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|June 26-July 3, 2008
Back to Letters
A bit of history Republicans (and Democrats) might want to forget
by Paul Danish
When apportioning blame for the current explosion in gasoline prices, don’t forget to add the name Ronald Reagan to the usual suspects list.
“Huh?” I hear you say. Reagan’s been out of office for 19 years and dead for four years. How could he have anything to do with today’s oil price run-up?
The last time we had one of these oil price eruptions was 1979, during the Carter administration. In February of that year, regime change occurred in Iran. The Ayatollah Khomeini (who didn’t like us very much) displaced the Shah of Iran (who had been our buddy) and, through a combination of malice and mismanagement, crashed the country’s oil production. Under the Shah, it was about 5 million barrels a day; a year after Khomeini took over it was about 1.5 million barrels a day. World crude oil prices rose accordingly — about 150 percent in a year.
The Carter administration’s response to this was to launch a drive for U.S. energy independence — the centerpiece of which was to be the creation of an American synthetic fuels industry capable of producing 2 million barrels a day of crude oil equivalent from coal and oil shale (mostly from oil shale) by 1990.
Carter signed the enabling legislation, the Energy Security Act of 1980, in July of that year. Among other things, it created a U.S. Synthetic Fuels Corporation with the authority to provide $22 billion in loan and price guarantees to synfuels projects.
On the strength of this, a number of oil companies launched oil shale mega-projects in Colorado. Most involved mining shale, which averages about one barrel of oil per ton of rock by heating it in blast-furnace-sized retorts to sweat the oil out of the shale.
To be sure, environmentalists were horrified, but in 1980 John Q. Public’s reaction was, “It’s about damned time.” The price of gasoline had gone up 400 percent since 1973 (the year of the first oil crisis), and 150 percent in the previous 12 months, and John Q. wasn’t much interested in whether an obscure basin in western Colorado became a national sacrifice area, or in the hard luck story of the largest mule deer herd in North America that lived there.
However, environmentalists weren’t the only ones who were horrified by the prospect of oil shale development. Conservatives were too. Conservatives were even more offended by the nascent synfuels industry than the enviros were, because it would put the government into the oil business and result in it forking over billions in tax dollars (worse yet, raised with a windfall profits tax) to subsidize synfuel production.
What the environmentalists couldn’t do, the conservatives could. Less than four months after Carter signed the Energy Security Act, regime change occurred in the United States, and the Reagan administration replaced the Carter administration. And as soon as they took office, the Reaganites set about killing the synfuels program.
It took them about two years. By the end of 1982, the Colorado oil-shale industry was deader than gold and silver mining. The Reganites killed it and were proud of it.
OK, it’s thought-experiment time. Where would we be today if Reagan had stayed the course on Carter’s synfuels plan?
American domestic oil production would be at least two million barrels a day larger than it is today. It might well be four or six million barrels a day larger; its not unreasonable to suppose that a synfuels industry capable of producing two million barrels a day by 1990 would be capable of producing two or three times as much 18 years later.
An extra four to six million barrels a day of domestic oil production would mean American oil imports would be approximately one-third to one-half smaller than they currently are. That alone would almost certainly preclude the sort of price increases we are currently experiencing. The country’s foreign policy would be far less vulnerable to petro-extortionists.
The downside? The country would have shelled out tens of billions of dollars in subsidies for synfuels (which would have looked like a great boondoggle until this year). The Piceance Basin would look a lot like the Power River Basin in Wyoming — only more so, because oil-shale extraction involves moving a lot more rock than coal extraction (and coal, once mined and burned, vanishes into thin air). On the other hand, it’s not unlikely that a mature oil-shale industry would have mastered in-situ (in the ground) production by now, which would dramatically reduce the impacts. And a mature synfuels industry would obviate the need to produce oil from the outer continental shelf or ANWR.
Reagan’s trashing of Carter’s synfuels program should be a great issue for the Democrats — who are getting savaged by Republicans for blocking domestic oil production, including oil-shale production — but they can’t use it. That’s because the party’s environmental wing becomes pretty irrational over oil; it really does reflexively oppose any new production. If Carter were to propose his synfuels plan today, he would be drummed out of the party.
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