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Reducing U.S. Oil Consumption

The worst oil spill in U.S. history, still growing in the Gulf of Mexico, has intensified debate about alternative fuel options. Here, four experts discuss how to reduce U.S. oil consumption.

June 11, 2010

Expert Roundup
CFR fellows and outside experts weigh in to provide a variety of perspectives on a foreign policy topic in the news.

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Fossil Fuels

United States

Higher oil prices and growing global demand have pushed energy companies to recover oil in riskier locations, such as the deep waters of the Gulf of Mexico. But the recent Deepwater Horizon oil spill has raised questions about expanding drilling and led to calls to reduce the demand for oil. Here, three experts weigh in on what the United States could do to significantly reduce oil consumption.

CFR’s Senior Fellow Michael Levi says the United States could reduce consumption by both ending heating oil use and changing the mix of transportation options, such as "shifting to hybrid and plug-in-hybrid vehicles," but he notes consumption reductions won’t necessarily translate into abandoning risky drilling projects. Ian Parry, a fellow at the environmental think tank Resources for the Future, argues that taxing all oil products would modestly reduce oil consumption, but predicts even with new taxes the United States will remain oil dependent.

Anthony Perl, director for the Urban Studies Program at Canada’s Simon Frasier University says more high-speed rail would help reduce consumption, but the pace at which it could be introduced would hinge on government’s "capacity to plan and execute the needed infrastructure." Daniel J. Weiss, senior fellow and director of climate strategy for the Center for American Progress, encourages aggressive oil reform by Congress and the White House, including more safeguards for oil and gas production, increased vehicle efficiency, higher revenues for clean fuel, and accountability for oil companies

Michael A. Levi

The United States could substantially reduce its oil consumption in the next two decades if it chose to do so. It is unlikely, though, that it would abandon drilling in the Gulf of Mexico as a result.

The International Energy Agency (IEA), for example, outlined a moderately aggressive scenario last year that would see the United States cut its oil consumption by 29 percent between 2007 and 2030. Sixty percent of that cut would have come from transportation, with the balance coming primarily from nearly eliminating oil use in electricity generation and from conservation in heating homes. A mix of better internal combustion engines, shifting to hybrid and plug-in-hybrid vehicles, and greater use of biofuels would produce the transport result. If that was combined with increased onshore oil production, perhaps from CO2-enhanced oil recovery, it could cut U.S. imports by more than half.

The International Energy Agency (IEA) outlined a moderately aggressive scenario last year that would see the United States cut its oil consumption by 29 percent between 2007 and 2030.

These steps would have enormous benefits. The U.S. economy would be less vulnerable to oil price shocks. It would also be more capable of handling high oil prices, since it would be sending less oil money abroad. Greenhouse gas emissions would be cut. The United States would still depend on oil, but its vulnerabilities would be reduced.

Yet I doubt that the United States would abandon risky offshore drilling as a result. Companies are drilling in the Gulf of Mexico for two reasons. First, oil prices are high enough to justify it. They are expected to continue their recent rise. Reduced U.S. consumption would depress future prices, but there is no reason to believe that they would drop low enough to make offshore drilling unprofitable. Second, many U.S. politicians and voters respond to those high oil prices and to the use of imported oil by pushing to open up more territory for oil exploration and production. Even deep reductions in oil consumption would be unlikely to change either of these forces. That does not mean that deepwater drilling will be necessary (not that it necessarily is today). It does mean, though, that it will not automatically vanish.

Ian W.H. Parry, Senior Fellow, Resources for the Future

There are a variety of reasons why U.S. policymakers are interested in reducing the economy’s dependence on oil. Production and use of oil products produces greenhouse gases and local pollution; oil dependence makes the economy vulnerable to price shocks in the world oil market; dependence on oil suppliers that are hostile to Western interests may hinder U.S. foreign policy; and so on.

Despite continued growth in demand for travel, oil consumption in the United States is projected to stabilize over the next twenty years, or perhaps even fall somewhat. This is due to some combination of rising future oil prices, aggressive regulations being phased in to increase automobile fuel economy, and the mandated expansion of biofuels.

The most economically efficient way to further reduce future oil use would be to tax all oil products. This would exploit all opportunities throughout the economy for oil conservation, including, for example, reducing highway mileage, further improving the fuel economy of transport vehicles, and reducing industrial oil consumption. Gasoline taxes are less effective, as they target gasoline use only, which accounts for less than 50 percent of all oil products. In turn, continued tightening of fuel economy regulations would be less effective than higher fuel taxes, as regulations do not encourage people to drive less. And targeted subsidies for specific vehicles, like plug-in electrics, have an even narrower focus, as they do not promote efficiency improvements in conventional gasoline vehicles.

The most economically efficient way to further reduce future oil use would be to tax all oil products.

However, even if broad-based oil taxes could be implemented, they would likely have a modest, rather than dramatic, impact on future oil use. For example, a forthcoming study by Resources for the Future and the National Energy Policy Institute suggests that a phased-in oil tax, reaching the equivalent of about $1.70 per gallon of gasoline by 2030, would lower oil consumption in that year by around 10 to 15 percent below what it would be otherwise. Around 70 percent of oil is used in transportation, and people and firms are generally reluctant to cut back their travel that much in response to higher fuel prices. Moreover, there is little in the way of commercially viable alternatives to traditional transportation fuels. And many emerging fuel-saving technologies will be incorporated in new vehicles anyway in response to regulations already in law.

