 So for those of you who don't know Joseph Aldi, Dr. Aldi is a special assistant to the President of the United States for energy and environment and he has the distinction of wearing at least two hats if not more. He reports to both Carol Browner and Larry Summers. And how's that working for you? It's an extraordinary job. Joe is also an assistant professor at Harvard but he's on leave during the sin of public service. Prior to that he was at resources for the future. I've known Joe by reputation for several years and actually over the course of this last year I got to know him a lot better and I must tell you he's analytic, he's thoughtful, he's disciplined, he's precise, he's skeptical, he's everything you want in a public policy servant and not only is this administration I think fortunate to have him. He's also one of the truly good guys in the administration but I think the country is indeed fortunate because as we grapple with energy and environment issues and look at the economics. I mean these are the questions that are really critical to all of us going forward and so we appreciate you coming here today and ladies and gentlemen, Dr. Joe Aldi. Thank you Frank for very kind remarks. It's a real pleasure to be here. I apologize I wasn't able to come earlier in the day where I think I actually would have learned a lot and may have been able to actually have remarks that would address some questions that have been posed over the course of the day or perhaps even better know how to avoid the landmines that have been laid over the course of the day. But having said that it is a real pleasure to represent the administration here to speak about energy policy and in particular the role of natural gas and unconventional gas and how we think about moving forward on energy policy. I have certainly benefited by a significant number of familiar faces in the crowd over the course of the past year in working on energy policy both from direct contacts as well as in our consumption of the work that you've done so I want to pass along our thanks for that. In thinking about natural gas I was trying to think through well what have we been doing on this in the policy context over the past year especially given that a lot of my attention of late has focused on how we're engaging the Senate. I realize that in a sense and I know I'm not the first to say this that natural gas has been treated somewhat as a sort of neglected child among fuels if you will in the in the policy debate. When you look into the house last year the wax and marquee bill there's actually very little that I would describe as being explicitly targeted towards towards natural gas and this stands in contrast to what one sees as a variety of R&D efforts and bonus allowances for CCS that's intended primarily for the benefit of coal where you see some of the allowances are set aside to cover the emissions from petroleum refineries that you can think of as trying to tackle to some extent issues with respect to oil. Certainly when one thinks about renewables you have the mandate for renewable electricity standard as well as mandates for appliance standards to promote energy efficiency so in a sense natural gas was sort of left out. When you look at the energy bill in the Senate that Senator Bingaman worked on that I'm sure Bob talked about some this morning there's really not that much on natural gas in that bill either there's some about the Alaska natural gas pipeline there's certainly some about exploring offshore but but clearly the focus was on other issues in that bill and and so far when one looks at the activity in the Senate that doesn't appear to be a lot focusing on natural gas explicitly. Now of course having said that implicitly if we're in a world in which we put a price on carbon that has a material impact on natural gas in how we use it in the energy system but it's clear that outside of putting a price on carbon there hasn't been a lot of focus on natural gas in the domestic policy debate and so then I think that sort of raises a question are we sort of missing something both in the administration and on Capitol Hill and how we think about the policy debate or you know does this mean that we actually ought to be busy trying to design some new policies to address natural gas or does it mean that actually natural gas is sort of different than some of the other fuels maybe it's evolutionist has been of such that it's sort of unique relative to other fuels that it doesn't need as much sort of targeted support if you will from different pieces of legislation. So to sort of think about these questions I'd actually like to step back from natural gas and think about energy policy more broadly think about some of the key motivating factors for why we spend so much time from the president down through the staff and throughout the private sector and NGOs and academia thinking about energy policy and use that to sort of provide the context for how to think about natural gas and the role that natural gas should play in our energy policy and then I'll close with some thoughts about policy and hopefully I won't take any more than about another 15 minutes to allow time for Q&A. I've found doing several of these that people sometimes have very interested questions about what we are doing or not doing in the administration. So to start with trying to think through you know the three major reasons why we actually care about energy policy in a sense we can think about it as fundamentally about our security when it comes from a national security context from an economic context and from an environmental context. I think these are sort of the three pillars that everyone's familiar with that