The Gulf Oil Spill: Lessons for Public Policy, Cato Policy Analysis No. 684

8/4/2019 The Gulf Oil Spill: Lessons for Public Policy, Cato Policy Analysis No. 684

http://slidepdf.com/reader/full/the-gulf-oil-spill-lessons-for-public-policy-cato-policy-analysis-no-684 1/24

Executive Summary

The oil spill in the Gulf of Mexico and theensuing political firestorm brought to the foresome longstanding problems associated withthe regulation of commercial activities of allkinds on federal lands. Unfortunately, thoseproblems are not resolvable as long as the landsare governed by federal agents. Populist outcriesagainst the “giveaway” of oil on public lands andthe industry’s refusal to drill even when leases

are granted demonstrate the difficulty econo-mists face when trying to construct a rationalpublic lands management regime. The only promising avenue of reform is to privatize com-mercially attractive federal lands and institute a strict liability regime for damage to third partiesin lieu of regulatory oversight. If privatization is

too politically difficult to achieve, a second-bestremedy would be to replace royalty paymentsfor production with a one-time fee for use.

Unfortunately, the Democratic reform pro-posals fail to address the underlying problemsthat have contributed to regulatory dysfunc-tion. Worse, they veer off into tangential cam-paigns against foreign oil imports, oil consump-tion, and climate change. Examination of both

President Obama’s reform proposals and themain piece of Democratic legislation designedto address the spill—the American Clean Energy and Security Act (the so-called Waxman–Mar-key Bill)—suggest that the spill is being used as a pretext to advance dubious policy agendas thathave little to do with the spill itself.

The Gulf Oil Spill Lessons for Public Policy

by Richard L. Gordon

No. 684 October 6, 2011

Richard L. Gordon is professor emeritus of mineral economics at The Pennsylvania State University and adjunct scholar at the Cato Institute.



Introduction

The April 20, 2010, Gulf oil spill and theensuing political response demonstrate many important lessons about public policy.1 The

immediate and most relevant political issueis how best to reform the management of off-shore oil reserves in federal waters.

The underlying problem is a mythology that holds that public lands are precious re-sources needing careful government manage-ment. This simply isn’t true. Little of the landis environmentally, recreationally, or histori-cally significant. The inherent drawbacks of government would prevent the success of vigorous management programs in any case. Actual programs involve giving the agencies

involved limited resources to handle increas-ing responsibilities. Management of offshoreoil and gas leasing is only the most graphicrecent example of this incompetence. Predict-ably, the government commission to study thespill suggested massive, unworkable new regu-lations. In contrast, the classic drawbacks of heavy reliance on royalties and imposition of diligence requirements were ignored. The bestcure for the underlying problems of publicland mineral management is to privatize com-mercially attractive federal lands and institute

a strict liability regime for damage to thirdparties in lieu of regulatory oversight.

The spill also was used, albeit ineffectually,to energize the longstanding campaign to re-duce America’s reliance on petroleum.2 Unfor-tunately, the wrong lessons are being learnedfrom the spill, producing counterproductivepolicy proposals.

The arguments for reducing oil consump-tion rest on three entirely unrelated com-plaints: impending resource depletion, thedangers of import dependence, and the risk of

global warming. The only thing that these con-cerns have in common is their invalidity. Evenwere these concerns legitimate, each involves a different response. In the case of depletion, nosensible government action exists that wouldimprove on letting market forces respond tochanges in supply. If imports are dangerous,they should be taxed. If greenhouse gases are

a threat, then only emissions should be taxed.This differs radically from the tendency of

politicians to talk as if a single energy prob-lem exists. Moreover, the proposed remediesinvolve the same kind of extensive microman-

agement of energy choices that has failed in thelast four decades. President Obama’s approachto energy policy involves unwise direct publicsupport for technical options that have failedin all prior efforts. The capstone 2009 Waxman-Markey bill supposedly meant to deal with allenergy problems actually only treated green-house gas emissions with any vigor. The manyconcessions needed to ram the law through theHouse of Representatives made the law so un-attractive that the Senate refused to act on it.

The Failure of Regulatory Oversight

Critics of the pre-spill legal regime are rightto highlight the regulatory dysfunction withinthe agencies charged with regulating publicland. Yet they have misdiagnosed the causesand thus support the wrong solutions. Theunderlying problems are well understood byacademics and policy advocates specializingin the field, but the problems have proven im-

mune to reform because until recently theydid not contribute to any identifiable environ-mental or other calamity.3 Indeed, the viewsof the few economists knowledgeable aboutpublic lands differ radically from those ofpoliticians setting public-land policy. Withoutsome crisis to concentrate popular attention,reformers could not persuade politicians todevote the sustained attention necessary to ad-dress intelligently the underlying issues.

The Challenge of Public Land Management

The crux of the problem is the dramaticdisparity between the popular image of publicland and the reality.4 When most people thinkabout public land, they think of national parksand wildlife refuges and thus associate federalstewardship with ecological protection. This isfiction.5 Environmentally attractive lands arebut minor appendages of the federal estate.

2

The crux of the problem is

the dramaticdisparity between

the popularimage of public

land and thereality.



Less glamorous and less ecologically desirablelands make up the bulk of the federal lands,and it is these lands—which support activitiessuch as grazing, forestry, and mineral extrac-tion—that demand the bulk of public agen-

cies’ time and attention.

Naturally, they aregoverned by public officials using criteria thatoften and appropriately have little to do withenvironmental protection.

The growing demand for environmental pro-tection even on traditionally “commercial” landshas forced agencies accustomed to facilitatingprivate use of public lands to change priorities.Unfortunately, this transition is hindered by both a lack of clear political guidance about thenew regime and the requisite expertise necessary to perform this new mission.6 Thus it is not sur-

prising that public land management is a chron-ic problem about which only a few specialistscare until real or imagined crises arise. Even then,interest is superficial and fleeting. The prevail-ing reluctance to examine seriously the nature of the challenge associated with public land man-agement both preserves the status quo and pre-cludes devoting adequate resources to do the as-signed regulatory jobs. When politically chargedproblems do arise, the political outrage andresulting demands for action run well ahead of the government’s ability to respond intelligently.

Politicians and journalists have made responsesynonymous with more intervention; deregula-tion is dismissed as negativity. With obscure poli-cies, indignation is usually limited to the insidersand other specialists. In none of these cases doesa rational public policy emerge.

The key reason that federal stewardship of realms such as public lands is likely to disap-point no matter how competently adminis-trated or well-intentioned it may be was fa-mously explained in Friedrich A. Hayek’s 1945essay “The Use of Knowledge in Society.”7 The

article is a concise argument for why marketsare superior to centralized control. In it, Hayekconvincingly demonstrated that when dis-persed, specialized knowledge is required tomanage an enterprise (such as, say, the com-mercial exploitation of mineral deposits be-neath the Gulf), private actions and privatemanagement are preferable to public action

and public management. A subsequent essay observed that governments regularly assertcontrol over economic sectors even while fully aware that they cannot devote the resourcesnecessary to achieve desired outcomes.8 Plan-

ners’ inability to manage the task they have setfor themselves explains their critics’ antipathy toward complex procedures to regulate, oneshared across all ideologies and epitomizedby the dismissal of such micromanagement as“command and control.”

The difficulties are aggravated by deliberatemisstatements about the nature of science. Alltoo often, science is made synonymous withthe precision of physics and chemistry. Theshortcomings of this vision are well illustratedby geology and meteorology.9 Systematic, im-

partial, “scientific” analysis cannot resolve thesubjective issues affecting policy choice.

The knowledge problem identified by Hayek is thus only one of many that bedevilgovernment when it attempts to intervene inthe economy. Milton and Rose Friedman, forinstance, have noted that government has a limited ability to act and cannot properly treatall the problems thrust at it.10 Ronald Coasehas highlighted the income distribution andtax distortion effects of intervention.11 A fur-ther “rent-seeking” literature documents the

political temptation to aid strategically locat-ed special interest voters to the detriment of others.12 Of course, intervention is often basedmore on ideology than analysis, and “action”is assumed to require more intervention with-out considering whether prior policies werethe cause of the disaster of concern. Thus, theresponse to flawed land management and en-ergy policies is always tighter regulation.

These observations apply to many govern-ment policies, which is why a large and expand-ing literature exists on the failure of government

intervention in the economy. Nevertheless, ev-ery massive public policy failure—whether we’retalking about the September 11 attacks, homemortgage defaults, poor public school perfor-mance, or industrial accidents such as the Gulf oil spill—leads to calls for action, and that ac-tion is always defined as an elaborate new gov-ernment program or regulation regime.

3

Governmentsregularly assertcontrol overeconomic sectoreven while fully aware that they cannot devotethe resourcesnecessary to

achieve desiredoutcomes.



4

The Gulf oil spillis an unusually

dramatic

illustration of the problems

associated withgovernmental

oversight of industry.

The management of public lands is charac-terized in every aspect by the previously men-tioned problems associated with state intervention. The U.S. government has never beenable to implement the simplest goal of land

management—ensuring the most efficientuse of that land.13 Without increasing the re-sources necessary for adequate enforcement of extensive and expanding mandates, Congresshas increased agency responsibilities for bothcharging appropriately for access to publiclands (particularly for land harboring energy resources) and improving environmentalquality. Disparate interests such as the publicland states;14 longtime leaseholders; and, morerecently, environmental groups have strong,largely unchallenged influence on the result-

ing policies.In essence, a large amount of public land

was acquired in a few actions, and it has prov-en too unimportant either to manage well orto justify a workable disposal policy. A patch-work of laws governs disposal, including onerequiring the leasing of mineral fuel rights andothers stressing specific uses. These problemsof public land management date from the startof the republic, when the original states cededtheir “western” lands (in what is now our Mid-west) to the federal government. More trans-

fers arose with each of the acquisitions thatproduced the 50 states and various territories.Most critically, disposal of the acquisitions inthe Mountain and Pacific states proved par-ticularly problematic, and, as a consequence,the federal government ended up owning themajority of land in those states.

The Bureau of Land Management (BLM)of the Department of the Interior (DOI) su-pervises most of this federal land.15 Its mainhistoric function was to administer the domi-nant uses of federal lands, such as grazing. Its

mineral responsibilities were among the ne-glected tasks. To improve the mineral develop-ment aspect of public land policy, then–sec-retary of the Interior James Watt created theMinerals Management Service (MMS) in 1982(renamed in 2010 the Bureau of Ocean Energy Management, Regulation and Enforcement)and charged it with coordinating the manage-

ment of federal onshore and offshore mineralresources. The creation of the MMS, howevercould not eliminate the inherent problems offederal mineral resource management, partic-ularly the conflicting goals of fostering miner-

al availability, securing revenues by the federalgovernment, and enforcing environmentalregulations.

