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Panacea or Pipe Dream? Energy Policy and the Search for Alternatives: Session II: Energy Alternatives in the Market

Speakers: John E. Bryson, Chairman and Ceo, Edison International, and Vijay Vaitheeswaran, Correspondent, the Economist
Presider: Sebastian Mallaby, Council on Foreign Relations
March 13, 2007
Council on Foreign Relations Washington, DC

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SEBASTIAN MALLABY:  Okay, welcome back, everybody, to the second session of the symposium.  I think the first session laid a very good predicate for this one.  It discussed why oil dependence, gas dependence has foreign policy implications as well as climate change implications, how these two things overlap because climate change itself, if it's not managed well, will bring about foreign policy costs to the United States, difficult problems for the Foreign Assistance Program to manage, crises to address as well as a moral cost if the U.S. is perceived not to have led on that issue.

And now in this second session, what we are going to do is discuss, "Okay, so if there's a problem with this dependence on oil and gas, what are the effective and realistic alternatives to that?  How do we practically get out of this dependence, or at least reduce it?"  And to the effect that we have two terrific people -- the panel's been carefully structured not to consist of people who are advocating solely for one type of alternative fuel.  I find in this debate, you know, you read one story about wind power, and the advocates are very strong on that.  You have another one about ethanol, another one about solar and most people are listening to all these pitches have no good way of telling which one is really the correct one. 

So to get out of that box, we've got two experts who look across the range of ways of reducing oil and gas dependence.  First of all, John Bryson on my left, who is the president of and chief executive officer of Edison International, headquartered in Rosemead, California.  He, in the past, has also sat as the president of the California Public Utilities Commission.  He was also, for three years, the head of the California State Water Resources Control Board.   And he's also a founder of the National Resources Defense Council.  So that's a pretty impressive mixture of an industry leader as well as an environmentalist by background and the leader of a company which has an interest in all kinds of alternative fuel and in conservation, so a perspective across the board.

On my right is Vijay Vaitheeswaran.  Vijay is a global correspondent for The Economist.  In fact, he and I were colleagues there for quite a while at The Economist magazine.  He is the author of a great book, which I went so far as to plug once in a column -- so you see the completely arms length nature of -- (laughter) -- intellectual relationships.  The book is called "Power to the People: How the Coming Energy Revolution Will Transform an Industry, Change Our Lives, and Maybe Even Save the Planet."  Vijay has a new book which I'm told just went to the press,called "ZOOM." I'm not going to attempt to tell you about the subtitle, except that it is about oil and transport again.  So -- and he's lectured at Stanford, Yale and Oxford and is an adjunct faculty member at New York University.

Now -- so let's start off with John Bryson.

So you're -- looking at your alternative fuels portfolio, you're looking at the conservation options available to you.  Which of these do you put first, and can you explain why?

JOHN BRYSON:  Well, we had looked at, first, cost-effectiveness, impact on the environment.  And in our case always, energy efficiency programs are least-cost means of serving our customers.  We have had at our utility in California, Southern California -- Edison serves a good part of the state -- always energy efficiency programs first, and there's a great range of these.  Fundamentally, the utility had the special infrastructure and customer base, and so we provide economic incentives to our customers not to use electricity.  It's done across business customers, it's done across residential customers. 

The exact means by which we do this vary by industry, for example, and by residential customer base.  And we provide energy audits, we go to people's homes, businesses, advise them on what they might do when we see an industry sector where there's an opportunity for a business to advance their business, use less electricity, improve their energy position and their cost in the industry.  We assist them with that, and it's -- this has been true for the last 20 years.  It's a program that only grows over time.  We carefully monitor the -- what we actually get with these programs.  So just to pick a couple of numbers, in the last five years we have saved 4 billion kilowatt hours of electricity with these programs.  We project in 2007 another 1 billion kilowatt hours.  So just take 4 billion kilowatt hours -- that is enough to provide all the electricity for about a half a million homes for a full year.  So it's a striking amount.

In greenhouse gas emissions, that amount, the same 4 billion kilowatt hours over the past five years, is very significant -- 2 million metric tons of greenhouse gas emissions avoided, and it keeps in our ordering list being the least-cost means of reducing, for example, pollutants, greenhouse gas emissions -- also a least-cost solution for our customers.  So avoided is, for example, natural gas usage in generating electricity, which California depends significantly on.  Then beyond that in our stacking order, there are a whole series of things, but energy conservation efficiency measures always turn out to be the first best solution.

MALLABY:  Okay, so conservation comes first. But listening to you, an obvious question which occurs to me, which is that -- you know, if you company is already doing all these things, is public policy necessary to encourage further conservation?  Are you doing these things purely because it makes business sense?  Is there a regulatory regime in California which explains why you have to do them?  Should the regulatory regime be further tweaked either in California or nationally to encourage more of this, or will businesses basically do it by themselves? 

BRYSON:  Well, there's a crucial link to regulatory policy, and this has national implications for sure.  When I've -- a long, long time ago, I was head of the California Public Utilities Commission.  It was the time of the second oil price shock, so 1979-1980.  We adopted a mechanism in California in which utilities were relieved of any lost profits associated with conservation.  Whereas most of the country, economics for a utility or for an electricity provider depend in part on increasing sales of electricity.  So if you're really going to get the utility as the vehicle, and utilities are a particularly significant vehicle because they reach to every home and every business -- there's no exceptions to that -- then you need to decouple the means of making money from their governing incentives.  And it's quite easy to do under regulation. 

There are ways under regulation to simply neutralize the effect of sales, and so the so-called decoupling of profits from utility incentives -- utility sales is, I think, a very important policy step to be taken.  It could be taken across the country quite readily is not done elsewhere to any significant degree.

MALLABY:  So your profits are not connected to the volume of your sales. 

BRYSON:  That's right.

MALLABY:  And this is a California -- a unique California situation.

BRYSON:  It think it's now used in another state or two in the country, but it's -- it should be widely advocated.

MALLABY:  Right.

Vijay, would you agree that when one thinks about ways of reducing dependence on oil and gas, it makes sense to put conservation before alternative fuel? 

VIJAY VAITHEESWARAN:  I would distinguish between efficiency and conservation without thinking it as semantics.  But I think the broad point made is absolutely right.  It can often be the best savings.  And again, the difference between conservation and efficiency -- you know, on a cold winter night, should Granny really turn down the thermostat to conserve in Minnesota?  Probably not.  But, you know, if you go in and install a much more efficient solar boiler or similar kind of technology, that gives her the same benefits -- the cold beer or hot showers that energy provides.  Efficiency is almost always a good thing.  Conservation might be, to invoke the vice-president's words, a personal virtue.  So I think there's a difference between the two things.  (Laughter.)  So that's a small, slight twist. 

