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Energy Security and Global Markets

Shirley Ann Jackson, Ph.D.
President, Rensselaer Polytechnic Institute

Institute of Directors
London, England

Wednesday, March 21, 2007

On its surface, energy availability might seem like a normal case of supply and demand. As the global appetite for energy has risen, the competition has intensified, each country strategizing on how best to ensure a secure and sufficient supply of energy at reasonable prices.

But this is no simple supply-demand curve. It is more like a delicate tightrope balancing act. Failure to achieve enough supply will leave billions of people stranded in energy poverty, and unable to progress, with all the attendant implications of substandard living conditions: inadequate access to food and water, inability to combat infectious diseases, lack of education, and civil unrest. But failure in the other direction — over-consumption following current fossil fuel usage patterns — holds its own implications for major environmental impact.

There is an acute urgency to this challenge. This is illustrated by the steepness of various consumption curves over the past half century. From 1950 to 2000, the world population rose from 2.5 billion to 6 billion people. Water use tripled — as did grain production. The demand for seafood increased fivefold. The number of automobiles, globally, grew from 53 million in 1950 to 539 million in 2003. And with the introduction of commercial jet aircraft in the late 1950s, air travel volume mushroomed, from about 28 billion passenger-kilometers at mid-century to more than 2.9 trillion in 2002.

Each of these trends can be measured in terms of energy demand. Worldwide energy consumption per capita is now roughly 13 times higher than in pre-industrial times. And this is only the average rate; bear in mind that there are still 2.4 billion people — over 35 percent — who have no access to modern energy services. With globalization providing greater awareness of the contrast in living standards between rich and poor, the "have-nots" are ever more anxious to have better life prospects and the accoutrements that come with modern lifestyles.

In short, we are nowhere near the endpoint of the energy consumption chart. Over the next 50 years, if current trends continue, humans will use more energy than in all of previously recorded history. Where will it come from? From which fuels will this energy be derived? Can our planet — a planet of limited resources — sustain the impact? What is needed is energy security.

When it comes to plans for progress in the 21st century, energy security touches nearly every other aspect of societal activity. It influences or is influenced by, geopolitics, culture, technological innovation, global trade and financial markets, and workforce needs and trends. Many forecasters predict that, in decades to come, problems of water and food scarcity also are likely to loom large; but our likelihood of success in addressing those resource issues will be greatly determined by how we solve, or fail to solve, the issues of energy security.

What is energy security? I would define it as having an adequate and sustainable supply of energy to meet the needs and aspirations of citizens, commercial enterprises, and public sector functions. The practical definition — that is, the set of strategies for achieving energy security — varies according to nation and region, but would certainly include the following five elements:

  1. No over-dependence on external suppliers. This entails both maximizing domestic or local production and ensuring reliable sources for necessary fuel imports.
  2. Diversity of supply. This provides protection against supply disruption events, such as natural disasters or geopolitical instability. It also provides a hedge against fuel price volatility.
  3. Well-functioning energy markets. This includes ensuring the profitability of fuel production and energy generation for suppliers, as well as mechanisms to secure financing for long-term strategic energy investments. The latter is frequently a sticking point of energy insecurity for developing countries.
  4. Sound infrastructure for energy generation, transmission and distribution. This includes the necessary regulatory and operational protocols to ensure the safe, secure, and reliable performance of refineries, power plants, and other energy facilities.
  5. Environmental sustainability. The impact of human energy consumption on the planet is taking center stage as a global concern.

This is the nature of energy security. I would like to spend a bit of time considering four key threats or challenges to energy security; how those challenges — and of course, the corresponding solutions — differ from region to region; and why cooperation — between countries, sectors of society, and even disciplines — is vital. I then will discuss a few energy sectors where innovation is essential, including nuclear energy, which continues to be the focus of controversy in Europe, and particularly of late in the United Kingdom.

The challenges are:

  1. The global dependency on oil,
  2. The industrialization of developing countries,
  3. The effect of human energy consumption on the environment, and
  4. Energy as political currency.

The first key challenge we face is the extraordinary global reliance on oil. In an energy-hungry society, oil makes up around 36 percent of the global energy diet — with over 85 million barrels consumed per day. Oil dominates the transportation sector, and is the basis for other primary energy uses as well.

As of 2005, oil production had levelled off or declined in 33 of the 48 largest producers, including 6 of the 11 members of OPEC. Coupled with continuing growth in demand, this, of course, has resulted in a smaller capacity margin.

