Some Steps to Stop Oil Blackmail

By Phillip Herrera

The long lines at the gasoline stations are gone, and American homes will probably be warm and snug this winter. But high oil prices remain, and they threaten to knock the world off its axis. They greatly fuel the rocketing rate of inflation in most nations. They stunt economic growth almost everywhere. They compound balance of payment woes--Italy totters on the brink of bankruptcy--and thus threaten international trade, the lifeblood of an interdependent world.

Exorbitant oil prices also reduce food production; the hungriest nations find it ever harder to pay for petroleum-based fertilizers. These same nations are strapped for money to buy imported food because they have to spend so much of their scant foreign exchange just to buy oil. Yet the Organization of Petroleum Exporting Countries is unperturbed. The OPEC cartel shows no disposition to cut prices significantly.

Not many years ago, the solution would have been the brisk dispatch of gunboats to the Persian Gulf. For a few militarily insignificant states to wreak economic havoc on most of the world's major powers would have been unthinkable. Today it is the gunboats that are unthinkable or almost so, perhaps not so much from moral fastidiousness as from a fear in the West that the Soviets would not stand for it.

But peaceful means do exist to put pressure on OPEC. Because the U.S. has technical know-how, financial might and far more abundant domestic energy reserves than most other nations, it can, with determination, reduce its dependence on the cartel's oil. America now burns 16 million bbl. of oil daily. Of that, 6.3 million bbl. a day--or 35% of the nation's oil consumption and 18% of its total energy--flows from abroad. If the U.S. could pare its oil demands by 1 million bbl. a day --a mere 3% of all the energy that it uses--the benefits might be considerable, not only for America but for the rest of the world as well.

At the moment hundreds of millions of surplus barrels of oil are in storage tanks round the globe. With less business from the U.S., the OPEC states would have even more surplus capacity on their hands. The cartel is already reducing production; to maintain high prices in the midst of significant U.S. conservation, OPEC would have to cut further. Only the sparsely populated Arab nations could afford such a cutback. At some point, several OPEC members would probably lower prices--nobody dares speculate by how much--thereby taking at least a modest step toward normal market conditions. And the U.S. would have taken a long step toward coping with an onrushing era of raw-material scarcity.

The strategy to those ends is no mystery. Indeed, it has been repeated so often that it has the hollow resonance of a cliche: The U.S. must increase domestic energy supplies while decreasing consumption. Studies by the Ford Foundation and the Federal Energy Administration present the options in detail. They leave no doubt that energy conservation is possible with some sacrifice. All that is lacking is a firm decision to commit the U.S. to a course of action.

Such a decision has so far been avoided because all of the obvious cures entail serious political risks. To increase domestic energy supplies involves such environmental gambles as oil spills at sea and strip mining on land, and as the election returns suggested, environmentalism can be a potent political issue. Conversely, to decrease energy consumption would slow the economy, which seems too weak to stand much strain. No matter what President Ford and the congressional leaders suggest, they will confront criticism.

Yet something clearly must be done, and the place to start is the area with the most wastage of energy--motoring. The automobile burns 13% of all the oil consumed in the U.S. A special gasoline tax should be imposed on every gallon sold. This "conservation fee" would lead to car pooling and increased use of rails and other mass transit. The tax would cut down on the Sunday joyride, the midnight trip to the corner drugstore to get a pack of cigarettes, the national restlessness that led one observer to update Descartes's Cogito, ergo sum for America: "I move, therefore I'm alive." And the tax would be effective. The Federal Energy Administration reckons that every penny of such a surcharge would reduce gasoline consumption by 25,000 bbl. a day. The highest tax considered--30-c- a gallon--would save 700,000 to 800,000 bbl. a day in the first year, and one million bbl. daily by the third year as motorists curb their driving more and more.

There are, of course, drawbacks. The political difficulties of enacting a gas tax would be enormous. Such potent forces as the automakers, the autoworkers, the teamsters and the farmers, among others, are dead set against it. A gas levy would cut into sales of new cars and might damage parts of the recreation industry, as well as other businesses. It could add to the price of food because farmers use much gasoline to run their machinery. Because gasoline prices are figured into the Consumer Price Index, a gas tax would trigger wage increases for the 4.5 million workers covered by contracts that have escalator clauses pegged to the CPI. Meanwhile, the higher prices for gasoline would fall most heavily on inflation's worst-hurt victims: low-income Americans.

While these problems are real, they are not insurmountable. Detroit could make up for some lost business by building more buses and other forms of mass transit. If people stayed at home more, there would be a surge in many types of goods, from TV sets to parlor games; although people might avoid long-distance trips, they might well flock to closer resorts and motels. If people drove less, it would be logical to give gasoline a lower weighting in the CPI, thus reducing the impact of a gas tax on wage escalations.

Most of the money collected from the tax could be, indeed should be, given back to low-income Americans, as well as farmers, doctors and others who absolutely have to use cars, tractors or trucks to do their jobs. These refunds could be made through a combination of lower payroll withholding taxes, higher welfare and Social Security payments and even some direct subsidies. If farmers got an income tax break to compensate for the costlier gasoline, there would be no cause for food prices to rise as a consequence of a gas tax.

