A Declaration of Energy Independence
September 11, 2008 | Energy debates in Washington are disquieting to the careful observer. Economic myths replace science as the basis of decision making. The right believes that governmental controls disrupt energy markets while the left warns that special interests are aiming to thwart the national interest. Neither simplification stands up to economic analysis, baffling the average citizen. Yet we are all searching for solutions that lead us towards energy independence. Jay Hakes is the former Head of Energy Information Administration at the US Department of Energy.Related Events: A Declaration of Energy Independence
John Fink: I'm John Fink. I'm the director of the Global Institute of Sustainability. And the Wrigley Lecture Series goes on throughout the year, it gives us an opportunity to bring in distinguished speakers on a wide variety of topics related to sustainability, ranging from urbanization to biodiversity to energy, and many other things in between. And today's lecture, we're fortunate to be sponsoring with the School of Public Affairs and the College of Public programs. So this is one of our opportunities to reach out to the downtown campus and be connected with them. And, so today's speaker, Jay Hicks, will be introduced by Bob Denhart, who was the director of the School of Public Affairs.
And we will be keeping you informed about other Wrigley lectures that will be coming up. Rod, you know when the next one is? Or any of you?[INAUDIBLE]
October 28, right, it's when you hear about the world without us. So it's my pleasure to introduce Bob Denhardt from the School of Public Affairs.
Bob Denhardt: Thanks very much. And on behalf of the School of Public Affairs, we're delighted to co-sponsor the Wrigley Lecture again as we have before. Our school does public administration, public policy, urban affairs, and leadership studies. So there are lots of connections with what you do here.
I'm very pleased to introduce a good friend, Jay Hakes. Jay and I taught on the faculty at the University of New Orleans many, many years ago. He came there from Duke University where he received his doctorate in political science and public policy.
He left after a while to pursue a career in government and public service. He worked in Florida for Senator and Governor Bob Graham. He was chief of staff to Governor and Senator Bob Graham. He was also head of the Department of Energy in the State of Florida.
He then worked in the Interior Department during the Carter administration and was head of the Energy Information Administration in the Clinton administration. And that group is the one that does statistics and data analysis for energy policy throughout the United States and around the world.
About eight years ago, Jay became director of the Jimmy Carter Presidential Library and Museum. Through that period though, he has maintained his interest in energy policy. And of course, his latest book is called A Declaration of Energy Independence.
I've read the book. And I recommend it to you. It's a wonderful combination of historical material dealing with the development of energy policy in the United States and combined with some good recommendations for achieving energy independence. So I'm delighted to present Dr. Jay Hakes.
Jay Hakes: Thank you, Bob. It's a pleasure to be here. I'm in the midst of a national book tour going to a lot of cities. I think I'm doing nine universities, three presidential libraries, the National Archives Lecture Series in Washington. I'm speaking at the Department of Energy in Washington.
But this was actually the first formal invitation that I received to speak. So Arizona is not first chronologically in delivery. But it's first in signing up. And I'm not accepting any more speaking engagements for the rest of the year. I don't have time anymore. I have a day job working at the Carter Library. But on the side, I've kept up the interest that I developed at the Department of Energy where I was, in effect, the government's chief energy analyst and testified before Congress on over 25 occasions about energy issues.
And I was fortunate that the book came out at a time when public interest in energy was high. But I've been working on it for many years. Bob and I go way back. One of our jobs when we were on the faculty at the University of New Orleans was to entertain perspective faculty members, people that we were trying to hire.
And after we interviewed the people, we would go to the department chairman. And we would pay our own cost of our meals, because we went out to eat a lot anyway when we lived in New Orleans. But the department chairman would have to decide how much he was going to spend for the meal of the person we had just interviewed.
And if they had bombed on the interview, it would usually be a pretty lousy restaurant. But if they really did well in the interview, we would take them to the best restaurant in New Orleans. And we found that they almost always agreed to come. So I'm sure that Bob still has great skills as a recruiter of high class faculty.
Now, energy is one of those big things. Look, Carl Sagan wrote about the cosmos. That's a pretty big topic. Energy is a pretty big topic. It cuts across all the disciplines of certainly geology and mining, physics, chemistry, economics, political science, sociology, international relations.
