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06-03-2006 12:56 AM #1
Transportation Energy Policy for the US
A Sustainable Transportation Energy Policy for America
June 2006, Kevin Hughes
America is currently addicted to oil, it consumes 20mbpd, and this number continues to increase slowly, US Crude Oil production is some 8mbpd and is declining more rapidly. The US uses some 25% of global oil production.
The need of the US to import some 12mbpd of Crude Oil has a significant effect on foreign policy, is the US’s largest import by any measure (cost, volume etc), and places the US in a position of risk from a geopolitical perspective. There is also the fact that at some point, “Global Peak Oil” will arrive (the point at which oil is being pumped out of the ground at its maximum rate), meanwhile global demand continues to increase at about 2% per year, in the free market, this supply limited capacity and demand requirement will likely increase the costs of crude oil, and increase America’s requirement to defend its energy interests globally.
The US needs a bold energy policy which accounts for this changing environment, to maintain its “Leading Nation” position and the standard of living of its citizens. The policy must be evolutionary, reasonable and sensible, rather than radical so that its chances of being implemented are greatly increased.
This article will look at the US’s transportation energy needs over the next 15 years, and suggest policy to transition the transportation sector to a more sustainable operational environment.
Efficiency is a national imperative
The use of energy is an urgent problem, but the ineffective and inefficient use of energy is critical. At present, energy is directly consumed in the US with an efficiency of less than 35% and indirectly consumed with an efficiency of less than 2.5%. Let us use an automotive example to explain:
The internal combustion engine in your car operates at an efficiency of somewhere between 27 and 32%, that is it converts the potential energy in the gasoline into available drive for the car and its systems at a ratio of 3.5 to 1, this is direct consumption efficiency.
Indirect consumption efficiency is about what is done with the available power, if it drives a 4000lbs SUV with one person in it, weighing 200lbs, the systems indirect consumption efficiency is 5%. This is further reduced by inefficiencies in the gearbox and drive systems, and the fact that the system ‘throws away’ energy when the SUV sits at a red light, and every time the brakes are used, the end result is an indirect consumption efficiency of less than 2.5%. In this case the overall efficiency of the system is just 0.75%
From this example we can immediately see three things, firstly that there is massive potential to improve efficiency, secondly if we could increase indirect efficiency by a multiple of only 4, we don’t have an energy problem (or we have delayed it for at least 25 years), and thirdly, we would have no requirement for imported energy. The policies outlined below focus on systemic direct and indirect efficiency
The balance of non renewable to renewable energy production and consumption
At present the US has an 76 – 24 non renewable to renewable energy ratio (Nuclear and Hydroelectric are included in renewable), this has to move incrementally to balance in the next 25 years, and have the potential to move further towards renewable energy after that. There are already several viable technologies: wind, solar, and nuclear, plus other technologies that require some incremental investment in research, but show some promise, hydrogen, geothermal, tidal, and wave. The fundamental problem is one of scaling the use of viable technologies to the point where they make a meaningful impact on the energy equation and society quickly. The policies also focus heavily on the balance between non renewable and renewable energy
Transportation Energy Policy
The US should take action to achieve 4 principal goals:
1. Significantly and urgently reduce its need for imported crude oil
2. Encourage fuel consumption and fuel efficiency awareness
3. Encourage the adoption of Bio-fuels, particularly Bio-Diesel
4. Give clear direction to the automotive industry regarding fuel consumption
With these policies and goals in mind, I believe that the following specific steps will drive the US towards an energy independent future:
1. Significantly revamp CAFÉ fuel economy standards to drive fuel consumption efficiency
2. Legislate to require MPG in advertising
3. Legislate to require Fuel Consumption instruments in the dashboard
4. Legislate taxation based on fuel consumption at purchase and annually
5. Support the Bio-diesel industry, facilitating fast permitting and approval
6. Support the Bio-diesel industry, B0 – B25 adoption
7. Develop ANWR oil capacity
Each of these steps is outlined in more detail below, with a view to showing how the policy steps will work both as single measures and grouped together for cumulative benefit
Significantly revamp CAFÉ fuel economy standards to drive fuel consumption efficiency
Automotive manufacturers should be required to improve the fuel consumption of their fleets by a fixed percentage every second model year. Improvements are likely to be in the 6-10% per step range, for both Gasoline and Diesel cars and trucks. The short term efficiency steps are not only achievable but have been enacted by the global auto companies in other parts of the world. Given the potential blended gains from areas such as Hybrid, Variable Displacement, Regenerative Braking and switching to Diesel, short term fixes already available will allow the auto manufacturers can concentrate on research and development of longer term technologies and designs including Pluggable Hybrid, Hydraulic Energy Storage, Ultra Capacitors, Battery Efficiency and possibly Hydrogen. It is already clear from 2007 sales figures in the US that $3.00 gas is a barrier, where drivers start to seriously consider their driving habits, and look for cars and trucks that will match them efficiently.
