- The Washington Times - Friday, March 23, 2001

Energy is economics. Energy acquisition and utilization are fundamentally linked to every endeavor. If you can't fuel industry it doesn't matter what the Fed does with interest rates.

If you can't fuel the farm and modern agriculture is an energy-intensive business food supplies decrease. The United States, Western Europe and Japan have hungry citizens, but starvation doesn't stalk the world's wealthy. A spike in energy prices, however, batters the world's poorest nations. Imported food costs rise along with the price of imported fuel, further diminishing precious foreign exchange. Domestic food production costs soar, and for an unfortunate slice of humanity, starvation results.

At the moment, the United States is on the front-edge of an energy crunch. Californians face a challenge to their lifestyle, not a threat to their lives.

Still, this crunch has already harmed the U.S. economy, which is bad news for the globe. California's blackouts serve a grim warning. The immediate political and economic challenge will be to keep the crunch from becoming a crisis.

How should America respond? For a moment consider the political response to the last energy crisis.

The energy price spike of Aug. 2, 1990, had an obvious culprit: Saddam Hussein. The Iraqi attack on Kuwait was a direct strike at the planet's most important gas station, the Persian Gulf. At a strategic level, the attack on Kuwait was an attempt to use Iraqi military power to control world oil markets.

The political response to that energy challenge a UN-sponsored coalition war built on a consensus view of the threat thwarted Saddam. Arguably, the results of that war, stable oil prices and increased political stability in the Middle East, in conjunction with the end of the Cold War and cheaper digital technology, played decisive roles in the 1990s' great economic expansion. If Saddam had set oil prices at $150 a barrel, there would never have been a 10,000 Dow.

However, the culprits in the current U.S. energy crunch are more discreet and less dramatic, though their potential consequences are insidious. Energy Secretary Spencer Abraham compares the current situation to the gas station lines and oil embargoes of the 1970s. Actually, it's more complicated. There are no easy options. To a degree we are at war with ourselves, our failure to plan, our failure to reach consensus.

Here are some of the issues affecting the complex problem, and a sketch of potential answers:

• Lack of national leadership. Though I'm tired of writing about the Clinton administration's destructive superficiality, the United States is paying for eight years of posturing rather than planning and doing. The Bush administration must act, but simply calling for "more coal" won't cut it. Mr. Bush must shape a new national consensus. He must sell the country on pursuing a long-term policy of "energy availability and environmental accountability" backing energy source development with realistic but effective environmental standards.

• Diminished U.S. political clout among Middle East oil producers. Mr. Clinton put the Israeli-Palestinian peace process ahead of regional approaches to Middle Eastern security. Wrong. Containing Saddam and Iran made pursuing peace in Israel possible. Bilateral relations with key states (like Saudi Arabia) deteriorated. Rebuilding those relations takes time.

• Phony or rash deregulation of electricity markets. Comparing Texas' deregulation efforts to California's is instructive. California went from concept to implementation in about two years. California forced all generators to bid all energy through one centralized "pool" in 15-minute increments. Such price volatility makes long-term investing in generation even dicier. The Texas process, which began in 1993, will have some centralized pooling, but 85 percent of the market will consist of bilateral contracts, allowing for better long-term planning.

California sloughed responsibility for developing generating facilities. Not-In-My-Backyard attitudes exact a price. From 1995-2000, Texas added more than 5,700 megawatts of new capacity. California added 672 megawatts. One megawatt powers about 1,000 homes on a hot summer day.

• Domestic refining shortfall. According to industry statistics, the United States had 365 oil refineries in 1945. Today it has 155. The "refining and distribution crunch" will continue to add to gasoline and heating oil costs through 2007. Addressing the shortfall takes a decade of dedicated investment. Mexico may be able to provide some new capacity.

• Diminished development of alternative energy. Low oil prices cut investment in alternatives like solar and wind. But when oil prices climb, the alternatives aren't online. Developing alternative energy sources contributes to our "strategic energy reserve." Loan programs for alternative energy development by small businesses and individuals have a place in the policy mix.

Austin Bay is a nationally syndicated columnist.


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