ECONOMIC

of old oil and prices of imported and new crude. As required by the Trans-Alaska Pipeline Authorization Act, there is no price ceiling on oil producedfrom stripper wells, that is, those producing less than 10 barrels per day.To limit windfall profits, the President recommended that Congress enactan Emergency Windfall Profits Tax. The proposed measure taxes increasesin crude oil prices at rates graduated up to 85 percent on all sales of domesticcrude oil at prices higher than base prices determined by reference to theDecember 1, 1973 ceiling set by the Cost of Living Council; the same pricewould apply in the case of uncontrolled oil. The tax, which would be phasedout over 5 years, is designed to eliminate significant windfall profits resultingfrom short-term increases in crude oil prices, but to give producers enoughincentive to invest in the expansion of crude oil output in the future.Sound natural gas policy calls for more competitive pricing. The Administrationhas asked Congress to pass legislation deregulating prices on newinterstate natural gas contracts. The Administration's proposal would permitthe price to rise, in stages, toward the long-run, market-clearing level.Prompt steps in this direction are desirable as a means of avoiding thenatural gas shortages that have recently occurred. Deregulating the interstateprice will increase reserves and production and will permit users whodepend on interstate pipelines for supplies to compete with intrastate users.Many electric utilities and industries now buy intrastate gas at a price abovethe regulated interstate rate. When the interstate price rises, more gas willflow in interstate commerce, where in many cases it will substitute for oil.Natural gas would thus be available where the need is most critical. Deregulationwill also result in a greater output of natural gas liquids, a prime feedstockused by the petrochemical industry.Prospects for Increasing Domestic ProductionProduction of petroleum, and of associated natural gas, can be increasedwithin a year by expanding output from existing oil fields. Part of thisincrease will result from the use of secondary and tertiary recovery methods.An additional increase can come from maintaining the production ofstripper wells that would otherwise be abandoned. Some stripper wellscan be reworked to yield a greater rate of flow.In 1973 most wells in the United States were producing at 100 percentof the MER. In most States the law does not permit production in excessof the MER, which is in principle the maximum rate at which oil canbe extracted without seriously reducing the total amount of the resourcethat can ultimately be recovered from the field. But the MER is an imprecisefigure. In many instances total output would be reduced by onlya small amount if production went beyond the MER for 2 or 3 years.Moreover the MER should reflect economic as well as technologicalfactors. The economically efficient rate of production is a function of marketprices, both present and future. An increase in the value of oil today,relative to the expected future value, should lead to a more rapid rate of120