You have probably heard or read the talking point many times: The United States consumes nearly one-quarter of the world’s oil but we have only 2-3% of the world’s proved reserves (here, here, here), hence we cannot drill our way out of high gasoline prices (here, here, here), and should instead adopt policies (cap-and-trade, biofuel quota, fuel-efficiency mandates) to accelerate America’s transition to a low-carbon future.

A new report by the Institute for Energy Research (IER), North American Energy Inventory (December 2011), demolishes the gloomy assessment underpinning demands for centralized planning of America’s energy future.

Proved reserve estimates actually tell us relatively little about America’s energy resources. Proved reserves refer to oil and gas deposits that have already been discovered, and which can be economically recovered today. But much larger quantities are technically recoverable, and advances in technology continually make more oil and gas economical to recover. Moreover, new deposits are continually discovered as proved reserves are exploited.

Consequently, proved reserves can — and often do – increase as more oil and gas are consumed. “For example,” notes the IER report, ”in 1980, the U.S. had oil reserves of roughly 30 billion barrels. Yet from 1980 through 2010, we produced over 77 billion barrels of oil. In other words, over the last 30 years, we produced over 150 percent of our proved reserves.”

Just a few short years ago, it was assumed that U.S. reserves of natural gas would decline and we would have to import increasing amounts of high-priced liquefied natural gas (LNG) from the Middle East. But the combination of horizontal drilling and hydro-fracturing (“fracking”), which releases gas trapped in shale, has created a boom in the production of this “unconventional” resource, which was once uneconomical to develop. IER notes:

In its Annual Energy Outlook 2010 (AEO 2010), EIA predicted that by 2035, shale gas would account for 26 percent of total U.S. natural gas production. But in 2010, shale gas was already accounting for 23 percent of domestic production. In its latest Annual Energy Outlook (AEO 2011), the EIA projects that by 2035, shale gas will account for an astounding 46 percent of total U.S. natural gas production.

The same technological combo — horizontal drilling and fracking — is also revving up production of “unconventional” oil from shale deposits such as the Bakken formation in North Dakota and the Eagle Ford formation in Texas. IER comments:

 In 2002, the United States Geological Survey (USGS) estimated the [Marcellus] area held about two trillion cubic feet of natural gas and .01 billion barrels of natural gas liquids. By 2011, however, the USGS estimated the area held 84 trillion cubic feet of natural gas and 3.4 billion barrels of liquids. Within a span of 9 years, technology increased estimated natural gas supplies in the Marcellus 42-fold, and liquids 340-fold. Similarly, the Bakken formation in North Dakota and Montana was estimated to have 151 million barrels of oil in 1995, but by 2008, the USGS had increased its estimate to between three and 4.3 billion barrels, 25 times the 1995 estimate. History is rampant with these types of increased estimates of resources as improved technology enables more resources to be produced.

Similarly, technological advances such as steam assisted gravity drainage (SAGD) have turned Canada’s vast tar sands deposits into a gigantic source of economically recoverable oil. Notes IER:

Oil sands production has allowed Canada to increase its proved reserves of oil from five billion barrels to 170 billion barrels, making its oil reserves third only to those of Saudi Arabia and Venezuela.

What energy consumers should worry about is not resource depletion but politically-contrived roadblocks to safe and responsible energy production, IER argues. Fortunately, ”The truth that is finally becoming clear is that North America is not only blessed with huge quantities of energy, but also could become the single largest producer in the world, with all of the attendant manufacturing, technological innovation and re-industrialization that would provide generations with good jobs and sustainable futures.”

The IER report offers a tour of North American oil, gas, and coal resources with maps, charts, and data based on U.S. Government and other public sources. Here are the key numbers:

Oil

Total Recoverable Resources: 1.79 trillion barrels.

•  Enough oil to fuel every passenger car in the United States for 30 years
• Almost twice as much as the combined proved reserves of all OPEC nations
• More than six times the proved reserves of Saudi Arabia

Natural Gas

Total Recoverable Resources: 4.244 quadrillion cubic feet.

