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**Testimony of John A. \"Skip\" Laitner**

**Director of Economic Analysis**

**American Council for an Energy-Efficient Economy (ACEEE)**

**Before the United States Senate Committee on**

**Energy & Natural Resources**

**A Hearing To**

***Review the status of existing federal programs targeted at reducing
gasoline demand in the near term and to discuss additional proposals for
near term gasoline demand reductions***

**July 23, 2008**

**Summary**

This testimony responds to an invitation from the Senate Energy &
Natural Resources Committee to explore the economic potential of
cost-effective investments in more energy-efficient technologies,
especially as those investments favorably impact petroleum prices and
improve the robustness of the American economy. As discussed in this
testimony, there is a huge potential for cost-effective investments in
energy efficiency throughout all sectors of the U.S. economy: on the
order of 46 billion barrels of oil equivalent between now and 2030. This
is about 2.5 times bigger than what some have suggested might be
available from off-shore drilling. And it is about 5.5 times greater
than what we will get from the improved CAFE standards enacted by
Congress last December. That magnitude of further gains in energy
efficiency could generate a significant downward pressure on oil prices,
and increase both the resilience and robustness of the American and the
international economies --- if we choose to encourage those more
productive investments.

Policy solutions will play a pivotal role in strengthening the continued
development, dissemination, and widespread adoption of energy-efficient
industrial and transportation technologies and systems. In that regard,
ACEEE recommends 10 policy actions that might be undertaken by this
Congress to immediately provide that signal, and more critically, to
change the direction of energy usage through increased energy
efficiency.

The set of 10 proposals offered here is intended to accomplish two
specific objectives. The first is to provide an immediate catalyst by
launching an effort over the next few months that can "save oil in a
hurry." If undertaken with sufficient robustness, these initial
proposals might generate an immediate downward pressure on oil prices to
the benefit of consumers and businesses. The second is to begin the
process of fundamentally restructuring our transportation infrastructure
--- a step that will be necessary if we are to change the energy use
path that our transportation system is currently on. Many of these
suggestions lay the groundwork for a shift in the larger transportation
policy, an opportunity that is afforded the next Congress by next
year\'s reauthorization of the transportation bill. 

**Introduction**

My name is John A. \"Skip\" Laitner. I am the Director of Economic
Analysis for the American Council for an Energy-Efficient Economy
(ACEEE), a nonprofit organization dedicated to increasing energy
efficiency as a means of promoting economic prosperity, energy security,
and environmental protection. I am here today at the invitation of the
Senate Energy & Natural Resources Committee to explore the role of
productive investments in more energy-efficient technologies, as well as
energy conservation behaviors, as both might positively improve the
robustness of the U.S. economy. I thank you for the opportunity to
testify here today. Indeed, I applaud the Committee for its willingness
to more closely examine (and hopefully act on) the potential
contribution of energy efficiency as it strengthens the productivity of
our economy.

What might we initially conclude in this last respect? As we shall see,
there is a huge potential for cost-effective investments in energy
efficiency across all sectors of the economy: on the order of 46 billion
barrels of oil equivalent between now and 2030. This is about 2.5 times
bigger than what some have suggested might be available from off-shore
drilling. And it is about 5.5 times greater than what we will get from
the improved CAFE standards enacted by Congress last December. That
magnitude of further gains in energy efficiency could generate a
significant downward pressure on oil prices and increase both the
resilience and robustness of our economy and economies around the world
--- if we choose to encourage those more productive investments.

Despite the potential for significant improvements in energy
productivity, most current policy assessments and economic modeling
exercises fail to adequately capture the many ways in which individual
or business energy consumption patterns might change in response to both
economic and noneconomic policies and programs. As a result, policy
reviews are based on these narrowly specified assessments and models
consistently overlook the large energy efficiency benefits that we can
achieve by encouraging the accelerated adoption of more productive
technologies and more energy-aware behaviors and preferences. Frankly,
such assessments significantly underestimate the cost-effective energy
savings that can be achieved, while often overestimating the costs of
achieving greater gains in energy productivity.

The inaccuracy of many past and current assessments has large and
important implications for both energy and climate change mitigation
policies. In the remainder of my testimony here today, I will expand on
these notions as I try to answer three questions in response to the
Committee's invitation:

1.  What is the magnitude of recent gains in energy efficiency and how
    do they compare to ongoing investments in conventional energy
    resources? Perhaps more importantly, what might be the approximate
    scale of both near-term and mid-term efficiency opportunities? And
    especially, what might we say about opportunities for immediate
    reductions in the demand for petroleum resources in ways that
    enhance overall economic productivity?

2.  What are the kinds of policies that might be encouraged to shape
    more productive behaviors and patterns of investments in
    cost-effective and more energy-efficient technologies?

3.  Can we say anything about the economic returns associated with the
    accelerated adoption of energy-efficient technologies and more
    energy-aware behaviors?

In responding as fully as I can to each of these questions, let me
divide up my remaining testimony into five major parts. The first
section following this introduction provides an energy and economic
context that I hope will be helpful in responding to the Committee's
request. The next three sections will deal specifically with each of the
questions posed --- especially in the context of our transportation
system and its potentially beneficial impacts on oil prices. The last
section will provide a summary and conclusions.

