Energy Security

VIJAY VAITHEESWARAN: Good morning, ladies and gentlemen. Welcome to today’s Council on Foreign Relations meeting. I’m Vijay Vaitheeswaran. It’s my honor and pleasure to be your moderator this morning. I’m a correspondent of The Economist, and author of a book on energy, and delighted to preside over a meeting titled, “Energy Security: Big Deal or Really Big Deal?”

Our guest today, our speaker, is Tom Vilsack, governor of the state of Iowa. Before I give you a formal introduction, I just want to remind everyone that today’s meeting is on the record. There will be press present. I ask you please, turn off your cell phones, beepers, any other noise-making devices, please.

Tom Vilsack, governor of Iowa, is the nation’s senior Democratic governor and the first Democrat in more than 30 years to be elected to the post in 1998. He prides himself on being an innovator in children’s economic and health care policies and, as we shall see today, on energy policy as well.

His career in public service began in 1987 when he was elected mayor of Mount Pleasant, Iowa, his adopted hometown. And he was elected to the Iowa Senate in 1992. He serves as a member of the National Governors Association Executive Committee and is chair of the Democratic Leadership Council.

And today he’s going to address the topic of how big a deal is energy security? This is a topic, of course, that is very much on everyone’s mind. But a century ago, at the turn of the last century, energy—or just after the turn of the last century—energy security was again an important topic.

At that time, it was a young Winston Churchill, as first lord of the Admiralty, who took a decision that really transformed the world’s energy economy—turbocharged it towards the age of petroleum. And as many of you will know, he made the decision—the risky decision—to convert the British Navy from Welsh coal supplies to oil, and that gave it a decisive advantage over the German fleet in the First World War.

But it was a fateful decision, of course, because Britain didn’t have any oil at the time. The North Sea oil was yet to be discovered. And that launched an era of exploration, of imperialism, the creation of the Anglo-Persian Oil Company and all that followed that we now—the geopolitics of oil began.

And half a century ago, as America—back then, the great oil superpower was in decline or beginning to be in decline. Security concerns were expressed to president after president. Franklin Delano Roosevelt held a fateful summit, right after the Yalta Summit, which gets much more attention. He went and met on a U.S. Navy ship off the Suez with King Ibn Saud, who was the founder of the new country of Saudi Arabia, and forged an alliance between our two countries, an alliance that arguably is more enduring than the alliances of the Cold War. Geopolitics and oil intersected again.

And what will happen now as we enter a new age? A lot of concerns are expressed about energy scarcity. But I would argue to you—and we’ll hear more from the governor on his views—that in fact, it’s not scarcity that’s the problem, with oil particularly, but concentration which leads to geopolitical problems, and carbon which leads to questions of environmental issues—how we use energy.

And as we approach new crossroads, oil, like the poor, may be with us always, as petro-realists argue. But I think we’ll find that even if the oil doesn’t peak for several decades yet, given the nature of energy infrastructure, that how long a new car stays on the roads—in other words, a slow turnover of the fleet—the time is now to think about intelligent energy policies, energy technologies and options for rethinking energy security.

And to help us do that, I’m delighted and honored to invite Governor Vilsack to the podium. Let’s give him a warm welcome. (Applause).

GOVERNOR TOM VILSACK: Vijay, thank you very much for that wonderful introduction. And I appreciate the opportunity to be here today.

I also want to acknowledge Richard Haass. I want to again thank him publicly for an opportunity to visit with him and to have a chance to read his book, “Opportunity,” which I think is a pretty good critique of current national security and foreign policy initiatives in our current administration, and perhaps a different direction—a return to a more traditional approach where we work with nations rather than against nations. And it certainly is a pleasure to be with you this morning.

In preparation for this talk this morning, I had an opportunity to visit with Les Gelb, that I suspect most of you know. And Les gave me two pieces of advice. One piece was to talk about something that I know something about, and the second was to tell a joke.

As I suspect most of you, I’m going to take part of Les’ advice, but not all of it. I’m certainly going to talk about something I know a little something about, but I’m probably not going to tell a joke, because I’m not particularly a good joke teller.

But I will start my remarks this morning with a story. Christie and I—my wife Christie is here today. We are fortunate enough to live on Main Street in Mount Pleasant. And we were home for Labor Day visiting with our neighbors on Main Street, and Ray Stiggy (sp), who is a corrections officer, came over to the house to visit. And he was frustrated and angry. And he expressed this frustration and anger by saying that he is really mad at the people in Washington, D.C.

Ray’s a fairly apolitical fellow so I was surprised by his passion and his comments. And I said, “Well, why are you upset with the folks in Washington, D.C.?”

And he said, “They think I’m stupid.”

And I said, “Ray, why would you think people in Washington, D.C., think you are stupid?”

He said: “Well, I go by the gas station every day and I see the pump prices go up and down, but I never see profits of oil companies, particularly, go down. I see them go up. And the folks in Washington must assume either that I don’t realize that there’s a problem, or that I don’t realize that they haven’t done anything about the problem.” He said, “Either one of them makes me feel stupid and it makes me angry.”

And Ray is now politically connected and active because he’s angry.

For Ray, energy security is really about enough gas to put in his pickup truck at an affordable cost. But energy security is significantly more important than Ray appreciates. There are essentially three additional aspects of energy security that are significant to Ray’s future and our future as a country.

First and foremost is the opportunity that energy security, if we really embraced the notion, provides to create an innovative and creative economy that generates better paying jobs and better opportunity for the future of this country. Secondly is the opportunity for this country to re-engage with the international community in a meaningful discussion about climate control and climate security and global warming, allowing the United States to reclaim moral leadership on that issue.

