Fueling Speculation: What Should America Run On?

June 6, 2011

CQ

Margaret Kriz Hobson

As gasoline prices hover near $4 a gallon, the contest is intensifying for federal money to develop the next generation of cars. Energy Secretary Steven Chu clearly favors electric car technologies over natural gas vehicles, while a coalition of 189 House lawmakers has revived oil magnate T. Boone Pickens’ plan to expand the use of the latter.

At the same time, the drive to reduce federal spending across the board has put heavy pressure on all types of subsidies for transportation and energy research. Conservatives in Congress and tea party Republicans argue that the free market, not Washington, should decide what technologies prevail.

The fiscal hawks have persuaded several House Republicans to withdraw their support for the Pickens bill.

And the House Appropriations Committee, looking for money to offset funding for federal disaster relief programs, took aim last week at President Obama’s energy programs by voting to slash $1 billion from the Energy Department’s loan program for alternative energy and car technologies.

Cyclical Interest

Such cross-currents are standard and predictable in the field of alternative fuel and, some say, responsible for an unproductive boom and bust cycle. For decades, every time pump prices soared, Congress and the White House announced new strategies for replacing imported oil. Once world oil prices dropped, most funds for alternative technologies dried up.

“Every four to eight years, we seem to search for another silver bullet, another magic wand that will solve all of our energy and climate problems in the transportation world,” says David Friedman, the Union of Concerned Scientists’ deputy director for clean vehicles.

He argues that Washington’s mentality has slowed efforts to bring new types of cars and trucks to American drivers. “Politicians understandably treat these technology races as sprints because that’s their window of influence,” he said. “The problem is that technology is developed over decades, not years. It’s a marathon, not a sprint.”

Some conservative Republicans say that no matter how high gas prices are, it is time for Washington to get out of the energy business. Rep. Mike Pompeo of Kansas says the federal government is “trying to centralize the decision-making process and trying to pick that silver bullet. I think it’s a fool’s errand, and I think 50 years of energy-subsidy history demonstrates that quite clearly.”

But energy experts counter that the transportation market is nowhere near free. Americans own 240 million vehicles, the vast majority of which use gasoline. The system is the product of decades of federal support, Friedman argues. “Those subsidies have established an industry that has a stranglehold on the American consumer,” he said.

Some of the recent research underwritten by the government is beginning to produce results. Thanks to federal tax credits and advances in battery technology, more than a million hybrid cars and SUVs are on the highways. Automakers are also introducing the first plug-in hybrids and all-electric cars that can be recharged from a home electrical outlet.

Meanwhile, tax credits and other subsidies for buyers of natural gas vehicles have caused that market to blossom. Richard Kolodziej, president of Natural Gas Vehicles for America, estimates that almost 120,000 natural gas vehicles — primarily garbage trucks, buses and commercial fleet vehicles — have been sold.

Despite that progress, scientists say they still need federal help to develop cheaper and longer-lasting electric batteries, to install fueling stations for natural gas and for electricity, and to move their discoveries from the laboratory to the market.

Private financial markets aren’t geared to support national goals such as energy independence and environmental preservation, nor to work on a long time frame, said Christopher Guith, vice president for policy at the U.S. Chamber of Commerce’s Institute for 21st Century Energy, at a Senate Energy and Natural Resources Committee hearing. “This lengthy process has resulted in multiple technologies demonstrating promising laboratory results but failing to meet national energy goals because they never reached full commercial scale.”

For example, Chamber officials say the federal backing for technologies to make cellulosic ethanol — fuel from grasses, wood waste and garbage — has been too meager to make up for the venture capital that dried up with the recession. As a result, the biofuels industry was unable to meet a congressional mandate requiring production of 250 million gallons of cellulosic biofuels by 2011.

Energy and transportation experts predict that the long-term race is unlikely to have a single winner. Future drivers may use a variety of technologies: natural gas for trucks and fleet cars, all-electric vehicles for in-town passenger vehicles, hybrid or fuel-cell vehicles for longer trips, and advanced biofuels to lower the oil content in conventional gasoline.

Shifting Focus

The road to the next generation of cars and trucks is anything but smooth. During the 1990s, the Clinton administration championed natural gas vehicles and diesel engines. When George W. Bush took office, he cut research money for natural gas and diesel and launched an initiative to develop hydrogen fuel cells. Congress passed legislation requiring that ethanol and advanced biofuels be added to U.S. gas.

Now the White House is shifting the Energy Department’s focus from fuel cell cars, which are far from ready for production, to electric vehicles.

During his presidential campaign, Obama promised to put 1 million electric cars on the road by 2015. Chu, a Nobel Prize-winning scientist, is heading that effort. Under Chu’s direction, the administration poured $2 billion in stimulus money — matched by industry funding — into battery- and electric-drive manufacturing projects. Its Advanced Technology Vehicle Manufacturing program funneled $8.4 billion into loans for four electric vehicle projects and one for natural gas vehicles.

Due in part to the Energy Department’s research, advanced electric batteries are smaller, lighter and less expensive. Federal backing is helping the battery-manufacturing market expand from two small plants to 20 facilities, according to Patrick Davis, program manager for the department’s Vehicle Technologies Program. The department’s loan program also helped persuade Nissan to build its all-electric Leaf at a U.S. plant rather than overseas.

To make electric cars more attractive to consumers, Obama’s 2012 budget proposes to effectively reduce the price of the vehicles by converting the $7,500 consumer tax credit into a point-of-sale rebate, and to build electric recharging grids and stations.

In the Senate, Tennessee Republican Lamar Alexander and Oregon Democrat Jeff Merkley introduced a bill to underwrite research into battery technologies, boost federal purchases of electric vehicles and encourage communities to build electric car recharging systems. A bill by Michigan Democrat Debbie Stabenow would give businesses a tax credit for purchasing medium- or heavy-duty plug-in hybrid trucks and extend a public-private partnership for advanced battery technologies.

The natural gas vehicle industry is focused on wooing heavy-duty trucks and fleets to convert to natural gas. “It’s really more about deployment than it is about R&D,” the Energy Department’s Davis said at a recent House hearing. “We know how to build natural gas engines. We know how to build natural gas vehicles. And that’s why we concentrate our efforts on natural gas through the deployment arm of the vehicles-technology program.”

Kolodziej of the natural gas vehicles group argues that the industry still needs federal research backing to find engine technologies for a wider variety of vehicles. He agrees with the “deployment” strategy, saying that the country has roughly 170,000 gasoline stations but only 1,000 natural gas stations.

To help commercialize natural gas vehicles, Oklahoma Republican Rep. John Sullivan offered a bill fostered by Pickens that would provide incentives for production, purchase and use of natural gas vehicles, and to expand the natural gas fueling infrastructure. In a speech in March, Obama endorsed the bill.

Even as fiscal hawks fight energy programs, many Republican leaders on Capitol Hill acknowledge that new technologies may never see the light of day without some federal help.

“The good news is that there are a host of alternatives that show promise and are the subject of federal research and development, tax incentives and loan guarantees,” Kentucky Republican Edward Whitfield, chairman of the House Energy and Commerce Subcommittee on Energy and Power, said at a May hearing. “But the fact that there have been so many false starts since the federal government first got involved in alternative fuels and vehicles in the 1970s is a sobering reminder that we need to carefully review our efforts.”

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