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U.S. International Energy Diplomacy, Security and Challenges

Daniel Sullivan, Assistant Secretary of State for Economic, Energy and Business Affairs
Remarks at the Harvard Club
New York, NY
September 24, 2008

As Prepared for Delivery

Energy Challenges
This afternoon’s focus on the critical need for Americans to maximize our energy solutions is welcome. It is a very welcome coincidence that your broader event is entitled “Pathways for Prosperity.” So I have been asked to start our discussion by reinforcing an important initiative of the same name that President Bush rolled out this morning.

President Bush met earlier this morning with leaders from the 11 of the Western Hemisphere countries with which the U.S. has free trade agreements. The meeting was arranged to give our free trade partners the opportunity to take stock of the significant progress we have made in our hemisphere through our shared commitments to trade and investment liberalization, social inclusion, rule of law, and democracy. Getting all of these Leaders into the same room to discuss the economic issues affecting us all was a significant accomplishment. The Leaders released a communiqué with two key points.

The Leaders called for the U.S. Congress to pass the Colombia and Panama FTAs. Doing so will benefit not only those countries, but all countries in the region by increasing stability and economic development. Additionally, passing the FTAs makes economic and foreign policy sense for the United States – not only will we help our friends in the region, but we will reduce barriers to U.S. exports.

Trade has been a positive story for the U.S. economy. In the most recent four quarters (second quarter 2007 to second quarter 2008), export expansion alone has accounted for almost two-thirds (62.6%) of the overall GDP growth (2.2%). That is an increase from the nearly half (45.5%) of GDP growth (1.8%) attributable to export expansion in the preceding four quarters. We believe that we should build on this success.

The Leaders also took the opportunity to launch the Pathways to Prosperity in the Americas initiative, an association of free trade agreement partners in the Western Hemisphere focused on ensuring that the benefits of trade are broadly shared throughout our societies. Pathways is an association of countries in the Western Hemisphere focused on ensuring that the benefits of trade are broadly shared throughout our societies and increasing cooperation on trade and development.

To achieve this goal, while complementing existing economic integration initiatives, Pathways members will work jointly to: (1) increase opportunities for our citizens, particularly small businesses and farmers, to take advantage of trade through trade capacity building, and other initiatives; (2) promote and deepen an open architecture for regional trade consistent with the global trading system; (3) expand regional cooperation on economic development; (4) enhance cooperation and exchange best practices on labor and environmental standards and enforcement; and (5) engage the private sector and civil society to advance these objectives.

We believe Pathways will become a valuable tool for its members, each of which has demonstrated a strong commitment to increasing the opportunities for all of its citizens to fulfill their economic potential and aspirations. Ministers will meet before the end of the year to ensure that the Leaders words are directed into concrete actions.

U.S International Energy Diplomacy
Our focus on trade is a good complement to our deep focus on energy. So we welcome this panel’s important discussion, and distinguished American leaders that are putting forward creative domestic proposals. Expanded use of alternative fuels, of renewable fuels like wind and biofuels, and of clean conventional fuels like natural gas will be central to American’s energy security. The State Department’s jurisdiction in energy policy begins at the water’s edge, but it is very much forged by America’s own energy strengths and challenges. Everything that we do at home strengthens the diplomatic hand that we have abroad.

Our country is both a large energy consumer and a large energy producer. The U.S. is rich in natural gas, in coal, in commodities like corn, and now in ethanol. As important, we are the world’s leading technological innovator. These are all experiences that we draw from in forging our energy diplomacy. And this means the United States Government is uniquely positioned to lead the dialogue between energy producing and consuming nations. And we are leading.

U.S. International Energy Security
The international energy security strategy of the United States promotes abroad the vision for energy security at home. We support (1) greater diversity of energy sources, like alternative fuels and clean coal, (2) the wise use of energy through efficiency and conservation, (3) a diversity of secure and reliable energy supply routes, and (4) a diversity of energy suppliers working in an open and transparent energy marketplace.

This strategy has been greatly advanced by the bipartisan passage of the Energy Security and Independence Act of 2007, which increases auto efficiency by 40% in the years ahead (2022), increases the sustainable use of biofuels, and which increases energy efficiency standards in our homes and buildings.

Our strategy employs every tool at our disposal: diplomatic engagements, including bilateral and regional activities with allies, producers, consumers, and NGOs. The U.S. leads and actively participates in multinational institutions, like the International Energy Agency (IEA), and initiatives like the Extractive Industries Transparency Initiative, which seeks to improve good governance in developing world energy producing states.

