Illinois' energy future: many hopes, few plans

In this omnibus conclusion to our 19-part energy series, James Krohe Jr. deftly summarizes the state's energy prospects in every major field, including gasoline, natural gas, nuclear power, solar, ethanol and conservation. He offers no simple solutions, but puts his finger on the nexus of governmental and economic factors which control how lllinoisans obtain and pay for energy. Krohe, who has written 10 of the articles in the series, concludes with a gran — but not hopeless — assessment of the state's energy future. Without some good planning and tough decisionmaking, we will all pay more, or shiver more, or walk more

CAR BUYERS are passing up the small imports in favor of bigger models. War rages in the Middle East, that unsettled region from which a crucial part of the nation's oil flows. Experts warn that a cutoff of oil imports might wreck the U.S. economy, but Washington has no energy policy to speak of, not even a plan to allocate oil in an emergency.

1973? No, 1982. In the nine years since OPEC's stunning oil embargo, the U.S. has lived through gasoline lines, four presidential energy plans, the rise and fall of the U.S. Energy Department, a second oil panic, a worldwide oil glut and the predicted demise of OPEC, not to mention the deregulation of oil and natural gas prices at home, boom and bust in the synfuels industry, and the seeming collapse of the nuclear power industry. There were times when it seemed as if the lights did indeed go dark, if only figuratively.

By 1982, however, things looked very much brighter indeed. After hitting a price peak in the spring of 1981, gasoline was practically cheap again. There was plenty of natural gas, and so much coal that it lay in piles on the ground.

But was it? As in 1973, any discussion of energy must begin with oil. The data on gasoline consumption, like similar numbers charting shifts in electricity and natural gas usage in Illinois since 1973, confirm an axiom which then was widely doubted but which has since been accepted as the gospel of the post-OPEC era.

That axiom is simply stated: The more energy costs, the less of it people will use. lllinoisans used slightly less gasoline (measured in gallons consumed) in 1981 than they did in 1972, the last pre-OPEC year: 4.54 billion gallons compared to 4.85 billion gallons. But had the pre-OPEC rate of increase in gasoline demand continued unabated, the 1981 demand would have been nearly twice that amount. The state's relative dependence on oil, however, has been little diminished, and indeed its reliance on foreign supplies for that oil has increased. Illinois still imports virtually all of its oil, and of those imports, relatively more is coming from foreign suppliers such as OPEC.

There have been increases in the world's supply of non-OPEC oil since 1973, true; the North Sea, the North Slope of Alaska and Mexico have added nearly twice as much new oil as the U.S. was importing in 1981. It is likewise true that the decontrol of domestic oil prices which began during the Carter administration ignited an explosion of drilling in this country (including Illinois). But a two-year study by the Rand Corporation released in the spring of 1981 predicted what many of those drillers have since discovered — that the prospects of major new finds of oil in the U.S. are remote and that the declines in the rate of discoveries which began in the 1930s will continue because of what the study calls "the increasing exhaustion of geological possibilities."

Illinois would seem an exception to this gloomy forecast. Prices paid for Illinois crude in the summer of 1982 were down to $31 from the $38 it commanded in 1981. But those prices were still high enough to justify the completion of nearly 2,900 new wells in 1981, a 10-year peak, and keep the state's 25,000 existing wells pumping 70,000 barrels of oil a day. A new field in Brown County in west central Illinois has even attracted drillers from Texas, in part because a well that costs $300,000 to drill in Texas costs closer to $30,000 in Illinois. The state's oil industry fills more headlines than gas tanks, however; 70,000 barrels a day constitutes less than 10 percent of the state's average daily demand.

Soft prices and ample supply have stilled the few official voices which argued in the late '70s for programs such as car pooling and improved mass transit as a means of reducing the state's use of oil. Other, more drastic measures to accomplish that end were never even officially proposed, much less adopted.

That another oil emergency will occur seems almost certain. The supply line which connects Illinois with the Middle East is perilously thin, although it is not quite true, as Sen. Charles Percy has alleged, that it would take only "a few sticks of dynamite" to devastate the economies of the West by blocking the Strait of Hormuz. Dynamite can't close the Persian Gulf bottleneck through which most of the

Partial support for the energy series has been provided through a grant from the Office of Consumer Affairs of the U.S. Department of Energy. Opinions and conclusions expressed in the article are solely the responsibility oj the author.

