MEMORANDUM TO: President-elect Barack Obama FROM: Institute for 21st Century Energy U.S. Chamber of Commerce cc: Members of the 111th U.S. Congress RE: A Transition Plan for Securing America’s Energy Future BACKGROUND: For over 40 years, the United States has had an inadequate, contradictory, and shortsighted approach with regard to our energy future. It is time for a strategic change of course. We can no longer ignore the consequences of not having a plan which is bold and comprehensive. Energy is a national security issue, and it is an international security issue of the highest order. Global demand will increase by more than 50 percent between now and 2030 – and perhaps by as much as 30 percent here in the United States. We must develop new, affordable, diverse, and clean sources of energy that will underpin our nation’s economy and keep us strong both at home and abroad. Our energy future must address growing shortfalls in infrastructure capacity and emerging environmental issues. We are at a defining moment for our nation’s energy future and the United States must now undertake a comprehensive and strategic approach to include both long- and short-term actions to address our growing energy challenges. We are in a race against the clock and complacency is our greatest enemy. If we do not take this challenge seriously, America’s economic prosperity, national security, and global standing will be at risk. The status quo is not only not an option, it is a recipe for failure. The volatility of the gas and oil markets of 2008 is proof positive that a call to action is necessary and justified. With the recent sharp drop in oil prices, we should not be lulled into believing that this reflects a fundamental change in our energy fortunes. Consider that within a period of one year, the price of oil went from about $70 per barrel to nearly $150 per barrel before retreating once again to $70 per barrel. Indeed, the fact that such boom and bust cycles have been all too common in energy markets over the past four decades is indicative of the lack of a national energy policy that keeps pace with the rapidly changing dynamics of energy markets and systems. And looking ahead, even the most optimistic among us must conclude that we are not well positioned to anticipate nor prepared to meet tomorrow’s energy needs. Increasing reliance on foreign sources of energy; rising or volatile prices of oil, coal, natural gas, and electricity; restrictions on domestic energy production; tightening capacity margins; aging infrastructure; and energy technology research and development budgets that are well off their 1970s peak reflect long-term trends that have left this nation increasingly vulnerable to energy shocks. Other emerging trends reflecting the new global energy landscape could accelerate the impact of our growing energy insecurity. Energy poverty haunts billions of people worldwide, and many developing countries have made providing modern energy services to their people a priority because they know the positive impact reliable energy has on economic growth and prosperity. The need for new power production is a particular concern. From 2005 to 2030, global electricity demand could rise 90 percent, with a 165 percent rise in developing countries. At the same time as new demand growth is emerging, more and more global energy resources are becoming inaccessible. Resource nationalism is on the rise, state-owned oil companies command a growing share of global reserves, project costs are climbing rapidly, and qualified engineers and skilled workers are becoming increasingly scarce. These trends promise to place tremendous pressure on energy markets. While the urge to “do something” to deal with short term fluctuations in energy markets is understandable, it is ultimately unproductive, and often detrimental to energy security, when actions are taken without a long-term view. What is needed instead is a more strategic and comprehensive approach to address the broad underlying trends in energy markets—some long standing, some only recently emerging—that are and will remain significant challenges unless we muster the will to adopt a sound enduring energy policy. A sluggish economy teetering on, if not in, a recession and the recent crisis in the financial markets makes tackling these challenges all the more pressing, not less so, because at its most fundamental level, energy security is a critical underpinning of a healthy economy. DISCUSSION: The decisions that your Administration and Congress make on energy policy in the next few years will affect us for generations to come, and our future generations deserve the proper far-sighted decisions. The American people are smart. You can count on them to support hard decisions when they are presented with the facts and are told the truth. The stakes are enormous and our competitiveness and security compel common sense action now. To date, the public has not been informed as it should have been, not just with regard to the problems we face, but also with regard to the abundance of solutions which we have at our disposal to create a more balanced and abundant energy spectrum. The Institute for 21st Century Energy (Institute), an affiliate of the U.S. Chamber of Commerce, has identified a path forward for an effective long-term energy policy for your consideration. In July of this year, the Institute issued an Open Letter, signed by a bipartisan group of 27 national leaders, identifying 13 pillars for “Securing America’s Energy Future. ”These pillars bear repeating once again. They include the need to: Aggressively Promote Energy Efficiency; Reduce the Environmental Impact of Energy Consumption and Production; Invest in Climate Science to Guide Energy, Economic, and Environmental Policy; Significantly Increase Research, Development, Demonstration, and Deployment of Advanced Clean Energy