LETTER TO WILLIAM J. CASEY FROM JAN W. MARES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86M00886R001800090004-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 44
• Document Creation Date: December 21, 2016
• Document Release Date: August 22, 2008
• Sequence Number: 4
• Publication Date: August 1, 1984
• Content Type: LETTER

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3637 (10.81)
ExecUtlTe Secretary
_1 August 1984
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Department of Energy
Washington, D.C. 20585
Honorable William J. Casey
Director, Central Intelligence
Agency
Washington, D.C. 20250
04133/1-W
Dear Mr. Casey:
Enclosed are two copies of "Energy Activity and Its Impact Upon
the Economy," the economic appendix to the National Energy
Policy Plan (NEPP). As you know, the NEPP reiterates the
Administration's determination to approach energy as one aspect
of our overall economic policy.
Consistent with past practice, this report uses macroeconomic
simulation models to project economic effects, including
household expenditure effects, of alternative NEPP energy price
paths. A unique feature of this report is the emphasis on
microeconomic aspects of energy activity, including fuel
substitution behavior. In addition, a section has been
developed to characterize how energy activity is linked to
economic activity within most large-scale macroeconomic
models. The major deficiencies associated with the
energy-economy linkages as presently modeled also are discussed.
I hope you will find the report useful and informative, and'I
would welcome any comments or questions you may have.
Sincerely,
Jan W. Mares
Assistant secretary
r.kAssistant y
Policy, Safety, and Environment
7%
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t(OMOMY
A Technical Report in Support of
the National Energy Policy Plan
June 1984
U.S. Department of Energy
Office of Policy, Planning, and Analysis
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LUNC'1 UCHN'11AL
DDI-
MEMORANDUM FOR: Director of Central Intelligence
VIA: Deputy Director of Central Intelligence
Executive Director
FROM: Robert M. Gates
Deputy Director for Intelligence
SUBJECT: Proposed DCI Response to Energy Secretary Hodel (U)
1. Pct ion: Your signature on the attached reply to Secretary of Energy
Donald Ebdel's letter to you of 3 July requesting the Agency's proposals for
strategies, programs, and initiatives that might be considered during
preparation of the next National Energy Policy Plan. (U)
2. Background : The National Energy Policy Plan, sutmi tted by President
Iaeagan to Congress as required by law, is one of the Department of Energy's
basic policy documents. It notes the principal goal of U.S. national energy
policy is to foster an adequate supply of energy at reasonable costs. A dual
strategy of minimizing federal control and involvement while pranoting a
balanced and mixed energy resource system has been adopted to achieve this
goal. Federal programs in international energy security and cooperation,
including emergency preparedness, international cooperation, and energy trade
and transportation development, are critical to the strategy of promoting a
balanced and mixed energy resource system., 4U)
Robert M. Ggtes
Attachment:
As stated
This memorandum is UNCLASSIFIED
when separated from attachment
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CO NF I DE NT IAL
SUBJECT: Proposed DCI Response to Energy Secretary Hodel (U)
DDI/OGI/S~
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Orig - Addressee
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(17 July 19 84 )
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V V LPL 1 LL 1. 1 1L-LL
Central Intelligence Agency
The Honorable Donald P. Hodel
The Secretary of Energy
Washington, D.C. 20585
DDI_
P'0 JUL 1984
Thank you for your letter of 3 July requesting our proposals for
strategies, programs, and initiatives that might be considered during the
preparation of the next National Energy Policy Plan. As you know, the Agency
does not analyze U.S. energy needs or programs or make specific policy
recanmerriations. on the international scene, however, there are some areas
where we believe U.S. strategies and initiatives might contribute toward
meeting the overall goal of ensuring adequate supplies of energy at reasonable
cost. (C)
In our view, a program of primary reliance on the marketplace should
continue as the main strategy for Federal energy plans. Market forces,
however, will require some form of international or coordinated cooperation
from time to time during emergencies. Some progress has already been made on
this front within the International Energy Agency with the recent announcement
of a coordinated stock program. Further efforts need to be made to ensure
that foreign countries pursue programs aimed at increasing oil stockpiles for
use during a supply disruption. The IEA and member governments can also serve
a useful purpose as honest brokers of information during a crisis, keeping the
market abreast of details as they become known during periods of heightened
uncertainty when rumors often dictate market reaction. (C)
on the issue of energy security, I believe it is important that we keep
abreast of developments in the European gas market. I continue to be
concerned by the Europeans' pessimistic views of their future gas needs, an
outlook that is already causing some lack of rrccanentusn on developing
alternative gas supplies for the 1990s. At the same time, the Soviets
continue to seek new gas markets, recently reaching agreement with Turkey on a
sale, and making overtures to Belgium, Greece, and Sweden. I believe we need
to make a continued effort in the IEA and bilaterally to ensure that the
Europeans do not allow themselves to become even more dependent on Soviet gas
for lack of developing alternative supplies in a timely fashion. (C)
Yours,
73/ WH1i m J. Casey
William J. Casey
Director of Central Intelligence
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EXECUTIVE SECRETARIAT
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E utive Secretary
10 July 84
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3637 (10.81)
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THE SECRETARY OF ENERGY
WASHINGTON. D.C. 20585
July 3, 1984
Honorable William J. Casey
Director of Central Intelligence
Central Intelligence Agency
Washington, DC 20505
Dear Mr. Casey:
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ER 83 q
The Department of Energy Reorganization Act requires that the
President prepare a biennial National Energy Policy Plan (NEPP).
As you know, in October 1983, President Reagan submitted the
fourth NEPP to the Congress. A copy is enclosed for your review.
That policy plan -- with a goal of ensuring an adequate supply of
energy at reasonable cost -- has provided a framework of and
focus for the full range of federal energy programs under this
Administration.
The strategies we have pursued under NEPP IV have been to mini-
mize government intervention in the marketplace and to promote a
balanced and mixed energy resource system. As a result, domestic
energy production has been increased, imports of insecure
supplies of oil have been reduced, energy prices have moderated,
and a more reliable, less vulnerable energy system has emerged.
We are now embarking on preparation of the President's fifth
National Energy Policy Plan, to be submitted to the Congress in
1985. This letter is to request your input to that plan.
You are invited to submit your proposals for strategies,
programs, and initiatives that we might consider during prepara-
tion of the next National Energy Policy Plan. Your guidance will
be critical to continuing the progress we've made in charting the
proper energy course for America.
May we have your input by September 1, 1984.
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DOE/S-0014/1
Dist. Category UC-13
A Report to the Congress
Required by Title VIII of the
Department of Energy Organization Act
(Public Law 95-91)
TIf
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POLICY
PLfiH
October 1983
U.S. Department of Energy
Washington, D.C. 20585
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 A..,..,.-.......A C...- ~..I...,+..')!)!)41!)41')') ? ('IA ono46.`nnnn44L.`onn-l4nnnClnnnn 2 7c
14OCT1983
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
VIA . Deputy Director for Intelligence
SUBJECT Proposed DCI Response to Energy Secretary Hodel (U)
1. Action Requested. Your signature on the attached reply to Secretary
of Energy Dona Hoe s letter to you of 6 October 1983 forwarding the 1983
National Energy Policy Plan and welcoming your comments and questions. We
have also indicated what we are doing on the Secretary's 16 September request
for help in finding someone to serve as the Department's Senior Intelligence
Officer. (U)
2. Background. The National Energy Policy Plan, submitted by President
Reagan to Congress as required by law, is one of the Department of Energy's
basic policy documents. It notes the principal goal of U.S. national energy
policy is to foster an adequate supply of energy at reasonable costs. A dual
strategy of minimizing federal control and involvement while promoting a
balanced and mixed energy resource system has been adopted to achieve this
goal. Federal programs in international energy security and cooperation,
including emergency preparedness, international cooperation, and energy trade
and transportation development, are critical to the strategy of promoting a
balanced and mixed energy resource system. (U)
3. As for the Senior Intelligence Officer issue, we have been in contact
with Earl Gjelde, Special Assistant to the Secretary; for all practical
purposes Gjelde also serves as the Deputy Secretary. We are trying to find
out how they intend to organize their intelligence effort so that we can match
it with the right person. We have gone this route before with DOE and want to
avoid another round of wheel spinning--Gjelde agrees. (C)
Attac hnen t:
As stated
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LAJ Llvuwt,?,
SUBJECT: Proposed DCI Response to Energy Secretary Hodel
Distribution:
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L U P r 1 ll t IN 1 I t1 L
Central Intelligence Agency
24 OCT 1983
The Honorable Donald P. Hodel
The Secretary of Energy
Washington, D.C. 20585
Dear Don:
Thank you for your letter of 6 October forwarding a copy of the 1983
(NEPP) price
National Energy Policy Plan , On the carplex matter of world oil projections, Agency ever project ms gea gy analysts concur in the NEPP's assessment that,
tend to fall in angel next in crudee oil availability, real world oil
until will into the second half of the decade. prices will
ld not begin to rise again
years and shouAs ver, we
remain deeply concerned about recent developments in the Persian Gulf an n Gulf and posed to oil supplies. d the
Concerning our recent discussion on the intelli
Department, members of my staff are in contact with EarleG elde to the
the best kind of support the
discussions are centering t
can provide. As I understand idetermine
on how he
the
Intelligence effort and the kind of person best suiltedlto serve a as s Se Seorn the
Bence Officer. nior
Sincerely
am Casey
Direc or of Clentral Intelligence
C O N F I D E N T I A L
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THE SECRETARY OF ENERGY
WASHINGTON, D.C. 20585
October 6, 1983
Honorable William J. Casey
Director, Central Intelligence Agency
Washington, D.C. 20250
Dear Mr. Casey:
Ezecutive Fe s:,u:
Enclosed is a copy of the 1983 National Energy Policy Plan
(NEPP), submitted by President Reagan to the Congress as
required by Section 801 of the Department of Energy
Organization Act (Public Law 95-91).
The Plan reiterates the Administration's determination to .
approach energy as one aspect of our overall economic policy.
The goal of national energy policy is to foster an adequate
supply of energy at reasonable costs. We have adopted two
strategies for pursuing that goal: 1) to minimize federal
control and intervention in energy markets while maintaining
public health and safety and environmental quality and 2) to
promote a balanced and mixed energy resource system.
Since the President assumed office, we have'made substantial
progress in all areas of energy, resulting in lower prices to
American consumers and more efficient production of the
Nation's domestic resources. In addition, our energy security
has been enhanced through Administration actions in filling of
the Strategic Petroleum Reserve and as a result of our
market-based energy policy which has fostered a significant
decrease in oil imports.
The NEPP also discusses the continuing need for action in the
areas of natural gas decontrol and nuclear licensing reform and
the importance we attach to continued progress in areas such as
energy conservation, energy research and development, and
international energy issues.
I hope you will find the NEPP useful and informative, and I
would welcome any comments or questions you may have.
Sincerely,
DONALD PAUL HODEL
'~ ~ X75
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EII.Ml
to the Congress
Report
Required by Title Vill of the
(Public Law 95-91)
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This report has been reproduced directly from the best available copy.
Available from the National Technical Information Service, U. S. Department of Commerce, Springfield,
Virginia -'-'10 l .
Price: Printed Copy \ I
Microfiche AtI
('odes are used for pricing all publications. The code is determined by the number of pages in the
publication. Information pertaining to the pricing codes can be found in the current issues of the following
publications, which are generally available in most libraries: l:ncrO' Research Abstracts, (ERA);
Goi'ermnent Reports Annot,ncenu'nts and Index ((;RA and 1), Scientific and Technical Abstract Reports
(STAR); and publication, NTIS-PR-360 available from (NTIS) at the above address.
Fur ah, n.% the Sulu?rh I, i Ieut nr Ilurument" i..S. Gnc. rnuu?ut Prifit Ing ( ttie.?
VVII,hi lgI )n, DA' 2IP402
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DOE/S-0014/1
Dist. Category UC-13
TUt
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POLICY
PLflII
October 1983
A Report to the Congress
Required by Title VIII of the
Department of Energy Organization Act
(Public Law 95-91)
U.S. Department of Energy
Washington, D.C. 20585
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PREFACE
This National Energy Policy Plan is submitted to the Congress as required by section 801 of the
Department of Energy Organization Act (Public Law 95-91). The technical reports that are referred to in
this document will be issued by the Department of Energy after submission of this National Energy Policy
Plan.
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Table of Contents
Preface ............................................................................ iii
I. National Energy Policy: A Summary ................................................ 1
The National Energy Policy Goal ................................................. 1
Strategies of National Energy Policy .............................................. 1
Federal Programs and Actions in Energy ........................................... 2
Conservation ................................................................ 3
Research and Development .................................................... 3
Energy Security ............................................................. 3
Natural Gas ................................................................. 3
Nuclear Regulation .......................................................... 4
II. Energy Markets and the Economy: The Record to Date ........... .................. 5
III. Federal Programs and Actions in Energy ............................................. 9
Minimizing Federal Control While Maintaining
Public Health and Safety and Environmental Quality .............................. 9
Oil and Natural Gas Decontrol ............................................... 9
Environmental Regulation ................................................... 10
Nuclear Energy Regulation .................................................. 10
Federal Leasing ........................................................... II
Promoting a Balanced and Diverse Energy Resource System .......................... 12
Energy Resources ............................................................ 13
Conservation .............................................................. 13
Energy Research and Development ........................................... 14
Electricity ................................................................ 16
Energy Security and International Cooperation ................................... 17
Emergency Preparedness .................................................... 17
International Cooperation ................................................... 18
Energy Trade and Transportation ............................................. 18
IV. 1983 NEPP Energy Projections ..................................................... 21
Energy Price Projections- 1983 .................................................. 21
U.S. Energy Trends-1983 ...................................................... 22
Primary Energy Consumed by the United States ................ 22
Energy Produced by the United States ........................................... 22
U.S. Primary Electricity Inputs ................................................. 22
V. Public Comments ................................................................ 24
Background ................................................................... 24
Summary of Comments ......................................................... 24
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NATIONAL ENERGY POLICY:
A SUMMARY
The U.S. energy situation today is significantly better than it
was in 1981 when the third National Energy Policy Plan was
published. Since then,
? Total energy efficiency has increased.
