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A Growing Sense of Urgency

In 2003 the National Academy of Engineering named the 20 most important engineering accomplishments of the 20th century. At the top of the list was electrification. As Ernest Moniz said at the Summit on America’s Energy Future, which was held March 13-14, 2008, at the National Academy of Sciences Building in Washington, D.C., “In the century of computers, lasers, rockets, and cell phones, for electrification to be the number one engineering achievement of the century reflects the enormous technology embedded in that system, and its implications for our quality of life and the building of our society.”

The use of energy permeates our lives. We use energy to cook, to light and heat our homes and commercial buildings, to power industry and agriculture, to transport people and goods, and to drive and fly. The products we buy and the services we employ are made possible by the use of energy. Our well-being, prosperity, and security are all built on the ingenious provision and application of various forms of energy.

These observations apply to those who have relatively limited access to energy as much as they do to those who have ready access. As Reuben Jeffery noted during the summit, the growing use of energy in the developing world is closely linked to economic development and the reduction of poverty. Economic growth in China, for example, has lifted hundreds of millions of people out of poverty and has brought hope and opportunity to a new generation. The United States has an interest in supporting this economic development, Jeffery said, while also leading the effort to find ways of mitigating the negative environmental impacts that accompany development.



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1 A Growing Sense of Urgency I n 2003 the National Academy of Engineering named the 20 most impor- tant engineering accomplishments of the 20th century. At the top of the list was electrification. As Ernest Moniz said at the Summit on America’s Energy Future, which was held March 13-14, 2008, at the National Academy of Sciences Building in Washington, D.C., “In the century of computers, lasers, rockets, and cell phones, for electrification to be the number one engineering achievement of the century reflects the enormous technology embedded in that system, and its implications for our quality of life and the building of our society.” The use of energy permeates our lives. We use energy to cook, to light and heat our homes and commercial buildings, to power industry and agriculture, to transport people and goods, and to drive and fly. The products we buy and the services we employ are made possible by the use of energy. Our well-being, prosperity, and security are all built on the ingenious provision and application of various forms of energy. These observations apply to those who have relatively limited access to energy as much as they do to those who have ready access. As Reuben Jeffery noted during the summit, the growing use of energy in the developing world is closely linked to economic development and the reduction of poverty. Eco- nomic growth in China, for example, has lifted hundreds of millions of people out of poverty and has brought hope and opportunity to a new generation. The United States has an interest in supporting this economic development, Jeffery said, while also leading the effort to find ways of mitigating the negative environmental impacts that accompany development. 

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 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE Steven Chu made a similar observation. The major energy problem in about one-third of the world is very different from the energy problems com- mon in the United States, he said: “The basic energy needs of the poorest people are not being met.” The poor in the developing world rely primarily on wood, charcoal, dung, or other organic materials for cooking, and most live without electricity (IAC, 2007). The rest of the world has a “moral and social obligation” to help those who live in poverty gain access to the energy they need, Chu said. Yet continued reliance on the dominant sources of energy being used today also poses grave risks to human well-being. The production and use of fossil energy cause air and water pollution and also can require huge economic investments. Efforts to secure long-term access to fossil and nuclear fuels have at times greatly exacerbated international tensions. And global climate change caused by the release of greenhouse gases into the atmosphere could have cata- strophic consequences. “There is a broad consensus that if a responsible society doesn’t act, we’re heading for a problem in the environment, on energy security, and on economic development,” said Jeffery. “We need to act now.” INCREASING DEMAND AND CONSTRAINED SUPPLIES In his 12-volume Study of History (1934-1961), historian Arnold Toynbee examined the trajectories of various human civilizations and asked why civili- zations succeeded or failed. Most often, said James Schlesinger at the summit, they failed because of a challenge they could not meet. Today, the provision and use of energy pose “an immense challenge, both foreign and domestic,” Schlesinger said. “The question is our ability to respond effectively to that challenge.” Schlesinger quoted from a 1953 book entitled The Next Million Years by Charles Galton Darwin, the grandson of the author of the Origin of Species. In 1953 Darwin wrote: A thing that will assume enormous importance quite soon is the exhaustion of our fuel resources. Coal and oil have been accumulating in the earth for over five hundred million years, and, at the present rates of demand for mechanical power, the estimates are that oil will be all gone in about a century, and coal probably in a good deal less than five hundred years. For the present purpose, it does not matter if these are under-estimates; they could be doubled or trebled and still not affect the argument. Mechanical power comes from our reserves of energy, and we are squandering our energy capital quite recklessly. It will very soon be all gone, and in the long run we shall have to live from year to year on our earnings. (p. 63) Darwin’s observations are as relevant today as they were a half century ago, Schlesinger observed. “We are going through our capital of inheritance at a remarkable pace.”