While all this may sound complicated, it is preferable to any alternative now foreseen. For a while, some high Administration officials favored setting a definite limit on oil imports; the French have already declared that they will buy no more than $10.1 billion worth of oil a year, the equivalent of a 10% drop in oil imports. While this plan has some advantages, it could create shortages that would unduly strain the U.S. economy and ultimately lead to gasoline rationing. There have also been suggestions for outright rationing. But this would create an enormous and cumbersome new bureaucracy.

Beyond a gas tax, many congressional actions could encourage energy conservation. Some of the best ideas:

> A gasoline mileage standard for new cars. America's old automobiles get, on the average, only 13.2 miles per gallon; new ones average 15.9 m.p.g. Congress should set standards to force Detroit to do even better, starting with 1978 models. In that year, if the average of a manufacturer's cars were under 17 m.p.g., the maker would be taxed on a sliding scale. In subsequent years, the standards would gradually increase, to 20 m.p.g. in 1982. As a side benefit, the standards would encourage drivers to turn in their gas-voracious old cars for the more efficient new ones.

> A diversion of resources from the Highway Trust Fund. Though $200 million from the $6 billion-a-year fund is already going for urban buses, the Trust's overriding purpose is still to subsidize road building. Considerably more should be used to help pay for mass transit of all kinds. If motorists are to leave their cars in their garages, they must have alternative ways of getting around. While the need for more urban transit has been well documented, the suburbs, too, will need many more specialized buses. Money from the Trust Fund could help communities buy new minibuses and "dial-a-bus" services.

> A federal tax credit for proper home insulation. At present, 13% of the country's total energy goes into home heating," and much of the heat escapes through leaky windows and poorly insulated roofs. Beyond urging Americans to turn their thermostats down, Congress would do well to enact legislation permitting homeowners to deduct 25% of the cost of properly insulating their houses and putting in storm windows; owners of commercial buildings, which tend to be better insulated, could be given a 15% tax credit.

Even if a tough, rigorously enforced conservation program were introduced, planners would still confront difficult choices in expanding domestic energy supplies. Some economic and ecological tradeoffs are unavoidable, but environmental damage can be minimized. For example, it may not be necessary to risk major spills off the golden beaches from Santa Barbara to San Diego or to push massive strip mining in the Rocky Mountain states if the plentiful energy resources that are available elsewhere are utilized.

The Gulf of Mexico contains large leased areas that have not yet been tapped. They should be. In Alaska, the Naval Petroleum Reserve No. 4, which President Ford has ordered opened for commercial exploration, may contain even more oil than the North Slope field. If it proves so, the capacity of the Alaska pipeline could be increased 100% so that it would look like a double-barreled shotgun and carry 4 million bbl. a day.

Congress should enact the long-awaited strip-mining bill to help increase coal production from the present 600 million tons per year to 1 billion tons. The growth would occur, as the bill now stands, in regions where the land can be reclaimed after surface mining: mainly the Midwest and Appalachia. Reclaiming the arid stretches of the West would be more difficult. In the meantime, underground mining, which is the only way to extract most of the nation's 1.3 trillion tons of coal, should be expanded by using advanced technology: machines that continuously bore or shave seams and greatly increase production.

Coal, a "dirty" fuel, should not be allowed to foul the air when burned. Effective antipollution devices, called scrubbers, already exist; G.M. and several big utilities now use them. Congress should specify that similar equipment be installed in power plants and factories over the next five years. Once such rules have been set, industry could make firm plans for using the fuel, providing what coalmen call "a marriage, not a date." Under these conditions, the coal industry could supply 24% of the nation's needs, up from 17% now.

Natural gas poses a different problem. Producers vehemently maintain that they will not open new supplies unless the Government deregulates prices of gas sold in interstate commerce. But such action would quadruple or quintuple costs to consumers and create huge "windfall" profits for the gas producers. Thus Congress "NO IMMEDIATE MIRACLES" should retain controls but raise the price of interstate gas from its present, unrealistically low level of between 25-c- and 42-c- per thousand cu. ft. to a more attractive range, say, between 60-c- and 90-c-.

While U.S. energy requirements can be met by conventional fossil fuels, research and development of alternative sources--solar and thermal energy and the like--should continue apace. Development of the fusion process should be given top priority as a replacement for the breeder reactor, which employs the riskier nuclear fission process.

FEA polls show that Americans, who are perhaps unjustly accused of being galvanized by nothing less than all-out war, are ready to adopt measures to conserve energy despite the costs involved. This willingness to accept some austerity may reveal a realism about the horrendous international problems created by extortionate oil prices. Or perhaps the dire drumbeat of warnings about diminishing reserves of raw materials has made the difference. Self-preservation, like charity, starts at home. Either way, it may well be that Americans will accept sacrifices, if only someone calls upon them for more than voluntary half measures. Just the other day, White House Press Secretary Ronald Nessen was seen wearing his WIN (for WHIP INFLATION NOW) button upside down. In that position, Nessen explained, it spelled out NIM (for NO IMMEDIATE MIRACLES). Nobody is asking for miracles from Nessen's boss--just some firm decisions.

Philip Herrera

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