You Cannot Get There From Here: Why the U.S. Needs a Comprehensive Energy Security Roadmap
Shirley Ann Jackson, Ph.D.
President, Rensselaer Polytechnic Institute
San Francisco, California
Tuesday, July 22, 2008
Thank you for inviting me to speak about one of the most vexing and urgent challenges we face, which is inextricably interlinked with our economic security and our national security energy security. The exponential growth in demand for energy presents both extraordinary challenges, and offers equally extraordinary economic opportunities.
A multiplicity of converging factors makes it bluntly obvious that a comprehensive global energy system restructuring has begun.
The question is will the United States lead the inevitable restructuring, or will it occur without us? Whichever it is, we are challenged to think about energy in new ways.
Proper framing is necessary for informed choice and effective action. If we fail to think about the issue appropriately if we trivialize the complexities, or yield to the temptation to wish for a magical “quick fix” we will not get there from here.
In other words, we need a comprehensive energy security roadmap. That means that we must know where we are, and where we must go. We must get the goal right get the plan right and, get it done.
The combined forces of energy supply uncertainty, rising energy costs, and the impact of climate change are major drivers of global energy restructuring. Let us examine some of the elements of this restructuring:
- New energy markets are developing worldwide, providing opportunity and options for new players.
- New major players have emerged who are changing the terms of reference for traditional energy behemoths, especially with regard to oil and gas supply.
- Nations are realigning in new ways, shifting old alliances.
- With rising energy costs, corporations are swiftly realigning their priorities, changing how they do business, and making investments to secure market opportunity.
- Climate change mitigation and new markets, also, are driving new trading schemes, and investments in new sources and new technologies.
- Oil-generated wealth and other actors are changing who plays in global financial markets.
I will explore each of these elements, but to begin, I suggest that we change our language that we move beyond the term “energy independence.” There is no energy independence. Of the approximately 190 countries in the world, not one is energy independent nor is likely to be any time soon.
New energy markets are emerging because worldwide energy consumption is rising exponentially, driven by population growth, swiftly developing economies, improving living standards, and burgeoning energy-dependent technologies. For example, the growth in energy consumption in China is illustrated: (1) by new cars being added to the streets of Beijing last year at the rate of about 1,000 cars per day; or (2) by China adding 50,000 to 80,000 megawatts of electricity generating capacity roughly the equivalent of the entire electrical grid of England each year for the past few years.
Consumption of nearly every major energy source has increased markedly. If current trends continue, humans will use more energy over the next 50 years than in all of previously recorded history and fossil-based energy sources, including coal, will remain a dominant part of the primary energy mix for some time.
The original “seven sisters” western companies that controlled Middle East oil after World War II are losing prominence to a new set of seven. Saudi Aramco, Russia’s Gazprom, China’s CNPC, NIOC of Iran, Venezuela’s PDVSA, Brazil’s Petrobras, and Petronas of Malaysia control almost a third of the world’s oil and gas production, and more than a third of its total reserves.
The old “seven sisters,” which became four companies after mergers in the 1990s Chevron, Exxon-Mobil, BP, and Royal Dutch Shell produce about 10 percent of the world’s oil and gas, and hold just 3 percent of reserves. The International Energy Agency estimates that 90 percent of new production supplies, over the next four decades, will come from developing countries a big shift from the past 30 years when 40 percent came from industrialized nations. This asymmetry is leading supply countries, and their national oil companies, to continually change contract terms with “traditional” international oil and gas companies, and to shift alliances, in order to have greater ownership of assets, and a concomitant greater share of revenues.
The fact that many of the new “sisters” are state-owned, and that growth in the oil and gas industry rests in their hands, is restructuring national and international alliances, and will impact them for decades to come.
Let me illustrate this complexity with a recent example. Gasunie, the Dutch National gas company, has taken a stake (9%) in the controversial Nord Stream Pipeline Project. The pipeline, controlled by Gazprom (the Russian gas monopoly), would carry gas directly from Russia, under the Baltic Sea, to Germany bypassing Poland, Belarus, Ukraine, and the Baltic States. Some countries (the Baltic States in particular) are objecting to the pipeline on the basis of environmental concerns. For others, such as Poland, it means a revenue loss (from transit fees). For still others, it can affect supply (Ukraine). The deal, also, gives Gazprom the option to acquire from Gasunie a 9 percent stake in the Balgzand-Bacton pipeline, connecting the Netherlands and the U.K. This would give Gazprom a stake in a British supply pipeline for the first time.