All of those things come to play when you talk about energy. So you have to be very interdisciplinary. And you have to look at things in a broad point of view. So I'm going to start with a simple thesis and work through this. And I think that even for those of you who have studied energy a lot that there'll be some new insights.
And if you haven't, hopefully it will avoid the kind of jargon and technical language that makes this issue difficult for many people. The premise is that we have dug ourselves into a very deep hole on the issue of energy. This is largely because we have failed to adequately deal with the national security risk of importing large amounts of oil from the Persian Gulf, which means, in effect, that we are financing many of our enemies by sending that amount of money over there.
We are ignoring the economic damage that's resulted from poor energy policy. Right now, our negative energy trade balance a day is well over a billion dollars negative energy trade balance a day. So that's much more expensive than our trade deficit with China. Or it's much more expensive than the wars in Iraq and Afghanistan.
You may have heard-- Boone Pickens says that our trade deficit is $700 billion a year. I don't dispute that figure. It goes up and down every day depending on what the price of oil is. So I just stick with well over a $1 billion a day.
And then, of course, there's the problem of climate change, where the emission of fossil fuels-- most of the greenhouse gases result from the combustion of fossil fuels, which are the fuels that run our societies, make our modern life possible. And if we don't deal with it, the climate keeps changing at a faster and faster rate.
So I hope that you have a tolerance for history, because I believe that the historical perspective is the most useful. And even for people who've lived through this, it's time to go back and look at how we got in this hole. And then
I think that gives us the lessons of how we dig ourselves out.
I could start earlier. I'm prepared to go back to Abraham Lincoln. But I'm going to start with 1970 when Richard Nixon was president. And that happened to be the year that US oil production peaked. Until that time, we first found oil what? Back in 1859. From 1859 through 1970, oil production went up each year. In fact, for most of that period, we exported oil. We were net exporters of oil.
But in '70, it wasn't so much that oil just peaked, because we could import oil. But we had a policy in place that very few people are aware of that the oil companies were expected to never produce at full capacity.
So when there was an interruption in the world, such as the Suez Canal crisis in the 1950s or the Six Day War in the Middle East-- excuse me, the Suez Canal crisis of the 1950s and the Six Day War in the 1960s-- if the world was running three or four million barrels of oil a day short, we would simply ramp up our production. We would find a few other countries around the world like Venezuela, who can do the same thing.
So we had this insurance policy in place that buffeted us against the vagaries of the world oil market. It's interesting to go back and look at the secret papers of the Nixon White House, which are now open for research, and find that there were many very intelligent people immediately recognized this was a huge problem. It was creating a whole bunch of new challenges for America.
And they looked at a range of energy solutions, virtually everything that was on the table today. And Nixon was very clear. He said, you can only engaging in this work if it's kept absolutely secret, because energy issues are no-win issues politically. They'll just inflame the fight between the Northeastern consumers and the oil patch producers. Keep it secret.
And it wasn't until many, many years later. And I think it was me that first found all these papers-- hundreds and hundreds of pages. Congress had actually asked Nixon if they had done any energy studies and said, no, we never did any. And if these had been known at the time, we might have had a more favorable view of Nixon that he had the foresight to at least be considering these questions.
Then all of a sudden, a crisis burst upon us when on October 17, 1973, the Arab's oil producers decided to instigate an oil embargo against the United States to punish us for our support of Israel in the war with Egypt and Syria.
Now, an embargo of the United States in and of itself is not terribly effective, because what would happen would be the countries that weren't embargoed could send us some oil. And then the oil that would have otherwise come here would get sent to those countries. And you would evade the embargo.
So the Arab producers figured this out. And they decided they would cut their own production by 20% so that-- that way, they had to punish other people too. But at least they knew the Americans would feel the bite. They did not want to destroy the Western economies, because these were their potential future customers. So they set it at a rate where they thought it would hurt, but not destroy our economy.
