National Energy Plan
The national energy program produced by President Carter and now dispatched to Congress for legislative action has been moderately well received. It is likely to go through many changes in the battles in Congress that lie ahead, but nearly everyone agrees that some form of over-all national strategy was needed, if for nothing else than to promote a serious debate.
We should say forthrightly that we regard the plan as very seriously flawed. It fails entirely to confront the power of the oil industry. It fails to promote any serious change in the automotive culture of the country. It proposes drastic and undemocratic changes in the administration of energy policies. It makes a fundamental error in relying on the use of the tax code as a method of inducing change. It almost certainly will result in increased profits for the energy companies at the expense of consumers, who will have to pay higher prices. Most sorely affected will be the poor.
The President’s plan attempts to set forth ways of reducing demand for energy and of starting in a systematic way to move the economy away from its dependence on oil to other fuels—coal, nuclear, and, in the distant future, such sources as solar energy. Thus it focuses extensively on conservation. It also attempts to propose new policies to hasten changes in the use of fuel. Here the President has relied extensively on the tax system and on increased administrative powers.
Novel though it may appear, the program must be seen in its historical setting. For the last decade or so the major energy companies have themselves been responding to strong historical currents. They have begun to concentrate on coal and nuclear resources within the United States as their domination of foreign sources of oil wanes. The tendencies of the industry have been clear enough. But to accomplish their goal, the energy companies have required the assistance and sanction of the federal government. What they have wanted is a clear federal policy emphasizing growth in coal and in nuclear power; higher prices for natural gas which they have considered to be at artificially low levels; reduction of environmental constraints; off-shore drilling; importation of liquefied natural gas; development of synthetic fuels; and in general a firm commitment by the government to endorse these endeavors and desires.
At the very time that the energy industry has been articulating and trying to implement this policy, other political interests have been making themselves felt. The environmentalists, a politically significant force, have argued for energy conservation and strict safeguards. Consumer organizations and labor unions have struggled to keep fuel cheap, and as the question of energy has become increasingly visible Congress has become an arena for fighting out various policies.
Carter’s program has been hailed as an axe cleaving through this knot of conflicting interests. It has been regarded as a balanced and judicious compromise, going as far as is possible within the political system of the United States toward achieving a rational solution. The only way to address oneself to the program, once the legitimacy of such concepts as conservation and reduction in the growth of energy demand is accepted, is to look to the details of the plan.
Let us start with a central feature of the energy profile of the United States—its automotive culture. What does Carter’s program suggest here?
The plan proposes a national goal to reduce gasoline consumption. To do this the government would impose a graduated excise tax on new automobiles with poor fuel efficiency. Cars manufactured in the United States or Canada would be eligible for rebates if they achieve mileage better than the stated standard. The President also envisions the possibility of a standby gasoline tax if gas consumption is not brought down. As a practical political matter this tax is not taken very seriously in Congress, with such potent political forces as Senator Henry Jackson set against it.
Even without this probably doomed standby tax, the price of gasoline will rise, as a consequence of the rise in the price of crude oil generally. But it is arguable whether the slow rise in the price of gas will in fact affect consumption very much and deter consumers from traditional driving habits. It will be recalled that during and right after the oil embargo in 1973 the price of gasoline approximately doubled. This 100 percent increase had no noticeable effect on consumption.
There are also some troublesome international implications in the program’s promotion of small, fuel-efficient cars. A major reason that Americans are now driving such cars in increasing numbers is that they are manufactured abroad by companies which vigorously invaded the US market. The program could conceivably have encouraged more competition of this sort as an added incentive for Detroit to change its ways. Yet in fact the program says rather obscurely, “for cars manufactured in other countries, rebates would be provided only after agreements were reached with individual countries.” This appears to mean that such rebates would be given only if the foreign countries involved limited their exports to levels already attained. If this remains true, the US will be promoting and protecting the industry that single-handedly has created the inefficient transportation system that the President’s program is now trying to change. It will also be in considerable trouble with other countries such as Japan for restraint of international trade.
The most astounding omission in the President’s transportation proposals is the failure to produce anything more than the most vaporous rhetoric about alternative modes of transportation—most notably the reconstruction of the railroad system. Without concrete proposals designed to encourage a shift from cars to other methods of transport it is clearly difficult to affect in any notable way the automotive culture of the country.
