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June 12, 2007

Reducing Our Dependence on Foreign Oil

Commenter jason raised some interesting issues regarding oil consumption in a comment this past April. For whatever technical reason he wasn't able to post it in it's entirety, but I was intrigued by his analysis so I promised that I'd address the issues he raised in a post. My apologies to him that it has taken me so long to get around to it.

Below I have excerpted his email.

The essential problem we face is not simply dependence on foreign oil, but that much of it comes from Saudi Arabia, which was described by Walid Phares as the "mother ship of the jihad". Commenter jason and I both agree with Phares that the Wahabbists of Saudi Arabia are using oil money to subvert the West. But you don't have to have detailed knowledge of the jihadist threat to know that it is not good when we are economically dependent on exports from the Middle East; a notoriously unstable part of the world.

To be clear, it's not just Saudi Arabia, but dependence on oil from a multitude of countries, from Nigeria to Venezuela to the various gulf states. It might surprise some readers to learn that our biggest supplier of foreign oil is Canada (DOE source). Mexico is number two, and Saudi Arabia comes in third.

Some quick facts and figures (DOE source)

60.3% of the oil we consume is imported
44% comes from OPEC
18% comes from the Persian Gulf region
16% comes from Canada
11% comes from Mexico
3% comes from the UK
3% comes from Russia

40% of our total energy consumption is met by petroleum
2% of our electical needs are met by petroleum(wikipedia)

(I am not able to find what percentage of petroleum is turned into gasoline, if you know please leave it and your source in the comments)

The question, then, is how to reduce gasoline consumption? Here is jason's idea

The math (in a very aggregated sense) is fairly simple from public data:

1. The National Household Travel Survey states in 2001 the average
American
household drove 21,000 miles per year (most recent data I could quickly
find).

2. The 2006 Census estimate has a total US pop. of approximately 300
million
(299,398,484). The 2006 average household size was 2.6, so we can
extrapolate approximately 115 million households in the US:

21,000 miles per year/household x 115 million households = 2.4 trillion
vehicle miles travelled per year.

2006 Hummer (H3): 16/20 mpg, city/hwy = 150/120 billion gallons per
year

2006 Base Cooper: 28/36 mpg = 86/66 billion gallons per year

2006 Prius Hybrid: 60/51 mpg = 40/47 billion gallons per year

Hybrids would use 25 to 29% of the fuel used by Hummers, and Coopers
would use 57 to 55 % of the fuel used by Hummers. Basically, if everyone
drove a Mini Cooper, we would hypothetically use almost ½ less fuel per year for
household annual travel. Hybrids would result in even greater savings.
Note that the Prius gets worse gas mileage on the hwy, so if all City
drivers used Hybrids, urban people (who don’t need to drive Hummers)
would use 1/4 to 1/3 of the fuel required by a city full of blockhead Hummer
drivers. Would you rather give the Saudis $25 or $100 to fund
madrassas? Decry the left for urging greater fuel economy, but paste
that American flag on your Hummer, knowing full well that you help fund oil
rich despots and their pet causes (including jihad) at a rate 4 times
greater than hybrid drivers.

Sources:

Average annual miles traveled, per household (2001)

2006 US population

2006 US household size

MPG data

Good points all. While jason goes after the Hummer vehicle, he may as well have said "SUV", or any vehicle that get's less than, say, 20 miles per gallon.

And while at the other end of the spectrum he uses the Mini Cooper and Prius as examples of fuel efficient vehicles, he may as well have mentioned any vehicle that gets, say, more than 25 miles to the gallon. The simple fact is that the majority of people in this country have vehicles larger than they can justify by family or work needs.

Getting people to drive more fuel-efficient vehicles would reduce our consumption of oil from Persian Gulf countries and OPEC members such as Nigeria Venezuela. How to do this?

There are three ways we can achiueve this goal. One way is to increase CAFE (Corporate Average Fuel Economy) standards. CAFE standards are basically a series of federal laws that mandate the average fuel economy per car per manufacturer. If the government increases the standards, auto manufacturers must make more fuel efficient cars and trucks.

The second method is through tax incentives. Right now we're going the wrong way, with tax breaks effectively given to drivers of SUVs (source from jason). This could be reversed by simple legislation, so that anyone who buys a car that gets, say over 25 mpg gets a tax break, with the amount of the break going up with the fuel economy of the vehicle.

