May 7 (Bloomberg) -- Chevron Corp. Chief Executive Officer David O’Reilly said U.S. lawmakers “vastly overstate” how quickly reductions in carbon emissions can be made and would risk an economic collapse by imposing unrealistic cuts.

“Seeking those reductions without any realistic plan to replace that energy is a straight path back to a pre-industrial economy and a standard of living to match it,” O’Reilly said today in a speech in Boston.

Without referring to specific bills or members of Congress, O’Reilly said that talk of cutting emissions 20 percent by 2020 or 80 percent by 2050 “sounds good” but is unrealistic. For example, the 62-year-old Dublin native said, replacing all of the global transportation system with zero-carbon alternatives would cut greenhouse-gas emissions by only 15 percent.

“Trading in false hopes and inflated numbers will get us nowhere,” O’Reilly said. “We need to set goals that are both high and realistic.”

U.S. Representative Henry Waxman, a California Democrat who chairs the House Energy and Commerce committee, submitted a bill that would create a cap-and-trade system of pollution credits designed to cut carbon emissions 20 percent from 2005 levels by 2020 and 83 percent by 2050. Waxman told reporters this week that he expects the bill to become law this year.

O’Reilly, responding to a question from an audience member, called cap and trade “smoke and mirrors.” He said a carbon tax on polluters would be more transparent.

Administrative Burden

“What is coming out in Congress so far seems to be complicated, extremely complicated,” he told reporters after the speech. “The more you look at it, the more you realize it could be an enormous administrative burden, and I’m not sure it would have the desired impacts.”

O’Reilly said that in addition to accepting the costs of cutting emissions linked to global warming, Americans must recognize that an “economy free of all fossil fuels may be beyond our reach.” He said further advances in conservation and technological innovations will help meet emissions goals in what he expects to be a long process.

“The energy system we have right now is the product of more than a hundred years of investment,” O’Reilly said. “We have to think about the next energy system we’re heading toward as another hundred years of investment.”

San Ramon, California-based Chevron is the second-largest U.S. oil company, ranking behind only Exxon Mobil Corp. It’s the nation’s third-biggest company of any type by sales, behind Exxon Mobil and Wal-Mart Stores Inc.

Supply Outlook

O’Reilly noted that Chevron is also the world’s biggest producer of geothermal power and is the largest installer of solar power plants in California.

To meet demand and reduce reliance on foreign oil, the U.S. needs greater investment in both new and traditional sources of energy, O’Reilly said. For decades, policy decisions have limited domestic oil and gas exploration, driving down output by almost 4 million barrels a day. Current talk of increasing taxes on oil companies, “an appealing campaign pledge,” will further hinder efforts to boost supply, he said.

President Barack Obama submitted a record $3.55 trillion budget today that would increase taxes on oil companies by altering provisions on marginal wells, drilling costs and manufacturing deductions.

“From a policy standpoint, America has been moving in the wrong direction for a very long time,” O’Reilly said.

Demand Seen Growing

Global energy use has jumped 50 percent in the past 20 years and will climb an additional 30 percent in the next two decades, O’Reilly said. As the recession ends and energy demand resumes growing, consumers may again face oil prices above $100 a barrel and gasoline at more than $4 a gallon, he said.

U.S. crude-oil futures are trading about 60 percent below last year’s record high.

“When prices decline, there’s always a tendency to pay less mind to long-term energy concerns,” O’Reilly said.

The U.S. can boost domestic supplies by opening up more areas to drilling, O’Reilly said. The Outer Continental Shelf, for instance, is estimated to hold more than 30 billion barrels of oil and natural gas, he said.

“We need nuclear and clean coal,” O’Reilly said. “We need wind and oil and natural gas. To achieve energy security, we need it all. That means getting beyond simplistic proposals and staying focused on energy security.”

To contact the reporters on this story: Tom Moroney in Boston at tmorrone@bloomberg.net; Tony Cox in Houston at acox3@bloomberg.net.

Last Updated: May 7, 2009 16:07 EDT