You, Your Car and the U.S. Energy Policy - Things You Need to Know
By Amy Myers Jaffe and Kenneth Medlock III

Editor’s note: Amid growing concerns about the security and availability of oil in an increasingly tense geopolitical environment, the United States is at an energy crossroads. As Congress labored to create an energy bill this past summer, it debated topics such as fuel-economy standards, alternative and sustainable fuels, and carbon emissions. There are many policy options, but no easy answers. AAA believes that Americans must become educated and engaged in the energy debate. We are pleased to present the following informative article by Amy Myers Jaffe and Kenneth B. Medlock III. These internationally recognized experts lay out many of the facts on this complex topic, providing motorists information needed to understand the issues being debated.

We Americans love to drive our cars. All told, we own more than 242 million road vehicles - nearly one vehicle for every person in the country - and we travel 12,000 miles per vehicle each year. Virtually all of these vehicles are powered by petroleum-based fuel.

Driving is part of the American way of life. While we represent 5 percent of the world’s population, Americans use more than 33 percent of all oil consumed for road transportation. And as other countries adopt our lifestyle of freedom and mobility, the demand for oil is increasing. China, for example, has a population four times that of the United States and today uses only about 5 percent of the world’s transportation fuel. But with its booming economy, it is expected to increase its use exponentially in the coming decades.

This situation is causing many to ask: How will even more cars on the road contribute to already increasing problems? Oil is a finite resource, and although there are billions of barrels of oil left under the ground (in fact trillions if one counts more expensive, unconventional resources such as Canadian tar sands), geography and geopolitics may render future oil supply less reliable than in the past.

From 1970 to 2000, more than 40 percent of the increase in world energy supply came from within industrialized regions such as the United States, Europe and Australia —more specifically, Alaska, the U.S. Gulf of Mexico, the U.K. and the Norwegian North Sea. However, over the next 25 years, experts project that more than 90 percent of new oil supplies will come from more unstable regions including the Middle East, West Africa and the former Soviet Union. The International Energy Agency estimated that more than $2.2 trillion will need to be invested to meet the increase of 30 million to 40 million barrels of oil a day the world will need beyond today’s demand of 83 million barrels a day. Fifteen percent of that added demand is projected to come from the United States alone and another 24 percent from China.

It remains to be seen whether this massive investment will materialize to meet the world’s growing thirst for oil. During the past two decades, the United States oil policy has been to rely on our allies in the Persian Gulf such as Saudi Arabia, the United Arab Emirates, Kuwait, Qatar and Oman, as well as major exporters like Venezuela and Nigeria to provide the oil we need. In 1990, when Iraq invaded Kuwait, cutting off 5 million barrels a day of needed oil supply, several of these Persian Gulf allies increased production to make up the difference, limiting the effect on world oil supply and thus the price.

But the internal stability of many oil-producing countries looks a lot shakier now than it did in the 1980s and into the 1990s. In fact, the list of oil-exporting countries whose production (despite ample reserves) has been stagnant or falling in recent years due to civil unrest, terrorism, inefficiency, government mismanagement or corruption is long and diverse. Do we really want to rely on unstable petro-states to make sure we can get to work in the morning?

This begs another question, "How can we reduce our dependence on imported oil?" President George W. Bush offered a plan to reduce gasoline by 20 percent by 2017, mainly through expanding biofuels programs. Congress and Presidential candidates have proposed other solutions to our oil dilemma. Some officials advocate conservation; others want to see policies that will increase supplies through either new construction of refineries or promotion of alternative fuels. Still others say innovative automotive and fuel-system technologies can solve the problem. But the issues related to American gasoline supply, reliability and use are fairly complex and therefore proponents of easy answers are likely glossing over the truth about the details of such ideas.

Here are some of the basics we need to understand before thinking about the various proposed solutions:

• Scope of the issue: The size of the U.S. gasoline market.
  How large is the U.S. road fuel market? The U.S. road fuel market is the largest in the world. There is close to one vehicle on the road for every American. What does the large number of U.S. cars mean in terms of fuel use? The U.S. road petroleum use represents 33 percent of all global road petroleum use, twice as high in percentage terms as all of Europe, which uses 17 percent of all global road petroleum. Does the size of the U.S. gasoline market matter in terms of implementing policies to enhance American energy security? Yes, the U.S. market is so large that it makes it extremely difficult to solve the challenges raised by growing reliance on imported oil.

