The Government's Energy Crisis
SEPTEMBER 01, 1975 by EUGENE GUCCIONE
Eugene Guccione is editor of MINING ENGINEERING, the monthly journal of the Society of Mining Engineers of AIME (American Institute of Mining, Metallurgical and Petroleum Engineers); vice president, Mountain States Resources Corp.; and a director of the Committee for Monetary Research & Education. This article is based on a talk presented at the Monex International, Ltd. symposium "The Economy in Crisis," June 16, 1975, Los Angeles.
I’ve got some good news for you about the energy crisis.
Everything that possibly could have gone wrong seems to have gone wrong already. The same institution primarily responsible for our monetary and economic mess is also primarily responsible for our energy problems: Government.
I want to emphasize that, regardless of party label, our elected officials and our bureaucrats are not evil people. They mean well. And it is precisely their good intentions that make our problems so disastrous. Most of our public servants are motivated by the messianic impulse of doing good to their fellow man — and shoving it down his throat whether he likes it or not. They are full of good intentions — which they will enforce with a gun at your head.
In fact, without oversimplifying the issue, the shortest explanation that can be given about the energy crisis is that it was triggered by a good intention and worsened by the use of force.
The good intention was the notion that American consumers should somehow be entitled to cheap and abundant energy. The force that was used took the form of government controls over prices.
Controls on Natural Gas
Government planted the seed of the energy crisis in the 1930′s by forcing price controls on natural gas. This action had a disastrous domino-effect on all competitors of natural gas, especially coal.
For one thing, low prices soon caused shrinking profits in the gas business, thus reducing the capital available for exploration and development of new gas fields. With fewer new gas fields being explored and developed, the reserves of gas have become so depleted that, today, the gas industry can barely sustain 8 years of production.
The coal industry, on the other hand, unable to compete against the government-enforced low prices of natural gas, has been going through 40 years of hell. At first, the coal industry tried to compete by concentrating all its efforts on electrical utilities —historically the largest buyers and users of coal. But in the 1950′s, government again fouled up the picture: "Nuclear energy is just around the corner," announced the Atomic Energy Commission. "Wait one or two more years, and atomic power will be cheaply available to everyone," so went the pitch from Washington.
Electric utilities heard the message, liked it, believed it, and stopped signing long-term supply contracts with coal companies. However, under Washington’s management, nuclear energy took longer to become commercial than anybody expected.
At the same time, the coal industry found itself deprived of long-term sales contracts, without which whatever capital could be raised for modernizing old mines and opening new ones suddenly dried up — and the coal business went into another tailspin.
It took the U.S. coal industry 55 years to increase domestic coal production by about 11 per cent —from 568 million tons per year in 1920 to today’s level of about 630 million tons. With such a growth record, it would take a few hundred years to double coal production. Yet, Federal Energy Administration planners think that it can be doubled by 1985. My personal opinion — based on what government has done and is doing — is that by 1985 the coal industry may have been legislated and regulated out of existence.
Here are the facts.
Twenty eight years ago, in 1947, U.S. domestic coal production was 630 million tons per year — same as today. When in 1954 the Supreme Court granted to the Federal Power Commission the authority to regulate natural gas prices even at the wellhead, coal suffered another competitive setback. It was not a coincidence that coal production tumbled to 390 million tons in 1954.
After 1954, thanks to improved technology, the coal industry managed to increase production, and had again reached the 600-millionton level in 1969 — when Congress, over-reacting to the environmental hysteria and populist demagoguery, decreased the depletion allowance from 27.5 per cent to 22 per cent (thus giving a blow to all energy industries), and in quick succession passed the Mine Health and Safety Act along with the National Environmental Policy Act, and in 1970, the Clean Air Act.
One immediate result of this legislative orgy was that coal productivity immediately fell by 30 per cent, and domestic output decreased to 550 million tons in 1970.
