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Panacea or Pipe Dream? Energy Policy and the Search for Alternatives: Session III: Government Action and the Policy Puzzle

Speakers: Brian Bilbray, (R-Ca), James Rogers, Chairman, President and Ceo, Duke Energy, and Timothy E. Wirth, President, United Nations Foundation
Moderator: Sebastian Mallaby, Director Of The Maurice Greenberg Center, Council on Foreign Relations
March 13, 2007
Council on Foreign Relations Washington, DC



SEBASTIAN MALLABY:  Okay.  We want to get going with our third session.  Please take your seats.

This is the most ambitious but at the same time the shorter session so please sit down.  (Clinking glass.)  A-ha, thank you very much.  A constructive member of the audience taught me the old bottle and glass technique there. 

Welcome back to the third symposium -- third session in this symposium.  This one is focused on the policies that the government might adopt to drive the changes that we talked about in the first two sessions.  So in session one we talked about why we might want to drive a change in policy.  Session two we've talked about what alternative fuels exist out there, and whether conservation represents a more productive route to go down than encouragement of other fuels.  I now want to talk about what a government can do to speed this process up.  We've got a slightly less amount of time.  We've got a one-hour session instead of a one-hour and fifty-minute session.  We've got, on the other hand, more people on the panel -- more issues before us so let's get going. 

On my right here is Jim Rogers, chairman of the board -- president and chief executive of Duke Energy.  He has 18 years of experience as a chief executive in the power sector, and he served in the past on the Federal Energy Regulatory Commission.  On my left here is Tim Wirth, the president of the United Nations Foundation and Better World Fund, which was set up by Ted Turner to strengthen the work of United Nations.  He served in the House, in the Senate and at the State Department's first undersecretary for global affairs during the Clinton period.  And then to my far left, to show that we are an entirely balanced apolitical organization -- not just to show that -- but we have Congressman Brian Bilbray, who is newly elected to the House of Representatives for -- in a second incarnation.  The first one as a Republican he was part of the Gingrich sweep in 1994.  He then served six years in the House and came back last election, not in a major Republican year but defying the trend, and he has worked a lot on immigration as well as on energy issues. 

Now, on this question of what government should do I'm going to pose a series of sort of high-level kind of concept questions about how I should think about the approach, and the first one, which picks up from the last -- the end of the last session is -- and I'm going to put this to Jim Rogers -- should government basically be neutral with respect to the type of strategy that's going to work through reducing dependence on oil and gas, or should it be in the business of picking technology winners?

JAMES E. ROGERS:  It would be my view that the government should not be in the business of picking winners and losers, or picking technology.  Any study of the history of technology tells you that you're always surprised.  Nobody is ever to predict.  And so I think it's very important that they are neutral with respect to the technology going forward, and I think that will translate into better results over time.

MALLABY:  Okay.  That was an admirably succinct answer -- thank you. 

ROGERS:  I can be coached.  (Laughter.)

MALLABY:  So if neutrality is preferable -- if we stipulate that for the moment, is it enough for government to promote alternative energies through investment -- sort of push strategies where you put government money into the research, or does something have to be done to constrain demand for traditional fuels on the other side?

TIMOTHY E. WIRTH:  Well, you know, starting if I can in the bit of the wrong place.  If I -- let me go back to the first panel, and why are we doing this and why are we thinking about this.


WIRTH:  I mean, it's absolutely imperative that the other window that drives so much of this has to be climate policy.  That was sort of mentioned as an aside this morning.  It is not an aside.  You know, the urgency of dealing with the climate issue and the urgency of dramatically reducing, you know, our emissions of carbon -- that single factor has to be as great as any of the other -- in probably my opinion, greater than any of the other ones.  You know, if that -- so that has got to give you a sense, okay, of what choices you make.  If that's one of the single goals what are the choices that you make?  And you back up from there to say, we're going to burn a lot of coal -- there's no question about it -- but since we're going to burn a lot of coal, and the urgency of reducing the amount of carbon going into the atmosphere is as great as it is, you know, as close as we are to a two-degree increase already, therefore government ought to be very sharply focused on helping Jim Rogers -- helping to focus on the coal issue.  Not helping just Jim Rogers, but focusing on the coal issue. 

So a very significant part of government policy ought to be focused on research, development and demonstration.  It ought to be focused on helping to get the rules right.  You know, that was discussed earlier.  You know, John Bryson talked about that -- getting the rules right for utilities so utilities get rewarded for conservation just as they get rewarded today, you know, for producing more electricity.  So they -- the -- they just -- the carbon window, right, gives you a lot of answers or puts a lot of sharpness on what have to be answers to this very complex set of issues. I --

MALLABY:  Right.  But the question is, you know, should we try to encourage Jim Rogers' work at Duke Energy by helping him with his technology research with federal dollars, or by incentivizing a change by either taxing carbon or restricting the consumption of it through capping --

WIRTH:  Oh, we certainly -- well, we have to do both things, you know, but we certainly have to put -- we certainly have got to put a cap on carbon, and what the USCAP group has done which is, you know, Duke and GE and Caterpillar and these -- this remarkable commitment of this group of companies, you know, to a cap is exactly the right thing.  You know, putting that cap on, you know, is going to provide a significant incentive, you know, that is going to for the first time admit publicly that the cost of putting all the -- it's no longer a free good to put all this garbage up in the atmosphere.  The commons is no longer a free good any more than you can put trash into the ocean anymore or you can throw trash out the window, we can't put trash into the atmosphere anymore.  There's going to be a cost for this. 

