Copyright 2000 Federal News Service, Inc.
Federal News Service
March 24, 2000, Friday
SECTION: PREPARED TESTIMONY
LENGTH: 7077 words
HEADLINE:
PREPARED TESTIMONY OF JOHN P. HOLDREN
BEFORE THE
SENATE COMMITTEE ON GOVERNMENTAL AFFAIRS
BODY:
MR. CHAIRMAN, MEMBERS, LADIES AND
GENTLEMEN: I am John P. Holdren, a professor at Harvard in both the Kennedy
School of Government and the Department of Earth and Planetary Sciences. Since
1996 I have directed the Kennedy School's Program on Science, Technology, and
Public Policy, and for 23 years before that I co-led the interdisciplinary
graduate program in Energy and Resources at the University of California,
Berkeley. Also germane to today's topic, I am a member of President Clinton's
Committee of Advisors on Science and Technology (PCAST) and served as chairman
of the 1997 PCAST study of "Federal Energy Research and Development for the
Challenges of the 21 st Century" and the 1999 PCAST study of "Powerful
Partnerships: The Federal Role in International Cooperation on Energy Research,
Development, Demonstration, and Deployment". A more complete biographical sketch
is appended to this statement. The opinions I will offer here are my own and not
necessarily those of any of the organizations with which I am associated. I very
much appreciate the opportunity to testify this morning on this timely and
important subject.
The recent nro-up of world oil prices and its
reverberations in U.S. markets for gasoline and fuel oil underline a degree of
U.S. dependence on imported oil -- with associated vulnerability to externally
induced oil-price shocks and supply constrictions -- that has been growing since
1985.
In that year, the United States was importing just under 30% of
the oil it used, down from the previous all-time peak of 49% reached in 1977. By
1990, our dependence on imports for our oil was back up to 46% -- the result of
slowly growing national oil consumption and slowly declining domestic production
-- and by 1998 our oil-import dependence had reached 55%./1
The economic
impact of U.S. oil-import dependence is not as great as it was in the late 1970s
and early 1980s, however, because the share of oil in our total energy mix has
fallen since then, because the total amount of energy needed to make a dollar of
GDP has also fallen, and because the real price of oil, even after the recent
run-up, remains far below what it was then. Oil (domestic plus imported)
constituted 46% of U.S. energy supply in 1979 but only 39% in 1999. The amount
of energy needed to make an inflation-corrected dollar of GDP in the United
States fell by 30% between 1979 and 1999, and the amount of oil per dollar of
GDP fell by 40%. The cost of U.S. net oil imports in 1979 was
$112 billion (expressed in 1999 dollars) or 2.1 percent of GDP,
whereas the corresponding figure in 1999 was $57 billion,
amounting to 0.6 percent of GDP.
That the impact of oil-import
expenditures on the total U.S. economy is not as great as it once was should not
console us much in the current situation, for several reasons. First, as recent
events make plain, the impact can still be great in the specific sectors of the
economy that remain heavily dependent on oil, most notably the transport sector
nationwide and home heating in the Northeast. Second, U.S. dependence on oil
imports as a fraction of national energy supply is more than high enough, at
around 21 percent, to make the possibility of externally imposed supply
constrictions a matter of great concern; indeed, it is seen as imposing
requirements on our capacity to defend our access to foreign oil by the use of
military force if need be, and hence is a source of military budget requirements
as well as a potential source of actual conflict. Third, our 1999 foreign-oil
expenditure of 0.6% of GDP is by no means an upper limit: if oil prices stayed
near the $34 per barrel figure they reached in early 2000 and
U.S. oil imports nonetheless did not decline, U.S. oil-import costs would reach
about 1.3% of GDP. Under "business as usual", moreover, U.S. oil imports are
projected to continue to rise, and the price per barrel could go up further
still.
It must also be a matter of concern for the future that the
fractions of U.S. oil imports (and everybody else's) coming from the OPEC cartel
and, within it, from the politically volatile Persian Gulf are more likely to
increase with time than to decrease. Currently, the United States gets half of
its oil imports from OPEC and half of that amount a quarter overall -- from the
Persian Gulf. Worldwide, OPEC accounts for 43% of world oil production and 60%
of the oil traded internationally, but holds 75% of the world's proved oil
reserves. The Persian Gulf alone has some 30% of world production, 45% of
exports, and 63% of proved reserves. That OPEC and the Persian Gulf hold larger
shares of reserves than of current production and exports means that their
shares of production and exports are likely to increase over time. The prospect
of increasing dependence on these unpredictable partners for oil imports -- and
not just by the United States but also by our friends and some of our potential
adversaries -- is not reassuring in either economic or national-security terms.
