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Council on Foreign Relations Symposium: American Nuclear Energy in a Globalized Economy, Session III: Can Nuclear Energy Go Beyond the Energy Policy Act of 2005? [Rush Transcript; Federal News Service]

Panelists: Ruth Greenspan Bell, Resources for the Future, Dan Rosenblum, Carbon Tax Center, and Angelina Howard, Nuclear Energy Institute
Moderator: Michael A. Levi, Council on Foreign Relations
June 15, 2007
Council on Foreign Relations


CHARLES FERGUSON (Science and technology fellow at the Council on Foreign Relations): May I have your attention please? May I have your attention please? Michael, next panel, please convene up to the front. Ladies and gentlemen, please take your seats. Please take your seats. Thank you, please take your seats.

Okay, allow me to introduce my esteemed colleagues from New York -- "New York, New York" -- (laughs) -- Dr. Michael Levi, and he's one of the two full-time fellows for Science and Technology at the Council. And it goes to show that the Council is taking Science and Technology seriously as a major influence in U.S. foreign policy as you can tell by this workshop.

And Michael has been doing a lot of very serious work in the nuclear business, in nuclear proliferation. And he's venturing into the brave new -- well, not such a new world, but the brave (laughs) world of climate change. He knows a lot about climate change issues, and in this panel we're going to tackle that and we're going to see how nuclear connects to the climate change topic.

MICHAEL LEVI: Thanks Charles. I really kind of, in some way, owe my job to Charles because -- he came on back in, what, 2004, and there was some skepticism at the Council about science and technology, and was it worth having people who kind of got it. And then they figured -- in around, what, a year-and-a-half, they decided, hey this is good; so we should have someone from New York who does similar sorts of things. We've got one PowerPoint presentation here. We had one before -- I thought they were banned at the Council.


MR. : I'm not going to, because now I understand people don't use them.

LEVI: Well, I actually -- no, no, absolutely do it. I actually had someone give a PowerPoint presentation in a session earlier this week and people were shocked. And the session was called the "Globalizing the Digital Revolution."


Anyhow, the idea of this session is to take a bit of a step back to talk about some of the proposals going around for dealing with climate change -- some of these are macro proposals rather than the ones that focus on specific technologies -- and then to connect that to nuclear. And we're going to talk about the cap-and-trade; about taxes; and we're also going to talk about the nuclear energy -- you know, the energy policy after 2005, not just as something that's done and that we look at the next steps, but what is actually happening and how it's being implemented.

So we've got three great speakers. I'm not going to go through bios, you've got them all on -- in front of you. We have Dan Rosenblum from the Carbon Tax Center; Ruth Greenspan-Bell from Resources for the Future; and Angelina Howard from N.E.I. And that's the order we're going to go in -- about 10 minutes each. Then we're going to break to bring our lunches to the table and continue with a discussion.


DAN ROSENBLUM: Thank you. Listening to the discussion earlier, I had the sense that people might be salivating about a carbon tax, just in terms of the potential benefits to the industry -- which puts me in kind of a different situation than I'm used to. My background, and the background of my co-founder Charles Komanoff, certainly couldn't be considered to be pro-industry. So I'd like to start out by talking about why we're proposing the carbon tax, and then at the end try to make some connections to the issues we're talking about today.

Basically for decades, industry -- people have been using the atmosphere as a free dumping ground for carbon, and the costs are beginning to catch up with us. We read about the impact of global warming, climate change -- it's already becoming apparent it's going to become severe. We have to do something. You know, Jim Rogers is right, the climate should be our number one challenge. That's why we're focusing on climate change. The impact on nuclear is incidental to some of -- in fact, at least for us.

So the point is that if you want to stop people from dumping, you have to somehow put a price on carbon. As the economists say, you have to "internalize the externalities," so we have proposed a carbon tax that does just that. And it's our -- more than our assumptions, what we know is that when you put a price on carbon you're going to have a major impact on CO2 emissions. You're going to really put some wind behind energy efficiency -- behind all kinds of alternatives to traditional fossil fuel sources of energy.

When you have a carbon tax, you're going to find: number one, substitution of cleaner fuels for coal. You're going to find that natural gas becomes a somewhat more attractive alternative than it is already. There's going to be a carbon applied to gas, but not as high because it has a lower carbon content. And you're going to find renewables getting a, you know, a major advantage here.

So you have substitution, but you also have a major impact on the demand side when you increase the price of energy -- and we've seen this before. It's basic economics -- you're going to see a reduction in demand; you're going to see much more of an emphasis on people buying more efficient appliances, more efficient cars -- they're going to be just using energy more efficiently every day in their lives.

Ruthie mentioned about a change in lifestyle. When you see your electric bill, you're going to start thinking, maybe I don't need to light up the whole house. If I'm in one room, I don't need to have the rest of it lit up until I'm in there. Nobody really benefits from a lighted room if -- you know, it's kind of like a tree that falls in the forest, and it just -- it doesn't matter. So the price is going to have a major impact on demand and on fuel choice with a result in reductions in CO2 emissions.

Now when you do this, you're also going to have a lot of money coming in and that provides additional opportunities. You're going to have a good chunk of revenues that you can then use for productive purposes. We're proposing a couple of choices. One is to do what we call progressive tax shifting. You use the tax revenues to reduce regressive taxes, and doing so you reduce the regressivity of what is, in fact, a consumption tax. I think it makes good sense to do it. Or you can simply rebate to all Americans -- and I'll touch on this a bit more later.

There are additional major benefits to a carbon tax I want to touch on briefly. Some of the carbon tax revenues can be used to put more money into energy efficiency, which would further reduce generation and emissions. It can be used for research and development. There's just a lot to be done if we're going to try to figure out a way to replace our current technologies with something cleaner. So, you know, that's another possibility.

Another major benefit -- and I guess somebody has to talk about foreign relations here today -- another major benefit is that a carbon tax will reduce our dependence on foreign oil, and our need to protect our investments, our dependence on foreign oil in some pretty dangerous places. So there's a real national security benefit to a carbon tax.

And finally, in terms of the economics -- to the extent we're not buying as much energy from foreign sources, we're going to keep that money at home, and that should be good for the economy.

Now some people are going to say, well gas prices are already really high. What do we need a carbon tax for? The problem with that is it sends the wrong signals. What happens is you then start investing in coal-to-liquids or synfuels where, just like with the fossil fuels we're already dealing with, you don't have the externalities internalized so you, in fact, aggravate your climate change problems.

So just relying on market forces doesn't do it. You have to make sure you have the prices really reflect the true costs -- the true economic costs, including the environmental costs, then you can let the market work.

Now clean energy subsidies may be a partial answer, and that's not an answer either. You know, there's an interesting study by -- or paper by -- CATO put out a few days ago. It looked at synfuels over the last 60 years, I guess, going back to 1944 -- they looked at four or five different periods where there are major national investments in synfuels, and each time it failed miserably. I mean the government has not had a good track record of choosing which technology makes sense.

Special interests benefit -- the people, the taxpayers, don't necessarily benefit. That's true for oil shale; it's true for nuclear to some extent; it's true for ethanol, which is, you know, the big push right now but, you know, we're seeing the impact right now. We're seeing the impact on all kinds of prices for meat, for vegetables -- all kinds of negative consequences. And the fact is that it's not at all clear that it's even going to result in any benefits in terms of CO2.

So clean energy subsidies maybe helpful in some situations, renewable portfolio standards may help, but -- they do help -- but they're not enough. Jim's not here -- he mentioned changing the regulatory model, and that's important. I've done a lot of work myself, actually, on ( ?) (and trying to change in models?), so the utilities have an incentive to encourage energy efficiency and not simply worry about whether they're going to cut their profit. But again, it's not enough. We need more.

The same for energy efficiency standards. I'm all for CAFE standards, all for new appliance standards, but they take a long time, and, once again, they're not enough. What you need is the carbon tax that really, again, puts the wind behind the sails for all of the energy efficiency and substitution approaches. So each of the other elements could be part of the answer, but you need the carbon tax.

Now what we're proposing is that the carbon tax be imposed based on the carbon content per BTU of each fuel source. So you have much more carbon in coal, so guess what? Coal's going to have a much higher carbon tax. Oil is somewhat lower, and then gas is lower yet. Nuclear -- there is no direct carbon content. There is carbon in the fuel cycle and that'll be -- that'll be felt ultimately but it's not going to be dealt we directly here. What we're proposing is a starter carbon tax shift. We're proposing a $37 a ton of carbon tax, which equates to a little over $10 a ton of CO2. And our calculations show that you come out to about 10 cents a gallon of gas. It would be about --

AUDIENCE MEMBER: Is that 10 cents an increase in a gallon of gas?

LEVI: Correct. It's not going to drop the price of gas, it's going to be --


LEVI: That's per ton of carbon -- per ton of carbon. And obviously, to the extent you have a higher carbon content in the fuel you're talking about, it's going to have a bigger impact. It's a larger impact on coal -- larger impact on coal, less on oil, less yet on natural gas. Okay?

