Retreat on the Energy Front

The White House shelves plans for an election-year gasoline tax

With turmoil spreading throughout the oil-rich Middle East, it hardly seems the time to put energy on the back burner. Yet just when Jimmy Carter should be pushing hardest to cut consumption and conserve supplies, he seems to be taking a surprisingly soft approach. Not only has the Administration shelved plans to levy a $5 per bbl. tariff on foreign crude, but it has also backed off from calling for a steep new gasoline tax of perhaps 50-c- a gal. The tax had been urged by John Sawhill, Deputy Secretary of Energy, and supported by Treasury Secretary G. William Miller, Chief Presidential Economist Charles Schultze and James Mclntyre, Director of the Office of Management and Budget. But, said a high Administration official last week, "the tax has gone down for the third time."

Instead of building upon the sense of urgency in the nation, top Administration officials are now arguing that no new taxes or tariffs are really needed. Reason: imports have begun to slow, and consumption of gasoline, which accounts for nearly 40% of all U.S. petroleum use, is also declining as steadily rising fuel prices force more and more people to conserve. Says Energy Secretary Charles W. Duncan: "To hold down demand for oil is just about an absolute imperative. For now it is happening in a satisfactory way."

The nation's energy outlook does seem somewhat brighter than it did last autumn, when fears of heating oil shortages and a squeeze on gasoline supplies brought almost daily warnings from the Administration of a looming energy pinch. Increased conservation by homeowners, along with an unseasonably warm winter, have helped to reduce heating oil consumption. It has dropped by at least 10% from last year throughout the Northeast, the region that uses the most fuel. Even more important has been the drop in gasoline use. Last year prices rose 35%, to a current nationwide average of approximately $1.09 per gal. for unleaded regular, and last week several oil companies, including Texaco, Shell and Chevron announced new increases of from 2-c- to 5-c- per gal. As prices have climbed, consumption has slumped to about 95% of 1978's level.

The decline in demand will probably accelerate as the U.S. economy weakens. Though preliminary reports show that the gross national product rose at an unexpectedly strong annual rate of somewhere between 2% and 3% in last year's final quarter, most economists are persuaded that a recession will get under way in the current quarter. Home sales are down and sales of large cars have hit the skids; auto industry layoffs this week will reach 220,000 for the first time since the current sales slump began last autumn, and closings will include Ford's Los Angeles assembly plant.

Inflation is expected to slow, but not by much. Producer prices in December increased at a compounded annual rate of 10%, down from the 14.9% average of the past five months. Much of the change was caused by an easing in food costs, but economists expect prices to jump right back up again as last month's round of oil price increases begin rippling through the economy.

Because inflation continues to weaken the dollar, members of the OPEC cartel are now actively considering pricing their petroleum not in greenbacks but in a basket of stronger currencies, including West German marks. This would cause demand for those currencies to surge and the dollar to drop. Then, of course, OPEC would argue that the U.S. must pay even more for its oil.

Thus the Administration's stand-pat policy on energy is risky. The reason new initiatives on energy have been put off and perhaps scrapped is not only that Congress showed no willingness to act on them, but also that White House aides, particularly Domestic Affairs Adviser Stuart Eizenstat, exhibited a growing fear that bold moves could cost Carter votes in the primaries and in the presidential election. Asserts one Energy Department official: "Energy policy in 1980 is going to be spelled N-o-v-e-m-b-e-r."

Never a strong believer in the effectiveness or fairness of using higher prices to cut consumption, Eizenstat sniped incessantly at the gasoline tax. He managed to derail the proposal just before Christmas, when Carter's improved standing in the polls made the President even less willing than before to take an unpopular position.

In place of a tax, Carter intends to call for authority to impose nationwide gasoline rationing if only a 5% fuel shortage develops, instead of waiting until the shortage becomes a crippling 20%, as the law now requires. This is also a victory for Eizenstat, but there are problems with that plan. Carter's request will have a tough time passing Congress, which set the 20% requirement last year to make rationing only a last-ditch action. Also, details of an emergency rationing plan are not expected to be ready before this autumn. It will contain many exemptions that the public will consider unfair; for example, people with company cars stand to get considerably more gas than ordinary drivers. The sad result of all this: the U.S. has neither a consumption-cutting gasoline tax nor a workable and effective rationing program to fall back on if a shortage suddenly develops.

In addition, the Administration now seems inclined to switch away from its original plan to take all revenues from the oil windfall profits tax and use them for energy development, mass transit, and help for the poor to pay their energy bills. Instead, the idea now is to spend much of the money on a broad range of federal programs. Says a high Administration official: "The tax is going to raise more money than is needed. Our concern now is that the money is not tied up." This change might well incite new debate in Congress over the embattled windfall profits tax and thus delay passage of Carter's energy program. In sum, the present U.S. energy policy depends largely on the voluntary conservation by the American public and a hope that the oil-producing countries will continue their current levels of output without unforeseen interruption.

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