The Energy and 

Security Nexus:

A Strategic Dilemma

Carolyn W. Pumphrey 

Editor 

U.S. ARMY WAR COLLEGE

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Strategic Studies Institute Book

THE ENERGY AND SECURITY NEXUS:

A STRATEGIC DILEMMA

Carolyn W. Pumphrey

Editor

November 2012

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ii

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ISBN 1-58487-555-0
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CONTENTS

Preface ..........................................................................vii

Introduction ................................................................... 1

Carolyn W. Pumphrey

1. Energy and Security Keynote ............................... 23

Alan Hegburg 

— Questions and Answers .............................34

2. Fossil Fuels ............................................................. 51

— Oil and Global Security ..............................51

 Anne Korin 

— Protecting the Prize .................................... 63 

 Eugene Gholz

— Coal, Climate Change, and Conflict .........73

 Kevin Book

— Commentary ............................................... 83

 Rosemary Kelanic

— Questions and Answers .............................91

3. Alternative Energy: Nuclear and Water ............107

— Introduction ...............................................107

 Alex Roland 

— Nuclear Proliferation ................................108

 Steven N. Miller

— Pathways between Civilian and 

 Military Nuclear Power ........................... 116 

 Man-Sung Yim

— The Water-Energy-Security Nexus .........121

 Carey King

— Nuclear Energy and the Military ............130

 James Bartis
— Energy, Environment, and Security .......134

 Alex Roland, James Bartis, 

 Carey King, Steven Miller, 

 and Man-Sung Yim

— Comparative Security of Different 

 Technologies ..............................................138

 Alex Roland, James Bartis, 

 Carey King, Steven Miller, 

 and Man-Sung Yim

—Questions and Answers ............................142

4. Alternative Energy from a Security 

 Perspective ..............................................................157

— Hidden Costs of Energy...........................157

 James Trainham, James Bartis, 

 David Dayton, Michael Roberts, 

 and Daniel Weiss

— Climate vs. Economics: Security 

 Implications of Energy Choices .............. 166

 James Trainham, James Bartis, 

 David Dayton, Michael Roberts, 

 and Daniel Weiss

— Shale Gas: A Key to Energy Security?.....177

 James Trainham, James Bartis, 

 David Dayton, Michael Roberts, 

 and Daniel Weiss

— Alternative Energy and International 

Relations .....................................................182 

James Trainham, James Bartis,

 David Dayton, Michael Roberts, 

 and Daniel Weiss

—Questions and Answers ............................ 188

iv
v

5. The Political Environment and 

 U.S. Energy Security ............................................203

— Rising Great Powers and Competition 

 for Energy .................................................. 203

 Bernard Cole

— Unconventional Threats to Energy 

 Supplies ......................................................216

 Robert F. Cekuta

— Smart Grid Vulnerabilities to 

 Cyber Attacks ............................................224

 John Bumgarner

— Commentary ..............................................232 

 Stephen Kelly

—Questions and Answers ............................ 235

6. Solutions ................................................................ 253

Vikram Rao, William Boettcher, and 

Douglas Lovelace

About the Contributors .............................................291

PREFACE

During the period March 3-4, 2011, the Triangle 

Institute for Security Studies (TISS), North Carolina 

State University (NCSU), and the Strategic Studies Institute (SSI) held a colloquium at the McKimmon Center in Raleigh. The event received additional financial 

support from the Research Triangle Energy Consortium, the Oak Ridge National Laboratory-North Carolina State University Collaborative Research Program, 

and Duke University’s Program in American Grand 

Strategy. It was launched as part of the TISS/NCSU 

Energy and Security Initiative which was formed in 

2010 and is dedicated to exploring the links between 

energy and security. 

The colloquium, entitled “The Energy and Security Nexus: A Strategic Dilemma,” was attended by 

128 persons from federal and state government, academia, think tanks, and a wide variety of local organizations and businesses working on energy issues. 

The goal of this conference was to explore the connections between energy and security (human, national, 

and international) and to consider how best to resolve 

strategic dilemmas.

This edited volume is based on this event. It reflects, as closely as possible, the form and content of 

the colloquium. However, the presentations have been 

adapted to be read. In the case of the discussion, some 

portions were not adequately captured on tape and so 

were omitted, while elsewhere the editor somewhat 

modified the text in the interest of clarity and brevity. 

Notwithstanding, the proceedings remain true to the 

spirit and form of the conference.

The relationship between energy and security has 

been receiving increasing attention over the last few 

vii
viii

years, and the colloquium provided some timely insights. TISS would like to thank all those who made it 

possible. Too many individuals and institutions provided conceptual and other help along the way to be 

acknowledged here. But we would like to acknowledge a few in particular. First, we owe thanks to the 

U.S. Army War College (USAWC) for its generous 

support of this project. Second, we owe thanks to the 

participants. Their collegiality and professionalism 

made the conference a success. 

Besides these, the editor would like to express her 

personal gratitude to a number of individuals. Raymond Fornes and Christopher Gould (The School of 

Physical and Mathematical Sciences, North Carolina 

State University) helped frame the conference and 

provided financial support. Without their encouragement, this project would never have been brought to 

its conclusion. Richard Kearney (School of Public and 

International Affairs), Lorenzo Wilson (Department 

of Horticulture), Man-Sung Yim, (Department of Nuclear Engineering), and William Boettcher (Department of Political Science) were key faculty members 

in the Energy and Security Initiative at North Carolina 

State University, on whose excellent advice I relied. 

Vikram Rao, Research Triangle Energy Consortium, 

provided creative insights into the conference design 

and brought to the table the many interesting technical experts who enriched our discussion. Ambassador 

Patrick Duddy, though unfortunately unable to serve 

as a participant, was tireless in his efforts on my behalf 

and helped secure some of the key speakers. Joseph 

Caddell (University of North Carolina at Chapel Hill), 

Joseph Caddell, Jr., and Alex Roland (Duke University) read portions of this manuscript and provided 

constructive criticism where it was most needed. 
ix

Joseph Caddell also provided crucial guidance in 

framing the conference proposal. Finally, my thanks 

go to faculty members at SSI. Douglas Lovelace was a 

much valued participant on the final panel, and Dallas 

Owens, as always, was the best possible of colleagues, 

offering invaluable advice and patiently answering all 

my questions.

Carolyn W. Pumphrey

1

INTRODUCTION

Carolyn W. Pumphrey

It is hard to overstate the importance of energy.1

Energy literally drives the global economy. Societies rely on it for everything from advanced medical 

equipment to heating, cooling, and irrigation. Whether it derives from advanced nuclear reactors in developed nations or simple woodstoves in the developing 

world, energy is recognized as vital to human welfare. 

It influences our economic, political, and social policies. Possessing or not possessing sufficient energy is 

a key determinant of a state’s political and economic 

power. Competition for energy has been, is, and will 

be a source of conflict. And the choices we make when 

it comes to energy will have a profound bearing on a 

wide range of security concerns, from nuclear proliferation to climate change. 

The joint Triangle Institute for Security Studies 

(TISS)/North Carolina State University (NCSU)/Strategic Studies Institute (SSI) conference on the “Energy 

and Security Nexus,” which was held on March 3-4, 

2011, addressed many of these issues. To place the 

remarks made at this conference within a clearer context, a few terms and concepts need to be discussed. To 

provide a further framework for the reader, these definitions will be followed by a brief threat assessment, a 

cost-benefit analysis of different energy technologies 

seen from a security perspective, and an overview of 

the chief findings of the conference.2
2

DEFINITIONS

Security.

Security is traditionally divided into the international, national, and personal or human levels.3

 All 

relate to the “avoidance of harm.” Human security is 

the protection of the individual from harm. National 

security deals with the need of a nation-state to protect itself from harm, whether internal or external. 

International security usually addresses the problems 

associated with groups of nation-states working to ensure international stability and the avoidance of dysfunctional events or conflicts that will affect nations 

and individuals. All levels ultimately relate back to 

the concept of human or personal security. In the case 

of energy security, the international, national, and 

personal energy needs are affected by international, 

national, and individual actions. In human existence, 

these levels of security cannot be separated. 

Energy Security.

Energy security means rather different things to 

different people. However, for working purposes, it 

may be said to include three components: reliability, 

affordability, and environmental friendliness.4 Reliability means that a state has regular, noninterrupted 

access to energy in the amount and shape it needs. 

Affordability means that it has access to energy supplies at a price that can be sustained economically and 

promotes economic growth.5 Environmental friendliness means that a state relies primarily on energy that 

provides for environmental sustainability and limits 

destructive social results. It is now also equated by 
3

many with the use of forms of energy that do not release climate-changing gasses.6

EVALUATING THE THREAT

At present, the United States enjoys a relatively 

high level of energy security, at least in the sense that 

our energy is affordable and reliable. Prices at the 

pump have been high of late, and this does hurt the 

average citizen, especially in a time of economic recession. But there is no cause for alarm.7

The stability and reliability of our supplies stem 

from increased efficiency, new finds of natural gas, 

and better mechanisms for dealing with problems 

than we had in the past. These include the existence 

of a Strategic Petroleum Reserve and the creation in 

1994 of the International Energy Agency, an institution which makes possible timely collective responses 

to politically inspired disruptions.8 The location of key 

energy supplies in politically unstable regions deters 

investment and creates some constraints. However, 

contrary to widespread popular perception, our supplies are not significantly threatened by terrorism or 

international crime.9 The market, moreover, generally 

compensates for short-term interruptions in supply.10

We do have some security vulnerabilities, however. In the first place, many other nations lack crucial 

natural resources or are faced with rapid population 

expansion. Their drive to improve their energy security has the potential to undermine U.S. security. Instability can foster terrorism and international crime and 

even lead to militant strategies. The need to secure 

badly needed energy supplies may also lead some nations to take steps that harm collective interests. They 

may, for example, rely on cheap and unclean sources 
4

of energy like coal, thereby aggravating climatechange problems.11

The United States also pays a price for its heavy 

dependence on foreign oil in its transportation sector. 

Reliance on foreign oil means that money and jobs 

flow out of the United States. Petrodollars fuel corruption, hamstring our foreign policy, and fund institutions fostering radical ideologies.12 We are less vulnerable than formerly to the use of energy as a weapon 

because multinational corporations are more driven 

by market than political considerations and because 

countries are rarely reliant on just one state for supplies or for access to supplies. But it can still be a dangerous tool in the hands of our enemies. 

A new challenge stems from our increasing dependence on centralized electric grids.13 For electricity, 

we depend on things like hydropower, coal-fired and 

gas-fired generators, nuclear power plants, and even 

wind mills. All of these can be physically broken by 

computer manipulation. Our way of life could be seriously undermined by failure of these grids, whether 

caused by accident or design. 

The international community as a whole has 

in general met with limited success in meeting the 

third component of energy security: environmental 

friendliness. From the radioactive waste of nuclear power plants to the forests cut down to produce 

wood fuel, the production and use of energy cause 

ecological damage. Energy use has also led to the 

increased input of carbon dioxide into the atmosphere and hastened climate change.14 This in turn 

has the potential to create a variety of security problems. Such is particularly true in the case of vulnerable and underprivileged parts of the world where 

societies have limited ability to mitigate climate 

change impact.15
5

The Future.

Future energy security challenges look more 

daunting. This is less because of shrinking supplies 

than it is because of growing demand. Analysts disagree over crucial factors such as whether we have 

reached peak oil production or whether we will find 

technological solutions to our problems.16 They agree 

that the human population is rising sharply as are 

hopes for better standards of living among the underprivileged. These factors in combination are likely to 

increase competition for energy and potentially create 

some significant security problems.17

TECHNICAL OPTIONS

Energy is inextricably tied to technology. However, the technologies currently at our disposal often 

have major security costs. 

Oil.

This queen of fuels is of fundamental importance 

in the U.S. transportation sector. It is energy-rich, 

cost-effective, and supported by an existing infrastructure.18 It is vital for the Armed Forces which put a 

premium on military effectiveness.19 It at least appears 

to be cheap, though some stress that the price we pay 

at the pump does not take into consideration the actual cost of securing and cleaning up after it, let alone 

fighting wars over it.20

Stacked against these benefits are the security problems oil creates. Where extraction occurs in thoughtless fashion or inadequate security precautions are 

taken, production can wreak havoc on local commu-
6

nities. Transportation through pipelines is also feared 

by many because of contamination/pollution potential—hence the opposition in the United States to the 

proposed Keystone pipeline.21 Most significantly, by 

releasing carbons, the burning of oil hastens global 

warming. Of all the security arguments against oil, 

this may be the most compelling. 

Coal.

In the United States, coal currently generates about 

half of our electricity and about 21 percent of all our 

energy needs. Although, like all fossil fuels, its supply 

is finite, it is for now relatively abundant. It is easy 

to process which makes it especially valuable in parts 

of the world where technological capabilities are limited.22 It is also cheap. 

At the same time, it is a threat to human, national, 

and collective security. Depending on mining techniques used, it can be devastating to the environment. 

It is dangerous to extract and dangerous to health. It 

yields more carbon dioxide than even petroleum. 

Clean coal may help solve our problems in the 

future. But as of this time, the integrated gasification 

combined cycle (IGCC) and other methods are too expensive to be truly viable. Coal-to-liquid technology 

is environmentally messy, and carbon sequestration 

may pollute ground water.

Gas.

Natural gas promises to help solve some of our security problems.23 Its energy content is high, if not as 

high as oil. We have substantial reserves of shale gas, 

especially along the east coast and in Texas. Fostering 
7

a domestic industry would reduce our need to import 

both oil and the potentially deadly liquefied natural 

gas (LNG).24

Unfortunately, getting natural gas out of the 

ground and getting it where it needs to go are riddled 

with controversy. Opponents of hydraulic fracturing 

claim that it causes all kinds of damage, including 

contamination of water supplies (in some areas) and 

diversion of precious water resources (in others). Hydraulic fracturing also releases fugitive methane. So 

despite the fact that natural gas emits relatively few 

carbons when burned, it is not the most obvious solution to global warming.25

Wind and Sun.

Wind and sun have some security benefits. They 

are clean and renewable and can reduce dependence 

on centralized grids. Military bases that have their own 

supply of energy from sun and wind have something 

to turn to in the case of electrical power outages.26 The 

same goes for the civilian sector. If we are worried 

about cyber attacks on the electric grid, having homes 

equipped with their own solar panels makes a lot of 

sense.27

However, both wind and sun are intermittent and 

have to be supplemented by more reliable sources of 

power. Some places have more sun and wind than 

others. Wind mills and solar panels are not cheap, in 

part because our current infrastructure is geared toward fossil fuels. For all these reasons, there seems to 

be little prospect of their being able to replace fossil 

fuels in the near future. 
8

Biomass.

Biomass is a promising form of alternative energy, 

which might be able to meet 10-15 percent of U.S. energy needs fairly soon. Its high cost is a function of factors that might change: lack of existing infrastructure, 

hidden subsidies of fossil fuels which harm competition, and a small market. Biomass has rather low energy density and so is of limited use to the military. But 

there are other more significant security concerns. Fuels like ethanol are derived from crops. To grow them, 

land must be cleared, which often entails deforestation, and the fields must be fertilized. All these things 

result in the emission of greenhouse gasses. Moreover, 

the production of biofuels uses 20 to 30 times as much 

water as the production of gasoline.28 Where water is 

plentiful, this may not be a game changer, but if world 

supplies of water diminish in the future, this might be 

a source of major conflict.

Critics of biofuels further claim that diversion of 

land for fuel in the United States has driven up world 

food prices and arguably triggered uprisings in the 

Middle East. Though their arguments are contested, 

they should not be discounted without further research.29

Happily, there are other kinds of biomass which 

do not create the same set of security problems. 

Switchgrass, for example, is grown on land not suited 

for crops and does not require fertilizer or irrigation. 

Algae produce energy through the process of photosynthesis. Though they give off carbon dioxide (CO2) 

when burned, they absorb CO2 while they are growing, and they do not require much land.30
9

Nuclear.

The economics of nuclear power are hotly debated 

and complicated by the existence of a variety of different processes, some of which, like reprocessing, might 

change the commercial calculation for the better. Nuclear power plants take a long time to build but once 

built, they are a rather long-lived asset. Nuclear power has undeniable advantages. It is a steady source of 

power and is capable of supplying a sizable portion of 

our electric needs.31 The U.S. military is also looking 

into the possible use of small modular reactors which 

could be assembled on base and may even be used for 

forward deployment.32 Far the most important security benefit, however, is the fact that nuclear energy 

does not produce greenhouse gasses.33

Nuclear power is, however, beset by problems. 

Despite a good security record, nuclear accidents have 

happened, and have made nuclear power unpopular 

among many communities.34 Dealing with nuclear 

waste is another difficult issue. While the technical 

community thinks it has the means to solve the problems, others are skeptical. In the United States, the 

Yucca Mountain option was set aside because of both 

engineering and political problems. Breeder reactors 

which theoretically recycle and consume all actinides 

may provide a solution. But they arguably carry a 

proliferation risk. Steps can be taken to safeguard and 

secure facilities. However, humans do fail, and companies are frequently hesitant to incur the expense of 

making facilities ultra secure.35

These problems pale in comparison with some others. What would happen, for example, were conflicts 

to arise in a region with a lot of nuclear assets? What 

if nuclear facilities are targeted—as indeed was done 
10

by Iran during the Iran-Iraq war? Finally, there are 

unanswered questions about the pathway between 

civilian nuclear power and nuclear weapons development. Some think that countries eager to develop a 

successful nuclear industry will avoid taking any actions that might lead to the imposition of sanctions or 

worse. Others, however, think that the proliferation 

risk is real.36

Water.

The United States generates about 6 percent of 

its electricity from water in the form of hydroelectric 

energy, but water also plays an important role in the 

production and distribution of other forms of energy. 

Hydroelectric power has all the advantages of other 

alternatives including that of being clean. By the same 

token, it can cause extensive environmental problems, especially if not conducted in a sustainable way. 

Dams can be disrupted by cyber attacks, and water 

can shrink in times of drought.37

Worst of all, there are many other water needs. Water is needed to cool power plants, to irrigate biofuels, 

to extract fossil fuels from the ground—and the list 

goes on. Moreover, energy is needed for a variety of 

crucial functions from making water drinkable to getting it where is most needed. Both water and energy 

are incredibly important for human use, and both are 

limited resources. We may have to make some very 

hard choices down the road.38

THE STRATEGIC DILEMMA

The strategic dilemma that faces us is visible in the 

first National Security Strategy of the Barack Obama 

Administration, released in May 2010. The authors 
11

of this document see the transformation of the way 

we use energy as a key to our economic revitalization (and ultimately our safety) as well as a way to 

mitigate the security problems many expect to follow 

from climate change. The 2010 Strategy recognizes 

the danger of disruption to our energy supplies and 

the political vulnerability that can accompany dependency. At the same time, the strategy stresses the need 

to reduce the budget deficit. It sees the promotion of 

international human rights and food security as a key 

to international order and names nuclear proliferation 

as the single most dangerous threat to the American 

people. It insists that the United States must maintain its conventional superiority, enhance its ability 

to defeat asymmetric threats, and preserve its nuclear 

deterrent capability as long as other nations possess 

nuclear weapons.39 However, these goals can work at 

cross purposes. In implementing any one of these strategic goals, we run the risk of undermining another. 

Depending upon our priorities, we are likely to push 

for different kinds of energy technologies, and every 

step of the way our decisions will be made the harder 

because of the many still unanswered questions about 

the technologies themselves.

If we are sure that our foreign policy is being driven by excessive dependence on fossil fuels, we will do 

all that we can to foster alternatives. We will also favor 

investment in alternatives if we see climate change as 

the threat of the future. But if we do this, we are likely 

to run up big bills and perhaps find ourselves with 

a less effective military. If we choose the wrong kind 

of alternatives, we may drive up world food prices, 

encourage deforestation, and ironically lead the world 

down the very path of climate-driven instability we 

are trying to avoid. 
12

If we see the root of all our power as economic 

and wish to avoid excessive debt at all costs, we will 

be reluctant to wean ourselves off oil. But down the 

road, we will have to pay for the security costs of climate change. We are also likely to have less freedom 

of action in our foreign policy, and we may also be 

providing financial aid to terrorists and other foreign 

enemies. 

If we view nuclear proliferation as the most pressing security concern of our day, we may hesitate to 

promote civilian nuclear industry, and yet it is just 

possible that this source might solve both our need for 

clean energy and reduce proliferation. 

It is indeed a dilemma.

SOLUTIONS

A number of strategies to improve energy security 

were discussed at the conference. Among them were 

the use of force, cooperation, and the expansion of 

supply through the means of technology. What conclusions did participants reach? 

The Use of Force.

The use of military force to protect our energy security is controversial. American military power provides the stability that allows the global oil market to 

function.40 At the same time, there are clear limits to 

what it can accomplish. It cannot affect growing energy demand. Nor can it prevent “peak oil.” Some 

scholars further argue that forward military deployment is not the best answer for politically-motivated 

disruptions of supply. Radical disruptions might result from the conquest of the Middle East, but this is 
13

an unlikely scenario. They might also result from civil 

wars within an oil-rich nation—but intervention in 

this case would be counterproductive. Most disruptions are likely to be temporary because market forces 

naturally compensate for obstructions in the flow of 

oil. If this logic is correct, this is good news, because 

a strategy of restraint will help us in a time of fiscal 

retrenchment.41

Cooperation and Reform.

One strategy that has already proved useful in 

improving energy security is to advance economic interdependencies. When consumer nations get their resources from multiple sources, supplier nations have 

less ability to use their assets as weapons. This should 

be encouraged. So too should cooperation. For example, states on the Persian Gulf faced by limited water 

supplies might benefit from sharing power plants. The 

United States would be well advised to work with the 

Mexicans to share fields that straddle their borders.42

Another strategy is to create the kind of environment that will promote a healthier energy industry. 

Supplier states like Iraq need to enact laws that will 

persuade investors that money flowing into the country will not fuel corruption.43 States like Nigeria need 

to give their people a stake in industrial development 

to reduce unrest and increase productivity. The propagation of good business practices as well as state of 

the art technologies should be encouraged. In the oil 

business, for example, knowledge about good field 

management and engineering can be shared, to the 

benefit of all concerned.44 Sharing advanced, safe, and 

“green” technologies with developing nations promises to pay security dividends.45
14

Expansion of Supply.

The third strategy is to enlarge the energy pie by 

creating new (alternative) forms of energy, developing new and better ways to exploit older ones, and 

by promoting efficiency and conservation. There are 

compelling reasons to develop alternatives as rapidly 

as we can. First and foremost, alternative energy is 

key to dealing with the climate-change problem. Second, it will help to ensure that more and cheaper fossil 

fuels can be reserved for use by the military in wartime. Third, the spread of alternative energy might allow developing nations to break into new markets.46

Finally, reducing dependence on fossil fuels in the 

transportation sector will help liberate our foreign 

policy. These arguments are especially applicable to 

renewables. Because of the risks outlined above, the 

extent to which nuclear energy should be part of the 

picture remains debated. 

Because the United States has extensive domestic 

natural gas reserves and because of the security advantages to be derived from reduced dependency on 

oil, shale gas has its strong supporters. There is also 

considerable support for the development of new 

technologies for cleaning coal which, though not a 

renewable fuel, is abundant. Opponents, however, resist continued reliance on fossil fuels and worry about 

the environmental damage done by extraction and 

disposal. 

Conservation and efficiency are a vital part of 

any strategy that focuses on the expansion of supply through technology. Greater efficiency can be 

achieved by a wide variety of means. Many of these 

carry little risk—like the use of more energy-efficient 

building materials in our homes. Others, like recycling waste in breeder reactors, are more problematic.
15

MAKING THE STRATEGY WORK

The expansion of supplies through technology was 

the strategy that had the most resonance at this particular conference. It clearly has much to recommend 

it. Equally clearly, it will fail if two conditions are not 

met. First, technological development must go hand in 

hand with a stringent concern for safety and security. 

Second, we must find ways to change dysfunctional 

patterns of behavior.

Safety and Security.

This is especially critical in the case of nuclear 

power which promises so much but has such serious 

security implications. Means vary, but the case of Abu 

Dhabi shows us what can be done. This country, the 

first in the Middle East to integrate a nuclear power 

plant into the grid, negotiated a 1-2-3 agreement with 

the United States: It forsook recycling, agreed not to 

enrich, and adhered to safeguards.47

The same rigor must be applied in the case of other 

technologies. We must ensure that we maintain vigilant oversight and establish standards for protecting 

ground water and surface water, reducing air pollution, and capturing methane.48 We must not allow our 

eagerness to produce energy at home and to make big 

profits blind us to the long-term costs of unwise development. 

To ensure that we do not create one problem while 

attempting to solve another, we must improve our 

understanding of the security ramifications of specific 

technologies. Does nuclear recycling alleviate or add 

to the dangers of nuclear proliferation? What really 

is causing price rises and riots: biofuels production 
16

or speculation? Is hydraulic fracturing a real threat? 

These are but a few of the more obvious controversies. 

 We also need to better understand the political, 

cultural, and social forces that affect our quest for energy security. Questions abound: Will the growth of 

civilian nuclear power inhibit or expand the proliferation of nuclear weapons? What is the nature of the resource curse or the relationship between disorder and 

poverty? How can we measure risk? How much risk 

is acceptable? 

Further research will be costly, to be sure, and there 

is a natural reluctance to spend money on research 

during a time of fiscal constraint. But it is costly, too, 

to move ahead without adequate knowledge of longterm security risks.49

Changing Patterns of Behavior.

Developing useful new technologies is one thing. 

Getting them adopted is another. It is a question of 

will, and the will is not always there. 

Part of the answer, though not one everyone is 

happy about, is regulation. Some point out that the 

government is less efficient than the market in picking technologies. Others think that regulation is vital. 

Companies are by definition geared to profit and U.S. 

citizens are—so some would say—by culture a frontier people all too comfortable with waste.50 Regulation may be part of the answer. 

Another option is to play to the economic animal 

in humans by making alternatives more economically 

attractive. This can be done by subsidies, or by factoring into the cost of fuels those hidden costs of use 

and development. These include what we pay to repair damage to health and environment, to create the 
17

needed infrastructure, and to defend our supplies.51

That would level the playing field for alternatives and 

help create new markets.

Yet again, we could model ourselves on the Brazilians, and become a nation of flex cars. With minor 

modifications, cars could be made to run on more than 

one type of fuel. That might give drivers the ability to 

choose the most economic fuel available at any point 

in time, break the stranglehold of oil on our transportation sector, and/or stimulate the development of 

alternative energy.52

Finally, there is a need for further education. This is 

going to be needed no matter what course we choose, 

particularly a public education campaign. We need to 

promote a better understanding of the concept of risk 

and a greater awareness of the fact that, when it comes 

to energy, there is no universal panacea, only tradeoffs. This is vital if we are to create a constituency for 

more effective energy policies. 

CONCLUSION

Our energy problems are challenging, but they are 

not insurmountable. The technologies involved are 

improving, and many of the associated risks can be 

limited if we move forward with caution and with an 

eye to possible security repercussions. As a nation, we 

are fortunate and can afford to engage in the kind of 

collaborative efforts that will help solve the world’s 

collective security problems. At the same time, the 

stakes are high. If we make unwise decisions, the costs 

could be enormous, especially if we are talking about 

nuclear conflict or catastrophic climate change. We ignore these threats at our peril.
18

ENDNOTES - INTRODUCTION

1. From the Greek word “energeia,“ meaning ”activity, operation,” energy is an indirectly observed quantity. It is often understood as the ability of a physical system to do work on other 

physical systems.

2. The views offered in this introduction reflect those of participants in this conference. The reader interested in putting these 

views in a broader perspective may turn to the reference handbook, by Gal Luft and Anne Korin, eds., Energy Security Challenges 

for the 21st Century, Santa Barbara, CA: ABC Clio, 2009. 

3. Some scholars prefer to use the term “collective” to stress 

the existence of problems that transcend national boundaries and 

cannot be solved without collective action. Among these is Gayle 

Smith, Special Assistant to the President and Senior Director of 

the National Security Council. 

4. Brenda Shaffer, Energy Politics, Philadelphia, PA: University of Pennsylvania Press, 2009, p. 93.

5. Some scholars think high prices undermine energy security. Others focus on “price stability.” They argue that we can 

adapt to “expensive” supply costs if we avoid price shocks and 

excessive volatility. (See, for example, the different views of Anne 

Korin and Eugene Gholz, Panel I, chap. 2.)

6. Shaffer, p. 93. 

7. This reflects the consensus view of persons at the conference but was especially prominent in the arguments of Eugene 

Gholz (chap. 2) and Alan Hegburg (chap. 1).

8. See especially Ibid.

9. There are scholars and analysts who are quite concerned 

about the dangers posed by terrorism to energy security, but Robert Cekuta and Bernard Cole (chap. 5) as well as Gholz (chap. 2) 

were in agreement that fears here are exaggerated. 

10. A point emphasized by Gholz (chap. 2).
19

11. Chinese foreign policy, as Cole observed (chap. 5), is 

keyed to improving energy security. Neither he nor other participants were seriously concerned about resultant militancy, however. Kevin Book (chap. 2) and others drew attention to the pressures on developing nations to use whatever technologies were 

available to them, including coal. 

12. A major theme in the remarks of Korin (chap. 2 and 

throughout).

13. An electrical grid is an interconnected network for delivering electricity from suppliers to consumers. It consists of three 

main components: 1) generating plants that produce electricity 

from combustible fuels (coal, natural gas, biomass) or noncombustible fuels (wind, solar, nuclear, and hydro power); 2) transmission lines that carry electricity from power plants to demand 

centers; and 3) transformers that reduce voltage so distribution 

lines can carry power for final delivery.

14. While skeptics remain, 98 percent of peer-reviewed scientific papers agree on this point. 

15. Climate change is no longer considered merely an issue 

relating to quality of life and environment, but one that directly 

affects human and global security, Shaffer, p. 6. The various security implications were discussed in a 2007 joint Triangle Institute 

for Security Studies (TISS)/U.S. Army War College (USAWC) 

conference. Proceedings are available online on the Strategic 

Studies Institute (SSI) website. See Carolyn Pumphrey, ed., Global 

Climate Change: National Security Implications, Carlisle, PA: Strategic Studies Institute, U.S. Army War College, May 2008. Weiss 

(chap. 4) found widespread support at the conference for his insistence that climate change was a serious problem.

16. See, for example, Gholz (chap. 2); Man-Sung Yim 

(chap. 3).

17. Cekuta (chap. 5).

18. The importance of infrastructure was stressed at the conference, notably by David Dayton (chap. 4).
20

19. Douglas Lovelace (chap. 6); James Bartis (chap. 4); and 

Book (chap. 2). 

20. Many wars have been fought over oil: some would even 

claim that the recent wars in Iraq were primarily driven by our 

interest in this energy source. See, for example, Alex Roland 

(chap. 3).

21. Stephen Kelly (chap. 5) stressed the benefits that might be 

brought by closer relationships with Canada (and Mexico) including the development of pipelines. 

22. See especially Book (chap. 2).

23. The advantages of natural gas are highlighted by Vikram 

Rao (chap. 6) as well as Kelly (chap. 5) and Hegburg (chap. 1).

24. Once vaporized, LNG is highly flammable, which makes it 

dangerous to transport and, some would say, a possible target for 

terrorism. Cindy Hurst, “Liquefied Natural Gas: The Next Prize,” 

in Luft and Korin, pp. 271-281.

25. The problems caused by hydraulic fracturing were discussed by Carey King in his analysis of the energy-security-water 

nexus (chap. 3).

26. See, for example, Book (chap. 2).

27. Geothermal (an energy source not addressed in this conference in any meaningful way but now supplying us with about 

1 percent of our electricity) is also a renewable source which 

might be tapped in the future, especially in the West where there 

are geysers and volcanoes.

28. If one compares the amount of water that is used by different kinds of technologies in terms of how many gallons of water it 

would use to drive a vehicle a mile, we find that petroleum takes 

0.1; natural gas, about the same; nonirrigated biofuels, 0.3-0.4; and 

irrigated biofuels like corn ethanol, a staggering 20-30 gallons. See 

Carey King (chap. 3).
21

29. These arguments recurred throughout the conference. See 

for example Michael Roberts (chap. 4), James Bartis (chap. 4), and 

discussion sessions (chaps. 1, 4, and 6).

30. Bartis (chap. 4).

31. In the United States, nuclear power already provides us 

with a substantial amount of our electricity: 21 percent in 2010. 

32. Bartis (chap. 3).

33. See Steven Miller (chap. 3).

34. On March 10, 2011, just 6 days after this conference, a 9.0 

earthquake (Richter scale) and a tsunami hit Japan. The nuclear 

plant at Fukushima Daichi suffered major damage, reawakening public fears about nuclear energy. The conversation about 

nuclear energy would likely have been somewhat different had 

the conference taken place a week later.

35. These problems were discussed by Man-Sung Yim, Bartis, 

and Miller (chap. 3).

36. Man-Sung Yim’s research has led him to believe that 

countries eager to develop a nuclear industry will avoid moving toward weapons development, as this will undermine their 

chances of success. Miller is generally more concerned over the 

possibilities of proliferation. See chap. 4.

37. John Bumgarner (chap. 5).

38. See the presentation by King (chap. 4).

39. A copy of the National Security Strategy (2010) is 

available from www.whitehouse.gov/sites/default/files/rss_viewer/

national_security_strategy.pdf. The goals are laudable but are inherently somewhat contradictory. 

40. Rosemary Kelanic (chap. 2).

41. Gholz (chap. 2).
22

42. See, for example, the remarks by Cekuta and Kelly 

(chap. 6).

43. Korin (chap. 2).

44. Cekuta (chap. 6).

45. Book (chap. 2).

46. See, for example, Korin (chaps. 2 and 6).

47. Miller (chap. 3).

48. See, for example, Daniel Weiss (chap. 4) and discussion in 

chap. 6.

49. William Boettcher (chap. 6).

50. The wasteful culture of the United States (among others) 

has been widely noted. Jared Diamond, for example, claims that 

the average rates at which people consume resources like oil and 

metals, and produce wastes like plastics and greenhouse gases, are 

about 32 times higher in North America, Western Europe, Japan, 

and Australia than they are in the developing world. See www.

nytimes.com/2008/01/02/opinion/02diamond.html?pagewanted=all. 

See also statistics on food waste provided by the U.S. Department of Agriculture, cited in Tristan Stuart, Waste: Uncovering the 

Global Food Scandal: New York: W. W. Norton & Co., Inc. 2009. 

What lies at the root of this behavior is debated, but in his influential, though controversial paper, The Significance of the Frontier 

in American History, delivered at the American Historical Association in Chicago, Il, in 1893, Frederick Jackson Turner argues that 

the defining characteristics of the American people, among them 

an exploitative wastefulness, springs from their experiences as a 

frontier people.

51. See, for example, Michael Roberts’s explanation of “externalities” (chap. 4) and the extended discussion of economic incentives in chap. 6.

52. Korin (chaps. 2 and 6).
23

CHAPTER 1

ENERGY AND SECURITY KEYNOTE

Alan Hegburg

INTRODUCTION

We begin by emphasizing that the energy economy is one of the three largest economies in the United 

States, the other two being finance and healthcare. It 

is very large and affects, as everyone knows, everything from gasoline prices to climate change. It affects 

the way in which we live and how the economy is organized, so it is extremely important. It also involves 

a whole range of other issues such as water, climate, 

dependence on imported oil, and vulnerability to disruption. 

THE PAST

Let us take a quick look back at the Saudi oil embargo of 1973 because it has influenced the debate 

ever since, even though the oil market has changed, 

the U.S. relationship with the Saudis has changed, and 

the Saudis’ relationship with the world oil market has 

certainly changed. Moreover, the U.S. Government 

and Center for Strategic and International Studies 

(CSIS) have played a role here. CSIS is not an advocacy group. We are not lobbyists. We are a non-profit 

organization. We are supported by a group of companies, individuals, and others, and we work on a variety of issues that relate to energy markets in all their 

manifestations. There is a person who does climate, 
24

there is a person who does nuclear. We tend to be organized both by fuel and by markets. So if you scratch 

us, sometimes one person knows a lot more about the 

nuclear market than he/she does about the oil and gas 

market, while others know a lot more about the fuel 

side of the equation than they do about the markets. 

So we are not psychotic, but certainly multitasking.

The year 1973 was a watershed year for the United 

States because the Saudis embargoed oil shipments 

to our country. The reason they did that was that Israel and Egypt were at war. Israel had lost many of 

its tanks. It had come to the United States to ask for 

replacements and got them. The tanks were drawn 

from the stocks in Europe. Recall that in 1973 the tanks 

were the main weapons that the U.S. Army was going 

to use to hold the (Fulda) gap. At that time, I was in 

the embassy in Bonn, Germany, and I can say that the 

junior officers thought this was a terrible idea. They 

thought they were being denuded of their equipment 

and were worried about what would happen if the 

Soviets decided to attack. Anyway, the tanks went to 

Israel, and the Saudis decided to embargo the United 

States. 

The embargo failed, and the Saudis were essentially isolated. Given this experience, they will likely 

never attempt something like this again. So I am not 

particularly concerned about an embargo in the oil 

market. The disruption in 1979, which had to do with 

the Iranian revolution, was much more severe. As 

those readers who lived through it probably remember, prices became extremely high, rising automatically. There were also many problems with gas lines. 

In those days my family lived near a gas station, and 

my kids were young and went into business selling 

coffee to people standing in line waiting to pump gas. 
25

The United States resorted to odd-even-day and other 

kinds of gas rationing to ensure that we didn’t overdraw our supply.

At the same time, the U.S. administration took a lot 

of different steps to deal with the crisis, some of which 

were really quite important because they influence the 

market to this day. First, it created the Strategic Petroleum Reserve. This is a supply of crude oil stored in 

caverns on the Gulf Coast. There are some 700 million 

barrels’ worth to be found in Louisiana and Texas. 

This can be used to supply the market in the event of a 

major crisis. Second, it took the lead in the creation of 

the International Energy Agency (IEA) in 1974. It did 

so to ensure that there would be a collective response 

to politically-inspired disruption of oil supplies. There 

have been some 20 disruptions over the last 30 years, 

most of them small, virtually none of them politically 

motivated, some of them having to do with changes of 

governments in a particular producing country. 

The Strategic Petroleum Reserve has been used 

incrementally every so often to dampen down prices. 

During the invasion of Iraq there was a partial drawdown because the administration rightly feared that 

the invasion of an oil-producing country would otherwise have driven prices through the ceiling. The ceiling was a lot lower than it otherwise would have been. 

In fact, the strategic reserve is not something that is 

used to manipulate the market; it is used for strategic 

issues.

The IEA is an organization of countries working 

within the framework of the Organisation for Economic Co-operation and Development (OECD). The 

organization has a mechanism for sharing oil in the 

event that there is a crisis. That will probably never be 

used. The oil to be shared would not be domestically 
26

produced oil but rather oil on the high seas. Oil on the 

high seas has been diverted individually by countries. 

The United States has done it several times. Individual 

IEA countries have said that they were having trouble 

getting oil, and the President and the department have 

called in companies and asked them if they could divert oil to the country in question. Japan faced the 

most serious threat after the collapse of Iran because 

Japan was—and still is—heavily dependent upon Iranian oil imports. Asia in general is also heavily dependent on the Organization of the Petroleum Exporting 

Countries (OPEC) oil exports.

Also worth noting is the fact that U.S. demand for 

oil is flattening off. This is because of the greater energy efficiency of our transportation fleet—we now 

get more miles per gallon. The change in the fuel composition at the gas station is also significant. Ethanol is 

now being added to the fuel mix, and this is lowering 

the demand for crude oil. There have also been some 

structural changes in the energy market in the United 

States. We are moving toward a service or nonheavy 

industry economy. That accounts for a fair amount 

of these changes in demand. I suspect that we will 

continue the trend we have seen over the past decade 

and, as we become still more efficient, will see lower 

energy use per capita. 

Let us now review the last 30 years and see where 

the United States stands vis-à-vis the countries from 

whom it imports the most oil and natural gas. Of 

course, the major oil and major natural gas exporter 

is Canada. Canada is tied by pipeline to the U.S. energy economy. The arguments we have had with the 

Canadians in the past were over the border price of 

imports. Today the price is set by the spot market—so 

the price is whatever the people engaged in the market decide it is going to be. 
27

The U.S. Government is now out of the business of 

price regulation but was heavily involved in that business 25 years ago. At the time it was trying to dampen 

down price increases due to price speculation. The 

emergence of markets—the spot market and the forward market for natural gas and for oil—was the 

work of President Jimmy Carter. His most important 

decision was to deregulate oil prices in this country. 

Allow me to relate a story on this subject. President 

Carter made the decision. The oil price deregulation 

in the U.S. economy took place over the course of 22 

months. At the end of this period, President Carter 

was defeated by President Ronald Reagan, but there 

was an interim period between the November elections and the January inauguration. I remember sitting in a meeting when President Carter decided to 

ask President Reagan if he, Carter, could deregulate 

the remaining 15 percent or so of oil prices that were 

still being regulated. President Reagan turned him 

down. Then, of course, as soon as he was inaugurated 

President, Reagan’s first speech was about deregulating oil prices, which he proceeded to do. 

But in fact, all the heavy lifting had been done by 

Jimmy Carter, and all the credit went to Reagan. President Bill Clinton learned from this—after the end of 

his second term, just before the new government took 

office, he pardoned a number of people in jail and was 

roundly criticized for it. I am not taking a stand on 

whether it was right or wrong to pardon them. The 

point is that President George Bush could not undo 

the pardons. In short, if a President wants to do something in this lame duck period, he should do so. As 

Henry Kissinger would say, don’t ask for permission 

now, ask for forgiveness later. Carter’s failure to act 

on his own explains why Reagan got all the credit. 
28

THE PRESENT AND THE FUTURE

The foregoing events have put us in a good position to look forward in terms of not only the global 

energy but also the U.S. energy market. We hear a lot 

of talk about transfer information and a lot of discussion about renewable fuels and things like that. All of 

that is well and good. We also hear talk about renewable portfolio standards at the federal and state level. 

There have been many attempts to deal with changing 

the fuel mix, but, in fact, if you look at the U.S. energy 

economy, it is about an 80 percent fossil fuel economy: 

that is to say, it runs on oil, gas, and coal. 

Even with a huge amount of effort to bring renewables into the marketplace, scale them up, and make 

them competitive, the 80 percent number is probably 

not going to change very much over the next 10 years 

or so. People may want it to change; I do not deny 

that. But getting this train to go on a different track 

requires a huge amount of change in the way in which 

the policy system is driven. That may be a point of 

concern because it results in dependency—we shall 

discuss this later. 

But our major concern is U.S. vulnerability. We are 

integrated into the global oil market, so the refiners 

can buy from whomever they want. They can find oil 

on the market that is cheap because it is of a relatively 

low quality. They can use this low quality crude because they have refineries that are not just geared toward the sweeter ends of the crude oil barrel. That is 

useful to them, their profit margins, and the economy 

in general because it means they are not stuck with 

having to purchase higher-quality crude.
29

In contrast, the Chinese economy is structured 

around its crude oil production in Daqing. The oil 

here is a relatively light, sweet, waxy crude. Chinese 

refineries are equipped to process that. They haven’t 

been able to convert a lot of refineries, so they import 

a lot of sweet crudes into China. This is fair enough 

because we can take a lot lower-quality crudes, so 

they can pay the higher price for the higher-quality 

crudes. Part of the ability to weather an interruption 

of some sort in the crude oil market has to do with the 

nature of the refinery configuration. U.S. refineries, 

primarily on the Gulf Coast, but also on the East and 

West Coasts, have been restructured and can handle 

a wider slate of crude oils. It gives refiners a wider 

range of crudes to choose from, and thus they can find 

the cheaper goods in the marketplace. This is an advantage in the oil market.

We are also taking pressure off the oil market by 

reducing crude oil imports. Our demand is lessening 

because of changes in the nature of our transportation 

fleet and the mix going into the transportation fuel. In 

the old days, we were the problem in the oil market. 

We were overpaying for crude oil, and our partners 

did not like it. Now the reverse is true. We are playing 

a smaller role in the crude oil market, and that is very 

encouraging. 

Another thing that’s encouraging is the development of renewables. These are very important. If you 

can get them scaled up and into the fuel mix and can 

do so without the use of heavy subsidies, you have a 

substitute for crude oil. I do not think this is likely to 

happen in the near future. Still, it does mean that our 

oil market is changing for the better. 

Now we turn to the subject of carbon dioxide 

(CO2) emissions and climate change. CO2 legislation, 
30

most readers know, has been unable to get through 

Congress. So the real question is, How do you reduce 

CO2 emissions if you don’t have legislative authority? 

The answer is that you do it with greater efficiencies. 

You drive efficiency into the energy economy as much 

as you possibly can, and you find a way to reduce use 

of heavy duty coal. Coal is a major problem because 

of the nature of the plants. Many of them are old and 

need to be retired. The coal industry is worried about 

CO2 emissions because they will drive up electricity prices, and no one wants to see that. Those in the 

coal industry are caught in a quandary. If they don’t 

add clean coal into the system, they will be in trouble. 

But there are problems associated with carbon capture from burnt coal. This has not been tried to scale 

and has some of the same kinds of problems as spent 

fuel from nuclear reactors. You put it away and hope 

someone doesn’t break into it 150 years from now and 

do something bad with it. You have a problem of storage—underground storage. There are a lot of problems, in fact, that center on CO2 and have to do with 

the way we currently consume and use energy. This is 

a very difficult issue. 

Now a word about domestic natural gas. This is 

the boom area in the United States thanks primarily to 

shale gas finds in the area around Fort Worth, Texas, 

and in Pennsylvania. We have been so successful in 

shale gas exploration and production over the past 

year or so that we are reducing our Liquid Natural 

Gas (LNG) imports. Right now, the LNG that we’re 

importing essentially comes from Trinidad and Tobago, Qatar, and Algeria. 

Gas prices are low in the United States, but there 

are higher prices being rolled into the system. Most 

companies in the gas industry are on “take or pay” 
31

contracts, meaning they are required to take the product from their importers or pay a penalty. But with 

prices as low as they are, these companies probably 

cannot compete in the U.S. market. Nor can they compete in the global market because demand for gas on 

the international market has fallen so steeply. Prices in 

Europe have gone down substantially, thanks to the 

recession. 

The gas prices in Europe have traditionally been 

tied to the Russian supply. In the late 1970s when the 

German government was negotiating with the Soviet 

government, the U.S. Government sent a delegation 

to Germany to make two requests of the Germans. 

Many people thought that the Americans asked them 

not to buy natural gas from the Soviets. In fact, they 

did not. They said 1) “Remember Berlin and don’t rely 

on Soviet natural gas for that city.” (That was because 

the Americans had had to bring in coal to Berlin during the Berlin Airlift to keep the power stations running. We didn’t want to have the Soviet gas cut off to 

the electric utilities in West Berlin because there was 

no quick substitute in the middle of winter.) And 2) 

“Don’t subsidize Soviet gas.” 

The Germans did in fact agree to the first request. 

The first gas pipelines from Russia to West Germany 

did not, in fact, connect to Berlin but rather crossed 

the border elsewhere and went south. Things have 

changed since then, of course. The Germans ignored 

the second request. They indexed the contract prices of 

gas to the price of oil. Oil trades for about three times 

the value of gas on an energy equivalency basis, since 

the energy content of oil is greater than that of natural 

gas. The price of natural gas should thus be cheaper 

than the price of oil. When you index natural gas to 

oil, however, you raise its price to the price of oil and 

in effect provide subsidies to the Russian producers. 
32

Today the gas market in Europe is changing. A 

load of LNG now comes into that market mostly in 

Spain, but also in France and the Netherlands. There 

is more efficiency in the gas business in Europe. Russians are not selling as much gas as they would like to 

in Europe. We are turning LNG tankers—especially 

those coming from Trinidad—away from the U.S. 

coast. These are going to Europe and offloading their 

cargos at distressed prices. Thus, if you are smart and 

not tied into a long-term contract, you can get a real 

deal.

Our natural gas exploration and production in the 

United States are having an impact on the Atlantic basin. There are those who would argue that once the 

Panama Canal is expanded, the Atlantic basin and 

market, and the Pacific basin and market will actually 

come together. Right now the price of natural gas is 

much higher in the Pacific basin than it is in the Atlantic basin. The Pacific market is structured quite a bit 

differently and does not currently enjoy the benefits of 

competition. The joining of the markets may prove to 

be a real boon to the Japanese consumer who is paying high prices for natural gas. That effectively would 

bring gas-to-gas competition and remove the gas-tooil indexation that exists there now. 

These matters may come across as arcane, but they 

play a key role in shaping how markets change. These 

hydrocarbon markets are important, and they’re going 

to be as important 10 or 15 years from now as they are 

now. Renewables will eventually come into play, but 

only when they are competitive. Oil and gas are now 

subsidized, though not quite in the same way other 

things are subsidized. If they are going to be competitive with alternatives when the price of alternatives 

comes down—as we hope they will—we are going to 

have to get rid of those subsidies. 
33

A final note on natural gas. Natural gas in the 

United States, particularly in Pennsylvania, is under 

severe regulatory surveillance right now, particularly 

by the local Environmental Protection Agency (EPA) 

organizations. There are several reasons for this concern. First, developing this gas requires water and 

thus above-ground wells. Second, to release the gas, 

one has to frack (fracture) the granite with water, and 

the industry drills into granite below the water table to 

tap small pockets of gas. When this water comes back 

up, it has a variety of different things in it, including 

heavy metal and some radioactivity, and in some cases, it can contaminate local well water. So the industry 

has a disposal issue. It cannot just reinject the water 

back underground, endangering nearby water tables. 

Nor can it send the water elsewhere to be cleaned up. 

Moreover, both oil and gas production calls for heavy 

use of water, which may be scarce. Once Pennsylvania 

takes regulator action on these tough issues, we may 

see similar regulations elsewhere. 

These matters are very important because producible gas from these reserves in Pennsylvania and in 

Texas is about 200 times greater than current gas consumption. Exploitation of this gas could essentially 

eliminate the need for all of our ship-borne LNG trade 

and maybe even some of the Canadian trade. 

The natural gas system is so much in surplus right 

now that some companies are actually exporting 

gas from the United States. This is not gas produced 

domestically but imported gas which cannot find a 

market. Thus the United States is now an exporter 

of natural gas. For now, it sells this gas in very small 

amounts, seeking permission to export it on a cargoby-cargo basis. But the U.S. Government is looking 

at developing a general license process which would 
34

permit companies to export gas. Companies would 

then no longer have to get cargo-by-cargo or countryby-country approval. That step would be actually a 

very substantial game-changer in the hydrocarbon 

economy here as well as in the entire Atlantic basin. 

QUESTIONS AND ANSWERS

Q: The conservatives in Congress would make the 

case that the Department of Energy (DoE) has failed 

in its mission of helping the United States become less 

dependent on foreign petroleum. Would you comment on the role the DoE plays today?

Alan Hegburg: This issue has been around for 

some time. I don’t know precisely what the numbers 

are right now, but about 80 percent or probably more 

of the DoE is dedicated to nuclear weapons, clean up, 

all those kinds of issues. When the DoE was established, it was a combination of the Energy Research 

and Development Administration and the Federal Energy Office. But the largest—by far the largest chunk 

of work and budget and everything else—is done on 

the nuclear weapons side. It was a military decision. It 

goes back to the post-war legislation on nuclear weapons in which the military did not have control over 

certain aspects of the fuel cycle, for whatever reason. 

There were a lot of military people in the DoE, and 

there are DoE people that go out to deal with the military.

A lot of the lab system, which is an integral part of 

the DoE, deals with weapons. The labs tend to be out 

West where there’s lots of room. Those of you who 

have ever dealt with DoE labs will know that they 

have diverse interests. There’s a very large coal lab in 

Pennsylvania. There are people who do solar, there 
35

are people who do nuclear, there are people who do 

earthquakes. These are all DoE lab-related activities. 

When it comes down to understanding the nonnuclear parts, it is best to go through the assistant secretaries of the various departments and look at their 

portfolios. There is an international group, which I 

came out of. We dealt almost exclusively with oil and 

gas market issues and renewables. It’s a small group. 

Most agencies talk in terms of 500 to 1,000 people. We 

were less than 100. 

There is also a fossil energy group that manages 

the fossil energy programs. Congress appropriates a 

fair amount of money to support programs on fossil 

fuels, renewables, and energy conservation. These are 

among the non-nuclear programs in the DoE. They’re 

fairly substantial. They have very good staff. The labs 

report to the assistant secretaries and the under secretary for science who actually does basic science research.Thus if you do get rid of the DoE, that work 

will have to be done somewhere else.

On the international side, DoE is very active. Let me 

just give you a couple of examples. There is a series of 

what are called one-two-three agreements. These are 

bilateral agreements that the United States requires 

of any country with which it’s going to share nuclear 

technology. About 19 or 20 countries have these agreements and commit to certain things—probably provision of information—not anything secret but related 

to proliferation concerns. There are at least four countries in the Arabian Gulf that are interested in nuclear 

technology: the United Arab Emirates (UAE), Qatar, 

Saudi Arabia, and Kuwait. There is already a one-twothree agreement with the UAE. I think one is being 

negotiated with Qatar, but I’m not sure the Quatari 

are ready to sign off on it. It may seem odd that the 
36

Saudis want to pursue nuclear power, given the extent 

of their oil and gas reserves. I suspect they are trying 

to reduce their domestic oil activities because they’re 

extremely inefficient and absorb a lot of capacity that 

could otherwise sell in the international marketplace. 

Moreover, their oil is nonrenewable.

