Remarks by Deputy Secretary Sell
Thank you. It is indeed a pleasure and an honor for me to speak to this distinguished gathering as you kick off your day-long energy discussion as part of the U.S. Chamber of Commerce's new Institute for 21st Century Energy. I think it is very appropriate that the Chamber take this issue on and it has the full support of the D.O.E..
In my judgment, and in the judgment of the Secretary of Energy, we are facing a new energy reality in the United States. It is a new energy reality that is not fully understood by the policymakers, the leaders, the legislators inside our government. And so efforts such as this to educate opinion leaders, who in turn can go out and educate the Congress on this new energy reality that we are facing, will be critical to establishing the proper course for the U.S. to pursue over the coming years and decades.
Why do I say that the U.S. and the world are facing a new energy reality? There are 3 principle reasons; 1st is the high price environment, reflecting the reality that demand has outstripped supply over the last few years. I remember when I came to the White House in July of 2003, we did not fully anticipate then a trend that was already underway…this incredible surge in demand coming from China, India, and the rest of the developing world.
Think about this; in the last 25 years, energy demand increased approximately 60 percent worldwide. We are now projecting a similar increase, but over a much larger base, over the course of the next 25 years. A few facts can really tell the story. In China, a nation of one billion people today, they have 31 million Hwy. vehicles. Now, we are a country of 300 million people and we have 240 million vehicles. By 2030, it is expected that China will have over 200 million vehicles.
Here's another fact; there are over 1.6 billion people around the world that don't have access to electricity. But as we pursue policies of development, trade, affluence, and prosperity, those people will become connected to the grid as they should, and that will dramatically increase demand for electricity. Some estimates are that electricity demand will double worldwide over the next 25 years. Meeting all of this will require an investment in infrastructure of over $20 trillion in the next 25 years.
But we have seen high price environments before. 30 years ago, when the D.O.E. was 1st created under the leadership of Secretary Schlesinger, it was a supply shock. Today, it's a demand shock that has driven this high price environment. Nonetheless, we have seen conditions like this before.
There is a 2nd factor that relates to this new energy reality and that is what I call changing world conditions. The infrastructure is more extensive, it is in more corners of the world, and it is more vulnerable to terrorism and to disruption than it ever has been.
But there's another factor that is changing the world conditions. And that is the trend toward resource nationalism. As prices have gone up, countries have turned more and more inward and have become less and less welcoming to the investment, superior technology, and modern business practices of the international energy companies. Two-thirds of the world's oil and gas reserves are in countries that substantially limit or prohibit investment from the international oil companies.
But we have seen this as well before. We've been in high price environments; we've dealt with very difficult world conditions. But there is a 3rd factor that is facing us today that we have never faced or been forced to deal with from a policy standpoint before. And that is the challenge of global climate change and the reality that as we deal with these challenges, we're going to have to do it in a carbon-constrained environment going forward. Now, that truly makes this challenge new and different and more difficult than anything we have faced in the past.
This view was recently bolstered by an outstanding report completed by the Countrywide Petroleum Council with the help and assistance of the D.O.E. along with coal companies, renewable companies, energy-efficiency advocates, and many other experts in academia, think tanks, and others across the country. I've been related to or around the energy policy business in this town for 13 years. And I've never read a better study or a more thorough study or a study better grounded on a depth of data. It is comprehensive. The report expresses that oil and gas is part of the world energy system and therefore it looks across all sectors.
I think one of the most notable things about this report from the Countrywide Petroleum Council is that it embraces in a way the NPC has never embraced before….efficiency, bio-fuels, and a global approach on carbon emissions. This is a very significant and a very transformational report.
The report focuses on 6 hard truths. And from those hard truths follow a number of policy recommendations. But I'm going to read these hard truths and I'm going to ask you to focus on them. And I'd like you to think about how far we could go in this town, how much progress we would have in setting good policy, the different kind of energy bills we would see on Capitol Hill if these 6 hard truths were fully known and fully understood.
