Thursday, June 22, 2006

The Truth

Addicted to Regulation The real reason for America's foreign-oil dependence.
Wednesday, June 21, 2006 12:01 a.m. EDT

In his State of the Union Address, President Bush said that "America is addicted to oil." But it would be more accurate to say that America is addicted to opportunity, and oil and its products help us seize it.
American oil consumption is indeed rising, from more than 15 million barrels a day in the early 1980s to more than 20 million today. It is likely to continue to increase--another 33% over the next 25 years, according to the U.S. Department of Energy--because crude oil is a useful substance. Some 40% of our oil consumption is for cars and light trucks; 32% for buses, railroads, ships, trucks and agricultural machinery; and another 17% goes into petrochemicals to produce products from plastic to paint. These uses represent opportunities, not addictions.
The problem is that America's domestic petroleum production has significantly declined, from 10 million barrels a day in 1970 to about 5 million today. Our response has been increasing importation of oil, now more than 12 million barrels a day.
So expanding America's energy production is the obvious priority. Common sense would suggest that we should begin tapping into the estimated 102 billion barrels of oil sitting under America's Outer Continental Shelf and in Alaska. That domestic supply could replace America's importation of foreign oil for some 25 years.
But our country's political establishment, from Congress to the press and the presidency, has worked for a quarter century to prevent increases in our energy supply.
In 1980 President Carter imposed a "windfall profits" tax on oil companies, which raised $40 billion rather than the $227 billion promised. Rather than easing energy shortages, the tax reduced domestic oil production by between 3% and 6% and gave imported oil from foreign countries a competitive advantage that increased imports of foreign oil by about 10%.
In 1990 the first President Bush issued a presidential directive forbidding access to about 85% of Outer Continental Shelf oil and natural gas reserves. In 1998 President Clinton extended the moratorium through 2012.
In 1995 Mr. Clinton vetoed a budget bill that would have allowed oil exploration and drilling in part of the Alaska Arctic National Wildlife Reserve. Prudhoe Bay fields, just to the west of ANWR, have delivered 15 billion barrels of oil through the Alaska pipeline to the U.S. market without damage to Alaskan land, caribou or other wildlife. ANWR contains 10 billion barrels of oil, so Mr. Clinton's veto today is costing America about a million barrels of oil each day. Yet Congress has repeatedly defeated efforts to open ANWR to exploration.
As the Heritage Foundation points out, the U.S. "is the only nation in the world that has placed a significant amount of its potential domestic energy supplies off-limits."
Congress has also limited the capacity to refine our oil. After Hurricane Katrina, a bill to streamline the refinery permitting process--we have not built a new one since 1976--and encourage the building of refineries on closed military bases was blocked in the Senate Environment and Public Works Committee when every Democratic senator, along with Jim Jeffords (I., Vt) and Lincoln Chaffee (R., R.I.) voted "no."
We could reduce our importation of, and "addiction" to, foreign oil in various ways.
Nuclear power is one. We have 104 nuclear power plants in operation in America that provide clean energy and decrease by 700 million tons the CO2 released into our atmosphere each year. But we have stopped building nuclear power plants: Construction of the last one began three decades ago. President Bush has proposed the Nuclear Power 2010 Initiative to facilitate plant construction. Sixteen companies have expressed interest, and 25 new nuclear plants are under consideration.
Offshore drilling for natural gas is another way. There are some 420 trillion cubic feet of natural gas on the Outer Continental Shelf. We currently consume about 23 trillion cubic feet per year, so that amounts to a 19-year supply. But the House last month voted 217-203 to block the opening of some Outer Continental Shelf areas to natural gas exploration and drilling.
Then there is ethanol, the heavily subsidized energy produced from crops like corn, soybeans and sunflowers. Ethanol producers receive a 51-cent-a-gallon federal subsidy, which cost the government $1.4 billion last year, and are protected from international ethanol imports by a 2.5% tariff and an import duty of 54 cents a gallon.
But it is not clear that ethanol is a good economic or energy bargain. Producing it requires diesel fuel for tractors to plant and harvest the corn and fertilizers, and pesticides to allow it to grow, so it takes about seven barrels of oil to produce eight barrels of corn-based ethanol. But then more truck or rail fuel is required to deliver it, since there are no pipelines from corn country to urban areas, making shipping ethanol about double the cost of shipping gasoline. In the end ethanol may be a more expensive fuel. Sen. Charles Schumer (D., N.Y.) says there is no policy reason for ethanol: "If the ethanol producers and the corn growers weren't benefiting from this, we wouldn't be doing it."
Cleaner coal technology--we have 200 years worth of coal--is being pursued, as are other energy sources such as wind and solar power that may ultimately be some help in meeting our energy needs.
So what does the political establishment think of all these energy alternatives? Except for ethanol, wind and solar power, not much.
Sen. Hillary Clinton's energy speech to the National Press Club last month perfectly (and politically correctly) makes the establishment's point. Yes, she is for wind power, solar power and increasing the amount of oil stored in the Strategic Petroleum Reserve, all good things. But she is also:
• For a windfall profits tax on oil (though she doesn't call it that), which would, as in 1980, reduce domestic oil production; and for higher taxes on oil companies so government, rather than the market economy, can regulate energy production.
• Against the construction of additional nuclear power plants--America's cleanest source of energy--because of her "real concerns" about the "quality of the oversight provided by the Nuclear Regulatory Commission." That translates into not enough governmental control over an industry that is too hot to touch politically.
• Against ANWR drilling (she has voted against it half a dozen times), and against additional offshore drilling.
• For greatly expanded--and greatly subsidized--ethanol production.
Her overall goal is "reducing our dependence on foreign oil by at least 50% by 2025." But expanding nuclear power, drilling for the proven reserves of oil and gas off our coasts, and even eliminating the ethanol import tariffs and subsidies all are politically incorrect energy policies that the Washington establishment will not permit.
That's too bad, because they are the correct policies that would help a great many Americans enjoy greater opportunity. But that's the political establishment's thinking, which makes government control--not oil--the addiction that is misdirecting our national energy policy.

Mr. du Pont, a former governor of Delaware, is chairman of the Dallas-based National Center for Policy Analysis. His column appears once a month.

No comments:

Post a Comment