JAN 0 6
Report No. 81-266 ENR
THE UNFOLDING OF THE REAGAN ENERGY PROGRAM:
THE FIRST YEAR
Larry B. Parker
Analyst in Energy Policy
Robert L. Bamberger
Analyst in Energy Policy
Susan R. Abbasi
Analyst in Natural Resources Policy
Environment and Natural Resources Policy Division
December 17, 1981
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ENERGY P O L I C Y AS PHILOSOPHY:
THE NATIONAL ENERGY P O L I C Y PLAN .....
O I L ...............................................................
EMERGENCY PREPAREDNESS ............................................
NATURAL GAS .......................................................
S Y N T H E T I C F U E L S DEVELOPMEKT .......................................
DEPARTMENT O F ENERGY ..............................................
THE UNFOLDING OF THE REAGAN ENERGY PROGRAM:
THE FIRST YEAR
"Policy is a process as well as a product.
It is used to refer to a
process of decision-making and also to the product of that process."
Both process and product have altered under the Reagan Administration;
rather than developing a discrete Federal energy policy, the Reagan
energy program, in contrast to that of the Carter Administration, is less
comprehensive and perhaps more fragmentary. The Administration has pursued
a course of transferring the locus of decision-making from the Federal
Government to the States, to the private sector, and even to individuals.
As stated by President Reagan, the Administration wants to remove
Government intrusion in energy policy so "native American genius--not
arbitrary federal policy--will be free to provide for our energy future." 2/
The absence of a comprehensive policy framework should not obscure
the significance of the Reagan energy program.
It is more than the
abdication of energy decision-making prerogatives vested in recent years
in the Federal Government.
It marks a de-emphasis on energy as a problem
that commands a discrete policy, and a determination that energy policy
shall instead be servant to broader economic objectives and philosophies.
11 Wildavsky, Aaron. Speaking Truth to Power: The Art and Craft of
policy Analysis. Boston: Little, Brown and Company, 1979. p. 387.
Nuclear Policy Statement.
October 8 , 1981.
This departure from the energy policy articulated by the Carter
Administration reflects an economic philosophy that reaches into many
areas of Government activity.
If so, one should weigh the consistency
of policy and budgetary decisions with those principles. Through such an
assessment, other objectives which may also be governing the Reagan
energy policy can be identified.
ENERGY POLICY AS PHILOSOPHY: THE NATIONAL ENERGY POLICY PLAN (NEP 111)
In July 1981, the Reagan Administration unveiled its national energy
Required by Congress every two years, many had hoped that NEP I11
would provide the country and the Congress with specifics regarding the
Administration's view towards issues such as natural gas decontrol, the
clean air act, and emergency preparedness.
However, rather than outline a
plan of legislative action, the Administration's "Securing America's Energy
Future: The National Energy Policy Plan" (hereafter referred to as NEP-111)
is a statement of economic philosophy:
The Administration's reformulation of policies affecting
energy is part of the President's comprehensive Program for
Economic Recovery, which includes elimination of excessive Federal spending and taxes, regulatory relief, and a sound monetary
policy. When fully implemented, the Economic Recovery Program
will release the strength of the private sector and ensure a
vigorous economic climate in which the Nation's problems, including energy problems, will be solved primarily by the American people themselves--consumers, workers, managers, inventors,
and investors. 3-1
The energy problem has been characterized as an interlocking network
of contradictory concerns, including national security, the economy, equity
and, resource conservation and the environment.
have presented energy "packages" designed to meet the objective of reducing oil
imports, but with "due" concern for the other facets of energy policy.
For example, in NEP I, President Carter delineated principles which established
the context for his energy policy.
Healthy economic growth must continue.
National policies for the protection of the environment must be
31 U . S . Department of Energy. "Securing America's Energy Future:
~ationalEnergy Policy Plan." page 3.
The United States must reduce its vulnerability to potentially
devastating supply interruptions.
The United States must solve its energy problems in a manner that
is equitable to all regions, sectors and income groups. 4-1
The Reagan Administration approaches energy policy from an economic
perspective, deemphasizing energy as an special or unique issue requiring
special consideration. This deemphasis on energy policy is manifested by
a reduced role for the Federal Government.
As stated in NEP 111:
Public spending for energy-related purposes is secondary to
ensuring that the private sector can respond to market realities.
Even then, Federal spending should be considered only in those
promising areas of energy production and use where the private
sector is unlikely to invest ....[Ulsing public funds to subsidize
either domestic energy production or conservation buys little additional security and only diverts capital, workers, and initiative
from uses that contribute more to society and the economy. 5-1
Unlike the Carter Administration, the Reagan Administration does not see
the role of Government as designing an "energy future", balancing competing
interests, or leading the country towards a energy transition. As stated
in NEP 111:
Quantitative levels for the production, the consumption, or
even the importation of energy in its various forms are not
objectives in themselves. The American economy will choose the
energy consumption for a strong, productive, and secure society
in the year 2000 whether it be 80 quads or 100 quads or 120 quads
Fundamentally, however, the best guarantee
of energy annually
of maintaining a wholesome balance among competing interests in
regards to energy lies in allowing the American people themselves
to make free and fully informed choices. 51
4 1 Executive Office of the President, Energy Policy and Planning.
National Energy Plan. pages 2 6 - 2 7 .
5 1 Department of Energy. Securing America's Energy Future:
Plan. pages 3 - 4 .
6 1 Department of Energy. Securing America's Energy Future:
Plan. pages 3 - 4 .
This move to deemphasize energy as a policy issue and Government's involvement with the issue is a fundamental change from energy policies of the
The Arab oil embargo of 1973 focused national attention on de-
veloping an explicit Federal energy policy.
Oil shortages during the summer
of 1973 prompted allusions in public statements by President Nixon to energy
"self-sufficiency," a concept elevated to program status as "Energy Independence" after the onset of the Arab oil embargo.
Let us set as our national goal in the spirit of Apollo, with
the determination of the Manhattan Project, that by the end of
this decade we will have developed the potential to meet our own
energy neeeds without depending on any foreign energy sources. L/
In a subsequent radio address on the energy situation, President Nixon concluded by saying that "where energy is concerned, we, the American people,
shall be the sole masters of our fate." -
The policy response included the establishment of emergency authorities
to address immediate shortages, and the infusion of Federal money into longerterm research and development. The year 1974 was a banner one for research and
for solar heating and cooling (P.L. 93-473), geothermal energy
93-410), electric and hybrid vehicle research (P.L. 94-413), among others.