I strongly -- in looking both at -- we've talked a lot of electricity, but also in the transport sector, lots of easy savings to be had in terms of vehicle efficiency to save oil, but you have to ask the skeptic's question.  If there's so much low-hanging fruit, why aren't people bending over to pick it up -- or reaching up, I suppose, to pick it up?  If it's so low, we could just, you know, grab it easily.  And there are some specific reasons.  There are obstacles, and among them, for example, in electricity, I would say California, which has a right -- a rightly proud tradition of being much more efficient in the use of energy in all areas except transportation, where the state has not, until now, had a strong influence on policy.  Californians use less energy per head than just about anyone else in the country, and part because of work done at the regulatory agencies that Mr. Bryson's been on. 

I would say the key enabling technology for all of the alternative energies of the future as far as the grid goes -- maybe even as far as transportation -- is making the grid smarter.  That is, smart meters, making the last mile to your house intelligent rather than dumb, the way it is.  In most places in the world right now, that dynamic pricing -- why?  Because at the moment, people generally don't have an idea of what the electricity price is, and the system load at 11 A.M. versus, say, four (o'clock) in the afternoon, when everyone in California turns on their air conditioner to full blast, it can impose a dramatic difference.  I mean, at four o'clock in the afternoon, that's when the utilities are -- you know, we're going on a marketplace desperate to buy power.  That's when Enron and Dynegy were working their legitimate and illegitimate scams, because the system is looking for the last electron to keep the lights on. 

If we were able to send a signal to users, both retail as well as commercial users, "This is a time when please, don't do your wash right now.  Maybe do it a little bit later in the day."  Or even better yet, if we had the intelligence -- it's 1990s technology that put in smart meters.  Indeed, California is now rolling them out -- has done so and is experimenting with them.  All of Italy has put this in place. The European Commission has said it wants it to roll across Europe.  I think this is actually the key enabler of many more kinds of smarter energy technologies would make it much easier to pick that low hanging fruit. 

MALLABY:  I'm just thinking -- okay, so in your kitchen, there's a mirror on the wall which goes red when you're not supposed to turn the dishwater on and green when you can, or what's the --

VAITHEESWARAN:  Well, I mean, Europe has experimented with red light/green light meters for a long time.  But we don't even need to be quite so involved with this.  The appliances already come imbedded with a lot more intelligence than we take advantage of.  The fridges that people buy, the air conditioners that people buy these days are actually quite smart.  The microchips can contain a lot of intelligence.  But they can't talk to the grid because the grid is dumb -- that is, the last mile that comes to your house.  We're really using 1950s technology to this day. 

Again, with a tip of the hat to utilities like Mr. Bryson's that are more innovative and have looked at different kinds of technologies, generally speaking, the U.S. utility industry has among the least -- has a really poor record of innovation according to the Electric Power Research Institute itself, the industry's own organ.  It reinvests less than one half of one percent of revenues into R&D.  I mean -- and that's been true for many, many years.  If you look at any vaguely innovative industry -- biotech, IT, you name it -- it'll be at least 5 percent, perhaps 10 percent reinvested into innovation.  And so -- and that's a legacy of the way we used to regulate the business.  I'm not pointing fingers here.  We need to think about encouraging innovation in both the technologies and the business models, which we're getting towards.  That I think will be the real way to think about capital stock turnover from the very old fleet.  The coal fleet in America -- is more than half the country's electricity comes from 30 or 40-year-old clunkers.  I mean, really old, inefficient coal plants.  And unlike most other modern industries, we encourage putting duct tape on them and keep them going as long as we can rather than rewarding innovators in the marketplace.

So I think that paradigm shift is actually the key, as we think about which technology.  In a sense, it almost doesn't matter to society as long at meets the test of being clean and low-carbon and so on.  It's getting the framework right.  We've fundamentally gotten the framework wrong in the past. 

MALLABY:  So, as a journalist, I'm liking the way this panel is starting off.  I mean, when people talk about alternative fuels, they, you know, think about solar, wind and so forth.  We've taken you all in a completely different direction, so that's why you're feeling pleasantly invigorating and a surprise -- (laughter) -- so we'll just stick with this for a minute before we go back to wind and so forth.

Do you agree with what Vijay has just been saying, that this issue of the dumbness of the last connection between the electricity grid and your house is a sort of bottleneck in conservation?  Is that right?

BRYSON:  I substantially agree, yes.  I -- the -- sending the price signal effectively by means of a smart gird -- a smart meter system -- is something that absolutely has to be done, and we have gone to the market.  We are -- we're proud of the fact, so I'll brag a little bit.  There were a set of meters that are available for installation right now.  They are fundamentally not very good.  So smart meters that would go partway down the path that Vijay, I think, is describing.  What is needed now are meters with two-way capability with open architecture such that as software opportunities arise to improve the signals sent to the home -- two-way capability in communications.  And I think there's a lot of opportunity to use electricity and energy more wisely.  So the absolute key is, of course, sending price signals. 

California's a case in point.  It is vastly more expensive to provide electricity.   It is also more environmentally harsh to provide electricity on the summer's hottest days.  That's when the system demand is at its highest, that's when the least efficient units to provide electricity are employed, that's where the highest heat rates in generation come in.  We are -- we've gone to the market and we'd learned from Enel in Italy.  In Northern California, you talk to Pacific Gas and Electric has started putting in meters that sort of do a little bit, and we've -- we didn't try to do this ourselves.  We had a set of specifications that would make a difference.  When I'm testing those meters, five meter manufacturers believe they can meet the specifications.  We will put in, as we see it now, 5 million meters in the years principally between 2009 and 2011.  We're testing them this year.  We hope to start more.  That's a big program.  It's an investment of $1.2 billion in meters. 

Our projection is that right off the bat, we believe we can send out signals that will knock off 1,000 megawatts on our system.  So that's the size of a large nuclear plant, size of a large coal fired plant.  That knocks off the peak.  It does a lot of other good things.  With the two-way facilities, for example, we can have customers that want to be careful about their bills tell us they want to be cycled out.  We can do it for them.  So at hottest periods when cost is highest, we can say, "We will provide you" -- and we do this today.  We can just enhance what we do.  We can say to them, "We will charge you this lower amount reflecting our cost if you allow us to cycle you out 10 minutes on the hour during the hottest periods."  That's a good program.  We have it today.  There are a whole series of additional things.  But I do think that smart metering and flexible tariffs that allow us to bill our customers in ways that reflect true costs, including on-peak costs, is very significant in achieving efficiency.

MALLABY:  One last question on this, Vijay.  I mean, you know, one of the mysteries, it seems to me, is that some of the biggest venture capital investors in alternative fuels -- and one thinks especially of ethanol -- of course come out to the Silicon Valley venture capital entrepreneurial world.  And these people cut their teeth in software.  So if what you're describing is a software bottleneck that you need to get the smart machines in your kitchen to speak to the smartened grid, and it's basically an interfaced software problem in part --

VAITHEESWARAN:  Mm-hmm.

