Economic impacts of U.S. liquid fuel mitigation options

The world is consuming more oil than it is finding, and at some point within the next decade or two, world production of conventional oil will likely peak. Peaking will lead to shortages and greatly increased prices and price volatility. In addition to peaking and its consequences, there are widespread concerns about the growing United States dependence on oil imports from both an energy security and a balance of payments standpoint. This study considered four options that the U.S. could implement for the massive physical mitigation1 of its dependence on imported oil: 1) Vehicle fuel efficiency (VFE); 2) Coal liquefaction (coal-to-liquids or CTL)2; 3) Oil shale; 4) Enhanced oil recovery (EOR); Our objective was to better elucidate the implications of the mitigation programs, e.g., the time required to save and produce significant quantities of liquid fuel, related costs, and economic, fiscal, and jobs impacts. We studied crash program implementation of all options simultaneously because the results provide an upper limit on what might be accomplished under the best of circumstances.3 No one knows if and when such a program might be undertaken, so our calculations were based on an unspecified starting date, designated as t0. Although other options are possible, such as biofuels, electric cars, hydrogen cars, fuel switching, and unconventional oil, it is estimated that they would have minimal impacts in the 20-year time horizon, which is the period of the crash activity. These other alternatives, however, could become significant depending on technological advances and possible government actions. This study builds on one completed by the authors in 2005 which addressed the issue of world oil peaking. The current study deals exclusively with physical mitigation options for the U.S. The options analyzed in both studies are consistent and are shown in Table EX-1. Our analysis showed that the mitigation options that we considered can contribute significantly to the saving and production of U.S. liquid fuels, although decades will be needed for significant impact (Figure EX-1) and related costs will be in the trillions of dollars range. The cumulative 20 year impacts of such a massive crash program would be: 1) Savings and production of 44 billion barrels of liquid fuels; 2) Requirement for over $2.6 trillion of investment; 3) Over 10 million employment years of jobs created; 4) Total industry sales of over $3 trillion; 5) Over $125 billion of industry profits; 6) Over $500 billion in federal government tax revenues; 7) Nearly $300 billion in state and local government tax revenues.