Foreign Relations of the United States, 1969–1976, Volume XXXVII, Energy Crisis, 1974–1980

122. Telegram From the Mission to the Organization for Economic Cooperation and Development to the Department of State¹

Paris, April 25, 1977, 1745Z.

12097. For Assistant Secretary Katz from Bosworth. Pass EUR and NSC, Hormats. Subject: Revised Energy Paper for Summit.² Following is revised energy paper for Summit. Bergold has reviewed and approved it here.

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I. Purpose

Our basic energy objectives at the Summit are:

—Endorsement of the new U.S. energy proposals,³ especially our aim to cut oil imports, as a major contribution to our common goal of a better world energy balance;

—Commitment by the other industrialized energy consuming countries to make the maximum possible contribution to the creation of a stable balance of energy supply and demand by limiting the growth of their dependence on imported oil; and

—Commitments in principle to a major expansion of joint energy R&D programs (e.g., coal, nuclear, and conservation).

II. Attitudes of Other Summit Participants

The Summit brings together the major energy consuming countries—the six key members of the International Energy Agency (IEA) plus France. The other Summit countries have done marginally better than the U.S. over the last few years in strengthening their national energy programs. However, they all can and should do much better; none of them can match the scope and potential impact of the new U.S. program. With the exception of the UK and Canada, they are all even more heavily dependent on imported oil than the U.S. and thus more vulnerable to supply disruptions and price increases.

Germany: Schmidt is sensitive to the global political/economic dimensions of the energy crisis. He is concerned over growing political malaise in industrialized countries over the failure till now of governments to regain any control over national energy destinies. Germany’s own energy program can be strengthened greatly through mandatory conservation and fuel-switching programs.

France: Under Giscard, the French Government, which previously tried to pursue a bilateral policy vis-à-vis key producers, is more favorably inclined toward industrialized country cooperation than was the case under Pompidou. But given Giscard’s political difficulties he will be unwilling to expose himself to criticism from either the left or the Gaullists by associating France formally with the IEA. On the other hand, these grave political difficulties dictate that Giscard show some progress in coming to grips with the energy problems which have impacted so seriously on the French economy.

Italy: The country’s profound economic reversals are attributable in very large part to increases in oil prices. The Christian Democrats have placed their political and economic hopes on the success of a massive nuclear program for which Italy is going to require major amounts of foreign technology and capital.

UK: North Sea oil and gas gives the UK the prospect of energy self-sufficiency and, with proper management, turn around in its balance of payments by 1980. Disputes between the UK and the rest of the EC over control of and access to North Sea resources are the principal obstacle to the formation of an effective Community energy policy.

Japan: The most dependent of all the industrialized countries on imported oil, the Japanese have become increasingly committed to consumer country cooperation and the IEA; the decision to join the IEA and adhere to the emergency oil sharing program represented a major political commitment by the Japanese Government. Japan continues to view its domestic energy policies as subordinate to overall economic policies. The current Japanese energy policy envisions virtually no reduction in the ratio of growth of energy consumption to the growth of GNP.

Canada: The Canadians are seeking to reverse the recent trend of rising dependence on imported oil. But their potential oil and gas resources tend to be high cost, and Canada’s conservation program needs strengthening. Canada is of course particularly sensitive about its relationship with the U.S., in energy as elsewhere.

III. Talking Points

—In the absence of greatly increased energy conservation, projected world demand for oil will approach productive capacity by the early 1980’s and substantially exceed capacity by 1985; in these circumstances, prices will rise sharply to ration available supplies no matter what Saudi Arabia does.

—Although our forecast of oil demand broadly resembles other official and private forecasts we are more pessimistic about the implication; our pessimism is largely based on (A) the estimate that the USSR will change from an exporter to a substantial importer of oil, and (B) our examination of the actual supply capacity of OPEC (especially Saudi Arabia) and non-OPEC countries.

—The U.S. has just announced a new domestic energy program; highest priority is given to obtaining public and Congressional support for this program. The program as it is implemented will bring about a major reduction in U.S. oil imports over the next decade.

—Reduction of U.S. imports will not by itself bring about the more stable balance of world energy supply and demand we all seek. Other industrialized countries must take equivalent action on energy conservation and the development of new energy to limit their requirements for OPEC oil.

