Power: Commentary: How Myths Distort Energy Policy

Have you ever read something and had a gut feeling that what you were reading was somehow distorted or flat out untrue? Well part of CARE's mission is to provide the public with an accurate picture of the important role that abundant and affordable energy plays in our lives. To help our readers understand how myths distort energy policy in the United States, CARE has enlisted the aid of Thomas Tanton, an Environmental Fellow with the Pacific Research Institute. In the blog posting below, Mr. Tanton dispels numerous myths including: The perception that foreign oil provides most of our energy, renewables will replace conventional energy sources, the United States is a disproportionately large polluter compared to other nations, and energy efficiency reduces energy use. Mr. tanton also establishes a fact that is seldom mentioned in America's energy debate - inreased oil production can yield environmentally friendly results!

Energy is a complex issue but thanks to contributors such as Thomas Tanton, everyday people have the chance to get an accurate picture of the energy debate. We here over at CARE encourage you to read on and to let fact rather than fiction guide your views on energy policy.

Power: Commentary: How Myths Distort Energy Policy
Congress and various states are considering a fundamental restructuring and regulation of our energy policy. Any such effort should be based on facts, but legislators, unfortunately, incline to myths, such as the notion that most of our energy comes from oil.

Myth: Foreign Oil Provides Most of Our Energy
According to the U.S. Department of Energy and the Energy Information Administration, oil represents less than 40% of our energy use. A full two-thirds of that oil comes from North America, primarily Canada, not the Middle East. According to another prevailing myth, alternative energy sources will reduce the use of petroleum. Such sources may first reduce domestic production, but they will not affect production in unstable regions. Renewable technologies are subject to import and price security concerns as well.

Myth: Renewables Will Replace Conventional Energy Sources
A correlated and persistent myth is that increasing wind- and solar-generated electricity will reduce our dependence on foreign oil and thus boost our energy security. Less than 1% of our electricity is generated using petroleum, so any renewable generation will have no appreciable effect on petroleum demand. Activists and regulators believe that energy companies will not invest in clean reliable energy, so we need government programs to do so. This ignores the reality that energy companies are investing huge sums of money to develop cleaner and more reliable sources of energy.

The U.S. faces a 19% increase in energy demand over the next two decades. To meet that demand, U.S.-based oil and gas companies from 2000 to 2007 invested an estimated $121.3 billion on emerging energy technologies in the North American market. This expenditure represents 68% of the estimated total of $180 billion spent by U.S.-based companies. Renewable energy sources, however, will not soon replace most conventional energy sources. Despite considerable publicity on their behalf, renewables will remain a small fraction of our energy mix for the foreseeable future.

Myth: The U.S. Is a Disproportionately Large Polluter
From all sources, the U.S. consumes large amounts of energy. But does the U.S., as mythology has it, emit a disproportionate amount of the world’s greenhouse gases? It should be kept in mind that the U.S. produces a large portion of the world’s goods and services. Energy-related emissions of man-made greenhouse gases represent more than 80% of all anthropogenic emissions. Emissions and energy use are linked.

In 2008, goods and services produced in the U.S. accounted for 30% of all of the world’s production as measured by gross domestic product. In the same year, the U.S. share of global greenhouse gas emissions was only 19.3%. Richer countries are actually cleaner and healthier countries. It is the affluent society that does not want to be the effluent society, as various environmental analysts have noted.

Myth: Energy Efficiency Cuts Energy Use
Prevailing mythology also favors federal mandates for higher-mileage cars in the belief that this means less energy consumption. This ignores the reality that increased energy efficiency leads to increased energy use. In the case of vehicles, the fuel efficiency, as measured by Corporate Average Fuel Economy (CAFE), has led to increased driving, and — along with changing land-use patterns and increases in population — to increased consumption. Some hold that forcing drivers to use alternative fuels will help solve global warming. Such fuels, unfortunately, do not necessarily result in lower greenhouse gas emissions.

Fact: Increased Oil Production Can Have Green Results
Meanwhile, it is not a myth that expanding domestic oil production would reduce imports and even help improve the environment. Less than 1% of all oil found in the North American marine environment comes from offshore oil and gas development. According to the National Academy of Sciences, 60% of oil in the marine environment is the result of natural oil seepage through the ocean floor. In many places, it is even higher.

For example, all of the tar on the beaches of Santa Barbara is from natural oil seeps. Reducing oil reservoir pressure through extraction of petroleum will decrease oil pollution from natural seepage. New drilling technology, developed by private energy companies, has greatly reduced the risk of oil spills.

Seeking an Energy Policy Based on Reality

"It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so." That adage, attributed to Mark Twain, applies in particular to energy. Energy myths have consequences their advocates prefer to ignore. Policy based on myths could easily curtail our energy supply, drive up prices, and even increase pollution, all without an increase in energy security.

