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OCR for page 55
APPENDIX
TWENTY DILEMMAS OF OIL VULNERABILITY
Robert Axelrod
The United States imports almost 20 percent of its total
energy and an even higher percentage of its oil. If a
substantial part of this supply were cut off, the
American economy and society would suffer major
disruptions, to say the least. This much is obvious and
a proper cause for concern.
What is not so obvious is that oil vulnerability
results in many dilemmas. The effort to solve one part
of the problem may only make another part worse.
The perspective of this paper is to regard the United
States as a huge, loosely coupled adaptive system, and a
potential oil shortfall as a crisis that gives a shock to
the system. Adapting to a sudden, novel, and very large
shock is not something most systems can do gracefully.
To anticipate the potential pathologies of the adaptation
process may help us alleviate some of the worse effects.
This paper describes a series of dilemmas under three
headings: those that arise in preparing for a crisis,
those that arise from an interaction between precrisis
planning and crisis response, and those that occur only
after the onset of the crisis.
For their helpful suggestions I thank Elliot Aronson,
James March, Amy Saldinger, Paul Stern, and Tom
Wilbanks. This work was supported by grant no.
SES 80-23556 from the National Science Foundation.
For a recent statement of the problem and suggestions
for coping with it, see U.S. Department of Energy (DOE)
(1980b).
55
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DILEMMAS OF PREPARATION
One of the best ways of planning for a shortfall of
imported oil is to build up a reserve stockpile. This
can alleviate the severity of any shortfall, especially
in the early stages of a crisis before much adaptation
can occur. By making the United States less vulnerable,
a reserve serves two other purposes as well: it helps
deter a boycott by showing that the United States can
better resist political blackmail, and it helps reduce
the pressure for military moves to guarantee imports from
a troubled area. Almost everyone who has studied the
energy crisis agrees that building up a substantial
strategic petroleum reserve is one of the best policies
the United States can undertake.2
But the United States has fallen far short of its
target for building up a strategic petroleum reserve,
having achieved only one-fifth of its target for early
1981 (Martin, 1981). If a petroleum reserve is so
helpful, why hasn't it been achieved? The answers to
this question encompass the first set of dilemmas of oil
vulnerability.
1. The Procrastination Dilemma: Now is never a good
time to add to an oil stockpile. When the economy is
doing poorly, with high inflation and high unemployment,
budget reductions are the order of the day. When the
economy is doing well, there is a strong demand for oil
and purchases for a reserve would drive the prices even
higher. Another reason that the United States has not
been building up the strategic petroleum reserve is that
Saudi Arabia warned us not to (Stobaugh and Yergin, 1979,
p. 52).3 They would prefer to keep the United States
vulnerable and are willing to threaten reductions in
their own production to maintain U.S. vulnerability.
2See Stobaugh and Yergin (1979:52-53), Schurr et al.
(1979:430-435), U.S. President's Commission for a
National Agenda (1980:48), DOE (1980b:29-35), Energy
Policy Task Force (Halbouty Report) (1980:14-15),
Heritage Foundation (1980:94-95), Alm (1981), and DOE
(1981).
3 The purchases stopped in August 1979 according to DOE
(1980b:30). The purchases began again in late 1980 or
early 1981, according to Martin (1981).
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2. The Democratic Dilemma: The more democratic the
politics of energy preparations, the fewer the
preparations are likely to be. Democracy's strong suit
is the passage of programs that give benefits now and
have costs later. Stockpiling does just the reverse. An
energy emergency may not come in the term of the current
president, nor in the terms of many current members of
Congress. It is a problem that can be passed on to the
next guy. Even without economic and foreign policy
reasons to procrastinate, the political process is biased
against costly preparations for uncertain crises.
3. The Public Interest Dilemma: The more widespread
the potential harm of oil vulnerability, the less focused
are the pressures to deal with it in advance. Special
interests are the traditional means to mobilize support
for effective action in a democratic political system.
But since the potential harm caused by oil vulnerability
is so widespread, it is difficult to focus attention and
political resources on the problem. Everyone's problem
is no one's problem.
4. The Intimidation Dilemma: The more it disturbs
exporters to have us building a reserve, the more
valuable the reserve is. The very fact that exporters
are concerned about the U.S. stockpile is an indication
that they take seriously the possibility of a boycott or
major price increase. Giving in to threats rather than
building up the stockpile is admitting vulnerability and
guaranteeing that it will continue.
