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What Comes After Oil?

Fuels refined from crude oil are the primary transportation fuels for passenger vehicles and trucks today. In this article we explore the options for replacing oil with fuels that are (1) made from renewable resources, (2) do not add global warming pollution to the atmosphere, and (3) are less polluting than gasoline and diesel. A subject of this magnitude and complexity requires hundreds of pages to cover adequately. We will attempt to cover it in this article by focusing on the big picture strategies of greater fuel efficiency and vehicles that use a mixture of electricity, hydrogen from renewable sources and biofuels.

Why Have An "Oil Change"?

There are environmental, economic and national security reasons why we should find an economical and expedient alternative to oil. Vehicles are responsible for 31 percent of United States global warming pollution (GWP) leading to climate change and diesel-powered vehicles in particular are one of the largest sources of air pollution leading to health problems. Economically, many of the country's recessions have been preceded by energy price shocks. Lastly, the U.S. economy is so dependent on foreign oil from unstable regions of the world that protecting its supply is a dominant focus of our national security and foreign policy agendas.

An alternative fuel that is cleaner, free of GWP, domestically produced and competitively priced with today?s gas and diesel, is the ideal solution for our health, environment, economy and national security. Given the very long time frame required to build new fuel sources that provide the equivalent billions of gallons per year that we consume, we will need to push change in fuel production through governmental policies rather than depending on market forces alone.

To date, we have consumed less than half of the conventional sources of oil. There remain huge reserves of expensive, unconventional forms of oil (40 to 80 times more) such as shale oil and tar sands. We will run out of atmosphere and stable climate long before we will run out of oil. A pro-active approach to phasing in several alternatives that complement, compete with and ultimately replace oil will best mitigate the environmental and economic damage from our dangerous addiction to oil.


The US currently consumes about 138 billion gallons of gasoline and 56 billion gallons of diesel (of which 36 billion gallons of diesel are used for transportation) per year. The Energy Information Administration (EIA) currently predicts that by 2025, the U.S. will by consuming 200 billion gallons of gasoline and 94 billion gallons of diesel. We will not be alone. In the coming years, China will surpass the U.S. in fuel consumption creating an economically dangerous competition with the U.S. that will only make matters worse.

Estimates made by NRDC and the Union of Concerned Scientists (UCS) state that using existing, proven technology, we can improve the efficiency of passenger vehicles and SUVs by 40%. In fact, pending California regulations (AB1493) based on existing technologies will require reductions in global warming pollution from passenger vehicles by 30% by 2015 with a similar improvement in fuel economy.

Feasible improvements in efficiency are critical but insufficient by themselves. To significantly cut gas and diesel, we will need to introduce sustainable fuels and reduce miles traveled. As illustrated above, research by NRDC and UCS shows that with appropriate government policies, alternative fuels combined with fuel efficiency can start to actually reduce oil consumption within seven years. And a complete solution can reduce oil consumption even further than projected above.

In addition to fuel efficiency (including hybrid engines) the solution is a mixture of:

1. Smart growth
2. Transition fuels (compressed and liquefied natural gas)
3. Electricity
4. Hydrogen
5. Biofuels

Smart Growth

Nothing is more effective for reducing oil consumption than smart growth. The goal is to have people live in environments that enable them to reach their work, daily shopping and entertainment conveniently without using their cars. Smart growth produces more livable communities and an alternative to sprawl-type housing that result in increased pressure to build more roads and develop more land. The chart below shows average energy usage for single-family U.S. homes. Owners of urban homes in smart growth communities use 80% less energy for transportation than people in suburban, sprawl communities (26 million BTU/year versus 125).

Transitional Fuels

To build the renewable fuels industry up to the 125 billion gallons needed to displace oil (after fuel efficiencies) will require a major public initiative. In the interim we will need some transitional fuels to cut pollution and create more diverse fuel choices. Currently, compressed and liquefied natural gas are the main alternative fuels with the largest installed infrastructure. While these fuels are cleaner and provide alternatives, they still contribute to climate change.

Some companies are starting to capture methane from natural sources that would otherwise be released into the atmosphere in order to convert it to transportation fuels. Since methane is 23 times more damaging than carbon dioxide as a GWP, this is a highly desirable solution both for offsetting fossil fuels and for preventing the methane from reaching the atmosphere. Common sources of the methane that can be used as fuel for transportation or electric generation include landfills and animal waste from large farms. However, this is not a major source of fuel for transportation.

