10 Questions: Guzzle, Guzzle?
1. Every presidential candidate from Barack Obama and Hillary Clinton to Mitt Romney and John McCain has promised some form of "energy independence?" Is it possible for America to eliminate our use of foreign oil?
Calls for energy independence notwithstanding, oil is a fungible global commodity that essentially has a single world price. This means that events affecting supply or demand anywhere will affect oil consumers everywhere. As such, a country's exposure to world oil prices or oil price shocks is a function of the amount it consumes and is not significantly affected by the ratio of "domestic" to "imported" product. For instance, Canada, Norway, and the United Kingdom are all oil exporters and still paid $75 this summer like the United States. The goal is to reduce the importance of oil to our economy and better manage global energy interdependence.
Furthermore, America is an integral part of a global economy defined by an incredibly complex network of interdependence. Making America energy independent wouldn't insulate our country from the indirect economic effects of energy shocks that could strike our trading partners. So, America could spend untold dollars in the pursuit of energy independence and, at the end of the day, it won't actually achieve the ultimate goal of economic stability and prosperity for the American people. Moreover, a comparison of America's current and future energy consumption and production suggests that energy independence will not be possible for many decades.
2. What sort of sacrifices should Americans expect to have to make?
The energy security plan we have developed includes several major reforms, particularly mandates for more fuel efficient vehicles and steps to increase domestic oil production. Implementing these initiatives will require a diverse range of constituencies to accept additional costs and make difficult political compromises. Taxpayers, consumers, automotive manufacturers, environmentalists, and others will need to agree to a consensus that demands real concessions from each interest. On a political level, improving U.S. energy security will require Republicans to set aside steadfast opposition to fuel efficiency regulations and Democrats to allow responsible new production in areas heretofore off limits due to environmental concerns.
For those of us dedicated to advacing energy security, the cost of compromise is no theoretical matter. For example, FedEx Corporation, a company whose CEO is a member of the Council, operates more than 70,000 vehicles, most of them medium and large trucks. If, as our plan proposes, the government requires truck manufacturers to equip trucks with advanced fuel saving technologies, these trucks are going to cost a bit more to buy.
3. I know your group is focused on reducing energy dependence for national security reasons. Can you describe some of the threats the current energy situation presents to this country? And how is it possible to know whether your proposals would actually make us safer?
As much as 90% of all oil and natural gas reserves are owned by national oil companies that are either partially or fully controlled by governments. These are companies most Americans have never heard of, but they dwarf ExxonMobil and Chevron. These national oil companies often suffer from poor management and inferior technology, but that's not the most pressing danger. The real threat is that many of these national oil companies are run by governments that are hostile to the U.S. They could decide to use of oil as a "weapon" as they have in the past. Let's face facts: our nation is at risk, and it is time for serious action.
Oil Shockwave, an oil crisis simulation exercise conducted in 2005, showed that a mere 4% shortfall in daily global oil supplies could cause a 177% increase in the price of oil (to over $150 per barrel). Such a price increase would economically devastate millions of Americans. A supply disruption of this magnitude is possible. An embargo or a terrorist attack on a key facility could do this at one stroke. But a 4% shortfall could also develop out of a series of events that each put a little pressure on the oil market. When you look back over the last two years, it's easy to see the kinds of events I am talking about: hurricanes temporarily knocking out production in the Gulf of Mexico, a small war in Lebanon roiling the Middle East, tension with Iran, a pipeline spill like the one in Alaska, and kidnappings of oil workers in Nigeria.
There are steps we can take to improve America's energy security in the face of these myriad dangers. First, we can increase the efficiency of our oil use, above all by raising the fuel economy of our cars and trucks. We can also develop a credible supply of alternative fuels. We are still going to need oil, though, and it would be beneficial if more of this oil came from stable and secure places closer to home. And the fact is there are billions of barrels of oil off America's coasts on the Outer Continental Shelf. With available techniques, this oil could be recovered with very minimal environmental impacts, but current law prohibits this production—at considerable cost to our energy security.
The impact of these energy security improvements could be readily measured. Barrels of oil flowing from currently restricted offshore areas would be easy to count, and each and every one would pay a royalty to the government and, thus, to the American people. For their part, efficiency and increased use of alternatives would lower the oil intensity of the U.S. economy, i.e., the amount of oil needed to generate a singe dollar of GDP. We know how to measure this and we have doing so for years. In fact, oil intensity, or the amount of oil needed to produce $1 of GDP, has been cut in half since 1975, and the result is a U.S. economy that still saw steady growth despite the high oil prices experienced over the last few years. Unfortunately, progress toward reduced oil intensity has slowed noticeably. We need to start making progress again.
4. Is there a conflict between reducing imports of foreign energy for national security reasons as opposed to doing so for environmental reasons? For example, coal is plentiful in the United States and using more of it would cut the amount of oil we'd have to get from abroad—but wouldn't that hurt our efforts against global warming? In other words, can both goals be served simultaneously?
The Council was not established to address the complex questions that surround greenhouse gas emissions. Though we are focused on oil security, we believe that reducing oil dependence will also yield tangible environmental benefits. Insofar as dependence is lessened through heightened efficiency or greater reliance on biofuels, the case for environmental improvement is nearly indisputable. Where conflicts exist, we feel that the probability of future restrictions on carbon emissions must be acknowledged in order to craft a viable strategy for improving our oil security on the basis of long-term business investments.