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 A GROWING SENSE OF URGENCY Several years ago Schlesinger co-chaired a Council on Foreign Relations study with John Deutch of the Massachusetts Institute of Technology on the geopolitical implications of America’s dependency on imported oil (Victor et al., 2006). That study articulated three key observations, which several other speakers at the summit reiterated. The first is that the rising consumption of oil (driven by rising incomes and population growth) in the face of limited supplies will continue to put upward pressure on prices. This development is a departure from the past, said Schlesinger, when bodies such as the Organization of Petroleum Exporting Countries were established to limit the abundance of supplies. Current demand for energy services reflects both the large amount of energy being used in the industrialized countries and the increasing use of energy in the developing world (Chapter 3). Consumption of petroleum, natural gas, and coal in the United States, Europe, and industrialized Asian countries is large but relatively stable, Jeffery pointed out. But in rapidly developing countries such as China and India, energy consumption is growing dramatically. As recently as the early 1990s, China supplied its own energy resources. In less than two decades, China’s oil consumption and its gross domestic product have tripled. As a result, China now imports more than 3 million barrels of oil per day, and that number is growing rapidly. Demand for energy is likely to increase even more in the years ahead (Fig- ure 1.1). The world’s energy consumption could grow by more than 50 percent by 2030, with three-quarters of that increase coming from the developing world. By the end of the 21st century, energy use could more than double, although actual use will depend on prices, availability, new technologies, and many other factors. Meeting a rising demand for energy will require significant investment, Jeffery pointed out. The International Energy Agency (IEA) estimates that $22 trillion in new investment will be needed to meet expected global demand in the next two decades (IEA, 2007). Production and the discovery of new energy sources are not yielding suf- ficient fuels and electricity to keep pace with increasing demand. With regard to petroleum (Chapter 4), reserves of oil are available, but many of the countries with petroleum reserves do not have a strong incentive to increase production. “We’re not dealing with an absence of oil,” said Samuel Bodman. “We’re deal- ing with the fact that a large fraction of the oil that is in the world—and we know where it is—is in the hands of national oil companies that are seeing $110 a barrel today for the price of oil, and they are looking at that price going up. They are starting to ask the question, in my judgment, why should they produce it now when they can produce it next year and make more money?” Supplies of natural gas also are constrained. Russia, which has the world’s largest known natural gas reserves, has indicated that it will not develop the Yamal gas field fast enough to meet the growing demand in Western Europe,

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 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE 1,286 826 800 History Projections 702 654 607 600 559 551 447 400 366 400 347 309 283 200 0 1980 1985 1990 1995 2000 2004 2010 2015 2020 2025 2030 2050 2100 FIGURE 1.1 World energy consumption (expressed in terms of quadrillion British thermal units; quads) is projected to increase by more than 50 percent between now and the year 2030, and by more than Figure 1-1.eps of the 21st century. NOTE: 100 percent by the end Projections are based on models that incorporatevector redrawn to assumptions about such factors as economic growth, world energy markets, resource availability and costs, technologies, and demographics. A review of the Energy Information Administration’s process for energy forecasting is available at http://www.eia.doe.gov/oiaf/aeo/overview/index.html. SOURCE: Ray L. Orbach, U.S. Department of Energy, “Basic Research and America’s Energy Future,” presentation at the Summit on America’s Energy Future on March 14, 2008; data on consumption through 2030 from EIA (2007) and after 2030 through 2100 from IPCC (2000; Figure 8). Schlesinger said. Iran, which has the second largest known reserves, also cannot be expected to expand production greatly. Supplies of liquefied natural gas are not a problem in the short term, according to Schlesinger. But in the long run, depending on these supplies implies reliance on the same countries that supply much of the world’s oil. Liquefied natural gas also will not be cheap. European contracts for liquefied natural gas track the price of diesel, Schlesinger said, and with diesel prices high the price of liquefied natural gas also is high. Coal (Chapter 5)—once considered America’s “ace in the hole” because of abundant domestic supplies—now poses much greater uncertainty, Schlesinger observed, largely because of concern about increasing levels of greenhouse gases in the atmosphere (Chapter 2). Although the Energy Information Admin-

