 |
|||
|
|||
 |
|||
 |
|||
 |
|||
 |
|||
 |
|||
 |
|||
 |
ACEEE TESTIMONY
TESTIMONY OF HOWARD GELLER, EXECUTIVE DIRECTOR
BEFORE THE COMMITTEE ON RESOURCES, U.S. HOUSE OF REPRESENTATIVES ON NATIONAL SECURITY AND STRATEGIES FOR REDUCING OIL IMPORTS April 12, 2000
ACEEE is a non-profit organization dedicated to increasing energy efficiency
as a means for both promoting economic prosperity and protecting the environment.
We were founded in 1980 and have contributed to key energy legislation adopted
during the past 20 years, including the Energy Policy Act of 1992 and the
National Appliance Energy Conservation Act of 1987. I appreciate the opportunity
to appear before the Resources Committee. In my testimony today, I would
like to make the following points:
Domestic oil production in the United States is falling and will continue to fall. Total crude oil production in the United States peaked in 1970 at 9.6 million barrels per day (MBD) and has generally been falling since then (EIA 1999a). Domestic crude oil production in 1999 was about 5.9 MBD, nearly 39 percent less than the peak output of 30 years ago (see Figure 1). Net imports (imports minus exports) now represent over half of the oil products consumed in United States, due to both rising demand and falling domestic production. Furthermore, our oil import dependence is rapidly rising. The prospects for reversing this situation do not look good because we are running out of economically recoverable oil in the United States. In its most recent baseline Reference Case forecast (see Figure 1), the U.S. Energy Information Administration (EIA) projected that total domestic crude oil production will fall to 5.2 MBD by 2010 (EIA1999b). Assuming growing demand for oil products under "business-as-usual" policies and trends, the import share of oil products supplied is projected to reach 60 percent by 2005 and 64 percent by 2020. We cannot produce our way out of this high dependence on oil imports. Even if oil prices remain relatively high, the domestic supply picture will not change much. At a world oil price of $26.30/bbl instead of $21/bbl (in 1998 dollars), the EIA projected that domestic crude oil production in 2010 would equal 5.5 MBD instead of 5.2 MBD. Our import share in 2010 would still be 62 percent in this high oil price scenario (EIA 1999b). I am not an expert on the Arctic National Wildlife Refuge. I do not have an opinion on how much oil would actually be produced if ANWR is opened to development, and I do not know how much opening ANWR to development would harm the wildlife living there and the environment. But one thing seems clear—opening up the ANWR to oil production would not make a significant contribution to curtailing our growing dependence on oil imports. The U.S. Geological Survey (USGS) recently estimated that there are 2.4 billion barrels of "economically recoverable" oil under the ANWR tundra at an $18/bbl market price (1996 dollars) (Hayes 2000). If this amount of oil is produced over a 25-year period, additional oil production from ANWR would average 0.26 MBD. Even assuming twice as much economically recoverable oil as this USGS estimate (which would be consistent with a significantly higher world oil price), ANWR production would average only 0.53 MBD. Even with this optimistic level of production from ANWR, total domestic oil production in 2010 would still be less than in 1999 and oil imports would continue to rise during the next 20 years, based on other assumptions in the EIA Reference Case forecast. Growing oil imports is a serious threat to national security, consumers, and our economy. The Administration and Congress should be concerned that our oil imports are high and growing. Even without an oil price shock, our oil import bill is projected to climb from $60 billion as of 1999 to $110 billion annually by 2010 and $138 billion by 2020 (EIA 1999b). This forecast assumes a relatively moderate world oil price of $21/bbl (in 1998 dollars) in 2010. If the world oil price stays around $25/bbl or climbs higher due to monopoly price control or future Middle East crises (as it very well may), our annual oil import bill could reach $150-200 billion. We and our allies are dependent on unstable nations and regions for our vital oil supplies. Our economy is vulnerable to another oil price shock. Besides the direct cost of importing oil and its contribution to our massive trade deficit, we need to spend additional tens of billions of dollars per year to help defend oil-producing nations and protect oil supply routes. And at times we need to go to war to defend our oil supplies, as was the case in 1991. The recent run-up in oil prices demonstrates the risk and potential harm from our high and growing oil import dependence. The United States is sending an additional $50 billion per year to foreign oil producers (or about $500 per household