Energy: The Loss of Innocence

Until two years ago it was generally believed that the United States could obtain enough energy at reasonable cost to sustain moderate economic growth and a free choice of lifestyles. The conventional wisdom was that conventional fuel would serve the American economy long enough to allow for the gradual development of new resources—especially nuclear fusion—by early in the next century.

This sense of complacency persisted even though a new set of factors had emerged in the late 1960s, contributing to a slowing tempo of energy development and a rising cost of energy supplies. This development had several causes. One factor was the rising concern over environmental degradation. Another looked, at first, like the infant diseases of a new industry—nuclear power generation—but gradually turned into an acrimonious debate over the admissibility of that entire technology, a debate increasingly cast in moral as well as in technological or economic terms.

As a result of environmental concerns every source of energy, not just nuclear, became a battleground; offshore oil because of spillage hazards and resulting threats to coastal zones; coal because of air pollution, damage to the landscape from surface (strip) mining, intrusion into hitherto sparsely populated (and frequently Indian) land in the western states, and, in the case of coal-conversion plants, large demands on water, which tends to be most scarce in the very areas where massive coal seams are known to exist; domestic refining capacity because of gas emissions, odors, and fire hazards; shale because of concerns similar to those about western coal and assertions that development would require too much energy relative to the expected yield. And so on. The pervasiveness of these attacks makes one wonder whether the still untried technologies had been spared assault largely because their disadvantages have not yet been revealed.

The record of domestic production reflects these uncertainties and unreconciled conflicts. Oil output peaked in 1970 and has been declining ever since. Natural gas output, long hampered by regulatory constraints on its price in interstate commerce, began to decline in 1974. Coal production, which increased at a good rate through the sixties, then leveled off for lack of venturesome investors, innovative technology, a stable labor supply, and an encouraging market outlook. As a result, the importation of oil, first subjected to government controls in the middle fifties, began to rise rapidly, swamping the limitations that remained in the early seventies.

In short, the energy position of the United States at the onset of the seventies gave ample cause for concern. Still, the problem was not seen as one likely to threaten the nation's place in the world arena.

Two decades of change. Meanwhile, the increase in energy consumption, especially oil and gas, in the rest of the developed world was astounding. Between 1950 and 1970, total use of energy nearly tripled in Western Europe and rose by nearly 500 percent in Japan. During the same two decades the share of oil and gas in total energy consumption rose in Japan from 5 to 70 percent and in Western Europe from 14 to 62 percent.

American energy history from 1950 to 1970 has been much less dramatic. Consumption grew "only" 100 percent, and the share of oil and gas in total energy use rose from 57 to 76 percent, because of abundant resources of cheap coal and an early emphasis on the production and use of both oil and gas. Even so, the trend, here as elsewhere, led away from the most abundant, indigenous source: coal.

The magnitude of this increase had not been foreseen. In the sixties, for instance, projections for Western Europe looked to continuing annual growth in energy use of about 4 percent; it proved to be 6.3 percent. Corresponding figures for the United States were 3 to 3.5 percent projected and 4.2 percent actual; and for Japan, 7 to 10 percent projected and 12 percent actual. Predictions were much farther off the mark for consumption of oil alone.

The decade ending in the early seventies also witnessed a rapid decline in the world role of U.S. oil and gas resources. Exploratory and development drilling, impeded by many obstacles in the United States, held out far greater promise of financial rewards in Asia, Africa, and even the North Sea. Of annual additions to oil reserves in the non-Communist regions of the world, those in the United States accounted for only 1.5 percent, on the average, in the period 1966-72. Nearly 80 percent were in the Middle East. The United States produced 43 percent of the world's oil in the mid-fifties but only 21 percent in 1972. Nor is the picture brighter when one looks at the Western Hemisphere as a whole, where production declined from 65 percent of the world total in the mid-fifties to only 34 percent in 1972.

In summary, the past decade and a half has seen four salient developments:

• An unanticipated acceleration in the growth of energy consumption in the industrialized countries
• A spectacular shift in consumption to oil and gas
• A shift to exploration and production in the Middle East
• A rapidly developing climate of hostility to most aspects of energy production in the United States, growing out of the emergence of new social concerns, goals, and aspirations. The ground could thus not have been better prepared for the Organization of Petroleum Exporting Countries (OPEC) to succeed.

Impact of the OPEC offensive. The sudden revelation that the United States was vulnerable in its energy supply was traumatic. It brought to the fore a new agenda of policy concerns and fears:

• Supply interruptions, such as partial or total embargos.
• High oil prices and their effect—simultaneously inflationary and recessionary
• Balance-of-payments problems
• Monetary instability caused by large floating liquid dollar balances
• Encroachment of Arab capital investment on strategic U.S. industries
• OPEC activity as a precedent for producers of other raw materials
• Shifts in the international balance of power.

If the United States had lived with these concerns for a long time and made appropriate adjustments, no single one, or even all of them together, would nave aroused the same consternation. Some countries, after all, must rely primarily on imports for their staple foods. Others possess no indigenous supplies of metal. Japan is the textbook example of a nation poor in materials and energy that has built a powerful economy. The seeming paradox that the concern over energy is much greater in the United States, a relatively energy-rich country, than in Europe, which relies so heavily on imported oil, dissolves when one realizes that foreign trade has been a way of life in Europe, while in the United States it has always been a small tail on a very large dog.

The reason a sudden restriction in the supply of an essential commodity like oil, followed by an eventual quintupling of its price, caused a severe shock was that the American sense of invulnerability had been so rudely shattered. As the computer exercise known as Project Independence Blueprint, and others before and since, has amply demonstrated, the U.S. economy surely can live with oil priced at $11 or $12 or $15 a barrel, though it would be foolish to expect the adjustment to be rapid or painless. The problem, however, as the past two years have shown, is not so much in being there but in getting there. Neither the government nor the public has thus far indicated much capacity for getting on with the transition.

Perhaps the most realistic explanation of this inability to act is that it has become difficult to gain support for policies that will bring immediate inconveniences for the sake of averting even greater ones that may lurk in the future. The difficulty is increased when dire consequences previously predicted failed to materialize. Energy continued to be available at substantially, but not outrageously, higher prices. The U.S. trade balance improved dramatically in 1975, generating a large trade surplus instead of the predicted large deficit. There were signs that the recession was "bottoming out." The international monetary system did not collapse, and, indeed, there were predictions that before long some oil exporters would turn from lenders of capital to borrowers.

Who then can blame the man on the street for refusing to worry about tomorrow's fuel, especially when many of the warnings come from those who have been wrong in the past, or stand to profit from the suggested sacrifices, or both? Given this mix of apathy and cynicism, not many politicians will propose, let along fight for, remedies that hit the consumer's pocketbook, restrict the freedom to drive, make homes and offices colder in winter and hotter in summer, and in general threaten to upset the status quo. In trying to produce a response, the Ford Administration advanced proposals of some magnitude and coherence, whatever one may think of their merit and timing. But the act that emerged after a year of legislative maneuvering and tests of will between the administration and Congress reflected little credit on the policy-making process.