? Domestic energy resources are being developed more
effectively.
? Oil prices have declined.
? U.S. dependence on foreign energy sources has
diminished.
? The Nation's vulnerability to energy supply disruptions
has been reduced markedly, especially through addi-
tions to our strategic petroleum reserves and through
lower levels of oil'imports.
These conditions have resulted from a combination of com-
plex factors, but a principal element in the improved U.S.
energy situation has been the implementation of a national
energy policy that was first described in the 1981 National
Energy Policy Plan. This policy includes a goal, strategies for
pursuing that goal, and federal programs and actions deter-
mined by those strategies. It approaches energy as one part of
an overall economic policy based on less federal regulation,
lower taxes, reduced federal expenditures, and maximum
reliance on the private sector to make decisions about the
production and consumption of commodities, including energy.
THE NATIONAL ENERGY
POLICY GOAL
... an adequate supply of energy at reasonable costs ...
The goal of national energy policy is to foster an adequate
supply of energy at reasonable costs-a goal on which nearly
everyone can agree. However, because judgments about what
constitutes "adequate" or "reasonable" vary over time and with
circumstances, energy policy realistically cannot attempt to
define these terms precisely. Instead, our policy recognizes that
"adequate supply" requires a flexible energy system that avoids
undue dependence on any single source of supply, foreign or
domestic, and thereby contributes to our national security. The
concept of "adequate supply" further implies freedom of choice
about the mix and measure of energy needed to meet our
industrial, commercial, and personal requirements. At the
same time, an adequate supply of energy for the United States
is not independent of the energy supply circumstances of our
allies abroad. The international dimensions of energy security
and emergency preparedness are fundamental aspects of the
definition of adequate supply for ourselves. Finally, "reason-
able costs" suggests economic efficiency and prices that permit
residential users to use energy for heating and cooking without
being required to alter their lifestyles; and it suggests that
commercial and industrial users will be able to consume energy
without reducing their competitiveness in domestic and inter-
national markets.
STRATEGIES OF NATIONAL
ENERGY POLICY
... minimize federal control and involvement ...
... promote a balanced and mixed energy resource
system ...
The strategies adopted by the Administration for achieving
our energy policy goal reflect the lessons of history about what
has worked to produce the Nation's growth and prosperity.
These strategies are:
? To minimize federal control and involvement in energy
markets while maintaining public health and safety and
environmental quality.
? To promote a balanced and mixed energy resource
system.
These strategies will provide economic efficiency. They offer
the best possible assurance that individuals and businesses
throughout the Nation will have abundant and affordable
energy available when, where, and in the forms it is needed.
Economic efficiency is at the heart of the Nation's prosper-
ity. It allows our resources to be allocated according to their
optimum value. It ensures maximum possible freedom and
opportunity, and it minimizes production and delivery costs.
By so doing, it sustains and advances the Nation's social,
political, and economic achievements, resulting in a system
that is vastly superior to any alternative.
... minimize federal control ...
The record to date of energy markets and the economy, as
described in Chapter II of this Plan, demonstrates clearly that
economic efficiency does not result from federal intervention
and control. Over time, government intervention in the market
does not work, primarily because it cannot deal adequately
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with all the various factors in a system as complex as the
Nation's energy system. Further, government intervention
creates rigidities that prevent or discourage market forces from
adjusting to change and uncertainty and leave no room for
technological or economic breakthroughs.
The factors that determine energy supply and demand are
changing constantly. As a result, some uncertainty is and will
remain an important and unavoidable element in our energy
situation. Our national energy policy assumes that no federal
actions can eliminate this uncertainty over any extended
period of time. In fact, the more the government intervenes in
energy markets, the less flexible the system becomes and the less
able it is to adjust efficiently-if at all-to changing circum-
stances. By minimizing federal intervention and thus encour-
aging flexibility, current policy does not straitjacket the econ-
omy to a single approach or to one set of assumptions about
our energy future. Instead, it permits individuals and busi-
nesses to apply and to react to their respective views of the
future and to reap the benefits, as well as bear the risks, of their
decisions.
The strategy to promote economic efficiency and to minimize
federal intervention does not assume, however, that all forms
of government activities should be eliminated. In setting forth
our national energy policy, we recognize that protecting the
environment, maintaining health and safety standards, and
improving energy security are appropriate government re-
sponsibilities. Limited control and intervention may be required
to reflect nonmonetary costs to society as a whole of energy
production and use.
Government actions to control energy prices or to allocate
energy supplies in an attempt to protect consumers are certain
to fail and are bound to create inequities. If a successful energy
policy achieves its goal of fostering an adequate supply of
energy at reasonable costs, but does not respond adequately to
the income limitations of the poor, society may decide, as ours
has, to provide assistance. However, attempts to provide this
assistance by restricting prices or allocating energy resources
will distort our national energy system while offering inade-
quate assistance to some and unintended windfalls to others.
Therefore, national energy policy reflects our belief that those
in need should be assisted directly, not as a part of energy
policy, but rather as part of our national income maintenance
policies and programs.
... a balanced and mixed energy resource system ...
Implicit in the goal of an adequate supply of energy at
reasonable costs is the strategy of a balanced and mixed energy
resource system-a system in which a number of energy
resources, including fossil fuels, solar and other renewables,
nuclear energy, and conservation combine to meet the Nation's
energy requirements. Balance in this context does not imply
equality. It means an economically efficient, flexible energy
system in which the mix of energy supplies is appropriate to
support economic growth and adequate to permit producers
and consumers to choose freely among a range of energy
options. Balance and diversity avoid undue dependence on any
single energy source. Because of our desire for balance and
diversity, national energy policy encourages research and
development of new and alternative energy technologies' that
may help ensure adequate supplies long into the future. This
encouragement is provided by direct spending, by the deregu-
lation of the prices of competitive fuels, and by a modified tax
structure that encourages investment risk-taking and technol-
ogy innovation, as well as by other means.
FEDERAL PROGRAMS AND
ACTIONS IN ENERGY
Since 1981, federal programs and actions based on the
strategies described above have led to substantial progress and
a reinvigorated national energy system. The following are
some of those programs and actions:
? Price and allocation controls on crude oil and petro-
leum products have been removed, resulting in increased
production of our domestic resources and lower gaso-
line prices to consumers.
? Federal energy regulations governing other forms of
energy have been reviewed, and substantial numbers
have been rescinded, withdrawn, or modified, thus
eliminating needless and counterproductive federal
intervention and its associated costs.
? Congress and the Administration, working coopera-
tively, obtained passage of the landmark Nuclear
Waste Policy Act of 1982, which for the first time
provides for a comprehensive national system for safe,
permanent disposal of commercial nuclear waste.
? The Department of the Interior has revised substan-
tially the procedures for leasing federal lands and the
Outer Continental Shelf to ensure that the Nation's
abundant energy resources are made available for
exploration and development in accordance with strict
environmental rules.
? The amount of oil in the U.S. Strategic Petroleum
Reserve has tripled.
? Presidential policy statements have been issued to pro-
vide specific guidance for federal action in the areas of
nuclear non-proliferation, nuclear energy, and coal
exports.
? Federal energy research and development programs
have been adjusted to emphasize basic and applied
research and development that cannot be carried out
by private industry. We have sought to eliminate from
federal programs those large-scale demonstration and
commercialization activities that are more appro-
priately designed and carried out by the private sector.
As a result, total federal energy expenditures for
research and development have been reduced, while
federal funding for basic science research has been
increased.
? Energy-related environmental regulations have been
reviewed to strengthen enforcement standards and to
improve public safety. The Clean Water Act require-
ments and regulations regarding the lead content in
gasoline are cases in point.
? U.S. energy consumption has declined and domestic
energy production has increased to the point where net
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oil imports in 1982 fell to 4.3 million barrels per day, or
about 13 percent of U.S. energy consumption, com-
pared to the peak level of 8.6 million barrels per day
(about 24 percent of energy consumption) in 1977 and
5.4 million barrels per day (about 15 percent of energy
consumption) in 1981. These volumes include crude oil
imported for the Strategic Petroleum Reserve.
As this National Energy Policy Plan is published, we have
emerged from a recession; economic recovery clearly is under
way. It is essential that the actions we take on energy and
related public issues continue to support these economic
improvements. Programs and actions to minimize federal
intervention in energy markets and to encourage balance and
diversity in our energy resource system will contribute signifi-
cantly to economic efficiency, continued recovery, and future
economic growth. In this connection, three areas of energy
programs and actions are particularly important.
Conservation
The first is energy conservation, which ought to be viewed by
policymakers, producers, and consumers as a significantly
important energy resource. That is, energy conservation
should be seen as a set of actions that individuals and busi-
nesses can take that are cost-effective alternatives to new
supply development. Energy conservation actions are often
cheaper and easier to undertake, and they often make good
business sense. Since the energy price shocks of the 1970s,
energy use per dollar of gross national product has declined
steadily; and important energy-efficiency improvements have
occurred in a host of areas, from automobiles to homes and
office buildings and manufacturing processes. These accom-
plishments, coupled with the stability of energy prices in gen-
eral and the lowering of world oil prices within the past year,
should not obscure the fact that further gains can still be made.
Conservation is, and will remain, an important component of
the available energy resource mix.
Research and Development
The second area to which increased attention will be paid is
basic and applied research and development. Federally spon-
sored research and development serves two critical purposes.
First, it advances the frontiers of our scientific and technical
knowledge and provides the fundamental building blocks for
technological innovation. Simply stated, we do it because we
are better off as human beings and as a Nation for having
increased our understanding of nature and matter. Second,
federal energy research and development programs support
the development of new and alternative energy resources by
providing scientific and engineering knowledge for further
development outside the federal sector. Federal research and
development programs in areas such as solar energy, conserva-
tion technologies, enhanced recovery techniques, magnetic
fusion, breeder technology, and synthetic fuels are useful pre-
cursors to commercialization of the new fuels and technologies
needed to foster a balanced and mixed energy resource system
over the long term. Once basic and applied research and
development have been accomplished, the pace at which new
or alternative technologies are commercialized and marketed
will be determined not by the federal government, but by
entrepreneurs and consumers. The federal government will
continue to emphasize the importance of technology transfer
efforts to ensure that the results of publicly supported research
and development are available widely and promptly to the
marketplace.
Energy Security
The third critical area of energy programs and actions is that
of energy security and international cooperation. U.S. partici-
pation in a world market for energy resources, particularly
petroleum, demands that a high priority be placed on domestic
energy policies and programs in the areas of national and
international energy security. Federal programs that focus
directly on our preparedness for an energy emergency include
the development and continued expansion of the Strategic
Petroleum Reserve (SPR), maintenance of the Naval Petro-
leum Reserve (NPR), emergency response planning, and fre-
quent tests of our ability to respond to a wide range of possible
energy emergencies. Domestic energy security is enhanced by a
range of other federal energy programs, including oil price
deregulation; regulatory reform efforts in natural gas pricing
and nuclear licensing; leasing programs for federal lands and
the Outer Continental Shelf; enhanced energy trade; and
expanded research and development, including cooperative
international research efforts.
The United States and its allies continue to work together to
develop effective techniques for improving international energy
security. Special emphasis is being placed on diversifying the
sources of foreign oil supply and avoiding undue dependence
on unreliable sources of energy. Thus, energy trade is likely to
be an increasingly important aspect of international energy
activity, and the United States ought to seek to increase its role
as a reliable, cost-competitive energy trade partner. In addi-
tion, the United States must remain receptive to new technolo-
gies and ideas while continuing to exert its influence to ensure
that nuclear non-proliferation, the security of natural gas sup-
plies to Europe, and other issues vital to our national interest
are satisfactorily resolved.
Two current legislative initiatives are particularly important
to maintaining an energy system that will continue to provide
an adequate supply of energy at reasonable costs.
Natural Gas
The first, to which the Administration attaches high energy
legislative priority,. is the removal of controls on natural gas
wellhead prices. Earlier this year, the Administration proposed
the Natural Gas Consumer Regulatory Reform Amendments
of 1983. This proposal was based on the major principles of
(i) ensuring consumer protection for natural gas users,
(ii) deregulating natural gas prices at the wellhead by a date
certain to capture the benefits of competition in the market-
place, and (iii) adjusting contract provisions entered into in a
regulatory environment. Since then, committee action has
taken place in both Houses of Congress leading to bills that
differ in various ways from the Administration's proposal. The
Administration is committed to continued cooperation with
Congress to achieve passage of this critically important
legislation.
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Nuclear Regulation
The second legislative initiative, which exemplifies the prin-
ciple of protecting public health and safety through appropriate
federal regulation, is the Administration's proposed legislation
to reform the nuclear licensing and regulatory process. The
proposed reforms will modernize the nuclear regulatory pro-
cess to reflect the current state of nuclear technology develop-
ment. Of equal importance, nuclear regulatory reform will
enhance public participation in decisionmaking processes,
improve nuclear safety, and increase efficiency by reducing
wasteful costs and delays attributable to the current regulatory
process. As a result, the Administration's proposal will help
ensure that decisions about the future use of nuclear energy are
consistent with protecting public health and safety, are the
result of deliberate choices by local decisionmakers, and are
not made by default because of the existing unpredictable and
inefficient nuclear regulatory and licensing process.
These and other federal programs and actions in energy are
discussed in greater detail in Chapter III of this Plan. Con-
sidered as a whole, they manifest our determination to move
from an interventionist to a market-based energy policy and a
continuation of policy directions set forth in the 1981 National
Energy Policy Plan. In the relatively brief, two-year period
since that Plan was issued, it is evident that national energy
policy has benefited our national economy and consumers by
providing stability in energy markets and by relying on the
entrepreneurial, competitive, and innovative characteristics of
the U.S. economy. Our goal of ensuring an adequate supply of
energy at reasonable costs recognizes that energy is intrinsi-
cally interwoven in the economic, industrial, social, and politi-
cal systems of the United States and the world.
