June 19, 2012

Does Domestic Oil Production = Energy Security?

A new Congressional Budget Office (CBO) report on the nation’s energy security looks at the ability of U.S. households and businesses to accommodate disruptions in energy markets and the actions government can take to reduce their effect.  The report finds that the transportation sector is the most vulnerable to supply disruptions due to (1) its overwhelming reliance on one energy source (oil), (2) the oil market’s global nature, and (3) consumers’ limited ability to change how they use transportation. 

In examining available options, the report notes that policies promoting greater domestic oil production would probably not protect U.S. consumers from sudden worldwide increases in oil prices.  Although increased domestic production could decrease overall oil prices, it would encourage greater oil use, making consumers even more reliant on it.  The report also notes that due to the worldwide market, oil exporters (like Canada) are subject to the same price volatility as countries that import all of their oil (like Japan).  It concludes that policies to create incentives for consumers to use less oil would be the most effective in decreasing vulnerability to oil price volatility.