MALLABY:  -- it would seem like a natural for some of these people to get into.  Is there a sort of structure of industry reason why that's not happening, that they're going for ethanol instead?  Is there some other reason?  Why is that?

VAITHEESWARAN:  They're going for ethanol because there's a lot of government money being thrown at it, and these guys know how to smell quick profits.  (Laughter.)  As far as the idea of the smart software and the tech guys, there are a number of companies, in fact -- EnerNOC is one that comes to mind that's looking at distributor generation -- that is, little micropower plants, how to aggregate them with smart software that venture capitalists have invested in.  They invested in them.  I remember following this story for a number of years in the '90s, as well.  But the roadblock they found -- and you're quite right to ask about that -- many of them failed or were put on the shelf or didn't come to market in part because regulators were suspicious.  I can remember a conversation that I had at the height of the California power crisis, when I made much the same argument or asked in the form of a question of the chairwoman of the California Public Utilities Commission at the time, Loretta Lynch.  And I was told people will freeze to death if we have dynamic pricing in homes.  She's no longer the head of the CPUC -- (laughter) -- and you can see there's a change -- I mean, that was also the commission that, in my judgment, played an important role in the California power debacle, in getting deregulation, quote-unquote, "wrong." 

And so I think, you know, the -- it's not only for the companies -- the companies are at the ready, and you're quite right.  It's almost trivial for them.  The work that's involved is really 1990s software technology and know-how.  They need to make sure that they have the lower barriers to entry and won't have regulatory interference, and I think we've crossed the line on that.  The tipping point has been crossed with the European Commission giving its strong support to this, Italy leading, California now having a positive attitude.  I think this will happen.

MALLABY:  Okay.

So let's get back to the main thread of this symposium, in terms of the government reducing dependence on oil and gas, and there is quite a lot of mileage to be gotten out of conservation.  But talking now about alternative fuels, which of the various options out there that I read about and each time I'm as convinced than I was when I read the previous article -- which one should I really believe in as something that's scalable, that could really make an impact on consumption patterns in this country?

BRYSON:  Maybe I can pick up from the meter point and take it one step further.  I don't think there's just one, by the way.  But let me just take one direction.  I think we're involved -- I know of none of the major directions that we're not deeply involved in, but the metering point actually extends further, and it's an interesting -- a way to enable some highly desirable additional steps, for example, in transportation in linked to this metering point. 

We're big believers in electricity as an alternative fuel for transportation.  So you have -- take California.  A majority -- the largest single industrial percentage of greenhouse gas emissions in California come from vehicles, so cars, trucks and so on.   Electricity -- the deal -- we did a study -- it's a striking study that says that the current electric grid in the Untied States has such capacity that if vehicles were to fuel on electricity in slack periods -- so, principally, overnight -- 80 percent of all the vehicles in the United States could be fueled by electricity.  So this is -- seems -- sounds like a pipe dream, certainly somewhat off.  The tie to the metering point is electricity is very expensive on peak, as Vijay said.  It's very inexpensive off peak because you have systems -- electric grids, not smart grids, as you said -- that have to build the entire system to serve the highest load on the system.  So all of us overnight, we've got generating plants.  More importantly, we have wires that are loaded that are there, ready to serve that don't have any electricity flowing. 

So we're doing a lot of work on electric transportation -- it just happens to be something we've done a lot of, and we've done some for years.  But meters would allow, for example, plug-in hybrid vehicles.  So General Motors is saying it'll have a plug-in hybrid vehicle available by 2010.  We -- we're -- we have 300 electric vehicles in our utility fleet, we're demonstrating now from DaimlerChrysler a utility van hybrid served entirely by electricity.  So if you're going to serve transportation vehicles simply by plugging them in the wall in the garage overnight, you use the electric system better.  You bring everybody's costs down.  You use energy more wisely.  So we think that has lots of potential.  Toyota's working on this, Ford's working on it, General Motors is working on it -- so it's a little different concept. 

Electricity is an alternative fuel and what you have with electricity is you'd understand here we're talking about a domestic resource, practically no oil used in its production whatsoever, served -- electricity generated from multiple fuels, so you can reduce lots of fuels.  Electricity can work in transportation alongside not only gasoline, but alongside biofuels, alongside diesel, with hybrid versions of automotive transportation in, more broadly, in a place like Los Angeles -- largest port in the country, Los Angeles/Long Beach -- huge pollutants, has to be electrified, has to be metered in a sensible way to allow that to happen on the economics.  So that's just one thing I'd offer.  Then in terms of generating electricity, I can talk about alternative approaches we're using to generating electricity.  But --

MALLABY:  Well, I would like to get to that.  I mean, obviously, I've also heard good things about plug-in cars, so I'm not disputing the substance of what you say, but I'm asking a leader from the electricity industry what the alternative fuel is, and the answer is electricity.  So we would like to take advantage (laughter) --

BRYSON:  Since I said we don't make any money by selling more or less of it, right.

MALLABY: -- we would like to take advantage of the sort of the more dispassionate side of your analysis to ask the question, in terms of the source fuel for electricity, how you'd create it and which are alternatives that make sense to you. 

And perhaps you can answer the question in two parts.  First of all, you know, which is scalable and economically viable, but also which mitigated the climate change consequences, because you just mentioned coal.  Yes, that's great for independence.  It's not so great for climate change, right?

BRYSON: Yeah.  Well, renewable energy -- wind power is the commercial renewable available to us right now.  I believe solar will come on.  I think the contribution from solar will be relatively modest in the near term.  But, for example, we have a 1,000 megawatt solar station that we're making possible by contracting for it, so utilities have credit.  A utility contract can drive technology.  It's a useful thing to do. 

Wind power's going to come a lot faster, so I'm -- and wind is out there now.  It's going to grow massively.  There was The Wall Street Journal article some saw yesterday maybe talking about how the oil companies are investing significantly in wind in Texas.  We have both a substantial wind generation business; we are also a very large buyer of wind -- we're the largest buyer of wind energy in the country -- and it's not small scale.  I mean, the more than 16 percent of the power that we serve our customers today is from renewable energy, and the largest single component of that is wind.

Kind of a breakthrough thing -- getting to some policy points, and we can talk a lot of policy points around this.  The principal opportunities for wind energy in the country, for geothermal energy in the country, for example, have a substantial limitation today in reaching them.  And that is that electric transmission lines, for the most part, are not proximate to the windiest locations or the best locations for geothermal; also true for solar.  So, you know, you're talking about vast, windy planes.  You're talking in solar about, you know, hot desert locations.  So, the big challenge for those that would develop these is how to get -- you install the systems, how do you get the power to the grid?

MALLABY:  So, I'm sensing a theme here.  It's always a grid issue.