The last method is simple persuasion through various educational campaigns. While I'm not terribly optimistic about this approach, it has reduced smoking.

Ideas by James Woolsey

jason also sent three articles by or about the ideas of James Woolsey, who is perhaps best known as a former director of the CIA.

The first is an interview of Woolsey by Grist, in which he discusses his ideas on energy independence and work with the Energy Future Coalition. As with all three articles, read the whole thing, but here is a sample of what he has to say

We want substantially better fuel efficiency from vehicles and alternative fuels that can be used in the current infrastructure. As for cars, we are advocating modern diesels, flexible-fuel vehicles, hybrids, and a plug-in adaptation for hybrids. We're also pushing for the development of cellulosic ethanol and biofuels. Almost all of these are here and now, compatible with the existing infrastructure, and can be worked on by your average mechanic. It's not like trying to put hydrogen reformers into every filling station in the country.

High-grade diesel technologies have just now caught up with our emissions standards. Flexible-fuel vehicles can use any mixture of gasoline and ethanol -- up to 85 percent ethanol. The cars most of us drive now use a maximum of 10 percent ethanol. It's a simple conversion -- just a slightly different kind of plastic in the fuel line and a differently programmed computer chip.

Plug-in hybrids would be a simple adaptation of existing hybrid technology by adding a battery that can recharge from the grid. You'd charge your hybrid at night and drive about 10 to 30 miles on the overnight power before you start using liquid gas, which means your 50-mpg Prius now becomes a 100- to 150-mpg Prius. Based on current electricity prices, you would get the functional equivalent of 50-cent-a-gallon gasoline.
...

'm not deeply involved in the policy side -- I focus on technology. I tend to think tax credits are the simplest, but whether it's production tax benefits or credits to purchasers or CAFE [corporate average fuel economy] standards or all three, I don't really care that much. I just believe strongly in the technologies and want them in play using whatever method works.

A fairly pragmatic fellow, then, not wedded to any one policy. An ideologue he's not.

The second is his testimony before the U.S. Senate Committee on Foreign Relations on November 16, 2005. This one is the longest of the three, and he touches on everything from the vulnerability of our petroleum infrastructure to terrorism, to the amount of money the Wahabbis are spending to subvert our societies, to policy prescriptions. Since we presented his views on the latter above, we'll quote is statement on how oil money funds terrorism

Estimates of the amount spent by the Saudis in the last 30 years spreading Wahhabi beliefs throughout the world vary from $70 billion to $100 billion. Furthermore, some oil-rich families of the Greater Middle East fund terrorist groups directly. The spread of Wahhabi doctrine � fanatically hostile to Shi�ite and Suffi Muslims, Jews, Christians, women, modernity, and much else � plays a major role with respect to Islamist terrorist groups: a role similar to that played by angry German nationalism with respect to Nazism in the decades after World War I. Not all angry German nationalists became Nazis and not all those schooled in Wahhabi beliefs become terrorists, but in each case the broader doctrine of hatred has provided the soil in which the particular totalitarian movement has grown. Whether in lectures in the madrassas of Pakistan, in textbooks printed by Wahhabis for Indonesian schoolchildren, or on bookshelves of mosques in the US, the hatred spread by Wahhabis and funded by oil is evident and influential.

On all points except allegiance to the Saudi state Wahhabi and al Qaeda beliefs are essentially the same.

"Saudi state Wahhabi and al Qaeda beliefs are essentially the same." Just what Walid Phares said in Future Jihad.

The final piece is an editorial Woolsey wrote for the Wall Street Journal which appeared on January 1, 2007. As with the interview cited at top, he reiterates his belief that we should avoid putting all of our eggs in one basket. After reviewing several technologies and policies, he concludes that

Subsidizing expensive substitutes for petroleum, ignoring the massive infrastructure costs needed to fuel family cars with hydrogen, searching for a single elegant solution--none of this has worked, nor will it. Instead we should encourage a portfolio of inexpensive fuels, including electricity, that requires very little infrastructure change and let its components work together: A 50 mpg hybrid, once it becomes a plug-in, will likely get solidly over 100 mpg of gasoline (call it "mpgg"); if it is also a flexible fuel vehicle using 85% ethanol, E-85, its mpgg rises to around 500.

