The People of America's Oil and Natural Gas Indusry

Fossil Fuels or Alternatives?

Jane Van Ryan

Jane Van Ryan
Posted December 20, 2010

For the past couple of years, U.S. policymakers have been debating two different ways of addressing this country's energy needs. Some politicians believe the United States should embrace the development of alternative energy resources, including wind, solar and biofuels. Others say America should focus on domestic fossil fuels because alternative energy sources are not as affordable or efficient as coal, oil and natural gas.

Which approach is the best course of action?

Marc D. Weidenmier of the American Enterprise Institute for Public Policy Research examines this question in a new study. He asserts that the recent clamor for alternative energy has been driven by record-setting crude oil prices in the summer of 2008, and he analyzes the impact of oil price spikes on the U.S. economy. Weidenmier's empirical results show:

  • Increases in oil prices have frustrated consumers and led to call for U.S. "energy independence";
  • One of the best ways to combat rising oil prices is expanding domestic fossil-fuel production; and
  • Increasing domestic fossil-fuel production can reduce unemployment and create jobs--and help steer the United States out of the recession.
  • Overall, "increasing domestic fossil-fuel production - transforming non-energy producing states into energy-producing states - would be beneficial."

Weidenmeir says his study has several implications for policymakers. It shows that "expanding oil exploration and drilling on public lands and offshore (in the Atlantic and Pacific oceans) is likely to create jobs and help offset the negative effects of oil price shocks."

Furthermore, he says his analysis shows it is difficult to determine the benefits of increasing alternative-energy production on a macro-economic scale because they account for such a small fraction of total energy consumption. He concludes that "alternative sources of energy are unlikely to be important in the near future because they are often inefficient and must be heavily subsidized. This means that expanding fossil-fuel production is an essential component of a broad energy policy that will help reduce the United States' reliance on imported oil and help the U.S. economy emerge from the Great Recession."