The result has been increased volatility in the price of oil per barrel, which, in turn, takes a toll on other economic factors. Americans spent 17 percent more for energy in 2005 than the year before, an increase that accounted for more than 40 percent of the rise in the U.S. consumer price index.

The European Union relies on imports for 82 percent of its oil — a figure that is expected to rise to over 90 percent by 2030. At that rate, if the oil price were to rise to, say, $100 per barrel by 2030, the total energy import bill for the 27 EU member countries would increase by around €170 billion annually — a net cost increase of around €350 per year for each EU citizen.

Whether it is or is not true, as some would argue, that global oil capacity has already passed "peak production," one thing is clear: we can no longer just drill our way to energy security.

The imbalance in energy consumption between rich and poor countries drives the second key challenge. Nearly every aspect of development requires accessible, low-cost energy. This separates the high living standards of industrialized populations from those that subsist on more traditional lifestyles. As more developing countries industrialize, driven by the desire to eradicate poverty and improve the lives of their citizens, we can only expect the competition for resources to intensify.

China is the case in point which stands out most strongly. Last year its economy grew 10.7 percent, with demand for oil up by a corresponding 9.3 percent. To give a more concrete image: statisticians reported new automobiles being added to the streets of Beijing at the rate of 30,000 per month — 1,000 cars per day, in the capitol city alone! The Chinese demand for oil in 2007 is forecast at 7.56 million barrels per day — more than Germany, France, and the United Kingdom combined. And yet China lags far behind European per capita consumption rates.

Consider a simple projection based on China and India alone, which have a combined 2.5 billion people. In 2005, U.S. oil consumption per person was about twice that of Germany or Japan, 15 times as much per person as in China, and 28 times as much per person as in India. If India and China, over the next decade or more, were to increase consumption to just half the U.S. rate — matching the consumption rate of Germany or Japan — the result would be a net increase of 100 million barrels per day, more than double current production levels. Even the most bullish experts would not consider such an output to be realistic.

Nevertheless, the appetite for oil and gas has driven resource-starved countries, through state-owned companies, to go further and spend more to lock in supplies. According to last Thursday's Financial Times, March 15, 2007, China's and India's drive for secure oil and gas resources accounted for nearly half of last year's $57 billion in transactions by state-owned companies to access oil and gas exploration and production around the world.

This effect is not limited to oil consumption. Consider the electricity sector. Last year, China added approximately 60,000 megawatts of new electrical generating capacity to its grid. And this year it expects to add even more: approximately 80,000 megawatts. If those units do not signify much to you, think of it this way: In a single year, China added to its grid roughly the equivalent of the entire electrical generating capacity of France: or, in a single year, more than the entire electrical generating capacity of the United Kingdom.

The International Energy Agency (IEA) of the OECD — the Organization for Economic Cooperation and Development — publishes an annual comprehensive projection of energy trends. In its World Energy Outlook for 2006, the IEA projects that, based on current trends, global primary energy demand will increase by slightly over 50 percent by 2030. Fully 70 percent of that increase in demand will come from developing countries, with China alone accounting for 30 percent.

What is significant about those statistics is not only the anticipated growth in demand, but that so much of that growth will take place in countries that are very dependent on fossil fuels.

In fact, most of the current rapid increase in Chinese and Indian electrical generating capacity is coming in the form of coal-fired power plants. The IEA projection indicates a greater increase in coal use in the coming decades — mainly for electricity generation — than that of any other energy source.

This leads us to the third key challenge: the expanding "human footprint" on the Earth. Whether the concern is climate change, air and water pollution, or the extinction of other species, it is clear that the rapid increase in human consumption is taking its toll.

For the past 35 years, greenhouse gas emissions have been increasing at a rate of about 1.6 percent per year. As of 2003, the United States accounted for about 23 percent of global emissions; Europe another 24 percent the United Kingdom accounted for about 4 percent on its own. From now until 2030, assuming business as usual, carbon dioxide emissions are expected to increase by roughly 55 percent. Most of that increase will come from developing countries, accelerated by the proportionately greater use of coal for power generation.

Because of greenhouse gas emissions, many experts are predicting a sustained increase in the Earth's temperature, which in turn would cause sea levels to rise, increase the frequency and severity of storms, destroy fragile ecosystems, and lead to heat waves and droughts.

