Wednesday, April 20, 2011

The "Foreign Oil" vs "Domestic Oil" Fallacy

President Obama may have thought he was appealing to patriotic instincts, but his speech at Georgetown University sent the wrong message by promoting the fallacy that we can save our economy by driling for more "domestic oil" to reduce our dependence on "foreign oil."

Webster's defines a "fallacy" as "an often plausible argument using false or invalid inference." That is exactly what our elected officials are selling us. President Obama's argument that we can reduce our dependence on foreign oil by drilling in the the Gulf is plausible, as is Republican Senator Mitch McConnell's retort that even more oil could be produced by drilling in Alaska. The false inference is that drilling for more domestic oil will somehow end the cycles of energy crises that have triggered economic recessions since the 1970's.

Here are the facts:

More domestic crude oil will not shield us from higher and more erratic oil prices in global markets. Most of our imported oil comes from Canada and Mexico. We do not import any meaningful quantities from Tunisia, Egypt or Libya. Yet, the oil we buy from Canada and Mexico also costs more than $100 per barrel, just like the oil from countries in turmoil. Because oil prices are set by a global market. Even if we drill for more oil in the US, the price of all our oil will be determined by OPEC, increasing demand from China and other developing countries, and instability in the Middle East. [After this post first appeared, some readers pointed out that reducing foreign oil imports will help reduce the balance of trade deficit. True, but getting there by producing more domestic crude is not the solution, for reasons explained below.]

More domestic crude oil will not decrease environmental harms. Whether we burn domestic or foreign oil, the impact on the environment is the same. Indeed, more drilling in the US will result in more environmental harms, not less. Remember that the BP Deepwater Horizon and the Exxon Valdez catastrophes were the direct result of domestic oil production. Expect even more of these types of disasters as domestic oil production expands into environmentally sensitive areas, especially when the multinational oil industry wraps itself in our flag and argues for more lenient regulations in the name of reducing our dependence on "foreign" oil.

More domestic crude oil will not increase the supply of domestic gasoline, diesel, or other refined products. Our US refineries have been operating at 85% to 90% capacity throughout the Great Recession. This is very close to full capacity because refineries must shut down periodically for maintenance and safety reasons. That is why nearly 25% of our oil imports are in the form of refined products. We do not have the capacity in the US to refine more crude oil into useful products. Even if we produce more oil from domestic sources to replace "foreign oil," that will not result in more refined products in the US market. As the economy recovers and demand increases, we will need to import even more refined products from foreign countries.

More domestic crude oil will not make us more competitive with China, India, and Europe. Markets in the rest of the world are shifting to sustainable energy. Germany is getting almost 20% of its energy from renewable sources right now. GE just bought a French technology company and anticipates creating large numbers of renewable energy jobs in Europe where government policies favor sustainable energy. China is outpacing us in sustainable energy investments. In the short run, these countries are creating new jobs in new industries. In the long run, they will have less expensive sources of energy.

President Obama's embrace of more domestic oil production as the solution to "foreign oil" is tragic on many levels. It resulted in news headlines that distracted citizens from many other initiatives that he has promoted to wean the US from oil, domestic or foreign. It weakened him politically by damping the enthusiasm of environmentalists and others on the left who are his natural base, while emboldening those who support dirty fuels. At the same time, he sent a confusing message to vast numbers of independent voters by suggesting that the dirty energy advocates have a legitimate argument when they say that drilling for more domestic oil is a solution. That lets his critics avoid the very tough question of how we will wean ourselves from dirty fuels.

Most tragically, the President's willingness to promote domestic oil as a solution to "foreign oil" appears to represent an abandonment of the one thing that will ultimately help us move to a more sustainable energy infrastructure -- using government policy to change the economics of energy. If we really want to build a sustainable energy infrastructure, we should start by: (a) phasing out all direct and indirect government subsidies for dirty fuels over a seven-year period; and (b) including the cost of pollution and related harms to human health in the price of dirty fuels. Not only would that spur investment in clean energy technologies, but it would also reduce the government deficit and the trade deficit.

John Howley

Woodbridge, New Jersey

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