Federal spending for alternative energy research and development increased
in subsequent years. Price and allocation controls remained on crude oil and
some petroleum products, particularly gasoline; price controls remained on natural gas.
Shortly before leaving office, President Ford characterized the con-
tinuing dispute over energy policy during his term as resulting from "differing
71 Nixon, President Richard M. Address on the Energy Emergency. November
7, 1973. Appearing in: U.S Congress. Committee on Energy and Natural Resources.
Executive Energy Documents. July 1978, Publication No. 95-114. 95th Congress,
2d session. p. 86.
8/ Ibid., p. 118. Address given January 19, 1974.
views as to the appropriate role of the Federal Government."
maintained that the primary responsibility for energy should "continue to
rest with the private sector," and warned against thoughtless expansion
of the Federal role. 91
However, the National Energy Plan submitted by President Carter to
Congress in April 1977, proposed to vigorously expand the Federal role in
As its first principle, the plan stated that "...the energy
problem can be effectively addressed only by a Government that accepts responsibility for dealing with it comprehensively."
In part, President
Carter proposed to use authorities established by prior enactments.
ever, the National Energy Act extended Federal authorities to govern energy
decision-making by industry, institutions and individuals in several areas.
The Powerplant and Industrial Fuel Use Act (P.L. 95-620) established authorities whereby the Federal Government can require electric powerplants and
major fuel-burning installations to utilize energy sources other than natural
gas or petroleum.
The Natural Gas Policy Act (P.L. 95-621), while it provided
for the eventual deregulation of most categories of natural gas, placed
viously unregulated intrastate gas under regulation.
The Energy Tax Act
(P.L. 95-618) established an excise tax on the purchase of fuel-inefficient
This trend and the philosophy behind it are repudiated by the Reagan
approach to energy policy.
Essentially, the Reagan approach is a philosoph-
ical return to the "old-time religion" that characterized energy policy
before 1973. It is a return to an implicit energy policy where the locus
Ibid., p. 356.
101 See: U.S. Congress. Committee on Energy and Natural Resources.
~ r e s z e n 's
t Energy Program. Hay 1977. Publication No. 95-16. p. 96.
of decision-making is vested in the private sector and in the marketplace
which makes all decisions governing which fuels, in what volume, in what
mix, at what price, and for what purposes are produced.
The role of the
Federal Government in energy is distinctly subordinate to decision-making
in the private sector. The Reagan economic philosophy as applied to energy policy and explained in NEP 111 raises several significant policy issues.
more important ones presented in NEP 111 are the following:
Reducing oil imports should not be the driving force for
U.S. energy policy. The needs of the economy as dictated by
the marketplace should control the importation of oil as any
other decision would be economically inefficient.
Energy consumption has no normative content. Whether the country choses to use 80, 100, or 120 quads a year in energy is
irrelevent as long as the economy is sound.
The principal role of the federal government is to increase
energy supply through leasing, promoting nuclear power, economic incentives, long-term R and D , and reducing regulation.
4. Equity is not a concern of energy policy. Although the poor
may suffer, distorting the marketplace will hinder an economic
recovery program designed to help all Americans, including
Government planning is counterproductive to energy policy.
Government does not have the insight or knowledge to guide
energy policy. Policy should be determined by the marketplace
in response to circumstances as they arise.
Reducing oil imports has been a continuing theme in energy policy since
the 1973 oil embargo.
From "Project Independence" to the "Moral Equivalent
of War," Presidents have used the national security aspect of energy policy
to justify their proposed energy policies.
Most recently, the national
U.S. Congress. House Committees on Interior and Insular Affairs and
and Foreign Commerce. Gulick, Frances A. , David Gushee, and
Warren H. Donnelly. Overview Commentary on the President's National Energy
Plan. November 1977. p. 16.
security argument was employed to enact an $88 billion synthetic fuels
As stated by the Congress in the Energy Security Act:
The purpose of this title, and the amendments made by this title,
are to utilize to the fullest extent the constitutional powers of
the Congress to improve the Nation's balance of payments, reduce
the threat of economic disruption from oil supply interruptions and
increase the Nation's security by reducing its dependence upon
imported oil. 131
The Reagan Administration feels that such an all-out effort to reduce
oil imports is economically inefficient and will not significantly decrease
U.S vulnerability to oil disruptions.
Reducing oil imports "at any cost is
not a major criterion for the Nation's energy security and economic health." T o the extent that imported oil is overpriced vis-a-vis domestic alternatives,
it will be replaced by market forces in search of the cheapest form of energy.
The Administration attributes part of the current downward movement in oil
imports to the economy making these types of adjustments.
ions disruptions, primary reliance should remain with the market to allocate
supply supplemented by the Strategic Petroleum Reserve and private stocks.
Such a philosophy disturbs some who feel the approach ignores the complexity of the market and historic consumer behavior.
Critics of a strict
free market approach argue that social and institutional variables can frustrate the selection of economically efficient alternatives.
the Administration believes that market economics is sufficient to spur
Yet, in situations where individuals rent their residences
121 For a discussion of the debate on title 1 of the Energy Security Act,
see ~ Z k e r ,
Larry and Paul Rothberg. In Energy Initiatives of the 96th
Congress (forthcoming committee print).
P.L. 96-294, sec 100(b)(l).
141 Department of Energy.
~ n e r g > o l i c ~ Plan, page 2 .
Securing America's Energy Future:
or commercial space, neither the tenant nor the building owner may have an
incentive to save energy.
Tenants have no incentive to make energy conser-
vation improvements on buildings they do not own, and owners have little incentive to make improvements if the tenants are paying the bill.
A second concern of critics is that an energy policy which bases de-
cisions about oil consumption primarily on the basis of economic "rationality"
may ignore interests of national security in reducing the nation's dependence
upon imported petroleum. This concern is heightened by the near-term stabilization of oil prices, and the otherwise welcome prospect that OPEC may soon
agree upon a long-term pricing strategy that will lend some predictability
to prices for several years to come.