Legislate to require MPG in advertising
In much the same way as the Tobacco industry is required to declare health warnings using a significant percentage of available advertising and product real estate, the auto industry should publish MPG figures in similar fashion. This will encourage fuel economy competition amongst the auto manufacturers and educate citizens as to the real fuel cost of the powerful Hemi engine, the Mustang styled after the GT, or the Truck that can tow a house.
Legislate to require fuel consumption gauges in the dashboard
In practice it is often not possible to monitor ones own fuel consumption even in modern cars, or to understand when significant fuel is being used. In the same way that legislation mandates an accurate speedometer, a fuel consumption gauge should be placed in every dashboard, with appropriate warning signs for high fuel usage. This gauge would be extremely cheap to install, there are already aftermarket products available that use manufacturers in car data, could be added in a model year change, and would significantly improve citizen education, and likely fuel consumption.
Legislate taxation based on fuel consumption on purchase and annually
All new cars and trucks should have an energy efficiency tax and license tax based on their fuel consumption, the effect of this taxation model is to level the playing field, from a consumer perspective regarding fuel saving technologies (e.g. Hybrid have incremental costs and are therefore more expensive)
A taxation model could be defined as follows:
<50 mpg - $0
<40 - $250
<30 - $500
<20 - $1500
>20 - $3000
<50 mpg - $0
<40 - $100
<30 - $200
<20 - $300
>20 - $400
The increased fuel economy requirements that the auto manufacturers need to meet will be increasingly difficult to achieve, taxing based on fuel consumption will generate revenue to fund research into transportation efficiency. The system would principally be funded in the same way as defense research, and product spin out would replicate the NASA model of the 1960’s and 70’s. It is worth noting that cars that would not incur any tax are already available, the key feature here is to move the US car and truck fleet to a more economically efficient base point. Total taxation using the financial figures outlined above would generate $10bn in its first year rising to $25-30bn after 10 years, then falling sharply again. This profile matches the need for research and development of efficient technologies to meet the policies outlined here.
Support the Bio-diesel industry
An effect of the taxation measures will be to drive higher volumes of Diesel cars, this has 3 distinct advantages, firstly, Diesel is a more efficient fuel (conservatively assumed to be 30% more efficient in this paper), secondly, Diesel already has the distribution infrastructure in place, and thirdly Diesel can most easily be replaced by a renewable source, Bio-diesel. Europe already has a significantly larger Diesel vehicle presence and this should be encouraged in the US. This policy requires Diesel to replace 40% of the US car and light truck fleet over a 14 year period.
Despite the incremental requirements for fuel efficiency, there will be a significantly increased need for Diesel, this policy dictates that any incremental diesel consumption should be matched by increases in Bio-diesel production so that while petro-diesel consumption does not fall, it does not rise either. In practice this means bringing on-stream massive Bio-diesel capability, perhaps as much as 3.0mbpd by 2020. Unlike the Petro-Diesel industry, the Bio-diesel industry is currently very fragmented, this industry will tend to consolidate over time, but in its fragmented state, development of the refining capacity and supply chain will be slowed. In order to achieve the ramp rate required, the permit and approval process for proposed development needs to be significantly shortened.
Support the Bio-diesel industry, B0 – B25+ adoption
Through legislation, require the development of Bio-diesel and Petro-diesel blends, with incrementally higher Bio-diesel content, moving from B0 (no Bio-diesel content), to B25 (25% Bio-diesel content) in 5%, 3 year increments. Given the inherent efficiency of Diesel and the required improvements in fuel consumption, Gas consumption would reduce from 15 million barrels per day (mbpd) to just below 6mbpd over a 15 year period, while Bio-diesel consumption rose from almost zero today to 3mbpd in the same period. Petro-diesel consumption would remain stable at about 4mbpd.
