The Future of Energy

Wednesday, June 8, 2011

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

THOMAS WALLIN:  My name's Tom Wallin.  I'm with Energy Intelligence.  I'm very pleased to welcome all of you this afternoon to this meeting of the Council on Foreign Relations on the future of energy.  This is part of the 90th anniversary series called "Renewing America," which is going to examine in a series of meetings and other projects how policies at home will directly influence the economic and military strength of the United States and its ability to act in the world.

We're very lucky to have three great speakers with us today.  And I'd like to just briefly introduce them.  There's more information on their bios in the material you picked up when you came in.

On my right is Mike Levi, who's the David M. Rubenstein senior fellow for energy and the environment here at the council.  And on my left is David Sandalow, who's the assistant secretary for policy and international affairs at the U.S. Department of Energy.  And then further over to my left is Bill Martin, who's the chairman of the Nuclear Energy Advisory Committee at the DOE, and he's also a former deputy secretary at the DOE.

I have a couple of announcements to make before we begin.  First, we'd like you to completely turn off your cellphones or BlackBerrys or whatever you have, because -- and this is like an airplane; turn it to the off position, because it might interfere with the sound system.  I'd like to remind the members that the meeting is on the record.  We have some press with us here today.  The -- also, there are members from around the nation and the world who are participating in this meeting by password-protected teleconference.  And I'd also like to remind everyone there's a meeting tomorrow.  The next meeting is with Sheila Bair, who's the chairman of the Federal Deposit Insurance Corporation.

I'd like to add one other thing, and that is that Bill Martin has written a paper with some of his reflections about the past 90 years in energy and the next 90 years.  And I'd encourage you to pick that up.  Hopefully, we'll touch upon some of those topics.

I'm going to start by asking some questions myself, and then I'll turn it over to the members to come back with some of their own questions, things I haven't been able to cover.

This is a very broad topic, the future of energy.  It couldn't be broader, I don't think, and so I want to start out with a very broad question.  And I was going to ask David to take the first shot at it and then maybe the other speakers to pick up on it.

The first question is about the geopolitics of energy, and that has been clearly a very important driver for energy markets and energy policies in the 20th century.  And my question is, what do you think are the main lessons that should be drawn from that experience, and what are your expectations for the geopolitics of energy in this century?

DAVID SANDALOW:  Well, thanks, Tom.  And thanks to the council for inviting me here.  Good to see old friends here on the panel.

In answer, I -- you point to three baskets of issues which might confuse our conversation tonight:  energy and geopolitics, energy and modernity, and energy and the environment.  And on energy and geopolitics, I think we've seen over the course of the past several decades the tight linkage between the two.  I mean, starting from the 1970s where the energy impacts just burst into the scene of geopolitics with embargoes, you know, fundamentally shaping relations between states in ways that have continued ever since.  In the '80s, I think, you know, we -- a factor often pointed to in the decline of the Soviet Union and, ultimately, the fall of the Soviet Union, was the decline in oil prices, extremely significant.  And then, you know, certainly, you know, continuing on, we've seen fundamental impacts of energy in places -- you know, I think of Venezuela and its impact in the Caribbean.  I think of mineral and energy exploration in Africa, which is shaping the geopolitics in that -- and so the connections are deep.

And actually, Bill -- Bill's paper, which I -- he was kind enough to send me an advanced copy of, is really good, and I highly recommend it.  And so I'm going to pass this off for a little more comment to Bill in a minute.

But let me just -- I want to touch on energy and modernity first of all, because I think one of the most fundamental trends we're seeing in the world today is that energy is a fundamental part of modern life.  And we're seeing it dramatically in China where, as incomes rise, energy consumption rises dramatically as well.  And the aspiration of people for the energy services that we're enjoying here in this room with -- you know, with lights -- and they look to be energy-efficient; I can't quite tell -- energy-efficient lights, but with air conditioning and, you know, the electricity that's providing the telecommunications that fuel this -- central aspects of modern life, all of which are driven by energy.  And at the other end of the spectrum, we have a billion or 2 billion people that are lacking energy services on this planet -- huge, huge issue for all of us.

And then finally -- you know, and I'm sure we'll come back to this -- energy and the environment.  Energy has an enormous footprint on the natural environment, from local impacts, which are dramatic in all kinds of energy production, to global climate change and disruption of the climate system, which is altering the planet in fundamental ways that will have huge impacts on the globe unless abated in the decades ahead.

So I'll stop there and pass it to Bill or whoever you'd --

WALLIN:  OK.  No, please, Bill, go ahead.

WILLIAM MARTIN:  Well, Tom, my greatest realization in preparing for this was, I think, the last sentence in my paper, which I realized the -- a child born today will probably live to be 90 and be -- will be alive in the year 2100 -- quite different than in -- 90 years ago in 1920 when maybe life expectancy was 50 years.  So not only has world population gone from 2 billion people when the council was formed to 7 (billion) or so today to 10 billion by 2100, but since everybody's living twice as long, added burden.

And as David said, what happens to energy demand when you actually meet the electricity needs of the 2 billion people that currently don't have it.  So that was my opening question, looking back 90 years and looking forward 90 years.

But it's very interesting to me, in the 1970s, 70 percent of the Middle Eastern oil came to Europe and the United Stats.  Today, 70 percent goes to Asia.  So just within the last 40 years we've seen that change.  And of course, that trend continues quite dramatically.

Also if you think -- seen Enzo here, my dear friend -- and thank you for that ENI chair, by the way, to the Council on Foreign Relations -- but in the 1970s, world oil was controlled by the Seven Sisters plus ENI, and now it's controlled by state oil companies, 90 percent, so again, a big change fundamentally.

But final point here, energy shares -- coal, oil, gas, nuclear and so forth -- as a terms of total energy really haven't changed that much since the 1970s.  Energy change comes slowly, and so it takes 12 years to turn over an automobile fleet, maybe 30, 40 years for industry and housing.  So as we march towards the year 2100, much more of the demand will be in Asia.  Hopefully, by the way, by 2100 the Iranian Revolution will -- and so forth -- will have actually been resolved, if Michael and others here can resolve that.  So there'd be maybe a lot of gas available from Iran to maybe India.

