GOLDEN AGE OF GAS

MONDAY, JUNE 4, 2012

WASHINGTON, D.C.

WELCOME/MODERATOR:

Adnan Vatansever,

Senior Associate, Energy and Climate Program

Carnegie Endowment for International Peace

SPEAKERS:

Carlos Pascual,

Special Envoy and Coordinator for International Energy Affairs,

U.S. State Department

Dr. Fatih Birol,

Chief Economist,

International Energy Agency

Gina McCarthy,

Assistant Administrator, Office or Air and Radiation,

Environmental Protection Agency

Eric Pooley,

Senior Vice President for Strategy and Communications,

Environmental Defense Fund

Transcript by Federal News Service

Washington, D.C.

ADNAN VATANSEVER: Good morning. My name is Adnan Vatansever. I’m a senior associate here at Carnegie’s Energy and Climate Program. And I’d like to welcome you all. Apologies for the slight delay, as there has been a major traffic jam which caused this delay and we really wanted to wait a little bit.

Now, it’s really an honor for us to be hosting this U.S. launch of this major report by the

International Energy Agency, “The Golden Rules for a Golden Age of Gas.” And as this is a report of really tremendous importance as it covers a subject that one could probably describe as one of the major most important innovations in the energy sector of the past few decades – that is innovation in the unconventional – about unconventional gas.

It’s no coincidence that it has been described very often as revolution. These are the words

that are very commonly used whenever you talk about unconventional gas. And of course, a key question is how this revolution is going to unfold. And you can never take it for granted.

[00:21:05] It’s very important to discuss what will be the major driver there, and one of the major

drivers that will determine how it unfolds is how the environmental challenge are tackled in relation to developing unconventional gas. And this is a report that provides a guideline about the ground rules to tackle these environmental challenges.

We are joined here by a very distinguished panel of leaders in this field. We’ll start with

opening remarks by Ambassador Pascual, followed by half-an-hour presentation of the report by International Energy Agency’s chief economist, Dr. Fatih Birol. Following this presentation, we’ll have two more speakers – Gina McCarthy from the Environmental Protection Agency and Eric Pooley from the Environmental Defense Fund.

I’d like to welcome Ambassador Pascual. He is – we are very honored to have your

presence here to do the opening remarks. Ambassador Pascual, as you may know, is the State Department special envoy and coordinator for international energy affairs. In this capacity, he advises Secretary Hillary Clinton on energy issues, ensuring that energy security is advanced at all levels of U.S. foreign policy.

Prior to his appointment, Ambassador Pascual served as the United States ambassador to

Mexico and was vice president and director of the Foreign Policy Studies Program at the Brookings Institution. Ambassador Pascual, the floor is yours.

[00:22:34] CARLOS PASCUAL: Thank you very much. It’s great to be back in the neighborhood

again. And I see my predecessor, David Goldwyn, in the audience and a great deal of work that the State Department is doing on gas issues – really goes back to David’s time, who had the foresight to identify some of the resource potentials and the environmental issues and really got the State Department involved in this in a central way.

One of the things that David did was he laid the foundations for what now has become an

energy resources bureau in the State Department. The job that we have, I divide it up into three

parts. One is the energy world that we have today, which is 85 percent hydrocarbons, and how do we manage that effectively; the energy world that we have to build for the future and how do we create the incentives, the market incentives, to create the demand for energy efficiency, renewable energy and clean energy technologies; and then the world that doesn’t have energy, and how do we develop commercially viable models so that they can in fact generate and stimulate private investment that is necessary to build energy access?

And it’s in that context that I have become involved in these issues. I’m extremely pleased

and thankful for the fact that Carnegie is hosting this session. There is no issue in the energy world that is more important and more challenging on economics, on energy policy, on environmental policy and on foreign policy. And Jim Collins, I know, is here – and I underscore this last bit on the foreign policy bit because the implications are absolutely huge as well in the way that gas is traded into the future.

[00:24:09] And so what I’d like to do in the opening is just give you a taste – a little bit of the taste of

the complexity of these issues and what’s to come, and then the panel will continue from there. And I will look with great interest for the recommendations and the advice that many of you might provide today. But I hope we can continue this dialogue and maintain it afterwards.

In a sense, this graph actually tells you what this is all about. In about 2005, 2006,

unconventional gas – shale gas – accounted for about 1 percent of U.S. gas production. Today it counts for about 35 percent.

You see it there in the context of the gas mix overall, increasing to potentially about 49

percent – almost half of gas in 2035. And if you add tight gas and coal bed methane, unconventional forms of gas could be close to about two-thirds of the gas that’s produced out of the United States, which is just stunning.

[00:25:05] The way that it’s produced is that as opposed to normally – in the past of what you’ve had

with conventional gas is that you drill thousands of wells. And each of these has an initial large spurt and then a lifespan where it begins to tail out over time. And what you basically see here in the psychedelic graph that my 12-year-old son thinks is the only good part of this presentation – (laughter) – is that you see how these wells follow onto each other over a period of time.

But this is also what begins to tell us about what some of the environmental challenges are

because you’re drilling thousands of wells, right? And as a result of that you get a phenomenal amount of movement into communities. You get trucks constantly moving in and out.

You get questions that arise of are there emissions that escape from these wells, what is the

impact on the water table, how much water do you need to actually use in production, what kind of chemicals are being used in the process of fracturing and in the process of hydraulic fracturing, where do the chemicals go when they come out, how do they get treated, is there a seismic impact as a result of drilling these thousands of wells – and hence, the questions that arise of is this an environmentally sound set of processes that are being undertaken?

And again, these are sets of questions that are proposed in “The Golden Age of Gas” report

and the rules for the golden age – “Golden Rules for the Golden Age of Gas” – to be able to ensure that if you’re going to follow a path like this, you can actually make it an environmentally sustainable path that gets pursued.

In the United States, we have been quite active in trying to address these issues. And I know

Gina will go into these in much greater detail. The president asked Secretary Chu to convene an advisory board that gave him a whole series of recommendations. There have been a number of internal coordinating processes that have been led by the White House. She’ll talk more, I’m sure, about the work that they’re doing on water and other regulatory issues.

[00:27:14] The Bureau of Land Management is putting in place as-proposed regulations on the

disclosure of chemicals. That applies only to federal lands because they only have authority over that. But it has an impact on how states are going to respond. We’ve seen a number of states who have already taken action.

We were discussing the use of the progressive versus the past tense as we were on the way

over here. And we can change establishing to established in the first two, where there are a number of states that have been taken – taken action already on disclosure and on baseline actions.

And of course, it’s going to be critical to have a dialogue with communities because there is a

lot of fear and concern about what this could happen. And so, if this is going to proceed forward, it has to be accompanied with seriousness on the environmental side to reassure communities and to make sure that we do it in an environmentally sound and sustainable way.

Now the importance of this is not just the United States but what it means for the rest of the

world. This is from an EIA – Energy Information Agency – study that was done some time ago. These amounts are way too high. It was a desk study that was done over a couple of weeks. It’s a quantitative analysis for illustrative purposes as opposed to definitive qualitative – quantitative numbers.

[00:28:28] But it’s illustrative to begin to indicate what the potential is around the world and how

quickly it could grow. Now, look at this. What we’re going to do here is take one-quarter of the amount of the EIA study and follow the development – the path of development in the Barnett field in the United States, and look what you end up getting.

