Energy Policy:

Former DOE Secretary Abraham talks energy bill, nuclear power, oil, ANWR

What are the prospects for an energy bill this year, and what should it contain? Is nuclear power set for a revival? Former Energy Secretary Spencer Abraham joins OnPoint to talk about those issues, plus OPEC and oil prices, Yucca Mountain and drilling in ANWR.

Transcript

Colin Sullivan: Welcome to OnPoint. I'm Colin Sullivan. Today we're joined by the former Energy secretary, Spencer Abraham, and Mary O'Driscoll senior energy reporter for E&E Daily and Greenwire. Thank you for being here today.

Spencer Abraham: Good to be with you, thanks.

Colin Sullivan: A couple days ago we had Senator Bingaman on the show and he talked about the inability of Congress to pass an energy bill the last two Congresses. One of the things he said was the White House and DOE, while you were secretary, didn't really push hard enough for an energy bill. What are your thoughts on, what's your response to that?

Spencer Abraham: Well, I don't think that's correct. I mean we all worked very hard to get the bill passed. There are major issues that separated people and under Senator Bingaman's leadership of the Senate Energy Committee we worked very hard and closely with him. But at the end of the day the Congress has to ultimately bring the votes to the floor and they couldn't. I think now, one of the more compelling issues about an energy bill is that we face ever growing challenges, higher prices. We face greater dependence on foreign oil and I think these circumstances are going to make it possible this year for a bill to pass.

Colin Sullivan: Do you still wish you'd been more actively involved on the Hill for lobbying for that bill in --

Spencer Abraham: No, I don't agree. I mean I think that's been an excuse from some members of Congress for their own inability to get the job done, but the administration and the Department of Energy don't get votes on the Senate floor. Senators do and ultimately it was their job to get the votes and they couldn't quite get to the finish line. I understand there were a lot of areas of disagreement. It was hard to work out. We worked very hard to try to resolve them, but at the end of the day to point fingers somebody else really, I think, is not an accurate depiction. I mean ultimately is the Senate's job to get their own legislation passed.

Mary O'Driscoll: Well not to kind of the beat this into submission or anything, but I covered the Energy Policy Act debate in 1992 as a reporter and back then you had a deputy Energy secretary or an assistant secretary on Capitol Hill at almost all times. Working very visibly, in a very visible way, to get the energy bill passed. You really didn't see that with this in the 2003 debate. So I think that there's, some people are saying that, you know maybe they were doing stuff, but it just wasn't visible. It wasn't a very visible push.

Spencer Abraham: I don't really think that's a, I mean, I think you have a different situation. As you know, the point person for much of the energy legislation has been the vice president and his legislative leadership, the people who work for the vice president, took a very aggressive and active role, both in trying to move a bill out of conference in 2002 and then to try to get the votes in 2003. I was up there a lot. Our deputy secretary was there a lot and frankly, our assistant secretary for legislative affairs was there along with his staff almost constantly.

Mary O'Driscoll: Yeah.

Spencer Abraham: I think we've certainly put, again, I think it's easy to sort of somehow try to point the finger away from the Hill, but at the end of the day, you know the Senate had a job to do and it just didn't have the votes to get it done. Remember too, you had a very evenly divided Senate and I think that was a factor.

Mary O'Driscoll: That was part of it. Well there's, the one big issue that really kept the energy bill from passing was the whole issue of MTBE --

Spencer Abraham: Right.

Mary O'Driscoll: The product liability. Did you try to work --

Spencer Abraham: Yeah.

Mary O'Driscoll: Did you personally put in time to try to get some sort of a deal on that?

Spencer Abraham: Yeah, we talked at great length with both the senators from New England in particular, who were leading that effort on the one side, and with the congressmen from states like Texas --

Mary O'Driscoll: Right.

Spencer Abraham: Who obviously felt very strongly that if we were going to phase out MTBE that there ought to be protections for the industries involved.

Mary O'Driscoll: Right.