But having said that, I find it quite remarkable, when you take very low assumptions about economic growth for the future, a lot of conservation, how much you really have to do in terms of fossil fuel and nuclear and renewables. Everything has to come together to provide the type of world that David Sandalow would want to see in 2100.

WALLIN:  Well, thanks.  Mike, do you have -- do you want to pick on some of this?

LEVI:  Sure.  I want to make three quick observations.  I think the first big lesson is that energy is inevitably political.  We can pretend that it's all about markets, but ultimately energy is a highly political area, whether it is the role of regulators and domestic energy development or the role of geopolitics and international energy development.  Energy is political and the choice is not one of whether to depoliticize it or not, it's a choice of what direction we'd like to help steer it in.

The second thing I'd say is, despite that, or given that, the greater role that markets play in the trade and allocation of energy in general, the less problematic the politics of energy become.  So if you contrast, for example, the politics of oil in the early 1970s with the politics of oil today internationally, it's easier in a lot of ways.  Because allocations is done mainly by markets, you don't need to get into the same kind of deep interstate bargaining that you needed to then to shape the markets.  Today we have the same kind of problem with gas in some parts of the world, but were that to evolve more in the direction of markets, we might also see big changes in geopolitics.

And the third observation I'd make is, we are very slow to update our thinking on the geopolitics of energy.  I think most of the shorthand that we have today, most of the basic ways of thinking we have today about the intersection of energy and security in particular were basically formed in the 1970s.  Just because they're -- they are three or four decades old doesn't mean they're wrong, but the world has changed a lot, and some of our instincts are quite wrong.  We are very slow to adapt to the way the world has changed when it comes to thinking about energy policy.

WALLIN:  Do you want to give an example of that last point?

LEVI:  A huge fraction of the American people, including a lot of policymakers, still worry about having a bad guy cut off our oil supply.  And when we have, for example, discussions about Canadian oil -- big discussion right now, debate over pipeline access from Canada -- one of the frequently invoked claims is that somehow, by getting oil from someone friendly, we're not going to be threatened with cutoffs.

Now, I think there are arguments in favor of this pipeline; I think there are arguments against it.  But on neither side is the argument that, somehow, if we import from Canada rather than Saudi Arabia, we're not going to one day wake up and have no oil.  That is a 1960s view of the world.  So that's just one example of a way in which we have not adapted our thinking about energy and security to the reality of how energy markets work today.

WALLIN:  Good, good.  Well, I'd like to now sort of turn the discussion a little bit more tightly on some of these many, many topics that you guys have raised.

And I'd like to start out by talking about this nuclear accident at Fukushima in Japan, and ask Bill, what do you think this really means for the so-called nuclear renaissance that is -- was, well, much-lauded and, you know, was expected both in the advanced economies and also in emerging markets like China and India?  And also, what does it mean for other energy sources?

MARTIN:  Well, I -- first, I think it's pretty impressive the way the Japanese have handled the crisis, I might add with help from the Nuclear Regulatory Commission, help from the Department of Energy and so forth.  It's remarkable that these six reactors have been stabilized.  I'm very grateful for that.  And hopefully, over time that problem will be resolved.

This had a huge impact on nuclear.  I can't imagine investors wanting to invest in nuclear plants anywhere in the world, unless they were granted liability protection, like Price-Anderson, for example, in the United States.  I think, for example, the Japanese operator is actually going to be held liable for the -- all of the damages.  And I think that may be a very difficult situation.  If other countries look at that, it would be a very tough choice to make, especially in light of greater LNG and so forth.

Having said that, we still have 100 plants here.  We have 450 gigawatts worldwide.  I would think most projections had it going from 450 gigawatts -- maybe Ernie Moniz at MIT said it might go to a thousand; that's too much, but I think we will see continued expansion of nuclear power.  And I've been pleased -- President Obama, for example, has not jumped ship on this one, because again, if you go to the long-term, we need everything.

Now, that -- a couple of years ago, Mohamed ElBaradei asked me to coordinate a study called 20/20 -- Michael, you might be familiar with that.  But it was a high-level review of the IAEA.  Interestingly, that agency really has to be strengthened, especially in the safety and the security.  And again, I applaud Obama, because he has this nuclear summit that's -- he brought 50 leaders to.  (Then we'll ?) have a second big summit in Korea in a year.  So I think nuclear and nonproliferation are very much on the front burner.

But nuclear power, I think will continue ahead, maybe pause a few years and then move forward country by country.  Again, Germany will, you know, say maybe no, but they'll get their energy security through gas from Russia, which -- pipelines might be powered by nuclear power plants built in Russia, so -- and France will continue with great resolve with nuclear.  And I think -- I think we will too after pausing a while.

Final point on nuclear:  waste.  Obama -- I'm a Republican, I'm actually giving more support to your president than I should, David --

SANDALOW:  Thank you.  Keep it up.

MARTIN:  But he actually -- I hope this isn't on the record; I know it is, actually.  (Laughter).  But having said that, there is a -- there is a high-level blue ribbon commission which is looking at long-term waste disposal in the United States.  That's another big issue.  Hopefully, that committee will come up with some decent recommendations, because without long-term disposal, I think nuclear power's future is also limited by that reason.

WALLIN:  And what about other energy sources?  I mean, you know, you mentioned Germany.  I think that, you know, the -- this phase-out in Germany is going to have major impacts on European gas market.  I mean, this is a -- this is --

MARTIN:  Maybe you should answer that question, since you're the editor of BIW and all of these other -- (inaudible).

WALLIN:  (Inaudible) -- OK.

MARTIN:  I want to turn that back to Tom.

WALLIN:  Well, I don't know if I'm the one to answer the question.  I'm supposed to be asking the questions.  And I'll --

LEVI:  Maybe I'll stick up -- I'll pick a bit on Bill's --

WALLIN:  Yeah.

LEVI:  -- on Bill's answer.

