University of Missouri Energy Summit

University of Missouri Energy Summit
Wednesday, April 22, 2009
Remarks As Prepared by Karen Harbert, President and CEO
Institute for 21st Century Energy, U.S. Chamber of Commerce

Thank you for that kind introduction, and for the opportunity to be with you all this afternoon.  I would like to commend the University of Missouri for convening what I hope will be your first of many Energy Summits. 

As I flew here this morning, the passenger on my left was a woman coming to St. Louis for a clothing trade show who was surprised to learn it was earth day; on my right was a middle-aged gentlemen reading an advanced quantum physics textbook and diligently working on a cost and schedule spreadsheet on his laptop; and in front of him was a professional swimmer meditating before his upcoming meet.  What a great and diverse country we live in but what struck me in the very small vignette is no matter how different we are we are still bound together by some common challenges as Americans, and in this case obviously I am thinking about energy.  But the other thing that struck me was the huge differences in understanding exactly what and how great the challenges are in confronting our energy situation.

You all are here to explore and debate on how to set a new course for our energy future. So in thinking about what I was going to speak about today, I thought it would be important to lay out  where we are today – you can’t chart a new course successfully  without know where you currently stand.  And on this new course we need a new compass to guide us on our way and I will lay out what I think are the new points on that compass rose.

As other speakers here today have made clear, energy security is among the biggest challenges we face in the 21st century.  Energy is a unique public policy issue because it touches on so many other sectors:
 
Our economic security depends on energy.

Why do I say that?  An affordable, reliable supply of energy for our nation is essential if not integral for our economy to grow and in the current environment to actually afford our economy to recover and be healthy once again.

Our environmental security depends on energy.

Why?  The choices we make on how we transform the production and use of energy in the next few years can put us on a path to increased environmental sustainability but if mishandled, the consequences to our economy, security and the environment will be unwelcome.

And our national security depends on energy.

Why?  The competitiveness of our nation and our standing abroad is greatly affected by our having an abundant and reliable supply of energy.
  
I am sure we would all agree that our nation’s plate is quite full of challenges at the moment, but, it is not a stretch to say that energy is among the most important and the most complex. 

At this critical juncture, we need extraordinary new partnerships, new instruments and new players to set the course for solving our nation’s energy challenges.  This requires a new paradigm – a new model – to bring the best of the business community, the best of academia, and the best of local, state and federal government together to harness our nation’s deep well of  innovation to allow us the lead America and even the world to a more secure, clean and prosperous energy future. 

Last summer I saw, on a small scale, how this new model would work and bear fruit through an effort pioneered at Colorado State University.

A team of student and professional researchers developed a snowmobile engine that was 300 times cleaner and more efficient than existing models.  Their more efficient engine technology also reduced tailpipe emissions by 70 to 90 percent.  Through collaboration with the University’s school of business, the team of innovators designed a business plan so that their invention could have broader commercial applicability by attaching the technology to the engines of small high-pollution vehicles widely used in the developing world.  The technology is now used in major cities in the Philippines with planned expansions to other countries this year.

How did this happen?  With  seed money for research from local organizations, researchers and engineers from the university,  laboratory space donated by the local government, federal government laboratory support and early private sector involvement, these innovators took an idea, perfected it, and are now selling it globally.

At many points along the way, this project could have died.  But it didn’t.  Because these groups worked closely together.

This type of partnership should not be an interesting anecdote or a simple human interest story.  It is these types of unconventional partnerships coupled with business acumen that will underwrite the fundamental changes our energy future demands.

Putting a new technology on the shelf is one thing; getting it to move off the shelf is another issue entirely.  And make no mistake about it; innovation and technology are at the cornerstone of any new approach to energy.
Innovative new partnerships could make a real difference in both the development of new energy technologies, and in getting them quickly deployed into the marketplace.

The reason we need these new partnerships – and need them soon -- is because of the new set of energy realties that we must confront.

So what are these realities?  First and foremost are the world’s growing and changing energy demands.

Global demand for energy will increase by 50 percent between now and 2030, with 75 percent of that demand coming from the developing world. 

Electricity demand is projected to increase by 100 percent in that same timeframe.

And at the same time, there are 1.6 billion people around the world currently living without electricity.  That is going to change.  That needs to change.  One of our core values as Americans is the desire to help lift people out of poverty and despair.  But as more people have access to jobs, and more countries develop a middle class, there will be more people demanding electricity.

Second, we must confront the reality of energy costs. 

Capital costs for energy projects are increasing.  Costs across the board are going up for necessary components like copper and steel, while access to credit is increasingly difficult.

It is estimated that we’ll need to invest at least $26 trillion over the next 25 years to meet energy demands.  With the global economy struggling, we must ask ourselves if that investment is going to occur?  Do we have the policies in place that will encourage that huge sum of money to be invested in energy to unlock needed new supplies of hydrocarbons, wind, solar, nuclear, coal and alternative fuels?

Third, we must confront the reality of our environmental challenges.

