Lugar Speech On Energy Security And Climate Change

Lugar Speech On Energy Security And Climate Change

Thank you, Mayor Ballard, for your kind introduction and for your important leadership on energy issues in Indianapolis. I also want to thank Chancellor Charles Bantz, Dr. Andrew Hsu, and the entire team at the Lugar Center for Renewable Energy for hosting us today. The Lugar Center is at the forefront of research and education on energy issues. It is a catalyst for the ground-breaking collaboration of Hoosier universities, private industry, government, and our national labs.

The work of the Lugar Center and other energy research endeavors is vital because the United States is confronted by a cluster of national security threats that arise from our economic and cultural reliance on fossil fuels.

First, our immediate dependence on oil, a large percentage of which is controlled by hostile or unstable regimes concentrated in the volatile Middle East, increases our vulnerability to natural disasters, wars, and terrorist attacks that can disrupt the lifeblood of the international economy. It also means that we are sending hundreds of billions of dollars each year to authoritarian regimes. This revenue stream emboldens oil-rich governments and enables them to entrench corruption, fund anti-Western demagogic appeals, and support terrorism.

Second, we face the prospect of manipulation of oil and natural gas supplies by producers seeking political leverage. Vulnerability to such leverage has strained our alliances and poses a persistent threat to the global economy. Moreover, nations experiencing a cutoff of energy supplies, or even the threat of a cutoff, may become desperate, increasing the chances of armed conflict, terrorism, and economic collapse.

Third, we face longer term prospects of increased competition for finite resources, most notably, oil. At some point -- even with vigorous exploration and development efforts -- global demand for oil will exceed supply. As we approach the point when the world's oil-hungry economies are competing for insufficient supplies of energy, oil will become an even stronger magnet for conflict. Although the current recession has softened demand for oil, it has also led to falling investment in the energy sector. The International Energy Agency projects that global investment in oil and natural gas production will fall by $100 billion this year. These cuts come at a time when more investment is needed to counteract high oil field decline rates. This increases the possibility of extreme oil scarcity in the relatively near future.

And fourth, a concern at the center of public debate today is the series of international crises that may arise out of drought, food shortages, rising seas, and other manifestations of climate change.

This list does not necessarily exhaust the consequences we may face. But it underscores one of the dilemmas for policymakers, namely, that the multiple threats related to fossil fuel dependence are not identical. They each have a unique time horizon and threat intensity.

Some actions we might take, such as developing renewable fuels, may be useful in addressing the entire cluster of threats. But some steps that might be beneficial for reducing oil dependence, such as powering new vehicles with electricity generated by conventional coal technologies, may aggravate greenhouse gas emissions. Still other steps that might be beneficial for climate change may worsen other threats in the cluster. For example, EPA regulations on land-use changes could stunt biofuels production, or carbon regulation at home could increase import dependence on refined petroleum products.

Even as we work for a conversion from a fossil fuel dominated economy to one that depends much more on renewable resources, failure to maintain reliable supplies of oil and natural gas in the interim could be debilitating to our economy and our national security. Therefore, as we seek to reduce carbon output, we cannot afford to be complacent in the development of domestic oil and gas supplies, nor can we neglect bilateral relationships with key energy producers around the world or fail to reinforce multilateral energy cooperation.

Our task is not just to anticipate all possible national security threats that might emerge in the future due to our current energy portfolio. We have to develop timelines that compare the relative immediacy of these threats, and prioritize accordingly. Then we have to make rational choices about where and how to apply limited resources.

Heightened public understanding of the scope of our energy challenge has led to considerable progress on embracing an "all of the above" approach to energy policy. Development of renewables, expanded oil and natural gas production, improved use of coal, a revival of nuclear power, and efficiency improvements are all on the table, as they should be. Similarly, a growing consensus is emerging on the need for progress in building out the transmission grid, reforming utilities regulation to allow for dispersed generation and rate decoupling, and using smart meters. With coal generating more than half of the energy we use, carbon capture, storage, and recycling technologies are essential.

Economic Recovery and Climate Change
As we work to address energy-driven security threats, we also must take stock of what individual policies would mean for the economic vitality of our country. Solutions to our energy problems do not exist in isolation from the global economy. The global economic downturn has reduced energy demand, bringing greater flexibility to markets. Yet, when major economies start to recover, energy demand will rebound, causing markets to tighten and prices to rise. Under such conditions, markets will be highly susceptible to vulnerabilities that can produce severe supply shocks. In the near term, if we fail to address these vulnerabilities, the prospects for economic recovery could be seriously imperiled. An oil price shock that hits just as a recovery is beginning and demand for energy is increasing would likely generate inflation, undermine market confidence, and increase the risks of conflict.

Individual Americans and the national budget both face extraordinary economic challenges. While some economic indicators have shown signs of incremental improvement in recent weeks, a number of areas continue to cause concern. This is especially true with regard to unemployment.

Although the pace of job loss may finally be abating, overall unemployment continues to rise. The national unemployment rate now hovers just below 10 percent. In Indiana, we reached the 10 percent threshold six months ago, with a half dozen of our counties contending with unemployment rates above 15 percent. Even more troubling is the presence of greater long term unemployment in this recession compared to previous downturns.

