The Energy Spectator

Energy Independence Now

The energy deficit needs to be fixed, and it will take some common sense to do it.

By 7.20.11

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The United States currently suffers from three deficits: a fiscal deficit, a defense deficit, and an energy independence deficit. While current political discussions focus on our weak economy and drastically underfunded military, the debate on energy independence has stalled. This is a critical problem. America cannot grow its economy or build up its military to meet current and future threats unless it develops resources for energy independence.

With oil prices climbing steadily and the ever-volatile Middle East experiencing political turmoil, proponents of different energy independence strategies nevertheless promote their own plans and technologies to the detriment of other solutions. This is unacceptable. We need to consider every option for energy independence. And we need to start close to home, with more domestic drilling.

The United States actually possesses vast oil and natural gas reserves, but the Obama administration has prevented our country from tapping into them, strangling energy corporations with excessive regulations, drilling bans, and permit denials. Dr. Joseph Mason, an economist at Louisiana State University, claims that as many as 20,000 sorely-needed jobs in this down economy have been lost due to drilling moratoriums in the Gulf of Mexico. Not only do Obama's policies kill jobs, they also fly in the face of public opinion. According to a Rasmussen poll, 76% of Americans think our country isn't doing enough to develop our oil and gas resources. Clearly, Obama's energy-killing policies need to be reversed and domestic production must begin anew to realize America's energy potential.

While government subsidies have long been an important facet of any energy independence strategy, the current state of our nation's finances and economy has rendered them unaffordable. In their absence, the United States should lower all corporate taxes and reduce industry regulation across the board. This move would ultimately increase tax revenues, and effectively spur private growth and innovation in energy independence.

Oil, natural gas and biofuels currently all receive tax subsidies. Recently, however, many elected officials have voted to end energy subsidies in order to reduce the budget. In the past these subsidies were necessary to compensate for the destructive U.S. corporate tax rate of 35% (the highest in the world when combined with state taxes). Congress should act to lower corporate taxes to internationally competitive rates, ending the need for subsidies and returning productive capital from bureaucrats to businesses. At the very least, America should bring its corporate taxes in line with fellow mass consumers Russia (20%) and China (25%). Capital gains taxes in the United States -- where the maximum rate is 39.6% -- should also be reduced to compete with Russia (13%) and China (20%). Corporate taxes have significant national security and geopolitical relevance, and the United States should bring theirs in line in order to stay competitive on the world stage.

Not only would lower tax rates spur more innovation and production than any proposed subsidies, they would also liberate private capital to invest in energy independence. Reduced tax rates result in greater tax revenues and therefore help solve the nation's debt crisis, ensuring greater economic security. After corporate and capital gains taxes were lowered during the Bush 43 administration, revenue more than doubled from $136 billion in 2003 to $274 billion in 2006, according to IRS reports.

While alternative fuels are certainly an important part of the solution, natural gas is too often overlooked. Let's consider the costs of alternative transportation fuels over the average 12-year lifespan of a vehicle. When life-cycle costs are compared, natural gas is currently a more economical decision than flex-fuel powered vehicles, although both are more expensive than gasoline at current figures (keep in mind that these dynamics could change due to oil shocks or increased demand for traditional fuels -- both real risks). Three compact vehicles; the Honda Civic DX on gasoline, the Honda Civic GX on compressed natural gas (CNG) and the Chevy HHR on E-85 are compared in the table below:

*All Prices as of 7/12/11

  Honda Civic DX (Gasoline) Honda Civic GX (CNG) Chevy HHR (E-85)
Initial Cost $15,800 $25,500 $19,000
Average Annual Mileage 12000 12000 12000
Highway MPG 39 36 32
Gallons Per Year- Annual/MPG 308 333 375
Cost Per Gallon Equivalent $3.69 $2.06 $4.42
Annual Fuel Cost $1,137 $686 $1658
Life Cycle (years) 12 12 12
Total Lifetime Fuel Cost $13,644 $8,232 $19,896
Life Cycle Cost (Vehicle+ Fuel) $29,444 $33,732 $38,896

Over the lifetime of a vehicle, drivers of the CNG car save over $5,000 compared to the E-85 vehicle. The price of E-85 at $3.18/ gallon also does not reflect the true market price which would be higher without the $0.45 per gallon subsidy. Eliminating that would create an even greater cost discrepancy with other alternatives.

Lawmakers need to consider these issues and take action. The consequences, if they don't, will be grave. Persian Gulf countries and OPEC respectively provide 17.1% and 48.8% of America's oil. The Middle East is historically unstable. Possible future conflicts may cause the closing of the Straits of Hormuz or Suez Canal, with serious consequences for the oil market. The United States was once beset by an OPEC embargo, and there's no guarantee that won't happen again.

Developing a secure and independent domestic energy market free from the circumstances of mostly-malevolent Persian Gulf countries? That sounds like a very worthy investment compared to the potential costs of doing nothing. Solve the energy deficit, and we can boost the economy and reduce the strength of threats to our national security.

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About the Author

Travis Korson is the Manager of Public Information at the Center for Security Policy in Washington, D.C.