[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
ASIA'S GROWING HUNGER FOR ENERGY:
U.S. POLICY AND SUPPLY OPPORTUNITIES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ASIA AND THE PACIFIC
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 8, 2016
__________
Serial No. 114-231
__________
Printed for the use of the Committee on Foreign Affairs
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas BRIAN HIGGINS, New York
MATT SALMON, Arizona KAREN BASS, California
DARRELL E. ISSA, California WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina ALAN GRAYSON, Florida
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas GRACE MENG, New York
SCOTT PERRY, Pennsylvania LOIS FRANKEL, Florida
RON DeSANTIS, Florida TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina JOAQUIN CASTRO, Texas
TED S. YOHO, Florida ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
DANIEL DONOVAN, New York
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
---------
Subcommittee on Asia and the Pacific
MATT SALMON, Arizona Chairman
DANA ROHRABACHER, California BRAD SHERMAN, California
STEVE CHABOT, Ohio AMI BERA, California
TOM MARINO, Pennsylvania TULSI GABBARD, Hawaii
JEFF DUNCAN, South Carolina ALAN S. LOWENTHAL, California
MO BROOKS, Alabama GERALD E. CONNOLLY, Virginia
SCOTT PERRY, Pennsylvania GRACE MENG, New York
SCOTT DesJARLAIS, Tennessee
C O N T E N T S
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Page
WITNESSES
Mr. Mikkal E. Herberg, Senior Advisor, director, Energy Security
Program, The National Bureau of Asian Research................. 5
David W. Kreutzer, Ph.D., senior research fellow for energy
economics and climate change, Center for Data Analysis,
Institute for Economic Freedom and Opportunity, The Heritage
Foundation..................................................... 15
Mr. Jake Schmidt, director, International Program, Natural
Resources Defense Council...................................... 22
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Mr. Mikkal E. Herberg: Prepared statement........................ 8
David W. Kreutzer, Ph.D.: Prepared statement..................... 17
Mr. Jake Schmidt: Prepared statement............................. 24
APPENDIX
Hearing notice................................................... 50
Hearing minutes.................................................. 51
ASIA'S GROWING HUNGER FOR ENERGY:
U.S. POLICY AND SUPPLY OPPORTUNITIES
----------
THURSDAY, SEPTEMBER 8, 2016
House of Representatives,
Subcommittee on Asia and the Pacific,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 3:01 p.m., in
room 2255, Rayburn House Office Building, Hon. Matt Salmon
(chairman of the subcommittee) presiding.
Mr. Salmon. The subcommittee will come to order.
Members present will be permitted to submit written
statements to be included in the official hearing record,
without objection. The hearing record will remain open for 5
calendar days to allow statements, questions, and extraneous
materials for the record, subject to the length limitation in
the rules.
Asia Pacific nations are predicted to consume more than
half the world's energy by the year 2035, bringing both
enormous opportunities and significant challenges as the global
energy sector seeks to meet the demand. As Asia continues to
diversify from traditional energy to nuclear, liquefied natural
gas, and solar power, innovative U.S. suppliers of energy and
energy-based technology stand to play a pivotal role.
Today, we will discuss U.S. policy toward the ever
developing Asia Pacific region as it hungers to fulfill its
energy needs. This hearing will focus on energy demand,
production, consumption, security, and policy in the Asia
Pacific region.
As we assess the challenges and the opportunities, it is
important to note that over 700 million people in the Asia and
the Pacific region lack access to electricity, and nearly 2
billion burn wood, dung, and waste for cooking and heating
needs. As Asia continues to modernize and develop a substantial
middle class, demand for energy will increase exponentially,
requiring vast investments in infrastructure.
Energy demand in Asia is largely fueled by enormous
populations, urbanization, and the transportation industry.
Newly mobilized and politically active populations are driven
first and foremost by whether governments are able to provide
for a better standard of living, a factor driven almost
entirely by access to dependable and affordable energy. Demand
will continue to rise by an estimated 2\1/5\ percent annually,
with oil and gas to remain the prevailing energy source.
East Asia has become a net oil importer, causing a close
association of energy needs with national security concerns.
Much of Asia's energy is imported from volatile regions and is
transported through vulnerable transit corridors, most notably
including the highly disputed South China Sea. This
subcommittee has closely followed the issues of the South China
Sea and the insecurities of the nations who rely on energy
transit through these narrow straits, and we believe those
concerns are well founded. Add to that the estimates of oil and
natural gas reserves in the South China Sea, with their own
highly disputed sovereignty rights, and as we are all aware,
these territorial disputes are very complicated and will take
time to resolve.
We continue to urge China and others to respect the rule of
international law and agreed-upon frameworks for dispute
resolution rather than resorting to manipulation and bullying
tactics.
As diverse cultures and national boundaries affect much of
the energy infrastructure, regional energy cooperation is
paramount, but many Asian nations appear to be more interested
in a go-it-alone approach.
Attempts have been made to collaborate on energy issues
within Asia for some time now, including cooperation
initiatives through ASEAN and the East Asia Summit. These
dialogues are just that: Talks. Region-wide hesitance to pursue
multilateral development projects and persistent territorial
disputes that hinder the efficient use of resources have
prevented Asian states from working together to resolve energy
conundrums. Energy options are limited throughout much of Asia,
and the fact remains that regional cooperation will be
necessary to overcome the challenge of energy shortages.
Currently, coal is the region's leading energy source, but
market demand for nuclear energy and liquefied natural gas
continues to rise. Skepticism of nuclear energy following
Japan's Fukushima disaster remains a concern, but a thirst for
nuclear power thrives in many of the Asian nations. The U.S.
has various degrees of civil nuclear cooperation in the region
with China, South Korea, India, Vietnam, Taiwan, Malaysia,
Australia, Indonesia, Japan, and Thailand. Many in the United
States have concerns with some of these projects, in particular
with regard to nuclear proliferation and dual-use repurposing.