Technologies; Immediately Expand Domestic Oil and Gas Exploration and Production; Commit to and Expand Nuclear Energy Use; Commit to the Use of Clean Coal; Increase Renewable Sources of Electricity; Transform Our Transportation Sector; Modernize and Protect U.S. Energy Infrastructure; Address Critical Shortages of Qualified Energy Professionals; Reduce Overly Burdensome Regulations and Opportunities for Frivolous Litigation; and Demonstrate Global Leadership on Energy Security and Climate Change Following the delivery of the Open Letter to your campaign and to Congressional leadership in September 2008, the Institute issued a Blueprint to Secure America’s Energy Future that proposes more than 75 policy actions necessary for an effective long-term energy strategy. Today, we are submitting this detailed plan and suggested schedule for implementing these recommendations. Like an investment portfolio, our energy policy portfolio must be diversified and balanced. Focusing our resources on developing one energy source over another, or failing to establish a bipartisan consensus with regard to the urgency of the moment, does not inspire confidence in our national ability to develop and follow a sound energy policy—we need all sources of energy. Your Administration can break from the practices of the last 40 years and resist efforts to approach energy policy in a piecemeal manner or too concentrated on any single source. To achieve energy security in the long run, our energy markets need to achieve a greater level of flexibility, that is, there must be vigorous competition among a variety of fuels and technologies within and among different sectors. America’s energy challenges did not emerge overnight, and will not be solved overnight, but we must begin immediately to affect solutions to ensure that America's supply of fuel and power is adequate, stable, diverse, and affordable, while protecting national security and continuing to improve the environment. It is a challenge that must be met through the efforts of the private sector, government at all levels, and American society at-large and it will require challenging an old, comfortable orthodoxy. It is incumbent on all policymakers to re-examine hardened positions, become better informed about where our fuel and power come from, and make judgments based on facts, the best science, and shared responsibilities. It goes without saying that the federal government has a significant role to play in energy policy, but this role should be constructive and evenhanded. As tempting as it might seem to anoint the federal government with the sole responsibility of solving the energy dilemma, that urge must be resisted. It is essential that your Administration recognize that private industry and capital markets will ultimately transform the energy landscape. Whenever government tries to pick winners and losers, whether through burdensome regulations, central planning, or open-ended subsidies, it fails, and taxpayers and consumers pay the price. Government’s proper role is to foster an environment where industry and innovation can thrive. The government should provide regulatory certainty and support development of advanced energy technologies, reduce the barriers to their deployment, and provide appropriate incentives for their adoption. It is government’s role to ensure more, not fewer, options are on the table for American consumers and businesses. For too long the federal government has limited energy options for the American public by placing over 80 percent of our domestic oil and natural gas resources off-limits to investment and investing less in clean energy technologies today than we did immediately after the 1970s oil embargo. Such actions are a self-inflicted wound to our security and prosperity. Instead of looking to create ever more restrictions, your Administration and Congress should focus efforts on lifting permanently such restrictions and fashioning a new relationship with the private sector, across the entire energy spectrum, to mobilize the technologies and capital necessary to ensure a secure energy future. Our energy sector also suffers from a lengthy, unpredictable, and needlessly complex regulatory maze that delays, if it does not halt completely, construction of urgently needed new energy infrastructure. Even if we had access to unlimited supplies of renewable biofuels for transportation or wind for electricity, without the ability to deliver these products to customers, we would not be any better off. Siting and permitting roadblocks and “build absolutely nothing anywhere near anything” sentiment have sidelined the construction and expansion of everything from transmission lines to power plants—and the economic activity and high-paying jobs that go with them. Both federal and state governments have a responsibility to streamline these processes so that projects can move ahead. Your Administration and the next Congress have been presented with a ready opportunity to implement policies that get us off the energy roller coaster and onto solid ground. If done right, these new policies can be a potent driver for our nation’s economic recovery, creating new American jobs and new industries. If we collectively -- business and government, family and community -- do not seize this opportunity or waste it through politics as usual, we will do our nation a grave disservice. PLAN FOR ACTION: First, an agenda of this magnitude cannot be undertaken without strong support and coordination from within White House. The existing bureaucratic structure governing energy policy implementation often results in serious delays, and in some cases, complete frustration of the original goal. Responsibility for and oversight of energy development and use spans at least 13 federal agencies and independent regulatory commissions and numerous committees in both the House and