Vice President Frederick C. Smith - Ohio Conference on Freight - Toledo, OH

9/17/08

Remarks As Prepared for Delivery by Frederick C. Smith
“Securing America’s Energy Future”
Ohio Conference on Freight
Toledo, Ohio
September 17, 2008

Ladies and gentlemen, I will not mince words or sugarcoat my message today:  America is facing an energy crisis.  With global energy demands rising and competition for affordable, clean energy supplies becoming more intense, we’re facing a significant economic and national security challenge in the 21st century.   

Energy fuels our economic competitiveness and supports our quality of life.  It underpins our innovative high-tech economy, manufacturing base, agricultural sector, and, yes, our courageous military forces.  Energy affects all walks of our lives.  Everyone in this room knows and cares about energy.  The freight industry is involved in transporting fuels, while at the same time being a major energy consumer.    

Energy is a global challenge.  Global energy demand will increase 50% by 2030.  Electricity demand will increase 100%.  China and India are major factors.  By 2025, China will have 300 million cars on the road, compared to 30 million today.  Climate change and global warming?  China relies on coal for 70% of their energy needs, building one coal-fired plant a week.  Oil consumption in India has increased six-fold over the past 25 years.  Global economic growth is boosting demand.  There is low OPEC spare capacity ……  geopolitical risks …. increased speculation …... and decline of the dollar …. all these factors are affecting energy security in the United States.

Energy, and how we produce and use it, will define who we are as a nation for the foreseeable future.         

For too long, our approach to energy has been conflicted, contradictory, and shortsighted.  We’ve been more engaged in energy politics than energy policy.  We embrace energy efficiency, but are reluctant to make adjustments in our lifestyles.  We expect electricity in our homes and buildings 24/7, yet we oppose construction of new power plants and transmission lines.  We demand more energy and complain about high prices, but restrict energy exploration in our own country.  We’re betting on the development of new technologies, but under-invest in the energy research needed to bring it about.

Improving our energy security must be met through the efforts of the private sector, research community, universities, government at all levels, and our society at large.

To succeed, we must reexamine outdated and entrenched positions, become better informed, and make judgments based on facts and sound science.  We need to be persistent yet patient, because there are no easy answers.  Solving America’s energy problem will require long-term, strategic solutions that will take years to achieve.  Foremost, we must rise above partisan differences and be united in our efforts, which requires strong political leadership, on both sides of the aisle.

The challenges are daunting, but we must remain optimistic.  This summer the Institute for 21st Century Energy published an open letter to the 44th President of the United States and the 111th Congress that lays out a strategic and comprehensive energy policy.  You can read this letter by going to our website at www.energyxxi.org.    

Let me review briefly some of the policy’s key components.

First, we must promote greater energy efficiency.  The best source of new energy is the energy we waste every day.  There can be immediate benefits by increasing efficiency in our homes, the appliances we use, in buildings, and in manufacturing.

Let me give you a few quick examples.  When you use a regular incandescent light bulb, only 3 percent of the electricity is turned into light.  The other 97 percent is wasted as heat.  A compact fluorescent light bulb – commonly called a CFL – uses 75 percent less energy than a regular bulb and it can last up to four years.  It’s estimated that every year more than $13 billion worth of energy leaks from houses through small holes and cracks.  That’s more than $150 per family.  And ENERGY STAR appliances use 10 to 50 percent less energy and water than standard models.  These are easy steps that each of us could take to increase energy efficiency.

We must address the impact of our growing energy consumption on the environment and climate.  We must not set targets, however, for which technology does not yet exist or which threatens major economic displacement.  We must give industry a predictable investment climate and incentives for innovation in clean energy.  And we must insist upon an emissions reduction regime that is global in scope, while considering the priorities of the developing world.   

Technology is the cornerstone of any new energy policy.  We must significantly increase funding for research and development.  The United States spends 50 percent less on energy research and development than we did in the 1970s.  We spend less than four billion dollars a year on clean energy R&D, which is less than we spend in three days on imported oil.  The demonstration and application of promising clean technologies must be carried out on an ambitious and cost-effective scale.  Small, tentative steps will not be sufficient.

We must expand domestic oil and gas production.  If we do this, we will reduce our dependency on foreign oil and gas and the billions of dollars we send abroad each year.  This year, with oil prices averaging over $100 a barrel, we will pay other countries approximately $525 billion – over a half trillion dollars.