tries to motivate why we think about energy so much. Clearly when we look at the foundation of industrial economies it's built on fossil fuels. It's been more than a century in the making being built on fossil fuels. That has an impact clearly because of the geography of where many of those fossil fuels are located around the world that brings into play the national security implications but it also really raises the prospect of how we think about changing the way we produce and consume energy can have major economic implications. And I think in recent years we've clearly come to terms with the fact that in the combustion of fossil fuels we are dramatically altering and will continue to alter if we don't change our behavior the global climate which has raised the environmental element I would say on par with the economic and national security and why a successful comprehensive approach to energy policy needs to address all three dimensions the security the economic and the environmental. So when we think about this let me think through discuss a little bit about national security and sort of how energy is really core to some key elements of our approach to national security. It goes without saying that our military posture is influenced by the geography of oil. There's no doubt about that you ask our planners in the Pentagon if we were in a world where we were no longer consuming oil how that would affect where we actually allocate our resources around the world and they recognize it would have a material impact on how we actually make those decisions. We have a 727 million barrel strategic petroleum reserve. From the economic side of me I immediately think well how much is that asset worth especially when we're running rather big deficits but not saying we're going to sell any of it. But it is a question that comes up and you're thinking about an asset there that's worth you know north of 50 billion dollars. It is three plus decades in the making it is actually full as of two months ago or so. And it is something where we're in the process of evaluating options and looking at the potential side at Mississippi about increasing the size of the reserve as called for in the O5 Energy Policy Act. That's no small feat and it's not cheap. But the fact that we have made that kind of investment and have by far the world's largest strategic reserve reflects clearly the national security dimension of energy policy. And I think when we look at like what the kinds of investments we've been making over the past decade to harden our infrastructure especially domestically out of concerns about potential terrorist attacks and as we've learned out of the potential risk posed by natural disasters such as hurricanes going to the Gulf is motivated by this need to improve the homeland security dimension of our energy policy as well. Now having said this in a sense a lot of what I've just said about national security is not the national security of energy it's really the national security of oil. And it's because of the fact that we use oil almost exclusively in transportation 94% of our transportation is powered by petroleum products. The fact that we have very few substitutes certainly in the near term for petroleum and transportation makes it difficult for us to actually be resilient when there are oil price shocks. I think that contrasts quite dramatically when one looks at natural gas. Natural gas is not the dominant fuel in any of the major sectors of our economy. In contrast to oil where we actually import the majority of what we consume about 85% of our consumption is domestic and almost the rest of the balance comes from Canada. So it's very much a different system comparing the sort of global market for oil and very much the regional market we see for natural gas. Where we actually feel comfortable with respect to natural gas that clearly contrasts with parts of Europe where they feel dependent on gas coming from Russia and where we occasionally have seen disputes between Russia and some of its neighbors and the use and transport of gas through their pipelines. I think nothing that sort of illustrates the differences between gas and oil is the decoupling and prices we've seen over the past year. That as we were in the recession by February of last year we saw oil prices bottom out a little bit south of $40 a barrel and then rose over the course of the spring to buy early summer so about $70 a barrel and it's been balancing that 70 to 80 range ever since. We continue to see natural gas prices go down over the course of the spring and summer and part of this is not surprising because we don't have to kind of trade in gas like we do for oil. Where we saw a lot of the industrial users of natural gas their demand went down quite significantly as the demand for their end products went down and so it's really reflecting in a sense serving as an economic indicator of some of the more energy intensive industries of how tough the recession has been for them. Having said that if you actually buy electricity powered by natural gas you benefited some last year. We actually saw the low natural gas prices pass through into customers prices in some states and certainly we saw actually natural gas starting to displace coal in some parts of the country. I think it's also important to recognize that in the last three decades we've seen industry moving out of oil and the amount of oil we used to generate a unit of output in the manufacturing sector has certainly gone down and where natural gas and where other energy sources are able to play a larger role and we're actually energy efficiency improvements have played a significant role in ensuring that the effect of