• Enough natural gas to provide the United States with electricity for 575 years at current
  natural gas generation levels
• Enough natural gas to fuel homes heated by natural gas in the United States for 857 years
• More natural gas than all of the next five largest national proved reserves (more than
  Russia, Iran, Qatar, Saudi Arabia, and Turkmenistan)

Coal

Total Recoverable Resources: 497 billion short tons.

• Provide enough electricity for approximately 500 years at coal’s current level of
  consumption for electricity generation
• Provide enough electricity for approximately 500 years at coal’s current level of
  consumption for electricity generation
• More coal than any other country in the world
• More than the combined total of the top five non-North American countries’ reserves
  (Russia, China, Australia, India, and Ukraine)
• Almost three times as much coal as Russia, which has the world’s second largest reserves

Pretty darn near the height of absurdity. That’s not just my opinion. It’s a key premise of EPA’s “Tailoring Rule,” which exempts small greenhouse gas (GHG) emitters from regulation under the Clean Air Act’s (CAA) Prevention of Significant Deterioration (PSD) pre-construction permitting program and Title V operating permits program.

As EPA explains in a brief filed last week with the D.C. Circuit Court of Appeals, once the agency’s GHG emission standards for new motor vehicles took effect on January 2, 2011, “major stationary sources” of GHG emissions became “automatically subject” to PSD and Title V permitting requirements. A facility with a potential to emit 250 tons per year (tpy) of a regulated air pollutant is a “major source” under PSD. A facility with a potential to emit 100 tpy is a “major source” under Title V. Whereas only large industrial facilities emit 100-250 tpy of smog- and soot-forming air pollutants, literally millions of small entities — big box stores, apartment and office buildings, hospitals, schools, large houses of worship, Dunkin’ Donut shops – use enough natural gas or oil for heating or cooking to emit 100-250 tpy of carbon dioxide (CO2).

EPA and its state counterparts lack the administrative resources to process millions of PSD and Title V permit applications. Thus, applying the CAA as written to GHGs leads to “absurd results” — an ever-growing backlog of permit applications that would cripple both environmental enforcement and economic development. Massive increases in the budgets and staff of environmental agencies would be required to handle the mountains of paperwork. From EPA’s brief:

EPA studied and considered the breadth and depth of the projected administrative burdens in the Tailoring Rule. There, EPA explained that immediately applying the literal PSD statutory threshold of 100/250 tpy [tons per year] to greenhouse gas emissions, when coupled with the “any increase” trigger for modifications under 42 U.S.C. §§7479, 7411(a)(4), would result in annual PSD permit applications submitted to State and local permitting agencies to increase nationwide from 280 to over 81,000 per year, a 300-fold increase. 75 Fed. Reg. at 31,535-40, 31,554. Following a comprehensive analysis, EPA estimated that these additional PSD permit applications would require State permitting authorities to add 10,000 full-time employees and incur additional costs of $1.5 billion per year just to process these applications, a 130-fold increase in the costs to States of administering the PSD program. Id. at 31,539/3. Sources needing operating permits would jump from 14,700 to 6.1 million as a result of application of Title V to greenhouse gases, a 400-fold increase. When EPA [in an earlier asssessment] assumed a mere 40-fold increase in applications – one-tenth of the actual increase – and no increase in employees to process them, the processing time for Title V permits would jump from 6-10 months to ten years. Hiring the 230,000 full-time employees necessary to produce the 1.4 billion work hours required to address the actual increase in permitting functions would result in an increase in Title V administration costs of $21 billion per year. Id. at 31,535-40, 31,577 [emphasis added].

For perspective, EPA’s budget request for FY 2012 is $8.973 billion. Hiring the 230,000 bureaucrats needed to process Title V applications from GHG emitters under the statutory definition of “major source” would cost more than twice as much as EPA’s total budget.

As expected, EPA fails to draw the obvious conclusion from its own analysis, namely: Regulating GHGs via the CAA leads to absurd results because Congress never designed or intended for the Act to regulate GHGs.

