Interview: API's Red Cavaney

HOUSTON, Feb. 18 (UPI) -- A major theme of last week's CERAWeek conference was an acceptance of climate change -- both on the environmental front and political -- but an insistence that oil and gas will be necessary if global energy demand remains and continues to rise.

Organized by Cambridge Energy Research Associates, the confab featured executives of major international and national oil companies -- from ExxonMobil and Shell to Saudi Aramco. United Press International caught up with Red Cavaney, president and chief executive officer of the American Petroleum Institute, the top lobbyist of U.S. oil producers.

UPI began by asking his thoughts on the oil industry's role in addressing issues of climate change.

A: The industry, API and leadership, has decided that we want to be at the table, wants to be an active participant, with the U.S. government as it addresses this issue and comes up with some regime to take care of climate. We have certain views as individual companies within the industry. But what we concluded was the best thing to do was to go to the table without any preconditions, in other words we're not going to go and say, "Well, we're here but we won't do this" or "we're here and we're going to champion this." We want to have people understand that we want to be a full participant.

Now, having said that, there's some interesting things that have happened that most people don't know about. Number one, if you look at the transportation sector, particularly as it relates to individual transportation for cars and light duty trucks, we have already been as a result of the energy bill that was passed in December of 2006, we are under a regime which is going to significantly reduce the greenhouse gas emissions from automobiles and of course our fuels. So that's one piece that's already being done so we're not only willing to go to the table and sit there but we're already working with the government and the auto industry to try and figure out how to maximize the value of that new regulatory regime that's been set in place for us.

There are also states that have done a leadership role in this, California and they are joined by at least 11 other states and several more have asked to join in, which they are coming up with this low-carbon fuel as its been identified. Trying to decarbonize the fuel system. So we are actively working as an industry with those states. We don't yet know fully how to do that but it's obviously something that needs to be addressed and we're going to do that. We're approaching that climate challenge as a valid one. We want to underscore though that if you look at the rest of the world it shouldn't be only something that Europe and North America and Japan tackle, it needs to be done more broadly, particularly from the rapidly expanding economies in the developing world, China, India and the others. We think that's an important component. I don't think you probably could get something through the U.S. Congress without some condition, maybe not binding or not necessarily saying the exact, but some commitment trying to encourage that we get the broadest participation possible.

Q: What was the turning point for the oil industry, petroleum industry? Obviously, it's not traditionally been a supporter of regulation when it comes to emissions.

A: We originally embraced voluntary participation and if you'll look at the record of voluntary participation, we report our gains to the government, and you compare those against many of the countries that are participating in Kyoto and our companies are in both conditions, the results in term of reductions are actually better on the voluntary than the other. But it's very clear that the day for having something exclusively voluntary, it had passed. And so the industry recognizes you're going to get some that have the broadest possible participation, it shouldn't disadvantage voluntary efforts; they ought to be a part of it but recognizes there should be some mandatory portion. That happened to us probably beginning of last year, the latter part of the year before that, and we've been working on it since. The other catalyst for that is a recognition that there was actually going to be a congressional effort under way -- in the past there wasn't sufficient critical mass intellectually to pass something. But when the Democrats took control of both houses of Congress and they have made a strong commitment to moving this, it means there's going to be hearings, there's things that are going to go on, we wanted to be a participant at those. We didn't not want to be there.

Q: Of the three front-runners to be our next president in this country, what are your thoughts on their policies and how do you think it will affect climate change and other issues?

A: First of all …

Q: Have you endorsed a candidate?

A: No we don't. I think the general view is there's going to be a lot of noise about climate throughout the course of this year but ultimately the issue probably is going to manifest itself in terms of legislation in the next congress. There may be a House bill that will actually get to the floor and there may a Senate bill that will get to the floor. But getting to conference, and going through all that that's too much to expect to get done. So sort of focused on action coming in the next Congress. And obviously who survives the election and is the next president is going to play a major role in shaping that debate as typically a president does, particularly if that person makes climate change and addressing that issue a key part of their platform as they're running for office. They can argue they have a mandate for providing that leadership. So that's going to go on.

