ISSUE PAPER

Clean Energy and Energy Directions Under the New Administration

February 2017

Remarks by Walter Howes of Verdigris CapitalIt’s a great pleasure to be here. I love Korea, and I enjoy working there. I hope to be able to deepen the relationship, and I guess I should say we all have sympathy for each other in these strange, strange times. I think we need to sort of abolish our mutual governments and start all over again, but who knows what’s happening. Everything I’ve worked on Korea-wise has been very enjoyable. A little more stability in leadership like here would be good, but I’ll find that in the next lifetime, probably.

At any rate, I’m going to try and give you a perspective slightly more from the market side. Fred has more experience on the pure political side than I do, so whatever we disagree on, he will have the right answer on politics. I’ll try to start on the market side a little more. Everybody who knows me knows that when I give presentations, I’m going to go pretty quickly. There will be more on any one slide than I will cover, but you’re welcome to have these slides, so they’re designed to be read as much as they are observed, so don’t take notes. There will be a quiz, but don’t try to take notes. But anyway, change. Who knows where we’re headed here, but in this odd world that we’re in, we’re definitely heading for something new and different. Just a general view here of an agenda, obviously the presidential election is done, anybody who’s in the business of forecasting should be out of a job because you’re unemployable having gotten it 100% wrong, except maybe Hunton & Williams. In terms of US energy and environmental policy, from my perspective, the good news is that so far all the black and white statements that have been made are on their way to being a little bit more gray or being reversed, so I think real politics is starting to kick in despite the bombast that we’ve been hearing. I’m a strong believer that we are having a hand in climate change, personally. I am hoping we can do a better job of having resource efficiency all around, whatever that’s for, both climate change and security.

One thing I’d like to point out that I think many Americans missed, particularly many foreign countries don’t fully get, is that we are 50 states and territories. In the formation of this country, it’s very important in how our country operates to understand that states have a lot of power, and increasingly so. In order to figure out, it’s very frustrating because you look at the United States and it’d be nice to have a uniform confined, one-at-a-time market for the United States, but we don’t have that. We have 50 states. At times, it can be extremely different from one state to another. If you want to build a nuclear plant, you’re not going to California. Anyway, it’s something that is very hard to understand, takes time, and is very different from the federal level we have here.

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The Clean Power Plan (CPP), which is one of the legacies of the Obama Administration, was another attempt to try and reduce the use of coal. That will probably be in litigation for probably forever, so there’s a lifetime of work for lawyers to litigate that. It will probably not be enforced in the same way it was envisioned, so Kemper may rise to the top and say “follow us, and we’ll figure it out.” If you take fossil, nuclear and renewables, Donald Trump, who I actually knew when I was 23 and was in finance in New York, and Trump was then starting on his first of nine bankruptcies, and my bank actually helped reorganize here in the casino. I actually got to meet him as a junior banker back then, and at that point, he was actually talking about clean energy and efficiency. I don’t know what happened. But who knows. At any rate, in terms of fossil energy, obviously I personally don’t think there are going to be many new coal plants built in the United States, so I don’t think he’s going to be able to bring back a lot of jobs. I don’t know why he would promise that other than to get the vote, but at any rate maybe he can do something, and obviously I suspect EERE will have some decrease in funding; in the fossil area, an increase in R&D funding. EERE has had tremendous growth in the past few years, so maybe there’s something there.

In terms of renewables and efficiency, one of the things, and nuclear power here, one of the things that I’d like to in terms of market drivers, we’re becoming an increasingly urban species. So much of the politics or the energy or the research needs are being driven by urban behavior. If you have not read the book, “Connectivity,” no… It’s close to that. I’ll get it in a minute. I assume none of you have read it or you would correct me right now. Remember the book, “Future Shock?” Classic, talking about the future. This is the replacement of “Future Shock.” It’s talking about how the globe is becoming pairs of cities. As cities grow, the natural thing is that they’re starting to pair off, and it’s happening all over the world, everywhere. It’s a natural phenomenon. Connectography: that’s the name of the book. It’s only about 5 inches thick. Brilliant maps, brilliant analysis; the guy who’s doing it is a world citizen, but if you read it and you don’t like it, I’ll pay for the book. Seriously, I’m not kidding; it’s a brilliant analysis of the future dynamics that are controlling our global resource uses. Connectography, you really have to read it. That talks a lot about cities and so if you look at all this, I add “however” because it seems to change about every 24 hours here. I know you all have your challenges, and Korea as well, so I wish us all luck and we’ll see how it goes.