If price stabilizes over a period of
time as it did in the mid-to-late 1970s, consumers will become less sensitive
to the need to conserve oil and less inclined to convert from oil to other
Differences in energy policy between the Reagan and Carter Administrations are also explained by a conflict in social values and outlook.
During his Administration, President Carter hinted that many Americans were
profligate and consumed more energy than was necessary to maintain comfort
and a reasonable quality of life.
What was novel in President Carter's pro-
nouncement was its "ascetic" flavor. The Carter Administration suggested
that Americans were to lower their expectations and consume less energy--not
only because it would save money, but because the Nation would be morally
15/ For other institutional barriers, see Carl Blumstein, "Social and
1nstiGtional Barriers to Energy Conservation. " In Forecast--Volume 11:
Energy Conservation in Cities, by the Congressional Research Service,
December 1978, committee print for the House Committee on Science and Technology, 95th Congress, 2nd session.
richer for doing so.
In his address to the Nation on April 18, 1977, Pres-
ident Carter observed, "I think most of you realize that a policy which does
not ask for changes or sacrifices would not be an effective policy at this
late date....I have faith that meeting this challenge will make our own lives
even richer." 161
The Reagan Administration rejects this moralistic view of energy consumption. Energy consumption per se has no normative content. Rather, a
growing economy is the object of Administration policy.
is the social value of concern to the Reagan Administration, not energy
the extent energy facilitates economic growth, it is
But the economy should choose the appropriate consumption
level, not Government.
Critics of this approach to energy consumption attack either the social
value on which it is based (economic growth), or the method of execution
(market economics), or both.
Nurtured by the affluence and the anticompetitive
values of the 1960s, offshoots of the environmental movement have expanded
their concern for growth to a broad spectrum of human activities: population,
energy and resource consumption, and even economic growth as it is currently
The finite limits of global resources and environmental equilibrium
are perceived to be dangerously near by these "limits to growth" advocates.
Hence, they feel the country should de-emphasize a materialistic definition
of life as exemplified by economic growth, and concern itself with other
human and environmental issues.
Executive Energy Documents, op. cit., p. 391.
1 7 1 For a discussion of social values and energy policy, see Behrens,
Carl. "National Goals and Social Values in Energy Policy.
In U.S. Energy
Outlook: A Demand Perspective for the Eighties. July 1981, committee print
for the House Committee on Energy and Commerce.
Proponents of the limits to growth approach, as well as other critics
of traditional energy sources, 181 attack the so-called free market approach
as naive, noting that the market is biased in favor of traditional fuels
through Government subsides and the financial markets.
As stated by
S. David Freeman, Director of TVA:
As it is, market forces are heavily tilted in favor of energy
production and against conservation.... The production organizations
have access to capital on terms that would be the envy of the average
energy consumer. Investments in electric power plants, coal mines,
and petroleum production are traditionally made in large amounts,
in the expectation of a long-term payout. And these organizations
are not in the business of conserving energy. The oil companies
now talk about conserving, but they are in the business of selling
petroleum. As for the utilities, they until very recently were
forbidden to invest in energy conserving equipment for their
consumers, even though it has been in their economic interest to
do so for the better part of a decade....The market bias against
conservation is even more pronounced on the consuming end. 191
However, the emphasis of the new administration is on energy production.
As stated in NEP 111:
"Sound public [energy] policies must be based on recog-
nition of the Government's and the private sector's respective roles in energy
The Federal Government's most direct impact on America's energy
future arises from its position as the steward of the Outer Continental Shelf
To assist private enterprise in
exploiting the country's natural resources, the Reagan Administration is committed to reducing regulation and facilitating access to public lands. Also,
181 Some critics of traditional energy sources, such as Amory B.
~ o v i n xhave denied their allegiance to the limits to growth thesis. For
a discussion of the soft path and its relationship to the limits to growth
thesis, see Behrens, op. cit., p. 455.
191 Statement of S. David Freeman, Director, Tennesse Valley Authority,
bef orFthe Subcommittee on Energy, Nuclear Proliferation and Government Processes,
Committee on Governmental Affairs, U.S. Senate. July 21, 1981.
201 Department of Energy.
~ n e r ~ c o l iPlan.
Securing America's Energy Future:
the Administration intends to revitalize the nuclear option, including
the breeder, along with emphasis on long-term, high-risk, research
Critics believe that the emphasis on energy supply is misplaced:
that conservation is the quickest and cheapest way to meet the country's
It is conservation, not increased energy supply, which
has brought oil imports down to their current level, and proponents of
conservation believe that active Federal support for conservation could
accelerate this trend.
A second concern of conservation proponents is equity.
face immmediate problems regarding energy costs for essential needs such
as heating and transportation.
This problem is exacerbated by the Reagan
Administration's policy of using prices to spur conservation. Also, the
Administration's primary device to encourage conservation--tax credits-are of little use to poor people.
Hence, an active Government role in
protecting low income families from rising energy prices is considered
The Administration agrees that the poor may suffer disproportionately
because of rising energy prices.
However, the Administration believes that
the best way to help the poor is to restore the economy through free markets
and the private sector. Therefore, the Administration feels the energy markets should not be distorted to assist low-income groups. Rather, their
needs should be addressed by the Administration's overall social policy,
particularly through block grants to the States.
This reliance on the market to direct policy is the backbone of the
Reagan approach to energy policy.
As stated in NEP 111:
Computers cannot gauge human response to future situations with
precision. This is the key explanation of why projections of future
energy consumption and production have been so often wrong, although
there has also been a general bias against market flexibility in the
assumptions of many models. Increased reliance on market decisions
offers a continuing national referendum which is a far better
means of charting the Nation's energy path than stubborn reliance
on government dictates or on a combination of subsidies and regulations. 211
This perception dictates minimum Federal involvement in energy policymaking, a distinguishing characteristic of energy policy before the oil embargo of 1973-74.
In its reassertion of this principle, the Reagan Administration
has repudiated the direction which energy policy has taken since the embargo.
To the Reagan Administration, the sweeping changes in energy policy, price
and politics subsequent to the embargo did not alter the appropriateness of
the marketplace, with minimal Federal intervention, to address national energy
Indeed, the Reagan Administration, often citing the experience
with petroleum price and allocation regulations, has strongly argued that
the centralization of energy decision-making within the Federal Government
compounded the problem.
