<html><body>The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy February 10, 2005 Unedited transcript prepared from a tape recording <TABLE width="100%" border=0> <TBODY> <TR> <TD vAlign=top align=left width="25%">10:15 a.m.</TD> <TD vAlign=top align=left width="75%" colSpan=2> Registration</TD></TR> <TR> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="50%"> </TD></TR> <TR> <TD vAlign=top align=left width="25%">10:30</TD> <TD vAlign=top align=left width="25%">Presenters:</TD> <TD vAlign=top align=left width="50%">Peter W. Huber, Author</TD></TR> <TR> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="50%">Mark P. Mills, Author</TD></TR> <TR> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="25%">Discussant:</TD> <TD vAlign=top align=left width="50%">Spencer Reiss, Wired magazine</TD></TR> <TR> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="25%">Moderator:</TD> <TD vAlign=top align=left width="50%">Steven F. Hayward, AEI </TD></TR> <TR> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="25%"> </TD> <TD vAlign=top align=left width="50%"> </TD></TR> <TR> <TD vAlign=top align=left width="25%">Noon</TD> <TD vAlign=top align=left width="75%" colSpan=2> Adjournment</TD></TR></TBODY></TABLE> Proceedings: MR. HAYWARD:  I want to welcome all of you to the American Enterprise Institute for our latest in a series of book forums sponsored by our National Research Initiative, which is a program designed to bring the work of scholars and writers throughout the nation to policymakers in Washington, D.C.  I'm Steve Hayward, the Weyerhaeuser Fellow here at AEI.  I'll be the moderator and host of today's panel. I'll set up the subject this way:  There seems to be something irrepressible about the Malthusian mentality, whereby resources are always in danger of running out, or human needs and wants will always at some point outstrip our resource base, and finally, that our patterns of resource-use impose increasing damage on the environment.  And there's probably nowhere that the Malthusian mentality is more deeply entrenched in the public mind than on the subject of energy. Going on at least three decades now--arguably 100 years if you read some of the historical recollections our authors have brought back to mind--but at least for the last three decades, the conventional wisdom has been that we need a deliberate energy policy that emphasizes conservation, efficiency, and alternative or renewable energy sources, meaning non-fossil fuel energy sources.  Well, Peter Huber and Mark Mills challenge all the conventional wisdom, and some of the contrarian unconventional wisdom as well, in their new book, The Bottomless Well:  The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy. "Most of what people think they know about energy," they write in the opening pages, "is so very wrong that their convictions, heartfelt though they may be, lie beyond logical contradiction or refutation."  I'm sort of reminded of William F. Buckley's famous phrase that when you run across invincible ignorance, there's not much you can do.  But nonetheless, they're making a game try with their book.  This sort of lively pugnacity ensures that The Bottomless Well will provoke endless and, should we say, energetic arguments, with large policy consequences. Peter Huber and Mark Mills are the ideal authors to carry this off.  Peter Huber's books I'm sure many of you are familiar with--Liability, Galileo's Revenge, and Hard Green.  Mark Mills, his co-author, is a physicist and partner, together with Peter, in Digital Power Capital, a venture capital firm that invests in the cutting-edge strategies in energy. And finally, we have as a discussant today Spencer Reiss, who is the contributing editor currently at Wired magazine, and previously has been a foreign correspondent for Newsweek.  He has written widely on technology for the Wall Street Journal, Forbes, the MIT Technology Review, and other publications. Spencer this month in Wired magazine has written about the prospects of a revival for nuclear power, and he has kindly brought about 40 copies of the magazine that are available out in our lobby for you to take home with you after the panel is over.  And I would also remind you that there are copies of The Bottomless Well for sale, after the panel, also in our lobby. With that, I will turn the panel over first, I guess, to Peter.  The floor is yours. MR. HUBER:  Thank you very much. If you'd like to see the original of this beautiful object here on display, you have to travel to midtown New York to the Museum of Modern Art.  You'll find it on the third floor in the Architecture and Design Gallery. As Tom Wolfe has once explained, with modern art you need a story line before you can decide whether you like it.  Someone has to tell you what it means.  MoMA's curator Terence Riley describes this as a remarkably beautiful object, half metal, half composite, that goes together in this crazy way that only a computer could understand.  But if you look carefully, you can discern here the past, present, and future of U.S. energy policy.  This is not a barrel of crude.  A mere 4 feet long, this relatively small but stupendously powerful exemplar of indigenous American craft is in fact--does anybody know what this is?  This is a fan blade from a jet engine that powers a Boeing 777.  The unnamed artist worked for General Electric, the corporate Medici, I suppose, of the modern turbine.  That makes Schenectady, I suppose, the new Florence. Anyway, I will try and persuade you today, as Mark Mills and I argue in our book, that art is much more important than oil.  But people expect an energy talk to begin with oil, so let's briefly bow to convention and start there.  But if we have to abandon art and go to oil, I intend to go all the way to what must surely be the most miserable oil field on the planet.  It's in Athabasca, Alberta.  It's currently pumping a pathetic 155,000 barrels a day.  To put that in perspective, humanity currently consumes about 80 million barrels a day.  But if you want it--if you want it--there are 3.5 trillion barrels there for the taking at Athabasca and at a comparable field in the Oronoko Basin in Venezuela. Yes, a trillion.  That's 100-year supply at current global rates of consumption.  To be sure, it's such rotten oil--so sticky, so vile--that we call it tar.  You have to literally cook it out of the sand; you can't pump it.  But if you wish to cook it, you can cook it out at well under $20 a barrel.  Just invest $6 billion in new capital plant, as Shell and ChevronTexaco have in fact done in Alberta, and you can cook out oil at $20 a barrel essentially forever--or 100 years, which is about the same.  And that $20, of course, includes the full amortized cost of capital.  We're not assuming free capital or anything like that. So why don't we just do that?  Oil prices, spot prices hovering around $55 or $50 a barrel now, we should just sort of learn to like the Canadians a lot and go get our oil out of the sand.  The problem is that you can get it out of the sand of Arabia at a cost of under $5 a barrel.  I'm not saying that's the price, but that's what it actually costs you to lift this stuff.  You know where it is; still quite a bit of it there.  And you don't know what they're going to say in Riyadh next week or the week after--maybe the price will come back down if they open up the spigot wide.  And if they do that, and you've just invested $6 billion in Alberta, you're probably going to write off those $6 billion, because you can't compete with $5 oil. And that really creates quite a dilemma.  I mean, oil prices are wildly unstable not because oil itself is yet scarce--we'll talk about the future later--but because good government is scarce in places that happen to have huge quantities of oil under their land, and that is very destabilizing. I'll get back to oil in a moment, but let us make a second point now.  Oil is not the dominant fuel of our modern economy.  Oil supplies about 40 percent of the raw energy that we use in the United States--and we use it mainly in our cars.  Coal, uranium, natural gas, and hydroelectric power supply about 60 percent of our raw energy in this country.  And by far the most important use of all these not-oil fuels is to generate electricity.  Very little of our U.S. electricity is generated with oil.  And electricity, not oil, without question defines the fast-growing center of our energy economy today. About 60 percent of our GDP now comes from industries that use electricity as their front-end fuel.  All the fastest growth sectors of our economy--information technology and telecom, most notably--depend entirely on electricity as their front-end fuel.  More than 80 percent of the growth in U.S. energy demand since 1980 has been met by electricity.  Electricity's role is expanding steadily, and there's every reason to suppose that the electrification of our economy will continue steadily, in fact quite rapidly, over the next 20 years. To begin with, about 30 percent of our energy economy is the thermal sector.  You take some form of energy and you just make heat--you don't turn it into motion or electricity or anything else.  And in factories and refineries, electrically powered microwave ovens and lasers and welders and dryers are rapidly coming to the fore, steadily displacing gas-fired and some oil-fired ovens because these new electrically fired tools are very much more precise and tunable and aimable, and then ultimately they are cheaper as well, although electricity itself is certainly not cheap.  And these trends alone, I confidently predict and we argue in our book, will move about 15 percent of our gross energy economy into the electrical sector over the next two decades or so.  That electrification trend is very powerful and well under way. Even more significantly, though, I'll grant you, longer-term and more speculative, the car, our transportation sector, is now being transformed into a sort of giant electrical appliance.  I hasten to add--let there be no misunderstanding--the internal combustion engine is not going away anytime soon.  But hybrid cars propelled by onboard gasoline-fired electrical generators are coming fast.  The monster mining trucks already run that way.  