One Word: ‘Switchgrass’: Will President Bush Emphasize Sensible Energy Ideas, or Trendy Ones?

John Fund
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Posted: Jan 08, 2007 4:07 PM

In the classic 1967 movie "The Graduate," Dustin Hoffman plays a young man with a new college degree but no clear vision of what he wants to do. A family friend insists on giving him career advice: "I just want to say one word to you. Just one word. . . . Plastics." Following the GOP loss of Congress, the Bush White house appears similarly fixated on just one phrase: "alternative energy." The plans will apparently be bold indeed. Recently White House energy policy coordinator Al Hubbard told an audience that Mr. Bush's State of the Union message this month would generate "headlines above the fold that will knock your socks off in terms of our commitment to energy independence." Some observers think that could mean the White House will even embrace a big increase in gasoline mileage requirements. They note that influential GOP Sen. Ted Stevens of oil-rich Alaska, a longtime foe of such increases, has changed his mind and just unveiled a bill to raise Corporate Average Fuel Economy standards to 40 miles per gallon within 10 years.

The Bush White House is clearly interested in not having anyone steal its thunder on energy before the State of the Union. Last month, a federal advisory panel was prepared to release a report that called on the administration to launch a nationwide education campaign to tout the benefits of biofuels and the "real costs" of oil use. It also called for the U.S. to produce 13 billion gallons of renewable fuels such as ethanol and biodiesel by 2015, more than double today's level.

But the administration was not pleased by the timing. It ordered the panel not to publicize the report because it might upstage upcoming announcements from President Bush. The report was finally released only after persistent media inquiries about it.

Free-market advocates worry that the administration may be about to abandon common sense and embrace alternative energy as a cure-all. They believe that in the current euphoria the "real costs" of alternative energy aren't fully understood.

Take wind energy, long touted as the most economic of renewable energy sources. Ed Feo, a leading wind energy analyst, has estimated that two-thirds of the economic value of wind projects comes from the tax benefits it's given.

As for corn-based ethanol, Jerry Taylor of the Cato Institute calls the current mania to subsidize it "the closest thing to a state religion America has." Corn farmers have done a good job of disguising the fact that it still takes more than a gallon of fossil fuel — 29% more is the best estimate — to make a gallon of ethanol. In addition, various mandates requiring the use of ethanol significantly increased gasoline prices last summer and led to spot shortages because ethanol can't be carried through pipelines and requires special blending plants. James Glassman, an economist with J.P. Morgan Chase, notes that expensive ethanol was a big factor in the sticker shock consumers encountered at the pump this summer. "We'd probably have retail gasoline prices between $2.30 and $2.40 a gallon if not for ethanol," he told The Wall Street Journal last June, when pump prices were topping $3 a gallon.

The Bush administration recognizes some of these distortions and claims its new policies will seek to mitigate them. The use of switchgrass and other plants to make cellulosic ethanol would negate the need for the energy inputs and fertilizer that go into growing the corn that now goes into ethanol. The Pentagon's Defense Advanced Research Projects Agency is funding an 18-month project in North Dakota to develop a new military jet fuel made from organic materials that could allow the Air Force to become energy independent.

Plans for experiments in oil-shale production — one of the most infamous energy boondoggles of the Carter years — will take advantage of new technology that can remove oil from rocks in place by methods such as heating them, which is cheaper than the old approach of crushing them. One oil company estimates that even after allowing for the use of natural gas and electricity to heat the rock, the energy payoff is three times that which is put in. If true, that makes a lot more sense than corn-based ethanol.

"The Bush administration will reject a Manhattan Project crash approach to alternative energy," says James Lucier, an energy analyst for Prudential Equity Group. "It plans a McDonald's mass-market approach that will seek to drive the costs down to where the market can take over and expand on them."

It's a foregone conclusion that Mr. Bush's State of the Union speech will be full of paeans to the prospects for switchgrass, solar panels and the conversion of turkey waste into diesel fuel. Some of these ideas are genuinely exciting and indeed hold promise to achieve greater energy independence. But here's hoping in his fervor for alternative energy, Mr. Bush doesn't forget that he should also press for fewer restrictions on nuclear power — a remarkably safe and clean energy source — as well as more ways to safely explore for oil and gas in Alaska and off the coasts of states that welcome offshore energy development.

Alternative energy is an ever-expanding fad right now, but Mr. Bush should remember that fads pass. When that happens, the country will be better off with a balanced approach that combines excitement for the new with sober reliance on tried-and-true sources that keep today's economy humming. Such an approach would also help Mr. Bush meet another of his self-proclaimed major goals: "making sure the federal government prudently spends tax dollars and restrains wasteful spending."