Air University Review, July-August 1977
The Honorable John Patrick Walsh
The World has entered a period of growing turbulence with mixed and ominous portents. Population has soared, along with a marked proliferation of nation-states. And with the increased numbers, there appears to be growing callousness between governments and peoples and between governments. Simultaneously, transportation and communication technology have shrunk the globe and contributed to the articulation of issues previously obscured by distance. Democracy is essentially limited to the industrial states while authoritarianism grows elsewhere. In much of the world, the shades of night increasingly obscure human rights, civil liberties, and the freedom of the press.
Virtually everywhere, government strives for relevancy in the face of increasingly complex issues. Yesteryear's bright dreams of a unified world remain unrequited. The United Nations, the visionary Parliament of Man, survives in disharmony, marked by limited accomplishments and tarnished hopes. East and West remain in precarious balance while North and South drift toward confrontation. If the sixties were the Decade of Rising Expectations, the seventies appear to be the Decade of Declining Hopes. In much of the world, the outlook for stability and economic growth can hardly be viewed sanguinely.
The strength and cohesion of the industrial states have been weakened by the consequences of inflation and recession and by their increasing dependence on Third World sources for raw materials, particularly oil. This is their collective Achilles' heel. Supply blockages would have catastrophic consequences. This reality is a major constraint on their policy formulations. Furthermore, the world trade and financial systems are under considerable stress, reflecting to a significant degree the vast surge in energy prices and the concomitant major accumulation of foreign exchange reserves by a small number of oil exporting countries.
Existing energy cost levels are adversely affecting economic growth in many industrial and developing countries, thus increasing unemployment and contributing to political instability. And the outlook in these respects is not favorable. While energy is not currently in short supply, it seems probable that we have entered a period of accelerated depletion of reserves and rising real costs of energy. This situation and outlook demand a high degree of collaboration within the industrial world and between the industrial and developing countries. But this is neither an easy nor assured outcome. Individual governments within each grouping ride their pet hobbyhorses at the expense of unity, and disarray appears to deepen. As William Butler Yeats mordantly noted,
The best lack all conviction, while the worst
Are full of passionate intensity.
How this global situation develops will depend to a considerable degree on the actions and leadership of the American people. We must now establish a comprehensive national energy policy, consonant with our more straitened circumstances. We must face up to reality.
In the postwar period, the substantial expansion of production throughout the industrial world was built on the availability of cheap sources of natural energy. This growth, in turn, provided the marginal resources for assistance to the developing countries that were increasing their own use of energy. Oil was the Queen of Fuels, and coal declined in significance. Expectations for nuclear energy were high, particularly after the mid-fifties, but very little consideration was given to other potential energy sources. The oil market was dominated by the international Seven Sisters, * and the origin in 1960 of the Organization of Petroleum Exporting Countries (OPEC) was hardly noted. Throughout the sixties oil was in surplus on world markets, and its price was depressed below the $2.08 per barrel level that prevailed in 1958. Oil consumption in the United States grew at an annual rate of 4.5 percent and at a higher rate in Western Europe and Japan. Natural gas consumption soared, particularly in North America. Meanwhile, exploration peaked in the United States, and there were warnings about declining reserves of hydrocarbons. There is little evidence, however, that the implications of these warnings were understood either by government or other elements of society.
*The seven biggest oil corporations: Standard Oil of New Jersey, Standard Oil of California, Mobil Oil, Shell, British Petroleum, Texaco, and Gulf.
The closing of the Suez Canal in 1967 and the periodical severing of the Trans-Arabian Pipeline drove tanker rates upward and contributed to the development of the giant tankers. In 1970, the revolutionary regime in Libya of Colonel Muammar el-Qaddafi concluded that it should receive a price differential relative to Persian Gulf oil because of the freight advantage. In the course of bizarre negotiations, the companies capitulated to Libyan demands, and a price-ratchetting process began between Libyan and Persian Gulf producers. Efforts to halt this process resulted in a January 1971 agreement between the companies and the Gulf producers, which in effect gave OPEC the power to control production and prices. If the five year price and supply agreement held at all, the Yom Kippur War in October 1973 provided the excuse for its termination. With supply curtailed by the Arab oil embargo, OPEC decreed a fourfold price increase effective 1 January 1974. The era of cheap energy was over.
