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

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.

We took a look at the same numbers over the past few days and came to strikingly similar conclusions.  According to SAFE calculations, spending on gasoline was approximately 8.2 percent of median household income in 2011.  It was as low as 3.9 percent as recently as 2002.

Looking back over the past decade, it’s clear that household spending on gasoline has been rising in recent years as gasoline prices have increased—the relationship reinforces the notion that spending on gasoline is highly inelastic.  As a result, the increase in gas prices—and gas spending—has acted as a kind of tax, reducing consumers’ spending power and stunting economic growth. 

Rising gas prices have also affected other public policies.  For example, consider the Bush tax cuts.  In 2008, median household spending on gasoline was approximately $2000 dollars more than it was in 2001.  The cumulative impact of changes to the tax code over the same period increased household income by $1,900.  Thus, rising fuels prices acted as a tax increase that fully offset the benefit of tax cuts.  This cycle repeated itself in 2010-2011, when gasoline price increases fully offset the benefits of the payroll tax cut enacted by Congress and the Administration.

Trade Deficit

As oil prices have increased in recent years, the amount of money the United States spends on imported oil has risen sharply as well.  Importantly, this has been true despite a decline in oil import volumes.  Projecting forward, increased domestic oil production coupled with rising vehicle efficiency should result in continued declining import volumes for the United States. But the benefits of this trend as it pertains to the trade deficit could continue to be eroded by rapidly rising oil prices.

Here are some basic data points and a useful chart:

- Net imports of crude oil and petroleum products were as high as 60 percent of total product supplied in 2005.  In 2010, this figure fell below 50 percent and is approximately 46 percent in 2011.

- Increasing exports of refined product have contributed to this change (particularly diesel to EU and Latin America), but declining overall consumption due to the recession has played a more substantial role.

- The figures are also less compelling when looking at crude only.  Net U.S. imports of crude oil (excluding refined products) were 63 percent of supplies in 2010, compared to 66 percent in 2005.

- Even as import volumes have fallen, import expenditures have risen, because oil prices are rising at a much steeper rate.

- Imports of crude oil and products amounted to $386 billion in 2008—55 percent of the total trade deficit.  This figure fell back slightly in 2009 at $205 billion when oil prices crashed after the recession.  However, it rebounded to $265 billion in 2010 and will exceed $300 billion again in 2011.

- Between Jan 2007 and Oct 2011, the U.S. deficit in crude and product totals $1.4 trillion—52 percent of the total trade deficit.  This is more than our deficit with any regional (NAFTA, EU) or bilateral (China) trade partner.

Although the Strait currently remains navigable, Tehran is not leaving its intentions open to interpretation.  The Tehran Times reported today that “Iran’s threat of closing the Strait of Hormuz is a response to the United States’ threats against the Islamic Republic.” The article suggested that future practice sessions are likely, and in the words of Iranian Parliamentarian Parviz Sorouri, “If the world wants to make the region insecure, we will make the world insecure.” Under the United Nations Convention on the Law of the Sea (UNCLOS) Iran has the right to close the Strait if its interests in the waterway are threatened.

It is unclear how the United States will respond to these drills, amid ongoing debates regarding sanctioning Iran for its continued development of nuclear technologies. The Iran Threat Reduction Act, H.R. 1905, which is expected to pass in the House shortly, would tighten sanctions against the state and sanction the Central Bank of Iran if investigations find that the bank has supported Iran’s terrorist activities. House Foreign Affairs Committee Ranking Member Howard Berman (D-CA) said yesterday evening that these measures could “roil the global oil markets, but that this was worth the risk in order to prevent Iran from developing nuclear weapons,” The Hill reports. Other representatives have argued against the bill on the grounds that oil prices will spike if it takes effect.

Further complicating the matter, it is reported that Saudi Arabia has pledged not to increase output to compensate for production shortages from Iran, despite the U.S.’s efforts to secure assurances of a supply cushion.  OPEC’s Vienna meeting concluded today with a compromise between the price-hawkish Iran and the more dovish Saudis, by setting the cartel’s total production levels at 30 million barrels, thus maintaining but not increasing current output.

