China-U.S. Energy Policies: A Choice of Cooperation or Collision

Council on Foreign Relations
Washington, DC

SEN. JOSEPH LIEBERMAN:  (In progress.)  This morning in about an hour, the president will be speaking at the Naval Academy in Annapolis to define our strategy for victory in the war against terrorism, and particularly in the war in Iraq.  But I want to argue to you today what I would guess most of you in the room believe; that notwithstanding the change in our own world on September 11th, the answer we would have given on September 10th is still largely correct and certainly still true, that appropriately managing our relationships with an emerging, complicated China — booming economy, growing investments in their military strength, different values than we have in some senses and yet remarkably similar circumstances in other senses — that that remains and must remain a critical priority of American foreign policy. 

In some sense, the president’s recent trip to China illustrates the complications and challenges of achieving the long-term good relations with China, principled relations that we like.  During the trip, the Chinese leadership, as you will remember, promised to work with us on fairer trade policies, an aspect that continues to be a flashpoint here in our domestic political and economic life; te leadership in China agreed again to work with us to fairly price their currency and to protect intellectual property rights —- all points of real contention.  But truly, as I look at it, nothing truly concrete was offered.

And on the other side of the relationship, in a departure from a lot of the past visits to China by U.S. presidents, rather than releasing some political prisoners as the president had requested, China sentenced a Christian minister to prison for printing Bibles and closed down the offices of a human rights lawyer — a message, clearly, there from the Chinese government.

So we’ve got our work cut out for us in achieving what I believe, and I presume most everybody does, should be a central goal of our foreign policy, which is to have peaceful, mutually productive and principled relations with China.

Today I want to discuss what I believe is one of the biggest sources of potential friction between the U.S. and the PRC, and that is our global competition for oil.  The U.S. and China are now the world’s number one and two consumers of oil respectively, with China’s need growing as rapidly as its economy is.  This could lead to Sino-American confrontations over oil  that could in the years ahead threaten our national security and global security unless each of our nations — two great nations — develop and employ new technologies that will reduce our dependence on oil. 

And let me point out here that though our economic circumstances are different, and painting with a broad brush if you will allow me to do that, there is a very comparable reality here that both countries face, which is that each of our energy systems depends on a form of energy — oil — that neither nation has naturally in abundance.  And in fact, in some senses the pressure on the Chinese will be even greater in the years ahead because their economy is growing so rapidly.  And I’ll get to some numbers on that.  Well, I’ll say it right now.  In the next 20 years, estimates show that the Chinese demand for oil will double as their economy grows.  Estimates also are that they will need to obtain two-thirds of that from outside of the PRC itself.

So what I want to say today is that it is time for the U.S. and China not only to recognize the similarity of our oil dependency status and the direction competition may take us, but to begin to talk more directly about this growing global competition for oil so that we can each develop national policies and cooperative international policies, even joint research and development projects, to cut our dependency on oil before the competition becomes truly hostile.

The U.S.-China energy engagement that I foresee could be in one sense the 21st century version of what arms control negotiations with the Soviet Union were in the last century, but we got to start those discussions before the race for oil becomes as hot and dangerous as the nuclear arms race between the U.S. and the Soviet Union did in the last century.

And I’d point out what I think is a fortuitous difference in these two races, if you will.  With arms control, we were focused on reducing dangers by destroying weapons systems.  Here, we have a chance to reduce dangers by separately and jointly building new energy and transportation systems based on alternative fuels and new technologies to power our vehicles.

Let me quote from Bob Zoellick, the deputy secretary of State, who recently told the National Committee on U.S.-China Relations — and I quote:  “Picture the wide range of global challenges we face in the years ahead — terrorism and extremists exploiting Islam, the proliferation of weapons of mass destruction, poverty, disease — and then ask whether it would be easier or harder to handle those problems if the U.S. and China were cooperating or were at odds.”  End of quote.

Well, that’s a question that answers itself and should lead us in the direction of exploring each and every cooperative opportunity with China that we can.

Then Zoellick went on, relevant to the point I’m trying to make this morning, to talk about how China’s drive — and I quote him here — “to lock up energy supplies” — end of quote — could put it on a collision course with the United States and other nations.  Absolutely right.  That’s exactly my point.  And let me give you a few examples of what I would call early but clear signs of an aggressive, nationalistic — understandably nationalistic — Chinese international energy policy.

First, China is negotiating with Russia on an oil pipeline that would end at Daqing, China’s main oilfield and refining center in the industrial northeast.   This could put it at odds with Japan, which wants the same oil and would like the pipeline to end at the Russian port of Vladivostok, which is a shorter and more secure tanker trip to Japan.

China, second, is entering military basing agreements with countries along its oil supply routes from the Middle East and is building a very substantial blue-water navy.  We tend to see this as a reaction to Taiwan and potential conflict in the Taiwan Straits, but I want to suggest that an equally significant motivation, I would guess, for the Chinese is to develop this blue-water navy to be in a position to defend oil supply routes because if oil doesn’t get to the mainland, the economy will suffer dramatically.

China has — this is third — energy contracts with both Iran and Sudan that not only would we not consider because of our values, but make China an ally of nations that are openly hostile to us.

And fourth, China, as many of you know, has been negotiating oil contracts with nations in Latin America and Africa that are part of broader bilateral relations, often involving military-to military contacts, and some of those nations are Nigeria, Venezuela and Peru.

