Appendix A
Oil Savings From Fuel-Efficient Tires and Higher Fuel Economy

In this report, NRDC shows how simple policies to increase the fuel economy of passenger vehicles have the potential to save more oil than can be economically extracted from the Arctic National Wildlife Refuge. The report estimates that fuel-efficient replacement tires can save about 5.8 billion barrels of oil, or about 1.7 times more oil than can be economically extracted from the Arctic Refuge.^[1] The report also shows that raising fuel economy standards by 60 percent could save even a greater amount -- about 50 billion barrels of oil. Below is a detailed description of the methodology NRDC used to calculate the oil savings from fuel-efficient replacement tires and higher fuel economy standards for cars and light trucks.

Methodology and Assumptions

NRDC's report examined the potential for oil savings from two simple policy initiatives that would increase the on-road fuel economy of the passenger vehicle fleet (cars, sport utility vehicles, pickups, and minivans less than 8,500 pounds gross vehicle weight). The first policy would require all replacement tires to be at least as fuel-efficient as the tires originally equipped on new vehicles. The second policy would increase fuel economy standards by 60 percent over a 10-year period, to an average of 45 miles per gallon (mpg) for cars and an average of 34 mpg for light trucks (a category that includes SUVs, pickups, and minivans) by 2011. The combined average would be 39 mpg. Both policies would begin in 2002.

To estimate the oil savings from these two policies, we developed a model to calculate gasoline consumption over a 50-year period, 2000 to 2050. We chose a 50-year forecast period to compare its conservation policies to drilling in the Arctic National Wildlife Refuge, which is expected to take place over a 50-year period. To calculate gasoline demand, the only inputs required are travel demand (vehicles miles traveled, or VMT) and fuel economy for the on-road fleet. Dividing the annual VMT by the on-road fuel economy yields annual gasoline consumption.

Baseline forecast. For baseline petroleum consumption, NRDC adopted the VMT, on-road fuel economy, and petroleum consumption forecasts from the U.S. Department of Energy's "Annual Energy Outlook 1999" (AEO99).^[2] However, AEO99 does not provide estimates beyond 2020. To extend the AEO99 forecast to 2050, we linearly extrapolated the on-road fuel economy trend from the AEO99 forecasts. This method yields essentially a flat fuel economy trend that increases by about 1.3 mpg over the 30-year period from 2020 to 2050. For VMT, we assumed that the growth rate of travel would not continue at the 2020 rate of 1.2 percent, but instead would attenuate to a flat 1 percent per annum by 2030. Dividing the travel demand by the on-road fuel economy yields the forecast for annual petroleum demand for the years 2020 to 2050.

fuel-efficient replacement tires case. The average rolling resistance of replacement tires is about 20 percent higher than that of tires that automakers put on new vehicles.^{[3] [4] [5]} Fuel efficiency is directly related to rolling resistance. Since vehicle fuel economy is reduced by about 1 percent for every 5 percent increase in tire rolling resistance, replacing all four original equipment tires with the average replacement tire reduces fuel economy by about 4 percent.^{[6] [7]} NRDC projected that the policy would begin in 2002 and assumed it would take four years to fully replace the existing replacement tire stock with lower rolling resistance tires. About three-quarters of the on-road passenger vehicle fleet uses replacement tires.^[8] As a result, a policy requiring replacement tires to be at least as fuel-efficient as original equipment tires would increase fuel economy of the on-road fleet by about 3 percent when fully phased-in in 2006.

Increased fuel economy standards case. For this scenario, NRDC assumed that average new car fuel economy would increase linearly over a 10-year period to 45 mpg by 2011, and light truck fuel economy would increase linearly to 34 mpg by 2011. To estimate the increase in on-road fleet fuel economy, NRDC used a stock turnover model developed by the Union of Concerned Scientists (UCS) for previous studies.^{[9] [10]} UCS had previously updated the model to fit the gasoline consumption forecast in AEO99 as closely as possible.

Due to different modeling approaches and slightly different input data, a small discrepancy exists between the baseline on-road fuel economies forecast by NRDC's model and AEO99. The average difference over the period 2000 to 2030 between the two forecasts is 1.6 percent. To avoid including the difference in baseline forecasts in our fuel savings estimates, NRDC recalibrated the fuel consumption forecast of its model baseline to the AEO99 baseline by adjusting the VMT estimates. NRDC used this recalibrated VMT forecast in the fuel consumption calculation for the high fuel economy scenario. This approach yields essentially the same result as using the original VMT forecast and calculating a new baseline fuel consumption. The difference in cumulative oil savings between the two methods is less than 1 percent.

Calculating oil savings. NRDC conservatively assumed that one gallon of gasoline saved would mean that an equal amount of oil would not be extracted and consumed. In actuality, a little more than half of a barrel of oil is converted to gasoline in U.S. refineries. (At California refineries -- where crude oil from the Arctic Refuge is likely to be utilized -- the current conversion rate is about 55 percent.)^[11] The refineries use the remaining oil to make other products, primarily diesel, aviation fuel, and heating oil. Consequently, one barrel of gasoline saved could replace roughly two barrels of oil extracted and consumed. Theoretically, refinery operation could be optimized or refineries could be modified to produce more gasoline, but it is unlikely that an entire barrel of oil could be economically converted to gasoline.