Whatever one thinks of any specific linkage of fossil fuel use to climate change, one fact is indisputable: the natural capacities of the Earth remain the same. The capacity of the water tables or ocean fisheries or atmosphere of the planet to absorb the impact of human activity in a sustainable manner has not changed. For the first time, ecologists are beginning to ask a sobering question: if current trends continue, will we reach the point at which human demands — the "human footprint" — exceeds the natural capacity of the environment? Is there a limit to how many people the planet can sustain? At what level of consumption per capita? At what living standard?

With each of these challenges adding pressure to the state of global energy security, and with more intense competition for resources, also comes greater vulnerability to the use of oil, natural gas, or other scarce resources as political currency — the fourth key challenge.

In this way, energy security is relevant not only to economic security, but also to civil security. A country that relies heavily on imports may feel pressure in a number of arenas in its stance toward a supplier country. Supplier countries could use market volatility to political advantage. Rhetoric to this effect occasionally surfaces — for example, in statements by supplier country officials who perceive unfair actions by other countries. Responses to such statements can and does cause responses that affect oil markets.

An extreme example of energy insecurity results from politically motivated violence. As with geopolitical turmoil, acts of violence lead to volatility in oil or natural gas prices. Attacks by local militant groups on Nigerian pipelines have been able to cause short-term declines in production. In February 2006, a suicide bomber, reportedly from Al Qaeda, unsuccessfully attacked the Abqaiq oil processing facility in Saudi Arabia, through which fully two-thirds of that country's oil flows. Violent incidents illustrate the potential for exploitation of vulnerabilities in supply chains. As a consequence, many countries have taken steps to reduce the vulnerability of their energy supply infrastructures and shipment routes.

Perhaps the biggest shift, and greatest threat to the traditional model, has been the rise to prominence of a new group of oil and gas companies. These are state-owned oil and gas companies from resource-holding, or supplier, countries and resource-seeking countries, all from outside the Organization for Economic Cooperation and Development. These new giants, which are displacing the "listed" publicly-traded companies that controlled Mideast oil after World War II, are Saudi Aramco, the largest, Russia's Gazprom, CNPC of China, NIOC of Iran, PDVSA of Venezuela, Petrobas of Brazil, and Petronas of Malaysia.

These companies control one-third of global oil and gas production, and more than one-third of total oil and gas reserves. This compares with 10 percent of production and 3 percent of reserves held by the so-called "integrated" oil and gas companies. The integrated companies remain more profitable because of the range of petrochemical products they produce and sell — a profitability which may be short-lived as more state-owned oil and gas companies seek to have integrated operations as well. These state-owned enterprises are working to do this through acquisitions, and indigenous development of capability.

Global energy markets already are impacted, as supplier country-based companies partially regulate the price of oil and natural gas by controlling their production. If they control more of the integrated supply chain, the effect on global energy markets, and economies overall, would be more dramatic.

All of this gives more import to Sir Winston Churchill's prescient understanding that security of oil supply for the British Navy in the run-up to World War One was linked to diversity of supply.

All of the challenges are global in reach. But each region and country is affected differently — based on factors such as indigenous fuel resources, relationships to supplier countries, reliability of infrastructure, economic stability, the degree of attention given to environmental concerns, and how government leaders and the public at large view the risks and benefits of different energy sources. Variations in how these factors are weighted in the policy-making process of a given country can lead to contrasting strategies for achieving energy security — even though the effects of these decisions are likely to extend to other countries and regions.

For example, China and India have been successful at sustaining remarkable growth in energy generating capacity — a much needed asset in raising living standards and national productivity. Yet the trade-off has been that both countries are struggling to manage the environmental impacts of their growth — including air and water pollution. The heavy dependency on coal for power generation is taking its toll. China is home to 16 of the world's 20 most polluted cities, and is estimated to suffer roughly 400,000 premature deaths per year from air pollution. Nor are the impacts restricted by national or regional boundaries. The U.S. Environmental Protection Agency has reported that about 30 percent of the background sulphate particulate matter in the Western U.S. originates in Asia.

Europe faces its own unique mix of energy security challenges. In January, the European Commission forwarded to the European Council and the European Parliament a paper entitled "An Energy Policy for Europe." The Commission called for urgent action on three aspects of European energy security: sustainability, security of supply, and competitiveness.