In the face of the Arab oil boycott of October 1973 and the steep OPEC price increase, the industrial countries were thrown into considerable disarray. The cited actions caught the world at a delicate point of economic passage, contributing to high levels of inflation and subsequent recession. These trends deepened the inherent problems of the developing countries.
The United States reacted to these events initially with considerable vigor. Operation Independence was announced with brave goals of reduced energy consumption and increased energy production. Conservation was discussed as a new ethic. In addition, the International Energy Agency was established with 19 members committed to collaborate in conservation, energy research and development, and, if necessary, energy-sharing. By the magic of goal-setting, oil imports were to be reduced to very low levels. Simultaneously, the United States government railed against the price-gouging by the oil exporters. OPEC was viewed as a public menace. Punitive Congressional action against its members was contained in the Trade Act of 1974, and the Secretary of State alluded to the possibility of military action in the event of a renewed embargo. The Congressional committee structure churned into action, numerous hearings were held, and much testimony was taken. The legislative results, however, have been minimal.
The performance of the industrial world as a whole, and of the United States in particular, has not been consonant with the exigencies of the situation or with expressed objectives and goals. Due to a variety of factors, especially the global recession, energy consumption declined in 1974 and 1975. But as economic growth resumed and memories of the embargo dimmed, energy consumption in 1976 increased sharply. In the United States, total energy consumption was about four percent above 1975 levels with a particularly sharp increase in the use of refined petroleum products. These trends accelerated during the first quarter of this year. Products demand, which averaged 16.3 million barrels a day (mmbd) in 1975, approximated 17.4 mmbd in 1976, and probably exceeded 19.5 mmbd during the January-March period of 1977.
Meanwhile, the production of U.S. oil and natural gas has continued to decline. Oil output peaked in 1970 and natural gas in 1973; oil is now about 16.5 percent and natural gas about 13 percent below peak levels. Traditional fields have declined in productivity, and exploration and exploitation have been hampered by high costs and a variety of price controls. This has resulted in a drop in output and a depletion in proven reserves, particularly in respect to natural gas.
Since the supply of other energy sources in the 1970-77 time-span has not significantly changed, the overall increase in energy consumption has forced a very substantial rise in the importation of hydrocarbons, primarily oil. In 1970, oil imports averaged about 3.4 mmbd or 23.3 percent of total domestic demand. In 1976, imports approximated 8.0 mmbd or more than 41 percent of domestic demand. In the same time span, the cost of fuel imports rose from $2.56 billion to over $32 billion. The latter outlay was a major factor in the substantial 1976 trade deficit. During the first quarter of this year, daily oil imports have exceeded 9 mmbd at an average price about eight percent higher than in 1976. This was a major factor in the record trade deficits during this period and probably presages a hydrocarbon import cost of about $45 billion for the year as a whole. Outlays of this magnitude would heavily burden our trade and current account balance.
In addition to the financial and inflationary consequences of this growing dependence on imported hydrocarbons, there is reason for concern about the source and location of those imports. As late as 1970, Western Hemisphere sources provided 78 percent of U.S. oil imports, primarily from Canada and Venezuela, but subsequently this pattern has shifted dramatically. Currently about 80 percent of our imports comes from the Eastern Hemisphere, and over 40 percent of the total is supplied by Arab producers, particularly Saudi Arabia. Since the Arabs possess the lion's share of OPEC's surplus capacity, further increases in U.S. import demand would have to come from those sources. When the Alaska pipeline is in operation, a welcome supply of North Slope oil will be available, but this source will provide only temporary surcease unless consumption can be checked. At some point in the next decade, Mexico may become a significant exporter, but at the best this will be a slow process.