Timeline: Oil Dependence and U.S. Foreign Policy

Supplementing oil taxes with more aggressive policies to promote the development of oil-saving technologies (like increased funding for basic energy/transportation R&D and offering hefty prizes for oil-saving innovations) would help some more. But we should not fool ourselves. Even if the opposition to the introduction of progressively rising oil taxes could be overcome (and it is difficult seeing how this might happen at present) chances are we will still be considerably dependent on oil at the twentieth anniversary of the BP oil spill.

Anthony Perl

America’s biggest oil spill has shown us the dark side of pushing the search for oil beyond the frontier of our experience. Going forward, we face a crucial choice that will have profound consequences for America’s future. We can either reinvent our energy infrastructure to obtain extreme oil more safely or we can reposition our society to use much less of it. Both options will cost more than Americans have grown accustomed to paying for energy, but the end of cheap oil is inevitable.

A key difference between redesigning our transportation system to enable post-carbon mobility and introducing infrastructure to bring us more extreme oil--like the Gulf of Mexico’s deepwater reserves--can be found in the state of technology. Moving people and freight without oil can be done with mature technology. Conversely, the technology to safely produce extreme oil on a large scale remains to be perfected, as events in the Gulf have made obvious.

High-speed trains have revolutionized the way that people move between cities hundreds of miles apart. These trains are powered by electricity--the ideal medium to facilitate a transition away from oil because it can blend energy sources and thus shift from non-renewable carbon based fuels like coal and natural gas to renewable sources like solar, wind, and water as soon as the infrastructure to generate them can be built.

These trains are powered by electricity--the ideal medium to facilitate a transition away from oil because it can blend energy sources, and thus shift from non-renewable carbon-based fuels.

In "Transport Revolutions," Richard Gilbert and I illustrated one scenario whereby the United States could reduce oil-powered transportation by 40 percent between 2010 and 2025 while obtaining roughly the same levels of ton-miles in freight transportation and passenger-miles in local and intercity travel. Around half of today’s car travel would shift to electric propulsion, mostly aboard local buses and trains, while about one-third of domestic flying would be substituted by electric trains, mostly running at 125 miles per hour or faster. Electric cars also would play a modest, but growing role in providing local mobility. Similar shifts would occur in freight transportation.

The pace of this change would be governed less by the availability of technology and more by the capacity to plan and execute the needed infrastructure. We propose the creation of a Transportation Redevelopment Agency (TRA), a new federal entity that could play a role of banker and infrastructure entrepreneur similar to the Tennessee Valley Authority. Progress on modifying America’s existing rail infrastructure will be slow without a new organization that can accelerate innovation.

Meanwhile, the costs required to unleash this transport revolution in time to preclude the need for extreme oil might appear daunting. But the alternative path--that of developing infrastructure that can safely produce large volumes of extreme oil--will require just as much government initiative to oversee, and it will certainly cost more when the environmental impacts are taken to account.

Daniel J. Weiss, Senior Fellow and Director of Climate Strategy, Center for American Progress

Assistant to the President Carol Browner observed that the BP oil disaster (AFP) is "probably the biggest environmental disaster we’ve ever faced in this country." Americans understand that this catastrophe in the Gulf of Mexico is but one symptom of our oil dependence and the need for an aggressive transition to cleaner energy.

The public hungers for a direct, bold response to the oil disaster--one that clearly reduces American dependence on all oil, regardless of origin. President Obama and Congress should dramatically cut our oil dependence by adopting administrative and legislative measures that add safeguards for oil and gas production, increase vehicle efficiency, raise revenue for cleaner fuels and transit, and hold oil companies accountable.

A clean energy economy and reduction in oil use will benefit all Americans by saving families money, enhancing national security, creating jobs, and protecting public health by making pollution reductions.

President Obama took steps to reduce oil use, but a more aggressive oil reform agenda is essential. It could include the following measures, many of which the administration has the authority to adopt or have already been already introduced as bills in Congress.

* Eliminate the liability limit for oil disasters, currently capped at $75 million.

* Require BP to put $10 billion--half of its profits over the last fifteen months—into an escrow fund to help pay for clean-up and damages. This ensures payments to claimants even if BP declares bankruptcy.

* Fully implement oil well safety recommendations in the Interior Department’s report (PDF), including better back-up systems and inspections.

* Establish a 45-mile per gallon fuel economy standards for cars and light trucks by 2020, and establish the first fuel economy standards for trucks.

* Implement fuel economy and alternatively fueled vehicle measures to reduce oil use by seven million barrels per day by 2030, with interim reductions as well.

* Power trucks and buses with natural gas by enacting the NAT GAS Act (PDF). Power cars with electricity by enacting the Electric Drive Vehicle Deployment Act (PDF).

*Eliminate tax loopholes that benefit big oil companies.

* Invoke the Trade Expansion Act to levy an oil import fee, and use this revenue to invest in clean energy infrastructure.

* Reduce global warming pollution from oil and other major sources (PDF).

A clean-energy economy and reduction in oil use will benefit all Americans by saving families money, enhancing national security, creating jobs, and protecting public health by making pollution reductions.

The horrible BP oil disaster has reminded Americans that we must reduce our oil use, and now is an unprecedented opportunity to take bold action to achieve this goal.