On the other hand, a common-sense energy policy based on facts stands the best chance of increasing our supply, lowering prices, trimming emissions, and boosting our overall energy security. If that is indeed their goal, policy makers, the media, and the public should reject energy myths and stick to the path of reality. That way alone leads to energy abundance and security for America.

***

Thomas Tanton is an Environmental Fellow with the Pacific Research Institute.

Debunking Myths To Lower Prices, Trim Emissions And Sustain Access To Energy

A new extensive report has just been released by one of our Blog Contributors: Tom Tanton. This report titled Top Ten Energy Myths offers insight into and facts on the myths that are permeated upon the public by the mainstream media. As an energy supporter, this report will give you valuable information to back up conversations you may have.

Why should you know about, understand and debunk the myths? Because, as these comments for the report's conclusion state, "Myths have consequences. Energy policy based on myths could easily curtail our energy supply, drive up prices, and even increase pollution, all without any increase in energy security. On the other hand, energy policy based on facts stands the best chance of increasing our supply, lowering prices, trimming emissions, and boosting our overall energy security. If that is their goal, policy makers, the media, and the public should reject energy myths and stick to the path of facts and reality. That way alone leads to energy abundance and security for America."

This posting is different from most of our Blog contributions in that what you see below is the press release copy that provides an overview of the study. Typically our Blog postings are shorter commentaries from noted energy experts—such as Tom Tanton. However, this report is 19 pages—a bit lengthily for this forum. We believe that once you read the overview, you’ll want to connect to the full report. The colorful document is full of charts, graphs and maps for quick reference. Print it out and pass it around!

Top Ten Energy Myths
The Pacific Research Institute, a free market think tank based in San Francisco, released a new report debunking the common myths about energy in America. Top Ten Energy Myths, by Thomas Tanton, senior fellow in Energy Studies, confronts ten popular myths about America’s energy sources, uses, and risks.

The report challenges conventional discourse about energy propagated by politicians, celebrities, and the media. Using data from the U.S. Department of Energy and the Energy Information Administration, Top Ten Energy Myths clearly outlines the types of fuel most used in the U.S.—where they come from, the risks involved, and the potential for alternative technologies.

"Contrary to common belief, new technology has greatly reduced the environmental risk of oil extraction, and renewable energies such as solar and wind will not increase our energy security," said Mr. Tanton. "There is a plethora of unexplored options for securing energy in America through domestic sources, but misled confidence in renewable technologies and increased efficiency are hampering common-sense energy policy."

The list of top ten myths in the report are:
1. Myth: Most of our energy comes from oil.
Reality: Oil represents less than 40 percent of our energy use.

2. Myth: Most of our oil comes from the Middle East.
Reality: Two-thirds of our oil comes from North America.

3. Myth: We have no choice but to import vast quantities of oil and natural gas.
Reality: The U.S. could significantly reduce imports by expanding domestic production.

4. Myth: Offshore oil production poses environmental risks.
Reality: New technology has greatly reduced the risk of oil spills. Reducing oil reservoir pressure through extraction of petroleum will decrease the amount of oil pollution from natural seepage.

5. Myth: Reducing our petroleum use through alternative energies will increase U.S. energy security.
Reality: Reducing petroleum use will first reduce domestic production, not production in unstable regions. Renewable technologies are subject to import and price security concerns as well.

6. Myth: Energy companies will not invest in clean reliable energy so we need government programs to do so.
Reality: Energy companies are investing huge sums of money to develop cleaner and more reliable sources of energy.

7. Myth: Renewable energies will soon replace most conventional energy sources.
Reality: While growing fast in percentage terms, renewable energies are a very small fraction of our energy mix and will remain so for the foreseeable future.

8. Myth: The U.S. consumes large amounts of energy and thus emits a disproportionate amount of the world’s greenhouse gases.
Reality: The U.S. uses energy and emits a large portion of the world’s emissions because it produces a large portion of the world’s goods and services.

9. Myth: Federal mandates for higher-mileage cars means less energy consumption.
Reality: Increased energy efficiency leads to increased energy use.

10. Myth: Forcing drivers to use alternative fuels will help solve global warming.
Reality: Alternative fuels do not necessarily result in lower greenhouse gas emissions.

"Energy policy must be based on facts, not myths," said Mr. Tanton. "If based on myths, energy policy could easily curtail our energy supply, drive up prices, and even increase pollution, all without an increase in energy security."

"If our goal is to lower prices, trim emissions and sustain access to energy, then policy makers, the media, and the public should reject energy myths and stick to the path of facts and reality," concluded Mr. Tanton.

Tom Tanton is a Senior Fellow with the Pacific Research Institute as well as the Principal of T2 & Associates, a firm providing consulting services to the energy and technology industries. Mr. Tanton has over 35 years experience in the energy, economy, and environmental fields.

Are Gasoline Taxes The “Transparent” Way To Reduce Consumption?