The discussion below outlines the new Administration's approach to
several major energy sources and policy issues, the initiatives presented
by the Administration, congressional response, and an assessment.
211 Department of Energy. Securing America's Energy Future:
~ n e r ~ c o l iPlan.
c ~ July, 1981. page 2.
Within days of its accession to power, the Reagan Administration,
meeting the promise of?its frequent campaign vow to reduce Federal energy
regulation, exempted gasoline and crude oil from price and allocation
controls effective January 28, 1981. The decontrol action was an early
bellwether of the Administration's economic and political philosophy.
As is expressed in NEP-111, the marketplace "offers a continuing national
referendum" on charting the Nation's energy future, and is far preferable
to "stubborn reliance on government dictates or...subsidies and regulations."
The role of markets captures only part of the significance of decontrol.
The decision to decontrol oil symbolizes the Administration's fundamental
premise that energy is no longer a discrete problem, but a policy issue to
be treated as part of an overall economic recovery program.
ahead," notes NEP-111, "is to provide a healthy economy and policy environment
production and consumption decisions.
The possible dismantling of the Department of Energy (not to mention the comparatively modest length of NEP-I11 itself) is a further reflection of the
re-ordering of energy's position in the policy hierarchy.
Prior to the decontrol decision, oil decontrol was typically perceived
as a policy which would promote more efficient use of petroleum and lower
its consumption, even if one challenged claims made for the increased production promised by proponents of decontrol.
Indeed, the Reagan Admini-
stration holds optimistic expectations from the increased investment
NEP-111, op. -cit. , p. 1.
within the exploration, production, and refining segments of the industry
which the Administration suggests that decontrol has encouraged.
However, decontrol is not the sole feature of the Administration's
oil pricing policy.
The Administration strongly notes in NEP-I11 that
the decision to no longer subsidize petroleum consumption must be coupled
with a decision to not subsidize its substitutes.
By subsidizing energy costs through price controls, energy policy was
social policy, the Administration reasons. By supporting research and
development in demonstrated technologies for petroleum substitutes that
were not economically competitive, energy policy incurred costs to the
Government incommensurate with the national security benefits on which
the expenditures have been justified.
Both policies, the Reagan Administra-
tion contends, were inconsistent with rational economic policy.
Rational market decisions should reflect "the true value, in every
sense, of all the Nation's resources," the Administration notes in NEP-111.
Imported oil may be less expensive in some instances than substitute
fuels, and while
efficient displacement of imported oil is an important
achieving a low level of U.S. oil imports
at any cost is not a major criterion for the Nation's
-. security and economic health.
(emphasis in original)
It was error to subsidize the price of imported petroleum, the Reagan
Administration argues; it would be equally inappropriate "if market forces
were distorted through indiscriminate subsidies for alternatives that
cost more than imported oil."
The key word is "indiscriminatew--instances
in which the potential alternatives "offer no short-term to medium likelihood of being economically competitive."
In short, the Administration's oil pricing policy is more than just
a reassertion of markets.
Oil pricing policy aptly reflects the manner
in which the Administration has de-emphasized energy policy, asserting
that energy policy should serve economic goals instead of subordinating
economic objectives to energy policy, or masking social welfare and
defense policies as energy policies.
On September 30, 1981, the authority delegated by Congress to the President in the Emergency Petroleum Allocation Act of 1973 to impose comprehensive
price and allocation controls expired.
During the first session of the 97th
Congress, a number of bills were introduced to restore this authority, provide for dispersal of the Strategic Petroleum Reserve, or institute a revenue
recycling mechanism for insulating consumers from the economic shocks that
would likely accompany a shortage of petroleum products.
The Administration has expressed unqualified opposition to the extension of price and allocation controls, and any Federal intervention in
the marketplace during petroleum shortages.
In the event of shortage, the
Administration proposes: (1) maximum reliance on the free market to determine
the price and allocation of energy supplies, and ( 2 ) full participation in
the international oil-sharing program of the International Energy Agency.
In the meantime, the Administration supports rapid growth of the Strategic
Petroleum Reserve, and seeking measures to encourage stock buildups in the
private sector during times when supply is secure.
The Administration believes there is no necessity for or practicality in
articulating an emergency response plan in advance of a disruption; the appropriate action will be undertaken as warranted should an emergency occur.
The Administration is opposed to controls, and contends that the mere establishement of authority to impose them sends an inappropriate signal to the
private sector that it may possibly count upon Federal intervention to protect
its access to crude or products during a shortage.
While it appears that most Members of Congress believe that price and
allocation controls were largely ineffective and inefficient, their opposition
to controls is not so absolute as the Administration's.
The major congress-
ional initiative has been S. 1503, the Standby Petroleum Allocation Act of
1981, introduced by Senator McClure, and passed by the Senate on October 29,
Recognizing that there would be little hope that the President would
sign a bill "loaded" with mandatory directives to the President or provisions
establishing priority allocation to certain users, the bill was intended
simply to provide the President with discretionary authority to allocate
crude and products in the event of a serious shortfall.
Nonetheless, the bill was besieged in committee with a number of admendments, and to forestall lengthy and acrimonious debate, the committee
agreed to incorporate language from the Emergency Petroleum Allocation Act
of 1973 (EPAA) establishing that the standby regulations would provide for the
protection of certain users and uses of crude and petroleum products.
legislation, as passed by the Senate, would permit the President to implement
standby crude or product allocation regulations in the event of a serious
shortage or to meet U.S. obligations to the International Energy Agency.
regulations would be in effect ninety days, if neither House of Congress
disapproves, and could be extended another sixty days without congressional
review. Price controls are provided for if necessary to achieve the objectives
of the allocation regulations.
The bill also includes language that preserves
the Federal prerogative to determine when, and in what manner, petroleum may
be subject to price and allocation controls, but provides that areas of regulatory activity not assumed by the Federal Government during an emergency could
be undertaken by the States.
Comparable legislation has been considered in the
A confrontation between the Administration and Congress may be looming,
centering around the ~dministration'smost basic faith in free markets and
decentralization. Many in Congress appear to agree with the Administration
that one cannot make specific provisions for shortages of unknown duration
and character, but are skeptical that the free market would function swiftly
enough under all circumstances to provide for critical needs.