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II
ENERGY MARKETS AND
THE ECONOMY: THE
RECORD TO DATE
A brief review of the history of energy markets helps estab-
lish a perspective for the national energy policy described in
this Plan. The strategies that have been adopted by the Admin-
istration for pursuing the goal of its national energy policy
recognize the importance of the relationship between energy and
our overall economy.
Energy plays a dual role in our national economy. Adequate
supplies of energy are required to meet the physical require-
ments for fuel and electricity that allow us to maintain and to
increase productivity, communications, mobility, and com-
fort. Energy prices, on the other hand, affect business and
household energy expenditures as well as the overall perfor-
mance of the economy. Changes in energy prices can affect
production costs, wage levels, and, indirectly, interest rates,
inflation, and investment decisions. When energy price changes
are gradual or anticipated, adjustments by other sectors of the
economy occur almost as a matter of course; when they are
sudden or unanticipated, their effects may be severely disrup-
tive in the short term. These disruptive effects can be exacer-
bated by inappropriate government policy responses such as
the government controls on oil markets that were in place
during the supply disruptions in 1973-74 and 1979.
Recollections of the "energy crises" of the 1970s may obscure
the fact that, although energy is a vital part of an industrial
society, it plays a relatively small direct role in total U.S.
commercial and economic activity. In 1982, for example, less
than 10 percent of U.S. consumer income was spent for gasoline
and household fuels. Similarly, energy industries accounted
for just over 15 percent of total U.S. industrial investment in
new structures and equipment. Energy is a slightly larger com-
ponent of international trade activity, accounting for 18 percent
of total U.S. imports in 1982-compared to 24 percent of total
imports in 1977, when oil imports reached 8.6 million barrels
per day.
The history of energy in the United States is'a record of
various fuels and technologies replacing others in response to
changes in energy demand, supply, and prices. Such transitions
accompanied the Nation's changing technology base, ongoing
economic development, and improvements in the quality of
life. They occurred without federal controls on energy activity
except for the federal government's regulation of interstate
commerce, water development, monopoly powers, and feder-
ally owned lands; and while regional impacts varied, transi-
tions in energy markets did not disrupt our national economy.
Before the 1950s, federal involvement in energy consisted
largely of hydropower development and taxation policies
intended to stimulate domestic oil production. In the mid-
1950s, however, federal intervention in energy markets became
much more extensive, first with the Supreme Court's 1954
Phillips Petroleum Co. v. Wisconsin decision, which extended
regulation of interstate commerce in natural gas to pricing at
the wellhead; and later with a 1959 Executive Order limiting
volumes of imported oil-a response to the fact that demand
for cheaper imported oil was increasing because domestic oil
was more expensive to produce. Natural gas price controls and
the oil import quota system continued throughout the 1960s,
establishing conditions that would foster difficulties in the oil
and natural gas markets during the 1970s. Meanwhile, how-
ever, the country continued to experience generally falling
energy prices, high economic growth, and increasing demand
for gas and oil.
As the economy expanded, U.S. demand for oil grew; and
the volume of imported oil continued to increase despite the oil
import quota system. Relatively cheap imported supplies dis-
placed the development of costlier domestic resources. Domes-
tic drilling had begun to decline in the 1950s, and U.S. addi-
tions to reserves dwindled from 2 billion barrels per year in the
mid-1950s to less than 600 million barrels in 1973. U.S. oil
production peaked in 1970; natural gas production peaked in
1973. Oil imports also displaced coal production because utili-
ties and industrial users were turning to oil to meet sulfur
emission controls imposed by federal environmental regula-
tions. In the utility sector alone, demand for oil more than
tripled between 1967 and 1973. Overall, demand for oil increas-
ingly exceeded domestic production. As a result, oil import
quotas became unworkable.
Shortly after the oil import quota system was rescinded in
May 1973, the first of two oil supply disruptions occurred.
During 1973, 17 percent of U.S. energy supplies-and, more
important, 35 percent of crude oil and petroleum products-
were imported. The oil embargo that began in October 1973
jolted international and domestic markets. The price of oil
from members of the Organization of Petroleum Exporting
Countries (OPEC) quadrupled by January 1974. In response
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to widespread concerns over high prices and inadequate sup-
plies, the Congress and the Administration froze into place
existing federal price controls on domestic crude oil and petro-
leum products in a failed attempt to insulate consumers and
the economy from the hardships of price increases. Also estab-
lished were allocation controls intended to distribute supplies
in accordance with perceived requirements.'
Oil price and allocation controls had several effects that
proved detrimental to the U.S. economy. In the short run, they
created the gasoline lines that frustrated the U.S. public. Over
the longer term, they reduced incentives to develop U.S. energy
resources by holding domestic crude oil prices below world
prices. As a result, total domestic energy production generally
stagnated from 1972 through 1978. At the same time, federal
policy, which kept prices from rising, employed regulations to
limit demand.
Maintaining artificially low oil prices during a period of rapid
economic growth led to increased demand for oil. This de-
mand, in turn, could only be met by ever-increasing levels of
imports, and these imports, ironically, were subsidized by the
federal government by averaging their costs with price-con-
trolled domestic supplies. By 1977, net oil imports increased to
almost 8.6 million barrels per day, or 46 percent of total U.S. oil
consumption-nearly double net oil imports in 1972. Under
free-market conditions, the increased world oil prices would
have made domestic petroleum resources more competitive and
would have stimulated increased exploration and production.
For comparison's sake, in 1982, a year after federal price and al-
location controls were eliminated, net oil imports were 4.3 mil-
lion barrels per day-28 percent of total U.S. oil consumption.
The federal government's efforts, begun in 1975, to increase
energy supplies by subsidizing development and commercial-
ization of alternative energy technologies led to rapidly increased
government expenditures. The situation was a classic example
of how government attempts to control one part of the market
inevitably create problems in other parts of the market. On the
one hand, government controls were holding down the price of
conventional fuels, thus ensuring that more expensive alterna-
tive energy technologies could not be competitive in the mar-
ketplace. On the other hand, rapidly increasing government
expenditures to subsidize the demonstration and commercial-
ization of new technologies were intended to accelerate the
market penetration of these alternative energy sources.
In early 1979, when the second oil supply disruption occurred
following the Iranian revolution, the hazards of government
intervention in the market were illustrated graphically again.
Despite the fact that neither the 1979 Iranian cutoff nor the
1973 embargo reduced oil imports to the United States by
more than 10 percent, regional shortages and long gasoline
lines occurred after both events. Federal price and allocation
regulations created far greater dislocations than the actual
supply losses warranted. The national energy policy initiative
that could have been most effective in reducing the effect of the
'Phase IV of the Cost of Living Council's wage and price controls, with a
two-tier price control system for crude oil, was in effect at the time of the
October 1973 embargo. The Emergency Petroleum Allocation Act, enacted
November 7, 1973, continued Phase IV crude oil price controls and initiated
mandatory petroleum allocations and price regulations for most petroleum
products.
1979 disruption-that is, the elimination of the price and
allocation controls that subsidized higher imports and misdi-
rected gasoline supplies, thereby making gasoline lines
inevitable-was not considered to be a viable option. Nor was
the Strategic Petroleum Reserve an option: at the beginning of
1979, it contained only 67 million barrels of oil, about a 10-day
supply of crude oil imports at the demand level of the time.
Moreover, the equipment to remove the oil was not operational.
The detrimental effects of federal controls also were felt in
natural gas markets. The Supreme Court's 1954 Phillips deci-
sion effectively had created two markets: a price-controlled
interstate system and an intrastate market that was not subject
to federal price controls. Because intrastate markets could pay
higher prices, much of the Nation's newly found natural gas
reserves were dedicated to intrastate sales. The distorting
effects of interstate controls became apparent by the mid-
1970s, when distributors in the interstate market were unable
to purchase sufficient gas at controlled prices to meet consum-
er demand. Because regulatory practices prevented prices from
rising quickly enough to balance supply and demand, some
users were denied access to gas supplies. Curtailments peaked
in the severe winter of 1976-77 at close to 2 trillion cubic feet of
gas, and to some it seemed as if the Nation were running out of
natural gas. In fact, gas supplies were not running out. Once
again, federal price controls had reduced incentives to bring an
energy resource into the market. The Natural Gas Policy Act
of 1978 made some progress in removing these disincentives by
eliminating distinctions between interstate and intrastate mar-
kets and by providing production incentives through a com-
plex system that allowed higher prices for gas developed from
higher cost resources. But wellhead price controls remained
and again have led to a different set of market distortions:
increasing gas prices during a period of surplus supplies, disin-
centives to produce lower cost resources, and severe price
disparities among various regions of the country that exceed
those expected because of differences in transportation
costs.
National energy strategies have been revised significantly in
the past two and one-half years. An interventionist approach
has been abandoned and replaced with increased reliance on
the free market to do what no government agency can do-
namely, to promote economic efficiency through innovation,
fuel substitution, and development of new technologies.
The flexibility of the market to respond to changed circum-
stances and their accompanying price signals is illustrated
clearly by recent trends in world oil prices. The dramatic oil
price increases of the mid- and late-1970s stimulated conserva-
tion measures and contributed to the decline in oil demand-a
decline further compounded by international recession. At
prevailing prices, oil supplies, which were considered "tight"as
recently as 1979, actually exceeded demand by mid-1981. The.
resulting surplus and the elimination of oil market controls
combined to help push down the price of oil.
Downward price pressures were first apparent in the spot
market. Later, they were confirmed by pricing actions taken by
members of the Organization of Petroleum Exporting Coun-
tries. During 1982, these actions consisted primarily of state-
ments relating to production quotas for member countries
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along with informal discounting from official prices. Then, in
response to declining world demand-by February 1983 world
demand for OPEC oil had fallen to less than 15 million barrels
per day, compared to 31 million barrels per day in 1979-
OPEC reduced its posted marker crude oil price in March 1983
by 15 percent, from $34 per barrel to $29 per barrel.
The effects of market incentives on U.S. energy production
and consumption also have been dramatic. Following the
sharp world oil price increases in 1979-80 and the removal of
government price and allocation controls on crude oil in 1981,
total domestic oil production rose, including the first increase
in production from the lower-48 states since 1970. In 1981,
drilling and exploration for oil climbed to record levels. The
production response from older oil fields was particularly
significant, with additions to reserves from older fields more
than double the reserve additions from new field discoveries in
the 1980-81 period. More recently, lower demand coupled
with tax changes and lower prices has caused a decline in the
number of rotary rigs drilling exploratory wells, although the
number of oil well completions and the total footage of wells
drilled in 1982 still exceeded pre-1981 years.
Higher oil prices after 1979 also affected U.S. demand for oil
and stimulated increased efficiency in energy use, fuel switch-
ing, and other conservation measures. The economy has
proven to be capable of significant improvements in energy
efficiency-greater than were foreseen prior to 1979. The rate
of energy use per dollar of gross national product fell by 10
percent between 1979 and 1982. U.S. demand for oil declined
further as general economic conditions turned downward dur-
ing 1980-82. By the end of 1982, diminished U.S. oil demand
resulted in the lowest level of oil imports since 1972. As eco-
nomic recovery continues, U.S. demand for energy is expected
to increase and thus provide renewed stimulus to domestic
energy production, including oil, coal, renewables, and other
resources. Some increased demand for oil imports also is
expected to accompany economic recovery; however, because
of efficiency improvements and fuel switching, imports are not
expected to return to their peak levels.
Since 1981, removal of government oil price controls,
reduced economic activity, and consumer response to market-
determined oil prices have been the major factors determining
the Nation's energy situation. The ability of the market to
respond to changing economic conditions has been enhanced
significantly by a national energy policy that limits the federal
role to the functions of establishing the boundaries of national
security and public health and safety within which the market
operates and of complementing private initiatives through
basic research and development and economic management of
publicly owned resources.2
2Additional information is contained in the technical report Energy Activity
and Its Impact Upon the Economy.
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III
FEDERAL PROGRAMS AND
ACTIONS IN ENERGY
The federal programs and actions described in this chapter
of the National Energy Policy Plan are based on the energy
strategies adopted by the Administration: to minimize federal
control and involvement while maintaining public health and
safety and environmental quality; and to promote a balanced
and diverse energy resource system that is responsive to both
domestic and international market forces and that will protect
our national security interests. These strategies and the federal
activities to implement them improve economic efficiency. At
the same time, they enhance national energy security and allow
maximum opportunity for the expression of regional differ-
ences in energy resources and requirements.
MINIMIZING FEDERAL CONTROL
WHILE MAINTAINING PUBLIC
HEALTH AND SAFETY AND
ENVIRONMENTAL QUALITY
Implementation of a market-based energy policy since 1981
has required significant changes in the federal role in energy.
Nowhere are these changes more evident than in the area of
federal regulation. Three principal concerns guide federal
energy regulation activities: the need to remove price controls
where competitive market conditions exist; the need to con-
tinue and, as appropriate, to improve protection of the envi-
ronment and public health and safety; and the need to main-
tain and ensure a regulatory framework that addresses these
concerns in a manner that promotes market efficiency.
Oil and Natural Gas Decontrol
During every year of the past three decades, oil and natural
gas have accounted for at least 60 percent-and in some years
more than three-fourths-of the primary energy consumed in
the United States. As indicated in Chapter II, the oil and gas
markets have provided an important laboratory for observing
the effects of government intervention and demonstrating the
benefits of free-market pricing.
Price and allocation controls on crude oil, which had begun
to be phased out in June 1979, were completely removed by
Executive Order in January 1981. Thereafter, domestic drilling
and oil production increased, arresting a 10-year decline in
production in the lower-48 states. The removal of price con-
trols raised incentives to search more intensively for new oil
fields and encouraged greater investment in processes to
increase recovery from older fields, avoiding the high initial
costs of exploration and development. Indeed, during 1981,
additions to domestic oil reserves from these less costly exten-
sions to old reservoirs yielded more than twice the volume of
additions to reserves from exploration and development of
new fields. These results indicate that decontrol of crude oil
prices enables maximum production of the lowest cost domes-
tic oil.
