Energy Policy

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Energy policy

Energy policies are the actions governments take to affect the demand for energy as well as the supply of it. These actions include the ways in which governments cope with energy supply disruptions and their efforts to influence energy consumption and economic growth.

The energy policies of the United States government have often worked at cross purposes, both stimulating and suppressing demand. Taxes are perhaps the most important kind of energy policy, and energy taxes are much lower in the U. S. than in other countries. This is partially responsible for the fact that energy consumption per capita is higher than elsewhere, and there is less incentive to invest in conservation or alternative technologies. Following the 1973 Arab oil embargo , the federal government instituted price controls which kept energy prices lower than they would otherwise have been, thereby stimulating consumption. Yet the government also instituted policies at the same time, such as fuel-economy standards for automobiles, which were designed to increase conservation and lower energy use. Thus, policies in the period after the embargo were contradictory: what one set of policies encouraged, the other discouraged.

The United States government has a long history of different types of interference in energy markets. The Natural Gas Act of 1938 gave the Federal Power Commission the right to control prices and limit new pipelines from entering the market. In 1954 The Supreme Court extended price controls to field production. Before 1970, the Texas Railroad Commission effectively controlled oil output (in the United States) through prorationing regulations that provided multiple owners with the rights to underground pools. The federal government provided tax breaks in the form of intangible drilling expenses and gave the oil companies a depletion allowance. A program was also in place from 1959 to 1973 which limited oil imports and protected domestic producers from cheap foreign oil. The ostensible purpose of this policy was maintaining national security, but it contributed to the depletion of national reserves.

After the oil embargo, Congress passed the Emergency Petroleum Allocation Act giving the federal government the right to allocate fuel in a time of shortage. In 1974 President Gerald Ford announced Project Independence which was designed to eliminate dependence on foreign imports. Congress passed the Federal Non-Nuclear Research and Development Act in 1974 to focus government efforts on non-nuclear research. Finally, in 1977 Congress approved the cabinet-level creation of the U. S. Department of Energy (DOE) which had a series of direct and indirect policy approaches at its disposal, designed to encourage and coerce both the energy industry as well as the commercial and residential sectors of the country to make changes. After Ronald Reagan became president, many DOE programs were abolished, though DOE continued to exist, and the net impact has probably been to increase economic uncertainty.

Energy policy issues have always been very political in nature. Different segments of the energy industry have often been differently affected by policy changes, and various groups have long proposed divergent solutions. The energy crisis, however, intensified these conflicts. Advocates of strong government action called for policies which would alter consumption habits, reducing dependence on foreign oil and the nation's vulnerability to an oil embargo. They have been opposed by proponents of free markets, some of whom considered the government itself responsible for the crisis. Few issues were subject to such intensive scrutiny and fundamental conflicts over values as energy policies were during this period. Interest groups representing causes from energy conservation to nuclear power mobilized. Business interests also expanded their lobbying efforts.

An influential advocate of the period was Amory Lovins, who helped create the renewable energy movement. His book, Soft Energy Paths: Toward A Durable Peace (1977), argued that energy problems existed because large corporations and government bureaucracies had imposed expensive centralized technologies like nuclear power on society. Lovins argued that the solution was in small scale, dispersed, technologies. He believed that the "hard path" imposed by corporations and the government led to an authoritarian, militaristic society while the "soft path" of small-scale dispersed technologies would result in a diverse, peaceful, self-reliant society.

Because coal was so abundant, many in the 1970s considered it a solution to American dependence on foreign oil, but this expectation has proved to be mistaken. During the 1960s, the industry had been controlled by an alliance between management and the union, but this alliance disintegrated by the time of the energy crisis, and wildcat strikes hurt productivity. Productivity also declined because of the need to address safety problems following passage of the 1969 Coal Mine Health and Safety Act. Environmental issues also hurt the industry following passage of the National Environmental Policy Act of 1969, the Clean Air Act of 1970, the Clean Water Act of 1972, and the 1977 Surface Mining Control and Reclamation Act . Worker productivity in the mines dropped sharply from 19 tons per worker day to 14 tons, and this decreased the advantage coal had over other fuels. The 1974 Energy Supply and Environmental Coordination Act and the 1978 Fuel Use Act, which required utilities to switch to coal, had little effect on how coal was used because so few new plants were being built.

