Now in order to obtain this double objective of lower dependence and lower prices, we have to act with the other consuming countries. We have to act with them for several reasons. First of all, we are not the only factor in the world petroleum market. We consume possibly half of the total oil consumed in the industrial countries but we produce a lot also and we are not the major factor in the import market. Unless other countries join us in an effort to change the market balance, then it will be impossible to obtain the better balance of demand and supply that is required to get prices down.

Second though, and this is fundamental to our thinking, there must be a balance of advantage and burden among the consuming countries. A country like the United States can, if it is willing, invest the enormous sums required; the Project Independence blueprint estimates these sums up to a trillion dollars over the next 10 years. The United States can move toward substantially less dependence on imported oil but as it does that it will be bringing into production oil that costs more to produce than oil that is produced in the Persian Gulf.

Oil in the Persian Gulf costs perhaps 25 cents a barrel to produce. New oil being produced in the United States-the Outer Continental Shelf, Naval Petroleum Reserve No. 4-will be coming in at mid ranges of prices; $5, $6, $7, possibly even $8. Shale oil in this country will be coming in at $10 to $15.

So the United States will be bringing on more expensive oil on the one hand and as it does it will be backing out into the international market oil that it would otherwise have imported and that oil will cause the price to break. So the situation that will occur is one in which the major effort to break the price may be undertaken by the United States but very substantial benefits will accrue not only to the United States but also to other consuming countries which will then be able, since they will remain major importing countries, to purchase large sums of imported oil at lower prices. We must, therefore, find a way in which the burden of investment and effort and the distribution of advantages of low prices can be equitably shared among the consuming countries.

Now the third reason why it is important to have the solidarity of consuming countries and their cooperation, Mr. Chairman, is political. We have seen in the case of OPEC that a rather loose organization can revolutionize the terms of the world market. For a long time OPEC said that any attempt on the part of the consuming countries to organize would be itself confrontational and they did that because they knew the political force that common action could give, and that force can be defined in several ways.

In the first case we can use it defensively and as a deterrent. That was the purpose of the first international negotiation among the consuming countries which was to develop an emergency plan for what the consuming countries would do in a new oil embargo. The purpose of that plan was not in the end to share oil although it sometimes is referred to as an oil sharing plan. The purpose was to avoid cutthroat competition so that we would not in a new emergency try to bid away oil from each other thereby increasing the price as we did last time and imposing on ourselves the economic burden of high prices.

It also is a deterrent, this agreement, in that it says that an embargo on any one consuming country-the last time you will remember the United States and the Netherlands were singled out for selective embargoes would be an embargo on all the consuming countries.

Mr. FRASER. I am sorry, I didn't understand you. This will be a deterrent to selective embargoes or

Mr. ENDERS. To selective embargoes in this sense, Mr. Chairman. If a country such as the Netherlands is singled out for a selective embargo, that country would have to take the first 5 percentage points of loss of its oil supply as a self-risk but then above that its shortfall would be made good by the group.

Mr. FRASER. I understood that. We will get into the question later, but it occurred to me that that deterrent may lead to a general embargo. Mr. ENDERS. That is right. That, in effect, means that the producing countries would have to face up to a general measure of economic warfare against all the consuming countries, that is quite right, designed in that sense to have them face up to the whole weight of the consuming countries.

The second way in which we can use this consumer solidarity, Mr. Chairman, is in attempting to develop market power. Now market power can come from two kinds of actions. One is by conservation measures, thereby reducing the demand for imported oil in the short term, and the other is by coordinating measures to bring on alternative sources of supply.

The members of the agency have reached two general agreements and they are preliminary in character and they are agreements to agree more than they are hard and fast agreements in this area.

The first relates to conservation in which targets have been set for members of the agency of 2 million barrels a day savings in oil demand or consumption by the end of 1975 and a possible target of 4 million barrels a day by the end of 1977.

Now because the United States has half the consumption of the group and in the light of the President's program presented to Congress, the United States has been assigned one-half of that target or 1 million barrels a day by the end of this year. Other countries split up the amount themselves.

I must say, Mr. Chairman, that other countries are doing better than we are in meeting those goals. The European countries and Japan last year had savings in consumption of oil which range from 5 to 14 percent as opposed to our 3 percent. Most of the major countries have increased the taxation on petroleum or petroleum products and all of them have passed through the higher prices fully to their consumers although we have not done so in ways so as to provide a disincentive to high consumption.

