Where the Carter Plan Stands

No longer a comprehensive program, but a needed first step

James Schlesinger carried his battle for the Administration's energy program deep into hostile territory last week, traveling to Houston to address a meeting of 3,000 oil and gas executives. They represented the industry that President Carter last month accused of plotting "the greatest rip-off in history," and Schlesinger's mission seemed to be to plead for peace and understanding. He did--but only to a point. Denying the industry's basic complaint that the Administration's complex plan does not offer enough in the way of incentives for increased fuel exploration, the Energy Secretary insisted that the program would bring on "a golden age" for the energy companies. Yet at the same time, Schlesinger blasted the oilmen for perpetuating "myths" and "paranoia" about the plan, adding almost mockingly that they seem "to believe that all the folks up in Washington have it in for the industry."

In fact, a lot of folks on Capitol Hill seem to have it in for Carter's bill. After seven months of congressional scrutiny, the fate of the 283-page program is now in the hands of a joint conference committee. Initially, the committee had hoped to finish its task by Christmas, but with 100-odd separate items in the bill, work is proceeding slowly. The committee decided to recess for Thanksgiving week, and key Congressmen have begun hinting that some of the provisions may have to be broken out as separate bills and presented to Carter in the new year.

As the program's prospects of emerging intact from Congress have dimmed, defending its provisions has become Priority No. 1 throughout the Administration. Getting a comprehensive energy plan in place becomes more urgent with each passing month. Oil imports, which now supply about 49% of U.S. needs, are running nearly 10% ahead of last year's level; the oil import bill for all of 1977 will total an alarming $45 billion. The overriding goal of Carter's plan is to cut these huge figures down to size: by 1985 to reduce the growth of energy consumption to 2% annually, to cut gasoline consumption by 10% below current levels, and to slash oil imports to less than half of what they would otherwise be-- meaning about one-eighth of total energy consumption.

One important reason for the plan's perilous passage through Congress was the misguided way the Administration had shaped up the program in the first place. In pledging to produce a National Energy Plan within 90 days of his Inauguration, and then turning the task into a semisecret crash project by a dozen staffers under Schlesinger, Carter overlooked an old truth: in Washington, people are more likely to support an idea if they have been able to help formulate it. In fact, the Administration had attempted to short-circuit opposition to many of its proposals by writing a variety of compromise features into the plan. But since none of the special interests that were supposed to benefit from the trade-offs had had a hand in suggesting them, the compromise efforts have had little effect.

The program moved through the House relatively intact, thanks to the skillful management of Speaker Thomas (Tip) O'Neill, who assembled an ad hoc energy committee to make sure he had tight control of the bill's fate on his turf. But in the Senate, where the rules of procedure do not permit tight organization as in the House, the plan has come completely unstuck. The dismemberment has been greatly aided by an intense lobbying effort by the oil industry, whose powerful friends include Louisiana Democrat Russell Long, chairman of the Finance Committee. Generally, the House voted to retain oil and gas price controls and increase energy taxes--two important aspects of the Carter plan. The Senate yielded instead to arguments by the oil industry that deregulation of prices would give oil and gas producers the incentive to increase production and keep the nation from undergoing energy shortages in the years ahead.

The conference committee is now trying to iron out the resulting differences. Since there is considerable overlap, a great deal of caucusing is going on between the minicommittees. A rundown of the bill's key provisions and the problems the committee is facing:

Wellhead tax The central feature of the Administration program, the tax would be phased in over three years and raise domestic crude-oil prices, now at an average $8.52 per bbl., to the current OPEC price of about $13.50 per bbl. The aim: to discourage domestic oil consumption. To encourage increased domestic production and reduce imports, the plan would allow the price of newly discovered oil to rise to the 1977 OPEC level, and the oil companies to retain the increased revenue. To lessen the draining effect of the wellhead tax on consumer spending power Carter proposed that much of the tax proceeds be recycled back to consumers in the form of rebates.

The House went along with the scheme, with slight modifications but the Senate rejected it. Instead, it proposed a $47 billion package to general revenue grants and subsidies to help industry convert from oil heating to coal, and to aid energy companies in developing unconventional sources like shale oil. The wellhead-tax dispute is the most difficult issue the conference committee faces. Supporters of the tax argue that without it, the oil companies would be handed a bonanza of unearned profits because they would get much more for oil that had already been discovered and was already profitable to sell at lower, Government-fixed prices. The oil companies say they need the increased revenue--from new as well as old discoveries--if they are to accelerate their search for oil in remote areas, where production costs are higher than in, say, Texas or Louisiana. Yet increased oil production is not all that is needed; vast amounts of energy are available from unconventional and extremely costly sources such as tar sands and shale, and potentially limitless energy is at hand in the form of solar and geothermal power. The best--and most likely--compromise solution is to retain the wellhead tax but channel some of the proceeds into research and development programs for unconventional sources.