By allowing market forces to determine oil prices, national
energy policy has produced direct benefits to U.S. consumers.
Retail gasoline prices, which rose briefly after decontrol as a
result of the December 1980 OPEC price increase, declined
from a peak national average of $1.39 per gallon in March 1981
to about $1.27 per gallon in July 1983. Even with the addition
of a 5-cent-per-gallon increase in the federal excise tax that
went into effect on April 1, 1983, and despite some general
inflation over the two-year period, nominal retail gasoline
prices in July 1983 remained lower than they were during
January 1981, the last month of price controls. In real terms,
these prices were more than 15 percent below January 1981
levels.
While lower gasoline prices did not result solely from decon-
trol of oil prices, they do reflect the benefits that a combination
of market forces have produced for the consuming public.
These include increased domestic production, increased effi-
ciency and competition in distribution, lower demand for oil
here and abroad, and declining world oil prices since 1981.
Similar benefits have not yet been achieved in the case of
natural gas, which remains the only primary energy source
subject to government price controls. Implementation of a
market-based system for natural gas is essential to achieving
national energy policy objectives as they apply to natural gas,
and it is critical to continued economic recovery and growth.
Natural gas accounts for 26 percent of total U.S. energy use,
amounting to 17.7 trillion cubic feet in 1982. Ninety-five per-
cent of the gas used in the United States is domestically pro-
duced; imported gas makes up the remaining 5 percent. As
with other fuels, supply and demand for natural gas have
changed over time. Federal price controls, however, have pre-
vented the market from responding to these changes and,
instead, have allowed gas prices to move only in an upward
direction despite growing surpluses and declining demand.
They have encouraged contract provisions that bind producers
and pipeline companies to what, in an unregulated market,
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would be irrational economic behavior. These circumstances
have encouraged premature abandonment of older wells that
could produce more supplies of less expensive gas and have
skewed the gas market to economically inefficient production
of higher cost supplies, thereby depriving consumers of lower
prices.
The Administration's proposal to correct distortions caused
by current federal regulation of the gas market is based on
three fundamental principles: consumer protection against
unreasonable price increases resulting from the status quo or
from new legislation; gas deregulation of natural gas prices at
the wellhead to capture the benefits of competition in the
marketplace; and adjustments of contracts entered into in a
regulatory environment that has contributed to the present
situation in which gas prices escalate even though supplies are
abundant. Within this framework, decontrol of all natural gas
prices at the wellhead by a date certain is critically important to
achieving a decrease in natural gas prices after legislation is
enacted and to maintaining gas prices at a level that is lower
than what would result from continued government controls.
As indicated in Chapter I, the Administration will continue to
work closely with Congress to obtain passage of natural gas
decontrol.
The energy policy strategy to minimize federal control
involves more than removing price controls. As indicated in
previous sections of this Plan, a market-based national energy
policy does not presume that the federal government should
refrain absolutely from intervening in energy markets. Where
markets do not readily reflect full costs and benefits to society,
federal regulation may be required, as in the case of ensuring
environmental, health, and safety objectives.
Environmental Regulation
Almost all energy production and consumption activities
use or affect environmental resources-air, land, and water.
The benefits from increased use of environmental resources in
the production and use of energy should be balanced with
environmental costs in terms of opportunities to use these
resources in some other fashion. In practice, however, debate
and uncertainty usually accompany the calculation of costs
and benefits, and definitive answers seldom emerge. Decision-
makers are faced with the challenge of balancing the goals of
energy policy within the broader context of economic policy,
while giving adequate consideration to environmental concerns.
Federal efforts to ensure that the Nation's energy system
remains environmentally sound fall into two categories: ana-
lyzing the probable environmental consequences of energy
technologies through research and development programs,
and promoting cost-effective regulations. Both efforts advance
environmental interests by ensuring that energy prices reflect
environmental costs and benefits to society.
Several important regulatory policy initiatives have been
taken in the past two and one-half years to promote an envi-
ronmentally acceptable system of energy production and use.
A single standard for lead content in gasoline has been applied
to all producers. Although this initiative resulted in increased
production costs for some refiners and blenders, the adverse
health implications of airborne lead emissions justified its
adoption. In the case of Clean Water Act requirements, initia-
tives have been taken to strengthen the enforcement of existing
standards, to streamline the permit issuance process, and to
increase the authorities and responsibilities of the states. These
efforts are aimed at developing more effective' regulatory
strategies to maintain and to enhance water quality. Finally,
initiatives aimed at allowing market forces to operate freely
can promote environmental protection. Such is the case with
the Administration's proposal to deregulate natural gas. This
policy initiative will serve both consumer and environmental
interests by allowing increased use of a plentiful domestic
energy source that is generally considered to be the most
environmentally preferred of all fossil fuels.
In the area of acid rain-perhaps the Nation's most contro-
versial energy-related environmental issue-national energy
policy has supported accelerated research to determine how
acidic compounds are formed in the atmosphere and the rela-
tionship between air emissions and acid deposition effects. The
National Academy of Sciences and the White House Office of
Science and Technology Policy recently released their findings
on the acid rain phenomenon, and an interagency group that
includes the Environmental Protection Agency and the De-
partment of Energy is reviewing these and other research
findings and alternative options for mitigating the adverse
effects of acid rain. The national energy policy objective con-
cerning acid rain continues to be one of achieving a scientific
understanding of the atmospheric physics and chemistry and
related characteristics of the acid rain phenomenon and of
avoiding premature or excessive regulatory initiatives that
might increase consumer prices significantly without providing
corresponding benefits in controlling acid rain.
Energy and environmental objectives may appear to conflict
more frequently than they converge, but they are not mutually
exclusive. The question is not one of "either/ or"; rather, it is a
matter of determining how we can achieve both. Overall,
public health has improved significantly as industrial society
has advanced. In many cases, such as production of unleaded
gasoline or flue gas cleanup, added energy consumption is
required to achieve environmental protection. In addition,
many current initiatives to promote a balanced and mixed
energy system, such as the emphasis on conservation and
renewable energy as well as the proposed deregulation of
natural gas prices, can result in positive environmental effects.
National energy policy is committed to achieving both objec-
tives: adequate supply of energy at reasonable costs and an
environmentally acceptable mix of energy supplies.
Nuclear Energy Regulation
Nuclear energy is of continuing importance to the Nation's
economic growth and, along with coal, is economically more
attractive over the long term for baseload electricity generation
than either oil or gas. Nuclear power plants have been provid-
ing about one-eighth of the Nation's electricity supply for more
than five years and are now operating in 26 states. Nuclear
power fills more than half the total electricity requirements in
some states; and by 1990, when most plants now under con-
struction will be operating, nuclear-generated power is expected
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td account for about 20 percent of our total national electricity
supply. Beyond its importance in terms of domestic supply,
nuclear-based electricity will be an increasing source of future
worldwide energy supply because many of our allies have fewer
cost-competitive energy options than the United States. All
these factors make it imperative that the United States main-
tain nuclear power as a viable energy option and an area of
U.S. technical leadership.
Decisions about whether to build and use nuclear power will
remain matters of local determination. Unfortunately, seg-
ments of the public-consumers, public officials, industry, and
even some regulators-no longer seem certain that current
federal regulation of nuclear energy is capable of ensuring
nuclear safety, despite the nuclear industry's enviable safety
record.
If nuclear power is to remain a viable energy option for the
future, the nuclear regulatory process must continue to ensure
public health and safety and must become more predictable,
timely, and efficient. Several actions taken since publication of
the 1981 National Energy Policy Plan are intended to stabilize
the nuclear regulatory process, improve nuclear safety, and
enhance public participation in nuclear power decision-
making.
In October 1981, the President issued his nuclear energy
policy statement, which included as one of its principal objec-
tives the development of a program for storing and disposing
of commercial high-level radioactive waste. Safe, efficient
management and permanent disposal of nuclear wastes is
essential to the continued use of existing or future nuclear
power plants as part of a diverse, balanced mix of energy
supplies. Congress recognized this need by enacting the
Nuclear Waste Policy Act of 1982, a landmark legislative
achievement that provides the Nation's first comprehensive
nuclear waste management program. The Act establishes
rigorous schedules and processes for siting, constructing, and
licensing geologic repositories for permanent waste disposal;
provides for a utility-paid fee system under which the costs of
waste disposal will be borne by the owners and generators of
nuclear waste; prescribes that the Department of Energy sub-
mit a proposal for the construction of one or more monitored
retrievable storage facilities by 1985; and requires that states be
allowed to participate extensively in the processes concerning
selection of waste repository sites. The Act's major objectives
are to construct a permanent nuclear waste repository by 1998;
to assist utilities in developing and licensing additional at-
reactor storage capacity; and to provide necessary emergency
federal interim storage.
The Department of Energy is implementing the Nuclear
Waste Policy Act with high administrative priority. Nine
potentially acceptable repository sites have been identified in
Louisiana, Mississippi, Nevada, Texas, Utah, and Washington
for possible selection as the Nation's first repository site. Liter-
ature surveys of geologic formations in several other states are
being conducted to determine if these states contain potentially
acceptable sites for a second repository. Governors and legisla-
tures in the several states have been notified, and public hear-
ings have been conducted in the six states with candidate sites
for the first repository.
As required by the Act, the Department of Energy has
begun collecting fees from utilities that use nuclear power to
generate electricity. The fees will total approximately half a
billion dollars per year by fiscal year 1987. In addition, about
$2 billion in fees will be collected from owners of inventories of
spent fuel or high-level radioactive waste. The Department
also has submitted a report to Congress on research and
development that would be required for monitored retrievable
storage facilities. By mid-1985, DOE will submit a proposal,
supporting plans, and environmental assessments for the con-
struction of one or more of these facilities. In addition, the
Nuclear Regulatory Commission (NRC) has published a pro-
posed rule establishing procedures and criteria for determining
eligibility of utilities for federal interim storage of spent fuel,
and has issued a rule addressing the administrative procedures
and technical criteria for disposal of high-level wastes in geo-
logic repositories.
Another objective of the President's nuclear energy policy
statement is to streamline federal nuclear regulatory and licens-
ing processes. Accordingly, the Administration has proposed
the Nuclear Licensing and Regulatory Reform Act of 1983.
This bill would provide five major improvements in the nuclear
regulatory and licensing process: approval by NRC of suitable
sites prior to filing of construction permit applications; approv-
al by NRC of optional standardized designs for entire plants or
major subsystems; a disciplined process for requiring equip-
ment modifications on new and existing plants; an optional
combined construction and operating license; and improve-
ments in the public hearing process. Each of these provisions
offers significant benefits independently of the others. Their
combined effect will provide a more rational and integrated
approach to nuclear licensing, resulting in improved safety,
reduced costs, and, it is hoped, renewed public confidence in
the reliability of nuclear-generated electricity.
Ultimately, the question of public confidence in nuclear
safety is not simply a matter of federal responsibility. National
energy policy, which leaves to states and localities the role of
determining whether or not to build and use nuclear power,
also assigns to them primary responsibility for developing
contingency plans tailored to local conditions that are available
for use in the event of emergencies. Federal regulations require
that such plans be developed with adequate provisions for
addressing the safety needs of those potentially affected in the
unlikely event of emergencies at nuclear power plants. The
federal government will continue to work cooperatively with
states and localities in the development of such plans, and it
will do so recognizing that the task of maintaining and renew-
ing public confidence in government regulation and control of
nuclear-generated electricity is shared by officials at all levels of
government and must be accomplished as a matter of provid-
ing for our general welfare.
Federal Leasing
The domestic energy resources of the United States are
sufficiently abundant to ensure a secure, diverse mix of energy
supplies under any reasonable projection of our energy future
well beyond the year 2000. Timely, economic development of
these resources to ensure future supply certainly will be deter-
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mined in part by how well federal programs in leasing of public
lands and the Outer Continental Shelf (OCS) support private
sector initiatives and capital investment in exploration and
development activities.
The federal government owns one-third of the Nation's
onshore land and all the Outer Continental Shelf seaward of
state ownership. In the lower-48 states, these federal lands and
OCS areas contain a little less than half of the Nation's pro-
spective crude oil and natural gas resources, about one-third of
its coal resources, and almost three-fourths of its oil shale and
tar sands resources. The federal government, because of its
resource ownership, has a direct influence on future energy
resource development through its onshore and OCS leasing
policies.
To encourage private exploration and development of the
Nation's energy resources to meet future U.S. energy needs, the
federal government must allow a broad range of opportunities
for investment in these resources, including making federal
offshore and onshore resources available for leasing. In partic-
ular, the Outer Continental Shelf (for oil and gas) and the
federal lands in the West (for coal) provide an important
source of new reserves to replace domestic reserves produced
to meet demand.
Long-term prospects and uncertainties, rather than short-
term considerations, should determine leasing policy. There is
a very long lag time between leasing and production of oil, gas,
and coal. Resources leased this year will not enter production
for at least 5 to 10 years, and they will not complete production
for 15 to 40 years or, in some cases, longer. Production from
federal lands today depends heavily on resources leased in the
1960s. Similarly, the value of leasing these resources is deter-
mined by the prices in effect when they are produced and
current estimates of those prices, rather than simply by today's
prices. Thus, companies will bid today for leases on the basis of
their expectations of what prices will be in the future. If they
expect prices to rebound and demand to be strong, they will
bid higher and buy more leases; if they expect prices to remain
low, they will bid less and lease only the best prospects and
deposits.
Although future world oil prices are uncertain, we know that
reserves of potentially competing energy supplies will help
restrain future oil price increases. The federal government
impedes this process at the risk of our national economic
well-being if it restricts opportunities for companies to invest in
exploration and development of our energy resources.
