The President’s “Twenty In Ten” Energy Security Plan

Allan B. HubbardAssistant to the President for Economic Policy & Director, National Economic Council

The White House

February 27, 2007

2

Agenda

Overview of oil and the United States Security risks resulting from oil Key elements of energy security The President’s “Twenty In Ten” plan Questions

3

Overview of Oil and the U.S.Imports are rising much faster than consumption

0

5

10

15

20

25

1950 1960 1970 1980 1990 2000

Mil

lio

n B

arre

ls p

er D

ay

Imports

Consumption

Production

Source: Energy Information Administration, 2005

4

Top Oil Consuming CountriesUS is largest consumer with China growing quickly

Source: Energy Information Administration, 2005

20.7

6.95.4

2.8 2.6 2.6 2.3 2.2 2.2 2.1 2.0

0

5

10

15

20

25

US

China

Japan

Russia

Germ

any

India

Canad

a

S. Kore

a

Brazil

Mex

ico

France

Mil

lio

ns

of

Bar

rels

per

Day

5

Crude Oil Reserves by CountryUS has 10th largest proven reserve

262

126115

102 9877

6039 35

21

0

50

100

150

200

250

300

Saudi

Iran

Iraq

Kuwait

UAE

Venez

.

Russia

Libya

Niger

ia US

Bill

ion

s o

f B

arre

ls o

f C

rud

e R

eser

ves

Source: Energy Information Administration, 2005

6

Overview of How We Use OilApprox. 2/3 of oil is used for transportation

Gasoline: 44%

Fuel oil (diesel and home heating): 22%

Jet fuel: 9%

Other: 25%

7

Oil’s Share of Energy by SectorOil continues to dominate the transportation sector

Trans. 97%

Indust. 30%

Resid. 7% Comm. 4%Power 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1950 1960 1970 1980 1990 2000

Per

cen

tag

e o

f T

ota

l E

ner

gy

Pro

vid

ed b

y O

il

Source: Energy Information Administration, 2005

8

Strategic Petroleum ReserveCoverage hasn’t kept up with rising imports

0

20

40

60

80

100

120

1980 1985 1990 1995 2000 2005

Day

s o

f N

et I

mp

ort

Co

vera

ge

Source: Energy Information Administration, 2005

9

Our Use of Oil Presents Risks

Economic risks Volatile prices hurt families and businesses Terrorists view global oil infrastructure as attractive

target to hit us

National security risks Iran / Venezuela emboldened by high prices Diplomatic, political and military costs

10

“Twenty In Ten” – A Bold Plan

Reduce gasoline usage 20% in 10 years Use alternatives for 15% of fuel Reduce consumption up to 5% through efficiency

Aggressively push technology development

Potential for even larger savings in later years

11

Key Steps to Energy Security

1. Increase diversity of energy in transportation

2. Increase production and reduce consumption to slow growth of oil prices

3. Increase ability to manage risks

12

Step 1: Increasing DiversityDeveloping attractive oil alternatives is the key

Investors take technology risk every day

Adding oil price risk restrains investment

High oil prices needed to spur alternatives

Policy challenge: how to provide market certainty without choosing winners?

13

Policies to Provide CertaintyFirms need high prices; consumers need low prices

Oil price floor Administratively difficult Rewards oil suppliers Success brings increased distortion

Variable subsidies Expensive and very hard to sunset Success brings increased distortion

Expanded fuels standard

14

Expanded Fuels StandardProvides certain market without selecting winners

35 bn gallons by 2017 (15% of fuel)

Expanded to include all alternatives to oil

Provides large, certain market for investors

Success can bring low costs to consumers and low market distortion

Automatically sunsets with success

Consumers protected by safety-valves

15

Step 2: Slow Price GrowthOnly way to stop “funding enemies” is with low prices

Reducing consumption has dual benefits of lower prices and reduced oil intensity CAFE unchanged at 27.5 mpg since 1990 Currently a one-size-fits-all requirement Incentivizes smaller and less-safe vehicles Penalizes automakers who specialize in larger vehicles Provides little incentive for small car makers

Increasing supply of oil important too – benefits shared globally

16

Auto Performance Has SoaredImpressive technology gains used for performance

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

1991 1993 1995 1997 1999 2001 2003

Per

cen

tag

e In

crea

se S

ince

199

0

Horsepower

Weight

Fuel Efficiency

Source: Department of Transportation, 2004

17

Reforming CAFE IntelligentlySaving up to 5% in 2017 while preserving safety

Secretary of Transportation to set standard using sound science

Preliminary analyses suggest 4% annual increases

Attribute-based to preserve safety and not unfairly penalize U.S. automakers

Trading of credits to minimize costs

Even larger fuel savings in later years

18

Step 3: Risk ManagementDoubling the Strategic Petroleum Reserve (SPR)

SPR created by President Ford following 1973 oil embargo

“Insurance policy” to manage oil disruptions

Plan to double reserve to 1.5bn barrels by 2027 without affecting prices

Increases the severity and duration of disruptions we can manage

19

“Twenty In Ten” – A Bold PlanPushing the envelope on all three steps

Reduce projected gasoline consumption 20% in 10 years; double the SPR

Reduce oil consumption by 2 million barrels per day in 2017 (10%)

Increase alternatives from 3% today to 15% in 2017

Potentially stop growth of CO2 from autos

Will encourage others to adopt similar policies