[Senate Hearing 113-623]
[From the U.S. Government Publishing Office]
S. Hrg. 113-623
U.S. SECURITY IMPLICATIONS OF INTERNATIONAL
ENERGY AND CLIMATE POLICIES AND ISSUES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL
DEVELOPMENT AND FOREIGN ASSISTANCE,
ECONOMIC AFFAIRS, INTERNATIONAL
ENVIRONMENTAL PROTECTION,
AND PEACE CORPS
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JULY 22, 2014
__________
Printed for the use of the Committee on Foreign Relations
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COMMITTEE ON FOREIGN RELATIONS
ROBERT MENENDEZ, New Jersey, Chairman
BARBARA BOXER, California BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho
JEANNE SHAHEEN, New Hampshire MARCO RUBIO, Florida
CHRISTOPHER A. COONS, Delaware RON JOHNSON, Wisconsin
RICHARD J. DURBIN, Illinois JEFF FLAKE, Arizona
TOM UDALL, New Mexico JOHN McCAIN, Arizona
CHRISTOPHER MURPHY, Connecticut JOHN BARRASSO, Wyoming
TIM KAINE, Virginia RAND PAUL, Kentucky
EDWARD J. MARKEY, Massachusetts
Daniel E. O'Brien, Staff Director
Lester E. Munson III, Republican Staff Director
------------
SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT
AND FOREIGN ASSISTANCE, ECONOMIC AFFAIRS,
INTERNATIONAL ENVIRONMENTAL PROTECTION,
AND PEACE CORPS
EDWARD J. MARKEY, Massachusetts, Chairman
TOM UDALL, New Mexico JOHN BARRASSO, Wyoming
CHRISTOPHER A. COONS, Delaware JAMES E. RISCH, Idaho
CHRISTOPHER MURPHY, Connecticut JEFF FLAKE, Arizona
TIM KAINE, Virginia RAND PAUL, Kentucky
(ii)
C O N T E N T S
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Page
Barrasso, Hon. John, U.S. Senator from Wyoming, opening statement 2
Breen, Michael, executive director, Truman National Security
Project & Center for National Policy, Washington, DC........... 42
Prepared statement........................................... 43
Response to question submitted for the record by Senator
Edward J. Markey........................................... 82
Chiu, Daniel Y., Deputy Assistant Secretary of Defense for
Strategy and Force Development, U.S. Department of Defense,
Washington, DC................................................. 4
Prepared statement........................................... 6
Responses to questions submitted for the record by Senator
Edward J. Markey........................................... 75
Goldwyn, David L., nonresident senior fellow, Energy Security
Initiative at the Brookings Institution, Washington, DC........ 35
Prepared statement........................................... 37
Hochstein, Amos J., Deputy Assistant Secretary of State for
Energy Diplomacy, U.S. Department of State, Washington, DC..... 11
Prepared statement........................................... 13
Responses to questions submitted for the record by Senator
Edward J. Markey........................................... 73
Responses to questions submitted for the record by Senator
John Barrasso.............................................. 87
Hutzler, Mary, distinguished senior fellow, Institute for Energy
Research, Berlin, MD........................................... 46
Prepared statement........................................... 48
Responses to questions submitted for the record by Senator
Edward J. Markey........................................... 77
Markey, Hon. Edward J., U.S. Senator from Massachusetts, opening
statement...................................................... 1
Postel, Eric G., Assistant Administrator for the Bureau of
Economic Growth, Education and Enviroment, U.S. Agency for
International Development, Washington, DC...................... 16
Prepared statement........................................... 18
Responses to questions submitted for the record by Senator
Edward J. Markey........................................... 83
Responses to questions submitted for the record by Senator
John Barrasso.............................................. 88
Titley, RADM David W., USN (ret.), member, CNA Military Advisory
Board, and director, Center for Solutions to Weather and
Climate Risk, the Pennsylvania State University, Arlington, VA. 29
Prepared statement........................................... 31
Responses to questions submitted for the record by Senator
Edward J. Markey........................................... 76
Additional Material Submitted for the Record
Prepared statement of Hon. James M. Inhofe, U.S. Senator from
Oklahoma....................................................... 72
Study by Jeff Kueter, President of The George Marshall Institute,
submitted by Senator John Barrasso............................. 91
(iii)
U.S. SECURITY IMPLICATIONS OF INTERNATIONAL ENERGY AND CLIMATE POLICIES
AND ISSUES
----------
TUESDAY, JULY 22, 2014
U.S. Senate, Subcommittee on International
Development and Foreign Assistance, Economic
Affairs, International Environmental
Protection, and Peace Corps, Committee on
Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 3:11 p.m., in
room SD-419, Dirksen Senate Office Building, Hon. Edward J.
Markey (chairman of the subcommittee) presiding.
Present: Senators Markey, Murphy, and Barrasso.
OPENING STATEMENT OF HON. EDWARD J. MARKEY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Markey. Welcome to this very important hearing and
we thank all of you for being here. Right now dozens of wars
and conflicts dot our world map, from the Sudanese desert to
America's longest war in Afghanistan. The root causes of war
are diverse and rarely simple, from religious divisions to
democratic yearnings. But two major factors have emerged in the
modern era that act to strain the strands of stability until
they snap--climate change and energy security.
In two regions of our world, climate and energy have
recently played major roles in exacerbating what were already
tense times. In December 2010, a Tunisian street food vendor
lit himself on fire in protest of government corruption and
extreme poverty. That spark spread in Tunisia and ignited the
Arab Spring.
Yet, feeding this anger over years of corruption and
autocratic rule was a more immediate hunger. In 2010, terrible
droughts in Russia, in China, and floods in Pakistan decimated
wheat harvests and created a global shortage. The price of
wheat increased dramatically. The Middle East, home to the
world's top nine wheat importers, felt it acutely, especially
since the region's farmers struggled with their own parched
fields. Much of Syria was gripped with the worst drought it had
ever experienced. The price of bread skyrocketed across the
region and demands for regime change were not far behind.
About 600 miles north of the Syrian border, the ashes of
Malaysia Airline Flight 17 blanket a wheat field in pro-Russia
separatist-controlled eastern Ukraine. A surface-to-air missile
apparently split the plane and snatched nearly 300 lives. But
another weapon has already been deployed in the Russian-Ukraine
conflict and in wars across the globe--energy. Russia has
already shut off the natural gas spigots to Ukraine. That is
more than half of Ukraine's gas supply gone. When winter
arrives and natural gas demand spikes, this could become
another political and humanitarian crisis, bringing suffering
to Ukrainian families and challenges to the new government.
Because of Europe's reliance on Russian gas, Putin's energy
weapon gives him unparalleled leverage to continue his bullying
tactics.
Energy profits can also inflict damage. ISIS, the rebel
group destabilizing Iraq, was funded initially by Sunni oil
sheiks. ISIS is no longer an upstart insurgency. They are a
legitimate threat, consolidating their power around energy
holdings as much as sectarian alliances. They have captured
Iraqi oil fields. They control much of Syrian oil production,
and now they are selling this oil on the black market. Revenues
from these operations buy them credibility, weapons, and
loyalty--valuable commodities for building a so-called
``caliphate'' in this volatile region.
Since the Industrial Revolution, our world has burned
fossil fuels, increasing temperatures and destabilizing our
climate. Since that time, we have become more dependent on
these same fuels that have destabilized countries and drawn
America into international conflicts.
Tunisia is not the first time famine has played a role in a
regional conflict. In a 2007 congressional hearing of mine, one
general told the story of Somalia, how drought had caused
famine, famine had encouraged conflict, how U.S. military
forces were sent to ensure food reached those people who needed
it and was not used by warlords to gain further power, and how
18 U.S. soldiers lost their lives in what we now call Blackhawk
Down. The general believed all went back to the drought that
led to the famine.
Russia is not the first country to use energy as a weapon
in geopolitics. Much has changed in the U.S. energy sector
since OPEC's devastating embargo four decades ago. The shale
revolution has boosted U.S. oil production to record levels.
Yet much remains the same. Oil still commands a monopoly over
our transportation sector. We remain dependent on foreign
suppliers to meet nearly one-third of our needs, roughly the
same share as 1975, when we banned the export of American oil.
Today we have two panels of experts to help us examine how
the twin challenges of climate change and energy security are
driving conflicts now and what new conflagrations could be on
the horizon. We must do everything in our power today to
mitigate the threats that will require military intervention
tomorrow. If we fail in our responsibility, it is our men and
our women in uniform that will get called upon to try to clean
up the mess.
Now I turn to recognize the ranking member of the
subcommittee, the Senator from Wyoming, Senator Barrasso.
OPENING STATEMENT OF HON. JOHN BARRASSO,
U.S. SENATOR FROM WYOMING
Senator Barrasso. Thank you very much, Mr. Chairman. Mr.
Chairman, the United States is facing serious national security
threats across the globe. Americans understand the real direct
threats to our national security--aggressive regimes in Syria,
Russia, and North Korea, Iran's nuclear weapons program,
expanding terrorist threats from al-Qaeda, ISIS, and Hamas, and
the unfolding emergency at our borders.
Despite the fact that the administration's foreign policies
have led to a more unstable and more dangerous world, the White
House last week said that the administration has,
``substantially improved the tranquility of the global
community.'' In the face of a growing number of global
disasters, Secretary of State Kerry believes that climate
change is one of the greatest threats facing our Nation.
Secretary Kerry has called climate change the world's most
fearsome weapon of mass destruction.
While the rest of the world is looking to the United States
to focus and lead on multiple threats to our security, to their
security and to ours, as terrorists wage war, as a resurgent
Russia invades its neighbors, as commercial airlines are shot
down in cold blood, the administration is focused on climate
change. Why? Because, according to the White House, the world
is tranquil.
The world is far from safe, far from save to preserve our
national security. To preserve our national security, we need
to spend taxpayer dollars where they are needed the most.
Unfortunately, the Obama administration spent $7.5 billion in
scarce U.S. taxpayer funds, funds that could have been used to
fight terrorism and aggression in the Middle East or in Eastern
Europe, to support international climate change programs
between fiscal year 2010 and 2012. Folks in my home State of
Wyoming would call this spending wasteful and irresponsible at
best, especially as our friends and allies struggle with
violent, deadly crises that have real implications for our
security.
I believe taxpayer money would be better spent improving
the security of U.S. embassies, protecting our servicemembers
who are serving this Nation in often dangerous locations across
the globe, and fighting terrorism and bad actors that wish to
do us harm.
The U.S. share of the world's carbon emission has been
declining for nearly a decade before President Obama took
office. Meanwhile, China's emissions grew by 173 percent from
1998 to 2011 and shows no end in sight.
The drastic steps President Obama wants to take and the
damage it will do to our economy would have no impact on global
temperatures. That is, unless the President can convince other
countries that their economies should stop growing, too. Given
the President's current foreign policy record, the chances of
that happening are slim.
Countries are starting to realize these policies are
hurting their economies and their competitiveness, while
yielding few environmental benefits. European Union countries
like Germany are abandoning restrictive energy policies in
favor of reliable fossil fuels like coal. Just last week,
Australia repealed their carbon tax and plans for an emissions
trading scheme. Prime Minister Abbott called the carbon tax ``a
$9 billion hand brake on our economy.'' He also called it ``a
useless, destructive tax'' which damaged jobs, which hurt
families' cost of living, and did not actually help the
environment.
If President Obama cannot succeed in Paris, all he will
have accomplished with his climate change policies will be to
have pulled the hand brake on the American economy. He will
have no environmental or security benefit to show for it.
This hearing is entitled the ``U.S. Security Implications
of International Energy and Climate Policies and Issues.'' I am
here to tell you there are serious implications of this
administration's energy and climate policies. They have an
implication on our economy well-being and most especially on
our national security. These policies, already adopted in
Europe, have led to crime and to poverty. They have weakened
our allies and they will weaken us.
What is needed is an ``all of the above'' energy strategy
that creates American jobs, grows our economy, and strengthens
our national security. Energy security, not restrictions, will
provide the peace and tranquility the global community wants
and our Nation deserves.
Thank you, Mr. Chairman. I look forward to the testimony.
Senator Markey. I thank the gentleman, and we will turn to
our panel. We will hear first from Dr. Daniel Chiu, Deputy
Assistant Secretary of Defense for Strategy and Force
Development, from the U.S. Department of Defense. We welcome
you, doctor. Whenever you are ready, please begin.
STATEMENT OF DANIEL Y. CHIU, PH.D., DEPUTY ASSISTANT SECRETARY
OF DEFENSE FOR STRATEGY AND FORCE DEVELOPMENT, U.S. DEPARTMENT
OF DEFENSE, WASHINGTON, DC
Dr. Chiu. Thank you, Chairman Markey and Ranking Member
Barrasso. Thank you for this opportunity to testify before you
today on how DOD is considering the implications of climate
change on national security in our war to protect the Nation
both in the near and the longer terms.
As you know, the Department of Defense's primary
responsibility is to protect our national security interests
around the world. To do this, we need to consider all aspects
of the global security environment and plan appropriately for
the range of potential challenges and prepare for the
possibility of unexpected developments, both in the near and
long terms.
It is in this context that the Department of Defense must
consider a wide range of global trends, to include the effects
of climate change, such as sea level rise, shifting climate
zones, and more severe weather events, and how these effects
could impact our national security. Some of these effects are
already being seen today on military bases, installations, and
other DOD infrastructure, such as increased flooding from sea
level rise and storm surge. We are also seeing the potential
for decreased capacity of DOD properties to support training,
as well as implications for our supply chains, for the
requirements in terms of equipments, vehicles, weapons systems,
and other assets that the Department buys.
As a result, we have already found the need to adapt much
of our infrastructure, including, for example, building more
wind-resistant structures, protecting water supplies, and
improving
fire breaks at DOD installations. DOD is currently conducting a
baseline study, to be completed later this year, to identify
what infrastructure is vulnerable to extreme weather events and
sea level rise, so that we can ensure that these challenges are
addressed appropriately.
In the longer term, the impacts of climate change may have
an effect on, and alter, the environments in which our military
will be operating. For example, sea level rise may lead us to
rethink where and when executing amphibious operations may be
appropriate, while changing temperatures and changes in
seasonal patterns could impact our assumptions about when and
where military operations--certain types of military
operations--can take place.
The effects of climate change may also compound instability
in other countries and regions by affecting things like the
availability of food, water, by instigating human migration and
competition for natural resources. This could create
significant instabilities and potentially provide an avenue for
extremist ideologies and conditions that could foster terrorism
or other challenges to U.S. national security.
Therefore, as a Department we are working to better
understand how these impacts of climate change can affect our
planning and operations in the United States and abroad. We are
currently working to take into consideration the impacts of
climate change in, for example, our longer term planning
scenarios. We are thinking about how the effects of climate
change may affect the frequency or severity of events that
might lead to the need for humanitarian assistance and disaster
relief activities over time. We are looking at our efforts to
plan and enhance the capacity of partner militaries to respond
to natural disasters, to enable them to effect these
operations.
We are also working to address the implications for
potentially higher demands for defense support to U.S. civil
authorities due to extreme weather events in the United States.
The effects of climate change are particularly clear in the
Arctic region, where diminishing sea ice will make the Arctic
Oceans increasingly accessible. This is a decades-long dynamic,
but we must monitor and account for it today. This is why
Secretary Hagel released the Department of Defense's Arctic
Strategy in November of 2013, which, in support of the National
Arctic Strategy released earlier in 2013, seeks through U.S.
leadership and collaboration to preserve an Arctic region that
remains free of military conflict, in which nations act
responsibly and cooperatively, and where economic and energy
resources are developed in a safe and sustainable manner.
In order to do so, DOD will focus on ensuring security,
support, and safety, promoting defense cooperation, and
preparing for a wide range of challenges and contingencies that
includes consideration of Arctic contingencies. We do this in
the meantime by maintaining domain awareness to ensure that we
are prepared for any changes in either Arctic conditions or
activities in the Arctic.
The Department currently assesses that the Arctic is a
relatively low military threat environment and that existing
and planned DOD infrastructure and capabilities in the region
are adequate to meet U.S. defense needs in the near and mid-
term futures. We will of course continue to reevaluate
capabilities and requirements as conditions and regional
activities change and will be prepared to address any changes
or gaps that could emerge.
Given the nature of climate change, in particular in the
Arctic, the United States response to these challenges requires
a whole-of-government approach, as well as international
collaboration, both of which are the bedrock of our efforts in
these areas. By taking a proactive approach to assessment,
analysis, and adaptation, DOD believes it can manage the risks
posed by the impacts of climate change and minimize the effects
to the Department's missions, while continuing to protect
national security interests around the world through strong
leadership.
Thank you again for this opportunity to speak and I look
forward to answering your questions.
[The prepared statement of Dr. Chiu follows:]
Prepared Statement of Dr. Daniel Y. Chiu
introduction
The Department of Defense (DOD)'s primary responsibility is to
protect our Nation's security interests around the world. This includes
building security globally through assurance of allies, engagement with
partners, and deterrence of adversaries; prevailing in conflicts should
they arise; and supporting civil authorities and others around the
world in times of emergency. To ensure DOD is adequately prepared to
accomplish our missions, we need to consider all aspects of the global
security environment and plan appropriately for potential contingencies
and the possibility of unexpected developments in both the near and
longer terms.
As such, the Department tracks, analyzes, and considers a range of
current and future trends and changes, including political-military,
economics, demographics, technology, and the environment. All of these
issue areas have the potential to significantly impact U.S. national
security interests in both positive and negative ways. DOD must take
into account these trends to ensure we are able to create and pursue
opportunities when they serve our national interests and that we are
ready for a wide range of challenges now and into the future.
This is why climate change is included in the 2014 Quadrennial
Defense Review. In particular, we noted that: ``The impacts of climate
change may increase the frequency, scale, and complexity of future
missions, including defense support to civil authorities, while at the
same time undermining the capacity of our domestic installations to
support training activities.'' The effects of climate change--such as
sea-level rise, shifting climate zones, and more severe weather
events--will have an impact on our bases and installations at home and
overseas; on the operating environment for our troops, ships, and
aircraft; and on the global security environment itself as climate
change affects other countries around the world.
While all projections contain a degree of uncertainty, the
Department considers risk across a wide spectrum of possibilities to
ensure DOD is appropriately prepared for the range of possible
contingencies. In considering the effects of climate change, scientific
data and studies are used to further refine projections and planning.
The Department also continues to update and assess this work to ensure
that changes are taken into consideration so that plans and
capabilities can be adapted, when needed.
near term: infrastructure, training, and testing
The National Climate Assessment, released by the White House
earlier this month, noted that the world's climate is already rapidly
changing. Certain types of weather events are already occurring more
frequently and intensely, including heat waves, heavy downpours,
hurricanes, floods, and droughts. Glaciers and Arctic sea ice are
melting at a relatively rapid rate, sea levels are rising, and oceans
are becoming warmer and more acidic. Moreover, scientists predict that
some of these changes will increase in frequency, duration, and
intensity over the next 100 years.
Some of these current effects of climate change are being seen on
the military bases, installations, and other infrastructure that DOD
manages. Our infrastructure serves as the staging platform for the
Department's national defense and humanitarian missions, and the
natural landscape supports military combat readiness by providing
realistic combat conditions and vital resources to personnel. For
example, an installation may need a forest or desert landscape for
maneuvers, coastal waters for amphibious assault training, or wetlands
to prevent flooding and erosion. The effects of climate change will
have serious implications for the Department's ability to maintain both
its infrastructure and the landscape around it, and to ensure military
readiness in the future.
Our coastal installations are already experiencing increased
flooding and damage from sea-level rise and increased storm surge;
longer term impacts could include increased inundation and erosion.
Rising temperature and extreme weather will increase building heating
and cooling demand, raising installation energy requirements and
operating costs. Those conditions will also increase maintenance
requirements for runways and roads, as well as cause disruption to, and
competition for, reliable energy and fresh water supplies. Thawing
permafrost and melting sea ice are damaging our infrastructure in
Alaska and the Arctic region. Changed disease vector distribution,
particularly exposure to diseases in regions in which they are not
routinely encountered, will increase the complexity and cost of on-
going disease management efforts, and may have acute and long-term
impacts on personnel health and safety.
The Department also needs to be able to train our forces to meet
the evolving nature of the operational environment by training in the
field environment to achieve and sustain proficiency in mission
requirements. The Department conducts testing in the field environment
in anticipation of the military's use of weapons, equipment, munitions,
systems, or their components. As such, access to the land, air, and sea
space that replicate the operational environment for training and
testing is critical to the readiness of the Force.
The impacts of climate change may decrease the capacity of DOD
properties to support current testing and training rotation types or
levels. Some training and testing lands may lose their carrying
capacity altogether. Rising temperatures could lead to an increased
number of ``black flag'' (suspended outdoor training) or fire hazard
days. Increased dust generation during training activities may
interfere with sensitive equipment, resulting in greater repairs, or
may require more extensive dust control measures to meet environmental
compliance requirements. These conditions could also lead to increased
health and safety risks to the Department's personnel.
Climate change also impacts may affect the supplies, equipment,
vehicles, and weapons systems the Department buys, where and from whom
we buy them, how they are transported and distributed, and how and
where they are stockpiled and stored. Changes to the operating
environment may require changes to operational parameters for current
and planned weapons and equipment, resulting in increased associated
maintenance requirements or requirements for new equipment.
Environmental changes may introduce supply-chain vulnerabilities,
reducing the availability of, or access to, the materials, resources,
and industrial infrastructure needed to manufacture the Department's
weapon systems and supplies. They may also cause the interruption of
shipment, delivery, or storage and stockpile of materials or
manufactured equipment and supplies. Many major corporations have
recognized the potential effects of climate change on their operations
and are aggressively pursuing manufacturing/supply resiliency efforts.
As appropriate, the Department will seek refinements to existing
processes and develop new climate-specific plans and guidance.
Because of these current and ongoing concerns, the Department
initiated in 2013 a review of existing directives, policies, manuals,
and associated guidance documents and criteria to identify which ones
should incorporate considerations of a changing climate. The initial
screen reviewed 58 documents and identified 28 policies, programs and
procedures for update; 5 have already been updated, all dealing with
installations. During 2014, the Department will work within the
existing review and update cycle to establish a plan for incorporating
appropriate consideration of climate change into the relevant
documents.
Many infrastructure managers are already adapting to changing
climate factors. Reported rebuilding efforts after extreme storms
include upgrading to more wind-resistant structures, burying utility
lines underground, changing storage locations for chemicals used in
low-lying wastewater treatment plants, protecting water supply wells,
and removing vulnerable trees. In preparation for the possibility of
more wildfires, installations reported preparing better firebreaks and
making timber stand improvements to reduce fire fuel loads.
The Department has updated our master planning criteria for
installations to require the consideration of climatic conditions, as
well as mandating the consideration of changing climate conditions when
designing buildings, including potential increased heating or cooling
requirements. We also issued a Floodplain Management Policy in February
2014 that establishes requirements to minimize risks when military
assets must be located within flood plains.
The Department is exploring the expansion of applications of risk
management schemes already in use, primarily within the Defense
Critical Infrastructure Program. Decisions on where and how to locate
future infrastructure will become increasingly reliant on robust risk
management processes that account for dynamic factors associated with
the effects of climate change. While the initial modifications to risk
management methodologies are focused on critical infrastructure, it is
anticipated that the Department will utilize them across all
decisionmaking in the future.
The Department has initiated several research and survey efforts to
more fully identify and characterize vulnerabilities, impacts, and
risks posed by climate change. The Department is implementing a phased
installation-level vulnerability assessment approach to: develop
methodologies for conducting consistent screening-level vulnerability
assessments of military installations worldwide (starting with coastal
and tidal installations); leverage recent scientific advancements
regarding coastal assessment; and provide a platform to build upon
prior to conducting more comprehensive and detailed assessments,
whether coastal installations or otherwise.
A screening level survey assessment tool was piloted in the fall of
2013 and was deployed in 2014 to assess current installation-specific
vulnerability to the impacts of climate-related events. Data from these
screening-level assessments will be used to identify areas and
installations where more detailed vulnerability assessments may be
needed. The Department is using a whole-of government approach to
develop recommendations on regional sea-level rise for use in more
detailed coastal vulnerability and impact assessments of military
installations worldwide, to ensure consistency in conducting these
assessments.
As climate science advances, the Department will regularly
reevaluate climate change risks and opportunities in order to develop
policies and plans to manage its effects on the Department's operating
environment, missions, and facilities. Research organizations within
the Department, including the Strategic Environmental Research and
Development Program (SERDP), are planning and completing studies to
characterize climate change impacts in specific regions of the world
and develop and pilot vulnerability assessment and adaptation
methodologies and strategies.
Research to develop coastal assessment methods is scheduled for
completion during 2014. Work in other regions is still underway,
including research designed to understand how increased temperature
trends and changes in the fire regime in the interior of Alaska will
impact the dynamics of thawing permafrost and the subsequent effects on
hydrology, access to training lands, and infrastructure; and how
changes in storm patterns and sea levels will impact the Department's
Pacific Island installations, including their water supplies.
The Department is actively conducting research that will support
further integration of climate change into our considerations. This
includes projects that: assess potential changes in the intensity,
duration, and frequency of extreme precipitation events, including
changes in the timing and intensity of snowmelt and subsequent runoff
events; include development of adaptive decision frameworks; and
address understanding the characteristics of species that are either
conservation reliant or adaptable to potential changes in climate and
human activities.
longer term: plans and operations
The longer term impacts of climate change may alter, limit, or
constrain the environments in which our military will be operating. For
example, sea level rise may impact the execution of amphibious
landings; changing temperatures and lengthened seasons could impact
timing windows for operations; and increased frequency of extreme
weather could impact assumptions about flight conditions that could
affect intelligence, surveillance, and reconnaissance capabilities.
The impacts of climate change may aggravate existing or trigger new
risks to U.S. interests. Maintaining stability within and among other
nations is an important means of avoiding full-scale military
conflicts. The impacts of climate change may cause instability in other
countries by impairing access to food and water, damaging
infrastructure, spreading disease, uprooting and displacing large
numbers of people, compelling mass migration, increasing competition
for natural resources, interrupting commercial activity, or restricting
electricity availability.
As Secretary of Defense Chuck Hagel said at the 2013 Halifax
International Security Forum, ``Climate change does not directly cause
conflict, but it can significantly add to the challenges of global
instability, hunger, poverty, and conflict. Food and water shortages,
pandemic disease, disputes over refugees and resources, more severe
natural disasters--all place additional burdens on economies,
societies, and institutions around the world.''
These developments could undermine already fragile governments that
are unable to respond effectively or challenge currently stable
governments, as well as increasing competition and tension between
countries vying for limited resources. These gaps in governance can
create an avenue for extremist ideologies and the conditions that
foster terrorism.
As a Department, we are working to better understand how the
impacts of climate change will affect plans and operations in the U.S.
and abroad. The Department's unique capability to provide logistical,
material, and security assistance on a massive scale or in rapid
fashion may be called upon with increasing frequency. We are looking to
identify early warning indicators for those areas critical to DOD's
mission set, as well as conduct systematic regional and localized
impact assessments to identify trends and where our resources should be
focused.
The Department will be monitoring these developments and deciding
which situations will require intervention based on U.S. security
interests--either preemptively through security cooperation and
capacity-building, or through stability operations if conditions
escalate. We are exploring ways for the combatant commands to include
in their missions noncombat support to address serious climate change-
related U.S. national security vulnerabilities and to include climate
considerations in their theater campaign plans.
We are currently working to integrate the impacts of climate change
into our longer term planning scenarios, which articulate a range of
future challenges that U.S. military forces must be prepared to
confront. These scenarios support deliberations by DOD senior
leadership on strategy and planning, programming, budgeting, and
execution (PPBE) matters, including force sizing, shaping, and
capability development.
We also plan to more fully integrate the impacts of climate change
into our humanitarian assistance/disaster relief and other exercise
plans, and are working to enhance the capacity of partner militaries
and civil response readiness groups to plan for, and respond to,
natural disasters. As noted in the 2014 QDR, ``Climate change also
creates both a need and an opportunity for nations to work together,
which the Department will seize through a range of initiatives.''
We also hope to more systematically harness resources beyond the
traditional combatant command structure. This included the National
Guard, and its State Partnership Program, service engineering units
such as the U.S. Army Corps of Engineers and Naval Facilities Command,
and OSD-led programs such as the Defense Environmental International
Cooperation Program and the Strategic Environmental Research and
Development Program.
To the extent that we are engaged in the construction of military
and civilian infrastructure for partner nations, we are working to
include consideration of climate change impacts on all our projects,
ranging from site selection to resiliency planning.
Here in the U.S., State and local governments responding to the
effects of extreme weather may seek increased defense support to civil
authorities. The heightened demand, particularly on the National Guard
and Reserve Component, could impact their availability for other
contingencies or operations. We are in the process of exploring these
implications and finding the right balance to ensure that our domestic
needs can be met.
The Arctic
The effects of climate change are particularly acute in the Arctic
region. Profound changes are already occurring that are having, and
will continue to have, significant and long-lasting consequences. Over
the coming decades, the Arctic will remain a remote, isolated, and
complex environment; but over time, diminishing sea ice will make the
Arctic Ocean increasingly accessible and used by Arctic as well as non-
Arctic nations. At the same time, land access--which depends on frozen
ground in much of the Arctic--will diminish as permafrost thaws.
Although some recent media reporting overstates the nature of
current human activity and potential for military conflict in the near
term, the U.S. Government, including DOD, must account for and closely
monitor the long-term dynamics in the Arctic. Regardless of the rate
and scale of change, we must be ready to contribute to national efforts
in pursuit of strategic objectives in the region.
In response to these changing dynamics, the Department released a
DOD Arctic Strategy in November 2013. The DOD Strategy supports the
overarching national approach to the Arctic, embodied in the National
Strategy for the Arctic region (released in May 2013): advancing U.S.
security interests, pursuing responsible Arctic region stewardship, and
strengthening international cooperation.
In accordance with the National strategy, the DOD Strategy seeks to
preserve an Arctic region that is free of conflict, in which nations
act responsibly and cooperatively, and where economic and energy
resources are developed in a sustainable manner. In order to do so, we
will ensure security, support safety, promote defense cooperation, and
prepare for a wide range of challenges and contingencies.
The DOD Strategy recognizes that the U.S. Government response to
changes in the Arctic requires a whole-of-government approach. In terms
of preserving security, the U.S. Coast Guard in particular faces
distinct near-term challenges. DOD continues to seek opportunities to
coordinate our responses with the Coast Guard to leverage existing
resources and avoid duplication of effort. We also continue to prepare
ourselves to provide defense support for civil authorities when
directed.
Our Arctic strategy will enable us to take a balanced approach to
improving human and environmental security. Our challenge is to balance
the risk of having inadequate capabilities or insufficient capacity
appropriate for this changing region with the opportunity cost of
making premature and/or unnecessary investments. We assess that the
Arctic is a relatively low threat environment, and that existing DOD
infrastructure and capabilities in the region are adequate to meet
current U.S. defense needs in the near and midterm future.
Capabilities and requirements will need to reevaluated as
conditions and regional activity change, and any gaps will need to be
addressed. Given the low potential for armed conflict in the region, a
buildup beyond what is required for existing DOD missions could send
the wrong signal about our intentions for the region. We will continue
to train and operate routinely in the region as we monitor the changing
environment, revisit threat assessments, and take appropriate action as
conditions change.
Given the nature of the Arctic, our approach to the region requires
more than just interagency cooperation, it requires international
cooperation. As we highlight in the 2014 QDR, relationships with allies
and partners are important enablers for meeting our security and
defense commitments. Our strategic approach to the Arctic reflects the
relatively low level of military threat in a region bounded by nations
that have not only publically committed to working within a common
framework of international law and diplomatic engagement, but have also
demonstrated the ability and commitment to do so.
We engage in frequent consultations with our Arctic partners,
including through the Arctic Council, Northern Chiefs of Defense
conference, the Arctic Security Forces Roundtable, and in Service-to-
Service dialogues and exercises. Russia, one of five coastal Arctic
states, has historically played a collaborative role in these forums.
Although our near-term cooperation with Russia has been impacted by
Russia's ongoing intervention in Ukraine, we continue to work with
other Arctic partners and remain committed to the long-term objectives,
approaches, and capabilities outlined in the Arctic Strategy.
interagency collaboration on climate change
Partnerships are needed to fully ensure the Department's mission is
sustainable given the effects of climate change. The Department cannot
effectively assess its vulnerabilities and implement adaptive responses
at its installations if neighbors and stakeholders are not part of the
process. The Department's decisions and those of neighboring
communities are intrinsically interconnected. Aspects of our mission,
such as Force deployment, may be affected by assets outside our
control, such as transportation infrastructure.
Understanding the complexities and uncertainties of climate change
require a whole-of-government approach as well. Therefore, the
Department already participates in nationwide efforts such as the U.S.
Global Change Research Program, including the National Climate
Assessment. It also partners with individual agencies such as the
National Oceanic and Atmospheric Administration on, for example, the
development and operational implementation of a national Earth System
Prediction Capability.
The Department is also represented on interagency climate change
councils and working groups and will continue to participate in federal
climate partnerships and other interagency processes. The Department,
through the Air Force Weather Agency, contributes earth-space
environmental data, receiving nearly 500,000 weather observations and
satellite-derived wind profiles each day and sharing these data with
the National Climatic Data Center and the Navy's Fleet Numerical
Meteorological and Oceanographic Center.
Climate change is an inherently global problem, and will require us
to work closely with our allies, partners, and other countries across
the world. As such, the State Department is leading our efforts to
engage with the international community on these issues in multilateral
forums and in bilateral relations. DOD is collaborating with and
supporting the State Department in many of these initiatives, and we
are continuing to develop new mechanisms and avenues for cooperation.
conclusion
The effects of the changing climate affect the full range of
Department activities, including plans, operations, training,
infrastructure, acquisition, and longer term investments. The
direction, degree, and rates of the physical changes will differ by
region, as will the effects to the Department's mission and operations.
By taking a proactive, flexible approach to assessment, analysis, and
adaptation, the Department can keep pace with the impacts of changing
climate patterns, minimize effects on the Department, and continue to
protect our national security interests.
Senator Markey. Thank you.
Our next witness is Mr. Amos Hochstein, Deputy Assistant
Secretary of State for Energy Diplomacy at the Department of
State. Welcome.
STATEMENT OF AMOS J. HOCHSTEIN, DEPUTY ASSISTANT SECRETARY OF
STATE FOR ENERGY DIPLOMACY, U.S. DEPARTMENT OF STATE,
WASHINGTON, DC
Mr. Hochstein. Thank you, Mr. Chairman, Senator Murphy, for
inviting me here to talk. I will summarize my testimony and,
with your permission, have it submitted for the record in the
longer version.
Mr. Chairman, as you said, recent developments that have
been splashed across the front pages of newspapers across the
globe serve as the latest reminders of the interplay between
energy security, foreign policy, and our own national security.
The critical nature of the geopolitics of energy is easily on
display when you look at the global oil supply disruptions
today, which are at historic levels of over 3 million barrels
per day. Due to reduced output in Libya, Sudan, and South Sudan
caused by political instability, politically induced declines
in Nigeria and Venezuela, and reductions in Iran's exports by
over 50 percent due to effective United States sanctions, it is
now more important than ever that the United States and the
State Department's Bureau of Energy Resources work diligently
to ensure that energy resources are used to drive economic
growth, prosperity, stability, and cooperation, rather than
conflict.