The locomotives that move you from here to New York already run that way.  Basically, you have an onboard electric power plant, and then the whole drivetrain, everything downstream, is entirely electrical. This transformation is not occurring for fuel efficiency or to save the ice caps, though hybrids are, in fact--happily--more efficient and they do run cleaner.  It is happening because the new electrical drivetrains that carmakers now build deliver much better performance, lower cost, and less weight.  And I think it is an utterly safe prediction, not because of any mandate from Washington, not because of Kyoto or anything of that sort, that Detroit and the worldwide car manufacturers will migrate to electric drivetrains steadily over the course of the next two decades as well. So sooner than you think--we're talking 10 years or so--you'll be tooling around the streets of Washington in sort of a 2-ton Cuisinart or something like that.  It won't run more than about 5 miles on its onboard batteries, but it will have quite a hefty onboard battery pack, because you need that to just sort of mediate between the onboard generator and the wheels for a variety of engineering purposes.  And those batteries will not take you far, but they will take you perhaps 5 miles or so.  That's typically what you find in a serious hybrid today and that will continue to be the structure. And as our streets begin to fill up with these sort of monster appliances, we create from the get-go the opportunity to begin topping them off from the grid.  Cars spend most of their times, after all, parked, not driving.  And if that happens, that's a really big deal, because most of our trips are under 5 miles.  You can generate electricity off the grid for 10 cents a KwH.  The onboard gas-fired generators generate electricity for the wheels at 60 cents a KwH.  They are way, way less efficient, they use much more expensive fuel, the onboard generators, and so you have an immediate and powerful economic opportunity, if that infrastructure does move out, to begin bridging what has been now a century-long divide between two key sectors of the energy economy--the electrical sector and the transportation sector. And there are a variety of issues.  The batteries aren't free and they have serious capital costs.  But we're not talking about trying to put an onboard battery that will drive you from here to New Hampshire.  We're looking at one that will take you 5 miles.  That will come regardless, and it creates an enormous new sort of center of convergence between two sharply separate sectors of our energy economy.  And most importantly, it bridges the oil-fired sector with the coal- and uranium-fired sector. Now, back for a few minutes to what really matters, which is not oil but, of course, art.  The art itself, crafting a blade like that to pluck power out of a fluid in motion, is ancient.  Forty percent of all the energy we consume today in the United States comes mainly from coal, uranium, natural gas, not oil; and it is used to produce high-speed streams of very hot gas that spin blades either exactly like this one or bigger versions of the same.  They're basically windmills.  Good windmills.  Fancy windmills.  Expensive windmills.  They cost, in fact, a lot, these windmills. The United States currently spends today about $400 billion a year on raw fuel.  Make that $500 billion if oil stays up at $50 per barrel--which it won't.  But we spend at least $500 billion a year on engineering art--blades, furnaces, generators, car engines, motors, lightbulbs, lasers, all the things, all the hardware that we use to transform raw fuel into motion and motion into electricity and electricity into laser light, and so on up this chain from rather crude, gross, unrefined forms of energy to highly refined, wonderfully precise, and controllable forms of energy. Now, the upshot, that we are spending more on the hardware, on the stuff that transforms energy from poor primitive forms to the high-grade forms that we use it in--we spend more on the hardware than we do on the fuel--has very important economic consequences.  And by the way, this is a modern development.  You go back 30 years, the ratio is quite different.  Fuel costs themselves were dominant.  Raw fuel accounts for about one-third of the cost of coal-fired power, under 20 percent of the typical cost of driving--all the rest of the money is in the hardware that is basically transforming gasoline or crude oil, if you go back properly, into a safe, comfortable ride down the highway.  Raw fuel accounts for well, well under 10 percent of the cost of nuclear power.  And of course you hardly think about raw fuel costs at all when you check yourself into a hospital for laser surgery and a half-cent/kWh coal back in some boiler somewhere is being transformed into $200 light of an Ytterbium laser that is actually, you know, being propelled into your eye or into a cancerous tumor. You don't lie there saying, gee, what is the spot price of coal today and can I afford this surgery?  It doesn't even enter your consciousness. And that is, of course, what we are referring to in our book when we speak of the twilight of fuel.  We use more fuel than ever before.  We're certainly not using less.  We spend more on it than ever before.  But in macroeconomic terms its role in our larger economy is diminishing, not increasing, because we are spending so much more on the intervening hardware.  If one wants a simple metaphor, there was a day when the price of raw calories in potatoes and a rising price of those calories was just horrific and devastating for millions of people.  Today, raw calories are a very small part of your budget.  If you're spending on food overwhelmingly, you're paying on the processing in-between that is transforming those calories into sirloin in a restaurant or whatever else it is.  So year by year we use more quads of energy, we spend more on those quads, and year by year the actual cost of those quads is actually receding into the footnotes in the dusk of our modern economy. If that seems somewhat counterintuitive, not what you've been reading in yesterday's newspaper, it gets worse.  Take another look at that blade.  Developing that masterpiece and the frame that surrounds it cost GE about a billion dollars.  Supercomputers had to perform fantastically complex calculations to arrive at this shape, which has been wonderfully optimized to extract the most possible power from this firestorm of flaming kerosene that is tearing across the blade and spinning to suck additional air in and blast out the back of the jet engine and move the jumbo jet through the sky. Why would anyone spend that much money to design a new windmill?  Overwhelmingly, to improve efficiency.  American Airlines and United--this will surprise some people in Washington--know what fuel costs them, and year after year it concerns them a lot, in fact.  And year after year they hammer at the door of the corporate Medicis in Schenectady and say we must have more efficient jet engines.  Congress didn't have to tell United Airlines this; they thought of it all by themselves.  And by golly, the Medicis have delivered.  Jet engine efficiencies have risen dramatically in the last 30 years.  The airlines have used very clever software to pack their planes full of people--perhaps you've noticed that, too. And the upshot of this is that, on a passenger mile per gallon of fuel basis--in other words, real payload for gallon of fuel used--jets have become stupendously efficient.  Properly measured, they are almost as efficient as our cars now, which is--because we drive our cars empty, of course.  We don't have the same software to pack them full.  And that's an amazing thing to say, given what jets actually do.  And with all this new efficiency, indisputable progress in efficiency, what has happened to total consumption of aviation fuel?  It has, of course, gone up and up and up and up.  Not down, up.  Okay, that's what efficiency does. Listen and weep.  That is how the efficiency story always ends with cars, refrigerators, lightbulbs, you name it.  We could go on down the anecdotes, and perhaps in a moment we will.  But, you know, the unambiguous history is this:  You name any technology you like--you know, jet engines, car engines, refrigerator motors, lightbulbs, compressors, motors--and track in rigorous terms what has happened to their everything efficiency over you pick the time span--10 years, 40 years, two centuries--of industrial history, I don't care what your base is, efficiencies have gone up.  Without exception, everywhere, in every kind of technology you care to name as long as you're measuring efficiency for real, in other words, in engineering terms.  And without exception, total energy consumption in every significant sector has gone up, except in the rare cases where, like, coal has been displaced by uranium or wood has been displaced by coal; you get some substitution effects.  Aggregated consumption goes up and up. Per unit of energy used, the United States produces more than twice as much GDP today as it did in 1950.  So a triumph of efficiency, right?  GDP per unit of energy up and up and up and up, and total energy consumption in the United States during that same period has risen threefold.  To curb demand for energy, you have to lower efficiency, not raise it.  But nobody, it seems, is in favor of that. Now, I suppose the fact that energy efficiency has been the one utterly consistent, completely bipartisan cornerstone of policy in this city for 30 years, you find no argument about it on either side of the aisle.  That complete unanimity, I think, probably seals the argument.  It has not delivered what it was supposed to deliver; it has delivered the opposite. But then, of course, if we don't curb consumption--and certainly if energy won't curb it, sooner or later we are going to run out.  Right?  No, we won't run out.  Let's go back to oil again.  In the short term, anything remains possible.  Demand is growing at a spectacular pace in China and in India and in much of the developing world.  Good government is taking root in these countries, and good government takes root, economies begin functioning, and yes, demand goes up.  