Guests: Freeman, S. David; Tavoulareas, William
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THE OPEN MIND
Host: Richard D. Heffner
Guests: S. David Freeman, William Tavoulareas
Title: Oil, Energy, and the Public Interest
I’m Richard Heffner, your host on The Open Mind. When this program series began in the 1950s in the affluent Eisenhower year, ours was rather much of a complacent, careless society. So it was with shock and chagrin that Americans awoke one morning to discover a shortage we hadn’t dreamed of before. That was the shortfall between Soviet technology and our own. News of Sputnik had reached us, as fate would have it, just hours before The Open Mind went on the air, live in those days, to discuss US/USSR relations. One guest, the late Senator William Benton, appropriately and eloquently seized the moment to point out the folly of our ways, our shortsightedness, our unwillingness to look harsh reality in the face and to face up to the growing gap between what we wanted to be and what we were.
Well, today again there is a gap in our system. Our of unreality, out of a failure to heed the voices of those who have long known that the world, and we Americans, with our unparalleled standard of living, in particular, that all of us face an extraordinary energy crisis that has resulted in grim shortages this year and that promises harder times ahead unless we make some critical choices now. Recognizing the need for exploring and publicly debating the whole complex of energy issues, the Ford Foundation’s Energy Project has issued a preliminary report on its long-range study of energy in America. It finds no single villain for our situation. The fact simply is that we can’t produce more, have done so without great problems, and we can’t produce less than we use of anything without something giving. Nor does the Energy Policy Project offer one single answer for Americans. Rather, its preliminary report simply suggests what it calls three scenarios for the future for us to consider as means to meet the energy gap. One has to do with growing as we were, a historical scenario. Another has to do with the reduced growth pattern, with emphasis on energy-saving technologies. This is called the technical fix scenario. A third calls for zero-growth energy, and truly would mark a change in American life.
If I may, I’d like to take just a minute or two more and read from the report, this preliminary report of the Ford Project. “Our first scenario, which we call Historical Growth, assumes that the use of energy will continue to grow much as it has in the past. It assumes that the nation will not deliberately impose any policies that might affect our ingrained habits of energy use, but will make a strong effort to develop supplies at a rapid pace to match rising demand.” Then they say, about the second, the second scenario, “Our technical fix scenario shares with historical growth a similar level and mix of goods and services. But it reflects a determined, conscious, national effort to reduce demand for energy through the application of energy-saving technologies. Or work so far has revealed that the slower rate of energy growth in technical fix, about half as high as historical growth, admits more flexibility of energy supplied, but still provides a quality of life at home, travel convenience, and economic growth that, to our minds at least, differs little from the historical growth scenario.” Then third, Zero energy growth, is different. It represents a real break with our accustomed ways of doing things. Yet it does not represent austerity. It would give everyone in the United States more energy benefits in the year 2000 than he enjoys today; even enough to allow the less privileged to catch up to the comforts of the American way of life. It does not preclude economic growth.”
Now, those brief quotations aside, I’d like to introduce my two distinguished guests for today’s subject, which is Oil, Energy, and the Public Interest. My first guest is Mr. S. David Freeman, who is the Director of The Ford Energy Policy Project, which has produced this tentative report exploring energy choices. And my second guest is Mr. William Tavoulareas, who is President of the Mobil Oil Corporation, was a member – Mr. Tavoulareas, was it of the…
TAVOULAREAS: Advisory board.
HEFFNER: …advisory board to Mr. Freeman, and who has some comments to make as he did in a dissenting report to the exploring energy choices. But first, Mr. Freeman, let me turn to you and ask you whether my brief shorthand description of the difficult points that you try to make in this report is fair, or how you would elaborate upon it.
FREEMAN: Well, I think it was a fair summary, but I think you’d expect me to elaborate somewhat, and I shall try to do so. I think the first hurdle that has to be overcome in the minds of concerned citizens today, having experienced a shortage that sort of came out of nowhere and went with the wind, is to discuss whether the problem is real or whether the crisis is gone and this was just an aberration. The first part of our preliminary report attempts to document the numerous public policies that this country undertook, some of blind energy. You could search the debates about the highway program in the ‘50s – you referred to the ‘50s – until you’re blue in the face, and you wouldn’t find the word “energy, “ I think, anywhere in there. We have built a highway system, we have tax laws that subsidize the construction of suburban homes, because, you know, you get a write-off on the interest rates, it’s a tax break. The FHA has helped us develop suburbia, where people live a long way from where they work, and we are, in a sense, prisoners of the automobile as our transportation system. Happy prisoners, most of us, but nevertheless prisoners. And so we spent a good deal of time in the beginning of our report to try to get people to understand that we have had a policy of promotion, of wasteful use of energy. The stuff was cheap. It was apparently plentiful. And everyone was blind to its use. Nothing could have been more boring than a cocktail party around Washington in the mid-‘60s or late ‘60s and talking about energy. You had to be some sort of a nut to be worried about BTUs and things like that. And I worked in government in the early ‘60s. We couldn’t buy space – we didn’t have the money – but we couldn’t get any space in the general press. No one was interested in the subject. So that I think we have to understand that this problem sort of crept up on us from out of nowhere because we were consuming more energy than we were producing almost every year since 1970. And the curves crossed in ’74. The Arab embargo was sort of the straw that broke the camel’s back and telescoped the future and made this real enough to touch our lives. That was the first point. But it’s not just a 90-day wonder. This is a very serious problem that affects all of mankind. It is a situation where we’re trying to consume energy and many other places faster than we can produce it in an environmentally acceptable way.
