Experts Look Beyond the War at U.S. Energy Policy

Virtually everyone agrees that the United States is involved in the Persian Gulf War at least in part because of oil. But what should our energy policy be when the war is over? How can we reduce our dependence on Middle East oil? How should we deal with the region once hostilities are over?

Sharon Bernstein interviewed a range of industry leaders and experts, including oil company executives, the head of the nation’s largest investor-owned public utility and consumer advocates.

Philip K. Verleger Jr., energy analyst and a fellow at the Institute of International Economics:

My biggest concern is the lack of an expression of a goal for energy policy in any of the consuming countries and the paucity of new ideas that are being offered to deal with the energy issue.

President Bush’s Energy Department has been working diligently on an energy strategy for two years. Unfortunately, there has been no enunciation of a goal. And it seems to me very hard to have a strategy without a goal. A number of possible goals can be thought of, like minimizing imports, maximizing consumer welfare, minimizing environmental damage. But we really need to decide what the nation’s energy goal is, and what the world’s energy goal is, before we start designing strategies.

One of the goals is clearly reduced usage or a reduction in the growth of energy consumption. On that we haven’t really seemed to come up with any new ideas in 18 years. The proposals that have been put forward by the Department of Energy and others are simply restatements of proposals that were made in the mid-1970s and late 1980s, such as mandatory fuel economy standards or higher gasoline taxes--various incentives to conserve.

While these are good ideas, we really need some entirely new concepts. My favorite one is congestion pricing, tolls paid by motorists to use highways during rush hour. If we don’t come up with any new ideas, we’re going to have to keep fighting wars in the Middle East to protect our oil supply for generations.

Richard A. Clarke, chairman and chief executive of Pacific Gas & Electric Co. in San Francisco, the largest investor-owned energy utility in the United States:

In California, I’m not sure we need to reshape policy because within the last few months the Public Utilities Commission here has implemented plans under which California utilities for the first time ever would receive financial incentives for savings in energy use. It used to be that we only made profit on the generation of new facilities. Now the incentives are not to build new plants but to invest instead in energy efficiency.

And our customers get rebates for efficiency. For example, Bank of America in San Francisco put energy-efficient air conditioning and lighting throughout their building. It cost them $1 million. We gave them a $240,000 rebate to help cover the cost. They will save so much on their utility bills that they will get their pay-back in less than two years.

There’s no question that incentives like these have got to be central to a national energy policy. Energy efficiency has got to be a major component. PG&E; has reduced our oil use by 90% since the oil embargo of the 1970s. We were burning 30 million barrels a year, and this year, even with the drought, we’re down to about 4 million barrels, using geothermal, wind farms and nuclear.

Another thing would be to use natural gas in place of oil. We have in America and Canada enough natural gas to more than meet our needs. Even in vehicles, we can displace a lot of gasoline use by using compressed natural gas. We can move ahead with the solar and wind generating technologies, although we think to get cost effective it’s going to be toward the end of the decade, rather than at the beginning of the decade, that we shift to those resources.

Audrey Krause, executive director of the San Francisco-based utility watchdog group, Toward Utility Rate Normalization:

The war underscores how important it is for the United States to have an energy policy and one that’s based on environmentally benign, renewable sources of energy, such as solar and wind and geothermal. And not fossil fuels, certainly, and not nuclear, certainly.

One of the underlying reasons we’re in the gulf is because of the oil interests of this country. Yet energy policy has become a political hot potato, tossed here and there, while nobody wants to bite the bullet and start doing what needs to be done.

Lodwrick M. Cook, chairman and chief executive of Atlantic Richfield Co. and chairman of the National Petroleum Council:

My message would be keep cool and don’t panic. The marketplace is backed up by reserves around the world. And if Saddam Hussein comes out of his hole and does create some kind of disruption, we shouldn’t overreact.

You could have a blip in the market until the system kicks in. But the industry has shown restraint (in raising prices), and that has had a calming effect on the marketplace. It’s true that there were fourth-quarter earnings increases, but that is something of an anomaly. Prices actually calmed down sooner than most people expected.

Ralph Cavanagh, director of energy programs for the Natural Resources Defense Council:

Taking advantage of this opportunity for energy conservation will make us far less vulnerable to this kind of catastrophe in the future. And what some of us are trying to do is to get that insight clearly framed in the new national energy strategy. It already is framed in much of California energy policy.

One example is a groundbreaking, energy-efficient commercial facility--set up as a market-oriented demonstration of all the ways you can use energy more efficiently--which will soon be opened in Northern California. It’s very compellingly and artistically arranged, and it shows that energy conservation today does not mean putting on extra sweaters and shivering in the cold.

And the prototype of the most important oil-saving legislation we could have on a national level will be introduced in the California state Senate by Gary Hart (D-Santa Barbara). It’s called “drive plus,” and it offers rebates to people who buy energy-efficient cars. It’s paid for by people who pay fees on energy-inefficient cars. It’s an idea that should push the automobile marketplace toward efficient cars.

What we need to do is recognize that we’re at war because we have an enormous dependence on imported oil and oil in general. Most people talk about reducing oil dependency as if it were some enormously expensive and burdensome thing to do, that it would require giving up things that people want. But new technologies for more efficient vehicles and appliances and better-insulated buildings demonstrate that there are opportunities to substantially reduce energy use without sacrificing energy service.

We need to remind ourselves that nobody values oil or gas for themselves. We value them for the services they supply. If we manage to get to do those things for less energy, nobody will feel the loss of that energy use.

Charles Imbrecht, chairman of the California Energy Commission:

The gulf crisis shows once again the importance of beginning the diversification of our transportation fuel mix. We will forever be susceptible to the requirement to defend sources of supply as long as we have a heroin-like dependency on petroleum alone to move our people, goods and services. Both from an air-quality and energy-security perspective, it’s time we kicked the habit.