Such moves reflect energy supply concerns in EU countries, which as a group import 80 percent of their oil and gas. These moves are worrisome, as well, because Russia, very assiduously, uses its oil and gas abundance to lock up deals with more and more European countries, even as many fret about Russia using its dominant energy position as a political tool. This has prompted the EU to develop strategies for new and renewable sources of energy and energy efficiency, both to assure supply through diversification, and to mitigate climate change.
China also is on a worldwide march to lock up energy supplies, as well as access to other resources such as minerals and heavy metals. This, especially, is seen in its presence in Africa where it trades infrastructure development, sometimes education, and always embassy presence and diplomatic recognition for such access.
China, also, is projected to outpace the U.S. as the largest emitter of greenhouse gases and other pollutants within a couple of years. Therefore, it is important to help rapidly developing countries like China to gain energy efficiencies in manufacturing, and in products, while reducing their carbon footprint through the use of renewable and alternative energy sources. Multinational corporations are working with their Chinese suppliers to help them reduce costs by reducing energy use and carbon load, often employing new management techniques and new technologies.
Worldwide, corporations are making large capital investments in renewable energy technologies. A 2007 report by the United Nations Environment Programme’s Global Trends in Sustainable Energy Investment found that investment capital flowing into sustainable energy (especially wind, solar, and biofuels) more than doubled in just two years from $28 billion in 2004 to $71 billion in 2006. The International Energy Agency (IEA) estimates that as much as $16 trillion will be invested in the energy sector through 2030.
The emergence of the “sisters” from oil-rich countries have been the basis for the creation of Sovereign Wealth Funds (SWF). These are nation-owned entities that have used, primarily, oil revenues to accumulate and manage national funds for investment objectives. Sovereign wealth funds have emerged as important new players in global financial markets, and may affect energy markets. Worldwide, it is estimated that some $3 trillion have been assembled in SWFs, especially out of the Middle East, and this figure is likely to reach $7.5 trillion by 2012. The availability of these substantial funds, their sovereign support, and appetite for risk offer both challenges and opportunities for governments and corporations, and is changing behaviors between and among these entities.
These funds, together with central banks in emerging markets, hedge funds, and private equity, have moved to participate in IPOs, provide additional financial backing in business deals, and take major financial stakes in investment banks, and in various stocks and other financial instruments.
As we shape our national energy goals and strategies, we must understand and account for the comprehensive global energy system restructuring, its impact on markets, and national alignments.
So let us move to the national context.
Consider just one element of the current U.S. dilemma: our dependence on imported oil. As a nation, we use roughly 20 million barrels of oil per day (nearly one quarter of global consumption). Yet, we produce just over 5 million. Would it be theoretically feasible using new fuel technologies, greater efficiency in energy deployment and use, and collective conservation to reduce our petroleum consumption to match our domestic supply capacity? Is it feasible to quadruple our fossil fuel capacity through exploration, and offshore drilling, and in the Alaska National Wildlife Refuge (ANWR), or through oil sands production, and the like? If it is feasible, should we immediately execute a strategy to make this happen? How would we, then, manage environmental impact and climate change? If it is not feasible, or we are concerned about climate change, then we must think differently and strategically about energy.
In many aspects, this challenge is not new. In 1973, President Nixon called for energy independence responding to the OPEC oil embargo. Project Independence lowered highway speeds, converted power plants to coal, prompted completion of the Trans-Alaskan pipeline, and diverted federal highway construction funds to mass transit.
The Ford Administration made attempts toward securing our national oil supply the Strategic Petroleum Reserve was a notable accomplishment.
While President Carter’s characterization of the energy problem as “the moral equivalent of war” was widely mocked, it produced a comprehensive National Energy Plan stressing conservation, renewable energy, and research. Though his program soon lost momentum, some proposals such as building, appliance, and automobile fleet efficiency standards were enacted and have endured to our benefit.
