Tuesday, August 28, 2012


Mitt Romney is not an idiot.  His idea of US energy independence by 2020 is not much different from what any other candidate (including Obama) has said.  But since he's the one putting it out now, he deserves all the flack that everyone throws at him.  I don't even need to get into the disaster of an energy plan that involves no carbon pricing and continued fossil fuel subsidies.  Greg Mankiw, are you going to respond to this at all?  It would be nice if we could get some reputable Republican economists who have been fairly environmentally conscious to shoot down Romney's plan for more drilling at all costs.  I don't expect that to happen, but any economist who endorses it as a credible policy loses their reputability.

This sentence is enough to make me snort tofu out of my fingers, whatever that may entail.  Apparently "Republican presidential candidate Mitt Romney will lay out policies on Thursday aimed at achieving North American energy independence by 2020 by pursuing a sharp increase in production of oil and natural gas on federal lands and off the U.S. coast."  I don't know if this is the dumbest statement I've read this week, but it's certainly the most memorable piece of idiocy.  The title of this post is all you need to know.  We will not have energy independence by 2020, by 2050, or probably ever, no matter the president(s).  Romney definitely knows this considering he was the CEO of an investment company that helped bring jobs to China.  Unless we become like North Korea and shutter ourselves completely from the outside world, any mention of "energy independence" is pure fallacy.  I'm not going to get into the specific policies, but I want to take a look at the goals of these policies, especially the notion of "energy independence."

It does not matter how much oil or natural gas we have.  Unless the US had all the natural resources in the world, there is no hope of "independence." The fact remains, oil is a global commodity.  We can drill for all the oil we have, but we are never going to be the sole supplier.  I'm sure that Romney, the former CEO of a company that helped promote outsourcing, appreciates the globalized economy we have today.  The increased supply in natural gas may help reduce electricity costs in the short term, but it is not going to power our cars in the immediate future.  As it stands now, the US gets very little electricity from imported sources.  As long as we are dependent on petroleum, we will be dependent on the Middle East.  And even the most optimistic forecasts caution that the era of cheap oil is over.  There is still plenty out there, but we have already reached a point of diminishing marginal returns; new oil from shale and tar sands costs a hefty sum of $70 per barrel to extract, plus a lot greater environmental damage than conventional drilling.  Contrast this with a price of fewer than $10 for oil from Saudi Arabia, and you can see that drilling is not a long-term (or even medium-term) solution to our energy problems.

Now, let us delve a bit further into Romney's "plan."  You can see it in full for yourself here. It is rather lackluster in details on how much Romney will change anything.  He says that we should reduce regulation and promote more drilling, basically only speeding up the current trend towards increased production.  Romney's plan opens with this statement:
While every President since Nixon has tried and failed to achieve this goal, analysts across the spectrum– energy experts, investment firms, even academics at Harvard University– now recognize that surging U.S. energy production, combined with the resources of America’s neighbors, can meet all of the continent’s energy needs within a decade. The key is to embrace these resources and open access to them.
Unfortunately, not all of the subsequent links present the same rosy outlook.  To be sure, there are some very optimistic claims of us becoming a net oil exporter by 2020, but there is no claim that the US would be able to set prices.  Here is an image of expected "hydrocarbon exports;" we can see that the Middle East is still expected to be a major player.  

Another paper cautions against the notion of us becoming self-sufficient:
However, quasi oil self-sufficiency will neither insulate the United States from the rest of
the global oil market (and world oil prices), nor diminish the critical importance of the
Middle East to its foreign policy. At the same time, countries such as Canada, Venezuela
and Brazil may decide to export their oil and gas production to markets other than the
U.S. for purely commercial reasons, making the notion of Western Hemisphere self sufficiency irrelevant.
Oh, so we're not the only country in the world that matters?

I am really surprised that Romney's paper includes a link to this USA today article considering the claims it makes:

At the same time, the 19 million barrels that Americans burn daily may fall by 2 million, by Citi's numbers. One reason: The EIA says the U.S. will be 42% more energy-efficient by 2035, continuing an enduring trend. 
One reason for all that new efficiency is regulation.

Oh snap, they just used the "r" word!  Let's read more:
The most important number may be $70 — the estimated cost to produce a barrel of oil from shale or tar sands, the heart of the new U.S. supplies. While natural-gas prices have sunk, oil prices might not, since they typically follow the cost of producing the most expensive barrel on the market.
$70 looks like the best case scenario.  Lastly, the real reason that energy independence is a farce:
Yet many hopes — and fears — about the U.S. energy boom will likely prove exaggerated. 
Citi's thesis that gas and oil will stay cheaper in the U.S. than abroad, for example, assumes most exports of U.S. crude remain illegal and natural-gas exports stay rare, says Mark Zandi, chief economist at Moody's Analytics. Instead, U.S. crude is likely to be refined into exportable products such as gasoline, while infrastructure to export liquefied natural gas improves. Both will pull U.S. prices toward higher world levels, he says. 
"Markets have a wonderful way of finding their way around restrictions when there's money to be made," Zandi says.
Oh right, those gosh-darn hippies and their free markets...

A common thread in many of the articles is the importance of reduced demand. If Republicans have their way, then the trend towards lower gasoline consumption will be reversed, and Romney has not exactly embraced conservation. Lower fuel taxes, less regulation, and a larger economy will all work to reduce our influence as an energy supplier. Romney's plan does not even pay lip service to the demand side of the equation, literally abstaining from all references to reduced demand. Of course, he surely realizes that energy prices are only set to go higher no matter the increase in supply if we do not conserve. There is simply no such thing as a free lunch.

My biggest concern with his energy plan, as with almost any plan that promotes pollution, is its complete disregard for externalities. Here is his blatant disregard for the benefits of regulation: "Laws should promote a rational approach to regulation that takes cost into account. Regulations should be carefully crafted to support rather than impede development."  This is not exactly a bad approach, but we must equally take into account the great benefits that regulation can bring for safety, public health, and the environment.  The EPA has been rated the best government agency as far as the net benefit to cost ratio despite the difficulty it has in forming a market-based regulatory policy without the power to levy taxes.  This is not to say that every EPA policy has benefits that exceed costs, but it is still generally a positive influence.  Romney completely ignores the long term harm of climate change, but of course that is to be expected given his new-found conservative fanaticism.  I am saddened that the second most reasonable Republican candidate has come up with such an atrocious plan, especially considering his economic advisers.  He could have helped bring about a market-based environmental reform that Obama has failed to deliver, but instead has just chosen to blithely follow the smoggy, dead-end path of the fossil fuel machine.