When we, after pointing out the genesis of the crisis, we did try to set forth the basic objectives we had. You know, what are we concerned about with energy after all, aside from having enough of it? And there’s the price that obviously concern everyone. But there are two other very important windows that you could look through in talking about energy concerns. One is the environment, where we know that air pollution is energy production. It’s the other side of that coin. Air pollution is entirely caused by the combustion of fossil fuels except for burning leaves maybe and rubber tires that wear out and get blown up in the air. And then there’s the foreign policy concerns. We learned during the last six months that our foreign policy is very much connected with our energy supply. And these concerns conflict with one another. We try to keep the price down. Mr. Tavoulareas and his people won’t produce as much oil as the country needs. And if you try to get the oil from overseas you get dependent upon nations who cut us off last winter. So this isn’t a problem like dope, where you can get the heroin pusher and put him in jail and solve it. It’s a problem that has conflicting values. It’s a question that affects our future. For that reason, we thought the best way to facilitate intelligent discussion would be to lay out three basic options, or these three scenarios you’ve talked about, and to point out that the country does have choices. We ought to explore these choices, find out the benefits and the costs of each choice, and after debates that will take place in the state legislatures, the city councils, in Congress, and just among people themselves, we will fashion a policy. But our feeling is that the most dangerous option at all is the one that’s not on that chart. And that is the option of just continuing to drift ahead, to go back to sleep again, as we were before, and assume that this energy problem is going to take care of itself, because I think it’s our collective judgment that that is the one option we dare not pursue.
HEFFNER: Well, I appreciate your stating the major thrust, what you consider the major thrust of your report, and we’ll come back to it, because there are many more details, as we agreed before. We could sit here for hours and hours and hours and discuss the many points that you make in the report and their ramifications. But I know that Mr. Tavoulareas issued a dissenting report. And I wonder, Mr. Tavoulareas, if you would indicate t us what your concerns are about what’s stated in this report.
TAVOULAREAS: I’m very pleased to. When you’re trying to predict energy use in the future, there are two sides to the equation. O ne side is demand; the other side is supply. I have a fundamental objection to the report: Almost the entire emphasis has been on restricting demand, and almost no emphasis, as a matter of fact, a negative inference on the building of supplies.
Now, let’s for the moment, examine our supply base. A report commissioned a couple of studies and one of them states quite clearly that there are sufficient energy resources in the world to meet our demands even if we followed historical growth. The only constraints, says the report – and it’s in this book – are the ones which we self-impose. We will, of course, have to decide how much we’d like to depend on foreign resources, how much we can depend on domestic resources, and among those domestic resources, which are the resources to be developed. But there is no shortage of resource. The only shortage we have is the shortage of developed resources at the present time. So we all understand that. Unless we understand that, we can’t understand why I object to this part of the study. If you want to put restrictions in use on the American people, you’ve got to explain to them why you’re putting on the restrictions. So again I say restrictions cannot be justified on the basis of the resource base.
Now let me, for the moment, move to the other side, from the supply to demand side. And I’d like to have a chart put on the screen if I could.
HEFFNER: We have the chart, and maybe we can get it up. There it is.
TAVOULAREAS: Now, this chart is the fundamental chart in the whole book. It describes the three growths: historical, that we spoke about, which is really a projection of use over the years beginning 1950; on the opposite side it has what we call zero growth. The book describes zero growth, and you did, as a fundamental change in our lifestyles. And now, we have the technical fix, which the report seems to say we have been moving towards, either technical fix or zero growth. As a matter of fact, one of my objections to this report, they don’t really tell you what they recommend.
Now, look at the difference between those two lines, those two low-growth lines. It’s less than six-tenths of one percent a year. I have been in the oil business 27 years. I’ve read all kinds of predictions. You can’t find the difference in a six-tenth of one percent a year difference. So let’s examine the report for what it is. It’s saying, “Let’s g zero, low growth.” Because it discards historical completely.
Now, if this is what you want to do to the American people, that is, tell them you’re going to restrict demand to low growth, and you’re going to tell them all the horrors about developing additional resources, which we have, then I say despite the assurances in the report and the words that say we will make no real change in lifestyles, let me just take a look at some of the things the report says under these two scenarios. It says “The government has more effective policy tools within the marketplace.” That’s quite an outstanding statement. It says, “We would need imaginative and generous forms of multilateral assistance to the poor countries of the world, and perhaps be in a position t export some of our energy. We’ll have to have mandatory allocation and rationing. There will be a vigorous growth in the service sector of the economy. Remember that government is the fastest growing service sector already. We must design new communities so people can get around by foot and bicycles. Windmills could play a more significant role. We will limit the number of single-family houses. Special programs would be required to provide more jobs to displaced workers. Income redistribution would be required. It may be that some of the things enumerated have some social significance and should be studied by the American people.” I think Mr. Freeman’s study, however, has been used to suggest a new social, governmental order. All on the assertion the development of any energy source might have such an adverse effect on the environment that we must rearrange our entire society. I’d rather we think of the problem in much more simple terms. Let’s reduce waste. No problem in conservation. We shouldn’t spend much time on that. We all can agree on that. The marketplace has already taken care of that with increased price. Let’s start massive research. Let’s maximize development of those energy supplies which entail the minimum adverse effect on the environment, and let’s start now. It’s already too late.
