New Study Finds Oil Security Measures Will Bring Large Benefits to Consumers and Economy
Analysis Shows Fuel Economy Increases and Other Oil Security Measures Would Boost Household Income and Create 1.2 Million New Jobs
WASHINGTON, May 3, 2007; As key legislators consider reforming significant components of U.S. energy policy this month, a report released today by researchers at the University of Maryland, including a former Chief Economist for the President's Council of Economic Advisors, has given strong support to a package of policy proposals being advocated by a group of prominent business leaders and former military officers.
The report from the Interindustry Forecasting Project (Inforum) at the University of Maryland and Keybridge Research, LLC was commissioned by the Energy Security Leadership Council (ESLC), a group co-chaired by Frederick W. Smith, Chairman, President and CEO of FedEx Corporation, and General P.X. Kelley (Ret.), 28th Commandant of the Marine Corps. It was designed to evaluate the impact of the Recommendations to the Nation on Reducing Oil Dependence, a set of policy proposals released by the ESLC in December of 2006.
The recommendations are designed to achieve three basic goals: reduced petroleum demand in the transportation sector through more aggressive vehicle fuel economy standards, expanded supply of renewable alternative fuels, and enhanced domestic production of petroleum in conjunction with stricter environmental protections.
According to the Inforum/Keybridge analysis, by implementing the proposals contained in the ESLC's Recommendations, the U.S. economy would become significantly less dependent on oil. The report finds that the U.S. would "experience a number of beneficial impacts between now and 2030." These include higher national income and employment and a reduced trade deficit, according to study co-author Robert Wescott, former Chief Economist for the President's Council of Economic Advisors.
By substantially reducing America's oil dependence, the report also finds, the economy will be much better prepared to withstand a future oil shock, such as those that hit the U.S. economy and contributed to recessions in 1973-74, 1980-81, and 1991. Dr. Wescott added, "The ESLC energy package can be thought of as a self-financing insurance policy that will make the economy more robust in good times and more resilient in the face of potential energy shocks."
Jeffrey Sprecher, ESLC member and CEO of Intercontinental Exchange (ICE), said, "This analysis of the ESLC's proposals shows that reducing the amount of oil America needs to do business every day is a win-win outcome. It makes the economy more efficient, it insulates it from supply shocks, and it reduces our exposure to hostile or unstable nations."
The report's analysis simulated the effects of specific ESLC recommendations over a 24-year period through 2030. Policies simulated included reforming and strengthening fuel efficiency standards by four-percent annually for cars and light trucks weighing less than 10,000 lbs. It notably incorporated medium and heavy trucks into the simulation for efficiency standards as well, something the Recommendations are unique in proposing. The report also simulated the impact of providing government incentives for increasing the U.S. production of ethanol for motor fuel and biodiesel use.
By adopting the ESLC's fuel efficiency proposal, the nation conserves 4.8 million barrels of oil per day (MBD) by 2030. Another 0.9 MBD of consumption are offset as the result of substitution measures that displace oil through greater production of ethanol and biodiesel fuels. The analysis shows that ethanol production would increase to approximately 1.7 million barrels per day of oil equivalent, or nearly double the Department of Energy's forecasted level of production. This translates to about 30 billion gallons of ethanol in 2030, with about half of that coming from corn. In total, this would be enough to displace about 20-percent of U.S. gasoline use and assumes only a moderate level of technological advancement through 2030. Combined with supply enhancements, including expanded access to the Outer Continental Shelf (OCS), the conservation measures combine to reduce imports of crude oil by 8.2 MBD by 2030, a 47.3 percent decrease. Cumulatively over the 24-year period under consideration, the U.S. would import 32.2 billion fewer barrels of foreign oil.
Other key findings include:
-- The study estimates that, through 2030, the policy package will
improve the U.S. current account deficit by about $175 billion, or
about 0.4 percent of GDP. Also, during the 2007 to 2030 period, the
nation's economy will avoid the expenditure of $2.5 trillion for
imported crude oil.
-- Because of the higher levels of income and GDP that result from the
energy policy package, the U.S. federal budget deficit would improve
by a cumulative (2007 to 2030) $578 billion when compared against the
baseline case. Estimating the policy package's cumulative nominal
cost to the U.S. Treasury at $180 billion, this yields a
benefit-to-cost ratio for the U.S. government fiscal balance of over
three. That is, in federal budget terms, the energy policy package
would pay for itself three times over during the course of the next 24
years.
-- Enhanced energy efficiency also provides a significant boost to real
income. By using less energy, productive processes in general - and
transportation in particular - become more competitive. With the ESLC
policy package, the typical U.S. household in 2030 should receive
$1,103 (2006 dollars) more income than it would in the reference case.
Cumulatively during the 2007 to 2030 period, households would
experience an increase in income of almost $1.7 trillion (2006
dollars).
-- The more energy efficient economy enjoys a higher level of GDP and
lower energy prices, which translate into an increase in overall jobs
of 1.2 million, or 0.7 percent, by 2030.
The details of the Energy Security Leadership Council's Recommendations to the Nation on Reducing U.S. Oil Dependence can be found at http://www.secureenergy.org/.
