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Financial Times-World Energy Council Energy Leaders Summit

September 16, 2008 - 3:43pm

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Remarks for (Acting) Deputy Energy Secretary Jeffrey F. Kupfer

Thank you very much.  It's a pleasure to be here among so many distinguished speakers and attendees.

And I applaud the Financial Times and the World Energy Council for hosting this important summit together.  There are few issues more timely and pressing than the need to secure our global energy future. 

The fact is, we face a new energy reality.  The International Energy Agency's (IEA) most recent World Energy Outlook estimates the world's primary energy needs will grow by 55 percent by 2030.  As we address this increased global energy demand, we must also address the environmental impact of our growing energy use.  This creates for the world a set of unique energy challenges that no one nation - or sector - can meet alone. 

I know that the title of this session is "How Can Governments Help to Deliver the Vision? The Vital Role of Policy and Regulation in Building our New Energy Future."  And I will have plenty to say about that specific issue in a minute.

But before we get to that, I do want to make a few comments about the overall framework of our energy strategy.  As we think about our energy future, the most important word that we can use is "diversity."  We need diversity of supply, we need diversity of suppliers, and we need diversity of supply routes.

Of course, the concept of energy diversity is not new - it has been a cornerstone of U.S. energy policy for a long time.  Back in 2001, shortly after President George W. Bush took office, he introduced his National Energy Policy - and he spoke specifically and directly about diversifying and increasing the supply of energy.  And Secretary Bodman has been talking about the need for energy diversity since he first arrived at the Energy Department in 2005. 

In the past, when we have talked about diversity, people listened, nodded politely, and then seemed to file the comment along with other policy pronouncements that sounded reasonable - but didn't seem to have applicability to every day life.  Well, the events of the past year or so have unquestionably changed people's reaction.  Recent events have really driven home the point - that the energy diversity we talk about, and that we've been taking aggressive action to achieve, is indeed critically important.

First, let's look at our heavy reliance on oil.  The growth in world oil consumption has been averaging about 1.8 percent per year, with the largest share of that increase coming from non-OECD countries, especially China, India, and in the Middle East.  But from 2005 through 2007, global oil production remained constant at roughly 85 million barrels per day.  OPEC production has remained largely flat while non-OPEC supply growth has been well below levels seen just four years ago.

As a result - and even despite higher global production so far this year - inventories have been drawn down and current world surplus production capacity is well below historic levels - at fewer than 2 million barrels per day - and is highly concentrated in a few countries.  Our two main cushions against price volatility - spare capacity and inventories - have been severely strained.  Not surprisingly, as we saw this morning, prices have responded dramatically, and with an impact to countries around the globe.  Clearly our reliance on oil makes our economies vulnerable.

Second, let's look at recent events in the Caucasus.  These events have reminded us in very stark terms that energy is a strategic issue.  Countries should recognize that diversification is a strategic priority - and that we absolutely must be able to count on abundant energy, produced by multiple providers, and delivered by diverse routes.  All of us have an interest in transparent markets that truly work - and that means a stable supply, plus reliable transit lines that are not susceptible to manipulation.  The policy of our government has been clear, and it has been stated at the highest levels.  No country or group of countries should leave itself vulnerable to a single country's efforts to corner supplies or control the distribution system.

So it is very clear that diversity - of supplies, suppliers, and supply routes - is absolutely essential to enhancing global energy security.  That said, achieving this diversity is a significant challenge, and overcoming it will require substantial long-term commitments, and a proper policy framework, from all nations of the world.

According to the IEA, $22 trillion of investment is required between now and 2030 if the world is to meet the expected demand for energy.  This investment must be global, in developed and developing nations alike, and at all stages of the energy cycle.  And it must take into account our environmental responsibilities.

So that brings us to our session topic today: how governments can help to deliver the vision.  Governments certainly have an important role to play. 

One of the important functions we have as a government is to make sure we have long term stability and order in the financial markets.  As you all know, we are experiencing a difficult period in the markets right now as we work off past excesses and deal with the housing correction.  As U.S. Treasury Secretary Paulson said yesterday, we are coordinating with regulators in the U.S. and abroad - as well as the U.S. Congress - to take the necessary steps to deal with the situation.

Returning specifically to energy issues - the truth is that governments alone cannot overcome these impressive challenges.  Under President Bush, the U.S. has been quite clear about what we think the appropriate role of government should be.  It is really two-fold: to commit adequate government funding to research and development so that real scientific breakthroughs can be achieved; and to create a policy and regulatory environment that encourages private investment in this same type of critical discovery.   Innovation is key. 

In discussing the role of government, I'd like to cover three different areas: hydrocarbons, alternative energy technologies, and energy efficiency measures. 

With hydrocarbons, we must start by asking some important questions.  How can we ensure that the necessary investments are made to bring sufficient hydrocarbons to market?  Is the investment climate in producing countries conducive to inviting such capital flows?  Are consuming and producing nations having the right discussions and collaborations?  If not, why not?  And are we adequately investing in ways to produce fossil energy more cleanly and efficiently? 

On this front, it is time to stop doing the things we know will not help.  Purposeful market distortions - rationing supply, cutting production, creating price floors and ceilings - ultimately do not work.  I can't stress it enough: the global oil market should be allowed to function in a predictable and transparent way. 