For the last two years, CARE has been watching CAFE Standards legislation since alerted to them by Sam Kazman’s June 2007 article entitled "First, Do No Harm to Motorists." Executive Director Marita Noon includes commentary in one of her speeches that touches on CAFE standards and we’ve posted previous comments here from Diana Furchtgott-Roth. Marita wrote a recent opinion editorial following Obama’s announcement about the increase in CAFE Standards. Within a short period of time, this piece from Diana Furchtgott-Roth arrived in CARE’s in box. While it addresses the same topic as the piece distributed through CARE, it takes a totally different--but compatible--angle. CAFE is just one of the onslaught of legislation hitting the American public that limits freedom. If you support private property rights, free-market principles and energy freedom, you’ll want to read on. If you do not support that short shopping list, you need to read on.

Beyond the news element to this story, it also answers a question you may have thought of, “What happened to the family station wagon?” or “When did the station wagon become the SUV?”

What do you think?

Obama Should Ditch Deadly CAFE Standards
Why does President Obama want to preclude Americans from buying bigger, safer, vehicles, mostly made by domestic auto companies, who need all the business they can get? Motorists should be allowed to pay the cost of cars and the fuel to run them, including taxes to reflect costs imposed on society.

Yet earlier this month, using authority granted in the 2007 Energy Act, Mr. Obama announced that automakers will be required to achieve a higher Corporate Average Fuel Economy standard, 35 miles a gallon by 2016, four years earlier than Congress had mandated, rising from 27 MPG now for cars and 22 MPG for light trucks. Enacted in 1975, CAFE requires automakers to calculate average fuel economy--miles per gallon--across their fleets.

Never mind that the 35 MPG CAFE standard, calculated by the Transportation Department, corresponds roughly to a 26 MPG Environmental Protection Agency standard, the measure that is found on window stickers of new cars. This is met already by 29 car models and 36 truck models. Half these trucks and one third of the cars are made by domestic automakers.

This discrepancy in MPG arises because for CAFE the Transportation Department tests the vehicle on a dynamometer, a machine designed to measure fuel intake in a repeatable pattern that is not the same as ordinary driving. This yields better “mileage” than would the EPA measure of driving over the road.

Hence, there was less to Mr. Obama’s announcement than met the eye--or made the headlines.

Whatever the true MPG measure, CAFE standards aren’t the best way to increase it. If Mr. Obama wants Americans to use less gasoline--a goal that many don’t share--he should propose a gasoline tax. Last summer, when the price of gasoline climbed above $4 a gallon, Americans cut back on their driving—with no extra CAFE standards.

Paradoxically, Mr. Obama’s increased CAFE standards may have the unintended effect of encouraging motorists to hold on to their older gas guzzling cars, as new models become more expensive. In contrast, a higher tax would create incentives to turn over the auto fleet more quickly, as drivers choose more fuel-efficient models.

Motorists should be allowed to choose between purchasing more safety with a larger car, or saving fuel by buying a smaller car. Other things being equal, heavier cars will be safer. Data show that fewer fatalities occur when large cars hit each other than when small cars do the same. In crashes between small and large cars, small cars’ occupants are at a disadvantage.

And poor people will be the most likely to get hurt under Mr. Obama’s new regulations. University of California (Santa Barbara) economics professor Stephen DeCanio in a telephone conversation yesterday declared, “CAFE standards are regressive. They put an undue burden on those who are low-income, who will buy cars that are smaller and less safe. Speaking as someone who is in favor of reducing greenhouse gas emissions, CAFE is not the way to go.”

The first CAFE standards, according to a 2002 National Research Council study, resulted in 1,300 to 2,600 more Americans killed on the roads in a typical year, because cars were lighter. If a toy manufacturer had killed that many children in a year the company would go out of business.

After dead motorists, the biggest losers from higher CAFE standards are Americans who prefer large vehicles to carry families, equipment, and pets on daily trips or long vacations.

One reason that Congress does not want to tax gasoline is that taxes are unpopular. People see taxes, whereas they do not observe the costs of CAFE directly. Despite Mr. Obama’s many calls for transparency in government, CAFE standards hide the costs of the regulation, contributing to poor governance.

Furthermore, CAFE regulations yield no revenue that the government could use to make infrastructure investments, engage in research and development, lower income taxes, or cushion the effects of the cost of the emissions reductions on low-income Americans. A gasoline tax, if accompanied by decreases in income taxes, could be revenue neutral. Low-income Americans who do not pay taxes could receive credits from the revenues to be used against the purchase of gasoline.

By yielding to Congress’s unwillingness to raise gasoline taxes and relying on regulations to increase gas mileage, Mr. Obama offers no incentive for manufacturers to exceed the CAFE standard or motorists to reduce their driving. A tax, on the other hand, would create a continuing incentive to improve vehicle MPG and reduce miles driven.

