Congestion in America highlights inefficiency in the surface transportation system, and particularly the challenge of urban congestion, as a growing cause of wasted time and fuel. Total fuel wasted from urban congestion has fallen between 100,000 and 150,000 barrels of oil per day over the past ten years, and in 2010 alone drivers in U.S. metropolitan areas wasted over 1.9 billion gallons of fuel. Furthermore, in 20 of the nation’s largest cities, annual costs of congestion exceed $1 billion. In the absence of substantial policy intervention, estimates suggest that these costs in fuel waste and travel delays will increase by 30 percent by 2015 and 65 percent by 2030.

Source: Texas Transportation Institute

Source: Texas Transportation Institute

SAFE urges a comprehensive and balanced approach to increasing traveler mobility and reducing congestion related fuel waste. The report outlines the range of options available to policymakers to alleviate the costs of congestion, grouped into the following categories:

• Pricing and other flow management techniques to reduce or eliminate recurring congestion
• Accident/Incident management for mitigating the likelihood and effect of non-recurring congestion
• Improved public transit service and other alternatives to single-occupancy vehicle travel
• Strengthened long-term urban planning and development initiatives

Current federal surface transportation legislation, funding over $50 billion annually in highway and transit programs, expires on March 31 of this year. The policies outlined in Congestion in America present market-based mechanisms to cut oil consumption and increase the efficiency of surface transportation infrastructure while improving energy security. As Congress seeks to pass long-term transportation legislation, it is imperative that these instruments are incorporated, and energy security remains forefront as a key policy priority.

Click Here to Read the Full Report

First things first.  In a fairly stunning piece, even to jaded DC insiders, former Congressman William Delahunt (D-MA) is reported to be working for the small coastal town of Hull, on Massachusetts Bay “for help in developing a wind energy project.”

The catch?  “While in Congress, he personally earmarked $1.7 million for the same energy project.”  And it gets worse, as “80 percent” of the funds his firm will receive will be “from the pot of money he created through a pair of Energy Department grants in his final term of office, records and interviews show.”

Now most former members of Congress who end up in law and lobbying firms claim they aren’t actually lobbyists but instead are “strategists.”  And the former Congressman released a statement quoted by the NYT saying:  “I have no federal lobbying relationship with any past or current client.”  That may be news to the town of Hull, who’s town manager is quoted a few paragraphs later using a textbook definition of access-lobbying:

“Obviously he’s got connections into the federal government that we don’t have . . . . We’re hoping he can open doors at the federal level that we could never open.”

So the Hull wind energy project will soon join Solyndra as grist for the argument that the federal government should not be providing incentives for clean energy technology deployment because those incentives are inevitably transformed into “crony capitalism.”  But just as Solyndra was evidence of the misuse of an innovative technology loan guarantee program for economic stimulus rather than evidence of a problem with government incentives; so too is the Hull project actually a fair indictment of earmarking rather than a fatal flaw in the concept of deployment incentives.  The solution?  Programs that provide funding only where the merits of various projects can be clearly compared using  objective metrics rather than “awarded” through either the legislative process or via an opaque administrative ”negotiation.”  Reverse auctions — where bidders commit to delivering X units of energy at Y cost to the taxpayer and only the best deals are then funded — are particularly suitable for such an objective process.

The second piece begins with the type of human interest angle that can obscure rather than teach, as (again, Massachusetts) a hilltop homeowner laments that the local utility wouldn’t run a natural gas line out to his place and he must instead rely on expensive home heating oil.  The real story, as we soon learn, is that home heating oil users are spending between double and triple what their natural gas-using counteparts do.  Some are out of luck due to location; others because they can’t afford the cost of conversion — even though savings due to lower monthly bills may pay for the investment in just a few years.

What’s the current federal policy response to this problem?  It is a well-intentioned effort to help low-income homeowners stay warm in the winter through the much-maligned Low Income Heating Assistance Program, or LIHEAP, whereby taxpayers subsidize the heating bills of qualified consumers.  Unfortunately, that neither fixes the problem nor encourages conservation, but instead simply transfers wealth to homeowners (and ultimately heating oil providers) “trapped in a cycle of spending more and more for heat . . . .”

