Saudi Arabia

Driven Mad By SUVs

The Times' Paul Krugman may be a smart economist, but he's a stupid columnist.

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As the Western media exposed our Saudi Arabian allies as double-dealing despots, attention turned to the obvious question: Can the United States live without Saudi Arabian oil, which, at 1.6 million barrels a day, accounts for 14 percent of our imports? The answers are mixed. The Wall Street Journal's Susan Lee says sure we can, since other countries will simply sell more oil. Newsweek reached a similar conclusion. "Not a chance," says Hudson Institute economist Irwin Stelzer, in The Weekly Standard.

The most useless contribution to the oil debate, albeit not directly addressing the narrow question of Saudi Arabia, comes from The New York Times' top economic pontificator, Paul Krugman. "Intelligent policies could break [the oil price surge and bust cycle]," says Krugman, a chaired professor of economics at Princeton.

Krugman spent much of his recent column explaining two obvious points. First, that producer cartels face difficulties in maintaining artificially low production levels. Second, he helpfully pointed out that as prices for a commodity drop people consume more of the commodity. What upsets Krugman about low prices for oil? He fears low prices are destabilizing for Saudi Arabia and, worse yet, causing people to purchase sport-utility vehicles.

Considering the stakes, it is shocking to find that the man who says "all we need is leadership" to break the "oil-hog cycle," has but one policy suggestion: increase mileage standards on SUVs to the equivalent of automobiles. Currently, SUVs are classified as light trucks for mileage standards and, on average, have to get 20.7 miles per gallon. Cars must meet a standard of 27.5 mpg.

So what of his solution? Is a government-mandated increase in mileage for SUVs the answer to our Middle East oil problem?

Not even close. Here's how the issue breaks down, according to Howard Gruenspecht, who specializes in Energy and Natural Resources for the think tank Resources for the Future. The United States consumes roughly 20 million barrels of oil each day, almost 9 million in the form of gasoline. Currently, Americans own 200 million vehicles--125 million cars, and 75 million light trucks, which meet the lower mileage standards. Recently, Americans have been purchasing roughly 16 million vehicles a year, half of them classified as light trucks, including SUVs. So over time, light trucks and SUVs constitute an increasing presence on the road.

It is immediately obvious that there are two significant time lags inherent in any effort to increase fuel economy: The time it takes the regulations to phase in and the time it takes Americans to purchase new cars and trucks. If the administration made the regulatory change tomorrow, and made it effective in five years, it would be over a decade before half of the truck miles driven come from vehicles that meet the new standards.

What sort of savings does this give us? Not much. The effected cars' fuel efficiency is increased by a third, which provides a 25 percent reduction in fuel use for those vehicles. In a decade, half of the light truck vehicle miles traveled would be affected, resulting in a 12.5 percent reduction of fuel use by light trucks. In all likelihood, by then light trucks will account for a little more half of all fuel use, so the total reduction in fuel use is between 6 and 7 percent. So a decade out, Krugman's big idea promises to save a mere 600,000 barrels of oil a day, less than 3 percent of current domestic consumption.

It gets worse. Krugman proposes to "close the loophole that exempts S.U.V.'s from mileage standards." Yet SUVs constitute only half of the light truck category that qualifies for lower standards. (It also includes pickups and small and large vans.) Therefore, Krugman's brainchild, read literally, would save Americans from purchasing roughly 300,000 barrels a day a decade out.

That might be worth doing. 300,000 barrels is, after all, a bunch of oil. But one ought to judge a proposal against the relative merits of others designed to achieve similar goals. Krugman concludes his piece by advising the Bush administration to "drop its fixation on drilling in the arctic--which would produce too little oil, too late to make any difference." So how much oil will the proposed Arctic National Wildlife Refuge site produce? According to the Energy Information Administration, a decade after development, ANWR could produce between 600,000 and 900,000 barrels of oil a day.

It may not be much, but it's as much as three times more than Krugman's plan for energy stability. Perhaps he should examine his own "fixations."