Storing Wind Power in Gasoline

I just read an intriguing article by the inventor of a scheme for using the energy in off-peak wind power to recycle waste CO2 into hydrocarbon fuels like gasoline or diesel. If it works, it would be a clever way to finesse the energy storage challenge that has hampered wider application of intermittent energy sources such as wind, and it appears to rely on largely proven chemistry and technology. Like so many other novel energy ideas I encounter, it almost sounds too good to be true. In this case determining whether it is or isn't depends less on the technology involved than on an assessment of the markets that the developer's company, Doty Energy, would have to tap for its inputs. In a nutshell, I question whether it's possible to base a new fuels industry on the assumption that off-peak wind power will always remain dirt cheap.

The basic opportunity on which Dr. Doty's "Windfuels" concept seeks to capitalize is that because wind turbines don't necessarily generate power when the grid needs it, and because it's currently expensive to store electricity unless you have a hydropower dam and the right topography handy, much of the off-peak wind power the grid can accept is sold for a song, while some is "curtailed", or rejected by the grid entirely. With a substantial supply of wind power costing just a penny per kilowatt-hour (kWh), it might be possible to convert that excess wind energy into chemicals, effectively storing it in the form of gasoline, diesel or jet fuel.

The process described on the company's website marries three distinct segments, including electrolytic generation of hydrogen--an off-the-shelf item--Fischer-Tropsch synthesis of hydrocarbons--proven in a variety of applications since before World War II--and the conversion of CO2 and hydrogen into synthesis gas using the reverse of the standard water-gas shift reaction that is in wide use in the chemical and refining industry. The company must prove that it can master the latter step and integrate these components successfully into a scheme that is ultimately driven by an intermittent and unreliable energy source, off-peak wind generation. The operational challenges that presents might be surmounted by means of pressurized hydrogen storage, as suggested in the flow diagram provided in a company presentation, but the economic obstacles involved seem less straightforward.

Assuming this process could be made to work effectively and efficiently, its inputs and intermediate steps raise questions about the cost and value of these streams. The biggest probably relates to the long-term availability of cheap off-peak wind power itself. Based on cumulative capacity and output, the average capacity factor of US wind generation in 2009 was around 27%. I don't know how much of that was off-peak, but it was probably less than half. While Doty Energy sees an opportunity to arbitrage between wind power at 1¢/kWh and gasoline that currently wholesales for an energy-equivalent price of 7¢/kWh, developers of electrical energy storage systems see an arbitrage opportunity between cheap off-peak power (from any source) and peak power markets in excess of 20¢/kWh, or occasionally much more. Even if Doty's process, which it claims is 50% efficient overall, worked as well as energy storage technologies such as compressed air energy storage (CAES), it seems likely that the future competition for that off-peak wind power from various applications would drive up its price. The economics of CAES might not be harmed much by having to buy off-peak power at 3¢/kWh, but that would be a deal-breaker for Windfuels, unless gasoline prices were much higher than today's.

Then there's the question of how to value that hydrogen, once you've made it. Even with plenty of 1¢ wind power to generate the H2, its value is what it could be sold for. The vast majority of hydrogen today is produced from natural gas, and it can be worth as much as $10/kg at a commercial hydrogen station. That's the energy equivalent of 30¢/kWh. If electrolysis of off-peak wind power is such a good source of hydrogen, why not just stop there and sell the hydrogen into its large existing commercial and industrial market, without having to build the rest of the conversion hardware for making hydrocarbons?

Perhaps my receptiveness to the Windfuels concept was affected by the inventor's arguments slamming practically all other energy alternatives besides his, including biofuels (conventional, cellulosic and algae-based), hydrogen, solar power (ground-based PV, solar thermal and space solar power), nuclear (fission and fusion), unconventional hydrocarbons and electric vehicles as impractical or uneconomic. I suppose that might be an effective way to drum up financing in some quarters. Yet while I've expressed skepticism or reservations about certain of these approaches myself, it seems absurd to set up an untried process as the only viable alternative to our current energy sources, particularly for transportation energy. The good news is that Doty Energy has the same opportunity to prove its concept in the marketplace of ideas and financing as the thousands of others that have emerged in the last few years. Making it through all those gates and hurdles will be the only test of the viability of Windfuels that really matters.