At the present time, global crude oil production exceeds 58 mmbd. The OPEC members provide more than 90 percent of the crude in world trade, the Arab share approximating 60 percent. Currently, world demand for OPEC oil approximates 31 mmbd. The two most significant countries in this supply / demand equation are Saudi Arabia and the United States, with the former supplying about 30 percent of the OPEC output and the latter importing about the same percentage. The way in which they handle their separate energy positions will be major factors in world markets. The Saudis, for example, could influence future price levels by increasing, maintaining, or reducing their current offtake levels. Somewhat similarly, the United States could increase or decrease international price pressures by moderating or increasing current import demand levels. Since U.S. imports during the first quarter of 1977 were almost 50 percent more than in 1973, it seems evident that it has provided major underpinning for OPEC pricing decisions, including the awkward two-tier pricing system established at the December 1976 meeting.
There are numerous variables in the global energy supply and demand picture. Future economic growth rates are uncertain, but they are likely to be correlated fairly closely to the growth in energy demand. The current global oil supply is adequate and will be augmented in the next year by increasing supplies from Alaska's North Slope and the North Sea fields. However, growing global demands will gradually push against the self-imposed OPEC offtake ceilings. Unless these are raised, supply will tighten with concomitant increases in price pressures. This could lead to ruthless competition for access to tight supplies. Although the Soviet Union is currently self-sufficient in respect to energy, it may become a net importer within a few years.
The energy outlook for the next decade is somber, marked by a grim race between the depletion of existing hydrocarbon sources, conservation efforts, and the search for new energy sources. Whether supply dislocations occur or not, substantial increases are probable in the real cost of energy. This is likely to be a heavy burden for the world economy and political structure to carry.
In a very real sense, the United States has now joined the crowd. For many years, Western Europe has received over 70 percent and Japan over 90 percent of its oil from the Middle East, particularly from the Persian Gulf area. Currently about 50 percent of our oil comes from this region, and this percentage will inevitably increase. When the Arab boycott was announced on 17 October 1973, it affected about 19 percent of our oil imports. Similar Arab action would now affect more than 40 percent of our imports.
There are a number of interrelated aspects to the heavy dependence of the industrialized countries on imported hydrocarbons. The most serious of these is the vulnerability of supply. In the event of major power hostilities, the U.S.S.R. ostensibly would endeavor to cut the oil flow at its sources or to interdict tanker passage. Either would be difficult to prevent. Safeguarding the lengthy sealanes to Western Europe, Japan, and the United States would be a formidable task in the face of Soviet submarines, surface ships, and bombers. This is not an acceptable situation from a national security viewpoint.
Furthermore, in conditions short of open warfare, the flow of Persian Gulf oil could be at least diminished by sabotage. In addition, the Arabs in the past have demonstrated the strength of the embargo weapon. In the event of renewed Israeli-Arab conflict, they would probably reimpose the embargo. This could reflect the positive decision of the governments or their inability to resist the demands of their agitated populaces. The results would be the same. Countervailing political and economic actions by the consumer nations would be unlikely to force a resumption of oil exports. Resort to military action would be highly adventurous and would have long-term adverse consequences.
An embargo of significant duration would have most serious economic results for the industrial countries. Production and distribution would be disrupted, and heavy unemployment would occur. This, in turn, would subject individual governments to considerable strain. While the consultative and sharing provisions of the International Energy Agency would be triggered, it is by no means assured that the members would agree on counteractions against those who had imposed the embargo. Dangerous levels of disagreement might appear within our alliance structure, with other governments, and within our own country. Under these circumstances, the threshold to war might be low.
In addition to the problem of supply vulnerability, the heavy global demand for high-priced imported oil has had distortionary consequences for the global economy, adversely affecting production, trade, price levels, the balance of payments, and international monetary stability. This, in turn, has adversely affected the political, economic, and security interests of much of the world.
Since the price surge at the outset of 1974, the members of OPEC and particularly Saudi Arabia have amassed very large reserves of gold and foreign exchange, far exceeding those of the industrial countries. In 1976, the OPEC members as a whole had a current account surplus of over $40 billion, with three-quarters of this accruing to Saudi Arabia, Kuwait, and the Union of Arab Emirates. In view of the heavy demand for oil and the price increases that have already occurred, their current account surplus is likely to be higher this year even if their imports rise.
