Leadership for a Comprehensive Energy Roadmap: The First 100 Days
Shirley Ann Jackson, Ph.D.
President, Rensselaer Polytechnic Institute
National Press Club
Tuesday, September 9, 2008
When a great nation faces great challenge, its full capacity and talent are called into play.
We confront such a time now.
We are caught, as never before, in a double grip the need for national and global energy security, and legitimate alarm over our planet’s climate change. Issues that ensue from these twin realities complex geopolitical and geostrategic challenges, unprecedented wealth transfer from one group of nations to another, the profusion of investment choices before us require vision, careful analysis, coherent thinking, and, finally, action.
The question is what action?
A year ago, the Council on Competitiveness set out to find answers through its Energy Security, Innovation and Sustainability (ESIS) Initiative. My colleagues in leading this effort are James W. Owens, Chairman and Chief Executive Officer, Caterpillar Inc., and D. Michael Langford, National President, Utility Workers Union of America [AFL-CIO]. Working with others in industry, academia, and labor, we have used the ESIS initiative to examine, in a series of progressive dialogues, the implications of today’s energy challenges for American economic competitiveness. Two previous ESIS reports, based on the dialogues, underscore the lack of cohesive action in U.S. industry and government, the woeful under-investment in improving U.S. energy efficiency, and the urgent need for bold leadership and decisive action.
Today, the ESIS leadership is releasing an Action Plan for the First 100 Days of the New Administration. It reflects the thinking of a broad-based, multi-sector coalition of industry, labor, and academic leaders, with significant participation from high-level government energy and economics experts.
We will continue this initiative through early next year, holding regional dialogues and releasing additional reports. Next spring, we will issue a complete, comprehensive report.
The Action Plan we release today is a beginning, and allows us to leverage the political capital afforded a new Administration in its first 100 days.
Before I lay out the Action Plan steps, we must understand the broader context. On a worldwide scale, a seismic restructuring of the global energy system is underway:
- New energy markets are providing opportunity and options for new players.
- New major oil and gas suppliers are changing the terms of reference for traditional energy behemoths.
- Oil-generated wealth, and other energy-related economic factors, are influencing the state of play in global financial markets.
- Nations are realigning, shifting old alliances.
- Corporations are adjusting priorities, changing business practices, and investing to secure market opportunity.
- Climate change mitigation is stimulating investments in new energy sources, new technologies, and driving new trading schemes.
International energy markets, trading schemes, and re-alignment of nations are emerging because energy consumption is rising exponentially driven by population growth, swiftly developing economies, improving global living standards, and the burgeoning use of ever more energy-dependent technologies. It is not difficult to cite jaw-dropping illustrations of growth in energy consumption: e.g., each year, for the past few years, China has added 60,000 to 90,000 megawatts of electrical generating capacity roughly the equivalent of the throughput of the entire electrical grid of England.
Consumption of nearly every major energy source is up markedly. If current trends continue, humans will use more energy, over the next 50 years, than in all of previously recorded history. Fossil-based energy sources, including coal, will remain a dominant part of the primary energy mix. In fact, because of demand, the market clearing price of coal, heretofore always plentiful and reliable, has doubled over the last year. We may only speculate on the effect of this growth in demand on the state of our planet’s environmental health.
The original “seven sisters” which became four after mergers in the 1990s 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 remaining four “old sisters” 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, over the next four decades, will come from developing countries a significant shift from the past 30 years, when 40 percent came from industrialized nations.
This swing in fortunes is leading supply countries, and their national oil companies, to alter contract terms with “traditional” international oil and gas companies for greater ownership, greater operation of assets, and greater revenue share. Increasingly, they seek, as well, to develop their own integrated supply chains from exploration and production to refining, marketing, and transportation.