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Renewable Energy and Egyptian Unrest

It's hard to watch the current turmoil in Egypt and not wonder what it means for us, particularly with regard to energy. Although Egypt's oil production roughly balances its consumption, the Suez Canal and the Sumed pipeline, with its Mediterranean terminus west of Alexandria, represent important transit routes for Eastern Hemisphere oil going to Europe--though not as important as in the past. And while some politicians have already cited this situation as a "wake-up call" and indication of our energy insecurity, the risk of a serious supply disruption appears low, unless the protests spread to the major oil producing countries of the Middle East. Yet even short of that extreme, renewable energy stands to benefit from the uncertainty these events create, as reflected in higher crude oil prices.

I don't claim any unique perspective on the events in Egypt or their likely outcome, although some of the scenarios I can envision are extremely worrying. I've read heaps of articles and op-eds on the subject and listened to a media conference call from the Council on Foreign Relations, but if there's a consensus view I haven't found it yet. What I do see, however, is that since the protests started on January 25, and without any actual disruption in oil deliveries, the price of UK Brent crude--currently a better indicator of global oil prices than West Texas Intermediate--has climbed by around $5 per barrel and now trades solidly above $100. And while that might reflect other factors in addition to an Egypt risk premium, currency exchange rates don't seem to be one of them.

If the present instability persists or spreads, oil prices are likely to go even higher. Renewables such as ethanol and other biofuels could benefit from that in a way that they haven't from the general increase in oil prices since the middle of last year. That trend was mainly attributable to resurgent global economic growth, particularly from developing Asia. China's GDP grew by more than 10% last year. Along the way, the prices of renewable energy products that compete directly with oil went up, but so did the cost of inputs such as grains and oilseeds, as part of a general surge in global commodity prices. As a result the "crush spread", the margin for turning corn into ethanol, has contracted since mid-2010 and currently stands at essentially zero on the basis of prompt ethanol and corn futures. Biodiesel margins should have experienced something similar, if soybean oil prices are any indication. These products stand to gain if oil prices are driven up by factors that don't also push up the prices of the commodities from which they're made.

Of course that's not the only possible outcome. This week's Economist even notes the potential for a scenario yielding the opposite result. They see other Middle Eastern countries stockpiling grain to avert protests of the kind that have spread from Tunisia to Algeria, Egypt, Jordan and Yemen, and driving up its cost in the process. However, that element of the scenario is more credible than the accompanying suggestion that the region's oil producers might boost production to pay for that extra grain, thereby sinking oil prices. At current levels, the region's oil exporters are already earning on the order of $1.5 billion a day, and even a small producer like Oman should be taking in around $20 billion a year. Even at $9 per bushel the entire 2009/10 wheat imports of Lebanon, Iraq, Iran, Israel, Jordan, Kuwait, Saudi Arabia, the UAE and Yemen barely top $6 billion.

It's worth recalling that if the recent rise in oil prices is reminiscent of 2007 and 2008, OPEC has far more spare capacity in reserve this time. It has done a remarkable job of avoiding the temptation to pump more to gain market share. Even with some cheating around the quotas, they've kept the market tight. If OPEC changes that policy, it seems likelier they'd do so to avoid stalling the global recovery than to cover some additional grain imports for which they already have ample cash on hand. Stay tuned.

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Do Light Bulbs Matter?

The edition of USA Today delivered to my hotel room yesterday morning included an interesting point/counterpoint concerning legislation that has been introduced to repeal the federal ban on incandescent lighting and the accompanying mandate for energy-saving light bulbs. Both sides included reasonable arguments but missed some key points. It's also important to recall that Congress did not specifically require the use of the compact fluorescent lights (CFL) that have become a focus of controversy, although it did set lighting efficiency standards that CFLs were best positioned to meet at an acceptable cost. Lost in the process is the larger question of whether the impact of more efficient light bulbs is really worth the associated risks and effort, including the economic and employment dislocation of offshoring a large portion of US light bulb manufacturing.

The lighting standard in question was just one provision of the 310 page Energy Independence and Security Act of 2007 (EISA), which also gave us the national Renewable Fuel Standard and more aggressive vehicle fuel economy rules. The case that the editors of USA Today made in defense of the bill's lighting efficiency provisions, which would be repealed by HR.91, the Better Use of Light Bulbs Act, was that it was a small but important step in the direction of saving energy and reducing emissions. They also lauded the bill for eschewing "picking winners" and instead focusing on the outcome of increasing the energy efficiency of lighting by whatever means could achieve that. I'm very sympathetic to that argument, though in this case the deck seems to have been stacked in favor of CFLs, in the absence of another widely-available and low-cost alternative bulb technology compatible with standard screw-in household lights. I'd also question their characterization of the payoff as "huge". I've looked at this before and concluded that the total energy savings involved in the switch amounted to just 2% of our annual electricity consumption--more than offset by higher usage from new devices. Emissions savings looked even smaller, at around 1%. The NRDC analysis cited in the editorial came up with emissions savings of 2%. Either way, more efficient lighting won't turn the US green.

