We have a vast, untapped oil resource right here in the West that could produce more oil than the Middle East.

—Senator Oren Hatch, 2005

Synfuels are back. In 1985, President Ronald Reagan killed President Jimmy Carter’s Synthetic Fuels Corporation. Twenty years later, President Bush signed the “Oil Shale, Tar Sands, and Other Strategic Unconventional Fuels Act of 2005.” Unconventional fuels means “gas or oil from coal, shale and tar sands,” and that’s exactly how Time magazine defined synfuels in 1979.

Senator Oren Hatch is right, but the “oil resource” he mentions in the chapter’s opening quote is mainly shale oil, along with some oil from tar sands—100 percent synfuel. That’s why he sponsored the synfuels bill that President Bush signed as Section 396 of the Energy Policy Act of 2005.

The new push for synfuels is backed by the Departments of State, Defense and Energy, not to mention Big Oil and Big Coal. But where do synfuels fit into the climate-change, energy-security picture? In October 2007, President Bush said:

We have a comprehensive strategy to deal with energy security and environmental quality at the same time.

His comprehensive strategy consists of non-corn ethanol, coal with carbon capture, nuclear power and efficiency standards for building. He also favors improved fuel economy standards. He did not mention synfuels. He almost never does. They just wouldn’t fit in a strategy billed as dealing with “energy security and environmental quality at the same time.” They are a bit helpful for security, but about the worst thing going for the environment.

The next thing Bush said was “You can solve one, you can solve the other,” emphasizing his promise to deal with both “at the same time.” President Bush’s political instincts are right on target. That’s what people want, and that’s what will work because “joint solutions,” as I called them in chapter 1, unite the two big energy constituencies.

Synfuels, “unconventional fossil fuels,” are such a poor idea that Bush leaves them out of his “comprehensive strategy,” and his name does not appear with them even once on the same White House web page. So why do they have the clout of three government departments behind them?

The Next Prize: Unconventional Fossil Fuel

First there was coal, then oil, then gas. The United States led the world in oil production for nearly a century until 1974, when it was surpassed by the Soviet Union. Now, the Middle East has about two thirds of the remaining conventional oil. But the new fossil fuel is “unconventional”—oil shale and tar sands.

Heat oil shale, a rock containing roughly 10 percent hydrocarbons, to about 700 degrees for a month, and out comes oil and natural gas. Shell has tested a method of heating the shale in the ground with electricity and pumping out the oil and gas. It takes a lot electricity, but it’s probably cheaper and better for the environment than digging it out and cooking it above ground.

I consult a bit in Alberta for a client that generates electricity for a tar sands operations. The company’s ecologist explained that the tar sands he was shown were not even sticky. But like oil shale, when the sands are heated, they release oil. The quality of this oil is very poor, unlike the light quality of shale oil when it is produced by slow heating underground. U.S. tar sands amount to only 4 percent of what we have in oil shale.

The world’s unconventional fuel is centered at the corner where Colorado and Utah meet Wyoming. Of the 2 trillion barrels of shale oil in the United States, the best 1.2 trillion are located in these three states. That’s roughly the amount of oil the world has used since oil was discovered. The rest of the world has only about 0.6 trillion barrels of shale oil.

Carter’s synfuel act was passed as oil prices crested. At those prices, synfuel made economic sense, but as prices fell Exxon and the other oil companies started pulling out of the projects subsidized by Carter’s Synthetic Fuels Corporation. Exxon was right. Oil prices were headed down and would stay down for years to come.

Now that oil prices are back up, the question returns—how much of that shale oil can be produced? The Department of Energy has posted on its web site an article from the Oil and Gas Journal called “Is oil shale America’s answer to peak-oil challenge?” The article compares the difficulty of extracting oil from shale and from Alberta’s Athabasca tar sands. It concludes that quite a bit of oil can be extracted more economically from our oil shale than oil is being extracted from Alberta’s tar sands—about half a trillion barrels, in fact.

The tar-sand oil companies are already producing over a million barrels of oil per day—over 1 percent of total world oil production—at a cost of under $40 per barrel. As the London Times put it, “The world’s dirtiest oil is producing the highest profit per barrel for Royal Dutch Shell.” That would be $21.75 per barrel, after tax, on tar-sands oil from Alberta in 2006 when the price of oil averaged $66 per barrel. Shell made only $12.41 per barrel on its conventional oil operations.