So all of this is aggressive but, from the Chinese point of view, quite logical behavior for a nation dependent on oil to continue the vigorous economic growth that’s necessary to bring more and more of the well over a billion Chinese into the modern economy.

China, bottom line, needs assured access to, as best it can secure, to sources of oil or it risks being starved off of the energy it needs to feed its growing economy and, in a conflict situation, being blocked from those sources of oil.

The U.S. can and should make concrete proposals for joint projects with China, which would break both nations’ — or help break both nations’ dependence on foreign oil.  As the world’s two biggest consumers of oil, again, it makes sense for us to work together on this.  But in the meantime, the U.S. has a responsibility to take our own steps to get our appetite for oil under control because our national security, not to mention our economic well-being and environmental health, require that we do that.

I cite briefly a recent report by the International Energy Agency, which says that global demand for oil, now about 85 million barrels a day, will increase by more than 50 percent to over 130 million barrels a day between now and 2030 if nothing is done.  China’s oil consumption surpassed Japan’s in 2003. It’s now at 6.5 million barrels a day.  By 2025, that demand, as I said before, is projected to more than double, to 14.2 million barrels a day.

If we do nothing, United States demand for oil by that same year, 2025, will increase 8.7 million barrels a day, a 40 percent increase, almost double, to about 28 million barrels a day.

As the authors of the IAEA report say, and here I quote, “We are ending up with 95 percent of the world relying for its economic well-being on decisions made by five or six countries in the Middle East,” end of quote.  And that means practically that we could be one terrorist attack or political upheaval or a rogue leader’s anti-American decision away from an overnight price spike for oil that would send the global economy tumbling but also send the industrialized world scrambling for oil, with the U.S. and China leading the scramble.

The fact is that history tells us that wars have been fought over such competitions for natural resources.  In fact, as you all know, exactly such a competition is one of the factors that led to Pearl Harbor and World War II.  So for the good of our nation and global stability, we’ve got to lead America into a new energy age by transforming, particularly our transportation system because it is there that we consume 70 percent of our demand for oil.  And it is these facts that recently led 10 United States senators of which I’m proud to be one, five Republicans and five Democrats — not just bipartisan, but from every ideological point on the spectrum and every region of the country — who recently introduced what we call the Vehicle and Fuel Choices for American Security Act of 2005.  This is going to put us on a path to energy diversity and greater strength, energy independence by reducing our demand for oil to power our vehicles.

Let me just give you a sense of the range of my colleagues.  I’m proud to say Sam Brownback of Kansas was my main co-sponsor, Even Bayh, Jeff Sessions, Ken Salazar, Norm Coleman, Dave Pryor, Lindsey Graham, Bill Nelson, Dick Lugar and Barack Obama.  Now, that’s a very broad group of people.  It’s a bold program, which I’ll describe in a moment, but the door that brought us all together was not just economic concern, but concern about the way in which our oil dependence can no matter how strong we are militarily compromise our national security.

Very briefly, the bill starts by making it our national policy to cut our oil consumption by 10 million barrels a day, progressively to that total — and I think we can even go higher — in 25 years.  It will — this goal will be reached by the diversification of our energy sources and the use of new technologies.  The fact is that gasoline is not the only portable source of energy — stored energy.  Tons of agricultural materials and agricultural waste — materials like corn, of course, sugarcane and switchgrass — can be used to create billions of barrels of new fuels on acres — on millions of acres of both active and otherwise idle cropland.

And this is not a fantasy, a pipedream.  It’s a vision and a goal.  And my most tangible evidence here is Brazil.  The world’s fifth largest nation gets 80 percent of its transportation fuel from sugarcane.  In a few years, American farmers could be measuring production in barrels of energy as well as bushels of food.

Let me talk about the new technologies which are out there.  They’re not exotic, including not just the hybrids for which there are waiting lines at most car dealerships in this country today, but the use of alternative fuels in hybrid electric plug-ins.  Electricity, a sector that relies on oil to fuel just 2 percent of its output, can further lower our oil dependence if we use it to power our cars.  When I first heard about this, it sounded impractical.  I was about to use the unsenatorial term, “flaky.”  But you know, we’re all plugging in our cell phones and our blackberries every night, and we can get to the point where we’re plugging in our cars as well at a time of day when the demand on the electricity grid is lower.  And again, most of the electric power is not produced by oil.

To create the market for this new era of vehicles and reduction of our consumption of oil, this legislation requires that by 2012, 10 percent of all vehicles sold in the U.S. be hybrid, hybrid-electric plug-in or alternative fuel and biofuel vehicles.  That number will rise by 10 percent a year until, by 2016, we require that 50 percent of all vehicles sold in United States be these energy alternative vehicles.

We also require that about a quarter of the total federal fleet purchases be advanced diesels, hybrids or plug-in hybrids by 2016, 10 years from now.  In fact, that 75 percent be those or biofuels.  This can lead to some really exciting options that are practical.  Plug-in hybrid vehicles that I’ve talked about would be able to use their batteries exclusively for the first 30 miles of a trip.  While Americans drive about 2.2 million — excuse me — 2.2 trillion miles a year, the vast majority of those trips are less than 10 miles.  That means a plug-in hybrid would use just about zero gallons of gasoline or other combustible fuel for the vast majority of car trips that are made.