So the minute you do that, that is a government policy that is going to certainly help the economics of this and second, you know, coupled with that it seems to me has to be a very aggressive government RD&D program.  We're spending today about 25 percent of what we did 20 years ago in government research, development and demonstration on energy issues at a time when I think everybody recognizes that -- the importance of energy for the purposes of climate, for the purposes of poverty -- which we haven't talked about much but it's very important -- and for the purposes of national security has increased very dramatically.  So it's a mixture of the two.

MALLABY:  And Congressman Bilbray, if part of the policy response is likely to include not just investments in research but also something on the other side to affect demand, how do you think about the relative merits of either taxing carbon or capping and trading it?

REPRESENTATIVE BRIAN BILBRAY:  Well, capping and trading is obviously something that has a lot more success.  There was a time when the environmental communities thought that emission trading was outrageous.  Now you see mainstream -- environmental community sees it as essential.  But I think that we need to get back to what do we really want to do here, and I think one of the things that I worry about in this town -- after serving six years in the Air Resources Board in California, one of the most successful environmental strategies in the world -- it's got to be outcome-based.  A good example is Washington in '90 mandated that so-called clean fuel meant that you had 10 percent by volume oxygenates in there -- ethanol or methanol.  This was supposedly great for the environment.  I think we learned the major problems in California.  Because we are outcome-based, we said this is not only not the best way, it is counter to our agenda.  It is not to subsidize the ethanol or methanol industry. 

But the problem is the politics and we're working within the political realm, neutral agendas do not get financed, do not get pushed.  There's going to be winners and losers in the political process.  The trouble is from the environmental point of view, it should be all outcome based.  And what we did in California, rather than saying what you put into your fuel to make it clean, we said, make it clean.  ARCO, in six months, came out with a gasoline that was cheaper and cleaner than what the federal government had -- was pushing for 10 years.  But it's because it was outcome you allow that flexibility.

So I think that -- first of all, let's be frank about it:  The great agendas that move in our society are capitalistic agendas, guided by government, but not directed by government and there's a distinct difference there -- or mandated.  And so I think that it's critical that these partners go in there.  But we've got to understand that the real momentum like public housing, like production of food, like production of everything else that's energy is the private sector is going to be the one who actually is doing the heavy lifting and those of us in politics will be sitting around talking about how great we've done while somebody else is pulling the load.

MALLABY:  Are mandatory caps less attractive than flexible trading?

BILBRAY:  Well, put both of them in.

MALLABY:  Right.  You cap first and then you allow the trading so that the way that you get to the policy outcome is something that the private sector can determine effectively. 

But you can make the same precise argument for a carbon tax instead of a cap-and-trade system.  A tax would also just say, hey, we're taxing carbon.  You guys figure out how to you want to reduce it.

BILBRAY:  Well, the trouble is, we've got to use a model too.   You know, in all fairness, the issue of the common not being a major issue where people don't dump their trash in the streets, people don't dump in the ocean, whatever.  In Third World countries they do.  You've just got to understand that.  I mean, I've said many times -- Latin America is a gorgeous place, but there's a culture there that is going to have to change and we need to work with -- if we're going to do global climate-change strategies, we can't do it without the Third World coming along.  So whatever we do, we need to develop a strategy of them being included.

I'll give you an example:  Even Speaker Pelosi admits we need to go back and visit nuclear, okay?  Because you can change a light bulb, save 5, 10 percent, but why not eliminate all the emissions by going to a zero emission?  Now, when we -- that's fine for us to say, but when we talk about it domestically, how do we then deny the Third World the export of nuclear technology so they can participate?  The key is, we don't want to export products that could then be used for weapons-grade -- but there is the technology -- we ought to be doing studies on how we can do this without creating a whole risk that we're going to be now passing around the material that can be made into bombs. 

All of these things have to be coordinated, but we've got to remember that we're sitting in a little box here.  But if we're going to take care of this goal it's got to be global and that means the Third World has to be a player here.

MALLABY:  Did you want to come in?

ROGERS:  Yeah.  I'd just like to make the observation, as I listen to Tim, I think it's important to stay focused that carbon is the issue in front of us.  It's the greatest single challenge that we have.  And cap-and-trade is the best of both public and private in the sense the government sets the cap, they set the curve.  And then private companies then go about the business of finding the least-cost way to comply.  And even in the cap-and-trade world, that doesn't exclude the possibility of looking at CAFE standards, looking at appliance standards, looking at building codes.  I think this problem is so enormous that we cannot leave any policy tool out of our toolbox. 

We need to blend these different tools together to get the best results the soonest.  And in the same way in the energy sector, we can't take any one of the ways that we have to create electricity out of the energy equation.  We need coal.  We need gas.  We need nuclear.  We need renewables.  We need energy efficiency, which to me is the fifth fuel.  And what proportions and how fast, that's to be debated, but to take any one of them out of the equation would be a huge mistake, as it would be a mistake to take any of our policy tools away from addressing this important issue.

MALLABY: Now, I'm still trying to understand something.  I have the sense that the U.S. public debate has moved to a position where cap-and-trade is discussed much, much, much more than the tax option.  But the tax option has most of the merit that people cite for cap-and-trade, namely it doesn't pick winners.  It allows the private sector effectively to determine how it's going to deal with this tax and how it's therefore going to conserve and reduce carbon emissions.  Why is it, do you think, that tax is not in the picture?  I mean, is it simply that there's a bit of an allergy to tax or what is it?

