Much concern about energy rests on an assumption that our economy runs on oil. Media coverage of energy typically focuses on how crude-oil prices translate into prices at the pump. Political rhetoric mirrors this tendency to treat oil as the centerpiece of our energy economy. Perhaps it is not surprising, then, that 63.2 percent of survey respondents in September 2006 thought that oil provides most of America’s energy. We asked the question again in February, shortly after the president decried America’s dependence on foreign oil in his State of the Union address and the new Democratic Congress legislated efforts to punish “Big Oil.” The share of respondents believing that most of our energy comes from oil had risen to nearly 68 percent.

In reality, however, most of our energy does not come from oil. Sixty percent of U.S. primary energy consumption comes from other sources that largely generate electricity and heat, such as coal, natural gas, nuclear power, and renewable energies. Oil supplies the other 40 percent of energy consumed by Americans in a typical year—largely for powering cars, trucks, and planes—and, while important, is not as dominant in the American economy as many believe (see Table 1).

Oil usage can be disaggregated to better understand our energy economy. Fuels and technologies accomplish three major purposes: the generation of electricity (roughly 40 percent of our energy economy), raw heat (30 percent), and power for transportation (30 percent). In this three-pronged energy economy, coal, natural gas, and uranium (nuclear power) are the principal fuels for generating electricity. Natural gas and oil are the main fuels for generating raw heat, with gas providing the larger share. And oil is the main fuel for powering the transportation sector.

This snapshot reveals how energy use is evolving. For much of the twentieth century, oil generated both transportation and electricity. As late as the 1970s, many electric power plants were fired by oil. But today, just a small amount of Americans’ electricity is supplied by oil. In another fairly recent development, natural gas has made large inroads in generating electricity.

Though oil and transportation account for just one portion of our overall energy use, they dominate debates and generate the most headlines. “Peak oil” theorists, including retired oil-industry geologist Colin Campbell, warn of impending calamities when the wells dry up.[1] Students of global warming point with alarm to more than 200 million cars and trucks on our roads and to predicted increases in automobile ownership in emerging economies like China. For perhaps these reasons, President Bush challenged America to “move beyond the petroleum-based economy” in his 2006 State of the Union address.

Yet we already are moving beyond the petroleum-based economy. The process has been under way for several decades, during which technological advances in microprocessing and computers have begun to change the energy-use landscape. In an era marked by computers, handheld PDAs, cellular phones, and iPods-—not to mention the Internet—Americans now use 82 percent more electricity than they did in 1980. This jump in electricity use accounts for over 85 percent of the growth in our energy demand during that time.[2] Sixty percent of America’s gross domestic product now comes from industries and services that run on electricity., as opposed to just 20 percent in 1950.

Electrification will likely intensify. In The Bottomless Well, Peter Huber and Mark Mills predict major electrical advances in the thermal sector of the economy.[3] Lasers, microwaves, magnetic fields, and other electric technologies will displace a significant portion of the heating now performed in conventional ovens and industrial processes. Computers and microprocessors will transform our vehicles, allowing electricity to power our cars and trucks instead of oil.

It won’t all happen overnight; oil will continue to undergird our transportation sector well into the future. About two-thirds of the 7 billion barrels of oil that we presently use each year go into our gas tanks or become kerosene jet fuel (the rest is used for heating and for things like chemicals, plastics, and asphalt). Oil likely will remain our single biggest source of raw energy, a fact recognized by almost 40 percent of MI/Zogby survey respondents (see box). However, this does not refute the fact that most of our energy does not come from oil, nor will it in the coming decades.
If dependence on oil defined the twentieth century, reliance on electricity will define the twenty-first. Where will it come from? Today, coal (49.7 percent), nuclear power (19.9 percent), and natural gas (18.7 percent) are responsible for the bulk of it. Hydropower provides 6.5 percent. Renewable energies such as solar, wind, and biomass provide about 3 percent—the same amount as oil’s negligible contribution.[4]

The Energy Information Administration forecasts that total U.S. electricity consumption will increase by 43 percent by 2030. America’s growing need for electricity would therefore be a wise focus for policymakers and media going forward.



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Press Release


Clarice Smith
Deputy Director,
Manhattan Institute
(212) 599-7000



Copyright The Manhattan Institute 2007