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Outside View: Don't limit LNG free trade
by William O'Keefe
Washington (UPI) Jan 24, 2013


disclaimer: image is for illustration purposes only

A new special interest group, America's Energy Advantage, is advocating restrictions on LNG exports in an effort to manipulate prices, thereby allowing AEA member companies to enjoy outsized gains on the sale and export of their products.

The AEA's suggested restraint on trade is hardly what one would expect from its members, including large exporters such as Dow, Alcoa and the Eastman Chemical Co. But, earning profits by promoting government action that favors some and penalizes others isn't new.

Professor Bruce Yandle of Clemson University developed the "Baptist and Bootlegger" economic public choice theory decades ago. Like bootleggers who support Baptist efforts to restrict alcohol sales so that they could sell more, these AEA members want the government to limit what natural gas producers can do with their production. Their objective is to keep natural gas prices low so that they can make more profits.

AEA's argument against liquefied natural gas exports is based on the false premise that allowing the LNG exports would stifle the resurgence of the United States' manufacturing industry. This premise is wholly unsupported and runs counter to the expressed views of manufacturing associations including the National Association of Manufacturers, small businesses represented by the Small Business and Entrepreneurship Council, chemical groups such as the American Chemistry Council, Democrat and Republican lawmakers and the Department of Energy, all of which favor exporting LNG.

A recent study sponsored by the Department of Energy and conducted by a group of nationally recognized energy economists analyzed a number of different export scenarios. In each scenario, the study demonstrated that LNG exports would be a net benefit to the U.S. economy.

Despite the proven economic benefits, the members of the AEA are attempting to convince lawmakers and regulators that the U.S. economy will achieve an advantage by erecting barriers to free trade. However, according to the evidence, these gains are merely fleeting and illusory in the long run. One only need refer to an Economics 101 textbook to see the critical flaws in the AEA's opposition to LNG exports.

As my former colleague and well-respected energy economist Michael Canes has observed, almost 200 years ago David Ricardo described the principal of comparative advantage, why differences in productive capabilities make it in the interest of parties to engage in trade. We are still debating whether these principles apply. This gives new meaning to slow learning.

The answer remains the same: They do! Free trade in energy, as in other goods, will make us better off. The argument applies equally to exports as imports; export energy in order to purchase other goods that we are less efficient at producing.

The core of AEA's argument is the assertion that restricting LNG exports will continue the revitalization the U.S. manufacturing sector, resulting in additional job growth. This argument fails to account for the export-led benefits from the restarting dormant natural gas rigs and the construction of LNG export facilities.

In fact, increased LNG exports will create jobs, enhancing the economic welfare of U.S. consumers and businesses.

Restricting LNG exports is simple special interest protectionism.

History has demonstrated that free trade produces more benefits to the U.S. economy than an attempted industrial policy through managed trade.

(William O'Keefe is chief executive officer of the George C. Marshall Institute. O'Keefe has held positions on the boards of directors of the Kennedy Institute, the U.S. Energy Association and the Competitive Enterprise Institute and served as chairman emeritus of the Global Climate Coalition.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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