ROGERS:  I think it's simple.  I think it's simply the politics of imposing a tax.  And I know Vijay had kind of a clever answer like, you know, come up with a way to rebate, blah, blah, blah.  But the reality is, nobody in heartland America really trusts that once a tax is imposed the money will be used for research on how to get carbon-capture sequestration, how to get the next generation of nuclear, how to solve the spent-fuel issue.  There's just zero confidence that that money will be used in a way that helps advance the problem.  With cap-and-trade, you at least have a shot.

I think the other thing that's really important -- and it goes back to 1989.  And I remember supporting the Clean Air Act amendments in 1990 where cap-and-trade came into play.  And then we put it in with a lot of opposition from the environmental community, and it's turned out to be incredibly successful.  I look back today, and I think about 20 years ago when it was imposed and I look to 2010, our company will have reduced our SO2 70 percent.  We will have spent $3 billion to put retrofits on the backend to take out SO2.  AND in the early years, we basically did -- had allowances granted, we bought allowances and that saved our customers hundreds of millions of dollars.  The technology improved, and we put the technology in starting at the end of the '90s decade.  And by 10, we will have 25 retrofits on our largest units and we're at 70 percent reduction, but that was over two decades.

And then when Tim kind of led the charge to get Kyoto, we convinced the world that cap-and-trade works. And quite frankly, it has worked.  They've had some hiccups, as you always will with a new system, but the reality is we're at a place now where the cap-and-trade has actually worked.  We looked at the lessons learned, we can fix those problems and we can go forward and advance that.  And that might be the -- I believe it turns out to be the least cost and more doable.

I think the problem with a tax is we'll be here a decade arguing about a tax.  I think we have a real opportunity to get something done if we put it in the construct of cap-on-trade, because that's something that's doable politically.

MALLABY:  Okay, I want -- Tim, perhaps you can help me here.  I want to come back to the issue that the congressman raised about whether one approaches this issue nationally or internationally.  This is another of these high-level challenges that people have to think about when they're talking about, okay, so energy policy.  Do we think about this, you know, state by state, which is what's happened so far, because the feds have not done that much?  Should it be done nationally instead of that, or should it in fact be done internationally -- an effort that you were associated with in the 1990s?  How do you think through that sort of jurisdictional question?

WIRTH:  Well, overall, you of course have to do it globally.  This is a global issue.  You burn fuel in Delhi or in Denver and we all get warm together.  So there's no -- these things don't stop at any kind of a jurisdiction anywhere.  So it has to be done globally.

But in order to move with the urgency that is necessary, in order to move at all, the U.S. has to take the lead.  The U.S. has to be demonstrated -- has to demonstrate that we're serious about this.  I can't tell you how we spent five years -- Frank Lloyd's here, he's done this as well -- when you walk into a room representing the United States of America, people stop and say, "Okay, what's the United States want to do?  What are you going to do?  What are you going to put on the table?  Where are you?"  It's so terribly, terribly important both in terms of our real commitment and in terms of the technical expertise that we bring to the discussion.

So we have got to go to the table, one, with a pretty good sense of what we want to have happen internationally -- as Jim points out -- as Brian points out --

BILBRAY:  Jim's my cousin.  (Laughter.)

WIRTH:  -- as Brian points out.  And secondly, we have got to go to the table with -- having done something, which is why it's so very important that the McCain-Lieberman legislation or the Bingaman legislation pass -- you know, that we can go and say, we have got -- we have taken a first step, and then get into the longer discussion about engaging the Chinese and the Indians. 

There aren't 191 players out there.  You know, there are really about seven:  You know, it's the U.S., the E.U., Japan, India, China, Brazil, and maybe -- and Russia, maybe.  You know, there are a handful of players in all of this, and we have got to figure out with each one of those how to engage them and get them involved if, in fact, we're going to solve this problem.  

So you have to start with a global picture, you have to start with a sense of what the long-term goal has to be.  And there's getting to be pretty much agreement on the goal.  Getting from here to there is going to be a torturously difficult negotiation.  U.S. is going to have to lead.  I don't have any faith -- we're not going to do anything between now and 2009, I don't think, except set the table, you know, and we the opportunity to do a lot of that homework that's necessary between now and then.

MALLABY:  But I guess -- you know, what comes to mind here is the analogy with global trade talks, where, again, you could argue that there's a smallish number of players who really matter; trade is win-win; actually curbing emissions is cost-cost.  So it ought to be easier to do deals on trade, and yet as we've seen in Doha, it's extremely difficult. 

And so perhaps, Congressman, you could --

WIRTH:  Let me just stop you for a second --


WIRTH:  -- I'm not sure "cost-cost" is it.  I think what's happened in the last 18 months as much as any time is people are now looking at this through the lens of not how much is this going to cost, but also coming to understand how much is it going to cost if we do not act?  And that is a tremendous change, and that's a very important different economic filter that is now part of the discussion.

I'll stop.  Excuse me for interrupting you before.

MALLABY:  You're sharing out the cost of the public good, namely less carbon, and the negotiation is about sharing out costs, which is different from the trade, where, you know, reducing your barriers benefits the other guy as well as yourself.  That's what I'm saying.