While the international financial system has displayed considerable finesse in handling the vast shifts in resources embodied in these developments, its capacity as currently constituted to perform this function over the years is questionable. The maintenance of very high levels of private bank financing is particularly doubtful. International indebtedness is quite high, and the refinancing requirements of the importing countries are growing in number and difficulty, especially with respect to the less-developed countries. The foreign indebtedness of the latter has about doubled since 1973 and now approximates $180 billion, including a substantial proportion of private credits. This precarious situation will dampen their economic growth rates and could lead to a series of defaults.
To darken the outlook even further, the OPEC members may decree additional price rises, particularly if demand remains buoyant and begins to press against their offtake ceiling capacities. In any event, hydrocarbon production will decline at some time in the absence of massive new oil discoveries, which will give rise to additional price pressures.
Separately and collectively, these are major issues that require urgent joint consideration by the industrial countries. Whether the dreams of the less-developed countries are requited in respect to a New International Economic Order, it is evident that extensive cooperative action will be required to maintain the stability of the existing system. If we continue to drift with these problems, the ultimate consequences could be very serious. In effect, our inability or unwillingness to establish a more rational balance between the domestic supply and consumption of energy and the consequent surge in oil imports is creating a major threat to our economy and to our national security.
The linchpin of our alliance structure is the strength and stability of the industrial triad of Western Europe, North America, and Japan. Furthermore, the economic prospects and stability of the developing countries are heavily dependent on the security and relative prosperity of the industrial countries. However, dependence on Middle Eastern oil is a serious threat to the industrial structure. The United States no longer has the capacity in crisis conditions to transfer oil to its allies or even to meet its own energy requirements, and we do not currently possess a strategic oil reserve. The individual and collective foreign policies of the industrial countries are heavily burdened by this reality, and the consequences could be calamitous. This situation cuts directly across domestic and foreign policy.
American diplomacy must be focused on the realities and potentialities of the global energy balance. The stability of the world and our own national security are intertwined with the various energy issues. While the ramifications are global in nature, we should realize that the prime area of decision is within the continental limits of the United States. Diplomacy cannot indefinitely compensate for inadequacies of domestic policies. We must establish a viable national energy policy.
We should collaborate closely with our industrial allies in the International Energy Agency and in other forums. Energy, nonfuel raw materials, economic development, and international financial issues are interwoven in the ongoing considerations of the Conference on International Economic Cooperation. Substantial compromises will be required by both the industrial and developing countries if these discussions are to result in a reasonable degree of success. The major objective of the industrialized countries is to obtain assurances of continuing energy supplies at price levels that do not disrupt the world economy, while avoiding harmful arrangements in respect to nonfuel raw materials and international debt relationships. Conversely, the objective of the developing nations is to win support for the general concept of a New International Economic Order that would embrace raw material buffer stock arrangements, price indexing, debt relief, and the transfer, technology.
In view of its growing dependence on Persian Gulf oil, the United States must be particularly assiduous about its relations wit Saudi Arabia and Iran, the two largest oil exporters. Unless Saudi Arabia, for example, prepared to expand its offtake significant supply shortages could materialize in the course of the next several years. Since Saudi Arabia is running heavy financial surpluses current production levels, it has little direct interest in accommodating the desires of the consumer nations. In a sense, this reality circumscribes the flexibility of U.S. policy in respect to Saudi Arabia and to the region as whole. This includes the tangled and complex Israeli-Arab issues. The outbreak of was between the Arabs and Israelis would probably precipitate an embargo. And the continuation of the current impasse could lead to Arab intransigence in regard to the supply and pricing of oil. Until recently, American, military power, technology, and prestige created an asymmetrical relationship with the oil exporting countries. Today, however, these relationships are more evenly balanced. Saudi Arabia and Iran, for example, still need the shield of American power and, a continuing supply of American equipment and technology to defend and develop their countries. Conversely, the United States now needs a growing supply of Saudi and Iranian oil to maintain its economic growth in the absence of domestic restraints on energy consumption. Mutual dependence, however, is not necessarily conducive to amicable relationships since the members of this triangle have both converging and diverging interests and problems. A particular problem emerges from the lack of American comprehension of the changing nature of the U.S.--Saudi--Iranian power equation. Our ability to force acceptance of our views has been considerably diminished as has our capacity to reject their specific desires. The equation includes the supply of military equipment, the tangled skein of Arab boycott provisions and countervailing Congressional enactments, and sensitive human rights issues. Hobson-type choices loom in respect to these problem areas.
