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Obama fuels the development of gas alternatives

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The massive process of change in the vehicles we drive and how we fuel them gas been nudged ahead.

U.S. President Barack Obama announced March 15 that he intends to use oil revenue to fund research into alternative fuels for cars and trucks. He plans to raise $2-billion by allowing oil and gas drilling on publicly owned land and then use the funds for alternative fuels research.

Meeting the 54.5-mpg Corporate Average Fuel Economy (CAFE) target his government has set for 2025 is expected to cost the auto industry about $200-billion.

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Without drawing attention to the irony of using oil lease revenues to pay to develop petroleum alternatives, Obama said, "We can support scientists who are designing new engines that are more energy-efficient; developing cheaper batteries that go farther on a single charge; and devising new ways to fuel our cars and trucks with new sources of clean energy – like advanced biofuels and natural gas – so drivers can one day go coast to coast without using a drop of oil."

Obama then used his weekly radio address to warn car makers and consumers that a dependence on overseas oil will lead to spikes in gas prices. "The only way we're going to break this cycle of spiking gas prices for good is to shift our cars and trucks off of oil for good," said Obama. He is also playing to environmentalists angered over the possible approval of the controversial Keystone XL pipeline.

This new commitment to alternate fuels comes as it is being acknowledged that, by the end of the decade, the United States could become the world's top producer of oil and natural gas. Because of the shale oil boom, the United States has increased its total oil production since 2008, a fact cited repeatedly by Obama during the election campaign.

Today, the United States spends approximately $300-billion a year for foreign oil but the amount of oil imported last year was the lowest since 1995. Petroleum use is the single largest source of U.S. greenhouse gas emissions, of which about 17 per cent comes from the 230 million light-duty vehicles on the road.

According to the International Energy Agency (IEA) World Energy Outlook 2012, "By around 2020, the United States is projected to become the largest global oil producer," overtaking Saudi Arabia.

Natural gas production is a similar story. Despite concerns regarding groundwater contamination, hydraulic fracturing (fracking) has caused a surge in U.S. natural gas production, enabling the United States to challenge Russia as the world's largest natural gas producer. Cheap natural gas, however, hasn't reduced the amount of coal being mined in the United States; it simply means more is being exported to India and China.

Obama's energy and fuel economy policies are having the effect of reducing foreign oil requirements and raising the prospect of the U.S. becoming "energy self-sufficient." People with far greater expertise than me believe this rosy energy scenario is one of the major forces driving the recent performance of U.S. equity markets.

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Although Obama can't directly take credit for it, there is another interesting shift in behaviour that is assisting the achievement of his goals. Young people are falling out of love with the car.

Professor Juliet Schor of Boston College has been researching "sustainable" consumers. She has tracked the decline in vehicle miles travelled in America and explains, "We are now back to where we were in 1995 in terms of the miles covered by motorists." She believes that it is partly because young people are shifting away from driving as it takes them away from their computer and smartphone screens.

"Fewer than one-third of 16- to 19-year-olds are applying for their driving licence in the U.S. now compared to almost 100 per cent in 1978," said Schor. She also believes that "green" is becoming a status symbol and expects the young will wait longer to buy cars and will increasingly take up options like car-sharing in cities.

When you put it all together, gasoline consumption is headed nowhere but down to the benefit of both the economy and the environment.

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