MALLABY:  But Congressman, what do you think about the sequencing of this?  I mean, do you think the U.S. should in a way not act too strongly on climate change first of all because it's better to keep those chips in your pocket -- when you walk into an international negotiation, you want them to make confessions, too?  Or should it lead by example, or how should one --

BILBRAY:  Look, we can't -- it's an art, not a science, and everybody knows in negotiations you do that.  I don't care if you're negotiating with a firefighter or if you're negotiating with China over the fact they're building a new power plant every week. 

The fact is is that you've got to have the chips out there.  I think that there is a hybrid between the two.  You show what could be done, consensus, but the fact is that you still have it out there that you don't want to give somebody incentive not to participate because they realize you're going to have a major economic advantage. 

Methyl bromide was a good example, where you had on one side of the San Diego-Tijuana border the total abolition on a certain day and totally unrestricted, and they got to increase their consumption of methyl bromide emissions up to a certain date.  Well, once they got up to that -- whatever that date was, that became their limits.  Well, they jacked it up.  You know, they had no reason not to jack it up. 

So I think that we've got to understand that it is an art, it's not a science.  You can't be just defining here.  You have to say, "We're willing to consider this, this, this."  And I think in any negotiations, you say what you're willing to consider.  There are things you say you're not willing to consider, but you actually know you are.  And I think any married couple knows that you don't lay it all on the table up front.  (Laughter.)

MALLABY:  But should the United States -- I mean, given that the reality is that negotiating international deals takes a long, long, long time, should the United States -- and in particular should the Congress that you're now a part of -- should it be seeking to act and make downpayments and actually do things in advance of there being an international deal with that kind of --

(Cross talk.)

BILBRAY:  Of course we do.  But let's be very frank about this.  I really think the one thing we don't talk about enough about in the environmental community is the fact that it's not about breaking new technology and a lot of that -- a lot of that is destroying the barriers to using appropriate technology.  I mean, basically we've legislated ourselves out of a lot of stuff.  A good example was the clean gasoline in California.  The federal government didn't allow you to use it in the most polluted areas because somebody had cut a deal, so I -- basically to sell ethanol and methanol. 

The challenge is, we need to not only remember that it's the seven players, because right now it's the seven players it appears to be, but when you talk about the destruction of the rain forest -- all at once, how does that formula -- there is that -- the emissions people, but there's also the downside that's getting major benefit to the globe.  And how are we working on this thing?  A good challenge is like palm oil, where it's sold on one side as being a benefit, but if it's in the -- if the Third World is not included in the formula instead of plowing it where cattle are now and open fields, they'll be taking out rainforests.  There's a whole difference between El Salvador growing their palm oil in the jungle, destroying the rain forest, or growing it in -- where right now they're growing cattle. 

This kind of participation and the leadership that we have is not just what we do in the United States but how we develop partnerships around the globe to work together so there's a common purpose.  Rather than us saying we're going to lead by walking out in front of the troops, which you've got to do to some degree, but you've also got to be encouraging them and working with them and training them just like you would an army, of saying let's work together as a unit and win this war that all of us have a stake in.  But we can't just think that we're going to get so far out in front on our great white steed and somehow think that instinctively they will follow.

MALLABY:  But it's as much a case -- a question of sort of case-by-case bilateral relationships where you work with one country to do something -- the Chinese can use better coal technology; the Salvadorans can use better palm oil strategy -- right -- rather than, "Let's have a big multinational negotiation"?

BILBRAY:  Well, I prefer those, because in the long run -- I think you've got these multinational kind of basic concepts, but when it comes down to implementing those one-on-one personalities -- I mean, relationships -- are critical. 

And I think that I agree with Timothy about the fact that the economic issue here -- getting back to what I said -- is going to have to be the driving force.  So there's ways of showing parts of the world that there's a benefit to participate, there's reasons why we need to talk about redoing -- retooling our own political and economic priorities and being willing to go back and recheck and rethink the way we've approached things.

We're going to be asking the Chinese to totally rethink their economic strategies towards energy.  We darn well have got to be willing to do the same thing, too.

And let me be frank with you:  Working all the years on clean air, I think that conservation is used as a cop-out.  I really think that it's like, "Well, we're going to conserve 20 percent, 30 percent."  Well, have you seen the projections of population growth in the United States over the next 50 years?  Okay?  If we all reduce it that much, it still doesn't solve the problem.  We've just got to understand that.  And so I think the challenge is out there. 

And I just worry that there are too many people with agendas that will use this -- or other agendas that are really not outcome-based, much like Archer Daniel Midland try and sell.  And that's a good example where people talk about a fuel as being environmental and you look at the burning issue -- and we won't talk about the evaporative emissions -- but what's the first thing you do when you grow corn, is you plow nitrates into the soil.  Where do these nitrates come from?  They come from natural gas.  So this assumption that the burn -- the fuel coming out is somehow above a fossil fuel, when in fact if you look at the entire chain, the entire lifecycle of that product, that's what we've got to look at and trying to get everybody to look at is a major challenge.

MALLABY:  So you're worried about the farm bill, too.  (Laughter.)

Now before we go to the -- one more question for you.  I -- there's a sort of phasing debate, a tactical debate going on about legislation and climate change.  And the question really is, how much should we be looking for from the current Congress, and how much should we be deferring this to after the next elections?  From your perspective, what would be a good sort of downpayment from this Congress?

