U.S. - China Energy Policy Dialogue

MODERATOR: Good afternoon, everyone. Welcome to the Foreign Press Center. I'd also like to welcome those in New York. It's my pleasure today to introduce Ms. Karen A. Harbert, the Assistant Secretary for Policy and International Affairs at the U.S. Department of Energy.

Today, Ms. Harbert will tell us about her recent trip to China. She was there for the U.S.-China Energy Policy Dialogue and she'll share some of her thoughts with us on that today. We'll follow this with some Q&A, so please join me in welcoming Ms. Harbert to the microphone.

ASSISTANT SECRETARY HARBERT: Thank you and thank you for organizing this for us today. We thought it would be helpful to review with those of you that are interested some of the issues that we discussed at the energy policy dialogue last week in China.

The energy policy dialogue that took place last week was the second meeting of the U.S. and Chinese energy officials; the first one being June of 2005 where we inaugurated this annual event here in Washington with Secretary Bodman and his counterparts. I led the U.S. delegation there which was composed of a variety of elements of the Department of Energy, the Department of State, the Department of Commerce and certainly our local embassy representatives participated as well.

As the two largest energy consumers in the world, both countries feel it is of utmost importance to increase our understanding of each other's policies, programs and priorities. And the Energy Policy Dialogue is a forum for which we will meet annually to look at how we are implementing our respective energy policy priorities.

Here in the United States we obviously have tremendous emphasis on energy with the backbone of the Energy Policy Act of 2005 and the recent presidential initiative, principally the Advanced Energy Initiative. We took some time to really dissect those for energy policymakers in China for them to understand where we are placing some of our research dollars, where we are placing our incentives to commercialize advanced technologies and what our forecasts are for energy supply and demand in the future.

For the Chinese side, they have a new 11 year -- 11th five-year plan, which holds a great commitment to energy efficiency and reducing energy intensity in the Chinese economy while maintaining economic growth. And we took the opportunity to really understand in far more detail how they plan on achieving this reduction in energy intensity while maintaining economic growth.

And I should say that both countries feel very strongly about sustaining the world's economic growth, while ensuring that we have access to reliable, affordable energy and doing it in an environmentally sustainable way. So it was a great confluence, I think of objectives for those countries and our energy policy. We certainly have different empathies in how we achieve those mandates and that was a subject of some discussion. We also talked about how we each define energy security and we define it differently. And we talked about the value of a strategic petroleum reserve. We have a significant strategic petroleum reserve here in the United States and China has embarked upon establishing its own strategic petroleum reserve with phase one under construction. And we talked about China's plans on actually filling that and what that means for the world's supply of energy. And they are very sensitive to filling it in a very responsible manner and in filling it in a way that will not in any way affect the supply of energy on the global market.

We talked about the high price environment in which we find ourselves and the value and actually providing as much information as possible to the energy markets so that those that are involved in the energy markets, principally the speculators and other types of players would have more information on which to base decisions.

Let me stop there and perhaps you've seen some of the reporting that came out of the meeting, so I can be more specific in responding to Q&As. I will also say that I have John Mizroch here with me from the Department of Energy who is in charge of energy efficiency and renewable energy. And if we want to go off into some technical areas, John is well placed to answer some questions and about the future cooperation that we also see between our two countries in helping them achieve their energy efficiency target. In fact, it should be of no surprise that it is of interest to the United States to have China be a more efficient energy consumer. Not only is it in their interest because it's a good thing for their economy, but we all need to be energy -- more energy efficient consumers because that will provide and expand the supply of energy worldwide.

With that, I'll take your questions.

MODERATOR: Why don't we open the floor to questions? Please wait for the microphone and state your name and news organization.

QUESTION: Good day. It's Chris Baltimore with Reuters news agency. A two part question: You mentioned that the meeting last week -- we're hearing now that Asian leaders are planning a big energy confab in Beijing October 23rd through the 26th. I just wondered what the level of participation would be with your Department. And the second question would be related to the International Energy Agency and coordinating global stockpiles with China. And I just wondered, from your perspective, how much could China participate in the IAEA global stockpile strategy, could they be an IAEA member or what level of participation is the U.S. looking for?

