Phase II of Renewable Energy in America

National Policy Conference

November 28-29

Cannon Caucus Room, Washington, DC

American Council On Renewable Energy (ACORE)

Thank you, Mike.  We actually have about an 18-billion-dollar annual book of business.  We have a hundred-billion-dollar portfolio and I am a country farmer from Iowa trying to figure out how to run it.  So hang onto your hat.  And the other thing I am is I think I’m the last guy between you and your first glass of nondenatured ethanol.  Oh, there’s one more after me?  Okay.  Okay.  Well, then I’m not in such bad shape.  But I do want to thank Mike and I do want to thank Reno and Judy for the job they’ve done explaining what’s going on at the WIREC, why we feel very strongly about it.  USDA is heavily involved in it because, unbeknownst to a lot of people, we are probably the largest commercial financer of renewable energy in the federal government today.  We have invested over 700 million dollars, has been leveraged against probably nearly two billion dollars in renewable energy opportunities.  So I’m not going to spend a lot more time talking about WIREC because I think Judy and Mike and Reno did a good job.  But I do want to spend just a moment talking about this issue of global leadership.  In my view, this race on renewable energy is clearly not a race against other nations.  What it really is is a race against our own potential.  So when we turn to the international comparisons, in my view, it’s important at the outset to recognize that national systems and circumstances differ and we therefore need to respect the choices that other nations have made and/or that we make.  Take just one example.  Europe is reluctant to accept GMOs.  And as a result, she is paying a rather stiff severe penalty right now on both the food and the fuel front when that side of the biofuel’s equation.  This, by the way, is an area in one of many in the renewables field where the United States actually leads the world in this particular arena.  On the other hand, Europe also accepts levels of corporate subsidies, levels of taxation, and consumer energy prices that would be an anathema in the United States.  European gas prices would have Americans reaching for the tar and feathers.  Residential electricity prices are roughly double ours with the exception of France which benefits from a strong commitment to nuclear power.  National systems vary.  And American consumers and taxpayers in my view can be heartily glad of that.  Now, fortunately there are different paths to success.  The growth of renewable energy is truly an international story.  No nation, no nation has a monopoly on good policy or, for that matter, instructively mistakes and we have much to learn and ultimately much to share.  I’ve often remarked that one of the things that we have not done well throughout rural America over the years is to celebrate success.  And increasingly today I think the same is true of renewable energy.  And I realize that this audience is highly self-selective, so that I expect that most of you already know the numbers.  But if one were to walk outside the Cann [ph?] building and conduct a random man on the street interviews, I suspect that there is not one person in a thousand that would know that installed wind capacity in the United States has more than quadrupled since 2000, or that we led the world in installed capacity in ’05, in ’06, and that we’re going to lead the world in the placement of that capacity again in ’07.  And again, very few Americans not in the business know that we have become one of the world leaders in biodiesel in just seven years.  We’ve gone from literally nothing to the end of this year, about 380 million gallons of biodiesel to the end of 2010, a projected 680 million gallons.  And that takes us from essentially zero to No. 2 in the world directly behind Germany.  A few more people but not many, I would suggest, might not know that we’ve already tripled ethanol production in the last seven years, that we’re on pace to double it again in the next two years.  And likewise, that cellulosic ethanol is moving into production.  And annual domestic shipments of photovoltaic cells have risen tenfold since 2000.  We lead the world in waste-to-energy.  We lead the world in solar thermal.  We are fourth in hydropower.  And we lead the world in geothermal.  In my view, this is an impressive record and most of it has been achieved just in less than a decade.  But most Americans, most Americans, because they’ve not been told, don’t know that and those series of facts.  Clearly this is a field in which the United States after having drifted in neutral for several decades quite frankly has begun to take definitive and dramatic strides.  Thanks, in my view, to a very aggressive policy leadership brought about in recent years by a whole host of collective agencies and the federal government.  Now, just as clearly, we have begun to develop a policy mix that is beginning to drive a very rapid build up.  And in my view, we should be celebrating that success, not because we ought to be resting on our laurels, but just the reverse.  Actually, because we need to develop the kind of public understanding and support for the ability to sustain and enhance a viable growth strategy in the years ahead.  I would not suggest that others should uncritically copy what we are doing, nor would I suggest that we uncritically copy them.  But as the growth metrics I recited earlier suggest, the United States is already a world leader in this arena; and because of our lower subsidy and greater reliance on market signals, we may in fact be uniquely positioned to respond flexibly and rapidly to a dynamic new environment for renewables.  Again, this is not a race against other nations.  But I believe it is suggestive that two recent Ernst & Young reports rank the United States as the most attractive market in the world today for investors interested in renewable energy as well as biofuels.  That’s the future.  That clearly is the future.  