It is within this economic context that the Senate may consider a cap and trade program. The cap and trade mechanism has become a central focus of the energy and climate debate in Washington.

I believe that the U.S. must attempt to reduce greenhouse gas emissions. To be successful, we must study, carefully, economic and political realities.

Some observers optimistically estimate that the loss in per capita U.S. GDP resulting from the Waxman-Markey cap and trade approach adopted by the House of Representatives would be between one and two percent. But even that level of reduced national growth is far from benign. Economic growth is the engine through which jobs are created, innovation is spurred, and entrepreneurship is launched -- including innovation in the green economy that we are striving to nurture. In the absence of economic revival and sustained economic growth in the United States, it is unrealistic to expect that the American public will maintain support for such a massively expensive carbon control program. In the absence of economic stability worldwide, developing countries are unlikely to make the investments necessary to convert the world to a less carbon intensive existence.

Similarly, public support for steps to reduce carbon would likely be undercut if we experience intense shocks to the American way of life stemming from our dependence on oil. For example, if peak oil scenarios, politically motivated embargos, wars, or natural disasters result in a sustained and severe curtailment of the availability of gasoline and heating oil before we have developed an alternative system, all bets are off for policies directed at mitigating climate change. If the American public and economy are rendered immobile by a sustained oil shock of a severity we have yet to experience, it is almost inconceivable that they would tolerate government imposed sacrifices focused on climate change that add to their burdens and slow the economy further. In this context, breaking our oil dependence, with all the national security, economic, and environmental benefits that would come with such a victory, must be our top energy priority. This does not mean that overcoming oil dependence and addressing climate concerns cannot be pursued simultaneously. They must be. But climate efforts must not cause us to lose focus on the immediate risks presented by our oil dependence, and preference should be given to steps in the climate arena that also have utility in mitigating oil dependence.

Due to our state's heavy reliance on coal for electricity, jobs tied to energy intensive manufacturing sectors, and broad agricultural base, GDP losses under the Waxman-Markey bill would be disproportionately felt by Hoosiers. Concessions made in the Waxman-Markey bill to appease a broad host of interests, including allocations made to power producers, may have made this worse by shifting some transition funds from the Midwest to coastal consumers.

Congress should continue to examine options for establishing policies that provide consistent signals to guide markets toward long-term energy transformation and continual innovation. Cap and trade, in a variety of formats, is one among several policy alternatives that the United States Senate will discuss in an effort to solve the most basic energy policy challenge before us, which is that many consumption decisions being made in the United States do not account for the basket of security costs posed by our current energy portfolio. The same can be said of the long-term costs of greenhouse gas emissions on our environment. In such cases, classic economics indicates that one of the most efficient solutions would be to enact policies that price our energy consumption decisions as accurately and transparently as possible.

Externality pricing alone, however, is not a cure-all for our energy security problems. In some cases, targeted interventions are justified to correct specific market failures and can bring achievable results in the near term. For example, many readily available and cost-effective energy efficiency upgrades exist for new homes, yet they are not widely used. Improved home and building energy efficiency codes, which automatically increase over time, would overcome inefficiencies and encourage manufacturers and developers to find new and cheaper ways to save energy, and, thus, save money for home owners and building managers.

It is prudent to act on policies to guard against climatic change and adapt to changes already likely to occur. But we should also give priority to steps that would simultaneously yield benefits for other U.S. priorities, such as bolstering energy independence, strengthening our economy, generating export markets for high technology industries, developing our rural economy and improving air quality. In other words, economic sacrifices undertaken by the American people in pursuit of energy and environmental security must deliver far more than just a reduction of U.S.-produced carbon.

Achieving Energy and Climate Gains
Notwithstanding my caution on the Waxman-Markey cap and trade formula, we should act quickly on a number of measures that would reduce our dependence on foreign oil, help limit the foreign policy risks of global hydrocarbon dependence, support economic growth, and cut greenhouse gas emissions.

Relatively quick progress on cutting oil dependence and slashing carbon emissions can be achieved from biofuels usage, even as we also transition to a more electrified transportation system. Efficiencies in buildings, homes, appliances, and manufacturing facilities are easy wins for our economy and the environment. Innovation is already happening, but we need fiscally-prudent and tactically-focused programs to jumpstart such actions to scale. To this end, Senator Merkley and I recently introduced a bill that would facilitate loans for homeowners and small businesses to make energy saving renovations.

Our main oil savings will come from the transportation sector, which contributes about a third of our greenhouse gas emissions. If current federal goals are met, biofuels produced in the United States would equal 20 percent of our current fuel needs and reduce greenhouse gas emissions by 90 percent compared to the fuel they replace. Although we have passed an expansive renewable fuels mandate, the mandate alone does not ensure that the necessary technological breakthroughs and infrastructure enhancements will occur.