And clearly, and specifically, energy security is about a stronger national security stance in terms of our relationship with countries that provide us oil that currently are sort of disregarding our interests, whether it’s Venezuela or Iran, or countries like China where we would like to have greater influence on them but have difficulty in doing so, particularly in areas like the Sudan, because they are so much dependent on oil from that country. So it has national security implications as well.

Speaking to an audience of people that know a great deal about this is somewhat a daunting task. I realize that I’m speaking to a group of specialists, and I’m a generalist. So I think it’s important for me to acknowledge some of my credentials in this area.

I’m looking forward to the publication of the report from the Council on Foreign Relations on energy security that’s going to be provided this morning at 9:00. I’m looking forward to hearing my colleague Brian Schweitzer, who will be speaking to the Press Club—the governor of Montana—tomorrow on this very same topic. And the Democratic Leadership Council is going to put out a white paper next week on this topic. So I think there is going to be quite a bit of discussion about energy security in the near future.

My credentials: When I became the governor of the state of Iowa, I recognized something about my state, and that was that we were not energy secure. Our state was importing a great deal of energy and exporting our hard-earned dollars, whether it was in terms of gasoline for our cars and trucks or, basically, power to take care of our homes and industries and factories. We had not had a new power facility built in our state for 20 years. We had very few, if any, ethanol production facilities. We had no biodiesel or soy diesel facilities. We had a serious issue with energy.

We began a process of focusing on that. In the last seven and a half years we’ve had six new power plants built, some of them state-of-the-art coal and natural gas facilities. We have embraced renewable energy and have now become the number one state in the country for wind energy per capita. And we, of course, have expanded dramatically our interest in ethanol and soy diesel, to the point where the state of Iowa is now the number one producer of each.

And we’ve been able to do this by working with the private marketplace and private sector in partnership. We changed regulations to provide greater stability for our utility companies so that they make the billions of dollars of investment to build new plants. We worked with our farmers and large corporations to create new opportunities to assist the ethanol industry. We provided subsidies not to the producers but to the retailers so that the customers would see lower cost and lower price so that they would embrace renewable fuel. We provided infrastructure assistance, all of which led to a dramatic increase in the production of renewable fuels and energy in our state.

And the impact that it’s had on our economy—we have a record number of employed people today. We have incomes that have now risen above the national average in terms of median family income. And so we have seen a rebirth and revitalization of our overall economy because of energy security. Those are my credentials.

Let me suggest to you that there needs to be a great awakening in this country about energy security, and there needs to be national leadership. What’s happening today is most of the innovation is occurring at the state level. As was with welfare reform, energy security is being discussed in state capitals, but not to the extent that it needs to be in our nation’s capital.

I suggest, very briefly, three steps that the nation should take—and by no means are these exclusive or necessarily comprehensive. Vijay has given me about 20 minutes to discuss a topic that would take hours to discuss. So I’ll just briefly touch on these three areas, and then hopefully questions can follow.

First and foremost, this country really does need to embrace renewable fuel and energy production. But I think we’re going about it in a slightly wrong way. On the fuel side, we are basically providing a 51 cent per gallon subsidy to those who produce and blend ethanol. Now, the reality is, they are not the individuals or the companies or the businesses that need assistance. I would suggest that we take a look at changing the subsidy on ethanol and renewable fuel production to a subsidy that goes to the retailers.

Now, what we did in Iowa, and what I think we should do in this country, is challenge the retailers of petroleum products to sell a certain volume of gas as renewable—and as they do, they qualify for the tax credit. That encourages them to provide incentives to the consumer to purchase renewable fuel. I would suggest that this subsidy be a floating subsidy that would be tied to the value of the price of oil. As the price of oil goes up, there is really no need to subsidize ethanol production. As the price of oil goes down, there may very well be a need in order to maintain and retain this industry as a viable option for energy security.

I would suggest that the federal government should do as state governments are doing and provide financial assistance for the infrastructure that is important and necessary. As we convert in our state from E10—10 percent ethanol—to E85, we are providing assistance to individual retailers to put the E85 pumps in place. Today, almost 80 percent of the volume of gas sold in Iowa is E10—almost 80 percent. Well, we want that ultimately to be true of E85, but it requires a different infrastructure. And it requires some investment in that infrastructure in order to encourage greater promotion of E85.

We need to make sure that we also do more research and development, because the reality today is that corn is the primary substance that we use in Iowa to produce ethanol. It cannot be the primary substance we use in the future. Fifteen percent of our nation’s corn crop is being used to produce roughly 3 percent of our fuel supply. I’m not a particularly good person in math, but I know that that doesn’t work very well. And that’s why it’s important and necessary for us to embrace switch grass and other cellulosic opportunities. My state will be the first state to have such a facility in place in the next year or two, producing from biomass, from corn stalk, from switch grass ethanol.

Today, an acre of corn produces roughly 400 gallons of ethanol. Tomorrow, an acre of switch grass can produce 2,700 gallons of ethanol. The reality is that we need to accelerate the research on alternative products to produce these renewable fuels. That same mixture of appropriate subsidies to encourage consumers to purchase and infrastructure to meet the demand ought to be used for all types of renewable energy, whether it’s wind or solar or hydro—whatever it might be. There needs to an aggressive effort to embrace renewable fuels.

There also needs to be an effort to encourage America to conserve. The reality is that the national government needs to sit down with the auto industry, and the unions need to sit in a room and suggest and indicate that the CAFE standards of today are not adequate for the challenges of tomorrow. It will be necessary for us to be best in class internationally if we are truly going to be energy secure. That will require some assistance and some help and some direction from the national government.