One of the major purposes of offering expanded areas for
lease is to maximize energy investment opportunities for the
efficient production of energy for consumers; it is not, as some
suggest, merely to balance the federal budget. More federal
revenue is obtained from royalties and taxes (plus expanded
economic activity) on actual production than from up-front
payments for the right-which may never be exercised-to
explore for and to develop resources on federal lands. Far
more important than federal revenues is the benefit to the
economy as a whole of timely and efficient energy production.
To maximize federal bonus payment revenues, some would
have the federal government behave like a monopolist, restrict-
ing supplies to keep prices up. In the long run, the Nation is
better served by lower prices to consumers than by artificially
inflating the average price of a tract in the pursuit of higher
short-run federal revenues.
The U.S. Outer Continental Shelf continues to offer some of
the most economically and environmentally attractive pros-
pects for developing domestic energy resources. In fact, the
record to date indicates that offshore oil production results in
far fewer oil spills than transporting oil by tanker. To ensure
that these offshore resources are made available for develop-
ment, the Outer Continental Shelf leasing process has been
streamlined. A vigorous but deliberate schedule is being im-
plemented to make available major prospective producing
regions. Also, this leasing process has been restructured to
allow individual companies to decide on which specific tracts
to bid, rather than to continue relying on the federal govern-
ment to determine which limited prospects are most likely to be
productive.
Onshore oil and gas development may be less prolific per
well than offshore drilling, but it involves many more leases
and individuals. The Administration has made major strides in
reducing the previously lengthy backlog of unprocessed non-
competitive lease applications, allowing more timely explora-
tion and development. An increase in the filing fee has helped
reduce this backlog and place the opportunities for oil and gas
development in the hands of those who can best and most
efficiently exploit those opportunities. In addition, increased
filing fees have increased federal revenues. Major onshore oil
and gas resources in Alaska have been made available for lease
for the first time.
Coal leasing essentially was halted during the 1970s. Eighty-
three percent of all current federal coal leases were issued in the
1960s or earlier; only 9 percent of current leases were issued in
the 1970s, when a moratorium was in effect through much of
the decade. Despite the many unforeseen changes in the energy
market during the 1970s, federal coal leasing policy late in the
1970s embraced the notion that production requirements
could be predicted by government and that, as a result, the
federal government could and should tailor its leasing precisely
to such predictions. The current Administration, understand-
ing that circumstances change and that the private sector needs
an extensive and diverse array of opportunities for develop-
ment, has redesigned and revitalized the coal leasing program,
again making federal coal available to energy markets, and
ensuring that an adequate supply of coal reserves will be
available for development when it is needed.
The regulatory and federal leasing accomplishments and
initiatives of the past two years are principal elements of the
national energy strategy to minimize federal control while
maintaining public health and safety and environmental qual-
ity. They provide for economic efficiency, and they support
implementation of the national energy policy strategy to pro-
mote a balanced and diverse energy resource system.
PROMOTING A BALANCED AND
DIVERSE ENERGY RESOURCE
SYSTEM
Achieving a balanced and diverse energy resource system
involves both public and private initiatives. The federal role in
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puYsufng this energy strategy maintains our national energy
security and creates a technological and economic climate that
encourages private innovation and investment. In this connec-
tion, federal programs and actions involve the full range of
energy resources and a variety of national and international
activities.
Energy Resources
Conservation
National energy policy regards conservation essentially as
increased energy efficiency and views it as an energy resource-
to be approached with the same market-oriented public policy
strategy as are other energy resources. Conservation investment
options by businesses and consumers frequently are competi-
tive with new energy supply or fuel-switching investments.
Investment in energy conservation often makes good busi-
ness sense. It need not be viewed as an altruistic activity or as a
sacrifice. As our experience with conservation practices has
expanded, our understanding of the technical characteristics
and the economic returns of alternative conservation tech-
niques also has expanded. The provision of technical and
economic information is a particularly effective role for the
federal government in terms of expanding the use of cost-
effective conservation measures. On the other hand, the
Administration does not support an emphasis on federal fund-
ing of large-scale conservation projects or the imposition of
federal regulations upon consumers and businesses to conserve
energy according to federal mandate.
Since publication of the 1981 National Energy Policy Plan,
the Administration has implemented this approach by em-
phasizing market pricing of energy, redirecting federal conser-
vation programs to emphasize basic research and development
in materials and combustion processes, and modifying or elim-
inating federal regulations that attempted to mandate specific
levels of conservation, regardless of cost or consumer prefer-
ence. In addition, and consistent with the view that energy
policy is part of overall economic policy, tax reductions pro-
vided by the President's Economic Recovery Program benefit
conservation as well as other economic activities by freeing
private capital for investment and research and development
activities that will improve energy efficiency.
During the past decade, U.S. consumers have demonstrated
the energy resource potential of conservation by using energy
more efficiently in response to market conditions. Some fed-
eral energy conservation programs, including those that help
provide increased information about the energy efficiency of
equipment and appliances as well as about research and devel-
opment programs, have contributed to the increased efficiency
of energy use by U.S. consumers. Residential and commercial
buildings in the United States today consume 20 percent less
energy per square foot than they did 10 years ago. Energy
consumption per capita has declined by 13 percent since 1973.
Energy input per unit of industrial output has declined by 23
percent since 1973; between 1979 and 1981 alone, it fell by 10
percent. Fuel use per vehicle declined by 20 percent over the
last decade. Similar energy-efficiency gains have been achieved
in nearly every aspect of energy use. As a result, the overall rate
of energy consumption per dollar of gross national product has
fallen by 19 percent since 1973, declining by 10 percent in the
relatively brief period from 1979 to 1982. While early increases
in automobile fuel efficiency were facilitated by fuel efficiency
standards enacted in 1975, fuel efficiency and other energy
conservation advances during more recent years occurred
primarily as a result of consumer response to market forces,
and not as a result of federal intervention in the market-
place.
Conservation has shown itself to be a unique, economic, and
highly flexible energy resource applicable to all energy tech-
nologies and fuel types. It is not limited by geography or
indigenous natural resources, and it may offer significant
environmental advantages. No other energy resource can be
tailored to individual needs or employed in increments as
effectively as conservation, and each additional increment
results in immediate energy savings, thus promptly reducing
costs and offering return on capital investment. In short, con-
servation actions in response to changing market incentives
have a degree of flexibility unequaled by any other energy
resource option, and they will continue to be an important
component of our energy resource choices made by consumers
and businesses.
Energy conservation occurs in response to various forces at
work in the marketplace. The most influential factor is the
price of energy. Other important elements include changing
economic conditions, new trends in technology, changing con-
sumer preferences, and legislative and regulatory factors that
directly and indirectly relate to energy use. These forces have
produced both long-term, fundamental trends that can be
expected to continue and short-term trends that may be tem-
porary or may reverse themselves as conditions change.
Some of the more fundamental improvements in energy
efficiency are a result of technological improvements, which
have been spurred by the fact that energy is a significant cost of
doing business. As new and more efficient equipment makes
up a larger share of energy-using capital stock, the effects of
these trends in conservation will become increasingly evident.
In many cases, energy-efficiency improvements depend on
changes to capital. stock (machines, automobiles, appliances,
and buildings)-changes that require time. In addition, the
energy content of products and services consumed within the
economy is expected to continue to change in ways that will
tend to reduce the average content of energy contained within
products and services. Advances in energy efficiency observed
during the last 5 to 10 years give an indication of conservation's
continuing potential, and they suggest that many conservation
measures begun in response to the events of the 1970s are only
now beginning systematically to affect national patterns of
energy production and consumption.
Recent technological advances and current market condi-
tions offer a wide range of conservation opportunities; national
energy policy encourages private initiatives to take advantage
of these opportunities. The Administration has supported
existing tax credits for residential conservation investments to
encourage private sector implementation of additional energy-
efficiency improvements. On the other hand, the Department
of Energy has not promulgated substantive mandatory appli-
ance efficiency standards because, after full rulemakings, it was
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determined that substantive appliance efficiency standards for
eight consumer appliances were not economically justified,
and for seven of the eight appliances such standards would not
save a significant amount of energy. A more cost-effective
approach to improved energy efficiency in appliances is
accomplished by providing accurate information to consumers,
and the Administration therefore supports continuation of the
appliance labeling program. Conservation initiatives by states
and the private sector also are encouraged through a variety of
loan and grant programs administered by several federal agen-
cies. For example, the Low Income Homeowner Energy
Assistance Program (administered by the Department of
Health and Human Services), while primarily designed to pay
heating bills, allows up to 15 percent of the funds allotted to
each state to be used as a block grant for weatherizing homes.
Similarly, the Department of Housing and Urban Develop-
ment's community development block grant program allows
states to use some of their funds for weatherization programs.
Private sector initiatives are provided through the Small Busi-
ness Administration's loans to firms providing conservation or
weatherization materials and services and the Department of
Agriculture's loan/ grant program for weatherizing rural homes
and buildings.
National energy policy also seeks to foster a technical and
economic environment that will ensure continued develop-
ment of conservation's energy resource potential. The Presi-
dent's Economic Recovery Program provides broad-based
benefits toward this end. In addition, federally funded research
and development programs and related technology transfer
activities specifically promote full development of conserva-
tion as a critical element in a balanced and diverse energy
resource system.
Energy Research and Development
To a large extent, research and development activity can be
described in terms of the path of technology development and
the stages through which new technologies pass until they
reach the market as competitive energy investment options.
Stated simply, the technology development path consists of
five stages. Basic research involves the development of scientific
knowledge, including a fundamental understanding of the
physical and chemical properties of new or unconventional
fuel sources or energy systems. Applied research includes the
broad engineering and physical science aspects of specific
energy technologies. Proof-of-concept is where enough is
learned to establish the technical viability and basic engineer-
ing feasibility of a concept and to forecast its expected eco-
nomic and environmental performance standards, permitting
industry to make decisions concerning whether the concept
merits further development. Process development involves
increasingly larger scale systems where the objective is to
reduce technical risks and to improve process operability,
reliability, economics, and environmental impacts. Commer-
cialization enables a new energy technology to gain acceptance
in the marketplace.
In the two years since publication of the last National
Energy Policy Plan, federal energy research and development
funding has been redirected to emphasize basic and applied
research and development and to move away from the
demonstration and commercialization efforts that dominated
previous energy research and development policy. This change
in federal research and development emphasis is consistent
with the Administration's views concerning the federal role in
research and development and reflects our confidence in the
private sector's ability to make the best-informed decisions
about the production and use of specific fuels, technologies,
and energy-efficiency improvements. It also reflects the Admin-
istration's determination to recognize budget constraints and
to use federal resources to their maximum advantage.
The federal role in energy research and development is
concentrated in areas where the incentives for and availability
of private investment are severely limited or nonexistent. In
these areas, competitive rates of return on investment cannot
be realized by private firms, either because they are difficult to
predict or highly risky, or because they would require an
exceptionally long time to be realized. The success of federal
research and development programs in providing options for
private investment and commercial development depends on
effective technology transfer. The federal government does not
have responsibility for the adoption of new energy technolo-
gies by the private sector and often is not a customer for such
technologies. Its contribution to the development of future
energy resources lies in the prompt and effective transfer of
results from federally funded generic research and develop-
ment activities to private entrepreneurs, innovators, businesses,
and industry and in facilitating transfers of technology within
the private sector. Traditionally, such transfer is accomplished
through a variety of mechanisms, ranging from publications
and symposia to advisory boards and peer reviews, and to
federal laboratory access and patent policy. Recognizing the
critical importance of effective technology transfer to the suc-
cess of national energy policy, the Administration will intensify
its emphasis on effective management of the process through
which it is accomplished.
A balanced national research and development program
that includes public and private funding and effective technol-
ogy transfer enhances the Nation's ability to develop new
technologies and to improve the efficiency and acceptability of
existing technologies. The scope of federal research and devel-
opment programs designed to accomplish these objectives is
far too broad to describe in this Plan beyond the brief sum-
mary that follows.2
Conservation. Current and future market conditions offer a
wide range of incentives for conservation initiatives by the
private sector. Federally funded research and development,
therefore, is selectively targeted to particular areas of energy
efficiency that are not likely to be undertaken by the private
sector alone. Examples include programs to develop alterna-
tives to liquid fuels in automotive applications, advanced
industrial and heat recovery processes, and improvements in
the energy performance of buildings. In addition, federal
research and development addresses scientific processes that
cut across a variety of end-use applications, including combus-
2Morc detailed information about Department of Energy research and
development activity is contained in the Seeretarv's Annual Report to Con-
gress. (U.S.. Department of Energy. Seeretars"s Annual Report to Congress.
Government Printing Office. Washington. 1983. [DOE/ S-0OIO(83)])
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tion and fluid mechanics, electrochemistry, and materials and
thermal sciences. As circumstances change and our under-
standing of certain energy-efficient technologies advances, the
priorities and mix of research and development programs will
be reviewed to ensure that federal efforts continue to provide a
flexible, evolutionary process that supports private sector
investment and application of energyefficiency improvements.
Renewable Resources. Technologies that convert renewable
resources into usable forms of energy-such as active and
passive solar heating and cooling; photovoltaics; wind, bio-
mass, and ocean thermal conversion; and geothermal energy
systems-offer a vast potential source of energy supply. Many
utilities are finding renewable energy to be a viable option for
satisfying a portion of their needs for expanded electricity
generating capacity. The Geysers geothermal field in northern
California has been tapped by several utilities, including the
Sacramento Municipal Utility District and Pacific Gas and
Electric Company. A total of 902 megawatts-electric (MWe) of
capacity were on line in 1981, with an additional 1,988 MWe
projected to be available by the year 2000. Southern California
Edison has in place or on contract more than 1,200 MWe of
renewable energy generating capacity and plans to have a total
of 2,150 MWe by 1990.
For many renewable technologies, however, advances still
must be made before economically viable systems will be
available to produce energy in major direct thermal applica-
tions and bulk electricity supply or to meet requirements for
liquid and gaseous fuels.