ROSENBLUM: We calculate that it'll come out to roughly a three-quarters-of-a-cent increase per kilowatt hour on average for electricity. The average, of course, is going to hide regional disparities. If you're in an area where you have all coal-fired generation, you're going to have maybe a penny a kilowatt hour. If you have more nuclear or more hydro, it's going to be lower, but on average -- three-quarters of a cent per kilowatt hour. And we're projecting that it'll decrease CO2 emissions by about two percent, and that's using short-term elasticities.

If you use longer term elasticities -- which are really more relevant for the longer period -- be more around the area of four percent. This only reflects the demand-side changes. It doesn't reflect the CO2 emissions that come from substitution of cleaner energy sources. So the two percent is just energy efficiency -- more efficient appliances, that type of stuff, improvements.

Now the key is -- what I've been talking about is the first year of carbon tax. We propose doing the exact same thing each year for 10 years -- each year you add another $37 a ton. So after 10 years, you're at $370 a ton, or $1 per gallon of gas. What that does is provides consumers, industry, with a clear trajectory. They know where prices are going over the next several years and they'll have the chance to start making rational decisions about how to avoid those costs -- have time to do that. That's part of why we're saying just do a starter tax -- to make sure people have time to adapt.

Another reason, frankly, is political. If you try to come out we too high a tax, number one, you're going to have a hard time getting it through -- you're going to have a hard time anyway but you'll have a harder time yet getting it through. And if you do get it through at a higher level, you're going to have a much greater chance of a backlash, which can undercut the whole process. So we're starting at low.

And frankly, we're not sure -- there's no way to be sure precisely what level tax you need, so we start low and then you can adapt it over time. And again to make it clear -- the carbon tax is not intended to be the only approach to reducing CO2 emissions. It should be part of the broader package including energy efficiency, appliance standards, et cetera.

Now a little more detail on the revenues. We propose doing one of two things: either rebating the revenues on a pro rata basis to every American -- kind of what the Alaska permanent fund does right now -- and our calculations show you'd get to roughly $1,500 per year for each of the 320 million Americans we project in 10 years. And we recommend the money be provided on a monthly basis. What that would do is give people essentially a fund of money that they could then use to pay whatever increases they have from the carbon tax. And to the extent they use less energy, they'll come out ahead. And to the extent they use more, they're going to get hurt, but they'll have a very clear message there.

Another alternative is what we call progressive tax shifting, and that's -- I mentioned earlier that's where you can use the revenues to offset other regressive taxes like, we propose a payroll tax, which has been mentioned by a number of people including Al Gore. Other people say income taxes, but the point is the money can be used to offset other taxes. We are firmly convinced you need to have a revenue-neutral tax for political reasons and, frankly, we just don't think we trust the government any more than we trust people to do what's best with their money. So we want revenue neutrality.

I should note that the money we expect to get through a carbon tax -- somewhere around $500 billion, it depends on your assumptions, a year by the tenth year -- exceeds what you need to pay the workers' share of the payroll tax. So there's money for that and other purposes.

Now I'm here in Washington -- I can't ignore politics and I'm not that naive. I know that there's a -- I know there's some major obstacles in that regard. Americans for years have developed a sense of entitlement to cheap energy and any time prices go up they get angry. There has been an anti-tax ideology that's been dominant in Washington for a generation and it has to be overcome. And elected officials, for obvious reasons, are wary of another tax debacle. You know, they think back to the Clinton BTU tax in '93, or the John Anderson 50-50 program in 1980 that didn't fly. So they're concerned.

We think we have a good answer to that in the fact that this is revenue-neutral, and you're going to be taxing pollution instead of productive work. And that's something that can be solved. It's going to take some political courage at first. We haven't seen too much of that yet. But we have seen Congressmen Stark and McDermott -- time, is it running out? I'll talk faster. We've seen Congressmen Stark and McDermott submit a carbon-tax bill. We've seen Senator Dodd with his corporate-carbon tax, so there's progress in that regard. But what Jim said is good. I mean, there is a grandparents test, then there is a re-election test. And so far, most politicians seem to care much more about the re-election test -- hopefully revenue neutrality will address that.

On the grandparents test, we're trying to make a rational argument. I've got to say that there are a lot of opinion leaders who are making the rational arguments. There are economists across the political spectrum that support it, and that should help when you're trying to address rational concerns. Al Gore, James Hansen, among scientists. The New York Times op-ed page is pretty much across-the-board in favor of putting a price on carbon. We've seen columns by Brooks, Friedman, Kristof, Krugman and Tierney, conservative economists, including Gregory Mankiw, Harvard professor and formerly chair of the President's Council on Economic Advisors. To give you a sense of the broad range of support, we have support from the nation for a carbon tax on the left and the American Enterprise Institute last week, on the right, came out in favor of a carbon tax. So it's a bipartisan, it's a left-right approach.

I got another minute? Sure, I'll take it. (Scattered laughter.)

Where are we going to be after 10 years? CO2 emissions down by about 15, 20 percent. Oil use down by about 5 million barrels a day. Coal-fire generation reduced when other renewable generation increased. Incandescents and halogens out; CFLs and LEDs in. Similar changes in transportation, which I'll skip.

Let me talk about nuclear for just a few seconds, because that's why we're here. Carbon taxes will increase the cost of the fossil-fuel competitors in nuclear. There's no question about it. Carbon tax per kWh from coal will be approximately one cent and, again, per year. So after 10 years, it's a 10-cent change, and that's significant, obviously. Carbon tax per kWh from natural gas about .57 cents. Again, it will make a big difference to the economics.

Impact on nuclear -- there's been a lot of discussion about exactly how much carbon is in the fuel cycle for nuclear. I have no idea, frankly. It's got to work itself out. I mean, when you have the carbon tax, whatever it is will come out in the price. Compare the 10 cents after 10 years to the 1.8-cent production-tax credit diluted over however many units you have, and you see that it could be a pretty powerful incentive. I have not tried to address whether nuclear is the most cost-effective way to reduce CO2 emissions. I agree energy efficiency is the best, but after that that's an open issue.

I could skip all the other issues about irradiated waste and financing and MB. Those are all issues that aren't part of my discussion.

LEVI: There are all issues that people I'm sure will ask about when we get to the Q&A.

ROSENBLUM: But if I'm out of time, I can skip it. Thank you very much.

LEVI: Okay. Ruth ?.

RUTH GREENSPAN BELL: Thank you. Okay, on energy efficiency, I just want to point out we could do a little bit better here on the air conditioning. (Laughter.)

LEVI: We could drop the lights a bit lower.

GREENSPAN BELL: Yeah. (Laughs.)

I have to admit that when Charles asked me to do this, I was puzzling a little bit, because I was trying to figure out the connection between cap and trade and these nuclear issues which I've been listening to tonight and today. And I kind of -- last night I thought really the connection in some ways is that one of the sort of things that was touted when people were promoting cap and trade and still are is that it will create incentives -- financial incentives -- and a pool of money to build new technologies and to advance technologies that are more consistent with the climate goals. And I want to make a point that's a little contrarian here. But I want to say don't count on it. And I think that's troubling, because we need to think about this, because cap and trade is domestically and globally the only thing that's on the table pretty much right now.

So let me give you a short primer on cap and trade and --

ROSENBLUM: Carbon tax, too? (Laughter.)

GREENSPAN BELL: Well, my part is cap and trade, okay? You can talk about carbon tax.

So where did this idea of emissions trading and cap and trade come from? Well, it came out of there was some experiments run at EPA. And then in the 1990 Clean Air Act, the Congress enacted the SO2 acid rain emissions trading program. The thing that people -- I'm just astonished, because when I hear this discussed I think the part that people don't really focus on in the discussions about expanding this to a global venue or even, to some extent, to using it as a model for domestic is that the clear goal with the SO2 trading program -- and it was just stamped throughout it is the goal of reducing -- is the cap. It's not the trade, it's the cap. And in fact, it was built on an existing regulatory program. And this is added, because people thought well, you know, if you added this, maybe it would make it more efficient. Maybe we'd get to the same goal in a more efficient manner. And maybe we'd achieve these sort of other outcomes of generating money and advancing technology along and all that.

And the basic -- you all know the basic theory about trading. You know, the idea is that firms that can control their pollution more cheaply can accumulate credits, and they can sell them to people who would otherwise have a harder time controlling their pollution. And as a matter of theory, I don't have any problem with that. But if you look at the SO2 program, it's just full of safeguards. It's full of a lot of features that are intended to make sure this program focuses on the cap and not on the trade. It has a cap that, you know, reduces over time. So it's a firm lid on SO2 emissions. And the trading works, but it's not kind of a laissez faire approach. Every participant in this process has to have a continuous emission monitor at the end of their pipe. The results from that go straight to an EPA computer. Every trade is transparent. Every allowance or trade that's made has a serial number, so it doesn't get lost. And all of this is made publicly available, you know, basically in real time. And there are very automatic and big penalties if you fail to meet your obligations.

Now, let's ramp up to a global --

MS. : Hang on. Are you telling us what it is, or this is your plan?

