Well, why do we consider, why do we concern ourselves with energy policy? I think there are three main reasons. One is economic. During the first world war, French Premier George Clemenceau and his colleagues referred to oil as the "blood of the earth." Well, certainly, energy is the basis of our economy. And disruptions threaten our economy and the economic well being of Americans. The second is the strategic significance of energy and oil. One important aspect of the second world war and one that has not been given a great deal of attention was that it was in certain ways an oil war. And if we had not won that oil war, it is questionable whether we would have won the overall war. In the middle and late 1940's is when American Presidents first began saying that the Persian Gulf had a unique strategic significance. I think the roots of the policy that we see today did not begin August 2. It began with Presidents Franklin Roosevelt and Harry Truman when they identified the global strategic significance of oil.

The third reason, as already alluded to, is that we are now in what we might call the third wave of environmentalism. This is far reaching and pervasive in our society. A very strong focus of the energy industries is not to seek to harness energy policies to environmental objectives.

As you all begin the consideration of the national energy strategy, it is interesting to reflect the degree to which the Clean Air Act counts as a major energy policy. And I think the answer is that it does. Of course, it is no easy thing to make an energy policy or strategy in the United States because our interests are so divided regionally, as producers, as consumers. But still, I would like to suggest a few lessons for this eight round of national energy policymaking.

One is, by experience, avoid the dramatic. We have had several efforts at big dramatic policies and they have fizzled out. There is a great deal to be said for the pragmatic. Second, I think a strong lesson is to resist the temptation toward a highly regulated energy economy. It is mobilizing. It is self-defeating. And it does not do a great deal of addressing the questions, the central questions, that we face such as rising oil imports.

The third is really a point that Mr. Sharp and Mr. Moorhead both have made, which is not to approach this in a sectarian fashion. The phrase I find myself using is ecumenical energy policy that realizes there is no monopoly on wisdom in this field. There is no single solution. What really drives that home for me is the experience of what were the biggest and most effective things that we did in the 1970's and early 1980's. And two of them really stand out.

One was Alaskan production which increased our oil output by 2 million barrels a day. And the automobile fuel efficiencies which saved us an equivalent of 2 million barrels a day. That really seems to me to be a very strong argument for a ecumenical approach. Indeed, I would like to make a bet that if we do not have an energy policy or strategy, if we have one that is not ecumenical, it will not fly.

What are the elements? One is-obviously, these will be much discussed over the next few weeks-but natural gas, conservation, addressing a decline in U.S. oil production, research and develop

ment and some consistency. No doubt there will be questions raised about a gasoline tax and tariff, very controversial issues. Only here I would like to note that our gasoline tax in this country is onetenth of the average of the Europeans.

On conservation it is often said that we failed at conservation. That, I think, is simply not true. In fact, we have succeeded. The United States today is about 30 percent more energy efficient than it was in the early, mid-1970's. But the task, and I think this will be at the heart of the debates you will be facing, is how do you promote conservation. It looks to me like there are only three ways to do it. You can urge it. You can price it either through pricing or taxation. Or you can regulate it. I think in that arena we will see a lot of the battles over the next few months.

In the 1970's the biggest confrontation in the whole energy arena was over price between consumers and producers and between regions. I think in the 1990's and in the legislation that you will be dealing with the biggest confrontation will be the energy environmental battles. And it certainly will be a big battle. The question will be how to resolve these issues, not only who pays, but how can you create a framework for dealing with them?

Finally, I would like to just end with a lesson that seems to me a very strong lesson. In "The Prize" there are a lot of different people I quote. One of my favorite quotes is one that comes from Winston Churchill. He enunciated it some 78 years ago when he was in the midst of converting the British Navy from coal to oil in order to gain 4 knots in speed over the German Navy. Churchill knew that there was a great risk, for Britain would be depending not on safe, secure Welsh coal, but on oil from distant Persia. Iran, which was driven even then by conflict between mullahs, modernizers, and the Shah of the day. Churchill went ahead with the conversion. He said "there was no choice. Mastery itself is the prize of adventure."

But that still left a huge security problem. And what was Churchill's answer to the security problem? Diversification. He said, "On no one quality, on no one process, on no one country, on no one field, and on no one route must we be dependent." Safety and certainty in oil lie in variety and variety alone. What was wisdom for Winston Churchill at the beginning of the 20th century, diversification, is certainly wisdom for us as we look toward the 21st century. Thank you.

[The prepared statement of Mr. Yergin follows:]

NATIONAL ENERGY STRATEGY: A NEW START

Testimony Prepared for

the House Subcommittee on Energy and Power

by Daniel Yergin

Author, The Prize: The Epic Quest for Oil, Money and Power

President, Cambridge Energy Research Associates, Inc.

