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think quite the contrary, it is good for the United States in the long

run.

But when will we begin to look at decisions like wilderness designation on the public lands of the West, on decisions like ANWR, like decisions about restrictive management and utilization of these resources in this country in terms of their impact upon energy supply, dependence, and economic vulnerability?

Because we are debating here not about military security; nobody is threatening to invade the United States as far as I know. But our economy has been invaded in the marketplace, and we are at the margin of being hurt badly. And I think maybe that is what the debate is about in using SPRO-what is that margin, when should we respond?

Should we try to have any kind of a mechanism that triggers our use of SPRO for economic response? And if so, at what level? And if any of you wish to submit any comments with respect to how we might structure that policy, I would invite you to do so.

A second suggestion that was made, and, Mr. Martin, you made with respect to international supplies of reserves, I think we must increase our pressure on our allies and trading friends in the world to build reserves.

I am afraid the IEA has allowed ourselves to be misled a little bit in the recent past, as stocks in many of these countries increased. They did not increase because they wanted to increase reserves. They increased their reserves because the price was low. Now they are taking credit for that great foresight in terms of security arrangements, and really what they were doing was prudent market economics.

Yes, we need to have an energy policy that will focus on those matters. Is a floor price a good idea? I think it is. I have long thought that it is, so that we can induce people to make investments, knowing that the investment value will not be destroyed by Middle Eastern oil producers, and they have the capacity to do that. They have done that twice in the last 5 years.

You know, we can talk in a vacuum about them making investments, but if it was my money, I would be looking at what they could do, and I suspect each one of you would, too. I know that the oil shale development, one of the few successes of the Synfuels Corporation, is marginal at $50 a barrel. Probably losing money at $50 a barrel.

How do we get people to make investments, in technologies or in production or in production capacity, if they do not have any idea what the energy market is going to be? It is totally, totally subject to the whims of oil producers that act for whatever reason.

Mr. Schuler, I am not certain I agree. I am not certain I disagree that Kuwait was trying to hurt Iraq by driving prices down. They may have been; terribly foolish policy, as I think they may have found out already, if indeed that was true.

Mr. SCHULER. High risk in the extreme.

Senator MCCLURE. Well, yeah, if you are a little guy, you do not really jab pins into the big guy right next to you who may be asleep. And if that was their policy, they are, maybe they are getting their just desserts.

But we are affected by it, the efficiency gains. I do not think we can get them as easily as we got the last ones. I do not think that the United States Government policy really affected the efficiency gains nearly as much as the market did. When it makes economic sense to invest in efficiency gains, the market seems to do that pretty well. And we got a lot of efficiency gains, as has been pointed out, but we will not get another large run of 25 or 30 percent efficiency gains at reasonable prices in oil-reasonable, from our sense. We want it cheap, do we not? We do not want to pay any price. And if we do not have higher prices of oil that again run up higher than they were before, we are not going to see the same kind of efficiency gains that we saw over the last 10 years.

And Government cannot force-feed that; Government can induce some marginal gains. How much are we willing to pay? Well, I hope one of the things we would be willing to do is to look at either the suggestions Senator Domenici made about incentives that are triggered in and out according to price of oil, or that we get a floor price for oil, so that we get some stability in the energy markets that will induce some investment.

It is a tragedy stripper wells closed down. And we are not going to get them opened again at $20-a-barrel oil. We know that. The 1986 tax act that the Congress of the United States in its infinite wisdom passed exacerbates our energy problem today in a variety of different ways. The administration did not do that. Congress did that. And Congress will make some other mistakes.

But somewhere, somehow, we have to get through to the American public that guys like Jim McClure saying a few years ago you are going to see American boys shed blood on desert sands in the Middle East because of lack of energy policy, was not just whistling in the dark.

That will happen again. It may not happen for another 10 years, I do not know. But it will happen again unless, unless we get better energy policy than we have had, and unless the American public is willing to pay the price for its policy options. You do not buy environmental gains on the cheap. You have got to pay for them. You do not get energy gains without investment, without expense. You have to pay for them.