energy services drawn from a unit of energy has increased significantly. But I think you know when we look about the differences here clearly it's looking at shale gas is the fact that we can produce an amount that was probably unimaginable 10 years ago. I actually recall working on economic analysis of the Kyoto Protocol and as in the Clinton administration and some people were criticizing one of the models that we used arguing that it assumed a much too elastic supply of natural gas and I think actually by sort of 2000 people were feeling like well we probably can't realize the kind of natural gas that was envisioned in that analysis. Now we actually see whether as the last panel is discussing what the numbers are on how much natural gas we think we have whether it's proven reserves are up 50% over the past decade if you look at some of the more conservative VIA estimates where others think that the potential reserves could increase by at least a factor of three. Clearly it changes the game dramatically in terms of how we can actually power our economy using domestically produced energy. I think it's also very important when we think about the prospects for this technology and taking advantage of shale gas around the world to effectively decentralize energy that when we actually look at oil especially but when we look at sort of gas reserves as well there's a concern about the centralization of the resource and shale gas technology has an opportunity sort of break down the small cartel and allow many countries to be able to produce gas if they're able to access those resources. I think the key thing though when we think about it from a national security perspective just producing a lot of natural gas isn't going to make us more secure unless we find a way to just place the petroleum with that gas that at the end of the day I think the national security implications in our energy policy are driven primarily by our dependence on oil and our continued use of oil and if we're not going to be able to find a way to just place that with natural gas simply increasing the amount of natural gas we consume here from domestic resources will not have a big impact on security. So with that let me turn to the economic dimension. The first and obvious thing is that everyone cares about the price of energy. I can assure you that while I'm busy trying to think about policy design on this or that on the domestic context or in how we engage in some of the international negotiations whether it's G20 or in the climate framework in the Framework Convention on Climate Change whenever the price of gas thing gets close now to $3 a gallon they start asking questions and it's fundamentally because it's it's the one I think it's the one good that probably more Americans know the price of with precision they're probably anything else that that people buy and that then translates into clear interest in the media and clear interest among our political leaders but I think you know the political the economic dimension here is much more than simply what does it cost to fill up my car certainly if we're can if we have either volatile or high energy prices that adversely impacts the decisions among businesses when they're thinking about the next round of investments it certainly adversely affects families and has implications when we think about our transfers abroad in international trade now natural gas can be different here for for a couple of reasons one is that if we're trying to think about one of the key economic rationales of energy policies to make sure that we have reliable low-cost energy to meet our needs well natural gas and especially shale gas has changed that dynamic where we saw gas going north of $13 per million BTU just 18 months or so ago you know my sense is when I talk to the experts some of whom are in this room that you know the supply of shale gas is quite elastic in the sort of five to eight dollars price range this suggests then and especially given the nature of the technology where you can actually bring it up pretty quickly in sharp contrast say to to what kind of resources we might be able to to lift through through offshore activity if you're able to sort of move that quickly and at those kinds of prices it makes it less likely that we're going to see these kinds of really adverse spikes and gas prices like we've seen previously the question of course whether or not we have all the resources in terms of bringing those all the gas resources to bring up the natural gas and the relevant policies to make that happen but I'll get to that in a moment I think that there's also a couple of other important economic dimensions when we think about the potential for natural gas one is the fact that we're actually the leader in the shale gas technology that when we look at the fracking technology we are actually ahead of where many other countries are and I think this actually provides an opportunity for us as we continue to refine this technology to effectively export the technology and especially the technical know-how to other countries around the world as they try to find ways to exploit their shale gas resources as well and so when we think about this as we're thinking in the context of our broader economic policy and the role that we envision exports playing as a key element of regaining sustainable growth path that this may be another component of that we're able to sort of expert export our technical services to countries around the world for them to actually take advantage of their gas resources the other is in the context of innovation and the president is very focused on innovation as another element of our economic strategy there have been