The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Wednesday, Iraq repeated its pledge to release women and children hostages, but none has yet been freed. Thirteen U.S. military personnel were killed in the crash of a cargo plane heading for the Persian Gulf, and in this country, tornadoes killed at least 24 people in Illinois. We'll have details in a moment. Jim.

MR. LEHRER: On the Newshour tonight, we will focus on oil, the magic liquid that triggered much of the current confrontation in the Middle East. We get the administration's and four other views of American dependence on foreign oil [FOCUS - FUEL FIX] and what can be done about it, then another in our series [CONVERSATION] of special conversations. Charlayne Hunter-Gault talks to the veteran Middle East journalist Eric Rouleau, now the French ambassador to Turkey. NEWS SUMMARY

MR. MacNeil: Saddam Hussein's promise to free Western women and children beginning today was not carried out. The Iraqi President made the promise yesterday. The State Department had this reaction today.

MARGARET TUTWILER, State Department: We and others have been calling for the immediate safe departure of all foreign nationals, including obviously Americans. This announcement of Saddam Hussein, if implemented, is a significant step in the right direction. We have heard statements like this before. We hope Saddam Hussein will have the human decency to live up to his word.

MR. MacNeil: Iraq's ambassador to the U.S. went to the State Department to repeat the pledge but he did not say when the Westerners would be allowed out. At the same time, he held out the prospect that Western men could also be freed.

MOHAMED AL-MASHAT, Ambassador, Iraq: Now we have permitted women and children of all nationalities to leave if they wish to leave. Once America give us assurance they are not going to strike Iraq and attack Iraq or egress upon Iraq, we are going to let even men out. This is our initiative but it is very little reported in your mass media, and I wish that you are going to broadcast it to the American people.

MR. MacNeil: If the Westerners are released, many of them will cross over to Jordan. America's ambassador to Jordan traveled to a major border crossing today in case Americans did get out. Other American embassy officials had already been waiting there for the past two weeks. In Iraq, many foreigners began the process of trying to leave the country. We have a report from Baghdad by Brent Sadler of Independent Television News.

MR. SADLER: Western embassies, including Britain, have received clear indication that arrangements to evacuate women and children will proceed. The embassy has received letters through Iraq from some of the British detainees held at military and industrial locations. They are part of Saddam Hussein's attempt to project himself in a better light. The Cooper family from Portsmouth are hoping their four children can return to school. Like all foreigners, they must acquire Iraqi exit visas. They do not know how long they will take process. It's the same for their neighbors, who would leave today if possible. With travel denied, they were resigned to stay indefinitely. The husbands of both families were among the first to test Saddam Hussein's promise that dependents can leave, but they returned from the appropriate ministry without the vital exit stamp because of technical delays.

MR. COOPER: We'll put them on the first available plane.

MR. SADLER: Is the announcement a relief that they can go?

MR. COOPER: Yes, very much of a relief. At least I only have me to worry about now.

MR. SADLER: Hundreds of families of various nationalities will be split by the evacuation plans. These are some of the French nationals. All the men are unable to leave.

MR. MacNeil: A published report today claimed that Iraq has made a secret offer to the United States to settle the Gulf crisis. According to New York's Newsday, Iraq offered to withdraw from Kuwait and allow all foreigners to leave. In return, it would want U.N. sanctions lifted, guaranteed access to the Persian Gulf, and control of an oil field that is partly in Kuwait. A White House official told the Associated Press such an offer had been received, but was a non-starter. Syria reportedly sent thousands of troops to its border with Iraq to put down pro Saddam demonstrations. The Associated Press, citing Arab diplomats and security sources, said crowds of Syrians poured into the streets of several towns along the Iraq border on Sunday and Monday to protest Syrian leader Hafa Assad's stand against Iraq. It said the troops killed dozens of the demonstrators. Jim.

MR. LEHRER: A U.S. military transport plane headed for Saudi Arabia crashed today in West Germany. Thirteen of the seventeen military personnel on board were killed. Most were reservists from Kelly Air Force Base in San Antonio, Texas. Their 433rd Military Air Lift Wing had not been called up but they volunteered for Saudi duty. The C-5A plane was carrying food, medical supplies, and aircraft maintenance equipment. It crashed on takeoff from Romstein Air Base. President Bush spoke on radio to U.S. forces in the Gulf region this morning. The broadcast was heard aboard Navy ships and by troops in Bahrain, but many in Saudi Arabia did not hear it because there is no armed forces radio transmitter there. Transcripts and tapes will be distributed to each unit. Here's an excerpt of the Bush message.

PRES. BUSH: With the tradition of two centuries behind you, you stand on the front line against aggression and international lawlessness. We've never sought conflict, nor do we hope to chart a course for other nations, but at the hands of injustice, in the face of aggression, ours is a once reluctant fist now clenched resolutely. You're now in the middle of one of the toughest military missions in modern memory, enduring the long, hot days of the Gulf region's cruelest month. As one young soldier in the 82nd Airborne Division put it, "You never get climatized. You just learn to tolerate it.". Well, as tough as it is, know this. Thanks to you nobody's feeling the heat more than the government in Baghdad. We have an important advantage in the Persian Gulf, because in the air, at sea, and on land, soldiers of peace will always be more than a match for a tyrant bent on aggression.

MR. MacNeil: Also today the President approved $2.2 billion worth of arms sales to Saudi Arabia. The package includes F-15 fighters, missiles, tanks, and anti-tank shells. Congress normally has 30 days to approve such a sale, but President Bush used his authority to proceed without congressional approval. Japan's Prime Minister Kaifu today announced that his nation will provide non- military support to the multinational force in the Persian Gulf, but not troops or weapons. The aid would include a hundred medical personnel and financial assistance for military transportation.