GREENSPAN BELL: No, this is what it is in the United States for SO2 trading --

MS. : (Off mike.)

GREENSPAN BELL: -- not CO2. And we don't know what's going to happen with CO2. And I don't want to speak individually to any of the, you know, the acts that are before Congress right now. But what I would like you to focus on is the fact that through all these safeguards, and there are more, the focus was on making sure that the pollutant was reduced.

Now, I'm afraid what's happened with CO2 globally is we've kind of gotten more entranced with the romance of the deal and less interested in the cap part of it. I understand this is a new system. I understand we're just going through it for the first time. But the main point I want to make is that when you ramp this up to an international level, as Kyoto has done, all of a sudden, you know, you're in the realm of well, how do you transfer these safeguards or how do you even have such safeguards in the international realm when you're making these deals? Much less in the domestic realm when you're asking people in the developing world to reduce their emissions, and you don't very much about how they're going to actually get to that result.

The Kyoto protocol, as you probably know, is grounded in the same assumption that the SO2 emissions acid rain 1990 -- and by the way, it's really interesting. Because of course, at the time Kyoto was negotiated, the SO2 requirements were very, very new. EPA hadn't even written its regulations to implement the law that Congress wrote. So we didn't have any idea whether this was going to work domestically, and all of a sudden, we're proposing it into this, you know, brave new world of the global CO2 problem.

The Kyoto protocol sets up something called flexible mechanisms, and sort of the best known of these is the Clean Development Mechanism which facilitates trading with a developing world. And now we actually have trading systems within Europe and some domestic-trading programs in Europe. And the European system allows those within the European system to obtain credits through the Clean Development Mechanism, the CDM, so they can invest in reductions in, say, China, and they can get credit at home for that. So in other words, they're not controlling their emissions within Europe. They're using this trading regime to make it happen.

Well, the problem for me is that we're sort of -- you know, the cliche about how we're building the airplane while we're flying it. We're really kind of globally testing a theory while the Greenland ice sheet is melting a whole lot faster than anybody ever expected it to. But we all believe in markets, so what the heck? I mean, that's the problem.

So let me tell you why I think it really isn't going to work very well. No developing world country has ever set up an emissions trading program domestically. And I know, because I've actually worked on efforts to do that in places like China. And the truth is, in much of the developing world, few of them are really controlling their pollution at all. I mean, you have -- as an American lawyer when I first started getting involved with these issues 15, 16 years ago, the thing that really struck me, and maybe I was naive, was the major difference between laws on the books and what was actually happening. And this was in spades in the environmental world. So you know, you have perfectly great-looking laws on the books. The issue was, what was the disconnect? Why weren't they working? And few are really controlling their pollution of any kind, and there are huge discrepancies, as I said, between laws on the books and actual practice. And if you don't believe this, go to Beijing, which is China's model city for pollution control these days, and try to breathe for a few days, and it really hurts, you know. And I go to more remote parts of China, and I come back, and I can feel it in my chest for weeks.

So as I've said, I think the problem here is that, you know, the safeguards that we have built very carefully into the SO2 trading program, none of those exist globally. The CDM program does in fact have an effort to try to validate those deals. I mean, you have to register the deals, there's a process you have to go through. But there's a lot of research and evidence coming in right now suggesting that despite those safeguards, things really aren't working very well. There were some really nice studies done by Centre for Science and Environment in Delhi, which if you e-mail me I can send you those, which suggest some basic problems with the basic commodity which is the emission reduction on the local level. And if the integrity of the basic commodity is no good, all amounts of markets can't save that. You know, the issue is, what are we really selling?

And then there's really been some quite interesting studies, and I'm going to tell you about one in a little bit of detail by a guy called Michael Wara out in California, who is a lawyer and a Ph.D. and did this out at Stanford. He took a look -- and actually, you probably noticed, because there was a front-page story on The New York Times on December 21st, 2006, which is highly unusual to have a New York Times headline on, you know, the most important part of the front page about emissions trading and the problems with it. Michael Wara looked at some deals that were struck in China. And the deals were to -- air conditioning is a huge and growing market in China and in India and places like that. And in order to create the refrigerant that you need for air conditioning, there's a byproduct called HFC-23. HFC-23 is an extremely potent greenhouse gas. It's worse than coal. I mean, it's very, very bad. And it's actually reasonably cheap and easy to get rid of it if you want to do that. And in some places, you have to by law. These CDM deals were struck. They went in, and they struck deals to eliminate this HFC-23 at these plants in China. But they actually paid a high premium for doing so. And my understanding -- maybe somebody can correct me here -- is that the reason they got this huge premium for, you know, I think 100 times what the actual cost of controlling the gas was was because of the potency of the gas. But if somebody knows better than me, you know, please let me know.

Okay, so the deal was put together by -- these deals are always put together, frankly, by people who are looking for a very fast buck. And that's my main point that I'm trying to get to here. So it was put together by, you know, investment banks or hedge funds, and they worked these deals with Chinese partners. In the case of -- that Michael Wara looked at, a lot of money was made out of this. It went to these, you know, the investors in the West, and it went to some Chinese partners. And the Chinese partners used the proceeds from that to invest in the very manufacturer that was creating this problem in the first place, because it's highly profitable, it's a huge market in India. And you know, why not? I mean, that's how markets work. So we have a market here where we have a lot of totally unintended consequences where people are not keeping their eyes on the prize here. The eyes-on-the-prize is reducing greenhouse gas emissions. And yet, everybody's sort of gloriously in love with this notion that this is going to fix the problem.

And the reason I mention the Michael Wara is because, you know, what we would have preferred is to have the proceeds from that invested in new technologies, in technologies that are going to really beat back greenhouse gas emissions. And maybe some of them are. I can't tell you. I haven't examined every deal that's gone on, but one of the problems is the people investing in this really want in and out fast. They want to make their money, they want to get out of there. You know, if you're investing in sort of, you know, long-term wind farms in China or whatever it is, you've got to be there for a while. You've really got to go for the long haul, and there's a certain level of uncertainty connected with it, and you just have to accept all that.

So basically, that's kind of my main message. I just want to be clear that, you know, from my point of view, I don't think we have anything serious on the table yet globally for managing these problems. And I want to actually at least be cautionary domestically about all this infatuation with cap and trade. If it has the same safeguards, you know, I think it probably can work here. But I just want to make one more point about it.

There have been some really interesting and I think quite reputable studies that said that with SO2 trading, with the acid-rain trading, most of the technological push and innovation came when industry was under a mandate, not a trading regime. And you know, despite all the hype about trading and how terrific it's been, if you look at the hype, it's mostly from the point of view of efficiency. That's the point. That's all the economists do their studies, because they're really in love with efficiency and not necessarily with anything else. It has to be examined, in my view, from the point of view of, is it stimulating the results we want? Is it getting a reduction in the pollutant? Is it helping stimulate new technology to get online? Is it cumulating things rather than just providing, you know, the romance of the deal as I call it.

LEVI: Thank you. I think we could have an entire session on the Clean Development Mechanism and the peculiarities associated with it. Everyone really should read Michael Wara's paper. It's fantastic.


MR. : How do you spell his last name?


MS. : Can you send it to us?

GREENSPAN BELL: I have it. If anybody wants to e-mail me, I'll send it. I have The New York Times article clipped, too, if you want to see that. (Laughs.)

ANGELINA HOWARD: Well, what I want to sort of wrap up with is nuclear power, can it go beyond the Energy Policy Act of 2005. And that was one of the topics we were asked to talk about.

And we've spent yesterday evening and this morning having a lot of different discussions on nuclear energy and where it is and where it's going. And so I'm not going to try and go back and certainly duplicate anything that's been said. But I think what perhaps hasn't been completely said is that is truly the recognition of what the current fleet of units in the United States and worldwide are doing. Christian Nadal mentioned some of that last night. But we do have a successful operation of a large number of nuclear plants in this country. The safety I think is proven. It has shown that they can operate safely, reliably and affordably. And the industry has its top commitment as safety. There isn't any question about that; there can be debate about it. But from a standpoint of where the industry is going and the development of safety culture both in this country and on a worldwide basis through the World Association of Nuclear Operators from an industrial standpoint as well as the various regulatory regimes that are working together that is truly the number-one commitment. And without that and without the continued safety of the existing fleets, you won't be thinking about new plants going forward. And I think the industry clearly recognizes that and has that in its forefront.

As we think beyond the Energy Policy Act of 2005 that was signed in August of 2005 two years ago, the question is, how are we implementing? Our Congress has a wonderful knack of passing broad-scope legislation and then getting down into the implementing of that broad-scope legislation has sometimes lots to be desired in both the implementation of guidelines and how it goes about it as well as the funding of those things as I think we all know, or those of us who sit here and try to figure out what's going on in Washington understand that that is always a major challenge. So some of the elements I would say is let's implement from a nuclear-energy perspective -- nuclear energy (where it has ?) been in the energy policy acts that led up to the final passage in 2005 over the period of roughly the four, four-and-a-half years that the energy policy was debated. In fact, if you go back to the 1992 Energy Policy Act, that was the act that actually changed the regulatory process for nuclear that will be the regulatory process that we will use going forward and the one that certainly the industry has questions about of will it truly be implemented according to the way it was intended? We're working hard to make sure that it does.