**Energy Consumption in Context**

As one of the richest and more technologically advanced regions of the
world, the United States has expanded its economic output by more than
three-fold since 1970. Per capita incomes are also twice as large today
compared to incomes in 1970. Notably, however, the demand for energy and
power resources grew by only 50% during the same period.[^1] This
decoupling of economic growth and energy consumption is a function of
increased energy productivity: in effect, the ability to generate
greater economic output, but to do so with less energy. In today's
testimony I would like to reaffirm the compelling evidence that suggests
that even greater energy productivity gains can be achieved but also
highlight the evidence suggests that there is significant room for
improvement in the policies that currently shape our demand for energy.
In short, we have reasons to be optimistic; but as we shall see, there
is also some serious work ahead.

**The Success of Energy Efficiency to Date**

The members of this Committee may be surprised to learn just how big of
a role that energy efficiency has already played in supporting the
growth of our economy over time. In the figure shown on the following
page, we examine the historical context of efficiency gains estimated
through 2008 as they might compare to the development of new energy
supplies since 1970. In effect, the figure compares the projected level
of energy consumption in 2008 to that which might have been necessary
had the economy continued to rely on 1970 technologies and market
structure.[^2]

In 1970 Americans consumed an estimated 68 quadrillion Btus (quads) for
all uses of energy --- whether heating and cooling our homes, schools,
and businesses; powering our many industrial processes; or transporting
both people and freight to the various places they needed to go. If we
converted all forms of energy consumed in 1970 to an equivalent gallon
of gasoline, it turns out that the U.S. economy required about 2,700
gallons of gasoline equivalent for each man, woman, and child living in
the U.S. at that time. Had the United States continued to rely on 1970
market structure and technologies to maintain its economic growth, today
we would be consuming an estimated 211 quads of energy resources. In per
capita terms, that would be equal to roughly 5,500 gallons of gasoline
per person. But in fact, the actual level of consumption estimated for
2008 appears to be just under 104 quads of energy (in rounded numbers).
Again on a per capita basis, this means that the U.S. economy still
requires no more than about 2,700 gallons of gasoline per resident --
the same amount as in 1970.

**U.S. Energy Service Demands, Energy Efficiency Gains, and Energy
Supplies, 1970-2008**

> ![](media/image2.wmf)

Source: Author calculations based on EIA data referenced in footnote 1.

In examining these numbers more closely, however, several important
insights deserve to be highlighted. First, although we currently enjoy a
much broader set of goods and services in today's economy, we have been
able to achieve this expanded level of economic output while maintaining
constant levels of energy use per capita. This has been achieved through
investments in energy efficiency. Second, although the same level of
goods and services hypothetically could have been achieved through the
consumption of 211 quads of energy per year, we have been able to
achieve this level of output with less than half that amount of energy.
In effect, investments in energy efficiency have allowed us to reduce
total energy use by the equivalent of 107 quadrillion Btus in 2008
(relative to what our energy use would have been without those
efficiency gains.) As such, energy efficiency has "fueled" roughly 75%
of the *new* growth in energy service demands in the United States since
1970. Demand for new conventional energy resources, on the other hand,
fueled just one-quarter of the new energy service demands (or about 36
Quads, as shown in the above figure). As a result, energy efficiency has
been dubbed the farthest-reaching, least-polluting, and fastest-growing
U.S. energy success story of the last 40 years. It is also the most
invisible, the least understood, and in serious danger of being
overlooked when it comes to future investments.

In a report published this past May, ACEEE noted that in 2004 the U.S.
invested an estimated \$300 billion in energy efficiency
(Ehrhardt-Martinez and Laitner 2008). This was about three times the
amount invested in traditional energy infrastructure, whether power
plants or oil and gas wells. Meanwhile, those investments in energy
efficiency are estimated to have generated approximately 1.7 quads of
energy savings in 2004 alone --- roughly the equivalent of the energy
required to operate 40 mid-sized coal-fired or nuclear power plants.
Despite these important contributions to our nation's energy
productivity, the analysis points out that the contributions of energy
efficiency have, in large part, remained invisible and often go
unrecognized. Moreover, the report indicates that efficiency resources,
although proven, remain seriously underdeveloped. In other words,
substantial gains in efficiency are still available if we decide to pick
up the pace of efficiency investments.

**The Magnitude of Future Efficiency Potential**

American economist Kenneth Boulding once commented that "Images of the
future are critical to choice oriented behavior." In effect, Boulding
was suggesting that unless we are able to visualize future
opportunities, we are less likely to realize their full potential. In
that same spirit, therefore, ACEEE believes it is important to visualize
the larger potential of energy efficiency to enable the development of
policies and technologies that might enhance our overall energy
productivity. While our preliminary assessment indicates that the
efficiency market is already large, the more important questions are how
large can the market ultimately be, and how rapidly can it be developed?