Electric Vehicles

California has discontinued its electric vehicle mandate, but not before some important results were revealed. The vehicles are extremely popular with their owners. They work very well if the vehicle does not need to travel a range of more than 100 miles between charges. They are dependent on an inexpensive source of electricity (charging at night when electricity prices are lower). Neighborhood electric vehicles, i.e. smaller vehicles that don?t need to travel a long range or on freeways do not face any significant technical barriers.

The technical problems with electric vehicles have been the battery life, range, and availability of renewable sources of electricity. The hybrid vehicle (which uses gasoline as the only fuel but generates its own electricity from either gas or vehicle deceleration) has come onto the market in part due to knowledge gained from electric vehicles.

A possible rebirth of electric vehicles may come from two directions ? ?plug-in hybrids? and improved batteries. A ?plug-in? hybrid has a larger battery and can be charged at home providing the benefits of an all-electric vehicle in town and the range of a gasoline vehicle on the highway. A second revival could come from innovation in battery technology, largely as a result of research in cell phone battery technology that is increasing the range, recharge time and battery lifetime. In either case, the solution is dependent on the availability of inexpensive electricity from renewable sources. For an on-line view of some of the new electric and hydrogen vehicles, see the Scientific American Frontiers.


Hydrogen can either be converted to electricity through a fuel cell or can be burned directly in a modified engine. In fact, the Hydrogen Car Company can refurbish an existing vehicle to run on any combination of natural gas and hydrogen by burning the fuel instead of converting the fuel to electricity first. Two advantages of this approach are that it avoids the cost of a fuel cell and can use different types of fuels. As we discussed in our August 2003 newsletter there will be a long-term race to see when the hydrogen fuel cell vehicle out-performs the hybrid internal combustion engine running on a renewable fuel. General Motors views the fuel cell vehicle as an attractive option in part because the auto design can be greatly simplified and cars can be more rapidly developed.

The hydrogen fuel cell vehicle (which is currently in field testing) may well be the vehicle of choice in 20 years - but we can't sit back and wait to find out. Much of the work to create renewable fuels can apply both to traditional internal combustion engines as well as fuel cell vehicles. See "Hydrogen Economy and Fuel Cells" and "The Hope for Hydrogen" for a discussion of current issues.

Is Your Hydrogen Black or Green?

The principal problem of envisioning hydrogen as an alternative to oil is finding a source of hydrogen that is price competitive with gasoline and does not contribute to global warming. Hydrogen is not a source of energy but rather is a carrier of energy. If the energy used to create hydrogen comes from a renewable source, we refer to it as ?green? hydrogen ? otherwise we consider it ?black? hydrogen as the process for creating it generates global warming pollution.  Black hydrogen is commonly (1) created as a byproduct from refining petroleum, (2) extracted from natural gas, or (3) extracted from water through electrolysis from non-renewable electricity. As we will discuss later, it is also possible to make hydrogen gas from biofuels. Without a source of green hydrogen that is price competitive with gasoline, hydrogen is not a long-term solution. Currently to be price competitive with gasoline at $1.50/gallon, the hydrogen either needs to be either the cheap byproduct of the refinery process or it needs to be generated by electricity from a renewable source that costs about 4 cents per kilowatt-hour.

As Joe Romm points out in ?Hype about Hydrogen?, society currently gets more environmental benefits by using electricity from renewable sources (solar, wind, geothermal, etc.) to replace coal-based electricity than it gets by using it to create hydrogen simply because old coal-based electricity is so much more polluting than vehicles.

In addition, hydrogen is currently very expensive to store and transport. While research may eventually show us solutions to this problem, an ideal hydrogen fuel solution may be one where energy is converted to hydrogen at the location where the vehicle is being refueled. This is the appeal of reforming natural gas or using electrolysis to create hydrogen - the fuel source can be shipped to the site and then converted. This may also make creating hydrogen from biofuels an attractive solution.

Biofuels Overview

The single largest but yet unproven replacement for oil is biofuel. Biofuels are plant oils, animal oils, or plant cellulose that are converted into a liquid fuel as a replacement for diesel or gasoline. The advantages of biofuels are (1) they don?t require a major change to the fuel infrastructure, (2) they potentially emit minimal GWP because the CO2 emitted is the same CO2 that was absorbed from the atmosphere, (3) the transformation of U.S. agriculture can significantly reduce its environmental impacts, improve its profitability and/or reduce the public subsidies. We don't yet know how much land would be required or whether biofuels can be price competitive with oil. Recent activities suggest the answers are positive.