Shell’s recent experiments with shale oil have led it to claim it can produce oil from shale for $25 per barrel. So producing that half trillion barrels of shale oil looks feasible and profitable. There are two ways to think about it. Half a trillion barrels is twice as much as Saudia Arabia’s oil reserves. If the price of oil stays above $50 a barrel, shale oil will generate over $12 trillion in profits.

No other energy policy is dangling a $12 trillion carrot in front of the world’s largest corporations. So even though synfuels are not much in the news, and even though they top the list of conflict-generating policies, my money’s on synfuels. When it comes to a choice between fixing the climate and $12 trillion in profits, there’s no question which way Big Oil will swing.

In chapter 3, on peak oil, I discussed the current unconventional fuels initiative, which looks very much like the synfuels initiative. The oil companies want the same expensive price guarantees and loan guarantees, and the military is again promising to buy their fuel at above market prices.

Global Warming with Synfuels

Energy per pound of carbon. Fossil fuels are hydrocarbons, meaning that they are made from atoms of hydrogen and carbon. The hydrogen burns to make water (H₂O), while the carbon burns to make carbon dioxide (CO₂). Natural gas contains the most hydrogen, four atoms per atom of hydrogen, and coal contains the least. So gas provides the cleanest energy—emits the least carbon per unit of energy, and coal emits the most. Oil is in between.

But there is another reason that fossil fuels vary in how much carbon dioxide they emit. Some fuels take a lot of energy to produce, for example the energy to heat the shale underground. Since this energy comes from fossil fuel, it releases carbon dioxide without contributing energy to the final fuel. The worst fuel in this regard is liquid coal. Producing and using liquid coal emits 1.8 times as much carbon dioxide as producing and using gasoline made from oil.

Fossil fuels vary in quality and synthetic fuels vary greatly in the energy required to make them, but roughly they can be ranked as follows:

Fossil fuel	CO2 per unit energy
Natural gas (best)	1
Conventional Oil	1.4
Coal, Shale oil, Tar-sands oil	1.8
Liquid coal (worst)	3

From a climate perspective, making gasoline from synfuels is about like burning coal in your car’s engine.

The global rebound effect. As explained in the previous chapter, world oil demand rebounds when the price of oil is reduced by an increase in the supply of synfuels. Step by step, here’s how it would work. The United States would produce and use an additional half trillion barrels—that’s plus 500 billion. But we would import 500 billion less—that’s minus. So far, no change. But the extra fuel would reduce the world price of oil for decades and the lower price would cause a global rebound in the demand for oil of about 125 billion barrels. (Actually, we would become an exporter, but this does not change the result.)

In combination, the global take-back effect plus the effect of synfuel’s high CO₂ emissions per unit energy make any synfuel program highly detrimental from a climate perspective.

The physical perspective. I calculated the rebound effect based on the economic effects of price. Sometimes, however, the same problem is approached from a simpler physical perspective with this reasoning. We will surely burn up all the conventional oil. So any difference in the amount of carbon put into the air only depends on how much coal and shale we use. Every barrel of shale oil produced means that much more carbon in the air. This logic puts the global rebound effect at 100 percent instead of the 26 percent estimated in the previous chapter. Which argument is right?

The answer depends on how the fossil age will end. If it will end whenever a certain fixed “backstop price” is reached, say $250, the physical argument will be right. All oil that can be produced for less will be produced. The backstop price is the price of a perfect substitute for oil, so there will be no reason to produce more oil once it costs more. So the same amount of oil gets produced with or without the synfuel.

The polar opposite view holds that the fossil age will end when a back-stop technology is discovered at some specific but unknown date in the future, say 2060. After that there will be no need for oil. In this case, producing synfuel will slow the use of oil, so less will have been used up on the day the backstop technology is discovered. In this case, the economic global rebound effect is correct—the reduced price will cause more oil to be consumed during the period before the backstop technology is discovered.

Reality lies somewhere in between. There is, more or less, a backstop price. But as alternative energy technologies improve, that price comes down. So taking longer to use up the oil—because of synfuel—means that the backstop price will come down more. If it comes down from say $250 per barrel to $200 per barrel because of the synfuel delay, all the oil that costs more than $200 to produce but less than $250 will be saved.

The argument is a bit technical, but the implication is that the global rebound effect is between the 26 percent of simple economic theory and the 100 percent of the simple physical theory. This means synfuel will cause more of a problem for the environment than the global rebound effect explained in the previous chapter would indicate.

