Mr. ZARB. The coal portion of our program is not a price incentive, so that we need to do other things to bring on additional supplies of coal which are fully drawn out in the President's program, including our ability to burn it, which we don't have at the current time.

Senator ABOUREZK. Will the increase in the price of oil bring on the use of more coal?

Mr. ZARB. The additional price of oil will incentivize the coal industry, and those who use coal, to use it if they can. So, the answer to that question is "Yes."

Senator ABOUREZK. Will the increase in price of oil allow for more production, encourage more production of oil?

Mr. ZARB. There is a level of oil at which you do incentivize additional maximum production. I think for all the oil that we've developed in the reaches of Alaska and the Outer Continental Shelf, that level is probably somewhat higher than the $5.25 and somewhat lower than perhaps, $8, depending upon where and how much and how difficult.

I think we ought to take care working together with the Congress to establish that rightful level, and we will if we can get down to working on the windfall profit tax package because that's effectively what that does. It begins to set a price level, at the level which we agree is a correct level to incentivize full production.

That, it seems to me, is an area thae we can look at facts and hear testimony from those in the oil industry and outside the oil industry and come to some level that makes sense.

Senator ABOUREZK. If you decontrolled old oil right now, that is wells that are already pumping, how are you going to increase the incentive for those wells to pump oil?

Mr. ZARB. The first year, as I've just described, the incentive under the current program will not increase at all.

Senator ABOUREZK. Just increase price, not production.

Mr. ZARB. It's rather complicated but let me describe it.

Under the program, the decontrol takes effect and the windfall package, as enacted by the Congress, would lower the price of new oil, under most circumstances, and raise, somewhat, the price of old oil, which I think goes up to $6.50 or something like that, how does that incentivize the development of old oil.?

I described a few moments ago that there are areas in the further development in old oil wells that right now are price controlled well below which an investment will get it out.

These are technical questions that it seems to me could be resolved with facts, and the Congress ultimately will have the say so as to what those levels are.

Senator ABOUREZK. So, you won't advise the President to criticize the Congress if we change the program? In other words, you want to work together with the Congress; that's what you're saying?

Mr. ZARB. If the Congress took the President's program and came back and said this portion should be changed or that portion should be changed, assuming that we had the opportunity to continue discussions, as we're having this morning, to help weigh the impact of each, I think that would be dandy.

Senator ABOUREZK. I have a couple of questions and then I'll yield to the chairman.

If you are talking about a 5- to 10-year, a rather long-term program of reducing the consumption of oil, and if, as you clearly admit under Senator Church's questions that it may not work, that you might have to turn to some other more direct program, my question is this, why don't you do the direct program now, such as requiring efficient mileage cars to be manufactured, such as providing incentives for solar heating and cooling in homes and grant research programs for solar production of electric power using solar energy, and why not provide mass transit and railroad alternatives throughout this country, which would be highly efficient and really conserve fuel, and not just raise the price of fuel so that people all through the country cannot afford it?

Why don't you do that now is this is, indeed, a long-term program ? Mr. ZARB. Senator, every area you just touched upon is touched upon by the President's program, every single one of those areas, but I don't think we ought to fool ourselves into thinking that within a 3- to 5-year period, with all the things we are doing, and in the President's message he did point out a program for synthetic fuel and all the things that you just mentioned, that we're going to bring those on-line in a meaningful way in a short time.

Now what's the problem with that? There are those that say the economy being what it is, maybe we shouldn't fuss with this conservation, why don't we just go ahead and develop our new energy sources as fast as we can.

Almost no matter what we do between now and 1977, except for conservation, we're probably going to add 2 million barrels a day, or close to it, to our imports.

If the embargo last spring was a problem, an embargo a year and a half from now will be twice that problem. I think we ought to recognize that possibility. We may recognize that possibility and say that we'll take the risk, but that's fine. I don't believe that with all of the funding that we're providing for solar, and the private sector has got a lot of money going into solar, that it will be very meaningful until the 1980's, simply because of what it takes in the way of funding and other resources to have it become a meaningful part of our stream.

Nuclear power today is only 1 percent of our total energy output and we've been working on that for some years.

