Making Sense of America's Oil Needs: A Sustainable, State-Based Response to Dwindling Oil Supplies

2005-08-01

Executive Summary

Rising oil prices are pinching the American economy. And, if many oil industry analysts are correct, prices won’t be coming back down any time soon. Indeed, it appears that the era of “cheap oil” may well be over.

The Bush administration and Congress have failed to take leadership in response to the problem. Instead, they are promoting an energy bill that heavily subsidizes oil companies already enjoying record profits and does little to increase energy efficiency or wean the U.S. economy off of our dependence on petroleum.

State governments have an important role in filling this leadership vacuum. By recognizing the oil crisis for what it is and taking appropriate actions to reduce our overreliance on petroleum, states can bolster their long-term economic and energy security.

Oil prices are rising because of increased global demand. Rising oil consumption in the U.S. over the last 20 years is a key contributor to the problem.
• The U.S. is far and away the world’s leading consumer of oil, accounting for about a quarter of global consumption. America now consumes about one-third more oil than it did two decades ago.

• Since 2000, the U.S. has been a key driver of increased global demand, ranking second behind only China for consumption growth in this decade.

• Transportation is the biggest consumer of oil in the U.S., accounting for about two-thirds of our petroleum demand. Decreased vehicle fuel economy and a rapid rise in vehicle travel over the past 20 years are the main forces driving increased U.S. demand for oil.

The world is having an increasingly difficult time producing enough oil to satisfy rising demand. As a result, the U.S. faces a future of unstable fuel prices and increased dependence upon OPEC and Middle Eastern nations for oil.
• At current levels of demand growth, the world will consume as much oil in the next 26 years as it has in the past century—putting increasing strain on the ability of the world oil system to produce adequate supplies.

• Oil industry analysts increasingly believe that the world faces a “peak” in oil production sometime in the next two to three decades—and possibly within the next few years. At that time, the world will no longer be able to produce enough oil to satisfy demand, triggering a major increase in prices.

• Even without a global production peak, the U.S. will import more of its oil from Middle Eastern nations and those affiliated with OPEC. Oil production has already peaked in more than 50 nations and non-OPEC production is expected to peak within the next decade. Meanwhile, OPEC nations hold three-quarters of the world’s proved reserves of petroleum.

Solving the nation’s oil crisis will require aggressive action to reduce demand for petroleum. States have a wealth of short-, medium- and longterm strategies available to achieve this goal.

• In the short term, states can encourage alternatives to driving—such as the use of carpools, vanpools and transit. Many states already operate carpool and vanpool programs and the recent rise in oil prices provides an opportunity to promote those programs and increase participation. In addition, states can educate consumers on how to improve driving habits to maximize fuel economy.

• In the medium term, states should provide incentives for the purchase of more fuel-efficient vehicles, encourage the spread of advanced-technology vehicles (such as hybrid-electric cars), set global warming emission standards for cars (which would likely also reduce fuel consumption), slow the growth of sprawling development patterns that drive increased vehicle travel, promote the use of nonpetroleum fuels (such as ethanol), and increase support for transit.

• In the long term, states must act to reshape communities to be less dependent upon the automobile, encourage next generation advanced technology vehicles (such as those that operate primarily on electricity or renewably generated hydrogen), and develop their rail infrastructure to shift intercity trips and freight movement away from oil-intensive modessuch as driving and air travel.