The Wrong Flex-Fuel

An article in today's Wall St. Journal highlighted another of the more obscure provisions of the mammoth climate bill recently passed by the House of Representatives. The section in question relates to the "Open Fuel Standard", which would authorize the Secretary of Transportation to require auto makers in the US to build a specified proportion of "fuel choice-enabling automobiles", including flexible fuel vehicles (FFVs) that can run on fuel blends containing a high percentage of methanol, as well as the more common E85 ethanol blend. This harkens back to previous efforts to launch methanol as a consumer fuel. Fortunately, those failed to gain traction, and we should hope that continues to be the case. Methanol makes a fine racing fuel but is entirely unsuited for mass market application.

I'm perplexed why one member of Congress would be quoted as saying he wouldn't have supported the Waxman-Markey bill without its methanol provision. A simpler alcohol than ethanol, methanol is produced mainly from natural gas, rather than from biomass, and it is a common industrial chemical. Because its economics depend on low-priced sources of natural gas, much of the world's methanol is produced in the Middle East, and some plants in North America have closed. It's not clear that increased US methanol demand would be met by either domestic or non-hydrocarbon sources, so its efficacy in addressing either energy security or climate change looks questionable. That's just as well, because methanol offers an inferior way to deliver energy to vehicles, even compared to ethanol, and its toxicity makes it a poor choice for a consumer fuel.

Start with the energy side of these drawbacks. Turning natural gas into methanol consumes around 1/3 of the energy content of the gas, similar to producing hydrogen from natural gas. As with H2, there's no way to recover those losses when burning methanol in an internal combustion engine, so while direct emissions might be lower, indirect emissions negate most of that benefit. We'd be much better off just putting the natural gas directly into cars. Then there's fuel economy. Even after you modify a car to run on a 50% (M50) or 85% blend (M85) of methanol and gasoline, you can't compensate for its lower energy content without precluding operation on ordinary gasoline. While a car running on E85 typically uses 40% more fuel per mile than on gasoline, you'd need 75% more M85 to go the same distance, because methanol's energy content is 25% less than ethanol's and less than half that of petroleum gasoline. So a Ford Fusion FFV that gets a combined 21 city/highway mpg on gasoline and 15 mpg on E85 would deliver a paltry 12 mpg on M85. Even with the car's generous 17.5 gallon fuel tank, its range on M85 would be barely 200 miles.

As if these practical considerations weren't a sufficient disqualification, methanol's handling risks ought to put it out of the running for our future fuel mix. The basic problem is that, unlike gasoline or ethanol, methanol is a neurotoxin. Ingesting even a small quantity can lead to blindness or death, as described in the Material Safety Data Sheet from Methanex, one the world's largest methanol producers. Its vapors aren't much safer, and it can even be absorbed though the skin. These properties create serious concerns for both bulk handling and at the point of sale. Gasoline is hardly as safe as water, but at least if you spill some on your hand, you don't need to be hospitalized. While methanol can be handled safely by trained personnel in industrial facilities and storage terminals, that doesn't extend to the gas station forecourt, where it would pose a hazard to both customers and employees.

Consumers have rejected methanol fuel before, and I am pretty confident they'll do so again, but possibly not before the government imposes another expensive mandate on an automobile industry that surely doesn't need such distractions. The inclusion of this half-baked idea in the House climate bill is a further indictment of its managers' approach of garnering votes one special interest at a time. The Senate has an opportunity to avoid this trap by stripping out all these extraneous provisions and sending a bill to the eventual House/Senate conference committee that focuses squarely on reducing emissions without making concessions to every member's pet idea.

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Biodiesel from Sugar Cane

I was intrigued by a story in yesterday's MIT Technology Today concerning a company that is applying biotechnology to convert Brazilian sugar cane to diesel, instead of ethanol. Amyris apparently intends to buy existing mills and convert them to produce hydrocarbons instead of alcohol. It has started up a demonstration-scale facility for this process near São Paolo. With so many other firms pursuing next-generation biofuels from cellulose or algae, tinkering with the most efficient current means of producing ethanol might seem an odd thing to do, but that efficiency is precisely the reason for choosing this pathway. Amyris sees an opportunity to produce a much better transportation fuel than ethanol at a cost low enough to compete with petroleum products, even if oil prices don't return to the levels we saw last year.

