Back to the energy drawing board
In the next few months the administration, with some reluctance, will be issuing the fourth annual version of the National Energy Policy Plan. It will undoubtedly exalt the virtues of the free market and price decontrol. It may well also declare victory in the energy war and try to eliminate the issue from the national agenda.
By doing so, the administration will have been swept up by the euphoria of the moment, at the expense of a fundamental analysis of energy and its role in the modern world. Energy today is a combination of natural and man-made elements , basic to the sustenance of life as we know it, just as essential as food, water, and air. It has the following characteristics:
* It comes in many forms, each different, thereby presenting the policymaker with a multiplicity of challenges.
* Its price is a vital component of a nation's cost of living and exercises great influence on such economic factors as the gross national product, money supply, national budgets, and financial stability.
* As a commodity essential to life itself, it is an indispensable part of US national security, thereby requiring a maximum of self-sufficiency or at least provisions against situations when some part of the essential requirements are not available.
* In light of its keystone position, it has been customary for many governments to support one aspect or another of energy production through favorable taxation or other assistance efforts.
* Since many of the fuels are generated by nature, it has become essential for governments to be involved in the management of the resource development to ensure both a continuing supply and a due regard for the environment.
* While recognizing the fundamental requirement to satisfy the domestic market, producers and governments have also accepted the desirability to share surplus fuels with other countries and indeed, in the case of some countries, the export of the fuels becomes a major national objective.
* It is a vital component of a nation's foreign poilcy.
Are these characteristics descriptive of another commodity area? Indeed they are: They would fit agriculture as well as energy. The commonality of basic features between the two areas is a fact that has long been neglected. Had this been recognized in the past and accepted, many of the recent arguments concerning energy would have been avoided - to no one's sorrow.
There are of course noticeable differences as well, but the similarities greatly outweigh them. If this analysis is correct, then the administration should begin to view energy in the same light as it does agriculture and recognize the intrinsic essentiality of both sectors.
What does that mean in policy terms? Since both food and energy fuels are indispensable to our lives, the fundamental policy must be that we become essentially self-sufficient in both areas.
Secondly, recognizing the vital role that both food and energy fuels play in the economic life of the US, we must ensure that producers have sufficient incentives to produce while at the same time ensuring that, through competition, the commodities are available at affordable prices.
Thirdly, we must recognize that in both the agriculture and energy fields we are dealing with forces that for national security and economic reasons cannot be left exclusively to the marketplace. These commodities have a value which exceeds their production costs. Energy fuels have costs associated with their production that are not easily compensated for by the marketplace.
For example, a barrel of oil is worth approximately $30 in the marketplace today. That price does not take into consideration the $40 billion to $80 billion in defense expenditures to be allocated for the development of a Rapid Deployment Force, which the administration deems necessary for the protection of the production and transportation of the oil that the US and its allies still must import. Nor does the $30 per barrel price take into account the cost of the development of new US Air Force combat aircraft because none of the airplanes in the present inventory has adequate navigation range to meet the Middle East military requirements.
In addition, the cost of the Strategic Petroleum Reserve must be taken into account. The expenditure of approximately $2.5 billion per annum can certainly be charged to the cost of a barrel of oil since the SPR is being filled to protect us from the perils of an oil cutoff. Should these circumstances arise, it will be the American consumer who will benefit from the availability of the SPR, thereby justifying the allocation of those costs to the present price of oil.
It becomes essential that the value of a fuel, as contrasted to its cost, take into account its future availability and provide a premium for those near exhaustion. There is a need for a price mechanism which, in addition to calculating the real value of an energy fuel, also brings price stability so that intelligent industrial planning can be effected and a maximum conservation effort undertaken.
In recognition of the finite nature of our fossil fuels, two other policies must be established. The government must undertake responsibility for long-term basic research which will lead soon after the beginning of next century to the availability of renewable energy sources or to fuel production which becomes self-sufficient after start-up. In addition, the government must undertake vigorous action to develop an atmosphere of conservation and to assist those industries and consumers that need support in achieving lower energy consumption.
Just as for agriculture, the federal government must establish a policy of protection of the environment and of the consumer which will ensure that future generations will not suffer from technological advances or from unwarranted exploitation of natural resources.
Finally, in recognition of the interdependence of nations, the US government must support efforts to make US energy fuels available to others at affordable prices. Such effort will not only assist in weaning the world away from rapidly diminishing fuels, but will also be a boon to the economic growth of America.
We must return to the fundamentals. We have lost our way in achieving energy independence by being sidetracked by marginal issues. It is incumbent on this administration to establish a new basis for energy policies and to provide the necessary leadership for a vigorous program of actions leading to the mandatory goal of energy independence. Nothing less will suffice.