It is not enough to simply say that we can’t afford higher CAFE standards because of the impact on jobs. We’ve got to figure out a way to have jobs and also higher CAFE standards.

We also have to recognize that our fleet is roughly 14 years old. In other words, cars basically cycle through the process about every 14 years. And so that’s going to be important for us if we’re going to embrace renewables and if we’re going to embrace conservation, to encourage folks to convert their engines to engines that can use E85. A small kit, a small amount of labor, could really accelerate our embracing of this opportunity.

Some might suggest that there may be a difficulty even, with conservation, having sufficient supplies of renewables, which is why we should rethink our tariffs in connection with Brazilian ethanol. Those tariffs should be reduced and lifted as we embrace ethanol as a short-term strategy for energy security.

We also need to challenge our universities and our companies to embrace and renew and extend research and development on new materials. The fact is that we ought to be doing more in trying to figure out precisely what kind of materials can be created that are lighter, stronger, better, using less energy to transport and propel people. Sixty-eight percent of our energy costs are about transportation. If we can figure out more efficient, better materials for transportation, we can obviously become more energy secure.

A third strategy, in addition to conservation, is the necessity of reducing the barriers that exist for traditional materials for producing energy in this country. There are obviously issues with coal. We have plenty of it, but there are concerns about the impact it has on the environment. And so we should embrace what California’s doing and what Colorado is considering—establishing a national carbon-trading system and sequestration program—so that we can embrace and utilize coal in a more reasonable fashion, and in doing so, reconnect ourselves with the international community in discussions about climate control and climate security. We can do this and we should do it.

And finally, we should take a look at the long-term impact of nuclear. And we should begin discussing the issues of waste in a relationship to the risk that we’re asking a community or a state or an area to assume in the storage of waste material. We ought to look at risk a little differently than we have. Rather than mandating or compelling, we ought to be looking at ways in which either the risk can be matched with opportunities that folks are looking for, or that we can create a compensation system that makes it easier for people to assume and accept that risk.

We should also challenge this country to come up with strategies and technologies that allow us to produce nuclear energy without necessarily producing a byproduct that can be converted to something far more dangerous. I believe that can be done. It may not be done tomorrow, but it clearly needs to be worked on.

Now if we were able to do all of these and able to have a massive effort nationally in these areas—in conservation, renewable fuels and in reducing the barriers to existing materials—the following will happen: As you make farm fields energy fields, you can reduce the need for ag subsidies, which will help reduce our budget problems, which are fairly significant. If we can reduce the amount of oil that we’re importing, because we’ve embraced renewable fuel, it will clearly have an impact on the trade deficit. It will provide hope and assistance to rural America at a time when we are in need of a rural strategy.

If we embrace CAFE standards, if we embrace carbon sequestration, if we embrace carbon trading, we can literally go back to the table and negotiate and discuss and work with the international community to determine what happens beyond Kyoto from 2008 to 2012. And we can reclaim the moral leadership that a great nation must have.

If we reduce the risk as it relates to nuclear power, we might be able to provide for a discussion—a renewed discussion—of what nonproliferation really means and how we, as a nation, can assist the world in becoming a safer place. And we can have stronger and better relations with countries that we need to have stronger and better relations with, or we can put more pressure on those nations that currently provide us oil and are disregarding our interests. We can strengthen the national security of this country.

But we can do something even greater than that. And let me conclude with this point.

I was in church the other day, and what they do at my church is they give you the bulletin before the service—which is a mistake for me, because I read the bulletin instead of listening to the sermon. So I’m looking at the bulletin, and what struck me about this church bulletin from Saint Catherine’s was the following: “Some simple steps to reduce global warming.” In the church bulletin, there are three steps to reduce global warming, and I’m reading this and it says, “Each week”—each week—“the church bulletin is going to contain tips to reduce global warming.”

This week’s tips, for your benefit: Run the dishwasher full with the energy saving setting to dry dishes. That will save up to 200 pounds of carbon emissions. Wash your clothes in warm or cold water—which, honey, by the way, I do. That’s 500 pounds a year that you save. Turn the thermostat on your water heater down to 120 degrees. That saves another 500 pounds.

The power of this is simply this: If we have a concerted effort at energy security—and we can ask every single American to participate in this—everyone can have a role, everyone can play a significant part. We can establish a sense of community and unity in this country that does not exist today. We can provide common purpose. We can provide a more innovative and creative economy. We can reclaim moral leadership. We can become a safer America. We can become a single community, one nation, under God. This is the opportunity for us to unite this country at a time when all of us feel separated from each other. It is an enormous opportunity.

And so while Ray Stiggy (sp) may be mad, Ray Stiggy (sp) may think this is a big deal, I think it’s a really big deal. And I think it’s an important time in our country’s history, and national leadership must call us to service. And this is one way that Americans can contribute to a stronger and better America, and that in turn can contribute to a safer and better world. And I can’t think of anything better for us to do than that.

So let me stop there. I’m supposed to go over here. I’ll be glad to answer questions.

(Applause.)

VAITHEESWARAN: Governor Vilsack, you outlined quite an ambitious strategy. But you used words that were quite evocative. I wondered if you could spend a little bit—you talked about a great awakening, and you talked about your church flier—but also, in particular you talked about what you’ve done as a governor. I think it’s no secret to anyone in this room that you’re a man on the national stage, talked about as a potential candidate at the national level, for presidency. Can you talk about the role of state governors in thinking about national policy and foreign policy?

