In October, Chairman Bingaman asked the Congressional Budget Office (CBO) to study the factors that underlie energy security within the U.S. economy.  Bingaman also asked CBO to highlight the types of policies that might be undertaken to reduce the U.S.’s vulnerability to energy market disruptions.

CBO released this study today.  The report examines the various commodities used to generate energy in the United States, focusing on the two largest energy-consuming sectors of the U.S. economy – electricity and transportation.

Said Bingaman: “Last fall I asked the CBO for a clear and complete analysis of the factors important to our national energy security.  This report is a lucid look at those key factors.  It illustrates why some of the slogans used in our energy policy debates actually don’t reflect how world energy markets work, and thus lead us away from the most useful steps we could take to improve our energy security. 

“As many experts, and now the CBO, have repeatedly observed, every barrel of oil that we displace from the transportation sector, and that we therefore do not need to consume in the United States, makes our economy stronger, not to mention our personal pocketbooks, and less vulnerable to the volatility of the current marketplace. 

“This is not to say that we shouldn’t keep increasing domestic production, and that the Obama Administration should not move forward with its plans to bring even more supplies into the market.  We lead the world in innovative exploration and production technology, and it is helpful to have more supplies on the world market. 

“But the long-term solution to the challenge of high and volatile oil prices is to continue to reduce our dependence on oil, period.  This is a strategic vision that has been articulated and embraced in the past on a bipartisan basis – by President George W. Bush in his 2006 State of the Union Address and by a large bipartisan majority in Congress in the Energy Independence and Security Act of 2007.  That bipartisan path is still the best approach today.”

Key findings from the report’s executive summary include:

• “Policies designed to decrease the impact of increases in oil prices that persist for several years or more can also be divided into those that would increase the supply of oil or oil substitutes (such as increasing domestic oil production) and that those would encourage consumers to reduce their reliance on oil (such as increasing the gasoline tax or developing vehicles that are more fuel efficient or that use other types of fuel).  Both types of policies would tend to lower the world price of oil, either by making more oil available to the world market or by reducing demand for it.  However, the effect of either type of policy on the world price would probably be small.  Many analysts (including the U.S. Energy Information Administration) expect that large oil-producing countries would reduce their actual or planned production of oil in the face of increased production of oil in the United States, thereby diminishing or eliminating the effect of such U.S. actions on the world price of oil.  Recently, for instance, Saudi Arabia announced that it would reduce its planned expansion of oil production in light of increased production in Brazil and Iraq.
• “Policies that promoted greater production in the United States would probably not protect U.S. consumers from sudden worldwide increases in oil prices stemming from supply disruptions elsewhere in the world, even if increased production lowered the world price of oil on an ongoing basis.  In fact, such lower prices would encourage greater use of oil, thus making consumers more vulnerable to increases in oil prices.  Even if the United States increased production and became a net exporter of oil, U.S. consumers would still be exposed to gasoline prices that rose and fell in response to disruptions around the world.
• “In contrast, policies that reduced the use of oil and its products would create an incentive for consumers to use less oil or make decisions that reduced their exposure to higher oil prices in the future, such as purchasing more fuel-efficient vehicles or living closer to work.  Such policies would impose costs on vehicle users (in the case of fuel taxes or fuel-efficiency requirements) or taxpayers (in the case of subsidies for alternative fuels or for new vehicle tehcnologies).  But the resulting decisions would make consumers less vulnerable to increases in oil prices.”

See the PDF below for two of the graphics accompanying the report that reinforce the points made above.

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 For more information, please contact

Bill Wicker at 202.224.5243 or

bill_wicker@energy.senate.gov

or Rosemarie Calabro at 202.224.5039

or rosemarie_calabro@energy.senate.gov

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