thirds of it, goes into cars, vans, light duty vehicles that carry people. [Slide.] Dr. GIBBONS. The third slide shows you where in the transportation energy use we are as of 1987. Again, I broke out for you along the top line the important role of trucks and vans now, a growing fraction of our light duty vehicles, so if we talk about transportation efficiency, and rules of the road for transportation efficiency, we must keep in mind that vans and light trucks, need to be folded in with automobiles or else we are going to miss an important set of opportunities. Well, therefore, what do we do? There is an easy answer. We need to slow down demand and increase supply, do we not? How do you do that? I want to mention five strategies. First, greater efficiency in the system, generally across the system and this takes price signals, strong, consistent price signals that are vagaries of the night, but are laid in place and guaranteed to be there for a long time. If you do not have that, people only respond to price in the way they use their present equipment. If the price is an assured, future event, then people will take that into account when they make their purchase decisions and will be buying more efficient equip ment. We could start with Federal purchases themselves and Federal operations which, despite years of effort, are still notoriously poor in terms of energy efficiency. OTA will be reporting on this to Congress in mid-winter. We could also think about research and development, the traditional role of the Federal Government in helping long-term national needs. [Slide.] Dr. GIBBONS. And the next chart shows the rather woeful case of administration requests, which is the solid line, and the Congressional appropriations, which is the dotted line, for conservation R&D budgets since 1980. You will notice that Congress has buffered a rather wild swing of administration requests and in fact, in recent years has been running twice the requests of the administration. That is all for that slide. So the first point is greater efficiency through the system. The second is greater efficiency in the transportation sector, which I remind you is two-thirds now of all our oil use. We must focus, as I mentioned, on the price and performance of automobiles, light trucks and vans. If you do not have a price signal that is strong, then efficiency standards will have a hard time holding up in the marketplace. These need to complement each other rather than to conflict. I note, and you know well of S. 1224 which recently failed in the Senate, which would have pushed our performance requirements for the light fleet over the next 10 years. I will return to that in a moment. Now let me go to the supply side. There are alternatives to oil. Obviously, you can make alcohol and hydrogen out of coal. The problem is that in the process you are making a lot of carbon dioxide and other atmospheric problems that haunt us these days. Natural gas is a terribly important option that we must count on. It is a domestic fuel that can be used as natural gas, compressed or liquefied, or you can turn it into alcohol. So that is a very important, I would call it transition or swing fuel. But finally, once we run down on our natural gas supplies, and this will not be many decades, we will have to look to renewable sources from the sun, directly or through biomass, and through nuclear power to present us with opportunities for liquids or hydrogen gas or electricity. Let us talk about ANWR for a moment. Here is the environment and development battleground we all know about. It is probably the last major U.S. province for super giant fields. If we are optimistic about what might happen up in ANWR and assume that exploration will go, that we will make the kind of finds that we hope for, what kind of production? Well, after 12 to 15 years following discovery, we could probably get up to several hundred thousand barrels a day of oil from ANWR, an important number in this regard, but I will put it in context in a moment. Finally, what about development of oil resources outside the Mideast? As Dr. Yergin has pointed out, if we can spread out this base of world oil, we are going to have a much easier situation. We are drawn particularly toward the U.S.S.R. It is a major province, not fully explored, probably one of the greater areas on the whole globe for future major oil discoveries, and if we can encourage by a variety of mechanisms joint ventures, whatever may work out, a U.S./U.S.S.R. participation in the exploration and development and infrastructure of Soviet oil, that could provide an important source of supply for the U.S. and the Soviet Union in the years ahead. Now I want to summarize, gentlemen, what all of these numbers do. You know, George Bernard Shaw once said that mankind would rather commit suicide than learn arithmetic, and we are just going to do some simple arithmetic this morning and see how it adds up. So let us go to Figure 5. [Slide.] Dr. GIBBONS. Again, the bottom line shows our production of natural gas liquids and other liquids out to the year 2020. We add the Alaska field, the North Slope, in red. We add the Lower 48 which gets us up to the green line, and you see we have peaked up, as everyone knows, and rolled over and are on a decline, even assuming increasing price from here on out. Then there is a big gap which has to be imports in order to get to a baseline of demand, which is the top line. We make certain assumptions on the demand side; namely, in this first slide that our present 28-mile-per-gallon automobile fleet requirements simply stay in place. We do not change that. Our vehicle miles traveled each year and our population growth and our real GNP growth also drive this curve. Now see what happens when we make a few scenarios. [Slide.] Dr. GIBBONS. The next slide shows the same business, except now we are adding Alaska 2, which is North Slope, 0.5 million barrels per day, and we are also adding some more alternative fuels, 0.5 million barrels per day. You see that begins to pull up the bottom and narrow the distance between the black line and the blue line, which means our net imports are not expanding quite so rapidly. A major