In fact, CAFE standards may have contributed to lowering the fuel efficiency of the personal transportation fleet because light trucks were not covered. Manufacturers developed a new kind of “light truck,” the Sport Utility Vehicle, built on a truck chassis. Many motorists who could not buy large sedans or station wagons due to CAFE turned to SUVs, some of which had lower fuel efficiency than the prohibited sedans.

Automotive fuel efficiency has been rising without stricter CAFE standards as older cars are replaced with newer ones. If Mr. Obama wants Americans to use less fuel, a tax would be simpler, fairer, and more effective.

Diana Furchtgott-Roth is a senior fellow and director of Hudson Institute's Center for Employment Policy. She is the former chief economist at the U.S. Department of Labor.

America: More Dependant on Foreign Oil

For those of us who spend the better part of everyday focused on energy issue--and especially what our elected officials are doing to thwart energy development, we tend think we have it all figured out. While it is true that we know more than the average person on the street (who still thinks CAFE Standards are about quality control at Starbucks), we do need each other. We thinkers and analysts sharpen each other’s expertise. Such is the case with Diana Furchtgott-Roth. Just when we at CARE think we have a good grasp on a particular issue, she sends us one of her articles that sheds new light on the topic. Such is the case with today’s posting.

Most of us who work in the energy arena are frustrated with the policies coming out of Washington, however Diana Furchtgott-Roth brings fresh insight to the policy issue. One of the fresh thoughts she presents here is this sentence: “Rather than leading towards energy independence, Mr. Obama’s proposals would drive oil and gas production abroad and make American oil and gas uncompetitive in a global market.” There are others too. Please give this a good read and comment on any new ideas you glean. If you think she is totally off-base, we’d love your comments on that too.

Watch for the next posting from Diana Furchtgott-Roth on CAFE Standard--especially if you think they are about Starbucks.

Obama's Upside-Down Energy Logic
Although President Obama has repeatedly called for America to achieve "energy independence," his proposals to raise taxes on domestic oil and gas producers would have precisely the opposite effect. They would, if approved by Congress, make the country more dependent, not less, on imported oil.

Prudently, the president might also acknowledge that achieving “independence” is both unlikely and undesirable, and that America’s economy benefits from all imports, including imported oil.
Days after Mr. Obama’s inauguration, the new president declared, “It will be the policy of my administration to reverse our dependence on foreign oil while building a new energy economy that will create millions of jobs.”

Yet in the 2010 Budget that he sent to Congress earlier this month, Mr. Obama specifically seeks to raise taxes on domestic oil exploration by $31 billion over 10 years, a larger tax increase than on any other industry. In addition, oil and gas producers would bear a disproportionately heavy share of other tax increases on business, more than $320 billion.

The ostensible rationale for these tax hikes is that the current tax system “distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. To the extent expensing encourages overproduction of oil and gas, it is detrimental to long-term energy security…” This reasoning is repeated eight times in the Treasury Department’s Green Book, a description of proposed spending and revenue changes in the budget.

No mention anywhere in the Budget of the distortion of the $60 billion in expenditures in the stimulus bill to “reduce dependence on foreign oil and create long-term, sustainable economic growth in the green industries of the future.” Subsidies for renewable energy, only four percent of America’s energy supply, and more than would occur under a neutral system, are acceptable to President Obama. But a tax structure that encourages the production of oil, 39 percent of America’s energy share, is termed “detrimental.”

Mr. Obama’s proposals include increasing effective income tax rates on oil and gas to levels higher than for other manufacturing industries; disallowing “write-offs” for certain types of extraction equipment and exploration methods; levying a new excise tax on Gulf of Mexico oil and gas; and taxing carbon emissions through a “cap and trade” program.

If America is to reduce use of imported fuels, it needs to raise domestic production as well as to conserve. This increases our long-term energy security, rather than harming it. Every single additional barrel of oil produced in America is one barrel fewer that we need to import—and as we produce more at home, we employ American workers and produce revenues for all Americans.

No one knows the full extent of American oil and natural gas reserves, and to move towards energy independence, it pays to be looking. In 2007 200 trillion cubic feet of natural gas, equivalent to 33 billion barrels of oil, about 18 years of U.S. oil production, were found in the Haynesville Shale rock formation in northern Louisiana. Texas, Arkansas, and Pennsylvania are also home to new gas fields. New optimism about gas reserves and production has been pushing prices down. With the fuel there, why discourage production with new taxes?

Rather than leading towards energy independence, Mr. Obama’s proposals would drive oil and gas production abroad and make American oil and gas uncompetitive in a global market. The levies would punish domestic American companies and benefit countries with large reserves such as Venezuela, Saudi Arabia, Iran and Russia. Does Mr. Obama really want these countries, all under fire for their neglect of human rights, to get richer at our expense?

Until America has technology to operate its 250 million motor vehicles without gasoline and natural gas, we need more domestic exploration, not less. At some point, maybe later this year, maybe in 2010, our economy is going to shift to post-recession recovery, and oil and gas consumption are going to rise. We want to avoid $5 gasoline and sky-high home heating bills.

