A new study commissioned by Securing America’s Future Energy indicates that reducing our national dependence on oil can help reduce the budget deficit and spur economic growth.
The study entitled “Oil and the Debt” examined the potential economic impact of reducing America’s dependence on oil by 50 percent through the adoption of alternative fuel vehicles and enacting tougher fuel-economy standards.
Keybridge Research LLC, the research firm commissioned for the study, estimates that reducing consumption by 50 percent would lead to a at least a 0.5% improvement in the national gross domestic product by 2040, which translates to about $148 billion.
Consumers would ultimately pay higher prices for electric vehicles and natural gas. The rise in natural gas prices, created by the reduction in oil consumption, would lead to higher inflation rates which would “drive down the real value of debt.” This is the same principle argued by those who propose taxing carbon emissions.
The study also found that changing the overall vehicle mix would lead to higher efficiency which would ultimately allow consumers to recoup their money in the long run.
Keybridge Research’s president, and the study’s lead author Robert Wescott says, “To the extent you can reduce a barrel of oil and still get that truck down the road, it’s an overall cheaper cost to the economy.”
In addition to looking forward, the study also examined the impact of rising fuel prices on the federal budget over the past 20 years. It found that the current U.S. economy would be one percent larger if oil prices had not quadrupled between 2002 and 2012. The result, according to the study, would be higher tax receipts and an additional 1.3 million jobs. Consequently, the federal government would be spending less on unemployment and food stamps programs. The study estimates that the net effect would be a reduction of $225 billion in the national debt.
University of California at San Diego economist James Hamilton says that the economic impact of the nation’s dependence on oil includes military spending to protect the flow of foreign oil, particularly from Middle Eastern producers.
Despite the fact that the U.S. has increased its domestic oil production in recent years, prices have remained high because they are set globally.