The Persian Gulf war will probably give us another energy debate -- but no effective energy policy. The problem is not designing a policy. What we ought to do is spur conservation with a major energy tax. The tax could be made politically acceptable by rebating it through cuts in other taxes. Most Americans would benefit. Their taxes would be unchanged, and their energy use (and costs) would be lower.
The problem is that most Americans don't see it this way. They favor energy conservation and cheap energy. The two won't mix. The Bush administration isn't likely to embrace any tax. The Energy Department has studiously avoided one in drawing up a tentative "national energy strategy." What a new energy debate will produce is mostly hype. Already, oil companies and environmentalists are pitching pet ideas that (they imply) could protect us against a future Saddam Hussein.
Nonsense. We now import about half our oil. Oil companies want permission to drill more in Alaska and on the outer continental shelf. But to replace imports (7 million barrels daily in 1989), they'd have to find the equivalent of three new Prudhoe Bay fields. No one expects that. Environmentalists urge tougher energy efficiency regulations. But to eliminate oil imports, we'd have to achieve savings equal to all our gasoline consumption. That won't happen either.
The important thing to grasp is that no energy policy is a panacea. Even if we could end oil imports, the rest of the world couldn't. Political instability in the Middle East could still hurt the global economy -- and our prosperity. The best a good energy policy can do is to ease all our energy dilemmas. As well as import dependence, these include pollution, the danger of global warming (the "greenhouse effect"), traffic congestion and opposition to new power plants.
A good energy policy would:
Impose a 20 to 40 percent energy tax over three to five years. It's imperative to signal consumers and businesses that higher prices justify investing in energy efficiency.
Increase the strategic petroleum reserve, which can be tapped in an emergency. The reserve (now about 590 million barrels) should be raised to between 1.5 billion and 2 billion barrels. The threat of a Persian Gulf supply disruption will last for decades. More domestic drilling should also be allowed to offset the inevitable decline of today's fields.
Minimize reliance on regulation to promote energy efficiency. Higher prices are superior, though regulations can often reinforce the effect. The danger is that politicians will treat regulations as a painless substitute for higher prices.
Consider one proposal to require automakers to raise cars' fuel efficiency from 27.5 miles per gallon to 40 by 2001. The first problem is that, even with technological advances, the car makers probably couldn't comply except with small cars. People might keep big cars. But forget that. At best, oil savings would occur slowly because turnover in the fleet of 190 million cars and trucks is gradual. An energy tax would favor fuel-efficient cars and also achieve immediate savings in other ways (more car pools, less driving, lower use of heating oil, etc.).
Curiously, opposition to an energy tax also comes from some free-market zealots. They reject almost any government intervention on principle, and they're wrong. The justification for a tax is that energy's market price doesn't fully reflect its cost to society. The market price includes the cost of finding, processing and distributing the energy. But it omits some broader costs of pollution, congestion and the insecurity of supplies. The market price also doesn't accurately reflect the replacement cost of today's energy. This is particularly true of electricity, where rates are set mainly on the basis of past investment.
An energy tax could roughly compensate for these costs. We know that prices influence demand. The high prices of the late 1970s and early 1980s clearly cut energy use. Between 1973 and 1985, U.S. gross national product rose nearly a third, but energy use remained the same. When oil prices dropped in 1986, people got more wasteful. They drove more, switched off lights less and bought bigger cars. Between 1985 and 1989, energy use jumped nearly 10 percent.
What's often overlooked is that an energy tax could actually save most Americans money. Suppose we had a 20 percent tax. If the market price of gasoline were $1.20 a gallon, the tax would add almost 25 cents. Based on experience, higher prices would cut gasoline use by at least 10 percent after a few years. If the tax were rebated -- through lower payroll or income taxes, for instance -- the average driver would end up richer.
Pressure for more energy use could be muted. Take electricity. It's often cheaper to invest in more efficient light bulbs, motors and insulation than build new power plants. The Electric Power Research Institute, an arm of the utility industry, estimates that a fifth of all electricity could be saved through efficiency measures that cost less than new power. Investments in efficiency -- mainly by homeowners and businesses -- lag, in part because no one knows the future cost of energy. Companies promoting efficiency fare poorly, because customers are fickle.
An energy tax would dispel the uncertainty and foster a market for energy efficiency. It would also bolster U.S. standing in the world. The United States remains the largest energy consumer, accounting for about one-quarter of global energy use. Our reputation as an energy glutton is an underlying source of tension on issues involving oil or the "greenhouse effect."
What's missing is not a policy but the will to adopt it. There's no public consensus. Americans resist making short-term sacrifices for long-term gains. The White House and Congress, reflecting public opinion, don't object. Although everyone favors conservation, no one wants to pay the price. We all think someone else should do the conserving. Unfortunately, there's no one else but us.