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BPEA Article

Oil Supply and Tax Incentives

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Abstract

THE WORLD ECONOMY now depends almost entirely on fossil fuels for its energy. Even according to the most optimistic assumption of the Atomic Energy Commission, fossil fuels, especially oil and natural gas, will be dominant sources of energy until well into the twenty-first century. The supplies and demands for energy are, however, intricately connected in terms of both fuels and locations, so that marginal changes in one part of the system elicit responses in other parts, especially affecting the United States, which is both the largest producer and the largest consumer. The stress on the system in 1973 and 1974 became apparent when world oil prices were raised sharply, intensifying interest in reducing U.S. dependence on foreign supplies. Events since then bear plain witness to this phenomenon, as well as to the profound influence that governmental policies can have.

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