Transcript: Energy Policy in Light of a New President & Congress

 
THE CNA CORPORATION
 
ENERGY POLICY IN LIGHT OF A NEW PRESIDENT & CONGRESS
 
WELCOME:
MITZI WERTHEIM,
FOUNDER AND DIRECTOR,
THE ENERGY CONVERSATION
 
MODERATOR:
ADAM SIEGEL,
BOARD MEMBER,
ENERGY CONSENSUS GROUP
 
SPEAKERS:
DAVID HAWKINS,
DIRECTOR, CLIMATE PROGRAMS,
NATIONAL RESOURCES DEFENSE COUNCIL
 
JOEL BEAUVAIS,
MAJORITY COUNSEL,
HOUSE SELECT COMMITTEE ON
ENERGY INDEPENDENCE AND GLOBAL WARMING
 
MONDAY, JANUARY 12, 2009
 
Transcript by
Federal News Service
Washington, D.C.

MITZI WERTHEIM:  For those of you who don’t know me, I’m Mitzi Wertheim.  I’m, I
guess, one of the founders and directors of this program, along with many people.  First of all, I
want to wish you a happy New Year and welcome you to our new venue.  I must say I don’t
know if it’s the venue that has brought such a large crowd tonight, but we’re glad to have you all
here.
 
Adam is going to do the introductions, but I have two – actually three announcements. 
The first was that my goddaughter sent me a book called “HELLO, My Name is Scott,” and it
says, “Wearing nametags for a friendlier society” – (laughter) – which is why we have these
nametags, because we’re trying to create a community, and it’s much easier to start talking to
strangers if you know their name, and you can just go up and say, hi, Scott or hi, Sam, and it
makes it much easier.
 
The second point I want to make is I had not read Tom Friedman’s book.  I sort of set out
with the attitude that I sort of knew it all.  And I was in Mexico last week and started reading it,
and I recommend it because he tells the story so well.  And he makes the point that the number-
one issue is systems thinking, and the issues and terms of addressing the problems we face from
a political standpoint turn out to be about rules, regulations and laws.  That’s really hard, and
trying to help people who are going to be writing the new rules, regulations and laws have to do
it in a collaborative systems way if they really want to address these problems.  So I just
recommend to all of you that you read this.
 
Adam Siegel is going to do the introductions.  He is on the board of our Energy
Consensus Group, which is a group of folks that really supports the backbone of this program,
but anyway, welcome.
 
Oh, final announcement:  February 9th, which is our next meeting, the title is going to be
“Lessons Learned from Brazil Going Energy Independent.”  Thank you.  Adam.
 
ADAM SIEGEL:  Thank you, Mitzi.  Happy New Year to everyone.  We’re here in a
new year, a time of – well, I guess the word of the moment for the next week or perhaps longer is
“change.”  We’re here for change.  And if we think about the issue here, we have a changed
Congress, which is what we’re going to be speaking about this evening, but I thought it would be
worthwhile to just use a few words from our president-elect since he was – since the election. 
And one of the things that’s interesting is Barack Obama’s first major public policy statement
was actually on climate change and energy, and one of the things he said was, “My presidency
will mark a new chapter in America’s leadership in climate change.”  He focused on sort of the
global warming and the change, and he said, “That will start with the federal cap-and-trade
system.”  
 
One of our speakers this evening was the author of what I view as one of the more
innovative concepts of how to do – or one of the key authors in support of boss, or with his boss,
or supporting his boss however might be the right and politically correct way to phrase it, the
iCAP – Ed Markey’s iCAP bill – Congressman Markey’s – Chairman Markey’s iCAP bill,
which is really worth taking a look at, and it’s also a very interesting bill, but I don’t think we’re
going to have a conversation about it because we had a chairman of a committee put a bill out,
and there’s only a single signature on it.  There are no cosponsors, and from what I understand
they’ve all been refused, even when requesting to cosponsor it.  So it’s an interesting statement
of concept rather than necessarily saying, this is the perfect answer.
 
Last Saturday President-elect Obama talked about we will create nearly a half a million
jobs by investing in clean energy, by committing to double the production of alternative energy
in the next three years, and by modernizing more than 75 percent of the federal buildings and
improving the energy efficiency of 2 million homes.  These made-in-America jobs building solar
panels and wind turbines, developing fuel efficient cars and new energy technologies pay well
and they can’t be outsourced.  So in the midst of our economic crisis and trying to deal with the
stimulus package, the president-elect is saying that energy will be upfront and center and we’ll
be making work for people like the two who are going to speak with us this evening.
 
We’re going to go in the order of out of Congress, telling Congress what it should do,
and then an insider listening to it and probably not responding to it at all if Congress has their
normal way.  (Laughter.)  
 
David Hawkins is with the – I’ll start with quick introductions – but with NRDC.  And I
want to say, one of my real passions is figuring out how to green the schools and greening the
schools because it’s the only way that I can figure out that we actually improve American
education while saving money at the same time.  And Dave started his career as a school teacher
and then went seriously downhill, as did the other speaker, by becoming a lawyer.  (Laughter.) 
So and has been with NRDC for – I won’t say, but a few decades might be the right term to use,
and in a leadership position on climate change at the NRDC.
 
Joel Beauvais is the majority counsel on the House Select Committee on Energy
Independence and Global Warming, which is chaired by Congressman Ed Markey.  He is the
principal drafter of H.R. 6181, the Investing in Climate Action and Protection Act, which was a
comprehensive, economy-wide climate bill, sponsored by Ed Markey.
 
Dave, it’s up to you.
 
(Applause.)  
 
DAVID HAWKINS:  Thanks, Adam.  Let’s see if I can find the presentation here.  I
think I can.  Thanks for coming to listen tonight.  And I’m not going to tell Congress what to do,
but I am going to give some thoughts on how I think we would all be well-advised to think about
approaching what are three heavily interlocked issues – energy, climate and the economy – in a
little different fashion.  
 
This picture, by the way, is the Dust Bowl in ’35.  I kind of like the image and I think
some policy-makers may feel like that cloud is what’s swirling around in terms of all the issues
on the agenda.  But basically my thesis is that these three issues of the economy, energy and
climate are so interlinked that unless we figure out a way to come up with policies that are
deliberately designed to address all three together, that we are going to fall short of addressing
any one of them.  
 
The basics are that these linkages are pretty clear.  We really can’t have a strong climate
– a strong economy without energy resources.  That’s been well understood, but we can’t have a
strong economy without a stable climate.  That’s less well-understood.  But when you start to
think about it, you know, human civilization has grown up in what has been a relatively
hospitable climate over the last 20,000 years.  Most of our engineered systems are based on
certain variability in the climate patterns over decades, and once those variabilities start to
change, the engineered systems start to become out of sorts and occasionally failing.  And that’s
going to happen the greater that pattern of extremes changes, and the faster.
 
The second premise is that if we have an energy policy that ignores climate protection, it
will fail.  It’s not sustainable.  And the third premise is that a climate policy that ignores the
energy needs of the country also will fail. 
 
So in terms of the positive aspects, I think there probably is fairly widespread agreement
on what some of the needs are to address some of these issues.  On economic security – and Tom
Friedman’s book argues this very well – we need to position the United States to capture the
markets for new technology.  We need to focus on delivering a manufacturing sector that will
produce high-efficiency vehicles, smarter appliances that the world will want to buy, whether it’s
intellectual property we’re selling or the hardware itself.  Either one, there’s an opportunity to
make a lot of money in the world markets.  Smart power distribution systems are something that,
again, there is going to be worldwide demand for the technology that will allow grids to be
integrated with intelligence appliances that use power, and there’s unlimited opportunity in those
areas.
 
And finally, advanced fuels:  We are seeing the strains that are caused, even though oil is
at a lower price today, forecasting going forward still shows that there are going to be
tremendous diplomatic and economic strains associated with relying 100 percent on petroleum
for transportation needs.  Second, from a security standpoint, we know we need to achieve deep
cuts in oil dependence.  
 
And, finally, from the standpoint of other overall energy security, the more we can use
homegrown resources for power production, the better off we’ll be.  No one can interfere with
locally resourced options for power production.  If we have a really well-functioning grid that
uses renewables, uses wind, uses solar, those are not subject to interference.  They can be more
reliable, more robust.  So these are things that we know the answers to how we should be
proceeding.
 
With respect to climate security, there the fundamentals are fairly straightforward too. 
We need deep cuts in U.S. emissions, and we’re going to get them through the same tools that
will help us on the economic and energy security side; that is, smarter vehicles, smarter
buildings, smarter appliances, the same advanced fuels that I mentioned, cleaner electric power,
and we need to do something internationally.  We need to show U.S. leadership so that the rest of
the world once again looks to the United States for leadership in both the technology and the
policy aspects of protecting the climate.  And then we need to be in a position to sell U.S.
solutions, but we’re not going to be selling anything if we don’t have the solutions developed
ourselves.
 
