Philip Verleger - Apr 28,2021

US President Joe Biden’s Apr. 22 policy announcement on global warming came almost exactly 44 years after President Jimmy Carter’s first speech on energy. Carter characterized his grandiose April 1977 energy plan as “the moral equivalent of war.” His strategy included detailed programs to tax crude oil, extend price controls on natural gas, and boost coal use. Little came of the effort, dubbed MEOW by its critics for “Moral Equivalent of War,” except for increased coal consumption. Biden avoided the Carter pitfall of specificity by speaking in generalities. Thus, the industry that will be most affected had little to attack last week. But make no mistake: Oil will bear the greatest brunt of Biden’s environmental program. Besides halting coal burning, the simplest way to meet his goals would be to slash oil use by 6 million barrels per day by 2030. This could be achieved by a 55% drop in gasoline and a 35% cut in diesel use from 2019 levels -- both achievable through electrification.

In 1977, lobbyists and advertising agencies ripped Carter’s plan apart. Biden administration officials understand that, by not offering detailed analyses upfront, they can build support among proponents, as the Carter program did, while neutralizing those adversely affected. One might even say Biden followed the example set when President Franklin Roosevelt described Dec. 7, 1941, as a “Day of Infamy” after Japan’s attack on Pearl Harbor. His administration then turned to fighting Germany, while only slowly building the campaign against Japan. Similarly, Biden is boldly taking on emissions, while preparing behind the scenes to initiate an intensifying war against oil.

Clearly, numerous scenarios could reduce US greenhouse gas emissions by 50% below 2005 levels. A massive effort to capture and sequester carbon would, for example, lower the onus on oil. However, on present trends, oil use, particularly gasoline consumption, must bear a large part of the burden. The Biden administration understands this. Thus, the oil industry should expect it to move aggressively and quickly to curtail motor fuel use.

As I do the numbers, oil use must decline by 6 million b/d by 2030, even assuming coal’s banishment from electricity generation. This means gasoline consumption must decrease by 5 million b/d, or 55%, from 2019 levels and diesel by 35%, or around 2.5 million b/d, to 6 million b/d. (For additional details of my calculations or to explain any apparent anomalies, see “Our View: Achieving a 50% Reduction in US Emissions.”)

The possible impact on gasoline consumption in 2030 can be seen in Table 1 below. The table shows the emissions for each principal fuel used in the transportation sector in 2019 and the level of emissions in 2030 required to achieve the 50% reduction goal announced by Biden -- and encouraged by the We Mean Business Coalition, a group of more than 500 companies, including Amazon, Apple, Ford, General Electric, General Motors, Google, IHS Markit (owner of Cera), Microsoft, National Grid, and Pacific Gas & Electric. Royal Dutch Shell was the only oil company to sign.

Table 1 shows that on-highway use accounted for two-thirds of 2019 sales of distillate fuel. These data provide a means of projecting future distillate use. We assume that electric, or possibly hydrogen, vehicles would help reduce road diesel use, leading to an overall decline in distillate fuel consumption by 2030 to 6 million b/d, from 9.3 million b/d in 2019 and 8 million b d in 2020.


US CO2 Emissions From Transportation Sector
Primary Sources, 2019 and 2030 Target
(million tons) 2019 2030 % Reduction
Natural Gas 54.9 50 8.9
Aviation Gasoline 1.6 1 37.5
Distillate Fuel Oil (excl. Biodiesel) 462.0 300 35.1
Jet Fuel 255.7 220 14.0
Motor Gasoline (excl. Ethanol) 947.7 425 55.2
Residual Fuel Oil 32.5 32 1.5
Total 1,754.4 1,028 41.4
Source: US Energy Information Administration,
PKVerleger LLC


The question, then, is "what steps can be taken to bring gasoline and diesel use down quickly, presumably to be replaced by electric vehicles (EVs)?" Here are some possibilities: 100% electrification in “last-mile deliveries” and freight movement; a new “cash for clunkers” program; an aggressively higher renewable fuel target for gasoline and diesel.