—Working among ourselves and with the producers, we should intensify our efforts multilaterally and bilaterally over the next several months to reinforce our national energy efforts and to ensure that the total of these efforts will be sufficient to bring about a structure of energy supply and demand compatible with our economic and political interests.

—We should also pursue a major increase in energy R&D cooperation focused on conservation, improved coal combustion and conversion technologies, and measures to ensure the safe expansion of nuclear energy. We are prepared to begin promptly work on the formulation of joint projects, including “cross investment” in each other’s national R&D programs and in demonstration and commercialization of new technologies.

Annex

Background

The energy problems faced by most other nations are even more critical than the serious problems confronting the U.S. The political vitality and cohesion of the industrial democracies is threatened by excessive dependence on OPEC oil, vulnerability to supply description [disruption?] and unilateral OPEC price increases, persistent financial imbalances, and a general weakening of their economies and investor confidence. The massive oil price increases since 1973 have impacted even more heavily on those developing countries that lack domestic oil supplies. Their scope for conservation is limited, and as increasing amounts of scarce foreign exchange must be spent for essential oil imports, other development needs suffer.

The medium-term world energy outlook, based on current trends of consumption and production, is alarming. Recent studies confirm that world demand for oil could significantly exceed available supplies by the early or mid 1980’s, even assuming major increases in Saudi Arabian production. Such a market situation would almost certainly lead to another round of sharp price increases, serious declines in economic growth and rising unemployment. The political ramifications of such a deterioration are clear. There would be major strain on democratic institutions in the industrialized economies, erosion of Western security alliances, and threat of serious instability in the Third World.

We want to use the Summit to give high-level momentum to a global strategy to reverse these trends. This global approach should consist of three highly interrelated elements:

1. Industrialized Country Action. The industrialized countries, consumers of the great bulk of world energy, must bear primary responsibility for the creation of a more stable global balance of energy supply and demand by limiting, and in some cases—such as that of the U.S.—reducing, their dependence on OPEC oil.

2. Strengthened Bilateral and Multilateral Ties with Key OPEC Countries. We must smooth the integration of these newly important economic powers into the Western trading and financial systems. Working both through bilateral relationships and multilateral forums such as the Conference on International Economic Cooperation (CIEC), we want to increase the perception of Saudi Arabia, Iran, Venezuela, and others of their direct stake in the economic and political well-being of the industrialized countries and their need to take account of their new responsibilities for the well-being of the world economy in their oil pricing and production policies.

3. Assistance to Non-Oil Exporting Developing Countries. We are looking for effective ways to assist these countries in off-setting the impact of the world energy crisis. In the CIEC, we are exploring possible initiatives to facilitate their access to appropriate energy technology and planning and, through expansion of IBRD activity, to assist them in attracting the private and public capital needed to develop their indigenous energy resources.

New U.S. Energy Program:

The new U.S. energy program serves as an example to others and a basis for U.S. leadership in the overall reduced import dependence effort. The U.S. is the largest energy consumer, largest oil importer, and the largest energy producer among the industrialized countries. The U.S. can and will make a significant reduction in oil imports under the new energy plan. Most of the other industrial nations, so much more heavily dependent on oil imports, cannot reduce their imports from current levels, but they can make a major contribution by restraining the levels of import growth. The effectiveness of U.S. efforts to create a more stable world energy structure by reducing our oil imports will be undercut if the Europeans and Japanese allow their requirements for OPEC oil to continue to rise unchecked.

The new U.S. energy program, with its emphasis on conservation and increased coal utilization, puts us in a strong position to argue forcefully for similar stress in the energy programs of other Summit participants. In particular, we wish to encourage the Europeans and Japanese to shift from increasing dependence on oil toward greater use of coal and light water reactors for electricity generation, and for direct use in industry. There is considerable scope for increased coal utilization in industrialized countries. The substitution of coal for oil would be encouraged by cooperative R&D in the coal area (see below). The Summit communiqué should highlight fuel switching to provide a major alternative to oil.

The International Energy Agency (IEA) is currently establishing a political and technical framework for the creation of a more stable global energy supply and demand balance and the reduction of dependence on imported oil. We are working toward a Ministerial level meeting this fall at which the member governments will (1) fix a group objective for the reduction of dependence on imported oil, and (2) make political commitments to the national policy measures necessary to achieve this objective, including cooperative programs in R&D, coal utilization, etc. The new U.S. plan will constitute the U.S. contribution to this program. We will be working over the coming months to ensure that the Europeans and Japanese make a comparable contribution through policy measures to limit any increase in their import dependence. France will be included in the broader framework of this reduced dependence effort, bilaterally and through the EC.