S. 1503, Senator McClure observed that "we cannot resposibily be dependent on
anything less than full preparation after expiration of EPAA," and that the
Administration must be fully prepared "should federal action become necessary
to supplement the market mechanism."
However, the proposed bills do not require the Administration to specify
the precise actions to be taken under particular circumstances. The standby
regulations that the Administration would be required to develop might be
imprecisely worded while still complying with the requirements of either the
House or Senate legislation. Development of implementing regulations could be
postponed until the onset of an actual emergency, preserving the latitude
upon which the Administration insists. Given these considerations, and the
likely strength of the congressional consensus, the Administration may decide
this issue is not worth the fight--and possible defeat.
Not long after decontrolling petroleum, the Reagan Administration
hinted its intention to seek early decontrol of natural gas.
ident's Energy Policy Task Force report, prepared and released in December 1980, urged "phased decontrol
legislation," a reference to the Natural Gas Policy Act.
The text on natural gas, which is one of the shortest passages in
the fuel-specific section of NEP-111 observes that important premises of
the Natural Gas Policy Act (P.L. 95-621) have been "overturned" by subsequent events: (1) the price of oil has more than doubled beyond what it
was projected to rise to in 1985 by the NGPA; and (2) because of this
widening disparity, natural gas resources are not being properly exploited
because there is less incentive to explore for gas than for oil.
As a matter of economic principle for the Administration, decontrol
of natural gas should be a straightforward matter.
even economically--it is not.
The deliberation over the Natural Gas Policy
Act of 1978 was exhausting, sustained on the hope that Congress would not
need to address the issue for several years.
The Administration and Mem-
bers of Congress with special interest in natural gas decontrol recognize
how little appetite either party would have for a major confrontation.
can be expected, then, that any major proposal introduced in the 97th Congress will be further along the path of consensus than was the Natural Gas
Policy Act in its original form.
If consistent with the economic philosophy of the Reagan Administration, decontrol would be inconsistent with its economic policy.
the impact would be difficult to calculate and would vary with the specifics of policy, decontrol would certainly contribute to inflation and
would offset some of the tax reductions that were described as fundamental
to the Administration's program.
Most importantly, any significant de-
control measure might not survive congressional consideration without passage of a windfall profits tax, which the President, in a now celebrated
note to Representative Glenn English has said he would oppose. Windfall
profits taxes are, to the Administration, archetypical instances of "burdensome" Federal policies which discourage private sector initiative. However, the Reagan Administration has been held captive by the windfall profits tax on oil--for obvious political reasons--made somewhat less distasteful by the helpful budget-balancing revenues it provides.
ulate that natural gas decontrol accompanied by a windfall profits tax
might commend itself to the Administration for the same reason, but the
initiative for a windfall profits tax would clearly be left to the Congress.
For the moment, natural gas decontrol continues to be the object of
various studies, position papers and discussion. The debate will center
about determining what categories (and, therefore, what volumes) of gas
should be decontrolled; and whether some categories of gas are decontrolled immediately or subject to phased decontrol.
If the latter, an
additional issue will be deciding what the "target" uncontrolled price
One concern about decontrolling gas is that rising gas prices could
prompt industrial and utility users to switch to oil. This would be
inconsistent with the avowed national policy goal of reducing oil imports
(albeit, not at any cost); the equivalent cost for residual fuel oil has
been suggested as a possible "target" price to avoid oil displacing gas
The President's Cabinet Council on Natural Resources and the Environment was reportedly pressing for the President to reach some decision on
accelerating gas price decontrol by late September or early October 1981,
but preoccupation with the second round of budget cuts and the proposed
dismantling of the Department of Energy has postponed release of the Administration's proposal until early 1982.
Enactment of legislation to acceler-
ate natural gas decontrol may be a strong possibility in 1982.
particulars remain to be worked out, an "only" premised upon hopes by Congress, the Administration and the industry that achieveing consensus will
be less painful the second time around.
The Administration appears confident that market conditions favor coal
development provided the Government gets out of the way.
is resulting in new proposals both to promote production of coal and removing
existing direct subsidies and regulations which promote production.
ministration is acting to encourage exploration and production on Federal
lands, to change the Clean Air Act, and to reduce Federal regulations of land
The Administration also has succeeded in repealing the "off
gas" provision of the Fuel Use Act, and has sought a reduction in coal Research
and Development and synthetic fuels efforts.
This more laissez-faire attitude towards coal differs from that of the
Carter Administration, which set ambitious production goals for coal-one billion tons annually by 1985.
As proposed by President Carter, the expansion
was to be induced by a combination of tax and regulatory measures.
would have been used to raise the cost of industrial use of oil and gas and
encourage conversion to coal.
A regulatory program was enacted to prohibit
new oil- and natural gas-fired boilers with some exceptions, and to phase out
existing natural gas boilers by 1990.
Also, strict environmental regulations
would have been enacted to protect the air and reclaim disrupted land.
The Administration hopes to replace this partially enacted regulatory
system with a market system to encourage coal.
The decision to decontrol oil
raises the cost of one competitor to coal--residual fuel oil.
ural gas is still under controls; complete decontrol would require congressional action.
With the repeal of the "off gas" provision of the Fuel Use Act,
2 5 1 See National Energy Plan, Executive Office of the President, Energy
policyand Planning, 1977.
industrial consumption of natural gas may increase at the expense of coal
unless natural gas decontrol occurs in the near future or environmental regulations are altered.
To improve coal's attractiveness to private industry, the Administration
is recommending changes in the Federal reclamation laws and the Clean Air
Believing the Office of Surface Mining (OSM) has promulgated regulations
far in excess of the requirements of the Surface Mining Control and Reclamation
Act, Secretary Watt has recommended major changes in the Federal guidelines
for surface reclamation. The crux of the new proposals involves replacing
the current "design standards" with "performance standards" which the States
The purpose is to increase flexibility in restoring disturbed
lands and return primary responsibility for enforcement back to the States.
However, the Administration may be trading flexibility for uncertainty.
