ENERGY: THE NECESSITY OF DECISION

National Press Club, February 3, 1975

Ladies and Gentlemen:

I appreciate this opportunity to speak to you on the question
of energy.

The subject is timely, for this week marks an important
moment in both our national and international response to the
energy crisis.

On Wednesday, the Governing Board of the International
Energy Agency convenes in Paris for its monthly meeting.

This organization, which grew out of the Washington Energy
Conference, represents one of the major success stories of
cooperation among the industrialized democracies in the past
decade. In recent months it has begun to mobilize and

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coordinate the efforts of the industrial democracies in energy conservation, research and the development of new energy sources. The IEA already has put in place many of the building blocks of a coordinated energy policy. At its forthcoming meeting, the United States will put forward comprehensive proposals for collective action, with special emphasis on the development of new energy sources and the preparation of a consumer position for the forthcoming dialogue with the producers.

Equally important, we are now engaged in a vital national debate on the purposes and requirements of our national energy program. Critical decisions will soon be made by the Congress -- decisions that will vitally affect other nations as well as ourselves.

## The Nature of the Challenge

The international and national dimensions of the energy

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crisis are crucially linked. What happens with respect to
international energy policy will have a fundamental effect on the
economic health of this nation. And the international economic
and energy crisis cannot be solved without purposeful action and
leadership by the United States. Domestic and international
programs are inextricably linked.

The energy crisis burst upon our consciousness because
of sudden, unsuspected events. But its elements have been
developing gradually for the better part of two decades.

In 1950, the United States was virtually self-sufficient
in oil. In 1960, our reliance on foreign oil had grown to 16% of
our requirements. In 1973, it had reached 35%. If this trend
is allowed to continue, the 1980's will see us dependent on imported
oil for fully half of our needs. The impact on our lives will
be revolutionary.

This slow but inexorable march toward dependency was suddenly intensified in 1973 by an oil embargo and price increases of 400% in less than a single year. These actions -- largely the result of political decisions -- created an immediate economic crisis, both in this country and around the world.

A reduction of only 10% of the imported oil, and lasting less than half a year, cost Americans half a million jobs and over one percent of national output; it added at least five percentage points to the price index, contributing to our worst inflation since World War II; it set the stage for a serious recession; and it expanded the oil income of the OPEC nations from $23 billion in 1973 to a current annual rate of $110 billion, thereby effecting one of the greatest and most sudden transfers of wealth in history.

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The impact on other countries much more dependent on oil imports has been correspondingly greater. In all industrial countries economic and political difficulties that had already reached the margin of the ability of governments to manage have threatened to get out of control.

Have we learned nothing from the past year? If we permit our oil consumption to grow without restraint, the vulnerability of our economy to external disruptions will be grossly magnified. And this vulnerability will increase with every passing year. Unless strong, corrective steps are taken, a future embargo would have a devastating impact on American jobs and production. More than 10% of national employment and output, as well as a central element of the price structure of the American economy, would be subject to external decisions over which our national

policy can have little influence.

As we learned grimly in the 1920's and 30's, profound
political consequences inevitably flow from massive economic
dislocations. Economic distress fuels social and political
turmoil; it erodes the confidence of the people in democratic
government and the confidence of nations in international
harmony. It is fertile ground for conflict, both domestic and
international.

The situation is not yet so grave. But it threatens to
become so. The entire industrialized world faces at the same
time a major crisis of the economy, of the body politic and of the
moral fibre. We and our partners are being tested -- not only
to show our technical mastery of the problems of energy, but
even more importantly to show if we can act with foresight to
regain control of our future.

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For underlying all difficulties, and compounding them, is
a crisis of the spirit -- the despair of men and nations that they
have lost control over their destiny. Forces seem loose beyond
the power of government and society to manage.

In a sense we in America are fortunate that political
decisions brought the energy problem to a head before economic
trends had made our vulnerability irreversible. Had we con-
tinued to drift, we would eventually have found ourselves swept
up by forces much more awesome than those we face today.

