Long-Term Energy Policy Objectives Need Defining / Says Fed Economist

Article excerpt

National security, efficient energy resource extraction and economic stability have been outlined as objectives to build an effective, long-term U.S. energy policy by an economist at the Federal Reserve Bank of Kansas City.

Without clearly defining objectives, proposals for helping the ailing oil industry are at best quick-fix solutions, economist Tim R. Smith wrote in the September/October issue of the Kansas City Fed's "Economic Review."

"Policymakers have never before clearly defined objectives to guide their choices," Smith stated. "As a result, policy measures have been largely short-term responses to changes in the policy environment."

Smith's proposed three objectives

- Maintaining national security.

- Assuring efficient energy resource extraction.

- Achieving economic stability.

"The first two," he noted, "stem from markets that do not always provide a reliable supply of energy. And they may not always extract energy resources at the rate society wants. That is, market prices do not always reflect social costs and benefits of private production and consumption decisions."

These objectives have been the foundation for past energy policies, Smith said.

"National security could be affected by potential disruptions in foreign energy supplies," he said, citing recent concern that dependence on supplies from the Organization of Petroleum Exporting Countries would increase.

The increase in availability of oil from the Middle East and the associated decline in world oil prices since 1985 could lead the United States back to dependence, Smith said.

"Such a reverse," he said, "would no doubt increase the potential national security costs of a Middle Eastern embargo."

Proposals to stop additions to the strategic petroleum reserve, meanwhile, work against national security and economic stability objectives, he noted. …