Diane talks with James Hohmann, national political correspondent for the Washington Post and author of the "Daily 202" newsletter.
Forty years ago, the Arab embargo began a long era of U.S. dependence on foreign oil. And as recently as 2007, experts feared America was running out of natural gas. But the recent fracking boom has made the U.S. the world’s largest energy producer. And in December, North Dakota, Ohio and Pennsylvania together produced 1.5 million barrels of oil a day — more than Iran exported. But as the U.S. moves toward energy independence, environmental advocates warn of dangerous trade-offs on air and water quality, and on climate change. For this month’s Environmental Outlook: Diane and a panel of experts discuss the changing global energy picture.
- Coral Davenport Energy and environment correspondent, National Journal.
- Kevin Book Managing director of research, ClearView Energy Partners.
- David Goldwyn President of Goldwyn Global Strategies and co-editor of "Energy and Security: Strategies for a World in a Transition." He also served as Secretary of State Clinton's Special Envoy for International Affairs and as an Assistant Secretary of Energy in the Clinton Administration.
- Michael Brune Executive director, Sierra Club.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. A boom in natural gas fracking has pushed the U.S. past Russia as the world's top energy producer. America's combined production of oil, natural gas and related fuels is 30 percent higher than a decade ago. With this month's environmental outlook, what a shifting world energy picture could mean for geopolitics, energy independence, and the environment, joining me: David Goldwyn of Goldwyn Global Strategies, Coral Davenport of National Journal magazine, and Kevin Book of ClearView Energy Partners.
MS. DIANE REHMJoining us by phone from San Francisco, Michael Brune of the Sierra Club. I'm sure many of you will want to comment. Give us a call at 800-433-8850. Send your email to email@example.com. Follow us on Facebook or send us a tweet. And welcome to all of you.
MS. CORAL DAVENPORTGood morning. It's great to be here.
MR. KEVIN BOOKMorning.
REHMCoral Davenport, let me start with you in congratulations on your upcoming move to The New York Times.
DAVENPORTThank you so much, Diane. I'm very excited about it.
REHMIndeed. I can imagine. How did the U.S. become the largest producer of energy in such a short time?
DAVENPORTIt really is an amazing turnaround. As you said, as recently as five years ago, there was concern that the U.S. was going to have to start importing natural gas from Russia. The supplies of U.S. natural gas were so low. Prices were so high. This was a real economic and geopolitical concern. The biggest element behind the transformation is a breakthrough in a technology that we know as hydraulic fracturing or fracking.
DAVENPORTThis was -- we had known for decades that there was vast resources of natural gas trapped in shale rock formations underneath North Dakota, underneath Pennsylvania. But it had just been too expensive and difficult to extract. So this breakthrough in hydraulic fracturing, fracking, combined with the high prices and high demand lead to the ability of companies to go through, to penetrate this shale rock formation and unlock all these vast resources of natural gas. As they found in North Dakota, it turned out there was a ton of oil there as well in it.
REHMBy fracking as well?
DAVENPORTFracking as well. The oil and the natural gas tend to be found in the same rock formations. And so when they went down in there in North Dakota, they tapped this vast new resource of oil. And so over the past few years, they've basically been fracking like crazy out in North Dakota, in Pennsylvania, in Louisiana.
DAVENPORTAnd it's just complete -- it's happened so fast, this transformation. As this new supply has come online, all of a sudden, you know, the U.S. has gone from being deeply oil-dependent, starving for natural gas, paying high prices for natural gas to experiencing record-low prices and looking into exporting natural gas.
REHMSo our imports then have gone down precipitously?
DAVENPORTOur imports have gone down over the past few years. In 2005, the U.S. imported 60 percent of its oil. Now that's dropped down. The U.S. only imports 40 percent of its oil. So that's been a huge drop.
REHMAnd, Kevin Book, where do the numbers on energy production come from? Were you surprised?
BOOKDiane, there isn't anybody who covers oil and gas who wasn't surprised, except for the very small number of people who are insiders to the successful fracking revolution. So, yes. Five years ago, the six principal shales that are producing most of the liquids and oil that we have now, they've grown by 2.3 million barrels per day.
BOOKSo if you're looking on an average basis, like in the Eagle Ford in Texas, we're talking about going from 50,000 barrels per day to more than a million barrels per day, so a twentyfold increase. This is something nobody built into their expectations. But, by the same token, this is like bringing desalination technology to Coleridge's "Ancient Mariner." We did, as Coral said, always know it was there. The question was whether the price would be high enough and the technology would work. What we didn't know was that we would also at the same time be reducing our consumption as a nation.
