THE BLOG
06/10/2013 03:34 pm ET | Updated Aug 10, 2013

Breaking Oil's Monopoly: Easier Done than Said

Congress is considering useful, but very modest, new energy efficiency incentives. The Administration is stuck on the idea that if we devote revenues from environmentally unsound oil and gas leasing we can use them to develop cleaner technologies - even though we are not deploying those we already have developed. The US and China - unable to agree on carbon dioxide - do make an important investment in avoiding emissions of powerful greenhouse refrigerant gasses that are replacing CFCs. All small bore stuff. Even David Brooks concedes that Washington has become the capital of Trivial Pursuits.

We can do better. For a game changer, how about gasoline at $2.50/gallon, the world's extreme crude reserves left safely in the ground, and an America free of oil dependence?

The simple arithmetic of oil reserves and markets places these options within our grasp - but only if we reach for them, ideally in partnership with other oil importers. OPEC and big oil companies want expensive oil; the rest of us ought to want affordable fuels.

Global oil demand is 90 mbd. Of that, 80 mbd is cheap -- $30 or less - conventional oil, mostly from OPEC. About 5 mbd is moderately priced unconventional oil - shallow off-shore, light-tight US oil like the Bakken, or secondary recovery from depleted fields. This unconventional oil costs between $30-$60/bbl.

The final 5 mbd of demand breaks the bank. To supply it, the oil industry taps extreme oil fields in the remote Arctic, the ultra-deep ocean, or heavy tar sands in Canada. These crudes that cost up to $90 to pump. And consumers pay, for every barrel we buy, the exorbitant cost of that final smidgeon of oil from Alberta or the Brazilian pre-Salt. Gasoline at $4 is the result.

Meanwhile, transportation option that cost much less than $4/gallon sit idle, either because of industry monopolies, market uncertainty, or regulatory and infrastructure barriers. Sugar cane ethanol, high performance engines, hybrids and electrics, CNG and LNG, and cellulosic biofuels can all replace a gallon of gas for much less than we are paying for oil today.

Daimler US trucks in Portland has to turn away 2/3 of the customers who want to shift from expensive diesel to cheap natural gas because their routes lack natural gas pumps. Ninety percent of America's flex-fuel vehicles never use anything but conventional gasoline - no E85 pumps in town. The vicious cycle is simple: No pumps, no vehicles -- no vehicles, no fuel -- no fuel, no pumps. It's not price - it's availability that kills substitutes for oil - even when they would be cheaper.

But suppose the US - and other importers like the EU, Japan and China - simply made life easy for entrepreneurs and customers who want to shift off oil. If collectively they can replace less than 7 percent of today's 90mbd of oil with other fuels, the world gets three game-changing benefits.
1) The price of oil drops to $60; gasoline to $2.50.
2) Most of the world's proven oil reserves - including all of the extreme crudes in the Arctic, tar sands, and deep ocean - are neither needed nor economic. The climate is protected from their carbon.
3) The US stops importing oil - and the total fuel bill in the US drops by $300 billion a year - an economic stimulus package paid for by freeing ourselves from Russia, the Saudis and Iran.

Of course, because of economic growth, every year we need to develop an additional 1 mbd a day of oil substitutes. That will keep global demand for oil below 85 mbd, so these three benefits recur, year after year. But once we create a big market for electric cars or biofuels, those options will get steadily cheaper as their numbers grow. Market forces will drive demand for oil - and its price - down even further.

But all this only happens if we first ensure that those compete with Big Oil can get their products into the marketplace, that there are vehicles to use them and pumps to fuel them.

So let's break oil's monopoly. We can create a competitive market for transportation fuels - or we can keep the status quo.

We all know what that costs. We pay it every day.

A veteran leader in the environmental movement, Carl Pope spent the last 18 years of his career at the Sierra Club as CEO and chairman. He's now the principal advisor at Inside Straight Strategies, looking for the underlying economics that link sustainability and economic development. Mr. Pope is co-author -- along with Paul Rauber --of Strategic Ignorance: Why the Bush Administration Is Recklessly Destroying a Century of Environmental Progress, which the New York Review of Books called "a splendidly fierce book".