Energy Crisis? What Energy Crisis?

Raymond L. Richman

In Congress, in the media, among the presidential candidates, there is all this talk about an energy crisis but no distinction is made between electricity and oil. There is no shortage of electricity and never needs to be. We have enough coal to produce all the electricity we will need for a century or more and our exploitation of nuclear energy has barely begun. Thanks to the support of a gullible public with a chicken-little mentality, environmental lobbyists have gotten a succession of subservient Congresses and Presidents to impose unjustified restrictions on the expansion and creation of coal-based electric generating facilities.

The problem of oil is the high price of imported crude oil and the damage it is doing to our economy. We do not need to submit passively to the high price of imported oil. Its high price is attributable to a number of causes. First, for thirty-five years, we have been on notice that our dependency on imported oil endangers our economy and our security. Nevertheless, our government has prohibited drilling for oil on public lands and in off-shore areas off the California and Florida coasts. Second, deliberate restrictions have been imposed on world output by the Organization of Petroleum Exporting Countries (OPEC), an illegal international cartel which no government has challenged. And third, a rapid increase in world-wide demand for oil as a fuel and as a raw material in industrial uses. All three can be dealt with but it requires action by a responsible Congress and President.

The easiest policy to implement would be abandonment of artificial environmental restrictions on drilling for oil. Congress should announce that drilling will be permitted in the Arctic National Wildlife Refuge (ANWR) and other public lands and offshore. How much oil is there in the ANWR? A U.S. geology mission in 1998 estimated 4.25 billion to 11.8 billion barrels. Just announcing that we would authorize drilling in the ANWR would likely cause the price of oil to fall twenty percent or more as speculators ran for cover. Drilling in the ANWR would have few social costs, environmental or otherwise. There is no evidence that drilling has had any effect on wildlife anywhere. Environmental concerns are sometimes legitimate. But this one is not. In any case the benefits would be considerably greater than costs. The oil that is foregone by the current restrictions on drilling has a market value of many hundreds of billions of dollars and the exploration, drilling, and pipelines would provide many thousands of good jobs directly and indirectly. And longer-term, we should continue to seek alternative sources of motor fuel as we are now doing. As soon as 2010, cars principally powered by electricity are expected to be on the market.

Brazil succeeded in converting from dependence on imported oil thirty years ago, as great as ours is now, becoming an exporter of oil by ending its prohibition on drilling by foreign companies, which was a self-imposed denial as our environmental restrictions are now. She did this largely by increased drilling off-shore.

There is a strong case for restricting imports of petroleum from members of OPEC. It is an illegal cartel under rules of international trade. OPEC restricts the output of oil in order to keep oil prices high and we have done nothing to stop them.

The high cost of imported oil worsens the trade deficits which amounted to $708 billion in 2007. If our exports to them were equal to our imports from them, the price of oil would have little impact on us economically. The problem is that they do not import as much from us as we import from them. As we show in our recently published book, Trading Away Our Future, we need to inform all of our trading partners with whom we have chronic trade deficits that they must purchase as much from us as we purchase from them or we will enforce a trade balance by reducing our imports from them. That means that if the OPEC countries do not increase their imports from us, we will import less oil from them. This would leave us with less crude oil to satisfy our needs. We have to face up to the fact that we would have to ration some oil uses, particularly gasoline. But there would also be great benefits.

A reduction of our imports of oil by ten percent would require the reduction of imports from current levels of 9.3 million barrels per day to 8.4 millions. Only OPEC countries need be affected and not all of them. Our imports of crude oil from OPEC in 2007 were about 38 percent of our total imports and Saudi Arabia and Venezuela alone accounted for 28 percent. Canada and Mexico are the other principal suppliers and balancing trade with them is not great problem.

Reducing our imports ten per cent would cause a dramatic fall in world oil prices as soon as it were announced. The world price could be expected to fall by 20 percent or more. OPEC might respond by reducing output to sustain the price of oil. If they do, we should consider it, as we ought to have done long ago, a hostile act. Under the rules of the IMF and the World Trade Organization, we are legally entitled to impose barriers to trade with any country with which we have a chronic trade deficit. But they might respond rationally by expanding their output which would lower the world price even more. In any case, we, not OPEC, would be in control of our future.

Americans will have to adjust to the reduced quantity of fuel available by using public transportation, sharing rides, using hybrid vehicles, etc. etc. We have had experience with gasoline rationing. We rationed gasoline during World War II. The U.S. Department of Commerce has a stand-by plan for gasoline rationing and it, or a simpler version, could be implemented quickly. (Such a plan appears on our web site, Idealtaxes.com.)

The high price of gasoline is equivalent to a regressive tax, weighing most heavily on low income households. It is almost as regressive as a poll or head tax. It has the effect of causing low income families to reduce their consumption of other goods and services while middle and upper income families could care less whether a fill-up costs $20 or $50. Rationing would have the effect of reducing the price of oil and gasoline and would benefit the lower income households.

We do not have nor are we likely to get a responsible Congress or President. The Democrats will probably control the next Congress and they are subservient to the environmental lobby. And Senators Obama, Clinton, and McCain are all on record as opposing drilling in the ANWR. It is laughable that they and the President have enacted a law requiring the substitution of mercury-filled fluorescent lamps for incandescent lamps. They are pretending to be doing something about a supposed energy crisis, but there is not now nor does there ever need to be a shortage of electricity. The high price of motor fuel and the trade deficits are the problem. What we need is a lobby as powerful as the environmental lobby that will advance, not diminish, the welfare of the American people.

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Dr. Raymond L.Richman is Professor Emeritus of Public and International Affairs at the University of Pittsburgh. He is coauthor with Dr. Howard B. Richman and Dr. Jesse T. Richman of Trading Away Our Future, published by Ideal Taxes Association (www.idealtaxes.org).