per year), with gasoline costing about $1.57 per gallon on average instead of the $1.00 or so per gallon being paid a short time ago. This is the "OPEC tax" we are now paying by allowing OPEC to regain its grip on world oil prices. Reducing consumption of petroleum products through improving the fuel economy of new vehicles is our single most effective option for cutting oil imports. The recent oil price run-up is due in no small part to the growth in consumption of petroleum products—mainly gasoline and diesel fuel—in the United States during the past 12 years. Gasoline and diesel fuel account for about 55 percent of total U.S. oil consumption. The average fuel economy of new passenger vehicles (cars and light trucks) declined from a high of about 26 miles per gallon (mpg) in 1988 to about 24 mpg in 1999, due to increasing vehicle size and power, the rising market share for light trucks, and lack of tougher fuel economy regulations (see Figure 2). And vehicle use steadily climbed about 3 percent per year during this period. As a result of these two factors (decreasing vehicle efficiency and rising vehicle use), consumption of gasoline and diesel fuel this year will be about 10.6 MBD, 1.7 MBD (19 percent) greater than in 1988. Unlike the poor prospects for increasing domestic oil production, there are good prospects for reducing our oil demand and cutting future oil imports by raising the efficiency of our vehicle fleet. In fact, if we had the foresight and political will to steadily increase the fuel economy of new vehicles sold in the United States during the past 12 years, as we did during 1975-87, we probably would not have experienced the recent run-up in oil prices caused in part by growing oil demand. Specifically, if we had increased the average fuel economy of new cars by 1 mpg per year and the average fuel economy of new light trucks by 0.5 mpg per year, starting in 1987, rather than allowing fuel economy to decline, the rated average fuel economy of new cars sold this year would be 41 mpg and that of light trucks would be 27 mpg. Fuel use by the overall passenger vehicle fleet on the road today would be about 1.3 MBD (16.5 percent) less than it actually is. Moreover, because of our large market and the influence we have on vehicles sold worldwide, the total worldwide fuel savings from improving U.S. vehicle fuel economy would surely exceed 2 MBD, the amount believed necessary to relieve recent pressure on world oil prices. And the fuel savings would continue to grow in the future as the vehicle fleet turns over. Of course we can't go back and redesign the vehicles sold over the past 12 years. But we can enact policies today to ensure that vehicles sold during the next few decades are "gas sippers" rather than "gas guzzlers." The next section presents ACEEE's policy recommendations for improving vehicle fuel economy. Tougher fuel economy regulations, tax incentives, and other measures should be adopted to increase the efficiency of new vehicles. Tougher fuel economy (CAFE) standards are essential for significantly increasing new vehicle efficiency. Independent analyses (including those from our national laboratories) have concluded that the initial CAFE standards were largely responsible for the near doubling in the average fuel economy of cars and more than 50 percent increase in light truck fuel economy from 1975 to 1987, resulting in oil savings of over 3 MBD (Greene 1999). The standards were met largely through cost-effective technologies (e.g., engine efficiency improvement, weight reduction, etc.), not downsizing, without negative side effects (Greene 1999). Indeed, the safety of new vehicles, as measured by highway fatalities per mile driven, declined substantially at the same time that on-road fuel economy increased during the past 25 years (see Figure 3). Tougher fuel economy standards could again be met through technological improvements—both refinements to conventional designs and advanced vehicle technologies such as hybrid drivetrains and eventually fuel cells (DeCicco 2000). Honda and Toyota have started production of hybrid vehicles with 50-75 percent greater fuel efficiency compared to typical new cars in the same size class this year. Ford just announced it will begin producing and selling a very efficient and clean hybrid sports utility vehicle in 2003. As in the past, fuel economy can be increased at a moderate incremental vehicle cost once the technologies are mass-produced, with the value of the fuel savings exceeding the extra first cost thereby saving consumers money on net (DeCicco and Mark 1998). We recommend increasing the current fuel economy standards by 60 percent to 44 mpg for cars and 33 mpg for light trucks by 2012, with further increases at the rate of 2.5 percent per year beyond this date. Car manufacturers will protest and say "it can't be done" or "it will cost