Charles L. Schultze

The President’s Plan

The supply and price of crude oil are at the heart of the nations, and the worlds energy problem. That problem has three parts. First, OPEC or no OPEC, the worldwide production of crude oil will simply not grow rapidly enough in the coming decades to supply the worlds need if we continue to rely as heavily as we now do on petroleum products to meet our energy demands. We shall have to reduce our reliance on oil, develop alternative sources of energy, and use all forms of energy more efficiently. The use of oil and energy is deeply embedded in the current technology of production and in the behavior of consumers. Begun in good time, technology and behavior can gradually be adjusted, at relatively small cost and with a minimum of disruption. But postponing the adjustments in the hope of avoiding small costs now will inevitably impose substantial costs and major disruptions later. Second, we are rapidly growing more dependent on oil imports. This year alone we expect to pay

Use the Peace Dividend to Increase Saving

50 billion for foreign oil that will supply half our domestic needs. We now import more oil than we did in 1977 when the President first proposed the National Energy Plan. One quarter of the worlds oil imports are taken by the United States. The political crisis in Iran has demonstrated anew the fragility of the world oil market and our susceptibility to political upheavals in a very unstable part of the world. For the foreseeable future, we will have to rely on oil imports for an important part of our supplies. But we must curb the dangerous growth in that reliance. To the extent we do so we improve our national security, reduce the strain on our balance of payments, and, by reducing the worldwide demand for oil, make it harder for OPEC to raise its price. Third, despite the provisions in the National Energy Act that promise to reduce oil imports, we have continued to promote the importation of oil by keeping its domestic price significantly below the world price. The decision to phase out controls by October 1981 reverses this policy. It will end the subsidization of imports. It will stimulate efforts to search for and produce more oil. And it represents a major step to help ease the longer-term transition away from oil to more plentiful energy resources.