will reduce our dependence on foreign supply; and, cooperation with the oilproducing nations.

With respect to our cooperation with the consumers, we believe that current oil prices require that we combine energy and financial policies if we are to maintain economic stability. Oil consuming countries have made considerable progress in concerting their energy policies. Last fall agreement was reached among a number of consuming countries on the International Energy Program launched at the Washington Energy Conference of February 1974. A unprecedented emergency program to limit individual and collective vulnerability to supply interruptions by OPEC countries has been developed. Under this arrangement, participating countries have agreed to:

Build a common level of emergency self-sufficiency, which would allow them to live without imports for a certain period.

Develop demand restraint programs to cut oil consumption by a common rate without delay if necessary.

Allocate available oil to spread shortfalls evenly among participants.

Concrete plans are also now being laid to coordinate programs of energy conservation and longer term development of new sources of supply. As part of this effort, next week I will attend meetings of the International Energy Agency (IEA) in Paris in an effort to assimilate the views of the member nations and prepare for a conference with the producers. We are seeking to reach agreement on cooperative efforts to develop alternate sources of energy as well as to achieve energy conservation. The essence of our position with regard to other consuming nations can be succinctly described:

To help bring about lower oil prices, and to reduce the economic burden of oil imports, major consuming nations should work together to achieve significant reductions in their imports of OPEC oil.

They should also coordinate policies and pool their technical resources to increase energy production within their own nations.

IMF resources should be more fully mobilized for all its member nations. A major, $25 billion financial mechanism should be set up in association with the OECD to provide stand-by financial support in case any of the participating countries find themselves in economic trouble after having made reasonable efforts on their own part.

These ideas call for a forthright effort by the world's major industrial countries to resolve the international energy crisis. I have been encouraged by the recent developments and anticipate considerable progress this month.

At the same time that our policy for financial and energy cooperation among the consumers has been evolving, we have been undertaking an intensive program of economic cooperation with the oil producing countries in the Middle East. This has been done both through the establishment of bilateral commissions with such countries as Egypt, Saudi Arabia and Iran and through less formal, though intensive, dialogue with such countries as Kuwait, Abu Dhabi, and Qatar.

Having had the opportunity to work closely in all these efforts, I have learned that the problems confronted, and in turn the aspirations expressed, by these people vary considerably. Too many view the countries of the Arab world as all the same. This is just not the case. Each of the oil producing countries differs in ability to absorb oil revenues and in political goals with respect to oil. Such basic differences have and will continue to result in differing forms of cooperation with the United States and other consuming countries.

FINANCIAL ASPECT OF OIL SITUATION

I believe this is a comprehensive approach to our energy problems. At present, OPEC nations do not believe that a reduction in oil prices is in their interest, and they continue to have the ability to support present prices or even further increases if they so choose. Unless major consuming countries act together to establish market conditions which can alter this situation, there is little prospect that oil prices will come down.

Our analysis of the forces underlying the oil and energy markets, and of the costs and dangers thrust on the world economy by the increase in oil prices, has reinforced our basic belief that it is the price of oil rather than its financial repercussions that is the real source of trouble in the world economy.

There is growing concensus among economic forecasters that the financial accumulations of the oil producers will not reach some of the huge figures predicted last year. Some of these initial projections of accumulations ranged as

high as over a trillion dollars by 1985. These predictions, however, tended to underestimate substantially both the responsiveness of oil supply and demand to high oil prices over the long run and the capacity of the oil exporting countries to accelerate their imports of goods and services. Recent projections of OPEC financial accumulations through 1985 have been on the order of $200 to $300 billion, as measured in 1974 dollars. They also suggest that, by the late 1970s or early 1980s, the process of accumulation may have been substantially completed with the oil exporters collectively beginning to run a current account deficit. Indeed, one private projection suggested recently that this could occur by 1978. In the meantime, it is vital that the President's domestic energy program be enacted. Success in meeting our objective will enable us to seek cooperation with our allies and avoid confrontation with the producing nations.

All of our initiatives are really a response to the economics of oil. They should not be regarded as confrontational. We really have no choice but to seek to insure the viability of our economies and the stability of the international financial order. These essential interests are not in conflict with those of the oil exporting countries. We continue to support the very legitimate aspirations of the oil producing nations to accelerate their own economic development, establish their industrial and agricultural bases, and improve the living standards of their pepoles. We do believe, however, they can achieve these development objectives on a much more secure basis at a substantially lower level of oil prices.