In terms of some of the results here, as you know, we have this strange thing called the Electoral College in the United States. We don’t really directly elect the president. That increasingly may be outmoded, but the founding fathers had it well intended when they did it. So we have this blue and red thing that we do here in the United States. This is just a simple map that says the reds are 306 electoral votes for Trump, and 232 for Hillary. And if any of you were in Vegas, you would have lost your shirt because it wasn’t worth voting in the red right. So that’s sort of simple part of what

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it looked like. Blue is democrat, red is republican and that’s obviously very simple view, but here’s one that I think is very interesting. If you ask it by land mass, acreage owned by voters, this is what it looks like for Donald Trump in terms of acreage. It’s pretty impressive, particularly when you think Hillary won the popular vote, but lost the electoral vote. She got 300 million plus some votes more than he did, but that’s what it looks like for Trump, and this is the, what we call, the Archipelago, so the people who voted for Clinton, islands in a storm. Now this also is the map for climate change when sea level rises, so in this case you would not want to be republican because you would drown. In this case, the high water goes to the islands, nah I’m kidding. Anyway, I’ve never seen this before. I thought it was very interesting, and I’ve never, it’s very representative. It’s hard to see this from the back, but these are vertical 3D vertical lines coming up that show you the density of voters, and again, that’s very, very urban and becoming increasingly urban, and that’s a global view, and that has meant for energy efficiency, and other kinds of uses, nuclear, wind, this is not a very encouraging trend for a lot of wind or hydro or even solar. It might be for small modular reactors and advanced reactors. Can you guys see there? I can move, I don’t want to be in the way.

If you take one snapshot of what’s happened, one word, the word I would use would be change, as Donald Trump is clearly America first, which is completely the opposite of where we’ve been going for the last 100 years. So I am not sure what Hilary’s would have been, globalism? I don’t mean… it’s not really just Hillary, it’s sort of the two different tribes, if you will. It’s a stark difference that will be hard to implement differently, but clearly he’s taking an America first perspective. In terms of global warming, this is 1961, where we used to get snow here in DC. They wore top hats, this is the Kennedys, and this is this year, where there’s no snow. Nobody is even cold. Now I realize that this is too complicated for anyone to deconstruct. I apologize for that. But, Andy and I have a propensity to stuff a lot of things in. This is a whiteboard that we did a little while ago, where we were allowed one slide. This is all in here, trying to figure out where it is. But essentially, the question is, where is trump support coming from? This is autonomy going up, dependence going down. This is more risk averse, and going in this direction is more willing to take risks, and these are all imprecise, obviously, they’re approximations, but you can call this libertarians, you can call this the elites, as Mr. Trump cleverly named, democratic socialists, this is another unpredicted, unknown and incredibly impressive movement that Bernie Sanders reached out and connected with so many particularly young people, which no one thought. Remember this was the context that Brexit was happening at the same time. Now, France and Germany. This is a phenomenally interesting time. American nationalists stand here, I don't know quite what to call them, but I’m going to call them nationalists. Clearly, Trump was able to pick off small pieces of all of these categories, many of them unknown, unattended to, unfed, left out in the cold so to speak. It disrupted the entire equation for everybody. What we’re trying to point at here is that a lot of

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these people were just not on the radar screen, and when you pick up a large number of small groups, you can put together quite a momentous change.

This is really more for academic purposes, but I’m a schizophrenic economist, chemist, so I like to plot things together, and what this is… is the blue line is a growth index for the economy, US. This is 2000 down here, 2018 over here. The blue, I’m sorry, green is when our GDP was positive. We had some extraordinary periods of positive growth at times, and the red is when we’ve been in a recession, so obviously this 2009 is when all hell broke loose, and we let the bankers go out, but you can see here how the economy when it does and doesn’t track this growth indicator. So here we are right now. We do have, you know Trump said a couple days ago he inherited a mess. Well, I’m not sure what mess he’s talking about, but the economy while slow to grow, is definitely growing. We’re at full employment. What people haven’t talked about much, if you’re on the opposite side you tend to blame the policies of our administration saying we don’t have enough jobs. What’s really been happening is this slow growth period but also automation has put a lot of people out of work. So, who’s going to fix that one? I am not sure, that’s really a tricky one to try and figure out. The tensions between new jobs to create robots to create jobs that are basic. I don’t know what the right answer is there, but anyway.

Another subtlety, or not so subtlety here is that with the Republican Party now holding what I call as all four legs of the stool, the White House, Senate, Congress, and soon the Supreme Court. But they themselves are having a real challenge finding a unified view, and I think Mr. Ryan here is a very impressive guy; I think he’s very level minded. I think he’s going to create an anchor for the Republicans. At any rate, he had some work in putting together the Highway Bill, which was a precursor to the concept of an investment fund or spending on an infrastructure, so this is one of the areas that we have some joint possibility of bipartisan support. National infrastructure we all know needs tending to. In terms of infrastructure, you can cut this so many different ways. My point on this slide is that this is to say we hope, and many of us are working hard to try to influence the new administration, that they include energy in infrastructure. Right now, he keeps talking about hospitals, and roads and bridges, and these kinds of things. At one point he actually mentioned universities, which I didn’t understand that one so much, but we’re hoping he’ll include energy, both sides will include energy, with the grid, security, new technologies, new energy, I mean, if that’s not infrastructure, I don’t know what is. That could be a real blessing that both sides could support spending for infrastructure, and include that in energy and energy spending.

So, here again on some of the quadrant view, I’ll leave you to read these but basically, it’s saying if you look at Trump and his new administration and what might happen, you can say, alright, Trump might be a moderate negotiator. If you accept some people’s premise, he acts like a raving Tasmanian devil for the purposes of getting a good deal. He’s a negotiator. He’s a real estate guy.

