Some See Deep Trouble in 1990s : Energy Policy Debate Gets Short Shrift Amid Oil Glut

A motley group of 100 oilmen, environmentalists, lobbyists, politicians, consumer advocates and bureaucrats convened here on a November weekend to bang out a hypothetical new energy policy for the United States.

Huddled at a bucolic corporate retreat 40 miles from Washington, they pretended that it was 1993 and there was an oil crisis going on. The idea was to show that everybody could cast aside their differences and agree on what to do.

There were dozens of plans to tax gasoline or imported oil, subsidize oil and gas exploration, boost solar and wind technology, swap debt for Venezuelan oil rights, run cars on natural gas, toughen auto fuel economy standards, expand the country’s strategic oil reserves.

But the efforts at compromise fell through when they ran out of time, tripped up by an oil-state governor’s opposition to siphoning off taxes to shield the poor from skyrocketing oil prices.

Then, two environmentalists complained that the rest of the group was not taking them seriously. A politician, recalling old battles among the same cast of characters, whispered to a colleague: “They haven’t changed a bit.”

That is how it goes when you try to fix something that isn’t broken yet.

Convinced that the nation is headed for deep trouble on the oil front in the mid-1990s, people worried about the future price and availability of energy are working feverishly to get the nation’s attention and force action to forestall the problem.

For example, the group that conducted the simulated energy conference in November, called the American Energy Assurance Council, was formed last year out of a concern for the political paralysis that seems to lead from any broad debate on energy. The council wanted to find a consensus on energy policy to present to the new Administration.

The sharply rising need for imported oil has “profound implications, whether your principal concern is environmental quality, economic productivity or national security,” said the group’s chairman, Gov. George Sinner of North Dakota, one of the oil states hurt by low prices.

Ex-Oilman in White House

Indeed, the oil import surge, gathering environmental clouds and the arrival of ex-oilman George Bush in the White House all point to the creation of a more recognizable energy policy than has existed under President Reagan.

“I’ve lived energy policy,” Bush said during the campaign, “and my Administration will act on that experience.”

He supports a bigger role for natural gas as a “bridge fuel” toward the post-oil era, tax incentives for U.S. oil and gas producers, a greater government role in energy research, faster filling of the Strategic Petroleum Reserve and other measures. He is opposed to an oil import fee but is being heavily pressured to endorse a big jump in the gasoline tax to cut consumption.

However, the nation was not able to put together a coherent energy policy even amid the oil shocks of the 1970s. The political paralysis is likely to be even worse when oil is plentiful and cheap, the federal budget is deep in the red and the problem is 5 or 10 years away.

“There’s no credibility for an energy problem today. Future problems have no credibility in the U.S. system,” said Daniel A. Dreyfus, the former longtime staff director of the Senate Energy Committee who is now a vice president at the Gas Research Institute.

Past Is No Guide

Nor has the past exactly pointed the way. Indeed, much of today’s policy talk is framed by the miscalculations of the last 15 years.

The complex oil price controls of the 1970s are derided for worsening the jolts of 1973 and 1979. And Jimmy Carter’s designation of energy independence as a multibillion-dollar “moral equivalent of war” is now viewed by some as a jumbled overreaction.

By contrast, it became a benign issue under President Reagan. Declining world oil prices and abundant supplies freed the Administration to stand back and enjoy the economic fruits of cheap energy.

While the Administration touts its decontrol of oil prices as a big cause of today’s cheery oil picture, this is roundly disputed. The President, whose decontrol merely finished what Carter began, is seen as having lucked out by entering office at almost exactly the moment when world oil prices peaked.

“It is part of the luck of the President that he came into office after OPEC had already set into motion a process that would result in a diminishing U.S. appetite for oil,” said Edward N. Krapels, president of Energy Security Analysis Inc. in Washington and a leading analyst on the subject.

Reliance on Imports

The collapse of prices in late 1985 changed the game, unleashing forces that have dramatically increased U.S. reliance on imported crude. Since then, leading energy officials in the Administration have clashed publicly on what it means.

Secretary of the Interior Donald P. Hodel warns darkly that the import surge will lead to shortages. But Energy Secretary John S. Herrington sees an indefinite period of plentiful supplies of imported oil from a more stable Middle East.

In fact, a faith in free markets has convinced some that the nation should worry less about its increased reliance on imported oil and enjoy the stuff because it is cheaper to produce than our own. Rather than tear up Alaska and California coastal waters looking for more oil, we can save it for a real crisis. Besides, the horror stories about scarce, $100-a-barrel oil and an omnipotent OPEC by the mid-1980s were wrong.

And the decontrol of prices since the oil shocks, some argue, will tend to self-correct the swings in oil markets, driving down demand and boosting supplies when prices surge. That is supposed to protect the nation from extreme energy jolts.

