The Engergy Crisis
To the Editor:
Eugene Bardach . . . writes with uncommon clarity and possesses a debater’s skill in argument. Unfortunately, his article, “Save Energy, Save a Soul” [May 1976], fails to say anything substantive about the dimensions of the energy problem or its potential for inflicting serious social and economic damage on the country and the world. . . .
Mr. Bardach successfully removes the façade that covers . . . the hidden agenda of environmentalists, physical scientists, and those opposed to nuclear power. In general, he makes an excellent case against many things or groups, but he fails to present positive recommendations or a reasonable approach to resolving the problems. . . . His solutions to the threat of an oil embargo . . . involve stockpiling, the use of import quotas, and . . . the threat of forceful intervention. As to the first, Mr. Bardach must assume that the U.S. can afford the capital investment required to stockpile 4.4 billion barrels of oil to protect us against an embargo. This would be impractical because $50-billion-plus would be hard to come by, it would be non-working capital, and would cause the drain of dollars from other sectors of the economy that sorely need investment dollars. Currently, the U.S. is consuming approximately six billion barrels of oil per year and spending nearly $35 billion to pay for it. The presence of yet another $50 billion U.S. dollars in the world money market could result in a further erosion in value. Is Mr. Bardach advocating that we export almost $85 billion next year to buy enough oil to provide us with a stockpile? If so, is this a realistic recommendation when weighed against our other economic needs?
Moreover, does Mr. Bardach really believe that the OPEC nations would be willing to sell us unlimited quantities of oil (meaning that they would have to increase their production capacity) to enable us to build up our own stockpile? . . . Does he really believe these nations would . . . help us remove their primary political and economic weapon? At this time, many OPEC nations, e.g., Saudi Arabia, Kuwait, United Arab Emirates, etc., are receiving oil-derived revenues that are far in excess of their needs and of their ability to spend or invest. . . . Why would the oil-exporting nations be anxious to bring in even more revenues . . . when these would create greater inflationary pressures in their economies, . . . diminish the amount of oil they would ultimately produce, thereby reducing their ultimate income, and shorten the time frame over which they could plan and develop an economy that could remain viable even after their oil reserves had been depleted? . . .
In the same sentence in which Mr. Bardach suggests stockpiling as a means of combating a potential embargo, there is the suggestion that we apply or impose import quotas. But if we were to lower or stabilize the level of imports and simultaneously begin stockpiling . . . , where would the energy to run the country come from? Would we derive the energy from domestic oil production which has been declining since 1970? Or would we expect this self-imposed squeeze on supplies to stimulate the development of domestic resources that geologists assure us do not exist in quantities in excess of 80 billion barrels . . . ?
In any case, the import-quota/stockpile theory that the article prescribes would, in my opinion, create a situation of less than Zero Energy Growth (ZEG). If one then reviews the author’s earlier comments, one must assume that he would counter this situation by permitting prices to rise to a level that would induce decreased consumption. Such a free-marketplace philosophy (applied to a commodity which has demonstrated itself to be nearly economically inelastic) under ZEG conditions would create serious hardships for the nation’s overall economy. On a more personal level, i.e., for the individual citizen, these hardships would, at best, be somewhat inequitable. . . .
The article also suggests that we threaten the use of forceful intervention. The Arab nations have stated that their wells are prepared for detonation and would be detonated at the first sign of forceful intervention. I am inclined to believe them. Is it realistic to take the risk of not believing them? Is it realistic to assume that the Russians, who face a need to import OPEC oil by the early 1980’s, would stand by peacefully and permit any nation to intervene forcefully and thereby pose a threat to their future as a world power?. . .
The article points out, quite properly, that the U.S. must develop energy technologies that will allow us to be independent of oil. In my view, the time lag is too long between the discovery of solutions to the energy problem and the development of the technology, industry, and commercial components required to apply these solutions on a scale significant enough to affect the problem. One must look at the development of alternate technologies within the perspective of this time lag, and then obtain a reasonable estimate of the world’s total remaining oil and gas reserves. . . . After going through this exercise with various alternate technologies—nuclear fusion, the Breeder, SNG, shale oil, geothermal, tidal, wind, etc.—and adding up realistic estimates of the contributions they are likely to make in the next thirty years, I have concluded that energy conservation is a vital component of any national energy policy. Even if one makes the most optimistic assumptions about our being able to import both oil and gas without restraint, and assumes as well that new technologies will develop at greater than historic speed, an energy conservation policy would still be essential to “buy time.” . . .
“Save Energy, Save a Soul” skips lightly over the “solar option” as an expensive energy technology. But . . . is it expensive compared to oil in a free-market situation with limited imports, the stockpiling of oil, and dwindling domestic production?. . . Under such conditions, solar energy would, in my opinion, become a here-and-now, inexpensive, energy-producing (perhaps, society-saving) modality. . . .
I am personally disheartened that a man of such obvious talent as Mr. Bardach . . . should write an article that presents yet another obstacle to . . . a solution of this serious problem.
Energy Action Staff
Health Resources Administration—HEW
Eugene Bardach writes:
Traveling under the rhetorical cloak of “the energy crisis” are three separate problems: oil-import vulnerability, environmental degradation, and the desire for assurance about the long-run availability of supplies. The first point of my article was to show that “energy conservation” is an ineffective means of solving any of these problems. (The second point was to expose the political and ideological rationale behind the current clamor on behalf of energy conservation.) Contrary to Burt Kline’s assertion, I did indeed make a number of “positive recommendations” concerning these three problems. He just doesn’t want to accept them.
