1. Energy—What the Future Holds for State Policymakers National Governors Association NGA Center for Best Practices Estes Park 10 October 2005

2. Today’s Presentation The Facts The Facts What It Means What It Means What We Can Do Now What We Can Do Now What We Can Start Doing (Finally) What We Can Start Doing (Finally) Wrap-Up Wrap-Up

3. Are we on the verge of a crisis? Probably not Probably not

4. Do states need to act? Absolutely Absolutely

5. The Bottom Line Energy prices have risen dramatically Energy prices have risen dramatically Price may be reaching all-time highs Price may be reaching all-time highs The era of high prices is here to stay The era of high prices is here to stay Some people are not going to be able to pay their Some people are not going to be able to pay their heating bills this winter.

6. Maybe—just maybe—our consumptive behavior patterns will begin to change Maybe—just maybe—our consumptive behavior patterns will begin to change States need to look at States need to look at –Taxes –RPS and other incentives –More creative environmental drivers Katrina exacerbates prices but will abate.

7. The Facts

8. U.S. Energy Consumption by Fuel, 1970-2025 (quadrillion Btu) Petroleum Nonhydropower Renewables Hydropower Coal Natural Gas Nuclear Annual Energy Outlook 2005 History Projections Take-away: We are consuming more fuel-based sources

9. U.S. Crude Oil Production by Source, 1970-2025 (million barrels per day) Lower-48 Onshore Alaska Lower-48 Offshore ProjectionsHistory Annual Energy Outlook 2005

10. U.S. Petroleum Production, Consumption, and Net Imports, 1960-2025 (million barrels per day) 56% 58% Net Imports Consumption Production Annual Energy Outlook 2005 History Projections

11. Real Gasoline Prices Over $3 today

12. Heating Oil Prices $3 today

13. U.S. Natural Gas Production, Consumption, and Net Imports, 1960-2025 (trillion cubic feet) 15% 20% Net Imports Consumption Production Natural Gas Net Imports, 2003 and 2025 (trillion cubic feet) Annual Energy Outlook 2005 History Projections

14. Natural Gas Spot Price, 2004-2006 (dollars per thousand cubic feet) Short-Term Energy Outlook, September 2005 History Projections Price was $2.50 in 2003 Average is $9

15. What It Means

16. Why We Haven’t Felt More Impact—Yet? Increases have been gradual Increases have been gradual Lower energy intensity Lower energy intensity Low inflationary pressure Low inflationary pressure Growing economy Growing economy No serious supply problems No serious supply problems No panic or anxiety No panic or anxiety

17. Crossroads Prices are reaching all time highs Prices are reaching all time highs

18. Issue #1 Energy has been under-priced in US Energy has been under-priced in US –All the other OECD countries manage demand through high taxes Its not that prices are too high; they have been too low Its not that prices are too high; they have been too low

19. Issue #2 US is the most wasteful country US is the most wasteful country –US uses 3 times as much electricity per capita as Japan Huge potential to use energy more efficiently without drastic lifestyle changes Huge potential to use energy more efficiently without drastic lifestyle changes There is money to be made selling efficiency There is money to be made selling efficiency

20. Per capita use* US: 7.8 Germany: 4.2 China: 1.1 Brazil: 1.1 India: 0.5 n metric tonnes of oil equivalent n metric tonnes of oil equivalent

21. Issue #3 Energy pricing is being globalized Energy pricing is being globalized –Oil prices are driven by Chinbra*, they used to be driven by US –Natural gas was priced domestically, now it is priced globally –Coal pricing in US is becoming globalized Prices are out of our control Prices are out of our control –*China, India, Brazil=Chinbra

22. Issue #4 Failure of environmental alternatives Failure of environmental alternatives –Despite RPS in 19 states, renewables will remain a single digit contributor –Cars are off limits to politicians –Demand-side incentives never take off

23. U.S. Electricity Generation by Fuel, 1970-2025 (billion kilowatthours) Petroleum Renewables Coal Natural Gas Nuclear Annual Energy Outlook 2005 History Projections

24. U.S. Carbon Dioxide Emissions, 1980-2025 (million metric tons) 6,528 in 2010 8,029 in 2025 Carbon Dioxide Emission Intensity, 1980-2025 (metric tons per million 2000 dollars of GDP) 501 in 2010 396 in 2025 Annual Energy Outlook 2005 History Projections 5,789 in 2003 558 in 2003

25. The Blame Game Very little blame game so far Very little blame game so far New energy legislation has mini-fine for gouging New energy legislation has mini-fine for gouging Oil companies keeping out of trouble—so far Oil companies keeping out of trouble—so far

26. What states must do Be ready to deal with people unable to pay their heating oil and natural gas bills Be ready to deal with people unable to pay their heating oil and natural gas bills Urge people to conserve Urge people to conserve

27. What States Can Do Raise energy taxes Raise energy taxes –Gasoline –Natural gas –SUV registration Strengthen RPS laws Strengthen RPS laws Educate Educate

28. States need to fix environmental problems Still too many gasoline formulations Still too many gasoline formulations Clean air battles have gone on too long- time to build cleaner and more efficient fleets Clean air battles have gone on too long- time to build cleaner and more efficient fleets Be sure state electricity regulators get it right Be sure state electricity regulators get it right

29. Wrap-up Chances are we have averted a crisis Chances are we have averted a crisis –But there are crisis scenarios that could happen We have avoided paradigm change for decades now We have avoided paradigm change for decades now Are we are on the verge of change? Are we are on the verge of change?