Today's hearing is timely. Competition for access to, and
control of, energy sources and supply routes can indeed be a
source of conflict and revenues from energy sales can fuel and
provide funds that prolong conflict. Poor governance of natural
resources can also contribute to conflict. As you mentioned,
Mr. Chairman, in your opening remarks about corruption, Senator
Lugar, former chairman of this committee, said in sponsoring
his legislation, ``The resource curse affects the United States
as well as producing countries. It exacerbates global poverty,
which can be a seedbed for terrorism. It empowers autocrats and
dictators, and it can crimp world petroleum supplies by
breeding instability.''
It is important to look at the global context. We are in
the middle of a global energy transformation. On the demand
side, we are seeing a historic shift where already non-OECD
economies are surpassing and overtaking the OECD in total
demand today and into the foreseeable future. On the supply
side, production and delivery of energy is also changing
dramatically. Energy supply is no longer concentrated in a
small number of OPEC countries. New producers are joining their
ranks.
As you said, nowhere is this transformation more evident
than here in the United States. The dramatic shift in the
United States energy balance has significantly impacted our
national energy markets, as vast quantities of imported energy
once destined for the United States have become available to
other economies in Europe and in Asia.
Ukraine and Europe's dependence on Russian gas is a clear
example of the risk of relying on any one dominant suppliers.
The situation is urgent for Ukraine. While Ukrainian production
is sufficient to cover summer demand, without Russian gas
Ukraine will not be able to meet its consumption needs when the
winter heating season resumes if those supplies from Russia are
not continued. The short-term impact of this cutoff has been
relatively small in Europe because it is not in the gas-
intensive heating season and because last winter was mild,
leaving stocks unseasonably high.
Our European energy security efforts intensified after
Russia cut off gas supplies to Ukraine and European customers
in 2009, advocating energy diversification across the European
Continent. We work hand in hand with the EU Commission as well
as with energy envoys in Eastern and Central European
countries, meeting often with the ``V-4 Plus'' states. Second
is diversity of import routes. Europe must build interconnected
pipeline systems that allow gas to flow freely throughout the
continent, unlike today. Finally, European countries must
pursue diversification of sources, away from a dependence on
any single supplier.
We are supporting Europe with actions as well as words. It
is unlikely the Southern corridor would have become a reality
without State Department engagement. We strongly support the
creation of the Greece-Bulgaria Interconnector, which will
allow gas from the Southern corridor from Azerbaijan to supply
Southeast Europe, rather than just enter Central and Western
Europe via Italy.
We support the EU's regulatory efforts in what is referred
to as the Third Energy Package, which promotes market-based
rules and fair competition, reducing Russia's ability to use
its monopoly status as a weapon against its neighbors.
The value of energy diversification does not stop in
Eastern Europe. Most of the Caribbean island states are
significantly reliant on a single source for energy and
European finance and similarly suffer from corruption and an
inadequate investment climate. I recently joined Vice President
Biden in Columbia and the Dominican Republic as he announced a
new Caribbean Energy Security Initiative.
Existing offshore hydrocarbon discoveries in Israel and
Cyprus, as well as potential offshore discoveries in Lebanon
and Egypt, are transforming countries. I spend a lot of my time
in the region helping to facilitate discussions between Israel,
Cyprus, Lebanon, Jordan, and Egypt as these discoveries
continue to play a role in redefining previous geopolitical
relationships. Energy cooperation has significantly warmed
relations between Israel and Cyprus, a point that was
underscored by President Anastasiades when I was in Nicosia
with Vice President Biden in May.
In Egypt, over the past 2 years I have made--in Egypt,
similarly we expect to see deals potentially announced with
Israel in the coming months. Over the past 2 years, I have made
16 trips to Jordan to help facilitate solutions to Jordan's
energy crisis, which was a result of terrorist bombings of the
natural gas pipelines through Israel and Jordan. These efforts
recently culminated in a historic deal for regionally
competitive prices signed between Houston-based Noble Energy,
operating offshore Israel, and the Jordanian industrial
complex, saving Jordan billions and helping to stabilize its
future economy.
Competing exclusive economic zone claims by Israel and
Lebanon present a potential flashpoint for conflict as Lebanon
continues to move forward with its first offshore exploration
bid.
Closer to home, the State Department has brought
negotiation to a successful completion and saw the U.S.-Mexico
Transboundary Hydrocarbons Agreement enter into force with the
support of the U.S. Senate.
Mr. Chairman, in conclusion, the energy diplomacy I have
discussed today does not include all of our engagements around
the world. The role of the State Department and the Energy
Bureau in engaging these key energy security issues is now an
integral part of our overall foreign policy and diplomacy. With
wise stewardship of resources and by fostering private
innovation and investment to expand energy access, we can
ensure that the world's energy resources develop into a
sustained driver of growth and stability, as opposed to
conflict.
Thank you and I look forward to your questions.
[The prepared statement of Mr. Hochstein follows:]
Prepared Statement of Amos J. Hochstein
Thank you Chairman Markey, Senator Barrasso, and members of the
subcommittee. I appreciate the opportunity to be here today to discuss
energy security and conflict and how we are using our foreign policy
tools to strengthen U.S. national security and global energy security.
It is a privilege to be joined by my colleagues from the Department of
Defense and the United States Agency for International Development
(USAID).
Recent developments splashed across the front pages of newspapers
around the globe serve as the latest reminders of the interplay between
energy security and foreign policy. The critical nature of the
geopolitics of energy is easily on display when you look at global oil
supply disruptions, which are at historic levels of over 3 million
barrels per day due to reduced output in Libya, Sudan and South Sudan
caused by political instability, politically motivated declines in
Nigeria and Venezuela, and reductions in Iran's exports by over 50
percent due to effective U.S. sanctions. It is now more important than
ever that the United States and the State Department's Bureau of Energy
Resources work diligently to ensure that energy resources are used to
drive economic growth, stability, and cooperation, rather than
conflict.
Today's hearing is timely. Competition for access to and control of
energy sources and supply routes can indeed be a source of conflict,
and revenues from energy sales can provide funds that prolong conflict.
Poor governance of natural resources can also contribute to conflict by
allowing pervasive corruption to undermine accountability, deprive
economic growth, and encourage civil unrest. As your former colleague
Senator Lugar said in sponsoring his legislation, ``the `resource
curse' affects [the United States] as well as producing countries. It
exacerbates global poverty, which can be a seedbed for terrorism, it
empowers autocrats and dictators, and it can crimp world petroleum
supplies by breeding instability.''
We are in the middle of a global energy transformation that is
affecting both supply and demand at the very same time. On the demand
side, we are seeing a historic shift where already non-OECD economies
have overtaken the OECD economies in total energy consumption. On the
supply side, production and delivery of energy is also changing
dramatically. Energy supply is no longer concentrated in a small number
of OPEC countries--new producers are joining the ranks of major energy
suppliers. We are seeing traditional and unconventional sources
growing. We are seeing the growth of renewable energy. We are
witnessing regional linkages, regional power lines, and the growing
ability to move natural gas by ship, making energy markets increasingly
global and competitive.
Nowhere is this transformation more evident than in the United
States. The United States has increased oil production by 1 million
barrels per day (bpd) in each of the last 2 years, and we are on track
to replicate that this year. At the same time, the phase-in of
increasingly robust efficiency efforts, such as Corporate Average Fuel
Efficiency standards in the transportation sector, has reduced our oil
demand, and helped slash net imports' share of U.S. oil consumption
from 60 percent in 2005 to just over 30 percent today. Similarly, the
United States has increased natural gas production by over 20 percent
since 2007 because of growth from shale basins. This overall sea change
in U.S. energy balances has had significant international energy market
implications as vast quantities of imported energy once destined for
the United States are now consumed elsewhere in the world markets.
today's ukraine crisis and the energy crisis of 2009
Ukraine and Europe's dependence on Russian gas is a clear example
of the danger of relying on a dominant supplier.
After weeks of negotiations, Russia unfortunately ceased supplying
gas to Ukraine on June 16, showing little willingness to continue
negotiations until Ukraine pays its debt. The situation is urgent for
Ukraine. While Ukrainian production is sufficient to cover summer
demand, without Russian gas Ukraine will not be able to meet its
consumption needs when the heating season resumes. The short-term
impact of this cutoff has been relatively small in Europe because it is
not in the gas-intensive heating season and because last year's winter
was mild, leaving stocks unseasonably high. However, while there is no
crisis in Europe today, it may be just around the corner. On an annual
basis, Russia supplies more than half the gas consumed in Ukraine and
more than a quarter of the gas consumed in the EU.
So where does that leave us today? While the media and others have
focused on European energy security only for the last several months,
the United States Government has been focused on this issue for several
years.
Our European energy security efforts intensified after Russia cut
off gas supplies to Ukraine and European customers in 2009. Since then,
the State Department, now spearheaded by the Bureau of Energy
Resources, has been intensely focused on energy security in Europe,
advocating energy diversification across the European continent,
particularly in Central and Eastern Europe. We work hand in hand with
the EU Commission as well as with the Energy Envoys in Eastern/Central
European countries meeting often with the ``V4 plus'' states.
When we talk about supply diversification in a European context,
there are several components that must be addressed. First is fuel
mix--including other energy sources like renewables and nuclear, as
well as pursuing additional production from conventional and
unconventional sources, potentially including shale basins.
Second is diversity of import routes. Europe must build an
interconnected pipeline system that allows gas to flow freely
throughout the continent. Finally, European countries must pursue
diversification of sources away from a dependence on a single supplier.
I am not suggesting that countries should eliminate Russian imports--
that is neither necessary nor reasonable and Russia will remain a
central player in the region--but introduction of alternative supplies
will promote competition in the energy market. This will ultimately
increase energy security while also benefiting consumers.
The United States is supporting Europe in actions as well as words.
It is unlikely the Southern corridor would become a reality without
State Department engagement. We strongly support the creation of the
Greece-Bulgaria Interconnector, which will allow gas from the Southern
corridor to supply Southeast Europe rather than just enter Central and
Western Europe via Italy. For the same reason we support proposals to
build an extension of the Southern corridor from Albania all the way to
Croatia, once enough gas becomes available, ultimately supplying
neighbors Hungary, Ukraine, and others.
We are working closely with colleagues in the EU Commission to
advance interconnections of infrastructure in Central and Eastern
Europe. These efforts are already producing successful projects such as
the recent announcement of the Hungary-Slovakia interconnector. We also
support proposals to build LNG terminals at critical points on European
coasts, from Poland to Croatia to the Baltics. In short, Mr. Chairman,
we agree with our European allies on the critical need for Europe to
improve its energy infrastructure by constructing new pipelines,
upgrading interconnectors to allow bidirectional flow, and building new
LNG terminals to diversify fuel sources.
We support the EU's regulatory effort in what is referred to as the
Third Energy Package, which has reduced Russia's ability to use its
monopoly as a weapon against its neighbors. But more must be done to
enforce these rules and their intent.
Part of the answer for Ukraine's energy security is its integration
into the EU's energy market. However, before this integration can
happen successfully, it is essential that Ukraine reform its energy
sector. If it does not, and if corruption and inefficiency continue
along with crippling energy subsidies for consumers, Ukraine will be
right back where it started before long.
That is why the Bureau of Energy Resources and others in the U.S.
Government are working with Ukraine on internal reform, governance, and
efficiency improvements, as well as increasing their own gas production
including by exploring their shale resource potential.
We have worked closely with the Governments of Ukraine, Hungary,
Poland, and Slovakia and with European energy companies to see gas
flowing from Europe into Ukraine. Thanks in part to these efforts, gas
is now flowing from both Poland and Hungary into Ukraine. In late
April, the Governments of Ukraine and Slovakia also signed an MOU on
reverse-flow--an agreement which will allow gas to begin to flow from
Slovakia into Ukraine as soon as September. Although the volumes will
be small initially, they could increase significantly over the next
year.
caribbean energy security
The value of energy diversification does not stop in Eastern
Europe. Most of the Caribbean island states are significantly reliant
on a single source for energy and energy finance. Additionally, several
suffer from inefficiency and aging infrastructure, corruption, and an
investment climate that deters rather than encourages investment. As
this is critical not only for the region as a whole, but also for our
own national security, I recently joined Vice President Biden in
Colombia and the Dominican Republic as he announced a new Caribbean
Energy Security Initiative. The initiative will seek to address the
barriers specific to this region and take actions to encourage the
private sector to make the necessary investments.
No country in the world should rely on a single supplier whether in
Europe, the Western Hemisphere, or Asia.
mediterranean energy as an anchor for regional cooperation
The Eastern Mediterranean is an example of where, with active U.S.
engagement, energy can serve as a catalyst to increase regional
cooperation and avoid conflict.
Exciting offshore hydrocarbon discoveries in Israel and Cyprus, as
well as potential offshore discoveries in Lebanon and Egypt, are
transforming countries that were previously energy importers into
countries that have the ability to both supply domestic demand, and
export to regional and global markets where demand is high.
I have spent a lot of my time in the region helping to facilitate
discussions between Israel, Cyprus, Lebanon, Jordan, and Egypt as these
discoveries continue to play a pivotal role in redefining previous
geopolitical relationships. Energy cooperation has significantly warmed
relations between Israel and Cyprus--a point that was underscored by
President Anastasiades when I was in Nicosia with Vice President Biden
in May. Energy can also serve as an incentive to reaching a
comprehensive settlement to the Cyprus question.
Also, repeated terrorist bombings of the Egyptian gas pipeline to
Israel and Jordan forced Jordan to import expensive fuel oil to meet
its energy needs--costing Jordan nearly $4 billion each year. Over the
past 2 years I made 16 trips to Jordan to help facilitate solutions to
Jordan's energy crisis. These efforts recently culminated in a historic
deal signed between Houston-based Noble Energy operating offshore
Israel, and a Jordanian industrial complex at regionally competitive
prices, saving Jordan billions and helping to stabilize Jordan's future
economy.
While the export of energy resources from Israel and Cyprus has the
potential to forge stronger economic, and by extension diplomatic,
ties, if managed poorly these resources could become the flash point
for conflict.
Competing exclusive economic zone claims by Israel and Lebanon
present a potential flash point for conflict if left unresolved.
However, the United States continues to work closely with Israel and
Lebanon to find a solution that will allow both countries to explore
and exploit their offshore resources. We remain optimistic that a
solution is possible because it is in the interest of both sides.
If countries in the region work together, the Eastern Mediterranean
can become an important energy hub, promoting regional prosperity and
supporting Europe's energy security. The United States will continue to
support this effort.
Closer to home, the State Department was able to lead, with the
Department of the Interior, an important international negotiation to
defuse neighborly concerns over potential cross-boundary oil reserves
in the Gulf of Mexico. We were able to see the negotiation to its
successful completion and bring the United States-Mexico Transboundary
Hydrocarbons Agreement into force with the support of the Congress.
Thanks to the increased certainty that this agreement brings, the
United States was able to lease additional offshore Gulf of Mexico
exploration blocks this year, earning the taxpayer some $21 million in
bid payments that would not have accrued without this energy diplomacy.
conclusion
Mr. Chairman, the energy diplomacy I have discussed today does not
include all of ENR's global engagement. ENR's diplomacy spans the globe
and extends from addressing oil and gas related-issues to advancing
renewables and energy efficiency. With global oil supply outages at
historic highs, patterns of energy production, consumption and trade
fundamentally altered, and the sound energy supply footing of the
United States, we have a historic opportunity to engage across the
energy spectrum to address the many challenges that lie ahead. The role
of the State Department and the Bureau of Energy Resources in engaging
on these key energy security issues is now an integral part of our
overall diplomacy. We have learned that in an interconnected world, we
advance our own energy security and prosperity when our friends and
allies advance with us. With the wise stewardship of resources, and by
fostering private innovation and investment to expand energy access, we
can ensure that the world's energy resources become a sustained driver
of growth and stability, and not conflict.
Senator Markey. We thank you, Mr. Hochstein.
Finally, we are going to hear from Mr. Eric Postel, who is
the Assistant Administrator for the Bureau of Economic Growth,
Education and Environment for USAID. Welcome, Mr. Postel.
STATEMENT OF ERIC G. POSTEL, ASSISTANT ADMINISTRATOR FOR THE
BUREAU OF ECONOMIC GROWTH, EDUCATION AND ENVIRONMENT, U.S.
AGENCY FOR INTERNATIONAL DEVELOPMENT, WASHINGTON, DC
Mr. Postel. Thank you. On behalf of USAID, I would like to
thank you, Chairman Markey, Ranking Member Barrasso, and
Senator Murphy, for holding today's hearing and giving me the
opportunity to testify. I request that my full statement be
submitted for the record.
Senator Markey. Without objection.
Mr. Postel. Today I will highlight how a lack of clean
energy access and/or an inability to address climate change
risk can have a destabilizing effect on a country's economy,
security, and the well-being of its citizens. Stability and
well-being overseas often directly helps ensure U.S. national
security. Today about 1.6 billion people, most of them living
in developing countries, lack access
to a reliable source of electricity. As a result, President
Obama launched the Power Africa Initiative to promote a private
sector solution to this shortage.
Expanding reliable energy access requires getting
regulatory structures right while protecting vulnerable
populations. Distortionary policies like fossil fuel subsidies
can reduce incentives for energy efficiency, hamper low or no-
carbon energy production, raise dependence on energy imports,
and create unsustainable fiscal liabilities. One striking
example is a country that several have already mentioned today,
which is the Ukraine, where the U.S. Government is now working
with Ukrainians to bring electric rates to a level that covers
costs, to protect the most vulnerable from the impact of gas
and heating rate increases, to strengthen payment discipline,
to improve energy efficiency in the heating sector, and to
increase transparency.
For many countries, renewable energy such as solar or wind
has begun to play an important role in meeting their energy
needs. As the cost of renewable energy declines, many countries
are scaling up renewables for a variety of reasons, including
cost, domestic energy security, and addressing climate change.
As a result, USAID is working to expand the use of renewables
in countries such as India, Philippines, South Africa, and
Ethiopia. In Ethiopia, Power Africa, for example, is helping
develop Corbetti, a 1,000-megawatt geothermal plant that will
be the largest geothermal plant in East Africa and the
country's first privately owned energy project.
Improving a country's resilience to adverse climate change
impacts is essential to economic growth, stability, and
security. It also protects our development assistance
investments. Floods, droughts, cyclones, and extreme
temperature constitute 75 percent of natural disasters globally
and affect more than 200 million people annually.
Focusing on building resilience also saves money. Disaster
planning efforts are cheaper than relief efforts and
reconstruction. The World Bank estimates that every dollar used
for disaster risk reduction has a $7.00-savings in disaster
recovery costs. So, for example, USAID and NASA are helping
Bangladesh adopt a new flood forecasting system to reduce the
losses associated with the large-scale flooding that occurs in
that country most years.
In many of the world's poorest countries, agriculture plays
a substantial role in their economies, but adverse climate
impacts can reduce agricultural productivity and output and in
extreme cases cause widespread food insecurity.
USAID has begun working to make our agriculture investments
more resilient to weather variability. In Ethiopia we are
working to increase agricultural incomes and enhance resilience
to climate change for up to 15 million people. In Senegal and
the Dominican Republic, we are working with the local insurance
companies to help them build the expertise to design and market
affordable weather-based insurance that can reach small rural
households whose livelihoods depend on that weather.
Improving and sustaining access to water in the face of
more frequent and severe droughts is another important element
of our approach. Our programs in the Sahel work to increase
access to water by repairing and improving water access points,
building appropriate irrigation infrastructure, and introducing
practices to improve water conservation and filtration.
USAID is also working to reduce greenhouse gas emissions by
addressing deforestation and land use change.
For example, we are working with the Tropical Forest
Alliance 2020, a public-private partnership of more than 400
companies, to reduce deforestation associated with key global
commodities.
In conclusion, we see a clear set of linkages between our
efforts to improve energy access and address the impacts of
climate change with our national security. Thank you for the
opportunity to testify this afternoon and I look forward to
your questions.
[The prepared statement of Mr. Postel follows:]
Prepared Statement of Eric G. Postel
Chairman Markey, Ranking Member Barrasso, and members of the
subcommittee, on behalf of the U.S. Agency for International
Development (USAID), I would like to thank you for holding today's
hearing and giving me the opportunity to testify.
President Obama set forth a new vision of a results-driven USAID
that would lead the world in development. We have risen to this
challenge, pioneering a new model of development that emphasizes
partnerships, innovation, and results. We are guided in these efforts
by our new mission statement: we partner to end extreme poverty and
promote resilient democratic societies while advancing our security and
prosperity.
In today's global economy, America's well-being and economic growth
are closely linked to economic growth in the developing world. Growth
in developing countries helps to create new and better markets for U.S.
goods and services. Equally important, stable, secure, and resilient
nations are less vulnerable to crises, illegal activity, and
international crime, which directly impacts U.S. national security.
Two factors that are critical to spurring and maintaining economic
growth and stability in developing countries are access to affordable,
clean energy and the existence of social and institutional capacity to
adapt to, mitigate and recover from shocks and stresses such as
economic downturns and the adverse impacts of climate change. In
particular, working with developing countries to help them deal with
destabilizing climate change consequences, including water supply
shortages, coastal flooding and droughts, is critical. Such work also
protects our current and future development investments.
Today, I will highlight how the lack of clean energy access and the
inability to address climate change risks can have a destabilizing
effect on a country's economy, security, and the well-being of its
citizens. I will describe USAID's efforts to address these challenges
and discuss how our work on adaptation to climate change, water
security, food security, and sustainable landscapes impacts security.
Much of this work is embodied in USAID's Climate Change and Development
Strategy, which seeks to help developing countries speed their
transition to climate resilient, low emission, sustainable economic
growth. Stability and well-being overseas often directly helps ensure
U.S. national security.
energy access
Today, about 1.6 billion people, most of them living in the
developing world, lack access to a reliable source of electricity. The
economic consequences of this are enormous. The availability and
reliability of affordable energy--especially electricity--is critical
to growing businesses, both large and small, creating jobs, developing
markets, and providing a range of social services such as health care,
education and public security.
This was clearly seen when the U.S. Government assessed constraints
to economic growth in Africa 2 years ago. As a result, the
administration launched the Power Africa initiative to promote a
private-sector solution to improved electricity services. This
initiative has made considerable progress already, with nearly 2,800
megawatts (MW) of new generation projects financially closed, and
another 5,000 MW in the planning stages.
Expanding reliable energy access requires getting regulatory
structures right while protecting vulnerable populations. Distortionary
policies like fossil fuel subsidies can reduce incentives for energy
efficiency, hamper low and no carbon energy production, raise
dependence on energy imports, and create unsustainable fiscal
liabilities. One striking example is in Ukraine, where the U.S.
Government is now working with Ukrainian Government to bring electric
rates to a level that covers costs, protect the most vulnerable from
the impact of gas and heating rate increases, strengthen payment
discipline, improve energy efficiency in the heating sector, and
increase transparency.
For many countries, renewable energy, such as solar, wind and
hydropower, has begun to play an important role in meeting emerging
energy needs. USAID is supporting these efforts through our development
programs. Around the world, the cost of renewables is becoming
competitive with hydrocarbon-based power generation, while also helping
to mitigate the destabilizing effects of high-priced hydrocarbons. As
the cost of renewable energy declines, many countries are scaling up
renewables for a variety of reasons, including cost, domestic energy
security and addressing climate change. We will work with the
Department of State and other agencies to ensure relevant U.S.
renewable energy solutions contribute to these developments.
With USAID support a number of countries are scaling up renewables.
For example, India is scaling up wind and solar energy generation.
USAID's partnership with India in this area is focused on energy sector
reform, energy access, and clean energy programming, and has helped
India develop 30,000 MW of wind, solar and small hydro generation
capacity with a goal of adding another 30,000 MW between 2012 and 2017.
This will be almost 25 percent of India's total generation capacity in
2017. Renewables not only help India to increase power generation and
weather the shock of volatile hydrocarbon prices, but also help reduce
the country's greenhouse gas emissions.
South Africa is another example where affordable electricity plays
a critical role in supporting economic growth and stability. South
Africa has recently begun to scale up wind and solar generation through
private investment. Between 2011 and 2013, South Africa's national
power company, Eskom, signed purchase agreements for almost 3,600 MW of
renewable energy generation. South Africa is addressing its electricity
crisis by diversifying its energy mix, and USAID is supporting several
programs that will help South Africa in this important effort with a
new program that focuses on renewable energy development.
In Ethiopia, Power Africa is helping develop Corbetti, a 1,000 MW
geothermal plant in Ethiopia's Rift Valley. When complete, Corbetti
will be the largest geothermal project in East Africa and the first
privately owned energy project in Ethiopia, paving the way for other
private sector investors looking at Ethiopia for opportunities.
Corbetti and the development of Ethiopia's rich geothermal resources
will help the country diversify beyond hydro.
In the Philippines, USAID has been working successfully on scaling
up renewable energy and energy sector reform. These two areas are
closely interrelated as reformed energy systems are more capable of
providing the funds and people needed to increase modern energy access
and scale-up clean energy. USAID supported the Philippines by helping
them to pass a biofuels law that allowed them to utilize coconut oils
as a mix to their fuel supplies. More recently, USAID helped the
government to put into place a National Renewable Energy Plan and
establish feed in tariffs that are designed to be sustainable, which
will help the government to achieve a significant scaling up of
renewable energy in the coming decades.
For the Philippines, the development of renewable energy sources is
increasingly important given the rising tensions in areas through which
fuel supplies must flow. The southern island of Mindanao, one of the
Philippines' fastest growing regions, historically plagued by
insurgency and instability, is dependent on hydropower generated by a
limited number of dams. Long-term climate forecasts suggest this region
will experience decreased rainfall in the future if climate trends
continue, thus reducing the availability of water to power the dams.
Risks to hydropower supplies are a crucial energy security issue for
the region. Diversification of energy supplies is therefore essential
for prosperity in the region and USAID is working to help increase the
role of renewables in the island's overall power supply.
Scaling up renewable energy in countries like the India,
Philippines, and South Africa serves multiple objectives, supporting
economic growth, and serving the U.S. interest in stability and
sustainable growth, and mitigating the risks of climate change.
climate change
Improving a country's resilience to adverse climate change impacts
is essential to its economic growth, stability, and security. It also
protects our development assistance investments. Focusing on building
resilience also saves money: disaster planning efforts that reduce
storm damages are cheaper than relief efforts and infrastructure
reconstruction. The World Bank estimates indicate that every dollar
used for disaster risk reduction has a seven dollar savings in disaster
recovery costs.
I would like to discuss some of the destabilizing effects climate
change can have in terms of creating national disasters, reducing
agricultural productivity and causing food insecurity, and depleting
water supplies and how USAID is addressing them, particularly through
USAID's Climate Change and Development Strategy.
Floods, droughts, cyclones and extreme temperatures constitute 75
percent of natural disasters globally and affect more than 200 million
people annually. These types of disasters are expected to intensify
with climate change.
In Bangladesh, more than 20 percent of the country is flooded in a
normal year, leading to lives lost and the destruction property.
Shifting monsoon patterns are expected to increase discharge of the
rivers into Bangladesh, worsening flooding; this will be particularly
problematic in combination with sea level rise. To improve the
country's ability to mitigate the impact of flooding, USAID and NASA,
through a joint effort called SERVIR, are helping Bangladesh adopt a
new flood forecasting system. Under SERVIR, data gathered is enabling
Bangladesh to provide an additional 5 days of warning about impending
floods. Before this program, flood warnings were issued 3 days in
advance, which does not provide adequate time for farmers and their
families to prepare. USAID is also working with the U.S. Army Corps of
Engineers to ensure that storm shelters are built well and
appropriately to reduce loss of life.
In the Philippines, USAID worked to restore water services in the
wake of Typhoon Haiyan and is now supporting local water utilities and
the national government in undertaking long-term planning that can help
to ensure reliable water supplies in the context of increasing climate
stress. We are also working in partnership with local Philippine
institutions on the sustainability of these projects.
In many of the world's poorest countries agriculture plays a
substantial role in the nation's economy and employs a large portion of
its workforce. Adverse climate impacts such as erratic weather
patterns, drought, and flooding can reduce agricultural productivity
and output, severely challenging traditional agricultural livelihoods
and in extreme cases causing widespread food insecurity and
contributing to famine, as seen in the large scale humanitarian
emergencies in the Horn of Africa and Sahel in 2011 and 2012. Improving
local-level resilience to the impacts of climate change can protect and
enhance agricultural production for local, regional and global benefit,
and mitigate the disruptive influence of climate-related shocks.
USAID has begun working to make our food security investments more
resilient to the impacts of current weather variability and longer term
changes in climate. In Ethiopia, USAID is supporting an effort to
increase household incomes and enhance resilience to climate change in
the country's southern and eastern pastoralist regions, home to about
15 million people. The pastoralist population chiefly raises livestock
in arid lowlands, which are susceptible to frequent, and often severe,
droughts that put millions of people at increased risk of food
scarcity. The range of activities supported includes: increasing
climate change awareness and early warning of droughts, mapping
rangelands, rehabilitating damaged grazing grounds, building water
storage, improving animal health and nutrition, and increasing
pastoralist access to finance. Programs help develop innovative
approaches that link scientific and local knowledge by tailoring
information to the needs of both pastoralist communities and government
stakeholders to improve decision making and reduce risk.
USAID also supports partners that are developing and testing
weather-index insurance. Index insurance is a tool that can help
populations whose livelihoods depend on the weather--such as small
farmers and pastoralist herders--to manage changing climate risks. In
Ethiopia, Senegal, and the Dominican Republic, USAID is working with
local insurance companies to help them build the expertise to design
and market affordable, weather-based insurance that can reach rural
households.
Climate change also impacts water availability, quality and access.
Where there is weak institutional capacity to constructively adapt to
changes in water variability or to respond to extreme events like
droughts, conflict risks are heightened.
Improving and sustaining access to water in the face of more
frequent and severe droughts is an important element of USAID's
approach to building resilience in areas affected by fragility like the
Sahel, where many depend on rain-fed agriculture and pasture for their
livelihoods. USAID's programs in the Sahel work to increase access to
water through repairing and improving water access points, building
appropriate irrigation infrastructure, and introducing practices to
improve water conservation and filtration. Our programs help
communities to better manage their natural resources and reduce the
potential for conflict over water and other scarce resources. These
investments are intended to increase the ability of people,
communities, and countries to better cope with shocks and stresses
including climate variability and change, and ultimately, reduces the
need for humanitarian interventions.
Another aspect of USAID's climate change efforts--promoting
sustainable landscapes--also addresses drivers of instability and
insecurity. Deforestation and degradation of forests, coastal wetlands
and other landscapes, not only increase greenhouse gas emissions, but
also deplete natural resource assets over the long term and hurt
economic activities that depend on healthy ecosystems. Deforestation
can also be a destabilizing force in many forest-dependent communities,
and illegal deforestation has been associated with corruption or
criminal activity in a range of countries.
USAID is working to reduce greenhouse gas emissions by addressing
the drivers of deforestation and land-use change: unsustainable forest
clearing for agriculture, illegal logging, poor governance of land and
forests, and a failure to ensure that local communities benefit
economically from sustainable forest and land management. For example,
in Colombia, USAID is working to improve the national government's
management of biodiversity-rich forests, helping to ensure that
Colombia's natural resources will not be used for illicit purposes.
Another example of USAID's work in this area is the Tropical Forest
Alliance 2020, a public-private partnership with a network of more than
400 companies. The Tropical Forest Alliance's goal is to reduce
tropical deforestation associated with key global commodities, such as
palm oil, soy, beef, and paper and pulp. Also, the Coral Triangle
Initiative with USAID support is working to conserve imperiled coral
reef ecosystems.
concluding remarks
We see a clear set of linkages between USAID's efforts to improve
energy access and address the impacts of climate change and regional
security, which in turn benefits our national security. Heavy
dependence on imported energy is often a major economic challenge due
to fluctuating prices and pressures on foreign exchange reserves. Many
countries--especially those with limited domestic hydrocarbon
resources--are finding that scaling up renewables is a viable option,
particularly as the costs of wind and solar decline. And reducing
reliance of vulnerable economies to energy supplies from volatile
regions has multiple development, diplomatic and security benefits for
the United States.
USAID's work in our climate programs is about smarter development--
investments that avoid future costs and crises, use modern technology
and innovations to leapfrog development stages, and leverage local
actors and the private sector to help scale our investments and ensure
sustainability. Preventing or mitigating tomorrow's disasters--whether
famine, drought, water shortages, or damage from severe weather
events--enhances regional security, reduces hits to economic growth,
and benefits the United States.
Senator Markey. Thank you, Mr. Postel.
The chair will recognize himself. Let me ask you this, Dr.
Chiu. Does the Defense Department take a wait and see attitude
on climate change and the risks that it poses, or does it
integrate climate change into its future planning in terms of
our ability to be able to properly anticipate the challenges to
our country?
Dr. Chiu. I believe the answer is the latter. We are
integrating it into our future planning. Let me give you an
example of how we are thinking about that. We have a lot of
experience doing humanitarian assistance and disaster relief
operations. Commander PACCOM, for example, speaks a lot about
the demands that he has for providing that kind of assistance
to our allies and partners in the Asia-Pacific region.
Currently our ability to plan for these has been--or in the
past our ability to plan for these has largely been an
extrapolation of past efforts, and we have literally looked
backward, for example, at the last 10 years and kind of
projected the same incidents and severity going forward to plan
for our activities.
We have increasingly found that that is not an appropriate
methodology for looking at future challenges. We are now taking
into account the variability provided to us by the data that
NOAA, the Navy's Oceanographer's Office and other scientific
sources provide us for then looking at the potential for
increased incidents of extreme weather and what that will do
for the demand signal. So that is one example of how we are
beginning to integrate into our future planning.
Senator Markey. Thank you.
Mr. Postel, a lot of people say that energy is just another
commodity and we should just treat it that way; it is no
different than anything else; it is like a watch or a computer
chip. But when I look at USAID I see a lot of focus on food, on
agriculture, on energy. Can you talk a little bit about how
important it is for a country to have their own energy capacity
so that they are not dependent upon other countries?
Mr. Postel. Thank you for your question, Senator, and thank
you for your support of a number of USAID's activities.
The thing is about energy is that it is used across all
sectors. So even if we are talking about a health clinic in
Haiti where the lights go out because there is insufficient
energy supply, putting the doctors in a real difficult
situation in terms of the patients who may be on the operating
table, to agriculture, where you need energy in a variety of
aspects of that, across all sectors of economies and human
endeavor, you need energy. How do we study in classrooms if we
do not have energy in a lot of aspects of that?
So we feel that the energy requirement is needed as it
affects all aspects of development. Then you start to get into
the issue of energy diversification and not necessarily relying
on just one source, as one of the witnesses talked about, and
lastly in terms of affordability, that when countries are able
to diversify away from strictly imported sources of energy we
see a lot of advantages of that economically for the country.
Senator Markey. Thank you.
Mr. Hochstein, do you agree with that? Do you agree that
energy plays such a significant role that it has to be treated
differently than any other commodity in the world?