Now, the United States finds itself in an uncomfortable situation.  With the economy still lagging under high oil prices, a spike in response to sanctions would be problematic, but prolonged blockage of one-sixth of the world’s oil supply would have catastrophic repercussions.  Conversely, the U.S. and the west must maintain credibility regarding threatened consequences for Iran’s emerging nuclear program.  This is a perfect example of foreign policy with one hand tied behind our backs: the inability to take necessary actions against enemy states due to our crippling dependence on foreign oil.

The Virginia earthquake resulted in the shutdown of Virginia’s North Anna nuclear power plant, resulting in an electricity price spike in areas of Washington, D.C. and Baltimore.   Both of the plant’s reactors shut off automatically as programmed, and the plant declared an “alert;” the second lowest of the Nuclear Regulatory Commission’s (NRC) four emergency classifications.  As the ongoing Fukishima disaster has illustrated, nuclear power plants and earthquakes don’t play well together, and North Anna was named one of the country’s most earthquake-vulnerable reactors in an MSNBC report from March of this year.  According to a source from Dominium Power, North Anna was designed to withstand a 5.9-6.1 quake—Tuesday’s 5.9 is clearly dangerously within that margin.  Reactors throughout New Jersey and Pennsylvania registered “unusual events,” the lowest of the NRC’s emergency classifications.

In other natural disaster news, emergency preparations for Hurricane Irene are under way.  As the hurricane’s path is on a clear trajectory to rake the eastern seaboard, many coastal oil refineries are likely to shut down due to fear of structural damages from hurricane force winds.  Refineries are vast, sprawling complexes and while major buildings are generally designed to withstand hurricanes, there are numerous vulnerable pipes and cooling towers.  In addition to direct damage, refineries are concerned about power outages.  Although they generate some of their own power, most refineries depend on electricity from the grid for full functionality, and in the event of a power failure, operators are unable to drain their equipment properly and safely.  It is likely that the East Coast will be facing elevated gasoline prices and some supply limitations if the refineries initiate a “cold shutdown,” from which, even without any structural damages, it can take days for functionality to resume, and months before full output is restored.

After  Hurricane Katrina, President Bush released oil from the Strategic Petroleum Reserve to supplement the lost production capacity in the Gulf states.  If there is serious damage resulting in a prolonged shutdown of the Eastern Seaboard’s refineries, motorists will definitely be feeling the pinch, and government officials may initiate various programs to facilitate fuel conservation.  Hopefully, refining and distribution will not suffer prolonged disruptions, but Wall Street has responded to this possibility.  Gasoline futures are up 2% in anticipation of supply squeezes.  Furthermore, widespread power outages are anticipated.

These events serve to underscore the vulnerability of essential energy supplies from unexpected sources.  Fortunately, there were no serious consequences from the earthquake at North Anna, and our hope is that Hurricane Irene will pass largely without incident, but the lesson remains that energy security should never be taken for granted.

As discussed earlier this week, Iowa’s importance in the primary race has frequently fostered strong campaign statements supporting ethanol, although these verbal commitments have not always been matched as enthusiastically in actual policy outcomes.  Many of the candidates also expressed their support for another form of renewable energy in ample supply in the Midwest:  wind.  Although not typically considered a major conservative priority, Newt Gingrich, Mitt Romney, Ron Paul, Herman Cain and Tim Pawlenty all signed a 130-foot long wind turbine blade produced in Iowa.  This is good news for The Hawkeye State, as wind energy means renewable power, energy security, and manufacturing jobs.

Despite this brief coalescence, the energy debate has continued among the candidates throughout the week.  Americans’ eyes remain sharply focused on gas prices, as crude oil continues to fluctuate, ending the week at close to $81 a barrel.  Some are hoping the price will continue to drop—Michele Bachmann has vowed, “Under President Bachmann you will see gasoline come down below $2 per gallon again.  That will happen.”  Although many Americans recall the era of $2 gas with fondness, The Economist and Politico have pointed out that a return to this price point is unlikely, at least under favorable economic terms.  It will be interesting to see how Representative Bachmann plans to achieve this goal, as well as comprehensive energy plans from all the presidential candidates.

