Energy Policy:

Former Shell exec Hofmeister reacts to president's budget proposal

How will the president's budget proposal affect the fossil fuels industry and the economy? During today's OnPoint, former Shell Oil executive John Hofmeister gives his take on the energy items in the president's fiscal 2012 proposal. Hofmeister, now CEO of Citizens for Affordable Energy, explains why he believes a clean energy standard is not an effective policy tool. He also gives an update on the impact of turmoil in the Middle East on energy markets.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Former Shell oil executive John Hofmeister took some time out of his speaking schedule to talk to E&E TV about the president's budget, the conflict in the Middle East, and prospects for a clean energy standard. Here's our conversation. John, the president just released his budget. He's proposing cutting the low-income home energy assistance program, which would stand to lose about $2.5 billion. Can the U.S. continue to provide its citizens with affordable energy without a program like this?

John Hofmeister: Yes, the U.S. can provide affordable energy to its people, if it chooses to. But right now we're on a game plan to make energy more expensive. We're not drilling in the Gulf of Mexico. The Secretary of the Interior has pushed out the five-year leasing plan from 2012 to 2017. We're giving every indication to the oil industry they're not wanted here, so oil production in the United States is likely to decline, not increase. That makes oil more affordable for the very people that need LIHEAP either in winter in the North or in summer in the South. I think the president has a little bit of a political angle in cutting LIHEAP. I think he's using his cut of LIHEAP to bring out all the voices in society that will come to the rescue of people who, as part of the social contract that they have as unemployed, as poor people, as people without the means to afford energy, to remind the Congress that there are some social benefits that ought not to be cut. And I think he's really challenging them to reinstate it.

Monica Trauzzi: And the president has a big focus on clean energy. The DOE budget funds clean energy, nuclear security, and R&D by cutting funding for fossil fuels. Does a repeal of oil company tax breaks have any legs in Congress and could it do damage ultimately when it comes to energy prices?

John Hofmeister: I think the president is playing a very dangerous political game with his own reelection. If he faces $4.50, five dollar gasoline in November of 2012, which I'm predicting is likely to occur, he's putting his reelection at risk by simply focusing on green energy or clean energy as he calls it and not focusing on all energy. The oil that we use every day, 20 million barrels, 10,000 gallons a second, you don't turn that off with a switch. You don't turn that off in the term of a single president who decides he likes clean, not dirty energy. We've been at oil for 100 years. We're going to be at oil for another 50 years. And to pretend, to give a sense to the American people that we're all about clean energy, no, we're not. We're about all forms of energy. And he's the president of all forms of energy. And he will be held accountable for the price of gasoline at the pump when people vote in November 2012. I think it's a serious mistake to treat energy so differentially, so ideologically, because he's really misusing the perceptions of the American people, which are predicated on trust, to think that we can somehow just go clean. We can't go clean. We have no plan and the kind of clean energy he's promoting is not going to be sufficient to do other than raise the costs of energy to every American. We need a holistic plan, one that includes all forms of energy, that incorporates decades of time, not just his interest in this budget in this election cycle.

Monica Trauzzi: And I want to talk a little more about the proposals that we're seeing moving forward on energy. But, as you noted, we've been in the oil business for 100 years. Why should the oil industry continue to receive federal assistance when you're, you know, the industry is doing pretty well on its own?

John Hofmeister: I've testified in Congress on multiple occasions that at a certain oil price, tax relief, tax subsidies are not necessary, are unimportant to the decisions, the business decisions that major oil companies will make about where to expand, where to invest, where to drill. But there do come times when there's a low energy price and we recently, just within the last two years, have seen $30 oil and we've seen $147 oil. Ten years ago we saw $10 oil and we never saw something as high as $40 oil. Now, $40 oil would be considered cheap. So there's a fluctuation, a volatility in the oil price. I've made the argument that with high oil prices I don't see the need for subsidies. But I'm talking from a large oil company, integrated major perspective, where as an integrated major, big companies have multiple choices where to drill. There are smaller, independent companies that I'm not representing, that I didn't work for, that only can make it on the basis of being able to depreciate their costs more rapidly. If they hit a dry hole for example.

Monica Trauzzi: Right.

John Hofmeister: And so I think this has to be looked at in a more sophisticated way than just do or don't have subsidies. There's a lot of different situations out there that have to be thought through.

Monica Trauzzi: One last point on the budget. I know infrastructure is a big thing for you and the president's budget includes a six year, $556 billion reauthorization plan for the nation's infrastructure. Is this a step in the right direction on transportation infrastructure and how can we be sure that that won't increase the deficit?

