Low-Energy Fridays: Do we want energy independence or energy security?
President Donald J. Trump recently announced tariffs on imports, which will cover energy commodities like oil and gas to a certain extent. At a glance, this policy may appear to advance “energy independence,” an agenda Trump favored on the campaign trail—but it’s not quite so simple. Defenders of tariffs on energy would point out that they will reduce energy imports and that retaliatory tariffs will reduce demand for U.S. energy exports, thereby making the United States more “energy independent.” But the problem is that policies that seem to advance energy independence objectives can, ironically, make our energy access less secure.
A more careful analysis of the issue reveals an inherent tension between “energy independence” and “energy security,” terms that politicians often use interchangeably although they are not the same.
First, terms should be defined. Energy independence is the idea that the United States can supply all the energy it consumes. This is an attractive idea to national security hawks who don’t want global conflicts to threaten our energy supplies. Energy security, however, is about whether U.S. households have access to affordable energy, regardless of its source. The difference is that energy security focuses on what really matters (having enough energy to consume), while energy independence is about where the energy comes from rather than if there is enough to go around.
Energy security became a major policy issue during the 1970s, when foreign oil producers opposed to U.S. support of Israel implemented an embargo that led to scarcity. Gasoline prices roughly quadrupled, and gas was even rationed at some points. The high cost and lack of available energy during this period led to harsh economic consequences. Since then, policymakers have understood that energy security is essential to economic prosperity in the United States.
The aforementioned energy crises eventually ended when President Ronald Reagan lifted price controls for domestic oil production, which finally encouraged increased oil production. But this event is easy to misunderstand. Some may believe that the solution was about producing more oil domestically; in truth, it was about Americans gaining access to more oil. This potential conflation is problematic because the policies that advance energy independence can actually weaken our energy security.
A good example is the oil export ban, in place from 1975 until 2015. The idea was that preventing U.S. oil producers from selling abroad would bolster energy independence and strengthen energy security by leaving more U.S. oil for Americans to buy rather than exporting it. Instead, the policy diminished the incentives for domestic producers to expand production and ceded more of the global market to foreign, often state-owned, oil producers. Domestic energy production increased after the oil export ban was lifted because producers, finally able to sell to a wider market, had a profit motivation to increase production.
Whether politicians like it or not, energy is traded in a global market, and the United States alone represents 16 percent of global energy consumption. It is simply not possible today for the United States to be as large and prosperous as it is while insulating itself from the global energy market’s supply and demand effects. This is important, because even if the United States were entirely energy independent, it could be highly energy insecure if the policies that delivered that independence resulted in higher energy costs and greater scarcity for Americans.
This must be considered as the new administration imposes tariffs. While the United States is not as reliant on foreign energy sources as it has been in the past, it still imports considerable quantities of energy—especially particular grades of crude oil needed to operate refineries. Blanket tariffs can affect energy costs in several ways, such as higher costs for imported renewable energy components or higher costs to refiners, who must pay more for imported oil. Retaliatory tariffs also could weaken exports, as foreign customers shift to non-U.S. energy suppliers.
Although tariffs as a policy would improve energy independence by reducing energy exports and imports, the overall effect is to make the United States less energy secure by increasing prices and reducing access to energy. In this, we see that pursuing energy independence can harm energy security.
Of course, the energy security question is more complex. It matters a great deal who supplies what and how reliant the United States is on that supplier. There are also questions about policies that could reduce consumption or shift energy demand from sources that are scarce to ones that are abundant. But at its core, energy security is an issue of supply and demand—and the best tool to remedy scarcity is the free market, which signals to producers that it’s time to risk capital on increasing supply.
Energy security policy captures this dynamic in a way that energy independence policy does not, and Reagan’s lifting of price controls fits precisely within this mold. Tariffs and other interventions are the antithesis of a free market. While these policies may march us closer to energy independence, one has to ask how that helps if we lose energy security as a result.