Further underscoring the volatility of oil supply, this week President Obama banned “the importation into the United States of petroleum or petroleum products of Syrian origin” in opposition to the Assad regime’s ongoing human rights violations.  Although the U.S. imports relatively little Syrian oil—under 1,000 barrels a day in 2009, per the Energy Information Administration—the sanctions demonstrate a point SAFE has been articulating for years: foreign oil is supplied by countries whose values and actions are in direct conflict with American interests, and the sooner we can break our dependence, the better.  In this situation, the Department of State was able to lead the international community in condemnation of the Syrian Government’s brutality through harsh economic sanctions, but would this commendable action be possible towards oil-producing states upon which we are more dependent?

Finally, further speculation continues regarding the fate of the soon-to-expire federal gas tax.  Grover Norquist, president of Americans for Tax Reform, has stated that he is not opposed to extending the gas tax.   Norquist is influential for his group’s “no tax hike” pledge, signed by almost every Congressional Republican, although he supports eliminating the tax within the next 2-5 years pending comprehensive transportation funding overhaul.  Also on gas taxes, The New York Times published an op-ed on Tuesday detailing the importance of the gas tax to the Highway Trust Fund and upkeep of the country’s transportation infrastructure.  The NYT article includes a key point: ending the gas tax does nothing to decrease our dependence on foreign oil, and eliminating it altogether leaves the US more vulnerable to oil price shocks.  As we noted earlier this week, gas taxes are an important step towards influencing driving habits and encouraging consumers to purchase more fuel efficient vehicles, and comprehensive policy reform can involve burden sharing to avoid penalizing those whose budgets would be hit hardest.  Our hope is that in September, gas tax negotiations won’t be purely partisan, but will involve a nuanced approach that addresses the nation’s energy security issues.

Some claim that raising the gas tax would help to reduce American dependence on oil.  But raising the gas tax alone may not provide enough of an incentive for drivers to reduce oil consumption; additional shifts in U.S. driving behavior must occur in order to realize a significant reduction in oil use. Additionally, if enough Americans turn towards alternative modes of transportation or alternatives to petroleum fuel, such as public mass transit or electric vehicles, revenues from the gasoline tax will gradually decline.  Without these revenues, the already inadequate U.S. transportation infrastructure will have even fewer funds available for renovation.  Still others claim that raising the gas tax will serve as an incentive for consumers to purchase more fuel efficient vehicles.

Meanwhile, a recent report by the Carnegie Endowment for International Peace was published with advice on how to fix the national transportation system.  Included in the recommendations was a tax that encouraged burden-sharing between producers and consumers of gasoline, helping to shield from price volatility without depriving the Highway Trust Fund of revenue.

What is certainly true is that the current infrastructure is struggling, and cutting the gas tax right now will probably neither solve our oil dependence nor repair our bridges, roads, and economy, especially without a contingency plan to replace it.  The gas tax currently brings in about $36.5 billion per year, which is a substantial amount of money, but still a minute sum considering the estimated $2.5-3 trillion dollars it would take to rebuild our highway system in the next 20 years, which translates to $125-150 billion yearly.  Therefore, the nation must find a way to adequately fund the needs of the transportation system.  In failing to do so, the infrastructure will continue to worsen, and drivers will continue to waste time, fuel, and money on an inefficient system.

Although the goal is to decrease dependence on oil, reduced consumption as a result of depressed economic activity (no vacation, no roadtrip etc.) is not a preferable outcome.  Although the short-term demand for oil is inelastic, high oil prices and weakened consumer sentiment about the economy will likely push families to trim their budgets – including making cuts to gasoline consumption.  The decrease in oil demand must come as part of strong, long-lasting structural improvements to the economy, such as the wider use of more efficient and alternatively-fueled vehicles, and reforms to transportation infrastructure.

Some may be excited about the prospects of lower oil prices, expecting that spending less on gasoline will allow for a necessary boost to the fledgling economy.  If oil price decreases translate into savings at the pump, consumers will have more disposable income to spend on other, often domestic, goods and services.

WTI futures-Source: CME Group

The lesson at hand, however, has nothing to do with whether oil prices today are high or are low.  What can be taken away from the current climate is a real-life example of just how extreme and acute the volatility of these prices may be.  Short-term and long-term prices are onerously difficult to predict due to the complexities of the oil market.  Thus, the impacts oil prices will have on our economy and on consumer behavior are also precarious.  A rapid decline in oil prices may be an indicator of a weakening economy, yet the recessions of the past four decades have all occurred along with, or immediately preceded by, a spike in oil prices.  The global market is a rough one, which carries influences from many factors and players.

