The 'Dependence on Foreign Oil' Canard
The worst justification yet for Obama's energy plan.
Jun 22, 2009, Vol. 14, No. 38 • By JEFF BERGNER
As the public's enthusiasm for a major new energy tax wanes, advocates of the administration's "cap and trade" emissions proposal have found a new justification: national security. We should adopt a cap and trade energy tax, they say, because this will reduce our dependence on foreign oil and thus strengthen America's national security. It is unsurprising that national security would be the last refuge of a policy that cannot be sold on its merits. But "energy independence" is a mantra that has been around for decades, with adherents across the political spectrum. Does it really wash as a rationale for cap and trade?
The central point to be made is this: If lessening the nation's reliance on foreign sources of energy is the goal, there are cheaper, quicker, and more reliable ways to achieve it. Moving aggressively to develop proven American energy reserves is one. To be sure, it would take years to develop the Arctic National Wildlife Refuge reserves or significantly expand our offshore drilling capacity, but a national commitment to do so would be a beginning. So would removing the legal and regulatory barriers to the development of nuclear energy. As would expanding natural gas production and clean coal technology. Even a large, straightforward tax on oil or gasoline--though devastating to our economy--would offer a quicker way to diminish U.S. reliance on foreign oil than cap and trade.
But this, of course, is not the goal of cap and trade; the goal is to reduce greenhouse gas emissions by moving the American economy away from carbon-based fuels. Cap and trade is an environmentally motivated tax, pure and simple, which is being advanced for reasons which have nothing whatever to do with U.S. national security.
Might it be possible, however, that even though cap and trade is an environmental project, it would have marginal national security benefits? After all, every American president since the 1970s has paid lip service to the notion of reducing America's reliance on foreign energy. All the while, the share of oil we import has grown, decade by decade, through Democratic and Republican administrations and Congresses. If energy independence is really so important, why have we done so little for so long?
The United States imports a large share of its automobiles from Japan, its consumer goods from China, and certain specialty metals required for defense from African nations. Is there something peculiarly dangerous about importing a large share of oil? Is oil somehow different from other products or commodities? Let's examine the dangers of reliance on foreign-sourced energy one by one.
First, could foreign oil suppliers come together to raise oil prices rapidly and throw the U.S. economy into a tailspin? We had this experience twice in the 1970s, in 1973-74 and 1978-79. But today the Organization of Petroleum Exporting Countries (OPEC) is constrained in its ability to raise world oil prices and likely will remain so. OPEC countries currently produce only about 40 percent of the oil the world consumes. And OPEC has been unable to impose perfect discipline even on its own members. While the Middle East has more than 50 percent of proven reserves, oil is found in large quantities in Africa, the North Sea, Russia, South America, Mexico, and North America. The ability of oil-exporting nations in different regions, with differing governments, to cut production and raise prices has proven to be limited. Despite increasing U.S. dependence on foreign oil over the past three decades, only a small share of the ups and downs of world crude oil prices can be fairly attributed to cartel-like production decisions.
Indeed, a far more likely cause of a spike in gasoline prices would be a hurricane along the Gulf Coast disrupting domestic refining. If keeping gasoline affordable is our concern, we would be far better advised to expand refining capacity than to fret over imagined schemes of cartels that have long since lost their power to control markets.
Also unlikely is a politically motivated cutoff of crude oil imports. The United States happily is not in the precarious position of, say, Georgia or even portions of Europe, which are highly dependent on Russian energy. There, political manipulation of supplies is a genuine national security problem. Even the threat of a cutoff of Russian energy is a significant matter for nations dependent on that single source.
Oil-exporting nations, moreover, are every bit as dependent for their stability on oil revenues as is the United States upon imported supplies. Their governments are unlikely to survive if oil revenues are suspended even temporarily. We have seen a similar mutual dependence of supply and demand when it comes to foreign debt. Fears that China might "call in" its holdings of U.S. debt are wildly exaggerated, given China's own national interests.
It is always possible that foreign supplies of oil could be jeopardized by something other than government-mandated production cuts. In Nigeria, for instance, separatist attacks have interfered with oil pipelines and so affected world oil prices, if only marginally and temporarily. There is no denying the impact of such disruptions. But the case of Iraq since 2003 is instructive. During Saddam Hussein's final months in power, Iraq produced more than 2 million barrels of crude oil per day. After the U.S. invasion, production declined precipitously; then it gradually, though sporadically, climbed back to pre-invasion levels. This fluctuation in supply far exceeded the problems Nigeria has experienced, yet there was no significant correlation between Iraqi production and the ups and downs of world oil prices over the past six years. Indeed, the rapid rise in world oil prices in 2008 coincided with Iraq's post-surge return as a more or less normal supplier of oil.