Spencer Abraham: I think there were a couple of other factors at play that made it hard. I mean first it was late in the session, the passage of the Medicare prescription drug bill right before the energy bill came to the floor made it a little harder I think from the standpoint of moving another major piece of legislation. And besides, this issue kind of emerged late and I think that maybe hurt it a little bit because it was, you now, kind of at a point when it was hard to kind of work things out at that 11th hour.

Colin Sullivan: What's different this year? How are they going to be able to cut a bill this year on it?

Spencer Abraham: The numbers. The numbers are different.

Colin Sullivan: You've got the speaker of the House and House majority leader on opposite sides of a major energy issue, what do you mean?

Spencer Abraham: But remember, the bill passed the House. It only fell two votes short of overcoming closure in the Senate. We saw, of course, four more Republicans added to the Senate majority. You know it's very hard on a 51-49 or a 50-50 chamber, it's very hard to get consensus, especially on a bill like energy legislation because you not only have partisan differences your regional differences. And you described, earlier in this conversation, the regional differences between Republicans from different parts of the country. So it's not a case of just simply marshaling all of one party on some of these issues. They really split more along sectional lines than they do along partisan lines.

Colin Sullivan: If we can move on to an international energy subject.

Spencer Abraham: Sure.

Colin Sullivan: As Energy secretary one of your jobs was to literally go over to OPEC, Middle Eastern nations and lobby for increasing production. What kind of pull did you feel like you had with OPEC and I mean, what kind of influence did you have over OPEC decisionmaking while you were Energy secretary?

Spencer Abraham: Well first of all, we never lobbied in the sense that I think it's thought of in the city of Washington.

Colin Sullivan: State visits.

Spencer Abraham: I mean we had an ongoing dialogue and I think when, I would say this, I'm very pleased with the success we had in the circumstances where there were serious problems. For instance, in the lead up to the war in Iraq, as you know, there was not only that contemplated, but there was already a strike in Venezuela, civil unrest in Nigeria that had closed down several million barrels of oil production a day. Then we had, on the eve of that war in Iraq, the realization Iraq's supply could also be dramatically reduced or eliminated. I think it was a very strong relationship between the producing and consuming countries, between OPEC and the U.S., OPEC and the International Energy Agency that brought about the kind of significant production increase from OPEC that allowed us to meet the challenge of all three of those events without having to tap the strategic reserves of any of the countries. I regarded that as a great success. If you look back to either the revolution in Iran or the Persian Gulf War you see dramatic increases in oil prices that took place concurrent with those events. You didn't have that happen. In fact the highest price that was attained with about $39. So that was a case of working together, sharing information and, I think, having a very positive result. In terms of the other sort of more normal circumstances, we keep a dialogue, kept a dialogue going on an ongoing basis about what we each thought the future projections of demand would be and that obviously leads to production decisions. We consistently, both then and now, have tried to argue that the best way to let production numbers be set is to let the market be free and not to try to artificially make those determinations.

Mary O'Driscoll: What kind of, keeping on the OPEC issue for a minute, but kind of turning it to ANWR a little bit with the recent Senate vote to support oil and gas exploration in the Arctic. Does that, there's been so much debate over whether that really, domestic production from the Arctic, whether that will really have any effect on U.S. imports on the price of oil or anything like that. But would that have a psychological effect --

Spencer Abraham: Yes.

Mary O'Driscoll: In the U.S. being able to deal with OPEC maybe from a stronger position because the U.S. would have access to those reserves?

Spencer Abraham: I think if this goes to the finish line, it ANWR does in fact become available, it will have a demonstrable effect in two respects. First it says that we're prepared to do the things you have to do to put your country in a stronger energy security position and we have abdicated that. We talked about the failure to pass an energy bill, that and the previous inability to move on ANWR has made a difference. If ANWR had not been vetoed by President Clinton back in 1995 we'd have maybe about a million barrels a day available in the U.S. marketplace, which given the current tight markets would be a huge, huge factor. I think by saying we're now going to go forward, if that does in fact be the outcome, become the outcome, then I think it sends a signal to the world the U.S. is stepping up. I think it maybe not only affects the thinking of the producing companies and OPEC and so on, but it also changes, I think, the mindset here. You know we've gone through a long period in which we have constrained our own domestic production capabilities, both in oil and gas, on different, offshore areas and ANWR and so on. That has, of course, put a real additional point of leverage in the hands of those who supply us. By changing that psychology, as well as by really taking practical steps forward, I think we're moving in the right direction.