— Editor

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West's oil sails — but a couple of hundred mines could. Yet, as the U.S. comptroller general reported in the fall of 1981, "The U.S. government is almost totally unprepared to deal with disruptions in oil imports." So is Illinois'.

Oil is not merely important to the Illinois economy by itself. The price of oil tends to set the price for its substitutes, either formally through price regulating mechanisms (as in the case of natural gas) or informally through the working of the free market (as in the case of coal). Before OPEC, Illinois coal sold for less than $4 a ton; by 1982 it was selling for more than $30, and although a sizable portion of the difference was the result of union wage increases and other costs, the rest of the increase can be attributed to OPEC's helpful hand. Although power plants and factories in Illinois did not make wholesale conversions from oil to coal in the post-OPEC years — unlike the Northeast, for example, relatively little oil is used in Illinois for such purposes — such conversions elsewhere helped spur a general rise in the value of coal. The change transformed Illinois' own vast coal holdings overnight from a merely plentiful resource into a rich one.

Coal's promise

Indeed, no alternative energy source held more promise in 1973 than did coal. Except for the sun, it is the nation's and Illinois' most abundant energy resource — and the most problematical. In 1973 and for several years thereafter, coal was touted by every president as the nation's energy salvation. Whether as an alternative for plants weaned of oil, as a feedstock for synthetic gasoline and gas, or an exportable commodity, coal looked good. A flurry of buying of Illinois coal properties by major multinational oil companies in the mid-1970s seemed to confirm coal's future. A survey conducted in 1976 by the National Coal Association concluded that new mines being planned for Illinois would boost its potential output to 83 million tons per year by the early '80s.

In 1981, however, the state's annual coal production of 52 million tons was 5.5 million tons below that of 1976, and 1976 had been 7.5 million tons below the pre-OPEC year of 1972. The number of unemployed miners in Illinois in 1982 was estimated at 3,400, and mines such as Monterey's No. 1 mine in Carlinville furloughed miners for weeks until unsold stockpiles could be reduced.

What happened? A national decline in electric demand didn't help. Neither did the recession. Federal mine safety laws made productivity at underground mines like Illinois' droop, and costs rise. The chief problem, however, is that Illinois coal is just as dirty to burn in 1982 as it was in 1973. For a decade the Illinois coal industry has fought for relaxation of regulations derived from the 1970 federal Clean Air Act and its amendments which limit the amount of sulfurous pollutants coal-burning plants may emit. Illinois utilities imported roughly 18 million of the 31 million tons of coal they burned in 1981 from the West. Thus the preoccupation among Illinois industry and government officials during the '70s with finding cleaner ways to burn Illinois coal.

The state has mustered an army to carry forth the fight for coal — its scientific survey organizations, its universities, its new coal commerce and research agencies. The state's Department of Mines and Minerals has battled environmentalists and farmers in court for more flexible (critics prefer the word lax) regulations governing reclamation of mined lands, and its senior U.S. senator hawks Illinois coal to potential foreign buyers at every opportunity. (The international trade in coal has tripled since 1978, and coal officials who a few years ago talked incessantly of scrubbers now are talking of the need for ocean-going coal-loading facilities.)

Illinois coal, most of which is mined underground, is fairly expensive as well as dirty. But production costs should moderate as older, less efficient mines are replaced by newer, more automated ones. More efficient transportation methods, such as the 700-mile coal slurry pipeline which has been proposed to carry coal from southern Illinois to the South, will also help make Illinois coal a better buy.

Yet plenty of clouds remain on coal's horizon. Slurry pipelines face right-of-way hassles. Both coal gasification and fluidized bed combustion remain promising but unproven on a commercial scale. Public opinion polls show a stubborn allegiance to current clean air laws. Serving a big export market will require massive investments in deep water port facilities at coastal cities like New Orleans.

In fact, rather than winning concessions from Congress on clear air standards (what one Illinois legislator once described, in the euphemism standard

In 1973 and for several years thereafter, coal was touted by every president as the nation's energy salvation

among pro-coal interests, as "rational regulation"), the coal industry in Illinois and in the Midwest is facing the prospect of even tougher restrictions on the burning of high-sulfur coal. Worried about damage being done in the East and in Canada by acid rain, a key U.S. Senate committee in July approved strict limits on the amount of sulfur dioxide which would be allowed into the air. Illinois scientists, among others, have warned that the case , against coal-fired plants as the ultimate scource of acid rain is not proven. But the threat of such restrictions is sufficient to cause the United Mine Workers of America, the National Coal Association and other industry groups to jointly fund a $1 million promotional program intended to persuade the public — especially those members of the public who serve in Congress — that coal can be burned without risk to the environment.

