October 25, 2001
To Alliance to Save Energy Summit
The past year has been a roller-coaster year in energy policy: • Last winter, extremely high natural gas prices, with consumers seeing fuel bills 3-4 times previous year. • This spring, we had a crisis in electricity prices in California that put one major utility into bankruptcy and cost consumers and the State dearly in terms of excessive rates and lost economic productivity. • Now, we are looking at potential threats to our energy supplies and infrastructure. Some of those threats would be from terrorists. But as was demonstrated a few weeks ago when a drunken hunter shot six holes in the trans-Alaska pipeline, caused a major oil spill, and shut the pipeline down for a few days, our infrastructure is vulnerable to a wide variety of threats. There are two possible approaches one can take to the volatility of our energy concerns. One would be to rush to legislate narrowly on each succeeding set of concerns, only to find that one is lurching from crisis to crisis. The other approach is to take a comprehensive and balanced approach to energy policy, and to remain focused on the big picture. I think that the latter course is the one we should take. I think that the big picture we should keep in mind is the close connection between energy policy and our economic prosperity. Congress has a great opportunity to set an energy policy that will rebuild our national economic prosperity by: • ensuring adequate and affordable supplies of energy, including oil, gas, and electricity; • improving the economic efficiency of our energy use, including energy use in industry, vehicles, appliances, and buildings; and • keeping other important policy goals, such as environmental protection, in mind as we sort through energy policy choices. The key to achieving all three of these goals is to accelerating the introduction of new technologies and to create market conditions that empower energy consumers to make choices that benefit both them and society. Let me briefly touch on each of these themes. The first major goal of a comprehensive and balanced energy policy is to provide reliable and affordable supplies of energy. In this regard, we obviously need to sustain and increase domestic production of oil and natural gas. • The current focus on drilling in the Arctic National Wildlife Refuge, in my view, is actually a distraction from what needs to be done to boost domestic oil output in the next decade. We have leased vast tracts of the Gulf of Mexico to oil companies that are not doing much to explore and produce on these tracts. No environmental law or regulation is stopping them. Nor is capital seemingly a problem–some of the same companies that are holding large and idle leases in the Gulf of Mexico are investing heavily in exploration or production in Saudi Arabia and Central Asia–parts of the world that seem to have much greater investment risk. We need as a nation to start focusing on this curious phenomenon and find out why we aren’t exploring and producing the domestic leases that are already out there. • In the area of natural gas, we are about to make a major policy mistake of becoming, as a nation, dependent on imported natural gas brought in on tankers for a substantial part of our natural gas consumption. The countries on which we would rely are prone to political instability and are in the early stages of forming an OPEC-like organization for natural gas exporters. The antidote to this developing problem would be to bring down, from Alaska, the vast reserves of natural gas that have been discovered and are ready to be developed in the Prudhoe Bay region. This makes a lot of sense, but it isn’t happening because of a lack of certainty about the investment risk of building such a major pipeline. Since natural gas prices vary from $2 to $10 per million cubic feet, it is hard for the free market to take this challenge on by itself. This is the classic kind of market failure that requires assistance from the government, in order to achieve the right national policy result. Electricity is also an area of key concern if we are to provide reliable and affordable energy supplies. In this area, we need to make sure we have the market structures and incentives that will produce a reliable electricity system that provides affordable electricity from a variety of generating sources, including distributed generation. The vulnerability of our electricity infrastructure to natural or human disruptions will be reduced if the system is more robust, and having a diverse and distributed generating base is key here. Consumer-empowerment technologies such as net metering and real-time pricing can help these markets become more informed and efficient. Renewable energy is an underutilized option in many parts of the country, and we would do well to find ways to promote its use in electric generation. The federal government should be playing a leading role in this by its own purchasing behavior. The second major goal that a forward-looking energy policy should have is to increase the efficiency of our energy use across the board. Every participant here today is aware of the importance of this goal nationally and the opportunity for increased jobs and economic activity from energy efficiency. I believe that Congress needs to take a serious approach to increasing vehicle fuel efficiency. Our import dependence on foreign oil is completely driven by increasing demand in the transportation sector. I don’t see how one can seriously talk about decreasing that dependence without including vehicle fuel efficiency as part of the policy mix. The facts are clear. Our current trend of increased fuel demand over the next 10 years will overwhelm any new domestic production – even if we open ANWR and its has more oil than anyone thinks is possible. Industrial, appliance, and building energy efficiency are also important parts of a comprehensive energy policy. In these areas, we need to do more. While the Bush Administration has made positive statements about its interest in improving efficiency, it took a big step backwards when it proposed to water down the efficiency standards for air conditioners. Just this past Friday, the EPA put out its official comments on the standard, echoing what I and many other have been saying about ths proposal–that it was based on bad technical and economic data. I hope that the growing consensus inside and outside the Administration on a 13 SEER standard for air conditioners will result in a return to the previously promulgated and more efficient standard. As we move forward in defining a comprehensive and balanced energy policy, we need to keep in mind all the connections between energy and other important national and international goals. Much of energy policy and much of climate change policy are interlinked. We need to make sure that our energy choices do not lead to inefficient or wasted investment in technologies or facilities that have to be written off because of policy imperatives in other areas. Industry needs to have certainty about the rules of the road in these two linked areas going forward. In terms of our long-term economic prosperity, there are jobs to be created and markets to be captured in climate-friendly energy technologies in the future. The United States needs to be more than a passive observer in international climate negotiations if we want to defend our economic interests. Legislation that fleshes out the policy and tax implications of the big picture that I have outlined will take time and care to enact. I have resisted attempts to move one-dimensional energy policy prescriptions in the Senate, and I have been pleased at the support that I have received from industry, public interest groups, and even the Administration. Truth be told, energy shouldn’t be a partisan issue. Every region of the country has its particular energy issues and we need to find a way to balance them all in a package that can pass. Despite the disruptions since September 11, we have been making quiet progress on a number of fronts in the Senate. In the area of electricity, the proposals I issued on September 6 have led to a fruitful engagement with the Administration on electricity policy and substantial progress. There is also developing consensus in a number of other areas. I am hoping that I can complete a package of proposals to serve as the starting point for debate in the Senate in the near future. I hope to continue to have the support of everyone in this room for the sort of balanced and comprehensive approach that is needed.