On the vital matter of oil pricing Carter’s program sketches a provocative scenario. Advocates of the “free market” have long argued that oil prices should be allowed to rise in response to market demand. As a political matter this line of argument is worrisome for a Democratic president since in all likelihood the shift to free market pricing would give the oil companies windfall profits. The opposite position is that the government should sternly regulate the industry, determining costs and setting a fair rate of return for private enterprise. If actually put into practice this procedure is liable to merciless attack, having both the odor of radicalism attached to it and also unpleasant political consequences in estranging regional loyalties and support for Democratic candidates. The prospect of a united and pugnacious oil and gas industrial coalition arrayed against him is a gloomy one for any sensible American politician.
Carter’s strategists have consequently tried to slip adroitly along the dividing line between the two camps. The plan proposes to allow the price for newly discovered oil to rise to the current 1977 world oil price. Future prices of newly discovered oil would be adjusted for subsequent inflation. The President would then attach an equalization tax on crude oil at the wellhead, a tax that is equal to the difference between the controlled price and the world price. Net revenues from this tax would be returned to consumers in the form of a per capita energy credit, either against other taxes or in the longer run as part of a general tax reform.
These “energy payments” would result in lower withholding from weekly paychecks to make it unnecessary to wait a full year for the benefit of the energy credit. The poor who do not pay taxes would also be entitled to their per capita share of these tax revenues. Most would receive their payments through existing income maintenance programs. The remainder would collect their energy payments by applying to one of the existing state agencies through which federal funds are now distributed…. The oil tax would establish a more realistic energy pricing system, with no net gain to the Treasury, and no net loss to consumers as a group.
On its face this scheme would appear to be a way of limiting excess profits by the oil industry and of achieving—at least in principle—a measure of income redistribution. But difficulties appear to lie ahead for some of the promised rebates.
Let us for example take the matter of home-heating oil. Carter says, “Home heating oil users would receive an additional share of the equalization tax as a dollar-for-dollar reduction in price when they buy fuel oil.” It is not clear how this munificence would be achieved. As we understand it, the rebate would be at the wholesale level, i.e., the local company from which a customer buys his fuel oil would receive the rebate from the government and theoretically pass it on to the customer. But how can one be sure that he would pass it on? It looks as if this proposal will, at best, entail a new bureaucracy devoted to supervision of the new system.
Matters become even more complex. Oil refineries produce different products, and it will be necessary to allocate what portion of the total equalization tax will go to fuel oil. To be effective the plan would have to provide for inspection of each different refinery, because some refineries are more efficient than others, and consequently some have higher costs than others. The Federal Energy Administration has struggled in vain to determine the real costs of different products made from crude oil. One of the major reasons for this vain battle is that the books kept by the companies elaborately mask true costs. The basic question here is whether and how the government will be able to determine actual costs and hence assign portions of the tax rebates to different products. Since refineries differ in their efficiency and costs, there may be differences in prices of home-heating oil supplied to the wholesaler. This could occasion a black market, or, at the very least, would involve the creation of an elaborate bureaucracy to ensure an equitable system.
Another difficulty crops up with the provision of home-heating oil to US wholesalers from foreign refineries located in the Caribbean. Very large amounts of home-heating fuel used in New England come from these sources. These refineries of course are not subject to the equalization tax applied to US crude. But are the wholesalers who handle this foreign oil to get rebates as if they were supplied from a domestic source? If so, then this would appear to be a subsidy for these foreign refineries.
As the above illustrations suggest, the President’s program, when it comes to oil pricing, has noble ideals, but carried forward in practice would be inordinately complex, necessitating just the sort of bureaucracy Carter wants to get rid of. By trying to toe the middle line between the two traditional positions the Carter plan fails to confront the basic problem, which is the structure of the oil industry.
One of the most intriguing parts of the President’s oil program are the intended provisions that would set the prices for Alaskan oil at higher rates than those now charged by OPEN. Alaskan oil, which now comprises about a third of the nation’s oil reserves, is essentially concentrated in the hands of three of the big oil companies: Exxon, British Petroleum, and Arco. They would appear to be richly rewarded if the program passes Congress.