Is there a better way?  For some, it could be the hugely popular state and local program called PACE — Property Assessed Clean Energy Bonds (see www.pacenow.org).  Designed to let homeowners invest in energy efficiency retrofits in an affordable way, at no cost to taxpayers, this program has been literally sweeping the nation during the last few years.  And if it doesn’t include switching from heating oil to natural gas as an eligible activity, it should.  That would be an obvious energy market intervention worth making.  No earmarks required.

The Jobs Council Report should be praised for its scope in addressing the importance of both energy progress and pragmatism. An emphasis on green energy and renewable sources could have been anticipated, but the report also stresses the importance of increased fossil fuels development for the foreseeable future, stating,

“While we believe the United States, as well as the rest of the world, needs to move deliberately and cost-effectively towards greater proportions of renewable and low carbon forms of energy, we recognize that this will be a long term transition and that traditional forms of fossil energy will continue to be important to our economy as we transition.”

With regard to alternative fuel vehicles, the report discusses the importance of the government’s role in scaling up fully electric vehicles and hybrids, by increasing purchases from state and federal government agencies (including the military), as well as research to support advancements in battery technologies.  The tremendous upside: “widespread adoption of vehicles powered by electricity, natural gas, and alternative fuels could hasten and make permanent our return to being a net exporter of petroleum.”

This goal is urgent and essential, and the jobs report delivers in addressing a full spectrum of goals, many of which are advocated by SAFE. However, many more specific details about the various recommendations are needed to secure sustained energy-industry growth. Furthermore, since the release of the report, the Administration’s first major energy move has been to reject the Keystone XL Pipeline. Of course, those following the controversial pipeline’s lengthy approval process know Obama’s rejection only applies to TransCanada’s proposed route through the Nebraska Sandhills, and the company can re-apply upon development of an alternative route (industry officials are expecting TransCanada to submit a new version within two weeks). Still, as Keystone has emerged as such a powerful symbol of shovel-ready, energy producing jobs; it’s a bold move and arguably a direct contradiction to “all-in.”

This oversight is especially glaring when considering that the lead story on the Post’s front page that day—“Iran seeks closer ties in Latin America”—shows Iran to be engaged in aggressive diplomacy in Latin America in an effort to counter U.S. and United Nations sanctions being placed on the Iranian economy in response to the Islamic Republic’s plans to develop nuclear weapons. It is within the context of nuclear research and sanctions that Iran has recently threatened to close the Strait of Hormuz, through which more than 15 million barrels of oil travel each day. While it is important for U.S. policy makers to consider more domestic drilling and continued strong fuel economy standards when crafting future U.S. energy policy, the Post’s claim that a shift to electric vehicles will not benefit U.S. energy security enough to justify federal support seems to ignore much of the recent news coming out of the Middle East.

Several other issues from the editorial also deserve attention and we’re not the only critics of the piece.

Independence From Oil

• The editorial argues that fuel-economy innovations in clean-diesel and advanced gasoline vehicles show more promise than electric vehicles as a solution to America’s dependence on foreign oil. This statement is easy to disprove, since only 1 percent of electricity produced in the U.S. comes from petroleum. This means electric vehicles are ultimately being powered by natural gas, coal, nuclear fission, solar and wind power—which are almost entirely domestic resources.

• Due to the fungible nature of the global oil markets, any technical gains in fuel efficiency—such as a doubling of fuel-economy standards by internal-combustion (IC) engines in the coming decades—will not fundamentally change the way volatile oil markets can hurt the U.S. economy. A shift to electric vehicles, however, would both lower the amount of petroleum imported into the U.S. and negate the influence of price volatility on U.S. consumers in a way that more efficient internal-combustion engines simply cannot. It’s worth noting that every U.S. recession in the past 40 years has been associated with an oil price spike.

Consumer Availability

• The editorial criticizes the federal government’s $7,500 tax credit as a giveaway to upper income consumers, but the tax credit was created to make the cars more affordable to the general public. New technologies are inherently expensive, and early adopters are generally better off than the general population. But an examination of the past 25 years of automotive technologies shows that the development of anti-lock brakes and air bags were first available only in the most expensive luxury auto brands. Now they are standard on many inexpensive vehicles sold to first-time car buyers. The key question is how to move from early adopters to the mass market in a rapid manner. The point of the tax credit is to drive the scale of production for electric vehicles in a way that would help speed the industry toward self-sufficiency.

