Energy policy from Nixon to Clinton: from grand provider to market facilitator.

Author:Miller, Alan S.
Position:Symposium on Clinton's New Land Policies
  1. A Brief History of U.S. Energy Policy

    1. 1973 to 1980

      While the federal role in energy policy has been significant for decades - the Teapot Dome scandal dates to 1922 and the Atomic Energy Act(1) passed in 1946-for most purposes the modem era in federal energy policy began on October 17, 1973. On that date the Organization of On Producing and Exporting Countries (OPEC) announced its embargo of oil exports to countries supporting Israel in the Yom Kippur War. Although the United States imported only thirty percent of its oil and the embargo applied to only thirty percent of that, "[t]he American reaction approached panic."(2)

      Congress and three successive administrations responded over the following five years with an extensive set of laws and regulations based on the expectation that the solution lay in strong intervention by the federal government. President Richard Nixon created the Federal Energy Office(3) and appointed an "energy czar"(4) with the power to allocate oil supplies.(5) Nixon also requested the preparation of a plan, known as "Project Independence," to make the United States independent of imported oil by 1985.(6)

      The entitlements program was perhaps the largest and, according to some experts, "the most misguided intervention" during this period.(7) Under this program, higher cost imported oil was effectively subsidized by price-controlled domestic on, resulting in an average price below the world-market level. The perverse result was to subsidize imports, discourage domestic production, and encourage foreign production - exactly the opposite of the desired outcome.

      Nixon's belief in the ability of government to mandate new technology was also evident in his environmental policy. In a 1970 message to Congress, Nixon announced a five-year collaboration with industry to produce an unconventionally powered, virtually pollution-free automobile within five years.(8)

      The idea of independence from imported oil proved unrealistic and was quickly dropped by President Gerald Ford. However, several major energy laws were passed under his Administration, including the creation of the Strategic Petroleum Reserve (SPR)(9) and minimum efficiency regulations for automobiles(10) and appliances.(11) At the behest of Secretary of State Henry Kissinger, Ford also initiated several efforts aimed at fostering international cooperation among consumers, including the creation of the International Energy Agency (IEA) to promote oil production and alternative energy sources.(12) The enormous political resistance to taxing energy also surfaced during this period when John Sawhill, head of the Federal Energy Administration, was forced to resign following backlash to his support for a five-cent-per-gallon gasoline tax.

      President Jimmy Carter included a strong national energy program among his priorities, and at his urging Congress passed five laws that together made up the National Energy Act of 1978.(13) The emphasis on national planning and a strong central authority continued; the Department of Energy (DOE) was formally created as a cabinet agency in 1977,(14) and Carter established a goal of twenty percent solar energy by the year 2000.(15) Other measures sought to pressure utilities and industry to switch from oil and gas to more plentiful and domestically available Coal.(16) The National Energy Conservation Policy Act(17) accelerated and extended the application of efficiency standards.

      Several laws adopted in 1978 reflected the emerging influence of market ideology. The Public Utility Regulatory Policies Act (PURPA)(18) partially deregulated the business of generating electricity by allowing anyone the right to generate electricity for sale to the local utility at legally protected rates. The "Gas Guzzler Tax"(19) imposed economic penalties as a disincentive to the purchase of inefficient cars;(20) it conveniently applied disproportionately to foreign imports.(21)

      Carter also initially proposed to speed deregulation of natural gas in reaction to shortages that surfaced in the winter of 1976-1977, but he was only partially successful.(22) The Natural Gas Policy Act(23) created twenty different gas categories, reflecting alleged differences in production costs such as location, well distances and depths, volumes produced, and so forth. In order to create incentives for production, categories thought to be high cost were to be deregulated first.(24)

      Energy issues again covered the front page when the Ayatollah Khomeini took control of the government in 1979, resulting in another sudden reduction in oil imports and an attendant doubling of oil prices.(25) President Carter's response primarily sought to enlarge the role of government although he also called for decontrolling the price of oil to allow the operation of market forces.(26) However, he also proposed regulations for temperature settings in buildings,(27) a "windfall profits" tax on the oil industry,(28) a quasi-public Synthetic Fuels Corporation with billions of dollars to invest in technology to produce oil substitutes,(29) and an "Energy Mobilization Board" to cut through red tape that might stand in the way of energy projects.(30) All but the last were enacted in some form.