So my argument is that what we need to be doing is exploiting the linkages between
these three topics, and we need to get more and more policy-makers to recognize that protecting
the climate is an economic growth strategy.  And, again, I commend to you Tom Friedman’s
book.  He makes a very powerful argument there, one that I’m sure that a lot of professional
economists would take a look at and say, I’m sorry, you’re inventing $20 bills on the sidewalk
and there can’t be such a thing because if there were people would have picked them up.  But I
think if you read I with a mind to examining what you can imagine about the potential for a
green economy to really be an engine for economic growth, there is a lot to what he says.
 
And as I have hinted at, protecting the climate is an energy security strategy.  It relies
much more heavily on domestic resources and it relies on resources that will be sustainable over
the long time because they don’t ignore the fundamentals of climate change.
 
And finally, smart – and I’ve emphasized the word “smart” – energy policy can be a path
to economic and climate security, but if it isn’t smart, it can lead us away from both of those
goals.  Let’s take a look at what I have in mind by way of a couple of examples.  
 
This is a forecast of carbon dioxide emissions done by the Energy Information Agency in
2008, and this was their reference case before Congress passed the Energy Independence and
Security Act of 2007.  And that act was a very good energy bill, and it represented a substantial
victory for some significant energy policy fights that have been fought for a number of decades,
and Congressman Markey was a leader in making that happen.
 
So it was a great victory for energy policy, but in terms of its impact on CO2 emissions,
it’s not so good.  It would achieve about a 7-percent reduction in growth in CO2 emissions. 
Now, that’s a big number for those of us who have been struggling with ways to simply trim the
growth in any way, but it is a far cry from where the IPCC says that developed countries need to
be heading in terms of cutting emissions over the next several decades.
 
So we have this syndrome of a piece of legislation that is fought out within the confines
of the energy space and incorporates some policies which are directionally correct, but the scale
is not up to the challenge of where we need to be heading. 
 
Taking a look at another component, this is the impact of that legislation on gross
imports of crude and refined products.  Now, those of you who are real EIA mavens may have
already digested and memorized the 2009 forecast and know that the forecast is lower than that
green curve you see on there that has about 14 million barrels a day, but that is because they have
a revised economic reference case, and this analysis used the same economic reference case and
just said, let’s look at this impact with and without the Energy Independence and Security Act. 
And as you can see, it’s about – in 2030 about a 2-million-barrel-a-day impact – again,
directionally correct but it hardly leaves us less dependent on imported oil as a policy structure.
 
So, again, the challenge of figuring out a way to grasp the necessary scale and empower
those of us who try to influence Congress as well as the members of Congress and their staff to
think on a much bigger scale is what I’m basically talking about.
 
Well, what about looking at the economy alone?  Well, this is – and I apologize for the
fuzziness of the numbers.  It’s not fuzzy math; it’s fuzzy graphics, but this is a table from a jobs
analysis that was released on Saturday by the Obama transition team of the economic stimulus
package, and it’s got a sizable number of jobs in the energy space – 459,000.  That’s out of
nearly 4 million jobs.  So it hardly dominates the stimulus plan.  And that’s not to fault this
because it is a stimulus plan.  A lot of these energy investment strategies are not quick payoff. 
You can’t spend 85 percent of the money in the next 18 months, which is the criterion, and it
seems like a pretty sensible criterion for putting together a stimulus package.  But what – the
point of this slide is that if we approach the issue solely through the lens of a short-term
economic stimulus, we’re likely to pay less attention to energy investments as an economic
recovery program than if we have an integrated approach.
 
And then moving to climate alone, this is a display courtesy of the World Resources
Institute, of the emission trajectories of various climate bills that were introduced in the 110th
Congress with the red business as usual line.  And as you can see, there are quite a number of
different policies out there, and some with fairly significant emission reductions, including one
that Chairman Markey was responsible for introducing.
 
So, from a standpoint of CO2 performance, the ones toward the bottom of that set of
curves look pretty good as performers.  And if you look at some of the analyses of how one
might go about achieving some of these reductions, there’s some pretty interesting scenarios out
there too.  This is a graph on the left-hand side, just showing, obviously, the emissions from the
power sector in the year 2006, a little shy of 2.5 billion tons of CO2 a year, and then two
scenarios for 2030.  The red bar in 2030 is the EIA business-as-usual forecast, going up to a little
over 3.3 billion tons, and the green bar is an analysis of how you could achieve deep cuts in the
power sector, done by the American Solar Energy Society.  And it brings power sector emissions
down to about 800 million tons.  Now, that’s pretty powerful and pretty effective as an emission-
reducing strategy.  It’s done entirely through efficiency and renewables deployment, which to me
as an environmentalist is a pretty attractive scenario, but there are some issues that quickly one
confronts when trying to think about making this happen as a matter of policy.
 
This display is one of them.  This shows the forecast for coal generation under those two
scenarios, and as you see, the red bar is the EIA forecast and showing coal generation and
billions of kilowatt hours going steadily upward out to 2030, and the American Solar Energy
Society strategy, which relies basically on backing out coal and replacing it with efficiency and
renewables, cutting coal generation in half.
 
Again, to me personally, who is familiar with the damages associated with the way coal
is mined and used today, this is hard to feel anything but warm feelings about, but I’m not the
person who is going to be voting in Congress and making policy.  And there we face some
different realities.  
 
This is a map of the state-by-state dependence on coal for electric power generation. 
Don’t worry about trying to decipher the numbers there or the significance of them, but the red
states are the ones that have a very substantial dependence on coal for generation of electricity,
typically in the range of 70 percent to 95 percent, and the other darker-toned states are ones that
have also proportionally high – and if you think of this as an Electoral College map or as a map
of how votes might shake out in Congress, especially in the Senate where every one of those
states has two members, it has some important implications.
 
This is a list of some 31 states that either produce a lot of coal or have a lot of coal in
their electric power mix, and by “a lot of coal” I mean on the order of 70 percent or more.  So
you can count these things.  There’s two senators per state, and even the most progressive
senators in those states are going to be hard-pressed if they’re being asked to vote for a bill that
can be portrayed as driving electricity rates up rapidly in their state because of the rapid shift
away from coal.  So this is a challenge that requires those of us who are interested in getting
climate legislation enacted quickly that we have to confront, and we can’t hand-wave it away.  
 
One scenario, for example, would be suppose we said let’s look at a strategy that would
keep the amount of coal used in the United States in 2030 approximately the same as it is today. 
How could we do that and still cut emissions significantly?  Well, there’s only one way to meet
both of those constraints and it’s called carbon capture and disposal, CCD in this.  What is
carbon capture and disposal?  I’m sure many of you in the audience know, but essentially it is a
technique for separating out CO2 from power plant streams, compressing it, and then injecting it
into geologic formations, where, if it’s done properly, it will stay essentially forever.  We don’t
have any power plants operating in the United States that actually employ this on anything other
than a slipstream basis.  A couple of power plants strip it and sell it to beverage makers.  That is
not permanent storage, as you know when you pop the top.
 
But this graph indicates that you’d need about half of the current coal capacity to be
replaced with coal capacity that was employing carbon capture and storage, and to do so by
2030.  That’s about 150 gigawatts of coal capacity, and that’s a pretty big job, which poses a
challenge because, in our view, serious climate policy means you cannot keep building coal
plants that fail to capture their carbon.  And I want to explain for a couple of moments why we
have come to that conclusion.  
 
This is basically a display of stocks of carbon in the atmosphere, and the far left-hand
graph shows what the stock of carbon in the atmosphere looked like before we figured out that
we could dig this stuff up, called fossil fuels, and start burning it.  And over 250 years we put
into the atmosphere the amount that you see in red in the middle bar, and about half of that that
we put up over that 250-year period is left in the atmosphere today.
 
If you look at this as a snapshot and say, okay, that’s where we are, without looking
ahead to the future, you might look at this and say, well, that looks manageable.  We’ve been
using fossil fuels for 250 years and we’ve got, you now, roughly a half a trillion tons of CO2
added to 2.5 trillion tons.  That seems like it shouldn’t be too bad.  Well, it’s given us the climate
we have today, and depending on how carefully you study the scientific literature, you can
decide whether you’re worried about the signs of change that have already occurred.
 
But the real point is that the movie doesn’t end here.  This is what the movie looks like
going forward.  I’ve taken the same three bars and then put them on a scale that, on the far right-
hand side, shows the remaining world fossil resources.  There’s about 24 trillion tons of carbon
dioxide potential embedded in the conventional resources of the world’s oil, gas and coal
supplies, and most of that – about 20 trillion tons – is in coal. 
 
Because carbon dioxide has a very long half-life, simply slowing the rate of exploitation
is not going to solve the climate problem.  About half of the carbon dioxide that was put into the
atmosphere when we fought World War I is still in the atmosphere today, and a thousand years
from now about 15 percent of World War I’s CO2 will still be in the atmosphere.
 
So this is a problem where simply slowing down the rate of transfer of carbon from an
isolated geologic reservoir to the atmosphere is not going to solve the problem.  We actually
have to figure out a way of keeping that carbon that’s in those enormous reservoirs from getting
into the atmosphere in the first place.  And you have to think of this in terms of budgets that go
over hundreds of years.
 