HEFFNER: Okay. Fair statement. A good statement of criticism. Mr. Freeman, we don’t want to make this a debate; we do want to make it a discussion. S I think it’s proper now, if you want to address yourself to those comments.
FREEMAN: Yeah, I’d like t say that Tav is very generous in his inference that the report recommends all sorts f almost revolutionary-type changes. I must say that I don’t believe that’s a fair characterization of the facts that are contained therein. In the first place, we are talking about precisely the last item on his list: the elimination of waste. The heart of our report, the heart of the backup behind the lower growth scenarios, are calculations that support the proposition that the same services that we get today can be produced with far less energy. The technical fix scenario, which by the way, would result in a savings of roughly one-third of the total energy requirements in the year 2000 if it were implemented, we were talking about savings in the next 20 or 30 years almost as large as all the energy we’re using today. One of the things that’s been very misleading in all of this discussion about energy is to talk about a two-and-a-half-percent growth and a three-percent growth. We’re talking about three percent of very, very big numbers. And the difference between three-and-a-half percent and 1.7 percent growth, taken out over a number of years, as the chart, which you might show the audience, if you look at it, the year 2000, you see that that technical fix line gives us an energy consumption of about 115 quadrillion BTUs – Now, no one can visualize a quadrillion BTUs, but it’s a tremendous amount of energy – as compared to 200. This is roughly a one-third reduction. Now, how do we achieve that reduction? It’s not through the kind of vague things that Tav was referring to; it’s through some very understandable measures. It’s insulating buildings so they don’t leak so much energy, so we didn’t…Better insulation is one thing. Building automobiles with mileages that steadily increase, so that in the 1980s we have on the road cars doing on the average upwards of 20 miles per gallon. That is not going to revolutionize your lifestyle if the engine in your car happens to be less of a gas guzzler than the one that’s in there now. The third major aspect is all these energy-intensive industries, the ones that make aluminum and steel and paper. The work in our project, done with the conference board and industrial managers, suggests that there are savings of 20 percent that they can make. They’re beginning to make them.
So my point is that the conservation opportunities are large. They are enormous. We are finding this out, and people in industry tell me over and over again they are re-faced to find that they could have been making these savings in the past, so that… But my major point is that we are talking about simply squeezing out the enormous waste, and making some investments in energy conservation technology rather than putting that extra billion dollars into excavating Colorado or drilling off of Long Island.
HEFFNER: Well, may I ask this? My understanding is that you gentlemen agree on the need for conservation.
TAVOULAREAS: I don’t think we should even discuss conservation. I was only, my quotes were simply quotes taken from this book. There is nothing I made up. I’ll give you page number for any quote I made.
HEFFNER: No, I understand that.
HEFFNER: But what about the level of conservation? Is that a matter of difference between the two? You said, Mr. Freeman, you were talking about vague statements of conservation. And then you talked about insulation of homes, you talked about automobile mileage increasing. Are these things that you’d agree with?
TAVOULAREAS: Why, of course. I think really spending time and needing tremendous amount of government controls in order to have people do what’s economic, it’s really illustrative of the fact that we don’t understand how the marketplace operates. For example, the price of oil was increased, unfortunately, four times in the last part of last year by certain actions of certain foreign governments. Just look at what’s happened to demand. All through this book, it keeps on saying we need government controls, government tools. The marketplace doesn’t operate. It almost sounds like a dictator says, “I only want to be in here for a little while. And then I’ll go away.” Now, we’ve had substantial reductions in demand. We, in our own business, have always worked, business has always worked on savings. And if you raise the price, business will work on more savings and more savings. All I’m talking about is what this report is talking about. It talks about designing new cities, new communities. Everybody will be near their work. I love that. Now let’s think what happens to the city we have here. Let’s talk about the energy that’s going to be needed to build a new city. Let’s say I’m an engineer and there’s not a job for me in that new community as an engineer. What do I do, change my house, or change my job? Would I change both?
All I’m trying to say is, those quotes I gave you, they’re not dreams I had, they’re quotes from this book, the book that Dave Freeman is responsible for putting out. The Director is the man responsible for the book. This is the ground rules under which the energy project has operated. He bears responsibility. I’ve made these points many times before. Dave has no responsibility to me. He doesn’t have to listen to me. All I have the right to do is write a dissent. I’m quoting from his book.
HEFFNER: Well, I don’t notice that Mr. Freeman is backing away from these points.
FREEMAN: Not in the least. And I’m also listening to you, Tav. (Laughter)
TAVOULAREAS: Well, let’s talk about cities. Don’t you talk about building new cities?
FREEMAN: We certainly talk about building new communities as part of what might be done in the zero energy growth, but we do not rely on those savings in the scenario that we showed on the chart that would show that we could save one-third of the energy consumption in the year 2000. Let me just make the point again. The savings that we are talking about are savings that would be made in the energy used by people living in their homes and in the cities today. You have picked out some of the possible actions that would supplement the essential conservation actions that are the backbone of our report. Now, we can debate, if you’d like, about the need for new communities to house the citizens who are becoming of age and the 30, 40, 50 million Americans that will be finding housing. And I think it will make quite a bit of difference whether they live in just wider and wider doughnut-shaped circles surrounding the existing communities, sentenced to an hour and a half a day of transportation back and forth to their jobs. It seems to me that the marketplace is not going to automatically provide housing for them, decent housing that they can afford in places that they would probably prefer close to their jobs. But that’s not the heart of the savings that are in back of our scenarios. Those savings are made up from the things that I enumerated. Building buildings that just don’t leak so much heat, cars that have better mileage, and the energy-intensive industries taking advantage of the savings that they can.