With regard to the CFLs available today we are starting to see evidence that their performance has not measured up to claims, particularly concerning endurance. I have already had to replace a couple of supposedly long-life CFLs in applications involving frequent switching, wiping out any savings that might justify their higher cost. Of much greater concern is the health risk posed by the small quantity of mercury in each bulb. If you've read the EPA's instructions for remediating a room contaminated by a broken CFL bulb, you'd certainly think twice about putting one in any fixture that a child, elderly person or pet might knock over.

In his response to the editors, Representative Barton (R-TX), the author of HR.91, highlighted this risk and emphasized the intrusion of government into what ought to be a normal consumer decision concerning what kind of light bulb to buy. He also cited the transfer of much of the US lighting industry offshore, which is related to the technology of CFL bulbs. The phosphors they use require rare earth elements, for which China is the dominant global supplier. Unsurprisingly, China has gained a leading share of the global CFL industry, and US factories producing incandescent bulbs have closed, leading to higher imports of light bulbs from China and elsewhere.

Time to change course is running short. As of next January 1, the first tranche of the EISA efficiency standard will ban 100-Watt incandescent bulbs, mandating replacements that use at least 28% less energy to produce the same light output. The rules hit standard 75 W bulbs a year later, and 60 W bulbs on 1/1/14.

In my view the problem is less the federal lighting efficiency standard than the fact that CFLs are a poor technology. If it were oil companies, rather than the government, effectively forcing us to put these things in our homes, we would see protests in the streets against the health risks--and by many of the same environmental groups that now back CFLs but are trying to shut down coal-fired power plants that create less mercury exposure than a single broken CFL bulb in your house would. Instead of throwing out the entire lighting standard, we should focus on the most objectionable parts of these rules. Better lighting is on the way, with halogen bulbs now available for more applications, and much more efficient light-emitting diodes (LEDs) likely to become much cheaper in the future. We should stretch out the deadlines for phasing out incandescents to allow time for that to happen. I'd also like to see a "mercury deposit" charge applied to each CFL to ensure the bulbs are properly recycled at the end of their lives, along with a cigarette-style health warning on the packaging, warning consumers of the hazards. The modest energy and emissions savings CFLs produce simply don't justify overriding consumer choice and prudent judgment about where to use them and where not to.

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What Does $19 Billion Buy?

I see in the Washington Post that two members of Michigan's Congressional delegation have proposed more than doubling the current federal purchase subsidy for electric vehicles to around $19 billion. They would do that by increasing the numbers of vehicles from each manufacturer eligible for the $7,500 EV tax credit from 200,000 to 500,000, over ten years. Although I firmly believe that EVs and other advanced vehicles represent an important and inevitable part of our national energy strategy and future vehicle fleet, it's worth considering what this $19 billion would buy, in terms of the outcomes we really care about. After all, putting EVs on the road is not an end in itself. As the article's title in the print edition suggested, this looks like a pricey plan.

The two main factors behind the government's support for electric vehicles are concerns about energy security and greenhouse gas emissions. At least on these metrics and even with the most optimistic assumptions--that EVs will displace average cars rather than efficient hybrids and that they will be recharged from zero-emission sources of electricity--the $7,500 per car benefit looks expensive. If the average EV were driven 10,000 miles a year for 10 years, which seems reasonable in light of the range limitations of current models and the uncertainty surrounding battery life, then each car would save 4,000 gallons of fuel and avoid CO2 emissions on the order of 40 tons during its life. So from an energy security perspective taxpayers are paying the equivalent of $79 for each barrel of oil saved, or from an emissions perspective $188/ton. The former is nearly the current cost of oil, while the latter is ten times the estimated cost of emissions credits used by supporters of the last unsuccessful cap & trade bill.

Aggregating the oil savings attributable to these EVs over the roughly 2.5 million cars implied by the $19 billion figure gets us to the equivalent of 66,000 barrels per day once they're all on the road. That is only about a tenth of the domestic oil production that the latest industry estimate suggests we stand to lose by 2019 if the implementation of new rules for deepwater drilling results in significant delays in obtaining permits and beginning new deepwater exploration and production projects. I understand that this isn't exactly an apples to oranges comparison, but I have a hard time seeing why the same energy security considerations involved in the current EV push wouldn't apply at least as much to ensuring that the federal offshore permitting process is as streamlined as we can make it, consistent with the complexity and risks of these projects, and that the agency issuing permits has a large enough budget to hire a technically qualified staff sufficient to the task.

