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[Senate Hearing 109-412]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 109-412
 
                          ENERGY INDEPENDENCE

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   ON

               DISCUSSING THE GOAL OF ENERGY INDEPENDENCE

                               __________

                             MARCH 7, 2006

                       Printed for the use of the
               Committee on Energy and Natural Resources

                                 ______

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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho                JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming                DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
RICHARD M. BURR, North Carolina,     TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida                MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               KEN SALAZAR, Colorado
GORDON SMITH, Oregon                 ROBERT MENENDEZ, New Jersey
JIM BUNNING, Kentucky

                     Bruce M. Evans, Staff Director
                   Judith K. Pensabene, Chief Counsel
                  Bob Simon, Democratic Staff Director
                  Sam Fowler, Democratic Chief Counsel
                       Frank Macchiarola, Counsel
         Jennifer Michael, Democratic Professional Staff Member

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

American Petroleum Institute.....................................    62
Bayh, Hon. Evan, U.S. Senator from Indiana.......................     3
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................    14
Bunning, Hon. Jim, U.S. Senator from Kentucky....................    46
Cischke, Susan M., Vice President of Environmental and Safety 
  Engineering, Ford Motor Company................................    23
Coleman, Hon. Norm, U.S. Senator from Minnesota..................     4
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Feinstein, Hon. Dianne, U.S. Senator from California.............     6
Lieberman, Hon. Joseph I., U.S. Senator from Connecticut.........     7
Lovins, Amory B., Chief Executive Officer, Rocky Mountain 
  Institute......................................................    36
Menendez, Hon. Robert, U.S. Senator from New Jersey..............    11
Murkowski, Hon. Lisa, U.S. Senator from Alaska...................    51
Talent, Hon. James M., U.S. Senator from Missouri................    12
Thomas, Hon. Craig, U.S. Senator from Wyoming....................    12
Verrastro, Frank, Director and Senior Fellow, Energy Program, 
  Center for Strategic and International Studies.................    28
Woolsey, R. James, Vice President, Booz Allen Hamilton...........    14

                                APPENDIX

Responses to additional questions................................    69

                          ENERGY INDEPENDENCE

                              ----------                              

                         TUESDAY, MARCH 7, 2006

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:40 a.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Pete V. 
Domenici, chairman, presiding.

          OPENING STATEMENT OF HON. PETE V. DOMENICI, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. The hearing will please come to order.
    Thank you everyone for coming and thank you, Senators, for 
coming. And I apologize for being late. We will try to get to 
the witnesses as quickly as we can.
    First let me say that I am going to try to resist the lofty 
rhetoric and arbitrary goals that have historically tempted 
many when discussing this issue of energy independence. The 
topic today is too important to our Nation's security to reduce 
our discussions to soundbites.
    It is clear that the United States need to reduce our 
dependence on foreign sources of energy. We particularly need 
to reduce our reliance on oil from unstable regions of the 
world whose values and priorities are often in conflict with 
America's initiatives and place in the world.
    Last year, U.S. net imports equaled 59 percent of our 
demand. Forty-one percent of our total imports came from OPEC 
countries which equals 27 percent of the total U.S. 
consumption. Dependence to this extent can determine our 
national security, our economic strength, and our foreign 
policy.
    In order to make necessary changes, we have to be realistic 
about what is possible in the near term, but certainly we have 
to look with real energy and enthusiasm toward the long-term.
    By making energy self-sufficiency, the immediate goal would 
deny the reality of this situation and only invite 
discouragement and failure. This would be akin to putting all 
of our resources in the hopes of finding an elusive cure for a 
disease at the expense of taking important steps to treat and 
alleviate the symptoms in the interim.
    To that end, I have said on a number of occasions that 
while I support the advancement of science technology to reduce 
our dependence on foreign energy sources, I think we must also 
build a bridge to that age by accessing the oil and gas 
resources available in our country and we must reasonably and 
responsibly conserve our energy.
    As an example, from my standpoint, I believe we should have 
acted on ANWAR a long time ago. The majority of the Senate 
believes that ANWAR brings us closer to achieving energy 
security and I would venture to say that not a single member of 
this body believes that continuing to block ANWAR strengthens 
our energy security. Blocking progress is not a substitute for 
substantive policy.
    To the critics, talking about ANWAR for a minute, I remind 
you that it was 10 years and 3 months since that legislation to 
open ANWAR was vetoed by President Clinton. Ten point four 
billion barrels of oil sits under the domestic ground in ANWAR. 
The week of that veto, the average price of crude oil, Senator 
Craig, with $19.00.
    This morning, the price of crude oil stands at 
approximately $62.49. I think the numbers kind of speak for 
themselves. Some people must be wondering what in the world the 
Congress can be thinking of blocking the domestic production in 
favor of more Middle East oil.
    As we look at what our Nation can do to reduce our 
reliance, it is also important that the American people have a 
clear understanding of the steps we have already taken. Working 
with you, Senator Bingaman, we produced a bipartisan bill that 
passed with overwhelming support. It is essential that the 
Government works hard to implement that legislation.
    As we know, that legislation provided a very, very major, 
major addition to the use of ethanol in the United States. 
Already we are seeing 34 new plants, eight existing plants 
being expanding, 150 plants in planning stages.
    Second, a little known fact, oil shale, the establishment 
of a leasing program for research and development of 
technologies for the recovery of liquid fuel from oil shale and 
tar sands in Colorado, Utah, and Wyoming.
    Since that policy act, which passed just a few months ago, 
the Interior Department has received 20 proposals, eight of 
them deemed viable. The United States has 75 percent of the 
world's shale. The future of shale is a bright one. It is 
little known at this point, but I believe we will learn much 
more about it, and it should be discussed in the context of 
this hearing today of this overall attempt to understand our 
future.
    Incentives for innovative technology, which you all will 
testify about, the Energy Policy Act spoke of that. We promoted 
wind energy and many other technologies were promoted in that 
bill. I could go on and talk about this for a long time, but 
you are here for that.
    In my first year in the Senate, President Nixon set a goal 
of energy self-sufficiency by 1980. I do not know if any of you 
remember that. Since that time, successive administrations, 
scores of members of Congress from both parties, including me, 
have set similar goals.
    I believe that energy self-sufficiency is attainable, but I 
do not believe it is in the short term. Nonetheless, we must 
pursue it as a goal in my opinion vigorously. But that is why 
you are here, to tell us what you think about it and how you 
think we might get there.
    With that, I yield to my distinguished colleague, Senator 
Bingaman.
    [The prepared statements of Senators Bayh, Coleman, 
Feinstein, Liberman, Menendez, Talent and Thomas follow:]

    Prepared Statement of Hon. Evan Bayh, U.S. Senator From Indiana

    Chairman Domenici, Senator Bingaman and Members of the Committee, 
thank you for having this hearing today on an issue so crucial to the 
well-being of our country. United States dependence on oil is the 
preeminent challenge of our generation. U.S. oil consumption affects 
more than just prices at the pump; it impacts our national security, 
our economy, our fiscal health and our environment.
    The United States uses twenty-five percent of the world's oil but 
controls only three percent of the world's proven oil reserves. As of 
right now, our demand from oil is only expected to grow, from nearly 21 
million barrels a day now to 28 million barrels per day in 2030, of 
which nearly 70 percent will be imported. While demand in the U.S. will 
grow by approximately 25 percent, demand in China, India and other 
developing countries is projected to grow by 66 percent. To meet the 
projected world demand, global output would have to expand by 57 
percent in 2025.
    The Energy Information Administration's (EIA) most recent forecast 
states that the price of crude is expected to remain high at $57 per 
barrel in 2030. The International Energy Agency (IEA) price forecast is 
even more dire. According to the IEA, if oil producing countries in the 
Middle East and Africa do not.make immediate investments to increase 
production, the price will rise to $86 barrel in 2030. Even if the 
region does make the necessary investments, prices could average $65 a 
barrel.
    These forecasts assume the current projections for supply and 
demand but do not address the consequences of a supply disruption 
caused by terrorism, political unrest or weather. Last summer, the 
National Commission on Energy Policy and Securing America's Energy 
Future conducted a simulation called Oil Shock Wave to explore the 
potential security and economic consequences of an oil supply crisis. 
The event started by assuming that political unrest in Nigeria combined 
with unseasonably cold weather in North America contributed to an 
immediate global oil supply shortfall. This sent prices to over $80 
barrel. The simulation then assumed that three terrorist attacks occur 
in important ports and processing plants in Saudi Arabia and Alaska 
which sent oil prices immediately soaring to $123 a barrel and $161 
barrel six months later. At these prices, the country goes into a 
recession, millions of jobs are lost as a result of sustained oil 
prices, and the average household would pay almost $3,000 more each 
year for gasoline.
    This simulation almost became reality with the failed attack on 
Abqaiq in Saudi Arabia last month. Had the attack been successful, it 
would have removed four to six million barrels per day from the global 
market sending prices soaring around the world and would likely have 
had a devastating impact on our economy.
    One of the lessons from September 11th is that we can no longer be 
so dependent on places like Saudi Arabia, Russia and Venezuela for our 
energy supply. Yet we are more dependent on foreign oil from hostile 
countries today than we were on September 11th--making us more 
vulnerable and putting the United States in a uniquely disturbing 
position of bankrolling both sides in the War on Terror.
    This goes to the heart of our security and our sovereignty. As the 
world confronts the prospect of a nuclear Iran, our leverage is 
dramatically limited by the fact that Iran is the second largest 
exporter of oil. We and our allies are vulnerable to energy blackmail. 
A few months ago, the Russians decided they weren't pleased with the 
Ukrainian elections, so they simply decided to stop exporting natural 
gas to them--nearly causing an economic crisis in the region. How can 
we be sure that the radicals and America-haters who control the oil 
will never do that to us?
    Our economy is vulnerable to the price volatility of the oil market 
and we must do what we can to build resilience into our economy. The 
U.S. uses half as much oil to produce the same amount of gross domestic 
product (GDP) as it did in the 1970s, this is good news, but we must 
continue to do more. Decreasing the oil intensity of our economy will 
help us weather price shocks and make us more secure. We can reduce oil 
intensity by reducing our demand for oil.
    The risks faced above ground by depending on unstable suppliers and 
good weather are too great and to a certain extent out of our control. 
If the attack on Abqaiq would have been successful, there is little 
that we could do to moderate its impact on our economy and lower the 
prices which is why it is urgent that Congress and the President act 
now to start reducing our dependence on oil. There is no magic bullet 
to address a major shock to the oil market and we must take the steps 
necessary to reduce our dependence on oil which will make our nation 
stronger. We must bring the same urgency to energy security that we 
have on the War on Terror.
    Concrete steps are long overdue. But some of us have already begun 
to take them. Last year, I introduced legislation, the Vehicle and Fuel 
Choices for American Security Act (VFCASA), with Senators Lieberman, 
Brownback, Coleman and 6 others to make significant reductions in our 
oil use. My bill would reduce projected oil use by two and a half 
million barrels per day in 2016 and seven million barrels per day in 
2026. It also provides tools to meet these aggressive targets by 
improving the efficiency of vehicles and increasing the production and 
use of biofuels. VFCASA includes new approaches for manufacturers, the 
federal government, scientists and consumers, all designed to encourage 
greater energy security.
    The legislation requires that in 2012, ten percent of vehicles 
manufactured be flexible fuel vehicles, alternative fueled vehicles, 
hybrids, plug-in hybrids, advanced diesels and other oil saving vehicle 
technologies. This percentage rises each year until 50 percent of the 
new vehicle fleet will be one of these oil saving technologies. It also 
provides tax incentives for U.S. manufacturing facilities to retool 
existing facilities to produce advanced technology vehicles which will 
help shift the vehicle fleet to more efficient vehicles while 
minimizing the job impact of an increased market share of advanced 
technology vehicles. The bill builds on the Energy Policy Act (EPAct) 
of 2005 by expanding the number of consumers that can take advantage of 
the tax credit available for the purchase of more efficient vehicles. 
It offers a tax credit to private fleet owners who invest in more 
efficient vehicles.
    VFCASA contains robust research provisions in the areas of electric 
drive transportation, including battery research, lightweight materials 
and cellulosic biofuels. Each of these technologies hold great 
potential to play a key role in reducing our dependence on oil. For 
instance, lightweight materials, such as carbon composites and steel 
alloys, hold the promise of being able to double automotive fuel 
economy while improving safety without increasing the cost of the 
vehicle. Cellulosic biofuels, which the President mentioned in the 
State of the Union, have the promise to be cheaper than gasoline and 
produce seven to 14 times more energy than is used in its production. 
My bill doubles the funding for bioenergy research contained in EPAct 
and provides additional funding for production incentives for the 
production of cellulosic biofuels.
    Additionally, the legislation provides the tools to expand the 
alternative fueling infrastructure so that all vehicles that can run on 
E85 are able to fill up at the pump with E85. Although there are 
approximately 5 million vehicles capable of running on E85, very few 
actually run on E85 because the fuel is not readily available to them. 
Of the approximately 168,000 gas stations in the country, only 615 have 
E85 pumps. My bill expands the alternative fueling infrastructure tax 
credit in EPAct to 50 percent to drive investment in this vital 
infrastructure.
    The legislation directs the revenues received from CAFE penalties, 
already collected by the government from foreign manufacturers, to fund 
grants to finance the expansion of the alternative fueling 
infrastructure. These fines vary each year depending on CAFE compliance 
for that year but range from $21 million to $52 million a year. Since 
1999, the Department of Energy has only given out $6.9 million in 
grants since 1999--in one year, the amount of money awarded could 
triple. One DOE grantee, the National Ethanol Vehicle Coalition, will 
able to build 300 stations with its $2 million grant this year. With at 
least 10 times that amount of funding available, we should be able to 
build at least 3,000 stations per year through this program alone.
    Addressing our dependence on oil is a challenge that we can no 
longer ignore. Events in the world from September 11th to Hurricane 
Katrina to the recent attempted terrorist attack in Saudi Arabia 
continue to show us how urgent it is that we act immediately. I hope 
that this hearing today is the only the Committee's first step in 
tackling the challenge of American oil dependence. I look forward to 
working with the Committee on solutions, such as my legislation, to 
this critical problem facing our country.
                                 ______
                                 
  Prepared Statement of Hon. Norm Coleman, U.S. Senator From Minnesota

    Mr. Chairman, it is time we stopped treating foreign oil dependence 
as another abstract statistic whose consequence is far removed from 
Americans' daily lives. The United States is going to have to face the 
reality that we must break our foreign energy dependence or risk losing 
our autonomy.
    Our nation's energy dependence is undeniably one of the greatest 
threats to our national security and our freedom. By 2025 it is 
estimated that nearly 75 percent of America's oil supply will be 
imported. Also consider that two-thirds of the world's proven oil 
reserves are in the Middle East and that terrorists have identified oil 
as a strategic vulnerability--increasing attacks against oil 
infrastructure worldwide. One can just imagine what would happen if 
OPEC, which currently accounts for well over 50 percent of our oil 
supplies, shut off the oil spigot.
    Beyond the national security implications, oil dependence also 
carries serious economic consequences. The total economic penalty of 
our oil dependence, including loss of jobs, output, and tax revenue, is 
estimated to exceed $300 billion annually.
    This is not a crisis without a solution. We can cure this 
dependency affliction with a bold national vision and sincere 
commitment to innovative energy solutions. One of those energy 
solutions is renewable fuels, and I am proud to be Senator from the 
state leading the nation in renewable fuels production.
    Mr. Chairman, first we need a plan to reduce our oil consumption. 
That is why, along with nine other senators, I introduced the Vehicle 
and Fuel Choices for American Security Act (VFCASA) that makes a goal 
of saving 2.5 million barrels per day by 2016, roughly the same amount 
of oil currently imported from the Persian Gulf region and lays out an 
achievable plan to reach that goal.
    One facet of this plan to reach 2.5 million barrels per day of oil 
savings is to promote the development and use of advanced and 
alternative fuel efficient vehicles. Key pieces include tax credit 
incentives for advanced technology motor vehicles, expansion of the 
consumer tax credits for advanced vehicles, loan guarantees and grants 
for hybrid vehicle projects, and a new federal commitment to hybrid 
vehicle technologies and materials. The national fuel savings generated 
by this bill will be immense, but if we want to free ourselves from 
foreign oil dependence, we must produce more fuel here at home.
    Let me say, I have seen Brazil's renewable fuel economy firsthand; 
it's truly impressive. In fact Brazil will not import a drop of foreign 
oil this year. Brazil's energy independence success is indicative of 
their strong, national commitment to renewable fuels. Brazil invested 
heavily and directly in ethanol infrastructure, mandated that a high 
percentage of gasoline include ethanol, heavily supported sugar farmers 
during the transition to ethanol production, and ensured flex fuel 
vehicles were widely available.
    The Energy Policy Act of 2005 Congress passed this summer included 
important provisions to expand energy conservation and renewable energy 
production, particularly through the creation of the Renewable Fuels 
Standard (RFS). However, many of these provisions only support the 
current rate of growth for the renewable industry. If America is going 
to replicate Brazil's energy success, stronger, bolder policies are 
necessary.
    I believe we need a national energy policy that increases 
availability of flex fuel vehicles, invests heavily in E-85 
infrastructure, includes a sugar-to-ethanol program, and sets a 
national mandate for ethanol that matches our energy independence 
ambitions.
    Key elements of such a renewable energy policy are present in the 
Vehicle and Fuel Choices for American Security Act referenced earlier. 
VFCASA will increase the availability of flex fuel vehicles by setting 
a reasonable requirement that 10 percent of vehicles sold in the U.S. 
are alternative vehicles, such as flex fuel vehicles, by 2012 and 50 
percent by 2016. This requirement would be coupled with a new tax 
credit for manufacturers for upgrades necessary to begin or expand 
production of advanced technology vehicles--helping industry meet this 
requirement.
    Additionally, we must dramatically increase the availability of E-
85 infrastructure if we are to grow our fuel in our fields instead of 
importing oil from foreign deserts. VFCASA would provide the programs 
and resources needed for this infrastructure by:

          1. Increasing the E-85 infrastructure tax credit
          2. Using CAFE penalties to fund alternative fuel 
        infrastructure
          3. Creating a USDA loan guarantee program for E-85 
        infrastructure

    Right now, about half of the nation's E-85 infrastructure is in my 
home state of Minnesota. While I am proud of the vision and hard work 
of my rural communities to promote these E-85 pumps, we need E-85 
available coast-to-coast.
    Brazil could not reach fuel independence without a strong sugar-to-
ethanol program, and we should learn from that example. The technology 
is readily available and sugar's contribution to ethanol production 
could begin in the very near future. Importantly, VFCASA would increase 
Renewable Fuels Standard by 100 million gallons in 2008 for ethanol 
produced domestically from sugar. This would be on top of the current 
RFS and would not take away from the renewable mandate going to other 
commodities.
    Yet, a mandate will not be sufficient to jumpstart a sugar-to-
ethanol program in the United States. In addition to proposals included 
in VFCASA, Congress needs to enact a strong incentive package to match 
this mandate. Once a strong sugar-to-ethanol program is underway, 
America will have yet another abundant, reliable source for fuel. I am 
studying various incentive mechanisms for a sugar-to-ethanol program, 
and I plan to introduce legislation addressing this issue in the coming 
months.
    Finally, America needs a renewable fuel requirement that matches 
our ambition, but does not exceed our potential. That's why I propose 
Congress enact legislation requiring 10 percent of the nation's 
gasoline be renewable fuel in 10 years (2016).
    Today, at roughly 4 billion gallons of ethanol production, the U.S. 
is only using renewable fuels for 4 percent of our total fuel supply. 
But, at this industry's current rate of growth, the U.S. is capable of 
increasing its production of ethanol about 1 billion gallons a year, 
meaning that in ten years (2016) the U.S. should be able to produce 
about 14 billion gallons of ethanol, representing about 7 percent of 
our fuel supply. Ten percent in 10 years is aggressive and doable. 
Let's not forget that Brazil mandates gasoline contain at least 25 
percent alcohol (ethanol), and that it is now so popular it accounts 
for 40 percent of all vehicle fuel in that nation.
    Mr. Chairman, your work on the Energy Policy Act of 2005 
demonstrated your strong commitment to this nation's energy and 
economic well-being. I urge you and this Committee to build on last 
year's achievements by moving forward a plan for oil savings through 
fuel conservation and promotion of innovative technologies, while 
building a more aggressive renewable fuel policy allowing America to 
grow fuel here at home.
    Mr. Chairman, as always, I appreciate your leadership on energy 
issues and your continued willingness to offer an open ear to your 
colleagues. Thank you.
                                 ______
                                 
    Prepared Statement of Hon. Dianne Feinstein, U.S. Senator From 
                               California

    Thank you, Mr. Chairman for holding this important hearing.
    The amount of oil imported into the United States has climbed from 
6 million barrels of oil per day in 1973 to 12 million barrels per day 
in 2004 (Energy Information Administration).
    And the percentage of foreign oil consumed in the U.S. has climbed 
from 35% in 1973 to 59% in 2004.
    So while there has been a lot of talk about decreasing our nation's 
dependence on foreign oil, most of it has been empty rhetoric.
    This week's cover story of BusinessWeek is ``The New Middle East 
Oil Bonanza.'' With oil prices so high, partially due to fear of oil 
production disruptions in Nigeria, Saudi Arabia, Venezuela, and 
elsewhere, billions of dollars are going into the coffers of oil-
producing nations.
    I am seriously concerned about the impacts of America's 
overdependence on foreign oil. This cannot continue.
    For foreign policy and for environmental reasons, the 
overdependence on oil is a real problem. With 5% of the world's 
population, we cannot continue to use 25% of the world's oil supply. 
Especially not with India and China developing at their current pace.
    There are things we could do today to reduce our dependency on oil, 
and yet we need the political will to get them accomplished. 
Specifically, we must raise the nation's fuel economy standards.
    The Consumer Federation of America estimates that increasing the 
fuel economy of our domestic fleet by 5 miles per gallon would save 
about 23 billion gallons of gasoline each year, reducing oil imports by 
an estimated 14%.
    A fleet-wide increase of 10 miles per gallon would save 38 billion 
gallons, cutting imports by almost one-fifth.
    That is why I have introduced a very modest bill for the past three 
Congresses that would close a loophole in current law that allows SUVs 
and other light trucks to meet less stringent fuel economy standards 
than other passenger vehicles.
    Currently, the average SUV uses 715 gallons of gas per year. If the 
fuel efficiency standards were raised to equal that of a passenger 
vehicle, the same SUV would only use 546 gallons of gas per year, which 
would be an annual savings of 169 gallons of gas for only this one 
vehicle.
    If the SUV loophole were closed, the savings would be rather 
dramatic. More than 480,000 SUVs were sold in the first quarter of 
2005.
    If those SUVs achieved an average fuel economy of 27.5 miles per 
gallon, we would reduce gasoline use by more than 81 million gallons of 
a year. And that's just for SUVs sold in the first quarter of 2005.
    If this bill were to pass, the United States would save 1 million 
barrels of oil a day, decrease foreign oil imports by 10 percent, and 
prevent 240 million tons of carbon dioxide from entering the atmosphere 
each year.
    Yet the automobile manufacturers continue to fight this proposal 
tooth and nail and for reasons cannot understand. The technology to 
make these vehicles more efficient is available today.
    Furthermore, American auto companies are making vehicles to meet 
fuel economy standards in other countries.
    China, for instance, has issued fuel efficiency standards that are 
more stringent than ours. If American auto companies hope to make cars 
that will compete in China, then they will need to make them more fuel 
efficient. I hope the representative from Ford will be able to address 
this issue in her statement.
    If the Federal Government is not going to act, Congress should not 
stop the States from acting.
    In order to address the environmental impacts that burning oil has 
on our environment, California has adopted a law that requires 
automakers to reduce their global-warming emissions by 30 percent by 
2016. 57% of California's emissions come from the transportation 
sector--the State cannot afford to ignore the source of so much 
pollution.
    Ten other States have followed California's lead and adopted the 
same standard. They include Connecticut, Maine, Massachusetts, New 
Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and 
Washington.
    Canada has also adopted similar standards that will require the 
automakers to voluntarily reduce the global-warming emissions of cars 
and light trucks by 5.3 million metric tons--about 25 percent--by the 
end of 2010.
    It is time to act now to reduce our dependence on foreign oil. I 
hope that the witnesses can provide us with some valuable policy 
options. I look forward to their testimony.
                                 ______
                                 
     Prepared Statement of Hon. Joseph I. Lieberman, U.S. Senator 
                            From Connecticut

    Mr. Chairman and Members of the Committee: Please accept my thanks 
for the opportunity to submit this statement as part of the record of 
today's hearing in the issue of oil dependence--or, as President Bush 
put it, our ``addiction'' to oil. I am especially grateful that so soon 
after your own Herculean efforts to enact Energy legislation last year, 
you and the Committee are plunging into this vital issue in such a 
serious way. I hope that we will be able to work together closely to 
enact legislation--this year--that will put America on a path to energy 
security.
    My testimony will focus on the emerging crisis we as a country face 
and on the legislation that I believe can unleash the technologies, 
fuels and strategies we must use to deal with that crisis.
    At the outset, let me be clear that I am under no illusions that 
our economy can be completely energy independent in the literal sense 
of that term. We can, however, ensure that our economy grows while 
becoming less and less oil-intensive. We have the technology to do it, 
we have the homegrown fuels to do it and, more and more, I believe we 
have the will to do it. And, if we succeed we will be making our 
economy more and more resilient against the dangers and shocks of the 
global oil system, while freeing our national security and our foreign 
policy from the very real threats and distortions that our oil-
dependence imposes.
    On November 16 of last year, I introduced as part of a bipartisan 
group of 10 Senators representing the American Northeast, South, 
Midwest and West, S. 2025, the Vehicle and Fuel Choices for American 
Security Act.
    We chose this title because nothing less than our national security 
is at stake.
    Besides myself, the rest of the ``Gang of Ten,'' or the ``Energy 
Security Ten,'' as some call us are Senators Sam Brownback of Kansas, 
Evan Bayh of Indiana, Norm Coleman of Minnesota, Lindsey Graham of 
South Carolina, Ken Salazar of Colorado, Jeff Sessions of Alabama, Bill 
Nelson of Florida, Richard Lugar of Indiana and Barack Obama of 
Illinois. Since then, we have been joined by Senators Johnny Isakson of 
Georgia and Lincoln Chafee of Rhode Island, and we expect even more of 
our colleagues from both sides of the aisle will be joining us soon.
    I hope that in the future we all look back on the day this bill was 
introduced as the beginning of a major shift in our national security 
strategy. I hope that history will say we saw a challenge to our 
national security and prosperity and then met it and mastered it.
    While geologists and economists can debate when the oil supply will 
``peak,'' what is indisputable is that demand is now exploding as 
developing nations such as India and China increase consumption.
    A recent report by the International Energy Agency, IEA, sums up 
the urgent need for our legislation.
    According to the IEA, global demand for oil--now about 85 million 
barrels a day--will increase by more than 50 percent to 130 million 
barrels a day between now and 2030 if nothing is done.
    The industrialized world's dependence on oil heightens global 
instability. The authors of the IEA report note that the way things are 
going ``we are ending up with 95 percent of the world relying for its 
economic well-being on decisions made by five or six countries in the 
Middle East.''
    The recent attack on the Abqaiq oil processing facility in Saudi 
Arabia reminds us not only of our dangerous dependence on foreign oil, 
but that that vulnerability is recognized by our enemies.
    Besides the Mideast, I would add that Nigeria is roiled by 
instability, Venezuela's current leadership is hostile to us and 
Russia's resurgent state power has ominous overtones.
    In fact, we are just one well-orchestrated terrorist attack or 
political upheaval away from a $100-a-barrel overnight price spike that 
would that would send the global economy tumbling and the 
industrialized world, including China and India, scrambling to secure 
supplies from the remaining and limited number of oil supply sites.
    History tells us that wars have started over such competition.
    Because oil is traded globally, prices are set by the global 
market. While the U.S. can not unilaterally dictate the prices set on 
the global market, we can reduce our dependence on those prices by 
diversifying our energy portfolio, particularly in the transportation 
sector.
    Left unchecked, I fear that we are literally watching the slow but 
steady erosion of America's power and independence as a nation--our 
economic and military power and our political independence.
    We are burning it up in our automobile engines and spewing it from 
our tailpipes because of our absolute dependence on oil to fuel our 
cars and trucks.
    That dependence on oil--and that means foreign oil because our own 
reserves are less than 1 percent of the world's oil reserves--puts us 
in jeopardy in three key ways--a convergence forming a perfect storm 
that is extremely dangerous to America's national security and economy.
    First, the structure of the global oil market deeply affects--and 
distorts--our foreign policy. Our broader interests and aspirations 
must compete with our own need for oil and the growing thirst for it in 
the rest of the world--especially by China and India.
    As a study in the journal Foreign Affairs makes clear, China is 
moving aggressively to compete for the world's limited supplies of oil 
not just with its growing economic power, but with its growing military 
and diplomatic power as well.
    Second, today we must depend for our oil on a global gallery of 
nations that are politically unstable, unreliable, or just plain 
hostile to us.
    All that and much more should make us worry because if we don't 
change--it is within their borders and under their earth and waters 
that our economic and national security lies.
    Doing nothing about our oil dependency will make us a pitiful 
giant--like Gulliver in Lilliput--tied down by smaller nations and 
subject to their whims. And we will have given them the ropes and 
helped them tie the knots.
    We can take on this problem now and stand tall as the free and 
independent giant we are by reducing America's dependence on oil. 
Fortunately, the U.S. ``oil intensity,'' the amount of oil used to 
generate each dollar of GDP, has decreased 50% in the last 30 years. 
Further reducing our oil intensity is the key to reducing our 
vulnerability to oil supply shocks, and bolstering our national and 
economic security.
    There is only one way to do this. We need to transform our total 
transportation infrastructure from the refinery to the tailpipe and 
each step in between because transportation is the key to energy 
independence.
    Barely 2 percent of our electricity comes from oil.
    Ninety six percent of the energy used to power our cars comes from 
oil--literally millions of barrels of oil per day. This is 
unsustainable and dangerous.
    The Vehicle and Fuel Choices for American Security Act aims to 
strengthen America's security by transforming transportation from the 
refinery to the tailpipe and each step in between, thus breaking our 
dependence on foreign oil.
    We start by making it our national policy to cut consumption by 10 
million barrels a day over the next 25 years.
    First, we need to rethink and then remake our fuel supplies. 
Gasoline is not the only portable source of stored energy. Tons of 
agricultural waste and millions of acres of idle grassland can be used 
to create billions of barrels of new fuels.
    Our farmers could soon be measuring production in barrels of energy 
as well as bushels of food. Then we must remake our automobile engines 
as well. Vehicles that get 500 miles per gallon--or that use no refined 
crude oil--are within our grasp. I know that sounds unbelievable. I am 
going to tell you how we can do it.
    To help us get there, our bill also requires that by 2012, 10 
percent of all vehicles sold in the U.S. be hybrid, hybrid-electric 
plug-in or alternative fuel vehicles. That number will rise by 10 
percent a year until it reaches 50 percent in 2016.
    It will take time to change the composition of the U.S. automobile 
fleet. The average American automobile might remain in operation for 15 
years or more. This means that it is essential that we begin 
immediately to deploy oil saving technologies.
    To help spur this market along, our bill amends our current energy 
policy to require that one quarter of federal vehicles purchased must 
be hybrids or plug-in hybrids.
    Our bill will detail how we can get there with available technology 
and previously unavailable Federal Government leadership. Coupling 
these new programs with the explicit oil-savings goals for the Federal 
Government is the key to the effectiveness of this proposal.
    I can almost hear colleagues murmur, So, Senator Lieberman, what 
else is new? We've been hearing this for years and nothing has 
happened.
    I can't blame you if you are skeptical. The struggle for oil 
independence has been going on at least since Jimmy Carter was 
President.
    But things have changed since the days of Jimmy Carter and even 
since last summer. There is a new understanding of the depth of the 
crisis that our oil dependence is creating.
    Last summer's doubling of gasoline and crude oil prices hit tens of 
millions of Americans with the global reality of oil demand and 
pricing. And Hurricane Katrina reminded us how vulnerable our supplies 
can become.
    This reality is bipartisan. And, along with my colleagues 
cosponsoring this bill, I think Americans are ready to set the serious 
goals that eluded us in the past and take the bold steps necessary to 
reach those goals.
    Now let me give you more details.
    No single technology will resolve all our energy needs in the 
foreseeable future. Instead, we rely on a wide array of fuel and 
automotive technologies that are already on the shelf or in 
development.
    The bill that we proposed puts our Nation's transportation system 
on a new road--a road where the tanks are filled with more home-grown 
fuel--and I do mean grown--not just American corn, but from American 
sugar, prairie grass, and agricultural waste.
    We will push harder for more and quicker production and 
commercialization of biomass-based fuels. The Energy bill signed into 
law last summer created a new set of incentives for these fuel 
alternatives, including their commercial production.
    What our bill would do--again, by including a mass-production 
mandate for alternative fuel vehicles--is ensure that the investments 
would be made in the facilities to produce and market these new fuels 
by providing big demand for them.
    The bill would also create a program to guarantee that filling 
stations had the pumps to provide the fuel to keep pace with the 
growing alternative-fuel fleet produced by the mandate.
    Is there a model to give us confidence we can achieve this 
transformation? Yes.
    Brazil is now enjoying substantial immunity from current high world 
oil prices, thanks to a long-term strategy, launched during the oil 
shocks of the 1970s, to integrate sugar cane ethanol into its fuel 
supply. They started initially with a mandate that all fuel sold in the 
country contain 25 percent alcohol. They are now up to 40 percent 
biofuels.
    In addition to the fuel mandate, Brazil offered low-interest loans 
and tax breaks for the building of distilleries and subsidized a fuel 
distribution network.
    Brazil has the advantage of a substantial sugar cane industry 
already in place. But we have our own vast potential to develop our own 
biofuel supply, using feedstock like corn, crop waste, switch grass, 
sugarcane and fast-growing trees and shrubs such as hybrid poplars and 
willows.
    According to the Department of Energy, if two-thirds of the 
Nation's idled cropland were used to grow these kinds of energy crops, 
the result could be dramatic. Those 35 million acres could produce 
between 15 and 35 billion gallons of ethanol each year to fuel cars, 
trucks, and buses.
    That is about 2.2 million barrels of fuel a day from right here in 
the U.S.A.
    What Brazil offers us, more importantly, is a case study of 
government leadership to combine technology mandates and subsidies to 
wean its transportation sector from foreign oil to a domestic 
alternative.
    The Congressional Research Service estimates that in the year 2005, 
we sent almost $225 billion out of the country to purchase oil, while 
the Brazilians are now relying on home-grown fuel.
    The key to their success is that they responded 30 years ago to the 
first storm warnings. We did not, and now the storm is at our shores, 
slapping against the levees of our economic strength and national 
security. We have to mobilize and lead a similar response as Brazil 
did.
    If we do this right, our farmers could soon be measuring production 
in barrels of energy as well as bushels of food. Our energy would be 
guaranteed ``Made in America'' and the profits would be guaranteed 
``Kept in America.''
    For all these new fuels to be effective, we need the flexible fuel 
vehicles that can take advantage of them.
    As I said earlier, our bill also requires that 50 percent of all 
vehicles sold in the U.S. be hybrid, hybrid-electric plug-in, or 
alternative fuel vehicles by 2016.
    Sound ambitious? It is not. It has already happened in Brazil. 
Several automakers selling cars in Brazil, including our own General 
Motors and Ford, already manufacture a fleet that is more than 50-
percent flexible fuel cars that can run on any combination of gasoline 
and biofuels.
    The technology exists now and adds a negligible cost--about $150--
to the price of each vehicle. For this we get the flexibility to power 
a car with fuel made from corn, prairie grass, or agricultural waste 
from our own heartland that will cost a lot less than gasoline does 
today.
    Maximizing fuel efficiency and promoting energy independence even 
further would be a new generation of flexible-fuel hybrid cars known as 
plug-ins because you can plug them in at night to recharge the battery.
    Hybrids that use both a gasoline engine and electric motor for 
power are already getting 50 miles per gallon. Making them flexible 
fuel cars, as I've already said, can save us more than 2 million 
barrels of gasoline a day.
    But we can do even better--dramatically better--with the plug-in 
hybrid that is just now on the threshold of commercialization. Like the 
present hybrids, it would use both a gasoline and electric motor. But 
the plug-in hybrid would be able to use the battery exclusively for the 
first 30 miles of a trip.
    Think of that for a minute. Although Americans drive about 2.2 
trillion miles a year, according the Census, the vast majority of those 
trips are less than 15 miles.
    That means a plug-in hybrid would use zero--zero--gallons of gas or 
any combustible fuel for the vast majority of its trips. And experts 
tell me it could effectively get the 500 miles per gallon on longer 
trips. Plugging in your car during off peak hours--when power is in 
surplus and cheaper--would soon just become part of the modem daily 
routine, like plugging in your cell phone or PDA before you go to bed.
    And off-peak electricity can be the equivalent of 50 cent a gallon 
gasoline, I repeat--the equivalent of 50 cent a gallon fuel is 
feasible.
    Of course, electricity does not come magically through the wires to 
our homes. That power would come from coal, natural gas, nuclear, 
solar, wind or other sources--sources that we have in abundance here at 
home--and a little--very little--would come from oil.
    This isn't pie in the sky. These vehicles could be in your garage 
within a couple of years. Some of the incentives for achieving this 
were included in the Energy bill signed into law in August. But they 
did not go nearly far enough.
    We need to couple these incentives with real performance standards 
and sales requirements to ensure that as soon as possible new cars are 
running not just on gasoline but on biofuels and electricity.
    As always, there is a do-nothing crowd that says the ever-rising 
price of gasoline and crude oil are the cure--that with higher prices 
people will reduce consumption and the market will respond with greater 
investments in the supply of oil to bring prices down.
    But all that would do is perpetuate the problem. Market-driven oil-
dependency is still dependency on foreign oil, driving us further down 
the current path toward national insecurity and economic and 
environmental troubles.
    Some say that we can ease the crisis through greater domestic 
drilling--in places like the Arctic Refuge and other public lands or 
off our shores.
    But that won't make a dent in the problem. In the world of oil, 
geology is destiny and the U.S. today has only 1 percent of the world's 
oil reserves. And that small new supply wouldn't matter much in the 
global market, since the price of oil produced within the United States 
rises and falls with the global market, regardless of where it is 
produced.
    We just don't have enough oil in the U.S. anymore. And no matter 
how much more we drill, we will still be paying the world price of 
oil--not an American price.
    Our present energy and transportation systems were born at the end 
of the 19th and the beginning of the 20th centuries with the twin 
discoveries of oil extraction and the internal combustion engine. Those 
systems have served us well bringing growth to our Nation and the 
world.
    But it is now the 21st century, and it is time to move on. The era 
of big oil is over. It is time to revolutionize our entire energy 
infrastructure, from the refinery to the tailpipe, and begin a new era 
of energy independence.
    It is time to set America free by cutting our dependence on foreign 
oil and by doing so strengthen our security, preserve our independence 
and energize our economy.
                                 ______
                                 
       Prepared Statement of Hon. Robert Menendez, U.S. Senator 
                            From New Jersey

    Thank you very much, Mr. Chairman, for scheduling a hearing on an 
issue as important to the country as energy independence. And I'd like 
to thank the panelists for being here to share their views on how we 
can reduce our dependence on foreign oil. I was heartened to hear the 
president speak about the importance of ending our addition to oil in 
the State of the Union, but I was not at all pleased to see the budget 
that came out less than a week later. A budget that did not take the 
serious steps towards the new technologies that we need to end that 
addiction. A budget that shortchanges vital energy efficiency efforts 
such as the weatherization program that helps reduce energy costs for 
our low-income families and seniors. A budget that cuts funding for 
some promising forms of renewable energy, cuts funding for research 
into vehicle technologies, and even cuts funding for a program designed 
to make the federal government more energy efficient. Quite simply, the 
president has failed to match his rhetoric with real action.

