how U.S. climate change limitation policy might reasonably be advanced by taking advantage of ancillary benefits in these areas.

Domestic Ancillary Benefits and Costs

Energy Security

Reducing oil use in the transportation sector can be achieved through greater efficiency, substitution of noncarbon fuels, and electrification of transport systems.1 Opportunities also exist to reduce oil consumption in the buildings sector (home weatherization to reduce heating oil usage) and the industrial sector (increasing the efficiency of industrial processes that use liquid fuels). Reducing oil consumption would not only help reduce our nation’s GHG emissions but also have the benefit of minimizing the nation’s economic vulnerability to high oil prices and potential supply disruptions, thus enhancing energy security.


Reducing oil consumption has two effects on energy security. First, because the United States consumes a quarter of world oil production, modest changes in U.S. demand can substantially affect the supply-and-demand balance of world markets. Thus, U.S. reduction in oil consumption should result in a lower world oil price. If it does, U.S. expenditures for petroleum will drop because both the quantity of oil used and the price per barrel drops. This change is the economic value of the ancillary benefit.


The second effect of reducing oil consumption is to buffer the economic effect of potential oil price shocks due to natural- or human-caused supply interruptions. Such interruptions appear to be a real possibility. Huntington (2008) interviewed experts in oil markets and concluded that there is a 50 percent chance of a disruption of two million barrels of oil per day lasting at least 30 days. A disruption of this magnitude would create a spike in oil prices and produce other stresses in the economy. The size of these effects would be directly proportional to the nation’s dependence on oil as an energy source, and so reducing that dependence creates an economic value.


Leiby (2007) has estimated the economic value of these two factors,2 and Huntington (2008) and Parry et al. (2007) have reviewed this estimating methodology. They point out that the uncertainties are large and that the estimated values are sensitive

1

As discussed in Chapter 3, projections (reaching until ~2030) indicate that the GHG emissions reductions achieved through these strategies will likely be offset by the growing demand for travel services. Thus, strategies for reducing travel demand are needed as well.

2

Leiby’s estimates do not include terms of trade effects, nor do they include costs that are hard to allocate, like the cost of maintaining a military presence in oil-supplying regions.



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