Bush Calls for Bold Action but Produces a Modest Plan

With fuel prices soaring, supplies tightening and the nation’s energy infrastructure tottering, President Bush says it’s time for bold action--the equivalent in some respects of President Eisenhower’s decision to build the interstate highways.

Yet the energy plan he unveiled in St. Paul, Minn., is a blueprint for a relatively modest effort by the federal government--a plan that commits neither government dollars nor government authority on anything like the scale Eisenhower employed to transform America’s highway system.

And Bush would focus federal efforts most sharply on areas where, in the absence of large-scale government spending, Washington may have the least influence: on multimillion-dollar capital investments by private business and on broad social policy choices that are ultimately made at the grass-roots level.

Moreover, in some cases, the Bush plan piggybacks on favorable developments already underway. The president, for instance, vows to accelerate the relicensing of aging nuclear power plants. But the process of reviewing safety standards and other factors before allowing older plants to keep running “already has been streamlined,” according to Shirley A. Jackson, who headed the Nuclear Regulatory Commission under President Clinton and now is president of the Rensselaer Polytechnic Institute in Troy, N.Y.

Approvals Speeded Up for Nuclear Plants

The two most recent nuclear plants to be relicensed received their approvals within 24 months, much faster than in the past, Jackson says--with about 30 plants queued up to move through the same expedited process.

Indeed, some economists question whether today’s energy problems merit the term “crisis” at all. Shortages and higher prices, they say, exist because a decade of prosperity and economic growth finally pushed demand for energy beyond immediately available supplies--a deficit that market forces are already beginning to correct.

“Why not just sit back and let the markets respond, as they do for everything else? Why do they think we have a crisis?” asked Tim Brennan, an energy specialist at the University of Maryland Baltimore County and a senior staff economist for the White House Council of Economic Advisors in 1996 and 1997.

“The plan is the political equivalent of a sugar pill,” said Jerry Taylor of the Cato Institute, a libertarian think tank based in Washington.

If Bush’s approach is modest, and premised on the unstated assumption that relatively little government action is needed, even critics applaud him on two counts:

* He presents a comprehensive view of the energy issue, tying together supply, demand, conservation and the environment.

* He is focusing public attention on the need to address important problems and policy decisions that were ignored in the years when energy was plentiful and cheap.

“The president’s biggest role is to educate the public, and that’s where you have to give President Bush high marks,” said David Nemtzow, head of the Alliance to Save Energy, a coalition of electric power companies and environmental groups promoting energy efficiency.

The Bush plan calls for an all-out effort to expand domestic production of oil, natural gas and coal, including new development on public lands. It proposes that the United States build about 1,300 electric power plants and 38,000 miles of pipeline. It seeks to revive the moribund nuclear power industry. And it suggests a possible easing of federal efforts to curb air pollution.

No major increase in federal spending is contemplated to achieve these goals; nor would large-scale tax credits or other subsidies be offered except for development of renewable energy sources, such as solar and wind power.

Instead, the administration hopes to stimulate action primarily by reducing federal red tape and other obstacles.

The problem is that recent price increases and supply shortages have less to do with government regulation than with basic realities of supply and demand.

“The federal government does matter, of course, but it’s not what fundamentally matters most,” Nemtzow said.

Reducing federal regulations or making them more market-oriented, as Bush proposes, is worth doing, economists and energy specialists agree. But that alone will not move businesses to invest billions of dollars in new oil and gas wells, power plants, electrical transmission grids or pipelines.

Only the prospect of growing demand and substantial profits, springing at least in part from continued higher prices, can do that, experts say.

“The only reason you didn’t see a lot of power plants built in the 1990s is because they overbuilt in the 1980s,” said Fred Murphy, an energy specialist at the Fox School of Business and Management at Temple University in Philadelphia. And the overbuilding occurred primarily because of market forces, not government policy.

Utilities expanded generating capacity because they thought demand would keep growing, as it had since the end of World War II. When soaring oil prices, along with new environmental regulations, drove up the price of electricity in the 1970s and 1980s, consumers found ways to slash consumption.

The unexpected slowdown in the growth of demand contributed to excess generating capacity that persisted into the 1990s.

Washington’s role is similarly limited when it comes to policy decisions that involve broad social issues, especially trade-offs between such things as gasoline prices and clean air. Bush can propose one choice over another, but on issues touching people’s lives directly, public opinion is hard to ignore.

This tension is most clearly visible when it comes to the environment. For environmental groups, the Bush approach places too much emphasis on boosting fossil fuel supplies and too little on using present supplies more efficiently.

“We can really go a long way toward dealing with the problems through greater efficiency and conservation. And we don’t have to give anything up,” said Mark Helm of Friends of the Earth. “There is a way to do this without simply lining the pockets of the oil and gas industries.”

Economists see it as a matter of making choices.

If people continue to oppose construction of refineries, pipelines, power plants and such in their backyards, as they often do now, “that may represent social and political choices that those costs are worth paying,” according to the University of Maryland’s Brennan.

“Higher prices are not necessarily a crisis,” he adds. That is, society may choose to pay more for gasoline and electricity in exchange for cleaner air or unspoiled neighborhoods.

Even in the present climate, many experts say, the prospect of having an oil refinery as a neighbor arouses such intense opposition that new refineries are unlikely to be built in most places. Greater refining capacity will have to come from expansion of existing facilities.

Formulated Fuels Pose Major Problem

In the case of gasoline, the trade-offs between economics and the environment have become sharper since many states and regions began requiring specially formulated fuels that burn cleaner. Domestic refineries have been re-engineered to manufacture “reformulated gasoline,” but many refineries outside the United States are not equipped to produce this specialized fuel.

As a result, it is harder than it used to be to tap into global or even national gasoline supplies when regional scarcities develop. “We are now more dependent on domestic refinery capacity than ever before,” says Washington energy lawyer William Demarest.

During the 1970s and 1980s, the federal government began deregulating energy, especially oil and natural gas. In the decade and a half that followed, increased competition created energy surpluses and drove down prices, helping consumers but discouraging investment.

Now demand has caught up with supply and prices have jumped. If markets operate as expected, the higher prices should encourage the private sector to boost investment, bring on new energy sources and improve the infrastructure.

“Instead of criticizing past administrations, people need to recognize that . . . there were inevitable downsides to policies that for years had upside benefits,” Demarest said.

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Times staff writer Richard Simon contributed to this story.