ECONOMIC IMPACT OF PRESIDENT FORD'S

ENERGY PROGRAM

FRIDAY, JANUARY 31, 1975

U.S. SENATE,

COMMITTEE ON INTERIOR AND INSULAR AFFAIRS,

Washington, D.C.

The committee met, pursuant to notice, at 10 a.m. in room 3110, Dirksen Office Building, Hon. Henry M. Jackson, chairman, presiding. Present: Senators Jackson, Church, Abourezk, Glenn, Stone, Hansen, Hatfield, Bartlett, Randolph, Case, and Domenici.

Also present: Grenville Garside, special counsel and staff director; Daniel A. Dreyfus, deputy staff director for legislation; William J. Van Ness, chief counsel; James Barnes, Thomas Platt, and Richard Grundy, professional staff for the majority; Harrison Loesch, minority counsel; and David P. Stang, deputy director for the minority. The CHAIRMAN. The committee will come to order.

OPENING STATEMENT OF HON. HENRY M. JACKSON, A U.S. SENATOR FROM THE STATE OF WASHINGTON

The purpose of today's hearing is to examine the rationale for and the economic impact of the energy proposals presented by President Ford to the 94th Congress.

The controversy surrounding this program in the past 2 weeks should not obscure the fact that there is a growing area of agreement between the Congress and the executive branch on the essential ingredients of a national energy policy.

I was particularly pleased that the President's message acknowledged the need for contingency planning, standby emergency conservation authority, and a system of strategic reserves to protect the economy against sudden interruption of oil imports. These are proposals which many of us fought for during the 93d Congress, and the Secretary of the Interior, I note, is familiar with that fact, and I am delighted that the administration now is taking an affirmative position.

I might add that I talked briefly with the President last night at the dinner for the Prime Minister of Britain, Mr. Wilson, and he mentioned that there was this vast area of agreement. I think, over half, in terms of volume of bills, I am not saying areas of controversy, but certainly over half of the specific bills that have been, or will be, presented, there will be general agreement.

I can only promise as chairman of the Interior committee that I will do everything I can to try and hammer out what I hope can be a bipartisan energy effort in most of the areas.

There are some areas where we are not going to be able to reach an agreement. That is inevitable.

But I think we all want to try to arrive at an agreement. Try to resolve differences, and we will do our utmost to do that.

The heart of the controversy over the President's program is his decision to try and reduce energy consumption by imposing import tariffs, excise taxes, and decontrolling oil prices. The President's proposals, if implemented, would raise oil prices to historic highs in this country, even higher than the OPEC leaders dared hope. And while there is room for debate as to just how lethal a blow this approach would deal to the economy, there can be no doubt that the overall impact would be devastating.

The key question is whether the President's energy price proposals can be justified at a time when economic conditions in America are the worst in a generation. We must ask whether the benefits from the President's approach to energy conservation justify the cost to the American people in terms of lost jobs, bankrupt businesses and general economic deterioration. Is it so important that we save so much energy so fast that we must pay such a price?

As acknowledged in nearly every study of the question, the administration's Project Independence blueprint included, the extent to which energy consumption is responsive to price is uncertain at best. Thus, there is the very real danger, that having endured the traumatic economic impact of the President's program, neither consumption nor imports would be reduced and we would be again forced to consider and choose between the remaining alternatives.

Hopefully, today's testimony will set forth the basis for the selection of prohibitive pricing as the principal means of energy conservation in the program under consideration.

I believe this committee has an obligation to explore and understand to the fullest extent possible, the justification for the energy program proposed by the President. We look forward to today's testimony as the first step in this effort.

In fact, I believe, this is the first direct congressional effort in which the administration will have an opportunity to lay out on the table their program of what they think they will do. And to subject that program, of course, to cross-examination by members of the committee.

The Chair wishes to state that the Secretary of the Interior, Mr. Morton, does have an engagement out of town at noon in connection with his work, and that we would like very much to hear from him first and ask questions of him before we turn to the other witnesses, if that is agreeable.

Would anyone like to make a comment?

STATEMENT OF HON. CLIFFORD P. HANSEN, A U.S. SENATOR FROM THE STATE OF WYOMING

Senator HANSEN. Mr. Chairman, if I might on behalf of those of

that what I say will be agreed to by them, because they are not here. Let me just make two or three very quick comments.

First of all, I think, we need to keep in mind the fact that most people who know anything about the oil business recognize that there is leadtime required to bring onstream and to make available for Americans the domestic potential that is found in our reserves, yet undeveloped in this country.

What I am saying is, that you can't change a policy and have the results obvious just overnight. It takes awhile.

It takes awhile to do the seismographing, to make the leases, to drill the wells, to get production onstream so that those who criticize. what is being done, and those who say nothing is resulting in the way of added availability of domestic supplies reflecting in increased prices, fail to recognize this basic economic fact of life.

And I would say, that there is plenty of blame to go around for all of use. I know, 7 years ago we considered the need for an overall national energy policy, and I will share my part of the blame with all our other colleagues, and say, that we talked about it for a long

time.

We finally got a law written, and this Congress has not come up with any viable overall comprehensive energy policy.

It was only a month or two ago that people on this committee were saying, what we ought to do was to roll back the price of domestic oil and gas on the pretext that what the industry was getting was already too much.

They said Americans couldn't afford it, and of course, taken by itself, considered in isolation from the other facts of life that we have to consider, it probably made a few converts.

It did until we looked at the fact that the price of old oil in this country was selling then, and now sells for $5.25 a barrel. And yet, there were those of us who were saying, lets roll the price back of all the domestic oil to this level here.

Let's discourage the stripper well development that has taken place that brings onstream in this country in excess of a million to a million and a half barrels a day.

