**INTRODUCTION: MR. SWISHER**

We had some great sessions yesterday and our first speaker this morning,
has the challenging task, of dissecting, evaluating, reporting, the key
outcomes of the four breakout sessions yesterday afternoon. That
includes eight hours of discussion, by nineteen leading speakers and
over a thousand engaged attendees.

The person we've chosen for this challenging assignment is Mr. Jim
Woolsey, and I know that he's up to the task. He's actually been one of
the most compelling voices, helping American's to understand the
connection between what renewable energy can mean for this country and
our national security.

He joined Booz Allen Hamilton in July 2002 as a Vice-President and
Officer in the firm\'s Global Resilience Practice located in McLean,
Virginia. Previously he served the U.S. Government on five different
occasions, where he held Presidential Appointments in two Republican and
two Democratic Administrations, including as Director of the Central
Intelligence Agency. Ladies and gentlemen please welcome Mr. Jim
Woolsey.

**[ENERGY, SECURITY AND THE LONG WAR]{.underline}**

**[OF THE 21ST CENTURY]{.underline}**

**MR. R. JAMES WOOLSEY**

All right, thank you very much. I, was of course deeply honored, when
Tom Dorr and Andy Karsner asked me to be with you this morning and try
and pull together the previous day\'s discussion.

Who would have thought five years ago, that the Department of
Agriculture and the Department of Energy would be putting together a
conference on Renewable Energy and Rural Renaissance America, it's
remarkable, an honor to be able to be here.

But, to tell you the truth, since I spent twenty-two years as a
Washington lawyer, and I spent some time out at the CIA before I went
straight and went with Booz Allen four years ago, I'm actually honored
to be invited into any polite company for any purposes, whatsoever.

And some people asked me why I kept leaving a perfectly fine law
practice so many times to go into the government. This is a government
sponsored conference, we have a lot of people from the government here,
I don't think I'm giving away any secrets when I share with you that, we
all know why we work for the government, really there are two main
reasons. One, is the big bucks and the other, of course, is the public
appreciation. Those are the two reasons and that's why we all do it.

I had a pretty good example of public appreciation. After I had been out
of the CIA for about eight months, my wife and I decided we would go to
our college reunion; we'd been classmates in California, and cash in
some old frequent flyer miles, go first class, see some old friends,
take three days off. Good idea.

First thing that happened is my Director of Security out at the CIA,
said, *"Mr. Director, actually we want Mrs. Woolsey to go on a different
plane, because we don't want anybody named Woolsey on the plane."* And I
said, *"But, my name's Woolsey."* And he said, *"No sir, you need to
travel in alias."* And of course, my first thought was, uh-oh, there go
the frequent flyer miles.

So, in those somewhat simpler times, my two security guys and I, 93, we
go out to Dulles. As we're heading back to the back row of coach they
stop by the cockpit, show the Pilot and Chief Flight Attendant that
they're carrying weapons and that they're authorized to do so by the
Federal Government and I go sit kind of wedged in between these two big
guys; you know the seats you can't even lean back, because the
bulkhead's right behind you. Fly out to California, uneventful. As we're
walking down the jet-way at San Francisco, the Flight Attendant comes
over and whispers something to my chief security guy and he just cracks
up. And since he's a pretty big stolid guy, I was sort of surprised, so
I asked, "*Murph, what's so funny?"* He said*, "Do you know what she
just said?"* She said*, "You know, I've been on these flights for twenty
years and that is the politest and best behaved prisoner that we have
ever had."*

So, like I say, public appreciation, \-- and I was really quite
grateful, that was about the nicest thing anybody said about me in the
two years I was head of the CIA.

I want to talk with you about what we've been discussing for the last
day or so in the context of looking at some of the things we need to do.

And as I glean the results of the discussions that I participated in and
then my Booz Allen colleagues reported to me on, from the ones I
couldn't go to, it seems to me there are two big problems that we are
facing that interact with one another in some very challenging ways,
that result in; and each in its own way, the attention that we're paying
to renewable energy and to rural America.

The first, is that we've spent much of the 1980's and 1990's slimming
down our infrastructure, modernizing it, privatizing it, out-sourcing it
and making it work with just-in-time every-things. And that all works
fine, until something goes wrong.

