An American Energy Harvest Plan

by Pennsylvania Governor Edward G. Rendell

December 5, 2005

". 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."

- Pennsylvania Governor Edward G. Rendell

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 renewable fuels did not capture the marketplace because they simply cost too much for each kW of electricity and each gallon of fuel 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 kW of wind power now costs the same as a kW 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 and renewable 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 expect 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 renewable 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 profits depend 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 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.

This plan for an American Energy Harvest calls on the federal government to take four common sense steps to change the course that our economy and our nation will take in the next decade.

First, the federal government can use its regulatory and legislative power to require greater reliance on alternative and renewable fuels by our utilities and energy companies. Second, it can use its purchasing power to stimulate private investment in renewable 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 to renewable fuels production. Lastly, it can launch a modern day Manhattan Project by unifying the disparate renewable fuels deployment strategies going on in the states, the private sector and across the vast federal bureaucracy to accelerate the rollout of renewable energy production.

The energy bill passed by Congress in August took some steps in the right direction by increasing the tax incentives for renewable 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 credits for renewables are 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.

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 sulphur 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.

Given the profits to be made in traditional fossil fuels over the short run, government leadership and action is essential to stimulate the capital investments needed to build the plants and scale-based distribution systems for renewable 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 its 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 on line 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 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 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 on line and the fuel produced is good and reliable, the capital markets will not 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 the 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 "Renewable 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 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 bio-fuels. 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 credits 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 this 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 domestic production of renewable fuels by 3.5 million barrels a day and avoid the use of a half a million barrels of 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 economic opportunity. It offers near-term benefits 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 principal 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. It's 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.

This article was a shortened version of a speech from Governor Rendell delivered to the National Press Club on December 1, 2005. It was edited for relevance to the Governor's suggestions at the federal level. For the full speech, including background on what progress towards alternative and renewable energy technologies have been achieved in Pennsylvania and how they relate to the Governor's federal proposal, see the following link.

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