Which road leads to energy independence?

Not surprisingly, competing interests make the path to independence less clear. But is it really that hard?

There are no panaceas. But there is a case to be made that the knowledge and technology exist today to solve the problem. The question is, how do we get there?

To start, people must agree on the problem. Energy independence is really about displacing imported oil for transportation. Electricity is primarily generated, priced and distributed domestically. Oil on the other hand is a global commodity for which the value is set by global markets.

OPEC countries produce 40 percent of the world's oil and hold almost 70 percent of remaining reserves. As we saw in the 1970s, it only takes a single digit decrease in oil supply to trigger price shocks. It's no wonder then that oil has become a global source of conflict. But drilling more oil at home won't solve the problem. The U.S. will never produce or store enough oil to offset OPEC's market power.

What we need is a substitute.

Fortunately, both economic and environmental interests are all pushing us toward alternatives. Despite talk about future technologies, several easy steps can be taken that would secure independence today.

• Step one: Get our house in order.

The U.S. gasoline market is fragmented. Petroleum interests typically blame varying state fuel standards. To be sure these varying standards do contribute to supply constraints and volatile prices. However, this all could be solved if the federal government would regulate to the highest state standard rather than the lowest common denominator. The higher standards cost refiners pennies per gallon, while volatility costs consumers far more. Common standards, as the network industry knows well, make market entry for innovators that much easier.

• Step two: Harness existing resources.

Biofuels, and corn-based ethanol in particular, are already competitive with petroleum. In fact, long-term contracts for corn ethanol and biodiesel are lower than for gasoline or diesel and have been for several years. However, it is largely thanks to the federal Renewable Fuels Standard (RFS) that we use ethanol at all. Natural incentives in the fuel industry do not encourage supply-extending alternatives. Of course, some people flip a lid at the idea of a mandate. But the RFS provides needed market certainty--albeit only 3 percent of the market--that encourages private investment in new technologies and production, and ultimately helps reduce prices. States and the federal government should be encouraged to increase requirements aggressively to encourage even more investment in the sector.

• Step three: Develop our "bio-reserves."

Corn ethanol and soy biodiesel can provide a portion of the solution. With current yields and maximizing land use, ethanol and biodiesel could supply 15 percent to 20 percent of our total fuel demand. The next step is to more economically unlock the energy potential in the cellulose that makes up most organic matter.

Ethanol from cellulose could provide another 30 percent of our fuel needs, according to a recent report from the Department of Energy. (Click here for PDF.) This is where one has to think about the transition as a continuum. If we had said back in the 1980s that it wasn't worth developing home computers because RAM cost more than its weight in gold, you probably would be reading this article in print. Likewise, corn ethanol may be a bit clunky. But like the early PCs, it helps establish a market that drives research investment into far cleaner, more plentiful cellulose ethanol.

Cellulose ethanol is not a pipedream. One leading researcher recently suggested that just $1.7 billion in R&D investment would make cellulose competitive. This is about the same amount we spend each week in Iraq. A broad range of companies and university labs are developing cheaper enzymes, catalysts and fermentation processes today. And thanks to corn, when cellulose arrives, the market will exist.

• Step four: Commit to flex-fuel vehicles and plug them in.

Every vehicle on the road today can run on up to 10 percent ethanol (gasoline) or 5 percent biodiesel (diesel), and manufacturers are increasing production of flex-fuel vehicles that can handle 85-percent-plus blends. These vehicles cost less than $150 more to manufacture. Consumers need to start demanding them. Flex-fuel vehicles open the door to biofuels without binding us to a specific path. Once they're on the road, fuel retailers will finally be able to justify investing in pump retrofits to provide 85 percent ethanol fuel, known as E85, and allow consumers to make the choice at the pump.

By adding more batteries and a plug to today's hybrids, groups such as CalCars have managed to reach the equivalent of 100 mpg. The major automakers have been slow to adopt plug-in capabilities, but Saab recently displayed a flex-fuel hybrid with plug-in capability. Plug-in hybrids, combined with flex-fuel vehicles, offer the potential to displace more than 70 percent of current U.S. oil demand, replacing much of it with power from the grid that currently costs the equivalent of 60 cents to $1.30 per gallon.

In shifting the energy burden from fuels to the grid, there are obviously challenges. Interconnection, grid reliability and generation capacity all come to mind. But there is also enormous opportunity for innovation, and these challenges are far more resolvable than the crisis we now face in the Middle East. Wind, solar, nuclear, biomass and even advanced coal can all provide cleaner, domestic and more economic power sources than petroleum.

The private sector needs to embrace higher standards and innovate to meet them most efficiently. If we can do that, energy independence is in fact well within our reach.