The problem of long-run availability of supplies is subtle and perhaps should have been treated more extensively. Mr. Kline appears to counsel an obvious sort of prudence when he says that energy conservation is needed to “buy time.” Although this particular locution is very popular in the present energy debate, it is also very misleading. It makes us imagine a singular Day of Judgment out there in the future. Before that terrible day we all lead a merry and frivolous existence and after it we move back into caves and descend into anarchy. But this frightening image is utterly inappropriate. If government regulation does not artificially prevent energy prices from drifting upward to reflect higher production costs or greater scarcity—a big “if,” I will concede—our energy-supply troubles, if they come at all, will come quite gradually. The worst that could happen is that over several decades our descendants would adapt to higher energy costs by altering their consumption patterns and their modes of production. To put it another way, future generations would conserve energy. As I expect that future generations will be considerably richer than ourselves, I see no good moral reason to shift their conservation problem backward in time onto our own generation. In any case, technological advances will probably prevent their conservation problem from growing very large in the first place.
Of course, technological advances do not occur spontaneously. The prospects of higher energy prices in the future should induce profit-seeking firms to undertake much of the needed investment in research and development. However, basic research into exotic and long-lead-time technologies like nuclear fusion should not be left to private entrepreneurship. And it is not. The federal government subsidizes such research rather heavily. This is a subsidy paid, in effect, by ourselves to our descendants. It is morally right that we do so, and it makes economic sense as well.
Can technology succeed? To a certain extent it has already. Solar energy is becoming economically competitive in certain applications. Even more important, nuclear fission is already highly developed. I am glad to see that Mr. Kline has included this latter source in his list of potential energy sources, as I feel now that I made too much of the nuclear-waste-disposal problem in my original essay. I have subsequently learned that British and American researchers have developed a method of sealing reactor wastes in a type of glass that is waterproof, fireproof, and earthquake-proof. Radioactive wastes sealed in such packages and buried deep in geologically stable salt formations would be safer to human and animal populations than radioactive ores occurring in nature and buried wherever nature has happened to put them.
Creating an emergency stockpile of crude oil is almost certainly the single most urgent national-security measure this country ought to take at present. It cannot be sufficiently stressed that acquiring and maintaining an oil stockpile is a national-security program, not an “energy” program. Without a stockpile we are continually vulnerable to Arab blackmail. With a stockpile we can deter such blackmail. We could also try to force the OPEC price back down to some tolerable level or, better still, break up the cartel. Finally, we could continue to import as much oil as we liked—provided, of course, that the stockpile were to grow in proportion to the volume of imports from insecure sources—without having to contemplate using such environmentally damaging fuels as oil shale.
No one should underestimate the potential economic significance of a future Arab oil embargo. The embargo three years ago reduced GNP by $10-20 billion, according to estimates by the Federal Energy Administration. Thomas H. Tietenberg, a former FEA analyst, estimates (in his recent book, Energy Planning and Policy) that a six-month embargo this coming year would cost $38.3 billion (in 1975 dollars). A drop in crude-oil prices to $7 per barrel would encourage more imports and, as a result, the price tag in 1980, according to Tietenberg, would be $49.5 billion. In 1985 it would be $154.7 billion. Of course, an embargo lasting more than six months would do even greater economic damage.
In view of the costs of not having a stockpile, the costs of having a stockpile are small indeed. Unfortunately, Mr. Kline overstates the costs of a stockpile by several fold because he fails to subtract the resale value of the stored oil. The threat of an embargo will not last forever, after all. Eventually the original cash outlay would be largely recouped by simply selling off the stockpile. During the period the stockpile would actually be held the only significant economic costs would be those of preparing and maintaining the storage facilities themselves and of meeting the interest payments on the original cash outlay. These costs would probably fall between $1 and $2 per barrel per year.
Would the Arabs sell us the oil for a stockpile? Once an oil tanker leaves port its cargo is effectively blended with the entire world oil supply. The Arabs cannot, therefore, avoid contributing their oil to our stockpile unless they want to stop exporting it altogether. As for the alleged effects on world money markets of our stockpile purchases, these cannot be taken seriously. The petrodollar flow to the OPEC nations is already so vast that the slight augmentation that would be caused by this country’s stockpiling program would hardly be noticed.
Mr. Kline is rightly concerned about the possibility of sabotage to Persian Gulf oil facilities in the event of an armed intervention. Such damage can be repaired, I am told, in six months to a year. My own current preference concerning the size of the U.S. stockpile is for one of about a billion barrels. This amount would tide us over the period of a supply disruption in the unlikely event that forceful intervention were actually necessary and widespread sabotage actually occurred. It should be obvious, however, that the readiness to intervene militarily, backed by an oil stockpile, is the best deterrent against an embargo that would make intervention necessary.
As for the risks of Soviet interference, Robert W. Tucker made the strongest argument against the plausibility of these risks in his renowned, but too-soon-forgotten, essay in these pages exactly two years ago [“Oil: The Issue of American Intervention,” January 1975].1
The main obstacle to creating a strategic-oil stockpile is political. There is no natural domestic constituency at the grass roots and, more importantly, there is no bureaucratic constituency in Washington. The current legislation authorizing a U.S. oil stockpile mandates an exceedingly slow buildup and locates management responsibility with a moribund agency, the FEA. Mr. Kline would perform a useful service if he turned his Energy Action Staff in HEW away from irrelevant concerns about conservation and made them into lobbyists for a more rapid buildup of our strategic-oil stockpile. There is a new President in town, and Mr. Kline’s agency might score a few points.
1 See also Mr. Tucker’s article in this issue, “Oil and American Power—Three Years Later,” beginning on p. 29—Ed.