Notably, a recent United Nations Foundation study called energy
efficiency both the largest and least expensive energy resource,
suggesting that the G-8 and other nations could double historical rates
of efficiency improvement by 2030 (Expert Panel on Energy Efficiency
2007). This is true whether we are talking about buildings or industry,
or whether we are talking about transportation efficiency gains. If the
United States were to follow that course --- and other ACEEE studies
suggest this can be a highly cost-effective policy path, total U.S.
energy consumption in 2030 could be reduced to the level of energy
consumed in the years 1996-1997 -- as a result of efficiency gains
alone. Assuming that policies, market forces, and new financing
mechanisms are put in place to facilitate substantial investments in
energy productivity, we might have an economy in the year 2030 that is
about 70% larger than it is today, but one that uses no more energy than
was required in the mid-1990s.[^3] That would be a clear benefit for
consumers, for business, and for the global climate. But, again, will be
the outcome only if we choose to develop and promote that more
productive investment path. And that is the huge task ahead. . . .

**Understanding the Transportation System**

With this hearing focusing more specifically on gasoline demand, let me
first reiterate the importance of energy productivity gains in all uses
of energy within our economy -- whether we are talking about petroleum,
coal, natural gas, or renewable fuels. I will then expand and highlight
the efficiency potential within the transportation sector; and more
specifically the likely implications of greater efficiency on petroleum
prices.[^4]

**Gasoline Consumption in the Larger Energy Context**

I hesitate to provide any current estimate of energy expenditures since
both energy demand and prices are anything but stable or predictable.
Nonetheless, and only in the spirit of helping understand the financial
burden created by our current levels of energy demand and
(in)efficiency, let me provide this context: in 2008 the U.S. will spend
something on the order of \$1.3 to \$1.5 trillion for its total energy
consumption. Despite only a 10% increase in overall energy consumption,
the nation's energy bill will be close to twice what we spent only a
decade ago. I expect that energy expenditures will be about 10-12% of
the nation's Gross Domestic Product (GDP). More specifically, gasoline
and petroleum expenditures will approach something on the order of \$540
and \$800 billion, respectively.[^5] Ignoring the price of energy for a
moment, and looking only from the perspective of physical energy
quantities, gasoline will consume perhaps 44% of all petroleum used this
year in the U.S. and only 17% of our nation's total energy requirements.
This suggests that we can help moderate gasoline prices by looking for
efficiency improvements in all uses of petroleum, as well as exploring
opportunities to lower or eliminate unnecessary gasoline consumption
more directly. To that extent, then, a more meaningful set of energy
policies would include an economy-wide perspective.

**Transportation Energy and Efficiency Opportunities**

Notwithstanding the larger set of opportunities to promote
cost-effective gains in energy efficiency, there is a significant
benefit in focusing on our transportation system. When we climb into our
cars or other vehicles to get where we want to go, we're really climbing
aboard an incredibly extensive and highly diverse transportation system.
It involves the obvious things like roads, bridges, tractor trailers and
shipping containers, but it also includes a much larger array of
elements --- each with inefficiencies that if corrected, or even changed
in reasonably minor ways, can help reduce the need for gasoline and
other petroleum products. Among the less obvious aspects of the
transportation system are traffic signals and controls, information and
enforcement activities, and the scheduling, coordination, and management
of facilities, goods, and services. Perhaps even less obvious is all the
freight that must be hauled --- to get the food from the farm to the
processing plant and then to the grocery store; to get the lumber from
the forests to the mills, from the mills to the lumber yards, and
finally to our homes and offices; or to get the clothing, medicines,
books, and consumer electronics to the stores for purchase by consumers
and businesses.

Adding up all the energy required by these various transportation needs,
it appears that we need about 14.6 million barrels of oil (or oil
equivalent) each day to maintain current levels of use (and
inefficiencies). Cars and other light duty vehicles demand 9.1 million
barrels per day, or about 62% of the total. While the average fuel
economy for automobiles has grown from 13 miles per gallon in 1973
compared to perhaps 23 miles per gallon today[^6] --- a respectable 70%
over that period --- there are more and more cars which are driving more
and more miles. The end result is that we are using more and more
gasoline and other petroleum fuels. And the kinds of cars we are driving
have also changed. In the mid-1970s only one out of five new light-duty
vehicles sold was a pickup or other light truck. Today trucks, sport
utility vehicles and minivans comprise nearly half of the total sales
for new light duty vehicles (Davis and Diegel 2007). Their overall fuel
economy is substantially less at 17.7 miles per gallon. As a result, all
the gains in fuel efficiency have been eaten away by horsepower wars and
the growing sales of less-efficient trucks, minivans, and SUVs. The
result is an average fuel economy of 20.3 miles per gallon for all
light-duty vehicles on the road today (EIA 2008a).

There is some good news in this. Whether we are talking about passenger
cars, railroad trains, trucks, aircraft or ships, over the next twenty
years the potential for technology improvements that increase the fuel
efficiency of individual vehicles is significantly greater than is
generally imagined or appreciated. But an even larger "system gain" in
energy efficiency is possible if we make wholly achievable
cost-effective improvements in system operations, in infrastructure and
in land use patterns --in addition to those vehicle efficiency
improvements.