Passage of this legislation, I believe, would go a long way toward providing the U.S. not only with greater energy diversity and independence, but for all the reasons I’ve said with greater national security.

As we establish our own credibility and commitment to energy diversity, I think it is critically important that we set up an accelerated, cooperative technology research and development program with China.  We still have time.  As a recent report of the Congressional Research Service noted, and I quote, “Because China does not have an expansive oil infrastructure, it may have less vested interest in maintaining an oil-based economy, particularly if there are viable alternatives,” end quote.  But this window of opportunity that’s going to close before long if we don’t take advantage of it.

I propose that we expand the U.S.-China Policy Dialogue, established last year with a Memorandum of Understanding between our two nations, to specifically create joint programs for the kinds of new vehicles and new fuels that I’ve talked about.  For instance, as we work to turn our idle cropland into fuels, why not share that knowledge and capability with the Chinese, and why not ask that they do the same for some of the steps that they are beginning to take for energy diversity and independence.  Let’s also work with them on alternative automobile technologies, while we have a window of time, before millions and millions of additional Chinese drivers hit the roads with gas-guzzling, gas-only vehicles.

And I want to say, finally, that we should work to bring China into the International Energy Agency either as a full or partial member.  The Congressional Research Service experts on this had a very interesting comment in a recent report where they said that had China been a member of the IEA before the war in Iraq and been following IEA’s oil reserve practices, it would not have felt compelled to hoard 30 billion (sic/million) barrels of oil as the Iraq invasion approached.  That must be million.

Traditionally IEA membership has been restricted to OECD countries, and I know that some may resist Chinese membership.  In fact, the Chinese themselves may have to be convinced because of IEA requirements for open and transparent energy policy.  But allowing China to stay out of the IEA and the global effort to deal with energy problems makes no sense when we look at it in light of our shared economic and security needs.

This is a problem that we can either let go as it is now, and it may end up before — at a point where we can’t stop it, where we are not only in competition, but on the verge of hostilities.  We have the ability now together to avoid that.

It seems totally appropriate to end with a quote from Sun-tzu, the ancient Chinese military strategist, who wrote in the “Art of War,” “It is best to win without fighting.”  Taking Sun-tzu one step further into the contemporary world, I would say that when both nations that are potentially combatants have the opportunity to win without fighting, when both can prosper and provide for their people by visionary leadership and cooperative action, fighting would be a tragic failure of foresight and leadership.  We have the opportunity with regard to our dual dependence on oil to break it, avoid the conflict, and instead, look forward to exactly what I said was a goal of our foreign policy when I started:  principled, peaceful and mutually beneficial relationships between the United States and the People’s Republic of China.

Thank you very much.  (Applause.)

WILLIAM MARTIN:  Thank you, Senator.  I think I agree with every sentence you had in there, especially Bob Zoellick’s.  When Bob said something about an aggressive nationalistic policy to lock up oil, well, you know, most of the world thinks that’s what we’re doing.  And it was so strikingly clear that I’ve heard that overseas, and it didn’t refer to China, it referred to the United States.

I’ve had a chance to visit China recently as part of the U.N. effort to find energy alternatives for North Korea.  I have found China to be very interested in new technology.  I also agree with you that they can go out of their way in viewing the United States.

But I want to add — I want to pose a question.  If you’re China, and you look at the United States activities to, quote, “lock up” oil, first you come to Saudi Arabia.  Well, it seems to go to the Americans.

Then, they come to Iraq.  Well, once again, I think we have to put that in the American column even though we didn’t do this for oil.

Iran.  Well, frankly, ILSA — you’ve been a sponsor of ILSA for the years, frankly that has the potential to penalize foreign companies that actually drill in Iran.  So if you’re China, you’re going to say, “Well, maybe that goes in the American column too.”

Caspian Sea.  Well, our State Department in working with the Senate and others worked very hard to get a pipeline out, not through Russia, but to Turkey.  Well, frankly, that was a pretty big American opportunity.  Is that in the American column?

North America.  Well, gee, sit next to Canada and Mexico below us, and even Venezuela has to refine their oil here.  So, frankly, Latin America we put in the American column.

Even something like Norway.  Recently, we had the president of the Statoil speak to us.  Well, that’s a NATO partner.

So if I’m China, and I’m looking around the world, and I’ve got a command-and-control economy, I am terrified, and frankly, I’m terrified of the United States.  And then, I try to buy a kind of a small oil company, Unocal.  You know, kind of recycle some of all that holiday cash we’re giving to China back into what is not what I would call a huge company.  Frankly, it’s a mid-size, if not small one.

MOREx x x one.

And what happens in the Congress?  My God, you would have thought we were selling Exxon and Chevron and everything else. 

So I’d like to have your views on that last point, by the way.  Again, I agree with everything you say, especially your emphasis to let’s do what’s right in America to show leadership, especially in the demand management side, to the world.  But gee whiz, if I were China, I must admit I’d be scared to death, and I’d be going to Iran, I’d be going to Venezuela, I’d be working with Russia as best I could. 

But why did the Senate so strongly say no to the purchase of CNOOC of Unocal?  And any other comments you might have from the China perspective.