The second general sort of agreement to agree, Mr. Chairman, was reached last week and it concerned the way in which we could cooperate with each other in the development of alternative sources of energy rcognizing that in the end it is only these alternative sources of energy that will give us the market power necessary to prevent OPEC from rigging prices in the future.

That agreement is a threefold structure. It envisages first intensive cooperation in research and development. We have a major

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energy research and development budget in this country. Congress has appropriated for this year or has authorized rather for this year upwards of $2 billion. We have much manpower and many important programs underway. Other countries, although so far their budgets collectively are not on the order of the U.S. budget, have important resources in skilled manpower and have some major projects underway to which we would like access. So the first undertaking is a general agreement on the way in which we can participate in each other's program, and it specifies that the participation will be on a business-like basis; that is to say, there must be a balance of advantage.

Second, there was agreement that we should have a general framework of cooperation on individual projects. We have in mind there specifically the projects that are entering now the development phase such as synthetic fuels; that is to say, shale oil and coal gasification, coal liquefaction, i.e. projects that involve unit costs that are still quite high-in the range of $10 to $15 per barrel of oil equiva lent—but which may come down with the development of new technology and where the capital requirements are gigantic. A number of countries in the IEA area-Canada, the United States, Britain, Germany-have an interest in this field, and we expect that there will be some large-scale cooperative ventures. That is our objective. Mr. FRASER. That is in which research area?

Mr. ENDERS. That in effect is in sort of the D part of R. & D. in a sense. These are developmental-type projects.

Mr. FRASER. When you referred to the United States, Canada, Britain, and Germany you were talking about the process and not any one technology?

Mr. ENDERS. No, but I think the major point of emphasis will be in the synthetic fuels area.

The third basic element in this agreement to agree, Mr. Chairman, concerns the range of conventional-that is to say, well establishedenergy opportunities. Ordinarily oil and gas and conventional nuclear plants would fall under this heading. The concept here that was tentatively adopted was that no country among the consumers would permit oil imported from the OPEC countries to compete with the development of domestic energy sources in a destructive manner. Each country would undertake on the one hand to give a measure of protection to the main run of its nuclear and its oil and gas development so as to prevent cheap foreign oil, if that were ever adopted, from destroying those opportunities and at the same time each country-and this applies primarily to the Europeans and Japanese who have relatively few energy opportunities-would undertake not to let oil be sold in their economies below the agreed protected level. Thus in this manner the United States and other countries with energy opportunities could go ahead and develop them, if this agreement were to be finally implemented, without fearing that other countries would have a substantial advantage in their energy costs if the world price were ultimately to fall.

Now, Mr. Chairman, you stated at the start in introducing these hearings that the President's energy package requested authority to carry out the terms of agreement of the International Energy Agency. When we first met in the Washington Energy Conference last year,

February 11, with the main other consuming countries, the question of the legal basis on which we could cooperate came up immediately and the first action of the group in negotiating an emergency oil plan raised this problem in a direct forum.

The options were twofold. One, what is in our practice an executive agreement and in the case of other countries an international accord variously named. The other, what is in our practice a treaty. We considered in the group whether the emergency program should not be adopted by treaty and we came to the following conclusion. Some countries such as possibly Britain and Holland could adopt a treaty quite expeditiously and were prepared to do so. A number of other countries, however I need not name them for this purpose-informed us that a treaty would require perhaps 4 years in their parliamentary practice and, therefore, that reliance on this instrument would forbid us from forceful action for a substantial period of time.

We adopted, therefore, as a group the concept of an international executive agreement recognizing and informing each other that the agreement was only good insofar as the executive of each country disposed or would be provided by its parliament or congress with the sufficient implementing authority.

Now the first agreement that was negotiated and signed was an agreement that does two things basically. It sets out the emergency program and it creates the International Energy Agency with the U.S. participation. The administration has substantial, but we believe not full, implementing authority for the emergency programs; hence, title XIII of the omnibus energy bill which has been considered before Congress and responding to which a bill has been developed in the Senate as S. 622.