In the meantime, production remains static. Plans for new mines have been postponed. The Illinois industry now talks about the 1990s, not the 1980s, as the decade of its revival. Illinoid

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coal remains a savior awaiting its following.

That energy costs Illinoisans more in 1982 than it did in 1973 is obvious. That Illinoisans sometimes find it hard to pay for energy is equally obvious. To cite just one example: The Chicago Tribune calculates that in January 1982 typical Chicago homeowners paid from 32 percent to 46 percent more to heat their homes (depending on fuel used) than in January 1981. Only half the increase was caused by higher consumption due to colder weather; the rest was due to higher costs. As a result, the number of delinquent accounts with Peoples Gas, Light and Coke Company, the city's major supplier, tripled to nearly 35,000.

Many of those people no doubt prayed for lower energy prices as earnestly as they prayed for warmer weather, But reductions in energy prices, at least short-term reductions of the sort which struck the oil industry in 1981, are not an unmixed blessing. It is true that lower oil prices have helped ease inflation. (The economists' rule of thumb holds that every $5 per barrel drop in oil prices results in a 1 percentage point drop in the U.S. inflation rate.) But welcome as lower prices are at the gas pump, they have had less welcome effects on other sectors of the energy economy.

Consider the impact of lower oil prices on the struggling coal synfuels industry. Except for the Kilngas project, the experimental gasification plant being built by a consortium of utilities in Madison County, all the synfuels projects on which Illinois for a time rested its hope to be the Saudi Arabia of the U.S. have been abandoned or shelved indefinitely.

The drop in oil prices has robbed synfuels (at least those intended to replace oil) of even the possibility of price competitiveness. With oil at $36 a barrel, $40 syncrude looked like a fair buy. With oil at $20 a barrel, it looks like anything but a bargain.

A massive government subsidy program of the sort proposed by President Jimmy Carter is one way to bridge the gap between market price and production eost. But that subsidy program has been largely abandoned, in part because the Reagan administration believes the free market is a more efficient incentive for the production of oil alternatives, in part because of reduced consumption.

In short, the economic premises on which the Illinois coal synfuels industry was based — a stable energy economy, large government subsidies, continued strong demand for liquid fuels, steadily rising energy prices — have been washed away by the flood of oil in 1981. With it has gone the hope that Illinois coal might soon replace oil in a sizable part of the nation's liquid fuel market. Such hopes as remain are focused instead on the chemical feedstocks and boiler fuel markets.

Lower oil prices hurt Illinois coal in other ways. If prices drop too far, utilities which switched to coal from oil may switch back. The export market may die before it was really born; if the delivered price of U.S. coal in Europe is the equivalent of $22-a-barrel oil when oil is selling for only $24 a barrel, it is hardly worth the trouble of importing it.

Corn is one resource that Illinois has even more of than coal, and state officials have been no less eager to exploit it by touting the use of fuel ethanol made from corn as a gasoline substitute. But the massive fuel ethanol subsidies promised by the Carter administration suffered the same fate as did most of the coal synfuels support. Gasohol — the commercially marketed ethanol-gasoline blend — has always been more expensive than pure gasoline, and will be even more expensive if Washington's temporary exemption of gasohol from the federal motor fuel excise tax is not extended, as reports from the capital suggest. Sales have been stagnant since 1981, and it seems likely that fuel ethanol's future lies less as a substitute for gasoline than as a gasoline additive to boost octane or as an on-farm fuel.

Energy's revenue effects

Tax revenues tend to fluctuate with energy prices as well. Governments as well as business suffer when energy prices fluctuate. The windfall profits tax on domestic oil enacted in 1980 originally was expected to pump $106 billion into the federal treasury by 1986. But that figure was based on oil price rises estimated to push oil to $75 a barrel by 1990; instead, the tax take (like profits) has been running well behind projections.

