The Case For Lifting the Oil Export Ban Is Stronger Than Ever
At long last, lawmakers finally lifted the 40-year-old ban on crude oil exports, a measure implemented during the 1970s oil embargo by Arab OPEC states in order to keep energy prices down in the United States. The embargo was lifted, but America’s oil export ban was not. When oil producers are not allowed to sell their product where it is most valued, well-paying extraction jobs are lost and economic inefficiency is the result.
In April, I wrote that the case for lifting the oil export ban was strong. Today, it is even stronger. Crude oil prices are lower than anytime since 2009, and have not been so consistently low since 2005. The price of oil has fallen by nearly two-thirds since mid-2014, and now hovers around $37 per barrel. Such low prices were unimaginable last December, when oil was about $60 a barrel, and in December 2013, when oil was over $100 per barrel.
Low prices provide a cushion should oil prices rise following the repeal of the oil export ban. More importantly, they show that the domestic economy cannot absorb all the oil produced in America—indeed, some oil producers have cut back on production. The economic signals are screaming that domestic drillers require new, international markets for their product.
Opponents of lifting the oil export ban claim it will hurt American refineries. This argument is misguided. A substantial chunk of new U.S. oil production consists of light crude from the Bakken Shale, which is different from the heavy Canadian crude American refineries usually process. Foreign refineries are better suited to handle light crude, so allowing exports would mean American refineries could focus on the heavier stuff, leading to gains in economic efficiency.
Another objection is that lifting the export ban would raise the price of gasoline. Why hurt American consumers, the argument goes, by ending the era of low gas prices? But this is also wrong—America does not have an export ban on refined petroleum products such as gasoline, so American gas prices are roughly in line with other countries after accounting for taxes and transport costs. Prices are set in world markets. In fact, allowing American crude oil onto the international market might even lower gas prices by increasing the supply of crude oil.
What about climate change? According to a report by Jason Bordoff and Trevor Houser, allowing exports of US oil could increase carbon emissions by up to 168 million metric tons. If lighter US crude oil displaces more emissions-intensive foreign stuff, the change could be far less or even negative. But even under the worst-case scenario, the emissions would impose an annual cost of just $7.2 billion on the economy, using the EPA’s social cost of carbon estimates. Meanwhile, lifting the ban would boost GDP by a minimum of $9 billion, and possibly by up to $172 billion. Even under the assumptions most favorable to environmentalist skeptics, lifting the oil export ban is a net positive for society.
Additionally, some argue that lifting the oil export ban would give America geopolitical advantages, by reducing the dependence of our European allies on energy from Russia and the Middle East. A stronger economy could go hand in hand with a stronger foreign policy.
Unfortunately, the political price for repealing the oil export ban is high. Lawmakers skeptical of lifting the ban won extensions of renewable energy tax credits and tax incentives for Northeastern refiners in exchange for their votes. The renewables credits double down on an expensive program that subsidizes unreliable energy, while the refinery incentives add yet another layer of complexity to the bloated tax code.
Still, America’s energy sector—and Americans generally—can rejoice that a relic of the 1970s is finally going out the window. Lifting the oil export ban will boost the economy with a minimal effect on gas prices or the environment. Keeping the ban around is nothing less than economic self-flagellation. It must end.
Preston Cooper is a Policy Analyst at Economics21. You can follow him on Twitter here.
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