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| | | Introduction | |
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< | Oil accounts for more than 95 percent of energy used in the U.S. transportation sector. That is a problem, and the federal government must solve it. | >
> | Oil accounts for 95 percent of energy used in the U.S. transportation sector. That is a problem. There are multiple ways to solve it but all will require a coordinated national effort financed by the federal government. Congress should choose the solution it prefers, or get used to managing a broken economy. | | | The Long Term Problem: Oil prices are killing us | |
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< | The long-term price of oil is rising, and that fact detracts from America’s economic strength. Between March 1974 and March 1979, the average first purchase price of oil on the global market was $8.17. Between March 2010 and March 2015, that number was $88.01, reflecting an increase almost triple what would be reflected by the corresponding rate of inflation. Since gasoline prices closely track oil prices, the secular trend is driving up the cost of transporting consumer goods, raw materials, and labor. Since every $20 increase in the price of oil reduces annual GDP growth by over half a percentage point, America’s continued dependence on oil has likely cost us trillions over the last several decades. | >
> | The long-term price of oil is rising, and that fact detracts from America’s economic strength. Between March 1974 and March 1979, the average first purchase price of oil on the global market was $8.17. Between March 2010 and March 2015, that number was $88.01, reflecting an increase almost triple what would be reflected by the corresponding rate of inflation. Since gasoline prices closely track oil prices, the secular trend is driving up the cost of transporting consumer goods, raw materials, and labor. America’s continued dependence on oil has likely cost us trillions over the last several decades because every $20 increase in the price of oil reduces annual GDP growth by over half a percentage point. | | | | |
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< | The price will continue rising in the long term because the world is running out of reasonably extractable oil. There are fewer than 1.3 trillion barrels of proven and probable oil left in the world’s major fields, which at present rates of consumption will last 40 years. World discovery of new oil has been declining for decades and—contrary to reports of politically motivated institutions (e.g. OPEC)—new discovery is no longer replacing existing reserve depletion. The majority of oil-producing countries have seen production declines since 2005, and the handful that did not are now struggling to maintain existing quotas. Simply put, inflation-adjusted prices do not rise in the long term where resources are abundant. This is why computers, for example, have experienced a real price decline over the last several decades, even while global demand has skyrocketed. The world is not running out of silicon, but the world is running out of oil. | >
> | The price will continue rising because the world is running out of reasonably extractable oil. There are fewer than 1.3 trillion barrels of proven oil left in the world’s major fields, which at present rates of consumption will last 40 years. World discovery of new oil has been declining for decades and—contrary to reports of politically motivated institutions (e.g. OPEC)—new discovery is no longer replacing existing reserve depletion. The majority of oil-producing countries have seen production declines since 2005, and the handful that did not now struggle to maintain existing quotas. Simply put, inflation-adjusted prices do not rise in the long term where resources are abundant. This is why computers, for example, have experienced a real price decline over the last several decades, even while global demand has skyrocketed. The world is not running out of silicon, but the world is running out of oil. | | | The Short Term Problem: Shale has made things worse | | | A National Solution | |
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< | The simple reality is that oil-powered vehicles must be replaced by electric vehicles as soon as possible. Since electric vehicles rely on grid-based power generation, their total penetration of the transportation sector would virtually eliminate America’s dependence on oil and make a substantial dent in overall fossil fuel dependence. Oil is responsible for only 1% of grid-based power generation, and that number is falling. Alternative energy sources comprise 32% of grid-based power generation, and that number is rising. Failure to convert to electric vehicles will bind us to a prolonged future of oil dependence because alternatives such as hydrogen fuel have not developed quickly enough. | >
> | America will replace its fleet of 250 million oil-powered vehicles or suffer an economic disaster on the order of tens of trillions of dollars. The time to make choices is upon us. | | | | |
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< | The free market will not do it alone. Despite their commercial viability, higher efficiency, and competitive prices, electric vehicle penetration still remains at under 0.5% after decades of oil price increases. The truth is that infrastructural path dependency imposes insurmountable hurdles to the construction of a national electric charging network, despite the efficiency gains available. Charging 1100 electric cars in a single area at peak hours – as the average gas station does – would require around 10-15 MW[1] to cross into residential and commercial areas. Whether electric vehicles are charged in homes or stations is irrelevant, since the physical requirement will be the same.That sort of power would unduly strain residential and commercial distribution lines, so either those lines must be replaced with higher-voltage transmission lines or electric refueling structures must be centralized and operated in proximity to power plants. The private sector lacks the legal authority, capital, and collective willpower to make it happen. A project of this scale requires a coordinated national effort akin to the New Deal or Reconstruction. | >
> | Plug-in electric vehicles are one potential solution since they rely on grid-based power generation, where oil accounts for only 1% of energy use. Yet despite their commercial viability, higher energy efficiency, and competitive price, plug-in electric vehicle penetration remains at under 0.5% after decades of oil price increases. The truth is that America’s infrastructure imposes insurmountable hurdles to the construction of a national electric charging network. Charging 100 electric cars in a single area at peak hours – as the average gas station does – would require around 10-15 MW[1] to cross into residential and commercial areas. That sort of power would strain residential and commercial distribution lines to their breaking point. That is a problem the private sector will not fix because it lacks the financial incentive and legal authority to do so. State governments do not have the capital to solve it and, unlike the federal government, they cannot finance it through deficit spending. If plug-in electric cars are to take hold, Congress must either replace distribution lines with higher-voltage transmission lines or build centralized electric refueling facilities in proximity to power plants.
Hydrogen fuel cells are also potential solution because, unlike oil, hydrogen is abundant. Yet Toyota expects to sell only 3000 of its hydrogen-powered Mirai’s in the U.S. by 2017, while competitor brands expect lower figures for their models. Replaceable battery electric vehicles, like their plug-in counterparts, are another potential solution. Yet Tesla for its part has not developed replaceable battery technology beyond proof-of-concept. Neither hydrogen fuel nor replaceable batteries will develop meaningful demand without a complimentary national refueling structure that rivals the over 100,000 gas stations across America. Private firms are dis-incentivized to build stations comprising such a structure because accruing the full profits requires collective action. If hydrogen or replaceable batteries are to catch on, the federal government must build or heavily subsidize the refueling stations itself.
Transformational political change is hard, but paying $200 a barrel to power 250 million vehicles traveling an average 15000 miles a year will be harder. Solutions exist. Congress must do its job and pick one. | | | | |
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< | Transformational political change is hard. Pursuing it requires convincing voters to prioritize, politicians to act, and adverse interest groups to back down. Yet paying $200 a barrel to power 250 million vehicles traveling an average 15000 miles a year will be harder. If something fundamental does not change, America will lose tens of trillions of dollars while forward-looking nations push ahead. The continuation of America’s global economic leadership is not inevitable, and the time to make choices is upon us.History teaches us that when the predominant energy flow powering an economy becomes too costly, growth stagnates, civilizations become poorer, and societies collapse. Oil is going away. Either we develop a thirst for something better, or America goes with it. | | |
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< | [1] Conservative estimate. Charging 1100 electric cars to travel 300 miles in one hour at 30 kWh per 100 miles would require about 10 MW. | >
> | [1] Conservative estimate: in one hour, charging 100 electric cars to travel 350 miles at 30 kWh per 100 miles would require about 10.5 MW. | | |
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