ROGERS:  (Laughs.)  You know, I think this gets to Tim's point:  What really is the goal here?  And as you look out, Kyoto ends in 2012, and we'll have to start about the process of figuring out what happens post-Kyoto.  And I don't often differ with Congressmen on issues, but I would differ just a little bit by saying that with -- what Brian was saying -- I think it's very important for the United States to act because -- for a variety of different reasons.  If we act on the carbon issue, it puts us in a better position to drive the debate.  So we don't have to get way, way out in front of the rest of the world. 

But quite frankly, all we really need to do is catch up with Europe and catch up with kind of where everybody else is.  And that would be money in the bank because the important issue here, to me, is you need China, you need India, the Asia and Pacific partnership, which was authorized but not really funded, is a step into sharing technologies, but at the end of the day they need to participate in this. 

The other point that's -- this is about 1.6 billion people that have no access to electricity, no access to the modern world, and one of the big challenges we have is how do we make sure they have access to the modern world, which means electricity, at the same time we're solving these problems, and a lot of those people are in China and India and South Africa and other parts of Africa.  So when I frame the question like that, I then step back and say, "Will we get it done before 2008?"  All my smart friends in the environmental community say, "Probably not," because one is we'd probably think we'd get a better deal post-'08 because they see a change in the White House and that -- they foresee that helping.  The -- and then you talk to people on the Hill that are starting to embrace the issue -- have never dealt with it in detail -- they're finding there's far more complexity to the issue, and almost reaching for every answer I get, I find five questions.  So it really is a question about whether we could get something meaningful done. 

From my standpoint, I think every day that passes, and with the early voting in February in the various states -- I think nothing happens after February and I think very little happens after December.  So if we don't get it done in a short period, I think it's going to be very difficult to do because of the complexity of the issue -- it'd be the short answer.  But there are some things we could do.  We need to encourage energy efficiency.  It's not the complete answer, as a lot of environmentalists would argue.  It is an important part of the answer and we have a lot of work to do and we can do that.  The second thing is is that we need some kind of credit for early action, because there's a lot of things that we could be doing today, because even if legislation passes all this -- all the environmental legislation -- there's usually a five-year ready period before it goes into effect.  So we need early action now so we can start because when you start to think about --

MALLABY:  To make it clear, so you're saying that the government should explicitly state that companies that take actions now --

ROGERS:  Get credited --

MALLABY:  -- to reduce emissions will get credit later when there is a regime that counts.

ROGERS:  That's right.


ROGERS:  So -- because quite frankly, if you think about it, I'm making a decision today about building a nuclear plant.  I'm making a decision about building a coal plant which -- in 50 years.  I'm looking at gas plants.  I'm looking at IGCC.  I'm looking at energy efficiency.  I don't know what the price of carbon will be, and without the price of carbon I can't make an intelligent decision about the best option from a cost standpoint.  If I knew that I was going to be in a carbon regime, and I believe I will be -- I think it's inevitable -- I'd start to take that projection of price and basically make decisions now -- start to do things now -- I might put more money in energy efficiency now because I know that I'll get credit for it on my carbon footprint and that puts me in a better position.  It might allow me to forestall building a coal plant.  If I knew I got early action today and over a four or five-year period I could get the offsets that would allow me to do that.

MALLABY:  So a credit for early action -- that would be the key thing to get in place now.

ROGERS:  It'd be an important first thing.

MALLABY:  Okay.  Let's go to the floor.  Who's got a question?  Credit for early question right now.  Microphone is coming.

QUESTIONER:  Michael Sterner, retired U.S. career diplomat.  We haven't heard much this morning about nuclear energy.  Would the panelists give us their views about the potential for that in alleviating the problem you've all discussed?

ROGERS:  Duke is the fourth largest nuclear operator in the United States.  We were one of the early adapters to nuclear technology back in the 60s. And we've had a long history with it.  We've had great success.  We've had great local support, and actually in South Carolina and North Carolina, there is very strong support from the local communities for us to build new nuclear, especially in South Carolina. 

The issue really is is there's a couple issues.  I mean, nuclear -- if you look at life cycle cost of nuclear, which is a way to look at it, it is still the best way to produce electricity with zero greenhouse gases from the actual operation.  But from a life cycle, it is even lower than wind, for instance, if you look at the life cycle cost of comparable amount of wind.  So nuclear is an option.  The environmental community has sort of started to embrace with caveats nuclear as an option, but they only do that now because carbon issue is number one on the agenda, and my fear is is that we need to solve whatever problems we have -- and we have some with nuclear -- at the same time we solve the carbon.  So in a sense -- so it becomes an answer and a solution, not the next battleground.  And so one of the important things is to solve both at the same time because my fear is is that the position on nuclear would change as public opinion did with Three Mile Island.  It turned on a dime. 

I think the important -- other important thing is nuclear operators has been very safe.  It has gone from operating about 70 percent load factor to now the industry's averaging about 95 percent load factor on those plants.  I think that we're in the process of standardizing.  They've streamlined the nuclear licensing.  We still have an issue on how do you store spent fuel.  Yucca Mountain has become -- it's been invested in a lot of political reasons and the reality is I think ultimately we'll have to come up with an alternative to Yucca Mountain to be able to move forward.  Today we're storing all our spent fuel on site.  We have the capability to do that for a number of years to continue forward.  But at the -- but we have to find a way to solve that but I don't think it's such a problem that we can't move forward with it.

