The national energy and environmental debate will need to widen notably if it intends to create necessary dramatic changes, said speakers at a leading energy conference May 19-20.
“We are at a crucial moment in energy and environmental reform. The fact that our national economy hasn’t cratered with oil prices at $130/bbl is a tribute to its resilience. But we need to start addressing the actual issues,” said Thomas F. McLarty III, the former chairman of Arkla Inc. and a federal official in several capacities during President Bill Clinton’s administration.
“Sadly, the current energy debate is dominated by extremists on the right and the left. What’s needed is more participation by those in the middle. Clearly, a bipartisan solution is needed although it won’t please everyone if it’s achieved,” he said during an address to 2008 Deloitte Energy Conference participants.
That solution won’t be achieved unless voters convince politicians that they won’t accept simplistic answers, other speakers said. “First-time voters are talking about issues together instead of separately. They realize that you can’t address the environment without discussing energy and the economy,” said Joseph A. Stanislaw, who cofounded Cambridge Energy Research Associates in 1983 and now serves as an independent senior advisor on energy and resources for Deloitte LLP, the conference’s sponsor.
Similarities, difference
Several aspects of the current situation, such as faith in new technologies and fear that the world is running out of oil, are similar to characteristics of the 1970s energy crises, Stanislaw told reporters. The major difference now is that worldwide demand has not started to decline in response to higher prices, although it has flattened domestically, he said. “Mutual distrust exists in the world now. We should be heading toward mutual interdependence. Working together on climate change may help us get there,” he suggested.
He said that businesses should consider the efforts to address global climate change an opportunity instead of a threat. “The climate change and energy security issues are creating the economic opportunity of our lifetime. The investments of the next 2 decades will dwarf what was spent in the entire 20th century,” Stanislaw said.
More than $200 trillion may need to be spent by 2030, suggested Reid Detchon, executive director for energy and climate change at the United Nations Foundation in Washington. The next US president plans to reduce US carbon emissions by 60-80%. “No matter who’s elected, we’re going to a push on cap and trade. It’s not clear whether we’re going to see it in 2009 or 2010 because of the next major international conference in Copenhagen,” Detchon said.
Climate change decisions
Federal Energy Regulatory Commission Chairman Joseph T. Kelliher said “...we should recognize that dealing with climate change is not an environmental policy. It’s an energy policy. The question is not whether but when decisions will be made. If they aren’t well thought out, the economic consequences will be severe,” he told conference participants.
Detchon said competition from India and China is also an economic opportunity “because they represent important new markets.”
“There’s a perception that industry is not working in the public interest. It may not be fair, but it’s there. Heavy industry needs to do more. We’re not capturing enough steam and using it to produce power that can be used internally or sold into the electrical grid,” McLarty said.
General Electric Co. Vice-Chairman John G. Rice considers coal and nuclear power the best possibilities to meet growing electrical demand in the near term, although time may be running out for nuclear because 100 US reactors must be replaced by 2040. “It’s critically important that we figure out how to burn coal in an environmentally responsible way. Coal gasification can help us do that, although there’s still a question about its 25% premium over pulverized coal,” Rice said. GE bought a coal gasification process several years ago from what was then Chevron Texaco Corp., and it has been working with Bechtel Corp. to design a standard plant, he said.
‘Coherent and clear’
Over a longer period, alternative and renewable energy resources will need to play a growing role, Rice continued. “To that end, we are designing a boiler that can burn any kind of biofuel. The US will need to draw equally from government, business, and nongovernment organizations to create an energy and environmental policy that is coherent and clear,” he said.
He noted that GE moved into wind power when it bought Enron Corp.’s operations after the Houston diversified energy company went into bankruptcy. The business has become profitable but probably wouldn’t have been if European countries hadn’t offered major subsidies during the 1990s, he continued. Solar power today is where wind power was 10 years ago, he said.
But government incentives will need to last longer than a year or two, according to Clint Stretch, managing principal for tax policy in Deloitte Tax LLP’s Washington office. “We’ve gone through this nonsense of credits expiring. If you’re a business executive, you’d be out of your mind to invest under these circumstances,” he said during the press briefing.
“The investment community is very plugged in to the uncertainty about how carbon will be regulated. Energy investment decisions far exceed politicians’ views. They involve two or three election cycles at least,” observed James A. Slutz, acting principal deputy assistant US energy secretary and director of the US Department of Energy’s fossil energy office.
Stretch said budget gridlock has made federal tax policies fall behind, so politicians are responding by finding someone to blame. Record high crude oil prices have increased oil companies’ profits, making them an easy and obvious target, but the Deloitte national tax specialist does not expect this “policy of shifting responsibility to work, because President [George W.] Bush will veto any tax increase in a minute.” He also anticipates that the US Senate will cut the House’s 6-year alternative and renewable energy tax incentives to 1 year.
Best opportunity now
Branko Terzik, energy and resources regulatory policy leader at Deloitte Services LP in McLean, Va., said a recent survey of public attitudes which the company commissioned found apprehension when coal entered alternative energy discussions. “Carbon sequestration is very far away. A utility can’t call a manufacturer and order a system yet. That leaves energy efficiency as the best immediate opportunity,” he told reporters at the press briefing.
Alternative and renewable energy research projects need tax credits to proceed, he continued. It also will take time for manufacturers and consumers to fully react to higher energy prices, he said. “People don’t use energy. Their devices do. It will take time for more efficient models to come into the fleet, but it will happen. Automakers are beginning to react.” Hyundai, for example, announced that it no longer plans to build a US plant to produce V8 trucks that it earlier had announced, Terzik said.
Addressing climate change and energy security together will accelerate instead of limit economic growth,” Stanislaw said.
Gregory E. Aliff, vice-chairman for US energy and resources leader at Deloitte LLP, is anticipating “high prices, followed by higher prices, followed by an inevitable consumer backlash.” Producers and regulators understand the situation, he said during the press briefing, but consumers “don’t see the train coming at them regardless of the alternatives because none of the alternatives are free.”
McLarty was more optimistic. “I think the people are ahead of the politicians. They’re ready for clear, sensible policies and ready to move ahead,” he maintained.