With George W. Bush suffering low approval ratings, the situation in Iraq remaining unsettled and the Republican party beset by internal squabbles over religion, foreign policy and immigration, the American conservative movement is facing an identity crisis. In a new book, excerpted below, National Post columnist David Frum proposes a way forward.

This is part three of three. Read parts one and two.

Resident Fellow  David Frum

The world burns 80 million barrels of oil a day. The United States produces only about 7.5 million of those 80 million barrels. Canada and Mexico together produce seven million more. Norway contributes a little shy of three million. Toss in the United Kingdom and Brazil--stretch a point and include Gabon, Indonesia and Kazakhstan--and still only about one-third of the world's oil comes from countries that can be counted on to behave responsibly.

Now look at the other side of the ledger: Approximately nine million of the 80 million barrels come from Russia. Another nine million come from Saudi Arabia. Add four million from Iran, 2.5 million from Venezuela and two million from Nigeria, the output of the other Gulf states, scattered production elsewhere in Asia and Africa, and all told, almost two-thirds of the world's oil revenues are paid to people likely to put them to bad use. At $50 a barrel, America's oil imports underwrite $1-trillion a year of extremism, corruption, authoritarianism, aggression, terrorism and general mischief. Double that price, and the problem gets worse.

The global supply picture for natural gas looks even worse. Half the world's natural gas reserves are located under Russia and Iran. Add Algeria and Qatar, and you have accounted for almost three-quarters.

The oil and gas consumption of the advanced Western economies does worse than enrich bad actors; it empowers them. So a new Republican party's first energy priority must be: Lead the world to consume less oil and gas.

Many people imagine that America's energy use always goes up, up, up--that Americans are helplessly, uncontrollably "addicted to oil," in the words of George W. Bush. Wrong metaphor. Addicts will pay any price to get their fix. American oil consumers respond to price signals. After the oil shock of 1979, American oil consumption declined by almost 3.5 million barrels a day. Not until 1996 did American oil use recover to the levels of the late 1970s. Even by 2005, Americans were using only 17% more oil than they did three decades before. Oil consumption in other advanced Western nations followed a similar pattern.

The oil shock of 2003-2005 has likewise altered consumer behavior. Sales of Lincoln Navigators and Ford Expeditions dropped 55% between 2004 and 2005. Over the same period, sales of Honda Civics jumped 30%. Housing sales in exurban neighbourhoods slowed. The National Association of Realtors reported that 9% of home buyers listed "short commute to work" as a prime house-buying consideration in 2005; 40% said so in 2006.

Some conservatives and Republicans--including President Bush--want to limit the problem of oil to foreign oil. The problem, they say, is that America imports too much: Close to 60% of America's 20-plus million-barrels-per-day usage.

This is a very mistaken way to look at the problem. Oil is a globally traded commodity. There is one world oil market, one world price. If Iran uses its oil revenues to underwrite a nuclear program, what does it matter whether those revenues are denominated in dollars, euros or yen? If Osama bin Laden were to seize control of the Saudi state, would it console us that comparatively little of his oil wealth derived from U.S. sources?

While increased North American oil production will be helpful, only substitution and conservation can achieve the important national security goal of reducing the power of unreliable oil suppliers. Congressional Democrats and President Bush have shown us how not to achieve that goal. Both of them advocate large-scale government intervention in energy markets to subsidize alternative fuels (especially ethanol) and new technologies (hydrogen cells, electric cars and so on). This is the path the United States took in the 1970s, and it led to very little progress and enormous waste.

There is a simpler and better way to encourage consumers to conserve while denying income to producers: Tax those forms of energy that present political and environmental risks--and exempt those that do not. That tax will create an inbuilt price advantage for all the untaxed energy sources, which could then battle for market share on their competitive merits.

What would such a tax look like? It would fall heavily on oil, natural gas and polluting coal--more lightly on ethanol--and it would exempt hydropower, solar, wind, geothermal, and nuclear altogether. In short: It would look exactly like the carbon tax advocated by global warming crusaders.

The environmental movement has always trafficked in apocalyptic fantasy. From its onset, it has offered one vision after another of impending catastrophe. Sometimes environmentalists warned of a new ice age, sometimes of mass famine provoked by overpopulation, sometimes of the spread of deserts from the equators to the globe, now latterly that carbon dioxide will melt the polar icecaps and send super-tsunamis racing toward Manhattan. The specifics fluctuate, but the conviction of certain doom never alters.

Perhaps this is why voters' environmental instincts seldom translate into actual environmental votes: Environmentalists seem positively to crave disaster as a righteous judgment on erring humanity. And here may be the secret clue as to why the environmental issue is ripe for plucking by sensible conservatives.

It is a plain matter of record that the American environment has steadily and substantially improved over the past three decades.

Environmental trends are nearly all positive, with all forms of pollution except greenhouse gases in steady decline in the United States and the European Union. In the middle-1970s, only one-third of America's lakes and rivers were safe for fishing and swimming. Today, two-thirds are, and the proportion continues to rise. Since 1970, smog has declined by one-third, even as the number of cars has nearly doubled and vehicle-miles traveled have increased by 43%. Acid rain has declined by 67%, even though the United States now burns almost twice as much coal annually to produce electric power.

Our task now is to build on these improvements--not to deny them, and certainly not to lapse into doomsday hysteria because sea levels are rising a couple of inches per century.

Who is more likely to be trusted to produce rational, cost-effective measures against global warming: People who waited to act until the evidence became overwhelming? Or people who have been itching for decades to repeal the Industrial Revolution on any excuse they could find?

Conservatives trust free people and free markets to solve our energy and environmental problems. We are going to break America's dependency on oil, gas and coal not by regulations, but by a tax that makes renewables and nuclear power more competitive with fossil fuels. Every dime of that tax increase will be rebated back to the American people in the form of tax reductions to working parents and cuts in taxes on productive investment. At a time when Democrats and liberals seem to have adopted environmentalism as a substitute religion, Republicans and conservatives are ideally positioned to reclaim it for common sense and the common good.

David Frum is a resident fellow at AEI. He is the author of Comeback: Conservatism That Can Win Again.