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Building energy policies to support integrated solutions
Remarks by Michael J. Dolan
Senior Vice President, Exxon Mobil Corporation
Detroit Economic Club
Energy Town Hall
June 15, 2009
Thank you for that kind introduction. I’d like to thank PriceWaterhouse Coopers for organizing this town hall and the Detroit Economic Club for hosting the National Summit.
The Detroit Economic Club was founded in 1934, during another difficult time for our nation. And since its founding, this forum has engaged business, government and civic leaders in the search for solutions to our nation’s most pressing challenges.
The challenge we face today, of course, is finding solutions that enable us to rebound from the current recession and put the U.S. and global economy back on the path to growth and prosperity.
This effort will require us to meet both immediate and long-term challenges. Millions of families, including people in this city and around the country, have lost their jobs, their homes, and their savings. The policies we put in place will help determine how quickly the private sector can generate new jobs and new opportunities.
There is also a long-term dimension to the challenge before us. The solutions we choose and the actions we take today must address not only our current needs, but our anticipated future needs as well. This means that as we create the conditions for long-term economic growth, we must also pursue our other long-term priorities, such as managing the risks of climate change.
To achieve our shared goals for the economy and environment, we must start with a focus on the foundational role energy plays in the economy. Nearly every business, every job, every product and every service depends on access to reliable and affordable supplies of energy, in the form of transportation fuels and electric power. Energy and our economy are inextricably linked.
We can see this linkage clearly in our recent economic history. As the U.S. economy has expanded and Americans’ living standards have risen, our demand for energy has increased, too. And when our economy has contracted, energy demand has slowed as well. This relationship between energy and economic growth can been seen in developed and developing nations worldwide.
But the relationship is not simply one of increased consumption. Although energy is critical for the economy, we have also become smarter in our use of energy — and this is an important point. The U.S. economy has become more energy efficient over time, reducing what is called our nation’s “energy intensity” — the amount of energy needed to generate a unit of Gross Domestic Product.
Through ongoing incremental and innovative technological advancements and energy-saving practices, Americans are far more energy efficient than we were a generation ago.
From 1980 to 2008, the U.S. economy more than doubled in size while our energy use increased. Our economy is becoming less energy intense. And we are reducing our emissions per unit of economic activity.
Nevertheless, while we can expect greater gains in energy efficiency, energy demand will increase as the global economy grows. We estimate global energy demand will increase by about 30 percent by 2030, and external studies by groups such as the International Energy Agency and U.S. Department of Energy share our view that global demand is likely to grow significantly.
Most of the growth in future energy demand will occur in developing countries as people in these areas strive to achieve higher standards of living. And history tells us that these demands for energy will be met. They must be met. Growth in global energy demand will occur and it cannot be ignored in any debate on economic, energy, or environmental issues.
Rising global GDP and energy demand will mean not just a more competitive global economy, but greater competition for the world’s supplies of energy. To help American workers and businesses, we need to establish policies that anticipate this fundamental reality.
As global energy demand is expected to increase, so will the greenhouse gas emissions associated with energy use, even with substantial growth in renewable energy sources. Globally, energy-related carbon dioxide emissions are expected to increase through 2030 by an average of one percent per year.
This growth rate in emissions is well less than the expected growth rate for our economy, thanks to continuing gains in energy efficiency, and the growing use of less carbon-intense fuels, such as natural gas. Nevertheless, emissions are expected to increase, a challenge we need to grapple with head-on and manage wisely.
These fundamental facts about energy therefore present a dual challenge that our nation’s energy policies must address.
The first is: How do we expand supplies of energy in a world of higher long-term demand?
The second is: How do we meet the world’s growing energy needs while reducing emissions?
Integrated Solutions
We believe the most effective way to address these intertwined challenges over the immediate and long-term is to seek integrated solutions, which when taken together, address the energy supply, security, efficiency, and environmental goals we all share.
By advancing new technologies and building new partnerships, we can find new ways to pursue our shared goals for economic progress through reliable, affordable energy while reducing emissions. Integrated solutions do this by bringing together industries, companies, governments, and people from all over the world through the free exchange of goods, services and ideas.
Such solutions have been at the heart of America’s economic growth, competitiveness, and leadership. They have made our economy stronger, more resilient, more innovative, and increasingly energy efficient.