There are no quick and certain solutions to our domestic energy problem. This is the frustrating reality with which we will have to live. Furthermore, our efforts to bring it under better control will be difficult to formulate and implement. Adjusting to straitened circumstances is seldom easy, and, in these respects, we should be aware that the President will propose, Congress will dispose, and the people will judge the results.
A coherent national energy policy must be formulated, enacted by Congress, and vigorously implemented. This action must be accompanied by a determined, systematic effort to contribute to public comprehension of the nature of the problem and the rationale for the varied aspects of the overall program. Unless this can be accomplished, the program will remain a bent arrow, both in the society as a whole and within the U.S. Congress.
Extensive reorganization will be required at the federal level to establish a rational structural approach to energy issues. This process should be accompanied by a reorganization of the relevant Congressional committee structure. There should be no illusions, however, about the significance of the structural changes. Structure is only a tool, contributing to relative degrees of efficiency and inefficiency. Unless the program is substantively sound and the requisite will exists to implement it, we shall continue to drift with the problem.
The energy problem must be viewed as a fundamental threat to our national security, to the well-being of our people, and to domestic tranquillity. It cannot be effectively managed by resorting to gimmicks, press a gentry, or persiflage. While the problem of energy should not be viewed in a penitential sense, it will require painful sacrifices. Furthermore, its consequences are likely to rest unevenly on varying elements of the society. Those whose ox is gored can be expected to remonstrate. Unless the administration and Congress were prepared to stand firm, political pressures could produce a growing list of exceptions that would effectively destroy the energy program, while producing a vast regulatory monster.
The objective of the domestic program should be to bring the supply and the demand for energy into better juxtaposition, while simultaneously improving the usage efficiency of existing fuel sources. Coal, for example, should replace oil and natural gas to the extent feasible. The program should not be an autarchical effort to produce energy self-sufficiency. Even if it is successful, the United States will still import very substantial volumes of oil and natural gas.
The American society has a strong propensity to consume energy, accompanied by conspicuous waste. Substantial reductions in energy consumption could occur without serious economic losses. However, blithe suggestions that at least fifty percent of the energy utilized is wasted can be misleading. Eliminating waste would hit sensitive economic nerves far below that level, resulting in serious economic dislocations including increased costs, impediments to production, and unemployment, which in turn would contribute to societal unrest and political disarray.
Economic development requires an annual increase in energy consumption, which traditionally has exceeded three percent. This percentage probably would decline as the economy grew in sophistication. Furthermore, curtailments in waste could make energy available for more productive purposes, including antipollution efforts. It remains to be seen, however, if traditional energy growth rates could be reduced in periods of economic expansion. This savings would require a highly effective energy conservation program.
Energy consumption could be directly controlled. Oil import ceilings could be established, and energy in its varied forms, including gasoline, could be rationed. In time of war this would be necessary. However, such restriction, particularly in peacetime, would be an extremely cumbersome procedure with high potentiality for corruption. It is very doubtful that the administration would propose and Congress enact legislation authorizing such a system.
Theoretically, it is possible that a national consensus could be developed that would lead to voluntary reduction in the use of energy, but it is improbable. In a practical sense, this sequence would be putting the cart before the horse. It is far more likely that such a consensus would develop after the energy program had been promulgated. And, in fact, the degree of success of such a program will be a measure of the degree of public acceptance of the need to conserve.
