How to price biofuels: a former CIA director sheds light on how to make alternative fuels more...

The United States became interested in a number of petroleum alternative providers, like the Synfuels Corporation, in the 1970s. Then, in 1985, Saudi Arabia dropped the price of their oil down to $5 a barrel and bankrupted the Synfuels Corporation. The good news is that they bankrupted the Soviet

People became interested in alternative fuels again in the early 1990s, but then in the late 1990s, oil dropped down to $10 a barrel and people lost interest. We have to make sure that this roller-coaster effect can't happen again.

Some people think the Saudi Arabian oil fields could be peaking, if not now then soon, and that there will also be huge demand for petroleum, not only from the West but from India and China as they start to produce middle classes that drive cars. The Saudis might not be able to drop the price to $5 or $10 a barrel by turning on their excess capacity, but they might be able to drop it to $20 per barrel.

Most of the better alternative fuels are only really viable (as far as we can see) if oil is, say, $35 per barrel or more. The one that's viable even below that is electricity, because off peak, overnight electricity in many parts of the United States sells for between 2 cents and 4 cents per kilowatt hour. That is the equivalent to about a penny a mile, whereas gasoline is in the range of 10 cents to 20 cents a mile at today's price.

We need to ensure that some of these other fuels, such as diesel from waste and cellulosic ethanol or butanol, have a chance to develop. We also need a different structure for subsidies. Today, ethanol is being subsidized even though it doesn't need to be with oil that's $60-$70 per barrel. What we might do is say no subsidies unless oil drops to $40 a barrel. You start with small subsidies, and then the subsidies would get larger as the price of oil goes down further.

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About the Author

Robert James Woolsey Jr. was director of the U.S. Central Intelligence Agency from 1993 to 1995. He is currently the chairman of the board of Freedom House, the chairman of the advisory boards of the Clean Fuels Foundation and the New Uses Council, a Trustee of the Center for Strategic & International Studies, and vice president of Booz Allen Hamilton. This essay was adapted from an interview with THE FUTURIST. To read the entire interview go to the WFS homepage at www.wfs.org.