But let's look at some of those provisions we talked briefly about -- the loan guarantees, the production tax credits, the standby support, other policies truly of our federal government that encourage the development of new nuclear. The Loan Guarantee program is truly the one that's the most critical, because that's the one that addresses the ability to finance at a lower rate. And that is the one that we are working hard today. Department of Energy is having a public hearing on their latest proposal and draft rules on the implementation a loan guarantee office and program, because that helps in the ability to finance through construction and overall lower the cost of the facilities. And the loan guarantees are the utilities that are both in regulated and in merchant space are interested in loan guarantees.

At some stage, the thought was that those that were in rate-based would go forward in rate-based environment and cost recovery. And then others who were looking to build into a merchant environment would really be needing the loan guarantees. But those that are in rate-based have told us that it will lower the cost of power. They have to do everything that they can to lower the overall cost of the unit. And therefore, all are interested in seeing this policy put together. And from a utility standpoint -- and I think Jim would echo that; I think he did this morning, if you were here -- this is important for all lower-emitting generation, it's not just nuclear. And to date, what we've seen from a funding standpoint of the Loan Guarantee program it is woefully underfunded and not really able to address either development of the new clean-coal technology nor nuclear. But again, we are working and hope to see that change with the implementation, and perhaps some additional legislation and clean-up legislation will be needed.

From a second phase, it's beyond the Energy Policy Act and the debate of EPAC. I think generally agreed in order to try to pass any energy policy legislation it was that climate and carbon controls were not going to be on that table. That was not a part of Energy Policy Act, and I think that was part and -- a clear plan in order to get something passed because of the controversial. But we clearly have seen a change in dynamics, both in the change within the congressional debates that we are seeing going forward as well as in the change of industry. And Jim clearly articulated that, as recognized that mandatory provisions are going to be needed. There's been a lot that has been done on a voluntary basis, but I think it's generally accepted that that's not been sufficient. Now, it won't be sufficient going forward, and there needs to be some type of mandatory type of provision. Now, it's not a matter of it, it's a matter of when. But the question is, how long will it take to see that come through? And those are matters of long-time debate. And I think that we will see it, but it's a question of how long will it take.

From a nuclear standpoint, no one has ever suggested that nuclear was going to solve all of our climate-change issues or meet all of the carbon-control needs. It is a part of a solution but always a part of a solution. And yet, at the same time, whenever you can add additional, affordable, reliable generation without emitting either controlled pollutants or greenhouse gases into the atmosphere, it's a bonus, and it's a plus. And that's why there's so much interest, not only in this country but on a worldwide basis, of how to continue to utilize and grow the component of nuclear generation.

Third, as we go beyond where we are going in energy policy, we see the need to rebuild energy infrastructure in this country. And the rebuild of the energy infrastructure is not just in the electricity sector, but it is across the whole energy structure of how do we bring into this country either the expansion or the replacement of our refineries, our pipelines, the need to expand both oil and gas pipelines. The electricity infrastructure is clearly there, both from a transmission-distribution standpoint but new plants. Over 50 percent of the electricity today is produced at plants that are over 30 years old -- fossil and nuclear. And so how do we not only plan for future and keep that non-emitting component that we have from our electricity sector, but also how do we look toward replacing a good portion of that sector over the next 20 years? And that's clearly -- we do know that going forward with nuclear there is a strong commitment to standardization. And that standardization will be something that will be an added boost to both lowering the cost of new nuclear and improving the overall construction and construction lead times, actual construction in the field and what we are capturing and learning from those plants that are under construction around the world, not only nuclear but other large construction projects in construction management and modular-type construction.

Work force is clearly another issue that we're trying to look forward to the future of how do we provide that technical work force. The existing fleet in this country, and in fact in some other countries, came out of the nuclear navies that some of those countries had. The nuclear navy has cut back significantly, so that pipeline is not nearly as large as it once was. But we're taking an aggressive approach and changing that approach and working in a consortium between universities, community colleges and the industry. That in order to attract young people to go into the community college, if they're not going directly into college, this is more to address the technician and skilled craft. And the community colleges are really providing that pipeline that the U.S. Navy did to the existing fleet. And that is a program that is greatly being stepped up, both from the standpoint of the technicians that will be involved in the operations and maintenance of the plants, but we're also now trying to develop those particular types of skills that will be important from a construction and constructability standpoint. So I think the work force will be there. We've just got to simply make sure that the work force of the future understands where the jobs will be, and that will be a partnership.

And the same way with some of the infrastructure issues as well. There's been a gradual change by using probabilistic risk assessment, really understanding the risk of these facilities and where the risks are. Of using the ability to use industrial-grade quality product as opposed to everything in a nuclear plant having to be nuclear-grade quality products. They're very much similar, it's just a matter of QA. And so everything that is essential to the nuclear safety of the facility will be maintained and done through the nuclear quality, but we'll also be able to put balance of plant -- materials through other industrial-quality products that we use and in our other industrial environments. So we're seeing strong commitment there. But we're also seeing re-growth and re-interest. Many of our military primary suppliers are rethinking and moving back into the commercial nuclear. We're seeing that through companies such as General Dynamics, Electric Boat, Northrop Grumman who see a market there. And so, again, we talk about the industrial infrastructure. We think it will be there and will be there with quality products.

We're seeing growth in the uranium mining areas and in the enrichment area -- two facilities here in the U.S. that now have construction permits or under construction to add in the enrichment capability. So we're trying to address all of those major infrastructure issues as we're going forward in order to be ready.

So that's sort of the immediacy of post-EPAC 2005. But let's look just a little bit beyond, certainly from a technology development, both from a standpoint of addressing climate change that's clearly a need to look at the technologies that can be developed that will generate energy in a cleaner environment and advanced nuclear can certainly have a key role to play in that area. But over the long term, if we're really looking at addressing climate -- and certainly Jim made that point, and others have as well -- in the global sense and a world sense, as well as addressing economic development and prosperity, particularly on a worldwide basis in the developing countries, I think it's a general agreement that we're going to need all energy sources. But we're also going to need a substantial amount of nuclear. And whether it is -- as Jim, you said -- in certain developing countries, the at-source renewables, or if it's in other areas of using sort of the lower-tier fossil fuels, gas and some oil, or it is truly developing over a long-term basis the use of nuclear technologies and even small nuclear that can actually be a portable nuclear project, there are many types of things that are on the drawing boards and being considered over the next 50 to 100 years.

But we do need to have and assure the long-term fuel supply and the ability to greatly reduce, to use the byproducts of the waste that we have today, to use that and to turn that into a long-term usable product. And so what does that mean? Well, we've heard the proposal of GNEP, the Global Nuclear Energy Partnership. And if you want to ask a lot of people, the term GNEP may not be a term that is popular or, as others have said, has been, you know, proposed by an administration that doesn't hold a lot of popularity on Capitol Hill today. But the advanced fuel-cycle initiative, which is really what a lot GNEP is, is that long-term R&D and looking at the fuel cycle. And how can we? We need to do the R&D to understand whether we can truly close that fuel cycle, take that material and recycle it in a way that doesn't create a proliferation risk, and we think we can do that, that can use this material in some small number of advanced burner reactors -- maybe not the fast breeder reactors in our country, maybe so. Other countries are looking at that.

All of that needs to be in a long-term, 40 to 50-year integrated and strategic fuel-cycle initiative. But it needs to start. It needs to start now. We can't wait 30 to 50 years to think about that. And we need to start in that R&D process to understand how we can use and make use of very useable energy sources that are non-emitting and also, at the same time, do what's responsible in reducing as much as technically possible the waste product, so that you are significantly reducing not only the radio toxicity of the material but also the volume itself. And so that's a strategic initiative that the industry is looking to undertake and to partner, as appropriate, with government. But also the industry is considering undertaking a long-term look at these kinds of initiatives and how we shouldn't go forward.

And then lastly, as we think forward and as a part of that, is the development of the next-generation nuclear plants -- perhaps the high-temperature gas reactors that can be used for other industrial purposes, the extraction of oil from the oil sands, for hydrogen production, for the desalinization. And I think a clean and potable water supply is going to be just as critical as energy supply and perhaps even more critical for the world as we go forward. And so nuclear energy and nuclear technologies can play a role in all of those elements. And so for the near term, we need to get on and continue to use the Generation III or Generation III+ reactors as a part of our energy fleet here in the United States. And then in the long term, we need to do the R&D that will allow us to use all these technologies in the most efficient way.

Thank you.

LEVI: Well, thank you very much.

All right. I think we'll get going again. I'm sure people have a lot more they want to discuss. I may be wrong, but I really doubt it. I'm going to cheat by leading off with a short question followed by short answers for each of our speakers we've had.