Meanwhile, much of the earth's so plentiful oil lies beneath lands controlled by feudal theocracies and kleptocrats and fanatics.  And just as it should, the market on a day-to-day basis tries to incorporate all of those conflicting forces in the spot price of crude. That's what the market is supposed to do.  But to suppose that those prices foreshadow the imminent exhaustion of the planet itself is silly.  There is no shortage.  This--I think we are unanimous on this.  There is no shortage of buried hydrocarbons, defined broadly, on this planet.  And the technologies for pumping, stripping, and cooking them out of the earth improve faster than the supplies themselves recede. In Crawford County, Pennsylvania, in 1859, Colonel Edwin Drake, struck oil at 69 feet.  The first so-called deep water oil well stood in 100 feet of water in 1954; today they reach through 10,000 feet of water, 20,000 feet of vertical rock, and another 30,000 horizontal feet--the drills go sideways as well as up and down--and yet over the long term, the actual cost--I'm not saying the price; price is a completely different number--but the actual cost of extracting oil from the earth has held remarkably steady.  The 10-mile oil costs about the same in constant dollars as the 69-foot oil did a century and a half ago and the 1-mile oil cost two decades ago. It is a historical fact that for two centuries of industrial history now behind us, the technologies we have used to find, extract, or capture energy from our environment have improved much faster than the horizon of supply has receded.  And however bad it may be for the planet, which is something we can discuss separately, there is little reason, there is really very little reason to suppose that the planet itself--I mean, the geology, okay, not the politics; anything is possible there--but that the planet itself will put a stop this anytime soon.  Humanity currently consumes 345 quads--or 60 barrels of oil equivalent, if you wish--every year of energy, about half of it oil itself, half from other fuels.  The planet holds within easy reach--and that's 345 as our base--the planet holds within easy reach 200,000 quads of coal and 10 million quads of oil, shale.  The winds of Nantucket Sound, where GE is building bigger versions of these blades to pluck energy from the wind, capture a tiny fraction of 200,000 quads of solar energy that descend on the earth every year.  The waters of the Sound itself and the oceans beyond contain 10 trillion quads of deuterium, which is a potential fuel for fusion. We could go on and on and on, but why bother?  The planet itself is not running out of energy.  The planet is huge.  It is much bigger than people seem to suppose.  Yes, there are scarcities.  The eternal challenge is the development of technologies and logic and hardware and systems like this that can pluck that energy, draw it from the environment; and of course the political will, determination to draw it.  And those are quite separate issues.  It is, of course, foolish to suppose that any given well cannot be pumped dry.  Of course it can.  It will be.  But it is equally foolish to suppose that the tools that we use to pump from those wells will be exhausted anytime soon. I will now give way to Mark Mills and he will give you some graphs. MR. MILLS:  In a sort of multimedia division of labor, I'm going to do the PowerPoint part because--I mean, I've been around Washington for awhile.  There's no presentation that's now possible without PowerPoints.  In fact, I was at a Navy meeting where they were trying to figure out how to actually ban PowerPoint presentations because they were so ubiquitous in everything, right down to the front lines. Let me begin with a brief aside, a minor correction to Steve's gracious introduction.  We're partners in a venture fund that invests in advanced technologies that have nothing whatsoever to do with energy as you might think of it.  We don't think it's possible to compete with the Medicis of Schenectady in turbines or oil, or Exxon.  We are investing in very unusual leading-edge technologies like high-power lasers and millimeter-wave amplifiers.  Exotica, great fun.  But it's actually relevant to our book, so I'll explain in a minute. What I intend to do is walk you through a very small set of graphics to backfill some of the rhetoric and numbers that Peter provided.  In fact, our book is very much--if you flip through it, you'll it constructed this way.  We have a fair number of graphics.  Indeed, we have so many graphs that we decided it would look like a school textbook if we published it with all the graphics we thought were appropriate.  So to those of you who would find them interesting, we have another four dozen related graphics at the Web site, which is--it backfills a lot of the other kind of information which for some of you might be of interest to drill down. But let me follow sort of the same pattern--begin with oil as well--although the book, I will emphasize, as Peter has, is not about oil.  It's about energy.  But oil is on everybody's mind.  It has been for a very long time, for very good reasons.  It's an important material, commodity, and indeed it became much more important in the 20th century than anybody could have imagined in the 19th century, when oil was discovered. So I begin with this graph because what this shows you, it's got to axes and they're pretty straightforward.  What we're showing is the average distance of the deepest well that was drilled to extract oil starting with the dawn of the age of oil to today.  That's the left axis going in 1000s of feet.  So we now extract oil through drilling processes that reach, as Peter pointed out, tens of thousands of feet.  The right axis is the cost of oil in dollars/million Btus.  To translate, $10/million Btus is roughly $80/barrel.  But you see, the time line is the same.  This is not the cost of oil, this is the average selling price of oil in any given year over the same century and a half. It's an interesting graph because of the remarkable consistency in the average price of oil over 150 years, except for the early era of oil, when it was particularly expensive. Now, this is not a resource story.  The reason this graph is relevant, this is a technology story.  The technologies that use energy, of course, drive demand.  There were no automobiles in 1850 driving around the world.  The technologies that consume energy actually define how we want to find and how much energy we need fundamentally.  But it's also a technology story about how we can find and create fuel as a resource.  To be simplistic, if you go back into the '60s and '70s, geologists suspected there was oil in the North Sea.  We were not extracting oil from the North Sea in the 1960s.  It took the advent of some remarkable technologies to make those North Sea fields oil resources. The ability to drill horizontally really arrived from two classes of technologies converging simultaneously.  The first and most important is imaging--digital technologies, processing technologies, sensing technologies.  Because now what you did is, after you'd found a big well--what you didn't do before imaging technologies is keep punching holes forever around the big well looking for smaller and smaller pockets.  As you found the pockets getting smaller, you gave up because it's very expensive to drill--to wildcat, if you like.  But if you could take a picture of the underground, you could find where everything is and you can drill horizontally.  Through a single shaft, you can not only find the oil with the imaging, but you can direct the drills to exactly where these little pockets are.  So you go scavenging for all the little pieces.  If you look at any graphic, go to an Exxon Mobil Web site and look at their braggadocio about what they do with deep water wells, what you'll see them brag about first and foremost is the digital technology of imaging, seismic imaging and mapping. Next slide, please. But to reemphasize Peter's point, what really is important in the 21st century is actually not oil.  Oil remains important, but the preeminent energy commodity in our society today is electricity.  And I recognize it's not a natural commodity, you can't go drill it.  But from an economic perspective, industries consume oil and they can consume electricity directly.  They have a choice. This graph is enormously important.  It is utterly absent from every energy policy debate.  In fact, we haven't seen the trends map this way, Peter and I, in any one of perhaps 100 documents and books we've looked at.  This is actually easy to unbundle.  If you go back 100 years, before there was any electricity available in the economy, you could say pretty easily that 100 percent of the GDP of the United States came from burning stuff at the point of use.  There was no electricity, so the entire GDP came directly from burning oil and gas and coal in factories and in buildings and so forth. A very interesting transformation occurred.  You can see the mid-point transformation is in the mid-'70s.  But just to pick two benchmarks, in the early '70s roughly 60 percent of the GDP of the United States came from the direct combustion of oil and gas; 40 percent came from the direct use of electricity.  That ratio has flipped today.  Sixty percent of the U.S. GDP comes from the direct use of electricity, roughly 40 percent from the direct combustion of oil and gas.  This is a profoundly important transformation and it's a transformation that continues.  It means, in simplistic terms, electricity is more important than oil. To give you a few other factual benchmarks to understand how important this transformation is before unraveling how this transformation happened, from 1980 to date, over 85 percent of all the net new supply of energy to the economy came in the form of electricity.  Now, if you put these together, we of course know that electricity is fundamentally not oil.  That is, I don't mean it's not oil at the point of consumption, it's also not oil at the point of generation.  Supply of electricity is 95 percent domestic sources of coal, uranium, natural gas, and rainfall; 4 percent is still oil--nationally it's higher in a few pockets like Manhattan and parts of New England; and about 1 percent or 2, depending on how you want to count burning wood, are "the renewables."  