Energy efficiency and high energy returns on energy invested are essential to producing competitive biofuels in a way that avoids the trap the US corn ethanol industry fell into in 2008. Ethanol producers didn't benefit nearly as much from last year's high oil prices as they--and their investors--expected, because the rising cost of the large energy inputs required to make corn ethanol rose in tandem with the price of the fuels it was supposed to displace. This is an example of what some analysts call the Law of Receding Horizons. After factoring in the cost of natural gas-based nitrogen fertilizer, diesel-powered cultivation and harvesting, and gas-fueled distillation, the relatively small energy surplus created wasn't worth enough to make the operation profitable, even at the highest oil price in history.

Amyris's concept breaks out of this trap in several ways. First, by starting with sugar cane in the tropics, it avoids the large energy inputs associated with crop fertilizer. The article points out two other key benefits: Brazilian sugar/ethanol mills are net energy producers, not consumers, by virtue of capitalizing on the energy content of the waste left over from the grinding and fermentation process. In addition, while the ethanol produced by traditional fermentation is water soluble, requiring a lot of energy to separate the two, the molecules produced by the company's tailored microbes are not; the diesel precursors separate from water at little additional energy penalty.

The advantages of this approach continue after production, because of the properties of the fuel. Although it is possible to build engines that capitalize on ethanol's high octane and other properties to deliver fuel economy that nearly matches gasoline, the vast majority of the ethanol produced today will be burned either as a 10% blend in conventional cars or as a higher mix in flexible-fuel vehicles that must still be able to operate reliably on gasoline. That precludes the modifications that would compensate for ethanol's 33% lower energy content, compared to petroleum gasoline. Producing biodiesel instead of ethanol puts the fuel into engines that can take full advantage of its environmental properties, while yielding a roughly 30% fuel efficiency gain versus gasoline--and thus roughly twice the fuel economy of ethanol. Amyris claims that its biodiesel would be fully compatible with petroleum diesel, creating a significant advantage over biodiesel produced from soybeans, canola (rapeseed), and other vegetable oils. These so-called FAME biodiesels can normally only be used in blends of less than 5-10% in petro-diesel, to protect the sensitive fuel injection mechanisms of modern diesel engines.

There's no free lunch, of course. Part of diesel's advantage comes from its higher energy content, compared to either gasoline or ethanol, and the energy in the quantity of cane that would produce 100 gallons of ethanol could only yield around 60 gallons of diesel. However, when you burn these fuels in real cars--such as the VW Jetta that is available in both gasoline and diesel versions--the ethanol would take you around 1,650 miles, while the smaller quantity of diesel would be good for nearly 2,000 miles. That 20% improvement results from the higher efficiency of compression ignition engines over spark ignition.

This idea looks clever for another reason. Brazil has become a large exporter of ethanol, but the world's biggest ethanol market is protected by an import tariff designed mainly to recover the $0.45/gal. US ethanol blenders' credit. Meanwhile, the EU, which uses little ethanol, but where half of all new cars run on diesel, has just imposed an anti-dumping tariff on biodiesel imported from the US. That creates an opening for Brazilian biodiesel produced from this process to compete into a market that can't get enough diesel fuel. All that remains is for Amyris to demonstrate that the additional capital and operating costs associated with converting ethanol mills to produce diesel are small enough to preserve the big advantage they start with by choosing the world's most efficient biofuel source.

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Speculation Witch Hunt?

This morning's financial press was riveted by the prospect of the Commodity Futures Trading Commission (CFTC) imposing tough new regulations on energy markets. Speculation has been widely blamed for the run-up in oil prices since early spring--as well as for last year's roller-coaster up to $145 per barrel and then down to $34--though in a subtle but important shift the focus seems to be turning to volatility, which is a very different thing than absolute price levels. I don't need to add my voice to the many already warning that limits on speculative positions could hamper the proper functioning of the market by drying up liquidity and depriving "legitimate" participants of the access to hedging they need. Instead, I believe the CFTC and its supporters in Congress and the administration are barking up the wrong tree, altogether, based on a fundamental misunderstanding of the markets.