MR. LEHRER: OPEC today agreed on a plan to increase oil production during the Gulf crisis. The agreement came at a meeting of OPEC ministers in Vienna. Saudi Arabia and Venezuela willbe among the countries pumping more oil to make up for the short fall from Iraq and Kuwait. The decision caused oil prices to drop by about $2 a barrel today on world markets. FOCUS - FUEL FIX

MR. LEHRER: And oil is our subject tonight, oil as in oil war, as in why U.S. troops, tanks, planes, and ships are now in the Middle East, oil as in our dependence on it, as in what President Bush has called our way of life. The U.S. Department of Energy is now at work on a new energy strategy for the United States. A DOE official to react to and interact with four outside experts. They follow this backgrounder by Jeffrey Kaye of public station KCET-Los Angeles.

MR. KAYE: The year was 1979. Gasoline shortages gripped the nation. Motorists lined up to pay the exorbitant price of 81 cents a gallon. It was the second time in six years that political turmoil in the Middle East had led to an energy crisis in the U.S. President Carter addressed the nation.

PRES. CARTER: [July 1979] To give us energy security, I am asking for the most massive peacetime commitment of funds and resources in our nation's history to develop America's own alternative sources of fuel.

MR. KAYE: Carter, who had created the energy department, formulated a policy that he called the moral equivalent of war. The goal was to reduce America's dependence on foreign oil and to develop alternative forms of energy. But 11 years later, the U.S. is still hooked on foreign oil. Funding for development of alternative energy has been slashed, and critics of the Bush administration say the current crisis demonstrates the folly in not having an energy policy. It was Jimmy Carter's goal that the nation should obtain 20 percent of its energy from the sun by the year 2000. But that target is a long way off. Today solar power accounts for less than 1 percent of the nation's energy use. This solar plant is located in California's Mojave Desert. It provides enough electricity to supply the residential needs of 400,000 people. Officials of Luz International, the company that owns the plant, say they could be producing even more power if the incentives were in place.

CHRIS JENSEN, Luz International: We've been able to get to this point in an era where there is really no effective national energy policy. I think that it's safe to say that if the decade of the '70s was the decade during which a lot of far reaching policies and expectations were put into place, the '80s was the decade in which those were successfully successively dismantled. The developments of a renewable energy resource in this day and age is not an easy thing to accomplish.

MR. KAYE: Why not?

MR. JENSEN: Because of free market competition with fossil fuel means of producing energy.

MR. KAYE: Throughout the 1980s, the oil exporting countries kept the price of petroleum relatively low. OPEC's oil prices undercut the cost of alternative energy sources, sources such as wind power that relied for their development to a large extent on tax credits and subsidized energy rates. Paul Gipe is with the American Wind Energy Association.

PAUL GIPE, American Wind Energy Association: Why bother developing any new technology if existing technology is cheap enough? What we had was cheap oil. As soon as the price of gasoline went down at the pump, people's interest in alternative energy dropped dramatically.

MR. KAYE: According to Gipe, California's nearly 15,000 wind turbines generate the energy equivalent of 3 1/2 million barrels of oil each year. Today wind accounts for only 0.3 percent of California's electricity needs, far below its potential according to industry representatives. Geothermal steam is another form of essentially renewable energy. This process uses heat from below the earth's surface. Other so-called renewables include biomats, which makes use of waste from wood and agriculture, in this case rice husks, and hydroelectric systems, which convert flowing water into electricity. Together renewable energy today satisfies about the same amount of the nation's energy needs as nuclear power. [Talking to Car Dealer] Most U.S. oil consumption, 62 percent, goes for transportation. Today U.S. built cars average about 28 miles per gallon. That's twice as fuel efficient as they were 15 years ago. What makes this such a high mileage car?

CAR DEALER: It was designed for fuel economy.

MR. KAYE: A handful of American cars, among them GM's Geo, are noted for their fuel efficiency. U.S. auto manufacturers are fighting efforts to further tighten the standards on cars. Thomas Hanna is President of the Motor Vehicle Manufacturers Association.

THOMAS HANNA, Motor Vehicle Manufacturers Association: We just think it is wrong headed. Again, it is going after one segment of energy consumption as opposed to the broad idea of an energy policy in this country and we are opposed to it.

MR. KAYE: Ken Bossong of the group Public Citizen says the auto industry has consistently opposed fuel efficiency regulations.

KEN BOSSONG, Public Citizen: They have been fighting fuel efficiency standards since the first standards were being proposed in the early '70s. There has never been a bill that the auto industry has come out and endorsed.

SPOKESMAN: Understand that if you want an eighty to a hundred mile a gallon vehicle, it's called a motorcycle. And they are out there all over the place. And I say that to illustrate a point, that there is no magic in this, no silver bullet technology that will allow people to double fuel economy without effort and without pain. If a manufacturer knew how to do that in an automobile that people would want to buy, I guarantee you they would be scrambling to do it.

MR. KAYE: Increased oil and gasoline prices spurred by the Middle East crisis have not only prompted talk of conservation measures and renewable energy. There's also increased attention to other, more controversial alternatives to petroleum such as coal, nuclear power, and natural gas. Those options raise the hackles of environmentalists, so do lessons that oil companies would like to draw from the crisis. George Babikian is President of Atlantic Richfield Company's refining and marketing division.

GEORGE BABIKIAN, Atlantic Richfield Co.: To the extent that we have reserves of oil in this country and they're not being developed, I think that's a mistake.

MR. KAYE: Are you referring, I presume, now to offshore oil drilling?

