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Turning the corner on gasoline: the good, the bad and the ugly (Part 1 "the good")

For years now, I have been a close follower of the energy "forecasts" from the US Department of Energy's Energy Information Administration (EIA). I refer to forecasts in quotes for a reason. What EIA projects about our future use of energy is really a projection of attitudes and ideas about our energy markets and society. 

The following figure illustrates my point. 

Turning the corner on gasoline.jpg

In this chart, I have plotted EIA projections published in 2006 and in 2009 for gasoline usage in the US through the year 2030. In the past, EIA's projections for their so-called "reference oil price" scenario have been a mindless extrapolation of our past appetites for gasoline. In polite analytic circles, we call this the "Business as Usual" scenario. This kind of ad nauseam growth in gasoline consumption is exemplified in the projections released in 2006. And so it has been for most of the years that I have followed EIA's Annual Energy Outlook reports. 

That's why this year's projections are so shocking, and in many ways encouraging. I never thought I would see the day when DOE would actually project a real decline in US gasoline supply (as shown in the green line in my chart). EIA's "reference" case now shows gasoline declining at the same rate at which it had been increasing for more than a decade. And, it's a decline that is not based on an economic downturn. That's what I call "turning the corner"--at least in our attitudes if not yet in reality. 

I shouldn't be surprised at the shift. After all, it is simply a reflection of real policy changes that have been enacted by Congress and signed into law by the previous Administration. 

Nevertheless I was curious to see how much of the decline in gasoline demand was due to the new Renewable Fuel Standard (known as RFS2) that was included in the 2007 Energy Independence and Security Act (EISA). There we see something even more encouraging. If I add ethanol supply into the mix with gasoline (see the red line in my chart), I can account for only about half of the total decline in demand in 2030 relative the 2006 reference case projections. The rest (with the exception of a small amount of coal-to-liquids fuels) is most likely due to lower demand for fuel in light duty vehicles. 

This reflects another terrific change in attitudes. With the addition of more aggressive federal fuel economy standards, we see a return to policies that manage fuel demand and not just supply. The net result--we could see gasoline usage drop to pre-2000 levels by 2030. Is that enough to get our energy future on a sustainable path? No. But it is encouraging. 

For too many years, our attitude about biofuels has been that it must allow us to maintain our insatiable appetite for cheap fuel. The impossibility of that goal has translated into EIA projections that, in the past, showed no market penetration of biofuels. Meanwhile, the assumption of continued cheap oil has translated into continued growth in consumption.

Finally, we have policies in place that reflect a new reality in energy prices, and call on a more balanced approach to managing energy supply and demand in the US. We have a long way to go, but at least our policy has turned the corner.

  The opinions expressed in this blog are those of the author(s) and not necessarily
  of the Institute on the Environment/University of Minnesota.

About this Entry

This page contains a single entry by John Sheehan published on November 30, 2009 12:25 PM.

The politics of biofuels: Let's be insightful not "inciteful" was the previous entry in this blog.

The ethanol blend wall or "How we painted ourselves into a corner" is the next entry in this blog.

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