Mr. Hochstein. I think I would. Energy is--I think there
are a lot of commodities--there are a number of commodities
that probably would fit into categories where we would want to
take particular care, but energy clearly has an impact across
the broader economy, as Eric Postel just said. Without
reliable, affordable access to electricity and energy
resources, it is difficult to see economies grow and develop
and lower businesses develop into mid-sized businesses and so
on, without that kind of access to affordable and reliable
energy.
Senator Markey. The bottom line is that we fight trade wars
over automobiles or over computer chips. We fight real wars
over food and energy. That is just the bottom line and what
differentiates those commodities. We just have to keep that
always in the front of our mind.
Mr. Hochstein, do you agree that there is a real problem
that is taking place with ISIS in terms of the supply of oil to
the global market potentially in Iraq and across that region?
Mr. Hochstein. Let me limit my comments to what we can say
in this forum, sir. Clearly, we are very troubled by everything
about ISIS, including the fact that they have been able to
secure energy resources and energy fields, refineries, on both
sides of the Syria-Iraq border. I think it is very troubling.
Senator Markey. Well, there have been news reports that
ISIS is raising about $1 million per day selling Iraqi and
Syrian oil on the black market. Can you confirm those figures?
Mr. Hochstein. I have seen those stories and probably in
this hearing, in this session, I probably cannot go into
greater detail. But I think there is no doubt that they are in
control of some of the energy resources in Iraq.
Senator Markey. Iraqi oil production recently rose to 3
million barrels per day, a level higher actually than the pre-
United States invasion levels, making it the eighth-largest oil
producer in the world. Most of the oil is exported. For the
moment, ISIS has not pushed into southern Iraq, where the
majority of the country's oil is produced. If they did, even if
they threatened to, there could be a major impact in production
from southern Iraq, some have estimated potentially a loss of
upward of 1.5 million barrels per day. That could raise prices
dramatically all across the planet. Can you talk a little bit
about that?
Mr. Hochstein. Yes. As you said, Mr. Chairman, Iraq's oil
production is largely in two places. One is in the south in the
Basra region, which is the southern tip of Iraq on the Persian
or the Arabian Gulf. Its production has risen consistently over
the last few years, to some degree against the odds, and its
exports stand today at about 2.6, 2.7 million barrels a day. So
they are a tremendous contributor to global oil supplies and to
stability in the oil markets.
Especially, the substantial rise in oil supplies out of
Iraq came at the same time that we were restricting a lot of
oil supplies out of Iran. So it very much supplied that kind of
balance.
The other area where it is an emerging area for oil
production is in the north, in the Kurdistan region, the KRG.
Both of those areas are still under the control of the Iraqi
Government and the government of the KRG.
Senator Markey. Thank you.
Senator Barrasso.
Senator Barrasso. Thank you, Mr. Chairman.
Secretary Chiu, today's hearing focuses on U.S. security
implications of energy and climate policy. And I agree, there
are serious implications for our national security, and you see
them by the climate policies being implemented in places like
Europe. Global international crime syndicates are manipulating
these policies for profit. These groups use funds from
manipulating these green policies to aid and support terrorist
organizations and drug cartels that wish to do us and our
allies harm.
Europol, the European Union's law enforcement agency that
handles criminal intelligence, issued a threat assessment in
June of 2013. Now, I have asked that this threat assessment be
entered into the record, Mr. Chairman.
Senator Markey. Without objection.
[Editor's note.--The threat assessment article mentioned above
was too voluminous to include in the printed hearing. It will
be retained in the permanent record of the committee.]
Senator Barrasso. The threat assessment states that,
``There are increasing reports of Italian organized crime
groups engaging in a so-called alternative or green energy
market.'' The threat assessment highlights a mafia in Italy
which it calls one of the most threatening organized crime
groups at the global level. They state in the report--they cite
a study that says the crime group earns 44 billion euros a year
in income from its illicit activities. The group has forged
close alliances with Mexican and Colombian drug cartels, has
gained a foothold in the United States and Canada, recently
been implicated in money laundering, a well-known terrorist
organization. The Europol threat assessment clearly states this
group is, ``involved in environmental crime.''
I have similar assessments from Canada, from the Canadian
Government, on money-laundering and terrorist activity
financing watch; also from Interpol; and I would like those
also entered into the record, Mr. Chairman.
Senator Markey. Without objection.
[Editor's note.--The Canadian Government assessment mentioned
above was too voluminous to include in the printed hearing. It
will be retained in the permanent record of the committee.]
Senator Barrasso. So I ask you, Mr. Secretary: Are there
serious unintended consequences to our national security if we
go down this path, as Europe has done, in adopting such
policies that can be so easily exploited to fund nonstate
criminal or terrorist elements; folks that wish to do us harm?
Dr. Chiu. Senator, my interpretation of the facts that you
have presented is that transnational crime, as we have seen in
many different sectors, is attracted to where the money is, and
we see that across many different types of sectors.
Transnational crime as an element of concern for our national
security, you are absolutely correct, is something that we have
to pay attention to. But I believe it is the economic
incentives for this, rather than climate change or the effects
of climate change, which the Department is focused on, that are
the causes of this.
Senator Barrasso. So the solution offered of a similar
scheme like that can run itself into significant problems from
the standpoint of organized crime, with the solution that those
countries have come up with.
Next, in October 2003 Peter Schwartz and Doug Randall
released a report, ``An Abrupt Climate Change Scenario and Its
Implications for the United States National Security.'' This is
a number of years ago, which was commissioned by Andrew
Marshall, Director of the United States Department of Defense
Office of Net Assessment. I ask, Mr. Chairman, this be put in
the record as well.
Senator Markey. Without objection.
[Editor's note.--The report mentioned above was too voluminous
to include in the printed hearing. It will be retained in the
permanent record of the committee.]
Senator Barrasso. It states that ``Even the most
sophisticated models cannot predict the details of how the
climate change will unfold, which regions will be impacted in
which ways, and how governments and societies might respond.''
So I say, why should we then spend billions of taxpayer
dollars, defense dollars specifically, on climate change
predictions about future conflicts due to drought and famine
that the Department's own studies say that we cannot predict?
Is this not just wasteful spending based on faulty predictions,
given all of our other defense needs to fight terrorism abroad?
Dr. Chiu. In totality, that particular report, which was
done to look at a very long-term timeframe, decades-out
timeframe, says it is difficult to predict, but we must
consider the range of possibilities, which is exactly what we
do in the Department of Defense.
I am not aware of any billions of dollars of U.S. Department of
Defense money that are being spent on predictions. In fact,
what I am talking about here is mostly taking into
consideration, like many other trends that we take into
consideration, to ensure that we are prepared should these
events occur.
In some of these cases, we are recommending, frankly,
monitoring to additionally consider those trends. In some of
these cases, there will be specific activities, particularly in
the near term the installation pieces that I have already
mentioned that we do have to manage and adapt to today.
Senator Barrasso. But it is interesting, because the DOD-
commissioned report, as you say, it is very difficult to make
these clear predictions, and what do you protect and prevent
against. It says in 2007 a particular severe storm could cause
the ocean to break through levies in the Netherlands, making a
few key coastal cities such as The Hague unlivable. The report
also predicts that between 2010-2020 Europe, ``struggles to
stem emigration out of Scandinavian and Northern European
nations in search of warmth.''
So it would be interesting--there is a prediction that by
2018 Russia will join the European Union. So if we had spent
our defense dollars based on these types of predictions--and
you talked about using defense dollars to protect ourselves as
we look at all of these potential predictions--we would have
wasted billions of scarce defense dollars.
My point is, are we not just betting our scarce national
security dollars on a risky bet by making predictions about
weather, climate, years into the future a major national
security priority?
Dr. Chiu. As I have said, Senator, we have not done that.
We have not either made those predictions or invested in those
scenarios. Moreover, sir, as you said yourself, the report
points out that one cannot predict those events. I believe they
were trying to represent kind of the range of possible severe
events, which is what they did, but that is all that they did.
It painted a range of possibilities that we needed to take into
consideration. I think we have effectively, and I think you
have seen our investments with regard to those.
Senator Barrasso. In March of this year, Jeff Kueter,
President of the George Marshall Institute, released a study
called ``The Climate of Insecurity.'' Mr. Chairman, I ask that
this be entered into the record.
Senator Markey. Without objection.
[Editor's note.--The study mentioned above can be found in the
``Material Submitted for the Record'' section of this hearing.]
Senator Barrasso. Thank you, Mr. Chairman.
The report says: ``Efforts to link climate change to the
deterioration of U.S. national security rely on improbable
scenarios, imprecise and speculative methods, and scant
empirical support.'' The report goes on to say--and this is
just March of this year. It says: ``Accepting the connection
can lead to the dangerous expansion of U.S. security concerns,
inappropriately applied resources, and diversion of attention
from more effective responses to known environmental
problems.''
It also provides information to show that factors other
than the environment were much more significant in explaining
the onset of conflict. A recent survey cited in the report
found that primary causes of interstate conflict and civil war
are political, not environmental.
So do you disagree that the primary cause of conflict and
war is political, not environmental?
Dr. Chiu. No, sir, I do not disagree with that. But I do
believe that a lot of the politics can be driven by the effects
of climate change, including, as we have mentioned today,
things like water shortages, food shortages, extreme weather,
mass migration as a result of these.
I would point out, I am not familiar with that very
specific report, but the work that I am describing here is not
so much thinking of climate change as in, and of itself,
deteriorating U.S. national security, but really that the
effects of climate change need to be taken into consideration
as we seek to protect U.S. national security interests, along
with the many other trends and drivers of these types of
phenomena that you have suggested.
Senator Barrasso. Because it is interesting, when you take
a look at what the Secretary of State has talked about as kind
of the greatest, the most--``the world's most fearsome weapon
of mass destruction'' is what Secretary of State Kerry has
called climate change. But you are agreeing that the primary
cause of conflict and war is political, not environmental.
Thank you, Mr. Chairman.
Senator Markey. The Senator from Connecticut.
Senator Murphy. Thank you very much, Mr. Chairman.
Thank you to the witnesses for being here today. Just a
quick comment on the beginning of the line of questioning from
Senator Barrasso. I think we all appreciate the caution about
the ability of criminals to infiltrate renewable energy
markets. As a representative of a State that has lost hundreds
of millions of dollars in bad investments with Enron, one
particular conventional energy company, we know that fraud is
not limited to the renewable energy markets, and in fact,
criminals have found their way into virtually every industry in
which you could make some money and across the globe. That is
an invitation to go after the criminals and the syndicates
rather than to divest our interest and money from those
particular industries.
Let me start with you, Mr. Hochstein, and talk a little bit
about Ukraine and Russia again. We have had a heck of a time
getting an energy efficiency bill, a fairly modest piece of
legislation, through the United States Senate. It strikes me as
an imperative for this country to get serious about using less
energy, which is a win-win. We make ourselves less dependent on
foreign sources and we save the government and private industry
some money along the way.
But this is a big part of the story about why Ukraine has
gotten in as much trouble as they have gotten into. Their
dependency on Russia is due to the fact that they do not have
domestic resources or alternative sources, but also because
they waste an enormous amount of energy. If you sort of talk
about what really is compromising Ukrainian national
sovereignty today, you would put energy efficiency at the top
of the list--these old Soviet distribution systems by which one
giant boiler, set of boilers, is responsible for heating and
transmitting heat to an entire neighborhood, in which the
majority of that heat is lost along the way.
When you talk about national security for Ukraine right
now, well, they want to look for shale oil and they want to be
able to bring in new energy resources. When you talk to the
Ukrainian leadership themselves, at the top of their list is
energy efficiency, is that not right?
Mr. Hochstein. Yes, sir. I think, Senator, you articulated
it quite right. I think that--there is a number of issues that
we need to work with Ukraine and that we would like to help
them with. But you are correct that before you can get to the
point of looking at some of the financial issues there is two
base points that have to be addressed. The first is protecting
this industry and this sector from corruption, as has been the
case for the last several decades, which has contributed to
where they are today.
The inefficiency of the system, as you have just described,
is right on the mark. The easiest dollar to save is the one
that you do not spend. If you can get the systems to be far
more efficient and to address the subsidies that, in a gradual
way, that encourage inefficiency in the system, and if we can
address all these fundamental issues in the sector, plus have
the advantage of increasing production from unconventional
sources, conventional sources, and looking at some of the other
work, that would go a long way to solving their dependence on
the single source on Russia.
To that end, we are working. Already we have identified
areas that we will be giving some technical expertise. We are
working as a whole-of-government approach on this. We work
closely with our colleagues from USAID in some of the efforts
on efficiency, on introduction of other sources of energy, like
renewables, into the system. I am looking, working with the
Department of Energy on the areas of technical advice to
increase the amount of conventional gas that they can produce
in the short term, short to medium term, and in the longer term
looking at what we can do on the unconventional side.
Senator Murphy. As we look to the ways in which countries
would comply with a new global agreement on carbon emissions,
efficiency is the quickest and easiest way to get there. So if
we are looking at ways to try to provide some incentives for
countries that are far behind the curve in terms of energy
efficiency, which compromises their security, as is the case
with Ukraine, a global carbon reduction agreement is going to
be one of the fastest ways to try to prompt countries to get
serious about energy efficiency.
Mr. Hochstein. I would presume that is correct. I would
note that we have a special envoy on climate change and he
works on a lot of those areas and I do not. But the baseline
where we work together and we all come together is on the areas
of efficiency. It clearly is something that we need to
encourage more of because it will get us towards those goals
that you described just now.
Senator Murphy. I pose this question to Mr. Postel, but
either of the other panel members can comment on this. Let us
try to look ahead to what some of the next global scarcity
crises are. You talked a little bit in your presentation about
water scarcity. I think about India and Bangladesh, where you
do a lot of work at the top of the list. These are countries,
India in particular, which rely on the Tibetan Plateau in order
to receive the majority of the natural water resources that
they use. Reports are that in the northern portion of India the
glaciers have retreated over the last three to five decades by
25 to 35 percent, that they may be gone by 2050.
This is a crisis waiting to happen, a country with
simmering instability to begin with, a bursting population. I
am talking about India is on the verge of potentially losing
the major source of natural water, the Tibetan Plateau
glaciers.
I know you are doing a lot of work on this issue, USAID is,
something I am sure the Department of State worries about. Talk
about the potential for water instability in a country like
India should we not reverse the damage done to the biggest
source of their water?
Mr. Postel. Thank you for your question, Senator, and thank
you for your support of USAID's development work. As you just
described, in that situation and some other situations if you
have these big changes that affect water, which could occur for
any number of reasons, but if you lose those glaciers, you
could have a whole series of things initially. As all that snow
starts and ice starts converting into water, you could actually
have an abundance of water, and there are issues that have
happened. Then afterward, of course, once it is gone it is
gone, and then we have to look at things like water
conservation and what are the other possibilities, because you
could have many, many people without water.
So I do not want to speculate about--I am not familiar with
specific modeling, but we see this in several different places
around the world where there are these possibilities and we are
trying to think through how can we respond in those
circumstances, how can we be more efficient with water and so
forth.
Senator Murphy. One of the ways, as you know because again
USAID has done an enormous amount of work on this--and if you
allow me, Mr. Chairman, I will just make this one final
comment--is around the issue of clean cook stoves. There are 3
billion people worldwide who do their cooking on rudimentary
stoves using wood or some other form of biomass. That is a
particular issue in India and much of that black carbon, which
is a super pollutant, is essentially landing in the region that
is heating up those glaciers.
Senator Collins and I have a piece of legislation that we
have just introduced which would help to supplement the work
that USAID and State and others have done on this initiative.
But I applaud all of your work. This is a crisis happening and
waiting to happen at an even greater level and this is a quick
way to try to address it.
Thank you, Mr. Chairman.
Senator Markey. Thank you. I thank the Senators. I thank
the panel. This is actually a panel we could not have had 5
years ago. The State Department did not have an Energy Bureau
and the Department of Defense and USAID did not nearly as fully
integrate climate into any of their strategizing 5 years ago.
But the world has changed and we are just trying to be
realistic about what is happening out there.
Again, I think that Blackhawk Down in Somalia, with 11 and
12 three- and four-star admirals and generals saying that was
the cause, is enough for us to pay close attention to the
threats that could emerge in the future. I congratulate
President Obama for his focus on this, and we thank this panel
for their great work.
I tell you what. I will ask each of you to give us the 30
seconds you want us to remember from your testimony, and that
would be I think very helpful to us. So, Mr. Hochstein.
Mr. Hochstein. I think, just as you said, that the integral
interplay of geopolitics and energy security are going to
continue to be interwoven and will have effects one on the
other. We need to have a clearer and better and deeper
understanding of the role that energy is playing in
decisionmaking around the world and how that affects our own
national security and global national security.
Senator Markey. Mr. Postel.
Mr. Postel. For USAID, climate variability has the
potential to affect our entire portfolio of work on
development, affecting billions of people. So we are working
hard to try to factor this in and make sure that we are good
stewards of taxpayer money with all our investments across the
board.
Senator Markey. Dr. Chiu.
Dr. Chiu. For DOD, the emphasis I would highlight is on
planning for the effects of climate change, not to make
predictions, but to be prepared so that we are not caught off
guard.
Senator Markey. Thank you. Thank you all for your service
to our country, and we will take a minute here and just change
the name plates and ask for the second panel to move up to the
table.
[Pause.]
Senator Markey. We welcome the second panel and we have
just as distinguished a group on the second panel as was on the
first, and the subject deserves it. We are going to begin by
recognizing Rear Admiral David Titley, Retired, who is a Board
Member of CNA Military Advisory Board. We welcome you, Admiral.
Whenever you are ready, please begin.
STATEMENT OF RADM DAVID W. TITLEY, USN [RETIRED], MEMBER, CNA
MILITARY ADVISORY BOARD, AND DIRECTOR, CENTER FOR SOLUTIONS TO
WEATHER AND CLIMATE RISK, THE PENNSYLVANIA STATE UNIVERSITY,
ARLINGTON, VA
Admiral Titley. Thank you very much, Mr. Chairman. Chairman
Markey, Ranking Member Barrasso, and distinguished members of
the subcommittee, thanks for the opportunity to discuss the
implications of climate change on geopolitical security. It is
a privilege to come before you today and discuss this very
important topic.
Before I begin with my oral statement, I would request,
sir, that we can submit the MAB report for the record.
Senator Markey. Without objection.
[Editor's note.--The MAB report mentioned above was too
voluminous to include in the printed hearing. It will be
retained in the permanent record of the committee.]
Admiral Titley. I am David Titley. I currently serve as a
member of CNA's Military Advisory Board, or MAB for short. In
this capacity, I am here today not only representing my views
on security implications of climate change, but on the
collective wisdom of 16 admirals and generals who also serve on
CNA's MAB. I am also the director for the Center for Solutions
to Weather and Climate Risk at the Pennsylvania State
University.
I had the honor of serving in the United States Navy for 32
years, where my capstone assignment was Oceanographer and
Navigator of the Navy, and under ADM Gary Roughead's direction,
I assumed leadership of the U.S. Navy's Task Force on Climate
Change.
Sir, our collective bottom-line judgment is that climate
change is an accelerating risk to our Nation's future. Although
we have seen some movement in climate mitigation and
adaptation, the MAB felt compelled to issue our latest report
because of the lack of sufficient comprehensive action by both
the United States and the international community.
Strengthening resilience to climate impacts is critical, but to
ultimately reduce the long-term risk, we must take action to
stabilize the climate.
Climate does not change in a vacuum. It impacts and in turn
is affected by our food, energy, and most of all water demands.
The world has added over half a billion people since our first
climate report in 2007 and increasingly people are moving to
coastal urban areas, where the impacts of a changing climate
and sea level rise will be the greatest. We will deal with all
of this in a very fiscally constrained environment. Failure to
think about how climate change might impact our globally
interconnected systems and all elements of U.S. power and
security is, frankly, a failure of imagination.
If there is a canary in the climate coal mine, if I can mix
my metaphors, it is the Arctic. Arguably, there has been no
region on Earth where the climate has changed faster in recent
decades than the Arctic. Those changes are making the region
more accessible to a wide variety of human activities,
including shipping, resource extraction, fishing, and tourism.
While the MAB is encouraged to see U.S. policymakers
planning for the Arctic and for climate change in general--the
2014 Department of Defense Quadrennial Defense Review, U.S.
Navy's recently updated Arctic Road Map, and the Senate's
Fiscal Year 2015 Defense Appropriations Act report are all good
examples of that--the MAB does believe that the United States
and the international community could accelerate continued
development of Arctic capacity and capability to match the
speed of observed changes in that critical region.
Climate change will affect our military in very real ways,
by creating new mission sets, just as I discussed with the
Arctic, by placing our bases under stress from sea level rise,
droughts, floods, wildfires, and heat stress, and by stretching
overall capacity by adding additional domestic disaster relief
missions to our guard forces at a time when we are downsizing
our ground forces.
Mr. Chairman, we know you understand these changes and
their risks. As you already mentioned in your opening
statement, 7 years ago when you were a Member of the U.S.
House, General Sullivan, then chair of the MAB, testified
before your committee about the impact of climate and drought
in Somalia and the cascading effect of poor governance, famine,
forced migration, and the consequences that we only, frankly,
understood in hindsight.
I wish I could tell you today that such weather and
climate-related impacts were an aberration. Unfortunately, my
professional assessment, along with that of my MAB colleagues,
is that these increasingly serious impacts to our security will
only continue to increase in both frequency and consequence
barring meaningful action to both adapt to the changes in
climate and ultimately to stabilize a system on which mankind
has literally built civilization.
ADM Skip Bowman, fellow MAB member and former Director of
Naval Reactors, shared with us his key tenets. They are: face
the facts; respect even small amounts of risk, especially when
that risk has large consequence; seek total responsibility; and
require continually rising performance. I believe Admiral
Bowman's tenets are an excellent framework to think through not
only the planning, but the required actions needed to adapt to
and stabilize the climate.
In closing, Senator, the potential security ramifications
of global climate change should serve as catalysts for
cooperation and change. Instead, climate change impacts are
already accelerating instability in vulnerable areas of the
world and are serving as catalysts for conflict. We believe,
though, that continued leadership and tangible pragmatic
actions of the United States are critical to minimizing the
worst outcomes and maximizing our opportunities for a better
world.
I will be happy to take your questions, sir.
[The prepared statement of Admiral Titley follows:]
Prepared Statement by RADM (ret.) David W. Titley
Chairman Markey, Ranking Member Barrasso, and distinguished members
of the committee, thank you for the opportunity to discuss the
implications of climate change on geopolitical security. It is a
privilege to come before you today and discuss this very important
topic.
introduction
I am David Titley and I currently serve as the Director of the
Center for Solutions to Weather and Climate Risk at the Pennsylvania
State University. I had the honor of serving in the United States Navy
for 32 years where my capstone assignment was Oceanographer and
Navigator of the Navy, Director of U.S. Navy Task Force Climate Change,
and Assistant Deputy Chief of Naval Operations for Information
Dominance. Subsequent to my time in the Navy, I served as Chief
Operating Officer at the National Oceanic and Atmospheric
Administration (NOAA).
My Center at Penn State currently receives no Federal funding and
my views do not necessarily represent those of the Pennsylvania State
University.
You invited me here today in my position as a member of CNA's
Military Advisory Board--MAB for short. In this capacity I am here
today not only representing my views on the security implications of
climate change, but the collective wisdom of the 16 Admirals and
Generals who also serve on CNA's MAB.
I. Global Trends: Accelerating Risks
Since we published our first report in 2007 on the national
security implications of climate change, we have witnessed nearly a
decade of scientific discoveries in environmental science, burgeoning
scholarly literature on complex global interdependence associated with
climate change, and a series of reactions, or in many cases failure to
react, to the impacts of climate change. In the 7 years that have
passed since our initial assessment we have witnessed more frequent
and/or intense weather events, including heat waves, sustained heavy
downpours, floods in some regions, and droughts in others areas. Nine
of the ten costliest storms to hit the United States have occurred in
the past 10 years, including Hurricane Katrina and Superstorm Sandy.
Speaking for the MAB, we assess that the nature and pace of observed
climate changes--and an emerging scientific consensus on their
projected consequences--pose severe risks for our national security.
Still, there those who remain skeptical about the observed changes, the
causes, and debate on the magnitude of the risk.
When I was on Active Duty, both serving as the Senior Military
Assistant to the Direcot of Net Assessment and particularly as a Flag
Officer was how to think about risk and uncertainty. Managing risk is
seldom about dealing with absolute certainties but, rather, involves
careful analysis of the probability of an event and the consequences
should the event occur. When it comes to our national security, even
very low probability events with dire consequences must be considered
and mitigation/adaptation schemes developed and employed. Rather than
assessing a range of estimates as proof of disagreement that can be
used to justify inaction, military leaders view such evidence through
the lens of varying degrees of risk the estimates could represent.
Military leaders evaluate the probability and possible consequences of
events in determining overall risk. Today, the risks posed by predicted
climate change, in the MAB's judgment, represent even graver potential
than they did 7 years ago and require action today to reduce risk
tomorrow.
A. Four important global trends
There are four import global trends, worthy of note, which will
provide additional fuel to the accelerating risks of climate change.
First is global population growth. Half a billion people have been
added since the MAB completed its first report in 2007 and another half
billion will be added by 2025. Most of this growth is in Africa and
Asia, two of the areas likely to be most impacted by climate change.
The second trend is urbanization. Nearly half of the world now lives in
urban areas with 16 out of 20 of the largest urban areas being near
coastlines. The result is more of the world's population is at risk
from extreme weather events and sea level rise. The next trend is a
global increase in the middle class with an accompanying growth in
demand for food, water, and energy. The National Intelligence Community
predicts that by 2030 demand for food would increase by 35 percent,
fresh water by 40 percent, and energy 50 percent. Even without the
climate changing, it will be a challenge to meet these growth targets.
Climate change will further stress the world's ability to produce food
and drinkable water at levels necessary to meet demand. A 2012 National
Intelligence Council assessment found that water challenges will likely
increase the risk of instability and state failure, exacerbate regional
tensions, and divert attention from working with the United States and
other key allies on important policy objectives. The final trend notes
that the world is becoming more politically complex and economically
and financially interdependent. As such, we believe it is no longer
adequate to think of the projected climate impacts to any one region of
the world in isolation. Climate change impacts, combined with
globalization, transcend international borders and geographic areas of
responsibility.
B. Accelerating risks around the world affect U.S. National
Security
The world around us is changing. In recent years we have observed
changing weather patterns manifest by prolonged drought in some areas
and heavier precipitation in others. In the last few years we have seen
unprecedented wildfires threaten homes, habitats, and food supplies,
not only across the United States, but also across Australia, Europe,
Central Russia, and China. Low-lying island nations are preparing for
complete evacuation to escape rising sea levels. Globally, we have seen
recent prolonged drought act as a factor driving both spikes in food
prices and mass displacement of populations, each contributing to
instability and eventual conflict. For example in Syria, 5 years of
drought decimated farms and forced millions to migrate to urban areas.
In overpopulated cities, these climate refugees found little in the way
of jobs and were quickly disenfranchised with the government. The
ongoing strife in Syria has been exacerbated by drought and rural to
urban migration. In this way climate change has exacerbated a region
already torn by political and ethnic tensions, serving as a catalyst
for conflict. Over the coming decades we are concerned about the
projected impacts of climate change on those areas already stressed by
water and food shortage and poor governance--these span the globe, but
present the greatest short-term threat. In the longer term it is those
areas that will be threatened by rising sea level that are most at
risk. There will be only so much we can do to keep the sea out, and in
some areas the sea will not flow over the walls we build, it will flow
under or around and make the land and aquifers not useable. We are
concerned about low lying islands in the Pacific and great deltas
including the Mekong, the delta of Bangladesh, the Nile delta in Egypt,
the Mississippi delta and whole regions like the Everglades. Seawater
inundation will drastically cut food production in many of these areas
and cause millions to lose their ability to live on these retreating
areas. Migration will become a larger form of adaptation. We will need
to learn how to accept large transnational migration of people
peacefully.
II. Accelerating Climate Risks to the U.S. Homeland
A. Arctic is rapidly changing--U.S. needs to prepare
While all of the areas of increased population, stresses on food
and water resource are of growing concern, one of the areas about which
we have the greatest immediate concern is the Arctic. Over the past few
years, we have seen an almost exponential rise in the activity in the
Arctic; more shipping, more resource extraction and more posturing for
control over the resources. The Arctic is an example of where climate
change should serve as a catalyst for international cooperation. The
world is not yet prepared to respond to an accident or disaster that
could occur with increasing shipping and energy exploration in this
fragile region with limited infrastructure and extreme operating
conditions. Some great work has been done across the U.S. Government in
putting together plans for increased future operation in the Arctic,
with the Navy's 2014 Arctic Roadmap as one example. The challenge is
that the increase is happening now. Seventy-three ships sailed through
the Northwest Passage in 2013, up from 4 in 2007; meanwhile the
Russians planted a flag on the sea bottom near the North Pole.
Preparations for energy exploration are well underway. We assess that
today we do not have the communications equipment, navigation aids, and
sufficient ice hardened ships to respond to natural or manmade
disasters in that fragile area or to protect our vital interests. In
other words, we are not prepared in the short term for the rate of
increase and we must invest today in increasing our capability and
capacity.
B. Growing awareness of climate risks and planning in the
U.S.
On the positive side, we have seen increased awareness of climate
risks in communities around the U.S., and constructive planning
underway in various regions, regardless of whether the state or region
is ``red'' or ``blue.'' Two examples are worth noting.
The first example is Hampton Roads, Virginia, where the military
and the local community are jointly addressing sea level rise. Rising
sea levels, natural subsidence, and storms pose risks to the many
military facilities, related commercial shipyards, and community in
this critically important region. The area has hundreds of miles of
waterfront from three major rivers that flow into the Chesapeake Bay.
The DOD realizes that sea level rise will affect both the Hampton Roads
installations and the surrounding civilian community. DOD, working with
other Federal, State, and local agencies, as well as the Climate Change
and Sea Level Rise Institute at Old Dominion University has launched an
aggressive effort to develop plans and measures to sustain the vital
missions of this region and protect the surrounding communities. Our
report specifically highlights the initiatives of the Hampton Road area
as a positive case study.
Second, and very recently, the Pensacola Florida region is
considering how to build and rebuild in a future climate that is very
different than what we experience today. Spurred on by the historic
floods this past April as well as the projections in the National
Climate Assessment, many scientists, citizens and government leaders in
the Pensacola area understand that the time to act is now, and that
prudent planning and preparation will save lives, money, and economic
opportunities in the long run.
III. Increasing Impacts on Military Readiness
Along with planning for increased Arctic operations, the MAB was
pleased to see that the changing climate is reflected throughout the
2014 Defense Department Quadrennial Defense Review (QDR). The MAB holds
that projected climate change will have three major impacts on the
military: more demand; challenges to readiness; and new and harsher
operating environments.
The MAB expects to see an increased demand for forces across the
full spectrum of operations. Domestically, response to extreme weather
events and wildfires in the U.S. will increase demand for National
Guard, and Reserves. The frequency, severity, and probability that
these events may happen simultaneously will also likely increase demand
for Active Duty Forces to provide defense support for civilian
authority (DSCA). This causes us concern because, in a leaner military,
many of our capabilities reside in the Guard and Reserve and if they
are being used domestically they are less available to respond to
worldwide crisis. We saw this impact following tropical storm Sandy.
Globally there will be increased demand for humanitarian response
and disaster relief in response to extreme weather. Witness more than
13,000 military troops that responded to Typhoon Haiyan in the
Philippines late last year. As importantly, climate change will be a
catalyst for conflict in fragile areas and U.S. military involvement
could be an option in response to the conflicts.
In addition to more demand, which in itself will stress readiness,
our bases will be increasingly at risk from the effects of climate
change. Our bases are where we generate readiness. It is where we
train, garrison, repair, maintain and prepare to deploy. Our bases are
vulnerable to sea level rise, extreme weather including drought, which
restricts training because of the threat of wildfire, and in the future
increased precipitation in the form of rain and snow may limit
training. It is not just the bases, but also the surrounding
communities, which house and support the military. If our sailors,
soldiers airmen and marines can't get to the base because the road is
flooded then we can't generate readiness.
Finally, climate change will cause the military to be deployed to
harsher environments. Higher temperatures will stress equipment and
people, while at the same time the opening of the Arctic present a
whole new set of challenges where the military will be expected to
respond to everything from search and rescue, to disasters (weather and
man-made) to resolution of conflict and protection of vital interests.
IV. National Power Affected by Climate Risks
The final area I want to cover is how climate change will impact
the elements of national power, here at home.
National security is more than just having a strong or capable
military. American's security is determined by multiple elements of
national power: diplomacy, information, military and economic, at a
minimum. When deployed strategically, they can constitute ``smart
power.'' On the vulnerability side, National Power can also be assessed
by degradations to a nation's political, military, economic, social,
infrastructure, and information systems. The MAB has addressed how
projected climate change could degrade our National Power and
particularly focused on military, infrastructure, economic, and social
support systems.
Strain on Military Readiness and Base Resiliency. As discussed
earlier, the projected impacts of climate change could be detrimental
to military readiness, strain base resilience both at home and abroad,
and may limit our ability to respond to future demands. The projected
impacts of climate change will strain our military forces in the coming
decades. More forces will be called on to respond in the wake of
extreme weather events at home and abroad, limiting their ability to
respond to other contingencies. Projected climate change will make
training more difficult, while at the same time, putting at greater
risk critical military logistics, transportation systems, and
infrastructure, both on and off base.
Risks to Critical Infrastructure. The impacts of projected climate
change can be detrimental to the physical components of our national
critical infrastructure, while also limiting their capacities.
The Nation depends on critical infrastructure for economic
prosperity, safety, and the essentials of everyday life. Projected
climate change will impact all 16 critical infrastructure sectors
identified in Homeland Security planning directives. We are already
seeing how extreme heat is damaging the national transportation
infrastructure such as roads, rail lines, and airport runways. We also
note that much of the Nation's energy infrastructure--including oil and
gas refineries, storage tanks, power plants, and electricity
transmission lines--are located in coastal floodplains, where they are
increasingly threatened by more intense storms, extreme flooding, and
rising sea levels. Projected increased temperatures and drought across
much of the nation will strain energy systems with more demand for
cooling, possibly dislocate and reduce food production, and result in
water scarcity. Since much of the critical infrastructure is owned or
operated by the private sector, government solutions alone will not be
able to address the full range of climate-related challenges.
Economic Costs. The projected impacts of climate change will
threaten major sections of the U.S. economy.
According to the 2014 National Climate Assessment, ``The observed
warming and other climatic changes are triggering wide-ranging impacts
in every region of our country and throughout our economy. . . .'' Most
of the U.S. economic sectors, including international trade, will be
negatively affected by projected climate change. Major storms, such as
Superstorm Sandy, cost the U.S. an estimated $50 billion in damages.
On the other hand, as we recognize these risks, communities such as
New York and New Jersey are adapting and making this region more
resilient to extreme events in the future.