BOOKAnd so the combined effect of efficiency gains and a shift in our transportation patterns has produced a cumulative 4.5 million-barrel net difference, which is enormous.
REHMWhat about Saudi Arabia? What happened there? They were the kings for so long.
BOOKWell, they're still the kings. Without Saudi Arabia, the world market goes upside down, and prices go above 200. It's not even feasible to imagine a world where they're not a critical swing producer. More importantly, Saudi Arabia's supplying Asia. And it's a global oil market. And so with the thirst for oil in the East, Saudi Arabia's a critical player.
REHMAnd to you, David Goldwyn. How has the world energy picture changed? Does it leave the U.S. in a far stronger position?
MR. DAVID GOLDWYNIt potentially leaves the U.S. in a far stronger position? Certainly in the last couple of years, our increased production has enabled us to sustain losses of production in Libya and enabled us to build a coalition to impose sanctions on Iran to take its oil off the market. So we're talking about a couple of million barrels a day which have been removed from the global market. Yet we've tolerated it with reasonable prices.
MR. DAVID GOLDWYNSo the potential here, if we can connect U.S. oil and gas markets to world markets, is that North America can provide the answer to incremental demand. And we have the ability to use energy as a tool of foreign policy to get Japan and Korea and China, countries that are really dependent on Middle East oil, to be more cooperative on foreign policy and to help them bear the burden of what we ask of them, which is to deny those imports from Iran, by connecting to those markets.
REHMSo in effect, are we closer to energy independence? How much closer?
GOLDWYNWell, I would say, in this new book I've got out with "Energy and Security: Strategies for a World in Transition," our thesis is that we have energy self-sufficiency, but what we should be seeking is not energy independence but energy interdependence. We will not be free from the impact of the Middle East on global oil markets until oil is no longer a strategic commodity.
GOLDWYNA disruption there will still affect us. But we are in a position where, in terms of physical supply, we can provide, along with Canada and potentially Mexico, all of the physical supply that we need and production to meet growing demand as well.
REHMAll right. And turning to you, Michael Brune, what is your reaction to this so-called revolutionary period we seem to be going through?
MR. MICHAEL BRUNESo lots of things to say. You know, first, I agree with the three people who have spoken so far about the revolution in shale gas, both in fracking and horizontal drilling, and I think that anybody who looks at the issue -- almost anybody is certainly surprised about it. And we have to acknowledge that achieving energy independence, or even energy interdependence, is a good thing, for human rights, for national security, and for our ability to produce energy here at home.
MR. MICHAEL BRUNEHowever, I shouldn't be the fourth person to speak, and nobody has mentioned climate change. What we should acknowledge is that the production of oil and gas here in the U.S. is undermining our goals to achieve a stabilized climate. The good news here is that we have so far in this conversation been talking about the fossil fuel energy picture. There has been a simultaneous revolution in clean energy.
MR. MICHAEL BRUNEThe price of wind has dropped by 50 percent in the last five years. The price of solar has dropped by 75 percent in that same time period. So what we're seeing is states like Nebraska are now getting to what will soon be at 30 percent of their power coming from wind. Colorado will also be at 30 percent of their power coming from wind and solar. Iowa is already there. They're at 25 percent of their power coming from wind.
MR. MICHAEL BRUNEEven in Texas, 15 percent of their market is coming from wind and solar. So what is happening is there are two revolutions going on. One is to produce a huge amount of fossil fuels, which is decreasing imports but also decreasing exports of fossil fuels. We're actually sending a lot of that gas and a lot of that oil overseas. And then the other revolution is in clean energy, which is the only solution that both achieves energy independence and addresses the climate crisis.
REHMAnd indeed, Coral Davenport, Secretary of State Kerry addressed this issue just last week.
DAVENPORTSecretary of State Kerry has made climate change -- the issue of climate change a top agenda item. And what's interesting -- what's going on at the State Department is a real kind of grappling with, on one hand, we do -- the U.S. does have this vast abundance of new energy supplies, which could indeed be a great diplomatic or geopolitical tool. The U.S. can, as David Goldwyn said, go to other countries and have a much stronger hand in trade negotiations in exchange for U.S. natural gas.
DAVENPORTAnd at the State Department, there's a big bureau, which David used to head, of energy resources, looking at, well, how can we use these new supplies to gain diplomatic and geopolitical influence? On the other hand, the State Department is also engaged in, how can the U.S. be a leader in helping forge a global climate change treaty aimed at reducing greenhouse gas emissions which are produced by burning these fossil fuels?