The Council has noted that current oil shale and coal-to-liquid (CTL) production technologies result in as much as a doubling of carbon emissions compared with conventional oil production. After applying business investment principles, uncertainty about future carbon mitigation policies made it impossible for the Council to justify the use of significant public expenditures on unconventional oil technologies that may not be economically viable over the long term. In other words, taxpayers could spend enormous amounts of money on deployment of production of shale and CTL only to have those investments wiped out by new regulations designed to reduce carbon emissions. To deal with this challenge, the Council expressed support for federal investment in the research, development, and commercialization of carbon sequestration technologies that will likely be necessary components of sustainable large-scale unconventional oil production.
5. What about ethanol? Politicians promise that we can "grow our way to energy independence." But doesn't ethanol suck up as much energy to produce as it saves to use?
Information concerning corn ethanol's fossil fuel energy balance has been controversial. In the early 1980s, some studies concluded that the energy inputs for producing corn ethanol were greater than the energy contained in the ethanol product. Due to advances in farming techniques and improvements in production over the last twenty years, it now seems that the ethanol yield one-third more energy than it consumes.
Using corn alone, we cannot displace more than a small percentage of gasoline usage. Ethanol production in 2006 totaled about 5 billion gallons, only a tiny fraction of the 140 billion gallons of gasoline we use each year. However, those 5 billion gallons of corn ethanol consumed as much as 20% of the nation's total corn crop. When you add in the competing uses for corn (as a food source and export crop) and consider that each gallon of ethanol has only 2/3 the energy of a gallon of gasoline, you see that corn ethanol alone cannot solve our energy security problems.
When people talk about using ethanol to "grow" our way out of oil dependence, they usually point to Brazil as a model for the U.S. to emulate. But there are some issues with this comparison. The U.S. and Brazil produce about the same amount of ethanol each year. But the U.S. economy is much larger, and U.S. demand for transportation fuels is 11 times larger than Brazil's. As a result, the same amount of ethanol displaces over 15% of Brazil's transportation fuel needs, but not even 2% of America's.
6. How reliable are our current energy supplies? What would happen if Saudi Arabia, for example, got taken over by Islamic extremists?
The U.S. consumes over 20 million barrels of oil every day, and we import around 12 million of those barrels. Two allies, Canada and Mexico, are at the top of our supplier list, and each sells us about 1.5 million barrels a day. But as you move down the list of exporters to the U.S., the picture becomes more risky. Saudi Arabia, Venezuela and Nigeria are the next three largest supplies to the U.S., accounting for a third of our imports and around 20% of our total consumption. Nevertheless, the most important thing to remember is that oil is a fungible global commodity. This means that events affecting supply or demand anywhere will affect oil consumers everywhere.
Saudi Arabia supplies over 10% of the oil consumed globally every day. All the spare production capacity in the world couldn't replace this oil if it were removed from the market by an extremist regime. All we could do is to minimize the damage from such a crisis. The best way to do that is to redouble our efforts to reduce the oil intensity of our economy.
7. To what extent would transportation have to change? Are we going to have to give up SUV's and sports cars?
I think most Americans will find the changes to be minimal. After all, we're talking about increasing the use of existing technologies and incrementally improving these technologies. We are certainly not talking about giving up SUV's and sports cars, but we may have to pay a bit more for these vehicles so that they can be more fuel efficient. And even then we'll get this extra cost back in terms of lower fuel costs. Add in the fact that more efficient cars will help protect our economy from an oil shock and take the oil security burden off our military men and women, and I'd say we're talking about a very affordable change.
8. The President discussed woodchips and switch grass in his State of the Union—which baffled a lot of people who aren't energy experts. What role can these crops play instead of oil?
The President was speaking about the promise of cellulosic ethanol. Cellulosic ethanol isn't ready for commercial production, but, when it is, it will allow us to derive fuel from trees and forest matter, agricultural residues, and dedicated "energy crops" like switch grass. These multiple feedstocks are far more abundant than corn, which currently serves as the raw material for nearly all U.S. ethanol production. Improved energy security will require many "alternatives". Baffling as it may sound, woodchips and switchgrass are likely to be part of this comprehensive and layered approach.
9. Is it politically possible to do what you think we should? Isn't almost every special interest lined up against you?
When I got involved in this effort, I was committed to putting forth a comprehensive package that required all parties to compromise. I fully expected all participants in this deeply entrenched debate to take issue with some of the solutions while embracing others. Our mission now is to secure the support of a bipartisan coalition that has the clarity of vision and courage of conviction needed to make these hard choices, and we're making good progress.
10. How would you grade the Bush Administration on energy policy? (A to F)
Energy security is a long-term challenge, and it's far too early in the process to be handing out grades. Based on his recent State of the Union address, the President deserves to be commended for increasing public awareness of energy security and for proposing significant initiatives to reduce our economic and strategic vulnerability. Congress has been very active on this issue, and I believe there exists a genuine opportunity to achieve meaningful, bipartisan action on energy security. At the end of the day, the nation needs a balanced and credible plan that 1) reduces consumption, 2) increases the availability of alternatives, 3) raises domestic oil and natural gas production with expanded environmental protections, and 3) better manages the security risks that threaten the global oil supply.