Local Communities Affected Too. The projected impacts of climate
change will affect major sections of our society and stress social
support systems such as first responders. As coastal regions become
increasingly populated and developed, more frequent or severe storms
will threaten vulnerable populations in these areas and increase the
requirements for emergency responders in terms of frequency and
severity of storms. Simultaneous or widespread extreme weather events
and/or wildfires, accompanied by mass evacuations, and degraded
critical infrastructure could outstrip local and Federal Government
resources, and require the increased use of military and private sector
support.
conclusion
The time for action is NOW. Projected climate change may cause
increased instability around the world; we are not prepared for the
pace of climate change as evidenced by our lack of capability and
capacity to respond to the opening of the Arctic; climate change will
likely impact our military readiness and support systems as well as
cause increased demand for forces, both at home and abroad, and finally
climate change will impact elements of our national power here at home.
Let me leave you with these comments by my fellow MAB General and Flag
Officers:
At the end of the day, we validate the findings of our first
report and find that in many cases the risks we identified are
advancing noticeably faster than we anticipated. We also find
the world becoming more complex in terms of the problems that
plague its various regions. Yet thinking about climate change
as just a regional problem or--worse yet--someone else's
problem may limit the ability to fully understand its
consequences and cascading effects. We see more clearly now
that while projected climate change should serve as catalyst
for change and cooperation, it can also be a catalyst for
conflict. We are dismayed that discussions of climate change
have become so polarizing and have receded from the arena of
informed public discourse and debate. Political posturing and
budgetary woes cannot be allowed to inhibit discussion and
debate over what so many believe to be a salient national
security concern for our Nation.
In their forward to the CNA MAB report, former Secretary of Defense
Panetta and former Secretary of Homeland Security Michael Chertoff
summarized our most important message for the committee: ``The update
serves as a bipartisan call to action. It makes a compelling case that
climate change is no longer a future threat--it is taking place now. .
. . actions to build resilience against the project impacts of climate
are required today. We no longer have the option to wait and see.''
Thank you for your attention and focus on what is one of the most
important issues to our Nation's future security and well-being.
Senator Markey. Thank you, Admiral, very much.
Our next witness, Mr. David Goldwyn, is a nonresident
senior fellow at the Energy Security Initiative at the
Brookings Institution. Welcome, sir.
STATEMENT OF DAVID L. GOLDWYN, NONRESIDENT SENIOR FELLOW,
ENERGY SECURITY INITIATIVE AT THE BROOKINGS INSTITUTION,
WASHINGTON, DC
Mr. Goldwyn. Thank you, Mr. Chairman, Mr. Ranking Member. I
will summarize my statement. I would be grateful if the full
statement was entered into the record.
It is really an honor for me to talk to you today about the
foreign policy challenges facing the United States and how we
can respond to protect both energy security and climate change.
We really face even historically an unprecedented amount of
uncertainty in energy markets. We are looking at supply
disruptions in Iraq, possibly Russia, Nigeria, Sudan, and
Venezuela. We have policy risks. Things could go either way
with negotiations with Iran and with Russia, which could lead
to significant displacement of supply or increased supply. And
as many of my fellow panelists have talked about, the growing
risk of conflict driven by climate change.
We have a lot of tools at our disposal to address these
risks. One of them is helping ourselves through our own
production. As Amos Hochstein said, our ability to grow our
production has helped mitigate that nearly 3 million barrels a
day in displaced oil that conflict has presented the global
economy. The fact that we have increased gas production has
allowed LNG supplies to flow to other countries, which has
decreased the cost for them and decreased Russia's revenues.
The question is whether we are doing all that we can, with
all the tools that we have, to mitigate the risks that we are
facing today. The four key tools that we have are: first,
energy diplomacy, and that really means policy reform, talking
to other countries about how to get prices right so energy
efficiency and other technologies can be deployed.
The second is technical assistance, helping countries grow
their own supplies, whether it is oil, gas, or renewables, or
how to introduce tariffs that will allow renewable energy into
their electricity systems.
The third is the promotion of deep and liquid energy
markets. Part of that is the fourth tool, which is exports,
which is how do we connect our providence to the global economy
in a way that can reduce prices and increase availability
overall. I think that we can deploy all these tools in a way
that both reduces greenhouse gas emissions and increases energy
security by giving other countries access to lower carbon
resources, whether those are natural gas or renewables or some
combination of the two, or coal with carbon sequestration.
So to give an example, in Ukraine the number one job we
have, as Senator Murphy said earlier, is getting prices right.
No one wants to buy energy efficiency equipment unless you are
saving money. You cannot save money if the price is below the
cost of the electricity itself. So getting prices right is job
one. Growing their own supply is probably job two. Diversifying
their supply and having more energy storage is job three. So
there is a lot that we can do with Ukraine to help them get
access to more diverse supplies.
Europe overall, we need the entire suite. Europe needs an
integrated gas market so you can move LNG from Spain all the
way to Ukraine. They do not have that right now. They need to
reduce monopolies and enforce antitrust laws so that Gazprom
does not own all the infrastructure inside of Europe. They need
to provide more LNG access so they can access more gas. They
need better interconnections, they need indigenous gas, they
need to rethink nuclear European as well.
Even in the Caribbean and Central America--I made reference
in my testimony to a report I put out with the Atlantic Council
last week which talks about the ways that the Caribbean and
Central America can get off of fuel oil and diesel, reduce
their electricity costs, reduce their carbon footprint, by
accessing natural gas, because they will get to renewables, but
they have serious policy obstacles.
So we could make the cheapest natural gas available, which
comes from the U.S. gulf coast, enable them to cut their costs
in half, be more competitive, and address our own security
challenges as well.
So in nearly every case we can add to our own security by
signaling that we will be helpful with supply as well. We can
do policy reform, we can do technical assistance, but the
reality is is that we have natural gas in abundance and we have
certain grades of crude oil in abundance as well, light oil
that we need less and condensates that we need less than we
need heavy oil. And simply by signaling that we will make those
supplies available to the global market, we can help impact
price formation, and by impacting price formation we can make
the cost of that lower carbon energy more accessible, whether
that is cheaper European for Ukraine, whether that is cheaper
natural gas for the Caribbean, or whether that is even easier
gas access for parts of Africa that are now using diesel or
fuel oil or even biomass.
So I think there are things that we can do. I do not
profess that it is a simple question, but I think there are a
lot of studies going on. Right now there have been many on LNG,
some going on crude oil which show that we can do this without
impacting domestic prices and we can manage the climate impacts
as well.
So all I would say now is that we should take energy
security and climate security with equal seriousness, that we
need to look at the options about how we can advance both of
these agendas. I think there are options that involve
diplomacy, that involve technical assistance, and that involve
more competitive markets, and I would just urge the committee
to give all of them a fair hearing.
Thank you.
[The prepared statement of Mr. Goldwyn follows:]
Prepared Statement of David L. Goldwyn
Mr. Chairman and members of the subcommittee, it is an honor to
speak with you today about challenges to U.S. national security
interests and their impact on both our energy security and climate
change. We are experiencing a period of great instability in the
world's major energy producing regions. We have been able to mitigate
the impacts of this instability due largely to unprecedented growth in
U.S. and more broadly North American energy supply. Going forward we
will need to use a variety of tools to enhance our security, including
promotion of competitive energy markets, advocacy of energy policy
reform in other countries, technical assistance to help countries
produce their own energy and promotion of energy exports. I believe we
can harmonize our interests in mitigating global climate change--
a national security risk itself--and advancing our energy security. In
many cases the alternative sources of energy supply the United States
should promote are lower in carbon than those that vulnerable countries
rely on today. In Europe, in the Caribbean and Central America, in
Africa and elsewhere, the U.S. can make lower carbon energy, especially
natural gas, more available and affordable, through effective diplomacy
and promotion of open markets.
challenges to u.s. national security
The national security challenges the United States faces across the
globe have inherent energy components. The most prominent issues
include the threat posed by Iran's nuclear program, continued Russian
efforts to foment instability in Ukraine, the emergence of the Islamic
State of Iraq and the Levant (ISIL) as a destabilizing force in Syria
and Iraq, continued instability in North Africa, and the recent
acceleration of the Israeli-Palestinian conflict. These are conflicts
involving a great percentage of the world's major energy suppliers. We
face additional challenges to the stability of Central America and the
Caribbean, as Venezuela's economic deterioration puts its ability to
provide credit support for regional energy purchases through
Petrocaribe at increasing risk. Energy poverty in Africa and South Asia
pose risks to stability in those regions. The way in which each of
these issues is managed or resolved has implications for global energy
markets and by extension our own economic growth and prosperity.
Climate change itself poses a significant risk to national
security. The Pentagon's Quadrennial Defense Review, released in March
2014, identifies climate change as a threat multiplier capable of
exacerbating poverty, environmental degradation, political instability,
and social tensions--all of which contribute to terrorist activity and
other forms of violence.\1\ A report issued by the government-funded
CNA Military Advisory Board, released in May 2014, drew similar
conclusions and discussed, among other issues, the contributions of
climate-induced drought toward fomenting regional and ethnic tensions
in the Middle East and Africa.\2\
the u.s. policy toolkit
The U.S. has multiple tools at its disposal to mitigate the impacts
of energy supply disruptions, help countries enhance their own energy
security and mitigate global climate change. In ``Energy and Security:
Strategies for a World in Transition,'' a book that I coedited and was
published last year, we argue that these tools include using diplomacy
to advocate policy reform, providing technical assistance to other
nations to help propagate the unconventional oil and gas revolution
abroad, and promoting deep and competitive energy markets by embracing
energy exports as means of making energy more affordable and accessible
to friends and allies.\3\
Energy diplomacy
As in every area of foreign policy, diplomacy is our first line of
defense. Diplomacy is the means by which we produced multilateral
sanctions to bring Iran to the negotiating table. It will also be
required to keep Iraq from fragmenting, and facilitating unity among
stakeholders so that ISIS is repelled and Iraq's contribution to global
energy supply is sustained. In many regions the U.S. needs to advocate
for the policy reforms required to attract energy investment, reduce
subsidies, reduce dependency on a single fuel or supplier or open
markets to U.S. exports or investment. The new Energy Bureau at the
State Department that I helped to design when I served under Secretary
Clinton has a leading role in this mission. One of the best historical
examples of this work is U.S. policy on European energy security. Over
the past two decades the U.S. has been more vigorous in advocating the
need for Europe to have an integrated gas market, more energy storage,
more diverse production, and stronger antitrust policy. The U.S. has
shared advancements we made in energy efficiency and renewable energy
with Europe, including building and appliance standards that have
helped Europe greatly diversify its energy supply base and better
weather Russian gas supply interruptions.
Technical assistance
The U.S. can also help other countries grow their own energy supply
through technical assistance. Two examples of this are all of
government programs led by Department of State Bureau of Energy
Resources (ENR): the Unconventional Gas Technical Engagement Program
(UGTEP) and the Energy Governance and Capacity Initiative (EGCI). UGTEP
takes many forms, from U.S. Geological Survey resource assessments to
help countries understand if they have recoverable resources, to
visitor programs where country delegations can meet with Federal, State
and local regulators to understand how to protect air, water, and land
and see first hand how an operation looks on the ground. The EGCI
program helps countries considering energy development avoid the
resource curse by teaching their Central Banks and Finance Ministries
how to manage the income from energy production, while teaching their
petroleum ministries how to understand their resource base, and use
licensing to protect the environment.
Competitive markets and free trade
A major pillar of American foreign policy since the Second World
War has been the promotion of open markets to promote economic growth
and bind nations together. We have worked for decades to encourage
those with resources--oil, gas, coal or rare earth materials, to
produce what they can, use what they need, and make the rest available
for trade. We have benefited enormously from this system whenever we
needed imports of energy, and commodities flowed easily and efficiently
to our shores in times of crisis, like the days after Hurricanes Rita
and Katrina. We fight against restrictions on rare earth minerals in
the WTO to ensure that energy efficient products can be produced and
then made available to the global market.
For the U.S. today this means that our contribution to our own
energy security and that of the planet is to produce our own energy,
use what we need and export the balance. For our own sake we need to
produce our own new resources with safety and the environment as top
priorities. All companies--including the smaller independents--need a
strong safety culture, from ensuring well bore integrity in deepwater
or deep shale beds, to securing the safe disposal of water produced
from ``tight'' hydrocarbon plays.
But the reality is that, we can dramatically enhance our own
security and that of others by connecting ourselves to the global
market we have spend decades developing and benefiting from. First, we
can enhance our own prosperity. The United States and other stable,
democratic countries, such as Canada and Australia, are well poised to
meet a considerable share of the world's growing oil and gas demand and
attain the associated export revenues. From a geopolitical perspective,
increased LNG exports from the U.S. and its allies would shift rents
away from traditional, autocratic suppliers, including Russia, that
have used the proceeds to finance policies at odds with U.S. national
security interests. U.S. supply also promotes price competition and
stability in global oil and gas markets. Price stability benefits U.S.
economic growth, and also better ensures that U.S. adversaries that are
major oil and gas exporters are less able to enjoy higher export
revenues stemming from major global supply disruptions. Numerous
studies have shown the U.S. enjoys net benefits from exports, with
minimal domestic price impacts from LNG exports and potential decreases
in domestic gasoline prices from crude oil exports.\4\
Second, building a more competitive LNG market can help mitigate
global climate change. In the coming decades, the greatest risk of
greenhouse gas emissions growth comes from non-OECD Asia, which is
forecast to account for 65 percent of total energy demand growth
through 2035. China and India alone are expected to build nearly 40
percent of the world's new generation capacity, and both countries are
currently heavily reliant on coal as a base load fuel.\5\ While work on
creating commercial scale carbon sequestration continues, the best way
to address emission growth is to help these countries meet incremental
demand through lower carbon alternatives. These alternative sources
need to be able to supply base load electricity supply at scale. The
currently available, scalable options are petroleum products such as
fuel oil or diesel, nuclear power, and natural gas. Petroleum products
are an inefficient, expensive and high carbon means of electricity
generation. Nuclear energy is a complex technology, and safe
infrastructure takes over a decade to build.
U.S. LNG exports help make gas more affordable for Europe and Asia
where, unlike the U.S., natural gas is now much more expensive than
coal. U.S. natural gas production has already lowered global LNG prices
by displacing supplies meant for the U.S. market. The increased
availability of natural gas on global energy markets from future LNG
exports makes it increasingly cost effective for the largest emerging
energy consumers, including China and India, to convert their electric
power infrastructure to natural gas. The growing adoption of natural
gas as a fuel for electricity generation in the Chinese and Indian
markets would render considerable positive climate impacts. It would
also have a multiplier effect, as increased adoption of natural gas by
these large energy consumers would leave smaller yet still important
consumers better positioned to attain financing of their own to build
or convert infrastructure to accommodate more natural gas in their own
energy mixes.
Natural gas thus remains the obvious fuel choice to serve as a
bridge to scalable renewable energy. While we should continue to pursue
a future with abundant use of renewable energy, renewables will not be
able to be adopted for grid based systems at scale in the developing
world until the battery storage challenge is addressed. Ensuring that
renewables are significant source of longer term supply, and embracing
natural gas as a bridge fuel to cut emissions now, are not mutually
exclusive goals. Even at their current limited scalability, the U.S.
should support efforts to integrate renewables into the energy mix
where they are viable. Additionally, the fact that most energy demand
growth is expected to come from the non-OECD does not absolve the U.S.
from embracing policies that will reduce our own carbon emissions.
Indeed, U.S. efforts to lead by example and in cooperation with our
allies are likely to facilitate more international buy-in of such
policies.
meeting our current challenges
We will need to use all the tools in our tool kit to meet the
energy and security challenges we face today.
Ukraine
The most obvious national security challenge where energy security
issues are explicitly at play is Russia's continued aggression in
Ukraine. Russia continues to lend material support to separatists
operating in Eastern Ukraine and last month stopped supplying natural
gas to Kiev. While this is yet to bring about a critical gas shortage
in Europe or Ukraine, there are justifiable fears that such shortages
will ensue if the Russian cutoff persists into this winter, when the
seasonal heating period begins and demand increases considerably.\6\
The U.S. needs to use diplomacy, technical assistance and support
exports to help not only the the efforts of Ukraine, but also other
countries proximate to Russia, including those in Western Europe, to
diversify their sources of supply. The diplomatic agenda is pressing
for a divided Europe to finish the work of integrating its gas market,
promoting internal market reform in member countries, developing
further infrastructure to support alternative gas supplies and
interconnections among member countries, and encouraging indigenous gas
development. However, there is also ample space where the United States
has and can continue to provide assistance. In the past the U.S.
promoted infrastructure projects, such as the Baku-Tbilisi-Ceyhan and
the Southern corridor. More recently the U.S., led by the ENR Bureau,
has advocated ``reverse flows'' of gas, including from Europe to
Ukraine. Earlier this month Slovak gas pipeline operator Eustream
indicated that it would have a route transiting EU gas to Ukraine
running at full capacity before the winter heating season begins.
Reverse flows are also reaching Ukraine from both Poland and
Hungary.\7\ Additionally, ENR, under the auspices of both UGTEP and
EGCI, has engaged with countries in the region on potential paths
forward in developing their shale resources to boost their domestic
energy production and provide new regional sources of supply. This
advocacy should be elevated to higher levels.
Export policy can help as well. A clear signal from the U.S. that
LNG exports will be available to European allies for future purchase
would put immediate pressure on Russia's market share and export
revenues, and would also provide a market signal to help accelerate
investment in, and construction of, gas transportation infrastructure
in Europe. The new policy change suggested by the Department of Energy
for considering LNG exports should help provide certainty to the market
in this regard.\8\ Price expectations matter. The U.S. shale boom,
through freeing up LNG cargoes originally destined for the U.S. to
instead reach Europe, has already put downward pressure on European gas
prices. These developments contributed to the increased leverage that
Gazprom's European customers have enjoyed in recent years, enabling
them to renegotiate contracts for the purchase of natural gas from
Gazprom to their advantage. While many skeptics question whether Europe
would receive U.S. LNG due to the expected higher prices in Asian
markets, the fact remains that European prices could easily approach
Asian levels in the event of a Russian supply cutoff. Additionally,
purchasers consider not only price, but also the diversity of supply
source and the likelihood of timely project completion, which may leave
at least some European purchasers predisposed to paying a premium price
for U.S. gas that rivals the market price Asian purchasers are willing
to pay.\9\
A robust U.S. market share in the Asian gas market offers
geopolitical advantages to the United States, and has positive
implications for the future of our climate, as well.
Iraq
Geopolitical tensions also continue to plague the Middle East, as
the Islamic State of Iraq and the Levant's (ISIL) takeover of large
shares of territory in western Iraq marks the first major spillover of
the Syrian civil war that threatens the free flow of oil from the
region. To date, the violence has not affected Iraq's key export
infrastructure, which is located in the heavily Shiite far south of the
country. But the July 20 ISIS takeover of gas fields in Syria and its
efforts to gain control of the Baiji refinery in Iraq signal its intent
to disrupt energy infrastructure. Iraq's geography does not entirely
mitigate the risk of a supply disruption. Violence in the far south
could induce international companies to pull out larger shares of their
foreign personnel, which would have negative implications for Iraqi
production.
The U.S. approach in Iraq should primarily comprise efforts to
foster reconciliation among Iraqi stakeholders. Yet the U.S. should
also be prepared to continue supporting the stability of the global oil
market should a supply disruption occur. U.S. domestic production
growth has helped keep the global market well supplied and prices
stable even as unplanned supply disruptions, including in places likes
Libya, South Sudan, and Yemen, have emerged.\10\ However, the U.S.
could do more, including taking steps to authorize the export of light
sweet crude grades that we have in excess, to help keep the global
market stable. While promoting global market stability is among the
goals of strategic reserves, the United States does not need to tap the
Strategic Petroleum Reserve at this time. Instead, it only needs to
signal very clearly that it is prepared to export grades of excess
crude if disruptions worsen and the global market requires more supply.
Numerous studies emerging this fall, including one from Brookings to be
released this September, will closely examine the impacts of such
action on the U.S. economy.
Central America and the Caribbean
One major opportunity the U.S. has to promote regional security and
climate change mitigation is in our own neighborhood. Last week the
Atlantic Council published a report \11\ I authored on the Caribbean
region's dependence on Petrocaribe, a Venezuelan-backed program that
allows cash-strapped Caribbean and Central American countries to
purchase Venezuelan crude oil and petroleum products on generous
financing terms. While this program once provided these countries with
immediate-term budget support, it left them increasingly indebted to
Venezuela, and reliant on high-carbon, expensive fuel oil and diesel
for electricity generation. The high cost of this fuel has made these
economies uncompetitive: a recent Inter-American Development Bank Study
\12\ found that the average retail tariff for 10 major Caribbean
utilities in 2012 at $0.33 per kilowatt-hour, compared to $0.10 across
all sectors of the U.S. in April 2014.\13\
A recent IDB Pre-Feasibility Study found that replacing liquid
fuels with natural gas, in combination with energy efficiency and
renewable energy measures, produced net benefits to every surveyed
Caribbean country, lowering the cost of fuel and the price of power, as
well as substantially reducing carbon emissions. We recommended that
the U.S. build on Vice President Biden's recent visit to the region,
and its Caribbean Energy Security Initiative (CESI), by expanding CESI
to promote credit incentives to attract investment to make natural gas
a more considerable share of the Caribbean's shorter- and medium-term
energy mix. The IDB study determined that U.S. Gulf Coast LNG was the
cheapest form of delivery, and that small-scale regasification
technology could provide every country with appropriate infrastructure
at a reasonable long-term cost.
These findings suggest that the U.S. could facilitate a natural gas
bridge in the Caribbean by providing credit enhancements through CESI
and declaring LNG exports to all Caribbean nations reliant on
Petrocaribe, with the exception of Cuba, to be in the national
interest. This would contribute to facilitating the marketing of supply
to these nations. U.S. LNG is in close proximity to the Caribbean
market, and will be cost competitive.
Promoting the adoption of gas in the Caribbean and Central American
energy mix would bring about several benefits for U.S. interests. The
risk of harm to the region's economies from a Venezuelan interruption
of credit support would decrease. Electricity costs for industrial and
residential consumers would decline as cheaper natural gas replaces
more expensive fuel oil and diesel for electricity generation. Finally,
cleaner burning natural gas would reduce the region's carbon footprint.
conclusion
The acknowledgement that national security and climate security
concerns are inherently linked is a crucial development for the
evolution of U.S. policy both at home and in the national security
sphere. This strategic conception of the problems we face should
provide policymakers with space to develop policies that maximize
global energy supply, promote low-carbon sources, support price
stability, and provide our allies and partners with secure sources of
supply, either through global markets or their own domestic production,
to ensure that their energy security is not at the mercy of a single
supplier.
I believe that Congress also has a role to play in accelerating the
leveling of the energy playing field. Congress can support the State
Department's role in energy diplomacy, expand our technical assistance
programs, and consider thoughtfully the role of energy exports in
advancing energy security and promoting access to lower carbon fuels.
----------------
End Notes
\1\ ``Quadrennial Defense Review 2014,'' United States Department
of Defense, March 2014, p. 8.
\2\ ``National Security and the Accelerating Risks of Climate
Change,'' CNA Military Advisory Board, May 2014.
\3\ Jan H. Kalicki and David L. Goldwyn, ``Energy and Security:
Strategies for a World in Transition,'' Woodrow Wilson Center Press and
Johns Hopkins University Press, 2013 (Kalicki and Goldwyn, 2013).
\4\ W. David Montgomery, Robert Baron, Paul Bernstein, Sugandha D.
Tuladhar, Shirley Xiong and Mei Yuan, ``Macroeconomic Impacts of LNG
Exports from the United States,'' NERA Economic Consulting, December
2012; Daniel Yergin, Kurt Barrow, James Fallon, Mohsen Bonakdarpour,
Sandeep Sayal, Curtis Smith and Jamie Webster, ``U.S. Crude Oil Export
Decision: Assessing the impact of the export ban and free trade on the
U.S. economy,'' IHS Global Insight, May 2014.
\5\ ``World Energy Outlook 2013,'' International Energy Agency,
November, 2013.
\6\ Peggy Hollinger, Christian Oliver, and Jack Farchy, ``Europe
risks `significant' gas shortages this winter,'' Financial Times, July
11, 2014.
\7\ Tim Gosling, ``Slovak gas link to give Ukraine `chance of
lasting through the winter','' Financial Times, July 8, 2014.
\8\ For more information about this issue see: David L. Goldwyn,
``DOE's New Procedure for Approving LNG Export Permits: A More Sensible
Approach,'' Brookings Institution, June 2014.
\9\ David L. Goldwyn, ``Refreshing European Energy Security Policy:
How the U.S. Can Help,'' Brookings Institution, March 2014.
\10\ Conglin Xu, ``Global Oil Market Well Supplied Despite
Disruptions to Producers,'' Oil and Gas Journal, July 47 2014.
\11\ David L. Goldwyn and Cory R. Gill, ``Uncertain Energy: The
Caribbean's Gamble with Venezuela,'' Brookings Institution, July 2014.
\12\ Jed Bailey, Nils Janson, and Ramon Espinasa, Pre-Feasibility
Study of the Potential Market for Natural Gas as a Fuel for Power
Generation in the Caribbean, Inter-American Development Bank, December
2013.
\13\ EIA Electric Power Monthly, June 23, 2014.
Senator Markey. Thank you, Mr. Goldwyn.
Next we are going to hear from Mr. Michael Breen, who is
the executive director of the Truman National Security Project
& Center for National Policy. Welcome, sir.
STATEMENT OF MICHAEL BREEN, EXECUTIVE DIRECTOR, TRUMAN NATIONAL
SECURITY PROJECT & CENTER FOR NATIONAL POLICY, WASHINGTON, DC
Mr. Breen. Thank you, Mr. Chairman, Chairman Markey,
Ranking Member Barrasso. Thank you for the opportunity to
testify today.
Although we find ourselves in a considerably better
position with regard to energy than that of several years ago,
the lack of diversified energy sources around the world
continues to create vulnerabilities for the United States and
our allies and opportunities for many of our rivals and
adversaries.
Unfolding events in Iraq exemplify the ways in which energy
and security are intertwined. Iraq is where I personally first
came to understand energy security as a young Army officer
fighting to defend fuel convoys against insurgent attack. A
decade later, those same desert roads are once again a combat
zone, with fuel supplies once again at the center of the fight.
As is the case in other conflicts, nonstate actors in Iraq seek
to capture and exploit energy resources as a source of funding.
One of ISIL's primary objectives during its recent
offensive was the refinery at Baiji, which is the largest in
Iraq. Reporting indicates that ISIL is raising as much as a
million dollars a day from selling crude oil from fields it
controls which is smuggled through Turkey and Iran. Revenues
are then directed to purchase weapons, pay insurgent fighters,
and help buy the loyalties of local tribal leaders and
government officials.
Meanwhile, continued conflict in Iraq has a destabilizing
effect on the global market. Dramatic increases in Iraq's oil
production are an essential element in most projections of
global supply growth. In IEA's World Energy Outlook, for
example, the most likely scenario projects that Iraq will
double its oil production by 2035. But that projected progress
is currently at risk.
In the short term, some estimate that the loss of just a
third of Iraqi oil production would cause a $37 a barrel rise
in the price of oil. Longer term, though, investments in the
Middle East may fall short of projections if regional conflict
persists, which could lead to a potential supply shortfall into
the 2020s.
Conflict in Ukraine also illustrates the increasingly
dangerous use of energy as a geopolitical weapon, in this case
with respect to natural gas. Russia has repeatedly used
Ukraine's energy dependence and lack of diversification as
leverage, cutting off natural gas exports. Meanwhile, about 16
percent of Europe's total natural gas consumption comes from
Russia through Ukraine. Russia's manipulations of Ukraine's
energy markets have created concerns about natural gas
shortages in the European Union. Up to this point, EU sanctions
against Russia and other responses to aggression in Crimea have
fallen well short of United States action.
Despite dramatic advances in extractive technology, the
geopolitical dynamics of energy are unlikely to move in
America's favor beyond the short term, especially with regard
to oil. Fundamentally, this is because demand in the developing
world is projected to increase dramatically, offsetting
increases in U.S. production. Oil demand is projected to grow
to about 109 million barrels a day by 2035, with China becoming
the world's largest consumer by about 2030.
Meanwhile, IEA projects that U.S. tight oil production will
plateau in the 2020s before dropping to 9.2 million barrels a
day by 2035, leaving us in roughly the same geopolitical
position we were in before the shale revolution.
In addition, climate change makes our current energy system
unsustainable, creating cascading risks and impacts around the
globe.
Given these dynamics, a singular focus on fossil fuels
production and export simply plays into the strengths of our
competitors, while leaving the United States and our allies
with continued long-term vulnerabilities. Ukraine again
provides an excellent example. Many advocate United States LNG
exports as a path to reducing Russian leverage. Such a policy
has limited but clear benefits. However, LNG exports probably
will not begin in substantial volume until 2017 at the earliest
and reaching Ukraine will be difficult.
Meanwhile, Ukraine is so reliant on Russian natural gas in
large part because it is the second-least efficient nation in
Europe. If Ukraine were simply as energy efficiency as the
average European country, it would reduce its natural gas
consumption by more than 50 percent. That is why, as proposed
by Chairman Markey earlier this year, the U.S. Government
should leverage its full resources in assisting Ukraine to
improve its energy efficiency, increase its domestic
production, and reform its energy markets.
This approach applies more broadly as well. The United
States should place greater emphasis on encouraging efficiency
along with the development of renewable sources and more
resilient distributed energy systems. The Department of Defense
has been a clear leader in this respect, prioritizing critical
investments in more diverse, resilient, and reliable energy
sources in order to maximize freedom of action and minimize
risk. The rest of government, along with the Nation as a whole,
would do well to follow a similar approach.
Thank you.
[The prepared statement of Mr. Breen follows:]
Prepared Statement of Michael Breen
Chairman Markey, Ranking Member Barrasso, distinguished members of
the committee, thank you for the opportunity to testify today on the
relationships between American foreign policy, energy policy, and
climate change. I will focus my remarks today on the linkage between
energy issues and America's most pressing geopolitical challenges.
The United States finds itself in a considerably better position
with regard to energy than several years ago. Natural gas production in
particular has expanded dramatically, putting the U.S. in a position to
become a net exporter within the next several years. This is a positive
development to be sure, and provides both strategic and economic
opportunities. Energy continues to play a central role in many
flashpoints around the world, however, including as a driver of armed
conflict. While advances in technology have improved America's energy
posture in the short term, many of our long-standing vulnerabilities
persist and are likely to worsen in the longer term.
lack of energy diversity creates security risk
The lack of diversified energy sources around the world continues
to create undue risk to American national security, the security of our
key allies, and global stability and prosperity. In geopolitical terms,
this lack of diversification creates vulnerabilities for the U.S. and
our allies, and opportunities for many of our rivals and adversaries.
This dynamic is especially pronounced with regard to petroleum,
since most major economies are overwhelmingly reliant on oil as a
transportation fuel. The United States relies on oil for more than 93
percent of our transportation sector, and most advanced economies are
in a roughly similar position. Given that oil is a globally traded
fungible commodity, this single-source dependence on oil as a
transportation fuel exposes the U.S. and our allies to the full range
of risk associated with a complex and frequently manipulated global
petroleum supply system. In other words, security and oil are deeply
intertwined, with largely negative effects.
Iraq
Unfolding events in Iraq exemplify the ways in which energy and
security are intertwined at every level of conflict. Iraq is where I
first came to understand the security implications of energy
dependence, as a young Army officer fighting to defend fuel convoys
against insurgent attack. A decade later, those same desert roads
outside of Baghdad are once again a combat zone, with fuel supplies
still at the center of the fight.
As is the case in other conflicts, nonstate actors in Iraq exploit
energy resources as a source of funding. Reporting indicates that ISIL
is raising as much as $1 million a day from selling crude oil from oil
fields in territory it controls, which is then smuggled into Turkey and
Iran. In Syria, the Assad government is reportedly supplementing oil
from Iran by purchasing oil from ISIL insurgents, even as its military
fights them. Revenues are then directed to purchase weapons, pay
insurgent fighters, and help buy the loyalties of local tribal leaders
and government officials.
Oil resources and infrastructure are therefore key strategic points
on the battlefield, shaping the course of the conflict at the tactical
and operational levels of war. In one well-known example, one of ISIL's
primary objectives during its recent offensive in Iraq was the refinery
in Baiji, the largest in Iraq. Meanwhile, Kurdish military action in
the conflict to date has been almost entirely defensive, with the sole
exception of an early push to secure oil fields. KRG's seizure of
Kirkuk oil province, in part intended to establish defense in depth for
Kurdish areas, will also give the Kurds even greater financial and
political autonomy from Baghdad.
This points to a third way in which access to oil supplies drives
and shapes the ongoing conflict in Iraq. Regional instability and
conflict within and between states across the MENA region is driven, in
part, because of the uneven distribution of energy resources. This is
certainly true in Iraq. Nearly 75 percent of Iraqi oil production is
focused in the Shia-majority south, and the main export terminal in
Basra is located there as well. Baghdad's failure to redistribute
revenue from that oil production evenly across Iraq has been a major
driver of sectarian and regional conflict.
Prized oil fields in the south currently remain productive, but are
vulnerable to insurgent attacks and remain an important military prize
for all parties to the conflict. Companies will most likely evacuate
workers, and quickly, if there are serious security concerns in Basra.
In the current climate, this continues to be a real possibility.
This is critical, because continued conflict in Iraq has a
significant destabilizing effect on the deeply interdependent global
oil market. This instability is already leading to economic and
geopolitical consequences around the world, and could impact our
economic recovery here at home given sufficient time. Dramatic
increases in Iraq's oil production are an essential element in most
projections of global supply growth. In IEA's World Energy Outlook, for
example, the most likely scenario projects Iraq to double its oil
production to 6.1mb/d by 2020, and 8.3 mb/d by 2035. According to IEA
projections, Iraq makes up nearly 45 percent of anticipated global
supply growth over the next decade.
All of that projected progress is currently at risk. In the short
term, some estimate that the loss of just a third of Iraqi oil
production would cause a $37 a barrel rise in the price of oil. Saudi
Arabia, home to nearly the entire world's spare capacity, is already
stretched due to unanticipated short-term global demand growth. Longer
term dynamics, while more difficult to predict, are potentially even
more disturbing. Investments in the Middle East may fall short of
projections if armed conflict and cascading instability across the
region persist, leading to a potential supply shortfall in the 2020s.
Ukraine
Conflict in the Ukraine also illustrates the increasingly dangerous
use of energy as a geopolitical weapon, in this case with respect to
natural gas. Russia has repeatedly used Ukraine's energy dependence as
leverage to disrupt the Ukrainian economy and exacerbate political
rifts in the country. In 2012, about 60 percent of Ukraine's natural
gas consumption and nearly 75 percent of its liquid fuels were imported
from Russia. As tensions smoldered in Crimea and Eastern Ukraine this
spring, Russia did not hesitate to capitalize on its dominant energy
position for geopolitical ends, renouncing agreements establishing a
natural gas energy giant, Gazprom.
Even as Russia has used energy dependence as a sword against
Ukraine, it has employed similar dynamics as a shield against Western
European interference in the conflict. Sixteen percent of Europe's
total natural gas consumption comes from Russia through Ukraine.