DAVENPORTSo in many ways, you know, the diplomatic challenge is tremendous. I will say one of the ways in which this energy boom could potentially advance the goal of achieving lower greenhouse gas emissions and achieving a treaty on climate change is the boom in natural gas has helped the U.S. in some ways because natural gas -- it is a fossil fuel, but it produces only half the carbon emissions of coal.
DAVENPORTCoal, for many years, for a century, was the number one source of electricity in the U.S. As the U.S. produces more natural gas and the electricity sector is moving from coal to natural gas, those greenhouse gas emissions are declining. So Secretary Kerry can hopefully use that as part of the global negotiations.
REHMCoral Davenport, she is with National Journal. She'll move to The New York Times where she'll cover energy policy.
REHMAnd welcome back. We're talking about the changing global energy environment and indeed what effects that changing picture is having on climate change. David Goldwyn is here. He's president of Goldwyn Global Strategies and co-editor of "Energy and Security: Strategies for a World in Transition."
REHMHe served as Secretary of State's Hillary Clinton's Special Envoy for International Affairs. Coral Davenport is with National Journal magazine. Kevin Book, managing director of research for ClearView Energy Partners. Joining us by phone from San Francisco, Michael Brune, executive director of the Sierra Club. David, I know you wanted to follow up on some of Coral's comments.
GOLDWYNYes, and Michael's as well. I think that natural gas production in the U.S. can be a win-win, not an either-or. This past year is a good example because we probably had the highest number of installations of wind energy that we've had in a while, but we also reduced greenhouse gas emissions 10 percent by backing out coal for gas.
GOLDWYNAnd, you know, over the long run, we've got to have a shadow price on carbon. We've got to have a carbon tax or enforce the regulations the Obama Administration is trying for to make the substitution of gas for coal. And that will take us down fast. But on a worldwide level where we're dealing with China and India and vastly increasing consumption of coal, the only way we reduce global greenhouse gas emissions is to shift the development path of those countries. And there, it's a matter of price. Coal is cheap. Gas is dear.
GOLDWYNAnd to the extent that we can encourage those countries to produce more of their own gas, that we can export gas, that we can create a more competitive gas market, not having it controlled by one or two suppliers -- Russia, Qatar, who have different interests than we do -- then we can force that substitution of gas for coal without impairing renewables. Renewables will need help. They'll need to continue some of the production subsidies, clean energy standards. It's still an infant industry, but it's not an either-or. We can do both, but for base load electricity, we need gas.
REHMMichael Brune, can we do both and still work toward good efforts at dealing with climate change?
BRUNEYeah, well, doing both is what's happening right now. The question is whether we should. So a couple quick things. First, I wanted to add to Coral's point before. Coral, before the break, said that gas has half the emissions of coal, and that's the statistic that most policymakers have used for the last couple decades.
BRUNEAnd it's at least partly true in that, when you burn gas, it has almost exactly half the emissions of coal. But what we know now, particularly over the last couple years, is that the process of extracting natural gas and then transmitting and distributing natural gas has significant methane emissions, which is a much more potent global warming agent.
BRUNEAnd so, depending on which location where gas is produced and depending on what data you're using, the gap between gas and coal either could be narrowed completely -- there's some data to suggest that gas in some cases could be worse than coal if the methane emissions are uncontrolled -- or at least a lot less better than coal than was previously thought. So...
BRUNEAll of that means that even if we were able to eliminate all of those what are called fugitive methane emissions and we relied on moving from coal to gas, the IEA, the United Nations Independent Energy Administration -- I'm sure I got that acronym wrong -- said that if we move from coal to gas globally, we are locking in a 6-degree increase in temperatures.
BRUNESo globally we cannot do what David was saying. And we have to scale up in a significant way the amount of solar and wind. But the good news is that the price of solar and wind, particularly in the U.S., is not becoming cheaper than gas and cheaper than coal. Austin Energy down in Texas just brought in a huge amount of new wind cheaper than current gas prices and cheaper than coal.
BRUNEXcel Energy in Colorado did the same thing where wind and solar are cheaper than gas and cheaper than coal.
REHMAll right. What about all this, Coral?
DAVENPORTA couple of points to Mike's comments. He's right to point out that there is concern about the potential that...
DAVENPORT...the process, the emission of these methane gases. The study by the University of Texas recently concluded that within the U.S. most fracking operations are not emitting significant methane gases.
REHMBy the University of Texas.
