In America, power and fuel are separate issues

In his weekly address President Obama said:

But you and I both know that with only 2% of the world’s oil reserves, we can’t just drill our way to lower gas prices – not when consume 20 percent of the world’s oil. We need an all-of-the-above strategy that relies less on foreign oil and more on American-made energy – solar, wind, natural gas, biofuels, and more.

Solar, wind, and natural gas have almost nothing to do with the price of gasoline.

Policies that affect oil, gasoline, ethanol and biodiesel, hybrid vehicles, battery technology, and vehicle fuel efficiency can all directly and significantly affect the price of transportation fuel (although often quite gradually).

In America, there is little overlap between fuel used for transportation and electricity used to light, heat, and power our homes and businesses.  If you could magically make solar power price competitive with electricity produced from coal or natural gas you would do almost nothing to lower the price at the gas pump because there are so few electric-powered and hybrid vehicles on the road.

Similarly, the development of massive shale (natural) gas resources in the U.S. will make electricity more affordable in the U.S. but will have almost no effect on the cost of our transportation fuel.

Yes, there are linkages.  There are a few hybrid vehicles on the road, and some commercial vehicle fleets use natural gas as fuel.  But these are vanishingly small when compared with the petroleum-based and bio-based fuels we put in our cars, trucks, boats, and planes.

Some American homes are heated with oil, so reducing the cost of electricity can gradually, over many years, shift home heating away from oil.

And in some countries where oil is used to produce electricity, reducing the cost of other types of power production can reduce their use of oil, which through the wonder of global oil markets can lower the price at an American gas station.  But these effects are for now quite small.

These linkages mean that the President’s statement is qualitatively correct. But the effects are so small that the President is quantitatively misleading the listener when he suggests that expanded use of solar and wind power will lower gas prices.

If (when?) battery technology leaps forward to make hybrid or electric vehicles a significant share of the market, then electricity and its sources will begin to act as significant substitutes for gasoline and diesel fuel.  At that point R&D to reduce the cost of solar power, wind power, nuclear power, hydropower, and natural gas power could start to affect the price at the pump enough for you to notice.

But until then fuel and electric power are for all practical purposes separate issues, and when an elected official’s response to high fuel prices is more research on or subsidies for some form of electric power production, he is either confused or misleading you.

(photo credit: Jonathan Dueck)

By | 2017-12-10T13:25:31+00:00 Sunday, 11 March 2012|