Policy Drivers Creating a Perfect Storm for U.S. Energy Independence?

Oil prices have hit their cheapest level since the height of the 2009 recession, and U.S. oil imports are at a 16-year low. As a result, policymakers across the country will be rethinking energy strategies, including the new U.S. Congress and California Governor Jerry Brown. Governor Brown suggested in his inaugural speech on January 5 that California should try to reduce current petroleum use in cars and trucks by up to 50 percent by 2030 as part of the state’s climate action plan, with the Air Resources Board outlining California’s policies to meet this target. President Barack Obama is also expected early this year to announce a set of additional climate policies.

To assist policymakers in thinking through the options for U.S. energy policy, a newly published Special Issue on “U.S. Energy Independence: Present and Emerging Issues,” which I organized for the journal Energy Strategy Reviews, offers scholarly research insights on the important role played by three decades of policies, designed to curb oil demand by stifling growth in transportation fuel use.

As U.S. Energy Information Administration (EIA) analysts Shirley Neff and Margaret Coleman show in the lead analysis article for the Special Issue, demand-side management policies are finally paying off, with U.S. oil consumption falling almost 10 percent between 2005 and 2013 and expected to find deeper reductions in the coming decades. U.S. oil demand is expected to decline by more than 20 to 30 percent in the next twenty years, Neff and Coleman argue, demonstrating the importance of well-designed transportation policies.

There is no question that technological innovation and new investment strategies by U.S. independent oil companies are bringing about a renaissance in U.S. domestic oil and gas production, creating a prolific U.S. energy supply outlook. But without government intervention to curb our appetite for oil, this rising production might have done little more than meet increases in incremental demand—putting us back in the deep dependency of prior decades and with OPEC and Russia in the driver’s seat.

ITS-Davis Director Daniel Sperling and UC Davis Policy Institute Director Anthony Eggert provide the Special Issue with a case study on the leadership role played by California. California has created a set of integrated energy and climate policies and regulations that are unique in the world and include a wide array of policy instruments that target specific vehicle, fuel, and mobility activities. While most provisions are regulatory, they are largely performance-based, and many have a market or pricing component to them, such as the credit trading provisions of the Low Carbon Fuel Standard (LCFS) and Zero Emission Vehicle program. As Sperling and Eggert note, the California initiative has survived numerous political and legal challenges, including a 2010 state-wide vote to suspend implementation of the AB 32 climate policy law (by a margin of 61 to 38 percent, the widest margin of any issue on the ballot), and numerous state and federal lawsuits.

Moving forward, California holds lessons for the wider U.S., including concerns that the focus on regulations, with only modest reliance on market instruments, has the potential to create inefficiencies and increase the costs of compliance. For transportation, the authors suggest, there is still a need to provide stronger market signals to vehicle consumers. They offer the idea to impose a system of revenue-neutral “feebates”, whereby car buyers pay an additional fee for vehicles that consume more oil and produce more greenhouse gases, and receive a rebate for those that consume and emit less. Feebates have been adopted in France (known as “bonus-malus”) and in more limited ways in other European countries.

The California case study investigates the key question of whether state policy is having an impact. So far, in terms of actual GHG reductions, California’s success has been limited. Still the authors argue that California’s policies serve as a starting point for demonstrating viable, market responsive climate policy approaches, by stimulating innovations and investments in low-carbon technologies and behaviors. The authors find that California policy has stimulated investments in and sales of plug-in electric vehicles (PEV) and low-carbon biofuels. To date, over a third of U.S. PEV sales are in California, even though the state accounts for only 12 percent of the population.

The implementation of California’s LCFS has contributed to lowering the carbon intensity of biofuels by encouraging the use of waste materials and other low-carbon materials. In another Special Issue article, authors Morrison, Parker, Witcover, Fulton and Pei weigh the potential contribution of U.S. biofuels policy to U.S. energy independence, concluding that bioenergy across the country can provide the equivalent of 8 percent of U.S. transportation energy by 2030—helping the diversification away from oil.

The Special Issue notes that the dramatic rise in U.S. energy production comes in the form of both oil and gas and renewable energy. In effect, the country has hit the jackpot on both fossil fuels and clean technology simultaneously, leaving us in an enviable position where cheap and ample energy supply is driving economic growth and wealth creation. The U.S. has added more than 500,000 jobs in the oil, gas and clean tech sectors in the past five years, contributing to a boom often likened to a second industrial revolution. Renewable energy production in the United States has been steadily on the rise, with over 17,000 megawatts (MW) of solar, wind and geothermal capacity currently under construction. The U.S. Energy Information Administration estimates that renewable energy will represent one-third of all new electricity generation added to the national grid over the next three years. Installed U.S. solar energy capacity increased 418 percent between 2010 and 2014 to 12,057 MW.

As Congress convenes and debates the recent and historic gains in our national energy security, it’s important to recognize: Many components came together to create the perfect storm of positive trends and favorable policies of today’s U.S. energy landscape.

While there is much reason for optimism, the trick now, as suggested by California’s governor, is to take this momentum and build on it. And to do so by overcoming political challenges and balancing energy security and climate benefits.

Energy Strategy Reviews’ Special Issue on “U.S. Energy Independence: Present and Emerging Issues” presents an array of policy analysis across a range of strategies—including the U.S. oil and gas shale boom, the Strategic Petroleum Reserve, renewable portfolio standards, biofuels, transportation, and advanced automotive technologies.

Amy Myers Jaffe is the Executive Director for Energy and Sustainability at UC Davis, with a joint appointment to the Graduate School of Management and the Institute of Transportation Studies.

Photo courtesy of: ClipperCreek – Amanda Lance