Now, if I could just continue one more minute. The marketplace is not going to build this nation the transportation system that it needs. And I think we both agree on that.
HEFFNER: What is your response to that, Mr. Tavoulareas?
TAVOULAREAS: Mobil is on record for the last five years, we favor mass transit. NO problem at all. And I’ll just tell you one thing about mass transit. You take a car and come from Long Island, come to the city, and put three people in it and it’ll beat mass transit any day. Where in the book does it say that? Because obviously there you’re moving a tremendous piece of equipment. What is transportation but moving weight? And you move that railroad care in the middle of the day and have ten percent occupancy and all the savings you had during the commuting hour is all finished. So if you want to make savings in mass transit, you have to change the hours fantastically of use. You can’t have cars dead-heading back and forth. So, all I can say is, I’m for mass transit. I point out that if you put three people in a car and bring them from Long Island to New York there’d be less energy than you put them on mass transit.
HEFFNER: Mr. Freeman?
FREEMAN: The problem is that the average occupancy of cars is much closer to one or three and is apt to stay that way. Actually, I studied…
TAVOULAREAS: We need to work on that instead of working on mass transit. Because you’re going to do the other one by controls.
FREEMAN: I just don’t think the point that I was making, and I think it’s a valid one, that we are not going to develop the transportation system that this country needs not only within the cities but between the cities without some sort of governmental program. And I think Tav agrees with that.
TAVOULAREAS: I have no problem with that. We have no problem with mass transit.
HEFFNER: Well, you’re talking about problems. It seems to m e that as I read and as I listen, that one of you, you, sir, Mr. Tavoulareas, are putting your emphasis upon production and supplementary, in a supplementary fashion, conservation. And it seems to me, Mr. Freeman, that you’re putting your emphasis just the other way; essentially on conservation. And I doubt that you would urge us not to produce more. Or perhaps I read you wrong.
FREEMAN: Well, we obviously have to produce enough energy to meet the needs expressed on that chart…(Laughter)
HEFFNER: It’s not always there. (Laughter)
FREEMAN: …that keeps disappearing on me. And the report states so. What we have found, and I think what’s true, our experience is that if we continue to try to chase the kind of growth curves that we’ve experienced in the last year, we are going to continue to have the shortages, the pollution, and the high prices and the foreign policy problems that exist. Now, our report lays out the scenario. It is one that is technically feasible, as Tav says, there are the resources in the ground. The question is whether the country wants to pay the price in terms of damage to the environment and in terms of the foreign policy problems if we meet much of our growth with imports, which seems to be the most available source of supply, because what has happened since the embargo has been lifted, we have resumed rather extensive imports of oil from the Middle East, and I think that most thinking is that the growth in the ‘70s will be met primarily for imports of oil if it continues at this high rate. So that we feel that the country needs these other options. Up to now, the whole energy policy debate has been just a supply oriented debate. And we have laid before the country the opportunity of putting our money and some of our technical talent into machines that will use energy more efficiently. And our findings are that we can buy five, ten, 15 years to develop these new sources if we pursue these conservation options. We need that time.
HEFFNER: But how do you respond then to the criticism that is made that your low-growth estimates are unrealistic, and even at the lowest growth you posit, we’re going to be consuming much more than you assume we’re going to consume?
FREEMAN: Well, my answer is that we will need less energy at the lower growth options than at the higher growth options. That’s just a matter of arithmetic.
HEFFNER: Yes, but there’s another side to that. If the arithmetic is wrong, and you’re not producing more at the same time, we can end up being losers again.
FREEMAN: Yeah. The other side of that is that if we continue as we have in the past, there is a seven or eight year lead time. And if we take the energy companies’ projections of how much we need, and they go ahead and build for that kind of growth, you can be sure that they will sell us that much energy. In the meantime, Colorado will have been excavated, the Atlantic will be drilled, and the environmental damage will be done. And the consumers are going to pay for all of that investment, whether it’s used or not, just as the electric consumers of New York City are paying for all of Con Ed’s investments.
TAVOULAREAS: I’d like to have a chance to answer.
HEFFNER: Sure, go ahead.
TAVOULAREAS: I think Dave has made about 20 points and I can at least respond to two or three of them. I think he really showed your hand at one point, in a nice way, when he said, the reason I don’t want you to develop supplies, which really would bring down price, not, like you said, bring up price, is because maybe then we’d be so weak we’d want to use that supply. In other words, let me be sure you don’t create the supply. Then he talks about dependence on foreign governments. I worry about dependence on foreign governments because I don’t think you can expect a country like Saudi Arabia to ever increase its production merely to satisfy our needs when they have no need for the currency. So I say having additional supplies before the time you need it, you’re eventually going to get to whatever home he says exists. I don’t think the home is anything like he says it is. But you’re going to produce it another time. I’m saying have it in reserve at all times. I know then I’ve got the protection I need. I know then the worst that can happen I have low price. If you try to guess this thing just right and you don’t guess it right, you have all kinds of government controls.