Number one - coal, oil and natural gas will remain indispensable to meeting total projected energy demand growth, indispensable. Number 2 - the world is not running out of energy resources, but there are accumulating risks to continue an expansion of oil and natural gas production from the conventional sources relied upon historically. These risks create significant challenges to meeting projected energy demand.
Now, there has been some debate associated with the story about the theory of peak oil. These are my words; these aren't in the report, but I characterize this point as follows: The case for peak oil, as we traditionally think about it, or as the advocates have traditionally pursued is not born out by this study. We know that the world is not running out of energy resources, but nonetheless, above ground risks like resource nationalism, limited access and infrastructure constraints may make it feel like peak oil just the same by limiting production to something far less than what is required.
Number 3 - to mitigate these risks, expansion of all economic energy sources will be required including coal, nuclear, renewables, and unconventional oil and natural gas. Each of these sources faces significant challenges including safety, environmental, political, or economic hurdles and imposes infrastructure requirements for development and delivery.
I have to admit, this next one, is a particular favorite of mine because it attacks squarely some of the overused rhetoric in Washington. Number 4 - energy independence should not be confused with strengthening energy security. The concept of energy independence is not realistic in the foreseeable future whereas U.S. energy security can be enhanced by moderating demand, expanding and diversifying domestic energy supplies, and strengthening global energy trade and investment. There can be no U.S. energy security without global energy security.
Number 5 - a majority of the U.S. energy sector workforce including skilled scientists and engineers is eligible to retire within the next decade. The workforce must be replenished and trained. The pipeline of workers that will be required to meet this new energy reality is not full and it must be filled.
And the final hard truth of the report - number 6 - policies aimed at curbing CO2 emissions will alter the energy mix, increase energy-related costs, and require reductions in demand growth.
Now, a number of specific recommendations were made in 5 broad policy areas. And the D.O.E. is reviewing those and we will soon be acting on them. But we took considerable comfort and some level of affirmation that many of the things that we've been talking about, many of the things that the President has promoted since his 1st days in office are, in fact, also recommended by this report. And what we, our policy and the administration, what we are doing about this new energy reality, what we are doing with the facts that are related in the Countrywide Petroleum Council report, I generally put into 5 categories of policy responses. This is the Administration's response. And just for completeness, I'd like to tick through those briefly and give a few examples.
Our response to this new energy reality comes in 5 areas. Number one - we have to have more traditional energy supplies from a greater diversity of sources. Number 2 - we must have more energy options through technology. Number 3 - we must have more efficiency. 4 - in everything that we do, we must exercise a strong bias toward lower carbon or no carbon technologies. And number 5 - we have to have more energy infrastructure. We will build it and we have to better secure it.
Let me go back to those 5 and just give you a few examples. Number one - more traditional energy supplies from a great diversity of sources. This is why this Administration has consistently advocated from the very earliest days for expanded production on the North Slope of Alaska, where we have safely and in an environmentally sensitive way, been producing oil since the early 1970s. We need to expand our utilization of that great resource. We also need to get more production out of the Rocky Mountain States and the Outer Continental Shelf.
We know how to do this; we have the technology; we have developed the business practices; and we have the companies that can safely and sensitively produce these assets. And we've got to do it. As we look at what the demand requirements are going forward, we must produce these resources and we can do it in a way that makes our citizens very proud. But it's not good enough to produce more at home; we need to produce more from a diversity of sources around the world.
And that is why the U.S. consistently advocates for open, certain, and transparent investment climates in countries across the world. Not because it's better for the United States, but because it's better for all energy consumers and energy producers as countries with their own natural resource endowments learn that a fair and open and transparent market system is the most efficient way to utilize and get the benefit of their natural resources.
This is a challenge. And it has been a challenge made more difficult over the last few years. This afternoon, I'll be leaving for an energy conference in Vilnius, Lithuania to again take up these issues as European consumers and Caspian-based producers seek to deal with the challenges presented by Russia in bringing their energy resources to the marketplace. We must have more traditional energy supplies from a great diversity of sources.