The Saudi government has set up a series of labs 

based on, essentially, the DoE lab system. These labs 

do different things. CSIS has an agreement with one 

of the labs. They want to look at what we have, and 

they want to talk with us. They hold public meetings 

to discuss a variety of different topics—energy efficiency, renewables, carbon capture and sequestration, 

obviously, given the size of their oil and gas reserves. 

The bilateral relationships between the United States 

and the Saudis and other Gulf states are really quite 

extensive. 

One example of the kind of negotiations that take 

place is that the Kuwaitis continue to build electric 

power facilities in Kuwait because electricity is free to 

its people. When you leave Kuwait for the summer, 

you leave the air conditioning on and close the door. 

It’s a huge waste. There is actually no price or conservation sensitivity in that marketplace. We’ve had conversations with the Kuwaitis about that, but of course 

this is a decision made at the top levels of the government, and so it can’t get undone. But the Kuwaitis are 

coming up against a problem, which is that they only 

have one site left on the Gulf that can give them water.

The question becomes, do they put a power station 

there, do they put a refinery there, or do they decide 

to take steps to make their domestic energy economy 

more efficient? We’ve had bilateral conversations with 

the people that run the system, and they would like 

very much to find the best answer. We also suggested 
37

that they think about power-sharing or other corporate power arrangements with the other Gulf States. 

On the east coast, Qatar, Kuwait, the UAE, and Saudi 

Arabia all have large populations. Why wouldn’t you 

collectively build one power station as opposed to 

four individual power stations? Politics is, of course, a 

huge impediment, one over which we have little control.

We have greater leverage when it comes to markets. There is, in fact, a whole group of people in 

those countries who are very interested in changing 

their domestic energy markets, but again politics intervenes. But in the long run, markets will hopefully 

trump politics.

Q: You stressed earlier how difficult it is for oil to 

be used as a politically-motivated instrument of coercion. What, in your opinion, is the situation with natural gas? Can natural gas be used by countries like Russia, for example, as an instrument of coercion against 

those of our European allies who don’t have access to 

LNG supplies—countries like the Ukraine, the Baltic 

States, and perhaps several of our NATO members?

Alan Hegburg: This is such a rich topic. Let’s put 

Ukraine aside for a moment since the natural gas 

pipeline network is not truly integrated in Europe—it 

needs to be. That would create great flexibility. For example, Spain is not really in that system despite LNG 

terminals all over the country. Italy imports LNG but 

in fact also gets Russian gas. One wonders why, being 

right across from major gas reserve holders Libya and 

Algeria, Italy is buying it from the Russians.

As I said, we now divert to Europe gas that was 

coming here, which is actually having an impact on 

the marketplace. As I said, the Russians in the early 
38

days when these contracts were done, were being subsidized such that they were making more money out 

of their gas by shipping it to Europe than they could 

anywhere else, and the Europeans were actually doing 

it consciously. We have told them this is economically 

crazy. But sometimes politics does trump markets.

Q: Can you talk a little bit about how you see the 

future of the oil markets? How, in particular, do you 

think they’ll affect our attempt at economic recovery 

in the future? Gasoline prices right now are increasing 

and the economy, we’re hoping, is starting to recover 

again. How do you see oil affecting our attempt at recovery?

Alan Hegburg: I haven’t been asked about gasoline prices in about 20 years. But you’re right, we’ve 

seen a dramatic increase in prices, and I’m not sure 

why, to be honest. We at CSIS don’t pay attention to 

the retail markets very much. Obviously oil, as I said 

earlier, is a large part of the gross domestic product 

(GDP) in this country. So if people are diverting disposable income toward paying for oil beyond what 

they normally would pay, it takes disposable income 

out of their pockets and clearly has an impact. It is obviously a problem for the vast number of unemployed 

people in this country who can’t afford a whole range 

of things and have to make tough decisions. There are 

also a lot of people who are employed whose disposable income is going down. Having gas prices going 

up by 20 or 30 percent is painful. 

How long will it last? Well, the cynic in me says that 

if I knew the answer I’d take a position in the market 

and I wouldn’t have to answer the question because 

I’d be so wealthy. I really don’t know. We’re going 

into the summer drive season, when refineries go into 
39

conversion and start making more gasoline than what 

they had been making for the winter. That actually 

could be beneficial if it results in a lot of gasoline coming into the market just when demand is falling off. 

But I think we have to look for a decline in demand 

for gasoline, and I don’t know if the market has seen 

that yet or not. That seems to be the only thing in the 

short term that can actually help bring down gasoline 

prices. 

Another thing that affects oil prices is the locations 

of gas stations. I worked for Amoco, which was at 

one time the largest gasoline marketer in the United 

States. Its principal business was refining and marketing gasoline in major urban areas. It always picked 

spots that were isolated from every other gas station 

so you didn’t have to compete against the independents. The independent gasoline marketers were always the cheapest. They set the price, and everybody 

else followed. So Amoco went places where there 

weren’t any other gas stations nearby—that way it 

could actually charge a few extra cents a gallon. It was 

a strategy—a location strategy—obviously. So if you 

want cheaper oil prices, you want to be someplace 

that is flush with gasoline stations, particularly those 

owned by marketers who can charge cheaper than the 

branded outlets can. 

I think the gasoline business is going to have to 

change as we add more biofuels to the mix. Biofuels 

are coming in, and refineries are not going to make as 

much gasoline because demand will go down. There 

are all sorts of factors like this which have to work 

through the system. They obviously have an influence 

in a year-to-year market. The other thing to consider is 

summer restrictions on fuels in urban areas because of 

smog. There are certain particulates that boil off from 
40

the gasoline in the market which can lead to smog. So 

you have changes in the gasoline mix that also have an 

impact on the price. 

But if you ask me if this crude oil price increase is 

warranted, I don’t see this connection, unlike the old 

days when you would see crude oil prices go up and it 

would be translated immediately into gasoline prices 

going up. 

Q: I have two questions. The first is a follow-up 

to the earlier question about the use of fossil fuels 

as a weapon. Right now, shale gas technology is a 

strictly U.S. venture. But there are shale gas deposits 

in Europe too. Many European companies are taking 

positions in the Marcellas with a view to gaining the 

technology. Can the United States use its monopoly 

as a weapon? The second question relates to a point 

you made. You said that demand for oil in the United 

States was flattening—it used to be $21 million a day 

and it’s down to $18.3 now. Are you suggesting that 

likely it will stay flat and if so, why?

Alan Hegburg: Oil demand right now is about 20 

million barrels a day, and the forecast is that it will be 

about 22 barrels in 2035—that’s flat. It’s expected rise 

at a rate of only 0.03 percent, 0.02 percent a year. Why? 

There are a lot of reasons for that, as I mentioned, like 

our greater energy efficiency, the fact that we get more 

miles per gallon, and the fact that biofuels and other 

alternative fuels are coming into the market. So, yes, 

our oil demand is flattening out. 

Let me go back to the other question about whether 

or not the United States can use its knowledge of shalegas technology as a weapon. I think it’s a mistake to 

think just because that technology is being used in the 

United States, the U.S. Government has some control 
41

over that technology. Think of the U.S. oil market as a 

global market because it is. It’s a global market because 

of the participants in that market. There are a number 

of companies that are incorporated outside the United 

States, and they’re all operating in the United States. 

Let’s take, for example, British Petroleum (BP), Shell, 

China National Offshore Oil Corporation (CNOOC), 

and Petróleos de Venezuela, S.A. (PDVSA). These 

companies are incorporated outside the United States. 

They’re not located in Delaware or in New York. They 

operate like U.S. companies, and we think of them as 

U.S. companies, which is fine. It doesn’t mean anything. They’re making a contribution. Their stockholders are all over the United States. But the incorporation issue means they’re not U.S. companies. Their 

subsidiaries are U.S. companies. The point is that U.S. 

companies operate overseas in exactly the same way, 

e.g., all over Europe. 

ExxonMobil was in the shale business in Hungary. 

It pulled out, why I don’t know. But there are obviously shale gas opportunities in Poland and Hungary and 

probably in the Czech Republic, too. The real question for companies—of all companies of this size and 

nature no matter where they’re incorporated—is how 

to get a good return for their stockholders. They’re 

looking for investments that actually work. They look 

at their portfolio and say, Well, if the return here in 

shale gas is X and our price forecast is Y and it’s only 

six percent here and we can get 12 percent somewhere 

else, our stockholders will want us to go for 12 percent. So companies like this don’t base their decisions 

on political considerations. They look at investment 

returns and how to replace their reserves and matters 

like that. 
42

 CNOOC is a case in point. It has bought up a company in the Marcellas. That’s pretty typical—what 

happens is that small companies start the business 

and when all the hard work has been done and the 

value proven, the big guys come in behind them. They 

can pay a premium for the work that’s already been 

done, but then they actually get access to the reserves, 

which is what they want. The CNOOC was formed as 

a Chinese offshore company and has dealt with U.S. 

companies for a long time. A number of years ago, 

CNOOC tried to buy the Union Oil Company of California (UNOCAL), a California company, and a congressman from the Bay Area opposed it. There was 

some suspicion about the company at the time, with 

sinister arguments being made, and they walked away 

from the attempt. But they are back now, and that’s 

fine. The U.S. Government isn’t opposed to them as 

long as they abide by all the laws that everybody else 

does. 

When you come into the U.S. investment sphere, 

you’re treated like a U.S. company. You do exactly 

what everybody else does. There’s no special treatment 

for you. So I’m not too concerned about the transfer of 

technology when it comes to shale. I think the Chinese 

have shale in the Szechuan Basin. The U.S. Department of Energy has done some studies on the Basin. 

I think there’s probably going to be some drilling if 

there hasn’t already been some. I don’t know who’s 

going to do it. The Chinese may do it themselves or 

they may actually find someone else to do it. Alternatively, someone else may offer to do it for nothing in 

anticipation of getting the reserves, and the Chinese 

can actually make the money on the back side of the 

equation. 
43

Shale gas is going to be distributed throughout 

the world. I think companies will go for the ones with 

opportunities that are the easiest and best developed. 

They don’t want to be first to the table. The Marcellas 

have actually been the ones that have led the way, and 

the big guys have come in behind them, and that’s a 

normal process.

Q: Early in your talk you sounded quite optimistic about the improvements in efficiency in the United 

States and the addition of biofuels to the fuel mix. But 

the United States is a tremendous energy hog in comparison with the rest of the world. Biofuels production 

has problematic implications for world-wide food 

prices. How is all of this perceived by other countries? 

How do they react when we try to give them advice 

or lecture them about how they should conduct their 

economies? 

Alan Hegburg: I don’t know. I’ve gotten loads of 

lectures in my life from other countries. People are 

not shy about telling us what we should do, and what 

they don’t think we should do. I’m reflecting what the 

forecast is on biofuels and the fuel-consuming fleet, 

not the question of emerging food shortages. That was 

a particular issue this year. It may be that this is a constraint and, if it is, there obviously has to be a decision 

made at the policy level in the U.S. Government.

If you can’t put biofuels into the mix, then it seems 

to me you have to be tougher on the miles-per-gallon 

standards or flex fuel. Or you have to find some other 

way to get much more efficient, less carbon-intensive 

vehicles. That’s a policy decision by the U.S. Government. So if it happens, it happens. I’m not defending 

it one way or the other. I’m reflecting on what the 

forecasts are for the U.S. crude oil market. I live in the 

city and rarely drive a car, so from my perspective, 
44

I’d rather see more money in mass transit. There are 

political questions out there that have to be resolved.

Q: This “question” is more in the form of a comment. I believe that given the price pressure on oil 

right now and the fragility of our economy that we 

ought to be seriously considering releasing oil from 

the Strategic Petroleum Reserve to help put downward pressure on prices. George Bush did that after 

Hurricane Katrina when the reserve was only about 

83 percent full. It’s now at capacity. When oil was at 

$69.00 a barrel, not $102.00 a barrel, it reduced prices 

within a month, the spot price of oil going down about 

10 percent. 

In the last year, the increase in gasoline prices has 

been about 13 percent to the average American family, 

while income has been stagnant. So it seems to me, 

given the fragility of the economy, given that the reserve is full, even though we do not have a disruption, 

we are at a very fragile price point, and we’re sending overseas almost a billion dollars a day in petroleum purchases. Now admittedly, a lot of that goes to 

Canada and Mexico, but still that’s money out of our 

economy that has no multiplier effect. So it’s my view 

that we ought to sell oil from the reserves right now. 

What is your opinion?

Alan Hegburg: I don’t disagree with you. This 

particular issue has been around for some time, and 

there have been discussions about it in the past, as you 

noticed. The reserve was created for a major interruption. If you want to do a draw-down to dampen prices, 

that’s fine. I suspect that it’s only a temporary fix, but 

we can do it. It needs a political decision.
45

Q: I’m curious to hear some of your thoughts on 

energy independence and whether that is a national 

aspiration we should strive toward. It would seem to 

me that we’re interdependent with a lot of different 

countries for a lot of different things, especially countries like Canada, who are friendly to us. So why is 

energy any different?

Alan Hegburg: I will refer that question to Jim 

Bartis.

James Bartis: I believe there are two main reasons 

that we worry about oil and why oil is different. One 

is that oil comes from a lot of regions of the world that 

are inherently unstable. I put together a map of every country that exports more than 200,000 barrels a 

day of oil. When we looked at that map, there were 

only three countries where there was a free market in 

place. Every other country was either a member of the 

cartel or had serious governance problems or both. So 

one of the reasons why oil is of concern is the security 

of the supply. The other reason is that, even though 

cartels do play an important role in stabilizing prices, 

they do tend to put the price a bit higher than what 

we believe would be the price in a totally free market. 

That doesn’t mean we should be foolish about energy 

dependence. But oil is a bit different than other commodities simply because of those two factors.

Ann Korin: I think you need to define what energy 

independence means. I’ll talk about that later, but energy independence doesn’t mean isolation. It doesn’t 

mean walling yourself off from the world market. If 

you think about it in a correct way, it should mean 

stripping oil of its strategic status and turning it from 

a strategic commodity to just another commodity, certainly not walling yourself off from the world market.
46

Q: I have a question in two parts: (1) how do you 

perceive the oil depletion or the peak oil concept? and 

(2) how do alternative or marginal resources like Canadian oil sands come into play here? 

Alan Hegburg: A debate over peak oil took place 

several years ago. Someone wrote a book about it which 

got a lot of attention. It had an analytical framework, 

claiming that we had peaked and were headed on the 

downside of the slope. I’m neither a geologist nor an 

engineer, but there are a lot of basins that haven’t been 

touched yet that are potentially hydrocarbon-bearing. 

This suggests that there may be more oil out there. I’m 

not saying it’s ever going get drilled. There are those 

who say we shouldn’t drill the Arctic, for example.

But there are opportunities and there are technologies, and so my instinct is that if we’re close to a 

peak you can sustain that level of production for quite 

awhile through a variety of different technological applications and maybe economic ones. But that’s not 

a geologic or scientific-based decision. The forecasts 

that are published by the U.S. Government, the CIA, 

and others, estimating forward-looking oil production 

on a global basis, have peak oil continuing to increase, 

albeit at a slower rate. Putting aside China, obviously, 

everyone else seems to be in a system with a flat demand going forward or actually a slightly declining 

demand going forward. Thus, the analytical community, people who have no axe to grind in this game, 

doesn’t seem to accept the peak oil view. But I can’t 

tell you the peak oil is categorically wrong. 

Q: You talk about biofuels, and people talk about 

food, but you can produce biofuel from corn or you 

can produce it from corncobs through cellulosic work. 

Before I came to North Carolina, we started a process 
47

in Tennessee involving switchgrass. We found that 

there were about a million and a half acres in the state 

that were not suitable for growing food but on which 

you could grow cellulosic grasses like switch grass. If 

you took two-thirds of that land and produced switchgrass on it and had a reasonable amount of success 

doing that sort of thing, you could produce about 30 

percent of the fuel consumption in the state through 

ethanol derived from that without impacting the food 

crop. Another thing we can do now regarding capturing energy from sunlight is to exploit 17 percent 

of Nevada and probably generate enough fuel for the 

country. What is your view?

Alan Hegburg: Unfortunately, there’s not much 

oil in the electricity sector, but that’s okay. As to ethanol from grass, you’re the second person I’ve heard 

talk about cellulosic in the past few weeks, so I accept 

all the things you’ve said and it may be a way forward. I just don’t know. But I’ve heard a lot of people 

who I think really know what they’re talking about, 

including you, who have been very, very bullish on 

cellulosics.

Q: As they would say in the House of Commons in 

Britain, would the “honorable gentleman” over here 

tell me how we ultimately achieve a net gain through 

biofuels when so much energy is consumed in producing biofuels? 

Audience: It doesn’t actually take all that much energy to produce this kind of biofuel. Take switchgrass. 

It’s a perennial, so you have to turn it over about every 

25 years. The most difficult thing they’re up against in 

the Tennessee project right now is the fact that switchgrass is a bit thick, and John Deere hasn’t found blades 

that are tough enough to cut it when it gets a little bit 
48

older. But it turns out that you don’t have to fertilize 

very much at all because you can cut it any time of 

year you want to. The nutrients go back into rootstock 

when you’re doing this and so it’s actually not that 

cost prohibitive. If you’re using land that you can’t 

grow food on, it’s not a problem in the sense of driving up food prices. 

Q: What of the price of harvesting it and extracting 

the oil? 

Audience: Yes, there is a cost to that. But there’s a 

cost to producing oil from any field. It costs to get oil 

out of the ground, to refine it, and to turn it into a fuel. 

But I don’t think it has to be that prohibitive.

At the end of the day, it’s not really very logical 

to look at the return on energy investment. What you 

need to look at is the economics. If you look at tar 

sands—you don’t really care how much energy you 

have to use in order to extract the tar sands. What you 

care about is whether the cost of the oil that you extract is worth it to you at that price, given the global 

oil price. The same thing is true of any other fuel. You 

don’t care about the energy input into a lump of coal 

compared to the energy output in a watt of electricity 

or anything else. You shouldn’t care about the energy 

input into a cob of corn or stalk of sugar cane. What 

you should care about is, Does it make sense economically? Take away the subsidies, take away the transport, take away the tariffs, because they distort the 

science. Remember, we have to deal with thermodynamics. We can never create energy. We can only convert latent energy into usable energy. It’s the energy 

inherent in the matter plus energy of conversion. You 

can’t get around that.
49

The economics can point you one way, but if you 

physically have to move goods around the world, 

other calculations come in to play. You can pay for 

other fuels to promote trade and the things we use oil 

for, but the question is how long can you afford to do 

that? You can relate energy return on investment to 

the cost of energy in a general sense. They’re generally 

inversely related. Energy-out divided by energy-in is 

inversely related to cost divided by energy. So you can 

find the cost trends between any two competing energy sources.The question is, which is more important 

to us—long-term trend or the short-term trend?

51

CHAPTER 2

FOSSIL FUELS

This chapter is based on the presentations and discussions of the first panel of the Triangle Institute for 

Security Studies (TISS)/North Carolina State University (NCSU) Energy and Security Conference. Its purpose was to assess the extent to which our need to secure fossil fuels undermines or enhances our security 

goals. Anne Korin addressed the dangers posed by oil 

as a strategic commodity and suggests ways to break 

the monopoly. Eugene Gholz evaluated the appropriate role of force in defense of our energy security, 

stressing the need for restraint. Kevin Book focused 

on the advantages and disadvantages of oil and coal. 

Rosemary Kelanic launched the discussion period by 

providing some definitions and commenting on the 

views of the speakers.

OIL AND GLOBAL SECURITY

Anne Korin

INTRODUCTION

When we talk about oil and security, there are 

three elephants in the room that we have to deal with. 

The first is, of course, radical Islam. The second is the 

Organization of the Petroleum Exporting Countries 

(OPEC), the oil cartel. The third is actually something 

good: the rise of the developing world. We have to 

deal with all three of these issues because they are inherent in looking at oil as a security problem, as something that raises security vulnerabilities. 
52

RADICAL ISLAM

Almost 10 years after September 11, 2001 (9/11), 

I still don’t need to remind anybody that 15 of the 19 

hijackers were Saudi, and that wasn’t a coincidence. 

They weren’t, let’s say, only weeds in an otherwise 

nice garden. We have a situation in which the Saudi 

royal family, one family, controls a quarter of the 

world’s oil reserves and has a sort of deal with the 

devil, which I’m sure everybody’s aware of right now. 

The radical Sunni Islamic establishment in Saudi Arabia is free to propagate radical Sunni Islam around the 

world. It is lavishly funded by the globe’s oil consumers. This includes us, of course. 

When we look at radical Shiite Islam, which is 

primarily funded and propagated by Iran, again we 

come back to the fact that Iran isn’t making its money 

by selling microchips, or Tootsie Rolls, or anything 

like that. Thus in whichever direction we look, we always find our path to the world’s oil reserves potentially blocked by Islamic radicals. Two thirds of these 

reserves are located in the Middle East and in North 

Africa. If one looks beyond the Middle East, a substantial portion of the world’s oil reserves in general is in 

countries in which radical Islam is on the rise. As we 

see on the news every day, the rumbles and the earthquakes that are occurring across the region bode well 

neither for the stability of the oil market nor for our 

economic recovery. 

Oil is the second largest household expenditure. 

It’s not just the fuel that we buy at the pump. Every 

single purchase that we make—food, clothing, everything—is brought to us courtesy of oil. When oil 

prices goes up, disposable income goes down. When 

oil prices go up, economies go into recession. 
53

We don’t need to talk a great deal about the instability in the Middle East and North Africa because 

we’re hearing about it all the time. There’s nothing I 

could really add to what you already know. We just 

need to remember that this instability has a number 

of different facets, such as the Sunni-Shiite conflict, 

which has been going on for a very long time.

If you narrow your sights a bit further and look 

specifically at this conflict, then you’ll see that Shiites 

have been oppressed in Sunni countries for many 

years, despite sometimes being the majority population. Keep in mind that while two thirds of the world’s 

oil reserves sit in the Middle East, it also turns out that 

Shiites sit on most of the Middle East’s oil reserves. 

Even in Saudi Arabia, the Eastern province of Saudi 

Arabia where the oil is located, is primarily a Shiite 

province. The Shiites, of course, are oppressed in Saudi Arabia, but if you think about the conflict in Bahrain and similar places and how that could potentially 

evolve, it doesn’t make you sleep very well at night. 

Everybody should be aware of the ramifications 

of our petro-dollars on the spread of radical Islam. 

There’s no need to get into that. Therefore, let’s move 

to the topic that is much more salient to the context of 

oil and security.

OIL AS A STRATEGIC COMMODITY

What we need to talk about, really, is where the 

security vulnerabilities that arise from oil originate. 

They do not come from the amount of oil that we import. This may sound counterintuitive. However, for 

the most part, our vulnerabilities with respect to oil 

would stay exactly the same even if we didn’t import 

any oil. To illustrate this point, think back to 2008. Re-
54

member oil prices spiked. At that point, Great Britain 

was supplying almost all of its own oil. The truckers in 

Great Britain rioted at that time and blocked the roads. 

They did so because oil is a fungible commodity; it’s 

got a global price.1 The price went up for everybody. 

It didn’t matter if you were importing any oil or not. 

Our vulnerability thus isn’t really about the amount 

of oil we import. What it’s about is the fact that oil is a 

strategic commodity. To understand what that means, 

we need to look to history. I titled my last book Turning Oil Into Salt, because for centuries salt was a major 

strategic commodity since it offered the only way to 

preserve food. Wars were fought over salt. In some 

cases, countries chose where to establish colonies because of an abundance of salt available. Armies march 

on their stomach. You couldn’t very well march thousands of miles if you didn’t have preserved food. 

The world moved on salt at that time. Then, with 

the advent first of canning and then, still more importantly, electricity along with refrigeration, salt became 

completely irrelevant to world affairs. Does anyone 

know whether we import salt? How much salt we import? Do you care what the world salt price is? Do you 

contemplate who the world salt reserve holders are? 

It’s totally irrelevant to you. Unless you’re in the salt 

business, or you’re a buyer or seller of salt, you really 

don’t care about any of this. Salt is no longer a strategic commodity. It’s just another commodity, despite 

the fact that we consume more salt now than we ever 

did before. It’s primarily used for clearing snow. But 

it’s no longer important. It no longer shapes the course 

of history. 

Now, oil sits exactly where from a strategic perspective salt did years ago. It shapes the course of his-
55

tory. It shapes relations between countries. Let us be 

very honest. Would anybody in Washington be using 

the phrase, “Our friends, the Saudis,” in any other circumstances? No. 

Thus we need to think about where oil’s strategic 

status stems from. It clearly does not stem from our 

need for electricity. Only 1 percent of U.S. electricity 

today is generated from oil. Only 1 percent of U.S. oil 

demand is due to electricity generation. Outside of 

the oil exporters (in effect the OPEC countries), these 

numbers are essentially the same globally: 5 percent. 

Oil and electricity are two separate issues. I’m reiterating this because when you look at polls, 90 percent 

of the American public believes that solar, wind, or 

nuclear power will wean us from oil. Ninety percent! 

This is a huge disconnect.

When you look at politicians running for office, 

whether they’re on the left or on the right, you’ll hear 

calls either to build more solar panels and wind turbines, or to build more nuclear power plants. That’ll 

get us off of oil, they say. That’ll end our imports. 

That’ll reduce our dependence. You’ve heard this. I’m 

not making this up. It’s complete nonsense. Our need 

for electricity and our need for oil are two totally separate issues. 

Oil’s strategic status stems from its virtual monopoly over transportation fuel; 98 percent of our transportation energy is petroleum-based. Thus, if we look 

to the salt analogy, to strip oil of its strategic status, to 

turn it into just another commodity, we need to break 

this monopoly. We need to open the fuel market to 

fuel competition. We shall return to this subject. 
56

Cartels.

Let’s hold that thought for a moment and get back 

to the second part of the picture, which is that this monopoly is married to a cartel. The OPEC oil cartel sits 

on 78 percent of world oil reserves and, like any cartel, 

the entire purpose of its being is to maximize revenue 

for its member regimes. By the very nature of its existence, that’s what it does.

In the early 1980s, OPEC produced about 26 million 

barrels of oil a day. Think of what the global economy 

has done over the last 3 decades. Oil consumption has 

grown drastically. Non-OPEC production has grown 

drastically. You know how much OPEC produces today? Just about the same: 26.8 million barrels.

This cartel has a strategy of deliberately constraining supply to drive prices up. That’s what cartels do. 

In that context, since our foil in this game is a cartel, 

we need to think about some of the primary policies 

discussed when it comes to dealing with it.

On the right, it’s generally, “Drill, baby, drill.” Expand supply. On the left, it’s generally. “Americans 

are consuming too much, we need to drive cars that 

are smaller.” Among the pundit class, you may get 

calls for gas taxes and so forth. So we have advocates 

for efficiency and conservation on one side, expansion 

of supply on the other.

Let’s remember our foil is a cartel, and let’s see 

how the cartel deals with these policies. We have a 

historical event that can serve as a simulation: the oil 

price spike of 2008. In that year, oil prices spiked to 

$147 a barrel. Gasoline prices at the pump went up. 

Consumers are rational economic creatures. In the 

United States, people responded by driving less. Our 

gasoline consumption dropped by 10 percent. Oil con-
57

sumption dropped by a million barrels a day. A similar phenomenon occurred elsewhere—people drove 

less, and consumption dropped. 

What did the cartel do in response? They pumped 

less. They met several times over the course of 6 

months. They cut production by 4 million barrels a 

day—actually they cheated, so in effect they cut production by 3 million barrels a day. But, in essence, we 

used less, they pumped less. 

Why does this event simulate how cartels might 

respond to efforts to break their monopoly? You can 

think of that oil price spike as a proxy for a number 

of different policies. You can think of it as a proxy for 

a massive gas tax increase. It’s not a gas tax that was 

paid to Uncle Sam, however. It was paid to Uncle Saud 

or one of his brethren, but it was a gas tax.

So we know how OPEC will respond when the 

demand is adjusted in that way. We can think of the 

10 percent reduction in gasoline demand as a proxy, 

not an exact proxy, but a proxy for an increase in vehicle fuel efficiency. It is not an exact proxy inasmuch 

as vehicle fuel efficiency would be longer lasting, but 

is a proxy in the sense that it is a similar concept. What 

does OPEC do in response to this sort of static demand 

reduction? They pump less. 

We also know how OPEC will respond when 

faced by expanding supply. We have to understand 

that pumping more and using less are essentially two 

sides of the same coin from the perspective of the cartel. What happens when we expand non-OPEC production of oil? Use tar sands, or anything else? How 

would the cartel react? It pumps less. 

If you look at the last several decades, you’ll see 

that this is a nonlinear relationship because we need 

to factor in the rise of the developing world, but the 
58

relationship is there. So, we use less. They pump less. 

We drill more. They pump less. 

As long as you’re playing in the oil field, you cannot manipulate the cartel. As long as your strategies 

are static strategies and you are relying on static demand reduction or static supply increase, your policies are predictable. The cartel knows how to respond. 

It might take it some time to erode inventories in the 

market, but the cartel knows how to respond.

Breaking the Monopoly. 

We need to break out of this paradigm by putting 

other commodities into competition with oil on the vehicle platform. Now, how do we do that? How do we, 

for instance, monetize the price difference between oil 

and natural gas today when it comes to transportation? How do we monetize the price difference between oil and coal when it comes to transportation? 

Vehicles must be platforms that enable fuel competition. So let’s talk about options in the near, mid, 

and long term. In the near term, the easiest thing to do 

is go to an open fuel standard that essentially ensures 

that new cars are platforms for liquid fuel competition. 

The vehicles should be able to run on gasoline or a 

variety of alcohol fuels. This capability costs less than 

$100 a car. You’re essentially talking about downloading a different piece of software to a control chip on 

the car and making the car essentially corrosion resistant. You’ll need, in other words, higher grade fittings, 

because alcohol is more corrosive than gasoline.

What does that do? Let’s talk about some of the 

alcohols that you have out there. Ethanol is one, but 

methanol is more interesting, specifically because of 

the natural gas question.2
59

When you ask yourself how you monetize the price 

difference between oil and natural gas when it comes 

to transportation, you must ask yourself what people 

would do if cars were open to liquid fuel competition. 

They would do just as people did in Brazil in 2008. At 

that time, 90 percent of new cars in Brazil were flexfuel vehicles. New cars in Brazil went from zero to 70 

percent flex fuel in only 3 years, and they are made 

by the same automakers who sell cars in the United 

States. In 2008 when oil prices spiked, consumers in 

Brazil went to the pump. They compared the per-mile 

cost of different fuels, saw that unsubsidized alcohol 

was cheaper than oil and bought it. That year, gasoline 

became an alternative fuel in Brazil. Brazilians used 

more alcohol, i.e., ethanol, than they did gasoline. 

Ethanol in Brazil is made from sugar cane. We 

have tariff issues which we can talk about later. They 

are worth discussing, especially given the need to 

develop a healthy interdependence with countries in 

Latin America. Our influence there has been steadily 

eroding. There are not many tools that we can use to 

strengthen our relationships. Opening our markets to 

them is a very good one.

The important thing is that when you have a 

choice, you compare the economic alternatives and 

choose what makes most sense from an economic perspective. Let’s look at a vehicle that is open to using 

gasoline and a variety of alcohols. Let’s look specifically at methanol, an alcohol that can be made from 

natural gas and coal, and think about the economics 

of it. Methanol’s spot price today is around $1 per gallon. Methanol has about half the energy of gasoline. 

So you would pay around $2.50 for the same amount 

of methanol that you would need to drive as far as you 

would on a gallon of gasoline. That’s including retail 
60

markup and everything else. That means that if you 

could use it in your car, you would buy it unless you 

don’t care about price and don’t want to have to refuel 

twice as often. A lot of people would buy it. 

That’s what an open, competitive market looks 

like. The issue is the same if the fuel is made from 

coal, sugar cane, cellulosic biomass, corn, or anything 

else. You compare the per-mile economics and decide 

whether or not it makes sense for you to buy it. If it 

does, you will buy it.

What does that do to the cartel? We have a bizarre 

situation today in which a cartel that is full of bad actors and that plays a hugely negative influence on the 

world stage, controls much of the world’s oil reserves. 

We don’t even need to look at the Middle East. We can 

just talk about Venezuela in Latin America. In OPEC, 

you have a cartel that controls most of the world’s 

oil reserves, despite accounting for less than a third 

of global oil production. It is the modulator of the oil 

market. But if you have an open and competitive fuel 

market, there will be a lot of energy commodities playing in that market. There won’t be a cartel or a group 

of countries controlling all of those energy commodities. Also, there won’t be one single crisis point that 

brings all of those commodities down, that disrupts 

all of those commodities. There will be all sorts of different types of crisis points. Each one could bring a 

given resource down. But you’d have to have a bizarre 

series of catastrophic failures to bring our transportation sector to a screeching halt. 

This is something we should think about since there 

would be no such thing as a global economy without 

transportation. That’s why oil is so strategic, because 

it underlies the very fabric of our global economy, of 

our lives. 
61

Thus liquid fuel choice is step one. Liquid fuel 

choice is extremely important. As we look toward the 

future, electrifying transportation is also extremely 

important. Why? Because on a per-mile basis, electricity is much less expensive than oil. Again, look at the 

cartel and remember that one strategy it has used periodically is to flush a lot of oil into the market. It does 

this when it gets concerned that countries are actually 

going to get somewhat serious about breaking free 

from its hold. Well, to undercut electricity, they would 

have to drop the price of oil down to $5 or $10 a barrel. 

This is not easy to do when you have huge demographic pressures to contend with. Look at the Middle East 

and North Africa. We’re dealing here with sclerotic, 

corrupt regimes across the board. Many of them, in 

order to survive, have made a cradle-to-grave bargain 

with their populations: “We’ll supply what you need, 

just don’t storm our palaces.” That bargain doesn’t always hold, as we have seen, but there’s a reason why 

the Saudis increase entitlement spending whenever 

instability occurs. It isn’t because their princes all of a 

sudden decided out of the goodness of their heart to 

distribute more money to the population. It is because 

they want to keep their heads attached to their necks. 

In sum, you can’t undercut electricity by manipulating oil price. This means that having electricity in 

the transportation fuel market will in essence serve to 

protect the other liquid fuels. That’s because whether 

you look at methanol from natural gas, methanol from 

coal, ethanol from sugar cane, or even ethanol from 

corn—and that’s with no subsidies, no tariffs — all of 

them are economic at $50.00-$55.00 a barrel of oil. 

You are probably asking yourself how come we’re 

not using these fuels if they are economic. I’ll present 

a very simple analogy to you. Let’s say you are lactose 
62

intolerant, but you want to start each day with a cup 

of coffee with some milk in it. If the price of rice milk 

and soy milk goes to an unaffordable $50.00 a gallon, 

you still can’t put cow milk in your coffee. Essentially, 

therefore, the cars we are manufacturing today are allergic to anything but one type of fuel. It doesn’t matter how economic the other fuels get in comparison 

to oil, we can’t put them in our car today because the 

engines will not accept the fuel. 

Does that makes sense? That’s the issue. You can’t 

say that the free market will settle this when we know 

from economic theory that the market has a very hard 

time dealing with monopolies and cartels. In effect, by 

closing its vehicles to fuel competition, the auto industry is colluding with the cartel. It doesn’t do this by 

design, or because it wants to. Nor does it do so because it is engaged in some kind of bizarre conspiracy. 

It does it out of inertia or habit, call it what you will. 

But that is what is happening. 

During the Q-and-A, we’ll talk about that third elephant in the room, the developing world. The major 

thing to keep in mind about electrification of the transportation system is that it will be a very long time before it happens. It will be decades before we get mass 

market penetration. We must not look at it as a silver 

bullet and neglect everything else. 

An integrated strategy, including a fully competitive fuel market: that’s how we’ll break the power of 

the cartel. That’s how we’ll reduce the nefarious influence of all of these oil-rich bad actors on the world 

stage and reduce their ability to destabilize various 

regions of the world. It’s the only way that we can ensure our continued prosperity and economic growth. 

It’s not a sufficient condition for avoiding national 

decline but it’s certainly a necessary one. 
63

PROTECTING THE PRIZE

Eugene Gholz

INTRODUCTION

The title of my paper as listed in the conference 

program was “Energy Alarmism and the Strategy of 

Restraint.” An article I wrote a couple of years ago 

had “energy alarmism” in the title, and I’ve written a 

series of articles advocating the need for a grand strategy of restraint for the United States. By that, I mean 

that we should be a rich country, we should have a 

powerful military, we shouldn’t let anybody mess 

around with us or threaten us too much, but we don’t 

want to have a busy military. We should be restrained 

in the way we apply your activist policies around the 

world. I happen to think those two things marry up 

together. We don’t need to have an activist military, 

and there are many reasons why we shouldn’t have an 

activist military. Similarly, we should tamp down our 

energy alarmism. 

In the present paper, I shall discuss protecting the 

prize—oil and American national security—which is 

the title of a recent article I just published.

DEFINING ENERGY SECURITY

I have a nice picture of a family fueling their car at 

the pump looking basically happy and feeling good 

about how easy it is to drive around. In a sense, this 

is our conception of energy security, how most people 

talk about it. Casually, we talk about it as access to reliable, cheap energy. That’s actually not a particularly 

useful definition of energy security. I would want to 
64

modify it a little bit. I’m going to talk about energy 

security from the perspective of protection from acute 

price spikes or from sudden variations in price. 

It’s these kinds of things that very often link energy 

to military issues because we think of the military as 

a crisis response tool. We think of it as something that 

you can use if there’s a political/military disruption in 

oil markets somewhere that suddenly sends oil prices 

up or creates a price spike. We think we could use the 

military to try to tamp down that pressure, either to 

respond to the spike, or to prevent the spike in the first 

place. 

Consequently, there is this drumbeat that says the 

reason why the American military needs to be deployed 

around the world and prepared to be activist and have 

a forward presence mission is to prevent threats that 

would otherwise create price spikes—things like a 

war in the Middle East. People are deathly afraid that 

there could be a war between two major oil producers 

which would disrupt the oil market. Then the price 

would go up, and that would cause a real problem for 

consuming countries like the United States.

When I talk about energy security, I’m talking 

about efforts to prevent that kind of sudden political 

change or sudden price spike. In the preceding chapter 

by Anne Korin, she was speaking rather of the longterm price of oil, whether it gets higher or lower. She 

also spoke of the cartel trying to set a higher baseline 

price, not because of a supply disruption but because, 

by restricting supplies on a normal day, it can drive 

the price of oil up. In that case, we would pay a little 

more for oil than we otherwise would pay.
65

MARKET FORCES AND OIL PRICE SPIKES

Many things will influence the long-term price of 

oil: climate change policy; whether peak oil happens; 

the long-term ability to find oil relative to the amount 

of growing demand in the developing world. Those 

are not events that are very easily manipulated by security policy. There is no U.S. military policy that can 

stop peak oil, if such peaking is truly happening. The 

military can’t create more oil underground. Whether 

or not we have reached peak oil is a whole other question, which I’ve written about elsewhere. 

Here, the issue is oil price spikes. Let’s talk about 

that. The conventional wisdom goes a bit like this. 

Suppose there’s a supply shock somewhere in the 

world. Someplace that is producing oil, for whatever 

reason—there’s a war, a revolution, an embargo, or 

something else—produces less oil. As a result, it suddenly puts less oil into this global bathtub where oil 

producers are dumping oil into the world market, and 

oil consumers are sucking it out of different drains all 

around the world. If somebody’s putting in less oil, 

so this conventional wisdom runs, then it’ll be harder 

to suck oil out of each drain. There’ll be less oil in the 

bathtub, the flow will be slower. Prices will go up and 

consuming countries like the United States will feel a 

hit because we have to pay more for our oil.

This story underpins some American and global 

security policy. The problem with it is that markets 

adapt, even markets with cartels; in fact, in some 

ways, especially markets with cartels. Therefore, if one 

country reduces its contribution to the global supply, 

all the other suppliers around the world have incentives to change their behavior. In fact, they will try to 

make up the missing supply. Thus what happens is 
66

that supply is restored. When somebody goes off production, someone else turns up their faucet a little bit 

because there’s an opportunity to make more money 

by dumping oil in the bathtub. The result is that no 

one actually ends up facing a dry pump. When you 

put gas in your car, somebody else is now pumping 

oil and the price doesn’t go up to a worrisome extent. 

Supply is restored by natural market forces. 

Thus anytime there’s a disruption in oil markets 

around the world, you get a kind of race in the natural 

market between how much oil goes offline and how 

quickly substitute suppliers can bring oil back online. 

This determines how much the price goes up. This is 

normal market behavior. It doesn’t require particular 

foresight, or especially smart people in the oil business, although there are many such people. Nor does 

it take someone to plan ahead or develop a complicated policy. Normal market forces create that race.

As Anne Korin and Alan Hegburg pointed out, 

there’s a cartel involved, and what’s the whole point 

of cartels? It’s to damp down market forces. The cartel would like to manipulate the price of oil. So your 

instincts might be to think that, yes, in normal market 

conditions, when there is a supply shock other suppliers will try to increase their output and that would 

keep prices relatively normal, but that the cartel will 

undermine this.

But it turns out that cartels are not good at preventing this kind of adaptation. In fact, it’s just the reverse. 

Because cartels limit outputs below what they otherwise would be in a competitive market, they have 

potential supply lying around. They have a certain 

level of production capacity that they are not using. 

They could supply more to the market than they do 

because the whole point of the cartel is to drive up the 

equilibrium price.
67

What ends up happening is that when there’s a disruption, all of the suppliers in the cartel—some more 

than others, but all—have some amount of excess capacity lying around which they can turn on. This can 

compensate for the disruption caused by the country 

that has gone out of the market. In fact, the suppliers 

have more slack capacity lying around than perfectly 

competitive firms in the market because they are part 

of the cartel. 

It turns out it’s actually even worse than that for 

the cartel because every time somebody goes out of 

the cartel, every producer in the cartel that has excess 

capacity wants to be the one who gets to turn on their 

taps and sell extra oil and make extra money to make 

up the capacity that was taken off the market. The different producers in the cartel fall all over themselves 

in cartel negotiations saying, “Let me do it, let me do 

it.” Everybody wants to do it. They have great difficulty making a new bargain, reaching a new political agreement as to who’s going be the one that gets 

to pump more oil. The usual outcome of this is that 

everybody tries to be the one who pumps the extra 

oil. This means that more oil comes onto the market 

than was taken off by the actual disruption because 

the cartel members can’t reach political agreement fast 

enough to keep up with the dynamics of the market. 

Thus it’s very hard for cartels not to oversupply during supply shocks. From our perspective as consumers, that’s great news because it means we’re never 

going to face the actual cutoff, and so the price can go 

back down. 

This is actually what we see when we look at the 

evidence. If you look at a graph showing the biggest 

supply shocks that have happened in the past, you can 

see that there are a couple of times when one or two 
68

countries had a big supply disruption.3 In each case, a 

declining line shows the disrupted country’s oil supply after the disruption. Most of them stay down, but 

they try to get back up as quickly as possible to their 

pre-disruption production. But you can see the rest 

of the cartel, and in fact the rest of countries in the 

world, the non-OPEC suppliers, lead us back to a 0 

percent disruption much quicker, in a matter of a few 

months, except in the one strange case of the Iranian 

disruption of 1979. There’s a lot of speculation about 

why Iran in 1979 was different. However, after most 

disruptions, the market can cover and compensate for 

them, and we are better off not trying to prevent them. 

Our actions to try to prevent them are very costly and 

ill-advised, especially since most disruptions will go 

away naturally.

I mentioned that there is one case people are very 

afraid of, and that is when two significant oil producers go to war, a huge disruption in oil supplies is 

created. In fact, what happened during the war was 

that there was a sustained reduction in the price of 

oil because people were overproducing and cheating. 

Among other things, the countries fighting the IranIraq war wanted the income from oil so they could 

buy more guns and blow each other up. They needed 

the money. Consequently, oil production was not repressed. The price of oil dropped, which was good for 

us. Eventually, Saudi Arabia got tired of everybody 

cheating. Saudi was really the only country that was 

trying to maintain the OPEC quota, and you see the 

sudden price drop in about 1986 when the Saudis said, 

“Screw you, we’re turning on the spigots.” The real 

effect was to disrupt the cartel and create downward 

pressure. Price shocks disrupt the cartel.
69

There are caveats to this story. Sometimes OPEC 

doesn’t control the price, and you’re back in the normal 

market response world. There’s a lot of debate about 

when OPEC is more and less important. How well the 

cartel is functioning varies over time. Sometimes cartel cohesion is high, and cartel members manage to 

cooperate to restrict supplies. Sometimes the cohesion 

is low, and they compete more like normal competitive suppliers. But as long as we’re at least somewhat 

in the cartel world, we are less vulnerable to spikes, to 

supply shocks. Sometimes there’s less slack capacity 

than at other times. That was true in the mid-2000s 

when the oil price was going way up because Chinese demand was growing very rapidly. During those 

times, you have a slightly greater likelihood of price 

spikes.

If you had incredible foresight, if you were God, 

you could adapt American security policy and say, 

well, we’re going to do a little bit more in the times 

when there’s less slack capacity or when OPEC is not 

being well behaved. When OPEC is working, then 

we’ll hold off a little bit on security policy and let 

things evolve. You could modulate. 

But we’re not smart enough to modulate, and in 

fact most of our modulations wouldn’t work very 

well. In general, the policy should be to first stand back 

and let the market evolve because most of the time the 

market fixes these problems. In those times when after 

a while the market doesn’t fix things, you’ve got the 

Strategic Petroleum Reserve. You’ve got other conscious policies that you can engage. Eventually, if you 

really wanted to and you were really in bad shape, 

you could use the military. 
70

POLITICAL-MILITARY EVENTS

I shall comment briefly on three particular kinds of 

political-military event that might overwhelm a market response to supply shocks. First, what if somebody 

conquered all of the Middle East? You would then 

have a better functioning cartel. Suppose the cartel’s 

supply got disrupted or suppose it chose to disrupt its 

own supply. There wouldn’t be any other suppliers in 

a position to bump up supplies.

 Second, what if transportation were interrupted? 

What if somebody, say Iran, tried to close the Strait of 

Hormuz, an inviting choke point, through which 17 

million barrels of oil a day pass. There are other choke 

points. What if there was a military interruption of a 

huge oil producer as opposed to one of the smaller 

spigots that could be compensated for through another supplier? 

Third, what if there was a civil war in a country 

that is a big supplier? A civil war in Nigeria, which is 

a moderate supplier, might cut off hundreds of thousands or maybe even a million barrels of oil a day. 

Other suppliers could easily enough compensate for 

this. But a civil war in Saudi Arabia could cut off nine 

million barrels a day. It would be very hard for other 

suppliers to compensate for that. So you might be 

concerned with preventing a civil war in Saudi Arabia 

and might think of using the military to respond. 

We therefore must inquire, How real are these 

threats? Is there a military response? 

Conquest.

First, consider military conquest of a major oil producer. The fact that we are probably now at the lowest 

risk of conquest of one oil supplier by another of any 
71

time in history. It used to be that Iraq posed a threat 

in the Middle East. But one effect of the U.S.-Iraqi war 

is that we wrecked Iraq’s military. There is no doubt 

about that. Iraq is no longer a serious threat to the 

other Middle Eastern oil producers. 

The U.S. military is very good at coming in from 

afar using standoff weapons. We don’t have to have 

forward presence to stop one country from conquering another. Our precision capabilities have gone up 

since 1991, so we can stop a would-be conqueror in its 

tracks.

Infrastructure Attacks.

The second issue that concerns us is an attack on 

the oil infrastructure such as disruption of transport. 

Can somebody close the Strait of Hormuz? In fact, an 

oil tanker was once attacked and set afire off the coast 

of Yemen waiting to go into port. Stopped oil tankers are somewhat vulnerable but only somewhat. The 

good news about this tanker is that, even though it 

burned for 3 days thanks to a lucky shot, it sailed away. 

It didn’t sink. It continued under its own power. It 

got repaired. It was not cheap to repair this particular 

tanker, but that tanker is sailing today delivering oil 

around the world. It’s very hard to sink and disrupt 

tankers using traditional weapons and military capability. Tankers are very resilient targets. In some ways, 

they’re much more resilient than warships, and there 

are a zillion of them. Every day something like 22 supertankers pass through the Strait of Hormuz. If Iran 

were trying to disrupt global oil supplies by attacking 

tankers, it would have to hit lots of tankers every day 

on a sustained basis. It would have to continue doing that day in, day out, for months to sustain the dis-
72

ruption. That is a very difficult military mission. It’s 

way beyond the capabilities of Iran, even if the United 

States stood back and just took the punches, but we all 

suspect we won’t actually do that. 

Internal Instability. 

The last point is the scariest one. What about internal instability? What if the Saudis had a civil war and 

couldn’t produce any more oil? That would be a real 

problem. The market couldn’t compensate, but what 

could we do? We would be faced with a really horrible 

situation where we could swallow the price increase, 

or we could use the military to try to stop a civil war in 

a country that is considerably bigger than other countries we’ve intervened in. There are geographic and 

demographic reasons why it would be very hard to 

tamp down the civil war once it started. 

So the real question is what should the United 

States do militarily to prevent a civil war in Saudi Arabia? The best answer is to stay out of Saudi politics. 

When we have lots of soldiers deployed in the Middle 

East, particularly around the Gulf, it is a recruiting 

tool for radicals. Now it goes both ways. There may 

be reasons we want to do it anyway. There may be 

reasons we want to have troops deployed there, but 

we have to understand that the deployments increase 

the probability of instability in places where we’d 

really rather there not be instability. It’s a very risky 

and costly policy. Given that the market can handle 

most of these situations, it’s probably a bad idea to 

pay the costs of actually increasing the probability 

of the bad outcome, i.e., fomenting internal security 

that can actually threaten energy security. Thus, in the 

long view, not being forward-deployed in the Middle 
73

East is probably the best energy security policy that 

we can adopt.

CONCLUSION

The bottom line is that threats to energy security 

are probably exaggerated. It’s very difficult to generate sustained price spikes through political military 

supply interruptions around the world. The market 

compensates. The cartel compensates. This means that 

the military should play a particularly small role in 

trying to defend against these contingencies because 

it’s not a practical policy tool. Energy security policy 

based on the military is a bad response to lots of the 

energy issues that face us. Better to back away from 

the military option where feasible, and adopt an overthe-horizon posture in the Middle East, and engage in 

a policy of strategic restraint. 

COAL, CLIMATE CHANGE, AND CONFLICT

Kevin Book

INTRODUCTION

For those involved in the process of geopolitical 

and economic matters and trying to figure out how 

they work, for those interested in stimulating and 

complex relationship between the different moving 

parts of the global energy economy, and for those 

grappling with such ultimate matters as death, money, and salvation, it is impossible to avoid the subject 

of oil. I shall discuss oil in the context of the climate 

dimensions of security. 
74

OIL

I want to begin by speaking to what an oil analyst like me does. I’m probably less political and more 

bloodless than anyone who has a dog in the fight here 

today. That’s partly because my clients pay me for 

only one thing: to look at what the risks are to their 

investments so they can make money. So far as the 

larger purpose is concerned, there is little difference 

between an oil company and portfolio management 

at a financial management firm, mutual fund, or large 

hedge fund. They’re all concerned with what could go 

wrong anywhere in the world.

In 2007 I was one of only two of the approximately 35 analysts serving all of the world’s institutional 

capital who suggested that maybe we didn’t have any 

idea how much oil there was in the ground in Saudi 

Arabia. There have been Saudi presentations showing 

where they explored for oil on the Arabian Peninsula. 

But in fact the Saudis have barely looked. What they 

have found is the cheap oil. 

Anne Korin made the point that the Saudis are capable of pulling back on production precisely because 

they have very cheap flowing oil. They are also very 

effective at buffering supply, but what they haven’t 

done is what a for-profit business would do, namely, 

look for oil that could respond to the marginal demand 

in the market when the price rises. Thus, in 2007, there 

were no companies operating in Saudi Arabia that 

could speak to whether Saudi oil was running out. 

My main interest at the time was demand. After 

all, demand is the one thing that we all understand. 

We all love energy. I (and the other lonely analyst 

referred to above) both asked what cost for oil the 

world could bear. We looked at a couple of different 
75

areas separately. The answer we both arrived at was 

that economies that subsidized energy were starting 

to spend significant, indeed alarming, shares of their 

GDP (gross domestic product) when the price of oil 

per barrel crossed $100. So something was going to 

have to give.

Here in the United States, where people rightly argued that if there was a higher price for energy, they’d 

be the ones to pay it, we were also starting to have 

noticeable problems. We’d been completely indifferent to price for the first 6 years of the last decade. The 

University of California-Davis Institute for Transportation Studies published a study in 2006 showing that 

there was no price elasticity of demand for gasoline. 

It may have been that we were recycling value in our 

homes, and we had lots of credit. It may have been 

that we were just really rich at that time and didn’t 

care. 

I started looking for the demand response in 2003 

and didn’t find it until 2008. The way I started looking 

for it, since it wasn’t showing up on the roadways as 

reduced demand for vehicle fuel, was something we 

call consumer energy leverage (CEL).4 Just recently, 

we prepared a report for our clients, the really masochistic ones who want to read them. It provided an 

update of what U.S. households spend on electricity, 

gasoline, and home heating. Again, Korin made a very 

salient point. It isn’t just the price of the stuff that you 

buy at the pump that hits you when oil prices rise. A 

large portion of this country depends on propane and 

heating oil, so an increase in the price of oil affects the 

average amount of disposable income out there.

To put this into perspective, for about a decade 

we’ve been in the 6 percent to 8 percent range of CEL 

(personal energy expenditures divided by personal 
76

disposable income), and in 2007 we got to 10 percent. 

At that point, we crossed a pretty important line. 

