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Text: Abraham on Energy Policy

Monday, March 19, 2001

Following is the transcript of Energy Secretary Spencer Abraham's remarks to the U.S. Chamber of Commerce.

ENERGY SECRETARY ABRAHAM: I want to thank everybody for this warm welcome today and this great turnout. I congratulate my friend Tom Donohue and the chamber for putting together this energy summit, and I appreciate the opportunity to be here today to participate.

As we all know, the topic of energy is as timely as the day's headlines, particularly today's. In just my first weeks--eight weeks, as a matter of fact--as energy secretary, California has faced almost daily power alerts, rising natural gas prices have punished consumers with bills that in some cases are double or triple last winter, and forecasts for this summer suggest the possibility of rolling blackouts--not bad for just eight weeks on the job, huh?


The good news, I think, is that America's energy problems can be solved. The bad news is that the situation in California is not isolated, it is not temporary, and it will not fix itself. America faces a major energy supply crisis over the next two decades. The failure to meet this challenge will threaten our nation's economic prosperity, it will compromise our national security, and literally alter the way we live our lives.

America has heard these dire warnings before. In fact, they seem to be a recurring theme in our nation's energy discussions, almost since Colonel Drake made the first oil strike near Titusville, Pennsylvania in 1859. "The amazing exhibition of oil," advised the state geologist of Pennsylvania, "is a temporary and vanishing phenomenon, one which young men will live to see come to its natural end." That was in 1885.

Around the same time, John Archibald, who succeeded John D. Rockefeller as the head of Standard Oil, joked about the prospects of oil discoveries in Oklahoma. "Are you crazy," Archibald said, "I'll drink every gallon produced west of the Mississippi."


I don't know if anyone ever called Mr. Archibald on that pledge, but for whatever reason the United States Geological Survey in 1914 predicted that the U.S. would soon exhaust its available oil supplies. They issued the same warning in 1926, and then again in 1939, and finally again in 1949.

All of these warnings have proven false. Despite all these expert predictions, the world has not run out of oil or other resources.

Today's pipeline system can hardly handle the supplies we know exist. Alaska's Prudhoe Bay, for example, produces about 8 billion cubic feet of natural gas a day, which is approximately 13 percent of America's daily consumption. But that gas never reaches the market. Instead, it is just pumped back into the ground waiting until a pipeline is built to connect the Alaska fields to the U.S.-Canada distribution system.

As everyone knows, we also face a real challenge in generating enough electricity to light our homes and run our businesses. Over the next 20 years, the Department of Energy estimates that electricity demand in the United States will increase by 45 percent. That rise in growth will require the construction of over 1,300 new power plants, about 65 every year. Yet the last time we added that much power was in 1985.

Furthermore, there is reason to believe that this could turn out to be a conservative estimate. During the 1990s, electricity consumption far outstripped projections driven by the energy-hungry information economy. Some experts calculate that the demands of the Internet already consume some 8 percent to 13 percent of electricity. If demand grows at just the same pace as during the last decade, we will need nearly 1,900 new plants by the year 2020 or more than 90 every year just to keep pace.

Hundreds of new generating plants will place even greater pressure on our already strained and aging power grid. America's network of transmission lines, substations and transformers was built when utilities were tightly regulated monopolies providing service to assigned regions. Interconnections between suppliers were strictly an emergency backup measure to guard against rare service interruptions. The system was simply not designed for long-haul swapping of power in a highly competitive market.

Consumers are already feeling the impact of a transmission system stressed by rising demand. Transmission bottlenecks contributed to the blackouts that have swept through California and the price spikes in New York City last summer that cost consumers an estimated $100 million.

Coal has historically been America's number one source for affordable electricity. It currently powers half of America's electricity generators. And at today's recovery rates, our nation has enough coal to keep those plants running for the next 250 years.

Coal generators have already been called upon to make broad reductions in emissions. The Bush administration supports those efforts, and we will back it up with greater incentives for investment in clean coal technology. But this administration will not regulate coal out of existence, and we will not support measures that will threaten electricity supplies and significantly raise electricity prices.