ASSISTANT SECRETARY HARBERT: Okay. I'll take that in reverse order. On the IAEA, in order to be a full-fledged member of the IAEA you have to be a member of the OECD and China is not a member of the OECD. That being said, they do participate in -- currently participate in programs of the IAEA as they relate to energy analysis on certain parts of the energy sector that are of interest to them.

We talked with them about bringing them in to more parts of the IAEA as the IAEA represents the consuming nations. And it is inconceivable to have a very serious discussion about energy consumption without bringing the issues of China demand and China issues to the table. So in that respect, we have encouraged greater participation by the Chinese in the IAEA and specifically as related to the strategic petroleum reserve, through the IAEA we have availed China of the variety of experiences and practices of the other IAEA members and how they actually govern their own strategic petroleum reserve so that they can see the broad array of policies that different countries actually utilize.

We impressed upon the Chinese that we feel it's very important that in establishing their own strategic petroleum reserve that they use it in a manner that is consistent with the international principles, which means that they use it for mitigating severe supply disruptions and not for high price mitigation. And I think they're very understanding of that -- importance of that policy backdrop.

We also talked about once an SPR is established of some consequence in China, the value of them actually participating in a coordinated response. We don't want to see a situation where there is a significant international supply disruption and China not being able to participate or that they participate outside of an international response. And we are going to continue to have discussions with them about this, inviting them to future IAEA meetings about this. And in fact, they'll be coming to the United States later on this fall to participate in the conference here where most of the consuming nations will also participate on SPR management.

QUESTION: The meeting in --

ASSISTANT SECRETARY HARBERT: Oh, I'm sorry. The meeting that is occurring in October in Beijing is a meeting of some of the principal consuming nations -- the top five consuming nations as envisioned by Beijing. They have invited us to participate. We're looking at the subject the matter, the agenda, and what would be the appropriate representation. But we certainly will be participating in that event.

QUESTION: I'm Zhengxin Li from China Economic Daily. I mean, China actually there are a lot of choices in putting on the table like a renewable energy -- methanol, ethanol, these kind of things. In your analysis, what are the probably one or two (inaudible) that China should pay special attention to at the present time and in the near future? Thank you.

ASSISTANT SECRETARY HARBERT: Thank you. As I see it there are two significant opportunities for China at the moment. As China becomes an increasingly important economic player and certainly an increasingly important player in the energy markets, with that comes a concomitant responsibility to be a responsible player in the global energy market.

Secondly is in order to achieve their energy efficiency target, it is absolutely imperative that they seek to diversify the types of energy that they use and expand the use of renewable energy in the energy mix. They have certainly put some resources into research in renewable energy and we feel that there is significant room to be made in expanding that part of their energy mix. There is also a significant part of the energy consumption in China is derived from the industrial sector. You have a booming economy and the industrial sector is a large consumer of energy and will only continue to increase unless China takes a hard look at how its industrial sector is consuming its energy. And in that regard, we have a very successful program here in the United States, which analyzes certain industries and suggests ways so they can actually improve their energy efficiency, improve their bottom line. And we have offered to make available our experts here to the Chinese Government so they could fashion a similar program that would actually be almost energy savings audits. They could go and help audit some of their industries and suggest manner and ways that they could improve their bottom line. So it's diversifying, increasing renewables and being a responsible energy player.

QUESTION: George Gedda of AP. Did the issue of the relationship between China and Sudan with respect to oil come up at all? And could you describe the nature of that discussion, if it did?

ASSISTANT SECRETARY HARBERT: We have always -- first of all, in my strict bilateral discussions, it did not come up specifically. What we have advocated to the Chinese Government and what I discussed when asked this question in Beijing by other media is that we, the United States, do not support the administrations of countries that support the development of weapons of mass destruction, that do not support the respect for human rights and we would expect other countries to do the same. And we certainly do not support the use of capital to prop up any regimes that are in support of either human rights abuse or the development of weapons of mass destruction.