There’s a direct tradeoff once you get there, as Alan 

Hegburg mentioned, because you can no longer spend 

your disposable income on higher multiplier parts of 

the economy.5 GDP starts to decline because you’re 

putting gasoline in your vehicle at a higher price. 

Looking at the intra-year data, we got up to about 

12 percent CEL in 2008, before we fell back down to 

9.3 percent in 2009. This is on a national average basis. 

There were locales where it was well above 20 percent 

in 2008.

This year, with oil currently costing $87 a barrel 

which was our projection for calendar year 2011, we 

project that CEL in the United States will hit 10.4 percent, the second highest year on record in a decade. 

So, if 2008 was a laboratory year for showing how cartels respond to carbon taxes, it was also a laboratory 

year for showing how the most highly energized, indebted, and energy-consuming economy in the world 

responds when it has cash in the bank. In 2008—when 

we were flush—that response was to drop demand by 

a million barrels per day in transportation fuels and 

half a million in the logistics value chain. That created enough slack for even a well-managed cartel to 

find itself at a price so low that it had to break its own 

promises.

FOSSIL FUELS AND THE MILITARY

If we are asking what kind of things the military 

can do to deal with such matters, let me offer two 

poignant vignettes. In my position, I inadvertently 

get drawn into public discussions with policymakers, 

sometimes congressmen who yell at me and say scary 
77

things, and sometimes planners in the Pentagon who 

are doing things called quadrennial reviews.6

Of course, I’m just an economist who knows energy. I remember a discussion I had in 2004 about 

the Joint Battlefield Use Fuels for the Future (JBUFF) 

program, which was intended to diversify our supply in an ever scarcer world of middle distillates, the 

stuff that moves jets and material and underpins logistics. 7 The idea was that we were going to look at 

our shale reserves here in the United States. We were 

either going to burn it or electrocute it underground 

so as to pull out the stuff we can put in our jets. We 

also were going to look at coal-to-liquids technology, 

a high carbon dioxide emitter.8 Nazis and South Africans during apartheid found it to be extremely useful 

for mobilizing hydrocarbons, but very messy from an 

environmental perspective. 

We were looking at all those things as a nation 

seeking to fuel its military. In the last discussion I had 

with those same planners, they were talking about 

how to minimize our dependency on electric power, 

how to put solar installations on top of buildings, and 

how to change the cost of operating facilities. 

Two things happened during that interval. First, 

we discovered that there was still a need for oil in the 

world. In the military forward operating positions, 

you generally are going to need to have your fuels 

close at hand. If you find fuels at home of a suitably 

high energy density, you still have a problem. How 

are you going to get them overseas to your forward 

operating positions? You use oil and oil products. 

Second, we realized that if the military can lower 

its operating costs and improve the economics of the 

folks back home, it can help the folks who are fighting 

in foreign theaters. That is to say, we have an opportu-
78

nity here in the United States to help our energy situation. Anything we can do to diversify, which has been 

discussed pretty abundantly, to manage our utilization, and to improve our conservation, will be useful. 

It will change the global oil system, at least for a little 

while, giving it enough time to adapt and enough time 

for us to get more money so that we can buy the higher-cost resources that can buy us more liberty.

This is one of those beneficial tradeoffs that I keep 

talking about—the tradeoffs between energy and 

economy, energy and security.

Coal, Energy, and the Environment.

Oil is capitalism. That’s why a financial investor 

and an oil company think the same way. Coal is core. 

Coal is crucial. Coal is life. 

If you look at who’s using which energy in the 

world right now, the United States is kind of a dinosaur. We’re surprisingly coal-levered for a Western 

industrial economy. That’s mainly because our energy economy is a pure market economy. Substantial 

liberty is extended to the producers and consumers 

throughout the value chain to find the cheapest way 

to do things. It turns out that, most of the time, the 

cheapest energy option is coal. That is mostly because 

we already have the facilities to consume it.

We have about $2.8 trillion of energy infrastructure in place right now. It’s expensive to replace. We 

use coal because we’ve been using it for a long time. 

But we’re using less of it as a share of our generating fuels, and we’re looking at ways to use it more 

efficiently when we do. The developing world doesn’t 

have the liberty or the luxury to make this transition, 

which brings us to the thorny topic of climate change. 
79

Whether or not hydrocarbons cause climate change, 

climate change is definitely happening. If hydrocarbons indeed make the problem worse, you should 

probably minimize hydrocarbon combustion. Coal is 

clearly a hydrocarbon and clearly combusts in a way 

that yields carbon dioxide. We are not going to be able 

to control carbon dioxide emissions if the developing 

world’s existential growth toward economic development requires more coal. 

There are other interesting aspects of climate security and national security vis-à-vis coal as an energy 

source.

Here’s what’s great about energy. It is a real 

economic marketplace. It is a venue where people 

maximize value, minimize risk, and behave opportunistically. All the theory you study as an economics 

student is true, except for one huge “if.” Sovereign nations control resources. Indeed, they don’t just control 

resources. They tend also to control trade, resources, 

infrastructure, and related and supporting industries. 

Thus the bad news is that whether or not your economic analysis proves valid depends on what the 

sovereign wants to do. Eugene Gholz made that point 

very effectively, and it’s an important one. A case in 

point: all of the analysis that my oil price-predicting 

peers and I did on the global supply system proved to 

be wrong. Why were we wrong? Because things that 

happen by sovereign fiat basis can change price very 

dramatically.

Sovereigns also change allocations and choices. 

One of the places in the world where they have the 

most control over energy allocation choices is China. 

This is one of the places least like a market democracy 

as characterized by a republic run by representative 

officials. For the better part of the last decade, China 
80

did not concern itself with green energy or climate 

policy. It was in a pure acquisition mode. Sovereignty 

and supply are one and the same for the Chinese. 

In 2003, when I was trying to fathom Chinese energy policy, nobody there would talk to me. But in 

2004, all the Chinese diplomats wanted to talk about 

the growth in China. The difference was that they had 

succeeded in engendering a reasonably sophisticated 

supply system. This was growing really fast, and they 

realized they were going to need to address energy 

supply to keep their population satisfied, for economic and social reasons. Korin mentioned the most 

extreme case of this kind of thing. That’s when you are 

an oil-exporting nation, and the amount of oil you sell 

determines the amount of money you have to placate 

a population that might not otherwise be quiet and 

willing to cooperate. 

For the developing nations, the choices aren’t good. 

They’re going to have to look at coal because coal is 

stable, and it doesn’t take a lot of bells and whistles 

to turn coal into a functional energy source. Developing nations also have a great advantage, though. 

It’s the advantage of being able to leapfrog over the 

mistakes that we ourselves have made. Our existing 

coal-dependent infrastructure is expensive and hard 

to replace. 

The emerging economies have the opportunity to 

avoid coal-dependency. But there is one problem. It 

turns out that using green sources, climate-preserving 

sources, if you want to call them that, or autonomyimparting sources, if you prefer, requires related and 

supporting infrastructure. Try to get a wind turbine 

up to a mountainside without petroleum. Try to make 

tricholorosilane gas into polysilicon without electric 

power. There is a bridge between fossil energy and 
81

clean energy. We can help developing economies 

manage that bridge by making sure that they’re empowered to support a successful implementation of 

clean energy. This is actually a huge opportunity. 

Their countries are the only places we can do it. We 

are not going to do it here in the United States, not 

right now. We will eventually. But if we already had 

a more competitive, more profitable way to funnel solar power into homes, we would be doing it. True, in 

some places and in some cases, it is more profitable 

to use clean energy than in others. But if it were economical, it would be widespread here, and we would 

be using it. 

If energy companies like ExxonMobil could find 

a way to take the massive distribution infrastructure 

and sales infrastructure they already have and adapt 

it to sell a different fuel, say, one made from algae or 

cellulose, or one made from decomposing natural gas 

into hydrogen, they’d be doing that too. The problem 

is that they would have to buy new equipment to sell 

that different fuel, and they don’t want to do that in 

a market-based system when the infrastructure they 

already have is paid for, and any new infrastructure 

will require new spending.

Weirdly, nonmarket economies therefore have 

more opportunities than market economies to adopt 

alternative fuels. We do business with some of these 

countries. They actually present us with a wonderful opportunity, provided we’re willing to have the 

same uncomfortable relationships in doing business 

that we already have when dealing with those same 

sovereigns. We can help them begin a transition to an 

autonomy-generating, air-cleaning, possibly climatecooling energy system.
82

Herein lies both the hopeful part about coal and the 

unhopeful part. Coal, where it exists, is useful, cheap 

. . . and dirty. Cleaning it up turns out to be extremely 

messy. It’s not that I don’t like the idea of clean coal, 

it’s just that it really doesn’t exist right now. There is 

a future for the integrated gasification combined cycle 

(IGCC).9 It would entail advanced technology coal 

working at about three times the current wholesale 

price of power here in the United States. Until that 

price arrives, the present large coal-fire electric generation companies will remain reluctant to spend money 

on this technology. Moreover, we as ratepayers in our 

society aren’t particularly excited about it either. 

But the answer is to find the way to use coal to encourage greater fuel diversification. Though it is only 

peripheral to my subject, allow me to touch on the 

topic of diversifying transportation fuels away from 

oil. 

The natural thing to do would be what the Saudis 

are doing, which is spending about 30 basis points of 

top-line oil revenue, in other words three-tenths of 

1 percent, on diversifying their own consumption. If 

they don’t use it themselves, they can sell it for export. As Alan Hegburg mentioned, the Saudi fuel oil 

facilities employed to generate that nation’s power 

are among the least efficient producers of steam in the 

world. At today’s oil price, the opportunity cost to the 

Saudis, by our calculation, is about the same as the 

unsubsidized cost of wind generation in the United 

States. That’s effectively a gap closer. The Saudis have 

an abundant sun resource. They also have a decent 

amount of silica (silicon dioxide). At some point, solar 

photovoltaic technologies can close the gap. They are 

currently about twice that price, with an indifference 

price10 of about $130.00 per megawatt hour at today’s 
83

oil price—the best photovoltaic deployed would come 

in at about $250.00 per megawatt hour. 

There are ways to use fossil energy to pave a pathway to cleaner fuels. We have not even mentioned carbon capture and sequestration (CCS). It works really 

well. But CCS is one of those complicated issues. If 

you are going to sequester carbon, you are going to 

stuff a whole bunch of carbon dioxide underground. 

So where are you going to put it? The only place it 

currently makes sense to put it is in an oilfield, and not 

everyone agrees that that’s a good idea. Some people 

complain that producing enhanced oil with carbon dioxide brings hydrocarbons back into the mix. But it 

may be a good idea. 

But perhaps the best way to capture and store carbon dioxide is something called “beneficial use.” This 

is where innovation enters the picture. We need to find 

ways to create building materials and byproducts that 

affordably repurpose the sequestered carbon dioxide 

in products that can be deployed to greatest benefit. In 

other words, not deployed here, but in the developing 

world where they’re still creating the structures of urban life. Building materials that capture and store carbon dioxide would be a huge advantage and a huge 

addressable market for investors.

COMMENTARY

Rosemary Kelanic

Let us try to draw together all of the strands in the 

panel presentations. Hopefully, I’ll also start some discussion between people on the panel and within the 

audience and perhaps even between members of the 

audience. Let's begin with a couple of general points 
84

that might be food for thought as we’re debating these 

issues going forward. 

DEFINING ENERGY SECURITY

There is a huge disagreement about what energy 

security is. What is the nature of the security threat 

and who is being threatened? Just on this panel, we’ve 

heard some disagreement when it comes to what it is. 

Is energy security really an issue of price volatility, as 

Gholz has put it? Is it a long-term price increase issue, 

as Korin put it? Or is the security issue really something that is more about the nasty by-products of buying oil—like the fact that we end up giving money to 

regimes that then fund terrorism? That’s what Korin 

talked a lot about. 

We’ve also looked at the question of who is being 

threatened. Do countries who import more oil face 

greater threats than other countries? Or do worries 

over energy security affect everybody about the same? 

In the field of international politics, when we think 

about security threats, we are usually not imagining 

a universal theater. One country threatens another 

country, and there’s a winner and there’s a loser. But 

the oil market is global, and prices are global. If prices 

go up, everybody is hurt. Isn’t everybody threatened 

about the same? Who are the real victims here? Who 

wins, who loses? 

What exactly do we mean when we talk about the 

dangers of dependence on foreign oil, as opposed to 

dependence on oil in general? This was an issue during the 2004 election. The John Kerry campaign wanted to say something that had to do with international 

security. At the same time, they wanted to avoid mentioning the war in Iraq, which Kerry so inconveniently 
85

had been in favor of. Therefore, they made creating a 

stronger America at home an issue. One of the things 

they said was, “We want to reduce dependence on 

foreign oil.” This nostrum has acquired a lot of cachet 

over the past 6 or 7 years, and politicians have hung 

their hat on it. But it’s not totally clear, as Korin said, 

what difference it makes where the oil is produced. 

To what extent are energy security issues really 

about security as opposed simply to being part of the 

domestic political discourse or about the security of 

an officeholder’s position? Maybe these issues don’t 

affect a country’s security in the sense of affecting its 

existence—which is the way we usually think about 

security. Or do they? It occurred to me that over the 

course of the rest of this conference we are likely to 

think a lot more about alternative fuels and climate 

change. Everybody can agree that climate change is a 

real threat, and this could be a threat to global security. 

Then we have the more traditional ideas about security threats which would be war, conflicts, and coercion. For instance, some claim that oil can be used 

as a weapon to try to blackmail one country to do 

something it doesn’t want to do. These are the sorts of 

more traditional security threats that we talk about in 

international politics. 

It’s not clear what the threat is from a traditional 

security perspective. It’s not clear how bad the threat 

is, but it seems as if these traditional and untraditional 

threats are contradictory in a way that may actually 

be good. When we think of traditional security, we are 

thinking that our economic, and maybe political, survival depends on the continued supply of cheap oil 

and cheap energy to keep the economy going. But that 

cheap oil is the same thing that’s actually threatening 
86

us when it comes to the nontraditional security threat. 

To reduce climate change, it seems that what we want 

to do is try to prevent increased use of fossil fuels. You 

want to decrease fossil fuels.

So, how do those two things relate? When we face 

traditional threats, would we be happy about this? 

Should we be glad if oil prices are going up, or glad if 

they’re spiking and going up and down? It may hurt 

the economy in the short run, but ultimately if this is a 

fuel that we need to switch away from in the long run, 

maybe that’s a good thing.

KORIN PRESENTATION

I have a couple of comments on each of the presentations. On Korin’s presentation, I think one of the 

key take-aways, the argument that I think of the most, 

is that there are all these nasty by-products associated 

with our dependence on oil. One of these is that we 

could end up with radical Islamic terrorism. Another 

is that we could end up with a cartel like OPEC that 

potentially, has control over our politics, or at least 

our pocketbooks. 

I’ll address both of those thoughts and just throw 

a couple of challenges at you in that regard. First of 

all, I’ve always been a little skeptical of the argument 

about oil funding terrorism, because terrorism is cheap 

and that’s why terrorists use terrorism. It doesn’t cost 

them very much because they don’t have a lot of resources. So it’s not clear to me that petro-dollars are 

really that important for terrorism.

Estimates suggest that the amount Timothy McVey 

spent to bomb the federal building in Oklahoma City 

was between $450 and $500. The last estimate I saw 

about 9/11 was that it cost al-Qaeda about $300,000 to 
87

fund the 9/11 attacks. That’s just not a lot of money. 

It’s not clear that all these billions of dollars in oil are 

really making a big difference in terms of terrorism 

funding.

The other point is that where there’s a will there’s 

a way. Unfortunately, if the political situation is such 

that people want to perpetrate terrorist attacks, even if 

they don’t get money from oil countries, they’re going 

to get it from somewhere else.

Korin also talked about the security threat from the 

Organization of the Petroleum Exporting Countries 

(OPEC) and the cartel phenomenon. But cartels are 

not all-powerful. As Gholz said in his presentation, 

there’s a lot of incentive to cheat in a cartel. It may 

be hard to monitor. You want to sell more oil if you 

think the price is going to be higher, so in a lot of cases 

countries do defect from the consensus when it comes 

to a cartel situation. It’s just a huge collective action 

problem.

Then again, if there are cartel issues—and this is 

something that Korin discussed somewhat—what 

happens if OPEC cuts production? Well, economies 

become a lot less oil intensive. They become a lot more 

energy efficient, and this blunts the weapon to some 

extent. You have this adaptation which is actually a 

good thing, and OPEC countries know this. They know 

that if they push too far, people will turn away from 

oil and they’ll be powerless. Therefore, they can’t raise 

the prices too much. There is a real limit there, but ultimately they’re as boxed in as anybody else. I wonder 

how much power they really do have when it comes 

to pricing. Anytime they use their power, they’re putting into effect the things that then undo their power, 
88

because using it motivates people to modify their behavior and the cartel’s power lessens. 

Finally, Korin brought up a point about collusion 

with car companies, and how we can put only oil-based 

fuel in our engines. We can’t use other fuel unless the 

technology changes, but there is more to it than that 

in the sense that there’s actually a large population of 

producer gas enthusiasts. During World War II, there 

was an oil shortage, so what did countries do? They 

created these producer gas vehicles. All you had to do 

was add an attachment to your car, and then it could 

run on coal, peat, or wood. There are pictures in Nazi 

Germany of people with cars with this crazy little 

attachment in the front, and they’re dumping wood 

chips into it.

The fact of the matter is that you can look up producer gas vehicles on the internet. There are people 

that just love this. There’s a picture of a Toyota Corolla 

with one of these attachments on the back, and the guy 

drives around and fills up his engine by putting wood 

in the back of the car. 

What this all says to me is that it’s not so much 

about the technologies available as it is about will. 

People can change things if they want to. We can’t 

change people’s behavior by changing the options. 

They have to actually want to run their cars on wood 

or coal, or they have to be willing to buy cars that are 

more expensive that can run on both things, or run on 

electricity. So, it’s really more a demand issue than it 

is a supply issue. 

GHOLZ PRESENTATION 

Now on to Gholz’s presentation. He’s basically 

saying that threats to oil can cause price spikes. Some 
89

people out there think that this means we should be 

alarmed, and that there is a military solution to the 

problem. But, he says, they are wrong. His insight 

is that the market can adapt, it can adjust, and price 

spikes aren’t necessarily something that we have to 

worry about as much as people think we do. 

That is true for the most part, except that there is 

this whole issue of deterrence. If we do have a global 

oil market that can adjust so nimbly and get rid of these 

problems with price spikes, isn’t that partly because 

American forces are forward deployed, and we have 

a footprint in the Middle East? Isn’t American military power what’s underpinning the peace that allows 

the global oil market to function? That’s deterrence at 

work. So American forces, deployed the way they are, 

make it a lot easier to prevent something from ever 

happening in the first place. 

The best analogy I can think of is this. Suppose we 

live in a neighborhood that doesn’t have a lot of crime 

and somebody says, “We don’t really need police 

forces here because this is a very safe neighborhood. 

So let’s get rid of the police. We don’t have to worry 

because we don’t and won’t have crime.” However, 

part of the reason why you don’t have crime is that the 

police presence deters it. 

Part of the reason we have this peaceful market that 

can adjust to things is that we know that the United 

States is involved and is deployed forward to maintain these conditions. If American forces did redeploy, 

could this have effects that we can’t really anticipate 

because they’re deterring things from happening in 

the first place? 

Finally, there’s what Charlie Glaser refers to as the 

“security dilemma” aspects.11 “Security dilemma” is 

a rather jargony phrase, but it basically means that 
90

countries don’t know what other countries want, what 

they can do, and what their intentions are. They have 

to worry about what other countries’ intentions are 

in order to protect themselves from those countries. 

There are all these good reasons why we shouldn’t 

worry so much about price spikes in the market, but 

countries do worry about it, and given that they do 

worry about it, they take actions that can cause negative reactions. We might wish that people were a little bit more rational about it and weren’t so worried 

about it, but the fact is that they are, and because they 

are, this causes other security problems.

BOOK PRESENTATION

Finally, when it comes to coal, it appears that Book 

is saying that there is an opportunity in developing 

countries to make useful changes because they don’t 

have an infrastructure in place that’s favoring coal. 

It strikes me that the political infrastructure is almost more important than the physical infrastructure. 

One of the reasons why the United States is still using 

coal, and probably will continue to use a lot of coal, 

is the existence of entrenched interests. There are lots 

of people who benefit from the coal industry operating as it is, and that makes it harder to switch away 

from that fuel. In states like Pennsylvania, West Virginia, and Kentucky, you have major coal interests, 

and there are pretty powerful people in Congress that 

represent coal interests and have a good reason to try 

to block reforms that undermine the coal industry. 

You have this whole political apparatus set up that 

can also undermine change, in addition to the infrastructure issues. In thinking about what can be done in 

the United States and then in thinking about what can 

be done in other countries, the reality of entrenched 
91

political interests is something that we should also 

keep in mind when it comes to change. 

QUESTIONS AND ANSWERS 

Rick Kearney: I want to ask first if any of the panelists would like to make a quick response before we 

turn it over to the audience. When we turn it over to 

the audience, I would like you to address your questions to an individual on the panel or to the panel as 

a whole.

Panelist Responses.

Anne Korin: First, with all due credit to John 

Kerry, every President since Nixon has been talking 

about our dependence on oil. Now the fact that politicians talk about an issue doesn’t always mean that 

they have diagnosed the problem properly. As I said, 

the issue is not one of imports. It’s one of oil’s status 

as a strategic commodity. But note that we did accomplish something since the Arab oil embargo. We used 

to generate a lot of our electricity from oil. Now only 

1 percent of our electricity is generated from oil. So we 

diversified. We’re able to switch among different energy commodities when it comes to power generation. 

We’re not able to do that when it comes to transportation fuel.

Second, you’ll note I didn’t use the word “terrorism.” I find terrorism a very bloodless way to refer 

to the conflict that we’re in without actually talking 

about what the conflict is. It’s like talking about the 

Cold War as a war between missiles or talking about 

World War II as a war between tanks. 

It’s not the funding of a specific act of terrorism 

that is the problem. It’s the funding and propagation 
92

of radical Islam, and that is fueled by oil. The Saudis 

have spent some $70 billion on propagating radical 

Sunni Islam around the world. Ask yourself why the 

populations of Indonesia and Malaysia, which were 

primarily very moderate and mild Islamic countries, 

have become more radicalized. It wasn’t because God 

came down from the heavens and radicalized them 

overnight. It’s because the bulk of the mosques and 

the religious schools there are funded by Saudi Arabia, and the Imams and the teachers in those schools 

are trained in Saudi Arabia. If you look at why the 

Muslim youth are being radicalized in Europe, the 

people who came from the Middle East and North 

Africa to Europe came to escape oppressive regimes 

and to find work opportunities. Why is it that their 

children and grandchildren have become radicalized? 

It’s because their parents wanted to send them to a 

religious school to develop cultural affinity. Guess 

what? If the religious school is subsidized heavily by 

Saudi Arabia, that’s where you’re going to send your 

kid, essentially to be brainwashed. So, I think one 

shouldn’t use the word terrorism without localizing 

where terrorism comes from. It comes from the religious and cultural climate. It’s a climate that develops 

this notion of war against the rest of the world, be it 

Christians, Jews, Hindus, gays, women, or anything 

else. It doesn’t come from the air.

Lastly, if you look at vehicles, let’s put it this way. 

Does anyone remember what the price of oil was before 9/11? We’re in a different world today. The President of OPEC, the rotating president, is from Iran. But 

the real power of OPEC has always been Saudi Arabia. 

The Saudis have spare capacity, and they find a higher 

price point much more comfortable. When it comes 

to cars, how many people here are going to retrofit a 
93

car? I mean seriously. You want the market to respond 

in a dynamic fashion. That means people have to be 

able to make decisions among different fuels on the 

fly when they fuel their cars. How many people will 

go and install some sort of odd-looking wood-burning 

device on their car? Very few. 

Rosemary Kelanic: But that’s the point. The point 

is that people won’t do it. The point is that we have 

this problem because people don’t want to buy cars 

that run on electricity.

Anne Korin: The marginal cost of making a vehicle that’s capable of running on a variety of liquid 

fuels is under $100. GM says it’s $70 a car. That’s less 

than a rounding error in the cost of a car. Yes. There’s 

a reason that the vehicles that can run on electricity are much more expensive than others, and that is 

the battery cost. That’s why I said it’s going to take a 

very long time for these cars to proliferate. But talking about opening the market to liquid fuel choice is a 

rounding error on the cost of a car.

Kevin Book: The cost differential between two 

new car options is $100, but the cost between the car 

you have and any new car acquisition is 100 percent. 

Anne Korin: Yes.

Kevin Book: It’s the incumbency of infrastructure 

that weds us to our fuel choices. Coal and utilities are 

both stuck in one place, while oil is much more global. 

Electrons move, though. 

We have an electrical infrastructure, and we have 

electric vehicles today, so it’s inevitable that we will 

come to them if it becomes economic to do so. The only 

problem we have is that people don’t move as well as 

electrons or oil, and so if you drive into the city from 

your rich, suburban, happy life, or if you live in the 

city in your impoverished, squalid home, which you 
94

might, you have different utilization flexibility and 

price sensitivity for the electricity that’s being sold in 

the same place. 

We pay for power where we live. We pay for fuel 

where we drive. These things are policy problems 

above ground waiting to happen, and if you wait to 

see what happens when a congested grid charges 

Grandma in the city a premium, you may say, “We’ll 

penalize the inbound driver.” The inbound driver 

probably can afford to pay the penalty price. All this 

stuff is a great problem to have, though. To get to the 

point where there’s enough diversity that Grandma’s 

electrical power is getting bid up means that we have 

a solution that looks like fuel diversity. But right now 

we’re not rich enough to be there.

Anne Korin: If you look at how long a car bought in 

the United States stays on the road, it’s going to be on 

the road for 16.8 years. At that point, it gets scrapped 

or sold overseas. So there’s a fleet turnover time. That 

is why you want as swiftly as possible to ensure that 

new cars sold into the market offer liquid fuel choice 

which costs essentially nothing. Let’s be realistic—we 

are talking under $100 for this type of modification to 

a car. When you buy a car, do you look at what’s after 

the comma in terms of the cost?

Kevin Book: It’s not $100.

Anne Korin: If you look at the cost of doing it, it’s 

no more than that. There are over 7 million gasoline 

ethanol flex-fuel vehicles in the United States. GM 

knows exactly how much it costs. It says it’s $70 a car. 

Ninety percent of new cars sold in Brazil are flex fuel. 

If you want to make a vehicle that can also run on 

methanol, it will cost a little bit more, because it’s the 

most corrosive alcohol. But you’re looking at a very 

minor cost. If those cars enter the market, and 2 or 3 
95

years later you’re at a point where 15 to 20 percent of 

the overall cars in the fleet are flex fuel, you’ve established a pattern for quick growth. 

Kevin Book: The problem is the related and supporting infrastructure; you have 169,000 dispensers 

that have to become ethanol compatible and compatible with any other flex fuels being marketed.

Anne Korin: Let’s talk about how much that costs.

Kevin Book: It’s not a question of cost, it’s a question of whose cost must be paid. It's the distribution 

terminals.

Anne Korin: Of course.

Kevin Book: The private owner of that terminal 

has to have an incentive to scrap something that still 

has economic value in it, and that incentive either has 

to come from the government or it has to come from 

the market. It’s not in the market right now because 

the compelling price differential between methanol 

and gasoline, even if you look at it on the gallon basis, 

is not economically advantageous.

 Anne Korin: Incorrect. The cost of retrofitting a 

gas pump to serve any alcohol is between $20,000 and 

$30,000. 

Kevin Book: Between $50,000 and $75,000. 

Anne Korin: No. The cost of putting in a new one 

with underground storage is between $60,000 and 

$70,000. The cost of retrofitting an existing one, which 

is essentially doing a very good cleanup job on that 

pump and underground storage, is $20,000 to $30,000.

Kevin Book: For any alcohol? For even the corrosive methanol? 

Anne Korin: Yes, for any alcohol. 

Rick Kearney: The commentators have been 

successful in spawning an argument. Are there 

some questions?
96

Q: You spoke to the impact that the law of supply 

and demand plays with OPEC raising and lowering 

its production. Would you please talk about the impact of speculation on the price of crude oil? In 2008 

there seemed to be a lot of speculation in the market 

that drove the price. We might even be seeing some of 

that today.

Anne Korin: In 2008 when I was looking at the 

market and considering speculation, my big question 

was, Who’s driving the speculation? What you have 

to remember is that, when oil prices are high, we have 

this huge transfer of wealth going on from consuming 

countries to the countries of OPEC. Huge amounts of 

money fill up sovereign wealth funds that are allowed, 

of course, to play in the market.12 While in any other 

industry it is essentially illegal to bid up the price of 

your own product, I would not rule out the possibility that those sovereign wealth funds were essentially 

bidding up the price of oil. It’s quite possible. 

Kevin Book: She’s right. It wasn’t just because of 

a malign intent to raise the price of oil, although that 

might have been part of it. In part, it was because they 

had more cash than they could place without buying 

oil futures. It was a weak correlation, but it sure looks 

as if in March 2008 something weird happened in the 

differentials. You could actually see what Boone Pickens calls a Texas hedge. That’s when you basically buy 

oil futures with your own money.13 In part, though, 

it was because, like any investor, the producers face 

a portfolio challenge. Sometimes there weren’t a lot 

of other good options. Those sovereign wealth funds 

aren’t necessarily there to bid up oil. They’re there to 

ensure return for their investors. They’re supposed to 

diversify. If you ask me, oil futures were a lousy diversification choice.
97

Q: Mr. Gholz made an excellent point when calling for active restraint on the part of the political leaders who give orders to the U.S. military. I’ve been on 

both sides of a restrained and a not so restrained U.S. 

military. What about China? China has a burgeoning 

military force. There’s a lot of discussion about how 

technologically sound that force really is. But China 

has tremendous interest in securing oil for its economy. Why is it as restrained as it is, and do you see that 

changing?

Eugene Gholz: That’s a really good question. We 

need to understand the foreign military behavior of 

China and China as a rising power in global events. 

The fundamental response that I would have is this: 

I’m basically an American nationalist. I think the role 

of American government is to take care of people 

living in the United States. I want to know how we 

should deploy the American military to serve American interests. I would be hesitant to accept employment as a strategic advisor to China—China has lots of 

strategic advisors. But China is worth watching. What 

I’m basically saying is that I don’t care if the Chinese 

make good strategic choices or bad choices. But, given 

what China and everyone else is doing, I’d like to do 

what’s good for the United States, and I think restraint 

is what is good for the United States.

In China, people would say that the U.S. military 

has command of the commons. As a result, there’s not a 

lot of contention over lines of communication the way 

there used to be. The Chinese benefit tremendously 

from this inasmuch as they don’t have to protect their 

own tankers going to China from the Middle East. The 

United States takes care of that problem for them.To 

some degree, they get a free ride, benefiting from a 

U.S. global presence that tamps down some threats.
98

However, we could be very restrained in our Middle East policy and not engage in lots of activist efforts 

to manage threats to oil-producing countries, but still 

maintain our command of the commons, which would 

continue to benefit China in the way that they’re currently benefitting. So even under a policy of restraint 

where we didn’t fight lots of wars in the Middle East, 

that doesn’t necessarily mean we should stop paying 

attention to sea lanes. But there is some concern that if 

the United States did less to protect particular oil suppliers in the Middle East, the Chinese might decide 

that it’s in their interest to deploy 50,000 soldiers in the 

Middle East somewhere just to keep a lid on things.

Maybe that wouldn’t be good for American interests. 

Maybe the Chinese have a more mercantilist attitude, 

and even if it’s not good for them, they might decide 

to restrict oil for their own interests. Maybe they will 

make a mistake just because they are ideologically 

confused. That’s certainly possible. I think we’re a 

long way from that. That’s partly because it’s not a 

good idea for the United States to station lots of troops 

in the Middle East, and I rather think Chinese strategic advisors might think the same thing. The market works fairly well. We don’t need to station troops 

there. Why the Chinese would make such a mistake, I 

don’t know. That’s one interesting question.

The second thing is if that if China did deploy lots 

of soldiers to protect individual suppliers in the Middle East, and did try to establish a forward presence, it 

wouldn’t solve their strategic problem. The fact is that 

we have command of the commons and so no matter 

how many soldiers they deploy in the Middle East, 

they still couldn’t ship the oil to China. They have to 

get it to their Chinese ports. The fundamental Chinese 

security problem is thus not how to develop a clever 
99

policy which allows them to use their military to prevent a civil war in Saudi Arabia, but how to develop 

a military policy that guarantees the transit of oil to 

Chinese ports. This gives the Chinese a naval bias, not 

a bias toward ground forces in the Middle East. 

There’s some evidence that that’s how they think 

and what they’re doing. They are getting rich, and they 

are getting powerful militarily in a way. But they’re a 

long way from being competitive and in command of 

the commons. That is a strategic problem for a couple 

of decades from now. Not for today. America’s strategic problem today is how to remain restrained. Then 

we can handle the Chinese.

Q: I have hands-on experience with some military 

command and control issues. But more to the point, 

I have experience with alternative fuel vehicles. For 

instance, you speak of methanol vehicles. I had one 

in Southern California. Unfortunately, the number of 

places I could buy methanol for the vehicle was zero. 

Also, I’ve been working with natural gas. I just finished driving across country in a natural gas vehicle 

which is out in the parking lot, and I assure you it’s 

like driving across country in a gas vehicle in 1906. 

But there are ways to make things better. For instance, what we can do with the existing fleet which, 

as has been pointed out, will take years to get rid of? 

The only alternative fuel that existing gasoline internal combustion vehicles can use is natural gas. A lot of 

countries in the world, Argentina, for example, are using it. I’ve checked into it and have price quotes from 

Argentine manufacturers for conversion kits to natural gas for $800.00 a copy. In addition, you have to get 

the tanks for it. But you can do it. It is possible. They 

did it. It has been done in other parts of the world. Ar-
100

gentina has the most. Pakistan and Iran are next. The 

United States ranks right in there between Egypt and 

Armenia. But it can be done. 

But we do have to make changes. Part of the impediment is government regulations. For instance, it 

is expensive and arduous to meet the Environmental 

Protection Agency’s requirements for kit-car certification. But it can be done. Converted cars are usable. I 

drive in North Carolina in natural gas vehicles, and I 

do it out in California. They’re quite usable. They look 

and drive just like any other vehicle. 

But if you want to address energy security problems, you have to address quickly what are viable alternative vehicle energy sources in the United States. 

The answers are few. Electrics can be produced and 

are ideal for some of the driving environments which 

most people have to contend with. 

Anne Korin: I would like to reply. The speaker 

actually illustrated very well why we don’t want the 

government to say you need to go from one fuel to another fuel. A dedicated alternative fuel vehicle poses a 

huge chicken-and-egg issue. 

What you want is a vehicle that’s essentially an 

open platform that solves your chicken-and-egg problem. If you can use a variety of fuels in the car, you can 

continue to fuel the vehicle with gasoline while allowing time for the infrastructure of other fuels to catch 

up. You as a consumer are not inconvenienced. You 

can fuel your car with gasoline if you need to. When 

there’s an economic case for you to fuel with something else, you will do that automatically without 

prompting from the government. But you’re not going 

to see the fueling infrastructure we were talking about 

catch up until some 15 to 20 percent of the cars of the 

overall fleet—not just of new cars, but of the overall 
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fleet—are flex fuel. If you are a fuel station owner who 

has 10 pumps, it is at that point and only at that point 

that there is a business case for you to either retrofit 

one of your pumps to serve an alcohol fuel or to put in 

a new pump. The cost is not prohibitive. 

If the station owner goes to alcohol, there is a 

$50,000.00 tax credit. But nobody’s going to use this 

tax credit until there is actually a business case to be 

made. We can learn a lot from the example of Brazil. 

Brazil started with a poor policy decision to dictate 

that Brazilians should shift from 100 percent gasoline 

to 100 percent ethanol cars. What happened? Oil prices 

fell. Sugar prices went up, and people said, “We don’t 

like this.” Then they realized that with cars that offer 

choice, competition enables drivers to select among 

the different fuels. 

Q: I understand that it doesn’t take many new stations to have a rather good infrastructure. For instance, 

to put an alternative fuel station every 100 kilometers 

of interstate highway in the United States would take 

only 750 stations. This may seem a lot, but it is a far cry 

from the hundreds of thousands of gasoline stations 

which are out there now. 

Kevin Book: The problem with that is that you 

need to drive 100 kilometers to get to the station, 

which isn’t a problem if you’ve got a really big tank. 

The vehicle you want to retrofit first is the long-range, 

fixed-route, heavy-hauling vehicle (18 wheelers). If 

you’re going to pick a standard for internal combustion engines, I’m all for sticking with the standard 

we’ve got. Fuel diversity in effect would probably not 

result in burning natural gas with a retrofit kit, but 

rather in using synthetic fuels made from the natural 

gas, like methanol. 
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Anne Korin: Why not methanol? 

Kevin Book: It’s an infrastructure question. . . . 

Q: I have a question for Mr. Gholz. When we look 

at OPEC, we don’t see a very cohesive cartel. In fact, 

we see maybe three or four countries, all of which are 

in the Gulf, that are setting prices. Iran is not one of 

them. When you look at OPEC’s future and the fault 

lines in that future, and in particular some of the projections with regard to Iraqi production, what do you 

see?

Eugene Gholz: It’s very hard to see inside the dynamics of the cartel. We don’t really have a good feel 

for where the oil is or how much there is. Production 

levels and pricing decisions of OPEC members are 

state secrets. The information is protected just like our 

own classified information. So it’s hard for us to know 

what’s going on.

From the outside, we model what the behavior of 

these countries looks like. We see observed prices in 

the market, and we try to infer what their decisionmaking criteria must be. This isn’t the most reliable 

process in the world. I think it’s one of the reasons I 

would prefer not to make American policy depend on 

getting exactly right the model of pricing behavior in 

the market. I’d rather just say look, the cartel sometimes works better, sometimes works worse. Let’s just 

have our policy take into account that there is a cartel.

As to the future, it does look like there’s a core of 

OPEC that really leads the cartel. Some countries have 

much more slack than others because they’re the core. 

Others look much more like Norway, which is not a 

cartel member and basically produces in max mode. 

That’s to say that they produce as much as they can at 

the current price so as to make as much money as they 

can. They look like normal market players.
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Countries enter and exit the core. You say that Iran 

doesn’t look like it’s in the core right now. Iran has 

traditionally been one of the most hawkish companies 

on price. They like high prices. They’re just bad at 

implementing their desire to be part of the high price 

cartel within the core of OPEC. Again, different countries will behave differently. If Iraq starts producing 

a lot, it’s got to look like Saudi Arabia in some way. 

They’ve got to come to a deal with the Saudis to make 

the cartel work, and I see no reason to believe Iraq/

Saudi negotiations are going to be easy. 

I don’t imagine that the cartel is going to routinely 

function well, but I do imagine that it’s going to have 

some routine functioning, and that’s what I would 

base projections and policy choices on. Let’s say there 

is some insulation against shock. In fact, if Iraq gets 

big, there will be more insulation against shock because Iraq will be better at insulating against the Saudi 

civil war kind of shock and because Iraq has the potential for a lot of slack capacity and the potential to 

use export routes that are not through the Gulf. The 

closing of the Strait of Hormuz is the pivotal scenario, 

but as long as the Strait is open—which I think is essentially inevitable—then you’re just involved in the 

international politics of negotiations and shocks and 

responses. It’s Iraq, it’s Saudi Arabia, it’s Iran. Everybody’s in the game.

Q: I just don’t know how Saudi Arabia produces.

Eugene Gholz: Nobody knows, right? You mean 

economically? 

Q: They were in trouble, and there’s a good reason. 

There’s a good argument to be made that it was the 

very low prices that started the Saudi’s domestic terrorism problem. 
104

Eugene Gholz: For sure. 

Q: Not the high prices.

Eugene Gholz: Or the sustained American decline 

in Saudi. There’s this other factor that after 1991, we 

left a lot of troops there which radicalized a lot of people that might not otherwise have been radicalized. So 

it’s not high prices.

Q: The oil was $10 a barrel.

Eugene Gholz: Absolutely. 

ENDNOTES - CHAPTER 2

1. Fungibility is the property of a good or a commodity whose 

individual units are capable of mutual substitution. Examples of 

highly fungible commodities are crude oil, wheat, orange juice, 

precious metals, and currencies.

2. Methanol is an alternate fuel for internal combustion and 

other engines, either in combination with gasoline or by itself. In 

general, ethanol is less toxic and has higher energy density, although methanol is less expensive to produce sustainably and is a 

less expensive way to reduce the carbon footprint. It may be made 

from fossil or renewable resources, in particular, natural gas, coal, 

and biomass, respectively.

3. The graph shown at the conference is not included.

4. Consumer Energy Leverage (CEL) can be defined as the 

fraction of disposable personal income (DPI) that consumers 

spend on their electricity, home heating, and gasoline/diesel.

5. A change in price level has the potential to affect many different parts of the economy either in positive or in adverse ways 

depending on how the effects happen. The multiplier effect takes 

the original wealth, international, and interest rate effects and amplifies them. 
105

6. The Quadrennial Defense Review (QDR) is a legislativelymandated review of Department of Defense (DoD) strategy and 

priorities.

7. A general classification of fuels that includes heating oil, 

diesel fuel, and kerosene.

8. To transform coal into a liquid fuel, coal is mixed with oxygen and steam at high temperatures and pressure to produce a 

gas. This gas is then reacted in the presence of a catalyst to produce a synthetic oil. However, it takes a lot of energy to loosen up 

the carbon bonds in coal. Second, all that energy use results in the 

emission of a lot of carbon dioxide—the most ubiquitous greenhouse gas causing climate change.

9. An integrated gasification combined cycle (IGCC) is a technology that turns coal into gas — synthesis gas (syngas). It then 

removes impurities from the coal gas before it is combusted and 

attempts to turn any pollutants into reusable by-products.

10. The value of something is whatever we are (just) willing 

to give up for it. Two things have the same value if gaining one 

and losing the other leaves us neither better nor worse off—meaning that there is no difference between the situation before the 

exchange and the situation after the exchange.

11. Charles L. Glaser is Professor of Political Science and International Affairs and Director of the Institute for Security and 

Conflict Studies at the Elliott School of The George Washington 

University. 

12. A sovereign wealth fund (SWF) is a state-owned investment fund composed of financial assets such as stocks, bonds, 

property, precious metals, or other financial instruments. Sovereign wealth funds invest globally.

13. A “Texas hedge” is a financial hedge that increases exposure to the risk one intended to mitigate.

107

CHAPTER 3

ALTERNATIVE ENERGY:

NUCLEAR AND WATER

The panel on which this chapter is based was organized as a “conversation” between a moderator and 

panelists. Its purpose was to highlight the ways in 

which existing and future energy technologies affect 

security at the human, national, and collective levels. 

This panel focused on nuclear power and the use of 

water as a direct and indirect source of energy. The 

moderator was Alex Roland. Panelists were Steven N. 

Miller, Man-Sung Yim, Carey King, and James Bartis. 

INTRODUCTION

Alex Roland

I’m a historian from Duke University, specializing 

in security studies and the history of technology, so 

I know something about energy, but probably not as 

much as all of the rest of the panelists. 

These paired sessions are on alternative energy 

sources. This panel, the first one, will discuss nuclear 

and water, considering water as both a direct source 

of energy and then as a supplementary resource in 

more complicated energy delivery systems. The second panel will do wind, solar, and biofuels, including 

cellulosics. In both panels, we will also be looking at 

the military implications of these sources of energy. 

We are the non-fossil group.
108

Each of our panelists will provide a brief opening 

comment on this topic from his point of view. When 

they’ve finished, I will offer a few questions to direct 

us to some of the major issues that might come up under these topic headings. 

NUCLEAR PROLIFERATION

Steven N. Miller

My mission is to introduce the subject of nuclear 

power and nuclear proliferation. In recent years, the 

world has grown much more interested in nuclear 

power. In fact, we’re in the early stages of what some 

people have termed the nuclear renaissance, which 

has to do with the growing appetite for nuclear power 

around the world. In the last few years, 65 countries 

that don’t now have nuclear power have approached 

the International Atomic Energy Agency (IAEA) and 

formally expressed an interest in pursuing nuclear 

power. Some of those are pretty far along; some are 

barely a gleam in the beholder’s eye; many of them 

will never have their nuclear dreams come true. Thus 

the 65 number is not a true barometer of where we’re 

going to be heading in any foreseeable future, but it 

is an indication of the growing appetite for nuclear 

power around the world.

Meanwhile, we are seeing two related but separate 

phenomena, each of which raises its own issues. One 

is the substantial expansion of nuclear power in some 

places where it presently exists, particularly China, 

Russia, India, and South Korea, all of which have very 

aggressive nuclear power construction programs. 

China today has 24 reactors under construction. The 
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United States has started one new reactor since the 

mid-1970s. The Chinese broke ground on three new 

reactors in December 2010. The Koreans are also very 

aggressive and have had a building program over the 

recent years that puts us to shame.

The other issue is the spread of nuclear power to 

places where it doesn’t presently exist. The leading 

edge of this is found in places like Abu Dhabi in the 

Middle East or Vietnam in Southeast Asia. These are 

countries that have chosen vendors, signed contracts, 

negotiated deals, chosen and characterized sites, and 

spent money. Things here are getting real as fast as 

they can get real in the nuclear sector, which operates 

within a very long timeline environment. 

For example, Abu Dhabi has made a decision to 

have four nuclear power reactors. They have chosen 

their vendor, a Korean electric power corporation. 

They’ve signed a contract for 40 billion dollars over 20 

years divided between reactor construction and training. They aspire to have the first reactor connected to 

the grid in 2017. 

 Up until now, there has been zero nuclear power 

in the Middle East—zero. The Israelis have a reactor, 

but it’s related to their nuclear weapons program and 

not used for power. In the future, Abu Dhabi is going 

to have nuclear power. The Egyptians and the Jordanians are both a little bit behind the United Arab Emirates, but have made their decisions and are moving 

forward. A similar story can be told about Southeast 

Asia, where Vietnam is leading the charge and aspires 

to have a reactor connected to the grid by about 2020 

or 2021. Its long-term aspiration is to have 14 reactors 

built by 2030. It is a very substantial program.

There are two parts of the world, the ones I’ve mentioned—Southeast Asia and the Middle East—where 
110

the appetite for nuclear power is nearly universal. The 

only states in the Middle East that have not formally 

expressed an interest in nuclear power are Syria, Iraq, 

and Lebanon. Iraq has informally expressed an interest; so has Lebanon. Syria, on the other hand, never 

approached the IAEA, but did, in fact, try to buy a 

reactor from North Korea—a modest hint of interest 

in nuclear power and perhaps other things.

Many of these nuclear dreams won’t come true, 

but enough of it will such that in the future we will 

be living in a different world than in the past. Up until now, nuclear power has been confined to about 30 

countries, and limited to 440 reactors, 104 of which are 

located in the United States. There’s been almost no 

growth in the global fleet of reactors since the mid1980s. That is now changing. There are now 61 reactors under construction in 15 different countries and 

one now under construction in the United States for 

the first time in several decades. However, we are 

mostly sending them out to other countries, and that 

has its own implications. 

Why is this trend occurring? In answering, I will 

preface my remarks by broaching two important considerations. One is the long lead time associated with 

the development of nuclear power. Typically, it takes 

about 10 years at least from the first gleam in the eye 

to the first kilowatt hour of electricity. Depending on 

the regulatory context, it can take even longer than 

that. Two, we’re talking about long-lived assets. In 

earlier generations, the expected life span of a reactor 

was about 30 to 40 years. Now, as reactors are coming 

to the end of their service life, we’re discovering that, 

for a relatively small sum of money, a few hundred 

million bucks, you can extend their life span for another 20 or 40 years. There is no better cash cow for a 
111

utility than a reactor that’s already paid for. So now 

we’re thinking in terms of 60- to 80-year life spans. 

It takes 10 or 15 years to get to where you actually 

have a functional reactor connected to the grid and a 

60- to 80-year life span after that. It changes the whole 

way in which you think about the arithmetic of making this investment. It’s within this broad context that 

people are making bets and guesses about the future.

Though there are a number of reasons why we 

can expect growth in the nuclear sector, every one of 

them has complications and nuances which I’ll simply mention. There are worries about prices, fossil 

fuel prices. There are expectations that perhaps we’re 

entering an era of high fossil fuel prices that will be 

made permanent because of a changing market structure and greater demand caused by the entry of China 

and India to the market. Such thoughts are animating policymakers in certain parts of the world. There 

are worries about threats to access for similar reasons. 

There is rapid growth in demand for electricity in a lot 

of places: Iran, Abu Dhabi, and Dubai, for example. 

As a result, policymakers are casting around for all 

possible ways of satisfying this demand, including 

the use of fossil fuels to generate domestic electricity. 

Why, then, are places like Saudi Arabia, Abu Dhabi, 

and Qatar pursuing nuclear power? It’s because they 

envision a future in which fossil fuel is so valuable 

that it’s cheaper, or more prudent, to generate electricity with nuclear power and preserve their fossil fuel 

for use as an export commodity.

In the Middle East, desalination is a nontrivial consideration for some of these states. Strategies of energy diversification, of course, have very strong links 

to global climate change. There is this large-scale energy producing asset, nuclear power, which does not 
112

generate greenhouse gases. Also, of the alternatives to 

fossil fuel, it is the one whose scale can be accurately 

controlled. The reactors that the Koreans are selling to 

Abu Dhabi are 1,400 megawatts. They’re buying four 

of those. Moreover, possible carbon taxes, or other 

artificial increases in fossil fuel prices, make people 

think that in the future the economics of energy may 

be more favorable to nuclear. 

In a number of places, despite the fact that nuclear 

technology is an 80-year-old science and 70-year-old 

technology, it’s associated with modernity, modernization, and keeping up with the Jones’s. There is both 

a symbolic and an economic dimension to this. When 

you talk to Iranians, they say that acquiring nuclear 

power is an integral part of their quest to join the modern economy. In some places, there’s a status connection to this. Nuclear power becomes a kind of national 

project. I think this is true in Abu Dhabi. It’s true in 

some other places like Iran. It’s not the decisive reason, but at the margin it becomes important because in 

some places it removes the nuclear consideration from 

the constraints of commercial calculation.

Another variable may be the waning of the Chernobyl effect. The story of the global fleet of reactors 

for several decades went like this. There was steady 

growth in the number of reactors that the world invested in until it flattened out in about 1986, and it 

stayed more or less flat; only a tiny uptick ever since. 

Now we’ve had several decades without a further catastrophic incident and the generations are changing. 

(Note: This conference took place just 6 days before 

the nuclear disaster at Fukushima on March 10, 2011. 

This event has considerably altered thinking about the 

viability of nuclear energy.) But there are billions of 

people on the planet who weren’t alive in 1986 and 
113

have no memory of the Chernobyl catastrophe. That’s 

been a kind of liberating variable.

There are a number of reasons, not all mutually exclusive, that cluster together in various combinations 

in each national capital where nuclear power is being 

contemplated. What, then, are the security implications of this potential nuclear renaissance? This is not 

the first time we’ve been anticipating one. In the past, 

it hasn’t come true. I believe that there will be change 

enough so that we will be living in a different world, 

even if many of the nuclear dreams that are currently 

out there don’t ever come true.

 I’ll make three points regarding the security implications. One implication is not that, and I emphasize 

the not, the geopolitics of energy will be transformed. 

Nuclear energy today accounts for approximately 16 

percent of global energy consumption. Over the next 

20 or 30 years, that percentage may well fall rather 

than rise. That is not because a nongrowth of nuclear power, but because everything else is going to be 

growing faster. 

One also has to take into account nuclear plant 

retirements, because we haven’t invested in nuclear 

power plants for a long time. Of the current global reactor fleet, 80 percent is 20-years-old or older. Accordingly, a lot of plants are going to be retiring, even with 

service extensions. Therefore it’s still mostly going to 

be a fossil fuel world or some other. Nuclear power 

is not going to exempt us from those kinds of considerations. If you’re worried about the Persian Gulf because of oil and gas, in 20 years you’re still going to be 

worried about the Persian Gulf because of oil and gas. 

The nuclear renaissance is not going to change that.

There are two security implications that we do 

need to worry about somewhat. One has to do with the 
114

security of nuclear installations, which links directly 

to the question of nuclear terrorism. At first glance, 

this seems like an odd one because the necessity of 

nuclear security is obvious, and most people take it 

for granted. 

The questions arise when you get down to the next 

level and ask what it means to have a secure facility? 

It turns out that answering that question is very tricky. 

In the United States, we’re 6 decades into our nuclear 

industry. We still don’t have a clear answer, and the 

Department of Energy (DoE) is having a big fight about 

it right now. What is the design basis threat against 

which a utility needs to plan? What are the standards 

to which it ought to be held accountable in terms of 

provision of security? Provision of security is expensive on a pure cost basis. There’s no profit or revenue 

stream associated with it from a utility point of view. 

This is a deadweight loss. So you want enough security, but not too much. How do you define that line? 

How many simultaneous points of intrusion? This is 

a big issue. 

A pivotal consideration turns out to be whether 

you assume insider help or not. It is much tougher to 

deal with potential intruders if they have insider help. 

