The costs and risks of domestic oil production are projected to rise substantially as production from older U.S. oilfields declines and drilling expands into more difficult and challenging environments, such as deep offshore areas. Other costs and risks of U.S. oil dependence, including economic vulnerability to price shocks, geopolitical instability, military expenditures, health effects, oil spills, and other environmental impacts, are already significant and likely to increase if global demand continues its upward trend and supplies tighten. These direct and indirect costs add up to a true cost of oil that, by some estimates, is at least double current market prices.
On July 22, 2010, the Environmental and Energy Study Institute (EESI) and the Office of Senator Jeff Merkley held a briefing on America’s dependence on petroleum and potential strategies to reduce U.S. oil use. According to numerous studies, and as illustrated by the catastrophic oil spill in the Gulf of Mexico, the costs and risks of America’s continued reliance on oil are projected to increase. This briefing examined different technology and policy options to cut oil consumption.
With approximately 70 percent of U.S. oil consumption devoted to transportation, proposed strategies to reduce U.S. oil dependence have focused on non-petroleum fuels and increased efficiency of both vehicles and the overall transportation system. The Oil Independence for a Stronger America Act (S.3601, related House bill pending), sponsored by Senators Jeff Merkley, Tom Carper, Tom Udall, and Michael Bennet, would achieve oil savings of approximately 8 million barrels per day (mbd) by 2030 (from a projected baseline of approximately 19 mbd), and eliminate oil imports from non-North American nations.
- The United States imports approximately six to seven million barrels of oil per day from overseas (outside of Canada and Mexico), and in total, sends almost $1 billion to foreign nations each day solely to purchase oil. Senator Merkley’s plan calls for reductions equivalent to 8.3 million barrels per day.
- The total economic cost of U.S. oil dependence, including transfer of wealth, the cost of economic security, and costs due to disruptions in the established order of business, reached $577 billion in 2008. U.S. net expenditures on crude oil and petroleum products alone were $386 billion, which made up 56 percent of the total federal trade deficit.
- One higher range estimate pins the cost of providing security to sustain the flow of oil imports at $5 per gallon of gas.
- “What’s really lacking is not the technology. What’s lacking is the political will,” said Sen. Merkley. “If we think about our responsibility as a governing community, our responsibility is to think about how to position the United States strategically, and how to take on not only the financial issues, national security issues, but also our stewardship of the environment.”
- Vehicle efficiency standards alone will not reduce our oil use. In 1975, the new Corporate Average Fuel Economy standard led to an increase in fuel economy by 10 mpg, but it also dismantled many public transportation systems and led to a drastic increase in vehicle miles traveled as people moved further away from where they work, shop, and attend school. Policymakers should implement a suite of complementary measures to reduce oil use, including sustainable development and land use practices, building efficiency standards, and increased vehicle efficiency standards.
- “Livable Communities” that provide transportation alternatives, an array of housing options, and destinations close to home, not only help reduce oil consumption, but also save people a lot money. The second largest cost for the average household is transportation, and for the poor, transportation is the largest cost, even more than housing. In 2008, the average household income was about $50,000, and the average household spent $3,700 on gas alone.
- By developing electric vehicle (EV) deployment communities, lawmakers could help the EV market mature beyond early adopters, prove that wide scale deployment of EVs is possible and desirable, take advantage of economies of scale, and support research to answer critical questions about vehicle usage and recharging patterns. The EV provisions in Sen. Merkley’s plan would cut oil use by 3.2 million barrels per day.
- Freight trucks drive 100,000 miles per year at about 5 miles per gallon of diesel fuel, so there is a huge potential to reduce fuel consumption. Fuel efficiency improvements of up to 50 percent are reasonable for large trucks, and furthermore, improving the fuel economy of 18 wheelers is very cost effective.
- Implementing the use of heavy duty trucks that run on liquefied natural gas could cut oil use by 2.2 million barrels per day at a price of $15 per barrel.
- Coordinated transportation system efficiency measures will cut greenhouse gas (GHG) emissions from the transportation sector by 3-6 percent, and oil consumption by 100,000-300,000 barrels per day. Efforts to reduce oil-intensive travel activity will result in 5-17 percent reduction in GHG emissions from the transportation sector, and will reduce oil consumption by 800,000 to 2.6 million barrels per day.