But that's not enough; we must, secondly, have more energy options through technology. Now, this is an area, which has been one of the most interesting and satisfying areas to work on with President Bush because the President has a real populist streak about the power of innovation, the power of American ingenuity, and the power of our creative talents to solve all problems. And you've seen it repeated in a series of his State of the Union addresses…from the Hydrogen Fuel Initiative to the Advanced Energy Initiative, which promoted significant increases in backing for biofuels, solar, wind, or his belief in the power of advanced nuclear technology and in the power of a future with near emissions-free production of electricity from coal.
One of the most exciting things we've done, as far as new energy options through technology at the D.O.E., is vigorously pursue advanced biofuels development. And in our judgment, biofuels development holds one of the great promises to bring dramatically increased energy diversity to our transportation fuel sector.
But also on nuclear power - the President acknowledges that in order to meet the world's electricity demands at the same time we deal sensitively with the challenge of greenhouse gas emissions, that the world is going to have to have a dramatic increase in nuclear power…maybe 3 times or 4 times what the world is producing today in nuclear power.
And so he charged us at the D.O.E. to think about that future, think about that world 30 years from now, and anticipate the policies, the technologies, the international regimes that we will want to have in place to deal with that and to manage our non-proliferation objectives. And that's why, in this effort to develop more energy options through technology, the President launched the Global Nuclear Energy Partnership, a partnership that now enjoys the membership of 16 countries around the world.
But those 2 items are not enough. The 3rd policy that we've promoted is more efficiency. This government, our country, policymakers have to think about energy efficiency in a way that they have not been forced to think about it in 30 years. But we even have to think about it more effectively, more creatively, more aggressively than we did then. It's why the President suggested in this year's State of the Union address a significant reform and increase to fuel economy requirements for America's vehicle fleet. With a reform of the program, we believe we can safely increase fuel economy for vehicles about four percent a year.
It's why we are also pursuing technology and market-shaping mechanisms that will allow the power sector to get a significant return on investments in efficiency as they do today for investments in generation. We have to shape the marketplace to reward efficiency just as we reward increased production. We must pursue efficiency in a way that we have not done it to date.
Number 4 - in everything that we do, we have to exercise a strong bias for lower carbon or no carbon technologies. 10 days ago, the Administration hosted a Major Economies Meeting here in Washington to gather the world's 17 biggest emitters of greenhouse gas emissions, representing 80 percent of the world's emissions. We did this based on a recognition that the world can only deal effectively with carbon emissions by moving in concert and you have to have all of the major emitters together, not some subset of the major emitters.
Secondly, we realize that a strong economy is the great enabler to every environmental cause, including this one. And we cannot deal effectively with the challenge of greenhouse gases if we undermine our economy through bad policies. But the 3rd great enabler is technology: nuclear power, coal with carbon capturing sequestration, and renewable technologies. If you don't have nuclear power, and you don't have coal with carbon capturing sequestration, you're not going to achieve the goals, under any scenario, that have been laid out for dealing with the challenge of global climate change.
And that's why we are investing significantly in those technologies here at the D.O.E., here in the United States, investing at a level that is more significant than any other country in the world. And it's why today I'm pleased to declare that the D.O.E. has awarded the 1st large-scale demonstrations of carbon dioxide capture and storage in the United States. These 3 world-class demonstrations are worth a total of $318 million and will include the pioneering of safe storage in deep saline reservoirs and commercial-scale capture from coal-based power plants.
When fully operational, these plans will store at least 2 and a half million tons of carbon dioxide a year and will double the number of the world's present large-scale demonstrations. They will show that capture and storage can be conducted safely and effectively. The Department projects to spend in excess of $197 million on the 3 plans over the next ten years with the remaining $121 million being cost-shared by these 3 regional partnerships.
The partnerships that we are announcing today go to 3 areas: the Plains Carbon Dioxide Reduction Partnership centered up in North Dakota, the Southeast Regional Carbon Sequestration Partnership in the Southeast, and the Southwest Regional Partnership for Carbon Sequestrations, which is coordinated by New Mexico Institute of Technology. These are the 1st of 7 large volume sequestrations that the Department projects to award through its Regional Carbon Sequestration Partnerships program.
