06. February 2005 · Comments Off on Conservation As A Foreign Policy Tool · Categories: Politics, World

Arnold Kling comments in this TCS article on the falicy of attempting to cut back on oil consumption to effect the politics of nations such as Saudi Arabia:

Energy conservation sounds like a painless way to lower the Saudis’ income. Who could be against conservation?

The point to keep in mind is that any oil conservation program will do two things. First, it will reduce our ratio of oil consumption to Gross Domestic Product (GDP, the total value of goods and services produced each year). Second, oil conservation will reduce GDP. The reason it will reduce GDP is that we will have to substitute other factors of production, including labor, capital, and more costly forms of energy, in order to conserve on oil.

I have received emails suggesting that the United States should aim for a 10 percent reduction in its energy consumption, because this would cause a significant drop in the price of oil. But how much would this reduce our GDP? Perhaps by as much as 10 percent. Even if it only were to reduce our GDP by 5 percent, that would be $500 billion. If your goal is to change the foreign policy of Saudi Arabia, my guess is that there are ways of doing so that would cost less than $500 billion.

The reality is that energy conservation is a feeble tool for foreign policy. Significant conservation could be very costly to our own country. It might have only a small effect on Saudi oil revenue. It is not at all clear that a drop in Saudi oil revenue would bring about favorable changes in their policies toward terrorism

Read the whole thing. The politico-economics of oil is a very complex matter. I might also add to Kling’s excellent work that it’s falicy to increase domestic oil production (perticularly if subsidies are involved) to reduce “dependence” on foreign oil. If we are going to be using up the world’s oil reserves, doesn’t it make more sense to be using up their’s than our’s?

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