The Institute is not advocating that we drill, drill, drill our way out of the energy problem, as some people would characterize it.  Rather, this is a common sense proposal that is part of a broader, comprehensive policy.  To enhance energy security, we must reduce our dependency on foreign sources, and we can begin doing that by exploring for resources here at home.  This will create new investment and new jobs.  New federal and state partnerships are needed and new revenue sharing models must be developed.  If states received a greater share of the revenue, there would be greater interest in exploration.  

We must expand the nuclear power capacity in this country.  Presently, nuclear power provides 20 percent of America’s electricity.  Expansion of nuclear power is essential to meet our growing demand while reducing our emissions of CO₂.  The federal government should provide fiscal incentives for new nuclear plants – this law already exists in the 2005 energy bill.  We must solve our long-term waste challenges and expand efforts to recycle spent nuclear fuel.

We must commit to funding the technology that will allow the clean use of coal.  Coal provides 50 percent of our electricity, making it the largest source of domestic, reliable, and affordable energy.  And it will be a critical and expanding source for our future energy needs.  To use coal cleanly and to address CO₂ emissions, we need to increase significantly our research and development, specifically for carbon capture and sequestration technologies.

We must increase renewable sources of electricity.  We need a predictable and durable fiscal regime to stimulate new investments in solar, wind, energy-from-waste, and other renewable technologies.  Much of the growth in renewable energy has been inconsistent and intermittent as production tax credits have expired in 2000, 2002, 2004, and are set to expire again at the end of this year.

What has Congress done about it?  Lawmakers have voted on tax credit extensions 13 times in the past year, but disputes over use of oil taxes or other offsets and linking the tax credits to offshore drilling policy have stalled any action.   Most likely, Congress will pass a short-term extension before it recesses, but then the clock will start ticking again.

These short, “boom and bust” cycles result in tremendous inefficiencies in capital formation, production, project finance, and project management.  Basically, we must change the business environment to allow these renewable forms of energy to be developed and reach their potential.

We must also transform our transportation sector.  Transportation in the U.S. is 96 percent reliant on petroleum.  Efforts to develop and promote alternative transportation options include second-generation biofuels, plug-in hybrids, and all-electric and possibly hydrogen-powered vehicles.   

We must modernize and protect the U.S. energy infrastructure.  Our energy infrastructure is increasingly inadequate for today’s growing demand and economy.  But our overstretched energy infrastructure is only one part of a growing infrastructure crisis, which also includes transportation and telecommunications infrastructure that is breaking down.

The transportation system is over capacity and marred by age.  One-third of major roads are in poor or mediocre condition.  One-fourth of our bridges are structurally deficient or functionally obsolete.  Information traveling on our nation’s information highway is expected to increase 50-fold by 2015, requiring broadband service providers to invest over $100 billion in network infrastructure over the next five years.

Without proper investment and attention to our energy, transportation, and telecommunications networks, our nation’s economic health, competitive advantage, and quality of life are at risk.

We must address critical shortages of qualified energy professionals.  The energy industry employs well over one million people today, yet nearly half of this workforce is expected to retire in the next 10 years.  At the same time, American universities are graduating fewer and fewer students in science, engineering, and mathematics.  And the majority of those who are graduating from U.S. universities are not U.S. citizens.

Let me focus on one industry in particular.  The likelihood of an expanded role for nuclear energy in the United States and the aging of the existing nuclear power work force are creating a huge shortfall of nuclear engineers.  The American Nuclear Society estimates that 700 nuclear engineers need to graduate per year to support the potential demand.  The ANS, however, expects less than 250 new engineers each year.  To maintain the 20 percent nuclear share over the next 25 years, we need approximately 30-35 new nuclear power plants, and each plant employs, on average, 800 people.  The human resources shortfall is significant.

We need effective education and training programs, incentives, and visa policies that will attract and retain a new generation of human capital in an increasingly technological and globally competitive energy industry.

Finally, we need to demonstrate global leadership.  We live in a global energy market that demands broad-based, global solutions.  This is an opportunity for America to exhibit its best leadership in innovation, technology, and policy initiatives to solve the energy problems.  But global leadership begins by getting our act together at home, and that’s why it’s so important – why it’s critical – that our country enacts a comprehensive, common sense energy policy.

These issues, and more, are addressed in our open letter to the next President and Congress.  Please read it and send us your comments and reaction.  You can also sign the letter by going to our website.  

Ladies and gentlemen, if our national leaders do what we expect them to do, and if the citizens of this nation become engaged, we have the opportunity to change America’s energy future.  Our history suggests that in times of national emergencies, our citizens and national leaders rise to the occasion for the national good.  With a challenge this great and urgent, we must put differences aside and come together for a common sense approach to ensure our country has adequate supplies of affordable, clean energy to sustain our economy at home and our strength abroad.

Thank you.

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