Although rigid and detailed, the current regulations have been fully tested
in court and provide a known regulatory regime. New proposals, particularly
of the variety the Administration is proposing, would probably face court
challenges both on substantive grounds and on the legality of Secretary Watt's
intepretation of the Surface Mining Control and Reclamation Act.
would also invoke some Congressional opposition. This legal and legislative
turmoil may arrive just as coal developers are becoming familiar to the current
rules, and delay the supply-side response the Administration is trying to
The Administration also has indicated it wishes to relax environmental
In particular, the Administration has suggested elimination of
the "technology standard" mandating a percentage reduction of sulfur dioxide in
power plants regardless of the emission level.
In its place the Administration
would impose a "performance standard" mandating an upper limit on permissible
This would provide plant developers flexibility in meeting
the standard, either through low-sulfur coal, or emission control technology.
A performance standard would encourage the use of western low-sulfur
coal as an less expensive alternative to scrubbers in meeting a performance
Generally, western coal-producing States are in a boom situation
with their low-sulfur coal.
However, because of the States' small populations,
the technology involved (strip-mining), and the rapid nature of the growth,
these States are struggling to control the situation.
This contrasts with
some eastern States which currently have idle mining capacity and unemployment
A performance standard would increase the competitive advantage
western States have in the midwest and southwest, to the detriment of eastern
Such a situation could arguably exacerbate the growth-related
problems of western States, and the contraction problems of eastern States.
Also, depending on the emission limit set, a performance standard
might increase the aggregate amount of SO2 emitted.
Such an increase, or
the possibility of an increase, could strain relations with Canada regarding
Power plant emissions are generally regarded as a major contrib-
261 and the Canadian Government feels the United States must
utor to acid rain act to control such emissions which are affecting parts of eastern Canada.
How the Canadians would perceive changes in the Clean Air Act is unclear.
In summary, the focus of the Administration's action in coal is to
provide a more flexible regulatory environment for coal exploitation and
However, such efforts will not provide relief to the coal
industry in the short term, and may in fact increase regulatory uncertainty.
261 See National Research Council, Committee on the Atmosphere and ~iosphere's
reporton the burning of fossil fuels, September 1981.
SYNTHETIC FUELS DEVELOPMENT
During the debate on the Energy Security Act (P.L. 96-294), the principal argument of proponents for Government assistance to synthetic fuels
efforts was national security. The potential economic inefficiency of investing in synthetic fuels plants as opposed to other sources was overridden
during debate by the security issue.
For the Administration, synthetic fuels represent a dilemma.
synthetic fuels could assist in reducing oil imports, the uncertainties concerning their development may deter private industry from taking the risks
without Government assistance. Also, it may be more economically efficient
to put that money into other, more near-term, cost-effective technologies.
In NEP 111, the Administration states that oil imports should be reduced only
to the extent that it is economic to do so.
With the philosophy of the Admin-
istration, private industry is the appropriate sector to make this decision,
not the Government.
The Administration has proposed shifting the focus of Government synfuels
programs to the U.S. Synthetic Fuels Corporation. Such a move is designed
to increase the influence of market forces in synthetic fuel development,
while assisting industry in coping with the expensive learning process that
development of synthetic fuels will require.
In line with this belief, the
Administration called for the elimination of the DOE demostration programs,
including SRC I and SRC I1 (the latter being built under an international
agreement with West Germany and Japan).
Also, the Administration recommended
drastic reductions in synthetic fuels research and development. The proposed
FY82 budget cut R and D for coal liquefaction from $886.3 million to $105.2
million, surface gasification from $216.4 million to $53.4 million, and in
situ coal gasification from $10.5 million to $8.3 million.
After 4 years of being considered an energy source of "last resort" by
the Carter Administration, nuclear power is now regarded as a potentially
large and long-term contributor to the national energy mix.
Administration looked on uranium as an important fuel in the near term, but
viewed it as a transition to long-term renewable energy sources.
Administration, however, views fission as an "essentially inexhaustible energy
supply." As a result, the development and demonstration of breeder reactor
technology, which the Carter Administration had deferred and deemphasized,
is considered essential.
The total FY82 Reagan nuclear budget request was
$ 1 . 0 5 4 million, compared with $813 million from the previous Administration.
The primary source of this increase was the decision to fund the Clinch River
Breeder Reactor project (CRBR), which President Carter omitted in his FY82
It is the Reagan Administration's decision to fund Clinch River which
has raised the most controversy in the Congress regarding nuclear policy.
Noting the Administration's decision to recommend elimination of solar, alcohol,
and coal synthetic fuels demonstration programs by stating such projects should
be developed by private enterprise, opponents have suggested the same rationale
be consistently applied to Clinch River.
However, the Administration decided
that breeder development was "outside the range of normal industry risk-taking"
and thus merits Government support.
As with the coal synthetic fuels demonstra-
tion program, the controversy over Clinch River illustrates the apparently ambiguous nature of the "long-term, high risk" criteria employed by the Administration in making research and development decisions, and the ability of various
other considerations besides market viability to enter into research and
development policy decisons.
A more straightforward question of market viability involved the Barnwell Fuel Reprocessing Facility.
In a decision consistent with the proven
nature of reprocessing technology, the Administration recommended no funds
for Barnwell, while lifting the Carter Administration's ban on commercial reprocessing.
However, given the current ample supply of uranium, the private
sector has shown little interest in reprocessing unless the Federal Government
can guarantee a market for the plutonium.
The Administration's support for nuclear is evident in its recently
released nuclear policy statement. Besides supporting CRBR and commercial
reprocessing, the Administration reiterated its support for the light-water
reactor program stating: "one of the best potential sources of new electrical
energy supplies in the coming decades is nuclear power."
the various parts of the DOE fission budget from cuts, the Administration
limits Federal actions favoring commercial nuclear power to two:
recovery to "improve the climate for capital formation" through tax incentives
and fiscal restraint, and elimination of "regulatory burdens."
steps, the President's nuclear statement offers a study and a report in a
year on "obstacles which stand in the way of increased use of nuclear energy
and steps needed to overcome themw--and an implict halt on negative rhetoric
regarding nuclear safety and the dangers of nuclear proliferation.
In his policy statement, the President states:
the federal government has created a regulatory environment
that is forcing many utilities to rule out nuclear power as a
source of new generating capacity, even when their consumers may
face unnecessarily high electric rates as a result, Nuclear power
has become entangled in a morass of regulations that do not enhance
safety but that do cause extensive licensing delays and economic
However, a major cause for the delay in nuclear power plant construction is
the drop in electricity demand due to increasing electricity prices coupled
with a slowing economy.
