FT Energy Source Energy lessons for Obama’s administration from the Carter years

By Philip K. Verleger

The current discussion on the fate of President Obama’s legislative program to address global warming brings back memories (bad ones) of a similar presidential attempt more than 30 years ago.

Those of us who were part of the earlier episode know only too well how Obama’s effort is likely to fare.

In January 1977, Jimmy Carter became president. Energy policy had been a key part, if not the centre, of his campaign. Carter claimed the United States lacked an effective approach to energy and vowed to fix the deficiency.

Like President Obama, President Carter enjoyed strong Democratic majorities in Congress. Like Obama, the Carter administration included many very bright, often arrogant young men and women who were certain they had the solution.

As with Obama’s energy “czar”, President Carter’s chief advocate for energy policy had little detailed knowledge of the existing situation but supreme confidence in his superior intellect. And like Obama’s team, Carter’s staff was sure they could get legislation through quickly.

Quick action was desperately needed in 1977 for two reasons. First, the energy infrastructure was falling apart. Second, the administration had a very large agenda beyond energy, one that included tax reform.

Like President Obama, Carter spoke before Congress to push for passage of his National Energy Plan (NEP), which he called the “Moral Equivalent of War” (this phrase would haunt him later because the words formed the unfortunate acronym “MEOW”). Included in Carter’s program were policies to create a Department of Energy, extend price controls on natural gas and crude oil, introduce a gasoline tax, and force industrial users to switch from natural gas to coal. Regarding the latter, his energy adviser, who became the first Secretary of Energy, was convinced the United States would shortly exhaust its natural gas resources. To save them, he demanded that electricity generators and industrial users start using coal.

After President Carter introduced his energy legislation, the House of Representatives formed a special committee to move the bill along. Many elements passed quickly. Other elements failed. His gasoline tax died, getting only 35 votes from the 435 representatives.

The legislation then stalled in the Senate as party discipline collapsed. Many key committees were chaired by Democrats from oil- and gas-producing states in the South who were utterly uninterested in passing the bill. Two years elapsed before a very different and watered down piece of legislation found its way to the White House for Carter’s signature. In it, price controls were extended on natural gas but not on crude.

A year later after the 1978 mid-term Congressional elections, President Carter took a different tack, introducing a program to phase out crude oil price controls and institute a tax on oil instead. Carter proposed to use the tax revenues to fund energy programs such as synthetic fuel. His existing authority allowed him to remove price controls on crude without a vote from Congress. However, it took Congressional action to pass the tax. When the bill was introduced in April 1979, no one gave it a chance of passing the Senate because Democratic Senator Russell Long headed the key committee. Long was from Louisiana and strongly opposed the tax.

Long did not control outside events, however. When the tax bill was introduced, crude traded for around $15 per barrel. Within a year, prices jumped to $40 following the Shah of Iran’s fall. Senator Long then let the tax legislation go to a vote and it became law. As he explained, “circumstances changed”.

After my experience as a member of the Carter administration, I have to conclude that Obama’s emissions bill will not pass the current Congress or before 2012 unless circumstances change. It is not climate change sceptics that will block it. Rather, history teaches us it is the “special interests” that have such power.

For months, I have tried to get those involved in the energy debate-both observers and those writing on the subject – to pay attention to the lessons of history. I failed. Now all I can do is remind anyone surprised by the environmental bill’s eventual demise of this famous observation from George Santayana: “Those who cannot remember the past are condemned to repeat it.”

Many of the veterans of the Carter battle have quietly exchanged emails and phone calls as the Obama legislation awaits its fate. The consensus opinions are these:

1.      None of the people putting the Obama energy policy forward understood the problems they would face in Congress.

2.      The bill’s supporters (“greens”) are less aware of history than we were in the 1970s, if that is possible.

3.      The legislation’s passage is unlikely absent an outside precipitating event.

It will be difficult to take effective action on emissions even when every American accepts global warming as fact. Concerns regarding economic security are far greater than those over climate impacts 10 or 20 years in the future. Tragically, individuals pushing such actions – the representatives of various NGOs covered in this blog, for example – do not understand history, the concerns of voters, or the workings of Congress.

The battle is lost.

Philip K. Verleger is principal of PKVerleger LLC, which provides economic consulting on energy and commodity markets.

Related links:

Jimmy Carter’s Crisis of Confidence speech (PBS)
Was Massachusetts really about climate? (FT Energy Source)
Will there be a climate bill left? (FT Energy Source)
The elusive green economy (The Atlantic)