One might not have expected Alan Greenspan to become an oracle for a Green future, but in a week when Newsweek was preparing its cover story on "America Goes Green", he did sound somewhat of an environmental advocate in a speech to the Aspen IdeasFestival in which he argued at the very least the United States must wean itself off dependence on oil.
"The one thing we know is there is a fairly significant problem that is not going to go away," said Greenspan in a keynote address followed by an interview with Aspen Institute President and CEO Walter Isaacson before a capacity audience at the 2050-seat Benedict music tent.
While dubbed an address on "Oil and Gas: the Next 50 Years," and not the Environment, Greenspan's words dovetailed well with more than a dozen talks on Energy Futures and the State of the Environment, two of the 14 programs of lectures, panel discussions, tutorials, films and other presentations at the seven-day extravaganza here.
Fundamental to Greenspan's thesis was also the concern that global security, especially from the U.S. perspective, could not be attained with a continued dependence on foreign oil.
The United States for the better part of a century had a strong control over the petroleum industry, beginning with its own East Texas crude production, but that has diminished steadily as the world's consumption has risen steadily - about 1% a year in recent years - while capacity has not risen.
Around a decade ago, the world had about 10 million barrels of excess production capacity a day, but that has now contracted to around a million barrels a day, and the marginal petroleum tends to be a heavier crude than is desired.
"Not only do prices rise, but they begin to escallate disproportionately," Greenspan said, speaking during a week where rising international conflict was causing oil prices to surge to record levels. This ways particularly on the United States, since he said "one in every seven barrels of crude oil produced in the world is consumed on American highways."
This includes nine million barrels of gasoline for motor vehicles and two million barrels of highway deisel. "The amount of oil consumed by those big rigs is larger than the consumption of most countries around the world," he added.
Greenspan's solution? The best way to start reducing dependence on oil is to address what he called "the obvious issues" and advocate not only for hybrid vehicles, which can augment gasoline engines with alternative energies, especially electricity, but also for plug-in hybrids which can further reduce oil use.
"We will very gradually wean ourselves off petroleum," he said, adding Saudi Arabia is the one exception among oil producing states to be worried about the effect of such a shift, and it should be given its own dependence on huge proven reserves of oil fundamental to its national wealth.
Hedge funds and private equity investors are actually helping shepherd volatility in the futures markets and have been providing a benefit to the market by anticipating shortages and raising oil futures prices. "Contrary to what might otherwise be believed, that is good, not bad," he added, saying this is not the work of "evil speculators" as it helped anticipate market pricing.
Without the financial futures speculation, as inventories start to fall to zero, oil prices then "would spike to a point with sharpness that would undermine the whole world economy."
Instead, such risks are being priced in earlier, and "higher prices are slowing down the demand for oil and bringing news investment and increasing the supply," he added.
Ethanol as an energy source could contribute greatly to the solution to oil dependence, though not corn ethanol, which he said could at best produce the equivalent of 1.5 million barrels of oil compared to daily consumption of 21 million barrels a day. And that would involve redirecting the country's entire corn production. "The pigs would starve, and that would be very unfortunate," he added.
Instead, he pointed to high expectations of ethanol production from switch grass, which he said could result in "really serious potentials if the technology can be made to work."
But Greenspan also stressed that promising technologies for achieving energy independence did not necessarily neatly solve carbon emissions and environmental issues at the same time as enhancing national security, although much of the carbon production now comes from Middle East petroleum, and the environment would likely remain secondary to security concerns. "The real problem here is security," he said.
"In the next 30 years, we may have the technology to extract [frozen] methane and have gas-to-oil technology of sufficient effectiveness to create new fuels for motor vehicles," he said, adding that would address geopolitical concerns without substantially addressing the issue of climate change.
Greenspan stressed that his major concerns were economic and related to global security, and not some conversion to what environmental skeptics might call a new "tree-hugging" advocacy. In fact, he stressed his own skepticism over the prospects for environmental crusaders, citing the lack of conviction among politicians to ask citizens to sacrifice for the cause.
"I'm not going to believe this rhetoric," without a demonstration of greater conviction, he said.
"I think we've got to start to do something there," he said when asked about the Kyoto accord regime for restricting pollutants, which the United States, China and India have not accepted. "We've got to realize that people aren't out there to say to the American public...that your standard of living will not be the same as it would otherwise be."
Greenspan readily acknowledged our lifestyles are "not sustainable" with current energy consumption levels, and that "We know we're on a train that is not capable of leaving this a stable place."
Nuclear power, for example, provides roughly 75% of France's electricity and the technology has been substantially advanced in the years since plants have been built in this country. Although he said he would "grant you the waste issue is still there," regarding nuclear plants, carbon emissions from coal plants were a major concern.
Greenspan was introduced by his wife, NBC News television network correspondent Andrea Mitchell, who quipped that the central banker's gift for abstruce rhetoric had extended to his personal life to the extent that she said he had proposed marriage to her three times before she understood what he was saying. "3.2 times," Greenspan replied.
Although the talk was billed as among is first major addresses since leaving his august post as head of the U.S. central bank, providing him greater latittude and freedom to speak, Greenspan's discourse retained his familiar pace and penchance for precisely chosen words, deliberately and thoughtfully delivered.
Among Greenspan's comments, under questioning of Isaacson:
- "Even now the share of household disposable income spent on oil/petroleum is less than it was."
- "We can absorb a higher price than $3 [a gallon]," he said. "People should measure what they pay for Starbucks coffee per gallon, or bottled water."
- After the 911 attacks, the economy took a very considerable sharp downturn, where people were scared and economic activity slowed dramatically, which could be a harbinger potentially debilitating economid impacts from future shocks.
- The geopolitical environment remains very fragile regarding oil supplies, Greenspan insisted, noting that the foiled plot to destroy a Saudi oil processing plant prevented a calamity that would have removed a critical 3 million to 4 million barrels a day out of the world supply. "Saudi Arabia lucked out... The Saudi security stopped them [the plotters] but suppose if they missed. We are NOT in good shape."
- Saddam Hussein, had he gotten hold of weapons of mass distruction, could have had the capability of shutting down the Straits of Hormuz, with the prospect of further destabilizing oil markets. "Taking him out was a major positive," he said.
- Natural gas may be a more difficult problem for the United States and Europe than oil. The industry is not sufficiently well developed to have a spot market and the United States imports about 6 trillion cubic feet a year of 20 trillion annual consumption by pipeline from Canada, while Europe is very dependent on Russia and the former Soviet states.
- On U.S. energy distribution: "We have over the years developed an extraordinarily flexible system."
- Education is a profound worry as future energy systems require greater use of technology. "Our kids in 4th grade are a little above average in math and science. At 12th grade our system does something I do not understand but they come out at the bottom."