Oil Dependence
How can America—all Americans together—win the oil endgame?
Is a world beyond oil imaginable? Practical? Profitable?
Why might it be prudent to get there sooner rather than later?
How could we get there if we wanted to?
How could this build a stronger country and a safer world?
At the start of World War II, Detroit switched in six months from making four million cars a year to making the tanks and aircraft that won the war.14 Today, even absent the urgency of those dark days, American industry could advantageously launch a transition to different cars and other tools for making oil use stabilize, dwindle, and in a few generations become but a memory in museums. Some farsighted oil and car companies already envisage such a future (see inside front cover). Some are striving to create it before their rivals discover how major asset redeployments can yield more profit and less risk. These business leaders see that if government steers, not rows, then competitive enterprise, supported by judicious policy and vibrant civil society, can turn the insoluble oil puzzle into an unprecedented opportunity for wealth creation and common security.
That opportunity rests on a startling fact proven in the next 101 pages: most of the oil now used in the United States (and the world) is being wasted, and can be saved more cheaply than buying it. To assess that solution, let's start with a common understanding of the problem.
Oil is the lifeblood of modern industrial economies—but not forever
The United States of America has the mightiest economy and the most mobile society in the history of the world. Its mobility is 96%15 fueled by oil costing a quarter-trillion dollars a year16 and consuming seven of every ten barrels the nation uses. Oil provides 40–43% of all energy used by the United States, Europe, Asia, Africa, and the world. Oil dependence17 varies—30% in China, 50% in Japan, 59% in Central and South America—but it s high everywhere. The whole world is happily hooked on convenient, transportable, versatile, ubiquitous, cheap oil.
The oil we're burning in two centuries took hundreds of millions of years to form. When the Russian chemist D.I. Mendelyeev figured out what it was, he exclaimed it was far too precious to burn. We've been burning it ever since—ten thousand gallons a second in America alone. Each gallon of gasoline took eons to form (very inefficiently) from a quarter-million pounds of primeval plants. Thus the average U.S. light vehicle18 each day burns 100 times its weight in ancient plants in the form of gasoline.19 Only an eighth of that fuel energy even reaches the wheels, a sixteenth accelerates the car, and less than one percent ends up moving the driver.20
A 20-mile round trip in an average two-ton21 new light vehicle to buy a gallon of milk burns a gallon of gasoline at about half the milk's cost.22 The extraordinary global oil industry has made U.S. gasoline abundant, cheaper than bottled water, a half to a fourth of Europe's or Japan's gasoline price.23 We use it accordingly. A comedian's acid remark, even if it touches a sensitive nerve today, could as well have been made under at least six of the past seven Administrations:24
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- Two dollars a gallon to go ten miles is too much, but five to the parking valet to go ten feet is okay. The irony is [that] what we love most about our cars—the feeling of freedom they provide—has made us slaves. Slaves to cheap oil, which has corrupted our politics, threatened our environment, funded our enemies....Faced with our addiction to oil, what does our leadership say? Get more of it! Strange when you consider their answer to drug dependence is to cut off the supply.
The world consumes a cubic mile of oil per year. This is growing by just over one percent per year and is forecast to accelerate. A third of the growth supplies number two user China,25 whose car sales soared 56% in 2003.26 By 2025 its cars could need another Saudi Arabia or two. Just one-eighth of the world's people own cars; more want one. Africa and China have only the car ownership America enjoyed around 1915.27
Yet it's the superaffluent United States whose growing call on a fourth of the world's oil is the mainspring of global demand. During 2000–25, oil use is officially forecast to grow by 44% in the United States and 57% in the world.28 A fifth of that global increase is to fuel the U.S., which by 2025 would use as much oil as Canada, Western and Eastern Europe, Japan, Australia, and New Zealand combined. As the richest nation on earth, we can afford it. But five, soon seven, billion people in poor countries, whose economies average more than twice as oil-intensive,29 want the same oil to fuel their own development. The forecast 2000–25 increase in U.S. oil imports exceeds the 2001 oil use of China and India (plus South Korea). Competing with those emerging giants can't be good for their vital development, for fostering their hoped-for friendship and cooperation, or for the prospects of a peaceful and prosperous world community.
Oil, the world's biggest business, bestrides the world like a colossus.30 Surely such a stupendous source of energy is indispensable, its cost a necessity of sustaining modernity and prosperity. Surely its possible substitutes are too small, slow, immature, unattractive, or costly to offer realistic alternatives to rising oil consumption—unless, perhaps, forced down our throats by draconian taxes or intrusive regulation. And surely it's premature to speculate about life after oil:31 let our grandchildren, or someone else's grandchildren, do that.
This study tests all these comfortable assumptions and finds them unsound. On the contrary, rigorously applying orthodox market economics and modern technologies, it proves that the services Americans get from oil could be more cheaply provided by wringing more work from the oil we use and substituting non-oil sources for the rest. And because the alternatives to oil generally cost less and work better, they can be implemented quickly in the marketplace, with all its free choice, dynamism, and innovation. If guided more by profit and less by regulation and subsidy, this approach could even help to make government leaner, more flexible,
and more valuable.
14. Wrynn (1993) states at p. 52 that by war's end, "the automobile industry was responsible for 20 percent of the nation's war production by dollar volume." He shows striking examples (pp. 30, 54, 75, 76) of automakers' ads emphasizing fuel economy to help the war effort and to help civilians stretch rationed gasoline. And in 1943, GM (p. 39) advertised not just "Victory Through Progress" but also "Progress Through Victory": "...from what is learned in the stern test of war are being gathered many lessons to make more bountiful the blessings of the coming peace."
