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Tuesday, July 15, 2008

"Drain America First"

Jeff Frankel says Republican proposals to increase oil extraction within our borders are at odds with both environmental and energy security goals:

Offshoring is a More Dubious Policy, When the Question is Oil Drilling, by Jeff Frankel: President Bush yesterday removed a long-standing executive moratorium on off-shore oil drilling..., a move also supported by presidential candidate John McCain. ... No doubt ... that it is a political stunt. A Congressional ban on offshore drilling has been in effect since 1981, so the President’s action is moot. ...

[B]oth parties are responding (unsurprisingly) to the American public’s great sensitivity to short-term prices for gasoline (in the summer) and home heating oil (in the winter). No doubt high prices are causing a lot of hardship. ...But market prices are high today for a reason. What is the market failure that would call for government intervention in the oil market?

The most obvious market failures are the externalities that characterize air pollution and emission of greenhouse gases. These of course are reasons for higher prices, not lower. ...

I realize that higher energy taxes are politically out of the question at this point. But I could imagine legislation that would automatically raise energy taxes if and when oil prices fall, thereby putting a floor at recent levels and providing industry with the clear incentive to undertake the long-term investment in energy-saving equipment and technology that we badly need. Rebate the proceeds by fixing the AMT, or removing the payroll tax on low-income Americans, one answer to the income distribution point. ...

The other obvious market failure is national security, and here we come to ... the central point of my post. While Americans need to recognize that achieving complete energy security is an impossible goal, it should indeed by a national goal to reduce our dependence on imported oil. We could thereby reduce our need to fight messy wars in the Mideast and to coddle unpalatable autocrats worldwide. But, in the first place, conservation is the largest and most sustainable component of such a strategy. In the second place, as high as world energy prices are now by historical standards, this is not the worst-case geopolitical crisis that we should be seeking to protect our economy against. That worst-case scenario is a prolonged loss of world access to Gulf oil stemming from some combination of military conflict with Iran, anti-Western popular uprisings in the region, terrorism, and/or nuclear or radiological weapons.

Once the long-term goal of “energy security” policy is properly seen to be amelioration of the economic effects of such a disaster, the Republican policy of “drain America first” is seen to be precisely the wrong response. We don’t want to maximize current domestic production. Rather we want to leave the oil underground (or underwater) for decades, until we really need it, until we are so desperate that the economic benefits really do outweigh the costs. (The costs are chiefly environmental, of course. But the Republicans have often been keen on giving oil companies access to nationally owned reserves at prices that are even below market costs. Same as hard-rock mining for miners, subsidized water for farmers, and grazing rights on federal lands for ranchers. But the hypocrisy of anti-Washington self-reliance rhetoric in the Western states is another story.)  ...

The problem with Republican proposals to re-open domestic oil drilling is ... that we might truly desperately need the oil in 20 or 30 years, and so [we] don’t want to use it up over the next decade.

And if we have the leadership to begin seriously moving forward on developing alternative energy sources and implementing conservation measures, leadership that has been missing in the current administration, perhaps the value of those reserves won't be as high as we think when 20 or 30 years have actually passed.

    Posted by on Tuesday, July 15, 2008 at 01:08 PM in Economics, Oil, Politics | Permalink  TrackBack (0)  Comments (54)


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