An American Energy Harvest Plan: Jobs, Prosperity, Independence
A Speech to the National Press Club
Pennsylvania Governor Edward G. Rendell
December 1, 2005 – In the 1970s, America was abuzz with optimism about the potential for clean renewable energy. Solar, wind, and synthetic fuels captured the imagination of environmentalists and scientists alike. But these alternative fuels did not capture the marketplace because they simply cost too much for each kilowatt and each gallon they produced.
Well, times certainly have changed. Today, the wholesale price of synthetic diesel fuel from coal is half the price of diesel fuel made from a barrel of oil. The wholesale price of natural gas is three times that of a type of coal-based synthetic gas used for industrial production and twice that of coal-based synthetic gas that can heat our homes. A kilowatt of wind power now costs the same as a kilowatt of electricity generated from traditional sources. And, the cost of a gallon of ethanol is within 15 cents of a gallon of gas.
No longer is investing in alternative fuels a fringe idea. In fact, our biggest competitor nation, China, is quickly building synfuel plants to generate fuels from coal and coal waste for transportation as well as industry. The E.U. is already five percent dependent on bio-fuels for their cars and expects to get to 20 percent by 2020. Ireland’s economic renaissance has literally been fueled by wind power. And, Brazil is perhaps the world’s greatest success story. Due to 30 years of hard work, research, and investment, Brazil will not need one drop of imported oil this time next year. If anyone suggests to you that these ideas aren’t ready for prime time and cost too much, they are living in the past.
Three weeks ago, executives of America’s major oil companies testified before the U.S. Senate. One-by-one, spokesmen for ConocoPhillips, BP America and Shell went out of their way to describe the critical role that investments in alternative energy sources will play in the future success of their companies. I venture to say that 30 years ago not one of the world’s largest oil companies would have given credence to these technologies, let alone made investments in them to diversify their fuel sources.
It’s clear that the largest energy companies in the world realize that the only way they can offer a reasonable return to their shareholders in the future is by diversifying their fuel sources. But it is unrealistic to expect that these companies, whose profit depends on fossil fuels, will move fast enough without federal leadership.
Throughout American history, our biggest challenges have been met by just that type of federal leadership. President Roosevelt took charge and provided the resources to create the Manhattan Project and the National Institutes of Health. President Kennedy did the same to take us to the Moon. The atom bomb, the virtual eradication of polio, the Apollo launch — these challenges were surmounted because our federal government united the great minds, found the funds, and put in place the policies necessary to ensure success.
I have written the president today and asked him to take the lead in creating a modern-day Manhattan Project that relies on federal leadership, federal authority, federal purchasing power, and redirected federal spending to turn our energy challenge into an economic and political win for our nation. I call this plan the American Energy Harvest. It is a plan to address some of our nation’s most compelling problems: refilling our energy supply; cleaning our air and waterways and cutting down on greenhouse gas emissions; improving our homeland security, and putting hundreds of thousands of Americans to work. And it is a plan based on the successes that are emerging in our states – the historic laboratories of change in this nation.
First, the federal government can use it’s regulatory and legislative power to require greater reliance on alternative fuels by our utilities and energy companies. Second, it can use it’s purchasing power to stimulate private investment in alternative fuel production and fuel-saving technologies. Third, it can redirect subsidies enacted before the energy companies began making extraordinary profits and allocate those funds instead of alternative fuels production. Lastly, it can launch a modern-day Manhattan Project by unifying the disparate alternative fuels deployment strategies going on in the states, the private sector, and across the vast federal bureaucracy to accelerate the rollout of alternative energy production.
BP and Shell and the other international energy companies are making investments in alternative energy because they have seen the data. And the data is nothing short of startling. First of all, whether we are going to run out of oil anytime soon is not the question. Regardless of who you believe about the size of the worlds remaining oil supplies, at some point in the next 25 or 50 years the price of extracting oil will make it impractical as a major fuel source. I hope the more optimistic scenarios are correct, but even if they are, the time for us to take action is short.
And the same is true for natural gas. You cannot miss the weekly articles detailing the shortage of natural gas. The most telling quote I’ve seen was Owen Kean’s statement in his role as a senior advisor to the American Chemistry Council. He said, “We were fat, dumb, and happy because everybody thought that the supply was never-exhaustible.” The chemical industry, steel companies, and the American family are finding that natural gas prices may soon be beyond their reach. The gas that was selling for $4-per-million BTUs a few years ago is now selling for $11.
