A Call to Action

Energy is the pre-eminent strategic issue facing America today. The choices that our nation makes in the production and use of energy create deep and lasting influences on our economy, our position in the world, and on the natural capital that underpins modern civilization.

Making the right energy choices has become crucial. As a result of a convergence of extraordinary geopolitical and environmental circumstances, we are at a moment of both great danger and great opportunity. The conservative ethic of prudence requires us to acknowledge the challenge, and our obligation to be good stewards compels us to act.

Energy is costlier, securing reliable supplies is more uncertain, and the harmful impacts of fossil fuel combustion on the global climate system have become clear. At the same time, new opportunities to deploy cleaner, more secure energy sources and to use all forms of energy more efficiently are coming into focus as tools for promoting economic development, reducing America’s dependence on unstable energy exporting countries, protecting air and water, and reducing climate-altering greenhouse gas emissions.

Developing energy technologies potentially could add millions of jobs and hundreds of billions of dollars in value to the American economy. A growing number of leading corporations, including General Electric, Dow Chemical, Hewlett-Packard, and Wal-Mart, are investing in efficiency and renewable energy to lower their costs, minimize risks, and to tap new markets for cleaner, better performing products.

Both the problems and opportunities are global in scope. The U.S. cannot revamp the global energy economy by itself, but U.S. leadership is indispensable. It is in our nation’s best interest to be a thoughtful and strong energy leader.

Implementing a conservative energy strategy founded on efficiency, sustainability, and resource diversification can best do this.

Success will depend upon the innovative genius and entrepreneurial talent of private enterprise. Markets by themselves, however, are not well suited for protecting national security or managing the global commons of the atmosphere. Helping markets work most effectively on energy solutions will require carefully crafted public policies to underwrite climate science, fund technology research, set standards, offer incentives, and negotiate equitable and effective international agreements to reduce greenhouse gas emissions.

It is our responsibility to build a healthy, safe world for ourselves and for future generations demands action. Success is not guaranteed, but our heritage as an enterprising, problem-solving nation offers great hope that success is likely. Doing nothing is not an option, and here’s why:

Energy Security

Oil is embedded in modern human society. A highly concentrated and portable form of energy, oil has made possible the transport of people and goods across long distances at reasonable cost, permitting the expansion of commerce to scales unimaginable only a century ago. Oil was the foundation of the 20th century’s extraordinary increase in agricultural productivity, and serves as the feedstock for modern medicines and consumer conveniences.

Oil has a dark side, however. The U.S. sits atop only 3 percent of the world’s proven oil reserves. Yet we consume 25 percent of current global production, about 21 million barrels daily. The gap between domestic production (8 percent of the global total) and domestic demand is filled increasingly by imports, which today supply 60 percent of domestic demand.

Global demand for petroleum is growing. Today, world consumption totals 85 million barrels per day. The International Energy Agency projects in its 2006 World Energy Outlook that global demand will reach 100 million barrels daily by 2015. Rising competition for oil, especially from China and India, is adding price pressure to the market and using up surplus production capacity, which increases market volatility.

Much of the world’s production, along with the largest remaining conventional oil reserves, is located in world regions racked by poor governance, chronic instability, and violence. The 2006 edition of BP’s Statistical Review of World Energy estimates that 61 percent of proven conventional oil reserves are held in the Middle East, where Islamic extremists have targeted the U.S. and its allies.

Oil is traded in a global market, which means that the U.S. economy is vulnerable to any event anywhere in the world that causes market instability or price spikes. The global nature of the oil market also means that rising demand puts upward pressure on prices worldwide. That increases the flow of dollars to unfriendly regimes and the terrorist groups that they support.

The share of global oil production centered in the world’s trouble spots will only increase. By 2020, one out of every three barrels of oil exported across international boundaries will originate form Russia, West Africa, and the Persian Gulf—none of which inspire confidence as reliable sources of supply. By 2030, according to the International Energy Agency, the Middle East’s share of world production will exceed 40 percent.

A parallel concern is "peak oil." There is compelling evidence that conventional oil production has or soon will reach a global peak, then begin an inexorable decline. Half the world’s oil supply comes from 120 very large fields, and 95 percent of them are at least 25 years old. For every barrel of oil that has been consumed since 1995, less than half a barrel has been replaced with a new discovery.

