Suggestions For A Comprehensive American Energy Plan

The other day, Henry gave a rant on how we should use this $100 oil enviroment as a catalyst for developing an energy plan.  He is correct, and we should.  So here are some suggestions for a long-term energy plan. 

Intro

An energy plan would address America’s two largest forms of energy use—oil and coal.  Generally speaking, we use oil for transportation and coal for electricity.  The plan would subsidise certain behaviours/innovations and tax others.   Let’s examine some policies for an oil-energy plan. 

Oil

For every barrel of oil, 74.2% of it goes to transportation fuels including gasoline, diesel, and jet fuel.  Of that 74.2%, the largest component is gasoline by a factor greater than 2:1.  Hence, let’s reform gasoline use.  To do that, I suggest the following policies, and like the Coal section, they are graduated from  the least difficult to the most difficult policy to implement. 

Why not subsidise some knowledge workers to stay at home?  Many well-paid software developers have their offices located in a Starbucks.  They are able to create value despite being in a non-office enviroment—the same can be said of some knowledge workers.  A suggested policy for reducing gasoline use would be to subsidise industry (let private industry decide who, if anyone, stays home) to have some persons work from home a few days a week or a few weeks a month.

 The Chevy Volt, a fully electric powered car, retails for $40,000,and Consumer Reports peed on its pathetic performance level.  I agree with Consumer Reports that the technology isn’t here yet for us to go fully electric.  Instead, we can reform and reduce gasoline use by subsidizing drivers to drive a hybrid car instead of a fully gasoline powered vehicle. 

The next policy would be to subsidise an intermediary technology to a fully electric vehicle, an intermediary technology like hydrogen fuel cells.  Why is hydrogen fuel cells the intermediary and not the ultimate technology?  Because as we begin to build better batteries for cars, we will be able to use that technology in our digital devices.  To encapsulate the thought, electric cars will make more sense because their related technologies like batteries will have more synergy with other industries of the economy than would hydrogen fuel cell technology.

The ultimate, most difficult, and currently insurmountable policy would be to go fully electric now.  One can imagine this policy as having a higher fixed cost than the former policy, but also a lower variable cost over the long term.  Let’s address coal next.

Coal

For every kilowatt hour consumed, 44.9% of it was produced by coal, and coal is the largest component of electricity production.  Hence, let’s reform coal use.  To do that, I suggest the following policies. 

Why not nuclear?  Indeed there are large extraneous challenges to nuclear electricity production, as we are seeing them in Japan, but there are also many benefits.  One, the technology is here today—no need to research or subsidise anything.  Two, it is super cheap.  Three, as the US and Russia continue to disarm for the forseeable future, we have a lot of nuclear material that could be used for fuel.  Why not address the ban on nuclear power plants?

The next policy would be to subsidise wind and solar technologies.  (I can feel people throwing the tomatoes at me.)  Why consider this policy?  I can say with 100% confidence that the world will run out of coal within the next two trillion years.  If you don’t get the irony of my former statement, my point is that we will inexorably run out of coal at some point.  A prudent policy would be to subsidise technologies like Bill Gross’s eSolar before we run out of coal.

Thomas Edison invented the light bulb, but he lost the electrical distribution competition.  Today, electricity is generated via DC (this is why cars are DC power), is transported via AC (you can transfer AC volts much further than you can transport DC volts), and the electricity is converted back into DC in order to power your electrical consumption.  If you distrust ethanol production as much as I, you should find a similar distrust in this electrical distribution network because of your understanding for physics.  But note, there is a very important reason why this is the 3rd policy—it is extremely insurmountable today.

Conclusion

Come on America, we need an energy policy.  Why aren’t we having a conversation about what it should be?

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