Commentary—

How We Can Achieve Energy Independence

By Peter D’Amico

We will never be energy independent; we will continue to need significant amount of energy for our daily activities and for economic growth. 

What we should be discussing though are ways to generate enough domestic energy supplies so that we can be independent of foreign energy sources.  This can only be achieved by embarking on a comprehensive program that includes: conservation; efficiency improvements; drilling on proven domestic locations; exploration of new sources of oil and gas in the USA; developing and commercializing alternative sources of energy.

The first two points are necessary to reduce the demand for energy consumed by every American.  The next two points are necessary to increase the domestic supply of oil and natural gas. The premise is that the law of supply and demand works.  (We know that it works).  Therefore, if we can increase the domestic supply and reduce the demand, the price of energy will be significantly reduced. 

The problem though is that low prices for energy lead to waste and reduce the motivation to find and develop new resources.  We have already experienced this paradigm.  In the 70s, we went through an energy crisis during which alternative sources were trumpeted only to fall upon deaf ears when supplies of oil increased and prices fell.  Let’s not repeat these same mistakes.

Given this backdrop I put forward the following premise:

We need to keep the price of energy high enough to stimulate conservation and improve efficiencies to reduce demand while offering incentives to generate additional domestic supplies  These supplies also need to include energy from alternative sources such as wind, solar and nuclear. 

How can this be accomplished without creating a financial hardship for the consumer?

First, let me put forward two assertions. Individuals are motivated by personal economics. Individuals can make better spending decisions with their money than the  government.

My idea is as follows:

Place a $75/barrel tax on all imported oil products. Based on the fact that we import about 13 million barrels per day (by the way, according to the US Department of Energy, that amount has more than doubled in 20 years) the federal government would receive additional revenue of about $355 billion. This import tax will effectively increase the price of gas at the pump by $1.20 to $1.50 per gallon.

 The government, in turn, would rebate this additional revenue back to the population in two ways. Workers would not pay FICA taxes on the first $15,000 of annual wages, an amount equal to about $1,200 per worker. In total, this approximates $175 billon/year. The remaining $180 billion would be passed on to the individual states based on population and other criteria.  In turn, the states can reduce sales taxes, highway taxes on trucks, fund programs to assist the poor with energy costs, etc.  The states can develop targeted programs better than the federal government.

This program should be revenue neutral for both the government and the individual.  What it will do is empower individuals on how they spend the additional cash they receive in their paychecks. For example:

A) Mr X can be “energy irresponsible,” i.e.  not change his habits and spend the additional cash he receives from the reduced FICA taxes  ($1,200 per year) on the higher gas prices.  (800-1,000 gals/year x $1.20 - $1.50/gal additional cost)

B) Ms Y can replace her existing car with a more energy efficient model which  reduces the amount of gas consumed to offset the cost of the higher priced fuel.

C) Mr Z can receive cash from the state which he spends to better insulate his house thus reducing the amount of oil required to heat it and reducing the electricity needed to cool it.

Maintaining “high” prices for oil and gas products via an import tax will stimulate conservation while providing economic incentives to increase domestic energy sources that also include environmentally friendly alternatives. This can be accomplished without additional economic inconvenience to the average American by providing him/her tax relief which he/she can spend more effectively

Given the economic incentive, Americans will find a way to reduce the amount of energy needed for their daily activities.  The implementation can be done quickly without a new bureaucracy and could be modified each year as the quantity and prices of imported oil and oil products change.

(Peter D’Amico is CEO and president of Bulk Materials International Co. headquartered in Newtown. He is actively involved with the development of the Newtown Youth Academy.)