The Last Word: Henry Paulson

He's been called the first treasury secretary with real clout since Bob Rubin, and arrived in office with the gilded pedigree that adorns former Goldman Sachs CEOs. So it's not surprising that Henry Paulson has since been fingered by pundits as the man behind George W. Bush's latest moves on issues ranging from China to, most recently, his call for a campaign to cut U.S. dependence on foreign oil. He spoke to NEWSWEEK's Richard Wolffe on his latest role last week. Excerpts:

PAULSON: The president wanted me to be involved in all major economic issues, domestic or international. It's very much of a team approach. There was a big emphasis on intellectual rigor and having different people involved. So when I thought about the economic issues, I thought about three things. First, as strong as this economy is--and I'm not expecting any shocks anytime soon--it's been a long time without one. [The next would] be the first with the economy as globally integrated as it is. Another thing was entitlements: the longer it took to do something, the more costly the solutions would be. Third, energy security.

We're all focused on what's happening with oil at $75 a barrel, but to me the real risk would not be just the price of oil going up but the price of oil going way up. The president [emphasized] energy security, because I think he knows we won't use the word "independence" anytime soon. But we were too dependent on imported oil from troubled parts of the world, so the question was, how would we craft something that would give us energy security as soon as possible? He wanted bold ideas. In the first several months we had presentations from terrific scientists on progress that's been made in technology and a number of alternative sources of energy--everything from solar to wind to energy to batteries and clean coal.

When people looked at this policy, some thought it was too bold, some people thought it was not bold enough, some people's expectations had gotten so high that they thought it was going to solve all environmental problems, [that] it was going to accomplish everything, so they were disappointed. This policy has got some important positives for the environment, but they're collateral. That wasn't the driver. The driver was energy security. It deals with the supply side, which is to replace 35 billion gallons of oil in 10 years, and that in and of itself will encourage investment, because the demand is out there. Some people say it doesn't do as much as it could do with greenhouse-gas emissions. Depending on how optimistic you want to be on this policy alone, it will slow the growth [in emissions output] dramatically, [and] almost stop the growth in 10 years.

Making an alternative-fuel standard and getting 35 billion gallons by 2017 is bold, and you can't do that without having multiple sources, and without having some technological advances across the board. This is bold on the supply side and bold on the demand side.

When you really look at the price of ethanol, you need to look at it with technology the way it is today, and with technology the way it will be in five to 10 years. Even with our policy, the price of oil is high enough [that] the price of ethanol will rise, and so what we designed under the president's direction was a series of circuit breakers, or safety valves, in terms of this big alternative fuel mandate.

Go back and research what the president said about global warming being a serious problem, carbon emissions being a serious problem. He sees the need to process globally. One of the things he's encouraged me to do is get a strategic working dialogue with China to work with them on energy efficiency and environmental issues. A big part of this will be clean coal. Look at what's happening--one new coal plant [is] coming out every week in China. The president is quite interested in that.

Before coming down here I got asked all kinds of questions and people wanted to try to put a wedge between me and the president. I end up telling people that whatever side of the equation you're on, I'm not down here to be head of the Environmental Protection Agency or Department of the Interior, I'm here to be secretary of the Treasury and support the president. So if and when the president wants me to be involved with anything as relates to the environmental arena, he'll ask me, and if he asks me, I'll do everything I can in that area. I'm very pleased to have been able to play a small part of a policy which I think is bold and which will encourage great technological progress. And I'm very pleased to have had the opportunity to work in China.