The pattern of advance and retreat on energy policy has been repeated over the past several decades. Every few years, an event the Iraqi invasion of Kuwait, rolling brown outs in California, drill rig and refinery damage of Hurricane Katrina, sky-rocketing prices at the gasoline pumps, and so on stirs attention, trepidation, and short-lived action.
Meanwhile, over the last 30 years, the U.S. has gone from importing a third of our oil in 1973 to nearly three-quarters today. The U.S. paid out $327 billion for oil imports last year and the price of oil has now doubled over 2007 levels with significant economic consequences.
This time, we must get the goal right. This time, we must find real, lasting solutions. Not only must we reformulate our relationships to energy as a nation, and as consumers but we, also, must seize economic opportunities, and embrace new industries that will emerge to sustain and to grow our economy, as a result of what may seem a painful exercise today.
I would define energy security as having an adequate and sustainable supply of energy to meet the needs and aspirations of citizens, commercial enterprises, and public sector functions, and to provide that supply in as environmentally benign a way as possible. The practical definition that is, the set of strategies for achieving energy security varies according to nation and region. To reach it for the United States, we must build a comprehensive security energy roadmap. At its core, it should adhere to six basic principles:
First redundancy of supply and diversity of source where optimum source is linked to specific sector of use. This entails maximizing domestic production and ensuring reliable sources for necessary fuel imports. This provides protection against supply disruption events, such as natural disasters or geopolitical instability, and a hedge against price volatility.
Second support for well-functioning energy markets. This includes transparency of fuel pricing and other energy generation costs, as well as mechanisms to secure financing for long-term strategic investments. The latter is frequently a sticking point for developing countries, and sometimes developed ones. This may require new schemes and instruments for trading in energy markets, while monitoring to avoid intense speculation or market manipulation that can drive volatility.
Third investment in sound infrastructure for energy generation, transmission, and distribution, including the necessary regulatory and operational protocols to ensure the safe, secure, and reliable performance of refineries, power plants, the electrical grid, and other facilities.
Fourth providing for environmental sustainability and energy conservation, with calculation of full lifecycle costs, including the environmental impact of every proposal, program, and product, and the cost of energy source development from production through use and eventual disposal. Related to lifecycle is the potential for unintended consequences. The compact fluorescent light bulb (CFL), for example, uses less electricity than incandescents, and saves 2,000 times its weight in greenhouse gases. But, it contains mercury, and requires safe, convenient, and inexpensive disposal. Moreover, the carbon cost of production must be included in the equation.
Fifth the development of policy alternatives that include consistency of regulation, and transparent price signals. An example relates to the carbon content of fuels, processes, and commercial and consumer goods. Congress has focused on reducing carbon content or carbon dioxide production from point sources through financial incentives primarily through a cap-and-trade system for carbon dioxide in which allowances would be sold, and the amounts of allowance would ratchet down every year. Many in the business community have proposed a carbon tax to induce reduction of carbon dioxide emissions.
Companies are beginning to consider the carbon and energy content of their products sometimes in anticipation of regulation, sometimes for good business reasons. However, many do not or cannot measure carbon dioxide emission in their supply chains. The feasibility of either a carbon tax or a cap-and-trade system will depend upon consistent definition and measurement of the true carbon content of products and processes.
Sixth-- linking optimum source to specific sector of use. This entails thinking strategically about how each usage sector electricity generation, residential and commercial heating/cooling, construction, transportation, etc. is matched to the supply source that will be most efficient, cost effective, sustainable, and reliable.
This principle suggests that we ask not only where conversion from fossil fuels is possible, but where it is possible first. While ground transportation may run acceptably on electricity, airlines, clearly, cannot. Source for sector of use suggests that we may want to reserve a portion of our fossil fuel to the airline industry, which supports about 33 million jobs internationally, accounts for 7.5 percent of the global domestic product, and is essential to the global economy. If a decision is taken to promote plug-in hybrid vehicles, the resulting greater dependency on electricity and the power plant fuel and capacity to generate that electricity must be taken into account.
