“We’ll grow our own energy right here in America, and stop sending our money to the Middle East!” This refrain has become very common in the US energy debate going on today. Coal producers are lobbying for increases or extensions to programs that subsidize the cost of turning coal into diesel fuel, and corn growers have successfully lobbied for a 51 cent-per-gallon subsidy on gasoline-ethanol blends (sometimes containing as little as 1% ethanol). Meanwhile, politicians proclaim that our dependence on foreign oil is a threat to national security.
Is the answer to America’s energy needs really to grow or drill it all at home? And would doing so help moderate the rapid rise in gasoline prices, and in energy costs as a whole? These questions deserve further review.
With regard to fuel prices, the reality for several decades has been that oil prices are set by global markets, regardless of the actual source of any particular tank of gas. The United States produced 2/3 of its own oil in 1973, and yet it was still vulnerable to oil price spikes caused by events in the Middle East. Even more unsettling, Great Britain has produced more oil than it consumed until very recently, and yet still finds itself subject to worldwide oil price shocks! Oil trades on a global market, and the fact that you produce every barrel you need at home doesn’t imply that you will be immune to rising prices worldwide.
If energy independence cannot guarantee lower prices, it can at least ensure that our supplies are not controlled by hostile foreign nations. This is an important goal, but how best to achieve it? Lobbyists for corn-ethanol and coal-based synthetic fuel producers argue that their subsidies help protect national security through energy independence. But rather than subsidizing inefficient producers, why not enhance energy security by first diversifying our energy suppliers? We’re stuck buying oil in tremendous quantities from Venezuela, so why do we tax imports of sugar-based ethanol from Brazil and other friendly nations? America should shift its goal away from energy independence at all costs, and instead move towards a rational energy diversification policy including tariff-free fuel imports, sound energy tax policy, and further research on advanced energy technologies.