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Arctic Leaf

Is Tesla really all that disruptive?

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Elon Musk’s dream of revolutionizing the auto industry seemed to lose some of its luster last week as the fledgling electric car company ran into a few roadblocks in getting its new models into consumer hands.

The $35,000 Model X is scheduled to be leaking out to a few early customers late this year. Then full-scale production will begin in 2016. But already there is talk of delays and missed deadlines, so there might be an asterisk attached to those numbers soon.

The ultimate goal is selling 50,000 Model X’s by 2017, which still seems way over the horizon. A lot of those sales were supposed to come from China, and that’s developing into a problem. Musk was in China last week talking things over with Zhao Kuiming, head of Tesla’s China sales division, but Musk has already decided to “reboot.” It appears that Chinese buyers are still spooked by the lack of recharging stations, even though there have been a few grand openings around Beijing. Tesla was hoping to sell between 4,000 and 8,000 models in China in 2015, but only 120 cars were sold in January. Musk has cut the China staff from 600 to 420 and is recalculating just what can be expected from the Middle Kingdom. The tastes of the few Chinese millionaires who could be counted on to purchase the Tesla as a status symbol aren’t going to get him very far.

All this has spooked investors as well. They’ve driven the price of Tesla stock down nearly 20 percent since the start of the year. Once the highest flyer on the market, Tesla peaked at $293 a share last September, but it’s been a long descent ever since. Prices lingered around $180 per share last week. Even then, Tesla is trading at 232 times its expected earnings for 2015. The average stock on the NASDAQ, where it trades, is 21 times earnings. All this has lifted the short interest on Tesla stock to 27 percent of floating shares. The average on the NASDAQ, once again, is only 5 percent.

Nevertheless, all this could turn around quickly. Tesla already has 20,000 pre-orders on the Model X, and there is every reason to think its release could revolutionize the industry, much as Musk says. As it is emerging, the Tesla is going to be a device much more attuned to electronics and Silicon Valley as it is to Detroit and the auto industry. Musk is already introducing over-the-air (OTA) updates of the car’s software in a model, much more like an iPad than a Ford Focus. All those features you see advertised by the major automakers — rearview cameras, automatic emergency braking — will be standard in the Tesla. Musk is already talking about an automatic driving feature that will allow drivers to guide the car hands-free on Interstate highways. Of course, there are lots of state regulations that will have to be satisfied before this feature can go into effect. California, Nevada, Michigan, Florida and Washington, D.C., already have laws allowing driverless vehicles driving, but it’s unclear how Tesla’s system will be judged under these statutes.

Also decided at the state level is the question of whether Tesla can sell directly to customers or must work through established car dealerships. These laws are generally put into effect at the behest of local dealers to prevent the major auto companies from setting up their own shops. But Tesla has run afoul of the law in many states. The company just won a major victory when New Jersey Gov. Chris Christie came down in favor of Tesla. Georgia has also opened its doors to direct sales at five stores. But West Virginia has gone in the opposite direction, banning sales of Tesla altogether. There probably aren’t that many potential Tesla customers in West Virginia anyway.

Perhaps the unkindest cut came from Wall Street Journal columnist Holman Jenkins, who wrote a piece titled “Tesla: Just Another Car Company.” If you wanted to insult Elon Musk, you could hardly do better. “Elon Musk has proved that a market exists for electric cars, despite their many inconveniences, especially if they come wrapped in taxpayer subsidies,” Jenkins wrote. “But he hasn’t proved he can make a profit.”

Jenkins sees the Tesla operating in a niche market, in which a small percentage of customers are willing to ignore the problems in order to be “green.” Once this niche is filled, however, the market will thin out quickly. “Uber is disruptive,” he writes. “Tesla isn’t. Tesla is disruptive mostly of a driver’s confidence that he’s going to reach his destination without needing a tow.”