Look at that curve – the slope of that curve. And what it starts telling you is that there is a

realistic potential here that shale gas can add – can go from order of about 8 trillion cubic feet to 55 trillion cubic feet in a relatively short period of time, adding phenomenal volumes that come into play in the global environment.

And so if these countries really have that kind of potential, part of what we have been trying

to do in the State Department – and this is what David Goldwyn was so critical in starting – is to

begin a process of taking the best lessons that we learn in the United States on regulatory and environmental procedures and sharing them, because this is an everybody-wins scenario.

If a country is going to develop gas, one of the things that we want to make sure is that they

do it in a way that takes into account the best lessons on what has been achieved. So let me give another perspective on this. As a result of these increases in gas, you see – and this is from the – an earlier version of the “Golden Age of Gas” report that was done in the World Energy Outlook last November. OK, so you see gas rise like this; you see it start to bend the coal curve – another environmental benefit if you can get it, of countries increasingly switching from coal to gas.

[00:30:14] You see oil start to taper off – another environmental benefit if you can get a switch from oil

to gas. You see questionable issues that arise of how does this depress potentially other renewables. And then you get another reality which is highlighted in the report, which is – if this is all

you do, it’s not sustainable; you can’t make this all that you do because you end up with still 650 parts per million in CO2 concentrations. And everybody who has been schooled in the world of climate change knows that we can’t go over 450, and some would argue that we have to be even lower, right?

So the point of this is that you can’t take this as the end of the road. This comes from the

World Bank and it shows what you have to do – the kinds of measures that you have to take to get from the top, which is the business-as-usual case, to the bottom, which is a 450-parts-per-million-CO2 concentration world.

And the biggest issue is energy efficiency. That’s what’s going to get us the biggest gain.

And we have to keep reinforcing the importance of that. So let me just give you a second on the geopolitics. Here’s a map that illustrates the price of gas around the world. In the United States, it’s about – been about $2 to $2.20 per million BTU. In Asia, it’s been between $13 and $20 depending on the time that you buy and what’s happening on the spot market.

[00:31:39] The reality of that is caused by demand in different locations, oversupply in the United

States – in part because there are long-term contracts for coal, so we haven’t been utilizing as much gas as we might have otherwise. And the other reason is we can’t export it yet. And that process is beginning and the Department of Energy has an approval process that it has to go through in order to improve LNG exports.

But here’s another interesting dimension. Pipeline trade has still about 75 percent of all gas

that’s traded in the world. But LNG trade has been growing at around 20 percent a year. Pipeline trade has been relatively flat. So what does that mean for the geopolitics? Well, you know, when you have a pipeline, you have a point-to-point monopoly, right? If you have LNG, you have a competitive environment where you’re starting to trade.

And so, how does that apply to the world? Well you know, if you think about who has the

biggest gas reserves or who has the largest recoverable reserves? Russia, Iran – put those two at the

top. Are they interested in what happens on how you trade this gas and whether you have point-to-point relationships or whether you have a competitive environment? You bet.

China, which is hugely increasing the amount of gas that it’s trying to import; Japan, which

has become particularly reliant on gas imports as a result of the shutdown of nuclear plants, you bet. And so, these issues have fundamental paramount foreign policy implications of who has power in the future, whether it’s a monopoly power, whether it’s a competitive environment. So what I want to leave you with is that as we go into these issues, they are hugely important and complicated because of the role that they are going to play on economics, on energy, on environment, on geopolitics.

[00:33:25] It is absolutely a critical thing that IEA has done what it’s done. I commend you, Fatih, for

the report that you’ve done and put together. Even if people disagree with parts of it, it is so important that we are having this discussion and debate.

And so, on that note, I’ll say a couple more words about Fatih Birol, who is the chief

economist at the IEA. I’ve been with him in multiple seminars all over the world. He has played a fundamental role in analyzing every issue from the balance in oil markets, the role of gas to the importance of renewable energy and how we inject that in a way that the world conducts its international energy policies. And I congratulate you and the IEA for the role that you’ve been doing in that, Fatih.

Gina McCarthy, who is the assistant administrator of EPA and responsible for the Office of

Air and Radiation. She was previously in charge of the Environmental Protection Agency in the state of Connecticut and has been a stalwart in ensuring that anything that we do with the advancement of gas also is addressing environmental concerns, and will lay out more of what the U.S. government can do.

Eric Pooley, distinguished journalist in addition to his role at the Environmental Defense

Fund. I haven’t read his book, “The Climate War: True Believers, Power Brokers and the Fight to Save the Earth.” It’s a great title. As someone who, you know, used to work next door and used to write books and try to sell them as well, you know, buy his book. You’ve just got to support us in this principle.

[00:34:57] ERIC POOLEY: Thanks for the plug. (Laughter) MR. PASCUAL: But he’s someone who’s had a distinguished career at Bloomberg, at Time

and a number of other places. So fantastic panel, great discussion you’re going to have. Adnan, congratulations for setting it up. Jim Collins, thanks for asking me to participate in this. And I hope you have a great session today. (Applause.)

MR. VATANSEVER: Thank you very much, Ambassador Pascual, for your opening

remarks and for a very concise presentation that’s outlined some of the really key questions that are

going to be discussed, and going to be discussed not just today but will be fundamental for a very long time I believe. I’d like to invite Dr. Birol to start his presentation on this major report.

FATIH BIROL: Mr. Ambassador, ladies and gentlemen, dear colleagues. Good morning. I

would like to thank you, first of all, Mr. Ambassador, for this very comprehensive presentation and remarks. And it is more or less – I don’t – if you had time to read our report but it was more or less the executive summary of our report. So I am just going to elaborate some of the statements he made and try to make some detailed comments.

Last year, we made a report which we called “Are We Entering a Golden Age of Gas?” –

with a question mark. And in that report, it was in the context of voter energy outlook, we put the question mark because we knew that the resources were there, as Mr. Ambassador showed you. We knew that the economics would work. And we knew that the technology was there.

[00:37:08] But why we had the question mark is we thought there was a potential roadblock in front of

the going to a golden age of gas, namely environmental and social challenges it faces during its extraction and production.

So it is the reason why we decided to suggest some principles – which we call golden rules in

court – in order to address, to be followed, to minimize if not nullify the environmental implications of shale gas or in general unconventional gas production because, to be honest with you, some of the concerns, if not most, in many countries in the world on the shale gas production and extraction are legitimate concerns.

And in many countries today, we have the risks that the shale gas production,

unconventional gas production can be slowed down or stopped completely because of those concerns. So therefore we thought – we made such a report in cooperation with many governments with experience in the field, many experts –and some of them are there – who has contributed heavily to this project, and also companies and NGOs, academia and others.

[00:38:39] So therefore, I am going to now tell you a bit what are those rules, and if those rules to be

applied, how the world can change. And as Mr. Ambassador said, the changes will be economic changes, environmental changes, and perhaps the most important is the geopolitical changes. If I can summarize it in one sentence, I believe the unconventional gas boom, if it continues as we suggest, it can well fracture the established balances in the world energy system, as I’m going to try to prove you.

Now – where are we now? First of all, we all know that in North America, there is a huge

boom in terms of unconventional gas supply. The resources are there. And this has given some good inspiration to many countries in the world – China, Australia, in Europe – several countries in Europe – and in Latin America.

