Fossil fuels, foreign trade and foreign investment in the U.S. West

The global influence on Western energy production

The United States’ economy is heavily dependent on fossil fuels: coal, natural gas, and oil. Most contemporary discussion of American fossil fuel use centers on the country’s dependence on theimportation of foreign oil, which has been the subject of economic policy analysis since the American oil crises that bookended the 1970s. While the fervor of this narrative suggests that almost all of America’s carbon energy is procured beyond its borders, this is incorrect.

In 2010, 71 percent of fossil fuel energy consumed in the United States was produced domestically. Most of this fuel production happens in rural America, especially in the 18 Western states that straddle or sit to the west of the fabled 100th meridian. However, since almost 80 percent of Americans live in urban centers, many remain unaware that the rural West serves as America’s own “Carbon Colony.”

The story of how fossil fuel extraction is changing the rural West is one that receives little national attention. If the importation of less than 30 percent of fossil fuel consumption in the United States is an important economic story, then a thorough investigation of the economic situation that drives the other 70 percent should be just as vital. This economic policy brief aims to tell this story, with a focus on production in the American West. However, the United States does import a significant amount of its fossil fuel energy, suggesting that fossil fuels have become a global commodity to a large degree.

Thus, the second area this brief intends to examine is the effect of globalization on the fossil fuel economy of the American West. The United States economy has become increasingly globalized over the last sixty years. In 2010, 28.6 percent of America’s economic activity was the result of international trade, compared with 20.4 percent in 1990, 11.1 percent in 1970, and just 8.2 percent in 1950.

Foreign investment in the United States economy has similarly been increasing. In 2007, just before the recent recession, foreign investment as a percentage of American gross domestic product was 15 percent. In the 1980s and early 1990s, this number hovered just above 2 percent, and in the 1960s foreign investment was virtually nonexistent, consistently falling below 1 percent.

At the same time, the United States economy is currently $14.9 trillion, which means a huge segment of domestic production and consumption exists. Oil and gas contributes about 7.5 percent of American GDP, while coal adds just less than 1 percent. However, in many Western states abundant in fossil fuels, the percentage of GDP contributed by oil, gas and coal production is much greater than the American economy as a whole.

For instance, in Wyoming, fossil fuel production contributes almost 40 percent of state GDP. Even a state such as Texas, which has a large and diverse economy, relies on oil and gas production for almost 25 percent of its GDP. This sampling of economic data demonstrates the globalized nature of the American economy within the scope of strong domestic demand and at the same time indicates the importance of fossil fuels to economic activity in the American West.

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