Mr. President, Mr. Speaker, Members of the Congress, and distinguished guests:
The last time we met as a group was exactly 3 months ago today, on Inauguration Day. We have had a good beginning as partners in addressing our Nation's problems.
But in the months ahead, we must work together even more closely to deal with the greatest domestic challenge that our Nation will face in our lifetime. We must act now--together--to devise and to implement a comprehensive national energy plan to cope with a crisis that otherwise could overwhelm us.
This cannot be an inspirational speech tonight. I don't expect much applause. It's a sober and a difficult presentation. During the last 3 months, I have come to realize very clearly why a comprehensive energy policy has not already been evolved. It's been a thankless job, but it is our job. And I believe that we have a fair, well-balanced, and effective plan to present to you. It can lead to an even better life for the people of America.
The heart of our energy problem is that we have too much demand for fuel that keeps going up too quickly, while production goes down. And our primary means of solving this problem is to reduce waste and inefficiency.
Oil and natural gas make up about 75 percent of our consumption in this country, but they only comprise about 7 percent in our reserves. Our demand for oil has been rising by more than 5 percent each year, but domestic oil supplies have been dropping more than 6 percent.
Therefore, our imports have risen sharply, making us more and more vulnerable if supplies are interrupted. But early in the 1980's, even foreign oil will become increasingly scarce. If it were possible for world demand to continue rising during the next few years at the rate of 5 percent a year, we could use up all the proven reserves in the entire world by the end of the next decade.
Our trade deficits are growing. We imported more than $35 billion worth of oil last year, and we will spend much more than that this year. The time has come to draw the line.
We could continue to ignore this problem--as many have done in the past--but to do so would subject our people to an impending catastrophe. That's why we need a comprehensive national energy policy. Your advice has been an important influence as this plan has taken shape. Many of its proposals will be built on the legislative initiatives that you've taken in the Congress in the last few years.
Two nights ago, I spoke to the American people about the principles behind our plan and our specific goals for 1985:
--to reduce the annual growth rate in energy consumption by more than 2 percent;
--to reduce gasoline consumption by 10 percent;
--to cut imports of foreign oil to less than 6 million barrels a day, less than half the amount that we will be importing if we do not conserve;
--to establish a strategic petroleum reserve supply of at least a billion barrels, which will meet our needs for about 10 months;
--to increase our coal production by more than two-thirds, to over a billion tons a year;
--to insulate 90 percent of American homes and all new buildings; and
--to use solar energy in more than 2 1/2 million American homes.
Now, I hope that the Congress will adopt these goals by joint resolution as a demonstration of our mutual commitment to achieve them.
Tonight I want to outline specific steps by which we can reach those goals. The proposals fall into these central categories: first, conservation; second, production; third, conversion; fourth, development; and, of course, fairness or equity, which is a primary consideration in all our proposals.
We prefer to reach those goals through voluntary cooperation with a minimum of coercion. In many cases, we propose financial incentives which will encourage people to save energy and will harness the power of our free economy to meet our needs.
But I must say to you that voluntary compliance will not be enough-the problem is too large and the time is too short. In a few cases, penalties and restrictions to reduce waste are essential.
Our first goal is conservation. It's the cheapest, most practical way to meet our energy needs and to reduce our growing dependence on foreign supplies of oil. With proper planning, economic growth, enhanced job opportunities, and a higher quality of life can result even while we eliminate the waste of energy.
The two areas where we waste most of our energy are transportation and our heating and cooling systems.
Transportation consumes 26 percent of all our energy--and as much as half of that is waste. In Europe, the average automobile weighs 2,700 pounds; in our country, 4,100 pounds.
Now, the Congress has already taken fuel efficiency steps and set standards which will require new automobiles to have an average efficiency or mileage per gallon of 27.5 by 1985, instead of the 18 among new cars today. The entire fleet of cars is only 14 miles per gallon at this time.