So this is definitely good news and there are different resource estimates. But even taking

the most modest version of those resource estimates, which we did, is enough to make this major

change in the global energy landscape. However, as I said, there are concerns in many countries about the environmental and social risks that the production and the extraction of shale gas may contribute, especially for the local communities in terms of land use, in terms of water resources.

We have seen a few incidents in several countries which were definitely not very helpful.

And we also see – or we also know – that not following the right practices may end up with air pollution and higher greenhouse gas emissions mainly coming from methane. And as a result, if they are not addressed properly, these challenges, it may well threaten to hold back of the unconventional gas revolution.

So therefore, we think a key challenge for the industry is to get a visa, if I may say so, from

the public to get the social license to operate. And this is definitely the key challenge in front of the shale gas revolution.

[00:41:29] Now therefore, we have developed, as I said, in cooperation with many experts throughout

the world and companies and NGOs once again some rules which we call golden rules and which are the principles which we think that allow the government, industry and other stakeholders, all of them together, to address the environmental and social implications. We have seven of them.

The first one is about transparency. I think much of the public concern is linked in many

countries – lack of enough transparency. Public doesn’t have reliable and up-to-date information, competent information. And this would definitely be one of the key steps.

For example, what we suggest is the governments and the companies, before they start any

operation, they should measure the water quality the air quality in the region and throughout the operation, continue to measure and monitor and give the results with the public, share with the public how it is changing if it is changing or if it’s not changing to make it public.

Or another one is about chemicals – what kind of chemicals are used, what is the volume of

that, what are the implications of that? We believe there is a need for full disclosure of the chemicals which are used. Or with the engagement with the communities and we think that there is a need that the companies make sure that the benefits are also felt by the local communities, the benefits from shale gas production.

[00:43:23] Second principle we have is the “watch where you drill.” I think the careful choice of the

sites, the digging sites, can reduce first of all the above-ground impacts – populated sites versus non-populated sites, what kind of areas you are drilling. And the below-surface, I think there is a need for a very careful survey of the geology and the seismic activities there.

Third point, to isolate the valves and prevent leaks. This is also crucial because of the leaks

are very important in terms of the pollution, in terms of the water contamination. We think that the robust rules need to be put on the paper in terms of valve design – how the valves need to be designed. The construction rules and the cementing rules should be put there, and the integrity tests

of the valves should be part of general performance standard for the operations. And perhaps in some cases the authorities may want to consider the appropriate minimum depth limitations.

The issue of water I am going to very quickly – these are all detailed in our report. Water is

at the heart of the shale gas production. It requires much more water than the conventional gas, even though it is small; it is equal to the oil production but requires more than conventional gas because of the fracturing, of course.

The sound management of water resources is at the heart of it, and particularly in the regions

where there is water scarcity. Mr. Ambassador showed China, for example. China has huge resources but water scarcity; water management is a key issue here. And we think a reduction of the fresh water use by improving the operation efficiency is crucial. And also, measures need to be taken in order to reuse and recycle the water.

[00:45:50] Also in terms of the chemicals used, one may have to be – one may consider that the

companies have to be encouraged at least to use chemical additives which are more environmentally friendly.

Fourth, eliminate venting and minimize flaring. Methane, the major component of gas, is

one of the – following CO2, carbon dioxide – one of the major greenhouse gases and a very potent gas. And it is very important that the flaring and the venting of gas is to be fixed.

Therefore, our here golden rules is the operator to target zero venting and minimize flaring

and as such the design and that competition is very, very important. Perhaps here, we think public authorities may need to consider imposing restrictions on venting and flaring and specific requirements for installing equipment to minimize emissions for the different countries, as this is definitely one of the key issues. And if you do this, the zero venting and minimal flaring, the different of the CO2 – difference of the greenhouse gas emissions coming from the shale gas is only slightly higher than the conventional gas.

Be ready to think big – and what does this mean? The authorities may think that there will

be only one valve vent before operation starts. But where you’ll get the practice, you’ll see that there are multiple vents coming one after another, and one has to plan very carefully from the beginning how all the logistics will move around.

[00:47:48] So having for example lots of trucks bringing water to the plants may have negative

implications to think about, for example, getting water through the pipelines may require some upfront investments. But at the end of the day, it may pay back. So therefore, there is a need for governments and industry to come together and the very good planning from the beginning, looking long-term in this issue.

Seven, there is – we think we have to make sure that there is a robust and appropriate

regulatory regime are in place. And the governments we think depending on the country, of course,

find the right type of regulation. And knowing that this is a fast-moving industry, governments have to find a very good balance between the prescriptive regulations and the best performing standards.

Perhaps the best thing will be governments can put the standards, put the requirements and

leave it to the companies how – through which means they reach those standards. And in some cases, there may be a need for a third-party assessment to the bodies which enjoy public trust in terms of the – in terms of the challenges that those sites are facing. So it can be universities, academia, research parties and other independent institutions.

So these are the seven rules which are detailed out in our study. And we believe if those

rules are followed, we may well see getting a social license to operate almost in all countries in the world. Even in some countries in Europe can be discussed this issue; we have seen that there is almost unanimous support that if those rules are followed, we can see a more productive future of shale gas, and getting the social license to operate may well pave the way for a golden age of gas.

[00:50:08] So how this golden age of gas can look like? So I want to a bit share our views on that. First of all, we think in a golden rules case, it is an environment where we see the golden

rules are applied and therefore greater availability of gas worldwide, and therefore there is a downward pressure on the international gas prices as a result of that. We still see conventional gas, of course, coming in the markets. But the biggest growth in the next 25 years is coming from the unconventional gas. Gas grows more than 54 cents globally, and about two-thirds of this growth comes from unconventional gas, mainly shale gas followed by coal bed methane.

And this is definitely something very revolutionary in terms of the world energy system.

And we expect bulk of the growth to come after 2020, because in many countries like China we will see the biggest growth will come there because it will take some time to put the things in place.

In terms of countries for the conventional gas, it is again Middle East and Russia where it

comes from. Russia still increases its production about 150 bcm – and also Middle East and North Africa. But growth which we expect to come from China, U.S. and Australia of unconventional gas growth will be bigger alone than all conventional gas growth.

[00:52:05] In terms of China, China today produces about 15 – one-five – bcm of unconventional gas.

And we expect that this could reach in 2020 around 100 bcm. And this is much lower, I underline here, much lower than the Chinese government target which is set in stone in the five-year plan.

And China not only puts targets but also they make the policy steps and they put policies in

order to encourage support the production of shale gas and coal bed methane, and this is definitely something we have to look carefully.

But in addition to those countries, we expect India, Europe – especially Poland – Canada,

Indonesia and other countries are following. And the share of U.S. in the unconventional gas production is going to decline as a result of strong increase coming from the other countries, even

though of course shale gas production in the U.S. is growing significantly. But there will be huge growth from the other countries if we see a golden rules context.

Now in terms of the entire energy picture, colleagues who are a bit worried. I know some

colleagues are a bit worried on the future of other energy sources, especially renewables. They don’t need to worry too much because when I look at numbers, we expect the highest second growth coming from the renewable energies, and of course gas growth significantly as well. Why? Because it will be cheaper, available everywhere and there is a lot of diversification in terms of the resources.