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 A GROWING SENSE OF URGENCY istration (EIA) had projected that coal would provide 57 percent of U.S. electri- cal power production by 2030 (EIA, 2008)—up from 51 percent today—recent cancellations of new coal-fired power plants make such projections unlikely. Technologies are being investigated that would capture the carbon dioxide emitted from coal-fired plants and sequester it in deep underground reservoirs (Chapter 5). But any such technology is years away from being deployed on a large scale. Nuclear power (Chapter 6) is receiving renewed attention as a potential source of energy that does not release greenhouse gases during power genera- tion. But while a nuclear revival is likely, Schlesinger said, a nuclear renaissance is not. Major problems regarding fuel cycles and waste storage remain to be solved. And the nuclear labor force has aged dramatically in recent decades, with much of the labor force now on the verge of retirement and far fewer trained workers ready to fill their shoes. The EIA (2008) has projected that by 2030 nuclear energy will provide an additional 14.7 gigawatts of power in the United States (current nuclear plants have a capacity of about 100 gigawatts). That will be helpful, Schlesinger said, but it will not solve America’s energy problem. Energy supplies will continue to be available, said Schlesinger, but only at whatever price clears the market. As a result, “the price of energy will continue to rise,” he said, “[despite] what the public expects and what political leaders may promise with regard to affordability.” CONTINUED U.S. RELIANCE ON FOREIGN SOURCES OF OIL The second broad observation to emerge from the study Schlesinger co- chaired is that U.S. dependence on foreign oil is not going to end in the foresee- able future (Victor et al., 2006). One reason for this continuing reliance is the sheer size of the U.S. market. As Paul Portney pointed out, about one person in every 20 on Earth lives in the United States. Yet the U.S. population currently uses about one in every four barrels of oil that are produced. This high usage is why the United States currently imports about two-thirds of its oil. “We use oil in gross disproportion to our numbers,” Portney said. Past calls to achieve energy independence have failed, Schlesinger observed. In 1973, President Richard Nixon launched Project Independence, which laid out a path to becoming energy self-sufficient by the year 1980. Between 1973 and 1980, imports of crude oil into the United States rose 60 percent, Schlesinger said. Since that time, they have tripled. “If we are seeking energy independence, we do not seem to be on the right track,” Schlesinger observed. The main reason for increased imports is the nation’s continued reliance on petroleum for vehicle fuels. “We are not going to reach energy independence as long as the United States remains dependent on the internal combustion engine,” said Schlesinger. Advances in transportation technologies have sub-

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 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE stantial potential to reduce oil consumption in this sector (Chapter 9). But even as the fuel efficiency of vehicles improves, the larger number of vehicles caused by a larger population and more vehicles per person will at least partly offset efficiency gains. Furthermore, it takes 20 years to turn over the stock of cars, and older cars, which tend to stay on the road in the absence of policies to replace them, are the least efficient. Because the United States will not achieve energy security in the foresee- able future, Schlesinger said, it must instead strive to fashion a set of policies that will limit energy insecurity. Establishing the strategic petroleum reserve was an important step in that direction, he commented, but much more needs to be done. GROWING INTERNATIONAL CONSEQUENCES The third observation to emerge from the Council on Foreign Relations study is that the continued U.S. reliance on imported oil has immense interna- tional consequences (Victor et al., 2006). Portney underscored this point when he remarked that, with oil at more than $100 per barrel, the United States is sending about $500 billion per year to oil-producing countries in return for needed supplies of oil. This outflow of funds contributes to an enormous trade deficit, which in turn is putting downward pressure on the value of the dollar. As a result, imports have become more expensive. And because the United States has not succeeded in greatly increasing its own exports to other countries and has chosen to run a large budget deficit, the nation has to rely on other countries buying U.S. bonds and other assets to finance its trade deficit. The bottom line is that debt payments to other countries are growing and will continue to do so. “For my children and your children and their children, if we continue down this road, we’re going to see a future in which large amounts of the government budget each year go to servicing the debt by making pay- ments to people in China or the Middle East or Venezuela or Nigeria,” said Portney. “That’s not becoming of a country of the stature of the United States of America in my view.” The U.S. dependence on other countries for oil has weakened the nation’s ability to influence the policies of those countries, said Schlesinger. The growth of oil revenues in countries like Iran and Venezuela has enabled them to be openly defiant with the United States in ways that would not have occurred a decade ago. Russia is reasserting itself after a decade of what it views as inter- national humiliation. Even Saudi Arabia and other U.S. allies in the Gulf of Arabia are not as responsive to U.S. requests as they once were because of the immense increase in their financial assets. Also, many of the countries on which the United States relies for petroleum are located in unstable parts of the world, Portney observed. In addition, the rise of resource nationalism and the use of energy resources as a political tool

