A nation without an energy policy By MARK JAFFE

The Phildelphia Inquirer

"With oil prices edging upward and supplies uncertain, President Bush proposes opening Alaska's Arctic National Wildlife Refuge to oil exploration." The year was 1991 and the Bush in the White House was George Herbert Walker, the father.

"With oil prices edging upward and supplies uncertain, President Bush proposes opening the Alaskan refuge to oil exploration." The year is 2001, and the Bush in the White House is now the son, George W.

The fact that the problem and the perceived solution in both instances were the same says a lot about America's energy strategy, or the lack of it.

Although industry advocates and environmentalists are at odds on just about everything when it comes energy policy, they do agree on one thing: The country doesn't have one.

"We don't seem to be able to do the things we need to to make a policy," said John Felmy, chief economist for the American Petroleum Institute, the main industry association.

Why is that?

In part it comes from an economic contradiction peculiar perhaps only to the United States.

"The U.S. is one of the world's major energy producers, but it is also the single largest energy consumer," said Michael Wittner, principal oil analyst for the International Energy Agency in Paris.

In the world at large, nations that produce and nations that consume tend to have different interests.

Energy producers like to promote production, consumption and stable - if not higher - prices; energy consumers like energy efficiency, alternative energy sources, and low prices.

So should U.S. energy policy be geared to creating more traditional supplies - by drilling in the Arctic refuge, for instance - or should it try to manage consumption through energy-efficiency technology and taxes?

"The two sides have been going at each other, and the debate has been polarized," Felmy said.

"The fight has been bitter," said David Nemtzow, president of the Alliance to Save Energy - a nonprofit group comprising business, environmental and political interests.

"Each side has torn down the other," Nemtzow said, "and that has always given the budget-cutters and the politicians an excuse to do nothing."

And doing nothing is just what most politicians and even most Americans prefer, because formulating energy policy involves many politically sensitive and economically painful decisions.

If that wasn't bad enough, energy policy also raises complicated environment and national security issues:

A 1995 White House study, for example, estimated that $270 billion a year in military spending would be needed "to be prepared to intervene in the Middle East" to keep the fuel source secure if needed.

The burning of fossil fuels is linked to more than two-thirds of the air pollution in the country.

And so, energy is a policy tar baby that no politician really wants to embrace.

The problem for the politician is that there are so many different constituencies - the energy industry, the environmental lobby, business, consumers - that any move is bound to upset someone.

The economic problem is that energy is so intimately laced through the economy that any decision is bound to have ripple effects.

"The only time we tend to focus on energy is when there is a crisis, and then once the crisis passes, so does the interest," said John Holdren, an energy expert at Harvard University.

After the embargo by Arab oil-producing nations in 1973-74, President Richard M. Nixon vowed that America would "not be held hostage."

During the "oil shock" of 1977, President Jimmy Carter proclaimed the energy crisis "the moral equivalent of war." He also instituted the cabinet-level Energy Department.

By 1991, the war was real, as the first Bush administration sent troops to the Persian Gulf in response to Iraqi President Saddam Hussein's invasion of Kuwait.

It was during the war that President George Bush presented his 241-page energy policy, which, among other things, called for more domestic oil exploration and production, as well as higher fuel-efficiency standards for autos.

Al Gore, then a U.S. senator, called the Bush proposal "breathtakingly dumb." The plan died in the Senate.

Now, the Organization of Petroleum Exporting Countries - OPEC - has decided once again to cut production to keep oil prices up - even as the U.S. economy appears to be weakening, prompting worry once more in the White House and renewing calls for more domestic drilling.

Americans spend a whopping 8 percent of the nation's gross national product, about $600 billion a year, on energy.

With less than 5 percent of the world's population, the United States uses 22 percent of all the energy produced.

And yet energy is an odd commodity, for virtually no one buys it as an end product for itself. A family buys kilowatts to light its home and freeze its ice cream.

A truck driver buys diesel fuel to make a rig go so that it can haul cargo across the country. The factory owner purchases natural gas to heat a plant and turn the turbines.

As long as the ice cream is cold, the truck rolls, and the factory runs, the form and nature of the energy are secondary. The one thing everyone wants is dependable and cheap supplies of it.

"In a way, we have had an energy policy," said the Energy Alliance's Nemtzow, "and that is to buy cheap Arab oil."

Through all of the boom years of the 1990s, that is precisely what the United States did. After reaching a peak of more than $30 a barrel in 1991, the average price of OPEC oil slid to about $11 a barrel in 1999.

By 1998, Americans were paying the lowest price ever for gasoline. But since then, crude oil prices have almost tripled and natural gas prices have soared, and energy has once again become an issue.

So the question becomes: What kind of energy policy can the United States have? And what kind of policy should it have?

About 40 percent of the nation's energy needs are filled by petroleum and 25 percent by natural gas. Any energy policy would have to address these two sources.

