NCPA - National Center for Policy Analysis

Ending U.S. Dependence on Foreign Oil

November 30, 2001

The remedy for energy price spikes and control of U.S. energy prices by the Organization of Oil Producing Countries (OPEC), says economist William L. Anderson, is the repeal of restrictive energy policies that have exacerbated our dependence on OPEC oil.

Among his recommendations:

  • Do away with policies aimed at forcing individuals and businesses to "conserve" energy beyond what they would naturally do given market prices.
  • Do not enact new taxes aimed at forcing up gasoline prices and depressing current demand, because such measures would artificially and uneconomically depress current demand but do nothing to encourage oil companies to produce more oil and gas.
  • Do not increase Corporate Average Fuel Economy (CAFE) standards -- "feel-good" measures that distort production markets by overvaluing fuel and undervaluing other resources, while doing little to reduce gasoline consumption.

Instead, the government should take the following steps:

  • Deregulate oil and gas markets so that consumers and producers may enjoy the benefits of free markets.
  • Enact common sense environmental regulation, including the opening of oil fields offshore and in Alaska.
  • Cut gasoline taxes, because a "true" free market price would more accurately reflect conditions of supply and demand and provide markets that are much better suited to meet the nation's energy needs.

Each of these measures, Anderson says, will permit oil markets in this country not only to work properly, but also will make the U.S. economy less vulnerable to periodic oil shocks due to overseas events.

Source: William L. Anderson, "Uncle Sam's Energy Mess: How the U.S. Government Empowers the OPEC Cartel and Takes Power from the People," Studies in Social Cost, Regulation, and the Environment No. 5, March 2001, Institute for Research on the Economics of Taxation.

 

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