Are we running out of oil? No. Are we running out of affordable oil? Probably. We are certainly running out of the cheap oil that has powered the world economy since the 1950s. Those of us who are willing to face reality have begun to search in earnest for alternative energy solutions.

There appears to be an unlimited number of technologies that could come to our rescue. But are they all viable? No. The search for alternative energy resources is a road full of technology potholes and politically motivated wrong turns. We have to make informed choices. Can we do it?

Maybe.

However, before we start to make comparisons – one energy technology versus another – we need a frame of reference that will give us critical perspective. Let's start with the basics.

First of all, we need to remember there are two basic energy applications. We need high energy content mobile fuels for our vehicles, ships and airplanes. And we need bulk quantities of stationary fuels to generate heat and electricity. Our existing consumption has largely relied on oil for mobile applications; and coal, natural gas, nuclear or water power for stationary applications.

A second point we need to remember is that any energy resource –oil, coal, wind, biomass or whatever, is an element of a complex supply chain. Think of energy as a system from production through consumption. All of the elements of the system are interrelated and interdependent. For example, the oil supply chain begins with the negotiation of exploration or drilling rights with the property owner (these days – usually a national government), then comes the actual exploration, oil production, transportation of crude oil to a refinery, refining operations, oil refinery product distribution, and finally- consumption by user application. Break this chain at any point – and consumption stops. In 2005, two hurricanes in the Gulf of Mexico interrupted exploration, decimated production, destroyed parts of the transportation infrastructure, shut down several refineries, restricted distribution, and almost caused consumption shortages. There is plenty of oil in Iraq, but the exploration, production, and transportation links of the supply chain keep breaking. There is a lot more oil in Saudi Arabia and the former Soviet Union, but geopolitical impediments restrict exploration, production, transportation, and refining. The point is: every link in the supply chain is important. Even the act of consumption must be carefully evaluated in proposing an energy solution. This is one reason why, for example, the proposed use of hydrogen as a mobile fuel is so difficult to implement. We currently do not have an economical vehicle fuel cell that can be used to consume hydrogen.

A third point to consider is that all energy solutions include some level of risk. Production plant construction cost overruns, a miscalculation of operating and maintenance costs, technology snafus, changes in market demand, unanticipated regulatory actions, environmental impacts, and the availability of capital must all be considered when proposing an energy solution – particularly when implementing an untested alternative energy technology.

And lastly, no proposed energy solution is useful unless it will be economically and structurally viable without government support. No subsidies. No special regulations to encourage production or consumption. Yes, I know. If government preferences, subsidies, military action, and so on were added to the real cost of oil, we would pay at least twice as much as we do for gasoline, diesel, and heating oil fuels. But in the long run, such preferences and subsidies are economically unsustainable. Energy technologies are viable only if they are able to provide us with a solution that can stand on its own under the political, economic, or environmental constraints that lie in our future.

Evaluating Our Energy Options

Unfortunately, not all alternative energy technologies are equal. All of the proposed alternative energy solutions have risks and drawbacks. So how do we evaluate them? By accessing their performance against known evaluation criteria. Here, in no particular order and without making any judgment as to outcome, are some of the items that must be considered.

1. Basic Economics. The price of energy supplied to the consumer must be affordable within the constraint of measuring the amount of money spent on energy as a percentage on income. Yes. This means that rich people will spend less of their money – as a percentage of income – on energy than poor people. Rather than bemoaning this fact, however, it will be more constructive to focus our research and development on energy solutions that the poor can afford.

Producer costs must be less than consumer prices. Artificially restricting producer prices may make good politics, but its makes lousy energy policy – as Californians found our earlier in this century. As a system, any energy solution must meet the criteria of economic common sense. It must be viable within the constraints of a nation's economic characteristics. Else it will ultimately fail.

2. EROEI: Energy Returned On Energy Invested. That is to say, the amount of energy we get from a production process must be substantially greater than the energy consumed by that process. Otherwise, each cycle of production will theoretically reduce the energy available for consumption. For example: an EROEI of 1 means that for every unit of energy consumed in the production process, we get 1 unit of energy to use for the next cycle of energy production. But an EROEI of 1:1 doesn't make any sense. There isn't any energy left over to distribute to the consumer. So we need a net gain of energy from each production cycle as follows….

Remember. If the EROEI of any energy resource is less than 1, then doing that activity no longer adds to our energy stockpile.

Furthermore, not all energy thus produced is equal. The energy content of a gallon of diesel fuel is (roughly) 139,000 Btu, the energy derived from a gallon of gasoline is (roughly) 124,000 Btu, and the energy in a gallon of ethanol is (roughly) 80,000 Btu. Can you guess which fuel will give us the best vehicle mileage? If we can get 50,000 Btu from 10 pounds of dry wood, 104,000 Btu from 10 pounds of high quality coal, or 139,000 Btu from 1 gallon of heating oil, which fuel would the consumer prefer to use for heat?

