many pipeline advocates wield it. It would not significantly lower oil prices. In fact, when it comes to oil, America will be affected by global events for decades, and that’s assuming the right policies are in place.

All true, and well put.  The pipeline does have clear value for the US:  more access to a secure product, continued good relations with our stable ally to the north, good jobs, etc.  And yes, the pipeline will not lead to 100% energy security — nor is it the threat to the environment that opponents fear (or fear-monger about).

The Post has some good prescriptions for reducing our dependence on foreign oil — and thus our exposure to world-wide economy-constraining high prices and economically damaging price volatility:

There are sensible policies to promote this long-range goal. An economy-wide, anti-carbon policy, such as a carbon tax, would fit the bill. Short of that, the best policy would be a higher gasoline tax, which could also fund transportation needs. President Obama’s auto efficiency standards will also help. In contrast, direct subsidies for electric cars are extremely expensive for meager benefits.

Unfortunately, after making those mostly solid points, the WaPo takes a gratuitous shot at incentives for electric vehicle and infrastructure deployment.  They are wrong on that.  Vehicle electrification has long been viewed as the logical next step in reducing our economy’s oil intensity.  As key executives at Shell (hardly an entity one would expect to be pro-electrification) said nearly a decade ago:  use electrons for transportation and reserve molecules (of petroleum) for higher-valued applications.  That’s still the right answer for our economy and our energy security.

The mix of fuels used to generate electricity in the United States is experiencing a seismic shift that is unlike anything that has happened in decades.  Looking across all sectors, U.S. coal-fired generation in 2011 fell to its lowest level since at least 1949, which is the earliest data available from EIA.  Moreover, according to EIA’s latest estimates, this trend will accelerate sharply in 2012, with coal-fired generation falling to just 36.2 percent of the U.S. total—far removed from its decades-long position as the source of more than half of U.S. power generation.

What’s driving this shift?  One look at the graph above tells the story pretty clearly.  The use of natural gas in power generation—which has steadily increased since about 2003—is set to soar in 2012.  While total U.S. power generation will increase by less than 1 percent between 2011 and 2013, gas-fired generation will increase by 23 percent.

In the past, natural gas was viewed as a risky option for baseload power generation, because fuel prices tended to be both high and volatile, making them unable to compete with coal. This fuel price volatility has historically outweighed the distinct advantage held by natural gas generators when it comes to capital cost. The revolution in domestic shale gas production, which has depressed natural gas prices to levels that are highly competitive with coal in numerous U.S. markets, has fundamentally changed the calculus for power generation economics.  Moreover, some recent analysis suggests that the capital cost equation has been moving even farther in favor of natural gas as air quality regulations and the complex construction requirements drive the cost of coal plants higher.

Changes in the fuels used to generate electricity could have important implications for everything from electricity prices to greenhouse gas emissions and air quality.  One area of particular interest to us is the impact a cleaner grid will have on the upstream CO2 emissions associated with plug-in electric vehicles (PEVs).  We sometimes point out that PEVs are the only vehicles that will get “cleaner” as they get older as the grid moves toward lower-carbon forms of electricity.  The experience of the past several years and expectations about the very near term demonstrate this quite well.

As the figure below shows, the amount of upstream CO2 emitted by a PEV in charge-depleting mode has been declining substantially in recent years—even when it is powered by the average U.S. grid mix.  A driver who purchased a PEV in 2005 would have seen his or her upstream emissions fall by 16 percent by 2012.  In other words, the driver’s vehicle would have continuously improved its advantage over the average light-duty vehicle for that year, which achieved an adjusted fuel-economy rating of 19.9 miles per gallon.  In fact, even when taking into account line losses, a PEV purchased in 2005 would just about be on par with the best hybrids on the road today, which tend to register fuel-economy ratings of about 50 miles per gallon. Going forward, as more U.S. electricity is generated by natural gas, nuclear power, and renewables, electric vehicles will only continue to get cleaner.

A final note: Of course, no EV is likely to be powered by the ‘average mix.’  Instead, it will be powered by the marginal power plant serving its load.  To the extent that this is a natural gas turbine, nuclear power plant, or renewable source, EVs are already the cleanest available transportation option.  Analyses like this one from Oak Ridge National Labs suggest that gas turbines are likely to play a key role in powering EVs.

