2019 OU Price College of Business Energy Symposium – A Conversation with George P. Shultz

>>Mike Ming: So our
last session here: A few weeks back I had the
privilege to go out to Stanford and meet Secretary
George Schultz. I have met with him
a couple of times. He is a fascinating individual. His resume is in your program. I mean from serving as a
Marine artillery officer in World War II to four
cabinets under three presidents, starting with President
Eisenhower. He is 98 years old
— an immense amount of both knowledge and wisdom. And so we taped the interview. And I’ll step off, and
if you can roll it. He has a lot of advice
on where he sees where the world needs to go. So we’ll play the tape. I am here today at
Stanford University at the Hoover Institute with
Secretary George Schultz. And we are going to talk about
energy and especially some of the things that the Secretary
is doing now, and maybe draw on some of his incredible
experience serving for three Republican presidents on four different
cabinets starting with President Eisenhower, President Nixon,
President Reagan. Mr. Schultz started his career
at Princeton University, graduating in economics;
served in the South Pacific as a Marine Corps officer during
World War II; went back to MIT, got a PhD in economics. Taught at MIT for
some period of time. Also served as the dean of the
Chicago School of Business; the president of
Bechtel Corporation. Was the author of the
“Montreal Protocol.” And used his experience
advising these presidents on many global issues. And today we are going to talk
about a number of energy issues, including some of the current
work that Mr. Schultz is doing with former Secretary
James Baker on the Climate Leadership
Council about a revenue-neutral
carbon tax. So it’s great to be here and
hear these words of wisdom from such an esteemed
statesman as George Schultz. So Mr. Secretary, just
really want to say thank you for your time to talk about –>>George P. Schultz:
I’m always anxious to propagandize some
people interested in the subject of energy. It is a key component
of our life and economy.>>Mike Ming: I have
had the fortune – this will be the third time
I have met with you here, and I have just always
been thrilled to hear your views on energy. My world is energy. And as someone with
your experience, to engage in a conversation
I think is a great. It’s such a rapidly
evolving topic right now. And it’s maybe changing faster
now than it’s ever changed. And we have moved from
essentially a state of scarcity to a state of abundance. But that’s created a whole
new set of challenges for us. And even with abundance,
there is still a preponderance of energy poverty
around the globe. And then there is the whole
issue of global sustainability on the environment and advancing
those developing countries where then can advance
their standard of living. And, you know, you have
got to have these pillars around the economy,
the environment, the climate and things. We are just hoping, for our
audience, that we may be able to garner some of
your wisdom on some of the enormous global
challenges you faced under multiple presidents
and maybe put some of that in perspective. So, you know, with that
maybe we just get started. You’ve faced a lot of
challenges over your career — enormous challenges
— that seem daunting. But now you are really very
focused on one challenge of climate change, and you
have a deep concern over this. Maybe you could just tell our
audience how you got involved in that, what your concerns are. And then we can work into some
of the very pragmatic solutions that you have put on the table
to actually advance progress at a time when progress seems
to be pretty slow if at all.>>George P. Schultz:
Well right now, the subject of energy
is right up there in the number 1 category. As soon as you say “Think
about energy” you have to say we need something
that runs our economy. We need something
that pays attention to our national security. And we need something compatible
with a good environment. And the relative
challenge of each one of those changes over time. Right now I think we have
– we see enough energy to run our economy well. We don’t have to worry
so much about that and national security. But the environment
is a challenge because the climate
is getting warmer, and there are consequences. I say it’s getting warmer
because you have to say to yourself “Why is there
a new ocean being created in the Arctic? Why is the ice mass
over Greenland melting? Why are tropical
diseases coming north?”. They are all because
of climate change. We are having a meeting here
at Hoover in another couple of weeks on the relation
of climate change to health and disease. It’s huge. So this is something we need
to be paying attention to. And I think there are two
things that can be helpful. Number 1: Put in place a system
that calls people’s attention to the need to do something
about the CO2 they emit. My suggestion on that is
a healthy revenue-neutral carbon tax. I say “revenue-neutral” because
it’s not a way to raise money. And by passing the money back on
an equal amount to each person, say, with a Social
Security number, you are making a
progressive tax, and you avoid having it be a tax
that has a fiscal drag to it. So that’s why I am
very insistent on the revenue-neutral
aspect of this. So we put that in and let
it be a significant amount. And let it rise by legislation
so people can see that, and people will start
thinking about “How do I deal with
this problem?”. And then second: You want to put
a lot of effort into energy – or research and development. I chair the MIT Advisory