But, lest you think that this is a problem that is centuries in the future – because after all,
you may look at this and say, well, okay, that’s the resources of the planet and it’s probably
going to take hundreds of years before we burn all that stuff, so we must have lots of time to get
on a path to address this.  There’s no need for action in the 111th Congress.  Well, in fact, we
don’t have nearly as much time as one would think because of inertia in the system.  Climate is a
front-loaded problem.  It’s a front-loaded problem, one, because the stuff we put up today stays
up there a long time.  As O.J. Simpson’s lawyer might have said, once you’ve admitted, you are
committed.  (Laughter.)  
 
This shows what the International Energy Agency forecasts will be the new coal plant
investments, in units of gigawatts.  A gigawatt is a thousand megawatts of coal.  There are about
1,100 – well, now there are about 1,300 gigawatts of coal capacity globally, and in the next 21
years, the IEA forecasts that there will be another 1,800 gigawatts of coal capacity built.  That’s
a huge addition to the amount of coal capacity in the world, but it doesn’t tell you too much
without doing another calculation, which is, well, suppose that those coal plants operate for a 60-
year life and they release all their carbon, and what does it look like in terms of the cumulative
burden to the atmosphere?  
 
The left-hand column shows the total amount of carbon – and for those of you who are
paying attention, I switched units.  I’m now talking about carbon rather than carbon dioxide, so
multiplied by 3.67 if you want CO2.  The left-hand column shows the total amount of carbon that
essentially has been released in all of human history from coal use, and the right-hand column
shows the cumulative emissions from this 21 years worth of investment in new coal plants only. 
And as you can see, it’s about 25 percent greater than all of the carbon endowment that we’ve
released in all the time that we’ve been messing with coal as a human species.  That is a
phenomenal commitment to be made with essentially two decades’ worth of decision-making,
and that decision-making is being made today and tomorrow and next week and next month. 
Every month about 10 new coal plants get their switch flipped and they go online somewhere
around the world.  
 
The impact on the budget for managing the climate problem is enormous.  Just that slug
of investment would consume more than a third of the budget that is for what used to be thought
of as a safe target for concentrations of greenhouse gases in the atmosphere.  And the depressing
news further still is that that analysis I showed you was from the IEA forecast of two years ago. 
The new forecast that came out about a month and a half ago, the total billed rate is about
another 10 percent increase on top of that.  So this is something we’ve got to get a handle on and
we can’t wait five years, we can’t wait 10 years, we can’t wait 15 years to get a handle on it
because once these plants are built, it’s going to be very difficult to go back and figure out how
to reengineer them to capture their carbon.
 
What would it take to do the scenario that I was displaying on the earlier slide?  Well, it
would look something like this in terms of gigawatts of capacity, and it adds up, as I say, to
about 150.  This is not going to happen with business as usual.  This is a much faster
implementation of carbon capture deployment than anything that is being thought about by the
Department of Energy up to now, anything that is being advocated by the industry.  
 
So we have a disconnect here.  We have an imperative to do something about coal.  We
have a political imperative to come up with something that is digestible from a policy standpoint
to the members of Congress that come from states that are heavily coal-dependent, and we have
no real plan to actually invest the resources, create the policy tools that would make this likely to
happen.  And instead what we’ve got is something that is largely a set of talking points about
coal, and that’s provoked this reaction from a coalition of groups that NRDC is one of.  And if
you’ve been to the Metro Center station, you’ve seen these ads, or if you watch Sunday morning
television you’ve probably seen some of these ads.
 
These are a response to sort of the campaign by the coal industry to suggest that having
this cleaner version of coal with carbon capture is simply going to happen or is already
happening – and a couple of other graphics here – that are intended to make the point that if
we’re talking about the real world today, then this idea of capturing carbon is more a fantasy than
it is a reality.  And we decided to sign on to this ad campaign, not because we believe that carbon
capture needs to remain a fantasy, but to basically issue a put up or shut up challenge, both to the
industry and also try to increase understanding within the beltway that something really different
needs to happen if this is going to become a reality.  
 
So what are some of the barriers to deploying this technology?  And I’ve got an old label
of carbon capture in storage up there.  There are some technology issues, but the bottom line is
that this technology doesn’t have greater technical risks that commercialization of other
technologies that have been through the pre-commercial stage.  Each of the components of what
it takes to capture carbon and inject it underground has been demonstrated at commercial scale. 
They haven’t been integrated into commercial-scale projects.  And you may have questions
about these premises or statements, and I will be happy to let you respond to them during that
session.
 
The economic challenges are large.  The production cost for power at a plant that
captures its carbon with today’s off-the-shelf technologies would be about 40 percent higher than
a coal plant that simply emits its carbon.  Now, let me hasten to add that the production costs at
an individual plant do not translate into a rate increase across the system.  That would be very
much smaller, for several reasons.  One, only half of the power in the country comes from coal. 
Two, about 60 percent of the cost of electricity on your electricity bill is the production cost. 
The rest is transmission and distribution.  And third, this isn’t going to happen overnight.  Any
deployment of this technology would get rolled in over time.
 
So that’s the systems perspective on it, but the systems perspective is not the way
builders of coal plants look at this.  The builders of coal plants, very rationally, look at it by
saying, what’s the marginal cost of operating this plant, because that will determine whether I’m
in or out of the money in terms of operating against the competition.  So no one is going to build
a coal plant that is going to have a marginally higher operating cost to run if it has to compete
against competition that has no such constraint on it and therefore lower cost of generation.  The
plant will simply be idle, and that’s not a very rational investment.  So it won’t happen.
 
Then there is a third item, which is getting the government’s house in order with respect
to regulation, but our view is that these regulations will fall in place once a serious policy
commitment by the government is made to actually pursue this.  We need – and this is a point
that is broader than just this particular technology of carbon capture and disposal, but we need
something along – you know, we need something along the lines of the interstate highway
system commitment, and it is something that should be thought of, of that scale and of that
persistence in terms of a strategy, but there’s a big difference; the interstate highway system,
primarily a public-government-funded proposition by transferring money from gasoline taxes to
road building.  
 
We need something that is more robust than that system because we need to engage the
innovative juices of the private sector on market competition, and the way we’re going to have to
do that is through a policy structure that actually makes it part of a business plan from the private
sector to figure out how to make energy resource investments and energy-using investments in a
way that minimize carbon emissions.
 
Our view is to follow four points, and most of them are in Congressman Markey’s bill,
which makes us happy.  The first is a national greenhouse gas cap.  We need that to set the
overall direction and to convince the private sector that is thinking about investments on 10- and
20-year scales, that there is going to be a market that is discernible that will reward low-carbon
investments, so we need that.  But that alone, at least in the early years, is not going to be
sufficient to make it rational to deploy some of these technologies like carbon capture and
storage.  To overcome that obstacle we’re going to need some sector-specific policies that are
aimed at gradually de-carbonizing the power fleet, and we have several thoughts in mind there.
 
The first is an analogy to the renewable electricity standard.  I think most of you are
familiar with that, the renewable portfolio standard that says power sellers have to include in
their portfolio of sales a minimum fraction of power that is generated by renewable resources. 
Well, this is an analogue to that.  It would be that they have to include a minimum fraction of
sales that is generated by fossil resources that meet a low-carbon performance standard, and that
would be rolled in over time.  
 
The third element is a new source performance standard for power plants so that we
simply don’t rely exclusively on economic instruments but we have good, old-fashioned
regulation and the clarity that comes with that, which is simply a performance standard – again,
not a technology specification but a performance standard that says new coal plants starting in
year X must meet a CO2 performance standard that is no greater than Y pounds per million BTU,
and set it at a level that can be met by the commercially available carbon capture and storage
systems today.
 
But, fourth, getting back to political reality, we think this needs to be accompanied by a
fairly generous financial incentive program, and here again come the links to the economic and
energy security aspects.  We are talking about investing a lot of money in getting the U.S.
economy back on track and recognizing the value of doing that.  We think that a generous
payment in terms of dollars per ton of CO2 captured from power sector investments is the way to
handle this, and the source of funding for that does not need to be an increase in the deficit.  It
can come from direct allocation of allowances or allowance value under a cap and trade program. 
And, again, Mr. Markey’s iCAP bill contains provisions for making grants to power plants that
engage in carbon capture and storage, with the resources created by the tradable cap and trade –
cap allowances under that legislation.
 
Now, that’s really one component of a much broader strategy, and those of you familiar
with the Princeton wedges, this is our variant of it for the U.S. context, and it is aiming at an 80-
percent reduction between now and 2050.  If your eyes are good you may be able to read all of
these slices, but the top slice is efficiency in the electric-demand sector, so that’s just – those are
the smart appliances, the smart buildings that I was talking about.  Renewable electricity is the
wind and solar component.  Geologic disposal is what I’ve just been talking about.  That’s the
carbon capture and storage.  And then we have vehicle efficiency, low-carbon fuels, smart
growth, other efficiency in the industrial sector – there’s a lot of opportunity there – and a range
of additional things, including greenhouse gases, other than CO2.
 
So the challenge is to get people to understand, one, that the scale of necessary action is
huge, but, two, that if we think about this in an integrated fashion, we can actually get our arms
around that scale problem, and if we get started now, we can take advantage of the fact that 2050
is still 40 years off, but it’s not going to be 40 years off for long.
 