So let me just ask each of the three questions right now and then go across here with answers. And in the first two cases, I want to push things a little bit more. In a couple of cases, I want to push things a little bit more internationally. You talked about cap and trade versus tax domestically. Putting aside the merits of each of them domestically, there's a more straightforward way to expand the cap system internationally than there is to expand the tax system internationally; harmonizing taxes is not a straightforward thing. I'm wondering if you can talk to how you would see a tax system fitting in internationally.

Angelina, NEI takes a position that some sort of regulation is necessary, but it doesn't explicitly support either a cap or a tax. I'm wondering if you can talk a little bit about that. And if you talked about all the fun and games with CDM -- that's one part of the experience so far -- I wonder if you can talk a little bit about the experience with the EU emissions trading system internally. I wish I had a graph of how the prices of credits have gone. But I would be interested to hear a little bit more about that.


ROSENBLUM: Yes, thank you for the question. It's a good one. We do not think that a domestic carbon tax is optimal. And obviously, if you have a domestic tax, there will be leakage. And as we heard earlier, there are chemical companies moving out of the country, because they get cheaper natural gas. Same type of issue would happen if you have a domestic carbon tax and nothing outside.

We're starting domestically, because we think that's where we have a better shot. We're also looking at state models, by the way. But global is the way to go. So how do you do it? One way may be to use border adjustments, some type of tariff arrangement. We're looking into that right now. And then maybe the best way to try to make sure you have a level playing field. Another approach may be just what I guess the president announced a week ago -- try to have more voluntary programs by different countries, and hopefully they'll all come up with their own approach. And some may very well decide that the tax is the way to go. But at some point, you have to harmonize them. You're right.

I don't agree with your assumption that cap and trade is easy to harmonize. And in fact, I see major political issues there. The whole idea of people in this country wanting to see millions and billions of dollars going to terrorist countries to buy their credits. It just boggles the imagination. That is not going to go over very well. So that's not easy, either.

MS. : (Off mike.)

HOWARD: Well, our position from representing the nuclear industry has been one, up until reconsidering the industry's position on mandatory tax, is that nuclear should be treated like other non-emitting sources of energy. And that any recognition, either through a cap and trade system or some sort of offsets, ought to be given to all non-emitting sources of generation and not solely to renewables, for example, but recognizing that nuclear is the largest non-emitting source of electric generation and it's contributed the most to the voluntary reduction program.

Going forward, as the electricity industry has changed and taken a position that would support some type of mandatory cap within the same context of also not having adverse impact on the economy, those are our members who have taken that position as well. And so we are in the stages now of finalizing more substantive principles that deal with climate change. But again, the major principle is that nuclear is the largest source of non-emitting generation and needs to be so recognized.

MR. : (Off mike.)

HOWARD: Okay, well, first of all, just as a side note, we should all, to some extent, thank George Bush for the overall Kyoto thing and the European system, because they weren't at all interested or pretty much weren't interested until the president said that we weren't going to participate in Kyoto. At which point it became cap and trade, and its various variations became extremely popular in Europe. So that's part of what kind of leverage -- (inaudible).

I think the good thing that can be said about the European system is that they set it up. They're in a shakedown system -- you know, period. It's a very hard, complex thing to set up. And if there have been problems, you know, it was anticipated that it was supposed to be. I mean, there are people here who know more about it I think than I do. But it was anticipated to be a period of testing and seeing where it was going.

The problem, as I understand it, is that the levels and allocations are set country by country, and that's one of the problems that inevitably this becomes a political decision. And when the focus should be on reducing emissions, people get all worried, of course, about what it does to their local industries, their domestic industries. And so they allocate on the high side. And guess what? You know, no emissions reductions take place. But I think that point was made pretty forcefully in this last period of shakedown. And the European Commission has, you know, said that it's really going to lean on the countries to push that cap down. And I guess we'll just see what happens.

There have been a bunch of little sort of things that you should pay attention to. I don't want to say the fast-buck thing too much, but there was an experience in the U.K. where allocations were given away, not auctioned, to the electric-generator providers there. And they proceeded to pass the so-called costs of this gift that they had gotten from the U.K. government onto their customers, which raised the energy price for people in the U.K. So there's a lot of things that have to be paid attention to here. And just to make the point if I don't make it again, it's the cap folks. It's the cap; it's not the trade. Let's keep our mind on that. Thanks.

LEVI: All right. Let's open it up to the floor. (Tent cards ?) up if you want to be on the list. I know that Jonathan has to leave a bit early, so let me bring you in first.

JONATHAN SCHRAG: (Inaudible.) My question is really for Daniel and it's going to ask you to engage in a carbon tax (discussion ?). So I think it was very interesting, from -- and it may have been dismissed too early by many -- to engage with some of Ruth's remarks on the way in which carbon market architecture should be oriented to promote technology development, and the kind of escalating tax that I heard you describe. I'm a little bit unsure of how that would -- that would lead to technology development. For example, what one really wants in some carbon market architecture is to internalize the price of marginal cost statements and -- (inaudible) -- for any given level. So there's been a great deal of literature written on industrial learning, on technology learning and learning rates. So might one think of a constant, beginning tomorrow, which would last for a period of time and then decrease, according to some -- (inaudible) -- some algorithm of technology learning for a set of) energy technology? Has there been any thinking of how this carbon tax in such a scheme might in fact hook up with the technology, technology learning -- (off mike)?


QUESTIONER: If you want to comment on -- (off mike).

ROSENBLUM: No, no. Well, that is, in fact, a part of why we want to see a trajectory going up, because we want to give people time to adapt. If you start at too high a level right now, it'd be too -- you can't make short-term changes in your fleet of cars, in your electrical motors for industry, in your HVACs, because it takes time to do it. If you have a gradually increasing price going up, people have time. They know where prices are going to be, they know what's an economically rational decision to make.

One of the benefits, I think, of a carbon tax over cap and trade is that with cap and trade you have a much more volatile pricing, because it's quantity-based. So if you have a very hot summer or cold winter, a strong economy, guess what? You have much more demand for your credit, your allowances. You're going to have a spike in prices. It can go the other way, too. You'd have a big drop in prices. What that tells people is they aren't really sure what's going to be happening down the road, so it makes it hard to make a rational decision that, "I see these costs, this investment makes sense." When you know what your costs are going to be one, two, five years down the road, and they're going up, you know it makes sense to invest in new technology.

And I hope that's responsive.

QUESTIONER: Yes. Yeah, I guess -- (inaudible). Part of what's so exciting about many of the conversations that happened earlier today was, you know, the constant cross-reference between carbon capture and storage and nuclear, and the numbers that are being bandied about.


QUESTIONER: One of those would be -- (inaudible) -- would be take the worst possible number, right? The most expensive, your backstop technology, the one that you say, look, we really need to capture whatever that -- (inaudible) -- is, right? The, you know, 80 percent of CO2 emissions. And we're going to begin with that number and we're going to tell the nuclear industry and the clean coal industry -- (inaudible). We're going to be looking, on an annual basis, for cost reductions. And we're going to ratchet down this subsidy, and whoever is able to be below that line will be -- have incentives to expand their facilities, and whoever is above that line will not. Could it create an environment -- (inaudible) -- that level of competition in the carbon market architecture itself? To me, that's what a carbon tax can do that cap and trade can't. So I'm a little perplexed that you're not trying to maximize that.

ROSENBLUM: Well, frankly, I thought we were, and --


ROSENBLUM: Because you're still going to have to compete with the competitors that provide energy into the market. And the fact is that if you're going to be building a plant, you're going to have that plant in operation for what, 30, 40, 50 years? Who knows? By the time you have that plant built, you're already going to be at the five-year level, I expect, of a carbon tax. When you do your planning, you're going to be planning on the full tax. That's what's going to be around during the lifetime of the plant. That's what's important for your decision-making. So the fact that you have a fairly low -- low tax over year one and two, three, doesn't really play a major role in the decision that's made by a utility, say, and what kind of plant to build. They're looking at the higher -- the higher level. That's the relevant number for them.

LEVI: (Inaudible.)

QUESTIONER: I have some questions -- about the carbon tax, and let me go back -- (inaudible). Early in the '40s -- (inaudible) -- one day. (Off mike.)

LEVI: We've cut off the electricity to be more efficient -- (laughter).

QUESTIONER: (Inaudible) -- I had three calls with three different people in the White House. They were proposing to put on the gasoline 15 cents a gallon, 5 cents a year over a three-year period. And they said didn't I think that would have a huge effect on gasoline purchases. And I laughed, and I said, no, it won't, and I will give you a reason why by taking the current situation. A couple of days ago, I pulled into my gas station; I bought 10 gallons of gas -- (inaudible) -- I spent $33.90. And with 10 cents a gallon, the 3 -- 34.90 (dollars), it would have no impact on my future decision. Now, it is true that next year, theoretically, it could be (35.90 ?) (dollars), but that assumes that all of the other costs that go into that gallon of gasoline have remained the same -- (inaudible), So now, it is true that -- (inaudible) -- that they put on that and instead of 33.90 (dollars) I was paying 43.90 (dollars), and knew that it was going to be similar over the next few years, it might have had -- might have had some effect. But if I watch prices around the country, I am not sure about this, and I think we need to keep that in mind. If you're going to make an impact -- (inaudible) -- you have to have a real impact -- (inaudible) -- and it has to have -- (inaudible). So I raise that.