Mary O'Driscoll: Well what about this, and I wanted to change it a little bit to the topic of refining because there's been a lot of talk about what role refining plays. Whether there's a bottleneck in the refining sector of the United States.

Spencer Abraham: Right.

Mary O'Driscoll: Yet you don't really see anyone clamoring to build any more refineries because of the unused capacity and it's not a very good business decision if you've got a certain percentage of unused capacity that you're not going to be using.

Spencer Abraham: My impression, I don't claim to be an expert on all of the business issues related to refineries. My impression is that there are low margins in the refinery business, which automatically makes other investments in energy infrastructure or energy development more appealing than refinery investment to begin with. And then you add on top of that the second layer of the regulatory and uncertainty and the sort of unpredictable costs that go with a project like that in an environment like we operate today and it puts, I think, a tremendous hurdle in front of anybody contemplating a new refinery bill. I mean we haven't built one since the 1970s. I think those factors are the really critical ones. It's obviously, in various periods of the year, a factor in high gasoline prices because you know you get to these periods when there's sharp increases in demand as we go into summer or changes in the types of formulates. What does that mean? It usually means the refineries are having a hard time keeping up and then we see the prices go very high.

Colin Sullivan: You don't think the U.S. refining industry has a vested interest in constraining capacity?

Spencer Abraham: I don't think that's what's going on here. I think that you have, as I said, number one, much lower margins in that industry on an, if you look at a long-term basis, obviously, in the peak moment of the year when the demand is greatest, your margin's probably pretty good, but it's not so great if you look back over a longer period of time. So if you've got to make a decision about how you're going to invest your company's money in terms of new developments, new projects you're going to pick the ones that have a higher rate of return and that has not typically been refineries. Secondly, as I said, you also know that you can start down that road and you could run into an impasse because of inability to get permit or meet certain standards. The regulations are unclear in some areas and I think all of that has been a factor as well.

Colin Sullivan: I wanted ask you about Venezuela. Right now we have a situation where the president of Venezuela, Hugo Chavez, is going around the world trying to sell his oil elsewhere. He's cut deals with China, with India, with France and they're the fourth leading supplier of oil to the United States. What do you think the U.S. policy to Hugo Chavez should be? I mean are you concerned that, he's made some threats that he might cut off oil exports to the United States.

Spencer Abraham: Well, yeah, it's hard to imagine --

Colin Sullivan: What do you make of that?

Spencer Abraham: I don't know him personally and I only, obviously, see what he says from time to time and some of it seems more for controversy creating reasons than anything else. Obviously Venezuela is a major supplier to this country, but we have a world market for oil. If Venezuela moves more of its product somewhere else then the people who are currently supplying somewhere else will be available to supply the United States. So I don't think it's possible to have a, for one country to somehow really make that much of an impact given that it's such a large world marketplace, 82 million barrels a day in that market. On the other hand, obviously the Venezuelan government has a lot of interests in America's energy sector. They own the Citgo gas stations. I mean there's a lot of reasons, it would seem to me, from his point of view and his country's best interests not to really break off or try to prevent this kind of commercial flow because there's pluses and minuses on both sides.

Colin Sullivan: So when he says things like, "We have invaded the United States, but with our oil," which he is quoted as saying in a Washington Post article yesterday. Is that, you're just saying that's rhetoric? It's not something --

Spencer Abraham: Well. I'm just saying it's just, I mean, yeah, he can say that. The issue is that he chooses to sell his oil somewhere else, I don't know exactly who'll be selling oil at the Citgo stations, which his companies and government own. But there'll be other sources because wherever he's now selling becomes, whoever's been currently supplying those sources become potential suppliers to us. It's a world marketplace.

