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Energy, Past, Present, Future

Energy Mythsand Realities

 

Keith O. Rattie

Chairman, President and CEO

Questar Corporation

 

UtahValley University

April 2,2009

 

Thank you for thatintroduction. Good morning, everyone. I?m honored to join you today.

I see a lot offaculty in the audience, but I?m going to address my remarks today primarily toyou students of this fine school. Thirty-three years ago I was sitting whereyou are today, trying to decide what to do with my career after graduating withmy degree in Electrical Engineering. I made a decision to go to work for an oilcompany ? Chevron - on what turns out to have been a false premise: I wasconvinced that by the time I reached the age I am today that America and theworld would no longer be running on fossil fuels. Chevron was pouring lots ofmoney into alternatives ? and they had lots of money and the incentive to findalternatives - and I wanted to be part of the transition.

Fast forward 33years. Today, you students are being told that by the time you?re my age the world will no longer berunning on fossil fuels.

I?m going to tryto do something that seems impossible these days ? and that?s have an honestconversation about energy policy, global warming and what it means for America?senergy future ? and for you, the generation that will have to live with theconsequences of the policy choices we make. My goal is to inform you with easilyverifiable facts ? not hyperbole and propaganda ? and to appeal to your commonsense. But first a few words about Questar.

Questar Corporationis the largest public shareholder-owned company headquartered in Utah, based onstock-market value, NYSE ticker STR. We?re one of two Utah-based companies inthe S&P 500.  Most of you knowus as the parent company of Questar Gas, the utility that sends you yournatural gas bill every month. But outside of Utah and to investors we?re knownas one of America?s fastest-growing natural gas producers. We also own apipeline company. I?m also proud to say that we?re the only Utah-based companyever to make the Business Weekmagazine annual ranking of the 50 top-performing companies in the S&P 500 ?we were #5 in both 2007 and 2008, and we?re #18 in the top 50 in Business Week?s 2009 ranking, just outthis week.

At Questar ourmission is simple: we find, produce and deliver clean energy that makes modernlife possible. We focus on natural gas, and that puts us in the ?sweet spot? ofAmerica?s energy future and the global warming debate. Natural gas currentlyprovides about one-fourth of America?s energy needs. When you do the math, theinescapable conclusion is that greater use of natural gas will be a consequenceof any policy aimed at lowering America?s carbon footprint. You cut carbondioxide emissions by up to 50% when you use natural gas instead of coal to generateelectricity. You cut carbon emissions by at least 30% and NOx emissions by 90% whenyou use natural gas instead of gasoline in your car or truck - and here in Utahyou save a lot of money - you can fill up your natural gas car at a cost ofabout 80 cents per gallon equivalent. You also cut carbon emissions by 30-50%when you use natural gas instead of fuel oil or electricity to heat your home. 

But you didn?tcome here for a commercial about Questar and I didn?t come here to give youone. Let?s talk about energy.

There may be no greaterchallenge facing mankind today ? and your generation in particular - thanfiguring out how we?re going to meet the energy needs of a planet that may have10 billion people living on it by the middle of this century. The magnitude ofthat challenge becomes even more daunting when you consider that of the 6.2billion people on the planet today, nearly two billion people don?t even haveelectricity -- never flipped a light switch.

            Now, when Istarted my career with Chevron in the mid-1970s the ?consensus? at the time wasthat America and the world were running out of oil. Ironically, the media backthen was also declaring a scientific consensus that the planet was cooling,fossil fuels were to blame, and we were all going to freeze to death unless wekicked our fossil fuel habit. We were told we needed to find alternatives tooil ? fast. That task, we were told, was too important to leave to markets, sogovernment needed to intervene with massive taxpayer subsidies for otherwiseuneconomic forms of energy. That thinking led to the now infamous 1977 NationalEnergy Plan, an experiment with central planning that failed miserably.Fast-forward to today, and: déjà vu. This time the fear is not so much that we?rerunning out of oil, but that we?re running out of time ? the earth is gettinghotter, humans are to blame, and we?re all doomed unless we find alternativesto oil, gas and coal  -- fast. Onceagain we?re being told that the job is too important to be left to markets.