Botched Forecasts

Krapels, who served in the former Federal Energy Administration, says of the botched forecasts: “That experience turned even people like me into a schizophrenic. The economist in me says let’s import all the cheap oil we want.”

But, referring to the political volatility of the Middle East and the self-protective political instincts of the United States, Krapels adds: “The political scientist in me says that’s naive.”

For that reason, the surge in oil imports worries those in and out of the Reagan Administration. Its 1987 report, “Energy Security”--written by then-Deputy Energy Secretary William F. Martin, now a top energy adviser to Bush--drew compliments for setting out the potential problems posed by rising imports and analyzing the world energy picture.

But it was attacked for stating the obvious without any hard prescriptions to head off the escalating dependence on Middle East crude. To critics, the document symbolized a complacent or non-existent energy policy.

“It was a terribly bland, indifferent document,” said Pentagon consultant James S. Critchfield, longtime energy officer for the CIA and former head of CIA operations in the Near East and Eastern Europe. He added:

“Nobody in the U.S. government has said anything profound or important about energy in several years.”

Funds Slashed for R&D;

Meanwhile, the Administration has ended subsidies for alternative energy projects and slashed spending on conservation research and development by 70%, saying the oil glut lessened the need. It shifted the emphasis to long-range, high-payoff research in such fields as superconductivity.

Private industry has not picked up the energy research ball as the Reagan Administration had postulated, a General Accounting Office study concluded last year. And the government’s relaxation of auto fuel economy standards has eased the research pressure on auto firms, which do most research into auto fuel efficiency.

The most important gain in energy security under Reagan--growth of the U.S. Strategic Petroleum Reserve to a current 550 million barrels--owes more to Congress than to a budget-cutting Administration, which tried to slow or freeze the filling of the salt-cavern storage areas. Meanwhile, nuclear weapons programs grew to account for two-thirds of the Energy Department budget.

(Although Congress attacked the Administration for backpedaling on energy, lawmakers themselves approved higher speed limits, boosting gasoline consumption further.)

Actions Miss Mark

Thus the actions of the 1970s and 1980s repeatedly missed the mark, leaving the nation with no clear direction at a critical juncture on the world oil scene, according to Rep. Philip R. Sharp (D-Ind.), chairman of the House subcommittee on energy and power.

Sharp said that the nation overreacted in the 1970s and under-reacted in the 1980s, and added: “This is likely to lead to the next generation of problems--shortages or high prices and crash programs to catch up in the 1990s.”

Sharp and others say that today’s calm is an opportunity to build a sensible, balanced energy policy and head off the storm. But the debate so far reflects the familiar tensions between the short-term need to find more oil and the long-term need to quit using it.

If the lack of a current oil crisis creates inertia, the environment and the fiscal crisis are serving as a sort of proxy. Two of the major energy options on the nation’s agenda--limiting the use of fossil fuels and slapping a higher tax on gasoline--are driven by those hotter issues.

Greenhouse Effect

Last summer’s record heat and drought, seen by some as more evidence of global warming, triggered a wave of proposals in Congress to limit the use of fossil fuels, like coal and oil, that contribute to the so-called greenhouse effect, the trapping of reflected solar radiation by atmospheric gases.

It remains to be seen how much staying power the global warming issue will have in the oil debate. Coal, not oil, may be the bigger culprit in the greenhouse effect. But oil’s other environmental shortcomings are being raised anew as a red flag.

Martin, Bush’s adviser, says: “Energy is very much an environmental issue in many quarters today.”

The environment bolsters the case for perhaps the most widely supported energy initiative: a bigger role for natural gas in place of oil. This was one area of agreement between Bush and Democratic opponent Michael S. Dukakis.

Natural gas is increasingly seen as a nifty answer to several energy problems because it is plentiful and burns more cleanly than oil or coal. There may be as much natural gas left in the United States as there is oil, and the infrastructure to deliver it is in place.

‘New Swing Fuel’

“Natural gas has become the new swing fuel, the hinge where energy and the environment coincide,” said Daniel Yergin, president of Cambridge Energy Research Associates in Massachusetts.

But the potential is limited. Policies urged by Bush’s advisers to expand the uses for gas would displace less than one-ninth of today’s U.S. oil consumption. Only a major role for natural gas to fuel cars--technologically possible but uneconomical today--would make a big dent in oil consumption.

Bush backs oil exploration in such areas as the Alaska National Wildlife Refuge, and he endorses a package of tax incentives and relief for hard-hit independent oil producers. This puts him at odds with many environmentalists and those charged with narrowing the budget deficit.

To appease environmentalists, Bush has already moved to limit drilling off the California shores. To appease the budget makers, he is being urged to agree to a big hike in the current 9.1-cent-a-gallon federal gasoline tax.