considerable investments on the R&D side and on deployment in new technologies both through the recovery act and through our budgeting process and I think that gas can actually play a key role here when we think about innovation especially when we think about the power sector and transportation in particular so there may be ways in which we actually think about what role we play in empowering our vehicles whether it's actually through electrifying transportation or whether it's actually bringing gas directly into our larger heavy-duty vehicles but there's clearly an opportunity here for there to be innovation that brings these new products to market that can take advantage of the additional gas resources we can bring to bear so let me close now with some comments on the environmental dimension of the energy of energy policy as you know petroleum and coal have higher CO2 emissions than natural gas 44% of our CO2 emissions in the United States come from burning petroleum products and the electricity sector the vast majority of our emissions not just of CO2 but of other pollutants come from the combustion of coal and so the clearly there's going to be a value when we think about this in the context of climate policy when we put a price on carbon for natural gas to be able to provide reliable energy services in a way that has a much smaller impact on the global climate it can certainly play a role and baseload in the power sector for some of the other zero carbon alternatives aren't quite ready to play that kind of role it can actually play a role as well when we think about substitution in the residential sector as we've already seen the transition away from heating oil towards natural gas in those parts of the country that still consumes some heating oil and I think there's a role here in transportation there's actually a fairly active debate what kind of role that should play whether or not it makes more sense to actually think about electrification in transportation whether or not we actually think that we need to have an expended network of natural gas filling stations basically in order to enable a transition over to natural gas and the heavy-duty trucking fleet we've already seen the benefits of natural gas and a variety of localized fleets whether it's in bus systems whether it's in various kinds of delivery truck systems but there's real questions about whether or not one can go another step further and start displacing a significant share of the diesel we're consuming if one would actually move out and gas in the trucking industry and I think there's some other environmental factors that need to come into play besides just climate although we tend to get accused and probably rightly so occasionally that we think more about climate than anything else right now the president is meeting with 14 senators to talk about energy and climate legislation and so these other environmental issues may not come up but certainly natural gas can play a very key role when we think about compliance with our air quality regulations being that it is a much cleaner fuel than coal in the power sector but I think there's a big question mark and I know you've already had a discussion earlier today about this about the impact of fracking on on awkward first and I think this is something where to be honest where we do not have a position it's hard for me to imagine that with the growing scrutiny whether it's from the hill whether it's in a review that's underway at EPA the idea of we're not going to tell the world anything about what we're doing in terms of the fluids we're using I just don't think it's politically tenable and I think the question is what's the right kind of policy approach to deal with this and there's a variety of ways some that may be voluntary some that may be regulatory but I think the idea here that we just sort of say no you don't need to know this and trust us it'll be safe I'm concerned replicates the experience we had for example with mtbe where mtbe was a very important oxygenate that we used in motor gasoline we found out that it started leaking into aquifers and then you had state by state starting to regulate and effectively ban mtbe so I have a concern that if one is sort of say we're just going to remain in this sort of don't worry about it we have an exemption of the o5 energy law you know doesn't cause any problems that there may be a concern that you start seeing state by state regulation that could adversely impact the development of this resource and so I think when one thinks about certainly when we think about the climate context a lot of discussion about the need for regulatory certainty I sort of have a concern that that what is right now sort of a discussion among some advocates of regulation that they feel like they don't know enough about fracking fluids that continuing to try to ignore the problem does not actually create the kind of certainty that's necessary for the kind of ramping up that I think it's very feasible and envisioned by proponents of shale gas so let me comment now on a couple of other policies clearly president wants to put a price on carbon he's been pushing for this very hard he's gonna pushing for as I speak and with with the senators I think that when we think about this there's going to be a couple important benefits that will play out with respect to gas certainly the demand for gas will benefit relative to the other fossil fuels depends on what the price of carbon is there are some gas users that are actually quite concerned about this that industrial users believe that gas prices could spike because of the demand increase when I've looked at the analyses whether it's EIA EPA MIT some of