Yet this perspective is probably too negative of Tesla, and electric cars in general. There are people whose driving needs it fits perfectly. “I own a Tesla. It is beyond spectacular,” wrote one of the commenters to Jenkins’ piece. “The car has Di Minimus maintenance as there is nothing to break.” “That is why I bought a Tesla,” says another. “At 270 miles to start with, range anxiety is not my problem, yet. I rarely drive over 100 miles in any given day, and if I needed to, my Chevy Tahoe is still in the garage.” I have friends in Baltimore who bought a Nissan Leaf as a second car to tool around the city and love it.

So Tesla may just be filling a niche, but it is still a sizable one. Infrastructures can change a lot faster than we anticipate, especially where there is a demand for it. Tesla’s stock may be overvalued and due for another nosedive. But the company is still making big changes in the way we power our cars.

Fuel Freedom Staff

WSJ shows how oil analysts keeping getting it wrong

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It’s amusing to see analysts at high-powered, influential financial-services companies continue to predict what oil will do, following its 55-percent plunge from June to early February.

Here’s a news flash: Nobody knows what it’s going to do: whether the price will spike again, and if so, by how much. They were wrong in the last half of 2014, and some of them are sure to be wrong even as we speak.

The Wall Street Journal’s Alexandra Scaggs looks into specifics ($$), leading with the recommendations of Raymond James & Associates analyst Pavel Molchanov. In late November, with oil already down 30 percent from June, he issued a report saying oil prices and energy stocks were “within weeks of bottoming.”

He and his colleagues maintained the equivalent of a “buy” recommendation on Houston energy producer Southwestern Energy Co., also down about 30% since June. … More than two months after Mr. Molchanov made that call, it is clear he and many other analysts were wrong. Nymex crude prices and Southwestern Energy’s stock each have fallen more than 20% since Thanksgiving.

What does Molchanov say now?

“It’s a little late in the game to downgrade stocks on oil going down, because oil’s already gone down,” said Mr. Molchanov. But “commodity prices are almost impossible to predict in the short run.”

As the story notes, often analysts have waited until very late in the game to recommend against holding energy stocks. Molchanov’s colleagues at Raymond James didn’t downgrade Southwestern Energy’s stock until Jan. 6.

Reed Choate, portfolio manager at Neville, Rodie & Shaw of New York, says: “Analysts are always optimistic.” But “this was a big miss.”

Arun Jayaram, an analyst for Credit Suisse Group AP, added: “In an ideal world, as an analyst you anticipate moves.” But “it’s difficult.”

You’d figure that such analysts, chastened by their bad moves, would be a little less enthusiastic. Nope.

Mr. Molchanov of Raymond James thinks the sector could begin a lasting recovery in the second half of this year. The firm forecasts Nymex crude will sell for an average $62 a barrel this year. “The recovery will take time,” he said. “Then, naturally, there’s going to be a bounce in most oil stocks.”

Maybe. Oil has certainly climbed back upward a bit the past week, but it could just as easily slip back as march upward.

What consumers need, instead of expensive guesses and uncertainty, is a steady cost structure they can count on when they build their household budgets. And the best way to achieve that kind of stability is by introducing choice into the transportation-fuels market.

Fuel Freedom Staff

Oil futures up for second straight day

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Has the precipitous slide in oil prices ended? For a couple days, at least. As The Wall Street Journal reported Friday, oil futures gained for a second straight day.

Here’s a (possibly prescient) quote from an analyst about where prices are going:

“I think we have seen a peak in downside momentum,” Citigroup Inc. analyst Tim Evans said. “We have probably seen a peak in the fear of demand weakness and the fear that OPEC may just stand back and let it drop. At this point I think the feel of panic over that possibility has probably eased.”

Arctic Leaf

Star light, star bright: Wishing for a cleaner, less-expensive fuel

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Star light, star bright, I wish I may, I wish I might, have this wish I wish tonight… How many of you said these words on a starry night, particularly if you were with your best girl or boyfriend as a teenager? Or, as a loving parent, how many of you taught your child to say these words as part of your effort to build his or her vocabulary or memory…or just to instill their capacity to dream?