For our part, the United States began shale gas exports by
sea this year and is projected to become the third largest
world supplier of LNG within 5 years. Asian buyers have already
contracted to purchase more than half of U.S. energy's supply
of LNG and will continue to affect global energy policy on a
massive scale.
The Asia Pacific needs American leadership to assist with
the security concerns of our partners and allies, to maintain
the rule of law and Freedom of Navigation crucial for energy
security, and to provide critical energy supplies and access to
new energy technologies.
We should advocate for policies that encourage a market-
driven approach to fill the demand, and I look forward to
hearing from our witnesses today on how best to facilitate that
outcome.
And, I would like to turn the time over to Ranking Member
Sherman for any comments he might have.
Mr. Sherman. The gentlelady from New York will give her
opening statement.
Mr. Salmon. Thank you.
Ms. Meng. Thank you, Chairman Salmon and Ranking Member
Sherman for calling this timely hearing. Asia as a whole is the
largest energy consuming region in the world. China is the
single largest energy consumer, followed by the U.S. and then
India. In a world where our energy needs only increase with
each passing year, we must take stock of our resources and
assess our ability to fulfill those needs, while ensuring our
security and minimizing the environmental consequences.
Asia's growing energy needs leave many open questions,
including how well-positioned these countries are to fulfil
their commitments to reducing greenhouse gas emissions, and
what the geopolitical implications are for Asia's current
energy reliance on coal and the Middle East oil.
I welcome our distinguished panelists today and look
forward to hearing your thoughts.
Thank you, and I yield back.
Mr. Salmon. Thank you. Mr. Sherman.
Mr. Sherman. When we look at energy and Asia, we see a
number of foreign policy and national security concerns. The
first of these is the price of oil. For reasons that God may
explain to us at some point in the future, he has put oil in so
many of the wrong places. And, anything that drives down the
price of oil is not just good for motorists in my district, it
is good for American foreign policy.
Second, global warming. China emits twice as much
greenhouse gases as the United States. We are in second place,
but we are a distant second. China has made this great
announcement with much pageantry that they will keep increasing
their greenhouse gases right up until 2030, and then maybe
without any enforcement, they will turn the corner, although we
have no idea how high up they will go before they turn the
corner, and we do not know whether they will turn the corner
very sharply at all.
If you look at the current situation, China is deploying
and building many coal-fired electric plants. Those plants will
serve their full useful life. And, coal produces twice the
greenhouse gases per kilowatt as any other fuel, and so one
would expect that these plants will be turning out an awful lot
of greenhouse gases for a long time.
In addition, China is going all over the world building
coal-fired electric plants. And, while technically this is not
Chinese global warming, because the burning of the coal will
take place elsewhere, it would not occur but for these plants.
The next national security issue is the transport of oil to
our allies in Asia. And here, I think, there is an exaggeration
of the risk and the problem. Where both in Beijing and in
Washington, we are firing up nationalist concerns about, oh, my
God, can we figure out a way that both countries can justify a
larger military by fighting over these islands, uninhabited
islands. And, we are told that trillions of dollars worth of
trade passes close to these disputed islands. Keep in mind
almost all of that trade is going in or out of a Chinese port,
and if China were able to establish naval bases on these
islands, they would be able to blockade their own ports,
something that is not particularly of concern to the United
States.
But, in addition, there are oil tankers from the Middle
East going to Japan and South Korea. Those tankers may choose
to go close to these islands, but they--in a worst case
scenario, and they should never have to do this, but in a worst
case scenario, they could take a slightly different route and
go far away from these islands. These islands, therefore, have
a massively exaggerated strategic importance since virtually no
trade that doesn't go in or out of Chinese ports goes close to
them.
And, then there is the economic issue. Much of the reason
for this hearing is to discuss the export of American natural
gas. Keep in mind that there are two ways to look at this from
an economic standpoint. One is to say, hey, if you export some
natural gas, that creates jobs in the natural gas industry. The
other approach is to say if you refuse to export natural gas,
you drive down the price of natural gas in this country, you
give American manufacturers a big leg up on their Asian
competition, and then you get a lot of manufacturing jobs.
There are more jobs involved in using natural gas than in
producing natural gas.
Finally, as I think is illustrated by this hearing, there
is the discussion that by exporting natural gas, we could have
an effect on Europe and Ukraine's, in particular, dependence on
Russia. Russia is charging far less for natural gas than Asia
is willing to pay. So, if we are going to export natural gas
and we are going to remain a free market country, we are going
to export natural gas to Asia, where it will have the economic
effects I have described, both good and perhaps undercutting
our manufacturers.
But, we are not going to be exporting natural gas to
Europe, where they are used to paying far less to Russia for it
than the Japanese and the South Koreans are willing to pay.
And with that, I yield back.
Mr. Salmon. Thank you. Mr. Duncan.
Mr. Duncan. Thank you, Mr. Chairman. Thank you for holding
this hearing.
Energy is a passion of mine, and American energy
independence, the energy renaissance that we have experienced
is something that I have advocated for. I was glad to hear Mr.
Sherman mention natural gas, and it is a fossil fuel that we
have an abundance of here in this country. And, the export of
natural gas is critical to the American energy sector. And,
when you have an abundance of something, then you can put it
out on the market, and the companies can realize a profit,
which will, I think, help keep jobs here in this country.
Asia is definitely a growing area that needs energy to
provide that 24/7 baseload power needed to manufacture and help
with the quality of life issues. It is really a global
phenomenon when you talk about quality of life issues. If you
want to improve the quality of life of people all over the
globe, you do it with energy.
Mosquitos, we talk a lot about Zika. If you want to cut
down the threat of Zika, then help provide electricity so they
can have air conditioning in their house, they don't have to
have the windows open at night, because mosquitos are prone to
come in. We can do that in sub-Sahara Africa, we can do that in
Latin America, and a lot of other places that don't experience
the same sort of energy abundance that we have.