More importantly, it's not oil; and more importantly, it's domestic. So the U.S. economy, the core of the economy, 60 percent of our economy--$6 trillion, in other words--is utterly independent of the cost, price, and availability of oil, for all practical purposes.  This explains, by the way, in much more fundamental terms why the United States economy wasn't brought to its knees by $55/barrel spot price oil.  A lot of economists, when the price was hovering around $12-$14/barrel six years ago, which--we're not talking about--I'm trying to remember what your grandfather paid for oil, although I do remember buying gasoline for 23 cents for my motorcycle in my impetuous youth.  But we're talking about six years ago, when oil was $12/barrel.  The thought of it going to $55 would have suggested to most economists that the U.S. economy would be in serious trouble.  In fact, the U.S. economy, by all measures, is doing quite well. You could say, well, the economy's bigger so oil's less important.  Well, that's true, that's part of the answer--actually the subsidiary answer.  You have to know why the economy is bigger and you also need to know that oil is actually less important in the economy.  The most rapidly growing parts of our economy--the digital parts of our economy, the telecom parts of our economy, of course, tautologically entirely dependent on electricity. Next slide, please. Peter mentioned this other transformation, and it's a directly related transformation, is where do we spend our money on energy?  Do we spend it on the raw fuel or do we spend it on the machines and the tools that convert it from its raw form into a more useful form.  And this is another one of these great transformations, of a shift of our primary spending away from the raw commodity into technologies, into hardware.  What this graph shows you is that, the bottom, the aggregate spending in one year on primary fuels--coal, oil, gas, raw uranium; the hydro counted as a raw fuel, though it just disappears as a sliver--and of course it varies depending on the spot price of oil and the average price in any given year, but roughly speaking we spent $400 billion last year on purchasing raw fuels.  Roughly speaking we spent $500 billion last year on capital to convert raw fuels that are delivered to the economy into useful form. Let me describe what we mean by that. The thermal layer, those are boilers.  And we were once just a boiler economy, if you think about it.  We were a furnace and boiler economy at the dawn of the electric age a century ago. The next layer, motive, and by that we mean engines.  We don't mean the cars; we're not counting the capital spending on your new Lexus, we're counting just the engine and the drivetrain, the energy conversion portion of the machines. The next layer up, of course, we label electrical.  It's more highly ordered, more, if you like, to use the term in physics, we're now taking more entropy out of the system as we move up the food chain.  And that's the spending on electric generators--the generators themselves, not the concrete, not the buildings, not the ground--and of course on the electric conversion, devices like motors and lights. The top one, which is the biggest now, growing the most rapidly, those are all the constellations of technology that take the electricity itself and convert it yet again into forms that are actually useful.  A very simple example for you would be that--it's easy to say--it's not very useful to a PC to burn coal.  You can't put a lump of coal under your desk top and light it; the PC doesn't run very well.  The desk top probably wouldn't do very well.  But it's a very large set of conversions, each of them involving capital, to get to that PC's energy that the Pentium needs.  You think of it as just a wall plug, and that's the constellation that goes up to the layer we call electrical. But after the wall plug, there's another constellation of electric conversion technologies, a very large constellation, a surprisingly large constellation of what you would call simplistically power supplies and power conversion electronics whose only purpose is to convert that raw electricity, which is junk fuel for a Pentium, into energy in a form a Pentium can use.  It's not logic, it's not the Pentium, it's the energy, the power to energize the Pentium.  The same is true, by the way, in lasers; the same is true in RF transmission; the same is true in microwave heating for industrial purposes, including microwave heating in your home.  The laser, in fact, has an enormously large constellation of capital equipment required to make electricity, which is utter trash for a laser, into its quantum cousin.  The electrons have to become photons.  Those are all power conversion steps, or energy activities, and they involve a very large share of our economy, remarkably large already--not the lion's share, but in capital terms enormously large and growing very rapidly. Next slide, please. The interesting thing about all these technologies is that the ones I've described, like the computer, are the kinds of technologies that have driven a great deal of the energy community into a mild frenzy over figuring out how to make all those things more efficient, because there are so many of them now.  The energy efficiency of a PC was--well, it's a statement you couldn't have made, as all of you know, in 1980.  There were no PCs.  You could say the same thing about automobiles in 1850.  So energy efficiency becomes a discipline after you build the things that use energy--not a surprise; that's the nature of the beast. But it's important intellectually to consider this because it means that we actually are starting consuming energy.  The idea of efficiency comes after the consumption.  And the consumption comes from an economic interest in the things you can do with the tool or machine that was invented.  And every time you improve efficiency, as Peter pointed out, we have this embedded orthodoxy that says--and it's a bipartisan orthodoxy--that improving efficiency reduces the consumption of energy.  It is obviously the case, if I have a lightbulb in my hand and I have no other lightbulbs and I never use another lightbulb, and I can get the same lumens out of a 30-watt bulb as a 60-watt bulb, I have reduced the consumption of energy for that specific lightbulb.  We are obviously not denying that. What is more interesting in an economy is what happens to the use of that lightbulb.  Actually, what turns out to be much more important is the technology that made the lightbulb become not 30 watts but 3 watts--which would, by the way, be light-emitting diodes.  People do other things with those 3-watt lights.  In fact, they do lots of other things with those 3-watt lights.  And in economic terms, what we have discovered is the lots of other things, and all technology, always and everywhere, overwhelms the savings you got in the old thing you used to do. There is actually a way to measure this.  You can measure it at the macroeconomic level--Peter mentioned aviation, so I show you the data series.  Aviation is actually the cleanest and purest one to do this experiment in because there are very few complicating external variables.  The left axis is the energy cost of transportation.  And in this case--this particular data series, as a matter of fact, we've included trains, planes, and automobiles.  You could do it just for aviation.  I'm sorry, I didn't realize I had the non-aviation graph. This is all U.S. transportation and the cost measured in gallons of fuel per 100 vehicle miles--left axis--and it's been going down for some time.  The right axis is total consumption of transportation fuel in the United States.  Some people would argue, oh, that's because our economy grew.  That's true, but why did the economy grow?  And what other things are people doing?  All of you know that most people do a lot more things with their cars than they used to.  They go on more vacations.  Well, what a shock.  That's because our economy is bigger, everybody's wealthier.  Why are you wealthier?  Actually, it would take you back to the electrification curve.  The electrification economy is a fundamentally enormously powerful productivity driver. Next slide, please. The same data series at the highest level of aggregation for the entire U.S. economy using the metric that everybody likes to use, which is--I would stipulate we have it here because everybody uses it--it's an utterly meaningless metric, which is the energy cost of our economy; that is, thousands of Btus per GDP dollar.  How many Btus of energy does it take to make a GDP dollar.  I just would stipulate that this is utterly meaningless, because if you have a subsistence economy with no GDP, then it's a very efficient economy.  I mean, it's--there's no meaning in this data series because they bundle so many things in.  But it's what everybody uses in Washington, it's what everybody plots in the EIA data. So measured that way, the energy efficiency of our economy is profoundly better than it was in 1950.  The total consumption of energy in our economy, as Peter pointed out, is up profoundly.  What's important to understand is why the aggregate energy consumption has gone up, and it's not because we aren't more efficient.  It's because we're changing the technological structure of our economy. Next slide, please. There's one interesting and revealing way to see the impact of technology on energy.  This is a very simple or simplistic level, but this is a graph that shows you, on the X axis, in logarithmic terms--and for those of you who have chosen to deliberately forget high school math, you know, it goes up tenfold, not doubling, every point.  So as you go along the X axis, this is a very large increase.  It's aggregate consumption of energy in the United States.  Just to give you a benchmark, the United States--this is in quads, but to give it to you in barrels of oil everybody reflexively understands--the United States has extracted from our oil fields, not from the Middle East, something on the order of 300 billion barrels of oil.  That's a cumulative extraction of several hundred billion barrels of oil--by the way, just as an additional interesting point of reference, from oil fields that we were told contained 24 billion barrels of oil in the 1950s.  