DAVENPORTBy the University of Texas, and it was co-sponsored -- co-funded by both oil companies and by an environmental group, the Environmental Defense Fund. One of the concerns though is that if this technology really goes global in a big way, if we start to see fracking in China, if we start to see fracking in Eastern Europe or in India -- and there's tremendous interest from around the world to take this U.S. technology, harness it, get fracking going globally.
DAVENPORTThe State Department is working with U.S. companies to help promote that abroad. If we start to see that in a big way around the world in countries that aren't going to impose strong regulations -- strong safety regulations, then there is a concern, you know, that the methane emissions could be a bigger part of what goes on with fracking.
BOOKWell, I think that, to the question first of whether or not we should do both, we must do both because in fact the intermittency of wind and solar require back-up power on the grid. Ideally that power comes from natural gas, and the reason why it's ideal is that natural gas plants turn on and turn off relatively quickly. When you have to do what's called cycling a coal plant, you get a nasty cloud of nasty emissions. And you can avoid that in relatively short order by having more gas on the grid to back up the wind and solar.
BOOKThe second point though with regard to the upstream emissions and the overall fugitive emissions profile, I think most would agree that it's a far-from-settled issue, particularly as there are operators in other countries with different standards and practices. But the industry here in the U.S. has been very committed.
BOOKAnd they haven't been doing it on their own. The EPA has a green completion rule requiring the capture of volatile organics from the well head, which also happens to capture methane. So there's a regulation on the books that goes into effect in 2015 which even tightens the existing standards at the well head. So those concerns may not be as serious as they seem.
REHMHow important, Coral Davenport, do you believe the Obama Administration sees climate change to be?
DAVENPORTPresident Obama sees climate change as an issue on which he wants to build his legacy, one of -- an issue that didn't get as much attention as he wanted it to get in his first term. I know from sources inside the White House and people who have talked directly to the president that, during the first term, he wanted to emphasize the issue of climate change more. And a lot of his political advisors said, that's a loser for going back to re-election. You're not going to get it through. This is not something to put your capital into right now.
DAVENPORTIn his final term, this is an issue that the president has personally put on the top of his agenda. We saw that in the way that he spoke about it in his Inaugural Address, in his State of the Union Address. In June, he gave an hour-long speech only about the ways in which he's committed to moving forward on climate change. And what he's done -- and I think one signal that he does take it seriously -- is that it's clear that he's not going to get a climate change through this Congress. You know, this Congress can't even pass the budget. It's, you know, partisan. It's divided.
DAVENPORTAnd so the president has gone back to all of his cabinet heads and said, we are going to find every way we possibly can using executive authority to push through anything we can on climate change. So we're going to use the EPA to move forward on regulations of coal-fired power plants. We're going to, you know, use the State Department to push forward aggressively to get international agreements on cutting emissions wherever we can. We're going to use, you know, the Agriculture Department. We're going to use the Interior Department.
DAVENPORTJust last week, the Treasury Department put out an announcement saying that the U.S. will withdraw support for public financing of coal plants around the world using the U.S. voting strength in institutions like the World Bank. So what they've done is gone to the drawing board and said, any way we can advance this agenda, we're going to.
REHMDavid Goldwyn, what does all this mean for the Keystone Pipeline?
GOLDWYNWell, I think -- and just to add to Coral -- he's also delivered on fuel efficiency standards. And he's doing appliance standards and GHG regulations on new plants, power plants and buildings with a large source of greenhouse gas emissions.
GOLDWYNI think for the Keystone Pipeline, the connection is indirect. The growth in U.S. light oil production means that we are surplus in light oil, but our refinery system was built for heavy oil. And so it will continue to take heavy oil to refine crude in the Gulf Coast, either from Canada or from Mexico or from Saudi Arabia or Venezuela. Those are the major (word?) streams.
REHMSo do you believe that Keystone is going to be approved?
GOLDWYNI believe the Keystone Pipeline is still going to be approved, and for three reasons. One is that the administration is still focused on the incredible amount of disruption we're seeing in North Africa and the Middle East and the potential of a significant disruption hurting the global economy. U.S. economy is real hard to turn down 750,000 barrels of physical supply next door.
GOLDWYNSecond is the science, which is there have been now three studies, two commissioned by the State Department, one commissioned on its own accord by the Department of Energy, all of which have come to the same market conclusion, which is that the Canadian oil sands will be produced whether or not they come through Keystone or not.
GOLDWYNThey will go by rail, by truck. Some of them are now moving east to Canadian refineries. And the Gulf Coast refineries will do what they have done, is refine heavy oil because it's the only economically efficient way to operate. So the proximate emissions caused by the permit of the pipeline are relatively modest. And so that's why those three studies have said that the but for result is that there are no significant emissions.