Growth coming from gas according to our projections will be equal to the total growth

coming from coal, oil and nuclear power put together. But as long as the governments stick to their programs for renewables, we expect renewables will also grow substantially. And we do not see any major problem that gas and renewables can have a cohabitant – live together in the many years to come and to have to decarbonize the global energy system.

[00:54:46] And a couple of numbers – if you look at the numbers in different countries, what happens

in five or six years, they are also – they are very good evidence of that. And therefore one, of course, point here – governments when the gas prices become cheaper, governments perhaps shouldn’t think to take the entire support from renewable energies. Renewable energies need – continue to have support, and we also need renewable energies.

Where will the demand come from? Demand will come mainly from the emerging

countries. China is, of course, the most important one. Today, worldwide, gas is about 25, 26 percent of the global energy mix. And then we have followed by oil, coal and others. And in China, it is a bit different.

In China, share of gas is only 4 percent in the Chinese energy mix vis-à-vis coal, which is

almost 70 percent, 68 percent. So 4 percent gas, 68 percent coal. So therefore, Chinese government, it is one of the reasons they put these targets, in order to decarbonize the system especially in the urban areas for the air pollution issues. But other countries are following China’s example, especially India and especially in the context where the gas prices are cheaper and when you see more and more gas available. And of course, in the Europe – in the OECD countries, U.S. and others, we see a strong penetration of gas mainly as a result of the global gas prices.

[00:56:40] In terms of the sectors, it is mainly the electricity generation and industrial sector and in the

electricity generation, the main replacement likely to be is the gas replacing coal in many cases and coal-fired power plants.

Of course, we know that they have more than 40 years of time, and from that angle to have

more gas would also help not to look in the high CO2 emission-emitting plants. And therefore, it should be an opportunity again to help decarbonize the energy system.

In terms of petrochemicals and others in the industrial sector, we see that gas will play a key role in U.S.-Middle East context, in the Gulf, as it is a key feedstock and low gas prices will definitely be helpful.

And an issue that we didn’t analyze – we didn’t think this very likely now but it can be a next

chapter which is the using of gas in a substantial way in the transportation sector. It is something perhaps again the world will look at the United States what the U.S. will do. There are some examples in the U.S., in India, some other countries. But it is not in a major way yet.

So this golden rules case would also need a major effort from industry. We have colleagues

here from industry, from service companies and others. We need huge amount of new gas wells. Today in the U.S., we have about 100,000 unconventional wells, and when you put unconventional and conventional gas wells which were put together in the last two decades or so, it’s about 500,000 – half a million.

[00:58:45] And in order to make this major growth in production to happen, we need, according to our

analysis, an average of about 1 million new wells. And out of these 1 million new wells, half a million to happen in the United States, 300,000 roughly in China and 200 (thousand) rest of the world.

Of course, this has two major implications. One for the industry to be able to manufacture

this given the constraints they are facing and the second, how are these wells going to be drilled and what will be the implication, again, once again for the local environment. And we have also analyze that if those rules I mentioned – those rules which we call the golden principles, golden rules – are implemented, is it going to be a game-breaker from the profitability point of view?

We have taken one prototype well and in development. And our analysis show that if all

those rules to be followed, the increase in the cost will be at the order of 7 percent. So 7 percent, this is definitely a game-breaker. This is not zero; this is 7 percent. But still, it will leave handsome profits for the companies, we think. And therefore this is not a major game-breaker.

[01:00:19] Why do we need the 7 percent? A couple of expenditures are crucial here. More time needs

to be taken for cementing the – to isolate the wells and prevent leaks. This is where most of the money goes, to install the separate equipment, to eliminate venting and minimize flaring; this is definitely important.

Using green or environmentally benign flutes vis-à-vis the traditional ones which is a bit

more expensive and to maximize the reuse of water. So these expenditures and the other ones make almost 7 percent.

Then comes to a bit of the geopolitics of the story in terms of the trade. Now, in such a

golden rules environment, we see that China imports gas but not as much as one thought before – Europe in fourth and U.S. exports gas, not as much as Middle East but Middle East still does; Russia does. And this is definitely a completely new picture in a golden rules context.

But we also look at the opposite picture. What happens if the, because of the environmental

and social problems, remain unsolved and there is a blockage – they just stop of the growth of unconventional gas which we call low unconventional case.

If there is not a golden rules case but those rules are not followed, what happens as a result

of that? What we see – it’s where the tide turns – we see that China needs to import double, Europe has to import more and U.S., instead exporting, becomes importer. And Middle East and Russia exports are much higher, so which tells us that this is unconventional gas boom is definitely good for many but perhaps not good for everybody.

So there will be countries – traditional exporters may lose in terms of their share in the

international gas trade. So therefore, this is definitely something that the major gas exporters – conventional gas exporters – may have to take note of.

[01:03:00] In terms of economic costs and benefits in a golden rules case, U.S. would make money.

China would be – their gas import would be significant, and Europe as well. But in a low unconventional gas case, us sand Canada has to import and the import bill of the China and Europe will be much higher. This is not only because of the less domestic production only but higher gas prices.

Golden rules case means good news for the consumers and current importers and low

unconventional case means good news for the traditional exporters, both in terms of volume and in terms of the international gas prices.

Let me finish my brief remarks with one last slide. In the – we know that the shale gas

production – there are sensitivities – an amount of sensitivities there – local environmental sensitivities which I tried to address. They need to be definitely solved and address to get the social license. But from a global point of view – climate change point of view, low unconventional case, it means no golden, low unconventional, it is bad news for the CO2 emissions.

[01:04:34] If the gas – if we do not see a growth in the use of gas because of the lack of want in the

unconventional gas, the fuel which benefits from them the most will be coal and very tiny bits from oil, renewables and nuclear. And as a result of that, in a low unconventional case – which means no growth there – the carbon dioxide emissions are 1.3 percent higher than in a context where we see a growth in the conventional gas.

But in any case, as Mr. Ambassador said, we do not reach even a golden rules case to the

desired target of two degrees trajectory. We are far from that. It is 3.5 degrees. We still expect the need efficiency, renewables, nuclear power and other low carbon technologies.

So ladies and gentlemen, let me just tell you that we think the golden rules, what we suggest

as principles, can help address the environmental and social impacts and can make the golden age of gas a reality. But there is a need for governments and industry to address the, in most cases,

legitimate concerns of the local communities and the confidence has to be earned and in a continuous way maintained.

We think the unconventional gas can transform the energy markets by putting downward

pressure on the gas prices – which is definitely good news for consumers – and then broadening the diversity and enhancing the security of supply. And we also think that the natural gas has a role to slow down the CO2 emissions growth. But once again, it itself is not enough to bring us to a 2-degrees trajectory.

Finally, at the IEA we have decided as a follow-up work to build a high level platform in

order to exchange information, to learn from each other’s experience between our member governments first and together with the non-member governments in the context of unconventional gas, which is to respond to the G-8 request recently made in Camp David. Thank you very much for your attention. Thank you. (Applause.)

[01:07:10] MR. VATANSEVER: Dr. Birol, thank you very much for this truly enlightening and very

comprehensive presentation. We’d like to move on to our next speaker, Gina McCarthy, from the EPA right now.