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Sometimes to act that way, you can get a better deal. It does work that way sometimes. Or he might act as an autocrat, dictator sort of thing with few restraints. Maybe it wouldn't be so good, but who knows. Anyway, under these two scenarios, you could say Trump leads or you could say it’s led by the House or the GOP or the Senate, or state level control rather than federal government. You can’t read these all on the back, but essentially this is trying to predict where’s he going to cut out? We’re predicting with the highest probability that Trump will have to partner with Ryan, and that Ryan and he will rule with a calmer, more moderate, more controlled perspective because, you know, the system’s hard. Everyone thinks the President is the most powerful guy in the world. That’s hard. President has only so many things he can do, but here clearly tax bills are very, very important, infrastructure’s going to be important, and how Perry behaves in DOE since he started out by saying he wanted to eliminate DOE, we’re really encouraged he’s now the head of it because he can’t do that. It’d be interesting to see how this whole thing evolves. We’re pretty sure there’s going to be a new energy bill shortly, and again that’s likely to be a bipartisan effort. There were two energy bills on the shelf at the election and they were almost passed, but the election overtook them. They were a bipartisan effort, so again, there were some pretty possibly some good news here in that we could have some bipartisan effort on infrastructure and on energy as we move forward.

Last two slides very quickly. Again, I know you can’t really read this but this is trying to say from an energy and environmental perspective over here are the types of fuel hydro, coal, natural gas, etc. This is what Obama his position strongly favored three greens. Renewables was his favorite thing so he really got that going. Here’s Trump with republicans in Congress. What is their orientation? This is subject to debate but we’ve made basically in the zone, so if you say what’s coming under Trump, well, renewables have had their run. Right now, he’s probably going to take a fair bit of money out of the renewable budget, particularly out of renewable R&D. I suspect that budget is going to get slashed pretty heavily. Energy efficiency, don’t know. Hydro power, not much to do there… probably neutral. Obviously he says he favors coal, but there’s not much he can do other than reinvest in coal R&D, so he’ll probably reinforce what we call FE or fossil R&D section of DOE. I am sure their budget will go up. We’ve been working at it pretty hard, and I'm not sure we’ll have to ask Southern Company how much they can get more R&D. That’s what he says he wants to do. Natural gas obviously that’s not contestable. Nuclear. Here’s one of the open questions. So far, the early indicators are that he will favor nuclear in the following way: fortunately we think he’s finally going to open up Yucca Mountain and increasingly help spent fuel storage. In Korea, here, we have the same problem. We have this thing called Yucca Mountain, which should have been opened years ago for God’s sake. But now, the guy who held that up is gone, so we’re hoping and they’re talking about opening up Yucca Mountain and get the spent fuel to go to Yucca Mountain, which would really help. KAERI and Korea obviously you all would hope to partner with Korean general particularly on atomic energy. We’d make perfect sense as national partners, I think. You all have,

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I’m not sure where you are with the SMART reactor in Saudi Arabia these days, but we are developing advanced reactors and SMRS here. But we have, I have positive, particularly on the nuclear side; we have some wonderful joint opportunities to act together. The Trump administration seems to be acting, but they would like to reform our NRC which has got a great record in making sure we don’t have any accidents, but takes forever and costs forever to get things through the system. So that needs a little bit of work, but anyway we’re very hopeful that nuclear is going to get the green light.

EPA power plan, that’s going to get locked up in court forever, anyway. You can read the rest of these, but biofuels and agriculture is an interesting one because Ag has a lot of power. We can’t figure out what they’re saying about Agriculture. Agriculture and DOE were not highest on the list of new secretaries, but obviously Agriculture and Energy are increasingly intersecting each other. Infrastructure we already talked about. So I’ll close here with only on R&D, not energy projects, but in terms of just asking about R&D. Just over the past few days, two days, the Trump folks have advanced some of their thinking about the budget for R&D. They’re much more interested in things happening short term rather than long term. Renewables, we know they’re thinking they’re going to get cut back. We talked about coal. We’re hoping nuclear because it is energy independence, it can be clean hopefully it’s clean. Also, what just happened with Westinghouse and Toshiba at least in this country, the US we’re about to fall off the map in terms of building nuclear. The advanced reactors and SMRs are coming behind them pretty quickly, so there’s hope we can get there. I would like to say because I worked with KIER. Unfortunately there have been changes in leadership at KIER as well, so it’s hard to get much of a program going. And the atomic level, the nuclear level is a little bit more senior level in Korea. I think both on the renewable and the atomic side, there’s a world of opportunity to collaborate between Korea and the US. So I will close there, and take questions then? Or… ok. Thanks!

Remarks by Frederick Eames of Hunton & WilliamsWalter can you go back a couple slides? I want to leave up that one. That’s a good one to have up. Well, should I? Alright. I think I’ll just sit right here if that’s alright. Can everyone hear me ok? Alright. Well, so what should we expect from the Trump Administration? I think let’s talk about several things here. We’ll talk about Trump’s vows to change Washington. We’ll talk about relationships with allies, and then we’ll talk about a few specific items in the energy and environment. Let me first start with Trump’s vows to change Washington. Let’s look at this through three categories. One is that you can’t think of him as a typical politician. One is that you need to think of him as a typical politician. Another is that he’s a reaction to president Obama. I think these are three obviously inconsistent ways, but I think that these are if I were from a foreign country and I had not sat through the US election in the last cycle, and I wanted to try and understand what happened, I think these are three ways that I would look at it.