Russia's manipulations of Ukraine's energy markets have created
concerns about natural gas shortages in the European Union. Up to this
point, EU sanctions against Russia and other responses to aggression in
Crimea have fallen well short of U.S. action. Instead, as proposed by
Chairman Markey earlier this year, the U.S. government should leverage
its full resources in assisting Ukraine to improve its energy
efficiency, increase its domestic production, and reform its energy
markets.
Northeast Asia
Despite rising tensions between Japan and China over possession of
offshore islands and the continuing threat posed by North Korea, the
security situation in the North China Sea region is not currently as
dire as that in the Middle East and Eastern Europe. However, ongoing
dynamics with respect to energy have a negative impact on U.S.
interests and allies' security there as well. Earlier this year, Russia
and China signed a 30-year gas supply agreement worth approximately
$400 billion. This agreement may draw the two great powers into deeper
alignment, with negative repercussions for the U.S. and our allies.
Meanwhile, Japan's energy situation continues to evolve amid
considerable uncertainty. More than a quarter (26 percent) of Japan's
electricity came from nuclear power plants before the Fukushima
disaster. Now, with all of its nuclear plants on indefinite suspension,
Japan is the world's leading importer of liquefied natural gas. Japan
alone consumed over a third (37 percent) of global LNG in 2012. In an
effort to meet this need, Japan is reportedly considering a natural gas
pipeline to Russia to bring in LNG from Siberia. While this would have
some benefits for Japan, Russia's demonstrated willingness to use
energy supplies for coercion should give us pause.
future trends
Despite dramatic advances in extractive technology, the
geopolitical dynamics of energy are unlikely to move in America's favor
beyond the short term, especially with regard to oil. Fundamentally,
this is because demand in the developing world is projected to increase
dramatically, offsetting increases in U.S. production. Oil demand is
projected to grow by 19 mb/d to 109 mb/d by 2035. Virtually all of this
increased demand is expected to come from non-OECD countries. China is
projected to become the world's largest consumer in 2029, growing to
18mb/d by 2035, while demand from India and the Middle East will likely
grow even more rapidly than China's.
Meanwhile, IEA projects that U.S. tight oil production will reach a
plateau in the 2020s, before dropping to 9.2 mb/d by 2035 mb/d by
2035--leaving us in much the same position we were in before the shale
revolution. The global market is projected to remain fairly tight
overall along the way, meaning price volatility will continue to be a
problem over the next several decades. This places the U.S. and our
allies at risk of continued overreliance on the same large-scale
holders of conventional resources who energy system unsustainable,
creating cascading risks and impacts around the globe and across the
full range of human activity.
implications for u.s. policy
Given these dynamics, a singular focus on fossil fuels production
and export simply plays into the strengths of our competitors while
leaving the U.S. and our allies with continued vulnerabilities. The
U.S. should also encourage investments in renewable energy and energy
efficiency through technology sharing and targeted loans.
Ukraine provides an excellent example. Many advocate U.S. LNG
exports as a path to reducing Russian leverage. Such a policy has
limited but clear benefits, and should be pursued. However, LNG exports
probably won't begin at substantial volume until 2017 at the earliest,
and reaching Ukraine will be difficult. Turkey in particular is likely
to resist allowing LNG tankers through the Bosphorus, due to safety,
environmental, and economic concerns.
Meanwhile, Ukraine is so reliant on Russian natural gas in large
part because it is the second most energy inefficient nation in Europe,
with energy subsidies making up nearly 8 percent of GDP. If Ukraine
were simply as energy efficient as the average European country, it
would reduce its natural gas consumption by more than 50 percent. The
U.S. should seize the opportunity to improve Ukraine's position by
prioritizing investments in energy efficiency. We should also tap
existing U.S. and international expertise to increase and diversify
Ukraine's domestic energy production, including renewables.
This approach applies more broadly as well. The U.S. should place
greater emphasis on encouraging efficiency, along with the development
of renewable sources and more resilient distributed energy systems. The
Department of Defense has been a clear leader in this respect, teaming
with partner nations to improve fuel efficiency and reduce energy
demand across our combined forces. At the same time, DOD has
prioritized critical investments in more diverse, resilient, and
reliable energy sources in order to maximize freedom of action and
minimize risk. The rest of government, along with the nation as a
whole, would do well to follow a similar approach.
Senator Markey. Thank you, Mr. Breen.
Our final witness, Ms. Mary Hutzler, is distinguished
senior fellow for the Institute of Energy Research. We welcome
you.
STATEMENT OF MARY HUTZLER, DISTINGUISHED SENIOR FELLOW,
INSTITUTE FOR ENERGY RESEARCH, BERLIN, MD
Ms. Hutzler. Chairman Markey, Dr. Barrasso, and members of
the committee, thank you for the invitation to testify today
concerning the prospect of greater energy security and
particularly how the contours of various climate policies are
shaping our own domestic energy future and that of our allies.
I want to begin by congratulating you, Chairman Markey, for
your successful bid to fill the seat vacated by Secretary of
State John Kerry. I have had many opportunities through the
years to testify before you during your nearly four decades of
service in the House of Representatives and I welcome the
opportunity to continue that dialogue.
For more than 7 years I have served IER and before that I
held several management positions at the Energy Information
Administration, including as Acting Administrator. In all that
time, neither energy analysts at EIA nor policymakers in the
U.S. Congress were able to predict the transformation of
America's domestic energy frontier that occurred over the last
few years. For decades, U.S. energy policy had been guided by
the ever-elusive quest for diminishing energy resources. Our
allies around the world also felt the squeeze of perceived
energy scarcity. Meanwhile, climate alarm intensified a
political push for renewable energy.
Data now exists to examine the effects of these policies,
both on the climate and on the economies of the nations who
adopted aggressive agendas for decarbonization. Over the course
of the last decade, countries across the European Union have
pursued the specter of a green energy future with unparalleled
enthusiasm. Through various tax measures, taxpayer-funded
subsidies, mandates, surcharges, and feed-in tariffs, our
allies across the Atlantic have provided us an instructive
lesson.
Today industrial electricity prices in the EU are two to
five times higher than in the United States. According to the
European Commission, electricity prices in Europe have risen 37
percent more than those in the United States when indexed
against 2005 prices. By 2020, as many as 1.4 million additional
European households are expected to be in what some analysts
refer to as ``energy poverty.''
The EU system of cap and trade, a variation of which
narrowly passed the U.S. House of Representatives in June 2009
but never became law, has proven fertile terrain for
fraudsters, tax cheats, market manipulators, and various cyber
criminals who exploit the inherent weaknesses of carbon trading
schemes. According to the market analysts at Bloomberg, as much
as 7 percent of the total carbon market is based on fraudulent
trading in a given year.
Additionally, some of our European allies are now facing
the steep decline of their economies and a dramatic rise in
their unemployment rolls as they struggle under a heavy green
energy burden. In Spain, for each megawatt of wind energy
installed more than four jobs were lost. For each megawatt of
solar, nearly 13 jobs were lost. And in the past 7 years,
Spain's unemployment rate has jumped from 9 percent to more
than 25 percent. Fortunately, Spain's policymakers are trying
to stop the hemorrhage that their quest for green energy has
exasperated.
Wind and solar cannot sustain a growing, vibrant economy.
These technologies do not create long-term jobs and they cannot
supply reliable electricity when consumers need it most. In
Germany, where utilities have been ordered to generate 50
percent of their electricity from renewable sources by 2030,
the EU's largest economy is now risking what their own energy
minister called ``de-industrialization.'' Germany's green
energy agenda, phase-out of its nuclear units, and restrictions
on development of its domestic resources have resulted in high
electricity prices, dependence on Russia for natural gas
supplies, and increased greenhouse gas emissions.
In the U.K., nearly one-fifth of the nation's population is
now in energy poverty, up from 6 percent just a decade ago. In
Australia, where a short-lived carbon tax threatened to set the
world's 12th-largest economy back decades, the government has
repealed it to mitigate the harm caused by a tax that neither
helped the environment nor the economy.
The policies of these countries have followed a similar
pattern. The government passes ambitious green energy laws,
electricity rates rise as subsidies increase out of control,
job losses pile up, and the government is forced to consider
amending or repealing its misguided policies.
Europe's green energy policies have contributed to its
economic slowdown, where Europe is now unable to meet its
minimal NATO commitments to fund defense. And because Russia is
an important energy supplier, Europe is increasingly reluctant
to act against aggression.
The United States must not follow a similar course. The
bright horizon of America's domestic energy future is not
guaranteed and policymakers should temper their enthusiasm for
renewables with the real world facts, now observed with
undeniable effects for those who have pursued the green energy
dream.
Thank you for the opportunity to testify. I am happy to
answer any questions.
[The prepared statement of Ms. Hutzler follows:]
Prepared Statement of Mary J. Hutzler
The Institute for Energy Research (IER) is a nonprofit organization
that conducts research and evaluates public policies in energy markets.
IER articulates free market positions that respect private property
rights and promote efficient outcomes for energy consumers and
producers. IER staff and scholars educate policymakers and the general
public on the economic and environmental benefits of free market
energy. The organization was founded in 1989 as a public foundation
under Section 501(c)(3) of the Internal Revenue Code. Funding for the
institute comes from tax-deductible contributions of individuals,
foundations, and corporations.
Thank you for the opportunity to supply this testimony for the
committee's use.
The United States is in the midst of a domestic energy renaissance
that has lowered our import dependency and increased our security.
However, there are many policymakers that seek to restrict the
availability of our natural resources and make energy less affordable
for Americans. Lessons can be learned from many of our allies that have
tried carbon restriction policies and have had poor results.
Europe, for example, has pursued some of the most aggressive
``green'' energy policies in the world. Countries across the European
Union have passed laws to promote renewable energy technologies, curb
greenhouse gas (GHG) emissions, and decrease energy consumption. To
achieve these goals, European governments have imposed various schemes,
taxes, subsidies, and mandates, including cap and trade, feed-in
tariffs and surcharges that force consumers to foot the bill for
expensive green energy technologies.
Carbon restriction and other ``green'' policies have slowed the
economies of these allies, moved industries offshore, made jobs more
difficult to obtain, and lowered the income power of their citizens.
While each country has had a somewhat unique experience, all follow a
similar pattern: the government passes ambitious green energy laws;
electricity prices rise as subsidies increase; and then the government
considers amending or repealing its misguided policies.
Australia, for example, having imposed a carbon tax, has now
approved legislation to remove it. And, other countries that have
subsidized renewable energy are slashing those subsidies due to the
impact on their economies, electricity rates, and energy poverty
levels. This testimony will highlight carbon restriction policies in
the European Union (EU) and Australia and their resulting impact.
european union emissions trading scheme
The Emissions Trading Scheme (ETS) was launched by the EU in
January 2005 as an attempt to comply with the 1997 Kyoto Protocol. It
was the world's first cross-border greenhouse gas emissions (GHG)
trading program, regulating more than 11,500 installations and about 45
percent of total EU carbon dioxide emissions. Under the ETS, European
companies must hold permits to allow them to emit carbon dioxide. A
certain number of those permits were distributed at no cost to the
industries that must reduce their output of carbon dioxide emissions.
If businesses emit less carbon dioxide than the permits they hold, they
can either keep the excess permits for future use or sell the excess
permits and make a profit on them.
The early results of the program were that EU emissions were not
significantly lowered until the global recession hit in 2008, which
lowered emissions for all countries. There were also misuses and abuses
in the system because of its complexity, politicized decisionmaking,
and the incentive to manipulate it.
Before the global recession hit, some EU countries saw faster
carbon dioxide emissions growth than the United States which was not
subject to the policy. From 2000 to 2006, the rate of growth of
European emissions under the cap-and-trade policy was almost 5 times
higher than the rate of growth in emissions in the United States.\1\
After the global recession, however, EU carbon dioxide emissions in
2009 were almost 8 percent below 2008 levels.\2\ Due to the global
recession, carbon dioxide emissions, in many cases, were lowered below
the targets set by the cap-and-trade policy, so companies did not have
to take further actions to reduce their emissions.\3\ Severe downturns
in economic activity result in significant reductions in emissions.
Because the free allocation of permits was based on future estimates of
higher emissions levels, which did not materialize, there were too many
free government-issued permits. As a result, companies hit hard by the
recession were able to make profits by selling the excess permits but
chose not to pass those savings onto their customers. Consumers ended
up paying higher energy and commodity costs; taxpayers paid for the
program's implementation; and a new middleman was created to run the
carbon permit trading program.\4\
Europe found the costs of the program to be large. In 2006,
individual business and sectors had to pay =24.9 billion for permits
totaling over 1 billion tons. In 2011, the global carbon markets were
valued at US$176 billion, with 10.3 billion carbon credits traded.\5\
The World Watch Institute estimated the costs of running a trading
system designed to meet the EU's Kyoto obligations at about $5 billion.
The costs of a trading system to meet the EU's commitments of a 20-
percent reduction by 2020 (against a 1990 baseline) were estimated to
be about $80 billion annually.\6\
Unlike traditional commodities, which at some time during the
course of their market exchange must be physically delivered to
someone, carbon credits do not represent a physical commodity, which
makes them particularly vulnerable to fraud and other illegal activity.
Carbon markets, like other financial markets, are at risk of
exploitation by criminals due to the large amount of money invested,
the immaturity of the regulations and lack of oversight and
transparency. The illegal activities identified include \7\:
Fraudulent manipulation of measurements to claim more carbon
credits from a project than were actually obtained;
Sale of carbon credits that either do not exist or belong to
someone else;
False or misleading claims with respect to the environmental
or financial benefits of carbon market investments;
Exploitation of weak regulations in the carbon market to
commit financial crimes, such as money laundering, securities
fraud or tax fraud; and
Computer hacking/ phishing to steal carbon credits and theft
of personal information.
German prosecutors, for example, searched 230 offices and homes of
Deutsche Bank, Germany's largest bank, and RWE, Germany's second-
biggest utility, to investigate 180 million euros ($238 million U.S.)
of tax evasion linked to emissions trading. The U.K., France, and the
Netherlands also investigated carbon traders, who committed fraud by
collecting the tax, and disappearing without returning the tax funds.
According to estimates from Bloomberg New Energy Finance, about 400
million metric tons of emission trades may have been fraudulent in
2009, or about 7 percent of the total market.\8\ Tax evasion linked to
emissions trading is still a problem. This year, for example, Frankfurt
prosecutors sought the arrest of a British national in connection with
suspected tax fraud worth 58 million euros ($80 million).\9\
Another problem is with the lack of predictability regarding the
emissions permit price. Companies need to know the price for long-term
planning to decide on what actions they should take. The EU permit
price ranged by a factor of 3, but even at the higher price range, it
was insufficient to meet the emission reduction targets before the
global recession hit.\10\ A cap-and-trade policy is a highly complex
system to implement because there are a large number of participants
and the components of the system are difficult to get right as EU's
experience has shown.
Last year, the EU commenced phase three of the ETS toward meeting
their target of a 40-percent reduction in greenhouse gas emissions
below 1990 levels by 2030.\11\ Phase 3, which has a number of
significant rule changes, will continue until 2020. As of 2011, carbon
dioxide emissions of the original 27 member EU were just 8 percent
below 1990 levels, and the majority of the reduction was achieved by
the global recession. That means the EU has a long way to go to meet
its target. In the meantime, energy prices have increased and more and
more Europeans are facing fuel poverty, meaning they pay more than 10
percent of their household income for energy.
For example, industrial electricity prices are two to five times
higher in the EU than in the United States and are expected to increase
more.
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Europe's once comfortable middle class is being pushed into energy
poverty as a result of the carbon reduction measures and EU's renewable
programs (discussed later). According to the European Commission,
electricity prices in the Organization for Economic Cooperation (OECD)
Europe have risen 37 percent more than those in the United States when
indexed against 2005 prices. By 2020, at least 1.4 million additional
European households are expected to be in energy poverty.
EU's ETS and clean energy programs have not significantly reduced
emissions, but rather have dramatically raised energy prices, increased
national debt, driven businesses out of Europe, led to massive job
losses and unemployment, greatly increased energy poverty, and have
been plagued by fraud and corruption. This economic malaise, in turn,
has made Europe less capable of expending funds for their national
defense needs and has contributed to the weakening of multilateral
defense organizations like NATO. The European members of NATO are now
spending less than 2 percent of their GDP on defense spending, which is
below NATO guidance.\12\
australia's carbon tax
Australia implemented a carbon tax in 2012. Below is a schematic of
Australia's plans, beginning in 2009, for a cap-and-trade program and
carbon tax. The carbon tax, which is currently set at $24.15 Australian
currency ($22.70 U.S.) per metric ton, was initially implemented in
July 2012 and was designed as a precursor to a cap and trade scheme,
with the transition to a flexible carbon price as part of the trading
program beginning in 2015. The tax applies directly to around 370
Australian businesses. But the September 7, 2013, election put a damper
on the program.
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Australia's new government wants to dismantle the legislation that
levies fees on carbon emissions and replace it with taxpayer funded
grants to companies and projects that reduce emissions. The Emissions
Reduction Fund would be funded at A$2.55 billion ($2.4 billion
U.S.).\13\ Repealing Australia's carbon tax on July 1, 2014, is
estimated to \14\:
Reduce the cost of living of its citizens--the Australian
Treasury estimates that removing the carbon tax in 2014 to 2015
will reduce the average costs of living across all households
by about $550 more than they would otherwise be in 2014 to
2015.
Lower the cost of retail electricity by around 9 percent and
retail gas prices by around 7 percent than they would otherwise
be in 2014 to 2015.
Boost Australia's economic growth, increase jobs and enhance
Australia's international competitiveness by removing an
unnecessary tax, which hurts businesses and families.
Reduce annual ongoing compliance costs for around 370
entities by almost $90 million per annum.
Remove over 1,000 pages of primary and subordinate
legislation.
Australia's lower House of Parliament voted to scrap the carbon tax
on July 14, and the Australian Senate voted in favor on July 17,
2014.\15\ According to Tony Abbott, Australian Prime Minister speaking
at a news conference, ``Today the tax that you voted to get rid of is
finally gone, a useless destructive tax which damaged jobs, which hurt
families' cost of living and which didn't actually help the environment
is finally gone.'' The repeal will save Australian voters and business
around A$9 billion ($8.4 billion U.S.) a year.\16\
Australia's residents found the carbon tax experience to include
soaring electricity prices, rising unemployment, income tax hikes, and
additional command-and-control regulations. Electricity prices
increased 15 percent over the course of a year (which included the
highest quarterly increase on record), and companies laid off workers
because of the tax.
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Further, government data shows that the tax had not reduced the
level of Australia's domestically produced carbon dioxide emissions,
which is not surprising, since under the carbon tax Australia's
domestic emissions were not expected to fall below current levels until
2045.\17\
renewable subsidies in europe
As part of Europe's effort to reduce greenhouse gas emissions to
comply with the Kyoto Protocol, EU set mandates for renewable
generation (20 percent of its electricity to be generated by renewable
energy by 2020) coupled with hefty renewable subsidies as enticements.
The Europeans have found that these subsidies have grown too large, are
hurting their economies, and as a result, they are now slashing the
subsidies. In fact, the costs have become so enormous that governments
in European countries are unilaterally rewriting their contracts with
renewable generating firms and reneging on the generous deals they
initially provided. Spain, for example, ended its feed-in tariff, which
guaranteed an extremely high price for renewable power, replacing it
with either a much lower subsidy or no subsidy, depending on the
circumstance.
Spain
In order to enhance renewable energy sources in Spain, the
Government enacted legislation to reach 20 percent of electric
production from qualified renewable energy by 2010. To meet this
target, the government found it needed to provide incentives to ensure
the market penetration of renewable energy, including providing above-
market rates for renewable-generated electricity and requiring that
electric utility companies purchase all renewable energy produced.
In 1994, Spain implemented feed-in tariffs to jump start its
renewable industry by providing long-term contracts that pay the owners
of renewable projects above-market rates for the electricity
produced.\18\ Because renewable technologies generally cost more than
conventional fossil fuel technologies, the government guaranteed that
renewable firms would get a higher cost for their technologies. But,
because the true costs of renewable energy were never passed on to the
consumers of electricity in Spain, the government needed to find a way
to make renewable power payments and electricity revenues meet.
Since 2000, Spain provided renewable producers $41 billion more for
their power than it received from its consumers.\19\ (For reference,
Spain's economy is about one-twelfth the size of the U.S. economy.) In
2012, the discrepancy between utility payments to renewable power
producers and the revenue they collected from customers was 5.6 billion
euros ($7.3 billion), despite the introduction of a 7-percent tax on
generation.\20\ The 2012 gap represented a 46-percent increase over the
previous year's shortfall.
This massive rate deficit should not come as a surprise. For 5
years, IER has warned of this problem beginning when Dr. Gabriel
Calzada released his paper on the situation in Spain and testified
before Congress.\21\ He found that Spain's ``green jobs'' agenda
resulted in job losses elsewhere in the country's economy. For each
``green'' megawatt installed, 5.28 jobs on average were lost in the
Spanish economy; for each megawatt of wind energy installed, 4.27 jobs
were lost; and for each megawatt of solar installed, 12.7 jobs were
lost. Although solar energy may appear to employ many workers in the
plant's construction, in reality it consumes a large amount of capital
that would have created many more jobs in other parts of the economy.
The study also found that 9 out of 10 jobs in the renewable industry
were temporary.\22\, \23\
Spain's unemployment rate has more than doubled between 2008 and
2013. In January 2013, Spain's unemployment rate was 26 percent, the
highest among EU member states.\24\ Spain's youth unemployment (under
the age of 25) reached 57.7 percent in November 2013, surpassing
Greece's youth unemployment rate of 54.8 percent in September 2013.\25\
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The Spanish Government did not believe Dr. Calzada 5 years ago, but
they have now been hit in the face with reality. To recover the lost
revenues from the extravagant subsidies, the Spanish Government ended
its feed-in tariff program for renewables, which paid the renewable
owners an extremely high guaranteed price for their power as can be
seen by the deficit. Currently, renewable power in Spain gets the
market price plus a subsidy which the country deems more
``reasonable.'' Companies' profits are capped at a 7.4-percent return,
after which renewable owners must sell their power at market rates. The
measure is retroactive to when the renewable plant was first built.\26\
Therefore, some renewable plants, if they have already received the 7.4
percent return, are receiving only the market price for their
electricity.
Further, wind projects built before 2005 will no longer receive any
form of subsidy, which affects more than a third of Spain's wind
projects. As a consequence of the government's actions to rein in their
subsidies and supports, Spain's wind sector is estimated to have laid
off 20,000 workers.
The Spanish Government also slashed subsidies to solar power,
subsidizing just 500 megawatts of new solar projects, down from 2,400
megawatts in 2008.\27\ Its solar sector, which once employed 60,000
workers, now employs just 5,000. In 2013, solar investment in Spain
dropped by 90 percent from its 2011 level of $10 billion.
Spain's 20 percent renewable energy share of generation from wind
and solar power has come at a very high cost to the nation.
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Germany
In Germany, as part of the country's ``Energiewende,'' or ``energy
transformation,'' electric utilities have been ordered to generate 35
percent of their electricity from renewable sources by 2020, 50 percent
by 2030, 65 percent by 2040, and 80 percent by 2050. To encourage
production of renewable energy, the German government instituted a
feed-in tariff early, even before Spain.
In 1991, Germany established the Electricity Feed-in Act, which
mandated that renewables ``have priority on the grid and that investors
in renewables must receive sufficient compensation to provide a return
on their investment irrespective of electricity prices on the power
exchange.'' \28\ In other words, utilities are required to purchase
electricity from renewable sources they may not want or need at above-
market rates. For example, solar photovoltaics had a feed-in tariff of
43 euro cents per kilowatt hour ($0.59 U.S. per kilowatt hour), over 8
times the wholesale price of electricity and over four times the feed-
in tariff for onshore wind power. A subsequent law passed in 2000, the
Renewable Energy Act (EEG), extended feed-in tariffs for 20 years.\29\
Originally, to allow for wind and solar generation technologies to
mature into competitive industries, Germany planned to extend the
operating lives of its existing nuclear fleet by an average of 12
years. But, the Fukushima nuclear accident in Japan caused by a tsunami
changed Germany's plans and the country quickly shuttered eight nuclear
reactors and is phasing out its other nine reactors by 2022, leaving
the country's future electricity production mostly to renewable energy
and coal.\30\
Coal consumption in Germany in 2012 was the highest it has been
since 2008, and electricity from brown coal (lignite) in 2013 reached
the highest level since 1990 when East Germany's Soviet-era coal plants
began to be shut down. German electricity generation from coal
increased to compensate for the loss of the hastily shuttered nuclear
facilities. Germany is now building new coal capacity at a rapid rate,
approving 10 new coal plants to come on line within the next 2 years to
deal with expensive natural gas generation and the high costs and
unreliability of renewable energy.\31\ As a result, carbon dioxide
emissions are increasing.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
In 2013, Germany's carbon dioxide emissions increased by 2.4
percent over 2012 levels.\32\
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
While the United States is using low cost domestic natural gas to
lower coal-fired generation, in Germany, the cost of natural gas is
high since it is purchased at rates competitive with oil. Also, Germany
is worried about its natural gas supplies since it gets a sizable
amount from Russia. While domestic shale gas resources are an
alternative, particularly since the Germans are hydraulic fracturing
pioneers and have used the technology to extract tight gas since the
1960s, Germany's Environment Minister has proposed a prohibition on
hydraulic fracturing until 2021 in response to opposition from the
Green Party.\33\ According to the Energy Information Administration,
Germany has 17 trillion cubic feet of technically recoverable shale gas
resources.\34\
Germany has some of the highest costs of electricity in Europe and
its consumers are becoming energy poor. In 2012, the average price of
electricity in Germany was 36.25 cents per kilowatt hour,\35\ compared
to just 11.88 cents for U.S. households, triple the U.S. average
residential price.\36\ These prices led Germany's Energy Minister to
recently caution that they risk the ``deindustrialization'' of the
economy.
In addition to high electricity prices, Germans are paying higher
taxes to subsidize expensive green energy. The surcharge for Germany's
Renewable Energy Levy that taxes households to subsidize renewable
energy production increased by 50 percent between 2012 and 2013--from
=3.6 cents (4.97 U.S. cents) to =5.28 cents (6.7 cents) per kilowatt
hour, costing a German family of four about =250 ($324) per year,
including sales tax.\37\ The German Government raised the surcharge
again at the start of this year by 18 percent to =6.24 cents per
kilowatt hour (8.61 U.S. cents) representing about a fifth of
residential utility bills,\38\ making the total feed-in tariff support
for 2014 equal to =21.5 billion ($29.6 billion).\39\ As a result, 80
German utilities had to raise electricity rates by 4 percent, on
average, in February, March, and April of this year.
The poor suffer disproportionately from higher energy costs because
they spend a higher percentage of their income on energy. As many as
800,000 Germans have had their power cut off because of an inability to
pay for rising energy costs, including 200,000 of Germany's long-term
unemployed.\40\
Adding to this is a further disaster. Large offshore wind farms
have been built in Germany's less populated north and the electricity
must be transported to consumers in the south. But, 30 wind turbines
off the North Sea island of Borkum are operating without being
connected to the grid because the connection cable is not expected to
be completed until sometime later this year. Further, the seafloor must
be swept for abandoned World War II ordnance before a cable can be run
to shore. The delay will add $27 million to the $608 million cost of
the wind park. And, in order to keep the turbines from rusting, the
turbines are being run with diesel.\41\ \42\
Germany's power grid has been strained by new wind and solar
projects both on and offshore, making the government invest up to $27
billion over the next decade to build about 1,700 miles of high-
capacity power lines and to upgrade existing lines. The reality is that
not only is renewable energy more expensive, but it also requires
expensive transmission investments that existing sources do not, thus
compounding the impact on consumers and businesses.
Germany knows reforms are necessary. On January 29, the German
Cabinet backed a plan for new commercial and industrial renewable power
generators to pay a charge on the electricity they consume. As part of
the reform of the Renewable Energy Sources Act, the proposal would
charge self generators 70 percent of the renewable subsidy surcharge,
(i.e. the =6.24 cents per kilowatt hour). Under the proposal, the first
10 megawatt hours would be exempt for owners of solar photovoltaic
projects that are less than 10 kilowatts. According to the German Solar
Energy Industry Association, about 83 percent of solar self generators
would be subject to the new charge. Another reform being considered is
a reduction in the feed-in tariff from the current average of =17 cents
(23.47 U.S. cents) per kilowatt hour to =12 cents (16.56 U.S. cents)
per kilowatt hour.\43\
On July 11, Germany's upper House of Parliament passed changes to
the Renewable Energy Sources Act, which will take effect as planned on
August 1. The law lowers subsidies for new green power plants and
spreads the power-price surcharge more equally among businesses.\44\
United Kingdom
Unlike Spain and Germany, the United Kingdom (U.K.) started its
feed-in-tariff program to incentivize renewable energy relatively late,
in 2010.\45\ Hydroelectric, solar, and wind units all have specified
tariffs that electric utilities must pay for their energy, which are
above market rates. Like the other countries, the U.K. has a mandate
for renewable energy. The United Kingdom is targeting a 15-percent
share of energy generated from renewable sources in gross final energy
consumption and a 31-percent share of electricity demand from
electricity generated from renewable sources by 2020.\46\ The U.K.
generates about 12 percent of its electricity from renewable energy
today. The increased renewable power will cost consumers 120 pounds a
year (about $200) above their current average energy bill of 1,420
pounds ($2,362).\47\
The U.K. is closing coal-fired power plants to reduce carbon
dioxide emissions in favor of renewable energy. In the U.K., 8,200
megawatts of coal-fired power plants have been shuttered, with an
additional 13,000 megawatts at risk over the next 5 years, according to
the Confederation of U.K. Coal Producers.\48\ The U.K.'s energy
regulator is worried that the amount of capacity over-peak demand this
winter will be under 2 percent--a very low, scary amount for those
charged with keeping the lights on--and the lowest in Western Europe.
Beginning in January 2016, the European Union will require electric
utilities to add further emission reduction equipment to plants or
close them by either 2023 or when they have run for 17,500 hours.
Because the equipment is expensive, costing over 100 million pounds
($167 million) per gigawatt of capacity, only one U.K. electricity
producer has chosen to install the required technology. Most of the
existing coal-fired plants are expected to be shuttered since only one
coal-fired power plant has been built in the U.K. since the early
1970s.
To deal with the reliability issue, the U.K. Government is hosting
an auction for backup power, but it is unclear how it will work.
According to the Department for Energy and Climate Change, electricity
producers will be able to bid in an auction to take place this December
to provide backup power for 2018. The program, called a capacity
market, is expected to ensure sufficient capacity and security of
supply. The Department estimates that the U.K. power industry needs
around 110 billion pounds ($184 billion) of investment over the next 10
years.
The Renewable Energy Foundation (REF) estimates that consumers
currently pay more than 1 billion ($1.66 billion) a year in
subsidies to renewable energy producers--twice the wholesale cost of
electricity. Those subsidies are expected to increase to 6
billion ($10 billion) a year by 2020 to meet a 30 percent target of
providing electricity from renewable energy.\49\ As a result, a growing
number of U.K. households are in energy poverty. In 2003, roughly 6
percent of the United Kingdom's population was in energy poverty; a
decade later, nearly one-fifth of the nation's population is in energy
poverty.
percent of u.k. households in energy poverty
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
As a result, the government has proposed that renewable companies
sell their electricity to the national grid under a competitive bidding
system. The new proposal limits the total amount of subsidies available
for green energy, which were previously effectively limitless. The
reduction in subsidies has led to renewable developers scrapping plans
amid claims that the proposal will make future renewable development
unprofitable.\50\
The U.K. is both cutting the level of their feed-in tariffs and the
length of time they are available. Effective July 1, 2013, the feed-in
tariff for solar generated electricity was reduced from 15.44 pence (24
cents U.S.) to 14.90 pence per kilowatt hour. In October 2011, it was
43.3 pence (67.5 cents U.S.) per kilowatt hour--almost three times the
reduced level.\51\ Also, the length of time for the subsidy entitlement
is being reduced--for example, it will be 15 years instead of 20 years
for wind farms built after 2017. The reductions indicate that the
original subsidies were overgenerous and that wind turbines are
unlikely to have an economic life of 20 years.\52\
But, according to the Climate Change Committee (CCC), without
tougher action, Britain will miss its 31 percent target of cutting
emissions, managing only a 21-percent reduction instead, which will
hinder meeting its commitment to cut greenhouse gas emissions by 80
percent of 1990 levels by 2050. The CCC called for more progress on
insulating homes, promoting the uptake of ground source and air source
heat pumps, and investment in support for electric vehicles. It also
urged the U.K. to end the ``high degree of uncertainty'' about its
support for renewable energy and provide funding for commercializing
offshore wind.\53\
Italy
Similar to Germany and Spain, Italy also used feed-in tariffs to
spur renewable development, and found it too costly. In 2005, Italy
introduced its solar subsidy plan, providing solar power with premiums
ranging from Euro 0.445 ($0.60 U.S.) per kilowatt hour to euro 0.490
($0.66 U.S.) per kilowatt hour.\54\ That subsidy resulted in the
construction of more than 17,000 megawatts of solar capacity. In 2011,
Italy's solar market was the world's largest, but that market has
slowed due to the removal of subsidies.
Italy ceased granting feed-in tariffs for new installations after
July 6, 2013, because its subsidy program had reached its budget cap--a
limit of 6.7 billion euros ($8.9 billion) as of June 6, 2013. The law
restricts above-market rates for solar energy a month after the
threshold is reached. Without tariffs, the Italian solar market will
need to depend on net metering (where consumers can sell the power they
generate themselves to the grid) and income tax deductions for
support.\55\
Italy also undertook other measures. In 2012, the government
charged all solar producers a five-cent tax per kilowatt hour on all
self-consumed energy. The government also curtailed purchasing power
from solar self generators when their output exceeded the amount the
system needed. Those provisions were followed in 2013 by the government
instituting a ``Robin Hood tax'' of 10.5 percent to renewable energy
producers with more than =3 million ($4.14 million) in revenue and
income greater than =300,000 ($414,000).\56\
According to Italy's solar industry, the result of these and other
changes has been a surge in bankruptcies and a massive decrease in
solar investment.
europe's wood consumption
Besides incentivizing wind and solar generation, EU is also
consuming wood to satisfy its renewable mandate of 20 percent of
generation from renewable energy by 2020. According to the Economist,
wood, the fuel of preindustrial societies, represents about half of all
renewable energy consumed in the European Union in some form or
another--sticks, pellets, sawdust.\57\ In Poland and Finland, for
example, wood supplies more than 80 percent of renewable energy demand.
In Germany, despite its push and subsidization of wind and solar power,
38 percent of nonfossil fuel consumption comes from wood.
According to the International Wood Markets Group, Europe consumed
13 million metric tons of wood pellets in 2012 and its demand is
expected to increase to 25 to 30 million tons a year by 2020. According
to the National Firewood Association, the 2012 European consumption of
wood pellets is equivalent to over 4 million cords of wood, which
equates to over 4 million ``big'' trees and over 8 million ``average
size'' trees.\58\
Because Europe does not produce enough timber to meet this demand,
imports of wood pellets are increasing. They increased by 50 percent in
2010. According to the European Pellet Council, global trade in wood
pellets is expected to increase five- or six-fold to 60 million metric
tons by 2020. Much of that will come from new wood-exporting businesses
that are booming in western Canada and the southern United States.
