Energy Security in the United States

Abstract

Energy use is pervasive throughout the U.S. economy. Households and businesses use energy from oil, natural gas, coal, nuclear power, and renewable sources (such as wind and the sun) to generate electricity, provide transportation, and heat and cool buildings. In 2010, energy consumption represented 8.4 percent of U.S. gross domestic product. Disruptions in the supply of commodities used to produce energy tend to raise energy prices, imposing an increased burden on U.S. households and businesses. Disruptions can also reduce the nation’s economic output and thus people’s income. This paper examines energy security in the United States—that is, the ability of U.S. households and businesses to accommodate disruptions of supply in energy markets—and actions that the government could take to reduce the effects of such disruptions. The vulnerability of the U.S. economy to disruptions in the supply of a particular energy source depends on the importance of that energy source to the economy. More than 80 percent of the energy consumed in the United States comes from oil, natural gas, or coal. For each source, several factors determine how vulnerable the nation is to a disruption in its supply: 1. The extent to which disruptions occurring anywhere in the world affect energy costs in the United States, 2. The likelihood of disruptions and the ability of energy suppliers to respond to disruptions if they occur, and 3. The ability of energy consumers (including electricity producers, oil refiners, households, and businesses) to shift to other, less expensive sources of energy. Consumers and the economy are more vulnerable to disruptions in oil markets than they are to disruptions in other energy markets, as shown by a comparison of the two largest energy-consuming sectors of the U.S. economy—transportation and electricity. In particular, transportation is almost exclusively dependent on oil supplied in a global market in which disruptions can cause large price changes. Moreover, consumers have few easy and inexpensive options for switching to other fuels or reducing consumption of transportation fuels. In contrast, electricity can be produced from several sources of energy, all of which are less prone to disruptions, and consumers have more options for reducing demand for electricity.