MALLABY:  I don't follow that, you said you want to find an alternative to Yucca Mountain.  Why would an alternative venue be less, you know, politicized than this one?

ROGERS:  I think that -- you take South Carolina, for instance.  I think that they're prepared to create -- I mean, there's a lot of ways to processing -- reprocessing of spent fuel.  The French have really developed that, and I -- and interesting -- and this is just a little footnote to history and I was in Europe meeting with this -- last week meeting with CEOs to utilities from around the world, and the European Union came out with this very aggressive target.  But what's in the footnote that nobody really mentions -- that the French convinced them that nuclear is really -- should count as a renewable on the renewable standards set for 2020.  And I think that's kind of an interesting sort of perspective to have as we listen to the commitments that are being made in Europe with respect to renewables as a percent of the total portfolio.

MALLABY:  Right, but France has a radically centralized political system and therefore presumably different dynamic about the ability of local regions to resist becoming the storage venue.  The question is, in the United States if we've run this experiment with Nevada -- and after years and years and years despite, to my knowledge, no great technical objections to storage, there are huge residual political objections, and these are completely killing it.  And so I want to -- perhaps you'd like to comment.

WIRTH:  Well, the difference was when the -- when Nevada -- when the competition occurred there were two sites, you know.  The Congress got down to two sites.  This was 15 years ago?  Must have been 15 when it decide -- maybe 20 years ago decided upon going to Yucca Mountain, and it was decided on Yucca Mountain against the desires of most of the Nevada delegation.  I mean, this was a decision that was made on technical grounds, and so it's been a battle ever since with the Nevada delegation.  I mean, Harry Reid has had this as his number one issue for as long as I can remember.  I mean, that doesn't seem to me to be very smart.  If you've got another situation -- and the situation existed then in South Carolina -- then, and I think it exists now -- you're seeing -- I don't know the situation now but I remember then South Carolina was saying, "We would really like to try to figure out how to do this here."  Well, now that makes a tremendous amount of difference if in fact you've got, you know, a willing political environment that says, "We would like to do this" and your permitting process goes a lot more rapidly and, you know, people are going to be willing to make those kinds of investments.  I mean -- I think, Jim, the -- that really makes a huge amount of difference.

MALLABY:  That is interesting because the storage does seem to be the single biggest bottleneck on further nuclear --

BILBRAY:  That is created a bottleneck, because the argument against nuclear was always and has been, what do you do with the waste -- what do you do with the waste.   And it was used to justify the opposition. 

MALLABY:  Uh-huh.

BILBRAY:  And I don't care if it's Yucca Mountain or if it was Ward Valley in California -- you had -- I'll tell you, in 30 years of looking at environmental impact reports, I have never seen anything as halfway as clean, I mean, it -- as Ward Valley was.

But because they would not agree to only allow medical waste to go in there, because they agreed to allow also the low level from nuclear, the opposition came out and killed that project, not based on the environmental impact of the project, not even based on the state -- I mean, this was basically a state policy.  It was based on the fact that as long as we can stop a disposal facility for nuclear, we have the strong point to be able to stop it.  If we lose the waste argument, there is no stopping nuclear.

And the problem with that -- and I'll say somebody who's been involved in the environmental community since 1970 -- the obsession, the religious zeal against nuclear is almost as if you were proposing to change Paul's letter to the Corinthians, that it's a theology rather than looking at it from a science.  And I think that's the challenge you're seeing in places like the Sierra Club where now -- where scientists go in, say "as responsible environmentalists we must revisit this issue," they were run out on a rail.  That argument now is finally getting in there, because more reasonable people in the environmental community have addressed it.  But the waste issue has always been the ruse to use to stop the other side.

And I'm glad to see that, because like I said before, the nuclear has to be considered, but you can't expect us in the first whirl to go to this technology and then tell China, tell India "Oh, by the way, you must do it without the technology we're using."  And that's why it's important that we have the research to expand things like the gas reactor that has a much, much harder way of developing the weapons issue and making sure that we're not only exporting clean -- that we're only exporting clean technology.  We're not exporting the capability to build nuclear weapons.  So it obviously is going to be a formula and I hope that people that really believe in the environment will look at this as a science and rethink and always question your agendas and your criterias and make sure they're based on good science.

MALLABY:  More questions.  Right here in the front.

QUESTIONER:  Celeste Wallander, Georgetown University.

The first panel did a great job of convincing me of a number of things.  One, the point about the danger of increasing state control of energy companies in most of the producer countries.  I know the Russian case and it was interesting to hearing the president speaking more generally about both undermining the reliability of energy supply, negatively impacting growth production, and then also the ability to use energy as leverage or a tool of foreign policy and assorted other methods -- areas or even not connected area, for example the U.S. interest in containing Iranian proliferation and the difficulty of getting Russia and China to agree to cooperate.

What -- so coming back to thinking about sort of the larger aggragate global problem of energy, this may not address climate change, although actually, if it's true that state control of the energy sector reduces the ability to increase production of carbon-based in those countries, maybe that would be a good thing to slowdown climate change.  But what can either the United States or Europe on the governmental side or in the private sector do to work against this danger of increasing state control in the energy sector in these countries -- in Russia, in Iran, in Nigeria and some of the others that were mentioned?

MALLABY:  Congressman, do you want to take that?