Colin Sullivan: Chavez has also been saying that Iran has the right to develop atomic energy. Do you believe that countries like Iran have the right to develop atomic, nuclear power?

Spencer Abraham: Well, I think the question in the current world is this, when you have state sponsors of terrorist groups, is it really in the world's best interests, from a safety point of view, for them to develop, not to have a nuclear power plant necessarily, but to have the capacity to build weapons? And there's a difference between those two things. Having the kind of enrichment capabilities that could lead to weapons development is a whole different thing than supplying some power through a nuclear power plant. Now I think the primary question ought to be why a country as energy rich as Iran needs to have nuclear power, but to many of us, that produces some skepticism as to what their motives are. What we don't want is to see, I think, the kind of situation that happened with North Korea happen again and again. Where a country under the auspices of the Nonproliferation Treaty gets all the assistance and support it needs to develop what seems to be a peaceful use of nuclear power only at the last minute to then switch over and utilize all of those assets to begin enriching uranium or producing components that can be used in weapons. I think we have to really look at the nuclear, the Nonproliferation Treaty in the 21st century in light of the existence of terrorist groups.

Mary O'Driscoll: Let's change the subject a little bit and talk about DOE --

Spencer Abraham: Sure.

Mary O'Driscoll: As the institution of the Department of Energy. It seems to be one of the more opaque agencies I've ever seen in my life. You try to boil down, to get the essence of its mission and it's cleanup of the past mistakes and science. Indeed, the national nuclear security administration takes up 40 percent of the entire department's budget and where's the energy in that? Did that present a real problem in trying to be the administrator of an agency with that kind of profile?

Spencer Abraham: No, no, well it presented a threshold problem because there were a lot of people who weren't quite clear on what the mission of the department was. But I made a speech early in my tenure in which I made it very clear that this is a department, whatever its name might be, who's central mission is national security. Every single component of what the department does is critical to our nation's long-term security. The energy security issues that we worked on in the areas of international energy development and the technology programs are imperative. If we don't have energy security America's national security is weakened. Clearly the NNSA issue referenced a national nuclear security administration which maintains the nuclear stockpile and our nonproliferation programs are obviously areas of the department that work on national security. The science labs, a three plus billion-dollar program, is designed to keep America first in the world in terms of science research and science capabilities. Without that America's national security is challenged.

Mary O'Driscoll: Shouldn't it just be the department of security? Well, we already have a Homeland Security Department. Why not science or researchers something? I mean the energy really seems to get lost in the mix.

Spencer Abraham: It is, as I tell people, probably a department whose name could be broader but what's important is not what it's called but what it does and if it does it well. I think we've made great strides over the last four years in terms of defining the mission and in carrying it out more effectively.

Mary O'Driscoll: Right after you were elected to the Senate, back in 1994, you called for the abolition of the Energy Department.

Spencer Abraham: Yeah --

Mary O'Driscoll: Do you still --

Spencer Abraham: I did it even beyond that.

Mary O'Driscoll: I mean that was so, you came in, you went into public life in Washington, D.C., calling for the abolition of the Energy Department.

Spencer Abraham: Yeah, well, it was an early position I took, you're right and --

Mary O'Driscoll: Do you still feel that way?

Spencer Abraham: Well, this is actually an issue that was the first question, you might imagine, in my confirmation hearing.

Mary O'Driscoll: Right.

Spencer Abraham: And I was able to point out that my views had changed. In part it changed because of the NNSA Act in 2000, which reorganized and restructured the department in a way that I think gives it a lot more coherence than had previously existed. I think that that was a good step forward. It helped, I think, convince me and others that now things were better organized at the department and I think we've made great strides the last four years and even putting, as I said, more focus on the mission and its execution. But my position was changed before I did my hearings and I was happy to point that out. I told people, you know, you grow in office, your views change over time and that was the case for me.

