James Woolsey, former US CIA boss, is spending his days trying to alert people to the problem our dependency on oil is creating. I attended an all-day workshop he ran called “Powershift 2020″ where different presenters proposed different things. Woolsey made clear his belief in biofuels contributing to the solution. So it’s especially interesting that even someone committed to optimism about biofuels notes that there is no justification for subsidizing them when oil prices are so high. See this interview from The Futurist, reposted at Energy Bulletin:

Futurist: What obstacles stand in the way of Western nations, particularly the United States, reducing their dependency on foreign oil?

James Woolsey If you remember, we got interested in alternative fuel firms like the Synfuels Corporation in the late seventies and then in 1985, the Saudi’s dropped the oil down to $5 a barrel and bankrupted the Synfuels Corporation. The good news is that they bankrupted the Soviet Union, too, but they certainly undercut alternative fuel efforts. People got interested in alternative fuels again in the early nineties, then in the late nineties, oil dropped down to $10 a barrel and people lost interest, again. One of the things that we have to do is make sure that this rollercoaster effect can’t happen again.

Some people think it will be much more difficult in the future because the Saudi Arabian oil fields could be peaking, if not now then soon. We will also have huge demand, not only from the West but from India and China as they start to produce middle classes that drive cars. So the Saudis might not be able to drop the price to five or ten dollars a barrel by turning on their excess capacity, but they might be able to drop it to $20 per barrel. Most of the better of these alternative fuels are only really viable, (as far as we can see) if oil is say $35 per barrel or more. The one that’s viable even below that is electricity, because off peak, overnight electricity in many parts of the United States sells for between two to four cents per kilowatt hour. That is the equivalent to about a penny a mile driving where as gasoline is in the range of ten to 20 cents a mile at today’s price. However much the Saudis might be able to drop the price of oil by turning on excess capacity, I doubt if they would be able to undercut off peak electricity in price.

But one way to ensure that is to make sure some of these other fuels, such as diesel from waste and cellulosic ethanol or butanol, have a chance to develop without the Saudis bankrupting them. We also need a different structure for subsidies. Today, ethanol is being subsidized even though it doesn’t need to be with oil that’s $60-$70 per barrel. What we might do is say, no subsidies unless oil drops to say $40 dollars a barrel. You start with small subsidies and then the subsidies get larger as the price of oil goes down. Now, most people are not forecasting oil to go below $40 a barrel now, so this might be an easier thing to implement. It would essentially be an insurance policy against the Saudis doing what they did in ‘85 and what happened again in the late 1990s.

In other words, Woolsey recognizes that we are wasting money by subsidizing biofuels in times of high oil prices. If Oregon is going to insist on subsidizing biofuels, could we at least agree with one of the highest-stature proponents and not throw a subsidy at people who are already enjoying a perfect competitive situation?

(Of course, some people will respond that the price of producing the biofuels climbs as the price of energy climbs — but that’s only a problem if you’re not harvesting enough net energy. If your processes are so inefficient that you’re using a lot of fossil energy to make biofuels, then why would we want to subsidize that?)

This entry was posted on Thursday, June 14th, 2007 at 9:12 am and is filed under Economy, Energy Future, Environment. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.