Because today is Earth Day, the media is focusing extra attention on steps we can take to help our environment.  Clearly, we can make greater strides in efficiency.  However, one thing that’s not often, if ever, reported is that smart energy action and smart energy policies don’t just improve energy security, they materially improve our environment. 

I think it is fair to say that everyone wants to be involved in a national discussion on energy and climate change. 

And every American must have this opportunity because every household, every business large and small, every academic institution, and every sector of the economy has a lot at stake.

That’s why today the U.S. Chamber’s Energy Institute issued a climate change 101 paper to help familiarize people with the issues on the table and the terms, and by this I mean the actual vocabulary, being used in this debate.  The paper and video can be found on the Institute’s website at WWW.ENERGYXXI.ORG. 

Right now the Obama Administration and Congress have different climate change proposals on the table.  The Obama Administration’s goal is to cut U.S. emissions to 14 percent below 2005 levels in the year 2020 and 83 percent by 2050.  To achieve this goal, our nation will need to cut or reduce 1 gigaton (for those of you without your supercomputer at your seat) – that’s 1 billion metric tons -- of greenhouse gas emissions by 2020.

To put that number in perspective, reducing one gigaton of greenhouse gas emissions for a year would take:

Building 130 nuclear plants instead of traditional coal-fired power plants; or

Installing 1.7 million acres of solar panels, or

Installing 127,500 large wind turbines in lieu of projects that emit fossil fuels.

As you can tell, this is going to take a major transformation of how we use and produce energy.  It’s going to take time, it’s not going to be easy, and it’s not cost free. 

It means we must be realistic about what it’s going to take.  We must be realistic about the state of technology and its commercial viability.  We must be realistic about the timelines. 

We should not mandate what technology can’t deliver. Ultimately, such an approach hurts the economy, doesn’t improve the environment and drives businesses overseas.

Fourth, we must confront the reality of global competitiveness.

In 2008, the United States sent between $400 and $700 billion dollars overseas for imported oil.  Unless we take action to increase our domestic supplies that number could go up.  It’s hard to remain competitive when so much of our nation’s financial capital must be shipped overseas for oil.

I spoke earlier of innovation and technology being a fundamental underpinning of a new energy strategy.  That requires new talent, new intellectual feedstock and a new national commitment to technical disciplines in education. We are lagging behind other countries in the number of qualified engineers we graduate.  China already is graduating more engineers each year than we are, and the United States is graduating fewer science, mathematics and engineering students than we did just 15 years ago.  Today we are consumed with reducing our dependence on foreign oil.  I hope tomorrow our biggest concern is not reducing our dependence on imported intellect.

America’s regulatory system also needs a serious overhaul.  Our federal and state governments’ complicated and onerous regulatory structure are also inhibiting us relative to other nations.  China will build 20 emissions-free nuclear plants in the next 10 years.  That’s because in China, it takes five years to license and build a nuclear power plant.  Here in the United States, it takes at least ten.

So the realities of demand, of cost, of the environment and of global competitiveness are all factors we must confront when developing sound energy policies.  Taken together, it provides a very sobering assessment, but it should not be a discouraging assessment. 

Missouri’s native son, Harry Truman, once said, “A pessimist is one who makes difficulties of his opportunities, and an optimist is one who makes opportunities of his difficulties.”

Despite everything you heard, I truly am an optimist. The United States can make opportunities of these difficulties, but it will require more than just identifying new sources of energy, it will require identifying a new approach to energy.

Central to that new approach is the new paradigm I spoke of earlier…..bringing together the government, universities, researchers, and the business community to work together on our energy challenges.  But there are other components of this new approach that must exist too.

First, we need new a financial architecture for a new energy economy to flourish.  Between the laboratory and the marketplace, there is a “Valley of Death” where the inability to attract funding or generate revenue can mean the difference between success and failure.  We must bridge that gap.

The successful development of new technologies requires more than strong partnerships; it requires steady capital.  To reduce U.S. gas consumption by 20 percent in 10 years, it is estimated that we will need to make between $1.1 and $1.6 trillion dollars in capital investments in clean energy technology.  So if we want to accelerate the development of that technology, we must accelerate the formation of that capital.

To do this, the Institute has proposed the creation of a new Clean Energy Bank of the United States and Congress is debating this proposal right now.  This new financial institution would provide concessionary financing and other products to accelerate the development of advanced clean energy technologies and projects.  I would add that such an effort would be funded through its operations rather than on the back of the taxpayer.

Second, we need to develop complementary energy policies that put us on the right long-term path.

Over the past year, our Institute has worked to develop a comprehensive, pro-growth energy strategy that includes nearly 90 detailed steps and a timeline for when they should be taken by the Administration and Congress. 

We need comprehensive energy policies, not narrow policies that benefit a few select industries or sectors and ignore others.  The bottom line is that we’re going to need a wide variety of sources and technologies to fuel our economy.

We’re going to need more renewable energy.  Renewables currently account for less than 3 percent of our electricity mix and even with a tripling of solar and wind projects, it will still comprise less than 10 percent of our electricity demand.  This industry requires a more predictable fiscal environment in order for businesses to make long-term capital decisions.  The tax incentives for solar and wind generation have been turned on and off like a light switch and that has sent mixed signals to investors.

