10 years ago, Securing America’s Future Energy (SAFE) released a report entitled Recommendations to the Nation on Reducing Oil Dependence. The report, supported by a coalition of CEOs and retired military leaders, outlined an energy security strategy that argued for increasing domestic oil supply while simultaneously implementing a suite of policies designed to reduce demand and diversify the transportation sector away from oil for good.
Specifically, Recommendations to the Nation called for policies that fell into three major categories. The first set of recommendations was to reduce oil consumption through efficiency standards, recommending 4 percent annual increases in the fuel economy of the U.S. light duty fleet, as well as implementation of the first-ever fuel efficiency regulations for medium and heavy-duty trucks. The second was to improve the diversity of transportation energy supply by supporting alternatives to oil, partially through certain biofuels which were already commercially viable, but to also encourage the technological development of plug-in electric vehicles. The third was to increase domestic supply by expanding production of oil and gas. The report also recommended bolstering the nation’s Strategic Petroleum Reserve, and using diplomacy to improve security of oil supply from the Middle East.
At the time, WTI crude oil was trading at historic highs between $50 and $70 per barrel, having increased from $20 since 2000. The United States was embroiled in two wars in the Middle East, and 9/11 still loomed large in the public consciousness. Oil dependence, in terms of both economic consequences at home and security concerns abroad, was seen as an urgent priority.
Following the release of the report, White House officials including Karl Rove were briefed on its findings by SAFE staff and members of the group’s leadership, such as FedEx CEO Frederick W. Smith, and former Commandant of the Marine Corps, General P.X. Kelley. Two months later, during the 2007 State of the Union Address, President George W. Bush outlined his energy strategy, which matched the recommendations closely.
During the speech, Bush stated:
Extending hope and opportunity depends on a stable supply of energy that keeps America’s economy running and America’s environment clean. For too long our nation has been dependent on foreign oil. And this dependence leaves us more vulnerable to hostile regimes, and to terrorists—who could cause huge disruptions of oil shipments, and raise the price of oil, and do great harm to our economy.
It’s in our vital interest to diversify America’s energy supply—the way forward is through technology. (…) We need to press on with battery research for plug-in and hybrid vehicles, and expand the use of clean diesel vehicles and biodiesel fuel.
(…) Tonight, I ask Congress to join me in pursuing a great goal. Let us build on the work we’ve done and reduce gasoline usage in the United States by 20 percent in the next 10 years. When we do that we will have cut our total imports by the equivalent of three-quarters of all the oil we now import from the Middle East.
At the same time, we need to reform and modernize fuel economy standards for cars the way we did for light trucks—and conserve up to 8.5 billion more gallons of gasoline by 2017.
Achieving these ambitious goals will dramatically reduce our dependence on foreign oil, but it’s not going to eliminate it. And so as we continue to diversify our fuel supply, we must step up domestic oil production in environmentally sensitive ways. And to further protect America against severe disruptions to our oil supply, I ask Congress to double the current capacity of the Strategic Petroleum Reserve.
America is on the verge of technological breakthroughs that will enable us to live our lives less dependent on oil. And these technologies will help us be better stewards of the environment, and they will help us to confront the serious challenge of global climate change.
The same year that Bush made these comments in the State of the Union, the Energy Independence and Security Act (EISA) was passed by Congress and signed into law. Regarding transportation energy and oil demand, the legislation included many of the demand-side policies proposed in Recommendations to the Nation. EISA included the following:
- An increase in Corporate Average Fuel Economy (CAFE) Standards to 35 miles per gallon (mpg) by 2020—later increased to a goal of 54.5 mpg under the Obama administration.
- Creation of a credit system in which automakers that have surpassed federal fuel economy goals are awarded credits that can be sold to other automakers who are lagging.
- Implementation of the first ever fuel efficiency rules for medium and heavy-duty trucks.
- Creation of incentives for vehicle electrification, to both improve battery technology and drive sales, including a federal loan program for battery technology developers.
- Requirements that federal fleets increase their acquisition of efficient and alternative-fuel vehicles. Using 2005 as a baseline, the law stipulated that by 2015, federal agencies must reduce petroleum consumption by 20 percent and increase the use of annual alternative fuel by 10 percent annually.
- A dramatic increase in the stringency of the biofuel mandate, increasing the target volume of biofuels produced to 36 billion gallons by 2022, up from 4.7 billion gallons in 2007.
- Grants for research and development of advanced biofuels.
Ten years later, many of these policies are still working their way into the system, but meaningful reductions in oil dependence have taken place.
Oil’s Share of Transportation Energy: In 2006, oil supplied 97 percent of total transportation energy demand in the United States. Today, that number has fallen to 92 percent. The transportation system remains highly dependent on oil, but alternative fuels have chipped away at its total monopoly.
Biofuels: Much of the 5 percent decline in oil’s share of transportation energy comes from gasoline demand that has been offset by corn-ethanol. Ethanol supplies about ten percent of U.S. gasoline demand, with consumption currently at 980,000 barrels per day
Fuel Economy: In addition to this week’s announcement on final fuel efficiency standards for medium and heavy-duty trucks, implemented through EISA, the fuel efficiency of light-duty cars and trucks has improved dramatically over the past ten years. Recommendations to the Nation encouraged policymakers to set a target for 4 percent annual improvements in Corporate Average Fuel Economy. On a sales-weighted basis, fuel economy has improved 26.5 percent since 2007. Year-over-year improvements have averaged 3 percent during this time.
Electric Vehicles: EISA also played a role in setting the stage for the commercial launch of plug-in electric vehicles. Not only did the new fuel economy standards include provisions that encouraged automakers to develop and sell electric vehicles, the loan guarantees and other incentives in the legislation helped push battery technology forward. In 2007, the estimated cost for a battery pack was $1,000 per kWh. At present, GM claims its battery costs are $145 per kWh, while Tesla’s are between $150 and $200 per kWh, with reports that they will fall to below $100 per kWh once the gigafactory is complete. Improvements in battery technology have been one of many factors that have put electric vehicles on the road. So far, some 470,000 plug-in vehicles have been put on the road, with record sales reached last month. The pending release of the Chevrolet Bolt and Tesla Model S, which will both achieve approximately 200 miles of range and retail for less than $35,000, is expected to provide another major boost to electric vehicle sales.
Oil Intensity of the Economy: All of this has had an impact on the oil intensity of the U.S. economy, which has fallen from .51 barrels of oil per $1,000 of U.S. GDP to .43 barrels of oil for the same productivity.
A Plateau in Oil Demand: Policies put in place over the past ten years, largely through EISA, have changed the trajectory of future U.S. oil demand, which was slated to increase to 25 million barrels per day by 2030, and is now projected to plateau at 20 million barrels per day. Change in the energy system rarely happens overnight, but the groundwork that was laid in 2006 and 2007 has had a profound impact on the country’s oil dependence, with future improvements still to come.
Source: EIA projection, 2006