**The Many Efficiency Opportunities in Transportation**

To gain further insight into the full opportunity for system efficiency
improvements, let's start with the more familiar area of vehicle
efficiency improvements. Even a cursory look at the "Best of 2008" cars
makes it clear that gains in energy efficiency come from a wide range of
technologies. Hybrid vehicles such as the Toyota Prius or the Honda
Insight have been claiming the limelight when it comes to high
miles-per-gallon vehicles, but fuel-efficient technologies are also
being installed in more conventional cars as well. Intelligent engines
with features such as cylinder deactivation, turbocharging, direct
injection, and variable valve control; advanced transmissions, including
6-7 speed automatics or continuously variable transmissions (CVTs); and
lightweight materials, engine-off-at-idle, friction reduction, and
improved aerodynamic designs all do their part to help make these cars
more energy-efficient. By extending these and other technologies to
include more of the new car and new truck fleet (in effect, so that the
best becomes the typical), there is a huge potential to improve the
energy efficiency of conventional vehicle technology (IEA, 2005). A
recent report of technology experts funded by the United Nations
Foundation called for a 35% increase in fuel economy by 2020 and a 60%
increase by 2030 for new light-duty vehicles (Expert Group on Energy
Efficiency 2007).

These advanced technologies admittedly increase the manufacturing costs
of vehicles but at the same time they also reduce the energy costs of
operating them. DeCicco et al. (2001), for example, suggested that fuel
economy standards could increase from 37 to 70% over a 15 year period
with no more than a 4.5 to 6.6% increase in costs. In other words, a car
that might cost an additional \$1200 might also save 150 gallons of
gasoline annually. With current gasoline prices in the range of \$4 per
gallon, this might imply a typical payback of two years. Similarly, a
car that might cost an extra \$3000 might save 190 gallons of gasoline
which means that at \$4 per gallon, the extra investment would pay for
itself in about four years. Although a shorter payback period would be
better, either of the technology upgrades would generate a positive
return for a vehicle with an expected life of 17 years or more. Perhaps
even more impressive and more recently, the California Air Resources
Board estimates that meeting California tailpipe standards (which will
result in vehicles that reach roughly 35 mpg in 2016) will cost on
average \$1000 per vehicle. At \$4 per gallon of gasoline, this will
save about \$700 per vehicle per year, yielding a 1.5 year payback. (For
other comparative estimates of costs and savings associated with vehicle
efficiencies, see IEA 2006, tables 5.2 and 5.6; and Vattenfall 2007.)

At the same time, the actual fuel economy that is achieved while driving
those motor vehicles can be greatly affected by how they are operated
and how they are maintained. Whether in the form of speeding and
aggressive driving, excessive engine idling, improper tire pressure, and
even poor choice of motor oil, the behavior and maintenance decisions of
drivers can also affect the on-road fuel economy. One recent study
concluded that programs which promote improvements in driving style
through training and technology aids could generate a 10% reduction in
typical fuel consumption and therefore in greenhouse gas emissions
(ECMT/IEA 2004).

Even though automobiles now use about two-thirds of the transportation
fuel consumed in the United States, large savings are also possible in
the movement of freight as well as the movement of passengers in
business, air, and train travel. One professor of transportation
logistics has suggested that heavy trucks might save 32% of energy use
through a combination of improved fuel efficiencies, and better
coordination to reduce empty backhauls and unnecessary travel (McKinnon
2007). Still another ACEEE study lists tractor-trailer technologies that
can reduce fuel consumption by 39% across the fleet of those heavy duty
vehicles. The paper as a whole shows the potential to reduce oil
consumption through efficiency gains across many different sectors (See
Elliott et al. 2006, especially Tables 10 and 11). Although rail
transport is one of the more energy-efficient transportation modes, the
IPCC suggests that substantial opportunities for further efficiency
improvements remain. These include reduced aerodynamic drag, lower train
weight, regenerative breaking and higher efficiency propulsion systems,
all of which can make significant reductions in rail energy use. While
passenger jet aircraft produced today are 70% more fuel efficient than
equivalent aircraft produced 40 years ago, the IPCC notes that a 20%
improvement over 1997 aircraft efficiency is likely by 2015 and
"possibly 40 to 50% improvement is anticipated by 2050. Still greater
efficiency gains will depend on the potential of novel designs such as
the blended wing body, or propulsion systems such as the unducted
turbofan" (Kahn et al. 2007).

**Emergence of Information Technologies**

One especially interesting opportunity that is emerging is the use of
broadband and information and communication technologies (ICT) to
increase transportation efficiencies by decreasing travel demands and
increasing transportation system efficiencies (Laitner and
Ehrhardt-Martinez 2008). A new study released just last month by the
Climate Group (2008), with assistance from McKinsey and Company and on
behalf of the Global e-Sustainability Initiative (GeSI), found that ICT
has the potential of reducing energy-related global greenhouse gas
emissions by 15% by 2020 through a combination of smart buildings and
smart grids and also smart transportation and travel
reduction/dematerialization.