The U.S. has about 300 million acres of harvested cropland. 74% of those are used to grow animal feed. 80% of corn and 98% of soybeans are grown for feed (See "2002 Census of Agriculture" page 15 for details). To have enough land to cultivate crops for energy will require major changes in the agricultural sector. In many cases a plant can be used both for creating fuel and for animal feed. For example, energy can be extracted from the plant sugars while at the same time the proteins can be extracted for animal feed. Another example is making ethanol from the crop waste and keeping the crop itself for its original uses. Arguments against this approach are the need to plow back some of the crop waste to enrich the soil and the cost of collecting the crop wastes.

Back of the Envelope

According to the Department of Energy the average cost of fuel per gallon for April 2004 was $1.80 for gasoline and $1.69 for diesel. The cost of purchasing and refining the crude oil for gas and diesel was $1.17 and $1.05 respectively. To compete with oil, a biofuel would need to match those costs. In addition, ethanol has a 113 octane number making it highly attractive to blend with gasoline and increasing its value.

Let?s assume for the moment that 50% of land currently growing animal feed was converted into land producing both transportation fuel and protein for animal feed. How many gallons per acre would the land have to produce to meet 2/3 of current gasoline used? With 111 million acres available to supply 93 billion gallons, we would need to produce about 840 gallons per acre. At maximum conversion efficiencies, the sugars in one bushel of corn can produce 2.74 gallons of ethanol (a gasoline replacement) and average productivity is around 130 bushels per acre or 356 gallons per acre.

Unfortunately, corn-based ethanol production consumes .7 to 1.06 units of fossil fuel to produce 1 unit of ethanol (the variation depends on which study you use). Biodiesel made from soybeans produces about 60 gallons per acre. A major environmental complaint against current corn and soy fuel production is that the crops are not grown in a sustainable way. Whatever environmental benefits come from the fuels should not be at the expense of environmental damage caused by its production.

Converting the cellulose in crops holds much promise. A crop like switchgrass, when it is at the same level of maturity as corn ethanol, should be able to produce closer to 1,000 gallons per acre and produce between 5 and 10 gallons of fuel for every gallon-equivalent required for its production. First commercialization is likely to start at 400 gallons per acre.

Efficiently producing fuel from agriculture requires crops which can (1) produce significantly more energy than is used in their production, (2) support both energy production and animal feed, (3) approach 840 gallons per acre and/or use land currently not in production.


Ethanol is a biofuel that can be used as a replacement for gasoline or blended with gasoline. Ethanol can be blended up to 20% into existing gasoline without any changes to the vehicles, and is routinely blended at 5.7%. Using pure ethanol requires fairly straightforward engine adjustments.

About 2.8 billion gallons of ethanol were produced in 2003. 99% of U.S. ethanol currently comes from corn. About 10% of total corn produced ? all of which is subsidized ? is used to make ethanol. On a per-gallon basis, the corn subsidy has been as high as $2.06 in 2000 and is about 60 cents currently. (Total subsidies to U.S. corn growers for all purposes have been $34 billion since 1995.)

Ethanol can be produced either from the sugars or the cellulose in a plant. This is accomplished either by enzymes or thermo-chemical reactions. Recent research in enzymes has produced promising results. The big advantage of focusing on cellulose is that it is found in a large variety of waste products (wood, plant stalks, grass, etc.) and it offers the promise of the dual use of cellulose for fuel and proteins from other parts of the crop for animal feed.

One of the most promising sources of cellulose comes from switchgrass. It is a perennial crop and as such requires less tilling of the land (avoiding subsequent land erosion problems) and is much more environmentally friendly. It can produce 5 to 10 times more gallons of fuel per acre than soybeans, although soybeans produce up to 3 times more animal feed. Selective breeding of crops over time should be able to substantially improve the yield (corn productivity improved by a factor of 5 over 60 years from improved breeding and techniques). (See "The Economic Competitiveness and Impacts on the Agricultural Sector of Switchgrass" by Ugarte & Hellwinckel of the University of Tennessee. Not currently on-line.)

A February report from the University of Minnesota describes a new technique for extracting hydrogen from ethanol. If this approach proves correct, then biofuels could be a renewable source for hydrogen. The ethanol can be delivered as a liquid and then converted to hydrogen at the filling location - eliminating the need and expense of transporting and storing gaseous hydrogen.


