American energy policy is adrift, about to crash on the rocks of OPEC -- again. Since the last energy crisis, U.S. policy has had a perverse effect on the market, encouraging consumption and discouraging production. No other government makes policy the way we do, with such unfortunate results.
Our firm is actively involved in the international petroleum business. The U.S. government is the most disorganized government we deal with.
Energy policymaking is fragmented and unfocused. The Treasury Department handles tax policy, essential to energy investments and consumption. Public lands and royalties, critical to oil and gas production, are managed by the Interior Department, while the EPA is in charge of environmental policy. And the Energy Department compiles statistics and keeps an eye on the nuclear program, such as it is. OMB and the White House have limited analytical resources but much influence. These agencies and departments have skeleton energy staffs and don't communicate with each other. The result is muffled confusion and an inability to even calculate the impact of existing policies. Capitol Hill is equally chaotic, with complex oversight from a myriad of subcommittees with conflicting authority. The energy policy structure in Washington is in high contrast to those in Bonn, Paris, Tokyo and London, all of which are capable of developing balanced, long-term policies.
Not only is the structure in disarray, but U.S. policy makers have been unable to decide on the role of government in energy markets. In the 1970s, when oil was in short supply, the U.S. government intervened in the oil and gas markets, trying to mandate behavior. The results were severe distortions and dislocations -- long gasoline lines, hoarded inventories and blackouts. In the 1980s, when oil was plentiful, energy policy swung to the other extreme, and government policy makers played no role. The ''free market'' ruled supreme. Funding for energy research and development was cut, and auto mileage standards were stretched out. With a few exceptions, expertise in energy was no longer required for government service and competent staffs were slashed. A dentist became secretary of energy.
Both approaches -- either blind reliance on government or on the market -- are incorrect.
Energy is long-term business. Energy investments -- whether for new resources or for conservation -- are massive and take years. Furthermore, government is always a factor in the energy markets, given its ownership of resources, taxing and regulatory powers. Even such conservative governments as Margaret Thatcher's have actively and effectively used policies, notably taxes and deregulation, to stimulate production and moderate consumption.
Washington should provide reasonable incentives to produce energy, comparable to those provided by other countries. Some incentives can actually generate, not cost, government revenues. Likewise, if energy is made a little more expensive when prices are low, then demand should be tempered when prices rise. Raise energy taxes. Other economies in Europe and Japan, which we envy for their efficiency, all have far higher gasoline taxes. With a price shock, on the other hand, the government should be prepared to draw the Strategic Petroleum Reserve (SPR), putting more oil on the market and discouraging hoarding. The SPR had the effect of supporting prices in a soft market. Why not use it to moderate prices in a rising market?
Government must undertake basic energy research. Given the huge costs and uncertain outcome, as well as Wall Street's short time horizon, it is difficult for private industry to conduct energy research. Once the basic research is complete, however, any alternative energy source must be able to compete in the marketplace free of government subsidy.
Basically, government policy can work in tandem with the market, helping to bear some short-term costs for long-term gain.
It is often overlooked that environmental policy may be energy policy as well. Environmental regulation will substantially influence the production and consumption of energy because of the added costs of environmental controls and the lost opportunities for domestic energy production. But the environment is a very broad issue, which actually breaks into two categories. The first is a technical, resource management issue. Do certain activities actually pollute water and air or cause health and safety problems that are quantifiable and scientific? The second category is fundamentally aesthetic and emotional -- an amenity issue. Certain members of the public do not want oil exploration on public lands or a pipeline near their house. They simply don't like the idea.
Again we can learn from other countries such as Norway, France and the United Kingdom, which have successfully balanced the demand for energy and the needs of the environment. Oil is produced in sensitive offshore fishing areas in Norway and in the rolling English countryside. The French are drilling on the grounds of some of their great chateaux.
Since 1981, energy policy has been essentially ignored by Congress and the White House. Given the crisis in the Middle East, we will now have many bustling bureaucrats and pompous politicians offering superficial opinions and potentially disastrous solutions.
But energy is a serious subject. When policy is made, let's get organized so that we can make thoughtful decisions based on an understanding of the role of government in the energy markets, while recognizing our responsibilities toward the environment and the costs of those policies. Other countries have been able to do it -- why can't we?
The writer, assistant secretary of the interior from 1981 to 1983, is president of the Petroleum Finance Co.