Let's begin by stipulating that speculation probably has a finite but impossible-to-quantify impact on oil prices. I pointed out this likelihood in mid-2007, when oil prices were at roughly their current level and before they began their wild ride. I've also described the difficulties involved in discerning precisely which trades are speculative and which aren't, based on my own experience trading oil commodities, futures and derivatives over a 10-year span earlier in my career. However, the current determination to clamp down on speculation appears to be based on two hypotheses that are not only unprovable in the real world, but probably entirely false: First, that in the absence of speculation, oil prices would not have spiked to nearly the degree they did last year and would be much lower today than they are, and second, that a market without speculators--or indeed without any futures trading at all--would be inherently less volatile than one in which those factors are present.

The latter proposition is easier to refute, because we've seen ample volatility in markets for which no futures contracts or easily-traded derivatives exist. I experienced this first-hand in the west cost spot gasoline market in the 1980s, a market consisting entirely of the trading representatives of local refiners and a small number of trading companies, some with storage tanks but many with no fixed assets other than a phone and a desk. Every time a refinery experienced a major operational upset, the market would spike by as much as a dime a gallon--a significant fraction of the value of a commodity that was trading well under a buck at the time. I recall one instance when the coking unit of my employer's L.A. refinery had a major fire and was out of commission for several months. Local supplies weren't adequate to cover the shortfall, and the gap had to be filled through imports. I started buying gasoline cargoes at around $0.60/gal., and by the time I had lined up all the supply we needed the price had hit $1.00/gal. before it fell back to more normal levels. That's volatility, and it is a feature of markets in tight balance between supply and demand, whether or not speculators play a role.

The question of where oil prices would have ended up last year absent speculation seems much more complex, until you consider that between 2002 and 2007 global oil demand had been growing steadily at an average rate of more than 1.5 million barrels per day (MBD) per year, outpacing the growth of global supply, and crucially of non-OPEC supply. The latter was essentially flat from 2004-7, when the price of oil roughly tripled from the low-$30s to the low $90s. In effect, the demand curve was marching to the right against a supply curve with a sharply steepening slope, as spare capacity was used up and the long inherent time lags for new oil projects constrained the amount of new production that could be brought on quickly. That path was then quickly reversed in mid-2008, once it became clear just how rapidly demand was falling, both in direct response to the high price of petroleum products--the full manifestation of which in many markets was delayed by government price controls--and by contraction of the global economy due to what we now know was the onset of a recession on a scale not seen in decades. Between February and September of last year, demand in the developed world fell by an astonishing 3.5 MBD. We'll never know whether prices would have fallen sooner if speculation hadn't maintained its momentum during the first half of 2008, but it's borderline delusional to imagine we wouldn't have spiked above $100/bbl without it.

The Wall St. Journal's "Heard on the Street" column on this topic begins with the sage observation that blame is a commodity in infinite supply. To that I would add that we rarely like to apportion that blame on ourselves, though in this case the government would do well to consider how its own actions exacerbated last year's oil price spike and the run-up in prices we've seen this year. The oil markets are mainly driven by supply and demand, and with OPEC maintaining remarkable discipline and cohesion in the face of last year's demand collapse, the supply component that has the most influence in holding down oil prices is non-OPEC production. What has our government done to promote that production? Have we seen our elected officials traveling the world and using their influence and the still-considerable diplomatic and economic leverage of the US to urge producing countries to increase access for foreign firms and investors to new oil exploration and production opportunities, on attractive terms, as the Chinese government has? Have they fast-tracked development in the most promising regions of our own country that were off-limits for drilling, including the eastern Gulf of Mexico, where reserves have already been discovered?

Such actions didn't even occur under an administration that was widely viewed as being in the pocket of the oil industry, and they certainly aren't happening now, for reasons I could devote many more paragraphs to dissecting. "Drill, baby, drill" has given way to tax, baby, tax--and I'm not referring to the climate bill, here, but to earlier talk of a windfall profits tax to fund tax relief for the middle class, which has morphed into an effort to close perceived tax loopholes such as the intangible drilling allowance for producers and the manufacturing tax deduction for refiners. None of this is going to add a barrel of real oil to our supply, and it seems likely to eliminate more than a few, while we pin our hopes on corn ethanol that still only supplies 2% of our total liquid fuels demand, after adjusting for its lower energy content. How much of the market's volatility ultimately derives from our own deeply conflicted attitudes towards oil?