The reward does not stop there. While Carter’s proposal does not say so directly, there are intimations that the administration is sympathetic to the plans of the major oil companies for constructing a pipeline system from California back into the middle of the continent for the purpose of carrying Alaskan oil from off-loading points in California. The pipeline idea has been a matter of intense concern for some years now. Historically the oil companies have controlled the use of their crude oil by ownership of pipelines. It is no secret that in the northern Middle West the independent refiners and other oil operators have been under severe pressure from the major companies, who have been trying to put them out of business. Construction of a pipeline to move Alaskan oil in a steady stream to the Middle West would give added leverage to the big oil companies dominating such a pipeline.
Of course the administration in recent weeks has been inclining toward sale of Alaskan oil to Japan. The theory is that the Alaskan oil would be sold there in exchange for oil the Japanese purchase from the Saudis or elsewhere in the Middle East. Instead of being shipped to Japan, this oil would then be sent to the needy East Coast. If this policy were to be pursued, there would be all manner of troublesome international implications. For example, it may not be so easy after three or four years to cut the Japanese off from their Alaskan oil supply, even though it may be needed in the United States by then. Moreover, taking oil from the Saudis simply makes the country more dependent on the Arabs and thus contravenes one of the main objectives of the energy program, which is to lessen such dependence.
In the early stages of his campaign for the presidency Jimmy Carter opposed deregulation of natural gas prices. Later, around the time that he was seeking political support in the Southwest, notably the oil- and gas-producing state of Oklahoma, he emerged with a different policy. He argued that the price of new gas should be deregulated over a five-year period, during which the industry would be scrutinized to determine whether indeed the producers’ argument was valid: namely that they needed higher prices as an incentive to drill out additional supplies of gas. At the same time Carter stood by the current regulatory system as applied to old natural gas. In fact, this latter commitment was ambiguous since it is hard to determine whether a well drilled in an old field is producing new or old gas. The governors of such gas-producing states as Oklahoma, Louisiana, and Texas certainly assumed that Carter was offering a deregulation position.
The energy plan as now presented basically continues the long-term course toward deregulation, but it casts the issue in a new way. There are two key aspects to this policy: first Carter proposes that
all new gas sold anywhere in the country from new reservoirs would be subject to a price limitation at the BTU equivalent of the average refiner acquisition price (without tax) of all domestic crude oil. That price would be approximately $1.75 per thousand cubic feet (mcf) at the beginning of 1978. New gas entitled to this incentive price would be limited to truly new discoveries.
In essence then Carter proposes to peg the price of new natural gas to the price of domestic oil, which in turn is likely to reflect world prices. These prices in turn reflect the desires of the oil-exporting countries concentrated in OPEC and the major international oil companies which have historically dominated the business. This is a substantial departure from past policy. What does it mean?
In the past, regulation, in theory at least, has been based on determining costs and then rewarding the producer with a fair rate of return. One useful legacy of New Deal type regulatory programs has been the idea that the government would at the very least have the authority and the will to intercede in the operation of private industry, investigate the cost of its operations, and proceed on the basis of this data to inflect its activities. In the case of gas this meant that the Federal Power Commission could set producer prices on the basis of information about reserves, company costs, and other relevant factors. Of course it did so in a haphazard and uncritical way, relying on industry statistics, but until now the debate about natural gas has centered on the efficacy of the FPC in performing its function in the face of industry recalcitrance.
At a single stroke the Carter plan proposes to abandon this entire debate and shift to new ground. The new ground is not promising. It is by now commonly accepted that the oil companies not only control natural gas production but also are strongly influential in other energy fields—coal and nuclear power—which are crucial elements in Carter’s plan. They have long been accused of enjoying irresponsible latitude in the administration of prices for oil products. Now, by pegging the price of new gas to domestic oil, Carter is suggesting that the government finally sanction a system which will allow these same oil companies greater latitude to set prices in gas as well.
This is a momentous change. Natural gas was the one fuel which the government had struggled—albeit feebly—to regulate. The practical effect of the shift in policy will be that gas prices for consumers in energy-pressed regions such as the Northeast will rise substantially. More important, perhaps, these prices will, over a long term, mount pretty much in tandem with oil prices, conditioned by the oil-exporting countries and the large oil companies.
