Energy Policy:

Booz & Co.'s Spiegel discusses business opportunities as U.S. makes energy shift

With Congress considering climate and energy packages that could have potentially major impacts on the jobs market, economy and environment, how can businesses prepare for this shift? During today's OnPoint, Eric Spiegel, a senior partner at Booz & Co. and co-author of the book "Energy Shift: Game-Changing Options for Fueling the Future," explains how new regulations will bring lucrative investment opportunities. He explains why he believes it is important that the United States invest in a variety of fossil fuel and alternative energies in order to successfully transition with minimal economic impacts.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Eric Spiegel, a senior partner at Booz & Company. Eric is co-author of the book, "Energy Shift: Game Changing Options for Fueling the Future." Eric, thanks for coming on the show.

Eric Spiegel: Thank you for having me Monica.

Monica Trauzzi: Eric, your book "Energy Shift" targets business leaders as the U.S. transitions to new regulations on climate and energy and there are many potential investment opportunities that you highlight in the book. Is your book basically the blueprint that the Obama administration has laid out for investing in a variety of different energy sources?

Eric Spiegel: Yes, I think a lot of the things the administration is doing are consistent with what we are recommending, essentially going after lots of different options because we don't know which ones are going to pay off the biggest and which ones are going to pay off first. So, if you make too many hard choices you may miss some of the bigger opportunities that come along in terms of research and development and new technology. So we would advocate a lot of the things that they're laying out.

Monica Trauzzi: But there's some risk attached to that as well. I mean we're talking about a lot of money being invested in all these different sectors.

Eric Spiegel: Yes. No, there is some risk and I think there are some easy wins that we could be going after, some of which we're moving forward on in terms of renewables, but other areas which we think have a big pay-off, but little risk. Things like nuclear we're probably not going after as fast as we could.

Monica Trauzzi: So, this energy shift has many moving parts. It seems like if one part breaks it could potentially derail the rest. As an example, if transmission issues aren't addressed then renewables won't be brought online as quickly as they need to be. As a result, utilities might need to use more coal to meet energy demands. So how does the U.S. avoid the potential domino effect that might happen?

Eric Spiegel: Well, I think the key is going to be, as we said a minute ago, to go after as many different technologies as possible, but also to cut through a lot of the red tape, allow companies to invest in the things that make sense, not allow subsidies to drive everything. So putting money into things like transmission that will allow some of the renewables is good, but we also ought to be thinking about other technologies and other sources of energy that are out there like natural gas, which already has an infrastructure in place. The U.S. has found a lot more gas in the last few years. The technology for building gas plants is well-known. We could use that to transition to the future as well.

Monica Trauzzi: Recently T. Boone Pickens canceled his plans to put build the largest wind farm in Texas citing cost and transmission issues. What does that say about the security of the types of investments that you're talking about in the book? And does it sort of add a wrinkle to what you're proposing?

Eric Spiegel: Yes, well, I think we've been saying for a while that renewables are not the answer. They're part of the answer, but actually they're a pretty small part of the answer. They're really not going to put a large dent in the energy problem that we have in the United States and globally. We should move ahead with some of it, but it's largely uneconomic, particularly as energy prices drop. And so what you're seeing is as oil prices and gas prices have come down those things have become uneconomic, they're difficult to finance, and they're being canceled. You know, wind is struggling right now even with the subsidies that the government is putting in place.

Monica Trauzzi: So how much of the success of future technologies depends on the destabilization of the oil market and also oil prices?

Eric Spiegel: I think quite a bit. If you look through history, every time oil prices have spiked we talk about all these alternatives and all these new technologies. Every time the prices come back down we shift back to using oil and gas and things. So I think this time, I think in order to ensure that we continue to invest in the technology is going to be the key to making this transition. Otherwise, I think the OPEC countries are kind of hoping that we go back our old way of doing things. Let's not continue to invest in the new technologies. Oil prices are down. We'll go back to using oil, buying big SUVs, etc., and then five years from now we're going to see the oil prices ramp up again. We're going to be in the same position.