Twenty-four-seven baseload power provided by fossil fuels,
provided by nuclear power, hydroelectric, but one thing that,
going back to the natural gas, is that abundant supply here
that can provide natural gas-powered electricity generation in
third world countries and in Asia, and not necessarily in third
world, but definitely improve the quality of life. Too many
people around the world are using wood and charcoal to heat
their homes and cook their food, and they can't keep food for a
long period of time fresh, they can't have air conditioning, we
talked about. There are just so many different things that we
can use American energy to help improve the lives of other
people around the world.
You know, we push wind and solar. I think it is groovy
technology, I really do like it, but it is intermittent, and
doesn't provide the 24/7 baseload power that helps to keep
incubators running that help with the neonatal intensive care.
And, we have an infant mortality rate that is too high around
the world. When we have the ability to provide energy sources,
such as natural gas, to help those countries keep those
incubators running, keep those neonatal intensive care units
operating that you are not going to get with intermittent
power.
So, I am glad that we are having a discussion about energy
and improving the quality of life of people around the globe,
focusing on Asia right now, and I am glad of that. So I look
forward to a robust discussion as we move forward in this
Congress and the next Congress to provide energy through
American energy resources as we hopefully will reboot our
energy renaissance in this country.
And with that, Mr. Chairman, I yield back.
Mr. Salmon. Thank you. We are joined today by Mr. Mikkal
Herberg, senior advisor and director of Energy Security Program
at the National Bureau of Asian Research. Thanks for coming
today, Mikkal. And, he happens to come from a wonderful place,
Arizona. So glad to have you here. The rest of the country is
great too, it is just Arizona is better, right?
Mr. Herberg. I like it, I like it.
Mr. Salmon. All right. Dr. David Kreutzer, senior research
fellow for energy economics and climate change at Heritage
Foundation Institute For Economic Freedom and Opportunity.
Thank you for being here.
And, Mr. Jake Schmidt, director of international program at
the Natural Resources Defense Council.
We are thrilled to have you all here today, and Mikkal, we
will start with you.
STATEMENT OF MR. MIKKAL E. HERBERG, SENIOR ADVISOR, DIRECTOR,
ENERGY SECURITY PROGRAM, THE NATIONAL BUREAU OF ASIAN RESEARCH
Mr. Herberg. Okay. Thank you, Chairman Salmon, Ranking
Member Sherman, committee members. I appreciate the opportunity
to speak with you today about Asia's growing energy
consumption, some of the implications of U.S. policy, U.S.
supply, and what role it can play.
I think it is worthwhile to keep in mind there is a
fundamental dilemma that Asia faces in energy. It is kind of a
dual challenge. On the one hand, developing Asia, energy demand
is growing at extraordinarily high rates. You talked about
that. It will account for two-thirds of global energy
consumption growth. So, clearly they are scrambling to mobilize
the energy supplies they need and to prevent energy from
becoming a bottleneck to economic growth and job creation.
Developing countries need the jobs and are pushing for
development. At the same time, they are looking for affordable
energy, because remember, these are developing countries and
they are looking to find affordable energy, and I think here is
a key to understanding that coal dilemma for Asia.
And third, at the same time they made all this booming
demand, they have to shift from a very carbon-coal-intensive
energy mix in the region, to a much cleaner energy mix, if they
are going to meet their climate goals, and then probably more
importantly, meet their air pollution goals, which in China,
India, Southeast Asia, air pollution is a deadly, quite truly
deadly problem, obviously for China.
But, the challenge is how to meet that growing energy
demand that they need now, but shift to this cleaner energy mix
when they need the energy now, and so what happens is there is
a chronic temptation to default to what is an abundant, cheap,
available energy supply all across Asia, and that is coal, to
meet that growing electricity demand. So, the pressure to clean
up the energy mix, but the pressure to have affordable energy
leads to this problem of constant defaulting to coal, and that
gets in the way of all these environmental and climate goals
that we have.
U.S. energy policy and supplies can make a big difference
in both energy security in Asia, it already has in a big way,
but it can also play a big role in Asia's transition out of
this dominant role for coal and toward a cleaner energy mix.
And, in my mind, there is no contradiction between using
natural gas and making progress on moving toward your climate
goal.
Just a few metrics. If you look at how much energy demand
is going to grow in just developing Asia, it is the equivalent
of adding another China energy consumption to the global energy
mix just in the next 20 years. Remember, China is the largest
energy consumer in the world. Just the increase is equivalent,
at least the latest International Energy Agency forecast, just
the increase is equal almost to the entire China energy
consumption. So, these are big, big, big numbers. Two-thirds of
CO2 emissions, most of the world's nuclear capacity growth,
most of the natural gas growth, and all of the coal consumption
growth. So, this is a truly staggering scale to this.
Now, to switch to energy security. Energy security in Asia
is national security. It is not like here. I mean, this is at
the top or near the top of the strategic agenda. The region
imports two-thirds of its coal, China imports 60 percent of its
oil supplies--or the region imports two-thirds of its oil;
China, 60 percent, and that continues to rise; 100 percent for
Japan, South Korea. So, this is really a serious strategic
concern for the region.
And the other dimension of that is the growing and heavy
dependence on Middle East supplies, and this is where the sea
lanes come in. China gets half of their imports from the Middle
East. Japan and South Korea get 85 percent of their imported
oil from the Middle East. So, these sea lanes between the
Persian Gulf and Asia are critical sea lanes; and not only the
South China Sea today, but also increasingly the Indian Ocean.
As China's blue water capacity begins to be able to project
into the Indian Ocean, they are building, I don't want to be an
alarmist about this, because, you know, I am not, but China is
building a Navy base at Djibouti now, which is part of their
concern about the security of those sea lanes, particularly for
their oil supplies.
What role can the U.S. play in this? Obviously the sea
lanes issue, we are the most important player. We can have a
dialogue about the South China Sea, how important they are. I
agree with Ranking Member Sherman that China is not going to
block their own sea lanes. That makes no sense whatsoever. But,
here is the issue. If you go to Tokyo, the notion of turning
over the security of their oil and LNG supply lines to the
Chinese Navy, the tender mercies of the Chinese Navy, makes
them very nervous. Now, we can argue about whether that is a
reasonable concern or not, but I can tell you it is a very
worrying notion for planners in Tokyo.