Energy supply continues to worry European Union (EU) countries, which import 80 percent of their oil and gas. Russia uses its oil and gas abundance to lock up deals with more and more European countries, even as many of them fret that Russia is using its dominant energy position as a political tool. As a consequence, the EU is developing strategies for new and renewable energy sources, and for energy efficiency both to assure supply through diversification, and to mitigate climate change. Many speculate that Russia’s recent invasion of Georgia was spurred by Georgia’s role in developing energy routes to supply EU countries with oil and gas from non-Russian sources, reducing their dependence on Russian gas and oil.
China, too, has been on a worldwide march to lock up energy supplies, and other resources such as minerals and heavy metals. We see this especially in Africa, where China trades infrastructure development, sometimes education, and always embassy presence and diplomatic recognition, for such access.
Worldwide, the private sector is making large capital investments in renewable energy technologies. The United Nations Environment Programme 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.
All of this deserves a more complete examination than I can give today, but even within this limited context, it is clear that it is time to move beyond the term “energy independence.” The global trading system, global dispersion of energy resources, globally-linked energy (and other) supply chains, and the effects of natural disasters, terrorism, or war, all tell us that we are globally interlinked with regard to energy, and our overall economy. Our focus, then, must be on “energy security” with as much national energy self-sufficiency as we can muster.
The United States must shape more comprehensive national energy goals and strategies, taking greater account of the global energy system restructuring, its impact on energy markets, and on our foreign policy.
Of course, our national energy challenge is not new. In 1973, President Nixon called for energy independence, in response to an OPEC oil embargo. “Project Independence” lowered highway speeds, converted power plants to coal, prompted completion of the Trans-Alaska pipeline, and diverted federal highway construction funds to mass transit.
The Ford Administration attempted to secure our national oil supply the Strategic Petroleum Reserve was the result.
While President Carter was mocked for characterizing the energy problem as “the moral equivalent of war,” his administration produced a broad-based “National Energy Plan” stressing conservation, renewable energy, and research. Although the Plan soon lost momentum, some proposals such as standards for building, appliance, and automobile fleet efficiency were enacted and have endured, to our benefit. This remains, however, an area ripe for additional enhancements.
This energy policy advance and retreat has been repeated in the decades since. Every few years, an event the Iraqi invasion of Kuwait, brownouts in California, drill rig and refinery damage from Hurricane Katrina, skyrocketing prices at the gasoline pump stirs attention, trepidation, and limited action.
Meanwhile, the U.S. has gone from importing a third of our oil in 1973, to nearly three-quarters today, for which we paid out $327 billion last year and the price of oil has as much as doubled over 2007 levels with significant economic consequences.
This is the briefest snapshot of a highly complex picture. It will require a correspondingly complex response, and, this time, we must get it right.
To jumpstart U.S. action toward a comprehensive energy security roadmap, the Council on Competitiveness has extracted, from its ESIS work, a First 100 Days Action agenda for the 44th President of the United States and the new Congress. Some of the key elements are:
- First, the next President must mandate that Federal procurement for goods, services, new construction, and facilities retrofits lead the market toward higher energy efficiency standards, with concomitant reduction of carbon load. Such leadership by example, and requirement, will encourage the private sector in this direction.
- The next Administration must encourage the development and utilization of all energy sources, in a sustainable way, by equalizing energy source subsidies, and by creating incentives for discovery and deployment of new energy sources. One means to accomplish this is to direct the Office of Management and Budget to create a cross-governmental task group to identify barriers to various sources of energy production, and to issue a Presidential Executive Order, or to propose legislation, as necessary, to construct a consistent investment framework for clean energy development. This framework must require a full life-cycle analysis, including cost and environmental impact, for each energy alternative, as well as regulatory requirements, legal liabilities, tax incentives, accelerated depreciation for outmoded assets, and market distortion from global trade subsidies and tariffs.
- The next Administration must ramp up investment in energy research, development, and commercialization. This means at least tripling the current federal investment in basic and applied energy research and development; creating public-private partnerships with baseline federal funding to be matched by state and private sector investments to create regionally-based research and development test-beds and large-scale commercial pilots for new energy technologies. It means expanding federal programs, and creating new initiatives, that provide financing for clean energy start-up businesses, support for existing small and medium-sized businesses in the development and deployment of clean energy technologies, and funding for pre-commercialization of technology for clean energy.