In one of the most serious incidents we’ve had, the 

Pelindaba intrusion in South Africa, they had simultaneous intrusions at two different points in the security 

perimeter, by intruders who clearly had inside help 

because they knew exactly where to go and exactly 

how to get there in the facility. How heavily armed 

are the intruders? How many intruders? Depending 

on how you answer those questions, your security is 

or isn’t adequate. Again, around-the-clock guards are 

extremely expensive, even disregarding their required 

training and armaments.
115

The second security implication involves proliferation. This does not have to do with the spread of 

light water reactors. Light water reactors themselves 

pose no particular proliferation threat. The threat is 

entirely related to the associated fuel cycle elements: 

the enrichment of nuclear fuel at the front end and the 

reprocessing of spent fuel at the back end. The first 

produces enriched uranium which, if it’s enriched 

enough, becomes a weapons-usable material. The 

reprocessing at the back end extracts metallic plutonium, which is also a weapons usable material.

In sum, the proliferation implications of the spread 

of nuclear power depend very heavily on the fuel 

cycle choices made by aspiring nuclear power states. 

If they choose the paths that we would prefer, which 

is to say forsaking the worrisome fuel cycle elements, 

the proliferation implications are circumscribed. 

However, in Iran we see an example of a state that’s 

doing the opposite. In South Korea, we see a state 

that’s adopting reprocessing of fuel, as a “waste management” strategy. In Egypt, Jordan, Saudi Arabia, 

we have states that are expressing vague, long-term 

interest in uranium enrichment. It’s not at all clear that 

the world is predisposed universally to sign up to the 

technology path that would be most reassuring to us. 

If we fail to manage that process carefully, we 

could end up with a replication of what I call the Iran 

Problem, which is dual-use technologies that have 

equal weapons and power-generating capabilities. 

This will mean that in any place where there are fuel 

cycle capabilities and suspicious intentions, we will 

have protracted proliferation crises of the Iran type. 
116

PATHWAYS BETWEEN CIVILIAN

AND MILITARY NUCLEAR POWER

Man-Sung Yim

I begin with an important question: Is there a relationship between nuclear power and nuclear proliferation? There are currently about 30 or 31 countries 

operating commissioned nuclear power plants. Six 

countries currently own nuclear weapons. Of the 23 

countries that at one time or another explored the idea 

of developing nuclear weapons, only 4 of these have 

become nuclear weapons states: Israel, India, Pakistan, and North Korea. What does this tell us about 

the pathway between civilian nuclear power and nuclear weapons development? It’s actually rather hard 

to say whether it has a direct relationship or not. One 

way to find out is to look at the history of nuclear proliferation behavior. There are precedents for this type 

of work. Steven N. Meyer did a salient study in 1984. 

Little was done for a few decades thereafter. Then 

suddenly in 2004, Chris Way and Sonali Singh wrote a 

paper on this topic. They were followed by a number 

of scholars including Matt Fuhrmann, Matt Kroenig, 

and eventually Scott Sagan, who all wrote papers on 

patterns of proliferation.

I have been engaged in an effort with my colleagues to create a model that might help us predict 

proliferation behavior. Such a tool, we think, might 

prove useful for policymakers. To do this, a model 

must consider the kinds of factors that make a country 

want to proliferate and the various dynamics at work 

within a country’s specific situation and capabilities. 

It must also be applicable to specific scenarios chosen 

by a country. 
117

There are some potential pitfalls and limitations in 

the use of models which we are trying to overcome. 

Among these is the difficulty in gathering the relevant 

information. For example, we want to examine the 

motivations, the dynamics, and requirements of nuclear proliferation. We want to look at both the supply and demand factors. To that end, we are developing our own database. Some of the data comes from 

Sonali Singh’s work—he used the Correlates of War 

Database—and Doong-Joon Jo and Erick Gartzke’s 

work.1 We also relied on the open source data from 

the IAEA. We have collected five different sets of data 

on 1) economic development, 2) security environment, 3) international status, 4) political development, 

and 5) nuclear technology capability, and the national 

status vis-à-vis nuclear nonproliferation norms. There 

is nothing sensitive about these data. We’ve tried, and 

we actually continue, to use only open source information for obvious reasons. 

The database has 46 variables and covers about 114 

countries from 1945 through 1992 or sometimes 2000. 

These countries have a relatively large economy to be 

considered. We also include some 23 other countries 

which have engaged in proliferation. We have also 

defined different levels of proliferation, distinguishing between countries that have shown an “interest in 

exploring” from those who have “actively pursued” 

and those that have acquired at least one functional 

nuclear weapon. 

There are a number of different modeling approaches that can be used, including an event-history 

approach and a multinomial-logit approach.2 We have 

drawn up a list of variables that help explain what 

happens when nations proliferate. These include the 

factors that affect the behavior and decisions of prolif-
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erators at various levels outlined above. What kinds of 

insights can we get from the model?

Let’s start with what the model predicts about 

states that have an extensive investment in civilian nuclear power. Matt Fuhrmann, currently at the 

University of South Carolina,3 suggests that civilian 

nuclear power encourages an interest in weapons development. But our work suggests that perhaps that is 

not the case. It suggests that the more electricity you 

generate from nuclear power, the less likely you are to 

engage in nuclear proliferation. 

If we look at countries that were part of the original 

Atoms for Peace program, quite a few seem to have 

at least thought about developing a weapons capability. But various factors hindered them—we call these 

“inhibitors.” What about civilian nuclear power? Was 

it an “inhibitor”? What we found is that it depends 

on how much of a country’s electric generation flows 

from nuclear energy. If you pursue a civilian nuclear 

industry in a major way, it’s going to be a significant 

inhibitor. How significant will vary, depending on a 

variety of other factors: for example, does the country 

develop its own reactors, employ offsite fuel fabrication capabilities, etc.; how involved is the country in 

the international community; and how much industrial production is there? One must also factor in the 

presence of traditional IAEA safeguards. But the more 

you rely on civilian power production, the more inhibited you are. This is actually common sense. When 

you have invested in the creation of an infrastructure 

suitable for the development of a civilian nuclear industry, you are going to want to go on reaping the 

benefit of that investment. You don’t want to become 

an international pariah at that point. Hence my model 

predicts that a nation with a lot at stake in the commercial nuclear sector may become more cautious. 
119

We can also approach the issue from a different 

direction and ask: What are the determinants of successful nuclear power capability development? In his 

Introduction, Steven Miller stated that there are some 

60 countries that want to be successful in this area. 

What do you need for this to happen? Let’s think first 

about the countries that were part of the original Atoms for Peace project, the grand vision that President 

Eisenhower offered to the world. If you are part of the 

Atoms for Peace group, you get monetary assistance 

from IAEA. The list includes countries like Argentina, 

Pakistan, Chile, and Sweden. 

Many of them have investigated nuclear technology and have started some work by importing technology, by importing research directors, by training 

people, etc. Of these, many of them don’t as yet have 

nuclear power. Some like India, Pakistan, and Israel 

have nuclear weapons. Over time, more countries 

joined the Atoms for Peace group. But the picture 

doesn’t change much. Even though these states started work, the majority still don’t have nuclear power. 

Others have some capacity but not much. 4 India has 

spent a lot of money on civilian nuclear power development. But given how much has been invested, the 

amount of electricity it is getting is very small. We 

could even conclude it’s a failed program as far as 

commercial development is concerned. Pakistan has 

likewise failed—it has two reactors producing 1.9 percent of its electricity, a meager amount. 

What were the things that helped countries develop nuclear power—we call them promoters—or conversely, what were the inhibitors? Promoters included 

a good size gross domestic product (GDP), a considerable industrial capacity, major power status, the existence of a nuclear weapons program, a democratic 
120

tradition, Nuclear Non-Proliferation Treaty (NPT) 

ratification, and the existence of IAEA safeguards. 

Having a nuclear weapons program also was a factor 

in helping these countries develop nuclear power. 

The inhibitors of civilian nuclear development 

included diplomatic isolation, frequent military disputes, enduring rivalries, and frequent changes in 

economic openness. Interestingly, getting IAEA assistance was an inhibitor—which means that countries who got IAEA assistance weren’t able to make 

a good return on the investment. Corruption is also 

important. But we are looking for the variables with 

information that will help us complete our data. We 

haven’t as yet added economic sanctions but are in 

the process of so doing. We also plan to include something about leader psychology, the characteristics of 

government bureaucracy, and so on. Those are very 

important variables but are not included in our current database due to lack of readily available data.

 We are also looking at developing countries that 

attempted the development of civilian nuclear power 

capability as newcomer states. Unlike countries with 

a lot of resources, these don’t have much to work 

with. There are 20 to 30 countries which, when they 

were still developing nations, initiated major civilian 

nuclear energy projects. States like Argentina, Brazil, 

India, Iran, Iraq, Mexico, Pakistan, Philippines, South 

Korea, Taiwan, Turkey, and Yugoslavia are all in this 

category. They all took some steps in this direction. 

Not all of them, however, got very far. For example, 

the Philippines and Turkey both spent a lot of money 

in an effort to develop civilian nuclear power. They 

did not succeed, however.

 If we analyze what contributed to the success or 

failure of newcomer countries, we find that the factors 
121

at work are not much different from those operating 

among the initial Atoms for Peace countries. In particular, economic openness is very important along 

with the commitment to nuclear nonproliferation. If 

you want to become a successful country and if you 

want to become successful in developing nuclear 

power, you want to be open to the world economy 

while remaining committed to nonproliferation. But 

if you do something that awakens suspicion and you 

have a sanction imposed on you, and if you have a 

limited openness, that will hurt you. This is a good 

lesson to learn. 

THE WATER-ENERGY-SECURITY NEXUS

Carey King

I’m going to talk about the work that I’ve done—

most of it in collaboration with Michael Webber. We’re 

engineers and geoscientists gathered to create technical information and phrase it in such a way that it can 

be used by policymakers. We chose to focus on the energy-water nexus and future changes, as this seemed 

to be one area that needs a little more thinking.

When we look at the water-energy nexus, we see it 

essentially as a two-way street. On one side, you need 

to consider the water requirements for producing energy, whether that’s conventional fuels or new kinds of 

alternative fuels. You need to look at how constraints 

in water supply or concerns about water quality affect 

your ability to pursue energy production or conversion. On the other side, of course, you must ask how 

energy relates to the way one provides for water or for 

pure water for the public water supply. Furthermore, 

you must consider the restrictions on energy that can 

inhibit the ability to provide fresh water. 
122

Earlier in the present work, we discussed disposable income in its relation to cost of energy. Water 

probably comes before energy. For developing countries or countries that aren’t fully along the industrial 

chain, the provision of water is a major time-consuming activity that prevents them from pursuing other 

kinds of economic activities. So water is first on the 

list of things they need. If you can provide a supply of 

fresh water and the energy to distribute it—you can 

think of energy here as a type of infrastructure. Once 

it is securely established, only then will you have the 

time and the wherewithal to pursue other economic 

activities. 

There are also water energy implications for places 

with marginal water supplies that have an advanced 

infrastructure. For example, we spoke earlier of the 

need for desalination in the Middle East. This need 

might be a reason for them to go for nuclear power. If 

people living in this region can desalinate water with 

nuclear power instead of using oil, they can sell oil 

in the market. Even before there were many oil wells 

in Saudi Arabia, there were likely desalination plants. 

These provided water for the workers, oil field personnel, and nearby cities. In that sense, the order of 

things was to provide fresh water first, then provide 

oil. 

In the United States, the amount of energy spent on 

provisioning water, distributing water, treating waste 

water, and so on, is generally relatively low, depending on your perspective (about 3 percent of total consumption). But it can be higher in some places across 

the country. California is the poster child for the extreme case. Reports based on California’s energy use 

show that 19 percent of all electrical and natural gasbased energy sources are associated with provisioning water in one form or another. 
123

A lot of this expense comes from pumping water from the San Joaquin Valley over the Tehachapi 

Mountains to Southern California and the Los Angeles basin. Pumping water over this mountain takes a 

lot of energy, the irony being, of course, that Californians generate approximately 20 percent of their electricity from hydropower. Amazingly, the amount of 

energy they get from hydropower is the same amount 

of overall energy in BTUs that they use to distribute 

water since where people want to live is not where the 

water is. 

On the other side of the street, the production of 

energy has its own water requirements. There has 

been earlier discussion of shale gas as a new energy 

resource. Water is an issue here because of hydraulic fracturing. Extracting the gas this way uses a lot of 

water. In fact, the process calls for something in the 

range of a few millions of gallons per frack well. Some 

of this water—maybe 20 to 50 percent—comes back 

up during the fracturing process and the drilling process. This water can be retreated and reinjected into a 

new well, or it can be treated at some sort of surface 

facility to remove contamination and discharged in 

the environment. Or it can be reinjected into a hazardous disposal well. Depending upon the geology, you 

have different kinds of options of what to do with this 

used water. Millions of gallons per well sounds like a 

lot of water. However, you get a lot more natural gas 

out of these wells for the water quantity, in terms of 

water consumed per BTU produced, than from many 

alternative and marginal energy options. 

The fact is that, relatively speaking, hydraulic 

fracturing doesn’t consume a lot of water, given how 

much energy you derive. But it sounds like a lot to 

the people locally. From a security standpoint, it’s a 
124

particularly big concern to the people who live near 

the wells. After all, they’re taking the risk of their own 

well water being contaminated. Water quality concerns are really the issues with hydraulic fracturing. 

This is because of chemicals included within the fracturing fluids themselves, but more so due to the water 

that flows back up the well during the fracturing process. The water thus produced is very saline and has 

other minerals and metals that exist in the deep subsurface. If something happens to a fresh water supply from a quality perspective, if the well is not sealed 

property, or if there is some kind of technical misstep, 

the local community members are the ones that may 

potentially suffer. It won’t be natural gas recipients 

living hundreds of miles away. 

From a quantity perspective, water has generally 

not been much of an issue so far in shale extraction in 

the Marcellus area5 in eastern North America or in the 

Barnett Shale6 areas of Texas. Water is relatively abundant in these places. The amount of water taken from 

the Northern Trinity/Woodbine Aquifer for fracking 

is less than 5 percent of total withdrawals. 

Today in the Barnett Shale region, less than 5 percent of all water consumption from aquifers goes to 

hydraulic fracturing. It’s not dominating the scale of 

use of people watering their lawns and doing all kinds 

of other normal things that people do on a daily basis. 

Yet it is 20 to 40 thousand acre-feet of water per year 

that was not being used before.

Compare that to the Eagle Ford Shale region in 

South Texas: here water is much scarcer and people 

depend more on and are affected by ground water 

limitations. People in San Antonio and areas like it are 

extremely vigilant about protecting their aquifer.7 It is 

their source of water and livelihood. When you look at 
125

a region like this, you get a different perspective on the 

problem. Here, when you use a few million gallons of 

water per well and consider the number of wells that 

people are drilling, the hydraulic fracturing process 

can start to have a significantly adverse impact on the 

local water supply. 

Geography matters in terms of this particular issue. Injecting hazardous waste, including low-level, 

into disposal wells is relatively prevalent in Texas, 

where the geology permits it. In Marcellus, the geology is not as amenable to deep injections of this sort. 

So there the people are concerned about how to deal 

with the wastewater from fracking. They get into issues like whether they should haul the water away 

somewhere to treat or inject it, or whether to treat it at 

local waste water facilities. They are concerned over 

the presence in the water of radioactive elements and 

other substances that originate in the shale formation. 

Their waste water treatment facilities are not necessarily geared to take that out of the water. 

This brings me to carbon dioxide (CO2) sequestration. Since the Environmental Protection Agency 

(EPA) has been making the rules in regard to this, and 

since the EPA has been charged with protecting underground sources of drinking water, a lot of the rules 

are associated with whether or not drinking water will 

be affected by carbon dioxide sequestration. Since carbon sequestration is not occurring on a large scale at 

the moment, the EPA is trying to preempt such problems by anticipating issues that are associated with 

potential ground water impacts from carbon dioxide 

sequestration. Geologists are quite confident that they 

can do this. In general, geologists feel they know what 

they are doing. 
126

Drinking-quality ground water typically exists at 

levels shallower than 500 feet. Thus there has to be 

a fairly serious problem for underground sources of 

drinking water for it to be impacted from CO2 injection at several thousands of feet. This subject has been 

in the news lately. Take, for instance, the Weyburn Enhanced Oil Recovery Field in Canada, where carbon 

dioxide is injected for enhanced oil recovery. A nearby 

landowner has discovered some sort of leaking frothing emission from a hole that was dug. He paid a consultant to inspect the site. 

The consultant concluded that CO2 was indeed 

coming from the nearby enhanced oil recovery operation. He did some measurements and figured he had 

identified the problem. But the Gulf Coast Carbon 

Center had a more cautious response. Their representative explained to me that the consultant essentially 

measured a factor that cannot determine whether injected CO2 had leaked to the surface. They really can’t 

tell whether the CO2 is man-caused, in which case it 

would be coming from the coal gasification facility in 

North Dakota, or whether any excess CO2 is naturally 

occurring. 

In short, methods more sophisticated than simply 

measuring CO2 concentrations are required to determine whether or not injected carbon dioxide has had 

an impact on ground water. One has to measure other 

chemical constituents in collected gas samples. It’s 

quite difficult to tell what has happened far beneath 

the surface. 

Turning to a different kind of alternative energy, 

biofuels obviously have a large water impact. Why is 

that? Because biofuels production is agriculture. To 

grow something, you must have water. Biofuels production, however, may or may not lead to an increase 
127

in water consumption, depending on circumstances. 

You may simply end up shifting water use from one 

sector of the economy, say, the food sector to the transportation or energy sector. 

Let’s consider this proposition. We have already 

discussed how you compare various transportation 

energy sources in terms of the water requirements—

electricity, fuel cells, natural gas, unconventional fossil fuels, conventional fossil fuels, biofuels, and so on. 

These all have different units of measurement, a kilowatt hour, a gallon of water, a cubic foot of natural 

gas, etc. In thinking about how you would compare 

these to explain the impact of a shift to biofuels, it is 

useful to visualize the amount of water required to 

underwrite one mile of travel down the road using 

these different kinds of fuel. It turns out that a vehicle 

running on conventional petroleum requires somewhere around 0.1 gallons of water per mile; one running on natural gas is lower than that or about equal, 

even considering hydraulic fracturing. A corn ethanol 

E85 vehicle driving on irrigated corn ethanol uses in 

the range of 20 or 30 gallons of water per mile. One 

that runs on nonirrigated biofuels uses something 

like 0.3, 0.4, which is roughly the same figure you get 

when running on gasoline derived from oil sands. So 

unconventional fuels and nonirrigated biofuels look 

similar from a direct water consumption standpoint, 

but irrigated corn ethanol is a huge water guzzler. 

Of course, from a water planning standpoint, you 

also care about precipitation, the total amount of water in a given basin, and what all the requirements for 

that water are. Thinking about biofuels is not necessarily any different than thinking about water resource 

management planning. You have to make a choice: 

“Do I want to allocate water for transportation fuels 

and feedstocks or for human food crops?” 
128

To gain further understanding, you can look to the 

concepts associated with the virtual water trade8 of 

products around the world. If you live in an area that 

is poor in water resources, you essentially have to earn 

money to buy products that cannot be grown locally 

because of the arid conditions, and you have to import 

agricultural products. Since dry regions have to spend 

money to import water because they can’t grow crops, 

wetter regions grow crops and export these (and thus 

water) to the rest of the world. 

If you apply this concept to the cultivation of biofuels, you come up with some interesting results. Is 

the United States not exporting virtual water, i.e., 

water-provisioned goods around the world? From a 

Brazilian standpoint, there’s more water embedded 

in the ethanol associated from sugarcane than in our 

corn. However, the Brazilians have the water resources since it rains appropriately where they currently 

generate the sugarcane in the central southeast in the 

State of Sao Paulo. As they expand, they’ve got agricultural and ecological zones that will require some 

moderate amounts of irrigation at certain times of the 

year. They will then have to think about water provisioning and irrigation a little bit and the infrastructure 

associated with that. 

We have resources that haven’t been developed, 

such as oil shale. However, in regions like the upper 

Colorado River basin, water is a potential concern given the requirement of a few gallons of water for every 

gallon of extracted oil. This is where the water-energy 

nexus gets interesting in terms of local water impacts 

and global energy impacts, and where these push and 

pull each other. 

From an electricity perspective, water is obviously 

important for hydropower generation. If you look at 
129

the capacity factors of the U.S. hydropower generation fleet over the last 30 years, you’ll find that it has 

steadily declined. This decline is associated with the 

rise in all kinds of demands for water besides electricity provision, including irrigation and recreation. The 

planning associated with running a hydropower facility, especially given climate change and runoffs that 

come earlier in the year, is challenging, especially in 

the west. 

The other main concern for us is power plant cooling. The main drain on water associated with electricity is such cooling. The percentage of water withdrawn 

for power plant cooling is essentially equal to the percentage that is withdrawn for irrigation. You may say, 

“Oh that sounds like a lot of water.” But then you may 

ask how much water is actually consumed? It turns out 

to be 3 or 4 percent of the total nation’s water consumption. That is how much is consumed at power 

plants for running cooling towers and cooling systems 

associated with thermal power generation, whether 

it’s nuclear power facilities, coal, or natural gas. 

It starts to get really interesting when you look 

at water rights in times of drought. A few years ago, 

the Southeast was hit by droughts. The nuclear power plants in Georgia were cutting back on electricity 

production because they didn’t have an adequate or 

reliable enough supply of water to cope with the thermal management of the rivers. This is the process by 

which one takes cooling water from the river and then 

discharges it back to the river, while keeping it below 

a certain temperature. 

From the perspective of those providing electricity, security concerns arise over maintaining the right 

sorts of temperatures to protect the environment and 

over whether or not there is an adequate water sup-
130

ply to do the cooling. For the most part, power plants 

have priority of water rights. For example, in Texas, if 

a drought comes along and water is scarce and people 

start cutting back on water supplies, most of the power plants are close enough to the front of the line, that 

they don’t have to cut back on power generation until 

water flows get quite low. But from an environmental perspective, they may have to. Thus the drought 

scenario remains essentially a concern for electricity 

power production. 

For that matter, concentrated solar power also 

raises water concerns. It’s not just fossil-fueled thermal power plants. Cooling is a big issue with concentrated solar power in the desert. Obviously, it’s very 

dry there, and water is tight. You can go to dry cooling, which raises the issue of dry cooling versus wet 

cooling.

NUCLEAR ENERGY AND THE MILITARY

James Bartis

We shall discuss a few issues broached in earlier 

chapters. With regard to the so-called nuclear renaissance that is taking place in the world, the question 

arising is, Will the United States be part of this? A 

few years ago, almost anyone who worked in energy 

policy would have said, “Absolutely,” if for no other 

reason than that we have to deal with the problem of 

greenhouse gasses. But over the last 3 years, we have 

tripled our reserves of natural gas. It now appears that 

we have abundant natural gas resources and that these 

are obtainable at very low prices. It doesn’t cost much 

to build efficient natural gas combined cycle power 

plants. So we have a choice as to what to do about our 

heavy dependence on coal for electric power. When 
131

we use natural gas instead of coal to make power, 

the greenhouse gas emissions are 50 percent lower. 

Thanks to the commercial development of natural gas 

from shale formations, the projected prices of natural 

gas are such that it looks like it will be competitive 

with coal for power generation. 

So where does that leave nuclear energy in the 

United States? Nuclear energy doesn’t produce any 

greenhouse gas emissions. On the other hand, the best 

estimates we have for nuclear power plants are that 

they’re fairly expensive, especially if the alternative 

is a highly efficient combined-cycle natural gas plant. 

The recent MIT study estimated a range of $2,000 to 

$4,000 per kilowatt of capacity for a brand new nuclear plant. The U.S. Government has been trying to 

promote nuclear power and has offered loan guarantees and other incentives. Yet the costs that we’re 

seeing are in the $6,000.00 per kilowatt range. If that’s 

right, these estimates place nuclear power costs well 

above the competition. So it’s questionable whether 

the United States is going to be able to participate in 

this renaissance. That’s unfortunate because we have 

a lot to offer especially when we consider the potential 

for proliferation of nuclear weapons. It would be desirable for the United States to have a firmer standing 

in this renaissance. 

Along with a few others at RAND, I recently completed a study on the nuclear fuel cycle. We looked at 

the back end, which means looking at how you manage spent waste from commercial reactors. There’s a 

security issue here because some countries are talking about reprocessing this waste. We found that the 

kind of reprocessing technology that’s available today 

really doesn’t offer much benefit, if any, and it looks 

very expensive. They may have security reasons for 
132

reprocessing, but we don’t see reprocessing as making 

economic sense. 

Reprocessing doesn’t reduce appreciably the 

amount of waste that’s generated. It forces the country to develop a very large site that needs to be protected, that could be very polluted, and that could be 

expensive to restore. There are safe methods that we 

can use to manage spent nuclear fuel. Right now it’s 

being stored at nuclear power plants. Our analysis 

says that dry-cask on-site storage is safe. We wouldn’t 

want to store it there forever, but for the next 50 or a 

100 years this is certainly feasible, and it doesn’t cost 

much. While it’s on the site, it’s cooling down, which 

makes it a lot easier to ultimately dispose of it. Another option is to have centralized above-ground storage. 

For example, it could be cooled down at the front door 

of Yucca Mountain. There’s certainly nothing wrong 

technically with going forward with the geological 

repository although, politically, we’ve made some 

big mistakes, and the government has not treated its 

citizens very well in the way it went about licensing 

Yucca Mountain. 

Finally I’d like to turn to the use of nuclear power 

at military bases. A few years ago a Defense Science 

Board headed by James Schlesinger looked at energy, 

and one of its conclusions was that U.S. military installations were vulnerable to a loss of electric power. 

One reason they’re vulnerable is that our grid overall is more vulnerable. Because of deregulation and 

other concerns, less investment is being directed at 

the reliability of electric power. The recommended 

solution was to look at renewable options, solar options for military bases. Since then, there’s been a lot 

of movement in the U.S. military toward solar energy. 

A major motivation has been that this is a more secure 
133

source of power, but it’s very expensive. I don’t see 

much current effort in the military on nonrenewable 

options. If there is a security concern with power supply, what is the full range of options? How does the 

military work with the local utility to make sure that 

it has reliable power when it needs it and more secure 

power especially with regard to terrorist threats or 

natural disasters? 

The nuclear development community in the United 

States has come up with the concept of a small nuclear 

reactor. In their view, it could be similar in size to, or 

smaller than, those that are in our nuclear submarines. 

The idea centers on developing a modular reactor that 

could be built in a factory, delivered, and assembled 

on site, all on an economical scale. This would be a 

constructive way to secure our military installations. 

When we deploy, we could even take a few of the 

small devices with us so we would have a power supply. 

My own view of this concept is that we simply 

do not know whether it is at all reasonable. When we 

can’t even price a conventional nuclear reactor within 

a factor of 2, I am skeptical whether we can price one 

of these brand new designs within a factor of 4 or 5. 

To me, it’s an interesting option, the idea of putting 

a miniature power plant on a base, but at this stage, 

while it is probably worth further study, it is premature to reach any strong conclusions regarding its operational viability. 
134

ENERGY, ENVIRONMENT, AND SECURITY

Alex Roland, James Bartis, Carey King, Steven 

Miller, and Man-Sung Yim

During the presentations, there was very little mention of the environment. I want to ask all our panelists 

whether they think environmental issues are security 

issues. What is the relationship between energy and 

security? Should we be thinking about environment 

as well? Do different energy choices have environmental impacts and do those environmental impacts 

have security consequences? 

Carey King: The answer is yes. There are issues relating to the extraction of natural gas, environmental 

concerns about water contamination, and water treatment. We need to find ways to deal with that properly. But I think it could be handled. You need to plan 

it and put safeguards in place—many are already in 

existence. 

James Bartis: In the defense community, this issue centers primarily on the destabilization of regions 

abroad as a result of climate change. There is quite 

a change taking place. What does it mean to places 

like Bangladesh that aren’t stable and don’t have the 

resources to mitigate environmental consequences 

and population shifts? Another issue is that energy 

requirements do consume water. To the extent that 

water resources are diverted for energy use, especially 

across borders, it is a security concern. That’s primarily the way I see this played out. 

Man-Sung Yim: Environmental issues are very 

important in terms of economics. People have tried to 

factor what they call externalities into cost. The cost 

of energy is more than it appears when we factor in 

the cost of the damage caused by, say, the release of 
135

carbon and other toxic materials produced. People 

have come up with a way to characterize the impact 

of certain types of energy use. That impact could include mainly health effects. Whenever we talk about 

environmental impact, we are generally talking about 

the effect on human health. When we talk about ecological impact, we are talking in terms of crop damage, 

materials damage, noise, air quality, acid rain, deforestation, and then maybe global warming. If you add 

these other costs to the cost of electricity generation, 

it will change the price of fossil fuels and renewables 

and nuclear power. 

Alex Roland: Is nuclear waste an environmental 

issue?

Man-Sung Yim: Yes, of course it is an environmental issue. There are two communities of thought 

here. We have a technical community responsible for 

nuclear waste management. This community thinks 

the nuclear waste problem is solved; they think we 

have the technology to deal with it. If you talk to the 

other community, the problem will never be solved. 

As they see it, nuclear waste is a long-term problem. 

There are perhaps 1,000 toxic products in nuclear fuel, 

spent fuel. The vast majority of them are short-lived. 

Only 10 of the radionuclides have greater than 10 years 

half life—a very small number. But those few nuclides 

have a very long half life. Iodine 129 lasts 17 million 

years. So that’s going to stick around forever. 

James Bartis: And it’s water soluble. 

Man-Sung Yim: It could be water soluble depending on the chemistry of the system. Anyway, a couple 

of those radionuclides eventually are going to come 

and get you. The way the current regulatory system 

is actually written, you have to demonstrate that the 

waste will be safely disposed of for the next 1 million 
136

years, and that less than 100 milligrams will come 

from these radionuclides per year. If you take one 

CAT scan, you get 1,000 milligrams. If you take one 

X‐ray, you get about 10 milligrams. Everybody in this 

room gets about 600 milligrams per year by just living 

in this country, so 100 milligrams is part of the natural 

background. But based on the regulatory system, you 

have to demonstrate that this nuclear waste disposer 

should not give you more than 100 milligrams per year 

for the next 1 million years. Indeed, for the first 10,000 

years, you have to keep it to 15 milligrams. So suppose 

I come up with a system to dispose of the waste and 

try to demonstrate that these enormous multiple barriers work, I still have to face the challenge of predicting how they will behave, and be able to say that this 

system is going to work for the next million years! 

James Bartis: The Department of Energy (DoE) 

was dishonest and disingenuous to the public, and 

this is part of the hubris of the nuclear development 

community. 

Man-Sung Yim: Yes, actually there are a lot of 

challenges. There are a lot of challenges in the political area when it comes to nuclear waste. It is a very 

long-term problem, and you need a long-term stable 

policy. We don’t have that. Policy changes whenever 

we have a change in the administration, and our administration has a bad record and little credibility in 

that regard. 

Alex Roland: Is it a security problem or a political 

problem? 

Man-Sung Yim: Both. 

Steven Miller: I’d like to comment on the intersection of security and environment in the nuclear realm 

as it affects my little orbit. In a number of places, 

global climate change is one of the driving factors in 
137

pursuing nuclear power, not as an adequate response 

to global climate change, but as one of the portfolio of 

responses. Particularly in Europe where there’s great 

environmental concern, countries like Sweden and 

Germany have decided to abandon nuclear power and 

are now reversing course. But others, like Finland, are 

investing more heavily in nuclear power. Insofar as 

you think the spread of nuclear power raises some security implications, there’s a mixed pattern. 

Another issue is the presence of nuclear assets in 

the context of conflict. We have to worry about nuclear facilities as targets in war or civil conflict. Nuclear 

technology and power plants these days are designed 

to be very safe; we have zillions of hours of operation 

with little or no significant incident. But what of a manmade Chernobyl? The human element is the weak link 

in all of these systems; moreover, an intentional effort 

outside a system to contaminate a site is possible. 

During the Iran-Iraq war, the Iraqis repeatedly attacked Osirak. It was not yet operational with fuel, 

so that the implications were circumscribed. It is not 

entirely clear whether Iraq would have behaved differently if the facility had been operating. But there 

is some potential for deliberate targeting of a nuclear 

power plant. 

Of course, the proximate nightmare that creeps 

into our current discussion is nuclear assets in the 

context of significant internal instability. So imagine 

that Maummar Gaddafi had not given up his nuclear 

weapons program. What would have happened to 

any highly enriched uranium in Libya? Or imagine 

everybody’s favorite nightmare scenario, Pakistan, 

which contains 100 or more nuclear weapons and a 

pretty extensive nuclear infrastructure, along with the 

highest density per capita of al-Qaeda and Taliban 

supporters of perhaps any country. 
138

COMPARATIVE SECURITY OF 

DIFFERENT TECHNOLOGIES

Alex Roland, James Bartis, Carey King, Steven 

Miller, and Man-Sung Yim

Of all the technologies we have looked at so far, are 

there any that are more inherently secure than others? 

At the other end of the spectrum, are there some that 

are so inherently destabilizing that some portion of 

our national and international decisionmaking should 

be based on choosing energy technologies that promote security and avoid choosing technologies that 

endanger the world. Some people think we fought the 

Iraq war because of oil, and some people fear that in 

the future we may face wars over water or because 

of pollution spilling across international borders. Are 

there energy technologies that are inherently more 

secure than others, and, if so, should we be leaning 

toward them? 

James Bartis: Certain designs deter investment. 

Right now, if you start from scratch, you have to make 

a fairly large investment to get nuclear grade fuel. 

There are certain designs that make it very much less 

expensive. 

Alex Roland: Assuming that most of the world’s 

decisions about energy in the foreseeable future are 

going to be made on an economic basis, is there anything that the government can do at the margins to 

shape the way in which those economic decisions will 

present themselves? That is, should governments be 

worried about the security implications of energy 

choices, and if they are, what do they do about it? Is 

any one nation going to make the choice to make it 

a safer world and let everyone else get an economic 
139

advantage? Or do we have to get international agreement on this? As an example, I present the nonproliferation agreement where all nations agree that we will 

favor some paths of energy development as opposed 

to others which seem to be more dangerous. 

Steven Miller: The first point I would make is that 

the market is a very powerful force in this sector as in 

many others. As our colleague showed, many states 

didn’t pursue nuclear power even though they toyed 

with the idea. One of the more persuasive explanations is that, for much of the preceding 4 decades, 

nuclear power was not economically attractive. In 

my remarks, I touched on the Chernobyl effect. This 

definitely produced a backlash against nuclear power, 

but there’s an argument floating around that basically 

says nuclear power was going to taper off anyway because the economics of energy were changing, and in 

an era of cheap fossil fuel and cheap electricity, nuclear power wasn’t very attractive. Over the past couple 

of decades, you couldn’t get an American utility CEO 

to invest a penny in a nuclear power plant. The same 

is true around the world. 

The market remains a very powerful force except 

in those places where it’s not wholly determinative. 

Where countries have made a national decision to go 

down the nuclear path because they need energy security or want national status, or because of some combination of self-interested factors, they have done so 

independently of calculations showing that this path 

was uneconomic or not the most optimal allocation of 

their resources. 

France gets 75 percent of its electricity from nuclear power. The Japanese have made a massive nuclear 

investment, including exotic technologies, where 

they’ve invested trillions of yen without a penny of 
140

return in terms of generated electricity. The Koreans 

are now doing similarly. As to the Chinese, their longterm vision is grandiose. I was just in Beijing recently. 

They have a pipedream plan—not approved or funded—to produce 150-200 reactors in the next 50 or so 

years. In that wonderful Chinese way, they have a slogan, “100 in 100,” meaning 100 percent replacement 

of fossil fuel with nuclear in 100 years. The way they 

propose to do that is by using breeder reactors. This 

plutonium recycling would bring them way beyond 

the light water reactor era that we’re living in today. If 

you were to get a government to commit to that kind 

of path, then some of these market calculations would 

begin to be less of an impediment. 

Alex Roland: The changing rationale was what? 

Security, energy independence? 

Steven Miller: The present Chinese program will 

result in at most about 4 percent of China’s electricity being generated by nuclear power. That’s the part 

that’s most likely to be real because the further out 

you get in somebody’s vision timeline, the less likely 

it becomes real. The hoped-for program is a 100-year 

pipedream. It’s just suggestive of Chinese enthusiasm. 

James Bartis: There’s another factor. China is using a tremendous amount of coal, but their reserves 

are not that large.

Audience: They’re the third largest in the world. 

James Bartis: I believe there are about 50 billion 

tons of coal in their reserves. They have about 25 to 

30 years worth of supplies. There may be more coal 

undiscovered, but given how fast they are putting in 

new coal plants in China, they are doing the math and 

saying to themselves, “We’ve got to worry.”

Audience: The bigger problem for China right 

now is the lack of an effective electric grid distribu-
141

tion. They can’t even distribute what they’re making 

off the Three Gorges Dam Complex, let alone all this 

new electricity—that itself is a pipedream. 

Man-Sung Yim: An additional factor we need to 

consider as part of the security issue is indeed electric grid security. As an electricity-generating country, you have to look at the changes in demand. Some 

plants run all the time, like base load plants.9 Some 

plants fluctuate in output, running intermittently. 

Some plants run only at times of peak demand.10

These patterns have to be a part of this discussion. Going back to the question about security, that is part of 

the reason that President Obama wanted to talk about 

nuclear power in the State of the Union address. He 

wants to reduce our foreign oil import dependency, 

and you cannot make a dent in this without resorting 

to nuclear power. That is why a lot of countries are 

interested in nuclear power. 

James Bartis: An earlier panelist made a very good 

point—we don’t use oil to make electricity in this 

country. 

Man-Sung Yim: Actually, at this point it’s natural 

gas mostly. But to get to the question, economics is the 

driving force for this country, unfortunately. No matter what the government decides—and right now it’s 

fully supportive of the nuclear renaissance—economic 

considerations will be determinative. There are other 

countries—for example, South Korea, Japan, China, 

and Russia—where we’re going to see the renaissance. 

That’s not really a threat because they already have 

the capability. We’re not going to see many newcomer 

nuclear countries. It’s very difficult to develop civilian 

nuclear power capability. 
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QUESTIONS AND ANSWERS

Alex Roland: Now for audience questions and 

comments. 

Q: My question is for all the panelists. Underlying a lot of this discussion is the question of intent. 

When we’re talking about nonproliferation and the 

expansion of nuclear energy in places where it hasn’t 

existed previously, there are some places where we’re 

going to care if they want nuclear energy and some 

places where we don’t care. If Canada wants to have 

a massive expansion in the number of nuclear power 

plants they have, we’re not going to care. But there are 

other places, particularly in the Middle East, where 

the fuel cycle is going to be a major concern. Dr. Yim’s 

presentation gets at how we try to understand national intent. What makes countries decide to pursue 

nuclear weapons? Does it have any relationship with 

the development of civilian power? What is the U.S. 

Government’s view on how these decisions are being 

made? What calculations do we make in determining 

countries’ intent? Will we not mind if some countries 

develop fuel cycle facilities? Or are we going to say 

across the board, “No, we’re not going to help with 

technical assistance if you want fuel cycle facilities in 

your country?” Earlier, it sounded as if the countries 

that will actually succeed in pursuing nuclear power 

and build those 65 new facilities are those countries 

that we don’t see as a threat. 

Steven Miller: Actually, under the guise of the 

universal nonproliferation policy, we’ve always had 

two nonproliferation policies, one toward hostile proliferators and one toward the friendly. Even though 

we would prefer that no additional states have nuclear 
143

weapons, when friendly states have done it or sought 

to do it, we’ve reacted with reasonable tolerance. It’s 

the hostile cases that worry us. 

For example, we were worried by the Soviet Union, 

China, Iran, North Korea, at one point Libya, and at 

one point Iraq. We always react negatively whenever 

one of these cases comes up. So you’re right that we 

don’t have equal reactions to every case. Over the last 

decade, we’ve objected vociferously to Iranian efforts. 

But the Brazilians, simultaneously, have developed a 

commercial enrichment facility, and they weren’t subjected to any of the scrutiny or ostracism that the Iranians were. They didn’t get brought before the United 

Nations (UN) Security Council. They weren’t sanctioned. The United States wasn’t enthusiastic about 

the Brazilian development, but we didn’t actively resist it. 

That raises a question of whether you can have a 

universal nonproliferation regime with exceptions 

that exempt our friends from various restrictions. We 

did the same thing with India in the U.S.-India deal. 

We had strategic interests in pursuing a relationship 

with the Indians, and so we exempted them from 

various strictures that we had worked very hard to 

establish as norms of the nonproliferation regime. We 

are then accused of hypocrisy. We then often try to 

persuade ourselves, “Well, this is going be a unique 

case.” Then, lo and behold, not long after the United 

States-India deal, the Pakistanis and Chinese wanted 

to do something similar. Now there are noises bubbling around in the background as to why Israel can’t 

have some kind of special arrangements, etc. 

These are exactly the kind of tricky issues of managing the nonproliferation regime in circumstances 

where the fact of hostility or friendliness has a huge 
144

impact on how we respond to things. I offer you one 

further example. In my opinion, Japan has everything 

that would permit it to become a nuclear weapons 

state. It has enrichment, it has separated plutonium in 

large quantities at Rokkasho-mura. You can visit the 

facility. It has a reprocessing facility. It has high levels of nuclear expertise. It has delivery systems from 

the United States that are dual use. It has everything 

to be a nuclear weapons state other than the decision. 

It can be regarded as a deeply dual nuclear weapon 

state. This doesn’t bother us terribly much because 

the Japanese are close allies and we don’t doubt their 

intentions. It does at least modestly trouble some of 

their less friendly neighbors, but if Iran were in the circumstance today that Japan is, we would be extremely 

agitated because our relations are hostile and we do 

doubt their intentions. 

James Bartis: There is another a lesson here. Iran 

looked at the situation with North Korea, and they 

looked at what we did to Iraq. Accordingly, they 

probably made a national security decision to develop 

nuclear power. From their perspective, that may make 

a lot of sense. As has been mentioned, a lot of countries don’t base their decisions solely on economics. 

But when we look at it from an economic perspective, 

we can understand why Kuwait, for example, might 

want to build a nuclear power plant. They’re using oil 

today to make electricity, which means it’s very expensive. Moreover, they don’t have much natural gas. 

So developing nuclear power may make some sense 

there. Iran has the second largest natural gas reserves 

in the world. It’s almost free there. It’s inconceivable 

from an economic perspective that the Iranians need to 

use nuclear energy to make electricity. Moreover, Iran 

is not a state that’s very well developed compared to 

many other countries, and they could certainly use the 
145

money they are using to build nuclear power plants in 

more productive areas. But they’re doing it totally for 

a national security reason, and I think we’re part of 

the reason why they’re doing it. 

Man-Sung Yim: Actually, if we look at history, 

many countries, for example Japan, South Korea, and 

Taiwan, initially developed civilian nuclear power because of their interest in weapons. That’s just a fact. 

They were looking at both civilian capability and 

weapons capability. After the bombing of Hiroshima 

and Nagasaki, the Japanese came up with a political 

agenda. They concluded they eventually had to develop a nuclear capability. They came up with a 235 million yen budget; 235 is a symbolic number, and they 

wanted to develop the capability. 

Then South Korea was struck by the same idea. 

They actually formed a plan to develop both military 

and civilian capability. Taiwan did the same thing. 

Today, the way the nuclear energy infrastructures 

have developed means that you cannot just go off and 

do something (like build weapons) and have nobody 

know you’ve done it. While they do have the technical capability to build weapons, they have a very long 

and robust institutional investment in sole-civil use, 

so that’s why we don’t see them proliferating. 

Other countries like Taiwan and South Korea also 

have a similar long institutional investment so they 

are not likely to turn their civilian energy program 

into a weapons program. Then there are countries 

like Vietnam and Iran. I believe the Vietnamese leadership may be interested in civilian nuclear power 

because they have some interest in nuclear weapons 

as well. They have good reason to do so: they have 

China and India as neighbors. Vietnam also has the 

capabilities: they are a very smart people. They’re a 

capable country. 
146

But even if you start out with intending to develop 

nuclear weapons at some point, the international regime is not going to help you. We have this additional 

protocol, the UN Security Council Resolution 1540, 

and the Proliferation Security Initiatives (PSIs).11 All 

this involvement in the nonproliferation regime is going to hurt you, so it’s becoming very difficult. That’s 

part of the reason why many countries who pursued 

both civilian and weapons programs had to give up 

the weapons program. It would actually have a very 

negative effect on the civilian side. They have to make 

a very calculated decision. Most of the countries have 

chosen not to pursue nuclear weapons to avoid a potential backlash.

Q: This question is mainly addressed to Dr. Bartis. 

What does the U.S. Government need to do to finalize 

a solution to the waste storage issue? Yucca Mountain 

fell apart even though it seemed as if that deal was 

totally implemented. If we are going to find a solution, 

what must happen? 

James Bartis: Early on, Congress authorized the 

DoE to look at numerous sites for a waste facility, and 

then a few years later, Congress itself decided on a 

location. They picked Yucca Mountain in Nevada. 

Nevada has a small congressional delegation, and at 

that time none held positions of great power. Little 

did they know that a senator from Nevada that was 

deeply opposed to the selection of Yucca Mountain 

would become the Senate Majority Leader. The Yucca 

Mountain deal also failed because of the fairly roughshod way that the DoE went forward with the project. 

Yucca Mountain may or may not be reconsidered 

as a site—it’s certainly a viable one. Our research at 

RAND finds that there is no requirement to find a geo-
147

logical repository site within the next 25 years. So it 

may be appropriate for the United States to restart the 

search for an appropriate site, take its time, treat the 

public appropriately, evaluate multiple sites, and determine which site is most viable. There are communities in the United States that may be very interested 

in the economic benefits of having a nuclear waste 

disposal site in their vicinity. That certainly was the 

case in New Mexico where there wasn’t unified opposition to the geologic disposal site for defense-related 

nuclear waste materials. 

Audience: Are you saying Yucca Mountain is not a 

good site for political reasons? 

James Bartis: Absolutely. Certain claims were 

made on behalf of Yucca Mountain and those claims 

over time turned out to be incorrect. As a result, the 

DoE recommended what we call “engineering solutions” so that, in addition to the geology, there would 

be engineering barriers. A number of concerns were 

raised about some of these engineering barriers. 

Basically, there was a breakdown of trust between 

the DoE/federal government and the State of Nevada, 

and it was a tremendous waste of taxpayer money. A 

lot of the blame here goes to the federal government 

for the way the DoE behaved. A solution to all the 

problems in Yucca Mountain was to simply keep the 

material above ground for at least 50 to 100 years. After 50 to 100 years, the radioactivity and the heat generated by that radioactivity goes down significantly. 

It’s the heat generation that poses the problem underground. If you keep it above ground and the waste has 

time to cool, there is much less risk associated with the 

integrity of geological disposal. 

Audience: Do you think the same political problem would exist if we moved all of the fuel to the front 

door of Yucca Mountain?
148

James Bartis: Even that is unlikely to work now 

because there has been a breakdown in trust. There 

needs to be a new procedure for site selection before 

you even start thinking about that option. I don’t 

know whether the DoE has formulated an acceptable 

strategy for dealing with the public. 

Audience: The issue is not the site. The issue is the 

fact that you have to move 80,000 tons of waste on either beltways or highways, and you need equipment 

that’s going to be operated by human beings. All it 

takes is one derailment or one truck accident, and you 

could have a major problem. John McCain, for example, said that he supported putting the waste at Yucca 

Mountain. He was asked, “Would you agree to have 

it go through Phoenix?” “No, I would not.” That’s the 

problem. 

Q: A comment. The United States is highly disturbed over the prospect of Iran developing what it 

calls a civilian nuclear program, and we know that’s 

not what they intend to use it for. Yet, we warmly embrace the Sunni Arab countries, Saudi Arabia, Yemen, 

Egypt, etc., that want to go in the same direction. Thus 

when you think of civilian nuclear programs in the 

context of the Middle East, it’s probably an oxymoron. 

Steven Miller: Two points. States have a right, and 

in the context of civil nuclear power, the right is enshrined in Article 4 of the Nonproliferation Treaty, 

to make whatever choices they wish in the realm of 

nuclear technology. Everybody’s heard of the phrase 

“the inalienable right to exploit nuclear technology 

for peaceful purposes.” If you actually read the second paragraph of Article 4, it has a phrase stating that 

you’re entitled to the fullest possible exchange of nuclear technology. So the language is expansive rather 
149

than limiting. Whether we like it or not, a lot of states 

are going to at least explore these possibilities. 

 In the case of Iran, we have lots of reasons for 

thinking that they have ulterior motives. But they’ve 

been struggling, almost completely unsuccessfully, to 

implement the program that was announced in April 

1974 by the Shah and was worked out with the full 

connivance of the Nixon/Ford/Kissinger administrations. True, it produced a huge fight in the U.S. Government because the nonproliferators were worried 

about what the Iranians were really up to. But the 

gross anatomy of the current program of the Iranian 

government is essentially identical to the Shah’s program: 20 large light water reactors, and the full fuel 

cycle, and so on. This is not an idea the mullahs came 

up with; this is an idea the Shah worked out with 

Henry Kissinger. So whatever else they might be up 

to, they do have an interest in civilian nuclear power. 

The final point I would make is that Abu Dhabi 

is the spearhead of the nuclear newcomers. It’s they 

who will be the first to put a nuclear power plant in 

the grid and actually generate electricity among the 

newcomers. They negotiated a 1-2-3 agreement with 

the United States in which they agreed to everything 

that we wanted them to agree to. They had made a 

national decision that they wanted to move as quickly 

as possible toward nuclear power, and so they understood that they needed to dispose of this 1-2-3 question as quickly as possible. Therefore, they judged it to 

be in their own self-interest to acquiesce in all of our 

preferences. They agreed not to enrich. They agreed 

to forsake their right to reprocessing. No fuel cycle. 

In Abu Dhabi (or the Emirates), they agreed to sign 

on and adhere to the additional protocol of all other 

safeguards arrangements that are currently the norm. 
150

In the nonproliferation world this has been dubbed 

the Abu Dhabi model. If all the nuclear newcomers 

will do this, the proliferation implications of nuclear 

power are much more circumscribed. 

 It turns out that lots of other states are really angry 

at Abu Dhabi for its course and refuse to do it themselves, including Vietnam which has been in similar 

discussions with the United States and has refused to 

forfeit its right to enrichment. The Egyptians are also 

in the same position. The Saudis have said they won’t 

sign up to such an agreement. I was at a meeting in the 

Gulf this summer at which one Arab and Gulf state 

after another expressed regret that Abu Dhabi’s lack 

of foresight in acquiescing to America’s full spectrum 

of preferences. 

James Bartis: If I look at Iran, so long as Iran allows unimpeded inspections—and right now we have 

no evidence that they’re doing anything that’s against 

any letter of the law—they will be compliant. Is that 

correct? 

Steven Miller: Iran committed, over a very protracted period of time, a substantial number of safeguard violations. These violations fell entirely in the 

domain of reportage. They were required to report activities, provide information, etc., which they systematically failed to do over a 20-year period, resulting 

in a long list—bill of indictment against them by the 

International Atomic Energy Agency (IAEA). What 

got them in trouble was not that they were pursuing 

enrichment, which is a permitted activity under the 

treaty, but, rather that they failed to report that they 

were pursuing enrichment. 

The way we trapped them was by using the safeguard violations to claim that they were delinquent in 

their NPT obligations. That gave us the right to refer 
151

the matter to the UN Security Council. We then issued 

a series of the UN Security Council resolutions under 

Chapter 7 which are, in principle, binding which instructed Iran to cease and desist its enrichment and 

plutonium-related activities immediately. Their failure to do that then puts them in a position of noncompliance with international law under the UN charter. 

So that was the legal mousetrap that we set for them. 

But under the Non-Proliferation Treaty (NPT) or its 

safeguards agreement, it has every right to both enrich and reprocess so long as it permits the required 

safeguards under Article 3 of the treaty.

One last point: Iran is the most heavily inspected 

party in the history of the system now, and it has been 

subjected to more short-notice inspections than all 

other states in the system put together. There’s no evidence that the known and declared facilities are being 

misused for weapons purposes. So the fundamental 

issue is what covert actions or activities are underway. 

That, of course, is what the IAEA is never given access 

to. 

Audience: What’s the case on North Korea? Similar to Iran? 

Steven Miller: North Korea belatedly signed a 

safeguard agreement when the inspectors came in. 

In 1991 the inspectors detected discrepancies in the 

material accountancy which revealed quite unambiguously that North Korea was diverting material. In 

1992 the IAEA declared North Korea to be in a formal 

state of noncompliance with its obligations under the 

safeguard agreement and referred the case to the UN. 

At no moment since then has North Korea ever been 

restored to compliance. The UN Security Council delegated the issue to the United States which, in 1994, 

reached the agreed framework arrangement with the 
152

North Koreans which froze their plutonium program 

for about a decade. But in late 2002 or early 2003, 

partly motivated by and partly under the cover of our 

run-up to war with Iraq, the North Koreans untagged 

and unsealed the tagged and sealed fuel rods that 

were under IAEA surveillance. They ripped out the 

close-circuit television cameras. They threw out the 

IAEA inspectors. They withdrew from the NPT. They 

restarted their reprocessing facility and in due course 

they detonated nuclear weapons. 

The timing of North Korea’s joining NPT coincides 

with the completion of their reprocessing capability 

and with South Korea’s and North Korea’s joint declaration of denuclearization of the peninsula. Thus, 

basically, whenever North Korea takes some liberty, it 

feels comfortable in giving up something. But there is 

always covert development behind it. 

Q: To bring the discussion back to environmental 

issues, there’s a growing body of literature linking security challenges with environmental change, whether 

it be climate change or water depletion, you name it. 

But if we look at where carbon is going to be coming 

from over the next few decades, it’s mainly the developing world because coal is cheap, and its inefficient 

technology will be causing the vast majority of new 

carbon emissions globally. My question is, How do 

we deploy alternative technologies in the developing 

and poor world, which will be driving these security 

climate threats for the next decade or century? 

