America and Energy: A Failure of Vision

In the fall semester of my senior year, I attended American University as part of its Washington Semester Program. The 1980 presidential race in full swing, I became caught up in the issues of the day, issues which defined the times and, in many ways, remain with us today. As in most election years, the economy was on everyone’s mind, with talk of high inflation, stagnant job growth, double digit interest rates, and a mounting federal deficit (though at $50 billion, it was a surplus by 21st century standards). The Iranian Hostage Crisis was approaching its 365th day and represented a failure in presidential leadership that defined the Carter Presidency. And the Energy Crisis, as illustrated by rising oil costs, long gas lines, and America’s growing dependence on Middle Eastern oil supplies demonstrated how closely related all three issues actually were.

1980 was the only presidential election year in which I did not vote for the Democratic presidential candidate. President Carter was a disappointment to me and, following Ted Kennedy’s inspirational speech at the Democratic National Convention, I salvaged little enthusiasm for Carter. Though I dreaded the thought of a Reagan Presidency, my vote was to be cast in the District of Columbia, whose three electoral votes were safely in the hands of the Democrats. So I voted with my heart, rather than my head, and pulled the lever for John Anderson, a liberal Republican Congressman from Illinois who ran as an Independent that year. Anderson, I knew, could not win, but he was intelligent, articulate, and talked about the issues that most needed to be addressed.

One of Anderson’s primary concerns was America’s dependence on foreign oil, which he viewed as both an economic and a national security issue. Starting in August 1979, Anderson called for a 50-cent-per-gallon energy conservation tax to encourage reduced gasoline consumption and to spur more fuel efficient automobiles, steps he believed essential to reduce our dependence on oil supplies from the Middle East and other politically unstable regions. Anderson recognized the regressive nature of such a tax and its short-term economic burdens, so he proposed that the new gas tax revenues be used to cut in half employee Social Security taxes, to increase Social Security benefits, and to compensate those not on payrolls. He also proposed to exempt farmers and allow tax credits for businesses unfairly penalized. Although ridiculed at the time by the two major parties, had they or Congress paid attention, we would today be driving more fuel efficient cars, importing less oil, enjoying cleaner air and experiencing fewer oil spills. And we would be far more advanced in our energy conservation efforts and the development of alternative, renewable energy sources.

Anderson’s candidacy caught my attention that summer when I read Energy Future: Report of the Energy Project at the Harvard Business School (Random House, 1979), which surprisingly became a bestseller despite its 72 pages of footnotes. Edited by Harvard professors Robert Stobaugh and Daniel Yergin and written in plain English, Energy Future applied a business school perspective to the energy industry, assessing costs and risks, priority and potential, incentives, profits, and the marketplace. It explained that the oil shocks of the 1970’s were predictable, a reflection of the shifts in market power between energy users and energy producers (as countries like Saudi Arabia, Iran, and Iraq accumulated exorbitant power over the consuming nations). The report examined the external costs of energy use – the environmental, social, and geopolitical costs – which it contended had to be considered for there to be an accurate market analysis of each industry sector. And it advocated for an energy policy that combined subsidies and tax incentives, but which emphasized a free market approach, to achieve energy independence without sacrificing economic growth.

According to the B-School whiz kids, for different reasons, none of the four conventional sources of domestic energy – oil, coal, natural gas, or nuclear – could be relied upon to supply any more of our energy needs than these sources already did by the late 1970’s. Oil reserves in the United States were limited, and the potential for offshore drilling came with major environmental concerns and political barriers. Coal, while abundant in supply, brought with it serious labor-management disputes and a militant labor union, deadly health and safety risks, and huge environmental drawbacks. Building more nuclear reactors, while a potential source of relatively clean energy, was not politically viable in the United States due to the partial core meltdown that had occurred at Three Mile Island in March 1979, and given the growing public concerns with reactor safety (concerns heightened seven years later when a catastrophic accident occurred at the Chernobyl Nuclear Power Plant in Ukraine that dispersed large amounts of radioactive fallout into the atmosphere); and no reliable method had been developed to store the radioactive waste produced by nuclear power plants. Nor could we realistically rely on natural gas to provide much more than 25% of America’s energy needs (about what this source supplied in 1979). While natural gas provided a clean source of domestically produced energy and lacked the problems associated with nuclear and coal, it involved huge production and exploration costs in an industry mired in price fluctuations, an uncertain cost structure, regional disputes, and a complex interstate pricing and regulatory scheme. Although we could count on some growth in natural gas production, it alone could not lessen our reliance on foreign oil.

Energy Future also examined the negative externalities, or external costs (social, political, environmental), of each energy source. The study demonstrated that, if external costs were factored into the pricing structures of the traditional energy sources, then coal, oil, and nuclear were among the most expensive energy sources, while the true costs of natural gas production contained too many uncertainties to provide a reliable measurement. The report suggested not that we give up on the traditional sources, only that such sources would not and could not solve our energy problems and reduce our dependence on foreign oil.