Q: You talk about the need for educating the American public. The oil industry for whatever reason has a pretty negative perception of it in the public. How can the oil industry …

A: We do have a negative perception and in part we share some of the blame for that because the industry never made it a priority to get out and spend a decade or two educating the public about what it takes to get energy. We recognize that. I think that real turning point occurred when Katrina and Rita, the two hurricanes, came through the gulf, the industry ... by any measure, produced a Herculean effort, evacuated all those rigs, not a single life lost not a single spill without having ... despite having 30 percent of our refinery capacity down nobody went without the fuels they needed and the industry basically thought when that was over people would say "Nice job, thanks," and it didn't happen. They just got a torrent of accusation of price gouging and all those other things. And that was the wake up call. As a result of that our leadership has committed to a long-term effort to educating the American public about the parts of the industry. The need for capital and how without capital we can't even give you the energy we gave you yesterday and all these kind of things.

Q: Earlier you talked about congressional momentum and there's some momentum for whatever reason for a windfall profit tax and you keep hearing that all the time. How is the oil industry going to tackles this, especially with the Congress what it's going to look like next year?

A: We'll use some of the very same arguments that we've used in the past. As you know Congress has several efforts to pass a windfall profits tax or a variation of that and it's been defeated. … If you end up laying a tax on top of the industry, it's coming right off the top and there's going to be less investment.

Q: So you've found that Congress is generally receptive and you expect them to be?

A: We've defeated that bill several times last year, we defeated it in the previous Congress. People will look at the facts. … There's just no data that would support taxing the industry benefits the consumer by getting more energy. And we're going to have to go through that debate again. Right now it looks they're going to bring it up probably end of February. Look, we support all those alternative energy tax credits. Our analysis is we need as a country all the energy we can get and if you tax us to try and make them sustainable on their own, you're going to get less energy because number one we're not going to invest at the level we need to and we don't know if they'll actually be able to eventually go it on their own all of those. So if the goal of the country is to have energy security get more domestic energy then why do we have to follow the pay go system where you have to offset it. Just go ahead and take general revenues from the treasury, give them their tax credits and let them go do what they do, we'll do what we do and the American consumer will be a lot better off and have a better chance of sustaining the delivery of the kind of energy they need.

Q: Some of the things the American consumer is affected by are outside of this country, considering we import 60 percent of our oil we consume. Looking at it on a global scale with the price of oil being what it is, what is your take on what is the happy medium for price that will satisfy both consumers and producers? What needs to happen to bring it down to a level that you all feel more comfortable with?

A: First of all, it's a global market, nobody can establish the price, nobody's going to permit a price to be established. What we've looked at and our prescription we'd say is 'here's how you get the maximum supply and a commodity anytime you have maximum supply you're going to get it at the most competitive price then.' First of all we need to get a much higher priority on energy efficiency. There is a great deal that can still be done on energy efficiency. We're doing a lot as an industry, voluntarily and we report it to the government. Second, you need to increase your sources of supply both domestically as well as internationally, which means you need to have a foreign policy that has that as a priority, and it means you have to lift a lot of moratoriums what we're not permitted to have access to in the United States. Next you need a commitment to technology. If you look at most of the great gains that were made in oil and gas it's come about as a result of technology breakthroughs, so that's going to have to be applied there. The other thing we need to be thinking about is that we need all the energy sources we can get, by any scenario that you look at. So what we ought to do is not prematurely take or disadvantage one energy source to advantage another. It's not a zero sum game; you need all of it to go forward. And as a result of that we need to have a policy framework as a country that is consistent with minimizing the risk of an industry that must make long-term capital commitments and therefore you can't have a regulatory framework that is constantly changing and therefore raises the specter of whether or not if I make this investment am I going to be able to have a reasonable prediction that I'll know what the return will generally be over 20, 30 years. We think that will get you the energy security umbrella that will get you affordable energy in the world. Because you are affected by what else goes on and certainly we're going to see huge demand coming out of the developing world.