Why Energy Independence Matters More than Iraq

The roots of many of our great national predicaments trace back to energy. American troops leave their families to fight in the Persian Gulf, not incidentally the region of the world with the greatest known reserves of oil. A falling U.S. dollar faces the risk of oil-exporting countries switching their investments from dollars to euros. A United Nations panel of scientists reports the planet is warming, due mainly to the combustion of fossil fuels.

On a more personal level, motorists passing gasoline stations are jolted by large signs listing prices going well beyond what could even be imagined just a few years ago. Soaring energy prices in recent years have weakened the overall U.S. economy and could wreck greater economic havoc in the future.

When serious energy threats loom, political candidates and officeholders have for decades advocated American energy independence to reduce or eliminate reliance on foreign oil. To add rhetorical flourish, they have gone on to demand an effort to develop alternative fuels with an intensity equal to the Manhattan Project (which beat the Germans to the development of the atomic bomb), or the Apollo project (which beat the Russians to land a man on the moon).

President George W Bush added a new twist to the energy oratory in 2006, when he complained that America's addiction to oil was driving up gasoline prices and threatening national security.

During the presidential primaries of 2008, the four major candidates who survived Super Tuesday, regardless of party, all called for American energy independence. This is clearly an idea with great popular appeal.

What should we make of all this talk? Is there any substance behind the verbiage? Is energy independence a massive project we really want to take on? Is it even possible? Do we need to rethink what we mean by energy independence?

Major Risks to National Security, the Economy, and the Environment

This book argues that American dependence on foreign oil at current levels (60 percent of total consumption) constitutes a grave security and economic risk with greater consequences than the war in Iraq. As much as laissez-faire economists want to deny the obvious, importing oil from the Persian Gulf and other unstable regions has much bigger strategic impacts than getting, for instance, televisions or running shoes from Asia.

For starters, the harmful effects of an interruption in the supply of petroleum (a word interchangeable with oil) are much greater. Petroleum products play many vital roles in moving people and things around. The Army and Air Force can conduct missions only when fueled by oil. (The Navy makes extensive use of nuclear power.) Trucks that carry goods to Wal-Mart and shoppers headed to their stores also rely on oil. So do critical services ranging from the delivery of food to emergency medical care provided by speeding ambulances. People in the Northeast need heating oil to get through frigid winters. In short, the sudden absence of oil would shut down any modern economy and render its armed forces powerless.

The risks of an interruption are not just hypothetical. A five-month Arab oil embargo in 1973-1974 crippled the American economy and led to long lines at service stations. In some states, half the stations ran out of fuel. Just five years later, the Iranian Revolution led to another massive loss of oil, the return of gasoline lines, and raging inflation. Then, in 1980, war between Iraq and Iran suddenly slashed world oil supplies by five million barrels of oil a day (8 percent). World oil supplies got clobbered again after Iraq invaded Kuwait in 1990.

Even if oil now represents a smaller part of the total economy than in the 1970s, and the complete loss of oil from the world 's largest exporter, Saudi Arabia, is regarded as unlikely, the United States cannot remain oblivious to the possibility that some combination of factors could produce a shortage greater than ever before. Such scenarios for massive interruptions are no more improbable than the great interruptions of the past, as viewed by various White Houses just hours before they actually occurred. Even when we have enough oil, policymakers have to deal with the fact that oil exporters can exert pressure on America just by threatening to block supplies.

Do we also have to worry that the United States will have to commit military forces to protect its access to foreign oil? The historical record reveals that this has been U.S. policy for decades.

There has been a tendency within polite circles in Washington to treat dependence on Persian Gulf oil and the costly—in terms of lives and money—U.S. military presence in Iraq as two separate issues. In 2007, Alan Greenspan—top economic advisor to presidents Nixon and Ford and head of the Federal Reserve Board during the presidencies of Reagan, Clinton, and the two Bushes—performed a great public service by confirming the presence of the big elephant in the room. "I am saddened that it is politically inconvenient to acknowledge what everyone knows," he wrote in his memoir The Age of Turbulence, "the Iraq war is largely about oil."1 The world 's reliance on oil from the Persian Gulf can have a high price indeed.