Smart vehicle technologies, for example, provide a range of innovative
means for reducing transportation-related energy consumption while
maintaining the services on which we depend. Vehicles are increasingly
integrating sophisticated communications and information technologies
that collect and communicate information regarding vehicle performance,
routes and maps, road and traffic conditions, energy consumption, and
environmental variables. As more and more vehicle manufacturers
integrate on-board wireless technology, smart cars will increasingly be
able to communicate with regional data centers as well as other vehicles
on the road to share road data, travel information, traffic conditions,
and other information. Moreover, on-board display devices will make this
information readily accessible to drivers through the use of networks of
sensors and communications devices. Maximum energy-efficiency gains can
be provided through a combination of intelligent transportation systems
(ITS) and smart vehicle systems that rely on a variety of sophisticated
electronic technologies including GPS, sensors, processors and on-board
communications equipment. In the future, these technologies will enable
automated management of traffic flows, allow drivers to avoid congested
roads, and locate and map the shortest routes to specified destinations
--- resulting in shortened drive times, reduced energy consumption, and
lower greenhouse gas emissions.

Governments and businesses are also looking to integrate high-tech
supply chain logistics and warehousing technologies. Advanced logistics
technologies can help companies reduce fuel use, costs, and carbon
emissions through:

-   Intermodal shipping strategies that utilize a variety of shipping
    modes including rail resulting in reduced traffic congestion and
    idling time and increased shipping mode flexibility allowing
    shippers to choose the most fuel-efficient, cost-effective, reliable
    and timely mode of transportation.

-   Improved truck tracking and logistics management to improve
    scheduling the pickup and delivery of goods so as to reduce wait
    times, maximize the size of truck loads, and reduce the number of
    wasted "backhaul" of empty trailers.

-   Improved routing of traffic by providing real-time information about
    the quickest routes to reduce travel time and idling.

-   Improved tracking and management of store and warehouse inventories
    to improve the management and flow of goods and increase the
    viability of intermodal shipping opportunities.

These strategies can minimize inefficient freight operations, saving
fuel, increasing revenue for trucking companies, and reducing carbon
dioxide emissions. For example, according to the US Environmental
Protection Agency, the use of intermodal shipping for long distance
shipments (over 1000 miles) cuts fuel use and greenhouse gas emissions
by 65%, relative to truck transport alone (EPA 2004).

Still another transportation option is the use of telecommuting and
videoconferencing. The emergence of information and communication
technologies enables high quality work to be completed from a home
office location in a way that saves gasoline --- even after other energy
uses are considered. For example, while a telecommuter may save gasoline
as a result of a net reduction in commuter travel, there is some
increased energy use associated with working in the home office. But
even with a full accounting of those increased uses, a new estimate by
the Consumer Electronics Association indicates that the regular
telecommuting of some 4 million workers is now saving an estimated 840
million gallons of gasoline equivalent. More critically, the report
suggests that the potential could grow to 25 or even 50 million workers
which would significant increase current levels of energy savings (TIAX
LLC 2007). By the time we include other ICT-enabled services ranging
from expanded videoconferencing to increased electronic banking and
other retail and entertainment services, the suggestion is that "normal"
transportation efficiency gains could be greatly complemented by new
patterns of working and living enabled by information and communication
technologies.

**The Need for a New Policy Framework**

Even with all this good news about the potential for greater system
efficiencies, however, transportation energy use is likely to increase
by another 16% between now and 2030 --- in the absence of additional
policy intervention that might otherwise guide an optimal mix of
technology improvements and new services demands.[^7] This result is
driven, in large part, by an increase in vehicle and air miles traveled.
Despite the run up in oil prices, the Energy Information Administration
estimates that travel demands may be twice as high as the rate of
population growth over that same period of time (EIA 2008a). One
significant downside of the continued demand for petroleum resources is
that it is likely to result in further increases in energy costs for
businesses and consumers. The growth in energy use will also increase
the environmental burden associated with the continued emissions of
greenhouse gases.

A more successful outcome, one that achieves an optimal configuration of
transportation technology systems, will require smartly crafted policy
solutions to overcome important social, economic and structural
barriers. Yet, at a recent transportation policy forum sponsored by the
U.S. General Accounting Office (described as the audit, evaluation, and
investigative arm of the United States Congress), participants said that
"the nation's transportation policy has lost focus and that the nation's
overall transportation goals need to be better defined." They further
noted that "the federal share of total transportation spending continues
to decline" (U.S. Controller General 2007). The evidence certainly seems
to point in that direction.

Despite the availability of highly cost-effective measures to
substantially raise fuel economy standards for both cars and heavy
trucks at least since the early 1980s, we have not done so until very
late last year. The Energy Independence and Security Act (EISA) enacted
by Congress in December 2007, among other things, will increase the
average fuel economy of new cars and light trucks combined from 25 to 35
miles per gallon by 2020. This is a positive step that will increase the
average fuel economy of our national fleet of cars and light trucks over
time. Unfortunately, this modest gain in average fuel economy is
unlikely to offset the growth in overall travel within the United
States. A more realistic focus on both climate change and world energy
policies will require a more aggressive improvement in our system-wide
energy and transportation efficiencies. Hence, a meaningful set of
long-term policies should address an even greater level of fuel economy
improvements, as well as significantly reducing overall travel demands,
while maintaining a higher quality of life.

Following the recommendations of the United Nations Foundation panel of
experts, for instance, a longer-term focus would increase fuel economy
standards for light cars, trucks and heavy duty freight vehicles by at
least 60% by the year 2030. There is an emerging consensus that --- with
the right set of policies, and with further investment in research and
development activities directed toward transportation systems --- a 60%
improvement is still an economically achievable target (Expert Group on
Energy Efficiency 2007; and Langer 2007). At the same time there should
also be an emphasis on reducing the demand for travel through a
combination of funding for alternative transportation systems as well as
changes in land use and economic development policies.