The European Union depends heavily on imported hydrocarbons — oil and natural gas. Imports today account for 50 percent of total EU energy consumption, and if no changes are made, this dependency is expected to increase to 65 percent by 2030. This places great strategic importance on maintaining effective relationships with gas suppliers such as Norway — which is inside the European Economic Area — and Russia and Algeria, which are not. Still, the vulnerability is high for EU Member States that are fully, or almost fully, reliant on a single gas supplier. The maintenance of strategic oil stocks, and investments in infrastructure for receiving and storing liquefied natural gas, are two measures that could help to address these vulnerabilities.

On the positive side, the EU has committed itself to a leadership role in reducing greenhouse gas emissions to offset air pollution and climate change concerns. The Commission has proposed a legally binding target that would increase the level of renewable energy, from 7 percent in the current overall EU energy mix, to 20 percent by 2020. The European Union already is the world leader in renewable energy technology. For example, EU companies hold 60 percent of the market share in wind technology. Even so, meeting this target — as well as even more ambitious targets projected for 2030 and 2050 — will require extraordinary growth in renewable energy sourcing in all three sectors of primary energy use: namely, electricity, transportation, and heating and cooling.

Perhaps the greatest challenge Europe faces is inherent in the diverse energy supplies, infrastructures, and energy policies of its Member States. For example, in the nuclear sector, countries such as Ireland and Austria are strict opponents of nuclear power. Germany, Belgium and Sweden are all at some stage of phasing out their nuclear power programs, although there are signs, from time to time, that those phase-outs may be reconsidered. By contrast, France derives nearly 80 percent of its electricity supply from nuclear power, and is the largest electricity exporter in Europe. France and Finland are planning or getting under way with new nuclear construction. The Baltic States and Poland have indicated their intent to team up on building a new nuclear plant. And the United Kingdom and others are still embroiled in discussions on whether or not to go forward with more nuclear power.

What is encouraging about the European energy security climate is the progress being made toward a coherent energy policy. In some ways, the current EU discussions on energy security are the smaller version of a discussion that must take place on a global scale. The sharp divergence of views on how best to proceed is to be expected. If the European Union can balance successfully these competing concerns — achieving security of supply, reducing carbon emissions, convincing its consumers of the need to convert to more energy efficient practices, while remaining economically competitive — it gives hope that this type of cooperation can take place on a broader scale worldwide.

Let me digress briefly to consider the United Kingdom as an energy security case study. Traditionally, the U.K. has prided itself as being one of the few countries to be self-sufficient in energy. Coal, oil, natural gas, and nuclear power all have made substantial contributions to this self-sufficiency. In the early 1990s, however, market liberalization — combined with the privatization of government-controlled energy companies, the ready availability of cheap North Sea gas, and other factors — began to have an impact on U.K. energy consumption. Dependency on coal for electricity generation dropped sharply, replaced largely by natural gas.

Additional change is on the horizon. Domestic production from the North Sea gas fields continues to lessen; by the year 2021, North Sea oil and natural gas production is projected to slip by 75 percent from 2005 levels. Targets for reducing greenhouse gas emissions have put greater emphasis on renewable energy sources and policies to stimulate energy efficiency. Just last week, the British Government proposed new legislation that would set a carbon budget every five years and create a binding emissions reduction target of 60 percent by 2050. As a consequence, more coal-powered stations are expected to close, unable to meet new clean air requirements. A number of older nuclear power plants have been phased out. In fact, most of the U.K. coal-fired and nuclear plants are scheduled to be retired in the next 15 years. The bottom line is that the United Kingdom is well on its way, for the first time, to becoming a major net importer of energy.

In 2005, a U.K. industry report declared that, if business continued as usual, the country would experience a 20 percent shortfall in electrical generation capacity by 2015. A great deal of speculation, discussion, and action has followed, on how best to plug this expected energy gap.

Efforts are under way to counteract this trend. Even with tougher emissions standards, two energy companies — Eon, owner of Powergen, and RWE Npower — indicated plans to build new coal-fired power plants by 2012 and 2013, respectively.

The RWE Npower coal station would use newer technology — incorporating super-critical boilers that operate at higher temperatures and pressures for greater energy efficiency. A return to coal would be more feasible if carbon capture, re-use, and storage technologies were further developed.

Additional infrastructure investments are under way, to enhance pipelines and storage of imported natural gas (mostly from Norway), as well as to enable greater imports of electricity across the Channel from France.

