Vice President Frederick C. Smith - Energy Capital Solutions Summit - Houston, TX

Remarks as Delivered by Frederick C. Smith
Energy Capital Solutions Summit
Texas A & M University
Houston, TX
Monday, August 18, 2008

Thank you, Congressman Brady.  I compliment you for convening this panel and organizing this event to discuss a critical issue facing our nation.  And I applaud the audience for being here on a Monday morning in August – your presence shows the American public is extremely interested in our country's energy future.

It's an honor to be on a panel with John Hofmeister, Amy Jaffe, Clay Sell, and Stuart Strife.  The problem, however, of speaking fourth out of five on such a distinguished panel is that nearly all my points have already been made.  But I believe they're worth repeating given the importance of this issue.

Ladies and gentlemen, I will not mince words or sugarcoat my message this morning:  America is facing an energy crisis.  With global energy demands rising and competition for affordable, clean energy supplies becoming more intense, we're facing a significant economic and national security challenge in the 21st century.   

Energy fuels our economic competitiveness and supports our quality of life.  It underpins our innovative high-tech economy, our manufacturing base, agricultural sector, and, yes, our courageous military forces.  Energy, and how we produce and use it, will define who we are as a nation for the foreseeable future.         

For too long, our approach to energy has been conflicted, contradictory, and shortsighted.  We embrace the promise of energy efficiency, but are reluctant to make adjustments in our lifestyles.  We expect electricity in our homes and buildings 24/7, yet we oppose construction of new power plants and transmission lines.  We demand more energy and complain about high prices, but restrict energy exploration in our own country.  We're betting on the development of new technologies, but we under-invest in energy research needed to bring it about.

Improving our energy security must be met through the efforts of the private sector, research community, universities, government at all levels, and our society at large. 

To succeed, we must reexamine outdated and entrenched positions, become better informed about energy and the environment, and make judgments based on facts and sound science.  We need to be persistent yet patient, because there are no easy answers.  Solving America's energy problem will require a long-term, strategic vision that may take years, maybe decades, to achieve.  Foremost, we must rise above partisan differences and be united in our efforts, which will require strong political leadership on both sides of the aisle.

The challenges are daunting, but we must remain optimistic.  Last month the Institute for 21st Century Energy published an open letter to the 44th President of the United States and the 111th Congress that lays out a strategic and comprehensive energy policy.  You can read this open letter by going to our website at www.energyxxi.org.  The letter contains 13 pillars, or policy recommendations, and was endorsed by 27 experienced and notable Americans.  The letter has been distributed to the 535 members of Congress, 50 governors, and both presidential campaigns. 

Let me review briefly a few of the letter's policy recommendations.

First, we must promote greater energy efficiency.  The best source of "new" energy is the energy we waste every day, or stated in a more positive way, the best source of "new" energy is the energy we can save every day.  There can be immediate benefits by increasing efficiency in our homes, the appliances we use, in buildings, and in manufacturing.

Let me give you a few quick examples.  When you use a regular incandescent light bulb – I stole this from John Hofmeister's 50-city tour report – only 3 percent of the electricity is turned into light.  The other 97 percent is wasted as heat.  A compact fluorescent light bulb – commonly called a CFL – uses 75 percent less energy than a regular bulb and it can last up to four years.  It's estimated that every year more than $13 billion worth of energy leaks from houses through small holes and cracks.  That's more than $150 per family.  And ENERGY STAR appliances use 10 to 50 percent less energy and water than standard models.  These are easy steps that each of us, as individual, private citizens, can take to increase energy efficiency.

Technology is the cornerstone of any new energy policy.  We must significantly increase funding for research and development.  The United States spends 50 percent less on energy research and development than we did in the 1970s.  We spend less than four billion dollars a year on clean energy R&D, which is less than we spend in three days on imported oil.  The demonstration and application of promising clean technologies must be carried out on an ambitious and cost-effective scale.  Small, tentative steps will not be sufficient. 