BRYSON:  Well, the grid -- for electricity, getting to the grid is a big, big cost component that I think is not often identified in the policy discussions that I see. 

We are building a transmission line in California -- $1.8 billion -- that is primarily about reaching wind energy.  It's in an area called the Tehachapis, so north and east of Los Angeles.  We applied initially to the Federal Energy Regulatory Commission for authorization to do this -- all transmission in the country is authorized through the federal not the state jurisdictions -- and were denied the opportunity to do it because of some traditional thinking that I think will evolve.  But because the model has been large central station power plants, links to transmission systems had to be paid for by the power generator building the large central station plant.  The nature of most of these renewable resources is small landowners, small grassroots developers who either can't bring the resources to pay in advance for a link to the transmission line or for whom the cost of assembling all of the landowners, all the potential generators, putting together a wind farm, a solar field and so on is prohibitive and simply delays things.  So, we are doing that.  We're doing that now on the strength of the state of California supporting it after being denied at the federal level.  So, I'd pick that as a key link.

On wind energy -- I mean, I don't want to take undue amount of time -- but the efficiencies have grown enormously.  So, two megawatt machines, very efficient, with federal tax credits that have been available numerous times on and off and that now run through the end of 2008, they should be extended another five years.  The economics in just cost per kilowatt hour are very favorable.  There's a problem with wind and that is wind blows only at certain times, and it's not necessarily coincident when you need electricity most, and California is not very coincident with the hottest days' peak demand periods.  So, you have to complement with other things, and we can talk about those.

MALLABY:  Okay.  So, the most promising alternative fuel, from your perspective, in power generation is wind.  And the issues are, first of all, this inconvenient habit of the wind blowing at the wrong time and secondly, connecting it to the grid.

Vijay, first of all, do you agree with that?  And secondly, perhaps you could address the same question but for the transport sector.  That's the subject of your new book, I think.

VAITHEESWARAN:  Sure -- indeed, indeed.  I do think that if we talk about renewable -- what we would call new renewable energy -- nobody likes big dams anymore, so leave them out -- now wind is the most promising certainly.  If we move towards proper metering, without belaboring the point, I think solar can become much more economic in the Southwest where there's good, strong sun if we acknowledge the benefits provided by the consumer that has solar at the house -- for example, for not coming on the grid and pushing his system to overload through the pricing mechanism -- solar suddenly looks a lot more attractive.  We don't do that in most places right now.

But having said that, I do think that certainly wind's economics are pretty well demonstrated at the moment.  The grid transmission -- we really need to rethink very carefully how we are looking at incentives for upgrading the grid in this country with an eyes towards moving away from the hub and spoke model that assumes that future plants will be giant nuclear or coal type of plants as we had assumed in the past.  Imagine, you know, a much more distributed grid.  And it's been shown by excellent studies done by various outfits that a more distributed grid would actually not just be greener but would actually be more resilient, whether it's from trees or terrorists bringing a grid down like happened in 2003.  Many of the folks here may have been involved in that blackout.  I was in Manhattan for 25 hours sitting without power when trees fell down on the grid of First Energy in Ohio.  And at the time, the grid operator -- the company didn't even know what was going on.  If you read the transcripts, they're asking the system operator what's happening here.  It was a little frightening to think they didn't have the intelligence in the last mile to know in great detail what was happening.  So, I think we need to move away from that before all the other good stuff can happen.

In terms of transportation, I would offer the following observation.  There is no silver bullet.  Oil is incredibly pervasive.  It's ubiquitous, of course, but it's the stranded assets -- the asset base of the industry is enormous.  That means there's a legitimate economic defense of those assets but also a political attempt to defend those assets.  More than that, though, gasoline is really good at what it does.  Until we begin to look at the external costs -- meaning the geopolitical implications of reliance on the Middle East, the environmental or public health consequences -- gasoline is a very energy dense fuel.  That's why it's lasted 100 years.  You know, 100 years ago, there were more electric cars on the roads of Manhattan than there were gasoline cars.  And Henry Ford's Model T was a flex fuel car.  It ran on ethanol and gasoline.  But gasoline won the day over time, because it proved to be a more robust fuel.  And even today, the old joke in the industry -- the best substitute for gasoline is gasoline. 

So, the bar for any new fuel, particularly given the chicken-and-egg problem of lack of infrastructure for new fuel, whether it's hydrogen or whether it's ethanol E-85, you can't get these things.  Most Americans haven't seen a pump for these things.  And electricity -- we have electricity, of course, on every street corner.  That's an advantage.  Utilities are everywhere.  But there, too, what is the right infrastructure?  What is the -- you know, getting the cars on the road.  There are issues to do with infrastructure.

I believe that we're going to see all of them.  And so, the framework for analysis, at least, that I pick up in my book is that just developing alternative fuels isn't enough -- what I call the juice.  Just having new juice isn't enough.  I think we're going to have all of those invested in hydrogen, electricity, efficiency as a kind of fuel as well, as well as various kinds of biofuels like ethanol.  But that alone won't be enough, because I think the Jalopy has to change, too -- that is, the car, fundamentally -- in order to be hybridized, in order to be able to take multiple fuels.  I think that's how you solve the chicken-and-egg problem.  When you have a car that's so-called flex fuel, gasoline will be one of the tanks in the car that you might only top off your gasoline tank once a month let's say.  When you find yourself in a place where there isn't any ethanol or where there isn't a hydrogen pump or something else, electricity isn't viable for some reason, you visit your, you know, friend's house, and he lives in a condo, and he can't reach the plug with your car.  What do you do, right?  Well, you know, people won't buy a car like that if they're going to be stranded -- in my judgment, the majority of people -- but if you have a backup tank -- and this is the whole concept of flex fuel. 

Brazil has demonstrated -- 80 percent of new cars sold in Brazil right now can run perfectly well on either gasoline or ethanol or any blend of the two.  And so -- but to make that work, the car itself needs to have much smarter electronics, smarter software, smarter control systems.  And this is the real advance that Toyota made with the Prius.  The Prius is not the car of the future, but it's the essential enabler for all the other cars that come. 

The platform of the hardware, but also the control system software, where they're five years ahead of their competitors, lays down the platform for the much more electronic car of the future. 

And that opens up an intriguing possibility, one we've already heard hint of:  if you have a car that goes from -- 20 years ago only 5 percent of the value of a car was electronic.  Today it's close to 20 percent of the cost.  And soon, within a few years, it may be pushing 40, maybe even 50 percent of the value and all of the new innovation in cars is in the electronics, hardware and software.  One has to ask, what's to prevent the car -- in fact, it almost becomes certain you will plug into a smarter grid.  That's one point.  These two grid industries will begin to blur which have been separate for 100 years.