5. The Apprehension Dilemma: The less we fear a
boycott, the more likely it is. A boycott is not like an
earthquake. The probability of a boycott occurring is in
part dependent on our own actions. The less we prepare
for it, the more vulnerable we are, and hence the more
attractive it becomes as a policy tool of an exporter or
group of exporters. The less well prepared we and other
importers are, the less a sacrifice of revenues will be
needed by exporters in a contest of wills and the more
tempted they may be to initiate such a contest when
serious disagreements arise. An important implication of
this point is that we should calculate the value of a
reserve not only in terms of what it can achieve if a
major shortfall should occur, but also in terms of the
reduced likelihood that such a problem will ever actually
arise.
6. The Preparations Dilemma: Any major governmental
program to prepare for an oil shortage deters
decentralized adaptation. A large stockpile of oil, for
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example, may lead individuals, businesses, and local
governments to do less on their own to prepare. To the
extent that federal preparations are seen as successful,
others will feel that there is less need for them to bear
additional costs of preparation.
7. The Learning Dilemma: Learning from experience
may be maladaptive. Experience may n teach that
preparations are wasteful. From the point of view of an
industrial firm, investments in crisis preparations will
lower profits in the period before a crisis. This can
hurt a firm relative to its less prudent competition. If
there is a small crisis, everyone may notice that the
expensive preparations were in fact not a profitable
investment, and the conclusion based on this history
might well be that expensive precrisis adaptations are
simply not warranted. The same conclusion may be learned
by consumers who notice that their painful adaptations to
lessen their energy use have not yet paid off. Thus a
record of false alarms and minicrises may be effective in
drawing attention to the problem but may also lead to
maladaptive behavior in terms of the potential for a
large crisis. (For another facet of the learning
problem, see dilemma 10 below, the warning dilemma.)
DILEMMAS OF ANTICIPATION
Measures anticipated to be taken during an energy
emergency influence individual decisions taken before an
emergency. Prior adaptation to anticipated conditions of
an acute shortage may not be functional for adapting to a
chronic shortage. And vice versa.
8. The Efficiency Dilemma:
Energy efficiency reduces
emergency flexibility. To the extent that homes,
automobiles, and factories become energy efficient in
response to the chronic energy problem, there is less
flexibility to achieve further quick gains when an acute
shortage occurs. What is true for hardware is also true
for behavior. For example, to the extent that commuters
use car pooling to adapt to high energy prices, there is
less slack in the system for further adaptation in the
face of an emergency. This problem will be alleviated if
precrisis adaptations make people more aware of the extent
to which they can adapt even more should a crisis occur.
Of course, energy efficiency reduces energy use before
the crisis ever begins and this helps reduce the need for
oil imports in the first place. And reduced energy use
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Be
will make a given stockpile last longer. Nevertheless,
to the extent that the entire system adjusts to this
lower level of demand, it is inevitable that energy
efficiency can reduce emergency flexibility.
9 The Equity Dilemma: Decentralized efforts to
.
prepare for a crisis will be deterred by an expectation
of effective demands for equity during a crisis. Why
should a firm stockpile its own energy supply if it
expects that its stockpile will be confiscated when an
emergency actually arises? The expectation that
precrisis notions of fairness will be imposed by fiat can
seriously reduce the incentives of an individual, an
industry, or a local government to make sacrifices now
for benefits that it may be forced to share later. For
example, why should a city or school board be the only
entity in a county to be prepared if the costly
preparations would have to be diluted with the profligate
policies of neighboring towns or school districts?
The equity dilemma is a fundamental one that arises
from the very real conflict between achieving a fair
distribution during a crisis and lessening the overall
shortfall should one occur. The very expectation that
the fairness will be achieved makes it easier for everyone
to let the other fellow prepare. It applies to all types
of decentralized preparations that are subject to demands
for sharing. To the extent that there is a politically
viable "right to energy, it prevents effective decentral-
ized preparations, since even those who do not prepare
will then be able to claim an equal share in access to
scarce resources.
The equity dilemma arises in its worst form if
decentralized and sharable preparations are deterred by
expectations of postcrisis demands for sharing.
Unfortunately, this may be the most common case. Many
preparations besides stockpiling are sharable. For
example, if one city purchases extra fare boxes to
prepare its school buses to be used as commuter buses in
an emergency, it may be required to lend some of these
fare boxes to a neighboring city in an emergency.
Decentralized preparations can be the most effective type
for many purposes. And unfortunately, a centralized
response may be the most common one for the
implementation of demands for equity. (See also dilemma
19, the centralization dilemma, below.)
The equity dilemma can be alleviated in several ways.
