Stepping on the Gas to Meet a Threat

An air of crisis is spreading across the U.S. as the deepening energy emergency, triggered by the Arab oil embargo, has begun to pinch in small but ominous ways. Leisure activities, from boating trips to night football games, are being canceled; gasoline-short service stations are temporarily shutting down; and commuter-and school-bus schedules are being pared for lack of fuel. For the first time since World War II, there is serious talk of rationing gasoline and home-heating oil. Meanwhile, from Capitol Hill to the tiniest town hall, in board rooms and living rooms, Americans hastened to make up for lost time in meeting what could become the most serious economic threat to face the nation since the Depression.

As usual in an emergency, they reacted with remarkable individuality. Floyd Wallace of Leslie, Mich., claims to have found a way to concoct a gasoline substitute by cooking in a big steel drum ingredients as unlikely as wood, leaves, brush and a soupcon of everyday garbage. In Massachusetts, the Warren Savings Bank whittled electric usage by doing its evening banking by candlelight; the city fathers of Block Island, R.I., put the community back on daylight saving time. Students at Boston's New England School of Art devised a means of keeping their nude model warm when they turned the thermostat down to 65DEG: they put up a transparent plastic tent that is kept at a toasty 75DEG by the girl's body heat. Reporting on what he is doing to conserve energy, an eight-year-old Miami boy noted: "I walk to school every day. I don't watch much television. And I try not to take a bath."

In Washington last week the crisis provoked this blizzard of legislation:

1) The Senate and House whizzed through a long-delayed bill, which the President signed, to lay a pipeline across 789 miles of tundra, mountains and rivers between Alaska's North Slope oilfields and the warm-water port of Valdez. The pipe will pump some 2,000,000 bbl. per day--about 11 % of the nation's current needs. Though the line will be constructed on a hurry-up basis at a cost of $4.5 billion, it will still not be in operation until 1977, if then. In taking the action, Congress brushed aside longstanding objections by environmentalists, who argue that the construction will irrevocably rupture the area's ecology.

2) The Commerce committees of both the House and the Senate swiftly approved a bill to put the U.S. on year-round Daylight Saving Time, as President Nixon requested in his emergency message two weeks ago. The measure is expected to get final approval soon after Congress returns from Thanksgiving recess and will probably take effect in early January. Moving the clock ahead one hour is expected to diminish energy use by up to 2%.

3) Congress passed a new mandatory fuel-allocation bill that will require the Office of Petroleum Allocation to distribute fuel to areas and industries most in need, probably in the Northeast and on the West Coast. Existing legislation merely authorized the Administration to allocate fuel, but Nixon has used that power sparingly and reluctantly, and the program has faltered. The new legislation, which the President has said he will sign, includes gasoline and crude oil, both of which are now allocated on a loose voluntary basis.

4) The Senate Commerce Committee drafted legislation to provide up to $140 million in federal funds over the next three years for research into auto engines that would both pollute less and burn less fuel than present engines do; the Government now spends about $10 million a year on such research.

5) The Senate moved out of committee to the floor a one-year emergency energy bill that is aimed at reducing fuel consumption. The bill is expected to get House approval and be passed on for the President's signature by early next month. One amendment provides that if workers lose their jobs because of consequences stemming from the emergency law--a service station closing, for example--they would get full unemployment benefits if they were not eligible for regular jobless payments. Another amendment calls for tax deductions of up to $1,000 for householders who, for the purpose of retaining heat in their homes, put in new insulation, storm windows and the like. The President would be given broad powers to limit temperatures in office buildings and chop working hours in shopping centers and schools. In debating the bill, the Senate rejected an amendment that would have required gas rationing by Jan. 15, on the ground that it was not yet certain that rationing will be needed.

No such doubts are evident among members of the National Petroleum Council, a group of 128 top oil executives who advise the Interior Department. At a meeting in Houston last week the council predicted that unless rationing is clamped on gasoline and heating oil "immediately," the economic consequences could be chilling: at the worst, a decline of $26 billion annually in output of goods and services in the first quarter of 1974, as well as an unemployment rate that would hit 7.5% or 8% next year.