Now Kate Gordon, the, legitimately well respected, president of Next Generation, seems to have forgotten the difference between wishing, hoping, dreaming and reality. Her recent brief “expert” article in the Wall Street Journal departs from reasonable projection into fanciful wishes.

Gordon is correct that the “average car” on the U.S. road is about 11 years old and that their negative impact on GHG emissions and our health is significant. She is also correct in pointing to the large impact that high gas prices have on “our wallets,” (I would add) particularly for low and moderate-income households. Clearly, for the poor and near-poor families and for the economically fragile moderate-income households, present gas prices mean less of the basic necessities: modest job choices, good food, housing and healthcare.

Where Gordon and I part company is with her suggestion that an auto replacement initiative or what she calls an Enhanced Fleet Modernization programs would generate a visible, short-term impact and would likely be supported now, by assumedly the federal or state governments, in a significant way. (I should indicate that while I was head of the urban policy in the Carter administration, HUD senior officials thought about offering support by providing older cars to carless, low-income folks to permit them to secure job opportunities in the suburbs. How times have changed. The concern about GHG emissions and other pollutants emitted from older cars that run on gasoline are now seen as a real environmental problem.) The difficulty with Ms. Gordon’s proposal is number one, money and bureaucracy; number two, money and bureaucracy; and number three, money and bureaucracy. Even California, which she touts, has had mixed results with its replacement and incentives to replace older car programs. Clearly, exporting California’s experience to many other states, given economic and political constraints, would be difficult and would likely result annually in a relatively small impact on the nearly 300,000,000 cars in the U.S of which approximately 85-90 percent are over six years old.

Car replacement is a nice thought, but probably, at this time, an exotic one. If policymakers are seriously looking for a way for large numbers of owners of older cars to immediately reduce their vehicle’s negative effect on the environment, air quality and their own costs of fuel, there are better ways. While we wait and hope for the advent of vehicles that are ready to run on renewable fuels and that simultaneously meet the travel as well as budget needs and demands of most low, moderate and middle-income Americans, we should look at natural-gas-based ethanol as a fuel for newer flex fuel cars and for large numbers of older vehicles converted to flex-fuel vehicles.

Ethanol is not perfect as a fuel but it is better than gasoline. It emits fewer GHG emissions and other pollutants harmful to the nation’s quality of life. Recent regulations, like ones initiated by Colorado, that significantly reduce emissions from drilling now will likely make life cycle environmental evaluations of natural gas changed into ethanol a much better environmental deal. The process appears technologically feasible at a cost lower than the production costs of gasoline. If ethanol is allowed to compete with gasoline by oil companies on an even playing field — oil companies generally control who gets what and where at most “gas” stations — ethanol will be cheaper than gasoline for the consumer.

It is relatively inexpensive to convert older cars to flex-fuel vehicles — perhaps as little as $100 to $200. Finding a way through lessening the cost of certification to expand the number of conversion kits certified by the EPA and, or, where relevant, allowing recalibration of software and engines, would expand the benefit-cost ratio for many older cars. Star light, star bright, we can have the wish we wish tonight concerning a cleaner environment and lower consumer prices in a relatively short time, while we continue to push for electric vehicles and a whole range of renewable fuels to achieve prime-time performance for most Americans.

Arctic Leaf

Is Elon Musk the next Henry Ford?

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Elon Musk doesn’t mind making comparisons between himself and Henry Ford. Others are doing it as well.

In announcing his plans for a “Gigafactory” to manufacture batteries for a fleet of 500,000 Teslas, Musk said it would be like Ford opening his famous River Rouge plant, the move that signaled the birth of mass production.

The founder of PayPal and current titular leader of Silicon Valley (now that Steve Jobs is gone), Musk is not one for small measures. The factory he is now dangling before four western states would produce more lithium-ion batteries than are now being produced in the entire world. And that’s not all. He’s designing his new operation to mesh with another cutting-edge, non-fossil-fuel energy technology – solar storage. His partner will be SolarCity (where Musk sits on the board), run by his cousin Lyndon Rive. Together they are looking beyond mere automobile propulsion and are envisioning a world where all this solar and wind energy stuff comes true.