Oil prices have fallen by $10/bbl. or around 14% since June 29. This coincides with a general recognition that the economy hasn't yet turned the corner to a real recovery; we've also seen the S&P 500 drop by about 7% since mid-June. Now, you might suggest that this proves that speculators had driven up prices unrealistically, but it makes at least as much sense to suggest that the producers and consumers of physical oil and its products have altered their buying and inventory decisions in light of new information about the likely state of the economy for the rest of the year. No one can win that argument, but we can all lose if regulators impose tough new controls on energy markets based on a misunderstanding of what has occurred. To that end, while I am deeply skeptical of the idea of anyone at the CFTC passing judgment on what is and what is not a proper hedge, I wholeheartedly support Chairman Gensler's call for greater transparency of market reporting, and for a healthy dialog between the industry and its regulators aimed at reining in those practices most likely to add speculative froth to the market without contributing meaningfully to the liquidity required by all participants. Let's get the additional insights that transparency will bring us, before we decide to blunt the tools that actually provide one of the few means by which firms can mitigate the effect of underlying physical market volatility on their activities.

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The Forgotten Renewable

An editorial in the New York Times last week highlighted a topic I've been meaning to comment on for some time, the gradual demise of our oldest and still largest source of renewable energy: hydroelectric dams. Along with lauding plans to remove several West Coast dams in order to protect fish populations, the Times urged the dismantling of the four large power dams on the lower Snake River in Washington state. The disconnect between that position and the paper's long-standing advocacy of stronger measures to address climate change is remarkable, considering the elimination of 3,000 MW of zero-emission power generation that would accompany the loss of these dams. But if the unpopularity of existing hydropower dams in environmental circles explains the exclusion of this vital energy resource from the definition of "qualified renewables" included in the proposed national Renewable Electricity Standard (RES) of the Waxman-Markey climate bill, that hardly excuses a policy so counter-productive for our efforts to reduce greenhouse gas emissions.

Consider the four dams in question. I can't speak to concerns about declining salmon populations or other habitat issues, though I note that the dams in question are all "run of river" facilities, without large reservoirs. What is clear, however, is that if the four facilities typically operate at the national average hydropower utilization rate of around 36%, their annual power generation would come to about 10 million megawatt-hours (MWh) of electricity, equivalent to the output of 4,000 MW of wind capacity, or roughly 20% of the entire US wind power output in 2008. After a banner year for wind turbine installations in 2008, the US might not add much more new wind capacity than that this year, and wind remains the largest-scale technology among our preferred renewable power options. In fact, since 1999 US hydropower output has declined by an amount greater than the entire current contribution of wind power. That means the emissions benefits of a decade of dramatic growth in wind and solar power have been negated by the loss of hydroelectric generation--a loss that the authors of Waxman-Markey have chosen to ignore by counting in their RES only "incremental hydropower", which they define as

"(A) energy produced from increased efficiency achieved, or additions of capacity made, on or after January 1, 1988, at a hydroelectric facility that was placed in service before that date and does not include additional energy generated as a result of operational changes not directly associated with efficiency improvements or capacity additions; or
`(B) energy produced from generating capacity added to a dam on or after January 1, 1988, provided that the Commission certifies that--
(i) the dam was placed in service before the date of the enactment of this section and was operated for flood control, navigation, or water supply purposes and was not producing hydroelectric power prior to the addition of such capacity;
`(ii) the hydroelectric project installed on the dam is licensed (or is exempt from licensing) by the Commission and is in compliance with the terms and conditions of the license or exemption, and with other applicable legal requirements for the protection of environmental quality, including applicable fish passage requirements; and
`(iii) the hydroelectric project installed on the dam is operated so that the water surface elevation at any given location and time that would have occurred in the absence of the hydroelectric project is maintained, subject to any license or exemption requirements that require changes in water surface elevation for the purpose of improving the environmental quality of the affected waterway."