The costs and dangers of the overdependence of the United States and
others on imported oil are clearly considerable, and they are likely to grow
unless successful evasive action is taken.
What have we been doing in
this direction and what has it accomplished? What more could and should we be
doing now and in the future, and what leverage against the problem might these
additional measures yield?
The problem of reducing oil imports below
what they would otherwise be can be addressed by (1) decreasing oil consumption
below what it would otherwise be, (2) increasing domestic oil production above
what it would otherwise be, or (of course) a combination of these. Leaving aside
the option of reducing economic activity below what it would otherwise be (which
would be seen as part of the problem rather than part of the solution), the
possibilities for decreasing oil consumption consist of (1.a) increasing the
efficiencies with which oil is converted to end-use forms and used to produce
economic goods and services and (1.b) substituting other energy forms for oil.
The possibilities for increasing domestic oil production consist of
(2.a) finding and developing new oil fields and (2.b) increasing the quantities
of oil recovered from existing fields. In all cases, these outcomes can be
pursued through a combination of (i) incentives, investments, and other measures
that affect the choices made within the available array of technological options
and (ii) incentives, investments, and other measures that lead to improvement of
the available array of technological options through research, development, and
demonstration.
All of these approaches have been employed in varying
degrees over the past two decades, and all of them have a role to play in the
decades ahead. All of them can and should be strengthened with further policy
initiatives. But analysis of recent history and of the prospects for the future
indicates that much larger gains are to be expected from reducing consumption
through efficiency increases and substitution than from increasing domestic
production.
Consider first the history of efficiency increases and
substitution. From 1972 (the year before the first Arab-OPEC oil-price shock)
until 1979 (the year of the second and larger shock), the energy intensity of
the U.S. economy fell at an average rate of 1.7% per year. (Over the preceding
20 years, this figure had fallen at only 0.4% per year.) In this same period,
1972-79, oil's share of total U.S. energy supply did not change.
As a
very rough approximation, then, one may attribute to price- and policy-induced
improvements in overall energy efficiency, following the 1973 shock, the
difference between the pre-1972 and 1972-79 rates of change in this index, or
1.7 - 0.4 = 1.3% per year. Over the seven- year period, this would make oil use
in 1979 about 9.5 percent lower than it would have been under "business as
usual", amounting to a savings of 1.9 million barrels per day.
From 1979
to 1985 (just before oil prices went into sharp decline), the energy intensity
of the U.S. economy fell at an average rate 3.2% per year and oil's share of
total U.S. energy supply fell at an average rate of 2.1% per year. By the same
procedure as used for the preceding period, this leads to an estimate of
additional oil savings in 1985 of 5.5 million barrels per day beyond those
achieved by 1979 (and compared to what would have happened under the pre-1972
business- as-usual trends), resulting from the combination of energy-efficiency
improvements and substitution for oil in the period 1979-85. The estimated total
reduction in U.S.oil demand in 1985 as a result of price and policy-induced
efficiency improvements and oil substitution after 1972 -- compared to what
demand would have been if the pre-1972 trends had prevailed for that whole
period -- then would be 5.5 + 1.9 = 7.4 million barrels per day.
From
1985 to 1999 (a period of generally declining real oil prices), the energy
intensity of the U.S.economy fell at an average rate of 1.2% per year, while
oil's share in U.S. total energy supply fell hardly at all (average rate of
decline 0.2% per year). Estimated additional oil savings over this period,
calculated as above by comparison to the pre-1972 rate of decline in energy
intensity and constant oil share, would be 2.9 million barrels per day. This
means that the total reduction in U.S. oil consumption by 1999, as a result of
increased rates of energy-efficiency improvement and of substitution for oil in
the U.S. energy mix that followed the oil- price shocks of the 1970s, plausibly
amounted to 7.4 + 2.9 = 10.3 million barrels per day.
The effects of
price and policy on domestic oil production over the same time period are more
difficult to estimate. U.S. domestic production of crude petroleum plus natural
gas plant liquids (together characterized as "total petroleum") peaked in 1970
at 11.3 million barrels per day and by 1973 had declined to 11.0 million barrels
per day. Notwithstanding the price signals and other incentives to increase
domestic production after the first oil-price shock in 1973, domestic production
continued to decline through 1976, when it averaged 9.8 million barrels per day.