LIEBERMAN:  Sure.  Right.  Again, I agree with just about everything you’ve said.  In other words, these are — stepping back and looking at this, these are two nations that are acting, quite understandably, in their national interest.  I would say that probably we haven’t done quite as well as your vision of the Chinese vision of us would be.  But it does make a point.  I mean, we have an oil-dependent country.  We have limited resources of oil left.  And in any case, even if we depend on our own oil, we are — we pay prices set in the global market.  So these are two nations now following quite similar international oil acquisition policies out of need. 

And what I’m essentially saying this morning — just to say it quickly one more time — if we let it go, this could end up in real military conflict, not just economic conflict.  So that’s why I said at one point these aggressive policies, from a Chinese point of view, are quite understandable and logical, these policies to lock up energy, just as ours are at this point.  But that’s why we’ve both got to stop it and say that there is an alternative.  And we got to break out of that mental box.  And the alternative is these alternative fuels and new technologies, like hybrids and hybrid plug-ins. 

Bud McFarlane is here.  And remind me the name of the commission — the National — (chuckles) — you and I both!  Are we having a shared senior moment here, Bud?  (Laughs; laughter.) 

MR. McFarlane: The National Energy Commission.

LIEBERMAN:  The National Energy Commission, I guess, came up with  — but Bud is part of a group called Set America Free.  Quite an interesting — a remarkable group.  Jim Woolsey, Bud, Frank Gaffney, George Shultz.  You can go on and on — a lot of people in this room.  Democrats, Republicans, but united particularly because they’re national security experts and hawks.  And, you know, they’ve cited this as a problem we’ve got to break out of for our own national security interests.  As I said, that’s what motivated the senators, the 10 who have joined.

Let me come to your question.  The Senate itself — I hope I’m right about this — I don’t believe spoke by way of resolution; a lot of senators did.  I didn’t share the popular opinion because it seems to me just as we’re exercising our right, with occasional limits, to acquire companies in China — you know, of course other nations are constantly acquiring companies in the U.S., particularly our European allies.  We’re at a point with the Chinese where they — barring some direct challenge to our national security, military security, acquisition of a company that turns out, you know, highly important classified military systems — that they ought to have the right to acquire.  So I thought that was not right. 

And I could go on with it, but as you know, the company had possession of potential oil resources in areas of the world that were much more likely to end up in China than to come back over here.  So part of what I’m saying is that we have an interest in getting them to reduce their dependence on foreign oil and break that kind of competition.

MARTIN:  One of the areas the Chinese raised with me — in part because I chair the DOE work on nuclear energy — is, is nuclear energy making a rebound in the U.S., and is this something we should be looking at carefully in China?

I’d be very interested in your perspective on that, because it relates also to the nonproliferation.  Countries that — of course China has weapons, but other nations that — Iran, a good example — who want to use the peaceful use of nuclear energy — and nuclear is clean, it’s abundant.  It certainly is a miracle fuel in terms of environment and energy security, but it’s the devil in terms of nonproliferation. 

So how would you handle the very delicate issue of nuclear issues with China?  And would you fear perhaps if they developed a mega-nuclear industry, that they may not stand by concerns on nonproliferation as much as we would want in the post-9/11 world? 

LIEBERMAN:  Yeah, those are two different questions.  And there is a second look going on in this country and around the world at nuclear energy as a source of energy.  In the energy bill that passed the Congress this past summer, there are significant — historically significant sources of support for a new generation of nuclear power plants in the United States based on the fact — and everything — even though I’ve said that very little of our electricity in this country is generated from oil, it’s about 2 to 3 percent, but a lot of it is generated from coal, which is not good for — in the current state, not good for our air quality and our environment, and the international problem of global warming.  About 20 percent of our electricity comes from nuclear power.  And there is a second look at it going on as a result of its — the fact that we would control it, it reduces — could reduce somewhat our dependence on oil.  It would help the environment.  But it’s not universal here. 

And I’ll tell you, John McCain and I, in our Climate Stewardship Act, which was the anti-global warming proposal we’ve made, added a technology support section to the bill earlier this bill.  We now call it the Climate Stewardship and Innovation Act.  And we listed a series of technologies that would reduce global warming that we were prepared to give money to for research and development:  clean coal, biofuels, alternative renewable energy sources.  And we mention nuclear energy.  And I will tell you that on the basis of that, we lost the votes of four of my Senate colleagues who otherwise supported the bill.  They didn’t even want to get near it.  So we’ve got some ways to go.

One of my arguments about this is always I cite our friends in France, who are usually cited, and they are tremendous environmentalists and great supporters of the Kyoto Protocol — which I am too.  They get about 80 percent of their electricity from nuclear power plants.  So it seems a strange thing to say, particularly for an American senator, but if it’s good enough for the French — (laughs; laughter) — in this one regard. 

So.  Now, on the question of what happens if the — China’s set on a course — and this is good news — to build two nuclear power plants a year for the next 20 years.  That’s very important as — because it will reduce their demand for oil and their use of coal, which contributes to global warming.

How do we — I think I’m going to pass on the second question so we have more time for other questions — which is how do we — in doing all that, as the world begins to use nuclear energy more, make sure that it does not spawn the use of that energy for the development of nuclear weapons.  And I guess for that I’ll leave it — I’ll leave it not to the IEA, but to the IAEA. 

