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

157. Minutes of the Bonn Economic Summit Meeting¹

Bonn, July 16, 1978.

[Omitted here are a list of participants and the minutes of Session 1, which began at 10:10 a.m. on July 16.]

BONN SUMMIT

Session 2

[Omitted here is discussion unrelated to energy.]

Schmidt: Let’s go now to energy. The brackets there are taken care of by what Carter has hinted at in his initial statement.² The US will give us a text on energy before 6:00 p.m.³ We should now move to the substance of the energy issue.

Trudeau: We should be more specific on paragraphs 13 and 14 of the energy chapter.⁴ Our assistance to LDCs benefits them and the world economy. We should make sure that part of our aid is directed at renewable energy resources in LDCs and encourage the World Bank to advance money for development and exploration of hydrocarbons. We should help to find new hydrocarbons and more renewable energy resources. Quite frankly, my earlier wording on this was rejected by the Preparatory Group.⁵

Schmidt: But this is a new look at the problem.

Trudeau: I’ll provide the wording.

Andreotti: We should add a point to indicate that we are only recommending conservation for non-productive uses. It is not wise to conserve if it reduces productivity. And paragraph 12⁶ is too weak. We should say something to the effect that we will “safeguard with the greatest care . . .” not just say we will take into account.

Callaghan: According to our analysis, OPEC supplies are going down steadily. We are coming soon to the point, perhaps 1985, when the market takes over from OPEC. We feel that it is undesirable to have prices increased over the next 12 months. But in the longer run it looks as if the Saudis will be short of money in the 1980’s and Iran before them. They will press for substantial increases. Should we hold prices down and then face a big increase at that time or seek a gradual increase in the price of oil in the next 3–4 years? In the future OPEC will have a case for price increases because absorptive capacity will exceed revenues.

Schmidt: I recently discussed this with Fahd. He was concerned with possible economic consequences of increased oil prices, which he foresees next year. The Saudis are rather sophisticated in their understanding of the mechanisms of the world economy. They are aware that the world economy will be adversely affected, depending on when and to what degree oil prices will be increased next time. They also feel the responsibility for managing their surpluses.

The Saudis are aware that their absorptive capacity will not in the very near future enable them to buy as much as their export revenues. They will have a surplus for a long time to come because of the large gap between revenues and absorption. But they are worried that other colleagues in the OPEC will force them to raise the price of crude earlier and higher than they desire because of the dollar’s decline.

Fahd also strongly pointed out that the Saudis interpret Soviet Union activity in the Horn and South Yemen as a strategic operation with a double target. First, the Soviet Union wants to expand influence in Africa and from there regain a foothold in the Middle East imports [region?]. For that reason, they want great political influence in the region.

With respect to German interests, if war were to break out in the Middle East, and given present attitudes in Jerusalem there is reason for concern, countries around this table would be in a chaotic situation. Oil would be used to press Israel through Western allies. Next time oil will be used more massively. This concern causes a certain measure of irritation by those countries without energy, e.g. France and Italy. This concern is more acute because other sources of energy, e.g. nuclear, have been increasingly constrained by emotional reactions and public opinion. The communiqué should emphasize the strong need to protect the environment and population, but we need nuclear if we are not to be at the mercy of foreign pressures. We were eager to hear what Carter and Trudeau had to say on the nuclear issue at London.⁷ There we put in place the INFCE study. Yet I must say there was irritation aroused by the US non-proliferation measures and particular comments by various people. Is what was said at London still valid, or should we consider that there will be difficulties in the future? If the latter, this will pose considerable economic and strategic problems. As far as enrichment is concerned, I do not want to be dependent on the Soviets. I can imagine that for others the situation is very much the same. Germany places strong emphasis on its rights under Article IV of the NPT⁸ and will insist on the defense of those rights.

Fukuda: I wholly support Chancellor Schmidt’s views on nuclear energy. As petroleum supplies diminish, we must make provisions for a new situation. The only way to do this is development of nuclear energy. The non-proliferation issue and peaceful pursuit of nuclear energy are separate. They should be dealt with separately.

