This is the second of a four-part series written by Heritage Foundation Vice President of Government Relations Mike Franc, discussing an agenda for the new Congress, balancing the need for bipartisan cooperation against the temptation to veer too far leftward on domestic and international policy issues.

American demand for energy is expected to increase rapidly over the next two decades, exceeding domestic supplies. This is consistent with sharply rising global demand, which is expected to outpace discovery of new deposits.

The federal Energy Information Administration, for example, expects world oil demand to grow significantly over the next three decades, from 80 million barrels per day in 2003 to 98 million barrels per day in 2015 and then to 118 million barrels per day by 2030. This will place further strains on our quest for energy independence. At the time of the Arab oil embargo in 1973, we imported 35% of our oil. By 1995, our dependence on foreign oil had reached 45%. Today it stands at 61%.

Not only do we depend on foreign oil, but those sources are usually in bad neighborhoods. Alarmingly, three-quarters of the world's supply of oil is controlled by unstable or hostile regimes, most of which are unsympathetic to investor and property rights. Of proven world oil reserves, 57.5% are in the Middle East, 11% in Russia and Venezuela, and 6% in Africa. The People's Republic of China, moreover, just erected its first oil rigs in Cuba's territorial waters in the Gulf of Mexico, barely 50 miles off Florida's coast.

Some are willing to use oil as a tool to threaten U.S. national security objectives. Proclamations by al Qaeda and other terrorist groups that U.S. and Western economies and their oil lifelines are legitimate targets make it clear that the oil and gas infrastructure is in peril. "Today," FedEx Chairman Frederick Smith explains, "90% of the world's proven oil reserves are owned by national oil companies, and many of those ... companies are owned by countries who wish the United States ill."

Anti-Energy Regulations

At the same time, American energy production and its infrastructure are hamstrung by federal policies that consciously limit access to known energy resources. Such restrictions have had a chilling effect on development, production, exploration and infrastructure and foster uncertainty among investors.

Even the most severe critics of these anti-energy policies were aghast to learn the full extent of our self-inflicted wounds. In December, the federal Bureau of Land Management released its much-anticipated inventory of oil and natural gas deposits on federal lands. The report estimates that Uncle Sam's onshore holdings amount to an astounding 187 trillion cubic feet of natural gas and 21 billion barrels of oil.

But our energy inventory doesn't stop at the shoreline. A companion federal study calculates that an additional 83 trillion cubic feet of natural gas and 19.1 billion barrels of oil lie beneath federally controlled territorial waters. But experts note that, because estimates of offshore energy deposits are notoriously low and tend to increase significantly over time, our real energy inventory is likely much larger.

Unfortunately, the government goes on to note, regulatory constraints make it next to impossible to recover the overwhelming majority of these sorely needed resources. Just 3% of onshore federal oil and 13% of onshore federal gas are accessible under standard leasing terms. Debilitating restrictions such as a ban on surface occupancy tie up 46% of the onshore federal oil and 60% of the onshore federal gas. The rest -- 51% of the oil and 27% of the gas -- are completely off-limits to development (see charts above).

Pro-energy lawmakers struggled valiantly throughout the 109th Congress to bring more of America's energy portfolio on line. In fact, Congress considered and rejected proposals to:

• Open the barren wasteland of the Arctic National Wildlife Refuge and our offshore waters to oil and natural gas drilling.

• Alleviate regulatory barriers that have prevented the construction of a new oil refinery in America for more than 30 years.

• Loosen the so-called "boutique fuels" requirement that, for no discernable environmental gain, has created severe supply bottlenecks and causes the annual spring spike in gas prices.

But anti-energy lawmakers resisted and, in the end, all Congress had to show for its effort was an exceedingly modest bill that expands offshore drilling while keeping virtually all the existing restrictions in place.

We can do better.

U.S. energy policy should advance two essential U.S. interests: First, it should adhere to free-market principles by allowing for the safe development of domestic energy supplies and infrastructure without the government's determining winners and losers. This approach is the only way to guarantee the long-term viability of our economy.

Second, we should enhance the security, stability and economic and democratic development of oil- and gas-producing countries so that energy resources remain readily available, ample, affordable and safe. It is simply untenable to live in a world where potential enemies of the U.S. control so much of the world'' oil.

Specifically, Congress and the President should:

• End the severe limits placed on new oil and natural gas exploration and drilling in such promising areas as Alaska's Arctic National Wildlife Refuge as well as the 85% of our territorial waters that are also off limits.

• Streamline the cumbersome requirements that impede energy production.  For energy infrastructure this would mean streamlining the regulations that have hampered refinery expansions and have led to a large variety of costly fuel specifications.

No new refinery has been built in the U.S. since 1976, due in part to costly Clean Air Act regulations. For electricity generation this would mean removing existing barriers to a more diversified generation base, including new nuclear and coal generation.  Specifically, this includes providing a repository for spent nuclear fuel and streamlining New Source Review and other Clean Air Act regulations that impede additional use of America's abundant coal reserves to generate electricity.

• Eliminate special treatment of various fuel sources. U.S. energy policy should encourage fuel diversity and a vibrant market instead of having the federal government pick energy winners and losers.

The myriad of taxpayer subsidies -- including tax credits and mandates for ethanol, wind or solar energy, as well as loan guarantees and other subsidies for politically favored energy projects -- should be eliminated. To illustrate: Each gallon of U.S. ethanol blended with gasoline receives a 51-cent tax credit, along with other tax code inducements. Even with these tax breaks, domestic ethanol, made mostly from Midwestern corn, remains more expensive than gasoline.

• Encourage competition in the market for ethanol. Speaking of ethanol, Congress should lift the current import tariffs on sugar and ethanol produced from sugar cane. Exorbitant protectionist tariffs allow the ethanol industry to avoid competing with foreign providers. Foreign ethanol is subject to a 54-cents-per-gallon tariff and a 2.5% duty. This discourages imports such as potentially cheaper sugar-cane-based ethanol from Brazil and other countries that could undercut domestic producers.

• Hold the line against additional environmental regulations that would further raise the cost of energy. Provisions to cap fossil fuel emissions in the name of combating global warming represent a grave threat to future economic growth.

• Reexamine existing environmental requirements that impose unnecessary hardships on private property owners and hamper energy production on public lands. The Endangered Species Act and the National Environmental Policy Act have spawned literally thousands of lawsuits that have delayed or scuttled important energy production and construction projects. Congress should annoy the trial lawyers and place strict limits on these frivolous "environmental" lawsuits.

Michael Franc is vice president of government relations for The Heritage Foundation (heritage.org).