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First, you can’t think of him as a typical politician. I don’t think you can think of him as a typical anything. I don’t know if we’ve ever seen anybody in public life that is like quite like Donald Trump. He is loud, he is brash, he is self confident, egotistical, demanding, and he’s now president. So what do you take from that? His rhetoric has been sometimes inflammatory and very often quite imprecise. He’ll just throw out an idea and say, we’re going to do this. Then people will probably whisper in his ear afterwards and say, you can’t really do that. So then he has to figure out okay, I just told everyone I’m going to do this. I’m not going to have people call me a liar, so we’re going to go out and do something that looks like this. Now maybe it’s going to be over here a little bit, but it’s not going to be way over here. We’re going to try and do the thing that I just told everybody we’re going to try to do. We’re going to build a wall along the Mexican border and Mexico is going to pay for it. Fortunately he didn’t say that about Korea. That’d be a little more difficult. Who knows what’s going to happen with an issue like that? Now, he is shown that he is quite interested in breaking with convention both for a republican and for a politician generally. Typical Republican for example in Washington has held for the last, well as long as the time I’ve been here in the last 30, 40 years, views in favor of free trade. Well Trump has taken a more protectionist tone. At least he’s talked as a protectionist. He may end up governing as a free trader, we don’t really know. We don’t want to do the transpacific partnership. What we want are individual deals, bilateral deals with individual countries and we’re going to get a better deal. How do we understand that? I don’t know. That remains to be seen. He really has a nationalistic streak. Walter had that in one of his slides. America First. Well, that is very popular with what we call in the US, blue collar constituents. How many people are you familiar with blue collar workers? So someone who is not in management, but they manufacture things out on the factory floors. Labor, yes. That sort of America first talk is popular with labor. Both Republicans and Democrats. You see from Walter’s maps several slides before that Trump ended up getting support from those labor voters on both sides of the political spectrum, and that’s how he ended up winning states like Pennsylvania, where I'm from. Or Michigan or Wisconsin. These are all traditional heavy labor states but with this nationalistic talk of we’re going to bring jobs back, we’re going to get factories running, that dragged people in. He’s going to antagonize the press. He doesn’t like the press, they don’t like him and the more they don’t like him, the more they show it, the more he’s going to prove that they’re corrupt. That’s what he’s out to do, and I think that the press by and large has fallen right into the trap. They are willing to say as bad things about him and throw insults at him as hard as they want, and he continues to be able to say, look they’re obviously biased. Now I can tell you as a Republican that the Republican perspective in America has long been that the press is biased against Republican viewpoints, and he feels that the only way to break that I think it’s obvious he feels the only way to break that is to have people so distrust the press that they can’t really tell what the press is reporting that’s true and what is really just opinion based. That’s somewhat dangerous but also from a Republican perspective, people have said well it’s about

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time. We’ve been getting bad stories unfairly for a long time. These are the kinds of things he’s doing that are not typical of a regular politician. George Bush courted the press. He tried to have great relations with the press. Trump has no interest.

Now, how do you think of him as a typical politician? A model for a Republican in Washington is Ronald Reagan. Reagan was the most successful republican politician of the modern era, and Reagan’s principles were smaller government at the federal level, and put the power in government back to the level of government that is closest to the people; states or the local level. Smaller federal government, lower taxes, a strong economy, a strong national defense. So far what are we seeing out of the Trump Administration? The people that he has nominated to cabinet positions and high positions of authority in his Administration are all for smaller government, lower taxes, strong economies, strong national defense. It’s right along the Reagan mold. He has issued a number of executive orders so far to repeal regulations that the Obama Administration put into place. Not regulations, but policies. Here we have law, we have regulations, and then we have the implementation of the law and regulations, which can be changed without having to go through Congress. All the things he can change without having to go through Congress he is changing right away. He has vowed, for example, to dramatically cut the EPA and other regulatory agencies. That’s another push for smaller government. The top issue in front of Congress right now is tax reform. They want to reduce the complexity of the federal tax system. They want to lower taxes on business and individuals and get rid of a lot of special tax provisions and there are more of them in the energy arena than anywhere else. I work on carbon capture and sequestration issues for example, and there’s a specialty tax provision that section 45q tax credit, section 45 tax credit for wind and solar and geothermal and other, they’re all sorts of special tax credits in the energy arena. I think he’s going to try to wipe those out. His budget proposal is back to increasing the strong national defense. The budget proposal will increase defense spending reportedly by 54 billion dollars, which is quite significant. Those are some of the reasons why you would think of him as a typical politician.

