Limiting U.S. Oil Imports: Cost Estimates

By Huntington, Hillard G. | Contemporary Policy Issues, July 1993 | Go to article overview
Save to active project

Limiting U.S. Oil Imports: Cost Estimates


Huntington, Hillard G., Contemporary Policy Issues


I. INTRODUCTION

U.S. concern about limiting oil imports had its root in the late 1950s when the possibility that inexpensive Middle East crude oil would replace domestic supply first became a real threat (Bohi and Russell, 1978). The oil shocks of the 1970s temporarily interrupted rising U.S. dependence on oil imports, but many experts now anticipate a return to this long-run trend (U.S. Department of Energy, 1987). Moreover, this conclusion appears to be independent of the expected future oil price path (Energy Modeling Forum, 1991). Given these trends, one might expect U.S. policymakers to adopt aggressive new policies to limit oil imports in the coming years. Concerns about clean air and global climate change reinforce this shift away from the consumption of gasoline and other petroleum products.

How easily could energy policymakers curtail U.S. oil imports? This paper provides some estimates of the costs of curtailing oil import growth. Energy Modeling Forum (EMF) comparisons of several world oil models that contain U.S. supply and demand responses to price are the bases for the estimates. The EMF study focuses on long-run dependence on Persian Gulf oil under alternative conditions (for example, price paths and economic growth rates) but does not directly address how limiting U.S. oil imports might impact market conditions. Specifically, the study does not explicitly consider a scenario incorporating both U.S. oil import reductions and OPEC price-setting assumptions.

The cost estimates assume that policymakers use pricing policies to limit oil imports. If energy markets are operating efficiently, these estimates will provide a lower bound for the costs of other nonprice instruments (for example, end-use standards on oil consumption) that limit imports. If significant market failures exist, the cost of import restrictions may be less than estimated here. To provide a more balanced perspective, the analysis incorporates estimates of several benefits from import-reduction programs. These benefits include smaller wealth transfers during a disruption and lower oil prices without disruptions. One can relate these costs and benefits to the level of imports in each projection and thereby extend the analysis to address key questions: What level of import reduction would create offsetting costs and benefits, and what level would be optimal for achieving the largest net gain?

II. RESULTS FOR TWO OIL PRICE PATHS

A. Models

Table 1 lists the eight world oil models reporting U.S. results by name of the working group representative and affiliated organization.(1) Since the models incorporate EMF standardized assumptions for prices, economic growth, and cartel capacity, these projections are not forecasts of the particular organizations. (For long-run energy and oil projections, see International Energy Workshop [IEW] semiannual polls as described in Manne and Schrattenholzer, 1989.) Moreover, table 1 lists institutional affiliations to identify the model rather than to indicate a particular organization's official modeling framework.

TABLE 1 Models Reporting U.S. Results in EMF Study

Model           Working Group Contact(*)
EIA:OMS         Mark Rodekohr, Energy Information Administration
IPE             Nazli Choucri, Massachusetts Institute of
                Technology
CERI            Anthony Reinsch, Canadian Energy Research
                Institute
HOMS            William Hogan, Harvard, and Paul Leiby, Oak Ridge
                National Laboratory
FRB-Dallas      Stephen P.A. Brown, Federal Reserve Bank of Dallas
Gately          Dermot Gately, New York University
DFI-CEC(**)     Dale Nesbitt, Decision Focus, Inc.
ETA-Macro(**)   Alan Manne, Stanford University

(*)Organization listed for identification purposes. Models and results do not necessarily represent listed organization's official view.

(**)Not included in the analysis because results were reported in 5 or 10 year intervals only.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Limiting U.S. Oil Imports: Cost Estimates
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?