Where the Energy Crisis Is Pushing Us

It now looks as though the world, or part of it, may achieve an energy plan, or part of one. With the oil price increases announced over Christmas by Middle Eastern producing countries, the “oil weapon” seems more a matter of money, less of embargoes. Crude oil, according to the Shah of Iran, will cost at least twice as much in 1974 as in 1973, and will be as expensive as other sources of energy, “the extraction of shale, the extraction of gas, the liquefaction of coal.”

The expectation of such inflation, not surprisingly, sharpens international desire for energy planning. There are already many variations of planning proposed, to a greater or lesser degree nationalistic or aggressive or farsighted; they include President Nixon’s all-American Project Independence, Japan’s “saving spirit” of short-term energy conservation, the French Prime Minister’s hopes for a Europe united in the “best possible future” of indigenous nuclear power, and Henry Kissinger’s “energy action group” of rich countries, the “economic equivalent of the Sputnik challenge of 1957.”

It will seem perverse to find any cause for optimism in learning the virtues of thrift from the Shah of Iran, or of “trust and friendship” from Henry Kissinger. Yet the present energy situation, and even the “crisis” rhetoric that attends it, should suggest certain hopes. Energy plans, of a nonmilitary sort, can emphasize international cooperation, or alternative energy development, or conservation. Of these objectives, conservation is the least favored by politicians; it is a piety for short-term policy and the ends of speeches. But it is also the objective most likely to be realized. The difficulties of solving the energy crisis by international cooperation or by finding alternative energy sources are so great, as the last few weeks have revealed, that changes in the use of energy have become an unanticipated and unwilled inevitability.

Cooperation. The recent oil strategies of rich industrialized countries strip the masks of internationalism or long-term rationality from economic policy. Henry Kissinger’s invocation of Sputnik sharpens a global tone of chauvinism and competition among the sellers and buyers of fuel. The European Common Market fractures on the issue of who should spare oil for Holland, who should buy Dutch natural gas, and who may share Britain’s North Sea oil. Holland is assured oil supplies not by its political allies but by international oil companies diverting tanker cargoes at sea. Mr. Denis Healey notes on behalf of the British Labour Party that “a British Prime Minister…has now threatened to wreck the Common Market unless he is able to keep full control of Britain’s energy supplies,” and “that…we welcome.”

Henry Kissinger’s plan for cooperation expressed the politics of spectacle, calling for “emotional and intellectual excitement” and urging the “drama of the great democracies” in Atlantic partnership. No small democracies were mentioned, or India, or Mali, where relief planes were grounded for lack of fuel as long ago as last summer. The Shah of Iran has described the effect of the recent oil price increases as “very bad” for poor countries (in fact equal to almost half of all foreign aid); Arab oil states, he said, should invest in Indian coal and steel, although Iran itself would spend every “dime” on its own industrialization. Arab producers promise their African allies foreign aid, but no cheap oil.

Some organization of rich oil-consuming countries now seems likely. But its prospects are hardly encouraging. The “great democracies” already compete in export campaigns and in efforts to attract oil producers’ capital investments. The difficulties of cooperation in exports were made clear recently when Kissinger and other US officials and commentators raised the possibility of a counterembargo against the sale to Arab oil-producing countries of “food, medicine, industrial machinery, and consumer goods.” This bleak suggestion inspired equally bleak derision; a European business paper described the “very opposite of an embargo,” with France celebrating a resurgence in its Mediterranean arms trade, and Britain its “biggest single export deal” of arms, including $35,000 worth of “military drums,” to Saudi Arabia.