A colleague of mine, Matt Fuhrmann, who's one of our visiting nuclear security fellows, has done an interesting study where he's looked at nuclear accidents in history and tried to determine where the consequences are, systematically, for nuclear-powered development.

And there are two big variables that he finds matter a lot.  One is pretty obvious, and it's whether the country you're looking at is a democracy or an autocracy.  Nuclear power tends to affect policy through public opinion, and so democracies tend to have much stronger reactions against nuclear power following accidents than autocracies do.  So that would suggest, for example, that China will probably move ahead apace, as they seem to be doing.

The second one is -- the second variable is whether a country has already started building on the ground in a significant way before the accident happens, or whether their plans are still just that -- plans on paper.

Again, that leans in favor of China continuing.  But both of those variables together tell me to watch India and to watch India for a significant reversal or at least slowdown on nuclear power because, A, they are sensitive to public pressure, and B, they are not fully in it on the ground in the way that China has been.  And out on top of that they have an extremely burdensome liability regime, not just for operators but for equipment suppliers.  This is kind of a perfect storm for them to really step back.

SANDALOW:  A number of good points have been made.  Let me just jump in to say --

WALLIN:  Sure.

SANDALOW:  -- nuclear power is 20 percent of our electricity in the United States.  It's an incredibly important part of our energy mix here and important around the world.  I am broadly in agreement with the points that Bill was making.  This is going to continue to be an important part of our energy mix in the years to come.

There are lessons to be learned from Fukushima, and we're in the process of learning them.  Our own Nuclear Regulatory Commission has got a very intensive review under way.  Other countries have similar processes under way.  This is -- it's 20 percent of electricity, it's 70 or more percent of the low-carbon electricity in the United States; a very important energy source.

And I don't want to close this topic without thanking Bill for his service on this issue, because he has -- he's been one of the experts for a long time in our country on this issue, is currently the head of our advisory committee.  So many thanks to Bill Martin for his work on this.

WALLIN:  Thanks.  We'll take a sort of different tack here.  I wanted to -- thought Mike may be able to take this question.  This is about -- well, the question is essentially how important is the emergence of unconventional shale gas as a new U.S. energy resource?  And how serious are the environmental concerns about it?

I think that one of the big questions people are asking about shale gas is, is it really the game changer that the oil industry is telling us it is?

LEVI:  I think shale gas is a big deal.  There is a huge domestic resource.  A few years ago we were talking about how to handle import dependence and the geopolitics of natural gas and LNG markets.  We're not really talking about that right now because the United States looks to be roughly self-sufficient for a long time.  It provides a low-carbon option that doesn't require a huge amount of policy to have happen.  Right now the biggest thing going against putting a lot of coal plants on the ground that will be around for 50 years is the existence of cheap natural gas.

But there are real environmental concerns, and not just environmental concerns but local acceptance concerns.  There are issues with wastewater disposal.  There are issues with poor casing of wells, so that methane migrates into water supplies.  And there are issues to do with bringing large industrial practices into sort of semisuburban areas, like, you know, the edges of Pittsburgh, and having people drive around in trucks 24 hours a day.  I mean, these are things that you have to handle properly.

And so while I think with the proper practices by firms and the proper oversight, you can do this right and expand it in a significant way, the industry for the most part has not been doing itself any favors.  This has been poorly handled by the natural gas industry, for the most part.

It's a very diverse industry.  Some firms behave well.  Some behave poorly.  But there has been an instinctive aversion among a lot of firms to any kind of meaningful regulation.  I think that's dangerous.  And that sets things up to backfire, to the detriment of not only all these companies but to the country and its ability to use the resource.

I think people need to look no further than what happened with the Gulf oil spill last year to see how unwise it can be to let one bad player get out there, do something bad.  You will not be able to come back and say:  Well, that was another company.  That wasn't me.

So this is going to be a tricky one to resolve.  I think it is one of the few places where there's potential for bipartisan action in the next -- in the next year or so.  And the administration has done a good job in trying to bring together -- starting at least, to bring together different stakeholders and having this Department of Energy-based review that's going on right now.

But I had one last thing, and I'd be curious what other people think.  This is a really tricky issue for managing the relationship between federal and state action.  All logic would suggest that most of these things should be regulated at the state -- at the state level.  When you're talking about integrating activities into particular settings, water supplies, these are pretty much state issues.

The problem is that if things get screwed up in one state, the ramifications are national, particularly through this reputational impact.  So there is a role for the federal government to promote the national interest.  And figuring out how you balance those two is actually going to be quite tough.

SANDALOW:  We have two additional points to add.  First, the implications are global here -- significant implications for energy security around the world.  Certainly in Europe, the potential for shale gas to alter the dynamic we've seen over the course of the past decade or two in terms of gas supply is significant.  In China there are very interesting opportunities.  The resource is not yet well characterized in many places in the world -- but enormous potential -- geopolitical implications, going back to your first question, Tom.

And then on the point in terms of kind of corporate activities, I would highlight -- there are some companies in this country who are moving forward with voluntary disclosure of fracking chemicals and other steps that are really doing a great service for the industry as a whole and are setting a model that I think really can make a difference in terms of political acceptability of this resource in the decades ahead.

WALLIN:  Do you have anything to add, Bill?

MARTIN:  Well, I have a conflict, because I've got some land in Oklahoma, and there's shale gas under it.

WALLIN:  I see.

MARTIN:  So I am 100 percent for it.  I'll just stop there.  (Laughter.)


MARTIN:  I don't understand fracking or anything.  I mean, in Oklahoma we don't care about that that much, you know --

WALLIN:  That's right.

LEVI:  Well, this is, I mean -- I mean --

WALLIN:  Well, that -- there is -- there is a big regional difference, yeah.

MARTIN:  Maybe you guys in the East --

LEVI:  But that's exactly it, right?  You have companies that are used to operating in Oklahoma and Texas and Louisiana, and they move into Pennsylvania and need to learn a bit about how to deal with the local concerns there and how to build trust with the communities.