Federal research and development programs in renewable
energy are aimed at improving system efficiencies, reducing
material costs, and improving system operating life. In solar
heat technologies and photovoltaics, federal research seeks to
develop less costly and more efficient materials. Biomass
research is directed toward improving pyrolysis, liquefaction,
and gasification processes. Wind energy research aims to vali-
date analytic and modeling techniques and to test existing and
advanced systems. Research in geothermal energy is designed
to reduce the technical risks associated with exploiting the
geothermal resource base.
The overall objective of these programs is to contribute
scientific and engineering knowledge to the renewable energy
technology base so that industry can develop systems for
transforming renewable resources into energy forms suitable
for widespread application.
Magnetic Fusion. One of the clearest examples of basic
research in the federal research and development portfolio is
the magnetic fusion program. In a fusion reaction, nuclei of the
isotopes of hydrogen (deuterium and tritium) fuse under con-
ditions of extreme pressure and temperature. The reaction
creates helium and releases enormous amounts of energy in a
way similar to the reactions that take place in the sun. Fusion
energy has vast potential and could become a principal energy
source in the very long term-well into the next century.
Before it will have any practical application, however, numer-
ous technical and basic scientific uncertainties that are being
addressed by federal research must be overcome. Despite the
very long-term potential of fusion energy, near-term benefits
also are obtained from the U.S. fusion energy program in areas
as diverse as superconducting magnets, high-power accelera-
tors, advanced material development, and advanced computer
techniques.
Fossil Fuels. Continued long-term production of our do-
mestic fossil resources will depend on the interplay between
advances in extraction technologies, the difficulties of develop-
ing increasingly marginal known deposits, and discovery of
presently unknown reserves. In the case of oil and gas, long-
term production from conventional sources is likely to decline,
certainly within the next century. In the case of coal, the known
U.S. resource base-the world's largest known reserves-will
be adequate for several centuries at current and projected rates
of demand. Actual long-term development will depend impor-
tantly on the ability of private and public sector research
groups to develop acceptable environmental protection tech-
nologies; adequate technologies for efficient use of coal, both
directly and by conversion; and on the availability of adequate
economical coal transportation facilities.
Federal research and development efforts in areas such as
advanced coal cleaning, coal conversion, and enhanced oil
recovery are intended to ensure economic development and
use of domestic fossil resources over the long term. As fossil
fuel prices rise because of resource exhaustion, which will
probably happen sooner with oil and gas than with coal, other
energy sources will become comparatively more economic.
Nuclear Energy. Nuclear energy has been a major element of
the federal energy research and development program since the
1950s. The decision to develop commercial nuclear power was
and continues to be based on our need to provide safe and
economic alternatives to our finite fossil energy resources; and,
hence, to help ensure reliable sources of the energy needed for
long-term economic development and national security.
Nuclear research and development is a lengthy and capital-
intensive process that requires resources and capabilities nor-
mally outside the realm of the private sector. In addition,
federal responsibility in the area of nuclear health and safety
assurance is unique and essential. Thus, the federal govern-
ment's role in nuclear power development is fundamental.
The original U.S. nuclear program strategy called for a
two-stage approach: (i) to develop and commercialize light
water reactors that economically could use the high-grade
uranium resources initially available; and (ii) to develop
breeder reactors that would use uranium much more effectively
as those resources declined. The first part of that strategy is
essentially complete, although the government continues to
play a unique role in certain areas, such as improving the safety
and reliability of nuclear power plants.
The second part of that strategy is well under way-the
development of the liquid metal fast breeder reactor. The
immediate goal of the Department of Energy's program is to
develop the technology to a level that will enable industry to
make appropriate commercial decisions with acceptable risks.
Utilizing a systematic program of research, test facility con-
struction and operation, and cooperative efforts with private
industry, the federal government is pursuing a program to
develop and demonstrate a breeder technology that private
industry can commercialize as electric power demand and
competitive market forces dictate. Furthermore, if the United
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States is to maintain a position of leadership and influence in
nuclear trade and non-proliferation matters-a position criti-
cal to our national security-it must continue to advance its
scientific and technical competence in all areas of nuclear
energy technology, but particularly in the area of the fast
breeder reactor and its fuel cycle.
To this end, the Administration is requesting that Congress
provide for partial federal funding to complete the Clinch
River Breeder Reactor (CRBR). Although the CRBR is an
exception to our general approach to energy research and
development, its completion is the most cost-effective way of
advancing breeder reactor technology-an objective of the
President's 1981 nuclear energy policy statement.
The unique aspects of nuclear energy suggest that a substan-
tial portion of federal energy research and development efforts
will continue to be devoted to nuclear research and develop-
ment. They do not, however, diminish the importance that
national energy policy assigns to ensuring a balanced, diverse,
and economically efficient energy system. Nor do they pre-
clude continuing review of nuclear research and development
budgets for the purpose of identifying appropriate alternative
approaches. The recent efforts by Congress and the Adminis-
tration to obtain additional private sector investment in the
Clinch River Breeder Reactor plant serve as an example of the
pursuit of such alternatives.
Synthetic Fuels. By some criteria, federal support for syn-
thetic fuels development also may seem to be an anomaly of
current energy policy. It should be noted, however, that the
federal synthetic fuels program was established at a time when
most projections of future energy trends suggested shortages
and large price increases for oil and petroleum products by the
end of the century. While world conditions have changed and
current energy projections accordingly do not point to such
shortages or to such large price increases, it is likely that over
the longer term the lowest cost energy supply, as well as our
national economic and security interests, will dictate the substi-
tution of synthetic liquids and gas for present supplies of oil
and natural gas. The same changes that have led to revised
energy projections have resulted in currently diminished incen-
tives for private investment in synthetic fuels. In these circum-
stances, some continued federal support for synthetic fuels
development is warranted. In this connection, the Department
of Energy is conducting research and development programs
related to synthetic fuels, and the Synthetic Fuels Corporation
is implementing a strategy of support for the most promising
synthetic fuel technologies using a number of economic
incentives.
Electricity
Electricity is an important intermediate activity on the spec-
trum between energy producer and energy consumer. Electric
power generation consumes about 33 percent of the primary
energy used in the United States. Current DOE estimates
indicate that electricity demand growth is likely to increase at
an annual rate of 3 percent over the period 1982 to 2000. This is
equivalent to the projected rate of GNP growth and would
continue a trend over the past 10 years of matching average
growth rates for electricity demand and real GNP. Since other
end-use fuel demand is projected to increase at less than 'the
rate of GNP growth, the electricity share of final energy con-
sumption is projected to increase during the remainder of this
century.
Between 1973 and 1982, demand for electricity increased
about 25 percent more than growth in the gross national
product. Electricity prices per kilowatt-hour on a national
average increased significantly less than those for other energy
forms and, in real terms, were no higher in 1980 than in 1960,
although real prices increased roughly 60 percent from their
low point in 1970 to their highest level in 1982. But these
national statistics mask substantial variations among different
sections of the country, among various sectors of the economy,
and between systems using different fuels to generate electricity.
No other energy commodity shows as much regional price
variation as does electricity.
The availability of an adequate supply of electricity at reason-
able costs to meet current and future needs has come to be
viewed as a "right" by many consumers. Although sufficient
electricity supplies should be available throughout the 1980s,
the long-term outlook for continued availability of reliable
supplies is not certain.
Current estimates of future energy supplies do not project
electricity shortages in this decade. According to one set of
load-growth projections, however, significant additional gen-
erating capacity will be required to meet future demands, to
replace obsolete facilities during the 1990s, to displace high-
cost fuels (that is, oil and natural gas), and to provide for
effective reserve margins.3 Should these projections prove cor-
rect, 438 gigawatts of additional generating capacity would be
needed by the year 2000. This translates into the need to build
the equivalent of 438 large (1,000 megawatt) electric generating
plants. Approximately 25 percent of this additional capacity is
currently planned or under construction. The electric power
industry would have to spend more than a trillion dollars in
new capital investment between 1983 and the year 2000 to
provide this additional generation capacity. Such an invest-
ment would not represent a larger fraction of gross domestic
private investment,than the industry has previously required. It
would be a sizable capital undertaking for the industry-an
undertaking made difficult by the fast-changing economic and
energy conditions of the past decade.
Cost increases (especially fuel costs, which have increased
from 15 percent to 35 percent of total production costs over the
past decade) and rate regulatory practices, which resulted in
underrecovery of investment and substantial increases in the
ratio of noncash earnings (that is, future or accrued, as
opposed to currently available earnings) to cash earnings, have
combined to create serious disincentives for new investment in
electric power facilities. Noncash earnings result from con-
struction expenditures that are not permitted by regulation to
be included in a utility's rate base for collection as current
receipts and thus are not available to the utility as current
earnings. As such, they are an important negative financial
'U.S., Department of Energy, The Future of Electric Power in America:
Economic Supply for Economic Growth, Report of the Electricity Policy
Project (Washington, D.C.: Government Printing Office, 1983). [DOE/
PE-0045]
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factor affecting investor ratings of a utility's financial risk and
credit worthiness. Although some financial indexes for the
electric utility industry have shown recent improvement, the
industry continues to face significant financial disincentives to
new capital investment.
The utility industry also faces an uncertain future supply and
demand situation. More than 200 delays or cancellations of
new coal-fired and nuclear power plants were announced dur-
ing 1980 and 1981. About half these plants would have dis-
placed projected higher cost fuels and therefore would have
reduced future electricity prices for consumers based on mid-
range NEPP-1983 price projections for oil and natural gas.
Delays and cancellations of new generating facilities may be
justified in terms of both market conditions and current finan-
cial disincentives that face utility companies as a result of rate
regulation; however,, the long-term economic and social costs
to the Nation resulting from these regulatory disincentives to
efficient investment will continue to be a significant issue for
national energy policy.
The electric power industry has had to face radical changes
over the past decade. The ability of the industry and its regula-
tors at all levels of government to adapt to these changes will
ultimately determine the sufficiency and efficiency of electric
supplies in the long term. The federal role is important but
limited. In areas where the federal government has responsibil-
ity (for example, nuclear licensing and wholesale rate setting),
the policy should be to regulate in a manner that protects
public interests and allows market mechanisms to operate in
electric power supply and consumption. In areas where state or
local governments have primary responsibility (for example,
retail rate regulation), the federal government will offer its full
cooperation, including information sharing, wherever possi-
ble, while continuing to defer to the authority of state or local
governments.
Using this established division of responsibilities between
federal, state, and local governments, the full cooperation of
the various government entities will be required to enable the
electric power industry to maintain its tradition of reliable
service at reasonable costs.
Energy Security and International Cooperation
Federal programs in the area of energy security are critical to
our national and international security interests. U.S. energy
security interests are enhanced by a range of federal energy
programs, including many of those already mentioned, such as
oil and natural gas price decontrol, leasing of federal lands and
the Outer Continental Shelf, and research and development,
including cooperative research and development efforts in the
international community. Federal programs related directly to
energy security include development of the U.S. Strategic
Petroleum Reserve (SPR), management of naval petroleum
reserves (NPR), energy emergency preparedness actions, nu-
clear non-proliferation agreements, energy trade, and related
activities to secure energy supplies needed for our economic
welfare and defense readiness.
Emergency Preparedness
The most effective actions taken by the United States to
enhance energy security over the last two and one-half years
have been the removal of price and allocation controls on oil
and the rapid filling of the Strategic Petroleum Reserve. Since
the end of 1980, the amount of oil stored in the SPR has
tripled, to more than 350 million barrels in September 1983.
The Administration remains committed to construction and
fill of SPR capacity to a level of 750 million barrels.
Together with private petroleum stockpiles (about 1.1 bil-
lion barrels in August 1983), the SPR can be a cost-effective
form of insurance against the potentially severe effects of oil
supply disruptions. Current market conditions-namely, lower
U.S. import levels and very large amounts of spare world oil
production capacity (estimated to be more than 10 million
barrels per day in the second quarter of 1983)-reduce the
potential effects of oil supply disruptions in the near term. The
Administration, therefore, has moved to fill the SPR at a rate
consistent with these conditions. As world oil market condi-
tions change, the Administration will review SPR fill rates to
ensure that the insurance provided by SPR is maintained in a
manner that is cost effective.
In the event of a supply disruption, the United States will
fulfill its international obligations and rely on unrestricted
energy markets to distribute supplies domestically, including
supplies drawn down from the SPR. Markets are far superior
to any alternative way of allocating oil during supply disrup-
tions. They permit prompt, decentralized, flexible responses to
the uncertainties that accompany disruptions and thus avoid
the rigidities of government controls that necessarily are based
on historical patterns of consumption. We know from expe-
rience that government allocation schemes do not work. The
U.S. experience with oil price and allocation controls during
past disruptions included long gasoline lines and misalloca-
tions of supplies. This contrasts sharply with the experience of
industrialized countries such as Japan, West Germany, and the
United Kingdom that relied on market allocation and did not
encounter such difficulties. The decentralized decisionmaking
that characterizes market allocation permits supplies to flow to
where demand is greatest and allows much more diversity of
response-conservation, fuel switching, and domestic produc-
tion. It also reduces the likelihood that the federal government,
which at the outset consistently has overestimated the severity
of past disruptions, will cause widespread damage by decisions
that later prove to be wrong or misdirected.
In addition to further development of the Strategic Petroleum
Reserve and reliance on the market to distribute oil supplies, the
Administration will continue to strengthen the Nation's energy
emergency preparedness efforts as part of our commitment to
maintain and improve its defense and national security positions.
The Administration will seek legislation to ensure the avail-
ability and effectiveness of the Executive Manpower Reserves
in domestic and international energy emergencies; to extend
the International Energy Agency (lEA) antitrust defense to
June 30, 1985, consistent with authorities contained in the
Energy Policy and Conservation Act of 1975; and to correct
shortfalls in existing emergency preparedness legislation, such
as current provisions that require clarifications or that contain
inconsistencies. In addition, the Administration and Congress
are committed to improving federal-state coordination during
an emergency period.
