February 1, 2010

How Myths Distort Energy Policy

Thomas Tanton

Congress and various states are considering a fundamental restructuring and regulation of our energy policy. Any such effort should be based on facts, but legislators, unfortunately, incline to myths, such as the notion that most of our energy comes from oil.

Myth: Foreign Oil Provides Most of Our Energy

According to the U.S. Department of Energy and the Energy Information Administration, oil represents less than 40% of our energy use. A full two-thirds of that oil comes from North America, primarily Canada, not the Middle East. According to another prevailing myth, alternative energy sources will reduce the use of petroleum. Such sources may first reduce domestic production, but they will not affect production in unstable regions. Renewable technologies are subject to import and price security concerns as well.

Myth: Renewables Will Replace Conventional Energy Sources

A correlated and persistent myth is that increasing wind- and solar-generated electricity will reduce our dependence on foreign oil and thus boost our energy security. Less than 1% of our electricity is generated using petroleum, so any renewable generation will have no appreciable effect on petroleum demand. Activists and regulators believe that energy companies will not invest in clean reliable energy, so we need government programs to do so. This ignores the reality that energy companies are investing huge sums of money to develop cleaner and more reliable sources of energy.

The U.S. faces a 19% increase in energy demand over the next two decades. To meet that demand, U.S.-based oil and gas companies from 2000 to 2007 invested an estimated $121.3 billion on emerging energy technologies in the North American market. This expenditure represents 68% of the estimated total of $180 billion spent by U.S.-based companies. Renewable energy sources, however, will not soon replace most conventional energy sources. Despite considerable publicity on their behalf, renewables will remain a small fraction of our energy mix for the foreseeable future.