Ambassador Schieffer Speaks before U.S.-Japan Business Council

Ambassador J. Thomas Schieffer
Imperial Hotel, Tokyo

November 13, 2006

AMBASSADOR SCHIEFFER: Thank you very much. It is a great pleasure to be here today at this august body, and I have looked forward to meeting with you for some period of time. For over 40 years, business and political leaders have come to this forum to share their ideas and thoughts on the business challenges that face our two great peoples. I welcome the chance to join their ranks today.

When I think about our economic future, two issues always come to mind - energy and the environment. How we deal with them will go a long way in determining whether we live in a future world full of hope and prosperity or a world full of doubt and danger.

In the past, we may have looked at these two issues separately. Now, I believe we have come to understand that they are two sides of the same coin. One cannot be solved without impacting the other, and one cannot be served at the expense of the other. Both must be addressed simultaneously. Often the debate over energy and the environment provides more heat than light. Because these issues are so difficult and defy such easy solutions, participants in the debate often ascribe the worst motives to their opponents.

I think we would be better served if all sides acknowledged that we all want the benefits of cheap energy and we all want a clean environment. Conspiracy theories and hot political rhetoric make it easy to blame others for where we are, but they will not get us to where we want to go.

We all face problems when it comes to both energy and the environment, but I am convinced that solutions acceptable to all can be found if men and women of goodwill approach these subjects with rational and thoughtful discussions. These problems were largely made by men and women, and they can be solved by men and women who are more interested in finding solutions than assigning blame.

The demand for energy will increase dramatically over the next 25 to 30 years. The Energy Information Agency of the U.S. Department of Energy estimates that worldwide demand for energy will increase by more than 70% by the year 2030. While the developed world will be using more energy, most of the increase will come from the developing world. Countries like India and China will increase energy consumption almost four times faster than countries like the United States and Japan.

It is a good thing for the developing world to have that kind of growth. It can be the engine that pulls prosperity into economies of every size. But it can also be the demand that pushes energy prices through the roof.

Let me give you an example of what I mean. Right now Americans have about 600 cars per 1,000 persons. It is the highest car-to-person ratio in the world. In China the ratio is just about 20 per 1,000, and it is even smaller in India. The Chinese and Indian ratios are less than existed in the United States in 1915.

It is doubtful that either India or China will ever reach the American ratio. But Goldman Sachs estimates that their ratios could rise to 100 cars per 1,000 citizens somewhere in the 2020-2025 timeframe. That means that millions more people will be driving cars in the future than drive them today. And that also means they will buy a lot more gasoline. The upward pressure on prices will be enormous.

This at a time when we are already entering a period when demand for oil will outstrip supply to a degree that there may no longer be a so-called swing producer to moderate price spikes in the world oil markets. Places like Texas in the latter 1940s and 50s and Saudi Arabia today have had sufficient supplies in the past to add millions of barrels of oil to world markets when increased supplies were needed to moderate price spikes. With demand increasing so rapidly, we may be reaching a point where every barrel of oil is needed every day of the year and nothing can be held off the market for reserves. If that happens, the world economy will become increasingly vulnerable to natural disasters and political unrest.

Every hurricane in America and every political upheaval in the Middle East will have the potential to spike oil prices to economically damaging highs. While increased prices will make it more economic to produce oil and gas in exotic places and in exotic ways, we will have to get help from other energy source than fossil fuels to meet the energy demands of the rest of this century.

Renewable energy resources like ethanol must contribute more to our energy profile. We must do whatever we can to make them economically viable. In the United States we have changed our tax laws to encourage greater investment in ethanol plants. And as a result, 120 biofuel plants are under construction right now, and dozens more are in various stages of planning. Production of ethanol, the most widely produced biofuel in the United States, was roughly 4 billion gallons in 2005. It will increase by more than 50% in 2007. Still, all this increase will amount to no more than 5% of transport energy consumption in the United States. The scarcity and expense of fossil fuels will make it ultimately imperative that we power automobiles by other means.

