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Addicted to what?

By James K. Glassman
web posted February 6, 2006

The first part of last Tuesday's State of the Union -- on national security -- was tough, clear, principled, well reasoned. The second part was a laundry list, reminiscent of the worst of Bill Clinton. I was nodding off when I heard the President Bush say, "America is addicted to oil."

George W. Bush delivers his State of the Union addressAddicted to oil! That woke me up.

America is no more addicted to oil than it is addicted to bread, to milk, to paper, to water, to computers or, in the immortal words of the late Robert Palmer, to love.

We use oil -- and other unmentioned but implied addictions like coal and natural gas -- to generate energy that powers our cars, heats our homes, lights our cities, runs our factories. By the standard of what they do for us, fossil fuels are pretty cheap. They provide enormous industrial leverage. But, at least in the short term, they are getting more expensive -- in part because demand is rising (mainly in other nations, like China and India, that want to have standards of living like ours) and in part because supply isn't keeping up.

Rather than concentrating on what the U.S. can do now to increase supply, the President instead decided to use a word that is straight out of the radical environmentalists' dictionary: "addicted." The implication is that our desire to use oil is something that is not just uncontrollable but also shameful. The message is that we must kick this disgusting habit.

Coming from President Bush, who spent most of his non-political adult career in the oil business -- Arbusto, Spectrum 7, Harken -- the word "addicted" is baffling. If Americans are addicts, then, to follow the metaphor, Bush himself was a drug dealer, a pusher, a kingpin.

But maybe I should cut Bush a break. It's just rhetoric, right?

In this case, no. The use of the word "addicted" is dangerous. It could end up hiking prices by reducing supply.

How? Bush has signaled a new attitude from the White House. If this president can't defend the working of our almost-free market, then who will? If I were in the oil business myself, I would be extremely worried by this speech. One of my responses would be to hold back on planned research and development and capital spending. The three largest U.S. energy companies alone are projected to make capital expenditures of $43 billion this year, up from $33 billion in 2005. But does that make sense if Washington is considering windfall profits taxes, subsidies to alternative fuels and regulatory policies whose guiding principle is that fossil fuels are evil?

Instead of concentrating on increasing fossil-fuel supplies at home, the President used all of the energy section of his speech -- four paragraphs -- talking about such exotica as "revolutionary solar and wind technologies," "producing ethanol, not just from corn, but from wood chips and stalks, or switch grass," and "pollution-free cars that run on hydrogen." Of course, since these alternatives have no commercial viability, the government will have to subsidize them. The latest Carteresque concoction, announced in the speech: the "Advanced Energy Initiative."

Don't get me wrong. Alternatives are fine. No doubt they will substitute for current energy sources some day, when they become competitive on price -- without subsidies. But, as of 2004, wind, solar and geothermal accounted for less than one percent of energy consumption. Add hydroelectric and biomass (including ethanol) and you pick up another five or six percentage points. That's all. For there here and now, the best way to battle higher prices is to promote policies to boost supply.

There was no mention by the President, for example, of the importance of building new LNG terminals, which will allow the U.S. to import natural gas. This lack of terminals would have almost certainly been the source of blackouts if the winter had not been so mild. Bush might have talked about supporting legislation -- tied up by his former HUD secretary, Sen. Mel Martinez (R-Fla) -- that would share oil-leasing revenues with states, thus discouraging them from blocking offshore drilling. He could have talked about making it easier to explore at home, in Alaska, the Rocky Mountains and vast federal lands now off limits. He could have supported less burdensome regulations on building or expanding refineries.

And the President might have been straight with his audience instead of pandering with terms like "our dependence on Middle Eastern oil." The truth is that the United States will never become energy independent. Even if we were, disruptions in the Middle East (or Venezuela or Nigeria) would still boost the price of oil -- which is a global price since energy is a global commodity.

Also, it may surprise Americans to learn that, according to the most recent import statistics from the Department of Energy, the biggest petroleum exporter to the United States is Canada (at 70 million barrels in November 2005 vs. 41 million for Saudi Arabia, in a distant third place). Second is Mexico. Persian Gulf (including Saudi) oil amounted to about one-sixth of our imports and one-tenth of our total petroleum use last November.

The sad truth is that some of the big oil companies are themselves responsible for creating an environment where an oilman president can call the use of oil an addiction. In their advertising, they talk high-mindedly about "alternatives" to fossil fuels, as if they were on a moral crusade to replace the nasty stuff they make now. Why aren't they proud to say that, more and more efficiently, they are producing energy that makes people's lives better?

I suspect that some of these companies are simply being disingenuous. They're paying lip service to the chattering classes. So now is the President of the United States. The consequences could be dire.

James K. Glassman is a resident fellow at the American Enterprise Institute, a Washington public policy think tank, where he specializes in issues involving economics, technology and financial markets. He is also host of TCSDaily.com and Chairman of Investors Action, a new advocacy organization for America's small investors.

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