MR. BABIKIAN: I'm referring to offshore oil fields that we think have substantial reserves. I'm referring to Anwar, the wildlife reserve in Alaska. We think there are billions of barrels of oil underneath a very small part of that reserve and it seems silly to me that we don't take the steps to begin that exploration and bring that oil down. I know there are other forms of energy that are being developed, alternate energy, but essentially this country is going to be driven in the near-term by oil.

MR. LEHRER: Now we take up the discussion of energy policy with Christopher Flavin, an energy analyst and vice president for research at World Watch Institute, an environmental group, Ted Eck, chief economist at Amoco Corporation. He joins us from public station WMVS in Milwaukee, Irwin Stelzer resident fellow at the American Enterprise Institute, chairman of the board of Putnam, Haze, & Bartlett, a consulting firm whose clients include utilities and oil companies. He's at public station KAET in Phoenix, and Daniel Dudek, chief economist at the Environmental Defense Fund. Listening initially and then reacting will be Michael Davis, who is an assistant secretary at the Energy Department. His brief is Conservation and Renewable Energy. Mr. Eck, to you first, first, do you agree that this is an oil war in the Middle East that's going on now?

TED ECK, Amoco Corporation: It really looks like a political war with oil overtones, but it looks like really there's a lot more involved here than just securing the oil. And I think the President said this is, we're going there in a defensive mode, we're going in there to preserve our political institutions, and I think we have to take him at his word.

MR. LEHRER: Mr. Flavin, do you believe the United States would have troops in Saudi Arabia, defending Kuwait and Saudi Arabia, if oil wasn't an issue?

CHRISTOPHER FLAVIN, Worldwatch Institute: I think there's no question but that we would not be there if we didn't have those oil fields that we're so heavily dependent on, and this is the most massive U.S. military build up in a very long time and we're clearly doing that because of oil, which we're overly dependent on.

MR. LEHRER: Mr. Dudek, what's your view on that?

DANIEL J. DUDEK, Environmental Defense Fund: I think that the issue of energy security has certainly dominated the administration's actions here and the concern is clearly produced by the fact of our past actions not only on energy policy, but our general failure to integrate across both environment, energy and transportation in this country.

MR. LEHRER: Okay, we'll get to that in a moment, but there's no question in your mind that the troops, the U.S. troops wouldn't be there if oil wasn't under the ground in Kuwait and Saudi Arabia and the rest of the Gulf?

MR. DUDEK: I think that the stakes on the table really dictate that our strategic interests as well as the moral imperatives would put troops there.

MR. LEHRER: Mr. Stelzer, how do you view that?

IRWIN STELZER, American Enterprise Institute: Well, I think it's a combination of both. Clearly the oil is seen as quite important to us, but I think you've got to take the President at his word when he says he's very nervous about a person of proven homicidal tendencies getting his hands on nuclear weapons, invading neighboring countries, and that's something he feels he has to stop in his tracks oil or no oil.

MR. LEHRER: All right, Mr. Stelzer, let's start with you and work back through. First of all, do you agree that our dependence on foreign oil is an evil thing and it's something that should be corrected, and if so, how?

MR. STELZER: Well, I don't think it's an evil thing. I mean, we're dependent on lots of foreign goods. World trade is designed to have countries that produce things efficiently, sell them to countries that can't produce them as efficiently. So the notion of self-sufficiency in energy is really a rather silly one. I do think that there are things we can do and I think that probably Mr. Davis will talk to these, to make our energy economy more efficient. I think that when you get into this though you've got to really take a tight grip on your wallet if you're a consumer or a taxpayer, because everybody with some technology that he wants subsidized or some pet theory that he would like the government to pour money in emerges from the woodwork offering solutions to a problem that can probably best be solved if we simply concentrate on letting markets work better.

MR. LEHRER: Is that your solution, just let the market flow freer?

MR. STELZER: Well, I wouldn't say just. Yes, that's my solution, let the market work better, remove impediments to the expansion of new supplies, make sure that we price energy right so that it reflects the social costs it imposes on society when we use it, and avoid the kinds of intervention that cause those gasoline lines that you showed just a few minutes ago.

MR. LEHRER: Mr. Flavin, do you agree with Mr. Stelzer that the real cost, I think what Mr. Stelzer is saying that the real cost of energy, we are not paying the real cost of oil and that the market should be opened up in a way that we do?

MR. FLAVIN: We certainly are not paying the full cost of energy, or at least weren't until very recently. The problem is that we're on an oil price roller coaster and it's likely that that roller coaster is going to get rougher and rougher in the years ahead. We have to have a set of policies in place that make markets work better and that correct for enormous market imperfections which are causing us to over invest in energy supply and to under invest in things that save energy. And if we do that, we will find our oil imports declining rather than a very steep increase that's been going on lately.

MR. LEHRER: All of our emphasis has been on production rather than on reducing the consumption, is that what you're saying?

MR. FLAVIN: I think it's fair to say that most of the emphasis on government policy certainly throughout the Reagan administration has been to try to increase supplies, and it's been an abject failure, particularly in the oil sector where production declines are occurring very steeply now. We simply do not have that much more oil to produce in this country. We have 4 percent of world reserves, and we are essentially going after a wrong solution there. What we need to do is put a lot more emphasis on, in effect, saving oil by mining an oil field in Detroit, that is, improving the fuel economy of our cars and other elements of our very oil intensive economy.

MR. LEHRER: Mr. Eck, does Amoco agree with that, that's the best approach?

MR. ECK: I think the most serious problem we've had with oil is the very, very low prices. When oil prices went down from $25 to $10 a barrel, there just weren't good economics for drilling for oil in the United States. But let's look at natural gas. Actually we have been increasing natural gas production and we have a lot of potential there. And I think that's one thing that we've got to think about is gas is a real substitute for oil that we have immediately available.