That would--just to bring you back to my first graph of the relevance of the resource compared to the availability of technology to both define it and to extract it. But what's interesting here, on the Y axis is price.  What you'll see is the price of oil with technology has done a remarkable thing, it's remained remarkably flat.  But as you add more technology to the energy form you use--refined gasoline--you see over time the cost of the gasoline has gone down.  If you add even more technology to how we deliver the energy to the marketplace, which would be electricity, then you see a very steep decline on average.  Obviously, there are wiggles in the curve which tend to be political, but they can also be social and economic, and there are some technical mixes.  But on average, there's a very long-term trend of declining cost of electricity, which--simple, again--in economic terms makes sense.  You have more technology.  Everyone knows that technology on average gets cheaper as time goes by.  And if the energy source you're consuming is primarily technology-dominated, and the technology part gets cheaper, then the energy you consume from that sector will get cheaper.  And what a shock, as you make it cheaper people will use more but will find remarkable things to do with it. Next slide, please. Let me end with this one, which brings us back to the issue of cost and price and these complicated economic notions.  This has an X axis that is semi-artificial, but as a practical matter the X axis is a time axis, running from roughly 1800 to today.  And what we're showing here is a way to measure the actual energy cost of the energy that different technologies deliver--not the economic value, but just how much.  As Peter pointed out, the Ytterbium laser delivers photons in a very marvelous coherent stream of light.  That's actually energy. It can be measured in simple energy terms.  The energy from that laser measured in dollars per kWh, which one can calculate because the constellation of things that the laser represents is a capital cost--you amortize it over the life of the laser, the energy coming out, you get dollars per kWh.  It's around $200 to $500 dollars a kWh to consume energy in the form of laser light.  If you think about consuming energy in the form of wood or coal in the raw thermal sense, you're spending a fraction of a cent a kWh. And you notice, as you go up this axis, we find the technologies of energy conversion that do more and more interesting things--the steam engine, the car internal combustion engine, the electric grid itself.  The lightbulb, by the way, this is the lightbulb measured in terms of the photons, which are energy emitting, from the lightbulb, not the electricity going into it, since it's the light that we want, not the electricity going in. UPS is a surrogate--that's uninterruptible power supply.  That's why your notebook runs when it's not plugged in.  That's why server farms run when the grid goes dark--most of the time.  This is the constellation of electric power supplies.  But the electricity they deliver to the load, which are computing and communications loads, cost on the order of several dollars a kWh.  And the consumption of that class of electricity is rising, I would tell you, geometrically. Radar is a surrogate for radio frequency stuff--not just radar, but microwave heating and all the communications class.  We pay for the energy that emerges from them--not the information content, just the energy that emerges from those energy conversion devices--we pay $10 to $50 per kWh. And of course, lasers are at the pinnacle.  They're the hardest things to make, produce marvelously ordered energy, and we pay absolutely the most in energy terms. This makes no sense for economists if you just ask why is--if you follow that curve, all the fastest growing things in our economy are at the highest end of cost of energy delivered; and yet they grow the fastest.  They do because--I don't have to talk to you about how much more valuable all these different tools are compared to each piece further down the food chain. But that has a profound energy implication and a profound policy implication.  It means that fundamentally we will continue not just to consume more lasers and more RF devices and more highly efficient motors and engines, but we will drive the fundamental and base consumption of raw fuels up continually, and we will continue, however, to push their relevance further and further into the twilight of the relevance to our economy.  Yes, they're important.  Food's still important.  You don't hear many economists in the United States running around pulling their hair out--I already pulled all my hair out--pulling their hair out over, Oh, we need food, it's very important, we're going to run out of it.  There are a few left, I grant you.  I know a couple who are very worried about food in the future.  Food's still important, but it does not drive the U.S. economy. Our proposition to you, very simply, is that technology has moved the United States on the now tipping point to where raw energy is moving into the same twilight as raw food in terms of its impact on the U.S. economy. Thank you. MR. HAYWARD:  Thank you, Mark. Let me bring out our discussant, Spencer Reiss, with just a couple of comments.  One sort of comment on Mark's observation about the ubiquity of PowerPoint in Washington:  Some wag has commented that if Lord Acton were around today, he'd say power corrupts and PowerPoint corrupts absolutely.  It's certainly true. I'll bring in our discussant this way.  Some of you may have seen Spencer Reiss's glowing review of Peter and Mark's book in the Wall Street Journal a couple of weeks ago.  So as a general matter, our panel today is in heated agreement on this subject.  But there's a reason we did it this way.  You know, a lot of books that try to bring scientific matter to a general reading public try to take a complicated subject and make it simpler.  But what Peter and Mark have done is, because most people think energy is simple, they've had to take a simple subject and make it complicated again before it could be demystified in a new way. Because of that, it struck here at AEI as a fruitless idea to have sort of a conventional conservationist on the panel, where the conversation, I suppose you might say, would be like having this artist talk to a child who's still stuck on Paint-by-Numbers.  It would be fruitless and not very enlightening.  So instead, we invited Spencer, who also writes on the subject for the high-technology community, to offer this thoughts and observations and as a way of prologue to opening up to questions and comments from the audience. So with that, Spencer, the floor is yours. MR. REISS:  Yeah, what I really liked about this book was that it--you know, scientists like unified field theories, and this one is the first book that I've come across that actually bridges the seemingly--you know, most people, you say, well, IT and computers, they're one thing and energy, oh, that's another thing; one's about oil and burning things, and the other's about high-tech.  And I think that what this does, what's important about-- [flip tape] MR. REISS:  --and particularly things like those graphs of the electrification of the economy give you a really good feel for how to use the convergence that is going on and how that convergence between IT and logic--certainly one of Peter Huber's favorites for order which are the forces that drive IT--is converging with electrification and energy.  And I think that the bonus with these guys is that you get economics as well, so that it's not--all of us have probably observed much technical writing suffers from egregious primitiveness about economics.  My next little project is a solar power project, and I've been reading a much-hailed book and it's just--I mean, I'm not an economist, but I can smell nonsense.  It's unbelievable what people get away with.  I think in most cases they're sincere people, but just have never in their lives had to give a thought to this, so they don't.  So they write stuff that is about economic activity--again, I mean, if it were any other subject, people would be laughing. But anyway, that's my big take-away from this book. The nice thing about being a magazine writer is that, for us, the Medicis that do this are called advertisers.  And they let us do things like give away free magazines.  So there's a pile of these out there.  You can actually, with an investment of only about 10 minutes, I guess, read this fine story that we wrote about nuclear power.  And I'd just correct one thing Steve said.  It's really not about the prospects for nuclear power.  The headline is "Nuclear Now," and we actually took a position--which we don't usually do, but we did.  But we did it for interesting reasons.  Let me--this is my little trope right now. Global warming is an interesting subject, because whether or not it's true, everybody kind of believes in it, or a lot of people do.  And I personally am very agnostic about whether it's happening, what the causes are.  But none of that really matters because we are in Washington here and, in a crazy way, if enough people believe something, it's true.  So you can either, like these guys or some other people--actually, Jim Glassman here--you know, beat the drum, "It's not true, it's not true, it's not true."  But there's another thing you can do with it.  You can say, okay, everyone believes it, it's an opportunity.  And I think it's an interesting chance to look at the energy discussion as something other than the way we've always looked at. And the conclusion that we kind of came up with was, well, you know, if you look at, for instance, the Green community, the environmentalists have been just riven by this stuff.  I mean, there have been some very high-level--I'd almost use the word "defections."  