Of course, as is always the case, looking at the totals is much less interesting and informative than digging into the sales components. In doing so, one learns that after 15 months of alternating at the top, neither the Nissan Leaf nor the Chevy Volt was the highest selling U.S. PEV in April. Instead, the top spot was captured by the new plug-in Toyota Prius, which debuted in the U.S. in March, selling 911 units out of the gate.  In April, plug-in Prius sales hit 1,654 units, just beating the Volt’s 1,462.

Despite spotting its competitors a year-and-a-half head start, it took Toyota just two months to have the best-selling plug-in vehicle in the United States.  Like the Chevy Volt, this Prius is a plug-in hybrid electric vehicle (PHEV), capable of operating solely on electricity until the battery is depleted or certain speeds are reached, at which point the vehicle can rely on a built-in gasoline-powered drivetrain.  Whereas the Volt’s battery supports about 40 miles of all-electric driving, the plug-in Prius gives drivers about 10 miles of all-electric range.

Why the Prius popularity?  At first blush, brand reliability has to be a major factor.  It certainly isn’t cost.  The Volt’s base MSRP is $39,145, but it qualifies for the full $7,500 federal tax credit.  Absent any state incentives, that means the effective Volt MSRP is $31,645.  The base MSRP for the plug-in Prius is $32,000.  However, due to its smaller battery size, the Prius qualifies for only $2,500 in federal tax breaks, giving it an effective MSRP of $29,500.  It seems unlikely that a difference of just $2,145 explains the surging popularity of the Prius versus the Volt.

A final note: the fact that the Volt and the Prius—both PHEVs—are dominating U.S. sales at the expense of the all-electric Nissan Leaf implies that Americans are not willing to move toward BEVs in the absence of a compelling infrastructure solution. The Leaf will be the cheapest option to purchase and own compared to the Volt or plug-in Prius.  After the $7,500 federal tax credit, the Nissan Leaf lists for $27,700.  Considering the fact that it will never run on gasoline, its fuel (and maintenance) costs will also be lower than either of the PHEVs.

“Regarding electrification, the beauty of plug-in hybrids and pure electric vehicles like the Chevy Volt and the Nissan Leaf is that they are powered by electricity, which can be generated from many sources: nuclear, coal, natural gas, and renewables. Best yet, these are all domestic energy sources, meaning OPEC won’t be able to corner the market. And the retail price of electricity is far less volatile that the price of oil.

Unfortunately, the recent battles over environmental policy have defined electric vehicles as a climate change project driven by hostility to conventional energy production. In fact, displacing oil through alternatives offers the most significant and pressing means to protect America’s private-sector growth engine and global leadership. The environmental advantages of transitioning the transportation sector away from oil should not prevent skeptics of the environmental movement from embracing such a goal. The enormous costs of oil dependence, combined with the absence of a viable free-market remedy, support a policy that leverages diverse, affordable, stable, and domestic energy. Electrification of transportation at scale would accomplish exactly this objective.

Events outside the control of the United States are making oil prices increasingly volatile, damaging household budgets and eroding consumer and business confidence. It’s time to act to protect our national interests and get serious about a real oil security strategy.”

The same panel of business and military leaders also spoke today at the Hudson Institute in Washington D.C. defending energy security as a means to national and economic security, and electrification as a primary means to achieve it. Watch the video on CSPAN here and check out the event details here on the Hudson Institute’s website.

The clear answer is yes, unless leakage rates from natural gas production are significantly higher than current estimates.  The WaPo gets a few things right:

America’s abundant supplies of unconventional gas have the potential to be a rich economic and environmental blessing. New extraction techniques — hydraulic fracturing, or “fracking” — make the country’s vast reserves accessible at low cost. The fact that burning natural gas produces about half the carbon emissions as coal means the fuel could be an attractive, affordable alternative, giving lower-carbon energy options more time to become less expensive.

And it then raises the current issue in the radical enviro community:

They wrote:  “Few areas of American governance have been as incoherent in recent decades as energy policy, which is saying something. But lately, we keep seeing reasons for optimism.