Board on their energy program. And I pay a lot of attention to
what goes on here at Stanford. And I see these scientists
and engineers working on this, and they are making headway. It’s really astonishing. Solar and wind power
are competitive now. That didn’t used to be the case. It’s because of the R&D. They are working hard,
and they will get to a large-scale
storage of electricity. That’s a big breakthrough because it means you take the
intermittency problem away from the solar and
wind energies. So that’s a big thing. And then many other
things going on. I have had solar panels on
my house here at Stanford for quite a few years. I have long since paid for them by what I’ve saved
on my electric bill. I drive an electric car. And the panels produce more
electricity than my car uses. So my cost of fuel is zero. What’s not to like? It works. And so there
are things happening that give us advance
on these matters. And more things will happen
if we keep the energy R&D. And one of the interesting
things about it is that here at Stanford and also at MIT, the federal government’s program
cost is more than matched by its 3-to-1 private funding. Because when private
people interested in the subject see a
worthwhile program, they want to be part of it. And so that’s the case at
MIT; it’s the case here. And some people say
“Oh my goodness. You are going to have
private interests involved in the university.” And we say it’s good because we
know something about the R&D, but we don’t know how to commercialize
something and scale it. But these guys do. So it’s good to have them
involved if you are going to get something done. So we are very happy about that. So I think these are things
that need to be pushed hard.>>Mike Ming: So far at the
Institute of Oklahoma — and just for you, putting it
in perspective what I’ll called “Heart of Energy” country — Oklahoma is number 2 in
the nation in wind power, number 3 in the nation in
natural gas production. You have articulated
the compelling economics of how renewable energy
has become more competitive in the marketplace. But I know you have also been a
supporter of natural gas as part of a complementary component
— significant component — of the energy system
in, for example, your work with Dr. Mark
Zoback here at this natural – Stanford Natural Gas Initiative
on how to make the development of natural gas compatible
and done right. Can you talk a little about
sort of your motivation with Dr. Zoback and the
Natural Gas Initiative?>>George P. Schultz: Well
if you say to yourself “What fields are the best in
terms of community energies that you want, but not having
so much CO2, what about coal? What about oil? What about natural gas?”,
natural gas is the best by far. And nowadays it’s being
produced economically, so it’s not so expensive. And I might say that
the LNG side of natural gas is also
getting a lot of attention. So there is a security
aspect to it. For instance, as Russia
looks down its nose at the Baltic states, they need
to have LNG so they are not so dependent on Russia. So there is a security
element to this this. The natural gas is very
important in every way.>>Mike Ming: So you talked about the revenue-neutral
carbon tax, letting the markets participate
and be involved in this. But you also had a
unique experience in the Montreal Protocol. And you, I believe, called
that an “insurance policy” that you talked to
Present Reagan about. And I’ve heard you talk in
the past about the comparison of that methodology
of the development of the Montreal Protocol, which by all accounts
seems to be a huge success. And can you talk about how
that came about and how that same plan of
attack could parlay into the revenue-neutral
carbon tax — insurance policy, if you will?>>George P. Schultz: Well
my own experience started out when I was Secretary
of Labor in 1969. And for some reason, the
president made me the chairman of a cabinet committee on
the oil import program. President Eisenhower thought
that if we imported more than 20% of the oil we use,
we are asking for trouble in national security terms. So we had a quota system. We’re beginning to
bump up against it. That’s the reason for it. So we studied the
subject carefully, and we made a nice
report; it was published. The president patted
me on the head: “Thank you for the report.” There were congressional
hearings. But nothing happened. And we recommended
some obvious things, like let’s have some storage
as an insurance policy. Let’s change the quota
system to a tariff system so we get the rents [phonetic],
not Saudi Arabia and elsewhere. We said energy is a
strategic resource. We know more about it than
anybody else in the government. There should be a
government agency of some kind paying attention. And a few other things
like that. Nothing happened. Then I become Secretary of the
Treasury a few years later. And here comes the
Arab boycott of oil. And all hell broke loose. A lot of electricity was
produced by oil in those days. So gas stations were
closed on weekends. Christmas lights
were discouraged. It made a gigantic impact. And we have had a study made
here of the contribution of more efficient use of energy. And it’s really huge. And the inflection
points are all 1973 because it made a big impact
on the American people. And – well you might
say that all of our recommendations were
put in effect right away. So I learned it takes more than
a security [phonetic] analysis to get something done. And if there – a moment arrives
when you get something done, you can get it done
if you are ready. If you are not ready, it’s