James Bartis: Actually, it’s not the poor world 

that’s going forward with coal that much. If you look 

at where the action is going to be, it’s China. It’s a very 

limited set of countries that are going to be putting out 

large emissions, but China and India are two of the 

really less developed countries that are going to be do-
153

ing so. That’s partly because these countries have very 

large populations. However, even when you look at 

extensive development over the next 30 to 40 years, 

their carbon emissions still are not close to ours. What 

we need to do is set an example—we’ve got to take 

some steps in the direction of developing alternative 

energy. 

Carey King: Alternative energy is going to be important as a tool for adaptation if some of the problems 

we expect with climate change materialize. It will help 

provide basic logistical capabilities and basic water 

provision. If you have a decent number of solar panels 

and a decent number of wind mills, you can desalinate some water. That will create resilience. Unless the 

grid gets shut down or broken because of floods or 

earthquake, alternative sources can provide the basic 

needs in difficult times. They can take a bad situation 

and prevent it from becoming really horrible. 

Steven Miller: When it comes to mitigating climate 

change, it is with the big emitters that we can find traction. China’s gross domestic output (GDO) per capita 

is nowhere close to ours, but where they’ve surpassed 

us is in terms of gross carbon emissions. The problem 

has to do with long-lived power-producing assets. 

Some of our colleagues say, only half tongue-in-cheek, 

that the Chinese are building nuclear power plants 

faster than humanly possibly, but they’re building 

coal and natural gas fire plants even faster. Those facilities are going to be around for 30, 40, or 50 years. 

Thus the decisions the world actors are making today 

we’ll be living with decades down the road. A lot of 

them are still running in the wrong direction. 

James Bartis: The Chinese are making major investments in technologies that are energy efficient. 

They’re making advancements. They’re not going 

down the path that we’re going down.
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ENDNOTES - CHAPTER 3

1. See, for example, Dong-Joon Jo and Erik Gartzke, “The Determinants of Nuclear Weapons Proliferation,” Journal of Conflict 

Resolution, Vol. 51, No. 1, February 2007, pp. 167-194, available 

from jcr.sagepub.com/cgi/content/abstract/51/1/167.

2. The logit model is also known as the logistics model. It is a 

logistic regression used to predict the probability of occurrence of 

an event by fitting data to a logistic function.

3. Fuhrman has since assumed a position at the University of 

Texas-Austin—he recently participated in a workshop at North 

Carolina State University on “Securing our Nuclear Future” and 

gave a seminar to the Triangle Institute for Security Studies. 

4. The slide showed at the conference contained a list of 

current capacity as of February 1, 2010, in states to include: the 

United States, France, Japan, Russia, Germany, South Korea, and 

Ukraine.

5. The Marcellus Formation is a huge unit of marine sedimentary rock found in eastern North America. It extends throughout 

much of the Appalachian Basin. The shale contains largely untapped natural gas reserves. It is near to high-demand markets 

along the East Coast of the United States, which makes it an attractive target for energy development.

6. The Barnett Shale is a geological formation located in the 

Bend-Arch-Fort Worth Basin. Arguably, it has the largest producible reserves of any onshore natural gas field in the United States. 

7. The Carrizo Willcox aquifer is a vital source of fresh groundwater for much of South Texas.

8. Virtual water is water used in the production of a good 

or service. It is also sometimes called embedded, embodied, or 

hidden water. The concept has been influential in discussions of 

water management. It helps explain why some nations export and 

import water.
155

9. A baseload plant or power station is an energy plant devoted to the production of baseload supply. This is the amount 

of power required to meet minimum demands based on reasonable expectations of customer requirements. Such plants (which 

typically include nuclear and coal-fired plants) produce energy 

at a constant rate, usually at low cost relative to other production 

facilities available to the system. Some renewable energy sources 

can provide baseload power. 

10. Peaks or spikes in customer power demand are handled 

by smaller and more responsive types of power plants called 

peaking power plants, typically powered with gas turbines.

11. Resolution 1540 (under Chapter VII of the United Nations 

[UN] Charter) was adopted on April 28, 2004, by the UN Security Council. It obliged states to refrain from supporting by any 

means nonstate actors in developing, acquiring, manufacturing, 

possessing, transporting, transferring, or using nuclear, chemical, 

or biological weapons and their delivery systems. The Proliferation Security Initiative (PSI) is a global effort launched in May 

2003. It aims to stop trafficking of weapons of mass destruction, 

their delivery systems, and related materials to and from states 

and nonstate actors of proliferation concern. 

157

CHAPTER 4

ALTERNATIVE ENERGY

FROM A SECURITY PERSPECTIVE

This panel was organized as a “conversation” between a moderator and panelists. Its purpose was to 

highlight the ways in which existing and future energy technologies affect security at the human, national, 

and collective levels. The focus was on alternatives 

like wind, solar, and biofuels, though attention was 

also paid to shale. The moderator was James Trainham. Panelists were Michael Roberts, David Dayton, 

and James Bartis.

HIDDEN COSTS OF ENERGY

James Trainham, James Bartis, David Dayton, 

Michael Roberts, and Daniel Weiss

Let’s continue our discussion on the use of renewables and alternative energies for energy security. 

James Trainham: As an engineer, I work with balances: charge balances, mass balances, momentum 

balances. I also work with cash balances because engineers do take economics into account. One of the 

things we talked about a lot today is the market. I’d 

like the panel to discuss the real cost of our existing 

energy infrastructure. A number of studies note the 

hidden costs of our existing energy supplies. For example, just recently a Harvard Medical School report 

stated that coal is costing healthcare in the United 
158

States between $140 and $300 billion a year. That is 

not reflected in the pump price. 

Likewise, some suggested today that “we could 

pull our military back.” If you are trying to find out 

how many military installations the United States has 

in the Middle East and Africa, you’ll find that the list 

covers a page, not counting what’s in Afghanistan 

and Iraq. That also covers a page. There’s a website 

that will show you where all these military installations are. So you have to ask, “What does that cost 

and who’s paying for it?” It’s obviously the American 

taxpayer who’s paying for that to keep oil flowing. 

Thus we have a lot of hidden cost, and we can assign that cost a number. Shouldn’t we also be looking at the alternative energy costs? They are always 

being criticized on the grounds that they’re being 

subsidized. Let’s look at the hidden subsidies and see 

what it really costs to produce various energy sources. 

Let’s look at the human costs and the societal costs 

we’re paying for the existing infrastructure, and compare the total balance of cash and costs. That real cost 

should influence our decisions as we make our moves 

toward alternative energy. 

Do we institute various taxes to influence the energy market? How might we address the total cost so 

that we actually make the right economic decisions 

instead of making economic decisions just because we 

have institutionalized our current energy sources?

Michael Roberts: I mostly do work on agricultural 

commodity prices, and I’m doing some work on the 

effects of ethanol on commodity prices worldwide. To 

answer your question, in general the economist solution to problems like this is to think in terms of externalities. An externality is some kind of effect from 

a market transaction that affects someone besides the 
159

people trading something on the market, say, oil. In 

other words, I buy my gasoline and drive my car. The 

gasoline is going to cause pollution that affects everyone, but I’m not paying for the price of pollution. So 

the economist’s solution to this is to put a number on 

the external social cost and factor that into the price of 

gasoline. 

Gregory Mankiw, a conservative senator who 

was a leading advisor to President Bush, and a leading economist at Harvard, has written the best-selling 

text book on the principles of economics.1 He started 

something called the Pigou Club, so called after the 

Pigouvian tax. The idea behind this tax is that we 

should put a tax on these external costs.2 So if we think 

that carbon emissions are causing global warming and 

that there are external costs related to that, we should 

put a price on it. We can tax these externalities, and 

then perhaps even lower income taxes or other sorts of 

taxes. We should tax the things that have social costs 

and thereby increase efficiency rather than reduce it. 

Even this fairly conservative economist highly recommends these kinds of taxes, and I think that’s a rather 

standard economist answer to that problem. 

Of course, there are other ways of doing it. Cap 

and trade is another way of putting a price on externalities, and we did that with sulfur dioxide markets. 

We introduced tradable permits for sulfur dioxide 

around 1995-96, and this effectively put a price on sulfur emissions. This mechanism very rapidly lowered 

the costs of reducing sulfur emissions. This approach 

is in contrast to command and control mechanisms 

where you order the electricity plant to employ scrubbers or other particular techniques. Instead of forcing 

their hand, you simply put a price on the offending 

pollutant and then let the markets work it out. 
160

That’s the standard economist answer to your general question, and I favor that sort of thing. It can be 

politically challenging to do, as we’ve seen time and 

again. But in cases where it has been done, it’s been, 

for the most part, fairly successful. 

James Bartis: When I look at just gasoline—not 

coal, for the moment, but just gasoline—I see four associated externalities that are not being accounted for. 

In other words, there are four additional costs that 

should be factored into the price of gasoline. I’ll just 

list them here and try to provide some numbers. 

In the first place—and this is the most egregious 

example—the gasoline tax doesn’t pay for the highway infrastructure in any state of the United States. 

Instead, we subsidize drivers by taking money from 

the general funds of the states and the general fund 

of the federal government. The gas tax needs to be 

25 to 50 cents higher per gallon to break even on the 

infrastructure requirement. Then there is the energy 

security problem that goes along with having a cartel 

at play. We at RAND and some others have looked at 

that externality and calculate it at about 25 to 50 cents 

a gallon. There’s also a smaller externality called the 

supply risk. A recent paper by two reputable economists suggests that’s about 15 cents a gallon. Then 

there is the greenhouse gas problem. We often hear 

proposals suggesting that there should be a charge 

for releasing carbon dioxide into the atmosphere. For 

each $10 charged for emitting a ton of carbon dioxide emissions, the price of gasoline would go up by 

roughly 20 cents per gallon. Finally, gasoline use has 

health costs. Even though we have much cleaner cars, 

there is still a particulate problem. I don’t know what 

the size of that externality is. My very rough guess is 

that it is at least 10 or 15 cents per gallon. If you put all 
161

these externalities together, you ought to have a gasoline tax that’s about $1 to $1.50 higher than it is today. 

In effect, we subsidize gasoline to that extent.

There are other subsidies directed at promoting 

domestic production of oil, and the administration is 

trying to address those right now. Our failure to effectively address the externalities associated with oil use 

is one of the key problems of our current national energy policy. If we had a gasoline tax $1.50 higher than 

the one we have now, we would be using less gasoline 

and we wouldn’t drive such large cars. After all, the 

Europeans live very well. They use half the petroleum 

we use on a per-person basis. So there are benefits to 

increasing the gas tax to reflect externalities. 

The reason we don’t do this is that there’s a lot of 

wealth associated with the current system. There’s a 

lot of money to be had, and there’s a lot of inertia that 

gets in the way of our doing anything that moves us 

toward a rational energy policy. Instead, we continue 

to rely on the hope that there’s some magic research 

solution out there, that some new technology is going to come in and solve all our energy problems. We 

make our problem worse by subsidizing the wrong 

fuels. If we look at some of the renewable fuels being pushed by the federal government, we’ll find that 

there are also significant externalities associated with 

them. 

David Dayton: That was a very good segue into 

what I want to say. Unfortunately, for things like alternative fuels, you have to consider the entire value 

chain from the start—the feedstocks, biofuels feedstocks, all the way to transportation, marketing, and 

distribution to get the fuel to the pumps. 

It’s going to be hard to develop new technologies, 

at least in the current environment in which the in-
162

frastructure is geared to fossil fuels. Until we do, we 

won’t be able to determine what those externality 

costs are. That’s because we’ve got such an uphill battle to fight. How can alternatives compete with costcompetitive fuels like petroleum-derived distillates, 

especially given that these alternatives are inherently 

higher in cost to start with? There’s really no economic 

incentive yet to adapt to new technologies. 

There are some known externalities. In particular, 

there are issues connected with feedstock distribution. 

Biomass inherently is much less energy dense than all 

the other fossil fuels that are being consumed in the 

country.Therefore, you’ve got a huge logistics problem. Leaving aside farming practices for a second, 

you’ve got to move material from the farm or growing 

site to a processing plant. There are associated costs 

with that are more challenging than pipelining and 

having supertankers sail through the Straits of Hormuz filled with fairly cheap crude oil. 

Then you’ve got to consider conversion technology 

options. Right now, the only biofuel that really is in the 

marketplace is corn ethanol, on the order of about 10 

to 12 billion gallons per year. There’s a smaller market 

for biodiesel from vegetable oils, about a billion gallons per year. But the scale of the fuel infrastructure, 

just for motor gasoline, is about 149 billion gallons per 

year. At 10 percent ethanol, we’ve already maxed out 

on the permissible fraction of ethanol in gasoline (i.e., 

the “blend wall”). We’re looking at new policies to 

raise that fraction.3 But even if new technologies were 

developed, let’s say, for ethanol, which may or may 

not be a good fuel, there’s no market for it. That’s because there are not enough flex-fuel vehicles to use it 

nor a higher blend wall.4
163

I am an advocate of looking into advanced biofuels 

as a way to replace hydrocarbons. The energy balance 

for those fuels is even more challenging than it is for 

ethanol because you can’t retain any of the oxygen 

that’s in biomass in your fuel. You’ve got to get rid of 

all of it. That means you must go from 40 percent oxygen in your biomass down to 0 percent in your fuel. So 

you are going to be dealing with a 50 percent weight 

loss when you go from starting material to fuel. Fortunately, your energy density can be upwards of 50 to 80 

percent, depending on your conversion technology. 

One of the additional advantages of looking at advanced hydrocarbon replacements is that you get to 

use the existing infrastructure. I think that’s one of the 

keys for developing these alternative technologies.5

We’ve already got a trillion dollars of capital invested 

in refineries, pipelines, and marketing and distribution infrastructure for hydrocarbon fuels. It would be 

rather silly not to take advantage of this, at least in the 

near term. We have an opportunity here.

Daniel Weiss: I just want to add one thing to what 

James Bartis was saying, and that is that the National 

Academy of Sciences did try to put a dollar figure on 

the healthcare costs of combustion of fossil fuels. It 

found that the added cost is approximately 50 percent 

for oil and 50 percent for coal, give or take. The Academy came up with a figure of $120 billion a year in additional healthcare costs due to premature deaths, lost 

productivity, hospital visits, etc. That’s a good starting 

point for trying to figure out how to integrate those 

costs.

James Bartis: I will address the issue of how far 

biomass or biofuels can go in addressing our national 

energy needs. It’s important to understand where we 

are today as well as where we might be able to go in 
164

the future. Right now, we get almost a million barrels 

a day from ethanol. That’s a significant amount of alternative fuel. The question is: How much farther can 

we go? To answer that question, we can look at the 

different options available. 

One option—the nearest-term option—available 

to us is to use seed oils. At RAND we looked at using seed oils like soybean, camelina, or jatropha.6

 We 

asked, “How far can seed oils take us?” We found that 

the productivity of seed oil per acre is fairly low. It 

turns out that to get 200,000 barrels a day of oil from 

seeds—which is 1 percent of national oil/petroleum 

use—we’d have to use 10 percent of the cultivated 

land in the United States. 

One of the companies that advocates for camelinaderived seed oil calculates that the maximum sustainable national production for that seed oil is about 

45,000 barrels a day. That’s fine if you’re in that business, but from a national perspective, that’s not going 

to solve any of our problems. The National Academy 

of Sciences and others have also looked at using biofuels where not just the seed but the whole plant can be 

used, as in the case of wood or grasses. Their estimates 

vary. Oak Ridge came up with a billion tons a year. 

When the National Academy looked at that figure, 

they knocked it down to 400 million tons a year. They 

did say that over time that figure could reach a half 

a billion tons a year. If we used all of that biomass to 

make liquid fuel, we could make about two million 

barrels per day. Now, that’s an appreciable amount, 

on top of the million barrels per day already from 

ethanol. 

Biomass also offers us some other opportunities. 

We can co-fire it with coal in power plants. Also on the 

horizon are some interesting technologies associated 
165

with algae and certain microbes. These organisms 

produce oil through photosynthesis.7 There’s a fairly 

strong consensus that algae-to-fuel approaches are 

still in the research stage. They are potentially important in that they free us up from dedicating massive 

amounts of our land to energy crop production, be it 

poplar trees or certain varieties of grasses. So the possibility is out there that, with these genetically modified microbes and algae, we could produce substantial 

amounts of liquid fuels. 

Right now we can estimate the extent to which 

biomass can take care of our energy security. We use 

almost 20 million barrels a day of oil. Maybe we can 

meet 10 percent of our needs from alternatives. We already meet 5 percent by using ethanol. Maybe we can 

get another 5? Or even 10? Altogether, 10 or 15 percent 

of our petroleum consumption might be met with biofuels that are emerging now or are already available. 

In another 10 years, I might be telling you a very different story, if we’re lucky and if our researchers are 

successful. But it’s important to put that in context. 

Biofuels do not get us off oil, but they help. Having 

two million barrels a day of lower demand just from 

the United States will do something. Hopefully, other 

nations will also reduce their use of conventional petroleum. It all adds up. Reduce demand for Organization of the Petroleum Exporting Countries (OPEC) oil.

by five or six million barrels a day worldwide, and it 

makes a difference in what the world oil price will be. 
166

CLIMATE VS. ECONOMICS: SECURITY 

IMPLICATIONS OF ENERGY CHOICES

James Trainham, James Bartis, David Dayton, 

Michael Roberts, and Daniel Weiss

 Arnold Schwarzenegger spoke at a recent energy 

conference, where he made two basic points.8 One was 

that the politicians on both sides of the House and the 

Senate need to work with the President and come up 

with a sustainable plan for energy. In other words, we 

need a long-range plan for how we’re going to manage energy in this country and where we should be 

moving. Right now there is no plan like that. 

The second point he made was that climate change 

has become almost a bad word, depending on where 

you sit on the political spectrum. Some people believe 

in the science, some people don’t. Our strategy thus 

ought to focus on energy security and the economic 

impact of using alternatives rather than on what alternatives mean for climate change. That makes sense 

because if you change to alternatives to bring about 

energy security and economic prosperity, you’ll get 

beneficial climate change effects anyway. 

Daniel Weiss: “Climate change” is indeed a bad 

word, particularly if you happen to live in a low-lying 

area in a third-world country. Such people are going 

to see the impacts of global warming sooner rather 

than later. In fact, although one cannot link any particular weather event with global warming, the extreme weather we had in 2010 is just a taste of what 

our future’s going to be like if we don’t start reducing 

emissions. 

James Trainham said that “some people believe in 

the science and some people don’t.” The people who 
167

do believe in the science are scientists. The National 

Academy of Sciences just did a review, finding that 

of the peer-reviewed papers addressing some element of climate change, about 98 percent agree that 

as carbon dioxide goes up in the atmosphere, global 

warming occurs. They also agree that global warming 

is human-caused. There are very few credible, peerreviewed studies that lean in the other direction. 

Unfortunately, we’ve seen a political flip of about 

180 degrees. It’s easy now to forget that 3 years ago, 

Republican nominee for President John McCain acknowledged that climate change was human-caused 

and had a plan to deal with it. He even used a capand-trade system to address it. Today, cap-and-trade 

has become like a swear word among Republicans, 

even though President Ronald Reagan was the first 

administration to use a cap-and-trade system. It was 

used to reduce the amount of lead in gasoline in a more 

cost-effective way. It was used again under President 

George H. W. Bush when Congress passed the Clean 

Air Act of 1990. That put a price on the sulfur pollution that was mentioned earlier. 

Nonetheless, global warming and cap-and-trade 

are now swear words, generally speaking, at the national level for the Republican party. In fact, there was 

an article in a recent New York Times Sunday magazine 

about how the Republican party used to complain 

about junk science being used to justify environmental laws. Now, the writer claims, the Republican party 

is, for all intents and purposes, a climate-science-denying party.9

 That’s an extraordinary development. 

Three years ago, global warming was something that 

the leading candidates, the nominees of both parties, 

embraced solutions for. Certainly the politics in favor 

of action on global warming has deteriorated. 
168

 During the debate over the previous 2 years on 

whether to enact global warming legislation, there was 

a lot of talk about the security elements of the need 

to act. In fact, the Center for Naval Analysis, which 

is a nonprofit organization primarily funded by the 

Department of Defense (DoD), has done a number of 

studies, led by retired high-ranking military officers, 

finding that global warming is a “security threat multiplier” and that in volatile parts of the world, it can 

only exacerbate already existing tensions. 

For example, there’s greater potential for water 

wars contributing to the instability that already exists 

in the Middle East as the impacts of global warming 

take effect. Certainly, there’s been a lot of talk and discussion about it. During the debate in the last 2 years, 

a group of Iraqi and Afghanistan veterans were very 

active in trying to create support for action on global 

warming in part to help reduce oil use in order to increase our national security and reduce the number 

of U.S. service personnel in harm’s way in the Middle 

East. 

Now congressional action on global warming is 

off the table for the next 2 years, absent some extraordinary event like Miami flooding. We don’t need to 

worry about whether we want to talk about action on 

global warming with a security message, because there 

won’t be a debate about global warming. In fact, the 

only present debate about global warming is whether 

to take away or delay the Environmental Protection 

Agency's (EPA) existing authority to set emissions reductions under the Clean Air Act that was confirmed 

under the Massachusetts v. EPA Supreme Court decision of 4 years ago. 

The debate is not going to be whether to move 

forward but whether we’re going to move backwards 
169

and remove authority from the EPA. The debate about 

investments in clean energy is going to be around economic competitiveness and innovation. That is the 

framework established by the President for his energy 

budget when he discussed it both in the State of the 

Union and in the budget. 

Despite his 13 percent cut in the EPA’s budget, for 

example, he would increase investments in energy efficiency, renewable energy, and other clean technology by about a third. This is pretty amazing, given how 

much he’s slashing other areas of his budget. Again, 

that is going to be a real contrast with the budget that 

the Republicans just passed through the House. It 

would cut spending on such things as clean technology, finding ways to wean us off oil, and science, by 

about $8 billion. The Republicans would cut money 

from the program to build a new satellite to collect 

weather data. 

That’s where the debate is going, and to the extent 

we continue to have a debate about clean technology, 

it will be around the need to innovate and to foster 

economic competition. It’s important to note that 

China is investing $12 billion a month in their clean 

tech sector. Compare that with what President Obama 

wants to invest, which is $8 billion for the entire year.

Michael Roberts: I’d like to comment on a couple 

of matters going back to biofuels and climate change. 

First, looking at biofuels, it’s important not to ignore 

its implications for food production. When you talk 

about doing a lot of biofuel production—by which I 

mean about 10 percent of our fuel, which is 10 percent of our gasoline today at the blend wall— we’re 

using about a third of the U.S. corn crop right now. If 

the blend wall is raised to 15 percent, you’re talking 

about diverting over half of the U.S. corn crop to fuel 

production. 
170

The United States is by far the world’s biggest producer and exporter of basic food commodities. What 

happens in the United States drives world food prices. We are by far the most influential country in the 

world in agriculture. People don’t realize that because 

we take our own food for granted. For us, the price of 

food—especially the raw commodities—is relatively 

trivial, so not everyone recognizes the implications. 

But the ramp-up since 2005 in ethanol production, 

from almost nothing to about a third of the corn crop, 

has driven up world food prices. 

Since there are many other factors behind price rises, there’s a good deal of debate about just how large 

of an effect ethanol production plays here. It’s worth 

noting, though, that since the production of ethanol 

has risen very quickly, it’s also had the effect of drawing down food inventories. In our own work, we’ve 

estimated that it’s driven up food prices for the basic 

staples (corn, soybeans, wheat, and rice) by about 30 

percent. In the short run, by drawing down inventories, it makes the world markets a lot more susceptible 

to other shocks. That’s going to be a problem until inventories can be built up to the point that they can 

meet the new high demand for this kind of commodity. So it’s not really clear precisely how much of a role 

ethanol production has played in price rises, but it’s 

definitely a big factor. 

So if one is worried about food prices in poorer 

parts of the world, say, in the Middle East, this is 

something to consider. Rising wheat prices have been 

linked to the uprising in Tunisia and, to some extent, 

in Egypt as well. The connection between ethanol 

and food shortage-induced popular discontent is a 

reasonable inference. There’s certainly an element of 

truth to claims that biofuels production and violence 

are linked. 
171

Another important thing to think about when considering using a lot of land for biofuels production is 

that this can cause carbon dioxide (CO2) expansion 

not only in the United States, but in other parts of the 

world. Again, this is something that’s highly uncertain, but it’s quite possible that if you’re clearing more 

forests or using more land for crop production, you 

could actually be increasing CO2 emissions. About 20 

percent of the CO2 emissions in the world are caused, 

not by the use of fossil fuels, but by the clearing of 

land, the cutting down of trees, and similar land use 

changes. 

Ethanol production could thus actually be worse 

than using gasoline when it comes to causing CO2 

emissions. In other words, there are externalities that 

ought to be considered here, too. In our ideal Pigouvian world, we’d want to put a price on carbon, both 

sequestrations and emissions. You would want to do 

both. This is fine in theory though hard to implement, 

but I still support it.

Of course, sequestrations can be a little harder to 

price, and that can get fairly controversial. The strategies for dealing with that so far are very challenging. 

The idea is to pay people for offsets.10 There’s a bit of 

a market for carbon offsets right now, but it’s very difficult to make it work effectively. However, there are 

lots of economists trying to understand them better. 

It’s also important to note the effect of climate 

change—the potential effect of climate change—on 

production. I’m among the pessimists. The statistical evidence is very powerful, showing that climate 

change, if it happens as projected, could have an absolutely devastating effect on crop yields in the United 

States and probably in other parts of the world. We’ve 

got the best land and climate in the world here in the 

United States. If it’s going to get a lot worse here, it’s 
172

certainly going to get worse in other places, too. Globally, the change in climate doesn’t bode well for crop 

production. 

To what extent are there offsetting factors from 

the changes in temperatures and precipitation? Are 

there potential positive effects from CO2 fertilization?11 Years ago, most of the scientists thought that 

this was going to be a boon, that the CO2 fertilization 

effect was going to be greatly beneficial, outweighing 

any effects from temperatures and thus a boon for 

food production. But that’s changed. These days, the 

scientists are much more skeptical about the benefits 

of CO2 fertilization, and the negative effects from extreme heat are looking much worse. Yield growth and 

productivity growth in agriculture have significantly 

slowed in recent years. 

There is cause for concern about what’s going to 

happen to food prices. Again, not for us; we’re not going to notice it in the price that we pay for food at the 

stores, but for basic staples and for the poorest two billion people in the world, people living on $2 a day or 

less, they’ll really feel it. They did feel it in 2008, and 

they’re starting to feel it right now. It can very well 

become a security problem.

Daniel Weiss: In fact, food prices hit a world record yesterday.

James Bartis : I want to endorse the comment that 

only nonscientists disbelieve that climate change is a 

major problem. Basically, every major U.S. scientific 

organization with expertise in this area has come out 

very strongly supporting the view that it is a problem. 

The National Academy of Sciences and the American 

Association for the Advancement of Science came up 

with a very strong finding that man-made emissions 

are driving climate change more rapidly than would 

otherwise be the case. 
173

There are a few scientists who have raised some 

doubts, but they are a minority. They might be right. 

But even if 50 percent of our scientists are wrong, 

which is a ridiculously high figure, you would still not 

sit and do nothing. So it’s important from a global security point of view that we do something. There’s so 

much low-hanging fruit that can be addressed at negligible costs, and there are health benefits and other 

environmental benefits associated with taking some 

action. 

I mentioned the fact that the gasoline tax is inadequate to pay for the highway infrastructure. Raising 

the gas tax to pay for the roads and bridges would also 

result in lower greenhouse gas emissions. 

With regard to energy, using the security argument to promote reduced use of petroleum doesn’t get 

us very far. There’s a tremendous amount of fossil fuel 

out there. There’s enough petroleum and fuels, in my 

view, to toast the atmosphere three times over. It will 

cost a little bit more, but there’s no shortage of fuel. 

So the real driver, to me, is climate change. That and 

the general environment: the particulate matter and 

the soot that are going into the air. Those are the big 

arguments for our doing something about energy and 

energy security. 

If we didn’t have climate change problems, we 

could solve a lot of our problems just by relying on 

coal, for example. We can use coal to make liquid fuels. We’ve got huge amounts of oil shale in our country, three times the size of the equivalent reserves of 

Saudi Arabia. We could use those. They don’t cost 

much more. I think they’re probably economic at today’s prices. So we don’t have a problem if we’re not 

worried about climate change. 
174

David Dayton: I would say that as long as oil stays 

upwards of $100 a barrel or higher, then a lot of those 

alternatives like coal and tar sands look pretty good. 

But if the oil supply starts to increase, the spigots open 

a little bit more, the price goes back down to $40, $50 a 

barrel again, then we’re going to have the same cyclical argument that we’ve always had. It’s not as bad 

as the 1980s, when the radical drop in oil prices killed 

all the alternative fuel research. But the economics of 

the alternatives are still going to be higher than petroleum-derived fuels. 

There’s got to be a way to underwrite the development of these alternative technologies so that consumers can choose between petroleum and something else. 

Right now we don’t have a choice. For transportation, 

it’s uni-fuel. We’ve got one option and one option 

only. For electricity, we’ve got several options, but the 

economic benefits of one clearly outweigh the others. 

We talked about nuclear energy in the last panel. If 

other externality factors are not factored in, nuclear 

power has $4,000 or $5,000 a kilowatt hour installed 

capacity while natural gas has $350 a kilowatt hour 

of installed capacity. Given that, the decision to use 

natural gas is a no-brainer. I think that’s the argument 

for petroleum right now. If petroleum’s $3 a gallon, 

the alternatives are not viable. There’s got to be some 

sort of mechanism for getting alternative competition 

into the market.

James Bartis: If we factor the externalities into the 

cost of fuel, we wouldn’t have what we have today, 

which is Congress saying this chemical or this particular fuel gets a subsidy, this one does not. That way of 

doing things is based more on transferring wealth to 

certain parts of the country and can happen just because there are two senators who push it in one state, 

or there is a low population in another. If, instead, you 
175

set up a framework so that the marketplace can make 

the decisions, I think we’re going to be far better off. 

I’m optimistic that as we try to address our deficit and 

reduce government spending, we might consider taxing fuel use. We could do that instead of continuing to 

tax incomes. It would not necessarily have a negative 

net impact on GDP or development. 

David Dayton: I don’t think that’s going to get you 

elected.

James Bartis: We’re not going to get out of this 

budget problem that we have without raising some 

revenues.

Michael Weiss: In 1993, the House of Representatives did pass a BTU tax as part of President Clinton’s 

economic recovery package. It hit some rocky shoals 

in the Senate, and they replaced it with a 5-cent-agallon increase in the gasoline tax, which is where it’s 

remained since then. It’s been 18 cents a gallon since 

1993. In this political environment, I think anything 

with the word “tax” in it is going to be something that 

a large number of members of Congress are going to 

avoid, regardless of whether or not it makes economic 

sense.

Daniel Roberts: I completely agree with the idea 

of gas taxes, but I don’t believe it’s going to happen 

anytime soon.

James Trainham: It’s one thing just to add the tax. 

It’s another to trade it off. Can you do that? That’s the 

question. Right now, as I pointed out, one of the externalities is the huge military cost we have to keep oil 

flowing out through the Gulf of Hormuz, and we do 

that for the whole world. Nobody else pays that tax 

except the American taxpayer. If we had alternatives, 

we could pull the military back. But we don’t. And 

you’d have to replace a significant amount of oil use 

to change the U.S. energy policy. 
176

The question is really whether we can convince 

people on other grounds of the need to develop alternatives, and that means looking at some of the things 

we talked about like healthcare costs and the cost of 

infrastructure. If we change fuel taxes to reflect the 

real cost of fuel but take the income tax down so the 

net tax is essentially the same, some folks will complain. They will argue, “Oh, the poor people are being 

harmed—this is a consumption tax.” But that can be 

taken care of. 

Michael Roberts: I don’t think the obstacle is necessarily the people. You actually could inform the public 

of the advantages of doing this. I think they might buy 

into something like this, or at least enough of them 

would, especially if you talked about reducing income 

taxes. But you’re facing some real political headwinds 

because there are some powerful oil interests that are 

going to be fighting against you. It’ll be the monied oil 

lobby and allied interests in favor of oil that you’ll be 

fighting against.

Daniel Weiss: Two weeks ago, the House of Representatives voted to block EPA from setting reduction 

standards for mercury and other toxic chemicals coming from industrial boilers. That’s what we’re talking 

about here. Outside of some extraordinary event, it’s 

extremely unlikely that they are going to do anything 

to raise revenue through any sort of petroleum tax at 

least over the next few years. Politically, the idea is a 

complete nonstarter. 

It’s true that the American people by overwhelming margins support EPA regulating global warming 

pollutants. They do so if even if they’re asked in the 

worst way possible. Opinion polls show that Americans still favor it by a 20-point margin, even if it costs 

jobs or raises prices. The problem is in American poli-
177

tics where a vocal minority will beat a complacent majority almost every time, and the vocal minority right 

now is on the side of do-nothing. 

Even though there already is public support, you 

have politicians who care little about health impacts 

and who, in the name of jobs, are going to try to undo 

or block other clean air health standards to appease 

their constituents or to please their funders. Take, for 

example, the Koch brothers and the American Petroleum Institute (API). They are now saying they’re 

going to be directly contributing to campaigns, something they’ve never done before.12 So I think the odds 

are pretty low that anything positive like a fuel tax 

will happen. 

James Bartis: ExxonMobil came out in favor of a 

carbon tax.

Daniel Weiss: Yes, but did they spend any of their 

money lobbying in favor of it? No. In fact, they give 

money to the American Petroleum Institute, which 

helped run $100 million worth of ads attacking the existing global warming legislation. I think that Exxon’s 

position on the carbon tax is more fig leaf than policy.

SHALE GAS: A KEY TO ENERGY SECURITY?

James Trainham, James Bartis, David Dayton, 

Michael Roberts, and Daniel Weiss

 I’m now going to address another subject—shale 

gas. This isn’t strictly one of the renewable energies, 

but I think it’s such an important part of our quest for 

energy security that we should not omit it from the 

discussion. It’s likely to play a role as we transition 

to alternatives. How might we factor shale gas into 

our energy future? Shale gas is going to become quite 

prevalent, and we have huge reserves. The latest as-
178

sessments show that reserves of natural gas went up 

by about 39 percent, and it will go up that much again 

by the time of our next assessment in the summer of 

2012. 

Natural gas can provide us with an interim solution before we can develop some more of the true 

alternatives and build the infrastructure we need to 

make those a reality. I think we all agree that we have 

alternatives to oil when it comes to electrical power, 

among them shale gases. Can we replace oil with the 

natural gas and gas-to-liquids technology? We’ve 

done this in the petroleum industry and the chemical 

industry for a long time. It’s not an unknown technology, nor something which calls for a great invention. 

With more experience, we could bring the cost down. 

So I’d like some comments on a potential move to use 

shale gas as a source for gas-to-liquids transportation 

fuels.

David Dayton: One of the challenges of that is, 

again, the existing infrastructure. That’s because 80 

percent of the world’s methanol today is made from 

natural gas.13 The current figure might be a little higher than that. As we heard earlier today, methanol is 

not a functional fuel at this moment, but we can convert our cars to burn it as a fuel. Top Fuel dragsters 

and Formula One racers use methanol for fuel all the 

time. It could be a fine fuel for our autos. So I think one 

of the challenges with gas-to-liquids is trying to make 

something that’s hydrocarbon compatible. 

You can use methanol-to-gasoline (MTG) technology.14 It’s almost but not quite gasoline. It’s highly 

aromatic, so it’s a blend stock. It’s not going to replace 

all of your petroleum. Although the Fischer-Tropsch 

plant in Qatar is having technical troubles right now, 

the process is technically feasible.15 It’s just not terribly 

cost-effective. Another option for shale gas is to use it 
179

in compressed natural gas (CNG) vehicles.16 You don’t 

have to do anything to it except compress it and put it 

on a vehicle. All the buses in Chapel Hill run on CNG 

right now or as hybrids.

James Bartis: My information is that Qatar Petroleum’s plants are not in trouble technically at this time. 

Right now, the world makes about 300,000 barrels a 

day of petroleum substitutes using a process called 

the Fischer-Tropsch process, which was invented in 

Germany in the 1920s. The plants the Germans built 

were frequently bombing targets of the United States 

and the Allies during World War II. When South 

Africa went apartheid in 1954, it was worried about 

being embargoed, so it built a Fischer-Tropsch plant 

that used coal. More recently, a second generation has 

come about. Mobil built a plant in New Zealand that 

converts natural gas to high quality gasoline. 

They shut the New Zealand plant in the 1990s because the process, being energy-intensive, was not 

competitive with the low oil prices that were prevalent during that period. More recently, Shell built a 

plant in Malaysia that’s making 17,000 barrels a day. 

A couple of years ago, a brand new plant started in 

Qatar making 35,000 barrels a day. Shell is starting 

up another plant in Qatar that is designed to make 

140,000 barrels. So by the end of this year, we’re going to have almost 200,000 barrels a day of production 

from this method based on natural gas. The method 

works only if the natural gas input is fairly low cost, 

and the one place where there’s going to be low-cost 

gas in the United States is Alaska.

Audience: Prudhoe Bay? 

James Bartis: With all the shale gas coming in, I 

think the likelihood is small that we’ll build a pipeline from Alaska through Canada to the United States 
180

to bring Alaskan gas to a low-cost gas market. There 

is a divergence between what natural gas costs and 

what oil costs. Wholesale gas today is going for the 

equivalent of $24-a-barrel oil.17 If you can take that 

gas and make it into an oil product, you can sell it at 

$80 or $90 a barrel today. That’s the motivation. You 

are most likely to see that happen in Alaska. Whether 

that makes sense elsewhere in the United States really 

depends on whether there are other opportunities to 

use that natural gas. We’ve lost a lot of our chemical 

industry to Saudi Arabia because of the high price 

of gas here. These industries might revive due to the 

availability of gas from shale formations in the United 

States. 

Daniel Weiss: Fuel produced from coal has a much 

higher carbon dioxide content than regular gasoline. 

Is that true for fuel produced from natural gas as well?

James Bartis: Actually, the coal-based fuel has a 

lower carbon dioxide content than regular gasoline. 

Daniel Weiss: Are we talking about gas or coal?

James Bartis: Either one. But what really counts is 

life cycle emissions. If you start with coal and examine life cycle emissions, you double greenhouse gas 

emissions compared to conventional oil. So if you’re 

worrying about global warming, that’s an unacceptable approach. There are ways to use liquid fuels from 

natural gas without carbon sequestration in such a 

way as to break even with conventional petroleum. 

By that, I mean that you will end up with a fuel that 

has 5 percent higher or 5 percent lower carbon dioxide content. That won’t change the world. There’s a lot 

of hydrogen in natural gas. There’s not in coal. That’s 

why you end up with very high emissions when 

you use coal. So this is not a greenhouse gas problem. It doesn’t fix the problem, but it doesn’t make it 

any worse.
181

David Dayton: Shale gas won’t be cheap. There 

aren’t many refineries being built in this country, so 

even from a peak oil perspective, we may be refinery 

limited, not production limited. But the point is that if 

you put a natural gas-to-liquids plant in, you’re going 

to have to invest upwards of $3 to $4 billion, depending on the size of the plant, to make it economically 

competitive.

Daniel Weiss: The Center for American Progress 

has been a long-time advocate of increased use of natural gas as a bridge fuel to a clean energy future that’s 

probably 20 or 30 or more years away. A recent New 

York Times report found that the production of shale 

gas has a lot of potential and actual environmental 

impacts. The series did not even address the fugitive 

methane that escapes when doing the hydraulic fracturing that produces the shale gas. Those issues are 

going to have to be addressed concurrently because 

otherwise we will address one problem while creating another. So far, the natural gas producers have 

resisted any sort of federal oversight and standards 

for groundwater and surface water protection, air pollution, and methane capture.

James Bartis: Shale gas has happened so quickly 

that the states and federal government have been unable to move in terms of regulating it.

Daniel Weiss: Right now, thanks to the 2005 energy law, the federal government is prohibited from 

regulating shale gas’s impact on drinking water, but it 

still has authority over clean air and clean water.

James Bartis: To mitigate these problems, the price 

is going to have to go up. But I don’t see that stopping 

shale development. It just means that instead of coming in at $3.50, the cost might be $4 or $4.50. That’s the 

price we pay to live in a place where we can drink our 

water, unlike China, for example.
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ALTERNATIVE ENERGY AND 

INTERNATIONAL RELATIONS

James Trainham, James Bartis, David Dayton, 

Michael Roberts, and Daniel Weiss

Let’s turn to the future. What are the implications 

of a new world where alternatives might begin to 

have a significant impact on our energy picture? How 

would this affect our relations/political interactions 

with OPEC and other oil-producing countries? 

James Bartis: The International Energy Agency 

(IEA) completed a world oil study. They took a look 

at the world oil supply and demand in 2035, modeling one scenario in which governments took action 

to reduce greenhouse gases. As a result, petroleum 

demand was on the order of about 90 million barrels 

per day, and the price of oil was fairly low. The alternative scenario was one in which governments didn’t 

do anything about global warming. Then the demand 

was for about 125 or so million barrels a day, and the 

price was about $150 a barrel. 

It’s possible that in the future we will reduce dependence on OPEC oil, but the only way this will happen is if we and other countries put some additional 

cost on the oil we use. According to one scenario, we’ll 

just continue the way we’re going. In that case, the 

production of oil globally will just keep going up, a 

greater and greater share will go to OPEC, and prices 

will get higher. According to another scenario, we’ll 

do something dramatic about global warming. Countries that are oil users will place a tax on oil and reap 

the social benefits. We’ll use alternatives, and it’s not 

just alternative fuels. There is also a large role for energy efficiency and major changes to our infrastructure, 
183

changes to how we transport goods and how we move 

around, and where we live. 

When we think of dependence on Middle East oil, 

we should think what this term really means. Asia 

gets 75 percent of the oil that goes through the Straits 

of Hormuz. Only about 12 percent comes to the United States. Often people will say “Well, let’s get the 

United States independent of the Middle East.” Actually, that could be easily done. We could pass a law 

tomorrow saying that in future we wouldn’t import 

any oil that comes from these five nations in the Gulf. 

We could get our oil from somewhere else. It might 

cost a little bit more because of logistics, but not much 

more. But would that change anything? We are in the 

Middle East because of Iraq, because of Afghanistan. 

How would that change things? Our allies and China 

are still going to depend on that oil, even if we are 

not. I don’t think that there is a big security externality here. If there is, it is because we don’t want other 

people to play over there.

James Trainham: When it comes to our military 

occupation, my question is: Do we have a big military presence in Tahiti, and why don’t we? They don’t 

have any oil. Why would we want a military presence 

in the Middle East if they didn’t have oil? 

James Bartis: We would have a large military presence there regardless. I don’t think our presence there 

depends on the fact that we are importing oil from the 

region. It is a strategically important place for the entire world. 

David Dayton: But do we have a military presence 

in Venezuela?

James Bartis: Hopefully we will continue not to.

David Dayton: We still get oil from Venezuela, 

too, so the two are not mutually connected. 
184

James Bartis: The Middle East is a little bit more 

unstable than South America. But it doesn’t mean that 

we have to be the only presence in the Middle East.

Michael Roberts: Extracting oil in the Middle East 

is very cheap, and while supplies are being depleted, 

a lot remains. If the United States and/or other countries move to alternative energies very quickly and if 

the demand for oil is reduced, the price of oil will go 

down. So you’re going to have these constant competitive pressures. In other words, you can’t just look 

at the price of oil today and say, “Oh, once oil prices 

reach $100 a barrel, we can come up with alternatives.” 

If you come up with those alternatives, the price of oil 

will drop and compete with your alternatives, and it 

will compete with your alternatives all the way down 

the line. The Middle East will still produce quite a lot 

of oil. So to really turn off the taps, you do need to 

come up with a true miracle, something that is far better than oil in many different ways. 

That leads me to one last point. There are positive 

as well as negative externalities in the world. For example, coming up with new ideas and new technologies is important. Yet there’s always underinvestment 

by private markets in research and development because it’s hard to protect your ideas perfectly. So one 

thing you can do—and it’s perhaps more politically 

feasible than taxing negative externalities—would be 

to subsidize these kinds of positive externalities. 

Daniel Weiss: It seems to me that you need three 

things for developing any sort of clean technology, 

whether it’s for alternative fuels or electricity. You 

need to have markets, finance, and infrastructure. The 

problem with just investing in research in technology 

is that you also need to build a market, and you need 

the infrastructure to deliver the new product. 
185

The Brookings Institute produced a report in 2011 

that basically said, “Let’s just put 20 billion or so into 

research, into research and development on clean energy technologies.” That would be valuable, but without helping create a market for those technologies, 

and without having the infrastructure to deliver them, 

it will be very difficult to convert those innovations 

into commercial scale technologies.

James Bartis: That’s why it’s so important to assure a price differential that reflects the costs of the 

negative externalities. That’s crucial. If you want to 

stabilize innovation and market penetration, you’ve 

got to have a stable price differential structure in 

place.18 That calls for putting a tax, or whatever you 

want to call it, on fossil fuels, whether on carbon or 

infrastructure or a combination of both. We also can’t 

dismiss the importance of energy conservation. A barrel saved is a barrel produced. Energy conservation 

and energy efficiency are powerful tools.

Daniel Weiss: About 30 states now have either 

renewable electricity standards or “a renewable portfolio standard.” Utilities in these states are required 

to produce a certain amount of their electricity from 

renewable sources. There is such a standard in North 

Carolina. So, too, in Pennsylvania, but there you can 

also use coal ash or something else. The idea is to help 

create a market for new clean energy technologies 

without spending state resources or state taxpayer 

money. California was one of the earliest states to do 

this, and it adopted one of the most aggressive renewable electricity standards. Now there is a homegrown 

clean tech industry in California. The standards helped 

create the market. One of the things that the President 

proposed in his State of the Union address is what he 

calls a “clean energy standard.” This would include 
186

not only true renewables but also nuclear power, natural gas, and electricity from coal plants that employ 

“carbon capture-and-storage” technology. 

But that works only if you have two tiers—one 

for true renewable electricity and one for low carbon 

electricity. We don’t want cheap natural gas (at least 

early on) competing against wind and solar. We need 

a target for true renewables as well as a separate target 

for so-called low carbon energy that will help create a 

market. We need to provide funding for the research, 

development, and initial deployment of renewable 

technologies. We need to develop and enhance the infrastructure to deliver the electricity. That’s the positive vision. I’ve been sitting through these panels, and 

each of them has been more depressing than the one 

before it. There is a positive vision, and it’s being written in many states right now. Unfortunately, it’s not 

going to be written at the federal level in any sort of 

comprehensive way for at least the next 2 years. 

James Bartis: It may be a positive vision, but every 

analysis I am aware of suggests that it’s one of the least 

economically efficient approaches you can take. It is a 

secret tax, and that’s why it’s so popular among our 

politicians. When they set standards, they can force 

you as rate payers to take a particular course, but the 

politicians never have to say, “Here’s what it’s going 

to cost you.” In fact, almost none of these decisions 

at the state level are based on cost calculations. When 

government establishes tiers and picks technologies, 

citizens and businesses are often forced to make decisions that are very inefficient. If the goal is to manage 

CO2 emissions, then put a price on CO2 emissions.

Daniel Weiss: We already pick winners and losers. We’ve had oil subsidies for 100 years. We had coal 

subsidies before that. We’ve been investing in nuclear 
187

power since 1948. So we’ve always picked winners 

and losers. Now what we need to do is think of other 

values in addition to economic efficiency. A renewable electricity standard helps create a market for 

these emerging technologies. We need the finance, we 

need the transmission. Eventually, those technologies 

will get to an efficient scale. Right now, for example, 

the cost of wind energy—and this was not the case 10 

years ago—is only 4 to 5 cents per kilowatt hour.

Audience: When the wind blows.

Daniel Weiss: It’s an intermittent source of power, 

that’s absolutely right, but the point is that the price 

has come down dramatically. That’s because renewable electricity standards have helped create a market for these technologies, and establish economies 

of scale. If it hadn’t been for these standards, these 

new clean technologies wouldn’t have gotten off the 

ground after we’ve subsidized their competitors for 

60 to 100 years.

James Bartis: Wind is still not economic in almost all parts of the country. It blows primarily at 

night. That’s not when you want it. 

James Trainham: It’s mostly in the Midwest.

Daniel Weiss: We’ve got great advantages in this 

country. The Department of Energy (DoE) under Bush 

said we could be at 20 percent wind-generated electricity within 20 years because of our vast wind resources, not only onshore but offshore.

 James Bartis: The problem is, again, it’s the government picking technologies. We would be much 

better off if we got the government out of this calculus 

and simply set up a broad-based economic and policy 

framework so that we as citizens are motivated to use 

the lowest cost fuels that have the kind of benefits that 

the government seeks.
188

Daniel Weiss: I think that’s a great idea, and as 

soon as the oil companies and the nuclear companies 

give back all the money they have received from the 

federal government over the past 100 years, we will 

have a level playing field. But until then, we have an 

economic interest and security interest as well as an 

environmental and public health interest in generating 

new cleaner technologies. Therefore, the government 

can play a very important role in not only providing 

the seed money or financing for research, development, and deployment (RD&D), but also in helping to 

create a market. It’s not a level playing field.

QUESTIONS AND ANSWERS

Q: We all know if we had a choice, we’d rather just 

produce hydrogen because it’s not going to increase 

our carbon footprint, and water is the only by-product 

of burning hydrogen. Water is a pretty easy by-product to live with. Anything else that we burn usually 

puts carbon dioxide in the atmosphere. It is not a good 

thing to burn food crops and it is not a good thing 

to produce food crops to burn for food. But surely it 

is a good thing to use products that cannot be grown 

on land that can be used for growing food? How long 

does it take for carbon dioxide in the atmosphere to go 

down into the earth and produce oil or natural gas? 

We are talking about taking a plant that’s growing on 

property that doesn’t support food and combusting it 

or converting into some sort of a fuel. How long does 

it take that to reabsorb into the plant? 

Michael Roberts: I understand that, but I think 

when you’re talking about using a lot of land, you’re 

going to be competing against other uses of that land.

Audience: No, there’s a lot of land in the country 

that doesn’t support food cropping.
189

Michael Roberts: It supports something. There 

are a lot of challenges to overcome just in terms of 

transporting the kind of volume that you need. If you 

overcome those obstacles, then you have to look at 

a particular example more carefully to see what the 

feedback effects would be. It’s possible. Ethanol came 

on line when corn was $2 a bushel or less, and people 

thought it was great. It was great at $2 a bushel. But 

people failed to recognize that these prices change 

when you increase demand that much.

Audience: I want to question Mr. Roberts’s comments about ethanol and the impact it has on the corn 

crop. It’s my understanding that basically all of the 

corn grown in the United States is grown for cattle for 

meat consumption, and it’s the increase in demand 

for meat around the world in the growing economies 

that’s affecting the price of corn. Plus global climate 

change has affected the weather and uncertainty of 

crops. Then there are the petroleum inputs that are 

going into our agriculture and the corn crop. All these 

things are affecting the price of food rather than ethanol itself.

Michael Roberts: Ethanol’s one big factor. Onethird of the corn crop is going into ethanol right now. 

That’s a pretty big number.

Audience: Does that take into account the fact that 

some dry distiller grains are actually going to feed the 

animals?

Michael Roberts: That offsets it by about a third, 

between 20 and 30 percent, so some production goes 

back to feed, but not much.

Audience: I’m really trying to straighten this out 

because I do promote the use of alternative fuels 

and corn-based ethanol in particular, and that’s been 

something I’ve found a bit troubling.
190

Michael Roberts: We’re probably getting agricultural land expansion throughout the world. We’re estimating that in lots of places this is the result of growing crops for ethanol. But it’s hard to tell where the 

land is really coming from. We don’t know if it’s really 

causing deforestation, though I wouldn’t be surprised 

if it were. 

Audience: However, it’s my understanding that 

a lot of the land expansion is cleared for cattle, and 

it’s really meat production that’s driving this, not the 

corn. We’re not eating this corn. So really we should 

be talking more about cutting our meat consumption 

rather than getting rid of corn for ethanol.

Michael Roberts: Cutting meat consumption 

would help a lot.

Audience: But do we really want meat police out 

there? 

Audience: I’m not suggesting all of us become 

vegetarians.

Michael Roberts: I don’t disagree with you. All of 

these are relevant factors. Dietary demands are a factor. China’s a big part of this, too.

David Dayton: We’re talking about the expansion of the corn ethanol industry. To look at increased 

volumes of the industry right now, we’re at 12 billion 

gallons per year, and the food, feed, and fuel are sort 

of in balance. At least there’s enough food grown to 

be exported and enough grain to feed the cows and 

enough ethanol to go into the fuel market.

Michael Roberts: The corn farmers would love to 

have prices even above $8 a bushel. Prices are linked 

to demand. But the thing about commodity crops, and 

all the staples pretty much, is that supply and demand 

are both highly inelastic. That means that very small 

shifts in supply or demand can have a huge effect on 

price. But we in the United States won’t notice that. 
191

Prices could go up a lot. We could push prices for corn 

up to $30 a bushel, and maybe the price of a Big Mac 

would go up a dollar. Do you think people are going 

to eat much less meat? Probably not, but a lot of people would be starving in the world because when corn 

prices go up, soybean prices go up; when soybean 

prices go up, wheat prices go up. If you look historically, those prices move almost in tandem and usually 

rice isn’t too far behind. All of these prices are very 

connected. Our estimates are that the growth in ethanol since 2005 has caused world commodity prices for 

these staples to be about 20 to 30 percent higher than 

they would’ve been without it. 