This shattered an American assumption that the oil producers could never punish us, because they could not do without the revenues. We had said, well, they can't do it. They can't afford. They'd be giving up the income. And there was a memo that was declassified a couple of years ago from the American ambassador in Saudi Arabia.
This would have been late November about five or six weeks into the embargo. And he said, the Saudis have just figured it up. And they're making more money producing less oil. And I would argue that that was an important turning point in the world market when the oil producers figured out they could earn more money by producing less oil, because the unit price increase in a commodities market goes up more than your loss of volume.
Now, that memo got lost in translation. Kissinger never figured it out. He was Secretary of State at the time. But the rest of OPEC did. And OPEC at the beginning did not support the Arabs and increased their production to some extent. But when they saw what was happening, they said, this has taught us a lesson. We can afford now to reduce production and extract these large sums from the Americans.
There is a line of thought, which happens to be incorrect, but it's shared by many people that the United States did nothing to deal with the problem of oil dependence. Even under Nixon we instituted the 55 mile an hour speed limit. In fact, Nixon wanted to make it 50.
We started putting much larger amounts of money into energy research. Under President Ford in 1975, the Congress passed the first mileage efficiency standards for automobiles, which raised them from then about 14 miles per gallon to 27.5 miles per gallon by the year 1985.
It also established a strategic petroleum reserve. And it also put in place the mechanism by which price controls on oil were eventually abolished, which was a problem. So we're starting to take action. Then under Jimmy Carter, we passed two major pieces of legislation in 1978 and in 1980.
And we start to make some progress in reducing oil imports. But suddenly, we lose sight of that, because a major event comes on the scene just about the time that the 1978 energy package passed. A revolution begins in the country of Iran, who was our most staunch oil producer ally. We had an extremely close alliance with the Shah of Iran that went back to President Franklin Roosevelt.
He became almost a member of NATO effectively in terms of arms purchases. We were selling huge amounts of weapons to him. But there started to be a strike against him, a revolution, which eventually, for a while, led to the complete shutdown of Iranian oil production and huge shortages in the world market, which put people back again into panic just as in the '73, '74 embargo, the shortage led to gasoline lines, which in that case, some states, 50% of the gasoline stations had no gasoline at all.
Again, gasoline lines appeared again the United States in 1979. But it blinded us a little bit that we were actually starting to address the problem. And when Carter said in July of 1999 that oil imports would never be higher than they were in 1977, people thought that that was hyperbole.
However, we never got back to the '77 levels until Clinton's second term. From 1977 to 1982, we cut our oil imports in half from 8,6 million barrels a day to 4.3 million barrels a day. If you look at it in percentage terms, it went from 47% reliance on foreign oil to 28% reliance on foreign oil. Almost nobody knows this.
It's not part of the narrative. The narrative is they didn't do anything about it. If we'd listened to Carter, maybe we would have done something. But in the '70s, people had seen first hand these two oil crisis. Republicans and Democrats, they knew something needed to be done about it. There was a lot of cooperation across party lines. Not everything was done. Mistakes were made. But more was done right than wrong.
Just to give you one example, we virtually eliminated the use of oil in the production of electricity. In the mid '70s, we were getting 17% of our electricity from oil. It's now down to about 3%. Most of that progress was made in the late '70s. So we started insulating houses better. We had the mileage efficiency standards. We had the oil pipeline from Alaska.
A lot of things contributed to this. And it had a very beneficial effect. It eliminated the impact of OPEC in setting world oil prices. Prices then shot down. During the '80s we forget that Iran and Iraq were at war with each other during almost the entire 1980s, undercutting energy supplies from the Middle East in a very significant way.
But we had done so much to reduce our dependence on foreign oil that we weren't particularly bothered by it. And most people don't remember that war to that extent. There's an interesting story that's a little bit off chronologically. But when the first oil embargo hit-- no, when they had an OPEC meeting one time, Saudi Arabia told the Americans that he could probably get the support of Saddam Hussein at this meeting.
And the Americans were kind of incredulous. And they said, why? And he says, because your position is different from Iran's. These two have always been at odds.
Now, we've taken this up to the 1982. So we dug ourselves into an energy hole. We dug ourselves out.