Initial thinking suggests that, with supportive policies, a 20% (or
greater) reduction in total vehicle travel might be possible by the year
2030 (Ewing et al. 2007 and Langer 2007). Alternative transportation
technologies would include rail and mass transit systems as well as a
greater emphasis on improving the logistics of freight shipments. Both
approaches would either reduce travel or encourage the use of more fuel
efficient modes of transport (e.g., piggybacking truck shipments with
rail transport). A smarter transportation policy would also embrace
greater reliance on telecommuting and videconferencing in ways that
reduce both automobile and air travel. Economic development and land use
policies might encourage production technologies that can be located
closer to where new goods and services are actually needed. In this way
travel demands can be reduced even further (Laitner and
Ehrhardt-Martinez 2008, and The Climate Group 2008).

Policy solutions will play a pivotal role in strengthening the continued
development, dissemination, and widespread adoption of energy-efficient
transportation technologies and systems. Without a sensible framework of
policy objectives and targets, the unfolding of these many technologies
and their efficiency gains might follow any number of less productive
paths.

**Specific Policy Recommendations**

At a minimum, the market needs a strong, clear, and persistent signal to
help it organize and direct its own efforts as well as smart investments
toward a more productive pattern of economic activity. To that end,
ACEEE suggests the following 10 policy actions that might be undertaken
by this Congress to immediately provide that signal, and more
critically, to change the direction of energy usage through increased
energy efficiency. These proposals are intended to accomplish two
specific objectives. The first is to create an immediate catalyst by
launching an effort over the next few months which can "save oil in a
hurry."[^8] If undertaken with sufficient robustness, these initial
proposals might generate an immediate downward pressure on oil prices to
the benefit of consumers and businesses. The second is to begin the
process of fundamentally restructuring and stimulating new productive
investments in our transportation infrastructure --- a step that will be
necessary if we are change the energy use path that our transportation
system is currently on. Many of these suggestions lay the groundwork for
a shift in transportation policy that is afforded the next Congress by
next year\'s reauthorization of the transportation bill.

***1. Enact an Immediate Joint Resolution.***

An immediate joint resolution, quickly followed by the other policy
actions described below, would send a clear and strong signal to
consumers, businesses, and the energy market in ways that would help
organize a more productive pattern of economic activity. The resolution
should affirm the nation's energy efficiency potential across all fuels
and all sectors of the economy. It should direct all agencies to
immediately implement all cost-effective gains in energy efficiency ---
consistent with their current authority and funding. Moreover, it should
emphasize a coordinated effort among all agencies.

***2. Enact Emergency Transit Supplemental Funding.***

Mass transit represents one of the few short-term alternatives to
driving personal vehicles for many consumers, and we have seen recent
surges in rider-ship since gas prices have surged. However, many transit
agencies are struggling to close budget gaps created by dramatic
increases in fuel, forcing them to curtail service at the time when
demand is on the increase. The congress should pass an emergency funding
supplemental to assist transit agencies with meeting their increased
fuel bills, and make available funds at 80% federal match to supplement
local and state investments in expanded capacity.

***3. Establish a Crusher Credit for Inefficient Low-Mileage Cars.***

This provision would accelerate retirement of the most fuel-inefficient
and polluting light trucks when coupled with additional incentives for
clean and efficient new vehicles. Under rules to be issued by the
Secretary of the Treasury, owners of vehicles presented for destruction
(crushing, shredding) will receive a voucher redeemable upon the
purchase of a new vehicle meeting the eligibility requirements of the
Alternative Motor Vehicle Credit contained in the Energy Policy Act of
2005. The recommended offset for the cost of the program is the
extension of the federal "Gas Guzzler Tax", currently applicable only to
passenger cars, to light trucks, at a level sufficient to fully offset
anticipated program costs.

***4. National Telecommuting and Videoconferencing Initiative.***

Direct the appropriate agencies to immediately launch a campaign to
encourage and enable immediate cost-effective telecommuting and
videoconferencing. In addition, all federal agencies should be directed
to establish telecommuting and videoconferencing to the maximum extent
possible.

***5. Develop Policies to Expand Alternative Modes of Freight
Movement.***

In preparation for next year\'s Transportation Bill reauthorization,
Congress should commission a study of the potential fuel savings
potential of expanding alternative modes of freight movement and
identify policies that could be implemented to realize these savings

***6. Co-Funding of Local Land Use Planning.***

Congress should establish a program to co-fund local governments\'
efforts to update zoning and land use regulations in such a way as to
encourage compact development compatible with transit service.

***7. Study of Role of Information and Communications Technologies in
Improving Transportation System Efficiency.***

Direct the National Academies to undertake a study into the role that
Information and Communication Technologies (ICT) could have in reducing
travel delays and improving the efficiency of transportation
infrastructure.

***8. Establish a National Energy-Efficient Maintenance and Driver
Education Program.***

To improve the efficiency of new drivers, it will be critical to change
behavior. Congress should direct the Department of Transportation to
develop information regarding driving practices, car maintenance, and
fuel efficiency that can be incorporated into driver education programs.
Auto inspection programs, for example, might include fuel economy
recommendations. So you not only get a 12-point safety inspection, but
you can also get a 12-point efficiency inspection.