GOLDWYNBut I think the administration will also be able to extract from Canada a serious commitment to deal with oil and gas emissions in the oil and gas sector in Canada because this is really what this is about. It's not so much what happens here. It's how Canada will deal with its own commitment to reduce its greenhouse gas emissions by 17 percent. So I think they'll get that, and that will allow the administration to permit the pipeline.
REHMBut, Michael Brune, if the U.S. does not need that oil from tar sands, why would the administration go ahead and approve Keystone?
BRUNEWell, I don't think there's any good reason, with respect to the previous guests, why the -- for the administration to approve the pipeline. And I think that the president, when he considers his climate change commitment, won't approve the pipeline. What we know is that this is a pipeline that doesn't go to the United States. It goes through the United States, and most of the oil is likely to be exported.
BRUNEThis is what the refineries are saying in the Gulf, and this is even what Chance Canada has said in their public statement. So this is not an issue where oil from Canada would displace oil from countries in Africa. This is a case where oil from Canada would go through the United States and go to other countries and be exported from the United States.
REHMMichael Brune of the Sierra Club, and you're listening to "The Diane Rehm Show." David Goldwyn, how do you respond to the issues that Michael Brune has raised? Is the administration's policy misguided, not thinking clearly about climate change but trying to have it on both sides?
GOLDWYNI think they are thinking clearly about climate change. And they're looking at the laws of big numbers at the global level where you're talking about a billion, 1.2 billion people without access to electricity, a huge growth in population and urbanization in Asia. There's a huge increase in energy demand. Right now the trend and the cheapest pathway for them is coal. So the Obama Administration is focused on, how can you change that? So that is promoting efficiency. It's promoting renewables where you can. But for base load electricity, it's promoting gas.
GOLDWYNAnd they're doing that through a global climate change agreement. This program that Coral talked about is actually not involving U.S. businesses. It's teaching governments because I started this program which was then the global shale gas initiative, now the Unconventional Gas Technology Program. But it brought EPA and state regulators and commerce together to show countries how to develop it safely and efficiently because that's the only way Secretary Clinton was going to allow it to go forward.
REHMBut this weekend, Coral Davenport, we got some discouraging news on the effect of climate change on our food supply, front page story in Sunday's New York Times.
DAVENPORTThat was a leaked report from the U.S. Intergovernmental Climate Change Panel which actually listed a number of possible effects of climate change going forward. But one of them is that, indeed, we are very likely to see big swaths of arable land no longer able to produce food, at the same time increasing demand for food, so very -- it does look like -- I mean, and that's -- scientists have talked about this for a while. Scientists and economists have said this is one of the ways in which we're going to see a serious economic impact of climate change in the coming decades.
REHMSo, Michael Brune, is the administration doing enough on climate change versus trying to become independent in energy?
BRUNEWell, you know, I think that the administration is doing a lot on climate change. And the president's personal leadership, persistent and continued leadership, has been very important. And everything that all the guests were saying earlier, from the car standards to the coming rules on power plants, is very important. But I think it's also important to acknowledge that in some cases this is an administration that's at war with itself. The administration does not have a supply side strategy for climate change.
BRUNEAnd as they're talking about reducing emissions and reducing consumption of fossil fuels, there's also an intensive push to maximize production of those fossil fuels and send much of it overseas. That does not help. It does not help globally in terms of reducing emissions, and it doesn't help to stimulate clean energy at home.
BRUNEThe final point I'll say -- and I have to correct what David said earlier -- there are more than a billion people around the world who are not connected to the grid. It is not true that coal is the cheapest option. And it's certainly not true that gas is the cheapest option. The most effective way to connect people to the grid around the world is through a decentralized solar grid. It is the cheapest way to do so.
BOOKSo the question of whether or not the U.S. should extraterritorially force its will on developing nations is one that I think, if we want to be successful in our global diplomacy, we have to accept that countries will make their own decisions, just as U.S. states do, to take advantage of the resources they can where they can.
BOOKI think we can, as David has done and as Michael is suggesting, encourage improvements in their technology, their efficiency, but it doesn't make any sense necessarily to say no to coal in another country. As far as here in the U.S., one of the things that I think we shouldn't do is be complacent about our energy. We are a high-price producer of oil and gas -- or of oil certainly right now relative to the world. And our production still is we're net importers still.
REHMKevin Book, he's with ClearView Energy Partners. Short break, your calls when we come back.
