The goal reasserted by US President Barack Obama last month to cut US imports of oil by one third can be good or bad, depending on the route chosen and the reason for making the effort.
Although Obama deserves credit for acknowledging that the US won’t soon quit importing oil, he kept the US off course.
He wants to displace oil imports with renewable energy, nearly all of which is not commercial and requires subsidization by taxpayers. That’s expensive.
The Congressional Budget Office last year estimated the cost to taxpayers of replacing a gallon of gasoline with the energy-equivalent amount of fuel ethanol—the best-established oil substitute at this point—at $1.78.
To meet all of Obama’s goal by displacing gasoline with ethanol would cost taxpayers roughly $99 billion/year.
Not all the proposed oil displacement can come from ethanol. Other forms of renewable energy would have to supplement the gasoline additive.
But most other substitutes would cost even more.
What would taxpayers receive for this sacrifice? A reduction in oil imports. Is the benefit worth the cost?
It is if reducing oil imports boosts employment. But that’s unlikely to happen across the economy with a new $99 billion/year drag on productive taxpayers.
The employment effect would differ greatly if the import cut came from increased production of domestic energy not dependent on subsidies. To that prospect, though, Obama pays only lip service.
Beyond job effects and the trade balance, import dependency matters little. If the US imported no oil at all, it still would be economically vulnerable to geopolitical events affecting the price of oil and need to defend its interests. This is an inescapable fact of economic life for any country engaged in international trade.
Obama wants to do the right thing, moderate oil imports. But he wants to do it the wrong way for the wrong reasons—by wasting public money on noncommercial energy in pursuit of economic isolation, which the real world won’t abide.
(Online Apr. 8, 2011; author’s e-mail: email@example.com)