While peak oil is still the topic of considerable disagreement among experts, delaying efforts to replace oil until there is incontrovertible proof that peak has been reached would put the economy at severe risk, according to a 2005 study by the National Energy Technology Laboratory.

Climate Change

Even if oil production were dominated by stable and friendly countries, and even if peak oil is decades away, there is still a compelling reason to reduce dependence on oil and other fossil fuels: global warming.

The evidence is clear that fossil fuel combustion is increasing the atmosphere’s carbon dioxide load. The consequence is rising global average temperatures, which in turn increase the risk of costly, damaging spin-off impacts. Prudence demands that we acknowledge the facts and act.

In the first of a series of research summaries released in 2007, the Intergovernmental Panel on Climate Change (IPCC) estimated that the link between human activities and global warming is 90 percent certain. The second report in the series listed numerous probable impacts of a hotter climate: rising sea levels and coastal flooding, greater risk of droughts, melting of glaciers and mountain snowpacks that serve as potable water sources, decreased crop production in the tropics and elsewhere, and increased likelihood of water-borne diseases, to name several.

While developing nations are likely to be most affected by the consequences of a changing climate, the U.S. will not be immune to harm. In a report released in 2007, a panel of retired generals and admirals warned that climate change could be a "threat multiplier" that exacerbates social instabilities that lead to international conflict.

Moreover, time may not be on our side. Climate change does not necessarily mean a steady, relatively manageable increase in global average temperatures. Evidence from paleoclimate studies indicates that in past epochs, the Earth's climate has shifted abruptly in the space of decades. If global warming were to trigger abrupt climate change, impacts could occur at a speed and scale beyond human society’s ability to cope. While scientists cannot say with certainty how much warming could push the atmosphere past a dangerous threshold, prudence dictates that action to stabilize atmospheric greenhouse gas concentrations should begin sooner rather than later.

Stabilizing the atmosphere’s greenhouse gas levels will be an immense task requiring the participation of individuals, communities, businesses, and all nations. America must adopt legislation that creates a national climate policy matching the scale of the problem.

In addition, planning should begin now to prepare for global warming impacts that are already “in the pipeline.” The private sector and all levels of government must plan for adapting to impacts such as coastal flooding, water shortages, soil drying, spread of disease, and increased wildfire danger.

Despite the daunting nature of the challenge, taking it on will create large opportunities in America to reduce energy costs, build new industries, revitalize rural economies, and carry out a constructive foreign policy free from the corrosive influence of petroleum politics.

What must be done and how much would it cost? In the third report of its 2007 series, the IPCC said that atmospheric concentrations of greenhouse gases must be stabilized at 450 parts per million (ppm). Today’s level is approaching 385 ppm. Beyond 450 lies a red zone of dangerous climate instability and severe consequences.

The IPCC report estimated that meeting the stabilization goal would lower the global economy’s annual growth rate less than 0.12 percent each year through 2030. Setting a carbon price of $100 per ton—equivalent to 25 cents per gallon of gasoline—would result in a cost-effective emissions reduction potential equal to 33-63 percent of total 2004 emissions.

Energy efficiency measures make economic sense regardless of their contribution to emissions reductions. A study published by the McKinsey Global Institute in 2007 estimates that 25 percent of the emissions reductions necessary to achieve the 450-ppm goal could be accomplished through energy efficiency measures at no net cost. Thirty percent of projected emissions from building energy use could be eliminated at a profit by 2030, the IPCC report estimates.

The profits are there for the taking, with the right mix of energy and climate policies to boost efficiency and resource diversification. Here is what the federal government must do:

Establish a Market for Carbon Reductions

Energy markets do not communicate, through prices, the costs of oil dependence or of greenhouse gas emissions. The most important step that Congress and the administration must take to reduce oil dependence and lower greenhouse gas emissions is to put a price on those emissions, by establishing a market-friendly "cap-and-trade" system.

Cap-and-trade will provide market certainty and create a favorable investment climate for energy efficiency and for energy technologies that emit few or no greenhouse gas emissions, including renewables and nuclear. In addition, cap-and-trade will create a market driver for investments in carbon capture and sequestration technologies necessary for climate-safe use of America’s large coal reserves.

A carbon tax is the leading alternative to cap-and-trade. A carbon tax would impose an unnecessary burden on the economy, and would not be as effective as a cap-and-trade system in sending the market a price signal. Therefore, Congress should not adopt a carbon tax.

