Fiddling Dangerously While Fuel Burns

By night, New York City, Las Vegas, Tokyo and other cities across the industrialized world are a carnival of wastefully blazing lights. In Rome's Villa Borghese park, thousands of street lamps glow wanly in bright morning sunshine. Thermostats are set at stifling levels in many German homes. From Berlin to Osaka, families pile into their cars for weekend pleasure jaunts, clogging highways and creating hellish traffic jams. Just three years after the Arab oil embargo that shook consuming nations and threatened economic disaster, most of the world's consumers seem to have forgotten that an energy crisis ever existed.

It not only existed, but it is coming back, as menacing as ever. That at least is the consensus of energy experts and government leaders around the world--prominently including Jimmy Carter. The President-elect has declared that a new, more cohesive energy policy will be a top-priority goal of his Administration. Indeed, Carter plans to devote one of his earliest televised fireside chats to a plea to the nation to conserve fuel.

Final Crunch. The lull in the energy crisis has been the result of two developments for which governments can take no credit: a succession of mild winters and the global recession of 1974-75. Both held down fuel consumption and tended to obscure a frightening fact: in the long run, the world is going to run out of oil. Known reserves may well be nearing depletion before the end of the century, sending crude production on an irreversible decline--and before that point is reached, demand pressures will push petroleum prices to confiscatory levels, threatening economic chaos. So current consumption patterns cannot continue indefinitely. The longer governments put off taking rigorous steps to conserve oil and increase the supply of energy from other sources, such as coal and nuclear power, the more devastating the final crunch will be.

Long before that ultimate day of reckoning comes, however, the oil-burning nations face an immediate threat. The coming winter may be severe, boosting fuel usage and heating bills. And this week the Organization of Petroleum Exporting Countries, the 13-nation supercartel that quintupled world oil prices between October 1973 and September 1975, is expected to push them up another notch, effective Jan. 1. Every percentage point of increase will translate into higher inflation, slower economic growth and fewer jobs around the industrialized world.

There had been some talk that OPEC might postpone its meeting until its members knew the outcome of a so-called North-South meeting of government ministers of industrialized and poor countries in Paris that also had been scheduled for this week. OPEC likes to pose as a champion of underdeveloped countries (even though its oil-price increases have hurt those nations more than the industrial countries). The idea was, in effect, to use the threat of another oil-price hike as a club to get the industrial countries to agree to the Third World's demands: a stretch-out of debt repayments and higher prices for non-oil commodities.

Prospects for agreement, however, are poor, and the North-South meeting has been postponed, probably until next spring. Thus, OPEC's leaders now will meet on schedule Wednesday in the tiny Persian Gulf emirate of Qatar. As usual, their deliberations will probably be dominated by Saudi Arabian Oil Minister Ahmed Zaki Yamani, who will seek to keep the increase as low as possible, and Iran's Minister of State, Jamshid Amouzegar, who will argue for a boost of at least 15%.

The divisions are rooted in economic self-interest. The Saudis speak for a bloc of almost empty desert countries with huge oil reserves--Kuwait, Qatar, the United Arab Emirates--that want to keep prices down and sales high. Algeria, Iraq and Libya, with relatively smaller production and reserves, want to get the most for their oil; they are talking up increases as high as 25%. Most outside experts guess that OPEC will eventually compromise on 10%.

Trade Deficits. For the U.S., a 10% OPEC increase would inflate oil import costs by about $3.5 billion and add about 20 per gal. to the price of gasoline and other fuels. That would put a further drag on the already sluggish U.S. recovery, since an oil price hike, like a tax increase, reduces the amount of money consumers and businessmen have available to spend on other things. The impact of an OPEC boost will be muffled by the fact that the U.S. produces almost 60% of its oil, and most domestic oil is still under price controls.

The effect on some other major industrial countries would be far more worrisome. Beleaguered Britain, whose own North Sea wells have barely begun production, still imports most of its crude; an OPEC boost would intensify British inflation, already nearly 15%, and put more pressure on the sinking pound. Oil imports in the first nine months of 1976 added a net $5.5 billion to Italy's trade deficits, 45% more than a year earlier. To pay for another oil hike, Italy would have to cut other imports sharply and borrow additional cash from its trading partners and the International Monetary Fund. In Japan, which imports almost every drop of its oil, government and private economists figure that national production will rise 7% next year--if there is no OPEC price increase. But if OPEC raises oil prices by 10%, Japanese output will probably go down half a percent.