Although Congress is spending billions of dollars to create jobs and promote energy independence, President Obama wants to deny access to development of our own oil and gas resources in some of the most geologically promising areas available, and to increase the tax costs of developing these resources.

This is upside down logic. If enacted by Congress, it would make us less secure. Congress might succeed in imposing draconian efficiency standards on automobiles and appliances; requiring electric utility output that comes from renewable sources—wind, solar, geothermal, biomass—to rise from 4 percent now to 25 percent in 2025; and mandating greenhouse gas emissions in 2050 that are 17 percent of 2005 levels. (Whether Congress could enforce such wildly optimistic goals is a question.)

Americans might become greater conservationists, prodded by guilt or by higher energy taxes. But even if they do, they will still need oil and natural gas for driving, home heating, and electricity generation for many years to come. If Mr. Obama is serious about pursuing energy independence, he should withdraw his proposals to increase taxes on domestic oil and gas production.


Diana Furchtgott-Roth is a senior fellow at the Hudson Institute and a frequent contributor to CARE’s Comments About Responsible Energy.

Pay at the Pump or Pay at the Dealer

We’ve said it before, “We do not need the government mandating fuel economy standards.” In a free market system, the public votes with their dollars. When gasoline prices go up, the public demands vehicles with better mileage. But by requiring certain efficiencies by specified dates, technology is pushed to the limit and prices reflect the accelerated R & D. The results may not be any better than the washing machine debacle resulting from government regulations for higher efficiency. The result is a washing machine that costs twice as much but works half as well—according to Consumer Reports.

Yet, Washington forges ahead with plans for increased MPG regulation—what is called CAFÉ (Corporate Average Fuel Economy) Standards. (See previous postings on CAFÉ Standards.)

Here Forbes Auto offers insight on what the consumer cost will be for these more strict standards. You’ll either pay at the pump or pay at the dealership. Why not at least give consumers a choice? Isn’t this the land of the free—as in free choice?

Better Fuel Economy Could Be Costly for Car Buyers
The government has yet to require higher fuel efficiency from the auto industry, but some manufacturers are already bracing for much stricter standards. Chrysler Group even went so far as to scrap plans for a new luxury vehicle that had been in the works.

Industry insiders insist consumers should be bracing too—for significantly higher prices and far fewer choices.

In July the Senate passed a bill that would increase the Corporate Average Fuel Economy (CAFE) standards for all passenger cars and trucks by about 40 percent. That would require automakers to raise the average gas mileage of their vehicles to 35 mpg by 2020. A proposal in the House would hold manufacturers to those standards as early as 2018.

The legislature is far from putting such changes into law. But observers say stricter standards—in some form—appear to be inevitable.

And buyers, beware. The impact on consumers is likely to be more than just the ability to get farther on a gallon of gas.

Consumers will end up paying for the more expensive technology that makes achieving the standards possible, said David Alexander, principal analyst for automotive systems at ABI Research in New York.

Dave Elshoff, a senior manager at Chrysler, said some cars could end up costing as much as 50 percent more. "Bringing our most fuel-efficient vehicle into the standards being proposed would add $5,000 to $7,000 to its price. And this is a $14,000 car," Elshoff said. "Consumers are gonna think twice about buying cars that expensive, which will hurt us."

Choice is also going to dwindle, both Alexander and Elshoff predicted.

Just the threat of stricter standards is already having an impact on production—at least for Chrysler.

The company is the first to order a change in its production schedule because of the possibility that stricter standards are on the way. It recently scrapped plans to build the Imperial, a large, luxury sedan that had been introduced as a concept vehicle at the 2006 Detroit auto show.

Elshoff gave two reasons for the decision: "One, volatile gas prices consistently well above $3 a gallon. Two, pending legislation in Washington."

Given those issues, Imperial's size made its demise inevitable, he said. "Any way you look at it, the concept car was based on our largest sedan. It was considerably big. Chrysler felt that there was no justifiable business case for a car like that with those two issues looming."

Ford spokesman Mike Moran said he thinks that car buyers are already making smarter, more informed decisions and are more willing to consider smaller, more fuel-efficient vehicles.

"Addressing this issue is kind of like a three-legged stool. It's the vehicles, the fuels and the consumers. With the consumers it's more about what they are looking for or willing to purchase," Moran said.

His company's statistics show a shift in consumer spending toward more fuel-efficient vehicles. "There's been movement from the SUV area to crossover vehicles," he said.

Traditional SUVs employ truck architecture, while so-called crossovers employ car architecture. The crossovers can be more fuel efficient, in cases where they are lighter than the truck-like SUVs. "Consumers are making better choices [with regard to fuel economy]," Moran said. "I think we've seen a shift ever since [Hurricane] Katrina and with gas prices spiking."