Future electricity demand is uncertain, leaving fi-
nancially strapped utilities in a bind.
Do the utilities proceed to increase
capacity, assuming elecricity demand will return to historic levels?
they assume demand will remain restrained and rely on alternatives which may
be inefficient if demand does return to historic levels? A decision to increase capacity through a nuclear or fossil fuel plant requires a significant
long-term investment. If demand does not increase to ensure economic use
of the added capacity, the utility still has to cover its investment. Given
the current economic situation, utilities are finding this difficult to do.
The President's nuclear statement maintains that relieving regulatory
burdens on the industry and providing moral support is insufficient to revitalize the nuclear option. As stated by the President: "Eliminating the regulatory problems that have burdened nuclear power will be of little use if the
utility sector cannot raise the capital necessary to fund construction of
new generating facilities." To improve the climate for nuclear power, the
Administration believes it must improve the general economic situation. A
growing economy generating increased electricity demand is considered essential to a revitalized nuclear industry.
Unless the Administration's eco-
nomic policies can achieve this, the Administration fears its support for
the nuclear option will have limited impact.
281 President Reagan.
Nuclear Policy Statement.
October 8, 1981.
Conservation and solar energy development were primary tenets of
the Carter Administration's energy policy. Support for this emphasis was
evident by the public hearings on NEP 111 held by the Reagan Administration.
As summarized by DOE, conservation was "clearly the major theme" of the Boston hearings, and speakers were "vitually unanimous" in favor of Governmentsupported conservation programs at the Atlanta hearings.
DOE was accused
of promoting synthetic fuels and nuclear while ignoring conservation.
Despite these comments on the draft NEP 111, the final NEP I11 contains
little regarding conservation.
Less than one-tenth of the report discusses
conservation's role in the Reagan energy policy.
The report states the
Administration's belief that rising energy costs will be sufficient incentive
to promote conservation without active Government assistance.
Price and tax
credits are the mechanisms the Administration believes will promote conservation, not Government programs.
The Administration recognizes that price and tax credit mechanisms will
not help the poor cope with higher energy prices, but feels such suffering
must be considered in the context of overall social and economic policy, not
The Reagan Administration believes a growing economy is the
best way to help the poor--"a rising tide which will raise all the boats."
However, the time at which the tide will come and its height are unknown.
Given the Reagan Administration's cuts in energy programs to assist low income
families, the answer to these questions are critical in determining how much
suffering the poor will have to endure.
See Capital Energy Letter, May 4, 1981.
Consisted with this philosophy of limited Government assistance for
conservation, the Reagan Administration has recommended significant reductions
in all conservation programs;
reductions to which the Congress has partially
All three categories of conservation programs--research and development
regulation, and grant programs--have been reduced. Reflecting the philosophy
that Government research and development should focus on longterm needs, the
Administration recommended termination of several research and development
projects on the premise they should stand the test of market viability without Government assistance. These included urban waste, consumer products,
advanced automotive engine design, and industrial processes projects.
Reconciliation Act, the Congress agreed to reduce but not terminate these
research and development programs.
The Congress doubled the Administration
request for conservation research and development programs from $86 million
to $182 million.
However, this is still a significant decrease from the 1981
funding level of $290 million.
Regulatory programs for building energy performance standards, appliance
efficiency standards, and utility conservation services, are not great burdens
on the DOE budget.
However, reflecting its belief in deregulation, the Admin-
istration called for the termination of these programs, arguing that these
programs impose too great a burden on private industry.
In the Reconciliation
Act, the Congress authorized $40 million to continue these programs. However,
the Congress also agreed to make the proposed building energy performance
standards voluntary rather than mandatory.
Finally, DOE conservation grant programs to States and local communities
have also been cut.
In his original budget request, the President recommended
terminating funding for State energy offices and outreach programs, reducing
support for the schools and hospitals program ($100 million), and incorporating DOE'S weatherization program for low-income people into the Department
of Housing and Urban Development community development block grant program.
These recommendations met with significant resistance in the Congress which
wished to retain funding for these programs.
In the Reconciliation Act, the
Congress authorized $336 million to fund these various programs and recommended
that they all continue.
I n recognition of this congressional support, the Administration in July
1981 backtracked from its original position.
Faced with an attempt to reauthor-
ized all DOE catagorical grant programs (S.1166), the Administration introduced
a counterproposal entitled the "State and Local Energy Block Grant Act of 1981."
As stated by OMB Director Stockman:
Under these circumstances,[reconciliation funding for grant
programs] in a spirit of compromise, the Administration would not
oppose legislation authorizing a State and Local Energy Block
Grant for energy supply, conservation, and low-income weatherization
activities which would repeal and replace all the existing categorical conservation grant programs, including the Residential
Conservation Service, and for which funding would be authorized
at a level not in excess of $200 million per year. 301
This proposal may not satisfy supporters of Government conservation programs
because of its inclusion of energy supply into the areas eligible for funding,
the funding level which is one-half that suggested for S. 1166, and the refusal
of the Administration to support appropriations for it.
In summary, the President has achieved a significant reduction in Government support for energy conservation programs, although not complete elimination of them.
That he has been unable to achieve more cuts in conservation
30 / Letter from David Stockman to Senator McClure.
~ e c o r d ,July 30, 1981, p. S8862.
Printed in Congressional
programs reflects a strong congressional consensus on the importance of conservation, and the belief that Government assistance is necessary to achieve
the maximum benefits from conservation opportunities.
DEPARTMENT OF ENERGY
As the Reagan Administration has moved to reverse the direction of the
Nation's energy policies, it has also rejected and proposed to dismantle
the major symbol the previous Administration's energy policy--the Department
of Energy (DOE). The DOE was the cornerstone of the
at ion's energy policy in
1977 when it was established, and occupied a central role in the formulation
and implementation of that policy throughout the Carter Administration.
ever, Presient Reagan campaigned on a promise to abolish it, and announced
on September 24, 1981, that he would soon propose legislation to disband the
The intention to disband DOE was announced as one of several
budget cutting and moneysaving measures; however, the move is seen by some
as largely symbolic, since little money would be saved by abolishing the Department that could not be saved by simply cutting the DOE budget.
