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The Myths and Realities of Oil Dependency: Georgia Op-Ed

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The Myths and Realities of Oil Dependency: Georgia Op-Ed

Published in editorialnetwork

Published in editorialnetwork.com

Week of October 9, 2000

 

 

(Periodically, the EIN Weekly will feature guest-authored opinions, columns and interviews. Paul Georgia is an environmental policy analyst at the Competitive Enterprise Institute (CEI) in Washington, D.C. Founded in 1984, CEI describes itself as a “non-profit public policy organization dedicated to the principles of free enterprise and limited government.” With their team of nearly 40 policy experts and staff, CEI is a nationally known and resourced reference on issues ranging from environmental law to regulatory policy. Visit CEI at http://www.cei.org)

 

High gasoline prices have resurrected that old bugaboo, oil dependence, once again. Both presidential candidates agree that the US is too dependent on foreign oil and both have offered solutions to the “problem.” George W. Bush says that the US should increase domestic oil production, presumably by opening the Alaskan National Wildlife Refuge (ANWR) and off shore drilling. Al Gore believes that the US should spend even more money on developing alternatives to oil.

 

There is nothing wrong in principle with increasing domestic oil production, as long as it makes economic sense. The US Department of Energy estimates that there is 16 billion barrels of oil available in ANWR, which is equal to the amount of oil the US would import form Saudi Arabia for the next 30 years. If cost-effective, there’s no reason why the US, and Alaska in particular, shouldn’t benefit from this resource.

 

Alternative energy sources, often referred to as renewables, such as wind and solar power, have never made economic sense. Tens of billions of federal dollars have already been wasted on alternative energy boondoggles that have yielded nothing in return.

 

But is oil dependency really a problem? The US is dependent on foreign supplies for many things. Indeed, as a nation (or a person, for that matter) becomes wealthier it becomes more dependent on an ever-widening range of sources for those goods it demands. Oil is no different. It simply doesn’t make any sense to rely on domestic sources of energy when it can be purchased more cheaply abroad.

 

The most annoying thing about politicians and bureaucrats whining about oil dependency is that many of the government’s policies make the US more dependent on foreign oil, not less. Because the US is such a large user of oil, policies that suppress energy use in this country lower the world price for oil. High cost producers of oil, such as those in the US, are hurt more by lower prices than low cost producers, such as those in the Middle East and Latin America.

 

One such policy, known as the Corporate Average Fuel Economy (CAFE) standard, which requires automobile manufacturers to meet a fixed fuel economy standard, hurts domestic oil producers and shifts part of the US market share for oil overseas. Yet, Vice President Al Gore supports raising CAFE standards even higher.

 

The real reason behind the recent surge in gas prices in the US is regulation that restricts the supply. A case in point is oil refineries. The world could be awash in crude oil, which it is, but if there isn’t enough refinery capacity to convert it into products that people use, such as gasoline or home heating oil, it won’t matter. There hasn’t been a new oil refinery built in the US since the early 1970s due to onerous regulations promulgated under the Clean Air Act (CAA), which requires years of jumping through hoops at enormous cost to gain the Environmental Protection Agency’s approval for new construction.

 

Modifications to existing plants have been performed in an effort to expand capacity and keep facilities up to date, but with the recent tightening of the CAA’s New Source Review standards under the Clinton-Gore Administration, even these will be brought to a halt. Refineries will be forced to continue using old antiquated plants instead of building new state-of-the-art facilities that they would prefer. Currently, medium sized refineries have to comply with 500,000 separate regulatory obligations with more on the way.

 

Most of the problems that exist in the US regarding fuel prices can be directly traced to our own policies. Unfortunately, it is much easier for presidential candidates to point fingers at a foreign menace than to accept blame for the policies they support.

 

 

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