But the second point, though, is that -- is it really Detroit's core competence, if you're talking about the ultimate electronic device?  Was it even Toyota's core competence -- even though they created the enabling platform, isn't it really Silicone Valley or Singapore?  That's the question, I think, that suddenly becomes very exciting.  Your car -- the smart clean car of the future -- may be branded by Apple and Intel. (Laughter.)

MALLABY:  In both the transport sector and in the power sector, one has the sense that there is this huge need for innovation.  Innovation is often software innovation.  And the question is whether the innovators, the natural software people, kind of have the entry point into the car industry, whether there's a way for them to kind of get under the hood and put it there -- other institutional obstacles for that?

VAITHEESWARAN:  Historically there have been very, very high barriers to entry and new car companies have -- the few that have tried have failed.  But the good news, I think, is that for a number of reasons -- one, the changing nature of the technology, as I mentioned -- but also the changing nature of the car industry.  Over the last 20 years Detroit, which used to hold its intellectual property very tightly, close to its chest, has outsourced much of what it does.  Modulus -- you know, the tier one and tier two suppliers -- actually do most of the car and that has actually helped democratize the car industry. 

You know, Hyundai used to be synonymous with really cheap cars that weren't very high quality.  Now they're right near the top of the J.D. Power quality survey for initial quality -- astonishing -- just after BMW.  But they did it by going after the Lotus for design, by going after the module makers.  The guys -- the knowledge that used to be kept quite jealously guarded and protected with legal protection by Ford and GM is now more democratically available.  That lowers the barriers to entry for newcomers.  That's why we've seen, for example, some people that have known the first new American company in quite some time -- Tesla Motors -- started up by some Silicon Valley guys -- came out last July -- an all-electric car shown off in Los Angeles.  This is not your golf cart.  Their first car is an electric car that's a sports car.  It races, I know from having driven it, faster than a Ferrari -- zero to 60 in 3.6 seconds. 

MALLABY:  Your experience with Ferraris being quite extensive.

VAITHEESWARAN:  Oh, indeed.  (Laughter.)  You've forgotten your days at the Economist -- the champagne, the Ferraris.  Yes.  On expense accounts.  (Laughter.) 

In fact, the more interesting aspect, though, is that plugging into a household outlet, you can get 250 miles of range.  And that's what's interesting is most Americans drive 25 miles a day, 30 miles tops.  And so the electric cars of the 1990s that were available in limited numbers in California, they had much, much smaller range -- 80, 100 miles roughly speaking and that made a lot of people nervous.  You know, what happens if Grandma gets sick in the middle of the night and you need to go attend to her?  Whereas 250 miles gets very close to the range that normal cars have and this is only going to get better. 

The key enabler there, of course, light weighting the car, which is the analogue of efficiency.  In other words, if you make the car a lot lighter using carbon fibers, not --  moving away from the model of steel and heavy cars that we have now, then you'll need less of whatever fuel you choose to have -- less gasoline, less ethanol, less everything.  And so that's almost a no-brainer.  I think that has to be an enabler for the cars of the future.  But of course, better batteries, and this is another place where China is the world leader in lithium-ion batteries.

MALLABY:  Okay.  Well, I want to go to questions now.  Again as before, please wait for the microphone.  Say who you are. 

It seems to me that we've come up with an interesting and to me slightly surprising place here.  I mean, both in the power sector and in the car sector we've talked less about specific alternative fuels.  And in a way, the kind of platforms into which these fuels plug, whether it's the hybrid car that needs to be able to learn to take in all kinds of different energy or whether it's the grid that has to be smarter and better able to link up to the distributed power sources like wind.

So with that, I see a question right at the back.

QUESTIONER:  Ian Talley, Dow Jones Newswires.

I'm wondering if you -- we didn't hear really anything about IGCC or developing the sequestration market encouraged by a cap in trade or a carbon tax or whatever -- whoever decides what.  We didn't hear anything about the potential for cellulosic which is pretty, you know, fundamental to the president's administration's goal.  Didn't hear anything about competitiveness in terms of U.S. competitiveness instituting policies that require a move to alternatives and the impacts of that internationally on both industry and car manufacturers.  And I'm wondering if you can talk about potential use for industrial turndown contracts, which would be another demand-side response.

BRYSON:  Well, I'll start out with the piece of that, IGCC.  We have enormous growth in California, in Southern California, and we are searching for scalable technologies that can meet the huge needs that we have.  So --

MALLABY:  This is carbon-capture technology.

BRYSON:  Yeah.  This is carbon-capture -- includes carbon-capture technology, but just the foundation is, how do you meet the enormous growth for these large counties, fast-growing counties in the United States:  Los Angeles, Orange County, San Bernardino and Riverside County -- so inland from Los Angeles, fantastic growth?  So for example, over the last year -- last two years -- 10 percent increase in the annual peak demand.  So that would require just to meet that alone a couple of new 1,000-megawatt power plants. 

We look at what can come on fairly quickly and I've started with energy efficiency, sharpen that, take the renewables further, get them.  But it is IGCC that we see coming on faster, for example, than nuclear.  So next-generation nuclear, we think that has a significant role in the future, but we think we can get somewhat faster to integrated gasification -- and by the way, with carbon sequestration. 

So we've done a fair amount of the gasification work in the past.  We had the big demonstration project in Southern California.  Southern California Edison did in the mid-1980s a DOE grant project called Cool Water showed gasification of lots of different fuel types, primarily different coal types, could remove, for example, the sulphur from the coal, separate them out.  We've done that. 

And then in our international business we did a project in Italy under a European common-market tariff that was an environmentally -- the category was environmentally attractive generation types.  And we did a project -- we found a refinery owner in Sicily, did a 50/50 joint venture.  Took the waste products of the refineries that are in the Mediterranean, removed all the pollutants through our gasification process, sold it into the grid under a 10-year improved price, and then just the remaining tariff price into the common market worked well.

So we think these things can be done.  Others are more skeptical.  We have now a joint venture with British Petroleum right in Los Angeles -- right in the center of Los Angeles.  And the power needs there are huge, because not all of Southern California's needs can be met by remote power generation, not all can be met by wind energy coming on.  Certainly not all can be met by conserving our ways to the point at which we don't need this at all.

So have this project to add a refinery in the Los Angeles basin.  This is called the Carson Hydrogen Project.  We expect it will come on into operation in about the 2012 time frame.  It will be more expensive than producing electricity by conventional sources.  We don't know exactly how much more.  A lot of work has been done on this, but what we will do is we'll take petroleum coke -- so fundamentally a waste product in the refinery process, but with a BTU value, also high pollutants. 

All the pollutants will be separated out and simply disposed of.  More importantly, the carbon dioxide will be separated into a separate stream.  It will then be put in the infrastructures in place -- this is a particularly favorable location for this, there are lots of pipelines that run through this area and run into enhanced oil recovery oil fields, both immediately there, and somewhat north in California in the San Joaquin Valley.  So that the carbon dioxide will be sent by pipeline to enhanced oil recovery field where it will play some role in raising the heavy oil -- that is what California has in this particular area -- and otherwise sequestered, so that it'll simply be stored and isolated there.