You know, James Lovelock, the Gaia hypothesis man; Bishop Montefiore in Britain; Patrick Moore, the founder of Greenpeace, all of whom in the last few years have come out--in the case of Lovelock, just in the last year--blatantly in favor of nuclear power in order to stop global warming. Now again, global warming may be nonsense, but the fact that a significant number of very thoughtful environmental people are worried about it--I now say, you know, well, you should take nuclear power seriously to the extent that you take global warming seriously, and that stops a lot of opponents right in their tracks.  We've actually said, you know, if you oppose nuclear power at this point, which is the only centralized generation form that exists that doesn't produce carbon, opposing that puts you in the same bed with the coal companies.  And that really is a really great way of stopping a lot of conversations, because you just say, You're just like a coal executive, you know, great, good for you, yeah have a great time, I hope you like palm trees.  We bravely put our e-mail addresses in, so I got a lot of mail about this.  And interestingly, it's running about 50-50.  You know, I just absolute screaming rant and then people saying, yeah, you're right, we really should think, we've been silly, [inaudible]. Anyway, so the moral of the story is I think that one of the last little things--I did put it in the story, but I'll tell you anyway.  It was curious, that I started reading--you know, famously the Bush administration is opposed to the Kyoto Treaty.  But if you read DOE material, if you read the Cheney Commission, the word "carbon" appears all over the place.  So here we have an administration that is officially committed to, well, we're not taking this global warming stuff.  But actually, if you look at what they're saying, the word is all there.  And in fact, Jeff Immelt from GE tells a little story about going to a meeting of utility company executives, i.e., his customers, and sort of said, By the way, how many of you think there are going to be carbon controls of some kind in the next 10 years?  And everybody raised their hand.  So again, whether it's true or not, the utility companies, who I guess have to take the long view and they can't assume that there's going to be a Bush administration eight years from now when their plant comes online, they're just saying, well, fine, it's probably going to happen so we'd better start doing stuff about this. Now, if you have to construct a rationalization for carbon controls--and I won't say taxes because then all kinds of things go off--you can actually do it.  You can say, well, if you're in an industry that produces effluent, many industries do, you're normally obligated to clean them up.  You can't just dump them out in the street.  We've all accepted that this 19th-century idea of just dumping it in the river is--so even AEI and Cato, everywhere, you can all live with that. So once you've gone through that, well, then, okay, is carbon dioxide effluent or not?  Now, this is an interesting scientific debate.  Again, I think somehow or another we've gotten to the point where everyone, or a significant portion of the public, agrees, okay, carbon dioxide, even though we're making it now and cows make it and lots of things make it, it's pollution.  So, okay, if we've defined it as that, maybe we should come up with a mechanism that accounts for that in the economic--now, again, the companies can all do that.  They just add another item to the expense--you know, they know how to do that.  They find another cost item.  Okay, they can do that. Then you start to get an interesting thing, because then you start to get rational pricing.  Because right now, one of the things nuclear has suffered from, it doesn't get any credit for being clean.  This is the irony of the whole thing.  People go on about the cost of nuclear--yeah, compared to coal.  But if you put costs, the real costs of coal in there, suddenly nuclear looks great.  You know, it's fabulous.  It's as fabulous as wind or anything else. And so I think that, in a cynical way, there's an interesting opportunity here to take that and exploit it and say let's have some real fun.  You want to say that carbon's a cost, it's a cost.  Let's look at everybody's carbon costs and figure out a way to work that into a scheme.  And suddenly, wham, nuclear looks great and GE will have a great time building all the reactors and Jeff Immelt will be even richer and we'll all have fun. So read this and enjoy it.  Thanks. MR. HAYWARD:  Thank you, Spencer.  Just a quick question.  Isn't it right that one of the reasons the Clinton administration tried to do a Btu tax 10 years ago was so you would capture nuclear power [inaudible], as opposed to a carbon tax, where you wouldn't? MR. REISS:  I wouldn't know that, but certainly you'd have to do that.  I mean, you'd have to start, yeah, defining Btus as pollution.  Heat rather than carbon.  But I think, yeah, that probably-- MR. HAYWARD:  Because as I remember the proposal, that solar power, wind power, and some of the [inaudible]. With that, we will turn it open to the audience for some questions. QUESTION:  Sam Kazman [ph] [Off microphone, inaudible.] [Loss of sound.] MR.       :  --the market itself loves efficiency.  I mean, people don't aspire to be inefficient, as they perceive the term, but people who are most surely conscious of fuel costs at the top of their budgets, like airlines, are chiefly conscious of this and working very hard.  Certainly electric utilities back at the power plant invest fortunes to add, you know, a tenth of a point on the efficiency of their plants.  It's money in the bank.  And they're not stupid.  It turns out that down at the levels where we live, you know, if you have three kids, you don't want a car, you need a rolling locker room, and it just happens to be a different form of demand which people have trouble internalizing. But politically I know why it's absolute catnip, because it's swimming downstream.  I mean, it's a Diet Coke kind of thing, you know--sell the Diet Coke and then you can eat the double fudge brownie.  And people love to be told that.  And industry doesn't really fight it because industry by and large is pursuing more efficiency--not CAFE standards, which are something else, but more efficient engines, more efficient dishwashers.  Generally they want to go there anyway.  So it's a diet sort of placebo.  It's a way of telling people they're doing something which they think address something they think is a real problem, while--without doing anything.  Which I'm not necessarily opposed to, but in serious circles we ought to describe it for what it is. MR.       :  In the Washington environment it's also worth noting that when you do things like appliance efficiency standards, it sort of presumes that engineers are dolts and market is stupid.  As Peter pointed out, all businesses tend to chase efficiency when it's economically defensible, and by and large it is.  And engineers have wanted to chase efficiency since they figured out you could put a grease, animal fat, on wooden axles and wheels and oxen would die less frequently.  So this not a new idea to the engineers who build stuff.  What happens, though, there's an opportunity cost problem when you force industries to invest in what a bureaucrat thinks is the more efficient technology.  Capital, by and large, is the precious commodity, and intellectual capital as well, if you point all the engineers off to do something, it may actually backfire, as Consumer Reports found out. But from my own experience just anecdotally, talking to companies and engineers at sort of the [inaudible] level, what you miss is them innovating elsewhere.  There are only that many bright people--lots, or you hope more every year.  But I think there's an enormous opportunity cost.  But you really see [inaudible] everybody likes to genuflect to inefficiency is the solution to cutting consumption, because it just makes sense in the one-lightbulb model.  It doesn't make sense economically. MR.       :  It's actually been quite carefully calibrated to stay within the realm of the technically possible.  And so, for instance, in California, which is very active in this kind of stuff, you know, a few years ago they said, right, we're going to have 5 percent of the cars be zero emissions by 2004.  Well, when that turned out to be not practical, they just threw it away.  So they're not actually doing anything very Draconian.  So therefore the costs to everybody are relatively manageable. MR.       :  Let me give you my sort of comic sociology observations on this, which comes from reading too many David Brooks columns, probably.  But I started noticing in doing work on urban sprawl that if you visit new tract homes, you see a lot of them have a second spot, usually in the garage or utility room, for a second refrigerator.  I think at some sort of maybe not even subterranean level, the average American who hears that a refrigerator today is twice as efficient as a refrigerator 30 years ago says, great, now I can keep twice as much beer cold for the Super Bowl at the same price.  It seems to me that's how it works. [Loss of sound.] MR.       :  First, be kind to the EIA.  It's their only source of data, and information is really important to analysts, to economists, to government.  And they have a tough job.  But the quality of data has degraded over time.  And I think, to be, again, fair, it's because the character of the economy has changed over time.  So they have the difficulty of the metrics and they have difficulty collecting data, I know.  The electric data, by and large, is in almost disarray because of the change on the Energy Policy Act of '92 allowing wholesale generators.  So they actually can't get the data.  They don't have authority to get the data. So I guess the short answer is that they're the only game in town and they're trying.  I guess they argued with the then-head of EIA a few years ago over some of their energy accounting being missing, in fact entirely missing, the digital part of the economy.  They actually have no mechanism to track it.  They have some reports, as you all probably know, but most of that stuff they put in a category called Other.  And if you actually track Other in the electricity consuming section, which is--their Other is our [inaudible] highly ordered in that graph.  If you look at their Other 25 years ago, it was proper to call it Other for commercial buildings because that in aggregate was a few percent of electricity consumed in commercial buildings.  