To the extent that subsidies are necessary to make today's electric vehicles attractive to ordinary consumers, our elected representatives should be focused on making sure those subsidies are as smart and responsive as possible. Paying the same subsidy as today for an EV produced in 2020, when we are frequently assured that battery and other costs will be much lower, makes no sense and invites inefficiency. Instead of more than doubling subsidies just when the current ones--along with generous manufacturing grants, tax credits, loans and loan guarantees--are succeeding in getting carmakers into the EV game, Congress should now be thinking about how to phase them out. We must avoid creating the kind of subsidy addiction that the ethanol industry has exhibited since its start in the late 1970s. We might have been able to afford that kind of approach once, but no longer, particularly when around 40% of the $19 billion in question here will result in new federal debt.

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Sputnik State of the Union

Energy didn't feature as prominently in last night's State of the Union Address as it has in some years, including last year's speech. Rather than making it a primary focus area, the President seemed to mention it more as an example of his broader innovation and competitiveness agenda. That's probably a good thing, because the administration's persistence in pitting conventional energy against renewables reflects the muddle in which US energy policy remains. We're desperately worried that China is getting ahead of us in renewable energy, yet we don't seem to notice that China is hardly treating oil and gas as yesterday's energy. I suspect that from China's perspective, their focus is not especially on renewable energy or clean energy but on cheap energy, which is what their economy needs to grow. I wouldn't think we're so different in that regard.

I won't waste time dissecting the President's suggestion to strip the oil & gas industry of its tax benefits in order to fund a new or expanded clean energy innovation effort. If the administration couldn't make that happen when its party dominated both houses of Congress by large majorities, then this idea is simply dead on arrival in an era of divided government. The best way to address those subsidies, along with the much larger per-barrel subsidy for ethanol, is through the kind of tax reform that would make all US industries more competitive globally. So I was pleased to hear the President suggest simplifying the tax code and reducing the corporate income tax.

Innovation and tax reform will indeed be crucial if the US wants to be a leader in clean energy technology, not just as the favored beneficiary of today's version of our periodic debate over industrial policy--picking winners--but as one part of a more robust and competitive US manufacturing sector. However, it's myopic to compare ourselves to China on infrastructure and clean energy innovation while ignoring China's full-court press to meet its rapidly growing demand for oil and gas. China doesn't have an offshore drilling moratorium or "permitorium"; instead it has focused on offshore drilling as a primary means for expanding its domestic production and limiting its oil imports, which a few years ago eclipsed those of Japan as the world's second largest, behind our own. Chinese companies are investing in oil & gas projects, joint ventures and acquisitions all over the world, because China recognizes that oil wasn't just the dominant fuel of the 20th century; it remains a key energy source in the 21st. And for those worried about China's lead in renewable energy, exemplified by the news that its wind power capacity surpassed that of the US last year, I recommend Michael Levi's article in Foreign Policy.

On a more positive note, President Obama seemed to signal his support for moving the debate on a national renewable energy standard toward encompassing all clean energy. His remarks suggested that this would include not just nuclear power--by far our largest source of low-emission energy today--but also natural gas and clean coal. With those inclusions, the goal he suggested of generating 80% of our electricity from "clean energy sources" by 2035 could be the most achievable energy goal his administration has put forward since taking office. With coal's share of electricity generation currently at 45%, it would require increasing the contribution from nuclear, renewables and natural gas by just under half--or less with some help from efficiency and conservation. Not easy, but not impossible, either, as long as we build enough new nuclear power plants to more than replace the ones that will likely have been retired by then.

Whether or not this is truly "our generation's Sputnik moment", the speech's recurring theme exhorting us to "win the future" was perhaps a bit too reminiscent of another presidential speech centered on a different kind of "WIN". Ensuring that this initiative doesn't share the fate of that earlier one in the Ford Administration might just depend on making sure that in an environment of tightening purse strings, the government's investments in new energy are focused on making clean energy cheap enough to compete without unsustainable subsidies. In the meantime, while we're waiting for that effort to bear fruit, it's worth recalling that America's conventional energy industry is still one sector in which we don't have to catch up with anyone else, unless we deliberately set out to hamstring it.