***9. Direct the Collection of Energy Efficiency Data and Indicators.***

The role of energy efficiency is largely invisible in the US economy.
Congress should direct and fund the Department of Commerce, Department
of Energy and Environmental Protection Agency (among others) to
collaborate in the development of a National Energy Efficiency Data
Center (NEEDC). The purpose of this new center will be to collect,
organize, disseminate and archive energy efficiency and social science
statistics and technology costs, particularly those related to public
policies and programs.

***10. Explore Other Incentive Mechanisms.***

The Automotive X Prize is a \$10 million inducement price and was
announced in March of 2008. It is sponsored by the X Prize Foundation
and Progressive Insurance. The prizes will be awarded to teams with cars
that can win a staged race while maintaining a fuel efficiency rating of
100 miles per gallon and better.[^9] In that same spirit Congress might
direct appropriate agencies to explore ways to complement this
initiative, but also to look for other inducements and prize incentives
(both within and outside of government) which might encourage a more
entrepreneurial and smarter use of our investment and energy resources
across the many dimensions of our economy.

**A Note on Investment**

One of the underappreciated elements in the growth of the economy and
improvements in the nation's energy overall energy efficiency is the
vital role of investment. The chart on the following page highlights the
annual percentage change in all three elements over the period from 1990
through 2008 (estimated). What's the bottom line? In the period 1992
through 2000, we had a significant period of capital deepening in which
investment as a percent of GDP climbed from a typical level of about 13%
to a record 17.7% in 2000. The events in 2001 had an obvious impact in
market confidence in both that year and 2002. After a recovery that
lasted through 2006, we had negative growth in 2007, and it appears
we'll see this again in 2008.

**Annual Rate of Change in U.S. Investment, GDP, and Energy Intensity,
1990-2008**

![](media/image3.wmf){width="5.645833333333333in"
height="3.857638888888889in"}

Source: Author calculations based on EIA data referenced in footnote 1.

What may not be initially apparent is the role of investment in
improving our energy intensity (energy productivity). Following a robust
2.7% decline in the nation's average energy intensity over the period
1973 through 1986, the rate of change flattened out to 0.8% through
1996. Tracking the surge of investment in 1996 through 2001 (shown in
the figure above), our intensity declined 2.9% annually. The decline in
energy intensity moderated at 1.6% over the years 2001 through 2006. Of
immediate concern is the complete flattening in that rate of change in
2007 and 2008. I might suggest this flat improvement in our energy
productivity is driven, in part, by the negative rate of investment,
which significantly tightens the market with respect to energy supply.
One might reasonably conclude that this is among the reasons for the
higher energy prices we are seeing here today. Perhaps more to the point
is that the proposals we recommend here today will stimulate more
productive investment in ways that increase our energy productivity.
This, in turn, is likely to generate a downward pressure on energy
prices.

**Likely Economic Returns**

At this point we might ask how all of these energy efficiency policies,
behaviors and investment decisions could reduce the economic damage of
high fuel prices. Generally energy efficiency reduces the toll taken by
high energy prices in two ways: first, by reducing consumption, and
therefore the amount of energy for which consumers must pay; and second,
by reducing prices. As but one example of the possible impacts, ACEEE
estimates that the U.S. could reduce oil consumption by 9-13% by 2015
and 15-21% by 2020 through energy efficiency (Elliott et al. 2006). The
measures to accomplish this are all cost-effective; that is, the
efficiency improvements typically cost less than half what they save in
petroleum costs. With regard to price reduction, the complex and global
nature of oil and petroleum markets makes predicting price nearly
impossible. We can nonetheless be confident that by giving the market a
greater ability to respond to the price signal and by increasing the
supply margin, energy efficiency can decidedly help relieve the run-up
in prices. To the extent that speculation in futures markets is
responsible for high prices, the adoption of policies that
cost-effectively ease inefficient consumption in the near term will
serve to combat these rising price effects.

Drawing on a broader variety of related studies and assessments, we can
say that as long as such energy efficiency investments are
cost-effective --- in effect, investments that pay for themselves over a
3-7 year period --- the economy should be strengthened. This point was
reinforced by another new study released by ACEEE earlier this month
(Laitner and McKinney 2008). This latest report, *Positive Returns:
State Energy-Efficiency Analyses Can Inform U.S. Energy Policy
Assessments*, concluded that energy efficiency investments are likely to
stimulate a small but net positive benefit for the American economy. The
report's conclusions were drawn from a review of approximately four
dozen state- and regional-level efficiency potential studies that were
undertaken over the past 16 years. Overall, the studies demonstrate the
potential for an average of 23% efficiency gain with a nearly 2 to 1
benefit-cost ratio. Moreover, they suggest that a 20% additional gain in
energy efficiency by 2030 could provide an estimated 800,000 net jobs
while a 30% efficiency improvement might generate as many as 1.3 million
net jobs. Finally, the report notes that efficiency-led policies that
emphasize greater energy productivity are likely expand the nation's
economy (as measured by our GDP) by about 0.1% by 2030.[^10]

**Conclusions**

Given the full array of evidence, we can conclude that energy efficiency
can provide a significantly large contribution toward stabilizing energy
prices and strengthening the robustness of the U.S. economy. The good
news is that there are large opportunities to promote an even greater
level of productive investments in energy-efficient technologies ---
should we choose to develop and pursue those options. Policy solutions
will play a pivotal role in strengthening the continued development,
dissemination, and widespread adoption of energy-efficient
transportation technologies and systems. The more quickly we act, the
more quickly the benefits can accrue to both consumers and businesses.