Senator ABOUREZK. We know that.

Let me ask you this. Do you disagree with the statement that only the Arab oil-exporting nations would put an embargo on oil exports to this country? You don't disagree with that? Is there any other country that would embargo?

Mr. ZARB. That sounds like a catch 22. Senator.

Senator ABOUREZK. Is there any other oil-exporting country that's putting an embargo on at this time?

Mr. ZARB. My view is a little different dimension. It seems to me that based upon what we've been through in terms of having to pay $3 billion for oil in 1970 and $25 billion last year, that any set of circumstances that would have us dependent upon any set of nations, anywhere, for a meaningful supply of our energy is incorrect and it is unreliable energy.

We now depend upon foreign sources for 40 percent. In 1977 we'll pay them $32 billion instead of $25 billion if we did nothing at all. So, I don't differentiate between one set of nations or another supplier. I say we must get invulnerable from the entire cartel arrangement. Senator ABOUREZK. We're not talking about prices, we're talking about embargo and that's exactly what you were talking about a minute ago. Is there anybody else beside the Arab nations that would impose an embargo on us?

Mr. ZARB. I couldn't guarantee the answer to that question, Senator. I just don't know how the world's going to change in the coming years.

Senator ABOUREZK. Is there anybody at your table that would know the answer?

Mr. PARSKY. OPEC is not just an Arab cartel. We're talking about a cartel that is beyond that. And, the actions that have been taken by the cartel have been considered actions by it as a whole. I think we have to look at the cartel that way.

Senator CASE. You mean the embargo next time would include all the major oil

Mr. PARSKY. I'm not saying that there would be an embargo at all. I think the circumstances have changed, but the point is that any future cutoff in supplies could be caused by any supplier that we are now dependent on.

Senator CASE. I'm talking about last time when we couldn't get oil from Iran and Venezuela and that's about all there was beyond the Arab producing countries, is that correct?

Senator ABOUREZK. Canada.

Senator CASE. Canada. And, that's a special situation.
Senator ABOUREZK. And, Indonesia.

Senator CASE. They're all benefiting from the oil price.
Mr. PARSKY. That's right.

Senator ABOUREZK. I'm talking about embargo.

Senator CASE. Yes; I know.

Mr. ZARB. The threat of embargo from whatever source to this Nation in a way that disrupts our economy, and the 2 million barrels I just spoke of will probably come mostly from the Mideast and maybe some areas of Africa, would considerably increase our vulnerability. We don't have to have an embargo. All we need is the threat of embargo. Beyond that, those that control ceiling, would have a meaningful effect on how much oil is actually delivered even if those nations that we just discussed do not have an intent to deliver oil to us.

The fact that that exposure is there, it seems to me, gives up a good deal of our national security, and gives up the safety of this Nation in the ability to conduct its affairs.

Senator ABOUREZK. So, if I understand what you're saying then, that we don't even have to worry about an Arab embargo, we have to worry about everybody shutting off our supply of oil. Is that really what you're saying?

Mr. ROBINSON. Senator, I'll try to answer that. There's no way that we can predict with any degree of certainty, the political development for the future. I think we have to deal with the cartel arrangement as a threat, and we have to see our position as one that is vulnerable

and the program that the President has proposed is going to reduce that vulnerability. We feel that that is in our long-term interest and that we cannot predict with any certainty whether or not we face an embargo imposed by any one member of the cartel.

Senator ABOUREZK. If I can try and put what I think your answer is in language that I can understand. You're saying that we have to worry about embargo from every exporting country, yes or no?

Mr. ROBINSON. We should be prepared to continue our way of life and our economic program without dependence, and the degree of dependence we have today.

Senator ABOUREZK. Is your answer to my question yes or no?
Mr. ROBINSON. Yes.

Senator ABOUREZK. Also, I just want to give you an example of the increase in oil prices that you propose, the administration has proposed, with regard to the social security recipient in the State of South Dakota.

Out there in the wintertime, people when they use heating oil, their heating oil bill runs up sometimes to $100 a month for a not very large house.