President Bush made the right decision last week not to impose new federal mandates on the emission of carbon dioxide. If America is to have reliable electricity over the next 20 years, coal must continue to play a major role.

But coal is not the only energy source facing an uncertain future. There hasn't been a new nuclear power plan permit granted since 1979. Many of the existing 103 nuclear plants are not expected to file for a renewal of their licenses as they expire over the next 15 years.

Even hydroelectric power generation is expected to fall sharply. Relicensing a hydro facility can take a decade or more at a cost of millions. And now even though consumers are faced with potential blackouts and chronic electricity shortages in the West, activists and some political leaders want to breach one or more of the four federal dams on the Snake River to help young salmon on their trek to the sea.

What are the dangers of complacency in light of these challenges? How does it all add up for our economy and for our citizens?

This nation's last three recessions have all been tied to rising energy prices, and there is strong evidence that the latest crisis is already having a negative effect. The National Association of Manufacturers estimates that soaring fuel prices between 1999 and 2000 cost the United States economy more than $115 billion, shaving a full percentage point off of our gross domestic product.

A January survey of its 5,500 members reveals that nearly one-quarter forced in some fashion to curtail operations. During a two-week period this past January, Californians lost an estimated $2.3 billion in wages, sales and productivity. Layoffs are already hitting workers in the West, as companies shift production to states with more reliable energy sources.

And then there are the jobs that will never be created. Intel CEO, Craig Barrett, announced that the world's leading chip-maker won't be expanding in California. Quote, "As long as California is a Third World country," Barrett said, "we won't build $2 billion manufacturing plants here."

The Food and Agriculture Policy Institute reports that farmers are likely to see their incomes drop 20 percent over the next two years, due to higher energy costs. Rising energy cost are hitting every family's checkbook, primarily affecting those who can afford it the least. Gas bills for many homeowners in the Washington, D.C., area, more than tripled this year. Some residents are reporting that their heating bills are higher than their food bills this winter.

And the power crisis isn't just pinching our wallets, it's changing the way we live our lives. In California, power outages have shut down traffic lights, darkened schools, and closed businesses. The governor has ordered local police to patrol the streets, not for criminals, but to make sure businesses keep their lights dimmed.

But California is not the only state facing a mismatch between supply and demand. With electricity shortages predicted for New York City and Long Island this summer, low capacity margins threatening electricity reliability in the Midwest, Southeast and northern plain states, and strained refinery capacity in the Midwest, Americans across the nation are feeling the energy squeeze.

Rising demand, tightening supplies, and aging power infrastructure, a decade of neglect from Washington, these are the trends that define America's emerging energy challenges.

Ladies and gentlemen, President Bush has committed this administration to meeting these challenges, a job that begins with the urgent task of developing and implementing a long-term national energy policy.

To accomplish this, President Bush created an energy task force headed by Vice President Dick Cheney. He's asked us to define a clear strategy that will allow environmentally responsible exploration and recovery of our domestic resources, enhance our commitment to conservation and energy efficiency, and encourage investments in new technology to further the development of renewable energy sources.

I wish I could say that the energy crisis now sweeping the nation has shocked the political system into action. But like other political discussions in recent years, the debate over energy seems as deeply polarized as ever.

On one end of the spectrum, some activists propose what amounts to a zero tolerance policy toward exploration and cling to the quixotic idea that new, undiscovered sources will somehow allow us to meet our energy needs.

On the other hand, some advocates place an almost limitless faith in special tax breaks for this favorite activity or subsidies for that preferred industry.

These two extremes in our energy debate are founded on several enduring myths, myths that today conspire to block any true advance toward a rational and stable national energy policy in the United States.

Here are just a few of the more prominent ones. Myth number one: It is impossible to balance energy exploration and environmental protection. Advances in technology have brought us a long way from the days when wildcatters punched holes in the ground based on the hunch they might hit a gusher. But from a regulatory standpoint, our view of oil and gas exploration hasn't changed much since we saw Jed Clampett strike black gold and split for Beverly Hills.