With the help of the ramp-up of production from Alaska's Prudhoe Bay field, it
then increased to a secondary peak of 10.6 million barrels per day in 1985,
falling more or less steadily thereafter to 8.1 million barrels per day in 1999.
(Alaskan production peaked at 2.0 million barrels per day in 1987 and 1988 and
has since declined to 1.0 million barrels per day).
Aside from this
Alaskan contribution, without which our domestic production today would be 7
million rather than 8 million barrels per day, it is hard to estimate in any
simple way the amount by which price- and policy-induced bolstering of domestic
production made the decline in domestic production slower than it otherwise
would have been. Advances in seismic exploration, horizontal drilling, and
secondary recovery are generally mentioned, but it would take a closer student
of these matters than I have been to offer a quantitative estimate of how many
barrels per day these advances are currently adding to U.S. production. If they
were as much as doubling the current U.S. rate of crude oil production from what
it would otherwise be (6 million barrels per day instead of 3 million), their
contribution would still be only a third as big as my estimate of the gains from
1972 to 1999 from acceleration of the rate of improvement in energy efficiency
and the rate of substitution for oil in the overall energy mix.
What
have been the changes in the U.S. energy-supply mix? The increase in coal
consumption from 1972 to 1998 was 9.5 quadrillion Btu per year, equivalent to
4.5 million barrels per day of oil; coal's share of U.S. energy supply increased
in this period from 16.6% of the total to 22.9%. U.S. natural gas consumption
fell from an all-time high of 22.7 quadrillion Btu per year in 1972 to 16.7
quadrillion Btu per year in 1986, then rose again to 21.8 quadrillion Btu per
year in 1998; its share of total U.S. energy supply was 31.2% in 1972, only
23.2% in 1998. U.S. nuclear -energy use rose from 0.6 quadrillion Btu per year
in 1972 to 7.2 quadrillion Btu per year in 1998, a difference equivalent to 3.1
million barrels per day of oil;/2 the nuclear share of U.S. energy supply went
from 0.8 percent in 1973 to almost 8 percent in 1998. U.S. use of renewable
energy sources, finally, grew from 4.5 quadrillion Btu per year in 1973 (two
thirds of it hydropower, nearly all of the rest biomass) to 7.1 quadrillion Btu
per year (51% hydro, 43% biomass, 4% geothermal, 1% solar, 0.5% wind), the
growth over this interval being equivalent to 1.2 million barrels of oil per day
in 1998; the renewable share in the U.S. energy mix was 6.1% at the beginning of
this period and 7.5% at the end.
What can be said, then, about the
potential for reducing U.S. oil- import dependence in the future?
First,
by far the biggest immediate and short-term leverage -- as well as a very
sizable share of the leverage in the longer term -- lies in increasing the
efficiencies of oil use (which helps directly) and of energy use overall (which
frees up non-oil sources of supply than can then, in principal, substitute for
oil). Notwithstanding the impressive efficiency gains between 1972 and today,
the technical potential for further improvements remains very large. Rates of
improvement in energy efficiency have declined since 1985 because energy prices
declined and the non-price policies in place to encourage efficiency in that
period were insufficient to make up the difference. This could be changed. If a
combination of market-based and other measures were put in place that made up
half the distance between the 1985-1999 rate of reduction of energy intensity of
the U.S. economy (1.2% per year) and the 1979-1985 rate of reduction (3.2% per
year) --thus making the rate of improvement after 2000 a round 2.2% per year --
and if the economy grew steadily after 2000 at 3% per year real, the additional
energy savings from these efficiency improvements would amount to about 11
quadrillion Bm in 2010 (equivalent to about 5.5 million barrels of oil per day)
and about 43 quadrillion Btu in 2030 (equivalent to about 21 million barrels of
oil per day).
The technical potential for efficiency improvements is
nowhere more apparent than in the oil sector itself, where over 12 million
barrels per day of petroleum products are used for transportation, 8 million
barrels per day of that in the form of gasoline (used mostly in cars, light
truck, and motorcycles) and 2 million barrels per day of it diesel fuel (used
mostly in heavy trucks and buses). Average automotive fuel economy in the United
States has been essentially constant since 1991, at about 21 miles per gallon,
the previous trend of improvement having been capped by the combination of low
gasoline prices, the absence in recent year's of increases in the Corporate
Average Fuel Economy (CAFE) standards, and the growing
proportion, in the personal-vehicle mix, of sport utility vehicles and pick-up
tracks for which the current CAFE standards are lower than for
ordinary cars.