To insure that this existing congressional mandate is met, I am proposing first of all a graduated excise tax on new gas guzzlers that do not meet Federal mileage standards. This gas [taxi will start low and then rise each year until 1985. In 1978, for instance, a tax of $180 will be levied on a car getting only 15 miles per gallon, and for an 11-mile-per-gallon car the tax will be 450. That's at the beginning. By 1985, the taxes on these wasteful new cars with the same low mileage, 15 miles per gallon or 11 miles per gallon, will have risen to $1,600 and $2,500.
All the money collected by this tax on wasteful automobiles will be returned to consumers through rebates on automobiles that are more efficient than the mileage standards. We expect both better efficiency and also more automobile production and sales under this proposal. We will insure that American automobile workers and their families do not bear an unfair share of the burden. And of course, we will also work with our foreign trading partners to see that they are treated fairly.
Now I want to discuss one of the most controversial and most misunderstood parts of the energy proposal--a standby tax on automobile gasoline. Gasoline consumption represents half of our total oil usage.
We simply must save gasoline, and I believe that the American people can meet this challenge. It's a matter of patriotism and a matter of commitment.
Between now and 1980, we expect gasoline consumption to rise slightly above the present level. For the following 5 years, when we have the more efficient cars on the road, we need to reduce consumption each year to reach our targets for 1985.
I propose that we commit ourselves to these fair, reasonable and necessary goals and, at the same time, write into law a gasoline tax of an additional 5 cents per gallon that will automatically take effect each year that we fail to meet our annual targets in the previous year. As an added incentive, if we miss one year, but are back on the track the next year, then the additional tax should come off. Now, if the American people respond to this challenge, we can meet these targets. And under these circumstances, this gasoline tax will never have to be imposed. I know and you know that it can be done.
As with other taxes, we must minimize the adverse effects on our economy--we must reward those who conserve and penalize those who waste. Therefore, any proceeds from the tax--if it is triggered by excessive consumption--should be returned to the general public in an equitable manner.
! will also propose a variety of other measures to make our transportation system more efficient. One of the side effects of conserving gasoline, for instance, is that State governments who have a limited amount of tax per gallon collect less money through gasoline taxes. To reduce their hardships and to insure adequate highway maintenance, we should compensate States for this loss through the Highway Trust Fund.
The second major area where we can reduce waste is in our homes and buildings. Some buildings waste half the energy used for heating and cooling. From now on, we must make sure that new buildings are as efficient as possible and that old buildings are equipped, or "retrofitted," with insulation and heating systems that dramatically reduce the use of fuel.
The Federal Government should set an example. I will issue an Executive order establishing strict conservation goals for both new and old Federal buildings--a 45-percent increase in efficiency for new buildings and a 20-percent increase in efficiency for old buildings by 1985.
We also need incentives, though, for those who own homes and businesses so that they will conserve. Those who weatherize buildings to make them more efficient would be eligible for a tax credit of 25 percent of the first $800 invested in conservation and 15 percent for the next $1,400.
If homeowners prefer, they may take advantage of a weatherization service which will be required from all regulated utility companies to offer. The utilities would arrange for contractors and provide reasonable financing to the homeowners. The customer would pay for the improvements through small, regular additions to the monthly utility bills. In many instances, these additional charges would be almost entirely offset by lower energy consumption brought about by energy savings.
Other proposals for conservation in homes and buildings include: first, direct Federal help for low-income residents; next, an additional 10-percent tax credit for business investments in conservation; third, Federal matching grants to nonprofit schools and hospitals; and public works money for weatherizing State and local government buildings.
While improving efficiency in our businesses and homes, we must also make electrical home appliances more efficient. I propose legislation that would, for the first time, impose stringent efficiency standards for household appliances by 1980.
We must also reform our utility rate structure. For many years, we have rewarded waste by offering the cheapest rates to the largest users. It's difficult for individual States to make such reforms because of the intense competition among States for new industry. The only fair way is to adopt a set of principles to be applied nationwide.