Despite their merits, wind and solar energy are intermittent sources of energy – only available when the sun is shining or the wind is blowing.  Therefore, our nation still requires additional reliable base load electricity and that means we’re going to need more nuclear energy.  I know that’s a subject currently under debate here in Missouri with the proposed life extension of the Callaway plant.  It is important to remember nuclear power is a cost-effective, emissions-free source of 20 percent of our nation’s electricity supply.  If we are to meet our twin goals of improving both our energy and environmental security, nuclear is a must.

However, we need to commit to a permanent solution to our nation’s nuclear waste  ….we must responsibly manage our nation’s nuclear waste.  Stay tuned, the Institute will be releasing our thoughts on this in the coming weeks. 

Here in Missouri coal from Wyoming powers millions of homes and businesses.  It is in your interest to continue to use this coal and it’s in the nation’s interest too.  Coal provides 50 percent of our nation’s electricity.   At our current production rates, we have enough coal to last for more than 200 years.  But to minimize air pollution and CO2 emissions, we must invest in technologies such as carbon capture and storage (CCS).  The Institute has called for an increase in investments in clean coal technology with half coming from the government and half from the private sector to develop long-term clean coal solutions.

Now let’s talk about oil and natural gas.  The fact is that oil and natural gas will remain the backbone of our national and global economy for the foreseeable future.  You can not forget that 96 percent of our transportation sector still relies of oil and we can not wave a magic wand and change that overnight.  Congress and the Administration must allow for increased exploration and production in the Outer Continental Shelf and on federal lands onshore.  For 30 years, 85 percent of America’s oil and natural gas resources have been placed off-limits to exploration and production.

We have tremendous reserves of both oil and natural gas. This has been a self-inflicted wound to our security and prosperity, and needs to end.  Not only will this exploration create new American energy resources, but also new jobs and industries.  And on the environmental front, significant advancements in technology enable us to produce these resources in an environmentally responsible way.  
One only has to think back to Hurricanes Katrina and Rita who ripped across the Gulf of Mexico right through areas of dense oil and gas production.  The US Coast Guard determined that there were no significant spills to report as a result.

Third we have to realize that we have a huge opportunity in energy efficiency.  Great improvements have been made on this front.  The United States uses 50 percent less energy to produce a dollar of GDP than we did thirty years ago. I’d like for you to remember that the next best source of energy is the energy we waste everyday.  But we must harness that energy and make it work for us and technology and infrastructure improvements can and will make a significant contribution. 

To improve our efficiency, the federal government should work with states to adopt building codes that include energy efficiency standards.  We must also create incentives for electric utilities and consumers to become more efficient.

The fourth component of our new approach is reducing overly burdensome regulation to actually get energy projects constructed, not cancelled. 

Everyone is familiar with the term - NIMBY - Not In My Back Yard - but that’s a thing of the past.  Today, our nation is plagued with a new syndrome called BANANA –
Build Absolutely Nothing Anywhere Near Anything.  As a result, the construction or expansion of everything from transmission lines to power plants are routinely delayed or blocked.  One power company spent 13 years getting federal and state permits for a 90-mile interstate power line that took less than three years to build.

This is happening around the country too and is one of the gravest threats to our economy being able to function like a 21st century economy.

And just because a project is “green” doesn’t mean it fares any better.  Whereas projects once became entangled in red tape, they now just as easily get entangled in “green tape.”  Renewable energy projects have been snagged, sued or blocked everywhere from Massachusetts to Kansas to California.  

To restore sanity to our regulatory process, there are a few important actions that need to be taken:

First, the federal government needs to play a greater role in the siting of transmission lines. 

Next, we need to reform our laws -- specifically the National Environmental Policy Act -- that are consistently abused by individuals and groups seeking to bring needless and endless delays to energy projects they oppose. 

Right now more energy policy is being set in the courtroom than in the Congress.  Ultimately leaving our energy policy to be adjudicated in the courtroom rather than in the Halls of Congress does a grave disservice to our nation’s competitiveness. 

Historian Arnold Toynbee (pronounced TOIN-bee) observed that civilizations “come to birth and proceed to grow by successfully responding to successive challenges.  They break down and go to pieces if and when a challenge confronts them which they fail to meet.”

Throughout history, societies have been defined by their ability to confront and meet the challenges of their day.  For our society, for our generation, energy is that challenge.
Because the actions we take – or fail to take -- over the next few years will determine the path for our country for decades to come.

Are we prepared to chart the right course?  Do we have the right compass?

Will our children and grandchildren grow up with the diverse sources of energy needed to power their homes, their transportation, and their workplaces?

Will they have a clean environment, devoid of smog and pollution?

Will they have an economy that creates jobs, and allows them to earn a good living?

Will they have a country where they feel safe, and where they have ample opportunities to succeed?

This is what is at stake in the debate over energy, and why it is imperative that we make this a priority of the highest order.

Thank you for inviting me here today, and I’d be happy to answer some questions.