Energy Independence is all about oil demand, not supply

Energy Independence is all about oil demand, not supply
Author: Rob Day
September 4, 2008 at 8:52 AM

‘Tis the political season, and so we’re treated to scenes of one group happily chanting “Drill, baby, drill!” while another group pledges more support for solar and wind power, while clean coal industry lobbyists throw convention parties for delegates and an oil billionaire buys ads to promote wind and natural gas.

It’s generally great to see all of this attention on energy issues, which have been too long neglected. But all the rhetoric about “Energy Independence” has been focused predominantly on finding new sources of supply, whether it be incumbent types (fossil fuels) or alternatives (solar, wind, etc.).

That’s the wrong way to look at it.

A focus on supply won’t get us to energy independence. We import a significant portion of our energy supplies. But most of that is oil. We get 60% of our oil, only something like 15% of our natural gas, and a very small amount of other energy sources (coal, etc.) via imports. So when people say “energy independence” they really mean oil imports.

The problem with a supply-side fix to this is that oil is fungible. Which means that a barrel of domestically-produced oil is roughly interchangeable with a barrel of foreign-produced oil, and in fact also with a barrel of domestic or foreign-produced biofuel for many applications. So increasing our domestic production of oil and oil subsititutes doesn’t feed directly into satisfying U.S. demand, it feeds into the larger world market and thus only has a minor and indirect impact on our dependence on oil imports. Unless and until someone comes up with a labeling scheme so that we can expensively track “domestic” vs. “foreign” oil from the ground all the way to the pump, you’ll never know whether your car was filled up with gas derived from Saudi, Alaskan, Venezuelan, Louisianan, or some blend of all of the above and then some.

This is NOT true for other energy types, such as natural gas to a certain extent, and electricity to a significant extent. When you consume these (or their derivatives), you’re largely consuming domestically-supplied energy.

There’s no argument here that we don’t need all sorts of energy supply to support future growth, as many joules as we can dig up (pun intended), done as responsibly as possible. And I also think we should be as concerned with environmental and climate-related effects of energy consumption. But if the goal is ONLY to pursue Energy Independence, leaving aside any other considerations (as the current overheated rhetoric would suggest), then the single most important thing would be to reduce our consumption of oil. NOT to expand production of it, for reasons listed above.

First things first, a pursuit of energy independence needs to focus on a reduction in the types of energy consumption that tends to come from oil. That means mostly transportation (70% of oil consumption), but also heating and industrial processes. The single most effective way to make a dent on all this is via improved efficiency. More efficient cars and trucks. More efficient homes that require less energy to heat. The single most “Energy Independent” barrel of oil is the one not consumed.

This isn’t about shivering in the dark. McKinsey & Co. did an analysis of carbon-reducing approaches to see what would be the most cost-effective way to reduce our carbon emissions, and the results were pretty telling. Changes made to save 0.4 gigatons of CO2e per year by 2030 in car fuel economy would actually SAVE consumers nearly $90 per ton. With light trucks, it wasn’t quite as good—only $60 in net savings per ton of CO2e reduction! Significant net savings, as compared to many energy supply options they considered which would actually entail net costs. They also pointed to significant net savings from changes to industrial processes, and residential buildings’ insulation/ “shell improvements”.

We in the U.S. consume a lot of energy. A lot. Over 8 metric tons of oil-equivalent per person per year. That’s almost double the per capita energy consumption in Europe and Japan, and of course much higher than in developing regions. That’s not by itself a bad thing, we get a lot of economic benefit from all that consumed energy. But it implies there might be some ways to—maybe just maybe—find some areas of wasted energy consumption and make improvements. Basically, if done correctly, efficiency improvements to the way we consume oil should make us significantly better off, not worse off.

But of course, there’s a limit to how far efficiency gains alone can take us. So shifts in consumption are also important. Home heat can be done via electricity, natural gas, or oil. Transportation can be done via oil, natural gas, and soon via electricity and biofuels (really a blend of all of the above plus some photosynthesis when you look at the inputs). As pointed out above, if as a secondary priority to efficiency gains we can shift oil consumption toward natural gas consumption, cellulosic and next generation biofuel consumption, and—especially—electricity consumption, then we’re completing the Energy Independence picture.

So to everyone arguing and fighting for Energy Independence, know that it’s not about finding new sources of oil supplies. That’s just a typical election year useless “wedge issue”. Instead, it’s about reducing our dependence on oil altogether. We should be putting better incentives in place to help people drive their cars and heat their homes more efficiently. And we should be putting much more emphasis on shifting both activities more toward electricity as a primary energy source.


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