But in order to lay the groundwork for these solutions, we must all be involved in the national energy dialogue. The better we understand the dimensions and dynamics of the energy challenges we face, and the realities that govern the industry, the more likely we will be able to build consensus about the many different solutions we need.
One such reality we face is the long timeline involved in discovering, developing and deploying new sources of energy to meet growing worldwide demand at a scale and with a cost and availability acceptable to energy consumers.
Let's talk first about the time scale. At the beginning of the 20th century, coal and wood provided more than 95 percent of the world’s energy needs. Oil and gas at that time — 40 years after Colonel Drake drilled the first oil well in the U.S.— provided less than 5 percent of the world's energy. From that point, it took more than half a century for petroleum — a cleaner and more versatile alternative — to surpass coal as the world’s largest energy source. It took nearly 50 more years to develop the technologies and build the global infrastructure so that natural gas, an even cleaner-burning fuel, could play a sizable role in the world’s energy mix. And despite natural gas and oil's rise, coal remains a major source of energy for the world today, 150 years after the first commercial production of oil. Over this time, improvements in standards of living and increasing global energy demand have been met with this diverse fuel mix.
Both our internal assessment as well as numerous external studies highlight that to have reliable, affordable energy supplies fueling the global economy we will need a diverse energy mix for the decades ahead. In other words, we will need coal, oil, natural gas and nuclear power, as well as wind, solar, biofuels and other renewable sources. Simply put, there is no silver bullet. We will need them all, and therefore we must pursue policies and technologies that diversify energy supplies and increase efficiency.
And I mentioned earlier that energy must be provided at scale and with a cost and availability acceptable to consumers. We are a nation that is accustomed to low cost energy. We expect it delivered to our homes and available with the flick of a light switch or the turn of a thermostat. We want motor fuels conveniently available on the street corner at reasonable prices.
As we are here today to talk about the intersection of energy and sustainability, let me summarize the economic imperative just described. Sustainability requires a balance between economic growth, social development and environmental protection. For energy sources to be sustainable they must be available at a meaningful scale and they must be economically competitive. And to meet the dual challenge discussed earlier they must help reduce emissions.
And where are we today? Today oil, coal, natural gas and nuclear make up nearly 90 percent of the world's energy mix with wood and dung burning making up the majority of the balance. Alternatives and renewables are also in the mix, but from a long-term view of the history of energy use, we are still in very early days. We need to be realistic about many of these alternatives and about the time it will take for true breakthroughs to be discovered, developed and deployed on a scale to be meaningful in the global energy mix.
What does this mean for how we should construct our national energy policies? How do we expand our supplies of energy while reducing emissions and increasing efficiency in a manner consistent with sustainability?
The Role of Government
Governments play an important role in this effort.
First and foremost, governments need to ensure that energy is available to meet growing societal needs. Picking winners and losers in the competitive energy space is counterproductive over the long term. Most experts, including the U.S. Department of Energy, agree that today's primary sources of energy — oil, gas, coal and nuclear — will be important to meeting energy needs for decades to come and likely through this century. Policies must not ignore this fact. History shows that transforming the primary sources of energy is likely a hundred year challenge and energy needs must be met in the interim with available and affordable options.
If we think about the next hundred years, there are some relevant observations that have impact on the policies governments might consider.
In the early decades of this century, improving energy efficiency will be the most effective tool we have to reduce carbon emissions. Many energy efficiency technologies are mature, available and economic. This is the "low hanging fruit." This is where early victories can be won. Estimates are that two thirds of energy demand growth to 2030 can be offset with energy efficiency, avoiding additional carbon emissions. Government can promote energy efficiency, support additional research in the field and encourage more energy efficiency in all segments of society: residential, industrial and transportation.
In our own operations, ExxonMobil has active programs to improve energy efficiency and to reduce flaring of natural gas in our operations. Steps taken in these programs, just since 2005, resulted in reductions in greenhouse gas emissions of more than 7 million tons in 2008, the equivalent of taking about 1.4 million cars off U.S. roads. And we are providing more energy efficient solutions to our customers with energy saving plastics, tire inner liners that help reduce tire weight and keep them better inflated, and lower viscosity lubricants like Mobil 1 Advanced Fuel Economy. To put this in perspective, if one-third of U.S. vehicles used technologies like these, it would translate into a savings of greenhouse gases equivalent to taking about 8 million cars off the road.