We are in an age of uncertainty. There is no clear outlook about our energy future. We do not know what will happen to the energy situation. We would not like the Soviet Union to have a monopoly on the peaceful uses of nuclear energy. We need a clear outlook for the post-petroleum era. For instance, countries reluctant to produce oil today may produce more if they have a clearer picture of the post-petroleum era. We should study these matters. Let us do research in unison—not individually—and pool our wisdom and resources together.

I believe Carter supports my view of the importance of R&D for future energy. This can help make the future into an age of certainty. Coming up with alternative energy resources will help in dealing with the rest of the world, especially OPEC.

Giscard: The prospects of nuclear fuel production are less than in 1974. In 1985 we will only have one-half of the capacity envisioned for OECD countries in 1974. France decided last month to build new power stations for 10,000 megawatts. In 1985 our nuclear production will be second only to the U.S. Public opinion has accepted our nuclear program. We still have a reserve on unused sites. We have succeeded because public opinion agrees that there should be a national source of energy. Cooperation among us might help to bring about a better understanding of this need among all of our peoples. We might get good results if we better explain the need for nuclear. We must all proceed in common. I am pleased that agreement has been reached between the U.S. and Europe on Euratom supplies. Could you confirm that supplies will continue?

Also, we should include OPEC in energy talks, particularly those on nuclear energy.

Carter: The U.S. economy is strong and growing rapidly. We are the world’s largest energy consumer, but we have made progress in conservation. We have dropped from 1.46 barrels of oil per $1,000 GNP to 1.38 barrels. We are trying to achieve a .8 ratio of energy consumption to GNP growth by 1982. From 1976–77 we had an increase in oil imports because of GNP growth and sharp drop in domestic oil production. Since 1972 we have had a 34% increase in consumption and a one-third increase in GNP. We have a specific problem with gasoline, because autos are so widely used. To cut gasoline consumption we have instituted mandatory fuel emission standards for autos, increased the price of gas substantially and instituted a 55 mile per hour mandatory speed limit.

By 1985 we expect to save 2.5 million barrels per day of oil imports. A substantial portion of this will be realized by the non-controversial elements in the energy bill I have submitted. We want to control demand at 2% per year and are working toward a two-thirds increase in coal production. We also want to hold the ratio of growth in energy use to less than .8%. We expect imports in 1978 and ’79 to be below 1977 in volume terms.

Let me also add a point on the Saudis. We will use our influence with them constructively and hope you will join. We do not believe there will be a price increase until 1979 and only one in that year. We hope that it will not be more than inflation. The Saudis and Iranians have much investment in the U.S. The Saudis recognize that their interests are intimately tied in with all of us, and particularly the U.S. I am sending Mike Blumenthal to Saudi Arabia in the fall. We are working closely with Venezuela and Mexico, and the PRC, to encourage additional energy production. My guess is that Helmut is correct regarding the Soviet Union. According to our information, Soviet oil supplies have been overestimated in the past. Soviet oil supply is less than anticipated. Lately they have encouraged their friends to buy oil not from the Soviet Union but from other sources.

On nuclear power, our position is the same as at London. All of us will face problems unless we take action to eliminate nuclear proliferation. Nuclear power ought to be expanded for peaceful purposes, but all of us ought to comply with rigid international safeguards. The U.S. initiated the move to nuclear power. Thus, we feel we need to be conscientious about proliferation. We and Canada helped India to develop nuclear power. If France and the FRG say they will not cooperate because it infringes on their sovereignty, it will be difficult for us. I struggled to see that the Act did not hurt the countries involved. But there are major domestic pressures on non-proliferation. A number of nations want to reprocess spent nuclear fuel and convert it into explosives. I can understand that other countries want to shift to nuclear power, but we want to ensure that international safeguards are rigidly applied. Our new legislation can give us a predictable policy. One purpose of our legislation was to let our policy be better understood.