SANDALOW:  And by the way, one other point, Tom.  You know, one -- some of the original work on hydraulic fracturing was funded at the U.S. Department of Energy in the 1970s and '80s, so I don't want to lose the opportunity to b6rag on my current employer.  And of course this was many years before I was there.  But I think --

MARTIN:  Was it when I was there?  Did I start this?

SANDALOW:  It probably was.  That's right.

MARTIN:  Thank you, David.  I didn't want to say that --

SANDALOW:  And so Bill get the credit for it.  But I think it's an instructive example of the important role of government in this area.  And it's obviously a big issue, we're going to be talking about it in the years ahead.

But you know, government funding for research and development in this area led, over the course of several decades, to transformational technology changes that are now affecting U.S. economy and the U.S. -- and geopolitics.  And it underscores the importance of government's role in this whole area.

MARTIN:  David, I heard a rumor -- it may have been a rumor -- that the State Department actually had a conference on this and was really trying to transfer technology from the United States to many developing countries.  Is that right?  And clear -- but I think that was a really good initiative --

SANDALOW:  This -- thank you.  And the State Department did indeed have this, you know --

WALLIN:  I don't know why it was the State Department that had the conference on shale gas and fracking.  But anyway, I assume they had USGS and you and others there?

SANDALOW:  Actually this -- you know, my friends at the State Department are doing great work on this topic.  (Laughter.)  And -- they are.  And in fact, Secretary Clinton has been a real leader on this, and some others at the State Department have really done excellent work pulling this together.  And obviously we at Department of Energy work closely with them in this whole area.  But the U.S. government, through our State Department, has hosted some superb, I think, technical conferences on this.

LEVI:  Let me pick up on one small bit, bringing it back to one of the questions you pushed on at the beginning and didn't get an answer on, which is on alternative energy.

Again, I'm enthusiastic about shale gas.  But one thing we should be aware of is that very cheap natural gas is deterring investment in pretty much everything else, including in the energy technologies of the future, as it were.  And if we end up with a significant, sudden shift in how we -- in our understanding of the resource, or in how we want to deal with it environmentally, if we don't do a proper job of keeping other options there in a significant way, whether it's nuclear or renewables, we could get ourselves caught in a bit of a corner.

So, you know, I wouldn't go so far as Jim Rogers does, to talk why natural gas is our sort of crack cocaine.  But we should be careful that we don't go so deep in one direction, without keeping good options open, that we get trapped.

WALLIN:  But Michael, if you go back 40 years in foreign policy, there's always been great government programs.  I remember Synfuels, for example.  I remember articles saying we need to triple coal production and so forth.

Always, there are these sources that people come up with -- and including renewables, David.  They -- but then again, the market -- if you're against the market -- the market kind of goes incrementally.  And actually, we haven't had a bad 40 years in energy, if you really think about it, globally, especially after the second Iranian revolution.

But my -- one of my questions is, there's this enormous investment in renewables that was made with the recovery act -- enormous.  And so where is that money now?  And what -- did it do any good?  Was it spent?  Because that was more money than DOE's ever seen, I think, came into the department.  And I'm wondering if it actually did anything.

MARTIN:  Right.  (Chuckles.)  Do I relieve (Mr. ?) Moderator and answer that question?

WALLIN:  (Chuckles.)  Please.  Please go.

MARTIN:  I have to say -- you know, back up a little bit from that question to say I arrived at the Department of Energy in the spring of 2009 -- hadn't been there before -- arrived with Secretary Chu.  And it has been a very exciting time, partly for the reason that Bill just pointed to, that the base budget of the Department of Energy's around $28 billion a year.  And the Department of Energy had $34 billion under the recovery act to invest in creating American jobs in clean energy, an extraordinary opportunity, and an extraordinary management challenge too.

And Secretary Chu -- who, by the way, is extraordinary; I think most of you will probably know Secretary Chu won the Nobel Prize in physics.  Not a profile we've ever had as a secretary of energy before, and I -- although I wasn't ever quite -- I sometimes sit in these budget meetings, and I wonder what it was like for this mid-level managers before they had a Nobel Prize winner grilling them on these technologies.

And so he has brought a relentless focus on science, on energy innovation, to the department, and it's been very exciting to see -- and had the resources under the recovery act to move in very significant ways under this.  And the direct answer to Bill's question is, the impact so far has been creating hundreds of thousands of jobs and starting to make transformational change in some technologies.

And that's everywhere from the electric vehicle industry to the solar industry to biofuels -- other areas.  I grew up in Michigan.  Very exciting to see in the state of Michigan today what's happened in the auto industry, both as a result of overall restructuring of the auto sector, but as a result specifically of the investments that have gone in under the recovery act for clean energy technologies and electric vehicles in the state of Michigan.

So it's a huge opportunity and, you know, looking forward the 90 year's that Bill's looking, there is almost nothing more important than getting the -- this pathway to clean energy technologies right.

WALLIN:  OK, good.

Well, I have -- we're just about ready to turn it over.  I have one more question for you guys, and then we'll turn it over to the members to follow up.  And I don't really know who to throw this one to first, but we've got -- currently, we have very high oil prices once again.  And there are fears about the impact of that on the U.S. economy, on the recovery.

And the question I have is, can and should something be done about these high prices?  And if so, what?

LEVI:  Well, in the short term, not much, if anything, can be done about high energy prices.  The real question is what can be done in the medium and long term.  And I think it's -- in the long term, it's your sort of standard list.  We need to reduce demand, both in order to take pressure off prices but also to lessen our exposure.  And we also need to be smart on expanding supply where we can.  On both sides, you can take pressure off prices.  And we can get into a lot of depth about how you actually do that, but that's just sort of the standard answer, and I don't think there's anything wrong with it.

And the same thing is true in -- the same thing is true in the medium term.  And in particular, you know, supply can actually have a bigger impact in some ways in the medium term than over -- than over the longer term.  So consistent policy on both sides is very important.  But then -- but ultimately, over the longer run, it's really about getting on top of -- on top of the demand side of things.

