Saving Oil
Option 1. Efficient use of oil
American oil savings were a gusher in 1977–85, but slowed to a trickle in the mid-1980s when we closed the main valve—light-vehicle efficiency. During 1975–2003, U.S. primary energy consumption per dollar of real GDP fell by 43%220—in effect, creating the nation's biggest energy "source," now providing two-fifths of U.S. energy services, and equivalent to 1.9 times 2003 U.S. oil consumption, 5.1 times oil production, 3.4 times net oil imports, and 13.9 times Persian Gulf net imports. Per-capita U.S. primary energy use rose 0.6% while per-capita GDP grew 78%. And we've saved oil even faster than total energy: the black line in Fig. 8 shows that in 2003, producing a dollar of GDP took only half as much oil as it took in 1975. Yet that halved intensity was achieved despite a severe handicap: the aqua line shows that new light vehicles (which use a third of U.S. oil) have generally been getting less efficient for the past 23 years. The nation's oil intensity fell anyway, by 1.8% per year, during 1986–2003 as other sectors' efficiency gains offset light vehicles' efficiency losses (some shifts in the composition of economic output may have helped too). In short, after 1985, the pace of saving oil per dollar of GDP fell by two-thirds—yet the tripled speed of 1977–85, when we were paying attention, could be regained if light vehicles simply resumed the sort of rapid technological progress they were achieving two decades ago.
EIA projects, as the black line shows, that oil intensity will fall by a further 26% during 2003–25—falling only half as quickly in the next 22 years as it actually fell in the past 15 years, a period of moderate prices and stagnant policy. We'll show that cost-effectively efficient use of oil, using State of the Art technologies, could double this to another 50% cut (the same percentage as 1975–2003's), as illustrated by the dashed black line. The most important change is in light vehicles. EIA assumes their gallons per mile will fall only 9% by 2025, surpassing by only 0.5 mpg in the next 22 years the efficiency they enjoyed in 1987. In contrast, we'll find a potential drop not of 9% but of 72% in gallons per mile (to 73 mpg), as shown in the dashed aqua line.
Fig. 8 illustrates that if, hypothetically, both these improvements were made at a constant rate during 2005–25, they'd still both be much slower than the steep gains actually made in 1977–85: the overall drop in oil intensity would simply continue the sedate slope of the 1990s. Nonetheless, the dramatic savings we propose may at first sight surprise some readers. To understand why they're both practical and profitable, we must delve more deeply into each end-use of U.S. oil, starting with transportation—which uses 27% of the nation's energy but 70% of its oil.
Transportation
Highway transportation is a gigantic industry for which Americans pay trillions of dollars a year (mainly unmonetized222). Its oil use is disproportionately bigger still. As shown in Figs. 6–7, in 2000, of the 70% of U.S. oil that fueled transportation, three-fourths fueled road vehicles. Light trucks cause 55% of the total growth in oil consumption to 2025 (Fig. 7)—3.8 times the growth share of the runner-up, heavy trucks, both distantly followed by aircraft and automobiles. We therefore emphasize oil-saving opportunities in these four uses, especially light and heavy trucks.
Light vehicles
Every two seconds, American automakers produce a new light vehicle—a marvel of engineering, manufacturing skill, business coordination, and economy, costing less per pound than a McDonald's quarter-pound hamburger. The trillion-dollar global auto industry is the largest and most complex undertaking in the history of the world. It meets conflicting requirements with remarkable skill. As a classic mature industry,223 it is starting to undergo fundamental innovation that will redefine the core of how vehicles are designed and built. That innovation is focusing on new ways to reconcile customer requirements (occupant safety, driving experience, functionality, durability, sticker price, total cost of ownership, and esthetics—cars are vehicles for emotions as well as for bodies) with such public concerns as third-party safety, fuel efficiency, carbon and smog-forming emissions, recyclability, fuel diversity, competitiveness, and choice.