Well, thedoomsters of the 1970s turned out to be remarkably wrong. My bet is that today?sdoomsters will be proven wrong. Over the past 33 years mankind has consumed morethan three times the world?s known oil reserves in 1976 ? and today proven oilreserves are nearly double what they were before we started. The story withnatural gas is even better ? here and around the world enormous amounts ofnatural gas have been found. More will be found. And of course, the 30-yearcooling trend that prompted the globalcooling scare in the mid-70s abruptly ended in the late 70s, replaced by witha 20-year warming trend that peaked in1998. 

The lesson thatwe should?ve learned from the 1970s is that when it comes to deciding how muchenergy gets used, what types of energy get used, and where, how and by whomenergy gets used -- that job is too important not to be left to markets.

      Now,I?d love to stand up here and debate the science of global warming. The mainstreammedia, of course long ago declared that debate over -- global warming is aplanetary emergency, we?ve got to change the way we live now. I?ve followed this debate closely for over 15 years. I readeverything I can get my hands on. I?m an engineer, so I try to bypass the media?spenchant for alarmism ? ?World coming to an end ? details at 11? -  and go straight to the actual science. Myresearch convinces me that claims of a scientific consensus mislead the publicand policy makers - and often reflect another agenda.

            Yes, planet earthdoes appear to be warming ? but by a not so unusual and not so alarming one degree over the past 100 years. Indeed,global average temperatures have increased by about one degree per centurysince the end of the so-called Little Ice Age 250 years ago. And, yes carbon dioxideconcentration in the upper atmosphere has increased over the past 250 yearsfrom about 280 parts per million in1750 to about 380 parts per million today ? that?s .00038. What that numbertells you is that carbon dioxide ? the gas that everyone in this room exhalesevery three seconds or so, the gas that plants need to grow - is a trace gas, comprisingjust four out of every 10,000 molecules in the atmosphere. But it?s a veryimportant trace gas ? without CO2 in the atmosphere, the earth would be a lifelessball covered with ice. And yes, most scientists believe that humans areresponsible for much of that increase.

            But that?s wherethe alleged consensus ends. Contrary to the righteous certitude we get from some,no one knows how much warming will occur in the future, nor how much of anywarming that does occur will be due to man, and how much to nature. No oneknows what the impact of warming will be, nor how easily people, plants andspecies will adapt to warming. When you hear someone claim they know, I suggestMark Twain?s advice: respect those who seek the truth, be wary of those whoclaim to have found it.

            My views on thisissue changed dramatically about a decade ago when I looked at the inputs toone of the global circulation models (GCM) that had been built to predictwarming over the next century. If the only input were carbon dioxide, theoutput would be simple ? doubling of the concentration of CO2 in the atmospherewould result in only about a 1 degree increase in global average temperaturesover the next 100 years. But the earth?s climate is what geek engineers referto as a ?non-linear, dynamic system?. There are dozens of inputs, and as Istudied the model further I concluded that many of the inputs into these modelsare little more than the opinion of the scientist ? in some cases, just aguess. For example, water vapor is the most important greenhouse gas ? far morepotent than CO2. [As an aside, if CO2 is a ?pollutant? as some assert, thenwater vapor is also a ?pollutant? ? an absurd conclusion. But I digress]. Idiscovered that scientists do not agree on how to model water vapor, clouds,precipitation and evaporation. Some argue that clouds amplify CO2 forcing,others believe precipitation acts as the earth?s thermostat. The point is there?sno consensus this fundamental issue.

But the realityfor American consumers is that whether you agree that the science is settled ornot, the political science is settled. The new Congress has promised to ?dosomething?. Carbon dioxide regulation is coming. Indeed, President Obama?s hopeof shrinking the massive federal budget deficit depends on vast new carbon revenuesfrom a tax on carbon energy ? so called ?cap and trade?. Senate Majority LeaderHarry Reid has promised a bill by May.

