Revision of Energy Policy and Conservation Act of 1975 needed

Below are highlights from a statement given by Charles K. Ebinger of The Brookings Institute. The statement was delivered before the US House of Representatives Energy and Commerce Committee as part of a Subcommittee on Energy and Power Hearing on ‘The Energy Policy and Conservation Act of 1975: Are We Positioning American for Success in an Era of Energy Abundance?’

“Give the profound changes that have occurred in unconventional oil and gas production over the last six years, it is critical to look back and remind ourselves how the energy situation in the US has evolved since 1975. During the 20 years prior to the 1973 – 1974 OPEC oil embargo, the chief issues dominating US energy policy were the future of nuclear power, price controls on domestic natural gas and oil enacted as part of President Nixon’s response to surging inflation, and limitations on oil imports through both a Voluntary Oil Import Program (1957 -1959) and a Mandatory Oil Import Program (1959 – 1973). In reviewing this history, what stands out is that, just as is the case today, most energy issues were discussed in isolation from one another.

“On the geopolitical front, the early 1970s saw momentous change in the Middle East and North Africa as Kind Idris was overthrown by Colonel Gadaffi in 1970 and in response to a decline in real oil prices the major oil producing countries mounted a unified campaign against the petroleum companies to extract more of the economic rent from their oil production. Under the Tehran and Tripoli agreements between the international oil companies and OPEC, the host countries concerned about rising inflation and a general sense that they were not being treated fairly by the international oil companied demanded a major increase in the price paid for their oil. After Tehran and Tripoli, OPEC was able to introduce an escalation clause in its contracts that it believed would protect their members from inflation. However this proved not to be the case as prices continued to slide. However, with oil demand in the US and elsewhere surging, OPEC saw an opportunity to gain the upper hand. Hardly was the ink dry on one contract before OPEC made new demands for further upward price revisions.”

“Given the current glut of oil on the world market relative to demand, it is worth noting that global market conditions in the early 1970s could not have been more different than they are today. Demand for oil throughout the industrialised world was skyrocketing. In the US, domestic production had peaked in 1970, leading a Cabinet Task Force to recommend the gradual elimination of the quotas under MOIP, out of concern that they were costly to US consumers and did little to protect national security. IN retrospect, given the changed circumstances confronting the US it is remarkable that this recommendation did not receive more salience in the Congress despite the fact that US oil consumption was skyrocketing, domestic production was peaking, and oil imports were up by 1973 to nearly 30% of US oil consumption.”

“In reviewing the history of US energy policy since the early 1970s, it is apparent that whenever the US government has tried to favour a particular fuel absent market realities there have been unintended consequences which have been deleterious to the US economy and US energy security. Controls on gas prices led to the failure to develop the Alaska Natural Gas Transportation System, creating massive natural gas shortages with devastating economic impact on the industrial Midwest. The ban on using oil and gas in industrial boilers and power generation led to a major switch away from gas and oil towards coal. This rush towards coal has led to scores of ageing coal facilities that now have to be replaced as part of our national environmental policy and our international climate policy.”

Conclusion

“It is evident that the US energy situation today is far different from what it was when the EPCA was enacted. With crude oil production continuing to rise in the US, it would be detrimental to US energy and economic policy to keep the ban on crude oil exports. Keeping the ban and attempting to manipulate policy to control a globally traded commodity with hopes that the US oil boom will lead the US to energy independence is a fallacy, as the US is part of the global market and therefore must participate in it; otherwise, significant benefits will be forgone. Lifting the ban generates paramount foreign policy benefits, increases US GDP and welfare and reduces unemployment, all of which will be forgone if the ban remains in place.”

Edited from statement by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/12122014/energy-policy-revision-statement-brookings/