If you look at the most recent Other, it's about 20 percent of commercial building electricity consumption.  So I asked if it might be useful to know what the other stuff was.  And the footnote in that table says "Other" includes--I'm paraphrasing--electric pumps at gasoline stations and telecommunications equipment. [Laughter.] MR.       :  So, let's see--I think the biggest growth has been in the gasoline station electric pump.  I'm sure that's it.  And I'm sure they're wrong in that the digital part of the economy has nothing to do with electricity consumption anymore.  They're trying.  But they need authority.  And of course what he said was, Oh, by the way--to the committee--I need more money. [Loss of sound.] MR.       :  --sympathetic as we can.  I personally am not happy that we spend $40 billion a year or so into churning cauldrons of hate and violence and sort of insanity.  I mean, I'd--you know.  And I'm well aware that we're talking global energy markets and if we don't pay dollars for the oil, then the French will pay euros.  But nevertheless, it doesn't sort of make me particularly happy. With that said, you know, do we really mean independence of Canada?  No, we don't mean independence of Canada.  We trade lots of stuff with Canada.  That would be silly to pursue.  I think that there is some reasonable case to be made --let us try and tie our energy supply lines, electric power lines--a lot of those trans-border now, a growing number--and oil supply lines to countries that are politically stable.  There's a case for that, because oil markets--economists are very good with markets that are in equilibrium.  Oil markets have a peculiar character.  They have very long supply lines.  There's enormous inertia, I mean physical inertia in them.  They're just like, you know, the Alaska pipeline--you don't just close a spigot and suddenly it stops, or open it and suddenly it opens up.  So there's a lot of temporal delay in the system.  There's a huge infrastructure, if you're trying to move from Persian Gulf to Athabasca, that has to be restructured. And it must be a sign that I'm getting old, but I do think it is legitimate to think about those things in terms of how--in political terms, because we do tend to react in sometimes irrational ways when things change permanently.  But energy independence so stated at that level of generality is silly. MR.       :  Well, it is Washington, and that's been a phrase since Nixon, who coined it, right?  As I recall. The interesting fact out of the discussion, of course--and if I were reacting to a policy request and have to take as a given that energy independence matters and [inaudible] independent from bad people, not good people, or people we like, not people we don't like--the fact that 85 percent of all the net emergency growth in the American economy came from domestic sources is just not even known.  This is not a debatable or disputable fact.  That's where our energy growth came from.  So we already have a history that tells that that matters.  If I [inaudible] congressman you can have energy independence, 85 percent of the growth came from domestic supplies, maybe we should continue that.  Maybe federal policies ought to take as a first priority encouraging that trend.  And how you [inaudible] that trend, of course, takes you into the electric sector, which is in chaos.  But the short answer there is allow capital to flow, we'll get lots more power plants and they won't burn oil.  They'll burn uranium, they'll burn coal, they'll burn water, they'll do windmills, they'll do all kinds of things.  They'll invest in more transmission.  And it will all be domestic.  [Inaudible.]  LNG will start filling in the margins at the bottom because it would probably be cheaper than more pipelines here-- MR.       :  [Inaudible.] MR.       :  Well, I stipulate that Canada and Mexico are geopolitically more stable, although being from Canada, I'm not entirely sure.  Especially how they treated Fox News, they're pretty unstable guys.  But they're okay, they're good trading partners.  Lots of oil, they've got lot sort of water. MR.       :  Let me ask this, a quick follow-up question.  In the abstract it seems to me that you would be, the way you lay out your argument, you'd be indifferent to the Anwar issue.  But then, the element of the last question comes up.  So I wonder if you do come down on the Anwar issue or if you have a position on it at all. MR.       :  [Loss of sound] --United States, the oil policy of the United States ought to be to promote capital investment in oil-producing countries that are politically stable and to promote political stability in oil-producing countries that aren't.  And last I checked, Alaska was still fairly stable. QUESTION:  [Loss of sound.] MR.       :  Well, the funny thing with tar sand is there isn't much literal lifting.  I mean, the stuff is just there, okay?  And parse it out, no I can't parse it out, certainly not verbally here.  The fact is they are building the stuff.  I mean, we spend $6 billion on refineries and on electric power plants all the time, and they are rather standard models for how you amortize those costs.  And you know, they currently are energy-intensive plants, but they're using gas from the fields that is otherwise unrecoverable gas.  It's for their basic heating source.  And this is a huge [inaudible] building, and basically you build a hot cooker and you pour the tar sand in and that separates out the tar from the water and the sand, and then you crack it.  So it's a refinery process.  And refinery processes are not economically complicated.  I mean, these are gigantic structures and they're amortizable. The problem is you will not get $5 oil out of them, not with today's technology.  By the way, the technology always improves and if you go to, say, a--you know, we currently use bacteria for cleaning up oil spills.  You can build things that will digest oil, prop it up, break it into pieces.  I have no doubt 10 or 15 years from now, that's exactly what we'll be doing, scattering this stuff with things that loosen up the tar and shorten the molecules and so on. But the economics are there today.  We have functioning tar sand facilities in Venezuela and in Canada.  You get a different grade of fuel out of them.  It is not easy to marry it to our kind of refinement and it's very high-risk when oil prices are volatile.  But the economics are not, I think, in any serious dispute, precisely because they're not fuel-cost economics.  You know what you invest, you have well kept books by reputable companies, and you have standard models for amortizing that [inaudible]. MR.       :  At the first order, it looks like a hydro dam.  At the first order.  It's a Hoover Dam.  And in fact, it's cheaper--we did the calculation on the proposed expansion. It's cheaper than the [inaudible] dam by a factor of 3, in terms of energy yields per capital invested.  But that's China, and China and Canada are different.  I believe the Chinese are actually talking to the [inaudible] folks about investment, because they figured that out, too. MR.       :  I would just--I mean, the Wired guy's point of view on all this is that, you know, burning things and ripping stuff out of the ground and burning it just strikes us as incredibly primitive.  And, you know, these guys have a very interesting--you know, sort of the hydrocarbate economy of animals and people eating things and then now we move to this kind of combustion economy.  And I always like to say, you know, do you actually think that 200 years from now we'll still be ripping up West Virginia and loading it on train cars and driving it places and burning it as our way of keeping the lights on.  I really, really doubt it.  Therefore, the only thing we're really talking about is when do we switch over, when do we stop burning things.  And my past position, well, let's sooner rather than later because we know we're going to go there. So with something like Anwar, I mean, I don't--you know, the one argument I can make would be, you know, leave it there because we might actually need it for hydrocarbons for making lubricants with someday if we're really going to run you--if you're really worried about the world running out of oil, just leave the damned stuff there.  It's not going anywhere.  No one can steal it.  The Russians aren't going to drill a horizontal thing there.  So just leave it there.  And, you know, there's plenty of other oil in the world. So, I don't know.  But that's my view. [Loss of sound.] MR.       :  I'll give a very quick cynical answer:  Sure, it sells houses, so good. MR.       :  The externality you're referring to is are we somehow--are the other buildings not paying their fair share and therefore the government should require greener?  Number one, I will repeat, it is fallacious to assume that if a government tells you how to build your air conditioner or how to install one piece of technology or another, you will in fact lower energy consumption. Somebody mentioned a moment ago, you know, the triumph--not triumph, I've got to be fair, but that the lighting policy seemed to have been reasonably effective.  I tell you, technology has this bizarre power to morph into something you didn't expect.  You know, fluorescent lightbulbs.  You remember the dismal '70s.  That was what was going to be the answer to new power plants.  And the utilities would give them away.  And as the California utilities were filing for Chapter 11, they were still giving away free fluorescent bulbs to anybody who would take them.  And it was that strongly embedded, you know, as electricity consumption [inaudible]. I mean, let us just take one example.  And I know you never prove anything by example except that this is the history across the technology landscape.  If you want to buy a fluorescent bulb today, in fact, I'll bet you several of you in this room have already bought 2 million of them recently, okay?  Not two, not 10--2 million.  And you bought it in the form of what's called a plasma TV.  