Speech Feb. 17, 2009 Global Climate and Energy Project (GCEP) Rex W. Tillerson Chairman and Chief Executive Officer Stanford University Thank you, President Hennessy [John Hennessy, Stanford University President]. It is a pleasure to join you and the Stanford community today in celebrating nearly six years of productive and promising research at the Global Climate and Energy Project. ExxonMobil has been proud to be GCEP’s lead sponsor since its founding in 2002. Our support is grounded in the belief that this is not a typical research program engaged in a typical set of research challenges. GCEP is not in the realm of the ordinary. GCEP is, in fact, an extraordinary collaboration of scientists, engineers, researchers and students leading the way in developing fundamental scientific knowledge underlying innovative, long-term technological solutions to the most vexing energy and environmental challenges of our time. GCEP is extraordinary for the caliber of its researchers, many of whom I have had the pleasure of meeting during our six-year association – including some of them earlier today. GCEP is extraordinary for the quality of its leadership, including Professor Lynn Orr [Franklin “Lynn” Orr, new Precourt Institute for Energy Director] … Dr. Sally Benson [GCEP Director] … and Dr. Richard Sassoon [GCEP Managing Director]. And, most importantly, GCEP is extraordinary for its unique focus on basic scientific inquiry in pursuit of sustainable, scalable and long-term global solutions. In other words, the work done here is pursued not only for its academic merit – as important as that is. GCEP’s work is ultimately about laying the scientific foundations for practical problem-solving that will help advance broad-based commercial solutions. And for this reason, the best and brightest minds gathered here at Stanford and throughout GCEP’s international network of research institutions have the potential to help lead a long-term technological transformation of the global energy system. Lynn Orr perhaps best captured GCEP’s purpose and potential when he said that “with a sustained effort … we can begin now to create a path toward an energy future that is feasible and practical, applicable to both the developed and developing world, with much lower greenhouse emissions.” In my view, Lynn’s words summarize what should be the guiding principles of national and international energy policy – making available the energy needed for growth, and doing so in a manner that is affordable and protects the environment. And in this regard, the work that GCEP is pursuing is one of many solutions we will need to solve the world’s energy and environmental challenges. In the coming weeks and months, policymakers will be debating the nation’s energy policies, and their decisions will shape the years and decades ahead. Our best hope for a brighter future for all is to build on past successes. We must put in place a stable energy policy framework – one that supports investment … research and development … and the innovative thinking that can increase energy efficiency and reduce emissions – in the near term, the medium term, and in the long-term. And there is one element that should unite every stage of our efforts to attain our shared energy and environmental goals: Technology. That is why ExxonMobil is committed to GCEP’s success. We believe in the power of human ingenuity to discover new ideas and revolutionary applications. Although our focus is on commercial applications, ExxonMobil’s more than 14,000 scientists and engineers belong to the broader technical and scientific community dedicated to energy and environmental problem-solving through technological innovation. We know from experience that no idea is too small to be discarded without careful thought. And no promising lead should go without investigation. As an industry leader in research and development – investing more than $6 billion in technology over the past six years alone – we maintain several internal research centers of our own across our company. At these centers, scientists, engineers, mathematicians, chemists and others work in cross-disciplinary teams to develop new advances in the supply and more efficient use of energy. GCEP’s research program, like ExxonMobil’s, is shaped to fit the contours of what has been termed the “grand challenge” before us. It is, in fact, a dual challenge – supplying the energy essential to global economic growth, while at the same time reducing greenhouse gas emissions and managing the risks of climate change. Today, we are in the midst of a global economic downturn, and as a result, demand for energy has slowed significantly. This cause-and-effect underscores the essential role energy plays in enabling economic growth. Energy prices have also fallen dramatically since their historic highs last summer, providing many consumers with some relief. But the impact of the current crisis is no less real for the millions of people in this country and around the world struggling to find work and make ends meet. This includes many in the research community, I know. Regrettably, current economic conditions are causing some to forgo support for sustained research and investment in energy technologies that will be essential to achieving long-term goals. However, the world economy will recover. History shows that human ingenuity and productivity cannot long be suppressed. And when the world economy recovers, so will world energy demand. Growing populations in developing countries who are seeking higher standards of living will drive this increased energy demand, which is expected to be 35 percent higher in the year 2030 than it was in the year 