• The facts about mileage standards
  What are CAFE Mileage Standards? The Energy and Conservation Act of 1975 mandated that all new passenger cars should meet a standard of 27.5 miles to the gallon by the 1980s. Under recent new rules, new light trucks (including SUVs) are mandated to average 22.2 mpg for model year 2007. Have these mileage standards been effective?
  • Improvements in fuel efficiency that were realized from the late 1970s through 1990, catalyzed by mandates and consumer demands for lighter vehicles, have resulted in considerable fuel savings. In fact, current U.S. gasoline consumption would have been about 33 percent higher than it is now without those improvements, meaning efficiency has acted as a virtual source of supply. How much oil could we save if we tightened CAFE standards? Improving current on-road vehicle miles per gallon efficiency of every new American car by one additional mile per gallon per vehicle would save close to 600,000 barrels a day in American oil imports. Additional efficiency gains per gallon would save even more oil, but the savings diminish as better mileage performance tends to promote increases in driving distance. Could these oil savings be realized quickly once the law is in place? No, given the used car market in the United States, it takes on average about eight to 10 years before a motor vehicle is retired from use. Because CAFE standards apply to new cars, plan on almost a decade before all cars on the road will meet the higher standard.

• Can we achieve U.S. energy independence through tighter CAFE standards?
  U.S. crude oil imports were over 12 million barrels a day last year. Since we consumed just under this amount in 2005 for road transportation, it would be impossible to raise car efficiency enough to eliminate oil imports through car mileage standards alone. Even to cut U.S. gasoline use by a more modest goal, such as 20 percent, could require all new cars coming onto the road over the next 10 years to average up to 42 miles to the gallon.

• The facts about energy independence and ethanol
  How much ethanol is produced in the United States? U.S. ethanol production averaged 316,000 barrels a day last year, up 19 percent from 2005 levels. Can ethanol make us energy self-sufficient like Brazil? In point of fact, Brazil did not achieve energy independence through its ethanol program. Brazil’s ethanol production has only risen from 232,000 barrels a day in 1990 to 313,000 barrels a day currently. Brazil engaged in an aggressive offshore oil exploration campaign that raised its domestic oil production from 650,000 barrels a day to 2 million barrels a day during the last 17 years. For the United States to achieve oil independence by replacing gasoline with ethanol, we would need to produce more than 10 times the amount of biofuels being produced worldwide today.

• A role for conservation
  Can conservation make a contribution to reducing U.S. oil imports? President Bush mentioned a goal to reduce the increase in U.S. gasoline use by the year 2017. To hold U.S. gasoline use at 2005 levels by 2017 through conservation, each of us would have to drive 45 miles less per vehicle per week. For many Americans, that could be one day a week commuting in car pool or by public transportation or telecommuting. Based on statistics showing annual miles driven per vehicle each year, most Americans are probably not traveling more than 35 miles a day. Could battery or plug-in hybrid electric cars help? Yes, virtually no oil is used in generating electricity in the United States. Most electricity generated in the United States is done with domestically produced fuels other than oil, such as natural gas, coal, nuclear, hydroelectric and renewable energy.

• Proposed solutions
  Of all the solutions that have been proposed in Congress or by U.S. Presidential candidates to promote U.S. energy independence, which is the best one? Sadly, the reality is that no single solution that has been proposed will lead to a decrease in U.S. gasoline consumption or achieve U.S. energy independence. Eliminating 12 million barrels a day of oil imports from our daily lives is not plausible. What should we be looking for in a sound policy on reducing reliance on foreign oil and protecting the global climate? It is going to take a portfolio of policies including many different kinds of measures to reduce oil use and promote new technology. It may also require changes in lifestyle and perhaps, depending on circumstances in the future, personal sacrifices.

Therein lies our situation and the barometer through which proposed energy policies should be judged. The reality is, in order for us to decrease oil consumption, many of the proposed policies would have to be implemented all at the same time. Any single policy implemented by itself is unlikely to be able to do more than eliminate only a small part of our future increase.

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The authors

• Amy Myers Jaffe is the Wallace S. Wilson Fellow in Energy Studies at the James A. Baker III Institute for Public Policy and the associate director of the Rice University Energy Program. Her research focuses on oil geopolitics, strategic energy policy and energy economics. Prior to joining the Baker Institute, Jaffe was the senior editor and Middle East analyst for Petroleum Intelligence Weekly. She was chosen by Esquire Magazine as one of the 100 Best and Brightest -2005 in the contribution to society category for being a "rarity among energy-policy experts" and a "voice of honest, non-partisan reason." Jaffe was also just named to "Who’s Who in America® 2008."

• Kenneth B. Medlock III is currently a Fellow in Energy Studies at the James A. Baker III Institute for Public Policy and adjunct assistant professor in the department of economics at Rice University. His research in energy economics includes gasoline markets, forecasting energy demand, and energy use and the environment. He leads the institute’s natural gas program and holds the 2001 best paper prize for oil demand forecasting from the International Association for Energy Economics. Medlock’s research has been published in academic journals, books and industry periodicals such as Petroleum Economist and the Energy Journal.