Let me talk about a couple of the direct economic benefit implications, and then finally a
little bit on oil security, and then I’ll stop talking.  It’s being increasingly recognized that
investing in green energy systems can be a big creator of jobs.  This is an analysis that was done
at the University of Massachusetts for the Center for American Progress.  It’s an analysis that
basically said, suppose we took $100 billion and spent it over a two-year program on a variety of
green energy projects, and those include building retrofits; includes additional investments in
mass transit and moving from truck freight to rail freight; an expansion of wind energy, solar
energy, biofuels, and investing in the smart grid.
 
Now, each one of these items you will find in the president-elect’s stimulus plan, but
because it is a stimulus plan and because they’ve identified a lot of other areas that have a call on
that $775 billion that they’re going to put out there, it doesn’t quite match up in terms of the
scale of either the job-creation potential or the environmental and energy benefits.  This program
that I am summarizing for you would create 2 million jobs.  And if you can remember way back
to the beginning of my talk, it was 459,000 jobs in the stimulus package that has been proposed
by the president-elect.
 
An interesting thing about this study is that they used an input-output model and they
determined that spending this – they compared spending the same dollars on increased
investment in oil production infrastructure to this package, and what they found – and all the
analysis is out there transparent, so you can look at it and decide whether you think it makes any
sense or not, but they found that the same dollars invested in these activities would create four
times the number of jobs as those dollars spent in the oil sector.  And also, the pay range for
these jobs was substantially better by comparison to alternatives.
 
The impact on the unemployment rate – well, when this was done we were talking about
forecasts of 5.7 percent unemployment.  This study was done in August before we had the not-
so-happy days of September, October and November.  So just look at the Delta – about a 1.3
percent impact on unemployment.  
 
Don’t bother to read this.  The point of this slide is that this is a green jobs program that
is not asking people in the trades to give up their careers and their skill sets.  It’s not asking
people to stop being boilermakers and become computer programmers.  It is basically saying
there are jobs for boilermakers, there are jobs for electricians, there are jobs for construction
engineers, there are jobs for plumbers.  These are simply building different pieces of equipment,
building different structures, incorporating the smarts so that we know how to incorporate but
aren’t rewarded in the marketplace today, using the skill sets of the workforce that’s out there.
 
Now a couple of words about transportation and oil dependence:  I’m not going to spend
much time on this slide.  It’s just showing a couple of ways of taking a business-as-usual forecast
in 2050 for 240 billion gallons of petroleum demand and how you can cut that back through a
series of strategies.  And we have two different strategies: a high-efficiency strategy, which, as
its name suggests, stresses efficiency on the vehicle side, and a high-biofuels strategy, which
puts more emphasis on replacing petroleum-based fuels with biomass-based fuels.  But basically
you start with a bogie of 240 billion gallons of demand and in the high-efficiency case – that’s
gasoline – in the high-efficiency case you cut it from 240 billion to 10 billion.  In the high-
biofuels you cut it to 20 billion, and you can see what the size of these slices are in terms of the
components, but efficiency is a major player in both of them.  That’s just making better vehicles,
smarter vehicles that go more miles on a gallon of anything.
 
Electricity is the plug-in hybrids that you’ve been reading about, and we hope that soon
you’ll have a chance to do more than read about them.  And biofuels, this depends on the
development of advanced biofuels.  You’re not going to get these benefits from today’s corn-
based system.  And then a plausible chunk for the VMT, vehicle miles traveled, or smart growth. 
Again, this is spread out over a 40-year period, so the ability of smart growth policies to actually
make a difference in that timeframe is significant.
 
But what I want to end with is this focus on reducing oil imports.  What this slide shows
is that a smart climate bill that emphasizes vehicle efficiency and emphasizes carbon capture
where the CO2 that’s captured goes to enhanced oil recovery in domestic supply – domestic
fields, can together reduce oil imports on the order of eight or 9 million barrels a day.  In the
early years the blue is the actual production from enhanced oil recovery.  We produce about
250,000 barrels a day of oil from CO2 injection projects now in the United States.  We could do
more than 10 times that amount if the CO2 were available.  This is one of the ironies of our time,
that it’s water, water everywhere, not a drop to drink.  
 
We’re struggling with the fact that we’re loading the CO2 into the atmosphere.  The oil
industry would like to have that CO2 but the economics aren’t right, and you can get the
economics right by having a well-designed climate policy that creates these incentives to deploy
this technology in the power sector that cuts emissions in the power sector, and it creates these
large streams of CO2 which can then go into oilfields and produce domestic alternatives to
imports, and do it without going into pristine areas.  This is a plus for the environmental
community.  We’re not talking about going into the Artic National Wildlife Refuge here; we’re
not talking about opening up tracts of the OCS.  These are fields that are already being produced. 
The wells are there, the networks are there, the pipelines are there.  The only thing that’s not
there is the CO2 to get the stranded oil out of the ground.
 
So this is another example of the opportunity that is embedded in these policies if they’re
thought about and pursued in an integrated fashion.  If they’re not, we’re going to face more
pictures like this one, and I’ll just say a word about it.  The polar ice sheets have lost ice at a rate
that is staggering the experts in the snow and ice field.  Five years ago the common wisdom
among the experts was that there might be an ice-free North Pole in the summer around 2080. 
Then three years ago it was 2040, and last year people are saying, well, it might be as early as
2013.  
 
Why does this matter?  Well, it matters because the implications of having an ice-free top
of the Earth in the summertime are profound in terms of the effect on world airstream currents. 
The albedo effect, the reflective effect, of having that white ice cap on the top of the Earth is
enormous, and it is a way of reflecting heat away from the Earth.  If you replace it with a dark
ocean, what you’ve replaced it with is a heat-absorbing body, and just think of yourself walking
down the beach with a white hat on or a black hat on.
 
If you replace that large area with a heat-absorbing body, then you affect the heat sync of
the globe, you affect the air currents that are associated with it, and you affect the onset of winter
snow cover and ice in the Northern Hemisphere, which means that you have a spillover effect
into the months beyond the summer.  No one even knows how to model what the implications of
this loss are, but if we don’t act quickly we are going to have to wrestle with it.  Fortunately we
have the ability to react quickly; we just need to start thinking about this in an integrated way and
take the challenge and turn it into something that helps us.  Thank you.
 
(Applause.)  
 
JOEL BEAUVAIS:  Great.  Thanks so much, David.  That was a fantastic foundation,
actually, for some of the remarks that I’d like to give tonight.  I don’t have a presentation with
me and I’m going to keep my remarks a little bit on the brief side since, after all, this is the
energy conversation, so we’re all eager to get to the conversation part of the conversation.
 
I thought I’d begin, just by way of giving a point of departure, to say just a few words
about the select committee that my boss, Ed Markey, chairs, as well as his new role as the
chairman of the Energy Environment Subcommittee of the Energy and Commerce Committee in
the House.  So the select committee, as some of you may know, is an ad hoc committee, a non-
legislative committee, that was created at the beginning of the 110th Congress in 2007 at the
instigation of Speaker Pelosi, basically to jumpstart the conversation on energy security and
climate change issues in the House of Representatives and on the Hill generally.
 
So we have a very broad-ranging mandate, essentially, to study climate change and
energy security impacts and problems associated with those crises, as well as solutions, both
from a technology and a policy perspective.  So we’ve been very busy over the course of the last
couple years, holding over 50 hearings on these subjects, including many important firsts on the
Hill, including: the first hearing on the national security impacts of climate change; the first
green jobs hearing; the first hearing with Rajendra Pachauri, Dr. Pachauri, the chairman of the
IPCC, Nobel Peace Prize winner; and a number of other cutting-edge hearings, and really have
attempted to perform an education function on the Hill, looking cross-jurisdictionally across
committee jurisdictions at the many issues that influence the energy security and climate change
challenge, and also working very hard on public outreach through our award-winning Web site
and other initiatives to try and get the public engaged in this conversation, to provide outreach on
potential solutions, and also to take input from the public.
 
In addition to continuing to chair the select committee in the 111th Congress, Chairman
Markey will also be assuming the chairmanship of the newly-expanded Energy and Environment
Subcommittee of the House Energy and Commerce Committee, which in the full committee, as
many of you probably know, also has a new chairman, now Chairman Henry Waxman, formerly
the chairman of the House Oversight and Government Reform Committee.
 
The Energy and Environment Subcommittee essentially unites much of the jurisdiction,
both of what was formerly the Energy and Air Quality Subcommittee and the Environment and
Hazardous Wastes Subcommittee.  So it has very, very broad jurisdiction over a range of issues,
but for our purposes here, it pretty much covers the waterfront on energy and climate issues.
 
So I thought I’d say just a few brief words regarding the agenda and outlook for the 111th
Congress.  I think David’s presentation provides an excellent point of departure here.  We really
are in a situation where we need to be looking at the energy security and climate challenges in
the framework, as David said, of economy, energy and environment, and I think we’ve received
a real boost from President-elect Obama, who took advantage of only his second policy address
since being elected to really focus on the core role that passing a cap and trade – or cap and
invest, as we like to say – law, and establishing that framework will play in addressing these
challenges.  And Speaker Pelosi has echoed her strong support for that, as has Chairman
Waxman, so I think we’re likely to see action on that this year in the House.
 