This is the point the narrative where I will introduce the climate change issue. The first consensus report on global climate change to be produced by American scientists was the report of the National Academy of Sciences in 1979 chaired by Roger Revelle And basically, it reported a consensus among scientists that the greenhouse gases were going up due to human activities.
We had started to measure these in a empirical way in the 1950s. Revelle himself was one of the scientists involved in that. And there seemed to be a global warming as a result of that, although the temperature data was still a little bit murky. So they couldn't nail it down it in a strict, empirical way. But the theory all seemed to indicate this.
And they pointed out that the first adverse results would be seen in the Arctic region with the melting of the icecaps. What is interesting about this, and I think I'm one of the few people who has gotten into this, is that the report itself is written in a way that doesn't ring a lot of alarm bells.
But at the same time that the report is written, Revelle and others are going by the White House and leaving notes saying this climate change is a big problem. You need to do something about it. So we started getting into this problem where scientists were talking one way where they had to behave as scientists and talk in a certain way. And then what they really thought about the issue, which I think has plagued the climate change debate probably till the fourth assessment of the Intergovernmental Panel on Climate Change.
So the issue goes away. There's a very interesting entry in Reagan's diaries. I love to read presidential diaries, listen to presidential tapes, read private presidential correspondence. At the end of the Reagan diaries, which came out last year, in the closing weeks, he says, got report on global climate change. Had to kill it. Cost too much.
So it went away as an issue. Then in the '90s, both issues come back. In the '80s, the Saudis decided to crash the world oil market. They said, this isn't working for us. We've been cutting back production, cutting back production, and the prices are staying low. These countries are talking about alternative fuels. And they're talking about developing more oil and gas in Louisiana and Texas. Let's run them all out of business.
And so the Saudis dramatically increased their world oil production. The alternative fuels were already in trouble. This pretty much ended a lot of alternate fuel projects. It wiped out a lot of investments in New Orleans gas production in Louisiana and Texas. The Saudi action did not immediately reassert the power of OPEC in the world. But it did achieve their short-term objective and eventually was an important step to doing that.
Now, we're sitting here and the Saudis are thinking long term. How do we get control back of the world oil market? And we're thinking, hallelujah, prices are going down. So we don't need to do anything about this problem.
And at that point, you can see the import level stay low until '85. And then they start coming up.
And by the time we-- I was appointed into the Clinton Administration-- when we arrived in Washington in '93, it was very clear that imports were headed up back to 60% higher than they'd ever been. But if you didn't want to deal with the problem, you could still say imports are still lower than they were in 1977.
So you can prove anything you want by picking the base year. If imports go like this, and say you're here in the spectrum. I have a chart on this in the book that has the real data. So you're here. And if you measure imports to here, it looks like you've got a big problem. But if you make measure them from there, it looks like you're doing OK.
And there's nothing like a good line graph, because most energy experts will pick their base year based on what they're trying to convince you of. I try to be an objective statistician. So we're getting dug in this hole. And we get a false sense of security when the Persian Gulf War comes along, because the Persian Gulf War removes from the world supplies the production from Iraq and Kuwait, which would seem to be a huge problem.
And it did at first force up prices. But we got through it pretty well. And people said, well, you know, because we didn't have price controls, we didn't have gas lines. And we had the Strategic Petroleum reserve and released that. The reason it was not a bigger problem was the Saudis were on our side. And they increased their production by about 5 million barrels a day. And they were able unilaterally to replace the oil from Kuwait and from Iraq.
Now, I don't find that terribly reassuring. But it's never recognized. No one ever says we got through the Persian Gulf War because the Saudis increased their production, because that's not part of the narrative that we want to have. But it's the fact of the matter. So the Persian Gulf War again led us to believe, well, we're sort of out of the briar patch here. And there's not much problem.
About the same time, the world's governments are deciding it's time to do something about climate change, particularly the Europeans and the Japanese. So there's a meeting down at Rio de Janeiro where the world's countries have decided that they are going to enter into a pact on climate change.
And the big issue in the news is President Bush going to go. And Bill Reilly, who was the administrator of the Environmental Protection Agency, very much wanted the president to go. And he eventually went.