      In summary, this period of U.S. energy policy was marked by a willingness to set ambitious national goals, a belief in the ability of the national government to achieve them through centralized agencies, and the commitment of large resources to underwrite the development of new technology. This approach was unfavorably compared with the political and social response to the Soviet launching of Sputnik in 1957, which similarly resulted in a massive federal program under the National Aeronautics and Space Administration (NASA), culminating in the successful landing of a human on the moon twelve year later.(31) The technical challenge for energy policy was arguably no greater than any faced by NASA, but the politics were certainly much more challenging due to the regional and class disparities associated with almost any policy choice. Unlike Japan and most European countries, which were able to absorb market disruptions with less long-term impact,(32) the interests of the United States as a whole were complicated by individual states with greater interests in the benefits of production and increased consumption.(33)

    2. 1981 to 1992

      The election of President Ronald Reagan marked a dramatic change in approach to energy policy. Reagan cared for the abolition of DOE and saw little need for an energy policy beyond the SPR and a strong military presence in the Middle East.(34) Ms budget director, David Stockman, expressed the Reagan philosophy as "strategic reserves and strategic forces."(35) However, the House of Representatives, which retained a Democratic majority, refused to go along with most of Reagan's proposals other than the accelerated decontrol of of oil and gas.(36) The Synthetic Fuels Corporation also came to a rather ignominious end, and tax incentives for renewable energy and energy conservation were allowed to expire.(37) The conflict between energy and environmental goals also became increasingly controversial. Reagan supported increased oil production in coastal areas, including large tracts in Alaska, but he was largely defeated by environmentalists.(38)

      President Reagan was more successful in promoting the deregulation of natural gas through administrative means.(39) The Federal Energy Regulatory Commission (FERC) used its authority to regulate "in the public interest" to accelerate the transition to an open market for gas.(40) After several years of litigation and the political margin afforded by falling prices, FERC's efforts were largely endorsed by the Wellhead Decontrol Act of 1989.(41) The end result was a system in which gas pipelines became regulated monopolies required to provide service as "common carriers." Despite this legislative effort, gas prices were largely the result of market factors.(42)

      President George Bush had previously made his fortune in the off industry and he continued to emphasize "market reliance."(43) However, unlike Reagan, he was forced to experience the costs of relying on strategic forces in the war against Iraq in early 1991. His approach was less ideological, as reflected in the National Energy Strategy(44) issued during his tenure:

      No single policy tool can substantially increase America's energy security. The basic vulnerability involves oil, but reducing this vulnerability requires a broad array of actions: maintaining adequate strategic reserves; increasing the efficiency of our entire fleet of cars, trucks, trains, planes, and buses; increasing U.S. petroleum production in an environmentally sensitive manner, further deregulation of the natural gas industry; and using alternative transportation fuels.(45)

      In response to the war, Congress again considered an aggressive energy program and this time responded with the Comprehensive National Energy Policy Act of 1992.(46) However, this is in many ways most interesting for what was not included. Despite strong pressure to limit oil imports, the two measures most directly responsive to this need - increased Alaskan oil exploration and more stringent auto efficiency standards - were both defeated.(47) The legislation reflected the political tensions and interest group pressures that increasingly limited the federal role in energy policy. The Act's most significant provisions addressed constraints on the evolving role for competition in the generation and sale of electricity, which had gradually taken off in response to PURPA. The legislation also included measures to promote the use of alternative fuels by vehicle fleets and a significant production tax credit (1.5 cents per kilowatt hour) for wind and specified biomass systems.(48)

  2. Energy Policy Under the Clinton Administration

    Energy policy has not been a high priority under the Clinton Administration in his first two...

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