Energy Issues from a Corporate Perspective
Georgia Tech Advisory Board - Energy Sustainability Conference
Chancellor Erroll B. Davis Jr.
Georgia Tech Hotel and Conference Center, Salons I, II and III
April 15, 2007
Thank you Wayne. And thank you for the invitation today. When I accepted my current position, I assumed that my energy hat had been packed away. But when Wayne asked me to speak I, of course, agreed. I am always anxious to discuss how much I have learned over the last 14 months. Then, he told me he didn’t want any comments on the University System or higher education. Instead, I had to dig out my energy hat in order to meet Wayne’s request to discuss current energy issues from a corporate perspective.
I guess just because you worked for a large energy corporation for most of your career and still sit on the board of a large energy producer, as well as on the boards of other corporations, for whom energy is a significant expense, people automatically assume you know something about energy! So, preparing for today, it’s actually been fun to reorient my focus back to some more familiar issues. And as you are aware – with gasoline prices rising, energy is probably at the top of the list of concerns for anyone: energy producers, energy consumers, politicians, scientists, and businesses.
It’s clear that higher education – particularly in the area of research – will be called upon to play an increasing role in addressing a number of challenges posed by these energy concerns. And so, both from my energy background and my current role in higher education, I was very pleased to see that Wayne and his group decided to focus this Tech Advisory Board Conference on the issue of energy. Your agenda seems both ambitious and interesting. I know I speak for Wayne when I also add my thanks to each of you for your time and your invaluable contributions to Georgia Tech. We do now and will increasingly depend upon your insights and guidance as we seek to shape our strategic direction, particularly in the area of research.
Now, let me see if I can generate some heat on this topic. Let me begin with a few general observations.
First, in all of the discussion on energy, it is easy to lose sight of a fundamental law of physics: “Energy cannot be destroyed.” This law is important. It is very easy to focus solely on the sources where we create and use energy, and lose sight of the principle that energy remains constant. It is just the sources and methods we use to create energy that can change, increase, or diminish.
For example, in this country at the time of the Civil War, almost all of the country’s energy came from wood. Only about 10 percent came from coal. Since then, we have seen a number of shifts in the sources of energy. Even as some sources have diminished, our energy use has expanded. Today, no one laments the loss of wood as a primary energy source. Yet, vested economic interests from producers to haulers to burners will lament the loss of coal as a primary energy source. So, our intellectual challenge is to explore ways to develop and make affordable new forms of energy creation.
Second, as John Browne, the CEO of BP notes, “energy isn’t just a matter of chemistry or physics. It is an issue which involves all the natural sciences, engineering, economics, and politics.” In other words, our efforts to address energy – and specifically energy sustainability – will be successful only if we develop solutions from a holistic approach. This is important, because if you review mankind’s history, it is bound up in every aspect with energy.
In many ways, energy is fundamentally about movement; the movement of people and goods, for example. The movement of energy sources to provide shelter is one example; to power industry is another. Man’s quest to improve movement, to improve the quality of life and to achieve the efficient production of goods and services thus results in the application of power. I don’t mean power in a literal sense, but power in the sense of economic clout, political will, social decisions, education, health, and research and exploration. That’s why our discussions on where do we go with energy for our future must be based upon these fundamentals:
- Energy is constant and cannot be destroyed;
- Energy as movement and power, and:
- The need to approach solutions holistically.
Let me briefly review, from an industry perspective, the four key drivers of the energy future. These are:
- Growth in demand for energy;
- The challenges of providing adequate energy supply;
- Concerns about energy security; and
- Environmental constraints, specifically, climate change.
In each of these four areas, the role of research will be critical in helping to shape solutions.
Looking at this first factor – demand growth, let me start with a statistic. By the way, one of the lessons I’ve learned while on the BP board is one uttered by an anonymous British civil servant: “By all means give a number – or a date – but never both together.” I’ll try not to break that rule here today.
Over the course of the hour we are here for lunch, the world’s population will grow by 10,000. Population grows by a quarter million people each and every day. Couple that with increasing prosperity, and you have a powerful driver of demand for energy. On a worldwide basis, there are probably an additional 200 million new customers for commercial energy every year.
While the U.S. is a huge energy consumer, keep your eyes on two giants: China and India. Between 1990 and 2004, energy consumption rose 53 percent in China and 37 percent in India. This is also why I believe the Kyoto Accords are irrelevant. Let’s say Western nations meet their reduction goals by 2012 by dialing back usage to 1990 levels. I say this with tongue in cheek because it is becoming increasingly unlikely that they will do so. Before 2012, China and India are planning to build 800 new coal-fired plants. If built, the combined emissions from those new plants will be five times the mandated Kyoto reductions: five times!
There is no question that the demand for energy is going to significantly increase. As people escape from subsistence, they start to use more energy. In looking at demand, it also is important to understand how this demand translates into use.
