October 18, 2013

It has been 40 years since the Arab members of the OPEC oil cartel first jolted the United States awake to the true costs of oil dependence. Petroleum prices more than tripled, with harmful shocks rippling across the U.S. economy. In the years that followed, market fears and disruptions surrounding the Iranian revolution and Persian Gulf War led to another tripling of prices and more economic shocks. At the same time, worsening air pollution in the United States and rising concerns about greenhouse gas (GHG) emissions revealed other high costs of U.S. oil dependence. Fuel economy and renewable fuel standards were among the many ways that Congress responded to these challenges. Can we do better?

Can’t live with it. Petroleum dependence has wreaked havoc on the U.S. economy, energy security, trade deficit, public health, and the environment. Since 1973, the economy has been on a roller coaster. Global oil prices have spiked, plummeted and spiked again due to actions by cartels, wars and threats of wars, overseas civil unrest and labor strikes, hurricanes, speculation, tight supplies, and steadily rising global demand (see this EIA graph of oil prices and events 1970-2000) .

High prices and price volatility are still here and are not expected to go away any time soon. Today’s retail gasoline prices are as high in real terms as they were in the early 1980s when the Iran-Iraq war threatened oil supplies in the Persian Gulf (see this EIA graph of inflation-adjusted prices for various petroleum-based fuels, 1976-2013) .

In terms of public health, the EPA estimates that mobile sources burning petroleum-based fuels accounted for "47 percent of outdoor toxic emissions, 50 percent of the cancer risk, and over 80 percent of the non-cancer hazard. Benzene is the largest contributor to cancer risk of all . . . and mobile sources were responsible for 59 percent of benzene emissions in 2002." Public health threats remain the greatest in urban areas near transportation corridors.

With respect to climate change, the United States emitted 2.3 billion metric tons of carbon dioxide from petroleum in 2012, 43 percent of total U.S. carbon dioxide emissions from all energy sources. The United States now emits more carbon dioxide from petroleum than from coal or natural gas.

The environmental and climate change costs of oil dependence will only grow in the decades ahead if current trends continue. Conventional oil reserves are declining. Enhanced oil recovery technologies will help extract additional oil from those reserves, but this will require more climate-polluting energy and resource inputs. The United States has large, undeveloped unconventional sources of oil, such as oil shale or oil sand deposits. But these will require large amounts of energy to develop, as well as water resources (which are already under stress across many parts of the country). Development can inflict large scale damage across landscapes and ecosystems. And the quality of the oil produced is often poor, requiring more energy to refine. Other new sources of oil are in remote locations (e.g. off shore, in the Arctic, or in the deep sea). In short, the environmental risks, energy intensity, and GHG-intensity of developing new petroleum resources will only increase over time. Consider the horrendous effects of the recent Deep Water Horizon disaster in the Gulf of Mexico and the recent oil pipeline ruptures in North Dakota, Arkansas, and Michigan. Environmental concerns about fracking and oil sands production remain unresolved.

Can’t live without it. Clearly, ending the U.S. addiction to oil is no easy challenge. Oil is in many ways an ideal energy source – high energy density, transportable, perfect for long distance transportation. Through most of the 20th century, it was also abundant and cheap. It fueled the rapid rise of the United States as a global power, as well as the nation’s high material standard of living. We became hooked. Today, the United States is consuming 14 percent more petroleum than in 1975 . The transportation sector accounts for 71 percent of petroleum demand, and 93 percent of the transportation sector runs on petroleum. Thus, car commuters, freight haulers, airlines, businesses that rely on shipping, and - the largest oil consumer of all - the Department of Defense, remain the most vulnerable to oil supply disruptions and price spikes.

Or CAN we live without it? Maybe we can. The United States economy is much less dependent on petroleum today than it used to be. It is a much smaller share of the economy. Power plants and other industries that were once heavily dependent on cheap oil either shifted away from oil, shut down, or adapted new technologies that improved fuel efficiency. Although car-commuting households and the transportation sector remain highly dependent on oil today, they travel much further on a gallon of gas on average than they did 40 years ago. Also, the federal government established a large strategic petroleum reserve to serve as a temporary buffer against supply disruptions. Oil price shocks are therefore somewhat less disruptive and damaging to the overall economy than they once were.

Fuel economy standards and the Renewable Fuel Standard (RFS) have helped reduce the vulnerability of the transportation sector, as well. The EIA reports fuel economy for new vehicles has more than doubled since the 1970s. Fuel standards have saved consumers and businesses billions of dollars, reduced U.S. petroleum demand by billions of barrels, and thus, reduced air pollution and carbon dioxide emissions proportionally. Recent new standards will do even more. The EIA estimates the new standards for light vehicles will increase fuel economy by more than 50% by 2040. The DOE estimates these standards will reduce U.S. petroleum demand by 2.2 million barrels per day (about 12 percent of current demand) in 2025 (based on an average fuel economy in 2025 of 54.5 MPG), save $8,200 on average in fuel costs over the life of a new vehicle purchased in 2025, and reduce GHG emissions by 6 billion metric tons.

Thanks to the RFS, today the United States meets almost ten percent (by volume) of gasoline demand with domestically-produced, renewable ethanol. From 2008 through 2012, the United States used 59 billion gallons of ethanol, enough to displace about one billion barrels of gasoline on an energy equivalent basis. Substituting biofuels today reduces fuel costs for consumers and businesses, replaces a finite fossil fuel with a renewable fuel, and reduces carbon dioxide emissions by an average of 34 percent on a life cycle basis compared to gasoline. In addition, biodiesel, which emits at least 50 percent fewer carbon emissions than petroleum-based diesel, displaced about 1.5 percent (almost one billion gallons) of diesel demand in 2012.

Renewable biofuels can help the United States reduce its oil dependence even more in the future. The DOE estimates the United States can meet at least 30 percent of its liquid fuel demand with renewable biomass resources other than corn. The first two commercial scale cellulosic biofuel plants ( INEOS Bio (Florida) and KiOR (Mississippi) ) have come on line this year and are starting to produce biofuels. They are expected to achieve life cycle GHG emission reductions greater than 80 percent compared to petroleum-based fuels.

Environmental Entrepreneurs (E2) reports there are 160 commercial-scale, advanced biofuel projects now planned, under construction or completed, representing almost $5 billion in private investment since 2007 and additional billions in public investment. For example, civilian airlines and the Department of Defense are developing advanced aviation biofuels and other renewable, low carbon, next generation drop-in fuels. By 2016, E2 predicts the United States will have an additional 0.6 to 1.1 billion gallons of new advanced biofuel capacity installed – if current trends and policies continue. The United States soon will be well on its way toward meeting the RFS goal of producing at least 36 billion gallons per year of low carbon, renewable biofuels.

Fuel economy standards and renewable fuel standards are key to ending America's dangerous dependence on oil. They are essential instruments in a toolkit that also includes increasing prices on fossil fuels, increasing tolls and vehicle user fees, increasing investment and participation in public and alternative transportation, designing smarter cities, developing and deploying affordable renewable electric drive systems, increasing the number of people who choose resource-conserving lifestyles, and many other actions. The United States will need to use all of these tools together if we are to truly end our oil dependence.

Did you miss the October 16 webinar on the lessons and significance of the 40th anniversary of the Oil Embargo, featuring EESI Executive Director Carol Werner and former CIA Director R. James Woolsey, among other expert speakers? You can view Carol's powerpoint presentation about the climate change impacts of our continued dependence on oil , as well as infographics showing what has changed, and what hasn't, since 1973 .