                                  OCS

    Even more disheartening is the continuing efforts of the 
administration to dig and drill their way out of dependence on foreign 
oil. Shortly after the budget was released, the Interior Department's 
Minerals Management service unveiled their new proposed 5-year plan for 
the outer continental shelf, which included a plan to begin drilling 
off the Virginia coast. This is flatly unacceptable for my own state of 
New Jersey, because the ocean knows no borders, and an environmental 
catastrophe off the coast of Virginia would not stay confined to the 
waters of Virginia. The area to be leased is less than 75 miles off the 
southern tip of New Jersey, more than close enough to put our beaches 
and vital tourism industry at serious risk. The plan also shows that 
instead of seriously confronting our addiction, the administration 
would rather simply tap another vein.

                                  CAFE

    As many of our witnesses have said in the past, and will be 
expressing again today, the most effective way to confront our energy 
problems is through efficiency. We have made excellent strides in the 
past few decades to make our country more energy efficient, and one of 
the keys to that success has been Corporate Average Fuel Economy, or 
CAFE, standards. According to statistics compiled by the Rocky Mountain 
Institute, between 1977 and 1985 our oil use went down 17% and our oil 
imports went down 50%, and the biggest factor in that drop was the 7.6 
mile-per-gallon improvement in new domestic cars over that time. But in 
the 20 years since then, our overall vehicle fleet has actually become 
less efficient. The CAFE standard for passenger cars has been stagnant 
for the past two decades, and the standard for light trucks is barely 1 
mile-per-gallon higher than it was in 1987. Increasing fuel economy 
standards should be part of the energy independence solution and part 
of our national energy policy.

                             WEATHERIZATION

    Another federal efficiency program that is part of the solution is 
Weatherization, which provides grants to states to allow them to make 
the homes of low-income families and seniors more energy efficient. 
This has a two-fold benefit. First, it lowers energy costs, which makes 
it easier for people to pay their heating or cooling bills, and reduces 
the amount of money that we need to spend on essential assistance 
programs like LIHEAP. Second, it reduces our overall energy needs. 
According to the Oak Ridge National Laboratory, every $1 invested in 
the weatherization program returns $3.81 in energy and non-energy 
benefits, and because of the program the country saves the equivalent 
of 15 million barrels of oil each year. And yet, despite this track 
record of success, the administration has proposed cutting the program 
by 33%, denying over 30,000 families--families that are on the lowest 
rung of the economic ladder and most desperately need help--the ability 
to get their homes weatherized.

                               NEW JERSEY

    Beyond becoming more efficient, we also need to shift from fossil 
fuels to renewable sources of energy. My own state of New Jersey has 
become a national leader in this field, recently enacting new 
incentives for the use of solar, wind, and other renewable energies, 
and moving towards enacting a robust renewable portfolio standard--20% 
by 2020. The state has put its money where its mouth is, giving over 
$43 million of incentives for new solar power installations over the 
past five years. And this has generated results, with New Jersey going 
from 6 solar installations in 2001 to over 1,000 today. These results 
could be replicated at the national level if we're just willing to make 
the commitment, and then we could reduce our dependence on foreign oil, 
become more resilient to attacks on our energy infrastructure, protect 
our environment, and save money in the long run. I look forward to 
working with my colleagues to help make this happen.
                                 ______
                                 
 Prepared Statement of Hon. James M. Talent, U.S. Senator From Missouri

    Mr. Chairman, Thank you for holding this hearing today. As you 
know, I have been a long time supporter of ethanol and biodiesel. I 
know that I would rather get fuel from farmers in Missouri and across 
the country than import it from foreign countries.
    I believe that the greatest provision of the energy bill was the 
Renewable Fuels Standard which mandated the use of ethanol in our 
nation's fuel supply. The amount of biofuels to be mixed with gasoline 
sold in the United States is mandated at increases annually up to 7.5 
billion gallons by 2012.
    Since the passage of the bill, 34 new ethanol plants are under 
construction, with 8 existing U.S. plants being expanded. And, there 
are more than 150 new plants in the planning stages. This construction 
and investment in farming will create thousands of new jobs while 
making us less reliant on foreign sources of oil.
    Additionally, new biodiesel facilities are coming online. I'm 
extremely pleased that last year, a farmer coop in Missouri broke 
ground on a biodiesel facility in Mexico, Missouri. This is one time 
when jobs going to Mexico is a good thing.
    The American Farm Bureau has estimated that the biofuels provisions 
in the Energy Policy Act of 2005 will create approximately 235,000 new 
jobs, boost American household incomes by $43 billion and have 
significant reductions on our importation of crude oil.
    I strongly supported these provisions and I'm pleased to see the 
industry growing as we knew it would. The President outlined a long 
term strategy for ethanol in the state of the Union, and it is time 
that the oil companies who fought the RFS come to terms with the use 
ethanol and biodiesel. These renewable fuels are good for the economy 
and good for the environment and they are not going away.
    Many of the witnesses today talked about the need to use technology 
that is deployable within the current infrastructure. I couldn't agree 
more. While the ideas of hydrogen vehicles are exciting--they are such 
a long way off. Ethanol and biodiesel are the fuels of the future that 
we can use today.
    I think our biggest challenge now is increasing the infrastructure 
to get the fuels to the consumers. We are constantly increasing the 
number of E85 fueling stations, but we still need more to support the 6 
million flex fuel vehicles on the roads.
    In the energy bill, Senator Obama and I sponsored a tax provision 
to provide tax credits to encourage fueling stations to switch from 
traditional petroleum based gasoline to E-85. I know that Ford had been 
working to promote the use of ethanol and encourage stations to offer 
E85. It is these incentives and industry partnerships that will go a 
long way toward making this domestic fuel available across the country.
                                 ______
                                 
   Prepared Statement of Hon. Craig Thomas, U.S. Senator From Wyoming

    Good Morning. I would like to thank you, Mr. Chairman, for 
convening this hearing to receive testimony on such an important issue. 
And I thank the witnesses for appearing before the Committee today.
    We've been saying for decades that we need to decrease our 
dependence on foreign supplies of energy. The first major calls for 
action followed the oil embargo of 1973. In that year, we imported 
approximately 28 percent of the oil we consumed. A restriction of 
supply by a group of hostile nations caused prices to increase by an 
average of 40 percent during that embargo and introduced a new weapon 
in global conflict. In 2005, we imported roughly 59 percent of the oil 
we consumed. This trend of increased dependence is a troublesome one.
    When Congress passed the Energy Policy Act of 2005 we reversed a 
trend of in-action on the issue of energy independence which had 
persisted for over a decade. I am confident that this hearing, the 
legislation we intend to pursue, and continued attention to energy 
issues demonstrates our strong commitment to fixing the problems that 
we face.
    I come from a state that is very familiar with energy issues. 
Wyoming produces roughly 10 percent of the nation's primary energy, 
with far less than 1 percent of the nation's people. We have oil, 
natural gas, uranium, and wind resources to name a few. We also have 
coal--a resource with enormous potential for increasing our energy 
independence.
    Coal is economical and abundant. It constitutes roughly half of the 
electricity generated in the United States. Advancement of coal 
gasification technologies, carbon sequestration, and improved mining 
techniques reduce many of the environmental concerns that people have 
had in the past. And greater use of cheaper Western coal makes this 
fuel a much more attractive choice going forward.
    We have coal here in the United States and we need to use it. We 
continue to develop wind, we have hydroelectric dams, and we will 
hopefully see the construction of new nuclear plants in the near 
future. Oil and natural gas are the unfortunate exceptions to these 
upward trends.
    Our level of oil consumption is the main reason we are so dependent 
on foreign sources of energy. The United States imported roughly 59 
percent of the oil we consumed last year. Our ability to meet demand by 
increasing domestic production has peaked. We consume roughly two 
thirds of the oil we use in the transportation sector. Because of its 
large share of consumption, policy changes affecting the transportation 
sector can have a significant impact on reducing foreign dependence. 
Increased mileage standards, elimination of boutique fuels, lowered 
speed limits, and greater use of alternative fuels are just a few of 
the many ideas that have been advanced to decrease the transportation 
sector's consumption of oil. I contend that coal can make a difference 
in the transportation sector as well.
    In addition to its proven value as a fuel for electricity, coal can 
reduce our reliance on foreign sources of oil for transportation needs. 
We have 250 years worth of coal within our own borders. Because of 
incentives in the energy bill we passed, a company in my home-state of 
Wyoming recently announced plans to construct a coal-to-liquids plant. 
This plant will demonstrate emerging technologies that can convert U.S. 
coal into clean synthetic oil at a cost of $35 to $40 per barrel 
compared to the current $62 a barrel cost for traditional oil. It is 
the first plant of its kind on U.S. soil and the National Mining 
Association believes that continued use of this technology could 
replace as much as 2 million barrels per day of oil and 5 trillion 
cubic feet of natural gas per day by 2025.
    Another area of concern to me is our nation's electrical grid. 
While electricity is not something that we tend to import from hostile 
nations, the infrastructure associated with its delivery is vulnerable 
to the individuals who seek to harm us. The policies set forth in the 
Energy Policy Act of 2005 will make our transmission system more 
reliable, less congested, and cheaper for consumers. There is always 
room for improvement, however. I intend to continue working with the 
administration, the state of Wyoming, and members of Congress to ensure 
that our electricity becomes as reliable, efficient, and affordable as 
possible.
    The final issue I will raise is that of price. I am a strong 
supporter of far-sighted programs and noble goals of independence but 
we have to deal with our security now and that requires attention to 
the issue of price. Energy is the basis upon which our economy operates 
and if prices are high, the economy suffers. If the economy suffers 
then the American people do too.
    I believe that the bill introduced by the Chairman and Ranking 
Member for lease sales in the Gulf of Mexico's Area 181 is exactly the 
sort of thing we need in the short term. The PACE bill also provides 
much needed guidance and forward-thinking on the importance of 
maintaining our competitive edge and strong knowledge base.
    I look forward to hearing from the witnesses on this important 
topic.

         STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR 
                        FROM NEW MEXICO

    Senator Bingaman. Well, thank you for having the hearing, 
Mr. Chairman, and for bringing this distinguished group of 
witnesses. I appreciate the attention to the issue.
    I agree with you there is a major gap between the rhetoric 
that we have all engaged in about the importance of energy 
independence and the reality of what we are actually doing 
legislatively, by regulation, or otherwise. I hope these 
witnesses can help us to understand how we could close that 
gap.
    We had the hearing with the Energy Information 
Administration a couple of weeks ago and what I heard from the 
EIA Director was that their projections are that we are going 
to be using more energy in the future, more of it is going to 
be imported, more oil is going to be imported, more natural gas 
is going to be imported. The projections for where we are 
headed are one thing, and our rhetoric is totally different.
    So I hope these witnesses can help us to figure out how to 
bring those two together. I think there are things that we 
could be doing now that would have a dramatic impact on this, 
but clearly we do not yet have that agenda worked out.
    As I am sure many know, we wrote a letter to Secretary 
Bodman urging him to give us any concrete plan that he could to 
support the President's call for a reduction of imports of oil 
from the Middle East by 75 percent by the year 2025, which was 
what he stated in the State of the Union speech. I have not 
seen yet what the specifics are that are going to allow us to 
achieve that. I hope maybe some of these witnesses would have 
some insights into that.
    Thank you.
    The Chairman. Thank you, Senator.
    Now we are going to proceed with the witnesses.
    Mr. Woolsey, vice president of Booz Allen Hamilton, former 
CIA Director, you will be first. We welcome you here and thank 
you not only for joining us but all the work you have been 
doing in this area.

        STATEMENT OF R. JAMES WOOLSEY, VICE PRESIDENT, 
                      BOOZ ALLEN HAMILTON

    Mr. Woolsey. Thank you, Mr. Chairman. It is an honor to be 
before this committee on this subject. I emphasize I am 
testifying solely on my own behalf.
    I believe that energy independence is principally an issue 
of oil and conventional oil. I am going to, by the way, Mr. 
Chairman, use my 13-page statement as a talking point since 
remarks are limited to 5 minutes, of course. And that is dealt 
with in the first couple of pages of my statement.
    The dangers of petroleum dependence and the urgency, I 
think, are guided by some seven factors. First of all, that the 
current transportation infrastructure is committed to oil and 
oil-compatible products. And oil is now used very little to 
generate electricity. In the 1970's, some 20 percent or more of 
our electricity was generated from oil. Today it is in the 
range of 2 to 3 percent.
    So major investments, whereas they may be wise, in 
electricity generation of different types, whether it is 
renewables, nuclear, or whatever, has very little impact today 
on oil use. They are important for other reasons, but not 
particularly with respect to oil use.
    In my judgment, hydrogen will take too long to satisfy some 
of the urgency that should be attached to our current oil 
dilemma.
    And a second factor is that the greater Middle East is 
going to continue to be the low-cost and dominant petroleum 
producer for the foreseeable future. As this committee well 
knows, they hold two-thirds of the world's proven reserves. The 
growth we expect in China and India and elsewhere is going to 
keep demand up for a substantial time and put the greater 
Middle East and particularly, I think, Saudi Arabia more and 
more in the driver's seat.
    Petroleum infrastructure is very vulnerable to terrorist 
attacks and other types of potential cut-offs. Ten days ago, we 
had the attack at Abqaiq. We have hurricane damage possible in 
the gulf coast. We have the possibility of regime change in the 
Middle East. There was almost a coo in Saudi Arabia in 1979. 
This reliance on this part of the world is going to be a 
problem for us for a long time.
    The possibility exists not only of a regime change and 
terrorist attacks, but also of financial disruption as a result 
of how much we are borrowing to finance our oil habits. We 
borrow approximately a billion dollars every working day, $250 
billion a year, about a third of our overall trade deficit, in 
order to import oil.
    And over the last 30 years, some $70 to $100 billion of 
that has been provided by Saudi Arabia as a government and 
certainly more by individuals to causes such as the Wahhabi 
schools in Madras and Pakistan, and elsewhere in the Middle 
East.
    We found when I was chairman of the Board of Freedom House, 
even mosques here in the United States, very, very strongly 
hate literature. We are paying for that, and that is 
essentially the same set of beliefs that are propagated by al 
Qaeda. The only difference between the Wahhabis and al Qaeda is 
who should be in charge. But the underlying hatred of other 
religions, democracy and the rest, we pay for in no small 
measure through our borrowing for oil.
    As far as other economic factors are concerned, Senator 
Luger and I had an article some 7 years ago in Foreign Affairs 
in which we together estimated--and I think it is still a good 
estimate--that for every billion dollars of this now $250 
billion a year that we borrow to finance oil, if we were 
producing it here in the United States from, let us say, 
biocrops and the rest, it would create ten to twenty thousand 
American jobs, most of them in rural areas, for each billion 
dollars that we spend here instead of for imports.
    And for many developing countries, oil debt is a huge share 
of their national debt and, therefore, of their problem of 
poverty.
    We suggest, and these suggestions were stated by former 
Secretary of State, George Schultz, and I in a piece last 
summer--we co-chaired the committee on the present danger--that 
one should focus on making changes that can be made within the 
existing infrastructure, can be made relatively soon, and which 
use cheap or even waste products as feedstocks.
    And those are the reasons why in the last several pages of 
testimony, Mr. Chairman, that I suggest that we concentrate--
even though there are other worthy things to do--we concentrate 
on such things as biofuels, particularly ethanol from 
cellulose, which in the long run is going to be much cheaper 
than making it from corn or other starches, that we concentrate 
on diesel from waste products of all kinds, which is coming to 
be technologically quite feasible, and that we concentrate on 
plug-in hybrids so that one can use off-peak or nighttime 
electricity which where the rubber meets the road is the 
equivalent of something in the ballpark of 50 cents or so a 
gallon of gasoline.
    I do not think anyone is going to have any problem 
recognizing consumer demand for a vehicle that could run for, 
say, 20 miles or so on overnight electricity for the equivalent 
of approximately 50 cents a gallon of gasoline.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    [The prepared statement of R. James Woolsey follows:]

        Prepared Statement of R. James Woolsey, Vice President, 
                          Booz Allen Hamilton

    Mr. Chairman and Members of the Committee. It's a real pleasure to 
appear before this Committee today on this issue. I am appearing solely 
on my own behalf and represent no organization. By way of 
identification I served as Director of Central Intelligence, 1993-95, 
one of the four Presidential appointments I have held in two Republican 
and two Democratic administrations; these have been interspersed in a 
career that has been generally in the private practice of law and now 
in consulting. A major share of the points I will make today are drawn 
from an August 2005 paper by former Secretary of State, George P. 
Shultz, and myself, although I have updated some points due to more 
recent work; the two of us are Co-Chairmen of the Committee on the 
Present Danger and the full paper may be found at the Committee's web 
site (www.fightingterror.org).
    Energy security has many facets--including particularly the need 
for improvements to the electrical grid to correct vulnerabilities in 
transformers and in the Supervisory Control and Data (SCADA) systems. 
But energy independence for the U.S. is in my view preponderantly a 
problem related to oil and its dominant role in fueling vehicles for 
transportation. For other countries, e.g. in Europe, energy 
independence may be closely related to preventing Russia from using 
against them the leverage that proceeds from its control of the natural 
gas they need for heating and electricity. In the U.S., however, we 
generally have alternative methods of producing electricity and heat, 
albeit shifting fuels can take time. Some of these methods are superior 
to others with respect to costs, pollutants, global warning gas 
emissions, and other factors. Technological progress continues to lead 
to reassessments of the proper mix--for example, there appears to be 
progress in affordably and reliably sequestering the carbon captured 
during the operation of integrated gasification combined cycle coal 
(IGCC) plants. And progress in battery technology to improve the 
storage of electricity may help us expand the use of renewables such as 
solar and wind, which are clean but intermittent. Change is not easy in 
generating electricity, but we are not locked in to a single source for 
it, for heating, or for most other uses of energy.
    Powering vehicles is different.
    Just over four years ago, on the eve of 9/11, the need to reduce 
radically our reliance on oil was not clear to many and in any case the 
path of doing so seemed a long and difficult one. Today both 
assumptions are being undermined by the risks of the post-9/11 world, 
by oil prices, by increased awareness of the vulnerability of the oil 
infrastructure (as illustrated in the al Qaeda attacks ten days ago on 
the large Saudi oil facility at Abquaiq) and by technological progress 
in fuel efficiency and alternative fuels.
    There are at least seven major reasons why dependence on petroleum 
and its products for the lion's share of the world's transportation 
fuel creates special dangers in our time. These dangers are all driven 
by rigidities and potential vulnerabilities that have become serious 
problems because of the geopolitical realities of the early 21st 
century. Those who reason about these issues solely on the basis of 
abstract economic models that are designed to ignore such geopolitical 
realities will find much to disagree with in what follows. Although 
such models have utility in assessing the importance of more or less 
purely economic factors in the long run, as Lord Keynes famously 
remarked: ``In the long run, we are all dead.''
    These dangers in turn give rise to two proposed directions for 
government policy in order to reduce our vulnerability rapidly. In both 
cases it is important that existing technology should be used, i.e. 
technology that is already in the market or can be so in the very near 
future and that is compatible with the existing transportation 
infrastructure. To this end government policies in the United States 
and other oil-importing countries should: (1) encourage a shift to 
substantially more fuel-efficient vehicles within the existing 
transportation infrastructure, including promoting both battery 
development and a market for existing battery types for plug-in hybrid 
vehicles; and (2) encourage biofuels and other alternative and 
renewable fuels that can be produced from inexpensive and widely-
available feedstocks--wherever possible from waste products.

                   PETROLEUM DEPENDENCE: THE DANGERS:

1. The current transportation infrastructure is committed to oil and 
        oil-compatible products
    Petroleum and its products dominate the fuel market for vehicular 
transportation. This dominance substantially increases the difficulty 
of responding to oil price increases or disruptions in supply by 
substituting other fuels. With the important exception, described 
below, of a plug-in version of the hybrid gasoline/electric vehicle, 
which will allow recharging hybrids from the electricity grid, 
substituting other fuels for petroleum in the vehicle fleet as a whole 
has generally required major, time-consuming, and expensive 
infrastructure changes. One exception has been some use of liquid 
natural gas (LNG) and other fuels for fleets of buses or delivery 
vehicles, although not substantially for privately-owned ones, and the 
use of corn-derived ethanol mixed with gasoline in proportions up to 10 
per cent ethanol (``gasohol'') in some states. Neither has appreciably 
affected petroleum's dominance of the transportation fuel market.
    Moreover, in the 1970's about 20 per cent of our electricity was 
made from oil--so shifting electricity generation toward, say, 
renewables or nuclear power could save oil. But since today only about 
three per cent of our electricity is oil-generated, a shift in the way 
we produce electricity would have almost no effect on the 
transportation or oil market. This could change over the long run, 
however, with the advent of plug-in hybrid vehicles, discussed below.
    There are imaginative proposals for transitioning to other fuels 
for transportation, such as hydrogen to power automotive fuel cells, 
but this would require major infrastructure investment and 
restructuring. If privately-owned fuel cell vehicles were to be capable 
of being readily refueled, this would require reformers (equipment 
capable of reforming, say, natural gas into hydrogen) to be located at 
filling stations, and would also require natural gas to be available 
there as a hydrogen feed-stock. So not only would fuel cell development 
and technology for storing hydrogen on vehicles need to be further 
developed, but the automobile industry's development and production of 
fuel cells also would need to be coordinated with the energy industry's 
deployment of reformers and the fuel for them.
    Moving toward automotive fuel cells thus requires us to face a huge 
question of pace and coordination of large-scale changes by both the 
automotive and energy industries. This poses a sort of industrial 
Alphonse and Gaston dilemma: who goes through the door first? (If, 
instead, it were decided that existing fuels such as gasoline were to 
be reformed into hydrogen on board vehicles instead of at filling 
stations, this would require on-board reformers to be developed and 
added to the fuel cell vehicles themselves--a very substantial 
undertaking.)
    It is because of such complications that the National Commission on 
Energy Policy concluded in its December, 2004, report ``Ending The 
Energy Stalemate'' (``ETES'') that ``hydrogen offers little to no 
potential to improve oil security and reduce climate change risks in 
the next twenty years.'' (p. 72)
    To have an impact on our vulnerabilities within the next decade or 
two, any competitor of oil-derived fuels will need to be compatible 
with the existing energy infrastructure and require only modest 
additions or amendments to it.
2. The Greater Middle East will continue to be the low-cost and 
        dominant petroleum producer for the foreseeable future
    Home of around two-thirds of the world's proven reserves of 
conventional oil--45% of it in just Saudi Arabia, Iraq, and Iran--the 
Greater Middle East will inevitably have to meet a growing percentage 
of world oil demand. This demand is expected to increase by more than 
50 per cent in the next two decades, from 78 million barrels per day 
(``MBD'') in 2002 to 118 MBD in 2025, according to the federal Energy 
Information Administration. Much of this will come from expected demand 
growth in China and India. One need not argue that world oil production 
has peaked to see that this puts substantial strain on the global oil 
system. It will mean higher prices and potential supply disruptions and 
will put considerable leverage in the hands of governments in the 
Greater Middle East as well as in those of other oil-exporting states 
which have not been marked recently by stability and certainty: Russia, 
Venezuela, and Nigeria, for example (ETES pp. 1-2). Deep-water drilling 
and other opportunities for increases in supply of conventional oil may 
provide important increases in supply but are unlikely to change this 
basic picture. If world production of conventional oil has peaked or is 
about to, this of course further deepens our dilemma and increases 
costs sooner.
    Even if other production comes on line, e.g. from unconventional 
sources such as tar sands in Alberta or shale in the American West, 
their relatively high cost of production could permit low-cost 
producers of conventional oil, particularly Saudi Arabia, to increase 
production, drop prices for a time, and undermine the economic 
viability of the higher-cost competitors, as occurred in the mid-
1980's. If oil supplies have peaked or are peaking in Saudi Arabia this 
tactic could be harder for the Saudis to utilize. But in any case, for 
the foreseeable future, as long as vehicular transportation is 
dominated by oil as it is today, the Greater Middle East, and 
especially Saudi Arabia, will remain in the driver's seat.
3. The petroleum infrastructure is highly vulnerable to terrorist and 
        other attacks
    The radical Islamist movement, including but not exclusively al 
Qaeda, has on a number of occasions explicitly called for worldwide 
attacks on the petroleum infrastructure and has carried some out in the 
Greater Middle East. A more well-planned attack than the one that 
occurred ten days ago at Abquaiq--such as that set out in the opening 
pages of Robert Baer's recent book, Sleeping With the Devil, 
(terrorists flying an aircraft into the unique sulfur-cleaning towers 
at the same facility)--could take some six million barrels per day off 
the market for a year or more, sending petroleum prices sharply upward 
to well over $100/barrel and severely damaging much of the world's 
economy. Domestic infrastructure in the West is not immune from such 
disruption. U.S. refineries, for example, are concentrated in a few 
places, principally the Gulf Coast.
    Last summer's accident in the Texas City refinery--producing 
multiple fatalities--points out potential infrastructure 
vulnerabilities, as of course does this past fall's hurricane damage in 
the Gulf. The Trans-Alaska Pipeline has been subject to several 
amateurish attacks that have taken it briefly out of commission; a 
seriously planned attack on it could be far more devastating.
    In view of these overall infrastructure vulnerabilities policy 
should not focus exclusively on petroleum imports, although such 
infrastructure vulnerabilities are likely to be the most severe in the 
Greater Middle East. It is there that terrorists have the easiest 
access, and the largest proportion of proven oil reserves and low-cost 
production are also located there. But nothing particularly useful is 
accomplished by changing trade patterns. To a first approximation there 
is one worldwide oil market and it is not generally helpful for the 
U.S., for example, to import less from the Greater Middle East and for 
others then to import more from there. In effect, all of us oil-
importing countries are in this together.
4. The possibility exists, both under some current regimes and among 
        those that could come to power in the Greater Middle East, of 
        embargoes or other disruptions of supply
    It is often said that whoever governs the oil-rich nations of the 
Greater Middle East will need to sell their oil. This is not true, 
however, if the rulers choose to try to live, for most purposes, in the 
seventh century. Bin Laden has advocated, for example, major reductions 
in oil production and oil prices of $200/barrel or more. As a jihadist 
Web site has just stated in the last few days: ``[t]he killing of 10 
American soldiers is nothing compared to the impact of the rise in oil 
prices on America and the disruption that it causes in the 
international economy.''
    Moreover, in the course of elaborating on Iranian President 
Ahmedinejad's threat to destroy Israel and the U.S., his chief of 
strategy, Hassan-Abbassi, has recently bragged that Iran has already 
``spied out'' the 29 sites ``in America and the West'' which they 
(presumably with help from Hezbollah, the world's most professional 
terrorist organization) are prepared to attack in order to ``destroy 
Anglo-Saxon civilization.'' One can bet with reasonable confidence that 
some of these sites involve oil production and distribution.
    In 1979 there was a serious attempted coup in Saudi Arabia. Much of 
what the outside world saw was the seizure by Islamist fanatics of the 
Great Mosque in Mecca, but the effort was more widespread.
    Even if one is optimistic that democracy and the rule of law will 
spread in the Greater Middle East and that this will lead after a time 
to more peaceful and stable societies there, it is undeniable that 
there is substantial risk that for some time the region will be 
characterized by chaotic change and unpredictable governmental 
behavior. Reform, particularly if it is hesitant, has in a number of 
cases in history been trumped by radical takeovers (Jacobins, 
Bolsheviks). There is no reason to believe that the Greater Middle East 
is immune from these sorts of historic risks.
5. Wealth transfers from oil have been used, and continue to be used, 
        to fund terrorism and Its ideological support
    Estimates of the amount spent by the Saudis in the last 30 years 
spreading Wahhabi beliefs throughout the world vary from $70 billion to 
$100 billion. Furthermore, some oil-rich families of the Greater Middle 
East fund terrorist groups directly. The spread of Wahhabi doctrine--
fanatically hostile to Shi'ite and Suffi Muslims, Jews, Christians, 
women, modernity, and much else--plays a major role with respect to 
Islamist terrorist groups: a role similar to that played by angry 
German nationalism with respect to Nazism in the decades after World 
War I. Not all angry German nationalists became Nazis and not all those 
schooled in Wahhabi beliefs become terrorists, but in each case the 
broader doctrine of hatred has provided the soil in which the 
particular totalitarian movement has grown. Whether in lectures in the 
madrassas of Pakistan, in textbooks printed by Wahhabis for Indonesian 
schoolchildren, or on bookshelves of mosques in the U.S., the hatred 
spread by Wahhabis and funded by oil is evident and influential.
    On all points except allegiance to the Saudi state Wahhabi and al 
Qaeda beliefs are essentially the same. In this there is another rough 
parallel to the 1930's--between Wahhabis' attitudes toward al Qaeda and 
like-minded Salafist Jihadi groups today and Stalinists' attitude 
toward Trotskyites some sixty years ago (although there are of course 
important differences between Stalin's Soviet Union and today's Saudi 
Arabia). The only disagreement between Stalinists and Trotskyites was 
on the question whether allegiance to a single state was the proper 
course or whether free-lance killing of enemies was permitted. 
Stalinist hatred of Trotskyites and their free-lancing didn't signify 
disagreement about underlying objectives, only tactics, and Wahhabi/
Saudi cooperation with us in the fight against al Qaeda doesn't 
indicate fundamental disagreement between Wahhabis and al Qaeda on, 
e.g., their common genocidal fanaticism about Shia, Jews, and 
homosexuals. So Wahhabi teaching basically spreads al Qaeda ideology.
    It is sometimes contended that we should not seek substitutes for 
oil because disruption of the flow of funds to the Greater Middle East 
could further radicalize the population of some states there. The 
solution, however, surely lies in helping these states diversify their 
economies over time, not in perpetually acquiescing to the economic 
rent they collect from oil exports and to the uses to which these 
revenues are put.
6. The current account deficits for the U.S. and a number of other 
        countries create risks ranging from major world economic 
        disruption to deepening poverty, and could be substantially 
        reduced by reducing oil imports
    The U.S. in borrows about $2 billion every calendar day from the 
world's financial markets to finance the gap between what we produce 
and what we consume. The single largest category of imports is the 
approximately $1 billion per working day, or $250 billion a year, 
borrowed to import oil. The accumulating debt increases the risk of a 
flight from the dollar or major increases in interest rates. Any such 
development could have major negative economic consequences for both 
the U.S. and its trading partners. For every billion dollars of this 
$250 billion spent at home to produce alternative fuels, Senator 
Richard Lugar and I estimated (in a 1999 article in Foreign Affairs, 
``The New Petroleum'') that 10-20,000 American jobs would be created, 
principally in rural areas. This would mean that replacing $200 billion 
of the $250 billion that we borrow to import oil with alternative fuel 
production in the U.S. would create something on the order of 3 million 
American jobs.
    For developing nations, the service of debt is a major factor in 
their continued poverty. For many, debt is heavily driven by the need 
to import oil that at today's oil prices cannot be paid for by sales of 
agricultural products, textiles, and other typical developing nation 
exports.
    If such deficits are to be reduced, however, say by domestic 
production of substitutes for petroleum, this should be based on 
recognition of real economic value such as waste cleanup, soil 
replenishment, or other tangible benefits.
7. Global-warming gas emissions from man-made sources create at least 
        the risk of climate change
    Although the point is not universally accepted, the weight of 
scientific opinion suggests that global warming gases (GWG) produced by 
human activity form one important component of potential climate 
change. Recently in the Wall Street Journal the Nobel-Prize winning 
economist, Thomas Schelling, surveyed the data and concluded that we 
should, if effect, buy ``insurance'' against climate change by reducing 
our emissions. Oil products used in transportation provide a major 
share of U.S. man-made global warming gas emissions. The substitutes 
discussed below would radically reduce these emissions.

                  THREE PROPOSED DIRECTIONS FOR POLICY

    The above considerations suggest that government policies with 
respect to the vehicular transportation market should point in the 
following directions:
1. Encourage improved vehicle mileage, using technology now in 
        production
    The following three technologies are available to improve vehicle 
mileage substantially:
            Diesels
    First, modern diesel vehicles are coming to be capable of meeting 
rigorous emission standards (such as Tier 2 standards, being introduced 
into the U.S., 2004-08). In this context it is possible without 
compromising environmental standards to take advantage of diesels' 
substantial mileage advantage over gasoline-fueled internal combustion 
engines.
    Heavy penetration of diesels into the private vehicle market in 
Europe is one major reason why the average fleet mileage of such new 
vehicles is 42 miles per gallon in Europe and only 24 mpg in the U.S. 
Although the U.S. has, since 1981, increased vehicle weight by 24 per 
cent and horsepower by 93 per cent, it has actually somewhat lost 
ground with respect to mileage over that near-quarter century. In the 
12 years from 1975 to 1987, however, the U.S. improved the mileage of 
new vehicles from 15 to 26 mpg.
            Hybrid gasoline-electric
    Second, hybrid gasoline-electric vehicles now on the market 
generally show substantial fuel savings over their conventional 
counterparts. The National Commission on Energy Policy found that for 
the four hybrids on the market in December 2004 that had exact 
counterpart models with conventional gasoline engines, not only were 
mileage advantages quite significant (10-15 mpg) for the hybrids, but 
in each case the horsepower of the hybrid was higher than the 
horsepower of the conventional vehicle. (ETES p. 11)
            Light-weight carbon composite construction
    Third, constructing vehicles with inexpensive versions of the 
carbon fiber composites that have been used for years for aircraft 
construction can substantially reduce vehicle weight and increase fuel 
efficiency while at the same time making the vehicle considerably safer 
than with current construction materials. This is set forth thoroughly 
in the 2004 report of the Rocky Mountain Institute's Winning the Oil 
Endgame (``WTOE''). Aerodynamic design can have major importance as 
well. Using such composites in construction breaks the traditional tie 
between size and safety. Much lighter vehicles, large or small, can be 
substantially more fuel-efficient and also safer. Such composites have 
already been used for automotive construction in Formula 1 race cars 
and are now being adopted in part by BMW and other automobile 
companies. The goal is mass-produced vehicles with 80% of the 
performance of hand-layup aerospace composites at 20% of the cost. Such 
construction is expected approximately to double the efficiency of a 
normal hybrid vehicle without increasing manufacturing cost. (WTOE 64-
66).
2. Encourage the commercialization of alternative transportation fuels 
        that can be available soon, are compatible with existing 
        infrastructure, and can be derived from waste or otherwise 
        produced cheaply
            Biomass (cellulosic) ethanol
    The use of ethanol produced from corn in the U.S. and sugar cane in 
Brazil has given birth to the commercialization of an alternative fuel 
that is coming to show substantial promise, particularly as new 
feedstocks are developed. Some six million vehicles in the U.S. and 
three-quarters of new vehicles in Brazil are capable of using ethanol 
in mixtures of up to 85 percent ethanol and 15 per cent gasoline (E-
85); these are called Flexible Fuel Vehicles (``FFV'') and require, 
compared to conventional vehicles, only a somewhat different kind of 
material for the fuel line and a differently-programmed computer chip. 
The cost of incorporating this feature in new vehicles is trivial. 
Between 2003 and 2005 Brazil moved from five per cent of its new 
vehicles being FFVs to 75 per cent being such. Also, there are no 
large-scale changes in infrastructure required for ethanol use. It may 
be shipped in tank cars (and, in Brazil, in pipelines), and mixing it 
with gasoline is a simple matter.
    Although human beings have been producing ethanol, grain alcohol, 
from sugar and starch for millennia, it is only in recent years that 
the genetic engineering of biocatalysts has made possible such 
production from the hemicellulose and cellulose that constitute the 
substantial majority of the material in most plants. The genetically-
engineered material is in the biocatalyst only; there is no need for 
genetically modified plants.
    These developments may be compared in importance to the invention 
of thermal and catalytic cracking of petroleum in the first decades of 
the 20th century--processes which made it possible to use a very large 
share of petroleum to make gasoline rather than the tiny share that was 
available at the beginning of the century. For example, with such 
genetically-engineered biocatalysts it is not only grains of corn but 
corn cobs and most of the rest of the corn plant that may be used to 
make ethanol.
    Such biomass, or cellulosic, ethanol is now seeing commercial 
production begin first in a facility of the Canadian company, logen, 
with backing from Shell Oil, at a cost of around $1.30/gallon. The 
National Renewable Energy Laboratory estimates costs will drop to 
around $1.07/gallon over the next five years, and the Energy Commission 
estimates a drop in costs to 67-77 cents/gallon when the process is 
fully mature (ETES p. 75). The most common feedstocks will likely be 
agricultural wastes, such as rice straw, or natural grasses such as 
switchgrass, a variety of prairie grass that is often planted on soil 
bank land to replenish the soil's fertility. There will be a decided 
financial advantages in using as feedstocks any wastes which carry a 
tipping fee (a negative cost) to finance disposal: e.g. waste paper, or 
rice straw, which cannot be left in the fields after harvest because of 
its silicon content.
    Old or misstated data, frequently dealing with corn ethanol, are 
sometimes cited for the proposition that huge amounts of land would 
have to be introduced into cultivation or taken away from food 
production in order to have enough biomass available for cellulosic 
ethanol production. This is incorrect. The National Commission on 
Energy Policy reported in December that, if fleet mileage in the U.S. 
rises to 40 mpg--somewhat below the current European Union fleet 
average for new vehicles of 42 mpg and well below the current Japanese 
average of 47 mpg--then as switchgrass yields improve modestly to 
around 10 tons/acre it would take only 30 million acres of land to 
produce sufficient cellulosic ethanol to fuel half the U.S. passenger 
fleet. (ETES pp. 76-77). By way of calibration, this would essentially 
eliminate the need for oil imports for passenger vehicle fuel and would 
require only the amount of land now in the soil bank (the Conservation 
Reserve Program (``CRP'') on which such soil-restoring crops as 
switchgrass are already being grown. Practically speaking, one would 
probably use for ethanol production only a little over half of the soil 
bank lands and add to this some portion of the plants now grown as 
animal feed crops (for example, on the 70 million acres that now grow 
soybeans for animal feed). In short, the U.S. and many other countries 
should easily find sufficient land available for enough energy crop 
cultivation to make a substantial dent in oil use. (Id.)
    Some also have an erroneous impression that ethanol generally 
requires as much fossil fuel energy to produce it as one obtains from 
it and that its use does not substantially reduce global warming gas 
emissions. This is also incorrect. The production and use of ethanol 
merely recycles in a different way the CO2 that has been 
fixed by plants in the photosynthesis process. It does not release 
carbon that would otherwise stay stored underground, as occurs with 
fossil fuel use.
    But when starch, such as corn, is used for ethanol production much 
fossil-fuel energy is consumed in the process of fertilizing, plowing, 
and harvesting. Much of this is the natural gas required to produce 
fertilizer. But corn ethanol still normally produces a very large (over 
90 per cent) reduction in the use of oil compared to gasoline. Starch-
based ethanol reduces greenhouse gas emissions to some degree, by 
around 30 per cent.
    But because so little energy is required to cultivate crops such as 
switchgrass for cellulosic ethanol production, and because electricity 
can be co-produced using the residues of such cellulosic fuel 
production, the energy requirements for converting switchgrass and 
other cellulosics to ethanol is very small. Indeed, with the right 
techniques reductions in greenhouse gas emissions for celluslosic 
ethanol when compared to gasoline are greater than 100 per cent. The 
production and use of cellulosic ethanol can be, in other words, a 
carbon sink. (ETES p. 73)
            Biodiesel and Renewable Diesel
    The National Commission on Energy Policy pointed out some of the 
problems with most current biodiesel ``produced from rapeseed, soybean, 
and other vegetable oils--as well as . . . used cooking oils.'' It said 
that these are ``unlikely to become economic on a large scale'' and 
that they could ``cause problems when used in blends higher than 20 
percent in older diesel engines''. It added that ``waste oil is likely 
to contain impurities that give rise of undesirable emissions.'' (ETES 
p. 75)
    The Commission notes, however, that biodiesel is generally 
``compatible with existing distribution infrastructure'' and outlines 
the potential of a newer process (``thermal depolyrnerization'') that 
produces renewable diesel without the above disadvantages, from 
``animal offal, agricultural residues, municipal solid waste, sewage, 
and old tires''. (This was designated ``Renewable Diesel'' in the 
Energy Act of this past summer.) The Commission points to the current 
use of this process at a Conagra turkey processing facility in 
Carthage, Missouri, where a ``20 million commercial-scale facility'' is 
beginning to convert turkey offal into ``a variety of useful products, 
from fertilizer to low-sulfur diesel fuel'' at a potential average cost 
of ``about 72 cents per gallon.'' (ETES p. 77)
    There have also been promising reports of the potential for 
producing renewable diesel from algae.
            Other Alternative Fuels
    Progress has been made in recent years on utilizing not only coal 
but slag from strip mines, via gasification, for conversion into diesel 
fuel using a modern version of the gasified-coal-to-diesel process used 
in Germany during World War II.
    Qatar has begun a large-scale process of converting natural gas to 
diesel fuel.
    In the realm of non-conventional oil, the tar sands of Alberta and 
the oil shale of the Western U.S. contain huge deposits. Their 
exploitation involves issues of cost which must be resolved, both 
economic and environmental, but both may hold promise for a substantial 
increases in oil supply from other-than-conventional sources.
3. Encourage the commercialization of plug-in hybrids and improved 
        batteries
    A modification to some types of hybrids can permit them to become 
``plug-in-hybrids,'' drawing power from the electricity grid at night 
and using an all-electric mode for short trips before they move to 
operating in their gasoline-electric mode as hybrids. With a plug-in 
hybrid vehicle one has the advantage of an electric car, but not the 
disadvantage. Electric cars cannot be recharged if their batteries run 
down at some spot away from electric power. But since all hybrids have 
tanks containing liquid fuel, plug-in hybrids have no such 
disadvantage.
    The ``vast majority of the most fuel-hungry trips are . . . well 
within the range'' of current (nickel-metal hydride) batteries' 
capacity, according to Huber and Mills (The Bottomless Well, 2005, p. 
84). Current Toyota Priuses sold in Japan and Europe have a button, 
which Toyota has disconnected for some reason on American vehicles, 
that permits all-electric driving for up to a kilometer. Basically what 
is needed is to equip such hybrids with adequate batteries so that this 
capability can be extended. Over half of all U.S. vehicles are driven 
less than 30 miles/day, so a plug-in hybrid that can obtain that range 
on overnight electricity alone might go for many weeks without visiting 
a gasoline station. It is important that whether with existing nickel-
metal-hydride batteries or with the more capable lithium-ion batteries 
now commercially available for computer and other applications, it is 
important that any battery used in a plug-in hybrid be capable of 
taking daily charging without being damaged and be capable of powering 
the vehicle at an adequate speed. Some of the electric vehicles used in 
California in the late 90's (indeed hundreds are still in use) provide 
useful data on current battery capabilities. An electric vehicle would 
typically have a battery several times the size and capability of a 
plug-in hybrid battery. The experience of Southern Cal Edison with its 
all-electric fleet of Toyota RAV-4's is very promising in this regard. 
A number of these electric vehicles' nickel-metal-hydride batteries 
have been charged thousands of times, daily for years, and still 
provide sound performance.
    Indeed the California experience with electric vehicles (EV's) in 
the 1990's suggests that we are so close to being able to have plug-in 
hybrids that small businesses may move soon to converting existing 
hybrids. At U. Cal. (Davis) Professor Andy Frank has been designing and 
operating plug-in hybrids for years that now, with commercially-
available batteries, operate all-electrically for 60 miles at up to 60 
mph before the hybrid gasoline-electric feature needs to be used. 
Whether development is needed for some improvements to lithium-ion 
batteries or only financial incentives for mass production of them or 
the more mature nickel-metal-hydride batteries, such efforts should 
have the highest priority because plug-in hybrids promise to 
revolutionize transportation economics and to have a dramatic effect on 
the problems caused by oil dependence.
    Moreover the attractiveness to the consumer of being able to use 
electricity from overnight charging for a substantial share of the 
day's driving is stunning. The average residential price of electricity 
in the U.S. is about 8.5 cents/kwh, and many utilities sell off-peak 
power for 2-4 cents/kwh (id at 83). When one takes into consideration 
the different efficiencies of liquid--fueled and electric propulsion, 
then where the rubber meets the road the cost of powering a plug-in 
hybrid with average-cost residential electricity would be about 40 per 
cent of the cost of powering the same vehicle with today's 
approximately $2.50/gallon gasoline, or, said another way, for the 
consumer to be able to buy fuel in the form of electricity at the 
equivalent of $1/gallon gasoline. Using off-peak power would then 
equate to being able to buy 25-to-50 cent/gallon gasoline. Given the 
burdensome cost imposed by current fuel prices on commuters and others 
who need to drive substantial distances, the possibility of powering 
one's family vehicle with fuel that can cost as little as one-tenth of 
today's gasoline (in the U.S. market) should solve rapidly the question 
whether there would be public interest in and acceptability of plug-in 
hybrids.
    Although the use of off-peak power for plug-in hybrids should not 
require substantial new investments in electricity generation for some 
time (until millions of plug-ins are on the road), greater reliance on 
electricity for transportation should lead us to look particularly to 
the security of the electricity grid as well as the fuel we use to 
generate electricity. Even though plug-in hybrids would be drawing 
power from the grid to charge their batteries and drive the first 30, 
or so miles each day, ongoing studies suggest their use would sharply 
reduce global warming gas emissions compared to driving the same amount 
of mileage on gasoline.

