Tumbling gas-pump prices make motorists smile, but not Peter Vanderzee. They remind him how falling oil costs sank his effort to unshackle the United States from Middle East oil two decades ago.

As project manager for two large alternative-energy projects under President Carter’s US Synthetic Fuels program launched in 1980, Mr. Vanderzee was pushing his team to make methanol from coal for auto fuel.

But in 1985, just as his technology was starting to produce results, oil plummeted. In today’s inflation-adjusted dollars, oil went from $53 a barrel to $28, with pump prices falling from $2.20 a gallon to $1.60. The next year, President Reagan pulled the plug on the US Synfuels program.

“It was a huge letdown,” Vanderzee recalls. “We had the technology ready to go. But Mideast crude oil suppliers decided the US was serious about our program and just didn’t want the US making alternatives to oil. So they pumped more oil and lowered the price.”

Oil prices last week hovered just over $60 a barrel after peaking around $140 this summer. Will today’s falling oil prices also bury fledgling efforts to convert the US auto fleet from gas guzzling SUVs into fuel-sipping hybrids? Will investors still want to invest in advanced biofuels? Will the new president slow the push for energy security?

“If I were Saudi Arabia and I wanted to undermine alternative energy,” says Robert Wescott, former chief economist for the Pres­ident’s Council of Economic Advisers, “my optimal pricing strategy would be $100 per barrel for the first year, second year, third year, and fourth – and drop it to $10 on the fifth year.” Why?

“You would capture lots of revenue, but flatten the alternative-energy sector every fifth year – at least enough to scare off investors and ensure that alternatives don’t get a foothold.”
But even if falling oil prices sap political will and investor confidence, critical differences between today and the 1980s make it less likely that US policy or investment in oil alternatives will falter, he and others say.

“I worry much less today than I did back then,” says Amory Lovins, who became a leading US voice on energy efficiency after the 1970s oil crises, “because what’s different today is that our concerns about energy security and climate change are much broader and more intense.”

Falling oil prices “will make the problem harder and slower to deal with,” says the cofounder of the Rocky Mountain Institute, an energy think tank. But because the last few years have seen “the rise of such a vibrant efficiency and renewable sector ... this time it’s not going away. We can take a hit and still bounce back.”

Can the US set and meet quotas?
Right now, he says, it’s the credit crisis, not sinking oil prices, that is cooling investors on alternative energy. But corn-based ethanol, advanced cellulosic ethanol, and coal- and oil-shale-to-fuel are feeling the pinch, too, experts say.

In the farm belt, many ethanol producers are barely making money, caught between high prices for corn feedstock and much lower gasoline prices. Back in the 1980s, there were more than 100 ethanol facilities. After the 1985-86 price drop, only about a dozen survived.

“When oil prices dropped, it killed that push to ethanol – and you could have that happen again,” says Chad Hart, an agricultural economist at Iowa State University. But there is a safety net this time, he and others agree: the US Renewable Fuel Standard (RFS). Today the US produces 9 billion gallons of ethanol from corn but under RFS is mandated to make 36 billion gallons by 2022.

That demand, most of which must by law come from cellulosic ethanol and advanced biofuels, is aimed at reducing greenhouse gas emissions and improving US energy security. The RFS currently pays gasoline blenders a hefty 51-cents-per-gallon subsidy for every gallon of ethanol they use.

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