Crossovers on the Upswing
Ford's statistics show that crossover vehicles have been the fastest growing category in the U.S. Industry-wide sales are up 18 percent in the first half of 2007. Annual sales have grown from about 500,000 in 2000 to 2.4 million in 2006. This year, sales will reach about 2.8 million and may go past the 3 million mark in 2008, the company said. At the same time, traditional SUV sales have been declining. Ford said that industry-wide sales of traditional SUVs likely will fall below 2 million units for 2007. The last time sales were that low was in 1995.

George Pipas, Ford's U.S. sales analysis manager, attributed this shift in consumer spending to various factors. It's part demographics and lifestyle needs, and part fuel prices, he said. Pipas said that baby boomers, who popularized SUVs in the '90s, are becoming empty-nesters. The utility of crossovers is what they prefer now, he said.

"This trend started long before Congress started to talk about new regulations, and even before gas prices began to increase," Pipas said. "I think higher gas prices encouraged people to think about what they really need a particular type of vehicle for, and in doing so probably accelerated a trend that was already underway."

"One thing that's possible for the future, which they've already done in Europe, is to switch from, say, a V6 gasoline engine to a four-cylinder with a turbocharger," Mike Omotoso, a senior manager at the market research firm J.D. Power and Associates says. "So you have better fuel economy but you still have the power with the turbo."

E85: Loophole or Credit System?
American manufacturers and the government have been touting E85, a fuel that is 15 percent gasoline and 85 percent ethanol, as a way to decrease dependence on fossil fuels and, specifically, foreign oil. Ethanol is made from organic material like corn or sugar cane.

Omotoso said some manufacturers are using E85 as a loophole to CAFE standards. "Manufacturers get extra credit for flex-fuel vehicles—ones that run on 85 percent ethanol, 15 percent gasoline," he said. "There's a formula where they average out the gasoline and ethanol fuel economy, so the CAFE miles-per-gallon number is actually higher than the real number. That helps offset the gas-guzzling SUV figures. Even though they make a large number of trucks, they have the flex-fuel vehicles to offset those numbers." This is how certain manufacturers get around having to pay penalties for not meeting current CAFE standards, Omotoso said.

Max Gates, regulatory affairs communications manager at Chrysler Group, said that manufacturers do accrue special credit toward CAFE standards through certain calculations of fuel consumption by flex-fuel vehicles. He argued that it's not a loophole but a credit system. "The government does a lot of incentives. A lot of times they just give cash to people, like they give to farmers to grow corn, which is made into ethanol," Gates said. "We don't get cash for building flexible-fuel vehicles. The incentive for us is a capped system of getting some credits under the CAFE rules. And frankly, we think that cap might be a little low. So we couldn't build a million flex-fuel vehicles."

Gates pointed to the fuel industry dragging its heels as one issue that is keeping E85 and flex-fuel vehicles from truly helping offset oil consumption. "There are 170,000 retail outlets for fuel in this country, and there are about 1,000 that dispense ethanol," he said. "Because the fuel is not available in this country, it isn't running on E85 anywhere near as much as it should be."

by Heather Ignall ForbesAutos.com

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The 2007 Energy Bill: Significance, Symbolism and Cost

After receiving the opinions of Paul Dreissen, we asked other member’s of our Energy Counsel for their thoughts. The following is what we received from Michael Economides (previously published with Human Events). What are the Senators thinking? Or, are they thinking?

On June 21 the US Senate passed an energy bill that if it becomes law it would set in motion one of the most economically destructive paths in memory. Thrown together is an unsavory mix of little impact but enormously expensive, complete with delusions of energy independence, biofuels, global warming and all the other slogans du jour of environmentalism. More to the point, and not surprising, the bill does not address at all the fundamental issue: In a modern world run on energy, with galloping China and India, with ever-controlling producing nations, where will America’s energy supply come from? The country imports now almost 70 percent of its oil and the rest of it is under constant assault.

A sample:

An increase in automobile fuel economy requirements (the Corporate Average Fuel
Economy, CAFE standard) to a fleetwide average of 35 mpg by 2020 from the
current requirements of 27.5 mpg for cars and 22.2 mpg for SUVs and small
trucks.

There is nothing wrong with better efficiency, but we went through this before. The American public voted with bigger cars, driving more and asking for more services. For example, FedEx and DHL have created a new era of deliveries and expectations. One of the things that the social engineers forget is that the personal car is a symbol of American personal freedom, what makes this country what it is. And yet they constantly want to harp on forcing us back to a European mold, forgetting that Holland can be driven across in two hours. Gasoline demand constantly increases because we drive more, and we do more with our driving. In 2004, the National Commission on Energy Policy determined that even if Congress mandated that the domestic auto fleet increase its average to the much larger fuel economy of 44 miles per gallon America’s motor fuel consumption will still increase by 3.7 million barrels per day by 2025. Even the apologists of the bill, in very flawed calculations, suggest that the bill will save 1.3 million barrels per day (about 6% of current consumption) by 2025 and manipulatively “slightly less than what we import from Saudi Arabia.” (echoes of Al-Queda?) The new CAFE standards will put an economic straightjacket on already battered US automobile manufacturers but are unlikely to change the American public’s tastes and preferences.

