natural gas is projected to grow faster than increases in production, resulting in tight market conditions and rising prices. The U.S. Energy Information Administration (EIA) and the International Energy Agency (IEA), along with other forecasters, do not anticipate that the factors underlying these market conditions will change anytime soon.3 Under such conditions, maintaining significant spare production capacity is difficult.

From the point of view of net consuming nations, the resulting price increases could accelerate an economically disruptive wealth transfer from consumers to producers. While the dependence of the U.S. economy on oil has changed little in recent decades—in 1990, 39.7 percent of U.S. energy consumption was petroleum; in 2007, it was 39.2 percent—U.S. dependence on imports has doubled over this period.

Finally, fossil fuels pollute the atmosphere when burned, and they have other adverse environmental effects as well. While emissions of SOx, NOx, particulates, and other atmospheric contaminants have been reduced (albeit with an increase in solid, liquid, or recyclable wastes, including ash residuals), little has been done so far to address carbon dioxide (CO2) emissions. U.S. energy use in 2007 was responsible for emissions of 6 billion tonnes of CO2 (6 Gt CO2). Of that amount, 43 percent came from petroleum, 36 percent from coal, and 21 percent from natural gas (EIA, 2008c). By market, the largest source was electric power generation (using coal and natural gas); it emitted some 2.4 Gt CO2. Transportation, dominated by petroleum but also including some natural gas, accounted for 2 Gt CO2. The remainder of the emissions resulted from industrial (1 Gt CO2), residential (0.35 Gt CO2), and commercial uses (0.25 Gt CO2).4 (See Figure 1.11 in Chapter 1.)

Thus the future of fossil fuels presents a serious dilemma for energy policy. On the one hand, because fossil fuels are well adapted to the needs of the market, a huge energy infrastructure has been put in place to take advantage of their value. The existing stocks of vehicles, home and business heating systems, and electric power stations were created with the expectation that petroleum, natural gas, and coal would be readily and reliably available. On the other hand, the

3

For the latest IEA forecast, see Energy Technology Perspectives 2008 (IEA, 2008a), p. 113ff. The downturn in the world economy apparent at the time of this writing will mitigate demand growth for a while, but the underlying determinants of demand remain in place.

4

Note that while electric power is used in industrial, residential, and commercial settings, it is aggregated under electric power generation.



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