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Lagniappe
"Energy
Independence" is a Pipedream
By Clinton J. Woods and William F. Collins
With the House considering a variety of controversial energy
proposals, the Senate approving a watered-down energy bill,
and presidential campaigns heating up, it seems that the only
thing every significant figure inside the Beltway has in common
is passionate support for "energy independence." While
Congress is abuzz with talk of alternative fuels, energy efficiency,
price-gouging, and fuel economy standards, disdain for imported
oil is the only aspect of this new energy policy backed by
widespread agreement. From President George W. Bush and Charles
Krauthammer to John Edwards and Arianna Huffington, the outline
of a bipartisan consensus opposed to foreign energy dependence
has emerged. The Senate has already utilized the independence
mantra to rationalize a market-distorting and pork-laden energy
bill.
Unfortunately,
it appears that nearly all of Capitol Hill is now congregated
around the altar of "energy independence," lured
by the promise of economic half-truths and optimistic pipedreams.
"
Energy independence" has become political shorthand for
reducing our reliance on oil imports from the Middle East and
Latin America. Consumption of imported coal and natural gas
is not the problem. The U.S. is a leading producer of both
fuels, and the only substantial imports come from our benign
northern neighbor, Canada. Supporters of energy independence
are correct to point out that we are increasingly reliant on
imported oil. Petroleum imports currently represent around
59% of total U.S. oil consumption, as compared with 35% in
1973. It does not follow, however, that a reduction in domestic
consumption will have an appreciable or positive impact on
our dependence on foreign oil.
Every single proposal to achieve energy independence (from
the currently fashionable ethanol incentives and fuel efficiency
standards to an increase in domestic oil production) will
have a negligible effect on the amount of oil imported from
abroad. The reason for this is simple: U.S. oil producers
face substantially higher production costs than their foreign
competitors. As of 1999, finding costs (the largest portion
of total production costs) in the United States were nearly
twice that of Middle Eastern exporters. Non-American producers
have access to more plentiful and easily-extractable petroleum.
As we reduce domestic consumption through comprehensive energy
reform, the oil displaced will be from high-cost American producers,
not those in Saudi Arabia or Venezuela. Absent a draconian
prohibition on petroleum imports, market forces ensure that
the lower cost foreign producers will continue to provide most
of the United States' oil, regardless of any undesirable political
baggage. The end result of such a policy would be twofold:
U.S. producers will be priced out of the market, and foreign
imports will end up providing for greater percentage of total
domestic petroleum consumption.
The facts,
however, never seem to get in the way of political opportunism.
While pushing for an increase in Corporate Average
Fuel Economy (CAFE) standards, Senator Dianne Feinstein explicitly
justified her support for the measure in terms of energy
independence, disingenuously arguing that higher fuel efficiency "would
save nearly the amount of oil we currently import from the
Persian Gulf." William Laffer III of the Heritage Foundation
dispensed with this argument as early as 1991, when he explained
that "since American oil producers face substantially
higher costs per barrel that producers in other parts of
the world, the Americans would be forced to stop selling
oil" if more stringent CAFE standards were enacted.
Attempts to achieve oil self-sufficiency also will do nothing
to insulate the U.S. from energy price fluctuations. Our
increasingly globalized economy guarantees that U.S. oil
prices are at the mercy of even the smallest blip in international
petroleum markets. Even if we were completely energy self-sufficient,
global supply disruptions would still drive up the price
of oil through increased demand.
The only
way the U.S. could eliminate foreign oil dependency would
be to ban the importation of oil (a sure-fire way to
devastate U.S. growth overnight) or to completely eliminate
our petroleum-based economy. As mentioned above, neither
of these strategies will protect us from price shocks resulting
from international crises, and an "Apollo Project" to
completely shift away from imported oil in the next few decades
is nothing but wishful thinking. Fossil fuels are not only
inexpensive; our entire economic infrastructure is geared
toward their consumption. The inability for alternative energy
sources to compete (despite being awash in Washington's largess)
demonstrates that energy independence is a fantasy. Even
if Congress authorizes new domestic drilling, it is unlikely
that these initiatives will provide reserves that are cheap
enough or large enough to offset Saudi and Venezuelan shipments.
There are
a number of alternative justifications for energy reform
that are entirely separate from the United States'
perceived dependence on foreign oil. Countering climate change,
lowering the price of oil and gas, achieving energy diversification,
and the creation of domestic jobs are all goals that may
necessitate government intervention. To justify new programs
on the grounds of "energy independence," however,
is both economically ignorant and politically dishonest.
Clinton
J. Woods is a legislative analyst in the transportation
industry and William F. Collins is a freelance political
writer. Petroleumworld
not necessarily share these views.
Editor's
Note: This commentary was originally published by American
Thinker , on 07/14/2007. Petroleumworld reprint this article
in the
interest of our readers.
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