What John Anderson and the Harvard Business School both realized was that the best hope for the United States, the solution that had the most chance of success and that made the most sense, economically and politically, was conservation (principally through increased energy efficiency) and development of solar energy. Anderson discussed policy measures similar to that set forth in Energy Future – tax credits and subsidies that provided market incentives promoting fuel efficiency, conservation, and the development of solar and other forms of renewable energy, which had high start-up costs but offered long-term solutions to America’s oil addiction and reliance on dirty and dangerous energy sources. It was essentially an attempt to place conservation and solar on an even footing with the traditional energy sources, all of which had benefitted for decades from subsidies and tax breaks. Although John Anderson tried to educate a reluctant populace, mainstream politicians and the two major political parties refused to listen.

Thirty years later, we find little has changed. America continues to suffer from a short-term perspective. When oil prices temporarily declined on global markets in the 1980’s, the Reagan administration backed expanded domestic oil production and Americans continued to drive large cars and SUVs, blast air conditioners, and play with motor boats and recreational vehicles. The United States, having lost its enthusiasm for a new approach to energy policy (President Reagan even ordered the removal of solar panels that President Carter had placed on the roof of the Department of Energy’s Forrestal Building), by the mid-1980’s once again returned to gas-guzzling cars and trucks. Today, our oil consumption has increased by over 40% and we remain as reliant as ever on foreign oil, as American dollars increase the wealth of Iran and Saudi Arabia, and our government spends over a trillion dollars on the War in Iraq.

Our oil addiction and reliance on conventional energy sources is further apparent when we look at the recent oil spill in the Gulf of Mexico, one of the worst environmental disasters in American history, yet reminiscent of 1969, when a major spill from an offshore platform off the coast of Santa Barbara, California, coated its pristine beaches in oil and led to the founding of Earth Day. Several major oil spills later, including the Exxon Valdez disaster in Prince William Sound in 1989, America continues to consume increasing amounts of energy. Despite some tinkering around the edges, little has been done to seriously address the environmental, health and safety, and national security risks of our stagnant energy policy. As Thomas Friedman of the New York Times wrote recently:

There is only one meaningful response to the horrific oil spill in the Gulf of Mexico and that is for America to stop messing around when it comes to designing its energy and environmental future. The only meaningful response to this man-made disaster is a man-made energy bill that would finally put in place an American clean-energy infrastructure that would set our country on a real, long-term path to ending our addiction to oil.

That is so obviously the right thing for our environment, the right thing for our national security, the right thing for our economic security and the right thing to promote innovation. But it means that we have to stop messing around with idiotic “drill, baby, drill” nostrums, feel-good Earth Day concerts and the paralyzing notion that the American people are not prepared to do anything serious to change our energy mix.

President Obama has the right instincts on energy policy, but it remains to be seen whether he has the political will and courage to truly lead our nation in the direction it needs to go. He has taken some positive steps:

• Accelerating the development of renewable energy – wind, solar, and geothermal power and battery-powered vehicles – through subsidies and tax incentives.

• Investing in high-speed rail, clean coal technology and smart grid investments as part of last year’s economic stimulus act.

• Defining greenhouse-gas emissions as a danger to human health and the environment and implementing a new “clean car” standard that, for the first time, allows the Environmental Protection Agency to regulate greenhouse-gas tailpipe emissions; and

• Adopting improved fuel efficiency standards for cars and trucks.

Of course, the President has also pushed for expanded offshore oil drilling (much to the chagrin of environmentalists, who can now honestly say, “I told you so”) and authorized financing for the construction of two new nuclear power reactors, the first such reactors since the 1970’s.

As the Harvard Business School concluded in Energy Future, there is no easy fix to America’s energy problems. We are all to blame – I am no exception, for I watch my color television sets, crank up the air conditioning on hot summer days, enjoy the freedom of travel, and regularly turn on the light switch – but until we finally see the big picture, until we can envision where our energy future is headed, until we realize the true costs – environmental, national security, and economic – of our dependence on oil and coal (and nuclear, until we find safe means to dispose of radioactive spent fuel), we will continue to be held hostage by Arab sheiks, Texas tycoons, and Wall Street commodities traders. The real problem with the oil spill in the Gulf and the coal mining tragedy in West Virginia (and the repeated history of such tragedies over the past two centuries), are not the tragedies themselves, for the risks are foreseeable and will continue to be so as long as we depend on these energy sources. The real problem is our reliance on oil and coal itself.

Until we as a nation – as consumers, as business owners, as policy makers – embrace conservation as a national priority, adopt serious fuel efficiency standards, and maximize our development and use of clean and renewable energy sources, we will continue to harm our most precious resource, the Earth, and be dependent on forces and nations outside of our control, at great risk to our economy, our environment, and our national security.