How to Win the Energy War
How to Win the Energy War
With gas prices hitting yet another
all-time high, consider this: while history is littered with examples
of countries that were forced to change their domestic and foreign
policies because of the lack of a natural resource, there are very few
notable instances of nations that had the ability to eliminate such a
vulnerability but didn’t. America’s current energy condition, however,
is a spectacular example of such a failure. Consider four facts:
No. 1: The United States is very vulnerable to the interruption of its imported oil supply.
No. 2: This dependence on oil has a huge effect on our foreign, military and economic policies.
No.
3: America could have reduced its vulnerability if it had taken
decisive action after the 1973 Arab oil embargo. (In 1973 America
imported 35 percent of the oil it used; today that figure is greater
than 60 percent.)
No. 4: We have never adopted a credible plan to reduce our dependency principally because of a lack of political will.
Back
in 1975, President Gerald Ford used his State of the Union message to
inform Americans how dangerous our growing dependence on foreign oil
was: “We, the United States, are not blameless. Our growing dependence
upon foreign sources has been adding to our vulnerability for years and
years, and we did nothing to prepare ourselves for such an event as the
embargo of 1973.”
But he did more than fret. He had a plan.
“Within the next 10 years,” he announced, “my program envisions 200
major nuclear power plants, 250 major new coal mines, 150 major
coal-fired power plants, 30 major new refineries, 20 major new
synthetic fuel plants, the drilling of many thousands of new wells, the
insulation of 18 million homes and the manufacturing and sale of
millions of new automobiles, trucks and buses that use much less fuel.”
It
was clear that President Ford’s initiatives would materially reduce
dependence on oil imports, but would also increase consumer energy
costs and raise important environmental problems. Liberals complained
about “excessive” new energy production efforts, and the right about
the heavy hand of government.
While the Congress debated, the
normal oil supply from the Middle East resumed and prices came down.
Congressional economists put forward new arguments on what they
believed to be the appropriate pricing of crude oil as reasons to avoid
the harsh medicine President Ford advocated.
But there were two
major flaws in these pricing models, which have bedeviled our energy
policies ever since. First, OPEC has a very different idea of what is
“appropriate.” Second, the normal laws of supply and demand did not
apply. Supply is determined by how many barrels of oil producers are
willing to pump, refine and transport at any given time. And this is
affected more by international politics and less by international
economics.
The price volatility caused by this unique market has
long caused business to limit its investment in new, higher-cost energy
supplies. In response, the Ford administration studied various ways to
institute a floor price for oil and guarantee an annual price
escalation over 15 to 20 years. The thinking here was that if business
could depend on a predetermined escalation of prices, it would make the
necessary investment in production and conservation technology.
Interesting concept ... but again the liberals roared with outrage and
the conservatives laughed at such meddling with the economy. The idea
went nowhere.
A few modest measures from the Ford program were
passed by Congress, including the strategic petroleum reserve, which
stockpiles oil in case the Middle Eastern spigot gets shut off, and
having retailers label appliances for energy efficiency and automobiles
for mileage. But, obviously, this was far short of what was necessary.
In
a fit of frustration, I asked Senator Henry Jackson, the Washington
Democrat who headed the Senate Energy Committee, what we needed to do
to reawaken Congressional interest. He asked me if I knew how to start
another Arab embargo. He was right. Without a crisis, a real national
energy program could not get past normal political paralysis. The Ford
initiative was the last real national attempt to reduce our
vulnerability.
Jimmy Carter talked the talk, calling our energy
situation the “moral equivalent of war.” But his only real
accomplishment was the Synthetic Fuels Corporation, which was supposed
to spearhead research into energy alternatives but quickly became a
multibillion-dollar boondoggle.
Ronald Reagan offered a package
of tax incentives for domestic oil and gas production and, wisely,
dismantled the Synthetic Fuels Corporation, but that was about it.
George H. W. Bush, Bill Clinton and now George W. Bush followed with
proposals to open more public land for domestic oil production, to
create tax subsidies for ethanol, to mandate more fuel-efficient
automobiles and other research and development programs — none of which
can or will have a substantial impact on oil imports.
So here
we are, 30 years later, with oil prices higher than ever and greater
dependence on imported oil. Since one of the current presidential
candidates will inherit this mess, shouldn’t we ask each of them to
spell out the details of his or her energy plan? I’ll lay out some
ground rules. Any credible strategy needs to reduce oil consumption and
increase other energy supplies. All of the measures in the plan need to
add up to a significant reduction in imported oil in the relatively
near term, say, within 10 to 12 years.
I have a few
suggestions. First, gasoline prices must send the right signals to
change consumer driving and car-buying behavior. For many years there
have been arguments about a gasoline tax of 10 cents or 20 cents per
gallon. And now we are seeing price changes in that range from week to
week. But the driving public believes that such price increases are
temporary, so driving behavior doesn’t really change. And long-term car
purchase decisions aren’t based upon perceived short-term price
fluctuations.
To ensure that price signals are consistent and
clear, we could levy a truly substantial gasoline tax — something like
50 cents per gallon to start, followed by 50 cent increases in each of
the following three years — with rebates for lower-income taxpayers.
The revenue from this levy could be used to pay for tax credits for
fuel-efficient autos. We should also have automakers improve their
corporate average fleet economy — commonly called CAFE standards — by
at least 4 percent per year. Increasing tax incentives for the
production and purchase of alternative-fuel vehicles would also help.
The
other major way to wean us from oil is to resume construction of
nuclear power plants. Nuclear energy is the cleanest and best option
for America’s electric power supply, yet it has been stalled by decades
of unproductive debate. Our current commercial nuclear power plants
have an outstanding record of safety and security, and new designs will
only raise performance. How can Washington help? One thing would be
federal legislation to streamline the licensing of new plants and the
approval of sites for them.
The basic elements of a responsible
energy policy are not complicated, but the politics are horrendous.
Still, we can’t continue to throw empty rhetoric at the issue, using
the oil companies as political punching bags and relying on our troops
to keep the oil flowing.
I once told President Ford that some
of our energy proposals were angering both Democrats and Republicans.
His reply: “We must have it just right!” If only the presidential
candidates could show the same sort of courage.
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