CONCLUSION

The energy and economic problems we now face are multi-dimensional. They require a balanced approach, and I believe the President's program offers such an approach-one which will allow us to maintain our traditional strength and leadership role in the world.

We in the Treasury Department look forward to working with the Congress in implementing a complete and meaningful national energy policy.

The CHAIRMAN. Secretary Morton, please proceed.

STATEMENTS OF HON. ROGERS C. B. MORTON, SECRETARY OF THE INTERIOR: ACCOMPANIED BY HON. JACK CARLSON, ASSISTANT SECRETARY OF THE INTERIOR FOR ENERGY AND MINERALS; HON. FRANK G. ZARB, ADMINISTRATOR, FEDERAL ENERGY ADMINISTRATION, ACCOMPANIED BY HON. ERIC ZAUSNER, ASSISTANT ADMINISTRATOR, FEDERAL ENERGY ADMINISTRATION; HON. CHARLES W. ROBINSON, UNDER SECRETARY FOR ECONOMIC AFFAIRS, DEPARTMENT OF STATE; AND HON. GERALD L. PARSKY, ASSISTANT SECRETARY OF THE TREASURY, TRADE, ENERGY, AND FINANCIAL RESOURCES POLICY COORDINATION; ACCOMPANIED BY PHILIP MANN, TAX LEGISLATIVE COUNSEL Secretary MORTON. I think we all do agree on certain goals and certain specific measures that we have to implement to achieve those goals as far as the development of a new energy ethic, which in itself is a new energy policy for the United States.

The background on why this has to be, I believe, has been covered and recovered many times, and I would prefer not to go into elaborate detail. I think the immediate past history is obvious to everybody.

But I believe that the area of agreement should be looked at. First, the question of our independence and the question of being able to exert a national leadership against the international problem. I believe, that this is a substantive area of agreement.

I think everybody agrees that we must both conserve and simultaneously develop new supply systems. We need supplies not only to add to our inventories of energy resources, but to offset the depletions that are inherent in our present production system of oil, gas particularly.

The goal, I think, for independence is realistic in that we should not have a dependency on foreign supplies of greater than somewhere between 3 million and 5 million barrels of oil per day in 1985, and we should supplement our current position with a strategic storage system of something in the order of 1 billion to 1,300 million barrels of oil that could be immediately put into our economy should we be cut off from foreign sources.

That generally is the outside dimension of the supply system. To get from here to there is a very very complicated process.

It will require a great deal of conversion to coal. The keystone is the increase in the production and utilization of coal, which is a systems oriented fuel. We will have to practically double the amount of Btu's that we are using today, from coal by 1985, in order to achieve these goals.

I would say that realistic and factual statistics would be very very hard to argue with.

On the conservation side, one of the numbers that is now becoming controversial is 1 million barrels a day. The President has asked that we back off 1 million barrels a day of foreign imported oil by the end of 1975, and 2 million barrels a day by the end of 1977.

There are those who say, "This is too fast. This is too tough on the economy. This is too abrupt."

I think that a great deal of thought and study should be given to these goals by the Congress, and I hope a great deal of understanding will be developed before a decision is made that decreases these goals.

I think we've got to put it up, as Senator Randolph just expressed, to the American people, and we've got to put it up to them in no uncertain terms.

Now, there are certain aspects of the President's program that will Le explained in greater detail by Mr. Zarb, Director of the Federal Energy Administration. But I want to talk about three parts of that program that have not, I think, achieved a full level of understanding either in the media, or in the public mind, or among Members of Congress.

The first one is the rebate. The rebate of those taxes and tariffs that are put on oil. The $2 a barrel across the board, and the 372 cents which would be applied as an excise tax to natural gas, will actually collect for distribution about $30 billion.

Now, prerequisite to this program; to make it work, this $30 billion has got to go back into the economy almost simultaneously with its collection.

It is the thing that gives the American citizens the chance to win. If he saves some energy, and if he saves an amount of energy that is more than equal to the return that he will get, as a result of this rebate, he comes out a winner. The economy comes out a winner, and everybody comes out a winner.

This rebate, I think, has not been fully understood, and should be very carefully examined, and I think it is worth looking at some of the details for just a second.

Actually the figure of $30 billion is not in dispute. This kind of a tax would result in that kind of revenue.

Now, how you put that back into the economy is a controversial matter, but the program now, as it is planned, and as it is laid before.

the Congress in this bill that came up yesterday, anticipates that $1112 billion of this $30 billion goes back to individuals in the form of tax reduction.

