Earth Technologies Forum

[as prepared for delivery]

I am honored to be here today representing the views of at least some in American industry. I say some because not everyone agrees on these difficult greenhouse gases issues, but I do believe that opinions are changing, and in a direction that I imagine this audience will like.

First, I am no climatologist. But I am an industrialist interested in issues and decisions of consequence not only to our environment but also to our economies. And like most of us, I have children and prospectively grandchildren and great grandchildren whose lives and livelihoods concern me. Finally, I have been trained all my working life to analyze problems, to filter out good information from bad, to make informed decisions sometimes under conditions of uncertainty and risk, and to be judged by the consequences of these decisions.

On one level, the UN's Intergovernmental Panel on Climate Change has told us, as of three years ago, that "A human cause for the climate change now observed is likely, not just possible." This is an important change from the 1990 position that said the human cause and effect was not yet persuasive. Others have begun to join in. John Browne of British Petroleum made a straightforward statement more than a year ago that expressed a different view for his industry: He said, "The time to consider the policy dimensions of climate change is not when the link between greenhouse gases and climate change is conclusively proven, but when the possibility can not be discounted. We have reached that point." And earlier this month the Pew Center on Global Climate Change, said, "The problem is getting worse and the longer we wait, the more difficult and expensive our response will be." I should note that United Technologies Corporation is a founding member of the Business Council of the Pew Center, and I am comfortable that time will confirm this to be a wise decision.

At a second level, the basic relationships and math are straightforward and persuasive. First, CO2 is without question a principal greenhouse gas. There's lots of it in the atmosphere, 750 billion metric tons, and it has the important functions of keeping us warm but not too warm and of feeding the photosynthesis cycle. In simplest terms, the 60 billion tons of CO2 generated by respiration of plants and animals is balanced by the consumption by photosynthesis, plus some other lesser and offsetting factors. By contrast, the CO2 we and our economies generate is a little over five billion metric tons each year. But there is no offset for this man made generation with the consequence that the CO2 content in our atmosphere and absent actions or offsets will more or less double over the next century. And it is physics that the extra heat trapped in the atmosphere will be enough to raise surface temperatures by between two and four degrees Fahrenheit over that same period.

This is physics and math so far, but then the debates start, taking account of issues like the role of oceans as heat sinks and the potentially compounding impact of more saturated water vapor offset by potentially greater cloud formation. But I like to stick with the basics, which I believe are as I have outlined and which are just plain consensus science. In other words, we should have to talk ourselves out of there being a problem, rather than talk ourselves into believing we have one.

United Technologies Corporation is an interested party. We are the world's largest air conditioning company, and our industry's equipment, installed in prior years, still accounts for about 15% of all the CFC's in use today. I'm proud of the fact that starting in the late 1980's we spent more than $100 million to design CFC usage out of our equipment, moving instead to chlorine free refrigerants, and that Carrier was the first air conditioning company to shut off the manufacture of equipment requiring any CFC's.

We are also part of the CO2 emissions problem. Aircraft engines account for about 3 percent of total fossil fuel consumption annually, and more than half of all engines in flight today are from our Pratt & Whitney division. But way before our nation became concerned with emissions, Pratt & Whitney and its competitors were working on fuel efficiency, for the straightforward reasons of extending ranges and payloads of aircraft in flight. To be specific, and taking into account airframe changes as well as engine efficiencies, fuel use per passenger mile has been reduced by a remarkable factor of five times over the course of the jet age. And were it not for these efficiency gains, the portion of total emissions due to aircraft would not be 3 percent but a multiple higher. As in air conditioning, the encouraging thing to focus on here is the rate of improvement, and the potential for more still.

Before CFCs and CO2 were part of the public policy landscape, we were selected by our Government in 1962 to build the fuel cells for the Apollo missions, and subsequently for every single Shuttle launch and for every American in space. We are pretty good at fuel cells, and there is increasing evidence that they may be the propulsion system of choice in next generation and really environmentally friendly vehicles, and potentially in stationary electric power generation in some applications too. The root principle of fuel cells is combustion free oxidation of free hydrogen, resulting in a basic conversion efficiency of 40 percent as compared with 25-35 percent for power plants in service and being commissioned today. Because of this higher conversion efficiency and other specific characteristics of fuel cells, CO2 emissions from this power source are about 25 to 50 percent less than those from a combustion based process, and all other pollutants an amazing several hundred fold less.

