Event Summary: Global Challenges for U.S. Energy Policy: Economic, Environmental, and Security Risks

Speaking at the Brookings Institution today, U.S. Deputy Secretary of Energy Kyle McSlarrow spoke bluntly about domestic energy concerns: “We need more energy. We need more choices and flexibility. We need it to be cleaner and we need to use it more efficiently.”

McSlarrow delivered the keynote address at a joint conference on energy policy sponsored by the Brookings Institution, the National Commission on Energy Policy, the American Enterprise Institute, and the AEI-Brookings Joint Center on Regulatory Studies.

The United States leads the world in energy consumption, and depends heavily on foreign sources for oil. This reliance makes the country vulnerable to the political and military turbulence that often besets unstable and undemocratic foreign governments. America’s dilemma can be seen vividly in the Middle East—the world’s largest supplier of oil—where ethnic and religious conflicts, and the U.S. war on terrorism, have made trading relationships more fragile than ever.

As the demand for energy threatens to outpace supply, the need for reduced oil consumption and alternative energy sources has become more urgent. The rising price of oil and concerns over global warming have created additional pressures to cut consumption.

“It’s a hugely complicated subject and that is one reason why it’s so hard to get people to act,” McSlarrow said. In his view, the most complacent actors on the issue of energy policy are members of Congress, who have yet to tackle this year’s energy bill.

“We really do have to act this year,” McSlarrow said. “Congress needs to pass this energy bill. I don’t know how it is that members who are holding up the energy bill can explain to their constituents the price hikes that have gone on for the past three years.”

William K. Reilly, co-chair of the National Commission on Energy Policy and a former EPA administrator, said he understood the frustrations of both Congress and the Bush administration, saying that the United States has been “struggling to get the energy policy right for decades.” He also worried that the growing demand for energy has hurt the United States’ standing overseas.

“People abroad think we’re gas guzzards and unilateralists who walked away from international climate change negotiations,” Reilly said, referring to the Bush administration’s decision to reject the Kyoto treaty, which sought to reduce total carbon dioxide emissions around the world. Reilly called for increased government and private sector funding for development of alternative fuel sources and more efficient extraction and use of current supplies. Additionally, Reilly said that the United States had to be more willing to work with other nations on global solutions “if we are to see tangible and lasting results.”

Daniel Yergin, chairman of Cambridge Energy Research Associates, said that while the overall energy picture may be bleak, there was some reason to be optimistic about the future, citing reduced oil consumption per each dollar of gross domestic product in the U.S. and greater enthusiasm for new technologies. Additionally, Yergin noted that West Africa and Russia were recently shown to possess plentiful and untapped oil resources. Still, he conceded that “there is no single answer as to how the United States becomes less vulnerable.” He proposed nine principles for energy security, including the diversification of energy sources, the creation of cooperative relationships with oil-producing nations, and additional funding for research, development, and innovation.

“Government decisions will be critical,” said Yergin.

After the opening remarks by Reilly and Yergin, the conference’s first panel addressed the projected global demand for oil through 2050. Guy Caruso, an administrator at the Energy Information Administration, presented data suggesting that demand will continue to rise at rates that exceed supply.

“The key point isn’t so much the specific numbers—it’s the trends,” said Caruso. “The big picture for the United States is indeed one of growing import dependency—not only for oil—but growing in dependence on natural gas, too.”

John Felmy, a senior economist at the American Petroleum Institute, addressed the question of when and if oil supplies might run out.

“Never,” Felmy said. “Running out is not likely. It’s a question about what the price will be.”

Accordingly, Felmy said that calls for renewable energy—while noble and worthwhile—were overhyped. He called wind, solar, and geothermal resources the “darlings of renewable energy,” and said that “even if you increased the output of renewable energy sources by 1,000 percent, you only get 5 percent [of total energy output]. They will continue to play a small role until we develop the technology to reduce the cost.”

Felmy cautioned against opposition to the development of oil resources, calling such hostility a “serious threat.”

Brookings Nonresident Senior Fellow James A. Placke discussed nuclear energy, an alternative that remains politically unpopular given the difficulties in safely disposing of nuclear waste.

“The reason it is such an issue, as compared to anything else,” Placke said, “is that the wrong exposure there can kill you fairly quickly. There is an argument to be made that breathing polluted air will do the same—it will just take longer, so it’s much more dramatic and, therefore, carries additional political freight.”

Former CIA Director R. James Woolsey began the conference’s next panel by discussing energy geopolitics and the security and economic risks implicit in America’s energy dependence, including the “potential use of oil as a weapon to effect our security and our behavior,” especially in the Middle East.

“As India and China come online with their increased demands, the growth of the middle class, and more vehicles,” Woolsey said, “we are likely to see very substantial increases in demand for oil, and much of the supply will come from areas of the world that are volatile, where terrorist interference or a coup are all possible.”

For Woolsey, the solutions are complicated, and he dismissed simple proposals to reduce the U.S. energy dependence.

“I don’t think the problem is resolved by the United States buying less oil in the Middle East and having other people buying more oil from them,” said Woolsey, who currently is a member of the National Commission on Energy Policy. “That’s a particularly stupid decision. Solutions that point towards changing the pattern of oil consumption in that way don’t deserve the time of day.”

Woolsey rejected pushes for fuel cell cars and corn ethanol subsidies, saying that such changes would require a massively expensive and unrealistic conversion of the U.S. infrastructure. He did, however, believe that the United States could eventually become self-reliant, especially if hybrid cars—Woolsey admitted to being on a waiting list for a hybrid car—were promoted and used more aggressively. Hybrid cars can be used in the existing infrastructure.