Biodiesel is a replacement for diesel (either blended into diesel or used as a complete replacement) that comes from plant or animal oils. The most common source today is from soybeans. It can be made from many plant seeds (sunflower, canola, etc) or from animal fat. A bushel of soybean produces 1.5 gallons of biodiesel or another way to think about it is that 7.5 pounds of seed produces about 1 gallon of biodiesel. A farmer can produce about 39 bushels of soybean from an acre of land or about 60 gallons per acre (see "Supply and Demand for Soy" for more details). According to the US Department of Energy the U.S. currently has capacity for 50 million gallons of biodiesel production. Wholesale costs range from $1.50 to $2.50 per gallon for pure biodiesel - about $1.00 premium over regular diesel.

Estimates by Shaine Tyson of National Renewable Energy Lab state that a fully developed market for biodiesel from all sources could conceivably grow the market production capability between 300 million gallons and 4 billion gallons. Unfortunately, this best case scenario would provide only 11 percent of the needed 36 billion gallons.

One complaint about biodiesel - especially biodiesel made from soybeans - is that it has elevated levels of some air pollutants (particularly Nitrogen Oxides). This concern is very plant specific, as sunflower and canola have this problem to a lesser extent. Still, because biofuels do not contain sulfur, they burn cleaner than conventional fuels and allow particulate matter and other pollutants to be more easily removed from the exhaust.

Fuel Pricing and Subsidies

The current market for biofuels is supported by a variety of significant subsidies. One can also argue that the current market for gas and diesel is heavily subsidized as well, through a wide range of depletion allowances, tax credits and the many expenses that are not directly factored into the price such as the military cost of protecting access to foreign oil.

The all-time highest recipient of direct federal subsidies is the agricultural sector, which collected $114 billion from 1995 to 2002. (See the Environmental Working Group's website.) The WTO estimates crop and milk subsidies at $19.6 billion for 2003. Much of that has been used to prop up prices to farmers because there is too much product on the market. In some cases, farmers are being paid not to grow crops in order to limit supply and increase prices. A careful analysis of how tax dollars are flowing to farms may very well reveal that we could reapply the money, phasing out subsidies that are justified currently only because of overproduction, and using it instead to develop crops that supply fuel. . The argument against this approach is that it could cause a modest increase in food prices. We would argue that subsidizing a farmer is an inefficient way to lower food prices for those that otherwise could not afford food. It is much more efficient to financially assist those who need the money in order to eat.

This scenario also raises an intriguing idea: if farmers can compete with the market currently owned by the oil industry, their market will significantly expand, creating a competition that will benefit the economy overall.


Significantly reducing and ultimately eliminating oil as our main energy source for ground transportation will not be done through a single alternative but instead through a competition of many fuel sources during a complex transitional process. To address climate change and be acceptable to the market, any fossil fuel alternative will need to have three properties while remaining price competitive with today's fuels: (1) be made from renewable sources, (2) not add global warming pollution to the atmosphere, and (3) be less polluting than gasoline and diesel.

With those criteria in mind, our three choices are (1) electricity made from renewable sources; (2) biofuels made from plants or animal oils or plant cellulose; or (3) hydrogen made from renewable sources.

While hydrogen is heavily promoted to the public, it is only a carrier of energy, not a source. As a carrier, it has tremendous promise because it can be made from so many different energy sources and it provides a link between vehicle and stationary power sources. Green hydrogen can be produced from renewable electricity, converted from biofuels or made from waste products. The public needs to clearly recognize that we will not be advancing our environmental agenda and reducing GWP if we simply move to a hydrogen economy that is based solely on fossil fuels rather than renewable energy.

The near term solution to our fossil fuel dependence will need to consist of:

  1. Improving the efficiency of the U.S. fleet.
  2. Creating policies that provide incentives for consumers to buy fuel-efficient vehicles and fuels that have reduced global warming pollution. These policies should remove barriers and encourage industry to make efficient and lower polluting products. Some policies can be funded by a reallocation of existing subsidies.
  3. Using non-renewable alternatives such as natural gas, and hydrogen from natural gas as transition fuels.

These actions will both help in short term and also provide signals for industry to make the necessary long-term investments.

(Note: E2 is very grateful for the information and review provided by Nathanael Greene, Dan Saccardi, and Diane Bailey of NRDC, Dan Sperling of UC Davis, Dan Kammen of UC Berkeley and Dan Goldman of New Energy Capital.)

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