As noted in our May 28, 2010 post, “Gulf Oil Disaster: Privatizing the Gulf for Better Stewardship,” proponents of various political interests are using the disaster to seek support for their views. These interests include the proponents of energy independence.
For a concept that is wrong on its face, energy independence has remarkable traction. Democrats and Republicans, liberals and conservatives all support the idea, which is deemed so obvious it is rarely questioned.
People seem to be peculiarly susceptible to economic myths, including those related to trade. The notion that energy independence is desirable is just another trade myth. The proponents favor expanded government, protection of domestic producers, and subsidies to alternative energy interests.
The need for energy independence is usually rationalized by three justifications: avoiding “transferring wealth” to hostile nations, providing security to prevent the cut-off of supplies, and obtaining the environmental benefits of alternative energy. Each basis is wrong.
Why the Concept Is Wrong On Its Face
One reason the idea of energy independence is wrong on its face is that it implicitly rejects free trade. Free trade always benefits both parties to the trade, and this is true for energy, as it is for bananas, cotton, wheat, steel, and any other commodity, product, or service. Seeking independence in anything, whether it is India regarding food, or the U.S. regarding energy, is an indulgence of the mercantilist myth that there is something wrong with importing.
A second reason the idea is wrong is that it ignores the reality of commodity markets. It assumes we would weaken the oil-exporting countries we dislike if we stopped importing oil. The market for oil, however, would simply absorb the U.S.’s foregone purchases. Any lowered demand might reduce the price of oil, and might reduce the overall volume annually purchased, but the lower price would encourage the use of oil by other consuming nations, and the lower volume of sales would just extend the number of years over which exporters would sell their oil. Further, any reduction in price or sales would affect all exporters, friends and foes.
A third reason the concept is wrong on its face is that it assumes the U.S. could, within economic reasonableness, become energy independent. Only the market can tell us what energy makes economic sense, and what commodities should be imported. The market informs us currently that oil and gas are economical sources of energy, and that we benefit from importing these. The alternative to allowing economic forces to guide us is to starve ourselves in service of myths.
Advocates of energy independence seek to moralize the issue by misleadingly referring to “our oil addiction.” The use of a particular fuel is not an unhealthy compulsion, just a rational choice based on cost.
Advocates also refer to an “energy crisis.” The only thing that could cause a crisis is the government’s interference in the market, as by foolishly forcing the country to seek energy independence.
Why the Worry Over Importing from Hostile Nations Is Wrong
The first problem with this concern is that it ignores the actual source of oil imports. As recently pointed out by Jerry Taylor of the Cato Institute, of the total of $188.5 billion of oil the U.S. imported in 2009, a fraction, $35.6 billion, came from the Middle East. (Jerry Taylor, “Oil Import Make Believe,” Cato@Liberty, April 22, 2010.) Further, “only 15.5 percent of the oil in the world market is produced from nation-states accused of funding terrorism.” (Jerry Taylor and Peter Van Doren, “The Energy Security Obsession,” The Georgetown Journal of Law & Public Policy, Summer 2008, Vol. 6, No. 2 [PDF].) In fact, Canada is the largest oil exporter to the U.S. (See “U.S. Imports by Country of Origin,” U.S. Energy Information Administration.)
The second problem is that it assumes any income to hostile countries has a material effect on threats to the U.S. This is not the case. Terrorism is a low cost endeavor; even a significant decline in revenue would leave hostile countries billions to finance terrorism; and the level of terrorism does not correlate with the level of oil exports. (Taylor and Van Doren, pp. 7-9.)
The third problem is that oil wealth is neither necessary nor sufficient to cause countries to act poorly towards their own people or other countries, and, again, bad behavior does not correlate with the level of exports. (Taylor and Van Doren, pp. 9-11.)
Why the Worry Over a Cut-Off of Supplies is Wrong
As noted above, the exports of hostile or potentially hostile countries represent only a fraction of the U.S.’s oil imports. This itself should dampen fears of an embargo. The existence of the global oil market, however, moots the concern.
As discussed by Taylor and Van Doren (pp. 4-5), an oil embargo against the U.S. would be ineffective because, once oil is in the market, any purchaser can access it. The authors note that the U.S.’s crude oil imports actually increased during the 1973 Arab embargo. They summarize (p. 5): “In short, it does not matter to consumers to whom the oil is initially sold. All that matters to consumers is how much oil is produced for world markets.”
Why Environmental Concerns Do Not Justify Energy Independence
Some environmentalists use the energy independence argument to justify a transition away from imported oil towards alternative energy. “Alternative” invariably means “uneconomical;” otherwise the energy would be used without discussion. The proponents of alternative energy seek taxpayer subsidies and government-coerced use to make these fuels profitable for the suppliers.
A basic problem in government even getting involved in energy policy is that not only is it not omniscient, but it generally does what is in its own interest rather than the public interest. Government exploits economic myths to expand its power and favor special interests, and this is the case with alternative energy. (See generally, “Earth Day 2010: Protect Human Freedom as We Protect the Environment.”) Government’s energy intervention is economically wasteful and environmentally counter-productive.
Consider government’s promotion of ethanol and other biofuels in the name of alleged global warming. As discussed by Indur M. Goklany, such policies have caused crops to be diverted from food to fuel, and rainforest converted to agricultural land, increasing the problem of hunger and leading to ecological devastation. (“Global Warming–Unintended Consequences,” New York Times, April 23, 2007.) In fact, the agriculture needed to supply crops for biofuel itself leads to massive use of water and fertilizer, with negative environmental effects. (C. Ford Runge, “The Case Against Biofuels: Probing Ethanol’s Hidden Costs,” Yale Environment 360, March 11, 2010) Biofuels may even increase, rather than decrease, the emission of carbon dioxide. (See “Earth Day 2010.”)
The subsidies favor farming interests. (Runge.) The fact that the policies are designed to help these interests, rather than to provide environmental benefits, is reflected by the existence of protectionist tariffs on imported biofuels. If environmental concerns were the actual priority, government would welcome imports of biofuels.
Government uses not only environmental myths to promote alternative energy, but also economic myths. It takes advantage of people’s concern with unemployment by falsely claiming it can create “green jobs.” (See “Politicians’ Jobs Nonsense.”)
Conclusion
The goal of seeking energy independence is fallacious. It is wrong on its face, and the justifications related to international relations, security, and environmental concerns are erroneous.
