Number of the Week: 41,235,700

Today's number of the week is how much gasoline the United States uses.

In May, 2011 refiners in the US delivered 41,235,700 gallons of gasoline per day. If expanded out to a year, that totals out to 15,051,030,500 (15 billion) gallons per year (These numbers are all from the Energy Information Agency).

What is most interesting here is that the United States is on track to use the least gasoline since the EIA began keeping track of these numbers in 1983. If you see the chart, you can see that gasoline use started to fall after 2003, then fell off a cliff with the oil price spike in 2008 and the ensuing recession. It has not come back.

Politico has an article today "Expiring gas tax may be next battle on the Hill" saying that the Tea Party may pick a fight over the extension of the 18.4 cent/gallon gas tax, slated to need re-authorization by September 30. The chart above, combined with the knowledge that the gas tax hasn't been increased since 1993 shows in graphic detail why our roads, rails, and bridges (funded with gas tax money) are crumbling.

Launch of America's Energy Choices

At lunch today, I gave a presentation at ASP's office to mark the release of my new white paper "America's Energy Choices" (or read it below). This report marks an effort by ASP to begin to outline a new way of looking at how America uses and produces energy.

The problem with American discourse on energy today is that arguments about energy are too often based on which will ‘sell’ the best in order to fit a decision already made. These argument are not meant to be balanced - they are poll-driven and appeal to people's basest fears and desires. The report says that, instead, policymakers should look at the all options and weigh the trade-offs for each. Because the truth is there are trade-offs – decision makers should not pretend there are silver bullets that will automatically bring cheap, clean, domestic energy to all.

In the report, I maintain that the proper way to address the debate about energy is to balance three main concerns:

1. Energy Security
2. Economic Stability
3. Environmental Sustainability

There are three broad categories of energy the U.S. has to choose from, including: fossil fuels, nuclear energy, and renewable power. Within each of those categories is a range of several choices.

Over the next few days, I will do a series of posts on my personal blog (http://andrew-holland.blogspot.com/) expanding on how each energy choice I brought up in the report matches up with the three main concerns above. In the meantime, I would encourage you to take ASP's online poll to show how you would prioritize America's Energy Choices, just click here.

Below the jump, the report is embedded.

Fuel Economy Increase Will Help National Security

While all of Washington is focused on the debt reduction talks, it does seem that there is some work actually happening. On Friday, the President is expected to announce a compromise between automakers and environmentalists.

According to the Wall Street Journal, who first reported this on Tuesday night, the President will announce that corporate average fuel economy (CAFE) standards will see a 5% average annual increase in fuel economy for cars and a 3.5% increase for light trucks, staring in 2016 and lasting through 2021. From 2021 until 2025 both would face a 5% annual increase. This builds upon the announcement of a new rule implemented last year that raised fuel economy standards from 2012 through 2016.

The result of this is that by 2025 - not that long when we're talking about the long lead-time necessary for designing and building cars - the average fuel economy will jump to 54.5 miles per gallon. That is approximately double what it was in 2010, the model year previous to the current one, of 27.5.

This is a big deal.

It is very important for American national security and foreign policy that we use less oil. First, it is important that the United States as a whole uses less oil because the sheer volume of oil imports harms American competitiveness and drives down the value of the dollar. The United States sends hundreds of billions of dollars overseas to pay for oil. The United States consumed over $1.45 trillion worth of oil in 2010, of which $680 billion was spent on imports.

Without these imports, the U.S. trade deficit, which was $497 billion in 2010, would not have existed. That capital could be used for investment at home, and the export of that capital had the effect of driving down the value of the dollar.

Second, it is important for each American consumer that they are less vulnerable to oil price fluctuations. Oil is a volatile commodity. Over the last four years alone, the global price of oil has fluctuated from an average price per barrel of $69 in 2007 to a peak of $147 in July 2008, back down below $35 in January 2009, then back up above $120 per barrel in April 2011. This constant fluctuation harms consumers because it impairs their ability to plan for the long-term by acting as an unplanned tax.

These problems directly impact the security of the United States because every person working on foreign policy knows how vulnerable the American economy and the American consumer are to the rising price of oil. That vulnerability constrains these decision-makers when dealing with oil-producing regimes. There is a good argument to be made (for another blog post) that the United States has acted very differently to Arab countries throughout the Arab Spring, depending on how much oil they produce.

The increases in CAFE standards that the President will announce tomorrow will put the United States on track to reducing its vulnerability to oil-producing regimes. This is an important step that should be applauded.

Number of the Week: 60,000,000

30 days ago, on June 23, the IEA announced a release of oil from its member states' strategic petroleum reserves totaling sixty million barrels of crude. Most of it has been released - but some is still waiting to go to market.

The IEA's stated rationale for the release was to replace the loss of 1.5 mbd of production lost from the ongoing war in Libya.

With this week's 30 day review, the IEA has announced that it will not to release additional oil from reserves.

On June 23, prior to the release, the spot price of a barrel of WTI Crude was $95. The day after the announcement, it fell to $90. Today, WTI is trading above $99.

American Shale Gas is Revolutionizing European Energy Security

For the last three decades, the story of European energy security has been a steadily growing dependence on Russian natural gas. From the time when the Trans-Siberian Pipeline first started delivering gas to Europe in 1983, countries of Europe have grown steadily more dependent on Russian gas. The integration of the former Eastern Bloc into the EU over the last two decades made the problem even more acute, as 40 years of infrastructure was built in order to foster dependence between the Soviet Union and its satellite states. By 2009, Russia was exporting 4.5 trillion cubic feet of gas into Europe, about 25% of Europe's total gas consumption.