You also need to think of him as a reaction to the Obama Administration. I think there were many people who felt over the last several years during the Obama Administration, particularly over the last three years that there was sort a creeping lawlessness. This is an opinion, not a fact. People have held this opinion of the administration. It includes many of those voters that were back in some of those key states that were on Walter’s slide. They felt that the Obama Administration was doing things that they were not authorized to do by the law, such as the Clean Power Plan, for example. I don’t know that the average citizen even knows what the CPP is, but they have this vague feeling that the Obama administration was doing things they shouldn’t have been doing. The limits on government in the US are twofold. One, the law. What law has been enacted? The Administration can only do what is granted to it under the constitution or enacted laws. The

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second is the consent of the people who are governed here. Looking at an example such as what we call Obamacare, the federal healthcare law that was passed back in 2010. People felt as though the government had done something that they hadn’t agreed with. Many people did. There was a reaction to that, and I think the 2016 election of Donald Trump can be seen as a reaction to that. There are many other examples that we can go through, but anyway, there was also a view that there was a failure to punish secretary Clinton for her use of a private email server which many people felt was not appropriate, so I think that Trump Administration was a reaction to that sort of thing that fed into this view that there was something going on that we don't like.

Now, onto the second broad issue, the relationships with allies. Walter said something that again I’ll tee-off. I think a lot of this is negotiating position. Again, we’re going to build a wall and Mexico is going to pay for it. Mexico isn’t going to pay for a wall. But, he wants to put the relationship on a footing where he feels that he is better able to negotiate. But when he goes out and makes those strong statements that Mexico is going to pay for the wall, it puts him in a difficult position. Well now, he said this, well he can go to here, but he can’t go over here and do something completely different so I think as the administration gets populated with advisors to the president, which is not yet fully populated, the advisor staff and the white house staff isn’t full yet. The cabinet appointments are still going through, but the sub-cabinet positions still haven’t been filled out yet. He’s not hearing from a lot of different voices who are going to tell him, look you should tone down the rhetoric. You should tone it down somewhat. I think over time as he gets into this, as he has more time in office, things will tone down. But I think with respect to relationships with allies, certainly with respect to the relationship with Korea, I think you can expect that the US will continue to have a very good and constructive relationship with Korea and the other traditional allies of the US. I don’t think there’s any question about it. I don’t have much more to say about that point, but I’m sure people have questions about that.

Now let’s talk about specific issues. One, let’s start with this. There’s been a lot of talk. How many people heard about the fact that tax reform is a big issue in the US, and one of the key provisions of border adjustment provisions. People know that that is a provision. What does a border adjustment mean? Well it means that when goods are coming in from some other country, there’s going to be a tax levied on those. We don't know how much maybe 20 percent. Where is this discussion coming from? That provision isn’t even coming from the administration. That’s coming from the US Congress. One thing I meant to do at the very beginning is, Walter mentioned this as well, foreign visitors to the US often forget that the first branch of the government in the US is the Congress, the legislature. They make the laws, the executive is the 2nd branch of government, they execute the laws. The provision of a border adjustment tax is something that is coming from Congress. All of these things that the president, almost all the things that he is going to be working on, are things that he is going to need to work with the US Congress on. Is he going to have the

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requisite support up on Capitol Hill to get these things done? We’ll talk about that in a moment. But, a border adjustment tax would be a key trade issue. We don't know how that’s going to work out. The Trump administration doesn’t like this border tax. Paul Ryan who is the speaker of the House of Representatives does like it, and before he was the speaker of the House, he was the chairman of the committee that writes the tax code, so he’s very familiar with tax issues. I think even some of the Republicans, many of the Republicans in the house don't like the idea but they need to get money. If they want to lower the rates for individuals and lower the tax rate and also lower the rates on corporations they need to get money from somewhere, and this is the key provision they’re talking about to come up with the revenue. Trade generally again goes back to negotiating bilateral agreements rather than negotiating broad agreements like the TPP. But I think trade will be a key issue in this Congress.

Now, we’ll finish up with the two big ones here: changes to EPA policy and DOE. EPA policy: we have as the new administrator of the EPA, Scott Pruitt, who is the attorney general of the state of Oklahoma. Oklahoma is a very conservative state. It’s an oil and gas state. Administrator Pruitt sued the EPA over a number of the Obama Administration policies over the last 8 years. So, he comes to office with a view very much like the one I described that the government has gone beyond its boundaries in a number of the things that are proposed. Number one among those EPA policies is the CPP. The CPP said that for existing fossil fuel power plants, the states collectively had to reduce carbon emissions by about 32%. Well, I think many people looked at that and said, “the only way you can get to that is to apply carbon capture and sequestration, but that has not been yet a demonstrated technology, when in the electric utility industry, it has not been demonstrated for power plants so how can we do that if it’s not demonstrated?” What the administration said was, well you can substitute in other types of energy instead: wind, solar, natural gas has lower emissions than coal, and a lot of people looked at that and said the statute doesn’t allow you to tell somebody shut off your power plant and buy power from somebody else. So those are the types of things where the new administration is going to say, we don’t agree with that policy, we don’t believe that this statute authorized that sort of thing to happen. I think climate and the Clean Power Plan will be the biggest issue of change from the Obama Administration to the Trump Administration. But the changes will also be on a variety of other issues, for example the emphasis of environmental issues generally as a priority of the administration versus say letting the states take more of a role to lead on environmental policy. This administration will say, we want the states to lead that. Again to Walter’s point, each state came together, there are 50 states in the union, and each state has its own powers and abilities. What people have said over the years and the reason we have such strong environmental policy at the federal level here is that people have looked at the states and said, well that state for example is a coal state, so we expect them to be lenient on coal issues. They'll just take care of the coal industry, and their laws won’t be protected,

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so that's why you’ve had so many federal environmental laws over the years. I think the laws will change, but the enforcement will shift to the states.