In studying the question of rationing, the Administration is just as divided and uncertain as it has been all along in its foot-dragging approach to the energy problem. Interior Secretary Rogers Morton has said that there is a good chance that gasoline rationing will be in force by January. Treasury Secretary George Shultz, a free-market advocate who is an Implacable foe of all controls, vigorously opposes rationing except as a "last resort," arguing that people are overreacting to the crisis. Shultz prefers to pile on taxes to curb consumption. One certainty: a fuel tax would add substantially to already oppressive living costs.

There is some confusion on how fuel should be apportioned under any future rationing program. John Love, White House energy chief, is most concerned, at present, with supplying homes that use heating oil. Herbert Stern, chairman of the Council of Economic Advisers, contends that fuel cutbacks should be made in home heating, private-car trips and commercial use so that more petroleum products can be funneled into industry.

The President, who served as an attorney in the tire-rationing branch of the Office of Price Administration in 1942, is expected to receive proposals for rationing gasoline and heating oil within a month. A task force in the Office of Management and Budget is weighing several options for regulating fuel consumption. Among them:

>Issuing coupons to drivers, similar to those used in World War II. The nontransferable coupons would be turned in at service stations.

The whole system would be managed by volunteer local boards operating much like draft boards. There is some speculation that motorists might be limited to between 10 gal. and 15 gal. per week. Larger allotments would probably go to firemen, policemen, clergymen and others who must often use their cars.

>A "free-market" coupon system, in which drivers could trade or sell their ration coupons to one another. Such a system could be managed by a relatively small bureaucracy, and fewer people would be attracted to black marketing.

>A tax-plus-rationing system. Under this plan motorists would be given basic allotments but could purchase additional gas at greatly increased prices.

>A limitation on heating-oil use, which would be based on a sliding-scale formula tied to need instead of fixed amounts.

So far the President has urged mainly voluntary restraints, but on tough steps like rationing he remains vague. For example, in his energy message two weeks ago, he said that if shortages persist, "it may become necessary--may become necessary--to take even stronger measures." Last week Nixon offered a ray of hope that those measures indeed may be avoided. He said that there is "a possibility of some change" in the Arab strategy of reducing the flow of oil to Europe, Japan and other nations. Indeed, Iraq is already pumping oil at full capacity again. Yet the Arabs remain firm in their decision to halt all oil shipments to the U.S. in retaliation for its support of Israel.

It is obvious that the U.S. was pitifully unprepared for an energy crisis that has hit with suddenness and force. Why was the country caught short? The basic problem is that in the past few years, the U.S., Europe and Japan have been expanding their economies at breakneck speed, burning up awesome amounts of energy, often wastefully. Voracious American oil demand has raced ahead of domestic production, and today the U.S. imports one-third of the 17 million bbl. that it burns each day.

Despite warnings of an imminent energy emergency, the White House had no stomach for alienating big business by imposing tough conservation laws that would curb consumption, thus shearing profits at many corporations and at the same time irritating the electorate. In addition, the President and his top aides are ideologically opposed to any interference in the free market; to them planning is a dirty word. According to their classical economic gospel, if shortages occur, prices will rise, and this in turn will cause a burst in output.

Yet because of its early mismanagement of the economy, the Administration was forced to adopt wage-price controls in 1971. That tended to keep prices of petroleum products down, but it also helped discourage oilmen from spending money to build new refineries, which had been needed for years. Inadequate refinery capacity was a prime cause of heating-oil and gasoline scarcities last winter and spring. Even if the U.S. were getting all the crude that it needed, it would still have to import 3.5 million bbl. per day of refined fuel from Europe and elsewhere. The Administration tried again last winter to work up some kind of energy policy, but the effort soon degenerated into a fruitless tug of war among bureaucrats from the White House, the Office of Emergency Planning, the Treasury, the Interior Department and other agencies. Not until John Love was named last June to head the Energy Policy Office did the program even have a designated chief.