Results

As shown in Table 2, requiring replacement tires to be as fuel-efficient as original tires would save about 5.4 billion barrels over the next 50 years. Raising fuel economy standards by 60 percent would save about 10 times more oil, or approximately 51 billion barrels.

For comparison, likely oil production from the Arctic Refuge also is included in Table 2. The fuel-efficient tire case would conserve 1.7 times more oil than could be economically extracted from the Arctic Refuge; the higher fuel economy case would conserve more than 15 times what could be economically extracted.

NRDC's Arctic Refuge production estimates are based on the U.S. Geological Survey's most recent estimate.^[12] NRDC presents the most likely case of "economically recoverable" resources of 3.2 billion gallons, based on the USGS's $20 per barrel case. Due to inflation -- and the fact that Alaskan crude is priced below benchmark crude oil -- the USGS's $20 per barrel price case is about equivalent to world oil prices of $25 per barrel today.^[13]

The fuel efficiency proposals presented here would save consumers billions of dollars. The National Highway Safety Traffic Administration (NHTSA) estimated that the consumer cost of making replacement tires more fuel-efficient would be about $5 per tire.^[14] Michelin has estimated the consumer cost to be even lower, at $1 per tire.^[15] Assuming that fuel-efficient tires last 40,000 miles, cost $20 extra for a set of four tires, and improve the average on-road efficiency from 20 mpg to 20.8 mpg (a 4 percent increase), the tires would pay for themselves in fuel cost savings (at $1.50/gallon) by the end of the first year of average use. Overall, a set of four fuel-efficient replacement tires would save about $95 over the life of the tires.^[16]

Similarly, studies have shown that there are cost-effective technologies that would dramatically increase the fuel efficiency of new vehicles. For example, UCS estimated that the fuel efficiency of a typical SUV -- the Ford Explorer -- could be raised 77 percent by modest engine improvements (variable engine technology, idle-off capacity), improving transmission performance (optimized automatic transmission, motorized gear shift), lowering vehicle weight by 15 percent, lower rolling resistance tires, and modest improvements in aerodynamics. The additional cost of $795 would be paid for in less than two years through fuel cost savings.^[17] When applied to the entire passenger vehicle fleet, fuel-efficient technologies have the potential to save consumers billions of dollars in fuel costs annually.^[18]

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Notes

1. Natural Resources Defense Council, A Responsible Energy Policy for the 21st Century (February 2001).

2. Energy Information Agency, Annual Energy Outlook to 1999: With Projections to 2020, DOE/EIA-0383(99) (December 1998).

3. Michelin, letter to Mr. Orron Kee, National Highway Safety Traffic Administration, from Clarence "Red" Herman, Vice President, Product Engineering, Exhibit A, August 9, 1994.

4. The White House.Climate Change Action Plan, measure #22, page 53 (October 1993).

5. National Highway Safety Traffic Administration, "Consumer Information Regulations Uniform Tire Quality Grading Standards," Notice of Proposed Rulemaking, Federal Register 60(100):27472-488, May 24, 1995.

6. Michelin, Submittal to National Safety Traffic Administration Docket, 94-30-N01, Uniform Tire Quality Grading, June 22, 1994.

7. K.G. Duleep, Submittal to National Safety Traffic Administration Docket, Uniform Tire Quality Grading, August 31, 1995.

8. Michelin, letter to Mr. Orron Kee, National Highway Safety Traffic Administration, from Clarence "Red" Herman, Vice President, Product Engineering, Exhibit A, August 9, 1994.

9. Energy Innovations: A Prosperous Path to a Clean Environment, a report by Alliance to Save Energy, American Council for an Energy-Efficient Economy, Natural Resources Defense Council, Tellus Institute, and Union of Concerned Scientists, (June 1997).

10. John DeCicco and Jason Mark, Meeting the energy and climate challenge for transportation in the United States, Energy Policy, 26(5): 395-412, 1998.

11. California Energy Commission, http://www.energy.ca.gov/fuels/oil/refineries.html, (February 2001).

12. US Geological Survey, The Oil and Gas Resource Potential of the Arctic National Wildlife Refuge 1002 Area, Alaska. USGS Open File Report 98-34 (1999).

13. Natural Resources Defense Council, A Responsible Energy Policy for the 21st Century (February 2001).

14. National Highway Safety Traffic Administration, "Consumer Information Regulations Uniform Tire Quality Grading Standards," Notice of Proposed Rulemaking, Federal Register 60(100):27472-488, May 24, 1995.

15. Michelin, Submittal to National Safety Traffic Administration Docket, 94-30-N01, Uniform Tire Quality Grading, June 22, 1994.

16. At a 5 percent discount rate, the present value of the net savings would be $82.

17. Union of Concerned Scientists, Greener SUVs: A Blueprint for Cleaner, More Efficient Light Trucks, (July 1999)

18. Energy Innovations: A Prosperous Path to a Clean Environment, a report by Alliance to Save Energy, American Council for an Energy-Efficient Economy, Natural Resources Defense Council, Tellus Institute, and Union of Concerned Scientists, (June 1997).