On coal, oil and nuclear, let’s talk about those three in particular. Coal, I think the Trump administration says it is very much pro coal, but the primary use of coal in the US has been historically for coal-fired power plants. Right now, gas is so cheap in the US that it’s very difficult to make money operating a coal-fired power plant. As much as the administration may want to promote coal, I don’t see foresee a lot of new coal fired power plants being built here. But, since they have told people, they said they want to do this, okay well I think the obvious answer here is that they should promote clean coal as they have been doing for a number of years. That remains to be seen. We’ll see what the policy of the administration will be with respect to clean coal. Oil, we now have as our secretary of state Rex Tillerson who was the CEO of Exxon Mobile, the largest private oil company in the world. I expect this administration will support oil and gas, not because of Rex Tillerson, but because they just do. But Rex Tillerson is an obvious example that the administration is going to support oil and gas. Nuclear. Walter talked about nuclear. I think the big issue for nuclear in the US right now, just like with coal, is that natural gas is so cheap that nuclear plants are having problems. Where nuclear plants are not, they don’t get a regulated rate of return from the government, where they are instead competing with the market, they’re not making enough money to survive. So, a key policy will be how do we keep nuclear plants operating? I think that is going to be more of a state issue, though, than it will be a federal issue. But I think the Trump Administration will support nuclear to the extent that it can. Walter’s right that they key issue for the administration will be Yucca Mountain.

Lastly, let’s move specifically to DOE. That is that we have Governor Rick Perry, former Governor of Texas, is likely to be confirmed later this week as the Secretary of Energy. He once said that he wanted to abolish the DOE. I don’t think he’ll do that. In the coming months and years, there is now and there will continue to be a battle among Republicans between two main wings of the Republicans. One is the pro-business republicans who are more traditional republicans who want business to succeed, and by business succeeding, the economy of the United States and workers and everything is good for everyone. Then you have the more philosophical or ideological republicans who say to the extent that we support programs that help businesses, the government is interfering in the marketplace, and we don’t want interference in the marketplace. We want markets to decide who’s going to win and who’s going to lose. This administration will have Republicans of both kinds in the administration, and for any individual program, we’re going to need to know who is involved in the decision making process. Are we going to have more of the ideological Republicans or more of the pro-business Republicans? But again, lets’ not forget Capitol Hill. If Capitol Hill funds a program and says, we want this to happen, the administration is

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obligated to proceed with it. With that I’ll conclude, so I hope that has given you something to think about and gives you some perspective on how to fit this all together.

QUESTION & ANSWERQ: Trump has his preferences with respect to increasing the defense budget and decreasing energy programs and state budgets. What are the likely outcomes given that these will all have to go through congress? You said there would be more support for fossil fuels. How might this impact the ongoing US-Korea clean energy cooperation programs?A: If you look for the signs of dysfunctionality in our country, the inability of our government to create a budget has been a problem for years. Originally they said that EPA’s budget would be slashed by 50%. Now, that’s probably not going to happen. It’s looking more like 10 or 20%. WE are going to get a budget. I don’t think the democrats will shut the government down. I think R&D budgets will go down. I have a hard time finding that they would target bilateral cooperation on something like energy. I don’t have any indicators, but since they’re being tough on taxes and going through international trade, I can’t imagine they’d do this. A: The budget issue has been the most difficult issue for congress to deal with annually. Congress is spending more money than they’re taking in, and we’ve been doing this for 38 of the last 40 years. Part of what’s happening is that we have an ageing population, and as they age, we have federal programs that are entitlement programs, social security, Medicare, and those programs are not actually sound. To get into the budget issue, we have 3 main buckets of money or spending. First are the entitlement programs, we have defense and then we have all discretionary spending, which includes EPA, housing, whatever it may be. DOE falls under the last section, and it’s becoming a smaller and smaller budget because the other spending keep increasing. We need heavy economic growth to close the gap, we need to change the tax code to bring more jobs to the US, and we need to shrink the existing government. These are the 3 things the Trump administration is trying to do. I think there will be budget cuts at EPA. I’d put money in Vegas and place a bet that this would happen. The EERE is the most vulnerable part of DOE. This part of DOE has been viewed by many republicans as having favorable status for many years. Renewable has gotten more from the government while coal has gotten less.

Q: You say Trump supports coal, natural gas, oil and nuclear. Fact is, more fracking and more gas production would hurt coal and nuclear going forward. Renewable energy market will be driven by states. Given the market trends and dynamics, how much can Trump actually resist that through what he’s trying to accomplish?

