A Plan for Oil's Endgame
by Bill Kunkel
|Friday, November 19, 2004
ABSTRACT: Roadmap to U.S. oil independence encourages profit-making businesses to apply available technologies and cut oil consumption in half.
ANALYSIS: How about 85 mpg for a midsize car or 66 mpg for a midsize SUV?
Or what about cutting the fuel consumption of heavy trucks, projected to account for 12 percent of U.S. oil consumption, by 65 percent, resulting in savings the same as if the price of diesel fuel dropped to 25 cents a gallon?
These are not blue-sky projections of future possibilities; these are real results that could be obtained today according to Winning the Oil Endgame, a new 329-page study from the Rocky Mountain Institute (RMI).
The Endgame report says that no Federal mandates would be required. And no subsidies. The technology needed is available today. First need is for common-sense policies that will reward increased vehicle energy efficiency. Then with guarantees for bridge loans for energy-saving innovations, for profit industry will jump at the chance to do the job. The most difficult achievement will likely be a very big change in mindset among business leaders. The marketplace and capitalism can take it from there.
Oil a Source of Weakness
RMI undertook the study, with sponsorship from the Pentagon, foundations and private companies because oil has become a "source of weakness: its volatile price erodes prosperity, its vulnerabilities undermine security, its emissions destabilize climate. Moreover, the quest to attain oil creates dangerous new rivalries and tarnishes America's moral standing. All these costs are rising. And their root causes – most of all, inefficient light trucks and cars—also threaten the competitiveness of U.S. automaking and other key industrial sectors."
"Unlike previous proposals to force oil savings through government policy, our proposed transition beyond oil is led by business for profit," said RMI CEO Amory Lovins. "Our recommendations are market-based, innovation-driven without mandates, and designed to support, not distort, business logic. They're self-financing and would cause the federal deficit to go down, not up."
The RMI study focuses on cars and light trucks (SUVs, pickups, and vans). These vehicles account for half or more of projected 2025 oil use. The report demonstrates that ultralight, ultrastrong materials like carbon fiber can halve vehicles' weight, increase safety, and boost efficiency to the levels mentioned above -- about 85 mpg for a midsize car or 66 mpg for a midsize SUV.
"BMW has confirmed that carbon-fiber auto bodies weigh only half as much as steel and have exceptional crash performance," said Lovins. "The resulting fuel savings can be like buying gasoline for 56 cents a gallon."
RMI, with funds from the Pentagon, foundations and private donors surveyed the way the U.S. uses oil, the efficiency of its use, and the technology available to improve that efficiency. Conclusion: using available technology and just accelerating trends already underway will allow cuts in forecast oil consumption by 29 percent in 2025 and another 23% soon thereafter – more than half the oil the U.S. uses.
Winning the Oil Endgame also predicts that to fight better and save money, the Pentagon—the world's largest oil buyer—will accelerate the market emergence of super-efficient land, sea, and air platforms. A more efficient and effective military can protect American citizens instead of foreign oil, while moving to eliminate oil as a source of conflict.
"A fuel-efficient military could save tens of billions of dollars a year," said Lovins, who served on a Pentagon task force studying this issue. "As our nation stops needing oil, think of the possibilities of being able to treat oil-rich countries the same as nations that don't own a drop. Imagine, too, our moral clarity if other countries no longer assume everything the United States does is about oil."
How to Save Half The Oil
According to the RMI study, saving half the oil America uses, and substituting cheaper alternatives for the other half, requires four integrated steps:
Win -Win for Oil Companies
Incentives are required – policy changes that create opportunities for private industry to do the job at a profit. But unlike the mandates and CAFE standards advocated by many conservationists, the RMI study advocates policies that would encourage changes without mandating them, letting the marketplace do that. Even so, the policies are likely to encounter resistance, and here the RMI study says, essentially, change or perish.
Businessmen must prepare to undergo changes that are "fundamentally disruptive to current business models. They are what economist Joseph Schumpeter called 'creative destruction,' where innovations destroy obsolete technologies, only to be overthrown in turn by ever newer, more efficient rivals. In The Innovator's Dilemma, Harvard Business School professor Clayton Christensen explained why industry leaders often get blindsided by disruptive innovations—technological gamechangers—because they focus too much on today's most profitable customers and businesses, ignoring the needs of the future. Firms that are quick to adopt innovative technologies and business models will be the winners of the 21st century; those that deny and resist change will join the dead from the last millennium. In the 108-year history of the Dow Jones Industrial Average, only one of 12 original companies remains a corporate entity today—General Electric. The others perished or became fodder for their competitors."
The RMI study notes that transition beyond oil is already starting to transform oil companies like Shell and BP into energy companies. "Done right, this shift can profitably redeploy their skills and assets rather than lose market share. Biofuels are already becoming a new product line that leverages existing retail and distribution infrastructure and can attract another $90 billion in biofuels and biorefining investments."
By following this roadmap, according to RMI, the U.S. would set the stage by 2025 for the checkmate move in the Oil Endgame – the optional but advantageous transition to a hydrogen economy and the complete and permanent displacement of oil as a direct fuel. Oil may, however, retain or even gain value as one of the competing sources of hydrogen.
The Policy Changes Required
Recommended policy innovations include:
"For the first time, our report adds up the new ways to provide all the services now obtained from oil, but without using oil – which will save us $70 billion a year," concluded Lovins.
"And surprisingly, it will cost less to displace all of the oil that the United States now uses than it will cost to buy that oil. Oil's current market price leaves out its true costs to the economy, national security, and the environment. But even without including these now "externalized" costs, it would still be profitable to displace oil completely over the next few decades. In fact, by 2025, the annual economic benefit of that displacement would be $130 billion gross (or $70 billion net of the displacement's costs). To achieve this does not require a revolution, but merely consolidating and accelerating trends already in place: the amount of oil the economy uses for each dollar of GDP produced, and the fuel efficiency of light vehicles, would need only to improve about three-fifths as quickly as they did in response to previous oil shocks."
How Big is The Prize?
The Endgame survey says investing the $180 billion over the next decade to save the $130 billion gross ($70 billion net) every year is equivalent to a large tax cut. It can replace today's $10-billion-a-month oil imports with reinvestments in ourselves: $40 billion would pay farmers for biofuels, while the rest could return to our communities, businesses, and children.
Moreover, several million automotive and other transportation-equipment jobs now at risk can be saved, and one million net new jobs can be added across all sectors. U.S. automotive, trucking, and aircraft production can again lead the world, underpinned by 21st century advanced-materials and fuel-cell industries. A more efficient and deployable military could refocus on its core mission – protecting American citizens rather than foreign supply lines – while supporting and deploying the innovations that eliminate oil as a cause of conflict. Carbon dioxide emissions will shrink by one-fourth with no additional cost or effort. The rich-poor divide can be drastically narrowed at home by increased access to affordable personal mobility, shrinking the welfare rolls, and abroad by leapfrogging over oil-dependent development patterns. Being no longer suspected of seeking oil in all that it does in the world would help to restore U.S. moral leadership and clarity of purpose.
Strikingly, the RMI Endgame study was issued within a few weeks of the Arctic Council's forecast that the North Polar icecap will likely melt completely in the summer of 2010 due to increased greenhouse gas accumulation. Supply, demand, economics and ecology – all seem to be telling us to use less oil. Details and the complete Endgame report can be found on RMI's website OilEndGame