                               CONCLUSION

    The dangers of dependence on conventional oil in today's world 
require us both to look to ways to reduce demand for it and to increase 
the supply of alternatives.
    The realistic opportunities for reducing demand soon suggest that 
government policies should encourage hybrid gasoline-electric vehicles, 
particularly whatever battery work is needed to bring plug-in versions 
thereof to the market, and modern diesel technology. Light-weight 
carbon composite construction should also be pursued. The realistic 
opportunities for increasing supply of transportation fuel soon suggest 
that government policies should encourage the commercialization of 
alternative fuels that can be used in the existing infrastructure: 
cellulosic ethanol, biodiesel/renewable diesel, and (via plug-in 
hyrids) off-peak electricity. Both of the liquid fuels could be 
introduced more quickly and efficiently if they achieve cost advantages 
from the utilization of waste products as feedstocks.
    The effects of these policies are multiplicative. All should be 
pursued since it is impossible to predict which will be fully 
successful or at what pace, even though all are today either beginning 
commercial production or are nearly to that point. Incentives for all 
should replace the current emphasis on automotive hydrogen fuel cells.
    If even one of these technologies is moved promptly into the 
market, the reduction in oil dependence could be substantial. If 
several begin to be successfully introduced into large-scale use, the 
reduction could be stunning. For example, a 50-mpg hybrid gasoline/
electric vehicle, on the road today, if constructed from carbon 
composites would achieve at least 100 mpg. If it were also a Flexible 
Fuel Vehicle able to operate on 85 percent cellulosic ethanol, it would 
be achieving hundreds of miles per gallon (of petroleum-derived fuel). 
If it were also a plug-in, operating on either upgraded nickel-metal-
hydride or newer lithium-ion batteries, so that 30-mile trips could be 
undertaken on its overnight charge before it began utilizing liquid 
fuel at all, it could be obtaining in the range of 1000 mpg (of 
petroleum). If it were a diesel utilizing biodiesel or renewable diesel 
fuel its petroleum mileage could be infinite.
    A range of important objectives--economic, geopolitical, 
environmental--would be served by our embarking on such a path. Of 
greatest importance, we would be substantially more secure.

    The Chairman. Our next witness is Susan Cischke, vice 
president, environmental and safety engineering, Ford Motor 
Company. We thank you very much for coming.

STATEMENT OF SUSAN M. CISCHKE, VICE PRESIDENT OF ENVIRONMENTAL 
           AND SAFETY ENGINEERING, FORD MOTOR COMPANY

    Ms. Cischke. Thank you. And good morning, everyone.
    At Ford, we recognize that we have a responsibility to help 
address America's energy security needs and we are accelerating 
our efforts to develop innovative solutions.
    Recently we committed to increase our hybrid production 
capabilities to a quarter million units a year by 2010 and to 
continue our leadership in ethanol-powered, flexible-fuel 
vehicles.
    We believe that our Nation's energy challenges can only be 
properly addressed by an integrated approach that is a 
partnership of all stakeholders, which includes the automotive 
industry, the fuel industry, government, and consumers. We must 
all accept that these are long-term challenges and that we are 
all part of the solution.
    At Ford, we are moving ahead with a range of technological 
solutions because there is simply no single solution. There is 
no silver bullet. We know that when a customer considers 
purchasing a vehicle, they are concerned with numerous 
attributes, including price, quality, safety, performance, 
comfort, and utility.
    And from our perspective, no one factor can be ignored in 
the highly competitive U.S. marketplace. As a result, we are 
working to accelerate the commercial application of all areas 
of advanced vehicle technologies, including hybrids, flexible-
fuel vehicles, advanced clean diesel, hydrogen-powered, 
internal-combustion engines, and fuel-cell vehicles.
    The portfolio approach that we are taking ensures that we 
are able to offer consumers a range of products that meet their 
specific needs and circumstances. And make no mistake. It will 
ultimately be the consumers who decide.
    At Ford, we recognize that hybrids have an important place 
within this portfolio of solutions. They deliver excellent 
benefits in lower speed, stop-start traffic, and offer many 
customers break-through improvements in fuel economy, up to 80 
percent in city driving without compromise.
    Expansion of our hybrid plant is now clearly an important 
part of our strategy with increases in our production capacity 
as well as our model offerings. In fact, we want to offer 
hybrids on half of our Ford, Lincoln, and Mercury models by 
2010.
    In addition to hybrids, we believe the greater use of 
renewable fuels like ethanol will help reduce reliance on 
foreign oil. We applaud Congress' efforts that resulted in the 
Energy Policy Act of 2005, as well as the President's recent 
commitment to address our Nation's addiction to oil.
    Ford has been building flexible-fuel vehicles for over a 
decade, and we are an industry leader in this technology. These 
vehicles are capable of operating on up to 85 percent ethanol 
or gasoline or a mixture in between.
    By the end of this year, Ford Motor Company will have 
placed a total of nearly two million flexible-fuel vehicles on 
America's roads and for 2006, this includes America's best-
selling vehicle, the Ford F150.
    As a whole, the U.S. auto makers will have produced a total 
of nearly six million flexible-fuel vehicles. And if all these 
vehicles were operated on E-85, over two and a half billion 
gallons of gasoline a year could be displaced.
    And we are not stopping there. A little over a month ago, 
we unveiled the Ford Escape hybrid E-85 research vehicle, which 
marries two petroleum-saving technologies, hybrid electric 
power and E-85 flexible-fuel capability.
    Although there are many technical and cost challenges to 
address, we believe that if just 5 percent of the U.S. fleet 
were powered by E-85, HEVs, oil imports could be reduced by 140 
million barrels a year.
    But there is a problem. Even though the volume of E-85 
vehicles continues to grow rapidly, there are less than 600 E-
85 fueling stations in the United States and that is out of 
over 170,000 retail gas fueling stations nationwide.
    For ethanol to compete, we need strong, long-term focus on 
policies that increase U.S. production and accelerate 
infrastructure development. At the same time, as the President 
pointed out in the State of the Union address, we need national 
research efforts to produce ethanol for more energy-efficient 
cellulosic materials like rice straw, corn stover, or switch 
grass.
    Looking to the future, we are looking at what we think is 
an important transitional technology, hydrogen-powered 
internal-combustion engines. Ford is a leader in this 
technology and we think it is a bridge to the development of a 
hydrogen infrastructure and ultimately fuel-cell vehicles.
    And we are in the process of developing hydrogen-powered 
shuttle buses for fleet demonstrations in North America 
starting later this year.
    Even further down the road, hydrogen-powered fuel cells 
appear to be another promising technology for delivering 
sustainable transportation. Hydrogen can be derived from a wide 
range of feedstocks to increase energy diversity and fuel cells 
are highly energy efficient and produce no emissions, like our 
Ford Focus fuel cell.
    We have already placed a small fleet of these vehicles in 
three U.S. cities as part of the U.S. Department of Energy's 
Hydrogen Demonstration Program.
    As you can imagine, R&D investment that goes with all this 
work is a very big number, certainly in the billions, not the 
millions, and it will only grow in the future. But there is 
only so much we can achieve without the help of others outside 
the industry.
    It is clear that the solution to the energy issue 
associated with road transport will need to come from advances 
in fuels as well as vehicle technology. We need the oil 
industry to endorse an integrated approach here in the United 
States just as they are beginning to do with auto makers and 
government officials in Europe.
    Without the wholehearted involvement of the fuel industry, 
we cannot move forward far enough or fast enough and we 
obviously need key partners like the oil industry to invest in 
developing and marketing renewable fuels like E-85.
    And there is a great deal that policymakers can do as well. 
Government incentives for advanced technology vehicles and E-85 
infrastructure can accelerate the introduction of these 
vehicles and fuels into the marketplace.
    And there is also a role for government in educating the 
public on energy efficiency. In the end, it will ultimately be 
the size of the car park, consumers' choice of vehicles, how 
many miles they drive, and driving behaviors that will 
determine how much fuel we consume.
    The challenges of energy security are considerable, but 
they are not insurmountable. And there is an enormous amount we 
can achieve if we act together. We have to ensure that our 
business is sustainable by making vehicles that continue to 
meet the changing needs of the 21st century. And that is a 
responsibility we owe our customers, our shareholders, and our 
employees. But at another level, all of us have an opportunity 
to do something about energy independence and that is a 
responsibility we owe future generations.
    Thank you for the opportunity to address the committee.
    The Chairman. Thank you very much, Ms. Cischke. We 
appreciate your testimony.
    [The prepared statement of Ms. Cischke follows:]

Prepared Statement of Susan M. Cischke, Vice President of Environmental 
               and Safety Engineering, Ford Motor Company

    Members of the Committee: My name is Susan Cischke and I am the 
Vice President of Environmental and Safety Engineering at Ford Motor 
Company. Energy security is a significant issue facing our nation. I 
appreciate the opportunity to share with you Ford Motor Company's views 
on this issue.
    Energy is literally the fuel that powers the industrial and 
manufacturing growth of the United States. The energy supply 
disruptions of last summer, increases in global demand, and 
geopolitical concerns with some of the oil rich regions of the world 
led to significantly higher energy prices and consumer angst at the 
fuel pump. It's our view that action must be taken in all sectors of 
course, if we are to meet these challenges as a nation.
    At Ford, we recognize that we have a responsibility to do something 
to help address America's energy security needs, and we are 
accelerating our efforts to develop innovative solutions. As Bill Ford 
has said, ``Ford Motor Company is absolutely committed to making 
innovation a central part of everything we do.'' In our recent product 
announcements we committed to increase our hybrid production 
capabilities to a quarter-million units a year by 2010 and to 
continuing our leadership in ethanol powered flexible fuel vehicles.
    These new product initiatives are a strong commitment for Ford and 
our customers, and they recognize a changing marketplace. But there is 
a limit to what we can achieve on our own.
    We believe that our nation's energy challenges can only be properly 
addressed by an Integrated Approach: that is, a partnership of all 
stakeholders which includes the automotive industry, the fuel industry, 
government, and consumers. The truth is that we must all accept that 
these are long-term challenges and that we are all part of the 
solution.
    So let me set out how we at Ford Motor Company believe each 
stakeholder can play its part. I'll start with the automotive industry 
itself, because we clearly have a central role to play. The industry 
has taken significant steps in improving the fuel efficiency of our 
products. At Ford Motor Company we see this not only as being socially 
responsible but a business necessity, and we are moving ahead with a 
range of technological solutions simultaneously--because there is 
simply no single solution, no ``silver bullet''. We know that when 
customers consider purchasing a vehicle, they are concerned with 
numerous attributes including price, quality, safety, performance, 
comfort and utility. From our perspective, no one factor can be ignored 
in the highly competitive U.S. marketplace. As a result, we are working 
to accelerate the commercial application of all areas of advanced 
vehicle technologies, including hybrids, flexible fuel vehicles, 
advanced clean diesels, hydrogen-powered internal combustion engines 
and fuel cell vehicles. The portfolio approach that we are taking 
ensures that we are able to offer consumers a range of products that 
meet their specific needs and circumstances. And make no mistake; it 
will ultimately be the consumers who decide.
    This diversity of customer needs within and across markets is why 
we are investing in a portfolio of solutions. The result is a period of 
unprecedented technological innovation. Innovation--in matters of the 
energy, renewable fuels, safety and design--is the compass by which we 
are setting our direction for the future.
    At Ford, we recognize that hybrids have an important place within 
this portfolio of solutions. They deliver excellent benefits in lower 
speed stop/start traffic and offer many customers breakthrough 
improvements in fuel economy--up to 80% in city driving--without 
compromise. And much of this technology is also applicable to our fuel 
cell and ethanol vehicle development efforts. In 2004, we launched the 
world's first gasoline-electric full hybrid SUV, the Escape Hybrid. In 
2005, we expanded this technology to the Mercury Mariner Hybrid, and 
have announced plans to offer this technology on the Mazda Tribute SUV, 
and the Ford Fusion, Mercury Milan, Ford Five Hundred and Mercury 
Montego sedans, plus the Ford Edge and Lincoln MKX crossover vehicles.
    Expansion of our hybrid offering is now clearly an important part 
of our overall innovation strategy which embraces our recent commitment 
to increase our production capacity to up to 250,000 hybrids per year 
by 2010 and to offer hybrids on half of our Ford, Lincoln and Mercury 
products. Nevertheless, a key challenge facing hybrids is the 
incremental costs--both in terms of higher prices for components and 
engineering investments--that must be overcome for this technology to 
transition from ``niche markets'' to high-volume applications.
    In addition to hybrids, we believe that greater use of renewable 
fuels like ethanol, a domestically produced renewable fuel, will help 
reduce reliance on foreign oil. We applaud Congress' efforts that 
resulted in the Energy Policy Act of 2005, as well as the President's 
recent commitment to address our nation's addiction to oil. Ford has 
been building flexible fuel vehicles (FFVs) for over a decade, and we 
are an industry leader in this technology. These ``FFVs'' are capable 
of operating on up to 85% ethanol, or gasoline, or any mixture in 
between.
    By the end of this year, Ford Motor Company will have placed a 
total of nearly 2 million FFVs on America's roads, and for 2006 this 
includes America's best selling vehicle--the (5.4L) Ford F-150 FFV. As 
a whole, the U.S. automakers will have produced a total of nearly 6 
million vehicles. If all of these vehicles were operated on E85, over 
2.5 billion gallons of gasoline a year could be displaced.
    And we are not stopping there. A little over a month ago we 
unveiled the Ford Escape Hybrid E85 research vehicle which marries two 
petroleum-saving technologies--hybrid electric power and E85 flexible-
fuel capability. Though there are many technical and cost challenges to 
address, we believe that if just 5% of the U.S. fleet were powered by 
E85 HEVs, oil imports could be reduced by about 140 millions barrels a 
year.
    But there is a problem. Even though the volume of E85 vehicles 
continues to grow rapidly, there are less than 600 E85 fueling stations 
in the U.S.--and that's out of over 170,000 retail gasoline fueling 
stations nationwide. For ethanol to compete as a motor fuel in the 
transport sector and play an increasingly significant role addressing 
our nation's energy concerns, we need strong, long-term focus on 
policies that increase U.S. ethanol production and accelerate E85 
infrastructure development. At the same time, as the President pointed 
out in the State of the Union address, we need national research 
efforts to pursue producing ethanol from more energy-efficient 
cellulosic materials like rice straw, corn stover, switch grass, wood 
chips or forest residue.
    Ford is also working on advanced light duty diesel engines. Today's 
clean diesels offer exceptional driveability and can improve fuel 
economy by up to 20-25%. This technology is already prevalent in many 
markets around the world--nearly half of the new vehicles sold in 
Europe are advanced diesels--and Ford continues to accelerate our 
introduction of diesel applications in these markets. There are, 
however, many hurdles that inhibit wide scale introduction of this 
technology in the U.S. We are working to overcome the technical 
challenges of meeting the extremely stringent Federal and California 
tailpipe emissions standards, and to address other issues such as fuel 
quality, customer acceptance and retail fuel availability.
    Looking to the future, we are working on what we think is an 
important transitional technology to sustainable transportation--
hydrogen-powered internal combustion engines. Ford is a leader in this 
technology. We think it's a ``bridge'' to the development of a hydrogen 
infrastructure and, ultimately, fuel cell vehicles, and we are in the 
process of developing hydrogen powered E450 H2ICE shuttle 
buses for fleet demonstrations in North America starting later this 
year. Ford is also working on applying this engine technology to 
stationary power generators and airport ground support vehicles to 
further accelerate the technology and fueling infrastructure 
development.
    Even further down the road, hydrogen powered fuel cells appear to 
be another promising technology for delivering sustainable 
transportation. Hydrogen can be derived from a wide range of feedstocks 
to increase energy diversity, and fuel cells are highly energy-
efficient and produce no emissions. Our Ford Focus Fuel Cell vehicle is 
a state-of-the-art, hybridized fuel cell system--sharing much of the 
same hybrid technology we developed for our Escape Hybrid SUV. We have 
already placed a small fleet of these vehicles in three U.S. cities as 
part of the U.S. Department of Energy's hydrogen demonstration program 
collecting valuable data.
    As you can imagine, the R&D investment that goes with all this work 
is a very big number--certainly in the billions, not the millions--and 
it will only grow in the future. Many of our competitors and suppliers 
are also investing heavily. But there is only so much we can achieve 
without the help of others outside our industry. We need an integrated 
approach.
    It is clear that the solution to the energy issues associated with 
road transport will need to come from advances in fuels as well as 
vehicle technology. We need the oil industry to endorse an Integrated 
Approach here in the U.S., just as they are beginning to do with 
automakers and government officials in Europe. We at Ford are clearly 
excited about the potential role of renewable fuels. However, the fact 
is that without the whole-hearted involvement of the fuel industry, we 
cannot move forward far enough or fast enough. We obviously need key 
partners like the oil industry to invest in developing and marketing 
renewable fuels like E85--and we need it to do so now and rapidly. We 
fully support government incentives to encourage the industry or others 
to accelerate this investment.
    There is a great deal that policy makers can do at all levels as 
well. We would like to see more R&D support for vehicle technologies 
and renewable fuels. Government incentives for advanced technology 
vehicles and E85 infrastructure can accelerate the introduction of 
these vehicles and fuels into the marketplace. Government must play a 
critical role to promote U.S. innovation and can do so by expanding and 
focusing R&D tax credits for a broad range of energy efficient 
technologies. We would also like to see greater investment in improved 
road traffic management infrastructure in order to reduce congestion 
and save fuel. According to the American Highway Users Alliance, about 
5.7 billion gallons of fuel are wasted annually due to congestion. 
Effective traffic light synchronization is a good example of a change 
that could lead to big reductions.
    There is also a role for government in educating the public on how 
to drive in an energy efficient manner. In the end, it will ultimately 
be the size of the car park, and consumers' choices of vehicles, how 
many miles they drive, and driving behaviors that will determine how 
much motor fuel we consume. A person who drives in an energy-conscious 
way--by avoiding excessive idling, unnecessary bursts of acceleration 
and anticipating braking--can enjoy much better fuel consumption, 
today. And government can play a key role to raise public awareness. We 
believe that awareness is a simple and effective early step which is 
why we have introduced driver training programs in Europe and recently 
developed on-line training for all Ford Motor Company employees.
    Consistent implementation of an Integrated Approach will allow us 
to achieve much more in a shorter timeframe and at a significantly 
lower cost than if each stakeholder were to pursue its own agenda in 
isolation, however well-intentioned they might be.
    The challenges are considerable but not insurmountable, and there 
is an enormous amount we can achieve if we act together in an 
integrated manner. We have to ensure that our business is sustainable 
by making vehicles that continue to meet the changing needs of the 21st 
century. That's a responsibility we owe to our customers, shareholders 
and our employees. But at another level, all of us have the opportunity 
to do something about energy independence--and that's a responsibility 
we owe future generations.
    Thank you again for the opportunity to address the Committee.

    The Chairman. Frank Verrastro, director and senior fellow, 
Center for Strategic and International Studies, we welcome you. 
We have seen your testimony and we thank you so much for your 
ideas.

   STATEMENT OF FRANK VERRASTRO, DIRECTOR AND SENIOR FELLOW, 
 ENERGY PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

    Mr. Verrastro. Thank you, Mr. Chairman.
    I would also like to note at the outset that the last time 
I appeared before this panel, you characterized the 
presentations of myself and fellow witnesses as comparable to 
the warnings of the Paharo Dimaro Swartee, the bad news birds.
    Regardless of whether my current invitation attests to the 
accuracy of those past predictions or simply a reflection of 
the fact that the committee has new staff members, I 
nonetheless appreciate the opportunity to come back before you 
today.
    Since you have copies of my prepared remarks, let me use 
this time to highlight a few of the major points. And I agree 
with much of what has been said already.
    Page two of my testimony contains a pie chart indicating 
the EIA's projections for global energy demand growth in 2025, 
as well as the relative share of the major fuel groups. Similar 
forecasts have been published the IEA, OPEC, and others. And 
while the exact share numbers differ under each of the 
forecasts, the trends are always the same.
    Global energy demand is predicted to increase by 50 percent 
over the next 25 years, yet the relative shares of the five 
major fuel groups, oil, natural gas, coal, nuclear, and 
renewables, are expected to remain remarkably constant.
    A snapshot of just North America would mirror this global 
projection as we comprise about 30 percent of worldwide demand. 
Europe would show a greater concentration of nuclear and, 
hence, a lower share of fossil fuels.
    But in the developing world, those countries least able to 
utilize cutting-edge technology and the area's largest 
projected area where we see a doubling of demand over the next 
20 years, fossil fuels continue to exceed 90 percent, carrying 
obvious consequences for consumer competition and for the 
environment.
    Analyzing this forecasted future leads to two seemingly 
inescapable conclusions. The first is that absent major 
technological breakthroughs, significant changes in consumption 
patterns and policy, or massive dislocations to alter the 
course of events, consumption trends depicted by this chart are 
simply unsustainable for the long term.
    Second, even assuming a significant contribution from a 
wide range of alternative fuels, conventional energy sources 
will continue to dominate the landscape for at least the next 
several decades.
    I would also add that since the topic of this hearing 
focuses on energy independence, that despite the obvious 
political attraction, such a notion may, in fact, be a 
misguided quest and that we might be better served by 
recognizing the reality of our current energy interdependence 
while mapping out a strategy for managing the transition to a 
different energy future.
    Rising oil prices in recent years have heightened interest 
in a variety of alternative sources of liquid and nonliquid 
fuels, including natural gas, fuel cells and batteries, 
methanol, ethanol, biodiesel, coal to liquids, gas to liquids, 
industrial, municipal, and agricultural waste streams, other 
forms of biomass conversion, hydrogen, and electricity. All 
have great promise, but most have problems, both aspects of 
which are outlined in greater detail in my testimony.
    Bio refineries, digesters, and other waste energy process 
facilities are clearly in the sights of investors, although 
their most significant supply impacts may be felt on a regional 
rather than national basis, at least until expanded 
distribution and delivery infrastructure is put in place.
    Analysis performed by EIA and the National Renewable Energy 
Lab estimates that even under optimistic assumptions, 
alternative transport fuels, excluding electric hybrid plug-
ins, can be expected to displace or replace a maximum of 10 
percent of conventional liquid transport fuels by 2030, leaving 
petroleum-based fuels, new technologies, conservation, and 
improved efficiency gains to deal with the remaining 90 
percent.
    For purposes of comparison, a billion gallons of 
alternative fuels per year roughly translates to 65,000 barrels 
a day of conventional gasoline and maybe less depending on 
energy context. And we currently consume over nine million 
barrels a day of gas every day.
    In short, while contributions from alternate fuels will be 
helpful as a component in meeting increased consumer demand, 
petroleum-based fuels are likely to remain the overwhelming 
fuel of choice for at least the next 20 years.
    At the same time, however, we cannot ignore preparations 
for transitioning to the inevitable post-oil world, a 
transition which former Energy and Defense Secretary, Jim 
Shlesinger, has characterized as the greatest challenge this 
country and the world will face outside of war.
    As with any transformational change, issues surrounding the 
approach, time horizon, and leverage designed to accomplish 
this objective remain the keys to success. Dealing with an 
energy transition is no less daunting.
    To the extent practicable, every effort should be made to 
pursue policies and changes that fully take into account 
investment in market practices and utilize as much as possible 
existing infrastructure and currently available technologies.
    Minimizing uncertainty, avoiding conflicting and 
contradictory policy signals and selecting options based on 
economic efficiency and merit rather than political efficacy 
are also highly recommended.
    And fuels alone are not the answer. We need radical changes 
to our motor vehicles, both in terms of energy and design and 
construction material, as well as to the way we transport goods 
and people.
    In conclusion, let me add that the oil market is truly a 
global market. Reducing America's oil consumption can 
potentially have a dampening effect on prices, but will not 
completely insulate us from supply disruptions or price 
volatility.
    We frequently speak about politically unstable sources of 
supplies from around the globe, but the largest protracted 
losses of global oil and gas output in both 2004 and 2005 were 
the results of hurricanes in the U.S. Gulf of Mexico.
    The Stone Age did not end because we ran out of rocks. 
Something better came along. The oil age will similarly be 
overtaken when a better solution or series of component 
solutions emerge. We can and should accelerate that process, 
but need to do so carefully and prudently by introducing cost-
effective substitutes, using available market mechanisms, and 
educating the public on the need for change, and, in the 
meantime, by better managing demand and our global relations 
with suppliers and consumers alike.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Verrastro follows:]

  Prepared Statement of Frank Verrastro, Director and Senior Fellow, 
     Energy Program, Center for Strategic and International Studies

    Mr. Chairman, Members of the Committee, I appreciate the 
opportunity to appear before you today to discuss the broad ranging 
topic of America's energy independence. I currently serve as Energy 
Program Director and Senior Fellow at the Center for Strategic and 
International Studies (CSIS), but my professional background also 
includes a variety of energy policy positions in the White House, and 
the Departments of Interior and Energy, as well as senior executive 
positions dealing with both upstream and downstream issues in the 
energy sector, first as Director of Refinery Policy and Crude Oil 
Planning for TOSCO Corporation, and more recently as a Senior Vice 
President at Pennzoil Company.
    Given the composition of this morning's panel, the bulk of my 
remarks will be directed at the issue of oil import dependence and 
prospects for replacing and reducing petroleum demand for 
transportation fuels, but more generally I will also touch on the U.S. 
energy balance and proffer the view that we would be well advised to 
pursue a broader array of options for ensuring that our energy needs 
are met. These options should include:

   stimulating additional supplies of conventional and 
        traditionally non-conventional fuel sources, including 
        renewables and alternatives;
   improving energy efficiency and conservation efforts;
   promoting research and technology development, and where 
        applicable, accelerating the deployment of useful technologies;
   addressing infrastructure needs to facilitate the delivery 
        of fuel choices;
   pursuing the development of a more comprehensive energy 
        strategy that recognizes the potential for simultaneously 
        introducing transformational policies while managing the 
        realities of our existing energy interdependence in a global 
        energy market, and
   performing the above activities consistent with current 
        investment and market practices.

    I would also add that focusing on Energy Independence, while 
politically attractive, may in fact be a misguided quest and that we 
would be better served by mapping out a strategy for managing the 
transition to a different energy future as our current path is clearly 
unsustainable.

                       OUR EVOLVING ENERGY WORLD

    Mr. Chairman, the events of the past few years have served to 
refocus attention on the critical role which energy plays in our 
national and global economies. Rising global oil demand, concern over 
the adequacy, reliability, and pricing of energy supplies, the 
environmental implications of increased use of fossil fuels, the cost 
of those supplies for developed and developing economies alike, trade 
and capital flows, and global geopolitics are issues that preoccupy 
business and governments around the globe.
    Faced with these evident realities, concern over the continued 
ability of this nation to secure energy supplies from an increasing 
list of inaccessible, high risk or less than reliable parts of the 
world has prompted policymakers to once again raise the issues of both 
the desirability and achievability of energy independence.
    U.S. consumers have come to both enjoy and expect a healthy 
domestic economy, which is underpinned by an energy supply that is at 
once available, affordable, secure, and environmentally benign. In this 
new world are those criteria able to be satisfied or are they just 
beyond the reach of current energy paradigms and policies?
    Global energy demand is projected to increase by 50 percent over 
the next 25 years, yet the relative shares of the five major fuel 
groups--oil, natural gas, coal, nuclear and renewables--are expected to 
remain remarkably constant, with fossil fuel consumption still 
accounting for over 85 percent of total energy demand in 2025. In the 
developing world, that figure exceeds 90 percent (see figure below),* 
carrying obvious consequences for consumer competition and the 
environment.
---------------------------------------------------------------------------
    * All graphs have been retained in committee files.
---------------------------------------------------------------------------
    As we consider our energy options, I would strongly urge that we 
not forget the substantial contributions that conservation and improved 
efficiency can make to achieving our future energy goals. In the power 
generation sector, it currently takes three to four units of primary 
energy to produce one unit of delivered electricity. Conservation, 
efficiency and infrastructure delivery improvements coupled with 
additional contributions from renewable energy sources can obviate the 
need for additional, incremental production of fossil fuels for power 
generation purposes. Similarly, improving auto efficiency and 
accelerating the deployment of proven technologies into the auto fleet 
can, over time, make a substantial contribution to reducing 
transportation fuel demand.
    Analyzing this forecasted future leads to two seemingly inescapable 
conclusions. The first is that absent major technological 
breakthroughs, significant changes in consumption patterns and 
policies, or massive dislocations that alter the course of events, the 
consumptions trends depicted by this chart are simply unsustainable for 
the long term. Secondly, even assuming a significant contribution from 
a wide range of alternative fuels, conventional energy sources will 
continue to dominate the landscape for at least the next several 
decades.

      THE ROLE OF THE UNITED STATES IN A GLOBAL ENERGY MARKETPLACE

    For the past thirty years, U.S. oil policy initiatives have 
centered around 4 major themes: increasing and diversifying sources of 
conventional and unconventional energy supplies both at home and 
abroad; encouraging, wherever practicable and politically achievable, 
the adoption of improvements in conservation and fuel efficiency; the 
expansion of the strategic petroleum reserve; and reliance on Saudi 
Arabia to balance oil markets and moderate prices.
    For the most part, in an era of surplus supply, this strategy has 
largely worked. Times and market conditions, however, may well be 
changing. Global demand for all energy forms is accelerating, and 
resources are increasingly controlled by national players, whose 
primary national objectives may not conform to traditional market 
practices or concerns.
    It took the world 18 years (from 1977-1995) to grow global oil 
demand from 60 to 70 million barrels per day (mmb/d); eight years to 
grow from 70 to 80 mmb/d; and if current projections are correct, 
global oil demand will exceed 90 mmb/d by 2010. Forecasts for oil 
consumption in 2030 approximate 115-120 mmb/d--roughly half again as 
much as we currently consume. Setting aside the debate about resource 
availability or so called ``peak oil,'' market growth of that magnitude 
will require huge investments, place enormous strains on transportation 
and infrastructure needs, and carry significant implications for 
security, global geopolitics and the environment.
    In addition, the entry of new market players, like China and India, 
with growing energy appetites and expanding economies may pose 
competitive threats to America's market dominance. Added to that are 
heightened security concerns about threats to infrastructure and 
facilities posed by terrorist groups and insurgents. Taken together, 
these changing circumstances have the potential to re-order the 
marketplace and fundamentally alter the geopolitical balance that has 
governed the past half century. Such changes may also warrant a 
thoughtful recalibration of our economic, security, environmental, 
energy and foreign policy calculations and policy choices.
    The United States is currently the world's largest producer, 
consumer, and net importer of energy. We are home to roughly 5 percent 
of the world's population and produce 17 percent of the total energy 
supplied. Yet in the process of generating some 30 percent of global 
GDP, America consumes nearly a quarter of the world's energy.
    In terms of energy self-sufficiency, the United States in 2004 
produced (domestically) roughly 71 percent of the total energy it 
consumed. Today, the United States remains self-sufficient in meeting 
virtually all of its energy needs with the exception of two key energy 
forms--petroleum, and increasingly, natural gas--both of which are 
critical commodities.
    In its recently released 2006 Annual Energy Outlook, the U.S. 
Energy Information Administration (EIA) forecasts that overall energy 
usage in the United States will continue to increase at an annual 
growth rate of 1.2 percent for the next 25 years. U.S. energy demand 
for all fuels is projected to increase from roughly 100 quadrillion 
Btus (Quads) to over 127 quads by 2030 with oil, gas and coal leading 
the way. Projected incremental growth for non-hydro renewables will 
also be substantial, but starting from such a small base, is expected 
to account for about 7 percent of total domestic energy demand by 2025, 
with 60 percent of that amount devoted to grid-related electricity 
generation.
    In contrast, total U.S. demand for petroleum products, largely 
driven by increases in transportation fuel needs, is projected to 
increase by over 30 percent from current levels (slightly below 21 mmb/
d in 2005) to just over 27.5 mmb/d in 2030. Demand for all forms of 
petroleum fuels except for the bottom of the barrel increase, and total 
gasoline demand increases to about 12.5 mmb/d. Petroleum fuels 
currently supply 97 percent of all domestic transportation needs.
    After a brief period of increased output (from 2006-2015, largely 
as a result of additional production from the deep water of the Gulf of 
Mexico) domestic crude oil production is expected to resume its gradual 
decline. And with U.S. refineries running at or near capacity, absent 
substantial new investment, increased domestic demand means expanding 
reliance on imported petroleum, both for crude oil and, increasingly, 
refined petroleum products.
    In 2025, net petroleum imports are expected to account for 60 
percent of demand (up from 58 percent in 2004), although that figure 
could increase to almost 70 percent depending on assumptions about 
price and economic activity. Net imports of refined petroleum products 
increase from 17 to 22 percent of total oil imports by 2030.
    The rise in oil import levels, both in absolute and relative terms, 
carries important infrastructure, logistical, environmental, financial, 
trade, security, and foreign policy implications. Assuming investment 
continues to lag in the creation of additional domestic refining 
capacity, the projected rise in imports of refined petroleum product 
increases U.S. vulnerability to supply disruptions and potentially 
undermines the value of the Strategic Petroleum Reserve (SPR).
    A similar picture emerges for domestic natural gas, although demand 
continues to grow between now and 2015 before leveling off as coal 
demand for power generation accelerates. As demand for natural gas 
increases, the United States will increasingly rely on nonconventional 
domestic production (e.g., tight sands and coal seam gas), gas from 
Alaska, on increased imports of pipeline gas from Canada (to the extent 
they are available), and on LNG from sources in Latin America, the 
Caribbean, Africa, the Middle East, Australia, and Russia.
    Projected supplies of LNG imports assume that additional 
regasification capacity will be permitted and constructed either within 
the United States or in areas proximate to U.S. borders--an uncertain 
assumption. In addition to environmental, safety, competition, and 
siting issues, opponents of additional LNG regas projects increasingly 
cite security and foreign policy concerns about exposing the U.S. 
electric grid system to reliance on imports from countries, many of 
which are oil exporters found in troubled regions of the world. (Global 
gas reserves data is shown in the next figure.)