the participants in the Stanford energy modeling forum in most cases you don't see a dramatic increase in the price of natural gas but it is certainly going to benefit relative to the other fossil fuels when we have a price on carbon and I think that's in a sense the sort of targeted policy that's the benefit to natural gas and in some sense it's sort of the fair policy where it says on the environmental in the environmental dimension we care about the emissions of CO2 and putting a price on carbon is just putting a level playing field out there and say you know you all are facing the same the same price you find a low carbon way of delivering the kind of energy that we need when we also think about what we need to do in the policy space I think research and development is going to play a key role here this is one where the president has been pushing secretary Chu and secretary choose been been heeding the call to advance across the board our efforts on research and development and I think there's some here that one can do whether it's on CCS technology while primarily oriented towards coal clearly the post combustion technologies would benefit naturally gas just as it would coal over time and whether not and we'll see as we explore new opportunities for R&D investments that may look in the transportation sector that I think would also create opportunities for natural gas I think there's one area where when we look at this and we look at sort of maps of where the shell gas lies some of its in states that actually hasn't haven't been that active in mineral extraction of one form or another and it may be useful for us to actually think about ways in which we can facilitate efforts in those states whether it's some kind of sort of model statute or model set of regulations that you'd actually want to ensure that there's the kind of regulatory certainty for those who are extracting the resource in these states where they don't really have the experience with oil and gas or with coal extraction previously finally let me comment on fossil fuel subsidies so this is something where last year in the FY 10 budget and now again in FY 11 budget the administration is proposed to eliminate all fossil fuel subsidies in the tax code actually to be exact last year we did oil and gas this year we decided not to leave out coal and as you also know in both the G20 and in the APEC context the president secured agreement among all the member countries to phase out their subsidies of fossil fuels which are dramatically higher than what ours are our subsidies are in the order of about three to four billion a year you look at the developing world I see estimates that are sort of all over the place because our data on that great but they're measured in the three to four maybe even five hundred billion dollars per year these actually are quite dramatic in their impacts in terms of energy consumption in those countries quite dramatic in their impacts on the fiscal bottom line in those countries displaces opportunities to use those resources for much more important needs for the poor whether it's health care whether it's education there's something that actually the president is convinced is actually quite important and something that we actually need to demonstrate leadership on in order to to keep the pressure on especially the large emerging economies for them to phase down and eliminate their fossil fuel subsidies now there are some we actually think that in doing so we're actually undermining our efforts to promote our energy security that will actually be producing less oil and less gas if we get rid of these effectively these tax credits through this proposal treasuries done analysis is done analysis we think the impact on our domestic production is actually quite modest I think what's actually more important is actually recognizing that it doing this in concert with the major energy consumers around the world that coordinated action has significant benefits for us from an energy security perspective when we saw oil prices shoot up so dramatically in 2008 part of that's because demand did not respond to higher crude oil prices in the developing world because of the subsidies and price of things they had on petroleum products that this sort of natural sort of initial response of markets to help moderate price spikes wasn't there and that's why even as oil shot all the way up to 147 a barrel we saw oil consumption increase in the developing world in 2008 so that has that fact that if you're concerned about price spikes having the initial natural response of markets finding ways to economize on the use of fuel when there is a price spike making sure that these developing countries have eliminated their fossil fuel subsidies will go a long way to helping with that there's also the prospect that if the world gets rid of 300 plus billion dollars of subsidies a year we might actually see lower energy prices now that's not good news if you're actually trying to lift resource out of the ground but if you're a consumer if you're an industrial user of energy this actually has it has a potentially big benefit and so I think there's this potential here that when one thinks about what we're trying to do with fossil fuel subsidies in the context of a coordinated effort around the world that it can actually benefit the American consumer both in terms of the level of prices over time as well as in our ability to respond to and mitigate the impacts of supply shocks that may adversely impact the American households and businesses so some policy issues I raised there at the end again thank you for the opportunity to be here and I look forward to our discussion during the Q&A.