These examples are three big positives for our environment, our company has reason to know lots about them, and I recite them for the straightforward purpose of being persuasive that we can be efficient, much, much more efficient in both our energy production and in the operation of equipment consuming that energy. In contrast, the case against acting to reduce greenhouse gasses is built substantially on the notion that reductions in energy consumption are no- or low-return investments, therefore subtracting directly from production and consumption of things we might otherwise have. Yet the history of economies and technologies is that we do things better and better, always.

We do waste energy, a legacy of a century of cheap energy and an economy built on and a society used to it. Today, America is five percent of the global population and produces 28 percent of the world's GDP. Other things being equal, we might expect to consume like proportions of the world's electricity and gasoline for vehicles, or even less based on being an advanced and large scale society with the efficiencies these entail. Let's take one example: Japan has 16 percent of the world's GDP yet consumes only 7 percent of the world' electricity and only 4 percent of the world's gasoline. Yet we consume a little over our share of electricity (30%) and a much higher share of gasoline (43%).

Stated more broadly, and expressing the comparisons on a per capita basis to adjust for size, our fossil fuel energy use and therefore emissions are five times France's, four times Japan's, and three times Germany's. These are indeed advanced societies, and one of them even has big cars and lots of them. The difference is that electricity rates in Japan are twice as high as in the U.S. and in Europe three times as high. The same comparisons hold for gasoline at the pump: $1.23 per gallon here at home, $3.27 in Japan, and between $3.00 and $4.00 in Europe. I'm no politician, but it seems pretty clear where the answer lies, and especially at a time when energy prices in our country are entirely fortuitously at three decade lows.

It's evident that we can reduce our energy and fossil fuel consumption dramatically and still have an absolutely American way of life. We might note that we have done this before, and the goad was higher energy prices, a consequence then of the Arab oil embargo in the early 1970s. Although we've gone downhill since then on gasoline, we did make big strides in electricity consumption, dropping the seven percent per annum growth rate of the prior decades to a little over two percent per annum since then. The result overall has been a less energy intensive economy by about a third, and I believe with confidence that we can keep right on going.

Experiences at United Technologies Corporation may be persuasive. We began what I call the process change revolution at UTC a little less than ten years ago. Before that, we and much of industrial America developed products -- whether they were semiconductors or digital communications and control or medicines and medical procedures - while ignoring substantially the processes by which we made things and assured their qualities. Factory management was second class. But the Japanese taught us different lessons entirely, and confirmed these with their successes in American markets in the 1980's. As a consequence, companies across the U.S. have and continue literally to remake themselves. The numbers we see these gains best in are corporate profitability, inflation, unemployment, and the stock market. The reason the United States has a full employment economy and no inflation, and why economists are consequently confounded, are simply this: an American process change revolution of immense proportions.

The lesson this has taught me and countless others, and why I include these comments this morning, is that we can set really high goals and expect to meet them. We do this now all the time with the P&L. We do it with product performance. And we do it, and economically too, with performance measures other than purely financial ones. Here's a good example, and one that we can be genuinely proud of. In the 1990's, ours was not the most environmentally compliant company in America. The EPA in fact levied a then record fine on us in 1992. But these are the results: hazardous waste and chemical releases, the two primary EPA measures as we report them to our Government, reduced in the current reporting year 82% and 90%, respectively, from our 1988 baselines. And this isn't just cost of compliance, its return too: hazardous waste costs about a dollar a pound to get rid of, and we generate today 37 million pounds less than we did in 1988.

We operate a safer workplace. Our Lost Workday incidence rate six years ago was a little over four cases per hundred employees per year, again as reported to our Government. Today, it's less than one. And there were returns too: workers' compensation costs for us totaled $90 million annually in 1992, and this year they will be under $30 million, and this includes medical cost inflation along the way.

We can do exactly the same thing with energy, we can do it at UTC, we can do it across our country, and it will have economic returns. Our own company's goal, set and announced in June, is a 25% reduction in energy use of all types, normalized for sales volume, by 2007. We pay today just under $200 million annually for energy totally. So we will cut our costs by just under $50 million annually and it will cost us $200 million to get this done. After we pay taxes and allow for the fact that we spend the money first and get the returns a little later, our rates of return will be in the 10-15% range, not the best we have ever achieved but certainly above our cost of money. And this will be a mix of individual projects, some high return like turning out the lights and some lower. Although we're still defining these, I'm entirely confident that the first half will be good returns indeed.

We're by no means alone. Others have been down this path before, and others are saying what they will do too, notably British Petroleum with its 10% emissions reduction goal announced last month, and with its industry's process and energy intensity this will be just as hard for BP as our 25%.