Requires that half of the new cars manufactured by 2015 be capable of running on
85 percent ethanol or biodiesel fuels

A requirement to produce 36 billion gallons a year of ethanol, as a substitute for gasoline, by 2022, a sevenfold increase over production in 2006. Ethanol would be made from corn and cellulosic sources such as prairie grass and wood chips.

Corn ethanol is a scam with a negative energy balance. It takes about 1.8 gallons of gasoline to produce one gallon of ethanol. More important is that corn ethanol cannot provide enough fuel to displace imported oil. In 2005, U.S. farmers produced about 11.1 billion bushels of corn. If the U.S. turned all of that corn into ethanol, it would only supply about 6 percent of America’s total annual oil needs or about 20 percent of our gasoline needs. If all 3.2 billion bushels of soybeans produced by American farmers in 2006 were converted into biodiesel, they would only yield about 4.8 billion gallons of diesel fuel, about 1.5 percent of America’s oil needs. The talk about cellulosic ethanol is tantamount to legislating that all new American children grow to be 6-ft tall. The enzyme that would convert biomass into cellulosic ethanol does not exist and nothing is expected any time soon.

Supports large-scale demonstrations that capture carbon dioxide from
coal-burning power plants and injects it into the ground.

Carbon dioxide sequestration is what the bill advocates imply. But again reality raises its ugly head. Taking just the portion of oil and gas used in combustion for transportation and power generation (the rest is used as source of materials) and adding the combustion of coal, according to EIA calculations, world carbon dioxide emissions are slated to increase from 25.55 billion metric tons in 2004 to 43.68 billion metric tons per year in 2030, a 71 percent increase. If just the incremental carbon dioxide is injected at a very good rate per well of 10,000 tons per year, there is a need for 1.8 million new wells, about the same number of wells in current operation worldwide, still active and drilled in the entire history of production of all oil and gas. At an average cost of just drilling of $2 million per well, there will be a need for $3.6 trillion, not counting infrastructure which could easily double the figure. This is about 60 times the current annual budget for well construction in the industry, estimated at $120 billion.

This is why anthropogenic global warming is not a trivial issue for the world in either the cost of energy transition to something else or in sequestering emissions. In going from idea to reality the path is lined with staggering costs.

But none of this bothers the architects of this bill, whose real significance is at best symbolic and very costly but smacks with social engineering, a yet another failed attempt throughout the last 150 years in Europe and the United States. We should all be stewards of the environment (the US is one of the cleanest nations on earth), but radical environmentalism, even when it wears a tie, has replaced older–isms. It is more of a nuisance, intended by mostly upper middle class and wealthy westerners to shock and be relevant, a more veiled attempt than Paris Hilton’s antics. Of course, try as they may, the US economy is enormously resilient and will likely shrug this nonsense off.

Although it may have been attributed to others, the recent bill has about the same depth as what Georges Clemenceau, France’s World War I prime minister said: “If my son is not a communist by the age of 20, I will disown him and if by the time he is 40 he is still a communist I will disown him.” Many environmentalists are way past 40.

Prof. Michael J. Economides, University of Houston and also Editor-in-Chief Energy TribuneHouston, TX

People or the Planet?

When one looks at the environmental movement, one has to question, “Are we here for the planet—or is the planet here for us?” Of course, the real answer is complicated as each is interdependent. We could not survive without the planet, and it could survive without us—but what would it survive for? A Bible believer knows that in Genesis 1:26, God gives man dominion over the earth, it is here for us. But repeatedly, the environmental extremists attempt to make their views the law—and their views hurt mankind. “How could pushing for clean air, fresh water and a safe food supply hurt mankind?” you might ask. One ongoing case in point is the CAFE Standard, about which a recent Wall Street Journal article said, “Not one voter in ten thousand can be expected to learn how the CAFE rules work and their real consequences.” But we want you to be that one voter in ten thousand!

CAFE stands for Corporate Average Fuel Economy and is a government mandated fuel economy program. In pushing for these standards on the grounds that we must cut emissions to curb global warming, cars have become so light that automobile accident death rates have gone up. Published in April, the Institute for Highway Safety’s report on driver deaths offers the numbers from which we can make this conclusion: we may be saving the planet, but we are killing people. The statistics reinforce—again—the argument that occupants of heavy passenger cars have a better chance of surviving a collision than drivers of small sedans. Yet increasing these standards seems to be Washington’s primary gesture to show they are doing something for global warming.

Here is what one of our Energy Council Members has to say (as was posted in the New York Sun) about the new push for increased CAFÉ Standards: (Edited slightly for brevity.)