Let's roll that price back from $11 a barrel to $5.25 a barrel so that people don't have to pay too much.

The only trouble, of course, is that if we had done that, those wells, those 350,000 stripper wells that produce this oil that helps to satisfy the needs of this ever hungry energy nation will not all be producing. And as a consequence, I think, the President does deserve great credit for having come forward with a plan. It is not a perfect plan.

I agree with my distinguished collegue, the chairman, Mr. Jackson, when he says we are working toward narrowing the gap between what has been proposed by the President on the one hand, and the Congress on the other.

But certainly we are not without blame here either, and I think that it is fortunate that some of the proposals that were made here a year ago were not implemented into the law.

I look forward to hearing the Secretary and the other witnesses. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Hansen. Senator Randolph.

STATEMENT OF HON. JENNINGS RANDOLPH, A U.S. SENATOR FROM THE STATE OF WEST VIRGINIA

I was gratified at this opportunity to share the concern of the members of the Interior Committee. Frankly we are in the third stage of the Senate's energy policy study, which is so important.

I don't want to indulge in pleasantries except to say, that I believe, Mr. Secretary, that you have a very firm commitment in this area, and your associates have it. I think generally that similar concern is shared here in the Congress.

I refer to a letter that I wrote on January 14, in which I expressed to President Ford my full support of the efforts to formulate a definitive, an aggressive, and a comprehensive national energy program to cope with the economic and energy problems which the country faces in increasing degree.

I think the capability of our country for energy sufficiency will not materialize in an automatic way.

The rate of growth in energy consumption that we know will take place will actually bring us to an understanding that we—although we don't want to admit it sometimes-are going to face an even greater supply deficit than we have in the past few months. I don't want to contemplate on this too much but I believe it is true.

Deficiency in our use of energy must become a way of life. Energy conservation must become a national ethic.

Mr. Secretary, in this room in which we are meeting today there is some body heat-I understand all of that; but this room temperature is now 78 or 80 degrees. This is the case all over Washington, D.C. in government and private structures; in fact all over America.

Three days ago I had attended a luncheon in this very building with 200 persons present. The room could have perhaps handled three times that number.

With a thermometer, which I keep handy, I checked out that it was 83 degrees in the building.

As the chairman and others on this committee know, early next week I shall present a resolution supporting an energy conservation crusade. I mean just that. We call on the President-it is no criticism of him whatsoever-to declare an energy conservation month. This will be from February 16 to March 15.

The President will have this responsibility when the Senate acts. We now have some 60 cosponsors of the resolution.

There can be leadership from him and from others, yourself included, in all segments of our American society.

At the end of the month, we will have a report on what has been done.

Mr. Secretary, the American people have not yet disciplined themselves to the challenge of an energy-conservation program, which must go along beside the program which we are talking about at this hearing.

We all are going to have to bare an equitable share of the social, economic, and environmental levels.

We are going to have to understand our energy supply, development, and use. We, frankly, have not yet leveled with the American

The promotion and development of western coal sources to satisfy eastern energy demands is counterproductive to energy conservation when an alternative such as Appalachian coals is available. Someone will quickly look at me when I talk about Appalachia, but that coal is available.

When we think of this we run into the issue of productivity, but we must adopt a national posture to foster energy conservation.

Mr. Secretary, we passed the Coal Conversion Act in June of last year. I am not a critic, but what has been done on this bill which was passed and signed into law?

You or the others may have an opportunity to discuss what has been done.

I have no desire to continue further.

The CHAIRMAN. Your entire statement will be made part of the record, Senator Randolph.

Senator RANDOLPH. I thank you, Mr. Secretary, and your associates. The CHAIRMAN. Mr. Secretary, you might now like to respond to that question.

Secretary MORTON. We can prepare a very definitive answer to the question of coal conversion for the committee and for Senator Randolph.

I would prefer, if it is all right with you, to put the response at the end of my statement.

Senator RANDOLPH. May I include, Mr. Chairman, in my statement, a letter that I have written to Mr. Zarb on this subject.

The CHAIRMAN. It will be made part of the comment, and then of course it will be in for the response.

[The prepared statement of Senator Randolph and letters referred to follow:]

STATEMENT OF HON. JENNINGS RANDOLPH, A U.S. SENATOR FROM

THE STATE OF WEST VIRGINIA

As I wrote President Ford on January 14, 1975, I fully support efforts to formulate a definitive, aggressive, and comprehensive national energy program to cope with our country's economic and energy problems.

The capability for U.S. energy self-sufficiency will not materialize automatically; indeed, at present rates of growth in energy consumption, we may actually continue to experience even greater energy supply deficits than in recent months. Prudence or efficiency in our use of energy must become a way of life. Energy conservation must become a national ethic.

Each region of our country must bear an equitable share of the social, economic, and environmental implications of energy supply development and use. For example, promotion of the development of Western coal resources to satisfy Eastern energy demands, when regional alternatives such as Appalachian coal are available, is counter-productive to a national posture to foster energy conservation. The national interest requires that we optimize the efficient use of all our nonrenewable resources-environmental as well as energy.

Present oil prices, without imposition of a tariff on imported crude oil and petroleum products, place coal in a competitive position, even when environmental requirements also are met.

Reason dictates that if energy self-sufficiency is to be achieved—even in part— at some point coal-not oil-well have to serve as a cornerstone for our National Energy Policy.

At stake is the capability for coal to perform a greater role than previously envisioned in the United States energy supply system. Coal production is a complex, machine-oriented mining technology with attendant safety, engineering, and geological restrictions at each stage from the mine-face to the point of enduse. Present coal supplies, however, are constrained by economic uncertainty and