Three years ago August, a tree branch fell in Ohio, and within minutes,
some 80 million electricity consumers were out of power in the Eastern
United States and Eastern Canada. We tried to blame it on Canada for a
few days, you know, sort of like the [South Park]{.underline} kids, but
we didn't get away with it. And the electricity grid is not unique that
way. Lots of things went wrong as a result of some of the hurricanes in
Louisiana, last year.

The problem with a finely tuned, just-in-time infrastructure, which is
being stretched with an eye toward economy at every point, to do some
things that it was actually designed to do, such as to get vast amounts
of wind energy from the upper Midwest, generating power around to the
rest of the country. A great idea, but not one that as Glenn English and
others would point out to you, that the grid was really designed to do
very well.

As we put stresses on it, we create opportunities, unfortunately, for
things to go wrong. Now people who work in chaos theory and network
theory, have a phrase they call the *'Butterfly Effect'*. The idea
being, that any complex system; and the EcoSphere is a complex system,
can be disturbed in incalculable and unpredictable ways by small things
going wrong; the disturbances.

Let's say, a butterfly flutters its wings on one side of the world, the
idea is that the cascading interference could create a hurricane on the
other side of the world. That seems kind of theoretical, until you
remember three years ago August, and the tree branch falling in October,
\-- I mean, falling in Ohio.

So, we have what I would call the potential for malignant interference
in our infrastructure, including particularly, our transportation and
electricity energy systems. Malignant because nobody's trying to do
this, nobody's trying to create a disturbance, chop a tree down that
makes 80 million people lose, \-- 50 million people lose their electric
power.

Another variety, however, of this sort of malignant interference, is a
malignant interference that we help produce by doing things like
emitting vast amounts of carbon into the atmosphere, creating at least a
serious risk of global warming and climate change. It may be that some
of the skeptics will be proven right to the extent, that the effect will
not be as large as some of those who are more concerned are describing.
Maybe the oceans will only rise a couple of inches, instead of several
feet, by the middle or latter part of the century. But, we are making
that malignant problem worse by putting carbon into the atmosphere. We
can't predict that any one of us who is a two pack a day smoker is going
to get lung cancer. But by sort of sitting there smoking all the time,
and saying, "*You know, I'm not sure the science is clear that this is
really causing cancer."* It's sort of like pouring vast amounts of
carbon into the atmosphere and saying, "*I'm not sure the science is
really clear that the oceans are going to rise 2 to 3 feet."* Well,
maybe they won't, but it's a risk and a serious one.

The other problem is in a sense, worse than malignant it's malevolent in
Genesis, because terrorists are a lot smarter than tree branches. They
don't need to wait for a tree branch to fall on a power line in a storm,
they can pick the worst time of the year to lose electric power, the
worst time to interfere with the flow of oil, and make it happen.

So, we have, as a result of the nature of our infrastructure, two types
of very serious potential interferences, malignant and malevolent. And
we're irresponsible, I believe, if we don't face squarely both of them
and deal with both of them.

It turns out that some of the most important policy changes for us, as a
country, for the world as a whole, have to do with renewable energy.
They have to do, at least initially, and very importantly, with rural
America. But there are, I think, three things we should keep in mind as
we look at this, these sets of issues and what policy changes we might
want to make.

First is speed. All right, deliberate speed, not helter-skelter speed.
But, neither al-Qaeda, nor things like tree branches falling in Ohio,
are going to give us a decade or two or three, of leisure.

We have been, I hope, trying to figure out for at least several years,
how to implement the recommendations of the National Academy of Sciences
Study that I sat on five years ago, which recommended moving toward
modular transformers to be stored by utilities so that if the
transformers gets knocked out you don't have to wait two years and stand
in line in South Korea to get them rebuilt. You can put something
together that will work, at least to some degree. Sort of like the
little wheel in your trunk that will get you 100 miles, even if it isn't
the ideal wheel after you have a flat.

So, we need to focus on getting something done and getting it done with
dispatch, in order to deal with our problems of resilience in our energy
infrastructure.

And I think we also need to try to figure out how to do it in an
affordable way, one in which the market has a major hand. It's not that
the market can do everything. If we just sit here and wait on the market
to work, then some of the subsidies that have built up over the years
for oil, for example, or other current ways of doing things, will help
the current way of doing things dominate and will make it less likely
that innovation will come. But when the Federal Government in the 19^th^
Century decided the country needed railroads, it reduced the risk for
entrepreneurs to build railroads, by granting the land rights that were
necessary so no one could block it. But it didn't design the engines and
it didn't design the wheels, and it didn't design the cabooses, it let
the market figure out what was necessary once the risk was reduced.