But there are other problems we have -- (inaudible). Where do you -- where do you impose? At the well head, at the refinery, or at -- natural gas -- at the distribution point? Or -- (inaudible). So it's -- I just say it's something that's really questionable and it really needs to be thought through as a -- (inaudible).

ROSENBLUM: Regarding your first question, it's one I think about frequently when I buy gas. I mean, when I buy gas, I think about it, too. I think prices are going up. I mean, it's not having a huge effect. (Inaudible) -- a couple answers --

QUESTIONER: (Inaudible.)

ROSENBLUM: Let me -- a couple answers. Number one, I should acknowledge that gasoline elasticity is considerably lower than on the electricity side, and electricity is a much larger percentage of total energy use and, therefore, emissions.

QUESTIONER: (Off mike.)

ROSENBLUM: So you get much more bang for the buck from a carbon tax on the electric side than on the gasoline side. (Aside.) Let me finish.

In addition, there's a volatility point that I made that John (sp) said a minute ago. Part of the reason why people don't really respond with their automobile use of energy is because they don't know where prices are going to be six months, or a week -- six months, a year later. They go up, they go down. Why make a long-term decision to get a more efficient car if the gas prices may drop again? Again, if you have a very clear trajectory going up, you get a much more powerful message that you'd better start thinking about that Prius and not get the SUV.

In terms of your other question -- let me just make sure I don't forget it -- we are proposing a tax be imposed as far up the chain, the supply chain, as it can, so that refinery -- well head -- the whole idea is to minimize administrative costs, administrative problems.

LEVI: (Off mike.)

QUESTIONER: I wanted to ask what your effort is in terms of selling people on the Hill on this idea and how you're getting your proposal out so more people across the country are starting to pick up this? Is it your assumption that they're sort of announce it on the Hill and everybody will have to adjust? I mean, it seems to me that this is a story that needs to get told. (Inaudible.) -- going to get told in a -- (inaudible) -- audience.

ROSENBLUM: That's a good question, and -- and we're doing our best. There are two of us working part time right now, and we have been getting our message out, I think, very successfully, primarily over the Web, oftentimes (speaking ?), and we'll get the message out, you know, as best we can in that way. We're trying to get people to understand the issues. We're trying to engage, at every opportunity we have, with decision-makers, with people who are proposing different alternatives. But it's a challenge to get the message out.

QUESTIONER: What about the editorial boards of newspapers?

ROSENBLUM: We should --

QUESTIONER: (Inaudible.) I mean, you really --

ROSENBLUM: Well, you know, we have written op-ed pieces. They don't always get published. But we'll try that. We'll try --

QUESTIONER: (Inaudible) -- else

ROSENBLUM: Pardon me?

QUESTIONER: (Cross talk.) I mean, you've got to have somebody -- I've got ideas I want to do. If I submitted them, nobody would ever publish them. But I go find other people who --

LEVI: Co-author.

ROSENBLUM: Well, you know what? That's a good idea, and we're very open to any idea you have. So keep giving us ideas, and we'll -- we'll work with them. That's great.

LEVI: (Inaudible.)

GREENSPAN BELL: (Inaudible) -- recording?

QUESTIONER: I have a question for Ms. Howard. This morning Jim indicated that one of his interests is getting as much subsidies as he possibly could for all of these technologies. It's in his business interest to do so. You purport to have, or NEI, a concern about the global warming issue. And you, NEI, sought and obtained substantial subsidies in your 2005 Energy Act. And I'm curious whether NEI is satisfied that those subsidies are sufficient to jump-start the nuclear or are you seeking additional subsidies for nuclear? And if you are, is there any end in sight to the level of subsidies you will be seeking in the future for nuclear? And after I get that answer, I have a follow-up question. (Laughter.)

HOWARD: Well, the incentives in the Energy Policy Act --- (laughter) -- well, the incentives in the Energy Policy Act, I think the thinking on that has evolved over -- since 2005, like many other things. And as we -- we saw a significant number of companies make the decisions to go forward with the combined construction and operant rating license after the act was passed and they -- they saw the production tax credits being included and some level of stand-by support, because the real uncertainty for nuclear was not in the technology; it was in the regulatory aspect, and would the new licensing process really work like it was intended to work? And so -- and, you know, there were reflections and memories of (Shoreham ?) and others that took so long or else were -- were never, you know, went into operation. So those were very important at the time, in 2005, as well as the loan guarantee.

As we further refined that, and met with our utilities and met with Wall Street, as the companies are moving forward with their decision-making and truly understanding how to finance these plants, the loan guarantee program became more important because of the -- of the importance of being able to finance at the lowest possible rate, and the loan guarantee affords the companies to borrow at a lower rate. And so we've been working now with a focus on getting that Department of Energy program and a loan guarantee office established, established so it will be a well-run program that does not offer loan guarantees for those programs that are projects that might be risky and in a chance of default, Jim. And then getting sufficient availability of the loan guarantee funds so that -- through the appropriations process -- so that the program can be funded in order to be able to support any number of nuclear, including coal projects. A $4 billion program won't get you there. And so that's where we truly are working now.

We've not, as I said earlier, taken a -- (audio gap) -- the designs, the quality, that goes into ensuring that these countries that are pursuing, and there are other nations who will sell those reactor products to Vietnam and Malaysia and the Philippines and they're out marketing right now. And so how do we interject Western safety culture into this process? And that's very critical.

LEVI: Jim?

JIM HARDING: When I talked about this issue earlier I didn't mean to imply in any way that I thought it was either likely or desirable for the bulk of net additions to nuclear capacity to be in countries that have no prior experience with the technology. What I was left with after looking at forecasts is the notion that you're likely to see shrinkage of existing capacity in western Europe, modest growth in Russia, maybe staying about the same in the United States, and if you want to be on a trajectory of a wedge the rest of the stuff has to happen in the developed world because it doesn't seem to be going. Now, bad idea --

HOWARD: Developing world.

HARDING: Developing world. Bad idea for a number of reasons. Safety culture is the one that comes immediately to mind but the risk of having bulk handling facilities, enrichment reprocessing, mixed oxide fuel fabrication in those -- in that part of the world I think is extremely serious. Finally, I --

HOWARD: And that's why there's a need for the large nuclear nations to come together and provide both the front end and the back end of those services at a competitive price.

HARDING: That is one argument. You can also say that as we have seen with Dr. Khan's commercialization of rogue centrifuges the role of the superpowers is modest. Finally, I'd say that there's some evidence of rebuilding of nuclear infrastructure in some parts of the world, including the United States. We'll probably see some reactors here. There is a limited supply chain capacity and a lot of vendors are not going to waste their time talking to Vietnam in the near term for that reason -- that they don't have the technical capacity -- they don't have the regulatory capacity -- they don't -- they may not have the financial capacity to follow through on a reactor order, and most people are just not going to invest the huge amount of effort required to give them a complete design.

LEVI: Sir, and you want -- (inaudible) -- something really quickly?

QUESTIONER: Oh, yeah. No, a different topic -- (off mike.)

QUESTIONER: Okay. I just wanted to say -- I can speak -- (inaudible) -- because it is the topic of a Carnegie panel or a panel at the Carnegie conference in two weeks, and the real question is how do you -- how does the U.S. or how does the developing world shape if, you know, the spread of nuclear technology, and I thought it was interesting, Miss Howard, that you brought up the example of Korea because some of these countries, for example like Jordan, which we all look at and say, "Well, slightly ridiculous that they're going to develop a nuclear program," but, you know, they're talking in Pakistan about this, and we're having a problem right now trying to convince other countries that enrichment and reprocessing are bad things to have. Well, now we're going to go forward and say, "Well, you know, we'll give you a reactor that, you know, we'll, you know, you'll flip the switch and years later you'll turn it off."

That's not what they're interested in. They're interested in technology transfer for precisely or perhaps the reason that Spurgeon mentioned which is let's look at the long-term future. And so while I agree that -- or the long-term option, you know, placing -- sort of placing themselves should nuclear weapons, for example in Iran, come to fruition. So while I agree that the U.S. has to take leadership, maybe it has to think a little bit more about this proliferation part of it or the nonproliferation part of GNEP because the U.S. is not a leader in developing small reactors. Other countries are better at it and, you know, you're going to have countries like India going out, which is now thinking about selling its heavy water moderator reactor. So I think there are some problems then we're going to have all think about how you shape --

HOWARD: I agree -- I agree.

LEVI: Spurgeon, you have a really quick comment?

