Declaring Energy Independence

The 4th of July always begs the question: What does ‘independence’ actually mean? After more than a dozen years thinking about transportation and fuels, energy always bubbles to top of mind. 

Declarations of “energy independence” usually provide more heat than light (pun very much intended).  The often heated discussion on the topic usually obscures the essential distinction between energy resources and their end use. From a policy perspective, that distinction is critical.

Power and electricity generation come from an array of fossil and renewable sources like natural gas, nuclear, hydro, solar, wind, coal and geothermal. On the other end of the spectrum, 90% of transportation depends on petroleum. That fundamental difference defines a very different policy landscape. Until our cars, trucks, locomotives, ships and airplanes transition to electricity, transportation needs to be a separate conversation.

The fact is—no matter how many pundits claim otherwise—we are only “energy independent” by ignoring that our geopolitical and strategic options are limited by the overwhelming dominance of petroleum in the transportation sector.  So, no, we are demonstrably NOT independent. Google also tells its own story. For half a century, every single U.S. president has been forced to beg, scrape or kowtow to foreign dictators to open or close their spigots, and too often been bound to put our troops in harms way to protect the flow of oil. Because for the vast majority of our transportation system, there is simply no alternative.

Repeating what has become my professional mantra: it does not have to be this way.

We can and should permanently diversify the energy sources used in transportation. Well-established process technologies are ready. And thanks to a host of emerging renewable and waste pathways, resources abound. Opening the door to innovation will accelerate the possibilities.

The best policy fix isn’t a mystery. Clean fuel standards have reduced greenhouse gas emissions more quickly and cost-effectively than anyone expected. Equally important, they have significantly diversified the fuels used on the road. California, Oregon, and Washington have successful policies in place. New Mexico is soon to follow. 

California has the largest and longest-established program. The fuels used in the state are increasingly varied (see Figure 2 on this data dashboard). Trucking provides an illustrative sample of how wider adoption of clean fuel standards can transform our transportation reality.

Renewable diesel and biodiesel blends can be used in existing vehicles with NO modifications. The result is genuine market competition. As of the end of 2023, fully 60% of the diesel consumed in California was made from renewable and waste products, while conventional (aka petroleum) diesel made up the remaining 40%. But here’s the real kicker: Renewable diesel has even regularly been cheaper at the pump. Market alternatives provide a buffer to consumers when oil prices rise.

Nationally, 76% of commercial trucks and transit and school buses use diesel, while an additional 22% run on gasoline and 1.9% use either natural gas or propane. That’s 99.9% of the market that’s ripe for transitioning to cleaner—and sometimes cheaper—fuels that can be used in existing engines.

The rest of us can benefit, too. About 20 million cars and trucks on the road have flex-fuel engines, which can interchangeably use gasoline or any blend of ethanol up to 85% (branded as E85). E85 in California has consistently been $1.00/gallon or more cheaper than gasoline, rising to as much as $2.50/gallon less when oil prices rose after Russia invaded Ukraine. More flex-fuel vehicles, with added plug-in electric hybrid capability, can provide even more fueling options for market competition to flourish.

As more drivers and commercial fleets shift to electric vehicles, transportation simultaneously becomes less dependent on liquid fuels, and even more diverse from an energy perspective. There are also great stories for the exciting things happening in aviation and shipping. But those are blogs for another day. Across the board, clean fuel standards benefit the vehicles of today AND help transition us to the vehicles and vessels of tomorrow.

Along with that comes freedom. Clean fuel standards can free our national and personal economic well-being from dependence on the whims of the oil market. There’s no guarantee what will be cheaper at any given time. That’s not how a market works. Drivers are simply free to decide based on price or priorities. Only then can we—finally, actually—declare our energy independence.

Photo by Timothy K Hamilton, Creative Commons License

Old Home Week

I had the chance to present at a couple industry events this month. It felt like old home week, in the best possible way.

First up was the Future of Low Carbon Fuel Standards panel at the Transportation Energy Institute (TEI) annual conference. Back to when it was called Fuels Institute, it’s been one of my favorite events.

A lot of old friends and allies were in the room. There were also many new faces, broader attendance than ever, and some unexpected new alliances.

TEI is a nonprofit research arm of the National Association of Convenience Stores. They produce top-notch research and surveys on a host of topics relevant to the fueling industry, from incorporating equity into fuel policy to the role of liquid fuels in ensuring a smooth transition to the transportation system of the future. Electrification has also become a central theme. (Seriously, it’s worth checking out their interesting work at those links!) 