It should be pointed out that with one exception there is no indication anywhere in the energy program that Carter plans any serious intervention in the oil industry. He has always been leery of vertical divestiture—where the big companies are forced to split apart their refining and distribution activities. Nonetheless in the campaign Carter used to pay some lip service to the notion of horizontal divestiture where the oil companies would be denied control of other energy fields such as coal. The energy program says flatly, “at this time it does not appear necessary to proceed with new legislation mandating either vertical or horizontal divestiture in order to promote or maintain competition in the energy industry.” The plan goes on to say, “however, the performance of the energy industry will be closely monitored to make sure prices are in line with costs and that costs are reasonable. Armed with an efficient organizational structure and new information-gathering programs the Department of Energy would have an active analysis and evaluation program to study these matters in depth.”
Thus scholars of Carter’s position on divestiture may have some problems in determining his position at any given time. What he said in the campaign differs from the pronouncements in the plan—which differ in turn from his remarks in his press conference following the energy message:
My position has been that unless I was personally assured that adequate competition existed under existing antitrust laws and revelation of financial information, that I would favor horizontal divestiture and divestiture on a vertical basis at the wholesale and retail levels of oil distribution.
The proposal that I made to the Congress the other night is, I think, a very strong and beneficial move to require the energy producers—the oil companies and others—to report to the public their profit and loss on each individual component of energy production—extractions from the ground, including exploration, refining and distributing—and also breaks apart their domestic operations from their foreign operations.
I think when this information is analyzed it will be almost instantly obvious that unfair competitive procedures are in effect within the energy-producing area. And the antitrust laws can take care of it.
If I ever feel convinced that there is still an absence of competition within the energy field after this proposal is put into effect, I would not hesitate to recommend divestiture.
This, however muscular it may sound to the layman, is basically timorous. As Carter must perfectly well know, there have been very serious and detailed efforts by the staffs of the Federal Power Commission, of the Federal Trade Commission, of the Anti-Trust Subcommittee in the Senate, and of the Commerce Committee in the House to penetrate the mysteries of oil and gas company accounts. Since 1968, year after year, these studies of company records have demonstrated beyond the shadow of a doubt that the oil companies were withholding supplies of gas, rigging their books, concocting false reserve estimates which were then passed on up through trade associations and used for policy making.
Carter’s plan now proposes a special information system that would require companies to produce detailed and verifiable reports on such matters as reserves, internal financial data, and so forth. This information would be submitted by the companies to the government, which would check it to make sure it was true. Federal officials would supervise the collection and preparation of reserve data.
Now there is no question that this represents a modest step forward, one that has been anticipated, as we have noted, by many congressional inquiries during the last decade. Nonetheless this particular approach stops considerably short of what is really required if the government is to effect a policy that is in any serious way independent of the oil companies. What is needed, at least in the public domain territories, is for the government to mount its own program to estimate reserves, a process which should include exploration and development. Such a program could very well involve the government in hiring private industry along with state and local governmental bodies to do the work. But the government should always be decisively in control. It is simply hard to believe, as the Carter program appears to do, that government auditors will do more than reveal, perhaps in more detail, practices that are already fairly familiar. What is required now is a policy that will act on such information in order to make serious structural changes.
A crucial part of Carter’s energy proposals is the plan for a new Department of Energy. This department would have broad powers to establish policy in all energy fields, incorporating many of the activities now carried forward by the Federal Power Commission, leasing and oil and gas business now conducted in the Interior Department, and the operations of the Energy Research and Development Authority. As presented to Congress the legislation setting up a new Department of Energy would give the Secretary unprecedented powers.
Let us return, with the new department in mind, to the pricing of natural gas. Even though gas will be pegged to the price of crude oil, there obviously will be debate about these prices. Under the current system opponents of the industry can build up a factual record before examiners in the FPC. This forms the basis for future argument in the courts, and it should be remembered that major questions over natural gas prices have in the end been determined by the Supreme Court. All this may now change. For tucked away in the legislation setting up the Department of Energy are menacing pitfalls for any prospective opponent of increases in the price of gas. The adjudicatory procedures of the Federal Power Commission appear to be about to be replaced by the rule-making fiats of the Secretary.