15. Measured by energy content, not volume; excluding energy (nearly all natural gas) used to run pipelines (2.7% of transportation energy); excluding here (contrary to the "Hydrocarbon definitions" convention on p. 40, otherwise used throughout this report) the portion of gasoline-blended oxygenates (1.3% of total oil use) that don't actually come from petroleum; and excluding the negligible miscellaneous transportation fuels in note 202, p. 36.
16. The U.S. energy statistics in this section and throughout this report are drawn, unless otherwise noted, from U.S. Energy Information Administration (EIA) 2003c, and forecasts from EIA 2004. Primary sources are often documented in Lovins 2003.
17. The fraction of total primary energy use that is provided by oil. Oil import dependence is how much of the oil used has been imported (usually net of oil exports, unless specified as "gross" imports).
18. "Light vehicles," sometimes called "light-duty vehicles," comprise cars, light trucks (sport-utility vehicles [SUVs], pickup trucks, and vans), and
"crossover vehicles" (a new category combining SUV with sedan attributes), with a gross vehicle weight not exceeding 10,000 pounds (4,537 kg).
19. Dukes (2003), adjusted from his assumed 0.67 refinery yield of gasoline to the actual 2000 U.S. average of 0.462 (EIA 2001a, Table 19) and using EIA's 2.46 kgC/gal for gasoline and carbon contents of 0.855 for crude oil and 0.866 for gasoline (EIA 2002a, p. B-8, Table B-6). The average U.S. light vehicle in 2000 burned 591 U.S. gallons (2,238 L) of gasoline (ORNL 2002, Tables 7.1, 7.2) made from ~65,000 metric tonnes of ancient plants, using the adjusted Dukes coefficient of 111 T/gal. The average new light vehicle sold in 2000 weighed 3,821 lb (EPA 2003). Annual ancient-plant consumption is thus ~37,000€ its curb weight, because, as Dukes explains, only a tiny fraction of the plants ends up in oil that s then geologically trapped and ultimately recovered.
20. See Box 5 on pp. 39–42.
21. The average Model Year 2003 light vehicle, at 4,021 pounds, "broke the two-ton barrier for the first time since the mid-1970's": Hakim 2004a.
22. Michael Lewis, head of Deutsche Bank's commodity research in London, notes that if Safeway shoppers in Maryland bought a barrel of milk, it'd cost $138; orange juice, $192; Evian mineral water, $246. By comparison, $40 oil looks cheap. The Wall Street Journal's M.R. Sesit (2004) neatly concludes, however: "But oranges grow on trees; oil doesn't. SUVs don't run on mineral water." And, Mr. Lewis acknowledges, "Nobody's blowing up cows."
23. In 2000, 22 countries sold gasoline at below a nominal benchmark of retail cost, 25 at between cost and U.S. prices, and 111 at higher-than-U.S. prices. Post-tax prices varied from Turkmenistan's 8¢/gal to Hong Kong's $5.53/gal (including $4.31 tax, vs. U.S. tax of 57¢). The U.S. tax rate of 32% of post-tax retail price was half the OECD average of 67%; in absolute terms, the U.S. tax, pretax price, and post-tax price were respectively 26%, 128%, and 56% of the OECD average. Diesel fuel was generally taxed substantially less per gallon than gasoline (Bacon 2004). See also Metshies 1999.
24. Maher 2002, pp. 29–30.
25. IEA 2003a, p. 13; average of 2001 through projected 2004 global demand growth; updated by Mallet 2004. China's ascendancy to number two was seven years earlier than forecast. In the first four months of 2004, China imported 33% more oil than a year earlier (CNN 2004).
26. People's Daily (Beijing) 2004; Auffhammer 2004; NAS/NRC/CAE 2003; cf. Wonacott, White, & Shirazou 2004 (~80% growth 2002, 36% 2003).
27. Greene 2004. Demand growth for personal mobility becomes obvious in the vast world market only for big countries with a burgeoning middle class. But for countries at the bottom of the development ladder, oil is for most people an unimaginable luxury: destitute Chad's nine million people, with just 80 miles of paved roads, use oil at only the rate of two jumbo jets making a daily transatlantic round-trip. ("A 747-400 [the newest, most efficient jumbo] that flies 3,500 statute miles [5,630 km] and carries 126,000 pounds [56,700 kg] of fuel will consume an average of five gallons [19 L] per mile." [Boeing, undated] The nominal flight distance New York to London is 3,461 statute miles, so a round trip uses ~824 barrels, unadjusted for refining. Chad used ~1,500 bbl/d in 2002 [www.theodora.com 2003]). If rich countries use too much oil, Chad can scarcely afford any. But all this could change now that Chad has discovered oil—and signed a pathfinding transparency agreement guiding its development.
28. EIA 2004b.
29. IEA 2003, p. 74. The IEA's May 2004 update (IEA 2004b) finds that oil price rises are twice as damaging to the Asian economy as to OECD's, four times in "very poor highly indebted countries," and at least eight times in sub-Saharan African countries.
30. Oil economist and World Bank consultant Mamdouh G. Salameh (2004) summarizes: "One could not imagine modern societies existing without oil....Oil makes the difference between war and peace. The importance of oil cannot be compared with any other commodity because of its versatility and dimensions, namely, economic, military, social, and political. The free enterprise system...and modern business owe their rise and development to the discovery of oil. Oil is the world's largest and most pervasive business....Of the top 20 companies in the world, 7 are oil companies."
31. Roberts 2004.
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