                AN INCREASING ROLE FOR ALTERNATIVE FUELS

    Rising oil prices in recent years have heightened interest in a 
variety of alternative sources of liquid fuels. At present, two 
biologically derived fuel forms, ethanol and biodiesel, are used in the 
United States to supplement supplies of conventional gasoline and 
diesel. In principle, biodiesel can be blended into conventional diesel 
or heating oil in fractions compatible with the fuel system and/or its 
construction materials. On the plus side, biodiesel's blending promotes 
flexibility and reduces carbon monoxide emissions. Unfortunately, 
depending on the precise chemical composition of the solvent, too high 
a concentration can damage certain plastics and rubber (system) 
components and may contribute to increased emissions of nitrogen oxide.
    Ethanol can be readily blended into gasoline. Since the late 1970s, 
cars and light trucks built for the U.S. market are capable of running 
on a 10 percent ethanol blend. A limited number (roughly 5 million) of 
the 220 million vehicles currently on the road are also capable of 
running on blends of up to 85 percent ethanol. Most fuel ethanol 
currently produced in the United States is distilled from corn. Since 
corn is also a food crop, however, there are questions related to the 
volume of ethanol that can be readily produced from corn without 
affecting crop prices, as well as limitations on the amount of acreage 
available to dedicate to fuel crop planting.
    In addition, since only a portion of the plant material can be used 
to produce ethanol, issues have been raised about how to handle the 
residual waste material--e.g., stalks, leaves and husks. A partial 
answer to this dilemma has resulted in research into what is called 
cellulosic ethanol, but transportation and energy content issues still 
remain to be resolved. For example, since a gallon of ethanol contains 
less energy than a comparable gallon of gasoline, poorer mileage 
ratings and more frequent fuel stops are impediments that need to be 
overcome. Additionally, cold weather start problems and transport in 
carriers other than pipelines may complicate gasoline substitution on a 
national scale.
    There have also been promising breakthroughs in creating other 
forms of fuels from a wide variety of sources, including biomass, 
agricultural, industrial and municipal waste streams, coal to liquids 
(CTLs), gas to liquids (GTLs), ``synfuels'' made from oil sands, shale 
and extra heavy crudes, and biomass to liquids (BTLs) processes that 
derive fuels from waste wood and other non-food plant sources.
    Biorefineries, digesters and other waste to energy process 
facilities are clearly in the sights of investors, although their most 
significant supply impacts may be felt on a regional rather than 
national basis, at least until expanded distribution and delivery 
infrastructure comes on line. In this regard, better data collection 
would be most helpful. The National Renewable Fuels Laboratory (NREL) 
and EIA have been discussing data improvements to better capture a more 
complete picture of how biofuels activity is developing within the 
U.S., but resource limitations affecting data collection and modeling 
have limited that effort.
    It is worth noting, however, that based on current government data, 
the capital investment costs for most, if not all, of these synthetic 
fuel technologies is considerably more than that required for a 
traditional crude oil refinery (see page 57, of EIA's 2006 Annual 
Energy Outlook). Further, for purposes of comparison, EIA estimates 
that there is currently some 300,000 b/d of installed corn ethanol 
capacity in the United States and an additional 12,000 b/d of biodiesel 
capacity. Additionally, excluding ``pilot'' facilities, the latest EIA 
statistics indicate that there are currently no commercial BTL, GTL or 
CTL plants in the United States. In contrast, U.S. refining capacity 
currently exceeds 17 million barrels per day and domestic gasoline 
demand averages over 9 million barrels per day.
    The mandated target of producing 7.5 billion gallons of ethanol 
(fuel) by 2012 translates into roughly 490,000 b/d, representing 
approximately 3 percent of projected domestic transportation fuel needs 
in 2012 and less than 5 percent of total gasoline demand. Analyses 
performed by EIA and NREL estimate that even under optimistic 
assumptions, alternative transport fuels (excluding electric hybrid 
plug-ins) can be expected to displace/replace a maximum of 10 percent 
of conventional liquid transport fuels by 2030, leaving petroleum based 
fuels, conservation and improved efficiency gains to deal with the 
remaining 90 percent.
    A 2004 report prepared by the bi-partisan National Commission on 
Energy Policy came up with similar results, projecting a 10-15 percent 
reduction in U.S. oil consumption in 2025 by substituting non-petroleum 
transportation fuel alternatives in combination with the adoption of 
more stringent CAFE standards for cars and light trucks and providing 
incentives to encourage the production and purchase of fuel efficient 
vehicles. In reaction to the Commission's report, EIA analysis 
attributed a 7.3 percent reduction in petroleum fuel usage to the 
adoption of tougher fuel efficiency and CAFE standards.
    In short, while contributions from alternative fuels will be 
helpful as a component in meeting increased consumer demand for 
transport fuels, for at least the mid-term, absent significant policy 
and regulatory changes to promote increased fuel efficiency, major 
technological breakthroughs, and substantial changes in consumer/driver 
behavior (based on environmental, security or foreign policy 
considerations), petroleum based fuels will remain the overwhelming 
fuel of choice for at least the next 20-30 years.
    Given projections for increasing fuel demand, the inescapable 
conclusion is that oil imports will also be with us for decades to 
come. In that context, we would do well to ratchet down the political 
rhetoric surrounding the notion of achieving energy independence and 
instead refocus our efforts to deal with an inter-dependent energy 
future and simultaneously prepare for the (longer term) transition to a 
post-oil world, a transition which former Energy and Defense Secretary 
James Schlesinger has characterized as ``. . . the greatest challenge 
this country and the world will face--outside of war.''

                 U.S. OIL IMPORTS--SOURCES AND CONCERNS

    In his State of the Union address, President Bush advanced the 
challenge of reducing this nation's ``addiction to oil'' and reducing 
by 75 percent our reliance on oil imports from the Middle East. At 
best, this line was a thinly veiled attempt to drum up domestic 
political support for a valiant yet difficult effort to reduce 
petroleum consumption. At worst, it showed a decided lack of 
understanding of U.S. import sources, global oil markets and reserve 
holders.
    In 2005, the primary oil suppliers (crude oil and refined product) 
to the United States were, in volumetric order, Canada, Mexico, 
Venezuela, Saudi Arabia and Nigeria. Imports from Iraq ranked a distant 
sixth. The top 5 suppliers provide over 60 percent of total U.S. oil 
imports. The entire Middle East, by contrast, accounted for roughly 17 
percent of last year's imports (representing about 11 percent of total 
domestic petroleum consumption).
    Looking forward, imports of Canadian and Mexican oil are expected 
to decline as their respective production levels decline and/or 
domestic requirements increase. In contrast, imports from the Middle 
East and OPEC sources generally (in part because these countries 
represent the several of the largest reserve holders in the world, both 
for oil and gas) are expected to increase. Managing relationships with 
these suppliers should be a priority under any policy the U.S. devises 
for dealing with future energy requirements.

                         PITFALLS AND WARNINGS

    As with any transformational change, issues surrounding the 
approach, time horizon and levers designed to accomplish the objective 
remain keys to success. Dealing with an energy transition is no less 
daunting. To the extent practicable, every effort should be made to 
pursue policies and changes that fully take into account investment and 
market practices and utilize as much as possible existing 
infrastructure and currently available technologies. Minimizing 
uncertainty, avoiding conflicting or contradictory policy signals, and 
evaluating/selecting options based on economic efficiency and merit 
rather than political efficacy are also are highly recommended.
    A few examples:
    Less than eight months ago, the Congress adopted the Energy Policy 
Act of 2005. The Act was notable in many respects, but when read 
against the oil reduction challenges laid out by the President in the 
State of the Union address may unintentionally lead to uncertainty and 
paralysis in terms of energy investment. The energy legislation 
specifically included provisions designed to encourage additional 
refinery capacity construction within the United States, yet the 
President's challenge to displace petroleum usage could likely have a 
chilling impact on both international upstream investments and domestic 
refining additions, both expensive and long-lived investments.
    Similarly, after much debate and deliberation and for a wide 
variety of reasons, the single MTBE-related provision (repeal of the 
oxygenate mandate) that survived the energy conference has resulted in 
a reduction in available octane enhancing components and will likely 
produce higher ethanol and gasoline prices while reducing gasoline 
availability.
    A third example relates to the permitting of additional LNG 
regasification facilities in the United States to handle increased 
volumes of imported natural gas. As indicated earlier, as we strive to 
reduce reliance on imported oil, we appear to be simultaneously 
encouraging increased import dependence of natural gas--the bulk of 
which may come from similar import sources.
    And finally, at a time when policymakers are intent upon 
encouraging specific types of large scale energy investments, does it 
really make sense to hamstring major industry players by proposing tax 
changes that ultimately reduce their ability to pursue those 
investments?
    Altering the trajectory of future demand for petroleum based fuels 
is prudent policy for a wide variety of reasons. But in doing so, we 
should not confuse displacing oil with the larger objective of 
tempering overall consumption and improving efficiency as the main 
priorities. Crop growing also requires energy. Plug in vehicles that 
run on electricity require energy sources to generate that power--the 
bulk of which currently comes from coal, although nuclear, natural gas 
and renewables also play significant roles.
    The oil market is a truly global market. Reducing America's oil 
consumption can potentially have a dampening effect on prices, but it 
will not completely insulate us from supply or price volatility. We 
frequently speak about ``politically unstable'' sources of oil supplies 
around the globe, but the largest protracted losses of global oil and 
gas output in both 2004 and 2005 were the result of hurricanes in the 
U.S. Gulf of Mexico.
    The Stone Age did not end because we ran out of rocks--something 
better came along. The Oil Age will similarly be overtaken when a 
better solution or a series of component solutions emerge. We can and 
should accelerate that process, but need to do so carefully and 
prudently--by introducing cost effective substitutes, while employing 
(insofar as possible) existing infrastructure and delivery systems, 
minimizing uncertainty, using available market mechanisms and educating 
the public on the need for change.

                               CONCLUSION

    Over the past 50 years, U.S. energy policy has been faithfully 
diverse, often internally inconsistent, amazingly flexible in adjusting 
to public, market and commercial pressures, and incomprehensible to 
most observers. It is likely to retain many of these unique elements.
    The 1970s provided the last clear articulation of an attempted 
national energy strategy--and this was largely in response to global 
energy events. The 1973 Arab Oil Embargo prompted the development of 
the SPR, the adoption of CAFE (Corporate Average Fuel Efficiency) 
standards, and the formation of the International Energy Agency (IEA). 
Domestic natural gas shortages and the prospects for declining oil 
supplies prompted President Carter's decision to lift oil price 
regulation and pursue energy sector transformation, ushering in a new 
era in U.S. policy driven by the market.
    In short, economics has prevailed over the past 25 years. Until 
recently, oil prices have remained relatively low and U.S. energy 
efficiency has increased. However, changing market and political 
conditions may complicate America's policy agenda going forward, and 
these include:

   Energy security, broadly defined in terms of attacks on 
        infrastructure, and greater vulnerability to imported energy 
        supply threats, either physical or financial, due to growing 
        production concentration;
   Market developments, particularly in alternative fuels and 
        with respect to climate change. In the future, markets may 
        drive policy more than policy drives markets;
   Less multilateral cooperation in the international oil 
        trading and investment market places as governments pursue 
        specific narrow interests;
   Increased vulnerability to supply disruptions due to growing 
        natural gas import dependence in the power sector; and
   Political hostility to U.S. policy in specific regions as 
        allies and friends abandon the United States to ensure their 
        own political survival.

    The role of the United States as an energy producer, consumer, and 
importer has already been noted in some detail. The energy future of 
the country seems at once very clear but very worrisome: declining 
domestic production and rising domestic demand, with the gap to be 
covered by imports from suppliers whose national interests may not and 
historically have not coincided with our own.
    This almost inevitable growth in reliance on foreign supplies 
would, to the casual observer, seem to be a call to action, to define 
and implement policies that would concomitantly expand domestic 
supplies while setting demand management efforts in motion. To do so, 
however, requires a certain political will on the part of both the U.S. 
consumer and the government. And, to date, despite higher energy 
prices, real and threatened interruptions in supply, environmental 
damage, hurricanes and blackouts, that critical ingredient remains 
lacking.
    All energy producer/exporters and consumer/importers are bound 
together by a mutual interdependency. All are vulnerable to any event, 
anywhere, at any time, which impacts on supply or demand. This means 
that the U.S. energy future likely will be shaped, at least in part, by 
events outside of our control and beyond our influence. Calls for 
energy independence, absent major technological breakthroughs and a 
national commitment, ring hollow, and in the near term are both 
unrealistic and unachievable. In the absence of decisive political will 
to undertake those steps necessary to improve efficiency, promote 
conservation, encourage the development of domestic energy resources 
and renewable energy forms, learning to manage the risks accompanying 
import dependency may be the only reasonable course of action.
    It is against this backdrop that future U.S. environmental, 
economic, foreign, energy and security policies must be fashioned.
    Thank you.

    The Chairman. Mr. Lovins, chief executive officer of the 
Rocky Mountain Institute, we welcome you and your testimony 
will be made a part of the record.

 STATEMENT OF AMORY B. LOVINS, CHIEF EXECUTIVE OFFICER, ROCKY 
                       MOUNTAIN INSTITUTE

    Mr. Lovins. Mr. Chairman, thank you for this opportunity to 
provide a broader context amplified in my written testimony for 
how to achieve energy independence without compromising 
national security.
    Both energy independence and its purpose, energy security, 
rest on three pillars. First, making domestic energy 
infrastructure, notably electric and gas grids, resilient 
because domestic is not necessarily secure. Second, phasing 
out, not expanding, vulnerable facilities and unreliable fuel 
sources. And, third, ultimately eliminating reliance on oil 
from any source.
    Listing those three pillars in the order I did emphasizes 
that achieving the third goal without the first two creates 
only an illusion of security. Hurricane Katrina might as well 
have read my 1981 finding for DOD that a handful of people 
could cutoff three-quarters of the oil and gas supply to the 
Eastern States in one evening without leaving Louisiana.
    We should worry not only about already attacked Saudi oil 
choke points like Abqaiq and Ras Tanura but also about the all-
American Strait of Hormuz proposed in Alaska.
    DOE policy that did not undercut DOD's mission would shift 
from brittle energy architecture, the next major failure 
inevitable, to more efficient, resilient, diverse, dispersed, 
renewable systems that make it impossible.
    It would avoid electricity investments that are meant to 
prevent blackouts, but instead make them bigger and more 
frequent. It would stop creating attractive nuisances for 
terrorists from vulnerable LNG and nuclear facilities to over-
centralized U.S. and Iraqi electric infrastructure. And it 
would acknowledge the nuclear proliferation correctly 
identified by the President as the gravest threat to national 
security is driven largely by nuclear power.
    Each of these self-inflicted security threats can be 
reversed by cheaper, faster, more abundant, and security-
enhancing alternatives available both from comprehensive energy 
efficiency and from decentralized supply.
    For example, nuclear power has already been eclipsed in the 
global marketplace by resilient, inherently peaceful, lower 
cost and lower risk micro power. That is a big win for national 
security and profitable climate protection and a vindication of 
competitive markets over central planning.
    Energy independence is not only about oil. Many sources of 
LNG raise similar concerns of security, dependence, site 
vulnerability, and cost. I do not expect that Iran and Russia 
would be more reliable, long-run sources of gas than Persian 
Gulf states are today of oil.
    Fortunately, half of U.S. natural gas can be saved by end-
use efficiency and electric demand response with average costs 
below a dollar per million BTU, four times cheaper than LNG, 
thus making LNG needless and uncompetitive.
    America's oil problem is equally unnecessary and 
uneconomic. Seventy-seven weeks ago, my team published 
``Winning The Oil End Game,'' an independent, peer-reviewed, 
detailed, transparent, and uncontested study co-sponsored by 
the Office of the Secretary of Defense and the Chief of Naval 
Research. It shows how to eliminate U.S. oil use by the 2040's 
and revitalize the economy led by business for profit.
    Welcomed by business and military leaders, our analysis is 
based on competitive strategy for cars, trucks, planes, and 
oil, and on military requirements.
    Our study shows how the United States can redouble the 
efficiency of using oil at an average cost of $12.00 per saved 
barrel and can substitute, save natural gas, and advance 
biofuels, chiefly cellulosic ethanol for the remaining oil at 
an average cost of $18.00 per barrel. Thus eliminating oil use 
would cost just one-fourth its current market price, 
conservatively assuming that its externalities are all worth 
zero.
    Side benefits would include a free 26-percent reduction in 
CO2 emissions, a million new jobs, three-fourths in 
rural and small-town America, and the opportunity to save a 
million jobs now at risk. America can either continue importing 
efficient cars to displace oil or make efficient cars and 
import neither the cars nor the oil. A million jobs hang in the 
balance.
    The key to wringing twice the work from our oil is tripled 
efficiency, cars, trucks, and planes, integrating the best 2004 
technologies for ultra-light steels or composites, better 
aerodynamics in tires, and advanced propulsion can do this with 
2-year paybacks.
    For example, new low-cost carbon composite manufacturing 
techniques can cut in half the weight and fuel use of our cars 
and light trucks, improve their safety, comfort, and 
performance, and not raise their manufacturing costs.
    Just for illustration, I brought along a little piece of 
such a material to illustrate that plastics have changed since 
``The Graduate.''
    Oil elimination's compelling business logic will drive its 
eventual adoption, but supported public policy could accelerate 
it without requiring new taxes, subsidies, mandates, or Federal 
laws. This could be done administratively or by the States.
    Many innovative policies could also transcend gridlock. 
Size and revenue-neutral feebates could speed the adoption of 
super-efficient cars far more effectively than gasoline taxes 
or efficiency standards and would make money for both consumers 
and auto makers.
    While the policies could also support automotive retooling 
and retraining, super-efficient planes, advanced biofuels, low-
income access to affordable personal mobility, and other key 
policy goals all at zero net cost to the Treasury.
    Early implementation steps are encouraging. Our analysis 
has already led Wal-Mart to launch a plan to double its heavy 
truck fleets' efficiency and to consider tripled efficiency a 
realistic goal.
    The Department of Defense is also recognizing fuel-
efficient platforms as a key to military transformation. 
Military needs for ultra-light, strong, cheap materials, and 
the science and technology commitments that that implies can 
transform the civilian car, truck, and plane industry as much 
as DARPA created the internet, GPS, and the chip and jet engine 
industries, and thus can lead the Nation off oil so we need not 
fight over oil, net negamissions in the Persian Gulf, mission 
unnecessary.
    I believe the shortest path to an energy policy that 
enhances security and prosperity is free-market economics, 
letting all ways to save or produce energy compete fairly at 
honest prices, no matter which kind they are, what technology 
they use, where they are, how big they are, or who owns them.
    That would make the whole energy security, oil, climate, 
and most proliferation problems fade away and would make our 
economy and our democracy far stronger.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much for your comments.
    [The prepared statement of Mr. Lovins follows:]

  Prepared Statement of Amory B. Lovins,\1\ Chief Executive Officer, 
                      Rocky Mountain Institute \2\

    Both energy independence and its purpose, energy security, rest on 
three pillars:
---------------------------------------------------------------------------
    \1\ Published in 29 books and hundreds of papers, Mr. Lovins's work 
has been recognized by the ``Alternative Nobel,'' Onassis, Nissan, 
Shingo, and Mitchell Prizes, a MacArthur Fellowship, the Benjamin 
Franklin and Happold Medals, nine honorary doctorates, and the World 
Technology, Heinz, Lindbergh, Jean Meyer, and Time ``Hero for the 
Planet'' Awards. He's a longtime advisor to the Departments of Energy 
and Defense and major energy firms worldwide.
    \2\ RMI is an independent, nonpartisan, entrepreneurial, nonprofit 
applied research center that creates abundance by design. Working 
mainly with the private sector, it fosters the efficient and 
restorative use of resources to make the world secure, just, 
prosperous, and life-sustaining. In recent years, RMI's consulting team 
has redesigned $20 billion worth of facilities for advanced energy 
efficiency and has served or been asked to serve over 80 Fortune 500 
firms.

          1. Making domestic energy infrastructure, notably electric 
        and gas grids, resilient.
          2. Phasing out, not expanding, vulnerable facilities and 
        unreliable fuel sources.
          3. Ultimately eliminating reliance on oil from any source.\3\
---------------------------------------------------------------------------
    \3\ Since oil is a fungible commodity in a global market, national 
energy policy correctly recognizes that the problem is oil use, not 
imports: see n. 13, p. 14. For example, even if the U.S. imported no 
oil, it would still be a price-taker in the world market, so its 
economy, like its trading partners', would still be buffeted by oil-
price volatility. Oil infrastructure is also inherently vulnerable even 
if it is domestic (n. 4).

    Listing them in this order emphasizes that achieving the third goal 
without the first two creates only an illusion of security. Hurricane 
Katrina might as well have read my 1981 finding \4\ for DoD that a 
handful of people could cut off three-fourths of the Eastern states' 
oil and gas supplies in one evening without leaving Louisiana. We 
should worry not only about already-attacked Saudi oil chokepoints like 
Abqaiq and Ras Tanura, but also about the all-American Strait of Hormuz 
proposed in Alaska.\5\ DOE policy that didn't undercut DoD's mission 
would:
---------------------------------------------------------------------------
    \4\ A.B. & L.H. Lovins, Brittle Power: Energy Strategy for National 
Security, Brick House (Andover MA), 1981, and Rocky Mountain Institute, 
1989; OCR scan reposted at www.rmi.org/sitepages/pid1011.php; 
summarized in A.B. & L.H. Lovins, ``The Fragility of Domestic Energy,'' 
Atlantic, pp. 118-126, Nov. 1983 (Attachment One hereto. Attachment one 
has been retained in committee files).
    \5\ Former Director of Central Intelligence R. James Woolsey, an 
Oklahoman not per se hostile to petroleum, testified against Arctic 
National Wildlife Refuge drilling on national-security grounds (Energy 
Subcommittee of USHR Science Committee, 1 Nov. 2001), and wrote that 
such drilling's ``real show-stopper is national security. Delivering 
that oil by its only route, the 800-mile-long Trans-Alaska Pipeline 
System (TAPS), would make TAPS the fattest energy-terrorist target in 
the country Uncle Sam's `Kick Me' sign. / TAPS is frighteningly 
insecure. It's largely accessible to attackers, but often unrepairable 
in winter. If key pumping stations or facilities at either end were 
disabled, at least the above-ground half of 9 million barrels of hot 
oil could congeal in one winter week into the world's biggest 
ChapStick. / The Army has found TAPS indefensible. It has already been 
sabotaged, incompetently bombed twice, and shot at more than 50 times. 
Last Oct. 4 [2001], a drunk shut it down with one rifle shot. / In 
1999, a disgruntled engineer's sophisticated plot to blow up three 
critical points with 14 bombs, then profit from oil futures trading, 
was thwarted by luck. He was an amiable bungler compared with the Sept. 
11 attackers. Connect the dots: Doubling and prolonging dependence on 
TAPS hardly seems a prudent centerpiece for what advocates whimsically 
called the Homeland Energy Security Bill./ Reliance both on Mideast oil 
and on vulnerable domestic energy infrastructure such as TAPS imperils 
the security of the U.S. and its friends.'' (R.J. Woolsey, A.B. & L.H. 
Lovins, ``Energy security: It takes more than drilling,'' Chr. Sci. 
Mon., 29 Mar. 2002, www.rmi.org/images/other/EnergySecurity/S02-05--
TakesMareThanDrill.pdf. For documentation, see hyperlinks to p. 73 in 
A.B. & L.H. Lovins, For. Aff., pp. 72-85, July/Aug. 2001, www.rmi.org/
images/other/Energy/E01-04 FoolsGoldAnnot.pdf, and later supplementary 
references at www.rmi.org/sitepages/pid171.php#E01-04.)

   shift from brittle energy architecture that makes major 
        failure inevitable to more efficient, resilient, diverse, 
        dispersed systems that make it impossible; \6\
---------------------------------------------------------------------------
    \6\ N. 4; ``Surprises and Resilience,'' RMI Solutions, pp. 1ff, 
spring 2006, www.rmi.org/sitepages/pid1200.php.
---------------------------------------------------------------------------
   avoid electricity investments that are meant to prevent 
        blackouts but instead make them bigger and more frequent; \7\
---------------------------------------------------------------------------
    \7\ Bigger power plants sending bigger bulk power flows through 
longer transmission lines tend to make the grid less stable (id.). 
Leading engineering analysts of electric-grid theory are reaching 
similar conclusions, e.g., http://eceserv0.ece.wisc.edu/dobson/PAPERS/ 
carrerasHICSS03.pdf. FERC doesn't let resilient options compete.
---------------------------------------------------------------------------
   stop creating attractive nuisances for terrorists, from 
        vulnerable LNG and nuclear facilities to overcentralized U.S. 
        and Iraqi electric infrastructure; \8\
---------------------------------------------------------------------------
    \8\ See n. 4 for discreet details. Since the invasion of Iraq, 
private recommendations that its electricity infrastructure be rebuilt 
in decentralized form, virtually invulnerable to insurgent attack, have 
been repeatedly rejected.
---------------------------------------------------------------------------
   acknowledge that nuclear proliferation, correctly identified 
        by the President as the gravest threat to national security, is 
        driven largely by nuclear power.\9\
---------------------------------------------------------------------------
    \9\ A.B. & L.H. Lovins and L. Ross, ``Nuclear Power and Nuclear 
Bombs,'' For. Aff. 58(5):1137-1177, Summer 1980. Had that article's 
recommendations been adopted, we would not today be worrying about Iran 
and North Korea. In brief, nuclear power makes widely and innocently 
available the key ingredients--fissile materials, equipment, 
technologies, skills--needed to make bombs by any of the 20 known 
methods (other than stealing military bombs or parts). (New reactor 
types and the proposed reversal of the Ford-Cheney non-reprocessing 
policy greatly intensify these perilous links.) But in a world that 
took economics seriously, nuclear power would gracefully complete its 
demise, due to an incurable attack of market forces (n. 10), so these 
ingredients of do-it-yourself bomb kits would no longer be items of 
commerce. This would make them harder to get, more conspicuous to try 
to get, and politically far costlier to be caught trying to get, 
because for the first time the reason for wanting them would be 
unambiguously military. This would not make proliferation impossible, 
but would make it far more difficult and much easier to detect timely: 
intelligence resources could focus on needles, not haystacks. The U.S. 
example is critical because if a country with such wealth, technical 
skill, and fuel resources claims it cannot meet its energy needs 
without nuclear energy and reprocessing, then it invites every other 
less fortunate country to make the same spurious claim. Yet the U.S. 
could still offer to meet the intent of the Non-Proliferation Treaty's 
Article IV bargain by sharing today's cheaper, faster, more effective 
energy technologies (n. 10) to boost global development. The NPT's 
specifically nuclear bargain was written by nuclear experts, in a 
nuclear context, around 1969-70, when nuclear energy was widely 
believed to be cheap and indispensable. Now that the market has decided 
otherwise, Article IV should be reinterpreted to achieve the same 
electricity-for-development goal by more modem, speedy, and affordable 
means, starting immediately with U.S./Indian energy cooperation: 
improving the non-nuclear 97% of India's electricity system could 
produce enormously greater, wider, faster, and cheaper development 
benefits.

    Each of these self-inflicted security threats can be reversed by 
cheaper, faster, more abundant, and security-enhancing alternatives, 
available both from comprehensive energy efficiency and from 
decentralized supply. For example, nuclear power has already been 
eclipsed in the global marketplace by resilient, inherently peaceful, 
lower-cost, and lower-risk micropower.\10\ That's a big win for 
national security and profitable climate protection,\11\ and a 
vindication of competitive markets over central planning.
---------------------------------------------------------------------------
    \10\ Low-carbon cogeneration plus decentralized no-carbon 
renewables surpassed nuclear power's global capacity in 2002 and its 
annual electricity output in 2005, and they are far outcompeting 
central stations despite typically lower subsidies and bigger 
obstacles. In 2004, micropower worldwide added 2.9 times as much 
output and 5.9 times as much capacity as nuclear power did (or at 
least ten times if electric efficiency were also included). Industry 
projects that in 2010, micropower will add 160 times as much capacity 
as nuclear power adds. Micropower comprises cogeneration (combined-
heat-and-power using 1-120 MWe gas turbines, 1-30 MWe engines, and 
steam turbines only if in China), plus renewables excluding big hydro 
(>10 MWe). Electricity savings are probably even bigger than micropower 
additions but are not being well tracked. See A.B. Lovins, ``Mighty 
Mice,'' Nucl. Eng. Intl., pp. 44-48, Dec. 2005 (Attachment Two. 
Attachment two has been retained in committee files), www.rmi.org/
sitepages/pid171.php#E05-15, and for details, ``Nuclear power: 
economics and climate-protection potential,'' 11 Sep. 2005 / 6 Jan. 
2006, www.rmi.org/sitepages/pid171.php#E05-14. Statistics at 
www.rmi.org/sitepages/pid171.php#E05-04 and .www.ren21.net/
dobalstatusreport/issue Group.asp.
    \11\ Choosing the best buys first could relieve climate concerns 
not at a cost but at a profit, because efficiency generally costs less 
than the energy it saves: A.B. Lovins, ``More Profit With Less 
Carbon,'' Sci. Amer., pp. 74-82, Sept. 2005, www.sciam.com/media/pdf/
Lovinsforweb.pdf (Attachment Three. Attachment three has been retained 
in committee files), and its extended bibliography, www.rmi.org/images/
other/Climate/C05-05a--MoreProfitBib.pdf. Reducing global energy 
intensity not by the normally assumed 1%/y but by 2%/y would eliminate 
CO2 growth; slightly faster improvement would stabilize 
climate. Both the U.S. and certain states have sustained intensity 
reductions well over 2%/y, and attentive companies around 6%/y, all at 
a handsome profit. Yet climate politics focus on cost, burden, and 
sacrifice rather than on profit, jobs, and competitive advantage. 
Fixing this sign error is the key to crafting a profitable climate 
solution. Of course, buying carbon-free resources judiciously, not 
indiscriminately, yields the most climate solution per dollar and per 
year. Expanding nuclear power would reduce and retard climate 
protection, simply because it's costlier and slower than its key 
competitors--cogeneration, certain renewables, and efficient end-use. 
See Lovins papers in n. 10.
---------------------------------------------------------------------------
    Energy independence is not only about oil. Many sources of LNG 
raise similar concerns of security, dependence, site vulnerability, and 
cost: Iran and Russia won't be more reliable long-run sources of gas 
than Persian Gulf states are of oil. Fortunately, half of U.S. natural 
gas can be saved by end-use efficiency and electric demand response 
with average costs below $1 per million BTU--four times cheaper than 
LNG \12\--making LNG needless and uncompetitive.
---------------------------------------------------------------------------
    \12\ Saving 1% of U.S. electricity, including peak hours, can save 
2% of total U.S. natural gas consumption and cut the gas price by 3-4% 
(see n. 13, pp. 112-116, 219-220). In this decade, such straightforward 
efficiencies could cut $50 billion off the Nation's annual gas and 
power bills and relieve many gas and electricity constraints without 
costly, controversial, and vulnerable supply-side investments. The main 
obstacles are that gas efficiency isn't on the federal policy agenda, 
and that 48 states reward utilities for selling more electricity and 
gas while penalizing them for cutting customers' bills. Scores of other 
barriers, too, block wider purchases of energy efficiency in all 
sectors (see pp. 11-20 in www.rmi.org/images/other/Climate/C97-13--
ClimateMSMM.pdf), but each obstacle can be turned into a business 
opportunity if policy focuses systematically on ``barrier-busting.''
---------------------------------------------------------------------------
    America's oil problem is equally unnecessary and uneconomic. 
Seventy-seven weeks ago, my team published Winning the Oil Endgame--an 
independent, peer-reviewed, detailed, transparent, and uncontested 
study cosponsored by the Office of the Secretary of Defense and the 
Chief of Naval Research.\13\ It shows how to eliminate U.S. oil use by 
the 2040s and revitalize the economy, led by business for profit. 
Welcomed by business and military leaders, our analysis is based on 
competitive strategy for cars, trucks, planes, and oil, and on military 
requirements.
---------------------------------------------------------------------------
    \13\ Winning the Oil Endgame: Innovation for Profits, Jobs, and 
Security, RMI, 20 Sep. 2004, by A.B. Lovins, E.K. Datta, 0.-E. Bustnes, 
J.G. Koomey, & N.J. Glasgow; Forewords by George Shultz and Sir Mark 
Moody-Stuart; .PDF download free at www.oilendgame.com. That site also 
posts the Executive Summary (Attachment Four. Attachment four has been 
retained in committee files), 24 Technical Annexes, lay summaries from 
Ripon Forum (www.rmi.org/sitepages/pid171.php#OilDependence) and 
Fortune (www.rmi.org/images/other/Energy/E04-21_FreeFromOil.pol), 
Robert C. McFarlane's Wall Street Journal op-ed (http://online.wsj.com/
public/page/0,,public_home_search,00.htm1#SB110350663319704480), and 
many other articles and reviews, and offers the 331-page hard-copy book 
for $40.
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    Our study shows how the U.S. can redouble the efficiency of using 
oil at an average cost \14\ of $12 per saved barrel, and can substitute 
saved natural gas and advanced biofuels (chiefly cellulosic ethanol) 
for the remaining oil at an average cost of $18 per barrel. Thus 
eliminating oil would cost just one-fourth its current market price, 
conservatively assuming that its externalities are worth zero. Side-
benefits would include a free 26% reduction in CO2 
emissions, a million new jobs (three-fourths in rural and small-town 
America), and the opportunity to save a million jobs now at risk. 
America can either continue importing efficient cars to displace oil, 
or make efficient cars and import neither the cars nor the oil. A 
million jobs hang in the balance.
---------------------------------------------------------------------------
    \14\ Refiner's acquisition cost on the short-run margin, 2000 $, 
5%/y real discount rate.
---------------------------------------------------------------------------
    The key to wringing twice the work from our oil is tripled-
efficiency cars, trucks, and planes. Integrating the best 2004 
technologies for ultralight steels or composites, better aerodynamics 
and tires, and advanced propulsion can do this with two-year 
paybacks.\15\ For example, new low-cost carbon-composite manufacturing 
techniques can halve cars' weight and fuel use, improving safety, 
comfort, and performance without raising manufacturing cost.\16\
---------------------------------------------------------------------------
    \15\ Compared with EIA 1/04 Reference Case vehicle characteristics 
and fleet mix, fuel economy could be improved by 69% for cars at a 
levelized Cost of Saved Energy of 57 cents/gal, by 65% for Class 8 
trucks at 25 cents/gal, and by 65% for planes at 46 cents/gal. The 
first 25% of truck and 20% of airplane fuel savings are free. Please 
see n. 13 and its Technical Annexes 4-6 and 12 for full analytic 
details and documentation.
    \16\ Because the advanced composites' higher cost is offset by 
simpler automaking and smaller powertrains. See n. 13, pp. 44-73, Tech. 
Annex 5 (www.oilendgame.com/TechAnnex.html), and Intl. J. Veh. Des. 
35(1/2):50-85 (2004), www.rmi.org/images/other/Trans/T04-
01_HypercarH2AutoTrans.pdf. One cost-competitive carbon-composite 
structural manufacturing process, being commercialized by a small firm, 
Fiberforge', of which (full disclosure) I'm Chairman and a 
small shareholder, is described at www.fberforge.com/DOwNLOADS/
FiberforgeACCE05.pdf and in trade press articles at www.fiberforge.com/
PAGES/DETAIL_PAGES/inthenews.html.
---------------------------------------------------------------------------
    Oil elimination's compelling .business logic would drive its 
eventual adoption. But supportive public policy could accelerate it 
without requiring new taxes, subsidies, mandates, or federal laws; this 
could be done administratively or by the states.
    Many innovative policies could also transcend gridlock. Size- and 
revenue-neutral feebates \17\ could speed the adoption of 
superefficient cars far more effectively than gasoline taxes or 
efficiency standards, and would make money for both consumers and 
automakers.\18\ Novel policies could also support automotive retooling 
and retraining, superefficient planes, advanced biofuels, low-income 
access to affordable personal mobility, and other key policy goals, all 
at zero net cost to the Treasury.\19\
---------------------------------------------------------------------------
    \17\ Such feebates (= fee + rebate) would broaden the price spread 
within each size class by charging fees on less efficient vehicles and 
using the revenue to pay rebates on more efficient vehicles. Whether 
you pay a fee or receive a rebate depends on your efficiency choice 
within the size class you prefer. A typical feebate slope--$1,000 per 
0.01 gallon/mile difference from the ``pivot point'' efficiency level 
set within each size class--would arbitrage the spread in discount rate 
between consumers and society, so a car buyer would consider full 
lifecycle fuel savings (nominally 14 years) rather than just the first 
2-3 years. DOE/ORNL modeling, closely matching RMI's, shows that such 
feebates yield both producer and consumer surplus. See n. 13, pp. 186-
190.
    \18\ See n. 13, pp. 169-190.
    \19\ See n. 13, pp. 178-226. The 2005 Energy Policy Act's 3-5-year 
biofuel credits are too brief for investment horizons; any serious 
incentive, especially in an area fraught with investment uncertainties, 
should last at least a decade. However, I generally prefer abolishing 
energy subsidies to adding new ones, and I fear that the same broad 
policy conditions that created the energy market collapse of 1984-85 
are now being repeated.
---------------------------------------------------------------------------
    Early implementation steps are encouraging. Our analysis led Wal-
Mart to launch a plan to double its heavy truck fleet's efficiency and 
to consider tripled efficiency a realistic goal.\20\ The Department of 
Defense is also recognizing fuel-efficient platforms, as a key to 
military transformation. Military needs for ultralight, strong, cheap 
materials can transform the civilian car, truck, and plane industries--
much as DARPA created the Internet, GPS, and the chip and jet-engine 
industries--and thus lead the Nation off oil so we needn't fight over 
oil: negamissions in the Persian Gulf, Mission Unnecessary.\21\
---------------------------------------------------------------------------
    \20\ L. Scott, ``Twenty First Century Leadership,'' 24 Oct. 2005, 
www.walmartstores.com/Files/21st%20Century%20Leadership.pdf.
    \21\ Fuel-efficient platforms offer huge benefits in force 
protection, tens of billions of dollars' annual savings in fuel 
logistics, and multi-divisional realignments from tail to tooth: n. 13, 
pp. 84-93, 221, and 261-262; Defense Science Board, More Capable 
Warfighting Through Reduced Fuel Burden, 2001, www.acq.osd.mil/dsb/
reports/fuel.pdf.
---------------------------------------------------------------------------
    The surest path to an energy policy that enhances security and 
prosperity is free-market economics: letting all ways to save or 
produce energy compete fairly, at honest prices, no matter which kind 
they are, what technology they use, where they are, how big they are, 
or who owns them. That would make the energy security, oil, climate, 
and most proliferation problems fade away, and would make our economy 
and democracy far stronger.\22\
---------------------------------------------------------------------------
    \22\ Both a quick low-budget experiment (www.nepinitiative.org) and 
the National Commission,on Energy Policy (www.energycommission.org) 
revealed a broad ground for trans-ideological consensus on these 
general lines. The former effort found that a bipartisan group of 
private- and public-sector energy leaders could readily agree on a 
comprehensive, visionary, but practical framework for national energy 
policy by focusing on what they already agreed about thus making what 
they disagreed about largely superfluous.

