Energy Conservation in Transportation and the Bush Speech on High Gas Prices

by Dennis Silverman Department of Physics and Astronomy U. C. Irvine

• President Bush’s Speech was Given to the Renewable Fuel Association • April 25,2006

Excess or Windfall Profits?

• Oil industry profits were $100 billion last year.

• President Bush always used words of investigating “market manipulation”, which is illegal and includes price fixing, but never used the words “excess profits” as being something he would stop or tax.

• Repeatedly used the words “high cash flow” rather than high profits.

• Only once at the end did he say the words “price gouging”.

• In a capitalist economy, in a non-regulated industry, does “excess profits” have any meaning?

• Perhaps consumers just have to lower demand to the supply to stabilize or bring down prices.

Corn or Other Crops?

• The President praised corn innumerable times.

• Once mentioned other crops might be better.

• Once mentioned sugar in Hawaii.

• Once mentioned corn husks, straw grass.

• Said corn also needed for food and for feedstock.

• Talked about 10% ethanol, 85% ethanol, 100% ethanol.

• Current 4 billion gallons of ethanol a year is 100 million barrels of ethanol, or about 11 days of US consumption.

• Since ethanol is in short supply but is a mandated additive and also needed in the switch from MTBE, it may be one subsidies.

cause

of high gas prices.

• In waiving such a requirement, is the President telling the farmers: I came to praise Corn, and to bury it.

• Farm income last year was $83 billion, with $23 billion in • Ethanol is subsidized at 50-60¢ per gallon.

Bush solution to high gas prices

• Stop filling strategic reserve (only save 70,000 barrels a day out of 20 million barrels a day oil consumption).

• Drilling ANWR would have lowered price 50¢ a barrel, (which is only 1¢ a gallon, and is at least 10 years off).

• (Actually a refinery shortage as a few percent still down from Katrina, and a few percent being maintained after being on to make up for Katrina.) • Waive anti-pollution additives since ethanol in short supply and states dropping mtbe. (We may not appreciate the added smog as LA, Long Beach, and Riverside highest in particulates in the nation.) • Get governors to use fewer boutique blends, (so can transport gas between states, but California is isolated).

• Build more refineries (long time scale).

• (We should use some of the reserve of 688 million barrels to process more gas in the winter and build up stores.)

Vehicles as Part of the Solution?

• 8 cylinder vehicles are 25% of the market.

• 6 cylinder are 41%.

• 4 cylinder are only 30%.

• Hybrids are 1%, expected to grow to 4% in 6 years.

• Bush urged more people to buy hybrids.

• Even better, he urged plug-in hybrids which can do 40 mile trips on electricity alone, but without saying where extra electricity will come from. – They cost $2,000 more than a regular hybrid.

– But their usage is equivalent to paying $1.00 to $1.50 per gallon of gas. • (Cylinder-shutdown engines that change 8 to 4 cylinders when cruising, can save 10-20% on gas mileage.) • He touted hydrogen, without discussing where it comes from, or the inefficiencies involved in producing it. • Bush is raising SUV and pickup gas standards by 2 miles per gallon from 2008 to 2011. Congress can raise car standards which have remained the same since 1985.

Automotive conservation solutions

• Could ask people to: – Drive less aggressively on the gas pedal – Drive at the speed limit – Plan trips for less total driving – Use their higher gas mileage vehicle more • Could promote car pooling • Could promote taking public transportation • These actions would actually have an

immediate

gas.

hybrids.

effect on lowering consumption and bringing down the price of • In the longer term, people can buy new cars with fewer cylinders than their past cars, even without getting into

Q. Who’s Driving Up Prices?

• A. We are!

• Our pension and investment companies have been buying up oil futures in the hope that the price will still get higher in the future.

• Our government has been pressuring Iran on building nuclear weapons and delivery systems causing Iranian threats of disrupting their and Persian Gulf oil which is 20% of world’s supply.

• We continue buying more poor mileage vehicles with no increase in gas supplies.

• Despite increased prices, we do not respond by driving less.

• We lavishly reward gas company execs and fund managers based on profits that they achieve.

What about a windfall profits tax?

• Oil company profits were $100 billion last year.