U.S. unconventional oil supplies are critical for Asia,
because they are bringing down prices, giving them an
alternative supply, so anything we can do to continue to grow
our conventional oil production will be good for Asia's energy
security. Similarly with natural gas, LNG supplies to Asia
allow them to diversify their supplies away from Southeast Asia
and the Middle East. So, all of these things are going to be
very important to the metrics of energy security for Asia,
things we can do, continue to work with China on energy
cooperation. India will be the largest increase, absolute
increase in energy consumption. We need to do more with India
in the future.
So, let me just stop with those brief remarks and let the
others go ahead.
[The prepared statement of Mr. Herberg follows:]
----------
Mr. Salmon. Thank you. We are going to probably be called
to vote in the next 15 minutes or so, and we would like to get
through all the witnesses, at least get a stab at some
questions, and it is the last votes of the day, so we probably
won't reconvene afterwards. The little box in front of you
usually tells you the timeframes.
Mr. Kreutzer. I got it. I am good with time.
Mr. Salmon. Okay. When it goes amber, that means, just like
we drive, drive faster.
Mr. Kreutzer. No, no. When it goes to the amber, I say the
end.
Mr. Salmon. The red means stop. All right. Thanks.
STATEMENT OF DAVID W. KREUTZER, PH.D., SENIOR RESEARCH FELLOW
FOR ENERGY ECONOMICS AND CLIMATE CHANGE, CENTER FOR DATA
ANALYSIS, INSTITUTE FOR ECONOMIC FREEDOM AND OPPORTUNITY, THE
HERITAGE FOUNDATION
Mr. Kreutzer. Okay. Chairman Salmon and Ranking Member
Sherman, I want to thank you and the other members of the
committee for giving me an opportunity to address you today
about the opportunities for American energy.
My name is David Kreutzer. I am senior research fellow in
energy economics and climate change at The Heritage Foundation.
However, what I say today should not be construed as an
official position of The Heritage Foundation; they are my own
views.
America is an energy powerhouse. The last decade has seen a
phenomenal transformation. As recently as 2008, petroleum was
trading at over $140 per barrel, natural gas was over $10 per
million BTU. As oil and gas production was waning a decade ago,
the peak oilers were in ascendance. The President, Obama,
joined them in their pessimism. He loudly proclaimed that
because we only had 2 percent of the world's resources, we
could not continue to sustain our energy consumption. Further,
he said we cannot drill our way to lower gasoline prices. And,
on a more personal note, I was all but called a liar at a House
budget hearing in September 2008 for proposing that we have a
target for increasing petroleum production by 2 million barrels
a day. One of the members held a letter from the head of the
Energy Information Administration saying that even if we could
do that, we wouldn't get more than a couple of dollars or a few
dollars gain in price. Well, we were all wrong. From 2008 to
2015, America doubled its petroleum production. Natural gas
production went up by about 60 percent. Not only did prices
fall more than the $20 I was hoping for, they are $100 below
the peak level in 2008 right now.
Today, the U.S. is the world's top producer of petroleum
and natural gas. However, this energy revolution took place in
the face of a hostile environment. The Obama administration
within weeks of taking office cancelled already completed oil
and gas leases in the southwest. They essentially within a year
put a moratorium on not only deep water drilling, but shallow
water drilling as well offshore. They started the clock. They
tore up the 5-year energy plan, which further delayed access to
resources on the Federal estate.
Perhaps most telling was the attitude of an EPA
administrator in Texas who, taking his version of ancient
history, claimed that when the Romans went into a town, they
would crucify the first two people they found so as to get
everybody else to fall in line, and he used that analogy for
his strategy in regulation.
Mr. Sherman. That is not true.
Mr. Kreutzer. It is on tape.
It shouldn't be surprising in the face of this sort of
attitude toward energy production that the energy revolution we
have seen has taken place almost exclusively on State and
private land.
Asia's growing hunger for energy and U.S. supply
opportunities depend on us being able to produce more. And, if
we had positive, pro energy policies, it would be interesting
to see what sort of results we could get from that. Whether for
domestic consumption or for strategic reasons, moving forward
with energy policy requires that we open up more of the Federal
estate than we have to get better access to the resources that
we own. To get an idea of what would happen if we did that, we
at The Heritage Foundation, we have a clone of the Energy
Information Administration's national energy modeling system,
we ran their high resource case through the macro model and
compared it to the reference case. And, I should note that the
high resource case in 2008, its projections for last year were
more accurate than the reference case was. What we find--the
high resource case essentially assumes there is a 50 percent
greater access to energy, the resources are 50 percent greater.
When we ran that model, we found that between now and 2035,
aggregate GDP in the U.S. would go up by $3.7 trillion.
A nominal family of four over that same period would see
$40,000 additional income. That is roughly $2,000 per year. On
average, the difference in employment is 700,000 jobs to the
good if we have 50 percent greater access to energy. Households
would spend 10 percent less on electricity. And, all of this
without increasing Federal expenditure or taxation.
So, I would make a plea to the committee to consider
proposing policies that would give greater access to our energy
resources owned by the Federal Government. Thank you.
[The prepared statement of Mr. Kreutzer follows:]
----------
Mr. Salmon. Thank you. Mr. Schmidt.
STATEMENT OF MR. JAKE SCHMIDT, DIRECTOR, INTERNATIONAL PROGRAM,
NATURAL RESOURCES DEFENSE COUNCIL
Mr. Schmidt. Thank you. Thank you, Chairman Salmon and
Ranking Member Sherman, and distinguished members of the
committee. Thank you for inviting me on behalf of the Natural
Resource Defense Council to present my views on the energy
opportunities and challenges for the Asia region.