The energy bill passed by Congress in August took some steps in the right direction by increasing the tax incentives for alternative fuel development. But at its core, that bill relies on old-fashioned thinking and old-fashioned technologies to do more of the same. The bill provided only $36 million to promote sugarcane-based ethanol – the fuel source enabling Brazil’s energy independence. But this investment is dwarfed by the $1.8 billion provided for research on fossil fuels.
It continues a very troublesome pattern of providing twice as much funding for oil, gas, and nuclear research as we provide for research on clean coal and renewables combined. And the tax credit for renewables is set to expire in just a year or two, which causes widespread uncertainty in the market and discourages investors from making long-term commitments. In fact, this bill demonstrates that that too many of our nation’s leaders are underestimating both the scale of the problem and our ability to solve it. It shows that, as a nation, we have not yet embraced the painful truth that our nation’s future security and prosperity is undermined by our dependence on petroleum and natural gas that originates outside our borders.
What we are doing in Pennsylvania offers a vivid illustration of how our economy, our quality of life, and our security can all be improved by investing in America’s fuels. In 1859, the first successful oil well started pumping in Titusville Pennsylvania. And a short time later Andrew Carnegie staked his claim in coal and used it to build the American steel industry.
Today, Pennsylvania’s companies are sending approximately $30 billion a year outside our state – and in many cases outside our nation — to buy energy. They are doing so because affordable energy alternatives are not readily available at scale. My goal has been to invest in energy development in my state so these companies will once again spend their energy dollars in my state. This goalkeeping our energy dollars at home — ought to drive national policy and national investments as well.
From my first day in office, I began applying the power of state government to break down barriers that have kept promising energy technologies from being deployed on a large scale. In Pennsylvania, I have five tools at my disposal:
- State purchasing power;
- Access to the tax-exempt financing market;
- State funds for targeted investment capital;
- State authority to mandate the use of alternative energy; and
- Leadership -My personal intervention to mobilize other investor commitments. All of these tools are available to the federal government as well. Let me share some examples of how this works in Pennsylvania. Our state is home to one of America’s most extraordinary energy pioneers. John Rich is building the nation’s first waste-coal-to-diesel-fuel plant in Pennsylvania. Once built, this will be the first new refinery in the United States in nearly 30 years.
And it will fill tanker trucks with diesel and jet fuels and generate enough electricity to power more than 40,000 homes. Although with the help of Senators Specter and Santorum this plant received a sizeable federal loan guarantee, John could not get sufficient private investment unless a reliable market could be identified for the products his plant will produce. Understanding that this plant has the potential to be our next Titusville, I agreed to have the state make a 10-year pledge to purchase some of the products of this plant. Of course, that was a win-win: we locked in a below-market price for diesel fuel and he locked in a purchaser.And on top of that, by using the million tons of coal waste spread across my state, this plant will vastly improve Pennsylvania’s environment. After making the states pledge, I reached out to private fuel purchasers and asked them to form a consortium that would pledge to do the same. The result was a commitment to purchase all 40 million gallons per year of the plant’s output for the next 10 years. This enables John Rich to go to Wall Street with firm purchasing agreements. This one energy project will put 600 Pennsylvanians to work and move our nation closer to an energy secure future. Purchasing power and leadership were the key ingredients to getting this done. Beyond what state government purchases for its own use, I am focusing on how we invest our public money. One of the best examples of how we are making strategic energy investments is the $15.6 million in loans and grants for the development of the first windmill blade and turbine manufacturing plants in the nation. Gamesa is a world-renowned Spanish firm that due to our willingness to invest agreed to open a U.S. manufacturing facility — and to open that facility in Pennsylvania. On top of the 600 who will work at the Rich plant, another 1,000 Pennsylvanians are expected to be employed making wind energy possible for America.When it comes to wind, geothermal or solar energy, the resource is basically free, so the economic opportunity lies in the production of the materials or equipment needed to harness the free energy. Wind and solar energy production is now growing 30 percent a year – but most of that growth is happening outside the U.S. borders and that has to change. Our partnership with Gamesa will help ensure that as the wind power industry continues to grow Pennsylvania will grow with it.Pennsylvania is blessed with some of the best farm soil in the nation. As a result one in four jobs in our state is linked to our farm economy. So, it simply makes common sense to use some of our state’s investment capital to stimulate the development and use of biofuels. Again, we needed to plant our state in the center of the fuel source and the fuel manufacturing process to guarantee the highest employment impact. I provided the critical “last dollar in” capital to finance a state-of-the-art biofuels injection facility. Every year, the plant will replace 3.2 million gallons of foreign oil with biodiesel produced from Pennsylvanias soybeans. As a result, our investment cements Pennsylvania’s place as one of the keystones of our bio-fuel economy.Overall since taking office, I have redirected state funds to provide $45 million in strategic investments in our alternative fuels sector. These funds, conservatively, leverage another $200 million in private capital and, as a result, our alternative fuels sector now has almost $250 million of new research and production capacity. If that’s the scale of investment that can be derived from one state, just imagine the implications for a federal investment of existing funds directed toward alternative fuels.