I am therefore proposing legislation which would require the following steps over the next 2 years: first, phasing out promotional rates and other pricing systems that make natural gas and electricity artificially cheap for high-volume users and which do not accurately reflect actual costs; next, offering users peak-load pricing techniques which set higher charges during the day when demand is great and lower charges during the day when demand is small. We also need individual meters for each apartment in new buildings instead of one master meter. Tests have shown that this will save 30 percent of the electrical cost in the apartment building.
Plans are already being discussed for TVA--the whole system--to act as a model in implementing such new programs as I have described to conserve energy.
One final step toward conservation is to encourage industries and utilities to expand what's called "cogeneration" projects, which capture the steam which is now wasted from electrical power production. In Germany, for instance, 29 percent of total energy comes from cogeneration. In this country, formerly it was about 19 percent, but now it's only 4 percent in the United States. I propose a special 10-percent tax credit for investments in cogeneration.
Along with conservation, our second major strategy is production and rational pricing. We can never increase our .production of oil and natural gas by enough to meet our demand, but we must be sure that our pricing system is sensible, that it discourages waste and encourages exploration and new production.
One of the principles of our energy policy is that the price of energy should reflect its true replacement cost as a means of bringing supply and demand into balance over the long run. Now, realistic pricing is especially important for our scarcest fuels--oil and natural gas. However, proposals for immediate and total decontrol of domestic oil and natural gas prices would be disastrous for our economy and also for working American families. It would not solve the long-range problems of dwindling supplies.
The price of newly discovered oil will be allowed to rise over a 3-year period to the 1977 world market price, with allowances from then on for inflation. The current return to producers for previously discovered oil, that which already exists, would remain the same, except for adjustments because of inflation.
Because fairness is an essential strategy of our energy policy, we do not want to give producers windfall profits beyond the incentives that they do need for exploration and production. But we are simply misleading ourselves if we do not recognize the replacement costs of energy in our pricing system.
Therefore, I propose that we phase in a wellhead tax on existing supplies of domestic oil, equal to the difference between the present controlled price of oil and the world price, and return that money collected by this tax to the consumers and the workers of America.
We should also end the artificial distortions in natural gas prices in different parts of the country which have caused people in the producing States to pay exorbitant prices, while creating shortages, unemployment, and economic stagnation, particularly in the Northeast. We must not permit energy shortages to divide or Balkanize our country.
We want to work with the Congress to give gas producers an adequate incentive for exploration, working carefully toward deregulation of newly discovered gas as market conditions permit.
I propose now that the price limit for all new gas sold anywhere in this country be set at the price of the equivalent energy value of domestic crude oil, beginning next year, 1978. This proposal will apply both to new gas and to expiring intrastate contracts. It would not affect existing contracts that presently are in effect.
We must be sure that oil and natural gas are not wasted by industries that could use coal. Our third strategy will be, therefore, conversion from scarce fuels to coal wherever possible.
Although coal now provides only 18 percent of our total energy needs, it makes up 90 percent of our energy reserves. Its production and use do create environmental difficulties, but I believe that we can cope with them through strict strip mining and clean air standards.
To increase the use of coal by 400 million tons or about 65 percent-we now use about 600 million tons--in industry and utilities by 1985, I propose a sliding scale tax, starting in 1979, on large industrial users of oil and natural gas. Fertilizer manufacturers, crop dryers, and so forth, which must use gas, would be exempt from the tax. Utilities would not be subject to the tax until 1983, because it will simply take them longer to convert to coal.
I will also submit proposals for expanded research and development in coal. We need to find better ways to mine it safely and to burn it cleanly and to use it to produce other clean energy sources like liquified and gasified coal. We have already spent billions of dollars on research and development on nuclear power, but very little on coal. Investments here can pay rich dividends.
Even with this conversion effort, we still face a gap between the energy we need and the energy that we can produce or import. Therefore, as a last resort, we must continue to use increasing amounts of nuclear energy.