Other energy-consuming nations responded to the energy crises of 1973–74 and 1979–80 with policies that were different from the United States. Japan and France, although via different routes, made substantial progress in decreasing their dependence on Mideast oil. Great Britain was the only major industrialized nation to become completely self-sufficient in energy production, but this fact did not greatly aid its ailing economy. When energy prices declined and then stabilized in the 1980s, many consuming nations eliminated the conservation incentives they had put in place.

Japan is the most heavily petroleum-dependent industrialized nation. To pay for a high level of energy and raw material imports, Japan must export the goods which it produces. When energy prices increased after 1973, it was forced to expand exports. The rate of economic growth in Japan began to decline. Annual growth in GNP averaged nearly 10% from 1963–1973, and from 1973–1983 it was just under 4%, although the association between economic growth and energy consumption has weakened.

The Energy Rationalization Law of 1979 was the basis for Japan's energy conservation efforts, providing for the financing of conservation projects and a system of tax incentives. It has been estimated that over 5% of total Japanese national investment in 1980 was for energy-saving equipment. In the cement, steel, and chemical industries over 60% of total investment was for energy conservation, Japanese society shifted from petroleum to a reliance on other forms of energy including nuclear power and liquefied natural gas.

In France, energy resources at the time of the oil embargo were extremely limited. It possessed some natural gas, coal, and hydropower, but together these sources constituted only 0.7% of the world's total energy production. By 1973, French dependence on foreign energy had grown to 76.2%: oil made up 67% of the total energy used in France, up from 25% in 1960.

France had long been aware of its dependence on foreign energy and had taken steps to overcome it. Political instability in the Mideast and North Africa had led the government to take a leading role in the development of civilian nuclear power after World War II. In 1945 Charles de Gaulle set up the French Atomic Energy Commission to develop military and peaceful uses for nuclear power. The nuclear program proceeded at a very slow pace until the 1973 embargo, after which there was rapid growth in France's reliance on nuclear power. By 1990, more than 50 reactors had been constructed and over 70% of France's energy came from nuclear power. France now exports electricity to nearly all its neighbors, and its rates are about the lowest in Europe. Starting in 1976 the French government also subsidized 3,100 conservation projects at a cost of more than 8.4 billion francs, and these subsidies were particularly effective in encouraging energy conservation.

Concerned about oil supplies during World War I, the British government had taken a majority interest in British Petroleum and tried to play a leading role in the search for new oil. After the World War II, the government nationalized the coal, gas, and electricity industries, creating, for ideological reasons as well as for postwar reconstruction, the National Coal Board, British Gas Corporation, and Central Electricity Generating Board. After the discovery of oil reserves in the 1970s in the North Sea, the government established the British National Oil Company. This government corporation produced about 7% of North Sea oil and ultimately handled about 60% of the oil produced there.

All the energy sectors in the United Kingdom were thus either partially or completely nationalized. Government relations with the nationalized industries often were difficult, because the two sides had different interests. The government intervened to pursue macroeconomic objectives such as price restraint, and it attempted to stimulate investment at times of unemployment. The electric and gas industries had substantial operating profits and they could finance their capital requirements from their revenues, but profits in the coal industry were poor, the work force was unionized, and opposition to the closure of uneconomic mines was great. Decision-making was highly politicized in this nationalized industry, and the government had difficulty addressing the problems there. It was estimated that 90% of mining losses came from 30 of the 190 pits in Great Britain, but only since 1984–85 has there been rapid mine closure and enhanced productivity. New power-plant construction was also poorly managed, and comparable coal-fired power stations cost twice as much in Great Britain as in France or Italy.

The Conservative Party proposed that the nationalized energy industries be privatized. However, with the exception of coal, these energy industries had natural monopoly characteristics: economies of scale and the need to prevent duplicate investment in fixed infrastructure. The Conservative Party called for regulation after privatization to deal with the natural monopoly characteristics of these industries, and it took many steps toward privatization. In only one area, however, did it carry its program to completion, abolishing the British National Oil Company and transferring its assets to private companies.

[Alfred A. Marcus ]