This region, as was mentioned, is one of the fastest
growing energy markets in the coming decades, so the actions
that this region takes on clean energy and climate change will
be critical in helping the world move to a climate-safe
trajectory. This region has a huge opportunity to expand
renewable energy and energy efficiency, and the United States
has an important role to play in helping this region develop
its energy future in a responsible and environmentally sound
manner. I will hit on three points from my full written
testimony to summarize.
First, there is a new dynamic emerging in the Asia region,
as reflected in the historic Paris Agreement. This agreement
includes new climate commitments from all of the major
countries in the world, including the countries in the Asia
region. The countries in the Asia region are already showing
that they are prepared to help this agreement deliver over
time. There is, I would say, a very high likelihood that we
will reach the threshold for this agreement to enter into force
this year. We have now 59 countries that account for more than
60 percent of the world's emissions that have formally said
that they will join this agreement this year. Just last week,
China and the United States both formally took that step to
join this agreement, and we expect that more countries in the
Asia region will take that step this year as well.
So, key countries as a part of this have put forward robust
climate and clean energy targets as a part of the Paris
Agreement. One hudred eighty-seven countries responsible for
more than 97 percent of the world's emissions put forward
climate pollution targets as a part of this Paris Agreement,
including all major countries in the Asia region.
Second, this region is a major market for clean energy, and
this opportunity is poised for significant expansion. The Asia
region has witnessed a huge uptick in clean energy deployment
in the past few years. According to Bloomberg New Energy
Finance, clean energy investment in the Asia Pacific region
totaled $161 billion in 2015, an increase of almost 700 percent
since 2005.
The current climate targets, including those contained in
the Paris Agreement, mean that Asia's largest economies are
committing themselves to clean energy goals and implementing
the necessary domestic actions to meet these goals. Significant
renewable energy expansion is expected in China, India, and
other countries in the region as a result. As a result, the
deployment of clean energy in the Asia region is projected to
continue to surge in the coming years. Again, according to
Bloomberg New Energy Finance, renewable energy will make up
nearly two-thirds, or $3.6 trillion, of the electricity
capacity added over the next 25 years in the Asia Pacific
region.
Lastly, what can the United States do to help with this
clean energy revolution in the Asia region? The U.S. can
embark, I think, on three key actions, many of which are
building blocks that the U.S. has already been delivering over
time. First, the U.S. has active climate and clean energy
bilateral agreements with a number of countries in the region,
including China and India. The U.S. should strengthen the
bilateral clean energy efforts with these countries. At the
same time, the U.S. should further develop bilateral clean
energy efforts with others in the region, such as Indonesia and
Vietnam, since both countries have large untapped renewable
energy potential.
Second, it is important to ensure that countries create
both the right policy framework and the right finance dynamics
to track the needed private sector investments in clean energy
space. For example, my organization, NRDC, has found that new
innovative finance models like green banks and green bonds can
help unleash even larger amounts of private capital over time.
The U.S. should play a key role in helping countries in the
Asia region put in place better policy and finance frameworks
for clean energy.
Third, by mobilizing U.S. investments for clean energy, the
U.S. helps create growing clean energy markets in the Asia
region. The U.S. should continue to fund contributions to the
GCF. At the same time, the U.S. can help to mobilize additional
investments through such mechanisms as the Overseas Private
Investment Corporation, trade missions, and other venues where
the U.S. helps to catalyze these private sector investments.
So, to conclude, in our opinion, the U.S. can help the
Asian countries meet their growing energy needs in a low carbon
and environmentally responsible manner. This effort can create
new markets for renewable energy and energy efficiency
companies and workers, help secure a more stable region, and
protect all Americans from the devastating impacts that will
occur if we don't act aggressively on climate change. Thank
you.
[The prepared statement of Mr. Schmidt follows:]
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Mr. Salmon. Thank you. Given the fact that we are on kind
of a truncated timeframe here, I am going to limit members'
questions to 2 minutes. I apologize for doing so, normally we
are pretty liberal with that, but I think we will just need to
do that so everybody gets an opportunity.
With the opening of the U.S. shale revolution, America has
become a global supplier of LNG. Adding American natural gas to
the global market has helped diversify supplies and reduce the
price of natural gas both home and abroad, especially in Asia,
which was once the most expensive market in the world. The
expansion of the Panama canal should also add to the ease of
LNG shipments abroad.
Are the regulations on shale gas production and exports
sufficiently open to facilitate free market flow of LNG? If
not, what hindrances still remain for the industry, and aside
from regulations, what is the state of infrastructure to
facilitate these exports? Anybody want to try and stab at that?
Dr. Kreutzer, go ahead.
Mr. Herberg. You know, I think the bulk of the heavy
lifting has been done on that. I would recommend we move--you
know, simplify the process of getting these LNG terminals
approved. It is very--you know, takes much too long, so I think
we should simplify that process.
There are some shipping regulations, I am not familiar with
all the details of it, that would make shipping a little bit
easier, but I think the heavy lifting is getting these things
approved. We have made a lot of progress, but we need to speed
that up. The canal makes that a lot easier to ship that stuff.
Europe will be able to use some of that LNG. And, I think, as
they build their re-gas terminals in Europe, they will also be
able to use it. So, I don't see any huge barriers.
Mr. Salmon. Typically, how long does it take to approve one
of these permits?
Mr. Herberg. Well, it has gone on for about 5 years. Some
of them have taken--the early ones took up to 2 years to get
approvals before the DOE approved this as in the national
interests to export these supplies of gas. They have begun to
speed that process up administratively, and they had tried to
reverse, let FERC do the work first and then the DOE, but I
think that process could be speeded up a great deal more.
Mr. Salmon. Okay. Dr. Kreutzer.
Mr. Kreutzer. Yeah. No. I was just thinking the regulatory
problem is more on the production of gas than, I think, on the
export terminals at this point. And, there seems to be creeping
additional regulations on methane and other things, and that is
worth watching.
Mr. Salmon. Okay. Thank you. Mr. Sherman.