More Demand than Supply

• The editorial suggests that U.S. sales of electric vehicles were disappointing in 2011 but doesn’t offer readers much in the way of comparisons to measure success or failure. Total U.S. sales are expected to surpass 15,000 vehicles in 2011, and there continues to be more buyers looking to purchase electric cars than available cars. Both GM and Nissan have plans to expand production of the Volt and Leaf brands in 2012, while more than 20 additional all-electric or plug-in hybrid models will be launched this year by automakers like Toyota, Renault, BMW, Daimler and others. Electric car purchases during their first year in the market will likely be more than 50 percent higher than the first full year of hybrid car-sales, and experts suggest critics must wait until 2013 to know what the real demand for electric cars will be.

The report bases its analysis on three risks that become quickly intertwined: general geopolitical instability, continued oil demand growth in developing economies, and the closing down of more than 1 million barrels of refining capacity in the Atlantic Basin in the past two years that could keep gasoline very high this summer in the U.S., even without the additional risks.

Citigroup sees the upside risk to oil prices as more numerous than in 2011 – which is saying something considering that the Arab Spring boosted global prices throughout the past spring and early summer.

These geopolitical risks include: low OPEC spare capacity, presidential elections in Egypt, Russia, Venezuela, France and the United States, and the natural climate for escalation that exists in the Persian Gulf. Iran and its increasingly numerous set of adversaries — Israel, the U.S., Saudi Arabia and the Arab Gulf states – could get into a military conflict in the next year that threatens shipping in the Strait of Hormuz, where 15.5 million barrels past each day on their way to world markets.

Add to the geopolitical risk the continued de-linking of emerging and developing economies around the world from rich economies in North America and Europe. By the second quarter of 2012, the report estimates emerging economies that include China and India will surpass the developed economies of the world in oil demand for the first time in history, with each averaging about 45 million barrels of demand a day.

This is a big deal; it means that regardless of the strength or weakness of major economies like the United States, the developed world is no longer the main driver of oil market prices. In the past, markets could count on the fact that if the U.S. entered an economic slowdown, oil demand would slump, followed quickly by a fall in oil prices. These lower prices would then allow the economy to recover, starting a new cycle of recovery. But these days are over, which explains why U.S. consumers spent more than $4,100 in 2011 on gasoline, a record, even as its economy remained in the dumps.

Finally, Citigroup’s global head of commodity research Ed Morse says it is almost certain the U.S. will suffer an incredibly tight gasoline market in the coming summer with gasoline prices much higher than currently anticipated. This is because between 2010 and 2012 more than 1 million barrels of refining capacity has been shut-in the Atlantic Basin as refineries that were operating at a loss were closed. Up to 700,000 barrels a day of refining capacity has been shut-in in the East Coast U.S. alone, and these refineries have been the disproportionate producers of summer-grade gasoline whose use in mandated in many parts of the country to lessen smog pollution during the hot summer months. The absence of this refining capacity has cut into summer-grade gasoline stocks, which will cause traders to bid-up gasoline prices as the summer driving season approaches.

None of these dynamics bode well for American consumers over the next year or two as the U.S. economy attempts to escape the Great Recession. With these structural changes in the global oil market, transportation options that involve the use of non-petroleum based fuels like electricity could be more and more attractive thanks to the dramatic fuel savings that will be available. It just so happens that more than 20 models of plug-in electric vehicles (PEVs) will be available in the U.S. during the next 12 months. It will be interesting to see their sales numbers if even a few of the risks highlighted in the report come to pass.

But that’s history, and the annual two-week negotiations over addressing global climate change did end on Sunday with what the WaPo called “a last-minute deal.”  The deal?  An agreement to potentially reach an agreement that would apply something called “an agreed outcome with legal force” to developing nations.  This is arguably an advance on the Kyoto Protocol, which did not require developing nations to commit to reduce their greenhouse gas emissions.   And that’s important because some “developing nations” — namely China and India — are leading the globe in aggregate emissions.  To be fair, their per capita emissions are far lower than developed nations, but that shouldn’t give them a free pass.  The key negotiating issue since the US pointed out the fundamental unworkability of the Kyoto Protocol has been  how to account for developing nations’ exploding emissions without unfairly impeding their economic growth — after all, the developed nations built their economies on cheap fossil fuels and only subsequently has the world (well, most of it) realized that there will be highly negative consequences because of it.