We’re in a situation where the focus right now is really on the economic stimulus bill that
we all hope to see passed in the next month or so as a way of jumpstarting the economy to move
us out of this recession, but beyond that short-term shot in the arm, as it were, to the economy,
we really need a longer-term time-release stimulus, if you will – to use a phrase that was coined
by David Doniger of NRDC, where we really look at what is going to be the long-term
transformation of our economy, really taking transformation of our energy production as a point
of departure, with a focus on growing the economy, creating domestic jobs in manufacturing,
construction and other sectors, and at the same time preserving the stability of our economy by
averting the climate crisis.
 
So in terms of enabling policies that we need to move toward that, the real key one
obviously is cap and invest, or cap and trade, as some people like to call it.  I’ll talk a little bit, at
Adam’s request, about some of the principles that animated Chairman Markey’s climate bill, the
Investing in Climate Action and Protection, or iCAP Act.
 
Cap and invest – our approach in iCAP really stems from four basic principles.  The first
is that climate legislation needs to be science-based, so we need targets and timetables for
greenhouse gas reductions that are science-based, and so this bill covers 90 percent of U.S.
emissions, calls for a 20-percent reduction of those emissions from 2005 levels by 2020, and an
85-percent reduction by 2050.  So this is the bill that closely tracks the targets and timetables that
President-elect Obama has put forward.
 
The second point is a strong emphasis on consumer protection, so the long-term focus is
on generating new economic opportunity.  As we transition to a new low-carbon economy, one
does anticipate that there will be some consumer impacts.  What iCAP does is to rely very
heavily on the “polluter pays” principle, transitioning to 100 percent auction of pollution
allowances very rapidly by 2020, and essentially recycling over half of the proceeds of those
auctions directly back to low- and moderate-income households such that three-quarters of –
excuse me, two-thirds of American households would feel no net cost impacts at all as a result of
the bill, and we feel that this is really a crucial element of putting together a recipe for political
success, and it’s also the right thing to do.
 
The third point is simply to invest in the technology that’s going to move us to this new
economy that we need to be in that’s going to actually create the – along with the regulatory
driver of the carbon cap, that’s going to – sort of as we give a push with that regulatory driver,
we also need a pull through a strong investment in the technologies that are going to lead us
there.  So the remainder of the auction proceeds are invested in an array of policies, ranging from
investment in efficiency, which is our cheapest, most available source of low-carbon energy,
other low-carbon technologies, including carbon capture and disposal, as well as renewables, and
so on, as well as investments in providing incentives for domestic farmers and foresters to reduce
carbon through carbon sequestration activities, basically management of agricultural soils and
forests.  
 
 The fourth principle, finally, is that we need to take the bull by the horn in looking at the
international dimensions of climate change policy.  So obviously we’re not going to move the
needle by going it alone on reducing emissions.  In order to succeed in averting the climate crisis
we need all of the major players to be on board, China and India most notably, but obviously
many of the other major developing countries as well.  So U.S. domestic climate legislation can
provide a very important driver to do precisely that.
 
 Our bill focuses very heavily on providing a number of what we think are rather enticing
carrots to induce our trading partners to come along with us in taking comparable action, both
through giving access to U.S. markets for international offset credits, as well as providing
financial incentives for reducing emissions from deforestation in the developing world, as well as
fostering transfer of clean energy technology, much of which one hopes is produced here in
America in the future.  At the same time, as we make the transition towards adoption of
comparable measures in major developing countries, there needs to be some assistance for
domestic industries that produce goods that are internationally traded and would be vulnerable in
a competitive sense to the impacts of a carbon price, and so we deal with that through a
mechanism of free allocations to trade-exposed industries that gradually phases out over time.
 
 Obviously there needs to be some backstop at the end of the day to prevent carbon
leakage, as it’s called, and also adverse competitive effects on U.S. industries for any of our
trading partners that fail to come along in this enterprise.  So there are some border measures
included as well in the bill.
 
 We think this is just one paradigm for how to do climate legislation.  There are other
paradigms.  I’m happy to say that the discussion draft that was put forward by Chairman Dingle
and Chairman Boucher at the end of the last Congress incorporates many of the key elements of
the ICAP bill.  So I think that that suggests there’s a lot of room for potential consensus on what
the policy mechanisms can look like as we try to find the political sweet spot to get climate
legislation passed in this Congress.  These are not the last words on how a climate bill might
look, but I do think that a lot of the ingredients are indicative of where we need to move on this. 
We really do need to be focused on using this as a vehicle for, as I said, a time release stimulus
that can spark the energy technology revolution that we need to see, both in terms of growing our
domestic economy and reducing our dependence on oil imports.
 
 So in addition to that I think you’ll be seeing a lot of focus on complementary measures
which can either concurrently with a climate bill or independently thereof can help push us in the
right direction.  Here I’m talking in particular about some things that were left on the cutting
room floor from the last Congress.  
 
So renewable electricity standard has passed now three or four times in the House but
was unable to make it through the Senate.  We think that’s something that’s very ripe for action. 
Building efficiency standards have passed the House as well on three or four occasions, have not
been able to make it through the Senate.  Again, we think that’s ripe for action.  And these are
measures which would entail emission reductions that are not on the order of what is necessary
to avert the climate crisis, but represent a very, very substantial down payment, or substantial
wedges, if you will, in achieving those goals.  We think the time is right to move forward with
those.
 
 In addition, there are a number of opportunities for forward movement on appliance
efficiency standards.  We made important strides in the 2007 energy bill and we can go further. 
And we need to continue to look at other potential mechanisms to spur investments in efficiency. 
Many have discussed the possibility of a national energy-efficiency resource standard.  That’s
one framework.  Another framework is to use allowance value under a climate bill to incentivize
state policies that will move us forward on efficiency.  That’s an approach that’s reflected in the
ICAP bill.
 
 So these and a broad range of other complementary policies I think are going to be under
consideration in the coming year, and we’re excited to try and do big things this year.  So thank
you very much, and I look forward to your questions.  
 
(Applause.)
 
 MR. SIEGEL:  As always we have mikes up in the room.  Only request is, please say
who you are when you’re asking the question.   
 
 Q:  My name is Ron Adams, and I guess you could say I write for the elephant in the
room.  Mr. Hawkins, do you see any rule for new nuclear power plants in reducing the effects of
emissions from electricity production?
 
 MR. HAWKINS:  There certainly is a potential role there, and we don’t rule it out.  Our
view on nuclear is that it faces a very large challenge that requires getting the sequence of things
right, and that’s the proliferation threat.  And it faces also an economic challenge.  
 
Let me say a word about the proliferation threat.  We’re not concerned about the direct
increase in proliferation risks due to building new power plants, nuclear power plants in the
United States, but we do think that if the United States were to announce a nuclear renaissance,
we need to expect that some scores of additional countries are going to say, me too.  And if that
happens, we think it would be wise to have a more robust nonproliferation regime in place before
that happens, rather than after that happens.  We’ve seen how difficult it is to police the system
with Iran, for example.  The problem is that nuclear enrichment facilities can be turned into
bomb-making facilities, and the international nonproliferation regime simply doesn’t have the
tools to prevent that from happening if a country wants to make it happen.
 
Now, you may say, well, that genie’s already out of the bottle.  But the size of the genie
matters.  And it’s easier to manage a problem that is small than it is one that’s large.  So we think
that’s a sequencing issue.
 
On the economics, there’s a limited – in spite of the fact that we’re talking about trillions
of dollars of money flowing around these days, there’s still a finite amount of money that can go
for subsidies.  Our concern is that the opportunity cost of sending subsidies for building new
nuclear plants is very large, and we think that there are much better bets for that, whatever the
subsidy money is, than putting it into new nuclear.  
 
We think nuclear has reached the point where it’s a mature industry, and if 50 years of
subsidies haven’t been able to allow it to stand on its own, well, it’s time to follow that model. 
And if we thought that we could absolutely not solve the climate crisis without a very substantial
boost in nuclear, then our view on the appropriateness of subsidies or other extreme measures
might change.  But that isn’t our technical conclusion.  Our technical conclusion is that
efficiency, renewables and carbon capture on fossil fuels can address this.  You’re reacting with
surprise.
 
Q:  Well, can you show me one plant in the world that captures carbon?
 
MR. HAWKINS:  Yes.
 
Q:  All of the carbon, not just part of the carbon.
 
MR. HAWKINS:  Eighty-five percent of the carbon from the Dakota gasification plant. 
It doesn’t make electricity.  So okay, would you like an explanation for that?  It’s called market
economics.  The reason that no electric power plant in the world captures its carbon is that it
would be economically irrational to do so.  The cost of capturing carbon, added on to the price of
electricity, makes running that plan noncompetitive.  The only reason you see carbon capture
happening at the plant that I mentioned – and there are a couple of other gas processing plants
where it happens – is that the economics of separation are much more attractive there because
it’s part of the production process of the plant.  And second, there’s a market for the CO2 that is
nearby in the form of an oil field.  So this is a market economics problem.  It’s not a technology
problem.
 