In other words, a utility would be able to count increases in hydropower towards its RES compliance only if they came from certain carefully-specified improvements, while the sole penalty for lost hydropower capacity and output would be an increase in the base amount on which the RES would be calculated. So at the full 20% RES level for 2020 and beyond, a MW of new wind, solar or other "qualified renewable" capacity would count 5 times as much as a MW of hydro dismantled.

This mismatch speaks to our conflicted attitudes toward climate change and the broader issues of sustainability. I'm sure that those advocating the removal of these dams would argue that we shouldn't make such decisions on the basis of any single criterion, even one as important as greenhouse gas emissions. Yet that view is at odds with the underlying philosophy of a climate bill that aims to do more than just level the playing field by imposing a charge on greenhouse gas emissions to account for the environmental externality not captured in the economics of the energy market. In addition to its skewed version of cap & trade, Waxman-Markey would stack the deck for a chosen group of renewable energy technologies, in the process excluding the one that produces more zero-emission MWhs than all the rest put together. When the Senate takes up this legislation, it should abandon this narrow focus on specific technologies in favor of one that creates a positive bias for all our low-emission sources, including hydropower and nuclear energy. For a government so determined to demonstrate our seriousness about tackling our emissions, in advance of December's Copenhagen climate conference, that would speak far more loudly than another thousand-plus pages of convoluted new regulations.

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Honda Civic Hybrid

Honda Civic Hybrid

Hybrid technology has come a long way since Toyota released the Prius. Sales substantially picked up in the market prompting other automobile companies to make their own hybrids. Following in the footsteps of Toyota in 1997 Honda made its own hybrid. The Honda Insight was a moderate success. Although it was a fuel efficient car it had different technology under the hood. The hybrid technology was new at that time and the public perceived the Insight to look to odd to be driven around the city.

Honda then turned to one of its famous compact sedans. The Honda Civic was released in a hybrid version in 2003. The design was pretty much the same with the conventional Honda Civic incorporated with Honda’s own hybrid technology.

Honda Civic Hybrid

The first generation Honda Civic hybrid came out in 2003. It operates with a different hybrid technology compared to the Toyota Prius which is the basic template for all hybrids. Instead of the hybrid synergy system, the Honda Civic hybrid uses an Integrated Motor Assist system that was also used in the Insight.

The first generation was produced from 2003 to 2005. It has a 1.3 liter lean burn internal combustion engine with Honda’s VTEC cylinder cut-off system. This allows 3 cylinders to stop operating while decelerating which reduces friction losses. This in turn creates a more effective way of regenerating energy. It has a 15 kW permanent magnet motor which also serves a generator for recharging the batteries. It also has a 120 V nickel metal hydride battery, 5 speed manual transmission, regenerative braking, electric power steering, and low rolling resistance tires.

The second generation was also equipped with the same thing with a few changes. A high profile camshaft was added, fourth generation Integrated Motor Assist and third stage VTEC and Variable Cylinder

Management replaced the previous ones. It has a satellite-linked navigation system and an audio system that supports mp3 and WMA. It also comes in with an average fuel consumption regulator. An idle stop feature automatically shuts off the engine in idle periods.

The second generation was also an improvement from the first one which used lean burn engine.

Honda has stopped producing Civic hybrids to replace them with smaller and affordable types to compete with Toyota. Nonetheless previous the second generation proved to be a worthy competitor to the Prius. Although they may differ in terms of technology, fuel efficiency was still attained.

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Modern Transportation

History of Modern Transportation

By Andi Bintang

People may be surprised to know that the idea of electric and hybrid vehicles have been present even before the gasoline engine was invented. A lot of people with their brilliant ideas revolutionized modern transportation as it is today. With the rise of health-threatening pollutants, new age electric and hybrid vehicles are truly becoming a reality.

When Electric Cars Ruled the World

Robert Anderson from Scotland created the first electric carriage during the 1830s. Professor Stratingh of Groningen from Holland designed a simple electric car. Christopher Becker was Stratingh’s assistant who built the model in 1835. In 1842, Thomas Davenport from the United States and Robert Davidson from Scotland built more advanced electric vehicles with the use of non-rechargeable electric cells. Gaston Plante from France improved the storage battery and created a better model in 1865. Sixteen years later, Camille Faure continued to improve the storage battery.

