Market News

 March 22, 2007
Easy Solutions to Energy Problems

 (by Marc Gunther) - How do we assure ourselves of a reliable supply of energy at a reasonable cost without doing more damage to the planet? It's actually pretty easy.

What's truly in short supply is not energy, but political will.

That, at least, was my takeaway from a lively series of discussions today organized by the Council on Foreign Relations, where CEOs, policy makers and journalists pow-wowed about energy policy.

Most everyone seemed to agree on what should be done -- some form of carbon regulation at the federal level, higher prices for gasoline to encourage conservation, a more robust and intelligent electricity grid, smart meters to encourage homeowners to time-shift their energy use, and the development of alternative fuels such as wind power and electric cars.

We could, for example, save lots of gasoline if we drove our cars at 60 MPH with properly inflated tires, said Robin West, the board chairman and founder of PFC Energy, a global energy consulting firm. West is no tree-hugger -- he served in the Ford and Reagan administrations. "What we need more than anything else is a sustained, high price for gasoline," he said.

John Bryson, who helped start the Natural Resources Defense Council, agreed that there is lots of work to be done as we try to wring waste out of transportation, housing and industry. "Energy conservation, efficiency always turns out to be the first, best solution," he said. Despite his NRDC roots, Bryson's no tree-hugger, either -- he is the chairman and CEO of Edison International, a big California utility. "There is a lot of opportunity to use electricity more wisely," he said.

Several panelists got excited about plug-in hybrid electric cars, an idea I've been hearing about lately. Plug-in hybrids, which are being developed by GM, among others, could be charged by plugging into the electric grid at night, when surplus power is often available. In any event, electricity costs less at night and comes from the most efficient generating sources, with the lowest environmental impact. The plug-in cars could be driven up to 250 miles on a full charge -- or their batteries could be used as storage devices, and plugged back into the grid during the day, when their owners could sell power back to the grid at a profit because prices are then higher. Yes, car owners would become day traders of electricity!

If this sounds like more innovation than either Detroit or the stodgy utility industry can manage, well, maybe other innovators will step in. Tesla Motors, a Silicon Valley startup, already sells electric cars, albeit it at a steep price tag. (Base price is $92,000.) As software in cars becomes even more important than it is today, Silicon Valley could play a bigger role.

"The smart clean car of the future could be branded by Apple or Intel," said Vijay Vaitheeswaran, a correspondent for The Economist, who has a new book coming out called Zoom: The Race to Fuel the Car of the Future.

But for any of this to happen, government has to get policy right. That's a big problem. Right now, the favorite "alternative" fuel in Washington is corn-based ethanol, which doesn't provide a whole lot of environmental benefits, isn't a very efficient fuel, requires price supports and trade barriers to compete in the market, and can't replace gasoline on a broad scale. But corn-based ethanol is very good for the farmers in the Midwest, their representatives in Congress and presidential candidates looking to make a name for themselves in the Iowa caucuses.

"What the politicians are looking for are pain-free solutions," said Robin West. "The farmers become the new sheiks. It ain't going to happen."

West lamented the lost opportunity following the September 11, 2001, terrorist attacks, when President Bush could have won political support for higher gasoline taxes to support the war on terrorism and lessen our dependence on imported oil.

Instead, we were told to go shopping or travel to Disney World.

Marc Gunther is a senior writer at Fortune, a columnist for CNNMoney and a blogger at MarcGunther.com.