In a showdown between oil companies and refineries, consumers and environmentalists might wish they could both lose. But as Washington considers a major change in US energy policy that has divided the fossil fuel industry, it’s the oil companies who have a better argument. The current ban on exporting oil has done pretty much nothing to help everyday consumers, but it has enriched refineries. There is no longer a convincing justification for this outdated policy.
Since the 1970s, federal law has prohibited oil companies from exporting most oil drilled in the United States, a ban that was supposed to promote energy independence. It didn’t. Instead, the ban’s impact has been to create two markets for oil: one in the United States, and one in the rest of the world. Typically, the price of crude oil in the United States is a bit lower than the world price. Refineries that buy the oil at the lower price to turn into gas, though, don’t pass on the savings: a recent government study confirmed that the price of gasoline American consumers pay follows the world price, not the domestic price, since there’s no ban on exporting refined products.
The main support for keeping the ban comes from some refineries like Valero, who’ve enjoyed a windfall from artificially low prices, and their workers, who see the ban as a jobs-protection measure. Oil companies counter that they create jobs too, and that lifting the ban would help them create more. They’ve never liked the ban, but rarely complained when the spread between the US and world price was small. Since 2010, though, with American production surging, the difference has at times exceeded $10 a barrel.
For businesses on both sides of the fight, the fate of the export ban is simply a matter of profit. The deciding factors for the Obama administration and Congress should be the enviromental and consumer impacts. On the consumer side, there’s already evidence to suggest little would happen; in 1996, President Clinton relaxed the export ban on some types of Alaska oil, and it had no impact on consumer prices. A recent GAO report found that the impact of lifting the entire ban might be mixed, with some regional variation. The Northeast, for instance, could see higher gasoline prices. On the whole, though, because lifting the American ban would probably slightly reduce the world price of oil, and because gas prices follow the world price, lifting the ban could push prices down.
Environmentally, lifting the ban could make it more profitable to drill in the United States and thus, according to the GAO, may increase greenhouse gas emissions. But it would also make it less profitable to drill elsewhere, and could reduce crude oil production in other parts of the world. From a climate perspective, if more barrels of American light crude oil on the market displaced dirtier Venezuelan crude or Canadian tar sands oil, the net impact could be positive.
With no clear-cut consumer or environmental case supporting the ban, its main defender, Massachusetts Senator Ed Markey, instead cites its initial purpose: to encourage energy independence. Just like 40 years ago, the United States still imports some types of oil, and will continue to do so for the foreseeable future. Markey is right that that’s a problem — but nearly four decades of experience show that the crude oil export ban won’t solve it. The goal of American policy should be to reduce demand for oil — for instance, through a carbon tax — rather than tinker with the supply. The current policy takes from Big Oil and gives to refineries, but serves no public purpose.