So, is Musk a modern-day Prometheus, bringing the fire to propel an entirely new transportation system? Or, as many critics charge, is he just conning investors onto a leaky vessel that is eventually going to crash upon the shores of reality? As the saying goes, we report, you decide.

One investor that is already showing some qualms is Panasonic, which already supplies Tesla with all its batteries and would presumably help the company fill the gap between the $2 billion it just raised from a convertible-bond offering and the $5 billion needed to build the plant. “Our approach is to make investments step by step,” Panasonic President Kazuhiro Tsuga told reporters at a briefing in Tokyo last week. “Elon plans to produce more affordable models besides [the] Model S, and I understand his thinking and would like to cooperate as much as we can. But the investment risk is definitely larger.” Of course, this is Japan, where “the nail that sticks out gets hammered down.” Corporate executives are not known for sticking their necks out.

Another possible investor is Apple, which has mountains of cash and, at least under Steve Jobs, was always willing to jump into some new field – music, cell phones – to try to set it straight. This is a little more ambitious than the Lisa or the iPod and Jobs is no longer around to steer the ship, but Apple and Musk officials held a meeting last spring that stirred a lot of talk about a possible merger. A much more likely scenario, according to several commentators, is that Apple would become a major player in the Gigafactory.

And a Gigafactory it will be. Consider this. The three largest battery factories in the country right now are:

1)    The LG Chem factory in Holland, Mich. is 600,000 square feet, employs 125 people and produces 1 gigawatt hour (GWH) of battery output per year.

2)    The Nissan factory in Smyrna, Tenn. is a 475,000 square-foot facility with 300 employees puts out 4.8 GWH per year.

3)    A123 Systems’ battery factory in Livonia, Mich. is 291,000 square feet, employs 400 people and produces 0.6 GWH per year.

Both LG and Nissan received stimulus grants from the Department of Energy, built to overcapacity and are now operating part-time.

Now here’s what Musk is proposing. His Gigafactory would cover 10 million square feet, employ 6,500 people and produce 35 GWH per year of battery power. Basically, Musk’s operation is going to be ten times better anything ever built before, at a time that most of what exists isn’t even running fulltime. Does that sound like something of Henry-Ford proportions? Similar to Ford’s $5 a day wages, perhaps?

There are, of course, people who think all of this is crazy. In the Wall Street Journal blog, “Will Tesla’s $5 Billion Gigafactory Make a Battery Nobody Else Wants?,” columnist Mike Ramsey expresses skepticism over whether Tesla’s strategy of using larger numbers of smaller lithium-ion is the right approach. “Every other carmaker is using far fewer, much larger batteries,” he wrote. “Tesla’s methodology – incorrectly derided in its early days as simply using laptop batteries — has allowed it to get consumer electronics prices for batteries while companies like General Motors Co. and Nissan Motor Co. work to drive down costs without the full benefits of scale. Despite this ability to lower costs, no other company is following Tesla’s lead. Indeed, in speaking with numerous battery experts at the International Battery Seminar and Exhibit in Ft. Lauderdale a few weeks ago, they said that the larger cells would eventually prove to be as cost effective, and have better safety and durability. This offers a reason why other automakers haven’t gone down the same path.

But Musk has managed to produce a car that has a range of 200 miles, while the Leaf has a range of 85 miles and the Chevy Spark barely makes 82. Musk must be doing something right. And with Texas, Arizona, Nevada and New Mexico all vying to be the site of the Gigafactory, it’s more than likely that the winning state will be kicking in something as well. So, the factory seems likely to get built, even on the scheduled 2017 rollout that Tesla has projected.

At that point, Musk will have the capacity to produce batteries to go in 500,000 editions of the Tesla Model E, which he says will sell for $35,000. Sales of the $100,000 Model S were 22,000 last year. Does this guy think big or what?

