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July 18, 2000

Making Energy More Competitive and Less Expensive

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Our nation faces a number of challenges to our energy future, and I want to share with you my thoughts on how we got where we are and where we need to be heading if we want to maintain our current economic well-being.

On May 16, Senator Lott and I, along with Senator Murkowski and others, introduced S. 2557, a bill to revise and revitalize our nation's energy policies.

We have taken this step because for the last eight years the Clinton/Gore Administration has done little or nothing to ensure adequate supplies of conventional energy--the crude oil, natural gas, hydropower, nuclear energy, and coal which the nation needs to run its power generation systems and keep our trucks, railroads, farms, and cars running.

In fact, the Clinton Administration in many ways has adopted policies designed to limit the use of fossil fuels without providing alternatives (other than wind, solar, and biomass, which currently account for about 3 percent of the country's total energy demand).

Recently, Secretary Richardson released an Energy Department report dealing with the nation's electric generation and delivery system. He called it "a third world system" and warned of catastrophic power failures this summer.

Our electricity industry is not a "third world system"--it is without a doubt the finest in the world. It has some problems but it is not on the verge of complete collapse.

What did Secretary Richardson recommend to help our electricity grid? Nothing, except demand side management--he wants us to reduce electricity consumption. The report contains not one word about increasing baseload generating capacity.

The Clinton Administration's policies toward nuclear can be described as "benign neglect." About 20 percent of our electricity comes from nuclear power plants--the second largest source of electricity after coal. Further, the United States has 2,200 reactor years of operating experience, and many nations that rely on nuclear--France, Japan, and South Korea--have achieved their goals through partnerships with U.S. nuclear power plant suppliers. Yet the Administration acts as though nuclear doesn't exist. Some in the utility industry describe the Administration's attitude toward nuclear power as overtly "hostile."

Fifty-five percent of our country's electricity is generated by coal-fired boilers. Eighty-eight percent of the electricity in the Midwest comes from coal that is our most abundant domestic fossil fuel. But instead of focusing hard on how to use coal more efficiently and more cleanly, the Administration, through the Environmental Protection Agency, has declared war on coal-fired generators by rewriting the Clean Air Act and suing a number of utilities for alleged violations.

Indeed, the Administration's global-warming and climate-change apostles have projected plans that essentially zero out coal use by 2010--a most unattainable and, in my mind, most undesirable objective, unless the plan is to dump our economy.

Electricity from hydro provides about 10 to 12 percent of our electricity. It is clean, renewable power, but Secretary Bruce Babbitt talks a great deal about taking down dams, especially in the West, where we are highly dependent on power from hydro.

Finally, and most importantly, the Administration has said no to oil and gas exploration on the coastal plain of the Alaska National Wildlife Refuge, no to outer continental shelf exploration outside of western and central Gulf of Mexico, and no to new oil and gas leasing on our onshore public lands.

This nation's most pressing long-term energy problem is our dependence on foreign sources of crude oil and petroleum products. We should be doing more, not less, to develop our domestic energy resources.

S. 2557, the legislation I mentioned earlier, has as its overall objective to reduce our dependence on imported crude oil to below 50 percent of total demand.

When crude oil and gasoline prices shot up this year we were importing about 55 percent of our crude oil needs. According to the latest Energy Information Administration (EIA) statistics on U.S. dependence on foreign crude for the week ending June 23, 2000, it was just over 57 percent--or about nine million barrels per day.

The United States is now importing about 400,000 barrels per day more than we imported in June 1999.

In addition, the United States is importing more finished petroleum products. In January 1999, our daily import level for motor gasoline, for example, was 483,000 barrels per day. During the week ending June 23, according to the EIA, the United States imported an average of 562,000 barrels per day of motor gasoline. Given that about 30 domestic refineries have closed during the Clinton/Gore years, supply shortfalls and higher import levels are not surprising.

The EIA estimates that our dependence on imports could rise to more than 65 percent by 2015. Under current energy policies we may get there before 2015.

U.S. crude oil production has fallen 17 percent since 1993, and the price for a barrel of crude has risen from $16.40 in 1993 to $29.00 as of June 23, 2000.

Gasoline prices have risen sharply to a national average of a little more than $1.60 per gallon. Prices have been much higher in the Midwest because of reformulated gasoline requirements and pipeline operational problems. Natural gas (and this is the real sleeping story) has been selling for over $4.50 per thousand cubic feet recently, up from $2.65 only a few months ago. Most consumers won't feel this price rise until the weather cools.

The Administration has published National Energy Plans but they are merely words on paper. The plans pay lip service to the need to increase domestic oil and gas production, the need to use coal more cleanly, the need to improve nuclear research, and the need to conserve and enhance the use of renewable energy.