We now have 63 nuclear power plants producing about 3 percent of our total energy, and we also have about 70 more nuclear power plants which are licensed for construction. Domestic uranium supplies can support this number of plants, judged by the most conservative estimate, for another 75 years at least. Effective conservation efforts can minimize the shift toward nuclear power. There is no need to enter the plutonium age by licensing or building a fast breeder reactor such as the proposed demonstration plant at Clinch River. We must, however, increase our capacity to produce enriched uranium fuels for light water, nuclear power plants, using the new centrifuge technology, which consumes only about one-tenth the energy of existing gaseous diffusion plants.
We must also reform the nuclear licensing procedures. New plants should not be located near earthquake fault zones or near population centers. Safety standards should be strengthened and enforced; designs standardized as much as possible. And we need more adequate storage for spent fuel supplies.
However, even with the most thorough safeguards, it should not take 10 years to license a plant. It only takes 3 years to license, design, and build a plant in a country like Japan. I propose that we establish reasonable, objective criteria for licensing, and that plants which are based on a standard design not require extensive, individual design studies before the license is granted.
Our fourth strategy is to develop permanent and reliable new energy sources. The most promising, of course, is solar energy, for which most of the technology is already available. Solar water heaters and solar space heaters are ready now for commercialization. All they need is some initiative to initiate the growth of a large new market in our country.
Therefore, I am proposing a gradually decreasing tax credit, to run from now through 1984, for those who purchase approved solar heating equipment. Initially, it would be 40 percent of the first $1,000 and 25 percent of the next $6,400 invested to provide solar heating for a home.
Increased production of geothermal energy can be insured by providing the same tax incentives as exist for gas and oil drilling operations.
Our guiding principle as we developed this plan was that above all it must be fair. None of our people must make an unfair sacrifice. None should reap an unfair benefit. The desire for equity is reflected throughout our plan:
--in the wellhead tax, which encourages conservation but is returned to the public;
--in a dollar-for-dollar refund of the wellhead tax as it affects home heating oil, particularly in the Northeast;
--in reducing the unfairness of natural gas pricing;
--in insuring that homes will have the oil and natural gas they need, while industry turns toward the more abundant coal that can also suit its needs;
--in basing utility prices on true cost, so every user pays a fair share;
--in the automobile tax and rebate system, which rewards those who save our energy and penalizes those who waste it.
I propose one other step to insure proper balance in our plan. We need more accurate information about the supplies of energy and about the companies which produce energy.
If we are asking sacrifices of ourselves, we need facts that we can count on. We need an independent information system that will give us reliable data about energy reserves and production, emergency capabilities, and financial data from the energy producers.
I happen to believe in competition, and we don't have enough of it right now.
During this time of increasing scarcity, competition among energy producers and distributors must simply be guaranteed. I recommend that individual accounting be required from energy companies for production, refining, distribution, and marketing--separately for domestic and foreign operations. Strict enforcement of the antitrust laws based on this data may prevent the need for divestiture.
Profiteering through tax shelters should be prevented, and independent drillers should have the same intangible tax credits as the major corporations.
The energy industry should not reap large, unearned profits. Increasing prices on existing inventories of oil should not result in windfall gains but should be captured for the people of our country.
Now, we must make it clear from now on to everyone that our people, through their Government, will now be setting the energy policy for our country.
The new Department of Energy, which the Congress is already considering, should be established without delay. Continued fragmentation of Government authority and responsibility of our energy program for this Nation is both dangerous and unnecessary.
Two nights ago, I said that this difficult effort which I have outlined would be the moral equivalent of war. If successful, this effort will protect our jobs, it will protect our environment, it will protect our national independence, it will protect our standard of living, it will also protect our future.
Our energy policy will be innovative, but it will be fair and predictable. It will not be easy; it will demand the best of us--our vision, our dedication, our courage, and our sense of common purpose.
This is a carefully balanced program, depending for its fairness on all its major component parts. It will be a test of our basic political strength and ability.
But we've met challenges before, and our Nation has been the stronger after the challenge was met. That's the responsibility that we face--you in the Congress, the members of my own administration, and all the people of our country. I am confident that together we will succeed.
Thank you very much, and good night.