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A National Strategy for Energy Security

February 23, 2009

Earlier today I spoke at the National Press Club in Washington, DC to report the findings of a study commissioned by the Energy Security Leadership Council. The ESLC is comprised of some of America’s business CEOs and retired four-star military officers. They make recommendations for a policy to reduce U.S. oil dependence and improve energy security.

In September, the ESLC released A National Strategy for Energy SecurityAmerica’s cars and SUVs consumed about 8 million barrels of oil—around 40 percent of our total oil consumption. So our transportation system is nearly 100-percent reliant on a fuel we are forced to import, and whose volatile price is subject to geopolitical events beyond our control. (www.secureenergy.org), which presents a long-term vision for our energy security. The National Strategy’s centerpiece goal is the electrification of short-haul surface transportation. Right now, 97 percent of all fuel used for transport comes from oil.

The study we released today, conducted by the Interindustry Forecasting Project at the University of Maryland and Keybridge Research, looked at the long-term economic effects of our policy proposals. This team, collectively, has decades of experience building and performing simulation studies with large-scale econometric models and conducting public policy research on energy and macroeconomic issues. Our goal was to produce a detailed, sober analysis based on conservative, realistic assumptions stretching out over the next four decades.

In short, the study finds that the policy proposals we have put forward would result in dramatic benefits for the American economy. Specifically:

  • By 2050, the typical U.S. household would have $4,046 more in annual income (in constant 2008 dollars) with our energy policy package than without it. During the four-decade period modeled, households would experience an increase of $3.9 trillion in aggregate income because of our policies.
  • What’s more, by 2050, the typical U.S. household would be spending less per year directly on energy for transportation. The combination of higher income and less spending on energy would allow the average household to enjoy $5,025 more every year.
  • The U.S. would experience a significant reduction in oil imports under our policy package. By 2050, oil imports would be lower by 6.6 million barrels. Cumulatively, the U.S. would import nearly 60 billion fewer barrels of foreign oil.  As a result, our trade balance would improve by about $275 billion.
  • With higher levels of income and GDP, net U.S. federal revenue would be a $1.46 trillion higher than without the ESLC policy package.
  • By 2050, total employment would have increased by 3 million more jobs under our policy than without it. There would be 225,000 more manufacturing jobs, 514,000 more in travel and tourism, 108,000 more jobs in professional services and 44,000 more in agriculture.

Just as important is what the ESLC policy package will do to help our economy withstand future oil shocks.  Four and five dollar-a-gallon gasoline and $147-a-barrel of oil are less than a year behind us. We cannot prevent oil price shocks, and I guarantee you that was not the last oil shock we will ever see.  Events from terrorist attacks and cartel collusion to accidents and natural disasters will continue to affect global petroleum prices, sometimes dramatically.  In the past, that has been a recipe for economic disaster. We have seen five economic recessions since the early 1970s.They were either preceded by a big spike in oil prices or concurrent with a spike.

What we can do is insulate ourselves from the effects of future shocks.  And that is precisely what our policy package does.

The reduced dependence on imported oil that results from our policy will act as a 400 billion dollar insurance policy for the U.S. economy, saving 1.8 million jobs in the event of a severe oil shock.  The difference in national disposable income—the real money that American families rely upon to pay their bills—would be $448 billion if an oil shock were to occur in 2040, when most of the policies we recommend would have taken hold. This is a massive cushion against what we have already seen can be a crushing economic blow.  This is why America must act now.


Comments

    Michael S. Lima says:

    Energy and our future

    Roberto Lozano says:

    We have to break the oil monopoly too. There is no freedom to choose when a consumer goes to the pump, the only alternatives are different types of gasoline or diesel. There has to be a government mandate with incentives to retail distributors and their suppliers to diversify to diversify their fuel portfolio to include every feasible alternative from biofuels to synthetics and hydrogen and then let the market decide. Another positive step forward would be a carbon tax which would penalize the externalization of carbon effects to society and would provide structural incentives from low carbon sources of energy leveling the field. Current policies indirectly subsidize oil consumption and production at the expense of the alternatives.

    Melissa Pesterfield says:

    I am glad the ESLC is taking a proactive approach at reducing our dependence on imported oil. FedEx has already started to put into action steps to help reduce our consumption of oil and other resources. This makes our company a good example to others to do the same.

    Mike says:

    Wow!!! This sounds like an outstanding plan. The only problem would be getting our president to get on board with their recommendations and start implenting them immediately. When will this policy package go before congress to be discussed.

    Zachary S. Perry says:

    This is a great article. Amazing to think about the systematic savings that will come from this.

    Brent Pinsent(CA YOWA) says:

    After reading Mr. Smiths statement over a few times I really find this time of ours a turning point in progressing to the next level. The sun is a lot stronger now than it was in the 80’s(due to the ozone layer being a lot thinner than it was back then)Some say we are the primary cause of this and if so, why not take advantage of our situation and unleash the sun’s power to drive our vehicles and power our buildings through solar energy. In doing this we are not only reducing are dependency on oil(and all the foreign dependency that goes along with it)but are creating the jobs to build this ideal society.Manufacturing jobs to build windmills,solar systems electric vehicle plants ,geothermal systems,etc. A lot of people will be skeptical and say there are only so many windmills and solar panels one can make.While that may be true in principal,the same thing was said when they invented the Model A.

    Robin says:

    It’s amazing that nearly 100% of our transportation system is reliant on fuel that we are forced to import. It is very clear that we are primitive with our electrification technology/solar resources,capabilities and have been dependent on oil for too long.

    We need Change!

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