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 A GROWING SENSE OF URGENCY have put constraints on oil production. More than 75 percent of the world’s oil reserves are now controlled by national oil companies, which tend to be less efficient at developing their resources (NPC, 2007). Transporting supplies to market also can be a problem, Jeffery pointed out. Much of the world’s oil passes through a series of vulnerable points, leaving energy consumers susceptible to supply disruptions. Thirty-five percent of all the oil shipped in the world passes through the Strait of Hormuz. Another 34 percent passes through the Strait of Malacca on the way to China, Japan, and other Asian countries. About 8 percent passes through the Bab el Mandeb, which connects the Red Sea to the Gulf of Aden. “Reliance on a small number of oil transit routes leaves world oil supplies open to the possibility of a sudden disruption, whether manmade or by a natural disaster,” Jeffery said. Oil facilities also are attractive targets for terrorists, Schlesinger said. Al Qaeda members who were planning attacks on oil facilities in the Middle East were recently arrested in Saudi Arabiain February 2007 Saudi forces thwarted an attack on the Abqaia oil processing center, which handles two- thirds of the oil supply from Saudi Arabia. “And,” said Schlesinger, “Al Qaeda has not given up.” High oil prices have a significant impact on all energy-consuming coun- tries. According to Jeffery, they cause hardship for individuals who have to pay higher prices for energy, and they also have a macroeconomic effect. Many other countries besides the United States are net oil importers, including some of the world’s poorest and most vulnerable countries. In many of those coun- tries, the outflow of money to pay for oil risks diverting resources from public services and crucial tasks such as economic development. And major economic disruptions of recent decades, such as the developing countries’ debt crisis of the 1980s, were exacerbated by financial imbalances related to energy imports and exports. Rising energy prices have a particularly damaging impact on small, devel- oping countries, Bodman pointed out. There, high energy prices can be espe- cially pernicious in stifling business growth and slowing improvements in the quality of life. “We must keep the energy needs of the world’s poorest nations in mind as we talk about solutions,” he said. On the other side of the ledger, oil-exporting countries are accumulating huge financial surpluses. One consequence of this wealth transfer is a prolifera- tion of sovereign wealth funds, which are large pools of money that countries rather than private entities invest. The United States and other countries are working with the International Monetary Fund and the Organisation for Eco- nomic Co-operation and Development to identify best practices to encourage greater transparency in the investment of these funds, which will help ensure that such investments are based on market principles. The current administra- tion supports policies that keep the United States open to investments from abroad, Jeffery said, while ensuring that national security is not threatened.

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0 THE NATIONAL ACADEMIES SUMMIT ON AMERICA’S ENERGY FUTURE A NECESSARY URGENCY? Despite the severe problems associated with energy production and use, many people at the summit expressed optimism that the problems can be over- come. Many new technologies are already available that can reduce energy con- sumption in transportation (Chapter 9) and in buildings and industry (Chap- ter 10), and other promising technologies are being developed. Moreover, many more people are recognizing the urgency of the energy issue, Bodman observed, which has built support for one of the most important elements of a national strategy: a national imperative to act. “Perhaps as never before, the American people are calling for action,” he said. Yet many speakers at the summit also asked whether the level of urgency being expressed by the public and by policymakers is sufficient. New technolo- gies can take a long time to develop and implement, especially given the large investments that must be made for new technologies to have a substantial effect in the energy sector. In light of projections that call for the use of energy to double during the 21st century, said Ray Orbach, “I think one can legitimately ask, ‘Where will the energy come from?’” Simple extrapolations of current trends into the future appear to yield untenable increases in greenhouse gas concentrations in the atmosphere. “Can we survive as a globe under those conditions?” Orbach asked. “We don’t seem to be able to generate the sense of urgency that’s required to address this problem,” said Ernest Moniz. “We talk about doing this and doing that, and before you know it a decade has passed. We can’t afford to waste another 10 or 15 years. We can’t get there from here if we do that. The sense of urgency is one that we need somehow to capture.”