State and local government budgets tend to rise and fall with energy prices too, depending on the nature of the tax being levied. The Illinois Motor Fuel Tax Fund, for example, has been devastated by the decline in gasoline consumption since 1973, since the tax is levied as a flat rate per gallon sold. In contrast, the 5 percent tax applied by many municipalities in Illinois to utility sales has created a windfall for some Illinois local governments; the City of Chicago expects to earn $269 million in 1982 — a sort of tax windfall profit.

The temporary slowdown in energy costs has also been a drag on the development of conservation and alternative fuel technologies, not just at the state and federal levels but in households and communities as well. One of the effects of the energy revolution has been an aggrieved localism in some cities. Big energy corporations have come to be widely regarded as alien exploiters, and that attitude has energized a push toward both decentralized energy sources and decentralized control over energy from all sources.

In Carbondale, the city council adopted an innovative revolving fund program to finance renewable energy improvements. In Springfield, a two-year citywide energy review has led to exhaustive recommendations for changes in the city's zoning, building code, utility and planning policies. Similar, if less ambitious programs, have been launched in Evanston, Champaign-Urbana and a dozen other Illinois cities.

The motive is money. Chicago's Center for Neighborhood Technology reports that the city's expenditures for imported energy in 1981 totaled $3.7 billion, three-fourths of which leaves the local economy. In Springfield, where the cost of buying energy from outside the city was estimated at $136 million in 1980, the plea for energy independence has been made in the name of economic independence.

Decentralized energy makes an attractive marketing theme, even if it is somewhat dubious economics. Ultimately,

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the constraints on energy localism are likely to be more social than economic or technological. Energy independence requires more work than merely writing a check. It seems unlikely that many Illinoisans will undertake the changes in lifestyle and the rearrangement of political and institutional relationships such efforts require. The public pressure for independence had less to do with a desire to rid themselves of OPEC as it did to rid themselves of OPEC prices. The ardor for independence, in short, tends to fluctuate with prices.

Government in Illinois has the resources to confront the energy crisis but has often lacked the resolve; individuals have the resolve but have usually lacked the resources; most often it is business which has had both. It is the commercial and industrial sectors of the economy which have achieved the most impressive gains in efficiency in the '70s. According to an analysis by the University of Illinois (Chicago Circle) Energy Research Center, Illinois consumed 52,900 Btu of energy for every dollar of gross state economic product in 1978; in 1970, energy consumption per dollar of GSP was 54,800 Btu. (A Btu or British Thermal Unit is the amount of heat required to increase the temperature of a pound of water one degree Fahrenheit.)

Some of these improvements came from unexpected corners of the industrial economy. On the Illinois farm, for example, a tradition of tinkering and an energy squeeze on profit margins have combined to litter the countryside with alcohol stills, manure-fed methane digesters, solar-powered pig barns and earth-sheltered houses. Energy costs are causing changes in traditional tillage practices as well, with farmers shifting to methods which require fewer tractor trips across fields. When it comes to energy, the rubes often live in the cities.

Electricity's price

There is one sector of the energy economy in which price seems impervious to oversupply. That is electricity. Very little of Illinois' electricity is generated with oil. But the electric power industry in the state has been buffeted by faraway decisions by OPEC as surely as if every generator from Rockford to Cairo ran on oil. The economic dislocations caused by the oil price trauma hurt the industry several ways — by pushing up the cost of coal (which produces roughly two-thirds of Illinois' electricity), by raising interest rates (which made new construction horren-dously expensive), and by spurring inflation and recession (which, with conservation, pushed down growth in electrical demand from its historical postwar rate of 7 percent to 2 or 3 percent a year).

The '70s saw nothing less than a revolution in the electric power industry. For the first time in decades, the cost of building new generating capacity was higher than the average prices being paid for it; thus it became cheaper to save power than to make it. The Public Utility Regulatory Act of 1978 (PURPA) requires that utilities consider a range of innovative pricing policies whose aim is to reduce demand: time-of-day pricing (to shift usage to off-peak periods when power is cheaper to produce); revised rate structures (to eliminate traditional incentives to big users and to more equitably allocate the costs of power among users); and seasonal rates (to compensate for the fact that peak usage occurs during warm weather).

Most of these innovations are in use somewhere in Illinois. But shifting corporate goals from the making of energy to saving it hasn't been easy for either companies or customers. Chicago's Commonwealth Edison, the state's biggest power producer, provides a vivid example. Com Ed is building six new generating plants at a total cost of $5 billion. Com Ed has been granted rate increases of 45 percent just since 1980, and during the summer of '82 had a further rate increase request pending of 19.4 percent, most of which would go to pay for its massive building program.