MR. LEHRER: Well, why did the price go down so low, Mr. Eck?

MR. ECK: Well, it went down low because of some of the conservation measures that were discussed. We have made a lot of progress in conservation as was indicated on the tape that you watched. The automobile today is twice as efficient as it was 15 years ago, but these low oil prices have reduced production and we have had an excess of oil production around the world. But we're working through that excess and that's why oil prices were going up prior to the invasion of Kuwait.

MR. LEHRER: But it was the market, the free market, that put the price down to begin with, is that right, and now it's caused it to go back up?

MR. ECK: Well, free market with some assistance from OPEC. I think we have to look at OPEC as a major factor, and that was indicated today. OPEC had a meeting, OPEC made some decisions to increase production, and that impacted the oil market, so there's no question, there is an OPEC factor that's very important in this oil market.

MR. LEHRER: Mr. Dudek, do you agree that OPEC held the price down just to maintain control over the market?

MR. DUDEK: I think clearly that was their attempt early on, but at the same time they recognized that when prices were rising that increased the incentives to defect from the cartel, and what we had was a very active spot market that developed in Europe. Part of the genesis of this problem is the accusation by Iraq that Kuwait was cheating on its allocation and quota under the OPEC scheme, and I think that's testimony to the power of people chasing after those petro dollars.

MR. LEHRER: Mr. Dudek, does the Environmental Defense Fund agree with Mr. Flavin and Worldwatch that the way out of this, this dependency that the U.S. has on foreign oil, is the conservation end, not the production end?

MR. DUDEK: I certainly think that conservation is a tool. It's a means, one of the options that we can use to reduce dependency, but there's some fundamental systematic defects which make people run in the opposite direction from conservation. When we think about, for example, electric utilities, they get paid, they get their rates based on the size of their capital investment, on building new plants that burn more fossil fuels, that put more pollutants into the environment. They don't get paid on the basis of reducing energy use and consumption and on the basis of saving money and preventing environmental damage.

MR. LEHRER: Mr. Flavin, isn't our society and the way we go about things in this country built on the premise of cheap energy?

MR. FLAVIN: It is built on that, but I think by implementing some of the policy changes that are being discussed now, we can begin to slowly turn that around. And there's nothing written in stone that says we have to have an automobile that gets 28 miles were gallon. There are identified technologies out there that would take us to a fleet average of 40 miles per gallon in the next 10 years. Several European countries have prototypes that get seventy or eighty miles per gallon, so there's an awful lot that we can do with technology, but we have to have a whole array of government incentives in place to accomplish that, and I think if you look at the history of government energy policy making in this country over a period of 10 years or so, most of the kinds of programs that were doing that have either been abolished, cut back by 80 or 90 percent, and no new programs have been proposed to accomplish those kinds of goals.

MR. LEHRER: I think I'm going to use that as a cue to bring Mr. Davis into the discussion from the Department of Energy. Is Mr. Flavin right that government policy has contributed to the lack of conservation in this country over the last several years?

MICHAEL DAVIS, Department of Energy: I think government policy and market policy has delivered to this country abundant and very low cost energy, and we as a country and an economy have enjoyed that. I think the more important question is, is in the process of doing that what additional things are we doing and have we done such that when that energy may not be available to us at the price we like, do we have other alternatives, and I think that actually because of the low cost of some of these energies, which have given signals and caused people to go in other directions, the competition to compete with those energies has obviously been difficult and keen. Some of the issues that you saw raised by the renewable people, it's been very tough to compete, so what have they had to do, they've had to do very good work and some substantial progress has been made in reducing the cost of alternative technologies such that now I think we're in a much better position to call on those technologies than what we were 10 years ago.

MR. LEHRER: But does the price of oil have to stay high from this point on for any kind of alternative program to work?

MR. DAVIS: Well, certainly it helps to have that price signal. I don't think there's any question about that. We are smart enough to realize that if Course A is more expensive than we'd like it, it makes some sense to look at alternatives.

MR. LEHRER: Than if what is?

MR. DAVIS: If the price of alternatives are such, in other words, do we have some choices, and clearly, we have choices on what we referred to as the demand side of the equation. I think it's appropriate and I think that for a number of years we have stressed the supply side of the equation.

MR. LEHRER: Now are you in this new policy that you and others at the Department of Energy are now drafting, are you going to change the emphasis to demand as well as supply?

MR. DAVIS: We certainly are trying to look at both supply options and, and I think for the first time in a long time, very carefully at demand reduction options as well within each sector of the economy, in other words, within the transportation sector which is certainly dependent on petroleum, what are the options to increase supply.

MR. LEHRER: Let's go through some of the specifics that have just been mentioned thus far. Mr. Flavin just said it's not impossible to make a car that will go 40 miles to the gallon, raise to 40 from 20. What is the average now, 23?

MR. FLAVIN: Twenty-eight.

MR. LEHRER: Twenty-eight to forty, is that going to be part of your policy?

MR. DAVIS: Well, certainly we understand and agree that there are ways to improve the efficiency of all vehicles, and that has to be looked at and has to be weighed as an opportunity, and it has to be developed to the point of choice.

MR. LEHRER: Is that a yes or a no?

MR. DAVIS: Well, it's a policy that we've got to look at.

MR. LEHRER: Got to look at. Mr. Eck says that something can be done about natural gas. Flesh that out. How much of a Godsend could natural gas be, Mr. Eck, if the government and everybody else decided to use it?

MR. ECK: I think we could reduce oil imports by at least a million barrels a day in a relatively near-term if we use additional gas.