Under cap-and-trade,the government would try to create a market for carbon dioxide by sellingcredits to companies that emit carbon dioxide. They would set a cap for themaximum amount of CO2 emissions. Over time, the cap would be lowered. Intheory, this will induce companies to invest in lower-carbon technologies, thusreducing emissions to avoid the cost of buying credits from other companiesthat have already met their emissions goals. The costs of the credits would bepassed on to consumers. Because virtually everything we do and consume inmodern life has a carbon footprint, the cost of just about everything will goup. This in theory will cause each of us to choose products that have a lower-carbonfootprint. Any way you slice it, cap and trade a tax on the way we live ourlives ? one that by design will produce a windfall for government.

Here?s thecrucial point. The long term goal is ?80 by 50?? an 80% reduction in carbondioxide emissions by 2050. 

Please indulge meas we do the math on what ?80 by 50? means, using Utah as an example. Utah?scarbon footprint today is about 66 MM tons per year. Our population is 2.6 MM.You divide those two numbers, and the average Utahan today has a carbonfootprint of about 25 tons per year. An 80% reduction in Utah?s carbonfootprint by 2050 implies a reduction from 66 MM tons today to about 13 MM tonsper year by 2050. If Utah?s population continues to grow at 2% per year, by2050 there will be about 6 MM people living in our state. So 13 MM tons dividedby 6 MM people = 2.2 tons per person per year. Under 80 by 50 by the time youfolks are about my age you will be required to have a carbon footprint of just2.2 tons per year.

Q: when was thelast time Utah?s carbon footprint was as low as 2.2 tons per person? A: not sinceBrigham Young and the Mormon pioneers first entered the Wasatch Valley anddeclared ?this is the place?.

You reach asimilar conclusion when you do the math on ?80 by 50? for the entire country. ?80by 50? would require a reduction in America?s carbon footprint from about 20tons per person per year today, to less than 2 tons per person per year in 2050? again, a 90% reduction in per capita carbon footprint.

Q: when was America?scarbon footprint as low as 2 tons per person per year?

A: not since thePilgrims arrived at Plymouth Rock in 1620.

In short, ?80 by 50? means that by the time you folksare my age, you won?t be allowed to use anything made with - or made possibleby - fossil fuels.

            So I want tofocus you young people today on this critical question: ?How on God?s greenearth ? pun intended - are you goingto do what my generation said we would do but didn?t ? and that?s weanyourselves from fossil fuels in just four decades?? That?s a conversation thateach of you, and indeed, all Americans need to engage in now -- because when itcomes to ?how? there clearly is noconsensus. Simply put, with today?s energy technologies, we can?t get therefrom here.

The hallmark of this dilemma is our inability toreconcile our prosperity and our way of life with our environmental ideals. WeAmericans love our cars. We like the freedom to ?move about the country? ? todrive to work, fly to conferences, visit distant friends and family. We aspireto own the biggest house we can afford. We like to keep our homes and officeswarm in the winter and cool in the summer. We like devices that use electricity? computers, flat screen TVs, cell phones, the Internet, and many otherconveniences of modern life that come with a power cord. We want food that?slow cost, high quality, and free of bugs ? which means farmers must use fertilizersand pesticides made from fossil fuels. We like things made of plastic andclothes made with synthetic fibers ? and all of these things depend onabundant, affordable, growing supplies of energy.

And guess what? We share this planet with 5.9 billion otherpeople who all want the same damn things.

America?s energy use has been growing at about 1.5 % per year, driven bypopulation growth and prosperity. But while our way of life depends onever-increasing amounts of energy, we?re downright schizophrenic when it comesto the things that energy companies must do to deliver the energy that makesmodern life possible.

We want energy security ? we don?t like being dependent on foreign oil.But we also don?t like drilling in the U.S. Millions of acres of prospectiveonshore public lands here in the Rockies plus the entire east and west coast ofthe U.S. are off-limits to drilling for a variety of reasons, some legitimate,some not. We hate paying $2 per gallon for gasoline -- but not as much as wehate the refineries that turn unusable crude oil into gasoline. We haven?tallowed anyone to build a new refinery in the U.S. in over 30 years. We expectthe lights to come on when we flip the switch, but we don?t like coal, thesource of 40% of our electricity ? it?s dirty and mining scars the earth. Wealso don?t like nuclear power, the source of nearly 20% of our electricity --it?s clean, but we?re afraid of it. Hydropower, the source of about 6% of ourelectricity is clean and renewable. But it has also been blacklisted ? dams hurtfish.