I am grateful to the Committee for the invitation to join in the lead-off hearings as the House of Representatives begins its consideration of the critical issues of a national energy strategy. The Committee has wisely asked us to stand back and go to first principles that is, to address the "why" the overall purposes and rationale for energy strategy in precedence to the "how."

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Moreover, the Committee has given me the additional challenge of calling upon my new book, The Prize: the Epic Quest for Oil, Money and Power, to help provide a framework and context for the current considerations and from which to extract relevant lessons.

This hearing comes at a crucial time. After more than a year-and-a-half of consultation, the Administration's National Energy Strategy is going to be released this afternoon. World events have added a powerful new urgency to the discussions and will ensure wide public attention, which might not have been the case little more than half a year ago. Everywhere I go in the country, I encounter the same set of questions do we have a national energy policy? if we don't, why not? should we have a national energy policy? and, if we are to have one, what should it be composed of? The deliberations of this Committee will be one of the most important contributions to the debate and to the resolving of those questions.

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Yet, as the consideration begins, some members of this Committee may be moved to recall the words of that immortal American philosopher, Casey Stengel "it's deja vu, all over again." For the current National Energy Strategy, at least by my count in The Prize, is "Energy Policy Number Eight" that is, the eighth time in the last 20 years that the United States has grappled with a "national energy strategy." If you add in the enormous impact on our energy economy of environmental policies and politics, the number goes even higher.

of

These last 20 years have been tumultuous years oil shocks, of shortage and glut, of long gas lines and short tempers, of surprise and foreign policy crises. They have included years when energy difficulties have had major economic consequences costing the American people heavily in terms of unemployment, lost economic growth, and inflation. At other times, falling energy prices have been an important stimulus to economic growth. These two decades have also witnessed how the international politics of energy and the supply/demand realities behind them have transformed the very substance of world political and economic power.

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And these twenty years have been a time when the American people and their representatives in the Congress and various Administrations have sought to achieve three sometimes contradictory objectives cheap energy, secure energy, and clean energy. And the clash of those objectives will no doubt frame much of the debate that starts today.

Specifically, the Gulf Crisis has brought such concerns to the fore again. It is often asked whether this crisis is only about oil. The answer is no. Any student of history knows that great events, whatever, their nature, do not happen for a single reason. The concerns about the post Cold War order, about aggression and sovereignty, about nuclear and chemical weapons all these are part of the equation. But oil is certainly also at the center. The issue is not whether gasoline is $1.03 a gallon or a $1.13 a gallon, but rather about oil as an essential element in the global balance of power and how that balance would be changed were a hostile power to be in the position to dominate directly and indirectly the region that contains two-thirds of world oil reserves. It has been the policy of the United States government, going back to Presidents Harry Truman and Franklin Roosevelt, not to see hostile powers dominate that region. It was the Carter Doctrine of President Jimmy Carter in 1980 which, in the words of his National Security Assistant Zbigniew Brzezinski, committed the United States "to the security of the Persian Gulf." (The Prize, chapter 20, pp. 427-28, 701-02).

Now it is these unfolding events in the Gulf that force us to go back to the basic principles that the Committee wants to take as its starting place.

And we do need the historical framework that the Committee is seeking.

As near as I can tell, this country did not really worry about "energy policy" until the end of the 1960s and the beginning of the 1970s. Until then, there were policies

for oil, natural gas, coal, nuclear, hydro, but no particular drive for an over-arching "national energy policy." Several things came together by the beginning of the 1970s, however, that did push towards such policies:

the peaking of U.S. oil production in 1970 and the resulting fall in output;

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rapidly rising demand for energy, including oil; rapid growth in oil imports and the breakdown of the quota system established in the late 1950s;

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gas; oil;

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problems in the supply of electricity and natural tightening of the global supply/demand balance for the emergence of the "first wave" of environmentalism, which focused, among other things, on where energy was produced, how it was produced, how it was transported, and how it was consumed.

* a "politicization" of the global energy trade in the context not only of Middle East politics but of a sharpening "North-South" confrontation.

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Yet there was still a tendency to discount the political significance of this changing global energy balance · including the disappearance of "spare capacity" in the United States. In September 1973, with tensions rising, President Richard Nixon, thinking of the 1951-54 Iranian oil crisis, sought to send a message to Libyan dictator Muammar Qaddaffi: "Oil without a market...does not do a country much good." (p. 592) But there was, by that time, very little spare oil-producing capacity in the world and no surge capacity at all left in the United States. And, shortly thereafter, the United States learned that the energy balance could have great significance for the global balance of power and the way in which American foreign policy could be constrained and limited.

Over the last twenty years there have been many goals for energy policy: to make the United States "independent" of foreign oil, to reduce oil imports, to regulate profitability in the energy industries, to reduce government regulation, to promote competition, to strengthen government control over energy markets, to reintroduce market forces and get the government out of the energy business, to promote technological development, to protect the environment, and on. If we add in relations with other countries, consumers as well as producers, the list gets even longer.