A curious alliance of consumer advocates, environmental activists, and international strategists has taken up the rallying cry of energy independence in the United States.
Consumerists expect independence to bring down the high price of gas and heating oil. Environmentalists hope it will promote “renewable” sources of energy. And strategists think it will weaken anti-American oil-producing regimes.
But energy independence is not a desirable goal. It merely brings to the field of energy the stagnant isolationism of North Korea and the nationalistic mindset that destroyed the recent Doha round of world trade talks. What the U.S. needs is a greater reliance on free markets in energy, at home and abroad.
In America, independence has a positive sound because the country was born of an independence movement. But America’s Founding Fathers were internationalists, not protectionists. Adam Smith’s Wealth of Nations taught them that economic cooperation among nations is far more efficient than national isolation.
Thus the Founders would have considered it a good thing that one-third of all the energy consumed in the United States now comes from the international market, beginning with Canada.
Burdens of Socialism
After all, when we buy from the world market, we buy the cheapest crude oil and petroleum products available from dozens of nations. We benefit by saving both our money and our resources, and those nations benefit by obtaining dollars with which to buy our exports.
That is not to say that foreign oil markets are without problems. They aren’t. But those problems are not inherent in the commodity we call oil. They come from an inefficient and corrupt economic system: socialism.
The nationalization of oil from Venezuela to Russia, and government activism in other forms, have diminished entrepreneurship, competition, and innovation in the energy field.
As a result, demand has outpaced supply, and oil prices have risen in America and around the globe. That would not happen in a free market.
Leading by Example
Ultimately, then, the solution to costly and undependable oil lies in winning the battle of ideas and exporting the philosophy of freedom to oil-rich, economically impoverished regions of the world. Government control over resources must be replaced with private ownership and entrepreneurship, beginning with the subsoil and extending to above-ground energy infrastructure, from the wellhead to the pump.
Persuading other countries to substitute economic liberty for statism will not be easy, but the case must be made through argument and example.
Taxes Not the Answer
In the meantime, what can policymakers do to address the problem of high energy prices?
First, our lawmakers should begin by shunning the punitive taxes that some politicians want to slap on U.S. oil companies.
Higher taxes would immediately raise prices at the pump. And over the long term, such taxes would deplete the capital needed to increase production. That was the perverse result of the Crude Oil Windfall Profits Tax Act of 1980 (WPT), which was mercifully repealed in 1988.
Moreover, burdening U.S. companies with more taxes will increase Americans’ dependence on oil from socialist regimes. Before its repeal, the WPT reduced annual domestic U.S. oil production by an estimated 5 percent and increased oil imports by an even greater percentage.
U.S. politicians should set an example for the world by recognizing and redressing the harm their regulations have already done.
For example, recent energy legislation mandated the use of billions of gallons of ethanol to supplement gasoline, while implementing trade barriers that prevent the importation of cheaper ethanol. Together these laws have led to ethanol price increases of more than 50 percent this year, making it more expensive than gasoline and pushing up U.S. fuel prices. These laws should be repealed.
For a generation, government rules in the United States have forbidden the full use of domestic oil and gas resources. Fortunately, politicians are apparently on the verge of ending this blind acceptance of environmental pseudo-science to allow at least some new exploration and production here at home.
One hopes the partial opening of offshore drilling now nearing enactment is the beginning of further legalization not only regarding offshore sites but also the Arctic National Wildlife Refuge (ANWR) in Alaska. The U.S. House and Senate passed different bills and must reach a compromise for legislation to take effect.
Energy independence is neither realistic nor desirable. But the opposite of independence is not dependence–it is cooperation. International energy cooperation, fostered by a growing reliance on free markets at home and abroad, is the surest guarantee of energy affordability for American consumers and national strength for the United States.
Robert Bradley ([email protected]) is president of the Institute for Energy Research and the author of five books on energy history and policy. This article first appeared in the Richmond Times-Dispatch and is reprinted with permission.