Wall Street Journal - 17 Nov 08
Prof. Robert B.
Department of Physics
Stanford University, Stanford, CA 94305
November 17, 2008
How to Kick Our Oil Addiction Despite Plunging Oil Prices
Old habits die hard. So we asked six experts for their ideas on reducing energy demand.
By M. Totty and S. Swartz
The good news: Oil prices have fallen. The bad news: Oil prices have fallen.
Though the soaring cost of oil squeezed consumers' wallets and corporate
balance sheets, it had one important benefit: Oil demand in the developed world is projected to decline in 2008 for the third year in a
row -- something it hasn't done since the early 1980s -- as motorists kept their cars parked and shifted away from gas guzzlers, and
businesses aggressively trimmed fuel costs.
Higher prices also spurred development of alternative-energy sources, like solar and
biofuels, that cheap oil made uneconomical.
Now that oil prices are less than half their July peak, what's to keep consumers from returning to their profligate ways? In other
words: How do we keep our oil addiction at bay?
We put that question to a group of energy experts. How do they see the problem? And what can be done to keep the conservation and
efficiency momentum going, despite falling oil prices?
Their prescriptions, presented below in their own words, run the gamut from government mandates that new cars be fuel-flexible to
government repeal of all subsidies aimed at fostering energy efficiency. But all agree that there's still plenty to be done to ensure
that energy is used efficiently and conservatively, regardless of the price.
||Rep. Roscoe G. Bartlett
Co-Founder and Co-Chairman, Defense Energy Working Group and Congressional Peak Oil Caucus
DIAGNOSIS: American transportation is more than 95% dependent upon oil, a proportion virtually unchanged since the
1973 Arab oil embargo. Americans will have spent $700 billion on oil imports in the last two years. That is more than we spend annually
on defense. If that money stayed here, it would generate $7 trillion in economic activity. Clearly, lower oil prices are better for
Americans and worse for the governments of OPEC countries, such as Saudi Arabia and Venezuela as well as Russia's military
If we reduce our dependence upon oil imports, we eliminate our greatest self-imposed threat to Americans' future
economic prosperity and national security. Especially in the absence of price signals, we need leadership at all levels to inspire
Americans to continue conserving oil and to innovate to shift our transportation and manufacturing sectors off oil.
- Employers should adopt four-day workweeks and permit or expand telecommuting. A four-day workweek would eliminate 20% of
commuting. Telecommuting could eliminate even more. Management Technology Associates studies show win-win-win benefits. Businesses reduce
premises' costs, overhead and labor with gains in productivity of 10%-40%. Workers enjoy significant fuel and time savings. Society
reduces fuel use, traffic congestion and pollution.
- Employers should monetarily reward employees who car-pool or move closer to work. One example: The federal HUBZone Program
administered by the Small Business Administration provides federal contracting preferences to small businesses located in underutilized
urban and rural communities. HUBZone businesses' principal office must be located, and at least 35% of their staff reside, within a
HUBZone. Sycamore.US, in my district, provides its employees who move into their HUBZone an additional $400 a month as well as up to $666
a year to employees who car-pool, use public transportation or use people power, such as bicycling.
- Individuals and businesses should take advantage of federal tax credits for fuel-efficient cars. There are credits of up to
$3,400 for a new hybrid, between $2,500 and $7,500 for a plug-in auto under 10,000 pounds, and up to $15,000 for a plug-in vehicle over
- The federal government should require all new cars sold in the U.S. to be fuel-flexible -- capable of using gasoline, ethanol
or methanol. We have no idea which liquid fuel substitutes for oil could be in use over the 15-year average life span of a vehicle. This
should be adopted as a condition of additional federal assistance to shore up the auto industry, and would add only about $100 to $200 to
the cost of most vehicles.
- Washington should enact new tax rebates to reward purchases of more fuel-efficient automobiles, which would be paid for with
tax penalties for the purchase of less fuel-efficient cars.
- The federal government should provide incentives to states to impose higher license fees for bigger and less fuel-efficient
vehicles based upon engine displacement and fuel efficiency. Washington has previously encouraged state seatbelt and other laws by
withholding a portion of federal highway funds unless the states adopt the policy.
||R. James Woolsey
Venture Partner with VantagePoint Venture Partners; former U.S.
