USA Fuel Paradigm 
USA Fuel Paradigm
by OSU
Video Lecture 21 of 25
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Date Added: April 19, 2016

Lecture Description

Most of us already know the US pretty much stands alone in terms of how cheap our gasoline is and how much we use. This is an unusual relationship because usually when demand is high, price gets higher and we definitely have the demand, but not the price to match. It doesn’t completely abide by the normal fuel supply and demand economics of the rest of the world because the US has done some unique things in regard to taxes, subsidies, and the supply side of the equation.

The domestic taxation of petroleum products is an important source of revenue in most countries. However, there is a wide variation of tax rates on petroleum products across countries, which cannot be explained by economic theory alone. There are always questions about the extremely low domestic petroleum price policies in many oil exporting countries, as well as the extremely high petroleum tax rates in some oil importing countries. When this is looked at closer, it appears that In addition to providing a significant amount of revenue, both economic efficiency and the welfare of the population can be improved if oil exporting countries levy a tax on domestic use of petroleum products to close the wedge between low long-run marginal costs of production and the world market price. Simply put, as much as we don’t want to hear it or pay it, taxing fuel makes a lot sense from an economic and societal stability perspective.

An important take-away from studying US fuel policy is that gasoline and fuels in general may not be a great home for biomass products because the markets are too artificial and simpler biomass products like acetic acid and butanol will probably always have better margins. Once those niche markets are saturated, other markets like them should be targeted using the same platforms. It makes very little sense for biomass to try and fight into the gasoline market. The US has some of the lowest gas taxes in the world and this has the effect of giving the US some of the lowest gas prices, thus encouraging gasoline usage. US oil & gas subsidies also create a massive market for fuels in addition to what the government uses for strategic reserves and other domestic-social needs. This US subsidy driven market is somewhat independent and insulated from global market effects, stabilizing the oil refining industry in the US and increasing the number of profitable oil refiners. The combination of this supply and the demand created by the system of minimal taxation and subsidies has worked so well, that in combination with the buying power of the dollar, US citizens consume more gasoline daily than all other countries combined.

The existing system of subsidies, taxation, and transportation in the US has created a gasoline addiction that may not be sustainable in the long term, particularly if alcohols can be produced at rock bottom prices from natural gas, coal and waste. Who knows how it will play out, but it seems that the landscape is changing and that by the time biofuels companies are done picking the low hanging fruit with high margins, they might not bother with fuels. Oil companies and refiners have a lot of cushion to adjust and stay profitable and competitive in the fuels market, so from a biorefining perspective focusing on products that are hard to make from oil makes more sense.

Even if you have a vehicle that can be powered by an alternative fuel, having a place to fill up can be a major challenge. Based on this right now, ethanol, propane, and electric are the most convenient alternative fuels. Based on in-place infrastructure the two most practical are actually just electricity and natural gas. Electricity and natural gas are available in most urban locations in the United States, just like traditional gas stations. This makes them the easiest alternative sources of energy without question as long as suitable and economic vehicles can be produced and made available.

If you are interested in receiving the written slide notes for each lecture, please contact the USDA supported Advanced Hardwood Biofuels Northwest project at; [email protected]

An associated online E-campus course is also offered at Oregon State University; ecampus.oregonstate.edu/soc/ecatalog/ecoursedetail.htm?subject=BRR&coursenumber=350&termcode=all

Advanced Hardwood Biofuels Northwest is supported by Agriculture and Food Research Initiative (AFRI) Competitive Grant no. 2011-68005-30407 from the USDA National Institute of Food and Agriculture (NIFA)

Course Index

Course Description

This series contains 25 short lectures, each between 10 and 15 minutes long. The content in these lectures is flexible and can be used in a variety of ways to communicate bioenergy concepts to audiences from diverse backgrounds. An important objective of this series is to present facts about bioenergy and biofuels, and use them to explore misconceptions.

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