In building new energy infrastructure, I want to be sure we do not replace our dependence on foreign oil by ginning up an aging energy infrastructure that emits dangerous pollution into our air and water. Because Pennsylvania is home to many very old coal-fired electric generating plants we were forced to confront this problem sooner than most parts of the country simply to meet the Clean Air Act requirements. I am grateful for those requirements because in order to meet them we have partnered with our utility companies in a unique way to build a new state of the art clean coal electric generating facilities.
Under this plan, Pennsylvania will leapfrog past the traditional way of reducing emissions, of adding “scrubbers” too old power plants. Instead, I am asking the federal government to give Pennsylvania the power to work with our utilities to close down these dinosaur coal plants and replace them with state-of-the-art coal gasification plants that will be subject to strict limit’s on greenhouse gas emissions and will far surpass federal emissions requirements two years before the final clean air standards go into effect. Earlier this week I announced this plan with an unlikely coalition of partners — large energy firms and unions stood with me, as did utility companies and environmentalists. Clean coal is a sound policy that unites public and private interests.
Another exciting aspect of the approach we are taking in Pennsylvania is that we are employing technologies that make it possible for these agile plants to respond to market conditions. If the supply of electricity is short and there is room in the market, the plants can put electricity into the grid. Should the natural gas market spike the plant can shift some or all of it’s production to supplying synthetic gas. If demand for diesel is higher than supply, the plant can pour the fuel into trucks and get it to industrial users and gas stations.
By working smarter, our nation’s great coal states can offer an environmentally sound way to decrease our reliance on foreign fuels and clean our air. Instead of becoming more dependent on the Middle East for our fuels, we can increase our dependency on Middle America, and that makes sense to me.
We all know that our dependence on oil is primarily fueled by our use of gasoline. America is losing the innovation race when it comes to research and production of conservation technologies – the hybrid car shortage is the most compelling example of how far behind the curve we are. Fortunately, there is plenty of room for new competitors in the conservation sectors, and we need to ensure American companies and American workers reap the hefty rewards of this market.
Amazingly, when I took office there were no real fuel efficiency standards set for the state government fleet. In my first year in office, I got rid of many of our biggest gas-guzzlers and directed our fleet managers to move 25 percent of our fleet to hybrids. For too long, government fleet purchase decisions have been made on the sticker price of the car alone. Now we are selecting cars that offer the most economically competitive package for the cost of the car and the usage of the car over time. I believe every state and the federal government can and should do the same.
Beyond what we purchase, I wanted to be sure Pennsylvania utilities were actively investing in alternative fuel production and environmentally sound energy management. A year ago I signed Pennsylvania’s Alternative Energy Portfolio Standard into law. Our Portfolio Standard took the best from the 20 other states that have such standards and added two improvements. Pennsylvania’s energy companies will be able to meet the mandates we have enacted by investing in conservation and alternative fuel development. Our standard promotes the use of renewables like solar and wind, geothermal, biomass, as well as Pennsylvania’s own waste coal, coal-gasification, and coal-mine methane. Within 15 years, 18 percent of all retail electricity in Pennsylvania will come from these sources. As a result, Pennsylvania now has the largest solar-photovoltaic requirement in the United States and our Portfolio Standard will likely result in nearly 4,000 megawatts of new wind power. Just to provide a sense of scale, 4,000 megawatts of wind energy is equivalent to the average power of one of Pennsylvania’s nuclear power plants.
In contrast to this homegrown strategy, 59 percent of America’s private and public expenditure for oil is spent outside our borders and that percentage is expected to rise to 66 percent by 2015. To make matters worse, the U.S. trade deficit continues to grow and one big reason for the widening trade gap is the rising price of imported oil. Our volume of oil imports grew by about 2 percent last year, but the costs per year swelled 36 percent. In my estimation, we are digging ourselves into a hole and it will get tougher and tougher to climb out if we do not start changing what we are doing today.