The Oil Spill: Problems in MicrocosmThe Gulf oil spill is an unusually dramatic

illustration of the problems associated withgovernmental oversight of industry. Over-blown rhetoric regarding environmental apoc-alypse predictably swept the political land-scape, and the usual questionably qualifiedtask forces were assigned to craft a long-term

response.16

Meanwhile, news reports indicatethat the government’s oversight of the actualcleanup was confused and burdened by regu-latory excesses. Compensation remains anoth-er bureaucratic quagmire.17

Predictably, politicians were quick to leapfrom the reality that malfunction occurred onthe Deepwater Horizon platform to the con-clusion that BP’s actions and practices did notconform to reasonable industry standards.18

This may or may not be the case, but congressio-nal hearings in the immediate aftermath of the

event, media inquisitions by ratings-driven newsorganizations, and task force investigations bydubiously competent inquisitors are unlikely toyield useful information on that score.Neverthe-less, President Obama and many other electedofficials declared, before a single study began,that BP showed “recklessness.”19

The final report from the federal NationalCommission on the BP Deepwater HorizonOil Spill and Offshore Drilling charged withreviewing the spill had this to say about theunderlying issues:

The federal government has never lackedthe sweeping authority required to con-trol whether, when, and how valuable oiland gas resources located on the outercontinental shelf are leased, explored, ordeveloped. As described at the outset,the government’s authority is virtually



5

Public regulatorwill never havesufficientexpertise or

administrativeresources tosecond-guessdecisionmakingby market actor

without limitation, traceable to both itsauthority as proprietor and as sovereign,then further bolstered by the President’sinherent authority as Chief Executive andCommander in Chief to ensure the secu-

rity of the nation.

20

The root problem hasinstead been that political leaders withinboth the Executive Branch and Congresshave failed to ensure that agency regu-lators have had the resources necessary to exercise that authority, including per-sonnel and technical expertise, and, noless important, the political autonomy needed to overcome the powerful com-mercial interests that have opposed morestringent safety regulation.21

Whatever the merits of this expansiveclaim, Hayek has demonstrated that publicregulators will never have sufficient expertiseor administrative resources to second-guessdecisionmaking by market actors. Publicchoice economists have likewise demonstrat-ed that a popularly elected government is un-likely ever to provide for the political autono-my that regulators and their advocates wouldlike those agencies to have. This commissionfollowed precedent by suggesting changes farmore elaborate than likely to occur.

The report proceeds to recount in detailthe public and private actions leading to andensuing from the spill. It concludes, “The re-cord shows that without effective governmentoversight, the offshore oil and gas industry will not adequately reduce the risk of acci-dents, nor prepare effectively to respond inemergencies.”22 This blatantly ignores the factthat tort liability is a potent constraint, prob-ably far greater than any feasible governmentaction. In short, the report displays standardmisplaced faith in the need for and efficacy of

intervention. A more plausible reading of the record,

moreover, would suggest only that BP didnot act to reduce the risk of accidents to zero.Moreover, what an “efficient” level of risk-tak-ing might be—or how one would even know what the risks actually are given the great un-certainties and few data points available—is

unclear. Accordingly, there is no way of know-ing from this report (or any feasible alterna-tive one) whether market actors on the wholewould provide “adequate” safety absent gov-ernment; we know, only perhaps on the basis

of hindsight, that BP had not done so. Nor isthere any evidence in this report that govern-ment is capable of the task. In fact, if the re-port is read closely, there is ample contradic-tory evidence.

Equally predictable but ultimately moreimportant is the political response to evi-dence of administrative failures at the Min-eral Management Service (MMS). Whateverthe failings of Bush 43 administrative policiesor MMS’s relationship with the oil industry,they are the inevitable consequences of the in-

trinsic defects of federal land ownership. Un-fortunately, as noted, the invariable politicalresponse to flagrant examples of governmentfailure is to increase the commitment to gov-ernment. Poor regulation is purportedly to bereplaced with better regulation or, as Presi-dent Obama termed it in his March 30, 2011,speech, “responsible” regulation.23 The resultis leasing paralysis.24

Of course, complaints about the govern-ment’s oversight of oil extraction on federallands extend beyond the concerns about op-

erational safety at drilling sites and environ-mental protection. They also include frequentaccusations that federal agencies are givingaway valuable resource rights while tolerat-ing an inexcusable reluctance to exploit those very same resources in a timely fashion. Thosecomplaints are explored below.

“Giving Away” Public OilMost if not all Americans accept without

question the idea that the federal govern-ment should charge for access to commer-

cial resources on public lands. Yet it is notobvious that such charges are appropriate.

The call for charges arises from the asser-tion that the land belongs to all citizens of theUnited States and all should therefore share inthe proceeds from land use. In practice, how-ever, half of the gross revenues gained from ac-cess charges are allocated to the state in which



6

Charges that theBureau of Land

Managementand the Minerals

ManagementService are too

close to industry stem from thefact that those

agencies havefaced reality and

made accountingaccommodations

with industry on these royalty payment issues.

the land is located. Federal expenditures foradministering commercial activities on thoselands eat up such a large share of the remain-ing revenues that the federal government of-ten incurs net losses from resource extraction.

The profits associated with resource extrac-tion on public lands are subject to the samefederal taxation regime imposed on everyoneelse, weakening the case for additional taxesin the form of an access charge.25 However, noclear basis exists for the assignment of rightsfor access to public lands, so bidding becomesthe best alternative.

An additional problem associated with ac-cess charges is the inevitable politicization of the fees being levied. With no clear route to the“right” charge (either in form or amount), it

is easy for politicians and advocacy groups toclaim the rates were “giveaways,” whatever theyield may be. To lessen such attacks, the DOIhas devised complex, expensive, but ultimately pointless methods for selecting sites for leas-ing and evaluating bids; Hayek’s knowledgeproblem ensures that these methods will beineffective.

Management problems are further greatly increased by congressional insistence that a substantial part of the payments for publicland use come from royalties on oil, natu-

ral gas, and coal production. Two importantobjections exist. First, this defies establishedeconomic principles; royalties tax productionrates and thus are a drag on production.26 Second, we must determine production levelsand the value of that production for account-ing purposes, but both are difficult to moni-tor. Differences associated with the quality of minerals lifted and the transportation costsassociated with getting those minerals to mar-ket make it difficult to assess the actual mar-ket price of the output from a lease. Proper

accounting of mineral production has thusplagued public land managers from the start.

A better (that is, more economically pro-ductive) policy would be to impose all fees onthe private use of public land when the lease isgranted. While calls to improve administrativemonitoring of this tricky business are omni-present, no politician dares to propose the only

fix that promises a solution within the publicland regime—a more efficient system of initialpayments only, which intrinsically would elim-inate subsequent misrepresentation.

Charges that the BLM and the MMS are

too close to industry stem from the fact thatthose agencies have faced reality and made ac-counting accommodations with industry onthese royalty payment issues. Concern thatthe agencies have shirked their responsibilityto oversee and enforce drilling and mineral ex-traction regulation is a more recent complaintThe two problems, however, are similar in thatpublic agencies are intrinsically incapable ofaccumulating and assessing the informationnecessary intelligently to monitor and second-guess the regulated parties.

The Storm over Dormant Leases Another complaint often raised by op

ponents of increased leasing is that industryfor some nefarious reason does not diligentlydevelop the fields that are leased to it. Conse-quently, the statutes are full of requirementssetting deadlines for initiating productionSuch requirements, however, are unnecessaryand counterproductive.

The most obvious point is that leases rep-resent a right to utilize a potentially valuable

property. Profit potential should be the soledeterminant of the optimal time to translatethat potential into a producing asset. Privateparties experienced in developing such assetsand deeply immersed in the relevant marketare far better qualified to judge when it is opti-mal to begin exploiting a field than any actualor conceivable government agency.

Requirements to develop before an arbi-trarily set date have several bad effects. At the very least, the property being leased is at riskof reverting back to the government and reas-

signed to another before it can be most prof-itably developed, incurring costs associatedwith both confiscation and reassignment. Ofcourse, another possibility is that the reassignment is after the optimal date.

Two more serious possibilities exist. Firstpremature operation may be more profitablethan forfeiture so that the property is not pro-



7

The most directremedy forthe problemsassociatedwith publicland mineralmanagement is teliminate royaltieon mineralproduction anddrilling regulatioand replace themwith a one-timefee for use.

ducing as much value as possible. More impor-tantly, requiring lessees to drill forces publicland to be dedicated to a specific, legislatively defined use. Far better would be a regime thatallowed those with competing demands for

public land (say, conservationists) either tooutbid the industry for rights to the property or, at the very least, to purchase the lease fromthe lessee in secondary markets. The use-or-lose leasing regime makes those transactionsinfeasible because conservationists could only offer up to the value of the property during theallowed holding period while the commercialbidder could offer the value of that property through the lifetime of resource extraction.That lifetime would exceed the time limit forinitiating extraction.

The Failure of the Status QuoIt defies logic to imagine that agencies

that have failed at supervising straightfor-ward commercial activities such as grantingaccess for grazing, forestry, or minerals couldproperly design and operate a system for theenvironmentally sound operation of the samewhile micromanaging the business practicesassociated with extraction.

As a general principle, without governmentintervention, private firms have powerful in-

centives for conducting safe, environmentally sound, and profitable practices. Existing civillaw, even with all its well-publicized problems,is a more powerful tool than rule-writing andenforcement by the bureaucracy.

As a practical matter, the smartest, mosttalented, and most experienced petroleum en-gineers are employed by private corporationsif for no other reason than the pay is far bet-ter there than in the federal bureaucracy orin academia. The idea that even the best of federal agents can intelligently second-guess

industry decisionmaking is far fetched to say the least. Even ostensibly simple matters suchas risk-management practices and the safety trade-offs involved in various operational deci-sions demand far more expertise than federalofficials can intelligently marshal.

Therefore, the most direct and promisingremedies for the underlying problems associ-

ated with public land mineral management isto eliminate royalties on mineral productionand drilling regulation and replace them witha one-time fee for use and with strict liabil-ity for damages to third parties. Of course,

the foregoing arguments ultimately imply that public land holding be limited to thatused for government activities. Accordingly,a massive transfer of public lands to the private sector is in order.27

The Obama Counteroffensive

Land management problems will not beremedied by conventional energy policy ap-proaches, and that’s particularly the case for

the 2009 House-passed Waxman–Markey bill and the Senate-proposed Lieberman–Kerry bill. These bills—temporarily and fruit-lessly repackaged as policy responses to thespill—affect offshore oil and gas drilling only to the extent that they alter energy marketsin general.