But perfectly comfortable and affordable hybrid cars
already on the market get 60 to 70 miles per gallon; and fuel-cell powered cars
that, with the help of the government-industry Partnership for a New Generation
of Vehicles, could be on the market before 2010 should be able to get 80 to 100
miles per gallon, ultimately perhaps more. The arithmetic is simple: doubling
the average fuel economy in a fleet of gasoline-burning vehicles the size of
today's would save 4 million barrels of oil per day, more in the larger fleet
that is likely to exist tomorrow. In the 1997 PCAST study I led on US energy
research and development strategy, we estimated that PNGV research culminating
in commercial production of advanced vehicles in 2010 could be saving 4 million
barrels per day in the United States by 2030. Research to improve the fuel
efficiency of light and heavy trucks, also assumed to culminate in
commercialization in 2010, was estimated to be able to save another 2 million
barrels per day by 2030. (Of course, none of this will happen if the R&D is
not done, or if incentives to commercialize the resulting innovations are
absent; more about that below.)
On the supply side, the potential to
abate the slide in domestic oil production seems quite limited by comparison.
Under the "reference"
scenario of the Energy Information
Administration's Annual Energy Outlook 2000, which assumes a degree of
continuing technological innovation in domestic oil production, domestic oil
production declines by 0.6 million barrels per day between 1998 and 2005 and
then remains flat at around 7.3 million barrels per day from 2005 until 2020. An
alternative scenario in which the world oil price in 2020 reaches
$28 per barrel (in 1998 dollars, compared to
$22 per barrel in these constant dollars in the reference
scenario) yields domestic production in 2020 only 0.8 million barrels per day
higher than in the reference scenario, barely more than the 1998 level.
(In the EIA scenarios, oil imports in 2020 in the reference case are
17.2 million barrels per day, and in the higher-oil-price case they are 15.4
million barrels per day.) The 1997 PCAST energy R&D study projected that
application of the additional R&D it recommended on exploiting marginal
domestic petroleum resources would yield only about an extra million barrels per
day in 2010, which would not increase further out through 2030.
Some are
suggesting that important leverage on the domestic-oil- production side of the
problem could be gained by opening the coastal shelf of the Arctic National
Wildlife Refuge (ANWR) to oil development (from which, it appears, no
contribution was assumed in any of the EIA scenarios). The numbers do not
suggest that this is a high-leverage proposition, however. It is not certain
that oil would be found in the ANWR. Estimates of how much might be recoverable,
if it is found there, have ranged from 3 billion barrels (by the Congressional
Office of Technology Assessment in 1989), to 3.6 billion barrels (by the
Department of Interior in 1991), to 4-12 billion barrels (by the USGS in 1998).
This means, in round numbers (and assuming oil would be found there in one of
the indicated quantities), that could provide between 6 months and 2 years'
current US oil supply, or 1 to 4 years' current imports, or 4 to 16 years'
current imports from the Persian Gulf.
To anticipate an actual
oil-production trajectory, one may note that, at the upper end of the range of
estimates, the ANWR would be comparable to the Prudhoe Bay field; if that were
so, a production trajectory similar to Prudhoe Bay's would presumably ensue -- a
couple of decades of production at 1.5-2 million barrels per day and a few
decades thereafter at around 1 million barrels per day. The question that policy
makers must answer is whether the possibility of a contribution of this
magnitude justifies the modest but certain environmental damage of exploration-
and the certainty of larger environmental damage from production and transport
if oil is found. Given that a comparable contribution to oil-import reduction
could be obtained by pushing only modestly harder for efficiency increases, and
given that doing the job with efficiency instead would have large ancillary
environmental benefits (such as reductions in emissions of air pollutants and
greenhouse gases) rather than major environmental costs, my own view is that the
right answer on ANWR is "no".
The supply-side options with the largest
short-term and medium-term potential to directly displace oil in the U.S. energy
mix are natural gas and biofuels. Natural gas could displace oil in a number of
industrial applications, in home heating, and in motor vehicles (where engines
have been modified to run on compressed natural gas, or on methanol made from
natural gas, or where fuel cells running on hydrogen made from natural gas have
replaced combustion engines). The 1997 PCAST energy R&D study discussed
these possibilities but did not offer specific estimates of potential
contributions over time.The EIA Annual Energy Outlook 2000 scenarios for 2020
include contributions of natural gas as motor-vehicle fuel up to some 200,000
barrels per day. The potential is clearly larger, however. The source of the
natural gas for these oil-displacing transport-fuel options could be
displacement of gas from electricity generation by other non-oil options (about
which more below) or extra domestic natural-gas production resulting from
increased rates of technical innovation in gas exploration and recovery. (The
difference in domestic natural-gas production in 2020 between the "high
technological change" and "low technological change" EIA scenarios is 4
quadrillion Bm per year, the equivalent of 2 million barrels of oil per day.)