Mr. Sherman. Dr. Kreutzer pointed out that we have had a
decline in energy prices in the entire world, but I don't think
we can attribute that just to U.S. production. We have had a
recession in the world. We have conservation in other
countries, but, obviously, it has helped the world price to
increase production in the United States.
And, one thing I think the environmental community loses
track of, they may focus on an individual production in the
United States or project and say, ``Look at the local
environmental effect,'' but also look at the world price
effect. If we can drive down the price of oil and diminish the
world's dependence upon the Middle East, we might avoid the
next Iraq war and the environmental degradation that that
involves.
I do also want to comment that we haven't talked much about
nuclear, but we are seeing Japan, South Korea, and China
looking to reprocess spent fuel. That makes no economic sense.
The only reason that South Korea or Japan would do it is to
open the door to becoming nuclear powers--nuclear weapon states
at some point in the future if they wanted to go down that
road.
I want to talk about solar panels. China is subsidizing and
taking market share. That puts some of our companies at a
disadvantage. On the other hand, it drives down the price of
solar panels and increases their utilization.
Mr. Schmidt, should we be upset that China is selling its
solar panels for too little, or rejoice in the fact that more
solar panels are being deployed in more places?
Mr. Schmidt. That is a good question. I may not give you
the yes and no answer that you are looking for.
I think fundamentally there has been some shifts occurring
within the Chinese market on this dynamic. And, I think that
the world of a year or 2 years ago is not exactly the world of
today in terms of low cost solar being dumped by the Chinese
for one particular reason. Part of that dynamic was being
driven at a time when the Chinese were at a very early stage in
terms of their domestic deployment of their solar panels.
So, you know, about 4 years ago, the vast majority of
China's panel production, which was a massive amount at the
time and has grown since, was actually being used in export
markets in Europe and elsewhere. And that caused a lot of these
trade tensions and so forth. That dynamic has shifted quite a
bit. China now is installing about 20 gigawatts of solar a
year, which is clearly head and shoulders above everybody else
in terms of their own domestic deployment, and so much more of
the Chinese domestic sort of production is actually being used
within their own domestic context.
We think it is obviously really critical that we get this
right. I am not sure that sort of trade disputes over this is
necessarily the best way to solve it. I know that the Obama
administration has sought sort of some recourse through, you
know, some of the routes with India and elsewhere, but what we
are finding is that it is really critical that we actually get
these prices, you know, to a low point.
Mr. Sherman. I yield back.
Mr. Salmon. Thank you. The Chair recognizes Mr. Duncan.
Mr. Duncan. Thank you, Mr. Chairman. There are two factors,
economic factors that affect this, the price of energy: Supply
and demand. What we saw in the United States was an increase of
supply based on the Bakken and Eagleford, and Barnett, and all
these other energy-producing areas. And, even Pennsylvania and
New York and Ohio increased production.
And, so you have supply go up locally in the United States,
but also global supply goes up, because the Saudis saw the
Bakken eating into their market share, so they increased
production in defiance of OPEC, and so you had this, and you
still see it today, an increase of supply, global supply of oil
and natural gas.
Then, the other factor is demand. Global demand is down
because the economy globally is soft. In the United States we
just saw GDP growth is, what, 1.1, adjusted in the first
quarter down below 1 to .08. So, the economy is soft, nothing
has rebounded, so demand is down as well. So, you have got
increased supply and less demand, you are going to have low oil
prices and low energy prices altogether.
The question I have is TPP. So, we are exporting and trying
to increase LNG exports, but you also have signatories of TPP
that are LNG exporters as well. I wonder how TPP is going to
factor in, assuming it passes, in the United States' ability to
compete with the Asian countries that are LNG exporters
currently? So, if anybody can speak to that, because that is
the question I don't have an answer for.
Mr. Kreutzer. I don't have an answer.
Mr. Herberg. I don't have an answer to that.
Mr. Schmidt. I mean, I can. As a fact of how the TPP and
all trade agreements, once a trade agreement like the TPP goes
into effect, the ability for the United States--all these
countries become sort of effectively de facto within the free
trade, and so the Department of Energy's national interest
determination is taken off the table. And any of these
countries will now be sort of subject to this, obviously Japan
and South Korea, well, you know, are big sort of potential
demanders of LNG, and so they are a part of it. Vietnam, I
don't think, is a major sort of potential hub for exports of
LNG. So, it probably could in theory have a larger impact.
I suspect, having spent a lot of time working in these
countries, that the actual amount of demand for LNG is much
lower than many people would expect, as, you know, countries
aren't necessarily looking to sort of flip out their dependence
on the Middle East for dependence on some other, you know, form
of energy. There is obviously a sort of large interest in a lot
of these countries to get a lot more homegrown energy and sort
of become a bit more energy independent to some extent, which
is you see in China and India as they sort of look to coal
imports versus coal domestically, versus oil imports, versus
oil domestically.
Mr. Herberg. Can I just add one little bit? I missed the
point of your question, but to the extent that TPP is a free
trade agreement, the whole DOE approval process was about
permitting exports to nonfree trade agreement countries. So,
once the TPP were to pass, then that opens the door to
exporting wherever you want. You don't have to go through that
DOE----
Mr. Duncan. Just a side comment. OPEC is a determining
factor over the price of energy. So, whether you have a free
trade agreement or not, the price of energy is going to be set
by somebody that is not a signatory to the TPP.
And, Mr. Chairman, I yield back.
Mr. Salmon. Okay. Ms. Meng.
Ms. Meng. Thank you. Chairman Salmon is one of the few
people who pronounce my name according to Chinese tradition,
and it always throws me off. Thank you.
Mr. Salmon. You know, I realized even after I said it, you
know, I speak Mandarin, I lived over in Taiwan, and so I have a
really hard time, you know, like, saying Wang instead of Wong
or Chen instead of Chun, and so I am kind of stuck with the,
you know, Chinese pronunciation. So I apologize.
Ms. Meng. It is great. It is impressive.
Mr. Salmon. But, anyway, the Chair recognizes you anyway.