And I am not talking about putting it in the budget of the United States. I agree with my friends who say we have budgetary problems, do not look at the budget of the United States to find the answers. But there are a lot of policy things that we can do that induce those changes in the marketplace so that the changes take place.

That is the challenge this committee has, and I know each of you gentlemen in your own way has contributed to the public dialogue in a very affirmative way on the energy question, but I hope you will begin to broaden that dialogue by saying it interacts with other policies.

We need ANWR; the threat to our environment is minimal. We need Yucca Mountain built. The threat to our environment is almost zero. We need new nuclear power plants in this countrythe least polluting source of energy that we have today. We need electric transportation in the Los Angeles basin. That is a lot more economically efficient than it is to try to force a Clean Air Act

across the entire 50 States that has no relevance, except in the major metropolitan areas of our country.

And we need to have people like yourselves, who know the energy industry well and the energy policy questions very well, to say, to point out where they intersect with and interact with other policy questions, so that the American public begins to say to the Congress, get your act together and do what is right.

Congress gets away with murder. I am retiring, I can say that. But if the American public really knew how bad this place is, they would throw the whole bunch of us out. That is partly your fault, partly our fault, partly the public's fault, because we all try to hide the cost of policy choices.

Put an energy tax onto the budget, but exempt home heating oil because of the political effects in New England. Great national policy.

Thank you, Mr. Chairman.

Senator BINGAMAN. Gentlemen, thank you very much. We will keep the hearing record open for 30 days to permit witnesses to respond to any questions. Thank you all for being here. I think the hearing has been useful.

[Whereupon, at 12:20 p.m., the hearing was adjourned.]

APPENDIXES

APPENDIX I

Responses to Additional Questions

Hon. J. BENNETT JOHNSTON,

CAMBRIDGE ENERGY RESEARCH ASSOCIATES,
Cambridge, MA, November 15, 1990.

Chairman, Committee on Energy and Natural Resources, Washington, DC.

DEAR SENATOR JOHNSTON: It is with pleasure that I reply to the questions from Senators Wirth and Bingaman related to the hearing of October 2, 1990.

With kind regards.

Yours sincerely,

[Enclosure.]

DANIEL YERGIN, President.

ANSWERS TO QUESTIONS

QUESTIONS FROM SENATOR WIRTH

1. The current Mideast crisis is, at least so far, having less impact on energy use and on the economic performance of Japan and Western Europe because, for the most part, their economies are currently stronger than ours. They are less vulnerable to the price increases because much larger proportions of their retail gasoline prices are tax-meaning that the proportional increase in the overall price is less. 6. The much higher energy taxes in Japan and Western Europe are not completely the same in their impact as oil import fees. Products are not evenly taxed, and the taxes do not lead to higher prices for domestic producers.

7. It's too soon to compare the economic effects of the oil price bust to the current increase-save to say that the decline of the mid-1980s gave a boost to overall economic growth and dampened inflation, while hitting hard the economy of the Southwest. The current increase works in the opposite direction-promoting recession and fueling inflation.

12. In general, we should pursue a broad agenda of energy research.

14. U.S. companies are actively seeking to participate in a liberalized or even privatized Soviet oil industry. One of the biggest obstacles is the political disorganization of the Soviet Union. The companies are struggling with the question "Who's in charge there?"

QUESTIONS FROM SENATOR BINGAMAN

1. It is not at all clear right now what a transition from oil would look like— especially in the transportation system. We have a massive investment in an oilbased civilization. It can be changed at the fringes. But a wholesale conversion would require a great deal of technological progress—and a lot of money.

2. The Japanese proved more adept at pursuing conservation, even though they had less fat to cut. The Japanese responded with a sense of national cohesion and common interest. In the United States, our interests are divided by region and between producers and consumers, and suspicion and hostility appear to be endemic. The value of coordination though the mechanism of the IEA is once again being demonstrated.

3. Yes, since there is only one oil market, we will be susceptible to price swings even if we reorient our imports.

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