- The next Administration should establish a $200 billion national “clean energy” bank, modeled on the U.S. Export-Import Bank and the Overseas Private Investment Corporation (OPIC), to provide long-term financing for private sector investment in sustainable energy solutions that reduce, avoid, or sequester carbon; for their deployment to market; and for development of supporting infrastructure.
This approach recognizes the crucial role of private sector demand, and action, in driving energy system transformation a role largely unrecognized and unaddressed in prior policy initiatives.
These measures begin to address our national need for redundancy of supply and diversity of source, to provide protection against supply disruption whether from natural disaster, or geopolitical instability and against price volatility. These are pathways to greater energy self-sufficiency. They, also, offer an entry point for linking optimum source to sector of use in other words, for thinking strategically about how each sector is best matched to its supply source for efficiency, sustainability, reliability, and cost effectiveness.
For example, both Presidential candidates have advocated greater use of plug-in hybrid and electric automobiles. This would reduce carbon emissions from the transportation sector. But we will need to account for the correspondingly greater burden on the electricity generation and transmission sectors, as well as the potential need for new sources for generation.
- The new President must mobilize an energy workforce a subset of the invaluable science and engineering professionals who comprise our national innovation engine by creating a $300 million “Clean Energy Workforce Readiness Program,” augmented with state and private sector funding. This would foster partnerships with the energy industry, universities, community colleges, workforce boards, technical schools, labor unions, and the U.S. military.
Within the context of providing support for advanced study across a range of fields, creating competitive, portable undergraduate and graduate fellowships for study in energy-related disciplines, for American citizens, should be a special focus. This is a necessary part of maintaining and enhancing our national capacity for innovation by developing our own talent, including the underrepresented majority women and under-represented minorities while continuing to attract and retain exquisite talent from abroad.
- The new President must begin the creation of a National Electrical Transmission Superhighway by engaging governors and state regulatory authorities to focus on the current regulation/oversight patchwork for transmission within different states, and interconnection between states, to develop better interoperability standards for the national grid. The President should competitively incent the creation of consortia of national laboratories, universities, and corporations to model and simulate the characteristics of an intelligent, self-healing, electrical grid, with the ability to connect multiple new energy sources and devices to the system.
These steps begin to address our need to renew and update our existing national grid, and to invest in the full spectrum of sound infrastructure for energy generation, transmission, and distribution, with the necessary regulatory and operational protocols to ensure the safe, secure, and reliable performance of refineries, pipelines, power plants, and other facilities.
This is a brief summary. The full text of the Council on Competitiveness Energy Security, Innovation, and Sustainability (ESIS) Initiative Action Plan for the First 100 Days of the New Administration is available, here, today.
The priorities outlined here are a subset of a more complete report which the Council on Competitiveness will release next year. This “First 100 Days” agenda is an initial step to address some of the critical aspects of the energy crisis we face. The action agenda would start us toward a comprehensive national energy security roadmap one that must be globally linked and globally aware, and as environmentally benign as possible.
To chart such a roadmap, will require the full weight and leadership of the nation’s chief executive; strong, coordinated leadership in the Congress; and at state levels. We invite the next Administration, within its first 100 days, to draw on the resources and work of the Council on Competitiveness, and other coalitions of leaders across multiple sectors concerned about our energy future.
The good news is that energy has begun to garner greater focus, but it is imperative that focus become action.
We are a great nation. We have immense initiative, strong financial capacity, exceptional talent, and a shared history of uniting around difficult and complex challenges. We split the atom. We put man on the moon. Energy security is the greatest challenge and the greatest opportunity of our time. A national call to action will ignite our collective imagination, spark a new era of innovation, stimulate our economy, open new markets, unleash our national potential, and enhance our economic and national security.
But, we must begin. The next President must send a clear signal in the first 100 days that will move us from rhetoric to reality.
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.