Apart from abrupt interruptions in global oil deliveries and the need for U.S. armed forces to protect American access, there are other, more subtle forces at work that undermine U.S. independence. The twelve nations of the Organization of the Petroleum Exporting Countries (OPEC) maintain a policy of keeping oil supplies below what is needed for the growing world market, a strategy of making more money by producing less oil.2 In recent years, they have succeeded beyond their fondest hopes. The world has seen a persistent seller's market in which oil prices remained well above the cost to bring on new supplies. Part of the success of oil exporters rests on the persistent growth in American demand for gasoline in the face of prices that have more than tripled. In the current tight oil market, any actual or potential interruption of supplies from wars in Iraq or Nigeria is quickly magnified, with oil traders rapidly bidding up prices.

The combination of record imports and record prices has created a trade deficit in energy greater than the much-ballyhooed one with China, and has poured vast sums of money into the oil-exporting countries. The amount of money involved is stunning: the United States is currently spending a billion dollars a day on imported fuel.

The United States cannot ignore the consequences of where the money to pay for its oil is going. The growing political clout of countries like Iran, Russia, and Venezuela rests on the explosion of world oil prices in recent years. If they take actions we disapprove of or money going to the Persian Gulf ends up in the hands of terrorists, we, as the world 's greatest consumer of oil, pay (at least indirectly) for it.

The 9/11 Commission found that the government of Saudi Arabia tried to cut off funds going directly to Osama bin Laden and his al Qaeda organization and that he did not have enough of a personal fortune or use money from trade in illegal drugs to fund his terrorist activities. His attacks on the United States were financed with money raised through charities and religious groups in Saudi Arabia and, to a lesser extent, neighboring countries.3 In the major countries supplying funds for al Qaeda, the economies were based on oil exports. Without money derived ultimately from oil, the terrorists could not have struck.

Some take comfort in the amount of imports that come from neighboring Canada and Mexico. Indeed, in recent years they have ranked number one and two, respectively, as oil suppliers to the United States. Still, the oil we get from them falls well below what we get from OPEC. More importantly, in a global oil market, oil prices around the world tend to rise and fall in tandem, and shipments of oil to one port can be quickly diverted to another. Our consumption can drive up the prices Persian Gulf nations get for their oil, whether their customers are in the Western or Eastern hemispheres.

American energy independence has often been equated with reducing reliance on foreign oil. Given our huge appetite for imports and the instability of the region with the world 's greatest known reserves, this emphasis is justified. But it is not quite that simple.

Getting oil imports to zero is not the critical factor in achieving energy independence. The United States can certainly import some oil (but not at the current level of 60 percent) and still manage the risk of those imports. In addition, even if the United States imported no oil, it would have to recognize the possibility that in the event of a major interruption, foreign consumers could buy American oil and create a shortage here.

We must also consider the growing recognition in recent years that the combustion of fossil fuels is the major factor leading to the warming of the planet, along with attendant effects like rising ocean levels, melting glaciers, and expanding areas of drought and dangerous fires. If we cannot end our addiction to fossil fuels (at least as they are currently used), we will confront a lack of independence in addressing a deterioration in our quality of life that will almost certainly accelerate for our children and grandchildren. The changing locations of arable land around the world already produce armed conflicts in which the United States is asked to intervene. In some areas, warming may improve the quality of life, but for the most part climate change creates additional challenges for American military and economic security and the potential for environmental disaster.

The convergence of so many predicaments tied to energy seems to make the task of dealing with them appear daunting indeed. Some laissez-faire economists question whether, in the age when economic growth benefits from international trade, making the United States energy i ndependent is a worthy goal. They have also suggested that the costs of slowing climate change are not justified. Others consider reducing dependence on foreign energy or the emissions of greenhouse gases a good idea, but probably unrealistic given the huge momentum pushing trend lines in the other direction. Even at a time of three dollars a gallon for gasoline, American foreign policy driven by a need for imported oil, and growing international pressure to do something about global warming, it is difficult to convince some that concerted action could actually reverse the current adverse trends in energy.