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The Regulatory-Ethanol Complex

The US Environmental Protection Agency has a problem, and that problem is ethanol. Last Friday the EPA expanded its previous waiver on ethanol in gasoline to allow blends of up to 15% to be used in cars built in model year 2001 and later, compared to the earlier threshold of model year 2007. Because it did this just three months after granting the initial waiver, it's not clear how much additional testing was actually done, despite the agency's obligatory reference to "sound science". This step is a further indication that EPA is presiding over a failed biofuel mandate created by Congress in the expectation that a massive cellulosic biofuel industry would spring forth at their command, in parallel with a massive upsurge in sales of the 85% ethanol/15% gasoline blend, E85. None of that has happened, and for now the corn ethanol industry is the only horse that EPA has left to ride in this race. Until these waivers were issued, that horse was rapidly running out of track on which to run.

It's not that EPA loves corn ethanol. In fact, the first draft of its RFS2 renewable fuel standard incorporated an emissions-measurement basis that was distinctly unfavorable to older conventional ethanol facilities. That was subsequently toned down, after reinterpreting the science relating to "indirect land use impacts". Unfortunately for EPA, however, corn ethanol is the only avenue for continuing to comply with the annually escalating biofuel mandate set in the Energy Independence and Security Act of 2007, unless they want to flood the US with Brazilian cane ethanol. Oilseed-based biodiesel remains a niche product, and the US biodiesel industry is half-dead after the EU imposed anti-dumping tariffs as punishment for biodiesel exports to Europe that were subsidized by a $1.00 per gallon US biodiesel tax credit--a credit that lapsed at the end of 2009 but was reinstated retroactively as part of the Lame Duck Congress's tax deal.

The central problem relates to the so-called blend wall, the annual quantity of ethanol that can be accommodated in gasoline under the previous 10% blending limit. With US gasoline sales having dropped in 2008, rather than continuing on their path of 1-2% annual increases, and still not recovered to their former level, the entire US gasoline pool can only absorb 13.9 billion gallons per year of ethanol. As a practical matter, the blend wall is probably a billion gallons lower than that, given the challenges of getting ethanol to the remotest corners of the country. By coincidence, the RFS target for 2011 after backing out the renewable diesel requirement is roughly 13 billion gallons. The production capacity of the US corn ethanol industry already stands at 14 billion gallons per year, with more ethanol plants under construction or expansion.

Accommodating all that extra ethanol would have been easy if E85 had taken off as planned. However, if Minnesota's E85 statistics are any indication, E85 sales appear to have declined since 2008. In the absence of E85 demand, the EPA's waivers have the effect of moving the blend wall and giving the ethanol industry more headroom to grow. In theory, this would also have been needed to make room for cellulosic ethanol, but so little of that is being produced that EPA has had to scale back its quota for that category two years in a row, with a further adjustment in 2012 a virtual certainty.

Expanding the waiver to cover earlier car model years was crucial to making it useful. The first round didn't encompass enough cars--and thus enough annual fuel volume-to make it likely that refiners, distributors and retailers would incur the cost and risks of introducing it into the market. Going back to 2001 adds roughly another 90 million cars and light trucks and includes some of the highest car-sales years in US history. As a result, the broader waiver now probably covers about half of the 240 million light-duty vehicles on the road in the US.

The consequence for consumers will be higher taxes, in several forms. First, there's the tax associated with paying for fuel that has less value, due to ethanol's lower energy content, yet carries the same pump price. At current gasoline prices a gallon of E15 is worth about 5.5 ¢ less than the E10 blend most of us are buying today. Then there's the indirect tax associated with the higher maintenance and repair expenses that some motorists are likely to experience. Despite the EPA's reassurances about having tested E15, the focus of their testing was explicitly on emissions, not on performance and longevity. And finally there's the tax or debt we'll incur for the ethanol blenders credit that will be paid out on the incremental ethanol volumes facilitated by the waiver. That could eventually amount to an extra $3.2 billion per year, unless the current Congress finally ends this redundant subsidy that has been in place for more than thirty years.

Although it is probably best viewed as a marriage of convenience, for now the EPA and the corn ethanol industry are joined at the hip, forming a sort of regulatory-industrial complex. For political reasons EPA can't afford to abandon its partner, because the administration is fully committed to the RFS2 biofuel targets as part of its broader approach to energy security and emissions--even though corn ethanol does little or nothing to reduce the latter. Until and unless E85 takes off, the only real alternative to the E15 waivers would be to admit that the 2007 biofuel standards were unrealistically ambitious and must be suspended pending the arrival of so-called drop-in fuels--synthetic hydrocarbons derived from biomass sources such as algae, cellulose or sugar cane. Drop-ins could provide the same renewables energy benefits as ethanol, but without the latter's blending, fuel economy and logistical disadvantages. In the meantime, I will not knowingly fuel either of my family's 2004 model cars with E15, as long as I have a choice.

