Would a Push to Curb Carbon Really Reduce US Dependence on Oil?

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Greenwire.com

Would a Push to Curb Carbon Really Reduce US Dependence on Oil?

by
Anne C. Mulkern

President Obama and congressional Democrats cite the Gulf of Mexico
oil disaster as a powerful reason to pass climate legislation, but
economists see a flaw with the link: Leading Senate measures would do
little to curb petroleum use.

Legislation aimed at reducing greenhouse gas emissions largely
targets electric utilities. Although it would affect oil refiners,
economists said, proposed policies would trigger only minor fuel price
increases, too small to alter how much people drive, whether they buy
airline tickets or what kind of vehicles they purchase.

"The link between the oil spill and the climate bill in my view is
very weak," said Denny Ellerman, economist and part-time professor at
Massachusetts Institute of Technology. "People are kidding themselves,"
he said, to believe that penalizing carbon pollution will significantly
shrink oil imports or the need for offshore drilling.

Democrats stepped up their push for climate legislation soon after
the April 20 BP PLC oil spill in the Gulf of Mexico. And Obama in his
June 15 Oval Office speech urged the nation to "rally together" in a
"national mission" to reduce reliance on oil and coal.

"No matter how much we improve our regulation of the industry,
drilling for oil these days entails greater risk," Obama said. "After
all, oil is a finite resource. We consume more than 20 percent of the
world's oil, but have less than 2 percent of the world's oil reserves."

"The transition to clean energy has the potential to grow our economy
and create millions of jobs -- but only if we accelerate that
transition," Obama added. "Only if we seize the moment."

Senate Majority Leader Harry Reid (D-Nev.) in a June 7 Senate floor
statement said the oil spill disaster "underscores our need for a new
energy policy."

"That means immediately refocusing our efforts on clean and renewable
energy -- like the sun, the wind and geothermal energy -- improving
energy efficiency and using more biofuels," Reid said, adding: "We need
better options than oil, and we needed them yesterday."

Americans use large amounts of gasoline, diesel, jet fuel and other
items from oil. Petroleum products make up 37 of the country's energy
consumption, according to the U.S. Energy Information Administration.

But a larger share of energy use comes in the electric utility
sector. Fuels primarily used by utilities -- natural gas, coal, nuclear
power and renewable sources -- make up about 63 percent of U.S. energy
use.

The climate bill that passed the House and those being considered by
the Senate target ways to change electric utility power use, as that
sector is responsible for a third of U.S. carbon emissions. H.R.
2454
(pdf) from Reps. Henry Waxman (D-Calif.) and Ed Markey
(D-Mass.) and the "American
Power Act
(pdf)" from Sens. John Kerry (D-Mass.) and Joe
Lieberman (I-Conn.) each would set up a system to cap carbon emissions
and let businesses buy and sell allowances covering those emissions.

The "CLEAR
Act
(pdf)" from Sens. Maria Cantwell (D-Wash.) and Susan
Collins (R-Maine) would require energy producers to bid for carbon
shares, returning 75 percent of the proceeds to taxpayers and 25 percent
to clean energy research and development.

All of those would affect the transportation sector, but only on a
small scale, economists said. A U.S. Energy Information Administration
analysis of the Waxman-Markey bill said that its cap-and-trade system
would shrink petroleum use 5 percent by 2030 versus the level expected
in that year without the bill. That is about 1 million barrels of oil a
day. (Right now, Americans consume about 19.5 million barrels a day.)

That 5 percent drop could easily be less if there's rapid economic
growth, Ellerman said. The petroleum use decrease could also be more, he
said, if there were a technological advance such as a better biofuel or
more advanced batteries for storing alternative power.

But the conflict in trying to address oil use through existing
legislation is that one of the best economic solutions isn't politically
palatable, analysts said.

"You don't have a lot of options for reducing oil use significantly
unless you're going to raise the price," said Alan Krupnick, co-director
of Resources for the Future's Center on Energy Economics and Policy.

Changing behavior

When it comes to oil products, people's behavior is fairly fixed,
especially over the short term, analysts said.

Even when prices rise, people initially don't make adjustments,
because there aren't ready substitutes for oil, said Ken Green, resident
scholar at American Enterprise Institute. People must drive to get to
work, he said, and most lack options like public transportation or
moving closer to their job.

"There's a fundamental misconception that there are alternatives that
are available in sufficient quantities," Green said. "People have been
convinced by the environmentalists that something exists that doesn't."

In addition to gasoline, Green said, oil is used for jet fuel, diesel
for trucks and a host of manufactured products, including plastic.