WALLIN:  But aren't high prices important for developing alternative energy?  I mean, isn't this -- you know, if this is one of the things we need to -- we look out to 2100, you know, what do we do?  I mean, this is part of the --

MARTIN:  Yeah, looking at -- I think the high prices today are a very significant concern for the economic recovery and for American families.  And that's something that President Obama has been very clear and consistent about.

He's also been clear that there are no quick fixes, kind of along the lines of what Mike was just saying.  But we within the U.S. government have been in conversations with other consuming nations, with the IEA, with producing nations, about oil supply and demand.  And then investing in the type of clean energy technologies and -- that will make a difference over the long term.

LEVI:  Bill, one of the things I've found interesting, going back 90 years, at least to the -- in this case, the '70s -- is OPEC was producing about 25 million barrels a day.  They're only producing 29 today or 30.  So interestingly, despite all the talk about OPEC this and that, and they're the people we turn to, their share has actually been quite modest as it went forward.  I don't know how the OPEC meeting came out today, but was it inconclusive, Tom?

WALLIN:  That's right, yeah.  There was no -- they weren't able to increase the volumes that they -- (inaudible).

LEVI:  I have great frustrations, of course, with David's job because you are in charge of domestic and international policy.  And I think the gas price is going to be possibly the determining factor in this new election coming up -- though not to put any pressure on you -- but I think politicians must be very frustrated when they really can't do much about it at all.  And it starts with the fact -- and this is one thing, if you go back and -- the Council on Foreign Relations -- and Charlie Heck is here.  We did a Trilateral Commission study -- what, in '97, Charlie?  "Maintaining Energy Security in a Global Context."

If you don't start with the world and then look at the United States within the world, you make fundamental problems.  It seems most of our politicians look at the United States as if we're somehow distant from the world or looking at the world.  And I think that's a -- that's a challenge in this oil market.  I don't think there's much anybody can do about the oil crisis at this point in time except rely on the market, as you've said, Tom, and then see where it leads, coupled with prudent policy.

SANDALOW:  I would just like to correct for the record that I am privileged to serve for Secretary Chu and President Obama, and in charge of nothing like as -- to correct Bill, but -- thank you for your grand --

MARTIN:  But your title is domestic and international policy director of the DOE.  I don't know if I'd look elsewhere in the department; it seems to me like you've got a pretty good responsibility there, but I don't know but -- (laughter).

LEVI:  Look, let me pick up on one small bit on your question.  Right?  Because people look at high prices right now -- we had a quite low prices not so long ago, and then high prices not so long before that.

It seems to me that at least as much a challenge as high prices is highly volatile prices.  When prices are highly volatile, they make investment decisions very difficult for individuals; they put pressure on governments to respond; monetary policymakers don't know what to do about interest rates.

This is a big problem, and it is also an emerging problem.  It also goes back to questions of OPEC and whether there is a stabilizer in the markets.  And it leads to a different -- a similar, but in some ways different set of policy prescriptions.  Bob McNally who was in the Bush White House and I have a piece in the forthcoming issue of Foreign Affairs where we talk about this, where we diagnose the problem and talk about some of the consequences.

But part of what you want is also to remove some of this volatility, and that happens through things like increasing market transparency, both in consuming and in producing countries.  It happens through getting regulation on the financial sector, on derivatives rights, so that people can -- people in firms can hedge against this volatility; so they have access to the kinds of financial products they need in order to protect themselves from volatile price.

And it also means having consistent and predictable policy, particularly on the supply side of things so that we don't have huge surprises, particularly in a downward direction on supply.  If we don't get those things right, we may have a -- you know, a moderate-average oil price, but we can still have a very volatile one that causes a host of problems.

WALLIN:  It's a very different kind of market than it was.

LEVI:  I think it's changed a lot in the last 10 years, but it's not necessarily so different from what it was, let's say in the 1920s.

WALLIN:  OK.  Well, I want to open the discussion up to the members right now.

And I have just have a couple things to tell you.  First, we'd like you to wait for the microphone to ask your question and then please stand and identify yourself.  We'd like you to limit to one question and be concise so that we can allow as many people to ask questions as possible, and they've give me this nice iPad here so I can take questions from national members who are listening in by email.  So -- would anybody like to start with a question?

Right here.

QUESTIONER:  Hi, Jessica Harris from NPR.  I've been reading recently about the impacts -- the deleterious impacts of nuclear energy and nuclear emergencies on, you know, our health, and not just now, in the next 10 years, but the next 100 years, that there are hidden mutations and reproductive problems that emerge much later than we can even recognize now.  And I'm wondering if there's enough collaboration between science and policymakers in informing our policy and what your view is on the health impacts of nuclear energy?

WALLIN:  Do you want to start with it, Bill?

MARTIN:  Well, I think there's quite a bit of collaboration between the scientific community, especially in the United States when you go back -- again, going back in history, the -- after the Manhattan Project, the Atomic Energy Commission was formed -- bipartisan group, reported to a bipartisan committee.

That now has merged into two parts.  It was interesting; there was a decision made in '47 that it be one unit.  Later it was divided between the Nuclear Regulatory Commission and the Department of Energy so that there would be a watchdog over nuclear power that was separate from the people that might be advocating it.  So -- also quite a bit of good work in the National Academy of Sciences.  Most matters relating to nuclear -- or again, President Obama's committee that he's appointed.

So I think this is an area where there has been cooperation.  I can't speak to the specific effects of, say, Fukushima, for example.  I can say quite a bit of work was done in Chernobyl and TMI, for example, the two accidents that we know something about.  But I think it's something that we have to be very, very vigilant about.  And it's especially concerning in newcomer states.

If we look at the energy projections, the OECD countries are basically going to use pretty much the same amount of energy that we do today.  There'll be more gas and so forth.  But one of our -- one of my concerns is how you develop nuclear power safely in the developing world, which is where, again -- India, China -- and this is a problem.  The IAEA has actually identified 19 steps, regulatory and legislative and management, that need to be adopted by what they call newcomer states.  And as far as I've seen, there is very little infrastructure in countries such as Vietnam, elsewhere, that want nuclear power.  So we really have to be vigilant about this because an accident anywhere really is an accident for the whole world.