The United States uses about 19 million barrels of oil a day (mbd) _ a little less than a quarter of all the oil pumped in the world.

Currently, 55 percent of the country's oil is imported, mainly from OPEC, at a cost of $60 billion a year.

U.S. production peaked at about 9.6 mbd in 1970 and since then has declined to 5.9 mbd in 1999. That represents about 10 percent of world production.

But the prospects for dramatically reversing that trend appear slim.

"We are projecting a steadily increasing demand for oil at a little more than 1 percent a year and that just can't be met outside of OPEC," said Wittner, the International Energy Agency analyst.

The IEA projects that American imports could rise in the next decade to 75 percent of all the oil it consumes.

The United States has oil reserves estimated at 21 billion barrels. If oil is extracted from the Arctic reserve, it might add another three billon barrels.

Environmentalists argue that drilling in the Arctic reserve for that amount of oil simply isn't worth the cost and the environmental damage that could result.

The oil industry counters that from the point of view of sustaining economic development and providing the greatest flexibility and a cushion in times of crisis, these domestic reserves can't be ignored.

The Bush administration also has proposed issuing more leases for offshore drilling in coastal areas.

But on Friday, the administration received a letter opposing new leases _ from Jeb Bush, the president's younger brother and the governor of Florida.

"There is strong support among the state's citizens and within the Florida congressional delegation for no new leasing in the Eastern Gulf," Gov. Bush wrote.

"Few other issues so completely unite Floridians," the governor continued. "I am confident that the new administration will recognize the need to protect sensitive natural resources . . . for the benefit of the entire nation."

So when it comes to oil policy, even brothers can't manage to agree.

There is the possibility that supplies could be purchased outside of OPEC. For example, new fields have been developed or discovered in West Africa and in the Caspian Sea region. There was a major offshore find recently in Kazakstan.

But, said Wittner, nothing comes close to meeting the needs without OPEC, and each of these other sources comes with the threat of political instability and production problems as well.

There is the possibility of moving to other fuels. Consumption of natural gas has increased steadily in the United States in the last decade, from 486 million tons to more than 555 million tons _ a 14 percent increase.

Natural gas is among the cleanest and most efficient fuels, and for both residential and industrial use it has been an attractive alternative _ particularly for generating electricity.

Nevertheless, natural gas prices remained low because they were pegged to low oil prices. Those prices were not high enough to encourage development of new sources. So, when demand spiked this winter, reserves were rapidly depleted. In 1970, reserves were 5.49 trillion cubic meters, but by 1999 they were down to 4.65 trillion.

This trend may now be reversed. "If prices hold," Felmy predicted, "you will see the industry respond" and more gas supplies will be developed.

Therein lies one of the major dilemmas in energy policy: Motorists want cheap gasoline, and homeowners want modest heating bills.

The best way to achieve those ends is to use cheap OPEC oil. To move to other sources inevitably will cost more money.

"The problem here," said Harvard's Holdren, "is that what appears to be the cheapest energy may not really be the cheapest."

The $270 billion a year spent to sustain military preparedness for possible intervention in the Middle East is part of the cost of buying OPEC oil, Holdren contends.

Similarly, he said, environmental problems are a hidden cost. Coal, for example, is cheap and plentiful in the United States, but it is comparatively heavier in pollutants. The price of dealing with polluted air is another cost that does not show up in a household's electric bill.

"The true challenge is identifying the real costs," Holdren said, "because then you can begin to talk intelligently about energy policy."

Whether the goal is to bolster domestic energy production, to create diversity in energy supplies, or strictly to improve national security, energy is going to cost more.

But more-expensive energy also helps promote energy conservation and the development of innovative alternative fuels.

The United States has already made major strides in energy efficiency. The use of energy per dollar of gross domestic product has dropped by more than half in the last 30 years. Today electric lights, cars and appliances all are more energy-efficient.

But the rate of improvement has slowed and in some cases _ as in the appearance of gas-guzzling sport utility vehicles _ the trend has reversed.

"The successes we have had ought to show how viable energy conservation is," said Nemtzow, of the Alliance for Energy Efficiency.

Similarly, alternative energy sources _ wind power, geothermal and solar _ can't match cheap oil, but they become competitive when prices rise.

"The only way we are going to move forward," said Felmy, of the American Petroleum Institute, "is if all the different elements are part of the policy. We've got to have new production, we've got to have conservation."

"It's not so much a single policy," Holdren said, "as a portfolio of policies, and I think we may be close to achieving that."

The specter of higher energy bills remains a problem, however. "That is one thing the politicians just do not want to face," said Nemtzow.

But for the moment, OPEC has actually made that easier by cutting its production and keeping prices high. "OPEC is playing a dangerous game," Wittner said. "We will see how it comes out."

http://timesargus.nybor.com/Story/19287.html

-- Martin Thompson (mthom1927@aol.com), January 28, 2001