The construction of new nuclear power plants continues to be a subject of speculation and controversy. This is occurring against the backdrop of a high court ruling in a suit brought by Greenpeace against the government's 2006 energy review — supporting new nuclear power plants. There also is reaction to Prime Minister Tony Blair's decision to replace the Trident nuclear weapons system. This would involve designing and building new nuclear submarines to carry the GTrident D5 warhead — to come on line in the 2020s.

Renewable energy projects have received a great deal of attention. The development of biogas from sewage and landfill has been exploited in some areas, becoming the largest U.K. renewable energy source. Great interest exists in installing more onshore and offshore windfarms — following the lead of countries like Germany and Denmark — or in making larger investments in solar generation capacity. The British Government has set targets for cogeneration — using waste hot water from power plants for district heating. It also has enacted laws encouraging microgeneration — the local production of electricity by homes and businesses, using small-scale wind turbines, waste water heat pumps, and other small energy sources, which can be used to offset peak electricity demands, and also can be fed back into the grid. As an island nation, the U.K. also is uniquely situated to explore marine energy, harnessing tidal streams and wave energy. The Scottish Executive, which has set an aggressive target of generating 17-18 percent of Scotland's electricity from renewables by 2010, announced just last month that it would provide funding for a 3 megawatt wave farm, the first in the U.K.

This case study of the U.K., like many others, reveals three things about the energy security picture: (1) it involves a complex set of priorities, some of which conflict with one another; (2) while each country has a unique mix of strengths and vulnerabilities, many of the problems — particularly the technological challenges — are common to all; and (3) there is much to be gained through collaboration to address these challenges.

An objective of the recent European Commission energy policy paper was to transform the region into a cost-effective, low-carbon-emission energy economy.

This call for a new "energy" industrial revolution echoes the call for technological innovation that many in the U.S. also are urging. It is a goal that I have heard emphasized repeatedly, in boardrooms and research centers — not only in the U.S., but also in my recent trips to Mumbai, Beijing, and Tokyo. A "new energy industrial revolution" will require the participation of all sectors of society, from the governments who sponsor legislation and consumer incentives, to the universities, research centers, and private companies that will drive the innovation.

Many of the priorities listed by the Commission will require innovative research and development, covering a wide range, including: Second-generation biofuels. More energy efficient buildings, appliances, industrial processes, and transport systems. Cost-competitive photovoltaics and offshore wind farms. Fourth-generation nuclear reactors with enhanced economics, safety, security, and waste disposal features. Carbon capture and storage technologies to make coal and gas energy sustainable.

Time does not permit me to address all of the areas ripe for innovation. But let me briefly discuss a few.

In my view, few areas of needed innovation deserve higher priority than "clean coal" research.

While some countries are endeavoring to minimize coal use, the global picture makes this unavoidable: coal supplies 25 percent of the world's primary energy needs, and generates 40 percent of its electricity. And because coal remains in abundant supply, the use of coal — including the less clean "brown coal," or lignite — is increasing. If innovation can reduce significantly the environmental impact of coal-based energy generation, it should be pursued.

The U.S. is working on a project called "FutureGen": a public-private collaborative venture to construct a 275 megawatt, zero-emissions plant that will produce both electricity and hydrogen from coal, while capturing and storing the carbon dioxide. India, South Korea, and China, have signed on as partners to this venture. If, in addition, the carbon dioxide could be converted, through technology, to elemental carbon for its re-use, there would be strong advantages to such a "nearly" closed-cycle approach.

A second area involves marine research for deep gas hydrate exploration. In hydrates, methane, the chief constituent of natural gas, is locked in ice, and generally is found in hostile, remote settings, such as the Arctic permafrost or deep ocean. Once considered a nuisance, because it clogs natural gas pipelines, methane hydrate's reputation has improved as scientists have discovered that it could be a remarkably abundant new energy source. Worldwide estimates of the natural gas potential of methane hydrates approach 400 million trillion cubic feet — an astonishing figure when you consider that the world's currently proven gas reserves stand at 5,500 trillion cubic feet. In fact, the worldwide amounts of hydrocarbons bound in gas hydrates are estimated conservatively to be twice the amount found in all known fossil fuels on Earth.

But the technology to mine these deposits has proved elusive. Gas hydrate drilling comes with its share of environmental concerns, including fears that drilling could release greenhouse gases, or trigger ocean landslides. Traditional proposals for recovering gas from hydrates usually involve dissociating or "melting" the substances on site. Companies are exploring ways to produce and to ship stable slurries of natural gas hydrate crystals. Also, advanced drilling techniques and complex down-hole completions, including horizontal wells and multiple laterals, are being considered.