Q:  But with market economics, there has not been a single subsidy to the operative
nuclear power plants in the U.S. and they have a lower – (inaudible, off mike) – electricity
except for large – (inaudible, off mike).  And there hasn’t been any subsidies for 20 years.
 
MR. HAWKINS:  There’s $18 billion of loan guarantees that are on the table.
 
Q:  For a new nuclear plant sometime in the future.
 
MR. HAWKINS:  I thought that’s what we were talking about.
 
Q:  We’re making the transition to digital – Phillip Collins, attorney in D.C.  We’re
making the transition to digital television, we’re giving people coupons that they can use to buy
boxes to plug into their analog television sets.  I was wondering if we could use the stimulus bill
to make the transition to high mileage – or at least higher mileage – cars by giving people
coupons that they could use to buy fuel consumption displays that they could plug into the on-
board diagnostics of the electronics of the car that’s been standardized across the industry since
1996 to help people get 10 to 20 percent more gas mileage with their existing cars, perhaps lead
to more of a culture of rather than high performance, high mileage.  And also require that in the
new cars as well.  Would that be something that would have a substantial effect for the stimulus
bill over the next two years?
 
MR. HAWKINS:  It’s an interesting idea.  I mean, as an owner of a Prius I can tell you
there’s definitely a Prius effect, you know.  We’re the videogame society and we like to beat the
screen, and just having that instantaneous display definitely affects my behavior.  It even affects
my kids’ behavior some.  (Laughter.)  So it’s an interesting idea.  And I think you’re right.  They
could forward it right to the OBD.  But I don’t know that anyone has worked up, you know, a
specific proposal, but I’m going to make a note of it.
 
MR. SIEGEL:  I’m going to take the chairman’s prerogative on that one.  I worked the
numbers today.  Roughly 10 to $20 million – $20 million would be the high end – to get 100
percent of the cars, light passenger vehicles, 96 on, roughly cut fuel usage within a year by 1
million to 1.5 million gallons per day, save roughly at today’s prices $100 million a day for the
consumer.  So therefore, roughly $36 billion a year less in consumer cost for a 10 to $20 million
investment.  And, oh, by the way, that’s not counting – depending on how you look at the
estimates, it might cut U.S. highway fatalities by anywhere from 1,000 to 5,000 per year because
it changes driving habits.
 
Q:  It would also affect CO2 coming out of those cars, and also on the amount of gasoline
we’re using.
 
MR. SIEGEL:  That was the point.  It’s roughly in the range of 50 million to 80 million
gallons of gasoline less per day.
 
Q:  I have a question.  Alan Strasser, from the Department of Transportation.  My
question’s about process and regulatory implementation.  It’s an issue that hasn’t really been
talked about very much in circles that I’m familiar with.  The premise is, or issues you guys have
raised, that quick action is needed right now, five years, 10 years.  And the other premise that
I’m bringing to it, which you probably agree with, is that the process of implementing any
technology solution, or any other policy solution for that matter, is a real killer – a.k.a.,
rulemaking takes five years, 10 years to get the rules in place, to actually put the technology
where you want it.
 
And here’s my question.  How much thought has been given to the legislation in front-
loading the hard policy decisions?  So, for example, will the legislation grant agencies a lot of
discretion in coming up with specific binding standards?  Or will it be the Congress itself making
hard calls now?
 
An example would be offsets.  They’re very complicated, they’re hard to verify.  You can
use another example if you wish.  So both of you, or either of you.
 
MR. BEAUVAIS:  Five to 10 years sounds a little bit pessimistic on rulemakings.  I
mean, I think one would –
 
Q:  Well, I do, and I work on them.
 
MR. BEAUVAIS:  No, I don’t doubt that there have been rulemakings that have taken
five to 10 years.  One hopes that EPA and other agencies that are tasked with rulemakings under
energy and climate legislation can move at least within, say, an 18-month time frame.  That’s –
okay.  That was greeted by jeers.  But in any event, I think we’ve certainly been very much
aware in working on drafting.  There are different paradigms out there for bills.  You know, you
can sort of take the California paradigm of AB-32, that sort of just sets targets in a general sense
and says agencies, go out and figure out how to achieve this.  Our view has been that Congress
needs to do a lot of this work, in part for political reasons because we need – members are going
to need to know what the solution looks like in order to sign off on it.  But we also think that
both in terms of the time that would be required for the rulemakings, as well as the litigation risk
that would be there, to the extent – there’s a tradeoff with agency discretion.  It allows Congress
to avoid making difficult decisions but it also presents substantial litigation risk.
 
Given the really crying need for quick action here, and regulatory certainty as well for the
business community, we really think that there’s a big premium on Congress taking as specific
action as possible.  So some areas lend themselves to that more easily than others.  I think offsets
is a great example of one that – where smart policy usually relies on fairly detailed protocols that
Congress isn’t in a position to adopt.  But in many areas Congress can go pretty far down the
road in delving into the regulatory specifics.  We’ve certainly paid a great deal of attention to
that in drafting ICAP.  And I think the Dingell-Boucher discussion draft does so as well.
 
MR. HAWKINS:  I’d just offer another comment as well.  It’s an excellent point, and one
that we faced when the acid rain bill was being drafted in 1990.  One of the things that we made
a point of pressing for was as hardwiring as much of the – all the tough issues into the statute
itself so that there was not an elaborate rulemaking process required.  And the worst rulemaking
that you can give to an agency is one that forces the agency to pick winners and losers.  That’s a
recipe for getting no decision made, or lots of litigation if a decision is made.  
 
So issues like allocations of allowance value have to be made in the statute.  It’s critical
that they are made in the statute.  Other issues, other items of design are very important.  For
example, there should be an early auction provision.  You don’t have to wait for the onset of the
actual cap-and-trade system to have an auction.  You can have a forward sale of allowance
values, and they should set that up so that there’s an allowance value auction within 18 months
or even nine months of enactment.
 
That said, I will say that one of the most important immediate effects of the president’s
signature on a piece of legislation will be the signal to the market, especially for these long-lived
investments like coal-fired power plants and other forms of investments.  That market signal will
happen the day that the bill is signed by the president, even if some of the regulations take three,
four or five years.  And that’s not an argument for being indifferent about the regulatory process,
but it is an important fact that this legislation is not going to be like other traditional
environmental legislation, where the impact is only on a retrofit basis, and therefore it only
happens once the rules are written, and it doesn’t affect anyone’s behavior until the rules are
finished.  This is going to affect people’s behavior the moment it’s real as a law.
 
Q:  My name is Dave Kerner.  A comment before a question.  One is that you’re stressing
the economic and environmental benefits of many of these measures.  I would argue that you
should also be stressing the national security implications.  And I think second only to cost on a
day-to-day basis to the average person can you get as much traction by saying this avoids the
following, those cascading benefits, and here’s why.
 
The question I have is, with all due to respect, sir, a larger elephant in the room. 
Conservation.  I notice the sizable wedge there, and I would argue just from an engineering
perspective nobody here has never heard in their life, close the danged door in wintertime.  And
we have a lot of open doors in this country in the wintertime, and open windows when the air
conditioning is on.  It’s along the same mindset.  Why not really focus on that first?  The terms
are used like nega-watts (ph), just not using as much.  If you don’t waste it, you don’t have to
replace it.  So if you would comment on that.
 
MR. HAWKINS:  First, we agree completely on the national security, and when I talk
about it it’s often embedded in energy security.  But there are obviously national security
implications above and beyond energy, and we do cite the CNA report often on that very topic.  I
guess I’m guilty of wanting, like Gaul, to divide this into three parts and that’s why I mentioned
those three.
 
On efficiency, I couldn’t agree with you more, but I think maybe my display of the
wedges didn’t quite show with clarity just how big a bang we get out of efficiency in our
scenarios.  But in the high-efficiency transportation fuel scenario, about half the demand is
eliminated with efficiency.
 
Q:  Jennifer McDonald, Department of Energy.  There were several mentions of the need
for a longer-term time-release stimulus, and I’m wondering if you could discuss what the direct
financial – I’m sorry, commitment would be from Congress in terms of the current economy, the
deficit, and then also considering past sharp increases in funding for renewables and efficiencies,
which were then actually decreased following the 1980s and ’90s.
 
MR. BEAUVAIS:  Yes.  I mean, I think there’s a lot of different frameworks, but the
general sort of – the overarching paradigm that we’re talking about here is a cap-and-invest bill. 
The bills that have – for economy-wide bills, you know, the estimates of the value of the
allowances in the range of bills that sort of have been put on the table over the last several years
ranges from $50 billion to $300 billion a year over the life of the bill.  Many of these bills
prescribe standards that are cap-and-invest, or cap-and-trade system that goes all the way out to
2050.  
 
So you’re talking about allowances that have a very substantial value, some portion of
which can be directed towards investments in efficiency technologies development, consumer
protection technology deployment, and so forth, and offers an opportunity to, one hopes, avoid
some of the traps of the peaks and valleys sort of appropriations cycle.  The opportunity for
really long-term, stable streams of resources to support these goals.  That’s the framework that
we’re talking about, not sort of the traditional framework of sort of appropriations-led
technology subsidies.
 