To be sure, the Secretary can encourage all parties to provide him with comments on his proposed rules but he need not pay any attention to them. There is some question whether the hit-or-miss fact finding which may or may not emerge from the Secretary’s deliberations would be admissible in the courts as a record on which to base an appeal. Moreover under the proposed Department plan the Secretary can issue a rule and hold a hearing on it after the event. In other words he might rule to raise the price of gas, to allow construction of a nuclear power plant to proceed, or to go ahead with strip mining in some virgin Western valley and then subsequently hold a hearing amid the de facto spiraling of prices or roar of construction and mining machinery already at work.
Such at present are the alarming implications of the legislation that would set up the Department of Energy, though it is conceivable that this legislation will be clarified before it is passed by Congress.
The key mechanism in Carter’s program for achieving both energy conservation and for stimulating alternative modes of energy involves a system of tax credits. The plan says, “home owners would be entitled to a tax credit of 25 percent of the first $800 and 15 percent on the next $1,400 spent on approved conservation measures.” In the case of solar energy, “the credit would start at 40 percent of the first $1,000 and 25 percent of the next $6,400 (for a maximum of $2,000) paid for installation of qualifying solar equipment. The credit would decline in stages to 25 percent of the first $1,000 and 15 percent of the next $6,400.”
The tax credit concept for both conservation and solar power has previously been debated in Congress, which has considered a variety of bills aimed at establishing such schemes. So far the concept hasn’t gone anywhere. On publication of the President’s plan Senator Edward Kennedy wrote to James Schlesinger, questioning the notion and including copies of two recent studies on the use of tax credits by Professor Stanley S. Surrey of Harvard, one of the leading experts on tax reform. The studies dealt with tax credit proposals for home insulation and solar energy deliberated in Congress last year. Surrey and his associates argue that they were of dubious value.
Surrey found the proposal for an insulation tax credit—insulation would be a primary method of achieving conservation under the Carter proposal—to be inefficient because it rewards those homeowners who would install insulation anyway. He pointed out that many homeowners—regardless of tax credits—would be moved to insulate their homes because of a rise in fuel costs.
He also found that such a tax credit was inequitable because only those who could afford the full cost of insulation would receive the full advantage of the credit. Lower income homeowners would benefit little. And unless the credit were refundable—the President’s published program makes no mention of refundability—those homeowners below income tax exemption levels would receive no benefits from a credit, since there would be no tax against which to apply it.
Finally Surrey pointed out that tax forms are already hideously complex and the inclusion of this sort of tax credit would make them even more complicated. He concluded by noting that the proposed insulation tax credit discussed in Congress last year would cost the Treasury some $288 million a year, with every $12 barrel of oil saved by the credit costing the government $43.35. The government could buy and distribute free almost four times as much oil through direct expenditures as it would save through the credit.
The same line of argument over insulation credits also applies to solar power. In this case Surrey points out that
If energy conservation and development measures are needed, they should be funded through direct appropriations. As the Manhattan Project and the Apollo program demonstrate, projects funded through direct appropriations show results, and outlays are cut when the project has achieved its objective. In contrast, programs funded through the tax system go on and on, and there is never any review of the results, or any end to the costs.
Surrey’s arguments were not directed at Carter’s current program, but as Senator Kennedy points out, they apply to it with equal force. And indeed the introduction of a whole new series of tax credits is doubly disconcerting because one of the President’s major promises during the campaign was to overhaul the tax code and simplify it radically. A vital aspect of such reform is to cut away the hidden “tax expenditures”—loopholes, deductions, credits, etc.—which cost the Treasury $100 billion a year. This system of subsidies granted through the tax system is entirely unjust. As things stand, 53 percent of all tax-break dollars go to the top 15 percent of all taxpayers. The “acorn”—as the Pentagon critics call small programs which later explode into billion-dollar weapons systems—of solar energy tax credits envisaged in the President’s program may look modestly appealing now. But by 1990 or the year 2000 it could well become an enormous and utterly inequitable program, reinforcing and possibly replacing other tax subsidies which buoy the middle and upper-middle income groups in the nation.