During the late 1800s, several European nations like Great Britain and France began the spread of electric vehicles while constantly innovating for better design and performance. Electric cars did not need gear changes. The United States followed with the creation of electric tricycles. At the turn of the century, electric cars were selling better compared to their gasoline engine counterparts due to less vibration, noise and pollutants. In 1916, Woods invented the first hybrid consisting of an electric motor and combustion engine.

The cost of electric vehicles was somewhat expensive so only the people belonging in the upper class were able to afford them. Prices would reach $2,000 to $3,000 depending on the interior and materials used. Production peak for electric vehicles were from 1910 to 1912. During the 1920s, road systems were significantly improved so people needed vehicles that traveled farther than electric cars.

The price of gasoline also decreased making it more affordable for everyone. Charles Kettering invented the electric starter for gasoline cars taking away the tedious hand crank. Henry Ford and his idea of mass production at lower costs continued to reduce the popularity of electric cars. Gasoline cars at this point were only about one-third the price of an electric vehicle.

Decline and Regrowth

From 1935 to 1960, electric vehicles were slowly fading from the scene. However, people began looking for alternative fueled vehicles in order to solve problems on pollution and the growing price of gasoline. More practical models of electric vehicles were proposed.

A number of actions were also imposed in the United States and across the globe to exert effort in improving electric vehicles. Some great works were the U.S. 1990 Clean Air Act Amendment as well as the U.S. 1992 Energy Policy Act. Other states required vehicles to have zero emission. Some of the largest automobile manufacturers as well as the U.S. Department of Energy collaborated to start making hybrids. Mileage, speed and performance were greatly enhanced in these newer models.

Recent electric and hybrid models are able to generate energy through special energy-converting systems. Hybrid models had special dual engines running on both gasoline and electricity which helped conserve a lot of fuel aside from being environmentally friendly. Sedans, SUVs and trucks were quickly built using the newly discovered technology. The method of running on electricity had various approaches but the main idea of being conservative and green was present in all models.

Hybrids: The Pollution Solution

Gasoline engines were proven to be reliable and powerful. However, the constant burning of gasoline released a variety of harmful gases like carbon dioxide, carbon monoxide, hydrocarbons and nitrogen oxide. These are also known as greenhouse gases which trap heat in the atmosphere instead of allowing it to go out into space. The result would be global warming wherein surface air temperatures and sub-surface temperatures in the ocean would rise.

Although there are also natural causes to global warming, vehicle emission significantly multiplies the rate spurring the creation of alternative fuel sources. Electric and hybrid vehicles have shown to be very promising in reducing the greenhouse effect. Pollution will be minimized greatly if more and more people will start relying on these newer models which do not emit any harmful gas at all. These vehicles are also very economical since there is no longer a need for crude oil which constantly is growing in price.

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An Energy Bill for the Other 92%

Now that the Waxman-Markey Bill, the American Clean Energy and Security Act of 2009--all 1428 pages of it--has been narrowly passed by the House of Representatives, its fate rests in the hands of the US Senate, a body that has spurned a long series of cap & trade bills. The Senate's rules will require a much larger plurality just to bring such a bill to a vote, and that doesn't look easy, despite the belated resolution of the Minnesota race. The situation is further complicated by the existence of the Senate's own recently-drafted energy legislation, the American Clean Energy Leadership Act of 2009 (ACELA) from the Senate Energy and Natural Resources Committee chaired by Senator Bingaman (D-NM). Although lacking a counterpart to Waxman-Markey's cap & trade provisions, ACELA seems in many respects the better bill, promoting both renewable energy and the sources that supply 92.5% of our current energy needs and are likely to dominate our energy diet for many years: fossil fuels and nuclear power. This broader scope will be crucial, if our goals extend beyond reducing emissions to include shoring up energy security and fostering net job creation, not just "green jobs."

