“Reckoned in terms of present value using a discount rate of 4.5%, the costs of U.S. oil dependence since 1970 are $8 trillion, with a reasonable range of uncertainty of $5 to $13 trillion.” That is from the report-summary of Costs of U.S. Oil Dependence: 2005 Update [PDF], by Oak Ridge Laboratories. The report is stuffed with useful data, analysis and observations. I found this analysis of the report by economist Menzie Chinn to be a useful guide to key issues.
The graphic at upper left is Figure 27 from the report, which shows the aggregate cost of energy imports in 2005 to be about US$250 billion [constant 2000 US$].
I found this report looking for hard data on supply and demand elasticity. Anecdotal observation is that the current gasoline price spike has had little short-run impact on consumer demand, so I’ve wondered what is the real long-term demand elasticity? Here are some of Chinn’s comments:
What I found most interesting is the relatively high (at least compared to what some people think) long run price elasticities of oil demand, combined with relatively low long run supply elasticities (the typically cited figure is slightly lower than the average here, 0.3, which is close to the EIA figure). This suggests to me that there is considerable scope for reducing demand via taxes, while attempting to increase domestic supply by way of subsidies would be more difficult…
Technorati Tags: Energy Dependence, Oil Price Elasticity
0 Responses to “The total costs of energy dependence”