Director of Central Intelligence
DIAGNOSIS: Oil first skyrocketed to over $140 a barrel, and then tanked (well, relatively) to under $60. Will we now
forget our earlier resolution to kick the oil habit as we have before?
No. It's true that after oil prices dipped in the mid-1980s and the late '90s, work on several alternative fuels was abandoned. But
important developments in the past five to 10 years should enable us to use competition to destroy the 96% monopoly that oil enjoys over
transportation. Added taxes on oil or gasoline aren't necessary -- we just need to use government's power to open up competition in the
transportation fuel market.
- Congress needs to condition some part of the $25 billion for rescuing auto companies on their moving rapidly to produce
vehicles that use electric power. It should also require that some significant share of cars purchased by the government use electricity.
With a plug-in hybrid you will be able drive all-electric at a cost of only two to four cents a mile for the first 20-40 miles each day.
For an average amount of daily driving your electricity cost will beat the pants off gasoline costing 10 cents to 20 cents a mile. OPEC
can't drop oil's price enough to compete with electricity.
- Congress should use rescue funds to mandate that new cars be fuel-flexible for a range of fuels. Several alcohol-based,
low-carbon-emitting fuels produced from biomass and waste feedstocks are developing as important potential partners with electricity in
breaking oil's monopoly. The transition to fuel flexibility costs under $100 per new car and should be rapid. Brazil took only three
years to transition from 5% of new cars being fuel-flexible vehicles to 75%.
- We should borrow the successful German model of the "feed-in tariff" -- which requires utilities to pay customers who generate
renewable energy a fixed, above-market rate for power. The dropping costs of both solar panels and electricity storage will soon let you
charge your plug-in at night from new "flow" batteries in your basement, and then drive the next day powered by the sunlight that fell on
your roof the day before. Let OPEC see if it can figure out how to monopolize that.
- Charging cars' batteries at night means that driving on electricity won't require new power plants. But Congress needs to
improve the grid's security and resilience against thunderstorms, hackers and terrorists by giving the Federal Energy Regulatory
Commission needed emergency authority.
- We need to grow and maintain substantial battery development and manufacturing technology in the U.S. Congress should establish
a battery version of Sematech, the public-private partnership that was set up in the 1980s to ensure that the U.S. stayed in the business
of developing and manufacturing semiconductors in the face of international competitors that were often heavily state-aided. We shouldn't
replace foreign oil dependence with foreign battery dependence.
||Amy Myers Jaffe
Fellow in Energy Studies, Baker Institute; Associate Director
of the Energy Program, Rice University
DIAGNOSIS: For the first time in years,
Americans are driving less, and U.S. oil demand is down, helping reduce
not only the U.S. trade deficit but the global price for oil. But we
want falling oil demand to reflect more than an economic downturn. We
want it to be the result of conscious, sustainable policies. If our
newfound conservation efforts and energy policies give way to old
profligate energy habits when this new round of contraction ends, as
happened in the 1980s, we will have lost yet another opportunity to get
out of the vicious circle of repeated energy and financial crises.
- Use any Detroit
bailout to increase federal fuel-efficiency standards. According to a
study by the James A. Baker III Institute for Public Policy, the new
35-mile-per-gallon fuel-efficiency standard will shave 2.3 million
barrels a day from U.S. oil demand by 2020. We must not undo this
regulation because Detroit has fallen on hard times. If we were able to
fashion a bailout plan that required our car companies to use federal
bailout money to raise this target to a more ambitious 50 miles to the
gallon, we could save as much as six million to seven million barrels
of oil a day.
- Increase federal gasoline taxes.
Sadly, the easiest way to hold the gains we have made in reducing oil
demand in the U.S. would be to raise federal gasoline taxes as prices
fall to lock in a floor price that will continue to stimulate
conservation. Some portion of the funds could be set aside for research
in alternative energy.
- Make electricity the energy
of the future. Canada, France, Germany and the U.S. generate
electricity generally without recourse to oil. As a substitute for
gasoline, hybrid plug-in cars would give consumers the flexibility to
shift fuels when oil is expensive or in short supply. The flexibility
to shift among fuels to generate electricity would reduce the oil
intensity of the U.S. economy and shrink the financial crises that have
tended to go with oil price shocks. Over time, as carbon is restricted,
we could encourage the generation of more and more electricity with
cleaner fuels such as nuclear, solar and wind, or sequester the carbon
from coal burned for power generation.