Energy consumption is computed in broad terms: transportation (24.9%), residential and commercial (34.1 %), industrial (35.2%), non-fuel, for example, petrochemicals (5.5%), and miscellaneous (0.3%). To be successful, the energy program must affect each of these segments, primarily by reflecting the reproduction cost of energy. If, for example, gasoline and diesel prices are held at the lowest level in the industrial world and rationing is not instituted, there would be no reason to anticipate a fall-off in the consumption rate until the existing rolling stock was replaced by cars and trucks with significantly higher per gallon gasoline ratings. This process will be a gradual one. Some gasoline price increases will emerge from existing legislation and the increasing costs of the petroleum industry. It is quite possible that this gradual increment would be viewed by the consumer as part of creeping inflation and would not lead to a cutback in consumption. On the other hand, a sharp increase in federal excise taxation of gasoline and diesel fuels would be likely to have the desired effect, although it would also have dislocational consequences, including inequities. The funds derived from such taxes could be earmarked for the effort to expand the output of energy, for public transport or for the purpose of alleviating some of the indicated inequities. There should be no illusions about the divisive nature of a stiff increase in fuel prices. The truckers, in particular, will oppose higher prices and more rigid speed standards.
Mandating the pace of technology is an uncertain process. However, the establishment of tight average gasoline ratings for automotive production would either lead to accelerated technology or a reduction in automotive weight. The latter process would also be expedited by the imposition of special taxes on heavier cars and rebates on lighter cars. Again, actions of this nature would be controversial, since they would probably affect company earnings and employment adversely. Furthermore, they would increase the expenses of those who wish to have and need to have larger cars.
The logic and implications of higher fuel costs would also apply to commercial air transport, private aircraft, the various types of power boats, and to the varied forms of automotive campers. Spin-off consequences for vehicle producers and for the large tourist industry would result.
The use of public transportation facilities must be stimulated. This requirement has both positive and negative facets and is bound to be controversial. It presupposes that adequate transportation facilities are in place and operating with reasonable efficiency and safety. In these respects, there are great variations within the country as, for example, between New York and Los Angeles. Capital and operating costs in the public transport sector are high, and the creation and maintenance of viable transport systems are hardly feasible without substantial federal financing. Car-pooling is an awkward and irritating process which can be stimulated by traffic regulations and taxation of parking facilities, but it will not contribute to the tranquillity or productivity of the individuals concerned nor will it deepen their affection for the public officials responsible for such regulations. There is a limit to the tolerance level of the citizenry for government in a collective sense, and vexatious regulations can be counterproductive.
In the interest of energy conservation, building codes for all types of residential, commercial, and industrial structures should be tightened. In various ways, the insulation capacities of existing structures should be improved. Some inequities in respect to those who have already accomplished this task appear inevitable. The electrical utility companies could be made the focal point of this effort in either a mandatory or advisory capacity. Alternatively, higher insulation standards could be encouraged by tax concessions.
Higher standards could also be mandated for various types of equipment and for electrical appliances. While beneficial in an energy sense, these measures would increase the pervasiveness of governmental regulations and probably increase costs.
There is ample room for energy saving in the commercial sector. Building codes could be tightened, and operating hours could be locally controlled. The most effective energy limitations for both residential and commercial buildings probably could be indirectly enforced through higher energy prices. Entertainment facilities, which are high-energy utilizers, will be subject to higher energy costs. Night football and baseball games are cases in point. Owners of existing high-cost structures may be subject to adverse consequences.
American industry, which is sensitive to cost factors, has already tightened its energy belt. While further efficiency is possible, at some point energy curtailment would have ill effects on production. It seems probable that concern about the availability and cost of energy is already adversely affecting investment decisions and, therefore, the construction industry.
The productivity of American agriculture reflects to a considerable degree high-energy utilization. Furthermore, it is capital rather than labor intensive. Higher energy costs will result in higher operating costs. To the extent that these cannot be covered by improved efficiency, they will result in higher product costs and, perhaps, in reduced production.
While it is imperative to improve the efficiency of energy use, there should be no illusions that our national objectives can be realized solely through this route. It must be accompanied by a systematic and vigorous effort to expand energy production in its varied forms. In an approximate sense our energy is currently derived from the following sources: oil (46.5%), natural gas (27.9%), coal (18.5%), hydroelectric (4.5%), and nuclear (2.5%). These proportions are unlikely to change significantly in the short term, although the use of coal and nuclear energy will expand moderately. The availability of North Slope oil late this year should check the decline in domestic oil production, but natural gas production will continue to fall in the absence of an accelerated rate of exploration and exploitation, particularly in off-shore areas. Increases in consumption will necessitate a further expansion in oil imports.
