The
Floor Price: A Synfuel Subsidy?
In early November 1974, the New York Times
reported that “alternative supplies will take years to develop”
and that conservation was the more rapid approach. But at the end of
November, when the floor price was introduced, the focus shifted from
conservation to increasing supply.
The Federal Energy Administration had confused matters
by misestimating that supply would grow slightly faster than demand
would shrink due to conservation. By February 1975, the Times
explained:
The
core of Kissinger's argument for a minimum [floor] price was that it
was necessary to "bring about adequate investment in the
development of conventional, nuclear and fossil energy sources."
He urged the consuming nations to join the U.S. in a consortium that
over the next ten years would invest $500 billion in
developing nuclear power, synthetic fuels and other energy
alternatives. [emphasis added]
In three months, the focus had shifted from conservation
to synfuels. What was going on? Staff at the Federal Energy
Administration were worried by the recent suspension of a $450
million oil-shale project that the U.S. company Atlantic Richfield
and three other firms had undertaken. Administration staff were also
optimistic about new oil discoveries but worried that even the threat
of lower oil prices would stall investment. The administration wanted
the floor price to protect the investments of Big Oil.
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