The future of energy

If the plans being laid for the economy and the environment work out the way President-elect Barack Obama's advisers hope they do, the future of energy can be summed up in one word: electricity.

That one word covers a lot of policy twists, however: What will the economic downturn mean for initiatives to cut down on greenhouse-gas emissions? What will the recent drop in gasoline prices mean for efforts to boost alternatives to fossil fuels? Can the electrical grid handle increased demand? How do you smooth out the highs and lows of power generation? Where will all that power come from?

New York Times columnist Thomas Friedman has repeatedly cited a catalog of challenges for future energy policy, ranging from the global supply-and-demand imbalance to climate change and the threat from "petro-dictatorships." Some people might look at that list and conclude that "we're cooked ... we're completely fried," Friedman said during a conference sponsored last week by the Center for American Progress, Washington's most Obama-centric think tank.

"That's one way to look at that list," Friedman continued. "I look at it the way John Gardner looked at a similar list - and he said, 'That list? That's a list of incredible opportunities masquerading as insoluble problems.'"

That reflects the thinking of Obama's top advisers on energy and environmental policy, who would make "green infrastructure" a top target for next year's economic stimulus. Based on statements made during the campaign as well as afterward, they see energy innovation as a key economic driver as well as a way out of the climate-change mess.

Some experts on energy policy, such as U.S. Rep. Steve Israel, D-N.Y., are bullish about pushing through fundamental changes in energy policy, driven by new technologies ranging from plug-in hybrids to smarter electrical grids.

Israel compared the current situation to the promise of information technology in 1980. "I think we're on the cusp of a massive transformation in clean technologies," he told me this week.

Others, however, are more circumspect about the prospects for developing an energy policy that boosts the economy as well as the environment - particularly in the wake of the credit meltdown that started in mid-September.

"It was harder on Sept. 16 than it was on Sept. 14," said James Woolsey, a Democrat who directed the CIA during the Clinton administration but served as an adviser on energy and climate change issues for GOP presidential candidate John McCain. "I hope we haven't gotten to a tipping point in which it becomes impossible."

Here's a six-point action plan for energy policy, based on past statements from Obama's energy and environment transition team as well as observations from Israel, Woolsey and other experts:

1. Generate 'negawatts'

The first step, and arguably the easiest step, would be to patch up the gaps in today's energy infrastructure. Federal incentives could be provided for home weatherization and better insulation, for rooftop solar cells or even low-tech energy-saving measures such as adding a coat of reflective paint to the roofs of commercial buildings. "That would employ people who normally would be building houses, but [are idle because] those types of projects are being closed down," Woolsey said.

Some economic stimulus funding would go toward mass transit projects, with the aim of reducing gasoline consumption - as well as smart-metering systems that could make the electric grid more efficient (see No. 4 below).

In the long run, the resulting energy savings (and reduction in greenhouse-gas emissions) could be just as important as the economic shot in the arm. Two decades ago, energy-efficiency guru Amory Lovins coined the term "negawatt generation" to describe the beneficial effect of such energy conservation.

2. Move from fossil fuels to renewables

Israel said the "game-changer" in energy policy will take the form of incentives to move from an economy based on fossil fuels to one that puts more emphasis on renewable energy sources. The top three items on his agenda are:

• A cap-and-trade system to shift money from carbon-emitting to carbon-saving activities.
• Renewable portfolio standards that would require utilities to get a specified proportion of their energy from renewable sources.
• Long-term tax incentives for the renewable-energy industry.

"If we do those three things, we will have absolutely changed the game on energy after 30 years of missteps, back steps and half-steps," Israel said.

Some have criticized cap-and-trade schemes on the grounds that they smack of socialism, or that Europe's experiment with the system just plain didn't work. Woolsey agreed that the first European effort was a "ridiculous" failure. "It's an example that things can go wrong if you go right to an international system," he said.

But he said a cap-and-trade system can succeed if it's phased in correctly, and would be more palatable than the carbon tax that some environmentalists are now suggesting. "We've run a good cap-and-trade system with sulfur dioxide, and another good one, sort of, with chlorofluorocarbons," Woolsey observed.

Israel said he thinks "the will is there" to approve a cap-and-trade system during the next Congress, although fixing the economy will have to come first. "Once we stabilize our economy, we can then get to work on making the marketplace [for energy] more consistent, sustainable and predictable," he said.

3. Promote plug-ins

When it comes to fueling the autos of the future, plug-in hybrid electric vehicles (or PHEVs)still look like the best bet. Dan Reicher, a member of Obama's transition team and one of the top prospects to head the new president's Energy Department, has proselytized for PHEVs and pioneered a plug-in project called RechargeIT at Google's philanthropic arm.

"The moment is now for plug-ins," he said during a Brookings Institution conference this summer. The auto industry's current woes have led some to worry that the moment has passed, while others hope that lawmakers will put more pressure on carmakers to produce greener machines.

