Securing the future

As the biggest consumer of fossil fuels in the world, the US is acutely aware of the drastic effect increased competition, volatile supply and over-reliance on unsustainable energy sources could have on future economic growth and development. Here, Secretary of Energy Samuel W. Bodman calls for the private and public sectors to unite and drive R&D into alternative and sustainable energy sources forward.

As we all well know, the demand for energy is rising rapidly and will continue to do so in the coming decades. I trust you’ve heard the sobering projections many times – for example, that by 2030 global energy consumption will grow by over 50 percent, with 70 percent of that growth coming from the world’s emerging economies.

As the world’s largest consumer and a principal supplier of energy resources, the US must play a leading role in addressing the world’s energy challenges. But while American leadership is absolutely required, this is not just a concern for the United States government. It necessarily involves all nations of the world – including producers. Nor is it just the purview of government. We need the active participation of the private sector – all industries, as well as the academic and non-profit communities. This is truly a global challenge.

Given this reality, President Bush has committed the United States to lead the world on a path to greater energy security. It is time for the world community to embrace a new paradigm of energy security that acknowledges that the current level of energy insecurity in the world poses an unacceptable risk to our economies and security; that the environmental challenges posed by fossil energy use must be confronted directly; that free, open and competitive markets for energy trade and investment are essential to increasing energy security; that innovation is critical to solving our energy challenges; and that the international nature of this problem requires coordinated action on a global scale.

Countries that embrace these ideas will necessarily choose the path of responsible action. I have asked our international partners to commit themselves to five major global goals.

Diversified energy supply
First, we must diversify the available supply of conventional fuels and expand production. We need not only expanded supply from existing sources, but as importantly, we need more producers supplying global and regional markets. Diversification of supply will help to defuse the risks of supply disruptions from any one source.

In order to increase global access to conventional fuels, we need stable regulatory frameworks, open investment climates, adherence to the rule of law and market-based pricing of energy resources. Moves to restrict foreign investment and increase the reach of state-run energy industries limit access to capital and to the expertise needed to unlock new resources. While this type of behavior may garner some short-term advantage, in the long-run it deprives those very countries of productivity and prosperity.

In fact, I would argue that we don’t just need neutral stances from government – or a lack of obstruction. We need government policies that actively encourage investment. Furthermore, initiatives (new or old) that seek to control the flow of energy supplies to the market and circumvent the role of the market to set prices are contrary to the long-term interests of both producers and consumers. History has shown that an unfettered market is the most effective and efficient way to determine price and allocate resources based on supply and demand.

In addition, we must take steps to create and maintain an adequate liquefied natural gas (LNG) infrastructure, accelerate the development of non-traditional fossil fuels – like oil shale and oil sands– and, perhaps the most promising, in my view, expand the availability of clean-coal technologies around the world.

Alternative energy options
The second goal is related to the first: we must diversify our energy portfolios by expanding the use of alternative and renewable sources. Diversification toward alternatives could greatly relieve pressure on markets for conventional sources over time, while also addressing environmental concerns. There are myriad technologies that we could talk about in this area, but the key is increasing both their availability and cost-competitiveness.

This is the core of the President’s recent energy security proposals, such as the Advanced Energy Initiative, which focuses on accelerating the commercialization of promising technologies; and the ‘20 in 10’ plan to reduce America’s projected gasoline usage through greater reliance on alternative fuels.

In the power sector, enhanced use of nuclear and renewable electricity generation – such as from solar photovoltaics, high-efficiency wind power and biomass – which produce virtually no air pollutants or greenhouse gases would limit emissions and take pressure off the demand for natural gas. In the transportation sector, development of alternative fuels such as hydrogen, biodiesel and ethanol could curb the world’s growing appetite for oil while reducing emissions.

An efficient approach
The third goal is the promotion of increased energy efficiency and conservation measures. The biggest source of immediately available ‘new’ energy is the energy that we waste every day, and this is as true in the United States as it is around the world. We must continue to encourage consumers to choose energy-efficient vehicles and products. We also must reduce the energy intensity of our industries.

We should also do more to strengthen our cooperation with developing countries to encourage policies that will ensure economic growth and responsible energy use. In this area and others, we should leverage existing international bodies – such as the G-8, APEC and the IEA – to advance these objectives.

Environmental action
Progress on expanding our use of alternatives and increasing global energy efficiency will move us toward a fourth goal: we must take steps to improve our earth’s environment to reduce pollution and the emissions intensity of the global economy. The release of the UN’s IPCC report confirms that human activity is contributing to changes in our earth’s climate. There is no question that this is a serious challenge, and so the focus must continue to be on developing and deploying solutions that are technically and economically sound.

This is a global issue that requires a global response and the United States has been and remains committed to doing our part. Since President Bush took office we have invested approximately $29 billion in international partnerships, climate science and in the development of clean energy technologies and President Bush’s “’20 in 10” plan could also stop the growth of CO2 emissions from cars, trucks and SUVs within 10 years.

