• Durable, in that policies remain in place long enough for consumers, entrepreneurs, technologists, and investors to make the needed commitments of their own time and resources.

To the extent that the United States makes such a commitment, the history of other technology transitions shows that our market-based economy and others around the world will prove highly effective in achieving the public goals of energy security and climate stabilization while preserving healthy and sustainable economic growth.

ENERGY SECURITY

The issue with energy security arises chiefly from the near-total dependence3 on conventional petroleum as the source of fuel for the transportation sector in the United States and most of the world’s economies. Adverse consequences arise from global dependence on petroleum from regions of the world that are either unstable or inimical to U.S. interests.4 Insecurity in petroleum supply holds the prospect for large-scale disruptions of the world economy. Energy insecurity is likely to increase over time as a result of the following:

  • The prospect of disruption of the petroleum supply chain, through terrorist attack, political instability in the supplying nations, or natural disaster;

  • Projected demand growth, especially among the developing nations of non-OECD (Organization for Economic Co-operation and Development) Asia (about 2.7 percent per year until 2030), which strains reserve production capacity that might have offset such disruptions (EIA, 2007); and

  • The possibility that conventional oil production may peak much sooner than accounted for in business-as-usual forecasts.

The current petroleum market lacks the excess production capacity that characterized past decades, and production and demand remain in close daily balance. This means that any disruptive event, whether from a natural disaster or terrorist activity, can cause severe and lasting price shocks, leading to worldwide economic dislocation.

This situation is unlikely to improve in the near future. Demand continues to increase at the same time that conventional petroleum production faces a leveling and/or peaking of world oil production. In a recent study, the U.S. Government Accountability Office noted that “the total amount of oil underground is finite, and, therefore, production will one day reach a peak and then begin to decline. Such a peak may be involuntary if supply is unable to keep up with growing demand” (GAO, 2007, p. 6). Similarly, the International Energy Agency (IEA) concluded, “Worldwide, the rate of [oil] reserve additions from discoveries has fallen sharply since the 1960s. In the last decade, discoveries have replaced only half the oil produced” (IEA, 2006, p. 132).

The literature offers a wide range of estimates concerning the timing of a maximum in world oil production because the data needed for more precise forecasting are not widely available. Much useful information is (1) proprietary to companies, (2) a state secret in the major oil exporting countries, and/or (3) biased to achieve political and economic objectives.

For example, a recent study by the National Petroleum Council stated that “there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically. These risks create significant challenges to meeting projected energy demand.” These risks are both geological and geopolitical. Further, “Forecast worldwide liquids production in 2030 ranges from less than 80 million to 120 million barrels per day, compared with current daily production of approximately 84 million barrels. The capacity of the oil resource base to sustain growing production rates is uncertain” (NPC, 2007, p. 91).

To be sure, enormous resources of unconventional oil—for example, oil shale or coal in the United States and tar sands in Canada—could be liquefied and substituted for oil. Exploiting these resources could greatly extend the availability of gasoline and diesel fuel, but would also raise environmental issues. Chiefly, they would nearly double the carbon dioxide (CO2) emitted per gallon of fuel consumed, unless the emissions from production can be captured and permanently sequestered, and their use would increase the demand for water.

In addition, a peaking or leveling in production would probably be attended by price increases, and these would induce a demand response—some combination of (1) greater efficiency in converting petroleum to services and (2) simply doing without. However, examining the potential contribution of either unconventional fuel resources or demand response falls outside the committee’s assigned tasks, and they are not considered further here.

CLIMATE CHANGE

The second element of the energy “trilemma” concerns the environmental consequences of the buildup of CO2 and other greenhouse gases in the atmosphere.5 Light-duty vehicles generate one-third of global CO2 emissions and about a third of U.S. emissions. Capturing CO2 emissions from individual vehicles is effectively impossible, so reduc-

3

In the United States, 96 percent of the primary energy used in transportation comes from conventional petroleum (EIA, 2007, Table 2.1e, p. 42).

4

See, for example, Council on Foreign Relations, 2006, The National Security Consequences of U.S. Oil Dependency, Independent Task Force Report No. 58, Washington, D.C.

5

In addition to carbon dioxide, the “greenhouse gases” generally include water vapor, hydrogen itself, nitrous oxide, methane, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride.



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