Commentary

Left, Right and Wrong on Energy

This article appeared in The Washington Post on August 14, 2000.

Rising gasoline and oil prices this summer have resurrected America’s perennial obsession with energy independence, the alleged remedy for OPEC production cutbacks.

Vice President Al Gore promised awhile back that, with only a few billion dollars more in subsidies, renewable-energy and energy-efficiency investments would deliver us from our oil addiction. George W. Bush and the Republican congressional leadership counter that only by increasing domestic production and reviving the nuclear option can America liberate itself from OPEC’s grip. Both are peddling snake oil. First, consider renewable energy. The federal government has spent about $ 12 billion since 1978 subsidizing wind, solar, hydro and geothermal power, yet those energy sources have managed to capture only about 2 percent of the electricity market. Efforts to reengineer the car to operate on batteries or other fuels have been a spectacular bust as well. Given that renewable energy is still several times more expensive than conventional energy, there’s little reason to believe that a few billion more in government handouts will make any difference.

Nor has energy conservation turned out to be the silver bullet that its promoters advertised. Our economy is indeed more energy-efficient than it was in the mid-1970s, but oil imports continue to rise anyway.

In fact, energy efficiency is a double-edged sword. As new technology makes it cheaper to use energy, we use more energy. Increasing the miles per gallon that we get from our automobiles makes it cheaper to drive and, accordingly, we drive more. Similarly, the cheaper it is to run our air conditioners, the more we run them. Nonetheless, we’ve spent $ 30 billion of federal and state tax dollars in the past 20 years to subsidize energy conservation in an effort to repeal the law of supply and demand.

The plans of conservatives, however, are no better. While environmental regulations have increased the cost of domestic production and environmentalists have kept the oil industry away from some attractive oil fields, that doesn’t really explain rising imports. This does: It costs about $ 5 to produce a barrel of domestic oil but only about $ 1.50 to produce a barrel of Saudi crude.

That cost differential has to do with the quality of the oil fields. In Saudi Arabia, drill a hole and up comes a gusher. Almost everywhere else, we must pump the oil from the ground mechanically—or worse, inject a chemical solution into the field to bring dispersed oil to the well head—at far greater expense.

As long as Persian Gulf nations have a lot of $ 1.50-a-barrel oil (and they do), they’re going to dominate the world oil market, whether we allow drilling in environmentally sensitive areas or not.

And then there’s the nuclear obsession. When you hear conservatives waxing eloquent about the glory that is nuclear power, you might as well be hearing their environmental counterparts pontificating about the glory that is solar power. Bottom line: Although costs vary tremendously, it typically costs twice as much to generate electricity from nuclear fission as it does to generate it from fission’s main competitor, natural gas.

Even if we eliminated the safety and environmental regulations that the nuclear power industry complains about, nuclear power would be far too expensive to produce, given the alternatives.

Even so, neither nuclear power nor renewable energy (primarily sources of electricity) competes with foreign oil. Only 4 percent of our electricity is generated from oil-fired plants. Until electric cars are competitive (which they’re not by a long shot), those fuels are irrelevant to our present dilemma.

Instead of arguing about how best to travel down the road to energy independence, both parties ought to reconsider the trip. Any OPEC production cutback is going to cause short-term scarcity and increase the price of oil no matter where it is produced.

What’s going on here is that both the left and the right have long-standing policy agendas that have failed to capture the public’s imagination. You can like or dislike those agendas, but you can’t make a case that either will do anything to reduce our vulnerability to OPEC production decisions.

Subsidies or preferences for non-OPEC production are unlikely to close the massive cost differential between OPEC and non-OPEC production. A government-mandated embrace of renewable or nuclear energy would shoot electricity prices through the roof without reducing imports. Energy-efficiency mandates won’t reduce energy consumption at the margin.

Market prices are bringing energy prices down, as they always have and always will. We shouldn’t let panic over OPEC send us out of the frying pan and into the fire.

Jerry Taylor is Director of Natural Resources Studies at the Cato Institute.