Chairman and Chief Scientist, Rocky Mountain Institute
DIAGNOSIS: Efficiency is one of the
highest-return and lowest-risk investments in the entire economy, no
matter how low energy prices might go. Concerns about national energy
security and about climate persist even if fuel prices drop. Making our
energy supplies affordable, secure and climate-safe all require exactly
the same actions -- mainly energy efficiency -- so it doesn't matter
which of them you care most about. And energy efficiency's side
benefits are often more valuable than reduced energy costs: higher
labor productivity in efficient offices, higher retail sales in
well-daylit shops, faster learning in well-daylit schools, faster
healing in green and efficient hospitals, and higher throughput,
flexibility and quality in efficient factories.
- Reward electric
and gas utilities for cutting our bills, not selling us more energy.
Half the states have recently adopted or are considering reforms to
reverse old perverse incentives by decoupling utilities' profits from
their sales volumes (so they're no longer rewarded for selling more
energy nor penalized for selling less), and then letting them keep, as
extra profit, a small but juicy fraction, perhaps a tenth, of what they
save their customers.
- Introduce "feebates" (fee +
rebate) for light vehicles. In each size class, buyers of inefficient
models pay a fee while those who purchase efficient models earn a
rebate paid for by others' fees. This increases the price spread
between less and more efficient models of each size class, so customers
consider life-cycle fuel savings, not just the first year or two. Auto
makers will make higher profits, because shifting their offerings from
fee-paying to rebate-earning means adding technology content that has a
higher margin than the rest of the vehicle.
creative financing to help low-income Americans get new very efficient
cars bundled with insurance and price-hedged gasoline. Scrap dirty old
cars a few years early. Net result: a new million-car-a-year market for
Detroit among customers who couldn't previously qualify for a new car;
cleaner air; faster oil savings; and astonishing new employment
opportunities for low-income citizens who couldn't previously get to
- Allow businesses to expense energy-saving
investments that are now capitalized, so those investments compete on a
level playing field with the tax-deductible energy costs they save.
This policy should be broadly stimulative.
all, adopt an economically conservative energy policy that allows and
requires all ways to save or produce energy to compete fairly at honest
prices, regardless of their type, technology, size, location, or
ownership...and let's see who's not in favor of that!
Director of Energy and Global Warming Policy,
Competitive Enterprise Institute
DIAGNOSIS: Conserving energy and
improving energy efficiency are good things insofar as they contribute
to economic efficiency. But I am concerned that much of the
public-policy debate is about pursuing energy conservation and
efficiency measures that go far beyond any economic benefits. In
reaction to the OPEC oil embargoes of the early 1970s, Japan became the
most energy-efficient economy in the world, but at much too high a
cost, which contributed to Japan's economic stagnation. As for the
indirect benefit of reducing greenhouse gas emissions, increasing
energy efficiency almost always leads in the long term to higher energy
- Congress and
state legislatures should repeal all energy-efficiency mandates and
subsidies. Mandates and subsidies cause people and companies to do
things that are otherwise uneconomic. This misallocation of resources
in the long term leads to less economic activity, which slows down the
rate of technological innovation and thereby leads to less progress in
using energy more efficiently. Energy efficiency is increasing at a
faster rate in the U.S. than in the European Union largely because of
faster economic growth and more technological innovation.
should replace the tax-depreciation schedule for investments in new
capital stock with immediate expensing. New equipment is almost always
more energy-efficient than old. Changing the tax structure so that new
investments could be written off immediately would make it profitable
to replace old with new equipment at a much quicker pace. This simple
change could do more to increase energy efficiency throughout the
economy than all the current mandates and subsidies.
and businesses should oppose all energy-rationing policies, such as
cap-and-trade schemes to reduce greenhouse-gas emissions. Energy
rationing forces people to pay more for energy and therefore to use
less of it. Enacting cap-and-trade legislation would force some
conservation and efficiency gains, but would also lower economic growth
and thereby lower the rate of technological innovation.