To date, Silicon Valley doesn’t have a terribly good record on energy projects. Since Kleiner Perkins Caufield & Byers fell under Al Gore’s spell in 2006, its earnings have been virtually flat and the firm is now edging away from solar and wind investments. Venture capitalist Vinod Khosla’s spotty record in renewables was also the subject of a recent 60 Minutes segment. But, as venture capitalists say, it only takes one big success to make up for all the failures.

Will Tesla’s Model E be the revolutionary technology that, at last, starts making a dent in oil’s grip on the transportation sector? At least one investor has faith. “I’d rather leave all my money to Elon Musk that give it to charity,” was the recent evaluation of multi-billionaire Google founder Larry Page.

Arctic Leaf

What Happened to Saudization? Bipolar Fuel Projections!

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Just a few short months ago, newspapers, led by the WSJ, trumpeted, many on their front pages, the Saudization of America and the end of America’s and OECD’s reliance on Middle East oil. Do you remember?   Well maybe you don’t have to– at least after 2025. The IEA’s World Energy Outlook for 2013, published Nov 12, indicates that the “Middle East, the only large source of low-cost oil, remains at the center of the longer-term oil outlook.” Within about 10 years or so, it will provide the largest share of the world’s expanded oil supply.

I realize the fragility of projections and have in the past criticized the IEA and the EIA and other makers of global energy projections. At times, projection makers are more artists than scientists. The good artists, sometimes, come close to what actually happens. The not so good ones either get lucky or appear to mute their “over or under” reality numbers. They either provide ranges, permitting them to say they were right in the future, or they complain, perhaps over a good bottle of wine, about the complexity of the variables.

I believe it is important to read the IEA report because it lends a bit of skepticism to the idea that America and its friends are entering the golden era of energy abundance. Indeed, The New York Times on Nov 13 ran the IEA story under the headline, “Shale’s Effect on Oil Supply Is Forecast to Be Brief.”

Here is what the IEA said in their Executive Summary:

“The role of OPEC countries in quenching the world’s thirst for oil is reduced temporarily over the next 10 years by rising output from the U.S., from oil sands in Canada, from deep water production in Brazil and from natural gas liquids from all around the world.  However, by mid-2020, non-OPEC production starts to fall back and countries in the Middle East provide most of the increase in global supply. Overall national oil companies and their host governments control some 80 percent of the world’s proven-plus-probable oil reserves.”

America’s likely surplus combined with a slowdown in the increase of demand will not affect costs of oil and gasoline in a major way.  Escalating demand for both will be reflected in Asia and will place a floor under prices. America’s oil companies function in a global market and are not governed to a great extent by the laws of supply and demand in this country.  They will sell to the highest bidder worldwide.

IEA indicates that “the need to compensate for declining output from existing oil fields is the major driver for upstream oil investment to 2035…conventional crude output from existing fields is set to fall by more than 40 mb/d by 2035.Of the 790 billion barrels of total production required to meet our projections for demand to 2035, more than half is needed just to offset declining production. According to the NY Times, IEA conclusions are generally shared by the EIA; that is, today’s rapid oil production from shale will continue for a relatively short time and then slow rapidly. IEA indicated the slowdown will occur in the mid-twenties, EIA by the late teens.

IEA’s and EIA’s analysis should not generate a bipolar response or create a need for a regimen of pills to cure projection related manic depression. It’s only a projection. Take a deep breath and count to ten.  Next year it will likely change because of “complex variables ” including but not limited to changing world demand, Middle East tension, new technology and the use of alternative fuels.

Until we get better at projection, let’s applaud IEA and EIA’s professionals.  At a minimum, they are honestly and artistically responding to lots of unknowns.  Paraphrasing the comedian Ilka Chase (and changing a word or two) projectionist’s minds are cleaner because they change them so often…

Just kidding!

