Oil and energy
In Pittsburgh June 2, President Obama vowed to gather votes for the climate bill in the "coming months" and repeated his intention to roll back billions of dollars in tax breaks for big oil companies, to tap natural gas reserves as an alternative to coal and to increase reliance on nuclear power. Could the oil spill really have far-reaching implications for America's energy future? Should it?
Whatever the eventual catalyst for climate legislation in the U.S., a significant reduction in oil demand will not be the immediate outcome. In the U.S. today, nearly 80 percent of the crude oil coming into the country is consumed by transport, including its use for road making and engine lubrication. A diminishing minority is used for heat and power generation, yet these are the sectors that can respond quickly to a carbon price and begin to shift the energy balance, firstly toward natural gas as a replacement for coal and much later toward nuclear, very large scale renewables and fossil fuels with carbon capture and storage. In fact, much of the 17 percent goal that the U.S. has pledged internationally as its 2020 reduction target (vs. 2005) can be achieved by substituting coal for natural gas and utilizing the existing surplus gas powered generation capacity. While the relative pricing of coal and natural gas is actively driving this change today, a modest carbon price introduced into the power sector as part of an economy wide cap-and-trade system would ensure that the switch is sustainable.
But what about the transport sector and oil demand? The fastest path to reduction is through efficiency, which in the short term means convincing consumers to change their approach to driving and longer term their purchasing habits. The cars to deliver the reduction are available today and some shift in demand to diesel engines could further accelerate the outcome. Alternative fuels, including electricity, are coming, but their impact between now and 2020 will not dramatically shift oil demand. Even if oil demand begins to decline, U.S. dependency on foreign imports will remain for many years and may even increase if domestic production isn't maintained.
The President is right to put his authority behind the need for a climate bill, but we should be clear about the short to medium term outcome. A bill in 2010 need not be vastly complex but could still set a strong direction for the future through an economy wide cap-and-trade approach coupled with tougher efficiency standards in the transport sector.
Posted by: cummije5 | June 7, 2010 1:28 PM
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