Today, satellites and computers are the tools of choice in the exploration business. Geologists can bounce acoustic and electrical vibrations off the Earth's inner depths, gathering the resulting mass of data into powerful computers, and then create three-dimensional and even four-dimensional maps of resource fields miles below the surface. Armed with these pinpoint accurate images, companies employ advanced equipment to drill vertically, horizontally and around corners, allowing us to access supplies from previously unimaginable depths, up to six miles away.

This marriage of oil and gas exploration with cutting-edge technology means fewer rigs, fewer roads and fewer pipelines. Drilling operations that required 65 acres in the 1970s need only 10 acres today. Technological improvements in just the past 15 years have generated success rates of 50 percent in terms of increases.

America's national energy policy, I believe, must reflect these staggering advances that have revolutionized the way we develop our resources.

Myth number two: All our current problems are due to an energy industry that is engaged in a massive conspiracy to gouge consumers by limiting supply to drive up prices. This myth has been punctuated by calls for investigations into everything from last summer's Midwest gasoline price spikes to recent allegations that power generators in the West have been withholding electricity.

Ladies and gentlemen, we have a fair and objective process for judging these claims, and action will be taken when it is merited. Over the last two weeks, for example, the Federal Energy Regulatory Commission ordered power companies to rebate some $124 million to California utilities. Meanwhile, the Federal Trade Commission recent cleared gasoline suppliers of all charges relating to last summer's price increases.

But charges of price gouging largely miss the point. There is no magic source of supply, no hidden pool of energy that can be turned on and off like a faucet. California and other power-strapped states will never, never solve their power crises until they resolve the conflict between demand and supply.

Earlier this year, one company proposed building a $400 million power plant in California that would have provided enough additional electricity to light 600,000 homes in energy-starved Silicon Valley. The company pledged to plant 800 new trees to beautify the area. They proposed cloaking the power station in a brick facade to make it essentially indistinguishable from a high-rent office complex. They even promised to help maintain the local habitat for the endangered bay checkerspoon butterfly. Their environmentally sensitive plans won the support of the Sierra Club, the American Lung Association and the NAACP, but city officials voted unanimously, 11-0, to reject the plan. In an editorial, the local paper called this move dumb and dumber.

Meanwhile, further south, plans to build a 550-megawatt, gas-fired generator in a Los Angeles suburb were scrapped after residents voted two-to-one against the project. The local mayor added a much-needed dose of reason and maturity to the debate by launching a hunger strike in opposition to the plant.


In California, workers are being laid off. Companies are leaving the state.

Farmers and small businesses are losing millions. Consumers are threatened with rolling blackouts. But local officials reject power plants with little regard for the consequences.

Is it really any mystery why there hasn't been a single new power plant built in California in the last decade?

And if you happen to think that this message has finally gotten through, take a look at this. Some people still don't get it. This is a headline from an ad that appeared last Friday in the New York Times that says, "The Last Thing California Needs is More Power Plants."

Ladies and gentlemen, this debate and these myths must continue forward until we surmount them.

Myth number three: The Bush energy plan is focused almost exclusively on opening the Arctic National Wildlife Refuge to exploration, a move that would buy us only about six months' worth of American consumption while destroying a pristine natural wilderness, not to mention disrupting the breeding ground of the porcupine caribou.

Let's begin by separating fact and fiction when it comes to ANWR. First, according to estimates by the United States Geological Survey, ANWR holds between 5.7 billion and 16 billion barrels of recoverable reserves, with a mean estimate of 10.4 billion barrels. And that assumes the use of drilling technology now nearly a decade old.

This represents more than 300 times the amount of the oil President Clinton released from the Strategic Petroleum Reserve last fall. And based on December 2000 figures, it would free us from about 54 years of oil imports from Saddam Hussein and Iraq.

Second, exploration would impact only about 2,000 acres out of more than 19 million. To put that in perspective, the massive Arctic National Wildlife Refuge is about the same size of the entire state of South Carolina. The 2,000 acres that would be affected is less than half the size of Dulles Airport.

