January 28, 2007

Conservative Summit : The Federal Government's Proper Role in Energy Policy

Based on Saturday morning's debate between former CIA Director James Woolsey and the Cato Institute's Jerry Taylor, American energy policy is the source of some major points of contention within the conservative movement, particularly between the "national security" and "laissez faire" wings of the movement.

Woolsey opened the debate. He began by noting the strong correlation between the list of countries blessed with petroleum resources and the list of countries plagued by totalitarianism. He noted that only one country (Canada) out of the top ten oil-producing countries in the world is a free democracy. This, he said, is not a coincidence. He noted the power-concentrating effects of petroleum resources and argued that the money spent on gas at the pump is funding America's enemies. For those who want to see who is funding terrorism, Woolsey recommended that they look in the mirror. Woolsey summed up by stating that "only an ostrich" could think that the lack of a stable energy supply is not a serious national security issue.

Woolsey's opponent, Jerry Taylor of the Cato Institute, noted that interfereing in the market to reduce the usage of foreign oil will invariably drive up domestic energy prices. While conceding the current political volatility of the Middle East, Taylor argued that the risk of interruption of oil supplies is already reflected in the current price of oil. He also argued that eliminating foreign petroleum imports would not protect us from the effects of supply disruptions abroad, given that there is a world market for petroleum. Taylor depicted the two options as a commodity which is volatile but inexpensive versus a commodity that is stable but considerably more expensive. He argued that market accommodations for risk are available to oil buyers, but that few take advantage of them. It'd be wonderful, he said, to find a new and inexpensive source of energy, but there simply isn't one at present. If there was such an energy source, the market would reward it all by itself without government action. Taylor argued that there is no historical correlation between the level of terrorism on the one hand and the level of oil profits on the other. He noted, for example, that the 1990s featured some of the lowest oil prices in recent times, but a substantial degree of Islamic terrorism. As a result of all this, he argued that reducing oil profits would have no effect on terrorism.

Woolsey responded that he generally opposes subsidies, but that the petroleum industry already receives big subsidies, thereby throwing the market out of balance. He cited an article by C. Boyden Gray in the Texas Review of Law and Politics for the proposition that the petroleum industry receives the equivalent of $200 billion per year in subsidies from the federal government. Woolsey argued for removing government subsidies on petroleum and leveling the playing field. The idea that terrorism has no correlation to oil profits, said Woolsey, is ludicrous.

In Taylor's response, he took issue with Woolsey's definition of "subsidies," and disagreed with the amount of those subsidies. Taylor noted that Greenpeace estimates that the oil industry receives 40 billion in government subsidies--20% of the subsidies identified by C. Boyden Gray.

Moderator Quin Hillyer later followed up with a question about the feasibility of exploiting untapped oil and gas fields off American shores as a means of reducing our consumption of foreign oil.

While acknowledging that tapping these resources would have a positive effect on the oil supply, Woolsey responded that the oil produced would be a "drop in the bucket" of the World oil market. He re-emphasized his confidence in the potential for reduced petroleum demand offered by hybrids and other energy technologies.