Nick Snow
Washington Editor
WASHINGTON, DC, Nov. 14 -- Energy legislation currently before the 110th Congress would cost nearly 5 million jobs and drain $1 trillion from the US economy, a study commissioned by the American Petroleum Institute concluded on Nov. 13.
Seven legislative proposals in bills passed earlier this year by the House and Senate would restrict available energy supplies and likely increase their costs, the study by CRA International found.
It examined the potential economic impacts of requiring a 10 million b/d reduction from projected 2030 US oil consumption, the use of 36 billion gal/year of renewable transportation fuels by 2022, and more than $15 billion in increased oil and gas industry taxes over 10 years. It also studied potential consequences of proposals aimed at stopping alleged oil product price gouging and additional access restrictions and expenses in domestic oil and gas exploration and production.
The study estimated the economic impact of establishing a renewable portfolio standard for electric utilities and raising motor vehicle fuel efficiency standards to an average 35 mpg, both by 2020.
"This legislation would put consumers in a squeeze," said W. David Montgomery, a vice-president and cohead of CRA's energy and environmental practice in Washington. It would reduce domestic oil production by roughly 4% and gas production by 2% during 2010-20, reduce petroleum demand by 18% in 2020 and one-third in 2030 from projected levels because of high prices, and cut the average US household's purchasing power by $1,700 and the nation's aggregate business investment by $219 billion by 2030, he said.
Governments vs. supplies
"There are large supplies of oil for the world to continue using economically for some time," Montgomery said. "There simply isn't a more efficient or economic source of transportation fuel. The problem is with governments, both among politically unstable foreign suppliers and in restricted access to domestic supplies."
R. Bruce Josten, executive vice-president for government affairs at the US Chamber of Commerce, who attended the briefing at API headquarters, said: "Congress doesn't seem to understand it's not an either-or proposition. We need energy from all available sources. This legislation pushes us exactly in the opposite direction. We're already seeing impacts as consumers cut back on purchases of other goods to pay higher prices for gasoline and heating oil."
Montgomery said CRA's study used the US Energy Information Administration's 2007 Annual Energy Outlook as a starting point and did not assume higher oil prices. "We've done pretty well in the US with short-term oil shocks since we got rid of price controls in the early 1980s. That might be more difficult with price gouging legislation," Montgomery said. Bills that passed the House and Senate would affect available product supplies and possibly lead to lines similar to those of the late 1970s, he added.
A report he prepared with two other CRA analysts, Robert E. Baron and Mary K. Weisskopf, for Oxford University's September 2007 Journal of Competition Law & Economics found that the price gouging provisions in the bills would cost an estimated $380 million/year, assuming that a gasoline supply disruption comparable to the one following Hurricanes Katrina and Rita in 2005 occurs every 5 years.
The current legislation would require a 112-billion-gal (2.67 billion bbl) reduction in US petroleum consumption in 2030 to 190.5 billion gal (4.54 billion bbl) from 302.5 billion gal (7.2 billion bbl), the latest CRA study indicated. This would be offset partially by increases of 5.7 billion gal (135.7 million bbl) in corn-based ethanol consumption to 20.1 billion gal (478.6 million bbl) and increases of 29.9 billion gal (711.9 million bbl) in cellulosic ethanol consumption to 30.2 billion gal (719 million bbl).
Limited ethanol offsets
However, the offsetting effects of increased ethanol consumption would be reduced by the energy necessary to produce it and by its having only 70% of gasoline's efficiency, according to Montgomery. "It would require a substantial amount of demand destruction to comply with the Senate bill's mandate. By implication, it also would involve some form of rationing," he said.
Reliance initially would be heavier on corn-based ethanol, with its attendant food supply impacts, as ethanol processes for cellulose are researched and developed, he continued. While ethanol mandate proponents say there would be environmental benefits, "it's hard to find a worse carbon reduction starting point," he said.
Jobs lost as a result of the current legislation would be heaviest in chemicals and oil refining, Montgomery said. He conceded that reducing demand and creating an ethanol fuel infrastructure would result in new jobs but suggested they would not pay as well. "Replacing an $80,000/year refining job with one that pays $25,000/year for caulking windows to make buildings more energy-efficient is not the same," he said.
Additional restrictions on access to domestic oil and gas also would limit the benefits gained from reduced consumption, Montgomery said. The study assumes 50% cuts in supplies on Colorado's Roan Plateau and from federal split estates resulting from provisions passed by the House. US split estates hold undiscovered resources totaling an estimated 593 million bbl of liquids and 6,947 bcf of gas, it said.
Provisions imposing a renewable fuels minimum for electric utilities and higher Corporate Average Fuel Economy standards for cars and light trucks are technology mandates, Montgomery said. "Both would interfere with the market and take away from consumers and businesses choices for meeting the goals," he said.
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