First, the preparations can be centralized, as in a
national petroleum reserve. Then there is a collective
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cost for making the preparations, and a collective
benefit in their equitable distribution. A way of
reducing the equity dilemma but keeping decentralized
incentives would be some form of credible guarantee that
whoever undertook the costs of the decentralized
preparations would be allowed to keep a large share of
the benefits. This could be done by the federal
government by a variety of means. One would be
dismantling the federal gas rationing apparatus to make
it less likely that price controls would be imposed in an
emergency. Another method of achieving credibility that
benefits could be retained would be to clarify in advance
that decentralized preparations are in the national
interest, that everyone has fair warning that an emergency
may come, and that those who prepare should be able to
benefit (at least in part) from their foresight, which
would serve us all.
But the poor can not prepare very well. Rationing
and/or price controls may be the only effective ways of
achieving fairness for them in an emergency. Hence the
equity dilemma.
1O. The Shared Cutback Dilemma:
steps taken before a crisis will be deterred by an
expectation of demands for proportional cutbacks during a
crisis. Once a crisis begins there will be demands for
everyone to cut back on energy usage. These demands may
well take the form of percentage cuts based on usage
before the crisis. 4 The possibility of a percentage
cutback can reduce the consumers' incentive to make
reductions before the crisis begins. Of course, there
are emergency measures that can avoid this problem, such
as rationing gasoline with a white market in coupons.
But for uses like home beating and industrial activities
where "fair n consumption varies greatly from consumer to
consumer, percentage cutbacks may seem logical in a
crisis. And in these cases, the shared cutback dilemma
applies with full force to reduce incentives to be
efficient in advance.
11. The Warning Dilemma: Vigilance breeds fatigue.
The more emphasis there is on providing warning of the
onset of a major crisis, the more likely that there will
Energy efficiency
4A good case study based on the experience of
electricity rationing in Los Angeles in 1973-1974 is
Acton et al. (1974) and Acton and Mowill (1976).
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be false alarms. And many false alarms will lead to a
discrediting of the warning mechanism. This is the
familiar problem of the boy who cried wolf. Or of the
home smoke alarm that was not heeded because it often was
set off by cigarette smoke. Or the intelligence official
who correctly predicted 19 of the last 2 wars. The
problem is a fundamental one, well described by signal
detection theory (Coombs et al., 1970:165-201). The
implication is that a warning of an uncertain emergency
is costly because false alarms eventually retard
effective adaptation and discredit the warning system.s
12. The Inventory Dilemma: Unfilled end-use storage
capacity is destabilizing. When private and commercial
users of energy have unused capacity, they are likely to
buy more fuel when shortages or major price increases
appear imminent. This leads to a self-fulfilling
prophecy, as the distribution system draws down its
stocks in response to the increased demand. This self-
fulfilling prophecy can destabilize the system, even in
the absence of a shortfall of domestic production or
imports. Thus for end-users to purchase storage capacity
in anticipation of a crisis can be destabilizing if the
storage capacity is not kept nearly full. The problem
would be amplified if the federal government undertook a
crash program to build up the strategic petroleum reserve
when a crisis appeared imminent. This brings out the
contrast between storage capacity and actual stockpiles.
Stockpiles are stabilizing, but unfilled end-use storage
capacity can be destabilizing. Another implication is
there is a big difference in these terms between a crisis
that comes on slowly and allows storage capacity to be
filled gradually and a crisis that comes on unexpectedly.
Still another implication is that a sudden threat of a
crisis can lead to wild oscillations in supply and
demand. After the end-users fill their storage
capacities, they may draw down on them if the crisis does
not materialize as expected. This will lead to lower
demand from the distributors who may then cut back on
their order, and by the time the end-users are back to
normal, the distributors may be low. This oscillation
can extend right back to producers, giving "boom and
bust" demand signals, and resulting in highly erratic
sFor useful suggestions on minimizing the false alarm
effect, see Breznitz (1976).
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responses to highly erratic signals. 6 If this
instability can occur in the context of a genuine import
shortfall the early inventory oscillations driven by
increased demand may be confused with the shortages
driven by falling supply. The demand side may cause a
run-up and collapse of prices before the import shortfall
is directly felt. If so, then the falling prices may be
misinterpreted as indicating that the supply shortage was
a false alarm and that painful emergency measures are
unwarranted. Thus the inventory dilemma may lead to the
undermining of effective emergency adaptation just when
it is needed most. Moreover, if the oscillations occur
in the absense of a subsequent shortfall, then the whole
episode will serve as a false alarm that can undermine
future adaptation, as spelled out in dilemma 11, the
warning dilemma, above.