Nevertheless, President Obama used theBP spill as yet another argument for adoptionof his energy agenda (an agenda largely reflect-ed in both of the bills mentioned). His June 15,2010, nationally televised speech on the spill

laid out his case:28

For decades, we have known the days of cheap and easily accessible oil were num-bered. For decades, we’ve talked andtalked about the need to end America’scentury-long addiction to fossil fuels. And for decades, we have failed to actwith the sense of urgency that this chal-lenge requires. Time and again, the pathforward has been blocked—not only by oil industry lobbyists, but also by a lack

of political courage and candor.The consequences of our inaction

are now in plain sight. Countries likeChina are investing in clean energy jobs and industries that should beright here in America. Each day, wesend nearly $1 billion of our wealth toforeign countries for their oil. And to-



8

The failure wasin fact due to

the impotence of the very policy

initiatives thatthe Obama

administrationwishes to expand.

day, as we look to the Gulf, we see anentire way of life being threatened by a menacing cloud of black crude.

We cannot consign our childrento this future. The tragedy unfolding

on our coast is the most painful andpowerful reminder yet that the time toembrace a clean energy future is now.Now is the moment for this genera-tion to embark on a national missionto unleash America’s innovation andseize control of our own destiny.

This is not some distant vision for America. The transition away fromfossil fuels is going to take some time,but over the last year and a half, we’vealready taken unprecedented action to

jumpstart the clean energy industry. Aswe speak, old factories are reopeningto produce wind turbines, people aregoing back to work installing energy-efficient windows, and small businessesare making solar panels. Consumers arebuying more efficient cars and trucks,and families are making their homesmore energy efficient. Scientists andresearchers are discovering clean energy technologies that someday will lead toentire new industries.

Each of us has a part to play in a new future that will benefit all of us. As werecover from this recession, the transi-tion to clean energy has the potential togrow our economy and create millionsof jobs—but only if we accelerate thattransition. Only if we seize the moment. And only if we rally together and actas one nation—workers and entrepre-neurs; scientists and citizens; the publicand private sectors. When I was a can-didate for this office, I laid out a set of

principles that would move our country towards energy independence. Last year,the House of Representatives acted onthese principles by passing a strong andcomprehensive energy and climate bill—a bill that finally makes clean energy theprofitable kind of energy for America’sbusinesses.

He later added:

The one answer I will not settle for isthe idea that this challenge is some-how too big and too difficult to meet.

You know, the same thing was saidabout our ability to produce enoughplanes and tanks in World War II. Thesame thing was said about our ability to harness the science and technology to land a man safely on the surface of the moon. And yet, time and again,we have refused to settle for the paltry limits of conventional wisdom.

The first problem with President Obama’snarrative is the tired claim of past policy neglect

In fact, the legislative record is littered with nu-merous, increasingly complex, and increasing-ly unwise energy law starting in the 1970s, all ofwhich tried to cure the same alleged problemswith much the same prescription to which heresorts. Few recall, for instance, that massivefederal intervention to achieve energy inde-pendence and to promote alternative energywas likewise proposed (and to a large extent,adopted) by the Nixon, Ford, Carter, and bothBush administrations. (The Reagan adminis-tration was the only one to take a deregulatory

tack; President Clinton mercifully had otherconcerns). President Obama’s energy programis all too similar to that in the 2001 reportfrom the office of then–vice president DickCheney, as are the sprawling and ill-consideredenergy bills enacted in 2003, 2005, and 2007.29

The failure of those bills to change the trajec-tory of energy markets has nothing to do withthe mythological power of “big oil” or the lackof legislative effort.

Given all this past effort, President Obamaimplicitly argues that the work thus far has

failed badly. This is true, but not for the rea-sons he seems to believe. The failure was in factdue to the impotence of the very policy initia-tives that the Obama administration wishes toexpand. Mandates and subsidies to producerenewable energy, for instance, have been cen-tral to energy legislation for almost 40 years, ashave government attempts to impose fuel ef-



9

Worries aboutthe reliability of foreign oilsupplies areanchored in sucrare and short-lived historicalevents thatpolicies to curb

imports wouldhave provenfar more costly than simpleacceptance.

ficiency upon an allegedly recalcitrant market. A second issue is President Obama’s char-

acteristic presentation of dubious data, here,the claim of a billion dollars per day for oilimports. Examining the data shows that at

best a very generous rounding error occurred.While several ways exist to present the figure,none supports President Obama’s number.For 2009 (the last full year before the speech),crude oil imports averaged $541 million perday; in the four months of 2010 on which data were available at the time of the speech, theamount was $691 million.30

Third, the plea to follow the example of foreign governments is always dubious. Thesecountries are at least as capable as the UnitedStates of undertaking unwise policies. In the

past six decades, the United States has under-taken quite a few expensive efforts to developadvanced but uneconomic technologies suchas supersonic airliners and high-speed rail; theseinitiatives were inspired by foreign examplesthat also ultimately failed.31 It is utter folly refut-ed by vast sad experience to argue that a country with highly developed capital markets cannotprivately develop promising technologies.

Fourth, the argument that job creation willfollow from mandates arises from a gross mis-reading of Keynesian economics. Keynes ar-

gued for government action when economieswere stuck in permanent unemployment. Themain criticism of this argument is that Keyneswas wrong about the reality of chronic unem-ployment. Even if he were right, myriad mon-etary initiatives and spending and tax reduc-tion alternatives—each with a different set of costs and benefits—are available to policymak-ers should they wish to act. It is standard in-terventionist presumptuousness for PresidentObama to determine, not only that action isneeded, but that detailed, confining measures

such as those proposed are the best among themany choices. The economics literature sug-gests that if any countercyclical policies areattempted, monetary policy is the fastest andmost effective, unconditional tax cuts are thenext most appropriate, and increased govern-ment spending at best is too slow and at worsttargeted at expenditures inferior to those that

would be made by the recipients of tax cuts.32

Fifth, it may be familiar, but it is ultimately ridiculous to claim that the production build-ups during World War II and the successful Apollo Project prove that government can ful-

fill any economic wish. The most fundamen-tal of the many problems with the argument isthat those undertakings were unconstrainedby profitability and involved no major tech-nological breakthroughs. In contrast, thetechnologies needed for energy alternativeshave existed for many decades, but despite in-creasingly frenetic federal and state attemptsto improve and promote these technologies,they are still unable to compete.

The most fundamental problem with thespeech, however, is that the three energy pol-

icy challenges that President Obama identi-fies—reliance on foreign oil, climate change,and oil depletion—are very different in natureand require very different policy responses.Unfortunately, those policy responses are of-ten in conflict with each other.

Fortunately, we can avoid these difficulttrade-offs because the energy policy challengeshe identifies are for the most part phantasms.The easiest of the three concerns to dismissis the concern over depletion, because thereis no credible evidence to suggest that oil or

natural gas is becoming meaningfully scarceover time.33 Even if there were, it is certain thatmarkets would adjust to scarcity more quickly and efficiently than federal planners.

Worries about foreign oil and climatechange require a modest amount of further ef-fort to dismiss.

Who’s Afraid of Foreign Oil? A number of arguments have been mar-

shaled to have the government “do something”about our heavy reliance on oil imports. Most

of those arguments, however, fail to withstandany serious scrutiny. Worries about the reli-ability of foreign oil supplies are anchored insuch rare and short-lived historical events thatpolicies to curb imports would have proven farmore costly than simple acceptance of occa-sional disruption. This is demonstrated by therise in oil imports despite extensive interven-



10

The anti-importrhetoric revives

tired, invalid, yet classic

protectionistarguments.

tion in energy markets. While much of that in-tervention was counterproductive, the absenceof clear ways to reduce imports economically indicates the undesirability of independence.34 Similarly, despite frequent claims to the con-

trary, it is doubtful that any U.S. foreign policy objectives are made more difficult by our reli-ance on foreign oil.

Current complaints that money used topurchase foreign oil is going to our enemiesabroad labors under a deep misunderstand-ing of market and foreign policy realities. Themost conceivable “enemies” who sell us any substantial amount of oil are Venezuela andRussia, the source of less than 14 percent of total U.S. oil imports in 2010.35 The two larg-est recipients of our oil dollars are Canada

and Mexico, the source of 32 percent of totaloil imports. Saudi Arabia—the source of but9.3 percent of the foreign oil we buy—fig-ures prominently in these discussions (in-deed, much rhetoric implies that all foreignoil comes from Saudi Arabia), but the casualdepiction of Saudi Arabia as an “enemy” is atodds with a U.S. foreign policy that in every other context treats Saudi Arabia as a valuedally.36 Even severe critics of the Saudi Arabiangovernment recognize that its interests requiregood relations with the United States.

President Obama’s efforts to promote oilproduction in Brazil well illustrate the confu-sion that prevails about oil import dangers. After the long history of oil development inthat country without U.S. government invest-ment, President Obama suddenly suggestedthat the Brazilians need U.S. encouragementto become suppliers.37

Regardless, U.S. withdrawal from worldcrude markets will not necessarily reduce pric-es and thus oil earnings abroad. Given OPEC’sdesire to rig global oil prices, the closing of the

large U.S. market might even facilitate collu-sion to raise prices to remaining customers.

In any event, the anti-import rhetoric revivestired, invalid, yet classic protectionist arguments.The very fact that we import or that prices arerigged is widely considered to be prima facie jus-tification for import reduction (see section 127(a) points 5 and 6 of the Waxman–Markey bill

passed by the House in 2009).38 The belief thatsending money abroad makes us poorer is a clas-sic protectionist fallacy. The standard objectionto protectionism is as solid in this context as inany other. America imports crude oil because

exporting other goods in return (or providing agood place to invest money) is preferable to pro-ducing oil domestically, even in the teeth of mo-nopoly pricing. Economists since David Ricardohave shown that the identity of trading partnersis irrelevant to the desirability of trade. Peopleadopt an occupation and use their incomes tobuy from others wherever they may be becausespecialization improves their standard of living.

Even if one disagrees with these criticismsof import limitation, restricting oil importsrather than energy or oil use is the proper re-

sponse to whatever threats might exist. Eco-nomic theory suggests that either a properlydesigned tax on foreign oil or a firm limit onimport volumes would be the best remedyWhile that is true in theory, in reality the gov-ernment still has neither the necessary knowl-edge nor the political will to design programsthat produce more benefits than costs.39

The most developed and germane econom-ic argument is that taxes are preferable be-cause they avoid the difficulty associated withallocating import rights.40 A tax is imposed on

everyone; evasion is the only significant prob-lem. If the government imposed rigid importquotas, it could in theory simply auction offthe rights to export into the United States,but this would be a tax by another name. Inpractice, the rights are treated as benefits to bedispensed, and an unseemly political struggleover the bounty inevitably follows.