2005, despite the current and temporary economic conditions. Meeting this growing long-term societal demand requires that we develop all economic and environmentally sound sources of energy. This includes hydrocarbon energy sources like oil and natural gas, which are abundant, available, versatile and affordable. Huge investments over many decades have enabled oil and natural gas to meet close to 60 percent of the world’s enormous energy needs today, and projections are that oil and natural gas will account for a majority of the world energy demand through at least the year 2030. They are simply indispensable and irreplaceable at scale. However, alternatives such as solar and wind energy, as well as nuclear and biofuels, will necessarily make a significant and growing contribution. Except for nuclear, these alternatives begin from a much smaller base than oil, natural gas and coal, and the infrastructure to support them on the same scale does not currently exist. But they can, do and will play an important role. This global energy demand challenge is matched by a global environmental challenge – curbing greenhouse-gas emissions and addressing the risks of climate change. Thanks to greater energy efficiency and growing use of cleaner energy such as natural gas for power generation, greenhouse-gas emissions levels are expected to decline in some developed economies. For example, in the United States, energy-related carbon-dioxide emissions are approaching a plateau and will decrease over the next two decades. These trends are set to continue and potentially accelerate, not only in the United States but in other developed economies, as well. The challenge for developing economies is more daunting, where energy demand is increasing as growing populations strive for higher standards of living. For example, by the year 2030, China’s carbon-dioxide emissions will be comparable to those of the United States and Europe combined – even recognizing that China’s energy use and emissions will be much lower on a per-capita basis – rising from 4 metric tons per capita in 2005 to 5.8 metric tons per capita in 2030. Nonetheless, the net effect of these countervailing trends will be a sizeable increase in greenhouse-gas emissions worldwide. Even with dramatic gains in efficiency, rising demand for energy will continue to push related carbon-dioxide emissions higher through the year 2030 – an increase of 28 percent from the year 2005. No single energy source available today solves this dual challenge of meeting growing energy needs while reducing emissions and no single energy source will solve it tomorrow. There is no one perfect solution, on the shelf or on the drawing board. For now and the foreseeable future, an integrated set of solutions is required – ranging from producing hydrocarbons more effectively… to using them more efficiently and with a lower impact… to improving existing alternative sources of energy… to developing new options. To develop these integrated solutions, we will need to find the best ways to unlock new technology. Energy innovation – led by private enterprise, furthered by independent research, spread by free markets, and supported by sensible and stable public policy – will be essential to enabling us to achieve each of these aims. It is the key to a more prosperous, more secure, and more sustainable energy and environmental future. Reflecting the nature of the dual challenge we face, GCEP’s research covers a broad spectrum of technologies, from work on carbon-based energy systems, including carbon capture and storage… to advanced research on renewable sources, especially solar and bio-energy… to groundbreaking efforts in hydrogen and electrochemical transformations. Research in each of these areas is anchored in the practical realities that govern the energy marketplace. As Lynn Orr has said, “we need to understand what barriers – including performance, cost, safety, environmental impacts, and consumer acceptance – will limit our ability to put the new technology in place, and then attack these barriers with research.” And true to the Global Climate and Energy Project’s name, it is attacking barriers on a global scale. This is reflected not only in GCEP’s international network of 20 research institutions on four continents, with Stanford at the hub. It is also reflected in the direction of its research, which aims at overcoming limits that currently prevent many technologies from achieving global scale. GCEP’s efforts in the area of solar energy exemplify this approach. Currently, solar is one of the simplest and cleanest energy sources, and has vast potential, but it is also one of the most costly sources. The best solar cells now available cost about three dollars per watt power; to be competitive and be applicable on a global scale, the cost needs to drop an order of magnitude, to about 30 cents per watt. GCEP is sponsoring several projects which seek to improve the design and performance of solar cells. Among the innovative approaches under consideration is in the area of microscopic organic polymers used in solar cells. By applying advanced concepts in studying the polymers’ behavior, GCEP researchers are hoping to increase the efficiency and decrease the cost of solar cells. Similar to GCEP, ExxonMobil’s R&D investments cover a broad spectrum of technologies aimed at increasing supplies and reducing emissions on a global scale. And just as important, we believe that such innovative thinking can bring concrete results – in the near term, in the medium term, and over the long term. That is why we apply our integrated approach to our own operations first. For instance, our Global Energy Management