How can the United States harness American energy resources and innovation? During today's OnPoint, Eric Schwartz, former co-CEO of Goldman Sachs Asset Management and now chairman of Securing America's Future Energy (SAFE), and Robbie Diamond, president and CEO of SAFE, discuss new recommendations to improve the economy and promote fiscal stability.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today are Eric Schwartz, former Goldman Sachs asset management co-CEO and now chair of Securing America's Future Energy, and Robbie Diamond, president and CEO of SAFE. Thank you both for joining me.
Eric & Robbie: Thank you for having us.
Monica Trauzzi: Eric, SAFE has just released a set of recommendations on how to best harness American energy resources and innovation. What's different about this approach and are you confident that it can all happen in a bipartisan fashion?
Eric Schwartz: I think the most important thing really is the bipartisan nature of the proposals. We don't really suffer, if you want to call it that, or benefit from ideological purity. If you look at our list of proposals, we've got things that are typically supported by people from the right side of the aisle and things that are typically supported by people from the left side of the aisle. What that speaks to is the analytical approach that we take and the objectivity. We just want to solve a problem, help the country solve a problem that will benefit everybody here, and that's about energy and economic security, what will benefit from the list of proposals. We're not really focused on getting help from Democrats or getting help from Republicans, we're just looking to pass a bill that makes sense for everybody.
Monica Trauzzi: Robbie, with the huge focus on the fiscal cliff right now, obviously economy is number one. So then what is the relationship between these energy policy proposals and what they could mean for the economy moving forward?
Robbie Diamond: Clearly people are focused on the fiscal cliff and our fiscal stability, and we believe that they shouldn't forget some of these underlying issues are so important to our economy. It is true that oil dependence might not solve our fiscal problem, but it's also true that there's no way to really have a long term growth proposition unless we actually deal with this problem itself. So dealing with this problem sets up the conditions for the success of our country to solve its fiscal crisis. By that I mean that every recession in the history of the United States has been preceded by or happened currently with an oil price spike, and clearly we cannot just reduce our spending or increase revenue; we need to find the economic growth in order to solve this problem over an extended period of time. And if we continue to see the boom and bust cycles in the grander sense, but even in the last two years where we started to see some economic growth and suddenly oil prices climbed, consumers then didn't have the money to continue to buy things in our consumer based economy, and once again we saw a slowdown. So we think that this is very important, as they deal with the specific revenue and spending issues, to make sure they deal with something like this so that we can have that sustained growth to solve that problem in the long term.
Monica Trauzzi: So, Eric, how do you make the case to Congress to put energy policy at the top of their priority list when there's so much else going on?
Eric Schwartz: Well, it's a really important issue and we're not naïve or ignorant about the issues. There's a long set of policy conundrums that the government has to address, and our issue is one of them. But energy is an incredibly important part of the economy overall, and in fact, the technological revolution in the energy industry is a great development for the country as long as it's harnessed in the appropriate way. And every day that passes where we haven't done that is a missed opportunity. We do have to fight for airtime in some respects, but given the importance of what we're talking about and the desire to avoid the problems that have cropped up for now 40 years because of a lack of energy independence, we think we're going to be able to get that done. Especially given the fact that as we discussed earlier, this really is a bipartisan issue.
Monica Trauzzi: So let's address some of these recommendations, Robbie, the future of fracking regulations will have a huge impact on natural gas supplies and how that all fits into our future energy policy and goals. How involved should individual states be in the review process that's happening right now on fracking?
Robbie Diamond: Yeah, I'd also say that's going to have a big impact on the oil we produce. If you look at the gains in oil production, really, the revolution that we've seen in natural gas has now been extended to oil, and if we see the year on year growth of oil production in the country, it's really due to those technologies as well. And we believe that for that reason it's got to continue, but to continue it's got to be supported by the public in the main. If something happens or they don't feel confident in our ability to do this safely, we'll all end up suffering. We think at the state level is where these regulations are being not only debated but there are states with very strong regulatory approaches that we typically see as our most oil and natural gas friendly states, whether they be Wyoming or Oklahoma or Ohio. And then there are states that are slowly getting into this business. And what we're proposing is that an organization like Stronger, which is well-trusted by the industry and has environmentalists on its board as well, be expanded and strengthened so that they can work on a series of a few more regulatory approaches and have those best practices spread across the country state by state.
Monica Trauzzi: Eric, DOE has been criticized for picking winners and losers in the energy game. What role should incentives play in the future of energy policy and how should the government be subsidizing, if in any way, energy?
Eric Schwartz: Taking a step back from subsidies for a second, we'll get to that in a second, I'll just make the observation that there's a lot of ways in which the federal government can play a role. It's not just in terms of the pure economics that you're referring to. So, for instance, we believe generally speaking in R&D, the technology development is a critical part of all of this. We need to ultimately over time reduce our dependence on oil. Not just foreign oil, but just oil, because so much of our transportation sector is dependent on that. And so for instance we support the federal government spending money in ARPA-E and we think that that should be sustained. Another kind of R&D is the deployment communities that we are suggesting in the book that we are launching with today. Communities where everyone from the local government to the local utility to even car dealerships come together to try to focus the attention on what can be done for alternative fuel vehicles. The notion that some money should be spent on R&D is something that we believe in very, very much, and we think that's just another form of R&D. Some people might choose in a pejorative sense to call that subsidization; that's not the way we look at it. We consider it R&D investment and that's an important part of what the federal government needs to do. I'm a private markets guy. I'm an open markets guy. I believe in the capitalist system. But the problem is that we are dealing in a world of energy where oil, which is the issue here that we're talking about today, is controlled not by the typical free market participants but instead by nation states and nationally controlled oil companies. And since they are not operating in a free market kind of way, the response from the federal government has to be something other than perfectly free market as well.
Monica Trauzzi: Robbie, final question here. EPA air regulations are expected to play a major role in Obama's second term. How will they impact the recommendations you're making and the energy plays we might see over the next few years?
Robbie Diamond: I think it's really important that this not just be a regulatory process but what this country really needs is a bipartisan consensus, a deep, strong consensus, so that energy policy is not subject to the whims of every two years or every four years. So of course the Obama administration will have that opportunity and there are some recommendations that will have an impact and will be involved in that process, but ultimately we do think that both parties have to come together. That production is a bridge for the Democratic party to get some of the incentives and efficiency and alternative vehicles that they have been promoting, and that alternative vehicles and R&D are a bridge to getting the production that Republicans have been promoting. Because unless we're doing all those things, and we start doing them now, five years, 10 years, 20 years from now we'll look back and we'll say, "Geez, I wish we had done that then." So I really think, yes, the regulatory process is important, but we really have to once again come together after a few years, I'd say, of a little less bipartisanship in this area that we'd seen previously and find that again and push forward a strong energy consensus.
Monica Trauzzi: All right, we'll end it right there. Thank you both for coming on the show.
Eric Schwartz: Thanks for having us.
Robbie Diamond: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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