The average American family is on pace to save about $700 at the pump this year. One reason for this has been widely reported: A historic increase in U.S. oil production has increased global supply and put downward pressure on prices.
But a potentially even more important reason has gotten far less attention – a historic decline in the amount of oil that our economy is consuming. Indeed, in 2014 Americans used less petroleum than they did in 1997, despite the fact that the economy is nearly 50 percent larger than it was 17 years ago.
A new report last week by the Council of Economic Advisers documents that this drop in consumption is one of the biggest surprises in global oil markets in the past decade. If it continues, it will have positive implications for our economy, our national security and our efforts to combat climate change.
After a half-century in which it generally rose, U.S. oil consumption leveled off and has begun to decline. No one expected this development. The Energy Information Administration (EIA), which produces some of the most influential and well-regarded forecasts in the field, until recently consistently projected increases in oil consumption.
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In fact, U.S. consumption in 2014 was 6.4 million barrels per day below the projection it made in 2003 – an amount greater than the oil produced by Iraq and Kuwait combined and about twice the magnitude of the unexpected increase in U.S. oil production. Importantly, that decline in consumption is not expected to be just a passing phenomenon: The latest forecasts for U.S. oil consumption through 2025 are relatively flat.
We are already seeing the benefits of this. The drop in consumption relative to expectations has helped reduce U.S. net imports of petroleum by nearly half, reducing our dependence on foreign oil and our macroeconomic vulnerability to rises and falls in the world price of oil.
By reducing net U.S. oil usage by the equivalent of about 10 percent of global production, these developments have contributed to the decline in the global price of oil over the past year. And the decline in the consumption of oil has contributed to the nearly 10 percent decline in overall U.S. carbon emissions from 2005 to 2014, one of many ways in which smart energy policies can also be good for our efforts to mitigate climate change and protect the health of our children.
Moreover, this is a truly American story. Over this period, we have not seen similar declines in most other advanced economies. For example, the percentage reduction among European economies has been roughly half of that in the United States.
So what is behind this trend and what can we do to continue it? The majority of the decline in oil consumption has been in the transportation sector, but the industrial, residential and commercial sectors have come in below expectations as well.
To date, about three-quarters of the decline in the transportation sector has been due to a reduction in the number of miles driven, which is explained not only by the fallout from the Great Recession and gasoline prices that exceeded pre-crisis levels until mid-2014 but also demographic shifts, such as the aging of the population and the retirement of the baby boomers, that are likely to persist.
The other quarter of the decline is due to increased efficiency, in part because of new rules requiring a more fuel-efficient fleet.
Moreover, the fact that we have replaced about 10 percent of our transportation fuels with biofuels, thanks to a bipartisan law enacted by Congress in 2007, has further reduced our reliance on imported fossil fuels.
Efficiency is expected to matter even more – it is projected to account for nearly half of the reduction in consumption in 2025 relative to past projections – as the vehicle mileage rules continue to phase in.
New policies the administration announced Friday to improve fuel efficiency for heavy-duty vehicles will help build on this trend. Heavy-duty trucks are the fastest growing component of the transportation sector and are responsible for about one-fifth of its energy use and carbon emissions.
In addition, the president is pushing for Congress to increase our investments in transportation infrastructure, including a 70 percent increase in transit investments that would help reduce miles traveled by expanding transportation options. Together with other policies to reduce emissions from power plants, cut methane emissions from the oil and gas sectors and phase down the use hydrofluorocarbons, this would help us hit the U.S. goal of reducing carbon emissions by 26 percent to 28 percent below 2005 levels by 2025 – a goal the president formalized this year as part of our efforts to lead the world toward a global agreement on climate change.
And as the recent trends have shown, it would put to rest the idea that we must choose between fighting climate change and growing our economy: Improving fuel efficiency standards for cars, trucks and other vehicles allows us to do both.
Deese is a senior adviser to President Barack Obama. Furman is chairman of the president’s Council of Economic Advisers.