Now, what Dave’s report says is, you know, let’s get tight, let’s not get the supplies and we’ll really keep the people back. Let’s talk about the problem and talk about the problem and talk about the problem. On the other hand, he says it need tremendous lead time to produce a coal mine or anything you think about. How are we going to get from here to there? We’re just going straight towards chaos unless the American people accept this new type of lifestyle. They don’t, we got chaos, we got social revolution.
HEFFNER: Are you going to accept that debate-it-to-death characterization?
FREEMAN: Not exactly. The lead tiems are required on both sides of the street. It takes time to get the stock of automobiles on the road up to 20 miles a gallon . The point of these other… it takes time to change the building codes and get the new houses and new office buildings built so they don’t leak as much heat. It takes time to build the insulation to tighten up existing buildings. It takes time for industry to build heat exchangers and put in energy-saving equipment. And the thrust of our report is to lay out these other options. If indeed that side of the street is stressed with research and development funds, with total action only in a few specific areas like the building codes and buildings where the poor guy who pays the utility bill doesn’t have a thing to say about how that house is built, the marketplace can’t possibly end up doing it because most buildings are built for speculation and built by builders who don’t end up paying the utility bills. Our point is that if we have a policy of conservation, I’m perfectly willing to let the energy companies build the capacity with the lead time to meet a growth pattern, but I think that we have to build in a conservation policy because in the past we’ve had a policy that’s just promoted more and more.
HEFFNER: Okay. On that sentence, those words, how do you feel about that?
TAVOULAREAS: Well, let’s talk about the two items. He’s saying the real reason now is environment. That’s what I understand from Dave. It’s not that we don’t have the resource base; he’s worried about the environment. And then he’s further saying that that poor fellow, that tenant who moves into a building didn’t pick his type of heating. Now, can you imagine the chaos if we have a 200 apartment house building and each tenant wants his own type of energy? I just don’t understand that kind of thinking.
FREEMAN: No, that’s not what I said though. I was talking about the…
TAVOULAREAS: The fellow didn’t have to buy the house.
FREEMAN: No, the person that built the house didn’t have the incentives to put the insulation in.
TAVOULAREAS: Well, the fellow had to buy the house. He must, I assume he puts in what he thinks will sell. Now, let’s go onto the pollution one further. Where I think I’d really like to hear Dave on this one.
HEFFNER: Before you do the pollution, may I ask a question?
HEFFNER: I’m not trying to cut you off at all. In fact, I’d like to quote from your dissent in this report because I’d really like to get, if there is a core, a central core of ideas here, I’d like to get to them. My question: I was brought up in the ‘30s. And in the ‘30s, when you went to school you were taught it was the bosses, it was the big corporations that were always the evil ones, etcetera, etcetera, etcetera. But I read your dissent, and I want to ask Mr. Freeman how he responds to this, because you say in your dissent, “If the assumptions behind the low-growth cases are wrong, the result will be energy scarcity, high energy prices, unemployment, and other economic and social dislocations.” In other words, if you don’t put your emphasis enough on production you can come a cropper on this. “On the other hand, if the assumptions supporting the case for increased supplies are wrong, we will have energy surplus and low prices. It seems clear to us that this latter risk is the more tolerable one.” And I think that’s what… Because I understood from what you said before that you really responded to that.
FREEMAN: Sure. We believe and hope and pray that Mobil Oil and Con Ed and all the energy companies will build the facilities needed to meet the loads that occur. But the thrust of these lower-growth scenarios is to eliminate one very major load they’re now serving: it’s called waste. We want the country, if it chooses those scenarios, to build a future society where the cars have better mileage, the houses don’t leak, and they will then not build as much. It is still going to be their business judgment as to the place of investment. But in the past they have had to meet this load which included a large element of waste. It’s economically efficient now with the kinds of prices we’ve had with the help of the producing nations and the oil companies. We have prices now that make it economically feasible to use energy much more efficiently than we have in the past. And we feel that we ought to at least be debating as a national policy one that will take advantage of those savings. I don’t really believe that the oil companies are going to build huge excess capacity. They haven‘t in the past. We’ve had refinery capacity that was just barely adequate. It’s not economical for them to overbuild. But that’s their business. The thrust of our report is not to create shortages, but to make it easier to avoid shortages by lowering the target we have to hit.
HEFFNER: I didn’t mean to cut you off.
TAVOULAREAS: Yeah. All right. Let me get back to pollution later on because it’s a very important part of this thing. But let me just answer the last thing Dave said. There has been surplus-producing capacity in this world since World War II. We’ve never had a day when we’ve had a surplus, a shortage of producing capacity. We’ve never had a day when we were short of transportation except for a very short period around each time the Suez Canal was interrupted. Refinery capacity, there is no worldwide shortage of refinery capacity. I think it’s a red herring to refer to the fact that at a particular time in history maybe there wasn’t enough refineries in the United States. That didn’t create the shortage. And I don’t think we ought to refer to that.
HEFFNER: What did?
