This is an excerpt from EERE Network News, a weekly electronic newsletter.

January 14, 2004

Government Study Finds All Routes to Gasoline Savings Costly

A study released in late December by the Congressional Budget Office (CBO) concludes that all means of reducing gasoline consumption in the United States will be costly to consumers. The CBO study examined gasoline taxes and fuel economy standards as two routes to reducing the nation's gasoline use by 10 percent. The study found that fuel efficiency standards would cost $3.6 billion per year, over and above the value of fuel savings, equal to about $228 on each new vehicle sold. A fuel economy credit-trading scheme among automakers could cut those costs by about 16 percent, to $3 billion per year, or $184 per vehicle. To achieve the same reduction using gasoline taxes, the CBO study estimates that a 46-cent-per-gallon tax would be needed, which would impose a societal cost of about $2.9 billion per year. See the CBO study (PDF 865 KB). Download Acrobat Reader.

One policy driver for reducing U.S. gasoline consumption is the long-term outlook for petroleum production. In 2000, DOE's Energy Information Administration (EIA) estimated that the world's peak petroleum production would occur between 2030 and 2075. If oil production begins to decline while demand continues to grow, fuel prices would be expected to escalate. See the summary of the EIA analysis.

Those EIA estimates may need updating as of January 9th, when the Royal Dutch/Shell Group of Companies reduced the estimate of its proven reserves of oil and natural gas by 20 percent. Shell cut 2.7 billion barrels of crude oil and the natural gas equivalent to 1.2 billion barrels of oil from its estimate of proven reserves. Oil companies generally discount any long-term projections based on their proven reserves, since each year they attempt to discover new reserves at least equal to that year's consumption of oil, which in oil company terms would be a "reserve replacement ratio" of 100 percent. For 2003, however, Shell estimates that its reserve replacement ratio will end up between 70 and 90 percent. Shell intends to disclose the exact figure on February 5th. See the Shell press release.