**References**

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[^1]: These and other economic and energy-related data cited in the
    testimony are the author's calculations as they are drawn from
    various resources available from the Energy Information
    Administration (2008a, 2008b, 2008c, and 2008d).

[^2]: Strictly speaking, the term energy efficiency as used here can be
    more broadly defined as a reduction in energy intensity; that is, a
    reduction in the number of Btus needed to support a dollar of
    economic activity. This change results from two key drivers. This
    first is a change in market structure as we move away from energy
    intensive industries as a source of income to higher value-added
    services. The second is what we typically think of as energy
    efficiency --- more efficient lighting and consumer products,
    greater fuel economy in our vehicles, and more efficient power
    plants and industrial processes. The United States has benefited
    from both economic drivers; and both were made possible by a
    combination of behaviors, innovations, and productive technology
    investments. From a macroeconomic perspective the evidence suggests
    that anything we can do that positively reduces energy use while
    maintaining incomes and economic prosperity can be termed "energy
    efficiency." It is in that larger sense that I use the term here
    today.

[^3]: In December 2007 the Energy Information Administration's forecast,
    the *Annual Energy Review 2008* indicated that energy consumption
    would increase to about 124 quads by 2030. With the passage of the
    Energy Bill by Congress earlier this year, EIA subsequently revised
    its forecast to 118 quads by 2030. Building on that trend, an
    additional 20% savings by 2030 would imply a total energy use in a
    high-efficiency scenario would be on the order of 94.4 quads. EIA
    data suggests that actual energy use was about 94.2 quads in 1996.
    The difference between those projected values (i.e., 118 quads in
    the reference case versus 94.6 quads in the energy productivity
    case) is 23.6 quads. The cumulative savings over the 2008 through
    2030 time horizon would be just under 269 quads compared to the
    reference case consumption pattern. With each barrel of oil equal to
    5.8 million Btus, this level of savings is comparable to 46 billion
    barrels of energy efficiency equivalent. This is the figure cited at
    the beginning of this testimony. This comparative scenario analysis
    draws on a study and modeling analysis by Laitner et al. (2006).

[^4]: This section of the testimony draws heavily on a report released
    earlier this year through the Civil Society Institute (Laitner
    2007).

[^5]: Again, these values are highly speculative and intended only to
    provide a magnitude that might help this committee think about the
    larger economic impact of our continuing levels of demand and
    inefficiencies.

[^6]: I might note that all of the gains in fuel economy occurred over
    the period 1975-1986, and that today new vehicles are still below
    the average reached in 1986.

[^7]: It's worth noting that before passage of the Energy Independence
    and Security Act (EISA) in December 2007, the Energy Information
    Administration projected a 28% growth in transportation energy
    between 2008 and 2030. With the anticipated improvements in fuel
    economy under EISA, as well as a somewhat slower economy coupled
    with significantly higher energy prices, EIA has moderated that
    growth to only 16% as noted above.

[^8]: In fact, this phrase references a 2005 workshop convened by the
    International Energy Agency and a resulting book by that same name.
    The book identified a series of immediate measures that might save
    up to 1.7 million barrels of oil per day, at a cost ranging from \$1
    to \$100 per barrel, if such measures were implemented by all
    members of the IEA. (2005). This perspective can provide a useful
    model of immediate effort for the U.S. as well.

[^9]: The X PRIZE Foundation, best known for the successful \$10 million
    Ansari X PRIZE for private suborbital spaceflight, is an educational
    nonprofit whose mission is to bring about radical breakthroughs for
    the benefit of humanity by holding \$10 million dollar (or larger)
    competitions to solve some of the world\'s greatest challenges.\"
    See
    [http://www.progressiveautoxprize.org](http://www.progressiveautoxprize.org/).

[^10]: This result might make more sense when we realize that
    energy-related sectors of the economy contribute a significantly
    smaller rate of value-added per dollar of revenue received that
    almost all other sectors of the economy. Based on 2006 economic data
    for the U.S. economy, energy-related sectors contributed about 43
    cents of value-added per dollar of revenue while all other sectors
    contributed about 54 cents per dollar of revenue. The same is also
    true for employment. Energy-related sectors of the economy support
    less that two jobs per million dollars of revenue while all other
    sectors support an average of seven jobs (IMPLAN 2008). The recent
    run-up in oil prices greatly lessens the rate of contribution the
    energy-related sectors provide the nation's economy, especially as
    those energy dollars pull resources away from all other sectors. By
    the same token, any cost-effective change in the pattern of
    production away from energy should strengthen the nation's overall
    economy. This is particularly true to the extent that the new
    production recipe reduces the levels of imported energy.