TAVOULAREAS: Now. What created the shortages? Political actions in the United States, the things that Dave is talking about. Let’s for example… During the height of the Arab boycott, our company was short some two to two-and-a-half million barrels a day, the best figures we could get to. Let’s go through the actions that got us there. First, we’ve been sitting on the Alaskan pipeline for almost six years and it’s not even begun to start. That would have been two million barrels a day all by itself. We have delayed federal off-shore leases, and we have prohibited drilling in Santa Barbara Channel, etcetera. That has cost another two or 300,000 barrels a day. We have put on environmental controls that have greatly increased certain environmental problems, greatly increased the consumptions from cars. We have restricted the use of sulfur, certain sulfur levels that once again increased it. We have held back coal production. The demand then fell over to oil. We have for a number of years, which Dave has favored, curtailed and put a ceiling price on gas. That meant it was not economic to look for new gas in the United States. We have a shortage of gas. Once again found, went back to oil. Take these political decisions, take the political decisions in the Middle East out, and you had more surplus than we ever had in history. Now, I’m only a company. I can’t control political decisions. There’s nothing I can do about it.
HEFFNER: But if you ran the zoo, what would you do?
TAVOULAREAS: I’ve told you what I would do.
HEFFNER: Okay, go down them all.
TAVOULAREAS: Build surplus. There’s no answer. Everybody who thinks they’re smart enough, within six-tenths of one percent of 20 years from now, and says therefore we can’t produce these horrible new supplies, then he says look what you do to people in Long Island, or to people in Colorado. So we’re really talking about no lack of supplies; we’re talking about an environmental problem in order to get back to that, because we can talk all day long. The reason we’re recommending these vast changes is greater reliance on foreign oil if we don’t produce our domestic sources which Dave is recommending really through his inaction in the United States on supply building. This is where we’re going to get ourselves in greater trouble. Riskier and riskier. And then we’re going to have more rationing and more people, more investigations, more fall guys to fine. I’m happy at one part of the report you read: there’s no one fall guy. I think that was the best part of the whole report. But I don’t understand how anybody could sit there and say we didn’t have surplus. We had surplus in the United States from World War II we supplied the world during World War II. We had surplus during the Korean War. We had surplus through two Suez Canal interruptions. We had surplus in the United States all the way up to 1970. If someone says we didn’t build surplus, that’s just not a fact.
HEFFNER: Are you suggesting then, are you suggesting that the tradeoff is between adequate supplies on-hand, usable, and/or a decent environment?
TAVOULAREAS: No. I don’t think, first of all I think we can do this thing without any real threat to the environment. But this is the problem for the American people. People understand the problem very clearly. The whole thing was, we have shortages, therefore we have to conserve. We have to conserve energy. And Dave admits, the first time I heard him (garbled) was about the price of conservation. That’s the first time I ever heard it. He always wanted lower prices. But if he says higher prices, I’m not talking higher profits, higher prices makes for conservation, that’s one way to get there. I’m very happy.
FREEMAN: I might say that it makes a great deal of difference who gets the money though. I think Uncle Sam needs the money perhaps more than some of the oil companies at this stage of the game. I think higher price is a powerful tool.
TAVOULAREAS: Well, I think that’s really…
HEFFNER: Excuse me. Finish, Mr. Freeman.
FREEMAN: I think that higher prices are a very powerful tool. And one could raise the price of energy and simultaneously reduce the income tax level, especially for lower-income groups, and make a giant step forward in using market forces to get this conservation thought across to businessmen. And this is part of the thrust of the lower-growth scenarios in our report. But I think that Tav has hit upon a very vital element in this equation that the American people are going to have to weigh and decide. He ticked off four or five actions that certainly have inhibited the rate at which energy is produced. There is no question about it. The Alaska pipeline debate and argument took a good number of years. But I’ve had presidents of oil companies involved in that operation say to me, I think they’ve said publicly, that that debate, that opposition resulted in greatly improving the safety of that pipeline against spills and almost revolutionary changes were made, and now the pipeline is being built with a far better chance that it will not end up making a horrible mess of the State of Alaska. And you could say the same thing about every other action. Sure we stopped, the government stopped offshore drilling after the Santa Barbara spill. I don’t think anyone would have expected them not to. But it took a year and a half to devise regulations to enable us to conduct offshore drilling in a safer way. And it’s going ahead, but at a slower pace. We are trying switch from dirty to clean, and it takes time to make that switch.
HEFFNER: We’ve gotten to that point, and that’s where you wanted to be.
TAVOULAREAS: Okay. Now, two things really. I don’t think Dave will say that it took six years to, quote, improve safety standards of the Alaskan pipeline. He has no evidence the pipeline that was going to be built would have been unsafe. Just none at all. We were operating the pipeline in the permafrost up there for a lot of year, and we have one that’s not even in permafrost in…So I think we know how to operate. If it’s safer, I like it. It doesn’t take six years to make it safe. I don’t think you should use that as a reason.
Now, Dave did another thing. He, and which I object to in my…report. Instead of talking about energy, we’re trying to make this into a social order of things. He talked about the poor. I am worried about the poor. I was poor.
FREEMAN: So was I.
TAVOULAREAS: Okay. So there’s no problem.
FREEMAN: And so am I. (Laughter)
HEFFNER: So was I. There we are. Okay, let’s go on.
TAVOULAREAS: So I don’t think it adds very much. But if you’re really talking about the poor, what about the job opportunities the poor get, have gotten, and will get, and I got out of a country that continually increases its GNP? They talk about a return to a service sector type of economy. We have service sector economies in some very, very poor nations. And it’s horrible. They have no industrial base. If we can afford one it’s only because we have the industrial base to be able to afford one. But I submit great industrial growth creates jobs, and that’s when the poor help themselves. This is a better thing for the poor.