    The Chairman. I am going to start with Senator Thomas and 
come back to me at a later date.
    Senator Thomas.
    Senator Thomas. Mr. Chairman, thank you very much.
    Thank you, ladies and gentlemen, for your comments. 
Certainly this is an area we are all concerned with. We talk 
about it in fairly broad terms, but I think we have to talk 
about it and how we move. We have a policy now. The question is 
how do we implement that policy.
    I wanted to talk about something a little different. It 
seems to me we have long-term issues that are going to take a 
while. We have a problem, however, in the short term, and that 
is dealing with, for example, I think we have a real 
opportunity to convert coal, which is our largest fossil 
resource, to diesel fuel, for example. We can do that very 
shortly.
    As a matter of fact, we have plants prepared to do that 
right now. Unfortunately, I think our budgets and so on do not 
show much effort to give incentives to do that short-term 
thing.
    In the bill, the policy bill, I put in there that we need 
plants like this and some of them in areas over 4,000 feet so 
that we get out where the coal is. But, unfortunately, we do 
not have much support for that in the budget and so on.
    So at any rate, Mr. Woolsey, it seems like some of these 
things, ideas that you have are pretty long term. What do we do 
in the next 4 of 5 years?
    Mr. Woolsey. Well, Senator, cellulosic ethanol is now 
coming on the market, Iogen in Canada, backed by Shell oil, 
diesel from waste products such as turkey carcasses from a 
Canagra slaughter house----
    Senator Thomas. Tell me about the volume of that, however. 
Oil from turkey carcasses obviously is not going to amount to 
much of anything.
    Mr. Woolsey. No. But that process works for used tires, for 
animal waste, for chicken litter, for billions of tons of waste 
of all kinds. And it has been so demonstrated in a pilot plan.
    And the cellulosic ethanol, the Wright brothers have 
already flown on this. The enzymes and genetically modified 
biocatalysts are working and they are producing cellulosic 
ethanol.
    It is a question of getting these--and I think the same 
thing is true of plug-in hybrids--the question is getting these 
up on the step of moving into large-scale production. It is not 
that one has to collect people for that project.
    Senator Thomas. Okay. Thank you.
    Let us talk about automobiles. We are going to have this 
business going on. How are you going to move, again, in a 
fairly short time, to make a conceivable difference between 
what we are doing now and what we are going to do--I just do 
not think we can----
    Mr. Woolsey. Well, let me give one example, Senator. Brazil 
will----
    Senator Thomas. Well, I have moved to the next witness.
    Mr. Woolsey. Sorry.
    Ms. Cischke. Well, we have two million vehicles on the road 
today from Ford Motor Company and six million in the industry. 
But if they cannot get E-85, then it becomes a problem.
    We are working with a company called Verisun Energy to 
increase the number of stations in the United States. And I 
mentioned before, we have 600 today and that is out of 170,000 
gas stations.
    So some of the investment can happen very quickly in terms 
of getting dedicated fuel and then that would help quite a bit 
in the vehicles that we operate today.
    Senator Thomas. What is the balance between the cost of 
ethanol production in terms of particularly if it is done 
through crops and what we save in the final analysis?
    Ms. Cischke. Yes. Well, as you know, there is less energy 
in ethanol than there is in gasoline, there is about 28 percent 
less energy. So the fuel economy would be reduced by about 25 
percent. But right now the cost of ethanol is cheaper than gas.
    And we believe that, as was mentioned before, in the 
cellulosic ethanol, that there could be a lot more done to 
develop that in a very cost-effective manner, and then that has 
even more benefit from a----
    Senator Thomas. What can we do about CAFE standards?
    Ms. Cischke. Well, as you know, we are working very closely 
with NITSA to get to the maximum feasible CAFE standard, as 
well as reforming CAFE so that we cover a number of different 
product lines and it does not penalize the full vehicle 
manufacturers.
    But we have had CAFE for over 30 years and the whole desire 
for CAFE was to reduce our dependence on foreign oil. And it 
really has not had that effect because people are driving more.
    Senator Thomas. Well, you have not gotten CAFE standards, 
however. You have not reduced that. We have not seen a market 
change in automobiles.
    Ms. Cischke. Well, we have. We have increased CAFE quite a 
bit. In fact, we have improved energy efficiency of the 
vehicles quite bit, but we have also----
    Senator Thomas. Tell me what the CAFE standards are now.
    Ms. Cischke. Well, it is 27\1/2\ for cars and it will be 
22.2 for trucks in the next couple years.
    Senator Thomas. But it is not now.
    Ms. Cischke. Pardon?
    Senator Thomas. Is it not now.
    Ms. Cischke. For trucks?
    Senator Thomas. No. For 27 miles. That is not in place now.
    Ms. Cischke. Twenty-seven and a half, yes.
    Senator Thomas. Most of the cars out on the street are not 
27 miles a gallon.
    Ms. Cischke. By law, the average CAFE fleet for each 
company is 27\1/2\ miles per gallon for the car----
    Senator Thomas. For new ones, for new ones.
    Ms. Cischke. Yes, exactly. For new ones, right.
    Senator Thomas. All right. Mr. Lovins, you sort of 
indicated that there is no role for nuclear power?
    Mr. Lovins. I think it has died of an incurable attack of 
market forces despite a great deal of devoted talent and effort 
that have been put into it.
    Senator Thomas. You think it has died?
    Mr. Lovins. Yes, sir. I think the effect of the new 
subsidies you voted last year, which will pay roughly the 
entire capital costs of the next six plants, if any, will be 
roughly the same as that of defibrillating a corpse. It will 
jump, but it will not revive.
    And you may have noticed, Senator, that after those 
subsidies were voted, Standard & Poors put out two research 
reports saying they thought it would have no material effect on 
the builders----
    Senator Thomas. Don't you think the availability of the 
fuel and the cleanliness in the air impact will have some 
method of using nuclear fuel?
    Mr. Lovins. Well, as explained in the attachment for 
Nuclear Engineering International to my testimony, Senator, 
what matters is not simply the attributes of any particular 
technology, but its economic competitiveness within a market 
where there are many other technologies.
    Senator Thomas. None of which are now being used?
    Mr. Lovins. Senator----
    Senator Thomas. See, my problem is----
    Mr. Lovins [continuing]. Please be so kind as to look at 
the attachment because what it shows from industry data and 
government data is that micro power, some renewable, some 
fossil fueled cogen worldwide is already bigger than nuclear 
power in both output and capacity and is really many times 
faster. So those technologies not only do exist, but----
    Senator Thomas. I have not seen those kind of facts before.
    Mr. Lovins. That is why I submitted----
    Senator Thomas. And it comes back to the matters. All 
right. Thank you.
    Mr. Lovins. Thank you.
    The Chairman. Thank you very much, Senator.
    Senator Bingaman.
    Senator Bingaman. Thank you very much, Mr. Chairman.
    Let me ask Ms. Cischke?
    Ms. Cischke. Yes.
    Senator Bingaman. Ms. Cischke. Mr. Lovins says in his 
testimony new low-cost carbon composite manufacturing 
techniques can have cars' weight and fuel use, improving 
safety, comfort, and performance without raising manufacturing 
cost.
    Has Ford looked at the benefits that might be achieved 
through moving to these low-cost carbon composite materials 
and, if so, what have you concluded? Why are we not seeing a 
move toward this by U.S. manufacturers?
    Ms. Cischke. Well, we are looking at all areas of where we 
can take weight out of the vehicle without compromising safety 
as well as improvements in today's internal combustion engines. 
And all that does take investment. You know, when we tool up 
for a vehicle and we do research and development, it takes a 
long time to get that into the system.
    And so overall, we are always looking at ways that we can 
reduce the weight of the vehicle, improve aerodynamics, a 
number of different things. But from an overall standpoint, we 
share many of the body styles. We share a lot of components. So 
it takes time to be able to put that across the whole fleet.
    Senator Bingaman. But do you agree that once the investment 
is made to make the transition that, in fact, the manufacturing 
cost of cars from these new materials would be less than is 
currently the cost using the materials you have now?
    Ms. Cischke. I think it is something we would have to 
study. I have seen some of the data that I was shown by Mr. 
Lovins earlier. And we are looking at it in our research area, 
but I do not think that we have costed that out in terms of 
what it would take for our manufacturing plants and whether 
there would be a savings.
    Senator Bingaman. Back in, I believe it was April of last 
year, your company and the other U.S. manufacturers, auto 
manufacturers, I think all auto manufacturers, not just U.S. 
auto manufacturers, but all manufacturers, entered into a 
Memorandum of Agreement with the government of Canada to reduce 
greenhouse gas emissions from vehicles by 2010.
    Is there any reason why that same agreement would not make 
sense in the United States, that the same commitments that the 
companies have made with regard to vehicles sold in Canada 
should not apply also here in the United States?
    Ms. Cischke. Well, actually, it does in many ways. When we 
looked at the whole agreement with Canada, it is based on total 
greenhouse gases, so it involves more than just fuel economy. 
It is not a fuel economy standard.
    But if you take a look at what we have done in all areas 
and apply the fuel economy we are getting today in the United 
States, it would be equivalent to what we are shooting for in 
Canada.
    So the differences have a lot to do with how they are 
quantified in terms of greenhouse gas savings. And it is very 
similar to what we have.
    Senator Bingaman. So you do not really think there is any 
difference between what you agreed to do in Canada and what you 
are doing in the United States?
    Ms. Cischke. That is correct.
    Senator Bingaman. Okay. Let me just ask Mr. Lovins if he 
would take a minute and explain this proposal that he has for 
revenue-neutral feebates. That is an interesting proposal and 
an alternative way to get increased efficiency in automobiles 
alternative to CAFE standards.
    Could you just explain that briefly for us?
    Mr. Lovins. Yes, Senator. Gasoline taxes are a pretty good 
signal to drive less if you have alternatives, but they are a 
very weak signal to buy an efficient car because that price 
signal in the fuel is diluted many fold by the other costs of 
buying and running a car and then heavily discounted at 
consumer discount rates.
    So consumers really only look at the first 2 or 3 years of 
fuel savings. CAFE standards, we all know about and are pretty 
well gridlocked.
    We found that a more effective method would be to take each 
size class of light vehicles and institute forward a feebate 
system. That is a combination of a fee and a rebate, so that 
within each size class separately, the less efficient vehicles 
pay a fee according to how inefficient they are and the more 
efficient vehicles get a rebate paid for by the fees according 
to how efficient they are.
    So you would have an incentive within each size class to 
buy a more efficient vehicle, but no incentive to buy a 
different size than you wanted. And widening the price spread 
has the effect that you would look at the whole life cycle, say 
14 years of fuel savings, not just the first 2 or 3 years. So 
you would make an investment decision that is efficient for 
society.
    The Oakridge DOE modeling of feebates comes to the same 
conclusions we did and adds that it would make more money for 
auto makers. At least one major auto maker already agrees with 
that.
    Senator Bingaman. Which auto maker is that?
    Mr. Lovins. I am not at liberty, Senator, to say which, but 
it is one that might surprise you.
    Senator Bingaman. Okay. My time is up, Mr. Chairman.
    The Chairman. Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    First of all, I would like to put my opening statement into 
the record.
    The Chairman. It will be admitted.
    Senator Bunning. Thank you.
    [The prepared statement of Senator Bunning follows:]

   Prepared Statement of Hon. Jim Bunning, U.S. Senator From Kentucky

    Thank you Mr. Chairman.
    It has been a difficult year for Americans who are facing higher 
gasoline costs and home heating expenses. Instability in foreign 
nations, like Iraq and Nigeria, and the devastation along the gulf 
coast at home have caused significant spikes in energy prices. I think 
that with energy prices at these highs, we can see clearly that our 
national security is threatened by our continued reliance on imported 
oil.
    Last year, we were finally successful in passing a comprehensive 
national energy plan. This wide-ranging legislation will impact nearly 
every facet of the energy industry and will encourage the development 
of cleaner technologies and renewable fuels and is the first step 
toward energy independence. I know my colleagues are aware that it will 
take time and the vigilance of Congress to ensure that the Energy 
Policy Act is properly implemented and funded.
    I think one of our top priorities should be on our most abundant 
domestic fossil fuel: Coal. New technologies will make burning coal 
both cleaner and more efficient. We are even developing coal-to-liquid 
technology that can create a synthetic transportation fuel from coal. 
American coal reserves will be our best tool to overcome our reliance 
on Middle East oil.
    We also have other domestic energy reserves, like ANWR and the 
Outer-Continental Shelf. I believe we can tap these oil and natural gas 
reserves in an environmentally sound way. That is way I have fought for 
ANWR and OCS legislation that will provide America with a new domestic 
source of fuel.
    I think we also need to develop our renewable fuels, especially 
stimulating biodiesel and ethanol production. In some parts of the 
world--and a few places in Western Kentucky--people drive their cars 
and trucks on a blend of fuel that is 85% ethanol. That means only 15% 
of the fuel is based on oil. The potential for this technology is 
great, and it is up to us to help it off the ground.
    We can use these domestic fuel sources to meet the energy 
challenges of the next 25 years. I look forward to developing these 
ideas further with the panel before the Committee today.
    Thank you Mr. Chairman.

    Senator Bunning. Many of you have focused on biodiesel and 
transportation fuels, but coal is our most abundant domestic 
fossil fuel and accounts for half of our electric generation.
    The Energy Information Administration predicts coal will 
continue to be the centerpiece of our energy production for the 
next 25 years. That is not me. That is our Energy Information 
Administration.
    I believe we can lessen our dependence on imports by using 
clean coal power and nuclear energy to replace the imported 
natural gas and oil that currently goes to producing 
electricity.
    Do you believe that developing more efficient and cleaner 
coal technologies should be a priority, Jim?
    Mr. Woolsey. Senator Bunning, I think that since only 2 to 
3 percent of our electricity now comes from oil, that whether 
it is clean coal or nuclear or renewables has a very limited 
effect to use those for electricity production. And the debates 
between them are important debates.
    I think that has very little impact on our oil dependence, 
which I think is the heart of the matter. I think that clean 
coal, particularly integrated gasification combined cycle coal 
with carbon sequestration has real promise. And we so said at 
the National Energy Policy Commission.
    Senator Bunning. I want to ask a question about that. 
Following up, I have been impressed with the new coal to liquid 
technology that you are talking about that can turn coal into 
synthetic liquid fuel. Other parts of the world like South 
Africa have been using this technology for decades.
    Mr. Woolsey. Yes, sir.
    Senator Bunning. I know there are several pilot facilities 
here in America, but what do we need to do to push this 
industry into full commercial-scale operations?
    Mr. Woolsey. Well, that is the German Fisher Trofe's 
process developed in the air war years and used by the Germans 
in World War II to generate their diesel fuel. And as you say, 
the South Africans have substantially improved it in the 
intervening years.
    But I think one has to be able, if one is going to produce 
diesel fuel that way, to make sure that one can sequester 
successfully the carbon. And I think there is some promise of 
that with the integrated gasification combined cycle coal 
technology, but I am not sure whether there has been 
substantial progress sequestering the carbon for Fisher Trofe.
    And one of the other witnesses may know more than I about 
Fisher Trofe. But in principle, using coal to produce diesel 
fuel is certainly an option and one that we ought to vigorously 
explore further.
    Senator Bunning. Let me ask the Ford Motor representative. 
In some parts of the world and a few places in west Kentucky, 
people drive their cars and trucks on a blend of fuel that is 
85 percent ethanol. And you spoke about that.
    Some of you on the panel have mentioned that the best case 
scenario for biodiesel is that it will only replace 10 percent 
of gasoline use for transportation.
    What are the limiting factors? Can the Government help 
address the problem like infrastructure and efficiency?
    Ms. Cischke. Well, certainly for the E-85, which is 85 
percent ethanol, we do need infrastructure help. As I 
mentioned, there are only 600 stations and we need to have that 
help.
    We believe that by introducing a very popular vehicle like 
the F150 that will be able to run on E-85, it will do a lot to 
drive the demand for it because there is a lot of volume there.
    Senator Bunning. But didn't we have the same trouble with 
diesel when we first started out?
    Ms. Cischke. Well, I am a little confused.
    Senator Bunning. I mean, I can just remember gasoline 
stations all of a sudden adding diesel pumps.
    Ms. Cischke. Right. Now, that is true. In Europe, as you 
know, almost 50 percent of the vehicles over there take diesel 
fuel so they have a lot more diesel than we do gasoline.
    The difference, though, is the oil industry can determine 
the balance between gas and diesel. But now when we are adding 
ethanol, it is a totally different process and a different 
supplier. And so we do need the oil industry to be behind 
increasing the ethanol production. So we have got a little bit 
different situation.
    Senator Bunning. But we are not going to get that. As you 
well know, they are not going to sell ethanol to replace their 
own product.
    Ms. Cischke. Well, they could. We are working with our 
partners, BP, and they are looking at biofuels in the future. 
It may not be ethanol. It might be another type of biofuel that 
could eventually replace gasoline. It is just that we need this 
research to happen and we need some incentive to make it 
happen. And we are seeing that now----
    Senator Bunning. But I thought we did that in the energy 
bill.
    Ms. Cischke. Yes. And I think you are seeing some benefit 
of gas stations right now putting in capital investment for 
dedicated pumps. In companies like Verisun that I mentioned, we 
are trying to support. But we need the whole oil industry to be 
doing this research as well.
    Senator Bunning. Go ahead. My time is expired, but go 
ahead.
    Mr. Lovins. Senator, you may be surprised, but Shell is the 
world's largest seller of biofuels.
    Senator Bunning. Right now?
    Mr. Lovins. Right now. Shell, BP, and others are making 
major investments in that area. And about half of Europe's 
biodiesel, which in 2003 was 17 times our biodiesel production, 
is sold by oil companies as a brand new product.
    Senator Bunning. But is it produced by Shell or is it 
bought outside the company?
    Mr. Lovins. They use both models, sir. But my point is that 
an increasing number of major oil companies see biofuels as a 
logical transitional product and are making major investments 
both to produce and to sell it.
    Senator Bunning. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Feinstein.
    Senator Feinstein. Thank you very much.
    I would like to ask the representative from Ford this 
question. If Ford is saying that it can meet Canada's 
greenhouse gas reduction regime, which is approximately 25 
percent by 2010, why is the company fighting California's law 
to reduce greenhouse gas from vehicles by 30 percent by 2016?
    Ms. Cischke. Well, overall, the Canadian agreement is a 
national agreement. And the difficulty we have with California 
is it is a State agreement and it is very difficult.
    We believe that the fuel economy standards need to be 
nationwide. Otherwise, it puts companies in an untenable 
situation trying to balance----
    Senator Feinstein. So you would support then nationwide 
standards to do something similar to what California is doing?
    Ms. Cischke. Yes. We would support nationwide standards. 
And, again, we need NHTSA to set the maximum fees for 
technologies.
    When I indicated that we were meeting Canadian commitments, 
that is forecasting out where we believe the fuel economy will 
be for our fleet at that time. And it is also the greenhouse 
gas holes which are more than just the fuel.
    Senator Feinstein. Would you work with us on a bill that 
would take that tact?
    Ms. Cischke. Well, we are trying to develop a national 
dialog to do this through NHTSA in order to achieve the maximum 
feasible ability, I guess, to do the fuel economy. And we 
believe that the CAFE reform that NHTSA is working on in truck 
CAFE will help along those lines as well.
    Senator Feinstein. As you know, this is very important to 
my State because 57 percent of emissions come from 
transportation, whereas nationally it is much less, about a 
third.
    So having this kind of national effort across the board, do 
you believe it would be realistic to set the goal of reducing 
greenhouse gases from vehicles by 30 percent by 2016?
    Ms. Cischke. That is a very aggressive number. We have 
looked at what it would take in terms of even if we produced a 
hundred percent hybrids, we could not make that number.
    Senator Feinstein. What do you believe would be realistic?
    Ms. Cischke. That is a pretty complex answer. And I think 
that is why working together--and, again, we are saying it has 
got to be a combined solution with auto makers, with the oil 
industry, with the consumers because, as you know, a lot of the 
issues have to do with how people drive.
    And the fact is we are predicting almost a 50 percent 
increase in vehicle miles traveled over the next 20 or 30 
years. So we really do need to reduce the vehicles on the road 
and the consumers can do a lot in terms of driving more 
efficiently.
    Senator Feinstein. The Bush administration found that 99 
percent of flexible-fuel vehicles on the road today never use a 
drop of E-85 ethanol. As a result, the administration found 
that this loophole actually increases America's oil dependence 
by 14 to 17 billion gallons of gasoline per year.
    As I understand it, Ford uses its fuel economy credits for 
these flex-fuel vehicles to lower fuel economy standards for 
the rest of the automobiles so that we are not really doing 
much to increase vehicle economy.
    What would you suggest we do to really increase fuel 
economy?
    I had a bill just to bring SUVs over 10 years up to the 
fuel economy of the sedans which the fleet number, as you said, 
is 27 miles per gallon as opposed to the SUV at 20 miles per 
gallon. And it went down because there is really no support for 
that. Detroit opposes it very strongly.
    What do we do that Detroit could support to really rapidly 
increase fuel economy standards?
    Ms. Cischke. Well, I think we have to be very sensitive to 
what the consumers want to buy. Right now in the auto industry, 
over 30 vehicles get better than 30 miles per gallon in fuel 
economy, yet it accounts for less than 5 percent of our sales.
    So we have a challenge in terms of putting vehicles out 
there that nobody wants to buy. And that is a real problem for 
all the auto companies.
    When you mentioned the E-85 usage, this is kind of a 
chicken and the egg type situation. We need the fuel in order 
to make the vehicles run on E-85, but the fuel is not going to 
be there unless there is enough volume of vehicles.
    And I think by introducing a very popular-selling vehicle 
like the F150 to run on ethanol in a lot of the corn States 
where farmers would also get the benefit there will help drive 
that market.
    So I think there is a number of things that we need to do. 
But, again, I think we have to be sensitive to giving customers 
what they want and trying to do it in the most fuel efficient 
way.
    Hybrids are a good example of that. And as you know, Ford 
is committed to producing 250,000 hybrids by 2010 and offering 
those to our customers in over half of the models that we will 
sell in that timeframe.
    Senator Feinstein. Yes. Congratulations on that program.
    Ms. Cischke. Thank you.
    Senator Feinstein. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    And I, too, would like my opening statements to be included 
in the record if I may.
    The Chairman. It will be included in the record.
    [The prepared statement of Senator Murkowski follows:]

  Prepared Statement of Hon. Lisa Murkowski, U.S. Senator From Alaska

    Mr. Chairman, thank you for holding this hearing. I'll be brief. 
For three decades the holy grail of energy debate has centered on 
whether the United States can become ``energy independent,'' which some 
has interpreted as meaning we should produce ALL of our energy needs 
domestically, while others have interpreted as meaning we should 
produce a sizeable amount of our energy domestically--certainly far 
more than the 41% of our oil needs that we supply today, while 
remaining less dependent on imported liquefied natural gas.
    For years we've heard that energy independence is a pure pipe dream 
given that America--not counting ANWR--has just over 20 billion barrels 
of proven conventional oil reserves (1.6% of known world reserves), 
while the Middle East has 57% of the world's known supply of 
conventional oil and nearly as much gas.
    But with rises in both oil and natural gas prices because of the 
exhaustion of much of the cheap ``conventional oil and gas,'' because 
of sharp increases in demand for energy from developing nations and 
because of environmental fears, we may well be moving into a period 
when unconventional fuels and new technology, including alternative 
fuels, can increase our domestic energy production and dare we say 
permit energy ``independence.''
    The Pentagon last year began seriously funding research efforts to 
promote bio and synthetic fuel development to meet military needs.
    The Energy Policy Act of last summer provided research funding, tax 
incentives and policy changes to spur biofuels like ethanol, and hybrid 
vehicle sales to cut consumption; increased oil and gas recovery from 
heavy oil deposits and by use of carbon dioxide to produce more fuel 
from aging fields. We promoted oil shale and tried to speed permitting 
for conventional fossil fuel development on federal lands. We pushed 
the next generation of nuclear power, increased funding for wind, solar 
and geothermal energy, and increased the incentives--slightly--for more 
hydro power.
    The Energy bill furthered research and pilot plants for combined--
cycle coal gasification, so we can produce more power, fuels and other 
products from coal--while producing near zero air pollution and 
possibly releasing no carbon into the atmosphere.
    And the Energy Bill encouraged energy efficiency, raising appliance 
and home and office heating and cooling standards.
    And in the short range we have the ability to produce more gas and 
oil from the Outer Continental Shelf, unlock billions of barrels of oil 
from Alaska's Arctic coastal plain--you knew couldn't get through a 
statement without plugging quick action to open ANWR--and also push 
other additional conservation and fuel efficiency efforts.
    What I hope to get from this hearing and our witnesses is an 
assessment of how likely all this new technology is to work within the 
constraints of real-world economics, and if it does, how much energy we 
are likely to produce, how much conventional oil and natural gas we are 
likely to displace, and what the environmental consequences--both good 
and bad--will be for us and the globe.
    And if any of our witnesses have ideas we have not thought of, I 
would love to hear them too. Thank you.