And the general idea was that to deal with climate change, the first step would be that the world's developed economies would agree to stabilize their emissions at 1990 levels. And the Europeans wanted to have stronger language. And the United States only signed based on the agreement that nations would use voluntary measures to achieve this.
And it looked at the time like this probably was going to be doable because the economy of the Soviet Union had fallen apart. So their emissions were way, way down. We'd had a bit of a recession in the United States in the early '90s. So our emissions hadn't gone up that much. And I forgot to mention, allow me to retreat back in history for a moment, when we reduced oil imports by 50%, carbon emissions in the United States went down 9% over that five-year period.
We did not have a carbon policy. But because we had an energy policy, we reduced sharply carbon emissions. Now, these are not publicly published data. But EIA has to model historical data in some cases to run its models.
So these are the best estimates of an independent source. They only start publishing greenhouse gas data from 1980. But you can model the data from '77. And that's where that comes from.
OK, now, we're back. We were on the Rio treaty, I think. The Rio treaty-- we pretty much say we're going to stable at 1990 levels. And we totally ignore it. So we don't do anything about climate change. And we don't do anything about oil dependency. In fact, we retrogress.
In the 1990s, we sold off oil of the Strategic Petroleum Reserve, which we store for emergencies to help balance the budget. Now, this would have been an ideal time to add to the Strategic Petroleum Reserve, because oil was cheap. But when oil is cheap, we don't think we need to do anything about it. So we had this conflict that when we're able to do something about it, we don't care. And when we care, we can't do something about it. So we have to get a little smarter about looking at the historical perspectives.
Then the Congress in its wisdom passed a five year ban on the Department of Transportation doing any studies of mileage efficiency in automobiles, because all sorts of new technologies were coming into play that would allow autos to be more efficient. And under the laws already on the books, the Transportation Department by rule could have raised the level above 27.5.
It would be interesting to go back and interview the congressman who voted for that today and asked them why that was such a good idea. But we never do that. People always get off scot-free. One of my goals in life is to give credit to the people who do good things, even if it's 30 years after the fact and hold people accountable who do the wrong thing.
I have several points in the book where I said later generations will ask, what could they possibly have been thinking? We also, this is a little bit in the next decade, we convinced the Chinese to stop having punitive tariffs on luxury gas guzzling automobiles. Now, there's a real winner. But we believed so much in free trade and getting we don't want any tariffs getting in the way of free trade, that we virtually demanded that the Chinese open up their automobile market.
And if you'll read their reports sometimes that they published in China on compliance with World Trade Organization mandates that they brag that we're now importing all these gas guzzling automobiles just like you told us to.
So we are digging ourselves into a hole.
Now, when you have high import levels and low price levels, it's only going to be a few policy wonks who say we've got a problem here. It's going to be hard for a politician to get the public concerned about the issue. But then things start to turn, and there's an important meeting of OPEC that's held in March of 1999.
How many people-- this is a fairly young audience-- but how many people remember back in 1998 and the early month of '99 when you could buy gasoline for in the range of $0.90 gallon? OK, so you remember that. Well, OPEC was not pleased with this. And so they decided they needed to see if they could get their organization back cooperating again. It had been sort of a vestige of itself for a long time.
But two things were going for them. One is that the low price scared OPEC. And in response to this, the Saudis and the Iranians, who generally did not get along. Saddam Hussein and the Saudis are Sunnis. And Iranians are Shiites. And the Maliki government is Shiite. So that's a little map to the Middle East.
But the Saudis and the Iranians decided that both of them suffered from low prices. And they therefore would cooperate more on oil issues. And there was a change of government in Venezuela when Hugo Chavez came to power. And Venezuela had been cheating on their quotas and allowing Western companies to come in. And production was going up.
And as long as Venezuela was doing that, it was hard for OPEC to keep the quotas in force for other countries. So they worked that out in March of 1999. And it took a while for that to be apparent in the world market. Usually, when there's a change in the world market like an interruption in supply or something like that, often it's six months or so, because tankers are already at sea. And it just takes a while.
