Politics is a painfully slow and inadequate way to go about forming an energy strategy, but it seems to be the only way we have.

A new bill submitted by Rep Henry Waxman (D-CA) and Edward Markey (D-MA), the American Clean Energy and Security Act, would aim to reduce emissions of carbon dioxide and other greenhouse gases by 20% from 2005 levels by 2020 (vs. the 15% proposed by President Obama), and by 80% by 2050.

The new emission targets are particularly interesting in that it would bring federal law nearly into line with California's landmark Global Warming Solutions Act of 2006 (also known as AB 32) which would reduce greenhouse gas emissions to 1990 levels by 2020 (a 30% drop) and 80% by 2050.

The proposal includes some requirements to modernize the electrical grid, produce electric vehicles and improve energy efficiency, all of which are crucially important steps toward meeting our energy challenge.

But it is also based on a cap-and-trade market approach to emissions, which I fear could prove a disastrous boondoggle. There is ample evidence that such programs have been a failure in Europe and elsewhere as traders exploited loopholes, and the programs did not produce the expected reductions in emissions.

A simpler, fairer, and virtually exploitation-proof approach to emission controls is a carbon tax. Assigning a price to carbon emissions across the board and raising it gradually would give the market the information it needs to progressively choose cleaner primary energy sources, improve efficiency, and get us where we need to go.

The word "tax" is politically unsaleable, however, and so we carry on doing some of the right things for mostly the wrong reasons.

Instead of worrying about CO2 targets, we should be worrying about how to live within a shrinking budget of fossil fueled energy. As I have mentioned before, studies by professor Kjell Aleklett (Uppsala University) and professor David Rutledge (Caltech) have called into question whether we can even burn enough fossil fuel to reach the 450 ppm target on CO2, given their models of the peaking and depletion of oil, gas, and coal.

Still, there is something encouraging about seeing our ambitions to fight climate change starting to converge with what our energy goals need to be. Climate change, energy, national security, and our overall economic health are deeply intertwined issues, and they must be addressed together if we want real, sustainable solutions.

When 20 Years Is "Imminent"

My study suggests that we will have to live with 25% less energy by around 2025, and 50% less energy by 2050. Starting with peak oil (a flattened peak from 2005-2012), then peak natural gas (around 2010-2020), then peak coal (2020-2030) we are facing the imminent decline of 85% of US primary energy sources.

By the end of this century, most fossil fuels will be kaput, and we'll be relying exclusively on renewable energy (which currently supplies less than 2% of our primary energy), and whatever nuclear energy capacity we can maintain without fossil fuels.

Some may object to my characterization of a 20-year-off peak as "imminent," but in fact, it is.

According to Joseph Romm, the editor of Climate Progress, oil company Royal Dutch Shell claimed in 2001 that it takes 25 years for a primary energy source to reach a 1% share of the global market after its commercial introduction. Based on the histories of solar and wind energy and the fossil fuels, that seems about right.

Once an energy source reaches 1% penetration, we can start making some predictions. A fascinating paper I recently came across (C. Marchetti, "Primary Energy Substitution Models: On the Interaction between Energy and Society," 1977) used statistical analysis to make some startlingly accurate forecasts about oil, natural gas, coal, and nuclear energy 30 years into the future. According to the model, once a given fuel source reaches 1% penetration its success over the next 30 years is essentially "baked in."

Significantly, Marchetti found that it generally takes 100 years for a given source of energy to achieve 50% market penetration. While he did not model renewables in his 1977 study, he did realize that solar and other nascent energy sources could not achieve a significant enough fraction to fill the gap of older fuels by 2050. His conclusion? "Go nuclear or bust."

We may rightly take issue with Marchetti's analysis on several points: It does not model renewables or efficiency, nor does it take into account any limits on resource reserves. But his paper was not an attempt to forecast the future of energy; it was simply a statistical model showing how energy sources are progressively exploited and substituted. As such, the implications are sobering for renewable energy and our future energy budget as a whole.

If it takes 25 years for a given primary energy source to reach 1%, and another 100 years to reach 50%, we should be forming our energy policy on at least 50-year time horizons.

We don't, I suspect, for several reasons.

Politics Always Trumps Science

First, 50 years is much too long a period for the political process to contemplate. Thousands of scientific papers have accurately projected the future of various energy sources, and made recommendations accordingly, but they don't survive the process of making policy when elected leaders have short terms in office and constituents who demand results in two years or less. In short, politics always trumps science, to our eternal detriment.

Consider the case of corn ethanol. Before federal subsidies arrived and produced the boom and bust of corn ethanol producers in 2006-2008, scientific research had concluded that with an EROI (energy return on investment, or "net energy") of perhaps 1.2, corn ethanol was an obvious non-starter. There's no way a fuel production process that only returns a 20% net gain can be sustainable (research by Dr. Charles Hall et al. suggests that the EROI needs to be at least 3, if not 5 once all indirect costs are accounted for). Yet their research was ignored, and their pleas to Congress fell on deaf ears; politics trumped science. Only now, after the bust, are people starting to look at the EROI of fuels as an important consideration in policy formulation.

