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Economic experts favor free markets for LNG trade

The national discussion on the export of liquefied natural gas (LNG) is raising several important issues with policymakers, and the American Council for Capital Formation (ACCF) recently assembled a roundtable of economic experts to clarify some of them. In publishing a transcript of that discussion, which it did yesterday, ACCF makes a significant contribution to the ongoing debate and future policymaking.

The discussion featured Columbia University economist Jagdish Bhagwati, Michael Levi of the Council on Foreign Relations, and Richard Schmalensee, a former member of the Council of Economic Advisers. It was moderated by ACCF chief economist Margo Thorning.

The entire dialogue is worth reading. I was struck by one exchange in particular that focused on the environmental and energy security benefits of exports:

Levi: You will expand domestic production if you allow exports and that’s a good thing. It’s good for the U.S. economy but it also means that this is an occasion to make sure we have good environmental protections in place. When the United States exports into the global market, it has a different chance to influence geo-political outcomes and again it’s important to be aware of that, so that we can take advantage of that as far as we can.

Schmalensee: It’s hard to make the argument that our exports in this market will disadvantage us strategically. It seems to me it benefits our allies to have diverse sources of supply, and on the environmental side, if we had a price impact internationally, we’d encourage the substitution of natural gas for coal, which is environmentally beneficial.

In another part of the conversation, talk turned to the dynamic features of the U.S. economy:

Schmalensee: One of the great strengths of the U.S. economy historically has been our flexibility and our ability to react quickly and effectively to changes in the global marketplace. Restricting LNG exports would be resisting what we are good at, which is reacting to change.

Bhagwati: Asking for protection is not a good answer as, at most, you can protect yourself in your own market but you lose competitive advantage in the much bigger world markets if you become flabby and uncompetitive thanks to protection. Flexibility in the face of intense competition is therefore today’s norm if you wish to prosper.

The clear consensus that emerges from this thoughtful discussion is that LNG exports provide net benefits for the United States across the board – from growth, to jobs, to emissions, to international leadership. As the Department of Energy assesses applications on LNG exports, DOE policymakers would be wise to consider the views of these experts.

  • Worth a deeper look...