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Offshore Drilling Vs. Fuel Efficiency Standards

Samuel Staley
April 3, 2010, 9:08am

This week saw two apparently contradictory moves by the Obama Administration. The first was the much criticized (by the environmental community) decision to allow for offshore drilling off the Atlantic seaboard. The idea was to reduce America's dependence on foreign oil. The other was the imposition of significantly higher fuel economy standards in order to, you guessed it, wean America off oil!

The paradox can be resolved, however, if one sees both moves as a reflection of the Obama Administration intent to micromanage the economy using a focused and targeted industrial policy. Drilling is okay, if the White House sees that it fits into a national policy goal. It's not okay if all it does is satisfy consumer needs. Similarly, high fuel economy standards serve the larger policy goals of 1) reducing green house gas emissions and 2) moving the economy away from traditional technologies and toward "green" technologies.

Indeed, this general industrial policy motive is implicit in statement from the National Highway Traffic Safety Board (NHTSB) announcing the stricter fuel economy stanards:

"This action is one important step in fulfilling the Obama Administration’s commitment to moving towards a clean energy, climate friendly economy."

In short, the White House is consciously using its energy policy to shape and direct major industries, setting their priorities and defining their objectives. The task of major industries is to figure out the most efficient way to meet national political priorities, like reducing greenhouse gas emissions. We have, in energy policy, the clearest and most well defined approach to industrial policy the U.S. has seen since the presidencies of FDR or Woodrow Wilson.

Again, from the NHTSB press release on fuel standards:

"This is a significant step towards cleaner air and energy efficiency, and an important example of how our economic and environmental priorities go hand-in-hand," said EPA Administrator Lisa P. Jackson.  "By working together with industry and capitalizing on our capacity for innovation, we've developed a clean cars program that is a win for automakers and drivers, a win for innovators and entrepreneurs, and a win for our planet."    

DOT and EPA received more than 130,000 public comments on the September 2009 proposed rules, with overwhelming support for the strong national policy. Manufacturers will be able to build a single, light-duty national fleet that satisfies all federal requirements as well as the standards of California and other states. The collaboration of federal agencies also allows for clearer rules for all automakers, instead of three standards (DOT, EPA, and a state standard).

Consumer welfare is not really a driving force of public policy at the national level. In fact, economic welfare is not really much of a priority. In essence, all aspects of the American economy are becoming politicized and subject to goals established by political leaders. This, after all, is the essence of the progressive political philosophy that argues for putting "collective" goals--as expressed in national elections--ahead of private interests (which respond to individuals in the market place).


Samuel Staley is Research Fellow


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