In addition to these principles, a comprehensive energy security formula must support continuing, robust innovation both in terms of technological advances, as well as business process innovations, and policy alternatives.
We must innovate the technologies that uncover and exploit new fossil energy sources [such as oil shale or methane hydrates] and improve their extraction. We must innovate the technologies that conserve energy and protect the environment. And, we must innovate the technologies that lead to alternative energy sources, that are reliable, cost-effective, safe, as environmentally benign as possible, and sustainable.
Innovation and investment in both existing and new technologies are important. The challenges are great, but provide tremendous economic opportunity.
For existing technologies, developments in wind, solar and nuclear are showing great potential.
WIND: The New York Times earlier this month called wind the “new oil.” New blade designs and innovation and flexible composite materials have cut downtimes resulting in electricity costs of about 8 cents per kilowatt-hour (kwh) competitive with natural gas and even coal-fired power stations, were they retrofitted for carbon capture and sequestration. Smarter grids using direct, rather than alternating current, extend transport over longer distances and underwater, and help to mitigate irregular wind patterns.
SOLAR: Solar is another alternative where cost per kilowatt-hour has fallen from 50 cents in 1995 to 20 cents in 2005 and is expected to decline further. Current systems utilize photovoltaic cells, helostatic mirror or lens systems for steam-based electricity generation, or an intriguing experimental combination of the two.
NUCLEAR: Nuclear power, in principle, satisfies many optimum requirements for enhancing energy security with minimal environmental impact. The complete cycle, from resource extraction to waste disposal, emits only about 2-6 grams of carbon equivalent per kilowatt-hour about the same as wind and solar, if one includes construction and component manufacturing and is about two orders of magnitude below coal, oil, and natural gas. Unlike small wind and solar facilities, it can supply the stable baseload capacity needed to support urban centers, and to stabilize large electrical grids.
Operating costs are low although nuclear power plants are capital-intensive, and require a sophisticated regulatory infrastructure to ensure independent safety oversight.
Accounting for all costs, new nuclear power plants can produce electricity at a cost of between 4.9 and 5.7 cents per kilowatt-hour.
The “Achilles’ Heel” is management and disposal of spent fuel. Global annual nuclear waste about 10,000 tons, with 2,000 tons from the U.S. is small, when contrasted with the 29 billion tons of fossil fuel carbon waste released annually into the atmosphere. But, it is waste that must be handled very carefully. Public opinion likely will remain skeptical until a waste repository or other fuel cycle closure solutions are demonstrated.
Part of the investment in existing technologies must be renewal of key aspects of our national infrastructure long a concern. California brown-outs and rolling blackouts, hurricane damage to Gulf-based drill rigs and refineries are graphic illustrations of the need both to sustain our existing infrastructure and to accommodate additional baseload.
The real excitement lies in the innovation of new technologies and the abundant economic opportunities they present. Again, we can examine only a few.
New NANO-ENGINEERED MATERIALS hold great potential to improve existing solar technologies, and to provide climate-responsive cladding for buildings. For example, at Rensselaer Polytechnic Institute where nanotechnology is a major research focus scientists have created the darkest man-made material, which could be used to boost the efficiency of solar energy conversion. Other Rensselaer researchers have added copper nanorods to the bottom of a metal vessel, increasing boiling efficiency by an order of magnitude, which could improve the heat transfer of solar power generation. Applied in tandem, these innovations could boost the efficacy of large-scale solar power generation.
BIOFUELS are yielding fascinating possibilities. Algae is being developed as a source of biofuel that both sequesters carbon dioxide as it grows, and does not impinge upon food production. It grows rapidly into a high-yield biomass, producing high grade lipids for refining into biofuel, yielding about 30 times more energy per acre than land-based crops.
Moreover, it is possible to select an algae strain to generate particular carbon chains needed for jet fuel, for example.
Jatropha is a deciduous, drought-resistant perennial that grows quickly in marginal soil, producing seeds with a 37 percent oil content. The unrefined oil can be used directly as fuel, and has tested, successfully, in unmodified diesel engines. Unlike other vegetable oils from rapeseed or soya, jatropha oil is not edible.
