Most oil is used in the  transportation sector as gasoline, diesel, and jet fuel, with oil-based  products accounting for over 98 percent of the U.S. transportation sector’s  fuel consumption. Although today the United States and its industrialized counterparts  currently account for the bulk of the world oil demand, demand is growing  rapidly in the developing nations, especially those in Asia, such as China  and India. Going forward, the United  States will increasingly rely on imported oil because although the United  States is currently the world’s third largest oil producer, U.S. proven oil  reserves account for only about 2 percent of total world reserves. However, because of  the relative political instability in the Middle East and some of the other  OPEC countries (such as Nigeria and Venezuela), occasional oil supply  disruptions and price shocks have been a fact of life for about the past 30  years and may remain an issue for the foreseeable future. Choices regarding the use of coal revolve around balancing these  consequences, in the light of new technologies to reduce them, with the  energy benefits of using this plentiful domestic resource. Natural gas plays a vital role in meeting the country’s national energy  demand, accounting for about 23 percent of the total energy consumed in  the United States. EIA estimates that total natural gas demand  could increase 50 percent in the next 25 years. We noted that  (1) prices generally increase because limited supplies have not been able  to react quickly enough to changes in demand; (2) the federal government  (e.g., the Federal Energy Regulatory Commission and EIA) faces  significant challenges in overseeing natural gas markets and ensuring that  prices are determined in a competitive and informed marketplace,  minimizing unnecessary price volatility; and (3) buyers of natural gas have  options to reduce their exposure to volatile prices through the use of long- term contracts and financial hedging instruments. Nuclear Energy: Emission-Free Energy Source, but with Waste Storage Problems and Safety/Security Concerns

Nuclear energy was once heralded as the single answer to all of the  country’s energy woes, with predictions that electricity would soon be  “too cheap to meter.” While these enormous expectations have not been  met, nuclear energy has become an important part of the country’s current  energy picture and may remain that way for years to come. Over the past 20 years, plants have continued to be built overseas. We also  reported on the ability to add new power plants in three states, concluding  that the success of restructured markets hinged on private investment in  power plants and that this investment was reduced by higher levels of  perceived risk in some markets, such as in California. Wind energy accounted for about  2 percent of the total renewable energy consumed in 2003 but has  witnessed substantial and persistent growth in recent years, more than  tripling from 1998 through 2003. However, EIA estimates that if the government maintains the tax credit,  wind power generation in the United States is expected to grow nearly  seven-fold over the next 20 years. Reducing Energy Demand through Efficiency and Consumer Choice: the Often-Overlooked Energy Option

Experts have long contended that energy strategies that reduce demand  can cost less, be brought on line faster, and provide greater environmental  benefits compared to strategies that increase the amount of energy  supplied—particularly if demand reductions decrease fossil fuel  consumption and related pollution. According to the American  Council for an Energy Efficient Economy and the Alliance to Save Energy,  energy efficiency investments made from 1973 through 2003 saved the  equivalent of 40 to 50 quadrillion BTUs of energy in 2003, equal to about 40  to 50 percent of total energy consumption and more than any single fuel  provided. For  example, because energy-consuming equipment, such as air conditioners,  furnaces, and lighting systems, is generally costly to purchase and lasts  many years, consumers do not want to replace it unnecessarily. GAO has examined policies designed to reduce demand in electricity  markets, as well as efforts to develop more fuel-efficient automobiles. Conclusions

Given the increasing signs of strain on our energy systems and our  growing awareness of how our energy choices impact our environment,  there is a growing sense that federal leadership could provide the first step  in a fundamental reexamination of our nation’s energy policies. As the  Congress, executive agencies, states and regions, industry, and consumers  weigh such a reexamination, we believe that it makes sense to consider all  energy sources together, along with options to encourage more efficient  energy use and consumer choices to save energy. Clearly none of the nation’s energy options are without problems or trade- offs. In the same way, energy suppliers have choices about how  much of each type of energy to provide, based increasingly on their  interaction with competitive domestic and sometimes global markets for  energy. Yet, many of these choices may be significantly influenced, or  even overshadowed, by broader forces that are beyond our control, such  as expected energy demand growth in the developing world. Have we charted a course that can be  sustained in the 21st century? Air Pollution: Meeting Future Electricity Demand Will Increase  Emission of Some Harmful Substances.
Why GAO Did This Study

Plentiful, relatively inexpensive energy has been the backbone of much of modern America's economic prosperity and the activities that essentially define our way of life. The energy systems that have made this possible, however, are showing increasing signs of strain and instability, and the consequences of our energy choices on the natural environment are becoming more apparent. The reliable energy mainstay of the 20th century seems less guaranteed in the 21st century. As a nation, we have witnessed profound growth in the use of energy over the past 50 years--nearly tripling our energy use in that time. Although the United States accounts for only 5 percent of the world's population, we now consume about 25 percent of the energy used each year worldwide. Looking into the future, the Energy Information Administration (EIA) estimates that U.S. energy demand could increase by about another 30 percent over the next 20 years. To aid the subcommittee as it evaluates U.S. energy policies, GAO agreed to provide its views on energy supplies and energy demand as well as observations that have emerged from its energy work. This testimony is based on GAO's published work in this area, conducted in accordance with generally accepted government auditing standards, and on EIA's Annual Energy Review, 2003 and its Annual Energy Outlook, 2005.

What GAO Found

America's demand for energy has, in recent decades, outpaced its ability to supply energy. As a result, the country has witnessed rapid price increases and volatility in some markets, such as gasoline, and reliability problems in others, such as electricity, where the blackout in 2003 left millions in the dark. Given these recent and sometimes persistent problems, as well as concerns about the impacts of energy consumption on air, water, and other natural resources, there is a growing sense that action is needed. Today, fossil fuels (coal, oil, and natural gas) provide about 86 percent of our total energy consumption, with the rest coming from nonfossil sources such as nuclear (8 percent) and renewables, such as hydroelectric energy and wind power (6 percent). Overall, the majority of the nation's energy consumption is met by domestic production. However, imports of some fuels have risen. For example, over the past 20 years, imports--primarily oil and natural gas--have doubled, and in 2003 these imports comprised about one-third of total domestic energy consumption. Imports are expected to increase still further in order to meet future domestic consumption. In light of the current and expected levels of imports, the United States is, and will increasingly be, subject to global market conditions, with the transportation sector especially affected. Global markets may face future difficulties in meeting the growing energy demands of developed nations while also meeting the demands of the developing world, particularly considering the explosive growth in some economies, such as China's and India's. If world supplies for some fuels do not keep pace with world demand, energy prices could rise sharply. GAO believes that a fundamental reexamination of the nation's energy base and related policies is needed and that federal leadership will be important in this effort. To help frame such a reexamination, we offer three broad crosscutting observations. First, regarding demand, the amount of energy that needs to be supplied is not fate, but our choice. Consumers, whether businesses or individuals, choose to use energy because they want the services that energy provides, such as automated manufacturing and advanced computer technologies. Accordingly, consumers can play an important role in using energy wisely, if encouraged to adjust their usage in response to changes in prices or other factors. Second, all of the major fuel sources--traditional and renewable--face environmental, economic, or other constraints or trade-offs in meeting projected demand. Consequently, all energy sources will be important in meeting expected consumer demand in the next 20 years and beyond. Third, whatever federal policies are chosen, providing clear and consistent signals to energy markets, including consumers, suppliers, and the investment community, will help them succeed. Such signals help consumers to make reasoned choices about energy purchases and give energy suppliers and the investment community confidence that policies will be sustained, reducing investment risk.