MR. LEHRER: And we import now about what, 7 1/2 a day?

MR. ECK: Yeah. What we can do is we can use natural gas for automobiles, for buses, for trucks, as well as electric car generation for industry. Natural gas is the cleanest, best fuel that we have immediately available to substitute for Persian Gulf imports.

MR. LEHRER: Are you going to put that in your policy, Mr. Davis?

MR. DAVIS: Well, expanded use of natural gas is certainly, there's a whole set of activities that we're looking at and we're looking at across the transportation sector, the utility sector, the industrial sector. It currently obviously is a big source of supply to the residential and commercial sectors.

MR. LEHRER: Now Mr. Stelzer, your proposal, one of your ideas has to do with the tax end. Flesh that out, an energy tax, or something that would raise the price and keep it up.

MR. STELZER: Well, you notice that the higher prices would do two things. There's not this false dichotomy between the demand side and the supply side. Higher prices simply mean that people will use less oil and it also means that there will be incentives to produce other forms of energy. The question is how do you get the price to the level that reflects all the costs society is really imposing when it uses oil. At Harvard, we did a study, for example, that the supply interruption costs come to about $10 a barrel and that wasn't reflected in the price of oil.

MR. LEHRER: Excuse me, supply interruption cost, what does that mean?

MR. STELZER: That means the unemployment, the inflation spikes, and the other things that go with these interruptions, plus the costs of defense.

MR. LEHRER: Like what we're doing right now, you mean?

MR. STELZER: What we're doing right now, what we're going through, and people who use oil are imposing those costs on society, but they're not paying them. If you had an oil tariff, they would pay those costs and they would use less, other technologies would become efficient, you wouldn't need Mr. Davis being asked to pick winners, you wouldn't need Mr. Flavin to get a whole bunch of subsidies for his conservation techniques, you wouldn't need Mr. Eck to try to force natural gas on people. It would start to work itself out much better than having central direction of this effort. The trick would be to get the price right.

MR. LEHRER: Is that a serious part of your contemplations, Mr. Davis?

MR. DAVIS: Well, if you look at the choices, let me suggest some criteria. What I think we would all like to be able to do is know that the energy choices we're making as a nation are good for the environment, are really at the overall least cost, whatever that is, to the economy, and it's a great amount of debate as to what that cost is, that's domestically produced, that's good for our economy in terms of we control it, which gets at the security implications, we'd all like to have that, and we've been at those issues for some time. Many of the gentlemen here today have been part of our process of developing a national energy strategy. There is no silver bullet in the whole process. It's going to take hard work. That work is aided by less noise and less strong opinion from all sides and I think more of an agreement to work out some of these tough issues.

MR. LEHRER: But philosophically, that's the -- I don't want to put too fancy a word on it, but I've already done it, so I'm stuck with it -- philosophically, are you and your colleagues at the Department of Energy operating on the idea that energy must remain cheap, or are you operating on the idea that it might be in the national interest to raise the cost of energy?

MR. DAVIS: We're operating on the premise that we need to know well and have confidence in what the real costs are and that the choices we make do represent the overall least cost to the economy. That's the premise.

MR. LEHRER: The least cost to the economy.

MR. DAVIS: That's correct.

MR. LEHRER: Now that doesn't necessarily mean the least cost at the pump or the least cost on the --

MR. DAVIS: That doesn't necessarily mean that at all.

MR. LEHRER: Then what does it mean?

MR. DAVIS: Well, there's a whole bunch of factors that get represented.

MR. LEHRER: Right.

MR. DAVIS: When you actually go buy a gallon of gasoline, what's being suggested is that there are other cost factors that are not reflected in the price of the pump, that's shown at the pump. Many believe that, indeed, that's the case. Then the next question becomes, okay, if that isn't the case, how do you quantify what the cost is. That's a tough issue. That's one we are addressing head on.

MR. LEHRER: Mr. Dudek, do you believe that the cost of energy accurately reflects the environmental concern, the environmental cost that it takes to generate energy?

MR. DUDEK: Absolutely not, Jim. I think it's really clear that the sort of low energy prices we have have led to our addiction which has produced not only the tremendous problem of smog in our urban areas, the portents of global climate change, and transformation of environments which would produce an increase in the kind of regional conflict that we're seeing then in Saudi Arabia and Iraq and Kuwait now, but maybe a little more fundamental commodities like water instead. I think that we, you know, as we listen to Mr. Davis, we listen to Irwin, we're talking about trying to introduce and take account of the rather substantial environmental damages associated with not only energy production, its use, and then finally the disposal of the by-products into the environment. Yes, they're tough to quantify, but I think the government's job is to set strict limits with respect to these emissions. The market's job and the job for industry then is to figure out how to grapple with those limits. That produces an added price signal back into the system and we don't have to resort to a bunch of folks with white gloves, twiddling computers in the back room, figuring out the magic number.

MR. LEHRER: How do you feel about that, Flavin?

MR. FLAVIN: I think getting the price signal right by, in effect, raising energy prices is part of the solution but it's certainly not going to solve all the problems, and when somebody goes out and buys a car, they're looking at mainly the first, cost to that car and what they want to do. They don't look at what the gasoline bill is going to be over a period of five or ten years. So you need to have a strong government program that is actively centered on improving the fuel economy of those cars and I would argue beyond that that the energy strategy as a whole, if it's going to be worth anything in regard to the crisis that we currently find ourselves in and are likely to find ourselves in repeatedly in coming years is going to have to have a goal of reducing U.S. oil consumption and to have a whole mix of policies, fuel economy for cars, improved fuel efficiency for buildings, and so on down the line, that will accomplish those goals. I'm afraid that I listen to this seemingly academic discussion of how the energy policy is being put together and having had the history of these kind of things been chewed up by energy industries as they go through the process, I'm not terribly optimistic. You're going to have strong leadership from the top and you're going to have to have explicit recognition that conservation is the way to solve these problems. Otherwise, it's going to be a set of options land on the President's desk and it's going to be forgotten next week.