The most efficient method of maximizing exploration and exploitation of hydrocarbons would be the removal of all price controls on energy. Domestic price levels would then come into line with world energy cost levels. This adjustment would have shock consequences for the American economy and society, including our competitiveness in world markets unless corrected by a decline in the exchange rate of the dollar. The Carter administration is unlikely to give full-rein to market forces, and it is quite doubtful that Congress would approve proposals of that nature. The present complex system of varying price levels for domestic oil and natural gas will continue with gradual price increases. However, new sources of natural gas should be decontrolled. This action should stimulate exploration and development efforts to produce more oil and natural gas from domestic sources, the continental shelf, and the Prudhoe Bay region. Exploration work should also proceed in the Alaskan Naval Petroleum Reserve No. 4 area. Until this is done, there is no way to determine the extent of the hydrocarbons in that vast region. Some, if not all, of these developmental efforts will be delayed by environmental considerations and legal suits. It will be late in the. year at the earliest before a final decision is made regarding the route of a natural gas line from the Prudhoe Bay area. As a result, this energy source will not reach American and Canadian markets during this decade.
Coal production and utilization must be expanded. To do so will require the passage of a strip-mining bill with which the industry can live, and compromises will have to be reached between environmental and production requirements. To the maximum feasible degree, electrical utilities should be compelled to shift to coal, which will probably require some modification of environmental standards. It may also require disincentives in respect to the use of natural gas, which could be accomplished by federal regulations or federal taxes.
Despite the problems related with nuclear energy, phased expansion of nuclear power facilities will have to continue. There is no current substitute for the energy they can produce.
Hydroelectric power has leveled off as an energy source, and the more favorable sites for large dams have been utilized. However, some further expansion may prove feasible by resort to the use of smaller dams.
Energy derived from exotic sources is unlikely to reach significant proportions for many years. These sources include solar, hydrogen, geothermal, thermal gradients, shale, coal gasification, and oil sands. Their development is currently impeded by technological problems, environmental considerations, and high costs. Sufficient research funds should be made available for each. Furthermore, federal developmental funding may be merited for coal gasification and possibly for other potential sources.
The expeditious development of an adequate oil-reserve supply must be an integral part of the national energy program. This provision has major national security implications. In essence, it would be insurance against an oil embargo. The costs will be high, however, in terms of fiscal outlays and increased oil demand pressures, but these are the unavoidable prices of past errors.
The Energy Policy Act of December 1975 declared that it is national policy to establish oil reserves of one billion barrels. The only deadline established was 500 million barrels by the end of 1982.
On 13 April 1976, the Ford administration announced a Presidential decision to commit $871 million by 30 September 1977, for storage facilities, studies, and the purchase of 50 million barrels of oil with a goal of 150 million barrels by the end of 1978. Subsequently, the Carter administration increased the fiscal allocation to $3 billion, and raised the target reserve figure to 250 million barrels by the end of 1978 and 500 million barrels by the end of 1980 instead of 1982.* This is a laudable development, but moving from goals to a reserve in existence is time-consuming and expensive. Furthermore, the safety margins provided by the indicated target levels are being eroded by the high import growth rate.
The global and domestic energy problems are very deep-seated and will have major consequences for the international milieu for many years to come. There should be no illusions about the inherent threats embodied in the energy problem to our national security, economic well-being, and domestic tranquillity. The corrective measures that will have to be implemented will force changes in our unique lifestyle and will have painful economic, social, and political consequences. Individual and collective sacrifices will be required, and an effective energy program will cut across other national objectives, such as dampening inflation, expanding the economy, and diminishing unemployment. We will have to choose between objectives with disjunctive effects.
*On 20 April 1977, they again raised it to one billion barrels.
