By 2020, the EIA projects that Americans will consume 15 million barrels of oil per day through transportation. Of that, we will produce only 6 million barrels domestically, with more than a third of those projected to come from drilling in deep water in the Gulf of Mexico. Economically, oil acts as a sponge in the US economy, as rising gas prices soak up disposable income. On May 11, 2010, for example, Americans spent $1.1 billion on gasoline--$239 million more than on the same day a year before, when gas was 62 cents cheaper per gallon. On a household level, lack of transit options means that the average family of four pays more to own and fuel a car than for either taxes or health care.*
Americans tend to believe that our dependency on oil and lack of control over gasoline spending is inevitable until new technology and fuels are available. But in fact, a significant quantity of our consumption is the result of perverse incentives and a stifling of other transportation options that are grandfathered into policies at the federal, state, and local level. Relatively simple fixes for broken polices, coupled with a plan to make transit less fuel intensive and help middle class families get to work can make the American economy more secure at both the national and household level.
STRONG (Secure Transportation Reducing Oil Needs Gradually) is a menu of policies to reduce US oil demand by more than 3 million barrels a day by 2020, without using new technology, vehicles, or fuels. STRONG America will result in large savings in oil, money, pollution, and carbon emissions by 2020, while reducing petroleum-intensive hassles like traffic jams. By 2020 STRONG’s gas savings alone could steer at least $347 million dollars a day to sectors other than oil in the US economy (if gas were $2.75/gallon). Importantly, STRONG gives Americans the power to decide how they commute, as well as what they drive by providing guaranteed loans for very efficient vehicles.
WHY NOW?
Americans watching the Deepwater Horizon spill in the Gulf are recognizing that oil has risks and are anxious to make significant, lasting changes. As the political tide turns against deepwater drilling in the Gulf, our already low domestic production will fall further, making us even more dependent on imports. Reducing oil dependency, which virtually everyone across the political spectrum agrees is necessary, is a definitive way to take action in response to the spill, simultaneously addressing climate change, energy security, and economic security.
The economic downturn presents another opportunity for action. Gasoline and diesel demand has fallen significantly, making it easier to change habits. Likewise, keeping demand low during the recovery will serve to circulate more money within our own economy while providing a buffer against high oil prices, which could stifle an economic recovery. As the recovery kicks in there will be a pent up demand for cars, and this program allows more people to purchase the most efficient cars if they desire prolonging the effect of “Cash for Clunkers” without increasing the deficit. It also creates a clear incentive for the auto industry to beat CAFÉ standards, and sets up a mechanism to create consumer-driven markets for new-technology vehicles, making the US auto industry more competitive internationally.
Finally, while far-flung development patterns in the US seem to be set in concrete, we are on the verge of a real estate and tax shift as the baby boomers retire, meaning that this coming decade offers real opportunities to change development patterns—and reduce oil demand--dramatically.
DO WE NEED STRONG POLICIES IN ADDITION TO CLIMATE LEGISLATION?
Yes. STRONG policies are necessary in addition to, or in the absence of, the climate change legislation currently under consideration. While the Peterson Institute estimates that the American Power Act can reduce US oil consumption by 4.4 million barrels in 2030, the APA has a longer time frame and makes heavy use of more expensive, not-yet deployed alternative vehicles and fuels including plug in hybrid electric vehicles, natural gas vehicles, and biofuels. All of these are mid-term strategies that could piggyback on the STRONG strategy, delivering even greater fuel savings a decade from now. In addition, STRONG policies could enhance the performance of the APA’s initiatives by providing a consumer funding mechanism for high tech autos, as well as funding for the $6 billion in annual highway spending that the APA proposes. If the APA or similar legislation fails to pass, STRONG is a good “bridging strategy” to cut oil use while enabling the creation of a separate greenhouse gas initiative to apply to utilities only.
STRONG STRATEGIES TO REDUCE OIL DEMAND BY 3 MILLION BARRELS A DAY BY 2020
Café Standards—(1.2 million barrels/day)
New CAFÉ standards authorized in the 2007 energy bill and finalized recently by the Environmental Protection Agency and Department of Transportation will reduce American oil consumption by 438 million barrels/year in 2020, according to estimates by the Union of Concerned Scientists.