    Senator Murkowski. Mr. Lovins, in looking at your testimony 
as well as some of the backup documentation that you have 
provided with it, you are arguing against producing more oil 
from Alaska basically from the security perspective.
    And I keep reading with interest the same phrase you have 
used, the all-American Strait of Hormuz, as well as the 
reference to this world's biggest chapstick.
    So I went to your Atlantic monthly article and was reading 
it with great interest, but I noticed that it was written back 
in 1983. A heck of a lot has changed since 1983. And certainly 
from a security perspective, we kind of pride ourselves up in 
the State of Alaska on watching over this asset that we have.
    We realize that it is a long silver thread running through 
the State providing a valuable resource to the country. We 
recognize that security is an issue and we work very, very hard 
to make sure that we do provide for that protection.
    Unfortunately, you cannot prevent somebody from taking a 
potshot at it and inflicting some limited damage. But, overall, 
if you look at the track history of that pipeline for the past 
30 years, it has got a pretty good record.
    And I find it unfortunate that some of the phrases that I 
see in this 1983 article keep sticking around because I think 
that it does do damage to the efforts that we have been doing 
in terms of providing for close to 20 percent of the country's 
domestic oil needs for the past 20 some odd years.
    Let me ask you. You are focusing on the oil perspective in 
your comments. We are in the process now of trying to move 
Alaska's natural gas from our north slope to the lower 48 
States. And we would do this through a proposed natural gas 
pipeline.
    Do you have the same issues in terms of security for a 
natural gas pipeline to meet that energy need for this country 
that you have indicated in your comments about oil?
    Mr. Lovins. Senator, I think many of the details would 
differ. The gas pipeline would not be hot and would not have to 
be above ground and, therefore, very exposed. You would not 
have the coal restart problem that a hot oil pipeline does. 
That is the source of the chapstick comment.
    I would call your attention to the more recent article 
originally entitled ``The Alaskan Threat to National Energy 
Security'' that's cited toward the end of footnote five in my 
prepared testimony, and it was published just weeks before 9/11 
with a title change by the editor. And the annotated version of 
that, which is cited, details that the security issues I 
described have not gone away.
    The reason that Mr. Woolsey's written testimony here today 
refers to a potentially devastating attack on the pipeline, and 
I presume the reason that he testified in the House against 
drilling in the arctic refuge on national security grounds is 
exactly my reasoning.
    And I find the scariest episode in the 30-year record you 
refer to, Senator, is not the drunk taking a potshot at the 
line. Rather it is the disgruntled engineer who was very 
fortunately caught months before blowing up three critical and 
very hard to fix parts of the line with 14 bombs he had already 
built and cold weather tested.
    And he was caught only because he involved someone else in 
the plot who turned him in. He was not aiming to hurt the 
United States. He intended to make money in the oil future's 
market.
    But as Mr. Woolsey and I wrote in the Christian Science 
Monitor in 2002, that guy was an amiable bungler compared to 
our al Qaeda adversaries.
    Senator Murkowski. Well, we disagree that there are 
security issues as they relate to any resource aspect, whether 
it is a pipeline, an oil pipeline, a refinery. We should be 
concerned it. Our water sources, we should be concerned about 
them.
    But the reality is that when we have had a shutdown in the 
State of Alaska, the longest shutdown we have ever had was 66 
hours and that was due to an earthquake that was, I think, 7.6 
on the Richter Scale. It was a pretty substantial earthquake. 
Otherwise, essentially what we are looking at are shutdowns 
that really do not exceed more than 48 hours.
    So, anyway, the security aspect is one that we get 
concerned about. We are focused on it, but we are doing a 
pretty darn good job with the project.
    Mr. Chairman, I have other questions, but I see my time is 
up.
    The Chairman. Thank you very much.
    I am going to claim my time for just a moment Senator 
Bingaman, because I am probably going to have to go to a budget 
meeting of Members.
    Let me go back to why we had this hearing and just take one 
at a time.
    Mr. Woolsey, the purpose of this hearing is to talk about 
goals, discuss energy independence. First, does the idea of 
energy dependence make sense? I do not want a long 
dissertation. Is it something we should try to do?
    Mr. Woolsey. I do not worry nearly as much about natural 
gas as I do about oil for the reasons I stated, Mr. Chairman, 
so I tend to put this more in terms of oil security because 
shifting trade patterns does not do any good.
    In other words, if we were to buy less from the Middle East 
and more from Canada and Europe buys more from the Middle East 
and less from Canada, it does not really change anything.
    So to my mind, it is conserving conventional oil, moving 
away from it toward a range of these possibilities that a 
number of people, a number of Senators have raised, and some of 
which I emphasized along with Amory and others. I think that is 
the heart of the matter, so I would tend to say it is more oil 
security than it is energy independence.
    The Chairman. All right. And what is your view on that 
subject? Just the same question, same observation on your part.
    Ms. Cischke. Yes. I think that we know that we can drive 
both research in the fuel as well as advanced technology 
vehicles by encouraging that research through tax incentives 
and others.
    So we believe that there is an opportunity to use renewable 
fuels, like E-85, and eventually hydrogen if we develop the 
incentives to get people to invest in those.
    The Chairman. Mr. Verrastro.
    Mr. Verrastro. Senator, as I said in my statement, I think 
that the real crux of the issue is reducing consumption both 
globally and in the United States. If we reduce consumption by 
definition, we reduce imports.
    And I do not actually see that there is a huge difference 
between gas and oil. If you look at the areas of the world that 
have hydrocarbons, while we are importing more natural gas and 
building LNG gas facilities, if we are really concerned about 
unstable sources, take your pick.
    The Chairman. Mr. Lovins.
    Mr. Lovins. Mr. Chairman, I would agree with all of those 
comments and emphasize the importance of seeing them within the 
broader context of all of the things that drive energy 
security. It is not only about oil. It is about many kinds of 
vulnerability. And it is important that we get rid of them 
rather than make them worse.
    The Chairman. I just want to make an observation about 
ANWAR and your concerns about supply interruption. I cannot 
imagine that oil supply from Alaska to the United States is any 
more or less secure. Probably more secure than many sources of 
oil in the world today. There are far more insecure areas than 
it. So I do not understand the concern you have about it versus 
Iraq, Iran, and all the other countries that are so vulnerable.
    Mr. Lovins. Senator, it is----
    The Chairman. I just made an observation, please.
    Mr. Lovins. Okay.
    The Chairman. Let me ask, since you all seem to be saying 
to us we should do something in the area of reducing our 
transportation use of crude oil derivatives so that we minimize 
our security, let me ask again, particularly of you, Mr. 
Woolsey, how serious a problem is this in terms of the United 
States and its future?
    We prepare ourselves for war. We commit ourselves totally 
for things like winning a war. I am not speaking of this war, 
but a war. How would you describe based on your experience this 
problem that we have with reference to oil dependency?
    Mr. Woolsey. I agree with former Secretary Shlesinger that 
it is the biggest threat to American security outside the area 
of combat itself. And just one illustration.
    Ten days ago, these al Qaeda radars attacked Abqaiq. Abqaiq 
has in it sulfur clearing towers through which the sulfur is 
removed from Saudi crude. If you take those out with, say, a 
hijacked aircraft, which is a scenario in one recent book, you 
could take some six million barrels a day off line for over a 
year. That would send oil to well over a hundred dollars a 
barrel.
    My friend, Bud McFarland, who was national security advisor 
to President Reagan, said I am an old Marine artillery-man and 
he said I have been up there and seen those towers and I could 
take them out with a good Marine mortar squad.
    So that type of crisis in the Middle East itself, quite 
apart from policies of governments there, is an immediate and 
direct threat to American security as far as I am concerned.
    The Chairman. Have you seen any estimates, any of you, of 
what might happen to the price of oil if the oil from Iran 
suffered from a total boycott in the world market?
    Mr. Woolsey. It is about four million barrels a day. I am 
sure it sends it up to over a hundred dollars a barrel, but I 
do not know how far.
    The Chairman. Have you seen any numbers on that?
    Mr. Verrastro. Senator, we have done some work on that and 
Jim is right. It is four million barrels day. The export market 
is a little over two million barrels a day depending on the 
amount of time if there were to be an embargo.
    Increased production from other sources as well as drawing 
down stocks both in Europe and the United States could offset 
the loss of Iranian crude. The problem is that if at the same 
Venezuela, Nigeria, Saudi Arabia, Iraq, it makes it more 
difficult. But you could do it.
    The Chairman. Well, I think what we are hearing here is 
that this talk about boycotting, stopping the flow of oil, 
doing something to Iran with reference to their economy, the 
truth of the matter is that is a two-edged sword. It hurts 
them. They cannot stand it very long, but the price of oil 
could go to a hundred dollars a barrel without any question.
    Mr. Woolsey. It is very much a two-edged sword if we cutoff 
Iranian exports. But Iran refines almost all of its crude 
abroad. So if we cutoff its imports of gasoline and diesel 
fuel, that might be far more effective.
    The Chairman. Ford Motor, let me ask, are you seeing signs 
in the marketplace that the price of gasoline is affecting the 
consumer choice of cars and are they choosing more efficient 
vehicles and is this trend something you are expecting and 
building pursuant to?
    Ms. Cischke. Yes. We have seen some of that, especially 
after Katrina, that the SUV sales did go down a bit. We had 
prepared for that in designing cross-over vehicles and getting 
back into the car business at Ford. And so we are adjusting our 
sales mix to match with the customers' need.
    But we have also noticed a slight drop in the interest in 
the hybrids and that is a very fuel-efficient technology. Part 
of it is due to the early adopters of technology that have 
probably purchased those already. And in order to encourage the 
more mainstream customers, things like tax incentives help 
along that line as well.
    The Chairman. Okay. Last question and one for each of you.
    Mr. Woolsey, we have established the fact that what we are 
trying to do on independence is address the issue of 
transportation fuel.
    What two things would you recommend that we do if our goal 
is that and we wanted to achieve it?
    Mr. Woolsey. Encourage biofuels and plug-in hybrids via 
some combination of feebates as Amory suggests and tax 
incentives.
    The Chairman. All right.
    Ms. Cischke. Again, tax incentives for advanced vehicle 
technology as well as the fuel and also education for the 
public in terms of how important it is to conserve energy and 
there is things they can do along that line as well.
    The Chairman. If you got those things, would that have any 
bearing on whether you were interested in modifying the 1985 
CAFE standards?
    Ms. Cischke. Well, we are working with NITSA to modify 
those standards in order to again look at maximum feasible 
technology as well as different classifications to make CAFE a 
little bit more productive.
    The Chairman. But if we did those things you recommend, you 
still would not support amendments to the CAFE standard to 
change the standards to mandate a more efficient fleet?
    Ms. Cischke. No. I think what we are saying basically is we 
have to address to what our consumers are demanding and we have 
got to find a way to make them want to buy more fuel-efficient 
vehicles.
    The Chairman. Thank you.
    What are your two?
    Mr. Verrastro. Increase fuel efficiency through technology, 
including what Amory is talking about, lighter-weight vehicles, 
and CAFE standards as well, and then supplemental sources of 
fuel.
    I would just point out that I----
    The Chairman. What do you mean supplemental? Just tell us 
what it is.
    Mr. Verrastro. Biofuels, I think, is the most attractive 
right now and cellulosic ethanol. I would point out that all 
forms of fuel or crop raising takes energy. Plug-in hybrids, 
clearly that you would use them on off-peak hours, but you 
still need more coal and more natural gas, more nuclear to 
produce that extra electricity. So it all comes at a cost 
somewhere.
    The Chairman. What would your two be?
    Mr. Lovins. If you are asking on a technical level, I would 
say tripled efficiency, cars, trucks, and planes, and a diverse 
dispersed, decentralized resilient, invulnerable electric 
system.
    If you are asking on a policy level, I would say size and 
revenue-neutral feebates and encouraging the States to reward 
gas and electric utilities for cutting your bill, not for 
selling you more energy. That would free up half the gas in the 
country and a lot of that could be substituted back for oil.
    The Chairman. Okay. With that, we are going to go through 
the rest of it. I think the next Senator is Senator Salazar; is 
that right? He was here earlier.
    Senator, you were here and had to leave for something. I am 
going to recognize that unless----
    Senator Salazar. I had to go to a Veterans' Affairs 
hearing. But if Senator Dorgan has to go, please go.
    The Chairman. All right. Senator Dorgan, he wants you to 
go.
    Senator Dorgan. Thank you, Mr. Chairman.
    First of all, Mr. Lovins, I have always enjoyed your work 
and research and writing in these areas. And you do say, 
however, in your last paragraph of your statement, that the 
surest path to energy policy that enhances security and 
prosperity is free-market economics.
    It is the case, however, much of what you propose will 
require policy changes and will not be necessarily a part of 
free-market choices. Isn't that the case?
    Mr. Lovins. Senator, I think the policy suggestions in 
winning the oil end game are very much less interventionist 
than anything else I know in energy policy. And by the way, 
such interventions as are suggested are generally in the 
category of getting out of the way and are typically at a State 
rather than Federal level.
    We do not suggest in there a need for any new Federal laws, 
taxes, mandates, or subsidies. So it is pretty much the 
opposite of flavor from energy policy as we have known it.
    Senator Dorgan. But the feebates themselves would be 
Federal policy, correct?
    Mr. Lovins. They could ultimately be Federal. I think like 
most suggestions, they should be piloted at a State level and 
they could perfectly well be adopted just at a State or 
regional level.
    Senator Dorgan. Mr. Woolsey, following up on the question 
by the chairman about the goal of independence, in addition to 
having a supply of oil which is actually critical to our 
economy and to the functioning or our economy, in addition to 
that, it is the case that our dependence on foreign oil at the 
moment is likely financing terrorism. Is that the case?
    Mr. Woolsey. Absolutely. This is the first war the United 
States has fought, Senator, this War on Terrorism, I guess 
except for the Civil War, in which the United States pays for 
both sides.
    By shipping a billion dollars every working day abroad in 
debt, $250 billion a year to pay for imported oil, we are 
funding things like indirectly the Madrassas, the Wahhabis 
running Pakistan, and the rest. And that educates in hatred and 
hostility to democracy, to all other religions and the rest. So 
I think you are exactly right.
    Senator Dorgan. Go to the 9/11 Commission report for some 
of that information as well.
    Mr. Woolsey. Absolutely.
    Senator Dorgan. You know, I think a dispassionate observer 
living off of our planet and looking at this planet and seeing 
that we use what, 84 million barrels a day that we extract from 
the planet. One-fourth of that is used in this little spot 
called the United States. A substantial portion of the 
inventory exists in another part of the globe covered with 
sand.
    And they would look at this part of the country or this 
part of the planet, the United States, needing a quarter of it, 
60 percent of what it needs coming from off our shores, 
particularly from troubled parts of the world and they would 
say, well, how could they not have been so concerned about that 
that they would have taken dramatic action, because tonight or 
tomorrow or next Saturday or God forbid next month or whenever, 
a terrorist action or some other cataclysmic action could just 
simply throw this country's economy flat on its back. It will 
affect every job. It will affect everything we do.
    And so when the chairman has a hearing, the chairman and 
Senator Bingaman have a hearing that talks about the goal of 
energy independence, this is not just some etherial notion 
about what would be nice to do. This is really an urgent 
priority for a country.
    I mean, I guess the question is, do we have the luxury of 
deciding whether to try to strive for independence specifically 
of oil or is this an urgent requirement for this country at 
this point?
    Mr. Woolsey. I think it's extremely urgent, Senator Dorgan. 
I think that this could collapse on us at most any time.
    There was almost a coo in Saudi Arabia in 1979. And Iran 
could cutoff for a while for its own reasons of pursuing its 
nuclear program, terrorist attacks in a number of places. This 
is something that we need to fix and we need to fix now.
    And that is the reason why I think this portfolio of moving 
forward with several different types of encouragement for 
biofuels and plug-in hybrids is, and I think Amory's 
lightweight materials are another, that if you work these 
problems together, the effect is multiple.
    A hybrid that now gets 50 miles a gallon, if it becomes a 
plug-in hybrid, it gets about 125 miles per gallon of petroleum 
products. The rest is electricity from the grid.
    If you make it out of lightweight materials, like Amory 
suggest, you're probably up to 250 to 300 miles per gallon 
because the lightweight materials are so good at reducing cost 
of fuel.
    And if it is an E-85 capable vehicle that is a flexible-
fuel vehicle--and by the way, Brazil has gone in 2 years from 
having 5 percent to 75 percent of their new cars be flexible-
fuel vehicles. So if it's a flexible-fuel vehicle that can use 
E-85, you're now up close to a thousand miles per gallon.
    If one of those or more than one do not work out real well, 
you have got a portfolio in which you are moving forward and 
maybe some work out better than others. But if we only get up 
to two or three hundred miles per gallon, how bad is that?
    So to me, that is the essence of it. We want to do things 
that are compatible with the existing infrastructure and can do 
quickly.
    Senator Dorgan. I think my time is about up. A couple 
people wanted to comment.
    I did want to ask you about hydrogen because I agree with 
the urgency of the short term and the urgency to do a lot of 
things in the short term, but I also believe that in the longer 
term, the 25- and 50-year term, that hydrogen fuel cells are a 
very important part of our future.
    But, Mr. Chairman----
    Senator Thomas [presiding]. We have some more that want to 
ask questions.
    Senator Dorgan. Mr. Chairman, I understand. Thank you.
    Senator Thomas. Senator Talent.
    Senator Talent. Let me ask Ms. Cischke a question and then 
just a question for everybody.
    I know you are developing a hybrid vehicle that is capable 
of running on E-85----
    Ms. Cischke. That's correct.
    Senator Talent [continuing]. To get the efficiencies 
associated both with hybrid and also E-85. Maybe you could 
discuss your plans.
    And then to everybody, and Senator Dorgan just touched on 
this, how fast are we building out the infrastructure for E-85 
and what can we do to make that go faster?
    Ms. Cischke. Yes. Ford did announce recently a research 
program to take a hybrid vehicle and run it on E-85. And there 
are some technology challenges in terms of evaporative 
emissions and other things.
    But we believe there is a lot of promise there because you 
are marrying two fuel-saving technologies, the hybrid, which 
helps more in the city driving, and then the E-85, which would 
be on the road.
    I just wanted to comment a bit on the plug-in hybrids as 
well because more research has to be done on that. But there 
are changes in the vehicle system. We need more batteries, a 
little bit heavier. We are concerned with battery life. So we 
do have to figure out how we balance that.
    But if the electricity we get from the grid is not a clean 
source as it is in Japan and others, then I am not sure we are 
making a good tradeoff in terms of the energy.
    So there is a lot of work that needs to be done in these 
advanced technologies. And we do believe that there is not one 
clean solution. It has got to be a number of different clean 
diesel, hybrids, fuel cells, a number of things that we are 
working on.
    Senator Talent. Thank you.
    Do you all have any comments on building out the 
infrastructure for E-85 which in layman's terms, I think, means 
in large part having pumps available to the average consumer 
that E-85 is available to.
    Ms. Cischke. In fact, Ford has entered into a program with 
Verisun to try and increase the number of fueling stations. I 
know other manufacturers have as well. But I think we do need 
to get more stations available so that we can have E-85 used in 
all the vehicles that are out there today.
    Senator Talent. Because we are building the plants and I 
think in the Midwest in particular, that process, that cat is 
out of the bag and that is going to happen. We have just got to 
get it to consumers.
    Mr. Verrastro, do you have a comment?
    Mr. Verrastro. Yes. Two things. The first point is that the 
flexible-fuel vehicles run on about 10 to 15 percent alcohol or 
ethanol rather than 85 percent. An E-85 is a totally different 
bird. There are evaporative emissions issues in terms of the 
environment. There is also massive transportation and 
distribution issues. You cannot put it in a pipeline.
    In our country on the coast, we have the greatest demand 
for fuels. If you grow corn or use cellulosic ethanol and then 
transport it to the coast and you cannot put it in pipelines, 
you have to find a different distribution system.
    Clearly in Europe, the oil companies have taken to 
incorporate biodiesel and biomass and other fuels at their 
retail stations. It is the cost of a tank and a pump.
    But this transition to move to E-85, I am not sure that 
that is the answer. Brazil, as Jim Woolsey just said, is kind 
of the poster child for ethanol. And over the weekend, they 
reduced the content of the ethanol in their fuel from 25 
percent to 20 percent because they cannot produce enough of it.
    So to think that we are going to grow our way crop-wise 
into an energy solution, I think is far reaching.
    Mr. Woolsey. Senator, Brazil is using sugarcane which has 
to be cultivated. Grass grows pretty much everywhere. And with 
cellulosic ethanol, the National Energy Policy Commission found 
you do not need more land available than is already in the soil 
bank and is already on farmers' land with grass to be mowed. 
And it is 30 million acres. You do not need more land than that 
to replace half the gasoline in the country. So I do not agree 
that we have a land scarcity problem with respect to that.
    Senator Talent. And I agree with your statement, too, Mr. 
Woolsey. I mean, it cautions against viewing technology in a 
snapshot and making policy.
    The top of page 9 where you say the developments that are 
currently going on with regard to ethanol, biodiesel, 
genetically engineered plants basically, are comparable in 
importance to the invention of thermal and catalytic cracking 
of petroleum.
    In other words, there was a time when you could have made 
all the arguments against petroleum and said, well, gee, it is 
never going to be available, we are not going to be able to get 
enough of it, and the rest of it.
    Mr. Woolsey. Absolutely. A century ago, before thermal 
cracking was invented, you could use about 1 percent of 
petroleum to produce gasoline. And you can use less than 1 
percent of what grows to produce ethanol now.
    But the genetically modified biocatalysts, and you do not 
have to change the plants themselves--it is just the enzymes 
and the yeasts that operate the process--those have now been 
invented and it is being used in Belgium and Canada with Shell 
backing to produce cellulosic ethanol.
    Senator Talent. The more that we do, the more options we 
are going to have for the future. And the more this technology 
matures, the more the infrastructure builds out, the more 
options we are going to discover for the future.
    Mr. Woolsey. Absolutely.
    Senator Talent. If I have time, Mr. Lovins can comment, but 
I do not want to take more than my time, Mr. Chairman.
    Senator Thomas. Go ahead. Try and hold it down a little 
bit.
    Mr. Lovins. Senator, I would call the Commission's 
attention to the Bio Alcohol Fuel Foundation, baff.info in 
Sweden. There is a majority bill pending in the Swedish 
Parliament to require the top half of the filling stations to 
provide E-85 in the next few years.
    And both Volvo and Saab have said that they could by then 
be making as in Brazil total flex vehicles which take anything 
from pure ethanol to pure gasoline, any blend.
    That is one of the reasons for the success of the Brazilian 
program. There are no captive customers, so biofuels really 
have to compete just on price and they do without subsidy.
    Senator Thomas. I would like to go ahead, if we don't mind, 
with Senator Salazar.
    Senator Salazar. Thank you very much, Senator Thomas and 
Senator Bingaman.
    I just wanted to followup on a comment from Senator Talent 
and the responses with respect to where we can go with 
renewable fuels.
    It seems to me that given what the President has said on 
our addiction to foreign oil and what the National Renewable 
Energy Lab is telling us and the energy experts is that we 
really do not have a lot of limitations. They tell us that 
within 6 years from now, we are going to be at a point where we 
can be in the commercial production of cellulosic ethanol, 
which I think is going to open a whole new door.
    So I think we ought never to look at the current snapshot 
of technology as being a limitation that we currently have as 
we seek energy independence, oil security, or whatever it is 
that you might want to call it.
    Here is my question for all four of you. There are a number 
of us, Senator Luger, Senator Coleman, and there are six 
Republicans, six Democrats on the bill, S. 2025. It essentially 
sets out a target of getting us to reduce oil demand in this 
country by some ten million barrels by the year 2031. That is 
the target.
    And the tools to get us there essentially are twofold. One 
is major investments in renewable energies, including ethanol 
and other kinds of renewable energy sources, and, second, 
incentives and programs for advanced technologies, including 
flex-fuel vehicles and hybrid plug-ins and the like.
    My question to all of you--and I know, Mr. Woolsey, you 
have been involved in this for some time--if you would comment 
on that and in this context.
    The President told us at the White House the other day, he 
said I want to be bold. I do not want to be foolishly bold. And 
if we are in the face of this national security crisis which I 
believe we are in with respect to our over-dependence on 
foreign oil, how bold can we be and is 2025 the right direction 
for us to go?
    Mr. Woolsey. Senator Salazar, I very much support that 
bill. I think that the President's objective is about three 
times in 2025 what ANWAR would have delivered. It is about 
maybe 8 percent of our oil and ANWAR was about three.
    Your objective in the bill is about three times the 
President's objective, about 25 percent replaced by these other 
fuels and by economies.
    Senator Salazar. Is that a foolish target?
    Mr. Woolsey. I do not think it is a foolish target at all. 
I think it is a very reasonable target.
    Senator Salazar. Reasonable?
    Mr. Woolsey. And I think that especially if one approaches 
as the bill does with these several approaches at once as 
noted, one may work out a bit slower or a bit better. Another 
may work out a bit faster or a bit worse. We do not know.
    But if one moves with the efficiency and things like plug-
in hybrids and with the biofuels and encourages them all now, I 
think year 2025 goal is extremely reasonable.
    Senator Salazar. Ms. Cischke, could you respond to that as 
well?
    Ms. Cischke. Yes. I think that we are prepared to put out 
more vehicles capable of running on E-85. And whether we get it 
right now in the short term from corn or later as--I agree with 
what our other panel members have said about cellulosic ethanol 
and there is great research that is happening today that will 
increase the production.
    So, again, we can produce vehicles that give us that 
flexibility. It is just that we need to start now to develop 
that infrastructure and ramp it up very quickly. And at the 
same time, we are looking at hydrogen as well as hybrids to 
help along that line for vehicle technology. But it has to be a 
system of vehicles, fuel, and then consumer behavior as well.
    Senator Salazar. Has Ford taken a position on S. 2025?
    Ms. Cischke. I do not think so. I am not familiar with 
that, no.
    Senator Salazar. Would you get some information to me on 
your review and analysis of the bill, please?
    Ms. Cischke. Yes, I will.
    Senator Salazar. And, Mr. Verrastro, same question.
    Mr. Verrastro. Senator Salazar, I think it is a great 
stretch target. I think it is overly ambitious. I would argue 
that American consumers want affordable, available, reliable, 
secure, and environmentally benign fuels. And depending on 
which one of those priorities you take, your approach is 
slightly different.
    And I would add the competitive factor. We cannot produce 
something or move the industry to something that is not 
competitive where the rest of the world is using a lesser 
expensive fuel without putting our industries at risk. That is 
the only caveat I would add.
    Senator Salazar. Mr. Lovins.
    Mr. Lovins. Senator, I think by 2025, oil use and imports 
in this country could be at 1970 levels and both heading down 
all led by business for profit.
    Let me just remind us all that from 1977 to 1985, the last 
time we paid attention to oil in this country, in those 8 
years, GDP grew 27 percent. Oil use fell 17 percent. Oil 
imports fell 50 percent. Oil imports from the Persian Gulf fell 
87 percent, and it would have been gone in one more year if we 
had kept that up.
    This broke OPEC's pricing power for a decade because we 
could save oil faster than they could conveniently sell less 
oil. We are the Saudi Arabia of nega barrels and we can rerun 
that old play all over again.
    Senator Salazar. Thank you for your participation here 
today.
    Senator Thomas. Thank you very much.
    We have a vote going on, so we will have to--I want to 
thank you. I think this has been very interesting and useful in 
terms of the topic here, which is independence.
    I just have to say from my own standpoint that we have to 
also look a little closer. We are going to have to use coal in 
the interim as you accomplish these things that you all see far 
out. We are going to have to see new ways of recovering oil 
here.
    We have more resources than you act like we have if we can 
find new ways of doing it. Nuclear is going to be part of our 
system, I think, and I do not think there is any question about 
that. And conservation is something we can do rather quickly if 
we move to do it.
    So you had got great ideas. We look forward to working with 
you in the future. And thank you so much for being here.
    [Whereupon, at 11:17 a.m., the hearing was adjourned.]

    [Subsequent to the hearing the following statement was 
received for the record:]

             Statement of the American Petroleum Institute

    API is a national trade association representing more than 400 
companies involved in all aspects of the oil and natural gas industry, 
including exploration and production, refining, marketing and 
transportation, as well as the service companies that support our 
industry. Its mission is to advocate public policy in support of a 
strong, viable U.S. oil and natural gas industry essential to meet the 
energy needs of consumers in an efficient and environmentally 
responsible manner. API advocacy on public policy issues is based on 
the consensus of its members.
    We live in an energy interdependent world, and complete energy 
independence is probably unachievable and certainly undesirable. Even 
if it were achievable or nearly achievable, the costs to consumers and 
our economy for pursuing this goal would in all probability be 
enormous. Nevertheless, there is much we can and should do to 
strengthen our energy security. These measures, which will require 
changes in energy policy, must focus on increasing energy supplies, oil 
and natural gas and other conventional as well as alternative energy; 
reducing demand; and expanding and diversifying our energy 
infrastructure. By taking these steps we are likely to produce more of 
our own energy and reduce volatility in energy markets. For Congress to 
repeat the mistakes of the past by imposing new controls, new or 
expanded mandates, allocation schemes, new taxes on industry, or other 
obstacles would be counterproductive.

                U.S. ENERGY SITUATION IN A GLOBAL MARKET

    World oil demand reached unprecedented levels in 2005 and continues 
to be strong despite higher prices last year. Strong economic growth, 
particularly in China and the United States, has fueled a surge in oil 
demand.
    At the same time, the world's oil production was not able to keep 
up with the strong growth in demand. World oil spare production 
capacity--crude that can be brought online quickly during a supply 
emergency or during surges in demand--is at its lowest level in 30 
years. Current spare capacity is equal to only about 1 percent of world 
demand.
    The delicate supply/demand balance in the global crude oil market 
makes this market extremely sensitive to political and economic 
uncertainty, unusual weather conditions, and other factors. Over the 
past several years, we have seen how the market has reacted to such 
diverse developments as dollar depreciation, cold winters, the post-war 
insurgency in Iraq, hurricanes in the Gulf of Mexico, the Venezuelan 
oil workers' strike in 2002-2003, uncertainty in the Russian oil patch, 
ongoing ethnic and civil strife in Nigeria's key oil producing region, 
and decisions by OPEC.
    We currently import more than 60 percent of the crude oil and 
petroleum products we consume. American refiners pay the world price 
for crude and distributors pay the world price for imported petroleum 
products. U.S. oil companies don't set crude oil prices. The world 
market does. Whether a barrel is produced in Texas or Saudi Arabia, it 
is sold on the world market, which is comprised of hundreds of 
thousands of buyers and sellers of crude oil from around the world.
    Complicating the overall U.S. fuel supply/demand situation are 
numerous contributing factors. Passage of the new Energy Policy Act has 
led to a new renewable fuels standard, the elimination of the 
reformulated gasoline oxygen requirement in May, and the expected rapid 
phase out of MTBE use in gasoline. In addition, ultra-low sulfur diesel 
will be introduced starting June 1. The industry is working hard to 
meet these new requirements, but they are major transitions and will 
present a challenge.

                     MEETING U.S. ENERGY CHALLENGES

    The Energy Policy Act of 2005 signals a first step in a much-needed 
effort to enhance energy security and ensure the reliable delivery of 
affordable energy to consumers. Nevertheless, much remains to be done.
    We can no longer afford to place off limits vast areas of the 
Eastern Gulf of Mexico, off the Atlantic and Pacific coasts, and 
offshore Alaska. Similarly, we cannot afford to deny Americans 
consumers the benefits that will come from opening the Arctic National 
Wildlife Refuge and from improving and expediting approval processes 
for developing the substantial resources on federal, multi-use lands in 
the West.
    In fact, we do have an abundance of competitive domestic oil and 
gas resources in the U.S. According to the latest published estimates, 
there are more than 131 billion barrels of oil and more than 1000 TCF 
of natural gas remaining to be discovered in the United States.
    Much of these oil and gas resources--78 percent of the remaining to 
be discovered oil and 62 percent of the gas--are expected to be found 
beneath federal lands and coastal waters. The amount here is enough oil 
to power 55 million cars for 30 years and heat 24 million homes for 30 
years. And there is enough natural gas to heat 60 million homes that 
use natural gas for 120 years.
    Federal restrictions on leasing put significant volumes of these 
resources off limits, while post-lease restrictions on operations 
effectively preclude development of both federal and non-federal 
resources. Addressing these restrictions is critical.
    And, while we must focus on producing more energy here at home, we 
do not have the luxury of ignoring the global energy situation. In the 
world of energy, the U.S. operates in a global marketplace. What others 
do in that market matters greatly.
    For this country to secure energy for our economy, government 
policies must create a level playing field for U.S. companies to ensure 
international supply competitiveness. With the net effect of current 
U.S. policy serving to decrease U.S. oil and gas production and to 
increase our reliance on imports, this international competitiveness 
point is vital. In fact, it is a matter of national security.
    An important, related issue is natural gas, which fuels our 
economy--not only heating and cooling homes and businesses but also 
generating electricity. It is used by a wide array of industries--
fertilizer and agriculture; food packaging; pulp and paper; rubber; 
cement; glass; aluminum, iron and steel; and chemicals and plastics. 
And, natural gas is an essential feedstock for many of the products 
used in our daily lives--clothing, carpets, sports equipment, 
pharmaceuticals and medical equipment, computers, and auto parts.
    Only four to five years ago, natural gas prices were in the $2 to 
$3 per million Btu (MMBtu) range. Recently, prices have settled in the 
$6-7 per MMBtu range, after reaching record levels in December 2005 of 
$14-15 per MMBtu. Higher natural gas prices have taken their toll--more 
than 2.8 million U.S. manufacturing jobs have been lost since 2000, and 
chemical companies closed 70 facilities in the year 2004 alone and have 
tagged at least 40 more for shutdown.
    Unlike oil, natural gas imports in the form of liquefied natural 
gas (LNG) are limited by the lack of import terminals. There are only 
five operating in the United States. A number of additional terminals 
have been proposed but many have run into not-in-my-backyard opponents 
and complex permitting requirements. While natural gas imports from 
Canada have been important, Canada's own needs are growing. Expanding 
our ability to tap into global natural gas supplies is essential.
    The National Petroleum Council (NPC) study, ``Balancing Natural Gas 
Policy: Fueling the Demands of A Growing Economy'' (2003), highlighted 
the significant costs associated with current policies--such as access 
restrictions on the Outer Continental Shelf and process impediments to 
development in the West--that impede the development of America's 
abundant natural gas resources. The NPC estimated that continuing on 
our current policy path could result in $300 billion more in consumer 
costs over 20 years.
    Beyond easing the way for greater development of oil and natural 
gas, we must also address those public policies that inhibit refinery 
capacity expansion. The U.S. refining industry has been expanding a 
little more than 1 percent per year over the past decade--the 
equivalent of a mid-size refinery being built each year. In order to 
create the opportunity for increasing the growth of U.S. refining 
capacity, government policies are needed to create a climate more 
conducive to investments in the refining industry.
    In addition, many of the steps the federal government could take to 
help the refinery capacity situation are covered in the December 2004 
National Petroleum Council (NPC) study, Observations on Petroleum 
Product Supply--A Supplement to the NPC Reports ``U.S. Petroleum 
Product Supply--Inventory Dynamics, 1998'' and ``U.S. Petroleum 
Refining--Assuring the Adequacy and Affordability of Cleaner Fuels, 
2000.''
    The NPC study suggested that the federal government should take 
steps to streamline the permitting process to ensure the timely review 
of federal, state and local permits to expand capacity at existing 
refineries.
    For example, new-source review (NSR) requirements of the Clean Air 
Act need to be reformed to clarify what triggers these reviews. Some 
refineries may be able to increase capacity with relatively minor 
adjustments, but are unsure if the entire facility's permit review 
would be triggered--a burdensome and time-consuming process.
    In addition to the administrative issues deterring new refining 
capacity investments, there are financial constraints as well. 
Attracting capital for new refining capacity has been difficult with 
refining rates of return historically averaging well below the average 
for S&P Industrials. Over the 10-year 1995-2004 period, the return on 
investment for the refining and marketing sector was 7.7 percent or 
less than half as much as the 13.9 percent for S&P Industrials. In only 
two years between 1977 and 2004 did the average return of refiners 
exceed the average for the S&P Industrials.
    While taking these factors into account, it is important to 
remember that the oil and natural gas industry operates in a global 
marketplace. Many oil and gas companies are global companies, whose 
U.S. investment decisions compete not only with decisions as to how to 
allocate capital investments in the U.S. among various sectors of the 
industry, but also with competing demands and investment needs 
overseas. In a global marketplace, companies will make the best 
economic investment decisions in order to bring affordable petroleum 
products to consumers. Imports may be the more economical option than 
new U.S. refineries, but that is a decision to be left to the global 
marketplace. Government policies must encourage, not interfere with, 
the global marketplace.

                           ALTERNATIVE ENERGY

    Alternative energy has much potential, but it is not likely to 
become a substantial let alone dominant part of the market for many 
decades. While the U.S. EIA forecasts a 50-percent increase in 
renewable energy consumption between 2004 and 2025, it also forecasts 
that the renewable energy share of total U.S. energy consumption will 
rise from 6 percent to only 7 percent during that period.
    There is a misperception by some about the time and costs involved 
in any transition to the next generation of fuels. Consider what would 
be involved in replacing the dominant role of oil with a substitute 
like hydrogen or solar power. Most experts agree that such a transition 
would require dramatic advances in technology and massive capital 
investments--and take several decades to accomplish, if at all.
    The United States--and the world--cannot afford to leave the Age of 
Oil before realistic alternatives are fully in place. It is important 
to remember that man left the Stone Age not because he ran out of 
stones. And, when we someday leave the Age of Oil, it will not be 
because we will have run out of oil. Rather, oil will be replaced by 
alternatives that are proven more reliable, more versatile, and more 
cost-competitive than oil.
    This does not mean that our industry is narrowly focused on oil and 
natural gas alone. In fact, our companies have long been pioneers in 
developing alternative sources of energy. Permit me to cite several 
examples:

   BP is one of the world's largest producers of photovoltaic 
        solar cells;
   Chevron is the world's largest developer of geothermal 
        energy;
   Our industry is the largest producer and user of hydrogen;
   ExxonMobil, BP, Chevron, Shell and ConocoPhillips are key 
        players in government/industry hydrogen fuel and vehicle 
        partnerships, such as the DOE FreedomCar and Fuel Partnership 
        and the California Fuel Cell Partnership; and
   Shell is one of the top players in the worldwide wind 
        industry.

    Our companies intend to meet the energy needs of industrial and 
retail consumers well into the future, and they compete fiercely with 
one another and others for the opportunity to do so. The companies' 
research and development efforts are continuing in the search for the 
most competitive, efficient, and economical energy technologies.
    Indeed, thanks to our industry's technology and refiner flexibility 
and investment, an array of alternative fuels is already included in 
our companies' product slates. For example, we in the United States now 
consume as much ethanol as Brazil, the world's long-time champion 
producer of ethanol. Very soon, we will overtake them. However, we need 
to keep in mind that no energy alternative is a panacea. Each has its 
plusses and minuses, but they can each play an important role.
    For example, based on various studies, the energy savings from 
corn-based ethanol are moderate--3 to 20 percent--because production 
from corn requires significant energy input. And, judging from this 
past year, ethanol is higher-priced than gasoline and, measured on a 
BTU basis, considerably more expensive. In addition, some have 
estimated that the total amount of ethanol that could be produced by 
converting the entire 2005 U.S. corn crop into ethanol would be about 
31.1 billion gallons--an amount equal to just 22.2 percent of U.S. 
gasoline consumption last year.
    API's member companies feel there is a very bright future for a 
full range of alternatives. But, we do not want to be a party to any 
``over-promise and under-perform'' commitment. We have to be realistic, 
including the need to exercise full due diligence and appropriate risk 
management methodologies. We need only look at the auto industry and 
consumer experience with diesels in the 1970s to see that wishful 
thinking, absent merit, can end up hurting everyone.

                   THE CHIMERA OF ENERGY INDEPENDENCE

    While oil is essential to fuel economic growth, its supply is 
volatile, subject to short-term interruptions as well as longer-term 
variation in the rate of supply development. As a consequence, any 
imbalances carry with them substantial economic costs and give rise to 
concern over ``oil security.'' In the past, these prospects led to 
government attempts to preserve U.S. ``energy independence'' via a 
number of policies designed to insulate the U.S. from world markets. 
Some are now calling for a repeat of this experience. However, such 
past efforts were abysmal failures, which aggravated rather than solved 
these problems, before being quickly abandoned. Today a return to such 
policies would be even more futile. Most experts agree that sustaining 
even modest economic growth worldwide for the next several decades will 
require massive new investments in oil and gas. The world energy 
markets are inherently global, and no single country can exempt itself 
from the interdependencies of that market. Geographical differences in 
the location of supply and demand will continue to expand trade. 
Differences in resource ownership and access to capital and technology 
will require increasing cooperation between private international oil 
companies (IOCs) and the state owned national companies (NOCs). The 
consuming and producing countries share a mutual interest in this 
expansion, and in avoiding volatility. In fact, these interdependencies 
generate a web of mutual interests between producers and consumers, 
which can provide a basis for reducing the security problem. While 
there is no assurance that cooperation in expanding supplies over the 
next several decades will succeed, it is certain that the cost of 
failing to do so will be enormous.
    What is the oil security problem? Given the key role of oil to 
economic growth, and the heavy concentration of oil supply in the 
Persian Gulf region, the oil security problem came to be articulated in 
the 50s and 60s as the vulnerability of Western economic growth to 
events that might interrupt such supply. These fears actually 
materialized in 1973 as a group of oil exporting countries attempted to 
influence U.S. foreign policy via an oil embargo, and a transfer of 
control over the oil assets in those countries from the major 
international oil companies (IOCs) to a group of state owned national 
oil companies (NOCs). While the actual reduction in supply was small 
and temporary, the reduction in the rate of supply growth was of 
longer-term significance. Prices rose sharply in 1973, triggering a 
recession and a reduction in economic growth throughout the remainder 
of the 70s. This damage was repeated in 1979 when the Iranian 
revolution triggered another supply disruption, followed by another 
recession. The episode clearly illustrated Western vulnerability to 
economic damage from supply inadequacy, and the potential for such 
damage to compromise the independence of U.S. foreign policy, which 
remains the essence of the oil security problem.
    The initial U.S. response to the events of the 70s was a futile 
attempt to insulate itself from the global oil market. Price controls, 
product allocation schemes, and subsidies to alternative fuels were 
attempted in the name of protecting U.S. ``energy independence.'' In 
rapid succession, each of these interventions failed to reduce 
dependence and, in some cases increased vulnerability.\1\ By 1980, all 
were abandoned in favor of reliance on markets and prices to guide the 
patterns of oil use and volume of oil traded. Today, in response to 
recent increases in world oil prices, some are again calling for 
government intervention to promote energy independence. But such a 
pursuit today would be even more futile than it was in the 70s, for 
several reasons. First is the fact that the U.S. resource base 
(consisting of 3% of world reserves) will not support it. The U.S. 
Department of Energy estimates that sustaining modest economic growth 
will require about a 20% expansion of U.S. oil supplies by 2020, even 
allowing for improvements in energy efficiency and significant growth 
in alternatives. With domestic production declining, imports must rise, 
reaching 68% of consumption by 2020. Even if reversal of these trends 
were feasible, it would be futile to pursue such independence in a 
global market, since all participants face the same price, regardless 
of their level of imports. Consequently, a change in U.S. import 
dependence or a shift in bilateral trade relationships with a 
particular area may do nothing to change either the price or 
composition of global supply, thus leaving both U.S. and global 
vulnerability unchanged. Given that energy independence has proven 
neither feasible nor desirable, our only options involve managing the 
risks faced by participation in this market.
---------------------------------------------------------------------------
    \1\ For instance, by holding prices at below world market levels, 
U.S. policy actually encouraged a level of oil use higher than that 
which would have occurred without such controls.
---------------------------------------------------------------------------
    We have learned to manage vulnerability to short-term 
interruptions. We have made progress in this area. While U.S. import 
dependence has generally increased since 1980, vulnerability to short-
term interruptions has not. The world has weathered several major 
interruptions since 1980, such as the invasion of Kuwait in 1990 and 
the invasion of Iraq in 2003, neither of which produced economic damage 
of either the magnitude or the duration of those in the 70s. In part, 
this is attributable to measures adopted to manage such risks, by the 
building of strategic stocks, the promotion of free trade and 
investment, and the development of traditional diplomatic and military 
instruments to secure that trade. In part, it is attributable to 
favorable market or political trends, such as the decline in the share 
of oil in GDP and the increased access to potentially productive lands 
as a result of the breakup of the Soviet Union. But primarily it was 
due to the fact that OPEC since 1980 has had available a large volume 
of excess capacity, which it has generally used to offset any such 
shortfalls.
    There are new challenges ahead. First is the sheer magnitude of the 
prospective growth in supply likely to be required to sustain modest 
global economic growth. A variety of recent forecasts by the 
International Energy Agency, the U.S. Department of Energy, and the 
OPEC Secretariat estimate that sustaining a 3% rate of annual growth in 
the global economy over the period to 2020 will require an expansion of 
between 24 and 28 mmbd in global oil supplies. (The projection also 
assumes improvements in energy efficiency and greater use of 
alternative energy sources.) Satisfying this demand will require an 
enormous development effort on the part of both OPEC and non-OPEC 
suppliers.
    Interdependence is a fundamental characteristic of the emerging 
market environment. The first interdependence is that of trade, 
stemming from the geographical dispersion of supply and demand. 
Consumption growth will become increasingly concentrated in the 
developing countries over time, primarily in Asia, while supply will 
become increasingly concentrated in the Middle East, West Africa and 
Russia. The second form of interdependence arises between resource 
owners and producing companies. This interdependence arises from the 
separation that occurred in the 70s between the resource owners (host 
governments) and the producers (IOCs). As a result of this separation, 
currently only about 6% of the world's reserves are actually fully 
accessible to equity participation by the IOC's. About another 12% is 
accessible under terms negotiated with the NOC's, leaving 77% under 
exclusive control of the NOCs. At first glance, both dependencies may 
be viewed as favoring the producing country or company, but such an 
interpretation does not withstand scrutiny. That is, a trading 
relationship is clearly a mutual dependence, with both parties hoping 
to gain from the transaction. The consumer faces risks of uncertain 
supply; the producer faces risks of uncertain demand. There may be an 
appearance of greater risk to consumers, since their costs are realized 
in the short run. Generally, the oil exporting country faces the risk 
of demand erosion that may occur more gradually, but ultimately poses 
larger risks. For instance, oil export revenues comprise 38% of Saudi 
Arabia's GDP, while oil import costs comprise 1.5% of U.S. GDP. 
Likewise, a cooperative arrangement between NOCs and IOCs is built on 
voluntary agreements premised on mutual acceptance of risk for mutual 
gain. The IOC's have the capital and technology to develop the 
resource, but have few of their own. The NOCs have the resource, but 
often are hard pressed for the capital or the technology to develop 
it.\2\
---------------------------------------------------------------------------
    \2\ A 2003 study by Wood Mackenzie found that the only OPEC country 
that has been able to develop significant new capacity without direct 
IOC participation has been Saudi Arabia.
---------------------------------------------------------------------------
    While the producer and consumer countries, as well as the NOCs and 
IOCs, face fundamental differences of interest with their trading or 
operating partners, they also face a mutual interest in the orderly 
development of a market within which they can achieve their mutual 
goals. It is a fundamental error to characterize the security problem 
as the exclusive province of the consumer countries resulting from 
repeated hostile actions by producing countries. Only the 1973 embargo 
can be so characterized. Ironically, each of the other interruptions 
was attributable either to conflicts among producer countries or 
embargoes imposed by consuming countries. Moreover, in dealing with the 
short run supply interruptions since 1980, it has been producer 
actions, rather than the use of strategic stocks or other emergency 
measures by the consuming countries, that have played the greatest role 
in limiting the economic damage associated with each disruption. 
Perhaps the greatest challenge to future security is presented by the 
disappearance of excess capacity within OPEC. Its use provided both a 
source of surge capacity that reduced the impact of short run 
interruptions and a source of new supply to accommodate demand growth 
over time for nearly two decades. From the standpoint of the dual 
security problem--replacing supply lost to short-term interruptions and 
providing for long-term capacity growth, it provided the bulk of the 
world's protection. In a very real sense, however, world supply has 
reached a crossroads. In this setting, additional reliance may be 
placed on other protective measures such as strategic stocks to replace 
supply lost to short-term disruption, and to free trade and investment 
to develop the interdependence to assure adequate long run growth. 
While it is by no means certain that adequate investment and new 
supplies will be forthcoming, it is inevitable that failure to do so 
will have costs. The IMF estimates that a $5 per barrel increase in 
price could reduce world GDP as much as $100 billion annually. The 
magnitude of these potential losses suggests the enormous value of 
finding a basis for cooperation in such expansion.

                               CONCLUSION

    We hope that people will better understand that, in today's global 
energy marketplace, U.S. ``energy independence'' is impossible. We hope 
they come to see that, instead, ``energy interdependence'' is 
essential. We hope consumers will come to recognize that their 
interests are best served when we can source fuels from multiple 
providers located both in the U.S. and throughout the world. Sourcing 
flexibility is one of our most powerful energy security tools. We also 
want others to understand that we can operate only where governments 
permit us to do so. If we are prevented from exploring for and 
producing oil and natural gas here at home in the United States, we 
must look elsewhere in the world to get the energy the nation needs.
    If the government elects to keep us from attractive oil and natural 
gas production opportunities in the U.S., and burdens us from competing 
fairly abroad, our foreign competitors--national oil companies, heavily 
supported and, at times, subsidized by their governments--could move 
more aggressively into energy markets here in the U.S.
    Clearly, the nation needs to work together--industrial and retail 
consumers, energy companies and government--to address the energy 
challenges we all face. In looking at these challenges, it's easy to 
see the glass as half empty, when, in fact, it is half full. America's 
oil and natural gas producers and suppliers have the technology, the 
efficiency, the infrastructure savvy, and the desire to compete 
anywhere on a level playing field with their competitors. We need 
commonsense energy policies that provide access to conventional energy 
supplies, encourage energy efficiency, and promote continued 
development of new energy technologies.

                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

                                  Rocky Mountain Institute,
                                       Snowmass, CO, April 6, 2006.
Senator Pete V. Domenici,
Committee on Energy and Natural Resources, U.S. Senate, Washington, DC.
    Dear Senator Domenici: I appreciate the opportunity to have 
testified before you and your Committee colleagues on 7 March 2006 on 
the goal of energy independence. While some of my ideas may have been 
unfamiliar, I hope that they were stimulating and will be taken in the 
independent and constructive spirit in which they were meant. The 
degree of consensus within the panel of witnesses was certainly 
encouraging.
    Since I was abroad for two weeks when your 13 March letter with 
questions for the record arrived, your staff kindly gave me leave to 
reply a week later than your suggested 27 March date. My response is 
attached.
    I'm sorry that in September 2004, when we were launching Winning 
the Oil Endgame at NDU, RFF, CSIS, CFR, and other Washington venues, 
your schedule reportedly did not permit you to take the proffered brief 
(although Senator Bingaman and some staff were able to do so, and I 
also did a prebrief for staff from both sides of both Houses). It 
typically takes about an hour to explain our study's main findings to a 
knowledgeable audience, so its depth can't be conveyed in two minutes, 
as I attempted in the 7 March hearing. But should you and your 
colleagues wish a fuller exposition, I'd be glad to try to oblige on a 
future trip to Washington. My work with DoD typically brings me to town 
every few months. Alternatively, it's easy to schedule a brief and 
discussion at a mutually convenient time via our near-broadcast-quality 
Internet videoconference apparatus.
    If my colleagues and I can be of further service to the Committee, 
please don't hesitate to let me know.
            Cordially,
                                              Amory B. Lovins, CEO.