• Exxon had $36 billion profit on sales of $359 billion in 2005. – $18 billion was reinvested in the business. – $16 billion went to purchases to reduce shares outstanding, which will increase the value of remaining shares – $ 7 billion was distributed in dividends • Dividends are taxed to stockholders at up to 33%.

• When sold, capital gains on increased value is taxed at 15%.

• Exxon paid out $72 billion in taxes and duties in 2005.

• So gasoline now has a 50¢ a gallon tax, shareholder profits are taxed at 15-33%, and the money to buy the gas was already taxed as customer income tax. The oil companies paid tax or royalty to the countries of origin. • Is a 2% windfall profits tax really of any use? • Some of the basic cost per barrel does go abroad to the producing countries, and may not be reinvested in the US economy.

Comparative World CO2 Emissions

Q. Who Does Bush and Other Americans Blame it On?

• A.

China

, as usual (and India).

• Facts: China and US have increased CO2 emission the same amount in the last 12 years, so its

us

too.

• But, China has 4 times our population.

• Their gas mileage is 50% better than ours.

• They have abundant public transportation.

• They are limiting their population to one child per family.

• Some of their energy is being used to produce and ship products to the US.

• They have completed a dam that will provide renewable hydroelectric power equivalent to three nuclear reactors.

• They are planning 20-30 nuclear reactors, and may build many more.

Fuel Economy

Is the price rise a good thing in disguise?

• Some would argue that it will slow down consumption of a finite resource.

• It certainly should lead to steps for greater fuel efficiency.

• It may take time to do this, since petroleum use only declined 0.6% last year despite the price rise. • The longer the higher price continues, the more effect it has on the consumer’s total budget.

• From the 2001 census, there were 191 million vehicles, with about 14 million per model year for the previous 12 years. So it takes about 14 years to replace the auto fleet, and buying better mileage cars will take a long time to have a significant effect. They could be effective in offsetting increased usage from the population growth.

• It is important to realize that in the timescale of a decade or two, the price of petroleum will rise a lot due to its eventual depletion anyway, and we need to start preparing for that now.

Gas Price and Global Warming

• If the refinery and supply shortage is due to Katrina’s effect, • if Katrina’s excess strength was due to higher water temperature, • and if the higher water temperature was due to global warming, • then

the higher gas price is a feedback of global warming trying to slow itself down

.

• The flooding of New Orleans wasn’t expected for a century from global warming. The effect on Gulf oil sources and refineries was not foreseen. Nor the feedback loop through the gas shortage and price rise.

• Nature often works in catastrophic and unforeseen ways.

• UC Irvine Earth System Science is hiring three professors in abrupt climate change.

Conservation

• Limiting world population • Limiting population of largest CO liters/year in the U. S.

• Transportation decreases – telecommuting – urban structuring the increased profits to OPEC. • CO 2 2 producing countries • Mass transit: Riding a bus or train uses ¼ the gas of a car.

• Transit Villages built around transportation lines • In Europe, per capita gas usage is 286 liters/year compared to 1,624 • Fuel economy improvements: CO2 emissions from new European cars fell by 12 percent from 1995 to 2003, and manufacturers have voluntarily pledged to reduce them by a further 14 per cent by 2008 • Hybrid and Electric cars, cylinder shut down engines – internet and communications for business • Traffic improvement, 93 hours a year lost in traffic jams.

• Energy cost increases will drive conservation: however, this sends production taxes and increased fuel taxes keeps the added price and payments to slow demand at home for use in conversion.

Cost of Gasoline and Taxes

• • • • • • The cost of gas is around $6/gallon in Britain.

60% of the cost of gas in Europe goes to taxes.

Gas taxes per gallon in various countries: – Great Britain $3.40

– Italy $2.53

– Germany $2.56

– Japan $2.04

US Federal Excise Tax per gallon is $0.18

– California Excise Tax is $0.18

• Wisconsin is $0.31, Alaska is $0.08

– California State and Local Taxes are $0.14

Total tax in California is $0.50/gallon One way to look at a problem of a true lasting shortage, is that the price has to rise until consumption equal supply. Rather than all the extra money going to profits or overseas countries, we could raise the tax the amount needed, as Europe and Japan do, and keep the extra profit for alternate energy investments, or balancing the budget.