US Energy Priorities

Improving the efficiency with which energy is used and putting in place measures to help the nation cope with shocks and surprises are the two most urgent energy issues facing the United States, says Hans H. Landsberg, senior fellow in RFF's Center for Energy Policy Research.

Greater efficiency in energy use in the United States has been impeded by three main obstacles: price controls; the relative lack of energy-efficient equipment, such as small automobiles; and a host of what are usually called institutional factors, such as those which prevail in the housing industry, where developers, owners, architects, bankers, governments, and others often have conflicting objectives.

Removal of institutional obstacles, particularly in construction, could yield potentially large energy savings, but it mostly remains a task for the future. The other two major obstacles to greater efficiency already are crumbling, however, Landsberg points out.

U.S. price controls on oil are gone and those on natural gas are scheduled to be phased out, which is good news as far as saving energy is concerned. "As economists are fond of saying," notes Landsberg, "prices do convey signals and the signals evoke responses." The best indicator of higher prices inducing lower consumption, he says, is the relationship between primary energy input and the output of goods and services. This ratio has been in continuous decline during the 1970s, and in 1979 reached an absolute level that pushed it below any achieved previously. According to Landsberg, "This reflects a true decline in the quantity of raw energy burned up in the economy for every dollar, of national product."

It now appears that 1978 marked the highpoint of U.S. oil consumption, with a drop in motor gasoline consumption being perhaps the most noteworthy contributor to the decline from that year's almost 19 million barrels-per-day rate. Gasoline consumption during 1980 was 11.2 percent (or 830,000 barrels per day) less than in 1978. Most of the drop can be attributed to higher prices, but a great deal of the future savings undoubtedly will come from more efficient cars. As Landsberg points out, "When the government-mandated 27.5 mpg average car leaves the 1985 assembly lines, it is likely to be considered behind the times. More efficient vehicles are sure to follow."

No matter whether one considers consumption or production or price, there is a significant probability—some suggest that for the 1980s it should be put at 100 percent—that the United States will be subjected to major energy shocks and surprises. These could take the form of another oil embargo; the prolonged disappearance of a major oil exporter, such as happened in the case of Iran; a nuclear accident of the Three Mile Island kind, but with massive health and environmental damage; the escalation of military conflict in the Persian Gulf; or some major adverse finding in the health or environmental field, or both.

According to Landsberg, "The list is open-ended. The chances of one or the other of these events occurring within this decade are high. Without a great deal of advance planning on how to cope with the consequences, the best policies in the fields of conservation, coal supply, tertiary oil recovery, breeder research, and so forth will avail us little. Yet, we seem woefully unprepared; and even if in the deep recesses of government there should be detailed preparedness plans, the public is unaware of them. It knows only that the governmental stockpile program has been for years in deep trouble and that a gasoline rationing plan will take months to put into operation, is full of traps, and costly to boot. That is probably worse than knowing nothing, for it tends by analogy to discredit ahead of the event any plans yet to be established."

In addition to efficiency and contingency planning, Landsberg says other main responsibilities facing U.S. energy policy today include movement toward a different mix of energy sources, research and development of new sources, and accomplishing all energy tasks with minimum damage to economic performance, environmental values, and international peace.

Landsberg believes that the forging of consensus about U.S. energy policy is important and is slowly being accomplished. Moreover, such a consensus should not be allowed to founder on the rocks of particulars. He says, "First, it is more important to plot persuasively the direction in which we must travel than the exact itinerary; and second, we probably know enough to be able to agree on direction."