Such dubious aspects of the tax credit program are rendered all the more questionable by the proposed role of local utilities in the conservation aspects of the plan. Carter suggests that the state utility commissioners would direct their regulated utilities to offer residential customers special conservation services (insulation, etc.) to be financed by loans repaid through monthly bills. This is a bracing shot in the arm for the senile utilities; the federal government will now be ushering them into the heady business of retail credit. Carter proposes a variety of utility reforms including revision of the rate structure along conservationist lines which would penalize big users. But such reforms are not made a prerequisite of the substantial new business opportunities so generously proffered the utilities. Utility monopoly will in all likelihood be extended into the fields of insulation, storm windows, roofing, and solar energy equipment.
One of the central premises of the President’s energy program is the gradual and deliberate move away from oil toward other fuel sources, particularly nuclear power and coal. In the case of nuclear power the plan says,
It is the President’s policy to defer any US commitment to advanced nuclear technologies that are based on the use of plutonium, while the United States seeks a better approach to the next generation of nuclear power than is provided by plutonium recycle and the plutonium breeder. At the same time because there is no practicable alternative, the United States will need to use more light-water reactors to help meet its energy needs.
The President’s hostile position to plutonium has been widely hailed, but the enthusiasm may be somewhat premature. In recent days the administration has been actively opposing legislation that would indefinitely delay plutonium reprocessing. The government spokesman claimed that this legislation was not necessary and that it would reduce Carter’s “flexibility” on nuclear issues. This action caused some speculation about the President’s real attitude and intentions toward proliferation of plutonium. The plan uses the word “defer” about movement toward plutonium. This is an ambiguous term.
Quite aside from such guessing games about plutonium there is no question that the government wants to push hard for construction of light-water reactors. It is backing legislation that would streamline and speed up licensing of such plants. Once again, as with other parts of the plan, fundamental changes in the present relationship of government with the people are suggested in the intended legislation accompanying the plan.
Essentially what is proposed is that the government be given authority to issue interim licenses allowing nuclear plants to be constructed even where strong opposition to them exists. Hearings on safety problems and so forth could be conducted after the fact—the fact being heavy investment by the relevant utility. In addition, there are plans afoot to exempt nuclear power plants from some existing environmental legislation.
The most urgent question about nuclear power plants already built concerns their safety. Will their emergency core cooling systems actually work? During his campaign Carter talked about safety and discussed the possibility of locating nuclear power plants underground. That idea has disappeared, and for good reason. Placing such plants underground would be extremely expensive and in consequence would probably have halted the entire program. Quite apart from the basic arguments for and against nuclear power it should be noted that the energy program claims to be based on the goals of efficiency and conservation. The current generation of nuclear power plants could scarcely be thought of as efficient. The industry insists that it operates at 80 percent of theoretical maximum efficiency. But the average, according to the Nuclear Regulatory Commission, is 57.4 percent, with some power plants functioning at levels as low as 13.9 or 21.2 percent.
Over the long term Carter may well be locking himself into a commitment to plutonium. The deliberate expansion of light-water reactor construction envisaged in the plan will place increasingly heavy demands on the supply of uranium. As demand increases, uranium will inevitably become more expensive, harder to mine. Consequently the impulse toward plutonium will grow, and when uranium supplies are gradually depleted and the country heavily dependent on nuclear power, as envisioned in the program, there may be no choice in the matter at all.
Carter’s commitment to nuclear power is an exceedingly dangerous policy. No matter what the scientific community may say about the efficacy and safety of nuclear power, if the government continues to refuse to address the safety issue and a major accident occurs, the politics of the situation will be simple indeed. The industry will have to be shut down. Outside of such a disaster, commitment to nuclear power will inevitably pose the dangers of an energy police state, with probable imposition of paramilitary controls to discourage strikes and sabotage. Already, in the wake of the energy plan, antinuclear groups are seriously discussing direct action as a way to halt plant construction. The example of the Clam Shell Alliance demonstrators in New Hampshire will undoubtedly be followed.
Another important element in the President’s program that must be questioned is his proposal to speed up the production of coal, encouraging a shift to that fuel by industries now using oil and gas. The program envisages a doubling in the production of coal from the current 600 million tons per year to 1.2 billion or so in 1990.
