Reducing Oil Consumption

The New York Time had a big article on Sunday on missed opportunities to cut oil consumption. The article covers various ideas, but it focuses on automobile fuel standards. I think that is a mistake.

I do think that the automobile fuel standards should be higher. Historically the American car companies have argued against this, but that was very short-sighted of them. It was always clear that eventually they would be caught short as gas prices went up. They should have been planning for higher gas prices all along, and they should have gone along with higher fuel standards. The arguments against it seem foolish to me. Japan has much higher fuel standards than the U.S., yet Japanese car companies are doing just fine–in general quite a bit better than U.S. car companies, though of course the Japanese companies also benefit from better government health policies.

However, although automobiles are the main users of oil (70% in the U.S., I think), simply focusing on getting them to use less oil is too narrow. It would have been much better for the U.S. government to strongly encourage the development of non-oil energy sources. This could have been done through direct R&D investment and by creating markets via tax incentives and direct purchase. The discretionary part of the U.S. budget is heavily weighted toward the military, and indeed this is a national security issue. The military could and should have been asking for equipment which was low energy and did not require oil. The technologies developed that way would have spilled into the civilian sector as so many others have.

There is still time for this sort of thing, but we should have started it 30 years ago after the first oil crisis. It’s hard for me to understand why we didn’t. I know that it is possible for the U.S. government to make sensible choices when there is no crisis, but in this case it failed.

6 Comments »

  1. ncm said,

    July 7, 2008 @ 11:12 pm

    Reducing dependence on oil would have reduced profits for oil companies. They’re doing just fine, today, thank you very much. When it looks like their profits are about to start down, then it will seem like time for the federal government to step in. Last time that happened we invaded Iraq. Next time, where? Iran? Venezuela?

  2. Ian Lance Taylor said,

    July 8, 2008 @ 6:11 am

    Oil companies which only focus on oil are being just as short-sighted as car companies which fight to keep fuel standards low. Their time hasn’t come yet, but it will. BP is trying to get out of the oil-only mode, with limited success. Exxon seems on paper to be following a different and quite rational plan: they are using their windfall profits to buy their own stock rather than to invest in new exploration. If they keep following this path, they should eventually be in a position to take themselves private and shut down at a tidy profit to executive management.

    In any case, it’s worth reflecting that the oil companies actually control a minority of the market. Most of the market is controlled by national producers, like Saudi Arabia, Russia, and Venezuela. Those countries are raking in the money. However, except for Saudi Arabia, they have only limited influence over the U.S. government. The present administration, which is by no means the only one responsible for our oil problem, is clearly heavily influenced by both the oil companies and Saudi Arabia.

  3. ncm said,

    July 8, 2008 @ 1:59 pm

    The oil companies have a problem. They have lots of capital to invest in alternatives to oil. However, all the most promising alternatives are free of the choke points they need to maintain the cash flow they are used to. Their first priority must be to sabotage all the alternatives until they can secure their next chokehold. Geothermal and nuclear power have the sort of scale they like, but the electric utility industry is already dug in there.

    In the short term, I think we’ll see a sharply increasing proportion of corporate-owned gas stations as they (re-) secure control over the distribution network, the better to choke compressed-air, battery, and hydrogen delivery channels.

  4. Michael Hubbard said,

    July 8, 2008 @ 10:29 pm

    To say that Japanese companies are doing well despite Japan’s good emissions standards is a little bit wrong, I think. Those companies are doing well, but I think it has a lot to do with other countries’ (like our) low standards. They sell us a ton of SUVs. I agree that the standards should be higher, but this would hurt car companies. I think there are a bunch of people who, if forced out of their Hummers, would take the bus rather than buy a Prius.
    Similarly the current trend of excessive consumption and thus soaring prices, though unsustainable, seems to be quite beneficial for some people ( http://www.washingtonpost.com/wp-dyn/content/article/2008/07/06/AR2008070601833.html ). I don’t see any quick fixes when investing in environmentally irresponsible things is so beneficial to some, even if it’s a few people that are benefitting at the expense of everyone else.

  5. Michael Hubbard said,

    July 8, 2008 @ 10:56 pm

    I guess my thoughts are pretty similar to ncm’s.

  6. Ian Lance Taylor said,

    July 8, 2008 @ 11:05 pm

    Thanks for the notes.

    ncm: Interesting point about gas stations, we’ll see what happens.

    Michael: I’m not sure I agree that raising fuel standards would hurt car companies. For example, if fuel standards had been raised twenty years ago, car companies would not be in the painful position they are in today. Of course, other things would be different, so who knows, but the point is, car companies complain about fuel standards but they aren’t necessarily hurt by them.

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