liable to slip away from you. So a few years later I
am Secretary of State. And it becomes more
and more clear that the ozone layer
is depleting. And if that happens, it’s
a very serious matter. And I had twice-a-week private
meetings with President Reagan. And he and I talked about this. And he became convinced
that it was a big problem. So most of the scientists
thought that was right. But there were perfectly
respectable people who didn’t think so. So rather than do
what people do now — which is to try to
murder your opponents — Ronald Reagan put
his arm around them. And he said, “We don’t
agree, but you do agree that it just might happen. And if it does happen, you agree
that it would be a catastrophe.” So we would take out
an insurance policy. And so he got the – that –
he didn’t get them with us, but he got them off our back. And out of it came what’s called
now the Montreal Protocol, which effectively
dealt with the problem. So that was a big lesson. And I think Ronald Reagan’s idea of an insurance policy
is applicable today. People who doubt that the
climate is changing — like the president or the
[inaudible], you know — it just might be
possible I’m wrong. So why not take out
an insurance policy? I’d rather than having the
government tell you “Do this, don’t do that” and regulate
the daylights out of you, put a price out there. And let the market work. The price system works. We see it over and over again. And I think if we put a
price out there it will work. And of course, at the same
time if somebody decides that they want to do
something, we have to say, well, here are some ideas
of what to do. And that’s why the
R&D is so important.>>Mike Ming: So I am hearing from you President Reagan
really exhibited leadership and an open mind to acknowledge
that a problem could exist — like you said, even if very
accomplished people didn’t all agree on it and didn’t
put it in place.>>George P. Schultz:
Well let me just build on something you said. President Reagan
exhibited leadership. He exhibited leadership on the
economy, on national security, on a relationship
with the Soviet Union, on nuclear weapons
— and also on this. He had a way of doing things
and getting things done and seeing what the point was. He was a fantastic president. I just wish he were
around here right now.>>Mike Ming: So as part
of your advocacy now on the revenue-neutral
carbon tax, you have worked with Secretary Baker, and
you all were co-founders of the Climate Leadership
Council. And you have articulated — it’s
sort of the founding pillars of the Climate Leadership
Council — some of the things
that have to happen. And that’s the revenue-neutral
carbon tax, the return of those monies
to the general population in some form, that you
would have some type of border adjustment so you
could have – I’m sure countries around the world
would want atmosphere that everybody participates
somehow. And then — I think, you
have mentioned this before, and I think it’s a very
important point of it — if you let the markets work,
it actually diminishes the need for prescriptive regulation; and
you sort of let the market go.>>George P. Schultz: Another
program we would reduce drastically the amount
of regulation: Substitute the price
system for it. You mentioned one thing that I didn’t mention,
but it’s important. That is, we would also have
a border adjustment tax. So it’s an import
from some country that didn’t pay it
adequate attention. They would pay a price for that. So it’s a way of getting the
thing spread around the world.>>Mike Ming: I found
it fascinating, in reading through the Climate
Leadership Council — the CLC — the way you identified
what the impediments were. And some of those is –
and it contrasts to, say, the market thinking, which
is a short-term thinking for a long-term problem
— which is a challenge. You identified the
notion of free riders. So it’s sort of a tragedy
of the commons [phonetic], that everyone benefits,
everyone needs to participate, and how you overcome that. And then, I think, today especially you have
sort the red-blue divide. And I’ll call another one
this green-brown divide. So the environmental movement
is fighting the fossil fuel industry when it seems like there could be
areas for collaboration. But –>>George P. Schultz: Actually, in terms of the fossil
fuel industry, Exxon has signed on to our plan. Shell has signed on to our plan. So it isn’t as though
they don’t pay attention. A lot of companies
have signed on. And practically every
economist you ever heard of has signed up to our plan. It’s interesting how
long it takes, though. It was at least ten years ago
that I very – finally kind of named Gary Becker, and
I wrote a piece in the “Wall Street Journal”
with us advocating this. And that sat there, and
people discussed it. And then it gradually took off. And now it’s really a player.>>Mike Ming: From
your experience, essentially as Secretary
of State — and if you look at the
trends globally now, there is a very rising
movement of nationalism — and if you have a challenge like climate change
that’s a global challenge with one atmosphere,
it really requires a collaborative solution. What are your thoughts on
how you can overcome the sort of rise of nationalism
to get countries and leaders to work together? That seems like a
really large challenge.>>George P. Schultz: I don’t
think it’s nationalism so much as it is issues of unkind
[phonetic] nationalism being one of them. It tends to command
people’s attention. And they can’t pay attention
to too many things at once. And the climate change
is coming at them. And I take a leaf out of