Fluorescent [inaudible] got so good, so efficient, so clever, Samsung and everybody got so terrific at building them that they could build 2 million of them real small into a 600-watt gorgeous television so flat you can put in a tiny apartment where they've never been able to put a fat screen.  For the typical household it will now boost your electricity consumption something like 10 percent.  I mean, just the television alone, okay.  This is a huge hog.  This is what fluorescent lightbulbs have arrived at.  Nobody else is putting them in the ceiling.  It turned out there was a better technology for the ceiling, a solid-state diode. So, you know, when [inaudible], Green sells a house.  Wonderful.  You know, you [inaudible] that down to the specifics of what that translates into, and all I can say is all of history proves that those solutions do not actually reduce energy costs.  They don't. MR.       :  The hyperbolic end of buildings that consume energy are data centers.  I happen to sit on the board of a company that designs the power substructure of data centers.  And they're at the center of the question about how to, A, make them reliable, which is what all data centers, whether they're hospital data centers or bank data centers, care about; and B, efficient.  They actually care about efficiency, because the 30,000 servers consume 5 megawatts.  So their biggest single consumable is electricity. So a blade service came along--and I'll just give you one anecdote in that space as well.  A blade service came along, because they use less energy than the big server that is the one [inaudible] the rack.  So it went down from 100 watts per server to 30 watts.  But the blade servers were a quarter of the size.  So the racks that used to be 5 Kw became 10.  And they kept the same number of racks in the same room because the demand for servers was still rising, and hasn't stopped rising, and the building's appetite went from 3 megawatts to 4 megawatts.  It's a much more efficient building, measured in silly terms of bits per therm of energy flowing in and out of it.  So I could define it as a green building and meet the green standard.  But--a meaningless measure. MR.       :  I just wanted to say, I mean, I don't want to sound too cynical.  You know, I live in New England in a house that's heated with propane, and I'm really happy that I have double-paned windows and lots of insulation because my bill every month would be--I'd literally probably pay for it in a single winter.  So it's not that there isn't real value there, but you have to separate the policy point of view from the personal.  Obviously, efficiency for me is a really good thing.  It means I have a lower propane bill.  So it's really--it's a good thing.  But you have to separate that from the larger issue. You know, it might actually make more sense to have a nuclear power plant 10 miles away that was turning half a cent a kWh.  I could throw the insulation--I could have my deck be heated, you know, with radiant heat when it's 10 below zero.  We don't have that.  So at this moment, that efficiency is a good thing. MR.       :  I was living in California during the rolling blackouts back in 2000.  And, you know, the utility companies were still giving away the fluorescent lightbulbs.  But every large retail outlet I went to had taken half of them out.  So I got to the point where I'd practically take a flashlight to the grocery store because it had gotten so dark, to read the labels.  And I'm sure it wasn't really saving much energy, either.  It was more for PR. The gentleman over here had a question, I think. QUESTION:  [Off microphone, inaudible.] MR.       :  Well, I've been looking to replicate the fusion of the sun here on earth for quite some time and a lot of money's been spent on it.  I have absolutely not doubt whatsoever that in due course we will manage to fuse tritium.  It is not a non-radioactive process; it's actually a very dirty process in terms of irradiating everything in sight--which I don't particularly mind. Should we be pouring money into it?  I'm inclined to actually oppose pouring money into any one technology, precisely because --not because there are so few and they're so difficult, but because there are so many and by and large they're so easy.  And the problem isn't whether you can fuse something, it's whether it's better than a windmill or a coal plant or a conventional light water plant. I've noticed particularly among people who sort of dislike energy generally, but they always love the next energy technology.  William O. Douglas, Supreme Court justice, great environmentalist, you know, loved nuclear power--because there wasn't any.  By the time it came, his successors hated it.  You know, the track in this is always, well, it's the next one that's going to do it, therefore we don't need the coal plant, we don't need the light water plant.  That's very fallacious.  In the here and now we know how to generate abundant supplies [inaudible] and we actually know how to use those electrons to begin displacing gas and oil.  And for the next five to 10 years we should be doing that and we should be doing it to push down the cost of energy and to, you know, within reason, try and connect our energy supplies to people we can count on, domestically or across borders. MR.       :  It's worth adding as a historic reference that 25 years ago, the dawn of the great energy debate, when the whole discipline of energy economics was created, that we essentially killed nuclear power, conventional nuclear power in this country, and were told by--and you can go back and Google on this and find everybody forecasting 20 to 30 percent of the nation's energy would come from alternative sources--windmills, solar, all of that--today.  By today we'd be at 20 percent to 30 percent.  What we got instead was an increase in the coal burn of 400 million tons a year.  That's the nature of the beast.  They liked what wasn't there, and what wasn't there didn't happen and we got more coal.  We'll get more coal in the future, too, for largely the same reason. QUESTION:  [Off microphone, inaudible.] MR.       :  --the broad economic perspective.  There's no reason to believe that transportation is different from any other sector.  If you improve efficiency of vehicles, the total fuel consumption will go up.  It will probably go up faster.  So proposals to get more efficient vehicles into China will convince Chinese to buy cars faster, not slower. I'm not a fan of the CAFE standards for the same reason I'm not a fan of appliance efficiency standards, because I think, again, the presumption is that efficiency wouldn't happen but for the government knowing better, and picking the correct thing to be efficient about.  I'm not a fan for a whole lot of reasons.  The CAFE standards spawned the SUV, as any analyst knows, because people, as Peter said, like to have locker rooms when we [inaudible] kids.  I had big station wagons.  I couldn't have a big station wagon when my kids got older, I bought SUVs.  It's the nature of the market. The Saudis are actually remarkably smart about oil.  Sheikh [inaudible] gave some of the best speeches and insights ever provided, and indeed built on efficiency and supply and demand. QUESTION:  [Off microphone, inaudible.] MR.       :  Yeah, I mean, you know, there's a lot of funny things about that.  You could start with reprocessing, which Jimmy Carter had got us out of the business of.  And, you know, the line I--you know, 95 percent of the so-called spent nuclear fuel is still 95 percent there.  And, you know, let's recycle it.  I mean [inaudible] that doesn't seem to penetrate.  You know, there's waste and then there's waste.  There's very nasty waste and there's not-so-nasty waste.  Again, the debate--Yucca, I think, you're planning on putting stuff in there that really isn't actually harmful to anybody and wouldn't be.  I mean, there's lots of--dry cast seems to be--everyone's throwing up their hands about Yucca and now, you know, there's an Indian reservation outside of Salt Lake City that is about to get NRC approval as a dry--they're going to build a big concrete pad, stack the casks there, and among other things, in the first 100 years, they blow off most of the problem in radio--you know, everyone keeps defining, you know, it's a 50,000-year problem, it's a 500,000-year problem.  Well, actually, it's not.  Ninety-nine percent of the problem is in the first 100 years.  And if you can focus on that rather than, you know, the 50--I mean, a 50--the idea of a 50,000--and only in Washington, D.C. could we come up, you know, with a thing that combines bureaucratic lethargy, the justice system, and 50,000-year time frames.  I mean, this is crazy.  And there it is.  It's real. MR.       :  I just want to know who the bureaucrat was who chose Yucca Mountain for the yucky waste.  That's what I've always wondered about. MR.       :  Well, I--you know, when John Kerry pronounced "Lambert" Field in Wisconsin, it was thought to be one of his largest sort of geographical gaffes.  Well, out West, he said that "Youka" Mountain would never open if he became president.  That's when I knew he was going to lose Nevada. MR.       :  [Inaudible.] MR.       :  That could be, I don't know. Yeah, the other one was that somewhere in the fine print of the regulation about Yucca Mountain going into operation was that it would only give its permit if it was still subject to EPA regulation in 10,000 years.  Which meant we'll have the EPA in 10,000 years. MR.       :  One really crazy irony of this is people say [inaudible] every single kW of nuclear generated power you pay, what is it, a tenth of a penny for waste disposal. There's a 20--people say, well, what about this--the nuclear industry has been assiduously building up money to pay for this problem.  They do take care of it. MR.       :  [Inaudible.] MR.       :  Well, but it's the only industry I know where literally every molecule of output has to be accounted for.  I mean, you know, this is crazy.  And then the [inaudible], well, what about waste?  They're paying for it.  It's already built in. MR. HAYWARD:  Well, we have come to the end of our hour and a half unless, Peter, you or Mark have last word.  I think we've covered a great deal of ground. So please join me in thanking our speakers and Spencer Reiss.  And we are concluded. [Applause.]</body></html>