Prices these days are about three times what they 

were then, so of course there are lots of other factors 

at play, but that’s not our sole interest. Because ethanol was brought on-line very quickly, it drew down 

inventories. As inventories get low, then markets become extremely susceptible to other shocks. They are 

more sensitive to surprises in the weather. Until we 

get more experience with this new market in ethanol, 

we will be susceptible to such shocks.

James Bartis: The other big issue here is that the 

demand for food is rising, and every time you clear a 

carbon-rich ecosystem of vegetation so that you can 

produce food, a large pulse of greenhouse gas emissions enters the atmosphere. Scientists have examined 

that, and it really depends on where you are with respect to the margin, but in some cases, e.g., a rainforest, it takes hundreds of years before you break even 

on the emissions. 

We’re worried about greenhouse gas emissions 

over the next 40 years. Taking land out of its current 

use, whether it’s in the conservation reserve or it’s 

prairie land or whatever, and directing it toward en-
192

ergy, is not going to be productive in terms of greenhouse gases. I think there’s a general consensus that 

we’re not going to expand corn ethanol beyond the 

current standard of 15 percent that Congress has set.

David Dayton: Renewable Fuel Standard 2 (RFS2) 

caps corn ethanol at 15 billion gallons a year.19

James Bartis: We’re already at 12 percent, so we’re 

almost at the limit here.

Daniel Weiss: RFS2 also requires 22 billion gallons 

of advanced biofuels by 2022. Do you think that target 

will be met or do you think that is completely unrealistic? Or do you think it’s somewhere in between?

David Dayton: There are two ways to look at that. 

One, EPA has been downgrading the current cellulosic ethanol requirements for RFS2 since it was enacted because plants haven’t come on line and been 

productive like they were supposed to when the law 

was passed.

Daniel Weiss: You mean to meet interim standards?

David Dayton: Yes, to meet interim standards. 

There are yearly targets, and so far, I don’t believe 

we’ve hit one. If you look at the capital expenditures 

for 22 billion gallons per year, current advanced biofuel technologies are going to be on the order of—assuming you get a really big optimized plant—200 million gallons a year. So by 2022, you’ll need roughly 350 

plants to meet the 21-billion-per-year requirement?

Right now, according to the literature, current 

biofuels plant design costs are on the order of $2 to 

$3 hundred million per plant. Let’s assume the early 

models are on the order of two to three times that, so 

we have a billion dollars a plant times 350—that’s a lot 

of capital that needs to go in the ground, a lot of steel, 

mortar, concrete that needs to be put in, before that 

even happens. 
193

If you look at 2022 and start working backwards, 

first of all, the technologies aren’t quite ready for prime 

time yet, and we’re already in 2012. So from 2022, let’s 

say it takes 2 years for the permit process, give or take, 

so now we’re down to 2020, and 3 to 4 years to build 

the plant, so now we’re down to 2016, so that means 

in 4 years, we’ve got to have 350 plants in the ground 

ready for commissioning.

James Bartis: And no experience base in existence.

David Dayton: We haven’t figured anything 

out yet.

James Bartis: These are all first-of-a-kind plants.

David Dayton: So that’s my response.

James Trainham: So your response is, “It’s not 

going to be possible.”

Daniel Weiss: However, the good news is that 

because of this mandate, we’re moving faster in that 

direction than we would have otherwise, correct?

David Dayton: Yes, at least we’re still talking 

about it because there is a mandate, because there’s 

climate change, because there are energy efficiency 

and energy security issues, because alternative fuels 

haven’t been pushed aside, and now oil’s $100 a barrel. We have all these reasons to at least keep talking 

about it now.

Comment: My name’s Ward Lenz. I’m Director of 

the State Energy Office here in North Carolina. I want 

to give two responses in regard to the Renewable 

Portfolio Standard (RPS) the renewable fuel volume 

mandate. First, in North Carolina, we do have a portfolio standard for renewable energy and efficiency. 

But, contrary to the gentleman’s point, we actually do 

have a price cap. So if the price of those renewables 

gets too high for the utilities, then they are capped at 

a certain level. 
194

Second, my friends in Iowa would be angry with 

me if I didn’t talk about ethanol. The fact is that when 

you make corn ethanol, only the starch is taken out of 

the corn, and that’s what you make the ethanol out 

of. There’s actually very little of the nutrient value of 

that corn that is lost in the process because you get dry 

grain or corn gluten meal, which then generally goes 

to the pigs and cows. In other words, 75 to 90 percent 

of that food product is still in the market. The foodversus-fuel question thus looks a little different—the 

amount of food lost is a lot less when you look at it 

this way than when you say a third to half of the corn 

product goes into an ethanol plant.

Q: One thing the panel has not talked about much 

is the impact we could make on energy through conservation. We have 100 million homes in this country 

that all need to be weatherized. These lights in this 

room, these fixtures could be replaced with LEDs. I’m 

told we could reduce electricity use by 20 percent by 

doing nothing but replacing lighting in this country. 

Could you comment on the impact of conservation?

Daniel Weiss: That’s a great point. In 2007, as part 

of the Energy Independence and Security Act, Congressman Fred Upton of Michigan put in a provision 

that would increase the efficiency requirements for 

light bulbs that would basically lead to a phase-out 

of incandescent light bulbs. Last year, when he was 

running to become the Republican chair of that committee, Rush Limbaugh attacked him for that because 

it suggested a “nanny” state. In other words, we have 

a God-given American right to waste energy if we 

want to. 

Mr. Upton then said, “Well, we’re going to have 

hearings on this now.” In other words, he was walk-
195

ing back from his own provision. One of the things 

that the President’s budget would do is to increase 

investments in energy efficiency. There’s already a big 

low income home weatherization program that got a 

very slow start under the American Recovery and Reinvestment Act. It will weatherize five million homes. 

In addition, we’ve been working with both the White 

House and Republicans and Democrats in Congress to 

pass what’s called the Home Star program that would 

create an incentive for homeowners to retrofit their 

own homes. The weatherization program goes to low 

income homeowners. Home Star would be for middle 

class homeowners. It would also help create jobs at 

places like Home Depot and efficiency material manufacturers. It passed the House in 2010, and even some 

very conservative members of the House supported it 

last year. 

It’s not clear right now whether Congress is willing to spend the $6 billion, which would generate 

about $50 billion of private investment. We’re very 

much in a budget-cutting mode regardless of whether 

we’re talking about cutting wasteful spending such as 

building a Lawrence Welk museum in North Dakota 

or talking about investing in future technologies. I totally agree with you that energy efficiency has got to 

play a key role. States like North Carolina and others 

that have an “energy efficiency resource standard” are 

blazing the trail.

Audience: If you want to drive Americans to conserve, give them a financial incentive. I put in a tankless water heater in December and got a tax credit. 

James Bartis: One of the key tools in all this is to 

set efficiency standards a lot more aggressively than 

we have in the past. There are other countries that 

have good systems in place, and we can copy their 

successes. Look at Japan.
196

Audience: And California.

James Bartis: Japan has a very good system. They 

have building standards and building codes for remodeling. There are many opportunities to do this 

that we’re not taking advantage of.

Daniel Weiss: California was mentioned. There is 

one possibility for some progress at the federal level, 

and it is in the area of building efficiency standards. 

This has bipartisan support, partly because it doesn’t 

cost the government anything, and because it’s an 

inducement for the states to upgrade their building 

standards. This measure could conceivably pass the 

Senate. My guess is it will still have a tough time in 

the House because people like Rush Limbaugh, Glenn 

Beck, and those of similar opinions will again attack it 

as being part of the nanny state. But it is a possibility 

down the road for bipartisan cooperation.

James Trainham: Let us comment on the architects 

who have a 2030 goal. Reliable estimates are that 60 

percent of our energy is used for heating and cooling 

buildings. There is also a significant amount of energy 

required to produce the materials to build new buildings. When you take all that into account, you solve a 

significant portion of the energy problem if you solve 

the energy efficiency issue. The architects have set a 

goal by 2030 to come up with building techniques, as 

well as retrofitting techniques, that would enable you 

to have zero or net energy buildings. DoE is pushing 

this. It’s focusing on energy efficiency and building 

efficiency. There’s a real effort going forward in this 

area, and all of us would likely support it.

James Bartis: I just participated in an energy review 

at Fort Bliss, Texas. The Army standard is 30 percent 

tighter for new buildings than the national code. The 
197

experts from the Army Corps of Engineers believe the 

Army’s standard needs to be tightened by a factor of 

two. Furthermore, that’s already below the commercial standard. We’re talking about an improvement of 

at least a factor of two in building energy efficiency. 

That’s a huge amount.

Daniel Weiss: The entire Department of Defense is 

committed to building either silver or gold leadership 

in environmental energy and design (LEED) certified 

buildings for all new installations.20

James Bartis: Silver. They should be gold, but it’s 

silver right now.

Daniel Weiss: That’s a big start.

Q: I’d like to revisit the earlier discussion of ethanol and food. There are studies all over the map on 

this issue. Let me make two points. First, if you look 

at the revised World Bank study by Baffes and Haniotis, looking at the 2006 through 2008 commodity 

price boom, they concluded that what was driving the 

food price boom was primarily oil price and speculation, not biofuels production.21 Indeed, if you look at 

that whole period, you’ll note that U.S. food exports 

increased throughout. 

Second, we need to keep in mind the fact that ethanol finally made corn economic. We don’t pay corn 

price supports anymore. Before, we were supporting cheap corn with taxpayer money and effectively 

dumping that cheap corn on the global market, which 

was undermining economies in the poor and developing world.

Michael Roberts: That’s a classic line that we often 

hear, but even without the subsidies, we’d raise the 

same amount of corn. Since 1996, most of the subsidies 

have been decoupled from whatever farmers have decided to produce. 
198

Michael Roberts: But recently there was a short 

period when corn prices and oil prices were locked 

together. This was particularly the period before we 

hit the blend wall but when we were still ramping up 

ethanol production very rapidly. The prices got locked 

together because ethanol was a substitute for gasoline 

at that point. However, ethanol wouldn’t have got 

started if it hadn’t been for the subsidies. 

Audience: Yes, because of the subsidies.

Michael Roberts: The only reason they built all of 

the ethanol plants in the first place was that they had 

the implied mandate and a 50-cent-per-gallon subsidy 

to engage in it. But the subsidy was not “economic” 

in its effect. Enriching farmers even more than they 

already are was not a necessary inducement.

Audience: Even if you took away the blender credit and even if you took the tariff off imported ethanol, 

as long as oil is above $55 a barrel, you are going to 

have the big producers turning out ethanol because 

it’s economic. Moreover, you can use it in a vehicle—

even if it’s not flex fuel—up to 10 or 15 percent.

Michael Roberts: All that is true now that the ethanol plants are there. But what got them into the game 

to begin with? Now that the ethanol plants are there, 

even if you took away the subsidies, I’d agree with 

you that ethanol’s here to stay. It’s not going to go 

anyplace. But it’s a very different question and highly 

uncertain to say that we’d have ethanol at the scale 

we have today, or anywhere near it, if it wasn’t for the 

subsidies that were put in place back in 2005.

Q: I’ll start with two premises, then ask a question. 

The first premise is that petroleum is our real energy 

security issue, and the second premise is that carbon 

dioxide is not the issue that’s going to drive any kind 
199

of tax or price support program in the near future in 

this country. The question: Is there a technology-neutral incentive, like an alternative fuels incentive program, that you would hold up as an example? That 

is, is there a country somewhere in the world that has 

a program we should emulate? I’m thinking of alternative fuels, not carbon dioxide-driven. What kind of 

incentive along those lines could be put in place?

Anne Korin: There are two examples. First, obviously you have Brazil. We saw how well that worked 

in 2008 because when oil prices spiked, a significant 

portion of the Brazilian vehicle fleet was immune because it used flex fuel. Consumers compared the permile price with that of gasoline. You have different 

energy densities, so you have to look at the per-mile 

price, not the per-gallon price. Without subsidies, alcohol was actually more economical. That year, in 2008, 

gasoline became an alternative fuel in Brazil. If you let 

the market work, it’ll work. In another year, depending on the relative prices of the different underlying 

commodities, you might get a different result. 

The other example is China. You are seeing a trend 

there, which started in Shanxi province, their coal 

province, that is now moving to three other provinces. 

This trend is toward a very drastic expansion of coalto-methanol conversion. If that trend is on target, 50 

percent of world methanol is going to be made from 

coal, primarily driven by Chinese production. They are 

gasifying that coal and turning the gas into methanol. 

At the same time, the auto companies are producing 

flex-fuel cars that can handle methanol. You’re seeing 

China move in that direction to Standard Specification 

for Fuel Methanol M70-M85 (M85) standards across 

the different provinces.
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ENDNOTES - CHAPTER 4

1. Nicholas Gregory “Greg” Mankiw is an American conservative macroeconomist and Professor of Economics at Harvard 

University known for his work on New Keynesian economics. 

2. A Pigovian tax is a tax levied on a market activity that generates negative externalities. The tax is intended to correct the 

market outcome. 

3. The blend wall is the maximum percentage of ethanol that 

may legally be added to gasoline. 

4. E85 is an abbreviation for an ethanol fuel blend of up to 85 

percent denatured ethanol fuel and gasoline or other hydrocarbon (HC) by volume. E85 is commonly used by flex-fuel vehicles 

in the United States, Canada, and Europe.

5. Advanced hydrocarbon fuels are derived from cellulosic 

biomass and can be used as direct replacements for gasoline, diesel, and jet fuel.

6. Camelina is a genus within the flowering plant family Brassicaceae. One species, Camelina sativa, is a historic and potentially important oil plant. Jatropha is a genus of approximately 175 

succulent plants, shrubs, and trees commonly known as physic 

nut. Jatropha contains compounds that are highly toxic.

7. It may be possible to grow algae using land and water 

unsuitable for food production. Algae consume carbon dioxide 

(CO2) as they grow, and produce bio-oils through photosynthesis. This bio-oil can be hydrotreated so that it has a molecular 

structure similar to that of petroleum.

8. The second annual ARPA-E Energy Innovation Summit 

was held during February 28-March 2, 2011, at the Gaylord Convention Center just outside of Washington, DC.

9. George Will, the prominent conservative columnist, 

frequently inveighs against predictions of global warming, see, 

e.g.huffingtonpost.com/2012/07/08/george-will-heat-wave-summerclimate-change-global-warming_n_1657504.html.
201

10. A carbon offset is a reduction in emissions of carbon dioxide made in order to compensate for or to offset an emission 

made elsewhere. 

11. Some argue that earth’s biosphere may be able to sequestor much of the increased CO2 in the atmosphere associated with 

human fossil fuel burning. This effect is known as “CO2 fertilization.” According to this scenario, higher ambient CO2 concentrations in the atmosphere literally “fertilize” plant growth, while 

plants in turn, via photosynthesis, convert CO2 into oxygen. 

12. Koch Industries and the billionaire brothers who own it 

are well known as lobbyists—denying climate change and backing efforts to roll back environmental, labor, and health protections at the state and federal levels. The American Petroleum Institute (API) is also heavily involved in lobbying activity. 

13. Methanol, also known as methyl alcohol, wood alcohol, 

wood naphtha, or wood spirits, is a chemical having the formula 

CH3OH (often abbreviated MeOH). It is the simplest alcohol.

14. Methanol-to-gasoline technology (MTG) reactions dehydrate methanol and convert the available carbon and hydrogen 

into various hydrocarbons.

15. Researchers have attempted to find a way to efficiently 

convert natural gas directly to usable liquid fuel via gas-to-liquids 

(GTL) processes since German scientists Fischer and Tropsch successfully converted coal to liquid fuel in the 1920s. It is an energyintensive process and to date, the number of commercial-sized 

GTL plants remains limited.

16. Compressed natural gas (CNG) is a fossil fuel substitute 

for gasoline (petrol), diesel, or propane/liquefied propane gas 

(LPG). Although its combustion does produce greenhouse gases, 

it is environmentally cleaner than those fuels. 

17. The standard oil barrel of 42 U.S. gallons is used in the 

United States as a measure of crude oil and other petroleum products. Elsewhere, oil is commonly measure in cubic meters (m3) or 
202

in tons (t). Natural gas is usually measured by volume and is stated in cubic feet. A cubic foot of gas is the amount of gas needed 

to fill a volume of one cubic foot under set conditions of pressure 

and temperature. 1 cubic foot = 7.48051948 gallons (U.S. Fluid).

18. A price differential is any difference in the prices charged 

for the same product to different market segments or in different 

geographic regions. 

19. The Renewable Fuel Standard (RFS) program was created 

under the Energy Policy Act (EPAct) of 2005, establishing the first 

renewable fuel volume mandate in the United States.

20. Leadership in Environmental Energy and Design (LEED) 

recognized standard for measuring building sustainability. 

Achieving LEED certification is the best way for you to demonstrate that your building project is truly “green.”

21. In July 2010, the World Bank (Baffes and Haniotis) released a report entitled “Placing the 2006/08 Commodity Price 

Boom into Perspective” that reexamined some of the evidence. 

This World Bank report argues that “the effect of biofuels on food 

prices has not been as large as originally thought.”
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CHAPTER 5

THE POLITICAL ENVIRONMENT

AND U.S. ENERGY SECURITY

Achieving energy security is an important component of U.S. national security strategy. As we develop new approaches to meeting our energy needs 

and as the global environment changes, this task will 

become all the more complex. This chapter is based 

on the remarks of four speakers. Bernard Cole focused 

on the impact of new energy–hungry powers on U.S. 

energy security. Robert Cekuta discussed the challenges posed by unconventional threats such as terrorism and international crime. John Bumgarner dealt 

with cyber attacks, notably on the electric grid. Then, 

to launch the discussion, Stephen Kelly put the prior 

remarks into perspective by examining U.S. energy 

relations with Canada and Mexico.

RISING GREAT POWERS

AND COMPETITION FOR ENERGY

Bernard Cole

My remarks will reflect my own views and not 

those of the National War College or any other agency 

of the U.S. Government. The organizers posed four 

questions: 

1. How will the rise of new energy-hungry powers 

affect U.S. energy security?

2. What challenges are posed by unconventional 

threats such as terrorism and international crime?

3. How will these be affected by a shift toward 

greater reliance on alternative types of energy?
204

4. How vulnerable will market grids be to cyberattacks?

 My own recent research has focused first on Asian 

maritime issues, particularly as affected by the incipient naval arms race in progress in the Western Pacific and Indian Ocean waters, and second on energy 

security issues in the region. I’ll address with particular attention the organizers’ first three questions, 

confident that John Bumgarner will slay the dragon 

of cyberspace—a new theater not only of war, but of 

peacetime competition as well. 

The basic premise from which I view the international energy situation is that which I’ve heard repeatedly from experts in the field, both in academia and 

industry. The premise is that petroleum is a fungible 

product. That is, a barrel of oil pumped anywhere is 

a barrel of oil pumped, and it goes into the great pool 

called the international energy market. That will become important when I start addressing China’s current energy policies. I’ll briefly discuss Brazil, but the 

two emerging powers on which I’m going to focus the 

majority of my remarks are China and India. These are 

the two countries most likely to affect the U.S. energy 

security in the future. 

Neither China nor India is an enemy or an ally 

of the United States in the traditional sense of those 

terms. Both have very strong economic relations with 

the United States, but neither is close to matching it 

in terms of economic or military strength. Although a 

great deal of ink has been and continues to be expended over China’s remarkable economic growth over 

the last quarter century, as well as its far more moderate military modernization efforts, they are usually 

phrased as potential threats to U.S. allies and interests 

in East Asia.
205

The past decade has been marked by two significant developments among China, India, and the 

United States. First has been the strengthening of the 

political and security relationship between the United 

States and India, following September 11, 2011 (9/11). 

The rapid U.S. military entry into Central Asia, reaffirmation of defense relations with Pakistan, and the 

notable warming of relations with India also occurred 

during this period, and all were of concern to China.

Second is China’s remarkable economic expansion 

in terms of both domestic productivity and international trade. However, this leaves many domestic issues of very serious concern to Beijing that we’ll have 

time to address later. The relationship between China 

and India is both intriguing and problematical, although one certainty lying in the future between these 

two giants is that their relationship will be of significant strategic importance to the United States. From a 

security perspective, the general air of antipathy between China and India may bode well or may bode ill 

for the United States.

Brazil.

Brazil became a net oil exporter very recently, just 

in 2009. The U.S. Department of Energy (DoE) estimates that this status will continue, but hedges that 

prediction based on Brazil’s own increasing energy 

consumption. Of interest to the United States is the 

fact that Brazil’s dramatic new petroleum finds are located off shore in very deep water at up to 18,000 feet 

depth. This means an increased Brazilian interest in 

the maritime arena and may lead to a modernization 

of Brazil’s naval forces that would be of interest to the 

United States. Even given the generally disappointing 
206

state of affairs between the United States and Latin 

America, it’s unlikely that Brazil’s emergence as a major energy exporter, should that develop, would lead 

to any energy security concerns for the United States. 

Perhaps far more important is the relationship that is 

developing between Brazil and China, a relationship 

that is already experiencing some serious hiccups, 

particularly on the part of Brazil.

India.

 Let me also comment on India’s and China’s economic expansions and energy security, especially in 

the sense of ensuring the availability and affordability of supplies. Energy security is an important and 

sometimes contested issue between China and India. 

The latter’s search for a solution has only marginal energy security implications for the United States. Both 

India and the United States are intimately concerned 

with the flow of petroleum supplies from Burma and 

from Central Asia, albeit mostly from different perspectives. 

One source that promises to meet India’s increasing energy demands lies in Burma’s offshore waters, 

rich with natural gas. But Beijing has so far emerged 

the victor in the direct competition with New Delhi 

for those reserves. 

The U.S. attitude toward Burma’s repressive military regime precludes any significant cooperation with 

India over these reserves: this coincidentally formed a 

major objective of China’s National Overseas Oil Corporation’s (CNOOC) unsuccessful attempt to buy the 

U.S. oil company UNOCAL in 2007, an attempt frustrated by the U.S Congress. CNOOC was probably 

most interested not only in attaining entry into those 
207

leases off the Burmese coast that UNOCAL had the 

rights to, but also UNOCAL's deep sea drilling technology, knowledge which also plays into the Brazilian 

card because of the deep beds that they had.

Central Asian reserves are also in contention between India and China, but their location makes them 

difficult for New Delhi to access. Two possible pipeline routes are under discussion; the first is the Tajikistan-Afghanistan-Pakistan-India (TAPI) route, which 

poses obvious problems: building and operating a 

pipeline through war-torn Afghanistan is not practical now or in the immediate future, no matter what 

nation attempts the task. For India, the TAPI route 

through Pakistan also poses a unique and very serious problem, given the apparently undying enmity 

between the two countries: what Indian government 

is going to be able to accept relying for vital energy 

shipments on Pakistan?

The second oft-discussed pipeline through which 

India could access Central Asian energy reserves is 

the Iran-Pakistan-India (IPI) route. This proposal for 

a natural gas pipeline not only repeats Indian doubts 

about relying on Pakistan for a vital energy route, but 

has also suffered from Iran’s insistence on pipeline 

charges, per barrel of product, in excess of what Pakistan is willing to pay for transshipment. 

The United States is concerned with these two 

pipeline proposals on several levels, although probably none of them are direct security concerns in Washington. First is the desire to see India prosper economically—with secure energy supplies—as a friendly, if 

not allied, nation. 

Second is the U.S. concern for the enhanced stability and durability of Pakistan as a nation-state and ally 

in the campaign against terrorism, a concern intimate-
208

ly tied to the third U.S. concern, that is, our emerging 

from the conflict in Afghanistan with hardly a shred 

of credibility for leaving behind a viable polity. 

Fourth is Washington’s concern with Iran, a political bad actor from the American point of view, with 

respect both to Tehran’s nuclear development program and to its sponsorship of terrorism around the 

Middle East, including disparate groups in Afghanistan. The United States sees little benefit in the present 

Iranian regime’s gaining in viability through energy 

profits from India.

A final area of potential energy gain for India that 

would benefit U.S. security interests is in sub-Saharan 

Africa, an area in which China has been especially active. India’s attempts here have been minimal, compared to China’s—although India’s investment in Sudanese energy reserves is second only to Beijing’s.

India is often lauded in Washington as the world’s 

largest democracy (which is true in a population sense, 

at least) and itself is undergoing notable economic 

modernization. In terms of the triangular relationship 

I am discussing, however, India’s real strategic importance to the United States, and the problem it poses 

to China, is simply its geographic location. For the 

United States, India may serve as a strategic partner, if 

not an ally, while for China, India’s modernizing navy 

and capable air force largely counter the strategic effects of Beijing’s ongoing acquisition of commercial 

ports of call that might serve as support facilities for 

China’s modernizing navy. These are generally listed 

as Mergui or the Cocos Islands in Burma; Chittagong, 

Bangladesh; Hambantota, on the southwestern coast 

of Sri Lanka; and Gwadar, Pakistan.1
209

China.

Energy security certainly has become a major strategic priority for China since that country became a net 

energy importer in 1994. The facet of Beijing’s search 

for that elusive goal that most concerns U.S. strategic 

interests is Beijing’s campaign to “own” petroleum 

supplies from exploration to consumption. China’s international energy companies have—for more than a 

decade—been following the so-called “Go Out” campaign, meaning they have been involved in foreign 

energy markets, exploring for and locating energy 

fields, recovering their products, and shipping them 

to China for refining or, if refined in the originating 

country, for consumption.

There are significant qualifications to this paradigm, however. First, China’s nationally owned oil 

companies pumped less than 1 percent of world oil 

production in 2006. Second, less than one-third of the 

petroleum obtained in this fashion by China from foreign countries actually reaches China. The other twothirds are sold on the international market to the highest bidder, either before or during shipment from the 

originating country to China.2 Third, of that one-third, 

no more than 10 percent is carried to China in Chineseflagged tankers, further denoting the internationalization of the energy trade.3

 Hence, China is expanding 

the amount oil available globally—to all nations—by 

virtue of its overseas energy recovery activities. 

Beijing's view of energy security is based on three 

concerns. Its first concern is the availability of energy 

supplies for China, primarily petroleum products, including those from foreign sources. Its second concern 

is the affordability of such supplies. Only third—and 

a distant third, at that— is concern about the military 

security of energy supplies. 
210

Beijing’s determination to secure overseas energy 

supplies at origin and to increase the availability of 

Chinese flagged tankers to transport those supplies 

reflects the first two facets of energy security for Beijing—that is, affordability and availability of energy.4

The National Resources Development Council in Beijing has stated that by 2050, they want 60 percent of all 

imported seaborne oil supplies carried in Chinese flag 

tankers, and they’ve launched the appropriate shipbuilding campaign to make that happen. 

The military aspect of energy security is being 

demonstrated in part by the modernization of the Chinese navy—albeit very much a work in progress—and 

in the oft-quoted (or rather misquoted) statements of 

concern about the “Malacca Dilemma,” which refer to 

fears that a foreign opponent (i.e., the United States) 

could strangle China’s petroleum imports by blockading the Malacca Strait, through which a majority of the 

nation’s trade flows. That is more perception than reality, given the navigational limitations of the Malacca 

and Singapore Straits, but apparently is nonetheless a 

factor in Beijing’s strategic calculus.

The military facet of energy security is made further 

questionable by the fact that the strategic reserves of 

petroleum built by China are stored in above-ground 

tank farms located on the country’s coast. There was 

absolutely no concern for military security for those 

tank farms.

Finally, China continues to rely on its very large 

indigenous coal reserves for about 70 percent of its energy requirements. This is such an inefficiently managed industry in China in terms of both safety and 

function that should the Chinese government be able 

to get control of the coal industry to do simple things 

like washing the coal, allow liquification of the coal at 
211

the mine mouth, and increase the efficiency of their 

transportation network (which is really poor), then 

they still have a lot of gain from their coal reserves. In 

fact, Brown and Rupp built a series of coal-fired electric-producing plants in Guangdong Province back in 

the 1998-99 time frame and found that it was cheaper 

to import coal from Australia than to bring it down 

from Northeastern China by train. 

 In sum, with improved efficiency, China might get 

a lot from its coal reserves. If I were a Chinese military 

officer concerned about energy security, the reserve 

would serve as something of a security blanket. They 

should temper any draconian strategic decisions as 

China searches for offshore petroleum sources—decisions that might escalate to military confrontation, an 

eventuality almost certain to involve the United States.

Unconventional Threats.

Question two, “What challenges are posed by unconventional threats such as terrorism and international crime?” is best answered by “very little,” based 

on past and current events. Much news media attention is drawn to incidents of terrorism at sea, but in 

fact no more than a half-dozen such incidents have occurred. International crime is a far more serious matter, consisting primarily of human trafficking, exotic 

animals trade, and narcotics smuggling. These are not 

going to affect the U.S.’s energy security picture in any 

serious way.5

Human trafficking is estimated to involve 1.4 million persons and yield $31.6 billion annually.6

 The illicit narcotics trade is estimated to amount to an annual $88 billion by the United Nations (UN), but that 

is, by definition, an approximate figure.7
212

Another form of international crime is widely reported as “piracy,” although almost all such incidents 

are more accurately called robberies at sea, since they 

do not occur in international waters. This has not posed 

a serious problem despite all the press. There are two 

reasons for saying this. These incidents are estimated 

to cost international trade between $2 and $3 billion 

dollars annually, but even that sum amounts to less 

than 1 percent of that trade’s value.8 Right now, from a 

merchant ship owner’s perspective, it’s cheaper to pay 

ransom to the pirates than it is to spend the money 

on the necessary security procedures to prevent the 

piracy or robbery from occurring in the first place. 

Second, if we look back at the history, the only antipiracy efforts that have been successful going all the 

way back to the 17th century in the Caribbean, have 

been those that penetrate to the beach and destroy the 

pirate’s home base. Given the situation in Somalia today, that’s not likely to happen in the near future, but 

that is going to be the only final solution if there is a 

final solution, which there won’t be from a global perspective since piracy has always been with us.

Alternative Energy.

The conference organizers’ third question, “How 

will these be affected by a shift toward greater reliance 

on alternative types of energy?” is more difficult to assess than are the first two. China currently is a world 

leader in developing alternative forms of energy, by 

which I mean non-fossil fuel sources. 

Hence, I categorize nuclear power as an “alternative type” of energy, despite the waste disposal 

problems that it engenders. If China actually builds 

and brings into operation all the 50 or so nuclear re-
213

actors discussed in terms of 2050, however, they will 

produce no more than 6 percent of the nation’s daily 

electricity requirements—so Beijing estimates. Other 

forms of alternative energy being developed in China, 

from biomass to wind power, will certainly improve 

the country’s level of energy security, but will have 

a marginal impact on the continued reliance on fossil 

fuels, especially the coal currently providing approximately 70 percent of daily energy needs.

India is also pursuing alternative forms of energy, 

as are Japan, Taiwan, South Korea, and Australia, but 

none of these programs may currently be expected to 

contribute to a dramatic reduction in reliance on fossil fuels unless those two famous—or infamous—researchers out in Berkeley actually discover cold fusion 

in a jar in their garage.

Japan and Taiwan are particularly bereft of indigenous energy resources. Japan, therefore, is a world 

leader in use of nuclear power and in the future is 

likely to increasingly turn to natural gas (including 

the liquefied product) particularly from the Sokoline 

fields. Australia is not likely to substantially reduce 

dependence in its indigenous energy fields, while 

Taiwan and South Korea appear destined to continue 

relying almost wholly on energy imports. 

Environmental factors are worth bearing in mind. 

As of 2000, Taiwan had a fourth nuclear power plant 

under construction. The Democratic Progressive Party 

(DPP) government that came into power in June 2000 

was very much a green party, and they initially tried 

to stop construction of that fourth nuclear power 

plant. They had to reverse that decision, but still this 

is a demonstration of environmental concerns where 

increased use of nuclear power is involved.
214

Environmental concerns have also been shown 

by China. I mentioned earlier their large projects for 

liquification of coal at the mine mouth. These were 

stopped by Beijing at the direction of the Chinese government in 2007 because of the concern for the fresh 

water usage entailed. In other words, fresh water as a 

resource was more important to Beijing, and remains 

more important to Beijing today, than the availability 

of more efficient coal reserves or more efficient energy 

from coal. 

Alternative energy programs should not be expected to challenge U.S. strategic interests, although 

if the definition of an “energy-hungry great power” is 

stretched to include North Korea and Iran, their programs apparently in pursuit of the dual use of nuclear 

technology certainly are of concern. 

China is the nation of most concern to American 

policymakers, having possessed nuclear weapons for 

nearly 50 years and conducted its first nuclear detonation in 1964. While that does not reduce U.S. concern about an increased Chinese nuclear arsenal, there 

presently is little indication that Beijing is planning to 

abandon its apparent strategy of minimal nuclear deterrence. When General Chang Guang Kai, who was 

then their head of intelligence, had a meeting with 

retired U.S. Ambassador Chazz Freeman many years 

ago, he said in so many words that as long as we can 

put one nuclear warhead on Los Angeles, that was 

enough to deter the United States. And he was probably right.

India has been a nuclear weapons power for a 

much shorter period, detonating its first weapon in 

1998. A notable indication of Washington’s desire to 

form a close strategic relationship with India was the 

2008 decision to acquiesce in that country’s status as a 
215

nuclear power, despite New Delhi’s refusal to adhere 

to the nonproliferation treaty.9

Nuclear power as an alternative source of energy 

poses dual use dangers to the United States (and to 

other nations), but under proper engineering and 

managerial control is a welcome alternative to fossil 

fuels. This is especially true in view of the major powers’ possession of large coal reserves with that fuel’s 

current environmental drawbacks.10 That’s my own 

view. Having suffered through 16 weeks at the Navy 

reactor 50 miles outside of Idaho Falls over the winter, 

I still remain a fan of nuclear power.

As noted earlier, I will leave the conference organizers’ fourth question, “How vulnerable will market grids be to cyber-attacks?” to my colleague, Mr. 

Bumgarner. From a security viewpoint, cyber is now 

recognized by U.S. military commanders and civilian 

leaders as a new theater demanding national security 

policymaking and strategy. The Pentagon is now organized to deal with cyber issues, with one emerging 

great power—China—evidently the primary country 

of concern, as time after time hostile incidents of cyber 

intrusion are traced to that country.

CONCLUSION

China and India are the world’s most significant 

emerging nations—in terms of population, expanding 

economies, and modernizing militaries. Their position 

vis-à-vis U.S. strategic security is problematic but mutable; the ability of the United States to affect the paths 

followed by these two Asian giants is quite limited. 

Neither is likely to pose an actual threat to the United 

States, but both are certainly challenging the U.S.’s 

post-Cold War hegemonic position in the world.
216

UNCONVENTIONAL THREATS TO 

ENERGY SUPPLIES

Robert F. Cekuta

I shall address unconventional threats to energy 

security and energy stability. We at State focused a 

lot in the 1970s and 1980s on oil. Oil became a less 

prominent issue in the 1990s and the early 2000s, but 

now given questions arising due to the situation in 

the Middle East, many would say oil’s back. The reality, however, is that the issue never really went away 

because one of the basic pieces of our own national 

security and prosperity is the access to energy. 

Terrorism.

The first such threat that comes to mind is terrorism. Iraq offers a good example of the kind of effect 

terrorism can have. We saw—and still see today—insecurity in parts of the country. According to press reports, bombings and other forms of violence add approximately 10 percent to contract costs. Companies 

are forced to keep their personnel in secure locations 

in Baghdad and Basra rather than letting them live 

closer to the field, in places where they might be better 

and more easily able to develop the country’s energy 

resources. The attacks on the oil refinery recently and 

the attacks on power transmission lines, pipelines, 

and other similar targets that took place in the earlier 

days of the conflict, did have an effect. The attacks 

on the energy infrastructure significantly slowed the 

country’s development, and prevented it from moving forward in the period after the fall of Saddam in 

the way that we had hoped. 
217

But the damage, while insidious, especially psychologically, actually had a rather limited physical impact. You can repair pipelines in relatively few hours. 

You can usually repair a pumping station in 2 or 3 

days. Of course, you’ve got to get to it, which may not 

always be easy. But the point here is that the damage 

that can be done to one of these facilities is actually 

rather finite, easily contained, and can be fixed. That 

certainly doesn’t mean you can ignore it, however. 

Another part of the world where terrorism has 

been a factor is the Niger Delta. The unrest in that part 

of the world, especially in that part of Nigeria, can 

significantly affect production. It results in the loss of 

something close to 100,000 barrels a day, according 

to some experts. Those of us in the U.S. Government 

frequently talk to the Nigerians about what might be 

done to help improve their internal situation. We talk 

of the need to boost respect for human rights, to pay 

attention to the environment, and to make progress on 

good governance. We also talk of the need to improve 

transparency so as to build good governance and to 

give the people a sense that they are empowered and 

are involved in building their country. 

Interestingly, oil companies are doing the same 

thing. When you talk to the major oil companies operating in the Niger Delta, they will talk about what 

they are doing to increase employment in the region, 

to hire subcontractors, to involve local populations in 

the industry. This is important not only because it will 

make the area more prosperous. It is also politically 

important because it makes people see the system as 

something that they have a stake in and see the oil 

industry as something that doesn’t just belong to outsiders, but as something that is important to Nigerians 

and benefits them. 
218

Piracy.

The second unconventional threat that is frequently in the news of late is piracy. However, if you have 

a sense of history, you realize that the problem is not 

new. People have been concerned for years about the 

safety of shipping through certain chokepoints. The 

most famous of these are the Straits of Hormuz and 

also the Straits of Malacca. In Malacca, piracy has 

been a problem for years. The governments there, 

however, are quite strong. They’re able to take action, 

and they’ve had help from outside. So yes, piracy is a 

problem here, but it’s contained. 

Piracy in the nearly one million square mile area 

off the coast of Somalia has been much more in the 

news and has proven something that is much much 

more difficult to handle. As Professor Cole noted, the 

cause of the problem is a state that many describe as 

failed. Somalia has been in a state of unrest for over 20 

years. It has been hard for any leader to really assert 

the needed control. Pirates can therefore work with 

considerable impunity from a large geographic base. 

Somalia is a large country and has a very long coastline. Moreover, the pirate attacks are not necessarily 

occurring just off the Somali coast, but well out into 

the Indian Ocean.

There is something else that needs to be noted: 

piracy is a business. We had a conference this past 

week in the State Department where we looked at the 

questions of how to trace the money flows that go to 

the pirates. Pirates are getting ransom payments—the 

money they receive must go somewhere and get into 

the financial system. If, as some experts think, there 

are indeed higher-level people who direct these piracy operations, who work with contacts in Somalia 
219

who in turn work with the tactical operators who actually get in the boats and go out to sea, we need to 

identify these higher-ups and figure out how to stop 

them. How do you find out who they are? You look 

at where the money goes. How do you stop them? 

That isn’t always easy, as we know from our efforts 

to track money flows from narco-trafficking, but it can 

be done. You can find out who the people are by following the money and taking action. Still, as we know 

from fighting other criminal networks, even when you 

know who the bad people are, it doesn’t necessarily 

mean it is possible to get them right away. 

Yes, piracy is real. It’s a problem. Recently pirates 

hijacked two tankers carrying over $200 million in oil, 

including one that was en route to the United States. 

But it really has not affected the flow of oil or upped 

the price of oil. It has not really damaged our energy 

security. It certainly is a problem and needs to be confronted, which we are doing. But as a threat to our 

energy security, not many would argue that the activities of these pirates are especially significant. 

Poor Governance.

There is another set of factors—by no means a 

threat, which can affect energy supplies and security. 

These are the policies of governments themselves. The 

economic and political policies that are put in place 

in different countries affect which companies go in 

as well as what is done by way of drilling, exploring, identifying, developing, and producing energy. 

Iraq again offers an instructive case. Iraq may be the 

world’s second-largest oil province. The Iraqis have 

long had a very conservative way of estimating their 

reserves. That was true even back in the days of Sad-
220

dam Hussein. These attitudes and methods meant 

they were relatively restrained in terms of what they 

announced in terms of the size of the country’s oil reserves and potential production yields.

Looking at the situation now, Iraq’s exports over 

the last 2 months have averaged about 2.7 million barrels a day. That’s an increase of 8.2 percent of exports 

from the 2010 average of 1.9 million barrels a day. 

Iraq’s average selling price for its crude oil exports 

was about $97 a barrel in February. That’s up from a 

January average of $90.78 a barrel, $86.31 in December, and $80.59 in November, although the rise in 

world oil prices is a key factor here. Still, revenue from 

the southern oil center, Basra, climbed to about $4.8 

billion—that’s the highest since 2003—from exports in 

January of 54 million barrels. The exports from Iraq’s 

northern oil fields, which include the crude from the 

Kurdish regions, rose to 494,000 barrels a day. That 

figure also includes about 10,000 barrels a day taken 

by truck to Jordan. 

Those are rather significant amounts of oil. The 

Iraqis are talking about trying to increase capacity 

by another five million barrels a day. They very well 

could be able to do that over time, depending on what 

size their reserves really are, but first of all they face 

the political challenge of instability. Second, they face 

the challenge of working out a new hydrocarbon law 

that actually sets up a national system. This internal 

legal/political situation has been confronting the Iraqi 

government for years, an issue which needs to be 

worked out between Kurdish areas in the north and 

the capital in Baghdad.

There are the infrastructure problems facing Iraq 

as well. Pipelines that have been around for a long 

time get old; they need to be replaced. Pumping sta-
221

tions and other infrastructure have also aged and need 

to replaced, upgraded, or otherwise modernized. The 

capacity of Iraqi ports is also limited. Revenues from 

existing oil reserves could likely pay for these improvements, but it’s going to take time. 

We see the same sort of discussions regarding the 

legal situation and its potential impact on investment 

and energy production in other countries as well. 

Company representatives come in and ask about Nigeria and its new hydrocarbon law, noting that whatever law is put in place must make it easy for the oil 

companies to work with the authorities there and enable all those involved in developing and producing 

hydrocarbons in the country to prosper further. I’ve 

had this same conversation with companies about 

what needs to be done in other countries, including 

new oil provinces—places like Ghana and Uganda 

that are coming online. Governments in these countries are trying to figure out how best to capture and 

utilize revenues from new oil finds, how to make sure 

that they’re being used for good purposes and helping 

national development. They have seen the corruption 

that has occurred in other places and want to prevent 

it. They recognize that increasing the transparency of 

operations and money flows can help them in this effort. 

In sum, failure on the part of governments in oilproducing countries to deal effectively with these economic and political issues, while not exactly a threat, 

can be a factor in limiting the global supply of crude. 
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The Global Market and Energy Security.

The global market today really has changed significantly. As we look at oil prices, at economic statements in the press, and at concerns regarding Libya, 

it’s clear that we are not living in 1979. There may be 

reports of instability in the Middle East, but we’re not 

looking at gasoline lines in the United States again. 

That’s because of the work we have done since 1979.

First, we’ve built up Strategic Petroleum Reserves 

roughly 146 days of normal consumption are sitting in 

cavern and tank facilities around the world. That is an 

important factor in keeping prices under control and 

ensuring our economic well being. 

Second, we are better about engaging in discussions with producers than we once were. I was in Riyadh recently for the 20th meeting of the International 

Energy Forum. This is a group that brings together Organization of Petroleum Exporting Countries (OPEC), 

countries belonging to the International Energy Agency (IEA) (which was set up in 1973 after the Organization of Arab Petroleum Exporting Countries [OAPEC] 

boycott of crude to the United States). These are the 

major energy-consuming countries and third world 

countries. The group looks at what the situation is in 

the oil market, looks at demand, and looks at production levels. It doesn’t try to fix prices—you can’t do 

that, the interplay of supply and demand in the marketplace can do that. But the associated International 

Energy Fund (IEF) can help make sure that there’s a 

flow of accurate information so that producers know 

what to expect by way of demand, and consumers understand what to expect by way of production. 

A number of statements by Ali al-Naimi, the Saudi 

Oil Minister, and others came out of that meeting. The 
223

Saudis expressed a willingness to put crude oil on the 

market. There were conversations subsequent to that 

conference between the IEA and the other industrialized countries. Statements from the IEA at the same 

time pushed oil prices down $6.00 a barrel. We have 

also talked to oil companies. They say there is no shortage of crude. The Saudis, with at least a couple million 

barrels a day of excess capacity, said they would make 

crude available to anybody who wanted it. Thus the 

oil seems to be there right now in the physical market.

The Future.

There is another big factor which comes up when 

we talk about the stability and security questions. We 

talked about oil supply and demand 20-30 years ago 

among the Organisation for Economic Co-operation 

and Development (OECD) countries, such as the 

United States, France, Austria, Germany, and OPEC. 

Today, however, you see our demand in the OECD 

countries starting to decrease, but the demand of 

China and India going up sharply. There are parts of 

this world that really have not developed at all but 

are going to have to—places like Africa, which has 

800 million-plus people. Right now the total energy 

consumption in Africa, according to the IEA, is equal 

to the energy consumption of New York State. The 

consumption and demand numbers have got to rise. 

However, there is still the question of how these countries are going to develop? Are they going to develop 

like us or not? These are factors we need to look at as 

we go forward.

There are two other important factors on the supply side that affect today’s energy equation. First of 

all, consider the great boost in natural gas production 
224

in the United States and the tremendous impact this 

has had in terms of our energy security and energy 

supplies. Then there are the steps we are taking to encourage the development of low-carbon technologies 

and of renewable energy technologies.

These are matters which we at State discuss with 

the producing countries. They’re aware of these developments, and they’re concerned about them in 

terms of global market stability. Such discussions are 

important for all.

CONCLUSION

In sum, there are indeed unconventional threats. 

The factors that keep us awake at night, however, are 

the increased demand in the rest of the world and the 

effects this is going to have on us, particularly shortterm shocks. At the same time, we have confidence in 

the steps we have already taken that can help us ameliorate those short-term shocks.

SMART GRID VULNERABILITIES TO

 CYBER ATTACKS

John Bumgarner

INTRODUCTION

When I entered the security field nearly 3 decades 

ago, most people didn’t have a computer, let alone an 

Internet connection. Now everyone in this room has a 

least one computing device and uses the Internet for 

both work and play. Unfortunately, our national security efforts haven’t kept up with the threats that have 

accompanied these advancements. 
225

For example, America’s electrical grid and other 

critical infrastructures are vulnerable to cyber attack 

from other nation and hacktivists. Threats will only 

increase unless the DoE and the Department of Homeland Security (DHS) take major steps in the coming 

years to reduce our nation’s cyber vulnerabilities in 

the grid.

The U.S. electric grid is undergoing a transformation which will make it smarter and more efficient. 

These modifications will take years, if not decades, 

to accomplish, however. As an industry we need to 

engineer these newer systems to be more secure from 

cyber attacks or technological mayhem. Unfortunately, the electric industry is deploying technology with 

common cyber vulnerabilities embedded. 

DAMS, TURBINES, AND GENERATORS

In 1882, when the Pearl Street Power Plant was 

completed, computers didn’t exist in the world. When 

the Hoover Dam was built during the Great Depression, America wasn’t worried about cyber threats. 

The Francis turbines installed at the dam weigh in 

at approximately 172 tons.11 Today these gargantuan 

turbines are computerized, but they were never engineered to withstand a cyber attack. If a cyber attacker 

damaged the turbines in the Hoover or Grand Cooley 

dams, America would have major problems. 

The first problem would be the immediate loss of 

electrical capacity for the dams’ electric customers. 

The second would be replacing the damaged turbines, 

which is extremely problematic because America 

doesn’t manufacture them. These turbines are made 

overseas and designed to precise specifications for 

each client. How fast could American replace damaged turbines inside the Grand Cooley Dam? 
226

Engineering flaws also exist in coal-fired and gasfired generators, which can be exploited by cyber 

means. Unfortunately, prospects get worse, because 

nuclear reactor cooling systems are also vulnerable 

to cyber manipulation. A coolant pump installed at 

Iran’s Bushehr Nuclear Power was damaged when 

it was started. This coolant pump was connected to a 

programmable logic controller, which was controlled 

by a computer. What do gas centrifuges and coolant 

pumps have in common? The answer is “rotation.” 

Generators, turbines, centrifuges, and coolant pumps 

are very unforgiving when it comes to rotation disruption. Catastrophic damage usually occurs to key 

moving parts in these systems. 

There is a subset of individuals’ within the DHS, 

the Department of Defense (DoD), and the intelligence 

community who are highly aware of these types of cyber threats. Many of the organizations know that hostile individuals are actively mapping vulnerabilities in 

American’s critical infrastructures.

Many of the vulnerabilities embedded in deployed 

generators and turbines are not going to disappear 

anytime soon. What we need to start thinking about 

is reengineering critical components currently on the 

drawing board. Some people say that it’s not cost effective to do this because cyber threats are not a major 

concern. 

Unfortunately, Idaho National Labs has already 

proven this statement false. A few years ago, the lab 

conducted a security assessment of a diesel-powered 

generator. The purpose of this test was to determine if 

a cyber attack could damage the generator.

We have a video of a diesel-powered generator 

being attacked. A viewer cannot see the technicians 

manipulating the generator rotation mechanism to 
227

cause excessive vibrations, just as an actual observer 

could not see a hacker. The generator was never engineered to handle this level of vibration. The hacked 

generator does not like being manipulated and broke 

apart. How do we prevent such intentional attacks in 

industries across America? Today, we cannot, but in 

the future we will protect them.

Unfortunately, America does not manufacture the 

majority of the generators installed in the country’s 

electric grid. So how does the State Department ask 

a foreign power such as China to put America at the 

head of the manufacturing line for a new generator? 

As you can see, this can quickly become a major foreign policy problem for our government. 

One of the past research projects of the U.S. Cyber Consequences Unit (USCCU) was to identify the 

production cycles of critical components in the electric 

grid. We discovered that the normal business cycle for 

producing a standard generator was about 18 months 

to 2 years. Some of the more specialized components 

take 5 years. That’s a long time to wait, but America is 

competing with all the other customers of the world. 

The United States has to consider establishing relationships with Canada and Mexico for sharing the costs of 

maintaining critical spares. These relationships could 

possibility include formal agreements.

HOME ELECTRICITY

Now consider another scenario. Everyone here 

probably lives in some type of house or apartment. 

Everyone’s probably got an electric meter on the side 

of his/her house. Most of the electric meters installed 

today are like those designed in 1887. Over the last 

several years, only a small fraction of the meters in 
228

America have been upgraded to smart meters. These 

smart meters are one of the pieces of a smarter electrical grid that is being installed in America and other 

advanced countries. We are witnessing an evolution 

in the utility industry, which will eventually impact 

the three primary utilities of electric, water, and gas. 

Meters in these industries will be replaced with ones 

that are computerized and networked together. This 

is a multi-decade project, so we need to start thinking about the security of the systems before we deploy 

hundreds of millions of the meters across the United 

States. 

Most companies that have deployed the meters 

have focused on reducing business costs and not security controls. For example, public records of Florida Power & Light suggest that the rapid disconnect 

and reconnect was a primary reason for investing in 

smart meters. These meters also reduce workforce 

costs, because fewer employees had to read meters or 

make service calls to disconnect or reconnect power at 

homes. Computerization made all this possible from a 

remote location, but it also opened the door for hackers to access the systems from remote locations. 

This move to the smart grid, moreover, is not just 

taking place in America. There is a new market for 

prepaid electricity services. In the Pacific Islands, they 

are putting prepaid meters in their homes. To get services, you have to go inside and enter your code that 

verifies that you have electricity, and that you’re paying for it.

Vulnerabilities of the Smart Grids.

Why is the use of smart grids a cause for concern? 

One major problem facing the industry today is the 

lack of government security standards. The National 
229

Institute of Standards in Technology has been developing standards for the electric industry, but not for 

the other utilities.

Another problem is the large number of meters 

that are going to be deployed. According to one estimate, there were 80 million single-family homes in 

America in 2010. That’s 80 million electrical meters. 

That doesn’t take into consideration businesses, apartment complexes, and “mobile” residences. We’re talking hundreds of millions of these devices that have 

to be deployed. That’s hundreds of millions of computers. If we don’t take due diligence today to design 

them with security built in, someone will hack them. 

Last year, I wrote about a future threat posed to 

smart meters from something called “warmetering.” 

This activity is when hackers with specialized equipment and software ride through neighborhoods looking for smart meters. The hackers use this information 

to map meter types, which can be useful in identifying 

vulnerabilities. 

Some people in the utility industry think that this 

type of activity is unlikely. Last year at the DEF CON® 

Hacking Conference in Las Vegas, a security professional demonstrated how to hack a smart meter used 

in the electric industry. The hacker was able to modify 

the liquid crystal display (LCD) to read “pwned,” 

which is geek-speak for owned.12 The hacker also displayed a computer worm that could compromise the 

smart meter remotely. In a simulation, the hacker used 

geo-location information to program the worm to target the city of Seattle. The attack simulation had the 

worm spreading across Seattle area, disrupting smart 

meters it encountered. Within minutes, the worm had 

infected 200,000+ meters. 
230

Recently, I was talking to students about integrity, 

availability, and privacy issues of smart meters. Part 

of our discussion centered on cyber attack response by 

utilities. I explained that a weather-associated event, 

such as a power line going down, is usually an easy 

repair. I also explained that utility workers could easily replace a few damaged meters. But what if 300,000 

meters went offline at the same time? How would the 

utility respond? If the meters are damaged, would the 

utility have enough spares? If the utility does not have 

spares, can they acquire them from other sources? 

What level of costs would be associated with such an 

incident? 

Another concern, which hasn’t been fully addressed, is the environmental impact associated with 

replacing hundreds of millions of old meters. The old 

meters being replaced contain harmful metallic components—some contain silver, some have toxic metals. 