So, I think that in addition to keeping an eye on speed, we need to keep
an eye on cost. And if we do that and an eye on the market, I think we
have an opportunity to make some rather substantially effective things
happen.

Let's take four approaches toward improving our energy situation and
reducing some of these types of risks and effects that I've described,
and measure them up against speed, against improvement in resilience,
against both malignant and malevolent threats and efficiency, in terms
of cost and letting the market help us adapt quickly to whatever changes
may be needed.

First of all, the hydrogen highway or perhaps I should, say the hydrogen
hiding. Hydrogen is an interesting fuel, it's clean, there are certainly
near-term advantages for stationary fuel cell use, and use in space and
the rest. But, as a program to quickly and affordably bring about
improvements in resilience against malignant and malevolent threats in
our transportation infrastructure, at least in my judgment, it should
move quite far back in the list of priorities. Still work to be done,
interesting R & D, worth paying attention to.

But, you're talking about completely restructuring two of the biggest
industry in the world, automotive and energy, with hundreds of billions
of dollars of investment and programs that need to be dovetailed. So,
that when the hydrogen fueling stations are available with the reformers
and all that, you also have the hydrogen fuel cell vehicles at
affordable cost coming off the line. And as soon as you have a car, you
have a place to fuel it, and as soon as you have a place to fuel it, you
have enough cars. Say no more, whatever the hydrogen highway is, as a
vehicular transportation approach it strikes me that it meets none of
these criteria that I've set out. It is an interesting research and
development opportunity and something that we ought to look at and keep
looking at. But front of the pack, not in my judgment.

How about carbon capping and trading? Absolutely a fine approach and a
proven one, from the point of view of moving away from emissions of
carbon and doing so in a way that lets the market allocate the most, \--
to the most efficient ways of reducing carbon, the role of having the
lead.

We have successfully done this sort of thing, with different times and
ways, with respect to sulfur in the atmosphere, there are some real
advantages to carbon capping and trading. I serve on the National Energy
Policy Commission and we have recommended a mandatory, yes, cap and
trade system, but one that has a safety valve in it, which lets industry
buy rights from the government at a predetermined level, so that one, if
it is more difficult than seems to be the case to a lot of people now to
get carbon out, it's not an absolute commitment to do it, no matter what
the cost. One can, over time, adjust safety valve levels and the rest,
but we succeeded in our report of two years ago, ending the energy
stalemate and getting a rather broad consensus, on behalf of moving
toward a mandatory system, but one that has a good deal more flexibility
in it than some other mandatory systems.

For reducing global warming gas emissions first rate, but cap and trade
has very little to do with transportation, because even very high priced
carbon doesn't improve, \-- it doesn't increase the cost of gasoline
that much. And trying to handle these types of limitations on each set
of tailpipes is a nightmare; we're talking mainly for cap and trade, of
course, about the electricity generation and large scale industry. And
it also doesn't do anything really, to help with the resilience of the
energy system; whether it's a production of electricity or
transportation fuel.

So useful? Important? Maybe. A major step toward reducing the danger
from global warming gas emissions, but that's not the sole problem we
need to deal with, with respect to energy and its lack of resilience in
the infrastructure and the expense of moving in new directions.

A third possibility is the one that much of our discussion has been
about, moving toward renewable fuels. Here, I think there is some real
promise, indeed, extraordinary promise.

I first got interested in cellulosic ethanol ten years ago, when I read
an article by Joe Rom and a colleague in the Atlantic and testified
before Senator Richard Lugar's Foreign Relation\'s Committee on Energy
and Security. To me, the idea then and now, of being able to use a large
share of biomass to produce transportation fuel, would do for those who
produce the biomass and the crops that one can rely on to produce
renewable fuels, would do the same thing for renewable fuels; that
possibility of genetic engineering for the biocatalyst, does the same
thing that thermal and then catalytic cracking did for the oil industry
early in this century, when they made it possible to use a huge share of
oil to produce gasoline, instead of just a tiny share. I thought it was
revolutionary then and I think it's revolutionary now.

There is another aspect to this though, as time has gone on, I think is
extremely importantly. We should not just be talking about ethanol,
either corn or cellulosic. And I agreed very much with Vinod yesterday,
that corn has a lot more attractive characteristics to it than has been
often admitted by much of the dialogue. But we're probably into the
ballpark of 15 billion gallons and moving on into cellulosic, if, and I
hope we do, one wants to move towards E85.

