The Trump administration’s plan to relax fuel efficiency and vehicle pollution standards would result in Americans consuming significantly more oil. But the administration says that shouldn’t matter when the U.S. is producing so much oil of its own.
“The U.S. is currently producing enough oil to satisfy nearly all of its energy needs and is projected to continue to do so, or become a net energy exporter,” the administration wrote in its proposal released last week. “This has added new stable supply to the global oil market and reduced the urgency of the U.S. to conserve energy.”
Experts, however, say that Americans, as they increase oil use, become more exposed to potential global price shocks — a fact of oil markets that remains true today even as the U.S. rivals Saudi Arabia and Russia among the world’s largest producers.
“Regardless of our import level, in a global oil market, consumers in the U.S. will still see prices rise at the pump when there’s a supply problem in the Middle East or elsewhere,” said Jason Bordoff, the director of the Center on Global Energy Policy at Columbia University and a former White House energy adviser to President Barack Obama. “So energy conservation remains important to help protect consumers against inevitable future oil price spikes, not to mention reduce pollution and carbon emissions.”
The Environmental Protection Agency, with the National Highway Traffic Safety Administration, proposed last week freezing fuel-efficiency and greenhouse gas emissions targets at 2020 levels through 2026, instead of raising them each year as the Obama administration had planned.
The agencies argued the Obama administration’s program, established in 2012, would make cars and trucks more expensive and encourage people to keep driving older, less safe models. The Obama-era program would have forced automakers to double the fuel economy of their vehicles by 2025, requiring an average of roughly 54 miles per gallon.
By freezing the standards in 2020, the Trump administration acknowledges, it will cause an additional 500,000 barrels of U.S. oil to be consumed each day. That’s roughly 2.5 percent of total U.S. daily oil consumption in 2018. An analysis by the independent Rhodium Group similarly projects that U.S oil consumption will rise between 252,000 and 881,000 barrels per day by 2035 under the Trump administration’s plan, or between 1.2 percent and 4.3 percent of the 20.4 million barrels of oil consumed in the U.S. each day this year.
This extra oil used by Americans would cost consumers an additional $193 billion to $236 billion cumulatively between now and 2035, depending on prices.
“Weakened fuel efficiency standards increase the amount of oil people need to drive to work and school, making the impact of an oil price spike on their pocketbooks greater,” said Trevor Houser, a Rhodium Group researcher who produced the report.
The U.S. is producing records amounts of oil. U.S. crude oil production hit 11 million barrels per day for the first time in the nation’s history last month, according to the Energy Department.
Supporters of the Trump administration argue the U.S. is more resilient and energy secure because of its newfound prowess, thanks to the shale fracking boom. But U.S oil and gas prices remains tied to the global market.
“The entire Obama administration [fuel efficiency] program was based on the idea that we are running out of resources,” said Mike McKenna, a conservative environmental adviser with close ties to the Trump transition team. “The irreducible fact is that the surge in production — which is still in its infancy — has altered oil markets. It has essentially placed a ceiling on the price of oil.”
Gasoline prices are more than 50 cents higher than where they were a year ago, after the oil cartel OPEC and Russia for almost two years curtailed production to drive up the price of crude, a key determinant in the price of gasoline at the pump.
The U.S. remains a net importer of oil, as it has been since 1953, although that may change within a few years.
Even President Trump, anxious about high gas prices near the midterm elections, recognizes the continued impact that OPEC production levels have on prices.
In April, Trump used his Twitter account to lobby OPEC to end its production cut agreement and instead, boost output to lower prices.
The oil cartel and nonmember countries, including Russia, later agreed to increase output by 1 million barrels per day beginning in July.
“It certainly is true that growth in shale production has impacted global energy markets, but it’s unclear how much of a ceiling that has put on oil prices,” Houser said. “The economic consequences of price shocks are a little different if you are a large net exporter, because oil producers benefit, and consumers lose, when prices spike. From a macroeconomic perspective, that offsets some of the cost that consumers at the pump face.”
McKenna argues that Americans feel comfortable using more energy knowing the U.S. produces a lot of it, noting how sales of less fuel-efficient SUVs and light trucks remain strong.
“The Trump administration gets the notion of abundance and understands how it changes everything,” he said. “The American people sense that, which is why they indulge their preference for larger cars.”
Houser counters that tough fuel efficiency rules would encourage less oil use, and protect Americans against forces outside the control of U.S. policymakers.
“If there is a policy that is going to in a cost-effective manner reduce the amount of oil American drivers need to buy, it will make American drivers more protected from future price spikes, independent of how much oil America produces,” he said. “We remain as vulnerable to market shocks around the world now as we did before.”