QUESTION: I mean, in what context did you -- I'm sorry. How dependant on Sudanese oil are the Chinese and what was their response to your comments about relationships, energy relationships whose countries with poor human rights records?

ASSISTANT SECRETARY HARBERT: Well, China has invested in Sudan. It's investing in other countries like Iran and those countries and the administration leadership of those countries are embarking on a policy path that the United States Government does not support. And it's very important that the Chinese Government understand that and we did not make it a principle focus of this energy policy dialogue. This dialogue was focused on: are there areas where we can cooperate; are there areas where we can help become better consumers; are there areas where the advancement of alternative sources of energy would actually help improve their and our energy security. And that was really what we tried to focus on.

MODERATOR: Another question?

QUESTION: Okay. My name is Bu from China branch at the Voice of America. The failure of Chinese effort to buy the U.S. oil company of Unico seem to indicate that a lot of American politicians regard Chinese state-owned oil industry as kind of a threat to U.S. national interest. Under this (inaudible) how U.S. and China can cooperate on energy industry and what is your opinion on Chinese state-owned industry -- oil industry?

ASSISTANT SECRETARY HARBERT: Well, it is in our interest for China to be a more efficient user of energy. And there is ample room for improvement as their economy is growing and will continue to grow very, very rapidly, their need for energy will grow as equally, as rapidly. And it's certainly in our interest to help them be more energy efficient. And so there are ample areas of opportunity to help them do that. And a lot of that advance technology that is currently on the market and commercial available is here in the United States. And there's room for it to be immediately applied for some immediate energy savings in China and that would be a terrific sign of significant new U.S. investment opportunities in China in an area in which they need it.

In light of your comments about CNOOC and its initial bid for a U.S. oil company. CNOOC eventually withdrew the bid on its own accord. And obviously Unico was then bought by another company. We have said the U.S. is open for business from China and from any other country and we hope that the same applies in other countries, that we are able to own assets, to develop assets in other countries.

We're strong believers in free trade and market principles and we talk about that with the Chinese about how as one becomes an emerging economic and energy player in the market, how important it will be to adhere to market principles and transparency and respect for the rule of law, respect for contracts that really is the principle underpinning of becoming an increasingly responsible player in this volatile energy market.

QUESTION: Jianyou Wu from the Chinese press Guangming Daily and how do you see the prospect of further cooperation between China and the U.S. in terms of energy exploring, energy development, energy efficiency usage?

ASSISTANT SECRETARY HARBERT: I see a couple of areas of immediate opportunity in the expansion of some ongoing activities. Obviously, our activities in the United States are undertaken by the private sector and there are U.S. companies active in China. And as importantly, there are ventures in third countries where Chinese companies are partnered with American companies and there are more opportunities around the world for that to occur. And we certainly support that.

On the energy efficiency side of things, we certainly believe that there is room for expansion in the area of biofuels. We see room for opportunity in realizing industrial savings -- industrial efficiency, if you will. We see an area of opportunity in the expansion of nuclear cooperation. Nuclear power in this country with the help of the Energy Policy Act and strong presidential commitment is experiencing a rebirth. And the President has articulated a very expansive international vision for nuclear power through the Global Nuclear Energy Partnership and we have had discussions with China about how China might fit into that. And in the immediate term there is an initiative called the Generation IV International Forum. And that is a group of countries, ten countries, that are undertaking jointly the development of the next set of advanced technologies for nuclear power.

We currently have Generation III-plus which is the type of technology that is utilized today. Generation IV will be the next version of the technology that will be employed in the nuclear industry and these ten countries have agreed, by consensus, at the urging of the United States, to invite China to join in this research so that as China expands its nuclear power greatly in the coming years that it will be able to participate in the most advanced technology, the most proliferation-resistance technology that exists.

