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 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.
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."
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."