Following the Arab oil embargo of 1973, the Nation's energy problems
were perceived as increasingly critical, and accordingly, higher levels
of organizational focus were sought to deal with them.
When DOE was
established, both Congress and the President expressed confidence that
the new Energy Department would be an important advancement in shaping
more effective national energy policies.
However, the pressures under
which DOE operated in its first three and a half years of existence made
the formulation of widely agreed upon policies difficult, and left DOE
with few defenders.
It had consistently been in the middle of contending
and competing groups, and failed to fully satisfy any of its constituencies.
The absence of critical energy shortages since 1979 has contributed
to the fading sense of urgency concerning the Federal role in energy.
1980, President Carter no longer pointed with his earlier pride to the
establishment of DOE as a major accomplishment; President Reagan promised
to abolish it.
In describing "the Federal role", NEP I11 failed to mention the Department of Energy at all, and made the Interior Department the central Federal
The plan stated:
"The Federal Government's most direct impact on America's energy
future arises from its poisition as the steward of the Outer
Continental Shelf and of 762 million acres of publicly controlled
land, one-third of the land area of the United States....The Federal role in national energy production is to bring these resources
into the energy marketplace, while simultaneously protecting the
Finally, on September 24, 1981, President Reagan addressed the
Nation on the economic recovery plan of his Administration, and proposed dismantling of the Departments of Energy and Education as a key move in reducing
the size of Government. He stated:
"...we propose to dismantle two Cabinet departments, Energy and
Education. Both Secretaries are wholly in accord with this.
Some of the activities in both of these departments will, of
course, be continued either independently or in other areas of
Now, we don't need an Energy Department to solve
our basic energy problem. As long as we let the forces of the
marketplace work without undue interference, the ingenuity of
consumers, business, producers and inventors will do that for us." 321
The Administration had indicated that a proposal to disband the Department--an action which would require an Act of Congress--would be forwarded
to Congress by mid-November or early December 1981.
about the proposal have been circulated.
However, few specifics
Discussion to date has centered
31/ U.S. Department of Energy. Securing America's Energy Future:
~ a t i o z lEnergy Policy Plan. July, 1981. p. 1
321 President's Address to the Nation, September 24, 1981.
released by the White House, p. 5.
around where the various functions previously housed in the Department
of Energy would be transferred.
An early Presidential decision paper indi-
cated that only the Secretary's Office, the Economic Regulatory Administration,
and certain energy conservation grant programs would be abolished outright;
other programs would continue, often in reduced form, in other agencies.
programs of the Federal Energy Regulatory Commission, formerly the Federal
Power Commission, were expected to revert to the old format in an independent
regulatory agency; the nuclear weapons and nuclear energy research and develop
ment programs were similarly suggested for a new, independent agency, perhaps
much like the old Atomic Energy Commission; other programs would be transferred
to other departments, such as Interior, Commerce, Housing and Urban Development,
and Transportation, or to agencies such as the National Science Foundation,
or Federal Emergency Management Agency.
Although a number of reasons for dismantling the Department of Energy
are offered as a rationale, the majo
reason for President Reagan's interest
in such a proposal is his perception that "...we don't need an Energy Department to solve our basic energy problem
forces of the marketplace
ingenuity of consumers, business, producers and inventors will do that for
The Department is a symbol of a Federal role in managing energy supply
and demand that President Reagan rejects.
Since he would prefer to minimize
the Federal role in energy affairs, he would also like to dismantle and remove
the major symbol and reminder of the energy policies of his predecessor--policies that centered on Federal actions.
The existence of a major Cabinet Depart-
ment on energy is likely to continue attracting interest in what the Federal
Government can or should do--in energy conservation, in energy research, in
energy information, and in other areas.
Most of these are areas where funding
has been cut back or eliminated, but the continued existence of the DOE is
both a reminder that broader involvement is possible, and a magnet for new
proposals in the areas the President believes should be left to the private
However, those who favor retaining the Department argue that the W E
is indeed an appropriate grouping of functions of central importance to
the U.S. economy and the well-being of its citizens, and should continue
at a high level of visibility and concern in the Federal Government. Also,
most other governments, both in the States and in other countries, have energy departments or ministries, and proponents of keeping a U.S Energy Department argue that the U.S. Government should have a similar entity to interact
with these in dealing with energy issues. In addition, there is concern that
in the event of a possible future energy crisis, the Energy Department would
be needed, but that after disbanding it, it would be extremely difficult to
In general, at present there is considerable conern among chairmen of
energy-related committees in Congress over a precipitous move to abolish DOE.
The earlier assumption that Congress would speedily enact the necesssary legislation to disband the Department if the Administration requested it, is
now more widely questioned. However, proponents of disbanding the Department
have been critical of DOE for some time. The debate over keeping it or dispensing with it is likely to be lively, not only on organizational points, but
as a symbol of the level of acceptance in Congress of the overall thrust of
the Reagan ~dministration'senergy program.
The Reagan Administration's energy program represents the latest in a
series of attempts to seek a philosophical base for rationalizing a national
In returning to the premise that governed energy policy be-
fore the embargo of 1973-4--minimal Federal involvement in energy decisionmaking--the Administration is repudiating the essence of Federal energy policies since the embargo. Essentially, the Reagan Administration is saying
that the viability of the energy market mechanism was not fundamentally
changed by the embargo or subsequent disruption; Government intervention in
the marketplace was an inappropriate response to the problem, and more important, compounded the Nation's energy problems.
In contrast to the energy policy articulated by the previous Administration, the Reagan Administration's energy policy is governed by a philosophical
return to a major reliance on market mechanisms to meet current and future
President Carter's National Energy Plan was premised on projec-
tions that world demand for petroleum would exceed supply in 1985, thus disrupting world markets.
This lent an international context to what had been per-
ceived as primarily a domestic issue.
The Reagan program does not globalize
national energy policy, nor has it been premised upon traditional decision-making
methods such as cost-benefit analysis.
With the exception of Federal support for nuclear and some synthetic fuels,
the Reagan energy policy is based instead upon a belief in the ability of private enterprise and the market to supply the country with sufficient and appropriate forms of energy to maintain healthy growth at prices affordable by institutions and individuals. The question that remains is whether such a system,
based on market allocation, can provide the country's energy needs at prices
that are polictically equitable and economically affordable, and whether the
international climate will permit the market to do so.