Now, we discussed this yesterday at the meeting. And one of the projects had a reporter in there and he said that, “We don’t think this helps in our employment energy engineers, because energy engineers are not labor intensive.” I just couldn’t believe it. That was their answer to this one, the poor. Now just imagine. I build an automobile, General Motors builds an automobile. Energy industry, look at all the jobs you created. I’ve made the gasoline energy and I say, “Okay, I’m low.” Now, a fellow drives the truck. Who built the truck? Who built the tires? Who built the roads? What is he carrying on that truck? Just think of what he built in terms of farms and goods to transport around the world. To have such a narrow view of saying that, really saying that, in effect, we don’t believe increased GNP, increased industrialization means more jobs. Our whole history proves the opposite.
HEFFNER: Mr. Freeman?
FREEMAN: Yes, I’d like to comment on that, although I feel a bit uncomfortable about three formerly poor people sitting around talking about the problems of the poor.
HEFFNER: (Laughter) You’re right.
TAVOULAREAS: That’s a fair comment.
FREEMAN: …with that caveat, let me suggest that my best recollection is that what the poor people needed is money, and that when they get money they then are able to buy air conditioners and housing and things that use energy. And the fact that we develop air conditioners and houses and cars and machines that use energy more efficiently is absolutely no threat to the poor. It will enable them to be able to afford these items and pay for them a lot more readily than otherwise. Now, in terms of a service sector, I think that Tav perhaps is not as familiar as we are with the fact that this country is now over 50 percent a service sector. The growth in jobs in this country has been in that sector. We are not advocating or suggesting this report doing away with the industrial base of America. We’re talking about trying to make it more efficient. It is no threat to employment, GNP, or anything else if the paper industry and the aluminum industry and the automobile industry learn to make machines that use less energy. We’re talking… This is the heart of our recommendations. The technology is there. And our studies suggest that the GNP will be roughly the same under the technical fix scenario as under the historic growth. We will just take the money that would otherwise have been spent in power plants and oil refineries and spend them in energy-saving equipment in the factories and otherwise. And to the extent that we can save some money it will, if you reduce taxes you just have the spending power in the economy going. Otherwise, we’re talking about some sizable shifts away from the energy companies. They will be spending less for capital goods because they won’t have to build as much, and those same investments will be spent elsewhere. That’s the issue here.
HEFFNER: There’s a difference of opinion over here.
TAVOULAREAS: Yeah. Let me…And I’m for reducing taxes too. And I’m not for spending any more money than we need to develop the energy resources. Every bit of evidence we have is that we’re going to need all the money we have plus borrowing capacity. But Dave said something which I fundamentally disagree with. He says poor people don’t need jobs; they need money.
FREEMAN: I didn’t say they didn’t need jobs.
TAVOULAREAS: I disagree entirely. Poor people need jobs. We were talking about jobs; not money.
HEFFNER: But he didn’t. But he did not say it.
FREEMAN: I didn’t say that, Tav.
TAVOULAREAS: He said they need money.
FREEMAN: Spending power.
TAVOULAREAS: What kind of jobs?
FREEMAN: Better jobs than they have now. They need more spending power.
TAVOULAREAS: All right. Okay, I’m glad you corrected it. I don’t feel so strongly. Now, he talks about the growth in the service sector. What sector has grown the most? I know a little bit about these. One of the things… The government. And under his program he has, and I saw the figures, a new fantastic growth in government. I know why he needs it, with all the controls. Now, let’s also talk about something. In this book and in the book that’s coming out they talk about let’s perhaps export, let’s build our fertilizers and our… and import it, imagine, more lack of security, and then we’ll pay for it out of increased exports. From what? From the service-sector economy? I don’t…I mean, this book is just, I say again, it puts the emphasis, all the emphasis on conservation. I agree with conservation, so let’s not even talk about it. It de-emphasizes supplies. He keeps on saying it, and I agree, and I think that’s a wrong thing for the United States to do, to de-emphasize supplies. And furthermore, it’s really a , the energy project is used as a basis for a new social governmental order of things. And I still like the free market price in our system.
HEFFNER: Mr. Freeman, what about that?
FREEMAN: Well, I think we all like the free market price in our system, and our report suggests that we make use of it, and make use of a very basic notion of efficiency. That up to now we have, in effect, had a low price promotional policy for energy. We’ve had tax incentives for the oil industry to make it easier for them to produce more. We have had incentive for the automobile highway program. We’ve had all sorts of incentives. We had public power agencies that don’t pay any taxes at all. The price of energy does not include all the costs to society of producing it, and what we’re suggesting is that we now move to a policy of conservation where we attempt to make Tav’s job easier by consuming less energy to do the things that need to be done for America. And then he’s going to be able to meet the demands without the shortages, without being under the pressure of the producing nations quite as much, without quite the environmental damage, but it would be easier to meet air pollution standards because if we burn less fuel the controls on the cars won’t need to be as stringent. This policy will help us in all of the crucial problems of energy including the foremost one, and that is the pocketbook problem of being able to have enough money to pay for it. If you talk about having enough money to pay for the fertilizer. I think a lot of people are worried about having enough money to pay for their gasoline and electric power and food bills. And it seems to us that save-energy-save-money is something that will come about, and I agree with Tav in part, in a great number of respects. Naturally through the marketplace. But it’s going to require a few governmental actions, such as building a transportation system, doing something about the housing codes, and making sure that the automobile industry moves to better-mileage cars. I think that with those three things and some revisions of the regulation of electric power so that these industries can have power plants located next to them and use the waste heat, and some research and development money going into the conservation side instead of all of it going to the supply side, we can buy the time to develop these renewable sources of energy that will sustain a high-energy civilization forever. We’ve got to buy the time to learn how to expand nuclear power safely, to learn how to take the oil out of the shale without excavating Colorado in the process, and developing fusion power, solar energy, and geothermal… These are all going to take a lot of time, and the thrust of the options that we’re presenting to the American people is to flag in a very important way the opportunities for making those savings and buying that time and making his job easier.
