Costs of U.S. Oil Dependence: 2005 Update

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For thirty years, dependence on oil has been a significant problem for the United States. Oil dependence is not simply a matter of how much oil we import. It is a syndrome, a combination of the vulnerability of the U.S. economy to higher oil prices and oil price shocks and a concentration of world oil supplies in a small group of oil producing states that are willing and able to use their market power to influence world oil prices. Although there are vitally important political and military dimensions to the oil dependence problem, this report focuses on its direct economic ... continued below

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Greene, D.L. March 8, 2005.

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Description

For thirty years, dependence on oil has been a significant problem for the United States. Oil dependence is not simply a matter of how much oil we import. It is a syndrome, a combination of the vulnerability of the U.S. economy to higher oil prices and oil price shocks and a concentration of world oil supplies in a small group of oil producing states that are willing and able to use their market power to influence world oil prices. Although there are vitally important political and military dimensions to the oil dependence problem, this report focuses on its direct economic costs. These costs are the transfer of wealth from the United States to oil producing countries, the loss of economic potential due to oil prices elevated above competitive market levels, and disruption costs caused by sudden and large oil price movements. Several enhancements have been made to methods used in past studies to estimate these costs, and estimates of key parameters have been updated based on the most recent literature. It is estimated that oil dependence has cost the U.S. economy $3.6 trillion (constant 2000 dollars) since 1970, with the bulk of the losses occurring between 1979 and 1986. However, if oil prices in 2005 average $35-$45/bbl, as recently predicted by the U.S. Energy Information Administration, oil dependence costs in 2005 will be in the range of $150-$250 billion. Costs are relatively evenly divided between the three components. A sensitivity analysis reflecting uncertainty about all the key parameters required to estimate oil dependence costs suggests that a reasonable range of uncertainty for the total costs of U.S. oil dependence over the past 30 years is $2-$6 trillion (constant 2000 dollars). 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.

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  • Report No.: ORNL/TM-2005/45
  • Grant Number: DE-AC05-00OR22725
  • DOI: 10.2172/886002 | External Link
  • Office of Scientific & Technical Information Report Number: 886002
  • Archival Resource Key: ark:/67531/metadc891773

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Office of Scientific & Technical Information Technical Reports

Reports, articles and other documents harvested from the Office of Scientific and Technical Information.

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  • March 8, 2005

Added to The UNT Digital Library

  • Sept. 23, 2016, 2:42 p.m.

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  • Nov. 23, 2016, 11:58 a.m.

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Greene, D.L. Costs of U.S. Oil Dependence: 2005 Update, report, March 8, 2005; [Tennessee]. (digital.library.unt.edu/ark:/67531/metadc891773/: accessed November 21, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.