VILSACK: A couple of comments about that: First and foremost, in America today, the engines of innovation in terms of government policy unfortunately are not at the national level; they are at the state level. The fact that Iowa is leading the effort in renewable fuel production, the fact that California is leading the effort in trying to create a system of emission control, suggest that the real power in this country in terms of innovation is at the state level.

And the reality is that the national government is usually a step or two behind. The same thing was true in the 1990s with welfare reform. It was the states that basically pushed welfare reform until finally the national government had to embrace it.

Governors are interested in many things, but they’re interested in economic opportunity within their state. And the opportunity with reference to security is not just simply isolated, if you will, or focused on the Midwest because we produce agricultural products. It is an opportunity for every single state in the country. Every single state grows something. Every single state has a natural resource that could potentially be utilized in producing more energy or more fuel. And what we need to basically do is have a national policy that encourages each of us to utilize our strengths.

In my case, in Iowa’s case, it is the ability to grow. In New Mexico’s case, it might be the ability to use the sun. In New York it might be that you have a substantial amount of opportunity with hydro or some other mechanism. So one of the keys is to have the kind of national leadership that we have within each state to encourage and challenge each state.

There is a misconception about governors, and I will tell you that I bristle when I am asked this question—you suggested the national stage. It goes something like this: You know, what do governors know about foreign policy? You know, what could you—why would you even talk about foreign policy?

Well, you know, Christie and I have traveled to 22 different countries since I’ve been governor. We’ve negotiated trade agreements, memorandums of understanding; we’ve met with presidents, prime ministers, ministers of all kinds. The reality is, in order to create economic opportunity, we have to know about the rest of the world, because the rest of the world is doing business in our state, and companies in our state want to do business in the rest of the world. So we have to know what’s going on.

We also, because of our position as commanders in chief, we actually have people in harm’s way in a variety of countries, so we take a concerted interest in what happens internationally. I have the responsibility of calling families—of communicating to families who lose loved ones. It’s the most difficult thing I do. I’ve had to do it 42 times. Our state represents 1 percent of the population; we’ve had roughly 2,800 people die in Iraq and Afghanistan, and of that number, we should have—based on percentages, 28. We had 42. So we’ve paid a dear price. So clearly we are interested in what happens around the world, and we have a sense of what needs to be done around the world.

Mr. Sorenson’s here and so—I don’t mean to embarrass him, but I would just add one other comment about this. The question is not, what do you know about foreign policy or what gives you the right to even talk about it? The question is, how do you make decisions? How do you go about making decisions?

I actually traveled to Ted Sorenson’s apartment to talk to him about the Cuban missile crisis—not in terms of what happened, but why President Kennedy put the people in the room that he put in to make decisions about the crisis, because it was my suspicion and belief that what he did was he wanted creative tension in that room to come up with a series of options from which he could choose, other than the option of war. And if these bright people, putting the national interest ahead of parochial partisan interest, couldn’t come up with any other option, then war became the only option and the best option.

It’s how you make decisions that matters, and that ought to be the question that people ask of any candidate for any executive office, whether it’s mayor, governor or president. How do you make decisions? Who do you want in the room helping you make those decisions?

VAITHEESWARAN: In terms of looking at the national interest, you said some things that were certainly eye-catching—quite—some would even say courageous. You’re a governor from a Midwestern state—strong farm lobby, obviously, and if I heard you correctly, you talked about changing the subsidy regime for ethanol as it stands—perhaps even using an inverse correlation with the oil price; that corn may not be the sustainable future for this fuel; and if I heard correctly, that you want to remove the tariff on imports, which would mostly affect Brazilian ethanol at the moment. I mean, these are hot buttons on this issue. How does this play in your home state? When Senator Lugar brought up the issue of Brazilian tariff—or the tariff on Brazilian ethanol being lifted, he was called a traitor to the state by another colleague in the Senate. I wondered if—how does this play at home, thinking about the broader national interest?

VILSACK: Well, we’ll find out. (Laughs; laughter.)

I think it’s incumbent upon anybody coming into a group like this to speak honestly. And I think it’s important and necessary for us to begin putting aside parochial interests and focusing on the national interest.

If we truly want an innovative and creative renewable fuel industry, then it needs to be challenged. And if we create a set of protections that allow it to not be as creative and innovative as possible, then we aren’t doing a service to the industry or to the people of this country.

I happen to think that there’s enough innovation and creativity in this country that if we basically reduce and eliminate that tariff that over time we will produce ethanol more effectively and more efficiently, and we’ll be able to compete with Brazilian sugarcane-produced ethanol, and I think we’ll be able to do a better job. I think we’ll create more jobs. I think we’ll create greater economic activity.

I mean, if you look at what’s happened in Iowa—we went from three ethanol plants—now there are 25 in operation, another six are under construction, another nine planned for next year. Each one of these facilities is 50 (million dollars) to $60 million. Each one of these facilities produces other byproducts that can be used to produce a multitude of other products. If we can create a sustainable, renewable fuel system and industry, I can’t tell you how many jobs can be created. And they’re good jobs. They’re not minimum wage jobs. They’re good jobs. And they create real opportunity for young people. And they also provide an opportunity for us to emphasize the necessity of math and science in our educational opportunities.

I mean, there are so many intersections. Health care, for example—if we have a renewable fuel industry, if we embrace cleaner technologies, then the notion of asthma, which is driving up health care costs, can be dramatically reduced in cities like New York. So there are so many benefits from this. It is really simply a matter of pointing out to people all of the benefits and removing the fear.