As for liquid fuels from biomass, the 1997 PCAST study estimated that an
aggressive program to produce ethanol from cellulosic biomass could be
displacing 2.5 million barrels per day of oil by 2030 and over 3 million barrels
per day in 2035. The PCAST report also identified other bio fuels options for
this time period without attempting to estimate their potential quantitatively.
This indicates that the 2.5-3 million barrel per day range by 2030-35 is not an
upper limit. The EIA scenarios, by contrast, only show about 125,000 barrels per
day of motor-fuel displacement by ethanol in 2020, but that study did not give
much attention to possibilities for rapidly expanding nonelectric
renewable-energy technologies. I believe the PCAST assessment gives a more
meaningful indicator of the direct oil-displacement potential of biomass fuels.
The Administration's initiative on "Promoting Bio-based Products and
Technologies", announced last August, posed a target of tripling use of energy
and products from biomass in the United States by 2010. (This would include the
use of biomass for electricity generation and cogeneration, about which more
below, as well as production of high- value chemicals.) Inasmuch as biomass
energy use in this country in 1998 was about 3 quadrillion Btu per year, the
stated goal implies an addition of 6 quadrillion Btu per year by 2010,
equivalent in energy content to 3 million barrels per day of oil.
Production of liquid hydrocarbon fuels from coal is technically feasible
using a variety of relatively well developed approaches, but it is not
economically competitive with oil at recent or current oil prices, nor is it
currently competitive with production of liquid fuels from natural gas. In
addition, production of liquid fuels from coal using existing technology results
in carbon dioxide emissions to the atmosphere about twice as large, per barrel,
as for petroleum, which would be a major drawback in light of the desirability
of minimizing climate-change risks. As oil and natural gas become more expensive
over time, advanced coal-to-liquids technologies that can capture and sequester
carbon dioxide rather than releasing it to the atmosphere may eventually become
attractive. The 1997 PCAST study concluded that "indirect" liquefaction of coal
(which entails gasifying it first and then making liquid fuels from the gas) is
far more promising in its combination of economic and environmental
characteristics than "direct" liquefaction; we recommended phasing out DOE's
research on direct liquefaction and shifting the funds into the
gasification-based "Vision 21" program for advanced coal technology and into
R&D on carbon sequestration and other forms of emissions reduction.
There is some potential for reducing U.S. oil consumption by replacing
oil-fired electricity generation with other fuels, but it is quite limited. In
1998, oil generated only 3.6% of U.S. electricity, and doing so accounted for
only about 3% of U.S. oil consumption (about 600,000 barrels per day). Most of
the potential that this represents is captured in the EIA reference scenario,
where a 3-fold drop between 1998 and 2020 in oil use for electricity generation
reduces oil use by 400,000 barrels per day. Much of the rest of the leverage of
the electricity sector against oil consumption is indirect, through the
potential of alternative electricity options to displace natural gas from
electricity generation, which as noted above could in turn displace oil in the
industrial, residential, and transport sectors. Electricity can also displace
oil through the electrification of some of the enduses that oil serves, such as
replacing residential oil- fired heaters with electric heat pumps and shifting
commuters out of their cars and into electricity-powered public transit systems.
The latter has so far proven very difficult to achieve on a large scale,
however, and the former represents only a modest market nationally: home heating
with oil uses only about 1.1 quadrillion Btu per year, corresponding to an
average of some 500,000 barrels per day if pro- rated over the year.
Total U.S. electricity generation in 1998 was 3620 billion kilowatt-
hours, of which 1872 billion kWh came from coal, 674 billion kWh from nuclear
energy, 532 billion kWh from natural gas, 129 billion kWh from oil, 324 billion
kWh from hydropower, 55 billion kWh from biomass, 14 billion kWh from
geothermal, 3.5 billion kWh from wind, and 0.9 billion kWh from solar energy. In
the EIA's reference scenario for 2020, coal-fired electricity generation
increases to about 2300 billion kWh, gas-fired generation increases to nearly
1300 billion kWh, nuclear energy declines to about 425 billion kWh (because of
retirements of some of the existing nuclear power plants in the absence of
replacement by new ones), and renewable-based electricity generation in
aggregate stays roughly constant.
