The United States and the world face a daunting array of energy-related challenges. We must work out how to provide, reliably and affordably, the supplies of fuel and electricity needed to sustain and build economic prosperity. We must limit the financial drain, vulnerability to supply-price shocks, and risk of armed conflict that result from overdependence on foreign oil. We must reduce the environmental damage done by technologies of energy supply, ranging from local and regional air pollution to the disruption of global climate. We must minimize the accident and proliferation dangers associated with nuclear energy.
The place of these issues on the public agenda depends on whether they appear to be going well or badly. And for most of the past 15 years, energy matters have seemed to most Americans to be going rather well. Real energy prices were falling. Gasoline lines and electricity blackouts were absent. Urban air quality was generally improving. The science of the impact of fossil fuel use on global climate was widely seen as contentious and inconclusive. There were no major nuclear-reactor accidents after Chernobyl (1986), and concerns about nuclear proliferation and the nuclear energy's role in it were on the back burner.
Much of this has now changed. Heating oil shortages and price spikes in the winter of 1999-2000 were followed by huge increases in natural gas prices in 2000, with painful effects on homeowners, industrial users, and electricity generation. The electricity crisis in California focused the attention of the nation on whether the reliability and affordability of the electricity supply could become casualties of defects in electricity-sector deregulation in other states as well. Oil imports, in the meantime, crept up from their 1985 low of 29 percent of U.S. oil consumption to 57 percent in 2000. Meanwhile, the improving trend in urban air quality has slowed; the scientific consensus about the reality and seriousness of fossil fuel-related global climate change has solidified; and nuclear proliferation has been propelled back onto the front burner by the 1998 Indian and Pakistani tests and by U.S. concerns about Russian sales of nuclear energy technology to Iran.
As a result of these developments, energy policy is again a matter of public concern. What will the new Bush administration do about it? What should it do?
Drilling our way out of dependency?
Early indications are that the new administration plans to make drilling in the Arctic National Wildlife Refuge (ANWR) the centerpiece of its energy policy. That would be a mistake. The contribution of the ANWR to domestic oil supplies would, at best, be slow to start, modest at its peak, and strictly temporary, providing limited leverage against the oil-import part of our energy problems and almost no leverage at all against the other parts. Whether the ANWR belongs in the national energy portfolio at all--given the ratio of its possible benefits to its costs and risks--is problematic. It certainly should not be the centerpiece.
Overdependence on imported oil is a very real problem. U.S. oil imports are running over 10 million barrels per day, out of total domestic consumption of about 18 million barrels. A quarter of U.S. imports come from the Persian Gulf, and another quarter from other Organization of Petroleum Exporting Countries (OPEC) members. The bill for oil imports in 2000 was well over $100 billion, passing one percent of GNP for the first time since 1985. The economic impact of oil-import dependence is still not as great today as it was 20 years ago, because oil's share of the nation's energy mix has fallen since then, and because the amount of energy needed to make a dollar of gross domestic product (GDP) has also fallen. But the impact is considerable in sectors of the economy that remain heavily dependent on oil, and oil dependence as a fraction of national energy supply is high enough to make the defense of foreign oil supplies a major mission of U.S. armed forces and, indeed, a potential source of actual armed confli ct. Moreover, under a business-as-usual scenario, U.S. oil imports are projected to continue to rise. Net U.S. imports of oil in 2020 under the "reference" case in the latest Energy Outlook report of the U.S. Energy Information Administration (EIA) will reach 16.6 million barrels per day, which is 64 percent of projected U.S. consumption. And because both OPEC and the Persian Gulf hold larger shares of world reserves than of current production, their shares of world production and exports are likely to increase over time. The prospect of increasing dependence on these unpredictable partners by the United States, its allies, and even some of its potential adversaries is not reassuring in economic or national security terms.
Dependence on imported oil can be reduced by increasing domestic oil production or by reducing by use; the latter can be achieved either by increasing the efficiency with which oil is converted …