SPURGEON KEENY: I'd just like to add one point. Going back half a century, President Eisenhower had a well-intentioned unfortunate initiative and that his "Atoms for Peace" proposal and it was well-intentioned and was based on a thesis that nuclear power would be so commonplace that it had to be accepted as a worldwide phenomenon, and by encouraging it on our terms we would have a better role. And I think that with based on a misunderstanding status for nuclear power at that time that led to a different -- a very foolish program of spreading nuclear reactors all over the world to people who hadn't the remotest idea what to do with them -- how to use them. And -- (inaudible) -- last couple of decades trying to retrieve the remnants of that program, I think we should -- not totally analogous but should carefully examine what we do in introducing -- (off mike) -- because we're going to have to subsidize it. These really poor undeveloping countries can't afford the capital costs of any kind of nuclear program. We should be very careful in thinking it through as to whether we can control the inevitable by doing things at our initiative that will soon get out of -- (inaudible) -- not necessarily stay under our control because I think -- I sort of see that theme emerging again and themes that are strangely reminiscent of that -- (off mike) -- fast -- (inaudible).

HOWARD: Again, I'm not advocating that the U.S. go out and promote nuclear technologies in the developing nations. What I'm saying is that I think we have to take a leadership role in how that is being driven on a worldwide basis and a collective partnership of all nations doing that -- not to promote and drive that but to understand, and just what Jim says I think it's quite true that -- I know some of the vendors are not, you know, interesting in going there for just the reasons that he said -- one reactor, you know, not having the infrastructure. And yet they are pursuing it and we have to take a leadership role to help them understand what is required from a regulatory standpoint and infrastructure so that they can make a reasonable decision or understand what the commitments are and what has to be done for a long time. And I don't want to argue with you and we can talk offline but --

LEVI: Let's --

HOWARD: -- but I just wanted to be clear that I'm not promoting that but it's happening.

LEVI: Okay. Let's move on to the next round. Sharon will have an excellent session on this at Carnegie.

QUESTIONER: (Off mike) -- the economics of it --

LEVI: Let's --

QUESTIONER: (Inaudible) -- look carefully at how the smaller reactors really shapes up because the effectiveness of nuclear power is in the large plant and so forth. The small plant is going to be much more relatively expensive and will require much of the associated things -- the safety and so forth and so forth.

LEVI: If I don't move on to Charles here I think I'll be relieved of my presiding duties.

CHARLES FERGUSON: No -- no -- no. Mike, you're doing a good job. And I'd like to comment on this exchange right here and then get on to my different question. I could say I can't help it because I'm a proliferation guy. So just the facts -- more than 40 countries in the world according to Dr. Mohamed ElBaradei (ph), director general of the IEA, have capability or some capability of making nuclear weapons. But how many nuclear-armed countries are there? Nine that we know of. Or -- well, Israel's not out of the closet officially but eight that we know of and one other we suspect, so nine. So that's a lot less than half of the 40 or more that could go nuclear because they have the technical capability. So I think we need to separate the technological imperative from the political imperative, and there's an excellent study was done back in the early 80's -- guy named Stephan Meyer (sp) -- took his Ph.D. dissertation, published it -- interesting book. Very -- kind of wonky book but he did a detailed study up to that time of the countries that went nuclear and what was the key driver. Was it a political decision? Was it the fact that they just had the technology to push them over the edge? And when he did his fiscal analysis the primary motivator was, you know, the political decision. But then we need to think okay, what motivates that political decision? Is it the mere fact of having technology? And it's a necessary condition but not a sufficient condition. And I can also quote Scott Sagan's seminal work from 11 years ago, "Three Miles in Search of a Bomb". You have the security dilemma -- big driver for many countries. They feel threatened by an external threat and drives them to seek the ultimate weapon, but not all countries -- that's not enough to convince many countries to do that. Then you have the domestic political driver, and then you have the international prestige issue because certain countries value the bomb and that raises other, you know, other countries' estimation of trying to get that. So I think in sum I would say that let's not assume just because these technologies might spread to other parts of the world -- and I'm an advocate for trying to control the spread as much as possible and using every technique we have in our toolbox to do that -- but I think we need to keep the eye on the political driver first and foremost in addition to trying to do all we can technologically in terms of proliferation resistance. I see Dr. Cochran has an intervention -- (laughter) --

MALE : (Inaudible) --

TOM COCHRAN: Where do you get this form? I mean, you say you could -- (off mike) -- 40 countries that have nuclear power?

FERGUSON: Well, I think he's looking at --

COCHRAN: And how -- (off mike) -- enrichment plan to come back so, you know, you making this up or somebody is. (Laughter.)

FERGUSON: Yeah, pulling out of somewhere right now -- yeah.

COCHRAN: Most of those countries don't have fuel cycle facilities. I mean, are you simply saying there are enough people in the world that they should invent power plants and -- (off mike) -- processing and, you know, they got people that have gone to college? I mean -- (laughter) --

QUESTIONER: Charles, are we including civilian research reactors here?

FERGUSON: We're calling civilian research reactors -- I mean, look at the countries that have research reactors and then you get up to where it's almost 60 countries possibly, but I question that. But, you know, Japan kind of stands out -- Brazil, Argentina. You know, South Africa renounced the bomb, Canada -- a number of countries in that basket of these sort of gray area nations. And a number of them as you know, Tom, had nuclear weapons programs in the past and they decided not to pursue it for a number of reasons namely because, you know, political situation changed -- security dynamics changed. But the mere fact that they still had that technological capability they could have exercised that option if they wanted to just because they had some technological capability. Now look at a -- (inaudible) -- proliferation.

MALE : (Inaudible)

QUESTIONER: (Inaudible) -- raised a good point, right? Because in traditional studies of proliferation we all look at, you know, getting the material as the significant hurdle. So if you don't have -- (inaudible) -- capacity to make -- (inaudible) -- materials, either in a reactor and enrichment, what does that say? I would also point out that much of their -- (inaudible) -- is not a nuclear weapons design. It doesn't even come from a country that makes nuclear weapons.

QUESTIONER: Well, yeah, if Henry Sokolski were in the room he'd say, "Look, any country with a reactor, that's a plutonium bomb factory right there, and then they have a hidden reprocessing plant." You know, the study I did two years ago with Galinski (ph) and Marv Miller and them, you know --

QUESTIONER: (Inaudible)

QUESTIONER: Yeah, I know -- (inaudible) -- right.

QUESTIONER: -- political wisdom.

QUESTIONER: Okay. So now I'll get to my --

LEVI: (Inaudible) -- Marv in for a physics exam.

QUESTIONER: Exactly right. But he's a good lawyer. (Laughter.) So I have a different topic, and this is just trying just because maybe I'm just really stupid about efficiencies and how they're going to play out in economic growth and how all this fits together. We're trying to do something about countering climate change but I wish Jim Rogers was still here. He raises some very important points. Number one is the fact that with quoting -- (inaudible) -- Nadal (ph) that, you know, two billion people in the Earth don't have access to electricity or adequate electricity. And then you have -- and that just is symptomatic of the growing need in developing world for a better standard of living, and then we have even our own country -- leading developed country in the world -- you know, push for growth, growth, growth, and we're not happy if we don't get 3 percent growth rate every year. And then we hear Jim Rogers say efficiencies -- the fifth fuel -- right on. But then I wonder if you have efficiency gains and you don't have a way to control growth somehow would efficiencies by themselves just stimulate greater use of energy sources and so then you end up getting, you know, increased greenhouse gas emissions anyway. So you need -- it's a very complicated situation but maybe the panels can talk to this of how you -- what are the tradeoffs? How do you deal with the tension of having more growth, dealing with the demand for better lifestyles in developing world -- other parts of the world -- and trying to not just efficiencies but there's also conservation and trying to kind of keep a cap somehow on growth but, you know, also consider people need to eat.

LEVI: (Inaudible) -- the panel -- (laughter) -- from --

QUESTIONER: I mean, you know, these are all serious problems. And you're right, I mean, if you look at say for example the hybrids, now they're these extremely fancy hybrids that aren't really getting that great mileage because they're using the -- as I understand they're using the battery to drive, you know, little extras in the car that everybody loves. So I mean, you know, so I don't know and there are some other studies that I can't -- I'm retrieving this out of my memory -- I may be wrong, but I remember somebody saying something about some of the alternative lighting or energy for rural nonelectrified places or maybe -- anyway as people have been using that as supplementing -- oh, I know what it was. It was stoves -- it was more efficient --

LEVI: (Inaudible)

QUESTIONER: Pardon me?