The American people, for the most part, have no choice but to be subject to the instability of the oil markets.  More reliable, consistent, and controllable sources of energy need to be incorporated into our energy use to protect the United States from the impending effects brought upon by the uncertainty attached to oil prices.  Although Congress may be on recess, the need has not disappeared for a comprehensive energy policy to enhance U.S. energy security and the nation’s economic future.

Combined with the unstable price of crude, energy security issues have remained high profile due to continued turmoil in North Africa and the Middle East.  The US Chamber of Commerce (CoC) released their annual energy security report on Thursday, calculating the country’s risk to be at 98/100 – a 6.5 increase from last year and the fourth highest score since 1970, underscoring in quantified terminology the urgency of addressing U.S. Dependence on foreign oil.

As we all know, there are no quick fixes or short term solutions to this dilemma.  The CoC report recommends increasing domestic production of oil and shale gas, but true domestic energy security can only come from a fully diversified portfolio.  Majority Leader Harry Reid has promised action on a clean energy bill when the Senate returns in September.  It has been reported that he is looking to bring up S.948, Promoting Electric Vehicles Act of 2011, a bipartisan measure that was introduced by Sen. Merkley (D-OR) and Sen. Alexander (R-TN), which we strongly support.

It is our hope that Leader Reid does look at energy security and not just clean energy so that we can start moving to reduce our national dependence on oil from geopolitically volatile regions, and cushion the economy from supply and price fluctuations, enabling sustained economic growth.  Some pundits argue that current partisan gridlock, combined with the upcoming presidential election, will make it impossible to pass energy legislation this session.  However, the range of solutions available to help reduce our dependence on foreign oil are bipartisan.  It is out hope that like the debt ceiling debate, a compromise can be found.  We’ll find out in September.

President Obama’s decision to release 30 million barrels of oil from the Strategic Petroleum Reserve has sparked controversy amongst participants in the energy debate. This will be combined with the IEA’s release of an additional 30 million barrels over the course of 30 days. One of the biggest concerns with the move addresses the purpose of the SPR, whether this situation actually constitutes an emergency, or whether the decision was an inappropriate political move.

Critics of the release note that the purpose of the SPR is not to influence oil prices, but to address genuine supply emergencies. House Speaker John Boehner reflects on the nature of the SPR as being a protector against sudden supply disruptions, and not for independent political problems. Furthermore, it has been questioned whether a release of 30 million barrels of oil is enough to impact a global market that consumes 84 billion barrels a day. The effect on pump prices may only be short-term. Also, the release comes at a point where U.S. gas prices have already been declining since late April. It may be difficult to correlate a further decline in prices and the SPR release.

Proponents of the release believe that the timing of the decision is beneficial to consumers, and that Americans should see some relief from high gas prices. The Center for American Progress, using historical data, predicts that prices could fall as much as 25 to 35 cents per gallon within a month. Supporters also indicate that tapping into the SPR sends a signal to oil-producing countries that the United States is not going to be passive regarding energy issues, and will be prepared to take action to protect its economy. Regardless of whether or not this decision was the “right” call to make, it further demonstrates the obvious need for the United States to decrease its dependence on oil. Increasing U.S. energy production and reducing consumption will help to ensure that Americans are less vulnerable to volatile market conditions. The true solution will arise in the form of a more comprehensive national energy policy.

Ultimately, the question at hand is not whether or not the President should have released the oil. There are some powers that remain solely within the President’s jurisdiction. Whether there is success in altering the access to the SPR in the future remains to be seen. The lesson, however, remains the same: the way to offset high oil and gas prices is to sever reliance on foreign oil, as opposed to turning to oil release from the SPR. The quick fix sought by the President’s decision may or may not have been politically motivated, but it ultimately will not solve the underlying domestic susceptibility to an unstable market for oil.

The name of the reserve is interesting in and of itself: Strategic Petroleum Reserve. Unfortunately, however, having a backup supply of 727 million barrels of oil is not a strong enough strategy. It is time to secure a more effective plan in the form of national policy in order to avoid these types of predicaments in the future.