a fortune," as they did when the original CAFE standards were debated. Policy makers in the Congress and Ford Administration enacted standards in 1975 in the face of industry opposition, and the car companies complied with these standards at reasonable cost (Greene 1999). The auto industry vigorously lobbied against tougher CAFE standards during the 1990s, and both the Administration and Congress succumbed to this pressure. Tougher standards are now long overdue and should be adopted before we face another oil price shock or crisis, considering "technological feasibility, economic practicability, and the need of the nation to conserve energy," as stated in the Energy Production and Conservation Act of 1975. Tougher CAFE standards should be complemented by market incentives and voluntary programs in order to build consumer demand for high- efficiency, cleaner vehicles and facilitate implementation of tougher standards. The Congress should approve the tax incentives for innovative, highly efficient hybrid and fuel cell vehicles along the lines proposed by the U.S. auto companies and Clinton Administration, but with an earlier start date and requirements that vehicles receiving incentives meet minimum fuel economy improvement and emissions thresholds. And the Congress should consider expanding the federal "gas guzzler" tax and converting it to a revenue-neutral fee and rebate system. ACEEE also recommends expanding voluntary programs to educate consumers about vehicle fuel economy and emissions, and encourage owners of vehicle fleets to commit to purchasing "best in class" vehicles as well as innovative, highly efficient vehicles once they become available. We estimate that the tougher fuel economy standards and complementary policies recommended above would reduce gasoline consumption by 1.5 MBD by 2010 and over 4.5 MBD by 2020. With this level of savings, oil import growth would be moderated during this decade and imports would then fall after 2010, based on other assumptions in the EIA Reference Case forecast. The potential oil savings far exceed the potential oil supply from opening the Arctic Refuge to exploration and development (see Figure 4). Tougher fuel economy standards and complementary policies could save consumers over $350 billion net (gasoline savings minus increased vehicle cost) through 2020 (Geller, Bernow, and Dougherty 1999). Tougher standards also would reduce emissions of hydrocarbons and other air pollutants. And new fuel economy standards would cut emissions of carbon dioxide and other greenhouse gases, thereby slowing global warming while saving consumers money. Conclusion Growing oil imports is a serious threat to our national security and economic well-being. Steps should be taken to lower oil imports over the long run. But policy makers should recognize that domestic oil supplies are limited and declining. The best opportunity for the foreseeable future lies on the demand side, specifically by increasing vehicle fuel economy. Adopting tougher fuel economy standards, along with tax incentives for highly efficient vehicles and other market incentives and voluntary programs, is the most effective strategy for reducing our dependence on oil imports and thereby enhancing national security, reducing our trade deficit, and exerting downward pressure on world oil prices. Increasing vehicle efficiency addresses the root of the problem—unchecked growth in oil consumption—unlike other proposals such as opening ANWR to oil development, rolling back the gasoline tax, or marketing oil from the Strategic Petroleum Reserve. Tougher fuel economy standards also will result in net economic savings for consumers and lower emissions of air pollutants and gases causing global warming. Increasing vehicle fuel economy was our key response to the oil crises of the 1970s; this strategy can and should be applied again to avoid new oil crises in the 21st century. This concludes my testimony. Thank you for considering these views.
References
DeCicco, J.M. 2000. "Testimony of John DeCicco, American Council for an
Energy-Efficient Economy, before
DeCicco, J.M. and J. Mark. 1998. "Meeting the Energy and Climate Challenge
for Transportation in the United States."
[EIA] Energy Information Administration. 1999a. Annual Energy Review
1998. DOE/EIA-0384(98). Washington, D.C.: _____. 1999b. Annual Energy Outlook 2000. DOE/EIA-0383(2000). Washington,
D.C.: U.S. Department of Energy, Geller, H., S. Bernow, and W. Dougherty 1999. Meeting America's Kyoto
Protocol Target: Policies and Impacts. Greene, D.L. 1999. "Why CAFÉ Worked." Energy Policy 26 (8), 595-614. Hayes, D.J. 2000. "Testimony of David J. Hayes, Department of the Interior,
before the U.S. Senate, Committee on
|
| Energy
Policy | Programs | Press
& Media | Consumer Resources Publications & Meetings | Support ACEEE | Site Map | Home |
|
Copyright Info Here |
