Senator BINGAMAN. Thank you very much.

Our third witness is William Martin, who is a partner in the Washington Policy & Analysis consulting group, associated with the Miller & Chevalier law firm. During the Reagan administration he served in a variety of posts, including most recently the Deputy Secretary of Energy.

While at the Department of Energy, Bill Martin was largely responsible for the Reagan administration's 1987 energy security report. Earlier in his career he served as a Special Assistant to the Executive Director of the International Energy Agency in Paris. Mr. Martin, go right ahead.

STATEMENT OF WILLIAM F. MARTIN, PARTNER, MILLER &
CHEVALIER

Mr. MARTIN. Thank you, Mr. Chairman.

I think this committee over the last 10 years really has made a good effort to keep energy security before the Congress and also before the American people. Unfortunately, not too many people focused on it, and often we chatted here and we said, gee, we need an audience for what we are saying because we predicted in energy security that this country would be growing dependent on oil, that we could be at 8 million barrels per day by 1990, 10 million barrels per day imports by 1995, escalating to 12 million barrels per day by the end of the decade.

You said that; we said that. Even if it was net oil imports or gross oil imports which you often corrected me on, Senator Nickles from my home State, we said the same thing. Here we are today.

I think many of the proposals which the Congress has reviewed and decided upon in the past but not quite gotten through really are worthy of another look because maybe now we will have a political momentum behind us.

This morning I would like to focus on short term and long term. Having served in the IEA in Paris for 4 years, I always come at energy from an international perspective. One thing that is very important to remember is we may go our happy way and try to reduce our oil imports, but if our allies in Germany and Japan and Third World countries and, yes, the Soviet Union, do not get their act together, we are all going to face this problem again and again and again.

Right now in the short-term market we have lost 4 million barrels per day from Kuwait and Iraq. I add up in simple arithmetic that governments, the Governments of the U.S., Japan, Germany, and other IEA countries, have at their disposal 9 million barrels per day that they can bring on to the market one way or another. Together with Germany and Japan, we have 4 million barrels per day in our stockpiles which we could put on the market within the next few weeks. We also know that other producers have added 3 million barrels per day to the market, the OPEC countries. We also know we could have easy savings in fuel switching which can add another 2 million barrels. So together, we can overcome twice the shortage that might exist with a successful embargo of Iraq and Kuwait.

I think oil traders need to be aware of this. There is no reason why that price has to go much higher, because governments can step in and oil traders beware.

Now the IEA, for example, foresees a shortfall of 2 million barrels per day by the fourth quarter, and I think that is what most of us believe. If we have that disruption, let us put some SPRO on the market, but let us make sure that Germany and Japan put their oil on the market with us. For those countries that do not have stock, which is most of the other IEA nations, let us encourage them to build stocks and let us think what they can do to contribute their fair share in carrying this burden. I think that means demand restraint in the countries that have no stocks.

So I want to submit for the record today, in addition to my testimony, an excellent paper which Frank Potter, recently of Senator Gore's staff, in this excellent conference on global warming put together on stocks 6 years ago. It talks about the importance of stocks and how and when to use them in a crisis, and I think we are coming to that point today.

The final point, in 1981 when the Iraq-Iran war started, there was an international agreement in the IEA to "avoid abnormal purchases on the spot market." If all the IEA countries reiterated this policy internationally, that, too, could help moderate policy. So let us look to the IEA to do it, and let us encourage that body to take action.

I am depressed with Jack Gibbons' charts, a little depressed by them which shows over the long term we are vulnerable and indeed, this committee will be challenged to find a way to reduce our oil imports. We are never going to get rid of our oil imports, but let us at least try to freeze them at 8 million barrels a day, and think what can we do to keep imports at today's level?

And also, let us think about what we can do for the environment because this is the Energy and Resource Committee, but the environmental issue is very keen in the public's mind today.

Nobody yet has mentioned the domestic oil industry, and from my home State and for Don Nickles and Domenici and others, let me say, let us get domestic drilling going again. I think the rig count has fallen down to 900. It has been there since we talked about energy security.