There is no such thing as a commodity market, or any other kind of market, where prices remain completely unchanged over time. It is in the nature of markets that prices fluctuate; it is, in a way, the point of a market to send price signals. Even if the United States produced all its own energy, energy prices would fluctuate with supply and demand. We see this with the prices of agricultural commodities, where we are not only self-sufficient, but a large net exporter. A perfectly stable world energy market is neither achievable nor necessary. By and large, the world oil market has functioned in a reasonably reliable manner over three decades that have included numerous geopolitical shocks.
Now, it is true that some of the world's largest oil reserves are located in places where one might wish they were not--Russia, Venezuela, and several Middle Eastern nations. These geological accidents have permitted an outsized influence for nations which might otherwise be of less global consequence. In the long run, this is likely to be more of a problem for these nations themselves than for their customers; oil revenues have covered over the failure of these nations to develop their human capital in a more productive and sustainable manner. As for America's interests, would they be different if we were energy independent? Would our national security policy options be better?
Here is a thought experiment: Suppose the United States imported no oil from the Middle East. None. Further suppose that even if nations like Japan, China, and India continued to import Middle East oil, American energy independence so reduced world oil demand as to mitigate whatever leverage Middle East oil-exporting nations are thought to have. How would American interests, capabilities, and options differ from what they are today?
We would continue to support our democratic ally Israel, and for that reason alone the United States would continue to care deeply about the Middle East. We would also continue to seek a positive relationship with Arab countries. American policymakers would not choose to write off relationships with 400 million people in a key region of the world, even if we imported none of its oil. For these reasons, too, one supposes that U.S. policymakers would continue to seek a workable resolution to the struggle between Israel and the Palestinian people. It is difficult to see what additional leverage the United States would possess if we no longer had in place our major trading relationship with Middle East oil exporting nations.
Similarly, the United States would retain a deep and continuing interest in preventing Iran from obtaining nuclear weapons. This would be true for all the reasons it is true today: because of the existential threat to Israel from a nuclear-armed Iran, as well as the incentive an Iranian nuke would create for nuclear weapons programs in Sunni-dominated nations like Egypt and Saudi Arabia. This would be especially true if these nations feared that an energy-independent America might lose interest in the region. Nuclear proliferation in the Middle East would be bad for the United States under any circumstances.
Even if it were energy independent, moreover, the United States would maintain a deep interest in the ungoverned or weakly governed territories in the broader Middle East. We know that such territories serve as potential bases for terrorism against the West. Think about it: The United States is gradually getting out of Iraq, which produces more than 2 million barrels of oil daily, and further into Afghanistan and Pakistan, which produce no oil at all. One would have to be detached from reality to suppose that American interests in Iraq turn on oil, especially in light of our current policies--and even more to imagine that Islamic fundamentalists would warm up to an America that ceased to have any interest in Middle East oil.
The fact is that large oil revenues are not necessarily correlated with U.S. security concerns, whether nuclear proliferation, support for terrorism, or despotic governance. Iran possesses both oil and a nuclear program. North Korea has a nuclear program but no oil. Libya has oil, but has given up its weapons of mass destruction. Venezuela has oil, but no nuclear program. And Cuba has neither oil nor a nuclear program, but a despotic government.
At the moment, the question of reliance on foreign oil is largely academic in any event. No matter what steps we take today, we will not be able to reduce significantly our reliance on foreign oil for at least a decade. Short of a cataclysmic economic depression which drives demand for oil radically downward, we will remain highly dependent on foreign oil for many years to come. There is nothing wrong with aiming to reduce that dependence, but it is an illusion to suppose that our security interests will change appreciably if we do.
Imposing a massive new tax on energy through a cap and trade program is bad economic policy. Imposing such a tax now, while the economy is struggling through a persistent recession, would be singularly ill-considered. Such a tax would harm U.S. economic security far more than dependence on foreign energy suppliers could possibly hurt us. It is clear that American government officials would be pleased to have a brand new source of tax revenue from cap and trade; but the drag on the economy from higher energy prices would be every bit as severe whether the revenues were sent abroad, paid to the federal government, or incinerated. Fear of potential price increases is simply not a good reason to impose actual price increases on American businesses and the American people.
The economic arguments for cap and trade are non-existent. The environmental arguments for cap and trade, to be polite, are dubious. None of these arguments is strengthened by a dressed up nativism or far-fetched scenarios masquerading as national security concerns. This is all the more so since, if energy independence were truly our goal, a cap and trade system would be the least sensible way to achieve it.
Jeff Bergner is a visiting professor at Christopher Newport University. He previously served as staff director of the Senate Foreign Relations Committee and assistant secretary of state.