It remains to be seen whether this year’s climate confab really moved the ball on this point.  Host South African foreign Minister Maite Nkoana-Mashabane certainly thinks so, as the WaPo quotes him saying, “We have indeed saved tomorrow today.“  Veteran climate watcher Alden Meyer, of the Union of Concerned Scientists, had a different view, noting failure to achieve agreement on reducing the gap between expected emissions and those most scientists believe are the maximum that the climate can endure without expensive and life-threatening damage:  “There’s nothing [in the agreement] that’s going to get the world to lift its game and close that gap.”

Maybe more important news this weekend came from the Nuclear Regulatory Commission, where dysfunction apparently reigns.  Both the WaPo and the WSJ reported Saturday on four NRC Commissioners, two Democrats and two Republicans, writing to the White House accusing Chairman Greg Jaczko of  ”actions and behaviors [that] are causing serious damage to this institution.”  That quote is from the WSJ, which runs an unfortunate lead sentence (“Four of the five members . . .”) — if you didn’t already know that there are only four commissioners and a chairman, you don’t find that out until the end of the piece, so casual readers may have thought there was a hold-out.  The fact is that all four of these highly respected professionals, Democrat and Republican alike, took the trouble of airing their concerns about the NRC’s leadership to the White House.  House Oversight and Government Reform Committee Chairman Darrell Issa, not the fuming four, released the letter to the media.

The bipartisan nature of the criticism made Senator Harry Reid’s (D-NV) otherwise laudable defense of his former staffer ring a bit hollow.  As reported in the WaPo on Sunday, he called the complaints “a politically motivated witch hunt.”  We’re guessing Senator Reid meant that Chairman Issa was hunting witches, not labelling the letter such.  But since loyalty in Washington is often in short supply, we’ll give him a pass either way.  Not so the NRC as a whole, an organization too critical to our energy future to have it’s oversight confined to the weekend papers.  Oversight hearings, anyone?

Source: ExxonMobil 2012

The largest oil major is, understandably, bullish on long term fossil fuel supplies, yet these projections underscore the urgency of the United States developing its own petroleum resources while emerging economies continue to squeeze the global oil market.  If anything, this graph may understate the demand growth, due to the vast increases in light-duty vehicles directly impacting demand for liquid fuels.  In 2010 there were just over 200 million vehicles in non-OECD countries, a number expected to more than quadruple to 900 million in 2030; it is unclear if ExxonMobil expects a similar surge, or if their report accounted for these vehicles.

Another transformative change anticipated by the report is a massive shift away from conventional internal combustion engines to hybrids and other plug in electrics, with these vehicles comprising almost 50 percent of the light-duty fleet.

ExxonMobil 2012

As Steve Levine noted in his must-read blog on oil geopolitics, Oil and Glory, most of this growth is expected to come from hybrid vehicles, with the important qualifier, “faster-than-expected drops in battery costs would likely make electric cars more of a factor through 2040 than we expect them to be.”  Levine notes:

“Doing much hanging around with battery scientists in recent months, I have to say that I am relieved to see this caveat. Common sense tells you it is highly improbable that scientists will make almost no technological advance in battery technology in a three-decade period. That some 20 nations including the U.S., Japan, South Korea, China, Israel and Germany are engaged in a race to make advanced battery breakthroughs suggests better progress.”

This assessment is spot-on.  We’re thrilled to see that ExxonMobil is giving advanced technology vehicles their due, and even more excited to see a world in which every other car in the road is a hybrid/electric.

Is this a sign of growing consumer confidence and economic recovery?  Perhaps… but it also reflects shortsightedness among consumers.  There were reports during the recession that motorists were holding on to cars longer than they typically would have before replacing.  One might have hoped that the savvy consumer would hedge against potentially high gas prices and opt for a fuel efficient model, but it appears that the American appetite for a $30,317 vehicle (average cost according to the WSJ) which offers fewer  miles per gallon was temporarily subdued but far from vanquished.  A new Nissan Leaf is comparably priced, and less with the $7,500 federal tax credit.  Still, consumers seem eager for the space and size of SUVs, not the fuel savings of an electric vehicle.