There were other consequences. Because the Mine Health and Safety Act closed several coal mines, those utilities that were still using coal faced a severe shortage. The Tennessee Valley Authority, for example, was reduced to a 10-day supply of coal from a normal 2-month supply. At this moment, utilities began switching from coal to residual fuel oil.
Everything went wrong in 1970. There wasn’t enough residual oil either.
Because just as the low prices of natural gas had made it difficult for the coal industry to compete, these low prices also destroyed the price structure of residual oil, which for some years sold for less than the cost of domestic crude from which it was derived. As a result, petroleum companies drastically reduced their production of residual oil in order to produce more gasoline to keep up with the demands of automobiles, which by law now had to be equipped with antipollution devices that lowered gas mileage by about 20 per cent. This is how the Mine Health and Safety Act was the principal cause of the shortage of coal, of gasoline, and of residual oil — and this is how, by 1971, in the Eastern Seaboard, from Maine to Florida, we became dependent on the Arab Countries for more than 94 per cent of the residual oil needed for heating and power generation.
When the Arabs formed a cartel and jacked up their prices, everybody suddenly discovered the "energy crisis." But that crisis was a made-in-Washington disaster that began at least as early as 1938 when Congress passed the Natural Gas Act.
The Arabs didn’t cause either our energy crisis or our monetary and economic problems: we were doing an excellent job of cutting our own throats long before the Arabs set up their cartel.
The Arab oil cartel was set up in October 1973. But the Mine Health and Safety Act, the National Environmental Policy Act, and the Clean Air Act were set up 4 to 5 years before. Five years before the Arab cartel, Washington set up environmental standards based on what turned out to be invalid and grossly distorted evidence. Congress also armed every environmental nut with the weapon to destroy, or at least delay, new energy developments.
For example, the Kaiparowits Power Project was originally conceived 12 years ago to deliver 5000 Megawatts to users in Utah, Arizona, Colorado and New Mexico. Investment for this project was estimated at 600 million. Today, because of inflation and all sorts of bureaucratic delays, this project —now scaled down to 3000 Megawatts — is expected to cost more than $2.5 billion. The delays are now costing $6 million per month in plant construction alone, plus an additional $363 million annually in our balance of payment deficit to get 33 million barrels of imported oil which Kaiparowits could replace.
How did environmentalists achieve that power?
In the May 1975 issue of Reason magazine, R. W. Johnson points out that the real culprit in all this was Section 102 — the environmental impact statement clause —in the National Environmental Policy Act (NEPA) of 1969.
"Before Senator Jackson’s cleverly worded bill, ecologists could not, for example, sue the Department of the Interior to stop it from selling a federal land lease or granting permission to build a pipeline through federal lands. They could not allege damage to themselves, so they had no standing in court," says Johnson, adding that, "after the NEPA bill was rushed through Congress on the tide of emotions and misinformation generated by the Santa Barbara oil spill, anyone — even a Russian agent (or an Arab agent) — by posting a $100 bond could bring suit in federal court to stop a federal agency from granting operation licenses, leases, use of highways, or building permits. All the plaintiff has to allege is that the agency did not file an ‘adequate’ environmental impact statement before allowing the business to proceed."
This is how Washington created the machinery that has delayed and even stopped entirely such energy-related projects as the Alaska Pipeline, offshore oil drilling, and the construction of new refineries and power plants.
While NEPA has either prevented and/or delayed new projects, the Clean Air Act has had a disastrous effect on existing developments.
According to the Project Independence Report, the Clean Air Act — unless repealed or changed — will cause in the next 12 months a 200-million-ton coal deficit, the loss of 50,000 domestic mining jobs, an additional $5.5 to $11-billion deficit in the balance of payments, plus atrocious land use problems for the disposal of solid waste from sulfur dioxide scrubbers, and to top it all a 25 per cent increase in the cost of electricity.
What is Washington’s solution to all this?
More regulation, more controls, more new agencies, more bills, more lawyers, more committees —more scientific illiterates asking the incompetents to do the unnecessary.
