‘Energy independence’ is a farce
It can be hard to find areas of agreement between the presidential candidates on economic or domestic policy. Tuesday night’s debate, though, revealed one exception: energy policy. Alas, what it also revealed is that both President Obama and Governor Romney are making their policies based on a false premise, and they are pandering to Americans’ ignorance instead of telling them the truth.
The second question in the debate at Hofstra University came from audience member Phillip Tricolla, and was directed to Obama: “Your energy secretary, Steven Chu, has now been on record three times stating it’s not policy of his department to help lower gas prices. Do you agree with Secretary Chu that this is not the job of the Energy Department?” The premise that the Energy Department can lower gas prices is incorrect. But Obama chose not to confront Tricolla with the hard truth — that global economic forces have put gasoline prices on a long-term upwards trajectory, and that trajectory is beyond our government’s control.
“The most important thing we can do is to make sure we control our own energy,” said Obama, neglecting to answer the actual question. He went on to boast that domestic production of oil, coal, natural gas and clean energy has increased, while he has also raised fuel efficiency standards. “And all these things have contributed to us lowering our oil imports to the lowest levels in 16 years,” said Obama. “Now, I want to build on that. And that means, yes, we still continue to open up new areas for drilling.”
Romney responded that Obama should not take credit for the increases in oil and natural gas production because they have occurred on private land. Romney promised to drill our way to “North American energy independence.”
“I’ll get America and North America energy independent,” said Romney. “I’ll do it by more drilling, more permits and licenses.”
The candidates then proceeded to argue with one another over whether Obama has or has not increased oil drilling. This might create an illusion of disagreement, but on the underlying premise they agree: drilling is good, because it will help us reach “energy independence.”
To state what should be obvious to anyone with a basic understanding of macroeconomics, and yet seems to elude most politicians: there is no such thing as “energy independence.” Commodities such as oil can be used in China just as easily as Ohio. Therefore, the price is set by the equilibrium between global supply and global demand. Unless we nationalize the oil companies, American consumers will be bidding for gasoline against drivers in other countries. This is how markets work.
That, in turn, means that increased U.S. production of oil will only reduce prices insofar as it increases global supply vis-a-vis global demand. An Associated Press study of 36 years of statistics found, “more U.S. drilling has not changed how deeply the gas pump drills into your wallet…. That’s because oil is a global commodity and U.S. production has only a tiny influence on supply. Factors far beyond the control of a nation or a president dictate the price of gasoline.”
As long as we rely on huge amounts of oil to power our transportation and heat our homes, we will be susceptible to price shocks. Even if we produced exactly the same amount of oil that we burn, a supply disruption in other oil producing countries would still cause prices to spike. As Brad Plumer pointed out in the Washington Post, “Canada is a net oil exporter, a bona fide oil-independent nation. But gasoline prices in Canada still rise and fall in accordance with world events, just as they do in the United States or Japan or Europe.” Gas prices recently spiked in Canada to $5.83 U.S. dollars per gallon.
As long as we drive everywhere, and use an internal combustion engine, the Middle East is going to have priority in our foreign policy. And even if we bought only oil that came out of the ground in Alaska, our high level of total consumption would still indirectly enrich political adversaries that sell a lot of oil, such as Venezuela.
And, for what it is worth, we are not going to produce as much oil as we consume unless we drastically reduce our consumption. The U.S., according to BP’s annual survey, accounts for 9 percent of global output, but it consumes 22 percent of the available oil. No amount of drilling can compensate for that gap.
Republicans tend to be more egregiously dishonest — or, if they actually believe what they are saying, ill-informed — on this topic than Obama is. During the primaries Rep. Michele Bachmann (R-MN) and former House Speaker Newt Gingrich both promised to bring gas prices down to specific amounts within four years, solely by increased drilling. (Bachmann offered $2 per gallon, Gingrich $2.50.) These promises pandered to Americans’ ugliest sense of entitlement to cheap gasoline and their childish expectation that the president will somehow magically suspend the laws of supply and demand to deliver it. Romney, like Gingrich and Bachmann, is offering to achieve the impossible.
Whether the candidates are right to support more drilling depends on how you weigh the jobs it would produce versus the environmental havoc it could wreak. But “energy independence,” that imaginary goal we keep chasing, has nothing to do with it.
PHOTO: Traffic moves on Lincoln Boulevard, near a sign posted with gasoline prices at a Mobil gas station in Santa Monica, California October 4, 2012. REUTERS/Jonathan Alcorn