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Fueling the World's Growth

Several articles led me to what is apparently BP's first-ever public long-term energy forecast, "BP Energy Outlook 2030", which was released earlier this week. It's a fascinating document on several levels, and it builds on the reputation established by the BP Statistical Review, an annual compendium of historical energy data and trends. The figure that I've already seen cited in a number of places is that BP expects fossil fuels to contribute just 64% of the growth in energy over the next twenty years, compared to 83% in the last twenty. A quick internet search revealed many other tidbits that reporters and bloggers have picked up on, including a very interesting comparison of future energy security trends among China, the EU and US. I could spend hours detailing the observations that intrigued me, but I'll focus on just a few.

The mere fact of BP's releasing such a forecast seems noteworthy. Perhaps it's aimed at increasing transparency under a new CEO, as Mr. Dudley suggests in his introduction, or maybe the folks who've been creating such documents internally finally convinced management that they had at least as much PR value as the venerable Statistical Review. Their approach to the report also reminds us just how different BP's culture is from that of its UK (and Dutch) arch-rival Shell, which has long preferred scenario planning to conventional forecasting. Both have their uses, though for deep insights I also prefer scenarios and use that technique with my clients. I suggest having a look at Shell's latest publicly-available pair of scenarios looking out to 2050 for another perspective on future energy. The current edition morphs a previous version's theme of "TINA" (There Is No Alternative) into "TANIA" (There Are No Ideal Answers). Amen. And now back to BP's point of view.

The report's projection concerning how energy growth is likely to be satisfied over the next two decades is a classic half-full/half-empty proposition. On the half-full side I consider it a remarkable indication of the success of renewables and the expansion of global interest in nuclear power--it's really only a "renaissance" in the US, never having waned in many other places. The idea that the combination of these sources could be viewed in a serious base-case projection as providing more than a third of incremental energy growth would have lacked credibility not very long ago, for reasons the charts on page 10 of the report should make clear. However, I have no doubt that many will find such a projection altogether too faint-hearted, believing that we surely ought to be able to dispense with these dirty fuels entirely within two decades or less. Well, the first step toward living without oil and coal (and maybe even gas) is being able to cover 100% of future energy growth from other sources. BP makes a coherent argument that we are not yet at that point, even in the more aggressive "policy case" results they present later in the report.

From the perspective of long-term emissions reductions and future energy transformation, two other sets of figures in the outlook look more promising. First is the lengthy discussion of energy efficiency and the accelerating reduction in the energy intensity of GDP that's woven all through the document. That is the main reason why, in a view that is distinctly not a low-growth scenario, total energy demand grows by just 39% and not some much higher value. The other key point is that BP sees 57% of that growth being focused on electricity, rather than transportation fuels. Since we have many more effective low-emission options for making electricity than transportation fuels, the opportunity to reduce emissions in the future will expand significantly, even if in the short run coal is merely losing market share, while its use still increases in absolute terms.

BP's detailed projections for oil and biofuels, along with the growth of China, deserve an entire posting of their own, and perhaps I'll come back to them in the next week or two. In the meantime the last item I wanted to highlight concerns energy security, which has been such a prevalent theme in US politics and public discussion for so long. As I read the chart on page 72--and to the extent I accept its assumptions--I would not trade (energy) places with the EU or China for all the tea in the world, despite all the recent talk of US decline and Chinese ascendancy.

With regard to Europe we see the inevitable consequences of the peaking and decline of the North Sea oil and gas resources. Already more dependent than the US for imports of both oil and gas at this point, Europe will need a generation for its massive focus on renewables to stem the steady rise of its energy import dependence. China's situation is entirely different, as its explosive growth outruns the steady increases in its oil and gas production. If you want to understand why China hasn't abandoned coal and suddenly seems so interested in nuclear and renewables, this picture is worth the proverbial thousand words. Of course the US trajectory is hardly a given. Skim through the report's other charts to see how much that pleasant outcome of greatly improved energy independence depends on shale gas (page 54), fuel economy gains (page 30) and biofuels (page 40). And note that BP suggests that most of the latter will come from "first generation" sources--corn and sugar cane--in this timeframe.

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