We don?t want pollution of any kind, in any amount, but we also don?twant to be asked: ?how much are we willing to pay for environmental perfection??When it comes to global warming, Timemagazine tells us to ?be worried, be very worried? ? and we say we are -- butwe don?t act that way.

Let me suggest that our conversation about how to reduce carbon dioxideemissions must begin with a few ?inconvenient? realities.

Reality 1: America?s and the world?s demandfor energy will grow by 30-50% over the next two decades ? in fact it will morethan double and could triple by the time you?re my age.  Simply put, America and the rest of theworld will need all the energy that markets can deliver. We?re going to need itall ? oil, natural gas, coal, nuclear, wind, solar, geothermal, biofuels.

Reality 2: There are no near-termalternatives to oil, natural gas, and coal. Like it or not, the world runs onfossil fuels, and it will for decades to come. The U.S. government?s ownforecast shows that fossil fuels will supply about 85% of total world energydemand in 2030 ? roughly the same as today. Yes, someday we?ll findalternatives. But that day is still a long way off.  It?s not about will. It?s not about who?s in the White House.It?s about thermodynamics and economics.

Now, I was told back in the 1970sthe same that you?re being told today: that wind and solar power are ?alternatives?to fossil fuels. A more honest description would be ?supplements?. Takentogether, wind and solar power today account for just one-sixth of 1% ofAmerica?s annual energy consumption today. Let me repeat that statistic ?one-sixth of one percent -- .0016. 

I?m holding a pie chart showingtotal U.S. primary energy demand today. PowerPoint won?t even create a thinslice for wind and solar ? it?s just a line.

Back when I was starting my careerJimmy Carter declared that America would be out of oil and gas by 1990, anddeclared alternative energy the ?moral equivalent of war.? Thirty years and $30billion in government subsidies and all we get for all the wind farms and allthe solar electricity plants in operation in this country today is a thin lineon a pie chart.

Undaunted by all of this, PresidentObama has proposed to double wind andsolar power generation in this country by the end of his first term. I wouldfirst point out that the line on this pie chart will become a slightly thickerline by the end of his first term. I would also point out that wind and solarpower doubled in just the last three years of the George W. Bushadministration. I?ll grant you that W. started from a smaller baseline, sodoubling again over the next four years will be a taller order. But ifPresident Obama?s goal is achieved, wind and solar together will grow fromone-sixth of one percent to a combined one-third of one percent of totalprimary energy use ? and that assumes energy consumption remains stagnant,which of course it will not.

The problems with wind and solarpower become apparent when you look at their footprint. To generate electricitycomparable to a 1,000 MW gas-fired power plant you?d have to build a wind farm withat least 500 very tall windmills occupying 40,000 acres of land. What aboutsolar power? Well, here?s a photo of ?America?s most productive utility-scalesolar electricity plant?. It has a capacity8.2 MW, and it?s located on 82 acres of land in southwest Colorado. Whenyou take into account the fact that the sun doesn?t always shine, you would needroughly 250 of these plants, occupying roughly 20,000 acres to replace a single1,000 MW gas-fired power plant.

By comparison, a 1,000 MW gas-firedpower plant can be built on about 10 -15 acres. [Another example, you?ll find aphoto of Sempra energy?s El Dorado Solar near Las Vegas on their website. 10 MW? largest of its kind in North America ? built next to a 500 MW gas-fired powerplant. They plan to run the gas plant and ?supplement? gas-power with solarwhen its available. This is the current state of the art].

The Salt Lake Tribune recently celebrated the planned startup of a 14MW geothermal plant near Beaver, Utah. That?s wonderful! But the Tribune failedto put 14 MW into perspective. Utah has over 7,000 MW of installed generatingcapacity, primarily coal. America has one million MW of installed capacity. BecauseU.S. demand for electricity has been growing at about 2% per year ? we need tobuild 10-20,000 MW of new capacity every year to keep pace with growth. There?sa worldwide building boom in new coal-fired power plants ? over 200,000 MW underconstruction, over 30,000 MW in China. In fact, there are 30 coal plants underconstruction in the U.S. today that when complete will burn about 70 milliontons of coal per year.

