-------------------------------------------------------------------------------- Surplus Dreams The candidates have focused on dividing up prosperity, not on confronting an energy crisis

Carl Blumstein Sunday, November 5, 2000

The booming U.S. economy has produced a revenue bonanza for the federal government that was unimaginable eight years ago. Who would have thought that the presidential campaign debate would shift from what to do about the deficit to how to deal with the surplus? This is one example of how it can be hard to predict from campaign rhetoric what challenges and opportunities the next president will actually face.

Indeed, there are already signs that energy, an issue that has received only passing mention in the 2000 campaign, may loom large on the next president's agenda. The American consumer uses energy primarily in four forms: gasoline, heating oil, natural gas and electricity. Prices for these commodities are rising steeply, and consumers are beginning to feel the pain. There is a different story for each of these commodities, but underlying each is rising demand for energy induced by a strong economy. If the price pressure continues, then the next president will face insistent demands to lower the prices.

The early bids are likely to focus on fast relief. There will be calls to control prices, cut the gasoline tax and offer consumers and industry subsidies.

The United States has some experience with these strategies from the 1970s. Most of it is not good. During the '70s, for example, price controls on interstate sales of natural gas caused shortages in parts of the country. Some of the existing supply of natural gas was diverted from the low-price interstate market to the intrastate market, where prices were higher. Drilling for new supplies was very sluggish. While some consumers benefited from the low controlled prices for natural gas, others were forced by shortages to switch to higher-cost energy commodities, such as electricity. These problems became progressively more severe until the government began to lift controls in 1979. Then prices for natural gas initially rose but then fell as new supplies, stimulated by the higher prices, came into the market.

In a market economy, effective policies for responding to high prices should include some combination of strategies to increase supply and reduce demand. Unfortunately, the fast-relief strategies do neither. These strategies are more akin to taking aspirin for an infection; there may be short-term pain relief but the problem festers without antibiotics.

Then there will be those who advocate that the government should do nothing except to get out of the way. There will be attacks on government regulations that impede the development of new supplies or limit the capacity of existing production facilities. Current examples are attacks on government policies prohibiting drilling for oil in the Arctic National Wildlife Refuge and complaints about regulations designed to protect the salmon runs that reduce electricity output from dams in the Northwest. Relaxing these regulations will increase supply, and consumers may benefit from reduced prices. The problem with this strategy, however, is that it shifts costs from today's consumers to future generations, who will bear the cost of environmental degradation. It is likely that the next administration -- be it led by George Bush or Al Gore -- will repeatedly have to make difficult choices between increased energy supply and environmental quality.

Another acute problem, not a subject of hot debate, is regulation of the electricity industry. Until recently, almost all consumers bought electricity from monopolies that controlled the supply of electricity from the generators to the meters. This is changing rapidly.

Following a trend that began in California in the early 1990s, many states are partially deregulating the generation-end of the business with the intent of creating competitive wholesale markets for electricity. This change has greatly increased the federal role in the pricing of electricity, since the new wholesale electricity markets are under federal jurisdiction.

In San Diego, the first area in the state to pay deregulated electricity rates, the result has been higher rather than lower prices that consumers were promised when legislation to restructure the industry was passed in 1996. One problem is that the new wholesale market for electricity is not working properly and wholesale generators have been able to raise prices to high levels. A related problem is a disconnect between wholesale and retail electricity prices. In most markets, high prices signal consumers to use less. This price signal is not getting through to California consumers. Wholesale electricity prices are high on hot afternoons and low in the middle of the night, but retail prices in California are the same at all times.

Given the now-federal role in electricity markets, the next administration is bound to be drawn into the search for solutions to these problems. This is not a simple choice between regulation and deregulation --

some regulation of the electricity industry is obviously needed. What must be decided is: how much regulation and by whom?

Another response to high energy prices is for the federal government to develop policies that reward conservation and lower demand. Arguably, the most successful government actions have been efforts to reduce energy demand by requiring more energy-efficient consumer goods. Since their inception in 1976, the Corporate Average Fuel Economy (CAFE) standards have reduced the average fuel consumption of passenger cars by 50 percent. Because of appliance standards, a new refrigerator today uses about 70 percent less energy than a new refrigerator purchased in 1970. These government actions have contributed substantially to a big reduction in the amount of energy we need to run our economy. Between 1973 and today, the amount of energy used per dollar of Gross Domestic Product (the standard measure of economic output) has fallen by 42 percent.

The automobile fuel-economy standards set in the '70s are now obsolete. This is because, with today's technology, the fuel economy targets are modest and because CAFE standards for light trucks have always been very weak. Light trucks, which include sport utility vehicles, are now about half of the market for domestic vehicles. Moving the fuel economy of new cars and light trucks from today's average of 24 miles per gallon to 42 miles per gallon is a target well within reach during the next decade.

Less sweeping measures can also have a big impact. According to California Energy Commissioner Arthur Rosenfeld, new energy performance standards for tires could save as much oil each year as would probably be produced each year if drilling were permitted in the Arctic National Wildlife Reserve. To meet the CAFE standards, manufacturers mount tires with good energy performance on new cars. When the tires on your new car wear out, if the replacement tires you buy are as efficient as the original new car tires, it would increase the efficiency of the vehicle fleet by about 3 percent.

American automobile manufacturers and the automobile workers union, convinced that they will be adversely affected, have put up a fierce resistance to proposals for stronger fuel-efficiency standards. If the next president chooses to enforce tougher regulations on cars and other consumer goods, he will have to take on special interests such as the automobile industry.

The future resolution of energy problems will depend largely on investing today in research and development of new technology. Many economists believe that today's economic prosperity largely derives from technology that has increased the productivity of workers. Energy productivity matters, too. Much of the past 30 years' reduction in energy use per dollar of GDP can be attributed to technology that did not exist in 1970.

Investing in promising ideas for how to increase energy productivity is risky, but the payoff from a few successes is likely to be much larger than the cost of the failures. There are also opportunities to enhance performance on the supply side, especially finding better ways to use renewable energy resources.

The federal research and development budget for energy efficiency and renewable energy has fallen by more than 50 percent since 1980, largely as a result of cuts made by President Reagan. The next president can choose, as President Clinton has, to try to get Congress to restore some of these funds.

There is now a scientific consensus that the global climate is warming and that burning fossil fuels is one of the main causes. There is uncertainty about how severe this climate change will be, and there is uncertainty about how much fossil fuel can be burned without disastrous consequences. But the dimensions of the global problem are clear. As developing nations become industrialized, they will try to approach U.S. levels of consumption. But it is hard to imagine that worldwide per capita consumption of fossil fuels could reach the U.S. per capita level (a 550 percent increase in world energy use) without causing energy prices to soar and fouling the environment beyond repair.

Will the next president choose to confront the global implications of energy use? Sadly, the answer to this question is, probably not. We no longer expect our political leaders to provide leadership on issues like the global implications of energy use. The sacrifices that might be called for are too hard and the political costs are too high. On this issue, we must hope for guidance from the American spirit that has animated the environmental movement over the past three decades and has, on environmental questions, turned our political leaders into followers.

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/11/05/SC14SUN.DTL

-- Martin Thompson (mthom1927@aol.com), November 05, 2000

Answers

The 2 major parties are ignoring the future. They refuse to address the fact that we are facing other nautral resource shortages, such as clean water. They refuse to address the failing infrastucture. They refuse to even discuss mass immigration (legal and otherwise) that is causing overpopulation. They won't even discuss campaign finance reform. This is true government by corporate special interests.

-- K (infosurf@yahoo.com), November 05, 2000.