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Gal Luft: Kill the Oil Monopoly
Until the early 19th century, salt was among the world's most valuable commodities due to its monopoly over food preservation. It was Napoleon who diminished salt's strategic status by declaring a cash prize that triggered the invention of canning. Refrigeration soon followed, and within a decade salt lost its status forever. With a simple bill requiring no subsidies, costly tax breaks, or Solyndra-style government giveaways, President Obama can deliver the same fate to oil, allowing Americans for the first time in a century to choose what to put in their tanks.
Most cars sold in the United States -- roughly 14 million annually -- are allowed under their warranties to run on nothing but oil: gasoline and, in some cases, diesel. Due to this virtual monopoly, oil has taken on inordinate strategic importance, and oil prices have a significant economic impact. Oil-price spikes have the power to reduce consumer confidence, trigger recessions, and inflate the country's trade deficit. Were drivers able to respond to high oil prices by switching from gasoline to less costly fuels, oil's importance would be greatly diminished. But they can't.
America's natural gas glut provides an example of the potential benefit of the ability to switch fuels. A technological revolution has unlocked an enormous amount of natural gas, and prices have collapsed to the point where natural gas is now one-fifth as cheap as oil per unit of energy. This means that at today's prices, driving a car on a natural gas-derived fuel would be like driving it on the equivalent of under-$20-per-barrel oil. Yet because most vehicles are not equipped to run on natural gas, less than 1 percent of America's natural gas supply is used as automotive fuel.
When automobiles were first developed a century ago, a variety of fuels was used. Some cars were electric, some ran on steam, and others on alcohols. Low oil prices during the 20th century, however, killed the competition, and automakers had no reason to certify cars to run on anything but gasoline. The spike in oil prices over the past decade has finally changed the economics of oil in favor of other commodities, but automakers haven't caught up with this reality. Today, it's nearly impossible to obtain a car running on anything other than gasoline.
Compressed-natural-gas vehicles and electric vehicles -- one-third of U.S. electricity is currently generated from natural gas -- are slowly making their way into the marketplace. But battery-powered cars remain prohibitively expensive for most car buyers. A natural gas-derived liquid fuel called methanol (wood alcohol), however, is both substantially less expensive than gasoline on a per-mile basis and very cheap to enable on the vehicle side -- roughly $100 extra per new car.
Essentially, all that is needed for a regular car to be a flexible-fuel car are a fuel sensor and a corrosion-resistant fuel line. In some provinces of China, where methanol is made primarily from coal, this alcohol is sold at numerous fuel stations. This logic is one thing even Iran and Israel can agree on: Both natural gas-rich countries have plans to begin selling methanol-based fuel at gas stations.
Obama, who pointed out during his campaign that America is "the Saudi Arabia of natural gas," can break oil's stranglehold over America's transportation sector by sending Congress a simple, no-subsidy, open-fuel-standard bill that would ensure that new vehicles sold in the United States are open to some sort of fuel competition. The law would allow automakers to choose whether they want to go the least costly route -- liquid-fuel choice -- or some other pathway. The new vehicles would then create the demand that would spur increases in the production capacity of competing fuels. Even without Congress, the president could also take the symbolic step of mandating that the federal government purchase fuel-flexible vehicles.
Best of all, from the perspective of the president's political advisors, support for such a move would be genuinely bipartisan. Co-sponsors for an open-fuel-standard bill in 2011 ran the gamut from liberals like California's Rep. Brad Sherman to Tea Party favorites like Iowa's Rep. Steve King. With backing from the increasingly powerful alternative-fuels lobby, as well as national security hawks like former CIA Director James Woolsey and former Homeland Security Secretary Tom Ridge, this could be one energy proposal that Republicans who would never touch a carbon tax or cap and trade would be willing to sign on to.
Thanks to the rise of cheap, plentiful alternatives, the end of the age of oil may be closer than we realize. With a simple market-based solution, Obama can get the United States ready for what comes next.
Gal Luft, co-director of the Institute for the Analysis of Global Security and advisor to the U.S. Energy Security Council, is co-author of Petropoly: The Collapse of America's Energy Security Paradigm.
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