Almost miraculously, the U.S. is both reducing its greenhouse-gas emissions and becoming increasingly energy independent. As Bloomberg News recently reported, the share of U.S. energy demand met by domestic sources increased to 81 percent through the first 10 months of 2011 — the highest level in 20 years — and emissions are expected to decline 12 percent by 2020.”

Bloomberg correctly identifies one of the main drivers in this, along with overall reduced demand and higher efficiency:

A major factor in both trends is increased use of natural gas, a cleaner-burning fossil fuel now being extracted in abundance across the country. Hydraulic fracturing, a new production technology also known as fracking, has helped push prices for the fuel to a decade low, and has created plenty of jobs in the process.

Then Bloomberg points to an end-use incentive program that holds promise of easing our transition to electrified vehicles — that will be increasingly powered by electricity generation fueled by natural gas:

President Barack Obama’s small-scale National Community Deployment Challenge – which would help a dozen or so communities become “real-world laboratories” by funding infrastructure for a variety of alternative-fuel vehicles — is on the right track. The government could conduct similar limited experiments using parts of its own fleet of vehicles.

Some misguided opponents of vehicle electrification decry “cars running on coal.”  The fact is that our natural gas bonanza is reshaping the electricity sector.  The EIA recently reported that coal’s share of monthly power generation in the United States dropped below 40% for the first time since 1978, with the lion’s share of the 60% coming from natural gas and nuclear.  Electricity is increasingly cleaner and shifting our transportation sector to it will transform transportation-related energy into something both clean and secure as well.

Gold writes:  A couple of years ago, natural gas was touted as a bridge fuel to a renewable-energy future. But the bridge is looking longer and longer, spanning decades into the future. Is gas still a bridge, or a detour? Will it keep renewables from reaching viability that much longer?

Gold quotes venture capitalist Vinod Khosla, who has bet heavy on alternative energy sources and spent years lobbying for supportive state and federal policies, as calling shale gas “a black swan.”  Now, black swans can be good, but high-impact surprises usually aren’t.  In this case, if you are long on renewables, you are feeling pain with low natural gas prices.

If you are a consumer, or somebody who is elected by them however, you’re liking low energy bills:

California Gov. Jerry Brown said gas could help his state meet aggressive goals for generating a third of its power from renewables. The low cost of natural gas is helping offset the higher cost of wind and solar. It’s helping prevent “sticker shock,” he said.

That is close to a traditional role for natural gas in the electricity system — providing load-smoothing electrons that fill the gap when its cloudy and the wind isn’t blowing.  But what about abundant natural gas as baseload power?  What if it crowds out renewables altogether, rather than supplementing them?  Here’s Bill Gates on that prospect:

Having so much natural gas is “phenomenal,” he said, “if you put aside climate change.”

The idea that natural gas use is bad for the climate has been a recent, ahem, discovery.  Back when natural gas was thought of as a substitute for coal — and that being only the coal needed after aggressive efficiency and conservation measures were adopted — we always heard that burning natural gas for power emitted half the greenhouse gases that burning coal releases.  Which is true.

But now that natural gas production and usage is far more robust, enviros are concerned about two things:  1) displacing truly clean fuels like renewables — who emit negligible GHGs on a life-cycle basis (counting wind turbine or solar cell production activities) — and, in a more recently expressed worry, 2) how much methane “leaks” during the production and transport of the gas to the combustion facility.  Since methane is such a powerful GHG — 25 times more potent than CO2 — even a small leakage rate will have a big climate impact.

So, is focusing our electricity generation on natural gas a good thing?  Depends on your metric.

A strategic deployment mechanism first advocated by the Electrification Coalition in its 2009 Electrification Roadmap, a deployment community is defined as “a region in which each of the elements necessary for the successful deployment of grid-enabled vehicles is deployed nearly simultaneously in high concentrations.” Why? “By ensuring that vehicles, infrastructure, and the full network of support services and technologies arrive in well-defined markets together, [deployment communities] will provide an invaluable demonstration of the benefits of integrated electrification architecture.” The importance of the deployment community approach cannot be understated: strategically concentrating electrification resources in specific regions—as opposed to spreading resources evenly around the country—optimizes those resources by not only accelerating the electrification process, but facilitating information gathering by serving as real-world laboratories. Furthermore, accelerated deployment expedites technological improvements and cost decreases by helping manufacturers achieve economies of scale.

