Choosing Our Energy Priorities

Human Events offers a "Top 10" list of reasons to think that President Obama favors expensive energy.

8.  Stifles U.S. oil drilling, while subsidizing Brazil’s: The BP oil spill prompted the President to impose a drilling moratorium in the Gulf making deepwater drilling permits impossible to obtain.  So when oil companies moved their rigs to areas off the coast of Brazil where they were welcomed, Obama offered billions in US taxpayer money to aid the venture, creating new jobs in South America.  By refusing to allow U.S. energy sources to be developed, the President is ensuring increased reliance on expensive and volatile foreign oil.

I know this point about US oil vs. Brazilian oil has become a major right-of-center talking point.

But here's the strange thing: if what you want is cheap oil, you want oil neither from Brazil nor from the Gulf of Mexico. The cheapest oil in the world comes from the Middle East: Saudi Arabia, Kuwait, and so on.

And as between Gulf of Mexico oil and Brazilian oil, Brazilian oil is the cheaper (but not cheap) alternative.

Human Events lambastes the Obama administration for delaying approval of a second pipeline to Canada's oil sands. (That's proof number nine.) But Canadian oil sands oil costs even more to produce than Brazil's offshore oil.

The Human Events list nicely illustrates why US energy policy is such a mess. There are three different things we can want from energy policy, but we can achieve (at most) two at the same time.

We can have energy that is cheap: electricity from coal, oil from the Middle East. But cheap oil is not secure, and cheap electricity is not clean.

We can have energy that is secure: oil from North America and other politically reliable producers. But secure oil costs more than Middle Eastern oil.

Or we can energy that is clean: electricity from nuclear power or renewable sources; alternative sources of motor fuel. But those sources are not cheap. Electricity from solar sources costs between five and 10 times as much as coal-fired electricity.

So we have to make choices.

Choice-making begins with realistic understanding of the trade-offs. Green energy advocates want to conceal how very expensive their preferred policy will be. They talk about creating "green jobs" to distract attention from the impact of expensive energy on everybody else's jobs.

But advocates of drilling in US coastal waters can be equally misleading, when they suggest we can lower prices by drilling more at home. The marginal cost of US oil greatly exceeds the marginal cost of Middle Eastern oil. We can enhance security by diversifying sources of supply, agreed. But there is only one world price, and that price is set in global markets in which the US will never again be the marginal supplier. Which means that the familiar formula "drill here, drill now" is not a formula to "pay less."

It's a good discipline for all of us to be explicit about rank-ordering our energy preferences. I'd say: security first, cleanliness second, cheapness third.

Which is why I favor intensifying US-Canada energy cooperation and shifting from coal-fired to nuclear-generated electricity. Carbon taxes would be a good mechanism to facilitate this shift.

Maybe you have a different rank ordering? Perhaps (as is implicitly the case for Human Events), cheapness first, security second, cleanliness third?

OK then. You'll want to maximize imports of Middle Eastern oil, ignore nuclear power, and forget about the Gulf of Mexico.

Whatever your rank ordering, unless you think clearly about what you wish to achieve, you are very unlikely to achieve it.