Politics & Policy

Two Approaches to Fuel Choice

Open Fuel Standards is the right choice.

Americans are currently being heavily taxed by the governments of the OPEC cartel, who are using a policy of restricting oil production to drive up prices. Indeed, with prices inflated to the $100-per-barrel range, America’s 5 billion barrels per year of petroleum imports will cost our economy $500 billion, an amount equal to 25 percent of the federal government’s tax receipts or, alternatively, the nation’s whole balance-of-trade deficit.

The only way to break the power of the oil cartel to set global liquid-fuel prices is to open the market to competition from non-petroleum-based fuels. With this in mind, two bipartisan bills have recently been introduced in the U.S. House of Representatives. One is H.R. 1380, known as the “New Alternative Transportation to Give Americans Solutions Act,” or “NAT GAS Act” for short. The other is H.R. 1687, the Open Fuel Standards Act. The approaches adopted in these two pieces of legislation are very different.

The NAT GAS Act, which is strongly supported by oil and gas tycoon T. Boone Pickens, would provide a $7,500 tax-credit subsidy for the purchase of natural-gas cars, as well as a further subsidy to their manufacturers of $4,000 each, for a total of $11,500 per car. Natural-gas-truck subsidies would be at least double this, with the amount of the subsidy increased to as much as $64,000 per truck, depending on size. Further subsidies of up to $100,000 each would be available to filling stations to install natural-gas pumps.

The budgetary impact of this bill could be quite significant. For example, if we assume a sales rate of 1 million cars per year subsidized at $11,500 each, plus 100,000 small trucks subsidized at $23,000 each, and forget about the larger trucks and filling stations, the total tab would come to $13.8 billion per year. This would be triple the $4.5 billion per year ($0.45 per gallon times 10 billion gallons) currently being spent on the controversial corn-ethanol program, which has replaced 8 percent of our gasoline use. In contrast, it would take 18 years of such subsidies, with no vehicle losses, for the NAT GAS Act to replace 8 percent of the American automobile fleet, at a total cost to the treasury of $248 billion. Thus, at the end of 18 years, assuming a 2 percent compound rate of growth, the U.S. vehicle fleet will expand from 180 million to 257 million, of which 237 million will still be gasoline-powered, leaving us more dependent on foreign oil than at the program’s start. But since the average life of a car is only 17 years, it is unlikely that even this very modest degree of accomplishment will be achieved.

Another remarkable feature of the NAT GAS Act is the degree to which it has been championed by an openly self-interested party who would profit from increased sales of the sole alternative fuel chosen for support by the bill. However, it should be noted that the total amount of natural gas sold per car is unlikely to exceed $1,000 annually, of which perhaps 20 percent might be profit. Thus, even after several hundred billion dollars are spent to create a 20-million-car natural-gas fleet, the resulting profits to the entire natural-gas industry would be only about $4 billion per year. So, if helping the natural-gas industry were the objective, this could be accomplished at much lower cost to the treasury just by giving them their cut.

In contrast, the Open Fuel Standard bill does not choose a single winner, and would not cost the treasury anything. Instead, it stipulates that within several years the majority of new cars sold in the U.S. must give the consumer fuel choice by being any one of the following: full flex fuel (i.e., capable of using methanol, ethanol, and gasoline), natural gas, plug-in hybrid, or biodiesel compatible. Of these, the cheapest to produce will be flex fuel (zero to at most $100 additional cost per car), as many gasoline-powered vehicles now sold in the U.S. are already built with flex-fuel capability in mind, and need only a software upgrade to realize it. However, should consumers wish to spend their own money for the other alternatives, they will have every right to do so.

That said, it is the flex-fuel car’s methanol capability that will truly open up the source market for liquid fuels, as methanol can be made cheaply from coal, natural gas, or biomass. In fact, if the goal is to open up the vehicle-fuel market to natural gas, that can be much more readily accomplished, in a much bigger way, by the Open Fuel Standard legislation than by the NAT GAS Act, without any cost to the taxpayers at all — provided, of course, that natural-gas-sourced methanol continues to beat coal- or biomass-sourced methanol on price. This is as it should be.

Furthermore, unlike the NAT GAS Act, which will have near-zero impact on global oil prices, the worldwide effects of the Open Fuel Standard bill would be profound. This is because foreign carmakers will not wish to walk away from the American automobile market. If flex fuel becomes the standard for U.S. auto sales, foreign carmakers will switch their lines over, and their products worldwide will be predominantly flex fuel as well. This will subject gasoline to competition from methanol, and in some places ethanol, made from the cheapest local sources everywhere, thereby creating a permanent global competitive constraint on future oil prices.

The NAT GAS Act would cost the treasury a fortune, while accomplishing next to nothing. The Open Fuel Standard bill would cost the treasury nothing, while protecting both the U.S. and world economies from continued taxation by the oil cartel.

One can only hope that Congress makes the right choice.

— Dr. Robert Zubrin is president of the aerospace-engineering firm Pioneer Astronautics, a fellow with the Center for Security Policy, and the author of Energy Victory: Winning the War on Terror by Breaking Free of Oil.


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