STRONG America tax and label—(1.2 million barrels/day)
American consumers are often angry about the cost of gasoline at the pump, but the real cost of gasoline is much higher. Subsidies to the oil industry, and to the military costs of maintaining oil shipping lanes are invisible costs that Americans shoulder in our income taxes every April 15. Gasoline also places other burdens on the economy: The National Academy of Sciences, for example, calculates that every gallon of gasoline used in passenger cars causes $.29 in health care costs. The STRONG tax makes use of consumer’s time at the pump by raising consciousness about the real costs of oil, raising funds for better transit, and reducing oil consumption.
The STRONG tax is a 3 cent per gallon tax that increases by 3 cents a year every year to 2020, when it would reach 30 cents a gallon. Every time consumers buy gas, their receipt will thank them for paying for a STRONGer America, and offer facts about US oil dependence and its costs. While policy makers worry that consumers will not accept a gas tax, a small, incremental fee, accompanied by an educational label will change the context, educating consumers about the true costs of oil, and empowering them to free us from oil dependence while building a STRONGer America. While it is true that a large, all-at-once tax would hurt small businesses and families, an incremental tax would give everyone time to prepare, and the $.30/gallon tax level in 2020 is optimum because it is estimated to save twice as much oil as a $.25 per gallon tax. The STRONG tax and label could save an estimated 450 million barrels of oil a year by 2020 while raising more than $5.5 billion for investment in transit and highways.
Giving Americans Mobility Choices—(.6 million barrels a day)
In a February survey, 73 percent of Americans said they feel they have no choice but to drive as much as they do. Studies have found that owning a car is more important in getting and holding a job than a GED diploma. Americans need convenient, secure transit choices other than driving alone in gasoline powered cars. This package of systemic transit policy upgrades recommended by the non-partisan Mobility Choice Coalition realigns a mixture of federal, state, and local policies to incentivize commuter choices while reducing oil consumption and quelling nuisances such as traffic jams. The package includes five measures to remove the perverse incentives that encourage gasoline use in current policies: Allocating transit dollars to optimize oil savings, smart traffic management, HOT lanes and congestion pricing, insurance choice rather than “one-size-fits-all,” and liberalizing local land development rules. It also includes measures to expand the transit options for everyone, including: increasing vanpool, car pool, and private commute options, expanding inter-city rail when cost-effective, and providing transit vouchers to low income households. (MobilityChoice.org: How Transportation Can Solve Oil Dependence 5/2010)
Secure Trucking and Flying—(.7 million barrels a day or more)
Volatile fuel prices have a huge impact on truckers and airlines, which struggle to remain profitable. The overwhelming dependence of both industries on petroleum means that America’s ability to move goods and people—and much of our economy—is vulnerable to high prices. However, two relatively simple policies could significantly reduce that dependence. Changing the way we route and schedule air traffic could save the aviation industry between 38 and 100 million barrels of fuel a year, according to a recent DOT report. Furthermore, providing truckers with loans to make their truck engines more efficient and truck bodies more aerodynamic could reduce oil demand by 214-314 million barrels of fuel a year. (2010 Department of Transportation report (pdf) "Transportation's role in Reducing US Greenhouse Gas Emissions.")
STRONG loans--Shifting Subsidies from the Oil Industry to Families—(.4 million barrels/day)
US taxpayers have a long history of subsidizing oil drilling through programs like royalty relief, royalty-in-kind, and subsidies for foreign oil that total more than $10 billion a year. In addition, royalties for federal oil from the Gulf of Mexico are significantly lower than those for oil from other countries. While these subsidies have served the purpose of spurring exploration and bringing new oil into the market, we should now shift $5 billion towards creating a $100 billion/year federal guaranteed loan program to assist middle class families to buy the most efficient American-made cars in their class. A program of this size could make 5 million loans of $20,000 per year, at very low interest rates, helping families avoid high car payments and high fuel and repair costs, and into more efficient cars, which would in turn create jobs in the auto industry. Importantly, this money would be paid back to the treasury so it does not increase the deficit. This program could speed the turnover of the US fleet, ease the burden of higher gas prices on working families, and provide a funding mechanism to create eventual markets for super efficient hybrid and electric vehicles or other alternatives. Depending on the requirements for junked and purchased cars, the program could save 162 million barrels a year on fifth year, and the standards could be revised upward annually. (For background on a similar program, see: Energy Security for American Families, Issues in Science and Technology Winter 2009)
* See page 11 of this pdf of the White House Task Force on the Middle Class Annual Report.
For more information, contact:
Lisa Margonelli
Director, Energy Policy Initiative New America Foundation
Margonelli@newamerica.net 510-836-7900
