It is too early to pick the ultimate car of the future. Plug-in electric, hydrogen fuel cell and biofuel vehicles are currently in contention, but it is quite possible that no single alternative will dominate the future the way that gasoline-powered cars own our roads today. The competition will be fierce because these new technologies will not only be competing against each other, but also against the ever-improving internal combustion engine. By 2035, it’s quite possible a new gasoline-powered car will get 50 mpg and a hybrid-electric car (like the Toyota Prius) will achieve 75 mpg.

Whatever technologies win out, it is clear the societal costs of oil are too high. The price at the pump fails to include all the national security and environmental costs of exploration, extraction, distribution, and consumption of oil. Since oil appears cheaper to the consumer than its true cost to society, we end up consuming more than we should. We send hundreds of billions of dollars out of our economy each year – $330 billion in 2010 alone – to oil producers with monopoly power instead of investing the money here at home.

Considering that 70 percent of the oil Americans consume is used to get us where we need to go (by land, sea, and air), moving away from oil challenges our relationship with our cars. Although recent trends indicate we’re increasing the efficiency of our vehicle fleet, we clearly have a long way to go – our cars and light trucks consume almost 8 million barrels of oil per day.

In a report the Pew Center on Global Climate Change released in January, the authors laid out a path for moving away from oil as our dominant transportation fuel through action on three fronts: technological progress, targeted public policies, and a commitment from Americans as consumers and citizens. The critical takeaway from this yearlong study sponsored by the Transportation Research Board of the National Academies of Science is that we can get there so long as we begin now and make a concerted and sustained effort.

The shakeout to choose winners and losers on the technology front has already begun. We have had E85 (85 percent ethanol, a biofuel) vehicles for some time, plug-in electric vehicles hit the road late last year, and hydrogen fuel cell vehicles will be available by 2015. For alternative energy technologies to compete with conventional cars, manufacturers must meet five major objectives:

1. Building cars that satisfy diverse consumer preferences, which can change over time depending on factors such as land use patterns and technology. For example, automakers talk about a future in which short-range electric vehicles take over cities; General Motors unveiled its Electric Networked Vehicle at the annual Consumer Electronics Show in 2011.
2. Creating economies of scale by building millions of these vehicles. Automakers, in particular, are adept at driving down costs as they ramp up production.
3. Reducing costs and improving car performance through learning-by-doing. Though first generation technology is often cost-prohibitive for the masses, second and third generations are progressively more affordable.
4. Overcoming consumers’ unwillingness to take a risk on new technology. Consumers tend to be risk averse when purchasing a car, since they are the second largest purchase for most.
5. Overcoming the “chicken and egg” dilemma of the car and refueling infrastructure. This problem can favor some technologies over others, and may require significant public support to overcome.

Enter public policy. The government’s role in moving away from oil is primarily to ensure that societal costs are reflected in our fuel and vehicle choices, and to level the playing field so that alternative energy technologies can compete fairly. The two steps of the transition, which must be continual, are (1) research and development of advanced technologies and (2) deployment based on weighing the benefits of successful technology to society versus the costs.

Government must balance the initial costs of subsidies needed to push technologies into the marketplace against the prospect of much larger, but uncertain future benefits. For instance, fuel economy standards since the 1970s have helped push research, development, and deployment of improved vehicle efficiency. These standards have benefited the consumer, the environment, and society. Government must continue this push. Government must also balance the desire to avoid picking winners versus the need to reassure early investors.

Here’s what we know. Oil is a remarkable fuel with an incredibly high energy density by weight and by volume. We have used it for over a century to power our cars, grow our economy, and improve our quality of life in the United States. But it is far from perfect – we’ve been paying for its true costs indirectly for decades – and it’s time for us to move away from it once and for all.

Nick Nigro is a Solutions Fellow at the Pew Center on Global Climate Change. He is responsible for research, analysis, and communication of transportation technology and policy solutions for reducing greenhouse gases.

Top image: Cotton plant, Arkansas, rusty gas pump. Courtesy Flickr user Luke