You know, this country today, it seems to me—it’s about fear. And it shouldn’t be about fear. It should be about hope and optimism and creativity and accepting a challenge and being a moral leader and being a great nation. That’s what great nations do. Great nations don’t look inward. They accept challenge. And so I’m sure people will criticize this, but the reality is, it’s time that we put parochial and partisan interests aside and put the national interest—and someone may have a better idea than I have. I suspect there are probably much better ideas in this room than the ones I’ve outlined today. But it stimulates the conversation, it gets the debate going, and it focuses the people’s attention on what needs to be done.

VAITHEESWARAN: It’s very clear that your emphasis is on opportunity, that looking towards cleaner fuels represents opportunity. That’s your experience in Iowa. I wondered if you can—and of course, you’ve talked in the past at some length about competitiveness and how to look towards the 21 st century economy, the kinds of investments that need to be made—but in this, I wondered if you could clarify for us, what do you think is the role of the government and intelligent public policies versus the role of the marketplace and the innovators that will actually come up with a lot of the innovations of the future? Where do you see the tension, and what are the limits of government?

VILSACK: Well, let me just take the example that I alluded to in my remarks about the power plants in our state. We hadn’t had a power plant built in 20 years. I went to the industry and I said: “Why aren’t you building power plants? It’s pretty clear we need the power. Why aren’t you building power plants?”

And they said, “Simply because the rules changed, and we have no predictability, no stability in the process.”

And I said, “What do you mean by that?”

They said, “Well, the regulatory structure that you have in your state today simply says, go out and build the facility; we’ll make the capital investment based on a pricing and a cost structure, but the utility board will have the capacity in five years down the road or 10 years down the road to change the pricing mechanism so that maybe what looked to be profitable and looked to be a return on capital wouldn’t be.”

VAITHEESWARAN: So there wasn’t policy certainty.

VILSACK: That’s correct.

So if you want people to invest billions of dollars, there has to be some degree of certainty about this. So we changed the regulations to provide that certainty. And interestingly enough, one utility company said, “Geez, if you’re willing to do that, we’ll freeze rates for a decade.” For a decade! So consumers got a benefit. Billions of dollars of construction occurred, and now we’ve got energy.

We went to the industry and we said: “Look, renewables are important, and we want to be a national leader. Rather than mandating, we want to challenge you, and the challenge is, produce a thousand megawatts of renewable power by the year 2010.”

They said, “Okay, we accept that challenge.”

Today we are at 1,300 megawatts and building, and it’s 2006. Why? Because we simply said, what do we need—what does government need to do to allow you to meet that challenge? And they said, “Well, a tweak here, a credit here, an incentive here; and this is what we can do.”

So government’s role is to create the opportunity to create the playing field, if you will, in which people can compete successfully. It’s to figure out what barriers exist to progress and to try to remove those barriers. And it needs to—government needs to reflect the innovation that the private sector reflects.

So just to give you a sense of this, what we did in our state—we’ve eliminated three departments of government since I’ve been governor—three whole departments. And we’ve eliminated divisions, and we have fewer workers than we had when I began. How did we do that? Well, we went to the business community and we said, “How can we change our process? It’s so cumbersome.” It took 18 months to get an air quality permit in Iowa, if you were building any kind of industry—18 months. And I suspect by most state standards, that’s probably fairly quick.

We said, “Let’s have a Kaisan (sp) and let’s figure out how many steps we can eliminate in this process without jeopardizing the quality of the work.” We now get air quality permits approved in two to six weeks. Okay?

VAITHEESWARAN: You make a great case for policy coherence and certainty. But I wonder, there’s still—and you also, I think, argued against mandates, at least in that instance. But you still talk of subsidies for renewable fuels. Is there—on the other hand, you do have a record of talking about fiscal sanity, arguing for it at the federal level—a return to—I think you’ve explicitly said the policies of the Clinton era in terms of federal budget balances—but how do you reconcile an aspiration for sensible budgeting at the federal government level with subsidies for one form of fuel or another, where government has to pick one of the winners?

VILSACK: Well, one can make the argument that the petroleum industry is also subsidized, indirectly. Some have suggested it’s as much as $80 billion annually. So it’s really, in this case, in terms of renewable fuels, it’s about making sure that the playing field is relatively level. If all of the costs of petroleum were factored into the cost of gasoline, I suspect it would be substantially higher than it is today.

VAITHEESWARAN: Would you support such a policy?

VILSACK: Well, I think the first thing we have to do is educate people about the fact that that is occurring, so that there’s not this belief that somehow when you provide an ethanol subsidy that you’re providing an unfair advantage. Okay?

Part of the role of government is to educate people, because once you educate people, they end up making the right set of decisions. If Ray Stiggy (sp) knew what I knew today about all of this, I’m sure he would probably agree with many of the things that I talked about today.

The budget issues is a troublesome issue because it—I mean, there’s so many reasons why it’s troublesome. One is because most people don’t understand how you can spend more money than you take in. It’s just common sense. You just can’t do that. State governments can’t do that. You know, we have a balanced budget. We have 10 percent of our budget in reserve. We’ve had tax relief every year I’ve been governor. It can be done. It’s not easy; you have to make tough choices. The reality is in Washington, D.C., tough choices aren’t being made.

Secondly, there are some subsidies that I think we need to take a very close look at. If you turn farm fields into energy fields, then you can begin shifting from a commodity-based subsidy program to eliminating those subsidies on commodities. Maybe you’ll subsidize conservation, but you’re not going to subsidize commodities.

When you do that—when you reduce tariffs, you are then in a position to be much more effective in trade discussions and negotiations, and maybe we’d actually have a little more success in resuming or getting some progress on the Doha rounds.