LEVI:  My Chinese friends tell me -- I don't know whether this is correct or not -- that they have voluntarily adopted all of these IAEA standards.  I would worry more about response capabilities in some of these countries.

I think you can follow sort of the rules and build these plants properly, particularly if you're using international suppliers.  But you can't exclude accidents.  And then the question becomes, what do you do if there is an accident?  As you said, the Japanese response was very strong.  I don't know that you would have the same kind of response in China, if you look at what happened during the last big earthquake there:  no nuclear accident, and there was already enough of a problem, a response.  So when we sort of look at sort of international rules and international cooperation on the nuclear front, if we want to strengthen our resilience against these kinds of risks, I think we should be looking at at least as much at the response side as at the rules side, which will be very difficult for several reasons.

I'll just say on some of the health risks, I don't know that there are many public health issues that are studied as much or have been studies as much as radiation risk.  And so if you're sort of alluding to the risks of -- ambient risks from the operation of power plants, I think that we can -- we can be quite confident that those are well under control.  And the big questions are, what are the risks of accidents and what are the potential consequences of those accidents?

WALLIN:  Next question.  Here in the back?

QUESTIONER:  Good evening.  I'm Hajime Matsuura, a senior columnist of Japan's Sankei news.  A question about the price mechanism in the secondary market of electricity power.

This heat wave really reminds me of 2003; we had broad efficiency in the secondary market, but at the same time, a lot of area had been correlated and also, hence, I think it has increased the systemic risk.  So now -- and in Japan, we refuse (debate ?) whether we should create a secondary market in power electricity.

So could you share your opinion about how we should accommodate the systemic risk, say glitch, could affect the whole area, just like in 2003?  How could we accommodate that or mitigate this risk?  Or shall we just translate this risk as a cost of energy security or efficiency?

SANDALOW:  A couple of thoughts.

First, we had serious blackouts in the first part of this decade in the United States, which I think you were referring to.  Since that time, investment has gone into resilience of the grid in the eastern United States, with a number of technologies.  I think the general belief is that resilience is improved from where it has been.  Those types of investments will continue to be important, and in general, interconnection between different grids is extremely important for resilience.

It also points towards one of the benefits of distributed generation -- and in a world in which there's substantial electricity in homes drawn from photovoltaic cells, for example, that are located on or near those homes, the vulnerability to this type of problem will be much lower.  And one of the interesting applications, for example, of electric vehicles is this type of backup power.  I think most technologists believe this is a number of years away.  But one can imagine a world in which the car battery could literally be that for a home, and in the case of a blackout, you know, you run electricity to your car -- you know, from your home -- from your car.

WALLIN:  Anything else?  No?

Next question -- here we go, I think, over here.

QUESTIONER:  Elizabeth Bramwell, Bramwell Capital.

I'm wondering if you could comment on -- at what point are we secure in terms of our military defense, in terms of the amount of oil that we have to import from the rest of the world?  And I think I'd like to hear that in the context of the Chinese basically developing all these various contracts with oil with the Middle East.  And so I think at this point we're about 65 percent of our oil is actually being imported.  It seems to me we're kind of at a peak.

And you know, it's one thing to cut back on energy use.  But we're simply making it more expensive for emerging markets to buy it.  And in general, cheap oil is really important to economic growth.

MARTIN:  Could I pick up on two parts of that question?

WALLIN:  Sure.

MARTIN:  First, I think this is -- I might be wrong, but this -- I think it's the first time in this session the word China has been uttered, which is perhaps surprising.  And so I just wanted to broaden your question a little bit and comment that China's role in global energy markets today is fundamental.  And not just in oil markets, but in electricity markets, in the development of technology and elsewhere.

I -- about three or four months ago, I was in China, in Shanghai.  We visited a two and a half gigawatt coal plant, which is a very large coal plant -- it's -- average coal plant would -- big coal plant's like a one gigawatt coal plant.  And they were claiming 46 percent thermal efficiency, which is extraordinary.  That's some of the best in the world.  And we went from there to the biggest solar manufacturing facility in the world.  And we went from there to one of the most advanced automotive research facilities I've ever seen.

What China is doing right now in global energy markets is absolutely transformational in its -- the potential impact is transformational.  So hugely important -- hugely important in global oil markets because fundamentally, they -- their auto purchases and production -- 18 million cars built in China last year.  And that number is only increasing.  So China's role is extremely important.

In terms of your question on oil markets -- and there's no question that these -- the import dependence creates problems for the United States.  It creates balance of payments issues and other sorts of issues.  It's been a big part of our political dynamic for a long time.

The fundamental issue, by the way, in the oil markets, is the reliance of our transportation sector on oil.  That's the most -- the import dependence is a big problem, to be sure.  But the fundamental issue is that 95 percent of our cars' and trucks' energy comes from this one source, which is petroleum.  I mean, if I'm thirsty, I can have water or I can have Coca-Cola.  I can have orange juice.  If I'm hungry, I have a hamburger, sushi, salad.  If I want to drive anywhere on this planet, I basically need to use oil.

And that doesn't seem odd to us because, you know, I grew up with that.  My parents grew up with that.  My grandparents grew up with that.  It's fundamentally, I would posit, a problem when 95 percent of the energy in our cars, in our vehicles, comes from one source.  And diversifying that so that we get the ability -- so we have the ability to move our cars and trucks from not only petroleum, but also biofuels and natural gas and electricity, is the long-term solution to the problem.

QUESTIONER:  Well what about the short term and the intermediate term?

LEVI:  Well, let me take the two specific questions that you asked.

And the first was the military dependence specifically on oil.  And I think if you look back in history, that certainly has been a big deal at times.  In World War II, for example, access to oil for various parties was extremely important.

If you look right now at U.S. military oil demands, in peacetime they're very modest.  Even in wartime, they would be -- and when I say peacetime and wartime, these are all relative things -- but in a very large-scale sort of war, the United States would still be able to handle things with its domestic oil supplies.  I mean, there is just a very different sort of -- and when I say domestic, I would also include nearby imports.