Why did my generation fail todevelop wind and solar? Because our energy choices are ruthlessly ruled, not bypolitical judgments, but by the immutable laws of thermodynamics. Inengineer-speak, turning diffused sources of energy such as photons in sunlightor the kinetic energy in wind requires massiveinvestment to concentrate that energy into a form that?s usable on anymeaningful scale.

What?s more, the wind doesn?t alwaysblow and the sun doesn?t always shine. Unless or until there?s significantbreakthrough in high-density electricity storage ? a problem that hasconfounded scientists for more than a century ? wind and solar can never berelied upon to provide base load power.

But it?s not just thermodynamics. It?seconomics. Over the past 150 years America has invested trillions of dollars inour existing energy systems ? offshore platforms, power plants, the grid, steamand gas turbines, railroads, pipelines, distribution infrastructure,refineries, service stations, boilers, airplanes, cars, trucks, appliances,etc.  Changing that infrastructureto a system based on renewable energy will take decades and massive newinvestment.

      Tobe clear, we need all the wind and solar power the markets can deliver at prices we can afford. But please, let?sget real -- wind and solar are not ?alternatives? to fossil fuels. [If time,explain why Bush?s hydrogen vision has gone nowhere].

Reality 3: Carbon cap and trade regulation willdrive the cost of energy painfully higher. Obama?s budget puts the cost at $650MM over the next decade. Some believe that this estimate could be off by afactor of three ? suggesting the true cost will approach $2 trillion over thenext decade. As I mentioned, the businesses that are forced to buy credits willpass this cost on in the price of their goods ? we?ll all pay for it.

Aside from the enormous cost, I hopeyou would ask: will cap and trade work? In my opinion the answer is no. It won?twork until we have viable alternatives to fossil fuels that can be delivered tomarkets at scale and at a cost that is politically and economically acceptable.

The European Union implemented a capand trade scheme in an effort to meet their Kyoto commitments to reduce carbonemissions to below 1990 levels by 2012. [Explain Kyoto if time]. There?s areason why they?re failing: no country is willing to sacrifice their economyand their standard of living to do so. Europe?s cap and trade scheme wasdesigned to fail ? and it?s working as designed.

Let me do the math to explain whyKyoto would have failed in the U.S. and why I think Obama?s cap and tradescheme will also fail.

Americans were responsible for about5 billion metric tons of CO2 emissions in 1990. By 2005 that amount had risen toabout 5.8 billion tons. Let?s suppose that the U.S. had signed the Kyoto treatyback in 1997 ? incidentally, Bill Clinton was President and Al Gore was VicePresident when the Senate voted 95-0 to reject Kyoto - the U.S. would?vecommitted to cut manmade CO2 emissions to 7% below that 1990 level ? to about4.6 billion tons, a 1.2 billion ton per year cut.

Q: what would it take to cut CO2emissions by 1.2 billion tons per year by 2012?

A: a lot more sacrifice than just riding your Schwinn to work or school, and changing light bulbs.

We could?ve outlawed gasoline. In2005 gasoline use in America generated about 1.1 B tons of CO2. That wouldalmost get us there. Or, we could shut down over half of the coal-fired powerplants in this country ? coal plants generated about 2 B tons of CO2 in 2005.  Of course, before we did that we?d haveto get about 60 MM Americans and a significant number of American businesses tovolunteer to go without electricity.

This simple math is not friendly tothose who demand that government to mandate sharp cuts in manmade carbondioxide emissions -- now.

Reality 4: Even if America does cut CO2emissions, the same computer models that predict manmade warming over the nextcentury also predict that Kyoto-type CO2 cuts will have no discernible effect on global average temperatures for decades,if at all. The models show that Kyoto reductions would prevent only a smallfraction of one degree of warming over the next 50 years. When was the lasttime you read that in the paper? We?ve been told that Kyoto was ?just a firststep.? Your generation may want to ask: ?what?s the second step??

            That begs anotherquestion: ?how much are Americans willing to pay for ?a first step? that has nodiscernible effect on global climate??

