Statement of Donald B. Craven Federal Energy Administration Before the Senate Select Committee on Small Business May 14, 1975 INTRODUCTION Mr. Chairman and distinguished members of the Select Committee, I appreciate the opportunity to appear in behalf of the Federal Energy Administration to discuss the President's energy program and the place of solar energy in that program, with particular reference to small business. A key role for small business in solar energy appears likely based on 'both the present level of activity in solar by small business and on the anticipated characteristics of a dispersed solar heating and cooling industry. I would like to briefly place solar energy in the broader context of our National energy situation and reiterate the need for early and decisive action. THE PRESIDENT'S ENERGY PROGRAM I'm sure that we all agree that the present energy situation requires broad, decisive and prompt government action to and national security. The challenge we jointly face is to implement promptly a coordinated national energy policy which restores our energy independence. In considering various alternative proposals now before the Congress, we should keep in mind some very important principles. The first relates to the necessity for immediate action. Between now and the end of 1977, the President has indicated that we need to conserve approximately two million barrels of oil a day by that time. That was not an arbitrarily selected number. It was chosen because if we do nothing, we will be expanding our vulnerability by importing about two million barrels a day more by 1977 and a greater percentage of these imports will be coming from the Mideast. Therefore, the basic question before us is this: Do we allow our vulnerability to increase in the next few years, or do we take actions now to stop the tide of increasing imports? - Over the longer term that is by 1985 the President's objective is to become completely invulnerable to foreign economic threats. We all agree that we must not allow this Nation to remain in a position where it cannot protect its own national interests. Our objective is to reduce our petroleum imports to 3 to 5 million barrels a day in the next 10 years. While this may not seem much less than the current level of imports, it would be down substantially from the 12-13 million which we would have to import if we do not act. Should those imports be curtailed, the Strategic Reserve Program and the imposition of various standby conservation and allocation measures which we are requesting in Title XIII of the Administration's Bill would deal with the loss of imports. Another principle relates to fairness and equity. Any program which will reduce our dependence on foreign oil will also entail some sacrifices. There is no easy way to do what we have to do. If we ask the American people to make such sacrifices, we should be sure that our program will not unfairly discriminate against them by where they live, by their place in society, or by how they live. Thus, we should allow Americans to choose how they wish to conserve oil, whether it be by driving less, lowering the thermostat in winter, using less air-conditioning in summer, turning off lights, or If we are going to have a fair and equitable program--and one which will be workable over the long term--we must use the free market mechanism which will allow each individual citizen and business to make his choice of where and how to save energy. The President's program of raising the value of all types of petroleum products will result in a new energy ethic, which is essential if we are to limit our consumption in the years ahead. If we are to change our conception of energy use, we will not do it by allocation and rationing measures as some propose. To the extent these measures work, they only have a transient effect. And such programs would result in a large bureaucracy to make decisions which the free market makes every day. No matter how fair and "efficient" any allocation or rationing system is, it must make many such decisions and will do so to the detriment of some parts of the economy, as well as directly affecting how each and everyone of us lives. In addition to allocation and rationing, an additional method of reducing consumption often mentioned is the adoption of a quota system. Somehow, the notion has crept into the public debate that price increases can be avoided with a quota. That simply is not so. A quota that restricts imports will reduce the quantity of oil available. When the supply of an item is reduced, the price rises. Thus, if an average rise of $4 in the cost of a barrel of oil (as the President suggests) would result in a demand reduction of one million barrels of oil per day, the reverse would also be true. Reducing supply one million barrels of oil per day would result in an average increase per barrel of $4. The main difficulty with the quota approach is that we don't know for sure just how much prices will rise. One final point warrants renewed attention--the deregulation of new natural gas. A substantial part of the short term savings envisaged by the President's program (two million barrels of oil per day by the end of 1977) is attainable through new natural gas deregulation and the natural gas excise tax, which is equivalent to the proposed $2 per barrel excise tax and import fee. We estimate that continued regulation will result in a decrease of production of 38 percent between now and 1985. Deregulation would result in a 10% production increase (22.4 to 24.6 TCF). If we do nothing, the result |