BILBRAY:  Well, first of all, let me start off by the assumption that government ownership of the utility network is not just an economic and a freedom issue.  It's an environmental issue.  But government operation is one of the worst culprits when it comes to pollution.  A good example is the natural gas pipeline in Russia, all those years the huge emissions coming off it, because it wasn't -- why would a bureaucrat worry about all the leaks?  There was no money in it to them.  In fact, the Germans made -- I think it was the Germans -- made a fortune by just going in and plugging the leaks and recapturing that.

And I think that looking at that as being a major challenge -- that government ownership, it means self-policing of the industry.  And that should set environmentalists off that maybe government in control of everything is not the environmental option.

Now, on the flip side I've seen the huge trouble they had in Mexico.  I worked on the clean-air strategy for Mexico City.  And one of the great challenges was to keep a straight face while they were talking about Pemex, which had horrendous environmental credentials.  I mean, our oil companies would go to prison for doing half of what was done there.  So -- and I've got to say, in all defense of it, they are doing wonders with their air plan.  I developed that strategy and I had no hope at all for it, but it's working out.  But Pemex really retooled by a whole different mindset once PAN took over.

But I think this government ownership is something that we should be concerned about, not just for the execution, but from the environmental point of view, because their record has not been good at all.  No matter how much we love to trash the private sector for capitalism, socialism and the government-controlled monopoly doesn't have a great tradition environmentally.

MALLABY: Another question?  Over there.

QUESTIONER:  Hi.  My name is Jarrett Blanc.  I'm an international affairs fellow here at the Council.

I want to come back to this debate between cap-and-trade versus taxation as a way to express the social cost of carbon.  The Clean Air Act, of course, did work, but it worked at much lower levels of cost than carbon mitigation is going to run.  I mean, the Stern Report puts us at, what, 1 percent of global GDP?  Given that taxation is an economically more efficient way to express this cost, is it worth pursuing this a little bit further than just saying, well, it's politically more difficult.  Let's go with cap-and-trade.

WIRTH:  It sounds good if you say it fast enough, but the reality is, I mean, tell me what single piece of legislation -- name a single piece of legislation on the Hill that is dealing with the carbon issue with a tax -- on a tax basis.  I mean, I don't think that there's one.

MALLABY:  I think there is a sort of trick there, which is that within some of the cap-and-trade bills, there is a so-called safety --

WIRTH:  Yeah.  That's for the --

MALLABY:  -- which is actually a clever name for a tax.

WIRTH:  Well, no.  It's a little bit different.  It all comes out.  Somebody's going to pay.  I mean, we're going to pay.  There's no -- it's not -- there's no free lunch in all of this. 

But if you think back on the Clean Air Act, when we were trying to break the logjam in the Clean Air Act between east and west, dirty coal and clean coal, it was a brutal problem.  And we came out -- Senator Heinz and I, as a matter of fact, drafted the idea of tradable permits.  It was extremely difficult, as Brian points out, to get that across, to get that accepted.

But people became -- after that became law eventually -- through the good offices, by the way, of the Bush White House, who were really, first Bush I, was very creative -- Boyd and Gray and company -- incredibly creative in getting it to implement.  The Congress -- important point here is the Congress became very comfortable with this.

The Congress, as Jim points out, now believes that cap-in-trade works.  We had to take the same cap-in-trade ideas and sell them to the Europeans during the Kyoto negotiation.  1993 -- complete resistance to cap-and-trade.  They have now embraced cap-and-trade more aggressively than we have even.  So people are comfortable with it.  Now, that's a very important political asset to use. 

So if you're comfortable with something and it's working -- even though, you're correct, it's smaller in scale than what has to be done in the carbon area.  But the comfort level of talking about cap-and-trade, the familiarity with that in area that is devilishly complex as it is, is a great asset.  So I would argue that, you know, what you want to do is to use that asset.  And I think that's where you see all the legislation there now.

Will there be tweaks on it, you know, like the idea of having a safety valve in the Bingaman legislation?  There'll be a whole lot of tweaks before we get done.  You know, lots of ways between -- as we work through.  There'll be some additions to that.  In addition to having some kind of a cap-and-trade there will probably be, you know, proposed regulatory regimes or efficiency regimes, say, for electric motors and we might be able to get some kind of an international agreement in the automobile industry in terms of mile-per-gallon standards on petroleum used -- not liquids used, but petroleum used in that.  I mean there are some pieces that will be get built on top of that, but it's a comfortable base.

BILBRAY:  One of the things that isn't talked about enough -- and we talk about the way private sector, the big industry or corporations are getting the green tint and starting look at the environmental issue as good for business -- you've actually seen with the cap-and-trade.  But let's be frank about it.  Many of us that are involved in the environmental community are not big on capitalism, don't really think that the profit incentive is a great way to run a system and a very moral way.  But even the green community now is starting to recognize that as the business communities recognize, and environmental, that capitalism -- the cap-and-trade -- a lot of people opposed it because it sounds too much like capitalism, and it was.  But the fact is that now they're accepting the fact that some of these things that may appear to be very much business models do work very well for the environmental community.

So it's kind of really exciting for me to see segments of society that traditionally would be on opposite sides or always at loggerheads, actually starting to adopt the strategies of their so-called opponents back in the '70s and the '80s.  Now they're really picking this up and are actually working on this, that maybe the capitalistic model cap-and-trade is essential for the environmental strategy to be successful, not a great threat to it.