John Hofmeister: There's going to be some hard choices that Americans are going to have to make. That's not enough for infrastructure. That's just a down payment on infrastructure. There are people out there who are more expert than I who would suggest that the deteriorating state of today's infrastructure warrants far, far more expenditure than that. I think we have to look at use payments. We have to look at some way of paying for it other than just a federal grant through deficit spending, user payments or some other form of raising the revenue. We can't have bridges falling down, gas pipelines exploding, all kinds of other age related and deterioration related infrastructure failings. People die. What's the price of a life? It's incalculable. And so I'm in favor of user fees or some other form of payment. We can't have this deteriorating, rotting infrastructure sustaining the world's largest economy.

Monica Trauzzi: Let's move on to the situation in the Middle East. With the fall of President Mubarak, there's still uncertainty about the future of Egypt, there's uncertainty about other nations, like Iran and Yemen, which are major players in the energy game. So what's the outlook of this volatile situation and how it might impact energy markets and ultimately impact the U.S.?

John Hofmeister: Well, oil, as a commodity, hates insecurity and uncertainty and it hates turmoil even more. So when there is turmoil and insecurity in any part of the world, you see an impact on the crude oil price because of the potential insecurity of not having enough available and oil being stopped for some reason. And that's likely to continue. The Middle East is a harbinger of things to come. I think as the decade wears on and oil use continues to grow worldwide, and a country like the United States refuses to drill its own oil, we only produce a third of our own oil. We import two thirds. It's putting pressure on global supplies. The whole world needs more oil. It's just an absurdity for this country to think it can get by without drilling its own natural resources and believing that clean energy will somehow make up for not drilling our oil with 250 million cars out there, tens of thousands of airplanes, and the pharmaceutical industry and the clothing industry and the petrochemical industry and the fertilizer industry, it all relies on oil. And so the turbulence in the Middle East, I think, should be a provocation, should be a reminder, a wake-up call, hey, America, get serious about taking care of yourself for a change. Quit relying on others to take care of your future.

Monica Trauzzi: All right, and you mentioned it, clean energy. It's the topic du jour here in Washington. But there really isn't a clear definition of what clean energy is. How do you define it? What is clean energy?

John Hofmeister: Well, I think it's really embarrassing that the world's largest economy, the world's oldest democracy, not only has no definition for clean energy, doesn't even have an energy plan and hasn't had an energy plan ever in its history. So, we can call clean energy whatever we want to call it. The president made it up at his State of the Union. He suddenly added clean coal and nuclear to a list, and natural gas, to a list of so-called clean energy. There's nothing clean about natural gas, except that it's not as dirty as oil or as dirty as coal, but it's a hydrocarbon, puts CO2 in the atmosphere, just at a slower rate or lesser rate than other forms of hydrocarbon.

Monica Trauzzi: So, why shouldn't we be going for the better options?

John Hofmeister: Well, we should.

Monica Trauzzi: If oil isn't the best, then why not go for the other ones?

John Hofmeister: Well, there's no question that we should, but there are some applications of oil where natural gas doesn't substitute. We haven't yet figured out what to do with the radioactive waste of nuclear. We've been at nuclear for four decades. We still don't have a plan for dealing with the nuclear waste, how to clean it up, where to put it, what to do with it. Should we reprocess it like the French do or not? We've been at this for 40 years and we don't have an answer. My issue with the elected officials is they need to be held accountable by the electorate for what they are doing or not doing with respect to the whole energy equation, not just get up there and pompously pronounce that there are certain preferred energies and certain unpreferred energies. Because in a democracy like this, if we've got the American people waiting in gas lines because there's not enough gasoline or diesel for their vehicles, what do you think is going to be the most popular energy to the American people at the next election? It's going to be gasoline, because they've got to have gasoline for their cars. And this notion that we can somehow divide and conquer the American people over this form of energy or that form of energy, we need all forms of energy and a plan to migrate from a hydrocarbon-based economy to a future that is less hydrocarbon-based and, ultimately, to a future that is based on earth's natural energy, which includes wind and solar and tidal energy where we could capture it all for free.

Monica Trauzzi: So, will we then see an effective energy policy this year? There's a lot of talk about a clean energy standard, but beyond that, will we see something with substance?

John Hofmeister: I don't think we're going to see any meaningful energy legislation in the next two years. I think that the partisanship that's out there is so grievous, I think it is so dysfunctional that trying to find agreement on something of substance with respect to energy, we're on our eighth president and we're on our 19th Congress that have promised the American people energy independence. Every one of those presidents was a talented person. Every one of those Congresses was well intended. They spoke to the American people they have all failed to deal with the energy future of the country. I predict that this president and this Congress will likewise continue to fail the American people in what's needed in terms of a coherent energy plan for the future.

Monica Trauzzi: We'll end it right there. Thanks for your time today, John.

[End of Audio]

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