            The answer herein Utah is: not much, according to a public opinion poll conducted by Dan Jonesand Associates published in the DeseretNews. 63% of those surveyed said they?re worried about global warming. Butwhen asked how much they?d be willing to see their electricity bills go up tohelp cut carbon dioxide emissions, only half were willing to pay more forelectricity. Only 18% were willing to see their power bill go up by 10% ormore. Only three percent were willing to see their power bill go up by 20%.

Here?s the rub: many Europeans todaypay at least 20% more for electricity as a consequence of their (failed)efforts to severe the link between modern life and CO2 emissions.

If Americans aren?t willing to pay alot more for their energy, how do we reduce CO2 emissions? Well, here are fourthings we can all agree on.

First, we need to improve energyefficiency.

Second, we need to stop wastingenergy.

Third, we need to conserve energy.

Fourth, we need to rethink ourirrational fear of nuclear power. I see Steve Creamer, the Chairman and CEO ofEnergy Solutions is here today. I?ll let Steve make the case for nuclear power.

Fifth, we need to embrace one of thekey recommendations of the Intergovernmental Panel on Climate Change -substitute low-carbon natural gas for higher-carbon coal and oil. The goodnews: we can now do so without driving the price of natural gas to unacceptablehigh levels.

Indeed, 2008 will be remembered inthe energy industry as the year U.S. natural gas producers changed the game forU.S. energy policy. Smart people in my industry have ?cracked the code? ? we?vefigured out how to produce stunning amounts of natural gas from shaleformations right here in the U.S. [Explain difference between shale gas andshale oil]. As a result, we can now say with confidence that America and theworld are ?swimming? in natural gas. U.S. onshore natural gas production hasgrown more than 20% over the past three years, a feat that most energy expertsthought impossible a few years ago. America?s known natural gas resource basenow exceeds 100 years of supply at current U.S. consumption ? and that numberis sure to get bigger. Abundant supplies mean that natural gas prices over thenext decade and beyond will likely be much lower than over the past five years.While prices may spike from time to time in response to sudden, unexpectedchanges in supply or demand ? for example, hurricanes in the Gulf of Mexico orextreme cold or hot weather ? these spikes will be temporary.

Greater use of natural gas producedin America - by American companies who pay American taxes - will help reduceoil imports. Unlike oil, 98% of America?s natural gas supply comes from NorthAmerica.

What?s more, we don?t need massivenew investment in gas-fired power plants to substitute gas for coal. Imentioned earlier that America has about one million MW of installed electricgeneration capacity. Forty percent of that capacity is built to run on naturalgas ? about 400,000 MW. That compares to just 312,000 MW of coal capacity. Butunlike those coal plants, which run at an average load factor of about 75%,America?s existing, installed natural gas-fired power plants operate with anaverage load factor of less than 25%. Turns out that we?ve got a quick and easyway to cut carbon emissions without driving the price of electricity throughthe roof ? use clean burning, low-carbon, American-made natural gas in ourexisting, underutilized gas-fired power plants.

Sixth, your generation needs tofocus on new technology and not just assume it, as many in my generation didback in the 70s ? and as many in Congress continue to do today. Just oneexample: there?s no such thing as ?clean? coal. But given America and the world?sdependence on coal for electric generation, we need to fund R&D aimed at capturingand storing carbon dioxide from fossil fuel plants. [Mention USTAR funding].

To be sure, carbon capture andsequestration will be hugely expensive and it?ll take decades to implement on any meaningful scale. The high costswill be passed through in electricity rates to consumers. It?s not just thecapture part - we?ll have to construct a massive pipeline grid comparable toour existing natural gas pipeline grid, and drill thousands of wells totransport and pump massive amounts of CO2 into the ground. The facilitiesrequired to do this will use huge amounts of energy ? which most likely will comefrom fossil fuels, negating some of the carbon reduction benefits. We?re notsure where we?re going to put all this CO2. Questar is one of the largestowner-operators of underground natural gas storage. Gas storage is in highdemand - we?re always looking for places to build cost-effective storage. But Ican tell you that there aren?t many places left that are economic to develop.That will be the case with CO2 sequestration as well.