The President’s $1 billion National Community Deployment Challenge was announced at a Daimler AG manufacturing plant in Mount Holly, N.C. The program is designed to support 10 to 15 cities or towns as they invest in advanced vehicles and fueling infrastructure, including biofuels and natural gas in addition to electricity. In an additional provision, the President aims to increase the federal electric vehicle tax credit from its current $7,500 to $10,000.

The Energy Security Leadership Council lauded President Obama for his leadership in reducing our dependence on foreign oil. Energy Security Leadership Council Co-Chairs Fred Smith, CEO of FedEx, and retired general P.X. Kelley (former commandant of the Marine Corps) hailed the moves as “critical.” They urged, “There is a clear national security imperative in advancing a durable bipartisan energy security strategy that includes producing more domestic oil by opening new off-limit areas and expediting permitting, continuing to improve fuel economy standards, and transitioning to alternatives like electric vehicles and natural gas in heavy-duty trucks.”

A smart grid combined with electrified vehicles  that are either charging in demand mode on the grid or discharging and supplying the grid can create synergies purely within the electric sector itself — to say nothing of the massive energy security and macroeconomic benefits of weaning the transportation sector from its addiction to oil.

Now comes Bill Ford, Jr., to talk about smart cars to deal with a different grid — gridlock.  Mike Ramsey’s piece in today’s WSJ is worth a read as he notes that “the No. 2 U.S. auto maker is stepping up investment in technology and services that respond to problems created by increased congestion in the world’s biggest cities.”

“For instance, the auto maker will invest in systems for its vehicles that will lead to cars that avoid traffic jams, reserve parking spaces and, under certain conditions, drive themselves, in an effort to cut down on global gridlock, he said. The company also is moving to expand the use of crash-avoidance technology and will broaden its collaboration with car-sharing companies such as Zipcar Inc.”

This is in some ways a natural evolution, as the rolling computers we still call cars continue to become smarter and smarter.  Grid-electrified vehicles that can help avoid gridlock — it may not be Jetsons-style futurism, but it will be a major improvement on the path we’re on today: addicted to petroleum at grave cost to our economic health, enduring congestion and its drain on individual productivity, and pumping out CO2 that contributes to dangerous global climate change.  We can and must take a different path, one that includes smart, electrified vehicles linked to a smart grid.

“America is pumping more oil out of the ground than it has in years thanks to a surge in onshore drilling. U.S. refineries are producing more gasoline and diesel than ever. And Americans’ gasoline consumption is at an 11-year-low.  So with all that supply and not much demand, why have gasoline prices risen high enough this year to resurface as a national political issue?”

To say that the global economy and geopolitics drive oil and gasoline prices is not the same thing as saying American policy-makers can’t do anything about the dangerous linkages between high energy costs and dismal economic performance.

As Fowler reports:   “Experts say that over the long run, increased oil production in the U.S. might temper global prices, and getting that oil to more refineries across the country could help bring down prices at the pump. But for now, U.S. prices remain tied most firmly to Brent, which is being driven mainly by factors such as China’s sharp economic growth, even as that has moderated recently.”

So one side of the equation is increased domestic production — something we are enjoying under this Administration due to actions taken by previous ones.  And of course much more can be done there.

The other side of the equation is diversifying our fuel mix so our economy is less dependent on petroleum from any source.  Congress took strong action on that front in the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007 when advanced biofuels were given market incentives and new R&D authorizations.

The next step is to turn our abundant domestic natural gas into a much more common alternative transportation fuel — both directly, where it makes sense (in the freight sector, for example) and indirectly, through the generation of electricity for an increasingly electrified personal transportation system.

Demand is down today due primarily to a poor economy and high prices.  In future, demand will drop as cheaper (and cleaner) alternatives take more and more market share away from petroleum — spurring, not impeding economic growth.