Our Real Energy Problem, and How We Will Solve It

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How many times have you heard pundits and politicians talk about the rising price of energy? The reality, however, is that energy prices overall are not rising. Natural gas prices, for example, have been continually declining for years. It's oil and gasoline prices that are rising. So why do we keep talking broadly about "energy" and not about oil and gasoline? Understanding the basis for this confusion is one of the important steps we need to take in order to eliminate our dependence on oil and dramatically bring down the cost of gasoline at the pump.

When was the last time you paid an energy bill? Never. You paid for electricity, gas at the pump, natural gas, food, etc. Why food? Because food is energy that enables us to live, but, of course, we call it food and not energy.

Thinking about energy within a homogeneous construct is not only confusing, but makes it difficult to put our finger on exactly what the problem is and how to solve it. Oil is overwhelmingly used for transportation fuel; only 1 percent of U.S. electricity comes from oil. On the other hand, coal, nuclear, solar and wind power are used to generate electricity. The two worlds of "energy" have very little to do with each other. This is why it's often amusing to hear people give their preference for the best way to break our dependence on oil. Democrats usually say wind or solar. Republicans say nuclear. Both answers are misinformed, and both answers have very little to do with breaking our dependence on oil. Someday wind, solar and nuclear may replace coal—but not oil. Your car will not run on wind, solar or nuclear power—at least not anytime in the foreseeable future.

(Read More: How the US Oil, Gas Boom Could Shake Up Global Order)

Energy-independence is about oil. When politicians talk about our need to be energy-independent and tout alternatives such as wind and solar, they are adding to the confusion. So are oil companies when they run those curious TV ads featuring wind turbines and solar panels.

Bundling our national electricity bill with our transportation fuel bill under one energy umbrella obscures how lopsided our dependence on oil really is. In 2011, the United States paid $780 billion for oil products like gasoline (which were used almost entirely in transportation). The same year, we paid $35 billion for coal for electricity consumption. Yet, if you look at government support of energy programs, the lion's share goes to the electricity sector. That is, it moves toward solving a problem that is far less critical to our nation's future, economic growth and security.

Lost in the confusion over energy versus oil is that fact that we actually have market-ready solutions to the problem. The truth is that there are American-made fuels that are cheaper, cleaner and emit less greenhouse gases than oil, and they are readily accessible for large-scale use. These fuels include natural gas, methanol (made from natural gas or garbage) and ethanol. Natural gas, methanol and ethanol are currently priced at the equivalent of about $2.2 a gallon or lower. That is at least a dollar a gallon less than you are currently paying, and in some parts of the country $2 a gallon less. There are many millions of vehicles around the world—even in the United States—that run on these fuels. We do not need any research or new technologies. We just need to be able to use them.

But wait, you may say, my car cannot run on these fuels. You are right, not currently, but it easily could. For a maximum of $300 per car, most of the cars built in the last 10 years can be converted to run on fuels like methanol and ethanol and then you, not the government, could choose the one you want to use.

So what's the problem? It's this: You are not allowed to convert your car. In fact, you cannot even add a gizmo that will improve your mileage on gasoline. It is all part of old EPA regulations created in the 70s and the 80s. We don't even need laws to change them—the EPA can do it tomorrow.Once it is done you could improve your car mileage on gasoline or convert your car to run on other fuels.

But those fuels are not available at the pump. At fault here are the oil refiners, who also control most of the distribution system. They do not want competing cheaper fuels in the system because it will hurt their refining profits. It is the same kind of monopoly that AT&T enjoyed for so long—that company did not want to allow access to cheap long distance calls from MCI and Sprint. It took a federal judge to force AT&T to allow American citizens to buy whichever the long-distance service they prefer. Within three years, the price of long distance went from $3 a minute to 30 cents a minute. A decade later we had cell phones and Internet.

This modern, AT&T-like fuel distribution monopoly needs to be broken. Like any monopoly, it's helped by friendly regulation. If your car could be converted to run on replacement fuels, Wal-Mart, Costco and Safeway could offer you fuels that will be more than $1 cheaper than gasoline. What will you do then? What if we changed the regulation a bit more, and your church could offer you those cheaper fuels? It does not take much to change the system.

Think of it—if we opened the fuel market to competition, Americans could save $300 billion a year. That's $1,000 net in the pocket of each American every year, or $4,000-$5,000 for each family—your family. You deserve it, and you can demand it.

Yossie Hollander is chairman of the Fuel Freedom Foundation, a non-profit, non-partisan organization working to open the fuel market to competition. He also serves a member of the advisory board of the Cornell University Center for a Sustainable Future.