Policies in the climate bills would render only small changes in fuel
prices in the short term. A $20 price for a carbon ton under
Waxman-Markey, Kerry-Lieberman and Cantwell-Collins would result in
about a 20-cents-per-gallon increase in gasoline pump prices, Ellerman
said.

"We've seen much bigger changes through crude oil price swings,"
Ellerman said, adding, "It's not going to drive people out of cars.
Let's not kid ourselves."

He added, "It will have some marginal effect. It's not going to be
that noticeable."

Kerry spokeswoman Whitney Smith cited an analysis from the PPeterson
Institute for International Economics that "shows Senator Kerry's
legislation will create 200,000 new jobs a year and will reduce foreign
oil imports."

The report says that the bill would cut imports "33 to 40 percent
below current levels and 9 to 19 percent" below levels expected by 2030
without the bill. The analysis shows, however, that the Kerry-Lieberman
bill would trim total U.S. petroleum consumption less than 6 percent by
2030 compared to without the bill in that year.

"The 'American Power Act' is fundamentally different than other
pieces of energy and climate legislation that have come before it, which
is why Senators Kerry and Lieberman were able to rally an unprecedented
coalition behind the legislation who have never before endorsed a
climate change bill," Smith said.

The White House did not respond to a request for comment, but Obama
in a speech to members of Congress a week after the BP well began
spewing crude noted the country's continued need for fossil fuels,
saying "we're not going to transition out of oil next year or 10 years
from now." But Obama insisted that climate legislation would start a
shift toward cleaner-burning fuels.

A day earlier, in a speech in San Francisco, Obama said, "We've got
to start cultivating solar and wind and biodiesel. And we've got to
increase energy efficiency across our economy in our buildings and our
automobiles."

Ellerman agreed that "a carbon price would make biofuels more
viable." But there are also problems with biofuels, he and other
analysts said, like competition with food and trees for land, and the
greenhouse gas that is produced from turning plants into energy.
Products like algae-based fuel remain in the infancy development stage.

Green argued that government incentives for biofuels are moving
income from one place to another, and that they're offered "because the
technology is more expensive."

The argument that the existing climate bills won't affect oil
consumption is a "straw man," said environmentalist Joe Romm, senior
fellow at Center for American Progress, because those bills were written
before the oil spill.

"If a bill gets to the Senate floor, it will have an oil title that
will be considerably more aggressive than what we've seen before," Romm
said. There are bills including one
(pdf) from Sens. Byron Dorgan (D-N.D.) and Jeff Merkley (D-Ore.)
promoting electric car purchases and advanced battery research.

Romm also noted that a "promising strategy" for reducing oil use is
electrifying vehicles. To do that, he said, "you need to simultaneously
clean up the electric grid."

Obama and some in Congress also are talking about passing an energy
bill instead of a more sweeping climate bill. One option is the Senate
Energy and Natural Resources Committee bill
(pdf) from Chairman Jeff Bingaman (D-N.M.).

The Bingaman measure contains incentives for new energy technologies,
a requirement that utilities generate a portion of their power from
renewable sources, and a push for energy efficiencies. The bill doesn't
cap greenhouse gas emissions and is likely to have even less effect on
oil use, analysts said.

Meanwhile, policy changes are already under way that could affect oil
use, like the mandate that automakers raise the corporate average fuel
economy of their fleet, known as CAFE.

Romm said the CAFE mandate would cut fuel consumption. But Krupnick
and Green argue that it could result in people driving more.

"If you actually make it cheaper for people to go a mile on a gallon
of gas, people will drive more miles," Green said.

Longer view

Oil consumption could fall over the longer term with a sustained
price increase for fuel, economists said.

When gasoline hit $4 per gallon, people drove less and began
abandoning sport utility vehicles. At car rental facilities, it often
cost less to rent SUVs than compact cars, said Krupnick with Resources
for the Future.

"That show you the power of pricing," Krupnick said. "If gasoline
were expensive enough, people would really change their behavior."

Krupnick added, "Over the long term, people learn to do with less."

Krupnick believes a tax on oil would be one of the most efficient
ways to force down petroleum use. It would affect all of the oil
products, he said.

"If you raise the price of oil, that affects how much you drive,"
Krupnick said. "It affects the type of car you buy. It affects
technological innovation. People see there is a profit to be made on how
to save the use of oil."

Proceeds from an oil tax could be partly returned to people, he said,
in the manner that the Cantwell-Collins bill would do with the carbon
tax money.

Even without that, in the later years of the Waxman-Markey and
Kerry-Lieberman bills, carbon is expected to be priced at $50 a ton or
higher. That could start to have more significant effects on behavior,
Ellerman said. It could also lead to more efficient airplanes, cars and
trucks.

For more news on energy and the environment, visit www.greenwire.com.

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