According to a report by Wood Resources International, the southern
United States surpassed Canada last year as the leading exporter of
wood pellets to Europe, exporting in excess of 1.5 million tons. Those
exports are expected to reach 5.7 million tons in 2015. During the
third quarter of 2012, three companies announced plans for new pellet
plants in Georgia and six others were under construction in the south,
together adding as much as 4.2 million tons of capacity by 2015.\59\
The increase in wood consumption has caused an escalation in
prices. According to data published by Argus Biomass Markets, an index
of wood-pellet prices increased by 11 percent, from 116 euros ($152) a
metric ton in August 2010 to 129 euros ($169) a metric ton at the end
of 2012. Since the end of 2011, prices for hardwood from western Canada
increased by about 60 percent.\60\
Wood use in Europe, however, is not carbon neutral. In theory, if
the biomass used to power electricity comes from energy crops, the
carbon generated from combustion would be offset by the carbon that is
captured and stored in the newly planted crops, making the process
carbon-neutral. The wood that Europe is using produces carbon through
combustion at the power station and in the manufacture of the pellets
that includes grinding the wood up, turning it into dough and
submitting it under pressure. The process of producing the pellets,
combusting them, and transporting them produces carbon--about 200
kilograms of carbon dioxide for each megawatt hour of electricity
generated.
A researcher at Princeton University calculated that if whole trees
are used to produce energy, they would increase carbon emissions
compared with coal by 79 percent over 20 years and 49 percent over 40
years and that there would be no carbon reduction for 100 years until
the replacement trees have matured.
europe's natural gas supplies
Europe is worried about continually receiving the 30 percent of its
natural gas supplies that it receives from Russia, but instead of
embracing hydraulic fracturing and horizontal drilling on domestic
soil, it is looking toward the United States to export LNG to them.
According to a leaked document, the European Union is making its desire
to import more oil and natural gas from the United States very clear in
the discussions over the Transatlantic Trade and Investment Partnership
(TTIP) trade deal. The EU is pressuring the United States to lift its
ban on crude oil exports and make it easier to export natural gas to
Europe. The EU emphasizes the TTIP's role in ``reinforcing the security
of supply'' of energy for the member countries, pointing to the
political situation in the Ukraine as a key reason to relax rules
against U.S. exports. ``The current crisis in Ukraine confirms the
delicate situation faced by the EU with regard to energy dependence,''
the document states. ``Of course the EU will continue working on its
own energy security and broaden its strategy of diversification. But
such an effort begins with its closest allies.'' \61\
EU could start by developing its shale gas resources throughout its
member countries. According to the Energy Information Administration,
Europe has an estimated 470 trillion cubic feet of technically
recoverable shale gas resources, around 80 percent of the U.S.
estimated endowment of 567 trillion cubic feet.\62\ As previously
mentioned, Germany has proposed a prohibition against hydraulic
fracturing through 2021. France, which has the second-largest estimated
shale gas resources in Europe, has a hydraulic fracturing ban through
at least 2017 and Bulgaria also forbids hydraulic fracturing. Poland,
which has Europe's largest technically recoverable shale gas resources
at 148 trillion cubic feet, is interested in developing those
resources, but has geology problems demonstrated by poor results from
exploratory drilling. Several other European countries are now
interested in developing their shale gas resources, such as the U.K.,
the Netherlands, Denmark, and Romania, but none of the European shale-
gas exploration efforts are close to being ready for commercial
development.\63\
conclusion
As the Washington Post indicated: ``Cap-and-trade regimes have
advantages, notably the ability to set a limit on emissions and to
integrate with other countries. But they are complex and vulnerable to
lobbying and special pleading, and they do not guarantee success.''
\64\
The European Union has found this to be the case, for their cap-
and-trade program did not achieve the intended targets, but made many
companies wealthier which in turn resulted in higher energy prices for
consumers. Other ``green'' energy programs have had similar results in
producing higher electricity prices and large subsidies for
technologies that contribute only small amounts to their countries'
electricity needs. Countries that have enacted these programs have
found them to be very costly and are now slashing those subsidies
because the governments and the consumers cannot afford them.
It is unclear what benefit the EU and Australia's climate and
``green'' energy policies have achieved. Any reduction in carbon
dioxide emissions that developed countries make will just be a ``drop
in the bucket'' because total global greenhouse gas emissions will
increase as China, the world's largest emitter of carbon dioxide
emissions, and other developing countries continue to improve their
economies by using fossil fuels. These developing countries believe it
is their turn to develop their economies and to provide energy to their
citizens, many of which do not even have electricity. As a result, they
either refuse to participate in global climate change programs or have
track records of not enforcing such programs.
The climate policies of both Europe and Australia have not only
driven up their energy prices, but have also harmed their economies and
reduced their security capabilities. Because Europe is dependent on
natural gas from Russia, it has secretly asked the United States to
speed up its review of LNG applications. Europe is clearly worried
about further Russian aggression and availability of its natural gas
supplies.
Australia has learned and repealed its carbon tax with Senate
approval on July 17. According to Tony Abbott, Australia's Prime
Minister, in releasing the news of the passage of the repeal
legislation to Australia's citizens, ``We are honoring our commitments
to you and building a strong and prosperous economy for a safe and
secure Australia.'' \65\
Europe and the United States need to learn that energy security
requires energy diversity. For example, during the cold spell in the
U.S. Northeast this past winter, natural gas prices spiked because of
lack of infrastructure. Lights were kept on due to the availability of
coal and nuclear units. But many of those units are now being
shuttered, which means that during next winter, the lights may go out
in the Northeast.
----------------
End Notes
\1\ Energy Information Administration, International Energy Data
Base.
\2\ Ibid.
\3\ The Wall Street Journal, Cap and Trade Doesn't Work, June 25,
2009.
\4\ The Wall Street Journal, Cap and Trade Doesn't Work, June 25,
2009.
\5\ Interpol, Guide to Carbon Trading Crime, June 2013.
\6\ The Wall Street Journal, Cap and Trade Doesn't Work, June 25,
2009.
\7\ Interpol, Guide to Carbon Trading Crime, June 2013.
\8\ Bloomberg, Deutsche Bank, RWE raided in German probe of CO2
tax, April 28, 2010.
\9\ Reuters, Germany seeks arrest of Briton in carbon trading scam,
April 10, 2014.
\10\ Bloomberg, Deutsche Bank, RWE raided in German probe of CO2
tax, April 28, 2010.
\11\ European Commission, The EU Emissions Trading System.
\12\ Defense News, U.S. Pushes NATO Allies to Boost Defense
Spending, May 3, 2014.
\13\ Huffington Post, Australia's Carbon Tax Set for Final
Showdown, July 14, 2014.
\14\ Department of the Environment, Australian Government,
Repealing the Carbon Tax.
\15\ ABC, Senate Passes Legislation to Repeal Carbon Tax, July 17,
2014.
\16\ Wall Street Journal, Australia Becomes First Developed Nation
to Repeal Carbon Tax, July 17, 2014.
\17\ Australia's Carbon Tax: An Economic Evaluation, September
2013.
\18\ Institute for Building Efficiency, Feed-In Tariffs: A Brief
History.
\19\ Financial Post, Governments Rip Up Renewable Contracts, March
19, 2014.
\20\ Bloomberg, Spain's Power Deficit Widens by 46 Percent as Steps
to Close Gap Founder, April 25, 2014.
\21\ Institute for Energy Research, August 6, 2009.
\22\ Study of the effects on employment of public aid to renewable
energy sources, Universidad Rey Juan Carlos, March 2009.
\23\ Eagle Tribune, Cap-and-trade bill is an economy-killer, June
28, 2009.
\24\ The Failure of Global Carbon Policies, June 11, 2014.
\25\ Spain Youth Unemployment Rises to Record 57.7 Percent,
Surpasses Greece, January 8, 2014.
\26\ Financial Post, Governments Rip Up Renewable Contracts, March
19, 2014.
\27\ Wall Street Journal, ``Darker Times for Solar-Power
Industry,'' May 11, 2009.
\28\ Heinrich Booll Foundation, Energy Transition: The German
Energiewende.
\29\ Institute for Building Efficiency, Feed-In Tariffs: A Brief
History, Aug. 2010.
\30\ German Federal Ministry of Economics and Technology and
Ministry for the Environment, Nature Conservation and Nuclear Safety.
\31\ Forbes, ``Germany's Energy Goes Kaput, Threatening Economic
Stability,'' December 30, 2013.
\32\ BP Statistical Review of World Energy 2014.
\33\ Wall Street Journal, Germany's fracking follies, July 7, 2014.
\34\ Energy Information Administration, Technically Recoverable
Shale Oil and Shale Gas Resources: An Assessment of 137 Shale
Formations in 41 Countries Outside the United States, June 2013.
\35\ Europe's Energy Portal Germany Energy Prices Report.
\36\ U.S. Energy Information Administration, Monthly Energy Review.
\37\ Tree Hugger, German Electricity Tax Rises 50 Percent to
Support Renewable Energy, October 17, 2012.
\38\ Reuters, Five million German families faced with higher power
bills, February 24, 2014.
\39\ Frontier Economics, German renewable energy levy will rise in
2014.
\40\ The Australian, Europe Pulls the Plug on its Green Energy
Future, August 10, 2013.
\41\ New York Times, Germany's Effort at Clean Energy Proves
Complex, September 18, 2013.
\42\ Renewables International, First municipal offshore wind farm
awaits grid connection, June 25, 2014.
\43\ Bloomberg, Germany moots levy on renewable power use, February
4, 2014.
\44\ Wall Street Journal, Germany's Upper House Passes Renewable
Energy Law, July 11, 2014.
\45\ Institute for Building Efficiency, Feed-In Tariffs: A Brief
History, Aug. 2010.
\46\ International Energy Agency, Global Renewable Energy, National
Renewable Energy Action Plan.
\47\ Bloomberg, Green Rules Shuttering Power Plants Threaten UK
Shortage, March 19, 2014.
\48\ Bloomberg, Green Rules Shuttering Power Plants Threaten UK
Shortage, March 19, 2014.
\49\ The Telegraph, Wind farms subsidies cut by 25 percent, July
14, 2013.
\50\ The Telegraph, Wind farm plans in tatters after subsidy
rethink, March 2, 2014.
\51\ Mail Online, Solar panel payments are about to fall again but
the cost of buying them is falling too--so is it still worth
investing?, June 14, 2013.
\52\ The Telegraph, Wind farms subsidies cut by 25 percent, July
14, 2013.
\53\ The Global Warming Policy Foundation, Proposals to Step up
Unilateral Climate Policy Will Trigger ``Astronomical Costs,'' Peiser
Warns, July 15, 2014.
\54\ International Energy Agency, Global Renewable Energy, ``Old''
Feed In Premium for Photovoltaic Systems.
\55\ Bloomberg, Italy Set to Cease Granting Tariffs for New Solar
Projects, June 11, 2013.
\56\ Financial Post, Governments Rip Up Renewable Contracts, March
18, 2014.
\57\ Economist, Wood The Fuel of the Future, April 6, 2013.
\58\ National Firewood Association, Biomass Called Environmental
Lunacy, April 10, 2013.
\59\ Dogwood Alliance, The Use of Whole Trees in Wood Pellet
Manufacturing, November 13, 2012.
\60\ Argus Biomass Markets.
\61\ Huffington Post, Secret Trade Doc Calls for More Oil and Gas
Exports to Europe, July 8, 2014.
\62\ Energy Information Administration, Technically Recoverable
Shale Oil and Shale Gas Resources: An Assessment of 137 Shale
Formations in 41 Countries Outside the United States, June 2013.
\63\ Europe wants the energy, but not the fracking, July 15, 2014.
\64\ The Washington Post, Climate Change Solutions, February 16,
2009.
\65\ Australia's carbon tax has been axed as repeal bills clear the
Senate, July 17, 2014.
Senator Markey. Thank you, Ms. Hutzler. Good to see you
again.
She did not say that she agreed with me on everything, but
we are old pals from these debates in the past.
Let me just begin by saying I think Senator Murphy and I
agree that if there is any crook in any part of the energy
sector anywhere in the world, that they should be cuffed,
tried, and jailed. So we can agree with that, and it does not
make any difference if we are talking about Gazprom or we are
talking about Enron or we are talking about anything else that
has fraudsters in it. The surest and certain way of policing
that is to just make sure that the cops come in and arrest them
in front of everybody else, and then the mothers of everyone
else are just so ashamed they call their son or daughter and
just say: I hope you are not doing the same thing in the energy
market. So let us just hope we have cops on the beat.
In addition, I think what I would just like to say is we do
have a cap-and-trade system in the United States. We call it
the Regional Greenhouse Gas Initiative. It is all of New
England plus New York and Maryland and Delaware. There has not
been any accusations of rampant corruption. Moreover, we have
actually seen a 40-percent reduction in greenhouse gases in
that sector over the last 8 years. And, very interestingly,
electricity prices have gone down over that same period of
time. So I would just like to stipulate that.
Let me begin with you, Admiral Titley. Could you talk a
little bit about your own views on climate change and its
interrelationship with defense policy? What has happened over
the years, in your own thinking?
Admiral Titley. Thanks very much, Senator, for that
question. It is, I think, a matter of public record: it is on a
TED Talk and a number of other places, I actually started out
as a pretty big skeptic regarding climate change. I was trained
as a meteorologist. I sometimes tell people I am a recovering
forecaster. And I lived and died by the computer models. Back
when I was going to college, they frankly were not much good
more than about 2, maybe 3 days out, probably 2 days out.
When you were running naval oceanography, it was really all
weather and it was the tactical side of the ocean. So that is
pretty much what I did for quite a long time. The climate
continued to change and, by the 2000s, as I was becoming a
senior officer, you start looking--we call it looking a little
bit beyond the horizon--and you start seeing these issues. ADM
Gary Roughead, then Chief of Naval Operations, asked me to come
up to Washington from my current job and start running a task
force on climate change.
The first thing I did is I kind of fell back on my training
as a navigator. I probably have to remind half the people in
here, there was a time that we did not have Global Positioning
Systems, so I actually had to use a sextant, and you had to use
all the data. So that is what I did; I wanted to look at all
the data, not trusting any one piece of data entirely.
So I looked at how much radiation are we getting from the
sun, how much heat and energy are we getting from the sun? What
else could be causing this? Scientists sort of wanted to try to
disprove the theory. And you would look at these independent
lines of evidence, very similar to how you would navigate a
ship: air temperatures, sea temperatures, ocean ice melting,
land ice melting, ecosystems moving either Pole-ward or north-
ward.
All of this came to support what I call cutting edge, 19th
century science, a bunch of old dead white guys. Fourier,
Tindall, Arnhus basically had kind of figured out the theory
back between 1842 and 1895. We are simply refining that, but
that is what it is. And I came to my independent conclusion
that that is what we are doing.
So I am sort of like the reformed smoker. I am probably the
worst type of climate person here because I started out really
not seeing that. If somebody else wants to ask, I can tell
people why climate models are good for 30 or 50 years or more,
but weather models still have trouble after a few days.
Thank you, sir.
Senator Markey. But do you have to be a weatherman to
predict that the defense of our Nation is going to be affected
by the changes in the climate?
Admiral Titley. No, sir, and that is the beauty of the
Military Advisory Board: it is comprised of 16 admirals and
generals, all except for myself and Royal Navy ADM Neil
Morisetti are three and four stars, and none of those three and
four stars are either weather or oceanography experts. They are
war-fighting admirals and generals. So they deal with the
specialty branches, be it logistics, intelligence, and so forth
every day in their professional lives. They are paid to make
assessments.
What they see is a change in our physical battle space.
And, just like the Department of Defense looks at, and war-
fighting commanders look at, changes in demographics,
economics, political environments, we would frankly be
negligent if we did not plan for the chance and for the risk of
these changes in the climate. Large consequence, not exactly
known probability, but we would be negligent if we said, well,
it is not going to happen.
Senator Markey. Mr. Breen, a lot of people again say that
oil and gas are just the same as any other commodity; it is no
different from a computer chip or a watch. And I suppose the
Swiss Army might go to war over watches, but I am not sure many
other countries would. Can you talk a little bit about that and
the special role that oil and gas do play and how we should be
viewing that from the perspective of the United States?
Mr. Breen. Sure, Mr. Chairman. Thanks for the question. I
think the difference between oil and gas and other commodities
is these energy commodities are strategic commodities. They are
things that every advanced economy in the world is dependent on
in order to function and survive, that every advanced military
needs in order to fight.
For example, oil is a great example of this. The U.S.
transportation sector, over 93 percent of our transportation
sector is dependent on oil to move. This is, as we all know, it
is a globally traded, fungible commodity. There is a highly
integrated global market for it, which means that events that
happen anywhere in the world affect our supply, which affects
in turn, because we are not diversified, I would argue, because
we are single source dependent on this one commodity, we are
stuck. Whatever happens to the price around the world, whatever
happens to supply, we need to respond to that.
That is, frankly, the nightmare that Ukraine finds itself
in now. They are dependent on a single massive supplier of
resources. As the gentleman from the State Department testified
earlier, sir, they are asking themselves if they are going to
make it through the winter because they are so dependent on a
single strategic commodity for the welfare of their people.
That is a geopolitical, strategic, and ultimately military
problem, not an economic one.
Senator Markey. Thank you.
Senator Barrasso.
Senator Barrasso. Thank you, Mr. Chairman. Mr. Chairman,
Senator Inhofe had a statement that he would like to have
included in the record and I ask unanimous consent that I could
submit that on his behalf.
Senator Markey. Without objection.
Senator Barrasso. Thank you, Mr. Chairman.
Ms. Hutzler, you cited a number of examples of failed
climate policies in Europe, including Germany, Spain, the
United Kingdom, Italy. Would you like to elaborate further on
these examples? Are there other examples not included in your
testimony that you could highlight for us?
Ms. Hutzler. Certainly. As I mentioned, in each of these
cases the government enacted green energy laws, and in order to
get the mandates that they wanted they had to subsidize these
technologies to a great extent. That increased electricity
prices, it hurt their economies, and they lost jobs. So they
ended up amending or repealing some of these laws.
The specifics of the different policies are different
across the countries, but essentially, like Germany had their
residential customers pay more for the subsidies than their
industrial customers. They were protecting some of them. In
Spain, the government actually took up some of the difference
in the subsidies because they did not get enough money from the
consumers. In fact, since 2000 Spain paid $41 billion more for
the power that they received than their consumers actually paid
for. So that puts them pretty much into national debt.
But in each of these cases what we see happening is that
they are slashing these subsidies. In Germany's case they are
trying to spread the subsidies over more of the businesses
rather than just the residential customers.
Senator Barrasso. Can you tell me how successful the Kyoto
Protocol was in making countries that signed the treaty more
energy independent and secure from countries or foreign
entities that did not share their strategic interests?
Ms. Hutzler. Well, I do not think that they are more energy
independent and secure. It is just the opposite. If you take a
look at their energy prices, their electricity price, for
instance, as I mentioned, it is 37 percent higher than the U.S.
price indexed to 2005 levels. So their policies, in fact, have
hurt them.
In one case that I mentioned, they are actually spending
less on defense now than they did prior to the Kyoto Protocol.
They are spending only 1.6 percent of their GDP. NATO guidance
says that they should be spending 2 percent. And we are
spending as much as 2.5 percent. In fact, Secretary of Defense
Hagel has called on the EU to spend more because of the crisis
in the Ukraine.
Senator Barrasso. Well, that is what I heard when I was in
Latvia and Lithuania, that the concerns are that they were
supposed to get to 2 percent, but they are unable to, and a lot
of it has to do with the expenses that you have outlined. You
mentioned them specifically in your report when you talk about
the impact on the economies, that they are having to not have
the available funds to spend on defense, which is putting a
specific additional stress on NATO.
If the United States had adopted a cap-and-trade system, do
you think it would have helped or hurt our strategic interests?
Ms. Hutzler. I personally think that it would hurt them
because of the same thing that happened in the European Union.
In fact, you can take a look at Australia, who just repealed
its carbon tax because it was not globally competitive.
Electricity prices increased 15 percent, unemployment went down
10 percent, and it just made them not globally competitive,
which is an important part of being energy secure.
Senator Barrasso. I think it was an interesting discussion
and then decision in Australia to repeal because of the
specific impacts of it on the economy. Anything else that you
kind of gained from that Australian decision?
Ms. Hutzler. I find it very interesting that it was just in
place for 2 years and they recognized this. Their citizens were
very unhappy about the fact that they could not compete
globally.
Senator Barrasso. Thank you
Mr. Goldwyn, thanks so much for your report on uncertain
energy. In your testimony you state that the United States and
other stable democratic countries, such as Canada and
Australia, are well poised to meet a considerable share of the
world's growing oil and gas demand and attain the associated
export revenues. From a geopolitical perspective, you say,
increased LNG exports from the United States and its allies
would shift rents away from traditional autocratic suppliers,
including Russia, that have used the proceeds to finance
policies at odds with United States national security
interests.
You went on to say a clear signal from the United States
that LNG exports will be available to European allies for
future purchase would put immediate pressure on Russia's market
share and export revenues.
Do you believe United States liquified natural gas exports
can serve as this important diplomatic tool for the United
States to strengthen our national security and to assist the
security of our allies and helping to alleviate manipulations
and threats from Russia, and could you expand on that a little
bit?
Mr. Goldwyn. Yes, sir, I do. I think that our ability to
export LNG is an important foreign policy tool. First, we
increase the global supply of LNG. We bring down the price. We
make it more accessible. When the price goes down, our
competitors will lose revenue, and right now Russia is a major,
major exporter of gas. We saw the historical example of this
when over the last few years, when the displacement of LNG
meant for the U.S. forced Gazprom to renegotiate most of its
contracts with Europe and forced them to power prices.
It is also forcing the delinkage between the pricing of gas
correlating to the price of oil and having gas correlate to its
more natural competitor, which is coal. So I think there is a
price benefit and there is also a supply benefit. Both
countries in Europe and Asia want secure suppliers. Often they
will pay a premium for knowing that they have a secure source
of supply. So our willingness to export to them, as seen by the
initial contracts even for the projects right now, show that
countries in Europe and Asia are interested in that.
Third, to the extent that they buy from us and they do not
buy from somebody else, those rents go here, they do not go
elsewhere. Numerous studies, the study on net benefits for the
Department of Energy, the Brookings study on LNG exports, the
DeLoitte study which is cited in I think the testimony I had
before the Energy and Natural Resources, show that just the
swap on LNG is almost a $4 billion shift away from Russia to
European consumers by bringing down those prices.
So there is a lot of benefits, and it is a little bit of
practicing what we preach, too. For years we have been building
a system based on global trade. We have relied on that to get
resources when we need them. It is just a little bit of
practice what you preach.
Senator Barrasso. Thank you.
Thank you very much, Mr. Chairman. My time has expired.
Senator Markey. Thank you.
Well, we will go to a second round. We just have an
incredible panel here. I think it is important--thank you, Mr.
Breen, for raising the question of what happens with oil
production in the United States, because even though we still
import 30 percent of the oil that we consume in the United
States, there are advocates for us to start exporting, even
though we still import 30 percent and even though, as you are
saying, the Energy Information Agency is saying we are going to
plateau relatively soon in terms of our total oil production.
So that goes to a national security issue, too: How wise
are we to be exporting our own oil and natural gas when we do
not have a surplus today and production is going to slow down
and plateau in the relatively near future? Can you talk about
that?
Mr. Breen. Sure, Chairman, and thank you. I think the
question really to me is how do you make use of opportunity. If
you end up in a situation where you have, as Ms. Hutzler said,
an unexpected increase in supply, which is likely to increase
in production, which is unlikely to last all that long into the
future, how do you make use of that? I would argue that there
are a number of things we could do domestically with natural
gas supplies that might be extremely beneficial.
For example, transitioning municipal truck fleets, garbage
trucks, buses, things like that to natural gas might help
alleviate our single-source dependence on oil to fuel our
transportation sector, which I would argue is a strategic risk,
being so dependent on oil for that purpose.
Senator Markey. I think that there is another canard out
there that renewable electricity is not working on the planet,
whereas the reality is that last year 50 percent--listen to
this: 50 percent of all new electrical generating capacity for
the world was renewable, 50 percent of all new capacity
installed last year. So we can pick out individual places if we
want, but that is a pretty big trend across the planet, even in
the United States.
We can go back--you can talk about Spain, but let us talk
about the United States. When President Bush left office the
Dow was at 7,000, unemployment was at 10 percent. Since
President Obama's been in office, we have installed 70,000
megawatts of wind and solar in our country and by the end of
next year we could be--maybe the end of 2016, we will have
100,000 megawatts of wind and solar in the United States, which
is equal to the nuclear power industry after 60 years. And over
that same period of time, during the Obama administration, the
Dow went from 7,000 to 17,000, the unemployment rate has gone
from 10 percent down to 6 percent.
So I do not think we should be looking at Spain. We should
be looking at ourselves. The same thing is true with the
Regional Greenhouse Gas Initiative, the cap-and-trade system we
have for the utility sector across the Northeast. Greenhouse
gases went down by 40 percent, electricity rates went down, and
we saw a massive installation actually of renewable energy plus
conservation, energy efficiency.
So can you talk about that global perspective, Admiral
Titley, and how you view this revolution and what we should be
doing as a nation to kind of encourage that indigenous
installation of renewables, energy efficiency, self-sufficiency
in other words, in other countries of the world?
Admiral Titley. Thanks, Senator. Really, the way I take a
look at this as a risk-based issue, so how do we mitigate the
risks of the climate change? We talk in our MAB report about
stabilizing the climate. Clearly, one way to help stabilize the
climate is to reduce the amount of carbon that you are putting
into the air. It is kind of like for 150 years we have just
been sort of dumping the trash out in the road and nobody has
picked it up, so we do not either stop dumping trash and we do
not even put it back in the ground.
So the more we can do on these types of renewables, I think
we are in good shape. I am often asked, do I believe in climate
change? And I tell people, no, I do not believe in climate
change. I am convinced by the evidence that it is happening.
What I do believe in is American ingenuity. I think that--and I
end just about every talk I give with, actually it is a slide
out of the Tom Hanks' Apollo 13 movie, where we get the guys
back against all odds--this country, when focused, can do
incredible things.
So if we can, through the help of the Congress, Sir, set
the right incentives, set the right certainty, the ingenuity in
the academic, private, and government sectors will come
together and we will fix this problem. We really can fix this
problem. The examples you gave, sir, are just the leading edge
of how we can do this. We will get there. It is how much pain
are we going to suffer.
Ms. Hutzler. Senator Markey----
Senator Markey. Excuse me just a minute. The reality is
that Tom Hanks was right in the Apollo movie. Failure is not an
option. They had to innovate. They had to be imaginative. They
had to figure out a way of improvising in order to get that
capsule back to Earth.
The same thing is true for us right now, except it is the
entire planet, and failure is not an option because we know
that the worst, most catastrophic impacts are coming and it is
going to have a devastating impact upon our national security
and the globe's.
I do believe they are weapons of mass destruction, these
storms. I mean, when the U.S. Congress is talking about
appropriately $60 billion in the aftermath of Hurricane Sandy.
That is quite a catastrophe that we had to appropriate money in
order to deal with. It would have been in a lot of ways smarter
to spend the money up front in avoiding the worst consequences,
because we would have jobs, we would have industries, and we
would have things that we could export around the world as
well.
So from my perspective--and I will just give you one final
shot at this, Admiral. Can you just talk a little bit about how
concerned should the Nation be about this issue? Can you just
go to that? How do these 16 admirals and generals that you
represent here today view this as a threat to us?
Admiral Titley. Yes, Sir, thank you. We see this, frankly,
as an accelerating risk for national security. It is like,
well, what does that mean? Really, what we see is this change
on which we have literally built human civilization. If you
take a look at how the climate has varied, and it varies a
tremendous amount--people say, well, it changed before, it will
change again. Absolutely. But about 8 to 10,000 years ago,
after we came out of the Ice Age, it stabilized. When did we
get agriculture? When did we literally get the first
civilization? And the next thing you know we are all carrying
around iPhones and looking at them. That all happened on the
basis of our not having had to spend effort to move about.
That is, we have done tremendous things with fossil fuels.
Look at the kind of life these have given us. The unintended
byproduct, though, is that those have, in fact, jeopardized
that very foundational basis on which we have built our
civilization. So we have got to figure out how to at least keep
or improve our life. And we can do that. We can have a better
life even than what we have right now, but at the same time
stop this harmful effect.
And if we do not do that, that is where we see these risks.
Some people talk about humanitarian assistance, disaster
relief, and that is all well and good. I am more concerned
about these varsity-level impacts, what we are starting to see
now in North Africa, ISIS--we have already talked about this.
These really unintended scary consequences come out that can be
traced back to a thread, not the cause but a thread, going back
to climate, Sir.
Senator Markey. Thank you very much.
Senator Barrasso.
Senator Barrasso. Ms. Hutzler, I think there were some
things you might have wanted to add in on that?
Ms. Hutzler. Yes. I wanted to address some of the remarks
that Senator Markey made. He talked about a certain measure in
electricity generation and that is capacity. He did not talk
about generation. And he compared 100 gigawatts of renewables
to 100 gigawatts of nuclear. Well, if you take nuclear, it has
a capacity factor of 90 percent. Renewables have a capacity
factor, such as wind, around 30 percent.
So in that 100 gigawatts capacity, you are going to be
generating three times as much more electricity from nuclear
than you are from renewables. They are just not comparable.
I also wanted to address his comments regarding the
Regional Greenhouse Gas Initiative, lowering greenhouse gas
emissions
and lowering electricity prices. Well, first of all, greenhouse
gas emissions were lowered after 2008 because of the global
recession. That was one of the biggest impacts of lowering
carbon dioxide emissions.
Another is the whole shale revolution, where we used
hydraulic fracturing and horizontal drilling to get natural
gas. That dropped natural gas prices down to about a fourth and
that really reduced the cost of generating electricity. So
actually natural gas combined cycle units are the cheapest form
of technology that you can use to generate electricity and
actually get electricity from it.
But I also wanted to mention the issue in Senator Markey's
home State of Cape Wind, offshore wind. Cape Wind has been
trying to get both the financing and the customers to build the
wind farm offshore for now over a decade. They think they
finally have it together. But that wind is going to cost the
people in Massachusetts 18 cents per kilowatt hour just to
start. Then under the 15-year contract it goes up by 3.5
percent a year, so it is going to end up 25 cents a kilowatt
hour. That is two and a half times what we pay for the average
cost of electricity in this country.
So you have to be very cautious about which renewable
technologies you pick, both in terms of the amount of
generation you can get from them and from their cost.
Senator Barrasso. I wanted to ask one other thing. You
heard my questioning of the first panel about this increasing
manipulation of the European carbon reduction policies and the
funding of international crime groups. Do you view this as a
serious flaw in carbon trading schemes and other climate-
inspired policies, and do you see some serious unintended
consequences to our own national security if the United States
adopts such policies as those that were taken in Europe?
Ms. Hutzler. Well, carbon trading policies are very
complex. They are complex because of the number of participants
and they are complex because they have components that are very
difficult to implement right. As a result, you can get a lot of
unintended consequences, as I mentioned in my testimony.
Certainly one of the criminal activities--and yes, there are
criminal activities everywhere, but I think you see a lot more
in a carbon trading scheme than you do in a carbon tax, as in
Australia's situation. The complexity is very different.
Another place where we have seen abuse in the United States
is with renewable identification numbers. Refiners have to use
so much biofuels when they produce gasoline, and so on and so
forth, their products, and there has been abuse there where
there have been fake RIN's that these people have purchased and
we have actually gotten these people--we have found most of
this fraud. So it is happening in this country, too, when you
have a policy like that.
Senator Barrasso. Thank you.
Mr. Goldwyn, if I could just get back to our Latin American
energy needs. In your report, Latin America and the Caribbean
region have incredibly high energy costs and insufficient rates
of investment. Many of the countries rely upon energy sources
such as Venezuela oil which may not be sustainable in the long
run. So we see greater energy diversification for these
countries as something that would be important for them.
U.S. natural gas exports as part of that broader energy
strategy I believe can help nations in the Western Hemisphere
as well, to help them lower energy costs to consumers, to
businesses, to enhance competitiveness, promote economic
growth, provide jobs here at home as well. In your testimony
you noted that, ``Promoting the adoption of gas in the
Caribbean and Central American energy mix would bring about
several benefits for U.S. interests.'' Could you just expand a
little bit about what are the benefits to the United States and
what impacts U.S. exports of liquified natural gas would have
on the region and its energy needs?
Mr. Goldwyn. Sure. Thank you, Senator, and I want to give
credit to the Inter-American Development Bank. They actually
did a prefeasibility study on the availability of gas for the
region and they are the ones that came up with these
calculations that the average price of electricity in the top
12 economies is over 30 cents per kilowatt, the average in the
United States is about a dime, and seeing the climate and
economic benefits of substituting gas for fuel oil and diesel.
So the benefits are several. The region is important to us.
Economically, it is closely tied to South Florida's tourism
industry. For migration purposes, stable populations are
important. Certainly if there was instability in that region,
Jamaica, Dominican Republic, they would be much more vulnerable
to transnational crime. And for moral reasons, these are our
neighbors.
So for them to have competitive economies they have to have
affordable electricity. For them to deal with climate change,
they need to have a smaller carbon footprint than they have
right now. And for them to have political autonomy, they need
to have liberation from dependence on Venezuela for the credit
with which they buy all of their oil and their product. So all
of those are tremendous benefits to the United States if we are
able to help them and we can do it at a relatively low cost.
The long-term solution for these countries--and they have
great potential for renewable energy, some geothermal, some
wind, some solar. But the intermittency problem is significant
for them. They have to have baseload electricity. This is the
problem worldwide, is where do you get baseload electricity?
You have got coal, oil, nuclear, and gas. And for significant
near-term greenhouse gas reduction, gas is actually the most
cost-effective scaleable alternative.
If I could, Senator, there has been a lot of talk about
whether oil is a strategic commodity and what we should do
about it. I would just like to address that. There is no
question that oil and good are both strategic commodities. We
would never think of banning the export of food, particularly
to other countries, because we needed to, it was a strategic
commodity and we needed to keep it at home. I think the same is
true of oil and of gas. If we--the fact that we import some and
we do not--and we import basically heavy oil, which matches our
refineries, but we no longer import light oil because we
produce so much we have it in surplus, does not mean that we
should not export it.
It is the basic principle of comparative advantage. If we
can sell something and make more money and put that into the
economy, then why not? And if the day comes, frankly, when we
do not have it in surplus, the economics will not justify
exporting it and we will go back to doing what we have done for
decades, which is asking other countries to produce as much as
they can and not to restrict the export, to allow the global
market to move it to its most efficient source.
So we will need that insurance. The question is now, today,
when we have a surplus, why should we not do what we have asked
every other country in the world to do and when we can do it in
an efficient way and benefit ourselves? I think that is an
element of contradiction, is a nice word. But we are in the
middle of negotiating two major trade agreements. I think it is
really important that we practice what we preach.
Senator Barrasso. Thank you.
Thank you, Mr. Chairman.