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A: How is the Korean electricity system set up? Do the utilities compete with each other? A: There’s only one: KEPCO.A: Here we have the US divided up into 100 chunks. We have different utilities to serve these different chunks. You have municipals, cooperatives, but by and large, you have invest-your-own electric utilities. The generation owners compete with one another. Now, if you want to build a power plant, you better make money operating the power plant or else it won’t survive. If the administration is trying to put in policies to help specific technologies in the power market, it’s difficult to do that because there needs to be enough government support to compete in the marketplace. The pushback to that is that everyone’s already in the market and nobody wants to compete with something that’s getting a government subsidy. Gas is so cheap and plentiful so what we’re seeing in several states is that states are saying they want to keep their nuclear plants. Nuclear plants produce clean energy and they don’t want to be totally dependent on the gas. With gas, you have to transport via a pipeline, and if it freezes, you won’t have gas for heat or power. This leads to an interest in fuel diversity. There’s only so much Trump can do for coal, but he has to do something because he promised coal regions that he would help.

Q: Are you trying to seek other applications of coal outside the electricity market?A: I think people will.

Q: In addition to the possibility of support for clean coal R&D, perhaps exports? Last administration was resistant to the export of coal. Do you see this as a way for the government to support coal without building power plants?A: I am almost 100% confident Trump will expand export options for natural gas. I’ve worked on several export concepts for coal, but I’ve never seen anything come to fruition. Moving coal is not an economic exercise. That tends to drive up the price domestically, but I don’t think the Trump administration cares about that. If you ask the question, is the appropriate role for the government to give advantage to certain fuel types, this debate can go on forever. The government would not have existed now if they hadn’t created certain markets. They created aviation and nuclear power. So many of these things are jumpstarted by the federal government. Many of you are here for ARPA-E. When Secretary Moniz was the secretary of energy he said, “steal me a DARPA, and I’ll find a way to get out of the valley of death.” The Heritage has refused to acknowledge that the government has helped some of these technologies come to fruition. It’s the debate of our time. With wind and solar, they created tax credits. I would scale back renewables because they’ve been the winners for the past couple years. Nuclear is the place where I think the government should fund and help and then get out of the way. The marketplace will take over, or it won’t.

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Q: One of the themes you’re bringing in is the tax credits for renewables. You said it would be likely to be eliminated. If this happens, do you think the renewable market, especially wind, will survive and grow?A: I have an interesting chart that someone gave me this morning. What this shows is the number of wind and solar projects, particularly wind projects, that have been done in recent years. In half the states, we have RPS that dictate energy mix. Each state can define this differently. What this chart shows is that they’re not building it just to meet tax credit standards, they’re doing it to market that they’re investing in clean energy. A: There’s a clear difference here between state and federal level, even regionally. Look at what’s happening in China right now. It’s killing itself with smog and pollution. It’s going to be interesting to see if the federal government reaches out to help states create incentives for the portfolios they want.

C: I was going to add to the loan guarantee program. The loan program has really enabled these projects. House Science committee had a hearing about this the other day, and I think there are a lot of misconceptions. It’s got a great track record for paying back the loans.A: The reason it won’t go anywhere is because the loan program has grown to a multi-million dollar project with a 98% success rate. The reason it won’t go anywhere is because it’s profitable and if they got rid of it, they would have to raise that revenue elsewhere. I view that as the light hand of the government. C: I was going to say that there’s another element of misconception in the policy making process. I think there will be a need for information because facts are being lost.

Q: I’d like to explain Korean energy mix, and I’d like to raise some export comments. The new administration in Korea is likely to come, and there is a expectation that a serious debate about energy mix will happen. In Korea, currently nuclear power is 30%, coal is 40% and gas is about 50%. The reason gas is more expensive in Korea is that gas generation is twice more expensive than coal. There are about four themes about energy mix in Korea. The first is the opposition to nuclear power. The second is the problem of microdust caused by coal power plants. They also see the need to increase renewable energies due to climate change. Besides these three issues, President Trump’s new energy policy will likely to add uncertainty to Koreans’ policy on this debate. One of the likely outcomes will be less nuclear, less coal and more gas. In the COP21, Korean government made a commitment that Korea will reduce emissions by 37% by the year 2030. With this understanding of Korea’s energy mix, what recommendations or comments would you give to Korea’s next government? A: Good luck.

Q: In our interface with Korean parties, we’ve heard exactly those primary issues being relevant

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for emerging Korean policy. On your perspective in how it’s currently playing out is energy security. There’s some opposition to nuclear and my expectation is that there will be more resistance to nuclear in the next administration. With the challenges of the emission and increase in natural gas, what is the proposed solution?A: Energy security has always been an important consideration in designing the energy mix in Korea. A: I would observe that never in the history of our species has all 92 countries come together to voluntarily commit to something. Mr. Trump started by saying we’re out of that, but he’s starting to go back on that because people are saying he can’t do that. The globe is worried about this issue of climate change and I think this is bigger than Trump, Korea or whatever else. I think it’s bigger than Korea-US relations. It will increasingly be in the minds of people as they get older. Trump won’t work against reducing climate change, and I know Korea isn’t going to. By the way, congratulations to Korea on the construction of units in the UAE.

