Fueling Opportunity


May 19, 2006

This commentary originally appeared in Washington Times on May 19, 2006.

SANTA MONICA, Calif. — The pain of $3-a-gallon gasoline is causing angry American motorists to demand that the federal government “do something.” But Congress and the White House need to be careful to avoid hasty actions that may look good at first but make things worse in the long run. The wisest course will be to seek the most effective solutions to our energy problems based on sound economics and science, rather than political considerations.

Prices for fuel at the pump are determined primarily by the world price of oil. As the largest consumer of world oil supplies, the United States has some leverage on oil prices, but only by reducing demand for oil and increasing production of oil or substitutes for oil.

There are three practical steps the U.S. government can take to exert downward pressure on the world price of oil, at least over the next decade or two. These steps should: promote manufacture of motor vehicles that get better mileage; speed the transition from gasoline to alternative fuels such as ethanol; and increase the exploration, production and refining of oil in the United States.

  • Improve mileage: Most oil consumed in the United States is used for transportation, particularly on roads and highways. Consumption can be cut if the federal mileage rules for new cars, SUVs and pickup trucks are combined into a single program and raised steadily in one rulemaking action to cover model years 2008 through 2015. A new program for heavy trucks also should be considered.

    The precise miles-per-gallon figures should be determined by engineers in the U.S. Transportation Department to ensure proper adjustments for vehicle size, safety, towing capability, new technology and cost. To minimize compliance costs, vehicle manufacturers should be permitted to trade fuel-economy credits as mileage rules become stricter.

    Consumer tax credits for highly fuel-efficient vehicles — such as hybrid engines, clean diesels and hydrogen — should be extended. Considering recent innovation in clean diesel and hybrid technology, it is realistic to expect new vehicles can become at least 33 percent more fuel efficient in 2015 than today, even allowing for some further improvements in performance and cargo-carrying ability.

    With proper reforms, a federal regulatory system for fuel economy can achieve its energy-saving goals without favoring foreign or domestic manufacturers or harming the safety of motorists.
  • Alternative fuels: In recent years, vehicle makers have sold 5 million cars and SUVs in the United States capable of running on E-85 (a fuel of 85 percent ethanol combined with 15 percent gasoline), and also capable of running on the gasoline used today. Unfortunately, relatively few gas stations have E-85 pumps.

    One way to increase use of E-85 would be to conduct more research on lowering the cost of producing ethanol from farm products. There are already some tax incentives for stations to offer E-85, but their effect would be greater if they were buttressed in size and duration.

    More generally, the United States needs to engage in a coordinated, science-based campaign to explain the case for shifting the transport sector to ethanol. If there are nonpetroleum alternatives that are as attractive as ethanol, they should be promoted by government as well.

    With some cynicism, critics suggest advocating ethanol is nothing more than extra “pork” for farmers, since ethanol is typically made from farm products. Yet we should reject such cynicism. The real issue is whether ethanol is the most promising alternative for the foreseeable future, and the weight of the evidence suggests it is.

    While some energy is consumed making ethanol, the net effect of ethanol on energy security and environmental protection is significantly beneficial. Ethanol also has a decided advantage over other fuels because it can be readily integrated into the existing transportation and energy infrastructure. The other alternatives, such as hydrogen-powered cars, are likely to be costlier than ethanol even with substantial government subsidies.
  • Increased supply: Congress has long debated whether a small part of Alaska’s Arctic National Wildlife Refuge should be opened for oil exploration. To break the logjam and depoliticize the debate, leaders of both parties in Congress and President Bush should appoint a bipartisan commission of energy and environmental specialists to take a broad look and identify the most promising ways to enhance our oil supply.

The commission should be required to consider several criteria such as energy potential, environmental protection and cost, and should submit recommendations to Congress within a year. Legislation should specify that the recommendations be considered on an expedited basis in both the House and Senate, perhaps following the streamlined approach used for closing military bases.

It is impossible to solve all of America’s energy problems in a year or two. But all Americans will benefit if public outrage created by soaring gasoline prices today can prompt Congress and the White House to quickly work together on practical steps that will begin dealing with the nation’s energy needs for the decades ahead.

John Graham is dean of the Frederick S. Pardee Rand Graduate School and holds a chair in policy analysis at the Rand Corp. He previously served in the White House Office of Management and Budget, and earlier headed the Harvard Center for Risk Analysis.

Copyright © 2006 News World Communications, Inc. Reprinted with permission of The Washington Times. This reprint does not constitute or imply any endorsement or sponsorship of any product, service, company or organization. Visit our web site at www.washingtontimes.com.

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