How do we recycle these old meters without damaging the environment? Will the Environmental Protection Agency (EPA) establish recycling guidelines for 

smart meters? 

Green technologies also have security problems 

that need to be addressed. For example, wind turbines 

have security vulnerabilities, but most companies 

are not securing them from cyber attacks. Wave generation equipment and solar arrays also have surfaces 

vulnerable to cyber attack. 

Even electric cars have potential vulnerabilities 

that hackers could exploit. We need to start looking at 

the cyber attack surfaces in cars. Hackers are already 

testing the security of cars. Imagine a mischievous individual driving by a car lot and ordering all the cars 

to flash their lights and beep their horns at the same 

time. Electric cars will also be embedded with chips 
231

that will allow utilities companies and the government to track your mileage and location each time you 

charge up.

The other thing to think about is power infrastructure. Google and Microsoft are already thinking about 

it. Google’s doing a pilot project with smart meters. 

Originally, it involved only one company, but now 

it involves multiple companies—probably well over 

a dozen. Google is developing this technology called 

Power Meter, which is connected to the Internet. You 

can plug a device into your home that will talk to 

your meter, and then it will send that information to 

Google. Google collects all this information and compiles it. Using this information, Google can send you 

a coupon to purchase a more efficient clothes dryer. 

Utilities will have to work out ways to integrate 

more efficient systems into consumers’ homes. Accomplishing this level of integration will take years. 

In the future, consumers will have their Heating, Ventilation, and Air Conditioning (HVAC) systems; water 

heaters; and certain household appliances connected 

to the power grid for the sake of efficiency.13 These 

devices will be able to be remotely controlled by the 

utility and the consumer. Hackers will be looking for 

vulnerabilities in these networked and computerized 

appliances. Imagine your dryer bursting into flames 

because some hacker launched a cyber attack. It’s already technically possible to start a fire by launching 

a cyber attack on a smart outlet. Will arsonists burn 

down homes and businesses in the future using computer code?

Another area that I’m concerned with is privacy. 

Last year, I coined the term Personal User Information (PUI). In the future, utilities will be able to monitor movements in your home. When you get up in 
232

the morning and turn on your coffee pot or use your 

washer and dryer, the utility company will be able to 

see what time you get up and where you go in your 

home. 

A final area of concern is how to protect the power 

grid from cyber attacks. The DHS first became interested in cyber attacks on the electric grid because it 

was concerned about what these would do to our 

economy. The USCCU analysis showed that a regional 

cyber attack on a city can be a big problem. The impact 

can vary, depending on how much damage is done 

and other factors such as weather. Imagine a cyber attacker disrupting power in North Carolina during the 

summer months when we depend on air conditioning. If you can disrupt electrical power for 7 or 10 days 

in a given region, you can cause a 70 percent loss in 

economic productivity. Some of our attack scenarios 

focus on disrupting electrical power for 3 to 6 months. 

Could the city of Raleigh or Charlotte, North Carolina, 

or Washington, DC, survive a power outage for 3 to 6 

months? No. 

COMMENTARY

Stephen Kelly

As far as national threats are concerned, we’ve got 

problems. In no particular order, we’ve got China and 

India as potential strategic competitors. Most of the 

world’s consumption of oil over the next 20 to 30 years 

will come from China. China has already become the 

largest emitter of greenhouse gases, and the Chinese 

are well on the way to becoming the largest consumers of oil in the world. Regardless of what you think 

about peak oil, it’s probably a finite resource. The Chi-
233

nese are quite aggressive in pursuing it. The Chinese 

don’t obtain it for their own use necessarily, they’re 

out there playing in the markets, with implications for 

us. Then there is Brazil, a net oil exporter starting in 

2009, but with growing domestic consumption. 

Reports on terrorism and piracy and the effect 

they have on oil production in Iraq and Nigeria are 

sobering. We’ve learned how political policies limit 

supplies of crude because they sometimes result in an 

inefficient exploitation of resources. Then there’s the 

possibility of cyber attack. 

I’d also like to broach Canada and Mexico. These 

are areas of the world that we didn’t much touch on 

here. Canada in particular is one region we might 

want to discuss in the oil context specifically, but in 

the energy context more broadly.

In 2010, according to the U.S. Energy Information 

Administration (EIA), the United States actually imported about half the oil it needed on a daily basis. 

That’s down from about 60 percent as recently as 2005. 

The recession reduced the amount of oil we needed 

overall. But thanks to offshore drilling, we’re actually 

gradually producing more oil domestically. So much 

for peak oil in the United States. 

 Of the oil that we have to import (roughly 10 million barrels a day), 2.5 million of those barrels came 

from Canada, mostly from the oil sands in Alberta. 

All of that came to us in pipelines. We’ve discussed 

pipelines today as another point of vulnerability, and 

indeed the pipeline network in North America is not 

perfect. There was a pipeline leakage into the Kalamazoo River in Michigan this past summer. There 

are a couple of gas pipelines that keep blowing up. So 

pipelines are not perfect. Nonetheless, oil that comes 

to us in pipelines is not going to spill the way that 
234

the Exxon Valdez did—there was a story in the paper recently about the continuing effects of the Exxon 

Valdez disaster in Alaska. Pipelines will not lead to 

another Deep Water Horizon disaster.

Canada actually provides 22 to 25 percent of the oil 

we need to import. Of course, one of the big issues of 

the day is the proposed construction of a new pipeline 

from Alberta to Port Arthur, Texas. This would bring 

an additional 400,000 barrels a day of Canadian crude 

to Houston where refineries exist that can handle the 

Canadian crude, which tends to be kind of heavy and 

less tractable.

A barrel of West Texas Intermediate (WTI) closed 

yesterday at $101.91.14 But that’s just a benchmark 

price. But a barrel of Brent—North Sea Oil, also a 

benchmark—closed at $114.79.15 There has been about 

a $14.00 to $15.00 difference in what oil costs in the 

American southwest and what oil costs in the North 

Sea for several weeks now. Deutsche Bank predicts 

that this difference will continue to exist for some time.

Thus, Trans-Mountain Pipeline, Inc., (TMI) oil 

tends to pile up, lacking an outlet, so this is somewhat of an artificial situation. But it does point toward 

a need to reevaluate potential solutions for some of 

the energy security problems that have been identified today. There aren’t a lot of terrorist groups in 

Canada. The country’s had a few, but it’s been a long 

time since they were active. The pipeline network is 

actually pretty good. If the Keystone pipeline is built, 

obviously it would be state of the art. Canada is, of 

course, democratic, has a good human rights record, 

and is also a good neighbor, so you don’t have a lot of 

cost in transportation. Relying on Canadian oil seems 

like a smart option. 
235

Of course, the Canadians’ protection of their own 

grid against cyber attack may also be problematic. In 

the northeast of the United States in August 2003, there 

was a great power blackout that cannot be attributed 

to a cyber attack. A low-hanging wire in Ohio touched 

a tree and shorted out. The resulting series of failures 

in the system led to a blackout that covered eight U.S. 

states, the province of Ontario, and 50 million people. 

The grid is thus already fairly vulnerable. One 

can also go back to 2001, the great electricity crisis in 

California. That was mostly a problem of lack of infrastructure and capacity to move electricity around, 

perhaps resulting from market forces. Mexico is our 

number two oil supplier despite the many problems 

they have in their industry. Last year, they accounted 

for 11 percent of the oil the United States had to import. Between Canada and Mexico, that means more 

than a third of our decreasing percentage of imported 

petroleum came from our immediate neighbors. 

We produced domestically about 90 percent of the 

natural gas we need. Ninety percent of the 10 percent 

that we currently import also comes from Canada in 

pipelines. With the shale gas coming online, we may 

become self-sufficient in natural gas, which means 

that energy security in the broadest sense comes down 

to oil for the immediate future. 

QUESTIONS AND ANSWERS

Q: Dr. Cole, you mentioned the China/Indian relationship. Could you comment more on what’s driving 

tensions there? Is it purely a competition for resources? Is it just a question of unfriendly neighbors?
236

Bernard Cole: Beijing does not consider India to be 

any sort of conventional military threat. The tension 

on Beijing’s part is not because of India’s conventional 

military forces. The Himalayas are an impenetrable 

barrier, but rather because India is a nuclear power. 

It’s especially concerned with respect to India’s relation to Pakistan, which China considers to be its formal ally. There is one China-India territorial dispute 

over the boundary that was drawn by the British in 

1906.

But India does have security concerns about China 

rather than the other way around. China is feeling 

very confident in economic energy terms right now, 

and in the one or two cases where the two have gone 

head-to-head in terms of securing energy deposits—

Burma is a case in point—China clearly has emerged 

victorious over India.

Q: This is just a brief comment about Mexico. In 

March 2011 at the Milken Global Conference, President Vicente Fox said that the Mexican government 

has used Petróleos Mexicanos (PEMEX) as a cash cow 

and not really reinvested in it, and has thoroughly 

abused Mexico’s oil wells. He said that because of this, 

Mexico is on track to stop exporting oil a few years 

down the line unless they drastically change their 

rules regarding foreign investment and so forth.16

Stephen Kelly: That’s absolutely true. The Mexican constitution prohibits outside investment—foreign investment in the upstream energy sector, and 

actually the downstream one, too. The word privatization is a swear word in Mexico when it comes to the 

oil industry. As to PEMEX, it was nationalized in 1938, 

when U.S. and British interests were kicked out. Most 

Mexicans are very proud of the fact that they kicked 

out the British and the Americans. 
237

But there are some changes. President Calderon 

managed to get through some energy reforms 2 years 

ago, although they were a bit watered down.17 In the 

recent meeting between President Obama and President Calderon in Washington, in addition to resolving 

a long-simmering trucking dispute, there was mention of a cooperative energy development. There are 

a number of oil reserves in the Gulf of Mexico that 

are probably transboundary, and the State Department has been working on ways we could exploit 

those transboundary reserves together. It would be 

very damaging if both countries dug in—drilled into 

the same oil field and pumped separately, so doing it 

cooperatively is in both of our interests.

Mexican oil production has been declining for 

several years. Their largest field, Cantarell, probably 

peaked in 2003.18 The new deposits that they have 

found have not come online as they expected. They 

don’t have the capital to do as much deep water drilling as they’d like to because, in fact, PEMEX is used as 

a cash cow for the rest of the government. 

But the Mexican government fully recognizes these 

realities, and it’s actually in our strategic interest as a 

country to help Mexico reverse that situation. We’re 

probably not going to be able to do it by urging them 

to change the constitution because we were the object 

of that change back in 1938, but there might be other 

ways that we could work with them to stem this decline in production. We have an interest in so doing.

Robert Cekuta: A couple of things to bear in mind. 

One is that the Mexican government, and PEMEX too, 

has been taking steps to open up more to the outside 

world. I think part of this becomes a question of how 

you handle something politically when it’s as important to the national identity as the notion of having 
238

kicked out the Americans and the British. You can’t 

just turn back on that. We can think of aspects of culture that would be extremely difficult to reverse. But 

we are seeing the Mexicans become much more interested in talking with other countries and with companies outside Mexico. 

The second thing is that we do have ongoing talks 

right now. We started in December trying to deal with 

transboundary questions in the Gulf of Mexico. These 

talks are now underway. I’d just leave it there in terms 

of talking about the discussions with Mexico.

The lesson of the Arabian Oil Company (Aramco), 

a giant four-company combine, is instructive.19 The 

Saudis nationalized Aramco. They’ve treated the 

combine effectively as contractors or subcontractors, 

keeping Aramco at arm’s length from the Saudi government. The Saudis are very proud of the progress 

that Aramco and the country have made in terms of 

exploration, exports, efficiencies, good field management, and so forth. They’ve used the combine, even 

though Aramco has been nationalized, to get the expertise they need. It’s been a relationship that both 

sides have profited from. 

Abu Dhabi is similar. The Abu Dhabi National Oil 

Company is very open to the notion of working with 

the international oil companies and taking advantage of their expertise. They are looking into how this 

might benefit them (and us) by getting more oil out of 

the ground and into the global market. 

What about the countries that have not done this? 

When I was posted in Iraq in the mid-1980s, I spoke 

about this with a person I knew well who had a leading role in the Oil Ministry. He said that the Iraqis, 

under the influence of Arab nationalist ideas, did not 

want anything from those nasty Westerners. They 
239

turned away and either developed technologies themselves or got it from other non-Western sources. He 

said there were seven engines on a Soviet-designed oil 

well, but only one was needed on an American well. 

That’s the difference in levels of efficiency. Reports 

out of Iran speak of the lower productivity and the declining reserve figures, much of it resulting from the 

Iranians trying to do it themselves and consequently 

often mismanaging the fields. 

The experience is similar in other countries. If you 

don’t get the engineering right, then you damage fields, 

and you can’t fix them. Thus the point about PEMEX is 

a good one. The Mexicans are making changes there, 

taking steps, doing it quietly, doing what’s important. 

There are other countries that face a similar situation. 

We can find examples of countries that haven’t done it 

right and point to the damage that results.

Q: I have a question for Dr. Cole, but first a comment. Aramco is within arm’s length from the government. I suspect that they take technology where they 

can get it. In my experience, they exploit new Western 

technology faster than any other company, including 

Shell and certainly faster than Exxon. On the other 

hand, the influence of the government is very strong, 

make no mistake. Aramco is allowed to do only what 

the Saudis want. 

 I’ve always wondered what CNOOC was doing in 

trying to buy UNOCAL. It doesn’t matter who owns 

oil, it goes into the global pool. Very few drops actually 

go back to China. You indicated that one of the reasons 

was to get deep water technology from UNOCAL and 

that’s correct. China does have the technology and 

exploits Brazil, you said. You also said that the Chinese were developing relations with Brazil better than 
240

anyone else. But if they are exploiting Brazil, I would 

question whether they’re going to operate in Brazil. 

Bernard Cole: This is an important point, because 

after President Hu Jintao made his Latin American 

swing several years ago, the press was full of reports 

about the promised $100 billion Chinese investment 

throughout Latin America. That simply hasn’t developed. Now, especially since the recent change in government in Brazil, there’s a lot of resentment among 

Brazilians as they come to realize that the macro deal 

they thought they were making with China hasn’t 

come into force. The Chinese are happy to sell their 

products in Brazil, but their purchase of Brazilian 

commodities, primarily soy and potentially oil, has 

simply not developed the way that initial press reports indicated.

Stephen Kelly: CNOOC just purchased a portion 

of the Chesapeake Oil shale gas field in Texas. Considering that shale gas is the wave of the future, the 

company is certainly active. Even bearing in mind that 

77 percent of the world’s conventional oil reserves are 

in the hands of national oil companies, CNOOC is 

a special case. It’s 65 percent owned by the government, and the other 35 percent is owned by more than 

400 different entities, no one of which has more than 

about 1 percent of the total. It’s an interesting creature. 

The Chinese have gotten a foothold in a very important part of the American shale gas market because 

Chesapeake, of course, is the largest of the shale gas 

companies.

Audience: What is the objective of doing that? 

What do they get out of it? 

Stephen Kelly: They probably get technical knowledge. Chesapeake’s a leader in horizontal drilling and 

fracking. There are shale gas deposits in China as 
241

well, but then again energy’s a worldwide business. 

The United States may become an exporter of natural 

gas if the environmental concerns around fracking are 

satisfactorily dealt with. Perhaps it’s just another investment.

Comment: One quick comment on the UNOCAL 

purchase. This came out during the hearings, and 

it may or may not have been a primary purpose of 

CNOOC. UNOCAL actually owned Mountain Pass, 

which is the only rare earth mine in the United States 

(though not operational). Since China essentially produces 100 percent of the rare earths that we consume 

and since rare earths are absolutely critical for defense 

applications, there was a lot of agitation over that.

Robert Cekuta: Molycorp is looking at reopening 

Mountain Pass right now. Linex is also doing mines 

in Australia. So the situation was changed a little bit.

Audience: This question is for Mr. Bumgarner. 

Could you comment on the recent cyber attack on 

Iranian nuclear facilities? If it was someone from the 

West, doesn’t that invite a counterattack on our facilities? 

John Bumgarner: The worm you’re referring to 

had to be written by a nation-state. It was said that it 

took 6 months to develop, but that’s incorrect. Stuxnet 

took years to develop.20

The original code was developed many years ago, 

and it was then modified and released. There’s some 

question right now about where the original infection occurred. Someone says they found an infection 

in Australia in June 2009, but no evidence has been 

made public to support that claim. Someone else said 

they found evidence in Mexico in July 2009. But again, 

they still don’t have any technical evidence to support 

those claims. The evidence out there shows that who-
242

ever developed this knew what they were targeting 

and how to go about it.

Interestingly, in January 2010, about 7 months before Stuxnet surfaced, I wrote an article stating that if 

you wanted to conduct a cyber attack against a nationstate in violation of some treaty, then you should target the gas centrifuges with a frequency-based cyber 

attack to destroy them. That’s exactly what Stuxnet 

did. 

As to whether Iran would retaliate against America, it’s a complex subject. That’s because attributing 

cyber attacks is very difficult. There are technical ways 

to trace them. If you know how to do the tracing, you 

could potentially pinpoint who wrote Stuxnet, from 

the country down to the organization. There is currently technical evidence that points to the author. 

The question is whether Iran is capable of finding 

the evidence? I don’t know. Would Iran launch a cyber 

attack against the nation-state they think did it, even 

if they cannot prove it? Unlikely. There is a hacker 

group called the Iranian cyber army that is launching 

cyber attacks in the world today. They recently defaced the Voice of America’s website. They said it was 

because of some comment Secretary Hilary Clinton 

made. The real question is, Would that same hacking 

group launch major cyber attacks against America? I 

doubt it. 

Q: To follow up more broadly, how would you assess the vulnerability of U.S. nuclear power plants—

I’m thinking about the so-called nuclear side and the 

non-nuclear side. 

John Bumgarner: There are many cyber vulnerabilities in the electrical industry. Are the nuclear 

power plants 100 percent secure from a cyber attack? 
243

Unlikely. We have seen some power companies connect very sensitive systems to networks that are not 

completely severed from the Internet. Some of the 

networks have been compromised during authorized 

security tests. 

Q: I have two brief questions. The first pertains 

to the discussion about our neighbors, particularly 

Mexico. It seems to me that a North American Free 

Trade Agreement (NAFTA) is something that needs to 

be explored because American companies were able 

to enter the Mexican market in banking, insurance, 

and many other areas precisely because of NAFTA. 

It seems to be a perfect vehicle to pursue energy security. The second pertains to the role of Russia. Russia 

has an office right next door to us in Trinidad-Tobago, 

where every major oil company and gas company has 

an office. Trinidad has had the distinction of exporting up to 65 percent of our imported liquefied natural 

gas. Gazprom, from Russia, also has an office there. I 

haven’t heard any references to Russia, though we’ve 

talked about China. My question is: What’s Russia’s 

role in all of this?

Bernard Cole: Let me briefly touch on the Russian 

issue. The world’s largest reserves of natural gas are 

probably in Siberia. China is eyeing this with great anticipation. Less than 5 percent of the total Russian population lives in Siberia. In fact, just in the last month, 

the first shipments went by pipeline from the Russian 

far east, which is grossly underpopulated. The natural 

gas fields I mentioned off of Sakhalin Island are being 

relatively slowly developed because of Russia’s nationalistic approach toward foreign companies. These 

gas fields are potentially a great resource for Japan, 

but so far that potential is unrealized, thanks to com-
244

petition with the LNG. The Russia case entails these 

huge energy reserves accompanied by horrible demographic problems. No one knows how that’s going to 

come out.

Robert Cekuta: Another point about Russia is the 

fact that the situation will probably become a little 

more complicated in light of actions they have taken 

over the past decade in disputes with the Ukraine and 

Poland.21 When countries boycott or cut off or slow 

supplies—and we saw this, actually, with the Chinese 

on rare earth this past fall—people start getting nervous and look at alternative steps they can take.

You see some of this now in Europe where western 

European countries and companies are reengineering 

the gas network to make it reversible or actually multidirectional. Gas doesn’t necessarily come in solely 

from the Mediterranean or Russia or the North Sea, 

but can be switched around. We’ve seen some of this 

right now with Italy, which gets a huge amount of natural gas from Libya for obvious reasons. The Italians 

wouldn’t have been so worried about the war if they 

could bring gas down from the north. They’ve actually done work recently on the line coming in from 

Switzerland. Russian oil and gas supplies are important to the world, and a number of the Russian companies have picked up on this. Lukoil, for example, has 

become more of a commercial operation.22

One thing I would like to add deals with coal. In 

terms of the energy mix and China, China has just become the world’s largest coal importer. The volume is 

staggering. So again, we have to talk about the energy 

security notion in terms of all of these different energy streams. There are some positive developments 

in Russia, and they’ve got a little bit better sense than 

they did years ago.
245

Stephen Kelly: On the question about NAFTA and 

Mexico, in the NAFTA negotiations, all three countries 

took certain things off the table, stating they wouldn’t 

talk about them. For Canada, it was the cultural industries; for the United States, it was the free movement 

of labor and our defense industry; and for the Mexicans, it was energy. While foreign direct investment in 

many other areas has increased and terrorist numbers 

were reduced, energy was not one of the areas that 

Mexico opened up because of the historical baggage.

Q: My question is for Mr. Bumgarner. A lot of the 

literature in your talk spoke of capabilities. Of course, 

we know threat means capability plus intent. Can you 

speak to any intent to disrupt in Estonia and Georgia 

that you’ve discovered in any of your research? Have 

you found any evidence of terrorist groups or nationstates or even criminal organizations, targeting the 

grid? 

John Bumgarner: The report that I wrote on the 

Georgian and Russian conflict outlined the events surrounding the micro-war. Access to oil in the Caspian 

Sea was one of the driving forces behind this conflict. 

From the cyber perspective, whoever launched the attacks did not attack the critical infrastructure. There 

was some physical kinetic disruption of the infrastructure—a strategic rail bridge was destroyed with 

explosives. That severed the Georgians from shipping 

petroleum products via rail from the Caspian Sea to 

the Black Sea.

The Baku–Tbilisi–Ceyhan (BTC) pipeline which 

snakes through Georgia, was not damaged inside 

their borders, but in Turkey an explosion damaged 

the pipeline. Credit for the attack was claimed by a 

terrorist organization that operates in Turkey. This 
246

was interesting because that terrorist organization 

had never operated in that region of Turkey before. 

So no one really knows who disrupted that pipeline 

system. Russia made sure that it did not target the 

BTC pipeline at all. They did not bomb it; they did not 

try to control it. They didn’t bomb the seaport used to 

ship oil. This was a strategic move by Russia.

Concerning cyber terrorism, it is an issue that 

we’ve been talking about for years. In 1994 when we 

held our first cyber war conference in Washington, 

DC, we talked about launching attacks against critical 

infrastructures. We also talked about the potential for 

a terrorist group to launch some type of cyber attack 

in the future. Someone argued that the al-Qaeda are 

cave dwellers and really don’t have the capabilities. 

But there are sections of Islamic forums where they 

talk about critical infrastructure attacks.

If you go to YouTube, you’ll see that they do have 

cyber capabilities—they’re using very good propaganda techniques. There’s even a good video game 

on how to plant improvised explosive devices (IEDs). 

Terrorist groups do have some capabilities. 

In the future, we’re going to have a problem with 

a transnational cyber-threat. We’re at the point now 

where traditional insurgencies can form in cyberspace. 

An insurgency now can function without a real world 

operational base. It can be a purely digital insurgency 

or a cyber insurgency. 

I’ve written several articles, one of which is coming out in the Armed Forces Defense Magazine, the Pacific Command, about tech-savvy terrorists and how 

they’re going to be changing in Asia and other places, 

and how they’re going to be moving more into cyber 

capabilities. It’s very easy right now for the Islamic 

fundamentalist groups to become a strong threat to 
247

cyberspace. It just takes a little bit of Psychological 

Operations (PSYOPS) training on their part to move 

into that realm. 

From a nation-state perspective, is there a threat? 

People consider China a threat to the critical infrastructure. Does China map our infrastructures? Of course. 

Do we map their infrastructures? Probably. Do they 

break into our infrastructures to destroy them? No. 

But we’ve seen them steal information. When an organization belonging to a state like China breaks into a 

certain critical infrastructure, they’re breaking into an 

infrastructure to steal information that improves the 

efficiency of their infrastructure. They’re stealing all 

the features we’ve worked on to bring our infrastructure up to a certain par. They steal that information, 

and then when they build their infrastructures online, 

they can bring it up to the same efficient level that 

Americans may have taken decades to get to. 

Q: There was a lot of press over the years about 

electromagnetic interference (EMI) threats. Is that no 

longer an issue?

John Bumgarner: What we are really talking is 

about electromagnetic pulse (EMP). Some of the current literature on EMP talks about an airburst of a nuclear weapon. There’s only a handful of nations that 

can launch a nuclear weapon. If someone’s launched 

a nuclear weapon against your nation and you’re 

worried about EMP, you’re worried about the wrong 

thing, because you’re going to be at war already.

Is it possible to conduct an isolated EMP attack on a 

critical infrastructure target? Yes. You could construct 

some type of EMP device in the back of a semitrailer 

while en route to a location near a critical facility and 

charge it up and kick it out. Is it easy to do? No. Hopefully, we don’t spend a lot of money to get our grids 
248

protected from every possible EMP attack. There’s 

been only one known adverse event in the grid that’s 

public, and that was in Canada from a sunstorm. It 

destroyed a $10 million piece of equipment. This was 

a freak occurrence.

Some people are worried about EMP events, mostly from sunspots, which have the potential to do a lot 

of damage. But how do you put Faraday cages around 

your car, your home, and your television? It’s nearly 

impossible. 

Bernard Cole: There’s been a lot written about 

China developing conventional EMI weapons, but the 

policy and practicality of that are similar to discussions under the last Bush administration when people 

were talking about conventional warheads on intercontinental ballistic missiles (ICBMs). There’s been 

none developed to date that we know of.

Audience: The phenomenon you’re describing is 

EMP—electromagnetic pulse, which ought to be distinguished from electromagnetic interference, which 

has a specific frequency. There was another grid incident—a nuclear test atomic bomb that exploded in 

space above Johnson Atoll took out a string of streetlights in Honolulu due to a big loop of fuse that was 

pulsed. 
249

ENDNOTES - CHAPTER 5

1. India is also building a port at Sittwe in Burma. See Cowan 

Thant Zin, “India Confirms Burmese Port Project,” Portworld, January 9, 2008, available from www.portworld.com/news/2008/01/70297.

2. Erica S. Downs, “China’s Quest for Overseas Oil,” Far Eastern Economic Review, Vol. 7, September 2007, p. 54. 

3. Bernard D. Cole, Sea Lanes and Pipelines: Energy Security in 

Asia, Westport, CT: Praeger, 2008, p. 81. Also see Robert D. Kaplan, Monsoon: The Indian Ocean and the Future of American Power, 

New York: Random House, 2010, for a discussion of these and 

many other issues concerning the Indian Ocean.

4. China’s National Resources Development Council (NRDC) 

has established a shipbuilding goal that 60 percent of petroleum 

imports should be carried in Chinese-flagged hulls by 2050.

5. Interestingly, criminal activity in the form of wildlife trafficking may pose a greater threat than normally considered in 

criminal analysis: the uncontrolled transfer internationally of disease. 

6. “Human Trafficking: The Facts,” New York: United Nations Global Initiative to Fight Human Trafficking, available from 

unglobalcompact.org/docs/issues_doc/labour/Forced_labour/HUMAN_

TRAFFICKING_-_THE_FACTS_-_final.pdf.

7. “World Drug Report,” New York: United Nations Office on 

Drugs and Crime, 2010.

8. UNCTAD Statistics, Stockholm, Sweden: SIPRI 2010 Yearbook, 2010; also see Defense and Security Intelligence and Analysis 

Online Database, IHS Jane’s, 2010.

9. See, for instance, Shawn Tandon, “US Ends India 

Tech Restrictions,” Agence France Presse, January 26, 2011, 

available from dawn.com/2011/01/26/us-ends-india-tech-restrictions/.

The decision by President Barack Obama was preceded by President George W. Bush’s 2008 decision to allow cooperation between U.S. and Indian nuclear power programs.
250

10. The world’s leaders in coal reserves are the United States, 

Russia, China, Eurasia (including India), and Australia/New 

Zealand. “International Energy Outlook: Coal, 2010,” Washington, DC: U.S. Energy Information Agency, available from www.

eia.doe.gov/oiaf/ieo/coal.html.

11. Francis turbines, first developed in 1848, are the most 

common water turbine in use today. They are primarily used for 

electrical power production.

12. A liquid crystal display (LCD). 

13. Heating, Ventilation, and Air Conditioning (HVAC) refers 

to technology of indoor or automotive environmental comfort.

14. West Texas Intermediate (WTI), also known as Texas light 

sweet, is a grade of crude oil used as a benchmark in oil pricing. 

15. Brent Crude is the biggest of the major classifications of 

crude oil. It is sourced from the North Sea and used to price two 

thirds of the worlds internationally traded crude oil supplies. 

16. Petróleos Mexicanos (PEMEX) is a Mexican state-owned 

petroleum company.

17. Felipe de Jesús Calderón Hinojosa assumed office as President of Mexico on December 1, 2006, and was elected for a single 

6-year term through 2012. 

18. The Cantarell Field or Cantarell Complex is an aging supergiant oil field in Mexico. It was placed on nitrogen injection 

in 2000. In terms of cumulative production to date, it is by far the 

largest oil field in Mexico, and one of the largest in the world. 

But production has declined, and now it is less productive than 

Mexico’s Ku-Maloob-Zaap. 

19. Arabian Oil Company (Aramco) effectively started in 1933 

when the Saudi government granted a concession to Standard Oil 

of California (Socal) to explore for oil in Saudi Arabia. In 1936, the 

Texas Oil Company (Texaco) purchased stakes in the concession, 

and in 1948, they were joined as investors by Standard Oil of New 

Jersey (Esso) and Socony Vacuum (later Mobil). 
251

20. Stuxnet is a computer worm discovered in June 2010 that 

targets Siemens industrial software and equipment running Microsoft Windows. It spies on and subverts industrial systems. 

Different variants of Stuxnet targeted five Iranian organizations, 

with the probable target widely suspected to be uranium enrichment infrastructure in Iran. It has been speculated that the United 

States and Israel were involved. 

21. For example, in 2009 a contract dispute between Russia 

and Ukraine led Russia to shut off gas supplies to seven countries 

and reduce gas deliveries to several others. 

22. Lukoil/LUKoil is Russia’s second largest oil company and 

its second largest producer of oil.

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CHAPTER 6

SOLUTIONS

Vikram Rao, William Boettcher, and 

Douglas Lovelace

This chapter is based on the final panel of the conference. Members of the audience were invited to engage in a discussion over solutions. Douglas Lovelace, 

William Boettcher, and Vikram Rao served as joint 

moderators with a view to providing technical, military, and social science perspectives. Vikram Rao led 

the discussion.

INTRODUCTION

Vikram Rao: This is an experimental session designed to get us thinking more deeply about some of 

the issues raised over the course of the last couple of 

days. We’ll try to dig deeply into topics that we consider important, or you consider important. Perhaps 

some solutions will emerge. 

We’ll invite you to suggest an issue for exploration, 

we will reframe it, and then moderate a discussion. 

You will be very active participants in the discussion. 

I’m going to start with an issue that has an interesting “deep-dive” possibility. That is Anne Korin’s notion of fuel-agnostic cars, which she sees as a solution 

to our energy problems. 

Korin’s theory is that it would not be expensive to 

introduce these flex-fuel cars. General Motors tells us 

it costs $70.00 to make a new vehicle into a flex-fuel 

user. Korin’s hypothesis is that, if and when we have 
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economic alternative fuels, we’ll just put them in our 

flex-fuel cars, and the cars will run on them. Brazil already has flex cars.

What factors will determine whether flex cars are 

adopted in the United States? What, for example, 

about “range anxiety”? Methanol will give you half 

the miles of some other types of fuel. How will this 

factor into consumer reaction to fuel-agnostic cars? 

Fuel anxiety applies to electric vehicles as well. The 

Leaf will have only a 100-mile range, and that’s one of 

the reasons people may not buy it. 

William Boettcher: I would like to add a few comments about the consumer behavior side of it. When 

it comes to trying to nudge consumer behavior, or 

military behavior, or behavior of oil companies, we’re 

mainly talking about how to resolve risk and uncertainty or at least communicate to them that the risks 

are calculated or manageable and that they should 

take them. 

There’s a lot of research on how you get people to 

engage in particular types of behavior. What language 

you use to present the problem can make a difference 

in whether particular public policies get support. 

How you present the problem linguistically can also 

encourage/discourage particular kinds of behaviors. 

A lot of this research focuses on whether you should 

emphasize the gains that can be achieved by this new 

behavior or focus on the risk of continuing with an 

existing behavior that’s perceived to be harmful. 

Depending on the particular behavior and the 

types of consumers that you’re looking at, sometimes 

it’s more important to focus on the gains that might 

accrue. But more often it’s more important to focus 

on the losses. There’s been a lot of research in public 

health on this. How do you convince people to stop 
255

smoking? Or how do you convince women to perform 

breast self-examinations? We need to think about consumer behavior and marketing as we address these energy security questions. But it is a kind of propaganda. 

How do you encourage what the state, the military, 

and the society deem to be appropriate behaviors?

Korin commended low-hanging fruit or fruit that’s 

already in the basket. Some people commended efficiency as the first thing that we should focus on. That 

is almost exclusively within the realm of consumer 

behavior. You can get people to be more efficient by 

offering economic incentives or through good public 

advocacy, and the appropriate framing of the alternatives that you’re presenting to consumers. 

Douglas Lovelace: I’m going to provide some 

military context for this particular question. The first 

thing we need to realize is that there’s a very strong 

bias within the armed forces of any nation, especially 

the U.S. Armed Forces, toward effectiveness as opposed to efficiency. The Armed Forces will not tolerate any demands for efficiency that sacrifice one ounce 

of effectiveness. In fact, the U.S. Armed Forces have 

proven that they will accept great inefficiencies just to 

preserve effectiveness or increase effectiveness. 

The notion of a tank or a jet or a helicopter operating on alternative fuel is being explored within the 

U.S. Armed Forces. In fact, the Defense Advanced Research Projects Agency (DARPA) has issued considerable grant money over the past 5 or 6 years to study 

alternative fuel sources. There have been some fighter 

jets experiment with alternative fuel sources and 

maybe some transport airplanes. But the overall bias 

is going to remain toward effectiveness as opposed 

to efficiency.
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There might be one exception. We can expect the 

U.S. Armed Forces to remain an expeditionary force 

for as far as we can see in the future, notwithstanding 

the 9 years of overseas war that we’ve been in. Being 

an expeditionary force means that the Armed Forces 

have to take their own energy with them, and that’s 

an extraordinary inhibitor to power-projection capability. So to the extent that the Armed Forces are able 

to identify and develop alternative sources that are 

easier to deploy, which in the end creates greater expeditionary effectiveness, then those sorts of efficiencies would be welcome.

Vikram Rao: Let me clarify Korin’s original position and say she never suggested the agnostic-fuel 

adaptation for airplanes. She suggested it for civilian 

consumers, although it could very well apply to military trucks. 

Audience: Regarding the comment about whether 

people will adjust their behavior to accept more frequent fueling, the government should not impose 

behavioral change or even try to push behavioral 

change. People are fundamentally economic creatures, and people have different values for their time. 

For instance, regarding a toll lane, where you can pay 

a little bit more to get somewhere faster, some people 

will pay for that and some people will not. In the same 

way, if you have an open fuel standard where your 

car can handle gasoline, ethanol, or methanol, some 

people will say, “Hmm, I want the cheaper fuel and 

I don’t mind refueling more often.” Some people will 

say, “The value of my time is so high, I don’t care how 

much I have to pay for the fuel, I’ll pay for the more 

energy dense fuel and fuel less often.” Especially in 

poor economic times, the bulk of the population falls 

more to the side of cost sensitivity. 
257

Vikram Rao: Any further comment?

Audience: I question the claim that people are fundamentally economic creatures. They may be economic creatures over the long run, but in the very short 

term that breaks down. A perfect example of that may 

well be the past election when analysis shows that 

many people may have consciously voted against 

their best economic interests.

Why would anybody bother to go over to alternative fuels unless they are worried about their pocketbook or care about the environment? I don’t see any 

security driver for this. The comment was made earlier 

that you should change your behavior if you think that 

carbon dioxide (CO2) emissions are triggering climate 

change (which has national security implications). But 

otherwise, there wasn’t a driver on the security side. 

Going over to alternative fuels may be a personal virtue, as Dick Cheney said, but it’s not a matter of national 

security concern. 

The security argument is, in fact, somewhat tied to 

economics. If we’re spending 10 percent of our discretionary income on energy, this has an economic consequence. If the economy is not doing well and if petroleum consumption is the main thing that is fluctuating 

in people’s discretionary income, this increases the 

need to find alternative fuels. The security argument 

becomes: What are the available fuels or what is the 

available infrastructure that can solve this economic 

problem? 

The peak oil question is less debatable than people 

make it out to be. If it is a finite resource and does deplete, and we therefore go after ethanol or methanol, 

these are, from a life cycle perspective, fundamentally 

less economic fuels. If you need a policy that makes 

them economic to consumers so that they adjust their 

behavior, you can do so through tax incentives one 
258

way or the other. It will change the behavior of consumers, but the question is, how long can you afford 

to do that before the fundamentals of the different 

quality in fuels creates an economic problem?

Korin: Regarding the economics, I have a very instructive chart that looks at spot prices of methanol 

compared to spot prices of gasoline, which are primarily functions of natural gas and oil prices. On a 

British Thermal Unit (BTU) basis, which means on a 

per mile basis, for the most part over the last 3 years, 

methanol is significantly more economic, meaning 

less expensive, per mile than gasoline. With ethanol, 

it’s a different story.

Also, in regard to people being economic creatures, 

how many of you have driven around the block to get 

gasoline that’s 5 cents cheaper? In general, a lot of 

people do that. You cannot argue from election results 

that people are voting against their economic interests 

because people have different perceptions of what the 

results of an election would provide for them.

Audience: I’m from the city of Raleigh, North 

Carolina, and the city has 5,000 employees, a third of 

whom are concerned about the rising gas prices and 

not being able to come to work.

Vikram Rao: Let me make one point on the military 

aspect. Let’s say that 10 percent of the civilian vehicular fleet switches to something other than oil-based 

fuel. In that case, there’s more available for jet fuel. So 

from a military security standpoint, yes, that is advantageous. The conventional fuel will be more available 

for the military if the public uses unconventional fuel. 

I see that as a weak but non-zero connection. 

Audience: Let’s assume that this all works and 

that the methanol drives down the price of gasoline 

and petroleum. What happens to those nations that 
259

are living on profits from oil exports? Does that make 

our world more unstable for our neighbors?

I think this is a fascinating topic. Stripping oil of its 

strategic status is a necessary but not sufficient condition for a lot of different things. If you look at parts of 

the world that are very poor or hoping for an upward 

trajectory, you focus on the liquid fuel side, opening 

vehicles to fuel competition, and removing the trade 

barriers and tariffs. You’re enabling the poorest people of the world to sell into one of the most lucrative 

markets, liquid fuel, by producing alcohol fuels. That’s 

a very good thing. It also can develop a healthy economic interdependence—for instance, if we remove 

ethanol tariffs for larger parts of Latin America. That’s 

on the positive side.

If you look at what happens to countries that are 

primarily oil exporters and ask yourself, is this going 

to destabilize them? I believe that just as we are addicted to oil, they are addicted to petrodollars. Would 

you rather be a Saudi prince than a Jordanian prince? 

Probably Saudi. But would you rather be a Saudi subject or a Jordanian subject? Probably Jordanian. The 

difference is, when a country lacks resources and can’t 

stick a straw in the ground and extract an enormous 

amount of wealth, then it does have to enable its entire 

population to be able to be educated, not just the men; 

it does have to enable more of a participatory type of 

governance—maybe not democracy as we think of it, 

but something more participatory. If it doesn’t have to 

do that, then you get Saudi Arabia.

I don’t think the world’s lessening of biofuel dependency will be an easy transition for the Middle 

East. I certainly don’t think it’ll solve all the Middle 

East’s problems, but I do not think we will ever get 

to anything resembling normality in the Middle East 

until they are weaned from petrodollars.
260

Eugene Gholz: It’s an interesting question if you’re 

an academic gazing at world politics, or if you’re an altruist interested in development and bettering people 

around the world. But from a policy perspective, it’s 

pretty remarkable to be thinking about the poor Saudis who are going to be really hurt if we do something 

to reduce the price of oil. From a policy perspective, 

we don’t even think that hard about how to keep up 

the prices of American exports or how to reduce the 

prices of American imports. To try to have an incomepreserving policy for the people of another country, 

such as Saudi Arabia, when we don’t have one for the 

people of our country (and I don’t think we should 

have one for the people of our country) strikes me as a 

tough sell in the policy community.

Audience: I’ve just had some discussions with 

the Saudis on some of these things in their country. 

A couple of things that are going on there are quite 

interesting. One is, when you talk to people in Saudi 

Arabia, including in the government, you’ll find they 

are looking to develop a more rational use of energy 

within the kingdom. 

Right now energy prices are subsidized. The Saudis are asking themselves how to wean themselves 

from this. They’re looking at this in terms of the 

rapidly rising demand for crude oil within the Kingdom where it’s burned to make electricity. Why is 

electricity needed in the kingdom? For water and air 

conditioning. 

What is critical for us in, say, Maine, is keeping 

warm in the winter. But in Iraq and in other Middle 

Eastern countries there’s real political pressure to get 

the energy that’s needed so that they can have air conditioning to make life bearable at 110, 114 degrees in 
261

Basra or Baghdad during the summer. So the Kingdom, Iraq, and the others are looking at ways to try to 

limit their consumption as part of their development. 

In terms of Saudi Arabia, we are seeing some remarkable changes. I drove by a brand new university 

for 30,000 women being built outside Riyadh. There 

is a realization of the need to change, and one of the 

things that the King is trying to change is to focus on 

the tremendous resource which is not being utilized. 

Women constitute 50 percent of its population.

A related issue in Saudi Arabia, in Jordan, in Yemen, as well as throughout the Middle East, is the level of chronic unemployment and underemployment. 

What we’ve seen in recent weeks in Egypt provides 

us with a perfectly good example, indeed a brilliant 

example. In Egypt, 30 percent of the population have 

a university degree but no job. There is an urgent need 

to create jobs, to release their entrepreneurial spirit. 

The oil curse is a factor. But some of these factors are 

factors across the whole of the region whether they 

have hydrocarbons under the ground or not. 

Audience: The Saudis are doing quite well, getting $40 to $50 a barrel. But let’s go back to Douglas 

Lovelace’s point and talk about the military’s effectiveness and efficiency. Under the new dynamic of 

facing a $100 billion reduction in the federal budget 

for the Department of Defense (DoD), certainly we’re 

going to look at some efficiencies, at least some basic 

consolidations, and some other ideas on the way we 

make the military more effective. 

Douglas Lovelace: So far the thrust of the DoD has 

been toward increasing the efficiency of management 

processes, acquiring material systems more efficiently, 

running posts, camps, and stations more efficiently. 

That wasn’t really the effectiveness versus efficiency 
262

that I was speaking of. I was speaking of it in a warfighting context. For example, if a U.S. jet fighter has to 

sacrifice 20 knots to burn a flex fuel and that 20 knots 

make it not quite as good as the new Chinese jet fighter 

using conventional jet fuel, the U.S. Air Force would 

justifiably resist that. 

That said, however, if we look at the National Security documents that have been produced by this administration, they all describe a particular vector that 

the U.S. Government is taking with respect to providing for national security. We can start with President 

Obama’s National Security Strategy, go on to the 

Chairman and Joint Chiefs of Staff who just recently 

published the national military strategy, and to the 

Department of State, which finally published its Quadrennial Defense and Diplomacy Review (QDDR). This 

vector is to deemphasize large, costly, energy-burning 

land forces that would be projected around the world 

and to place greater emphasis on naval and air forces, 

i.e., over-the-horizon forces, the deterrent value being a fleet out there “somewhere,” and the enemy not 

knowing exactly where it is at any time.

In addition to that, a few years ago we were talking 

about military power, and then a couple of years after 

that we started talking about soft power to complement the military power, and we all know what that 

is. Then we replaced both of those terms with smart 

power, as if military power and soft power were 

dumb power before. Now in the new QDDR from the 

State Department, the Secretary talks about civilian 

power in juxtaposition with military power. I think it 

was Secretary Albright who said U.S. foreign policy 

is based on the application of military power backed 

up by the threat of diplomacy. Thus if this vector continues and we move away from the military as the 
263

principal instrument of national power, you’re going 

to see the U.S. Armed Forces reduce their reliance on 

energy.

Vikram Rao: On a somewhat different note, I wonder if the military, because it’s focused on pragmatic, 

performance-based goals, would be a more rational 

consumer of different forms of energy. If you could 

demonstrate a performance standard, I think the 

military would accept it. I don’t think that the general 

population is that rational. I think they would have 

much more emotional attachment to their vehicles. 

You’d have to overcome all sorts of other barriers to 

acceptance among civilians. You’d have an advantage 

dealing with the military.

Audience: Let me address very briefly the question of a nuclear navy. The Navy has proven that nuclear power can be operated safely, but it’s at a very 

high cost in personnel training, safeguards, and so 

forth. These costs are probably too high to be widely 

applied to the civilian sector. The second point is that 

the Navy has decommissioned all its nuclear-powered 

surface ships except for the aircraft carriers. That was 

because of the high personnel training costs. Since the 

Cold War, it costs too much in terms of personnel to 

maintain nuclear-powered surface ships other than 

aircraft carriers.

Audience: When you talk about energy supplies in 

the context of energy security, there are many factors 

to consider, and sometimes these factors seem to be 

in conflict with each other. For example, civilian security seems to be very different from national security; 

some civilians may be concerned about cost efficiency, 

and you may have different concerns at a national level. You need to have a balance between policy, which 

is more or less civilian-geared, and strategy, which is 
264

more or less national security-geared. How do you 

balance the difference between policy and strategy? In 

Turkey, for example, four out of 10 vehicles are running on propane. The Turks depended completely on 

imported oil supplies and wanted to shift away from 

it. Somehow they decided they were going to go with 

propane gas. We’re looking for an alternative fuel here 

in America, but how do you balance the gap between 

policy and strategy in the energy security field?

There are different ways of looking at energy security. As a civilian, I may be more concerned about how 

much I pay at the pump than other things. I really may 

not care about what would be the impact on our allies 

if we shift away from importing oil. But at a national 

security level, you do ask these questions. 

Audience: There have actually been several issues 

raised earlier that I’d like to pursue. First, let me return to the discussion about the military. If you think 

about the military, not every Soldier or Sailor needs a 

cruise missile. The military makes decisions based on 

its needs. So maybe 20 percent of the military needs 

high-BTU fuels, but maybe 80 percent don’t. So it 

seems that the military could also develop a very rational policy for deploying fuels in different arenas and 

different uses. For front line deployment, you might 

want the really high BTU fuels, but on the back lines, 

riding around a base in the United States where you 

probably don’t go 100 miles a day, you could probably 

use methanol pretty easily. That’s one of the issues.

But I’m especially interested in the broader issue 

about how to change the use of energy resources in 

the United States. Is the market in the United States 

big enough to have an impact on the cartel, and what 

percentage of the market do you have to change in order to have an impact on the cartel? 
265

That in itself assumes that our goal is to break the 

cartel. So the further question I would have is: What’s 

the implication of that for the global economy as opposed to global energy use? And, if you changed the 

dynamics of energy policy around the world and energy costs and markets, wouldn’t this potentially have 

a broader impact on the global economy? Then, speaking of security, wouldn’t we be more worried about 

destabilizing China, Russia, India, and Pakistan than 

destabilizing Kuwait?

Audience: Commentators have spoken about the 

numbers. Nobody is talking about breaking cartels because nobody believes that alternative fuels will give 

you more than 20 percent penetration in 20 years. 

A fuel choice would not break the cartel soon. It 

would take time. Remember, fuel choice is not the 

same as mandating a level of fuel. It’s opening the 

cars to different kinds of fuel so the market can decide 

among different energy commodities. Even if you’re 

not talking about displacing 80 percent of petroleum 

fuel, customer choice will essentially cap the price of 

oil at that point where liquid fuels are profitable, so 

it’ll cap it at about $55.00 a barrel. When you have 

electric vehicles going into the market in numbers, it’ll 

change it further. So it’ll have a very significant impact even before you get to a very large penetration of 

alternative fuel. The key is really for the cars to be able 

to handle the fuel. Then you send a signal to investors 

that they can drastically expand capacity.

When our speakers have talked about the limited 

number of alternatives we can expect to see, they were 

focusing on renewable fuels. But if you look at how 

China has ramped up coal to methanol, it’s unbelievable. If you look at the potential of converting natural 

gas to methanol, it’s also very large. When you look 

at the introduction of these alternative energy sources 
266

into the transportation sector, you’re encountering 

something very different from renewables.

Vikram Rao: Thus even if we don’t change the 

balance in this country by a huge percentage through 

alternative fuels, they do change market choice and 

therefore the mindset of the producing nations, and 

they have an effect on the cartel.

Audience: The point has been made that the markets will work. If alternative fuels become widely 

available, their prices will bring about an equilibrium 

with the petroleum fuel prices which will be somewhere above the cost of extracting oil from the ground 

in the quantities that equilibrium hits. It’ll be somewhere above what it costs to produce those alternative 

fuels. 

The price of ethanol in Brazil is the same as the 

price of gasoline on a per mile basis. The markets are 

working even in Brazil, and that would happen here 

as well. The larger the alternative fuel sector gets, the 

more influential alternatives will be on that equilibrium price.

I would ask, however, about multi-fuel vehicles: 

Will we have the necessary infrastructure in place to 

make them work? If you can’t find the alternative fuel, 

it doesn’t matter whether you have a multi-fuel vehicle or not. That infrastructure will have to be used 

pretty close to capacity in order for it to be maintained 

or expanded. We’ll thus be forced to make some decisions about what kind of alternative fuels to introduce 

to the market. I like the idea of fleets and small groups 

of vehicles being converted. That’s likely the transition path we’ll follow.

It should be the responsibility of every state and 

local government to drive this change. 
267

Douglas Lovelace: One clarification, responding to the gentleman’s comment that the DoD or U.S. 

Armed Forces could achieve efficiencies from the use 

of alternative fuels in some noncombat type vehicles. 

Just recently in Pennsylvania, I drove a car out of our 

General Services Administration (GSA) fleet, and it 

had a big placard on it reading, “Takes E85.” But in 

the whole area, there was only one station that had 

an E85 pump, and it wasn’t convenient for me to use 

it. But such an experience certainly draws attention to 

the point made about the infrastructure.

About a year ago, I rented a car in Sioux Falls, 

South Dakota, and the rental car agency made me 

sign a statement promising not to put E85 in the car. 

If I had put it in, there would have been a big penalty 

—$500.00 or thereabouts. We have a ways to go with 

infrastructure.

Audience: The speaker said that in the private sector change needs to be demand-driven. That means 

we have to have the flex-fuel vehicles out there, which 

means we force the production of them or force the 

consumption of them or force the purchase of them. 

Do we have the capacity to have a massive cash-forclunkers program which defines what can be purchased to replace those vehicles that we’re taking 

off the roads? We’d need something like that to get 

the kind of massive transformation of the consuming 

fleet we are speaking of. On the supply side, the only 

means we have, other than mandates, to effect change 

is to have a tax credit system that could be used to 

encourage installation of conversion kits.

Vikram Rao: An earlier point was that regulations/legislation should be put in place to make sure 

that every new (not retrofitted) car has this feature. 

This would provide potential capability and encour-
268

age the production of alternative fuels. It wouldn’t be 

a question of incentives, but of legislation. If you believe GM’s number, $70, then it would not appear to 

be a high price to pay.

Audience: You’re asking people to be proactive 

and to impose costs on particular constituencies, and 

that’s un-American.

Vikram Rao: It happens all the time.

Audience: There’s no crisis right now, but we need 

to adapt in this way, and it’s going to be relatively 

costly. If you’re going to tax people or you’re going 

to have tax credits, you’re going to be moving behavior, and you’ve got to have a huge public education 

campaign that’s very carefully crafted, that convinces 

Americans that this is the right path to travel on. Otherwise, you’re talking about avoiding long-term risks 

and experiencing short-term pain, and that is not what 

we’re good at. This is why climate change is a very 

difficult issue for us.

Audience: There’s a big issue here. People in this 

country are very much economic animals. They want 

to minimize their costs so they have more disposable 

income to do what they want. People will spend a lot 

of money, disposable income, on social status and so 

forth, but they will not do that buying a big SUV if 

the cost of that SUV starts wrecking their budget. A 

good point was made about how behavior started to 

change when the amount of money spent on transportation by people went from 3 to 6 percent to 8 percent, 

and started getting up to 10 percent. Then they say, 

“That’s beyond my budget and I will give up my SUV, 

or I might buy a more fuel-efficient car.”

We’ve all probably sat down and done the calculation. “I can go out and buy myself a plug-in Prius and 

save a bunch of money.” But the plug-in Prius is going 
269

to be $28,000 when it comes out. How much am I going to save at $3.00 a gallon? I’m going to save $10,000 

over 5 years? That doesn’t pay for a new Prius when 

I can buy a traditional car for $18,000. People make 

such calculations. They may not always be made with 

perfect accuracy, but people think in this way. Unless 

the cost gets high enough to be painful and to cause 

them to devote much more capital in cutting their 

longer-term fuel costs or their short-term pain, then 

it’s not going to happen. 