my experience as Secretary of Treasury, that
I mentioned to you when they Arab boycott
[phonetic] hit and we had a calamity. And more and more people are
looking at the climate aspects and saying “Wait a minute. We’ve got a calamity
on our hands.” The health hazards
are large and growing, and we are not paying
adequate attention. Tropical diseases come north. We can identify them. We can get up our diagnostic,
we can get up our treatment. We can maybe fix
these mosquitos; they aren’t as much
of a problem. Let’s get going. Let’s do it. We don’t have to have a
lot of people die in order to see the sense of this. And other things like that, that maybe will dramatize
the problem a little more.>>Mike Ming: You
have written — both in Climate Leadership
Council but in other places — some of these solutions
really have to address sort of inequality, the
developing world. And some of the impacts,
as you see, of climate change
disproportionately impact those populations.>>George P. Schultz: Well
one of the reasons why, in our proposal, we say let
the payments [phonetic], or say by the Social
Security Administration. That’s a bureaucracy that
takes in money and pays it out. So let the money flow into them. Then they pay it out to anybody who has a Social Security
number an equal amount. That means you are
redistributing it on a basis that makes it a progressive
operation. So we are paying attention
to the inequality issue and the way this
is being set up.>>Mike Ming: If I look
back in your career and some of the big global
crises you faced — whether it was nuclear missiles
in Europe with the Soviet Union, or whether it was
the Lebanon crisis where the Marine barrack was
bombed, or whether it was in Latin America with
Nicaragua, or China and Taiwan, just [inaudible] as daunting
media tasks at hand — how do you rate your
concern of climate change? It’s different, but
it’s similar. And is the approach the same in the way you handled
those other issues?>>George P. Schultz: Well
it’s different in the sense that this is not the
product of some country after some other country. It’s a question of
something that’s happening on a global basis. And that means you have
to have global buy-in. And if some of the problem of free riders [phonetic] is
important, and the ability to reach out and get people
involved is important. The Paris Accord didn’t
have a lot of teeth in it. But it did bring the
international community together and say “Yes, we
have a problem.” That’s the – not the
finish; that’s the beginning. But that’s a necessary
beginning and very important. And then they can start
working on implementation. And the more it’s through
your R&D, you can find things that people can do that
make sense to them. Like I said, my solar panels now
are giving me fuel for my car that doesn’t cost me anything. So that’s not a bad idea. You can say “The gas
price is going up. So what? I don’t care. It’s not my problem.” So I think we look
for things like that. And the things are coming along.>>Mike Ming: You are doing
your work, very important and impactful work here at the
Hoover Institute at Stanford. You have been a very
strong supporter of the Natural Gas Initiative. But that kind of work needs to
happen in other places, too — so as I say, in the heart of
energy country in Oklahoma. You have the captains of
industry there who really, in a large part, have been
responsible for the shale dune and this enormous new
resource of natural gas.>>George P. Schultz:
It’s very important.>>Mike Ming: So what advice
would you have for those leaders as they contemplate their – how
they position their companies to participate as
part of the solution? What advice do you
have for them? And what advice do you
have for those universities like the University of
Oklahoma in the things that they should be doing to
drive change where so much of the nation’s energy and now
the globe’s energy is produced?>>George P. Schultz: Well I think the universities
should make themselves part of the R&D effort that’s
going on around the world, and I’m sure they are. And I know the people
at Stanford and MIT are always
happy to collaborate — to send people there and have
people come here and so on, and have a broad joint
research enterprise. So that’s one thing. I think anybody operating
a shale operation or whatever ought to be
thinking “How do I conduct this in such a way that we
minimize the amount of damage done in the process?” And I’m sure that there have
been big improvements along the way. I also think that the shale
not only produces oil; it produces gas. So how you maximize the gas in that combination I
think would be worthwhile.>>Mike Ming: I was out here
this fall – in fall of 2018 at the Global Energy Forum. It was –>>George P. Schultz: Yes,
that was a great forum.>>Mike Ming: It was. You were a speaker; Bill Gates;
several other secretaries — Secretary Chu, Secretary
Rice among others. And it was a great discussion. I came away a little bit like the problem was
almost insurmountable. And I was looking for what
the solutions are going to be. And as I looked at your
work and especially, like, efforts like the Climate
Leadership Council and, you know, your advocacy
with Secretary Baker. And just both of you are,
you know, Republicans and from a Republican
administration being sort of the leading voices
on this issue. But I still came
away with the feeling like we could be doing more. And I love your reference
to President Reagan, and he just put his arms
around those he disagreed with and said “Let’s acknowledge
this.” And so my question is, how do
we push those solutions faster?>>George P. Schultz: Well let