The full text of the Senate energy bill isn't yet available, nor has it been assigned an "S-number", by which it can be tracked. In reviewing the summary of ACELA on the committee website, I was struck by a marked contrast in its approach, compared to the House bill. ACELA is the product of a deliberately bi-partisan process, and the results of the horse-trading that went into it seem more cohesive and less jarring than the non-cap-and-trade portions of Waxman-Markey. ACELA's renewable electricity standard--which really ought to be a low-emission electricity standard--would start at 3% of electricity sales and ramp up to 15% by 2021. Importantly, the bill emphasizes energy efficiency, particularly for buildings, which would account for most of the greenhouse gas emissions reductions it would promote.

It also includes several provisions that echo themes I've advocated in a number of previous blog postings, such as updating the strategy for the Strategic Petroleum Reserve and opening up more of the Gulf of Mexico for offshore drilling. That would provide prompt access to identified hydrocarbon resources such as Destin Dome and take in a healthy portion of the currently-understood resource potential of those areas that had been kept off-limits by the expired offshore drilling moratoria. In addition, the bill would expand our knowledge of our offshore energy resources, conventional and renewable, through a detailed inventory including seismic exploration. If we're going to have a meaningful national debate concerning the expansion of access for oil & gas drilling, a better understanding of what's actually there is a critical prerequisite. If that seems contrary to the goal of reducing our emissions, consider that the main CO2 cuts from the hydrocarbon sector will result from reduced consumption, which would come at the expense of our enormous oil imports, not from suppressing the domestic production and access to Canadian production that underpin our energy security.

As for energy markets, unlike the heavy-handed regulations buried in the miscellaneous provisions of Waxman-Markey, ACELA would increase the transparency of oil & gas trading by expanding the Energy Information Agency's data and analytical coverage and bolstering industry reporting requirements. And in another provision, the bill would commission a long-overdue assessment of the critical connections between energy and water that I mentioned in last Tuesday's posting.

The bill also emphasizes job creation, both explicitly and implicitly. Its provisions for renewable energy, efficiency, and electricity transmission and grid improvement would promote the same kinds of green jobs claimed by the supporters of Waxman-Markey. At the same time, its oil & gas provisions would stimulate jobs of the kind highlighted by a new labor-industry partnership between the American Petroleum Institute and 15 labor unions. The US oil & gas industry employs 1.8 million people directly and another 4 million or so indirectly. Both figures could grow further with expanded access to US resources, and these jobs typically pay well over the national average.

The gaps and conflicts between the House and Senate bills look too big to overcome through reconciliation, which would in any case require the Senate first to pass either its own energy bill or a version of Waxman-Markey. I spent some time on the phone yesterday with contacts on Senate staffs to try to understand the likely process. Several paths appear possible, with the simplest involving the use of Rule 14 to bring Waxman-Markey directly to the Senate floor. The controversy around the bill and its narrow margin of victory in the House suggest a low likelihood of success for this route. Another avenue would involve moving the House bill into the Environment and Public Works Committee chaired by Senator Boxer (D-CA) and modifying it extensively. That would create the opportunity to include or substitute the measures in the ACELA bill for those in Waxman-Markey. However, that might still not avoid the fate of last year's Boxer-Warner-Lieberman cap & trade bill, which fell significantly short on the cloture vote required to bring it to a full vote of the Senate. The composition of the Senate has changed significantly since last June, yet it remains to be seen whether supporters of cap & trade have gained enough votes to carry the day.

My strong preference would be for the Senate to graft a clean version of cap & trade onto Senator Bingaman's energy bill, jettisoning the distortions that Waxman-Markey acquired in the process of lining up enough House votes to ensure passage. Some of those distortions neatly cleaved the natural business coalition against the bill by lavishing so many free emissions allowances on the utility sector, but in the process severely undermined the bill's potential for achieving prompt and significant emissions reductions. They effectively gave a temporary Get Out of Jail Free card to the sector of the economy that is responsible for the single largest share of our emissions, yet possesses the best options for substituting cleaner natural gas for its highest-emitting energy sources. The legislative fusion I'm suggesting could put a price and a cap on CO2 emissions, while ensuring adequate supplies of nuclear power and North American fossil fuels to manage the long-term transition to a lower-emitting economy.

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