Let us get it up to 3,000 again, and maybe that will take tax incentives. I think the President has proposed eliminating IDC's as a preference item. Maybe it will take more, but let us do it and let us get it through the Finance Committee. Let us also work to develop our Alaskan reserves in an environmentally sensitive way. We need those, that is basic.

And yes, Senator, I will be the first one today to mention coal explicitly. You have taught me about the value of clean coal technology on many occasions up here, and doggone it, 60 percent of our electricity today comes from coal.

We have to have that option, with all due respect to global climate change and so forth, but let us keep that program going and get clean coal technology here and figure out innovative ways to deploy it quickly. Once we have the technology, let us find a way to deploy it.

And let us again look at our coal exports. You know, one of the things we are trying to do and I tried to do was to cut the subsidies in other nations as we move towards free trade. Let us get in the GATT something that says, let us remove barriers to the free flow of coal because Germany, Britain, and Belgium, they all subsidize their coal. They should be buying American coal.

Nuclear, yes, we need to do something on nuclear, and Senator McClure and others of you know more than I do and know what to do about that. But we have got 100 plants today, and I am sure this committee will finally get something to do with licensing through. It came close before Chernobyl, came very close if I remember, and clearly we need to move toward standardized designs and clearly, the DOE has to finish the job on the waste site and so forth. So that is easy for this committee.

Gas, I cannot say anything more than Jack Gibbons did. It is a clean fuel. We all like it. I would like to say we have a free trade agreement with Canada which would enable us to bring more gas down and what about Alaska? What about Alaska? It sits up there. Maybe we need to look at that. That is 20 percent of our reserves. Conservation, again, others on the committee are more expert on that than me, but let us make it an equal partner with supply. Maybe we need to look at CAFE standards. Maybe we need to look at alternative fuels for transportation as Jack has put out. And indeed, Government can again be a leader in conservation by getting our own house in order.

SPRO, some people have said, billion-barrel SPRO, now is the time that we need it and maybe we can do something innovative with leasing it from producers. Well that is fine, but let us not build a billion-barrel SPRO until we get commitments from the other IEA countries to equal a billion barrels.

We put in a billion, they put in a billion, and then we have 2 billion that we can draw down, but if we do it alone, we will be subsidizing the whole world, the whole world's energy security, not only our own. So let us get the IEA to work on that. Only Germany and Japan and the United States today have stocks, and that is sad.

I have only one innovative proposal today, Senators, because all of this, as Senator Wirth said, is a litany of what we have done in the past and should do in the future, but one idea I would like explored is that we are going to face the problem, if this situation in the Middle East is resolved, is the oil price going to collapse again, back down to $10, $15?

And are people who are going to make investments in alternative fuels or in drilling or in new forms of energy or in conservation, are they going to think, what if it collapses? Will my investment be gone?

And the one concept I bring to the table today which is new is to rethink the IEA's minimum safeguard price. This is a floor price which IEA countries agreed to in 1977 under the direction of Mr. Kissinger and they agreed that the price that was needed to safeguard alternatives was $7.

Let us look at that. Maybe we could have a $25 minimum safeguard price. Maybe we could have a $28 safeguard price. The

reason I like to do this in the IEA is then every country would make that commitment.

If we do a floor price on our own or if we do an import fee on our own we shoot ourselves in the foot, but if it is an IEA-wide agreement, then indeed all countries will turn toward alternatives and conservation and it will be done in an equitable way and none of our countries will be hurt vis-a-vis the others.

Well, Mr. Chairman, I concluded at energy security with a comment that it will not just take conservation, it will not just take supply, we need both. It is not just an oil, it is an energy problem and finally, it is not just a domestic problem, it is an international problem.

And I think this committee has the wisdom and if not the wisdom, certainly the experience of having gone through this three times, and I think you will this time with the help of the administration craft a national energy policy.

Thank you very much.

[The prepared statement of Mr. Martin follows:]