The energy problem and the way it is handled will be a major factor in the public assessment of the Carter administration and the Ninety-fifth Congress. In the existing political atmosphere, mandating public sacrifices is hardly the route to political popularity. The issue will severely test the leadership qualities of the President and the cohesiveness of our policy.
Our vast economy is intricately intertwined with much redundancy. As a generalization, it can adjust to most problems, including material shortages and national physical disasters. It is, however, heavily dependent on the ready availability of natural energy. Furthermore, its vibrance depends to a considerable degree on the availability of cheap energy. Soaring energy prices will lead to considerable rationalization of the production and distribution processes.
Despite the intertwined nature of the economy, there are unique aspects to the varying energy sources. Each form of energy--coal, oil, natural gas, nuclear, hydroelectric, and exotic fuels-has specialized histories, characteristics, constituencies, and regulations. Policy proposals regarding them will be complex and politically controversial. Typical examples are the decontrolling of natural gas and oil prices; the expansion of nuclear plants; forcing the utilities and certain industrial plants to use coal; taxing coal for environmental and other purposes; choosing a route for a Prudhoe Bay natural gas pipeline; solving the problem of moving North Slope oil inland; federal participation in financing the costs of developing exotic fuels such as shale, coal gasification, hydrogen, thermal gradients, and solar energy; choosing a site for the national solar center; and constructing deep-sea facilities to handle giant tankers.
Somewhat comparably, energy consumption also involves specialized interests, and efforts to restrain consumption will conflict with other objectives and contribute to political discord. What appears to be waste to some will be regarded as necessity to others. Furthermore, the conservation effort will embody elements of compulsion not normally experienced in peacetime. This pressure will occur at a time of growing resentment of the pervasive nature of governmental involvement in what are deemed by many to be personal affairs.
It is difficult to visualize any element, short of war, that is likely to be as divisive as the implementation of an effective energy program. In the first instance, it is likely to lead to considerable tugging and pulling within the administration and between the administration and Congress. Despite the basic national interest involved in this issue, the members will probably view the varied aspects of the administration's proposals in parochial and local terms. Maintaining party unity in the ensuing embroglio will be extremely difficult. Furthermore, in a matter as sensitive as this, the legislative process is likely to be very slow and cumbersome. Various members will ride pet hobbyhorses, and it may prove easier to form blocking than affirmative voting groups. As a result, the legislation that ultimately ensues probably will be considerably different from the original administration proposals. If the ultimate legislation proved to be effective, this would not be particularly relevant. There is, however, substantial danger that a divided Congress will be unwilling or unable to produce meaningful legislation. This, in turn, would increase the dangers inherent in the energy problem.
Unless a high degree of civility and restraint can be maintained in the national debate which stretches before us, one can visualize the likelihood of a series of rancorous disputes which will occur in Congress and elsewhere. These would include quarrels within the administration; between the administration and Congress; between federal and state governments; between energy producing and energy deficit regions; between industry and labor and within each of those sectors; and between the environmentalists and energy production advocates.
Since the energy issue affects the interests of the nation as a whole, the administration and the Congress are likely to be inundated with advice. Pressure groups will endeavor to promote and protect their individual interests with considerable zeal. And in this welter of communication, it will not be easy to keep the national interest in focus. In view of the nature of the problem and the objective of a national energy policy, it is unlikely that--there will be individual winners in the accelerating debate, In fact, there is considerable danger that we will fail the test of responsible democracy and that we will all be losers. Ineluctable forces would then come into play to our national detriment.
Air University
Editor's note:
The article reflects data available to the author before the President submitted his energy program to Congress. Nevertheless, Ambassador Walsh's comments regarding an effective energy program remain sound.
Ambassador John Patrick Walsh (Ph.D., The University of Chicago) is the State Department Adviser to the Commander of Air University. He is a Foreign Service Officer who has served in a variety of assignments at home and abroad, including being Ambassador to Kuwait. He was also an International Fellow at Harvard University.
Disclaimer
The conclusions and opinions expressed in this document are those of the author cultivated in the freedom of expression, academic environment of Air University. They do not reflect the official position of the U.S. Government, Department of Defense, the United States Air Force or the Air University.
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