For such non-oil-producing countries in the developing world as Pakistan, Mali and Sri Lanka, any increase in oil prices presents enormous problems. Most Third World states have managed to pay their oil bills for the past three years only by borrowing an estimated $100 billion from public and private institutions in the U.S. and other industrial countries. At present, the developing countries' total indebtedness stands at a towering $ 170 billion.

The successful recycling of those massive sums is something of a triumph for the international banking system. Immediately after the 1973-74 price increases, many economists feared the banks could not cope with the huge monetary imbalances caused by the sudden shift of wealth to the OPEC countries. But some of that money came back to the oil-burning nations when producing states began buying up huge amounts of Western goods, including weapons. The rest flowed into bank deposits and other investments in industrial states and was then lent to the countries that were hit hardest by the oil boosts.

New Hike. Yet most moneymen agree that banks cannot go on indefinitely taking the risks of lending on such a scale. Moreover, there is a limit to how much interest the debtors can pay--and many countries are now close to it. A new oil hike could force some poor states to default on their loans; Zaire, for one, is almost at that point now. At best, the poorest countries would have to pay for a new oil increase by reducing imports of such essentials as food, fertilizer and machinery.

Despite these dangers, the industrial world has continued to fiddle while fuel burns. Of all the major industrial nations, only France has adopted a tough conservation policy. The government has set a flat limit of $11 billion on the amount of money the nation will spend to import oil in 1977 and is threatening rigid enforcement of laws specifying fines for building owners who set thermostats any higher than 68DEG F. In Italy, by contrast, almost all the nation's economic ills (high inflation, unemployment and trade deficit) have been immeasurably aggravated by high oil prices. Nonetheless, Gianni Theodoli, head of the nation's association of private oil companies, sums up progress toward conservation as "zero, zero, zero." The International Energy Agency, set up at the instigation of the U.S. to be a kind of oil consumers' countercartel, has achieved little except an agreement among its 19 members to share oil supplies in the event of another Arab embargo.

The U.S. is an especially glaring offender. Most other nations have managed at least some slight reductions in the percentages of their gross national products devoted to energy. But the U.S. last year consumed exactly as much energy for each dollar of G.N.P. as it did in the embargo year of 1973. That year oil accounted for 46.7% of all energy consumed in the U.S. So far in 1976, its share is actually higher: 47.2%. Natural-gas output will fall an estimated 21% short of meeting demand this winter, compared with 6.4% during the winter of the embargo.

U.S. oil output has dropped from 9.2 million bbl. a day in 1973 to 8.1 million now (main reason, according to oilmen: all the easy-to-pump crude has been found). So the nation now is importing more than 40% of all the oil it burns, v. 36% at the time of the embargo, leaving it more vulnerable than ever to blackmail by OPEC.

The brave conservation measures of late 1973 and early 1974 have been replaced by a so-what spirit. Chicago's Commonwealth Edison Co., for example, urges viewers of its TV commercials to leave house lights on when they are on a trip, because "a darkened house is an invitation to burglars." Small, gas-saving cars that motorists snapped up in 1974 are now gathering dust in dealer showrooms.

Shining Example. To pep up sluggish sales, American Motors Corp. is offering a $253 rebate to customers who purchase its 1977 compact Pacer. In Los Angeles, some dealers are giving away free 15-in. RCA color TV sets to anyone who will buy a spanking new Japanese-made Toyota (fuel efficiency rating: 41 m.p.g.). The Federal Energy Administration itself sets no shining example of conservation; its headquarters, in an old Washington building that once housed the Post Office Department, is almost a model of energy inefficiency. A TIME reporter visiting there on a cold day found Associate Administrator Bruce Pasternack in a sweltering-hot office. Explained a frustrated Pasternack: "The heating and cooling systems are always out of phase."

Washington has taken some action.

The Government has pushed to have industry and electric utilities convert gas-or oil-fired burners to coal, enacted a law requiring U.S.-built autos to get an average 20 m.p.g. by 1980 and 27.5 m.p.g. by 1985, and imposed a national 55-m.p.h. highway speed limit. Such steps have at least held the growth of energy use to 3.5% a year, below what it would have been if nothing at all had been done. Federal Energy Administrator Frank Zarb has set a long-range goal of reducing it further to 2.5% by 1985. Yet W. Donham Crawford, president of the Edison Electric Institute, complains quite correctly: "We do not have a national energy policy. We have a lot of policies, but they're not coordinated."