MR. LEHRER: Mr. Stelzer, do you share this sense of pessimism that once this thing blows over, assuming it does, that we're going to, that nothing will have happened as far as energy change?

MR. STELZER: I don't know, I think though a lot of that is really quite silly. People when they go to buy cars do look at the fuel consumption. They're smart, just like they look at the interest rates when they decide to buy cars. I think the philosophic difference, to use your expression, is that Mr. Flavin would like to have some central direction to achieve a goal. My feeling is, and I thinkit's shared by Mr. Davis that if the government's job is to get the prices right, if it does that job well, that the rest will sort itself out and you won't need the kind of command and control situation, trying to pick technological winners which have led many countries to ruin.

MR. LEHRER: Mr. Eck, is that what you think, do you agree with Mr. Stelzer that that's what Mr. Davis should be doing, is coming up with the right price, and the rest will take care of itself?

MR. ECK: I guess I very much agree with Mr. Dudek who said what we really need is the correct signal. We need to be told how clean the emissions need to be from the automobile and we'll design engineer that vehicle to achieve that gasoline objective, and it is going to cost more money, there's no doubt about that. The average price of gasoline is probably close to $1.30 now, it's probably going to cost another 10 cents to make environmental gasoline, that will be $1.40. The public will pay a higher price for the clean emissions of clean gasoline in vehicles that are equipped to achieve cleaner air and it will be in the price system.

MR. LEHRER: Mr. Dudek, are you optimistic that good could come from this terrible crisis in the Middle East, that we might get our act together on an energy strategy?

MR. DUDEK: I think, Jim, if we use the opportunity to look broadly, look more grimly, not focus narrowly on energy, look at the whole nexus of issues that we've been discussing here, we really can pull something out of it and the something out of it is the --

MR. LEHRER: But you see signs of that happening, that's what I'm asking.

MR. DUDEK: Yes, I do. I mean, I think the first thing that we can do is to have Congress come up and pass the Clean Air Act. That's No. 1. I mean, our concern at the Environmental Defense Fund is that we're going to be involved, everybody's attention is going to be distracted by what's occurring in Kuwait right now, Congress will be preoccupied with that, we'll have them go out for recess, we'll have an election, and again, since 1977, we've languished with an inability to deal with the environmental consequences of energy. What are we going to be left with? Some resort to ginning up a case for gasoline taxes.

MR. LEHRER: Mr. Davis, when can we expect the new policy to be finished and out on somebody's table?

MR. DAVIS: Well, our plans are to deliver some options to the President in December. But I want to back up from that. I want to point out I think there's some good news here and one is the President was absolutely correct over a year and a half ago in calling for the development of this strategy. Imagine what my job would be like today if we hadn't already engaged that effort, so fundamentally, I am optimistic that we are going to make some progress. There's many reasons to make that progress and we've gotten more recent signals of the need to make it so I do believe that we're in a position to make better progress than we would have been otherwise, and I remain optimistic. I also don't think it's academic. As a small businessman, I've been in the market both in renewables and energy efficiency. I think it's fair to say that we have one of the better environments in the world and we need to improve it, but it ain't all that bad, and we also have abundant forms of energy which has allowed our economy and our population to do a number of good things. That's not all bad either. The issue is what do we do now and can we do the things, the policies, can we make the investments so that, indeed, we're not revisiting this issue 10 years from now?

MR. LEHRER: Mr. Secretary, gentlemen, thank you very much. CONVERSATION

MR. MacNeil: Finally tonight, another in our series of special conversations about the Middle East crisis. Tonight Charlayne Hunter-Gault talks to a longtime observer of Saddam Hussein, the French ambassador to Turkey.

MS. HUNTER-GAULT: Eric Rouleau has been ambassador to Turkey for two years and a member of the French ambassadorial service since 1985. He also served as ambassador to Tunisia, but for most of his career, Rouleau has been a journalist. He was diplomatic correspondent for the French newspaper La Ronde for 30 years. During the Iranian hostage crisis, Rouleau was a frequent guest on this program while a visiting fellow at Princeton University. I visited Rouleau at the French embassy in Ankara, where I asked him to remove his diplomat's hat and give us his insights as the erstwhile dean of Middle Eastern correspondents. Eric Rouleau, as a longtime watcher of Saddam Hussein, how do you assess his behavior now? You've been reporting on him how long?

ERIC ROULEAU, French Ambassador to Turkey: Oh, I've known him for what, nearly 38 years. I've met him so many times. I think the first thing is that he's extremely stubborn and he has a lot of vanity. He thinks that he's the best, that his calculations are good, but I still feel that he doesn't know himself how he would come out of it.

MS. HUNTER-GAULT: Why do you feel that?

AMB. ROULEAU: Because he's in a very difficult position. He knows that Americans are sending very important forces. He knows that his army will not be able to stand to it for a very long time. Contrary to a very common conviction, I believe that the Iraqi army is a very weak army. It's a bad army. It's a numerous one, 1 million people there. They have very sophisticated arms, but I think that organization wise and fighting capacities of the army is not up to the standards or else Iraq would have won the war against Iran in a few months or a few weeks. It took them eight years.

MS. HUNTER-GAULT: You also mentioned when we talked earlier that you didn't think that Saddam had the support inside the country.