I learned this lesson when I went to Seattle in 1999. I was sitting in that room, and I realized 166 nations were able to figure out how to deal with trade issues on computers and machinery, but they couldn’t on agriculture, because there’s—everybody grows something, and America, I think, has to provide leadership.

I think earmarks are a problem. Again you have to sort of check the partisan and parochial interests and you have to look at the national interest. I think there’s a lot of money paid to consultants in federal government that may not be appropriate and necessary. There’s probably some mid-level management that could be looked at and examined.

You know, I mean, there are a whole host of things that I suspect if we got into the budget—and frankly, there needs to be a connection between the budget decisions you make and the results that you want, and that is not being done. You create a program—what is it that you want to accomplish with that program? And can you quantify specifically, by spending this money, you’re going to get this result? And can you report to the people that you’re getting the result?

ResultsIowa.org—take a look at it. It’s the most expansive statewide results-oriented state government. We tell you everything we spend, what we think the results will be, and whether we’re getting closer or further away from those results. So you reconnect people and you restore some confidence in the decision-making process.

This is the kind of innovation that’s happening in state and local government. It needs to happen in the federal government. And frankly, all of you have to recognize that the solutions to America’s problems are not on K Street. They’re on the Main Streets of our communities. And everyone in this room working together can solve a lot of the problems of this country. We just have to be asked. My church bulletin is beginning that process.

VAITHEESWARAN: Well, I’m going to take the governor at his word.

Every one of you are being asked now for your questions for the governor.

Ground rules, as always: There will be microphones available, and please identify yourself and your affiliation, if you don’t mind.

We’ll have the first gentleman in the front here. Of course, pointed and witty questions rather than long diatribes. (Laughter.)

QUESTIONER: Jim Hoge from Foreign Affairs Magazine.

That was a terrific presentation—very clear, very accessible.

One element of energy security would appear to be to cut down our dependency on energy from overseas, particularly from troubled areas like the Middle East and Venezuela. Two ways that have been suggested to do that is to massively exploit the coal reserves that we have in ways that don’t do too much damage to the environment, and the other is to do the same with the energy reserves off the coast of Mexico—the Gulf of Mexico and California. What specific, concrete steps would you recommend or be willing to back to reduce the amount of dependency that we have for energy coming from overseas, and particularly from volatile areas?

VILSACK: Well, I guess my view is—I have a great deal of confidence and faith and trust in the whole concept of renewables. I believe that we have the capacity and the ability to grow a great deal of the fuel that we can use. I’ve seen it in my state. We have embraced the goal of 25 percent of the volume of all gas sold in this country being connected directly to agricultural production. And it doesn’t necessarily have to put agricultural production for fuel in competition with feed, with fiber, with all of the other needs that we have for agriculture. There are tremendous opportunities for us to be much more efficient with switch grass, for example, that can be grown on relatively non-usable land. It uses less water, and it uses less fertilizer, and therefore less energy to produce it, and you can have multiple crops of it. The question is, how—you know, can we accelerate the production of that?

I’m a little concerned about environmentally sensitive areas, in terms of—and I’m also not convinced that they have the long-term potential. I mean think about the ability every year—every year—to renew the supply—not to wait a hundred years or a thousand years, but every year, to renew the supply. So maybe it’s my Midwest bias, but I really think there is tremendous capacity. And it’s not just what we grow in the Midwest. It’s what we grow in this state. This state—the number two industry of this state is agriculture. It’s municipal waste. It’s livestock waste. I mean, there is so much opportunity here if we challenge the creative talents and basically say, This is the goal: 25 percent of all the gas that we have—this is the goal—we’re going to use it from agriculture production.

Secondly, let’s figure out how to create materials and processes that use less energy and less fuel. Rockwell Collins is working with Boeing right now on creating airplanes of lighter, stronger materials, and the benefit of this will be, number one, more jobs; number two, less fuel used in transporting people from place to place. And this is the thing I really like: Number three, you won’t have to fly from Chicago to Iowa to get to any other place. (Laughter.) You’ll have more direct flights.

Now Fred Hubbell understands what I’m talking about, because he’s from Iowa. It’s a pain to have to fly anywhere from Iowa. It’s hard, because you have to—you don’t have enough juice to get from Iowa to any other place, so you have to go to Chicago and then you have to wait, and it’s delayed. (Laughter.)

VAITHEESWARAN: Well, the Brazilians have come up with a way to use ethanol in turboprop planes—(inaudible)—tells me so. Perhaps at least you can make the short hop using ethanol.

VILSACK: Well, the Indianapolis 500—all the Formula One cars are going to be using it. NASCAR’s going to convert to it.

I would also suggest that the American Association of Architects and the mayors of the large cities of this country have also challenged us to think differently about energy and to think differently about buildings and construction. They have suggested by the year 2030 that we have construction that doesn’t—basically is a sort of a net—zero-sum game in terms of carbon emissions, and it equipped with heating and cooling devices that don’t basically add to our problems in terms of carbon.

So I mean, there are tremendous opportunities relative to new materials, new construction, new vehicles, new transportation systems, to reduce the amount that we use, plus a renewable strategy to increase the amount that’s available.

VAITHEESWARAN: I saw a hand over here. Question? So, Mr. Sorenson next.

QUESTIONER: Mark Levinson with JP Morgan. I want to thank you for a very interesting talk.