Now there are lots policy steps that are - that tie into this.  We will have to have, for example -- preferably federal, but probably not timely enough -- we will have to have state legislation that sets terms for the sequestration of the carbon dioxide and storage of it for long periods of time.  But we see that as incredibly important technology and we believe, by the way, that if we're going to make any advance around the world, that we have to look to fuel types include coal, include fuels with high pollutant and greenhouse gas emissions.  And we need to do this on an economic basis, so it's got to be demonstrated -- we think the United States is a good place to demonstrate it -- build up both the technical understanding -- all these things take lots and lots of tweaking.

So initially, we're going to be more expensive, but by doing it here, we hope we can lead the way to a stronger hydrogen economy in the future.  This is ultimately - the final product here is hydrogen.  Hydrogen can be used in various ways, but in generation of electricity with modified turbines. 

MALLABY:  Do you want to pick up on cellulosic ethanol, perhaps?  That is something which, you know, is always out there in the conversation.

VAITHEESWARAN: Sure. Just a quick comment on coal.  I am - I think the U.S. and Europe need to do much more in investing in -- finding ways to make coal compatible with fighting global warming.  IGCC is one good example, carbon sequestration -- and the reason is pretty simple.  There is so much coal in China, India, South Africa -- the developing giants, that it is inconceivable that they will not burn this coal.  It is cheap, it is domestic, and it's what's already being done.

Coal plants are going up every week, as is often commented upon.  One has to explain to me why this will not continue.  I am not one to believe that developing countries will choose expensive energy forms -- energy conversion means, because they care so much about global warming.

In my experience, Indians, the Chinese, South Africans, are aware that global warming is a problem -- that they will be affected by it.  But they believe the moral case for action lies first with the United States -- since we got rich polluting the atmosphere -- and we should act first.

Now there's -- as I said, that first-mover problem.  We have, what I would argue, the moral case to act first.  Secondly, global warming will affect the whole world -- we have technologies at the ready, we have sophisticated financial markets.  When we get serious at the federal level about climate change, as I believe we will do within the next two years, I think we'll see a powerful stimulus to the kinds of technologies we just heard about on coal. 

And ultimately, we need to get the costs down or find mechanisms, whether it be export credits or some other means of subsidizing it for the developing world - so that, that footprint of emitting carbon -- that at the moment, if China's putting up something on the order of a coal plant every seven to 10 days, a big coal plant.  And these are not fancy IGCC plants, these are pulverized coal plants along -- you know, 1960s technology.  Incredibly inefficient, very dirty -- it's going to lock in that carbon footprint for 50 years because that's how long coal plant tend to hang around, as we know in this country.

And so we're going to miss a golden opportunity to redirect new investment in the parts of the world where most new energy infrastructure is going in the ground -- and so there is a twin reason for the U.S., for the rich world more generally.  So that's -- so I just wanted to add that vote of support for that argument on coal.  Coal will be a part of the 21st Century, may even be the principal fuel of the century.  It's up to us whether it's going to be low-carbon or high-carbon.

 Cellulosic ethanol.  Much hinges on technological -- bringing the technology, which works in the laboratory, but has yet to work on a commercial scale.  And, despite the efforts of boosters -- who shall remain nameless, from the venture capital community,  (laughter) that let you believe this is going to be here within three years -- that I think that, you know, one has to take a cautious approach.  It is difficult to make commercially -- it will be -- it will take time to scale up to anything meaningful.

Here's what really bothers me about cellulosic ethanol -- and I'm a big believer in biotechnology; I have every faith that it will work in time.  But the shining city on the hill of cellulosic ethanol is leading our body politic into getting locked into corn-based ethanol, which a lousy fuel.  It's lousy environmentally; it's lousy in terms of energy content; and it's also a sink for subsidies.  And not only subsidies derived from the corn, but subsidies, more broadly, for -- through mandates, renewable fuels mandates, tariffs that keep out the much better Brazilian ethanol -- which is done in environmentally benign fashion, much more sensibly, in my view. 

So if you wanted a stepping-stone to cellulosic ethanol, which is the really good stuff -- which may take some time, I say fine.  Let's let in -- whether it's Brazil or anyone else -- let's drop these artificial barriers and stop redirecting resources that would be better used elsewhere.  Then I would say cellulosic is a good thing.  Right now it's playing an unhelpful role in Washington politics.

MALLABY:  And so in the upcoming farm bill when you have a large amount of corn ethanol subsidies and it's -- that's not a constructive --

VAITHEESWARAN:  Not at all.  No, I think that's a -- the variety of Washington, but there are a few brave voices speaking out.  I encourage everyone here to join them.

MALLABY:  Okay, we're all brave.  Question over here.

QUESTIONER:  Thank you.  Kellie Meiman with Kissinger McLarty Associates.  In light of the president's trip to Brazil last week, ethanol has been what's been in the headlines.  But a lot of what was spoken about here today with respect to the car of the future -- we've focused much more on battery technology and the use of electric.

What do you suspect -- getting out the crystal ball for a moment -- would be the timeline for electric technology being commercially accessible?  And, depending on what you think that timeline might be, what are the ramifications to our potentially pursuing ethanol policy as development policy -- not in Brazil obviously, but in other parts of the developing world?  Thank you.

VAITHEESWARAN:  If I understood you question correctly, and please correct me if I'm wrong, the timeline for electric fuels -- is there a tradeoff with ethanol?  I don't see there's a tradeoff, they're independent drivers.

MALLABY:  How long before we have a commercially available electric car? 

VAITHEESWARAN:  Well, you can buy one today from Tesla Motors, which is commercial entity without subsidies.  You can, if your companies are to be believed -- Toyota, GM, perhaps one or two others, will have plug-in hybrids which would still use some gasoline, but use electric for the first 25-50 miles of your drive -- which would be most people's driving most of the days.  In three years they say they will be commercial.  Now, I'm skeptical about all claims by all manufacturers.  Let's say it's five -- but, you know, the Chairman of GM has said we'll have it in three.  Let's say, even give him five to bring it out.  That might be small numbers -- the way the Toyota Prius, the first two or three years were actually relatively small numbers, but it was the thin end of a very powerful wedge.

So we're not talking about -- you know, cars stay on the road, roughly speaking, 15 years.  Now they have a long life cycle --we're not talking about the entire life cycle of a new car.  Somewhere through that period, perhaps sooner rather than later, we'll see meaningful electric alternatives.  But again, bear in mind, I'm not claiming that electricity will solve all problems.  And there's no hope that electricity, in my judgment, will replace oil in our lifetimes.  I don't believe so.  I think we'll have a multiplicity of fuels, probably competing in ways -- in different parts of the country, different parts of the world -- where you have native endowments that are conducive to a particular kind of fuel.