Colin Sullivan: And now that you've been in it, Energy secretary, you're not going back to the position from before you got the job?

Spencer Abraham: No, actually I think the department's role is going to really emerge even more profoundly in the 21st century. I think, you know if you look any of the trends and projections of trends on energy demand in the world, it's incredible. I mean, the kind of global growth we're going to see. The huge movement of people from, into the middle class worldwide. The fact that huge parts of the planet are still lacking electricity, but are going to attain it, is going to put a stress on all the sources of energy that we've never seen before. It means therefore that you really do need a department that places a huge emphasis on the development of transformational technologies, energy efficiency, the use of existing technologies and energy sources better and wiser. So I think this department's best days are ahead.

Colin Sullivan: I'd like to ask you, an issue near and dear to you, being from Michigan, being a former senator from Michigan, the U.S. auto industry is in a position now, they're at a competitive disadvantage when it comes to energy efficient car market, hybrid fuels cell cars. Japanese automakers seem to be in a position to profit more readily, more quickly than U.S. auto manufacturers. Do you think the federal government has done a good enough job to encourage the U.S. auto industry to manufacture those kinds of cars?

Spencer Abraham: Well I think the investments we've made on the technology side have been wise and I see them growing. I think there's a real consensus developing and it's not just in America. For instance, that a hydrogen fuel-cell vehicle is a long-term goal, the right direction. And we've, as you know, under the president's hydrogen initiative put a very substantial initial investment into hydrogen vehicles. We also put a lot of technology investment into other things such as hybrids and diesel and other new vehicle technologies. So I think that there, and we have stepped that a very substantially over the last few years. Now look, these are big companies with their own commercialization decisions that will have to adjust to market demand. That's how they have been successful and ultimately they have that, they have to decide what the market wants and I think they will adjust. If their competitors are gaining ground in areas that the public is demanding then it's going to be, the private sector response should be to compete in those markets better.

Mary O'Driscoll: Since you left DOE you've made a lot of speeches about the need for more nuclear energy. Yet the nuclear power industry gets the Price Anderson insurance assistance, they get a half billion dollars in funding from DOE each year for advanced technologies and advanced programs. They get the full force of the administration to try to build the Yucca Mountain Nuclear Waste Repository, which could be an entire show on its own --

Spencer Abraham: Yeah, it could.

Mary O'Driscoll: What more could the industry ever want?

Spencer Abraham: A lot more obviously needs to happen here. I mean we haven't built a nuclear power plant in the country since the late 1970s. As I've said, in the speeches you referenced, if you look ahead, if our goal is to meet this gigantic increase in energy demand, 25 percent in Third World and developing countries and 50 percent or more in industrialized countries over the next 20 years, it is impossible, in my judgment, to meet that demand and meet what I think will be a growing concern about emissions from conventional fossil fuel power generation without nuclear playing a big role. It's time to come, I think for people to come to grips with that. The question is how do you get that started? Some of the things I think are needed are, here in the United States at least, is some, at least initial assistance to meet very high first time costs that will be involved in developing the new generation of reactor builds in America. The first time costs are gigantic. Once they're wrung out, after a few units, then I think you'll see the price of a new nuclear plant competitive with coal or gas-fired generation. We need more certainty in the regulatory process. No one's going to finance the building of a, I don't care what Washington does, no one's going to put risk capital at stake to build a new nuclear plant if the possibility exists that dramatic regulatory changes or rules changes or legal changes are gonna, perhaps, prevent that plant from ever opening. So we have to bring regulatory certainty to the mix as well.

Colin Sullivan: Well, we're out of time. We could keep talking about all this stuff, there's plenty to talk about.

Spencer Abraham: Thank you.

Colin Sullivan: Secretary Abraham thank you for joining us today.

Spencer Abraham: My pleasure.

Mary O'Driscoll: And Mary O'Driscoll. Join us tomorrow for another edition of OnPoint. Until then, I'm Colin Sullivan for E&ETV.

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