MARTIN:  You know, Senator, I have been impressed — and Bud wants to ask something here — but the fact that you, Bud McFarlane, many of the national security community are now saying energy is a problem.  For many of us for 30 years have dealt in energy projections and so forth, we’ve always known we would have reached this point.  The problem was no one would ever support the amount of funding that was required to build national — real national independence.  Even Mr. Rockefeller tried with his Synfuels plant back in the last — in the late ‘70s, and that failed because we realized government really can’t do it.  It’s quite a challenge.  But the fact that around the Cabinet table — and I want to — Bud can probably respond to this too when he speaks.  Around the Cabinet table, when anybody talks about energy, for three decades there’s been total silence around the table because everybody figures, gee, those programs are expensive to fill the SPRO and everything else, and if I give it to the secretary of Energy, I’m not going to have it for my own budget — whether it be National Parks or something like that.

So the fact that your community is weighing in is very important.  But —

LIEBERMAN:  You’re absolutely right.  Let me just add — and I’ll yield to Bud — that you know, Jimmy Carter saw this, President Carter saw it.  And it’s too bad he wore the cardigan when he made that speech.  But apart from that, he was on the right track.  If we had responded more robustly to the Carter initiative, we’d be in a lot better shape today in terms of energy use than we are.

MARTIN:  Well, if I may say so, since Bud and I were part of the administration that followed, Carter controlled all the prices, which led to the shortages.

LIEBERMAN:  (Chuckles.)

MARTIN:  Reagan came in, by the way, and decontrolled prices, and we lived for two decades with plenty.

Bud, please make a comment, since you had your hand up.  Or you may even come to the — since you were my old boss, you can actually come up here and speak at the microphone.  (Laughter.)

BUD MCFARLANE:  Senator, I wanted to commend you and Senator Brownback and your cosponsors for having put in the bill last week.

I just wanted to offer that one of the selling points that is perhaps useful to you is if we did what you’re recommending, in terms of climate change it would go well beyond Kyoto standards in reducing greenhouse gases.

I wanted to ask you, as a political judgment, what is your prognosis about the bill?  Do you think it will get through?  And if it does, do you think the president will sign it?

LIEBERMAN:  I’m hopeful, because this was very unusual to start with these 10 senators.  You get a sense of the range ideologically, geographically, not to mention in terms of bipartisanship.  So it speaks to a growing concern.  It’s even more significant in some ways because it follows the passage of energy legislation during the summer.  And, you know, we have a — there’s a sort of cyclical quality to legislating.  You build up over years.  It’s been a long time since we had an energy bill — just passed, and yet we’re back at it again.  Why?  Because of Hurricane Katrina and the enormous energy price spikes that occurred — the three-dollars-plus a gallon for gasoline.  You’ve got Pete Domenici, chairman of the Energy Commission — Committee; Jeff Bingaman, looking at a second energy bill right after the first one because of these new realities that we’re facing.  It’s going to be a tough winter for a lot of people who heat with oil and gas, but particularly oil.

So we think we’ve got an opportunity to make this happen sooner than normally would be the case.  And right now we’ve asked the Energy Committee — Senators Domenici and Bingaman — to hold a hearing on this, maybe December, but certainly after the first of the year, and then bring this bill out.

MORE

x x x out.

And if not, we’re committed to attaching it as an amendment to something moving through the Senate sometime early next year.  We think it’s really that critical.  And, you know, obviously I don’t know what the president would do, whether he’d sign it, but I don’t see anything in this that would inherently stop him from doing that, particularly in light of the sense of new reality and new crisis that we’re facing. 

And I — you know, again, I take heart from the fact that we’ve got Brownback, Sessions, Lugar, et cetera, Coleman, with us on this bill.  It’s a good bunch of Republicans.

MARTIN:  Senator, one thing I like about your sensitivity, though, you have  a good domestic bill.  I haven’t looked at it in detail, but it sounds good.  But you’re also sensitive to the international situation because, indeed, our energy security is dependent on what everybody else does.  It’s not just China, but places like France.  India’s another one.  All of us are putting pressure on the world oil price. 

And finally, my question — I want Dave Goldwyn to ask a question — who’s just written an excellent book on energy and security. 

But my question — in fact, it’s a compliment to you — was to be sensitive to the IEA issue of oil stocks.  You put your finger on it.  The IEA increasingly becomes more and more less effective because we’re a smaller and smaller percentage of the world oil market.  Without China in there, our ability to control prices in the event of a disruption via releasing stocks in a coordinated way is gone.  So I’m very pleased to hear your thoughts about that.  You’re right on target. 

Do you want to say anything else about China and stocks, or have you convinced China to build stocks?  Because I had years of trouble with OMB — I don’t know if China has an OMB, but one recommendation I would suggest to them is that they eliminate the OMB when they talk about energy policy.  (Laughter.)  But how do you convince this country to do that?

LIEBERMAN:  Well, they’ve got — they’ve still got a lot of their economy that’s command and control, so I would guess they have something like the OMB.  The Chinese are smart, so they got to see this problem.  Just as you said earlier, and correctly, and I tried to say it, too, their aggressive attempt to lock up international oil supplies is an understandable exercise of their national self-interest.  And I think they’re also smart enough to see that there may be other ways to deal with this, but — and they’ve got — but they’ve got immediate hunger appetite need for oil.  And, in fact, earlier this year, they passed legislation that you might say is the Chinese version of our CAFE law.  On first look, it looks even a little stronger than our CAFE law.  Maybe that’s not surprising.