President Bush, who came out of the energy industry, recognizes this fact. His Hydrogen Fuel Initiative, launched in 2002, has so far spent $1.7 billion on hydrogen research - more than any country in the world. We hope that putting more dollars, more effort, and more research into the development of a hydrogen car will give us options in the future that we simply have not had in the past.

At the same time, we welcome the research and cooperation of others. Hydrogen offers all of us an opportunity to use fossil fuels for other things and to clean up our environment in the process. Hydrogen cars and energy of all kinds derived from hydrogen can have a tremendous impact on Japan and the United States, as well as the rest of the world. Benefits will accrue to everyone if we can solve the remaining technological challenges associated with this issue.

There are many other unconventional energy resources that must be developed to meet the coming increase in demand outside the energy transport sector. Everyone loves the thought of solar power and wind power, because nature provides us these raw materials in endless supply. The problem is that it takes money and equipment to convert this natural resource into energy that we can use. Heretofore, the cost of that conversion made solar and wind power only marginally economic.

As fossil fuels increase this gap in prices between conventional and non-conventional resources, the gap will close, but we must do more to make that happen quicker. We must also recognize that barring some technological breakthrough these kinds of energy resources will only add a little to our overall energy needs. Hydrogen and nuclear fuels are more likely to be the big contributors. Americans are slowly beginning to realize that nuclear energy is an alternative that must again be considered if we are to meet our future energy needs. Right now in the United States, about 20% of electricity is generated by nuclear power. In Japan the percentage is between 30% and 40%. In France it is 80%.

In America during the late 60s and 70s environmental groups were largely successful in arguing that nuclear power was too risky and environmentally unsafe. As a result, the last American nuclear plant was constructed in 1976. Now, Americans led by some of those same environmental groups are coming to the conclusion that nuclear power may make the most sense from both an environmental and energy standpoint, because nuclear energy does not contribute to greenhouse gases.

Here in Japan, your nuclear energy industry continued to advance while much of ours stagnated. Your research and development of MOX, mixed oxide fuel, offers the world a real opportunity to reuse nuclear waste and reduce the whole storage problem that has worried everyone since the dawn of the nuclear age. We in the United States have offered incentives and research dollars to others to join with us in developing the next generation of nuclear facilities around the world. The passage of the Energy Act of 2005 will enable Americans to rejoin the world in developing newer, safer, and more productive nuclear energy resources.

Let me also pause here to say that the United States recognizes the positive potential that nuclear energy offers to much of the developing world. That is why we have taken the lead in proposing the Global Nuclear Energy Partnership. This partnership aims to expand the benefits of nuclear energy while reducing the risks of nuclear proliferation.

We in the United States want to join with other countries with advanced nuclear fuel cycle programs, including Japan, to offer comprehensive nuclear fuel services - supplying nuclear fuel and taking back spent fuel - to countries that choose not to develop fuel cycle capabilities of their own. We plan to work with Japan and others to develop the technologies that will enable us to achieve this vision. In doing so we will meet the legitimate needs of those who want to develop nuclear power while preventing the by-products from falling into the hands of those who would make weapons.

When countries argue that America wants to deny them the benefits of nuclear energy, they are wrong. We are perfectly happy for them to have nuclear power; we just do not want them to have nuclear weapons. And there are ways that both goals can be accomplished.

Increasing the supply of energy will not be easy, but the further development of technology will make it possible. As I have said, the development of unconventional energy resources can play a big part, but so too can the development of better technology in the production of conventional energy.

Horizontal drilling in oil and gas offers tremendous potential. Those who are worried about drilling in sensitive areas should be relieved to know that it is no longer necessary to start above ground in places where we do not want the beauty of nature disturbed. It is possible to start many miles away in places you cannot see to produce oil and gas from locations that no one wants to violate.

Technology can be a tremendous friend to those who want to produce more energy as well as those who want to do a better job of protecting nature and the environment. Technology will allow us to recover energy from places we never thought feasible before.