And in this context, in my view, it is important to recognize that the single most important underlying factor driving renewables today isn’t necessarily government investment.  It is price.  It is price.  Which is also to say that it is demand for energy that was driven by the collapse of the Soviet Union and the decisive turns made by the countries of China and India and a number of third world countries to market economies.  When you reflect on it, if you look at it, since the fall of the Berlin Wall, between two and three billion people have joined the world market system.  This is the greatest explosion of economic freedom in world history.  The world is vastly richer and it is significantly more competitive than it was 20 years ago and certainly even 10 years ago.  And this is reflected in commodities prices which again are being driven by the demand from China, India, and a number of these emerging countries.  Now, the bad news is that you and I are going to feel the effect every time we pull up to the pump or every time we open our heating bill.  But the good news, in my view, is actually twofold.  First, this growth in demand reflects real increases in living standards for hundreds of millions of people all around the world.  And the silver lining is that renewable energy will continue to become more competitive at even lower subsidy levels versus ever more expensive fossil fuels.  Why?  And which was just mentioned here a few moments ago, facilitating the clean up of the environment in the process.  Now, I don’t have a crystal ball but given the growth rates that we have already achieved and the remarkable advances that are being reported almost daily from the research sector, we are very likely approaching the point at which renewable energy will begin to graduate from public sector investment to market investment.  And that’s what we need to be preparing for, because as we develop policy, we need to keep this in mind.  We should be looking ahead, ahead of an era of self-sustaining growth based on the competitiveness in the marketplace and not back to an era when renewable energy was more dependent on subsidies.  And I’ll tell you why I am so sensitive to that.  It’s because we’ve engaged in those kinds of policies in rural America for over 75 years and they’ve had an incredible stifling effect on both the human and the rural economic development components of rural America.  We don’t need to repeat that.  Now, that doesn’t mean that our existing incentives aren’t important.  I believe they are.  They boost current generation renewables over the threshold as they should.  But once we are over that threshold, markets can and should take over.  And over time, the price equation will continue to shift in favor of these renewables.  Now, secondly, I am convinced that a key driver in the development of renewable energy is distributed computing.  For those of you who have heard me before, this is not something new.  But in my view, this literally is revolutionary.  Distributed computing allows network production systems to achieve the economies of scale to be efficiently integrated into the legacy systems.  Wind, solar and biofuels would not be building at it anything approaching their current pace without this capacity.  This is doubly important because renewable energy resources are inherently distributed and, to a large extent, they’re largely rural sourced.  Production and ownership can be widely disbursed.  And the result is that this is the greatest new opportunity for wealth creation that we’ve seen in rural America in our lifetimes and I would suggest in rural areas all across the world.  Just consider: ethanol production displaces as much oil as we import from Iraq or half of what we import from Venezuela.  The next step clearly is cellulosic ethanol.  The President’s 20 in 10 agenda calls for a 35-billion-gallon Alternative Fuel Standard by 2017.  But that implies a new market for biofuels that is half the size of net farm income in the United States today.  That’s a huge opportunity.  This is an extraordinary event.  It’s a key priority for us today at USDA and particularly at USDA Rural Development.  And it’s an opportunity that we look forward to exploring at WIREC 2008 with our counterparts from all around the world.  Now, finally, as we consider next steps on renewable energy, I think we need to recognize that an era of fundamental change is also likely to be an era of both surprises as well as creative destruction or disruptive technologies, whatever you wish to call them.  There is going to be uncertainty and clearly prudence is going to be important.  There is a remarkable range of new technology on the horizons.  All of them, all of them actually have dedicated cheering sections.  You represent many of them, confident that theirs is the solution, if only it were subsidized enough.  But let me assure you, not all of them are going to meet the test of the market.  Biofuels must compete not just against gasoline but ultimately against hydrogen fuel cells, electric cars or some combination of energy sources that we have not even thought of.  On top of that, wind and solar are going to have to compete against next generation nuclear or very likely at some point carbon-sequestered coal.  And the truth is that none of us today can predict the winners but what we do know with a great deal of certainty is that we have an historic opportunity and that markets work, that markets work.  There are going to be adjustments along the way, but in the final analysis, in the final analysis, I share the late Julian Simon’s confidence in what he called “The Ultimate Resource,” the human ingenuity.  So yes, there are going to be adjustments along the way but hundred-dollar oil is already shifting the resource base in a very dramatic way and it’s our job accordingly.  And I think if we tend to it, we can help smooth the transition.  I thank you all.  Thank you all for allowing me to join you today.  Look forward to seeing you at WIREC 2008.