That is exactly what happened the last timewe tried such a regime, during the Eisenhoweradministration. Market participants smelledopportunity (“rents” in economic parlance),

and regulatory gimmicks were quickly begunto treat established refiners differently fromnew ones, small refiners more favorably thanlarge ones, and West Coast refineries different-ly from those in the rest of the country. Overtime, further boons were granted to new refin-eries in Puerto Rico and the Virgin Islands andto heavy fuel oil users on the East Coast.41



11

It is essentialto realize thata campaignagainst oil

consumption is campaign againdriving and thetransportationsector as weknow it today.

The Political War against Oil ConsumptionWhen the import quota program finally col-

lapsed under the weight of soaring oil prices in1973, it was replaced by elaborate policies includ-ing the start of the current regime of mandated

energy conservation measures, targeted taxbreaks, a plethora of direct and indirect domesticproduction subsidies, and research programs tofavor various energy alternatives. In short, thegovernment shifted away from a narrowly fo-cused campaign against foreign oil in favor of a multi-faceted campaign against energy con-sumption in general with the unjustified ra-tionalization that less energy use and thuslower oil consumption would also mean lessreliance on imports.42 Those policies could notand did not greatly reduce oil consumption

and totally failed to stem the rise of oil imports.Intense micromanagement of the energy econo-my produced nothing but a record of economicinefficiency and policy failure. This has not,however, stopped continued reliance on suchmeasures. Here as everywhere in intervention,failure simply breeds a redoubling of effort.

It is essential to realize that a campaignagainst oil consumption is a campaign againstdriving and the transportation sector as weknow it today. Despite Herculean efforts to pro-mote ethanol consumption, 93 percent of the

energy used in the transportation sector is from pe-troleum; ethanol, on the other hand, constitutesbut 4 percent of that market.43 All the while, pe-troleum has been losing ground in other markets.While transportation accounted for about 52percent of oil use from 1949 to 1978, it accountedfor 69 percent in 2010. The amount of oil use fellsharply in three of the four other sectors reportedby the Department of Energy—residential, com-mercial, and electricity. Continuing trends to-ward electrification and the shift from oil-fired togas-fired heating drove declines after 1973 in resi-

dential and commercial oil use. Declines in theelectricity sector arose after 1978 from reversingthe shift to oil stimulated by prior low prices andtaking advantage of new coal-fired and nuclearcapacity as well as a shift to natural gas.

Import reduction and other efforts to reduceoil consumption will therefore particularly af-fect the transportation sector. The possible re-

actions might include reduced driving, shifts tocars attaining better gasoline mileage, increasedethanol use, adoption of natural gas as a fuel,electric cars, and greater use of mass transit. Allof these options have drawbacks, as is clear from

their failure to emerge as a response to existingpolicy initiatives and from available studies onthe underlying economics (see below).

Some of these options, moreover, will increasegreenhouse gas emissions. This would certainly bethe case from an embrace of electric cars becausethose vehicles would primarily use electricity gener-ated from coal—a far greater source of greenhousegases than the oil displaced.44 Moreover, the samewould follow from a shift to natural-gas-fired vehi-cles; the price of gas would increase, and as a result,more electricity generation would move to coal.

Finally, extensive evidence increasingly suggeststhat ethanol is also less “climate friendly” than oilgiven the massive release of CO2 from the land usechanges that follow from the increased demandfor biofuels and the higher than reported releaseof nitrous oxide—an extremely potent greenhousegas—from the fertilizers employed to produce bio-fuels.45 Again, the March 31, 2011, speech fromPresident Obama and the associated “Blueprintfor a Secure Energy Future” called for increasedeffort to develop biofuels, and the “Blueprint”speaks favorably of ethanol development.46

Conservation, too, can have negative climateimplications. For instance, it is unclear whetherthe advantage of driving more fuel-efficient carsis offset by increased driving—something thatought not to surprise anyone given that fuel ef-ficient cars reduce the cost of travel.47 Likewise,mass transit is so energy intensive to establishand maintain and so lightly used in most citiesthat a number of analyses find that more green-house gas emissions arise from moving a pas-senger in a subway car than in an automobile.48

The failure of targeted initiatives to reduce

either oil consumption or air emissions in any meaningful way implies that efforts to decreechoices and micromanage the transportationsector ought to be abandoned. Unfortunately,legislators remain enamored with the edictand devoted to micromanagement even whenpurporting to adopt supposedly market-ori-ented policies such as cap and trade.



12

Any unilateralnational effort

is an exercisein futility given

the volumeof worldwide

emissions.

The Climate Change QuagmireThe debate over climate change and what,

if anything, to do about it is far trickier thanenvironmentalists are willing to admit. In par-ticular, doubts are justified about every step

in the move from concern to the proposedlegislation. The science on warming is far lessclear than exponents admit.49 The nature andundesirability of economic effects are even lessclear.50 The reasons for doubt about the casefor immediate action go far beyond the very real concerns about the underlying physicalscience. The recent spate of data correctionsand revelations about the efforts to intimidatedissenters only strengthens concerns that theclaimed consensus is actually fragile.

A much less recognized limitation is that

the models designed to determine the eco-nomic impacts of climate change are at least asquestionable as the models of physical effects. As is true of all economic models, the resultsare highly sensitive to the underlying assump-tions. Modelers can and have managed to alterassumptions so that the outcomes of climatechange range from gains to large losses. Boththe value of losses and the costs of abatementare poorly known.51 Most critically, even advo-cates of strong action recognize that neithersuch international proposals as the Kyoto

Treaty nor proposed federal laws are effectiveresponses to the problem.52

The reality, then, is that we face uncertainclimate developments with uncertain eco-nomic effects and uncertain abatement costs.Given the frequent number of false environ-mental prophesies we’ve heard over the pasthalf-century, this should inspire far more cau-tion than it has.53

Whatever the truth about climate change, theproposed approaches are defective at every level.Two primary difficulties are the most irresolvable.

The most fundamental problem is that any unilateral national effort is an exercise in futil-ity given the volume of worldwide emissions.Even a multinational effort is doomed to fail-ure unless India and China participate. Bothcountries produce such large and growing vol-umes of greenhouse gases that their emissionsalone will dwarf any efforts at reduction by any

consortium of developed countries. However,both countries have made it clear that they willnot join any such project.

Those who are worried about climatechange understand this full well, which is why

they have energetically campaigned for a forceful initiative to persuade China and India tocooperate with international emission reduc-tion efforts. President Obama has disappointed them by asserting that setting a good exam-ple is good enough. Whether the president’sposition is simply myopic or coldly cynical isbeside the point. In either case, it will not work

The second problem, and the key to the firstis the difficulty involved in designing a policythat mediates among different national inter-ests. The prior discussion of oil import con-

trols suggested that emission taxes would beoperationally preferable. However, this wouldclearly impose burdens on China and Indiathat would increase their resistance.54 Thuspolicy proposals stress allocating emissionrights among the various nations inclined toenter into some international compact. Thereare many different ways to allocate emissionrights—none more obviously “correct” thananother, but all have very different and verysignificant wealth effects that no national gov-ernment can afford to ignore.55 Quotas on a

per capita basis, for instance, give China mas-sive competitive economic advantages rela-tive to the West. The reverse is true for quotasbased on some arbitrary historic emissionsbaseline (as was done in the Kyoto Protocol)Given the need for all major emitters to agreeto a deal—and given the fact that some emit-ters will lose economic advantages no matterhow the quotas are allocated—negotiatingsome universally satisfactory treaty seems im-possible. Even if a deal can be reached, it is un-likely that the “losers” will be able to maintain

the domestic political support necessary tomake good on treaty promises.

Congress Steps ForwardTwo main legislative initiatives were pro-

moted as addressing the spill. The House passedthe American Clean Energy and Security Act(popularly known as the Waxman-Markey bill)



13

While theWaxman-Markey billloudly proclaimits interestin producingenergy security,

the measurescalled for in thalegislation woulhave virtually no impact onimports.

In the Senate, various proposals were floated by John Kerry and Joseph Lieberman. Both are a fa-miliar mess of scattershot interventions furtherto dictate private energy production and con-sumption decisions. Command-and-control

provisions are unnecessarily piled on top of a cap-and-trade program, which itself features a convoluted emission allocation scheme arisingfrom the horse trading necessary to gain supportfrom Congressmen from districts particularly harmed by the caps. This is further evidence, if any were needed, that in Washington, what isthought to be good politics trumps good eco-nomics. The bill’s stagnation in the Senate sug-gests that the large concessions necessary to buy support from various interest groups produceda bill that politicians feared would produce a

strong political backlash. Although the various bills and proposalsdiffer in detail, they all embrace the same gen-eral combination of features. Since the Wax-man-Markey bill is the only one actually tohave been passed by either chamber, it’s worthgiving that legislation special attention.

While the Waxman-Markey bill loudly pro-claims its interest in producing energy secu-rity, the measures called for in that legislationwould have virtually no impact on imports.Only 30 of the bill’s 1,427 pages deal with

transportation—as noted, the main source of oil demand—and most of those 30 pages areabout hastening the introduction of electriccars.56 Once again, given their lack of tech-nological and economic expertise and theirobvious interest in political gain rather thaneconomic efficiency, legislators should not berigging the market and picking winners in thisfashion. They are as likely to set back importreduction as they are to advance it.

The bulk of the bill actually addresses theelectricity sector. Utilities are required to en-

sure that 20 percent of the electricity they sell comes from “renewable” sources by 2020.New policies are to be developed, agencies es-tablished, and studies commissioned to pro-mote things such as carbon sequestrationand improvements in electricity transmission.The 351-page conservation section launchesprograms to establish new energy and water

conservation standards, to grow more trees, aswell as many other programs in every part of the economy.

The centerpiece of the bill, however, is anamazingly complicated cap-and-trade pro-

gram to reduce greenhouse gas emissions.Waxman-Markey “requires that the regula-tions issued under section 721 reduce emis-sions of covered sources to 97% of 2005 levelsby 2012, 83% by 2020, 58%, by 2030, and 17%by 2050.”57 Different categories of energy us-ers are regulated to various extents and on various time schedules beginning in 2012.Emission rights are initially distributed forfree with little obvious rhyme or reason to a plethora of favored industries. These distribu-tions, of course, represent a tremendous eco-

nomic windfall to the recipients. The only way to explain this incredibly convoluted regime isthe vote-generating and lobbying power of theaffected industries.

To make matters worse, utilities can only use those valuable, cost-free emission credits tooffset the inevitable increase in fuel prices thatwill follow. The remainder of the cost savingsfrom the quotas must be used to reduce ratesto customers. Utilities would be allowed toprofit only if they were vertically integrated orif they bought power from a regulated genera-

tor, were subject to rate-of-return regulation,and secured enough permits that no emissioncontrols would be needed. Under this scenar-io, however, greenhouse gas emissions wouldbe higher than they otherwise would be becausethe mandated rate reductions would increaseelectricity consumption.