We must expand domestic oil and gas production.  If we do this, we will reduce our dependency on foreign oil and gas and the billions of dollars we send abroad each year.  This year, with oil prices averaging around $120 a barrel, we will pay other countries approximately $525 billion – over a half trillion dollars. 

Let me stress that the Institute is not advocating that we "drill our way out of the energy problem," as some people would characterize it.  Rather, this is a common sense proposal that is one part of a broader, comprehensive policy.  To enhance energy security, we must reduce our dependency on foreign sources, and we can begin doing that by exploring for resources here at home.  Personally, I find it embarrassing when the President of the United States asks the King of Saudi Arabia to increase oil production, and is rejected.  We should no longer rule out, therefore, the value of our own proven oil and gas reserves here in the United States.    

We advocate expanding the nuclear power capacity in this country.  Presently, nuclear power provides 20 percent of America's electricity.  Expansion of nuclear power is essential to meet our growing demand while reducing our emissions of CO₂.   

We must increase renewable sources of electricity.  We need a predictable and durable fiscal regime to stimulate new investments in solar, wind, energy-from-waste, and other renewable technologies.  Yes, new technology is critical in the effort to expand renewable energy, but policies to promote development are just as important.  Much of the growth in renewable energy has been inconsistent and intermittent as production tax credits have expired in 2000, 2002, 2004, and are set to expire again at the end of this year.  These short, "boom and bust" cycles have resulted in tremendous inefficiencies in capital formation, production, project finance, and project management. 

We must also transform our transportation sector.  Transportation in the U.S. is 96 percent reliant on petroleum.  Efforts to develop and promote alternative transportation options include second-generation biofuels, plug-in hybrids, and all-electric and possibly hydrogen-powered vehicles.  When gasoline reached $4 a gallon, people started paying more attention to these alternatives.  Car manufacturers are speeding up the development of new technology automobiles, and people started considering different methods of transportation.  Much work can be accomplished in the transportation sector to reduce our consumption of oil and, in particular, reduce our dependency on foreign oil.  

We must address critical shortages of qualified energy professionals.  I should have devoted my entire allotted time this morning to address this issue that is often overlooked by policymakers and the American public, but I know is constantly on the minds of corporate executives.

The energy industry employs well over one million people today, yet nearly half of this workforce is expected to retire in the next 10 years.  At the same time, American universities are graduating fewer and fewer students in science, engineering, and mathematics.  And the majority of those who are graduating from U.S. universities are not U.S. citizens.

Let me focus on one industry in particular.  The likelihood of an expanded role for nuclear energy in the United States and the aging of the existing nuclear power work force are creating a huge shortfall of nuclear engineers.  The American Nuclear Society estimates that 700 nuclear engineers need to graduate per year to support the potential demand.  The ANS, however, expects less than 250 new engineers each year.  To maintain the 20 percent nuclear share over the next 25 years, we need approximately 30-35 new nuclear power plants, and each plant employs, on average, 800 people.  The human resources shortfall is significant.

The same is true in the oil business.  At an energy forum that Amy and I attended in late June, the constant theme – the constant complaint – of oil executives was, "we do not have enough qualified, trained professionals."  We talk about expanding off-shore exploration, but oil companies will tell you they do not have enough people to man additional rigs.  

We need effective education and training programs, incentives, and visa policies that will attract and retain a new generation of human capital in an increasingly technological and globally competitive energy industry. 

Finally, we need to demonstrate global leadership on these challenges.  We live in a global energy market that demands broad-based, global solutions.  This is an opportunity for America to exhibit its best leadership in innovation, technology, and policy initiatives to solve the energy problems.  But global leadership begins by getting our act together at home, and that's why it's so important – why it's critical – that our country enacts a comprehensive, common sense energy policy.   

Ladies and gentlemen, if our national leaders do what we expect them to do, and if the citizens of this nation become engaged, we have the opportunity to change America's energy future.  Our history suggests that in times of national emergencies, our citizens and national leaders rise to the occasion for the national good.  With a challenge this great and urgent, we must put differences aside and come together for a common sense approach to ensure our country has adequate supplies of affordable, clean energy to sustain our economy at home and our strength and leadership abroad.