50 THE FIVE-YEAR OUTLOOK 



E. Energy 



The United States developed economically in an environ- 

 ment that included secure, readily available, and rela- 

 tively inexpensive energy supplies. With the petroleum 

 embargo of 1973 and the subsequent rapid increase in the 

 cost of imported petroleum, there has been' a growing 

 national awareness of the economic and national security 

 implications of our dependence upon imported energy 

 supplies. In the first few years after 1973, U.S. energy 

 policy focused heavily on Federal intervention in the 

 market and attempted to protect U.S. consumers from the 

 reality of world petroleum prices. One adverse con- 

 sequence of this policy was to discourage the long-term 

 private sector investments in research and development 

 necessary to increase domestic petroleum and natural gas 

 production and to develop viable alternative energy 

 sources that will inevitably be needed when world pe- 

 troleum production begins to decline. 



This Administration's energy policy is an integral part 

 of the President's comprehensive Program for Economic 

 Recovery. It is based on the conviction that, with regard to 

 the development of energy sources, the collective judg- 

 ment of properly motivated technical innovators, busi- 

 nessmen, and consumers is generally superior to any form 

 of centralized programming. Hence, Federal investments 

 will be made only in long-term research with high risks 

 and potentially high payoffs. In general, the Federal Gov- 

 ernment will no longer assume responsibility for acceler- 

 ating the development of newer technologies. Addi- 

 tionally, public funds will not be used to subsidize 

 domestic energy production or conservation on the 

 grounds that such actions lead to little additional security, 

 and, on the contrary, divert capital, workers, and initiative 

 from uses that contribute more to society and to the 

 economy. Hence, this policy is designed to meet the 

 challenge of providing a healthy economic and policy 

 environment in which rational energy production and 

 consumption decisions can be made that reflect the true 

 value of the Nation's resources. 



The power of the free market in alleviating short-term 

 energy shortages is suggested by the fact that the growth 

 in energy consumption in the United States, and of oil and 

 transportation fuels in particular, is moderating signifi- 

 cantly as conservation measures brought on by higher 

 prices begin to take effect (Figure 3). Worldwide modera- 

 tion in petroleum demand has also led to a glut on the 

 international market and thus to a temporary stabilization 

 of crude oil prices. 



Forecasts of energy demand growth vary considerably, 

 depending on economic and technological assumptions, 

 on the assumed mix of future energy sources, and on 

 projected price trends. Significantly, however, most recent 

 forecasts project considerably smaller growth in U.S. 

 energy consumption than earlier forecasts.' In particular. 



1950 



1960 



1970 



FIGURE .^, Consumption of Energy by End-Use Sector l')50-1980. 



Source: DOE, Notice of Public Hearings and Staff Working Papers: 

 Public Discussion Package for the Third National Energy Plan. DOE/ 

 PE-0022. March, 1981 



forecasts released by the Department of Energy (DOE) 

 early in 1981 predict that U.S. energy consumption will 

 increase at only slightly more than 1 percent per year from 

 1979 to 1990, well below the 2 percent growth rate fore- 

 cast in 1979 (Figure 4). Petroleum, which provided 43 

 percent of U.S. energy needs in 1979. would provide only 

 35 percent by 1990. Coal use would increase from 19 to 27 

 percent of total energy use, with smaller increases in 

 nuclear power and renewable resources. By 1990, con- 

 servation would permit overall energy use in the residen- 

 tial and commercial sectors to remain at about their 

 present levels. Additionally, the use of energy for 

 transportation is expected to decline significantly by 1990, 

 permitting appreciable increases in energy use — and thus 

 substantially increased economic activity — in an in- 

 creasingly energy-efficient industrial sector (ENERGY). 



In short, the United States has already started to experi- 

 ence a major transition away from the use of readily 

 exploitable, but depletable energy sources. The moder- 

 ated demand for energy should provide sufficient time to 

 resolve the longer term problem of assuring that adequate 

 energy supplies are available in the future when petroleum 

 supplies throughout the world are so far depleted and. 

 thus, so costly that they can at best satisfy an insignificant 

 fraction of the U.S. — and world — energy demand. 



Some analysts believe that world petroleum production 

 has already reached its highest levels, though others dis- 

 agree. There is, however, reasonable consensus that world 

 production will almost certainly plateau if not peak by the 

 year 2000. By that time, demand for petroleum elsewhere 

 than in the United States — particularly among the middle- 

 tier countries of the third world — is expected to have risen 

 sharply, resulting in increased competition and higher 