MARTIN:  Senator, is that the one-car per family law?  (Laughter.)

LIEBERMAN:  (Laughs.)  I don’t think they’ve described it exactly quite that way!

MARTIN:  Let me get David up here.  David — and again, those of you that haven’t bought David’s book, please do.  It’s a terrific book, and I’ve got an article in it which David wrote, so David — (laughter) —

DAVID GOLDWYN:   Thanks for the plug, though, I appreciate it.  Senator, good to see you —

LIEBERMAN:  Thank you.

MARTIN:  And by the way, you remember David was chief of staff to Richardson up at the U.N., and then was assistant secretary under Secretary Richardson.

LIEBERMAN:  Yes, indeed.  Good to see you.

MR. GOLDWYN:  Thank you, sir.  Thank you.  And also, I salute you for your leadership on this issue, and your Georgetown speech on the domestic side.

LIEBERMAN:  Thank you.

MR. GOLDWYN:  Back to China.  Some would say that the real challenge that China poses is not the competition for oil resources, but the competition for political influence.  If China goes after an asset and it produces it and it overpays, in terms of the global economy, that’s kind of a wash.  The problem is that — is the way China competes, because they can throw in a railroad or a highway or a $2 billion loan at low interest to a country like Angola, and that undermines the ability of the United States to compete.

President Chavez also gives subsidized oil, which is welcomed in the Caribbean. 

How does the United States either help companies compete with China for these resources overseas, or how do we compete for influence in Africa and Latin America when countries like China and others can throw in those other benefits and our companies can’t?

LIEBERMAN:  This is a — you’ve stated a challenge and a problem really well, and, frankly, the answers to your question are — I welcome — I’d ask you in a moment to answer your own question.  But the answer to your questions are so inadequate that the question, it seems to me, is another compelling argument for us to urgently begin to diversify our energy sources so we can run our country on something other than oil.  Because one of the ways we’re locking up energy is by paying for it and paying a lot for it.  I mean, obviously there are other ways in which we have implicit or explicit security arrangements with countries in the Middle East, for instance, in the Persian Gulf, where, you know, their supply of oil to us — which we paid for it — there are no bargains here — is made secure by our military presence in their countries in an implicit or explicit promise to protect their regimes.  But the Chinese foreign policy on this has been quite something to watch, and you’re more of an expert on it than I am.

I mean, for instance, in Latin America today because — without going into this issue — our own — the administration’s position on the International Court of Criminal Justice — we have stopped a number of military-to-military programs with Latin American countries.  The Chinese have come right into that vacuum.  They’ve got military-to-military programs — training, et cetera — very important to those countries.  And one of the gives that they get is greater access to oil.  Obviously, there are some countries with which we may be, you know, tempted to have energy agreements, but their systems of government are so hostile to our values that we’re beginning to find it harder to do that.  We just had that — you know, the two most obvious that I said in my remarks are Iran — although, it’s a little more complicated — and Sudan.  So I think we’ve got to — we’re either going to pay through the nose or we’re going to figure out how to run our country on something other than oil.

MARTIN:  Senator, I have — you today had a chance to see Imus in the Morning.  That must have been about as entertaining as debating Dick Cheney.  I won’t ask you which one you enjoyed more.

LIEBERMAN:  The latter was much more enjoyable.  This morning — (laughter) —

MARTIN:  I want to ask you — if you were to give advice to Dick Cheney now after seeing what he’d done for the last few years, both in terms of the Middle East and Iraq and energy — (laughter) — what would be your advice to the vice president?  (Laughter.)

LIEBERMAN:  You know — you know, Bill, I think you’re ready for primetime.  (Laughter.)  Or as they say here in Washington, any advice I give really must be held confidential.  (Laughter.)  But I thank you for the opportunity.  (Laughs; laughter.)

MARTIN:   Okay.  Well, Ambassador Allan was one of the architects, Senator, of the coordinated stopdraw policy of the IEA.  If you remember, the IEA started with an emergency system, which was an allocation.  Now, thanks to Allan’s effort — Ambassador Wendt’s effort for about three or four years, we have a coordinated stock policy.  That activity took place in the ‘80s and it’s still the feature of the IEA.

Ambassador?

ALLAN WENDT:  Thank you very much.  (Audio break) — oil is still a fungible  international commodity traded in — (audio break) — market price, doesn’t that reduce somewhat the significance of China’s scramble for supplies and other countries’ scramble for supplies?  Those supplies get onto the market, and that determines the price.  So as long as the oil is being produced and sold, don’t we all benefit?

LIEBERMAN:  I think that I understand your question, and my concern, of course, is that each nation has an economy based on a source of energy you don’t control, and over which we have limited or nonexistent influence on pricing, so that we’re in a position where — two things: one is the decision of others — it is a market, you’re absolutely right.  But it’s a very unusual market.  It’s a market that flies sky-high based on psychology without regard to the normal rules of supply and demand.  So I just think from a — our nationalistic and, frankly, the Chinese nationalistic point of view, as Bill has described, for our own economic well-being and our national security — I’ll come to that in a minute — it’s — we’ve got to begin to diversify.