Brookings Senior Fellow Fiona Hill shifted the discussion away from the importance of the Middle East by pointing out that in the past decade sixty nations have increased their oil production and are now supplying the United States. These include Russia, as well as countries in South America, Africa, and Europe. Hill concentrated on Russia, whose oil production is likely to approach nine million barrels per day during 2004, more than the output of countries such as Iran, Venezuela, and China.

“For Russia, oil and gas are really big politics,” Hill said. Despite Russia’s large production, however, Hill pointed out a few problems the country will encounter down the road.

“Russia’s big challenges come down to infrastructure,” Hill said. “The bulk of Russia crude, thanks to a pipeline system left over from the Soviet Union, goes to Europe, which remains the dominant importer of Russian oil.” This trend wasn’t likely to change, Hill suggested, since the construction of new pipelines won’t be unable to keep pace with increased demand for Russian oil.

Although Russia’s increased oil production makes it a major player in the global marketplace, its oil supply is expected to peak around 2020, making the prospects of Russia overtaking the Middle East in oil production “just not possible,” Hill said.

John Felmy said there was a “major elephant in the room”—climate change—but maintained that “climate science is clearly not settled” on that issue. Felmy presented data that suggests that changes in the earth’s temperature were due to an increase in the sun’s solar radiant energy, not a deterioration of the earth’s protective ozone layer, as many suggest. This, in Felmy’s opinion, gives little cause for serious concern about global warming. Felmy worried that overstating concerns about global warming could lead to legislation and treaties that could harm economies. He cited the Kyoto protocols and the McCain-Lieberman Act (legislation aimed at significantly curbing emissions of heat-trapping greenhouse gases that threaten the Earth’s climate) as potentially harmful.

“Even if the science isn’t settled, it isn’t an excuse for inaction,” Felmy said, adding “but it’s also not an excuse for bad policies.”

Harvard Professor and Co-Chair of the National Commission on Energy Policy John Holdren offered a sharp rebuttal to Felmy’s optimistic outlook on global warming.

“The debate about whether global climate is now being changed by human-produced greenhouses gasses is essentially over,” Holdren said. “Few of the climate change skeptics who appear in the op-ed pages of The Washington Times and The Wall Street Journal have any scientific credibility at all.” In Holdren’s view, the only question that still remained was not if global warming would occur, but rather how much damage it would cause. He painted a grim picture of the earth’s future—a “roasted world,” as he called it—given current policies, living patterns, and environmental damage. Without an immediate reversal of polluting trends, Holdren warned that the earth will be hotter than at any time in the last 160,000 years and the sea level will rise anywhere from .7 to 3.3 feet.

“Global warming will adversely impact every dimension of human well-being that is tied to the environment,” Holdren said. “We are not about to run out of oil; the more interesting question is whether we’ll run out of environment.”

This environmental apocalypse, according to Holdren, could be avoided—or at least blunted—by reducing the emission of greenhouse gases, removing greenhouse gases from the atmosphere by growing more trees or phytoplankton (or by technological means), and by counteracting the climactic effects of greenhouse gases by geotechnical engineering. Holdren didn’t think that the full implementation of any of these measures was likely, however.

Panelists wrestled with how to avoid Holdren’s doom-and-gloom scenario while also being mindful of political sensitivities, economic needs, and global realities.

Brookings Guest Scholar David Sandalow said that global warming is an especially challenging public policy issue for three reasons: a mismatch between natural and political time scales, cost concerns, and the global nature of the problem.

“There’s no general agreement among social scientists about what to do,” said Robert Hahn, the executive director of the AEI-Brookings Joint Center. “It’s very unlikely that the United States will do much in the short term, no matter who is president.” Hahn cited the Senate’s 95-0 vote on a resolution several months before the Kyoto climate change conference as evidence of the United States’ reluctance to join international agreements regarding climate change.

However, Brookings Senior Fellow Nigel Purvis was confident that “change is afoot” with respects to progress on environmental policy and believed that Hahn—and others—placed too heavy a focus on the U.S. rejection of the Kyoto protocols.

“We need to get our act together here first,” Purvis said. “Kyoto is no longer the central question in the U.S. and those who focus on it do us a disservice. We need to find out if the United States has the will to take more robust measures to stop global change. I hope that we do.” Purvis thought that the United States could affect environmental progress around the globe by using domestic policies to leverage international action. He cited the McCain-Lieberman Act as an example of how domestic policies could spur international cooperation. “McCain-Lieberman would have created incentives to invest in emission reduction projects abroad.”

In light of the many challenges facing the United States and the world on energy issues, the conference’s final panel discussed possible U.S. approaches to address ongoing energy and environmental concerns.

“Energy policy, in my experience,” said Tudor Investment Corporation Vice President Robert McNally, “involves pragmatic, sensible adjustments to our tax regulatory and security policies that’s done by centrist moderates of both parties.” McNally, a former senior director for international energy at the White House National Security Council, believes that the United States could take immediate steps to avoid an energy catastrophe. First, the United States needs to find clean ways to utilize its abundant coal supply. “We have 250 years worth of coal—we need to use it.”

McNally also said that it was unrealistic to expect countries to stop using fossil fuel, and consequently they should develop policies that accept that reality while simultaneously working on “comprehensive policies to mitigate economic security and environmental liability.”

Former U.S. Representative Phillip Sharp (D-Ind.) agreed with McNally’s contention that fossil fuels were here to stay. “The oil markets are profoundly important to us and the world market and we cannot ignore them or run away from them or expect that we’ll be in a substantially different world in ten years, unless you are willing—right now—to live with significantly higher energy costs. Let’s stop the pretense.”

The conference was simulcast live on the Brookings website and can be found archived at https://www.brookings.edu.

“Global Challenges for U.S. Energy Policy” was the first of three Brookings’ conferences on the environment that will take place this spring.