GINA MCCARTHY: Morning, everyone – morning, everyone. AUDIENCE: Morning. MS. MCCARTHY: This is participatory government right now, so you’ve got to respond.

(Laughter.) Ambassador, thank you. I feel like you took us around the world in about 90 seconds. But it was great.

You know, I thought I had a hard job until I started realizing you have to worry about

geopolitical consequences. I worry about whether I get geology. So I think we’re on a little bit different plane here. And I really appreciate the work you do. And it would – gave a great setup for some of the work that we’re trying to do across the U.S. government.

[01:08:06] And let me just begin by saying that the Obama administration has both a coordinated and

comprehensive strategy in place to do what the president directed us to do. And in sum, the president told us that natural gas is vital to our clean energy future and that we have to take full advantage of our natural gas resources while giving American families and communities confidence that natural and cultural resources, air and water quality and public health and safety won’t be compromised.

In order to develop and carry out that coordinated and comprehensive strategy, he has

established a high-level taskforce. That taskforce meets very routinely and it involves all of the related agencies. And that taskforce is really designed to look at what information we have, what information we don’t have, what research we need to do to gather that information, what is our authorities, what are our responsibilities.

It’s designed to work with states, with local communities, with the industry itself. It also is

designed to recognize that there is tremendous leadership already in the oil and natural gas development sector that has developed best management practices that really reflect the application of cost effective technologies in ways that will provide opportunities for safe and responsible natural gas development.

And so we are working very hard to make sure that we give what the president demanded

and understand how we utilize natural gas as a bridge towards a clean and sustainable energy future. Now in particular, I want to talk a little bit about the work of EPA. EPA has been working

very hard at these issues. I don’t know if folks saw, but we had a hearing as short a time ago as yesterday to talk about issues around unconventional gas drilling. And there are – there is (sic) efforts underway at EPA that’s both research-oriented, primarily directed at water quality issues. We also have work that’s ongoing, working with states and local communities to work hand-in-hand to identify challenges that may be happening at this point and what do we learn from those in deciding a pathway forward.

[01:10:40] And in particular, I want to talk about a rule that we just finalized in April that really looks at

air quality challenges associated with oil and gas development, and a rule that we finalized in April that will really significantly reduce smog-forming air pollution along with cancer-causing air toxics that are emitted from oil and gas production.

And we expect that the combined rules will reduce between 190,000 and 290,000 tons of

volatile organic compounds; 12,000 to 20,000 tons of air toxics. And as a co-benefit of those efforts, it will reduce between 1 and 1.7 million tons of methane each year. These emission reductions will benefit communities where those wells are located and it will help reduce smog that can spread across the region.

Now, this isn’t just regulations that are directed at hydraulically fractured wells. This –

although it is the first national standard to reduce air pollution from hydraulically fractured wells, it also addresses other sources of pollution in this sector as well.

That will include equipment and processes that are used in several segments of the oil and

gas industry including gathering and boosting stations, processing stations pipelines, compressor stations, everything that keeps the gas moving from where you pull it out of the ground to where it gets into the transmission system – the transmission pipelines.

[01:12:18]

And we are – I actually am personally extremely proud of this rule. So forgive me; I’ll try to

keep it short. But only the air wonks will recognize how creative this approach was. And I will tell you it is not easy for a national rule to capture a sector that is so quickly

moving that’s related to thousands of individual small sources that in some cases, in the case of hydraulically fractured wells, actually can emit significant amounts of pollution, and how we do that

in a way that doesn’t slow down development and in a way that doesn’t require any new state or federal permits.

But we did figure out how to do that. And we did that in the direction of the president

which was to make sure that we could continue with development. But we did it in a way that was safe and responsible. So let me get specifically into the rule itself, although I won’t get into the wonky world of air quality. Well, maybe I will – no, I won’t.

So let me tell you about the rules. They include the first federal air standards for natural gas

wells that are hydraulically fractured. And I also said that we are actually addressing some rules that will shore up leaks that are now occurring at other segments of the oil and gas sector and development process.

[01:13:45] For new wells, it’s called a New Source Performance Standard. And what I wanted to say

originally is that the standards that we used in addressing the issues associated with air pollution from this sector very closely align with the golden rules that have been identified in this report. Now, it’s nice to know that smart minds think alike, but I will tell you they are based on work that we have done with the oil and gas industry – in particular the gas industry – through our Natural Gas STAR program.

And that is because we’re taking advantage of the most responsible developers and we’re

building on the foundation that they laid that is based on the use of cost effective technologies and techniques that reduce air pollution from this sector. So we had a wealth of information that we really owe not just to our own ingenuity and reports that are coming and information internationally but from the industry themselves.

And on new wells, the new source performance standard is actually based to the extent that

we could do it on performance, not specific technologies. It has transparency as a fundamental as well as accountability, because if you’re now going to permit thousands of new sources, you’d better have transparency and accountability in a reporting process so that you can be assured that those standards are going to be achieved.

[01:15:16] It identifies green completions, or reduced emission completions, as the system that best

addresses air pollution and it captures the combustion of escaping gas from hydraulically fractured wells. We also have allowed flaring. We do not disagree with the report that’s been presented today. However, there was significant concern about the ability to ramp up the equipment necessary to get to these green completions as the standard of requirement.

So in the interim, we have required flaring as a work practice standard until January of 2015.

After that point, reduced emissions completions will be necessary for natural gas wells. For modified wells, those are wells that are refractured. We are immediately exempting them from this rule as long as they do reduced emissions completions. So for the first time, I think, EPA is actually regulating what we don’t want and exempting what we do want. I really like that. That was the only air wonky thing I was going to say.

And the estimated revenues from selling the gas that currently goes to waste that will now be

recaptured not only offsets the cost of compliance but people will make money on this rule. Now that in and of itself I think is something to celebrate.

So in sum, these rules reduce harmful air pollution while they allow continued safe,

responsible growth in the U.S. oil and natural gas production. As an added benefit, today’s rules do not directly target greenhouse gases – but again, the technologies and practices that are needed to capture volatile organic compounds and toxic air pollution will capture methane. Methane is a greenhouse gas that is more than 20 times as potent as carbon dioxide. And it’s also the primary component of natural gas.

[01:17:18] So EPA estimates that up to 1 to 1.7 million tons of methane will be cut from an industry

that is responsible for 40 percent of the U.S. methane emissions. So I think I should end it there but just reiterate the fact that all of these reports that provide us information allow us to develop a system that does protect American families in the way they expect government to protect them, using the best information, the most cost effective way to achieve reductions, and in this case, a way to also allow industry to continue to do what they do well, to use best management practices, to level the playing field so that those best performers are driving up the performance of the best – the rest of the industry and actually allow them to make more money. How sweet is that? Thank you very much. (Applause)

MR. VATANSEVER: Thank you very much, Gina. It was very exciting to hear about this

creativity of EPA especially on this subject. Our last but certainly not least speaker is Eric Pooley, from EDF.

ERIC POOLEY: Thank you very much. My thanks to Carnegie for inviting me today. I

don’t have a PowerPoint either. I think Gina and I are on a two-man crusade to stamp out PowerPoints from public discourse in Washington and it’s not going well. (Laughter.) But today we’re winning. So if no one objects, I’m going to close this in hopes of just saving a little – maybe we could even turn that off and save a little power.

