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

89. Memorandum From the President’s Assistant for National Security Affairs (Scowcroft) to President Ford¹

Washington, December 10, 1975.

SUBJECT

• Conference Energy Bill

I have examined Frank Zarb’s memo to you on the Conference Energy Bill and concluded that, from a foreign policy point of view, the Bill on balance merits your signature.²

From my perspective, the following points are key:

—From a foreign policy point of view the main impact of the Bill is to slow down the timetable of our reduced dependency effort. The “domestic composite” pricing scheme³ will almost certainly lead to greater dependence on OPEC oil over the next three years than would immediate decontrol, and thus fall sharply behind your State of the Union targets. It is, however, unlikely that dramatic progress in reducing our dependence on OPEC can be made during this three-year period in any case. Even under immediate decontrol US imports will be 8 million bpd at the end of three years as opposed to roughly 9 million bpd under the most unfavorable scenario under the Conference Bill.

We will begin to have a chance to put real pressure on OPEC only at the turn of the decade. At that time, the Conference Bill will have enabled us to catch up in our efforts to reduce dependence by increasing prices substantially and thereby providing a strong incentive to produce and conserve. And decisions made over the next couple of years in anticipation of the higher energy prices in 40 months will have brought about important structural changes such as greater use of energy efficient industrial equipment and cars. Thus, while we will move more slowly towards the desired objectives we still will have a firm basis for reducing dependence.

—You have the ability to exert pressure for higher prices than currently set in the Bill in February, 1977, and every ninety days during the 40-month life of the agreement. This becomes a stronger lever as dependence on OPEC oil climbs as the result of the initial price reductions legislated by the Bill.

—Stockpiling authorities in the Bill would enable the US to begin moving promptly to build reserves and thereby to lower our vulnerability to embargoes.

—Authorities required to implement our commitments for sharing and conservation under the International Energy Program are contained in the Bill.

—Authorities for the USG to buy and sell foreign oil are also contained in the Bill. This would enable us to undertake bilateral deals with USG participation such as we could not do in the case of Iran and the Soviet Union.

—There appears to be a strong preference from our allies for having a firm base for slower but more certain progress toward reduced US dependence as opposed to a fragile base for quick and ambitious progress as under immediate decontrol. Congressional attempts to relegislate rollbacks or controls, perhaps of a highly stringent nature, or to enact other punitive measures against the companies, would create greater international uncertainty than that in the Conference Bill’s Congressional review process.

—The adverse impact on the US economy of immediate decontrol (CEA estimates 1.2% decline in GNP and .3–.4% increase in unemployment by the fourth quarter of 1976; Treasury estimates 1.2% decline in GNP in 1976 and .2% increase in unemployment) would be a psychological and economic blow to our trading partners who, as expressed at Rambouillet, see our recovery as vital.

Recommendation:

That you sign the Energy Bill.⁴

1. Source: Ford Library, National Security Adviser, Presidential Subject File, Box 4, Energy (10). Secret. A stamped notation on the first page reads: “The President has seen.”
2. Zarb’s memorandum was not found. Ford recalled in his autobiography that his “economic advisers,” Simon and Greenspan, advised him to veto the bill, but his “political advisers” and Zarb urged him to sign it. (A Time To Heal, pp. 340–341)
3. The average of the price of oil produced and sold domestically and the price of imported oil, weighted by their respective quantities, plus sales tax.
4. President Ford signed the Energy Policy and Conservation Act (EPCA) which he had first proposed on January 30 (see footnote 3, Document 33), on December 22. (P.L. 94–163) For his remarks on signing the bill and his statement on the legislation, see Public Papers of the Presidents of the United States: Gerald R. Ford, 1975, pp. 1991–1994. Ford later called the bill “an inadequate measure” and decried the full year that Congress took to complete it: “People still didn’t believe that the energy crisis was real. In an attempt to break the deadlock, I did everything I could to convince Congress that it had to move. For nearly a year, I’d been giving speeches about the problem; I sent formal messages up to Capitol Hill, and I met with key lawmakers on at least thirty-three separate occasions. In less than three years, I warned, our petroleum imports would grow to nine million barrels a day, and we would be twice as vulnerable to an oil embargo as we had been in 1973.” (A Time To Heal, p. 340)