Democrats and energy

Nov. 27, 2006
Democrats newly in control of the US Congress have a unique opportunity to act constructively on energy.

Democrats newly in control of the US Congress have a unique opportunity to act constructively on energy. The political party they defeated in elections this month abandoned the high ground of energy realism. Seldom does an incoming party get such a chance to steer a foundering policy quickly onto reasonable course.

To do that, however, Democrats will have to turn away from past rhetoric. Speaker-to-be of the House Nancy Pelosi of California has blustered about ending tens of billions of dollars of tax “give-aways” to “Big Oil.” She won’t make good on the promise. The tax code isn’t as generous as populist mythology claims it to be, least of all to big oil and gas companies. Does the Democratic leadership want only to slap around oil companies for sins no graver than being large, unpopular, and for the past several quarters anomalously profitable? Or does it want to get serious about energy?

Energy independence

If the Democrats decide to make history and get serious about energy, a solid first step would be to forget about energy independence. Here, they begin with an advantage. The Republicans have been babbling about energy independence for several years. Democrats thus can reject a policy illusion and discredit Republicans at the same time, confident that everyone soon will forget that they’ve touted the same impossible dream.

Energy independence is a slogan, not a reasonable ambition for the US or any other industrial country. Participants in a commercially interdependent world are dependent on globally traded energy by definition. They can’t be otherwise. They can’t be energy-independent, even if they’re lucky enough to produce all the energy they use. Prices of energy in international trade affect prices of other goods and services, even prices and supplies of energy in supposedly energy-independent countries.

Slogans upholding ideals can be inspiring, of course. Energy independence would be just such a useful ideal if it inspired politicians to pursue maximum domestic production of economically sensible energy and judicious rates of consumption. With energy, however, ambition stirred up by the allure of independence never ends there. It inevitably breeds wishes disconnected from economics and physics. And it tricks politicians otherwise committed to market freedom into believing that energy is some special case to which markets are irrelevant.

For so important a factor in national economic health, disregard for the discipline of economics, for the practicalities of physics, and for the efficiencies of markets is dangerous. But it’s the foul stew that bubbles up when oil prices rise enough to make politicians notice how much of the oil the US uses is imported. Then everyone panics, energy independence becomes the battle cry, and expensive and mostly futile policy proposals receive serious attention from adults who should know better.

Imported oil is indeed less preferable than domestically produced oil and in that context merits concern. But imported oil is better for energy consumers and for the national economy than substitutes that cost many times more, even homegrown substitutes. This is why the US imports oil.

It’s also a reason, beyond futility, for energy independence not to become a policy priority. By “energy independence,” advocates mean not importing any oil, which means somehow replacing the equivalent of 13 million b/d of crude oil and products. The US might lower the import rate, or at least slow its rate of increase, at acceptable cost by removing limits on oil and gas leasing and by dismantling whatever barriers stay in the way of nuclear plant construction.

Other options

Only two other policy options remain: 1) lowering consumption by mandate or imposed cost, such as via new energy taxes, and 2) forcing the replacement of one energy form by something much more expensive. Both of those options are costly. They would become politically unacceptable long before they displaced anywhere near 13 million b/d of oil imports.

The Democrats can start the US on a fresh and constructive track with energy by acknowledging realities underlying the country’s challenges in this vital area. Arguments about energy independence obsess about barrels. Energy reality never ignores dollars.