Second, we are simply too afraid of the conclusions to think about them. But this fear is almost never directly acknowledged; we prefer to express it in high-minded pronouncements on the wisdom of free markets, or denial couched in weak science, or faith in human ingenuity.

Third, we have a serious problem of energy illiteracy. A new report from the nonpartisan, nonprofit research group Public Agenda titled "The Energy Learning Curve" reports some stunningly discouraging data from its January 2009 survey of over 1000 American adults:

• 39% of respondents couldn't name a single fossil fuel.

• 51% couldn't name an alternative energy source.

• 65% thought that most of our oil imports come from the Middle East.

• 56% believe that nuclear energy contributes to global warming, and 31% believe that solar energy contributes to global warming.

• 68% believe that "The main cause for increases in gas prices is speculators who drive up the price of oil."

• More than half don't know that less than 10% of the United States' energy comes from renewable sources. [If you rule out hydro and biomass, neither of which are likely to scale up, and restrict "renewable" to mean only solar, wind, and geothermal, it's less than 2%.]

• 17% are classified as "Climate Change Doubters." Nearly two-thirds of this group, and 44% of the entire sample, believe that drilling the Outer Continental Shelf and Alaska would eliminate our need for imported oil.

• 19% are classified as "Disengaged," meaning they don't know and don't care about energy much at all.

I would certainly hope that readers of my column would do much better than this sample. (And if not, they need to pick up a copy of my book Profit from the Peak and study up.)

But our problem isn't just the "dumb public." Congress is chronically full of bad ideas about energy, which I have frequently chronicled in this column, as have been most presidents in recent memory. Even our new Secretary of Energy Steven Chu appears to be desperately mistaken about the potential of biofuels, and the time frame he has to address the peak oil crisis.

The media is little help either, regularly gushing about the trillions of barrels of oil in shales, or the latest "breakthroughs" in cold fusion or water-powered cars, without giving a moment's thought to the flow rates (that is, the only thing that matters) of unconventional oil, or retracting their previous stories when the latest breakthroughs turn out to be mistakes and canards.

Even most cleantech investors know little to nothing about peak oil, or any of the fossil fuels for that matter. Conversely, most oil and gas industry types are broadly ignorant about renewable energy and efficiency, and view it as a threat.

In the face of such ignorance, how much hope can we place in the political process to form sensible energy policy? Even if we did have hope, how much do we really think we can accomplish in the next 40 years, given the conclusions of Marchetti's model?

Forget "Energy Independence"

Right now, our spending on energy research and development, and developing new energy and efficiency measures is less than one-tenth of what sober analysts calculate we would need to spend to make a reasonable transition to the energy regime of the future.

We're also about 20 years too late to begin making that investment if we want the transition to be better than a chaotic, very bumpy ride marked by shortages and horrendous price swings.

An intelligent, sensible approach to our energy future would concentrate first on efficiency and conservation, but it's deemed politically unacceptable to ask Americans to make any sacrifices.

It would support continued drilling and careful stewardship of our remaining domestic oil and gas reserves, but that quickly runs afoul of the green and environmental lobbies that are now in control.

It would put rail and transit oriented development at the top of our infrastructure agenda, but those objectives were too long-range and not "shovel ready" enough to gain any serious traction in the recent federal stimulus package.

It would put a tax on all sources of carbon emissions, and would require the US to reduce its oil consumption each year by the same percentage that global oil production is declining; both suggestions would arouse righteous ire from free market advocates. The "Energy Learning Curve" report found that "Anything that increases the cost of driving is soundly rejected by the public."

It would forget about "energy independence" as a goal (if it were possible at all, it would be at least 70 years in the future) and start thinking instead about how to reconfigure our cities, suburbs, transportation, food supply, energy distribution, economics, and...well, everything...so that it becomes truly sustainable. It would reject the idea of growth completely and start thinking about how to manage the Great Contraction. But I'd wager there isn't a politician in America who would begin to try to sell that.

I don't know how to escape politics and still make policy. Despite my cautious optimism about the new direction the Obama team is taking on energy, their first moves will accomplish little to address the peak oil threat. It looks to me like the impending energy crisis is already a foregone conclusion.

What I do know is that those who do understand energy—who know where it comes from and what our future options really are—may not be able to rise above the din of ignorance to chart us a clear path forward, but they can profit from it. They know that oil under $50 and natural gas under $4 is such a ridiculous giveaway, it might as well be free. They know that renewable energy has a virtually endless upside potential, but that the right technologies to invest in will be ones with a high EROI, a short time to market, and the ability to scale quickly.

Until next time,

Chris

P.S. In addition to buying oil and gas on the cheap right now, I believe some of the best ways to bag quick profits from the coming energy crisis are in the renewable energy and smart grid sectors. Subscribe to the Alternative Energy Speculator today and get a piece of the action while everyone else is still trying to figure out what the future of energy is all about.