Its cost alone would make Com Ed's building program controversial. But many experts argue that it isn't needed, whatever the cost. A Harvard economist testified to the Illinois Commerce Commission (IlCC) that rates would have to double by the year 2000 just to-pay for the plants. Other critics have insisted that the six new plants will leave Com Ed with an excess capacity of 50 percent, compared to the 15 percent surplus considered standard in the industry.

The argument about Com Ed's program, like so many debates about energy, is really an argument about the nature of the future. A study of Com Ed's forecasting by the Governor's Office of Consumer Affairs concluded that the real rate of growth in electrical demand over the next decade is likely to be 0.5 percent annually, only one-quarter of Com Ed's own, already conservative 2 percent. The IlCC substantially agrees with Com Ed, allowing Com Ed rate increases to pay for the new plants on the promise of cheaper power in the future.

However, other analyses suggest that even after scaling down forecasts of demand growth, there is plenty of slack left in the nation's electrical supply system. One study by the Council on Environmental Quality suggested that U.S. families could cut their electrical use by 20-40 percent through better efficiency without sacrificing their lifestyles. And indeed, in other states, notably in New England and on the West Coast, conservation has been adopted by utilities as an alternative to new capacity. In Illinois, Springfield's city-owned utility began offering rebates in 1982 to customers who purchase more efficient air conditioners, as one way to reduce growth in peak summer demand.

Not all the industry's problems in Illinois were caused by OPEC. Clean air laws required that new plants either install expensive scrubbers or import western coal or, as Com Ed and Illinois Power have done, choose nuclear-powered systems to avoid having to do either. Com Ed, especially, was a leader in the switch from coal and oil to nuclear energy. The promise of lower operating costs is one reason; weaning the company of oil and the complications of coal are others. Of the new plants Com Ed plans to build, all are nuclear-powered.

But the economics of nuclear power are increasingly suspect, not because of the well-known uncertainties about plant safety and waste disposal, the changes in regulatory policy, or even

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the huge construction costs. As the cost of coal and oil rose, so did the long-term operating cost advantage of nuclear power. But with oil prices slipping, nuclear power is less and less a bargain.

Whether it is generated by coal or uranium, electric power will never be cheap again. Stiff rate increases in the '70s angered consumers, and utility rates promise to be a recurring issue in the General Assembly for the '80s. Already attempts have been made to change the appointive five-member Illinois Commerce Commission to an elective seven-member body. Proponents argue the change will make it more responsive to consumers.

In the context of the current debate over rate reform, of course, "responsive" means less willing to approve residential rate hikes. One of the thornier issues rate-setters in Illinois will confront in the '80s is how to adjust rates among the various classes of customers so they accurately reflect the actual costs of supplying each of those classes, the more so since none of those classes at the moment is paying the actual cost of the power they use. Rates are set by averaging the cost of producing power from existing units and the very much higher cost of power from new units. The customer who adds a kilowatt of new demand to his local utility system does not begin to pay the actual cost of providing it but is subsidized, in effect, by past customers. After a survey of 80 U.S. utilities, the University of Illinois' Office of Energy Research concluded, "All customer classes pay substantially less than the long-run marginal cost of serving them." According to the harsh new arithmetic of the post-OPEC world, even today's high energy costs must be considered a bargain.

Natural gas decontrol

One of the many lessons learned about energy and people in the last nine years is that if one underprices a fuel, people will not only use it but waste it. (Historians may someday look back on electric heating — a process which burns coal to make heat to make steam which is used to generate electricity which is converted back into heat — with the same bafflement with which we contemplate the ancient Egyptians' failure to exploit the wheel.)

No sector of the energy economy better illustrates the folly of underpricing than natural gas. Natural gas is vital to Illinois. Most of its homes are heated with it, and many industries rely on it. Per capita consumption in 1980 was twice the national average, and dollar sales of gas in Illinois lead all states. Natural gas is an attractive fuel for many purposes, and Illinois is conveniently placed athwart several interstate

Rising energy prices have been much lamented, but little has been done to ease consumers' pain

pipelines. But it has been the low price of gas which has spurred its use. It is the only major fuel whose price remained federally controlled in the late '70s. As a result, in 1979 alone more than 61,000 Illinoisans switched from oil to gas for home heating; the number of homes dependent on gas for this vital function rose by 15 percent overall between 1973 and 1980.