Competition will be at least as intense in the vexed area of oil investments, as nations compete to attract the vast oil revenues that certain producers, notably Saudi Arabia and Kuwait, cannot or will not spend at home. The Times estimates that cumulative payments to oil producers could in the next six years exceed the “wild” figure of $700 billion. In this struggle, the US has notable strengths, as the recent resilience of the dollar suggests. The US has large indigenous fuel resources; it leads world energy technology and the world market both for atomic technology and for atomic fuels; it enjoys the economic and logistical advantages of controlling most of the world oil trade. According to outraged Japanese opinion, oil heading for Japan from such non-Arab producers as Indonesia and Iran has been diverted recently to the US by the American oil corporations which control 80 percent of Japan’s oil business; the US energy “czar” William Simon, commenting on increases in US oil imports during the Arab embargo, explains that oil is a “fungible commodity that goes through second and third parties.”

A Department of Commerce study of oil and the balance of payments, quoted in the Senate Finance Committee’s useful paper, assumes that the “US capital market remains attractive to foreign investment.” That is, oil-producing countries may trust not only the dollar but also Exxon, the coal seams of North Dakota, and the Atomic Energy Commission; or Sheik Yamani is bullish on America.

Alternative Energy. The US already dominates world prospects for shale or coal gas. The heart of alternative energy beats in fact in the US Senate, in the committees of Senators Henry Jackson or Russell Long, in the National Energy Research and Development Act ($20 billion), and the National Energy Emergency Act (1973). Yet even for the US, such development raises practical troubles, as well as problems of social equity.

Sections of the world energy establishment have greeted the latest inflation in crude oil prices with guarded enthusiasm. The energy market, they feel, may now move from “political” pricing to technological and competitive rationality. In the words of the London Financial Times, the Shah of Iran’s “helpful” recent attempt to price crude oil at the long-term cost of substitute fuels leaves oil-importing countries “in sight of relative stability” as they invest in coal and nuclear energy. Yet this free enterprise scenario may prove illusory; as illusory as the assumption that private industry believes political assurances, or that fuels are not sold at a political or social price, in the US as in Kuwait.

The Senate Finance Committee study, discussing new energy production, asks a highly suggestive question for US fiscal policy:

At present the Arab nations can charge $9-12 a barrel [for oil which costs thirteen cents a barrel to produce] because our existing productive capacities are insufficient to supply our own needs. But if we bring on new production [of oil from shale or coal, as well as from new oil fields], which may involve costs of $5-7 a barrel, and the Arab nations then drop the price to $4 a barrel, where will the American producer stand? Given these facts, do we need a flexible tariff instrument to assure US investors in the domestic petroleum market that it will be worthwhile making the investment?

Anxieties of this sort help to explain the notable caution of US industry in producing shale oil or coal gas (as distinct from accepting funds to study such fuels). What sort of guarantee could a US administration offer so that oil diplomacy would not disrupt orderly investment in alternative energy? What lavish guarantee may the Nixon Administration be vouchsafing right now?

Such questions do not exhaust the practical complexities of alternative energy. Of the new fuels mentioned by the Shah, shale and coal are available on a very large scale only to the US and Canada among rich countries. They could be exported to or withheld from more or less amenable allies; the Senate Finance Committee study points out that a recent congressional amendment, whose “main object” is “future crude oil” from Alaska, restricts all export of domestic crude oil transported by pipeline over public lands. The politicians who support this amendment are not likely to welcome future international trade in coal mined from Western range lands, or shale from mountains near winter resorts in Colorado.

A further difficulty of alternative energy has to do, of course, with the performance of the free enterprise energy business which is expected to develop new fuels. Senator Jackson’s Investigations subcommittee study describes the history of recent oil shortages. In the spring of 1970 there were excess gasoline stocks and consequent price wars; in March and June of 1971 both industry and government warned of an impending shortage of refinery capacity; but in 1972 the oil companies sharply reduced their use of existing refinery capacity, and this was a major cause of the fuel shortage.

The subcommittee’s study shows how farcically irrelevant the intervention of federal agencies in the oil business can be. “Jawboning” is ignored. Corporate executives offer wildly contradictory views to the government. Prices were regulated in such a way that companies discovered “incentives” to produce too little heating oil and too much gasoline in the winter of 1972-1973, and too much heating oil by the 1973 driving season. The Office of Emergency Preparedness pondered what it called “near term political cost,” while its director, General Lincoln, emerged periodically to commend the “exceptionally warm weather” of 1971, or to dread a “cold snap” in October, 1972.