ROGERS:  I'd make one other observation, kind of picking up on Tim's point.  One, they're comfortable.  The second thing; even if we could pass a carbon tax in this country, think of the difficulty of trying to take a carbon-tax model --

BILBRAY:  Worldwide.

ROGERS:  Worldwide. I mean, you talk about -- it's going to be difficult in negotiations in every event post-2011, I mean 12.  It would be very difficult if we had a different carbon tax in every country and how it all came together and how you negotiate that.  I think that would be very, very difficult.

So again, I come back to cap-and-trade.  And cap-and-trade is where the government sets the curve and then private companies go to work -- I get choked up thinking about it -- (laughter) -- companies go to work and come up with a least-cost way to comply with this curve that's been set by government.  It's just a great way to use both government and private companies working together to get a result that's good for society.

WIRTH:  You only have to make one political decision, right?  And that's where you set the cap.  I mean, that's complicated to do, but if you can limit also, you know, how much engaged -- you're not trying to regulate all kinds of different things.  You're setting one -- you're making one political decision and that's of great advantage too.

BILBRAY:  And that's going to be a tough thing to do.

MALLABY:  Let's get a question in the back on the other side here. 

QUESTIONER:  Andrew Paterson, Environmental Business International.

I could push this dialogue a little further into capital incentives, because the tax policy isn't just carbon tax.  It's also capital investment incentives, which I do believe we have bipartisan consensus on yesterday, whether it's red states or blue states.  I think you could get a bipartisan capital incentive bill for all kinds of carbon-capture or carbon-curbing technologies. 

And I think, frankly, that's a little more efficient, direct and expeditious relative to the size of the capital markets that we have.  And I think cap-and-trade frankly gets a bit of a free pass with the troubles they've had in Europe.  The carbon trading disruption they had with the states in Europe gaining the system last May, leading to an Internet-style stock collapse on carbon prices.  The fact that, frankly, a lot of the states -- the majority of the states now are out of compliance going into the '08 period.  And you're never going to get Brazil, China and India in a cap-and-trade system.  You're just not.

ROGERS:  I don't think that's right.

QUESTIONER:  But they will -- they will, I would submit -- dive into a capital-incentive pool, which is how you could fund the Asian-Pacific partnership.

ROGERS:  But I think the important point here is, is you need both.  I mean, we're a recipient.  The government just announced $1 billion in tax credits.  We're building a coal gasification facility in Indiana and that was the recipient of $133 million in tax credit.  We're building a super-critical pulverized coal plant in North Carolina which received $125 million, because both of them are two different advanced coal technologies, both on the leading edge of efficient, conversion of coal to electricity.  And that would be an instance that works very well in conjunction with cap-and-trade.

And it gets back to my earlier point:  We have a lot of policy tools and approaches.  We need to be prepared to use all of them and blend them together in a way that really allows us to go after the carbon issue and deliver real results.  And so it's not -- we should try to avoid the tyranny of either/or.  It's the combination of these things that will create the right outcome.

WIRTH:  Let's go back to what it is we're trying to accomplish.  You know, part of this -- and a great part of it, I think -- relates to the need to constrain carbon.  Well, the way you constrain carbon is to constrain carbon.  And, you know, that is generally agreed, you have to have some kind of a global cap.  I mean, there will be some kind of a global cap in some kind of -- in some form.

I had breakfast with the Indian Planning Minister three weeks ago.  And after all was said and done, he said, well, you know what this is really all about is we're all agreed there's going to be a carbon constrained world and there's going to be a cap.  There's only one remaining issue:  Who gets how much underneath the cap?

ROGERS:  Well, okay.

WIRTH:  I mean, that's incredibly -- that's an incredibly complex negotiation to figure that out, but that's where we are.  Now you build incentives to help people allocate -- to help allocate underneath that cap, but you have to have a cap.  If we don't have a cap we're going to -- you know, from looking at this from a perspective of the health of the planet, we're going to fry!  You know, we have to have a cap.  And that becomes, then, part of a whole lot of other policies as well.

BILBRAY:  Well, then, to make it even more complicated.  The goal of CO is the greenhouse gasses seems -- that's the one tier.  Now you get the situation where there's maybe a whole new factor that we have to look at.  It's not only how do we reduce the greenhouse gasses, but which sources do we give priority to as opposed to others?

You know, everybody's been shocked about the whole issue that particulates in the atmosphere may be a net benefit temporarily.  And where those of us that are involved in the environmental community with this issue of global dimming, if it is a real issue, if it's a viable issue, it has to be integrated into our policy and our priorities. 

I would -- knee-jerk reaction -- I would always go after coal burning right from the get-go from my air pollution point of view.  They would have been the first ones to go to, but global dimming has to be a major issue, if the scientists pencil out what they're saying -- that this is something we have to consider -- we may be reversing our implementation, then go after the cleanest technology like natural gas or some of these low emitters, and leave the dirty particulate emitters to be the last so that we can start controlling CO first and then go after -- this thing gets more complicated than a lot of people want to admit, because as new science comes in, we need to make sure our strategy is the best available science.

MALLABY:  Well, just when we thought we might have had it all sorted out, global dimming enters the conversation and leaves a lot of us confused.

WIRTH:  What's global dimming?

MALLABY:  I think we have to wrap it up here.  We have a lunch ready for you upstairs.  The way to get to the lunch is to go out of the room, up the stairs at the back.  That's the best way.  So one level up.  And Jim Rogers will be delivering a keynote speech.








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