Fortune magazine released its annual list of the nation’s 500 largest publicly traded companies last week and it speaks volumes about how hard it will be to move our economy away from fossil fuels. Of the top five companies, three were oil companies (Exxon #2, Chevron #3 and Conoco Phillips #4) and two more in the top 10 were transportation companies (GM #8 and Ford #9). Another, General Electric at #6, is arguably intertwined with energy production through its large unit that produces turbines used in electric generation.

The five companies cited above operate businesses completely linked to oil and, together, account for more than $1 trillion in annual revenues. That’s a lot of economic clout to apply to Main Street or the halls of Congress.

Meanwhile, during a May 3 House floor speech, Rep. Gerald E. Connolly, (D-Va.), speaking on the recent rise in gasoline prices, pointed out that America owns less than 2 percent of the world’s oil but consumes 22 percent of the world’s oil resources. Yes, we are way too dependent on foreign oil sources. Enough so that despite the pale of the BP Gulf oil rig explosion and ensuing spill, the House of Representatives voted last week to pass a measure intended to jump start off shore oil drilling.

Separating our economic future from our dependence on fossil fuels for transportation and electricity is a tall order. Despite access to large amounts of venture capital, fledgling companies developing new alternative energy technologies are hard pressed to gain a foothold against these behemoth incumbent industries, save perhaps electric cars being developed by major car companies.

For these technologies and their creators to overcome, our government needs to handicap the game via funding and tax breaks. Meanwhile, we need energy policy that lasts longer than a single administration so private markets can bet on fledgling companies with some level of certainty that changes in the rules of engagement won’t eviscerate their investments.

This vision of government help does not include consumption based discounts that can’t be maintained, but rather production based funding. In this manner, we can bring the handful of technologies swirling around among hundreds of contenders in the primordial mist to commercial viability so we can harness solar, wind, wave and more at prices that will not put our economy into a deep freeze.

At best, this process will take up to decades to be successful, but in the end it can create an economy based on green energy manufacturing companies yet to be born. Perhaps 20 years from now, some of those will fill the Fortune magazine top 10 slots.

The following article by Robert J. Samuelson appeared in the Washington Post on January 21, 2010. The tone of the article is a bit political for my taste, but the facts address many of the realities about our nation’s “addiction” to traditional energy sources and speaks to the reality that we’re not about to change that dependence in the near future. So, in the spirit of many of my prior posts, let’s find a way to use our current energy sources more efficiently, while we develop alternative fuel sources.

Obama’s Energy Pipe Dreams

by Robert J. Samuelson

“For decades, we’ve talked and talked about the need to end America’s century-long addiction to fossil fuels. . . . Time and time again, the path forward has been blocked — not only by oil industry lobbyists, but also by a lack of political courage and candor.”

– Barack Obama, June 15 address on the BP oil spill

Just once, it would be nice if a president would level with Americans on energy. Barack Obama isn’t that president. His speech the other night was about political damage control — his own. It was full of misinformation and mythology. Obama held out a gleaming vision of an America that would convert to the “clean” energy of, presumably, wind, solar and biomass. It isn’t going to happen for many, many decades, if ever.

For starters, we won’t soon end our “addiction to fossil fuels.” Oil, coal and natural gas supply about 85 percent of America’s energy needs. The U.S. Energy Information Administration (EIA) expects energy consumption to grow only an average of 0.5 percent annually from 2008 to 2035, but that’s still a 14 percent cumulative increase. Fossil fuel usage would increase slightly in 2035 and its share would still account for 78 percent of the total.

Unless we shut down the economy, we need fossil fuels. More efficient light bulbs, energy-saving appliances, cars with higher gas mileage may all dampen energy use. But offsetting these savings will be more people (391 million vs. 305 million), more households (147 million vs. 113 million), more vehicles (297 million vs. 231 million) and a bigger economy (almost double in size). Although wind, solar and biomass are assumed to grow as much as 10 times faster than overall energy use, they provide only 11 percent of supply in 2035, up from 5 percent in 2008.

There are physical limits on new energy sources, as Robert Bryce shows in his book “Power Hungry: The Myths of ‘Green’ Energy and the Real Fuels of the Future.” Suppose an inventor “found a way to convert soybeans into jet fuel,” Bryce writes. “Even with that invention, the conversion of all of America’s yearly soybean production into jet fuel would only provide about 20 percent of U.S. jet fuel demand.” Jet fuel, in turn, is about 8 percent of U.S. oil use. Similarly, wind turbines have limited potential; they must be supported by backup generating capacity when there’s no breeze.

The consequences of the BP oil spill come in two parts. The first is familiar: the fire; the deaths; coated birds; polluted wetlands; closed beaches; anxious fishermen. The second is less appreciated: a more muddled energy debate.

Obama has made vilification of oil and the oil industry a rhetorical mainstay. This is intellectually shallow, if politically understandable. “Clean energy” won’t displace oil or achieve huge reductions in greenhouse gas emissions — for example, the 83 percent cut by 2050 from 2005 levels included in last year’s House climate change legislation. Barring major technological advances (say, low-cost “carbon capture” to pump CO2 into the ground) or an implausibly massive shift to nuclear power, this simply won’t happen. It’s a pipe dream. In the EIA’s “reference case” projection, CO2 emissions in 2035 are 8.7 percent higher than in 2008.

Rather than admit the obvious, Obama implies that other countries are disproving it. “Countries like China are investing in clean energy jobs and industries that should be right here in America,” he said in his address. If China can do it, so can we! Well, whatever China’s accomplishing on wind and solar, it’s a sideshow. In 2008, fossil fuels met 87 percent of its energy needs, reports the International Energy Agency. Coal alone accounted for 66 percent. China represents about half of the world’s hard coal consumption. Usage grew 10.7 percent annually from 2000 to 2008.

The outlines of a pragmatic energy policy are clear. A gradually increasing tax on oil or carbon would nudge people toward more energy-efficient products, including cars. Any tax should be part of a budget program that includes major spending cuts. This is a better approach than the confusing cap-and-trade proposals — embraced by the House and the administration — that would inevitably be riddled with exceptions and preferences. Finally, research and development should search for cheaper, cleaner energy sources.

Meanwhile, it’s imperative to tap domestic oil and natural gas. This creates jobs and limits our dependence on insecure imports. Drilling advances have opened vast reserves of natural gas trapped in shale. Human error and corner-cutting by BP seem the main causes of the spill. Given the industry’s previously strong safety record, Obama’s six-month moratorium on deepwater drilling isn’t justified and should be shortened. It’s not industry lobbyists who sustain fossil fuels but the reality that they’re economically and socially necessary. A candid president would have said so.