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A crew assembles a gas pipeline in North Dakota. The rapid depletion of U.S. energy resources is a myth, argues Butler professor Peter Z. Grossman.

Energy dependence myth inhibits true growth

Grossman

Almost everything we’ve been told about U.S. energy policy is wrong: wrong in its premises, wrong in its methods and wrong (as well as often incoherent) in its goals. America will never have effective energy policy unless and until all of that changes.

Basically the premises of national policy come to us from the world that policymakers imagined in the 1970s. I say “imagined” because although we had gas lines and other great annoyances, most of that 1970s story wasn’t true even then.

The story, what I call America’s energy narrative, goes something like this:

The United States has a dangerous dependence on foreign oil, and as a result, the major oil-producing countries (OPEC) hold (or will hold) our nation “hostage.” In the event of another oil embargo, U.S. consumers will again sit in lines at gas stations.

According to the narrative, the world oil market threatens America’s economic health, standard of living and way of life.

And worse lies ahead. Notwithstanding recent finds, the U.S. is running out of oil, possibly quite quickly; if America is unprepared, it will be catastrophic when the tap runs dry. There is the danger of a gap between supply and demand – the former falling inexorably, the latter growing exponentially. Growing nations, notably China and India, will demand more than the world can supply. Therefore, the United States must begin a crash program, on the order of the Apollo moon-landing program, to find alternative domestic resources of fuel. This effort will move the country forward to the ultimate goal of energy independence.

This narrative is simply wrong. The United States does depend on the world oil market, but this dependence is not dangerous and does not mean that the country’s sovereignty or way of life is threatened. The market can produce uncomfortable price fluctuations, but these have been transitory.

No country can hold America “hostage.” That idea is meaningless. OPEC exporters are far more dependent on selling their oil than the United States is on buying it.

Gas lines were caused by bad U.S. policies, not by OPEC, and not by big oil companies or by greedy Arab sheiks; gas lines have not returned since those policies were abandoned. The embargo was a fiasco for the Arab countries, not for us, though Americans still fear that embargoes and gas lines are coming again.

The United States is not about to run out of oil or other fossil fuels that could partly substitute for oil – most notably natural gas. The narrative expresses unwarranted alarm. If in fact resource exhaustion were near, the effects would be gradual and would play out over decades. Prices would trend upward inexorably, but the long time frame would allow ample time for adjustment.

This will be true also with rising demand from China and India. The price will rise and they will have to deal with higher, perhaps much higher, prices, which will curb demand and encourage development of supply. The idea of a supply-demand gap is simply nonsense – although it is repeated often.

There are some good reasons why the government might usefully underwrite research into new energy technologies. But if and when fossil fuel prices rise high enough, there will be increasing incentives for entrepreneurs to pursue various technological paths. Crash government programs are generally based on political panic, arrogance and misunderstanding, a combination that had led to continuous failure of U.S. policies.

The pursuit of energy independence is both fruitless and pointless. It is pointless to have an “Apollo” program to achieve something that cannot be achieved in any way that would make us better off. When this is understood, energy programs will no longer need to be grandiose and will no longer be meant to solve everything from unemployment to a spiritual crisis of the American people.

Because of an unchanging narrative, energy policies never really seem to change. We keep searching for the holy grail of energy independence, the solution to the imagined problems of the narrative.

Independence has always hinged on the development of a new technology that would be American and low cost. Nuclear breeder reactors, synfuels, ethanol, solar, wind, electric cars: These have been touted as the way to energy independence. Yes, President Obama talks about “all of the above” but lavishes subsidies and mandates on preferred technologies that would be reduced to niche products if those benefits were removed.

A true all-of-the-above strategy would be one in which no energy technology were subsidized, in which all of the above would be able to compete in the market.

In reality, since our energy policies are misguided and skewed by politics, we are left worse off than if we just let the market prevail.

Peter Z. Grossman is the Clarence Efroymson professor of economics at Butler University. His new book is “U.S. Energy Policy and the Pursuit of Failure.” He wrote this for Indiana newspapers.

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