System is one of our most important near-term solutions. This initiative helps identify potential energy efficiencies, which allows us to use resources more wisely and to reduce emissions in our downstream and chemical operations. ExxonMobil began this energy efficiency effort by tapping knowledge from our operations around the globe. We looked at every link in the energy chain … documented best practices … and then applied those lessons to our operations worldwide. Each day, as part of this initiative, we track more than 12,000 energy variables. Efforts like these have economic as well as environmental benefits. Since 2000, we have identified $1.5 billion in potential efficiency savings, approximately 60 percent of which have been captured to date. Our company is also an industry leader in cogeneration – a technology that integrates recovered heat from electric power generation back into the refining process. We have interests in approximately 100 cogen plants in more than 30 facilities around the world. Thanks to this process and similar efforts in 2006 and 2007, we reduced GHG emissions in 2007 by five million metric tons a year, which is the equivalent of taking one million cars off U.S. roads. And we are also helping consumers use energy more efficiently today. For example, we’ve developed a variety of technologies in commercial application now, which are helping to improve consumer energy efficiency – these include tire liners that keep tires inflated longer, advanced fuel economy engine oil, and light weight automobile plastics. Utilization of technologies such as these in one-third of U.S vehicles will translate to a savings of about five billion gallons of gasoline and greenhouse gas emissions savings equal to taking about eight million cars off the road. ExxonMobil is also working with others to develop integrated solutions that, in the medium term, could increase energy efficiency in the years ahead. For instance, we are researching ways to help consumers use hydrocarbon fuels in more efficient ways by working with auto and engine manufacturers on new internal-combustion engine technologies. One of these technologies is called Homogeneous Charge Compression Ignition, or HCCI, which combines the best features of gasoline- and diesel-powered engines. Gasoline engines featuring HCCI achieve ignition through compression, like a diesel engine, increasing the efficiency of combustion. The result could be up to 30 percent better fuel economy and lower emissions. Our internal research also includes efforts to deliver solutions to challenges in other alternative-vehicle systems. A prime example is the breakthrough ExxonMobil’s scientists and engineers have achieved in the area of vehicle-battery technologies. Few people know that an ExxonMobil researcher actually invented the lithium battery back in the 1970s. And we recently developed a new separator film from advanced polymers which could significantly enhance the power, safety and reliability of lithium-ion batteries. These lithium-ion battery separator film technologies have the potential to help put more fuel-efficient hybrid and electric vehicles on the road. Finally, as part of our long-term vision, we have maintained breakthrough research efforts that hold the potential to deliver game-changing options in the decades to come. One such example is a promising innovation that could advance the use of hydrogen fuel cells. This technology, pioneered by ExxonMobil and our partners and which will be applied first to industrial vehicles, converts traditional hydrocarbon fuels into hydrogen directly on-board a vehicle, eliminating the need for separate costly facilities and infrastructure to produce and distribute hydrogen. Measured on a “well-to-wheels” basis, this on-vehicle hydrogen fuel system on a fuel-cell car could provide up to 80 percent better fuel economy, and emit 45 percent less carbon dioxide, than today’s vehicles. Another research area for ExxonMobil is advanced biofuels. Much attention has been focused on first-generation biofuels such as corn-based ethanol. These are currently making an important contribution to the energy mix, but their net greenhouse-gas benefits have been called into question, and their impact on global food supplies has raised concerns. As a result, we have turned our attention to next-generation biofuels, including the production of liquid fuels from algae and biomass conversion. In the case of algae, select species can produce oils through photosynthesis aided by consumption of carbon dioxide without the need for significant fossil-fuel energy input. Our initial analysis suggests that with much further R&D, it may be possible that new algae and biomass conversion technologies could play a role in transportation fuel supplies, while reducing greenhouse-gas and land-use impacts as compared to first-generation biofuels. In addition to our investments in R&D to achieve step-changes in the efficient use of energy, we are also turning our mind to the challenge of addressing concerns over carbon emissions associated with the significant increase in fossil fuel demand that we anticipate in the decades ahead. ExxonMobil is a world leader in carbon management technologies with more than 30 years of experience in this field. We support carbon capture and storage research at GCEP and a number of other institutions, as well as carrying out our own internal R&D. One of the test sites being utilized to advance these studies is the Sleipner Field, offshore Norway, where we have participated in the capture and geologic storage of more than one million metric tons of carbon-dioxide each year since 1998. In addition, a new technology