Prescriptions for a Drastic Program

The shortage of natural gas that has closed factories and schools throughout the Northeast and Midwest is only the most visible and urgent symptom of the nation's energy crisis. Oil imports continue to hover at a record 44% of the nation's supply--a dangerous dependence on foreign producers that "has got to stop," as President Carter put it at his news conference last week. But domestic oil production is still declining; gasoline may run short during this summer's driving season because refineries will switch from making heating oil to gasoline much later than usual. Construction of nuclear power plants is far behind schedule; only one was licensed last year. That could lead to brownouts and blackouts in five years or so if utilities cannot find greater supplies of gas, oil and coal. Even so, lights blaze wastefully in New York and many other cities.

Carter has pledged to put together a comprehensive energy policy, which is mostly being drafted by his energy coordinator James Schlesinger (see following story), for presentation to Congress by April 20. What should it contain? An impressive amount of agreement has been building up among experts, and it is reflected by TIME'S Board of Economists, who gathered in Manhattan last week for their first day-long meeting of 1977. Though the board contains liberals and conservatives, the nine members present were unanimous in recommending a drastic policy focused on sharply higher energy prices and taxes. Observed Alan Greenspan, who rejoined the board after having been on leave for 28 months while he served as chairman of President Ford's Council of Economic Advisers: "On energy, there is little division among economists. The division is between economists and politicians."

The program the board proposes would require every Congressman to vote to make his constituents pay far more than ever before for energy. There will be many temptations to seek less painful solutions. Harvard Professor Otto Eckstein lists "three cop-outs" that all too many people take on energy policy. The first is to put faith in blue-sky technologies, such as development of solar and geothermal power, to increase energy supplies, which they can do only marginally. Says Eckstein: "When somebody talks about solar as the answer to energy, you know he is dodging the issue." The second cop-out is reliance on "cosmetic symbols," such as investment credits for home insulation, which helps, but not enough. The third: belief that shortages are artificially created by energy companies.

The shortages are real, and must be dealt with boldly. The board's program:

PRICES of oil and gas must be set free to find their own levels in the market. Liberals on the board would phase out controls over three or four years to cushion the blow to consumers; conservatives favor more rapid decontrol. But all agree that the Federal Government must eventually remove itself from energy pricing altogether, eliminating the red tape that has engulfed the system.

Decontrol would cause the price of natural gas piped across state lines to jump to $2 or so per 1,000 cu. ft., from levels of 29-c- to $1.44 now set by the Federal Power Commission. U.S. oil prices, now controlled at $8.62 per bbl., would rise to the world level of about $12.50, set by the Organization of Petroleum Exporting Countries. Consumers' fuel bills would soar, and, as Eckstein candidly acknowledges, energy companies and their stockholders would be enriched--a politically unappealing prospect that could be tempered by the elimination of oil-industry tax loopholes. In any case, board members see no other way to encourage heavy investment in domestic energy production than to let prices go.

TAXES should be slapped on energy use. Board members generally feel that people will not stop wasting energy unless they are forced to pay heavily for the privilege; they may turn down thermostats when a President asks them to, but not for long.

Joseph Pechman, director of economic studies for the Brookings Institution, would slap a stiff excise tax on big gas-wasting cars. Says he: "If you want to drive a decked-out Cadillac, you ought to pay, in addition to the $12,000 price, the social cost of driving that Cadillac." He would also levy a tax of 50-c- per gal. on gasoline, raising its price to the motorist an average of 80%, to something over $1 per gal., and, he estimates, thus cutting consumption by one-fourth within five years. Eckstein would broaden the tax to cover oil, gas and coal, and levy it on the amount of use. Much of the energy tax would have to be rebated in some form to the poor to help them meet higher living expenses.

SUPPLY policy should concentrate on boosting production of coal, which is the nation's great hope for avoiding energy squeezes in the near future. The U.S. has enough coal to supply all its energy needs for at least 400 years, but demand and production have risen disappointingly little since the Arab oil embargo. One reason: gas and oil are more efficient fuels. To ask plant managers to shift back to coal is to ask them to use a less effective technology--a kind of engineering sin.

Two Vetoes. The first essential is to pass a strip-mining bill--almost any strip-mining bill. Mining companies have been holding back from tapping vast coal deposits in the West because of uncertainty about what kind of environmental controls might be placed on them--an uncertainty that increased when President Ford vetoed two strip-mining bills passed by Congress. Says Arthur Okun, a senior fellow at Brookings: "We need a strip-mining bill more than we need an ideal strip-mining bill." Robert Nathan, a Washington economic consultant, would also stimulate coal output by making low-interest Government loans to producers and even providing federal subsidies to enable coal companies to buy rail cars for shipping.

One element that should be dropped from a comprehensive energy policy is any attempt to break up the big oil companies, such as a divestiture bill introduced in the House last week with 21 cosponsors. Such moves only divert attention from the real issues, and they may have prompted some oilmen to buy nonenergy companies with money that could have been used to increase oil and gas output. Okun proposes that Carter offer the industry a trade: a pledge not to sign any breakup bill in return for a promise to devote funds to domestic exploration and development rather than diversification or more investment in OPEC countries.

What are the chances of getting something like the board's program enacted? Carter has made some noises in the right direction. He has spoken of decontrolling some gas prices and requiring "substantial sacrifices" from the American people to assure energy supplies. Says Okun optimistically: "If a Republican President can go to Red China, a Democratic President can recommend market pricing for energy." But powerful forces in Congress are sure to scream at anything as tough as the board's program.

On the other hand, the idea that there is much choice is an illusion. Greenspan fears that if gas and oil output continue to dwindle and coal production does not rise, the U.S. in a few more years will suddenly run out of readily usable fuel and have to begin importing nearly all its energy, at catastrophic cost. So the choice comes down to pay now, or pay even more later.

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