Skip This CAFE
Most of us love to stop at a café for a latte, but here is one you’ll want to skip: the CAFE standards that were voted out of the Senate Commerce Committee earlier this month. Warning: Congress is after minivans and pickup trucks.

Enacted in 1975, CAFE generally requires automakers to calculate average fuel economy—miles per gallon—across their fleets. For Democratic senators Barack Obama and Dianne Feinstein, as well as President Bush, more CAFE is better than less.

If the proposed bill becomes law, CAFE standards would rise to an average of 35 MPG in 2020 for cars, SUVs, minivans, and light trucks, defined as pick-up trucks, from levels of 27.5 MPG and 22.2 MPG for cars and light trucks respectively. Standards would rise 4% annually between 2020 and 2030. One blogger wrote about his beloved engine as "RIP V8."

The first CAFE standards, according to a 2002 National Research Council study, resulted in 1,300 to 2,600 more Americans killed on the roads in 1993, a typical year, because cars were lighter. If any pharmaceutical product had killed that many patients the manufacturer would be bankrupt. Families can sue Merck, but not Uncle Sam.

After dead motorists, the biggest losers from higher standards would be Americans who prefer large vehicles to carry families, equipment, and pets on daily trips or long vacations.

Other major losers would be the domestic car manufacturers, GM, Ford, and Chrysler, who have invested in plants that make large sedans and light trucks, Americans' preference. The industry is already restructuring to try to reduce labor costs; higher CAFE standards would be its nail in the coffin.

For several years, Americans have bought more light trucks, including SUVs, than passenger cars. Domestic companies have the bulk of light truck sales—which would bear the brunt of more CAFE.

In the first four months of 2007, Ford sold 570,000 light trucks, but only 300,000 passenger cars. Each F-Series truck makes about $8,000 in profits for the company, whereas Ford loses money on passenger cars.

Higher standards would discourage the production of new, potentially profitable high-performance sedans, such as a proposed 2009 line of rear-wheel drive GM sedans.

In contrast, foreign auto manufacturers would benefit from higher standards because most of their sales come from more fuel efficient vehicles made overseas. They would not have to change production to meet the new standards.

Their American assembly plants primarily make larger vehicles, such as Nissan Titans in Mississippi and Toyota Tundras in Texas.

President and CEO of the Association of International Automobile Manufacturers, Inc., Michael Stanton, testified before the Senate Commerce Committee on May 3 that "Nine of the top ten models on the EPA's Fuel Economy Leaders list for 2007 are manufactured by AIAM members." Quite predictably, Mr. Stanton went on to say that "AIAM supports increasing CAFE standards."

The only rational reason for consumers to ignore the price of gasoline in choosing a car is that there is something wrong with the price of gasoline. That is the implicit message every politician who advocates CAFE standards is telling America: energy markets are unreliable and wrong. President Bush, who once worked in Texas's oil industry, should know better.

It's ironic that many politicians who accuse Americans of using too much gasoline want to hold hearings on price gouging when prices rise to reflect hurricanes in the Gulf of Mexico or turbulence in the Middle East. Price increases will eventually lead to less consumption.

If energy security is the rationale for CAFE standards, America needs to increase domestic coal and natural gas production, find out whether potential supplies of oil exist in Alaska, invest in more refinery capacity, and build nuclear power plants. We've done none of these.

But if politicians want higher MPG standards so that Americans can retard global warming by reducing consumption of fossil fuels, Americans need to lower consumption of all fossil fuels, not just pick on cars.

Rather than regulating automobile size, a switch from income to energy taxes might be the most efficient and least intrusive way to reduce consumption and encourage new technology, thereby allowing consumers who want large vehicles and warm houses to have them.

Given the nature of our political system, income taxes will never get replaced by energy taxes. Just as politicians are now set to raise taxes in 2010, they will always be tempted to layer new taxes on top of old, increasing inefficiency and slowing economic growth.

If markets really are unreliable—which is yet unproven—then regulating cars' fuel efficiency is the wrong way to go. Neither global warming nor energy security require increased CAFE standards, which are both anti-economic and anti-intellectual. They are made for a political system where appearance trumps substance.

Automotive fuel efficiency is rising without government regulation, even as engine power increases. As Americans replace older cars with newer ones, fuel efficiency improves.

Over past decades, gasoline mileage has been rising steadily and voluntarily, and this process is continuing. The new GM direct injection 3.6 liter V6 engine, starting in the Cadillac STS this year, gets both more fuel efficiency and power than the previous V6. Every time GM brings out another Escalade it gets better fuel efficiency—and more power.

Politicians need to reflect on which national problem would be best solved by higher CAFE standards—other than how to bankrupt the American automobile industry.


(This Op-Ed was featured in The New York Sun edition of May 25, 2007.)

Diana Furchtgott-Roth is a senior fellow and director of Hudson Institute's Center for Employment Policy. She is the former chief economist at the U.S. Department of Labor.