The Chinese do not necessarily have the same luxury.  And I think some of China's moves, both in developing relationships with oil-producing states, but also in diversifying transport routes and in reducing dependence at home, stem from the fact that they may be in more of a problematic situation when it comes to actual military demand for oil in the event of a very large conflict.

The other question is about Chinese investment around the world.  And I think there are a few different ways to look at it.  In some ways, Chinese investment in oil takes pressure off prices.  The Chinese are willing to invest in some very risky places that Western oil companies are not.  Everything else being equal, that expands supply and can lead to lower prices.

Now obviously, not everything else is equal.  And there are two big things to watch out for.  One is, there are frequently what one would call negative spillover effects from Chinese investment, whether it's the way that China approaches policy towards Sudan or the way that China approaches policy toward Iran, those things are affected by the fact that it has ownership stakes in energy production in those places.

And the other is, to the extent that owning resources overseas makes China confident enough to control prices at home -- there's a sort of, you know, the vertical integration view of the world -- that leads to more volatility and higher prices elsewhere.  Right -- the more of the world that is not responsive to prices, the tougher it is for a country like the United States, who will see higher prices and more volatility.

But that only happens if China uses the fact that it owns oil overseas to be able to control prices at home.  And we don't know how that will evolve.

SANDALOW:  I wouldn't want to trade places with China in terms of energy.  In fact, one of the things that occurred to me is that we're probably the most blessed country in the world in terms of energy, if you really think of our coal, our shale gas, our oil, the fact that we sit next to Canada, the fact that we we're sitting in Latin America, the fact that our geopolitical strength in the Middle East is beyond equal.  We have influence with Saudi Arabia, with -- certainly with Iraq, Qatar.  Even Iran, we have influence with, because there are sanctions.

So if I were China, and I looked at the mosaic of what they have and what we have, I'd be worried.  And I think that might be -- have led to their acquisition strategy.

I think what's encouraging, though, is what David said.  If they're going to make a big investment in clean energy, great, because the easy way out for China would be coal.  And the one thing we (haven't really ?) talked about here is coal.  That's the big winner in the future.  It's the silent winner in the future, because nobody really wants to talk about coal.

But the fact is, I wouldn't trade -- Senator Lieberman and I had a session with the council a couple of years ago, and one of the things that occurred to us is the energy content of Chinese exports to the United States is really quite high.  So the reality is, we're using their energy, their exports.  They're really exporting energy.  There used to be a wonderful field in the late 70s, I think promoted by Ann Marie Levins (ph), which was energy accounting -- the energy content of goods and services.  Now, in some ways, that's a bit of nonsense, but when you think about China's exports, you know, we're importing more oil through our products from China.

WALLIN:  OK, thanks.  Question here?

QUESTIONER:  Bob at Belfer Management (ph).  You talked about geopolitics, but I feel like associated with that is geoeconomics.  U.S., as I'm sure you know, is importing about $350 billion a year in crude oil, which accounts for substantially more than half of our trade deficit.  And given that it's unlikely that our other trade deficit components will go down, we are basically bankrupting ourselves, or at least putting ourselves in economic hardship through our dependence, our economic dependence upon imported oil.  And yet, per a recent Wall Street Journal editorial, there are 60 billion barrels plus of oil potential in Alaska.  There is offshore deep water Gulf Coast.  There is offshore east coast.  Are we asleep at the switch?

WALLIN (?):  Are we asleep at the switch?

SANDALOW:  We're racing forward.  You know, if you look at -- if you look at the attention that alternative energy in this area in particular has gotten in the past couple of years, I think it is -- going to be one of the most important developments in energy markets for a long time, when we look back.

We are -- we are right now at the birth of a new industry, I think, which is the electric vehicle industry.  And there's a been a broad progression towards electrification in a number of different areas.  But at -- I've visited the past year both the Shanghai and the Paris auto shows.  And in both places, almost every manufacturer has new electric vehicle models out there on the floor.  And they're moving -- trying to get them on the road.  GM and Nissan are both starting -- both have plug-in electric vehicle models which are in showrooms today.  And it's potentially transformational, along with biofuels and other types of technologies that can really make a difference in this area.

And then, in addition, we need to be producing domestically where it's environmentally sensible to do that.  And that's -- you know, there's been, I think, more storm than is needed in this topic.  There are places that we can get domestic energy resource in this country and do it in noncontroversial ways.  And I would -- I would actually point to it in particular for kind of the most interesting development over the course of the past year, the back in -- up in north central part of our country in the Dakotas where we're starting to extract oil, I think, in quantities that was -- would not have been foreseen 10 years or so ago.

So I think there's tremendous potential when you add in the alternative energy developments in the transportation sector with the potential for domestic production for transformational changes in the years ahead.

LEVI:   I think -- and Bob, you hit on something very important.  I said -- (inaudible) -- when you asked me to give examples of our thinking hasn't changed since the 1970s, the example I gave was the sort of oil weapon.

One of the other things that hasn't changed is how we think about what happened to the dollars we sent abroad for oil.  And for a long time, the United States actually had a pretty decent system from an economic standpoint of handling petrodollar outflows.  The country arranged to sell arms to countries in the Middle East that the oil was coming from.  There were -- there are other issues associated with that, but from a strict economic standpoint, it was recycled in a fairly straightforward way.

Today, there is a system where dollars are sent to the Middle East, and then they come back here as subsidy for extremely cheap home loans that get into a lot of trouble.  I mean, this is roughly how we're doing petrodollar recycling now.

So one of the things that can be done to help deal with that, and also to help deal with some resilience to shocks, is to expand domestic production.  I think David is right; there's been a lot of hemming and hawing -- a lot of excitement about the administration's supposed hostility toward oil production.  There have been some problems with offshore in the aftermath of Deepwater Horizon, but if you look at things like the -- (inaudible) -- there is a generally -- there is more of a positive atmosphere than some people would acknowledge.