Unfortunately, the average EROEI of world oil production has been declining. I read somewhere that before 1950 the EROEI for oil was more than 100:1. By the 1970s it had dropped to 30:1, and by 2005 the average EROEI on new production had fallen to 10:1. As we go for oil in increasingly difficult environments (deep under the ocean, open pit mining, etc.) the EROEI will decline further. We have to face the facts. Just because there is oil in the ground does not mean it is practical to extract. Every well has its cost in money AND energy. At some point the EROEI for every well will fall to less than 1, making oil from that well an impractical resource for energy. Although we will probably continue to work that well, the oil thus produced will have a greater value as a raw material for manufactured products than as a fuel. It won't go into your gas tank.

The concept of EROEI is usually ignored by politicians, disputed by alternative energy advocates, and distrusted by "Peak Oil" critics. It's not even discussed on the DOE WEB site. But eventually, it will become a topic of great importance. And credibility. Right now, there are no standard definitions of how to determine EROEI values, or what should – or should not – be included in an EROEI calculation. I believe we need a three tier model:

 

• Basic EROEI modeling – which confines itself to energy production versus energy consumption as an energy production process.

   

• Energy Supply Chain EROEI models – which calculate an estimate of energy used to research, develop, explore, produce, transport, distribute, and consume energy through the entire supply chain.

   

• Life Cycle EROI Models – should include co-generation, ancillary product production, waste, and the impact on ecology. Or put another way, everything discussed in this essay (including labor).

3. Labor Efficiency. We keep forgetting. The high energy content of a barrel of oil has allowed us to use less human labor to do energy intensive tasks – like farming. That's going to change. We need to start thinking in terms of the hours of labor it takes to produce a given level of energy.

In Brazil, for example, much has been made of the integrated biomass energy production process where small growers cultivate sugar cane and sweet sorghum, process the crop through a distillery, and feed their cattle the residue. The stillage and cow manure go through distillers, producing enough biogas to power a generator. There is enough electricity to power the distillery, the farm, and nearby homes or shops. But the process is labor intensive. Does this mean we humans will be spending more of our labor to produce energy, thus increasing the cost and decreasing the amount of labor we could be using for other tasks?

In 1850, more than 90 percent of our work was done by human labor and draft animals. By 1950, most of the human labor and virtually all of the draft animal labor had been replaced by other sources of energy. Absent an incredible breakthrough in energy technology, we will soon start to march backward in time to an age when human labor and draft animals will again become an important part of the energy cycle. Need proof? Read what has happened in Cuba since 1990.

4. Process. Engineers, bless their hearts, can make just about anything work in the laboratory. Maybe once. Perhaps several times. But that does not mean the energy production process thus invented is scaleable, repeatable, reliable, or available for mass production, distribution, or consumption. Furthermore, we live in a hydrocarbon environment. Most of the mobile fuel and stationary energy development involves fooling around with the hydrocarbon chain. Sure. We can turn almost anything into energy. But that does not mean it’s a good idea.

So for every alternative energy proposal, we have to evaluate the underlying technology in terms of its functional characteristics. Is it scaleable, repeatable, reliable, and available for mass production, distribution, and consumption? And what percentage of our total energy requirements will be satisfied by this process? We can, for example, make fuel from the hydrocarbons in chicken fat. But will that process solve the energy challenges that lie ahead? Absolutely not.

5. Infrastructure. The best alternative energy solutions will be compatible with (or adaptable to) the existing distribution and consumption infrastructure. We have to consider fuel handling, transportation, safety, security, availability, and reliability. We can not ignore our existing vehicle and power generation technologies. For example, one of the more serious challenges of moving to a hydrogen economy will be the development of safe and reliable methods for fuel transportation, storage, distribution, and consumption. We will need a whole new distribution infrastructure – thousands of hydrogen stations, and millions of people to be trained. That will take time, lots of labor, and buckets of money.

6. Use of conventional fuels. Some alternative energy proposals will ultimately fail because they assume the availability of low cost oil and natural gas. Wrong! If oil and natural gas are in short supply, or only available at a sharply higher price, they have to be removed from the energy equation. For example, with the exception of small scale applications or devices, we can not assume the use of natural gas to power fuel cells. We have to be careful with the calculation of net energy from biomass if the production process uses excessive amounts of diesel and gasoline fuels. Ethanol is not a good idea if it assumes increased consumption of oil or natural gas based herbicides, pesticides, and fertilizers. The list of questionable alternative energy solutions goes on and on. Any alternative technology that assumes the use of conventional fuels is suspect.

