What a change a year makes. In the 2006 State of the Union address, we were addicted to oil, junkies whose very use of petroleum was killing us. This year, the terminology changed, and for the better. The president used much more sensible rhetoric Tuesday night. He correctly noted that we are overly dependent on foreign oil, too much of which comes from unstable regions and leaves us somewhat vulnerable to bad actors. He wisely called for increasing domestic oil production, as well as pursuing clean coal technologies and nuclear power in addition to political unobjectionables like wind and solar. Good for him.
President Bush’s other comments on energy were somewhat disappointing, but they probably reflect the political realities of having to deal with a Democratic congress. The call to reduce gasoline consumption 20 percent by 2017 sounds ambitious, and even sensible. Who could object to it? Accomplishing that feat, however, is where the problems lie.
The White House is touting two ways to achieve that 20 percent reduction in 10 years. The first calls for raising Corporate Average Fuel Economy standards. But raising CAFE standards has it backwards. Making vehicles more efficient actually will increase gasoline consumption. By lowering the price per mile of driving, Americans will drive more, not less, and overall consumption will rise. That, after all, is the history of our experiment with CAFE standards. Corporate Average Fuel Economy standards were introduced in the mid-1970s. Since then, motor gasoline consumption has gone up. Americans now consume one-third more motor gasoline each year than in 1975, the year Congress introduced CAFE standards. (A cynic might say that if you really want to reduce consumption, then you should lower the CAFE standards.)
The other key to the president’s 20-in-10 plan is a proposed increase in the Renewable Fuel Standard that was part of the 2005 energy bill. As it stands, Congress has mandated that 7.5 billion gallons of ethanol be mixed into our annual fuel supply by 2012. The president wants to make it 35 billion. The original mandate was a bad idea. This proposal is not just five times more, it’s five times worse. It is highly doubtful that we can produce sufficient quantities of ethanol, methanol, biodiesel, and other fuels to displace a huge share of our gasoline consumption in ways that don’t raise prices for consumers at the pump or, for that matter, at the grocery store.
Furthermore, an expanded ethanol mandate will work at cross purposes with increased mileage standards. A gallon of ethanol offers about one-third less fuel economy than a gallon of gasoline. That means you need major efficiency gains just to stay even.
Our energy problems are best solved by markets and the cutting-edge technologies those markets provide, not by government mandates that will raise already high prices. The president addressed these themes in portions of his remarks on energy. And if the policies his White House is pushing aren’t completely faithful to those ideas, at least we can be thankful that he addressed America’s energy situation in a manner far less inflammatory than last year.
– Max Schulz is a senior fellow at the Manhattan Institute’s Center for Energy Policy and the Environment.