Energy policy issues in Washington - including taxes, climate change and ethanol - could drastically affect the industry.

Our industry faces a full plate of energy policy issues in Washington, including taxes, climate change and ethanol.

The last time punitive taxes were imposed on our industry - in the form of the windfall profits tax in the 1980s - domestic energy production fell hugely, and our nation's reliance on imported oil rose dramatically. The Congressional Research Service concluded that between 1980 and 1986, this tax reduced domestic oil production by as much as one and a quarter billion barrels and caused oil imports to increase by as much as 13 percent.

Before making tax changes, we need to examine why the provision in question was enacted in the first place - such as to increase domestic production - and we need to be sure that the proposed change will not be counterproductive.

The second area is climate change, which is a serious issue that oil and natural gas companies are taking steps to address. American Petroleum Institute companies are reducing emissions now, and investing in and developing technologies that will reduce emissions even more in the future.

One way our companies achieve these reductions is through cogeneration, the process of capturing waste heat from our operations and reusing it to produce electricity. For example, one company is participating in cogeneration projects that will produce enough electricity to power more than 1 million homes. Another is investing in 85 cogeneration facilities around the world - an effort that will reduce carbon dioxide emissions by 9 million metric tons per year.

Moreover, the oil and gas industry is spending hundreds of millions of dollars on government and academic research on climate change, advanced energy technologies, new uses of clean-burning natural gas and alternative energy. Our companies made a pledge to the federal government in 2002 to improve energy efficiency in their refineries by 10 percent over 10 years.

We're on track to meet the goal and our operations are becoming cleaner and more efficient every single day. For example, energy savings at our refineries in 2004 were equivalent to taking more than 350,000 vehicles off the road, or the amount of electricity used in more than 710,000 homes. Our companies address climate change in different ways, but there is a consensus on the benefit of voluntary efforts. API is concerned, however, about mandatory emission reduction programs that would have adverse impacts on American consumers, economic growth and energy costs.

The third issue is ethanol. Our industry supports ethanol, and our companies are its leading users and key players in increasing its use into the future. We believe there is an important role for ethanol and other biofuels in meeting the nation's transportation fuel needs. The industry has invested heavily to meet and exceed the federal requirement for ethanol-blended gasoline. In 2006, for example, we used 5.4 billion gallons of ethanol - 25 percent more than required. And, we will surely use a lot more in the future.

There is, however, a limit to how much corn-based ethanol use can be increased. The administration's recent proposal would require technological breakthroughs in cellulosic ethanol to achieve the proposed levels of ethanol use, and to preclude additional pressure on corn prices.

Market forces and consumer preferences should determine where and how ethanol is consumed. The interests of consumers and taxpayers will be best served if ethanol meets the test of the marketplace. Government policies should be performance-based and provide a level playing field for all alternative fuels, and not pick winners and losers.

Future Energy Security
Each of these three issues must be addressed in the context of our nation's future energy security. As we take steps to meet the energy needs of future generations, we must focus on three areas: efficiency, technology and diversity.

First, America's energy companies must continue to improve our own energy efficiency, and encourage energy efficiency in other industries and by the American people. Second, we must increase the use of advanced energy technologies that allow us to develop our resources cleanly and responsibly. And third, we must increase the diversity of our oil and natural gas supplies, both at home and around the world. One of the first steps toward increasing our energy security is making the most of what we already have. We all need to become more energy efficient. America's oil and natural gas companies have practiced energy efficiency for decades. It helps us operate in a more environmentally compatible way, while providing greater savings to our customers.

Our efforts go beyond just our operations. We know consumers are conscious about the products they use. That's why, last fall, our refineries began to deliver an impressive new fuel that significantly reduces particulate emissions. It's called ultra-low-sulfur diesel and it's the cleanest diesel fuel supplied in the world today, with 97 percent less sulfur content.

In addition to energy efficiency, our industry has researched and developed breakthrough technologies to help us find, develop and deliver energy. Advanced techniques like 4-D imaging and multidirectional drilling have dramatically reduced our environmental footprint. For example, today it's possible to develop nearly 80 square miles of area below the surface from a single two-acre site on the surface.

These technological innovations are making a difference. And, we expect even more progress because, between 1992 and 2005, America's oil and natural gas companies reinvested more than $1 trillion in long-term energy initiatives.

Just as we need to diversify the kinds of energy we use, we also need to acknowledge that a diversity of sources is the best way to ensure energy security and meet growing demand. Our country should be doing all it can to increase the amount of energy produced in the United States. We should encourage the development of alternative and renewable sources of energy, which are growing at a rate faster than traditional sources.

America's oil and natural gas companies have made significant investments in this area. In the last five years in North America alone, we have invested $12 billion in renewable, alternative and advanced non-hydrocarbon technologies.

In fact, when you add up all of the various types of emerging energy technologies, our industry, over the five years, has invested almost $100 billion. That is more than two-and-a-half times as much as the federal government and all other U.S. companies combined.

According to the U.S. Energy Information Administration (EIA), renewable energy presently accounts for about 6 percent of our nation's energy use. And, this EIA figure is projected to climb to 7 percent in the next 25 years.

Concurrently, the Department of Energy estimates that oil, natural gas and coal will continue to meet approximately 85 percent of U.S. energy demand for at least the next two decades.

Red Cavaney is the president and CEO of the American Petroleum Institute. These comments are taken from a presentation he gave at the National Press Club in Washington, D.C., on Feb. 20. For more information, visit www.api.org.