If even a small percentage of the methane hydrate resource could be made technologically and economically recoverable, in an environmentally sound manner, the rewards would be great indeed.

Multination cooperation is occurring in this arena. In fact, a part of the recently signed energy cooperation agreement between the U.S. and India involves deep-sea exploration and research with respect to methane hydrate extraction and use.

Currently, for every gallon of petroleum-based fuel discovered, two gallons are consumed, and estimates differ about the extent of remaining petroleum reserves. But what is certain is that, as time progresses, remaining reserves will be in increasingly less accessible locations. What is less certain is how much it will cost to extract and deliver these fuels to users. Successful innovation will be an important factor.

A good example of how multidisciplinary collaborative innovation can support the drive to greater energy security is in nanotechnology — a cutting-edge science that could have beneficial applications in many sectors. At Rensselaer, for example, we are working on nanoparticle gels, polymer nanocomposites, and nanostructured biomolecule composite architectures.

In the present context, I would simply point out that nanotechnology research offers an array of possibilities relevant to the petroleum industry. For example:

  • Improved elastomers, critical to deep drilling, to improve high-temperature and high-pressure performance.
  • Nano-sensors for improved temperature and pressure ratings in deep wells, and unfamiliar or hostile environments.
  • Nanoparticulate wetting carried out using molecular dynamics simulations that show promise in the creation of solvents for heterogeneous surfaces and porous solids.
  • Small drill-hole evaluation instruments to reduce drilling costs, and to provide more environmentally benign evaluation due to less drill waste.

There are many more such examples with direct relevance to exploration, extraction, and transportation of petroleum fuels — including the use of smart materials and smart metals, and advanced imaging techniques. But the point here is that there will be great benefit in multisector, multinational cooperation in bringing these innovations to fruition.

Concerns related to energy security, rising fossil fuel prices, and possible global warming all have contributed to a resurgence of interest in nuclear power. This renewed interest takes different forms in different regions. The heaviest concentration of new nuclear power plant construction currently is in Asia. Both Westinghouse and Areva have signed recent agreements to build additional nuclear power plants in China. Here in Europe, Finland is constructing a new European Pressurized Reactor at Olkiluoto, and in France, preparations are under way at Flamanville. Earlier this month, the U.S. Nuclear Regulatory Commission approved the first nuclear power plant site in over 30 years, in central Illinois. The nuclear power plant would be built by the energy company Exelon. The prediction is that more approvals of early site permits will soon follow.

In the broader European context, in setting renewable energy targets, EU leaders have agreed that a country's nuclear power capability will be taken into account when calculating its national commitments to renewable energy.

You also will be aware, in the U.K., that, in response to the high court ruling that threw out the Government's 2006 Energy Review, the Government has said that fresh consultations on this issue will be held later this year, and that new nuclear plants are essential to help combat climate change and over-reliance on imported oil and gas.

I am not here to engage in political discussions. On the other hand, given my background as a theoretical physicist, as a former Chairman of the U.S. Nuclear Regulatory Commission — the governmental body that regulates safety and safeguards at U.S. civilian nuclear facilities — and currently as the president of Rensselaer Polytechnic Institute, perhaps I can add a few points of clarity to the nuclear debate.

On its surface, nuclear energy satisfies many of the optimum requirements for enhancing energy security. Nuclear power produces virtually no sulfur dioxide, particulates, nitrogen oxides, volatile organic compounds, or greenhouse gases. The complete cycle, from resource extraction to waste disposal, emits only about 2-6 grams of carbon equivalent per kilowatt-hour. This is about the same as wind and solar — if one includes construction and component manufacturing — and is roughly two orders of magnitude below coal, oil, and natural gas. Moreover, unlike small wind and solar facilities, nuclear power can supply the large baseload capacity needed to support large urban centers and to stabilize large electrical grids.

But, one of the most controversial aspects of nuclear power — which I have sometimes referred to as the "Achilles' Heel" of the nuclear industry — relates to the management and disposal of spent fuel. The amount of spent nuclear fuel produced annually — about 10,000 tons, 2,000 tons per year in the U.S. — is actually small when contrasted with the 25 billion tons of carbon waste from fossil fuels, that is released directly into the atmosphere. Most of the technological issues associated with geologic disposal of high-level radioactive waste already have been solved. But given the intense polarization around the nuclear waste issue, public opinion will likely remain skeptical until waste repository or other fuel cycle closure solutions have been demonstrated.