Senator Markey. The chair would recognize himself again,
just to say this: that if we had a 30-percent shortage of wheat
in the United States, and people said, well, we should export
part of that 70 percent that we still have, I do not think
America would be happy with that. I do not think they would
say, let us export wheat even though we are importing 30
percent of the wheat that we use in our country right now, and
there might be a little part of the country that has a little
surplus, let us send it out of the country. I think that we
would not export it, Mr. Goldwyn. That is what I think.
I agree with you that food and oil are in the same
category, but the fact that we have a surplus of food puts us
in a different category than we have with our energy resources,
where we do not have a surplus. We are still importing. So it
is just a different situation.
If you remember, Russia stopped exporting wheat when they
had a problem, when they had a drought. They just stopped
exporting it, because wheat is like oil. They are not sending
their extra wheat into the Ukraine. They are sending extra
wheat into the Ukraine when they had a shortage.
So from my perspective, I put those two in the same
category. And I think it is a good analogy, food and oil and
natural gas. In each instance, when we do not have a surplus
and when it is a big deficit, which it is with oil, then I do
not think that we should be exporting it.
So here is what I think we should do, give each of you 1
minute to summarize what it is that you want the committee to
know. We will go in reverse order from the opening statements.
So we will begin with you, Ms. Hutzler. Give us your 1-minute
summary that you would like the committee to remember.
Ms. Hutzler. I want the committee to remember that Europe's
policies in these areas have failed, that they have enacted
green energy laws that needed huge subsidies and that their
electricity prices increased, that they have lost jobs, and
that they have had to amend these laws, and that it has cost
them national debt, it has caused corruption and fraud to
occur; and that Australia, too, had a carbon tax that they have
repealed because of not being competitive in the global
marketplace.
Senator Markey. Thank you, Ms. Hutzler.
Mr. Breen, you have 1 minute.
Mr. Breen. Thank you, Mr. Chairman. If I were to summarize,
I would say simply that the subject of this hearing and the
timing of it are quite appropriate. Energy and security are
inextricably intertwined, and the lack of diversification of
U.S. supplies and global supplies and sources continues to
create opportunities for rivals and adversaries and
vulnerabilities for ourselves; that in the face of that and in
the face of the reality that in the long term almost all
projections that I am aware of do not see increasing U.S.
production keeping up with global demand to the extent that it
changes the geopolitical calculus for the United States, that
in that world the soundest investments are investments in
efficiency and investments in more diversified sources of
energy, both for ourselves and as a tool of foreign policy for
our allies.
I think it is all well and good to export, if you happen to
have it, an excess of natural resources. But America's truest
contribution to the world, to our allies, and our best export
is technical knowledge and innovation.
Senator Markey. Thank you, Mr. Breen.
Mr. Goldwyn.
Mr. Goldwyn. Thank you, Mr. Chairman. Four points. First,
we have lots of tools at our disposal to address these energy
and climate issues: diplomacy, technical assistance, and open
trade. We are going to need to use all of them to address the
security challenges we face overseas.
Third, I would say that many of the challenges that we face
can be addressed in ways that will both reduce greenhouse gas
emissions and increase our security.
But fourth, we need to consider open trade as part of that.
Not all is the same and not all--so there are elements that we
do not need, which we can export and share with others. The
question
is when we have something in surplus will we share it with
our friends and allies. No country has ever grown its supply of
anything by restricting its export. So I think it is something
that requires some study, but I urge you to consider.
Senator Markey. Thank you, Mr. Goldwyn.
Admiral Titley.
Admiral Titley. Thank you, Senator. I would say, as far as
the science of climate goes, we do not know everything, but we
know an awful lot. If the intelligence community could tell us
as much as the climate community can about the next 30 to 50
years, we would find General Clapper and his Agency heads and
we would give them all Medals of Freedom today. That is how
much we know about climate.
In the military, as General Sullivan famously says, we do
not wait for 100 percent certainty to tackle any issue. If you
wait for that on the battlefield, you will probably be dead.
With respect to climate, this is really about the food,
energy, water, and the nexus of the three very, very critical
issues. If they are mishandled in other countries and other
regions, that produces stress and that almost always ends up in
a poor security situation that the United States usually gets
to deal with in some way, shape, or form. We can deal with this
in risk management and ultimately, sir, America can lead the
way. We can fix this.
Thank you.
Senator Markey. Thank you, Admiral.
Thank you each for your service here in the Congress. We
very much appreciate your testimony here today.
I ask unanimous consent that the record remain open for
written questions from committee members to our witnesses until
Friday at noon. Without objection, that will be put in the
record and any of the answers which you give us in writing to
those questions will be seen in the record.
We thank each of you for your testimony today, and we thank
everybody else for participating. This hearing is adjourned.
[Whereupon, at 5:05 p.m., the hearing was adjourned.]
----------
Additional Material Submitted for the Record
Prepared Statement of Hon. James M. Inhofe, U.S. Senator From Oklahoma
President Obama and his administration have been aggressively
pursuing regulations that are damaging to our economy and put future
job opportunities at risk for all Americans. The President has also
been encouraging the international adoption of these same regulations,
particularly as they relate to reducing emissions of greenhouse gases.
Of all the regulations being pursued by the President, these are
the most expensive and damaging to economic growth. Study after study
has shown that widespread regulation of greenhouse gases in the United
States would cost the economy anywhere from $300 billion to $400
billion per year. The administration's recently proposed greenhouse gas
regulations for power plants are estimated to cost tens of billions of
dollars per year, but because these represent only the beginning of the
President's regulatory plans, their cost represents only the tip of the
iceberg.
Regulations by the Environmental Protection Agency threaten the
reality and affordability of our electricity grid, will weaken our
economy, and drive more people into the unemployment lines. In a Senate
Environment and Public Works Committee hearing on May 14, 2014,
committee witness, Marvin Fertel, president and chief executive officer
of the Nuclear Energy Institute, testified that government regulations
are ``shutting down the backbone of our electricity system.'' With
these facts in mind, it is no surprise that recent polls, such as those
by Gallup and Pew showing that Americans are uninterested in climate
change policy issues.
The U.S. economy is already well developed, and we know how badly
these policies will hurt us. If we force the same regulations on
underdeveloped nations, like those in Africa, the impact will be
devastating. They will not be able to grow their way out of poverty, as
many are doing today with access to inexpensive, reliable electricity.
Giving developing countries greater access to inexpensive power was
the driving force behind bills in Congress that reformed our
international assistance programs. These impoverished countries want to
build power plants, but right now that has been made more difficult by
existing policies at the Export-Import Bank and the Overseas Private
Investment Corporation, which limit their ability to support projects
that may increase greenhouse gas emissions. Few developing countries
have the technology and money needed to support a growing economy,
thirsty for power, while abiding by these regulations and competing in
the global marketplace. It should be our policy to help these nations
develop--we should not shackle them with environmental regulations the
developed world is not itself willing to follow.
Earlier this year the Obama administration submitted its liberal
agenda for the United Nations Climate Change Conference in Paris in
2015, which would require all governments to set new targets to drive
down greenhouse gas emissions after 2020. This treaty, however, would
rely on countries' domestic authorities to enforce their contributions,
and we know that countries such as China, Russia, and India will not do
anything about it. They are understandably unwilling to sacrifice their
economies for the sake of global warming. This unwillingness to
implement economically damaging policies is also extending to the
developed world. Just last week Australia repealed its much-hated
carbon tax, and because of the Australian Prime Minister's leadership
to help the poor and those on fixed incomes (who suffer when energy
prices needlessly rise), the Australian economy will now save $9
billion AUD per year. This will help spur economic growth there, create
jobs and improve the lives of everyone.
We are seeing that there is no real political will--here or
abroad--to implement global warming policies. Rather than pushing these
unappealing policies on our friends across the globe, when thinking
about international energy policy, the President and his administration
should be looking to solve real problems by expanding Liquefied Natural
Gas (LNG) exports and ramping up energy development at home to bolster
the supplies of our allies abroad. These are the things that need to be
done in the midst of an increasingly aggressive world. For example, the
European Union's ability to apply strong sanctions against the oil and
gas industry in Russia, in response to its aggressive actions in
Ukraine and Eastern Europe, is restrained by their dependence on the
Russian oil and gas industry to supply their energy needs. The United
States is the largest natural gas producer in the world; LNG exports
from the United States to the European Union could free the European
Union of these chains, allowing them to place real economic pressure on
Russia to discourage their continued aggression in the region.
The President's willingness to follow through on climate change
policies, despite the widespread unpopularity across the globe,
underscore the real motivation behind his actions: pleasing his donor
base. The Obama administration's agenda must be seen for what it is: a
scheme motivated solely by politics with little regard for the American
or global consumers. The United States has long been a nation of
abundant domestic energy in all its forms, and because of that we have
held tremendous advantages over the rest of the world. Instead of
regulating and placing impossible restrictions on the undeveloped
energy sectors of the developing nations, we should be encouraging
growth so that they may compete in the international marketplace,
create jobs, and emerge out of poverty.
______
Responses of Amos Hochstein to Questions
Submitted by Senator Edward J. Markey
Question. Does your agency have the information and resources
needed to understand and integrate the impacts of climate change on its
mission? If not, what is needed?
Answer. The mission of the Bureau of Energy Resources crosses
multiple timeframes, from the short-term imperatives of today's
geopolitics and ensuring global energy markets are well supplied, to
the long-term issues surrounding energy transformation. To the extent
that each of these issues is impacted by climate change, our
informational limits are analogous to those of the broader scientific
community as it continually strives to improve knowledge of discrete
climate impacts.
Question. How does the Bureau of Energy Resources incorporate the
carbon pollution profile of energy sources into its energy diplomacy
work?
Answer. The Bureau of Energy Resources' (ENR) diplomacy focuses on
issues that facilitate deployment of low carbon and renewable energy
production worldwide in several distinct ways:
(1) ENR supports governments that wish to improve their
energy security through energy policy dialogues and technical
assistance. Both are aimed at diversifying fuel mix, and
encouraging incorporation of low carbon fuels, renewable energy
and energy efficiency measures;
(2) ENR supports sharing U.S. experiences and best practices
with emerging hydrocarbon producers to develop economically
sustainable natural gas resources;
(3) ENR addresses policy and regulatory barriers that inhibit
investment in clean energy, while working with development and
commercial banks to mobilize finance in the clean energy sector
and assist U.S. clean energy companies and equipment suppliers
better compete in emerging markets.
Question. How does the Bureau of Energy Resources incorporate the
water use profile of energy sources and climate change impacts on water
sources into its energy diplomacy work?
Answer. The Bureau of Energy Resources (ENR) works closely with the
Bureau of Oceans and International Environmental and Scientific Affairs
(OES) Office of Conservation and Water (ECW) to incorporate resource
and environmental considerations into our diplomatic engagement. Water
availability and management is critical to the function and economic
viability of many energy projects, and we address those issues on a
case-by-case basis.
When water availability and management is identified as an
important issue affecting project or regional success, ENR works with
ECW to recommend actions aligned with international best practices. To
date, this guidance has ranged from encouraging reinjection of
condensed steam at geothermal sites to ensure long-term stability of
the thermal reservoir while mitigating the impact of energy development
on local surface-water supplies, to advocating for dry-cooling of large
thermal cycles.
Question. Your testimony noted that new non-OPEC oil producers are
becoming major energy suppliers. But does not OPEC still control most
or all spare oil production capacity in the world? What does that mean
in terms of OPEC's ability to continue to influence supply and global
oil prices?
Answer. It is true that the Organization of Petroleum Exporting
Countries (OPEC) still controls about 2 million barrels per day of
spare production capacity, according to U.S. Energy Information
Administration estimates. Almost all of this capacity is in Saudi
Arabia. However, burgeoning non-OPEC supply tests OPEC's ability to
work in concert to decrease rather than increase production. OPEC's
unity has recently been shaken as major producers have proven unwilling
to unilaterally decrease output and lose market share. This has caused
prices to be determined more by market forces rather than OPEC
decisions on quotas.
Question. Does the State Department look at the overlap of climate
vulnerability/impact and political stability? For example, does the
agency look at scenarios like the 2011 wheat crop failures and consider
the ramifications in terms of the unrest it could generate in wheat
importing nations? Is this the change of regional bureaus or who is
responsible for considering these types of issues?
Answer. There are multiple bureaus with the Department of State
that examine the relationship between climate vulnerability/impact and
political stability. The Department's Office of the Special Envoy for
Climate Change (S/SECC) and Bureau of Oceans and International
Environmental and Scientific Affairs (OES) look at the overlap between
climate change vulnerability and political stability, keeping up to
date on emerging scientific issues, and considering these when
designing programs and working with partners. The Office of the Chief
Economist works closely with the Under Secretary for Economic Growth,
Energy and the Environment to examine economic policies that reduce
climate vulnerability. The Bureau of Intelligence and Research (INR)
also looks at the overlap between climate and political stability, in
the context of a range of factors, as part of its engagement with the
broader intelligence community.
S/SECC, OES, the Office of the Chief Economist and INR also draw on
expertise outside the State Department. Through the new QDDR, and in
response to the President's Executive order issued in September 2014 to
mainstream climate resilience into agency planning, programs and
strategies, the Department has an opportunity to further improve its
capacity to consider climate change impacts on security and stability.
Question. Ukraine's reliance on Russian natural gas to meet half of
its domestic needs has left it vulnerable to predatory Russian
practices in terms of energy supply manipulation. Yet Ukraine has vast
untapped domestic natural gas supplies and it is also the second least
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. governmentwide energy assistance to
Ukraine to help them increase efficiency, develop their own resources,
and get off Russian gas.
Do you support this legislation? Please provide any
thoughts or technical feedback about this legislation.
Answer. The State Department agrees that Ukraine's reliance on
Russian natural gas has left it vulnerable; Ukraine has significant
untapped natural gas resources and is woefully energy inefficient. In
response to the crisis stemming from Russian aggression in eastern
Ukraine, the United States Government has nearly tripled our energy
assistance to Ukraine over the past year. This assistance is focused on
promoting energy security through support for energy efficiency and
diversification of energy sources, as well as improving transparency in
the energy sector, which will be crucial to Ukraine establishing a
modern, productive energy sector.
The Bureau of Energy Resources' assistance programs are helping
Ukraine to sustainably develop its conventional and unconventional gas
resources. Specific current engagement includes providing an
engineering assessment of gas field surface facilities to eliminate
bottlenecks and improve efficiency in existing gas production and
instilling best practices in legal, regulatory, environmental,
permitting and sustainable development of unconventional gas resources.
Planned future engagement includes supporting a competitive
international tender for rehabilitation of existing gas fields and
advising on a seismic survey in western Ukraine and a subsequent tender
for the new oil and gas fields identified Not only will this assistance
potentially increase production and reduce dependence on Russian
resources, but it will also reduce the gas import bill and the costs of
gas production inefficieny, while boosting domestic economic growth and
incentivizing foreign direct investment. In parallel the Bureau is
currently assisting in the reform of Ukraine's national oil and gas
company, Naftogaz, to improve corporate governance and transparency,
including at Naftogaz's upstream gas subsidiary, Ukrgasvydobuvannya. It
is hoped that this assistance and the reforms and energy efficiency
they support will strengthen Ukrainian energy security in the near term
and long term. We support efforts to provide additional U.S. foreign
assistance to improve energy security in Ukraine.
______
Responses of Dr. Daniel Y. Chiu to Questions
Submitted by Senator Edward J. Markey
access to necessary information and resources
Question. Does your agency have the information and resources
needed to understand and integrate the impacts of climate change on its
mission? If not, what is needed?
Answer. The Department bases our response to the effects of climate
change on the best data available; as the scientific community's
understanding of climate trends develops, we will continue to monitor
these changes. The Department has the resources that we need at
present. To be best prepared, we are conducting a baseline survey of
all DOD sites to identify areas that are mostly likely to be affected
by climate change. This survey will enable the Military Departments and
defense agencies to identify sites that require additional assessment.
As we build on our understanding and identify solutions, we look
forward to working with Congress to address any gaps that emerge.
integrating climate change impacts into allied military planning
Question. To what extent are the impacts of climate change being
incorporated into the military planning of our allies and military
cooperation organizations like NATO?
Answer. Many U.S. allies and partners have identified climate
change as a security threat and are conducting a range of planning and
resilience activities to address it. The form these preparations take
varies by country, given the different effect climate change has in
different parts of the world. Some allies and partners have integrated
climate change into their national planning documents, some have
established dedicated climate change offices, and others address
climate change as one key issue among many. Dialogue with our allies
and partners has revealed that many view climate change as an emerging
and significant challenge, and the Department is committed to further
international cooperation on adaptation and planning to meet that
challenge.
training for environmental security and disaster preparedness
cooperation
Question. Does DOD incorporate environmental security and disaster
preparedness into their training cooperation efforts with other
countries' militaries?
Answer. Yes. The Department has long engaged with foreign
militaries to enhance resilience and improve our collective readiness
for disasters. These efforts include DOD meetings with military
planners from Australia, Canada, Korea, Thailand, the Philippines, as
well as with military planners from South and Central America. For some
countries, planning for natural disasters is an existential issue,
while for others it is a form of due diligence. We will continue this
cooperation and share best practices to enhance environmental security
and plan for disasters.
ukrainian reliance on russian natural gas
Question. Ukraine's reliance on Russian natural gas to meet half of
its domestic needs has left it vulnerable to predatory Russian
practices in terms of energy supply manipulation. Yet Ukraine has vast
untapped domestic natural gas supplies and it is also the second least
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. Government-wide energy assistance to
Ukraine to help them increase efficiency, develop their own resources,
and get off Russian gas.
Do you support this legislation? Please provide any
thoughts or technical feedback about this legislation.
Answer. As the provisions of your bill are beyond the purview of
the Defense Department, I defer to other U.S. departments and agencies
to assess the bill's technical aspects. In terms of security, Russia
has acted in disruptive and irresponsible ways, and the Department
broadly supports efforts--including changes in the supply and use of
energy--to mitigate the harmful effects of Russia's actions and to
enhance Ukraine's energy security.
______
Responses of RAD David Titley to Questions
Submitted by Senator Edward J. Markey
Question. In your testimony you noted that the U.S. needs to
prepare for the rapid changes happening in the Arctic. What
capabilities and capacities should the United States be prioritizing to
be ready for the ongoing changes in the Arctic?
Answer. First and foremost, CNA's Military Advisory Board (MAB)
recommends that, in order to expedite crisis response and requirements
generation, the Arctic region should be assigned to one Combatant
Commander. Second, to provide the United States with better standing to
resolve future disputes in the Arctic, the U.S. should become a
signatory to the U.N. Convention on the Law of the Sea (UNCLOS).
Although the MAB did not take a position or prioritize specific
capabilities, it is ``particularly concerned that increased capability
is required today to communicate reliably and to conduct search and
rescue. We need better charts and aids for navigation, communications
capability, enhanced disaster response capabilities, and the ability to
exercise freedom of navigation,'' (i.e., hardened combatants and ice
breakers), as noted in its most recent report.
Question. During the hearing, you briefly mentioned that you have
more confidence in long-term climate models than in weather forecasts
that go beyond 10 days or so. Can you explain why that is?
Answer. Weather forecasts and weather forecasting models are
generated with the goal of predicting the exact temperatures,
precipitation type and amount, and other weather at a precise point and
time. When we assess these forecasts, we compare these predictions to
the average weather (climatology) to determine which came closer for
that location and time. In general, in the short term, weather
forecasts outperform climatology. However, beyond roughly 10 days,
these forecasts and forecast models become less accurate than
climatology.
Weather forecasts are critically dependent on exact ``starting''
(or initial) conditions of the atmosphere. For example, to predict the
temperature or rainfall in Washington, DC, 1 or 2 days in advance, it
is extremely important to know today's weather conditions in the
Midwest and southern U.S.
Climate forecasts, by contrast, have virtually no dependence on the
exact weather conditions of any given location or day. It would be
possible to start a climate model with today's temperatures in
Washington, DC, whether 50 degrees or 90 degrees, and still get the
correct answer for average summer temperatures--years and decades
hence, providing the model correctly represents the amount of heat (or
boundary conditions) received by the sun, and how that heat is then
distributed and redistributed between the ocean, atmosphere, land, and
ice.
Climate models and forecasts are generated with the goal of
accurately representing the statistics of the weather (climate) over a
broad region. When we assess these models, we are determining if the
models can reproduce the average weather as well as the frequency of
rare or extreme weather events. In essence, we are not looking to see
whether the models can reproduce the precise temperatures at one
location on August 5, but whether the models can reproduce the average
August temperatures over the last 150 years, as well as the change in
average August temperatures over the last 150 years over a large
region. In general, the climate models do an accurate job of
representing the mean, trends, and other statistics over the past 150
years, so we have confidence that the future model predictions are
accurate.
References
AMS Policy Statement on Weather Analysis and Forecasting. Bull.
Amer. Met. Soc., 79, 2161-2163 (https://www.ametsoc.org/policy/
statewaf.html).
Flato, G., J. Marotzke, B. Abiodun, P. Braconnot, S.C. Chou, W.
Collins, P. Cox, F. Driouech, S. Emori, V. Eyring, C. Forest, P.
Gleckler, E. Guilyardi, C. Jakob, V. Kattsov, C. Reason and M.
Rummukainen, 2013: Evaluation of Climate Models. In: Climate Change
2013: The Physical Science Basis. Contribution of Working Group I to
the Fifth Assessment Report of the Intergovernmental Panel on Climate
Change [Stocker, T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen,
J. Boschung, A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)].
Cambridge University Press, Cambridge, United Kingdom and New York, NY,
USA.
Question. Ukraine's reliance on Russian natural gas to meet half of
its domestic needs has left it vulnerable to predatory Russian
practices in terms of energy supply manipulation. Yet Ukraine has vast
untapped domestic natural gas supplies and it is also the second-least
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. Government-wide energy assistance to
Ukraine to help them increase efficiency, develop their own resources,
and get off Russian gas. Do you support this legislation? Please
provide any thoughts or technical feedback about this legislation.
Answer. This question is beyond the scope of the work conducted by
CNA's Military Advisory Board.
______
Responses of Mary J. Hutzler to Questions
Submitted by Senator Edward J. Markey
I have responded to each of the questions from Senator Markey
below. I would like to make it clear at the outset that I am in favor
of all energy technologies. However, I believe that the energy
marketplace should determine the market penetration of each technology,
not government policies that distort the economics of the technologies
and end up costing the American public more than necessary to pay for
the power that they need.
Further, I would note that some of the policies that Senator Markey
seems to advocate in his questions below would reduce U.S. energy
production, increase oil imports and our trade deficit, and have the
effect of reducing U.S. energy security. Senator Markey should
understand the implications of ending the tax deductions mentioned
below, which is essentially a tax increase on the oil and gas industry
resulting in a reduction in domestic energy production, which would
result in an increase of oil from overseas suppliers. That said, in
regard to tax policy, I believe that all industries should be treated
the same, irrespective of the product that the industry produces.
There are those who complain about the earnings of the oil and gas
companies without understanding the nature of the business, which is
the most capital-intensive in the world. The oil and natural gas
industry must make large investments in new technology, new production,
and environmental and product quality improvements to meet future U.S.
energy needs. These investments are not only in the oil and gas sector
but in alternate forms of energy (e.g., biofuels). For example, an
Ernst & Young study shows the five major oil companies had $765 billion
of new investment between 1992 and 2006, compared to net income of $662
billion during the same period. The 57 largest U.S. oil and natural gas
companies had new investments of $1.25 trillion over the same period,
compared to net income of $900 billion and cash flows of $1.77
trillion. In another Ernst and Young report, the 50 largest oil and gas
companies spent over $106 billion in exploration and development costs
in 2011, an increase of 38 percent over those capital investments in
2010. Without these investments, the U.S. oil and gas industry would
not have been able to make the strides in increased oil and gas
production that they have made and continue to make in this country.\1\
Earnings allow companies to reinvest in facilities, infrastructure and
new technologies, and when those investments are in the United States,
it means many more jobs, directly and indirectly. It also means more
revenues for federal, state and local governments.
Question. Ukraine's reliance on Russian natural gas to meet half of
its domestic needs has left it vulnerable to predatory Russian
practices in terms of energy supply manipulation. Yet Ukraine has vast
untapped domestic natural gas supplies and it is also the second-least
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. Government-wide energy assistance to
Ukraine to help them increase efficiency, develop their own resources,
and get off Russian gas.
Do you support this legislation? Please provide any
thoughts or technical feedback about this legislation.
Answer. For years, the United States experienced declining natural
gas production and was constructing terminals for liquefied natural gas
(LNG) imports to ensure that the United States had an adequate supply
of natural gas in the future. The reason the United States now produces
the most natural gas in the world and no longer needs to rely on LNG
imports is not because of government programs, but because of
technological improvements in the market place, private property
rights, and prudent regulations by state regulators. Policymakers
should promote these proven avenues that have led to natural gas energy
independence and growing market power for the United States. If Senator
Markey believes that Ukraine is vulnerable to hostile governments
because it has not fully tapped its domestic gas supplies, Senator
Markey should agree that the U.S. Government should not commit a
similar mistake by hampering the development of American oil and gas
supplies, as the Obama administration is currently doing.
If it is the case that Ukrainian Government is hampering the
development of its own domestic gas resources, then Ukrainian people
would be served by eliminating such obstacles. However, the U.S.
Government does not need to assist Ukrainian Government in implementing
a policy that makes Ukrainians wealthier and more strategically secure.
Furthermore, S. 2433 contains provisions for the U.S. Government to
provide ``loan, lease, and bond guarantees'' to financial institutions
to facilitate the goals of the proposed legislation.\2\ Such guarantees
place U.S. taxpayers on the hook in the event of a default. There is no
economic rationale for U.S. taxpayers to effectively subsidize
Ukrainians to do what it is in their own best interest.
Question. You made your critical views on the Cape Wind offshore
wind project, and government support for it, very clear during the
hearing. What are your views on the $8.3 billion loan guarantee, most
of which has been finalized, to construct nuclear reactors?
Answer. The Energy Information Administration (EIA) estimates the
levelized cost of new generating technologies as part of its Annual
Energy Outlook. The average cost of offshore wind in the agency's 2014
outlook is 20.4 cents per kilowatt hour while the levelized cost for
advanced nuclear is 9.6 cents per kilowatt hour, or less than half the
cost of offshore wind.\3\ Given that EIA also expects advanced nuclear
to have a 90-percent capacity factor while offshore wind has only a 37-
percent capacity factor on average, the amount of generation from
nuclear power compared to wind power would be 2.4 times more for the
same amount of generating capacity. Further, wind is an intermittent
technology and cannot be relied on continuously to supply power when
Americans need it most. It generates power only when the wind blows
which is more prevalent at night when we need it the least. Because
Cape Wind will drive up the cost of energy for Americans based on its
contract specifications, I do not support it.
Compared to offshore wind, which is an intermittent, inefficient,
and expensive technology, nuclear power is reliable, efficient, and
more affordable as the numbers from EIA above demonstrate.
That said, I believe it is a bad idea for taxpayers to support
either technology (or any technology for that matter). The Federal
Government has demonstrated time and time again with companies like
Solyndra that it is ill-suited to pick winners in the marketplace. The
reason that the government supports specific technologies is the belief
that consumers will not willingly pay for those technologies. When
elected officials impose their choice of technologies on consumers and
taxpayers, other technologies that could have made it in the
marketplace on their own are locked out--and the consumers who would
have preferred those technologies--
suffer.
Question. Thanks to an oil company court challenge to a 1995 law,
oil companies are able to drill on many leases in the Gulf of Mexico
without paying any royalties to the American taxpayers. Currently, oil
companies are paying zero royalties to taxpayers for one-quarter of all
offshore oil production in the United States. Incentivizing companies
to renegotiate these leases in order to pay a fair return to the public
could save taxpayers $15.5 billion over 10 years according to the
Department of the Interior. The Government Accountability Office has
estimated that taxpayers could lose up to $53 billion over the life of
these faulty leases.
Would you support legislation to correct this problem,
which the Congressional Research Service has found is within
Congress' legal authority and would not abrogate contracts
between oil companies and the Federal Government?
Answer. I am grateful for the opportunity to set the record
straight on the deepwater royalty relief program. Oil is being produced
in the deep water Federal Gulf of Mexico, where production just
increased during fiscal year 2013 for the first time since the
moratorium on drilling was imposed by the Obama administration in 2010,
because of the royalty relief program. The program originally provided
royalty relief for operators to develop fields in water depths greater
than 200 meters (656 feet). The suspension of Federal royalty payments
for new leases was limited to a certain level of production based on
water depth. The original terms and conditions expired in November
2000, and since that time, a revised incentive plan was adopted that is
no longer based on volumes determined by water-depth intervals.
Instead, the Department of Interior assigns a lease-specific volume of
royalty suspension based on how the determined suspension amount may
affect the economics of various development scenarios with the most
economically risky projects receiving the most relief, while others may
receive no relief. For example, a deep-water field might not receive
any relief if it is adjacent to an existing gathering system. On the
other hand, a similar field may receive a great deal of relief if it is
located far beyond the current pipeline infrastructure.\4\
If the royalty relief program did not exist, the technology would
not have been developed to produce oil and natural gas in the deep
water Gulf of Mexico and domestic oil production would be much lower--
clearly reducing America's energy security and making the United States
more dependent on foreign imports. This is consistent with the points
made by the Honorable Hazel O'Leary, Secretary of Energy during the
Clinton administration.
In a letter on page H11872 of the Congressional Record in support
of the legislation at the time,\5\ the Secretary said, ``Comparing this
loss (foregone royalties) with the gain from the bonus bids on a net
present value basis, the Federal Government would be ahead by $200
million. It is important to note that affected OCS projects would still
pay a substantial upfront bonus and then be required to pay a royalty
when and if production exceeds their royalty-free period. A royalty-
free period, such as that proposed in S. 395, would help enable
marginally viable OCS projects to be developed, thus providing
additional energy, jobs and other important benefits to the nation.''
On the matter of national security, she went on to add, ``The
ability to lower costs of domestic production in the central and
western Gulf of Mexico by providing appropriate fiscal incentives will
lead to an expansion of domestic energy resources, enhance national
energy security, and reduce the deficit.''
Clearly, President Clinton and his administration studied this
matter and saw it as a significant national security benefit to the
United States, and a benefit, not a loss, to the U.S. Treasury. Besides
providing the American public with more oil and gas production and
greater energy security, thousands of jobs exist today because of the
royalty relief program.
Question. Last-In, First-Out (LIFO) accounting allows oil companies
to value their inventories at deeply discounted prices. Repealing this
subsidy for the largest oil and gas companies would generate at least
$14.1 billion over 10 years, according to the Joint Committee on
Taxation (JCT).
Is there any other industry that benefits from this tax
subsidy as much as the oil and gas sector? If so, which
sector(s) and how much do they benefit from this subsidy? Would
you support ending this accounting methodology for all
taxpayers?
Answer. All U.S. taxpayers may use the LIFO (Last-In-First-Out)
method of accounting for inventories. Repealing this provision for just
the oil and gas industry would be particularly detrimental to refiners,
who maintain large inventories of both crude and refined products. I
believe that all industries should be treated the same under the U.S.
tax law and that one industry should not be singled out for
differential treatment. This accounting methodology should either be
allowed for all taxpayers or repealed for all taxpayers.
Question. Foreign tax credits allow all companies that do business
abroad to reduce from their U.S. tax bill by any income taxes paid to
other governments. However, these rules were not intended to allow oil
companies to claim deductions for what amount to royalty payments to
foreign governments. Such payments are not income taxes but fees for
the privilege of producing valuable natural resources abroad. Yet, as a
result of loosely drafted rules, oil companies are frequently deducting
these payments from their U.S. tax liability. Eliminating this tax
treatment for the largest oil companies would generate at least $6.5
billion over 10 years, according to the JCT.
Would you support ending this tax subsidy for the largest
oil companies? Is there any other industry that benefits from
this tax subsidy as much as the oil and gas sector? If so,
which sector(s) and how much do they benefit from this
provision?
Answer. The above issue relates to dual capacity rules and
according to the Joint Committee on Taxation, U.S. oil and gas
companies are already limited in their ability to claim these
credits.\6\ Further, the purported issue that you describe; i.e., that
companies claim royalty payments as a foreign tax credit, is prevented
by the current rules for this provision. Oil and gas companies are
under constant audit by the Internal Revenue Service. As a part of
these audits, teams of examiners focus heavily on this very issue. If
an IRS agent feels that there is an issue related to
mischaracterization of a tax payment, he or she need not ``prove'' the
case, but merely needs to raise the question. The taxpayer is then
required, under the law, to prove that the payment was, in fact, a
payment of tax and not a royalty, and to provide that proof in court,
if necessary. The burden of proof rests heavily on the taxpayer in this
instance. Modifications to this provision will make U.S. companies less
competitive and place a greater share of oil and gas reserves into the
hands of non-U.S. companies, employing non-U.S. workers; many of which
are foreign-government-controlled.
Question. The section 199 domestic manufacturing deduction was
enacted in 2004 and recategorized the oil industry as a manufacturing
industry, thus making it eligible for this deduction. Repealing this
provision for the largest oil companies would save $10.4 billion over
the next 10 years, according to the JCT.
Would you support ending this tax subsidy for the largest
oil companies?
Answer. The purpose of the domestic manufacturing tax deduction is
to incentivize companies to continue to do business in America. The
United States now has the highest tax rate in the world among developed
countries, and due to these high tax rates, companies have been making
investments overseas.\7\ The domestic manufacturing tax deduction
allows all industries and businesses (not just oil companies) to deduct
a certain percentage of their profits. For the oil and gas industry,
the tax deduction is 6 percent; for all other industries (software
developers, video game developers, the motion picture industry, among
others), it is a 9-percent deduction.\8\ Removing these tax deductions
will result in oil companies taking capital abroad to make their
investments, reducing U.S. oil production and tax revenues and
increasing imports of foreign oil. Given that oil and gas production-
related employment on non-Federal lands in the United States is one of
the few bright spots in the worst economic recovery since the Great
Depression, such a result would undermine job creation.
Question. The expensing of intangible drilling costs allows
intangible drilling costs, such as wages, repairs, and supplies related
to and necessary for drilling and preparing wells for the production of
oil and gas, to be deducted in the year they occurred. Nonenergy
companies must depreciate these costs over time. The JCT estimates that
repealing this subsidy will generate $13.2 billion over 10 years.
Are any other companies besides oil and gas production
companies eligible for claiming this tax provision? Would you
support ending this tax subsidy?
Answer. This incentive exists to encourage small companies (less
than 20 employees) to produce oil from marginal wells that are old or
small and do not produce much oil individually. According to the
Independent Petroleum Association of America, independent producers
drill 95 percent of the oil and natural gas wells in America, producing
54 percent of U.S. liquids--54 percent oil and 81 percent condensates.
They reinvest 150 percent of their American cash flow back into new
American production.\9\
Independent oil producers are allowed to count certain costs
associated with the drilling and development of these wells as business
expenses. This ability to expense these costs is analogous to the
research and development (R&D) deduction available to all taxpayers
engaged in R&D activities. The law allows the small producers to
expense the full value of these costs, known as intangible drilling
costs, every year to encourage them to explore for new oil. The major
companies get a portion of this deduction--they can expense a third of
intangible drilling costs, but they must spread the deductions across a
5-year period.\10\
Again, I believe that all industries should be treated the same
under the tax law and that one industry should not be singled out for
differential treatment because the terminology used is different.