Q:  Good evening.  My name is Tony Mull (sp).  I’m with Argent (ph) Energy.  My
question relates to those slices on that chart associated with energy efficiency, specifically in the
electrical generation sector.  It seems that in order to get those gains a lot of that requires
improvements in the transmission and distribution portions of the network, which is under the
control of the utility commissions at the state level.  And which seems that they’ve been reluctant
to move that infrastructure investment forward.  A lot of pilots, but on a very small scale.
 
On the federal level, what is the remedy to get these programs enacted at the state level?
 
MR. HAWKINS:  First, a clarification on the wedge slide that I showed with electric
efficiency.  Nearly all that is on the demand side efficiency, not production and transmission. 
But that said, there are opportunities.  There’s a real need for figuring out a way to get
transmission infrastructure deployed.  One, because all the renewables we’re talking about aren’t
going to get to market if there isn’t a transmission system to get them there.  Two, because of
these smart grid opportunities that will allow much closer integration of the consumption of
electricity with the transmission and production of electricity, and using the capacity of a chip in
every toaster that will allow electricity production capacity to be still highly reliable but more of
a just-in-time inventory kind of operation, rather than having to have billions and billions of
dollars of overhang because of having to have reserve margins that are larger than they need to
be if we had smart grid technology.
 
So we agree that there needs to be policy reform there.  I think it boils down mostly to a
who-pays thing.  Yes, there are some NIMBY issues there, and there are going to have to be
some more intelligent political processes where the landowners and communities where the
transmission lines go through get something for the deal, they get something out of it, and
something other than just a little money in the tax base.  We’re going to have to be a little more
clever about spreading some of the benefits to the people along the rights of way of these
transmission investments, and then I think we’ll overcome some of the political resistance.  We
need to be smart about it.  We shouldn’t be running them through wildlife preserves and we
shouldn’t be putting them in places where it’s likely to draw attacks, but there’s a lot of land and
if we’re smart about it I think we can get it done.
 
But then it’s resolving the who-pays thing.  You’ve got a problem of nobody wants to
pay for this.  It’s like the interstate highway.  There’s a lot of concern about the incumbent
utilities one way or another exercising control over the transmission so that new competitors
aren’t able to have access to it.  So that’s going to require some skill.  If we’re serious about
getting the renewables deployed at the rate we need to, and making the smart grid happen, then
we’re going to have to figure out a process for making it happen.  It is entirely do-able, but it
requires thinking on a scale and with an urgency and with a commitment that is still sinking in on
the part of decision makers, like the regulatory utility commissions.
 
Q:  Peter Rhode (sp), with Kiplinger’s biofuels market alert.  I have a comment, a
suggestion, and a question.  The comment is, in defense of regulators, EPA has been pushing
proposed rules in record time.  The carbon rules were one, and the renewable fuel standard rule
both be bottled up in the administration, so it’s not for lack of trying for some of them.
 
The suggestion is, oftentimes in the past federal funding has been used to extort behavior
from state governments.  Seat belts, for example, mandatory drinking age laws, or you don’t get
your transportation funding.  It seems to me that would be a perhaps model to be used for
efficiency or greenhouse gas reduction strategies.  
 
And the question is, it’s kind of a general one and you addressed it a little bit, David, in
your answer on the nuclear power.  I find it difficult to evaluate different technologies.  You’ve
addressed it a little bit on jobs.  You said, I think it was $100 billion invested in energy,
renewable energy would produce four times the amount of jobs.  What about in terms of BTUs? 
Oil, for example.  Nuclear power, you addressed it a little bit.  It’s extremely expensive.  My
understanding is, you know, 1,000, 1,200 megawatt plant costs anywhere on the order of 10 to
$12 million.  How does that compare with a similar investment in other technologies?  Which I
know it’s difficult.  Some are fuel, some are power.  But what kind of yardstick, or how would
you kind of rate the different technologies in terms of their both greenhouse gas efficiencies and
BTU as a metric?
 
MR. HAWKINS:  Well, the challenge here is anticipating what the curve of relative
prices looks like in the future.  The problem with a lot of these low-carbon technologies is that
they aren’t optimized for mass deployment, and that means that whatever the cost figures are for
today, they’re probably wrong for 10 or 15 or 20 years from now.  I like to, you know, say to
audiences, imagine that in 1980 the Energy Information Administration was asked to analyze the
cost of a bill to put a laptop computer on the desk of every high-school student in America. 
What do you think the estimate would have looked like?  
 
Well, it probably would have looked like something that the nation couldn’t afford. 
Why?  Not because they’re liars but because the computer modelers are human beings that have
a limited scope of imagination and, you know, it’s hard to – it’s hard to, in the space of a few
weeks or a few hours to come up with a scenario that’s actually an organic process that happens
because day after day after day you go into an enterprise that stands to make a lot of money if it
finds a more brilliant way of doing something.  And that accretion of pressure on innovation is
what makes these unimaginable things happen.  You can’t expect computer modelers to imagine
them in the absence of that.  
 
 So what I’m saying is there’s a huge caveat about any of these forecasts, and I think that
that argues for a design which, to as great as possible, creates some powerful economic signals
and creates some structural policies in key sectors.  And the key sectors to me are power, fuels,
and vehicles.  You can’t cut carbon emissions without big changes in each of those key sectors. 
So you need something that doesn’t put them on a railroad in terms of technology pathways. 
You need something that really rewards innovation on the scale and with the intensity of
something like has happened in microprocessors.
 
 Q:  Alan Drake.  About six hours ago I gave, presented a paper at TRB on an option that I
believe you completely overlooked in your speech.  And the results, I use Millennium Institute’s
T-21 modeling and worked closely with them.  And the results if this option is combined with
renewable energy are sooner and greater than what you were presenting.  And I’d like to discuss
further with you.  And the option I was looking at is building a non-oil transportation system
basically from soup to nuts with mature, existing, highly energy efficient technology.  And the
four that I’ve selected were: electrify the freight rail lines, speed them up a bit, increase their
capacity, and pressure the trucks to take them, either by oil prices or whatever, build out urban
rail at a rate even faster than what the French are doing today, which I believe we’re capable of. 
Promoting more bicycling, which is a small but positive extra.  And promoting more walkable
neighborhoods.  Shoe leather is non-oil transportation.
 
 The combinations that was coming up were really surprisingly positive.  By 2030 we
were coming up with a 38-percent reduction in CO2, a 13-percent increase in GDP, higher
employment, 22-percent reduction in oil imports, and so forth.  It was like a winner in all cases,
and it’s an option that really seems to have very positive results.  And other than a slight mention
of smart growth, completely overlooked in your analysis.  I’d like to know how to add this very
viable, very mature, very energy efficient list of technologies to your program.
 
 MR. HAWKINS:  Great.  Well, all four of those strategies are covered in our analysis,
but it may well be that the scale of our assumptions is not up to what you’ve identified.  I hope
you wrote down my e-mail from the last slide, and if you didn’t, I’ll give you a card and I hope
you’ll send me your analysis.
 
 MR. SIEGEL:  I really enjoy having the chairman’s prerogative sometimes.  Alan Drake
wrote one of the top pieces on electrification of rail and the power of electrification of rail.  It’s
published on a Web site called The Oil Drum, about six months ago, Alan?  Along those lines.
 
 Q:  The president of BNSF Railroad came up with the same idea a few weeks later.
 
 MR. SIEGEL:  Okay.  But it’s the power of electrification of rail is a very interesting
thing.  National security grounds, we’ll start there.  And economic grounds and environmental
grounds.  And if anyone’s interested, it’s worth the read.
 
 Q:  I’m Will Candler.  I represent myself.  I think my comments follow very well on the
last question.  Firstly I’d like to say, I think the cap and trade proposals have come a long way. 
They’re a much better dog than they were two years ago.  I’m delighted to see that you’re
thinking of putting 50 percent of the money back to consumers.  I would remind you that the
other 50 percent of revenue from the auctions will be paid by consumers, and I don’t know why
there’s been no mention of carbon tax, revenue neutral carbon tax, all the money going back
there because that could be done in three months and it would give a signal to people, if there are
possibilities for change in the railways, get that signal out.  And all of the ideas of investing in
this technology and that technology, basically it still leaves the government picking the winners.
 
 MR. BEAUVAIS:  I’d like to make just a couple of comments on that.  I think your point
is well taken.  There are some investments that you can return all sort of allowance value or
carbon tax revenue to consumers and you get a perfect closed loop.  But the prices that are
coming in and going out might be higher than they would be under a scenario where you actually
invest in getting to a place that you’re not yet.  So, for example, in the efficiency sphere I think
there’s fairly broad agreement that simply putting a price on carbon isn’t going to get us to an
optimal level of deployment, of efficiency because there are other market barriers besides simply
the failure to internalize the price of carbon that are preventing us from getting where we need to
be.  
 
So that would be, I think, first and foremost among the examples in which actually using
some allowance value or carbon tax revenue, if that’s your paradigm, to push forward where we
are in efficiency through an array of policies.  Whoever the gentleman was who spoke of using
allowance value to encourage states to adopt the right policies on efficiency, that is the model
that is included in the ICAP bill.  It’s also present in a number of the other bills, including the
Dingell-Boucher discussion draft.  
 