Their efforts should at least reinforce the need to think through transportation fuel strategies and act with all reasonable speed on what I would consider, at least, low hanging fruit. For example, a coordinated campaign by the public, nonprofit and private sector to encourage the federal government to approve methanol as a fuel would be a good first step.  Federal acquiescence, if combined with simultaneous certification of low cost kits to convert existing vehicles to flex fuel cars could provide the framework for an effective transitional fuel strategy.

It, likely, will take from five to ten years before electric and or hydrogen powered vehicles will be able to reach the budgets and driving needs of most low, and moderate income Americans.  Even when renewable fuel powered new vehicles reach a mass market, the technology will not be able to change the gasoline dependent older vehicles. In this context, alternative transitional fuels could, with the addition of an increased number of conveniently located fuel stations and stimulated by new demand, offer competition to oil company restricted gas-only stations and consumers a choice of fuels.  America would be better off economically and environmentally.  Consumers would secure a more predictable, probably lower price for fuel at competitive pumps and charging stations.  The nation would be less dependent on imported oil.

Arctic Leaf

If Mother Jones and the Wall Street Journal can agree on this

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When Nobel Laureate George Olah wrote his Wall Street Journal op ed recently announcing a new process that can turn coal exhausts into methanol, it reverberated all the way across the political spectrum and into Mother Jones.

 “Can Methanol Save Us All?” says the headline of a story on MJ, written by political blogger Kevin Drum. Although loath to admit he had    been reading the pages of capitalism’s largest broadsheet (he blamed the government shutdown), Drum admitted that he was intrigued. “George Olah and Chris Cox suggest that instead of venting carbon dioxide into the atmosphere, where it causes global warming, we should use it to create methanol,” he wrote.

Olah has been writing about a “methanol economy” for a long time, and he skips over a few issues in this op-ed.  One in particular is cost: it takes electricity to catalyze CO2 and hydrogen into methanol, and it’s not clear how cheap it is to manufacture methanol in places that don’t have abundant, cheap geothermal energy – in other words, most places that aren’t Iceland. There are also some practical issues related to energy density and corrosiveness in existing engines and pipelines. Still, it’s long been an intriguing idea, since in theory it would allow you to use renewable energy like wind or solar to power a facility that creates a liquid fuel that can be used for transportation. You still produce CO2 when you eventually burn that methanol in your car, of course, but the lifecycle production of CO2 would probably b less than it is with conventional fuels.

There are a few things we can cite here to set Drum’s mind at ease. First, methanol made from natural gas is already cost competitive. We don’t have to speculate. There is a sizable industry manufacturing methanol for industrial use from natural gas where it has sold for years at under $1.50 a gallon. That’s a $2.40-per-gallon mileage equivalent for gasoline (before further gains from methanol’s higher octane), making it at least 30 percent cheaper from what you’re now buying at the pump.

Of course Drum is referring here to Olah’s proposal to manufacture methanol by synthesizing hydrogen and carbon exhausts. This would be a more expensive process. But if it ever happened, the utilities would undoubtedly pay the processors to take the carbon dioxide off their hands, since it would allow them to go on operating their coal plants and using all that cheap black stuff coming out of Wyoming and West Virginia. It’s hard right now to factor up the costs but suffice to say, you would not be limited to geothermal from Iceland to make it happen.

As far as the corrosion issues are concerned, Drum can rest assured as well. It is true that methanol corrodes certain elastomers in current engines. They will have to be replaced with o-rings that can be bought at Office Depot for 50 cents. Any mechanic can perform the procedure for less than $200. Modifying current gasoline engines at the factory to burn methanol is also a surpassingly simple procedure – as opposed to altering an engine to burn liquid natural gas, compressed natural gas or hydrogen, which all require an entirely different assembly costing up to an additional $10,000.

The real rub mentioned by Drum, however, is the implication that if methanol can’t be shown to reduce carbon dioxide emissions in the atmosphere, then there isn’t any sense in doing it. There’s a slight divergence of purpose here that isn’t always clear to people who can agree we ought to be looking for alternative fuels to replace gasoline.