The other event was the Ag-Auto-Ethanol Alliance annual confab. This one also goes back a long way for me. It’s a great group, informally collaborating on strategies to maximize the value and decarbonization potential of liquid fuels. 

Attending these gatherings back to back after a few years away revealed how much has stayed the same (a lot of us are still plugging away!), AND where some things have fundamentally shifted.

There is a lot more attention on the role of states to drive policy, due to a combination of increasing state opportunities and sluggish progress at the Federal level on key issues. Another notable shift is growing industry consensus for clean fuel standards. Not long ago, you wouldn’t have seen the American Petroleum Institute and the Renewable Fuels Association not only sharing a stage but advocating for the same thing: an all-of-the-above approach to reducing carbon emissions in transportation. It continues the trend we’ve seen in New Mexico and elsewhere. With an eye on the long game and global trends in a single direction, big oil companies seem to be warming to incentive-based policies that boost ROI on investments to decrease carbon emissions and diversify assets.

No surprise. The market-based design of clean fuel standards has proven to be good for climate AND for business.

Correcting the Record: Cato Commentary Misleads on Energy Independence

A recent commentary “Actually, America Isn’t ‘Energy Independent.’ (And That’s a Good Thing.)” at Cato Institute provides a comprehensive, data-forward dive into the fundamental facts and market dynamics of fossil fuels. It firmly debunks the idea that we are (or ever will be) energy independent as long as oil dominates our transportation system. That underlying message is the good part. Where the article goes off track is suggesting that petroleum dependence is a good thing, and that generic smaller government proposals like regulatory streamlining, eliminating barriers to petroleum market entry or expansion, and freer trade are sufficient to overcome either the monopolistic status quo or its economic consequences.

It’s worth reading the whole piece for a detailed look at the energy system at large, but in particular to take in the economic realities of our oil-dominated transportation system. Debunking false claims of ‘energy independence’ is a message worth reiterating as often as possible. But a few key graphics from the piece paint a clear picture of how oil’s virtual monopoly in transportation distorts the market.

First, U.S. domestic drilling does not lower gasoline prices. There is no relationship between U.S. oil production and gasoline prices at the pump. On the contrary, as we’ve repeatedly seen in the gyrations of the shale oil boom, U.S. production waxes and wanes according to crude oil prices. Relatively higher oil prices are necessary for economic returns on shale and other unconventional supplies. That’s bad for consumers.

Reducing oil imports does not lower gasoline prices, either. No surprise given the above, but to confirm with more data: fluctuations in the relative portions of domestic and imported petroleum do not move the price needle.

And rounding out the visuals is something that can never be stated often enough or loudly enough: No matter how much we drill, we import the world oil price. Any price deviations are temporary aberrations that trend in the exact same direction.

The commentary goes on to argue for the merits of our lack of oil independence, from a free trade perspective. That’s where I diverge. Petroleum dependence is neither good nor desirable. A graph of crude oil prices versus gasoline prices shows why. Notice any trend?

These data make it clear that ‘drill baby drill’ is not the answer to the economic consequences of oil dependency, no matter how you look at the numbers. Oil enjoys about 90% market share of transportation fuel in the U.S. and higher in the rest of the world. That simple fact accounts for the uniform global price, and further highlights the hard reality: the petroleum industry enjoys a de facto monopoly in transportation.

The market does not break up monopolies on its own. Absent anti-trust action (though that possibility has been discussed in Congress and at DOJ), we need policy mechanisms to diversify and correct the market imbalance. The article’s conclusion that corrective mechanisms require mandates, subsidies and/or taxes overlooks a better approach.

Clean fuel standards are performance-based and technology-neutral. Critically, they do not rely on politicians or regulators to pre-determine winners and losers. Rather, the standards establish an annual carbon intensity target to measure against. Each fuel is scored based on its full lifecycle. Fuel producers that beat the annual target receive credits accordingly. The credits are then banked or sold directly to companies that need to offset deficits for not meeting the target. Fundamentally, clean fuel standards are effective because they rely on companies to decide which decarbonization investments make economic sense, and on the market to decide which clean fuels consumers prefer.

Our modes of transportation are diverse, but our fuels are not. Technical innovation has tapped into a wide variety of renewable and waste feedstocks to produce fuels that can power them all. We just need policy solutions that unleash investors and entrepreneurs to bring them to market and economic scale. Let’s make petroleum compete for our fuel dollars. Then we REALLY can talk about ‘energy independence’.