HEFFNER: What about the price? Let me just ask this question then we’ll go back to you, sir. What about the price you’ve got after paying for that much governmental involvement, which is basic to the program you suggest?
FREEMAN: Well, there has been a lot of governmental involvement in the energy industry up to now. And I think that that has to be understood. We are not writing on a clean slate. The government controlled the imports of all of 1959 through ’63. The government has had tax subsidies. The government controlled the production of oil in Texas and Louisiana for all these years. The government now has pollution controls. I don’t think even Tav would suggest that the marketplace is going to control air pollution, although I think we might both agree that a pollution tax on energy might be an effective supplement to what the government’s doing. There are a myriad of governmental interventions that have taken place because the people of America wanted them to take place.
HEFFNER: Yes, but you don’t seem to be an advocate of more is better, necessarily, more government controls, more government interference. Is this better?
FREEMAN: No, I think we need to illuminate many of the programs that exist, and we need not programs that have spurred more production and have sort of primed the pump, but governmental programs, primarily the ones that I have mentioned, to enable America to make use of the efficiency opportunities that exist. It’s just our judgment that while a lot of it will happen automatically, it won’t happen in these key places without some supplemental control. But we have building codes. We’re talking about revising the building codes. I don’t understand this talk about great social changes. You know, we have requirements to keep termites out of buildings. There’s no reason why we can’t have requirements to keep the BTUs in. I don’t understand what’s so revolutionary about the measures that we’re talking about. I don’t think they are. I think they’re just very, very necessary.
HEFFNER: Mr. Tavoulareas?
TAVOULAREAS: Yeah, I think, try to get down to some basic facts.
HEFFNER: In about two minutes.
HEFFNER: Three minutes.
TAVOULAREAS: Dave has spent a lifetime in energy. He’s had the benefit of four million dollars spent by the Ford Foundation to educate him. And I just want to ask him a very simple question. He keeps on worrying about the environment. I am worried about the environment too. I think that’s motherhood. But let’s ask a very simple question. You’ve had a lot of experience now, and we’ve got four basic energies as a resource: we have oil, we have shale, and we have coal, and we have nuclear. Which is the least detrimental to the environment, Dave? After all the study you ought to at least give us a hint.
FREEMAN: Well, I happen to think that the secondary and tertiary recovery of oil from existing reservoirs is probably the least detrimental, but that you’ve already…
TAVOULAREAS: Well, that won’t even solve your zero growth. Beyond that.
FREEMAN: But that will help. That will help.
TAVOULAREAS: Okay, but let’s answer. Of those four, which is the least detrimental? Some they said, somebody somewhere saying to government, “This is the supply you ought to at least maximize.” We have to have some supplies, even under your scenarios.
FREEMAN: I think that the problems of environmental problems are not ones that either you or I can give a final judgment. Let me just continue.
TAVOULAREAS: I really…
FREEMAN: There are very serious environmental problems with each source of supply, as you inferred. But they are of a different kind. And in a sense, it’s a question of whether you’re a gambler or not. If you’re a gambler, you would say that nuclear power is our least, is our best source of supply because it’s relatively clean, it produces no air pollution, but it has this one-in-a-question-mark chance of having a catastrophic accident. Whereas the fossil fuels, surely as they’re burned produce air pollution which the scientists tell us are affecting human health. And the extent which we can cut down the burning cuts down the pollution. And for that reason there is a direct relationship between the conservation of energy and protecting human health.
TAVOULAREAS: Well that’s, I say, we haven’t got an answer. You don’t get an answer from an expert who studied the field with four million dollars. How are we ever going to get started? That’s why I think I want to get started on some course of building supplies.
HEFFNER: What’s your answer to your question?
TAVOULAREAS: Well, to me, I would experiment in all four fields. I am so convinced this country needs increased energy. We will experiment in each one of the four fields. Find out then which is the least detrimental from an economic and environmental point of view, and move ahead more aggressively. I would have to say oil right now, but I’m sure people would say I’m prejudiced. I would also go ahead on nuclear, but I’m… I just think someone has to give direction. And out of this long report and 700 pages coming out in the fall, we don’t have anybody telling us which way we should point ourselves.
HEFFNER: And that’s the point…
FREEMAN: Wait for our final report for that.
HEFFNER: Okay. Fair enough. But that’s the point at which I’m afraid we have to end our discussion today. And thank you very much for joining me today, first, Mr. S. David Freeman, who is the Director of the Ford Foundation’s Energy Policy Project, and Mr. William Tavoulareas, who is the President of Mobil Oil. Thank you, gentlemen, for joining me today.
And thanks, too, to you in the audience. I hope that you will join me again on The Open Mind. Meanwhile, as an old friend used to say, “Good night, and good luck.”