Energy independence and global warming.

• Author: Pierce, Jr., Richard J.

Policy making is often bedeviled by disconnects between public perceptions and reality. This problem is particularly acute today in the context of two public policy issues of central interest to readers of this journal: energy independence and global warming.

1. ENERGY INDEPENDENCE

   Every President from Richard Nixon through George W. Bush has urged the nation to achieve energy independence. (1) The United States has spent scores of billions of dollars pursuing various versions of "project independence," with no reduction in U.S. dependence on imported oil. (2) U.S. dependence on imported oil has increased steadily through each of the last eight administrations. (3) The pursuit of energy independence is one of the few national goals that attracts near unanimous support from politicians of both parties, as well as from virtually all journalists and members of the public. (4) Yet, I know of no expert on energy policy who thinks that pursuit of energy independence makes any more sense than pursuit of automobile independence, tomato independence, or underwear independence.

   Last summer, a Wall Street Journal reporter asked half a dozen energy experts of widely varying political stripes to give their views on energy independence. (5) The views expressed ranged from "crazy" to "rhetorical nonsense" to "bumper sticker" politics. (6) I want to add my voice to that chorus. If we actually were to attain energy independence, it would come at a cost of several trillion dollars per year in reduced Gross Domestic Product (GDP), and we would obtain little or no benefit from such a suicidal effort.

   Many people believe energy independence would have favorable effects on our ability to implement a sound foreign policy and on the likelihood that we will have to use military force. That belief is based on a serious misunderstanding of the relationship between energy and foreign policy. To illustrate the point, consider that we are extremely concerned about Iran today even though we have not imported one drop of oil from Iran in over fifteen years. (7) There are links between energy and foreign policy, but they are largely unrelated to U.S. dependence on imported oil. All fuels are traded on global markets. If the global supply of oil declines, the price of oil and other fuels will increase, and the U.S. economy will be adversely affected. That is true, however, whether the reduction in supply has any effect on sources of U.S. oil imports or has effects instead on sources of oil imports to Japan or Europe. It is also true whether the reduction in global oil supply occurs as a result of the latest upheaval in the middle east, civil disturbances in Nigeria, incompetence in Venezuela, pipeline corrosion in Alaska, or a hurricane in the Gull of Mexico.

2. GLOBAL WARMING

   While I would like to hear a lot less talk about energy independence, I would like to hear a lot more talk about global warming. Specifically, I would like to hear more meaningful discussion about what, if anything, we can, and should, do about global warming. There continues to be lively debate among politicians and in the general press about whether the anthropogenic global warming hypothesis is true, but little serious discussion of what the United States should do if it is true. I now rate the probability that the anthropogenic global warming hypothesis is true at around 90%--much higher than the probability I would have assigned it at the time of Kyoto. It is time to shift most of the public debate from whether anthropogenic global warming is real to what we should do about it.

   Let me begin this discussion with a few estimates of the economic effects of global warming by two Yale economists. Robert Mendelsohn estimates that global warming will reduce annual output in North America by only 0.3%, an amount so small that it would justify only modest efforts to address the problem. (8) His colleague, William Nordhaus, estimates global warming will reduce annual global output by 3%--a staggering economic effect that would justify an aggressive and costly response. (9)

   When you disaggregate the estimates of Nordhaus and Mendelsohn geographically, you begin to recognize the difficulty of choosing an appropriate response even if you accept Nordhaus's estimate of the devastating effects of global warming on the global economy. Both Mendelsohn and Nordhaus predict that some regions and countries will lose and others will gain as a result of global warming. (10) For instance, both predict that India and Africa will be major losers, while Russia will gain as a result of global warming. (11)

   The details of the determinants of the economic effects of global warming are complicated, but some of the most important determinants are easy to understand. For example, India is a very hot, heavily agriculture-dependent country in which the level of agricultural production depends largely on the strength of the annual monsoon. (12) India's economy would be devastated by reductions in agricultural output attributable to temperature increases and changes in the pattern and strength of the annual monsoon. (13) By contrast, Russia is very cold. Its...