DILEMMAS OF CRISIS RESPONSE
While some dilemmas appear in the preparation stage, and
others occur as a result of the anticipation of actions
to be taken should a crisis occur, there is a third
category of dilemmas that arise only after an emergency
actually occurs.
13. The Protection Dilemma: The more categories of
energy users that are Held harmless" by a crisis
response, the more the others suffer. Take a small
example. The gas rationing plan of the Carter
administration exempted a list of users, including car
rental firms, from a percentage reduction in gasoline
supplies (DOE, 1980a). This left less for others if
there were a serious shortfall. The effects are
twofold. First, it means that the berm done to others is
greater because they will have to take more drastic
measures to adapt. Second, it undermines the feeling of
equal suffering, which is so necessary for voluntary
compliance with other regulations. These two effects
occur whether the exemption is a category of user (e.g.,
rental car companies using gasoline) or a category of
energy (e.g., home heating oil and diesel oil). The
attempt to put the burden of the entire shortage on one
6For a good treatment of instabilities caused by
inventory oscillations, see Forrester (1961).
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part of the refined product, gasoline, leads to the same
protection dilemma.
14. The Alliance Dilemma: Every consuming nation is
tempted to protect itself through bilateral deals with
supplier countries, but this would hurt all the
consumers. This is an example of the famous e-person
Prisoner's Dilemma (Olson, 1965). If everyone pursues
his or her own private interests, everyone will suffer.
Another oil shortfall could panic Western alliance
members into making their own deals with producing
nations, and these deals might involve political and
economic concessions that would be highly damaging to the
alliance as a whole (Alm, 1981).
15. The Optimism Dilemma: The more an embargo is
hurting the United States, the more the President will be
tempted to say it isn't.
There are two reasons. First,
there is the short-term desire to get domestic holders of
supplies to stop hoarding them. This may be especially
true if the cause of the problem appears to be the
inventory dilemma (see dilemma 11 above). Second and
more important, there will be a need to put on a good
face for those who are attempting to pressure the United
States by means of a boycott. The president will want to
make this effort appear futile and hence will want to
appear optimistic. But in an extended crisis, optimism
is maladaptive because it deters necessary adjustments
and because it will soon discredit the optimist. An
implication of this dilemma is that during a boycott the
public should rely on unofficial information about the
seriousness of the problem rather than giving full credit
to what the federal government says. Multiple channels
of information and prediction are likely to be useful
supplements to official pronouncements in any case.
Among the numerous channels of private information are
automobile club reports on gasoline availability,
opinions of energy and foreign policy specialists, and
investigative reporting by the mass media.
16. The Reassurance Dilemma: The more the public
believes government assurances that there is no need to
panic, the less adaptation there will be. Ugly problems
in the gas lines are just one reason why the government
will want to reassure people that the situation really is
not so bad and is fully under control. A second reason
is the self-fulfilling prophecy of the inventory dilemma
(dilemma 11, above). Still another reason is the need to
put up a good front in the case of a politically motivated
boycott, as expressed in the optimism dilemma (dilemma 15,
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above). Whatever the reason, reassurance that the
situation is not so bad after all will tend to deter
adaptation, especially medium- and long-term adaptation.
17. The Cake Dilemma: You can't eat into Your
strategic reserve and have it, too. There are two very
different and competing uses of a strategic reserve in a
crisis. One use is to alleviate the worst of the
problems by drawing on the stockpile in the period before
individuals and institutions have a chance to adapt to
the new situation. Many of the most effective
adaptations will take weeks to implement. These include,
for example, setting up car pools, changing school hours
so that school buses can serve on commuter routes, and
setting up gas allocation operations. In the meantime,
the shortages might be so severe that many plants would
have to close down unless emergency supplies were
available. But if stockpiled fuel were used at the start
of a major shortfall, then the government would be
largely unable to respond to latter problems as they
arose. This could leave the nation feeling naked. As
bad as things may be at the beginning of a crisis, it
might be useful to have a collective resource to provide
a safety net in case things got even worse. This would
be especially true if the shortfall were caused by a
boycott, since then a stockpile-in-being would
demonstrate that we were not about to be cowed.
18. The Planning Dilemma: In a crisis, plans seem
worthless, but actions are limited to capabilities
actually available. Leaders do not wish to follow
blindly contingency plans adopted by others with little
knowledge of the context of the actual crisis and little
appreciation of the political problems of the leaders.
