Friday, June 15, 2007
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This is my brain when it's cranky
Matthew Rojansky has a post at Across the Aisle on energy independence that caused me to bang my head against the wall in sheer frustration for a few moments.
Rojansky reacts to a DC panel on energy, the environment and national security at a Center for American Progress/Century Foundation conference. After all of the panelists politely point out that the goal of energy independence is neither possible not worthwhile. Rojansky replies:
Alright, I see their point. It’s not immediately clear that even the optimal combination of conservation and alternative energy technologies can keep pace with growing demands for energy, meaning we will continue to need energy imports to fuel the US economy. Cutting off foreign energy sources would, by that reasoning, make us less competitive, and more “isolated” in a negative sense.OK, to put this as simply as possible -- trading energy commodities creates value in the same way that trading any other kind of good creates value. The reason we import energy from other countries is that, as Rojansky observes, "is both cheaper to extract and transport than it would be to generate here at home." As a society, the U.S. gains value by having the market take resources that might have (inefficiently) gone into energy extraction and reallocating them into producing goods and services in which the United States has a comparative advantage (indeed, one of those goods and services might be, you know, a new innovative technique to more efficiently extract energy resources). Trade, in this sense, has the same effect as a technological innovation -- it widens the variety of efficient means through which a society can obtain goods.
Trading energy is not a zero sum game.
This doesn't mean policymakers should necessarily let the market operate in an unfettered manner. There are clear non-economic reasons to intervene (Rojansky argues that foreign suppliers might decide one day not to sell their energy to the U.S. That's a red herring, because any move in that direction hurts them more than us). Efforts to reduce greenhouse gas emissions will likely require investment in alternative forms of energy. The political externalities of high energy prices are also undesirable. However, even factoring in the political externalities, the U.S. should not aim for energy independence. Why waste resources on eliminating that last drop of imported oil, when perfectly stable and friendly economies like Canada, Mexico, Norway, and Great Britain are willing to seel their energy to us?
Rjansky closes his post with the following critique:
The experts I cited above object to the energy independence slogan only because they perceive it as a red herring. They would argue it is a distraction from broader conservationist goals that will, in reality, have the same important impact in reducing our dependence on foreign oil, while combating global climate change by reducing carbon emissions. Certainly, climate change is very important, and a preoccupation with energy independence for security’s sake alone might lead us to transition to US-sourced fossil fuels, like coal and oil from ANWRA, that produce just as much harmful carbon as Middle Eastern oil and gas. But to call energy independence a bad idea destroys the only common ground in this debate, and hence the best chance for meaningful progress on both national security and climate change.Policymaking is also a bit about being trapped by slogans. The slogan on this issue should be energy diversification, not energy independence. The former is both economically feasible and politically desirable. The latter is neither.
posted by Dan on 06.15.07 at 08:16 AM
"That's a red herring, because any move in that direction hurts them more than us"
I do agree that energy diversity is rational and maybe we will move to the broad sunlit plains of rational government at the next election.posted by: Bill Harshaw on 06.15.07 at 08:16 AM [permalink]
"(Rojansky argues that foreign suppliers might decide one day not to sell their energy to the U.S. That's a red herring, because any move in that direction hurts them more than us)."
That's only true while we are the highest bidder.
Our dollars are depreciating because we aren't providing value for the money. It's entirely possible that at some time in the future -- not the distant future -- that foreign suppliers find it isn't economic to sell energy to the US instead of better markets.
And if that time comes, domestic energy suppliers might find it makes sense to export their energy for hard currency rather than sell it here. We would need noneconomic incentives for foreign suppliers to give us oil.
Uh, professor, when you say "The slogan on this issue should be energy diversification, not energy independence" do you mean that energy independence is the same as energy autarky?
It don't understand why they should mean the same thing. "Energy independence" means being independent, from any serious economic consequences of price spikes for particular energy commodities. Energy diversification promotes energy independence because diversification improves the likelihood that inexpensively substituted alternatives for a given energy commodity are available.
Or did I misunderstand the chapter in the book which covered economic autarky?posted by: That undergrad in the back of the room with his hand up... on 06.15.07 at 08:16 AM [permalink]
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