This is a message we must continue to assert around the world.  One important component of a transparent investment climate is producing and making available usable and reliable data, which is particularly important in a time of such considerable volatility in the energy markets.  It is also not government's role to pick winners and losers.  We must support private energy investment and R&D in a way that the market can pick viable technologies. 

As we have seen around the world, moves to restrict foreign investment and increase the reach of state-run energy industries limit access to capital and to the expertise to unlock new resources.  While this type of behavior may garner some short-term advantage, in the long-run it deprives producing countries of productivity and prosperity and consuming countries of much needed supply. 

Open and transparent market-based systems attract not only the private sector's money to different parts of the world but also the innovation, risk and opportunity needed - and that the private sector can provide - for new technology development and commercialization.

And that leads us to the need for alternative energy sources, where innovation is so critically needed.  While we all recognize that governments have a strong role to play here, the world's energy challenges also require the expertise of academia and the private sector.  All nations must recognize the absolute necessity of substantial and sustained private sector investment that fosters innovation on a global scale, and we must put policies in place that actively encourage and support this involvement.

And, research needs to be conducted in a coordinated way.  Our research priorities must be developed with substantial input from corporations, utilities, and universities.  To that end, I strongly encourage governments around the world to increase their investment in research and development. 

In the U.S., under President Bush's leadership, we are aggressively funding programs, for both basic science and applied R&D, to achieve the type of transformational discoveries we need.  In fact, since 2001, the U.S. government has spent more than $22 billion to research, develop and promote alternative energy sources and to reduce energy demand. 

Increased investment in research and development also helps to alleviate another shared global challenge: the shortage of qualified engineers and technical staff needed to meet the demand for rapid innovation.  We need to invest in the next generation of leaders to steer us through the energy challenge - and that means encouraging young people to adopt scientific fields of study, spurring their interest in math and science, and ensuring that colleges and universities around the world are able to keep pace with the technological revolution.  The fact is that these investments are vital to a successful and prosperous global future.

And we must get the most promising technologies into the marketplace more quickly.  This means sharing the risk that capital markets and the private sector are not yet ready to take on.  This is an area that we have not focused on as much as we should have in the past - and where we are trying to make necessary improvements.  One example of what we are doing is a new Technology Commercialization Fund at several of DOE's national laboratories.

This fund will allow the labs to move clean energy technologies that have advanced beyond the research stage toward commercial viability though prototype development, demonstration projects, market research, and other deployment activities.  Over two years, the Department of Energy has given our labs millions of dollars to help commercialize clean energy technologies.  I believe this program will help bring critical technologies to the market faster at a time when we are in serious need of them.  After all, the key to unlocking our energy future is innovation.

We must leverage the power of private equity, as we are doing in the example I just cited.   We must make smart public funding and regulatory decisions and unleash the world's best scientists and engineers on the problem of developing cost-effective, market-ready advanced energy technologies. 

We are very committed to fostering this type of public-private collaboration at the Department of Energy.  Let me share with you just a few examples:

  • We have invested over $1 billion since the start of 2007 to spur the growth of a robust, sustainable next-generation biofuels industry, and in particular, to tap the great potential of cellulosic biofuels derived from nonfood sources.
  • We are making available over $40 billion in loan guarantees aimed at getting large-scale clean-energy projects built as quickly and efficiently as possible.
  • We have established innovative programs to bring venture capital-sponsored entrepreneurs into our National Laboratories to help commercialize new technologies.
  • We are engaged with the private sector in the development of carbon capture and storage technology. 

Of course, beyond investment in hydrocarbons and alternative energy sources, we must also look at how we can use energy more efficiently.  This is critically important.  The biggest source of immediately available "new" energy is the energy that we waste every day.  We must challenge businesses to look for ways to improve the efficiency of our industrial, building and power-generating sectors, and we must challenge governments to promote these efficiencies and provide a level playing field for the technologies to be transferred.

By way of example, in 2005, the U.S. Department of Energy launched the "Save Energy Now" campaign, an effort to improve energy efficiency at industrial facilities through expert energy assessments.  Through this program, energy experts have helped companies identify opportunities to save nearly 80 trillion BTUs of natural gas - roughly equivalent to the natural gas used in over one million American homes - more than $820 million in potential energy cost savings.  The potential carbon dioxide emissions reduction resulting from these assessments is 6.9 million metric tons - the equivalent of taking nearly 1.2 million cars off the road.  So clearly, investing in efficiency measures is money well spent.

Without sustained global investment, without a new global commitment to investing in new sources of energy, breakthrough technologies and enhanced efficiency, we will not achieve the innovations we must have to solve the world's critical energy problems.

In the U.S., we are seeing the venture capital community put sizeable amounts of money into entrepreneurial companies in the alternative energy business. In 2007, the so-called "clean tech" sector, which includes renewable energy and efficiency technologies, saw record venture capital investment levels of $2.2 billion - a 46% increase over 2006 - according to an industry report.  That is remarkable growth by any measure.

The bottom line is that everyone has a role to play - government, to be sure, but also the private sector and academia - to overcome the challenges we face and to lead us to a more secure energy future.  In terms of the government role, policies and regulations that foster collaboration and innovation - among all sectors - are essential.  If we work together, I believe we can expand our world's energy supply in a way that is cleaner, more diverse, more secure, and more affordable to all people of all nations.

Thank you very much.

Location: The Cumberland, London, England

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