As the Obama Administration continues to push for a moratorium on deepwater drilling and announces $2 billion in stimulus funds for solar energy companies, a new analysis by the American Institute for Economic Research (AIER) shows a growing disconnect between political visions of a green energy economy and the practical reality of U.S. energy use.

“Developing cleaner energy sources and reducing our reliance on fossil fuels is not impossible, but it’s a huge challenge that is much more complicated than the bumper stickers and slogans suggest,” says AIER Senior Fellow Kerry Lynch, whose analysis appears in a recent issue of AIER’s Research Reports. “The inconvenient truth is that no one has yet developed an alternative to fossil fuels capable of providing energy on a comparable scale at a comparable cost.”

Lynch points out that shifting from one energy source to another is difficult because their costs vary greatly and they are not necessarily interchangeable.

“For all the hype over wind and solar, the reality is that they contribute very little to our energy supply,” Lynch writes, with wind accounting for less than 1 percent of total U.S. energy consumption and solar for just one-tenth of 1 percent. “Together, they could power the country for all of three days a year.”

Moreover, she notes, renewables are extremely expensive relative to fossil fuels because of the huge up-front capital investments needed to develop them – “something that won’t change dramatically any time soon even if government mandates and subsidies continue to increase and there’s a sharp rise in fossil fuel prices.” 

Moreover, Lynch points out, petroleum, natural gas, coal, nuclear power and renewable energy are not interchangeable and can not necessarily be substituted for one another. Wind and solar power, for example, cannot be used for transportation. Nuclear power can be used only to generate electricity.

Lynch notes that even with the government heavily subsidizing and promoting green energy, with some $80 billion in tax credits and subsidies in the 2009 stimulus legislation alone, the Energy Information Administration projects that the United States still will get three-fourths of its energy from fossil fuels 25 years from now, in 2035.

The following chart shows U.S. energy use by source:

TRANSPORTATION: 27.8 percent of total U.S. energy use.
•    95 percent from petroleum;
•    2 percent from natural gas;
•    3 percent from renewable energy.

INDUSTRIAL: 20.6 percent of total U.S. energy use.
•    42 percent from petroleum;
•    40 percent from natural gas;
•    9 percent from coal;
•    10 percent from renewable energy, mostly hydroelectric.

RESIDENTIAL & COMMERCIAL: 10.8 percent of total energy use.
•    16 percent from petroleum;
•    76 percent from natural gas;
•    1 percent from coal;
•    1 percent from renewable.

ELECTRIC POWER: 40.1 percent of total U.S. energy use.
•    1 percent from petroleum;
•    17 percent from natural gas;
•    51 percent from coal;
•    9 percent from hydro and other renewable sources;
•    21 percent from nuclear power.

“Fully 84 percent of the energy Americans consume comes from fossil fuels – petroleum, natural gas and coal,” Lynch writes. “Only about 8 percent comes from renewable energy” – most of that from hydroelectric.

“The driving force for change will be a substantial increase in the prices of fossil fuels relative to renewable energy sources,” says Lynch. “How much such an increase will be driven by market forces vs. government policy remains to be seen.”

Kerry Lynch is a Senior Fellow at the American Institute for Economic Research (AIER) and was previously the Director of Research and Education. She joined AIER in 1987 and has since written many articles on a wide range of economic and financial topics for the Institute's Research Reports and Economic Bulletins, including fiscal policy, monetary policy, Social Security, Medicare, and retirement planning. She is an AIER faculty member and has taught a seminar on business-cycle analysis for the Summer Fellowship program. She earned a Bachelor's degree in economics from Bryn Mawr College and a Master's degree, also in economics, from Duke University.

Since 1933, the American Institute for Economic Research has served as an authoritative source of economic information, stemming from scientific, proprietary research. Independence is AIER’s most valuable asset and financial support is from individual members and donors, with no grants or gifts from private foundations, commercial interests or government. For more information on AIER or to become a member visit www.aier.org or call (888) 528-1216.