Oil lessons from the 1970s: energy expert Dan Yergin sat down with two of the main energy policymakers from that decade--former Senator Bennett Johnston (D-LA), and John Deutch, former under secretary of the U.S. Department of Energy. The topic: have we learned anything from the 1970s experience?

• Author: Yergin, Dan
• Position: Interview

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Senator Bennett Johnston (D-LA). A Member of the U.S. Senate from 1972-1997, this longtime chairman of the Senate Committee on Energy and Natural Resources chaired the conference committee on the Energy Security Act of 1980.

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John Deutch served as Undersecretary of the U.S. Department of Energy from 1979 to 1980, and later as U.S. Deputy Secretary of Defense and Director of the Central Intelligence Agency. He is currently an Institute Professor at the Massachusetts Institute of Technology.

Yergin: This dialogue really has two purposes: First, to crystallize the advice and thinking that you would both offer on current approaches to energy policy, and second, to draw upon your perspectives. You've both been in this field for a long time and can provide a framework for thought and discussion.

Deutch: One of the principal observations I'd make is how the process today for enacting energy legislation compares to that at the beginning of the Carter Administration, which of course Bennett was heavily involved with as a member of the Senate Energy and Natural Resources Committee. While hindsight makes apparent many imperfections, the 1970s saw the passage of quite substantial legislation--specially the National Energy Act of 1978--that made significant changes. To my mind, the reason that piece of legislation was successful was because the Carter Administration put forward a framework within which Congress had to work. Congress made many changes, of course, but having draft legislation that had been thought through by the Administration and put forward as their proposal was, I think, responsible for the quality of that effort. It also helped that House Speaker Tip O'Neill formed a special ad hoc committee, the Select Committee on Energy, chaired by Rep. Lud Ashley (DOH), to shepherd the legislation.

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Yergin: Do you feel as if we're picking up where we left off thirty years ago? Are we going down a similar road?

Johnston: The situation now is totally different from thirty years ago. At that time we really had a natural gas crisis. Low prices for natural gas, as set by the Federal Power Commission, meant no gas was being committed to the interstate market, while there was plenty in the intrastate market. We simply had to deregulate.

Now, I would disagree with John in one sense. The Caner Administration had a framework, but it didn't start off with a deregulation bill. That really evolved from the committee. The Senate had earlier passed the Pearson-Bentsen bill to end natural gas price controls, while the House had a continued regulation bill, and over a period of something like fourteen months we had to meld the two. We came up with what amounted to the most successful bill I think I've seen in Congress--the Natural Gas Policy Act of 1978, part of the National Energy Act that John mentioned. It just worked beautifully at the end of the process. The price of natural gas went down, and the supply went up.

Yergin: The most successful bill not just in terms of the legislation itself; but in terms of the result?

Deutch: Exactly.

Yergin: People look back on that period as the oil crisis era, but you both see the big political issue not as oil but as natural gas.

Deutch: The point is that there was tremendous interaction between the Administration and both houses of Congress. It produced the Public Utility Regulatory Policies Act, the Energy Tax Act, the National Energy Conservation Policy Act, the Power Plant and Industrial Fuel Use Act, and the Natural Gas Policy Act--in sum, the 1978 National Energy Act.

With hindsight these pieces of legislation are not perfect, but the process led to successful legislation because the Administration was involved with an articulated point of view.

Yergin: And today we don't see that?

Deutch: Today the attitude of the Obama Administration is to tell Congress what it wants, and let Congress work out a bill. That doesn't seem to me like a way to get good legislation. Bennett may differ.

Johnston: A key person in the early Carter Administration was Jim Schlesinger, first the Assistant to Carter for energy policy and in 1977 the first U.S. Secretary of Energy. He was very bright and very good, and he spoke for the Administration. Schlesinger was directing the Administration's work on energy legislation, not Carter, and Jim worked with us on a daily basis.

Yergin: Schlesinger had that wonderful quote: "I understand now what hell is. Hell is endless and eternal sessions of the natural gas conference."

For those who don't know, unlike today, a good part of energy policy in the late 1970s was largely about getting us out of price control systems.

Johnston: But in 1973, when the price of crude went up overnight and then it quadrupled, there was a sense that we could not let the oil companies capture all that windfall profit. From a political standpoint regulation in the energy market was necessary, and then we spent the next few years trying to get out of it.

Yergin: At the end of the Carter Administration, we had the vast synthetic fuels program introduced in the Energy Security Act of 1980, which was an effort to create a new energy economy. What are your thoughts on this today?

Deutch: My view is probably more favorable than Bennett's because I was one of the guys responsible for trying to shepherd that legislation through Congress for the Carter Administration.

Two aspects of the Synthetic Fuels Corporation deserve note today. The first is the confusion about whether the objective of the Synthetic Fuels Corporation was a production goal, such as producing two million barrels of oil equivalent per day by 1990, or whether it was to demonstrate the availability of synthetic fuels technology, especially shale oil and synthetic gas and liquids from coal. What doomed the Synthetic Fuels Corporation conceptually was that it went for quantitative targets as opposed to technology demonstration. In the early 1980s when the price of oil collapsed from roughly $40 per barrel down to $10-$12 per barrel, the purpose of the corporation and its quantitative goals disappeared. Second, the Synthetic Fuels Corporation was financed by revenue from the windfall profits tax, and that made a difference at the time.

Johnston: I was chairman of the conference committee that shepherded the Energy Security Act through the Senate, so l didn't have a bad opinion of the Synthetic Fuels Corporation at the time. John, you correctly analyzed it. Mainly, shortly after the Synthetic Fuels Corporation was created, President Reagan was elected, and the price of crude fell through the floor. President Reagan's Administration had total contempt for the Synthetic Fuels Corporation, so it didn't stand a chance. They snuffed it out.

Yergin: But the real purpose of the Synthetic Fuels Corporation was to provide some alternatives to dependence on oil at the time of the revolution in Iran and the second oil crisis.

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Deutch: The idea was to have a backstop technology to undercut how high oil prices could go. There was general support for this on both sides of the aisle. Senator Pete Domenici (R-NM), a key member of the Energy and Natural Resources Committee, supported it.

Yergin: Today, of course, the focus would be on how carbon-intensive these alternative energy technologies are.

Deutch: Well, as Bennett will say, if you don't use coal, you're nowhere. The only way to get around the carbon intensity issue with liquids from coal is with capture and sequestration.

Johnston: Precisely.

Yergin: Bennett, I understand you will be participating soon in a conference in Beijing on cooperation with China on clean energy. From what we know today, can capture and...