Already Indian railways are using a jatropha oil/diesel mix in its diesel engines, and Air New Zealand will test jatropha diesel in one of its Boeing 747-400 aircraft this year.
COAL: Coal is, and likely will remain, the most widely used energy source which is why cleaner coal technology is so important through clean chemical and biological processes. The National Energy Technology Laboratory (NETL), a U.S. Department of Energy (DOE) agency, suggests that post-combustion, pre-combustion, and oxy-combustion capture systems under development are expected to capture more than 90 percent of flue gas CO2, and reduce costs by 45 percent. Currently, the costs of capture infrastructure are high, and there is concern for the efficacy and safety of long-term underground storage. This has led some to focus on closing the carbon cycle either through chemical or biologically-inspired processes.
There are other examples, including in the nuclear arena.
Like corporations and markets, states notably California and even cities, already, are enacting legislation and regulations addressing both energy security and climate change mitigation, and, like corporations, are exploiting economic opportunity.
If the roadmap is to achieve these step-change technologies, it will require consistent, sustained, long-term investment in basic research.
Federally funded research has declined dramatically since the 1970s. As a result, the United States is experiencing a significant advanced technology trade deficit. The U.S. share of global technology exports was 29 percent in 1980. As of 2005, it had fallen to 12 percent less than half.
Innovation requires investment in research and development, but innovation fundamentally requires people. The question is, are we, as a nation, equipped with the human capital for the robust innovation the energy challenge demands of us? As a university president, and as a theoretical physicist, I have deep concerns that our national innovation capacity is in jeopardy. Converging forces have created what I call the “Quiet Crisis,” which is eroding the production of scientists, mathematicians, engineers, and technologists we need. The scientists and engineers, who came of age in the post-Sputnik era, are beginning to retire. At the same time, we are no longer producing sufficient numbers of new graduates to replace them. This looming talent gap already is evident in the nuclear and the oil and gas sectors.
We continue to attract from abroad talented international scientists, engineers, and graduate students, but we do not let enough in. Other nations are investing in their own education and research enterprises, offering new opportunities for their own scientists and engineers to study and to work at home. The “flattening” world means that they, also, can find employment elsewhere, not necessarily in the U.S.
Finally, our demographics have shifted. The "new majority" in the United States now comprises young women and the racial and ethnic groups which, traditionally, have been underrepresented in our advanced science and engineering schools. It is to these “nontraditional” young people to whom we, also, must look for our future scientists and engineers.
This “Quiet Crisis” is “quiet” because the true impact unfolds gradually over time it takes decades to educate a biomolecular researcher or a nuclear engineer. It is a "crisis" because our national innovative capacity rests solely upon their talents, and upon our ability to interest and excite them to the marvels of science and engineering to the wonders of discovery and innovation.
So what can we carry away from this very complex picture?
In summary, as a way of framing our understanding, I would suggest that we must think in terms of BTUs not the British Thermal Units of energy or heat but Behaviors, Technologies, and Underlying Principles. We must create the incentives, disincentives, and level of awareness needed to alter individual behaviors, corporate behaviors, and leading by example governmental behaviors. We must re-shape our investment in existing technologies including renewal and upgrading of key elements of energy infrastructure and support basic research to exploit the promise of new technologies. And we must do all of this strategically, according to a coherent set of underlying principles. These BTUs will form the basis of a comprehensive energy security roadmap.
We are three months out from national elections, giving us ample opportunity to query the Presidential candidates on their energy security plans. To achieve a comprehensive national, globally-linked, energy plan, will require the full weight and leadership of the nation’s chief executive, as well as strong, coordinated leadership in Congress, and at the state level. Only stability and consistency of outlook, and linked federal and state regulatory policies and incentives, can give us a roadmap that will make a real difference. These elements are important to provide signals and confidence to the corporate and financial communities that invest in new energy systems and technologies, and to ensure that investments in new energy markets make business sense.
Our leadership must be compelling and convincing or we will lose the moment, lose the inherent economic opportunities, and relinquish global energy security leadership to others.
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.