Freight Fixes

Electrification of last-mile delivery or even a substantial amount of freight movement could achieve hefty reductions in gasoline and diesel use. A 2018 study published by the University of California at Davis provides detailed analyses of the costs and savings of electrifying deliveries in the US. The authors do not, however, offer specific estimates of reductions in use.

The number of operating US delivery trucks is uncertain. One source puts it at 15.5 million, another at a higher figure. Many of the trucks are heavy-duty vehicles. It seems possible, however, that between 5 million-10 million vans are being used in the US for deliveries and by service providers such as cleaners and plumbers. A rough calculation indicates that between 600,000 b/d and perhaps as much as 2 million b/d could be saved by electrifying the entire fleet.

Cash for Clunkers

A second “cash for clunkers” program also could produce a considerable reduction in transportation-sector emissions. The “Cash for Clunkers” idea was introduced by former President Barack Obama's administration as part of a program to boost auto sales. The economic benefits were not great, but a similar program that rewarded internal combustion engine (ICE) vehicle owners with a payment if they scrapped the vehicles and replaced them with EVs would differ from the Obama program in that it would clearly help meet the goal of reducing emissions of global warming gases.

The administration and auto manufacturers might also work together to implement a Japanese-type program of tough auto inspections -- tightening environmental regulations and initiating frequent inspections of older vehicles.

A 1998 Bloomberg report describes how Japanese policies increased new car sales: “It is a little-known fact that Japan’s car market is propped up by the government’s strict inspection policy ... Three years after purchase, every new car has to go through an expensive inspection process, and once every two years after that. Furthermore, vehicles older than 10 years have to pass the inspection every year. As a result, most car owners in Japan write off their cars after 10 years and buy new ones. Hundreds of thousands of perfectly fine automobiles are demolished every year. This practice has been used to boost car sales in Japan and give carmakers advantages to compete in the international market.”

However, requiring US states to impose harsh vehicle inspections and to boost EV sales and ICE retirements may be out of the question to most. Farm states and states favoring deregulation (Texas, for example) would oppose such requirements.

Indeed, the success of a “cash for clunkers” program -- or any other program requiring legislation -- would encounter the partisan divide identified by Nate Cohn in the New York Times: “The country is increasingly split into camps that don’t just disagree on policy and politics -- they see the other as alien, immoral, a threat. Such political sectarianism is now on the march.” Against this background, it is hard to see how Republicans and Democrats in Congress could agree on to buy back old, polluting cars, making passage of a legislative option such as a cash-for-clunkers program extremely unlikely.

Renewable Fuels Standard

Given the balkanization of politics in Washington and the minuscule Democrat majority in Congress, the biofuels program and its renewable fuels standard (RFS) may offer the best option for accelerating the displacement of petroleum products and reaching the 50% reduction goal. The Energy Independence and Security Act of 2007 set volumetric requirements for use of renewable fuel in gasoline and diesel up to 2022. Section 202(a) (2) iii of the act gives the Environmental Protection Agency (EPA) authority to set standards after 2022 based on a set of criteria, one of which is global warming.

If all other avenues to achieving a 50% reduction are blocked, the Biden administration could raise the blending requirements imposed on refiners and marketers beginning in 2023. The higher renewables standard would require fueling pumps at many gasoline stations and convenience stores to be modified, as most pumps can only distribute fuel with only 10% ethanol content. Marketers would have to simultaneously offer a 10% blend for older vehicles that cannot tolerate higher ethanol content. The result would presumably be much higher gasoline prices.

While environmentalists will object to the resulting short-run increase in lifecycle emissions from biofuel production – not to mention the use of more farmland to create road fuel -- the RFS program appears to provide the best way, in current circumstances, to increase fossil fuel costs, thus driving more ICE vehicles off the road.

We will soon know if the Biden administration will take this approach because the EPA administrator must issue renewable fuel blending standards for 2023 and beyond by this fall.

Philip Verleger is an economist who has written about energy markets for over 40 years. A graduate of MIT, he has served two presidents, taught at Yale and helped develop energy commodity markets since 1980.


Further disruption lies ahead. The 2021 Outlook provides important context and pointers to help you navigate these changes, and understand how sometimes confusing events fit the broader picture.
Hydrocarbons are critical minerals that are essential to the development of alternative sources of energy.VIEW HERE