[01:19:11] MS. MCCARTHY: Energy efficiency. MR. POOLEY: So I’d like to thank Gina McCarthy for her incredible work at EPA and her

agency, specifically the new rule that she just described is a very, very powerful one – a very sensible one and a very important one. We support it strongly. We’d like to also thank the IEA for putting out the golden rules and for expressing them in clear jargon-free language. I like “watch where you drill” especially.

But the rules make a forceful case for the need to get tough regulations and industry best

practices in place for unconventional natural gas development. EDF has been talking about this for some time now. And I think the report also illustrators just how much is at stake both economically

and environmentally if we fail to get it right. So I’m just going to make three brief points this morning.

First, as Dr. Birol said, the environmental impacts of natural gas development are real and

they do need to be addressed. At Environmental Defense Fund, our core concern is protecting human health and the environment. And that’s why my boss, Fred Krupp, was honored to serve on Secretary Chu’s advisory board for natural gas which, like the IEA’s report, emphasized a need to get strong oversight in place.

And that’s why we’re working hard both at the federal level in support of EPA’s regs, but

also in the 14 states that have 85 percent of the onshore domestic natural gas reserves. That’s where a lot of the action is happening and we’re working very hard in those places because – and my second point is – because these environmental impacts have largely gone unaddressed up to now.

[01:21:24] Public trust has been eroding and continues to erode. And it’s at the state level where

legislators and regulators are perhaps feeling that most acutely and are beginning to respond. As both Dr. Birol and IEA Executive Director Maria van der Hoeven have indicated, the industry’s social license to operate is at risk. And that’s a crucial point because industry is beginning to recognize this. Not all of industry but some industry leaders are responding to this and understanding that it is in the industry’s interest to embrace true transparency and disclosure and get the rules right.

And so we’re very, very heartened that a number of leading companies are recognizing

reality and beginning to work very hard in partnership with us and a bunch of other stakeholders to move forward and get beyond the debate that you might characterize has been dominated by environmental voices saying just say no and industry voices saying just say yes. We don’t think either of those approaches is necessarily effective.

We think there has to be a very strong debate about what has to happen for this to be done

safely and responsibly. It’s not a sure thing. It can be done but that’s a very different thing from saying it will be done. And it’s not at all clear that we will be able to do this safely and responsibly. I think everybody in this room probably recognizes the economic and national security benefits of the shale gale. They are obvious; they are very strong.

[01:23:18] But if you travel in areas of intensive shale gas development, you very soon come to the

conclusion that the environmental impacts are very real too and are very obvious too, and they need to be addressed. We cannot expect local communities to bear the brunt of energy development for the creation of cheap energy for all. It would just be wrong. We can’t ask people to trade their kids’ health or their quality of life for cheap energy.

So I’m not going to belabor all of the particular environmental impacts. Speakers who have

come before me have done a good job of talking about smart forming air pollution, the spills and faulty well casings that cause groundwater contamination.

I am going to mention a little bit more about methane. We really need to get serious about measuring and reducing leakage of methane. It undermines natural gas’ role as a lower carbon alternative to coal and oil. The problem is that we don’t have robust data on what the actual leakage rate is.

The estimates range from roughly 2 percent to up above 6 percent. You know, we know

that the leak rate needs to be at or below1 percent of total production in order for increased natural gas production to be a positive development for global climate change under all scenarios.

And getting the leak rate down could be the equivalent of shutting down one-third of all our

coal-powered power plants in this country or not if we fail to get the leakage down. So what a tragedy it would be if we had this significant transition from coal-fired power to natural gas-fired power, which is underway, and yet we fail to realize any climate benefit from that.

[01:25:35] That’s a very real scenario, if we fail to deal with the leakage rate, which has to start by

measuring first. And EDF is pleased to be working with eight natural gas companies and the University of Texas on a comprehensive study of the entire value chain to sort of try to get better data on leakage. And we’re grateful to the companies that are working with us on that. The good – so that’s part of the good news.

But I’m going to share a little bit more bad news before I get to the good news. You know, I

think too much of the industry has been in denial about this – although as a result, a lot of people in shale gas country feel that the industry is running roughshod over their communities, over their concerns.

And as a result, we’ve been seeing hardening positions against unconventional natural gas

and spreading international opposition to hydraulic fracturing, bans in France and Bulgaria, moratoria in regions of Germany and Switzerland; in the U.S., a recent ban in Vermont and local bans or moratoria in localities around the country. There are various camps. Nothing is monolithic. There are some folks in industry who say everything is fine and there’s no need for regulation.

[01:26:52] There are others in industry who pay lip service to the need for regulation but fight every

attempt to put real strong rules in place. In Ohio just last month, John Kasich, the Republican governor, introduced an ambitious energy bill with strong disclosure requirements for hydraulic fracturing and other natural gas operations.

It was the broadest disclosure bill – the best single disclosure bill that had been introduced in

any state in the nation. The industry fought him tooth and nail and the general assembly weakened the bill substantially. That’s a shame. The bill that passed still has some decent disclosure provisions. But it’s nothing like what it could have been.

Industry spokesmen often split hairs about environmental damage in this area. On NPR

recently, an American Petroleum Institute spokesman asserted that there are zero known cases of hydraulic fracturing causing groundwater contamination – a hair-splitting truth.

What he didn’t say was that faulty well construction and spillage related to those operations

have indeed been the cause of contamination. When it comes to methane leakage, we sometimes hear industry claiming to abide by all existing rules, when in fact there are basically no rules since EPA’s is the first. So we believe there can be a path forward here. We don’t know that there will be. And we see hopeful signs.

And if these signs move from hope and positive indication into reality, we really think this

can be done. But that’s a very big if, getting the rules right here. Above all, the fact that some industry leaders are recognizing that their license to operate is at risk and are responding to that is an incredibly hopeful sign. They’re stepping up. They’re working toward strong disclosure rules in some areas.

[01:28:53] They’re working on industry best practices on disclosure of fracking fluids and other

stimulating fluids, on well integrity, on wastewater disposal, on air emissions. I mentioned that some companies have been joining with stakeholders including EDF to measure methane leakage. And more good news, there is widely available affordable technology to pinpoint those leaks.

And some companies are working hard already to reduce those leaks even before the

regulations come into play. In the past five years, to cite one example, Southwestern Energy has cut the cost of capturing stray emissions according to the company from $20,000 per well to zero dollars per well. The company is now capturing an average of 16 million cubic feet of gas that would otherwise have escaped or flared.

They’ve developed special pop-off valves to make sure that natural gas is not released from

pipes. If pressure causes a valve to open, the gas is captured in a closed loop that returns it to the system, saving the resource for the company. And the systems cost just 600 to 1,200 bucks a piece to put in place.

[01:30:10] So there’s really no technological barrier to reducing leakage. We just have to do it, and

that’s enormously encouraging. And that’s when the API stood up against the very sensible rules that EPA was proposing, Southwestern Energy stood up and said, quote, “API’s experience is not our experience. These rules are not going to break the bank. These rules are sensible and in large measure we’re already abiding by these rules.

And that’s the case of industry best practice where other people need to – other companies

need to get to where the industry leaders already are. That’s incredibly important, and doing that sort of thing is going to help to restore the trust that we need so much in this country and move us ahead. We have more voices beyond industry.