In the U.S., the federal government has been making progress toward licensing and building a nuclear waste repository at Yucca Mountain in Nevada. This month, U.S. Secretary of Energy Samuel Bodman sent to the U.S. Congress proposed legislation on the disposal of spent fuel and high-level nuclear waste to facilitate licensing and construction at Yucca Mountain. It would increase the capacity of Yucca Mountain, by eliminating the current 70,000 metric ton cap on the amount of spent fuel that can be disposed of there. This will help with the safe isolation of spent fuel from license extensions of existing reactors. It would remove permanently from public use the land area associated with Yucca Mountain. The proposed legislation has provisions for the initiation of infrastructure activities and for more streamlined Nuclear Regulatory Commission licensing. But it will still be more than a decade before the first such facility is operational.

Elsewhere, the greatest progress on deep geological disposal has been made in Finland and Sweden. Finland's government and parliament have approved a decision, in principle, to build a spent fuel repository near Olkiluoto. Construction is slated to start in 2011, and operation in 2020. Sweden has started geological investigations at two proposed sites, and expects to have a site recommendation sometime this year.

In the meantime, the trend has been to construct and use above-ground interim storage facilities. Many countries are exploring the feasibility of interim storage for 100 years or more.

R&D is progressing, as well, on the use of fast reactors and accelerator-driven systems to incinerate and transmute long-lived waste, in order to reduce the volume and radiotoxicity of waste to be sent to geologic repositories.

Innovation in both technology and policy has a proven track record in the nuclear field. In the mid-1990s, not long after President Clinton appointed me NRC Chairman, I shifted the agency and the U.S. nuclear industry to "risk-informed, performance-based" regulation, which uses probabilistic risk assessment, and performance, as the basis for regulatory attention to issues and plants presenting the greatest risk. This has paid dividends. In 1990, the average U.S. nuclear plant produced electricity at 71.7 percent of capacity. Since 2000, unit capability has run consistently in the 90 percent range — significantly augmenting electricity production, and resulting in enormous savings in the form of reduced shutdown times and operating costs — at the same time that safety has been greatly enhanced.

Innovation in regulatory policy also has played a major role in renewing the licenses of U.S. nuclear reactors — thereby extending the lifetimes of the plants from 40 to 60 years. In the mid-1990s, expectations for license renewal were relatively dismal, due to the cumbersome nature of the application process and the anticipation of regulatory inefficiency. The NRC amended the relevant regulatory approval process to be more efficient, more predictable in cost and schedule, and more clearly focused on its primary safety objective.

The result has been hugely successful. The first license renewal application, filed in April 1998, was processed on schedule and on budget, with thorough examinations of component aging considerations and other issues. Lessons learned were fed back into the system, and the process was standardized for greater efficiency. As of last week, the NRC had renewed the operating licenses of 48 out of the country's 104 nuclear power reactors, and virtually all U.S. nuclear plants either have filed for renewal already, or are expected to file eventually.

Extending the life of an existing plant is economically attractive because it requires relatively little capital expenditure, provides a longer amortization period for expenditures that are made, and offsets the short-term need for new generating capacity.

The U.S. Department of Energy has a program called Nuclear Power 2010 aimed at facilitating additional orders and construction of nuclear plants by the end of the decade. The Nuclear Energy Institute, the industry policy and lobbying organization, has set a goal of adding 50,000 megawatts of nuclear generating capacity — nearly a 50 percent increase — to the national grid by 2020, plus 10,000 megawatts of additional capacity from existing units.

In December 2006, Energy Secretary Bodman and his Russian counterpart, the Federal Atomic Energy Agency (Rosatom) Director Sergey Kiriyenko, submitted to Presidents Bush and Putin a joint work plan for bilateral cooperation in nuclear energy R&D. Principal areas of cooperation will include R&D on: advanced reactors, including fast reactors; new reactor fuels and fabrication processes; advanced methods for recycling and transmuting spent nuclear fuel; and exportable small and medium-sized reactors — that is, power reactors in sizes that are more suited to the needs of developing countries.