This reminds me of advice I got when I started my political career a long time ago by — from a man who’d been in it a while in Connecticut.  And he said to me, “In politics, you always have to be dependent on other people.  You can’t do it yourself.  There’s too much to do.”  And he said, “But listen to my advice — spread your dependencies.  Don’t get dependent on any one person or sort of economic interest.”  And bottom line what I’m talking about for us and for them, for the Chinese — we got to spread our dependencies.  And it is not, in my opinion, far-fetched or unduly alarmist to say that with their economy growing as much as it is, with our dependence on foreign oil at around 60 percent and rising, there is going to be two-thirds of their oil coming from abroad, that we’re going to begin to bang into each other in this competition, notwithstanding the international market.  And as I said — and unfortunately history tells us that nations get into wars over such things.  And it’s worth seeing it and avoiding it.

MARTIN:  It’s very interesting you say that, though.  Look at Japan.  They have no resources.  They also don’t have the acquisition philosophy of the Chinese, but through the transparency of the market and free trade, they have become, as you say, independent through diversity.  And they were the ones that went to war over oil to begin with.  There’s a very good lesson in that for the Chinese, I think.  You don’t necessarily have to own the oil.  That’s a bit of an — (word inaudible) — perspective, this acquisition strategy.  And I think, one, dialogue in the U.S.-China to just be a frankness about even the way the market works.  I noticed that in the six-party talks, the DPRK or China, they really don’t yet quite understand how the market works.  And then we say, “Trust us,” and they say, “I don’t know if I’m ready to trust the market yet.”  They will.

LIEBERMAN:  See, I like what you said.  To me, the first step here is for the U.S. and the PRC to recognize this problem, to begin to acknowledge that we each have quite a similar problem here that will affect our economic and national security and to begin talking; just as we talk about trade and IPR and human rights, we ought to start talking very aggressively about how each nation, separately and, hopefully, jointly satisfies our needs for energy.

MARTIN:  Oh, we’ve still got more time for questions.  All right.  Okay, now we’re really going up.  Please.  You’ve had your hand up quite a bit.  And say where you’re from, too, for the senator, please.

QUESTIONER:  Hi.  My name is Nora Maccoby and I’m working on energy literacy.  I recently returned from China, the International Fund for China’s Environment, with a clean energy delegation.

MORE

x x x delegation.

We met with the National Planning and Reform Commission, the Energy Division.  They expressed the 11th five-year plan, which is a recyclable economy, and that they were going to spend $180 billion on renewable energy, starting with biomass, with their firms. 

The country itself is extremely toxic.  The people are dying from pollution and the chemical factories.  So a lot of the human rights issues of peasants are based on the basic rights of clean air and water.

LIEBERMAN:  That’s a very important perspective.  Is that the source of the story I saw a while ago that they had set a goal of raising their use of renewables from 7 percent to 15 percent?  Whatever it is, this — as we’ve said, to this extent they benefit from having a controlled economy, the elements of it that are controlled, the command and control, because if they set this as a goal, energy diversity, for a lot of reasons, including the beginning of uprisings — what happened in Harbin is a real omen for them.  This can lead to the kind of domestic Chinese instability that the Chinese government historically has feared most.

QUESTIONER:  Also the issue of health, their public policy on health issues.

LIEBERMAN:  Yes.

QUESTIONER:  They know what — (off mike) — try to make changes.

LIEBERMAN:  Right.

MARTIN:  Dave McCurdy.  David.

LIEBERMAN:  David McCurdy, it’s great to see you.

MARTIN:  From Oklahoma.

DAVID McCURDY:  Good to see you. Senator.  Bill, thank you.  Joe, I take away from your points this morning — again not only congratulations, but I commend you for your leadership on the Iraq issue, but comments here today.

LIEBERMAN:  Thank you.

DAVID McCURDY:  Take away, we really need high-level communications between the two governments.  And until Bob Zoellick admirably stood up recently, I think there was a vacuum in senior leadership within the administration, and Congress is not consistent when it comes to a message vis-a-vis China.  And it’s very difficult for us to predict the future, but I think a greater difficulty is understanding the moment.  And the moment we have now is really this crossroads.  And this is the most important strategic relationship of the 21st century.

When you came to the Senate in ‘88, would you have said, “China, what we want you to do is to embrace globalism, capital markets, capital economy, et cetera and all these steps” and see the pace of change and how far they’ve come? 

So the real question is, how can we improve the dialogue — military-to-military dialogue, improved intelligence and understanding at the government level; and then reaching out to industry, there’s more connections there than we can ever imagine across a wide range of contacts, from, you know, high tech all the way through energy. 

And so my plea to you is really the consistency in our arguments vis-a-vis China, and trying to provide greater leadership in the Senate and the administration with a more informed voice on what it is we expect of them and consistent voice of what we expect of China.

LIEBERMAN:  Thanks, David.  That’s a very important statement.  You know, I guess I should simply say I accept your challenge.  I mean, it’s something that we ought to be persistent about even in the midst of our understandable preoccupation with the other post-9/11 international conflict which is ours with Islamist terrorism.