We have influential mainstream investor groups like the Investor Environmental Health

Network which represents a trillion dollars in assets. They’ve come forward with a set of commonsense guidelines for industry best practice that largely mirrors what EDF and the golden rule and EPA have been saying.

So I’m also glad that there’s a broader conversation – and I need to touch on this point

because it’s so important but I can’t get into it because I’m out of time – a conversation about ensuring that cheap abundant natural gas does not lock out renewable energies and energy efficiency. It’s a key focus for us at EDF. The IEA report makes clear burning natural gas is not a permanent solution to climate change.

It locks us on an unsustainable path. We need to find an off-ramp and I think the key to

that is going to be supporting fragile industries that are important to our future – and even more, getting the rules right in the power sector so that the smart grid is a green grid that accelerates and enables renewables.

As the cost of solar power continues to drop and access to the grid opens up, we can see the

same kind of mindboggling wave of innovation and democratization in our energy system that we’ve seen over the past 20 years in our IT system – if we get the rules right. So we can’t have a monomaniacal focus on natural gas at the expense of other parts of the energy system.

[01:32:28] I say that as a leader of an organization that sees a huge opportunity and a huge need to get

the rules right in natural gas. So we have jumped in because to have this revolution take place before our eyes and not maximize the potential environmental benefit and minimize the potential environmental harm would be a catastrophic mistake.

So we are trying to engage in a way that is responsible, that works together with any

stakeholder that really wants to try to get this right. So I’m inviting folks in this room – investors, people from the energy industry, suppliers of the energy industry, customers of the energy industry, let’s put our voices together and say let’s not screw this up. There’s too much at stake. We need to do this right. Thanks very much. (Applause.)

MR. VATANSEVER: Thank you for this forceful message. I’d like to open immediately

for question and answers. I should say we have about 20 minutes. What I would suggest is each of you identify yourself and your affiliation and just ask one question and please avoid making a statement as we don’t really have much time. Thank you. Let’s start with the gentleman there.

[01:33:53] Q: Thanks. My name is Antony Randle; I’m a consultant to the World Bank. I’d like to

follow up on the question of chemical additives. The IEA’s golden rules say disposure fracturing fluid additives can and should be compatible with continued incentives for innovation.

How much information is in the public domain on what these chemicals are? How much do

we know? How much don’t we know? How concerned should we be? And what is the administration’s position on requiring full public disclosure?

MR. VATANSEVER: OK. I’m going to take a few more questions so that then we answer

it all together here. Charles?

Q: I’m Charles Ebinger from Brookings. MR. VATANSEVER: I’m sorry. Can you wait for the – Q: Charles Ebinger from Brookings. Fatih, I was surprised that in your discussion that we

seemed to concentrate primarily on the wells themselves, and this was also true to some extent of Mr. Pooley’s comments. As I understand it, we have – we will have the need, at least in the United States, to build huge additional volumes of pipelines because of the shale gas in many cases being located far from existing pipelines.

What can the government do if we want to stop flaring, and obviously pipelines are one

component of that? How can we accelerate the process to get these pipelines built to help industry deal with that aspect of the flaring problem?

[01:35:28] MR. VATANSEVER: Let me take two more questions. Yes? Q: Kasha Kinashinksa (ph); Bloomberg News. I have a question to Mr. Birol about LNG

exports. Your projections assume there will be energy exports from the U.S., but the U.S., at least for now, have some concerns regarding primarily impact on domestic prices. How do you expect the U.S. to basically solve these issues?

MR. VATANSEVER: OK – and one final question? Q: Nina Gardner; Strategy International. I have a – I’m glad there was a discussion about

the impact of natural gas on the renewable sector. And you mentioned that it was a bridge – this is only a bridge fuel.

So the question is what is the impact for the United States as we sort of use this as a way –

we’re not weaning ourselves off the fossil fuels. And so the question is the worldwide impact vis-à-vis countries that don’t have natural gas in terms of getting us to where we ultimately need to be in about a hundred years or so.

MR. VATANSEVER: OK; thank you very much. [01:36:33] MR. BIROL: Perhaps I can start in the reverse order, and in the question about the

chemicals and the U.S. government’s move on the pipelines; my colleagues can – may want to say a couple of things.

Starting with the renewables, now, worldwide – not only in the U.S. – worldwide, we

desperately need renewables. I should tell you that because renewables are providing electricity without emitting any carbon dioxide emissions.

Natural gas emits less than coal but it is not completely innocent. It does emit CO2

emissions and there are other issues related to methane leakage and others. And by the way, when

we talk about the methane, I don’t know why we are only focused on the shale gas production and the pipeline methane leakages. The bulk of the methane leakage is coming from the major non-OECD countries in the conventional gas distribution from the pipelines.

And this is – the order is very, very big by the order of difference. So we are just focusing

on a very small part. In many countries, in the CIS countries and other countries, there is a huge – about 8 to 10 percent of leakage, which is huge compared to what we are discussing now. This is something else.

Now coming back to renewables; we need renewables. And in fact, I said the cohabitation

between renewables and gas is possible and should be so. And there is empirical evidence. [01:38:16] When we look at the last six years in the U.S. electricity generation, gas-related electricity

generation increased about 260 terawatt hours and coal went down by 270 terawatt hours and renewables increased by 170 terawatt hours – a huge increase in renewables, almost 50 percent increase in renewables, 30 percent increase in gas mainly as a result of the tax credits and other government policies such as the federal portfolio – renewable portfolio standards.

So this means that the renewables and gas can go together and they should go together.

Otherwise it will be impossible to even come to the 3.5 degrees that we think is bad. We may think that is good news if we cannot see the renewables. We come to 3.5 degrees increase only with a significant renewable increase. Therefore, we should not also forget that the gas – cheap gas – can be very important supporter of the backup technology to the intermittent renewables technologies.

So therefore, I see both of them going together, and I do not subscribe to the fact that the

golden age of gas is the optimal path for climate change. It is not the optimal one. But this helps to decarbonize the energy system – we need still efficiency, renewables and other low carbon technologies. This is the one issue. The second one is on the LNG exports.

This is, of course, in our – I have shown two different scenarios. One, a major increase

worldwide in the unconventional gas production. The other one is the almost worldwide flat, almost a flat growth in unconventional gas production. And in the growth in the unconventional gas production worldwide, U.S. exports about 35 bcm.

[01:40:40] Why this might be a bit lower than some colleagues think here – because other countries

also do produce unconventional gas, the need for imports are not so high. But that may be a hybrid scenario here, namely U.S. continues to increase the production, the shale gas, substantially and in the other parts of the world we may not see for this or that reason growth in the unconventional gas. In China, there may be water problems, in Australia, public opposition, in Europe it’s going on. So this – in this case we may see higher exports from United States.

We believe at the IEA that the free and open trade is crucial when it comes to are we going

to use it at home or are we going to export question. But it is also – we understand very well that at any specific point we may need regulatory approval and which may also need to take into

consideration public interest. It is up to the U.S. government and U.S. policymakers together with the industrial public to make their mind up. But we are definitely for free and open trade here.

Third question about the chemicals – so we are – we look at several examples in U.S. and in

Europe and in other countries. We have seen that some companies do behave differently than others. They are disclosing more information. And our view is that full disclosure should be mandatory in terms of what kind of chemicals, their implications and the volumes that are used.