Monica Trauzzi: You talk about many different potential moneymaking opportunities in the book, clean and not so clean, oil, coal, natural gas, renewables. But do businesses have a corporate responsibility to put their money behind cleaner sources of energy?

Eric Spiegel: I think they do to the extent, again, that they're economic. I mean remember, these companies have shareholders. They have to make investments that pay off. They have a bottom line to adhere to. So in areas where there are subsidies I think these companies are going after the ones even if they don't make economic sense on their own. But you also see other big energy companies saying, "Look, let someone else do this. I'm going to invest in the things that are good for my shareholders." So we have a bit of a conundrum and that's why I think the government is going to play a big role. Industry will not make this happen by themselves. We do need some government intervention in the right places.

Monica Trauzzi: The Obama administration is investing a whole lot of money in the FutureGen project, which will try to develop a commercially scalable carbon capture and storage plant. Is that a solid investment or is this an instance where the government is sort of betting on a potential technology?

Eric Spiegel: No, I think it's going to be a great investment. I think we are the Saudi Arabia of coal, so to speak, in the world. We need to find a way to use the coal. If we want to have clean coal carbon capture and sequestration is the only way. It's still a ways off. I think that technology for capturing is coming along, but the storage is going to be very difficult. But I think FutureGen will get us down the learning curve and those kinds of pilots are needed, but that's a longer-term solution in my mind, not a short-term solution. But we have to make the investment. Again, if we don't make the investment now just because oil and gas prices are down, you know, we won't be where we need to be in 10 or 20 years.

Monica Trauzzi: When we're talking about businesses and investment, we can't ignore the importance of allocation of allowances, which will play into a cap-and-trade system. What's your take on how the Waxman-Markey bill handles the distribution of allowances and how might you expect that to change as this goes through the Senate?

Eric Spiegel: Well, I think the Markey bill, in terms of the allocations, is evolutionary not revolutionary. I think a lot of people out there that I talk to in industry are a little bit saying, wow, this is not going to be as bad as I thought, even though they may still be saying the same thing to the public. So I think we're going to quickly have to think about how to ramp that down if we really want to have the kind of impact. One of the primary theses in the book "Energy Shift" is that this energy shift is not taking place fast enough and this bill is a step in the right direction, but it's not nearly as fast as I think we need to be going over the next 20 or 30 years if we want to really reduce the impact from CO2.

Monica Trauzzi: Is it possible to go as fast as you think we need to go in the current economy?

Eric Spiegel: I think the current economy is casting a shadow over doing the things that we probably need to do. I think this bill, as I said, is a step in the right direction, but as soon as the economy has picked back up again I think you're going to see lots more energy demand picking up very quickly, the use of oil, the use of gas, the use of coal. And that's when we're going to have to put tighter constraints on it because the concern is we won't be able to meet these targets in a normal economy.

Monica Trauzzi: Final question here, you stress the need for international policy coordination in the book. The G-8, the UNFCCC have all tried to engage China and India on climate. It's been difficult. So how can the international community more successfully engage these two countries to sign on to an international treaty?

Eric Spiegel: I think engaging them is going to be a must. I think if we don't engage them, first of all, we're going to have a lot of backsliding, which you've already seen in a lot of countries as they continue to build coal plants. I think we need to engage them not only on the regulation, but we need to engage them in the technology side on lots of joint projects. We also need to get them to become more aware of the damage that's being done. I think there's still a little bit of disbelief in some of these countries that the impact is what we suspect it will be. Just like the U.S. has taken a while to come around, it's going to take these developing countries while to come around, but it's imperative. If we don't I think the energy shift is not going to happen.

Monica Trauzzi: OK, we'll end it right there. Thank you for coming on the show.

Eric Spiegel: Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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