me give you a way of thinking. I used to be in the
construction business. And if you say to me
as a construction guy “Build me a bridge across the
Potomac River,” I sink my piers. I harden [phonetic] my steel. I put it together. You can park [phonetic]
a truck over it. Problem solved —
done with that. If you say to me “Build
a bridge in such a way that no lost-time accidents
while the bridge is being built,” and I put
up some guard rails and I think I’ve solved
the problem, I’ve lost. Because it’s not a
soluble [phonetic] problem. It’s what I call a
“work-at” problem. And if you work at
it hard enough, the first thing you do is – it
happens to you if you go on one of our jobs once you
get a safety bid, no matter who you are. And you are told about
safety, and you are told about your own performance. And you’re told that if you
see something that looks – tell us right away, immediately,
so we do something about it. And if we work at it
consistently, professionally, carefully, constantly while
the bridge is being built, we just might get it built
without a lost-time accident. But that’s because we realize
it’s a work-at problem, not soluble problem. So I think this climate
issue is like that. It isn’t as though there
is a solution out there if you can just find it,
and that’s the end of it. You have to keep working at it. And a little bit here,
and a little bit here, and a little bit here, a little
bit – a lot of it add up. As I said earlier, I
think people don’t begin to understand how
important it is to use energy more efficiently. And when you do that, it
makes a huge difference. I know – I used to
work at Bechtel. And we had a big
electricity problem here in California at one point. So we dimmed the lights in our
corridors; actually they were on too strong, so it
didn’t bother anything. And we – a lot of people
traveled in those days, so we said “If somebody is
not coming into his office, he’s traveling, don’t
turn the lights on. And if you leave,
turn them off.” And we saved a huge
amount, by paying attention. So we pay attention
to saving energy. We pay attention to all kinds of
little things, and they add up. So I think you have
to get it on your mind that it’s something to do. And yes, there will
be a breakthrough for Kamala [phonetic]. But in the meantime, all of
those things: Turn the lights out when you leave the room. My wife and I – my job
is to turn lights off; her job is to turn them on. So we have a distribution
of duties. But I go around turning
lights off all the time.>>Mike Ming: So I have
asked you what executives in the energy industry can
do, how they can engage. Like, just as you have witnessed
this incredible evolution in energy, you know, from
where we have gone is scarcity to abundance and all the
diplomatic issues that raised — and now moving to, you know,
your pillars of the economy and security and
the environment, if you now target sort of the
younger members of the audience, and especially those considering
energy as a field of – for their profession,
what advice would you have to the younger generation
from your experience? Things that they ought to be
considering and just how – the changes you’ve
seen over your career?>>George P. Schultz: You
talk to younger people, and they are very conscious
of the climate problem. This is their future. I am 88 years old, so
what’s in the future? Actually I have six
great-grandchildren. And I watch these little kids. They are curious
about everything. Every once in a while one
of them learns something, look at you and laugh. And “Look at me! I just learned something!” And you say to yourself
“What kind of a world are they
going to inherit? And what can I do to
make it a little better?” And I think we all need
to be working at it as a work-at problem and do
all the little things we can do to make it better. Some things are big things;
some things are little things. But if you just keep at it all
the time and then let them see that you are working at
it, that’s inspiration.>>Mike Ming: So the first
time that I met you here — and we’ll wrap up in
respect to your time — again, I just – I want to
thank you for your time and the powerful
message you have. And it’s so motivational,
inspirational for all of us who is – that are
creating energy. But I love your perspective. All the photos in this room of
you different heads of state. The first time I came here,
you took me to a photo, and you are ballroom
dancing with Ginger Rogers. And that was the picture
I’ve always remembered and you took me to.>>George P. Schultz:
At White House – Nancy Reagan always fixed me
up with a Hollywood starlet as my dinner partner
at White House dinners. So that’s how I got to
dance with Ginger Rogers. In the center of the
picture of us dancing — and she wrote on it
“Dear George, What fun! For the first few minutes I
thought I was dancing with Fred. Let’s do it again. Love, Ginger.” That’s as good as it gets, so –>>Mike Ming: That’s
as good as it gets. And I think that’s a
great note to close on. So again, thank you very much. And –>>George P. Schultz: Thank you.>>Mike Ming: —
all you’ve done –>>George P. Schultz: And
I’m very glad to see – hear about people working
on the energy subject and trying to get it right. The economy, security,
the environment. Right now the environment,
I think, deserves special attention. [ Applause ]>>Mike Ming: So I thank
you all for hanging out. That was a lot of fun
on that interview. And the wisdom there
is just amazing. So thanks again,
and I look forward to doing this again next year.

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