President Carter initiated a phased-in price decontrol program with the 1978 Natural Gas Policy Act as part of an attempt to stimulate new domestic exploration. Gas remained cheap even so. "Old" gas, gas discovered prior to 1977, was to remain under federal price control. But the prices of various categories of "new" gas would be allowed to rise gradually to the equivalent world oil price by 1985.

Even this modest relaxation of controls has loosed substantial price increases. The higher costs led to efficiencies in use. While the number of homes heated with gas rose by 15 percent between 1973 and 1980, total sales went up only 10 percent, and natural gas' share of the state's total energy usage declined somewhat during the '70s.

Indeed, it seems obvious that Illinois will experience with gas in the '80s what it experienced with gasoline in the '70s. Early in his administration, President Ronald Reagan promised to accelerate the price decontrol process, arguing that higher prices would stimulate the same kinds of conservation and new drilling which followed oil price decontrol. There were also fears expressed that if decontrol were not speeded up, natural gas prices would take a huge jump in 1985, when they rose finally to meet the world oil price. The authors of the 1978 Natural Gas Policy Act, ignorant of the approaching turmoil in Iran which was to lead to a doubling of oil prices late in 1979, had assumed that the world oil price by 1985 would be only $15 a barrel. What had been planned as a gradual decontrol thus may turn out to be as gradual as a time bomb by January of 1985.

Fast or slow, decontrol means much higher gas prices in Illinois. Late in 1981 the Panhandle Eastern Pipeline Co., one of the state's major suppliers, reportedly was predicting that prices in central Illinois would rise by 15-20 percent a year for several years, resulting in a doubling of prices by 1985 and a quadrupling by 1990.

Governments' policies

The impact of rising energy prices on consumers has been much lamented since 1973, but little has been done to ease consumers' pain. It was the intention of the windfall profits tax on oil, proposed by President Carter, to ease this pain by funding the transition from an energy-inefficient economy to an energy-efficient one. This would be done by taxing revenues earned by oil companies as a result of price decontrol and funneling them back to consumers in the form of tax breaks and low-interest loans and grants to retrofit houses and businesses. That tax was eventually passed, but it only imperfectly realized its initital goal, partly because it has not earned as much as predicted, partly because Congress stuck too many hungry fingers in that multi-billion dollar pie. As Illinois Gov. James R. Thompson observed at the time, the windfall profit tax take

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was divided "six ways from Sunday."

The principle of the windfall profits tax — that governments ought to use their taxing authority to encourage certain energy behaviors — is anathema to the free-marketeers of the Reagan administration. Reports last fall suggested that the gas industry would accept a windfall profits tax as a condition of complete price decontrol, but the president still balked.

The debate over natural gas pricing illustrates again that not only is Illinois dependent on foreign suppliers for its energy, it is dependent on foreign decisionmakers for its energy policy. Many of the decisions which determine how much energy Illinois buys and sells and for how much — natural gas deregulation, clean air standards, federal synfuels subsidies, OPEC price policy — are made outside its borders, in Texas or Washington, D.C., or Riyadh. Even the promised liberation of energy from what President Reagan considers federal meddlers will not shift energy decisionmaking from Congress to the state so much as it will shift it from Congress to corporate boardrooms.

This has been a source of frustration and irritation to Illinois officials since 1973. For all the official complaints about foot-dragging in Washington, however, Illinois' own energy policies since 1973 have (with the exception of coal) been more notable for what they haven't accomplished than for what they have. The General Assembly approved an innovative alternative energy development bond fund — a painless investment — but has so far refused to adopt a statewide energy building code. Virtually all the conservation programs in the state were established in response to federal, not state, initiatives. Illinois blames Congress for forcing utility companies to buy western coal instead of Illinois coal, but so far has refused to bar those companies from passing on to their customers the cost (often equal to the cost of the coal itself) of hauling that western coal to their plants. The state gave theatrical support to fuel ethanol when it switched the state fleet to gasohol, but has refused to give it the tax subsidy ethanol backers want because of the harm the subsidy would do to the Motor Fuel Tax Fund. State leaders lambast Congress for lack of planning, yet the state remains without an official energy plan of its own. It would seem fair, if impolite, to conclude that Illinois' energy policy has had two principal aims — to make the adjustments to the new energy era as painless as possible for both its citizens and its companies and, when it is impossible to avoid causing pain, to blame it on someone else.