effort, though, does not make that much difference, it seems, in the longer run, does it? Let us go to the next chart and see what happens if we start talking seriously about automobile and light duty passenger vehicle fleets. [Slide.] Dr. GIBBONS. We see if we go to a 38 mile per gallon by 2010 which is effectively very close to S. 1224, this brings down that top line significantly. If we were to move to a light duty fleet of 50 miles per gallon by the year 2010, you see we pull that line down even further. It is a very significant equivalent to many millions of barrels per day of oil saved, less requirements. Again, the area there called net imports is one we have to worry about. [Slide.] Dr. GIBBONS. Finally, in the last chart we make another heroic assumption. We assume that we take all the rest of oil that we use in the system and cut it in half by switching to gas, by doing a variety of things. This is in residential, commercial industry, utilities, and the rest of the transportation sector. That pulls that demand down to the red line which tells us the bottom line is that with all of these measures we might end up in 2020 with about 50 percent oil import requirements. That is the simple arithmetic. Now let me conclude. Dramatic and sustained efforts are going to be required to hold down oil import dependence over the next several decades even to a level of 50 percent. Virtually all of the important options up there, you will note, are in the demand side. Second of three conclusions, the supply of recoverable oil resources is huge around the world, but it is mostly in the Middle East. If we could help the Soviets expand oil production in return for a share of it, that might have several benefits for our side. A third conclusion, while we scramble for oil now we really need a commitment to this transition to the post-fossil fuel age as well as an era of further advances in energy efficiency. The specter of global warming and other environmental issues could greatly foreshorten the time that we once thought we had to use coal, shale and other materials. There is an ancient Chinese comment worth repeating. If we do not change our direction, we are very likely to end up where we are headed. Thank you. [The prepared statement of Dr. Gibbons follows:] PREPARED STATEMENT OF DR. JOHN GIBBONS, DIRECTOR, OFFICE OF TECHNOLOGY ASSESSMENT Mr. Chairman and Members of the Committee, I appreciate the opportunity to testify today on the subject of our nation's oil dependence. OTA has been studying this and other energy issues for the Congress since the mid-1970's. I have attached to my testimony today a selected list of reports which we have delivered to the Congress on this and related subjects. In addition I have included a list of projects underway at OTA which will either update or provide new analysis on energy matters. I will consider my testimony today a success if I can convey to the Committee three critical ideas. First, there are no "fixes" that are easy or quick. We will succeed in easing U.S. oil dependence only if we set long-term efficiency and supply goals, set up a multi-year import reduction program, and stick to the plan through periods of both crisis and calm, and through periods of high and low oil prices. During the decade that has just passed, steady supplies, efficiency gains, and a retreat in the price of oil seduced us into largely abandoning our efforts in energy conservation and production research. The present crisis, too, will pass, possibly again beguiling us into false energy bliss. Major changes in energy systems-and major changes are what must occur-require many decades and unwavering commitment from citizens, political leaders, and industry. Second, a responsible energy policy will complement as much as possible a responsible environmental policy. There are options for energy which run counter to environmental goals. There are other energy options which support environmental goals. The same can be said for our nation's economic and security goals. Consequently, we should seek and follow long-term energy goals which, to the maximum extent possible, are consistent with the overriding goals of economy, environment, and security. Third, barring the kind of extraordinary surprise that only fools would count on, we must develop non-fossil fuel options to drive our nation's energy economy. Until recently, we counted on coal, shale, and other less premium fossil sources for the future but the specter of air pollution and potential climate change now strikingly constrain that option for the long-term. This means that solar and nuclear power must be considered as the energy sources for mankind that may have to become dominant within a half-century or less. And that, in turn, means we must embark on that Odyssey now. Figures 1-3 illustrate the magnitude of the oil import dependence problem. They show the past, current, and projected trends in U.S. oil usage. I believe the data fairly represent what one should expect in a surprise-free future, i.e. absent policies domestic or foreign to dramatically alter the 3 course. Clearly, U.S. production of petroleum, despite an extended period of doubled and tripled prices, has peaked and moved downward in the U.S. since about 1982. This trend will almost undoubtedly continue, and production could drop to half our present amount in the early part of the next century. Meanwhile if recent trends continue, our oil demand will continue to rise, presumably to be met principally by increased imports from the Middle East. That's a very troubling scenario to most people-one that fairly begs for exploration of alternatives. I would like now to review with you a few critical policy areas where Congressional action could make a long-term difference. ACCELERATING ENERGY EFFICIENCY GAINS Many of the easiest energy efficiency investments have been made, and future investments may be more difficult to stimulate. Nevertheless, rapidly changing technology has generated many new conservation options. Sizable future efficiency gains in all sectors of the economy are becoming economically attractive and commercially available, and could constitute the cornerstone of a comprehensive