Throughout, efforts at energy planning were sabotaged by lack of information. Even in the present crisis over the Arab embargo, US (or European) planners are apparently unable to discover which companies’ tankers are where, with what cargo, from which nation. General Lincoln in November, 1972, delivered a series of ultimata demanding information from government and corporate oil planners: the low utilization of refinery capacity, he was told subsequently by the American Petroleum Institute, should be attributed largely to “turnaround, inspection, routine repairs, and mechanical problems.”

Conservation. Savings and cutbacks play a small role in the present political rhetoric of energy planning. Like President Nixon and the leaders of, for example, Japan and France, the Senate Finance Committee study treats conservation largely as a way to “mitigate the short-term problem.” The term “conservation” may in fact have some connotation of saving a gallon of gasoline here, or a few degrees of office heating there; yet conservation in a longer term and more positive sense of planning different ways of using energy is the last, best, and most certain policy for the future of successive energy crises.

Even the purest free market scenarios imply that changes in energy use will follow from energy price increases. Yet the political inequities of a longterm “solution” to energy shortages through rising market prices will be too great even for present energy politicians. Suppose, as is not impossible, that we have $1.50 gasoline with no improvement in public transportation, while home heating becomes allocated to the rich. As Paul Samuel-son has pointed out, “the Irish potato famine was handled in this fashion.” The inheritance of political favoritism is also such that the US energy business resembles no model for a competitive allocation of scarce resources. Planned “conservation” is likely for these reasons; as well as for reasons to do with the incompetence of “cooperative” and “alternative” strategies to balance supply and demand.

At the very least, efforts to plan the use of energy will provide information about the way fuel and resources are used in the economy. The workings of the “free” oil business are to be explored in the studies of the Senate Investigations and other congressional committees, and in a project of the European Common Market Commission to make more “transparent” the workings of the multinational oil business. Public and private groups will study the inputs of energy into and outputs from different national industries; and the energy-intensive character of certain businesses, already being examined, for example, in the eager efforts on Wall Street to judge the long-term effect of energy adjustments. When Edmund Wilson wrote “Glimpses of the New Deal” in 1934, he found “all the actual little-known phenomena of the functioning of the great American plant…for the first time being dragged to the surface”; the reluctant reforms of energy planning may bring similar excavation of the facts of US resource use.

“Conservation” will also bring social benefits, perhaps unwilled. An important study of US agriculture showed recently that “the principal raw material of modern US agriculture is fossil fuel” and that the energetic return on energy inputs in US food production has declined in recent years. The authors suggest that a changed energy situation may encourage reforms in the use of labor and machinery, and perhaps increased use of crop rotation, manure instead of nitrogen fertilizer, even rail transport for food products.^* Comparable benefits will be found, of course, in the likely improvement in passenger rail transport, in the reform of auto travel, in the provision of urban public transport. Energy planning will bring industrial changes; for example, in the priorities of the chemical business, which has been using energy and fossil fuel “feedstocks” to make such diverse products as medicines, fertilizers, plastic wrappings.

Such changes are now anticipated, if not by Nixon’s energy advisers, then by some public or business opinion. Planning for conservation is, at least, more a part of national discourse in the US than in France or Britain; a situation which is to the continuing credit of the US environmental movement. Yet such planning will bring political conflict. Little hope should be derived from the apparent diligence of householders in turning down thermostats for a duration of weeks or months. The present boom in energy-saving gifts is about as encouraging as President Nixon’s sacrifice in flying to California with United Airlines. The longer prospects for energy planning promise, by contrast, major social disruption.

President Nixon, with his violent political rhetoric, has said of the energy crisis that “I’m going to have to propose some things that will drive the environmentalists up the wall, and they’re halfways there already. How are we going to get the coal out of the ground without driving them out of their trees?” But the long-term energy crisis now seems most likely to drive deranged politicians toward environmental and economic planning.