For example, transport consumes just 20 percent of all energy needs. This varies; more energy is used for transport in developing countries than in undeveloped countries, but on the whole, it’s a small percentage.
Power production is going to be a key driver of energy demand growth. By 2030, power production is projected to account for 40 percent of primary needs, twice as much as transport. By that date, the world will demand well over 50 percent more power than it does today. However, 40 to 50 percent of the power capacity required to meet that demand has yet to be built. This means we have very important choices to make in the short term.
The demand for energy must consider energy supply and sources. Over the past 30 years, the fraction of the total energy mix provided by oil has declined, as well as coal (although that has increased recently). Natural gas has been growing; nuclear and hydro have been constant at about 6 percent. So, roughly, 85 percent of the world’s energy is coming from fossil fuels.
The big question that gets all the press is: “Are we running out of fossil fuels and will we do so in the near future?”
The answer from the industry is “no.”
According to the U.S. Geological Service, to date some 1 trillion bbl of oil have been produced, with another 2.3 trillion of proven, identified reserves to be produced. And there are at least another 1 trillion bbl of conventional resources to be found. Looking at natural gas, 80 percent of total resources remain to be produced. Coal supply is measured in hundreds of years.
There is no question production will peak at some point, but we do not see an immediate physical shortage. So, when we talk about sustainability, the real causes are to be found not in demand and supply, but in our other two drivers: energy security and the environment. Demand and supply can thus be seen as primarily technological challenges. The other two, energy security and the environment, also involve economics, politics, and human behavior. This is much more complex.
The fact is that when it comes to fossil fuels – still our primary energy source – it will require major movement of supplies. The three large consuming regions –North America, Europe and East Asia – account for 80 percent of world energy demand but have only 10 percent of conventional reserves. That means that within a decade, these three regions will depend on supplies of oil, for example, from just three different regions – West Africa, Russia, and the five states around the Persian Gulf. Likewise, we will become increasingly dependent for natural gas from Russia and the Middle East.
The security of energy sources is thus a major concern for the future. Transport issues, political instability and social upheaval all create significant risk concerns. Thus, location becomes a potentially major factor in current and future energy sustainability.
But the biggest factors in sustainability are environmental ones. Let me just point out two stark facts. Over the last century, atmospheric concentrations of CO2 have risen to their highest levels for over 400,000 years – and this increase is materially due to our use of fossil fuels.
Let’s look at this in light of demand projections. Potentially, we could double our use of energy worldwide by 2050. But the imperative of climate change means that by that date, our total emissions must be at the same level as today. Going further, these emissions levels must decrease to half the current level in the decades following 2050.
There is no question that action is needed. As BP America President and CEO Ross Pillari noted in a January address on energy sustainability, “year by year, the point at which we could face unacceptable harsh choices is coming nearer.”
So, what do we do to resolve these issues in terms of energy sustainability? Let me get back to the holistic model. There is a role for all. Business needs to do what it does best – bringing together the capital and human skills to meet our energy needs. Our universities must work to engage the creative minds of scientists and researchers. Politicians must work to help shape the transition to energy economy fit for the 21st century – one that is fundamentally lower in carbon content.
So, in terms of the four drivers I have discussed, here is an industry look at future directions. The fact is that the world needs more fossil fuels today – they are not yet running out, but except for coal, they are getting harder to find and extract. However, these fossil fuels need to be used with greater energy efficiency and with the development of technologies that reduce carbon emissions.
New, low-carbon technologies need to be developed for the future. But these must be developed and sited on a scale to have significant and material impact. Real assurance must be provided regarding energy security. This means both the development of greater “local market” energy resources by key consumers as well as more reliable access to the global market.
As these solutions are developed and implemented, both technology and policy have key roles. New technologies, of course, provide policy-makers with new options to regulate and legislate. But progressive policy in turn encourages innovation.
The world needs to be innovative in discovering how to tap into the total energy available. We need more of it available than is available today. We need more choices in our energy sources than we have available today. We need more security in those energy sources. And, most pressing, these existing and new sources must be much less harmful to the environment.
Obviously, all of these potential solutions require the creativity of scientists and researchers. Your jobs are safe!
But there is a caution. As great universities such as Georgia Tech work with industry and government on these solutions, we cannot forget that impactful innovations do not occur in a vacuum. Technology is not always trusted by the public.
Part of our work must be to generate an increased level of public trust and confidence in our work and in the positive outcomes of proposed solutions.
Our solutions must result in benefits and gains for all. Otherwise, we will not change the most important dynamic in the energy sustainability question – human behavior and self-interest. Unless we turn self-interest into enlightened self-interest, our efforts will not be as successful as we hope – and as the world needs. Thank you for your attention today and for your contributions – both now and in the future – on this and other strategically critical issues.