AMB. ROULEAU: Saddam Hussein I think is quite an unpopular man in his own country. His regime has a very narrow basis, political basis. You know about 2/3 or 60 to 65 percent of the population is Shiites, Moslem Shiites. He has a Sunite government and the Shiites feel that they are treated as second class citizens. A large part of his population, something like 20 to 25 percent, are Kurds, who are also unhappy under the regime of Saddam Hussein. The latest thing he did must have made out of him a very unpopular man. I mean, he carried out a war against Iran for eight years to obtain the full control of Shatal Arab, we know, the waterway and he's given up everything to Iran a few days ago. I'm sure there are millions of Iraqis who are wondering today why they fought for eight years, sacrificed 1 million people, to end up giving to Iran everything Iran was asking for. All these are factors which I think make of him in his own country quite an unpopular man.

MS. HUNTER-GAULT: But weak?

AMB. ROULEAU: Weak?

MS. HUNTER-GAULT: You said unpopular, but weak also?

AMB. ROULEAU: Well, it depends how you look at it. Weak, if you think that he is on the point of collapsing, I would say, no, because he is a very strong man, and as you know, he uses methods of government which are terrible politically speaking, and people, there's also fear in Iraq, so he's not weak in that respect, but he can be weak, for example,if he gets a very big blow from outside, if something happens, that's another possibility, if the embargo works and people start writing in Iraq and he cannot control the situation, then his whole regime might collapse.

MS. HUNTER-GAULT: New York Times Columnist Flora Lewis recently wrote an article in which he said, "The choice is not whether to confront President Hussein or to seek a tolerable compromise. It is whether to accept the challenge now or later in much worse circumstances.". Do you agree with that?

AMB. ROULEAU: I do.

MS. HUNTER-GAULT: Why?

AMB. ROULEAU: Because if he comes up with a compromise, first of all, I don't see what kind of compromise. I mean, if he annexed Kuwait, what kind of compromise, obtaining, for example, the evacuation of Kuwait and Kuwait remaining a satellite of Iraq, is that what you mean? It's a victory for Saddam Hussein. It will strengthen him, and that opens the way for more initiatives on his part, and we are going to have more trouble with him in the future. Unfortunately for the world, we're in a situation which my President called, we are in the logic of war, we are in the process which is leading straight to war with Saddam Hussein, because he has left no door open to negotiations, because as Flora Lewis was saying any compromise would strengthen him more than anything else after having the whole world against him, coming out with a compromise, but what kind of a compromise? I mean, all the governments in the world have been looking for it. Nobody wants war. Nobody has come up with any idea, because he hasn't left any way out for a compromise.

MS. HUNTER-GAULT: Is this because he was smart, or because he was not smart?

AMB. ROULEAU: I think originally his mistake was underestimating the international scene. He never imagined that the Soviet Union, which has been his staunch ally for so long would line up with the United States. He underestimated the importance of the detentes between the Soviet Union and the United States. He underestimated France, because we have been a longtime ally of Iraq for 20 years. We have had a very close relationship with Iraq. We've sold a lot of military material, amongst other things, but also civilian industries have been built by French firms. He didn't imagine that France would take the lead in New York to impose the embargo. That was the second mistake he made. He didn't imagine that countries like Japan and China and other countries would join in. I think it's unique in history since the Second World War there's such a world consensus.

MS. HUNTER-GAULT: There is also unprecedented consensus among the Arabs. How surprised are you and what do you make of that?

AMB. ROULEAU: I don't agree with people who say there is a consensus there if I understood you well. The Arab world is very divided and even those who belong to one camp have very mixed feelings towards Saddam Hussein.

MS. HUNTER-GAULT: But publicly they seem to be unanimous.

AMB. ROULEAU: No, I'm sorry to disagree with you, because I mean I lived through the great crisis with Nassar back in 1976, when he nationalized the Suez Canal, and then there was this so- called aggression of France, Great Britain, and Israel against Egypt. There were millions and millions of Arabs in the streets in all capitals, Arab capitals, and in the streets of small towns. How many people demonstrated in favor of Saddam Hussein the past few weeks?

MS. HUNTER-GAULT: Well, quite a few Palestinians in Jordan, demonstrations in Yemen.

AMB. ROULEAU: Quite a few Palestinians in Jordan, a few in Yemen, a few in Algeria, but there were a few thousand. I'm talking about millions. I'm talking of unanimous support for Nassar back in the '50s. Now the Palestinian case is very special. The Palestinians are frustrated, because all the united national resolutions have not been applied according to them by Israel, and the United States government has taken absolutely no measure to exercise the least pressure on Israel to apply the United Nations resolutions. Now they say the United States is applying a double standard policy, many countries are violating the United Nations resolution but the American government is doing nothing about it. I mean, the list is very long. I mean, I can mention them if you like. And just because Saddam Hussein has annexed, although most of the Palestinians I believe don't agree with annexation, I think most Arabs were shocked by it, that one rich Arab country like Iraq would annex another rich country like Kuwait, because it has been written in the press that it was the haves and the have nots. That's not true. The Arabs know very well that Iraq is a very rich country. It's an oil producing country annexing another oil producing country. So the Palestinians who are demonstrating in the territories are not really demonstrating in favor of Saddam Hussein. They're demonstrating against the United States.

MS. HUNTER-GAULT: I understand that. So how long do you think the United States can count on the Arab support, because you talked to me earlier about the whole problem of forces in Saudi Arabia, I mean, what is going to trigger the beginning of a disenchantment with U.S. presence?