The administration did not ask for authority to carry out the general terms reflected in the International Energy Agency as a whole thinking that its authority to participate in international organizations was not at stake but rather that any material or any policy commitments would, of course, have to be subject to implementing legislation wherever that authority is not now present in an existing law. So the request, Mr. Chairman, that has been made so far is a request for authority to implement the emergency undertaking. The authority to implement the target for conservation is requested in the energy package as a whole. The authority eventually to implement an undertaking for cooperation on alternative sources is either contained in existing legislation authorizing the creation of ERDA and the ERDA budget or is requested in title IX of the Energy Independence Act submitted to Congress.

I beg your pardon for going on so long. Please forgive me, sir. Mr. FRASER. Thank you very much, Mr. Enders. That was a very interesting and helpful statement, especially the way in which you put this all into perspective.

[Mr. Enders' prepared statement follows:]

PREPARED STATEMENT OF HON. THOMAS O. ENDERS, ASSISTANT SECRETARY OF STATE FOR ECONOMIC AND BUSINESS AFFAIRS, DEPARTMENT OF STATE

Mr. Chairman, you have asked me to discuss the latest developments in our efforts to develop a comprehensive framework of consumer country cooperation in energy.

In testimony before this committee last December, we described the international energy program and the creation of the International Energy Agency.

The IEA then consisted of 16 countries; New Zealand has since become a member and Norway an associate member.

As we emphasized during those earlier hearings, the international energy program represented a commitment by the participating countries to deal with the problems of economic and political vulnerability which have resulted from our excessive dependence on imported oil. The arrangement established under the IEP was designed to bring a prompt reduction in our vulnerability. Through a series of integrated commitments on emergency stockpiles, emergency demand restraint, and the sharing of available oil, it provides :

A deterrent against future supply interruptions;

A substantial improvement in our ability to withstand the economic impact of an embargo, should one occur; and

Assurance that all member countries will come to the assistance of any partner which might be the target of a selective embargo.

However, the emergency program is basically a short-term insurance policy. It does not in itself deal with the problem of excessive dependence on imported oil. Therefore, the international energy program also provided for the establishment of a long-term cooperative program of energy conservation and the development of new energy sources.

During the past four months, we have proceeded to develop within the IEA the basic elements of this long-term program of cooperation. We have also agreed with the other members of the OECD to establish a $25 billion financial safety net to assure that the accumulation of petrodollars does not become an element of financial instability in western economies. This fund is not an aid mechanism; rather it will serve as a lender of last resort.

Energy conservation.—The governing board of the IEA agreed in February on the objective of reducing oil imports for the Group as a whole by 2 MBD by the end of 1975 below the level we would otherwise have reached. We also agreed to fix similar conservation objectives for the years beyond 1975. The U.S. share of this objective would be 1 MMBD-on amount proportionate with our share of total IEA oil consumption. This is of course contingent upon the others doing their part. The U.S. contribution will of course be dependent on Congressional action on the President's energy program.

In addition, we have established in the IEA a formal procedure for review of our individual national conservation programs and an assessment of their effectiveness. Through this cooperative approach, we can reinforce each other's national conservation programs. In addition, we will obtain assurance that the conservation efforts of one country are not offset by the laxness of other consuming countries.

Alternative energy development.-On March 20, 1975, the IEA governing board confirmed a preliminary understanding on the major elements and basic principles of a coordinated system of cooperation in the accelerated development of new sources of energy. This is an essential part of our overall cooperative effort. Energy conservation can play a critical role in limiting our dependence on imported oil, especially over the next few years. But over the longer term, we must develop new sources of energy if we are both to achieve our reduced import dependence objectives and also to sustain a satisfactory rate of economic growth. In addition, the development of new sources of energy is essential to the creation of supply and demand conditions which will eventually force a reduction in the world oil price.

Higher oil prices will by themselves bring about important investments in new energy supplies, but the magnitude of the problem is so great that we cannot rely on market forces alone. Governments must act to reinforce and stimulate these market forces if we are to reduce our import dependence and our vulnerability to embargoes and arbitrary price increases.

The preliminary agreement reached in the IEA on a coordinated system of cooperation in the accelerated development of new energy is explicit recognition of this need for governmental action. The coordinated system would consist of three interlinked elements:

An agreement to encourage and safeguard investment in the bulk of conventional energy sources through the establishment of a common minimum price below which we would not allow imported oil to be sold within our economies ;

A framework of cooperation to provide specific incentives to investment in a higher-cost energy on a project-by-project basis; and

Cooperation in energy research and development, including the pooling of national programs in selected projects.