In the Pacific Northwest there's a lot of cheap hydro at night.  Well, people might electrolyze hydrogen and use fuel cells there much more cheaply.  Whereas, that may not make sense in other parts of the country.  India has a lost of biomass, France has nuclear that they could use to -- to use in some way to convert to transport fuels like hydrogen. 

So I would say, depending on the country's endowments, the relative economics of different technologies will take off.  And that's why I think we really need to think about -- all of these will compete, but at the same time there's room for all of them.  What they're really competing against is a playing field in which fossil fuels -- particularly oil, I would say, because of its geopolitical complications -- will find an unfavorable environment.  So these range of alternatives will all work welling in the same direction, if I may put it that way.

MALLABY:  Do you want to --

BRYSON:  I'm probably a little more optimistic on electric transportation in vehicles coming a bit further and a bit faster.  But I -- since I find myself in agreement with Vijay on everything, I won't even emphasize even a modest difference here.

What some of you may observe is California now -- Governor Schwarzenegger has put out at the beginning of this year an executive order on transportation.  The details will be fleshed out.  There are no details at this point.  But fundamentally, it will require -- California already has, as you probably know, tighter air quality standards for automobiles than exist in the other 49 states.  This is directed at carbon reduction, so it calls for a 10 percent in the reduction in the total transportation fleet in carbon emissions by the year 2020.  That's an ambitious undertaking.  I don't, however, count it as even remotely impossible that will take place.  California also happens to be the kind of best market in the United States for, for example, the Prius.  I mean, in my own family, we have three hybrid -- I have four grown daughters.

MALLABY:  We understand you have a big carbon footprint.  (Laughter.)

BRYSON:  Yeah, we are -- (inaudible).

But you know, what we see, because we demonstrate so much of this in our business, this is really coming on quite fast.  It won't replace the total fleet by any stretch of the imagination.  And I agree with Vijay, this will only be one of the forms of fuel for transportation.  But for example -- and to tie it into the question that was asked -- were there to be something like a carbon tax -- effectively a carbon tax; it was pervasive across the economy -- so, whatever the source of carbon or whatever the source of greenhouse gas emissions -- economywide -- same tax, doesn't matter what the source was -- it's really irrelevant what the source is -- that would, for example, further meaningful electric transportation.  And I could give you a lot of statistics you don't want to have.  But electric transportation would be enormously favorable on that front.

MALLABY:  Okay, let's see, who has not -- I think -- lady in the middle there.

QUESTIONER:  Amy Wilkinson, Office of the Trade Representative.

I've got a question on consumer adoption of technology following sort of on Vijay's point on Tesla Motors.  I moved from Silicon Valley two-and-a-half years ago to Washington, and my Silicon Valley friends are wild about Tesla Motors.  But these cars are very expensive.  They're, you know, $100,000.  You buy them online.  Consumers don't necessarily know about them.  So the question is, what are the policy things that folks can do to drive consumer adoption?  And my friends in San Francisco are driving hybrids because they can do it in the HOV lanes, you know, for example.  So just curious on the policy implications here.

MALLABY:  Vijay, you want to --

VAITHEESWARAN:  Sure.  I think that, you know, price is a powerful signal.  And I would strongly support the wise recommendation of an economywide, technology-neutral carbon tax, not one that picks on particular sectors or not one that grandfathers and therefore favors certain industries.  The smart way to do -- it's very clear momentum is gathering for action here in Washington.  It's not at all clear that we'll have a sensible outcome.  (Laughter.)  And so, I think that it's important -- once we do that, then low-carbon fuels and technology that employ low-carbon fuels will appear economically much more attractive.  And on the flip side, of course, carbon-based fuels will suffer, in my judgment, a rightful disadvantage in the marketplace.  I think that's going to be the most important shift. The exact number of the carbon tax -- people always say, what's the right number, how much should it be -- is actually less important, I believe, than having a bipartisan, long-term agreement that we are going to take care to attend to the externalities, the external costs of burning fossil fuels.

For all of history -- United States -- carbon dioxide has not been a pollutant.  As some of you know, there's an important legal battle on this matter -- almost how-many-angels-can-dance-on-the-head-of-a-pin kind of argument.  Is it a pollutant, is it not, et cetera.  Well, let's get over this.  We've been sending the wrong signal to the marketplace, both to individuals but also to companies in terms of the investment decisions they make. 

One of the reasons why Detroit did not invest more aggressively in hybrids was the notion that there's no particular gain in terms of marketplace advantage, because the external costs of burning gasoline weren't particularly accounted for through public policy.  So, that would be my first, I think the most powerful, answer I could give.

Of course, at the local and state level, California has shown there's a rich suite of examples.  Britain and California are rather similar in this way.  Their governments like specific fiddly fixes.  I think that getting the bigger framework or policy, so  something like a carbon tax, a long-term, bipartisan approach, is the only way to do this.  And then, if it's HOV lanes in California -- in Britain, they use different approaches -- we can have a lot of experimentation.  There's a lot of good lessons that America can learn from Europe which has been much more innovative in terms of market-based policy instruments at the city and state and federal level than America has in terms of dealing with carbon.  They've been trying to work on this for over 10 years.  There's some good lessons we can take from there.

MALLABY:  Let's take a question over here.

QUESTIONER:  Spurgeon Keeny, National Academy of Sciences.

I was very favorably impressed by Mr. Bryson's statement that they would have a carbon sequestering plant operating by I believe it was 2012, which is very encouraging.  I wondered if he'd say a little bit more about the comparative economics of such a plant as his company sees it, looking to the future.  What penalty will be paid by this somewhat elaborate system, and to what extent he was confident of the long-term continuity of the sequestering itself, and to what extent sites are available in this country and worldwide to sequester, looking to the future without very elaborate pipeline or transmission lines?

BRYSON:  Those are really all very good questions.  First of all, you know, I would say even with our own project, 2012 is, we think, a conceivably attainable target.  But we have lots of hurdles to overcome, so if it was 2013 or 2014, we probably should hold that out as a possibility.

With regard to the cost, as I said, we're still working on the cost.  The Electric Power Research Institute, for example, has done quite a bit of work on this.  And roughly speaking, they see something like, as a generic matter -- and I can't affirm this, I just know the study -- 30 percent higher costs than, for example, conventional pulverized coal plants or existing technology.  I have the sense that our project will come in somewhat higher than that.  But I also say that -- your question about sequestration sites, pipelines and so on -- the costs are very, very case specific -- very case specific -- so there's kind of a generic technology question.  But then, for example, siting in a place where there's an existing infrastructure to get the fuel that you're going to gasify.  So oil refineries are good places for these.  By the way, a lot of petroleum coke in the United States -- just as a starting point, so not as much as coal -- we think coal is the most important -- but there's a lot of this in pipeline, sequestration sites. 

