Friday, June 30, 2006

On Energy Independence

A reader emails me a question about "energy independence."

Professor Mankiw,

Because I graduated from Harvard in '05, I took Ec 10 from Marty (although I did have the pleasure of using your excellent textbook). I've been a dedicated reader of your blog ever since I discovered it this spring. Anyway, on to the question.

I'm working in DC right now, and everywhere you turn there is a politician advocating for "energy independence." What's more, both parties seem to have adopted the mantra, and I have not yet heard a serious voice denouncing the call to "end our addiction on foreign oil."

Am I crazy to think that "energy independence" makes absolutely zero sense and is instead a political canard to appease protectionists on the left and isolationists on the right?

I'm pretty sure that Marty gave a spirited lecture about the virtues of free trade and decried examples to the contrary like China's push for food "self-sufficiency."

How is "energy independence" any different?

[name withheld]

The reader is correct that "energy independence" is a bipartisan mantra. George Bush in his 2003 State of the Union address said, "Our third goal is to promote energy independence for our country." John Kerry in a 2004 campaign ad said, "It's time to make energy independence a national priority."

Does this make any sense? Consider this passage:

"One of my policy goals will be to shut down LNG facilities and to stop building new ones. These facilities make it easier for American to buy cheap natural gas from abroad. Americans may enjoy the lower prices, but these facilities keep us dependent on foreign suppliers. It is better to produce all our energy domestically, even if it means consuming less and paying higher prices."
Would either Bush or Kerry insert such a passage into a speech? Of course not.

If we could wave a magic wand and costlessly reduce the need for imported energy, that would be great. Calls for energy independence are usually followed by magic-wand-like claims about what conservation, technology, etc. are likely to produce. But politicians rarely suggest that Americans make significant economic sacrifice for purposes of energy independence. The rhetoric is usually hollow.

This is, in my view, fortunate. Hollow rhetoric is less worrisome than substantive, misguided rhetoric. Another word for "independence" is "autarky." While gasoline taxes can be justified as a policy to deal with externalities, "energy autarky" is not in itself a desirable goal.

Update: Econbrowser estimates what the price of oil would be under energy independence.