You give me an opportunity — and I hope the administration will continue from the initiative that Bob Zoellick and the president’s trip represented — give me an opportunity to just say a word about another piece of legislation I’ve put in with Lamar Alexander, which is called the U.S.-China Cultural Engagement Act.  And this is a system — not too much money, I’ve forgotten how much we put into it — Bill, you remember? 

MR.       :  Billion a year.

LIEBERMAN:  A billion a year.  This is to increase — basically that more American students go to China — a lot more Chinese students are coming here than Americans go to China — to encourage the teaching of the Chinese language and culture in more of our schools.  It’s happening, but not enough.  So that kind of shared cultural engagement, I think, is one of the other things at a more popular level, apart from the accelerated dialogue at the higher levels, that will help to avoid the kind of conflict that we all have an interest in avoiding.

MARTIN:  Senator, as we start the holiday season now and begin thinking about presents, all of which will come from China, there’s one very important thing to remember here from my early days at MIT.  We had what we called net energy analysis, and it was when Amory Lovins and I shared the same office together and —

LIEBERMAN:  Oh, that must have been interesting.  (Laughter.)

MARTIN:  And I never understood his jokes.  We used to try to get him dates at Wellesley College from my wife, but it was never successful.  But he’s a great man.  (Laughter.)  That’s another topic.

But let me ask you this.

LIEBERMAN:  (Inaudible) — would have pursued that particular subject right now.  (Laughs.)

MARTIN:  I’m the presider today, so — but you know, frankly speaking, we import energy through our imports of China goods, and so when we keep saying, hey, China’s demand, demand, demand, why is the demand?  It’s for everything that’s coming here.  So the fact is, if you really look at the United States impact on the world oil market, don’t look at them, look at us.

LIEBERMAN:  By that you mean that in other words, they need the energy to make the goods that we buy.

MARTIN:  All those little plastic locomotives that are coming over here, sir.

LIEBERMAN:  A lot more (than that ?).

MARTIN:  Yeah, okay.

DAVID APGAR:  David Apgar, Corporate Executive Board.  Actually that’s a good segue for my question.  A number of the questions, Senator, ask whether China has really newly become the energy problem.  And I wanted to get you to comment or maybe make some political judgments on whether maybe the bigger change has to do with a change or failure in political will in the U.S. 

Since the 2001 terrorists attacks, we have seen a great increase in exurban sprawl, bigger houses that consume more energy.  We’ve seen a huge move toward larger vehicles despite their potential roll-over threats.  We’ve seen Congress support subsidies for the purchase of large vehicles that are essentially trucks.  We’ve even seen a tolerance for what’s arguably more concentration in refining capacity than we have in oil resources. 

It’s not just a congressional issue, it’s an issue at all levels of society.  It seems that there’s a new lack of realism or a new loss of any sense of conservation in American society.  And I’m wondering if you think there’s anything to that or if you think that it’s an illusion and we really should refocus no what’s happening outside our borders.

LIEBERMAN:  No, no, no, there’s a lot to say.  My emphasis really, on the bill that Senator Brownback and I and the others put in, is to say that we’ve got to deal with this problem we have ourselves first.  I hope we can find a way to deal with this jointly with the Chinese for other reasons. 

There’s no question that we’ve been heading in the wrong direction.  You know, the compliance with CAFE gets worse and worse over the years, not better and better.  The market is a magnificent mechanism for many purposes, but it doesn’t help deal with this unless, of course, the price of oil goes outrageously high, and even then the consequences for our economy will be so disastrous that we will wonder why we didn’t intervene.  So that’s why I think the legislation that we’re talking about and others, the energy bill that passed this summer, bipartisan, the president signed, are all interventions to begin to turn this around.

There are a lot of incentives in the energy bill to encourage consumers to begin to conserve again, to buy hybrids and energy-efficient vehicles and other energy-efficient systems for their homes and businesses.  There’s a lot of interest — and money now again — for the development of hydrogen fuel cells, fuel cells generally as a source of energy, not just for transportation but for fixed locations.  And that continues in our proposal, which raises significantly tax credits for investment in refineries to take agricultural materials and agricultural waste and convert to biofuels.

So we’ve got to intervene here to turn this around.  But I will say this.  At this moment — and this is going back to Bud’s question — I think we’ve got to act quickly.  I can tell you politically that Katrina and the $3.50 a gallon gasoline had a jarring effect on public opinion.  There’s a way in which I think the public wants us as their leaders to help them stop doing what inside their heart of hearts they know they shouldn’t be doing but they’re just somehow not able to do it on their own, and give them some alternatives that are economically sensible other than gasoline to power their cars and oil to heat their homes.  So something has happened out there contrary to the trend that you quite accurately describe.

MARTIN:  Well, Senator, it’s 10:00.

LIEBERMAN:  Yes.

MARTIN:  That was my one job, to keep you on time.  But I want to thank you so much.  I’m so pleased the American people kept you in the Senate in the year 2000 — (laughter) —

LIEBERMAN:  Thank you.  (Laughs.)

MARTIN:  — because your leadership — you’re leadership —

LIEBERMAN:  You don’t want to comment on any other elections that occurred in 2000?  (Laughter.)

MARTIN:  No.  I do want to say that everybody read the senator’s Wall Street Journal from yesterday on Iraq.  It was terrific.

And thank you so much for coming.

LIEBERMAN:  Thanks to all of you.  It’s been a very, very good discussion.  (Applause.)  Thank you.

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