Synfuels and Security

Producing liquid fuel domestically does nothing to protect American consumers from oil price shocks. (See chapter 9.) When terrorists or OPEC members raise the world price of oil by cutting off some supply, the synfuel companies—the big oil companies—will do just what they do with domestically produced oil today. They will raise the price to match the world price of oil. Consumers are not protected.

Only the oil companies benefit from synfuel during an oil shock. But, what about shortages? Now that Nixon’s price controls are gone, as well as regional quantity controls that contributed to the gas lines back in the 1970s, there is no real worry of shortages per se. Shortages will simply cause prices to rise so high that you will buy less gas. That might be painfully high, but if you are willing to pay the price, you will find the gas available. As just noted, synfuel will not protect you from these high prices, so it will not protect you from shortages.

That leaves one energy security effect that synfuel can claim. It will, as just noted, lower the world price of oil somewhat. This is a benefit to the oil consumers of the world, and it also takes some revenues away from OPEC.

How Synfuel Blocks Cooperation

As President Bush must have sensed, joint strategies unite those concerned with energy security and those concerned with climate stability. Unity produces strong political support. In 2003, Time Magazine quoted Colorado’s Former Governor Richard Lamm, saying: "America's energy policy is zigzagging through history like a drunk." Having reviewed thirty years of news articles on the subject, I would have to agree.

During most of the last thirty years energy security was the only concern. Now that we have an additional concern—climate change—and two energy camps fighting for conflicting policies, we can only expect a more erratic and ineffectual energy policy. But if the two camps unite behind one “strategy to deal with energy security and environmental quality at the same time,” as President Bush promised in 2007, we could finally have an energy policy that worked—and met both challenges at once.

International Cooperation. The one benefit of producing synfuels is that it lowers the world price of oil, which helps us and all other consumers. Could this foster cooperation on a consumers’ cartel? The opposite is more likely. With the synfuel industry reducing the price of oil there will be less incentive for other nations to conserve and more incentive to just take advantage of the lowered prices. To foster cooperation, we need to offer a trade. If you conserve oil, we will conserve oil, and each of us will benefit from the other’s effort. The more fossil fuel the oil companies produce, the more they will fight any effort towards an international consumers’ cartel, or even conservation at the national level.

Without synfuel, the oil-price benefits of a Kyoto-style consumers’ cartel will provide an additional attraction to oil-dependent countries such as China, the United States, Japan, India and Germany. This could be an immense help, particularly with the reticence of the Big Two—the United States and China. On the other hand, if the path to lower world oil prices is the synfuel path, the anti-climate nature of this path would work against a global consensus on climate change.

Joint Solutions

Fortunately, just as President Bush claimed, “You can solve one, you can solve the other.” There is a “comprehensive strategy to deal with energy security and environmental quality at the same time.” His policies are all good “joint solutions,” partial though they are.

In fact, OPEC’s incredibly effective policy to crush itself by raising the price of oil very high was a “joint solution.” It cut the world price of oil by one third and eventually more, while it curbed CO₂ emissions. The Core National Energy Plan recommended in chapter 7 does just this with its carbon untax, except it does it more broadly and effectively by targeting all fossil fuels and not just oil.

Joint solutions fall into two broad classes, conservation and low-emission energy sources. Two of Bush’s joint solutions, building efficiency standards and fuel economy standards, belong to the conservation class. The other three—non-corn ethanol, coal with carbon capture, and nuclear power—belong to the class of low-emission energy sources. There are many more joint solutions in each category.

Conclusion

Dirty alternative fuels harm the climate, do little for energy security, and tend to derail cooperation on energy policy. Dirty fuels are fuels that when produced and used increase global emissions of greenhouse gases. These include corn ethanol with current production techniques, and all synfuels.

I am not opposed to synfuels per se, only to yet more subsidies for fossil fuel—and for even worse fossil fuel. We already pay Big Oil the OPEC subsidy which in 2007 amounted to tens of billions of dollars. OPEC raises world prices and we pay more to every oil company. The result is evident in Exxon’s profits.

Subsidies for synfuels, which are now requested by the various government committees brought into existence by Senator Hatch’s synfuel bill, would subsidize the world’s richest corporations to exploit a national resource worth over ten trillion dollars in profits. These subsidies would increase the risks of climate change, so that oil companies can make even greater profits when OPEC or a terrorist strike sends gas prices through the roof.