The result of that dependence is that Russia has been able to exert its status as a monopolistic energy supplier. Gas shut-offs to Ukrainian pipelines (through which most of Europe's supplies travel) in the winters of 2005 and 2009 caused widespread misery across Eastern Europe as power and heat were shut down in countries like Bulgaria and Romania that are almost totally dependent on Russian imports. Gazprom, and the Russian state, have not been afraid to threaten the stability of these supplies to gain geopolitical power and extract foreign policy concessions.

Now, however, new supplies of shale gas from the United States are reshaping this equation.A new report out from Rice University's Baker Institute, "Shale Gas and US National Security" (pdf) by Kenneth Medlock, Amy Meyers Jaffe and Peter Hartley highlights how increased US production of gas is already undercutting Russia's geopolitical power of European energy. It states that "Russia’s natural gas market share in Western Europe will decline to as little as 13 percent by 2040, down from 27 percent in 2009."

Even without any significant production of shale gas in Europe (yet), a glut of gas produced in the United States is changing Europe's geopolitical energy equation.

Over the last ten years, the United States has gone from essentially zero in 2000 to over 10 billion cubic feel per day by 2010. The graph at left shows how this revolution has affected total US gas production.

This production increase has been enough to change the US from a net importer of gas to a net exporter. Where once the US had been scrambling to build Liquefied Natural Gas (LNG) terminals in the early part of the decade, now those same terminals are being used to export gas. This has freed other large producers, most notably Qatar, to change their exports from the United States to places like Europe or Japan. Not only has this reduced prices, it also has given Europe the redundancy it needs to free itself from Russian gas dominance.

For years, US policy on building energy security in Europe was to foster competition with Russian gas. The focus of this policy was to build a gas pipeline through the 'Southern Corridor' from the Caspian Sea through Turkey and up through the Balkans. It is ironic that now the United States is the exporter that could provide the competition to Russian gas that Europe needs.

Offshore Drilling Lawsuits

The Chamber of Commerce has a new blogger, and his first post is about how How Environmental group's lawsuits will raise the price of energy.

Let me start by acknowledging his point - the lawsuits will make it more difficult to drill in the Gulf of Mexico. And, he's  right in saying that, too often, groups like the Sierra Club, the Gulf Restoration Network, and the Florida Wildlife Federation are interested in delaying and raising the price of drilling projects. I would question his assertion that these actions will raise energy costs, but that is for another post.

However, I would think his post should include some sort of an acknowledgement that the environmental groups might have a point. I'm not sure if he missed the story - it was only on the cover of every newspaper for 6 months - BP's drilling in exactly this area cost over $20 billion in clean-up costs, untold damage to the Gulf's ecosystems, and - in case we forget - 11 lives. It seems like some acknowledgement that America's energy policy should take environmental sustainability as well as economic issues into account is in order.

He seems to be saying that creating jobs now is more important than any environmental damage down the road. That is a dramatic assertion, if that is what the Chamber thinks. We cannot have a debate when both sides talk past each other - the Chamber should engage the enviros on their turf, and they should engage back by asserting how the long-term costs are higher than any short-term gain. We need a debate on energy in this country that acknowledges all sides.

The Country Deserves A Real Debate on Climate and Energy Policy

Last week, I noted on twitter that Governor Romney said that "the world is getting warmer". This should not be a controversial statement. It is unequivocally getting warmer.

I see now that he has been getting some serious push-back from the right wing of the party. This Washington Post gave it front page treatment in an article saying "Romney Draws Early Fire from Conservatives on Climate Change." The article cites Rush Limbaugh and the Club for Growth as leading the criticism against him.

Climate change - and especially how it will impact America's energy choices - is an important issue that deserves real debate. It is true that some policy options will raise the price of energy. However, its important to note that they won't raise its full cost - our society is already paying the costs of climate change and dependence on fossil fuels. As food prices rise, water becomes more scarce, coal kills more miners, and the costs of military deployments in oil producing regions escalates, the cost of energy will continue to rise. ASP's "Pay Now, Pay Later" report quantified the anticipated costs of climate change across the United States. And, Brookings' Hamilton Project recently released an important report that sought to quantify all of energy's externalities.

Even the Bush Administration - enemy #1 for most environmentalists - in 2008 said that the President "wasn't necessarily against cap and trade proposals." We should actually remember that cap-and-trade used to be the preferred Republican Party approach to dealing with pollution. Using the market to internalize the costs of pollution -through either cap and trade or a carbon tax - is an inherently conservative approach to governing.

In a rational political system, the debate would go: climate change is a problem, and these are our ideas for how to solve it. Instead, the debate in this country focuses too much on whether climate change even exists, even in the face of overwhelming scientific evidence. Even a skeptic, if he was rational, would acknowledge that it might be a problem, and that prudent risk-management would dictate taking some long-term approaches to reducing risk. Instead, the anti-science climate-deniers have muscled their way into a key part of the Republican Party. Legislators are afraid to acknowledge the reality that the climate is changing because when they do, they get attacked by the loudest voices.

We used to be able to have a serious debate. I hope that Governor Romney's stand on climate change encourages other high profile Republicans to return to the debate on this issue. I see that Governor Huntsman and Governor Christie have said that they acknowledge the science of climate change. The United States faces a lot of challenges over the next decade. On energy, we need to take into account questions of energy security, economic stability, and environmental sustainability. I hope that Governor Romney will engage the Republican hopefuls on this issue so that we can have a real debate on the full costs of energy.

[UPDATE] I see that Al Gore gave some support to Romney on his blog. This probably won't help his bid for the Republican Party's nomination. But it is important to the debate that he hears support.

[UPDATE #2] Reason Magazine agrees with me - "Conservatives once understood that corporations are entitled to foul the environment"