CBO Wants to Launch Preemptive Strike on American Energy Prices

Those who have followed the political debates over energy through the decades have observed a familiar pattern: The critics of American “dependence” on oil will keep coming back with new arguments, no matter how many times their earlier arguments are refuted. So it is with a new Congressional Budget Office (CBO) study on “Energy Security in the United States.”

In its introduction the CBO paper explains that it “examines energy security in the United States—that is, the ability of U.S. households and businesses to accommodate disruptions of supply in energy markets—and actions that the government could take to reduce the effects of such disruptions.”

Now this is a lengthy study and there are many comments we could make about it. However, for the present blog post let’s focus on this gem:

Policies that promoted greater production of oil in the United States would probably not protect U.S. consumers from sudden worldwide increases in oil prices stemming from supply disruptions elsewhere in the world, even if increased production lowered the world price of oil on an ongoing basis. In fact, such lower prices would encourage greater use of oil, thus making consumers more vulnerable to increases in oil prices. Even if the United States increased production and became a net exporter of oil, U.S. consumers would still be exposed to gasoline prices that rose and fell in response to disruptions around the world. [Page vi, bold added.]

The part put in bold shows that the rules of the debate have shifted yet again. For years, the standard objection to allowing for drilling in ANWR and the Outer Continental Shelf was that (allegedly) the U.S. didn’t have enough oil reserves to provide relief at the pump for motorists. This objection, however, was refuted by what happened to crude prices when President George W. Bush in July 2008 lifted the Executive Branch moratorium on offshore drilling, and further when Nancy Pelosi announced in September 2008 that the Congress would not be renewing its own ban:

In light of this history of the debate, and the stunning chart above, the CBO’s position is very interesting. They are now saying that even if the United States found so much domestic oil that it became a net exporter of crude, then it still would be a good idea to “wean” Americans from their “dependence” on oil.

The logic here is astounding. It would just as well “prove” that the people right now in Saudi Arabia should start developing alternative forms of energy, rather than use the incredibly dense energy source that is literally flowing up from the ground all around them.

In a sense, the CBO is recommending a preemptive strike on American energy prices. Notice that it says falling oil prices would make Americans more vulnerable to—wait for it—rising oil prices! Yes, that is true. By the same token, a man who starts eating healthy and going to the gym, is “more vulnerable” to a sudden increase in body fat if he should abandon the program and go back to junk food.

Although couched in the language of prudence, the CBO analysis implicitly admits what proponents of laissez-faire energy markets have been saying all along: Given current technologies and relative resource supplies, it is cheaper and more convenient for Americans to consume large amounts of fossil-fuel-based energy. The government isn’t “protecting” Americans from potentially high oil prices at some unknown future date, by preemptively imposing high energy prices from alternative sources on them today.