Insights by Peter Huber

Gasoline and the Grid

11.25.2002, 12:00 AM ET

The only place most ordinary Americans see their energy up close is at the gas pump, and when "energy crisis" comes to mind they reach back to the Arab oil embargo of 1973. California had a recent electricity crisis, but everyone knows that was about bungled politics and crooked trading, not about fuel supplies or technology. This is probably why energy still means oil in most casual public discourse, and oil means Middle East.

Oil, however, isn't what it used to be. About 60% of the fuel we use today isn't oil--it's coal, uranium, natural gas and hydroelectric. About 60% of our GDP now comes from industries and services that use electricity as their front-end fuel. Some 60% of all new capital spending--what's left of it--is on information-technology equipment, all of it powered by electricity. All the fastest-growing sectors of the economy over the past decade--information technology and telecom, most notably--depend entirely on electricity for their fuel. And in the U.S., at least, almost no electricity is generated with oil.

Electric power plants now account for about 40% of our total energy consumption, compared with (roughly) 30% each for transportation and heating. And electricity is progressively eating its way into those two smaller sectors. Lasers, microwaves and other forms of electrically generated power are now superseding conventional furnaces, ovens, dryers and welders--to heat air, water, foods and chemicals; to cure paints and glues; to fuse steel; to weld ships. Finely tuned, all-electric radiant ovens and beams work far better than most conventional ovens; a heat pump can deliver 2 Btu of warmth for 1 Btu of input. High-intensity light and other forms of well-tuned electrically generated radiation are now on track to become as important in our energy economy as the automobile.

The automobile itself is going electric, too, though in quite different ways. A steadily rising fraction of the power produced under the hood of a car is being used to generate electricity, because electrical modules are progressively displacing components driven by belts, pulleys, gears and shafts. Over the course of the next decade a 42-volt power system will replace the existing 14-volt wiring in all cars. Steering, brakes, suspension, fans, pumps and valves will go electric; in the end, the wheels will be driven electrically too. Batteries, hydrogen, fuel cells and environmental mandates have nothing to do with this transition; electric drives are taking over because the electric drive train delivers better performance, lower cost and less weight.

The electrification of the automobile does, however, set the stage for direct energy handoffs between the car and the grid. Green visionaries hope that hydrogen-powered fuel cells in cars will displace electricity from the grid--you'd run your toaster off a generating plant in your minivan. But the more likely prospect, in the long term, is grid power flowing in the opposite direction. An electric drive train will promote the development of more and bigger onboard batteries. They, in turn, will spawn new plugs, to permit opportunistic recharging from the grid, overnight in the garage and during the day in the workplace parking lot. The gas tank and combustion engine won't disappear, but grid power will (in effect) begin topping off the tank in between all the short trips that account for so many of the miles we drive, and an even larger share of the fuel our cars burn.

If hydrogen does somehow emerge as a transportation fuel of choice, that too will eventually lead supplies back to the grid, which will provide the power needed to extract hydrogen from water. Hydrogen can't really be viewed as a fuel at all; it is a storage system, and what it will most likely store, in the end, is electrical energy from the grid. The greens hope it will be wind or solar electricity. Coal and nuclear electricity are a more likely prospect. In any event, it won't be electricity generated from oil. The fuels we use to generate electricity remain cheap and abundant. And over the long term, the price of electricity keeps falling, because so much of its cost lies in power-plant hardware, which keeps improving.

Oil will certainly continue to play a vital role in our economy, and securing our supplies remains a national priority. But with that said, much has already changed in our energy economy, and the long-term trends are heartening. Rather than trying to curb demand for energy, which never works, Washington should be promoting the convergence of gasoline and the grid.

Peter Huber, a Manhattan Institute senior fellow, is the author of Hard Green: Saving the Environment From the Environmentalists and the Digital Power Report. Find past columns at www.forbes.com/huber.