Seen as a way to undercut Americans’ resurgent demand for oil, a gasoline tax hike has credibility with the likes of Alan Greenspan, Paul A. Volcker and Rep. Dan Rostenkowski (D-Ill.) only because a penny a gallon raises $1 billion a year. A 50-cent tax would be a powerful tonic for problem No. 1, the budget deficit.

See Lesser Burden

Compared to the 1970s, advocates believe a big tax increase would be less burdensome to the economy because gasoline costs less in real terms than at nearly any time since 1935. And it would remove a sore point with Europe and Japan, which control gasoline use with heavy taxes that make motor fuel two to three times costlier than in this country.

Whatever its fiscal virtues, some question the value of the gasoline tax as energy policy, arguing that a tax large enough to significantly cut gasoline usage would amount to political suicide. Hundreds of organizations are opposed. And it would do nothing for oil and gas exploration.

Support for nuclear power, meanwhile, is barely audible. Nuclear--despite its advantage in alleviating global warming and acid rain by displacing coal in the production of electricity--gets this limp embrace from President-elect Bush: “We mustn’t ignore nuclear power, either.”

A familiar assortment of other energy ideas is backed by the usual groups, which generally line up as producers versus consumers.

At November’s “energy crisis,” the producers wanted an oil price floor, greater access to public land for drilling, deregulation of natural gas, incentives to capture more oil from old fields, a new generation of nuclear reactors, more money for energy research and development and getting clean-coal technology to market.

Competing Agenda

The environmental and consumer group wanted a stiffer auto gas-guzzler tax and gas-sipper rebate; tougher efficiency standards for cars, appliances and buildings; protection of public lands from drilling; more funds for research in renewable forms of energy such as solar and wind, and a “carbon user’s fee.”

If there is a consensus on how to weave such narrow ideas together, it is that the problem is international and that solutions should encourage the full range of energy options, not favor one form over the next.

Sharp says energy policy must recognize that “a French nuclear plant and a Japanese advance in photovoltaics and a U.S. improvement in automobile fuel efficiency all contribute to a reduction of world oil demand.”

Martin says: “Your success is gauged by the dependence of the (Western) nations on the Persian Gulf. It can’t be just oil. It can’t be just domestic.”

Focus Overseas

In fact, some of the most important steps this country can take should be directed overseas, many energy experts argue. Because we must have imported oil, one school says the nation should focus on getting more of those imports from outside the Middle East by pushing foreign oil exploration, as Japan does, or arranging long-term supply deals.

One idea is forgiving bank debt in Venezuela or Mexico for assured supplies of crude oil or natural gas. With dollars and other support, Venezuela’s enormous reserves of heavy crude oil could vastly improve the energy security of the United States, said Henry Schuler, a former oil executive now at the Center for Strategic and International Studies.

“I’m much more interested in expanding supply than in managing shortages,” Schuler said.

The energy implications of glasnost have not even been touched on, said ex-CIA man Critchfield. The rudimentary oil and gas technology employed by the Soviet Union and China has left in the ground untold billions of barrels of oil that could be recovered by modern techniques, significantly increasing the world’s pool of non-OPEC crude oil, he said.

“There has not been a standing back and looking at energy in this changing context,” said Critchfield. “The Eurasian land mass is not nearly as well explored as North America.”

Threat Called Economic

Although the alarm over U.S. reliance on Middle Eastern oil sometimes conveys a military danger, most experts say the real threat is economic. Nor are we “running out of oil” in the sense that, one day, it will all be gone.

The world has several hundred years’ worth of oil that can be pried from sand, shale and other underground vaults if society is willing to pay $50 or $100 a barrel. The Western Hemisphere has plenty of such oil in places like Alberta, Colorado and Venezuela. Eventually, this pricey oil will rise or fall in competition with whatever alternatives emerge.

“Rather than straightforward exhaustion of oil resources, the genuine concern for the next several decades should be that most of the world’s cheapest oil reserves and potential resources are located in the unstable Persian Gulf,” said the Reagan Administration’s energy security report.

Overlapping Concerns

The dangers of this reliance, said a 1987 report by the Aspen Institute, lie in three overlapping areas: the long-term economic shock caused by a radical swing in price, the ease with which oil shipments from distant lands could be cut off and the limits imposed on U.S. foreign policy as the West’s dependence on Middle East oil grows.

Are we worried? The opinion research of Ethel Klein, associate professor of political science at Columbia University, is cited by both oil and environmental interests to show that the public is agitated about energy. But that is not quite right.

She says it is a more remote issue than it used to be and will get more abstract as time passes without any big price or supply problems.

People are “far from agitated,” she said. “It’s not salient the way it was in other times. It’s latent. It either has to hit the pocketbook or it has to explode in the Persian Gulf.”

OIL CONSUMPTION IN THE U.S.

16.7 million barrels per day Transportation and other Motor Fuels: 67% Industry: 23% Residential: 4% Electric Utilities: 3% Commercial: 3%