LEVI: (Inaudible)

QUESTIONER: Well, but also more efficient stoves. Well, then they used the -- you know, they used a new technology but they retained the old technology and that's because of cultural reasons and because of a lot of other reasons because they're used to it and they're -- and that's one of the major issues we're going to have to deal with on our own country about the cultural issues -- about that you, you know, that people came to this country because they were tired of recycling things. They were tired of always wanting things and they, you know, even as recently as -- you know, when I was living in Poland I was at a very sophisticated dinner party one night in Krakov in 1991 and somebody left to go home to watch "Dallas", okay? Because "Dallas" was like the model of what, you know, what their lives might be like, and now they're sort of living that way in somewhat -- I, you know, you can gag but the truth is that's the model that we were out there promoting and that's why people often come to the United States, and so we have to deal with all that. I'm not an economist. I can't tell you about the growth thing. I -- in part the growth is sort of predicated on people buying more and more things, and maybe we can be redefining. There are people working on how do you redefine what's growth and, you know, and I think that's probably important to do. But you're right about the big problem is the many people on this Earth who just don't have basics, and I -- I'm hopeful that maybe that, you know, technologies -- solar is going to look at -- one of the most wealthy people in China right now is a solar manufacturer. I think that, you know, Jim Rogers mentioned this Madrid process that he's part of. I think this guy is also. So, you know, it may well be that what we can do is we can find other ways besides big power plants to provide for those kinds of people and be much more creative about how we do it.

LEVI: And that's what I'm thinking is that we should be syndicating "Survivor" rather than "Dallas" if we want people to reduce their energy. (Laughter.)

HOWARD: Just a couple of thoughts. I think, you know, forget, not, you know, in my opinion we've got the greatest country in the world and people do want to come here, and yet we have to take our innovations and our creativity and look for ways to improve the processes, and I -- and recognize that many of the technology developments yes, that do use a lot of energy, as they go into the developing countries they jump and we do have those jumps. Just like in developing countries cell phones -- cellular phones with remote recharging and what not, you know, there will never be any landline phones, you know, type of things. Just like we're moving that way here in this country as we revert to that.

But so, again, I believe that we have seen the use of innovation and technologies to improve efficiencies -- to improve lifestyles here. Whether we are to the excess or not is a matter of choice. It's a matter of the basis I think for what our country is built on which, you know, is democracy and that will be, and we need to go -- Mitzi's not here but Jim was saying back to that national conversation of truly educating people about where energy comes and where it goes and the same way with clean water and other basics of life that will help people make the right kinds of decisions, and I think we have become more efficient over time. Look at what we've done in recycling over just a -- probably a generation. Twenty years ago there was not the level of recycling that we do today and we make things and products more efficiently because of that, and the same way with other technologies. But we also feed the world too in many respects, and that takes a lot of energy -- takes a lot of energy intensity. So there are elements there and you have to look at it in that holistic way.

LEVI: Dan?

ROSENBLUM: I don't have too much to add other than to say that the idea of trying to provide decentralized or small-scale energy resources to developing countries makes a lot of sense -- solar. But I, you know, I don't want to sound like I just have one message here but I do and -- (laughter) --

LEVI: (Inaudible)

ROSENBLUM: It'll work eventually -- right. And the message is you need a price signal and that'll -- that will make sure you don't have your demand get out of control. Now, that could have a negative impact on the people you're worried about obviously -- people who are poor. And for them you can either waive the carbon tax for some developing countries, or in developed countries you might want to use some of the revenues, and we propose this, to help people who can't otherwise respond adequately.

QUESTIONER: Oh, I was just going to say that --

LEVI: I think we got a -- (inaudible) -- over here.

QUESTIONER: Yeah, I just want to -- (off mike) -- earlier and that is in talking to them -- talking about the cap-and-trade and how, you know, the way it's being right now -- (off mike) -- and so much more on the trade and not enough on the cap. And it struck me also -- (off mike) -- seeing the cap-and-trade maybe doesn't apply so well in some of the developing economies. May apply -- it may be fine in market economies like Europe or ours but in a developing economy -- (inaudible). So my question is really if you think there is a cap-and-trade system that's kind of salvageable to make a global way of controlling carbon should we be looking at something else as a global way of controlling carbon, or is controlling carbon going to be broken up in a whole lot of regional ways?

GREENSPAN BELL: Yeah, I could have done a much longer wrap on the cap-and-trade in the developing world because I've worked a lot there over the last 15, 16 years. And I really for a variety of reasons I don't think -- you know, some -- you know, you really have to face up to the fact that what you're selling here is air, okay? It -- I mean, and that takes a very, very sophisticated market and if you have -- I mean, you can call it other things but that's what it is. You know, in fact you're selling something more complicated. You're selling, you know, the fact that you're going to reduce your carbon and the other person's going to kind of somehow take that credit -- it's a very, very fragile -- now try to, you know, impose that in a place that really doesn't have a serious market economy or, you know, independent judges or, you know, a genuine enforce -- environmental enforcement agency. It's very complicated. I think trading can work in some circumstances. I didn't want to say it can't work period, but I think it really has to be very controlled and very regulated in my opinion, and just to imagine that markets kick in and think great things happen, you know, we just know that isn't true. And if you look at, you know, the Enron scandals and stuff like that you know that people can market -- can monkey with accounting in a lot of different ways and the difference here without, you know, going off too far from the question is in the end you -- maybe you can make that up by compensation by, you know, people being paid back or something. This is -- we're talking about carbon -- we're talking about carbon accumulating in the atmosphere. So if you at the end of the 20 years or five years or ten years find that someone was cheating on this there's no way to retrieve it. There's no monetary thing that compensates anybody for that.

So I just want to make that point really clear which is the -- one of the reasons why I just think there has to be a real rethinking. I think the U.N. process is too slow. I think we have to keep on with the U.N. process because you have to respect all the people who are part of that and you -- and many of those countries that are not contributing to the problem are going to be hit very hard and are being hit very hard and need help with adaptation. So the U.N. process, to me, should not be discontinued, but I also think that there has to be some creative thinking about bilateral -- about regional efforts that are much more tailored to the specifics of the growing -- these countries that are growing and incredibly huge emitters, and I think the doorway for that will open up in January 2009 because I think that every serious candidate for the presidency thinks the climate is a serious problem. They may have different views about how to deal with it but it'll open up a door where we can go back in and talk internationally about solutions and then what we really need on the plate are a variety of -- you know, why would you put all your eggs in one basket, you know, on something that's moving so critically and so fast? What I think you need is a variety of approaches so that you don't go down one and find out that it's dead-ended and that you've lost all that time, and I think that's where a lot of energy needs to be put. I actually have a -- this is a small promotion for a project I'm starting which is going to start thinking about these things that way. But I think that's really necessary.

LEVI: I'm about to think -- turn things back over to Charles. Just a very quick observation on the efficiency front. For roughly an hour-and-a-half we had a bright projector that no one was using. It was irritating both of us so we blocked it with a computer that no one was using -- (Laughter) -- which despite being fully charged we still had plugged in and drawing power into the transformer. (Laughter.) Before I turn it back, let me take the opportunity since I'm the second last person to speak to thank Charles for absolutely fantastic workshop last night and today. It's great -- (inaudible). (Applause.) Back to you.

FERGUSON: Well, thank you very much, Michael, and thank you very much for the excellent job at moderating this last panel, and as I said last night before the dinner a lot of the credit goes to Lisa Obrentz for the hard work she did and getting this off the ground in -- (applause) -- very short period of time. I remember Lisa and someone in our New York office were having a conversation so how can we do some more outreach on these issues -- not just nuclear but the whole energy conversation, and I'm glad we've broadened it out and especially in this last panel. And then we said, "Well, gee, I guess we have enough grant money left we could pull off something like this" -- sort of two-thirds of day workshop and somehow we pulled one together in about two months' time so I can't believe we were able to do it and it's -- lot of the credit goes to the work that Lisa did.

Well, I also want to plug -- oh, you had an intervention, Spurgeon? (Laughter.) Okay, sir. I'll relinquish some time to the honorable gentleman -- (laughter) -- so but I want to just give a plug for what the Council on Foreign Relations is doing not just on nuclear which is an important part of the equation to deal with energy security and climate change and those types of issues, but what we're doing -- going to be doing the next few years and probably longer on the whole energy mix and looking at technology, science and interaction with foreign policy, and I think the council's very fortunate to have fellows like Michael Levi and we have a senior fellow -- an adjunct fellow -- at Stanford, David Victor. Many of you probably know David. He's done a lot of great work on these issues and, you know, we'll see where we go from here. But we plan to do a lot more of these types of activities in the coming years -- books, reports, these kind of workshops, and other meetings. So if you have any advice for us about how we can do a better job please let us know. Send me an email -- call me on the phone -- talk to Michael. I'm sure his door's open as well. And I hope this workshop was helpful for the projects that you're doing, whether you're an NGO world industry or in government. With that I'll -- (inaudible) --call it close. You want to make a comment, Spurgeon, within the confines of the workshop? Please.

KEENY: I want to not only thank Charles Ferguson for this excellent workshop but also to put in a plug for his study that he's distributing on nuclear energy and encourage you all to read it because it supplements what's been said and don't put it on your pile of -- (laughter) -- to disappear into the --

FERGUSON: Thank you very much, Spurgeon -- yeah. And a lot of what I've learned I've learned from Spurgeon. As those of you who know, 30-some years ago he was the head of a Ford Miter (ph) study looking at nuclear energy and that book is still worth reading as a lot of these issues that he raised back then 30-some years ago are still relevant today. With that, thank you all for being here and please stay tuned for more work that we're doing, and I wish you a happy day.

HOWARD: Thank you. (Applause.)

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