Objections by the Office of Management and Budget have torpedoed a proposal by the Treasury and Energy departments to set up a $10 billion international corporation for developing alternative sources of energy.
The proposal would have been made by President Carter to the economic summit in Tokyo later this month, as one way of meeting the challenge of the oil-producers' cartel.
"Nothing close to that, or as ambitious, is likely to be made in Tokyo," a high government source said yesterday. Many officials, who refused to be quoted, expressed disappointment that the Treasury-DOE plan "did not prosper at the hands of OMB."
Neither Treasury nor OMB officials would comment on the proposal. Privately, DOE officials reiterated that it would have been a useful initiative.
Other sources said OMB had proposed an alternative program that OMB felt to be a better solution. But OMB officials would not comment on this, either.
The proposal was put forward-with elaborate secrecy-about a month ago by Treasury officials who argued that private capital was not prepared to take all the financial risks involved in developing new sources of energy, such as oil from coal and shale.
They suggested what was essentially a "World Bank" approach-an international development institution started off with about $1 billion in initial capital, with $9 billion "callable" as needed. The "bank" would borrow money, as needed, to fill the gap between existing research and development projects, and commercial operations. By the time new production was flowing, backers predicted it might be unnecessary to subsidize the operation.
Advocates of the $10 billion plan thought that such a proposal, ratified at an international meeting such as the summit, would shorten the time lag for achieving alternative energy supplies. As well, they felt it would be an important psychological commitment to the often-stated object of oil-consuming nations to reduce their dependence on the cartel.
But the proposal, which was discussed by U.S. officials and their counterparts in six other nations that will attend the Tokyo summit, was conditioned on getting OMB support.
The U.S. share of the financial obligation was to run 30-40 percent of the total. Thus, the initial $1 billion, would have cost this nation $400 million. The potential U.S. liability might have been as much as $4 billion.
But OMB did not support the plan, and at a meeting of summit planners two weeks ago it was dropped. "The OMB decision," an administration official said, must have reflected the president's own view to a certain extent."
Sources also said other nations were "cautious" about the U.S. plan. Concern was expressed both about costs and the practicality of the scheme, but it was never rejected because of fears it might be considered "confrontational." Sources here and abroad yesterday agreed that if Carter had come to Tokyo with the plan, it would have had a good chance of adoption.
One government official-not among the original sponsoring group-said yesterday the plan "is not a dead issue, just becuase it won't be proposed at the summit." The summit planners have a final meeting in Paris next week, at which various kinds of energy proposals will be discussed. ""Some other ways" of dealing with energy, including the difficult problem of the spot oil market, will be examined, sources said.
The aborted idea has certain similarities to a proposal for a $100 billion Petroleum Reserve Corp. to finance a large standby capacity of synthetic oil. This plan, authored by Washingtonians Lloyd Cutler, Paul Ignatius and Eugene Zuckert, is focused on U.S. domestic needs.
The tentative Treasury proposal was uniquely an international initiative in which other major powers-france, Germany and Japan primarily-would also have had a financial stake.
At the moment, officials say, the administration is in "a holding pattern" to see whether Congress will pass a windfall profits tax on decontrolled oil and, if it does, to determine how much of that money might finance a "World Bank" approach to oil shortages.