In Part 1, I discussed how “energy independence” was not a desirable goal, because it would not deliver on any of its promises. Yet, it would be near impossible to find a politician out there that was against this concept. Since these politicians do think that “energy independence” holds promise, then the next question to ask them is “how will this goal be achieved?” The answer is that short of the invention of some sort of super-battery that can store all sorts of energy, the U.S. economy will be dependent on foreign oil for the foreseeable future.Let’s assume that the U.S. decided they would become energy independent by just banning all imports and exports of oil. Since America produces only about roughly 25% of what it consumes, the huge decrease in supply would mean an unprecedented (and I’m guessing politically unpopular) rise in U.S. oil prices. So, this eliminates that route, unless some politician is looking to have a revolution on his hands.
This means that either the U.S. is going to have to make up for that missing 75% with either less demand for oil, more oil, and/or domestic alternative energy sources. Less demand for oil cannot really be forced about the population without dramatic costs. Oil is so widely used because it is cheap and forcing a shift to other means of energy must mean a rise in cost. This would accordingly create a rise in all prices of things that were no longer permitted to use oil as an input. Billions of tax dollars have been spent to encourage conservation of energy, but oil is cheap and improving technology makes using more oil even cheaper.
As for increasing the supply of oil to make the U.S. energy independent, there is quite a bit of oil to be unearthed in the U.S., but making up for the entire 75% gap probably is not in the realm of possibilities.
The reason that oil is still used so widely is that alternative energies are not cost-effective. If oil rose (or alternative energies fell) in price enough to make it rational to switch energy sources, then alternative energies could compete. If there ever truly becomes a shortage of oil in the world, then prices of oil would rise and alternative energies would be able to compete. Until then, even the massive subsidies to nuclear power, ethanol, etc. have not been enough to bring their prices down near oil’s price.
No matter what the alternative energy one chooses, it would be extremely difficult and expensive to try and replace oil. One example of the futility of investing heavily in corn ethanol as the “miracle drug” to get us off oil is the massive amounts of farmland required to make that a possibility. If we took all the corn farmed in 2005 and made ethanol out of it, then U.S. gasoline consumption would see a 12% decrease. Now, if politicians saw this as a promising step, they could devote all the cropland in the entire country to making corn ethanol, then allocate 20% more land in addition to that and voila! There would be enough ethanol to fully replace gasoline. Of course, this would just be gasoline and not all oil. And, there would be the huge increase on worldwide corn prices as food. Plus, there would then be cries of “food independence” now that all the cropland was devoted to non-food objectives, putting us at risk of being "starved to death" by unfriendly trading partners.
Politicians have put forth goals of reducing foreign oil consumption, but complete "energy independence" does not seem possible without devastating, distortional effects on the economy.