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Comprehensive energy emergency preparedness can be fur-
thered also by appropriate administrative action on a timely
basis. The comprehensive energy emergency response proce-
dures contemplated by the Energy Emergency Preparedness
Act of 1982 are being improved. As part of this effort, several
tests of emergency systems have been conducted, including the
recent SPR drawdown exercise, and more are planned. In
addition, an analysis of administrative actions is under way,
designed to support the existing SPR drawdown plan and
associated legal authorities.
International Cooperation
No less important than the actions it takes domestically are
the international efforts of the United States that support
international energy security objectives. As the world's largest
producer and consumer of energy resources, the United States
is a leader in international energy policy by virtue of the
example it sets in its choice of domestic policies and the role it
plays in promoting cooperative approaches to the mutual
energy concerns of the free world.
Consistent with U.S. national interests and international
relations, the national energy policy goal of fostering adequate
supplies of energy at reasonable costs applies, as well, to our
international energy policymaking. Similarly, the U.S. ap-
proach is to rely on market forces at home and abroad and
thereby demonstrate to others in our international energy
relations that this strategy is in our mutual long-term interests.
Implicit in this approach is achievement of energy stability and
security in a manner that respects the sovereignty of other
nations and reflects the need to accommodate and resolve
broader mutual security issues.
Although the primary threat to the collective energy security
of the United States, Western Europe, and Japan remains our
continued vulnerability to oil supply disruptions, there have
been a number of changes in the world energy situation since
the oil supply disruptions of the 1970s that have strengthened
significantly free-world energy security. For instance, the United
States and its allies have diversified their sources of foreign oil
supply. During the first six months of 1983, U.S. oil imports
from Mexico and Canada were more than double our total oil
imports from the Persian Gulf. Organization for Economic
Cooperation and Development (OECD) countries, excluding
the United States, also have diversified their sources of foreign
oil supply, and since 1979 have decreased total dependence on
OPEC oil from 40 percent to about 28 percent of their energy
demand.
Since the 1970s, we also have witnessed energy-efficiency
improvements and fuel switching in the international com-
munity parallel to those that have taken place in the United
States. For example, since 1973 the rate of energy consumption
per dollar of gross national product is estimated to have
declined by 15 percent in OECD Europe and by a little less
than 10 percent in Japan. During the same period, oil's share of
total energy consumption is estimated to have declined by
more than 10 percent in OECD Europe and by almost 15
percent in Japan. Despite this progress in energy efficiency and
fuel switching, dependence on imported oil remains high in
many countries; and, therefore, further reduction in vulnera-
bility and strengthening of emergency response measures con
tinue to be primary international energy policy concerns.
Recent events have demonstrated the need for greater vigi-
lance, for improved international cooperation, and for a more
flexible approach to international energy policy to prepare
better for new problems and new vulnerabilities. The overriding
concern of our allies to reduce their dependence on imported
oil has led to growing reliance on natural gas from the Soviet
Union, a new source of vulnerability and concern to our
collective energy security and to fundamental U.S. national
security interests. Accordingly, a principal concern of this
Administration's international energy policy involves national
security interests and the importance of cooperative efforts to
find secure and economic alternatives to increased Western
reliance on insecure and prospectively uneconomic Soviet
supplies.
Through the International Energy Agency, the Organiza-
tion for Economic Cooperation and Development, and eco-
nomic summits, the United States has participated in reassess-
ing collective energy requirements and establishing a framework
for international energy security. Within this framework, the
United States will address natural gas security issues bilaterally
and under the auspices of IEA/ OECD; will maintain its strong
commitment to the International Energy Program and the IEA
oil emergency system; and will continue its support of IEA
programs to remove market impediments, accelerate the
development of new technologies, increase energy efficiency,
and strengthen emergency preparedness. U.S. international
energy policy also will continue to promote safe, reliable
nuclear power and nuclear non-proliferation goals through the
Nuclear Energy Agency and the International Atomic Energy
Agency.
A major national security issue is the need to strengthen the
international nuclear non-proliferation regime, while continu-
ing to promote the peaceful uses of nuclear energy and main-
taining the role of the United States as a reliable trading partner
and stable supplier of nuclear material, equipment, and ser-
vices. In accordance with the Nuclear Non-Proliferation Act of
1978, new and amended agreements for nuclear cooperation
are being negotiated to clarify and strengthen the non-
proliferation conditions under which the United States exports
nuclear materials and equipment. In addition, the United
States is continuing to work with other supplier nations to gain
acceptance of strengthened uniform safeguards an effort that
will improve the international non-proliferation regime and
place U.S. suppliers on a more equal basis with foreign
suppliers.
Energy Trade and Transportation
Actions by the United States in international energy matters
affect not only energy security, but our economic progress as
well. Continued economic recovery in the world's industrialized
nations and the growth of developing countries, unless offset
by gains in energy efficiency, inevitably will lead to long-term
growth in total energy demand. Energy demand growth,
coupled with the fact that the world's energy resources and
technological capabilities are not distributed evenly, will lead
to the increasing importance of energy trade and related energy
transportation issues in national and international energy
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policy concerns. As in other areas of energy policy, the U.S.
goal is to foster adequate supplies of energy at reasonable costs
by supporting a free-market environment that encourages
economic efficiency. Since 1981, the United States has sent
several official delegations to allied countries to promote
expanded energy trade.
The vast reserves of domestic coal offer significant export
potential. In 1982, the United States exported 106 million short
tons of coal, slightly less than the 1981 high of 113 million short
tons. Coal export levels in 1983 have fallen sharply in response
to lower oil prices, lagging recovery from the recent recession,
and increased competition from other coal exporting nations.
The market will continue to determine the level of U.S. coal
exports in competition with lower cost supplies from areas
such as Poland, Australia, and South Africa. The competitive-
ness of U.S. coal in foreign markets will depend on the trans-
portation costs incurred in moving the coal from mine mouth
to the port of export and from there to foreign destinations. In
a move to enhance the confidence of coal importing nations in
the security of U.S. coal supplies, the Administration has
continued to stress that coal destined for export will not be
diverted to satisfy domestic demand except in the event of a
national emergency.
Modernization of the Nation's port system can enhance
America's competitiveness in the world trading community
and reduce the cost of transporting coal and other commodities
to overseas markets. Accordingly, the Administration has
budgeted for and supports proposed financing arrangements
that would allow expansion of port facilities consistent with
port and user needs. User fees along with streamlined authori-
zation and approval procedures would ensure that decisions to
expand port facilities reflect market conditions.
Inland transportation costs will have a major impact on the
competitiveness of U.S. export coal. Coal slurry pipelines, for
example, may offer the potential to reduce inland coal trans-
portation costs by increasing competition and encouraging
expanded use of coal in both domestic and international
markets. However, the construction of slurry pipelines involves
questions of eminent domain and rights-of-way that are
reserved to state and local authorities. National energy policy
recognizes the role of state and local interests in balancing
energy needs and property rights. At the same time, the devel-
opment of an economical coal slurry pipeline industry would
promote competition in inland coal transportation and would
be in the national interest. In this connection, legislation may
be worthy of consideration that would permit the exercise of
federal eminent domain for slurry pipelines in a manner that
protects state water rights and preserves the rights of individual
property owners and states in eminent domain actions. Such
legislation would not guarantee that coal slurry pipelines, in
fact, would be built. If enacted, however, it would remove a
barrier to market efficiency and the operation of competitive
forces to transport coal for domestic consumption and interna-
tional trade.
A second energy trade issue involves the export of domestic
oil, particularly from Alaska. Current law permits exports of
petroleum products, but prohibits exports of crude oil. U.S.
petroleum product exports have tripled since 1977. Product
exports to.the Pacific Rim countries have grown from 36,000
barrels per day in 1977 to 138,000 barrels per day in 1982, the
majority going to Japan.
There are a number of important reasons for considering
alternatives to the existing ban on the export of Alaskan crude
oil. In 1982, the majority of oil imported by the Pacific Rim
countries was from potentially insecure sources, with Japan
depending on the Middle East for approximately 70 percent of
its oil consumption and Korea importing from the Middle East
approximately 79 percent of the oil it consumes. Substitution
of Alaskan oil for some of the oil now obtained from insecure
sources would strengthen the energy security of Pacific Rim
nations, a stated goal of the International Energy Agency and,
in turn, would enhance free-world energy security, including
that of the United States. In addition, depending on specific
provisions that might be adopted in connection with relaxing
export restrictions, significant potential economic benefits
could accrue to the United States. In particular, some portion
of the Alaskan oil that currently is creating excess supplies
on the west coast or is being shipped to U.S. Gulf Coast
refineries-a distance of approximately 6,800 miles-could be
shipped more cheaply over the 3,300 miles to Japan. This could
have several beneficial effects. In particular, less expensive
supplies for Gulf Coast refineries could be obtained from such
sources as Mexico and Venezuela. Further, such trade would
provide new opportunities for expanding Alaskan and west
coast production.
The Administration recognizes that important consider-
ations exist on both sides of the Alaskan export question (not
the least being the health of the U.S. maritime industry); the
Administration intends to work cooperatively with Congress
to identify possible alternative approaches. The goals would be
to provide economic benefits to the United States and to
maintain its energy security while at the same time ensuring the
energy security of the Pacific Rim countries and the free world
in general.
Finally, the area of nuclear energy trade remains a principal
concern of U.S. energy and foreign policies. As indicated
previously, the United States remains committed to nuclear
non-proliferation goals and provisions of the Nuclear Non-
Proliferation Act of 1978. Within this framework, the United
States has sought to reassure Western Europe and Japan that
we are supportive of nuclear programs and that we recognize
the vital role that nuclear energy plays in their energy systems.
At the same time, the Administration has sought to expedite
the processes for granting export approvals and licenses. Most
important, the United States has emphasized to its nuclear
trade partners that the strict control of sensitive materials and
technologies must be ensured to preclude nuclear proliferation
to unstable or sensitive areas of the world.'
Continued implementation of market-based domestic and
international energy policies will promote increased efficiency
and development of alternative resources and technologies. As
a result, the United States and its allies will be better prepared
to respond to emergencies should they occur. The United States
4Additional information on nuclear non-proliferation is contained in the
Secretarr's Annual Report to Congress. See footnote 2. page 14.
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will continue its efforts to remove barriers to its domestic
energy markets and to support the momentum for similar
efforts within the international community.
Energy as a major concern of national debate and policy-
making is a relatively recent phenomenon, roughly dating to
the oil embargo of 1973-74. Before then, relatively abundant
supplies and declining energy prices made national energy
policymaking and concerns about the federal role in energy
largely unnecessary. In less than a decade, the national posture
on energy has evolved from "crisis" perceptions and attempts
through federal intervention to shield our economy from the
realities of change to renewed confidence in the ability of
consumers and businesses responding to market forces to
ensure adequate supplies at reasonable costs. National energy
policy will continue to reflect confidence in American consum-
ers and in businesses and the determination of this Administra-
tion to continue implementing the energy strategies that have
resulted in significant energy accomplishments since 1980.
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Iv
1983 NEPP ENERGY
PROJECTIONS
This chapter briefly summarizes information contained in
the technical report Energy Projections to the Year 2010.
Energy price increases of the past decade, which have stimu-
lated conservation and the continuing process of innovation
and technology improvement, make it very likely that increased
market efficiency and production will continue to meet our
national goal of adequate energy supplies at reasonable costs.
The specifics of future energy prices and production are very
uncertain and not subject to precise definition. The projections
discussed in this chapter do not necessarily represent Adminis-
tration policy or the beliefs of the President or the Secretary of
Energy. They are, instead, presented in compliance with con-
gressional mandate as one of a number of sets of projections
that can be derived from mathematical modeling processes.
Like other private and government energy projections, the
energy projections presented with this 1983 National Energy
Policy Plan are inherently uncertain. Because projections can-
not fully represent a number of important qualitative factors
that influence energy markets-such as political events, con-
sumer behavior, or policy changes-these NEPP projections
involve a considerable amount of analytical judgment. As
most energy analysts will acknowledge, projections cannot and
should not be a substitute for common sense. Thus, the energy
outlook presented here should be interpreted as simply a point
of departure for understanding future energy developments.
? Although the outlook for future world oil prices' is
highly uncertain, most analysts now agree that world
oil prices probably will fall in real terms until the
mid-1980s, barring a significant oil supply disruption.
From 1985 to 1990, prices are projected to increase
moderately in real terms. Beyond 1990, the outlook
becomes increasingly uncertain.
? The oil price increases of 1973-74 and 1979-80 set into
motion powerful energy conservation forces that are
likely to continue, especially in terms of oil use. Energy
conservation has become as important as various
sources of energy supply in determining the future
evolution of the U.S. and world energy situations.
Therefore, more attention should be given to energy
conservation trends in future energy projections.
'"World oil price" is defined as the average cost to U.S. refiners, including
transportation and fees, of imported crude oil. This average reflects differences
in quality among the various imported crudes purchased by U.S. refiners.
? Oil price increases also provided incentives for devel-
opment of energy resources other than oil.
? The recent decline in world oil prices has added a new
dimension to the uncertainty about future market con-
ditions. Now, investment planners must be concerned
about the potential for future price breaks.
? Under all but extreme assumptions, the United States
and the rest of the world will remain dependent to some
extent on oil supplies from OPEC for at least the next
20 years.
Nothing more clearly illustrates the difficulty in projecting
future energy trends than does a review of past NEP and
NEPP world oil projections. In less than five years (1979 to
1983), energy projections have changed dramatically. For
example, mid-case projections of the 1985 world oil price,
measured in 1982 dollars, have varied from a high of about $47
(NEPP-1981) to a low of about $25 (both NEP-1979 and
NEPP-1983). Projections concerning free-world oil demand
have varied from an increase of 1.5 to 2 percent per year until
the year 2000 (NEP-1979) to slowly declining demand between
1980 and 2000 (NEPP-1981) to steady but moderately increas-
ing demand (less than 1.0 percent per year on average) begin-
ning in the mid-1980s through the remainder of the century
(NEPP-1983). New information and changes in the world situa-
tion are the primary reasons for variations in these projections.