And as for the caribou, the herd in Prudhoe Bay grew more than ninefold over the past 20 years to an estimated 28,000 in the year 2000, seemingly irrefutable evidence that caribou mating and oil exploration can peacefully coexist.

The decision to open a small portion of ANWR should be made on the merits, but it should not be made on the mistaken assumption that opening ANWR will allow us to produce our way to full energy independence. America first became a net importer of energy in the 1950s, and our economy will continue to depend in part on imported oil.

However, closing off virtually every available new source of domestic supply enhances the leverage and power of an oil cartel that cannot be relied upon to put America's interests first. While the resources of ANWR will not make us energy independent, they will help increase America's energy security by ensuring a more diverse supply of oil.

Myth number four: Government subsidies and tax breaks are the best way to encourage new exploration and production of energy.

Ladies and gentlemen, this administration will continue to support funding for energy research and development initiatives.

But capital is best allocated to its highest uses through the workings of the free market, not manipulations of the tax code. Government regulatory policy should not be aimed at picking winners and losers in any market, including energy, and neither should tax policy.

Myth number five: We can forego traditional sources, and instead meet rising energy demand by harnessing wind, geo-thermal, solar and other forms of renewable power.

Excluding hydropower, renewable sources currently generate about 2 percent of America's electricity. Billions have been invested in developing renewable sources, and will continue to be invested under the Bush administration, where renewables have yet to overcome the economic advantages of conventional energy sources. Even with promising advances in research and development, renewables will only provide, according to the Energy Information Administration estimates, about 6 percent of our total electricity consumption by the year 2020. Even if renewables exceed our most optimistic expectations, they would still supply only a fraction of our needs over the next 20 years.

And finally, myth number six: Price controls are the answer to today's energy crisis. Memories are short, aren't they? So let me remind everybody. America imposed price controls on oil and gas in the 1970s. They were an utter failure. They led to shortages and rationing, and the idea that America was gripped by malaise.

So let me be very clear: The Bush administration does not support price controls. Price controls on electricity will lead to more blackouts. Price controls on gasoline will lead to gas lines. Price controls will depend America's energy crisis, because they won't reduce demand, but they will cripple incentives for desperately need investments in energy supply.

Challenges we have before us are formidable. The warning signs, I think are obvious. But I'm very optimistic, because I know this administration's commitment is equal to the task.

Our national energy policy will be comprehensive. It will reach across every department that touches the energy marketplace, from the Interior Department and the EPA, to the Transportation Department and the Department of Energy. Our national energy policy will be hemispheric. It will be based on the understanding that our policy cannot stand in isolation from our neighbors throughout the Americas.

Our national energy policy will stress the need to diversify America's energy supply. It will be founded on the understanding that diversity of supply means security of supply, and that a broad mix of supply options, from coal to windmills, nuclear to natural gas, will help protect consumers against price spikes and supply disruptions.

And our national energy policy will be balanced. It will leap-frog the myths that stifle change, rejecting the notion that there is no middle ground between environmental protection, regardless of the cost, and energy exploration, regardless of the impact.

So we will deliver our recommendations to President Bush. Later, we will introduce legislation aimed at winning bipartisan support for a national energy policy that matches the magnitude of this challenge.

I am hopeful that men and women of goodwill from both sides of the political spectrum, from environmental organizations to industry groups, will then come together and transcend the stale debate that has characterized energy policy in recent years.

About 150 years ago, America faced a vastly different energy crisis. Supplies of whale oil were becoming more and more scarce. Few could afford to pay for the luxury of this or other costly methods of illumination. Sure, crude oil was available. In those days it was soaked up with rags, rung out into small vials and then sold as a treatment for two things, until an entrepreneur lined up an investor and a chemist, and launched an energy revolution that would light the world.

In America, resources become scarce only when our imagination languishes. By engaging that imagination, I am confident that we can meet the challenges of today. If complacency yields to action, if we resolve to strike a rationale balance between our energy needs and environmental concerns, and if a national energy policy becomes an urgent American priority.

Good luck at your efforts here at the summit. We'll look forward to hearing the results of your meetings. And thank you very much for having me with you.

© 2001 The Washington Post Company

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