They should be made publically available to everybody. We are very clear on that this is our

view. But this is the general view of what we think but it is of course – I’m sure my colleagues here would add on that. And again, the pipeline issue, this is – I imagine about – (inaudible) – today, but in our report you will see that we talk about the pipelines a lot, about the design of the pipelines, monitoring the pipelines and especially in terms of leakage.

We have suggested several principles or rules – how they have to be made leak-free and how

they have to be monitored throughout their lifetime. But perhaps for these two other questions I may want to turn to my colleagues if you want to add something.

[01:43:27] MS. MCCARTHY: Let me just address a couple of pieces of the questions. First of all, I

think the president has publically stated his interest in addressing the issues relative to the disclosure of what is in fracking fluids and ensuring that those fluids are properly managed. That is an issue of great concern to EPA. As many of you know, we have an ongoing study looking at that issue, and we have taken great efforts to try to identify the fracking fluids compounds that are being used.

The Department of Energy is working on guidance documents related to disclosure on

federal lands. We also have undergone injection guidelines for fluids that the agency manages to try to help and assist states in addressing these issues.

So it is a large issue for concern and one in which we are trying very hard to work together

to understand how the entire system related to hydraulic fracturing – not just the air emissions but the water discharges as well can be managed in a way that is safe and responsible. I will also indicate that I don’t disagree that along the entire chain there are opportunities for improvement and for minimizing leaks.

[01:44:55] EPA’s air emission standards that I just indicated really reflect a requirement under the Clean

Air Act for us to look at traditional pollutants like volatile organics and toxics. By the time that the natural gas is in the pipeline, those contaminants are minimized to the extent that these regulations aren’t particularly helpful in terms of addressing those issues.

So we have to look at this issue a bit more comprehensively and look at what the authorities

are and what the incentives might be to address these downstream of the upstream, if you will, emissions. I will say as a person who worked in state government for about 25 years one of the – we identified this in Massachusetts in particular when we were developing a climate change action plan as a significant issue for the state to address.

We identified that there are leakages of natural gas that are considerable all the way to

people’s homes. And one of the things we looked at was how in fact we design payments relative to natural gas delivery in a way that is a bit wiser that would provide disincentives in the economics of how we reimburse natural gas companies that would encourage leak detection, not just leaks that are there for safety but leaks that are there to prevent the emissions of greenhouse gases because right now many states actually pay for those leaks.

They don’t in any way penalize leakage that doesn’t get delivered to consumers. And that’s a

big issue and one where there may be more creative approaches to take a look at working with states. But I’m speaking from a few years ago. So maybe some states have already addressed this issue and companies have worked on it.

[01:47:03] MR. POOLEY: I’ll just make a couple of additional points, building on what Gina said. I

do think leakage inside the city gate is a huge issue. I think it’s an area where the democratization of data is going to help us. As I mentioned in my remarks, we have the technology to pinpoint these leakages.

There’s a company called Picarro that sells a device that uses infrared technology to pinpoint

where plumes from natural gas leaks take place. These devices are now getting out into the world and their results are being put on the web. So you’re in a position where you can map an entire city and see where the leakage is happening.

If you match that with an economic incentive to reduce the leak, pretty soon you’re going to

have a powerful reason to have less leaks inside the city gate. In a city like New York City, where I live, where a lot of the natural gas delivery takes place in very old cast iron pipes, of course there’s huge leakage and there’s a huge opportunity for environmental and climate forcing improvement if you reduce those.

And I know that Mayor Bloomberg is very active in the C40 group of mayors, sees an

opportunity to bring the learning that he hopes to discover in New York City to other cities around the world that have similar problems. There’s a lot of leaking going on, so optimistic about that. Our thinking began at the wellhead but it is not limited to the wellhead. We’re trying to take it all the way through to the end-user.

[01:48:35] On the question of effect on renewables, I’ll just add one quick point. If you think back to

Ambassador Pascual’s first slide that showed that incredible curve from 1 percent of total production to 35 percent in less than a decade, to me I imagine us sailing up this on-ramp, and our gas pedal, if you will, has been to the metal. We have surged onto this. Is it a bridge? I don’t know if it’s a bridge.

We don’t know exactly what it is yet. But we do know that it’s got to have an off-ramp and

we’ve got to find that thing. So we got on this accidentally. These were market forces that drove

this. This was not anything that anybody decided. When gas prices plunged to two bucks per million btu, this was locked in. Coal was a loser.

Even the expensive older nuclear is a loser. And renewables may be a loser except that

prices for solar are dropping and with the right policy mix in place we can actually get to a place where this increased use of natural gas enables renewables in a smart way because, as Fatih alluded to, the latest generation of gas-fired power plants can power up at, I believe, it’s 50 megawatts per minute. It’s like a jet plane.

So that’s an incredible compliment to an intermittent supply until we great energy storage in

place. Wind and solar remain intermittent. But we can build up more of those intermittent sources as base load power if we have nimble gas-fired power to support them. So this can be a positive thing.

[01:50:16] But I agree. If we build so much new natural gas-fired generation that we lock in a natural

gas future with no off-ramp, it’s going to be disastrous. So we can’t afford to do that. It’s where the markets can’t be left to themselves to make these decisions. We have to intervene and make sure that market incentives are taking us where we need to go.

MR. VATANSEVER: Thank you. I guess we are almost running out of time. In that case,

I just want to ask final quick question for Fatih Birol, which is considering that different countries have different levels of carbon intensity and especially different carbon intensities in their power generation, which will be the main driver for a guesstimate, could you walk us through the different parts of the world where what would be the net impact of the golden rules – applying these golden rules for carbon reduction or slowing down carbon?

MR. BIROL: First of all, let me tell you something which could surprise some of you here.

When you look at – we have just last week released our CO2 emissions data – when you look at the last five years, among all the countries in the world, what country or which country was the one, which country reduced emissions the most? You would think it is Europe because there are lots of climate policies in Europe, even a carbon price.

But it was the United States. The biggest reduction in the CO2 emissions in five years took

place in the United States for two reasons. One is a result of the efficiency standards put into place in the transportation sector. Oil demand went down substantially, and therefore that will be a gain for emission reduction of CO2.

[01:52:08] And second, the – is a major, major decline – major, major decline in the coal consumption,

mainly gas replacing goal and the renewables are growing. Please look at the numbers. I’m not taking about any scenario for the – the numbers really was increase in the U.S. in the last five years almost 50 percent. And two-thirds are coming from wind alone. This is one.

Second; worldwide I think it is expected that both in the U.S. and in China we may see a

positive role of gas decarbonizing the system especially in China. It can have major impacts there.

But governments have to be very careful that the lower gas prices do not bring us to – lead us to cancel or forget the support for renewables and other low carbon technologies, because gas alone will not bring us to where we want to go.

And in fact, it can – as other colleagues said, it can lock in our future. So we need all of

them. But gas can play a role as well. Today, what I see the risk is that undermining the positive role of gas in the decarbonization of the united system in a context where there is not much hope in the very short time to have an international legally-binding agreement.

[01:53:42] We have to find short-term solutions in order to leave the door open that we can reach one

day 2-degrees trajectory. And gas, together with efficiency and renewables, are one of those policy tools to push. Thank you.

MR. VATANSEVER: Thank you very much. And please join me thanking this

distinguished panel. (Applause.) (END)