On top of all that, the Administration underestimated the Arab states' repeated threats to halt oil shipments to the U.S. unless it changed its pro-Israel position. Instead of stockpiling petroleum, the Government noted that Arab oil accounts for no more than 11% of all U.S. consumption. Yet by slowing the flow of oil to all countries, the Arabs have jerked tight the supplies everywhere. The global shortage multiplies the impact of the embargo on the U.S. because the U.S. cannot buy what it needs when foreigners outside the Middle East have less and less to sell.

While most Americans are trying to conserve by turning down thermostats and using less light in homes, schools and offices, too many people continue to indulge their old wasteful ways. Last week drivers were still speeding along the nation's highways at 70 m.p.h. instead of the gas-conserving 50 m.p.h. that was recommended by the President. Merchants in Los Angeles and Atlanta were putting up dazzling displays of Christmas lights, making only token concessions to saving electricity. Though temperatures of no higher than 68DEG were ordered for all federal buildings in Washington, many were heated to 75DEG and above. The President himself turned thumbs down on suggestions that he set an example by taking fewer jet trips from Washington to his homes at Key Biscayne and San Clemente, though the cruising speed of his plane, the Spirit of '76, has been reduced from 525 m.p.h. to 475 m.p.h.

Autos Dented. As gasoline becomes less available, the auto industry is starting to suffer. Says one top auto executive: "It's like trying to sell someone a transistor radio and telling him there aren't any batteries for sale." Moreover, the Big Three are still locked into production of many large, gas-guzzling models, which are becoming increasingly hard to sell. In the first ten days of November American Motors, pioneer in the U.S. of small cars, which make up almost all of its production, increased sales by 21% over last year. For the same period, General Motors' sales dropped 5.6% and Ford's 13.8%. Sales at Chrysler, which carries many big models, plummeted 19%.

A major dent in car sales will be felt throughout the economy, forcing production cutbacks in tires, auto parts, eventually steel, and many other industries. If people drive less, companies that rely on car-borne customers are likely to be hurt. Among them: McDonald's hamburgers, Holiday Inns, Walt Disney Productions.

Farmers in Louisiana, Tennessee, California and elsewhere are worried about losing some of their crops because they are having trouble getting diesel fuel for their trucks and harvesting machines. Diesel-fuel scarcities are prodding the managers of North Carolina's big trucking industry to consider route reductions, which could slow deliveries of products as diverse as machine parts and oranges. As stocks of petroleum-based plastics get skimpier, dozens of small factories in the Midwest and New England are closing.

Though the stock market in general is taking a fierce battering because of the fuel emergency (last week the Dow Jones industrials fell 17 points, to 891), investors have found a new group of stocks worth betting on. During one session last week, 22 of the 26 stocks touching new highs were energy-related companies. Among them: United Nuclear; Getty Oil; Hughes Tool, which makes oil-drilling bits; Ingersoll-Rand, which manufactures mining machinery; and the Williams Companies, which build pipelines.

If the U.S. is to avoid the worst of the energy crisis, federal, state and local governments will have to act more forcefully to conserve existing fuel supplies. President Nixon cannot afford to wait to get the complex machinery ready for rationing. Other conservation efforts should be backed by stiff legal sanctions; speeding drivers, for example, should be tagged with steep fines. The Government will have to get on more swiftly with the job of developing new energy sources, including the immediate leasing of federally owned lands for shale-oil production. Senator Henry Jackson's bill, calling for expenditures of $20 billion over 10 years for a research and development program to explore the potential of such untapped sources as coal gasification and liquefaction, could be an important step forward in ensuring that the nation's future energy supplies are adequate.

For the months immediately ahead, Americans can take some solace from one rather tenuous forecast. Long-range weather predictions indicate that the winter could be relatively mild. If that is the case, the discomfort and dislocation arising from the energy crisis may be not disastrous but merely arduous.

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