ENERGY PRICE PROJECTIONS-1983
As a result of the unexpectedly low demand for OPEC oil,
world oil prices have declined steadily since 1981, rather than
climbing at a 2- to 3-percent-per-year real increase as assumed
in NEPP-1981. Lower demand for OPEC oil has occurred
primarily because of increased non-OPEC oil production, oil
conservation, and fuel switching in response to the price
increases of 1973-74 and 1979-80, lower energy demand
caused by worldwide recession in 1981-82, and worldwide
drawdown of crude oil and petroleum product inventories. A
key question now is: How are current market conditions and
trends likely to evolve both in the near and longer term?
For long-term planning purposes, oil prices are projected to
follow a relatively smooth path; however, the actual price path
most likely will repeat the volatile behavior of the past in
response to economic conditions, unusually cold or warm
weather, and other erratic events that directly affect world oil
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demand and supply. Each smooth price scenario should be
viewed as an average of many equally plausible but erratic
paths. The short-term volatility is important since price fluc-
tuations can increase the uncertainty of consumers and pro-
ducers about the true state of longer term price trends. In any
given year, the world oil price could be considerably above or
below its underlying long-term trend.
Although there are large inherent uncertainties about future
world oil prices, the current projection is that world oil prices
will tend to fall in real terms until the middle 1980s. Beyond
1990, prices may rise in real terms, in which case, the major
question would be whether (after averaging out fluctuations)
they would rise only slightly faster than inflation or much more
rapidly.
Other aspects of NEPP-1983 price projections include the
following:
? World oil prices are likely to stabilize in the $23- to
$30-per-barrel range in 1983 and 1984 (1982 dollars),
unless the Iran-Iraq war suddenly ends (increasing
world oil production) or the rate of world economic
recovery slows (decreasing world oil demand) in 1984.
? Between 1985 and 1990, demand for OPEC oil is pro-
jected to increase as world economic activity expands.
Sometime between 1986 and 1990, demand for OPEC
oil is projected to reach 24 million to 26 million barrels
per day. This level of demand should create significant
upward price pressure in the world oil market.
? By 1990, the world oil price in 1982 dollars is likely to
be between $26 and $40 per barrel. Thus, the price in
1990 is projected to be about the same as the $34-per-
barrel price just before the sharp real price decline
observed in 1982.
? Beyond 1990, world oil prices are extremely uncertain
and speculative, but are projected in real terms to reach
between $36 and $80 per barrel by the year 2000 and
between $55 and $110 per barrel by 2010. By that time,
however, the emergence of alternative energy sources
(or technological changes that cannot be anticipated)
render current projections of dubious value.
? One conditioning factor influencing the projected
range of price increases during the 1990 to 2010 time
period is the assumption that the cost of unconven-
tional oil sources such as shale oil and coal liquids will
be in the $50- to $80-per-barrel range (1982 dollars) as
opposed, for example, to the $35- to $50-per-barrel
range assumed by NEP-1979.
U.S. ENERGY TRENDS-1983
Primary Energy Consumed by the United States
Before 1950, U.S. energy consumption grew at a slower rate
than real economic output. From 1950 to 1973, energy con-
sumption grew at about the same rate as economic growth, or
about 3.8 percent per year. In NEPP-1983, the quantity of
energy consumed between 1982 and 2000 is projected to
increase at only about 1.3 percent per year, less than half the
2.8-percent projected. annual rate of U.S. economic growth
during that period. This amounts to an increase in energy con-
41 1
sumption during the period 1982 to 2000 of about 27 percent,
from just under 35 million barrels per day oil equivalent
(MMBOE) to 44 MMBOE.
From 1960 to 1977, there was a trend of steadily increasing
reliance on oil imports that peaked at 24 percent of total U.S.
energy consumption in 1977 (about 8.6 million barrels per
day). Reaction to higher oil prices has reversed this trend. By
the year 2000, U.S. net oil imports are projected to account for
about 12 percent of total energy consumption (about 5 million
barrels per day), compared to the 1982 level of 12 percent of
total energy consumption (about 4.3 million barrels per day).
Starting in 1982, if U.S. energy consumption were to grow at
the 2.8-percent rate projected for economic growth, the
amount of energy consumed in the year 2000 would be more
than 121 quadrillion Btu's (quads), about 30 percent more than
the 93 quads projected, with an energy consumption increase
of 1.3 percent per year. Consequently, improved energy effi-
ciency in the economy is projected to be a very significant
factor in determining long-term U.S. energy consumption
patterns.
Energy Produced by the United States
U.S. oil and natural gas production peaked at about 45
quads (about half oil and half gas) in the early 1970s. NEPP-
1983 projects that increased investment in oil and gas devel-
opment will maintain domestic production at close to 37 to 40
quads per year through the 1980s. Beyond 1990, oil and gas are
likely to become increasingly difficult to find and develop,
although unexpected breakthroughs in theories of where large
undiscovered quantities might be found could alter this pro-
jected production path.
Coal, nuclear, and renewable energy use are projected to
increase substantially over the long term. In particular, coal
production is projected to increase in absolute terms more than
that of any other fuel between 1980 and 2000. Contributing to
coal's growth is an estimated 4-percent-per-year growth in U.S.
coal exports (from about 90 million tons in 1980 to about 200
million tons by the year 2000). The chief uncertainty here is to
what extent the costs associated with the use of coal could
reduce its competitive advantages and, therefore, be reflected
in lower coal production.
U.S. Primary Electricity Inputs
Primary U.S. electricity inputs are projected to continue the
historical trend of increasing as a percentage of total primary
energy consumption (from 18 percent in 1960 to 31 percent in
1980 and a projected 42 percent of primary energy consump-
tion by the year 2000).
Coal's share of electricity generation is expected to increase
from about 50 percent in 1980 to 59 percent by 2000. Oil and
gas are projected eventually to be priced out of most utility
markets so that oil and gas generation drops from 27 percent in
1980 to about 8 percent by 2000. Oil and gas generation already
has dropped to 17 percent since 1980; thus, a little more than
half the projected decline already has occurred.
Nuclear expansion is expected to slow temporarily in the
early 1990s once facilities currently under construction are
completed. Nuclear's share of electricity inputs, however, is
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projected to increase to more than 25 percent by the year 2010.
The share of electricity generation provided by all renewables
(hydropower, geothermal, wind, solar, etc.) is expected to
increase from 12 percent to around 15 percent by the year 2010.
During this period, hydropower's contribution is expected to
drop from 12 percent to 8 percent, while the contribution of all
other renewables grows to 7 percent of total electricity
generation.
As noted throughout this chapter, considerable uncertainty
is attached to projections of future energy trends. Relatively
small changes in the assumptions upon which projections are
based can result in significant changes to the energy outlook.
New information and changing world conditions will alter
NEPP-1983 projections as well as those of other analysts. No
single set of projections is sufficiently reliable as the sole basis
for future planning. The range of future energy projections and
the expert opinions that appear in the technical report Energy
Projections to the Year 2010, however, are sufficient to war-
rant two conclusions: our energy future will continue to be
marked by uncertainty; and flexibility (which is best provided
by relying on market forces and on the availability of a bal-
anced mix of energy resources) offers the greatest opportunity
for ensuring an effective response to uncertain conditions.
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V
PUBLIC COMMENTS
BACKGROUND
Title V I I I of the Department of Energy Organization Act of
1977 requires that the President prepare and submit to Con-
gress biennially a National Energy Policy Plan and that the
views and proposals of all segments of the economy be taken
into account in the preparation and formulation of the Plan.
The Department of Energy solicited comments through a
notice published in the January 20, 1983, Federal Register. The
notice invited public comment at a series of public hearings
that were held in Detroit, Tulsa, Atlanta, Washington, D.C.,
Burlington (Vt.), Sacramento, and Denver. Written comments
also were solicited in the notice.
The Department received testimony from 136 persons at the
hearings, as well as I I1 written responses to the Federal
Register notice. Comments were received from Members of
Congress; state, local, and territorial officials; regional govern-
mental organizations; officials representing industry, utilities,
and professional organizations; public interest groups; religious
and social service organizations; educational institutions; and
individuals. Transcripts of the hearings and copies of the writ-
ten comments are available in the Department of Energy's
Freedom of Information Office Reading Room in Washing-
ton, D.C.
SUMMARY OF COMMENTS
The comments received covered a broad spectrum of
energy-related issues. Some offered general suggestions about
energy policy; others included specific, detailed recommenda-
tions. The comments, which do not necessarily reflect the views
of the Administration, have been categorized according to
broad issue areas and are summarized below.
Energy security and emergency preparedness-specifically
dependence on oil imports and the ability of the United States
to respond adequately to an oil supply interruption-were
issues of concern mentioned frequently. Many commentors
expressed the view that the Nation cannot be completely secure
until our dependence on oil imports from unstable and unreli-
able sources is considerably reduced or eliminated. Some
believe that free-market forces during an emergency would
ensure fair and equitable allocation of supplies; others sug-
gested that the federal government should intervene during an
energy emergency. Some indicated that federal intervention
should be primarily in the role of coordinator, for establishing
priorities and allocating supplies, while others felt that price
controls or set-asides would be necessary.
Many believed that the development of the Strategic Petro-
leum Reserve (SPR) is an effective means for ensuring against
supply disruption. Comments on the SPR ranged from a belief
that the filling of the SPR should be accelerated to satisfaction
with the current fill rate. Some concern was expressed about
regional issues pertaining to the SPR, such as the potential
distribution inequities in an emergency situation.
Issues related to conservation and renewable resources were
of concern to many. Those who supported government con-
servation and renewable energy programs expressed concern
that these programs were underfunded and that current poli-
cies favor nuclear programs at the expense of solar and conser-
vation programs. Many respondents encouraged the continua-
tion of business and residential tax credits for conservation and
renewable investments. Commentors also urged continued
federal support for state and local energy conservation pro-
grams, especially for the Weatherization Assistance Program
and the Low Income Energy Assistance Program, separate
from general block grants to the states.
It was suggested that the Residential Conservation Service
(RCS) should be ended because sufficient market incentives
already exist for home energy audits and that the cost of
subsidized audits is not justified and burdens utility ratepayers.
Others, while saying that the RCS program needed some
reform, contended that it nevertheless was beneficial. Energy
education and information programs also received attention,
with some respondents maintaining that support for additional
or expanded programs was important.
Comments pertaining to specific renewable energy resources
included objections to preference being given to applications by
municipally owned utilities and rural electric cooperatives in
cases involving the relicensing of hydroelectric power plants;
support for increased federal assistance for the production of alco-
hol fuels; and support for additional funding for photovoltaics.
Many respondents expressed concern about the role of
nuclear energy in the Nation's future and questioned the con-
tinued funding-described by some as subsidization-of nu-
clear power in light of the Administration's commitment .to
free-market forces. Others supported the development of
nuclear power because it would increase the Nation's energy
independence. Other nuclear-related issues concerned regula-
tions, particularly those associated with permitting and licens-
ing; nuclear waste disposal and nuclear safety, and breeder
technology. Opinion concerning nuclear waste generally
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favored programs to deal with nuclear waste disposal. Opinion
on all other nuclear issues ranged from urging more federal
involvement to cancellation of nuclear power plant projects.
Comments pertaining to oil issues included opposition to ad-
ditional taxes on oil, including an oil import fee; support of re-
peal or the phasing out of the windfall profit tax; and both sup-
port for and opposition to removing restrictions on mineral explor-
ation of public lands, particularly the Outer Continental Shelf.
Issues pertaining to natural gas, particularly natural gas
decontrol and problems associated with the Natural Gas Pol-
icy Act of 1978 (NGPA), were mentioned quite frequently in
the comments. Partial or complete decontrol of natural gas
prices was both supported and discouraged. Problems asso-
ciated with the NGPA were mentioned repeatedly, and various
solutions were offered, including support for amending or
repealing the NGPA. Some suggested that legislative changes
were needed to alter current contract provisions between gas
producers and distribution and pipeline companies.
A number of comments favored increasing coal production
and use, coal exports, and federal support for coal research and
development. Reducing regulatory impediments to coal use
also was mentioned. The major objections to increased use of
coal revolved around environmental issues. Those commenting
on coal transportation issues supported granting coal slurry
pipelines rights-of-way across federal lands and the right of
eminent domain.
Federal support for research and development in synthetic
fuels, including coal gas and shale oil, also was favored as one
component of a program to ensure energy security. Other
comments suggested that synthetic fuel subsidies should be
reduced and that the environmental problems associated with
use of these fuels should be addressed instead.
Issues related to human health and the environment were
mentioned frequently. Of primary concern were health and
environmental hazards associated with nuclear power, includ-
ing nuclear waste, and coal and synthetic fuels. Comments
included support for continued or additional control require-
ments and for research on the environmental effects of coal
use, particularly the causes and effects of acid rain, and support
for the modification or elimination of the environmental con-
straints on the use of fossil fuels, including modifications to the
Clean Air Act that would relax air quality standards.
Some encouraged increased federal support for both basic
research programs and applied research and development pro-
grams. It was suggested by some that the government should
provide limited support for some demonstration projects.
Opponents, however, stated that government assistance in
these areas will inhibit or delay private efforts in research and
development because of the possibility of obtaining federal
assistance.
The views mentioned above covered the full spectrum of
national opinion on energy issues. Although some of the com-
ments may not be in accord with the views of the Administra-
tion, it nevertheless is important to have the benefit of a broad
range of opinion from all sectors of the economy. This process
has been designed to ensure such participation, and the com-
ments received have been helpful.
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UNITED STATES
DEPARTMENT OF ENERGY
WASHINGTON, D.C. 20585
POSTAGE AND FEES PAID
U.S. DEPARTMENT OF ENERGY
DOE 350
OFFICIAL BUSINESS
PENALTY FOR PRIVATE USE, $300
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