At Last, The Energy Message

The speech took six months to prepare. Its content was so important and complex that key Administration officials including Foreign Affairs Adviser Henry Kissinger, Environmental Protection Agency Administrator William Ruckelshaus and Treasury Secretary George Shultz spent long hours contributing their expertise to it. Despite all the time and talent expended, however, President Nixon's special message on energy was somewhat disappointing. For a nation that has only 6% of the world's population, yet consumes one-third of the global energy production, it simply did not go far enough.

Critics in Congress and elsewhere lost no time in pointing out the glaring deficiencies in the message, especially in the areas of research and development and conservation of energy. But they also recognized that at a time when the nation was undergoing shortages of gasoline and fuel oil, Nixon's actions and recommendations would help alleviate the growing energy crisis.

Challenge. As a first step, the President scrapped the 14-year-old oil quota system, which sets periodic limits and tariffs on oil imports. That system had worked when the U.S. produced more oil than it consumed; its purpose was to protect the high-cost domestic industry from low-cost foreign imports. But since 1970, when the nation's growing energy needs turned it into a net oil importer (the U.S. currently is importing an estimated 6,000,000 bbl. per day), the quota system has proved to be unwieldy, inflexible and a hindrance to oil-industry planners, who could never be certain of future foreign supplies. For example, uncertainty over supplies of crude oil from abroad has been a prime reason that the industry has not built enough new refineries at home. This lack of capacity is largely responsible for the present fuel-oil and gasoline shortages. Now, with the quota system abolished, there will be no quantitative restrictions on the inflow of foreign oil.

In addition, the President set up a new system of fees--to be paid by importers--that keeps foreign oil prices above U.S. levels and thus favors domestic industry. That should encourage the U.S. oil industry to explore for new sources of domestic oil and prevent the nation from becoming dangerously dependent on foreign suppliers. Because the fees are higher for refined products than for crude, the system also provides an incentive for American oil companies to build new refining facilities at home. As an added incentive, companies that build and expand refineries will be allowed to import up to 75% of the capacity of their new facilities for five years without paying fees.

To make more domestic oil and natural gas available, Nixon ordered the Interior Department to triple by 1979 the amount of offshore acreage annually leased by the Federal Government to oil companies. The order will encourage further exploitation of the U.S.'s rich reserves on the continental shelf with new and environmentally safe techniques. Administration experts estimate that the additional offshore drilling alone could raise oil production by 1.5 billion bbl. a year (or 16% of projected demand in 1985) and gas production by 5 trillion cu. ft. (20% of demand).

All of these policies were put into effect with a stroke of the presidential pen. But many other recommendations in Nixon's energy message depend on congressional action. Most important is a measure that strikes at the root cause of present natural-gas shortages--the regulatory system. Federal regulation has artificially held down gas prices, thereby increasing demand while decreasing incentives for exploration for new reserves. Nixon proposes to remove all "new" natural gas from those price ceilings.

The President would decontrol not only gas from newly drilled wells, but also any gas from established wells that is newly diverted into interstate commerce. In addition, gas from fields in which long-term contracts have expired would be exempt from controls. The effect, Administration experts say, would be to spur more exploration, without significantly increasing the gas prices. They explain that the price of deregulated gas at the wellhead (which is only 10% to 20% of delivered cost) will be averaged in with regulated gas, resulting in minor price increases.

In other proposals, the President urged Congress to:

> Encourage more exploration by giving oil and gas companies an investment credit of 7% for wells that prove to be dry and 12% for productive wells. (The oil depletion allowance remains unchanged at 22%.)

> Clear the way for a quick start to construction of the Alaska pipeline.

> Define the environmental rules for strip-mining so that more coal can be produced.

> Streamline the licensing procedures for nuclear power plants, which now can be delayed for years in hearings and in court before getting built or going into operation.

> Allow the Interior Secretary to issue licenses for construction of huge offshore ports for supertankers that draw too much water to put in at existing U.S. ports.

Though these recommendations aim to expand energy supplies quickly, there is some doubt whether Congress will approve them all. The consumer-oriented Senate Commerce Committee seems likely to resist the proposal to deregulate new natural gas, for example because the measure may well cause gas prices to soar--despite Administration arguments. The recommendation to build offshore ports will provoke the opposition of legislators and Governors from East Coast states, who fear that oil spills will ruin their shorelines and wetlands.

But the real trouble with Nixon's message is that it concentrates on only the supply side of the problem; it is highly unlikely that energy needs can be met solely by trying to keep pace with skyrocketing demand. There must also be a forceful attempt to curb that demand But instead of proposing legislation to that end--e.g., a horsepower tax on cars with larger engines that consume more gasoline--President Nixon called for energy conservation on a "voluntary basis," merely asking consumers to turn off unnecessary lights and to buy efficient appliances. In the end Nixon said, higher energy prices will force conservation.

Even more shortsighted is the President's research and development propram. If a crash effort costing perhaps $2 billion a year is not undertaken to make the U.S. self-sufficient in fuels --especially through liquefying or gasifying coal--the nation may well find itself either burning more polluting fuels (with higher sulfur content for example), or becoming heavily dependent on Middle Eastern oil in the not-distant future. Yet Nixon boosted the energy R. and D. budget by only 20% over the 1973 level of about $770 million. Furthermore, Treasury Secretary Shultz says that the Administration will spend the funds when it appears they can be effectively used and that it will not just "throw money" at problems.

Critics. Senator Henry M. Jackson tor one, was not reassured. The message, he said, "lacks the sense of urgency and the sense of national commitment I believe are necessary to deal with the energy crisis." The underlying premise "that we will have continued and uninterrupted access to foreign sources of supply," Jackson feels is unjustified. S. David Freeman, director of a Ford Foundation study of energy problems, praised the end of the import quotas but found other flaws in the message: the President did not sufficiently explore foreign policy implications the possibility of oil stockpiling or even the current shortage of gasoline. Says Freeman: "There's not much to sink your teeth into."

Still, the message does highlight some key energy problems, and the Administration is confident that it is a major step in the right direction. In fact Shultz thinks of it as an interim report, implying that it will be followed with later Executive actions. Others in Washington seemed more than willing to help. At week's end Congress was preparing several bills of its own to deal with the growing energy crisis.

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