We have no objections if nations seek to reduce their energy dependence including the use of the breeder reactor. But non-proliferation must be respected. We have two years to continue supplies under our legislation as long as negotiations are going on on non-proliferation. There will be no cutoff during INFCE. We have supplies and technology to provide and want to provide them where possible. It is in the national interest to do so because we see the need for conservation and prudent use of fuels. We agree with the need for stability of supplies of nuclear power and we realize that that did not exist a few years ago. We will be glad to provide information if you have questions. Jerry Smith is now devoting full time to the issue of nuclear fuel supplies and proliferation,⁹ and he can be helpful.

Schmidt: In paragraph 9 of the communiqué¹⁰ could we get a statement that the U.S. will prevent any interruption of fuel supplies during INFCE and a point that existing agreements are to be respected. Could we also have something about reprocessing?

Carter: We could put this language in. It is possible to export under our legislation. For instance, I ruled recently that we could sell fuel to India. We could indicate that the U.S. will avoid supply interruption during the period of the INFCE study and will respect existing agreements.

Trudeau: I can give you the same assurances Carter gave you. I said at London we would ship while safeguards were respected. With Japan, we are prepared to accept the safeguards provided. We will guarantee their shipments of technology and nuclear fuel provided safeguards are respected. Even if the study proved breeder technology would be necessary and useful we will also have to agree on safeguards for the by-products of plants. If we all agree that proliferation is a danger, we could reach agreement on safeguards. Countries can get it from other countries, of course, and we can’t prevent that; but we can prevent our material from being used for war. There are a lot of non-nuclear countries. We should not be fatalistic and assume that they will cross the threshold. We share Carter’s worry. In fact, our safeguard system anticipated the U.S.

Giscard: With respect to the communiqué, President Carter’s text seems to be very satisfactory. However, I wonder if we can say that for 1979 and ’80 something more than we “hope”. Can it be stronger?

Carter: Expected?

Schmidt: EC should include a paragraph of our own taken from the Bremen communiqué: “The EC stated the following objectives for 1985 . . .”¹¹

Regarding the question of Andreotti as to whether we should indicate the importance of conservation of oil for non-productive purposes, I believe there are ways of reducing energy use in industrial production as well. We should not narrow the declaration down to eliminate this possibility.

Callaghan: I agree. We give grants to factories to help in conservation through better insulation.

Schmidt: Regarding paragraph 9, Carter, Trudeau, Giscard and others spoke at length to this issue. We should amend the declaration in two directions; adherence to existing commitments and the need for rigid international safeguards.

I also want to point out that we subsidize our coal industry by about fifty marks, or $25 a ton. These are huge subsidies, but necessary given the oil situation and the fact that our coal is 1,000 meters below the surface. This is a very heavy burden on our budget, and I hope no one here will criticize me for such subsidies.

Regarding Andreotti’s point that the language in paragraph 12 is too weak. Can we agree to use the language “safeguards with the greatest care”.

Regarding paragraph 13, I am in favor of strong bilateral assistance programs to help LDCs produce energy. And I think we should develop a coordinated effort to bring into use new energy technology. We should coordinate over the next 6 months and get a report after 6 months.

Giscard: With respect to paragraph 14 the World Bank is not the only body which can carry out a coordinated function. I suggest that we indicate that “we stress the need for the competent international organizations and financial institutions to provide aid to LDCs in the energy field. We further support the World Bank’s efforts . . .” and then use language already in the draft. We should say that we also want to assist development and exploration of hydrocarbons. We should ask the experts to see if they can include exploration as well.

Carter: They should report back progress to the next Summit.

Jenkins: You will report to whom?

Trudeau: Officials in our aid agencies would meet to see if we can devote a greater part of our aid to renewable energy development and also include training in LDCs.

Carter: I agree that there is a shortage of technology in the LDCs.

Trudeau: I agree.

Schmidt: Couldn’t we ask DAC to do a report?

Carter: My experts say that OECD is better since it can call on the DAC and OECD energy experts. We should ask OECD to study this and provide a report.

[Omitted here are discussion unrelated to energy and the minutes of Sessions 3 and 4, which were held on July 17.]