To succeed, we need to make significant progress in reducing imports of two commodities: natural gas and petroleum. Right now we spend about $250 billion a year buying these fuels from abroad.
Imports of natural gas can be cut in two ways. First, by generating more electricity using solar and wind energy we will consume less natural gas.
And, we can cut our imports by tapping our coal reserves to produce natural gas. We shied away from this approach for years because of the pollution caused by coal. But we now have clean coal technology and it should be put to use. Plants like those we propose cut mercury emission by 30 percent, particulate emissions by 50 percent and sulfur dioxide emissions by 75 percent. Even more important, by extracting more energy from the same amount of coal, these plants actually reduce carbon dioxide emissions that lead to global warming by a third over conventional coal burning.
To reduce imports of petroleum we need to aggressively invest in plants that produce transportation fuels from our coal reserves. And we have plenty of reserves to tap. Pennsylvania alone has 27 billion tons of coal reserves, and nationally the estimates are as high as 494 billion in reserves. We must cut our petroleum imports by harvesting energy from the crops grown on American soil – there can be no argument about the sustainability of that strategy. Combining crops and clean coal is a big economic win and a big environmental win for this nation.
Some may ask if there are so many possibilities for progress, what is the problem? The issue is speed. Given the profit’s to be made in traditional fossil fuels over the short run, government leadership and action are essential to stimulate the capital investments needed to build the plants and scale-based distribution systems for alternative fuels. The time is now for the federal government to galvanize the best and brightest minds in the public and private sectors to chart the road to energy independence.
Step One: The federal government can and should replicate the actions that I and other governors are taking. Right now the agencies of the federal government spend 10 billion dollars annually to purchase energy. In fact, the U.S. government is the largest single energy purchaser in the nation. From my vantage point, that gives the U.S. taxpayers tremendous leverage in the decisions of energy suppliers. If the taxpayers are assured a competitive price, it makes sense for the federal government to use it’s purchasing power to pledge long-term support to fuel providers who are putting new technologies in place to tap our domestic energy resources. These pledges are critical to attracting the private investment capital necessary to move this sector of our economy to scale.
If we build 50 coal gasification refineries in the next 10 years, each capable of producing 50,000 barrels per day, that’s 2.5 million barrels a day of domestically produced fuel – cutting down our need for these imports. Critical to getting these plants online is the government aligning its purchases with its policies. We can pledge some of the value of our annual federal energy purchase to these new fuels so that we decrease the risk for the critical private investments necessary to build these plants.
Cynics may claim that if the technologies are so promising and are economically viable won’t the market naturally invest without intervention by the government? And they might point to the lack of eager capital as a way to suggest that the technology is not ready or is too expensive. In fact, Wall Street is interested in investing in renewable and other new domestic fuels, but they are skittish about actually doing so because they are not certain there will be buyers. I’ve been to Wall Street and heard this first hand. As we did in Pennsylvania, we must use the power of the federal government as a purchaser and leadership of the federal government to link together other purchasers to close the loop for investors. Once this happens, the capital will flow to these projects and, as a result, dramatically expand our domestic production of clean and renewable fuels. After federal purchasing power helps get several plants online and the fuel produced is good and reliable, the capital markets will no longer need the federal guarantee to invest in building more plants.
Step Two: If the federal government matched or exceeded the Pennsylvania 25 percent hybrid standard for the entire 600,000 plus federal fleet, we could cut our oil imports by more than a million barrels a year. And since that the federal government is the largest single purchaser of cars in the nation – such a move would make a major impact on the demand for hybrids and higher fuel efficiency cars. The result – the cost will drop making these great fuel-saving cars more affordable. Of course, the impact of lowering the price of these cars is that more Americans can buy them and for each hybrid car driven we begin to cut our fuel demand.
If states and the federal government lead the way through their purchases we may get close to the goal of one-third of cars sold relying on hybrid or other very high-efficiency technology by 2015. If that happens, we will save another half-a-million barrels a day.
Step Three: Beyond the power of federal purchasing, the federal government needs to set goals. It should follow the lead of 21 states that have passed laws requiring that all energy companies meet “Alternative Energy Portfolio Standards”. The federal government does not need to spend one dime to make a sweeping impact on how we transition to an energy secure future. One of the good things in the energy bill was a requirement that we increase the production of U.S.-made bio-fuels to almost a half a million barrels per day by 2012. If we double this standard yet again and give producers until 2015 to meet it, 10 years from now we will be producing one million barrels per day of biofuels. And that standard should include a requirement that at least 10,000 megawatts of solar and 100,000 megawatts of wind power are deployed. To support this standard, we should make the existing tax credit permanent and ensure progressive net metering is in place nationwide. The time is long overdue for us to take the energy markets by the horns and drive it in the direction we know we have to go.