Of course, there is no guarantee that utili-ties could profit even under the above scenar-io. When the quotas fall short of emissions,the financial benefits associated with the freepermits necessarily decline, and since the al-

location procedure is unrelated to the cost of emission controls, this might turn into losses.Similarly, when the utility buys from an unreg-ulated generator, the resulting wholesale pricewould rise by the value of an emission right.Moreover, the free permit allocations are de-creased over time. By 2031 about 70 percent of those permits would be sold at auction, so any



14

The real lessonof the oil spillis the familiarpoint that bad

policies beget badconsequences.

Only a morefundamentalrethinking of

public land andenergy policies

promises muchhope for positive

reform.

wealth gains that do accrue will prove tempo-rary. In sum, we have another bad response toanother problem with a dubious physical sci-ence and economic rationale.

Conclusion

While it’s unsurprising to hear a left-wingpolitician offer up a proposal to cure the illsof federal oversight of oil and gas extractionon federal lands with a 1960s-style view of the wonders of big government—and thentry to cure alleged general energy problemswith more of the same—it is frustrating thatso many people who should know better keepembracing policy ideas that have failed inces-

santly over at least six decades.It is also clear that left-of-center organiza-tions like the Center for American Progress,trade associations representing energy com-panies, and federal entities like the NationalLaboratories will continue to support thiscommand-and-control energy agenda. What issurprising is that seemingly more serious orga-nizations and institutes,58 such as the NationalPetroleum Council,59 Brookings Institution,60 the Council on Foreign Relations,61 the Cen-ter for Naval Analysis,62 the American Physical

Society,63 Resources for the Future,64 and cen-ters at such universities as Harvard65 and Rice66 continue to do so as well. As the notes docu-ment, much of this seeming unanimity actually reflects the repeated involvement of a few truebelievers. Still, almost every self-appointed pub-lic intellectual and energy policy pundit with ac-cess to a publisher or media outlet unquestion-ably accepts the underlying case for a nationalenergy strategy to address prevailing concerns.

The widespread support for aggressive in-tervention in energy markets to slay dubious

policy dragons cannot be explained by the un-derlying literature. If there is one place whereprevailing beliefs about energy policy get littleapproval, it is within the pages of those aca-demic journals that treat the issues seriously.Hence, support for aggressive intervention hasat least four likely explanations: an ignoranceof the history of public policy failure in energy

markets (and many other places), superficialthinking by nonspecialists, ideologically driv-en wishful thinking by analysts and academicswho ought to know better, and the self-servingpolitical cover stories offered up by the benefi-

ciaries of government favor.The real lesson of the oil spill is the famil-iar point that bad policies beget bad conse-quences. Only a more fundamental rethinkingof public land and energy policies promisesmuch hope for positive reform.

Notes1. The drilling was of the Macondo well fora consortium consisting of BP, Anadarko, andMOEX USA. The drilling rig involved was theDeepwater Horizon. The 2011 official govern-ment study, by the National Commission on theBP Deepwater Horizon Oil Spill and OffshoreDrilling, was titled Deep Water: The Gulf Oil Disasterand the Future of Offshore Drilling . Here the spill isreferred to as the Gulf oil spill.

2. Although the campaign to reduce America’sreliance on foreign oil precedes the spill by al-most four decades, the latter was used to justifythe former. The argument here is that the two areat best remotely connected. The goal of energy in-dependence dates most directly to the Nixon ad-ministration, but his campaign was dealt a fatalpolitical blow when a team of young operations

researchers, several of whom are still contribut-ing to the debate, put together a total-energymodel that demonstrated the impossibility ofenergy independence; see U. S. Federal Energy

Administration, “Project Independence Report,”1974. It could be argued that the idea goes backeven further to the national defense rationales ofprior oil import control policies such as the quo-ta on imports established during the Eisenhoweradministration (see below).

3. As discussed here, federal energy-land policyactually stressed securing a large federal incomefrom leasing and operating. Payment scandalscares periodically arise but fail to attract wide

interest.

4. This disparity arises from the clever postur-ing of the public land bureaucracy and the inter-est groups advocating continued ownership.

5. Robert H. Nelson,The New Holy Wars: Economic Religion vs. Environmental Religion in Contemporary America(University Park, PA: The Pennsylvania StateUniversity Press, 2010) points out that humanity



15

has roamed the earth for so long that nothing ispristine, and that in the millions of years before hu-manity emerged changes were already persistent.Going back to nature thus presumes a constancy that has never existed. Moreover, a fundamentalconflict prevails between preservation and allow-ing extensive use by tourists.

6. The Forest Service of the Department of Agri-culture, for instance, has severe management prob-lems aggravated by pressures to switch emphasisfrom timber production to forest preservation.Since the discontinuity was so stark, the formal lit-erature has concentrated on the pressures on theForest Service to alter its emphasis. Not so inciden-tally, the original goal was a typical progressive-era effort to supplant the then and now well-function-ing private market with allegedly superior manage-ment by enlightened government experts. As usual,disaster occurred. In 2000 two books treated thetransition problems. The first by Robert Nelson,a former Department of the Interior economist,presented a strong free-market case; see Robert H.Nelson, A Burning Issue: A Case for Abolishing the U.S.

Forest Service (Lanham, MD: Rowman & Littlefield,2000). The other, from Resources for the Future, isan anthology presenting a range of views: Roger

A. Sedjo, ed., A Vision for the U.S. Forest Service: Goals for Its Next Century (Washington: Resources for theFuture 2000). I reviewed both in Regulation 24, no.1 (Spring 2001). The literature also suggests thatthe stress on grazing was ill-advised and that theinability to acquire land ownership produced over-grazing.

7. Friedrich A. Hayek, “The Use of Knowledge in

Society” American Economic Review 35, no. 4 (Sep-tember 1945): 519–30. Reprinted in Hayek, Indi-vidualism and Economic Order (Chicago: University of Chicago Press, 1948). Hayek was responding to thesocialist calculation debate on which a vast amountwas written before and after the 1945 article. In hisbook The Road to Serfdom Hayek observed, “It is oneof the most fatal illusions that, by substituting ne-gotiations between states and organized groups forcompetition for markets or for raw materials, in-ternational friction would be reduced. This wouldmerely put a contest of force in the place of whatcan only metaphorically be called the ‘struggle’ of competition and would transfer to powerful andarmed states, subject to no superior law, the rival-

ries which between individuals had to be decidedwithout recourse to force.” Friedrich A. Hayek,

Road to Serfdom: Texts and Documents: The Definitive Edition, ed. Bruce Caldwell (Chicago: University of Chicago Press, 2007), p. 224.

8. Friedrich A. Hayek, “The New Confusionabout ‘Planning,’” Morgan Guaranty Survey (January 1976): 4–13. Reprinted in Friedrich A. Hayek, NewStudies in Philosophy, Politics, Economics and the His-

tory of Ideas (Chicago: University of Chicago Press,1978).

9. Consider oil company geologist M. King Hub-bert’s 1950s predictions of immediate depletion of oil and gas resources (see below). Hubbert admirershave made his writings available at http://www.

hubbertpeak.com/Hubbert/. Among the many refutations is Julian L. Simon, The Ultimate Resource: 2 (Princeton, NJ: Princeton University Press, 1996). As for meteorology, the debate over global warmingis a highly visible illustration of the limits of fore-casting, as is everyday experience with the weather.

10. Milton and Rose Friedman, The Tyranny of theStatus Quo (San Diego: Harcourt Brace Jovanovich,1984).

11. Ronald H. Coase, “The Marginal Cost Con-troversy,” Economica n.s. 13 (August 1946): 169–82.Reprinted in Ronald H. Coase, The Firm, the Market and the Law (Chicago: University of Chicago Press

1988), pp. 75–93. Coase considered the problem of “decreasing cost” industries, which were often con-sidered to be natural monopolies that must be reg-ulated as public utilities. In such industries, at thecritical economic efficiency point where prices areequal to marginal costs, revenues are less than costs.Two solutions exist. First, taxpayers can providesubsidies to cover the losses. Second, a “two-part”tariff can be imposed by which an access fee raisesthe extra revenue needed to cover costs. Coase’sarticle argues that two-part tariffs are preferable. Alater similar discussion is Richard A. Posner, “Nat-ural Monopoly and Its Regulation,” Stanford Law

Review 21, no. 3 (February 1969): 548–643.

12. The classic example here is protective tariffs ingeneral and oil intervention in particular. The lit-erature traces the idea to Simon Newcomb in 1868.Important modern contributions include GordonTullock, “The Welfare Costs of Tariffs, Monopo-lies, and Theft,” Western Economic Journal 5, no. 3(June 1967): 224–32, and Anne O. Krueger, “ThePolitical Economy of the Rent-Seeking Society,”

American Economic Review 64, no. 3 (June 1974):291–303. The former evaluates the problem; thelatter contributed the now-widely used term. Mucheconomic theorizing discusses market failure as if its correction were costless. A key contribution hereis Ronald H. Coase, “The Problem of Social Cost,”

Journal of Law and Economics 3 (October 1960): 1–44.Reprinted with a newly written supplement inCoase, The Firm, the Market and the Law, pp. 95–185.Unfortunately, many modern economists pay in-adequate attention to this literature. For example,see Kenneth Gillingham and James Sweeney, “Mar-ket Failure and the Structure of Externalities,” in

Harnessing Renewable Energy in Electric Power Systems:Theory, Practice, Policy, ed. Boaz Moselle, Jorge Pa-dilla, and Richard Schmalensee (Washington: RFF



16

Press, 2010), pp. 69–91. Gillingham and Sweeney barely manage to note the dubious nature of someexternality arguments and completely ignore theproblems of government intervention reviewedhere. They cite Pigou but not the 1960 Coase articleskewering Pigou.

13. It is typical of the low visibility of the issuethat the literature is fragmented, with many key contributions decades old. The only serious gov-ernment review of the subject is U.S. Public LandLaw Review Commission, One Third of the Nation’s

Land (Washington: Government Printing Office,1970), which was supported by numerous specialstudies. The report’s finding that most federalland had pedestrian commercial use and, there-fore, was ripe for disposal had no impact. Anoth-er classic is Marion Clawson, The Federal Lands Re-visited (Baltimore, MD: Resources for the Future1983). Another important critique is Robert H.Nelson, Public Lands and Private Rights: The Failureof Scientific Management (Lanham, MD: Rowman& Littlefield, 1995). Nelson has here and else-where extensively commented on the failings of both land management and efforts to reform it.

14. Federal ownership is particularly heavy inthe Mountain and Pacific states including Alaska.The data are curiously elusive. The once-availablesources have ceased reporting. The BLM producesan annual Public Land Statistics report that throughthe report for Fiscal Year 2000 had a table attributedto the General Services Administration reportingpublic ownership by state. That table has vanishedand thus far a substitute has not emerged.

15. Two other branches of the Interior Depart-ment—the National Park Service and the Fish andWildlife Service—administer other parts of the publicdomain. The Forest Service of the Department of

Agriculture administers the national forests.

