S. Fred Singer, (Washington Times June 17, 2001)
After firmly rejecting the Kyoto Protocol that would have put caps on energy use, President George Bush still has to navigate his energy plan through Congress. It is a real departure from the failed policies of Richard Nixon and Jimmy Carter. But with the shift of power in the Senate, its fate is in doubt.
Many still recall Nixon's reaction to the so-called Arab oil embargo of 1973. True, Arabs did declare an embargo against the US but they kept shipping the oil to the rest the world; we simply imported this surplus. The crisis in the United States was entirely self-inflicted -- caused by price controls on oil installed by Nixon two years earlier and finally abolished by Reagan. But rather than fixing this basic problem, Nixon decided on his grandiose Project Independence. With the long lines at gas stations still fresh in everyone's mind, the public was readily persuaded that the United States could become completely self-sufficient by investing in solar energy, geothermal energy, tidal energy and other schemes too esoteric to mention.
We narrowly missed being suckered into a scheme to extract crude oil from oil shale in Colorado. I still remember the National Petroleum Council telling the Department of Interior in 1971 that shale oil would become economic if the price of crude oil ever reached three dollars a barrel. By 1973 the price had jumped to $12. From then on, the price of shale oil was always just out of reach and of course it never became economic -- even disregarding the environmental damage it would have produced.
Not satisfied with wasting billions on such efforts, the Nixon administration also brought us the International Energy Agency in Paris, which was supposed to be the consumer cartel to oppose and neutralize OPEC, the cartel of oil producers. The IEA is still in Paris, still looking for a mission.
Filled with angst about oil supplies, we also embarked on the Strategic Petroleum Reserve, a wasteful effort by government to protect against an imaginary embargo. No such thing: Being fungible, SPR oil would merely lower slightly the price of oil to consumers around the world. But at least, fear of an oil embargo overcame environmental objections to the Alaskan pipeline. When it was all over, by 1974, all that remained of the embargo was a higher world price of oil, appropriate to the supply-demand situation. It would have reached that same level without any "embargo," but perhaps more slowly.
Jimmy Carter's oil crisis was the price explosion that followed the abdication of the Shah of Iran. While it was obviously driven by panic rather than economics, Carter and many others misjudged the situation and made it worse. Even earlier, Carter had been persuaded that natural gas was too precious to burn as a fuel. It had to be reserved as a chemical feed stock. That view persisted for a number of years before the law was finally changed. Looking back, one wonders about the poor judgment of that "nucular" engineer in the White House.
Recently, Carter has been criticizing the Bush plan while trying to burnish his own record. But we still remember Carter's "MEOW" -- the energy crisis as the "moral equivalent of war." He even declared an oil embargo against Iran - that had about the same effect as the previous Arab "embargo" against the US. Iran simply sold the oil to other nations and we bought it from them.
And it will be hard to forget Carter's plan for a giant program of synthetic fuels, with hundreds of massive chemical plants producing oil and gas from domestic coal. Fortunately for us, the SynFuel scheme collapsed when Carter exited. Had it gone ahead, we would have been stuck with unimaginable environmental damage and with oil at three times the current price. Strangely, there was little objection to the Carter plan from Green groups who are now so concerned about every molecule of carbon dioxide emitted by industry and power plants.
Fast forward to 2001. Another energy crisis? Yes, there is a certified shortage of electric power in California, but it is entirely artificial and can be removed by complete deregulation that would allow the consumer price to rise. There's a lot of finger-pointing going on, but the basic problem is that no significant power plants have been built in California for two decades because of environmental opposition. In addition, the major private utilities were talked into selling their facilities and then forced to forego long-term purchasing and made to buy power on the spot market. The outcome was predictable and will be cited in college economics texts.
The other current crisis seems to be the high price of gasoline. But remember that in constant dollars it is roughly what it was in 1970 and about half of what it was in 1981 -- although higher than two years ago. A good part of the problem is again environmental -with the EPA- requiring special blends of gasoline that differ by region, and even from city to city. This has imposed great costs on refineries that have to be recovered; but it also makes it difficult if not impossible to trade gasoline between regions if a refinery breaks down.
The other reason for the high price of gasoline is a chronic refinery shortage. With electric utilities reluctant to build coal-fired and nuclear plants because of environmental opposition, they have been investing in turbines fired with natural gas. This strong demand raised gas prices to triple the average of past years. In turn, this increased the use of cheaper heating oil last winter, which kept refineries busy filling the demand and shortened inventories of gasoline.
Even in the absence of an energy crisis, the Bush plan has some good points. It removes many of the restrictions that prevent the market to do its work and bring supply and demand into balance. It also has reminded the public that we need more refineries, transmission lines, pipelines, and nuclear power. Conservatives, and especially Libertarians, may object, however, to the inordinate amount of corporate welfare in the plan, a Christmas tree full of goodies, tax breaks and subsidies. Most of these are wholly unnecessary but do raise the political appeal of the plan.
Democrats complain that the Bush plan provides benefits to Big Oil; in reality the major benefits are still going to the competitor of the oil industry. The big tax breaks and subsidies go to corn farmers and to ethanol refiners, at the expense of the consumer. And thanks to the pervasive influence of the ethanol lobby, there is little prospect that these subsidies will disappear.
Democrats also complain that the Bush plan does not provide for enough energy conservation. But if they are serious about conservation, let them argue for a large tax on gasoline, of least one dollar a gallon, instead of granting tax credits for hybrid electric cars that would end up in the pockets of Japanese companies as they raise prices.
I would give the Bush plan an A-minus. It correctly identifies the proliferation of domestic regulations under the Clinton administration as the main villain. "Regulation is needed in such a complex field, but it has become overly burdensome," it says. "Regulatory hurdles, delays in issuing permits, and economic uncertainty are limiting investment in new facilities, making our energy markets more vulnerable to transmission bottlenecks, price spikes and supply disruptions."
Most of the 170-page policy paper deals with reducing energy demand and with renewable sources of energy. Nearly half of its 105 specific recommendations are devoted to these topics; only 35 deal with traditional energy sources. But through executive orders the president can improve the infrastructure of oil, natural gas, and nuclear energy. He can facilitate offshore oil leasing and ease land-use restrictions, and lower high gasoline prices by facilitating the expansion of refineries.
But the plan could do even more to remove impediments to oil supplies. While it promotes drilling in the Arctic National Wildlife Refuge, it fails to simplify procedures for drilling on federal lands onshore and offshore. For example, it still sticks with an antiquated system of royalties that runs counter to resource conservation.
The Bush plan also propagates misconceptions about the Strategic Petroleum Reserve. In this case, the Democrats have a somewhat better approach. But the best policy would be to privatize the SPR since it does not help the United States and wastes taxpayer money.
Finally there's the matter of nuclear waste or -- more properly -- the engineered disposal of spent fuel. The problem here is purely political. As a first order of business, the Bush administration should re-examine the radiation standards that have been set by the EPA. They are unrealistic and run counter to science. The second order of business is to rethink the matter of permanent underground disposal vs. retrievable surface storage. We face the prospect that uranium prices will be so high a few decades from now that it will make sense to reprocess the spent fuel into new fuel for reactors. After all, isn't this the true purpose of resource conservation?
It's to early to tell how the plan will fare in Congress. But it is a step in the right direction: It aims to increase energy supplies from all sources, provide much-needed infrastructure, and expand the existing program of energy conservation.
S.Fred Singer is Professor Emeritus of Environmental Sciences at the University of Virginia. He is author of the monograph "Price of World Oil," and co-author and editor of "Free Market Energy"