Jim Mulva, Chairman & CEO, ConocoPhillips 

Keynote Perspectives on Climate Change
Summit on America’s Climate Choices 
March 30, 2009

We have heard about the scientific complexities of climate change. We have also received the perspective of government as it considers solutions. My role is to offer a third perspective, that of industry. More specifically, the viewpoint of a major energy company, ConocoPhillips.

Our perspective is not one of opposition. It is a complementary perspective that completes the picture. I say this because it is at our level, that of business, that all our efforts will intersect. The scientific knowledge of the academic community will influence government policy. But it is business that must respond to the resulting policy initiatives. Next the public would react through its purchases of our products, and through altered behavior. Only then would we begin the long journey toward achieving climate security.

I have been in the business for 36 years. That’s long enough to have seen the energy crisis and shortages of the 1970s. Then relative market stability over the next 20 years. Followed by, more recently, another energy boom and bust, along with the global economic crisis.

Over these 36 years, world population rose by nearly three-fourths to 6.7 billion. Total energy demand nearly doubled. Now, the world is headed toward 9 billion people within the next three decades. We face the challenges of providing unprecedented quantities of food, housing and energy. At the same time, we must protect the earth’s climate.

This past year of global economic distress has been painful for all of us. It has demonstrated that we can not rely on the approaches of the past. The challenges in our complex, inter-related world have grown too large, and too immediate. The task of meeting them requires new forms of cooperation between academia, government, and industry. As part of this process, we must understand each others’ differing perspectives.

The Perspective of ConocoPhillips
ConocoPhillips is an energy company with a global presence. Our largest base of activity by far is the U.S. But we also operate in more than 30 other countries, and virtually every climatic setting.

Within these countries, there is a wide range of governmental responses to climate change. Some countries, of course, have taken no action at all. But in others, regulations are imminent, or already in place. Even some U.S. states are enacting regulations, in the absence of a federal policy. In addition, public calls for action are gaining force. Here in the U.S., badly needed energy infrastructure projects are being opposed, partly due to concerns over their greenhouse gas emissions.

It now appears likely to us that Congress will take action on climate. Only the form and timing of legislation remain uncertain.

So we are not strangers to the business risks associated with societal response to climate change. We are also well aware of emerging business opportunities. For example, in 

• cleaner fuels,
• low-carbon power, 
• carbon capture and storage, 
• and new technology applications.

Like you, we have tracked the climate issue with rising concern, given its potential impact on us and the world. In 2007, we joined the U.S. Climate Action Partnership. USCAP is a group of diverse businesses and environmental NGOs that share our concern.

We also became the nation’s first U.S.-based integrated energy company to call for a mandatory national framework to address greenhouse gas emissions.

In the meantime, we were already working to improve the energy efficiency of the 17 refineries in which we have interests. A dozen of these are in the U.S. As you know, refining oil into consumer products consumes a great deal of energy. So the more efficient we are, the lower our energy requirements, as well as our greenhouse gas emissions.

We were also participating in industry R&D on carbon capture and storage. We were researching renewable fuels. As a result, we soon started making renewable diesel from surplus vegetable oil and animal fat. We were already a leading producer of natural gas, which is the cleanest-burning fossil fuel. We were also producing advanced materials for the lithium ion batteries in electric vehicles. And we were perfecting our own coal gasification technology.

As a further step, early last year we developed a comprehensive climate change plan. It has five action items:

• First, building organizational capability in the form of processes, people, tools and technologies. These are intended to prepare us to succeed in a low-carbon business environment. 
• Second, reducing our own emissions through energy efficiency and improved operating practices. 
• Third, pursuing new opportunities in low- or zero-carbon businesses. 
• Fourth, leveraging technology to reduce emissions from existing operations. This while using carbon trading to manage compliance obligations. 
• And fifth, engaging externally on the climate-change issue. Which, by the way, explains my presence here today.

As part of these coordinated efforts, we now regularly measure and forecast our greenhouse gas emissions. We also consider climate change issues, and the future cost of carbon, when formulating our strategic plans. Overall, we are preparing to operate successfully in a world in which governments are increasingly taking action on climate change.

But there is more to this issue than initially meets the eye. We believe that the U.S. can not focus on climate change alone. It must also improve its national energy security. The tight oil market of early 2008 reminded the public of the nation’s vulnerability. It also served as a reminder of the role of supply and demand in determining prices. As a result, the public overwhelmingly supports more domestic energy production, in all forms. These include oil and natural gas, through environmentally responsible onshore and offshore drilling.

We believe that the public would reject any effort to address climate that, as a consequence, caused energy supply shortages or raised prices too far, or too fast. At the same time, the public wants to address climate change. So we also believe that any effort to increase energy supplies alone would also be rejected, unless climate was addressed as well.

Further, in taking action on climate change, the U.S. can not overlook the cost to the economy. We live in a competitive world. For every U.S. company or industry, there are capable counterparts elsewhere who are eagerly seeking an edge. If climate policy here increases energy costs without protecting business from unregulated foreign competition, our industries could be disadvantaged.