16. The seven members of the National Com-mission on the BP Deepwater Horizon Oil Spilland Offshore Drilling were a former DemocraticU.S. senator, a former administrator of the Envi-ronment Protection Agency (and the co-head of a disastrous private-foundation funded NationalCommission on Energy Policy), the president of the Natural Resources Defense Council, a profes-sor of marine science, the executive vice president

for mission programs for the National GeographicSociety, a physicist who is the dean of the HarvardSchool of Engineering and Applied Sciences, andthe chancellor of the University of Alaska Anchor-age—formerly an Alaskan politician. Most criti-cally, the crux of the study is a review of the engi-neering decisions made on Deepwater Horizonon which no member had competence. Marinescience, which was represented, was a secondary issue; no economist or person with business expe-

rience was selected. See National Commission onthe BP Deepwater Horizon Oil Spill and OffshoreDrilling.

17. As also noted below, the official study clearlyindicates considerable confusion and conflictsamong responsible federal and state authorities.

18. A further complication is that BP had contracted out the management of the drilling, allow-ing efforts to shift blame.

19. Obama asserted BP recklessness in his June15, 2010, “Remarks by the President to the Nationon the BP Oil Spill,” which is critiqued below.

20. This gratuitous extreme statement of pow-ers ignores warnings such as those of Gene HealyThe Cult of the Presidency: America’s Dangerous Devo-tion to Executive Power (Washington: Cato Institute2009).

21. National Commission on the BP DeepwaterHorizon Oil Spill and Offshore Drilling, p. 67. Thereport and supporting documents are posted athttp://www.oilspillcommission.gov. Chapter 1 isa journalistic report of the events of the explosionChapter 2 provides historical background. Chap-ter 3 reviews federal policy and expectedly damnsit for supposedly stressing revenue generation overa proper concern for safety. Chapter 4 summarizesthe engineering decisions and implementation inthe BP project, concluding that decisions by theparticipants in the venture and federal regulationwere inadequate, more exercise of hindsight. Chap-ter 5 covers response; it is full of discussions of the

battles among federal, state, and local officials andgoes out of its way to disparage Louisiana governorBobby Jindal. Chapter 6 turns to cursory review ofthe impacts. Chapter 7 similarly rushes throughthe recovery plans. The rest of the report coversremedies. Chapter 8 argues BP and the industryas a whole paid inadequate attention to safetyand should establish an industrywide safety-coor-dinating organization. Chapter 9 turns to federalactions. The standard proposals are made for legis-lation, reorganization, outside advisors, and greatlyexpanded action. Chapter 10 combines suggestionsabout the future of off-shore drilling with asidesrepeating the standard rhetoric on energy policy.

22. National Commission on the BP DeepwaterHorizon Oil Spill and Offshore Drilling, p. 217.

23. The March 30, 2011, “Blueprint for a SecureEnergy Future” (pp. 10–14) argues that the admin-istration can and will produce better land adminis-tration. The White House, “Blueprint for a SecureEnergy Future,” Washington, March 30, 2011http://www.whitehouse.gov/sites/default/files/blueprint_secure_energy_future.pdf.



17

24. My searches of the websites of major newspa-pers and the Oil and Gas Journal only showed how few leases were approved. On May 14, 2011, Presi-dent Obama used his weekly radio address to statethat he was directing expanded leasing. A Septem-ber 1, 2011, search of doi.gov unearthed only two2011 press releases on oil and gas development.

The first, on June 16, 2011, announced an Alaskanlease auction and the extension for one year of moratorium-delayed leases in the Gulf. On August19, 2011, a Gulf auction in December 2011 wasannounced.

25. This statement deliberately evades the thorny questions of how corporate and personal incomeshould be taxed. Corporate taxes are dubious, but,if they exist, they should be applied as simply anduniformly as possible. The tax favors to the oilindustry that the Obama administration inces-santly attacked in 2011 do not materially alter thisargument; the official statement is buried in the“Terminations, Reductions, and Savings” supple-ment to the proposed 2012 budget. As the industry regularly notes, it still faces a much higher effectiveincome tax rate; in 2010, oil and gas companiespaid 41.1 percent of their net taxable income astaxes compared to 26.5 percent for other Standardand Poor’s industrials. See American PetroleumInstitute, Putting Earnings into Perspective: Facts for

Addressing Energy Policy (Washington, 2011), p. 7.In any case, given that the tax code is riddled withnumerous questionable provisions to stimulate

various activities, targeting only the favors to oiland gas and claiming the $40 billion in a decadematerially contributes to reducing $14 trillion indebt is blatant opportunism. The case is worsened

by making one main component of the change theremoval, for only the oil-and-gas industry, of a du-bious tax break for all manufacturing. Moreover,another proposal is to eliminate the percentage-depletion allowance that allows substituting forthe usual depreciation allowance a write-off equalto the lesser of a specified percentage of sales rev-enue and half of taxable income. Changes in thetax laws made in 1975 eliminated percentagedepletion for large oil firms and cut the percent-age from 27.5 percent to 15 percent for others.Similarly, the proposed elimination of the right towrite off immediately most drilling expenses, rath-er than depreciate them over extended periods, ismore onerous to smaller producers because the

alternative minimum tax already greatly reducesthe benefits to large oil companies. In short, only a tiny subset of the numerous dubious special pro-

visions of corporate income tax is attacked, andthe dubious wisdom of any taxes on corporationsis ignored. These tax changes increase the costs of oil production and thus decrease oil production,although probably by a small amount. However,President Obama could not resist transformingthe valid claims of minor effects into an assertion

of a price-lowering impact or claiming at every op-portunity that he was taxing large oil companies.In a May 12, 2011, press release, Sen. Max Baucus(D-MT) took the even more dubious step of pro-posing only eliminating the manufacturing-jobcredit for the five largest oil companies. Neitherthe administration’s claims of importance of tax-

ing big oil nor the assertion by some Republicanpoliticians of severe damages is credible. If thiswere not enough reprise of the 1970s, PresidentObama has ordered an investigation by the JusticeDepartment of price rigging in the oil market (see,e.g., his May 14, 2011, radio address). This contin-ues a long series of similar unsuccessful fishing ex-peditions. The only novelty is choosing the JusticeDepartment over either the Commodity FuturesTrading Commission—the agency supervising thespeculation that is suspect—or the Federal TradeCommission—the main source of prior studies,which uniformly refuted the charges of monopo-lization.

26. The academic literature on mineral taxationis strongly critical of government reliance on royal-ties. The distorting effect of levies on sales is stan-dard textbook economics. One review of relatedissues is Robert T. Deacon, H. E. Frech, and M.Bruce Johnson, Taxing Energy: Oil Severance Taxationand the Economy (Oakland, CA: The IndependentInstitute, 1990). Walter Mead and his colleaguesshowed long ago the payment-adequacy concernexpressed by some members of Congress was un-founded. See Walter J. Mead et al., Offshore Lands:Oil and Gas Leasing and Conservation on the Outer Continental Shelf (San Francisco: Pacific Institutefor Public Policy Research, 1985). This literature

addresses the obvious economic impacts. The dif-ficulties of administration are most clearly seenfrom the stream of reports from Congress’s au-diting arm on problems of adequate royalty pay-ments. (That arm was originally called the General

Accounting Office [GAO] and became in 2004 theGovernment Accountability Office [still GAO]). Atleast three independent study groups, includingtwo on which I served, viewed the resulting morassof data gathering and analysis and still advocatedsimply improving the analysis. Yet this literaturehas not had any notable influence on the politicalworld thus far. Congress’s favorite reform is intro-duction of royalties on additional types of min-eral production on the public lands. Coal-leasing

efforts provided a graphic example. The 1976Coal Leasing Amendments of 1975 (sic) requiredroyalties on coal production on public lands. Forits first major auction of coal leases, the InteriorDepartment could only locate value informationon one coal-property sale and had to improvise ex-trapolation methods. The result was criticism, an-other commission—on which I served—the designof elaborate new evaluation rules, and languishingcoal leasing. See U. S. Commission on Fair Market



18

Value Policy for Federal Coal Leasing, Report of theCommission (Washington: U. S. Government Print-ing Office, 1984). Subsequent reports of the GAOand the Interior inspector general regularly offersimilar recommendations. However, efforts to ex-tend the royalty regime to nonfuel minerals havelanguished.

27. Vernon L. Smith, “On Divestiture and theCreation of Property Rights in Public Lands,” Cato

Journal 2, no. 3 (Winter 1982): 663–85. See alsoTerry L. Anderson, Vernon L. Smith, and Emily Simmons, “How and Why to Privatize FederalLands,” Cato Institute Policy Analysis no. 363,November 9, 1999.

28. The text was pasted directly from the post-ing on WhiteHouse.gov. Similar material was pre-sented in a March 30, 2011, speech at GeorgetownUniversity. A supporting document, “Blueprintfor a Secure Energy Future” was simultaneously issued. It largely sets broad goals with extensive

praise for all the energy-related programs in theRecovery Act.

29. National Energy Policy Development Group, National Energy Policy (Washington, 2001). In con-trast, on the basis of what is shown on the En-ergy and Environment page at WhiteHouse.gov,the Obama administration apparently has notproduced an overview more detailed than thosequoted here.

30. These data are reported monthly by the U.S.Bureau of the Census in U.S. International Tradein Goods and Services, http://www.census.gov/for-

eign-trade/Press-Release/current_press_release/.Each report has a table of monthly totals (withoutcountry details) for “energy-related petroleum”and crude oil. A supplementary table breaks downthe crude oil amounts and values by country forthe most recent months and the year to date.Going from crude oil to total petroleum raisesthe 2009 daily average to $671 million and the

January–April 2010 daily average to $691 million.Moreover, these data are reported in amounts perperiod; the daily average is not used in normaldiscussions, and the numbers here are calculatedfrom the report. The amounts obviously decline if imports from stable sources such as Canada andMexico are subtracted.

31. High-speed rail still operates but only throughhuge subsidies. These problems did not stop Presi-dent Obama from calling for high-speed rail, bet-ter airports, and faster supercomputers in hisNovember 3, 2010, press conference. Among themany critiques of high-speed rail and related trans-portation initiatives and the underlying attack onautomobiles is Randal O’Toole’s work for Cato,appearing in several policy studies and recapitu-

lated in Randal O’Toole, Gridlock: Why We’re Stuckin Traffic and What to Do about It (Washington: CatoInstitute, 2010). See also Randal O’Toole, “DoesRail Transit Save Energy or Reduce GreenhouseGas Emissions?” Cato Institute Policy Analysis no615, April 14, 2008; Randal O’Toole, “High-SpeedRail: The Wrong Road for America,” Cato Institute

Policy Analysis no. 625. October 31, 2008; RandalO’Toole, “High-Speed Rail Is Not ‘Interstate 2.0,’”Cato Institute Briefing Paper no. 113, September 9,2009. A classic treatment of government technol-ogy promotion is Linda Cohen and Roger Noll, TheTechnology Pork Barrel (Washington: Brookings In-stitution, 1991).

