TABLE 6-7 U.S. Oil Dependence

 

1990

2000

2007

2030

Net oil imports as percentage of total U.S. Supply

42.2

52.9

58.2

55.5

World oil price (2007 $/BBL)

38

35

72

60

World crude production (million BBD)

65.5

74.9

81.5

102.9

OPEC share (percentage)

38.3

42.9

43.2

46.4

U.S. petroleum consumption (million BBD)

17

19.7

20.7

22.8

U.S. share of world production (percentage)

26.0

26.3

25.4

22.2

Oil intensity (1,000 Btu/GDP) $2000

4.7

3.9

3.4

2.2

Oil intensity (value of oil as a percentage of GDP)

2.6

2.0

3.6

1.9

ABBREVIATIONS: BBL = billion barrels, BBD = barrels per day, Btu = British thermal units; GDP = gross domestic product.

SOURCES: BP 2008; EIA 2008a,b,g.

economy continues to decline. Oil intensity (measured as 1,000 British thermal units of oil consumption per dollar of gross domestic product [GDP]) has fallen by over one-quarter since 1990 and is projected to fall an additional one-third by 2030. Rising oil prices, however, offset the declining physical intensity; thus, the value of oil consumption in GDP is projected to remain at about 2% (although down from its anomalous level of 3.6% in 2007 and the sharp run-up in prices that year).

The importance of oil in the U.S. economy has given rise to a large amount of literature measuring the external costs of oil consumption.13 Parry and Darmstadter (2003), for example, attempt to quantify the marginal external cost of petroleum consumption, defined as “the difference between the costs to the U.S. economy as a whole and that to individuals or firms from additional oil consumption. Marginal external costs, expressed in $/BBL [barrels], are referred to as the oil premium” (p. 11).

In this section, we consider three questions:

  • What is the oil premium?

  • Is the oil premium an externality?

  • How does the oil premium relate to the optimal tax on oil consumption or imports?

What Is the Oil Premium?

As the quotation from Parry and Darmstadter (2003) above indicates, the oil premium is a measure of the difference between the private and so-

13

See, for example, Bohi and Toman (1993, 1995); Greene and Leiby (2006); Leiby (2007); Greene (2009).



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