The newly awarded plans kick off the 3rd phase of the Regional Carbon Sequestration Partnership program. This plan is the centerpiece of our efforts to develop the infrastructure and knowledge base needed to place carbon sequestration technologies on the path to commercialization. We're making progress, but we also recognize at the Department that we have a lot further to go.
People talk about carbon capture and sequestration on Capitol Hill and other places as if it's simply a matter of building it. But that is not true. Significant technology development has to occur. Significant planning for infrastructure has to occur. Significant development of the regulatory and legal framework has to occur before we can effectively require or implement programs with coal-based carbon capture and sequestration.
We are moving aggressively down that path at the D.O.E., but no one should underestimate the scale of that challenge. In everything we do at the D.O.E. and the development of technology, we must have a strong bias towards low carbon and no carbon technologies.
The final point I want to make is about infrastructure. And infrastructure is often overlooked. Policymakers routinely neglect it until you don't have it, until you have a blackout, until a quarter of the nation's refinery capacity is knocked out by a hurricane. Infrastructure matters. This country must deal with infrastructure in a new way. We can no longer just oppose new infrastructure or say that it can be built somewhere else. New infrastructure is necessary around the country.
You're starting to see the elements of a change in the debate…an understanding of this new energy reality, a recognition that you can't just be for wind…you have to be also for the transmission lines that bring it to the marketplace. You can't just be for low gasoline prices…you also have to be for policies that allow refineries to be built again in this country.
One of the most exciting things we've done in the last couple of weeks is we announced the Countrywide transmission corridors in the northeastern U.S. and in the southwest United States. These corridors are pursuant to the back stop federal siting authority that was given to the government in the Energy Policy Act of 2005. It allows the Federal Energy Regulatory Commission to use its eminent domain authority to location transmission lines if the states refuse to act. That's progress.
Also last week, we announced the final rule on the Title XVII Loan Guarantee Plan that was created in the Energy Policy Act. This Plan that will allow us to use the balance sheet of the Federal government…use it effectively, use it prudently…to provide lower cost financing to this incredible infrastructure requirement that must be built out in the next 25 years. It will allow us to pull advanced technologies into the marketplace more quickly. We are making real progress and we are pleased about the progress that we're making, but more has to be done.
Now, on the Hill today, there is talk of new energy legislation. And the challenge is to make that meaningful, to make that effective to provide a clean, reliable, affordable energy future. And that's going to be a tough challenge. There are some good things out there that we should focus on getting done - the fuel economy suggestion that the President sent to the Hill in January this year.
The biofuels mandate that the President suggested in the State of the Union address - it is reflected in some respect in the Senate bill. It should be modified. We've sent our comments to the Hill, but we think that's the basis of a very good package that should be implemented. But the increased taxes and other provisions in the House bill that would actually reduce energy production…a bill that is ostensibly being promoted for, quote, "energy independence." It actually reduces energy production. Those provisions must come out. We're confident that a meaningful energy bill can be agreed to and sent to the President by the end of this session.
Let me conclude by commending the Chamber of Business again for taking this on. It's so important to our economic future. Our economic future is dependent on our energy future. Our Countrywide security, in many ways, is related to that energy future. And all of these matters impact our ability to carry out our environmental obligations. This is important. And I appeal to you, as opinion leaders, in this town, in our country, to appeal to the policymakers for good, sound policies that deal with the hard truths and the new realities in the way that they require.
I will leave here and head to the 30th anniversary celebration of the D.O.E., where we'll honor Jim Schlesinger and others for the creation of the Department. We're proud of our legacy. The D.O.E. is one of the greatest science and technology enterprises in the world. And we're up to the task of developing the technology to help us meet the new energy reality.
But developing the technology isn't enough. We also have to shape the marketplace so that that technology can be deployed widely and on a scale, on a timeline that is relevant to meet the challenges that we are facing. And that requires much in excess of the R&D dollars that we invest at the D.O.E.. It requires an understanding of the new energy reality and good policies that will allow us to move forward aggressively to meet our challenges. This is why this is important. This is why I thank you for letting me kick it off. And I wish you the best during the course of your discussions this morning and this afternoon. Thank you.
