Every US president since Richard Nixon has expressed concern about America's growing dependence on imported oil. But effective action has proved elusive: Oil imports have more than doubled in the past 35 years -- from 30% at the time of the first oil shock in 1973 to around 65% today.
Yet the collapse in world energy demand and the fall of energy prices present a rare, once-in-a-generation opportunity. Congress and the Obama administration can work with energy producers to craft an energy policy that creates jobs, expands and diversifies the nation's energy supply, generates government revenue, and protects the environment.
Reaching those goals begins with rejecting the false choice between "drill, baby, drill" and a near-exclusive focus on alternative energies and conservation. An "all-of-the-above" approach holds far more promise.
President Barack Obama seems to recognize this. In his address to Congress, he spoke forthrightly about the need to tackle climate change -- while acknowledging the role of hydrocarbons in the overall energy mix, and emphasizing the need for energy security and efficiency. At BP we welcome his commitment to "invest $15 billion a year to develop technologies like wind power and solar power, advanced biofuels, clean coal and more efficient cars and trucks built right here in America."
BP has already demonstrated its commitment to a diverse energy portfolio. We're the largest producer of oil and gas in the US. We are also investing more than $8 billion over 10 years to develop solar, wind, hydrogen power and biofuels. We support energy conservation and efficiency, as well as addressing climate change via a cap-and-trade system to harness the power of the market to reduce CO2 emissions.
But if the country is to gain full value from the technology, knowledge and expertise possessed by BP and its major competitors, I'd like to offer policy makers a few suggestions.
- Energy providers and governments must have confidence in one another. An adversarial stance does nothing to increase the supply of energy. Regulatory policies need to be sensible, stable and right the first time.
- Energy security can only be built on a solid foundation of free markets and free trade. Two-thirds of the world's oil is traded across international borders. This huge and agile market makes it possible to respond quickly to supply disruptions, such as hurricanes or political unrest. Tariffs, heavy taxes, or restrictions on the free movement of petroleum products interfere with that process.
- Transitional incentives are needed to make low-carbon energy competitive with other energy sources, and to kick-start technologies for large-scale carbon abatement, such as carbon capture and storage. But these incentives should taper away over time, so costs are driven down and the market can take over as quickly as possible.
- America must stop looking to others for the oil it needs and actively develop its own hydrocarbon endowment. Even with the rapid growth of alternatives, fossil fuels will continue providing most of the energy Americans consume for decades into the future.
The search for new sources of domestic crude has been constrained by a lack of access to promising areas, notably the Outer Continental Shelf (OCS). Resource estimates for closed areas exceed 100 billion barrels of oil, with 30 billion recoverable with today's technology and at today's prices.
Opening up the OCS would enhance America's energy security. Moreover, a new study by ICF International estimates that it could create as many as 76,000 new jobs and generate a total of nearly $1.4 trillion in new government revenue by 2030.
No one in the energy business thinks America can drill its way to energy security. But a policy based exclusively or even primarily on conservation and efficiency is a recipe for ongoing scarcity and economic decline.
The prize is great and the time is right. When the world economy begins to recover -- and it will -- demand for energy will rise and the moment will likely have passed. We are extending our hand. We hope Washington policy makers will grasp it.
Mr. Hayward is chief executive of BP. This article was originally published here in The Wall Street Journal on February 25, 2009. The author has given his permission for a republication on atlantic-community.org.
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