From an environmental standpoint and
quite possibly also from an economic one, the most attractive candidates to
displace some of the growth of gas-fired generation envisioned in the EIA
scenario (and thereby make gas available to displace oil in other sectors) are
the non-hydro renewables. A very conservative estimate of their potential for
doing so out to 2020 is provided by the EIA "high renewables" scenario, which in
2020 obtains 112 billion kWh from biomass, 62 billion kWh from wind, 40 billion
kWh from geothermal, 2.7 billion kWh from solar. The additional non-hydro
renewable generation in this scenario, compared to the 1998 figure, totals 140
billion kWh -- equivalent to 700,000 barrels per day of oil.
This EIA
estimate of renewable-electric potential is conservative because the EIA study
did not consider the possibility of world oil- price increases above 28 1998
dollars per barrel or the possibility of major policy changes that would have
the effect of sharply increasing the incentives for expanding the use of
non-fossil-fuel options.
The 1997 PCAST study made some estimates of
what might be achievable from renewable-electric options under prices or
policies that encouraged these options very strongly, and the resulting figures
were far higher than those in the EIA scenario: they included as much as 1100
billion kWh by 2025 from wind systems with storage technologies, similar
quantities by 2035 from photovoltaic and solar-thermal- electric systems with
storage, 800 TWh by 2035 from biopower, and 1500 TWh by 2050 from hot-dry-rock
geothermal. These are described as possibilities, not predictions, but the
figures are indicative of very large potential: 1000 billion kWh per year is the
equivalent of 5 million barrels of oil per day.
Because there are no new
nuclear power plants on order in the United States -- and not likely to be as
long as gas-fired electricity generation remains much cheaper than nuclear
generation-- the range of nuclear contributions in 2020 in the EIA scenarios
depends only on the rate of nuclear-plant retirements versus license extensions
for additional years of operation. The difference between the EIA's "high
nuclear" and "low nuclear" variations in these respects amounts to 200 billion
kWh in 2020, equivalent to 1 million barrels of oil per day. The 1997 PCAST
study recommended a modest increase in Federal nuclear- energy R&D in order
to clarify safety issues associated with license extension, and it recommended a
somewhat larger and longer-term Nuclear Energy Research Initiative focused on
clarifying the prospects for improvements in the cost, safety, waste-management,
and proliferation-resistance characteristics that will determine whether
deploying a new generation of nuclear reactors in the United States in the
longer term becomes a real option. PCAST also recommended an increase in the
funding for R&D on fusion energy, which although it remains far from
commercialization today could conceivably make a large contribution to
electricity generation in the second half of the 21 st century.
The
overall technical potential to reduce U.S. oil dependence through the use of a
wide range of currently available and still to be fully developed alternative
technologies is clearly very large. The key to the use of the currently
available options is incentives, about which more below. The keys to achieving
the potential of the emerging options are, first, research, development, and
demonstration; and, second, incentives to help bring about the commercialization
and widespread deployment of the innovations that result from research,
development, and demonstration.
Concerning energy research and
development, the 1997 PCAST study argued that such R&D is valuable for a
range of reasons. Not only can innovation in energy technology help reduce
costly and dangerous overdependence on foreign oil, PCAST said, but it can
reduce consumer costs for energy supplies and services below what they would
otherwise be, increase the productivity of U.S. manufacturing, improve U.S.
competitiveness in the multi-hundred-billion-dollar-per-year world market for
energy technologies, improve air and water quality, improve the safety and
proliferation resistance of nuclear energy operations around the world, help
position this country and the world to cost- effectively reduce greenhouse-gas
emissions to whatever degree our societies ultimately deem necessary, and
enhance the prospects for environmentally sustainable and politically
stabilizing economic development in many of the world's potential trouble spots.
Many of these benefits fall under the heading of "public goods", meaning
that the private sector is not likely to invest as much to attain them as the
public's interest warrants. That is one of the principle reasons why, even
though the private sector does and will continue to do a great deal of valuable
energy R&D, there remains a powerful rationale for government support for
and participation in such R&D, as well. I should perhaps emphasize at this
point that there was strong industry representation on the PCAST energy R&D
panel -- and balance across the fossil-fuel, nuclear, renewables, and end-use-
efficiency sectors. I also want to emphasize that many of the recommendations
involved the expansion of public-private partnerships in energy research,
development, and demonstration, helping to ensure an appropriate combination of
market relevance and public benefits in the results.