Nuclear Energy:

In most Summit participant countries, nuclear power plays a key role in future energy strategy. This is particularly true for the FRG, Japan and Italy, which see themselves as energy resource poor and requiring a viable economic alternative to increased oil imports. Because of the overriding importance of non-proliferation concerns and in view of your recent statements on nuclear policy,⁴ the Summit is an opportune time to obtain support for our comprehensive approach to nuclear questions. This cooperative framework would draw together the elements of our non-proliferation concerns and efforts to promote economic, but carefully safeguarded, use of nuclear energy. In particular, we want support for the international fuel cycle evaluation program. (See separate paper on nuclear issues for the Summit.)

Cooperation in Energy R&D: New energy technologies can reduce the need for oil imports in the medium term (1985–2000) and accelerate the shift to renewable energy resources in the longer term. All Summit participants have energy R&D programs, but the U.S. effort is significantly larger than the rest combined. We already have a number of joint R&D projects in operation in the IEA (e.g., coal-burning, solar power, nuclear safety, etc.). Such R&D cooperation has both political and substantive benefits.

There is an opportunity for a major expansion of our R&D cooperation with other industrialized countries—and in some cases—with major OPEC and non-oil exporting developing countries. The U.S. is prepared to consider possibilities for “cross investment” in key R&D projects. Using the operational framework of the IEA, we would participate in R&D projects in other countries and in return open some of our major projects to participation by them. (France could participate directly in IEA-centered projects or indirectly through the EC.) This cross investment concept could extend beyond the R&D stage into the demonstration and commercialization phases for new technologies.

The following are those areas in which we now see opportunities for a useful expansion of R&D cooperation and on which we are now prepared to begin intensive discussions to formulate specific joint projects.

1) Coal—improved combustion techniques and technologies for conversion to gas and liquid fuels;

2) Conservation—transportation, industrial process heat, building standards, etc.;

3) Nuclear—waste management and other R&D programs which emerge from the international fuel cycle evaluation program.

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Turner

1. Source: National Archives, RG 59, Central Foreign Policy Files, D770143–1161. Confidential; Immediate; Exdis.
2. The G–7 London Economic Summit was held May 7–8. PRM 7, January 21, which “directed that the Policy Review Committee undertake an analysis of, and provide options concerning, the major policy issues to be addressed at an International Summit,” initiated the process of developing the energy paper. (Carter Library, National Security Affairs, Staff Material, Special Projects File, Box 26, Henry Owen, Summits) Documentation on the Summit is scheduled for publication in Foreign Relations, 1977–1980, volume III, Foreign Economic Policy.
3. Carter had outlined the specific elements of his national energy plan in a speech before a joint session of Congress on April 20. His conservation proposals consisted predominantly of taxes and tax credits to increase efficiency and eliminate waste in the use of energy for transportation and residences. To provide exploration incentives to gas and oil companies, Carter proposed the deregulation of newly-discovered gas “as market conditions permitted” and suggested that the price of newly-discovered oil be allowed to rise over a 3-year period to the 1977 world market price. He proposed taxes to promote the conversion from scarce fuels to coal in addition to government investment in research and development on coal and nuclear fuel. The development of “permanent and reliable new energy sources,” such as solar and geothermal energy, would also be encouraged by tax incentives. A combination of taxes, tax credits, and tax rebates would ensure that no one would “make an unfair sacrifice” or “reap an unfair benefit.” For the text of both speeches, see Public Papers of the Presidents of the United States: Jimmy Carter, 1977, pp. 656–662 and 663–672. A Fact Sheet on the National Energy Program is ibid., pp. 672–689. The President transmitted legislation to Congress on April 29 to implement his program.
4. Carter addressed nuclear power policy on April 7 in remarks to reporters. See ibid., pp. 581–587. In a news conference on April 22, he also commented: “There are other aspects of the energy question, though, that must be addressed. One is atomic energy, reprocessing of spent nuclear fuels, a move toward nonproliferation of atomic explosive capability. So, there will be a very complicated interrelationship involving trade.” The text of the news conference is ibid., pp. 695–701.