Much of this coal will continue to be used, though in greater quantities, for making electricity. But the administration also hopes to develop a synthetic coal gas that can be efficiently and inexpensively burned in industrial boilers. These boilers have often used oil and natural gas in the past.
It is really very hard to see how the coal industry can be made to do all this unless it is allowed to engage in strip mining on a much greater scale than is currently being planned. If so this will entail ripping up the eastern slopes of the Rockies and the northern Great Plains. It remains to be seen whether strip mine legislation now making its way through Congress would be capable of resisting such an impulse for increased production. Furthermore, it is hard to believe that a vast industrial conversion from oil and gas to coal could be accomplished without relaxing air pollution standards.
An underlying factor in any proposed increase in coal production is the water used in processing and transportation. Mining in the West would require reallocating scarce water from agriculture to mining. Such reallocation would sorely affect agricultural usage of the land and stimulate the construction of various water aqueducts, dams, and other projects currently denounced as mere congressional pork-barreling.
Thus Carter’s emphasis on increased coal production would appear to run counter to the conservationist positions he has taken on three issues: strip-mining, air pollution, unneeded water projects. A program launched with as much intensity and demand for sacrifice and hard choices as the President’s energy strategy should surely be more explicit about the actual implications of what is planned.
We have set forth above criticisms of some specific aspects and some underlying strategies of the President’s energy program. If we were to isolate any one failure it would be Carter’s shying away from any forthright attempt to change the structure of the oil industry. For over half a century there have been efforts to regulate this industry and bring it under some measure of public control.* They have always come to grief because they have never confronted the fundamental questions of ownership and control.
Carter has left the industry structure virtually intact and has instead undertaken a highly dubious and potentially dangerous strategy of implementing his major policies through the use of tax codes, questionable instruments for achieving national economic policy.
Perhaps it is worth sketching in the outlines of a different approach. It is well known that a large portion of our energy sources lies in the public domain territories, including the oil and gas located on the ocean floor along the outer continental shelf and the coal on the public lands in the West. In essence the means of production in these areas are already nationalized. What is required is the will to use this national asset in a more equitable manner. The key is to end the current leasing system whereby the oil companies take over these public assets and dispose of them according to their own wishes. The answer is not, as Carter suggests, to make leasing procedures more competitive but for the government to set policy under which these resources are used for specific purposes. The way to achieve this goal is to allow both private industry and governmental units to bid competitively on contracts covering production of the resources.
This course would still leave private industry in control of markets and hence in a position to influence demand. To deal with this problem the government would have to intervene to regulate patterns of consumption. The Carter plan attempts this, but in a flaccid way. Along with deliberate control over the manufacture of motor vehicles the government obviously should spend billions of dollars to build anew a mass transit system. This would mean developing railroads, bus lines, and inter-coastal shipping on a regional basis. Unemployed people should be put to work building this new system.
The real obstacle to introduction of alternative energy forms is money. It is no good telling American families, many of whom cannot afford to buy a house in the first place, to scrounge up thousands of dollars for the purpose of installing a solar hot water heater, which will not work on cloudy days, and then blithely tell them to apply for a tax credit on a form they cannot understand. The only way for the government to introduce solar and other alternative forms of energy in a consistent and large-scale fashion is to make available cheap money for that purpose. This can be done by offering low-cost loans directly to consumers. It can be done by federal guarantees of state and local bonds, the proceeds of which would be used for inexpensive loans to consumers. A program of credit allocation, whereby the controller of the currency and the federal reserve system force banks to channel funds into desirable energy investments, could very well be helpful.
In all of this the government itself, through its large construction and leasing programs, ought to lead the way in ensuring the introduction of alternative energy systems for public buildings and in doing so to establish performance standards for the industry. Carter’s suggestions here are not specific or far-reaching enough.
Any sensible national energy strategy must evidently aim at conservation and at ultimately shifting from oil, via coal, to other energy sources. To accomplish this generally accepted goal requires far more sweeping shifts in social priorities than those set forth by President Carter in what he has too grandly called “the moral equivalent of war.”
One hardly need go further than the late John Blair's recent The Control of Oil to find a careful account of the futile half-century struggle to deal with the oil industry.↩
One hardly need go further than the late John Blair’s recent The Control of Oil to find a careful account of the futile half-century struggle to deal with the oil industry.↩