And what we found in the context, for example, of analyzing the impact of the REGI (ph)
framework, they looked at the alternatives of either returning revenues directly to consumers
versus investing them in efficiency policies, and while in the short term the impacts may be, the
perceived impacts for households might be slightly lower under a full sort of consumer recycling
proposal, in the medium to long term the overall costs are going to be much, much lower by
virtue of investing in efficiency.  So we need to make sure that we’re thinking strategically about
this and getting where we need to be.
 
There’s a number of other areas in which, you know, this is similarly true.  We hear day
in and day out about how investment in energy technology R&D is at historic lows in this
country and how much we lag other countries as well in this sphere, and that it really is crucial to
at least make some investment there to make sure that we’re not only doing the reductions that
are on the horizon tomorrow, but that we’re helping to push forward those technologies that are
going to get us to these very deep emission reductions in future.
 
I’ll just identify a third area where this is also true.  We can do all we want on climate
domestically, but if major developing countries do not come along in this enterprise, we are not
going to succeed in averting a climate catastrophe.  So using allowance value, or again, carbon
tax revenues if that’s your framework, to encourage that transformation in the developing world
is, in our view, a crucial element of success on climate.  And this is true of a number of the
others as well.
 
So we think, and our bill reflects this, it’s perfectly appropriate to have a very strong
focus on revenue recycling to consumers for consumer protection, but those aren’t the only – that
isn’t the only worthy goal, and that ensuring the effectiveness of the program and ensuring that
it’s as low cost as possible also requires these other investments.  So there’s a balance to be
struck there.
 
MR. HAWKINS:  I’d just say quickly that my view on this tax versus cap argument is
that the advocates for a tax approach are guilty of a classic fallacy, which is assuming that only
the perfect version of the tax approach will go through Congress, and only a contaminated
approach of a cap approach will go through Congress.  That’s not reality.
 
The same political institution will make decisions, regardless of whether the mechanism
is a tax or a cap, and to assume that some of these difficult issues like offsets and battles over
allocations will disappear because the legislation is written as a tax, anyone who thinks that
hasn’t read the tax code.  We have a whole industry in this country that thrives on these special
treatment provisions in our tax code.  The tax code is nothing but special interests, and I don’t
know that anyone who’s actually familiar with it could reach any other conclusion.
 
So I’m kind of mystified by this version of idealized tax policy because I can’t see any
examples of it.  So that’s one reason why I’m dubious about it.
 
The second reason is that from the standpoint of affecting political change, we need to
have this conversation be about reducing the threat to the climate, and we need to have tools and
aims and objectives in the legislation that are explicit about what the pollution load of the
country is going to look like over time.  And to have it converted into a debate about dollar flows
I think is very perilous.  It basically will disempower the public, who will not be able to evaluate
competing arguments about what economic signal is needed to achieve some forecasted emission
reduction which is based on some assumptions about technology development.
 
It is much easier for the public to understand what the emission cap objective is,
expressed in tons of pollution over time.  That’s something that they can engage in, something
that other bodies have used their expertise in evaluating.  So I think it would be a profound
mistake to try to do this big change through the indirect mechanism of tax policy.  
 
MR. SIEGEL: Very quickly, last two questions.  And if you could ask close-out
questions and give a chance to answer them together.
 
Q:  My name is Robert Aberith (sp).  I’m with Sanderline (ph) Research Corporation, and
if Adam doesn’t get out the hook, I’m actually going to try to slip in two on him.  First, Mr.
Kerner, who just left, made the very excellent point a few minutes ago that what you don’t waste
you don’t have to replace.  Along those lines, I’m struck by, because of my commute, how many
millions of barrels of oil just go up in the atmosphere every year, not an inch gained in traffic,
simply waiting in line at lights when there’s no cross-traffic going, or absolutely stuck in traffic
jams.
 
What strikes me, as my field is modeling and simulations, so I could propose – it would
probably be about a trillion or so – but a very smart road system in this nation, we have sensors
every few hundred feet, and we could run all the massively parallel computers and be able to
optimize traffic flows throughout the nation.  But I’m also wondering if there is an active
program, either yet in place or being thought of in the new administration, looking at simple
ways that would not affect people’s behaviors because they don’t have to change their behaviors,
but ways to save fuel.  Examples, if you don’t really need a no-turn-on-red sign, you don’t have a
no-turn-on-red sign, and I’ve got lots of ones I propose to take out in a heartbeat.
 
If you have traffic lights where you don’t have a constant traffic flow through the day,
why not have them in off-peak, or when you do sense, given the sensors we have, that the traffic
flow has dropped, let them go to flashing red, and complemented by a flashing green so you
know the other guy has got a flashing red, and greatly reduce the wait times.  Just simple ideas
that wouldn’t cost anything to speak of, using existing technologies already in place.  Again, I’m
looking for an active program, searching for things like that.
 
The second one, though, and there were a couple of studies mentioned, that do require
massive behavioral changes.  A year and a half ago in this forum, different location obviously, I
suggested that what we really needed to do was control price, and if we got it up to – I nominated
at the time $3.50 a gallon, I thought we would see behavioral changes.  I was assured by a very
senior government official that the elasticity of demand with regard to price just doesn’t exist.  It
is inelastic.
 
Well, we saw the resolution of that this past year.  I’m not sure if it was $3.50.  I know by
$4 people were changing their behaviors.  We’ve just seen it go the other way.
 
Is anyone looking at, again, possibly price controls to begin to change behaviors?  I don’t
think you’re going to do it through a, gee, you really ought to consider doing this, not when
gasoline is down to under $2 a gallon.  But are we looking at ways to motivate people, even
when they don’t really want to be motivated, in the direction of conservation of alternative
energy means?  Thank you.
 
Q:  A follow-on question, transportation related.  I happened to run across along an
article on the Web – I’m Gene Porter from the Institute for Defense Analysis.  One of the
analytical solutions that people come up with from time to time is freight-to-rail.  I saw freight-
to-rail on the viewgraph, and there’s this long article that says what to me is a no-brainer, that the
money you would spend on upgrading rail lines that parallel Interstate 95 and Interstate 81 such
that you could carry freight at 65 miles an hour would be a small fraction of the cost of adding
lanes to those highways so that the trucks could carry freight at 65 miles an hour.  This seems to
be a sort of 100 to one advantage on fuel usage, in addition to a lower blood pressure for people
who drive Prius’s on interstate highways with 18-wheelers passing them on the right and the left.
 
So my question is, what are the prospects for the president-elect’s stimulus package to
actually include rail infrastructure upgrades, in addition to highway upgrades, on the basis that
you get a two-fer.  You just don’t get a lot of work.  You also get a lot of fuel efficiency by
moving the freight off the trucks and onto the railroads.  Thank you.
 
MR. HAWKINS:  Well, the freight-to-rail is an explicit part of our analysis.  It’s also an
explicit part of the Center for American Progress green recovery report that I mentioned on my
slides.  So we agree completely on that.
 
On the traffic flow optimization issues, it’s hard to argue against any of those things.  Of
course without some policies to counteract the tendency to fill the space allotted, you know,
those could be fairly temporary ameliorative actions.  And in terms of using price to get people
to behave differently, you know, my view on this is that the typical politician regards that as an
unfriendly act, and with some logic.  It’s not just political cowardice.  If you’re out as a public
policy advocate saying we’re going to make you pay more because that’s the only thing you
understand, to some extent that’s a demeaning statement.  And it also is something that
engenders a lot of complaint if the public policy advocate is not at the same time saying, we’re
going to increase the cost this way of satisfying your desires, but we’re going to give you a better
way of satisfying your desires.  Because after all, you don’t really care about BTUs in a gallon of
gasoline.  What you care about is getting from point A to point B safely and securely and with
convenience and, you know, at least for some people a status symbol.  I’m not sure we can deal
with the latter.
 
But people care about the services that the gallon of gasoline provides, primarily.  And if
we can find a way where we can convincingly show that there is a real plan for providing those
services then you have a chance of getting people to accept the proposition for an increase in the
price of the product.  
 
I said I was going to be short, but I’m going to tell you an early experience I had with this
type of cost engineering.  In 1973 I convinced EPA to write a rule that would impose a parking
surcharge on downtown parking that would begin at 25 cents a day.  And the money would go
into a fund that would improve public transportation, and it would ratchet up every six months
by another 25 cents a day.  We had done what I thought were fantastic calculations about how
this would deploy resources, and before it got to a point where anyone would really notice the
impact on the price of parking there would be these improved services on the street.
 
It took Congress six weeks to repeal that authority because we didn’t do our political
homework and we didn’t convince people that this would be actually a believable proposition,
and more importantly, the organized interests of downtown parking associations got to the
members of Congress and just wiped it off the books.  
 
These tools of making something that people value cost more, and especially making
something that there’s an organized interest in protecting, you’d better be well prepared before
you march down that path.  I wasn’t.
 
MR. SIEGEL:  Well, thank you very much, Joel and David.  
 
(Applause.)  
 
February 9th, Brazil and its path toward energy independence.
 
(END)

File Attachment: 

011309 Transcript.pdf