The interest in ethanol is really supported by federal legislation that requires the oil companies to buy a certain number of billion gallons of ethanol a year and mix it in with gasoline. Next year is farm bill renewal. There is more than a little interest, I think, in creating various types of ethanol set-asides within that, so there would be not only a general renewable fuels standard for ethanol, but there might be a separate standard for, say, corn-based ethanol or switch grass ethanol or wood-waste ethanol, or even sugarcane ethanol, if you can believe that we would make ethanol in Florida from the world’s most expensive sugar—and obviously a lot of political interest in having different types of agricultural product have their own ethanol set-asides. Do you think this is a good idea? Is this a road we should go down?

VILSACK: Not necessarily, because I’m not sure that it actually motivates the industry to do it in the most efficient and effective way. When you start—when Congress starts selecting a particular raw material, then I think basically—I don’t think Congress is in the best position to make that decision. I think the industry and the marketplace is in the best position.

I think you create an atmosphere, you create a climate in which innovation is supported, and then you let the marketplace figure out what’s best. From the Midwestern standpoint, switch grass has tremendous potential, but it obviously doesn’t work in some other states. And it’s a question of the demand that we can create.

To me, the Brazilian ethanol ought to be used to help us convert to E85 more quickly than we have the capacity to do it today, because we just don’t have the capacity and the facilities in place. But we will have the facilities in place, and if you create a climate, then I think the private marketplace will respond, and I think it will respond in the most efficient and effective way.

I’m concerned about the farm bill because I think it—you know, I think this is an opportunity for us to really focus on a real rural strategy to improve rural America. I would prefer the farm bill provide assistance to make sure that the Internet is available in all the rural communities. In my state, 93 percent of the communities have access to high-speed Internet. That’s not true in other rural areas of the country, and it needs to be true if we’re going to be competitive, if we’re going to meet the challenges of the 21 st century.

I would prefer conservation be enhanced in the farm bill and less focus on commodities support. I would like to see our agricultural industry convert itself from a commodity producer to an ingredient producer. I see a day and an age where, because of research and because of an understanding of the genetics of plants and so forth, that we have situations where one farm field is producing the ability to produce plastic.

I mean, just so you know, there is research today—petroleum-based plastic could be a thing of the past. I mean, I have seen with my own eyes corn kernels and grasses being grown where you have polymers growing inside of that crop. There are tremendous opportunities here. And I think what the government wants to do is create a playing field where all of those innovations can be encouraged without necessarily saying, “This is the winner.” I don’t think we do a very good job of saying, “This is the winner.” I think we say renewable fuel is the winner—you all figure out what’s best and most efficient and most effective.

VAITHEESWARAN: It sounds like you do want to support the renewable economy but, within it, step back and not pick specific winners.

VILSACK: Yeah. You know, what we did in Iowa—and I think, you know, you have to get the consumer prepared, and there was a lot of angst about renewable fuels in terms of what it was going to do engines and what it was—and there’s still a lot of work that has to be done to make it the most efficient in terms of mileage standards and so forth.

But by making it cost-competitive, people started using it and then the demand just grew, and now—by the way, Iowa’s got the lowest gas prices in the country, and there’s a reason for it: because 80 percent of our fuel mix is ethanol, and it reduces the cost.

VAITHEESWARAN: I see, Mr. Sorensen had a question?

VILSACK: Folks don’t have to stand up, do they?

QUESTIONER: Welcome, Governor.

I know, after 40 years here, the rules well enough to know that neither you nor I will be violating them if I change the subject—(laughter)—from energy security to homeland security.

I believe that 9/11 had an adverse effect on the traditional civil liberties of this country, and that one, more successful terrorist incident will change this country in ways that none of us would welcome, whether that incident occurs in the New York subway or on a barge coming down the Missouri River or a nuclear explosion in a container crossing Iowa in a truck or a rail car. For that reason, I think the states and city governments are really the front line in the defense—that’s where law enforcement has traditionally been in this country. What about Iowa? Are Iowans well protected against some kind of terrorist attack or explosion? We have a rather unique system here in New York, and we need one. I think Iowa and I think everybody in the country needs one. And the federal government’s not providing it.

VILSACK: I would be able to answer that question with greater confidence if I felt that the current efforts at the federal level were directed at the most serious and most significant threats facing America. I’m not convinced of that, based on the fact that we still are not certain as to where all the nuclear weapons are, or when the Soviet Union collapsed—where we do know where we are, we’re not particularly reassured by the fact that some are still secured by padlocks and hopefully guards that aren’t on the take.

There has not been a major emphasis, in my view, on protecting this country from nuclear terrorism and biological terrorism, and therefore I’m not sure I can answer your question in the affirmative.

I will also tell you that the Midwest has been very concerned about agroterrorism, which is an issue that this national government today does not pay as much attention to as I believe it should.

VAITHEESWARAN: This is food supply?

VILSACK: This is food supply. You know, spinach. You know, I noticed we didn’t have any for breakfast this morning, and may not have it for a while. One cow in Washington—the state of Washington—created panic in the cattle industry and could potentially affect—did affect the production of beef and the sale of beef.

So agroterrorism is another concern. And I went to the secretary of Agriculture several years ago and said this is an issue that you really ought to invest in, and you ought to empower a consortium of Midwestern states to look at ways in which we can identify, detect, prevent, marginalize the impact of agroterrorism. The secretary of Agriculture was not interested, which surprised me, so I went to the Homeland Security secretary. We got a $2 million appropriation to create this consortium, and we’ve had to fight every year for a continuation of that. So that tells me that we’re perhaps not focused on the right set of risks. 

The second concern I have about homeland security—I’ve got two other points I’ll make quickly—is that we do not still have an integration of and a cooperation between federal, state and local law enforcement officials. There isn’t the information sharing that really needs to take place for us to be more secure, to know when there might be an attack, or to be able to mitigate or prevent it.