In practice though, the Administration has consistently underfunded research on more efficient and clean uses of coal for electric generation. It has underfunded research into how we can improve the efficiency and safety of our nuclear stations, and it has refused to recognize hydropower as a renewable resource--as a matter of fact, it is the Clinton/Gore Administration that removed hydro from the list of renewable energy resources.

Instead, the Administration has supported greater use of solar energy, wind power, and energy from biomass, and has demanded significant increases in federal money to encourage more use of these sources. The Vice President recently offered a rehash of these ideas as his answer to solving U.S. dependence on foreign oil. There is no new news here, just old news from a different person.

There is nothing wrong with supporting renewables, we have been subsidizing solar and wind now for twenty-five years, but they represent only about 3 percent of our total energy demand--and that is after $17 billion in direct spending and tax incentives for renewables.

I think renewables--including hydropower--must play a role in meeting U.S. energy needs, but the real solutions lie in boosting domestic oil and natural gas production and finding cleaner more efficient ways to use coal to generate electricity.

The bill that Senator Lott and I have introduced is the product of several months of discussions and analyses by a number of Senators, led by Energy and Natural Resources Committee Chairman Frank Murkowski. It will not solve all of our energy problems, but it is a big step in the right direction.

Let me take just a few moments to explain a few of the major steps S. 2557 takes to improve our energy situation.

The bill will require the Secretary to report annually on progress toward limiting our dependency on foreign oil to 50 percent or less. The Secretary must lay out legislative and administrative steps to meet this goal and recommend alternatives for reducing crude oil imports.

To increase our use of natural gas, the bill creates an Interagency Working Group to design policy and strategy for greater use of natural gas.

The bill extends authority for the Strategic Petroleum Reserve and prevents drawdown of the reserve until the President and the Secretary of Defense agree that a drawdown does not pose a threat to national security.

The bill contains a title to protect consumers and low-income families and to encourage energy efficiency. It expands eligibility for the Residential Weatherization Program, creates a program to educate and help consumers avoid seasonal price fluctuations, and establishes a heating oil reserve to help the Northeast deal with shortages and severe price fluctuations.

S. 2557 also contains a title that addresses increased use of other domestic energy sources like coal and more efficient uses of our nuclear and hydro resources. It also requires the Federal Energy Regulatory Commission to report on how costs for relicensing hydroelectric facilities can be lowered.

The bill also authorizes a federal oil and gas leasing program for the Arctic National Wildlife Refuge in Alaska. The potential for large oil reserves there is high--about 16 billion barrels. Production from the reserve could be as high as 1.5 million barrels per day, and production could last 20 years or more. That amount of additional production alone would, if added to today's domestic production, reduce our 60 percent dependence on foreign crude oil to just over 50 percent--a huge reduction.

The bill also contains provisions to streamline and reduce the costs associated with oil and gas leasing on federal lands to enhance domestic oil production and encourage small oil producers to keep low volume oil wells operating during harsh economic times.

Finally, the legislation includes tax credits for wind and biomass energy and for electricity produced by steel-making facilities, tax incentives for residential solar energy use, help for consumers who want to convert from heating oil to natural gas and for consumers who need to refurbish home heating oil storage equipment.

Our bill is only a first step in focusing on the energy problems the Clinton/Gore Administration has deliberately ignored for the past eight years. Rather than send Secretary Richardson around the world with his tin cup, begging the oil sheiks and Venezuela and Mexico to lower crude prices and increase their production, we are providing the blueprint needed to reduce our dependency on imported crude oil.

Crude oil and gasoline prices have been slowly rising over the last several months after OPEC said it would increase production last February. Alex Lawler commenting in the Washington Post on May 12 about OPEC's action noted:

OPEC's recent increase in its oil-output quotas may be too small to meet rising demand later this year, the International Energy Agency said, indicating that prices could rise from levels now at a seven week high.

Mr. Lawler was right. Gasoline prices since May have continued to rise despite OPEC's increased crude oil output, and other problems, such as pipeline outages, have contributed to gas prices as high as $2.50 in the upper Midwest.

Because of the Clinton/Gore Administration's continued neglect of energy matters we are facing continued higher prices for gasoline and possible shortages of natural gas and heating oil this winter. It's time to take action and the Senate has taken the lead.

A final note: The Senate has passed the Electric Reliability 2000 Act (S. 2071). The bill provides a long-term solution to reliability by creating a national reliability organization--similar in structure to the Securities and Exchange Commission--it will give the Federal Energy Regulatory Commission immediate authority to prevent outages this summer. We may not be able entirely to avoid problems this summer, but it is a start toward a more comprehensive legislative product that would address impediments to free and open competition and would increase domestic energy production

The Honorable Larry E. Craig, a Republican, represents Idaho in the U.S. Senate.

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