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PRI's Environmental News Magazine

Energy Plan

Air Date: Week of May 11, 2001

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CURWOOD: This is Living on Earth. I'm Steve Curwood.

BUSH: If we fail to act on this plan, energy prices will continue to rise. For two decades the share of the average family budget spent on energy steadily declined. But since 1998, it has skyrocketed by twenty-five percent. And that's a hardship for every American family.

CURWOOD: President Bush formally presenting his long-awaited energy plan at a high-efficiency power plant in Minneapolis. Some praise the energy blueprint for its call for more oil refineries and tax credits for purchasing hybrid vehicles. But some criticize its emphasis on oil drilling, nuclear power and weaker environmental regulations. The President has repeatedly sighted oil, gas and electric power shortages as a reason to push through his new plan. He says the nation faces an energy crisis. Joining me is Henry Jacoby, a Professor of Management at MIT's Sloan School and an expert in the energy industry. Professor Jacoby, is there an energy crisis?

JACOBY: We do have a number of local problems that I think qualify as crises. California has a crisis. There are potential electric power problems in the east that you might call a crisis if they come to that stage. What I find a little odd is the notion that we face a crisis in world, or overall, oil supply, which we don't. I think that somehow that spector is being dragged up at this time, but there's no crisis in world oil. There's no crisis in natural gas supply. There's no crisis in coal supply. We have a set of domestic systems problems that are creating this circumstance.

CURWOOD: Tell me more. I mean, what's in it for the President to say that there is a shortage if they're disconnected, as you say.

JACOBY: They may be able to get more political support by creating this notion that there's some broader crisis. In fact, if you look at the report, they have this notion that there's this big gap between our supply and demand domestically so we're gonna be importing more and more. Well, we've known that now for thirty years. This has been going on for a long, long time. There's nothing particularly different this year from five years ago, or ten years ago, or fifteen years ago. The current domestic electric power problem and some of the gasoline prices creates a kind of a moment, I guess, when they think they can achieve some of the things that this administration thinks need to be done in the energy sector.

CURWOOD: You say the Bush administration here is pushing the notion of a crisis so they can, perhaps, get something done. What is it that they want to get done? What do they want to do?

JACOBY: The major underlying thread here, as I see it, is clearing out regulatory underbrush and perhaps chopping down some of the larger regulatory trees. A lot of this is regulatory reform.

CURWOOD: Give me a couple of examples.

JACOBY: Well, I made a brief list. They involve both reform and regulation of federal properties and other types of regulatory schemes. By the way, I'm not against all of these. It's identifying what is actually underlying this. Um, there's potential change in the management of federal lands and opening up the Alaskan National Wildlife Refuge. There's a potential change in the regulation of the off-shore continental shelf. There's a potential change in the leasing of lands for geothermal. Speeding the permitting of refineries. The federal power to take land to build transmission lines. A change in the structure and speeding the potential re-licensing of existing nuclear power plants. Expediting the procedures for licensing regulation of new nuclear technologies. Reform in the leasing policies for hydroelectric power. These are all what I would call regulatory reform. Domestic regulatory reform--some good, some bad. Of course, as always, the devil is in the details.

CURWOOD: Now, what would be the upshot of this regulatory reform? How much would these reductions and regulations hurt the environment, do you think?

JACOBY: Well, here's where I say again, the devil's in the details. You don't really know the answer to that until you see exactly what they're going to do. But, if you believe that the ability of environmental groups, local interest groups, particular local neighborhood groups, whoever, their ability to get into the process and slow things down, if you view that as part of environmental protection, then, yes. Then, a lot of this is to clear that and smooth it out of the way.

CURWOOD: Let's talk about gas prices now, Professor Jacoby. How much of a crisis are we in now in the supply of gasoline?

JACOBY: Well, it depends on what you call a crisis. We have high prices. There's all the gasoline you want to buy at the price that's there. They won't stay at these levels. It's a problem of insufficient inventories, which has to do with the history of the last few months and the cold weather, not enough refinery capacity. It's a long and detailed story, but the main point to make is it's a temporary situation.

CURWOOD: By the way, how bad is it really in the gasoline market? I mean, how do prices compare today as to historic situations?

JACOBY: If you go back sort of a year, eighteen months, they're roughly twice what they were, because we were at a very low period just after the Asian financial crisis and the like. If you look back historically, prices now corrected for inflation, let's say if you adjusted for the Consumer Price Index, they're not higher than they were in the early 1970s and the early 1980s.

CURWOOD: Now how much would increased domestic drilling affect price at the pump, do you think, Professor?

JACOBY: Very small, I think. The price at the pump is influenced by the cost of the refinery, distribution, all of that, added on top of the cost of oil. Now, what determines the cost of oil? The cost of oil, the price of oil is being determined in a world market. The huge world market, which is many times the size of the United States, manipulated by an international cartel. So that 100,000 barrels more or less coming out of the ground in the United States may have some small effect on the world price over five or ten years, but basically, it's insignificantly small because we are a player in a huge world market. And the price that we see that is the oil part of the gasoline price, is being determined by the global market, not by what goes on in the United States.

CURWOOD: Now, just about everyone agrees that we should reduce dependence on foreign oil. The president's response is to increase domestic supplies. Of course, one could also reduce demand. What do you think?

JACOBY: Ultimately, the amount that we can produce of oil in the United States is declining. I mean, there have been more oil wells drilled in the United States in the last hundred years than all the rest of the world put together. And we are dealing with a gradually depleting resource and we can fight against that, but basically we are going to be more and more dependant on foreign sources and if you wanted to reduce that, then the demand side is the place where the potential action is.

CURWOOD: So, what would you do if you were in charge here, faced with the circumstances we're looking at right now?

JACOBY: I think there's a big inconsistency in the president's scheme. If we want to have conservation, if we want to have efficiency, if we want to have new technologies, the way to get it is to have the price be higher. And there's an inconsistency between the desire to have this conservation in lowering use, at the same time that you desire not to pay for it. The scheme, as it's been portrayed in the press, and as I read it, is essentially a supply-side scheme with some demand things that were going on already increased and given a little more push. So, if you really want to deal with the problems they're talking about, then you're going to have to deal with the demand side. And the demand side is not getting very great attention here.

CURWOOD: Henry Jacoby is Professor of Management at the Massachusetts Institue of Technology's Sloan School of Management. Thanks for taking this time.

JACOBY: Pleased to be here.



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