32. Moreover, many economists believe that gov-ernment should not intervene because interven-tion is more likely the cause than the cure of in-stability, and the timing and duration of economicdownturns is such that effective reaction is impos-sible. The text necessarily simplifies a complex de-bate, which includes heated arguments about theright way to interpret Keynes. The literature ongeneral macroeconomic policy is enormous, withno readily available nontechnical synthesis.

33. This has not prevented the generation oan enormous literature arguing the contrary. Agood summary is Eugene Gholz and Daryl GPress, “Energy Alarmism: The Myths That Make

Americans Worry about Oil,” Cato Institute Policy Analysis no. 589, April 5, 2007. A more recentmore technical treatment is James L. Smith, “Onthe Portents of Peak Oil (and Other Indicators ofResource Scarcity),” MIT Center for Energy andEnvironmental Policy Research, 2010-010.

34. The concern over imports can be traced backat least to the 1950s, when President Eisenhowerimposed “mandatory” oil-import quotas using aflimsy national-defense rationale. Then as nowthat justification was inconsistent with both gen-eral diplomatic and military policy and efforts toassure oil-exporting countries that their oil hadmarkets. The details of the excuses change butnever approach reality. The literature is vast. Thecore is a trilogy of classic books by M. A. Adelmantwo being overviews of the situation almost aquarter century apart and the third an anthologyof his writings. See M. A. Adelman, The World Petroleum Market (Baltimore, MD: Johns Hopkins Uni-

versity Press, 1972); M. A. Adelman, The Genie outof the Bottle: World Oil since 1970 (Cambridge, MAMIT Press, 1995); M. A. Adelman, The Economicsof Petroleum Supply: Papers by M. A. Adelman 1962–1993 (Cambridge, MA: MIT Press, 1993). Thecosts of import dependence are treated in anextensive subliterature on an import premiumThe estimates range from zero up to several dol-lars per barrel, and higher numbers include theunavoidable costs of persistent monopoly as well



19

as those related to disruption. I am on record atleast since 1992 as saying that zero is the cor-rect number (see my “Energy Intervention afterDesert Storm: Some Unfinished Tasks,” Energy

Journal 13, no. 4 [1992]: 1–15). The most care-ful discussion of security is Douglas R. Bohi andMichael A. Toman, The Economics of Energy Secu-

rity (Boston: Kluwer Academic Publishers, 1996). A good treatment of the history is Douglas R.Bohi and Milton Russell, Limiting Oil Imports: An

Economic History and Analysis (Baltimore: JohnsHopkins University Press, for Resources for theFuture, 1978). A later skeptical view of the premi-um and the use of strategic reserves to offset thedangers is Jerry Taylor and Peter Van Doren, “TheCase against the Strategic Petroleum Reserve,”Cato Institute Policy Analysis no. 555, November21, 2005. A good survey of newer developmentsis James L. Smith 2009, “World Oil—Market orMayhem?” Journal of Economic Perspectives 23, no. 3(Summer 2009): 145–164. Another solid effort is

James M. Griffin, A Smart Energy Policy: An Econo-mist’s Rx for Balancing Cheap, Clean, and Secure En-ergy (New Haven: Yale University Press, 2009).He argues that if anything should be done aboutimport dangers or global warming, it should betaxation. He takes the unnecessary further stepof arguing that such action is desirable, but by presenting a wide range of possible taxes, he inad-

vertently discloses the difficulty of determiningwhat the right numbers should be. One perennialissue is the impact of oil price shocks on infla-tion and unemployment. A good survey of theliterature is Lutz Kilian, “The Economic Effectsof Energy Price Shocks,” Journal of Economic Litera-ture 46, no. 4 (December 2008): 871–909. Kilian

himself has updated the study with “Not All OilPrice Shocks Are Alike: Disentangling Demandand Supply Shocks in the Crude Oil Market,”

American Economic Review 99, no. 3 (June 2009):1053–69.

35. Moreover, Venezuela is heavily dependenton U.S. markets given its proximity to the UnitedStates, the availability of refineries suited to Vene-zuelan crude, and its ownership of the U.S. refiner/marketer Citgo. Since 1960 (the starting point of Energy Information Administration [EIA] tabula-tion oil-import data) the Venezuelan share of U.S.oil imports dropped from 50 percent to 8.4 per-cent. These data are calculated from the Internet

versions of two EIA reports: Annual Energy Review (http://www.eia.gov/totalenergy/data/annual/)and Monthly Energy Review (http://www.eia.gov/totalenergy/data/monthly/). The annual review presents, when available, data starting in 1949; thereport is one of the few from EIA still available inprinted form. The coverage in the monthly review,now an Internet-only publication, starts in 1973.The downloadable spreadsheet versions of the ta-bles in both reports contain all the available data

for the time periods covered. Since the latest an-nual review available on September 4, 2011, only goes to 2009, 2010 data come from the monthly review.

36. Sensible thinking about Saudi Arabia is dif-ficult to find. However, Adelman correctly argues

that the Saudis simply protect their economicinterest and that the perennial efforts by the U.S.government to cajole Saudi Arabia to alter produc-tion are exercises in futility. More broadly, the termally is too loosely used to characterize any relation-ship that involves some cooperation, howevergrudging or limited.

37. The clearest statement was made in “Remarksby the President at CEO Business Summit in Brasil-ia, Brazil” on March 19, 2011. Some critics havepounced on an earlier decision by the U.S. Export-Import Bank to aid Brazilian oil investments as a further element of this strategy. However, that loanwas announced in 2009. While the administration

insists that this was an independent decision, thepresident of the Bank joined Obama on his Latin

American trip. Not so incidentally, the Bank is an-other example of unjustified intervention.

38. The literature previously cited suggests thatprice rigging by the OPEC member states is at-tempted but quite awkwardly.

39. This applies to all policies, so energy is not spe-cial in this regard. Further drawbacks are that theOPEC countries can retaliate, and resort to traderestriction sets a bad example. As noted, Griffinprovides an excellent statement of the case for en-

ergy and environmental taxes as the preferred solu-tion if action is needed.

40. A surprisingly large literature was generatedfrom Martin L. Weitzman, “Prices vs. Quantities,”The Review of Economic Studies 41, no. 4 (October1974): 477–91. He suggested that differences inthe certainty about different characteristics of the market being regulated should determine thechoice between a price instrument such as taxesand a quantity measure such as tariffs. The prac-tical problem, apparently not discussed in the lit-erature, is that great uncertainties prevail abouteverything relevant, so we do not know whetheravailable estimates are too high or too low, and no

clear guidance arises. Thus, the traditional argu-ment remains the only relevant one.

41. The problems culminated in a rare govern-ment effort to treat the problem seriously. Theresulting report by the U. S. Cabinet Task Forceon Oil Import Control, The Oil Import Question: A

Report on the Relationship of Oil Imports to the National Security (Washington: U. S. Government PrintingOffice, 1970), provided a solid treatment of the is-



20

sues, as did Douglas R. Bohi and Milton Russell.Problems always arise with quotas. The best thatcan be said of the U.S. program is that it avoidedthe blatant undercover bribery that occurs underweaker political systems. To be sure, much favor-itism arose from underlying political pressures.

Another common misunderstanding is that large

oil companies are favored when politicians handout rents. Actually, policies in this and most othercases favored smaller-scale operators. While thisis often defended by the argument that smalleroperators are disadvantaged and in need of com-paratively more governmental “help,” the smalleroil companies in this case were closely held and theowners probably had much higher-than-averageincomes. The opposite is probably true of largecompanies in oil and elsewhere in which the hold-ings are much more broadly distributed. The com-plaints from England about the losses to U.K. pen-sioners that followed from reduced BP dividendsnicely illustrate this situation.

42. Indeed, the initial program perversely usedprice ceilings that discouraged domestic oil andnatural gas production. Moreover, the rules al-tering oil costs to refineries also had the effect of subsidizing oil imports. While the price controlsended in the 1980s, the direct controls multiplied.

A massive study of this experience is Robert L.Bradley Jr., Oil Gas, and Government: The U.S. Expe-rience, vols. 1 and 2 (Lanham, MD: Rowman andLittlefield, 1996). The motivations of this policy-making remain unclear, but the bias toward creat-ing new programs was obviously at work. Beyondthat, the legislation is characterized by a mindless,scattershot adoption of a grab bag of bad ideas.

43. The high level of oil dependence has prevailedsince the disappearance by the middle 1950s of coal-fired locomotives. These data also are calcu-lated from the Internet versions of two EIA reports:

Annual Energy Review and Monthly Energy Review .

44. At least since 1949, coal has been the largestsingle source of electricity generation. From 1981to 2008, electricity consistently accounted for themajority of inputs into electricity generation. Thedrop to 48 percent in 2009 and the only slight re-

versal in 2010 mostly reflect that coal generationbore the bulk of reduced energy use in 2009. Con-

versely, other coal uses declined as consumption by

electricity rose; as of 2010, over 93 percent of coalwas used in electricity generation. Coal involvesboth a high greenhouse-gas emission per Btu andincreased Btu needs primarily because of lowerthermal efficiency than the newest combined-cyclegas-fired units.

45. The literature here too is extensive. A goodsummary of the economics is James Eaves andStephen Eaves, “Neither Renewable nor Reliable,”

Regulation 30, no. 3 (Fall 2007). An extensive survey with presentations with citations by advocatesand critics of ethanol production “Economics ofEthanol: Costs, Benefits, and Future Prospects ofBiofuels,” made up the Federal Reserve Bank ofSt. Louis’s Regional Economic Development 5, no. 1(2009). The environmental issues are reviewed in

Robert K. Niven, “Ethanol in Gasoline: Environ-mental Impacts and Sustainability Review Article,” Renewable and Sustainable Energy Reviews 9, no. 6(December 2005): 535–55.

46. “Blueprint for a Secure Energy Future,” p. 23The speech called for generation of 85 percent ofelectricity from “clean” sources. The speech stat-ed “By 2035, 80 percent of our electricity needs tocome from a wide range of clean energy sources—renewables like wind and solar, efficient naturalgas. And, yes, we’re going to have to examine howdo we make clean coal and nuclear power work.”The “Blueprint” (pp. 6–7) more clearly said “By2035, we will generate 80 percent of our electric-ity from a diverse set of clean energy sources—including renewable energy sources like wind,solar, biomass, and hydropower; nuclear powerefficient natural gas; and clean coal.”

47. See, for instance, Andrew N. Kleit, “Impactsof Long-Range Increases in the Fuel Economy(CAFE) Standard,” Economic Inquiry 42, no. 2 (April2004): 279–94.