AMB. ROULEAU: Now things may change dramatically if the American intervention either takes too long with no results, if American troops sit in Saudi Arabia for another six months shall we say, or fails. If the American intervention fails, Saddam Hussein becomes a hero in the Arab world, again, not because it is Saddam Hussein, because everybody knows who he is, they know exactly who he is, the Arabs, but because he said no to the biggest super power and he won. And that's the sort of I would say not revenge, it's not the word revenge, it's the sort of good feelings Arabs will have after all the frustrations they have in their minds about the Americans.

MS. HUNTER-GAULT: Saddam Hussein is being compared in some quarters to, you referred to Nassar earlier who stirred Arab nationalism, but has not Saddam renewed a vision, you referred earlier to the have nots, hasn't he renewed a vision that maybe a better future for them lies in what Time Magazine referred to as that dream kingdom known as the Arab nation?

AMB. ROULEAU: I would have agreed with Time Magazine if he had done this in his own country to start with. There is a lot of poverty in Iraq, and again I repeat it's a very rich country. Saddam Hussein has not shared the wealth of his country. Not only has he not shared, he has spent all the money, and he owes something like $70 billion to various countries to do what, to wage a war against Iran which lasted eight years. Again, you cannot present Saddam Hussein as the Robinhood helping the poor and sharing his wealth. He didn't say one word about the wealth of Kuwait being shared by anybody. He said it's mine. He told all the Arab countries to which he owes money, I'm not going to reimburse you. He told us, the French, that he didn't have a dollar to give back. I mean, he is a man who spent the money on war, who owes $70 billion, and who is not sharing the money with anybody else, so how can he be represented as the Robinhood of moderntimes in the Arab world?

MS. HUNTER-GAULT: The Arab League's Clovis McSoud said the Arab world is never going to be the same after this crisis, history will not be made just for us, he said, "It has to be made by us." Do you agree?

AMB. ROULEAU: For years, people have been saying the Arab world cannot stay as it is. As I said at the beginning, most, if not all, Arab regimes are unpopular in their own countries, and when things started to change in the Eastern bloc, many people thought that things would change in the Arab world too. It hasn't. I'm not prepared to make any predictions but I'm prepared to follow what Clovis McSoud has said if this crisis lasts a long time. Oh, yes, things are going to change. Regimes might collapse, new worlds might start, and in six months time or even in three or four months time, you and me, we would not be talking of Kuwait and Iraq. We might be talking about Israel, Jordan, and the other Emirates, because such a crisis in such an explosive area cannot last too long. Either we bring it to an end too quickly, and then Clovis McSoud may be wrong, things can start again more or less as before, but if this crisis goes on for a long time, everybody will be hit by this crisis, everybody.

MS. HUNTER-GAULT: Well, Eric Roulleau, thank you.

AMB. ROULEAU: Thank you. NEWS SUMMARY

MR. MacNeil: In other news today, rescue teams in Plainfield, Illinois, and the nearby town of Crest Hill searched through rubble for survivors of yesterday's killer tornado. The storm struck with virtually no warning, killing at least 24 people and injuring more than 300. It devastated a 12 mile area Southwest of Chicago, ripping off roofs and flattening apartment complexes. More than a hundred houses and five hundred apartments were destroyed. Some of the victims died in cars which were tossed about like toys. The local high school was leveled the day before classes were scheduled to begin. The National Guard was called in to prevent looting. President Bush tonight declared it a federal disaster area. Police and FBI agents searched Gainesville, Florida, today for what University of Florida John Lombardi called "a maniac on the loose". A serial killer is believed to be responsible for the deaths of five students, four women and one man, in off campus since Sunday. Many students have left Gainesville. Others have decided to arm themselves or travel only in groups. Gainesville Police Chief Wayland Clifton told reporters there are similarities among the victims which could lead to the killer.

WAYLAND CLIFTON, Gainesville Police Chief: Our concern right now is to get a good psychological profile. That's the reason why the FBI and FBLE are in Gainesville today. The top teams in the nation, I mean, we've gathered the top people across the United States to do that. At the same time we have had enough physical evidence in these three incidents with these five victims to develop some suspects from physical evidence all on our own.

MR. MacNeil: The chief said evidence now points to the killer having some prior knowledge of his victims. In economic news today, the government reported no change in the Index of Leading Indicators, its main forecasting tool. It rose only 1/10 of a percent in June. Home sales also plummeted for the fifth time in seven months, down 2.3 percent in July. Three of Cambodia's four warring factions today approved a U.N. peace plan that could end the country's 20 year civil war. The plan would place Cambodia under U.N. control until a new government can be elected. The Khmers Rouge and its non-Communistallies said they would abide by the proposal. Cambodia's Vietnam-backed government has not responded to the plan. And in Quebec, Canada, a standoff between Canadian soldiers and Mohawk Indians had a peaceful ending today. The Mohawks, who were heavily armed, had set up barricades to stop the expansion of a golf course onto what they consider ancestral land. The army moved in heavy tanks and artillery and threatened to tear down the barricades. Late today both sides agreed to dismantle them together. RECAP

MR. LEHRER: Again, recapping today's developments on the Middle East, Iraq repeated its pledge to release women and children hostages but none have yet been freed. Iraq's ambassador to Washington said that male hostages could be released if the U.S. promised not to attack Iraq. Thirteen U.S. servicemen were killed in Germany after their cargo plane crashed en route to the Persian Gulf. Japan said it would not send troops to the area, but offered money, medics, and transportation. And this evening, Saddam Hussein denied his country was involved in any secret negotiations with the United States. He made his comments during an interview with CBS News. Good night, Robin.

MR. MacNeil: Good night, Jim. That's the Newshour tonight. We'll be back tomorrow night with more on the Middle East situation. I'm Robert MacNeil. Good night.