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US energy policy "detached from reality", says Chevron

ENERGY POLICIES based on unrealistic expectations could do more harm than good to the US economy, according to Chevron's next boss. Speaking to the US Chamber of Commerce in Washington last month, Chevron vice-chairman John Watson – who takes over from David O'Reilly as chairman and chief executive officer at the end of the year – said overly restrictive policies could backfire, increasing the nation's dependence on foreign oil and discouraging investment in new technologies for improving the environment and for developing alternative fuel sources.

"The sheer scale of our energy needs is far beyond the capacity of any one source or technology," said Watson. "It's false to assume that renewables can replace conventional energy in the near term, as we are sometimes asked to believe."

As a result, the country's reliance on conventional energy sources will continue well into the future. Yet, Watson pointed out: "From a policy standpoint, the US has been moving in the wrong direction for a very long time. Although talk of energy independence has been in the air since the 1970s, one policy after another has severely limited domestic exploration and production."

As a result, over the past quarter of a century US oil production has declined by nearly 4m barrels a day (b/d) while its demand has risen at the same level (see Figure 1). "Even with the most ambitious targets for fuel-efficient cars and more use of biofuels, the US is still going to be importing nearly 8m b/d of oil by 2030."

New reserves must be discovered and developed to offset production declines and help reverse that trend. "Even so, when oil and gas is discussed here in Washington, the general idea is usually to impose more taxes on producers," Watson said. "The result is to hinder development and leave the US ever more dependent on foreign sources."

Watson criticised the carbon emissions cap-and-trade bills before the US Senate and House of Representatives, which he said were "an example of how goals detached from reality can do far more harm than good to our economy and to American workers. As written, these bills would lay heavy new costs on every family and business in the US. They would create new government bureaucracies; they lack transparency; and they would unfairly burden the petroleum sector with hidden costs on transportation fuels." A cap-and-trade system sets limits on emissions volumes, but allows companies to exceed those limits by purchasing credits from other companies whose emissions are below the limit.

The Chevron executive called the country's emissions-reduction goals unrealistic. "The world cannot replace its entire energy system in just a few decades," he said. "And to seek those reductions, without any realistic plan to economically replace the energy we lose, is a straight path back to a pre-industrial economy.

There are serious and systematic ways of reducing carbon emissions for the long term," Watson noted. "But trading in false hopes and inflated numbers will get us nowhere."

Reliable, affordable energy is "a prime mover behind sustained growth in employment, productivity and wealth," Watson said, noting that the energy industry's contribution to the economy has resulted in more than 9 million part- and full-time jobs and 7.5% of the country's GDP. By fuelling economic growth, he added, oil and gas can help to move the country closer to a low-carbon energy economy.

"Alternatives depend on innovation, and innovation depends on growth and open economies," he explained. "Growing economies are always better situated to make the big investments that yield the long-term pay-offs."

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