Actions

• Enact the McCain-Lieberman Climate Stewardship and Innovation Act or compromise legislation that draws heavily from it. Because of the scale of greenhouse gas emissions reductions that are necessary, adopting watered-down legislation is not an acceptable alternative.
  
  
• Work constructively with other nations to develop, sign and ratify a follow-on agreement to the Kyoto Protocol requiring all nations to contribute towards stabilization of atmospheric greenhouse gas concentrations at 450 parts per million. Ensure that the agreement includes reforms that will create stable market drivers for large-scale CO2 emissions reductions, minimize misallocations of capital, and prevent fraud.
  

Increase Funding for Energy Research and Development

Reducing oil dependence and stabilizing greenhouse gas concentrations will require scaling up numerous advanced energy technologies. No single technology can serve as a "magic bullet" that will meet the nation's energy goals. A strong research and development program is necessary for moving promising technologies out of the lab and into the marketplace.

Actions

• In line with recommendations from the 2004 report of the National Commission on Energy Policy, substantially increase federal appropriations for energy research and development.
  
  
• Target increased funding towards building and appliance efficiency technologies; solar, wind, and other renewable energy resources; cellulosic ethanol and other biofuels; advanced coal and carbon sequestration technologies; advanced nuclear generation and proliferation-resistant nuclear waste reprocessing; and plug-in hybrid-electric vehicles, advanced batteries, and fuel cells.
  
  
• Maintain high funding priority for high-quality, space-based observations of the oceans, atmosphere, cryosphere, land and wildlife.
  

Strengthen Energy Efficiency Standards and Incentives

Energy efficiency is consistent with conservative values of frugality and stewardship. As the cheapest, cleanest, and most secure energy resource available, efficiency has a strong track record. Thanks to efficiency measures over the past third of a century, America has cut its energy bill by nearly half a trillion dollars. One-fourth of the nation's energy is delivered by efficiency measures adopted since 1973. It’s time to build on that record of success.

Analysis by federal laboratories and others estimates that substantial potential exists for additional cost-effective efficiency gains. For example, the National Commission on Energy Policy estimated that improved efficiency in residential, commercial, and transportation sectors could cut the nation’s energy consumption by 16 percent of today’s level by 2025.

Expanded energy efficiency in the public sector would set a powerful example, reduce burdens on taxpayers, and free up funds for mission-critical activities.

Actions

Expand Transportation Fuels from Renewable Resources

Ethanol is a promising resource for displacing significant quantities of gasoline when combined with plug-in hybrid-electric drive trains. Used to their most efficient advantage, plug-in hybrid-electric vehicles fueled with 85 percent ethanol and 15 percent gasoline could achieve 500 or more miles per gallon of gasoline.

While corn is the leading ethanol feedstock today, it is not ideal as a permanent source of liquid fuels. Even if all corn grown in America were dedicated to ethanol production, it would replace only 20 percent of current gasoline consumption. In addition, turning corn into ethanol consumes large quantities of energy and diverts grain from the food supply. A better long-term ethanol feedstock is cellulosic sources, including crop waste and fast-growing energy crops that have no utility as food sources.

The National Commission on Energy Policy estimated in 2004 that energy crops grown on only 7 percent of U.S. farmland could produce enough ethanol to displace half of current gasoline consumption.

Expanded use of renewable fuels and greater efficiency would be a sound investment in a stronger national defense. Fighter jets, transport aircraft, naval vessels, and ground vehicles are often inefficient and run largely on oil-based fuels. The Air Force alone spends $5 billion per year on fuel. A Pentagon-sponsored study completed this year warned that the rising costs and insecurity of supply could crimp the armed services’ capacity to project power into the world’s trouble spots.

Actions

Expand Electric Power from Renewable Resources

Diversification is a sound conservative strategy for managing investment portfolios, and energy is no exception. Diversifying our electric power system with renewable resources will result in numerous economic benefits, including reduced vulnerability to fuel price and supply risks, economic development opportunities for rural communities, and greater freedom of choice for energy consumers.

There is high potential for expanding use of renewable resources. The Battelle Pacific Northwest National Laboratory has estimated that wind could supply 20 percent of the nation’s electricity without incurring significant additional costs for backup generation. Not all renewables are intermittent like wind or solar energy. A 2007 MIT study found that geothermal energy could supply 100,000 megawatts of secure, cost-competitive baseload electricity by 2050, about 10 percent of today’s capacity.