For some people the issue is energy dependence and reducing the unconscionable $400 billion we spend every year on imports. As the United States Energy Security Council pointed out in a recent paper, even though we have reduced imports to only 36 percent of consumption, we are still paying the same amount for oil because OPEC functions as an oligopoly and can limit supplies. As the report concluded, “It’s not the black stuff that we import from the Persian Gulf, it’s the price.”

For other people, however, the amount of money we’re spending on foreign oil – and the international vulnerabilities it creates – is not the issue. The only thing that matters to them is how much carbon dioxide we’re putting into the atmosphere. Global warming is such an overriding concern that it supersedes everything else.

This was made clear in a recent article in Yale Environment 360 by John DeCicco, professor at the University of Michigan’s School of Natural Resources and Environment and former senior fellow for automotive strategies at the Environmental Defense Fund, entitled “Why Pushing Alternative Fuels Makes for Bad Public Policy.”

The article argued against all forms of alternatives – ethanol, compressed natural gas, hydrogen and electric vehicles – on the grounds that none of them will do anything to reduce carbon emissions. “In the case of electric vehicles, an upstream focus means cutting CO2 emissions from power plants,” wrote DeCicco.

Without low-carbon power generation, EVs will have little lasting value. Similarly, for biofuels such as ethanol, any potential climate benefit is entirely upstream on land where feedstocks are grown. Biofuels have no benefit downstream, where used as motor fuels, because their tailpipe CO2 emissions differ only trivially from those of gasoline.

Instead, DeCicco argued that environmentally conscious individuals should concentrate on cleaning up power plants while support for alternative fuels should be limited to research and development.

By the time the power sector is clean enough and battery costs fall enough for EVs to cut carbon at a significant scale, self-driving cars and wireless charging will probably render today’s electric vehicle technologies obsolete. Accelerating power sector cleanup is far more important than plugging in the car fleet.

All this short-changes the clear advantages that can come from reducing our huge trade deficit and replacing oil with homegrown natural gas. The less money we spend on imports, the more we will have for making environmental improvements and investing in complex technology such as carbon capture that can reduce carbon emissions.

In addition, DeCicco may be being too pessimistic about alternative fuels’ potential for reducing carbon emissions. As The New York Times reported in a recent story about natural gas cars, “According to the Energy Department’s website, natural gas vehicles have smaller carbon footprints than gasoline or diesel automobiles, even when taking into account the natural gas production process, which releases carbon-rich methane into the atmosphere. Mercedes-Benz says its E200, which can run on either gasoline or natural gas, emits 20 percent less carbon on compressed natural gas than it does on gasoline.” Besides, if the source of emissions can be switched from a million tailpipes to one power plant, it’s a lot easier to apply new technology.

Mother Jones and The Wall Street Journal have much more in common than they may realize. One way or another, it would benefit everyone if we could reduce our dependency on foreign oil.

 

Arctic Leaf

The U.S. and China on methanol: Two roads converge

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Nobel-Prize-winning chemist George Olah recently put methanol front and center again with a powerful Wall Street Journal editorial arguing for the conversion of carbon dioxide emissions from coal plants into methanol for use as a gasoline substitute in our car engines. Co-writing with University of Southern California trustee Chris Cox, Olah noted, “Thanks to recent developments in chemistry, a new way to convert carbon dioxide into methanol — a simple alcohol now used primarily by industry but increasingly attracting attention as transportation fuel — can now make it profitable for America and the world to reduce carbon-dioxide emissions.”

The authors argued that President Obama’s recently announced policy of mandating carbon sequestration for emissions from coal plants wastes a potentially valuable resource. “At laboratories such as the University of Southern California’s Loker Hydrocarbon Research Institute [founded by Olah], researchers have discovered how to produce methanol at significantly lower cost than gasoline directly from carbon dioxide. So instead of capturing and “sequestering” carbon dioxide — the Obama administration’s current plan is to bury it — this environmental pariah can be recycled into fuel for autos, trucks and ships.”