1. Source: National Archives, RG 59, Executive Secretariat Files: Lot 84D241, Vance Nodis Memcons 1978, Box 9. Secret. Drafted by Hormats. According to the President’s Daily Diary, Session 2 of the Summit began at 3 p.m. and ended at 6 p.m. (Carter Library, Staff Office Files) The minutes of all four sessions of the Summit are scheduled for publication in Foreign Relations, 1977–1980, volume III, Foreign Economic Policy.
2. The participants are discussing a draft of the final joint declaration of the Summit. In his statement during Session 1, Carter said: “Energy imports are up only 1% in 1977. During the first five months of this year, oil imports are down by about 1 million barrels a day. I have introduced a five-part program on energy. Three are in little dispute. A conference committee has agreed on the fourth part, on natural gas. A few oil pricing elements are also agreed. As far as oil is concerned, the sum total of these agreed efforts will reduce oil consumption by 2.3 million barrels per day by 1985. I will attempt to raise the price of US oil to world market prices by 1980. I will check back home on these things so I am not doing what is politically unfeasible.” Later he added: “I have a political problem concerning oil. Previous Congresses were heavily influenced by oil producers. Now there is an equal interest and influence by oil consumers. The big problem is to change thinking domestically.”
3. The U.S. contribution to the energy section of the joint declaration (paragraph 7) reads: “Recognizing its particular responsibility in the energy field, the United States will reduce its dependence on imported oil. The U.S. will have in place by the end of the year a comprehensive policy framework within which this effort can be urgently carried forward. By year end, measures will be in effect that will result in oil import savings of approximately 2.5 million barrels per day by 1985. In order to achieve these goals, the U.S. will establish a strategic oil reserve of 1 billion barrels; it will increase coal production by two-thirds; it will maintain the ratio between growth in gross national product and growth in energy demand at or below 0.8; and its oil consumption will grow more slowly than energy consumption.” The United States also agreed to raise the domestic price of oil to the world level by 1980 to reduce consumption. The full text of the final joint declaration issued on July 17 is printed in Public Papers of the Presidents of the United States: Jimmy Carter, 1978, pp. 1310–1315. The section on energy comprises paragraphs 4–16.
4. The section on energy and LDCs became paragraphs 15 and 16. Paragraph 15 reads: “To help developing countries, we will intensify our national development assistance programs in the energy field and we will develop a co-ordinated effort to bring into use renewable energy technologies and to elaborate the details within one year. We suggest that the OECD will provide the medium for co-operation with other countries.” Paragraph 16 reads: “We stress the need for improvement and co-ordination of assistance for developing countries in the energy field. We suggest that the World Bank explore ways in which its activities in this field can be made increasingly responsive to the needs of the developing countries, and to examine whether new approaches, particularly to financing hydrocarbon exploration, would be useful.”
5. The Preparatory Group met in Bonn the first week of April.
6. Paragraph 12 became paragraph 14, which reads: “In energy development, the environment and human safety of the population must be safeguarded with greatest care.”
7. The G–7 Economic Summit held in London May 7–8, 1977. See Document 122.
8. Article IV of the Nuclear Non-Proliferation Treaty safeguards the rights of all parties to the treaty to develop research, production, and use of nuclear energy for peaceful purposes without discrimination and pledges all parties to facilitate the exchange of material and information.
9. Gerard C. Smith was the President’s special representative for non-proliferation issues.
10. Paragraph 9 became paragraph 11. The part under discussion here reads: “The President of the United States and the Prime Minister of Canada have expressed their firm intention to continue as reliable suppliers of nuclear fuel within the framework of effective safeguards. The President intends to use the full powers of his office to prevent any interruption of enriched uranium supply and to ensure that existing agreements will be respected. The Prime Minister intends that there shall be no interruption of Canadian uranium supply on the basis of effective safeguards.”
11. The communiqué issued at the end of the EC Council meeting on July 7 listed as objectives the reduction of EC dependence on imported energy, the limitation of oil imports into the EC, and the reduction to 0.8 of the ratio between the rate of increase in energy consumption and the rate of increase in Gross Domestic Product.