Part of the prevailing skepticism about becoming less reliant on foreign oil comes from years of hearing speeches about energy independence with no (or few) positive results. In November of 1973, just weeks after Arab oil producers imposed an embargo on the United States, President Richard Nixon went on prime time national television to call for the country to become self-sufficient in energy by 1980, an effort he called Project Independence. He also invoked the Manhattan and Apollo projects in his call to action. At the time of this first presidential plea for energy independence, oil imports had risen to a then-astounding 37 percent of

Many presidents have called for energy independence.

consumption. With today 's figure at 60 percent, no wonder people are skeptical that we will ever see any progress.

When the 9/11 attacks hit New York City and the Pentagon, it provided, in the words of NewYorkTimes columnist Tom Friedman, a "crucible moment" to unite the country behind new energy policies that might make us less dependent on Persian Gulf oil, less likely to fund the terrorists who attacked, and more likely to leave a better future for our children.4 Again, political leaders spoke out in strong terms after 9/11, but were slow to offer substantive solutions to the energy problems connected to the attack.

We keep hearing as well about the amazing new technologies that are going to rescue us from our energy problems. Yet the most important breakthroughs in nuclear power came when Harry Truman was president and (later Admiral) Hyman Rickover led the effort to develop light water reactors for the nuclear navy. Nixon was invited during his first term to a demonstration of hydrogen fuel cells, which have been touted ever since as the big breakthrough just around the corner. The United States assumed world leadership in solar cell technology and passed generous subsidies for ethanol and other forms of renewable energy under Jimmy Carter, yet the share of renewables in the energy mix is no greater today than it was under Carter. In 1993, the Clinton administration joined with the U.S. automobile industry in a much-publicized effort to "build a car with up to 80 miles per gallon at the level of performance, utility and cost of ownership that today 's consumers demand," after which the fuel efficiency of the national fleet declined. Should we believe more recent hype about the new emerging technologies?

The great theologian Reinhold Niebuhr once prayed: "God, give us grace to accept with serenity the things that cannot be changed, courage to change the things that can be changed, and the wisdom to distinguish one from the other." It would be hard to blame people who concluded that, given the recent record, our current dependence on foreign oil and global warming are things we should "accept with serenity."

Finding Solutions

This book argues that rising dependence on foreign oil and threats from climate changes are things we should have the courage to change. My goal is to show both how we got into this mess and how we can get out of it. Now is the ideal time to take a fresh look at energy policy and the solutions that are available.

Traditionally, the costs of various solutions to our energy problems have been compared to the benefits for the economy, the environment, or national security. We should start comparing the costs against the benefits for the economy, the environment, and national security. We also need to calculate the impacts on our children and grandchildren of policies (good or bad) adopted today. If we accurately cumulate the advantages of moving boldly on energy, we can better envisage reasons why action is better than passivity. The substance of our recent tepid energy policies can finally begin to match the bold political rhetoric.

My favorite example of a policy ripe for immediate adoption requires that automobiles and trucks meet steadily escalating fuel-efficiency standards. Dramatic increases in the efficiency of vehicles allows the United States to greatly reduce its use of oil. This, in turn, cuts reliance on foreign supplies. It also chops the U.S. balance-of-payments deficit. Less money goes to regimes like Iran. The environment will greatly benefit. It will likely lower world oil prices. At some point, a combination of measures to reduce oil imports reduces the need for an American military presence in the Middle East. If all these benefits are added up, the cost of building the improved vehicles appears rather small. (Plus, drivers save most or all of the costs of more expensive vehicles with lower fuel costs.)