In related news this week, the unstable global economy is casting a shadow over the next Organization of the Petroleum Exporting Countries (OPEC) meeting, which will take place in Vienna on December 14^th.  In addition to worries over the global economy, the cartel must consider rapid production increases from Libya, negotiate the escalating political tensions between Iran and the West, and determine if the current level of global oil prices suit its collective interests.   Setting production levels is tricky with so many variables to balance: if the global economy suffers a double dip recession next year, oil demand could plummet, but if economic growth continues even at slow levels, production levels will need to remain high to avoid a potentially disastrous price spike.

Many OPEC member states from the Middle East and North Africa require oil prices to remain above $95 a barrel to balance their budgets, yet as we reported in October, some members fear that higher gas prices will prompt the West to seek alternatives more aggressively.  This is a valid concern on OPEC’s part, but since the U.S.’s interests lie at the intersection of a reliable and inexpensive fuel supply, the clearest solution is a combination of reduced consumption and increased domestic production.  The responsibility lies not only on Washington to increase lease sales for drilling, but on consumers to make responsible (and economically prudent) choices to purchase hybrid, electric, and fuel efficient vehicles.

“As federal stimulus dollars for investment in renewable energy begin to dry up, will the private sector rush in to fill the void?  Maybe not.”

Eilperin and Mufson (let’s call them “E&M”) build an effective case for why it is unlikely — and in doing so provide a strong rationale for questioning the original stimulus spending rationale.  Yet the piece also implies a path forward for policy-makers that makes sense for our global economic competitiveness, our domestic economy, and our energy security.

E&M provide some very useful facts:  “Venture capital investments in what the industry calls “clean tech” companies” were down some 44 percent compared to the same time last year, outpacing the overall 26 percent decline in overall US venture capital investment.

E&M are on target when they write that the future is unlikely to be rosy for VC in electricity-related clean-tech:

“Now, an abundance of cheap natural gas extracted from shale, the death of climate change legislation and fierce competition between existing renewable energy companies have combined to make venture capital investors hesitate even more.”

Fair enough.  These market forces (and lack of federal policy that internalizes some environmental costs for fossil fuels) are the same ones that make new nuclear build such a long shot.  Yet we should be celebrating the fact that we have cheap, clean natural gas available for electricity generation — while focusing our efforts on the area of need.

And what’s that?  Our continued dependence on increasingly expensive oil.  Let’s gear federal policy and private capital toward dealing with that present danger to our economy, rather than trying to make markets for expensive clean tech where good alternatives already exist.

Still, OPEC estimates global oil demand will rise by 900,000 barrels this year.  The cartel produces 40% of the world’s oil supply, and holds substantial reserves.  OPEC Secretary-General Abdalla Salem el-Badri dismissed concerns of a double dip recession, and expressed confidence that demand will continue to increase from developing countries, meaning prices will remain high with or without economic slowdown.  Nevertheless, United States energy supply continues to be held hostage by this cabal of hostile nations.

The Financial Times reported this week that although oil companies are benefiting from high oil prices, production is a key indicator of the industry’s health, and it’s declining.  Output from most of the majors is stagnating: ExxonMobil and ConocoPhilips are forecasting production drops of 1.3 and 2.7 percent respectively, Chevron is reporting a marginal increase of less than 1 percent, and BP and Eni are both expecting decreases.  Some analysts describe anemic growth as an ongoing issue because oil companies did not expect Brent crude prices to remain at the high levels seen in recent years.

Meanwhile, Congress remains divided on a path forward for energy strategy.   The new Senate GOP “Jobs Through Growth Act” has an energy focus, mostly through coal mining and voiding EPA air quality regulations, an approach Senate Democrats are likely to find untenable.  As reported last week, Senator Waxman continues to push for legislation supporting American competitiveness in alternative energy technologies.  Presidential hopeful Rick Perry has made statements linking domestic energy production to economic recovery, pushing for “safe-and-aggressive energy exploration at home.”  We have to admit, such a thing would be nice.