The United States, befitting its stature as a mega-economy, consumes a huge amount of energy. To put a number on it, the US consumes about 100 Quadrillion British thermal units (Btu) a year, which, for example, is roughly equivalent to about 4.5 trillion tons of coal. Of course, this does not all come from coal (though coal is a not inconsequential source of energy), the fuel comes in many forms and used for purposes from generating electricity to powering our vehicles.

The issue with respect to energy security is that the US only produces about 70 percent of what it consumes domestically. This would not necessarily be a tragedy. We do, after all, live in a globalized society in which specialization and trade have lent us a great deal by way of efficiency gains, and there are other goods for which the US is highly import dependent. (i.e. If foreign textile imports were cut off tomorrow, we might soon see some buck-naked people wearing only socks.) However, there are three factors that play into energy dependence being a point of concern for many. First, this overall percentage is deceiving because it does not account for the fact that certain energy sources show much higher ratios of dependence. For example, almost half of US-owned crude oil is imported. The transportation sector, which is integral to a widespread portion of the economy, is quite dependent upon imported petroleum. Furthermore, those elements of the economy that could shift away from petroleum readily largely did so in the 1970s when the oil shocks made it economically sensible to shift away from petrol. However, while there are certainly a number of technologies on the horizon that could reduce the transportation sector’s reliance on petroleum, they are by-and-large still distant prospects. Technologies such as fuel cells and improved batteries could take advantage of power sources of relative abundance like nuclear and coal to produce fuel or charge, but are still likely to be distant realities. Bio-fuels are more feasible in the near-term, but the key to large-scale employment seems to be the ability to cost-effectively take advantage of materials that are bulky, fibrous, and don’t have alternate use as foods (as opposed to corn kernels), and technologies to make this happen are still in development.

Second, the deposits of transportation fuels, for which we have a high demand, tends to be in regions that have high potential for instability or hostility to the US such Middle Eastern countries, Nigeria, and Venezuela. Iran has acted to show its ability to threaten shipping through the Strait of Hormuz as recently as January 8, 2008 when a series of Revolutionary Guard speedboats made runs at US Navy ships. Venezuela recently threatened to stop exports over a law-suite involving Exxon. Nigeria has suffered from a great deal of unrest in recent years, and the punishing poverty may yet cause more problems in the future. While safe-and-reliable Canada has large petroleum reserves, they are largely trapped as deposits in sand and shale, making them expensive to extract. Furthermore, the Organization of Petroleum Exporting Countries (OPEC) retains the ability to ramp up production to ensure that it is not cost-effective to get too far into the development of tar sands  or bio-fuels refineries. This ability to reduce the short-term incentive to invest in dependency mitigation may be a major factor in the intractability of the energy security conundrum.

Finally, America is increasingly in stiff competition for the purchase of energy resources on the global market. Emerging nations such as China and India are moving toward the point where the middle class can consider owning a vehicle, and, with such large populations, relatively minor percentages of the population still amount to a large number of cars in absolute terms. This is in addition to the large energy-intensive manufacturing centers that are operating and growing in these nations.

So is energy security a dire threat to America’s continued prosperity?  This may depend largely on the incentives that are created through public policy. If lawmakers create incentives that encourage behavior that will hasten a shift away from a high degree of dependence on firms in nations where there will likely continue to be a high degree of animous toward America for the foreseeable future, then we could emerge relatively unscathed. However, failure to do so may result in some pretty awesome military expenditures to ensure a continued flow of energy as per the Carter Doctrine, and these expenditures will have a number of undesirable potential consequences. (e.g. Higher excess burdens of taxation, high interest rates resulting from increased demand for borrowing, and loss of productive capacity.) Except for the military-industrial complex, this high military burden results in a reduced standard of living for Americans because resources that could be put to making life even more comfortable and goods/services that we value highly must be increasingly be put into military capacity.

There is good news and bad news in terms of this incentives question. The good news is that creating incentives to increase energy security may have the side-effect of reducing air pollutants (and thus climate change effects) because the energy sources that we will be shifting away from are fossil fuels for which we have both security and environmental vulnerabilities. (This is unless, perhaps, we were to use dirty technologies to produce hydrogen for our new fuel cells.) 

The bad news is that creating these incentives is usually a hard sell. While many economists, both right- and left-leaning, favor an increased gas tax that would serve to make the price of gas account for the external costs of pollution and security vulnerability, this is an option that would not be touched by politicians of any stripe (at least not ones feasibly near the center to get elected) with a ten-foot pole. No matter who is elected in November, come next January, we will not see Pigovian taxes on energy on any politician’s agenda.