Energy & Environmental Policy Global Policy Studies & International Security

Blind Consumption: Realizing the Full Costs of Oil


On January 2, 2002, less than four months after the terrorist attacks of September 11, I enlisted in the U.S. Marine Corps. I did so in part to serve my nation and in part to earn money for college. In the summer of 2006, while serving my second tour in Iraq, I was on the fence about re-enlisting in the Marine Corps or pursuing my university aspirations. Ultimately, my experiences, and my desire to better understand them, compelled me to pursue higher education. My studies over the past five years have lead me to believe that national and international concerns for energy security have had a significant influence on American foreign policy, at least since the administration of Jimmy Carter — though arguably since Franklin Roosevelt’s presidency.

This circumstance implies that American tax dollars — through the Department of Defense — are, in effect, subsidies on the low cost of fuel in America. These subsidies provide a disincentive for Americans to conserve energy, particularly gasoline. The power and salience of this disincentive are born out in the fact that the U.S currently houses about 5 percent of the world’s population and only 2 percent of its oil reserves, yet we consume roughly 22 percent of globally produced oil.

It doesn’t take much to imagine that a Defense Department subsidy underwriting the cost of oil is significant in its monetary value. Problematically, this subsidy exacerbates and perpetuates American reliance on foreign oil and the geopolitical concerns associated with securing access to these natural resources. In order to ameliorate this problem, we as a society must devise a plan by which we provide disincentives to consume fuel, rather than disincentives to conserve fuel. I recognize that this is an external cost of cheap fuel that is not clearly intuitive for everyone and will therefore be difficult to address. Believe it or not, there are actually other external costs associated with securing cheap fuel in America that are even more obscure.

One external cost that has become prominent in the decade since 9/11 is veteran’s benefits. Today, I am a 40 percent disabled veteran who has been attending The University of Texas at Austin for almost five years on the Montgomery G.I. Bill. As a consumer of veteran’s benefits, I have paid close attention to their evolution since 9/11. I have noticed an alarming trend in this brief era: the soaring costs of future outlays for medical and education benefits. In June 2011, Linda Bilmes, a senior lecturer and expert on federal budgeting and finance at the Kennedy School of Government at Harvard University, wrote a report on the future costs of veterans benefits for “Costs of War,” a study group of the Eisenhower Research Project at Brown University. Currently, Bilmes reports, VA benefits account for the fourth largest category of federal spending. Over the next 30 to 40 years — the time at which costs will peak — the present value of veteran’s benefits for those who have served in Iraq and Afghanistan is between $600 billion and $1 trillion. The most astounding finding in her study, however, is that the federal government has yet to devise a budgetary plan for funding these costs.

I offer an idea for a policy solution that I think can help address both problems outlined above. I propose devising a gas tax or oil import tariff to fund future outlays of veteran’s benefits and innovative energy technologies aimed at reducing American consumption of fossil fuels. Reducing consumption of oil in general and foreign oil in particular, is the most effective way to address major environmental and geopolitical issues facing the United States. A tax or tariff policy would likely reduce fuel consumption in two ways. First, it would raise fuel prices. Second, higher fuel prices would compel American consumers to think about the full costs of gaining access to energy supplies in contemporary times by bridging the disparity between American’s domestic consumption habits and their understanding of the consequences of these habits in the broader world.

I propose using the tax or tariff revenue to cover future outlays of veteran’s benefits because I think as long as America’s service men and women are fighting to bring stability to global oil markets, and thus reduce the cost of fuel, those who are reaping the benefits of their labor should pay their compensation.

Taxes are a sensitive subject in America and, consequently, alternative schemes for reducing consumption have been offered. For example, Martin Feldstein, a professor of economics at Harvard University and president of the National Bureau of Economic Research, proposed the idea of tradable oil conservation vouchers (OCV’s) in a 2001 article titled “Achieving Oil Security.” This is an innovative, market based idea that, ideally, would avoid a large expansion of government. However, a policy agenda based on a scheme such as OCV’s fails to address the goals I would like to see achieved through a gas tax or oil import tariff. In fact, given that the future cost of VA benefits is a federal expense of “deferred compensation” promised to American veterans, I can see no way of covering this expense without the American people paying the cost.

I understand that new taxes are more or less viewed as politically infeasible in contemporary times; however, it is incumbent upon us not only to address the most pressing environmental and geopolitical issues we face, but to provide for those who have fought for this nation’s interests and provided for its citizen’s prosperity. We can break the destructive cycle of underwriting our energy policy with our defense policy by realizing the full costs of oil through a gas tax or import tariff. This policy can also serve a dual purpose by using the revenue generated to fund the future costs of veteran’s benefits. America’s veterans have already paid their price on good faith. The only question is: Will we as a nation uphold our end of the bargain? Veteran’s benefits are a pillar of the American social contract, and this pillar must be upheld.

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