Overconfidence Could Revive Energy Crunch

Jog your memory a little. It has only been a decade or so since public figures were exhorting us all to help the nation’s campaign for energy self-sufficiency. Little cars were replacing big cars and experts were drawing charts showing a huge shortfall in energy supplies by the turn of the century if everybody didn’t do their part.

All that is filed away now as part of yesterday’s problem. The crisis came and went, then came and went again. Oil prices already are down sharply and appeared on the edge of further collapse last week because of increases in Saudi Arabian production. The real cost of petroleum (factoring inflation in prices of other things) has plummeted 50% since 1981, observes William Hogan, director of Harvard University’s Energy & Environmental Policy Center.

Few voices are left expressing alarm. Some are bankers worried about prices falling too low because of loans they’ve made to energy companies and to Third World countries needing oil export revenues to pay their bills. But now and then, an expert still pops up to say that we need to worry about energy supplies.

Their concerns are three-fold. One is that at any time political events in the Middle East could heat to the point of cutting off significant oil supplies. Added oil production capacity outside that region, plus the creation of a strategic petroleum reserve in the United States, would probably make such an event manageable right now. But a second concern is that within a few years, demand for energy from developing countries will rise sharply as those nations get on top of some of their current economic difficulties.

The third concern is even less immediate but probably much more significant. It is that we are beginning to backslide, paying less attention to developing energy resources and to energy conservation and building back into the economy the kind of growth in energy use that burned us before. As energy costs decline, the incentive to develop and to save declines rapidly.

Ironically, during the early days of the energy crunch, many experts believed that price wasn’t all that important. They feared that energy use habits were so ingrained that even radically higher prices could do little to reduce consumption. They were wrong. Consumption patterns changed as radically as the price. It takes 23% less energy to fuel the same amount of economic activity in this country compared to the early 1970s. With prodding from government and consumers alike, cars have been redesigned to be vastly more efficient. So have many new buildings.

But some of these successes may not continue as the price comes down. On Friday, the government softened fuel economy standards through 1988 model cars, in part because auto companies face strong demand for cars that are among their least fuel efficient. Government programs to stimulate development of alternative energy sources have been trimmed severely.

Less than a tenth of the alternative energy supplies once hoped for as part of the self-sufficiency campaign have been developed. The only solace is that some of the work already done will make it easier to get projects going again if the need arises.

There is good reason to maintain some of the religion we learned from the Organization of Petroleum Exporting Countries and the command it gained over oil prices. That run-up in prices was at the heart of the severe inflationary problems that beset this nation and then sent it into its worst post-World War II recession. While the nation only imports 32% of its petroleum needs today, down sharply from 47% at the peak, that’s still enough dependency for some measure of unease.

Hogan at Harvard argues that oil prices, adjusted for inflation, could be as high by the end of the decade as they were in 1981. He argues for building a much larger strategic petroleum reserve. Daniel Yergin, president of Cambridge Energy Research Associates, believes that we should be careful to maintain a modest but steady flow of research and development money into alternative energy development efforts.

The temptation to see both areas as a place to save money in a time of tight federal budgeting must be resisted. Energy conservation has bought the world the time to insure some stability in future energy supplies.