Ms. Meng. Thank you so much.
Mr. Connolly. I am Connolly over here.
Ms. Meng. Connolly.
Asian countries will need more--may need more types of
equipment and technology in order to reduce greenhouse gas
emissions. How can the United States capitalize on some of
these needs maybe to produce more jobs and exports in the
United States?
Mr. Kreutzer. I think our goal is going to be to provide
them--you know, we have developed technology in a lot of areas
that they have been able to adopt, you know, for telephones and
everything else. I don't think it is going to be--we are going
to have to push it too hard. When we develop the technology,
they will use it.
I think the critical question is we need to also develop
the energy so that it is not coming from places that are
politically unstable and antagonistic.
Mr. Schmidt. Yeah. And, just to add a bit more, I think--
maybe I am an American optimist, but I think that many of the
technologies that these countries are going to be seeking to
deploy when you look across energy efficiency, renewables are
places where the Americans do quite well. For example, in
India, some of the very first solar projects that really
started to boom were produced by First Solar, based in Arizona,
and so that is, you know, obviously a huge opportunity.
The fastest growing place for job creation in the United
States is within the clean energy space. And, you know, I guess
we feel that the U.S. has a huge opportunity to play a role in
helping these countries, you know, meet their energy needs
through renewables and energy efficiency. And, that will create
the sort of downstream supply jobs and so forth that creates,
you know, huge benefits for Americans across the board. And,
you know, as an anecdote, often the perception is that, you
know, countries--even in China where they produce a lot of
their own things, American technologies are always viewed as
kind of the best, the gold standard, and so they tend to want
to get the best and the gold standard in places. And, you know,
I think that the Americans can compete pretty well.
Ms. Meng. Thank you. I yield back.
Mr. Salmon. Thank you. Mr. Connolly, if you want to be a
Republican today, I will recognize you next, otherwise I have
to----
Mr. Sherman. Never.
Mr. Salmon [continuing]. Otherwise I have to recognize Ms.
Gabbard.
Mr. Connolly. You know, there is an old line of a song, you
know, kind of goes like that, you know, are you a Republican? I
am right now.
Mr. Salmon. Well, then I recognize you.
Mr. Connolly. No. I will wait my fair turn, but thank you,
Mr. Chairman.
Mr. Salmon. Ms. Gabbard.
Ms. Gabbard. Thank you. And, thank you for your kindness.
I am wondering if you can speak to some of the strategic
implications of the energy mix right now occurring in Asia, and
how that may be driving or influencing some of the maritime
disputes that are occurring there.
Mr. Herberg. You know, I think that the role of energy in
some of these maritime disputes is a little bit overestimated
sometimes and overdramatized. Take the South China Sea, the
likely resources there, we don't know a lot about them, but
estimates for the U.S. side are relatively modest in terms of
the resources there, certainly not worth fighting over. Now,
Chinese estimates are three, four times ours, so you wonder
maybe they really believe there is more there than there is.
I think the bigger dimension of that is the sea lanes
issue, because so much of Asia's, northeast Asia in particular,
oil and LNG flows through those sea lanes. That is the bigger
game and the bigger concern, as I mentioned, for northeast Asia
about who controls those sea lanes, even though I think it is
kind of a doomsday scenario to just think they would start
getting in the way of those shipments, but I can tell you from
being out there a lot, this worries a lot of the folks in
northeast Asia as a strategic concern. You know, they want the
U.S. Navy to still be a big force in those sea lanes for the
security of their oil supply.
Ms. Gabbard. Okay.
Mr. Kreutzer. I would hope their energy policy would be
more focused on allowing the energy producers to produce
energy, and they can produce it at a cost less than the price
at which they sell it. When we start forcing strategic concerns
on energy producers, then we--at Heritage, we think we have got
a pretty slippery slope to where should we be subsidizing this,
should we be? We wouldn't propose that.
Ms. Gabbard. Thank you. Thank you.
Mr. Sherman. Can I say something?
Mr. Salmon. Sure.
Mr. Sherman. I would just comment that now the oil tankers
to Japan and South Korea would tend to go west of the
Philippines. If they rerouted themselves and went east of the
Philippines, that might add, I have heard estimates of $0.01
per gallon to what consumers in Japan and South Korea have to
pay. So, the doomsday scenario is $0.01 a gallon.
I yield back.
Mr. Salmon. Thank you. Mr. Lowenthal.
Mr. Lowenthal. Thank you, Mr. Chair. And, you pronounced my
name right. I am very pleased.
Mr. Salmon. I couldn't really think of another
pronunciation for yours, but----
Mr. Lowenthal. Chinese pronunciation? Thank you, Mr. Chair.
I am going to continue this discussion on renewables in the
region. And, first I want to know, you know, with the recent
signing United States and China, the joining of the Paris
climate, do you feel that the Chinese are going to be able to
transition their energy mix away from coal toward renewable
sources and able to meet its ambitious goals? Will they be
actually able to do this, or are they going to really--is this
a doable thing, Mr. Schmidt?
Mr. Schmidt. I guess we believe that it is. It won't be an
easy challenge for them, but to give you, I guess, a couple of
anecdotes, if anyone that has been in China, air pollution is
really bad.
Mr. Lowenthal. We were there, and----
Mr. Schmidt. Yep.
Mr. Lowenthal [continuing]. We couldn't breathe in Beijing;
could not breathe, actually.
Mr. Schmidt. So you feel the exact same thing that Chinese
Communist Party officials feel and that everyday citizens feel,
and so the number one social unrest issue right now in China is
local air pollution challenges, and that has risen quite a bit.
So, I think we have seen a huge----
Mr. Lowenthal. We know that there is that, right. I think
you have pointed out rightfully so that the Chinese are very
much aware. I am just saying is it really possible, though,
given the existing state and reliance on coal, to really do
that transition in the time?
