THE BLOG
09/25/2008 05:12 am ET Updated May 25, 2011

A Teachable Moment on Energy Policy: Demand-Side Policy Beats Drilling by More than 20 to 1

A Key Moment in Energy Policymaking

After both houses of Congress failed narrowly to achieve the necessary super majorities to pass legislation to address concerns about speculation in oil markets, a spate of pundits and politicians commented on the failure of this session of Congress to do anything on energy policy. A fiery debate over off-shore drilling followed quickly, with sharp exchanges over the role of conservation in energy policy. It is frequently said that America only implements meaningful energy policy in response to a crisis, but if expanded drilling is all that comes of the current crisis, it will be worse than meaningless -- it will be an opportunity squandered.

Last year, the Energy Information Administration (EIA) analyzed the increase in oil production that would result from allowing drilling in Outer Continental Shelf (OCS) areas currently unavailable for drilling. Estimating that production would not start until 2012, the EIA projected that OCS drilling would increase overall domestic oil production by 1.6 percent in the period between 2012-2030, which is only .4 percent of the total consumed over the period. This is equal to approximately 23 billion gallons of oil.

Demand-side policy, on the other hand, focused on efficiency (vehicle fuel economy standards) and conservation, can contribute at least twenty times as much in oil savings, at a faster rate, than expanding drilling on the OCS.

So while the Administration is busy beating up Congress for not acting to solve the energy crisis - it is the Administration that has dropped the ball. Congress took the single most important policy step seven months ago when it passed the Energy Independence and Security Act of 2007 and ordered the Administration and its transportation agency (NHTSA) to raise standards for the fuel economy of cars and light trucks to the maximum feasible level.

Proof that efficiency and conservation will yield a much larger contribution to solving the nation's oil problem than offshore drilling can be found within the Administration's own analysis. The data that proves it is economically feasible to reach higher fuel economy standards comes directly from NHTSA itself, which is required to analyze a full range of possibilities in its rulemakings. NHTSA has calculated potential energy savings from conservation measures. And the OCS data comes from the EIA, which was requested by Congress to assess the oil potential of the Outer Continental Shelf. One simply needs to do the math.

• If NHTSA takes the Energy Independence and Security Act of 2007 seriously and increases fuel economy standards to the maximum feasible level, as the law requires, the reduction in national oil consumption would be thirteen times as large as the oil that will be produced by drilling in the off limits areas of he OCS.

• If the American public adopts vehicle maintenance and operating practices to improve gas mileage, we could save ten times as much oil as will result from expanded drilling on the OCS.

Drilling for oil in automobile gas tanks is relatively inexpensive, on a per gallon basis. NHTSA estimates that installing the new technologies needed to save the 300 billion gallons will cost a total of about $130 billion, or about $0.43 per gallon. The EIA estimated that finding oil on the OCS costs about $1.50 a gallon in 2004-2006, and costs have increased since then.

NHTSA did not propose increasing fuel economy standards to the maximum feasible level because its analysis is riddled with flaws.

• NHTSA used a price for gasoline in 2015 that is $2.45 per gallon, substantially below the price being paid today. It assumes that oil has no military or strategic value whatsoever.
• NHTSA has failed to understand consumer behavior and has ignored obvious trends in the market, assuming that consumers undervalue fuel economy in their vehicles, won't buy smaller cars with fewer cylinders, avoid hybrids, don't pay more for more fuel efficient used vehicles and irrationally burn up their fuel savings on increased driving-- assumptions that are contradicted by current consumer behavior.
• NHTSA based it standards on product production plans that the automakers are currently tearing up and the assumption that automakers are incapable of making significant changes in their production plans, even though they are currently making dramatic changes.

Conservation

Gasoline savings tips have been a hot topic for the past several years, as prices have skyrocketed, but the amount of attention they are receiving in the Presidential campaign is extraordinary. While the exchanges between McCain and Obama have focused on the importance of inflating tires, there are a range of actions consumers can take to cut their gasoline consumption and the nation's oil consumption. Ironically, even though tire inflation yields a small amount of fuel savings compared to some of the other measures, according the U.S. Department of Energy (U.S. DOE), it actually can contribute two to four times as much to reducing the nation's oil addiction than expanding drilling on the outer continental shelf. A tune up can save five to ten times as much. Slowing down by five miles-per-hour at speeds above 60 miles-per-hour or not driving aggressively saves even more gasoline-- ten to twenty times as much.

In order to achieve the fuel savings people must take individual action and we do not know how many people already have altered their behaviors to lower gasoline consumption. If half of U.S. drivers have taken all of these measures, and we can convince the other half who have not to adopt these measures, oil consumption would be cut by five percent. That is ten times as much as expanded drilling in the OCS. In fact, there are a number of other tips for gasoline savings available here.

Damage Done

The damage that miscasting the debate over energy policy can do was readily apparent in the responses to a recent Wall Street Journal/NBC News poll (August 21, 2008). Asked which policies "will accomplish a great deal in dealing with America's energy needs," about 65 percent said more fuel-efficient cars and 48 percent said expand offshore drilling. Asked which policies should "receive the most emphasis from policymakers," 25 percent responded expanded drilling, whereas only 12 percent said "having Americans conserve and use less oil." With efficiency and conservation combined likely to yield at least twenty times as much oil savings as will be produced by expanded drilling, the emphasis is being placed on the wrong priorities.

Ironically, the only two policies that a majority of the public thought would "accomplish a great deal in dealing with America's energy needs" were alternative fuels and more fuel-efficient cars. These were the centerpieces of the Energy Independence and Security Act of 2007. Combining the biofuels provisions with the above estimate of maximum feasible fuel economy standards would yield the equivalent of 650 billion gallons of gasoline in 2011 to 2030. That is 30 times what the EIA projects will result from expanded drilling on the OCS. Combining efficiency, conservation and alternative fuels will contribute almost 40 times as much to solving the nation's addiction to oil. The election season has clearly misplaced the priorities for energy policy and misplaced the blame for "inaction."