Much as I hate giving our money to the Saudis or any of the OPEC countries, my libertarian side is wary of government mandates. Who are they to say what size car I can buy, or for that matter what size house I can live in (something the more radical environmentalists would regulate). On the other hand I look around me on the way to work and see SUV after SUV with one person in them. To be sure many of these vehicles are used to transport the kids evenings and weekends. But surely we can cut back on size.

We do have to cut back on petroleum consumption. It is a strategic imperative, even a military one, that we do so. Too much money goes to countries who sponsor or tolerate Islamist ideologies. Too much of our time and energy - and perhaps blood - goes into securing a supply of this natural resource from unstable and hostile parts of the world.

Perhaps like Woolsey, though, I'm not committed to any one method, and am open to ideas. I'm keeping an open mind on this one.

Update - Market Economics

Silly me, I'd thought of this before I did the post and then completely forgot to include it. Fortunately, Henry Payne at Planet Gore jogged my memory.

Payne wrote that Sen Reid was complaining that Detroit wasn't making cars that were fuel efficient enough, and as such wanted to increast CAFE standards by forty percent, to 35 mpg by 2020 and then 52 mpg by 2030. Payne points out that

...auto industry sales of SUVs (including gas-guzzling Japanese models) have skyrocketed because gas is cheap and Americans demand them. If Reid and his colleagues really wanted to effect fuel consumption, they would tax gas to $7 a gallon as European nations have done. But Democrats are spineless, and prefer to enact backdoor mandates on industry to deflect their political pain.

Two points. One, whether Payne is right concerning the price of gasoline depends on your timeline. If you adjust for inflation, and ignore sharp peaks, the price of gasoline has not really increased since 1919, and in fact has gone down somewhat. Take a look at this chart

gasprice.jpg

This May 2005 article in USA Today makes the same point by comparing the price of gasoline to disposable income.


We can compare gas prices over time by calculating the cost of 1,000 gallons of gas purchased at the average price in a given year, as a percentage of per-capita disposable income in that year. For example, in 1935, when gas prices were 17 cents per gallon and annual disposable income was $466, the cost of 1,000 gallons of gas was 36% of average disposable income. Today, it takes less than 7% of our disposable income to buy 1,000 gallons of gas at the current $2.10 a gallon. The "cheap" gas of the '60s and '70s cost about 12% as a share of income.

That said, prices have risen sharply this past year, and are now at record highs, as is discussed in this May 2007 CNN article

Gasoline prices have soared to levels never seen before as even the inflation-adjusted price for a gallon of unleaded topped the 1981 record spike in price that had stood for 26 years.

But this said, is Payne right that the best way to effect fuel economy is to raise taxes on gasoline to the point where it costs $6 or $7 per gallon?

I think so.

Yes I know I've just ended any chance I've got of running for political office by saying that. But it's true. If you really want to get people out of their SUVs and Hummers and into economy cars use market economics.

Now, it's easy to say that but another thing to put it into practice. Any politician who does such a thing kills their chance for reelection. But Payne is right that politicians should not at once complain that we're using too much gasoline and that the price is too high. If Reid did have courage, he would support high gas prices, not high CAFE standards. And I'd support him.


Posted by Tom at June 12, 2007 9:30 PM

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Comments

There are Libertarian solutions as well. One is to allow drilling any place in America that has oil. Another is to drop the tariffs on sugar and ethanol, which triple their prices, since although ethanol from corn is inefficient economically, this is not true of ethanol from sugar. We should open up trade with Cuba, as well, since they produce sugar and can produce much more.

Lastly, we should stop subsidizing the oil companies. We use oil almost universally because it is cheaper to use oil then it is to use the next best thing. If the price of oil rises, eventually oil will be more expensive than what is currently the "next best thing". At that point, we will be secure in our energy consumption. And that is a good way to be.


Posted by: Rich Paul at June 12, 2007 9:40 PM

It's been a while since I chipped in with my two cents, but I do keep an eye on the blog from time to time!

Very interesting, all this. How does this tie in with climate change, out of interest?

After the radiation poisoning incident in Britain,which turned the media's attitude toward Putin's Russia distinctly chilly, a lot of newspaper editorials came out in support of nuclear power as a way of reducing Britain's energy dependence on Russia. The argument was not so much environmental, as a question of national security.