What about biofuels? In the past year or so, the bloom has come off the rose (or should that be the cornflower?) for corn-derived ethanol, due to concerns about pollution as well as a food-vs.-fuel faceoff. And if fuel prices stay below $2 a gallon, the switch to biofuels may not make economic sense, Woolsey said. There's a danger that the biofuel boom could give way to the same kind of bust that hit the synthetic-fuel market when oil prices fell in the 1980s.

PHEVs could make the difference this time around.

"The thing that is different from what happened in the mid-1980s is electricity," Woolsey said. "Because electricity is 2 cents a mile, there's no way gasoline gets down there to compete with electricity."

But increased electricity use could drive up utility costs and ultimately force the construction of new plants. If electric utilities generate that power by burning natural gas, coal or oil, shifting to plug-ins would do little to address climate change or energy efficiency. In fact, researchers at Duke University suggest that regular hybrids may be more cost-effective than plug-ins for reducing CO2 emissions (unless gasoline rises to $6 a gallon).

That's why the Obama administration wants to make the electric grid greener - and smarter.

4. Build a smarter, more open grid

A smarter electric grid would use software to manage the flow of power more efficiently, evening out the load throughout the day (when there's high demand) and the night (when the demand is lower).

"There's no reason why we can't have a lot more use of time-of-day pricing," Woolsey said. "That'll encourage people to set timers and run their dryers during off-peak times."

Future electrical grids could also be more open to distributed generation. For example, utilities could make it easier for homeowners with solar panels to feed their surplus power into the grid and get paid for doing it.

"In every forecast of the deployment of plug-in hybrids, the electricity consumption goes up," Israel said. "Therefore, we need to make sure that we are focusing on innovative technologies to manage that increase in electrical use by smart metering, and by integrating renewable technologies as sources of electricity."

Israel gushed over the research being conducted at the National Renewable Energy Laboratory in Colorado. "One of the most fascinating demonstrations they have is a plug-in hybrid that's attached to solar panels. It's completely off-grid," he said. "That's the future. The problem is that NREL's [annual] budget is $328 million, which is equivalent to 18 hours in Iraq and Afghanistan."

5. Solve the storage problem

One big problem with the electrical grid as it exists today is that it's a "just-in-time" system, Woolsey said. Plenty of renewable energy may be available when the wind blows or the sun shines - but what do you do at night, or when the air is calm?

This is why so much energy (of the mental variety) is being devoted to designing better batteries, as well as developing systems that can efficiently transform electrical power into more easily stored form of energy. Compressed-air energy storage is one of Woolsey's favored options.

During the presidential campaign, McCain floated the idea of a $300 million prize program to encourage the development of advanced batteries. At the time, Obama criticized the idea as a "gimmick," but there's no question that better batteries are the key to plug-in progress.

6. Boost electric production

Nearly everyone acknowledges that more electrical capacity will have to be brought online, particularly if the plans to shift consumption away from the oil tank and onto the electric grid actually take hold. And nearly everyone acknowledges that more nuclear plants and coal-fired plants will have to be built. The question is how much progress the energy industry can make on renewables, and how much it will have to rely on dirtier alternatives.

Some researchers, such as NASA's James Hansen, are so worried about the coming climate crisis that they are advocating accelerated construction of next-generation nuclear plants. One company has even proposed building mini-nuclear reactors that would bring electrical power to remote areas.

Israel, however, thinks nuclear power is the "weakest link" in the energy chain. "The nuclear piece is, in my view, the most difficult - only because of the storage issue," he said.

There are plenty of energy technologies waiting just over the horizon. OK, maybe way over the horizon: nuclear fusion, for example, or space-based solar power. Those technologies could play a significant role in the post-oil era - but probably not during the Obama administration.

Israel said the best role for the federal government in the years ahead will be to widen the options for the energy marketplace to choose from.

"The problem with energy policy over the past 30 years is that they let congressmen like me, who can barely operate a TiVo, pick the technical winners and losers on alternative energy," he said. "In my view, we ought to incentivize everybody and diversify our portfolio."

Is the current angst over energy, the economy and the environment an incredible opportunity masquerading as an insoluble problem? If you buy into Israel's view, you might think so.

"Over the past few years, our economy was riding on a real-estate bubble," he told me. "Once that bubble burst, we can now use green energy as the next bubble, and sustain it for the next several decades."

What do you think? Is there a relatively pain-free path to the future of energy, or are we in for a rough ride? I haven't even touched upon some of the big energy debates - such as carbon sequestration and the prospects for cleaner coal-fired plants. (Here's an NBC News video about a cleaner-coal technology being developed in Germany.)

Feel free to weigh in with your comments on these and other subjects related to the future of energy. For more on energy policy, check out msnbc.com's Oil and Energy section as well as the Green Machines archive, and take a look at former Vice President Al Gore's interview with Newsweek. President-elect Barack Obama is due to meet with Gore today.