Stiff Tax. Why has more not been done? The biggest reason, undoubtedly, is sheer inertia and a lack of selfdiscipline. In addition, consumers and their political leaders have been reluctant to face the heavy costs of reducing dependence on foreign oil. To take the most striking example: the nation badly needs to place a stiff tax on gasoline in order to force conservation. U.S. gasoline prices are by far the lowest in the industrial world (see chart). Yet President Ford, who in general favors higher energy prices, believed public opinion was against such a tax; so he was too. Reserves of natural gas go untapped because energy companies say that current prices do not adequately cover the cost of exploration and extraction. The federally controlled price of natural gas piped across state lines, long held at 510 per 1,000 cu. ft., would have to jump to at least $2 in order to encourage producers to find and ultimately pump more of that clean-burning, desperately needed fuel. Yet consumer advocates have howled angry opposition to lower increases (present top: $1.42) decreed by the Federal Power Commission.

Though cutting wasteful practices can greatly reduce oil consumption without imposing personal hardship or weakening the economy, conservation does have its limits. If the U.S. is to hold on to its industrial lead, massive expenditures of energy will always be necessary. Thus, given the long lead times needed to develop alternate sources of energy (eight to ten years from blueprint to electricity production for a nuclear power plant, for example), the Government also must speed up its efforts to coax more energy from those sources. But here too there are serious problems--technological, environmental, political. At present, the mainspring of the Government drive is the Energy Research and Development Administration, a fledgling agency set up in January 1975 to pull together the loose jumble of federal energy research programs. But ERDA's budget for fiscal 1977 totals only $3.1 billion. That outlay, in the view of many experts, is nowhere near enough.

ERDA and some privately funded research groups are investigating ways to extract oil from shale, tap the energy from the sun and harness the earth's heat. None of these sources is expected to provide the ultimate solution. Combining solar with conventional energy could help cut some fuel use. One problem: methods of storing solar energy are not effective enough to be relied on as the sole source of electric or heating power in the cold winter climates of such areas as New England and the northern Middle West. Prices for getting shale oil or using wet-steam deposits in the earth to generate electricity are also far from commercially acceptable.

In fact, only two kinds of fuel are capable of supplying the massive amounts of energy that will be needed to replace the nation's dwindling supplies of domestic oil and gas. They are:

Coal: The nation's reserves are enough to last 300 years, and production is expected to rise to more than a billion tons by 1985, from 640 million tons in 1975. But achieving that goal will require some kind of compromise strip-mining legislation that would satisfy environmentalists (who fear that large-scale mining in the Western states would permanently deface the land and cause widespread erosion) without discouraging investment by the coal companies--a formula exceedingly difficult to devise. Moreover, scores of new mines will have to be opened in the East. To avoid health hazards, effective scrubbers--devices that remove dangerous sulfur fumes from the stack gases of coal-burning plants--must be perfected and other means found to treat high-sulfur coal. All that will require billions of dollars in new capital for what is now a $5 billion industry.

Nuclear Fission, once regarded as the ultimate power source, has encountered a series of setbacks: Government red tape, safety worries and ballooning development costs. Electric utilities have canceled or postponed many planned plants; they have fewer nuclear plants in the design stage now than they did in 1974. The atomic-power option was further dimmed recently when President Ford decided in effect to delay commercial use of plutonium as nuclear fuel. The main reason: fear that widespread use of plutonium, a key ingredient in nuclear weapons, would enable any country to make atomic bombs. The plutonium ban clouds the outlook for development of the breeder reactor, which is essential if the U.S. is to fill its long-term energy needs with fission.

Heated Stand. What might Carter do to cut through these tangled problems? So far, only snippets of his probable energy strategy have emerged. He has talked of doubling coal production but never said how. His most specific proposal is to combine the FEA, the FPC, ERDA and other agencies into a single Cabinet-level energy department. That should help eliminate regulatory confusion; utility executives complain that at present it can take years just to get clearances for a new nuclear power plant from all the different agencies involved. In addition, Carter should be able to avoid the wrangling with the Democratic Congress that badly hampered energy policy during the Nixon and Ford Administrations. For instance, Congress in the past two years has passed two bills that would have tightened environmental controls on strip mining; Ford vetoed both. Uncertainty about what kind of controls, if any, will be imposed has kept mining companies from making needed investments to open new pits.

At any rate, Carter intends to try to reduce dependence on oil, especially imports. To symbolize his determination, he plans to view the inaugural parade from a stand heated by a solar-energy panel. But just in case Jan. 20 comes up cloudy, a power-guzzling stand-by electric-heating system is being readied. As that illustrates, in the field of energy policy nothing is simple.

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