Olah, of course, has been the principal advocates of methanol since his publication of “Beyond Oil and Gas: The Methanol Economy,” in 2006.

To date, he has been recommending our growing natural gas supplies as the principal feedstock for a methanol economy. But the emissions from the nation’s coal plants offer another possibility.

This is particularly important since indications are that the Environmental Protection’s Agency’s assumption that a regulatory initiative will “force” the development of carbon-sequestering technology may be mistaken. A recent report from Australia’s Global CCS Institute said that, despite widespread anticipation that carbon capture will play a leading role in reducing carbon emission, experimental efforts have actually been declining.

The problem is the laborious task of storing endless amounts of carbon dioxide in huge underground repositories plus the potential dangers of accidental releases, which have aroused public opposition. Olah and Cox write, “By placing the burden of expensive new carbon capture and sequestration technology on the U.S. alone, and potentially requiring steep cuts in domestic energy to conform to carbon caps, the proposal could send the U.S. economy into shock without making a significant dent in global emissions… In place of expensive mandates and wasteful subsidies, what is needed are powerful economic incentives. These incentives should operate not just in the U.S., but in other countries as well.”

All this brings into stark relief the diverging paths that China and the United States have taken in trying to find some alcohol-based fuels to substitute in gas tanks. While Olah has been advocating a transformation to a methanol economy in this country, China is actually much further down the road to developing its own methanol economy. There are now more than a million methanol cars on the road in China and estimates show the fuel substitutes for 5-8% of gasoline consumption — about the same proportion that corn ethanol provides in this country.

In this country, the proposal has been that we derive methanol from our now-abundant supplies of natural gas. California had 15,000 methanol cars on the road in 2003 but curtailed its experiment because gas supplies appeared to be too scarce and expensive! Instead, the main emphasis has been on tax incentives and mandates to promote corn ethanol.

China has vast shale gas supplies and could benefit from America’s fracking technology. We could benefit strongly from China’s greater experience in developing methanol cars. The pieces of the puzzle are all there. Perhaps Olah’s proposal may be the catalyst that puts them all together.

Ironically, all this began with a Chinese-American collaboration in 1996. At the time, China had little knowledge or interest in methanol but was persuaded by American scientists to give it a try. Ford provided a methanol engine and China began ramping up its methanol industry and substituting it for gasoline. As a result, China is now the world’s largest producer of methanol, with about one-quarter of the market.

A year ago the Chinese national government was about to mandate a 15% percent methanol standard for gasoline when it ran into opposition from executives in its oil industry. Those leaders have since been deposed, however, and the 15% mandate may go ahead this year. In the meantime, provincial governments  have developed their own standards, with the Shanxi province west of Beijing in the lead.

Ironically, because methanol is only half the price of gasoline, many local gas stations are diluting their gasoline with methanol anyway in order to shave their costs. As a 2011 Energy Policy article by Chi-jen Yang and Robert B. Jackson of Duke University’s Nicholas School of the Environment reported, “Private gasoline stations often blend methanol in gasoline without consumers’ knowledge… In fact, its illegal status makes methanol blending more profitable than it would be with legal standards. Illegally blended methanol content is sold at the same price as gasoline. If legalized, standard methanol gasoline would be required to be properly labeled and sold at a lower price than regular gasoline because of its reduced energy content. Such unannounced blending is now common in China.”

So both countries are feeling their way toward a methanol economy. As Olah points out, the problem in the U.S. is that the various advantages given to ethanol have not been extended to methanol.“One means of addressing this inequity would be for Congress to pass the bipartisan Open Fuel Standard Act of 2013, which would put methanol, natural gas, and biodiesel on the same footing as ethanol (but without subsidies and without telling consumers which one to choose) for use in flex-fuel cars.”

In China, the concern is about coal supplies but this could be alleviated with help from America’s fracking industry or by implementing Olah’s new technology for tapping coal exhausts.

Either way, the pieces are all there. It may be time to start putting them together.