Two omissions in Carter's energy strategy
The President is right to seek reduced dependence on foreign oil. We must face the fact that we cannot achieve security through the quixotic goal of import independence. Even if the United States were able to achieve that target by the end of the century, it is virtually certain that Europe and Japan could not do so; and if they are threatened we, too, are not secure.
To reduce our dependence, Mr. Carter calls for three steps. We must conserve energy. We must substitute more plentiful energy sources for oil. And we must produce more oil and gas. For conservation and substitution, proper pricing is critical. As long as the price of oil and natural gas is cheaper than the cost of conserving or replacing, people will not respond -- no matter how much they are exhorted to do so.
Mr. Carter's strategy scores very well as far as it goes, but neglects to follow through by adding two further, critically important courses of action. The first is to work with other countries to produce more oil and gas, conserve energy, and substitute more plentiful energy sources for oil and gas.
Two examples suggest the potential of this broader approach to Mr. Carter's three steps. Although experts agree there is likely to be a great deal of oil in the non-OPEC countries of Asia, Africa, and Latin America, for every one well that is drilled in these countries, about 100 wells are drilled in the US on geologically similar terrain of equal size.
Similarly, important opportunities to conserve and replace oil with other energy sources and being neglected in the developing countries for want of skills and capital. Yet it is clearer each day that a barrel of oil found, conserved, or replaced with more abundant energy anywhere contributes to our security.
This insight, while missing from Mr. Carter's State of the Union message, is a natural companion to his perception of the interdependence of nations: "The state of our union depends on the state of the world." Mr. Carter should ask the Congress to enact an International Energy Security Act that would provide skills , technology, capital, and incentives to the private sector to help developing nations to find oil and gas, install technologies that replace the use of oil and gas with other more plentiful sources, and conserve energy. Although one of the chief results of this measure would be to help the poor countries develop, this would not be development aid, since its purpose would be to enhance our own energy security.
Perhaps even more important for the immediate future is the second course of action omitted from the President's message: working to improve relations between the OPEC countries and the oil-importing nations.
As Mr. Carter stated, our energy policy must be founded on "realistic pricing" based on the true value of oil. He did not, however, add -- as he should have -- that realistic prices also must provide the market incentivem without which oil conservation and substitution will not take place. Politically unpalatable as it may be, we have a stake in ensuring a risingm real price of oil in order to supply that market incentive.
Ironically, our long-term objectives and those of OPEC may not be in conflict. Mr. Carter pointed to the OPEC price rises as the main cause of our inflation. But it was the suddenness of the price rises, not their size, that caused the damage. As of January 1980, the realm price of oil (current purchasing power after inflation) was 20 to 30 percent above the 1974 price. Many economists believe that, had the price rise been gradual and predictable, it would not have had such inflationary effects.
Oil exporters need the price increase because most of them will exhaust their oil in a few decades and need maximum oil revenues to build economies that can withstand that shock. Oil importers need it also -- in order to achieve their longer-run goal of achieving a smooth transition from oil to whatever energy sources will take its place. Both sides need to assure that oil price increases will be steady and predictable. Each is hurt if price explosions trigger inflation adn recession.
Thus a solid economicm basis for negotiating some rules of the game on oil volume and price has existed for some time. The Soviet threat to the Gulf region now adds a compelling securitym incentive to cooperation -- an incentive as strong for the Arab countries as it is for oil importers. Mr. CArter's energy strategy will be complete only if the United States also proceeds to cooperate with the nations of ASia, AFrica, and Latin America to rpoduce, save, and replace oil, and if it strives to negotiate some understandings between oil exporters and oil importers.