Our government as of late has been resembling the Romanoff dynasty more and more. There are now more federal policy "czars"--all-powerful expert administrators--than at any time in the nation's history.
There exists, for example, a drug czar, an e-government czar and the homeland security czar, Tom Ridge. There is even talk of creating an emergencies czar. His job, I suppose, would be handling the disaster whenever Dick Cheney leaves Washington and George W. Bush is left to run the country.
This strategy of centralizing management works quite well in some policy areas. In fact, I would submit that we need a czar-like figure to create and implement a federal strategy for managing the single most important resource that the United States relies on, which unquestionably is energy. But even if we use the existing Department of Energy and its leadership to map out this strategy, the fact remains that a comprehensive energy policy remains essential as a matter of national security and economic stability.
Petroleum strategy, in particular, is an area in which our government has been almost frighteningly idle for decades. In his speeches about Iraq, Bush has been asserting that America is determined to achieve security at any cost. Let me suggest what this cost might be in terms of oil prices, as things stand. The Brookings Institution estimates that a 25 percent reduction in oil supply from the Persian Gulf-if anything, an optimistic scenario in case of a major Middle Eastern war-would cause world oil prices to triple, gasoline prices to double and inflation to rise by 5 percent. Not so terrible, you say? Then ponder the nightmare scenario in which Gulf oil output falls by 40 percent, gas prices skyrocket to $5 a gallon, and we get 70's style inflation of 15 percent.
The numbers above assume that during any major oil shortage the Strategic Petroleum Reserve would be used. This much-vaunted reserve, combined with private stockpiles, has enough oil to last the country about 90 days at the current level of consumption. True, this timeframe doubles if domestic production stays unaffected and goes up to a full year if the supply shortage only affects the Gulf. Still, the key point here is that the United States is utterly dependent on foreign oil, despite all the political rhetoric about changing this status quo.
Will our reliance on foreign energy sources ever cease? Sadly, the answer is no. OPEC countries, which include some of America's worst enemies, represent a quarter of global oil production, but fully two-thirds of the world's proven petroleum reserves. This means that as oil literally runs out in northern Europe, China and South America, Gulf producers may come to dominate the market again. The last time this happened was in the 1970s, and we all know what a memorable decade that was. There are complex economic and political reasons that make another embargo very unlikely, but whenever supply of a product is tightly concentrated, there is the risk of intense price volatility.
The good news is that the U.S. government and the private sector are able to reduce the country's vulnerability to an oil shock. For one, we need to be encouraging production in friendly countries outside OPEC. Russia clearly comes to mind here. It will probably never supplant Saudi Arabia as the leading oil exporter, but it does have vast untapped oil fields that American firms should help develop. The same is true of West African countries, like Gabon and Cameroon. They are geographically close to North America and generally have good relations with the West. Their oil wealth has the potential to greatly improve domestic living standards, while providing a cushion for the oil market.
Washington also needs to actively deter politically motivated manipulation of oil supplies from abroad. Over two decades ago, President Carter announced that the United States will use military force, if necessary, to prevent Middle Eastern oil supplies from falling into enemy hands. This doctrine achieved its pinnacle in the Gulf War, and it remains just as relevant today. Short of war, any oil exporter that halts sales to the United States in an effort to harm the American economy should be rendered permanently ineligible for trade benefits, foreign aid or military assistance. Sure, this is a harsh punishment, but the very threat of it will send a clear message to all concerned.
Security of oil supplies is important, but it is not sufficient in and of itself. This is where conservation comes in. Few people would disagree that it is advantageous in principle, but no one wants to be forced to trade in their comfortable SUV for a 50-mpg hybrid two-seater. Under a sensible energy policy, no one would have to. However, the right to own a gas guzzler should entail the responsibility of compensating society for the additional strain on oil supplies. There is a good argument to be made for imposing a progressively higher tax, akin to the luxury tax, on cars that fall below a set efficiency threshold. This revenue could then be allocated towards energy programs.
If a tax proves politically impossible, a subsidy would also make sense. As an incentive, the IRS could expand its tax credit for consumers who buy ultra-efficient vehicles. Similar rules, of course, should apply to oil-dependent industries, and renewable alternatives to petroleum also need to be further explored.
It is disconcerting that the energy debate in Congress invariably reduces to partisan squabbling over the Alaskan National Wildlife Refuge. For one, I couldn't care less whether or not drilling should be permitted there. This particular issue is of so little significance in the great scheme of things that ANWR bills are not worth the paper they are written on. Any decision on ANWR will neither save nor destroy the United States economy in a time of crisis, but a genuine energy policy just might make the difference between depression and prosperity.
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