All those guys in Washington are not solving the problem: they are the problem.
Academicians and government consultants are not contributing to the solution either. I call your attention to the latest masterpiece to come out from the Ford Foundation’s Energy Policy Board. It is a 510-page volume entitled A Time To Choose. In it, as a solution to the energy crisis, the scholars of the Ford Foundation are proposing a permanent ban on offshore development in the Outer Continental Shelf, more severe restraints on the strip mining of coal, a moratorium on nuclear power plant construction until at least 1985, and what amounts to a de-facto nationalization of the oil, gas, and utilities industries.
You know or should know that nuclear power plants are the safest installations ever built: their safety record is unmatched by any industry. What about severe nuclear accidents? The probability of that happening is even more remote than the probability of a meteor coming from outer space and hitting you over the head as you walk down the street. As to radiation exposure, you are getting more radiation right now —from cosmic rays and from the walls of your room — than you would get by living next door to a nuclear power plant, or inside it.
Well, nuclear energy is fairly new. I can understand why some folks might feel paranoid about it. But why the opposition to the surface mining of coal, especially of Western coal? What’s all the fuss about the strip-mining bill?
Here is another story worth telling "like it is."
About Strip Mining
A friend tells me that some of the native tribes in Africa have the custom of beating the ground with clubs and uttering spine-chilling cries. Anthropologists call this a form of primitive self-expression. Americans call it golf. I call it Congress. Uttering spine-chilling cries, Congress began to draft the Surface Mining Bill six years ago, according to the slogan: "If you cannot reclaim the land, you cannot mine it." It was a good slogan. It made sense — but it also made the bill utterly unnecessary. Why? Because the mining industry was already doing a good job of reclaiming. In fact, a study by the U.S. Bureau of Mines, which I covered in the October 1974 issue of Mining Engineering, shows that of the 1.47 million acres used for surface coal mining from 1930 to 1971, one million acres had already been reclaimed — that’s 66 per cent. And in 1971, coal people actually reclaimed 30 per cent more land than they mined. Also in 1971, the entire surface mining industry reclaimed 80 per cent of the land it used. Finally, in spite of the grim picture of wholesale devastation allegedly caused by strip mining, the fact is that only a small percentage — 0.16 per cent, or less than two tenths of one per cent of the total area of the U.S. —has ever been disturbed by all kinds of strip mining. Of that, almost half has been reclaimed, and the rest is in the process of reclamation now proceeding full speed.
So, the bill had to be changed. It no longer stated that "if you cannot reclaim the land, you cannot mine it" — it was instead a 266-page document, written by people who couldn’t even spell coal, telling you what type of coal to mine, how and where to mine it, and how to reclaim. A majority in Congress voted for the bill.
Support from Universities, Unions and the Industry
Proponents of the bill also were to be found in universities, in labor unions, and alas, in the mining industry. Some in our industry actually favored the bill because they are unhappy about being called greedy profit-making capitalists. The fact is that we are in business to make a profit. Besides, we’ll still be attacked whether or not we make a profit; if we make a profit, demagogues will accuse us of stealing from consumers; if we do not make a profit and must shut down, the same demagogues will accuse us of causing unemployment.
Anyway, various people in industry, rather than saying "It’s a lousy bill, it’s unnecessary, we are reclaiming, we are doing a good job," said instead "let’s try to sweeten this bill and live with it." And when President Ford vetoed the bill, these same people went around saying that Congress should override the veto, otherwise "… we’ll be stuck with a worse bill later on," and that "we can improve this bill." But no legislation has ever improved with time.
What about the universities? Well, since the Strip Mining Bill incorporated a sweetener granting $120 million of Federal Aid to mining schools, some professors were in favor of the bill. "Sure, we know it’s a lousy bill," they said, "but look at the goodies we’re getting."