Senator CHURCH. Would you repeat that for me, please?

Secretary MORTON. $11 billion.

Senator CHURCH. Thank you. Goes for what now?

Secretary MORTON. Goes for tax reduction for individuals, and $5billion also goes to individual taxpayers, and at $80 apiece, which amounts to $2 billion to those people at the lower income group that do not pay any taxes at all.

So, you get a total of $19 billion going back to individuals, and you get $6 billion that will be distributed to industry and commerce; the job producers, in the form of a lower income tax rate.

Two billion dollars goes to State and local governments on the general revenue-sharing formula to offset State and local government increase in energy.

In other words, if a State and local government can conserve energy they have an opportunity to come out on the plus side economically, and so does the individual.

Three billion dollars would be retained by the Federal Government in order to offset the Federal Government increase in energy, and if we can continue to be successful in the conservation program within government itself, this will be a net gain for the people and would just be that much more money that the government would not have to borrow in order to continue to operate.

I think the rebate part of this is so important and it has received so little emphasis as to what it provides in the way of an opportunity for local government; what it provides in an opportunity for conservation in the Federal Government; and above all what it provides for in the way of opportunity to win the battle of energy on the part of the individual.

I think it is worth emphasizing at the beginning of these hearings. The second thing that I would like to address is the question of the management of the flow-through of this cost as it goes through the energy economy.

As of today, under legislative authority that the Federal Energy Agency has, the allocation of additional cost to various products that come out of the end of a refinery can be managed by the Agency.

In other words, the bulk of this additional $2 can be directed. toward gasoline. For example, jet fuel could be free of any additional cost by simply putting this cost on in a managed way on those particular items that come out of the refineries in a way that has the least detrimental impact on the economy.

And I think this is exceedingly important to recognize as a factor in this whole energy program.

The controversy that has arisen over the amount of this actual cost to each individual family has created somewhat, I think, a lack of credibility on everybody's part as to what the actual figure is.

Sticking to the figure of $275 per family, and I think, a lot of this comes from the very point that Senator Hansen made earlier, of the time frames that are involved.

For example, if you deregulate new natural gas, and only new natural gas, the existing old natural gas contracts are going to be in

effect until they run out, and the immediate impact on the cost of gas is going to be a very gradual proposition other than the 372 percent excise tax.

The same thing goes for utilities that make their electricity from long-term contracted fuel. This is true of residual oil and coal, and primarily coal.

The actual change in the energy cost of these fossil fuels should have no effect on that part of the electricity that is made in the light, water nuclear generation.

So, I think we have been trying to mix together apples and oranges, and I want to warn the committee to be sure and look underneath and indepth into the base data that is used for any economic evaluations that have come forward, either pro or con, concerning the President's program.

I think this is exceedingly important.

I have a few figures that I would like to put into the record, which I won't repeat, but they are the amount of rebate that various people would receive based on their income, and I think that table, which I would like to supply for the record, is important.

Finally, I would just like to add one thing to what I have already said. Mr. Chairman and members of the committee, and that is that this program did not grow out of any kind of backroom type of meetings, or seminars, or consideration.

Every single department of the Government that was a member of the Energy Resources Council, and many of those that were not, was called on to respond not only to the blueprint study that was developed by the Federal Energy Administration, but were called on to respond in a total sense to the energy problem as it has been displayed.

In addition to this, a long series of meetings were held-many of them formal, many of them informal-to get from various parts of the private sector, from various interests in the economy, all the input that we could muster, to come to these conclusions.

Most of the aspects of the President's program are interrelated. I think it would be very difficult to take away one part of it, cut off one of its arms, and expect it to function properly.

Particularly, I think, a prerequisite is the rebate characteristic of the program which put the money back into the economy as fast as it takes it out, and it that way does not tend to exacerbate the inflationary aspects of the price change.

It also provides an opportunity for people to readjust their life style and patterns to a new energy ethic, with which I agree wholeheartedly with Senator Randolph. This new energy ethic must be developed.

It allows them to do this based on their own decisionmaking process, and I do not believe that a ration board, or any kind of a ration ticket system can give the flexibility to the economy that the American people need to win this battle. And truly it is a battle to become energy independent by 1985.

But I hope that this committee in its efforts here to understand the President's program will go through it in detail. Call us back over and over again to explain various elements of it. Meet with us privately. We must do everything we can to develop an understanding of the program before we freeze in on what is controversial and what is not.