Thus plans seem worthless and are often ignored in a
crisis. But leaders are in fact constrained by the
capabilities that are actually available. For example,
opting to use the strategic petroleum reserve to
alleviate the worst of a crisis in the first few weeks
will require a very large pumping capacity. Without that
pumping capacity there will not even be a choice. AS
another example, ration coupons cannot be used immediately
if they have not been printed in advance. Thus the
functional role of plans is much different from the
nominal role. The functional role of plans should be to
identify bottlenecks in the adaptation process so that
capabilities will exist at the time of the crisis to
avoid these bottlenecks if desired. This is quite
different from the nominal role of plans as drafts of
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policies to be signed at the time of a crisis. If
planners misunderstand their role, then leaders in a
crisis will be faced with the dilemma of choosing among
sterile contingency options or having to adapt without
the capability of doing so effectively.
19. The Centralization Dilemma: In an emergence
there are likely to be demands for greater centralization
of decision making, but these demands will almost
certainly be mistaken. Centralization gives the illusion
of control and efficiency. Many will insist that the
federal government "do something n and undertake
Coordinated actions and end ~inconsistencies. n Yet, for
rapid adaptation, greater decentralization of decision
making is likely to be more effective.
20. The Trust in Government Dilemma:
The more that
trust in government is needed, the less there will be.
If a crisis comes without adequate preparation, the
public will angrily ask why the government did not make
timely preparations. To adapt effectively to a crisis
when there are inadequate preparations, however, will
probably require a good deal of trust in the validity of
the description of the events that the government is
offering, and in the recommendations for painful action
it is proposing. Yet, the less adequate the preparations
have been and the more painful the adaptations have to
be, the less reliance the public is likely to have in the
ability of the government to handle the crisis for which
it did not prepare.
CONCLUSION
Viewing the United States as a huge, loosely coupled
adaptive system has revealed many more interaction
effects than would be suggested by a more simple
organizational or market model. And, as we have seen.
many of these interactions lead to dilemmas.
Understanding the dilemmas of oil vulnerability will not
make the dilemmas go away, but it can help us to
appreciate better the consequences of the choices.
REFERENCES
Acton, Jan Paul, Graubard, M. H., and Weinscbrott, D. J.
(1974) Electricity Conservation Measures in the
Commercial Sector: The Los Angeles Experience. RAND
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r
66
R-1592. Unpublished report prepared by the Rand Corp.
for the Federal Energy Administration.
Ac ton, Jan Paul, and Mowill,Ragnhild (1976) Regulatory
Rationing of Electricity Under a Supply Curtailment.
RAND P-5624. Unpublished report prepared by the Rand
Corp.
Alm, Alvin L. (1981) Energy supply interruptions and
national security. Science 211:1379-1385.
Breznitz, Shomo (1976) False alarms: the effect on fear
and adjustment. Pp. 127-140 in Irwin G. Sarason and
Charles D. Spielberger, eds., Stress and Anxiety.
Volume 3. New York: Wiley.
Coombs, Clyde H., Dawes, Robyn, and Tversky, Amos (1970)
Mathematical Psychology. Englewood Cliffs, N.J.:
Prentice-Hall.
Energy Policy Task Force (1980) Report. (Halbouty
Report), November 5.
Forrester, Jay (1961) Industrial Dynamics. Cambridge,
Mass.: MIT Press.
Heritage Foundation
(1980) Project Team Report for the
Department of Energy. First draft, October 28.
Martin, Douglas (1981) "Store Oil" is easier said than
done. New York Times, February 15.
Olson, Mancur, Jr. (1965) The Lcgic of Collective
Action. Cambridge, Mass.: Harvard University Press.
Schurr, Sam, et al. (1979) Enemy in America's Future (A
Resources for the Future Study). Baltimore, Md.:
Johns Hopkins University Press.
Stobaugh, Robert, and Yergin, Daniel, eds. (1979) Energy
Future: Report of the Energy Project of the Harvard
Business School. New York: Ballantine.
U.S. Department of Energy (1980a) Progress Report to
Congress on the Standby Motor Fuel Rationing Plans.
DOE/RG-0038, June.
U.S. Department of Energy (1980b) Reducing U.S. Oil
Vulnerability: Energy Policies for the 1980's.
DOE/PE-0021, November 10.
U.S. Deparment of Energy (1981) Public Discussion Package
of the Third National Energy Plan, DOE/PE-0022, March.
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A National Agenda for the Eighties. Washington,
D.C.: U.S. Gove r Dent Printing Office.
Representative terms from entire chapter:
storage capacity