And finally, while you have a great system in the city of New York, we still do not have the communications system in my state or nationally that would allow us in the face of a catastrophic event to be assured that we would be able to communicate with one another, police to fire, fire to first responders, first responders to civic leadership.

And the last point I would make is—in terms of civil liberties, I think we have to realize that as we deal with global insurgency, it really is a battle more of—it’s far beyond a military issue. It’s a battle, as some would say, of hearts and minds. And it is important in this country, very important, for us to have our rhetoric match the reality. And if we are the country of due process and justice and freedom and so forth, then the reality has to reflect that. Otherwise, we empower the extremists on the other side of this battle to go and say, “See, these folks are hypocritical.” And it’s not easy.

In this day and age of new communications systems and so forth, it’s going to take a lot of smart people focusing on how we can have that rhetoric meet the reality, and at the same time protect ourselves against what can be very, very serious consequences.

VAITHEESWARAN: I think we have time for a final question. Just here?

QUESTIONER: Pete Peterson.

Governor, I was delighted to see you mention conservation. And like everybody in the room, I’ve read quite a number of studies on energy policy. Most of them improve CAFE standards, which you mentioned, but of course, that’s a longer term thing, because you’ve got the existing population of automobiles.

The other two that are frequently mentioned that I didn’t hear you emphasize very much was an energy tax—Europe, as you know, has a $3.80 gasoline tax. Ours is about 38 cents. We use over four times as much gasoline per capita as they do. The other is more nuclear power. Can you imagine a political scenario where it would be politically correct or suitable to mention those two rather toxic, if I could—forgive the pun—(laughter)—approaches to conservation?

VAITHEESWARAN: Well, you almost escaped, Governor Vilsack, but not quite. (Laughter.) But let us have our question every politician loves to get.

VILSACK: I did mention nuclear, and I think it’s important and necessary for us to have a more enlightened view about that in the long term if we’re really—and I think the way we begin that process is by focusing on the environmental benefits, long term, of that strategy, and recognizing that today the concerns are security of those facilities—and to Mr. Sorenson’s question, I’m not sure that we really can be reassured that we have the private market security around some of our facilities that we need to have—and secondly, the issue of waste. And I briefly alluded to the fact that I think we have to have a different conversation about risk in this country in terms of how we ask or demand of a community or a state to assume that risk. Is there a different way to make it more palatable than it appears to be today, where we’re locked in litigation forever over whether or not we can compel one place or another to accept that.

Here’s the issue with the tax—and it’s not a lack of political courage to talk about taxes; it’s the fact that if you want to engage the American public in a massive, concerted effort to change their way of life, to change transportation systems, to change buildings, to change their consumption patterns, you’ve got to bring them along. And the last thing you want to do is talk to them about something which will immediately allow opponents of this to make it so that they don’t even listen to the entire program.

If you’re going to have a tax, it seems to me the best way you could talk about that would be in terms of stabilizing the cost of fuel so that people wouldn’t be lulled into a false sense of security when oil prices were lowered, either because there is more production than we need or because they’re trying to undercut the renewable industry. That might make some sense, to stabilize the price. But I think if you get into a situation where you’re going to say, “We’re going to penalize you—we’re going to penalize you so that you use less,” I think what you do is you lose the public. And if you lose the public then you lose the ability to move in a different direction.

VAITHEESWARAN: Would you feel the same about a revenue-neutral tax, where the—

VILSACK: No—I think Al Gore’s idea is an interesting one and an intriguing one, where you essentially—his point is, today we penalize employment with employment taxes; what we should be doing is penalizing pollution. Now you know, that’s an intriguing notion.

There’s some—I was in New Hampshire not too long ago and this fellow came up and he gave me this big, thick stack of papers, and he said, “You need to read this; this is the key.”

So I figured, if this is the key, I’ve got to read it. (Laughter.) And so I read it, and basically what he was suggesting was doing away with the entire income tax—(laughter)—the whole kit and caboodle, and replacing it with a consumption tax, and having that consumption tax—it’s pretty complicated, but that consumption tax be different depending upon the amount of carbon or the amount of pollution problems that that particular consumption causes.

Well, that’s an interesting concept and it’s a pretty bold idea, but you can imagine what people would do with that idea. So I mean, you have to bring people along; you have to educate. Part of being a governor, part of being a president, part of being a mayor, as Christie will say—you’ve got to be part teacher and part preacher. Okay? And I think we can inspire people. I think we can encourage people. We can challenge people. I don’t think we necessarily want to make it easy for those who oppose this to basically say: “They’re just going to tax you, and it’s, you know, the same old deal. They’re going to tax you. Government’s going to take more of your money.”

How about, government’s going to help you become a better citizen by contributing, and here are six things that you can do, and here are six things your children can do, and here are six things every American can do. And you begin that process.

And I just have a lot of faith in people, that if we challenge them in that way, we will be, I think, better off as a country and a nation.

VAITHEESWARAN: Very good.

It’s time to draw things to a close. Let me make a quick comment. On your way out, there are copies available of the Energy Task Force report. I highly recommend it to you. It’s off embargo as of now, essentially.

And in closing, if I may invoke a comment from Winston Churchill himself back a century ago when he talked about energy security, he did say, “Variety and variety alone is the best guarantor of energy security.” At the time he meant variety in sources of oil, but perhaps as we enter this new century, that variety will refer to a diversity of fuel supplies, including the innovation in the energy policy realm, the ideas that we’ve heard from the governor today.

So I hope you’ll join me in thanking him for his comments.

Thank you so much.

(Applause.)

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