In my hometown of Fort Worth, Texas, the biggest gas exploration play in the world is probably going on right now in a place where no oil or gas had ever been produced before. New technology allowed a technique that will - new technology allowed formations to be treated with high-pressure fracturing techniques that will allow clean-burning natural gas to be produced in enormous quantities. These kinds of techniques allow us to produce fossil fuels from shale and other geological formations that were thought uneconomic in the past.

Coal is an abundant resource that technology can make more energy-efficient and environmentally friendly, but we need to start thinking of coal in different ways. Coal-gasification plants, as well as the development of coal bed methane gas, offer new ways of getting the energy out of coal beds without polluting the environment. We can also scrub coal to remove most of the sulfur, oxides, and mercury when it is burned. It will cost more, but it will be worth it if we can deliver a cleaner environment to the world.

Finally, let me say that more efficient use of the energy we have will greatly contribute to the solutions we all need. Right now, China uses more energy than Japan, yet China's economy is less than half of Japan's. Russia uses more energy than Japan, yet Russia's economy is only 16% the size of Japan's. The United States is often criticized because it contributes 24% of the world's greenhouse gases, but it is seldom pointed out that we produce 29% of the world's gross domestic product. And the president has set the goal of reducing that ratio by 18% in the year 2012.

Stated another way, when the United States is pitted against the rest of the world, we produce less greenhouse gas per dollar of GDP than everyone else combined. Now, don't get me wrong - the United States has to do a better job in energy consumption, the development of alternative energy resources, and the reduction of greenhouse gas emissions, but the task is not ours to do alone. The rest of the world has to join us in developing a worldwide system that produces more energy with less environmental impact than we have today. And Japan can be a tremendous help, both to us and to the rest of the world.

Japan today is a world leader in energy efficiency. You get more out of a BTU of energy than just about anybody. Hopefully, you will continue to spend research and development dollars in those areas so that you can continue to show others and us a better way. But no matter how much energy we save or produce we all must do better in reducing the environmental impact energy is having on our world. The Bush administration has been roundly criticized for our environmental policy. Europeans in particular were dismayed when we did not ratify the Kyoto Protocol. Here in Japan, I am frequently asked why the United States does not sign that treaty.

We did not join in the Kyoto Protocol for one simple reason: We thought it was a flawed approach that would impact us dramatically without producing the desired results overall. Why? Because it left out the developing world. We will not solve a world problem until all of the world is part of the solution. Here in Japan you know that a great deal of the pollution that is generated by the growth in China winds up in Japan. To have a viable solution, you must engage the Chinese on this issue. Leaving them out will only put off the day when real progress can be made. And China was essentially left out of the Kyoto Protocol.

In the United States, we recognize the danger presented by greenhouse gas emissions, and we want to do something about it. That is why we have proposed 15 different bilateral partnerships and 6 multilateral partnerships on climate change. One of the most important is the Asia-Pacific Partnership on Clean Development and Climate. We have been joined by Japan, Australia, China, India, and South Korea in an effort to enhance energy security, promote economic growth, and reduce greenhouse gases. These six countries have promised to encourage public-private partnerships that will have real environmental impact. It is in the interest of business, government, and the public to produce more energy in ways that are compatible with a clean environment. We can do that if we recognize that all must contribute to a solution that will benefit all.

When we talk about energy and the environment, it is easy to feel overwhelmed. Much of what I have talked about today seems daunting. The problems are real. The solutions seem far away. But we must not give up. If we roll up our sleeves, if we realize that failure is not an option, then we can begin to effect the kind of changes that will make a difference in our lives and the lives of future generations.

The United States and Japan have had a long and productive partnership. We have overcome the bitterness of war and the friction of trade. Now it is time to turn our efforts toward solving our mutual problems of energy and the environment. We have much to share and much to contribute to a world to make better use of its energy resources. We can innovate and create a world that is cleaner, more livable, and more prosperous than ever before. With 40% of the world's gross domestic product, we can have a huge impact on what others do and help them achieve the goals they share with us. Now all we need to do is to gather our best minds and our best motives to solve some of our worst problems. If we do so, future generations will give us their thanks and admiration. Arigato gozaimashita.