To achieve the required growth in Bio-diesel capacity would require a switch of agricultural land to Bio-diesel as a crop, and to incremental improvements in yield per acre. Current production techniques produce only 2-6 barrels of bio-diesel per acre (bpa), this policy proposes that a significant proportion of the energy tax dollars would go into research and development to improve Bio-diesel yield per acre. Research is already finding that algae can yield bio-diesel much more efficiently than existing crops, this paper assumes a yield improvement from 4bpa to 35bpa. Should this improvement be achieved, the proportion of arable land being used for Bio-diesel production would be 10% or some 45-50million acres.
Develop ANWR capacity
The US requires additional sources of crude oil, and has an internal capability to develop 700,000 bpd within ANWR. Legislation should be enacted which protects the environment and wildlife, but allows the extraction of oil to take place, and then the projects to proceed). On a global scale the environmental impact in ANWR is no greater than development of any other major oil reserve, however this development is uniquely resisted by a principally US focused environmental lobby. From a broad energy policy perspective the environmental lobby should see the clear benefits to other aspects of the policy which compensate for this intrusion in a protected area.
The environmental challenges
There are a number of environmental challenges to be overcome, balancing the environmental need with the consumption need, and the short term impact with long term benefits, however if all groups interested in energy policy take a 15 – 20 year perspective, compromises will need to be made to achieve a sustainable future.
The mechanical engineering challenges
Whilst at first blush the CAFÉ requirements seem very aggressive, in fact the systems are already available and being adopted in small measure to achieve the first decade of incremental improvements required. Increased adoption of hybrid and variable displacement technology has the potential to improve fuel economy in the amounts required, and development of pluggable hybrid technology could potentially meet all of the improvements required.
From a scale perspective, there is a design and tooling investment, and this should be aligned with model changes over time, it is this feature which causes the ramp in CAFÉ requirements. If the model replacement cycle is on average 7-10years, and the design cycle an additional 3-4 years work needs to commence on adopting existing proved technologies, adding hybrid across the range of cars and trucks etc.
In automotive industry cost terms, 50% of the revenue gained from the MPG related taxation should be re-invested in technologies to be licensed to the industry rather than proprietary to a specific manufacturer.
The bio-engineering challenges
The development of a bio-diesel led economy relies heavily on the potential to improve the yield from organically grown crops. Initially using soy-bean and probably moving in the direction of algae, crops can transition towards efficient yields over time. Several research studies have seen progress on these challenges and could undoubtedly accelerate in a better funding environment, 25% of MPG related taxation would be invested in solving the bio-engineering challenges.
8. The scientific challenges
The scientific community has been significantly under funded in terms of basic research around the areas of energy usage efficiency, energy storage and utilization and new energy sources. This policy will fund these activities to 25% of incremental tax revenues, operating in the way that NASA did during the 1960’s to put a man on the moon, a National Energy Agency (NEA) will carry out primary research and control investment spend of third parties, then license subsequent developments to the industry.
The business challenges
There is significant re-tooling to be completed to ramp production of existing and new technologies, however given the legislative creation of demand the business community will look to take advantage of the opportunities created.
There is bound to be significant angst in the automotive sector as the demands on it outlined in this policy take effect, however, all of the major manufacturers who sell significant volumes of cars and trucks in the US, already have mainstream technology they are distributing in high petro-taxation countries globally which are capable of meeting the demands outlined in this paper. In fact, in some cases, there are models available internationally and here from the US big 3, where the most efficient variant is not available in the US, and if it were the model range would be significantly more efficient.
National Leadership Challenges
The changes defined in this document require the highest level of buy in and endorsement, and require explaining to the American people. As has been seen by the adoption of Hybrid cars, there is significant willingness from a cultural, environmental, and social perspective to adapt to the needed changes. It is the Presidents role to encourage the nation to accept the new reality, and develop as a nation to meet the challenges that the new reality brings. The future wealth and health of our nation is dependent on this leadership.
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