Conservation's dilemma

One of those painful lessons of the '70s was that people will not conserve energy out of patriotism, or to protect the environment, or for the sake of a largely abstract and distant notion of independence. They will conserve energy only when it costs too much not to. For governments to make people use less, then, usually means making energy cost more, through the exercise of either their regulatory authority or their taxing powers. The free market accomplishes this same end, but it does so clumsily, leading to energy conservation at the cost of huge transfers of wealth to energy producers at the consumers' expense. Governments can set energy price policy somewhat more equitably, as is being done in Europe, but only when there is a consensus in support of conservation. In energy-short Europe and Japan such a consensus exists; it does not exist in either Washington or Springfield.

Virtually all the energy-related tax initiatives which have come before the General Assembly since 1973 have been dismissed as being contrary either to the state's fiscal interests (a tax exemption

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for gasohol), to its business interest (a severance tax on coal), or to its consumers. Energy tax policy in Illinois tends to be haphazard, made in response to special interest pleading rather than as part of an overall energy plan. Cheap energy — cheap to buy and cheap to sell, or at least as cheap as it is possible for energy to be — remains the goal of state policymakers.

It may be that continued reliance on cheap energy will prove very expensive indeed in the long run. As Daniel Yergin, co-editor of the Harvard Business school's influential 1979 report, Energy Future, puts it in a recent essay, "The energy issue really involves the possibilities for economic growth." Money spent on imported energy is widely blamed for inflation; because higher energy costs led to the substitution of human for mechanical energy in many industries, they also are believed to have contributed to recent declines in industrial productivity.

These are national effects. But Illinois, as a major energy consumer which is dependent on imported supplies, is a sort of nation in miniature. And the economic effects of its continuing dependence on imported energy are, if anything, even more serious. According to calculations by the Illinois Department of Energy and Natural Resources (DENR), Illinois' net bill for imported fuels in 1972 was approximately $2.67 billion (in 1979 dollars), an amount which takes into account money returned eventually to the Illinois economy in the form of purchases, as well as the state's receipts from the export of its own coal and oil. Illinois' imported fuel bill in 1972 thus was equal to roughly 0.9 percent of the gross state economic product (GSP). In 1979, however, Illinois' net imported energy bill had risen to $4.6 billion, or about 3.5 percent of the GSP. Even this fourfold increase fails to adequately convey the economic loss to the state. During those years, a shift in the source as well as the cost of energy imports occurred. In 1972, only about 11 percent of the oil going through Illinois refineries came from abroad; by 1979 the foreign share had gone up to 49 percent. In 1972, close to half the money spent on imported energy came back to Illinois; in 1979 only 36 percent did. In other words, for every dollar increase in the state's imported energy tab in 1979, 60 cents went directly into the pockets of energy exporters — and stayed there.

And the impact of this money drain? Because every dollar lost to the Illinois economy is multiplied as the decline in activity reverberates through the economy, the $4.6 billion net loss to energy suppliers led to an estimated $5.3 billion loss in economic output in 1979. According to DENR, even if the prices for imported fuels increased from 1972-79 at a rate no faster than the general inflation rate, the state's economy would have lost anywhere from $2.5 to $5.4 billion in potential output — enough to support 145,000 to 240,000 jobs.

Illinois' energy future

Barring another energy emergency, Illinois' energy future seems likely to remain at the mercies of the marketplace. While it is undeniably true that the marketplace has stimulated useful efficiencies and made plentiful supplies of energy available to Illinoisans, it is also true — somewhat more deniably, in the opinion of free marketeers — that there are aspects to energy just as important as price, and while the market does a good job of setting prices in the short run, it is largely indifferent to long-term effects. Developing alternative fuels and increasing energy-efficiency both require long-term planning and investment strategies. But government seems unwilling to plan, and the private sector, because of the instability in the energy markets, is unable to. Energy independence in 1982 remains — for Illinois even more than for the U.S. as a whole — more a hope than a plan. And unless their luck holds out, Illinoisans will not have to tell their children what it was like to sit in gasoline lines back in the dark days of '73. Their children will probably find out firsthand.

James Krohe Jr. is a contributing editor to Illinois Issues and associate editor of the Illinois Times in Springfield; he specializes in planning, land use and energy issues.

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