Notwithstanding the
indicated benefits of strong government participation in energy research,
development, and demonstration, the PCAST panel found that Federal funding for
applied energy-technology R&D had declined drastically in the preceding two
decades. Just prior to the first oil-price shock in 1973, this spending had
totaled about $1.3 billion per year (converted to constant 1997
dollars), more than 80 percent of it for nuclear fission and fusion and most of
the rest in fossil-fuel technologies. Between 1974 and 1978, the total shot up
to over 6 billion 1997 dollars, in pursuit of"Project Independence" --
independence, that is, from foreign oil. This large expansion in Federal energy
R&D was accompanied by a great diversification, with large increments for
renewables and efficiency in addition to expansion of the nuclear and
fossil-fuel efforts. But after 1978, these expenditures went into a long
decline, interrupted briefly and modestly in 1987-92 by an expansion of
public-private partnerships in clean-coal R&D; by FY1997, Federal
investments in applied energy- technology R&D were back to the 1973 level --
$1.3 billion per year in constant 1997 dollars. (The diversity
of the FY1997 program was much greater than that of FY1973, however, being quite
evenly split among nuclear energy, fossil fuels, renewables, and efficiency;
within the nuclear part, fission had almost disappeared, with fusion dominant.
As a fraction of real GDP of course, the 1997 energy technology R&D funding
was only about half that of 1973.) Although some of the post-1978 reductions
represented cancellations of oversized development projects that deserved this
fate, the PCAST panel concluded that the Federal energy technology R&D
programs that remained in 1997 were "not commensurate in scope and scale with
the energy challenges and opportunities that the twenty-first century will
present", taking into account "the contributions to energy R&D that can
reasonably be expected to be made by the private sector under market conditions
similar to today's". Accordingly, the panel recommended modifications to DOE's
applied energy-technology (fossil, nuclear, renewable, efficiency) R&D
programs that would increase funding in these categories from their FY 1997 and
FY1998 level of $1.3 billion per year to $1.8
billion in FY 1999 and $2.4 billion in FY 2003. The principal
recommended increases were (in descending order) in efficiency, renewable, and
nuclear (fusion and fission) technologies; recommended initiatives in the fossil
category were largely offset by recommended phase-outs. The proposed R&D
portfolio addressed the full range of economic, environmental, and national-
security challenges related to energy, in their shorter-term and longer term
dimensions. Also recommended were a number of improvements in DOE's management
of its R&D efforts. Notwithstanding the diversity of the panel and the
complexity of the issue, all of these recommendations were unanimous; there were
no dissenting views.
The administration embodied a considerable fraction
of this advice in its FY1999 budget request (which contained a total increment
about two-thirds of what PCAST recommended for that year) and the Congress
appropriated a considerable fraction of that (about 60 percent of the increment
requested by the administration). The net result was an increment about 40
percent as large as PCAST recommended for FY1999. The overall PCAST
recommendations for FY1999 through FY2003 and their fate in administration
requests and Congressional appropriations so far are summarized in the following
table. As is apparent there, the requests and the appropriations are growing,
but not nearly as rapidly as PCAST recommended. What has been achieved is much
better than nothing; but it is not enough. (TABLE NOT TRANSMITTABLE)
As
a follow-up to a recommendation in the 1997 study that more attention should be
devoted to the opportunities for strengthening international cooperation on
energy innovation, PCAST conducted in 1998-99, at the President's request, an
additional study (which I also chaired) focused on the rationales for and
ingredients of an appropriate Federal role in supporting such cooperation. The
resulting 1999 report, "Powerful Partnerships", noted that many characteristics
of the global energy situation that affect U.S. interests will not be adequately
addressed if responses are confined to the United States, or to the
industrialized nations as a group. The oil-import problem is one compelling
example of this, insofar as the pressures on the world oil market -- and the
disruptive potential residing in the concentration of the world's oil resources
in the Persian Gulf-- depend on the extent to which many other countries besides
the United States are relying on imported oil. The solution therefore depends on
the pace at which oil-import-displacing energy options are deployed in other
countries, not just in the United States.
The panel found that the world
oil problem is far from the only reason for international cooperation on
energy-technology innovation, however.