REHMAnd welcome back. We're talking about the changing energy supply not only in this country but around the world, how it's affecting not only consumption but distribution. Let's go to Ralph in Kalamazoo, Mich. You're on the air.
RALPHYes. Hello. I had a question about the long-term price for oil. Will it be relatively high, even with these new sources of fracking? Will it be $80 to $100 a barrel? And will the pump price of gas be still relatively high? I'm surprised it's still above $3 a gallon here.
REHMIndeed. Thank you, Ralph, for your call. Kevin Book?
BOOKIt's a big world, Ralph. There's a lot of demand for petroleum everywhere. So the fact that we've become more efficient just means that there's more going to faster growing demand centers overseas. Actually the price is likely to fall a little bit, and particularly locally in the U.S., but it's not necessarily a good thing. The price that we use in the United States, the West Texas Intermediate Benchmark, is significantly lower than the global price of oil, the Brent Benchmark.
BOOKAnd that's because, among other reasons, the oil can't get out in raw form to access the world market. So what you have are refiners buying it when the price falls and making more gasoline. That's actually keeping gasoline prices here very low relative to where they would be if oil prices here were the same as they were in the world.
REHMAll right. To Harvey in Key West, Fla. You're on the air.
HARVEYTwo years ago, the public had never even heard the word fracking. All of a sudden, it's everywhere, and we're all thrilled that we have cheap gas. However, there's pictures of a woman in Pennsylvania turning on her tap water and lights a match. It explodes because of the methane from the fracking near her property.
HARVEYAnd now environmentalists are saying, you know, there's no carbon emission from nuclear plants when one disaster with a nuclear plant would be worth a thousand years of CO2 emission. So, again, the public is getting this happy talk, and we're on a collision course. Either you're going to have a glass of water that you can drink or cheap energy. You can't have both.
REHMThanks, Harvey. And lots of people have written in with that very issue. Several of them want you, Michael Brune, to respond to the issue of fracking and the contamination of ground water.
BRUNEYes. So we have -- you know, earlier, Coral talked about how we're fracking like crazy in places from Pennsylvania to Texas to California and all across the country. And if you ever take a plane trip across the country, you see that that is true, that the county is becoming pockmarked with drilling sites, hundreds of thousands of drilling sites all across the U.S. That comes at a big environmental cost, both in terms of air quality and certainly in terms of water quality, as well as what we've talked about with the climate.
BRUNEWhat I think the challenge is -- and the big energy challenge, if we're to look at it honestly across the country is, do we have to debate between coal versus gas or coal and gas versus nuclear power, as Harvey just talked about in Florida? Or is clean energy really ready for primetime? And can we stop talking about having clean energy at the margins? And can it handle across the country, 25, 40, 50 percent of electricity production in the U.S.? We believe that it can primarily because advances in technology had made clean energy cheaper.
BRUNEThis is why Starbucks is going 100 percent clean energy. It's why Ikea has gone 100 percent clean energy. It's why Warren Buffet made the largest investment in Iowa's history. And his utility in Iowa will soon be at 40 percent of their power coming from wind. We don't think that we need to have a tradeoff between nukes and coal and gas. We think we can transcend dirty fuels and move to clean energy rapidly across the U.S.
REHMCoral Davenport, you talked about how the Obama administration is thinking very, very seriously about climate change. Michael Brune just said clean energy is at the margins. How much effort is the Obama administration and money, I should say, putting behind these other clean sources of energy?
DAVENPORTSo today, renewable sources really are at the margins of the U.S. electricity mix. Wind, solar and geothermal only make about 5 percent of the…
REHMAnd why is that? Is it because the resources have not been put there?
DAVENPORTWell, Michael actually addressed the root of the problem, which is prices in the market. Until very recently, there was no way that sources like wind and solar could be competitive with traditional sources like fossil fuel, like coal and natural gas. So across the country, several states have put in place mandates requiring utilities to purchase wind and solar and other renewable sources. So that's been put in place by state laws. President Obama tried to get a law to take that mandate federal, to make it national, and it failed in Congress.
DAVENPORTSo now what the administration is trying to do is they're using the Interior Department to put wind and solar installations on public lands. That's one way the administration is trying to act without Congress. Another way that the administration is acting is through the Pentagon. The Pentagon is making major purchases of wind and solar on military bases and really trying to amp up its own consumption.
DAVENPORTAnd so we're seeing that, you know, if there can be enough demand for wind and solar through these state mandates, through efforts like the Interior Department, like the Pentagon, can that be enough to change the mix, make the cost lower, create enough demand that utilities would want to buy wind and solar because it's cheaper?