But, the point is, we don't know now whether or not that mixture is
going to be E85, whether it's going to be predominately ethanol, how
fast butanol is going to be developed, how much of it's going to be
butanol, whether some of the early facilities that produce cellulosic
ethanol may not also be able to produce; as the DuPont briefing showed
you yesterday, from cellulose highly well developed chemicals, fabrics.

We should not just be talking about ethanol, we should be talking about
moving from a hydrocarbon-base to a carbohydrate-based society. And that
possibility of, not just biofuels, but biochemicals or bio-everythings,
coming out of bio-refineries, has even more promise, I think, for rural
America, because with all of these feed stocks, we're talking about feed
stocks that it's very difficult to move affordably.

One wants to put the facilities, whether they're producing carpets, as
yesterday in the DuPont briefing, or cellulosic ethanol, near where the
feed stocks are. And the feed stocks are going to be, at least for this
country, virtually in rural America.

There's another aspect to encouraging moving toward renewable fuels and
other chemicals and products and that is because the facilities to do
the production for the fuels or anything else, are going to be
relatively near the feed stocks, they are likely to be heavily
dispersed, decentralized, and therefore, a lot less vulnerable;
vulnerable both to malignant threats, unintentional interference and
malevolent threats.

Terrorist can do an awfully good job moving against oil, if they can do
it as al-Qaeda tried to do last February, by attacking the facility at
Abqaiq. Abqaiq is in Northeastern Saudi Arabia, it's a single production
facility through which about three-quarters of Saudi crude passes daily.
So, with the type of infrastructure we have worldwide for oil, we are in
a situation where one decent al-Qaeda mortar crew, within mortar range,
let's say the sulfur clearing towers at Abqaiq, through which all Saudi
crude has to pass, they could take those sulfur clearing towers out for
well over a year, with a few mortar rounds, and take 6 or 7 million
barrels a day off-line and send oil up to over \$200.00 a barrel
overnight. Or, we could have a succession in Saudi Arabia; we will at
some point. Current King Abdullah is a reasonably easy man to get along
with, he's something of a reformer. If you've thought of him as sort of
a octogenarian Saudi Gorbachev, you wouldn't be too far off. He tries
some useful reforms and education, the role of women and so forth, from
time to time in the kingdom, but he tends to get thwarted by the
Interior Minister, Prince Nayef, who is very close to the Wasabi Sect of
Saudi Arabia. And therefore, if Prince Nayef is King Abdullah's
successor, who knows exactly what we're going to see by way of oil
production in the King.

People, I think, have to realize, that there's more than one way in
which oil can depart from a predictable market. It may depart by
terrorist interference, which would drive the price sky high, but it
also may depart, in a way it departed in 1985 and then again in the late
'90(s), with the Saudis turning on their production capacity, their
reserve capacity and driving the price down. They did it in '85, pretty
clearly intentionally, partly in order to get at the Soviet Union, which
was good, but they also bankrupted the Synfuels Corporation a year
later, and that was also, I think, not unintentional.

The ability to drive the price down, may be limited in the future for
the Saudis, both because their oil may be peaking, and Matt Simmons
talked to you about that. Also, Chinese and Indian demand, as those
countries develop big middle classes who want cars and need oil, all of
this may keep the Saudis from pushing oil prices down to the five to ten
dollar a barrel range, that they did in the mid '80(s) and the late
'90(s), but they may not be able keep them from pressing it down to
\$20.00 a barrel, and at \$20.00 a barrel most of the things we're
talking about in the area of renewable fuels have serious problems of
competition.

So, if we look at renewable fuels and the contribution they can make by
moving us towards greater resilience and what sort of national policy
could make that possible, I would submit that a policy which
restructures the subsidy system; along the lines really, of what Vinod
was saying yesterday, in such a way that is only takes effect for a
range of renewable fuels, once oil gets down to, let's say \$40.00 a
barrel or so, and then the subsidies get bigger as oil goes down further
in price, that would produce a situation which would deter, I think the
Saudis substantially from doing what they did in '85 and in the late
'90(s).

And the important thing is, even if they can't do it, there's still a
risk that they might and capital will perceive that risk and be
hesitant. If you want at ordinary investment levels, ordinary investors,
buying into things like ethanol production, you need to take that risk
away, the way the Federal Government took away the risk that someone was
going to come in and buy up land in the path of the railroads and block
the railroads from going coast to coast. That approach of Vinod seems to
me, to be a good approach toward that end.

