The US crude oil export ban is a 1970s anachronism that could hobble US production growth and restrict economic improvement if it is not repealed, three witnesses told a House Foreign Affairs Subcommittee’s hearing on the matter. A fourth witness, however, warned that ending the export ban would lead to a hazardous US production increase that would then possibly lead to greater greenhouse gas (GHG) emissions and threats to public safety.
“From a foreign policy and international security vantage point, erasing this protectionist policy sends a clear signal in favor of free trade and demonstrates that the US is doing its part to strengthen global energy markets,” said Jason Grumet, founder and president of the Bipartisan Policy Center.
“By contributing to the pool of global spare capacity, we strengthen our leverage to restrain Iran’s nuclear ambitions and diminish the ability of others who seek to manipulate energy supplies for their own geopolitical gain,” he told the Terrorism, Nonproliferation, and Trade Subcommittee on Apr. 14.
Elizabeth Rosenberg, who directs the Center for a New American Security’s Energy, Economics, and Security Program, said, “Policymakers should lift the oil export ban to bring export policy in line with present market circumstances, to promote free trade and responsible growth in the sector, and to reap the geopolitical advantages of having a larger and more flexible role in the global oil market.”
Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy, told the subcommittee, “Allowing unrestricted crude exports would make the US more resilient—not less—to supply disruptions elsewhere in the world. Greater integration into global markets would make US oil supply more responsive to international market developments, mitigating the impact on American consumers and the US economy of production losses in other countries.”
Could create problems
A fourth witness, Stephen M. Kretzmann, founder and executive director of Oil Change International, took a contrarian view, saying, “The crude oil export ban was certainly not designed to play a role in climate-change mitigation or to reduce the likelihood of a mile-long freight train full of crude oil destroying a community in America’s heartland. However, it plays an important role in regulating an industry that currently has few limits placed upon it.”
He said, “Lifting the ban without the implementation of urgently required actions to protect the climate and communities in the path of crude oil trains or otherwise endangered by this hazardous industry, would only exacerbate these serious risks.”
Bordoff said in his written testimony that it is true to the extent that crude exports boost US crude production and lower global prices, demand and associated carbon emissions would increase. “Trade barriers are not an effective or appropriate response to the very real and important concerns about climate change, however,” he said.
He said that while he supports robust government action to address climate change, policies targeted at the problem would be more effective. “Given the economic and security benefits, restricting oil trade is a very costly way to achieve modest [GHG] benefits relative to alternatives like pricing carbon or even the [US Environmental Protection Agency’s] power plant rules, fuel economy standards, or reducing methane emissions,” Bordoff said.
Rosenberg said the present export policy that strands US produced crude is hardly an optimal arrangement for productivity, efficiency, and economic growth. A policy that encourages more responsible US crude production, efficient and open markets, and a larger share of global supplies from responsible producers such as the US would be more beneficial in promoting market stability, she said.
“Lifting crude export restrictions makes sense even as lower oil prices slow investment and drilling in the US, and domestic refiners consider expanding their capacity to absorb more light oil,” Rosenberg said. “These factors may delay the point at which the US market is totally saturated with crude and the export restrictions stall out domestic oil production growth. However, responsible policy should intervene far before the oil market reaches such dire conditions.”
Avoided harm
Grumet said the greater economic benefit from lifting the export ban is likely to come in the form of avoided harm. “Until recently, the US and global economies were highly vulnerable to a global oil disruption,” he said. “Whether caused by accident or intentional malice, the loss of just a few percent of global production would send prices skyrocketing and the anticipation of this possibility or ‘risk premium’ was a force in driving gasoline over $4/gal.”
Increased US production in recent years has contributed to a far more resilient global marketplace that is reflected in lower prices, Grumet said, adding, “Lifting the export ban will further encourage this dynamic.”
Bordoff noted that today’s oil market looks very different from when the US decided to restrict crude exports in 1975. “At that time, the [US] had adopted domestic price controls to combat inflation, and crude export restrictions were necessary to make those price controls effective,” he said. “While price controls have long since fallen away, crude export restrictions remain. While the magnitude and timing of the impact of easing the export restriction is uncertain, particularly given the recent oil price collapse, the direction is clear: Allowing US oil exports will boost US oil supply and economic activity, along with resilience to supply disruptions, credibility in the trade realm, and geopolitical influence.”
Contact Nick Snow at [email protected].