REHMI see. David?
GOLDWYNI'd add to Coral's excellent list an effort by Secretary Moniz at the Energy Department called the Quadrennial Energy Review. And this is the idea of harnessing the Energy Department's research development and deployment resources to resolve the key bottlenecks.
GOLDWYNAnd so two of the top ones on that list are utility scale storage, which would solve the problem of large-scale storage of renewable energy, enabling it to be base load, and the other is carbon sequestration, where previous studies he did at MIT showed you need to prove up commercially-acceptable models for carbon sequestration. Now, that's going to take some time, but we've got to spend that money now.
REHMDavid, I want to move on, ask you about OPEC's reaction to this growing energy independence on the part of the U.S. How is that going to affect balance of power even?
GOLDWYNI think OPEC is in for some serious challenges. Right now, because Iran is significantly off the market, Libya is off the market, Saudi Arabia has filled that gap -- but if they come back on, Saudi Arabia and OPEC will either be looking at a significant crash in prices, with U.S. production forcing prices down to $80, maybe $75. And they're the only country in OPEC that actually invested in new capacity.
GOLDWYNSo those countries have budgets for oil which are $100 in the Northern Gulf, $110. So we're looking at they're either going to have to significantly cut production, or they're going to have to change their economies. This is going to create some instability in the Middle East, and it's going to force some other countries to be more competitive.
GOLDWYNNow, if there's a -- and I think this is when you look at the situation with Iran. If we get a peace deal with Iran, it's a radically different world. So I think that's a big challenge for OPEC. On the other hand, if there's a serious disruption and we are short two, 3 million barrels in the Gulf, then they're probably going to be able to hang on for a lot longer.
BOOKIran's the biggest variable out there right now. And it affects us in two ways. On the one hand, if we work out that peace-breaking-out-all-over, it's a million barrels per day that the world has moved past that can come back to the market, crushing prices. But here's the flip side of that. Again, we're high-priced producers here in the U.S. Our shale production would be significantly curtailed at $65 or $70 a barrel.
BOOKAnd even as the price drops towards the 80s, you start to see a pullback in production. Certainly it would stop new tar sands projects. So when you look at the implications for too much crude in the world, it's going to be a stark question for Saudi Arabia. Do they cut and try to keep price high, or do they flood the market and try to chase us out like they did in the '80s?
BRUNEWell, what Kevin just said is really fascinating. So what he said, to paraphrase, is that cheap oil is, for many producers, their biggest enemy. If we were to have cheap oil because of peace breaking out or for other reasons, then a lot of the shale gas that's being produced can't be produced economically. A lot of the tar sands oil that would be produced can't be produced economically.
BRUNEA lot of the deep sea oil that's being extracted can't be produced economically. So what does that say about the grip that the oil industry has on our economy, that they can only thrive when the price of oil is very high? It doesn't bode well for a U.S. economic recovery. And it's another example for why we need to move beyond oil and shift to clean energy alternatives instead.
REHMKevin, do you want to respond?
BOOKI have admiration for how effectively Michael turned what I said into what he said, but I want to turn it back briefly. We don't use oil by accident. It's not as though we're not looking for better alternatives all the time. We have been for 150 years. It is energy dense, it transports very well over pipelines or rail or any way you want to. It stores at atmospheric pressure. It is for transportation use 95 percent of our energy, and we're working on it. I think you can talk lofty goals of decarbonization and oil displacement, but, practically speaking, it's what moves stuff around.
DAVENPORTI would want to throw one more thing in the mix. Kevin, you know, we talk a lot about the global oil picture going forward. Aren't we going to look in the coming decades of just ravenous demand for oil from China and India as billions of people, you know, start to enter the middle class, become drivers? I mean, what does that do to the picture that you just described?
BOOKThat was our expectation. And one of the questions yet to be answered is whether they can leap frog into higher efficiency vehicles and undercut that stark sounding future.
REHMAnd isn't China the greatest producer of solar panels right now and solar energy? David?
GOLDWYNThey are. They invested a huge amount and created a terrific glut in solar panels, which is terrific. As Michael pointed out earlier, the price has dropped 75 to 80 percent. The challenge for solar energy generally is not the unit cost. It's the system cost. It's that you've got to build it in but have a system that when you deal with the intermittency you've got to pay for that also. But China has huge potential with solar energy, and so does Saudi Arabia.
GOLDWYNWhich burns half of its electricity -- gets half of its electricity from burning oil.
REHMLet's go to Ryan in Houston, Texas. You're on the air.