Many other promising renewable resources could generate significant amounts of power, and make our society less vulnerable to shutdown of large power plants. Solar photovoltaic production is growing rapidly. Others include solar thermal, passive solar, biomass, and ocean wave, tidal, and thermal energy. It’s time to scale up renewable resources.

Actions

Ensure Responsible Use of Natural Gas

Natural gas is a relatively clean fuel for power generation and transportation. Gas can serve as a bridge to a cleaner, more diverse, less carbon-intensive energy economy. Ocean transport of liquefied natural gas has opened new sources of gas as older U.S. fields dwindle.

The U.S., however, must avoid excessive dependence on foreign gas sources, since, like oil, many of the world’s large gas reserves are located in the Middle East and former Soviet Union. Increased domestic gas production in the Intermountain West has come at a steep priceæpolluted water supplies, fragmentation of wildlife habitat, and economic losses suffered by ranchers in “split estate” areas.

With dependence growing on gas-fired power plants, efficiency measures that reduce wasteful electricity consumption also will minimize natural gas waste, prevent overdependence on imported gas, and reduce pressure to open wild lands to intensive energy extraction.

Actions

Keep a Place for Nuclear Energy at the Table

Nuclear energy can deliver large amounts of carbon-free baseload electricity. Nuclear power plants generate one-sixth of America’s electricity, but over the next 30 years, the U.S. could lose a significant portion of its nuclear capacity as older plants are retired and decommissioned. In view of the need to reduce greenhouse gas emissions, uncertainties over the practicality of large-scale carbon sequestration, and the price volatility of natural gas, it is important to maintain a strong place for nuclear in the nation's energy portfolio.

It is in the nation’s interest to develop promising technologies for improving plant security and economics, managing high-level nuclear wastes, and minimizing risks of theft and diversion of fissile materials. Deployment of reprocessing technologies and of fast reactors is a promising approach. It’s important, however, to proceed cautiously, so that cost, technical feasibility, and proliferation risk issues are resolved before widespread deployment begins.

Actions

Clean Up Coal

The United States has large coal reserves. Coal can provide inexpensive baseload power and could serve as an abundant feedstock for liquid fuels. Coal, however, is the most problematic of the fossil fuels. Coal combustion results in emissions of smog-forming compounds, unhealthy particulate matter, and toxic mercury. Coal emits more carbon dioxide than the other fossil fuels. Coal mining in the Appalachians has devastated watersheds, forests, and rural communities. In order for coal to have a future without creating unacceptable impacts, stronger standards must be set to minimize the harmful impacts of mining and using coal.

Actions

Conclusion

America stands at the threshold of both immense risk and opportunity. The risk is that our energy economy has become overdependent on fossil fuels, especially oil, which leaves America’s economy vulnerable to price spikes and supply disruption. Oil dependence entangles our nation in the bloody feuds and treacherous politics of petroleum-exporting regimes. Fossil fuel combustion is altering the climate in ways that likely will result in costly and dangerous consequences, such as rising sea levels, more extreme weather, and threats to food and fresh water supplies.

The opportunity comes from energy efficiency and diversifying our energy choices. Tapping the opportunity will result in greater energy security, lower energy costs, reduced air and water pollution, and growth of new industries producing clean energy from American products, technology, and know-how.

Beyond the practical economic and security benefits, good stewardship is a moral imperative that is central to traditional conservatism. As the great conservative thinker Edmund Burke wrote two centuries ago, society is an intergenerational contract, in which the present generation is responsible for taking good care of today's world for the benefit of future generations. We have the resources and talent to fulfill our end of the contract. What is needed now is the will to marshal our nation's considerable assets, develop a conservative energy strategy for the future, and put it to work today.

"I just have to believe that with love for our natural heritage and a firm resolve to preserve it with wisdom and care, we can and will give the American land to our children, not impaired, but enhanced. And in doing this, we'll honor the great and loving God who gave us this land in the first place."

-- Ronald Reagan

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This paper was written in 2007 by REP Policy Director Jim DIPeso and Government Affairs Director David Jenkins. It combines and replaces two previous policy papers on energy and climate change that were written in 2001 and 2002.