      Responses of Amory Lovins to Questions From Senator Domenici

    Question 1. In your written testimony you state that the 
elimination of all oil (including domestic) in our economy by the 
2040's is an attainable and worthy goal. You state that this will 
revitalize the economy and is welcomed by business and military 
leaders.
    In your view what is the government's role in reaching this goal? 
Won't the market dictate this result fit is economically possible and 
profitable?
    Answer. Winning the Oil Endgame synthesized a national oil solution 
explicitly built around competitive-strategy business cases for the 
car, truck, plane, and oil industries and around military requirements. 
The business and military logics are so compelling that I believe they 
will ultimately prevail, and that the Nation's transition beyond oil 
will be led by business for profit. But if public policy supported 
rather than distorted the business logic, oil use would be eliminated 
faster and with higher confidence. Thus I believe government should 
steer, not row, and that it's vital to steer in the right direction. 
Regrettably, current Federal policy has only limited relevance to 
eliminating oil dependence, and much of its content that is relevant is 
unhelpful. Most of the public policy initiatives that are both relevant 
and helpful are coming from the States. Basing Federal policy on sound 
market principles and ``best buys first'' would be a propitious change 
from recent tendencies. So would a clear focus on oil, rather than 
confusing oil with electricity (please see my response below to Senator 
Bunning's question #1).
    Question 2. How do you respond to those, like me, who say that an 
economy run entirely without oil by the 2040's is quite difficult to 
believe?
    Answer. First, I would respectfully invite you to examine the 
analysis we presented on 20 September 2004 in Winning the Oil Endgame 
and its Technical Annexes, all posted free at www.oilendgame.com. More 
than 150,000 copies have been downloaded and our findings have been 
intensively scrutinized within industry, but my knowledge, no material 
flaw in its facts, logic, or conclusions has been found. Indeed, many 
technology analysts in the energy industries and their leading 
consultancies have reached similar conclusions.
    Next, I would remind you that on a similar timescale of decades, 
our Nation has made such major energy transitions before--for example, 
away from directly burned coal, town gas, and coal oil. Economic 
history is full of such technology-led, market-driven substitutions. 
Particularly striking is the market response to what Phil Gramm called 
America's first ``major energy crisis'' (``The Energy Crisis in 
Perspective,'' Wall St. J, 30 Nov. 1973, p. 8) when the almost 
universal illuminant--whale oil--became too costly. Winning the Oil 
Endgame documents how, in the nine years before Drake struck oil in 
Pennsylvania in 1859, over five-sixths of that illuminant market went 
to competitors, chiefly coal gas and town gas, to which the whalers 
hadn't paid attention: they were astounded to run out of customers 
before they ran out of whales. Around 1850, whaling was the fifth 
biggest American industry; a few decades later it was nearly gone, 
reduced to begging for Federal subsidies on national-security grounds: 
its real revenues fell by tenfold in a half-century. (See Davis, 
Gallman, & Gleiter, In Pursuit of Leviathan, U. of Chicago Press, 
1997.) Oil feels rather like this today: a mighty industry that hasn't 
paid enough attention to fast-moving competitors. America has spent 
decades quietly accumulating a huge backlog of powerful ways to save or 
replace oil, but until RMI's 2004 study, nobody had added them up. When 
we did, we found that that saving or displacing all the oil the U.S. 
uses would cost about one-fourth as much as buying it at today's price. 
I think that as you have a chance to read our study, you'll find it 
less surprising and more compelling--as its Foreward authors (Secretary 
George Shultz and Sir Mark Moody-Stuart) and the authors of the 
comments on its back cover, such as Bud McFarlane and Bill Martin, have 
done.
    Third, the transitional speeds suggested or assumed in our analysis 
are firmly rooted in historical experience, both in aggregate and in 
specific sectors, such as the decades-long automotive transition 
summarized on pp. 180ff. Our analysis assumed the vehicle-fleet stocks 
and sales through 2025 used in EIA's January 2004 Reference Case, 
adopted higher efficiencies based on detailed technical and economic 
analysis, and for the crucial light-vehicle sector, applied a consumer 
choice model that matches the DOE/ORNL model within a few percent. Our 
suggested policy tweaks would speed up by a few years the ``takeoff 
point'' in the logistic S-curves found throughout the literature on 
technological succession. Our industrial and building oil and gas 
savings are consistent in size, cost, and speed with those in the Five 
Labs study (which, based on our extensive consulting experience, we 
consider very conservative). Our adoption scenarios for biofuels and 
natural-gas savings are consistent with NAS/NRC and other standard 
sources. I think you'll find no surprises in these analytic components; 
their sum may seem startling only because it hadn't previously been 
coherently synthesized.
    As a reality check, our analysis assumed that oil will be saved 
about two-fifths slower than occurred in 1977-85, when America last 
paid attention to oil. In those eight years, U.S. oil intensity--
barrels consumed per dollar of real GDP--fell at an average rate of 
5.2%/y. At that rate, it'd fall by 88% in 40 years. However, our 
scenario achieves half its oil displacement by substituting saved 
natural gas and advanced biofuels for oil--a greater ratio of supply 
substitution to end-use efficiency gains than occurred historically. 
And it's not important whether every last bit of oil use is wrung out; 
the point is to make oil unimportant, hence no longer a security threat 
nor a major cause of conflict.
    Other helpful analogies might be the 59% reduction in U.S. water 
intensity during 1950-2000, or the >50% reduction in oil intensity 
since 1975. Hardly anyone noticed. The more diverse the means of such 
savings or substitutions, the more market actors can adopt them (more 
like buying cellphones than like building cathedrals), the shorter 
their technical lead times, and the more desirable they are, the faster 
the transition can be.
    Fourth, I respect free enterprise's dynamism and American 
industry's ability to innovate. In the 1920s, U.S. automakers took six 
years to switch from wood to steel autobodies. At the start of World 
War II, it took six months to switch from making four million cars a 
year to making zero cars, but much of the materiel--tanks, jeeps, 
planes, munitions--that won the war. Of course, that was via a real 
mobilization, which I'm not calling for (though perhaps I should be). 
But the U.S. auto industry's parlous state cries out for rapid and 
dramatic technical innovation just to ensure that the business 
survives; incrementalism won't beat Toyota. Many industry leaders are 
starting to understand this. In aerospace, I believe Boeing already 
has. Similarly rapid change is underway in heavy trucks, where Wal-
Mart, based on our analysis, has set a goal of improving its new 
trucks' fuel efficiency by 25% next year and by 100% within nine years.
    America no longer maintains a strategic stockpile of gutta percha--
though she did until, as I recall, the 1990s. I believe that under the 
inexorable pressure of technological change and market competition, the 
younger people in your hearing room will live to see the day when the 
Strategic Petroleum Reserve is abolished as a similarly quaint 
anachronism.
    Question 3. You say that your goals are attainable if government 
would simply provide the financial incentives.
    How do [you] respond to those who point out the vast financial 
investment that government has made and is still making in energy 
technology, when you say that not enough is being done?
    Answer. My testimony did not call for ``financial incentives'' nor 
even for increased Federal energy R&D, and would cost the Treasury 
zero. But if asked, first I'd say that most R&D has been and still is 
misallocated to favored technologies that are already mature or show no 
hope of becoming competitive. The money seems to be allocated more by 
porkbarrel politics than by risk-adjusted public return. Second, total 
federal energy R&D is far too small for its actual and rhetorical 
priority. Prof. Dan Kammen at UC Berkeley reckons (Issues in Sci. & 
Tech., Fall 2005, pp. 84-88) that private-sector U.S. energy R&D totals 
less than the R&D budget of a single large biotech company like Amgen 
or Genentech, and that inadequate and uneven Federal funding is driving 
private investors away too.
    I'd add that the Federal government is doing far too much to 
distort private markets, deliberately causing huge misallocations of 
private capital. I'd love to see a thorough, transparent, and 
defensible compilation of Federal energy subsidies--unlike EIA's 
partial ones (http://earthtrack.net/earthtrack/index.asp? 
page_id=201&catid=73). My Institute did the first thorough analysis of 
Federal energy subsidies, summarized in ``Hiding the True Costs of 
Energy Sources,'' Wall St. J., 17 Sept. 1985, p. 28. A partial list 17 
kinds of tax breaks, net program outlays from 21 agencies' budgets, and 
cheaper capital from eight agencies' loans and guarantees--exceeded $46 
billion in FY84, varying by more than 200x per unit of energy saved or 
supplied by the different technologies. For example, 65% of the 
subsidies went to electricity, which was 13% of delivered energy, 
reducing its apparent price by about a fifth: that's >11x the subsidy 
per BTU of direct fossil fuels, and at least 48x the subsidy per BTU 
that energy efficiency got. Nuclear power in FY84 got 34% of the 
subsidies (excluding Price-Anderson) but delivered 1.9% of the energy; 
each of its subsidy dollars delivered 1/80th as much as a dollar of 
subsidies to renewables and efficiency. The latest analyses by the top 
contemporary independent scholar in this field, Doug Koplow 
(www.earthtrack.net), confirm that Federal energy subsidies are still 
large and probably even more distortive. There is little point 
developing new technologies if such massive market interventions 
favoring rivals continue to suppress their adoption.

     Responses of Amory Lovins to Questions From Senator Murkowski

    Question 1. Coming from a state that has the lion's share of gas 
hydrate potential, what is the likelihood of gas hydrate production 
both on shore and under the seafloor coming into its own within the 
next two decades? It is said that America has a 1,000 year energy 
supply of hydrates out there waiting to be tapped. Should we be 
focusing more on developing that resource?
    Answer. No. Alaska's onshore methane hydrates may bubble out of the 
thawing tundra on their own, causing a global climate disaster. I 
haven't seen a convincing argument that onshore or offshore methane 
hydrates can be extracted without a substantial risk of major 
uncontrolled releases of methane. Lacking such grounds for confidence 
that the operation could avoid making our planet more like Venus, I 
hope the hydrates stay right where they are. And we don't need them if, 
more cheaply, we use energy in a way that saves money.
    Question 2. DOE last year issued a report that indicated we should 
be able to coax up to 40 billion barrels of additional conventional oil 
from aging oil fields by injecting carbon dioxide into the fields to 
squeeze out more oil. How important is more widespread use of 
CO2 likely to prove to be to aid shorter-term energy 
production, especially since the same technology CO2 
injection--results in sequestering carbon from the environment, cutting 
greenhouse gas emissions?
    Answer. CO2 injection is an important and mature means 
of enhanced oil recovery, which I welcome. Whether the CO2 
then remains in the reservoir depends on many geological and 
operational details. The industry is intensively examining this and 
other enhanced-recovery techniques for its whole production portfolio, 
but most details are proprietary. Though I've consulted for oil majors 
for 33 years, I'm not aware of an independent assessment, using public 
data, that would support a meaningful response to your request .
    Question 3. We all know that America is the Saudi Arabia of coal. 
My state alone has about 15% of the planet's coal reserves, 160 billion 
short tons. I am really interested in pushing coal gasification to 
produce coal without emissions and to help sequester carbon. What can 
we do on top of what we did in last years Energy Bill, to further clean 
coal technology and production economics?
    Answer. Coal gasification is a feasible but costly way to produce 
gas or liquids. It is quite carbon-intensive as normally conceived. 
However, researchers like Prof. Robert H. Williams at Princeton, and 
many in industry worldwide, are exploring possible methods that include 
carbon sequestration. Williams claims, not implausibly, sequestration 
costs 1 cents/kWh or less, which would seem usefully cheap. I would 
hope that proposals like his, which uses solid membranes for the 
H2 separation, would receive due attention. However, all 
carbon-sequestered ``clean coal'' innovations are in my view a fourth-
best approach, after energy efficiency, renewables, and combined-heat-
and-power (co-, tri-, and polygeneration), so I'd give it a lower 
overall priority in energy R&D than it currently has. Having a lot of 
coal is in my view a less important reason to use it than whether it 
can provide energy services at least cost. R&D should be driven by 
cost-effectiveness, not resource bases.
    Question 4. If we do everything that we think we can do in terms of 
fuel efficiency, stimulating production of conventional fuels and 
alternative fuels from wind, geothermal, biomass, solar and ocean 
current energy and also further nuclear, do we have the ability to be 
truly energy independent by 2025?
    Answer. Winning the Oil Endgame provided a detailed roadmap for 
reducing 2025 U.S. oil use from EIA's Jan. 2004 Reference Case forecast 
of 28.1 Mbbl/d to 20.4 Mbbl/d by capturing 55% of the efficiency 
potential whose average cost is $12/bbl (2000 $), then substituting 5.7 
Mbbl/d of biofuels/biomaterials/biolubricants and 1.6 Mbbl/d of price-
independent saved natural gas. That cuts net demand 54%, to 13.0 Mbbl/
d. EIA's 2025 domestic production of 7.8 Mbbl/d leaves 5.2 Mbbl/d to 
come from any combination of:

   continued imports of oil from Canada and/or Mexico, ethanol 
        from Brazil, etc.
   more efficiency (at one-fifth of today's oil price, maybe we 
        should buy more--or faster, since 7.0 Mbbl/d of efficiency 
        wouldn't yet be captured by 2025)
   substituting the rest of the saved natural gas for the 5.2-
        Mbbl/d ``balance'' term
   optionally turning that saved gas into hydrogen, whose more 
        efficient end-use would permit it to displace that ``balance'' 
        term plus the 7.8 Mbbl/d of forecast domestic oil output (with 
        efficient light vehicles and an integrated deployment strategy, 
        per pp. 227-242 of our study, this would be the most profitable 
        use of the saved gas, competing robustly with our 2025 
        benchmark of $26/bbl RAC in 2000 $; but even without H2, our 
        approach saves $70b/y vs. $26/bbl oil);
   optionally supplementing or supplanting that hydrogen source 
        with others; e.g., just Dakotas windpower could competitively 
        produce -50 million tonnes of hydrogen per year--enough to run 
        cost-effectively, at our levels of vehicle efficiency, every 
        highway vehicle in the United States. Note that our least-cost 
        off oil strategy doesn't need most of the energy resources 
        you're positing, and your nuclear suggestion is uneconomic (n. 
        10 of my testimony).

    By law, EIA's Jan. 2004 forecast of 7.8 Mbbl/d of domestic oil 
output in 2025 excludes ANWR as not yet permitted. (I also believe the 
oil majors will continue in their opinion that its risk/reward ratio 
makes it one of the least attractive prospects in their global port-
folios; neither higher oil prices nor new E&P technologies favor ANWR 
drilling unless they advantage ANWR against the rest of the portfolio, 
and I see no evidence they do or can.) As you'll have gathered from my 
testimony, however, I share Mr. Woolsey's view, expressed in our 
written testimonies on 7 March 2006, that this is the correct national-
security outcome because of what he rightly called the ``devastating'' 
potential for attack on TAPS or the facilities at either end of it. 
Kindly see note 5 in my written testimony, especially the detailed 
documentation cited just before note 6, for details of why Mr. Woolsey 
and I both consider this longstanding vulnerability inherent, 
unfixable, and a show-stopper for the whole ANWR venture. I appreciate 
your understandable concern for Alaska's revenues, but based on my work 
long ago for the State of Alaska, I think this internal budgetary 
problem can be addressed without endangering national security.

      Responses of Amory Lovins to Questions From Senator Bunning

    Question 1. Many of you focus on biodiesel and transportation 
fuels. But coal is our most abundant domestic fossil fuel and it 
accounts for half of our electricity generation. The Energy Information 
Administration predicts coal will continue to be the centerpiece of our 
energy production for the next 25 years. Do you think we could lessen 
our dependence on imports by using clean coal power and nuclear energy 
to replace the natural gas and oil that currently goes to the 
electricity production?
    Answer. No, coal and nuclear generation of electricity have 
virtually nothing to do with displacing oil, which is the nub of the 
Nation's energy security problem. Less than 3% of U.S. electricity is 
made from oil (over 90% of which is gooey bottom-of-the-barrel residual 
oil, not distillate), and less than 2% of U.S. oil (again nearly all 
resid) makes electricity. Both these quantities are declining. 
(worldwide they're only 7% and falling.) The only importantly oil-
dependent U.S. electricity systems are in Hawai'i, whose Republican 
Governor Lingle and main utility are solving this problem at least cost 
via a least-cost mix of efficiency and renewables. The U.S. and most 
other countries already substituted coal and nuclear power for oil-
fired electricity generation in the 1970s and 1980s, and they can't do 
so again. Even the enormous coal-and-nuclear push in that era caused 
only 27% of U.S. savings of resid, or 18% of total oil savings, during 
1977-85. Since transportation currently uses 70% of U.S. oil, we must 
look there for most of the oil savings. This is even truer for the 
future, since in EIA's 2004 forecast, 55% of the projected growth in 
U.S. oil use was just for SUVs and other light trucks.
    It's easier to imagine expanded coal or nuclear power generation 
replacing the natural gas that still produces one-sixth of America's 
electricity. But this is uneconomic and impractical, because nuclear 
and most coal plants, being capital-intensive, are run rather steadily 
(as nuclear plants must be anyway for technical reasons), whereas most 
gas-fired plants run rather infrequently. And there's a far cheaper way 
to save natural gas: pp. 112-122 of Winning the Oil Endgame explains 
how efficient use of gas and gas-fired electricity can save half of 
U.S. natural gas at an average cost of $0.88 per million BTU (2000 $). 
The main obstacle is that 48 states penalize utilities for cutting 
customers' bills, and reward them only for selling more energy. These 
findings, summarized in n. 12 of my testimony, are now being expanded 
by further study at RMI. I expect this deeper examination to reinforce 
our initial findings that efficient use of natural gas, both directly 
and (especially) by saving gas-fired electricity, is a hugely important 
gap in the Federal energy agenda.
    Question 2. I have been impressed with new Coal-to-Liquids 
technology that can turn coal into a synthetic liquid fuel. Other parts 
of the world, like South Africa, have been using this technology for 
decades. I know there are several pilot facilities here in America, but 
what do we need to do to push this industry into full commercial-scale 
operations?
    Answer. I'm familiar with the technology, having recently helped 
redesign a $5b Fischer-Tropsch plant. It's inherently costly, $50,000-
70,000 per daily barrel--even more so with additional measures to 
reduce its high CO2 releases. As noted in my response to 
Chairman Domenici's question #3, I think the Federal government is 
already doing more than is sensible to help this expensive option get 
to market, but much less than is sensible to level the playing-field 
for the far cheaper competitors--now fighting against far bigger 
subsidies given to their uneconomic rivals--suggested in our least-cost 
analysis in Winning the Oil Endgame. Many of these cheaper competitors 
are, like coal, a Kentucky resource whose exploitation could bring 
great benefits to your State. For example, North Carolina is 
aggressively exploring a half dozen crops that look promising for 
producing cellulosic ethanol; many of them would make good tobacco 
replacements.
    Question 3. In some parts of the world--and a few places in Western 
Kentucky--people drive their cars and trucks on a blend of fuel that is 
85% ethanol. That means only of the fuel is based on oil. Some of you 
on the panel have mentioned that the best case scenario for biodiesel 
is that it will only replace 10% of gasoline used for transportation. 
What are the limiting factors? Can the government help address problems 
like infrastructure and efficiency?
    Answer. Biodiesel doesn't displace gasoline; it displaces diesel 
fuel, which chiefly runs heavy trucks. Ethanol displaces mainly 
gasoline, used by almost all U.S. cars (though diesels may become 
popular, as in Europe, if they can pass ever-tighter fine-particulates 
standards). Biodiesel also looks a lot costlier than ethanol, which is 
why it accounts for only 1% of the advanced biofuels in our Winning the 
Oil Endgame scenario; the rest is ethanol, mainly from woody, weedy 
plants like switchgrass, poplar, and crop/forestry wastes.
    Like most analysts, I think the potential for cellulosic ethanol--
not corn ethanol, which may be what you have in mind--to replace 
gasoline is far higher than you mention. Our analysis, consistent with 
most others including the Administration's, found that nearly 4 million 
bbl/d of oil-equivalent ethanol can be produced as advanced biofuels, 
without needing cropland, at short-run marginal costs below $26/bbl 
(EIA's Jan. 2004 forecast of world oil price in 2025; the current 
forecast is much higher). And since Winning the Oil Endgame showed how 
to triple the efficiency of cars, trucks, and planes--without 
compromised attributes, not-yet-invented technology, taxes, subsidies, 
mandates, or new Federal laws, but with direct economic paybacks of 1-2 
years--that biofuel would then support three times more vehicle-miles. 
In all, the cost-effective biofuels could displace one-fifth of total 
forecast oil use, efficient use one-half, and saved natural gas the 
rest.
    Question 4. In your testimony before this Committee you state that: 
Both energy independence and its purpose, energy security, rest on 
three pillars:

          1. Making domestic energy infrastructure, notably electric 
        and gas grids, resilient.
          2. Phasing out, not expanding, vulnerable facilities and 
        unreliable fuel source[s]
          3. Ultimately eliminating reliance on oil from any source.

    Do you have any suggestions about specific legislation that could 
be adopted by Congress to at least begin the process of implementing 
any of your recommendations?
    Answer. Yes. As explained above in my response to Chairman 
Domenici's question #1, the strategy described in Winning the Oil 
Endgame doesn't require any new Federal laws; the transition would be 
driven by business logic; and the changes in public policy that would 
help support that business logic could all be administrative or at a 
State level. Pages 169-226 of our study describe numerous State and 
Federal actions that would help accelerate this business-led transition 
beyond oil. For example, our analysis suggests size- and revenue-
neutral feebates (pp. 186-190), low-income scrap-and-replace car 
financing (which could greatly help poor rural areas while creating a 
new million-car-a-year market for Detroit: pp. 191-197), smart 
government fleet procurement (pp. 197-198), ``Golden Carrots'' and 
technology procurement (pp. 199-200), ``Platinum Carrot'' innovation 
incentives (pp. 201-203), support for automotive retooling and 
retraining at no net cost to Treasury (pp. 203-204), military and 
civilian science and technology initiatives (pp. 204-206), further 
reforms of light-vehicle efficiency regulation (pp. 206-207--happily, 
NHTSA has since adopted our key recommendation to base future light-
truck efficiency standards on size, not weight), a DARPA fly-off of the 
10 competing cellulosic-ethanol conversion processes to cut a decade 
off their commercial scaleup (p. 208), reforming and redirecting 
agricultural subsidies (p. 208), encouraging biofuels and other 
bioproducts, especially by reforming USDA rules (p. 209), requiring or 
encouraging fuel-flexible and total-flex vehicles and their 
infrastructure (pp. 209-210), modernizing and harmonizing heavy-truck 
standards and policies (p. 211), leveling the playing-field between 
aviation and surface transportation fuels and for hub-and-spokes vs. 
point-to-point aviation business models (p. 212), reforming 
transportation policy and system integration (pp. 212-214), encouraging 
more efficient buildings (p. 215), and rewarding utilities for cutting 
our bills rather than for selling us more energy (p. 215). 
Corresponding suggestions are on pp. 216-220 for State policy (most of 
the suggested Federal actions should be piloted first in State-level of 
regional experiments), p. 220 for non-biofuel renewables, and pp. 221 
for military energy efficiency. (DoD is emerging as the most forward-
leaning Federal agency in helping to lead the Nation off oil--which is 
as it should be, given oil's centrality to national security.) And on 
pp. 265ff, our analysis suggests that the Federal actions we propose 
would reduce, not raise, the budget deficit.
    Since we wrote that study in 2004, I've added a few more 
suggestions: requiring agencies like GSA and DESC to write long-term 
contracts for biofuel blends like E85 (e.g., up to 30% of GSA's fuel 
requirements), since a major impediment to financing advanced-biofuels 
plants is the lack of such contracts; expanding the Sec. 1511 
renewable-fuel loan guarantee in the 2005 Energy Policy Act to allow 
more than 50 projects rather than just 4; lengthening biofuels' credits 
to at least a decade to fit financing for their production scaleup; and 
encouraging automakers to make Brazilian- (and soon Swedish-) style 
total-flex vehicles that can use any fuel on the fly, from 100% ethanol 
to 100% gasoline, thus eliminating captive customers and exerting more 
price discipline on all producers.

      Responses of Amory Lovins to Questions From Senator Bingaman

    Question 1. Your study winning the Oil Game analyzes how to 
eliminate U.S. oil use by 2040. What policies do you recommend we adopt 
that could reduce the amount of oil we use in the transportation sector 
within the next 5 to 10 years? What concrete steps can you suggest?
    Answer. Please see my response to Sen. Bunning's question #3. By 
far the most important actions would be size- and revenue-neutral 
automotive feebates (pp. 186-190 of our study), heavy-truck regulatory 
reform (p. 210), the DARPA cellulosic-ethanol process flyoff (p. 208), 
and, at a State level with Federal encouragement, utility decoupling 
and shared savings (p. 215) as the key to saving natural gas, directly 
and indirectly, so we can substitute it for oil. If it's possible to 
stop mandating and subsidizing sprawl, or otherwise to advance the 
smart-growth agenda, that too would bear huge longer-term dividends by 
reducing vehicle-miles travelled, although land-use was bounded out of 
our study.
    Question 2. In your (oral) testimony you noted that there did not 
need to be any change to federal law or regulation; however in your 
written testimony (in footnote 7) you say that ``FERC doesn't let 
resilient options compete. `` Do changes need to be made to FERC 
regulations in order for renewable generation, distributed generation 
and new transmission technologies to be competitive? Such rules as 
energy imbalance penalties, interconnection rules for small generators, 
etc., appear to prevent these technologies from being competitive. Are 
there other rules that inhibit development and if so how should they be 
changed?
    Answer. Yes, yes, and yes. Thank you for noting this important 
point. Although, as noted in my response to Sen. Bunning's question #1, 
electricity reforms can save almost no oil, they are extremely 
important to creating a resilient national energy system--including the 
ability to get power to filling stations so customers can pump gas! 
(The industry has stupidly redesigned its pumpheads without the old 
handcrank socket; as in Florida recently, a prolonged power outage 
therefore grounds the surface transportation system too.)
    FERC is the last bastion of central planning in the Federal 
Government, and last year gained new authority to site supply-side 
resources, or override state and local objections to them, without 
having to consider cheaper alternatives, ranging from end-use 
efficiency and demand response to micropower. This will probably result 
in further construction of vulnerable, terrorist-magnet, and uneconomic 
LNG terminals, with potentially catastrophic consequences for nearby 
communities and increased financial risks for investors. It also has 
such perverse effects as I saw recently in Vermont: a northern 
transmission project in the Burlington area is considered a 
``reliability resource'' by the regional power pool, so its costs are 
spread over all of New England, but a 10x cheaper demand-side or 
distributed-generation solution isn't considered a ``reliability 
resource''--even though it has the same or better reliability 
outcomes--so Vermonters would have to bear its whole cost themselves. 
I'm particularly concerned that FERC is making America's power system 
more prone to regional blackouts by continuing to push larger, longer 
bulk power flows through more and bigger transmission lines, rather 
than allowing or, preferably, requiring fair competition (whether 
market or administrative) by demand-side and distributed options so as 
to achieve a least-cost system solution. It's not clear that FERC's 
Commissioners or Staff adequately understand the reliability, 
resilience, national-security, and economic value of these 
alternatives, although the proposed addition of the very knowledgeable 
Commissioner Jon Wellinghoff of Nevada is encouraging.
    FERC should better integrate its electricity and gas policies. For 
example, the approaches our study suggests for saving peak electricity, 
thereby freeing up a great deal of cheap gas from very inefficient 
simple-cycle peakers, would also displace much of the generating and 
transmission capacity FERC is licensing, as well as costly local 
distribution capacity.
    Another desirable focus for FERC's attention would be ensuring that 
as utilities automate distribution systems, their topology should be 
made bidirectional, so that distribution shifts from a tree structure 
(distributing centrally generated electrons to dispersed customers) to 
a web structure (gracefully handling power flows any which way). This 
is largely a State regulatory matter, but Federal standards would 
probably help, and State attention to this issue could be encouraged in 
many ways.
    Still another area for FERC reform would remove the transmission 
roadblock facing wind developers, especially in and near the Dakotas. 
In essence, the incumbent lignite operators in that region aren't 
allowing fair transmission access, and FERC has not yet intervened to 
promote it, so a cheap, climate-safe, domestic resource exceeding 300 
GWe just on tribal lands in the Dakotas remains virtually unexploited.
    Broadly, I think State Commissions should follow Texas's example 
(under then PUCT Chairman Pat Woods' and Governor Bush's leadership) of 
allowing distributed generators to ``plug and play'' freely: if the 
inverter meets IEEE 1547, UL, and local building code requirements, no 
other approval or procedure should be required. Federal policy should 
encourage this outcome uniformly, and should encourage State 
Commissions to remove artificial constraints as to feed-in generators' 
unit size, the symmetry of TOU vs. flat-rate payments vs. charges, and 
other accounting arrangements to ensure a level playing-field for 
distributed resources. Federal policy should give no preference to big 
over small or to supply-side over demand-side resources; all should 
compete fairly as a central principle of Federal energy policy.
    A detailed agenda for both Federal and State electricity reforms is 
at pp. 310-347 in my 2002 Economist book of the year Small Is 
Profitable: The Hidden Economic Benefits of Making Electrical Resources 
the Right Size (available from www.smallisprofitable.org). Many of the 
same recommendations apply to retail natural gas systems.
    Question 3. Your testimony lists as a high priority making domestic 
energy infrastructure, notably electric and gas grids, resilient. Your 
suggestions for making the electric grid more resilient include 
depending less on central station power plants and long distance 
transmission by depending more on distributed generation. Would this 
not, to the extent that micro-turbines are fueled by natural gas, put 
more demand on the gas infrastructure?
    Answer. It would often reduce the required gas flows to the distal 
ends of the distribution system to run distributed generators, because 
their cogeneration design (together with the greater building and 
factory efficiencies that should meanwhile be installed anyhow) would 
tend to reduce gas consumption by furnaces, boilers, and central gas-
fired generators. For the same reason, total gas consumption would 
generally go down, not up. For example, some years ago my team designed 
a 92%-efficient gas-fired microturbine polygeneration system for a 
large Midwestern office-and-laboratory complex. This would obviously 
use less gas than the boilers and power plants it replaced.
    Of course, efficiency and renewables also have a major role. And 
LBNL has found a U.S. potential approaching 100 GWe for cogeneration 
based on waste heat currently being discarded because of needless 
institutional barriers. Such a project with a less-than-one-year 
payback can remain unbuilt because the incumbent monopsonist refuses to 
let the intending developer sell electricity across the street or over 
the fence to a willing buyer.
    Question 4. What can we learn from your green building project with 
TI that can be applied to our quest for better energy security?
    Answer. The basic lesson is that integrative design has kept a 
thousand high-tech jobs in Texas that would otherwise have gone to 
Asia, just by redesigning a new Texas Instruments microchip fabrication 
plant (chip fab) that costs 30% less to build while saving a fifth of 
its energy and a third of its water. The plant is expected to open in 
April 2006 and has attracted wide attention, partly via Tom Friedman's 
18 Jan. 2006 New York Times column on the TI/RMI collaboration that 
produced this result. As TI's designers adopt further proposed 
innovations that weren't thoroughly tested in time for this project, 
I'd expect that their next chip fab could well save over half its 
energy and cost even less to build. Those innovations include onsite 
power production that could keep the plant running even if the grid 
went down, and could probably even export power to the rest of the 
community at need. Not only can many of the efficiency techniques from 
this project inform others, both new and retrofit (including the big 
fab in Albuquerque); they, and the whole-system thinking they embody, 
can also be applied to a wide range of other industries. In 22 sectors 
so far, my team has found energy savings typically around 30-60% in 
retrofits paying back in a few years, and 40-90% in new facilities 
typically with reduced capital cost. It's not rocket science just good 
whole-system engineering.
    These empirical savings far exceed the size and undercut the cost 
of efficiency projections in government studies. That gap represents a 
risk to supply-side investors, who may build for demand that turns out 
not to exist just as the U.S. recently did with 200 GWe of combined-
cycle gas plants. Indeed, all the policy and investment errors that 
caused the painful energy-markets crash of the mid-1980s are now being 
repeated, so in a few years, we may see that very bad movie all over 
again.

       Responses of Amory Lovins to Questions From Senator Wyden

    Question 1. The Administration's FY2007 budget request seeks $942-
million for the Advanced Energy Initiative, $1.18-billion for energy 
efficiency and renewables and about ten times that amount for various 
nuclear energy programs. Is any of this going to do much of anything to 
address what President Bush calls our ``national oil addiction'' 
anytime soon?
    Answer. While I applaud the President's use of this phrase, and 
broadly agree that ``the best way to break this addiction is through 
technology,'' I'm sorry to say that the answer to your question is no. 
U.S. oil use, and market expectations of it, will remain high, creating 
upward pressure on oil prices, until there is fundamental improvement 
in oil-using efficiency, chiefly in the vehicles that use 70% of the 
oil, and until we get serious about rapid scaleup of alternative 
mobility fuels, chiefly cellulosic ethanol.
    I have studied the White House Fact Sheet on the Advanced Energy 
Initiative with some puzzlement. The stated purpose is ``to help break 
America's dependence on foreign source of energy.'' This can only mean 
oil: the U.S. does not import coal, uranium is in surplus, and natural 
gas imports are small (although Administration policy is to increase 
them by severalfold, creating a new dependence). However, the section 
on ``diversifying energy sources'' is all about electricity, which, as 
explained in my response above to Senator Bunning's question #1, has 
almost nothing to do with oil. This confusion between oil and 
electricity, conflating them both into ``energy,'' bemuses energy 
experts the world over who assume that the responsible U.S. officials 
must understand these fundamentals; yet such jumbled formulations 
persist. Perhaps the White House also doesn't know that nuclear 
expansion would worsen climate change by buying less solution per 
dollar (nn. 10-11 in my written testimony).
    Some of the Advanced Energy Initiative is reasonable; for example, 
restoring U.S. leadership in large-format advanced lithium batteries 
would be a good idea, and there is some promising technological basis 
for hoping it could happen. Hybrid and fuelcell cars are worthy, and 
plug-in hybrids may be (please see my response below to Senator 
Feinstein's question #4), but they'd all work better and cost less if 
combined with an apparently missing element advanced materials that 
eliminate half the car's weight and fuel use, improve its safety, and 
don't raise its production cost. When the Freedom Car initiative was 
announced in 2002, I told a senior DOE official that a small firm I 
chair had already developed in 2000, with two European Tier Ones, a 
complete virtual design--production-costed and manufacturable--for the 
car that his program meant to spend the next decade developing [please 
see n. 16 of my written testimony]. He replied: ``Well, then we'd 
better not try to help you, because we'd just slow you down.'' That 
might be true, but the capital market for such ventures collapsed just 
as we came to it in 2000, so the car remains unbuilt. Had it been built 
timely, Detroit would now have a lot more strategic options than it 
does, including a path to cut many years off the deployment of fuel-
cell cars: whichever automaker goes ultralight first also wins the 
fuel-cell race, a strategic prize.
    The renewable-electricity parts of the Advanced Energy Initiative, 
like increased photovoltaics R&D, are desirable but unrelated to oil. 
Also, better PV materials, though useful, are less important than 
better application of existing PVs, and helping the market recognize 
``distributed benefits'' (www.smallisprofitable.org). For example, the 
Fact Sheet refers to a future possibility of ``zero energy'' homes 
(I've lived in one since 1984), and seems not to recognize that this 
year or next year, the world will install PV capacity exceeding nuclear 
construction starts in the same year. A decade ago, the U.S. had nearly 
half the global PV market, but now has just 8%, because Federal 
policies drove activity overseas, from whence we must now buy our 
hardware. Japan now has over 50% market share, thanks to coherent and 
farsighted policy consistently pursued. Japan is now eliminating its PV 
subsidies because their pump-priming task is done, years earlier than 
expected.
    The $5M increase in wind R&D could slightly increase windpower's 
ability to displace natural gas fungible for oil, and low-speed-
optimized machines are important for many parts of the U.S. Yet the 
main windpower issues are in deployment: e.g., past (and possibly 
future) Congressional stop-go policies that have repeatedly bankrupted 
the domestic wind industry, Federal and state policies that don't allow 
wind-power fair access to existing transmission lines, misguided 
opposition to wind off-shore Nantucket, and Federal encouragement of 
short-term commodity markets to the detriment of the long-term fixed-
price contracts that could let wind and other renewables capture their 
2 cents/kWh value premium for avoiding fuel-price volatility.
    In contrast, the President's increase in cellulosic-ethanol funding 
is both relevant and welcome, as is the higher priority implied by his 
6-year development goal. However, I haven't dug into the budgetary 
details. Sometimes such initiatives only repackage and shuffle existing 
budgets, taking money from other good efforts to fund the new one. And 
I hope the Congress will note that much of the recent troubles at 
NREL--not a place one should be trying to divert or demoralize during 
an energy crisis--arose from 15% of its budget's being, in effect, 
hijacked by Congressional earmarks. If NREL is to do its job and retain 
its excellent people, such raids must cease.
    As leading venture capitalist Vinod Khosla notes, the main 
constraint today to scaling up cellulosic ethanol production is 
capital: entrepreneurs with competing processes must each convince 
venture capitalists to finance their own projects in the face of 
uncertainty about whether another one might be better. That's why 
Winning the Oil Endgame suggested a DARPA fly-off of the best 10 
processes: just spend $1billion to build one of each kind of plant and 
publish the results, cutting perhaps a decade off the commercialization 
cycle and freeing up the entrepreneurs to do their best.
    Question. How much do we need to spend to make a difference? Is 
there anything that can be implemented in the next few years to start 
changing course?
    Answer. I don't think we need to spend more (although more well-
targeted energy R&D would certainly be valuable), but we definitely 
need to spend smarter. The lion's share of both current and new energy 
R&D funding is going, as usual, to the least promising but most 
politically powerful technologies--coal and nuclear--that can by their 
nature contribute virtually nothing to getting America off oil. This 
and the ill-conceived subsidies in last year's Energy Policy Act don't 
simply divert Federal funds from best buys; they also leverage untold 
sums of private capital into nonsolutions. These mistaken Federal 
energy priorities in the 1980s, in practical effect, created today's 
oil crisis because of what they didn't do and what they dissuaded 
private investors from doing. Today's repetition of this policy error 
is setting the stage for another, longer, worse oil crisis.
    As to near-term implementation: Senator Snowe asked my colleague 
Mr. Odd-Even Bustnes to prepare a memo on this very question. That memo 
of 30 September 2005 showed how to save 5-9% of U.S. oil use within 
one year without significant cost or disruption. It has been sent to 
Senators Domenici and Bingaman, and my office would be glad to share it 
more widely if desired.
    Now that the President has raised the notion of ``oil addiction,'' 
I hope he'll clarify why for drug addiction, he recommends cutting off 
the supply, while for oil addiction, he favors increasing the supply. 
In both cases, demand-side understanding and emphasis seem more 
promising.
    Question 2. The Japanese have been on a steady course to conserve 
energy and reduce their dependence on imported energy while their GDP 
continues to grow. They're turning down their thermostats and shutting 
off their idling car and truck engines to save energy. Opinion polls 
show that more than 75% of Japan's citizens view energy conservation as 
a personal responsibility. Many are willing to shell out extra cash for 
efficient appliances and office equipment. Do you think that Americans 
can gain energy independence without feeling a little pain? Are 
American consumers willing to accept some financial pain for energy 
independence gain?
    Answer. Yes and yes (though they prefer profits, which are equally 
available). I think most Americans hunger for leaders who engage their 
patriotic personal involvement in a great national project to shed our 
oil burden. Winning the Oil Endgame showed how to do this through 
entrepreneurship and innovation rather than through cost, pain, or 
sacrifice. But those interested--and there are many--in changing 
careless habits should be welcomed too, because markets work better 
when they're mindful. Just please don't confuse efficiency (which is 
widely called ``conservation'' in the Pacific Northwest but nowhere 
else in the country) with curtailment (which is what many Americans 
from other regions think ``conservation'' means): they should be 
discussed separately and in unambiguous language, not interchangeably.
    Having spent six weeks of the past year in Japan, I've been struck 
by that society's resurgence of technical, not just behavioral, energy 
savings. For example, Toyota has cut CO2 emissions per car 
produced by 15% during 2002-05; Honda has cut its CO2 
emissions in Japan by 24% below the 1990 level and targets 30% by 2010 
while raising average fuel economy 31% during 1995-2005; Nissan expects 
by 2007 to emit 10% less CO2 than it did in 2000; Kirin, to 
emit at last 25% less CO2 in 2007 than in 1990; Ricoh, to 
emit 12% less CO2 in 2010 than in 1990; and many more. New 
national standards aim to cut electricity use 30% from 1997 levels for 
refrigerators (the best Matsushita 2005 model uses 160 kWh/y, about 
three-fifths less than the U.S. 2001 Federal standard), 16% for TVs, 
83% for PCs, 14% for air conditioners, etc., and all these can go much 
lower still. But while these innovations, executed with customary 
Japanese speed and quality, will undoubtedly hone Japan's competitive 
edge in world markets, there's far more to do, because Japanese cars 
are becoming nearly as inefficient as ours (inefficient SUVs are 
rapidly proliferating) and Japanese buildings are generally quite 
inefficient. The President of Tokyo University, one of Japan's top 
engineers, recently told me that he believes Japan can profitably 
triple her existing aggregate energy efficiency. I'm sure he's right 
and that gives American businesses the greater challenge of hitting a 
moving target.

