Full Title: Consequences of U.S. Dependence on Foreign Oil
Author(s): Stephen P.A. Brown and Ryan T. Kennelly
Publisher(s): National Energy Policy Institute
Publication Date: 4/2013

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Description:

We examine the consequences of U.S. dependence on foreign oil. We use an encompassing approach that includes many ideas about the costs arising from U.S. dependence on foreign oil, but we identify which ideas have broad support in the economics literature and which ideas have limited support.  Consistent with our approach, we quantify the costs of U.S. dependence on foreign oil using a relatively broad metric that is based in a long‐standing economics literature and a relatively narrow metric that is confined to oil‐security externalities as defined by Brown and Huntington (2013). We estimate these costs from 2010 through 2035 by taking into account projected world oil market conditions, the exercise of market power, probable oil supply disruptions, the market response to oil supply disruptions, and the resulting U.S. economic losses.

A considerable body of previous work addresses the non‐environmental costs of U.S. oil dependence—taking the approach that these costs exceed the market price paid for the oil. The literature is wide ranging. It includes arguments from a number of different perspectives within economics and at least a few from outside economics. Most of the literature distinguishes between the costs associated with dependence on imported oil and domestically produced oil, but only quantifies the differential in costs between the consumption of imported and domestically produced oil.

In sorting through this wide‐ranging literature, we take the perspective of economists who seek to quantify any non‐environmental costs of U.S. dependence on oil that are in excess of the market price paid for oil. In doing so, we calculate three different types of oil premiums.