The Price Is Wrong; Even $50 a barrel can't wean the world from oil. Only government can.(Cover Story)

Byline: Leonardo Maugeri (Maugeri is group senior vice president for corporate strategies at Eni, the Italian oil and gas company.)

Is the internal-combustion engine dead? listening to all the voices calling hybrid vehicles the future of transportation, you might think so. Alternative energy is back in style among the chattering classes. But oil prices would have to go a lot higher to make so-called renewables--such as solar and wind energy--commercially viable. That means their future won't be decided by consumer tastes or market conditions, but by government policy.

These are facts. Any oil company will use whatever energy source makes economic sense, since its basic mission is not to pump oil. It's to create value from energy. We figure the cost of one kilowatt of solar photovoltaic power at a minimum of five times the cost of oil power, even when oil is hovering near $50 a barrel--a price we don't expect to hold up for long. Solar power is even less competitive against cheaper fossil fuels like coal and natural gas, and relies on mature technology. A radically new technology--perhaps replacing the silicon in photovoltaic cells with polymers--will be needed to make solar cost effective. That day is at least 20 years off. Wind and biomass are closer than solar to becoming competitive with fossil fuels, but their capacity to supply large amounts of energy is limited. And even the most modern windmills have inspired a popular backlash on esthetic grounds.

Many energy industrialists think nuclear is the answer, but they rely on a misleading analysis of its cost competitiveness. Even if you ignore the political concerns surrounding nuclear waste, producers often fail to correctly calculate the real price of electricity produced from nuclear energy. It costs about as much to close a nuclear plant as it does to build a new one, which is why nuclear power companies are now lobbying worldwide to delay planned plant closings.

There's also a lot of fuzzy talk about things like hybrid homes and cars. Many analysts note that while consumers still pay a lot more for hybrid cars than they can make back in gas savings, this gap is closing. What this line of reasoning ignores is that no technology competes only against itself, and combustion engines are rapidly evolving, too. The rush to innovate is led by the makers of diesel engines, which nearly match the gas efficiency of hybrids, but at much lower cost to consumers. Diesel also cuts greenhouse emissions by 30 to 40 percent ...