By November 24, 2016 Read More →

CAFE standards not enough for US energy independence, Trump’s plan works

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New York traffic.

Higher fuel mileage just leads to more miles driven, Trump plan better strategy for US energy independence

How should America achieve energy independence? Donald Trump says ban OPEC imports and boost shale oil production. Energy policy scholar Jason Bordoff disagrees, but his counter-agreement is not very convincing.

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Jason Bordoff, professor of Professional Practice in International and Public Affairs, Columbia University.

North American Energy News published Prof. Bordoff’s column Wednesday in which the former Obama Administration energy advisor argued that the only way to ditch foreign oil is tougher fuel mileage standards .

“If he [Trump] really wants to achieve independence, he must continue on the Obama Administration’s path of raising fuel economy standards to cut oil use,” Bordoff wrote.

There are three objections to this argument.

One, the math doesn’t make sense.

The United States consumes about 20 million b/d of petroleum. Domestic gasoline deliveries are 9.7 million b/d. The 10 million b/d gap is represented by fuel oil for heating, diesel for long-haul trucking, and gasoline exports.

In other words, petroleum demand that is not influenced by CAFE standards.

American domestic oil production in 2015 was 8.5 million b/d. That leaves approximately 11 million b/d of oil imports, of which Canada provided 40 to 45 per cent and OPEC countries supplied 30 per cent.

Even if Americans stopped driving entirely, the domestic market would still be short one or two million b/d. Even if stricter CAFE standards lowered gasoline demand by a third, the domestic market would be short about eight million b/d.

There is no reasonable scenario where higher fuel mileage could ever replace crude oil imports.

Two, Bordoff only focuses on half of Trump’s proposal – the “drill, baby, drill” part. He conveniently ignores the promise to ban imports from OPEC and other countries “hostile to our interests.”

“American energy dominance will be declared a strategic economic and foreign policy goal of the United States…We will become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests,” Trump said during his May 26 energy speech in Bismarck, ND.

As I’ve written in a number of columns, there is a small but vocal contingent of American energy producers calling for Trump to do exactly that. And part of their plan is to boost imports from Canada and Mexico, in effect forming a continental energy market.

If the United States restricts four to five million b/d of crude oil imports from OPEC et. al., thereby raising the domestic price of oil (which may not or may not be politically feasible) to encourage domestic production increases, and imports more from its neighbors, the math can work.

Three, American driving habits and consumer patterns argue against stricter CAFE standards putting a serious dent in domestic gasoline consumption.

When gasoline prices go down or fuel economy goes up – or a combination of the two, as we’ve seen the past two years – Americans drive more miles.

In fact, the United States set a record for miles driven last year. US motorists logged a record 1.58 trillion miles in the first six months of 2016, up 3.3 per cent over the same period in 2015, according to the Transportation Department.

The record mileage was driven by low gasoline prices, more fuel-efficient vehicles, and declining unemployment rates, according to DOT.

Reversing that trend is a tough challenge for policy makers.

Also, consumers like SUVs and pick up trucks. If they can get a little bigger vehicle with the same fuel economy, so much better.

That trend seems to be accelerating, not abating.

So, if energy independence is truly a goal of the incoming Trump Administration, restricting crude oil imports from the Middle East and other OPEC countries, while boosting domestic production and getting more oil from Canada and Mexico is the only workable policy.

But that strategy requires higher domestic energy prices, an issue not addressed publicly yet by Trump, and it may prove to be the sticking point.

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Posted in: Markham on Energy

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