The United States is only part of the world transportation system, but a very large part. We consume a quarter of the world 's oil. Because of our economic dominance, we have the ability to greatly affect the global market in many ways, for good or ill. If we greatly improve the fuel economy of our cars and trucks, there will likely be beneficial spillover effects elsewhere in the world.

In all, I identify seven solutions that can help reduce dependence on foreign oil, strengthen the economy, and reduce emissions of greenhouse gases. Several of these recommendations deal with all three problems at the same time. I call these solutions threefers.

It would be harder to believe we can conquer our energy challenges if we had not done so once before. As surprising as it may seem, the United States cut its oil imports in half from 1977 to 1982—a sharp reversal of the growing reliance on foreign fuel up to that time. This forgotten victory soon brought an end to OPEC 's domination of the world oil market, a condition it was not able to overcome until 1999. Although imports never got to zero, America was able to reclaim for a time its energy independence. Some measures employed then are available today; others are not. The major point is that when the country is determined to do so, its actions can match its rhetoric.

We can also take great encouragement from the passage of the Energy Independence and Security Act of 2007. This bill launches a new national effort to dramatically increase auto efficiency and contains many other measures that have real teeth. The adoption of tough energy measures for the first time since 1980 signals a major shift in the political landscape in Washington. It also suggests there will be additional opportunities to better align national energy policy with national security, economic, and environmental goals with even bolder action.

Readers may reasonably ask why they should accept the diagnosis of current energy problems and the solutions to them contained in this book. From 1993 to 2000, I served as the administrator of the Energy Information Administration (EIA)—the government 's nonpartisan agency for the collection, dissemination, and analysis of energy data. Although EIA did not endorse specific policies, it frequently responded to requests from Congress and the administration to analyze various options proposed by others. Using economic models it had developed, EIA could chart the future impacts of potential changes in federal energy legislation. The lesson for me, as I oversaw and presented these studies, was that much is gained when assumptions are transparent and political ideology is supplanted by careful analysis and accurate data. We were able to cut through a lot of the partisan jockeying over trends in world oil markets, the reliability of the electric grid, and the costs of reducing carbon emissions.

Now that I am free to suggest energy policies that I think will benefit the nation, I try to look at the best studies available, examine the many interactions within the world of energy, and make recommendations based on the evidence.

The best-attended press conferences at EIA came when I was presenting the agency 's projections of future trends. Such exercises are valuable, but given the limits of forecasting, it is important not to place all one 's analytic eggs in a single basket.

As a result, when I left EIA, I determined to take a closer look at the history of energy policy as a possible lens to the future. I spent considerable time exploring the White House archives of Richard Nixon, Gerald Ford, and Jimmy Carter and utilized, as well, information from several other presidential libraries, much of it classified until recent years. I also pored through the record of the oil disruptions of the 1970s at the American Automobile Association and the archives of former energy czar William Simon at Lafayette University. Although this book deals with today 's problems, exploring their roots has helped identify the arguments that have stood the test of time and those that have not.

The effort to learn more about the future by considering the historical context included a careful review of the data series maintained by EIA. This approach led to some reinterpretation of trends in oil imports, nuclear power, and other major aspects of the energy mix. Many of these trends have not been given the attention they deserve.

Looking at the world of energy from many perspectives has greatly assisted the effort in this book to offer cost-effective solutions allowing the nation to declare its energy independence by reducing reliance on foreign oil and cutting emissions of greenhouse gases to a level that provides a good start toward slowing global warming.

Having a good grasp of this history has helped me assess the likely impacts of the Energy Independence and Security Act. This book will provide an early assessment of this 800-page-plus bill. Though many focus on what was left out, there was sufficient substance remaining to rank this legislation favorably alongside the great energy packages of the 1970s that collectively helped us temporarily win back our energy independence. This new burst of congressional action contributes to my belief that we can lick the problem of energy dependence, if we keep at it.

To put both my solutions for energy independence and recent developments in energy policy in context, we must begin by understanding how we lost the energy independence we enjoyed through the 1960s.


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