We talked about that while we were in China and have reiterated our invitation and our pleas that the Chinese Government will be proffering forth its application in the near term.

QUESTION: My name is Higuchi from Jiji Press, a Japanese news agency. My question is about energy cooperation between the two nations, United States and China. And so my question is: What do you expect of Japan in order to improve the Chinese energy efficiency? So how can Japan commit to this energy cooperation between the United States and Japan? And may I ask a second question? And my second question is that China and Japan has an energy dispute problem regarding the oil exploration project in the southeast of China Sea, so I'd like to know your thought in this regard.

ASSISTANT SECRETARY HARBERT: Just to be clear, the first part of your question was on U.S.-Japan cooperation or on U.S.-China cooperation?

QUESTION: Both. (Laughter.)

ASSISTANT SECRETARY HARBERT: All right. Let me start with the Southeast Asia sea issue, because my answer there is very clear, very direct and very simple. This is a dispute that must be resolved between the Chinese Government and the Japanese Government and it must be done in coordination with, and in consultation with, the companies that are currently affected by this dispute.

On U.S.-Japan cooperation and U.S.-China cooperation and on the U.S.-China cooperation I'm going to ask John to elaborate a little further on some of the energy efficiency ideas that we've put forward for concrete expansion. For U.S.-Japan, while I didn't recently return from Japan, I can say that, you know, we have the longest relationship, energy cooperation, is with the country of Japan. Based on -- we have an office in Japan. We have significant cooperation going on in science and technology and undertaking joint research. We regularly have very large delegations of scientists working side by side with our scientists in the variety of Department of Energy labs that are spread out across the country undertaking research in advanced energy technologies in a variety of nuclear -- not nuclear, but fusion experiments. And certainly we are cooperating with them on a lot of international multi-national activities. The international program for a hydrogen economy, the Carbon Sequestration Leadership forum, the Asia Pacific Partnership, these are all international agreements with many countries of which U.S. and China and Japan -- all three countries -- are playing a leadership role.

John, do you want to add something on -- you might want to use the mike.

MR. MIZROCH: Just to elaborate -- to answer your question in just a second -- to elaborate on energy efficiency, energy efficiency includes both buildings which consume roughly 40 percent of energy use in urban areas, but also appliances and other things that use energy. We have the same issues in the United States that the Chinese do, that the Japanese do, that the world does. Karen mentioned the Asia Pacific Partnership which is newly created, inaugural meeting in January, I think in Sydney. There are six nations in the Asia Pacific Partnership, including Japan, and all six nations consume 52 percent of the world's energy between the six nations. And we are working in partnership, all the countries, both in our countries and with each other to look at and try to come up with solutions for all of these areas. It includes energy efficiency and it includes specific industries in Asia Pacific Partnership such as steel, aluminum, cement. All three of which are huge energy users.

And so a specific answer to your question, the dialogue that we had with China was a bilateral dialogue, but we're cooperating very closely with Japan and the other partners in the Asia Pacific Partnership to try to do the same exact thing. Our dialogue and APP, I think, are complementary. They don't go off on separate tracks.

ASSISTANT SECRETARY HARBERT: Another area I'll just mention, which I haven't mentioned yet, is the area of clean coal. Both countries are blessed with an abundant source of coal and it is quite striking that China is building a new coal-fired power plant every week. And it is certainly an environmental concern and an opportunity for China to improve its energy efficiency, its environmental record by employing clean coal technology. And we are very supportive of the efforts they have done to date in their research, but we certainly are much more supportive of commercializing some of this technology and putting it into use in China and have offered to bring China more officially into our effort called the FutureGen project which is an initiative to build the first emissions-free, coal-fired power plant in this country. The Chinese industry has joined the project. It is being underwritten 80 percent by the U.S. Government and 20 percent by industry and other governments that choose to take part of this effort. The only other government to date that has joined the effort is the Government of India and so we are very hopeful that the Government of China will join. Its industry has, so they are active participants in this program which will actually help them over the longer term if they continue to expand the use of coal in their country as a domestic resource to actually do it in a much more environmentally sustainable way.

