Financial Times, May 18, 2001
COMMENT & ANALYSIS: Heat and light: The Cheney task force has proposed wide-ranging remedies for the US energy crisis. But, argue David Buchan and Nancy Dunne, some of the problems identified may be exaggerated:
By DAVID BUCHAN and NANCY DUNNE
President George Bush yesterday called on Americans to meet their "most serious energy crisis since the oil embargoes of the 1970s". He proposed a vast array of remedies, some of them radical - such as a federal role in creating a national electricity grid and the first rethink of nuclear power for a quarter-century.
Perhaps inevitably, there is hype as well as reality in the way the Bush administration has outlined both the problem and the solution.
Rising energy prices hardly constitute a big crisis. In nominal terms, the average petrol price reached a record Dollars 1.713 (Pounds 1.20) a gallon last week before it began sliding this week. But in real terms, the peak was below the levels of the 1970s.
The problem of paying more at the pump or for home heating pales, however, beside the economic disruption and social hardship caused by the persistent electricity blackouts seen in California, which are predicted to spread soon to other areas including New York.
Such localised energy crises are the result of inadequate transmission facilities and refining capacity. According to the administration's energy plan, produced by a task force headed by Vice-President Dick Cheney, US oil consumption will increase by 33 per cent, natural gas consumption by more than 50 per cent and demand for electricity by 45 per cent by 2020.
These increases, even with the administration's energy conservation proposals, far exceed current production. "As important as conservation is, it doesn't close the gap between supply and demand," says Mr Cheney.
The Cheney task force report claims: "Our energy crisis has been years in the making and will take years to put fully behind us." But the very scope of the 163 pages, with 105 recommendations, 12 executive orders, 73 directives to federal agencies and 20 proposals for Congressional action, will undoubtedly lead to exaggerated expectations of swift action.
Many directives to agencies are only requests for studies. One or two, such as the presidential order to all agencies to try to curb their energy usage, could have a wide, but inevitably slow, impact. None of them are instant solutions.
California's electricity woes and high petrol prices lend momentum to Mr Bush's message of crisis. But Phil Clapp of the National Environmental Trust, an independent Washington-based group, notes the report offers nothing for California's problems. "The energy message to California is: 'Drop dead'," he says.
There is irony in the proposal by an inherently laisser faire Republican administration to expand the federal government's role in the US energy market. While in theory many Democrats might not object, in practice the bias of federal intervention towards relaxing environmental restrictions will inevitably stiffen opposition.
"The challenge will be to get a bipartisan consensus (on the energy plan)", says Robin West of Petroleum Finance, a leading Washington consultancy. "The Republicans are very concerned about the political dangers of being blamed for high energy prices and blackouts and the Democrats are very excited by the political opportunities of this - it's their first big one since the election."
Kim Wallace, energy analyst at Lehman Brothers, says it is hard to tell whether the administration is "going through the motions as a form of political cover or is earnestly interested in making new law".
Because so much of the Cheney report was leaked ahead of yesterday's announcement, the least surprising element was the proposal to expand drilling on federal land. This included the proposal to open 8 per cent of Alaska's Arctic National Wildlife Refuge to exploratory drilling, as well as to expand operations in the Naval Petroleum Reserve, an area of Alaska long ago set aside for a navy that now runs many of its ships on nuclear power. It also suggests building, in conjunction with Canada, a pipeline to bring Alaskan gas to the lower 48 US states, a proposal that has drawn little opposition from US environmental groups.
In the western part of the 48 states, where the federal government is the biggest single landowner, the administration proposes easing restrictions on oil and gas drilling.
But even with increased drilling, natural gas production is likely to fall far behind rapidly growing demand. As a result, the administration is pushing diversification.
The main alternative energy source is coal, which generates about half of US energy supply. With 250 years-worth of reserves, it is America's most plentiful - but most polluting - energy resource. The administration wants to maintain this share by cleaner coal-burning technology, on which it proposes to spend Dollars 2bn during the next decade.
One of the plan's most controversial proposals is its support for nuclear power, a sector that still generates 20 per cent of the nation's electricity - and 40 per cent in 10 north-eastern states - despite heavy official constraints. No new operating permits have been granted for nuclear plants since the 1979 accident at Three Mile Island. But the nuclear industry expects permission this year for construction of at least one nuclear plant, an industry representative said yesterday.
Mr Cheney claims "people are much more rational" about nuclear power now. In that belief, his report proposes speedier re-licensing of existing reactors and approval of any new ones, tax breaks for buying nuclear plants and an extension of federal-backed insurance against nuclear accidents.
In what may be a historic reversal in dealing with nuclear waste, the administration is even studying a return to reprocessing spent uranium. President Jimmy Carter abandoned reprocessing in the late 1970s on the grounds that such a process - which produces weapons-grade plutonium - set a dangerous example and that, in any case, uranium was cheap enough not to have to recycle it.
These factors probably still hold. But the readiness of the administration to study reprocessing shows it is serious about dealing with the nuclear waste problem.
To blunt the expected environmentalist attack on its package, the administration has stressed that of its 105 recommendations, 42 bear on conservation and renewable energy. Some of these were rejected by Republicans in Congress, when they were proposed by President Bill Clinton. Congress refused to allow the Clinton administration to raise fuel economy standards in new cars.
Fuel efficiency standards have saved a lot of petrol since they were introduced in the mid-1970s. But they have not been raised for some years. If they were, the Bush administration might find there was more petrol to be "discovered" in the nation's car tanks than in Alaska.
Politically, the administration's trickiest task will be to give some national dimension to the country's fragmented and inadequate infrastructure. It will mainly have to confine itself to exhortation. States and local communities are to be urged to drop their various petrol standards; these standards, imposed in the name of cleaner local air, complicate distribution. States will also be urged to allow new refineries.
In one area, the Bush administration considers a more forceful decision - to give the federal government the same right to locate electricity transmission lines as it has over gas pipelines. Patchwork deregulation has left the country with a fragmented, incomplete power grid.
Such a right of "eminent domain" to acquire property for power pylons would only be a "last resort" but an essential one, the Edison Electrical Institute said yesterday. The institute calculates the next decade will require 30,000 miles of new power lines, of which only 7,600 are on the drawing board. But it will be far harder to establish a national grid today than it was, say, to build railways across 19th-century America.
The Cheney plan ranges beyond domestic energy to propose greater hemispheric co-operation with Canada and Mexico. It also proposes a general review of unilateral US sanctions that shut US companies out of countries such as Iran and Libya. But it failed to make a firm recommendation. Having tackled so many other difficult issues, its courage failed it here.
Copyright: The Financial Times Limited |
