How to Counter OPEC

By Marshall Loeb

Can anything be done to break the tyranny of the toughest cartel in history, to prevent oil shortages and price gouging? The answer is yes--if. If the U.S. is ready. At last, the jarring events of the past few weeks have probably persuaded Americans that the crisis is real, and that the nation can meet it by making some sacrifices and changes in its lifestyle, by taking some chances and paying some costs. What is needed, of course, is to lessen immediately the country's umbilical dependence on crude oil from the cartel. Slackened demand could loosen the market, make OPEC nervous and start a rush by its members to sell. The ways to accomplish that are well known and many, for there is no single miracle stroke against OPEC.

Because nearly 40% of all oil used in the nation goes for gasoline, the first and most important step is to brake gasoline demand. Rationing would seem to be the politically expedient method. A New York Times-CBS News poll in early June found that three out of five Americans would prefer rationing to shortages and skyrocketing prices. Yet any form of rationing would tend to be inequitable and a bureaucratic nightmare. Even during World War II, when the U.S. was united as never before or since, gasoline rationing was marked by corruption, favoritism and loopholes. Today, rationing would be enforced by the same Department of Energy folks who have done so much to confuse and compound the gasoline mess. Says Treasury Secretary Michael Blumenthal: "The more I'm in the Government, the more market-oriented I become. No bureaucrats with pins at the Department of Energy, trying to figure out how much gasoline each gas station in the country should get, can set out a way to distribute gas in this country." Nor can they fairly and soundly figure out how much gas each driver needs and should get.

The House in May rejected the President's stand-by rationing plan, but it offers some clues to any future program. Car owners would get ration coupons and could sell unused coupons on a "white market" at any price; each car would be allotted about 50 gal. a month, though the totals would vary by state; no more than three cars in each household could receive coupons; extra rations would be given to police cars, ambulances, taxis, farm tractors; heavy recreational vehicles would get nothing.

Probably a more efficient measure would be to "ration by price," that is, to free the market and remove gasoline price controls. President Carter has the authority to do that, subject to congressional veto. Decontrol would cause a political storm because prices would immediately rise. Some experts warn that gasoline would soar to $2 a gal., but free market advocates argue that long-term prices would go up much less, by perhaps a few cents or a dime a gal. In any case, three facts are most significant. First, a free market unquestionably would reduce demand by raising the cost. Second, the price would still be lower in the U.S. than in any other industrial nation except Canada. Third, the Government could use taxes both to skim off any "windfall" profits and to compensate lower-income people, who might otherwise be hurt by higher gasoline costs.

It has become a commonplace that America has scarcely begun to conserve. Small, voluntary steps can add up to major savings. A driver can save about 5% of the gas he normally uses by keeping his tires properly inflated and another 10% by keeping his engine in tune. A householder can save 15% on his heating bill, and 7.5% on his air-conditioning bill, simply by keeping his storm windows on all year.

But the largest savings will have to come from a combination of more tax incentives for buying home insulation, wood-burning furnaces and other oil-conserving devices, and much stiffer mandatory conservation rules. A number of innovative companies, including Du Pont, A T & T and General Motors, have reduced their energy use relative to their output by 17% to 30% since the Arab oil embargo of 1973; yet many more firms have gone on giddily wasting energy. Consider the beneficial effects of a 20% surtax on the commercial use of electricity: skyscrapers that are lit up all night long and advertising signs that glisten at 4 a.m. would be turned off.

The nation will have to make the most of its available alternatives to oil, and to do that it will have to moderate some of its stringent environmental protection laws. The U.S. is the Saudi Arabia of coal, but a maze of regulations retard the mining, transportation and burning of coal, greatly inflating its price.

Many power-generating companies would switch from oil to coal if the U.S. removed the need for expensive scrubbers on plants that use low-sulfur Western coal. The U.S. also has to dig more coal mines (including strip mines), build more and safer nuclear plants, construct more oil refineries, drill more offshore wells, develop more oil shale projects. All of these will require some trade-offs with antipollution laws, and none of the projects can be accomplished if small groups of zealots set out to block them while OPEC's new Midases sit back and applaud.

The U.S. could also reduce OPEC's power by buying more oil and gas from nations outside the cartel, especially those in the Americas. The need is urgent to create a North American Common Market. Canada has vast supplies of natural gas; the U.S. could negotiate to provide guaranteed markets and much needed capital in return for a steady supply of gas. Mexico is proud and sensitive about its patrimony of oil and gas, but the U.S. could acquire more of it by admitting more Mexican immigrants, giving trade preferences to Mexican exports, exchanging American agricultural technology to help feed one of the world's fastest growing populations and generally treating its neighbor as an equal partner.

Salvation ultimately lies in developing alternative energies, but that will take many years. At OPEC's new prices, oil from the almost limitless supplies of U.S. shale now becomes competitive, but shale oil probably will not be available in quantity until 1990. Solar technology also has large promise but is still in its swaddling clothes. Two of the most promising alternatives for quick use are methane, which can be produced from garbage or manure, and alcohol, which can be made from grain and almost any other organic matter. The manufacture of both should be encouraged through tax incentives. Connecticut Senator Abraham Ribicoff has introduced a sensible bill that would require that 20% of all gasoline sold in the U.S. must come from oil alternatives.

Having done almost nothing in the six years since the Arab oil embargo, the Congress, roused at last, is considering no fewer than five major bills to subsidize the multibillion-dollar development of alternative energies. In the process of hurry-up and waste, much of the money will go down ratholes. But some of the subsidies will produce breakthroughs, just as urgent drives put men on the moon exactly ten years ago. Like it or not, the U.S. is now involved in a new war for independence. The only way it can win is to be prepared to conserve, convert, compromise and develop.

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