strategy for slowing the increase in oil imports in the 1990s. Additional benefits of increased efficiency include improving international industrial competitiveness of U.S. goods and services, addressing local environmental concerns such as acid rain and urban ozone, and finally, helping to ameliorate global environmental concerns such as greenhouse warming. Only clear price signals can assure that available energy efficiency gains are fully and quickly realized. Short-term price spikes will be ignored in terms of investment decisions. Congress must assure that higher fuel prices to reflect national need for economic and environmental security are virtually certain over the long-term. Some otherwise-attractive efficiency gains are lost because of a variety of roadblocks that the Federal government could help overcome. If Congress demanded efficiency standards or instituted requirements that banks take account of energy use in evaluating mortgage requirements, major efficiency improvements would result. The Federal government itself ought to be, but most definitely is not, at the forefront in installing and promoting efficiency technology and design in its own purchases, facilities, and operations. OTA will be reporting to Congress on this issue early in the next session. Failure to pursue strong efficiency gains through an active research and development program is hurting our progress towards a more energy efficient economy. Over the past decade, the Federal government's commitment and leadership in energy matters fell sharply. Only congressional action kept the Department of Energy's energy research budget from being virtually eliminated in some areas. The budget for energy conservation, which should be the centerpiece of any U.S. strategy to reduce oil dependency, has been cut drastically. Figure 4 illustrates how this budget was cut in half between 1981 and 1990. The administration's current budget proposal, formulated prior to the Iraqi invasion of Kuwait, calls for another $10 million reduction despite DOE's statements of renewed interest and support of conservation initiatives. With the current crisis, a sense of urgency has returned, but I fear that a successful outcome in the Middle East will return us to a state of disinterest in supporting oil use reduction. IMPROVING AUTOMOBILE FLEET EFFICIENCY Automobiles and light trucks account for 40 percent of U.S. oil consumption. The efficiency of the new vehicle fleet, increased sharply with the advent of higher fuel standards and prices. But gains have ceased in the face of government apathy, apparent consumer indifference to fuel efficiency, and industry emphasis on increased vehicle acceleration, size, and other characteristics that conflict with improved fuel economy. There is clearly some sentiment in the Congress to raise the fuel economy of the new car fleet through some kind of extension of the current CAFE standards; one recent proposal sought new car fleet fuel economy targets of about 34 mpg by 1995 and 40 mpg by 2001, to be attained by uniform percentage increases in each automaker's current fleet mpg level. In seeking to enact new fuel economy standards, however, Congress needs a reasonable and trustworthy estimate of the technological potential for further efficiency improvements. Congress must also determine the extent to which the United States' oil dilemma justifies influencing consumer choice regarding vehicle size, performance, and other characteristics. Although OTA believes that there is a substantial potential for further fuel economy increases through purely technological means, without diminishing consumer choice, the magnitude of this potential within the next decade is not what we would like it to be. (Our best guess for this potential is for new car fleet fuel economy of about 31 mpg by 1995 and 36 mpg by 2001, both values measured according to the EPA test procedure.) Longer term progress, beyond the year 2000, could conceivably be much larger if strong continual incentives for fuel economy are brought to bear on the industry. If Congress believes that larger gains in fuel economy are necessary then it could mandate a basic shift in the size and performance of the fleet either through regulatory or economic means. Because today's auto purchasers feel free to choose among both the automobile fleet and the fleet of light trucks in their search for passenger transportation, Congress will have to exert the same pressure on light trucks as it exerts on automobiles if its fuel economy goals are to be met. (Fig. 3) DEVELOPING ALTERNATIVES TO OIL The transportation sector of the U.S. economy consumes 63 percent of our total supply of domestic and imported oil. Obviously, the introduction of non-oil based liquid fuels is an important adjunct to increased fuel economy in reducing U.S. dependence on imported oil. Recent OTA analyses of several alternatives to gasoline have convinced us that alternative fuels present a key opportunity to reduce U.S. oil dependence, and are not merely an analyst's pipedream. Over the next few decades, alternative fuels derived from natural gas-methanol and compressed natural gas (CNG) should be capable of substituting for a significant fraction of transportation petroleum use. The worldwide resource base for gas is very large, and considerable volumes of undeveloped gas resources exist outside of the Middle East, including large volumes in the Soviet Union. Other non-petroleum fuels such as ethanol and, possibly, electricity in niche markets could play a role in this time frame as well. These fuels could serve as a bridge to eventual use of fuels such as electricity (in more general highway use) and hydrogen in the long-term. Electricity and hydrogen currently have serious practical and cost constraints and would require a major development effort. Eventually, however, they could greatly diminish greenhouse gas emissions by largely replacing fossil-based transportation fuels. Coal-based liquid fuels currently are considerably more expensive than natural gas-based fuels. However, continued development of the fuel production processes have lowered costs and, in the future, may lower them sufficiently that this source |