Step Four: Like the Apollo mission and the Manhattan Project, we need to unite these efforts if we are serious about accelerating our access to the fuels we all know show great promise. The Energy Policy Act became law only 20 days before Hurricane Katrina hit our shores. Immediately after the storm, prices for natural gas and oil went sky high and so did the profits of most of the nation’s largest energy companies.
According to the Standard and Poors stock index, the 29 major oil and gas firms are expected to earn $96 billion this year, up from $68 billion last year and $43 billion the year before. Given the enormity of these unexpected earnings, we need to rethink the subsidies provided in the energy bill. Our energy companies are flush and their traditional lines of business are swelling their bottom lines. The $2.6 billion for Oil and Gas Production Incentives are certainly no longer necessary. I believe that our nation should acknowledge the unexpected earnings of our energy giants and, as a result, redirect our tax dollars to invest in the research infrastructure that will have the leadership, diligence and single-minded purpose that we know from history can change the path we take to the future. Only this sort of bold national call will guarantee that we put the best and brightest to work to make it possible to shift from imported oil and natural gas to fuels we make right here at home.
If we did all the things I propose, where will it get us? First and foremost, it will get us off the ruinous path we’re on right now. In 1994, we were importing 50 percent of our oil. Ten years later, in 2004, it was 59 percent. The U.S. Energy Information Administration projects will rise to 66 percent 10 years from now.
Common sense tells us that the first thing to do when you’re in a hole is to stop digging.
If we adopt the American Energy Harvest template, instead of imports growing from 59 percent of consumption to 66 percent in the next 10 years, they would fall to 50 percent. Clearly we won’t be done, but we will begin to work our way out the hole. A problem that has been getting worse every year for the last 40 years would start getting better every year.
The stakes are huge. But the benefits of getting it right are even larger. The plan I’ve described enables us to increase the domestic production of alternative fuels by 3.5 million barrels a day and avoid the use of half a million barrels of the day through conservation. The result – based on the current market price at $60 a barrel for oil — is that $87 billion that would have gone overseas to purchase energy will stay right in the U.S. Not only will this plan help us keep more of our oil dollars here at home, it will keep more of our natural gas expenditures here as well. In essence, this plan helps us stop digging the hole – that could otherwise bury us.
The template I have laid out today for an American Energy Harvest offers us the economic opportunity. It offers near-term benefit’s for American consumers by driving down energy costs and the cost of energy-efficient vehicles. And it will slow the hemorrhage of American dollars flowing out of our country to purchase fuel and keep it at home employing American workers. America needs a sound forward-looking energy policy. And it needs federal leadership. The time is ripe. Republican Senator Mel Martinez saw for himself what is happening in Brazil and called it a “real eye-opener.” John Engler, the former Republican Governor of a Michigan and now the President of the National Association of Manufacturers, is calling for a 10-year plan to shift to hydrogen-fueled cars.
The America Energy Harvest will advance our homeland security goals. By decreasing our reliance on repressive nations for our oil, we can take a more active role in urging that these nations adopt democratic values. In fact, America will be more secure when our international relationships are not subject to economic ties that bind us to countries that demonstrate little respect for human rights. This plan changes our path. Increasing our energy independence will make a more secure America and a much more secure world.
It will also result in a more decentralized and therefore secure energy generation system for the nation. We all witnessed the extraordinary havoc wreaked on our energy supply by Hurricanes Katrina and Rita. Our current system of centralized supply is obviously more vulnerable than most of us ever imagined. Our plan uses the power of the federal government to enable homegrown energy sources of all sorts to feed into our power grid. The basic principle of diversification will result in a less centralized power supply that will make our nation more resilient in the face of a terrorist attack or a natural disaster.
This is the plan for the American Energy Harvest, a plan for jobs, security, and prosperity. Its a plan that taps the best of our nation’s entrepreneurial spirit and extracts from our domestic resources the energy we need to fuel our economy and ensure America’s place in the world.
And perhaps the best thing about it is that this plan requires no additional federal dollars. For too long people have come to Washington with unrealistic plans with unachievable price tags. This plan does not. All that is necessary to achieve this energy harvest is the political will of our nation’s leaders.