Brazil and Alternative Fuels
The State Department is honored to be the lead agency on the bilateral Memorandum of Understanding on Biofuels Cooperation with our partners from the Brazilian Foreign Ministry. With Brazil we are working to advance research and development of next generation biofuels technology. Regionally, the two countries are working to promote domestic biofuels industries for local consumption in third countries (El Salvador, DR, Haiti, St. Kitts and Nevis) through feasibility studies and technical assistance aimed at stimulating private sector investment. We are working together multilaterally through the International Biofuels Forum to make sure there are unified global standards as biofuels become global commodities.

Here in North America, we are hard at work to promote greater energy integration and to strengthen cross border energy trade with our largest energy partner, Canada. We have a strategic dialogue with Canada called the Energy Consultative Mechanism. Its purpose is to make sure our two governments take full advantage of the largest cross border energy relationship in the world. Canada holds vast heavy oil reserves which are already a key component of regional energy security, and we are engaged with Canada as they work to increase the sustainable production of these reserves. Similarly, the state of Alaska holds vast reserves of untapped natural gas that could significantly bolster our energy security. We are working closely with our Canadian counterparts to assure that the diplomatic infrastructure is in place to support the physical infrastructure that will move these reserves into the North American marketplace.

Europe and Eurasia
In Eurasia, we are promoting increased diversification of energy routes, which are in the long term energy security interest of European consumers and Caspian and Central Asian producing countries. Nations should never be left with only one option—one market, one trading partner, one vital infrastructure link. Economic stability and independence, and prosperity come from having multiple outlets to the world—multiple sets of pipelines, multiple transport corridors, and multiple trading partners.

China and India
In Asia, China and India’s increasing demand for energy is already fueling additional competition within the region as countries compete to secure direct access to stable supply sources.

We are deeply engaged in a formal Strategic Economic Dialogue with China —and are in broader energy dialogues with China and India. The U.S. government has eleven different cooperative mechanisms that include China, all aimed at encouraging the adoption of market-friendly energy policies, the rapid uptake of clean energy technologies, and a responsible approach to the development of upstream oil resources. The main thrust of these talks is to encourage China and other emerging consumers to recognize that they are now stakeholders in the system, not apart from it, and unilateral efforts to guarantee energy security, like buying into upstream oil assets, are ultimately self-defeating.

Our dialogue with India also focuses on ways to promote commercial deployment of clean-coal technologies, energy efficiency, renewable energy, oil and gas development, and demand-side management. We believe that this agenda will contribute to sustained economic growth through increased energy production and efficiency, while strengthening efforts to manage GHG emissions to safeguard the environment.

International Energy Agency Diplomacy
The International Energy Agency, an organization of 26 OECD members fosters collective energy security, largely through increasing the transparency of data and, in event of major supply disruption, of coordinated release of strategic oil stocks. We have pursued an outreach program at the International Energy Agency, which has been designed to draw China and India, in particular, into a more active role in the market-based partnership that has. The IEA is an important diplomatic tool, born in the State Department, at the Washington Energy Conference convened by Henry Kissinger, to meet the challenges of the Arab Oil Embargo of the 1970s. Some 25 years later, it was the IEA which rose to the challenge of countering the potential economic shocks of Hurricanes Katrina and Rita. In the wake of these storms, and their damage to the U.S. oil patch, the U.S. joined with IEA nations in a coordinated release of strategic petroleum stocks to avert an energy crisis. The U.S. was able to lead in this effort because this Administration, in partnership with the Congress, had increased our own Strategic Petroleum reserve by 100 million barrels, to its full capacity of 700 million barrels.

I have described for you just some of our bilateral, multilateral, and regional energy engagement but it is important to recognize that energy policies are most effective when they are integrated into broader economic policies. Open and transparent markets, free from corruption and reinforced by strong protections for investment, ultimately help producer countries to enhance output, and consumer countries, particularly those most hard hit by high energy prices, to benefit from lower energy costs. The U.S.-Canada relationship is a prime example of the mutual benefits of open and integrated markets and how free trade agreements help promote more efficient energy markets. By contrast, countries that have emphasized statist, non-transparent, and populist economic policies have seen their output decline, which ultimately bolsters high energy prices and furthers the financial burden faced by countries forced to rely entirely on imports to meet their energy needs.

The Bush Administration has made deepening economic engagement in the Hemisphere a top foreign policy priority, as the President’s event today at the Council of the Americas demonstrated so well. Our Free Trade Agreements, our aviation liberalization agreements, our Millennium Challenge Corporation compacts, and our broader economic dialogue with major emerging economies are helping to lay an economic foundation that will advance our mutual economic, energy and foreign policy interests. Congressional approval of our outstanding FTA agreements would further advance these efforts. We will continue our vigorous engagement on energy, and welcome the important debate taking place here and across the world.

Released on September 26, 2008

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