Urgent attention should be given to improving the mix of feedstocks that can be turned into fuel. We should transition out of the current static biofuels subsidy programs, which, in my judgment, will become more difficult to extend as the cost rises and therefore will become less effective at encouraging investment. Instead, we should embrace market assurances tied directly to the price of petroleum, creating more reliable incentives and adopting a more taxpayer friendly approach. And finally, we must ensure that all new vehicles can employ multiple fuel sources, giving choice to consumers and spreading the reach of biofuels at low cost.

Similar focus and policy coherence needs to be given to accelerating advanced vehicle technologies and the batteries necessary to make them practical -- areas in which Hoosier companies and workers excel. The potential of electric vehicle technology is tremendous. Since most commutes are less than 40 miles a day, a vehicle with a 40-mile battery range could eliminate daily gasoline needs for most Americans. Automotive innovation can help give new economic life to communities that have struggled because of the auto industry's woes. We have seen new entrepreneurial companies like Bright Automotive and Carbon Motors choose to locate in Indiana. Federal government programs meant to foster research and leverage private investment must be geared toward true innovation, spurring transition in our existing infrastructure and ensuring that programs are suitably calibrated to support new entrepreneurial companies at the cutting edge of innovation.

Innovative technologies like those being developed at the Lugar Center and in the labs and companies represented by many of you today are the key to achieving security and environmental gains without sacrificing economic growth. If we are to succeed, we must have consistent research support and prevent innovative technologies from being lost in the so-called ‘valley of death' between R&D phases and commercialization due to lack of affordable credit -- a situation that has worsened with the recession.

Tools such as loan guarantees can help new technologies prove their commercial viability. However, the Department of Energy completed the first such loan guarantee just two weeks ago -- four years after the program was authorized. This inconceivable delay underscores the need for a far more focused effort. Recently I joined with Senators Bingaman and Murkowski to offer legislation that would establish a Clean Energy Deployment Administration with the mission to help new technologies prove themselves commercially and facilitate wide-scale deployment over a limited period of time. Such assistance needs to be fiscally responsible and careful to energize private investment, not crowd it out.

Finally, governments at the federal, state, and local levels should ensure that their own substantial procurement funds are promoting innovative materials that save energy -- and save taxpayers' money. Federal facilities should use the most energy efficient building materials available and can serve as test beds to demonstrate new products. Our vehicle fleets should use hybrids and electric vehicles, and they should be flex-fuel capable of using high-blends of biofuels. Even as the procurement power of the government enlivens markets for innovation, it will also help demonstrate to Americans that cost-effective energy and climate solutions exist today.

A Global Challenge
The challenge of deploying clean energy technologies is not limited to our domestic efforts. The energy choices being made around the world impact our own security, economy, and environment. The scale of the challenge dwarfs our own transition. Emerging economies far outpace us in energy demand growth. For many people in impoverished countries, this growth is a matter of survival, not luxury, so we should not be surprised when countries pursue the lowest-cost power options such as coal and firewood. Yet, many countries in the developing world are also the most susceptible to variations in energy markets, manipulation of energy supplies, and possible impacts of climatic change.

We have a common interest in finding cleaner and affordable energy solutions soon, and deploying them as quickly as possible on a global scale. The United Nations recently estimated that the cost of such a transition in the developing world will be $500 to $600 billion annually over the next decade. Bridging this gap will depend on innovative programs that leverage large-scale private investment in developing nations. We also must have mechanisms for assisting other countries to develop inexpensive energy saving and producing technologies and techniques. U.S. leadership now would help capture blossoming market opportunities for American products and services.

Freer trade in clean energy technologies can help boost competition, find efficiencies of scale, and open valuable markets for U.S. companies. Yet, global trade barriers on such technologies are substantial. Considering that a central goal of climate change advocates is to spread clean energy technologies, it is ironic that climate change is being used as a foil for protectionism. For example, the Waxman-Markey bill would raise tariffs, threatening to set off trade confrontations with those countries we most need to adopt new energy technologies -- and buy our government bonds.

More fundamentally, we must integrate energy concerns at the top of our diplomatic and foreign assistance agenda. As we seek to find ways to spread innovative energy technologies and techniques around the world, we must bear in mind that they will only be effective at scale with underlying policy frameworks reinforced with improved governance and political support in place. In other words, addressing energy security and climate change is an issue of governance and development, and we must integrate those into our ongoing dialogues around the world, not separate them. The advancement of the rule of law and transparency in partner nations is critical to ensuring that energy investments are efficient and productive.

The United States should demonstrate its leadership by adopting the pro-energy security and pro-climate change steps I have elaborated here today, and many more that I have not had time to detail. Complex treaty negotiations are not a pre-condition for implementing a pro-growth campaign of initiatives that would have an immediate and direct impact on the entire cluster of problems associated with our fossil fuel dependency.

Conclusion
I conclude with this thought. Energy is at the root of multiple threats to our country. Some of those threats we see today and feel personally, others may develop in the more distant future. As we endeavor to act on climate change, we should favor and accelerate policies that strengthen America against other threats that also are derived by how we generate and use energy. We are fortunate that many win-win policy options are achievable today. Energy security improvements and greenhouse gas reductions demonstrate commitment to our security, to working with global partners on common threats and, most importantly, commitment to future generations.

Thank you.

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