Many economists tell us that to encourage efficiency the cost of energy should include a cost for carbon. This would help energy producers and users make rational choices based on total costs to society. The current debate in our own Congress is an effort to do just this.
ExxonMobil’s view is that if a cost of carbon is to be added, a revenue neutral, carbon tax on all energy sources is the most efficient and transparent method. A carbon tax is easy to explain, easy to collect and easy to offset through reductions in other taxes. It provides more certainty to investors, businesses and consumers so that decisions can be made on deploying new energy-saving technology, upgrading existing facilities to more energy efficient designs, and funding research for advanced technologies. Importantly, a well designed carbon tax will impact the entire energy mix throughout the economy in direct proportion to carbon emissions.
The alternative "cap and trade" approach is more costly and more prone to political adjustments that could distort the energy market place. Also important to understand is that under a cap-and-trade approach, the cost of carbon will be determined by traders on a carbon exchange. Carbon trading carries the potential to make carbon costs inherently unstable, resulting in value leakage to the traders away from the intended purpose of investment in energy efficiency. Carbon price volatility adds additional risk to long-term investments and is likely to result in less investment in energy saving technologies.
In order to address the long-term challenge of meeting atmospheric CO2 targets, many energy outlooks see a need for carbon capture and storage to be deployed on a large scale by the middle of the century. A significant portion of stationary power will be provided by coal and natural gas well into this century. This is especially true in the developing nations which will have the highest demand growth of stationary power and where many have massive reserves of coal. Technology exists to capture CO2 and store it deep underground. But demonstration in power generation is needed to complete development. Large, multi-billion dollar demonstration plants integrated with new power station designs must be built to finalize development and demonstrate the technical readiness of the technology. Industry experts call for several such demonstration plants to be built. Governments can help establish consortiums, site demonstration plants and help fund this last stage of technology development. Most importantly, governments need to develop regulatory standards and address liability concerns, associated with transporting and storing large amounts of CO2.
In our own company we are very active in research and commercial activities related to carbon capture and storage. ExxonMobil is a partner in the Sleipner Field in the North Sea, which has captured and stored over 10 million tons of CO2 over the past decade. This is more carbon dioxide than the total number of cars in Norway emit in two years. And we have developed an improved proprietary technology for carbon capture and storage called Controlled Freeze Zone™ and are building a $100 million demonstration plant in Wyoming which will be in operation in 2010.
And finally in the hundred year challenge we get to the question of what's next? What will be the next big contributor to the primary energy mix? The real answer is that we don't know. We do know that this will require fundamental, long range research to identify alternatives. This is an area where all ideas should be encouraged. While we can not demand breakthroughs or count on their timely emergence, we must increase our efforts to discover game changing technologies. We expect breakthroughs will happen, but significant deployment on a large scale will not be before the latter half of this century.
Companies like ours are engaged in this research in our own laboratories and with university partners but frankly it is still the very early days of this research. It will take a dedicated effort over many decades to find new ideas that have the potential to contribute materially to the energy mix. And once the ideas are identified the long and uncertain road for development and deployment on a large scale can begin. Governments can play a role through national laboratories and by providing funding for university research. By creating a stable, long-term policy framework for investment in academic and commercial research efforts, government can be a partner in the long-term “game-changing” innovations we need.
Conclusion
As we look to the future and the potential for even greater technological advances, we can draw important lessons from the technological discoveries of the past. They have consistently shown that we do not need to choose between economic growth and sustainability. We can achieve both — if we choose stable and predictable policies that look to the long-term and that support the search for integrated solutions.
That is why town halls like this one are so important.
With stable government policies, long-term vision, the free exchange of ideas, sustained investment, and the power of human ingenuity, we can meet the twin energy challenges of our time.
American history has proven that we can find integrated solutions that advance all our shared goals and aspirations for growth and environmental stewardship. I am confident that this process will continue. If given the freedom and opportunity, America’s entrepreneurs, workers, and companies will once again find breakthrough technologies that will power our economy to new heights, unleash a new era of prosperity and bring new hope and opportunity around the world.
Thank you.