the Senate. There is essentially no one in the executive branch charged with arbitrating interagency disputes on energy issues solely from an energy policy perspective or ensuring the actions of the various agencies reflect a concerted and consistent commitment to energy security. The multiplicity of responsibility within such a large number of bureaucratic fiefdoms, coupled with the lack of an energy policy arbiter within the Executive Office of the President, creates the potential for federal goals and policies on energy to be thwarted. This issue must be addressed in a swift and serious manner to lead the country to a more secure energy future. Therefore, we recommend the creation of a new office within the Executive Office of the President, the head of which would be responsible for coordinating the implementation of all aspects of energy policy, both domestic and foreign. We recommend you consider announcing the formation of such an entity during your transition period. Additionally, since energy policy affects and is affected by all economic and national security policy, the head of this new office, as well as the Secretary of Energy should sit on both the National Economic Council, as well as the National Security Council. Many of the recommendations the Institute has proposed can be dealt with administratively and through the policymaking process and many others through the budget and appropriations process. However, to achieve a truly comprehensive and strategic energy policy, we make the following additional recommendation to those already presented in the Blueprint: Within one year, Congress should pass, and the President should sign into law, comprehensive energy legislation that incorporates the sound energy policy recommendations in each of the 13 pillars of the Institute’s Blueprint for Securing America’s Energy Future. This legislation should address promoting energy efficiency across all sectors; increasing and diversifying energy supplies, including oil and gas, coal, nuclear power, and renewable energy; continuing to reduce environmental impacts; and modernizing and protecting energy infrastructure. Thinking comprehensively opens up possibilities and creates the impetus necessary to unify energy stakeholders and policymakers behind a common strategy. The American public expects action and so do America’s businesses. ECONOMIC REALITIES: All public policy discussions that occur in the immediate future obviously must take into account the health of the U.S. economy. However, such consideration must internalize the full macroeconomic effect of any policy proposal, and not just the near term impact on the federal budget. Many of the following recommendations do necessitate significant expenditures of the taxpayers’ money such as doubling federal energy research and development spending within five years. Similarly other recommendations will decrease the tax burden of businesses and individuals who pursue actions that increase the country’s energy security, such as extending tax credits for the purchase of plug-in hybrid vehicles or renewable energy production. These investments by the federal government are wise and necessary down payments on America’s energy future. Without abundant supplies of clean, reliable, and affordable energy and the requisite delivery and distribution infrastructure, our economy will be artificially restrained and will not realize its fullest potential. Energy prices permeate decisions of all businesses in every sector. If energy prices are erratic or artificially high because of near-sighted policy decisions, America’s businesses will produce less output, which in turn results in fewer jobs being created, lower wages, higher costs for goods and services, and a smaller tax base to fund federal programs. At the extreme, businesses will relocate overseas to countries with less burdensome regulation. It is our firm belief that implementation of these recommendations will foster the growth necessary to put the American economy back on track and ensure the competitiveness that supports our global leadership and the prosperity of all Americans. As with any period of economic slowdown, policymakers will be required to weigh tough spending decisions that reflect the country’s priorities. Investment in our economic and energy security must be at the top of that list of priorities, and as such, these recommendations should not be treated as interchangeable. We would be remiss if we did not note that many of these recommendations will directly increase the amount of revenue the government collects. Implementation of policies that enable the production of resources owned by the American taxpayer like natural gas on the Outer Continental Shelf or oil shale on federal lands will result in the direct increase of royalty and bonus payments to the federal government for access to those resources. Additionally, implementing fiscal policies that encourage investment in energy infrastructure will result in economy-wide growth that increases the overall American tax base and in turn, the revenue collected by the government from the taxpayers. As our 44th President you will assume your office at a time in which our nation finds itself at an historic crossroads. Some openly wonder whether the United States reached its zenith as a nation of great influence at the close of the 20th century. Others wonder whether the United States still has the will and capacity to change itself quickly enough to meet the new and more diverse challenges of the 21st century. This election has demonstrated to the world that the United States is far from complacent and has the determination necessary to confront the next century’s greatest challenges. We look forward to assisting you in securing a better energy future for our nation and demonstrating global leadership on this most urgent 21st century challenge.