What Are the Opportunities for Alternative Fuel Production?
By providing a substitute for products refined from crude oil, increased production of alternative fuels would reduce demand for crude oil, resulting in lower world oil prices and mitigating the adverse national security impacts of imported oil. But achieving such benefits would require the production of millions of barrels of alternative fuels per day, at competitive prices, in the United States.
In congressional testimony on May 5, 2011, Dr. James Bartis gave an assessment, based on RAND research, of the opportunities for alternative fuel production. He noted that the United States has a vast resource base for alternative fuels, including large deposits of oil shale resources, the potential to draw on vast coal reserves using coal-to-liquid production, and an appreciable biomass resource base. But the only near-term approach capable of producing large amounts of alternative fuels that can substitute for automotive diesel, jet, and marine fuels is a thermochemical conversion process known as the Fischer-Tropsch method, and there are several challenges to using this method without compromising national goals to control greenhouse gas emissions. Other near-term approaches, such as producing hydrotreated renewable oils from seed and waste oils and animal fats, have extremely limited production potential. Over the longer term, various advanced photosynthetic processes, including algae/microbe-based methods, appear promising. Continuing uncertainties about world oil prices, uncertain production costs for first-of-a-kind facilities, and an uncertain regulatory environment, especially about the management of greenhouse gas emissions, are impeding alternative fuel production.
Bartis's testimony concludes that (1) a federal program directed at reducing these uncertainties and obtaining early, but limited, commercial experience in alternative fuels with a high production potential appears to offer the greatest strategic benefits and (2) federal policies that favor renewable fuels irrespective of energy security or environmental benefits should be reexamined.
INTERVIEW |
Why Taxing Crude Oil Makes Sense in Funding Transportation Infrastructure
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Keith Crane, director of the RAND Corporation's Environment, Energy, and Economic Development Program, has published a paper on an issue of increasing importance to Congress: long-term federal transportation funding. The paper is intended to help policymakers assess whether an oil tax would be a useful option for funding future expenditures on U.S. transportation infrastructure.
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How do we now fund transportation infrastructure needs?
The costs that the federal government pays for building new roads and maintaining the transportation system are funded through federal taxes on gasoline and diesel fuel.
How has this mechanism been working?
Unfortunately, such taxes have fallen short of generating enough revenue to cover transportation infrastructure needs. The federal Highway Trust Fund took in $36 billion in 2008 but had $49 billion in expenditures. Over the next six years, the federal government had planned to spend as much as $83 billion annually on highways and transit, more than double what current taxes are likely to raise.
Can we raise gas and diesel taxes to cover the shortfall?
Congress has been unwilling to raise taxes on gasoline and diesel for more than 18 years. But even if such taxes were raised, they would not generate enough additional funds for long, because vehicle fuel economy is improving. As vehicles become more efficient, people and businesses buy less gasoline, and diesel and tax revenues fall.
Your research shows that a tax on crude oil could help permanently close that gap, right?
Yes. The federal government could fully fund its surface transportation infrastructure needs permanently by levying a percentage tax on crude oil and imported refined petroleum products. The tax would be set every year to meet prospective expenditures on transportation. The percentage rate could be adjusted quarterly to account for changes in the price of oil. For example, the rate would change from 10 percent at $120 barrel, to 17 percent at $72 a barrel, and 34 percent at $40 a barrel to generate the same amount of revenue.
How does this tax differ from taxes on gasoline and diesel fuel?
It would be pay as you go--set to ensure that appropriations for transportation would be fully funded by the tax. The tax would be also be collected at refineries rather than at terminals. It would replace several taxes on fuels with one tax and could be automatically adjusted to fund transportation expenditures. It would account for inflation, something that has eroded the value of existing fuel taxes. The oil tax could also help fund national security needs to safeguard oil sources and sea-lanes used to import oil.
How would such a tax affect users?
By replacing taxes at the gas pump with a percentage tax on oil, the tax burden would be spread across all users of petroleum products, not just motorists and truckers. Motorists and truckers would pay modest increases in total taxes, but it would also affect homeowners who heat their homes with fuel oil because they would begin paying taxes on it. Low-income earners and those in the north and northeast would likely be more affected than higher-income earners or those living in moderate climates.
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RESEARCHER PROFILE
James T. Bartis
James T. Bartis is a senior policy researcher at the RAND Corporation. Bartis has more than 25 years of experience in policy analyses and technical assessments in energy and national security. His recent energy research topics include analyses of the international petroleum supply chain, assessments of alternative fuels for military and civilian applications, development prospects for coal-to-liquids and oil shale, energy and national security, Qatar's natural gas-to-diesel plants, Japan's energy policies, planning methods for long-range energy research and development, critical mining technologies, and national response options during international energy emergencies.
Read more about James T. Bartis »
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