Mr. Schmidt. Yes. And, to give you a couple of facts from
the region, so the last 2 years, China has actually had a
declining coal consumption year on year. This is the first time
that that has happened in 10 years. That is a huge trend from a
growing 7 percent per year to an actual declining amount of
coal. The expectations are that this year will continue that
trend. The first quarter of this year saw a declining coal
consumption, and we have seen huge shifts.
Yes, China is still building a number of coal plants. They
don't have a market economy as everyone knows, but what you are
finding is that the vast majority of these coal plants are
actually sitting idle, so they are running at about 40 to 50
percent capacity factors, which for anyone that knows coal, is
a very bad economic investment to invest a lot in a very heavy
capital investment and then to only run it less than half the
time. And, so I think we are seeing huge decline in China's
coal consumption, which is very tied to their carbon pollution,
and so we are quite confident that China's CO2 emissions will
peak well before 2030. There is some debate within sort of
energy modelers about whether or not China's emissions have
actually already peaked, and, you know, obviously they need a
set of policies and continued sort of efforts over time to make
sure to deliver.
Mr. Herberg. Can I just----
Mr. Salmon. Thank you. Mr. Connolly.
Mr. Herberg. I will just add one point. The forcing issue
for China is not so much climate, it is air pollution in the
cities and the east coast. And this is an existential issue for
the Communist Party. They can't hide this. They can put people
in jail and other stuff. They can't hide the bad air. And, so
that is forcing a pace of change by the Communist leadership
and the contributors to the air pollution, particularly coal,
that is much faster than, I think, many people actually
anticipated, and I think you can underestimate it.
Mr. Salmon. It really got under their skin, I know, when
the State Department started publishing on a daily basis----
Mr. Herberg. Yeah.
Mr. Salmon [continuing]. Those----
Mr. Schmidt. Air quality.
Mr. Salmon [continuing]. Those numbers, and it really got
under their skin. I know. I was there at one of those times.
The other thing, first time I went to Beijing, had a white
shirt on. By the end of the day, the color was completely
black. It is pretty--pretty bad.
Mr. Connolly.
Mr. Connolly. Well, first the time I went to Beijing was in
1986, and there were a lot of bicycles in Beijing. And then I
went there in March this year, and there were a lot of BMWs and
Toyotas and whatever. And, part of the problem too was in the
Maoist period, they built a lot of, like, steel plants, I
think, outside of Beijing to showcase the industrial might of
Communist China. And, of course, sitting in a basin, it created
huge pollution that now they would never do, but they are stuck
with it, plus normal urban pollution.
Mr. Schmidt, and, gentlemen, if you could comment to, but
when I was there in March, one of the bright sides of the
bilateral relationship that I frankly did not realize the
extent of was enormous cooperation apparently going on between
our two governments on environmental and technological
breakthroughs to try to address pollution, to try to curb both
air pollution, water pollution, ground pollution, to look at
new techniques that are environmentally neutral or friendly,
and that the--apparently--I mean, the Chinese Government is
quite aggressive about this. They are not being dragged into
it. And, the collaboration is quite real and has a lot of
promise. And, I was glad to hear that, given so many other
aspects of the bilateral relationship.
Do you want to comment just a little bit about that before
we all have to go and vote?
Mr. Schmidt. Yeah. I think one of the bright spots of the
U.S.-China relationship over the past couple of years has been
clearly on climate. And, that is not just for me. If you ask
sort of general Asian hands, they clearly view that that
relationship is quite well, and is quite well established. And,
it was, I think, a very critical component of getting the Paris
Agreement delivered, was the sort of relationship between those
two. And, that is both at, I think, a political level, which is
around negotiating agreements and so forth, but also on the
sort of practical, how do we actually do this stuff. And, so
the U.S. has a very active working group working with the
Chinese on helping them deliver on, you know, grid integration,
high voltage transmission, electric vehicles, and the set of
things that gets back to the other speaker's question about how
can American companies kind of play in that.
And, I think there is, you know, just an ongoing great
relationship between the two. It is always fraught with
tensions, but within the clean energy space, I think it is a
very positive engagement that can kind of continue to build and
go to the next level.
Mr. Connolly. So, I would add drinkable water is a problem
too, because even in the very finest hotels, you need filtered
water.
Mr. Kreutzer. I would say that one of the surprising things
is that we have already developed the technology to reduce
particulate emissions from coal plants by over 99 percent. My
understanding is that in some places in China, they have the
pollution control turned off because there is a slight
parasitism of the energy. So, I am unfortunately a little
pessimistic that they are going to push forward with other
technologies that would be more costly, and I am really
surprised that they haven't already used the on-the-shelf
technology that has already been developed that could
dramatically reduce the pollution from even the coal that they
are using.
Mr. Salmon. Thanks. We have got to get over for votes, but
I am going to allow one last follow-up question of Mr. Sherman.
Mr. Sherman. Mr. Herberg, obviously they care about air
pollution in their major cities. Can they build coal-fired
plants either a few hundred miles west of their major cities
and the less urbanized, or can they put them right on the beach
in some windy area where it is all--can they solve their air
pollution problem without helping the world solve its coal
slash global warming problem?
Mr. Herberg. They are moving plants to the west, you know,
and that is one of the--one of the two steps forward, one step
back parts of China's policy, you know, allowing building in
the west but stopping it in the east. But, even so, I think in
the east, tailpipe emissions are replacing, you know, coal
emissions in the power plants.
So, I don't underestimate the scale of this thing, but in
all the major cities, even as you head west, the pollution
problem has become a political, social problem for them, and
that is the forcing dynamic.
Mr. Sherman. My hope is they can't solve their problem
without also helping the world solve its problem----
Mr. Herberg. Well, you kind of get a one-for-one CO2
benefit from the air pollution effort. That is what I am
assuming.
Mr. Salmon. I thank the panelists very much for being here
today. It has been very edifying and very informative.
Mr. Kreutzer. Thank you.
Mr. Salmon. The committee is adjourned.
[Whereupon, at 3:55 p.m., the subcommittee was adjourned.]
A P P E N D I X
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