7. Benefits. We need to find someway to quantify, qualify and measure the benefits of the proposed alternative energy solution versus potentially more efficient or desirable uses of the resources employed. For example: is the use of natural gas to produce hydrogen a misuse of natural gas? Is the use of natural gas for electric power production more desirable than to save it for heating our homes? Is the use of land for ethanol crop production a good idea if we determine that the land we use will eventually be needed for food production? Is adding ethanol to gasoline a good idea if there is not a net reduction in CO2 emissions? The energy solutions we chose can not displace the alternative benefits derived from the resources we consume in the process. Else – on a net basis – we have accomplished nothing.

8. Subsidies. Governments love to hand out subsidies. Spend the taxpayer's money to buy favor. But in the long term, subsidies are not economically sustainable. They bury the real cost of energy, artificially encourage consumption, and increase the cost of government (thereby increasing the risk of financial failure). Energy companies routinely go to politicians with requests for cost sharing, debt interest offsets, payments for production, credit guarantees, direct tax incentives, and utility rate incentives. Unfortunately, subsidies will only continue to be available if government can manage the associated load of increased expense and debt.

That's not necessarily a good assumption.

9. Credits. Our government loves to cook the books. Auto makers are being encouraged to continue making gas guzzlers. To offset the obvious loss of fuel efficiency, manufacturers receive flex fuel vehicle credits that can be used to fudge their CAFE numbers (which is one of the reasons I believe CAFE standards are meaningless and should be dumped). Credits are also used to inflate the benefits of certain alternative energy solutions by including the indirect (non energy) co-products in the cost benefit analysis.

Granted, it is difficult to measure the direct benefits of an energy production process, and often the co-generation components are really valuable. For example, a typical Combined Heat and Power (CHP) system reduces the net energy required (100 units) to produce electricity (30 units) and steam or hot water (50 units) than separate heat and power components (which would need about 163 units of energy to do provide the same output).

So we need to pay attention to the way we calculate the benefits of any energy production or conversion process. Credit should only be given for energy efficiency or conservation.

10. Unintended Consequences. If the energy supply chain is really a system, and all of its component parts are interrelated, then we have to follow the impact of each alternative energy proposal through the act of consumption. How will the proposed automotive fuels affect fuel, engine and exhaust system life? Maintenance? Costs? Emissions? Consumer safety? We do not really understand, for example, the environmental consequences of using ethanol as a vehicle fuel. And does the proposed system solve one problem by creating another one? The most glaring example of this is MTBE, the replacement for lead in gasoline that was used to improve air quality, but which – at the same time – was found to be a potential carcinogen that easily leached into our water supply.

11. Waste. Every energy process creates waste. Oil spills, CO2, ash, effluent, dead batteries, old equipment, and so on. Fuel cells use some very exotic chemicals. Hydrogen generation from coal means we have to use the coal. Nuclear power has left us with a legacy of radioactive material. We need a way to quantify and qualify the type and amount of waste from each energy resource so that we can make comparisons of the resulting waste disposal challenges.

12. Ecosystem. Burning oil, coal, and to a lesser extent – natural gas – have produced an unpleasant side effect: emissions of carbon, sulfur, and metals. We have recognized that carbon emissions, in the form of CO, CO2, and ash, are an air quality environmental problem. Sulfur emissions produce acid rain. Metals can leach into ground water aquifers. Any acceptable mobile or stationary application solution, therefore, must yield a net reduction of these emissions.

Technology may not save us, but we have been making technological progress. That means we need to re-evaluate the environmental assumptions we may have made in the past. For example, since the average size of a biomass plant is relatively small, there are those who claim it will generally produce more CO2 per KW than a modern coal plant. On the other hand, new coal boiler designs allow the introduction of biomass into the fuel stream, effectively reducing emissions by up to 20 percent. Ethanol and hydrogen have great pop-culture appeal, but the side effects of production may be undesirable.

But perhaps most important of all, environmentalists have to rethink their positions on the use of natural gas for power generation, the looming use of dung, wood and coal as home heating fuels, and the inevitable construction of nuclear power plants. We have to accept reality. And deal with it in a constructive way.

Conclusion

I'm sorry to say this. But if we are willing to be realistic in our evaluation of the factors listed above, then the benefits of any energy production process that has a Basic EROEI of 3 or less is suspect, and any process that has an EROEI of 2 or less is probably a waste of time and money.

It's time to stop thinking in terms of pop-culture solutions and government subsidies. Energy is a serious business. We need science-based solutions that can be retrofitted into our existing energy chain. We must continually seek to increase the efficiency of converting energy into heat and power. And we must somehow get our respective governments to get serious about a program of international energy research and development.

We have – maybe – 10 to 15 years to play with. After that, oil shortages will decimate our lifestyle. Unfortunately, if the best solution does require the development and deployment of a new technology, that process – best case -will take at least 15 to 20 years.

We don't have much time. .