I've talked to people on social security and they've come up to me when I'm out in South Dakota and said that their heating bill has gone up to $100 a month as of last year.

Now, under your proposal, raising prices of crude oil and putting a tax on it by virtue of raising the prices, the present price of a gallon of heating oil is about .38 a gallon. I think that's what it is out in my part of the country. It would be roughly a 25-percent increase in the cost of that per gallon, which would bring it up to about .48 per gallon.

So, you have increased that heating bill up to roughly $125 or more per month. How do you propose to rebate that additional cost to that social security recipient?

Mr. ZARB. There's two answers to that question. The first is that in our past requirements with respect to the average of 10 cents per gallon, less of that will occur in the inelastic products such as heating oil and more will occur in more elastic products such as gasoline.

The second answer to that question is in the rebate mechanism whereby those who are in the lower income bracket, and social security recipients of the nature that you have just described, certainly would be of that nature, and will receive more of that than their increase in total energy costs as we have calculated them.

Senator ABOUREZK. How much will a social security recipient receive back in rebate?

Mr. ZARB. I guess it would depend whether or not they are part of the social security recipients that pay taxes. You would have to define it for me.

Senator ABOUREZK. They don't pay taxes.

Mr. ZARB. They would get back-a family of two adults?

Senator ABOUREZK. One.

Senator BARTLETT. Mr. Chairman, could we have the remaining schedule for what this hearing is going to be at lunch hour, and what we can anticipate?

Senator ABOUREZK. Recess at one, return at two.

Senator BARTLETT. What will be the time allotted to each one of us?

Senator ABOUREZK. According to how the chairman's chart, it is 33 minutes for each one.

Senator DOMENICI. I apologize, Mr. Chairman, but I have a procedural question.

I assume, that if we don't get to me before lunch, are we going to have a 33 minute rule in effect when we come back?

Senator ABOUREZK. I don't know if I am going to be chairman when we come back.

All I am doing is just acting as chairman while Senator Jackson is gone, and he asked me to pick it up until we recess for lunch.

Senator ABOUREZK. I would like to ask Mr. Zarb to continue with his answer to the question.

Mr. ZARB. I will let Mr. Zausner give you a full explanation.

Mr. ZAUSNER. The answer, of course, Senator, and we looked both by income class and by region of the country, and you can imagine that it varies greatly.

But we give back even to people that pay no income taxes whatsoover in dollars per adult, who are over 18 years, and even in your example, which I might add is highly extreme, that rebate for a particular family would be somewhere between $150 and $250, using your numbers, which I might add are very, very extreme, in terms of most areas of the country.

That would still far exceed the increase heating cost even at $25 a month over a 6-month heating season.

Senator ABOUREZK. If this one person, and there are an awful lot of widows and widowers living on social security in South Dakota by themselves, who do pay a $100 a month, or more, for heating, depending on the kind of house that they have.

If they get $80 back on a one-time basis, isn't that right?

Mr. ZAUSNER. It is per year.

Senator ABOUREZK. Not a one-time basis?

Mr. ZAUSNER. No, sir, it is per year as long as the energy taxes are in effect.

Senator ABOUREZK. As long as the enery taxes are in effect.

Mr. ZAUSNER. In other words, if we have the energy taxes in effect for 10 years, then every year everybody who pays no taxes will get back $80 a year per adult over 18 years of age.

Senator ABOUREZK. It will be $80 a year.

Mr. ZAUSNER. Yes, sir.

Senator ABOUREZK. What will you do if the cost of energy goes beyond that $80 per year?

Mr. ZAUSNER. Senator, I think the frank answer is that we can always find an example of somebody who doesn't quite get back what they pay.

But in context, using the other example, if we give everybody 35 gallons a month for rationing, exactly half of the people have too much and half of the people have too little.

In fact, I think this system, when we look at it across all the kinds of people and businesses who use energy, we find it a lot more equitable than anything else, if we want to go about saving that much fuel.

Senator ABOUREZK. Not speaking of this one example, how many examples are there like this thoughout the country?

Mr. ZAUSNER. All I can say, Senator, is that we have looked both for every region of the country, and by income class.