Both Detroit and Washington have long assumed, from economic theory and incremental engineering tweaks, that fuel-thrifty vehicles must be unsafe, sluggish, squinchy, or unaffordable, so customers wouldn't buy them without government inducement or mandate. Congress has deadlocked for two decades on whether such intervention should use higher gasoline taxes or stiffer fuel-economy standards—notably the CAFE standards signed into law by President Ford in 1975 with effect from 1978, followed by analogous Department of Transportation light-truck standards effective in 1985, and widely believed to account for most of the dramatic light-vehicle fuel savings shown in Fig. 8.224 Europe and Japan attained similar or better mpg levels (typically with smaller vehicles) via high gasoline taxes, but now find those insufficient. They and soon Canada are implementing further 25% savings by policy.225 China's comparable or stiffer efficiency standards apply to every new car sold from July 2005, and with anticipated extensions, should save 10.7 billion barrels by 2030,226 rivaling the oil reserves of Oman plus Angola. Most U.S. SUVs would flunk China's 2009 standards.227 Given China's focus on building a huge auto industry as a pillar of industrial strategy (p. 167), even more dramatic efficiency or fuel leapfrogs will be needed for China to avoid full-fledged U.S.-style oil dependence, which could "undercut all of today's costly efforts by the U.S. to reform and stabilize the Middle East."228
Growing evidence suggests that besides fuel taxes and efficiency regulations, there's an even better way: light vehicles can become very efficient through breakthrough engineering that doesn't compromise safety, size, performance, cost, or comfort, but enhances them all. Disruptive technology could make government intervention, though potentially still very helpful, at least less vital: customers would want such vehicles because they're better, not because they're efficient, much as people buy digital media instead of vinyl phonograph records. Automakers could then rely on traditional and robust business models based solely on competitive advantage in manufacturing and value to the customer, and have to worry much less about such random but potentially harsh variables as oil price, climate-change concerns, and elections.
We first present the traditional, incremental, policy-based approach to light-vehicle efficiency, adopting a widely respected industry analysis as the basis for Conventional Wisdom (p. 69). State of the Art, in contrast, uses the integrative designs and advanced technologies illustrated by some recently developed concept and market cars. Later, when discussing public policy, we'll analyze innovative ways to accelerate market adoption. To ground readers' understanding of where better car efficiency can come from, we first offer a short tutorial on the physics of light vehicles (Box 6).
220. The drop in intensity for primary energy used directly, not in power plants, was 52%. (Total gas intensity fell 54%; direct [non-electric] gas intensity fell 57%.) The 43% drop in total primary energy intensity is all the more impressive because by 2003, generating electricity used 39% of all primary energy consumption, up from 28% in 1975, and electric intensity fell by only 12% since 1975. (The modest saving, despite electricity's being the costliest form of energy, is not surprising since electricity is often priced at historic average cost; electricity is the most heavily subsidized form of energy; and importantly, 48 states reward distribution utilities for selling more electricity but penalize them for cutting customers' bills—see pp. 219–220) Indeed, 44% of all growth in primary energy consumption during 1975–2003 went to losses in generating and delivering electricity. (Fortunately, those processes also became 12% more efficient.)
221. Departing from this report's normal convention, the gal/mi values in Fig. 8 are in "laboratory" terms to conform to the EIA projections shown, but it doesn't matter because all values are indexed to 1975.
222. Delucchi 1998. Table 1-10 summarizes social costs of $2.0–3.9 trillion/y in 2000 $, less than half of it produced and priced in the private sector. Vehicle-miles have grown by more than 30% since his base year. One indicator of social cost is that U.S. passenger vehicles emit as much CO2 as all of Japan, the world's second-largest market economy.
223. Characterized by convergent products, fighting for shares of saturated and oversegmented core markets, at cut-throat commodity prices, with generally low returns and global overcapacity (by about one-third). For U.S. automakers, innovation of a fundamental rather than incremental nature was also stagnant until the past decade.
224. Greene 1990; although we find this paper compelling, diverse views are cited in both the 2001 and the 1992 NAS/NRC reports. Greene (1997) summarizes the arguments.
225. The European Auto Manufacturers' Association (ACEA) has voluntarily agreed to reduce new cars' fuel use by 25% by 2008. The International Energy Agency (2001) judged this feasible at low cost, although execution may be lagging. DaimlerChrysler extrapolates the improvement from an average of ~42 mpg in 2008 to 47 mpg in 2012 (Herrmann 2003, p. 2). Japan's "Top Runner" program requires all new vehicles over time to approach the efficiency of the best in each of eight weight classes (with some 50%-discounted trading allowed for over-/underperformance between classes); this has improved the overall fleet's fuel economy by about 1% a year even though vehicles have become larger (ECCJ, undated).
226. D. Ogden (Energy Foundation), personal communication, 7 April 2004. Full implementation of the new standards is expected to save a cumulative 1.6 billion bbl by 2030; with anticipated tightening, 4.8; and with expected new standards on light- and heavy-duty trucks and motorcycles, an additional 5.9, for a total of 10.7 billion barrels. The short-term reduction in fuel intensity is roughly 15%.
227. An et al. 2003; Bradsher 2003.
228. Luft 2004.
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