‘Energy Independence’: A Dirty Dozen (Economist Grossman’s list)

Open international borders create mutually beneficial trading relationships that promote peace and prosperity. Tariffs, quotas, and other forms of protectionism and nationalism create conflict and lower living standards for all.

In our imperfect world of state-owned energy companies, some being U.S. foes, the imperative is policy reform toward private property rights, market exchange, and the rule of law. This is the real sustainability issue, not the exaggerated issue of anthropogenic climate change from carbon-based energy usage.

Private ownership of the subsoil, and privately owned energy infrastructure otherwise, would create wealth compared to the current system of political elitism. Private, dispersed wealth, such as initially assigning mineral rights to surface owners, such as proposed by Guillermo Yeatts, whose views are summarized in my post, “‘Theft of the Subsoil’: Guillermo Yeatts on Latin/South America mineral-rights reform,” would increase personal power and civil society, while reducing state power.

Grossman Listing

What about the so-called energy-security problems presented by state-controlled oil companies from the U.S. side?

Since the 1970s, “energy independence” has been a mantra of U.S. policymakers. Enter Peter Grossman [1], an economist specializing in the history of energy regulation in the United States. His scholarly research offers the energy community many lessons learned (or unlearned lessons that should be learned).

Grossman recognizes the interdependence of world oil markets and the shallowness of calls for energy independence. His research has uncovered a plethora of ‘energy independence’ flavors by those who would regulate and/or subsidize U.S. markets in the quest for energy ‘self sufficiency.’ His list follows:

1. Complete self-sufficiency
2. No, capability of complete self-sufficiency
3. No, capability of temporary self-sufficiency in the event of an embargo
4. No, invulnerability
5. No, diversified group of suppliers
6. No, just no Arab/Persian Gulf oil imports
7. No, just no OPEC oil imports
8. No, just Western Hemisphere oil and gas imports
9. No, just NAFTA oil and gas imports
10. No, just Canadian oil imports
11. No, the energy value of coal, refined oil products, and LNG exports must equal that of oil imports
12. No, our oil product exports equal or exceed our crude imports.

Richard Nixon, Gerald Ford, William Simon, Mitt Romney, Lisa Murkowski, T. Boone Pickens, Barack Obama … All are advocates of some of the above definitions.

Instead of energy ‘independence’, the metric should be consumer-chosen energy interdependence. Government policies should be market neutral and not pro or anti imports or exports. A U.S.-side free market, furthermore, as mentioned at the outset, should be joined by privatization of foreign oil, gas, and coal assets, including subsoil mineral rights. Such would not only improve the economy of energy, it would also democratize wealth whereby surface owners could share in the bounty beneath their lands.

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[1] Peter Z. Grossman is the Clarence Efroymson Professor of Economics, College of Business, at Butler University. He is author of U.S. Energy Policy and the Pursuit of Failure is an analytic history of American energy policy.