In his State of the Union address, the President proposed an energy plan we call Twenty in Ten. The goal is to reduce U.S. gasoline usage by 20% within 10 years (by 2017). There are two main components to 20 in 10 that would reduce gasoline usage:

1. fuel economy standards – we would increase the CAFE (Corporate Average Fuel Economy) standards, and modify the way we do CAFE; and
2. we would increase and expand the Renewable Fuel Standard, to encourage (mandate) that more alternative fuels be used domestically.

We’ve got other important policy proposals having to do with fuel, including proposals to increase domestic production of oil and natural gas, to increase refinery capacity, and to double the size of the Strategic Petroleum Reserve. But today I want to focus on the two quantitatively important components of 20 in 10.

We can split our thinking about energy policy into two separate buckets: (1) fuel for transportation, and (2) power (electricity). In America, they’re largely separate. Oil powers 97% of our transportation, with the rest coming from renewable fuels like ethanol and biodiesel. Our power comes from coal (50%), natural gas (20%), nuclear (20%), hydroelectric (7%), wind (0.4%), and a few other smaller sources. Because battery technology isn’t yet advanced enough to make it practical to store electricity and use it for transportation, and because oil is expensive enough that we don’t use it for power, you can think of fuel and power as largely separable policy issues.

When you hear elected officials talk about energy security or energy independence, they’re almost always talking about fuel and not power. The short version is that (1) more fuel-efficient vehicles make our economy less vulnerable to a sudden spike in the price of oil/gasoline, and (2) the more ability drivers have to rapidly substitute other fuels for gasoline, the more flexibility we have, and our energy security is increased.

If the President’s 20 in 10 policy were enacted as he proposed it, the expanded Alternative Fuel Standard would reduce our gasoline usage by 15% in 2017. The proposed CAFE reform would save up to 5% more, for a total of 20%. Although you won’t read it much in the popular press, our proposal is more aggressive than any other major proposal out there.

The Senate passed an energy bill in June that contains these two components, but in different forms. While we have big problems with some of the ways […]