48. As noted, Cato’s Randal O’Toole has writ-ten extensively on the drawbacks of rail andmass transit. O’Toole, “Does Rail Transit SaveEnergy or Reduce Greenhouse Gas Emissions?”

O’Toole, “High-Speed Rail The Wrong Road for America,”; O’Toole, “High-Speed Rail Is Not ‘Interstate 2.0.’” His overview of transportation is-sues is O’Toole, Gridlock: Why We’re Stuck in Trafficand What to Do about It .

49. One of many good summaries of the scientific uncertainties is Jason Scott Johnston, “GlobaWarming Advocacy Science: A Cross Examina-tion,” Institute for Law and Economics, ResearchPaper 10-08, University of Pennsylvania LawSchool, May 2010.

50. The relevant literature is vast with most ofthe economic analysis predating the disclosure of

severe problems with the underlying science. SeeRichard S. J. Tol, “The Economic Effects of Cli-mate Change,” Journal of Economic Perspectives 23no. 3 (Spring 2009): 29–51, for an effort to appraisethe imperfect state of economic appraisal that in-cludes extensive citations of the key contributors.

51. Tol’s article is the most recent statement ofwhich I am aware of this viewpoint about the vastbut unsatisfactory relevant literature, but any



21

economist open-mindedly reading the literatureshould reach a similar conclusion.

52. A striking example of the criticality of inclu-sion of China and India is Kelly Sims Gallagher,ed., Acting on Time on Energy Policy (Washington:Brookings Institution, 2009). Another recogni-

tion from a radically different outlook is Griffin. Among the sharpest criticisms of the Kyoto Pro-tocol is William D. Nordhaus, “After Kyoto: Al-ternative Mechanisms to Control Global Warm-ing,” The American Economic Review 96, no. 2 (May 2006): 31–4.

53. The defects of environmentalism have in-spired many books. Two of note are Gregg East-erbrook, A Moment on the Earth: The Coming Ageof Environmental Optimism (New York: Viking,1995) and Bjørn Lomborg, The Skeptical Environ-mentalist: Measuring the Real State of the World (Cam-bridge: Cambridge University Press, 2001). Bothprovoked vitriolic counterattacks by environ-

mentalists. Their approaches differ radically.Easterbrook is a journalist who, because of hisdistrust of free markets, muddles his arguments.Lomborg, a statistician, started his work seekingto refute the criticisms of Simon and ended upconfirming him. See Simon. Patrick J. Michaels,ed., Climate Coup: Global Warming’s Invasion of Our Government and Our Lives (Washington: Cato In-stitute, 2011) is an excellent compilation of thedefects of global-warming advocacy.

54. Coase’s “The Problem of Social Cost” showsthat in principle, bribes not to pollute could producethe same results as a tax, but subsidy design has the

same problems as allocating emission rights.55. This is an illustration of an inevitable problemin policy analysis. Deciding what is fair generates a

vast literature notable for failure to reach consen-sus, and another defect of intervention is the inabil-ity to determine the actual distribution of effectsamong those affected.

56. The bill is divided into five parts–Title I CleanEnergy (304 pages), Title II Energy Efficiency (351pages), Title III Reducing Global Warming Pollu-tion (410 pages), Title IV Transitioning to a CleanEnergy Economy (299 pages), and Title V Agricul-tural and Forestry Related Offsets (41 pages). Pre-

liminaries take the first 16 pages.

57. This comes from U.S. House of Representa-tives, Committee on Energy and Commerce, The

American Clean Energy and Security Act (H.R.2454): Section-by-Section (Washington, July 14,2009), p. 13, http://democrats.energycommerce.house.gov/Press_111/20090720/hr2454_sectionsummary.pdf.

58. The efforts are marked by the repeated partici-

pation of several vigorous proponents of massiveintervention. See the National Commission on En-ergy Policy, Ending the Energy Stalemate: A BipartisanStrategy to Meet America’s Energy Challenges, 2004. De-spite its name, the commission was funded by pri-

vate foundations (Hewlett, Pew, MacArthur, andPackard plus the Energy Foundation, a consor-

tium of foundations including Hewlett and Pack-ard). Participants went on to participate in later ef-forts. Most notably John Holdren, then a Harvardprofessor and a long-time energy interventionistand depletion doomsayer, was the co-chair. Othermembers included Philip Sharp, now the presidentof Resources for the Future, and former CIA direc-tor James Woolsey, who has become ubiquitous inspreading energy alarmism.

59. National Petroleum Council, Hard Truths: Facing the Hard Truths about Energy: A Compre-hensive View to 2030 of Global Oil and Natural Gas ,Washington, 2007). Despite the large num-ber of participants, Philip Sharp, a member of two subcommittees, and Linda Stuntz, a for-mer DOE official, are the only overlaps withthe commission. The curiosity of the report isthat it rejects import alarmism and is equivo-cal about global warming but still advocatesthe same nostrums as the other reports cited here.

60. The most relevant here is Gallagher. It is a re-port of a conference at Harvard’s Kennedy Schoolof Government. John Holdren is among the con-tributors.

61. John Deutch and James R. Schlesinger, chairs, National Security Consequences of U.S. Oil Dependency

Report of an Independent Task Force (New York:Council on Foreign Relations, 2006). The councileffort is another example of those involved in thepolicies of the ‘70s trying to resell their ideas. Co-chairman Deutch, a longtime MIT professor, wasa Department of Energy official in the Carter ad-ministration and later director of the CIA. JamesSchlesinger is a former CIA director and secretary of defense and the first secretary of energy. PhilSharp and Linda Stuntz reappear.

62. CNA, Powering America’s Defense: Energy andthe Risks to National Security (Washington, 2009).The Energy Foundation was one of the sponsors.

63. American Physical Society, Energy Future:Think Efficiency: How America Can Look within to

Achieve Energy Security and Reduce Global Warming (n.p. 2008). This too was supported by the En-ergy Foundation. In contrast, over a century ago,to convert the American Economic Associationfrom the home of interventionist economists to a broad professional group, the association adopteda policy of taking no stands on public debates, somembers were free independently to state opin-ions. Here we have physicists with no competence



22

to deal with these issues using their professionalsociety to advocate a command-and-control ap-proach that even many economists who accept theneed for action feel is an ill-advised route.

64. Resources for the Future and the NationalEnergy Policy Institute (Alan J. Krupnick, et al.) To-

ward a New National Energy Policy: Assessing the Options (Washington: Resources for the Future, 2010). For-eign-policy alteration is the report’s main concern(p. 12). This appears in the introductory chapter andis another example of gratuitous acceptance of theprevailing cant undermining a report that is largely

a useful effort to quantify the effects of assuming theconcerns are valid. Curiously, John Deutch returnsas the author of a supporting paper on “Oil and GasEnergy Security Issues” that is more moderate thanmost studies on the political security dangers andhardly justification for the main report’s declaration

65. Namely, Gallagher.

66. Rice University’s James A. Baker III Institutefor Public Policy (http://www.bakerinstitute.org/programs/energy-forum) produces numerous pa-pers but no recent extensive overview.



RECENT STUDIES IN THE POLICY ANALYSIS SERIES

683. Abolish the Department of Homeland Security by David Rittgers (September11, 2011)

682. Private School Chains in Chile: Do Better Schools Scale Up? by Gregory Elacqua, Dante Contreras, Felipe Salazar, and Humberto Santos (August 16,2011)

681. Capital Inadequacies: The Dismal Failure of the Basel Regime of BankCapital Regulation by Kevin Dowd, Martin Hutchinson, Simon Ashby, and

Jimi M. Hinchliffe (July 29, 2011)

680. Intercity Buses: The Forgotten Mode by Randal O’Toole (June 29, 2011)

679. The Subprime Lending Debacle: Competitive Private Markets Are the

Solution, Not the Problem by Patric H. Hendershott and Kevin Villani(June 30, 2011)

678. Federal Higher Education Policy and the Profitable Nonprofits by Vance H.Fried (June 15, 2011)

677. The Other Lottery: Are Philanthropists Backing the Best Charter Schools? by Andrew J. Coulson (June 6, 2011)

676. Crony Capitalism and Social Engineering: The Case against Tax-IncrementFinancing by Randal O’Toole (May 18, 2011)

675. Leashing the Surveillance State: How to Reform Patriot Act SurveillanceAuthorities by Julian Sanchez (May 16, 2011)

674. Fannie Mae, Freddie Mac, and the Future of Federal Housing FinancePolicy: A Study of Regulatory Privilege by David Reiss (April 18, 2011)

673. Bankrupt: Entitlements and the Federal Budget by Michael D. Tanner (March28, 2011)

672. The Case for Gridlock by Marcus E. Ethridge (January 27, 2011)

671. Marriage against the State: Toward a New View of Civil Marriage by JasonKuznicki (January 12, 2011)

670. Fixing Transit: The Case for Privatization by Randal O’Toole (November 10, 2010)

669. Congress Should Account for the Excess Burden of Taxation by Christopher J. Conover (October 13, 2010)



668. Fiscal Policy Report Card on America’s Governors: 2010 by Chris Edwards(September 30, 2010)

667. Budgetary Savings from Military Restraint by Benjamin H. Friedman andChristopher Preble (September 23, 2010)

666. Reforming Indigent Defense: How Free Market Principles Can Help to Fix a BrokenSystemby Stephen J. Schulhofer and David D. Friedman (September 1, 2010)

665. The Inefficiency of Clearing Mandates by Craig Pirrong (July 21, 2010)

664. The DISCLOSE Act, Deliberation, and the First Amendment by JohnSamples (June 28, 2010)

663. Defining Success: The Case against Rail Transit by Randal O’Toole (March24, 2010)

662. They Spend WHAT? The Real Cost of Public Schools by Adam Schaeffer(March 10, 2010)

661. Behind the Curtain: Assessing the Case for National Curriculum Standards by Neal McCluskey (February 17, 2010)

660. Lawless Policy: TARP as Congressional Failureby John Samples (February 4, 2010)

659. Globalization: Curse or Cure? Policies to Harness Global EconomicIntegration to Solve Our Economic Challenge by Jagadeesh Gokhale

(February 1, 2010)

658. The Libertarian Vote in the Age of Obama by David Kirby and David Boaz(January 21, 2010)

657. The Massachusetts Health Plan: Much Pain, Little Gain by Aaron Yelowitzand Michael F. Cannon (January 20, 2010)

656. Obama’s Prescription for Low-Wage Workers: High Implicit Taxes, HigherPremiums by Michael F. Cannon (January 13, 2010)

655. Three Decades of Politics and Failed Policies at HUD by Tad DeHaven(November 23, 2009)

Date post:	07-Apr-2018
Category:	Documents
Upload:	cato-institute
View:	219 times
Download:	0 times