But the point is, R&D aimed atallowing us to continue to use fossil fuels while waiting for breakthroughs inother technologies seems a rational thing to do.

Seventh, it?s time to have an honestdiscussion about alternative responses to global warming than what will likelybe a futile attempt to eliminate CO2 emissions related to fossil fuel use. Intruth, while many scientists believe man?s use of fossil fuels is at leastpartly responsible for global warming, many also believe the amount of warmingwill be modest and the planet will easily adapt. Just about everyone agreesthat a modest amount of warming won?t harm the planet. In fact,highly-respected scientists such as Harvard astrophysicist Willie Soon believethat added CO2 in the atmosphere may actually benefit mankind because more CO2helps plants grow and increases biodiversity. When was the last time you readthat in the paper?

You?ve no doubt heard the argument thateven if global warming turns out not to be as bad as some are saying, we shouldstill cut carbon emissions ? as an insurance policy ? the so-called precautionaryprinciple. While appealing in its simplicity, there are three major problemswith the precautionary principle.

First, none of us live our lives accordingto the precautionary principle. Let me give you just one example. Around the worldabout 1.2 million people die each year in car accidents ? about 3,200 deaths aday. At that pace, 120 million people will die this century in a car wrecksomewhere in the world. We could save the lives of 120 million people bybanning cars and trucks, or by imposing a 5 mile per hour speed limit worldwide.How many of you can live with a 5 MPH speed limit to save 120 million lives? Ofcourse we don?t ? we accept trade-offs. We implicitly do a cost-benefitanalysis and conclude that we?re not going to do without our cars, even ifdoing so would save 120 million lives. Don?t you think we should insist on anhonest cost-benefit analysis for cap and trade regulation?

Second, the media dwells on thepotential harm from global warming, but ignores the fact that the costs borneto address it will also harm us. We have a finite amount of wealth in the world.We have a long list of problems ? hunger, poverty, malaria, nuclear proliferationjust to name a few. Your generation should ask: how can we do the most goodwith our limited resources? The opportunity cost of diverting a large part of currentwealth to solve a potential problem 50-100 years from now means we do ?lessgood? dealing with these other problems.

Third, economists will tell you thatthe consequence of what is in effect a huge tax on the way we live our liveswill be slower economic growth. Slower economic growth, compounded over severaldecades, means that we leave future generations with less wealth to deal withthe consequences of global warming, whatever they may be.  [Compare U.S. wealth in 1900 vs. today].

In truth, mankind has proven to beremarkably adaptive. Humans live north of the Arctic Circle where temperaturesare below zero most of the year. Roughly one-third of mankind today lives intropical climates where temperatures often exceed 100 degrees.  In fact, you can take every one of thepotential problems caused by global warming and identify lower-cost ways todeal with that problem than rationing energy use. For example, if in fact meltingarctic ice causes the sea level to rise, a wealthier world will adapt over timeby moving away from the beach or building retaining walls to protect beachfrontproperty. What about the polar bear? Polar bears have survived sometimesdramatic climate changes over thousands of years, most recently the so called ?medievalwarm period? of 1000-1300 A.D. in which large parts of the arctic glaciersdisappeared and Greenland was truly ?green?. It?s an established fact that morepolar bears die each year from gunshot wounds than from drowning. The firstthing we need to do to protect polar bears is to stop shooting them.

Let me close by returning to the lessonsmy generation learned from the 1970s energy crisis. We learned that energychoices favored by politicians but not confirmed by markets are destined tofail. If history has taught us anything it?s that we should let marketsdetermine how much energy gets used, what types of energy get used, and where,how and by whom energy gets used. What?s more, no form of energy is perfect,thus only markets can weigh the advantages and disadvantages of differentenergy forms. Instead, government?s role is to set reasonable standards forenvironmental performance, and make sure markets work.

I?ve tried tocover a lot of ground this afternoon. I hope my comments provoke at least someof you to become engaged in the discussion about America?s energy future. Mostof all I wish you freedom, prosperity ? and abundant supplies of energy atprices you can afford. Thank you for your attention, and now I?ll be glad totake rebuttal!