But eventually, it showed up in the data. And at the beginning of 2000, we started to get price rises. And diesel fuel, for instance, went up to $2 a gallon in some areas of the country. It seems low now. But at the time, it seemed astronomical. And the truckers were in an uproar.
I remember Bill Richardson and I took a trip up to New England. And we went to Faneuil Hall in Boston. And it was filled with angry truckers upset about the prices. And Bill said, well, why don't you explain this to them? And we then a month or two later went over to Kuwait and Saudi Arabia to try to convince them to produce more oil. And again, he said, you explain this to them.
But we have been the most successful team to ever go over there, because we actually convinced them to increase their oil production, which they did for the rest of the year. And prices eased a bit. But at that point, it should have been clear, although it was not clear to most people, that we were headed to a much deeper problem, because the growth of energy use in China and India was exceeding what we had predicted.
It's not only whether it's rapid growth, it's whether the growth was predicted, because if it's predicted, then the suppliers of energy have years to get ready to supply that energy. You just can't push a button and all of a sudden, there's more oil and gas. And OPEC had broadened its influence. After the March '99 meeting, they got Norway and Mexico, who are not members of Kuwait, to cooperate.
And more importantly, they convinced the Russians that the original Russian idea of increasing their oil production to get more revenue was not smart, that Russia could actually get more revenue by producing less. And there were meetings between OPEC and Russia. I wasn't there at the time. I think I have a pretty clear idea of what they said to each other, because after that point, Western investment in Russia has been very, very difficult.
The Russian expansion of production has pretty much stopped. And they're taking a very leisurely pace to develop new resources. So there is during the early part of this decade very little policy response from Washington and very little market response from the world oil market.
So I'm over in OPEC. And I'm saying, well, I'm raising all these prices. And people keep buying it. This is great. Can you imagine Sony increases the prices of plasma TVs by 50%? People buy the same number as they did if they hadn't raised the price. That's a pretty good deal.
Now, there's two reasons why that happened to keep this relatively simple. And that is that in the United States, energy had become a smaller part of disposable personal income. And therefore, people could just keep on spending. And it didn't affect their overall pocketbook up to a point.
The other thing is that in many countries, including China, the use of oil is subsidized. And therefore, people pay less than the market price for it, which insulates a market response. And all this does is it keeps punting the ball down the field. And you're not dealing with the problem. And the problem is getting worse.
It's my opinion that the United States left the age of energy complacency in the last couple of years. On climate change, it came in part from Al Gore's movie, An Inconvenient Truth. Perhaps of more of more substance, The Fourth Assessment of the Intergovernmental Panel on Climate Change came out with a report where they said that it was unequivocal that the world was warming, which was quite a statement, because the temperatures go in different directions in different places in the world. So it takes thousands and thousands of measurement points to be able to make a definitive statement and that there was a 90% likelihood that this was caused by human activities.
And in science, that's about as close as it gets to certainty, although scientists don't like to use the word certainty. So the science debate sort of ended. President Bush and his science adviser have both accepted the findings of The Fourth Assessment. So the science issue of climate change has sort of been settled. And the issue is really what are the adverse effects of this, and what is its the time frame we have to deal with them.
On the oil side, I would say that probably prices in the range $3.00 to $3.50 at some point, it passed the point where the market did respond. And the Congress did respond last year with the Energy Independence and Security Act of 2007. Congress never gets any credit when it does the right thing partly because Congress is a messy institution.
So even when they do the right thing, they've had all sorts of fights. They've looked silly. They've looked partisan. But every once in a while, they do something. And in this particular case, the bill got us back into the mileage efficiency game. The fleet of all vehicles, which includes cars, vans, and SUVs now averages 25 miles per gallon. It really doesn't, because the test that the Department of Transportation does are so bad. But we use that number.
And that will have to go up to 35 miles per gallon by 2020. I would argue that we should be going up faster than that. And we could go up faster than that without disrupting the market. But that's still pretty good. Also, there are strong requirements for biofuels. Unfortunately, in the early years, that's mainly corn ethanol, which is not probably worth the subsidies that it gets.