Infrastructure is critical
The final goal: we must maintain the global energy supply system and protect critical energy infrastructure to ensure a more resilient, secure and less volatile market. Delivering energy resources is as important as gaining access to them – and the governments of the world are uniquely positioned to achieve this goal in a coordinated way.

All nations should take steps to protect and modernize critical energy infrastructure, safeguard sea lanes, and to facilitate multiple delivery routes. And, the world must be prepared to address any severe supply disruption by maintaining adequate strategic reserves and using them in a coordinated fashion. To this end, in his State of the Union address, President Bush called for a doubling of the United States’ strategic petroleum reserve to 1.5 billion barrels by 2030.

Reaching agreement
Agreement on these five goals will define a new coalition of countries committed to a peaceful, secure and environmentally responsible energy future. And we call upon all countries – producing and consuming nations alike – to join us in embracing them without delay. For we know that oil and gas markets are global, complex and populated by a growing number of investors eliminating the possibility that any one single nation or entity can control them over time.

Nations that dismiss these principles and objectives do so at the expense of the prosperity and security of their own people – and the world’s energy security. Looking at each of these goals individually is meaningful, but taken together, the picture is even more compelling. There is a central theme running through them. And that is the absolute necessity of substantial and sustained investment in innovation on a global scale.

In this effort, the role of government is necessary – even critical – but not sufficient. What governments can do is twofold. First, they should provide the substantial funding needed for basic research and, in some instances, for pushing along the most promising technologies to commercialization. Secondly, governments must provide the right policy environment to encourage investments in all parts of the energy supply chain and stimulate new R&D in the private sector.

For example, as I mentioned, President Bush recently announced a plan to reduce projected US gasoline consumption by 20 percent by 2017. As part of the plan to achieve this goal, the President called for increasing and expanding the Renewable Fuels Standard (RFS) to include more alternative fuel types and displace 15 percent of America’s gasoline consumption by 2017 – up to the equivalent of 35 billion gallons of alternative fuels. Some have questioned whether this type of regulatory proposal is overly ambitious – can the United States really produce that much alternative fuel in the next decade?

To that, I say: that is precisely the point. This is the definition of an aggressive challenge. If we are to truly expand our energy horizons, then we must set the bar high. We must bet on technology. And, we must signal to private investors that our policy environment supports sustained investment in renewable and alternative fuels. So, government has a role, to be sure. But, the real breakthroughs are likely to happen in the private sector. In fact, I would argue that the possibility that private investment – on the scale that is required – will not happen is perhaps the biggest threat to our world’s energy future.

Bright future
Personally, I believe that it will happen. Having spent a good chunk of my career in the financial sector, I can honestly say that for the first time in my life we are seeing the venture capital community put sizeable amounts of money into energy. This is real money. They are betting, if you will, that clean, safe, affordable energy represents the new innovation frontier.

We are also witnessing the continued convergence of scientific disciplines so necessary to conquer any technical challenge. Researchers are beginning to draw on the impressive discoveries of the biomedical community and apply those breakthroughs to the energy arena. This emerging field of ‘bioenergy’ offers tremendous potential to break our global reliance on fossil fuels. This is particularly prevalent in the quest to produce and commercialize cellulosic ethanol. In order to succeed, we must redesign enzymes so that they convert cellulose to ethanol efficiently and cheaply and this work is well underway.

Research in this area and on other biofuels is being supported by key public and private investments. Two quick examples: the Department of Energy has announced a $375 million federal-funding opportunity for the establishment of three new Bioenergy Research Centers. Public and private entities – as well as consortia or partnerships – are eligible to compete for an award to establish and operate a Center.

The emphasis here is on high-risk, high-return approaches to developing energy-efficient and cost-effective methods for producing alternative fuels from biomass. Similarly, on February 1st, BP announced that it had selected the University of California in partnership with the University of Illinois to lead a $500 million research effort to produce biofuels. Much of this work will be conducted at the Lawrence Berkeley National Lab – a DOE laboratory and will focus on: developing feedstocks; creating techniques for breaking down plant material to its sugar building blocks; and finding ways to ferment these sugars into ethanol. This is a truly game-changing type of investment not only because of the scale of the funding, but because of its approach. Corporate money will fund university researchers at a federally supported laboratory to produce innovative research. That’s a partnership.

These two examples illustrate a critical point: we need everyone to be involved. The key to unlocking our energy future is ensuring that the innovation cycle continues at a rapid pace. We must leverage the tremendous power of private equity, while also making smart public funding decisions, to unleash the world’s best scientists and engineers on this problem. It is not enough to stand on the sidelines and wait for someone else to rise to the challenge. Without sustained global investments in the private sector and policies that support – not discourage – breakthrough technologies, we will not solve this problem.

And we must solve it. We cannot let energy become a variable, a risk, a question mark in the world’s economic and security equation. It is time for all to choose: to be part of the solution or not. The world has united around issues of common cause before and I would argue that there are few more compelling global concerns today than the need for a safe, affordable and clean energy supply.

This article is based upon a recent keynote address given by Secretary Bodman at the Cambridge Energy Research Associates (CERA) conference earlier this year. For further information, please visit www.energy.gov.