This case was summarized in the
letter of transmittal as follows:
How the global energy system evolves
in the decades ahead will determine the extent of worm dependence on imported
oil and the potential for conflict over access to it; the performance of nuclear
energy systems on whose safety and proliferation resistance the whole world
depends; the pace of global climate change induced by greenhouse-gas emissions
from fossil-fuel combustion; and the prospects for environmentally sustainable
economic development that will build markets for U.S. products and reduce the
role of economic deprivation as a cause of conflict. U.S. participation in
international energy-technology cooperation, informs and degrees beyond what can
or will be undertaken by the private sector alone, is also likely to be crucial
in gaining and maintaining access for U.S. firms to many of the fastest-growing
segments of the multi-hundred- billion-dollar- per-year global energy-technology
market.
The panel found further (this from the Executive Summary) that
existing Federal activities in support of international cooperation on energy
innovation -carried out by DOE, USAID, and a variety of other agencies and
spending altogether about $250 million per year -- are
generally well focused and effective. But they are not commensurate in scope and
scale with the challenges and opportunities that the international energy arena
presents, and they suffer from the lack of an over-arching strategic vision and
corresponding coordination to link the activities within and across the agencies
into a coherent whole. A particularly conspicuous gap in the government's energy
cooperation activities exists in the demonstration and cost-buy-down stages of
the innovation process (between R&D, where DOE's efforts are mainly focused
and deployment, where the activities of the trade- promotion and development
agencies are mainly focused). The dearth of activities in this category is
substantially slowing the pace at which advanced energy technologies reach
commercial viability.
It recommended substantially strengthening these
Federal efforts -- expanding their coverage, increasing their funding, improving
the processes for their evaluation, and providing for them an over-arching
strategic vision and a mechanism for coordinating its implementation. We propose
specific initiatives for strengthening the foundations of energy-technology
innovation and international cooperation relating to it (including capacity
building, energy-sector reform, and mechanisms for demonstration, cost-buy-down,
and financing of advanced technologies) ; for increased cooperation on research,
development, demonstration, and deployment (RD3) of technologies governing the
efficiency of energy use in buildings, energy-intensive industries, and small
vehicles and buses, as well as of cogeneration of heat and power; and for
increased cooperation on RD3 of fossil-fuels decarbonization and
carbon-sequestration technologies, biomass-energy and other renewable, energy
technologies, and nuclear fission and fusion. Most importantly -for without this
none of the other initiatives we propose are likely to achieve their potential-
we recommend creation of a new Interagency Working Group on Strategic Energy
Cooperation, under the auspices of the National Science and Technology Council,
to provide a strategic vision of and coordination for the government's efforts
in international cooperation on energy- technology innovation. The government's
contribution to this expansion of international energy cooperation activities
would be provided by a new Strategic Energy Cooperation Fund amounting to
$250 million for FY2001 and increasing to $500
million in FY2005, the proposed allocation of which to the relevant agencies in
the President's budget request would be determined with the help of the
Interagency Working Group.
In a decision memorandum last September
responding to the report, President Clinton directed that the indicated
interagency working group be formed and that the relevant agencies consider the
PCAST panel's funding recommendations in preparing their FY2001 budget requests.
All this was done. The budget request ultimately submitted by the administration
to the Congress contains $100 million in FY2001 for initiatives
arising from the new PCAST recommendations. I very much hope the Congress will
treat these initiatives favorably, because I believe that they --along with the
national energy R&D initiatives recommended in the 1997 PCAST study --
represent indispensable ingredients of the technology component of an
appropriate strategy for addressing the oil-import challenge as well as many
other ingredients of the energy/economy/environment problem.
Another
crucial ingredient of such a strategy is the array of price and non-price
incentives and other policies that will shape the pace at which the best
available technologies for reducing oil imports get deployed (as well as
affecting the pace of private-sector research to improve such
technologies)...but that is a matter for another day. I thank you for the
opportunity to put these views before the Committee.
1 There are many
minor variations in the way such percentages are computed and reported. These
figures and most others in this testimony are from the U.S. Energy Information
Administration's Annual Energy Review 1998, published in July 1999, augmented by
the February 2000 edition of the EIA's Monthly Energy Report.
2 Oil use
for electricity generation, which is the main application where nuclear energy
currently substitutes directly for oil, was only 1.5 million barrels per day in
1973 and by 1998 had fallen to 0.5 million barrels per day. The implications of
this for the future leverage of nuclear-energy expansion against oil-dependence
are discussed below.
END
LOAD-DATE: March 29,
2000 