In addition, the global economic recession has hit the U.S. harder than many other countries. So consumers who are already impacted are likely to reject any proposal that further damages their economic interests.

The job of transitioning to a low-carbon economy is enormous. It will require hundreds of billions of dollars in investment each year, and trillions of dollars between now and 2050. These investments can only be made with wisdom and certainty if there is a clear set of well-thought-out federal rules. So our policymakers must tread carefully if they are to take successful action.

It seems clear to us that the fossil fuel industries, oil, natural gas and coal, must be closely involved in developing climate change solutions. After all, these industries produce the lion’s share of society’s energy. We are the ones most likely to be targeted by legislative initiatives. So we must have a voice in the debate.

In return, we have much to contribute. For example, we understand the energy supply chain. We can offer technical insight and economic realism to governmental policies.

Further, there are complex global issues involved. We operate in the global economy every day. We have a great deal of technological expertise in the chemistry of hydrocarbons, and in their transformation into usable products. This expertise will be essential in reducing the carbon intensity of our energy supplies. It will also be vital to perfecting techniques to capture carbon emissions at the source, and permanently store them. Our industry has been researching these challenges for years.

Consider too that there are more than 1.8 million U.S. jobs directly related to oil and natural gas. There are another 4 million jobs created indirectly. These nearly 6 million people represent an enormous knowledge base. They will be vital to our national energy and climate security efforts.

And finally, our industry can contribute to finding a solution to climate change through our experience in making large investments. These can require long periods of time, often decades, to generate a return. Climate change investments will be long-term in nature as well.

Climate Legislation from an Energy Industry Perspective
Our prior speakers have described what is needed from the scientific and policy standpoints. We must also ensure that the resulting climate policies are effective, while minimizing their cost impact. At the same time, we must ensure that we can sustainably meet society’s energy needs in a low-carbon world.

To do so, first of all the U.S. needs a well-thought-out, comprehensive national energy policy. This must be carefully coordinated with a national policy on climate change. USCAP has created suggested guidelines for climate policy, which I will discuss in a moment.

Currently, the lack of federal energy and climate policies represents a key uncertainty for our country, and for business in general. From an energy company standpoint, we do not know all the actions that will be required to address greenhouse gas emissions. We have already made significant capital investments in energy conservation. However, we can not move forward on other potential investments until we know the rules. We must also have confidence that the rules will remain stable.

So we urge the Obama Administration to work constructively with Congress. We need an enduring, well-designed and comprehensive federal climate policy that will receive bi-partisan support. Further, a uniform federal approach would be far more effective than the patchwork of state legislation that is now emerging. It would also be more effective than attempting to address emissions through existing environmental statutes. These were not designed for this purpose, with the Clean Air Act being an example.

Finally, federal legislation would better ensure compliance by companies that operate nationwide. This would also help reduce the cost of compliance, and thus the cost to consumers.

Second, we fully support intensive development of alternative and renewable energy. But federal climate policy must also recognize the essential role of fossil fuels in the energy supply mix. They represent about 83% of total U.S. energy supply today, excluding the ethanol in gasoline. Even with strong federal support, alternative and renewable energy can not be brought online fast enough. They can not significantly replace fossil fuels, not for decades in our still-growing society. As a result, fossil fuels must still supply 79% of total energy in 2030. This is the current U.S. Energy Information Administration estimate. That is only four percentage points less than today.

Third, natural gas must be recognized for its potential to serve as a clean bridging fuel. It can provide the time needed until renewable and alternative energy can pick up the load. In fact, natural gas is in renaissance in the U.S. To illustrate this point, proved reserves in the U.S. had peaked in 1967. This happened as we ran out of new places to drill for conventional gas. Reserves then declined for 22 of the next 26 years, bottoming out in 1993.

But they have since increased 45%. This is thanks to new technology that produces unconventional gas from tight sands, and from shale rock. This progress could continue, particularly if the U.S. opens new onshore and offshore areas for development. Again, the public strongly supports expanded access.

Further, this additional gas could be essential in the effort to protect climate. Take, for example, any serious effort to reduce emissions by requiring utilities to use less coal. This would likely increase gas demand, given the long lead times needed for the alternatives. So to meet near-term demand, we would need expanded domestic access for exploration and drilling.

Let’s look farther into the future. The natural gas already discovered in Alaska is awaiting delivery to the Lower 48. And one day, new technology could enable us to add natural gas hydrates to the resource mix. This could make several centuries of supply available.

Fourth, Congress should not disregard oil and coal. The U.S. is the Saudi Arabia of coal – as well as of unconventional oil in shale rock. Our neighbor to the north, Canada, has enormous resources of heavy oil. We need these sources – as will our children and grandchildren.

Still, their carbon impact must be considered. We should develop ways to produce them in cleaner forms, using more climate-friendly technologies. Carbon capture and storage could ultimately be a solution. We must explore this technology to the fullest possible extent. We can do this through government funding of research that supplements the industry’s own R&D.