Then finally, electricity has a dual role, it seems to me, in moving us
toward affordably, a much more resilient energy infrastructure. Partly,
we need to get moving and get moving now, on building a lot more
resilience into the grid along the line of what I was talking about
before, the transformers, the SCDA Systems also the substantial
attention; the Supervisory Control Data Acquisition Systems.

Once we have a more resilient grid, if we do it the right way, we may
well be able to take some of that stranded wind energy in the Northern
Great Plains, turn it into electricity with wind power and get it out to
much of the rest of the country.

But there are also possibilities from distributed generation, either
distributed to small facilities or even to rooftops, both wind and
solar, which have, I think, some real promise. And at this point, enter
my favorite car of the, I think, near future; one of them is right
outside here, the plug-in hybrid.

Why do I think plug-ins are going to be so important? First of all, yes
some more battery work is necessary, but we're awfully far along in
being, I think, within a couple of three years of seeing mass produced
plug-in hybrids.

In much of the country utilities sell off-peak power for .02 to .04
cents a kilowatt hour, but even at regular rates, .09, .10 cents
kilowatt hour for much of the country, you are taking the plug-in
hybrid, that you plug in overnight, drive for say, 20 miles all
electric, and then you become a regular hybrid moving back and forth
between electricity and, \-- produced by the regenerative braking and
gasoline, you're talking, \-- as long as you're driving on all
electricity, driving on .01 to .02 cents a mile, which compares to
driving on gasoline at .10 to .20 cents a mile. So, I don't think even
Madison Avenue will be able to screw up the advertising campaign for
vehicles that can cut your transportation costs by a factor of say, five
to twenty.

What's interesting to most utilities about plug-ins is that they get to
sell off-peak overnight power, which they otherwise don't get to sell.
They don't need new base load, because you are using off-peak power, not
new base loads, so you're not talking about building new generating
plants for a long time, according to both EPRY (phonetic) and Southern
Cal-Edison. And you get to use fleets of plug-ins, let's say school
buses, delivery vehicles, the various sorts, once they are charged,
plugged in back to the grid, to handle important shares of the grid\'s
voltage and amperage regulation, or its spending reserves to deal with
outages and even some of its peaking needs. These are now typically
taken care of by very expensive natural gas.

Last summer in Washington, D.C., briefly, we were paying \$1.30 per
kilowatt-hour for electricity; reason, heat, summer afternoons and
natural gas. With plug-ins utilities get a lot of advantages and yet,
again, if we move towards distributed generation, especially rooftop
generation, like the potable takes on the roof of my farm, we're talking
about being able to fuel your farm vehicles, at least in part, as well
as your automobile from your roof; pretty resilient.

I don't know that the Federal Government needs to do a lot to make this
happen. It would be nice to place some orders, I suppose. I think the
market's going to this one. But if we concentrate on reducing the risk
from moving toward renewable fuels and moving toward electricity, to
some degree for transportation, and if we take the path of making it far
more likely, the people will turn to their communities and their
neighborhoods, and even their own homes, for their transportation fuel
and their electricity. I would submit that we will see an extraordinary
economic and otherwise revival of rural America, first of all, and the
rest of the world in its rural components.

In the 18^th^ and 19^th^ Century, the immigration to this country was
largely fueled by people coming from Europe, for reasons of religious
freedom, political freedom but also because of the promise of rural
America, a family being able to own a farm. We saw, and I think we've
seen in part of the 20^th^ Century, some heavy body blows to
economically, \-- to rural America. We will, I believe, follow in the
general direction suggest in our workshops and suggested by many of you,
in private discussion and in presentations yesterday, be able to see in
the future with renewable fuels, rural renaissance in the United States.
Yet, another birth of freedom in the world generated by this land. My
fellow Oklahoman, \-- okay, we know what you call us up here in the big
city, my fellow Okie, Willie Guthrie, had many great songs. One of them,
one of the middle verses to *'This Land is your Land'*, goes like this,

> "*As I was walking that rip in the highway, I saw above me the endless
> skyway, I saw below me golden valley, this land is made for you and
> me*."

Thank you.

**CONCLUSION: MR. SWISHER**

Thank you Jim Woolsey for a great job of touching on the key threads of
yesterday's discussion and laying a very strong foundation for the rest
of our program.