MODERATOR: We have time for, say, two more questions. Let's go to New York. Go ahead New York.

QUESTION: Hi. This is China Central TV, Li. My question is: Would you please elaborate more on the cooperative side and competitive side of China-U.S. energy projects? And if you could give me some examples that would be more -- better.

ASSISTANT SECRETARY HARBERT: Thank you. On the issue of competition, we do not feel that we are in competition for resources. Oil is a commodity that is traded on the global energy markets and energy security is not defined by who owns the asset. It is traded openly and it is supplied where the price environment is most profitable. So in that regard, we have not seen ourselves in competition with one another for energy resources. In the area of cooperation, energy efficiency, clean coal, nuclear, biofuels, those are the areas that we have made as a priority for our country and areas that we feel would be of benefit for the U.S. and China to expand our cooperation, which will help them diversify their energy mix, help them actually achieve a greater degree of energy security. And ultimately provide for a variety of sources of energy, which will improve the reliability and affordability of energy in their country as it undergoes and continues to undergo significant economic expansion.

QUESTION: Thank you. Donghui Yu with China Press. You mention that the two countries are sharing in the cooperation on the areas of nuclear power. But U.S. also poses a rather strict control on the high-tech export to China, including the nuclear technology. So how do you base and coordinate these two kinds of policies? Thank you.

ASSISTANT SECRETARY HARBERT: We have very strict policies in place for very good reasons. And the type of expansion that we're seeing with nuclear energy around the world only compels us to be that much more intent on enforcing the type of regulations we have that will prevent the proliferation of nuclear material, fissile material that could be used for the production of weapons of mass production or other type of terrorist related activities. That being said, we want to see the expansion of civilian use of nuclear power which is why we believe that the use of advance technologies, those technologies that are proliferation resistant is the way to go, which is why we want to be able to cooperation with China on developing this Generation IV technology which will actually help them realize their nuclear expansion goals, but in a way which will be completely proliferation resistant. So I think we actually have policies that are very complementary to each other.

I'll add that another part of our discussions with our counterparts in China revolved around reform -- energy reform. As they continue to expand their use of energy, they have looked at the price environment in which they find themselves and they've raised the prices of gasoline several times, but they are still significantly below international norms. And in the context of our discussions about markets, the value of market principals, we did talk about the need to rationalize their pricing. Certainly keep maintaining a low price on energy is not an incentive to be a better consumer. And the importance of passing on the true price of energy will actually be a very important part of their energy efficiency policy mix.

MODERATOR: Do you want to take one more question?

ASSISTANT SECRETARY HARBERT: I can take one more and then we've got to go.

MODERATOR: The very last question.

QUESTION: Hello. Caroline Daniel, Financial Times. You spoke out about the U.S. and China having a different view of energy security. I wonder if you can point out the chief philosophical differences between the two countries, particularly you raised the idea of the ownership of energy supply. Thanks.

ASSISTANT SECRETARY HARBERT: It's not going to (inaudible) as one principal difference, but we believe that the best energy security is one that is based on market principles, the open and free flow of goods and it is not dependant upon actually being in the ownership seat of assets, given that energy is traded on the global market. We believe also in a free and open and market-based pricing system that has not yet been endorsed or adopted by the Chinese Government. And I think that we also believe that the power of financial incentives is a very strong tool here in the United States. We incentivize the adoption of new technologies. We incentivize the use of energy efficient cars, energy efficient appliances, energy efficient building -- appliances and construction. And that is not yet a widely adopted policy instrument in China. And we spent some time elaborating about how to better utilize the power of the market to incentivize good energy behavior.

MODERATOR: Thank you, everyone, for coming. That concludes our briefing today. We will have a transcript available, either later this evening or tomorrow morning. Thank you.

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