President, Resources for the Future
DIAGNOSIS: We have security, environmental and economic stakes in advancing efficiency in the production,
distribution and especially the use of energy. But uncertainty about the future direction of energy prices is compounded by the credit
crisis, which threatens to undermine recent investments in efficiency or renewable fuels, and the fiscal crisis facing state and federal
budgets, which raises questions about sustaining government incentives.
Given the challenge of climate change and the risks in the
international oil market, we cannot leave all the decisions to an
unfettered market. But government policies must avoid highly
prescriptive regulation and wherever possible capitalize on the
dynamism of markets and the power of price. This is no time for rigid
adherence to past ideologies of the left or right.
- Implement tax
incentives and standards -- including building codes, fuel-economy
standards and appliance-efficiency standards -- to encourage greater
efficiency. Tax incentives, however, decline in effectiveness in the
face of price declines, and standards work best when reinforced by
- Adopt the long-term architecture
for restraining greenhouse-gas emissions, especially carbon dioxide.
The central feature would place a price on carbon in our energy system
by means of a carbon tax or a cap-and-trade system -- a price that
rises over time. This provides price incentives to advance a low-carbon
future -- which must include major efficiency gains.
serious consideration to proposals to impose a "price floor" on oil of,
say, $60 or $65 a barrel, with a tax. This could reduce the variance of
oil prices and provide alternative-energy and conservation ventures
with a reasonable degree of confidence in their project planning. But
the political calculus for this policy is obviously difficult and
requires careful examination of the interrelationship with a carbon
Chairman and Chief Executive Officer, Dow Chemical Co.
DIAGNOSIS: Demand for oil is outpacing
the supply of this precious resource. A new energy policy is just as
important to the economy as any rescue of the financial markets. In
fact, it's more important in the medium to long term. We are on a
pattern to spend more than $500 billion per year to import oil --
nearly the amount authorized one time for the financial rescue package
recently passed by Congress. This continued dependency on oil imports
has national-security as well as economic consequences. It is also
detrimental to manufacturing and energy-consuming sectors -- like the
chemical industry. Unstable prices also impact household energy bills
and inflation of everyday goods.
Mr. Totty is a news editor for The Journal Report in San Francisco. He can be reached at
firstname.lastname@example.org. Mr. Swartz is a senior correspondent for Dow Jones Newswires in London. He can be
reached at email@example.com.
- President Obama
should use his "bully pulpit" to issue a national call to action on
energy efficiency. We need a national goal of 25% improvement in energy
efficiency and conservation over the next 10 years to galvanize the
public. If the U.S. adopted this economy-wide goal, we could
effectively save the BTU energy equivalent of all the U.S. oil imports
from the Arabian Gulf.
- We should seek a
combination of federal financial incentives and energy-efficiency
building codes for our homes and buildings to increase efficiency by
30% over 10 years. Homes and buildings account for 40% of U.S. energy
demand and 50% of greenhouse-gas emissions. Solutions could include
increasing federal tax credits and incentives for new and existing
buildings to improve energy-efficiency performance; fully funding the
Energy Policy Act of 2005, which authorized funds to help states
improve compliance with stronger building codes, to finance
energy-efficiency public information programs and to pay for other
green building initiatives; and implementing voluntary green building
programs that establish standards and targets to guide contractors and
- Extend federal energy-tax
incentives. Passing long-term tax incentives would encourage the market
to continue investing in and deploying energy-efficient products and
technology. With the federal energy-tax incentives extended eight to 10
years, the public would have time to modify its behavior to adopt and
purchase energy-efficient products.
diplomacy on behalf of energy efficiency. The next president should
make energy efficiency a central part of U.S. foreign policy and global
climate change negotiating strategy. The U.S. could serve as the
catalyst for encouraging world governments to embrace efficiency and
conservation as their first choice of energy. If the Group of Eight
industrialized countries increased their rate of energy-efficiency
improvement to 2.5% a year (double the global average), our world could
avoid $3 trillion worth of new power generation, eliminate the amount
of energy supplied by 2,000 coal-fired power plants, and mitigate the
rise of greenhouse-gas emissions by holding CO2 concentrations below
550 parts per million.