To Drill or Not to Drill

Lowe Institute of Political Economy

"To Drill or Not to Drill?
Lessons from Brazil for the U.S. Alternative Energy Debate"

Marc D. Weidenmier

The recent world energy crisis raises serious questions about the extent to which the United States should increase domestic oil production and develop alternative sources of energy. We examine the energy developments in Brazil as an important experiment. Brazil has reduced its share of imported oil more than any other major economy in the world in the last 30 years, from 70 percent in the 1970s to only 10 percent today. Brazil has largely achieved this goal by: (1) increasing domestic oil production and (2) developing the world’s largest renewable source of energy that competes directly with gasoline, sugarcane ethanol. We run a series of macroeconomic simulations to estimate the welfare effect of the program. We then explore the implications of Brazil’s program for the energy policy of the United States.