QUESTION: Mr. Ambassador, thank you for sharing with us your views on energy and the environment. As was mentioned in your introduction, you played a critical role as our ambassador to Australia in negotiating the United States-Australia FTA. Yesterday and today we have talked about U.S.-Japan economic partnership that would be comprehensive. Based on your experience, what would be your advice to the United States and Japanese business community as to how we should engage completing of this proceeding from this point on?

AMBASSADOR SCHIEFFER: I think there's real opportunity to create great benefit in both the American and Japanese economies by trying to integrate these two economies more than they are integrated today. The simple way to express that, in my mind, is that it needs to be as easy for an American to do business in Japan as it is for a Japanese to do business in America. That's kind of where we start. The second tenet that is important to remember is that agriculture has to be a part of any negotiation, whether you call that a free trade agreement or an economic partnership agreement, it doesn't seem to me to matter all whole lot. But what it has to be is a comprehensive agreement. Comprehensive in the American context means agriculture has to be included. But what we mean by that and what we are prepared to do - if Japan were to begin to address its agriculture sector in different ways than it does today, if the Japanese, for instance, were to say that, "This is essentially a political problem and we're going to treated as a political problem by making direct payments to farmers to ease the burden of transitioning over to a free trade environment," then I think that the United States would be prepared to talk about a free trade agreement. In other words, if you're ready to talk about addressing this sector with direct payments as opposed to subsidizing crops of the sector, I think that's a big difference to us. And I think that that would move the situation far down the road. That essentially is what happened in Korea, and the Koreans are now at the table with this negotiating a possible free trade agreement there. So I think that that is a big part, what you're talking about, and a big opportunity, and I think it's one that both of us need to see. Now as for that kind of approach, I think that there are still ways that we can increase the integration of the two economies, and I hope we'll pursue those. But I don't think you'll be able to pursue them in a free trade agreement, not unless agriculture is addressed.

QUESTION: Thank you very much for your lovely energy and environmental speech. That was very impressive that the United States and Japan can contribute for the future of the world, and it all - almost all - depends upon two, the United States and Japan. I have a hesitancy to raise this question to you, but I have to raise the question in relation to the result of the recent elections that took place in the United States. I know that Mr. Ambassador is a very intimate friend of President George W. Bush, and at the same time, your position is ambassador to Japan. And on the other hand, you are a Democrat, so I have to congratulate you. The Republican ...

AMBASSADOR SCHIEFFER: Please don't do that! [laughter]

QUESTION: Or, send condolences for us, Ambassador Thomas Schieffer. My question is, there are articles appeared in the press that the six-party talks scheduled to be sometime in this month or early part of next month in Beijing could lead to, because of the results of the election, something like a direct dialogue between the United States and North Korea, or North Korea has started to advocate that at least they are desirable to alienate Japan from the six-party talks. The location of North Korea being so close to us, and that is a very important issue for us, and if you have a ... could you tell us your prospects for the North Korean six-party talks? And also, how can we resolve this nuclear weapons issue of North Korea? Thank you very much.

AMBASSADOR SCHIEFFER: I'm happy to answer that question. I think it's important for people in Japan to understand that our two forms of government are different. What happened last week in the United States would have caused a government in Japan to fall. The government of the United States didn't fall. It's just part of our process, and it's a part of the process that has been with us a long, long time. It frequently occurs in American history that the executive branch is controlled by one party, and the legislative branch is controlled by another. President Reagan, who was a very successful president, lost both houses of the Congress in his last two years that he was president, and he never - never - had control of the House of Representatives during the whole time he was president. So this is not something that happens infrequently. President Eisenhower, who was a very successful president, had control of the House and Senate for two years, the first two years of his presidency. The last six years, he did not. So I just give those as historical examples, that what happened last Tuesday was not as cataclysmic as some people might think it is. It's just kind of what happens under our system of government.

