June 1, 2022
by Drew Veysey
In the wake of Russia's invasion of Ukraine, world oil prices spiked, from $94 per barrel the day before the invasion (February 23) to a peak of $127 per barrel on March 8, and have remained well over $100 per barrel for months now.See footnote 1 Here in the U.S., the shock of surging gasoline prices – going from $3.53 per gallon to $4.32 per gallon in the three weeks after the war startedSee footnote 2 – has captured the attention of elected officials. But many of the policy responses offered in reaction to public concern over rising fuel prices aren’t likely to have much effect on prices at the pump. Additionally, those moves may distract policymakers from a once-in-a-generation opportunity to reduce our vulnerability to such price shocks in the future - and reduce the emissions that cause climate change.
The historic $1.2 trillion infusion of funding from the Bipartisan Infrastructure Law, passed in November 2021, presents a critical opportunity for federal and state governments to invest in transportation projects that lessen US dependence on oil and reduce the nearly one third of total U.S. emissions that come from transportation. An analysis published by the Georgetown Climate Center in December 2021 found that, over the life of the legislation, it could produce oil savings and climate benefits many times the scale of short-term proposals being discussed right now.See footnote 3
Many Proposed Responses to High Oil Prices Unlikely to Have Significant Impact
The price of oil is determined by the global market, which produces almost 100 million barrels per day.See footnote 4, See footnote 5 By comparison, Russia's invasion of Ukraine has effectively removed 3 million barrels a day of oil production from the global market.See footnote 6 Near-term incremental changes in other countries’ output won’t have much impact on the price of a barrel because they aren’t likely to be able to make up for the significant loss of Russian oil to the global market for months or years to come.See footnote 7 The same holds true for steps intended to boost domestic oil supplies. In April, the Biden Administration ordered the release of one million barrels of oil per day from the Strategic Petroleum Reserve (SPR) for the next 6 months (a total of 180 million barrels in total), but such releases can’t be sustained over the long haul. The U.S. is integrated into the global market, so increasing domestic oil drillingSee footnote 8 is also unlikely to affect gasoline prices.See footnote 9 That’s why prices at the pump are higher than ever ($4.56 per gallon)See footnote 10 even though the United States is already the world’s largest oil producer (over 5 billion barrels per year)See footnote 11 and on track to produce more oil in 2023 than it ever has (12.6 million barrels per day).See footnote 12 In fact, over the past year, gasoline prices in the United States have increased 67 percent, even while U.S. crude oil production has increased 15 percent in the same time period.See footnote 13, See footnote 14
Another proposed response to higher gasoline prices is to temporarily suspend state or federal gasoline taxes. There is logic to this proposal -- taxes are one thing governments have direct control over, and many consumers are genuinely struggling with higher prices. In May 2022, on average, 7.4% of the price of regular gasoline was due to state taxes.See footnote 15
However, as the Washington Post Editorial Board, among others, has noted, suspending gasoline taxes will mean less funding for State Departments of Transportation (DOTs) to maintain roads, bridges, and other parts of the transportation system.See footnote 16 That infrastructure remains badly in need of attention: in 2021 the American Society of Civil Engineers scored transportation infrastructure maintained by state DOTs like bridges, roads, and transit a C, D, and D- respectively.See footnote 17 States that have announced suspensions of their fuel taxes will reduce their cumulative transportation coffers by roughly $1.7 billion this year.See footnote 18 Meanwhile, consumers will likely see only a small fraction of those changes in gas tax rates reflected in the price at the pump, primarily because retail prices are set by individual gas station operators.See footnote 19
In addition, because many federal transportation programs that fund infrastructure investments have a state matching requirement, a gasoline tax suspension could also make it harder for states to access all the federal funds available to state DOTs to maintain and improve transportation systems. For example: the Congestion Mitigation & Air Quality Improvement Program (CMAQ), the Surface Transportation Block Grant Program (STBG), and the National Highway Performance Program (NHPP) each require state matching funds of 10 to 20 percent in order to unlock federal funding.See footnote 20
Investing in Infrastructure Can Reduce Dependence on Oil, Help Address Climate Change, and Save on Fuel Costs for the Long-Term
Nearly 29% of US greenhouse gas (GHG) emissions come from the transportation sector. The analysis GCC conducted last year found that, if state and federal agencies use the flexibility that is built into the BIL’s transportation programs by prioritizing investments that give people and businesses more low-carbon transportation options – such as electric cars and buses – the legislation has the potential to reduce emissions by over 250 million tonnes of carbon dioxide through 2040.See footnote 21 According to this analysis,See footnote 22 some of the most cost-effective investments for reducing oil dependence are electrification of transit buses, improving bicycling infrastructure, incentivizing smart growth, and improving the efficiency of traffic systems.
The good news is that the same strategies that could reduce GHG emissions from the transportation sector would also make the United States less susceptible to oil price shocks, because they would make our transportation system less dependent on oil in general. Our research has further found that by prioritizing energy-efficient transportation choices in the investment of BIL transportation funds, states could reduce US oil consumption by approximately 32 million barrels per year, equivalent to about one half of a percent of our annual total.See footnote 23 The cumulative oil savings (615 million barrels through 2040) of these investments could be more than three times the amount of oil the U.S. is releasing from the SPR, while also helping address the climate crisis.
On the other hand, if BIL transportation investments are weighted toward highway expansion, then US oil consumption could increase by about 30 million barrels per year relative to business as usual. Looking at the two largest categories of funding being distributed through the states, here’s how that might play out.
The Bipartisan Infrastructure Law reauthorizes the Surface Transportation Block Grant Program (STBG) for $71.9 billion in spending over 5 years. The second largest pot of transportation funds in the bill, STBG also gives states plenty of flexibility in deciding what kinds of projects to spend the money on, from paving new highways to building bike lanes or buying electric buses. If states use that flexibility to prioritize investments in activities like fixing bridges and tunnels, repairing transit systems, building bicycle & pedestrian infrastructure, electric vehicle charging, and improving freight operations–all possible uses for the funding–we estimate that this could result in savings of 5.5 million barrels per year. However, if STBG funds are used primarily on expanding highways, it could increase US oil dependence by nearly 4 million barrels per year.See footnote 24
The National Highway Performance Program (NHPP) is the largest transportation program reauthorized by the Bipartisan Infrastructure Law–approximately $148 billion in spending over 5 years, or 15% of the BIL’s $1.2 trillion. The NHPP has less flexibility than the STBG–funds are required to be spent on highways– but some highway spending (e.g., repairing roads, bridges and tunnels, known as a “fix it first” approach) could lead to reduced emissions from highway driving, while a focus on expanding highways could mean increased oil dependence of nearly 14 million barrels of oil per year, relative to business as usual.See footnote 25
Of course, America’s dependence on oil has been over 100 years in the making and cannot be undone overnight. But just as the BIL can be a start to reducing climate-changing emissions from transportationSee footnote 26 and it can also begin reducing America’s oil dependence.
Choices made by federal, state, and local policymakers as they implement the BIL will in part determine how quickly the United States moves toward a cleaner, safer, more stable energy future. Even the BIL presents a modest step in relation to the enormity of US oil dependence, but the wise course forward is to take advantage of every opportunity, even small ones, because we have a long way to go.
18. Estimate based of EIA fuel consumption 2020 data and fuel tax rates for Florida, Georgia, Maryland, New York, and Connecticut. Back to contentBack to content