As it is, the energy crisis is still soluble. Of all nations,
the United States is most affected by the sudden shift from near
self-sufficiency to severe dependence on imported energy. But
it is also in the best position to meet the challenge. A major
effort now -- of conservation, of technological innovation, of

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international collaboration -- can shape a different future for us
and for the other countries of the world. A demonstration of
American resolve now will have a decisive effect in leading
other industrial nations to work together to reverse present
trends towards dependency. Today's apparently pervasive
crisis can in retrospect prove to have been the beginning of a
new period of creativity and cooperation.

One of our highest national priorities must be to reduce
our vulnerability to supply interruption and price manipulation.
But no one country can solve the problem alone. Unless we pool our
risks and fortify the international financial system, balance
of payments crises will leave all economies exposed to
financial disruption. Unless all consuming nations act in parallel
to reduce energy consumption through conservation and to develop

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new sources of supply, the efforts of any one nation will prove
futile; the price structure of oil will not be reformed; and the
collective economic burden will grow. And unless consumers
concert their views, the dialogue with the producers will not
prove fruitful.

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The actions which the United States takes now are central
to any hope for a global solution. The volume of our
consumption, and its potential growth, is so great that a
determined national conservation program is essential.

Without the application of American technology and American
enterprise, the rapid development of significant new supplies
and alternative sources of energy will be impossible.

There is no escape. The producers may find it in
their interest to ease temporarily our burdens. But the
price will be greater dependence and greater agony a
few years from now. Either we tackle our challenge
immediately or we will confront it again and again in
increasingly unfavorable circumstances in the years to come.
If it is not dealt with by this Administration, an even worse

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crisis will be faced by the next -- and with even more
anguishing choices.

History has given us a great opportunity disguised as a
crisis. A determined energy policy will not only ease
immediate difficulties, it will help restore the international
economy, the vitality of all the major industrial democracies,
and the hopes of mankind for a just and prosperous world.

## The Strategy of Energy Cooperation

We and our partners in the International Energy Agency
have been, for a year, pursuing strategy in three phases:

-- The first phase is to protect against emergencies.

We must be prepared to deter the use of oil or
petrodollars as political weapons and, if that fails,
we must have put ourselves in the best possible

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defensive position. To do this, we have established
emergency sharing programs to cope with new embargoes,
and created new mechanisms to protect our financial
institutions against disruption. This stage of our
common strategy is well on the way to accomplishment.

-- The second phase is to transform the market
conditions for OPEC oil. If we act decisively to
reduce our consumption of imported oil and develop
alternative sources, pressure on prices will increase.
Measures to achieve this objective are now before
the International Energy Agency or national parliaments;
we expect to reach important agreements on them
before the end of March.

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-- Once the consumer nations have taken these essential steps to reduce their vulnerability, we will move to the third stage of our strategy -- to meet with the producers to discuss an equitable price, market structure and long-term economic relationship. Assuming the building blocks of consumer solidarity are in place, we look toward a preparatory meeting for a producer-consumer conference before the end of March.

Our actions in all these areas are interrelated. It is not possible to pick and choose; since they are mutually reinforcing, they are essential to each other. No emergency program can avail if each year the collective dependence on OPEC oil increases. New sources of energy, however vast

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the investment program, will be ineffective unless strict measures are taken to halt the runaway, wasteful growth in consumption. Unless the industrial nations demonstrate the political will to act effectively in all areas, the producers will be further tempted to take advantage of our vulnerability.

In recent months we and our partners have taken important steps to implement our overall strategy. Two safety nets against emergencies have been put in place.

In November, the IEA established an unprecedented plan for mutual assistance in the event of a new embargo.

Each participating nation is committed to build an emergency stock of oil. In case of embargo, each nation will cut its consumption by the same percentage, and available oil

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will be shared. An embargo against one will become an
embargo against all.

And in January, the major industrial nations decided to
create a $25 billion solidarity fund for mutual support in
financial crises -- less than two months after it was first
proposed by the United States. This mutual insurance fund
will furnish loans and guarantees to those hardest hit by
payments deficits, thus safeguarding the international
economy against shifts, withdrawals or cutoffs of funds by
the producers.

The next steps should be to accelerate our efforts in
the conservation and development of new energy sources.
Action in these areas, taken collectively, will exert powerful
pressures on the inflated price. No cartel is so insulated
from economic conditions that its price structure is