On the final question -- sequestration -- how long can that be a means of storage?  The experiences, above all, in the oil industry where enhanced oil recovery for a long time has involved just exactly this process.  Carbon dioxide can be sold today at some value for enhanced oil recovery.  And you know, what people in the oil industry tell me is that sequestering -- that is, containing it underground -- is technology they understand and can be there for a long, long time.  That's probably where I should stop.

MALLABY:  Okay, a question here.

QUESTIONER:  I think I heard a question about competitiveness, but I don't think I've heard an answer.  It was mentioned that the moral onus for taking the first steps is on the United States.  If the U.S. takes significant steps, is there any fix, and is there any measure?  Is there any approach to measuring what the competitiveness impacts will be? 

How will the NAM and other U.S. industries that worry about their current global competitiveness react to measures that impose significant new costs?

MALLABY:  Sure, and I think it's a good question partly because there's a school of thought -- or perhaps I should say a school of rhetoric -- (laughter) -- which says, you know, that by being as green as possible, you know, you get into the energies, they're the technologies of the future, and yes, you become more competitive. 

What do you think?

VAITHEESWARAN:  I think that while that may be true, you can't prove it before you start the experiment.  I think that it's right to say there will be winners and losers, undoubtedly.  You know, if you're a coal miner or if you're a certain category -- if you're the railways, which the only money they make is shipping coal from the West to the Midwest to burned, well, you know, you're likely to be loser, at least in the short term.  So there will be costs of transition.  And there are good analyses done, resources for the future down the road -- Stanford has done analysis on who are the likely losers, what would it cost, literally, to pay them off and pay every coal miner twice his salary to stay home and not dig or -- you see what I mean.  So there are some analyses acknowledging the fact that in the short term there will be some technologies, some industries that will be disadvantaged. That number is actually in the low tens of billions, the best studies I've seen on this topic.

Just to give you an idea, to be compared with size of the energy industry, the size of the U.S. economy, we're not talking about a whole lot of money there.  The better answer, I think -- that's just by way of observation -- acknowledging there will be some losers, there will certainly be winners and that's the point that tends to be emphasized by folks who want carbon regulation and so on.  It will take some time for those winners to emerge.  I would like to see the marketplace invent those winners, whether it's those who do the carbon sequestration or the windmill guys or the smart grid or nuclear, I think we should be agnostic in terms of devising policy.

I would offer one proposal for how we do a carbon tax which -- again, which I strongly advocate -- make it revenue-neutral.  And I think that would help alleviate a lot of the concerns about competitiveness.  You know, tomorrow President Bush could announce, in the interests of national security and energy independence and all that, a Patriot Tax refund.  Starting next month, a check will be issued to all American households to thank you for your loyalty, patriotism and helping energy independence.  Oh, by the way, the funds for that will come from a carbon tax that we impose, starting tomorrow, one of the manifestations of which will be a rise in the gasoline tax of -- and you fill in the blank -- $0.10 a month every month for the next 20 years, as agreed on a broad bipartisan basis, as we did with Social Security and so on.  And I'm being a bit cheeky here -- (laughter) -- but the point here is that there could be no allegation that this is big government; the money's going into a hole.  There could be no suggestion that this is just robbing money from Americans, hard-working Americans.  If you drive four Hummers, as Arnold Schwarzenegger does, sure you're going to pay a little more in gasoline tax than your refund check -- (laughter) -- than the guy who has a Prius, for example, like Mr. Bryson's family.  But that's as it should be, right?  That's the signal we want to send to the marketplace.  And so I think there are ways of alleviating competitiveness concerns. These may not be the currently mooted proposals in Washington, but there, too, I think we can change the climate of debate.

MALLABY:  I want to take just the last couple of minutes to draw a link between this session and the next one in the symposium.  The next session is about what policy -- what policies we should draw out of all this.  And it seems to me that what we need to leave this session understanding, I think, is essentially does the government know enough to be in the business of intelligently backing particular strategies to reduce carbon -- oil and gas dependence, or should it basically be agnostic as to the right solution?  And I can see, listening to you, repeated and explicit calls for agnosticism from Vijay, a slightly more guarded position from John Bryson, so I want to draw him out on this.

Would it be right to say that there are basically, you know, two sorts of reasons for saying the government should be as neutral as possible in driving the system away from traditional oil and gas dependence?  The first is that the government may not know which technology is going to work, and the second is that the technology that works will depend radically from setting to setting.  So somewhere that's close to windy Texas may get more out of wind power than somewhere that is close to sunny Nevada, which may get more out of solar power.  Or, as you were saying on IGCC, there's settings where it works and others where it doesn't work.  So two reasons, in other words -- the government may not know the answer, and also the answer varies from place to place.  Is that right?

BRYSON:  Yes, that's right, but let me talk about some things that I think government can and should do and continue to do in accelerating a transition to a broader and more diverse and more environmentally friendly base of what you're calling fuels and my --

MALLABY:  Excuse me, could you just address this question of being mutual with respect to the technology solution, or whether the government should pick winners?

BRYSON:  I can't.

MALLABY:  Okay.

BRYSON:  And I think neutral is the preferred stance, but let me -- there are variants on this, and we can have a little dialogue around those. 

But take, for example, the production tax credits for renewable energy right now. There are production tax credits.  They have been very, very valuable in incenting the development of the wind energy industry.  The scale of the wind energy industry in Europe and now in this country is definitely enhanced by the fact that those tax credits were available.  So they don't pick which technology, they don't pick one or another wind generators' favorite product or, for that matter, solar or other forms, but wind has come on with the assistance of what is not entirely a neutral credit.  That is, it's available only for so-called renewable energies, but it's available across the full spectrum.

Take another -- the IGCC, the clean coal, the clean generation technologies.  We competed in an auction last year with -- sponsored by the Department of Energy.  Very, very modest funds made available in the federal government under the Energy Policy Act.  But again, not picking which technology, but there were criteria, so there's some selection.  There were criteria about what constitutes a new, clean technology.  So this project that I've been talking about, the Carson Hydrogen Project, was a winner in that auction, with lots of competition.  So, you know, lots of folks came forward, and some were selected.

So it seems to me neither the pure kind of "Just set a tax on carbon," nor is it "I'm selecting and mandating this particular technology."  I think those kinds of things are desirable to have in moving this forward.

MALLABY:  Okay.  That's the last word.  We'll pick that thread up in the next session.  Hope to see you then.  Thank you.

(Applause.)

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Renewing America

The Future of Energy

Speakers: Michael A. Levi, William F. Martin, and David Sandalow
Presider: Thomas Wallin

Experts discuss the relationship of energy with geopolitics, modernity, and the environment, as well as sources of clean and renewable energy.