we have developed called the Controlled Freeze Zone process, or CFZ, could hold the potential for future widespread use in carbon capture and storage. CFZ is a single-step cryogenic separation process that freezes out and then melts the carbon dioxide and removes other impurities found in produced sour-gas streams. The high-pressure liquid stream of carbon dioxide can then be injected underground for safe storage or re-used for enhancing oil recovery. It is a technology with important potential, and we have committed more than $100 million to complete development and testing of it at a new demonstration project in Wyoming. GCEP and ExxonMobil are in the vanguard of research efforts to develop and deploy technologies that can meet global energy needs and reduce global environmental impacts. Partnerships between academia and industry will be essential to tackling this dual challenge. It is important to remember, however, that gains in efficiency and technology occur over time. The most dramatic changes will not happen overnight, due to the sheer complexity of the technologies we develop and the enormous scale of the global energy market. Technological transformation takes time. The history of energy over the last century helps put such transformation into perspective. For example, it is estimated that at the beginning of the 20th century, coal and wood provided more than 95 percent of the world’s energy needs. From that point, it took more than half a century for petroleum – a cleaner and more versatile alternative – to surpass coal as the world’s largest energy source. It took nearly 50 more years to develop the technologies and build the global infrastructure so that natural gas, an even cleaner-burning source, could play a sizable role in the world’s energy mix. This reality about timeframes is another reason why we need energy policies that allow for long-term planning and consistent, disciplined investments that lead to technological advances. National and state governments can play a helpful role in this vital enterprise. By creating a stable, long-term policy framework for investment in academic and commercial research efforts, government can be a partner in the short-, medium-, and long-term technological transformations we need. One of the areas where government can provide needed stability is by implementing simple, transparent, and predictable policies to mitigate greenhouse-gas emissions. Throughout the world, policymakers are considering a variety of legislative and regulatory options. In our view, assessing these policy options requires an understanding of their likely effectiveness, scale and cost, as well as their implications for economic growth and quality of life. Consistent with that view, we believe that a carbon tax would be a more effective policy option to reduce greenhouse-gas emissions than alternatives such as cap-and-trade. Pricing carbon through a direct and transparent tax could incentivize the search for lower-emissions energy solutions while also providing the stability and predictability industrial companies need to make long-term, capital-intensive investments in equipment and research. To ensure revenues raised from this tax are indeed directed to investment, and to assist those on lower incomes who spend a higher proportion of their income on energy, a carbon tax should be offset by tax reductions in other areas to become revenue neutral for government. It is rare that a business lends its support to new taxes. But in this case, given the challenges we face and the alternatives under consideration, it is my judgment that a carbon tax is the best course of public policy action. And it is a judgment I hope others in the business community and beyond will come to share. The technological leadership needed to achieve our economic and environmental goals will ultimately arise from leading research institutions such as GCEP. And in this respect, I believe this extraordinary community of scientists, engineers and researchers has an important role to play. You have spent more than five years developing a unique vision for energy and environmental progress, inspired by the limitless potential of basic scientific inquiry and tempered by the challenges that implementation on a global scale currently presents. You have applied this approach to your research, and have made impressive progress in several areas. GCEP’s research is high risk; failures will likely outnumber successes in gaining promising leads for advanced technologies. But the research conducted here is also potentially high yield. It may contain the seeds of a true, technological transformation. To multiply this progress, however, I urge you to share your vision and your practical understanding of the challenges we face to the broader research community. I also urge you to carry on what may ultimately be GCEP’s greatest legacy – training and inspiring the next generation of engineers and scientists. More than 350 students and post-docs, as well as incoming faculty, have learned from and contributed to GCEP. And thanks to these efforts, other universities have been encouraged to create similar programs. I congratulate the faculty and students of GCEP on your first five years. I look forward to many more years of success. Together, I am confident we can find ways to meet the world’s energy needs, while reducing greenhouse-gas emissions. With stable policies, long-term vision, the free exchange of ideas, sustained investment, and the power of human ingenuity, we will prove equal to the great energy challenges of our time – and achieve our shared aspiration of a brighter future for all. Thank you for your kind attention.