The Goal Should Be Energy Interdependence

November 22, 2013 • Commentary
This article appeared in the Fall 2013 issue of The International Economy.

Over the past several years, there has been a boom in energy production in the United States, as new technology has allowed the industry to access previously unrecoverable oil and gas reserves. Some have suggested that these new resources will allow the United States to become “energy independent.” In my view, though, whether this happens — and it may — is purely an academic exercise. Energy independence should not be a policy goal, and energy interdependence actually makes us better off.

To begin, let me note that if all the world’s oil and gas were located in, say, North Korea, I would be concerned with dependence on foreign energy. But this is not the case. Oil and gas production has many sources, and a significant percentage of our imports comes from long‐​time friends and neighbors Canada and Mexico. (Other sources are less stable and reliable, of course, but ending our trading relationship with them would not make sense).

Turning to the core issue — independence versus interdependence — the argument for trading energy is the same as the argument for trading any goods or services. Drawing on some very basic economic principles, the only way we should want the United States to be “energy independent” — that is, buying all its energy from domestic sources — is if we had a comparative advantage in producing these resources. If that were the case, then yes, we should buy only domestic energy. But if not, Americans are better off buying their energy from whomever can produce it relatively most efficiently. Sometimes that will be an American producer, but sometimes not. Trading energy in this way will bring lower prices, and, furthermore, diversifying our supply brings greater energy security and stability.

Thus, trading energy resources is not something to worry about. Rather, it is something to celebrate.

By contrast, arguments for “energy independence” can lead to dangerous proposals, such as restrictions on U.S. exports of liquefied natural gas. One argument for such policies is that we should give U.S. industry an advantage by making cheap energy available. Such a policy has two problems, however. First, it likely violates World Trade Organization rules, which prohibit export restrictions. And second, by lowering overall demand and keeping prices down, export restrictions of this kind would reduce the incentive to do more exploration and increase the supply of this energy.

There is an energy boom going on in the United States right now, and that is good for America. By all means, let’s produce as much as we can. Will this make the United States energy independent? That’s a difficult factual question, and I appreciate the attempts of the other contributors in this symposium to answer it. However, we should be careful not to get too caught up with this idea. If we give it too much emphasis, we run the risk of giving support to detrimental policies, like restricting liquefied natural gas exports, that are based on economic nationalism. Instead, we should let oil and gas be traded as much as the market indicates is appropriate.

About the Author
Simon Lester

Associate Director, Herbert A. Stiefel Center for Trade Policy Studies