And lastly, Congress should avoid trying to pick the winning technologies or fuel sources. Although hindsight is 20-20, foresight is not. No one can predict with certainty where research and development will lead. The best approach is to pass federal legislation that establishes a price for greenhouse gas emissions. Then, let the technology winners emerge through market competition. Consumers are very good at determining what products offer the best value.

USCAP Climate Policy Recommendations
I have mentioned the U.S. Climate Action Partnership. I will close with an overview of USCAP’s Blueprint for Legislative Action, which was released in January.

I emphasize this proposal not only because it is a possible path forward, but also because it represents a balanced view of climate policy. Its proposals have proven acceptable to a number of leading businesses and environmental groups. Therefore, it is an example of the intersection of climate science, public policy and economic reality. If you have not reviewed the Blueprint, you should visit the USCAP website to do so.

USCAP is a consensus organization of 26 businesses and five environmental groups. They have in common their concern about climate change. Although we are the only major U.S.-based oil company in the group, Shell and BP, which are foreign-based majors, also belong. So do the following:

• several utility companies, 
• manufacturers, 
• mining companies, 
• technology providers, 
• financial services firms, 
• food suppliers, 
• and pharmaceutical companies.

The NGO members include:

• the Environmental Defense Fund, 
• the Natural Resources Defense Council, 
• the Nature Conservancy, 
• the Pew Center on Global Climate Change, 
• and the World Resources Institute.

USCAP believes that that each year we delay taking action on climate change, heightens the risk that drastic measures will be needed later. Therefore, it calls for strong and early national legislation to slow, stop and then reverse the growth of greenhouse gas emissions. Its consensus recommendations are intended to guide in the development of federal legislation. They were formulated through lengthy consultations and give-and-take among the member organizations.

Admittedly, USCAP does not include all stakeholders. But it does include a representative range of interests and views. Its recommendations were designed to be environmentally effective, economically sustainable, and politically acceptable. Admittedly, meeting all of these objectives will not be easy. But they are prerequisites of any policy that is to be seriously considered by Congress, and embraced by the public.

Obviously, this is not the only possible path forward. But the Blueprint could be a starting point. Its proposals have been considered, debated and endorsed by organizations with diverse points of view. The process used was similar to what lies ahead for Congress.

I will not go through all the Blueprint’s details, but will mention the key points. Keep in mind that these are integrated recommendations, meant to hang together as a comprehensive policy. Thus, the Blueprint is not a menu of policy elements from which to pick and choose.
For example, it calls for aggressive reductions in greenhouse gas emissions. The ultimate objective is an 80% reduction below 2005 levels by 2050. This is a stringent target. So it must be coupled with a package of cost-containment measures. These include the generous use of offsets that are designed to prevent harming the economy.

In fact, a well-designed economy-wide program is the core element. It includes transportation fuels, large stationary sources and commercial and residential natural gas consumption.

In addition to outlining the design and function of a cap-and-trade system, the Blueprint suggests a number of complementary measures. These cover coal, technology transformation, transportation, and buildings and energy efficiency. All are needed in order to facilitate rapid technology transformation. They would also ensure that reductions in emissions occur across the economy.

USCAP believes that the distribution of allowance value should facilitate the transition to a low-carbon economy for both consumers and businesses. It would help provide capital to support new low- and zero-emissions technologies. It would also address the need for humans and the environment to adapt to climate change. A significant portion of the allowances should be initially distributed to capped entities, and to economic sectors that are particularly disadvantaged.

The Blueprint identifies principles to guide the fair and equitable allocation of allowance value. This would mitigate costs to consumers and the impacted economic sectors. It would also help protect U.S. business from unregulated foreign competition.

The Blueprint emphasizes the importance of an international approach to climate change. So it includes principles and recommendations regarding the development of international policy. However, the U.S. should not wait for simultaneous action by other countries. It should move forward by implementing its own mandatory measures and incentives for reducing greenhouse gas emissions.

Finally, even the best design on paper may not meet its objectives as intended. Also, conditions may change over time. So USCAP recommends that climate legislation incorporate look-back provisions. These would periodically assess the social, environmental and economic impacts of climate policy and make adjustments as needed.

Conclusion
In conclusion, we have a formidable task in front of us. Time is not on our side in this effort. The establishment of regulatory certainty is a prerequisite so that business can make the necessary investments.

But we can not underestimate the difficulties faced by Congress. Addressing climate change will not be easy. Neither will it be accomplished quickly or without cost. It is a complicated issue, and so will be the process that creates policy.

Congress must craft a workable policy that can earn enactment, as well as public support. No matter the mechanism that is ultimately adopted, we believe that the policy must be developed through collaboration and cooperation. The academic community, government and industry must all be involved.

The experience that ConocoPhillips has had with USCAP has highlighted both the challenges and benefits of working together. We have gone to school, so to speak, on the fine art of compromise in pursuit of the greater common good.

In this spirit, we urge the President and Congress to open their doors to the business community. We are ready to work together to enact an environmentally effective, economically sustainable and fair climate program.

Thank you.

END

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