On the technical front, innovation in nuclear energy is a mature process that has benefited from half a century of design and operating experience. Several advanced and innovative concepts are moving toward implementation. The Generation IV International Nuclear Forum — a U.S.-led project in which France, the United Kingdom, and the European Union are also members — is moving forward toward R&D on six innovative reactor concepts, such as the "Molten Salt Reactor" and the "Supercritical Water Cooled Reactor." Russia has licensed the KLT-40, a 60 megawatt reactor design that can be floated and transported by barge, which takes advantage of Russian experience with nuclear-powered ice-breakers and submarines, and can also be used for district heating. The Republic of Korea intends to construct by 2008 a one-fifth-scale demonstration plant of its 330 megawatt SMART pressurized water reactor, which will also include a demonstration desalination facility. And South Africa recently approved initial funding for developing a demonstration unit of the 168 megawatt gas cooled Pebble Bed Modular Reactor (PBMR), to be commissioned around 2010.

Let me say a last word about the economics of nuclear power. In fact, nuclear plant operating costs are low when compared to most other energy sources. And unlike coal, oil, or natural gas, the purchase of fuel comprises such a relatively small part of nuclear costs, such that volatility in fuel markets has relatively little effect on overall costs of nuclear electricity generation. Moreover, uranium resources are abundant and widely distributed, with multiple stable supplier countries.

On the other hand, nuclear power plants are capital-intensive, requiring initial investments in the range of $2 billion to $3.5 billion — as well as a sophisticated regulatory infrastructure to ensure independent safety oversight. For some countries, governments may need to reduce the initial risk to stimulate private investment. I should point out, however, that the U.K. Energy Minister, Lord Truscott, has made clear that there will be no taxpayer-funded subsidy or market intervention to help launch a new nuclear power program in the U.K.

With all these costs taken into account, new nuclear power plants can produce electricity at a cost of between 4.9 and 5.7 cents per kilowatt-hour. This makes nuclear power cheaper than electricity from natural gas if gas prices are above $4.70 to $5.70 per MBtu. On the other hand, nuclear is more expensive than conventional coal, unless coal rises above $70 per ton. Nuclear power would be more competitive, however, if a financial penalty on carbon dioxide emissions were to be introduced.

Because regulatory strength and multinational collaboration are important, as nations and regions develop and/or evolve their energy infrastructures — especially in the nuclear arena, when I was U.S. NRC Chairman, I pushed to form the International Nuclear Regulators Association (INRA) in 1997. I am happy to say, that it still exists today, and has been expanded to include South Korea. It was formed to discuss areas of common concern, including strengthening nuclear regulatory regimes, and providing nuclear safety support to countries with nascent nuclear power programs.

It is gratifying to see, in the energy policy paper of the European Commission, a strong reference to effective regulation across all energy sectors. This is important for consistent technical standards, safety, and effective markets.

I leave you with these thoughts. All of the great challenges that face the world will require collaborative research and innovation. Energy security is perhaps the greatest of these challenges, and it confronts every nation. True energy security rests upon redundancy of supply and diversity of source. It requires global solutions, which, in turn, require global innovation. Such innovation also is imperative to address other major global challenges, which include human health, the environment, clean water, and food production. Global research partnerships, in a multisector, multinational framework, will provide multidisciplinary approaches to the resolution of these challenges.

The capacity to innovate and collaborate rests solely upon a skilled human workforce. Our universities are especially suited to be the base of partnerships, because we develop human capital, and because the work we do in the university makes an important contribution to global innovation, to security, and to economic growth.

In addition, scientists and educators must be engaged actively in the public policy arena, and policymakers must rely upon sound science as they consider issues with the potential for global impact.

Government, industry, and academia must work together to prepare the next generation of scientists, engineers, and other professionals to become global citizens who will be the leaders and the innovators of the future. They must come from all groups and cultures, including those traditionally under-represented in science and engineering. Our young people, all around the world, must share their cultures and their experiences with each other, because we have much to learn from each other, and a great deal to offer each other.

When it comes to energy security, we may have different local priorities, but our choices ultimately will have global implications. In other words, we are all in this together. Collaboration will enable us to innovate at an unprecedented pace. And living on a shared planet of limited resources, it is that pace that is needed.

Source citations are available from the division of Strategic Communications and External Relations, Rensselaer Polytechnic Institute. Statistical data contained herein were factually accurate at the time it was delivered. Rensselaer Polytechnic Institute assumes no duty to change it to reflect new developments.

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