Energy politics is clearly a hot topic at the moment. What I find interesting is that here we have a call for cutting down on fossil fuel usage that seems to be predicated purely on geopolitical concerns - but which dovetails almost exactly with the policies advocated by climate change activists. Coincidence? Weird overlap?

Posted by: Mylne Karimov at June 13, 2007 11:49 AM

Thank you both for stopping by.

Rich - I agree that more drilling, both offshore and in ANWAR is a good idea, but it won't solve the problem. I'm not a big fan of ethanol, whether it comes from corn or sugar. And I certainly don't want to give Fidel any of our money, which would serve to short up his regime. Hitting oil companies with this or that might make us feel good but again I don't see reducing whatever subsidy to them you're referring to as solving anything.

Mylne - You are right that my concerns are mostly national security. That it does mesh with what some environmentalists are saying is more coincidence than anything.

I don't buy into the global warming hype. I don't have time to go through the whole thing but check out these sites here , here, and here.

Building nuclear power plants is a good idea, but that won't help with transportation much, and the legal and political hurdles are such that they might end up costing more than they're worth.

Posted by: Tom the Redhunter at June 13, 2007 6:30 PM

Great post Tom. Yikes, I was about to suggest the politically infeasible gas tax myself. Of course, we could earmark the revenue for some kind of alternative fuel program or tax rebates for fuel efficient vehicles, but this idea is hampered because creating a gas tax may be political suicide for most elected leaders. I am very surprised we both agreed on this radical approach to the problem.

A small correction would be that the link to the SUV tax break should be to Taxpayers for Common Sense
website

As they state, "under the new plan, a business owner who purchases a $110,000 Hummer H1 in 2003 can now deduct a total of $106,000 in the first year."

Tom, I respect your distrust of the government, but sometimes we have to use common sense. The 'government' forces us to do things like not dump our untreated raw sewer into our rivers and water supplies. Unfortunately, we have government regulations that prevent us from dumping raw sewage wherever we please. Bummer. We could all just suffer from 'fecal-borne disease', but most of use choose to pay our sewer bill and deal with this painful government 'intrusion' of our rights to dump our waste where we please, to avoid rivers of raw sewer running down our city streets. This is the situation in many developing countries where they don't have to worry about big government forcing people to have sanitation systems. Is that really better? Similarly, should we all be allowed to fund jihadi terrorists as we see fit? Fill it up, and here's an extra $40 tip for Osama, I hear he needs a new rug in his cave!

Your quote from Woolsey is chilling, "On all points except allegiance to the Saudi state Wahhabi and al Qaeda beliefs are essentially the same."

These are the people who benefit from our high demand for oil. Do we really need "the right" to act in a way that directly funds their diabolical schemes? Maybe we can just make the check out to "Hamas" next time we fill it up. Sure, the oil we actually comes from our region, but our demand ensures the prices (and Saudi revenues) stay high.

You are right, Canada is our sole biggest supplier. But Saudi Arabia and Venezuela (two countries on the evil dictator circuit) combined provide over 3 million barrels per day, while Canada provides 2 million. Coincidently, the DOE source provided shows we use 69% of petroleum for transportation. Whether that is for gas or diesel is besides the point. Without these imports, our current economy is going nowhere. Thanks for the fix, Chavez and al-Saud, we'll see you next week.

I do think our protectionist tariffs on sugar and corn are hypocritical, but I'm not sure that corn production results in a net gain in energy considering all the oil inputs required for production, but it is interesting to watch the scientific studies address this question. I woudl support drilling in every national park in the country, if we had the reserves here. But the fact is we don't. The reserves in ANWR and the continental US are dwarfed by those in OPEC countries.

Thanks for the attention to this issue!


Posted by: jason at June 14, 2007 12:16 AM

Thank you also for stopping by, jason.

And you make some very good points. I'm not sure I see the connection between regulating pollutants and what size car you can buy, but I understand your point. A better analogy might be with prescription drugs; the government regulates how they're distributed for our own good. A pure libertarian might say that's an infringiment on our rights (and I'm sure some do), but we all accept it. How is regulating what size car we can buy different? Hmmm... I'll have to think on it.

I am most impressed though with Woolsey, that he's not wedded to any one idea. I too don't think any one "golden bullet" will solve the problem. My thoughts now are that we move forward on all fronts, and see which ones work best. Pragmatism is the best "ideology" with this issue.

Posted by: Tom the Redhunter at June 14, 2007 8:55 PM

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