100. Briefing Memorandum From the Acting Assistant Secretary of State for Economic and Business Affairs (Katz) to Secretary of State Kissinger 1
Assessment of the International Energy Agency
The IEA has been in existence for slightly more than a year and a half. Its record to date is one of considerable achievement, tempered however, by a number of shortcomings. In political terms the agency has been an unqualified success in forging a cooperative consumer approach under US leadership and in formulating an integrated strategy on energy which responds to the challenge posed by the Third World. The key elements of the International Energy Program (IEP) are now in place—an emergency mechanism to ensure a collective response to future embargoes; a long-term cooperative program which provides the tools which will enable us over time to shift the supply/demand conditions in the world oil market and thus lessen OPEC’s unilateral pricing power; and an oil market information system. The agency has been signally useful as a forum for coordinating industrialized country positions for the dialogue on energy in CIEC.
There have, however, been some disappointments—particularly our inability to move ahead rapidly on certain portions of the cooperative programs which have been agreed upon. This is especially true in the field of conservation where we have failed to apply our resources adequately. The US record is even worse than that of Europe and Japan. We account for some 50% of the IEA’s oil consumption and have the greatest potential among the IEA countries for implementing meaningful measures. Our IEA partners expect us to take the initiative on conservation, and to date we have not met the challenge. We have failed to approach energy conservation in the IEA with the degree of commitment that has been directed toward energy supply expansion.
Long-Term Program
Negotiation of the January 1976 long-term program to reduce our joint dependence on imported oil constitutes one of the agency’s major achievements. The program provides for coordination of national efforts and cooperative measures in conservation, the accelerated production of new energy, and R&D. It provides us with the framework necessary to achieve our common objective of reduced dependence and [Page 358] vulnerability. Several elements of the program such as national reviews, sectoral studies and R&D cooperation are well underway. Others such as project cooperation, the MSP and the setting of medium and long-term import dependency goals are in the process of being elaborated. The US has identified three priority areas for possible joint project cooperation—coal, synthetic fuels, and enriched uranium services. IEA work programs are already underway in the nuclear and coal sectors which, together with conservation, constitute the most viable alternatives to oil over the next decade.
As concrete and visible evidence of our commitment to reduced oil imports we are pressing for the establishment of national reduced dependence targets by IEA countries over the next 6–9 months.2 We have called for an IEA Ministerial meeting which would endorse these targets and ensure that member countries make the political commitment to implement the more vigorous policy necessary to achieve them. Such a commitment could assist the Administration in persuading a reluctant Congress to adopt a strong and effective US domestic energy policy.
Coordination for Energy Commission
Another of the agency’s notable successes has been the key role it plays in the coordination of industrial country strategy and tactics in the Energy Commission of the CIEC. Common industrial country positions are formulated and endorsed by the IEA Governing Board. The IEA mechanism has proved extremely useful in thrashing out specific issues such as the question of an ongoing post-CIEC dialogue with producers and how to present our International Energy Institute (IEI) proposal to the Energy Commission. Through the IEA we have succeeded in moderating the European push toward a comprehensive post-CIEC consultation on oil prices and in alleviating concerns over the expected scope and mandate of the IEI. The IEA mechanism has greatly facilitated our effort to ensure that the industrial countries speak in the energy dialogue with one voice.
Emergency Program
In order to reduce our short-term vulnerability to supply interruptions the agency established as a matter of priority an emergency oil sharing scheme. That program is now in place and operational. A test of the oil allocation mechanism will be conducted this fall to verify its [Page 359] effectiveness. The program provides important psychological protection and evidence indicates that it would considerably reduce the future impact of a 1973-type embargo. It would also reduce the tendency for individual IEA countries to compete for available oil, thus bidding up prices to a higher level than would otherwise prevail, as occurred during the 1973 embargo.
Future of the IEA
To date the IEA has been highly successful in projecting the exceptional image of an action-oriented organization. Now that its key programs are in place, we will have to work to sustain the momentum which has propelled the agency up to the present. As has been the case for other international bodies there is a danger that interest will wane and levels of offical representation at meetings will drop. Your proposal for establishing joint reduced dependency objectives backed by concrete programs and a Ministerial-level meeting to endorse them should serve to maintain the impetus over the months ahead.
US Energy Policy and the IEA
By virtue of the dominant position of the US in the IEA, our own domestic energy program has a significant bearing upon the effectiveness of the agency. As is true for the IEA, our domestic program has been a mixture of achievements and shortcomings. The impasse over domestic energy policy which prevailed throughout most of 1975 seriously hindered our efforts to extract strong commitments from other IEA member countries. The Energy Policy and Conservation Act (EPCA) signed by the President in December 1975 constitutes a step in the right direction—albeit insufficient. On the positive side it provides for major conservation efforts and authorizes the creation of a strategic storage program to lessen the adverse economic consequences of new embargoes. But it falls short of what is required if we are to make meaningful headway in achieving our energy independence objectives. The bill does not immediately decontrol oil and natural gas prices which is viewed by most IEA countries as a matter of the highest priority for the US; neither does it contain financial incentives for the accelerated development of energy supplies. The Administration is pressing for additional legislation—e.g., to deregulate interstate natural gas prices, to establish an Energy Independence Authority, to provide authority for US participation in the OECD Financial Support Fund—but both the upcoming election and Congressional skepticism about the reality of the energy crisis make uncertain the prospects for these efforts.
Our IEA partners understandably expect us to take the initiative on conservation and new supplies. Perception of doubt or hesitation on our part will complicate and can ultimately compromise our efforts to bring forth the major commitment of the national resources which will [Page 360] be required to achieve our IEA objectives. Hence there exists a direct relationship between convincing and effective US domestic energy policies and credible IEA programs.
- Source: National Archives, RG 59, Central Foreign Policy Files, P760114–1151. Confidential. Drafted by D.S. Wilson (EB/ORF/FSE) and cleared by Raicht.↩
- The United States introduced this proposal in the March 16 IEA Governing Board meeting as part of its plan to implement the Long-Term Cooperation Program. (Telegram 62056 to USOECD Paris, March 13; ibid., Central Foreign Policy Files, D760096–0217) Kissinger reiterated the proposal in his opening statement to the OECD Ministerial meeting on June 21. For the text, see Department of State Bulletin, July 19, 1976, pp. 73–83.↩