I have watched George Bush for many, many years, and I know him very well. And it's my personal opinion that he does better when he is behind than when he's ahead. I don't know why that is, but I watched him as a candidate. I've always thought he was better when he was running a little bit behind than when he was running a little bit ahead. I also watched him when he was governor of Texas, and during the time when he was governor of Texas, the Texas legislature, the parliamentary body that represents the legislative branch there, was never controlled by Republicans. It was controlled the entire time by Democrats. And he had an ability to reach out and to work with those Democrats to be one of the most effective and popular governors in Texas history. I think one of the great frustrations that he has had - I know because he has talked about it to me many, many times - is his inability to get across this partisan divide that exists in Washington.

In many ways, it may be easier to do that now, with the Democrats in the majority in both the House and Senate, because if you are going to get anything done in America, each side will have to reach out to the other in a way that they haven't before, and I think if there was an overriding - if you asked the American people, yes, Iraq was a part of the equation, corruption was a part of the equation, scandals were a part of the equation. But if you asked the American people, "What are you really sick of, in the American political system?" I think they'd say "partisanship." And I think that Americans would really put a pox on both of the political parties for the way that they have acted in the past few years. It has been very destructive, and I again think that maybe the atmosphere is about to change here. I know that the president met with the Democratic leaders, and they were very good meetings, and I have heard that not only from the public reports of them, but I have heard that from the private meetings, the private assessments of people on both sides of the equation. That's a good thing. We need people to work together. The problems that we face not only in America but in the world are problems that are largely beyond party.

But what does that mean for Japan? First of all, I don't think that you're going to see any change in American policy toward Japan. I believe the leaders of both parties recognize the essential nature of our relationship to peace and stability in this part of the world, and I want to just, from a matter of a historical perspective, want to remind you that probably the most revered American ambassador to serve in Japan was Mike Mansfield. He was the majority leader of the Democratic Party in the Senate. A Democratic president, President Carter, chose him to be ambassador to Japan. Ronald Reagan was elected with an overwhelming mandate in 1980, and because Senator Mansfield was such an effective representative of the United States in Japan, he asked him to stay on. And he didn't ask him to stay on for a year, or two years, or four years. He asked him to stay on for eight years. So why did he do that? Because he understood the importance of the relationship, and he was an effective steward of that relationship while he was here. It wasn't because he was a Democrat. It wasn't because Reagan was a Republican. It was because the U.S.-Japan alliance was bigger than a partisan issue, and it remains so today.

Will that affect North Korea? No, and I hope that the North Koreans have enough understanding of our system to know that. I fear that they don't, but I hope that we can convince them to look at our history. North Korea was not on the ballot last week in the United States. Had it been on the ballot, it wouldn't have done very well. And it wouldn't have done very well in Democratic precincts, and it wouldn't have done very well in Republican precincts. The question is not whether Americans think that North Korea ought to have nuclear weapons. The question is how do you engage the North Koreans to get them to give up their nuclear weapons, and frankly it's not a hot-button issue with Americans. What Americans recognize is that North Korean nuclear weapons are a danger to the peace and stability of not only Asia but the United States, and they want that threat to be removed. And there is no chance - no chance - that any American government will come in to office or will advocate that the world will be a safer place if North Korea develops nuclear weapons. It just won't happen, and I hope that the North Koreans don't misinterpret the elections to think that they have greater leverage now than they do.

Now, why do we think the six-party talks are important? We see the North Koreans ready to reengage in those talks, and we hope in a meaningful way. We have said throughout this whole process that this is a regional issue, and it demands a regional response. And we cannot have a situation, and we're not going to allow the North Koreans to divide us from the Japanese, we're not going to allow them to divide us from China, the South Koreans, or the Russians. All of us have come to the table with the same underlying number-one reason, and that is that North Korean nuclear weapons destabilize this part of the world and are a threat to peace in this part of the world. And nobody's changed their opinion on that. And the notion that North Korea is somehow going to belittle Japan or is going to say to the United States that Japan is not going to be a part of the solution - that's ridiculous. This alliance has existed for more than 50 years, and the North Koreans are not going to divide the United States and Japan, particularly on an issue of whether they should be allowed to have nuclear weapons. We are together, and the fact that we are together makes a stronger. And if you needed any proof of that, the statements coming out of Pyongyang, I think, are confirmation that they think it weakens their position for all of us to be together and speak with one voice.