EPA seeks to avoid absurd results — and an angry, political backlash — by “tailoring” the CAA’s clear, unambiguous, numerical definitions of “major source” to exempt all but the largest GHG emitters from PSD and Title V. But “tailoring” is just bureaucrat-speak for amending. Under the U.S. Constitution, an administrative agency has no power to amend statutes. Certainly the CAA nowhere authorizes EPA to revise statutory provisions to avoid administrative debacles of its own making. The Tailoring Rule just substitutes one absurdity for another.

EPA claims it had no choice but to regulate GHGs once it made an endangerment finding, because the Supreme Court in Massachusetts v. EPA ruled that GHGs “fit well within the Clean Air Act’s capacious definition of air pollutant.” True, but to reach that conclusion, the Court’s 5-4 majority had to play fast and loose with the statutory definition of “air pollutant” in CAA Sec. 302(g). As I explain elsewhere:

The Court argued that, under CAA Section 302(g), CO2 and other greenhouse gases are “air pollutants” because they are “emitted into” or “otherwise enter” the air. The CAA exists, of course, to control and prevent “air pollution.” Therefore, the Court concluded, EPA has authority to regulate such substances if the agency determines that greenhouse gases endanger public health or welfare.

But 302(g) does not define “air pollutant” as anything “emitted.” It says that “air pollution agents” – substances that damage air quality – are “air pollutants” when emitted. The Court decoupled the term “air pollutant” from its plain English meaning – as if any “emitted” substance is an “air pollutant” whether or not it actually damages air quality. Carbon dioxide – like water vapor, the atmosphere’s main greenhouse gas – is a necessary constituent of clean air.

As Justice Antonin Scalia quipped in dissent, as defined by the Court, “everything airborne, from Frisbees to flatulence, qualifies as an ‘air pollutant.’” Indeed, even absolutely clean, pollution-free air qualifies as an “air pollutant” the moment it moves or circulates, which is plainly absurd.

Section 302(g) is only two sentences long. The Court not only ignored a key term (“air pollution agent”) of the first sentence, it also ignored the entire second sentence, which holds that a “precursor” of a previously designated air pollutant is also an “air pollutant.” Congress would not have needed to say that if, as the Court opined, anything emitted per se is an “air pollutant,” because precursors form air pollutants only by being emitted.

Courts are not supposed to assume that Congress pads statutes with surplus verbiage. For a court to ignore a key term and an entire sentence of a two-sentence definition, in a case where the provision’s meaning is critical to the outcome, is not kosher. The entire greenhouse of cards EPA is now putting in place, with all its enormous economic and political ramifications, rests on the Court’s tortured reading of the CAA definition of “air pollutant.”

In addition, the Court would have been less likely to rule that GHGs “fit well within the Clean Air Act’s capacious definition of air pollutant” if counsel for EPA had made clear that such a ruling would set the stage for “absurd results,” and that EPA would have to play lawmaker and amend the CAA to avoid an administrative meltdown. However, not once in the four years when Mass. v. EPA was litigated before the D.C. Circuit Court of Appeals and the U.S. Supreme Court did counsel for EPA mention these ramifications.

Nor did EPA’s counsel make the fundamental point that EPA could not issue an endangerment rule without eventually regulating GHGs from numerous categories of mobile and stationary sources under the CAA as a whole, effectively ‘legislating’ climate policy for the nation. That is obviously not an authority Congress meant to confer on EPA when it enacted the CAA in 1970.

Indeed, even after almost two decades of global warming advocacy, if Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.), instead of introducing a cap-and-trade bill, had introduced legislation authorizing EPA to regulate GHGs via the CAA as it sees fit – i.e. do exactly what the agency is doing now — the bill would have been dead on arrival. How absurd, then, to suppose that Congress authorized EPA to legislate climate policy in 1970, years before global warming became a policy issue!

Why did EPA’s counsel pull its punches in Mass. v. EPA? Not being privy to the inter-agency discussions that shaped the Justice Department’s brief, we can only speculate. This much however is clear: By losing the case, EPA gained the truly awesome, economy-restructuring power to regulate CO2, the most ubiquitous byproduct of industrial civilization.

* The Institute for Energy Research posted an excellent commentary on EPA’s brief last Friday. It is available here.