Natural gas price controls This is the second most difficult issue facing the conference committee. At present, natural gas that remains inside the state where it is produced is free from price controls, but gas that is shipped across state lines has a Government price ceiling of $1.47 per 1,000 cu.ft. Carter wants all the country's natural gas to come under price controls, but he would raise the ceiling to $1.75 per 1,000 cu.ft. The idea is to give producers more incentive to explore for natural gas, but to prevent them from raising prices to exorbitant levels. The House went along with this proposal; but the Senate, after a bitter, failed filibuster by members from gas-consuming states, voted to remove regulations from all natural gas. The conference committee has yet to get to this issue, but since Carter has said that he will veto any bill that deregulates natural gas, the proper compromise would be a continuance of price controls, but at a higher level than Carter wants.

Gas-guzzler tax An important conservation measure in the Carter plan was his call for steep taxes by 1985 on cars that get fewer than 27.5 m.p.g. The tax was to run as high as $2,488 for the worst guzzlers, and there would be rebates for fuel-efficient cars. The House lowered the mileage target to 23.5 m.p.g., but hiked the tax to a maximum of $3,856. The Senate scrapped the whole approach, and chose instead to write in a complete ban by 1985 on cars that get fewer than 21 m.p.g. The two minicommittees have yet to choose which way to go.

Credits for home insulation As a further conservation measure, Carter proposed a 25% tax credit for the first $800 spent by homeowners to upgrade heating insulation in their houses, and a 15% credit for the next $1,400 in costs. The House went along with the plan, but the Senate nearly quadrupled the amount of credits available to homeowners. The conference committee has tentatively accepted a version close to the House-passed bill.

Tax incentives for coal use to force industries to change from oil and natural gas heating to coal, Carter proposed steep taxes for companies that do not change over. To help companies make the change, he proposed a 10% tax credit for the purchase of new equipment. The House wrote in a number of exemptions to the tax while at the same time adopting the credits. The Senate added so many more exemptions that much of industry would be excluded. At the same time, it increased the changeover credits to 25%. The conference committee decided on a middle course, leaving in many of the loopholes but giving the Department of Energy broad discretion to decide which companies should be granted exemptions.

Utility rate reform. Many utilities now give discounts to industrial customers that use large amounts of electricity, and few offer discounts to customers for using electricity during off-peak hours. Carter wants to change this by requiring federal control over utility pricing. The House went along with the principle of federal control, but the Senate rejected it as an infringement of states' rights--an argument that has not been seriously used in Congress since the days of the civil rights debates. The conference committee last week agreed on a compromise solution that would leave utility rates up to the states but would require state agencies to give written reasons if they did not require utilities to adopt energy-conscious measures, particularly off-peak pricing.

Solar-energy tax credits To encourage homeowners to heat their homes with solar power, Carter asked for up to $2,000 in tax credits for the purchase of solar-heating equipment. The House increased this to $2,150, and the Senate broadened it to include businesses. The conference committee adopted the Senate version.

However the conference committee resolves these issues, it has been clear since almost the moment the Carter plan was made public that its goals are too ambitious. Those goals are not just to cut oil imports and domestic consumption sharply, but to stimulate new production and to lay the groundwork for the development of renewable energy sources that will carry the U.S. into the 21st century. A Congressional Budget Office study of the plan agreed that it would cut imports, but concluded: "The Administration's estimates of the magnitude of import savings are overly optimistic." A study by the Office of Technology Assessment concurred: "The plan's domestic oil, natural gas and coal production targets ... are not likely to be achieved."

The plan's greatest weakness is its lack of a strong program for developing alternative energy sources. Neither the Senate nor the House has succeeded in correcting this imbalance, and as a result the bill remains not a comprehensive energy program but a first step toward one. Next time around, the White House would be well advised to make a serious effort to involve both the Congress and the public in its preparation. It is one thing to ask for a national commitment that is the "moral equivalent of war," and another to call for it with the suddenness of a sneak attack.

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