There's room and lots of it for our Government's leadership here. I want to be temperate, but our nation's record has, shall we say, been better elsewhere. There's the energy cost issue, which no one will touch. Since I'm not a candidate for public office, now nor likely ever, I will say simply that our posture is wrong. Period.

Second, we haven't yet organized the kind of technical effort that has been so characteristic of our country over the last half century.

We said in 1960 that we wanted to put a man on the moon in a decade, and we did it in 1968. Notably for this energy issue we face today, it cost us a little over $100 billion (in 1998 currency) to get this done, and we can't seem to find a fraction of this total today.

In the 1950's and 1960's, we built the Interstate highway system at a cost, again in today's dollars, exceeding $300 billion. A third of our economy's output moves across these highways each year, enough that we don't have to be persuasive as to returns.

The Defense Department's Defense Advanced Research Projects Agency (DARPA) spends about $2 billion annually, and I am quick to admit that UTC benefits directly here. I can't find if anyone has tried to calculate returns on these expenditures, but they are clearly vast. Semiconductors came out of DARPA funding, and so did lasers. The Internet is absolutely a DARPA invention, just as is the more mundane Mouse. Does anyone care to speculate on just how much economic worth has come out of this list alone. And $2 billion per annum seems like a small price to pay.

R&D is what propels the human condition forward. And our Government's role is fundamental. In the case of UTC, we spend well over a billion dollars a year of our own money on research and engineering. We spend as well another three quarters of a billion under government contracts. The results are some of the most exotic systems and inventions on the face of this earth, from stealth helicopters, to the engines powering our nation's next generation of front line fighters, the F-22 and the Joint Strike Fighter, and even to work stations incorporating massive parallel processing with resulting computational capacities and speeds exceeding those of 3,000 supercomputers. And I make this strongest statement to you: our Government's research funding has been the largest force in technology innovations globally in the post-War period, from semiconductors to digital communications and control to the Internet to the health sciences to jet engines and rockets and space exploration.

Yet our funding on energy conservation and efficiency technologies is comparatively small. The recent budget agreement between the President and the Congress funds research on energy conservation technologies at just over $1 billion for the next fiscal year. But I argue that these are small numbers in comparison to the really great technology projects that have moved our economy and our nation around before.

The two other big issues our government should act on are credit mechanisms for early emissions reduction efforts, and mechanisms for trading emissions reduction credits both between nations as we stood so firmly for at Kyoto, and between companies inside our own country. Some early work on early action credits has already been done in a report released a month ago by the Pew Center, and as a founding and interested member I take to occasion to promote both the Pew Center and this initiative.

As we contemplate this problem, the last thing we should remind ourselves of are the long tails of the decisions we make today. Buildings routinely last a half century or more. Vehicles today exceed a decade. Airplanes three decades. And we are lots less likely to, and it's more expensive to modify in-place assets than to get them right in the first place. And the research to put improvements in place in the first place is characteristically a long term process. For example, although the first production fuel cell powered vehicles were anticipated a year ago as early as 2002, a better date now looks five years later. As a good sized, and we think sophisticated research and engineering company, I confirm with reliability and conviction that most big deal innovations are a decade in the making.

Ten years ago, then President Bush told Americans that, "those who think we are powerless to do anything about the greenhouse effect are forgetting about the White House effect." I'd like to let that quote stand without embellishment or comment.

So we have a situation today where physics gives us a hard projection of rising heat content in our atmosphere, and where the consequences of many of our actions today have tails long enough materially to impact our future. We can do some things about this future, and with others, I believe the time has come to act, even while further study continues. Individual companies like British Petroleum and United Technologies Corporation and others can act on their own, and in countless cases the financial returns alone will readily justify the commitments.

But our Government needs to act too. Contentious and difficult as it is, we should raise the cost of energy to promote conservation and emissions reductions, just as Middle East instabilities did this for us in the early 1970's. We ought to raise dramatically the emphasis on and amounts of government R&D devoted to conservation and reduced emissions technologies, just as we have so successfully done before in so many areas. We should solve the early action and emissions reductions credit issues. And we need always the voices of leadership.

More broadly, I think we need voices of positivism across America. This is a nation of amazing economic and technical productivity. Realize only three quarters of the economic wealth of our nation didn't exist as we left the War years in the 1940's, within the lifetimes of many if not most of us in this room. And not only have we and our predecessors created the wealth, we have also redefined again and again how we live and work and play and communicate and stay well and indeed how we approach our very lives. Technology is at the root of this, as is also a most basic belief that we can and will solve problems. Greenhouse gases are a problem, and it's time for the usual and effective American solution.

Thank you.