The point was made very nicely that the cartel understands that. If fuel gets too expensive in the United 

States, then people start doing something about it. So 

the cartel has been fairly good at keeping the price below the pain threshold for the United States and the 

rest of the world. The only way around this is for the 

U.S. Government to do something that causes the perceived price of fuels to go up.

Our automobile industry has a long history of being regulated and subject to mandates. We’ve been 

required to put on seatbelts, crash-resistant bumpers, 

and deal with emission standards. Implementing a 

change like this should be trivial.

Anne Korin: Let me just for a moment enter the 

political arena, because the political arena really reflects what’s realistic from a public policy perspective. 

In the last session of Congress, the cost of an open fuel 

standard (in terms of automaker implementation per 

vehicle) was modest (under $100.00). As a result, both 

conservative Republicans and Democrats supported 

an open fuel standard bill. You’ll see the same thing 

in this session when it’s reintroduced. It’s something 

that’s politically feasible. 

I also want to address the infrastructure issue, 

which is very important. A car is on the road for 16.8 
270

years—that’s the turnover time of the fleet. If you put 

an open fuel standard in place, 2 or 3 years later you 

will hit a point where, let’s say, 15 percent of the vehicle fleet—not new cars but the entire fleet—is flex 

fuel. It is only at that point that a fuel station owner 

who has 10 pumps can make a business case to either 

retrofit one of those pumps to dispense alcohol or put 

in a new one.

There’s a $50,000 tax credit today, which more than 

covers the cost of retrofit and covers 80 percent of the 

cost of putting in a new pump, but nobody’s going to 

take advantage of it until there’s a significant number 

of cars out there that can use the fuel. Once the fueling 

infrastructure is there, oil prices will become volatile. 

At that point, if the oil price goes up, you will want to 

be able to use this other fuel. If you have a used car 

that can’t use that fuel, then you will go to entrepreneurs who own used car lots to do conversions and 

offer used cars that are open fuel standard compliant. You can also envision a business opportunity for, 

say, Midases or Meinekes to do $300 or $400 dollar 

conversions. 

If you look at the cost savings for an average car 

that is driven 12,000 miles a year on average, with the 

average fuel efficiency that we have for today’s cars, 

as long as the spot price of methanol is around a $1.00 

to $1.20, and gasoline is around $3.50 net, you’ll end 

up saving $300 or $400 a year. Within less than a year, 

you pay back that additional very small marginal cost 

of the fuel flexible car.

Audience: I’m still struggling to see the security 

benefits coming from all of this. In fact, I didn’t hear 

any upside for the security side of this push for alternative fuels. I only heard a down side which was 

the doubling of food prices around the globe and re-
271

sulting riots in countries. That is a security issue, and 

we should be concerned about that. But otherwise, it 

might be virtuous of me to buy a Prius and I should 

feel good about that, but it doesn’t have any positive 

implications for national security.

I have a question. Is there any data showing what 

percentage of people we might expect to buy a flexfuel car before it becomes economically indicated? 

That is, before there are obvious incentives? Who will 

be the first 15 percent that buy these cars in the first 2 

years? 

It’s like a seatbelt law or an airbag law, it’s a very 

inexpensive feature. After you’ve made your car flexfuel, it looks exactly the same. It just has a fuel tank 

that can handle a variety of fuels. You can fuel it with 

gasoline if you want to. If you have a seatbelt in your 

car, if you don’t want to use the seatbelt, you don’t 

use it. 

The security benefit comes from economics. We 

did a rough calculation on the cost of importing oil to 

run our cars and all the externalities that are associated with it. It’s about a trillion dollars a year. If you 

can develop enough alternate energy sources within 

the United States of all types, you’re talking about a 

cash flow savings about the equivalent of the deficit 

just from adopting this kind of technology. That’s the 

big issue. We’re not the largest oil producing country 

in the world, and if we come up with energy alternatives, it hugely protects the cash flow of our nation.

Anne Korin: I just wanted to respond to the question about the early adopters of flex-vehicles. We already have flex-fuel vehicles that can operate on E85 

or gasoline. They’re provided to the motoring public 

at no additional cost—we already have seven million 

on the road today, including about 180,000 thousand 
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in North Carolina. We have only 14 E85 stations, however. It is a big challenge because there is not the economics in place for the petroleum marketer. We have 

to have grants to offset that cost. We did have a tax 

credit of $30,000 that was dropped at the last session. 

But to get to the point about how many early adopters we might expect, I think we have an example with 

hybrid vehicles. They’ve been on the market for over 

a decade now, and recently about 3.4 percent of new 

car sales were hybrids. But they cost a lot more than 

your average car. They don’t face the infrastructure 

challenges, but they do cost a lot. The price premium 

is $5,000 or $6,000 in some cases. 

Audience: I have a fleet of five compressed natural gas (CNG) vehicles here in North Carolina. Chapel 

Hill just initiated a program of grants to improve the 

energy efficiency on one’s house. I just applied for the 

funds to install a piece of equipment that goes inside 

the garage that you can use to refill your CNG vehicle 

in the driveway. Also included is an operations and 

maintenance manual for the CNG pump itself, a brief 

on the advantages of using CNG fuel, and a portion 

of the city code of the City of Chico, California, which 

mandates that all new garages have a provision for 

a natural gas vehicle refueling appliance. I’m taking 

this step just to see what the environment is for actual 

implementation of CNG.

I have a very basic question from a social science 

perspective. What is really the nexus between energy 

and security? The reason I ask that is, after the 1973 oil 

embargo, we had cars downsizing or getting smaller. 

Then after a few years we forgot all about it, and everybody went for the gas-guzzlers. Recently we’re 

talking about that again, and there is a lot of talk in the 

literature and in the news about having to move away 
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from Middle East oil dependency. It seems to me that 

if we can import it cheaply, then that’s the way to go. 

So why are we trying to go from Middle East oil 

to, let’s say, Canadian oil resources where it’s not that 

easy or cheap? Why is dependency a concern in the 

first place? Why are we focusing on having to get out 

of the Middle East? I understand it’s a volatile place, 

but we have as friends in the Middle East the dictators, 

not the democracies, and dictators are much easier to 

control. We also learned after 1973 that, just as we 

want to get the oil from them, they need our market to 

sell the oil. We also learned that one easy way of dealing with the Middle East oil cartel was to focus on the 

dollar, because they invested everything here.

Why, if we leave the Arab/Israeli conflict out of 

the equation, are we so concerned about our dependence on the Middle East? While we are busy making 

it clear we want to become less dependent on them, 

they are not sitting back. They are finding alternative 

markets in China and other places. 

I think some of the answer to that can be found 

in the QDDR that Secretary Clinton issued in December 2011. The fact is that when we’re buying foreign 

oil—and I don’t care whether it’s from Saudi Arabia 

or Canada—it means that money is leaving the United 

States. One of the problems we’ve had is a very large, 

almost chronic, balance of trade deficit in this country. 

We complain about losing jobs because of manufacturing going overseas, but we’re buying stuff from overseas every time we go to the pump. Let’s say about 60 

percent of the energy that we’re using in terms of oil 

is being imported. That’s money we are paying out to 

somebody else. 

The other thing to remember is that oil has been 

cut off in the past. We’re in much better shape today 
274

than 1979. We’ve got reserves. We are not in the situation where we face gas lines. But the price of Brent oil, 

which is a good bellwether crude, is going up. Why? 

Because of concerns about Libya, because of concerns 

about the Middle East. 

Audience: We should not put ourselves in a situation where we are subject to the vagaries of decisions 

and actions taking elsewhere in the world. This is an 

issue we need to deal with. That’s why the President, 

the Secretary of State, the Secretary of Defense, the 

generals, and the diplomats are all saying the same 

thing—that we need to be doing what we can to limit 

our dependence on this foreign input into our economy. Try running an economy without energy, you 

can’t do it. We need to find ways in which we can 

meet our fuel needs at home—gas and other things 

are already helping.

I’ll second that. U.S. security is tied to the U.S. position as an economic power in the world. It may be, 

however, that the alternatives, even the fossil alternatives (say, the Canadian oil sands) can’t scale up and 

match the price of Saudi Arabian crude. I agree with 

the previous speaker that we should make cars able 

to run on different kinds of fuels. This is a part of the 

solution. Electricity, alternative fossils, or renewables 

give consumers choice. 

Audience: A previous speaker asked, Could a U.S. 

city like Raleigh, North Carolina, survive for 6 months 

without a functional electrical power grid? His answer: No. I’d like to qualify his answer. 

It’s certainly true that life, as we have come to 

live it here in Raleigh, would not be viable for the 6 

months ahead of us without the grid. However, most 

of us would indeed survive the experience and might, 

in fact, come out as more rounded people. I recom-
275

mend a movie you might watch on this topic called 

Zero Impact Man, a low-budget documentary film 

made by Colin Beavan about how his family lived 

in a ninth floor apartment in Manhattan without the 

circuit breaker connecting him to the grid being on. 

They switched themselves off for 6 months. It was not 

without inconvenience. In terms of George H. Bush’s 

comment that the American lifestyle is not negotiable, 

if you insist that peak oil is not real, you can continue 

to refuse to negotiate. If you want to negotiate, then 

there is no one to negotiate with because it’s actually the global oil petroleum production rate, not the 

reserves, that matters. It’s all about the rate, it’s not 

coming out of the ground as fast as it used to. Recall 

the propane now being used in Turkey. Then there 

was the taxi driver a colleague of mine encountered 

in Serbia—he had a propane tank, a natural gas tank, 

and a regular gasoline tank in the same vehicle; he had 

adjusted. He changed his lifestyle. When they have 

to adjust, Americans will change their lifestyle. They 

won’t negotiate, they’ll just be forced. So the question 

is, Will that happen? It’s a longer-term question. 

Audience: This is a related question. It seems that 

the oil industry monopolizes the whole line—exploration, refinement, distribution, selling, and everything. 

That has implications for this discussion. First, I don’t 

understand why the industry has this monopoly, and, 

second, what are the implications of this monopoly?

First, you really have to distinguish between the International Oil Companies (IOCs) and the National Oil 

Companies (NOCs). Most of the world’s oil is owned 

by NOCs, essentially by governments. The IOCs like 

Chevron, Texaco, Exxon, or Shell, own only 6 percent 

of world oil reserves and have access to under a quarter. If you think about where they make their money, 
276

the NOCs are making their money upstream mostly. 

But the IOCs are more and more like the Red Queen in 

Alice in Wonderland—they have to run just to stay in 

place. They’re not necessarily allowed to explore and 

lift oil in the places where it would be cheapest to do 

so overseas. That’s why a lot of them are becoming 

more and more natural gas companies. They make 

their money along the entire supply chain, as well as 

the processing part and the distribution. For them, 

producing fuel from natural gas or distributing fuel 

from coal is no less appealing. They’re riding a very 

lucrative horse, and they’re not going to get off it a 

moment before they have to. Thus I don’t see the IOCs 

at all as an obstacle; the NOCs, that’s a different story.

Audience: We need to understand that alternative 

fuel is not the same as renewable fuel, just like a cow 

is not the same as livestock. Just as a cow is a subset 

of livestock, renewable fuel is a subset of alternative 

fuel. So when you’re thinking about alcohol as an alternative fuel, you’re thinking about fuel from coal 

and fuel from natural gas. Nobody eats coal or natural gas. You have to think about the whole spectrum. 

Very frequently those fuels are much more economic 

on a per mile basis than either petroleum or fuels from 

biomass. Now there are many other factors that come 

into play for people concerned about environmental 

issues, but if the concern is economics, one simply 

cannot ignore the broadest spectrum of fuels. 

A speaker earlier said that we’re spending a trillion dollars a year on these fuels. I have a solution. If 

we went over to diesel, where you can double your 

mileage per gallon, we could be there tomorrow if 

somebody would legislate it. If what’s driving us is 

the notion that we should spend less money on importing fuels, then you can solve that with a stroke of 

a pen with a fuel standard.
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Big oil seems extraordinarily efficient, delivering 

a fantastic product right to my doorstep, a gallon of 

gasoline. It seems like it actually should cost 10 times 

more. The amount of energy you have in a gallon of 

gasoline is extraordinary. The fact that it can be safely 

distributed around the planet makes it very tough to 

displace. It is the perfect fuel. 

The only objection you can have is that it loads up 

the atmosphere with carbon dioxide. I’m actually not 

as concerned about that as the earlier speaker who 

made such a passionate case for the dangers of climate 

change and global warming. Clearly having more CO2 

does lead to warming, but the implications are much 

less clear for the climate in the long term. But big oil 

is doing a pretty good job today, and we should not 

disturb them too much.

Vikram Rao: Small clarification on fact. Diesel will 

get you 35 percent more mileage than gasoline (not 

100 percent), and 10 percent of that is because it’s got 

more calories; and 20 percent of that is because of the 

high compression engine. If you used a high compression engine, other things can happens.

Audience: A comment on the U.S. lifestyle issue. 

Europe has a great quality of life but has a lower carbon footprint. That is because petroleum is more expensive there, and public transit and smaller automobiles are therefore more attractive. We need to think 

about those types of things in the United States. The 

reason why it’s difficult is that we have a very weak 

government system here. It’s also because very powerful corporate interests, including big oil, prevent us 

from making needed changes.

John Bumgarner: Let me return to the claim made 

earlier that we could survive a major attack on the 

grid—let me challenge that. Some individuals could 
278

survive, but if we are talking about a long-term event, 

it would be very difficult. We had a major snowstorm, 

with the power where I lived going out for about 3 

weeks. Most people packed up and moved out of the 

area and went to hotels and relatives. My wife and I 

bunkered into our home because I have a lot of field 

equipment, things like sleeping bags, whisper stoves 

to cook on, and chemical lights. I built an igloo outside 

on the deck to keep our meat in. But if it had been a 

summer event, it would have been more difficult: it 

would have been too hot to deal with. 

In Estonia fairly recently, the government ran 

their first national security exercise, and I was one of 

the authors of that exercise. If they had some type of 

event, say a major power outage, how could they deal 

with it? The reason they asked this question is that Estonia is the most wired nation in the world. They’re 

really serious about Internet technologies. They use 

only debit cards or credit cards, very little cash, and 

no checks. So when they have an event over there that 

knocks out the electrical power, it’s difficult to buy 

groceries or do any type of commercial transaction. 

It would mean no online banking and no communications. At the time, we tried to figure out how they 

might develop a national emergency program to issue checks to the entire population of Estonia so they 

could write checks on their bank accounts. 

This is a major problem for some areas of the world, 

and we really need to think about it. Could we hunker 

down for months at a time? If the State of California, 

for example, was the target of a successful cyber attack, it could impact the whole U.S. economy.

Audience: Back to Colin Beavan’s documentary 

family. It was inconvenient without heat in their apartment during the winter, lots of sweaters, lots of cud-
279

dling together, lots of telling stories and singing, but 

they did pull through. Colin used a solar panel on the 

roof to continue to blog throughout the experience. 

Here in Raleigh, we might experience our forced 

return to 19th-century technology as a refreshing opportunity to reconnect with our neighbors, ourselves, 

and perhaps with nature. We might realize, therefore, 

that our connection to nature is actually more essential to our continued viability as a species than is our 

participation in the conveniences that are offered by 

our modern industrial civilization.

Vikram Rao: We’re headed the way of Estonia. 

We’re going to be talking about a national health 

policy in the United States where we’ll have personalized health and all the electronic involvement that 

goes with it; this specter is being raised at a time when 

our dependence on electricity (and energy) is going to 

become an issue. Solution?

Audience: Resiliency. If it comes to resiliency, we 

should make maximum efforts at conservation in all 

forms and fashion.

Vikram Rao: There was some discussion about 

energy efficiency. Arnold Schwarzenegger’s mention 

of it in a recent conference was alluded to. California 

tried a grand experiment in 1971, enacting several 

electricity conservation measures. California had a 

per capita consumption of electricity of 6,000 kilowatt 

hours per capita annually. The rest of the country had 

6,600. So they were using less. By 2001, California 

was up to 7,000 but the rest of the country was up to 

12,200. That is a 40 percent difference. One of California’s measures was to mandate that standby power, 

electronics, and TVs had to consume less than one 

watt. It used to be 6, 10, 15 watts. That legislation was 

costless. That particular change in the end—not in the 
280

beginning—but in the end had zero additional cost. 

I suggest that energy efficiency does not necessarily 

equate to consumer privation.

Audience: I want to make a plug for a series of 

three workshops we’re holding in North Carolina regarding fuel economy for your vehicle. Just by changing your driving habits, you can save up to 30 percent 

on fuel. This is a practical application. The workshops 

are free. The first one’s going to be right here in Raleigh on April 13, 2013. 

Audience: I want to comment on the efficiency issue and bring the conversation back to the political 

discussion we began earlier. In Congress, the House 

Republicans recently ended Nancy Pelosi’s Green Initiative, which installed biodegradable plates and utensils in the House cafeterias. When you have that kind 

of political climate, you’ve got a problem. We can sit 

here and declare that if everybody would change their 

light bulbs, we could reduce energy consumption by 

20 percent. The political reality is such that improvements have stalled. We have to figure out a way to sell 

common sense, which is frustrating. We’re in a political climate where we’re ignoring good ideas. 

Audience: People talk about the compact fluorescent (CF) light bulbs.1

 But these CF light bulbs are a 

problem. My electrical company in its great wisdom 

sent me over a year ago three boxes of CFs. Those three 

boxes of CFs are still sitting on my floor. I’m waiting 

for light emitting diode (LED) technology to catch up. 

Once LEDs come into fashion, I will deploy LEDs. But 

CFs I will not deploy in my household. 

I don’t think that we’ve taken into consideration 

their impact on the environment They might save us 

energy. Australia, is going to go to all-CF soon just 

like America. They might save us energy but no one’s 
281

really thought about what happens at the end. When 

the Environmental Protection Agency (EPA) tells me 

I have to open my window to air out my house after 

I break a CF, there’s a problem. If I drop an LED, the 

EPA doesn’t tell me that I need to air out my home. 

I don’t think we’ve done the environmental impact 

analysis. If you replace all light bulbs in America, you 

just can’t divine the environmental impact of what 

this is going to be for America. It may save us some 

money, but the environmental costs haven’t been taken into consideration.

Vikram Rao: Yes, the CF bulbs have nasty stuff in 

them, but does the EPA actually suggest that if you 

break one, you’ve got to open windows? What if you 

don’t have windows?

Audience: CF bulbs have a percentage of mercury 

in them. We heard earlier about effectiveness versus 

efficiency and it applies not just to the military but to 

our individual lives. The law that outlawed incandescent bulbs in favor of fluorescent bulbs is an example 

of a failure to recognize that. People don’t equate light 

from incandescent bulbs with light from compact 

fluorescents, they’re two different forms of light, and 

they’re not equally effective. If you look like a ghost in 

the mirror some morning when you have a fluorescent 

bulb, it’s because it’s not the same as an incandescent 

bulb. Consumers judge on quality as well as price, and 

effectiveness as well as efficiency. Some of the policy 

problems we’ve had are where people have imposed 

measures that failed to recognize this. 

If there’s zero cost and some marginal improvement in effectiveness in mandated measures, then nobody’s going to object. But if there is an imposed loss 

of effectiveness or quality in some way, then there will 

be objections. We have lots of room for enlightened 

policy, and we can also build on incentives.
282

The advice to open the window is perhaps a bit of 

overkill. It’s not a bad thing to do. But all of these fluorescents up here contain mercury too. So they’re no 

different than a compact fluorescent. There is a range 

of issues that come into fluorescents. In California, 

they have all fluorescents there. You turn them on, 

they come on really fast, they’re bright almost immediately, and their color is good. But if you go out here 

and you buy a compact fluorescent, the color might be 

good, it might come on fast, and it might take a long 

time to warm up to full brightness. It’s the technology 

and the market catching up with the regulation.

Regarding compact fluorescents, you can buy 

at Home Depot color balance. You can get all kinds 

of different colors, depending upon the phosphorus 

they put on the inside of the tube. I started using them 

about 12 years ago living in Boston when the utility 

offered them for free. They didn’t send them to me 

but made them available for free, and I’ve used a lot 

of them since then. I’ve put them in recycling so that 

mercury can be recovered. I’ve broken one or two, but 

I’m not too concerned about the small amount of mercury exposure I’ve gotten. 

The EPA says right here—I’m reading this—that 

if you break a fluorescent CF, it’s recommended that 

you open the windows and step outside the building. You should also remove all pets from the room 

for 15 minutes, and you should turn off your central 

air conditioning or heating systems because you don’t 

want the mercury vapors from the light bulbs going 

through your home. 

Audience: At least you don’t have to call HazMat. 

The environmental impact issue makes me think 

about the environmental impact of using lower BTU 

fuels. Aren’t you, in fact, producing more CO2 be-
283

cause you’re burning more to get the same bang for 

your buck? Isn’t there an environmental impact of using methanol and ethanol?

Actually not. The reason this kind of fuel has a 

lower BTU is that there is less carbon in it, and therefore the amount of CO2 is less.

Audience: To get back to the larger question about 

energy and security, can we achieve energy security 

without any adverse impact on the rest of the world? 

As earlier emphasized, the United States, and in 

fact much of the world, has a pretty significant degree 

of energy security—as if you could actually measure 

higher or lower energy security! But our energy security situation is better than you think. People are 

alarmist to a degree not supported by underlying evidence. It depends partly on how you choose to define 

energy security Energy security is essentially about 

protection against sudden increases in price, or sudden disruptions of supply. In other words, it’s about 

short-term acute changes. 

There might be a long-term trend to higher energy 

prices, whether due to peak oil or, much more likely, 

increasing demand in the developing world, notably 

China and India. There is more competition, more demand. Meantime, supply is increasing at some other 

rate. So prices may go up. That may be a concern. 

There may be environmental concerns which also lead 

to higher prices. 

But the security issue doesn’t seem to me to be a 

big one. Of course, there are other energy security issues besides the price spikes or supply disruptions. 

But we are largely insulated against these already. 

One can argue about whether there is a security risk 

in that some amount of energy money goes to governments we don’t like. 
284

But the basic thing to start with is that America’s 

actually a wonderful place. What great news. We’re 

very secure, we’re very rich, and we have a society 

capable of dealing with lots of problems that confront 

us. Whether one’s concern is over energy security, or 

whether your neighbor is going to invade and enslave 

you, or anything else you can think of, I’d rather be 

here than anywhere else I can think of. And if you 

think you’d rather be somewhere else, we don’t actually require you to stay. What a great society. I think 

we are energy secure in a significant fashion.

Vikram Rao: The International Energy Agency 

(IEA), if I remember correctly, defines energy security 

as having energy that’s affordable and respects the environment.2

Audience: Reliable and cheap.

Vikram Rao: So that’s what they define as energy 

security. That’s not the military definition, but there’s 

a military impact as well. We’ve had a lot of discussion but perhaps not focused enough on the military 

dimension. Comment? 

Audience: In 2005 I took part in a study that Andy 

Marshall did in an analysis office of the Pentagon, 

unclassified, and his question was very carefully, narrowly phrased. He asked: Could we interfere with the 

sea-borne delivery of petroleum products to China to 

a sufficient degree to affect a decisionmaking process 

in Beijing. I thought that was a great way to phrase 

the question. We didn’t ask whether we could do 

anything like block the transports. My answer to that 

careful question was, No. It goes to the larger point 

of the internationalization of the energy industry. The 

industry as a whole has become too internationalized 

to be the military point of leverage it was, say, during World War I, or particularly World War II in the 

North Atlantic. I think we’re beyond that right now. 
285

Vikram Rao: Comment?

Douglas Lovelace: Two points. One that has been 

alluded to by a lot of the participants today, i.e., that the 

distribution of energy ownership certainly has geopolitical ramifications. A good example of that took place 

when the Soviet Union disintegrated. At that time, the 

Russian Federation went into an economic tailspin for 

a while, and their foreign policy became very passive. 

They engaged in almost no foreign policy initiatives 

that were inimical to the United States. In fact, for a 

period of time their interests seemed to be very consistent with those of the United States. 

Then they got their petroleum and gas legs underneath them, the price of oil and gas went up, and their 

foreign policy became very activist again. The possession of oil reserves and gas reserves in other countries 

of the world forces us into situations where we must 

accommodate or at least coexist with leaders that 

we otherwise probably wouldn’t choose to. So there 

are some geopolitical ramifications to the control of 

energy.

Some of the speakers have talked about the security aspects of increasing competition for energy 

sources which is likely to take place given the economic growth of India and China. I personally don’t 

think that has a military dimension. The United States 

needs to pay close attention to and manage this challenge. There will probably be very difficult times in 

the future as China and India emerge—they are major 

claimants for energy resources. However, the other 

instruments of national power, particularly diplomacy, economic power, and even information type approaches, are effective tools for maneuvering through 

these tricky waters.

Audience: Earlier, after speculating about forming 

an oil embargo against China, you said that you didn’t 
286

think it was possible. How secure is the energy that is 

being transported around the world? One could envisage a terrorist attack or a small ad hoc attack on a 

facility, a pipeline, or a choke point that would cause 

a short-term disruption. But aside from that, is there 

any force or group of countries capable of producing 

a long-term disruptive effect on oil successfully that 

couldn’t be countered by other interested parties?

Audience: The only possible source of a massive 

disruption of seaborne supplies of energy is the U.S. 

Navy, and I don’t think that’s going to happen. 

CONCLUSIONS

Douglas Lovelace: First of all, I thought the conference provided a lot of technical information for those 

of us who work in national security strategy and national security policy, providing a good foundation 

for understanding numerous energy issues. It was 

very valuable from that perspective. 

I’m not sure whether we really looked at the nexus 

of energy and security as much as we looked at energy 

security itself. This may be a subtle distinction, but 

there is a difference between these topics. However, I 

think that we will probably see that nexus delineated 

more clearly in the published proceedings thanks to 

comments that were made during the course of the 

conference. 

William Boettcher: As we were coming up with 

ideas for the conference, we struggled—Vik Rao, 

Chris Gould, Man-Sung Yim, Carolyn Pumphrey, 

and I—over what we thought energy security meant 

and what we thought the energy and security nexus 

was. To me, it’s the multidimensional aspect of this 

issue that’s been highlighted by the conference. We, of 
287

course, forced that to happen because we invited all of 

you to provide different perspectives. 

At one level we see Eugene Gholz’s definition of 

energy security, which more or less equates to prosperity for the United States, and which involves these 

notions of stability and availability of energy at reasonable prices. But there are other aspects to energy 

security. For one thing, there is the degree to which 

energy production and consumption affect physical 

security. We have talked some about the number of 

troops, the number of Soldiers, Sailors, Marines, and 

Airmen that are deployed around the world to secure 

our energy supplies or protect those energy supplies. 

Energy security also affects environmental security, and we talked a little bit about its relationship to 

climate change. Alex Roland asked the question, Why 

now? Why are we talking about energy security today? 

(Remember, we were planning the conference long 

before the recent events in the Middle East and rise in 

oil prices.) The answer in part is that there now seem 

to be alternatives to a fossil fuel-based economy. Has 

that solved some of the security dilemmas we face? 

Has it made the Middle East less important? Will increased energy production improve the U.S. domestic 

economy? Will it lead to less CO2 production? Could 

it affect climate change which in turn would have a 

security impact?

We are also interested in the human security dimension, which means considering security beyond 

the United States. How do all of these decisions—our 

consumer choices; government regulation; behavior 

by us, by big oil, and by the governments of other 

countries—affect human beings around the world in 

terms of food security, economic security, and some of 

these other dimensions?
288

The point that struck me is that there are going to 

be trade-offs. It is unlikely that we’re going to find any 

solution that’s zero cost or low cost. We’re not going 

to find an alternative energy source that approximates 

the quality or performance characteristics of what we 

now have. Therefore, if we are going to move away 

any time soon from this fossil fuel economy, we are going to have to balance the resulting good and the bad. 

There are going to be security, economic, and political 

tradeoffs.

The final point I want to make is about so-called 

political reality. I’ve heard a lot about political reality, and I just don’t believe it exists. We ourselves construct that reality: politicians do it, elites do it, the kind 

of people in this room do it. You can transform that 

reality. George Bush, who said the American lifestyle 

is not negotiable, also said, “Read my lips, I’m not going to raise taxes,” and then he did. When we’re talking about human behavior and human agency, you 

can promote change. I remember 2 years ago, there 

was this new reality when Democrats enjoyed a landslide election and had a mandate. Obama was going to 

change the world. So I am not as pessimistic as some 

about changing some of those behaviors.

Vikram Rao: I think of security largely as a matter of reducing imported oil and, in so doing, creating 

jobs at home. It’ll also benefit the country by mending our balance of payments problem. If we reduce 

imported oil, more than likely it will mean we’ll get 

less of it from far-off places. We’ll probably get more 

of it from Canada and Mexico. But either way, if you 

replace imported oil with some other form of fuel, jobs 

are created here, and that’s what I seek. 

The other point I would make is that economic security equates to other forms of human security. One 
289

of the significant events in this nation is the discovery 

of shale gas and the possibilities this gives us of becoming more gas self-sufficient. Whether we become 

exporters or not is just a detail. The implications of 

these shale gas finds are huge. 

When we had the gas price spike a few years ago, 

industry actually left the country—polypropylene 

manufacturers went abroad. That’s because natural 

gas is the basic building block of more things than 

you would care to believe. Coal can be too, but natural gas already is. Essentially most of your fertilizers, 

almost every item of clothing you wear other than cotton, and every package you have comes from natural 

gas. All the methanol proposed as an alternative auto 

fuel comes from natural gas. Whatever depletes or increases natural gas in this country will have profound 

economic security implications. For example, if natural gas was plentiful and cheap, methanol, or diesel 

fuel, or even jet fuel made with alternatives becomes 

more viable. It would not be viable with liquefied 

natural gas (LNG) imports. LNG has a floor price of 

$4 a million BTUs, just because that’s what it costs to 

compress, ship, and decompress it. 

In sum, energy security means two things: reducing imported oil by replacing it with substitutes, 

whether it’s electricity or whatever; and using the 

newfound natural gas effectively. Obviously, natural 

gas presents environmental issues of its own, and we 

have to deal with them. 
290

ENDNOTES - CHAPTER 6

1. A compact fluorescent (CF) lamp is a fluorescent lamp designed to use less power (typically one-fifth) and has a longer 

rated life (six to 10 times average) than traditional incandescent 

lamps. However, they contain mercury, which makes disposal a 

problem. 

2. According to the International Energy Agency (IEA) “Energy Security can be described as ”the uninterrupted physical 

availability at a price which is affordable, while respecting environment concerns.”
291

ABOUT THE CONTRIBUTORS

JAMES T. BARTIS is a senior policy researcher at the 

RAND Corporation. He joined the U.S. Department 

of Energy (DoE) in 1978 shortly after it was established. He served in the Office of Fossil Energy, and 

in DoE’s main policy office. During the George H. W. 

Bush and Clinton administrations, he was a member 

of the Industry Sector Advisory Committee on Energy 

for Trade Policy Matters. Dr. Bartis has more than 25 

years of experience in policy analyses and technical 

assessments in energy and national security. His recent energy research topics include analyses of the 

international petroleum supply chain, assessments 

of alternative fuels for military and civilian applications, development prospects for coal-to-liquids and 

oil shale, energy and national security, Qatar’s natural 

gas-to-diesel plants, Japan’s energy policies, planning 

methods for long-range energy research and development, critical mining technologies, and national response options during international energy emergencies. Dr. Bartis has written some thirty monographs, 

most recently Alternative Fuels for Military Applications

(2011); Managing Spent Nuclear Fuel: Strategy Alternatives and Policy Implications (2010); and Near-Term Feasibility of Alternative Jet Fuels (2009). Dr. Bartis holds 

a Ph.D. in chemical physics from the Massachusetts 

Institute of Technology.

WILLIAM A. BOETTCHER III is an Associate Professor of Political Science and Public Administration at 

North Carolina State University (NCSU) and NCSU 

representative to the Executive Board of the Triangle 

Institute for Security Studies (TISS). His research focuses on the management of risk in foreign policy 
292

decisionmaking and the framing of casualty data. Dr. 

Boettcher is the author of several works, including 

Presidential Risk Behavior in Foreign Policy: Prudence or 

Peril (2005). He is a key player in the TISS/NCSU Energy and Security Initiative and is currently working 

with the Nuclear Engineering Department to build a 

program in nuclear security. He team-taught a pilot 

course with Man-Sung Yim in the Spring 2010 and has 

written and taught about weapons of mass destruction. Dr. Boettcher holds a Ph.D. in political science 

from Ohio State University. 

KEVIN BOOK is Managing Director of Research at 

Clearview Energy Partners, LLC. The group provides 

corporate and financial-sector clients with analyses 

of how government actions affect energy fundamentals and offers guidance to help financial and physical players in the sector minimize risk and maximize 

value. His primary coverage areas include oil and 

natural gas refining; climate policy; alternative fuels, 

vehicles, and power; and geopolitical risk analysis. 

Mr. Book testified before the U.S. Senate Committee 

on Energy and Natural Resources in May 2009 and before the U.S. Senate Committee on Finance’s subcommittee on Energy, Natural Resources, and Infrastructure in May 2010. Prior to co-founding ClearView in 

February 2009, he worked as Senior Vice President of 

energy policy, oil, and alternative energy research at 

FBR Capital Markets Corporation. Mr. Book holds an 

M.A. in law and diplomacy from the Fletcher School 

of Law and Diplomacy, and a B.A. in economics from 

Tufts University.
293

JOHN BUMGARNER is Chief Technology Officer at 

the U.S. Cyber Consequences Unit (USCCU) an independent, non-profit research organization that investigates the strategic and economic consequences of cyber attacks. He has over 20 years of work experience 

in information security, military special operations, 

intelligence, and physical security. In his work as a 

security researcher, Mr. Bumgarner has discovered 

cyber vulnerabilities, uncovered previously undetected cyber attacks, and invented new cyber-attack 

techniques. He has served as an expert source for national and international news organizations, and his 

articles have appeared in the journal of the Information System Security Association, the Homeland Security 

Journal, the Information Operations Journal, the Counter 

Terrorist magazine, and other leading security publications. Mr. Bumgarner is the author of the U.S. Cyber Consequences Unit’s analysis of the August 2008 

cyber campaign against Georgia, and the co-author, 

along with Scott Borg, of the USCCU Cyber Security 

Check List, which is currently used by cyber security 

professions in over 80 countries. Mr. Bumgarner holds 

private sector certifications including Certified Information Systems Security Professional (CISSP), Global 

Information Assurance Certification (GIAC)—Gold 

level, and dual master’s degrees in information systems management and security management.

ROBERT F. CEKUTA is the Principal Deputy Assistant Secretary of the Energy Resources Bureau, U.S. 

Department of State. Prior to this, he was the Deputy 

Assistant Secretary, Energy, Sanctions, and Commodities, U.S. Department of State. In this role, he was 

responsible for energy security and other aspects of 

U.S. global energy policy as well as for sanctions re-
294

gimes and combating terrorists’ efforts to misuse the 

international financial system. He was also responsible for matters affecting the availability of key commodities. Recent overseas assignments include Tokyo 

(2007-09) and Berlin (2003-07) where he led the U.S. 

Government’s engagement on the full range of economic issues with two of the world’s top economies. 

Mr. Cekuta’s work as Economic Minister Counselor 

in Germany included counterterrorism and efforts to 

combat international criminal activities. He was also 

Senior Advisor for Food Security in the State Department’s Bureau of Economic, Energy, and Business 

Affairs and Senior Deputy Coordinating Director at 

the U.S. Embassy in Kabul, Afghanistan for all development and economic affairs. Having been assigned 

overseas in Albania, Austria, Iraq, South Africa, and 

Yemen, Mr. Cekuta has also worked in the Office of 

the U.S. Trade Representative (1999–2000). He has 

held a variety of other positions in Washington at the 

State Department responsible for energy, trade, and 

economic development. Mr. Cekuta holds master‘s 

degrees from the Thunderbird School of Global Management and the National War College.

BERNARD D. COLE is Professor of International History at the National War College in Washington, DC, 

where he concentrates on the Chinese military and 

Asian energy issues. Dr. Cole has written numerous 

articles and six books, several of which focus on energy issues. He is the author of Sea Lanes and Pipelines: 

Energy Security in Asia (2008). His 2003 book, Oil for 

the Lamps of China: Beijing’s 21st Century Search for Energy (2003), examined China’s dependence on foreign 

sources of energy supplies and the resulting national 

security implications. His latest work, The Great Wall 
295

at Sea: China’s Navy in the Twenty-First Century (2010), 

focuses on China’s maritime tradition, and discusses 

the nation’s increasing dependence on energy sources 

mined from the ocean floor. A retired Captain of the 

U.S. Navy, Bernard Cole received a Ph.D. in history 

from Auburn University. 

DAVID C. DAYTON is the director of chemistry and 

Biomass Program manager in the Research Triangle 

Institute's (RTI) Center for Energy Technology. He 

has over 15 years of project management and research 

experience in biomass thermo-chemical conversion 

research and development. Prior to joining RTI, he 

was the thermo-chemical platform leader at the National Renewable Energy Laboratory. Dr. Dayton 

has extensive experience investigating fundamental, 

high-temperature kinetics of thermo-chemical conversion processes. He also has extensive research and 

development experience related to cleanup and conditioning of biomass-derived synthesis gas, specifically 

catalytic steam reforming of tars, to provide a suitable 

feedstock for the production of renewable fuels and 

chemicals. Dr. Dayton came to RTI in 2007 following 

14 years at the National Renewable Energy Laboratory. He was a postdoctoral research associate at the 

U.S. Army Research Laboratory, Aberdeen Proving 

Ground, Maryland, from 1991 to 1993. Dr. Dayton 

holds a B.S. in chemistry from Dickinson College, and 

a Ph.D. in physical chemistry from the University of 

North Carolina, Chapel Hill.

EUGENE GHOLZ is an Associate Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas (UT) at Austin, 

and Associate Director for Policy at UT’s new Center 
296

for Energy Security. He is a Research Associate at the 

Massachusetts Institute of Technology’s (MIT) Security Studies Program, a life member of the Council on 

Foreign Relations, and associate editor of the journal 

Security Studies. He is currently working in the Office 

of Industrial Policy at the U.S. Department of Defense. 

Dr. Gholz has written on innovation, business-government relations, defense management, U.S. foreign 

military policy, and energy security issues. He is the 

author and co-author of many works, including Buying Transformation: Military Innovation and the Defense 

Industry (2006) and US Defense Politics: The Origins of 

Security Policy (2009). Dr. Gholz holds a Ph.D. in political science from the Massachusetts Institute of Technology.

CHRISTOPHER GOULD is Associate Dean for Administration at the College of Physical and Mathematical Sciences at North Carolina State University. He is 

an Alumni Distinguished Undergraduate Professor of 

Physics and previously served for a decade as Head 

of the Department of Physics at NCSU. He is a nuclear 

physicist by training, with interests in cosmology, energy research and policy, science education, and neutron and neutrino physics. Dr. Gould has held visiting 

appointments at Los Alamos National Laboratory; the 

Institut für Kernphysik, Frankfurt; the Atomic Energy 

Institute, Beijing; the University of Petroleum and 

Minerals, Dhahran; and the Oak Ridge Center for Advanced Studies. He is a Fellow of the American Physical Society and a member of the American Association 

of Physics Teachers and of Sigma Xi. Dr. Gould has a 

bachelor’s degree from Imperial College, London, and 

a Ph.D. from the University of Pennsylvania.
297

ALAN S. HEGBURG is a senior fellow in the Center 

for Strategic and International Studies (CSIS) Energy 

and National Security Program. Prior to joining CSIS, 

he served for 17 years in the U.S. Departments of State 

and Energy, most recently as deputy assistant secretary 

for international energy policy in the Office of Policy 

and International Affairs at the Energy Department. 

In that position, he directed analytical, energy policy, 

and representational work covering the Eurasian land 

mass (including Russia, the Baltics, and Ukraine), 

Central Asia, the Caspian and the Caucasus, the 

Middle East, Africa, and certain multilateral organizations. At the Department of State, Mr. Hegburg served 

in the Europe and Asia Bureaus and internationally 

in Germany and Paris, the latter on assignment to the 

International Energy Agency. In the private sector, 

he spent 17 years at Phillips Petroleum, Amoco, and 

British Petroleum as manager of international government relations and director of international and geopolitical analysis. He has taught graduate courses on 

the geopolitics of energy at George Washington and 

Columbia Universities. Mr. Hegburg holds a master’s 

degree from the Johns Hopkins University.

RICHARD C. KEARNEY is Director of the School of 

Public and International Affairs at North Carolina 

State University. His research and teaching fields are 

in public administration, human resource management, labor relations, state and local politics, and public policy (particularly environmental policy). He has 

spoken and written on the challenges posed by nuclear waste. Dr. Kearney’s recent published work includes State and Local Government (8th Ed.); Public Human Resource Management: Problems and Prospects (6th 

Ed.); Labor Relations in the Public Sector (4th Ed.); and 
298

articles in Journal of Labor Research, Publius, Review of 

Public Personnel Administration, and Public Administration Review. Dr. Kearney has previously served at East 

Carolina University, the University of Connecticut, 

and the University of South Carolina. He has taught 

and conducted research for extended periods in the 

Dominican Republic and Mexico, and was a Fulbright 

senior lecturer at the University of Mauritius. Dr. Kearney holds a Ph.D. in political science from the University of Oklahoma.

ROSEMARY A. KELANIC is Associate Director of 

the Institute for Security and Conflict Studies, Elliott 

School of International Affairs, George Washington 

University. Prior to this, she was an International Security Program Research Fellow at the Belfer Center 

for Science and International Affairs, Harvard University. Her research interests include international relations theory, energy security, and resource conflict. As 

a Grodzins Prize Lecturer at Chicago, she recently designed and taught an advanced undergraduate course 

on oil and international security. Dr. Kelanic holds a 

B.A. in political science from Bryn Mawr College, and 

an M.A. in international relations from the University 

of Chicago. She holds a Ph.D. in political science from 

the University of Chicago.

STEPHEN R. KELLY is a Visiting Professor at the Sanford School of Public Policy and Center for Canadian 

Studies at Duke University. His specialty areas are energy, security, and North American issues, including 

trade, immigration and border management, and he 

is currently teaching a course at the Sanford School of 

Public Policy on Energy Security. Mr. Kelly came to 

Duke as Diplomat in Residence at the end of 28-year 
299

career in the Foreign Service. Prior to this assignment, 

he was Director of the Senior Level Assignments Division at the State Department in Washington, DC. From 

2004 to 2006, he was Deputy Chief of the U.S. Mission to Mexico, and from 2000 to 2004, Mr. Kelly was 

Deputy Chief of the U.S. Mission to Canada. He also 

served as Consul General in Quebec City from 1995 to 

1998, where he was the chief U.S. reporting officer on 

the Quebec Sovereignty Referendum of October 1995. 

Other overseas postings include the Netherlands as 

political counselor, Indonesia as human rights officer, Belgium as a political and consular officer, 

and Mali, West Africa, as a management officer. Mr. 

Kelly is a graduate of Cornell University and holds an 

M.A. in national security strategy from the National 

War College. 

CAREY KING is Research Associate at the Center for 

International Energy and Environmental Policy, the 

Jackson School of Geosciences at the University of 

Texas at Austin. He studies energy systems, how they 

work together, how they impact the environment, and 

how and why humans as a society consume energy 

resources. He specializes in dynamic systems modeling and nonlinear optimization methods. Much of Dr. 

King’s recent work has focused on the nexus between 

energy and water for projecting water demand for 

electricity generation and alternative automobile fuels. Additional work in which he is engaged includes 

the economics of carbon capture and sequestration, the 

design of beneficial combinations of renewable energy 

and storage systems, and the creation of tools to help 

the public and policymakers understand the tradeoffs 

among different electricity generation sources. Dr. 

King is a former National Science Foundation Gradu-
300

ate Fellow, and holds both a B.S. and Ph.D. from the 

Department of Mechanical Engineering at the University of Texas at Austin.

ANNE KORIN is co-director of the Institute for the 

Analysis of Global Security (IAGS). She chairs the Set 

America Free Coalition, a strange bedfellow alliance 

spanning the political spectrum focused on policies to 

reduce the strategic importance of oil. She also chairs 

the Mobility Choice for a Secure America Coalition, an 

alliance promoting a fiscally responsible, free market 

oriented approach to expanding competition among 

transportation modes. Ms. Korin appears in the media 

frequently and has written articles for Foreign Affairs, 

The American Interest, MIT Innovations, American Legion 

Magazine, The National Review, Commentary Magazine, 

and the Journal of International Security Affairs. She is 

co-author of Energy Security Challenges for the 21st Century (2009) and Turning Oil into Salt: Energy Independence through Fuel Choice (2009). Ms. Korin holds an 

engineering degree in computer science from Johns 

Hopkins University, and is working toward a Ph.D. 

from Stanford University.

DOUGLAS C. LOVELACE, JR., is the Director of 

the Strategic Studies Institute at the U.S. Army War 

College. His Army career included a combat tour in 

Vietnam and a number of command and staff assignments. While serving in the Plans, Concepts, and Assessments Division and the Conventional War Plans 

Division of the Joint Staff, he collaborated in the development of documents such as the National Military Strategy, the Joint Strategic Capabilities Plan, the 

Joint Military Net Assessment, national security directives, and presidential decision directives. He has 
301

published extensively in the areas of national security 

and military strategy formulation, future military requirements and strategic planning. Professor Lovelace 

holds a J.D. from Widener University. 

STEVEN E. MILLER is the Director of the International Security Program, Editor-in-Chief of the quarterly 

journal, International Security, and also co-editor of 

the International Security Program’s book series, Belfer Center Studies in International Security, Harvard. Previously, he was Senior Research Fellow at 

the Stockholm International Peace Research Institute 

(SIPRI) and taught Defense and Arms Control Studies 

in the Department of Political Science at the Massachusetts Institute of Technology. Dr. Miller currently 

co-directs the Academy’s project “On the Global Nuclear Future.” In this capacity, he has co-chaired two 

conferences on the regional implications of the nuclear 

renaissance, one in Abu Dhabi (November 2009) and 

the other in Singapore (November 2010). Dr. Miller is 

co-author of a work on the war with Iraq and editor 

or co-editor of more than two dozen books, including, most recently, Going Nuclear (January 2010) and 

Contending with Terrorism (July 2010). Dr. Miller holds 

a M.A. in law and diplomacy and a Ph.D. in international relations from the Fletcher School of Law and 

Diplomacy. 

CAROLYN PUMPHREY has served as Program 

Coordinator for the Triangle Institute for Security 

Studies (TISS) since 2000 and also teaches history at 

North Carolina State University (NCSU). Over the 

last 13 years, she has organized over 30 conferences 

and workshops for TISS. From 1997-2000, she was a 

Post-Doctoral Fellow for the TISS and, between 1986 
302

and 1992, she was an Assistant Professor of History 

at Spring Hill College in Mobile, Alabama. Dr. Pumphrey has taught a wide range of courses, including 

the “History of Restraints on War,” “War and Peace in 

Ancient and Medieval Times,” “Medieval Warfare,” 

and “In War and Peace: Christian and Muslim Relations in the Middle Ages.” She has edited four books, 

Transnational Threats: Blending Law Enforcement and 

Military Strategies (2000); The Rise of China: Security Implications (2002); (with Rye Schwartz-Barcott), Armed 

Conflict in Africa (2003); and Global Climate Change: National Security Implications (2008). Dr. Pumphrey holds 

a B.A. in literature and history from the University of 

York, England, and a Ph.D. in history from Duke University, where she was the Medieval and Renaissance 

Studies Fellow (1978-1981). 

VIKRAM RAO is the Executive Director of the Research Triangle Energy Consortium (RTEC). RTEC 

was formed in 2007 by the University of North Carolina at Chapel Hill, Duke University, North Carolina 

State University, and the Research Triangle Institute 

(RTI) International to highlight energy issues, better 

inform academics, industry, policymakers and investors, and conduct research and development to create 

sustainable sources of energy. Dr. Rao is the author of 

more than 40 publications and has been awarded 24 

patents in fields that include nonferrous metal refining, alloy formulations, and oil and gas technology. 

He serves in technical and business advisory capacities for energy companies, technology companies, and 

nongovernmental organizations and universities in 

the United States and elsewhere. He is the producer/

writer of the Director’s Blog. Dr. Rao holds a bachelor’s degree in engineering from the Indian Institute 
303

of Technology in Madras, India, and a master’s and 

Ph.D. in engineering from Stanford University.

MICHAEL J. ROBERTS is Associate Professor in the 

Department of Agricultural and Resource Economics, North Carolina State University. He is also an Affiliate of the Center for Environmental and Resource 

Economic Policy. He has served as the Director of the 

Northeastern Agricultural and Resource Economics Association and has been an Adjunct Professor at 

the Paul H. Nitze School of Advanced International 

Studies, Johns Hopkins University (2005-07) and an 

Instructor at the City College of San Francisco (1997). 

Dr. Roberts has written and spoken on the impact of 

climate change on crops and economies, on energy 

prices in general, and on the biofuel mandate and 

world food prices in particular. Dr. Roberts holds a 

B.A. in quantitative economics and decisions sciences 

from the University of California at San Diego, an 

M.A. in statistics from the University of California at 

Berkeley, an M.S. in applied economics from Montana 

State University, and a Ph.D. in agricultural and resource economics from the University of California at 

Berkeley.

ALEX ROLAND is a Professor Emeritus of History 

at Duke University. Between 1973 and 1981, he was a 

historian at the National Aeronautics and Space Administration. From 1988 to 1989, he was the Harold 

K. Johnson Visiting Professor of Military History at 

the Military History Institute, U.S. Army War College. From 2001 to 2002, he was the Dr. Leo Shifrin 

Professor of Naval‐Military History at the U.S. Naval 

Academy. He is a retired Marine Corps officer. Dr. 

Roland’s research and writing have been in the fields 
304

of aviation, astronautics, computers, weapons, and 

the relationship between war and technology. Among 

his publications are Strategic Computing: DARPA and 

the Quest for Machine Intelligence, 1983‐1993 (2002), The 

Military Industrial Complex (2001), Atmospheric Flight 

in the Twentieth Century (edited with Peter Galison, 

2001), and most recently (with W. Jeffrey Bolster and 

Alexander Keyssar), The Way of the Ship (2008). He is a 

past President of the Society for the History of Technology. Dr. Roland holds a Ph.D. in history from Duke 

University. 

JAMES A. TRAINHAM is the Vice President of Strategic Energy initiatives at Research Triangle International. He also holds a joint appointment at North Carolina State University. Dr. Trainham’s focus is on the 

development of solar fuels as part of a new solar fuels 

institute in the Research Triangle Park. He specializes in both product and process technologies, including alternative energy, specialty chemicals, coatings, 

polymers, and synthetic fibers. Before RTI, Dr. Trainham directed research and development, engineering 

design, and scale-up for Sundrop Fuels, Inc., as senior 

vice president. He served as vice president of Science 

and Technology at PPG Industries for 4 years and had 

a 25-year career at the DuPont Company. He has been 

elected to the National Academy of Engineering. Dr. 

Trainham holds a Ph.D. in chemical engineering from 

the University of California-Berkeley.

DANIEL J. WEISS is a Senior Fellow and the Director 

of Climate Strategy at the Center for American Progress (CAP), where he leads the Center’s clean energy 

and climate advocacy efforts. Among issues he has 

addressed is the need for the U.S. Air Force to develop 
305

a clean energy strategy. Before coming to CAP, he 

spent 25 years working with environmental advocacy 

organizations and political campaigns. Most recently, 

he was a senior vice president with M+R Strategic 

Services, where he oversaw collaborative campaign 

efforts by 15 major national environmental organizations working to oppose anti-environmental policies. 

Prior to M+R Strategic Services, Mr. Weiss served 

for 16 years at the Sierra Club, first as a Washington 

representative, then as director of the Environmental 

Quality Program, and for the final 8 years as political 

director. Mr. Weiss holds an M.P.P. degree from the 

University of Michigan.

MAN-SUNG YIM is Professor and Department Head, 

Nuclear and Quantum Engineering at the Korean Advanced Institute of Science and Technology (KAIST). 

Prior to assuming this position, he was Associate Professor of Nuclear Engineering and member of the Associated Faculty of Civil, Construction & Environmental Engineering at North Carolina State University. He 

is interested in guiding and supporting the development of back-end nuclear fuel cycle technologies and 

effective nuclear nonproliferation regimes. The goal of 

his research work is to minimize human health risk, 

environmental impact, and nuclear proliferation risk 

from the use of civilian nuclear power technology. 

His research uses mathematical/statistical modeling, 

engineering optimization, data mining, risk analysis, 

decision theoretic approaches, and policy analysis. 

Dr. Man-Sung Yim has written and taught widely on 

the nuclear fuel cycle, nuclear waste management, 

environmental exposure and risk, and nuclear nonproliferation policy. Dr. Man-Sung Yim holds an S.M. 

in environmental health science, a Sc.D. in radiologi-
306

cal health from Harvard, undergraduate degrees in 

engineering from Seoul National University, and a 

Ph.D. in nuclear engineering from the University of 

Cincinnati. 
U.S. ARMY WAR COLLEGE

Major General Anthony A. Cucolo III

Commandant

*****

STRATEGIC STUDIES INSTITUTE

Director

Professor Douglas C. Lovelace, Jr.

Director of Research

Dr. Antulio J. Echevarria II

Editor

Dr. Carolyn W. Pumphrey

Director of Publications

Dr. James G. Pierce

Publications Assistant

Ms. Rita A. Rummel

*****

Composition

Mrs. Jennifer E. Nevil
This Publication SSI Website USAWC Website

U.S. ARMY WAR COLLEGE