Year-End Budget Deal Lifts Ban On American Oil Exports
ARI SHAPIRO, HOST:
All year, we've been talking about the effects of the huge drop in oil prices, and here's another one. Those low prices played a part in a major move by Congress this week, voting to end the 40-year-old ban on exporting American crude oil. It was tucked into the year-end budget deal. Republicans and President Obama call it a win. And to talk about the ban's history and what lifting it will mean, we're joined by Jason Bordoff. He's founding director of the Center on Global Energy Policy at Columbia University.
Welcome to the show.
JASON BORDOFF: Thank you for having me.
SHAPIRO: Why was this ban put into place in the 1970s, and why did it last so long?
BORDOFF: The ban was put in place 40 years ago after the oil scares of the 1970s to address both concerns about oil scarcity and also to prevent producers from bypassing U.S. price controls by selling oil for a higher price into the world market.
SHAPIRO: Just explain why preventing Americans from selling oil overseas would do that.
BORDOFF: Well, we had price controls put in put in place by President Nixon, and if you could sell your oil into the world market for a higher price, you could skirt those oil price controls. Price controls were eliminated a little over 30 years ago, but the export ban remained.
BORDOFF: Well, it remained largely because it didn't really matter. We were importing ever-increasing amounts of oil. So having a ban on the export of oil was a little bit like a law saying I can't play for the New York Knicks. It doesn't really have much of an impact.
BORDOFF: That all changed with the shale boom of the last couple of years. The U.S. increased oil production almost a hundred percent, we almost doubled it. It's important to be clear - we are still a very large net importer of oil. We will use more oil than we produce.
SHAPIRO: Well, if that's the case then why do we need to export oil? Why don't we just use everything we produce?
BORDOFF: So the concern, as we started to grow U.S. production very, very fast, was that the kind of oil that we were producing in the U.S. - a very light oil - was not well-suited for the kind of refineries we have in the U.S. We had spent a long time and a lot of money investing refineries to process very heavy oil from places like Venezuela and Canada and elsewhere. So the concern was that there was a mismatch, a disconnect, and that would cause the U.S. price of oil to be a little bit depressed relative to the world price, and that would slow down U.S. production and make the system a bit less efficient.
SHAPIRO: Now that the ban is being lifted, does this mean that American oil exports are suddenly going to boom?
BORDOFF: It does not, in part because of what you said at the opening, which is that the price of oil has fallen dramatically. So we were having a surge in U.S. oil production. U.S. oil production is actually falling now. So the concern, when this all started two years ago, that the U.S. system was going to suddenly struggle to take more and more light oil production is a bit less acute now. We will export some oil - it'll just make sense for the market to send maybe a certain type of oil to Mexico and import another kind of oil here. But the big impact of lifting this, aside from potential geopolitical and trade credibility, arguments in support of free trade, is as the price globally recovers and as U.S. production starts to rebound, the change in this policy will make it easier for U.S. production to recover along with that increase in the world price.
SHAPIRO: This move comes just after nearly 200 countries agreed to limit fossil fuel usage and reduce carbon. How do you square these two things?
BORDOFF: Well, it's critically important what happened in Paris, and that's why I would say what's as important if not more important than the lifting of the 40-year-old export ban was what it was paired with, which was a significant multiyear extension of support for wind and solar energy. That's really important because it's going to allow solar to keep growing at a rapid clip, put the U.S. in a much better position when our Paris commitments are updated with the rest of the world in five years.
SHAPIRO: Will this make much of a difference in a typical American's life?
BORDOFF: Not in the near to medium term. There is no restriction, oddly, on the global trade of gasoline. The U.S. has gone from the largest importer of refined petroleum to the largest exporter in just the last decade. So the price you pay at the pump is set by the world price, and so even when U.S. oil prices are discounted, consumers don't see that benefit. So U.S. oil exports won't increase gasoline prices in the long term. They may slightly lower them if they do lead to larger U.S. production than would otherwise be the case.
SHAPIRO: Jason Bordoff runs the Center on Global Energy Policy at Columbia University. Thanks for the explainer.
BORDOFF: Thank you for having me.
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