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Using oil to get off of oil

Governments should encourage domestic drilling to meet our energy needs in the short-term, Rapier writes, while using the royalties and tax revenues to fund programs that reduce dependence on oil.

By Robert RapierGuest blogger / February 28, 2013

With oil pump jacks as a backdrop, President Barack Obama speaks at an oil and gas field on federal lands in Maljamar, N.M. Much like Mr. Obama's call for an "energy security trust," Rapier proposes a compromise where we open up some of the more promising areas to exploration, and then earmark some or all of the royalties to funding fossil fuel alternatives.

Ross D. Franklin/AP/File

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Energy Security Trust

Energy policy is a major topic of discussion during almost every State of the Union address. The most recent address was no exception, with President Obama devoting a substantial portion of his speech toward reviewing recent energy accomplishments, and then promoting new energy initiatives. (Related: Are President Obama’s Policies Causing U.S. Oil Production to Rise?)

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One of those initiatives was one of the three major energy policy recommendations that I promoted in my bookPower Plays. Here was President Obama’s version during the State of the Union address:

I propose we use some of our oil and gas revenues to fund an Energy Security Trust that will drive new research and technology to shift our cars and trucks off oil for good. If a nonpartisan coalition of CEOs and retired generals and admirals can get behind this idea, then so can we. Let’s take their advice and free our families and businesses from the painful spikes in gas prices we’ve put up with for far too long. I’m also issuing a new goal for America: Let’s cut in half the energy wasted by our homes and businesses over the next 20 years.

In my book, I made three policy recommendations that I believe would not only enhance the long-term energy security of any country, but are also capable of receiving broad political support. The recommendations address the demand side, the supply side, and they minimize the risks if supply and demand projections are grossly in error. The three policy recommendations are:

  1. Shift some income taxes to fossil fuel taxes in a revenue neutral manner
  2. Use the proceeds of oil to reduce dependence upon oil
  3. Support the Open Fuel Standard

The second proposal above is the one that the President endorsed during the State of the Union address. As I explained in my book, I am concerned about the impact of continued reliance on fossil fuels. But I have no doubt that we will still need stable oil supplies for a number of years as we transition away from oil. The proposal is designed to meet those petroleum needs during this transition phase, while using some of the proceeds to hasten the transition. In short, my proposal was that governments encourage domestic drilling — to meet our energy needs in the short-term — while using the royalties and tax revenues to fund programs that reduce dependence on oil. 

Environmentalists vs. Drill, Baby, Drill!

But environmentalists are generally opposed to opening up areas to additional drilling. They think there simply isn’t a need to do so, and that it will just delay a transition to alternatives. They see oil companies and not ordinary citizens as the primary beneficiaries of oil drilling.

Many environmentalists believe that if they can prevent further development of oil reserves, then alternative energy, public transit, and conservation will necessarily rise to the challenge and alleviate the dependence on diminishing fossil fuel reserves. But the risk in this approach is whether the alternatives can be delivered when they are needed, and whether they can cover severe shortfalls. What if they can’t? What is Plan B? Shortages? Rationing?

On the other side are people who believe that underneath U.S. territory lies an ocean of oil, waiting to be tapped — if environmentalists would only get out of the way. They believe that energy independence is within our grasp if we aggressively develop our natural resources. But this notion suffers from a very similar risk as the position of environmentalists: What if the oil that is available simply can’t cover any severe shortfalls? What if the expectations that these vast oceans of oil exist lead us to delay actions on alternatives? Again, what is Plan B? Military action? A continued transfer of wealth to OPEC? (Related: The Amazing Reversal of the US Oil Industry)

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