Tue, Jun 28, 2005 - Page 9 News List

Quenching US' thirst for oil an attainable goal

By Joseph S. Nye

The US consumes a quarter of the world's oil, compared to 8 percent for China. Even with high growth in China expected in coming years, the world will not run out of oil anytime soon. Over a trillion barrels of proven reserves exist, and more is likely to be found. But two-thirds of those proven reserves are in the Persian Gulf, and are thus vulnerable to disruption.

In the past, rising prices had a strong effect on US oil consumption. Since the price spikes of the 1970s, US oil consumption per dollar of GDP has fallen by half, which also reflects the general economic shift away from industrial manufacturing to less energy-intensive production. After all, it requires a lot less energy to create a software program than it does to produce a tonne of steel. In the early 1980s, energy costs accounted for 14 percent of the US economy. Today, they account for 7 percent. Adjusted for inflation, oil prices would have to reach US$80 per barrel (or US$3.12 per gallon of gasoline) to reach the real level recorded in March 1981.

According to the US government, if there are no supply disruptions, and the US economy grows at an annual rate of 3 percent, the price of a barrel of oil will decline to US$25 (in 2003 dollars) in 2010 and then rise to US$30 in 2025. The energy intensiveness of the economy will continue to decline at an average annual rate of 1.6 percent, as efficiency gains and structural shifts offset part of the overall growth in demand. Nonetheless, dependency on oil will grow at an annual rate of 1.5 percent, from 20 million barrels per day in 2003 to 27.9 million in 2025.

The US political system has difficulty in agreeing on a coherent energy policy. But over the next decade, the politics of energy in the US may gradually change. Some observers detect a new "Geo-Green" coalition of conservative foreign-policy hawks, who worry about the US' dependence on Persian Gulf oil, and liberal environmentalists.

In the hawks' view, the real energy problem is not the absence of petroleum reserves, but the fact that they are concentrated in a vulnerable area. The answer is to curb the US' thirst for oil rather than increasing imports. Greens argue that even if energy supplies are abundant, the ability of the environment to support current rates of consumption is limited. The middle of the range of scenarios considered by the Intergovernmental Panel on Climate Change projects that atmospheric carbon dioxide concentrations will reach nearly three times their pre-industrial level in 2100.

While the Bush administration remains skeptical about the science behind such projections, some state and local governments are enacting measures to cut carbon dioxide emissions. More importantly, companies such as General Electric are committing to green goals that go well beyond government regulations. A recent report by the bipartisan National Commission on Energy Policy exemplifies the new coalition. While US President George W. Bush argues that technological advances in hydrogen fuels and fuel cells will curb oil imports in the long run, such measures require major changes in transportation infrastructure that will require decades to complete.

The commission suggests policies that could be implemented sooner. For example, in recent testimony before the US Congress, James Woolsey, a commission member and former CIA director, urged the use of hybrid gasoline/electric vehicles that could charge their batteries overnight with cheap off-peak electricity; energy-efficient ethanol made from cellulose; and a 10-mile-per-gallon (4.25km per liter) increase in fuel-efficiency requirements. He argued that this agenda could cut gasoline consumption significantly in a matter of years rather than decades. It would also avoid the need for dramatic increases in gasoline or carbon taxes, which are broadly accepted in Europe and Japan, but remain the kiss of death for US politicians.

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