The Energy Policy Conundrum

Prepared by: Robert McMahon - October 12, 2006

Prices at U.S. gasoline pumps continue to fall (SFChron) but many experts worry this is only forestalling the hard policy choices necessary to end the country’s dependence on foreign oil. A new CFR Task Force report, released Thursday, warns that Washington’s lack of proper focus on energy issues is undermining U.S. foreign policy and national security. Under current trends, it notes, oil-rich countries such as Iran, Venezuela, and Russia are gaining enormous new leverage.

The bipartisan CFR Task Force, composed of a diverse group of top U.S. policy experts, outlines a multipronged strategy that acknowledges the continued U.S. dependence on oil for at least a couple of decades but seeks to position the country to transition to a less oil-dependent economy. It urges expanded domestic oil exploration, whether in Alaska or in coastal waters; greatly increased federal investment in more efficient or alternative fuel technologies; and U.S. leadership in bringing China and India into international bodies that help to manage disruptions in supply. Task force cochair John Deutch tells CFR.org the panel also agreed it was important to rein in consumption of petroleum in the United States “because it will induce conservation, it will induce new technology, it will lead to a search for alternatives.” Among the measures proposed to achieve this include a gasoline tax, new fuel economy standards, or a system of tradable gasoline permits that would cap gas consumption.

The notion of a gas tax has actually gained support from a number of Republican economists. Notable among them is N. Gregory Mankiw, former chairman of President Bush’s Council of Economic Advisers, who promotes the idea of taxes on fossil fuels on his blog. But CFR Adjunct Senior Fellow David G. Victor, who was the task force’s project director, has written separately of concern about the political difficulties involved in translating such ideas into law (FT).

Bold action on energy issues only appears to surface during extreme events such as Hurricane Katrina, which devastated an oil-refining region, or the BP pipeline mishap in Alaska, which partially shut down the nation’s largest oil field. Foreign Policy Online looks at some of the world’s biggest oil fields and the vulnerabilities that could take them off-line. Independent of federal government efforts, however, the private sector and local governments are beginning to introduce changes aimed at spurring energy alternatives and conservation. For example, at least twenty-two U.S. states now support initiatives for renewable energy, says the Pew Center on Global Climate Change. And a number of U.S. companies are even calling for more stringent federal regulation on carbon emissions.

There is especially strong corporate interest at the moment in prospects for corn-derived ethanol as a gasoline alternative. Many see the hiring of former Chevron executive Patricia Woertz as chief executive of agricultural giant Archer Daniels Midlands as proof of growing confluence of energy and agriculture (IHT). Reinforcing that convergence this week were U.S. Agriculture Secretary Michael Johanns and Energy Secretary Samuel Bodman, who announced their agencies would combine to spend $17.5 million on seventeen biomass research, development, and demonstration projects to help the country break its addiction to oil (Resource Investor). The new CFR Task Force sees in ethanol a potential candidate for replacing traditional fuels, but it urges the costs and benefits of such an option be carefully weighed. A recent evaluation by Consumer Reports magazine challenges claims that vehicles running mostly on ethanol are truly fuel efficient.

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