The other -- the other dimension of this, though, is oil from countries where the dollars tend to be recycled in more effective ways.  And so money that goes, for example, to oil from Canada tends to be recycled more in purchasing goods and services than oil that -- than money that goes to the Middle East -- and frankly, the same for Venezuela, which we dislike sending money to for oil for other reasons, but from an economic standpoint, is actually much better than oil from the Middle --

So this is actually a really complicated piece of territory that we understand extremely poorly, in part because this isn't a natural question to ask if you have a 1970s view of global oil markets and geopolitics.

WALLIN:  I have one question that came in from -- remotely.  And I just wanted to -- this is from a man named Chip Pitts (ph) from Stanford University.  And he's asking us, does the new reluctance about nuclear energy put the nail in the coffin with respect to any hope of meaningfully averting climate change?

SANDALOW:  It better not -- and it won't, to be more clear.  We face no more profound challenge than the disruption of the climate system that's happening as a result of the buildup of these greenhouse gases.

We are not going to solve this with any one technology.  My own view is nuclear power has an important role to play.  And I think, in the wake of Fukushima, we'll still play an important role.  But other technologies, including energy efficiency improvements -- which, by the way, are the shortest, quickest, cheapest way to abate greenhouse gas emissions, along with alternative energies that we've discussed a little bit -- I think can make the difference.  But it would require steady work in innovation and political commitment.

MARTIN:  I think David said the right approach.  It's going to take many things.  If you look at my 2100 chart, which I hope the arithmetic is right in, I call it a 50-50-50-50 plan.  Half of the energy needs will be met through conservation -- Japanese actually have a good word for it that they're putting forward called "mottainai."  And then I say, well, take the other half of supply and meet it by half by carbon sources and half by non-carbon.  And what's interesting when you look at the numbers -- and again, energy demand doubles probably between now and 2100, given the economic growth rate.

One of the things I discovered is the economic growth rate of the last 90 years has been 1.4 percent.  (Chuckles.)  On average.  Actually, hasn't been a bad 90 years, actually, if you think about it.  And then go forward 1.4 percent, maybe that's too small because the needs of a growing population may require more.

But the fact is, it's easier for fossil fuels to get there, with their 50 percent share, than it is for renewables and nuclear.  But given the climate challenge, those are the ones that are going to need to be stimulated.  And I'm not quite sure how you get there by following market forces, which I believe in.  But I think we're -- if we don't take technology innovation seriously, we're going to have a fossil fuel world in the future.

And -- not that that's bad; again, I'm from Oklahoma.  But when I read these concerns about climate and so forth -- and the cheap approach is -- and you know, you mentioned an important point.  Cheap energy, it's not that developing countries are going -- they want cheap energy for development.  And that is a fossil fuel world.  The gas is there, the coal is there. I would suggest a lot of oil is still there to use.

So I'm wondering what is the game changer to move us towards this sustainable development that the world is calling for -- and all political leaders.  I don't see it because I think economics and cheap oil will win in the end.

WALLIN:  Do you want to -- I mean, one of you guys want to --

SANDALOW (?):  I think you're right.  Without policy intervention, straight economics -- I mean, straight market forces take you in a direction of some alternatives because of high resource prices; but also, for example, a lot of substitution of coal, liquefied coal, into the transport sector and things like that that are certainly not good for dealing with climate change.

LEVI (?):  Well, if you take David's --

MARTIN:  If you take these electric cars, for example, which I think is a big step, but how do you power the electricity?  Through coal or -- I mean, that doesn't gain you much.

LEVI:  Right.  So what I'm saying is you need policy intervention.  And so right now the cheapest place to have policy intervention is on the electricity side because we do have a host of substantially lower-emissions alternatives that are proven at scale, whether it's nuclear or natural gas or even wind at smaller scales.  But you need the incentives.

Right now the simplest and most economically efficient is apparently politically off the table.  That's a cap-and-trade system or a straight-out carbon tax.  And so it's prudent to look for alternative approaches that might be politically acceptable that incur the least economic costs.

And right now, I'd say the one that's on the table that comes closest is a clean energy standard, which I know the administration is looking very carefully at.  But that would, you know, essentially create economy-wide targets for the use of clean energy, but then have market mechanisms that help nudge basic market forces in a clean energy direction.

And very much agnostic to the technology -- I mean, David can say more about this, but I think the closest we can get to a technology agnostic approach -- for the most part, aside from some targeted innovation policy -- the better off we're going to be economically and environmentally.

SANDALOW:  Just to broaden that and start to close it up.  I mean, if I asked in this room how many people own one or more cell phones, I bet, you know, basically everybody in the room would raise their hand.  But think back 20 years ago, how many of you owned a cell phone just 20 years ago?  Or how many of you owned a personal computer with access to the Internet, just 20 years ago?

Or -- or, get this, 20 years ago, how many of you even had the notion of a little black box that talked to you in a female voice -- for some reason it's always a female voice -- that says, turn left in one mile, turn right in 50 feet, recalculating route.  You know?  I mean, the notion of a little black box that knows where you are on the earth within 50 feet -- if you had told me 20 years ago that that would be possible, I would have thought -- you know, the Jetsons was a cartoon from my childhood, I don't know if it's from your time -- (laughter) -- I would have thought it was a Jetsons-type phenomenon.

So, you know, looking forward 20 or 40 or even 90 years -- the type of technological innovation that we have the capacity to induce is extraordinary, and it can solve a lot of these problems.  We need the right policy tools to do it, but I am not as pessimistic as the kind of question that, I guess, we got from out of Stanford.  I think any one technology has an important role, but we have the extraordinary opportunity to innovate and solve a lot of these problems in the energy sector.

WALLIN:  Well, I think that's really nice way to wrap it up.  I think you guys have -- you know, talk about the energy future, and what kind of mix we're likely to see.  You know, we need it all, I think, is the, kind of, the message here.  And I'd like to thank everybody for being here, and offer some thanks to our speakers with a round of applause.  (Applause.)

For more on this issue, please read William F. Martin's "Energy: Looking Back, Looking Forward Ninety Years."

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