C: One major change that I see in terms of energy is that we did lots of clean energy and energy storage under the Bush administration, but we never called it climate, we called it energy security. Certainly energy security is extremely important around the world. We still import a lot of oil. But there’s that piece under Bush and others that contributed to energy security. I don’t think I’d see a withdrawal from the Paris Agreement. I really see that as much more as a priority now.C: if you add renewables to the grid, they add instability to the grid. Nobody predicted that it would be so hard to control or predict. I’d like to share an example to Korea. We took 15 Korean scientists at NREL. We partnered them with American researchers. We had 8 teams. They all brought their own power point decks, and it was wonderfully competitive. In 2 days, they became best friends they still communicate. Our government built the National Renewables Integration System. This models how the grid will respond to different renewables. We paid for it and built it. The guy who came from KIER put up his power point presentation that he did 4 years before we did in the US but they didn't have the money to do it. Baseload power is getting even more important in the cities. They cannot afford to have a blackout. We need clean coal and we need nuclear. C: I do personally believe that in Korea it’s important to rejuvenate the clean coal program. Given the instability in fuel diversity and opposition to nuclear, we’re putting too many eggs in the basket that is natural gas. You’re really only left with coal as a baseload power.C: I didn’t want to seem as though I was being disrespectful, but I agree with Scott. Clean coal is very important. By 2050 we are going to have 2 billion more people on the planet and 3 billion more people in cities. We are going to have a more urbanized society and we will have vastly greater energy needs. Even with a massive build out on renewables, you will still need more fossil fuels than you need today. You need technologies to have clean fossil fuels. The fossil fuel

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companies are thinking the same way. Unless there’s a way to use fossil fuels cleanly, they see a serious threat to their business.

Q: How long before the US becomes a significant exporter of energy to Korea?A: We already export natural gas.

Q: But in what volume? That volume could be larger.A: Korea is a phenomenal miracle because it has no natural resources and they import all their energy. DOE was in the process of setting up two more Pacific Rim export facilities, but I don’t know what happened to that.A: Gas imported to South Korea would be increased under Trump’s administration.

Q: In the state that we’re at right now, there’s an energy efficiency standard in place. We have not had any blackouts and we haven’t needed to build more coal plants. There are 2 million or so jobs generated through investments in energy efficiency. I wonder about the future of energy efficiency investments, performance standards, etc?A: There’s a lot of money in energy efficiency.A: I heard Trump is in favor of removing energy efficiency standards in cars and trucks. I don’t understand the logic of this as it would create more jobs. A: In the electric sector, there are many parts of the country where demand has been flat. People have attributed this to efficiency gains in part. Part of it is in parts of the country there’s less manufacturing than there used to be.

Q: Could I ask everyone a question? I know we expect to see the EERE budget go down. Are there any renewable energy research areas that we should continue to pursue? Like nano-materials for solar? Isn’t there something to be defending and not let go?A: Battery storage has to be one of them. Bio-energy and conversion is another important place they’re making progress in. Biofuels is starting to look like what solar did 10 years ago. Prices are going down. Korea is a leader in sources of energy from water: offshore wind and hydro. The largest energy source in a day outside the sun comes from waves. Private sector has done a great job on wind and solar on their own. From my knowledge of clean coal, Sec. Moniz was in trouble in Seoul because he said he understood the problem of coal. He said there’s nothing to do with carbon once you capture it. But the rest of the world will continue to burn coal, so we should figure out how to make it clean. A: There are areas in material science.A: A lot of stuff under basic research will be gone it seems. A: Trump seems very impatient with the concept of R&D and science. ARPA-E and DARPA are the best like KIER and KAERI at picking up technologies.

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A: I kept saying CCS to KIER, and they said the U is important: the utilization. They call it CCUS in Korea. The use component is critically important especially in Korea. A: This administration doesn’t seem supportive of R&D across the board. They want to cut these programs. They feel that the R&D interferes in the market. A: Senate side will probably put up resistance. A: The hill will go against it. A: There is a bipartisan climate solutions caucus, and it’s up to 24 members with 12 republicans and 12 democrats. We want to support the champions that we do have. A: I don’t know if CCS is a great bet in this country, but I can think of 1000 scenarios moving forward in this administration. Uncertainty is the cliché. A: The capital markets and the investment side dies under uncertainty. The markets have proven that, and it will be a problem. A: We have changed the discussion towards energy security. We need to show him that it’s important to keep some of these resources.A: One of the things we did to educate senior administration staff in Korea was to educate them about the energy security benefits that come in addition to climate change benefits.

Q: Since you brought up the economic benefits, is there any sentiment that Korean and Chinese wind technology exporters are harming the US economy? A: There is an example of this. Germany wanted to pick up solar technologies so they contracted it out to Solyndra, a US company in California. Chinese industry members followed Solyndra everywhere they went in Europe, and offered equal or lower prices in addition to a state government guarantee for 28 years. A: In more general terms regarding trade policy, we’re seeing China turn into what Japan was then.

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