What about labor? Well, there are nine major groups or locals in the United Mine Workers Union —three of which are Canadian and couldn’t care less, and six of which are American and do care very much because they have a membership predominantly from underground mining. So, UMWU favored the bill: "If we can prevent surface mining," they figured, "more coal has to be mined underground, and that means more money for us."
Let us consider some of the facts about strip mining:
· In the first place, compared to underground mining, surface mining is much safer: it is 20 times less likely to result in the death of a miner.
· Surface mining is more efficient: it recovers 80 per cent of the coal; and in thick Western seams, recovery rates can exceed 95 per cent. Underground mining instead recovers approximately 50 per cent of the coal. Why, you ask? Because you’ve got to leave some of that coal in underground pillars to hold the roof up.
· Surface mining is more productive. In the same amount of time it takes for an underground miner to produce one ton of coal, a surface miner can produce up to 20 tons of coal. (Surface mining averages about 35 tons per man per day; and in the Western United States, it can average up to 200 tons. Underground mining instead averages about 11 tons per man per day.)
· Surface mining is the only way to produce coal from many of the vast Western deposits, which are near the surface and cannot be mined by underground methods.
· Coal in the Western states is clean, it contains from a half to one-tenth the amount of sulfur present in Eastern coal. (Western coal, on the average, contains 0.5 to 0.7 per cent of sulfur. In the Eastern underground coal deposits, the average sulfur content is from two to ten times greater.)
· Strip mining in the Western states would disturb much less land than strip mining in the East. "How much less?" you ask. At least 90 per cent less.
For instance: to produce 30 million tons of coal in the Powder River Basin of Wyoming, in any given year only 300 acres of land would be temporarily disturbed. To strip mine 30 million tons of coal in a heavily populated state like Illinois, would disturb 4,500 to 7,500 acres of land instead of a mere 300. (Mining Engineering, May 1975, p. 35).
· Everybody agrees it would be nice to double coal production by 1985. If half of the anticipated increase in coal production by 1985 comes from the West, it will require the surface mining of only 130,000 acres of land. To put this acreage in perspective, please notice that surface mining represents only a temporary use of land — and the 130,000 acres that will be mined and reclaimed over the next ten years is less than the amount of land covered by parking lots in one year. Yet, the Surface Mining Bill also granted to the surface tenant of land on federally owned coal a veto power over whether or not the coal will be mined, and the bill also placed a ceiling upon compensation — thus removing any incentive for ranchers to grant you their consent. This alone would have effectively prevented the mining of most of our Western coal.
· Finally. The average selling price of surface-mined coal f.o.b. mine is $5 to $10 per ton — and that of underground coal f.o.b. mine is $10 to $20 per ton.
"Why then don’t we produce more surface-mined coal?" you ask. Consider these reasons:
Coal and uranium are the solution to our energy crisis. Any legislation that adversely affects coal will also adversely affect uranium. So, with legislation like the Mine Health & Safety Act, the National Environmental Policy Act, the Clean Air Act, and some new version of the Surface Mining Bill, the development of coal and uranium will be prevented, the energy crisis will remain — and as long as we have an energy crisis, all those bureaucrats in Washington will have a job fighting the crisis.
Look Not to Washington
In conclusion, the solution to the energy crisis will not come from Washington. If we have learned anything at all, it is this: asking Washington’s help to correct a problem, any problem, is like asking an arsonist to help you put out the fire. Throwing out the rascals and voting in a fresh batch isn’t the answer either.
The only solution to the energy crisis is in a massive program of deregulating and decontrolling industry. We may survive double-digit inflation and greater taxation; but unless we regain our freedom to produce, the American economy will reach the terminal stage.
We’ll solve the crisis. But government must first get out and stay out of business. The cause of our energy crisis and shortage of fuels is neither geological nor technological. It is political.
Americans are losing the freedom that enables them to create wealth. And the extent to which government has violated, curtailed and infringed our freedom to explore, to develop and grow, to produce and trade, that is the extent to which our wealth has been diminished and our reserves of fuels decreased.