But it does start to move us to more advanced forms of ethanol. And then it also had requirements for more efficient appliances and lighting and virtually outlaws the incandescent light bulb by 2015. So we've left the age of energy complacency. What do we need to do?
On the agenda coming up, we should quickly pass a renewables portfolio standard nationally, which would somewhat model the Arizona law. It had majority support in both houses last year. But it failed to break a filibuster. I'd go back and interview the people that voted for the filibuster and ask them to explain their position.
And then we have to deal with how to deal with carbon emissions. And that will either have to involve a tax on carbon or a cap and trade system, which I assume you've studied to some extent. I think that the key concept in all of this is that carbon has to pay its way. It's now being dumped into the commons.
It's like if you took your garbage each day and you just dumped it on the street, or you dumped it in your neighbor's yard, or you dumped it in the local park. If you did that, there would be a consequence to pay. But right now you can dump your carbon dioxide into the air. And that's considered a free good with no limitation. So we have to put a price on carbon.
How do we do that without damaging the economy and also having that price be high enough to actually deal with the problem? Well, you have to phase in the price, because in fairness to people, you have to respect decisions they've already made about how far away they live from work, and their professions, and their lifestyle. But you also need to send a signal that things cannot remain as they are.
So even if the higher tax at the highest level doesn't go into effect until 10 years from now or 20 years from now, if people know it's coming, it starts to affect their car purchases, their home purchases, how far from work they live.
The other secret ingredient-- it's not totally secret. But it's been proposed before is rebating the money from the tax or from the auction of carbon credits back to the consumer.
Right now, most of the plans that call for the auctioning of carbon credits or energy taxes already have figured out how the government's going to spend the money. Many of those projects are good projects. If I was going to make an exception for government spending, I would spend it on mass transit like the light rail system y'all are doing here, which I think is terrific.
But in the political world, you have to keep it simple. You start making exceptions for one thing, you have to make them for other things. So if you say with no exceptions, we're going to rebate this money to the public. And then we're going to have to find a leader who can go to the public and say, you're going to have to pay higher prices for energy.
Now, we've had two presidents who said you have to pay higher prices for energy. One was named Gerald Ford, and the other was named Jimmy Carter. Neither of those got re-elected. So they are not role models to current political leaders. In fact, they are people to be avoided.
However, I would challenge anyone who would say we can solve the problem of dependence on Middle Eastern oil and the problem of climate change, which is actually a greater problem, without drastic changes in the way we price energy. But if the money is rebated back to people, some have suggested the check should be sent on July 4, and it's your patriotic dividend.
That should mitigate some of the response. Also, when we run economic models at EIA on climate change, we find that rebates like that minimize the loss of economic growth. It does not totally eliminate some losses, but the losses are much more tolerable and the economy continues to grow.
So we then have to prove to ourselves that we can have a viable country that is dealing with this issue and can still live a quality of life that we enjoy. We then have to go to the rest of the world and say, here's what we've done.
Here are the technologies that we've developed, including algae fuels, which I was encouraged to hear you are working on here at Arizona State, which I think is one of the most promising of the new technologies.
And we're going to have to convince the rest of the world that this is a good deal. Right now, the world is trying to emulate the American lifestyle. The American lifestyle, as we live it today, does not work if the world adopts it.
There's not enough oil to support it. I'm not a peak oil guy. But there's not enough oil to support that. And the planet starts having all sorts of bizarre things happening if fossil fuels are combusted at the rate that we combust them.
It is a tough challenge. It's not easy, because in the short run, it's easier not to do anything about either one of these problems if you look at in a two or three year time frame. However, if you look at it in a 20-year time frame, it can't be argued that we shouldn't take drastic action to deal with it.
So my solution, or one of my solutions, is that we have to develop a longer range view of things and that this is most likely to happen, one, if people read my book. And two, if after reading it, the grandparents, the parents, and the grandchildren sit around the table and have a talk about what life in the United States is going to be like 20 or 30 years from now.
I think if that conversation occurs, I think there's a good probability we will tackle this problem. If it does not occur, I think it is likely we will avoid the problem. That's my story, and I'm sticking to it. And I'll take any questions that you've got.