RYANHi. Thanks for taking my call.
RYANI kind of wanted to address a couple of things. One, the studies have been done, and there is enough renewable energy on the planet right now -- there's enough renewable energy potential on the planet to satisfy all of our electrical energy needs for literally thousands of years off just renewable energy, geothermal, tidal, hydroelectric, wind, solar. Surprisingly, you guys have done a great job being objective considering half your sponsors are energy companies and the PACs, but the point I really wanted to address was demand.
RYANAnd that is that the demand is really already there. It's widespread. There are countries in Europe that are already providing half of their country's energy demand with renewables. The fact is that the demand is there, especially domestically in the United States, but the problem is that we haven't really made an honest effort at these reforms and these investments. They get small numbers comparatively in the budget. And you say you want to depend on the Department of Energy, but the Department of Energy is run by Exxon and Dow and all these big oil, big energy companies.
REHMAll right. Sure. OK. Michael Brune, is there enough renewable energy available right now to deal with this country's energy needs?
BRUNEYes, there is. The question is, how do we get it to where the energy's being consumed, and how do we pay for it? One way to look at this challenge of transitioning from dirty fuels to clean energy is that it's mostly a challenge of financing because, once you install the infrastructure, once you install the wind turbines and put up solar panels on rooftops of buildings and churches and warehouses, the fuel is provided for free.
BRUNESun's going to shine. The wind is going to blow. And so how do we find a way to pay for that, pay for the installation of all of that clean energy infrastructure and then reap the benefits of clean energy being delivered to our doorstep every day for free? The other problem is the incumbent power of fossil fuels and the nuclear power industry. These are industries that -- you know, Kevin was saying earlier, fossil fuels are highly effective.
BRUNEWe've run the economy on it for more than a century. We know that these are highly useful fuels from a technical standpoint, but we know that they contribute enormously to environmental damage around the world. So how do we transition when one industry holds an enormous amount of power and these fledgling industries are trying to grow?
REHMAnd you're listening to "The Diane Rehm Show." David Goldwyn, answer his question.
GOLDWYNWell, I think first I would say there is a lot you can do with terms of financing, like solar leasing, to be able to really propagate solar energy.
REHMDo you agree, however, that the oil companies have the grip here and that these alternative forms of energy have simply not been able to get off the ground the way they should because of the grip of the oil companies?
GOLDWYNNo. I don't think that's the answer. And I would be careful not to conflate oil, which is largely about transportation and gas, coal and nuclear, which are our sources of electricity. The reason that it's been so hard -- although we have made great strides in growing the share of renewable energy -- is price. How much are people willing to pay for their electricity?
GOLDWYNAnd the reason we had so much success backing out of coal for gas is that gas was cost competitive with coal. And when people go to the polls, when they, you know, they vote people into office or they, you know, they make their choices, they resist things like the clean energy standard. Now, some states -- the Northeast has been enlightened, California has been enlightened, Iowa, other places, Texas -- have factored in that energy.
GOLDWYNBut it has to do with what people are willing to pay for electricity and intermittency. And even people contribute (unintelligible) Leon Fuerth, who was Al Gore's national security advisor, Mike Levi of the Council on Foreign Relations, all of them acknowledge that intermittency is a serious issue for the generation of electricity, and gas is the best bridge to that. And I don't think it's the oil companies that are preventing that from happening.
DAVENPORTSo getting to both what Michael and David said, the problem has been infrastructure, cost, creating a market, and in Washington, the thought has been that the solution for that is to use public policy to create a market for renewable electricity. And so, as David said -- I think it's about 26 states -- more than half the states have put in place these state standards mandating that electric utilities purchase a significant percentage of their electricity from wind and solar.
DAVENPORTAnd when you have that mandate and they're required by law to make those purchases, it creates a market. The price goes up, and the idea is that that eventually then -- so the price of the renewables goes down, and eventually, you know, the renewables can stand on their own and be cost competitive with fossil fuels. The problem is that, although that's in place in states, you know, it's not in place at a national level.
REHMKevin Book, last quick word?
BOOKSo I guess if you imagine a world where we were powered by solar panels that were intermittent, wind that would occasionally show up and hydro that could be too much or too little, and you introduced into that world the opportunity to burn coal or natural gas, it would seem like a revolution. There's a lot of hurdles to get to where renewables can play on an even footing, and it's got nothing to do with incumbent oil company power.
REHMKevin Book, Coral Davenport, David Goldwyn, Michael Brune, wonderful discussion. Thank you all so much. And thanks for listening, all. I'm Diane Rehm.
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