The expiration of mandatory oil price controls afforded the president a golden opportunity to close down the tumultuous federal energy-policy bazaar, withits miasma of daily congressional hearings and incessant legislative haggling; its avalanche of rule-making and regulatory hearings; and its boom market for consultants, lawyers, energy-system modelers and firms more adept at selling grant-proposals to bureaucrats than energy products in the marketplace.
Instead, by endorsing creation of an energy development trust fund to dispose of the tax revenue generated by decontrol, he paved the way to the permanent politicization of energy prices and markets. He thus threatens to lead us from the frying pan into the fire.
The frenzied but unproductive swirl of energy policy-making over the past five years stems from the inherent incapacity of the political system to resolve two major problems: the problems of managing "economic rents" - the "windfall profits" - on domestic production priced below the world market and imposing economic premiums - subsidies - to encourage domestic supply or conservation at costs well above the market.
The decision made in 1974-75 to maintain a substantial gap between the domestic crude price and the world price generated a staggering number of governmental decisions. The $17-billion "windfall" denied crude-oil producers had to be carefully guarded at each stage of the petroleum market lest hundreds of potential claimants devour the prize. For example, without a second tier of price controls on petroleum products, the refineries could have captured much of the "windfall." Wholesalers, resellers and even 185,000 corner gas-station operators had to be placed under price ceilings for the same reason. Also made necessary by crude price controls were the entitlements program and a layer cake of seller/purchaser freezes and allocations to ensure that everyone - the weak and the strong, the integrated and the independent, the East Coast and the inland states - had equal access at each stage of the market to a commodity priced artificially below its value.
Moreover, policy-making had to compensate for consumers' understandable tendency to use too much of the cheap petroleum thus delivered. Hence, insulation tax credits, auto fuel economy standards, coal conversion orders and conservation equipment tax subsidies. The non-stop job of adjusting the plumbing in this jerry-built system accounts for most of what has passed for energy policy-making since 1974.
It is a sorry record. Governmental management is hampered by technical incompetence, an inability to anticipate the rule-evasion actions of private parties and the pervasive presence of the pork barrel in its decision process. Consumers would never vote with their dollars to build grotesquely inefficient "tea-kettle" refineries that produce the wrong products in the wrong place at the highest cost - with "DOE millionaires" as a byproduct. But the Congress did. Nor would they have tried to suppress more efficient, innovative gasoline distribution and retailing methods. DOE regulations inadvertently tried.
The marketplace would not have produced such anomalies as a crude-oil glut on the West Coast or too much leaded fuel and too little unleaded. But the regulatory gymnastics of safeguarding the "windfall" on controlled domestic production virtually guaranteed this outcome. Daisy chains of crude-oil resellers were spawned by government rules, not the marketplace. And the spectacle of a junior congressman interrogating senior auto executives about the precise improvement in fuel economy gained from the introduction of four-speed lock-up clutch transmissions, and at what costs in what year, is not so much the expression of palpable arrogance as it is the Iudicrous apogee of an invalid premise.
The president has now eliminated the need for this futile dissipation of governmental energies - a courageous step. But he should have left well enough alone. Unfortunately, the windfall-profits tax and his energy development trust fund will keep what otherwise would have been an unemployed federal energy-policy establishment in business for decades to come.
At least the suppression of "windfall profits" on old oil had the virtue of serving debatable objectives of equity, if not economics. The new policy of distributing supply subsidies and imposing conservation mandates at a substantial economic premium above the world price serves neither. It rests on the spurious assumption that importing oil is in itself an economic problem. But $30-per-barrel coal liquids or $50-per-barrel equivalent solar process heat will have a far greater growth-retarding effect on the economy than $16 Saudi light. And paying multi-billion dollar premiums for domestically generated oil-import substitutes cannot help the balance of payments or the dollar unless we are prepared to resurrect the mercantilist doctrine of trade and payments.
In fact, importing oil is a problem only because the principal exporting nations are in areas of the world characterized by unstable political regimes and regional conflict. That leaves the world export market exposed to intermittent supply interruptions and price gyrations, which cause political problems at home and jeopardize our national security and diplomatic flexibility abroad.
But the president's world energy pricing program will do much to alleviate that problem. As the U.S. economy adapts to the world price, additional domestic oil production, coal substitution and continued improvement in energy efficiency will reduce imports by 2 million to 3 million barrels a day - perhaps considerably more as the real world price rises. To the extent that the remaining imports pose a threat, the proper response is an adequate crude and product storage program, with automatic triggers to release supplies when world crude output levels are temporarily disrupted. That would shield voters from long gasoline lines and spot price run-ups, and national security and diplomatic policy-makers from oil-supply-related duress.
Instead, the president has opted to transform the "windfall profits" generated by the policy errors of the past into "seed money" for the even more counterproductive energy-policy enterprises of the future. Moreover, by specifically proposing tax credits for the world's oldest home-heating technology (woodburning stoves) and subsidies to one of the world's richest oil companies (Gulf) to produce ultra high-cost coal liquieds, he has gotten us off to an especially inauspicious start. If the $17 billion in "windfall profits" is such an intractable political problem that it must be taxed away, then the best solution would be to rebate the proceeds on a per-capita basis as an annual Christmas bonus to the American people. The worst solution is to hand them over to a Congress that is likely to build a windmill or its functional equivalent in every district across the land. CAPTION: Illustration, no caption, By MacNelly for The Richmond News Leader