Question. Certain oil companies amortize the costs of exploratory
work in 2 years, while other companies must amortize those same costs
over 7 years. Increasing geological and geophysical amortization
periods for oil and gas companies to 7 years would harmonize this
policy across industries and operators. The JCT estimates that making
this change would save taxpayers as much as $1.1 billion over 10 years.
Would you support this change in tax policy to eliminate a subsidy?
Answer. Independent producers and smaller integrated companies are
currently allowed to amortize geological and geophysical (G&G) costs
over a 2-year period, whereas major integrated producers may only
amortize over 7 years.\11\ According to the Joint Committee on
Taxation, G&G costs are costs incurred for the purpose of obtaining and
accumulating data that will serve as acquisition and retention of
mineral properties,\12\ which are akin to research and development
expenses that most companies can expense in one year.
``Research and development, or R&D, are the lifeblood of
technological advancement, and they factor heavily in most corporate
enterprises' planning and growth. Recognizing the importance of
technology and business growth in the international marketplace, the
U.S. Congress created tax breaks for companies that engage in R&D. As
an incentive to engage in research and development, the IRS permits
businesses to deduct all R&D expenses in a single year instead of
amortizing as a capital expense.'' \13\
Again, I believe that all industries should be treated the same
under the tax law and that one industry should not be singled out for
differential treatment because the terminology used is different.
Question. Oil and gas properties qualify for ``percentage
depletion,'' a tax deduction of 15 percent of gross revenues from the
well, even if the deductions exceed the well's value over time. The JCT
estimates that repealing this provision for the large oil companies
would generate $11.9 billion over 10 years.
Do you support the repeal of this tax subsidy? Are any
other companies besides oil and gas production companies
eligible for claiming this tax subsidy?
Answer. I am grateful for the opportunity to set the record
straight on the percentage depletion tax deduction that the small
independent oil producers are allowed to deduct on their taxes. As the
oil and gas in a well is depleted, the small independent producers are
allowed a percentage depletion allowance to be deducted from their
taxes. While the percentage depletion allowance sounds complicated, it
is similar to the treatment given other businesses for depreciation of
an asset. The tax code essentially treats the value of a well as it
does the value of a newly constructed factory, allowing a percentage of
the value to be depreciated each year. This allowance was first
instituted in 1926 to compensate for the decreasing value of the
resource, and was eliminated for major oil companies in 1975.\14\ This
allowance applies only to the first 1,000 barrels of production during
the period, so it is of little significance to large independent
producers. It saves the independent oil and gas producers about $1
billion in taxes per year.\15\ It is true that repealing this provision
would extract more tax revenue from these energy producers since that
is what tax hikes do, but it would make sense from neither an economic
nor accounting perspective. When oil is removed from a well and sold,
the remaining value of the well does go down. The percentage depletion
deduction addresses this reality of oil and gas production.
Question. Under the tax rules governing tertiary injectants, oil
companies deduct expenses relating to the cost of tertiary injectants
during the taxable year, instead of depreciating these costs over a
typical cost recovery schedule. Ending this subsidy for large oil
companies would generate $32 million over 10 years, according to the
JCT.
Do you support the repeal of this tax subsidy? Are any
other companies besides oil and gas production companies
eligible for claiming this tax subsidy?
Answer. According to the Joint Committee on Taxation, oil and gas
companies can deduct tertiary injectant expenses during the taxable
year,\16\ similar to a business expense of other companies. This
provision was provided to the oil and gas industry to increase domestic
oil production, providing greater energy security for the nation. And,
it is continuing to be effective. For example, domestic oil production
from enhanced oil recovery is expected to increase in EIA's Annual
Energy Outlook projections by over 160 percent between 2012 and
2040,\17\ which shows that this tax provision is fulfilling its
intended purpose of increasing domestic oil production, thereby
increasing energy security.
Question. Taxpayers can shelter active income through passive
losses or credits associated with the production of oil and gas, a
condition that does not apply to other sources of passive income or
credit. Repealing the exception for passive loss limitations for oil
and gas properties for oil companies with revenues above $50 million
per year would generate $9 million over 10 years, according to the JCT.
Would you support this change to harmonize tax treatment so
as not to favor oil and gas investments over other types of
energy investments?
Answer. Although this is not a specifically energy-related topic,
in the spirit of promoting economic efficiency and avoiding the
government picking winners and losers, IER supports broad-based tax
reform that would eliminate all tax credits and deductions for all
firms, so long as marginal tax rates were reduced across-the-board to
maintain revenue neutrality. This reform would flatten the tax code and
consistently apply the same rules to everybody, removing the temptation
for government officials to dole out privileges to favored groups by
partially shielding them from the full burden of the code. IER would
fully support Senator Markey if he chooses to promote such broad-based
tax reform. However, if Senator Markey believes it is good policy to
discriminate against a particular industry merely because they produce
hydrocarbons, then Senator Markey's proposal will not provide efficient
tax reform but instead will simply be a tax hike on one of the few
sectors of our economy that has been consistently producing jobs since
the recession began.
----------------
End Notes
\1\ Ernst and Young, U.S. E&P Benchmark Study, June 2012.
\2\ https://beta.congress.gov/bill/113th-congress/senate-bill/2433.
\3\ Energy Information Administration, Levelized Cost and Levelized
Avoided Cost of New Generation Resources in the Annual Energy Outlook
2014, April 17, 2014.
\4\ Encyclopedia of Earth, Deep Water Royalty Relief Act, July 17,
2011.
\5\ Congressional Record, November 8, 1995.
\6\ Joint Committee on Taxation, Description of Present Law and
Select Proposals Relating to the Oil and Gas Industry, May 12, 2011.
\7\ US News, World's Highest Corporate Tax Rate Hurts U.S.
Economically, April 2, 2012.
\8\ Scientific American, End Oil Subsidies? The $4 Billion Dollar
Question, February 21, 2012.
\9\ Independent Petroleum Association of America.
\10\ Trib.com, Obama tax changes could hit small oil and gas
operators in Wyoming, March 30, 2012.
\11\ Joint Committee on Taxation, Description of Present Law and
Select Proposals Relating to the Oil and Gas Industry, May 12, 2011.
\12\ Joint Committee on Taxation, Description of Present Law and
Select Proposals Relating to the Oil and Gas Industry, May 12, 2011.
\13\ Small Business, Tax Breaks for R&D.
\14\ Star Tribune, Obama tax changes could hit small oil and gas
operators in Wyoming, March 30, 2012.
\15\ Scientific American, End Oil Subsidies? The $4 Billion Dollar
Question, February 21, 2012.
\16\ Joint Committee on Taxation, Description of Present Law and
Select Proposals Relating to the Oil and Gas Industry, May 12, 2011.
\17\ Energy Information Administration, Annual Energy Outlook 2014.
______
Response of Michael Breen to Question
Submitted by Senator Edward J. Markey
Question. Ukraine's reliance on Russian natural gas to meet half of
its domestic needs has left it vulnerable to predatory Russian
practices in terms of energy supply manipulation. Yet Ukraine has vast
untapped domestic natural gas supplies and it is also the second-least
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. government-wide energy assistance to
Ukraine to help them increase efficiency, develop their own resources,
and get off Russian gas.
Do you support this legislation? Please provide any
thoughts or technical feedback about this legislation.
Answer. I strongly support S. 2433, which offers an important and
viable path forward for Ukraine's energy security. As Chairman Markey
noted, Ukraine is heavily reliant on Russian natural gas to meet its
energy needs, importing more than 60 percent of its natural gas
consumption in 2013 from Russia. Russia has consistently exploited
Ukraine's energy reliance for geopolitical gains, most recently cutting
off exports completely since June. Ukraine also uses far more energy
than it should. Outmoded district heating networks, poorly insulated
housing, leaky pipes, and ancient boilers all exacerbate Ukraine's need
for energy, which makes the country more vulnerable.
S. 2433 properly applies efficiency as a tool to help Ukraine
achieve energy security. By ensuring that energy efficiency
improvements are a priority of U.S. Government and international aid to
Ukraine, S. 2433 will deliver the most certain reductions in Moscow's
geopolitical leverage over Kiev. Additionally, by helping Ukraine
develop its own energy sources, including renewable sources, S. 2433
will help assuage concerns of a looming gas crisis in the European
Union, as Ukraine serves as an important transit hub for natural gas.
Most importantly, S. 2433 serves as a model for U.S. energy
diplomacy in the future. America's greatest strength has always been
technological innovation and technical knowledge. We should prioritize
those assets in our foreign policy. By maximizing Ukraine's ability to
provide for its own energy future, we will help minimize the
vulnerabilities of our allies and the geopolitical leverage of our
adversaries.
______
Responses of Eric Postel to Questions
Submitted by Senator Edward J. Markey
Question. Does your agency have the information and resources
needed to understand and integrate the impacts of climate change on its
mission? If not, what is needed?
Answer. Integrating climate change in Agency programming, policy
dialogue, and operations is one of three strategic objectives in
USAID's Climate Change and Development Strategy, with the other two
being mitigation and adaptation.
Staff dedicated to helping USAID understand and integrate the
impacts of climate change are assigned not only to the Bureau for
Economic Growth, Education, and Environment, but also to the Bureau for
Food Security, Bureau for Democracy, Conflict and Humanitarian
Assistance, and the Africa, Latin America and Caribbean, and Asia
Bureaus. These climate-change specialists lend their knowledge of, and
experience in, climate change to inform key Agency programs and policy
discussions.
All USAID missions are required to fully consider climate change as
they develop their Country Development and Cooperation Strategies.
Supplemental guidance for climate-related programming provides missions
with technical guidance on how they can best incorporate climate change
into country strategies. In addition, climate-change specialists review
and comment on draft strategy documents and, thus far, have provided
significant support to nine missions with their strategies. More than
half of final mission strategies substantially incorporate climate
change.
USAID is also working to bring climate change into sharper focus
through the environmental compliance process--an entry point to promote
project design that considers and integrates climate change. USAID
policy includes ``identify[ing] impacts resulting from AID's actions
upon the environment'' and ``defin[ing] environmental limiting factors
that constrain development.'' This provides ample scope not only to
avoid greenhouse gas emissions and maladaptation, but also to address
climate change impacts as potential limiting factors on USAID's
development work. A climate change module has been included in
environmental compliance trainings for USAID staff and implementers,
and information on climate change has been added to USAID's Sector
Environmental Guidelines, a resource that helps compliance officers,
project designers, and implementers think through environmental
compliance in specific sectors.
USAID's recently released Climate Resilient Development Framework
provides guidance to USAID staff, implementers, and others on how to
consider and address climate change impacts in development work. The
Agency intranet and other relevant platforms, such as the Feed the
Future knowledge management portal, AgriLinks, make this and other
resources available to staff at their fingertips.
Training is also an important element of USAID's climate change
integration strategy. To date, we have trained more than 500 USAID
employees on how to take climate change impacts into account and design
projects that contribute to climate change adaptation, or on how to
address climate change in specific sectors, such as agriculture,
infrastructure, and water. Trainings take place in Washington and in
high-priority missions.
USAID is also expanding its knowledge of the impacts of climate
change integration through monitoring and evaluating climate change
integration projects. A series of performance and impact evaluations
are underway.
Finally, policy determinations such as Executive Order 13653 issued
on November 1, 2013, to strengthen coordinated action on climate change
preparedness and resilience across the Federal Government, give impetus
to the Agency to strengthen and build on efforts in climate change.
USAID is revising its Agency Adaptation Plan in response to Executive
Order 13653 and implementation of the prioritized actions listed in
that plan will further enhance the integration of climate change
impacts into the Agency's work.
Question. What are the impacts of hydrocarbon price volatility in
the developing world?
Answer. The main impacts of hydrocarbon price volatility in the
developing world depend on whether a country is a hydrocarbon importer
or exporter.
Importers
For hydrocarbon importing countries, volatility of hydrocarbon
import prices can drive a number of outcomes. For example, hydrocarbon
imports, and increases in hydrocarbon prices, tend to put pressure on
current account balances and drive depreciation of local currencies.
Net importers, such as India, Kenya, and recently Egypt and Pakistan,
face growing import bills for their coal, oil, and gas imports.
In many cases, the problem is a combination of increasing
hydrocarbon prices and energy subsidization that puts serious financial
strain on government budgets in developing countries. Energy subsidies
often crowd out public expenditures on health, education, and
infrastructure. For example, Egypt's fuel subsidies now consume almost
25 percent of the government's budget. In 2011, a review found energy
subsidies were more than three times the spending by the central
government on education, and seven times health expenditures.\1\
Additionally, USAID reviewed Pakistan's budget in 2009 and found fuel
subsidies were five times the central government's expenditure on
health and education.
---------------------------------------------------------------------------
\1\ Energy Subsidies in the Middle East and North Africa: Lessons
for Reform, International Monetary Fund, March 2014.
---------------------------------------------------------------------------
As energy subsidy costs grow, many governments have tried to reduce
the subsidy burden by raising domestic fuel and electricity prices.
Reducing hydrocarbon subsidies--and raising prices to accommodate
rising hydrocarbon prices--is frequently associated with civil
disorder. Bolivia, Bulgaria, Guinea, Indonesia, Jordan, Mozambique,
Nigeria, Pakistan, Tunisia, to name some recent examples, have had
riots over energy costs. In 2013, the Bulgarian Government fell due to
public objections to energy price increases.
Exporters
One of the main effects of hydrocarbon price volatility on
hydrocarbon exporting countries is budgetary shortfalls when prices
decline. Many countries rely heavily on hydrocarbon revenues as both a
source of government revenues and foreign exchange earnings. For
example, Nigeria's Government relies on hydrocarbon exports for 75
percent of its budget \2\ and over 95 percent of the country's foreign
exchange earnings.\3\ Changes in global oil prices therefore have a
major impact on Nigeria's public finances.
---------------------------------------------------------------------------
\2\ Forbes, 7 April 2014.
\3\ Michigan State University Broad School of Business Global Edge
service.
---------------------------------------------------------------------------
USAID works in a number of countries that have recently begun to
develop significant new hydrocarbon resource finds, including Ghana,
Tanzania, South Sudan, and Uganda. These countries will have to cope
with the variability of global export prices when managing their
resource revenues and budgets. Nonoil related industry can be hurt by
the resulting volatile, and often high, foreign exchange rates.
Another serious challenge is effective hydrocarbon sector
governance and avoiding mismanagement of both environmental impacts and
public revenues.
Question. How does USAID evaluate the best way to help partner
countries overcome these challenges?
Answer. USAID takes a strategic approach to providing energy sector
assistance. This approach must balance multiple objectives of the U.S.
Government in its relationship with developing countries. Objectives
that are considered include:
Energy security and energy for sustainable economic growth.
Mitigating climate change through low emissions development
planning and clean energy development.
Increasing energy access for poverty reduction.
Energy sector reconstruction in conflict and post-disaster
countries.
For countries that are hydrocarbon importers, USAID programs focus
on activities such as improving energy efficiency, scaling up renewable
energy, and developing domestic energy resources. Afghanistan and
Pakistan are good examples where USAID is helping to promote renewable
energy, including hydroelectric generation. In addition, we have
supported the development of local gas production by working closely
with the World Bank, Asian Development Bank, and Afghan Government
to develop the large gas fields in northern Afghanistan, near the
border with Turkmenistan.
USAID also views improved performance of energy service providers--
public utilities--as an important part of the solution. Helping public
utilities perform better makes it easier for countries to cope with
fuel price volatility. As losses go down, utilities generally become
financially stronger, more capable of keeping up with fuel payments,
and are better able to invest in both renewable energy and other low
cost generation sources.
We work with many countries with utility systems that have very low
cost recovery and high losses in the electricity sector. USAID supports
utility performance improvement programs in a number of countries,
including Afghanistan, Ghana, India, Kosovo, Pakistan, South Sudan, and
Tanzania.
For countries with high levels of energy subsidies, subsidy reform
can have big payoffs in terms of higher growth and greater equity; yet,
energy subsidy reform is complex, both technically and politically.
USAID has found that careful planning, including on the timing and pace
of reform is essential. Likewise, consideration of social safety nets
along with a public information campaign that raises awareness about
the subsidy costs and benefits of reform are needed.
Recent developments in the pricing of on-shore wind and solar
photovoltaic generation also have an impact on countries' ability to
cope with high fuel bills. In the past several years, these two
renewable options have begun to reach price parity with hydrocarbon-
based generation, although this varies by country. As an example, wind
energy in some Indian states is cheaper than electricity generated by a
new plant using imported coal. In India, solar plants are currently
being bid by private developers at rates that are lower than generation
plants using imported liquefied natural gas or diesel fuel.
Some countries that rely heavily on imported fuel for generation
are finding it cost effective to introduce wind and solar power into
their systems, including Indonesia, the Philippines, and many Caribbean
and South Pacific Islands.
Similarly, solar power prices in some of the countries where USAID
works, including Brazil, India, Mexico, Nigeria and South Africa are
comparable to the consumer retail electricity rate. When renewables
reach parity with hydrocarbon-based generation, countries can invest in
renewable generation as a means of coping with high fuel costs.
In hydrocarbon-exporting countries, challenges are often associated
with sector governance, protection of public revenues, and
environmental impacts. USAID evaluates the strategic role that
hydrocarbon exports play in a country's development, but it does not
have large assistance programs related to hydrocarbon sector
development. In recent years, assistance related to hydrocarbon exports
has been provided by other U.S. Government agencies, such as the
Department of State's Energy and Natural Resources Bureau.
Question. Please provide us with your views of the hot spots you
are especially concerned about in terms of the potential for climate
change impacts to generate major destabilization in the future. As
you're looking at the people living closest to the edge, where day-to-
day survival can be a struggle, where could a catastrophic drought or
storm or flood or other climate change-related extreme weather event
put communities or regions over the edge?
Answer. USAID has conducted analysis and applied research on these
issues from a development perspective since 2008. While the science and
practice of analyzing the interaction of climate change risk and
conflict risk is still evolving, we do have some topline findings in
which we have high confidence. First, as the Intergovernmental Panel on
Climate Change's Fifth Assessment Report finds, the presence of violent
conflict strongly influences vulnerability to climate change impacts
for people living in affected places. Therefore, we need to prioritize
attention to conflict prevention and peace-building as a complement to
climate adaptation efforts in those places.
Conversely, there is an increasing body of evidence suggesting that
climate impacts are a threat multiplier that significantly increases
the potential for conflict in places with already weak institutional
and social capacity to respond. A majority of the world's most fragile
regions, countries, and communities--where conflict and violence is
most likely and persistent--also will likely be highly exposed to the
impacts of climate change. For example, in Africa, Asia, and Latin
America we already see competition and conflict over issues such as
deforestation and access to arable land. Water shortages are one of the
most immediate pressing threats to lives and livelihoods in water-
stressed areas such as the Middle East, North Africa and the Horn of
Africa, but we also see potential impacts in regions dependent on
glaciers for water--including Asia and the Andean region.
Conflict is certainly not a foregone conclusion when climatic
stresses are added to these scenarios of vulnerability, but when those
additional stresses are not met with established approaches to increase
resilience and managed by effective institutional responses, then the
likelihood of violence as a strategy to resolve grievances increases.
Question. Is this sort of ongoing strategic examination part of
your Bureau or how is it institutionalized at USAID?
Answer. USAID's Office of Conflict Management and Mitigation within
the Bureau for Democracy, Conflict and Humanitarian Assistance develops
and disseminates rigorous field-relevant research, analysis, and
guidance to better understand conflict dynamics based on a
comprehensive knowledge management system. That office has also been
leading the Agency's efforts to understand and respond to the risks
associated with climate change impacts in fragile states, including
cutting-edge research to guide conflict-sensitive climate adaptation
and resilience approaches globally.
Question. Ukraine's reliance on Russian natural gas to meet half of
its domestic needs has left it vulnerable to predatory Russian
practices in terms of energy supply manipulation. Yet Ukraine has vast
untapped domestic natural gas supplies and it is also the second-least
energy efficient country in the world. I have introduced legislation--
S. 2433--that aims to double U.S. Government-wide energy assistance to
Ukraine to help them increase efficiency, develop their own resources,
and get off Russian gas.
Do you support this legislation? Please provide any
thoughts or technical feedback about this legislation.
Answer. USAID agrees that Ukraine needs to increase energy
efficiency and supply diversity for a more secure and resilient energy
sector. The legislation describes several activities that, if well
implemented and coordinated, could assist Ukraine in becoming more
energy independent and energy efficient. To that end, USAID engages key
stakeholders throughout Ukraine's energy sector and the donor community
to modernize energy infrastructure, improve energy sector governance,
and support the integration of Ukraine into the European Union.
In Ukraine, USAID supports participation in high-level and
technical working groups on crucial issues such as providing social
safety nets in the face of rising tariffs, supporting municipal heating
improvement and energy efficiency, and reforming tariffs to reflect
appropriate cost of service. This initiative builds on past efforts
that leveraged $225 million for energy efficiency projects, leading to
savings of 380 million cubic meters of natural gas.
USAID also continues to assist the National Electricity Regulatory
Commission of Ukraine in building its capacity to oversee a market-
based energy sector, including support for developing a regulatory
framework harmonized with European Union directives and moving toward
cost-reflective tariffs necessary to encourage energy efficiency.
Ukraine's transmission system operator participates in a USAID-led
regional working group that identifies necessary infrastructure
investments for improving cross-border electricity trade. In addition,
USAID is fulfilling a pledge of $7.5 million to a =90 million Eastern
Europe partnership fund that supports energy efficiency in public
infrastructure in Ukraine and has funded several prior assessments to
help Ukraine identify pathways to alternative energy sources.
Given the scale of the energy challenge facing Ukraine, USAID would
use any additional resources to leverage its current work and
relationships within the country to increase Ukraine's energy security.
______
Responses of Amos Hochstein to Questions
Submitted by Senator John Barrasso
Question. What is the total number of staff positions at the Bureau
of Energy Resources?
Answer. ENR has 65 authorized full-time equivalent (FTE) positions.
In addition, the Bureau employs a number of nonpermanent staff and
fellows.
Question. What is the fiscal year 2013 and 2014 budget for the
Bureau of Energy Resources?
Answer. The total FY 2013 Bureau of Energy Resources budget was
$21,613,245. The total FY 2014 budget was $23,683,000. This represents
an increase of $2,069,755.
Question. What percentage of the work done by the Bureau of Energy
Resources involves international climate change projects?
Answer. The Bureau of Energy Resources (ENR) focuses on energy
resources including oil, gas, nuclear, coal and renewable energy
integration. In the Department of State, the Office of the Special
Envoy for Climate Change (S/SECC) represents the United States
internationally at the ministerial level in all bilateral and
multilateral negotiations regarding climate change. The Bureau of
Oceans and International Environmental and Scientific Affairs (OES)
handles all environment and climate programs in support of S/SECC.
Question. Is international climate change a top priority of the
Bureau of Energy Resources?
Answer. The Bureau of Energy Resources is focused on issues that
affect the security, economic competitiveness, and environmental
sustainability of world energy supplies and markets. ENR unites U.S.
diplomatic and programmatic efforts to build sustainable, transparent,
and predictable international markets for oil, natural gas, coal, civil
nuclear power, electricity, renewable energy, and energy efficiency
that advance U.S. national security interests and a strong national and
global economy.
Question. Global Climate Change Programs.--The Global Climate
Change Initiative seeks to integrate climate change considerations into
foreign assistance programs. The fiscal year 2015 budget requests
$506.3 million for global climate change related activities supported
by State and USAID, a 10-percent increase over the fiscal year 2013
level.
Given the increasing need for humanitarian assistance,
democracy promotion, and embassy security measures, why is
$506.3 million for global climate change the best expenditure
of taxpayer funds?
Since 2010, how much funding has the U.S. Department of
State spent on international climate change programs?
Most aid programs are not evaluated to determine the actual impact
of the assistance. Congress as well as the American people cannot
determine whether taxpayer dollars are being used wisely when it is
unclear if it succeeded or failed.
What percentage of State's international climate change
programs have completed evaluations?
Have those evaluations been made available to Congress and
the public? Where can they be accessed?
What is the timeline for the completion of all of the
reviews assessing whether the international climate change
projects are meeting their goals and are having the intended
impact?
Answer.
The objective of the President's Global Climate Change
Initiative (GCCI) is to help countries grow their economies
in a way that reduces carbon pollution, builds their
resilience to climate impacts and disasters, and mobilizes
investment for the climate and clean energy solutions of
the future.
Climate change is projected to have major impacts on weather-
sensitive economic sectors and water supply abroad, with especially
adverse effects on poor and vulnerable countries, impacting their
ability to develop and achieve prosperity. Extreme weather events such
as drought, floods, and storms aggravate problems such as poverty,
social tensions, and environmental degradation that reduce prospects
for prosperity and undermine development. The Council of Economic
Advisers estimates that warming of 3 degrees Celsius above
preindustrial levels, instead of 2 degrees Celsius, could increase
annual economic damages by approximately 0.9 percent of global output.
To put this percentage in perspective for the United States, 0.9
percent of estimated 2014 U.S. GDP is approximately $150 billion, and
the incremental costs beyond 3 degrees Celsius would be even greater.
The Department of Defense and independent defense assessments have
identified climate change as a threat multiplier in vulnerable parts of
the world, with significant national security risks for the United
States.
Successfully combating climate change will require decisive global
action. It is strongly in the U.S. interest that fast-growing
developing countries do their part to stem their emissions, even as we
work to do the same. This initiative request comes at a pivotal moment.
The actions countries commit to taking this year will be a major
determinant of the trajectory of GHG emissions and associated climate
change that will occur in coming decades, and the strength of those
actions will consequently have a significant bearing on the severity of
anticipated climate impacts both in the United States and abroad.
The GCCI is essential in leveraging effective GHG reduction efforts
from developing countries. It helps countries undertake climate
mitigation efforts, and it will help us ensure through global
negotiations that developing countries do their part. These investments
ensure that the United States is a leader in helping vulnerable
countries cope with the impacts of climate change, and in helping to
put the globe on a path toward development that is cleaner and more
efficient.
GCCI programs not only benefit our efforts to protect our climate
system, they promote our broader development objectives. Virtually all
GCCI programs have important benefits for food security, health,
sustainability, economic development and poverty reduction, and
regional stability, all of which benefit the U.S. and global economy.
[all] The Department of State has dedicated $712.2 million to
international climate change programs with funds
appropriated in FY 2010 through FY 2014.
[all] The Department continually monitors and evaluates GCCI
activities in compliance with Department evaluation
policies. Prior to the January 2015 evaluation policy
update, the Department required that all large programs or
projects be evaluated at least once in their lifetime or
every 5 years, whichever was less. The Department actively
monitors all programs, including those administered through
multilateral mechanisms that we support, and multilateral
programs and funding routinely undergo independent audit
and evaluation.
[all] A majority of State GCCI programming has undergone or is
currently undergoing performance monitoring and evaluation
or assessment. For example, the Asia Pacific Partnership on
Clean Development and Climate (APP) evaluation reviewed the
APP model including the leadership, administration, and
resources of this public-private partnership from 2007-
2009. Similarly, an ongoing, 3-year evaluation of the GCCI,
will assess the data quality of reported outcomes for all
State-funded GCCI projects. Other evaluations, such as the
completed Global Methane Initiative evaluation, and the
ongoing Climate Renewables and Deployment Initiative
(Climate REDI) evaluation, focus on large, substantive GCCI
programs.
[all] Beginning in 2015, summaries of all evaluations performed
with foreign assistance funds can be found at
www.state.gov/f/evaluations/index.htm. USAID evaluations
are also publicly available on the Development Experience
Clearinghouse Web site: https://dec.usaid.gov/dec/home/
Default.aspx.
[all] Evaluations are ongoing and the design and procurement of
new evaluations occurs annually. Additionally, project
implementers provide semiannual reporting that includes
performance results across standard GCCI indicators to
allow leadership to reflect upon progress toward meeting
GCCI goals. These results are reported annually and
cumulatively through the Department's Performance Plan and
Report and a subset is publicly reported on through the
Annual Performance Plan and Report.
______
Responses of Eric Postel to Questions
Submitted by Senator John Barrasso
global climate change programs
The Global Climate Change Initiative seeks to integrate climate
change considerations into foreign assistance programs. The fiscal year
2015 budget requests $506.3 million for global climate change related
activities supported by State and USAID, a 10-percent increase over the
fiscal year 2013 level.
Question. Given the increasing need for humanitarian assistance,
democracy promotion, and embassy security measures, why is $506.3
million for global climate change the best expenditure of taxpayer
funds?
Answer. As Secretary Kerry noted in the 2015 Congressional Budget
Justification, we view climate-change investments as a smart way to
promote stability and global prosperity, while protecting development
gains that support economic growth, reduce climate-related security
risks, and protect U.S. interests.
The proposed fiscal year 2015 $506.3 million is a combined
Department of State-USAID request, with USAID requesting $348 million
of that total. State Department and USAID climate change assistance
will help countries reduce emissions and adapt to climate change, and
will support U.S. diplomatic efforts to negotiate a new international
climate agreement in 2015. U.S. leadership is particularly necessary at
this time to forge partnerships to safeguard future generations from
the dangerous and costly repercussions of global climate change.
U.S. investments in clean energy and sustainable landscapes help
developing countries lower emissions. No country is isolated from the
effects of climate change and developing countries are increasingly a
source of greenhouse gas emissions; they likely already emit more than
developed countries. A recently released report by the Council on
Environmental Quality \1\ finds that an additional one degree of
warming beyond 2 degrees Celsius above preindustrial levels could
result in an annual loss of 0.9 percent of global economic output. As
just one example of potential consequences due to climate change,
scientific analyses described in the recent National Climate Assessment
and a 2011 National Research Council report have found that the areal
extent of forest fires in the Western United States would increase
dramatically--by a factor of four or more in some areas--relative to
the recent past under relatively modest warming scenarios.\2\ The
National Climate Assessment also describes other impacts to the United
States, including sea level rise and changes in precipitation due to
climate change. By helping developing countries reduce their greenhouse
gas emissions, we reduce long-term risk to the United States.
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\1\ The Cost of Delaying Action to Stem Climate Change, July 2014.
\2\ Melillo, Jerry M., Terese (T.C.) Richmond, and Gary W. Yohe,
Eds., 2014: Climate Change Impacts in the United States: The Third
National Climate Assessment. U.S. Global Change Research Program, 841
pp. doi:10.7930/J0Z31WJ2. National Research Council. Climate
Stabilization Targets: Emissions, Concentrations, and Impacts over
Decades to Millennia. Washington, DC: The National Academies Press,
2011.
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U.S. investments in adaptation improve resiliency to climate change
and help to reduce the severity of future humanitarian disasters. For
example, as noted in my testimony, USAID, in separate collaborations
with NASA and the U.S. Army Corps of Engineers, is helping Bangladesh
adopt a new flood forecasting system and ensure that storm shelters are
built appropriately. In Ethiopia, we are supporting a range of
activities--from drought warning systems to building water storage--to
protect against future shortages in rainfall. These are prudent
measures to reduce the damage of future disasters. Such disasters are
anticipated to grow as precipitation patterns change and sea levels
rise in line with current climate projections.
Question. Since 2010, how much funding has USAID spent on
international climate change programs?
Answer. From FY 2010 to FY 2013, Congress has appropriated, and
USAID has programmed, $1.386 billion for the Global Climate Change
Initiative at USAID.
Question. What percentage of USAID's programs involve global
climate change initiatives?
Answer. The Global Climate Change Initiative represents 2 percent
of the $14.4 billion managed by USAID in FY 2013.
Reporting
Most aid programs are not evaluated to determine the actual impact
of the assistance. Congress as well as the American people cannot
determine whether taxpayer dollars are being used wisely when it is
unclear if it succeeded or failed.
USAID's ability to demonstrate results through performance
management and reporting was one of the most significant challenges
identified by the Inspector General. The Inspector General's FY 2013
Annual Management Challenge statement said,
``Quality, reliability, and sufficiency of program data are
essential to assess whether projects are making adequate progress and
having the intended impact.''
``Even though USAID has extensive guidance to help manage projects,
accurate and supported results continues to be problematic.''
Question. What percentage of USAID's international climate change
programs had completed impact evaluations?
Answer. With the release of the Agency's Evaluation Policy in
January 2011, USAID made an ambitious commitment to conduct quality
program evaluation--the systematic collection and analysis of
information and evidence about program performance and impact. Under
the Evaluation Policy, missions are expected to evaluate their larger
programs across all development areas.
In addition, USAID's Climate Change and Development Strategy,
released in January 2012, called for the development of a learning
agenda, which includes impact evaluations. Impact evaluations are based
on models of cause and effect, and require a credible and rigorously
defined counterfactual to control for factors other than the program
activity that might account for the observed change. The first impact
evaluation will be complete in early 2016.
Impact evaluations are rigorous and are conducted in parallel with
program activities they are evaluating; they take a long time, are
work-intensive, and are quite expensive. Therefore, only a small
percentage of climate change programs--those that are best suited to
help USAID answer key questions about development effectiveness--will
be studied in this fashion.
Performance evaluations, on the other hand, while often
incorporating before-after comparisons, are less involved and more
affordable. A number of mid-term and final performance evaluations of
USAID's climate change program activities have been completed. Examples
include a midterm-evaluation of Ecuador's Sustainable Coasts and
Forests Project and an end-of-project evaluation of the Philippines'
Alliance for Mindanao Off-Grid Renewable Energy.
Question. Have those evaluations been made available to Congress
and the public?
Answer. Yes. To facilitate sharing of evaluation findings,
evaluation reports must be submitted to USAID's central document
repository, the Development Experience Clearinghouse (https://
dec.usaid.gov) within 3 months of the evaluation's conclusion.
Question. What is the timeline for the completion of all of the
reviews assessing whether the international climate change projects are
meeting their goals and are having the intended impact?
Answer. The review of USAID climate change projects is an on-going
process that incorporates findings from both project monitoring and
evaluation. Performance monitoring indicates whether desired results
are occurring and whether project outcomes are on-track while
performance and impact evaluations help determine if a project resulted
in the intended outcomes. All USAID projects undergo performance
monitoring and results are reported annually. In addition, a number of
performance evaluations have been completed, and the first impact
evaluation will be complete in early 2016.
Question. Why should Congress and the American people believe the
results on international climate change programs, when the Inspector
General has stated that USAID's inability to obtain accurate and
supported results is a significant challenge?
Answer. With the release of USAID's Evaluation Policy and under
USAID Forward, the Agency has reinforced its emphasis on quality
monitoring and evaluation (M&E). We are continually working to improve
M&E capacity as it relates to climate change initiatives. For instance,
we have developed carbon calculators to facilitate systematic and
comparable reporting on greenhouse gas reductions through USAID
investments. As another example, we offer an M&E class tailored for
climate change projects several times a year to improve performance
monitoring and reporting by missions and their implementers. Moreover,
we are currently updating global climate change standard indicators to
better capture the results of our programs. In this process, we are
working with donors and other practitioners to standardize performance
measures, where feasible, and to share lessons learned on monitoring
the performance of climate change assistance.
______
Study by Jeff Kueter, President of the George Marshall Institute,
Submitted by Senator John Barrasso
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