Future of US Energy & Climate Security

September 9th, 2014

“I believe that the question of whether the United States should have a substantially more permissive policy with respect to the export of crude oil and with respect to the export of natural gas is easy,”  Summers told a Brookings Institute audience on September 9, 2014. “The answer is affirmative.”

“The merits are as clear as the merits with respect to any significant public policy issue that I have ever encountered. And it is an important test of the efficacy of the functioning of our democracy whether within the next nine months we will get to that correct solution.”

Summers, the Charles W. Eliot university professor and president emeritus at Harvard University, delivered the remarks during his keynote remarks at an event sponsored by the Energy Security Initiative (ESI) at Brookings on the future of U.S. energy security and oil export policy. Read the transcript here.

Three Arguments against the Export Ban

Summers explained three reasons why the current U.S. law (the 1975 Energy Policy and Conservation Act) banning the export of crude oil and natural gas is bad policy, and then offered three additional reasons to support the case for change:

  1. The original reason for the policy, enacted in the 1970s, was U.S. vulnerability to price spikes. But as he explained, price controls were eliminated in 1981. “[T]here is nothing in the history of the establishment of the policy that creates any reason for believing that it is functional on a continuing basis today.”
  2. The ban conflicts with long-standing U.S. insistence on free trade, including stances against other countries’ export restrictions. “[W]e have a long history of believing that export restrictions are not an appropriate policy tool.”
  3. Responses to two objections to lifting the export restrictions: that keeping U.S. oil here will mean gasoline will be cheaper; and that lifting the export ban will have adverse environmental consequences. On the first, he cited economists’ research showing that the price of gasoline would be lower in a range from 2 cents to 12 cents per gallon if oil could be exported into the global market. And on the environmental concern, Summers explained that “there is no environmental argument for a policy that distinguishes between oil produced in the United States for domestic consumption and oil produced in the United States for foreign consumption.” The question of regulation of fracking is a different concern than the prohibition on exports, he said.

In fact, Summers argued later that environmental considerations argue for lifting the ban, along with additional economic growth and geopolitical factors.

Natural Gas Exports would Displace Coal

“That [the environment] is a profoundly moral problem and a moral responsibility for our generation is,” he averred, “beyond question.” He continued:

I do not suppose and no one should suppose that the increased export of natural gas, which would confer environmental benefits by replacing coal exports, constitutes a large part of an American, let alone global, solution to climate change. We will not solve climate change without moving in an economic and efficient way beyond fossil fuels. And whether we move beyond fossil fuels will not be affected one way or the other by our export policy, or our natural gas export policy. What is true, however, is that more extensive and more widespread use of natural gas in replacing coal, assuming that the production of natural gas is regulated, so that there aren’t excessive leaks of methane associated with its production, will reduce emissions in the near- to medium- term.

Summers argued that allowing natural gas exports would “permit the displacement of coal” in markets around the rest of the world. “And if there is going to be a planet for us to enjoy,” he added, “we will not be using fossil fuels on a large scale one century from now.

Geopolitical Reasons to Lift Ban

On the geopolitical front, Summers observed that within the next 18 months, American production of oil will exceed Saudi production of oil. From that fact, he posed a series of questions:

Do we want the world’s largest and most vital democracy … to be able to have the kind of influence when it is also the world’s largest oil producer that comes from being able to sell oil freely on the world market, or do we wish to deny ourselves that on some a priori ground? The question it seems to me answers itself.Do we want others to depend on us, and have all the consequences that come with that dependence—which includes a certain amount of influence on our part—or do we wish them to depend on the Middle East?Do we wish the routes through which oil travels to be dominantly those of the contested seas of the Pacific, or those that are more proximate to us? Seems to me that question answers itself as well.

In this context, he also mentioned Russia’s supply of heating oil to countries in Europe to the west. “If we wish to have more power and influence in the world, in support of our security interests, and in support of our values,” he said, “and if we wish to have an influence that we pay for with neither blood nor taxes, I do not see a more constructive approach than permitting the export of fossil fuels.”

At the end of his remarks, Summers observed that the president of the United States has statutory authority in the 1975 law to lift the ban if he judges it to be in the national interest. “He has that authority,” Summers said, and if Congress is unable to act legislatively, he said that he hopes the export ban will be lifted “as rapidly as possible.”

The event also launched ESI’s new report, “Changing Markets: Economic Opportunities from Lifting the U.S. Ban on Crude Oil Exports,” which looks at the economic and national security consequences of allowing U.S. crude oil exports. The report, by Senior Fellow Charles Ebinger, director of ESI, and Heather Greenley, a research assistant in Foreign Policy, is based on a macroeconomic study contracted from National Economic Research Associates.