     Responses of Amory Lovins to Questions From Senator Feinstein

    Question 1. In your opinion, what is the most important step that 
the United States could take today to help reduce our dependence on 
oil?
    Answer. Triple the efficiency of cars, trucks, and planes--with 
better safety, uncompromised comfort and performance, and 1-2-year 
paybacks--by properly applying today's best technologies for ultralight 
materials, ultralow aerodynamic drag (and, for highway vehicles, 
rolling resistance), and advanced propulsion. The most important single 
policy to encourage this leapfrog in cars and light trucks would be 
State, regional, or ultimately Federal feebates that, within each size 
class, broaden the price spread between less and more efficient models 
by charging a fee on the former and using the proceeds to pay rebates 
on the latter. Winning the Oil Endgame described a fuller agenda for 
both the technical and the policy elements of these breakthroughs for 
cars, trucks, and planes--and how those industries' competitive 
imperatives demand such dramatic developments.
    Question 2. What are some ways that you believe we can make oil 
play a less critical role in the American economy?
    Answer. America now uses half as much oil as in 1975 to produce a 
dollar of GDP. This doubled oil productivity has proven enormously 
profitable. So will redoubling it, at an average cost of only $12--one-
fifth what we now pay for a barrel of oil. Natural gas, which can then 
be directly or indirectly substituted for oil, can be saved even faster 
and with enormous financial benefit: saving half the gas will cost 
roughly 1/15th of its recent price, and the peak electrical savings 
that are the most important gas-saver are typically better than free 
(because they're more than paid for by their capacity value).
    Question 3. What do you believe are the largest barriers to the 
entry of new vehicle technology into the market?
    Answer. These barriers are chiefly cultural (within the auto 
industry) rather than technical or economic. They include:

   the incorrect assumption that more efficient cars must be 
        less affordable, roomy, peppy, stylish, safe, or otherwise 
        desirable than inefficient cars--i.e., that engineers are 
        slaves to a theoretical economic assumption about diminishing 
        returns (an assumption daily violated by engineers designing 
        computer electronics, and easily falsifiable for cars too);
   the industry's tendency to base strategic decisions on 
        accounting, not economic, principles--on treating obsolete 
        manufacturing capacity as unamortized assets rather than as 
        sunk costs;
   the industry's habit of thinking of costs per pound or per 
        part rather than per car;
   a stovepiped, dis-integrated, and highly risk-averse design 
        process; and
   the peculiar labor, distribution, management, and other 
        rigidities of this extraordinarily ponderous and complex 
        industry.

    It's not easy to fix any of these problems, but they must and will 
all ultimately be fixed, because U.S. automakers are about to be 
deluged in a tsunami of Schumpeterian destruction. Relentless 
competition will change either the managers' minds or the managers, 
whichever happens first.
    Similar but less daunting barriers apply to basic innovation in 
aviation and in trucking--both already well ahead of automaking. The 
heavy-truck efficiency revolution being led by Wal-Mart is especially 
encouraging, as are certain aspects of Boeing's 787 program. (Isn't it 
odd that this platform has a higher mass fraction of advanced polymer 
composites than does the Joint Strike Fighter?) And I'm gratified by 
the Pentagon's increasing focus on radically reducing fuel-logistics 
footprint in theater: if seriously implemented, this could create the 
industrial base that can lead the civilian vehicle industries off oil, 
just as DoD research transformed the civilian economy by inventing for 
military purposes the Internet, GPS, and the jet-engine and chipmaking 
industries--all foundations of America's and especially California's 
economy.
    Question 4. Would it make sense to focus the nation's technological 
energy on rapidly developing and commercializing plug-in hybrids that 
could both take energy from the electric grid at night, when 
electricity is practically free, and then hopefully give energy back to 
the grid during the day when electricity use is the greatest? If so, 
what could the Federal government do to help promote plug-in hybrids?
    Answer. Rocky Mountain Institute is currently conducting the first 
independent assessment of this technology. It would be premature for me 
to comment until that work is done, probably this summer. Then we'll 
know whether it's a good idea, and if so, under what conditions. And 
regardless of propulsion, ultralighting is the most important 
automotive innovation.
    Question 5. If we move in the direction of cellulosic ethanol/
biofuels, how possible will it be to replicate that in the developing 
world?
    Answer. Very possible, but it's vital that in all countries, this 
be done in an environmentally and socially sustainable way--unlike some 
recent destruction of tropical forests to make way for palm-oil 
plantations to produce biodiesel. Even more important is to share and 
greatly accelerate developing countries' adoption of advanced end-use 
efficiency in all sectors.
    Question 6. What is your view of the effectiveness of the Strategic 
Petroleum Reserve (SPR) as an energy security tool in its current form? 
In your opinion, are there changes that could be made to the SPR to 
make it a more beneficial tool for the United States?
    Answer. SPR is useful, though I've heard disturbing recent reports 
about its ability to sustain maximum output, and I remain concerned 
about the vulnerability of its centralized facilities to disruption by 
hurricanes or terrorism. I'd prefer greater emphasis on distributed 
stockpiles of refined products rather than crude oil, rotated as needed 
to guard against deterioration. The oil system used to have much larger 
product stockpiles close to its customers than it does today, because 
beancounters have wrung out inventory as mere carrying-cost overhead, 
sapping its societal value for private gain. Europe is generally ahead 
in this regard; many governments require market actors, both suppliers 
and major customers, to carry refined-product stocks that are already 
in the form and at the place where they'd be needed by final customers. 
With so many simultaneous disruptions in the world oil system, and 
strong incentive to cause more, I think the case for such distributed 
product stocks (duly protected against attack) is now unassailable. So 
is the even more powerful case for efficient use of oil. This gives the 
most bounce per buck by stretching existing stocks and buying more time 
to mend what's broken or improvise substitutes.
    I made this case in our Pentagon study Brittle Power: Energy 
Strategy for National Security in 1981 (n. 4 of my written testimony), 
to which Mr. Woolsey and Admiral Tom Moorer wrote the Foreword. The 
case is far stronger today. Indeed, that Brittle Power's findings 
remain so virtually unchanged since 1981 particularly the facility-
vulnerability findings to which Senator Murkowski referred in her 
opening question at the hearing--seems to me a devastating indictment 
of the policy process. The grave security problems I identified 27 
years ago in our Nation's energy infrastructure should have been fixed, 
but instead, most of them have been worsened. These self-inflicted 
vulnerabilities are an attractive nuisance for Al Qa'eda, and we should 
at least stop multiplying them.
    Current Federal energy policy perpetuates American's expanding oil 
dependence, because it ranges from modest support (advanced biofuels) 
to inaction (natural-gas and electric efficiency) to opposition 
(seriously improving light-vehicle efficiency). The resulting oil 
dependence funds both sides of the war, impugns U.S. moral standing, 
has bailed out the nearly empty Iranian and Saudi treasuries, has 
created (in effect) such leaders as Ahmadinejad, Chavez, El-Bashir, and 
Putin, systematically distorts foreign policy and postures, poisons 
foreign attitudes, weakens competitiveness, and enhances vulnerability 
and fragility. Meanwhile, Federal policy strongly favors 
overcentralized system architecture, as seen in Katrina's damage and in 
bigger, more frequent regional blackouts. It creates terrorist targets, 
from LNG and nuclear facilities to Iraqi infrastructure. Its 
centerpiece, ANWR drilling, would create an all-American Strait of 
Hormuz in a world that already has one such chokepoint too many. It 
lavishly supports expansion of nuclear power and reverses the Ford-
Cheney reprocessing moratorium, thus worsening proliferation. On top of 
that, it sacrifices what's left of the nonproliferation regime, 
painfully built over a half century, to support the nuclear bureaucracy 
that makes 3% of India's electricity, while ignoring the vastly greater 
and cheaper potential to improve the peaceful 97%. (India, by the way, 
has more windpower capacity than nuclear capacity, and in 2004 was the 
world's #3 installer of windpower.) These seem to me undesirable 
outcomes for a government committed to enhancing national security. 
Such policies and outcomes are also, in general, contrary to free-
market principles, and often inimical to the principles of federalism, 
States' rights, and human rights. In short, the most comprehensive 
threat to national energy security today is national energy policy. 
This Committee should reexamine its approach, and stop energy policy 
from undercutting DoD's mission.

      Responses of Amory Lovins to Questions From Senator Menendez

    Question 1. Could the panel comment on what technologies are 
available now that could be used to improve the fuel economy of 
passenger cars, light trucks, and SUVs?
    Answer. About 27% of projected light-vehicle fuel in 2025 can be 
saved (most of it much sooner) by putting in all cars a long list of 
well-proven, on-the-market technologies that are now used in some cars. 
Our analysis, following the 2001 NAS/NRC report, found that such 
incremental improvements would repay its cost in a year at a retail 
gasoline price of $1.43/gallon (2000 $), or nearer a half year at 
today's fuel price. Such independent analysts as DeCicco, Ross, and 
Argonne National Laboratory's Feng An have been meticulously 
documenting this potential for more than a decade. There is no excuse 
for inaction. Indeed, all such cost-effective potential is mandated by 
Federal law to be reflected in CAFE standards, yet only a small 
fraction of it actually is. (I'd prefer to make CAFE standards 
irrelevant via feebates that improve efficiency far more than standards 
require; but the current policy of ignoring the law seems to me bad 
public policy.)
    However, these traditional assessments seriously understate the 
modem efficiency potential. Sixty-nine percent of the gasoline that EIA 
projects to be used by light vehicles in 2025 could be saved with a 
three-year payback at $1.43/gal, or two years at today's fuel price, by 
the ultralight, ultra-low-drag-and-rolling-resistance, hybrid-electric 
combination described on pp. 44-73 of Winning the Oil Endgame. (The 
NAS/NRC panel refused to be briefed on this approach, and assumed that 
hybrid-electric propulsion, which had entered the market four years 
earlier, was too far off to matter over its 10-year study horizon. They 
were wrong. If all 2025 light vehicles were only as efficient as the 
best hybrids now in dealers' showrooms, they'd save twice as much oil 
as the U.S. now imports from the Persian Gulf.) Advanced composites, 
using new cost-effective manufacturing methods mentioned in my 
testimony, are one route to ultralighting, but if they proved unready 
for prime time, then ultralight steel autobodies could achieve about 
four-fifths of the same fuel saving with nearly as good economics. The 
market will choose which materials win. If aggressively pursued, 
automakers could start ramping up production of ultralight, doubled-
efficiency cars (tripled-efficiency if hybrids) as early as MY2011.
    The policy framework can strongly influence how quickly these 
technologies, whether incremental or leapfrog, are marketed and bought. 
A comprehensive portfolio of innovative Federal and State policy 
initiatives is presented at pp. 178-219 of Winning the Oil Endgame. In 
addition, our memo last September for Senator Snowe (please see my 
response to Senator Wyden's question #1) suggests some short-term 
measures that together could save at least 5-9% of U.S. oil 
consumption:
    Roughly 4-8% of U.S. gasoline or 2-4% of crude oil could be quickly 
saved by:

   reducing speed limits for all non-Class 8 vehicles to 60 mph 
        in zones now above this limit under Federal (and if possible 
        State) jurisdiction
   changing EPA rules so that HOV lanes and preferential 
        parking now available only to Alternative Fuel Vehicles are 
        also available to hybrid and all-electric vehicles (EPA's 
        inaction on this is frustrating many States that wish to make 
        this change)
   giving so-called double-tax-credit to State and local 
        nonprofit vehicle buyers such as public safety agencies for 
        adopting high-efficiency hybrids
   authorizing all citizens to deduct mass transit costs on IRS 
        Schedule A
   providing for universal approval of ``parking cash-out'' (as 
        long practiced in Southern California) and perhaps requiring it 
        for large employers
   for a few years, extending the Federal tax credit for AFVs, 
        hybrids, and all-electric vehicles to far more than the current 
        60,000 per manufacturer
   eliminating continuing loopholes in CAFE rules
   clarifying that NHTSA does have authority to extend to cars 
        its 23 August 2005 proposed decision to base future light-truck 
        CAFE rules on size, not weight

    Roughly 12-18% of diesel fuel could be rapidly saved by heavy-truck 
reforms proposed in Winning the Oil Endgame and in our memo for Senator 
Snowe (please see my response above to Senator Wyden's question #1).
    Roughly 4-6% of gasoline and diesel fuel could be promptly saved 
by:

   immediately switching all Federal civilian (and nontactical 
        military) road vehicle procurement to the top 5%, or at worst 
        10%, of efficiency in their subclass
   saving 3% through proper tire inflation, including rental 
        and commercial fleets as well as individual owners
   exerting Federal pressure to improve traffic-light timing on 
        major urban streets and to speed adoption of electronic tolling 
        (with careful controls to protect personal privacy) and of 
        ``urban box'' congestion charges
   encouraging proper engine tuning and air-filter replacement, 
        as well as EPA's other gas mileage tips
   having NHTSA clarify that manufacturers and sellers of 
        hybrid cars are allowed to advise buyers how to drive them for 
        optimal efficiency (thus reversing the false impression, spread 
        chiefly by Consumer's Reports, that hybrids are inherently much 
        less efficient than they actually are if properly driven)

    Finally, DoD initiatives to make military-platform (and -facility) 
energy efficiency a high priority--in doctrine, requirements-writing, 
acquisition, design pedagogy and practice, operations, and reward 
systems--should be strongly encouraged. This is indirectly very 
relevant to your question about civilian light vehicles, because, as 
mentioned above in my response to Senator Feinstein's question #3, 
targeted military science and technology investments in ultralight 
materials and their low-cost manufacturing could create the advanced-
materials industrial cluster that is the most important single 
manufacturing innovation for getting off oil. Emerging DoD leadership 
on this issue is commendable and is vital to national security.
                                 ______
                                 
     Responses of Susan Cischke to Questions From Senator Domenici

    Question 1. You mention that there are presently only about 600 
fueling stations in the U.S. capable of dispensing E85. How would you 
suggest that the lack of ethanol capable fueling venues be expanded?
    Answer. To promote energy security initiatives, priority must be 
focused on addressing infrastructure deficiencies for alternative 
fuels. For today's most promising and readily available alternative 
fuel, E85, a key near-term goal is to increase the number of E85 retail 
stations from 600 to at least 10% of existing gasoline retail stations 
in Midwest markets. Because there are approximately 170,000 retail 
gasoline stations in the U.S., participation by independent fuel 
providers, as well as major fuel providers will be required. The 
following federal legislative initiatives can help grow the ethanol 
infrastructure needed to greatly expand the use of the fuel.

            FEDERAL OPPORTUNITIES FOR INFRASTRUCTURE GROWTH:
 
   a) Dramatically increase incentives for retail fuel providers to 
promote E85 by expanding the current alternative fuel infrastructure 
tax credit from 30% to 100% for two years. Increasing the tax credit 
from 30% to 100% for a limited period of time (e.g. two years) would 
provide an immediate incentive for fuel providers to accelerate their 
plans to install fuel pumps capable of using E85. A simple conversion 
of an existing pump/tank can be done for as little as $3,000.
    b) Provide a multiplier and early-compliance credits for fuel 
providers under the federal Renewable Fuel Standard (Energy Policy Act 
of 2005) to incentivize E85 fuel sales (for example, 2.5 gallons RFS 
credit should be given for each gallon of E85 sold).
    c) Initiate a feasibility study on the costs and roadblocks to 
ensure that 10% of all U.S. retail gasoline stations provide E85 or 
other renewable fuels (such as bio-diesel / hydrogen) available to 
consumers by 2010. Potential exceptions for small retailers could be 
included.
    d) Pursue appropriation funding (annual budget bills / Farm Bill) 
for infrastructure corridor funding, expanded Clean Cities grants, 
customer awareness campaigns (including notices to existing FFV 
customers and fuel cap labels):

          i. Increase Clean Cities appropriation funding for 
        infrastructure support--currently only $1 million/year 1
          ii. Add infrastructure funding provisions to the 2007 Farm 
        Bill--$50 million/year for 5 years (equivalent to 1,500 new 
        pumps/tanks or 10,000 pump conversions per year)
    Question 2. You suggest an ``integrated approach'' to foster 
advances in fuels as well as vehicle technology. Can you please 
elaborate on this?
    Answer. We need to view vehicles and fuels as a single system: 
vehicle + fuel + driver. By integrated approach, we mean a partnership 
of all of the corresponding stakeholders which includes the automotive 
industry, the fuel industry, government and consumers. The combined 
efforts of such an approach are the most economically efficient means 
of achieving our common goal of reducing our energy dependence.
    We at Ford are excited about the potential role of renewable fuels. 
However, the fact is that without the whole-hearted involvement of the 
fuel industry, we cannot move forward far enough or fast enough. We 
obviously need key partners like the oil industry to invest in 
developing and marketing renewable fuels like E85--and we need it to do 
so now and rapidly. We fully support government incentives to encourage 
the industry or others to accelerate this investment.
    There is a great deal that policy makers can do at all levels as 
well. We would like to see more R&D support for vehicle technologies 
and renewable fuels. Government incentives for advanced technology 
vehicles and E85 infrastructure can accelerate the introduction of 
these vehicles and fuels into the marketplace. Government must play a 
critical role to promote U.S. innovation and can do so by expanding and 
focusing R&D tax credits for a broad range of energy efficient 
technologies. We would also like to see greater investment in improved 
road traffic management infrastructure in order to reduce congestion 
and save fuel.
    Question 3. What examples from Ford's experience in Europe might be 
translated into domestic policies?
    Answer. In December 2005, the European Commission issued a report 
on a competitive automotive regulatory system for the 21st century 
(CARS 21). Ford and the other member companies of the European 
Automobile Manufacturers Association (ACEA) support the analysis and 
conclusions of CARS 21. For example, to maximize the potential for road 
transport CO2 emissions reduction, CARS21 strongly endorses 
applying an integrated approach involving vehicle manufacturers, oil/
fuel suppliers, repairers, customers/drivers and public authorities. 
The integrated approach aims at producing clear and quantifiable 
reductions in CO2 through a range. of options (e.g. vehicle 
technology, alternative fuels, taxation, eco-driving, gear shift 
indicators, consumer information and labeling, consumer behavior and 
congestion avoidance).
    Question 4. Why was the idea of improving the miles per gallon of 
sports utility vehicles by 25% by 2005 abandoned by Ford Motors?
    Answer. We acknowledged in 2003 that we would not meet our goal of 
improving SUV fuel economy by 25 percent by 2005 for a variety of 
market-demand, technology, and investment reasons. Ford is committed to 
improving the fuel economy of all of our vehicles. We've broadened our 
passenger car offerings to include models that provide greater fuel 
economy. We've launched the industry's first full hybrid SUV, and 
announced plans to increase annual production capacity of hybrid 
vehicles moving toward 250,000 annually by 2010. We've introduced 
technologies such as six-speed transmissions that deliver fuel 
efficiency benefits. In addition, we are pursuing commercial 
applications across a range of advanced technologies, including 
hybrids, clean diesels, hydrogen internal combustion engines and fuel 
cells. Clearly, there's more work to be done, but as these developments 
illustrate, Ford remains focused on innovating in these areas so we can 
deliver to consumers the fuel economy they demand.
    Question 5. In your testimony, you state that, ``Even further down 
the road, hydrogen powered fuel cells appear to be another promising 
technology for delivering sustainable transportation.'' Please 
explain--how far down the road do you mean?
    Answer. We expect commercially viable FCVs to begin arriving in the 
market no earlier than the middle of the next decade--most likely even 
later. Hydrogen fuel cell vehicles are seen by Ford and the industry as 
a long-term alternative transportation solution. They are clean and 
efficient, with zero tailpipe emissions, and use a renewable fuel 
source. Although FCVs are in development today, much work remains to 
meet the functionality, durability, and affordability demands of 
automotive consumers. In 2005, Ford delivered customer-ready Focus FCVs 
for use in demonstration fleets in Canada, the United States, and 
Germany. We expect to get data and feedback from these demonstration 
fleets that will help us develop commercially viable FCVs for the 
future.
    Question 6. How do you respond to the growing chorus of people who 
believe that raising CAFE standards will reduce our dependence on 
foreign sources of oil and should be a policy advanced by our 
government?
    Answer. Automobile fuel economy has been mandated via the CAFE 
program for about 30 years. Most industry and government experts agree 
that the program has not been an effective way to reduce petroleum 
consumption, and that it has had dramatic competitive and economic 
impacts. For one thing, it takes a long time for the vehicle fleet to 
turn over. New CAFE standards take time to implement, and their effects 
take even more time to make their way through the vehicle fleet. 
Another problem is that higher fuel economy simply makes it cheaper for 
people to drive more. Vehicle miles traveled have increased 
substantially over the life of the CAFE program and tend to overwhelm 
improvements in fuel economy. Addressing our dependence on foreign oil 
must include taking steps to reduce vehicle miles traveled.
    We support working with the technical and safety experts at NHTSA 
to set standards at maximum feasible levels and to reform the CAFE 
system. We also support market-driven incentives for advanced 
technology vehicles to increase their presence in the marketplace and 
the greater use of low-carbon, renewable fuels as a way to decrease the 
use of fossil fuels. Automakers are already producing more than 100 
models that achieve 30 mpg or more on the highway; however, the 
consumer demand for these vehicle models is low.

     Responses of Susan Cischke to Questions From Senator Murkowski

    Question 1. DOE last year issued a report that indicated we should 
be able to coax up to 40 billion barrels of additional conventional oil 
from aging oil fields by injecting carbon dioxide into the fields to 
squeeze out more oil. How important is more widespread use of 
CO2 likely to prove to be to aid shorter-term energy 
production, especially since the same technology--CO2 
injection--results in sequestering carbon from the environment, cutting 
greenhouse gas emissions?
    Answer. Ford does not claim special expertise with respect to 
CO2 injection and other oil recovery technologies. This is 
an excellent question for the oil industry.
    Question 2. Coal Gasification: We all know that America is the 
Saudi Arabia of coal. My state alone has about 15% of the planet's coal 
reserves, 160 billion short tons. I am really interested in pushing 
coal gasification to produce coal without emissions and to help 
sequester carbon. What can we do on top of what we did in last year's 
Energy Bill, to further clean coal technology and production economics?
    Answer. Coal gasification, followed by synthesis to liquids that 
are suitable for transportation fuels, is a known technology. These are 
large plants with substantial investment, and their long-term 
commercial operation must be certain. A related technology, recovery of 
remote natural gas with synthesis to liquid fuels (Gas-to-Liquids, GTL) 
is now considered economical in select cases, and several large GTL 
plants are now planned for Qatar, with diesel fuel to be supplied to 
Europe, where diesel demand now exceeds supply. Gasification of coal 
(Coal-to-Liquids, CTL) adds a substantial processing step compared with 
natural gas as the resource. So the overall efficiency of CTL will be 
less than GTL, with a corresponding increase in CO2 as a 
byproduct. The GTL path will be an issue for total CO2 
emissions unless carbon capture and sequestration is implemented with 
the GTL plant. Carbon capture and sequestration trial projects are 
proceeding with good success.
    The three key steps needed to proceed with commercial operation of 
GTL and CTL are:

          1. Economic projections that these processes will be 
        competitive with petroleum fuels during the lifespan of the 
        plant and will support the investment required.
          2. Determine how carbon capture and sequestration should be 
        implemented on a necessary scale and with reasonable economics, 
        so that these processes have a neutral to positive impact on 
        Greenhouse Gasses.
          3. Economic studies of CTL coupled with sequestration to 
        ascertain the cost and potential market incentives to assure 
        the economic viability of the approach.

    Question 3. If we do everything that we think we can do in terms of 
fuel efficiency, stimulating production of conventional fuels and 
alternative fuels from wind, geothermal, biomass, solar and ocean 
current energy and also further nuclear, do we have the ability to be 
truly energy independent by 2025?
    Answer. Becoming ``more'' energy independent depends on whether 
economic and financial policies and technology advances make 
alternative forms of energy more economically viable. For example, the 
U.S. Department of Energy (DOE) and the U.S. Department of Agriculture 
(USDA) conducted a study that concluded that there is sufficient U.S. 
biomass feedstock to displace 30 percent of the country's present 
petroleum consumption by 2030. Whether or not this is a viable scenario 
depends on the economic practicability of a large-scale biorefinery 
industry. Becoming ``truly'' energy independent by 2025 may be a 
difficult goal.

      Responses of Susan Cischke to Questions From Senator Bunning

    Question 1. Many of you focus on biodiesel and transportation 
fuels. But coal is our most abundant domestic fossil fuel and it 
accounts for half of our electricity generation. The Energy Information 
Administration predicts coal will continue to be the centerpiece of our 
energy production for the next 25 years. Do you think we could lessen 
our dependence on imports by using clean coal power and nuclear energy 
to replace the natural gas and oil that currently goes to the 
electricity production?
    Answer. Yes. See also our response to question #2 (below).
    Question 2. I have been impressed with new Coal-to-Liquids 
technology that can turn coal into a synthetic liquid fuel. Other parts 
of the world, like South Africa, have been using this technology for 
decades. I know there are several pilot facilities here in America, but 
what do we need to do to push this industry into full commercial-scale 
operations?
    Answer. Coal gasification, followed by synthesis to liquids that 
are suitable for transportation fuels, is a known technology. These are 
large plants with substantial investment, and their long-term 
commercial operation must be certain. A related technology, recovery of 
remote natural gas with synthesis to liquid fuels (Gas-to-Liquids, GTL) 
is now considered economical in select cases, and several large GTL 
plants are now planned for Qatar, with diesel fuel to be supplied to 
Europe, where diesel demand now exceeds supply. Gasification of coal 
(Coal-to-Liquids, CTL) adds a substantial processing step compared with 
natural gas as the resource. So the overall efficiency of CTL will be 
less than GTL, with a corresponding increase in CO2 as a 
byproduct. The GTL path will be an issue for total CO2 
emissions unless carbon capture and sequestration is implemented with 
the GTL plant. Carbon capture and sequestration trial projects are 
proceeding with good success.
    The three key steps needed to proceed with commercial operation of 
GTL and CTL are:

          1. Economic projections that these processes will be 
        competitive with petroleum fuels during the lifespan of the 
        plant and will support the investment required.
          2. Determine how carbon capture and sequestration should be 
        implemented on a necessary scale and with reasonable economics, 
        so that these processes have a neutral to positive impact on 
        Greenhouse Gasses.
          3. Economic studies of CTL coupled with sequestration to 
        ascertain the cost and potential market incentives to assure 
        the economic viability of the approach.

    Question 3. In some parts of the world--and a few places in Western 
Kentucky--people drive their cars and trucks on a blend of fuel that is 
85% ethanol. That means only 15% of the fuel is based on oil. Some of 
you on the panel have mentioned that the best case scenario for 
biodiesel is that it will only replace 10% of gasoline used for 
transportation. What are the limiting factors? Can the government help 
address problems like infrastructure and efficiency?
    Answer. To be clear, the 10% replacement scenario is with respect 
to biofuels, not biodiesel. Like ethanol, biodiesel is one example of a 
biofuel. Ethanol can replace gasoline in both low levels in gasoline as 
E10 (ten percent ethanol in gasoline) which can be used in all gasoline 
vehicles or in higher levels of E85 (70 to 85% ethanol, as required for 
vehicle operation in cold temperatures) for use in flexible fuel 
vehicles.
    The 2005 Energy Policy Act has already made progress toward 
increasing replacement fuels by setting goals for ethanol and biodiesel 
in the Renewable Fuels Standard and promoting the development of 
production of ethanol from cellulose with research funds and 
incentives. These cellulosic sources for ethanol include corn stover 
(the stalks and residue left over after harvest), grain straw, 
switchgrass, quick-growing tree varieties, or municipal waste.
    Although the Energy Policy Act is an excellent start, more can and 
must be done to grow E85 infrastructure at an accelerated pace to take 
advantage of the nearly 6 million FFVs on road today as well as those 
of the future. We have a number of specific suggestions on how 
government can accelerate the growth of fueling infrastructure. Please 
see our response to the next question below.
    Question 4. Do you have any suggestions about specific legislation 
that could be adopted by Congress to at least begin the process of 
implementing any of your recommendations?
    Answer. To promote energy security initiatives, priority must be 
focused on addressing infrastructure deficiencies for alternative 
fuels. For today's most promising and readily available alternative 
fuel, E85, a key near-term goal is to increase the number of E85 retail 
stations from 600 to at least 10% of existing gasoline retail stations 
in Midwest markets. Because there are approximately 170,000 retail 
gasoline stations in the U.S., participation by independent fuel 
providers, as well as major fuel providers will be required. The 
following federal legislative initiatives can help grow the ethanol 
infrastructure needed to greatly expand the use of the fuel.

            FEDERAL OPPORTUNITIES FOR INFRASTRUCTURE GROWTH:

    a) Dramatically increase incentives for retail fuel providers to 
promote E85 by expanding the current alternative fuel infrastructure 
tax credit from 30% to 100% for two years. Increasing the tax credit 
from 30% to 100% for a limited period of time (e.g. two years) would 
provide an immediate incentive for fuel providers to accelerate their 
plans to install fuel pumps capable of using E85. A simple conversion 
of an existing pump/tank can be done for as little as $3,000.
    b) Provide a multiplier and early-compliance credits for fuel 
providers under the federal Renewable Fuel Standard (Energy Policy Act 
of 2005) to incentivize E85 fuel sales (for example, 2.5 gallons RFS 
credit should be given for each gallon of E85 sold).
    c) Initiate a feasibility study on the costs and roadblocks to 
ensure that 10% of all U.S. retail gasoline stations provide E85 or 
other renewable fuels (such as bio-diesel / hydrogen) available to 
consumers by 2010. Potential exceptions for small retailers could be 
included.
    d) Pursue appropriation funding (annual budget bills / Farm Bill) 
for infrastructure corridor funding, expanded Clean Cities grants, 
customer awareness campaigns (including notices to existing FFV 
customers and fuel cap labels):
          i. Increase Clean Cities appropriation funding for 
        infrastructure support--currently only $1 million/year.
          ii. Add infrastructure funding provisions to the 2007 Farm 
        Bill--$50 million/year for 5 years (equivalent to 1,500 new 
        pumps/tanks or 10,000 pump conversions per year).
                       additional opportunities:
          a) Expand existing consumer-based tax credits for advanced 
        vehicle technologies to include $250 per vehicle for E85 
        flexible fuel vehicles.
    Question 5. In your testimony you discuss the need for an 
Integrated Approach to the energy problems facing our nation. You state 
that there is a ``great deal that policymakers can do'' to help address 
the energy crisis. You suggest additional governmental incentives for 
advanced technology vehicles and E85 infrastructure and ``expanding and 
focusing R&D tax credits for a broad range of energy efficient 
technologies.''
    Answer. That is correct. There is an enormous amount that we can 
achieve if we act together in an integrated manner. A good example of 
the need for more integrated action would be the case of flexible fuel 
vehicles. Congress wanted to increase the use of alternative fuels in 
motor vehicles, but there is always the chicken-and-egg problem of what 
comes first--the vehicles or the fuels. Congress addressed the first 
part of the chicken-and-egg problem by building incentives into the 
CAFE law for the production of dual-fueled vehicles. Thanks to this 
provision, manufacturers have produced nearly 6 million FFVs capable of 
running on ethanol over the last decade. However, the second part of 
the chicken-and-egg problem has not been adequately addressed--the 
issue of infrastructure for ethanol fuel. Too many owners of duel-
fueled vehicles have no E85 refueling station in their vicinity. If the 
duel-fueled vehicle program had been followed by legislation 
incentivizing or encouraging the development of E85 infrastructure, we 
could already have made some headway in reducing our dependence on 
foreign oil.

     Responses of Susan Cischke to Questions From Senator Bingaman

    Question 1. Your testimony indicates that Europe is moving forward 
in using an Integrated Approach involving all stakeholders to address 
energy challenges in the transportation sector, including the fuel 
industry. Have the Europeans come up with any ideas that should be 
applied in the U.S.? Is climate change mitigation part of Europe's 
integrated approach?
    Answer. In December 2005, the European Commission issued a report 
on a competitive automotive regulatory system for the 21st century 
(CARS 21). Ford and the other member companies of the European 
Automobile Manufacturers Association (ACEA) support the analysis and 
conclusions of CARS 21. For example, to maximize the potential for road 
transport CO2 emissions reduction, CARS21 strongly endorses 
applying an integrated approach involving vehicle manufacturers, oil/
fuel suppliers, repairers, customers/drivers and public authorities. 
The integrated approach aims at producing clear and quantifiable 
reductions in CO2 through a range of options (e.g. vehicle 
technology, alternative fuels, taxation, eco-driving, gear shift 
indicators, consumer information and labeling, consumer behavior and 
congestion avoidance). CARS 21. also calls for the creation by the 
Commission of a stakeholder ``working group on the integrated approach 
to reduce CO2 emissions from light-duty vehicles'' under the 
European Climate Change Programme.
    Question 2. How many hybrid vehicles did Ford produce in 2005? What 
percentage does this represent of the overall fleet? How many hybrids 
will Ford produce in 2010? What percentage is this forecast to be of 
the overall fleet?
    Answer. Ford's U.S. HEV volume for 2005 model year was 10,715 units 
at 0.6% of the light truck fleet. In 2006, the volume of HEVs has 
almost doubled.
    Ford has already announced plans to expand our global capacity to 
build hybrid electric vehicles to 250,000 units per year by 2010. This 
represents almost 4% of Ford's current global volume, depending on 
consumer demand.
    Question 3. How many flex-fueled (E85 capable) vehicles did Ford 
produce in 2005? What percentage does this represent of the overall 
fleet? How many flex-fueled will Ford produce in 2010? What percentage 
is this forecast to be of the overall fleet?
    Answer. Ford's U.S. E85 FFV volume for the 2005 model year was 
201,028 units for the combined car and truck fleet or 7% of the fleet. 
The annual volume of FFVs for the last five years is about 250,000 
units a year or around 9% of our light duty vehicle volume.
    Question 4. How long would it take to double Ford's production of 
flexible fueled vehicles (assuming demand was there)?
    Answer. By the end of this year, Ford will have already put nearly 
2,000,000 Flexible Fuel Vehicles on the nation's roads. However, 
applying technologies too broadly, too fast, and too soon (even those 
already on other vehicle lines in the fleet) can result in poor 
performance and ultimately customer rejection of promising 
technologies. Ford's typical engineering practices require that new 
technologies be phased into production over several years such that 
there is a cycle of manufacturing and customer service experience in 
the field. In the case of E85 FFVs, this experience has been limited 
due to the lack of fuel availability.
    Moreover, because ethanol is a unique fuel with unique properties, 
these vehicles require unique hardware and engineering. For example, 
fuel tanks with low permeation characteristics are required. It also 
requires a special fuel pump and fuel lines to deliver the fuel to the 
engine. Unique injectors introduce the fuel into the engine where 
special calibrations programmed into the on-board computer determine 
how much ethanol is in the fuel and how best to set spark timing and 
fuel flow to ensure the engine operates properly and meets emission 
standards on all ethanol and gasoline mixtures. Because there is more 
than one fuel calibration within an FFV, costly development and 
certification testing is doubled. Many of the FFV parts and processes 
are patented by Ford and are the result of innovative ideas by our best 
engineers, and we're proud of them. The bottom line . . . making an FFV 
is a significant investment for auto manufacturers.
    Question 5. How long would it take to double Ford's production of 
hybrid vehicles (assuming demand was there)?
    Answer. Ford has already announced plans to expand our capacity ten 
fold to build hybrid electric vehicles to 250,000 units per year by 
2010, based on consumer demand. In 2008, Ford plans to introduce the 
Ford Fusion and the Mercury Milan with a hybrid powertrain. Ford plans 
to offer hybrid versions of the Ford Five Hundred and Mercury Montego 
full-size sedans, and the Ford Edge and Lincoln MKX crossovers by the 
end of the decade. As in the previous answer, applying technologies too 
broadly, too fast, and too soon (even those already on other vehicle 
lines in the fleet) can result in poor performance and ultimately 
customer rejection of promising technologies. Ford's typical 
engineering practices require that new technologies be phased into 
production over several years such that there is a cycle of 
manufacturing and customer service experience in the field.
    Question 6. Is Ford planning to produce plug-in hybrids for the 
U.S. market? What is the projected forecast (timeframe) for this?
    Answer. Ford does not currently produce plug-in hybrids. While we 
do not disclose future product plans, we continue to investigate a 
range of advanced technologies, including hybrids, clean diesels, 
hydrogen internal combustion engines and fuel cells. In the case of 
plug-in hybrids, there are benefits and disadvantages to be considered.
    Question 7. Mr. Lovins and Mr. Woolsey mentioned the efficiency 
benefits of constructing vehicles with light-weight carbon composites. 
Do you agree? When does Ford think this technology will be ready for 
the market?
    Answer. Ford is already using light-weight materials in its 
products. One example is the aluminium-intensive 2004 Jaguar XJ. The 
XJ's all-aluminum body is 40 percent lighter yet 60 percent stiffer 
than its predecessor, translating into overall weight savings of 200 
kilograms. As a result, the XJ is delivering segment-leading fuel 
economy and lower emissions.
    Mr. Woolsey testified that light weight materials also use a 
different manufacturing process to achieve comparable costs. This 
requires significant capital investment, development, and design--it is 
not simply a substitution of parts. Even if possible, these new 
materials and processes would take decades to phase in.

       Responses of Susan Cischke to Questions From Senator Wyden

    Question 1. I understand that EPA is in the process of 
recalculating the fuel economy ratings that they assign to different 
makes and models of cars and trucks, and these new ratings will show 
vehicles are getting about 10 percent fewer miles per gallon on the 
road than advertised. Yet the Corporate Average Fuel Economy (CAFE) 
standards that auto manufacturers have to meet won't be changed. Don't 
you think that this sets up a double standard? The new EPA ratings will 
tell consumers one thing about their car's fuel economy, while car 
manufacturers will continue to say something different to the 
government when they report on their compliance with CAFE standards.
    Answer. No. This really is two different issues. First of all, CAFE 
standards are changing. NHTSA just finished its current CAFE rulemaking 
covering 2008-2011 model year light trucks that increases the CAFE 
requirements for light trucks for seven consecutive years--from 20.7 
mpg in 2004 to over 24 mpg by 2011. In addition, vans and SUVs up to 
10,000 lbs. GVW are now included for the first time ever. This 
represents the most aggressive increase in the CAFE standards for these 
vehicles in the history of the program. For 2008-11 alone, NHTSA 
estimates that over 10.7 billion gallons of gasoline will be saved over 
the useful life of the vehicles produced in these model years.
    Second, when Congress enacted the CAFE law in the 1970s, the 
standards were based on a certain set of test procedures and 
calculations. Congress realized that changes to the test procedures and 
calculations could affect the stringency of the standards just as much 
as changes to the standards themselves. For that reason, Congress 
provided that if the methodology for measuring fuel economy was 
changed, adjustment factors must also be incorporated to ensure that 
the new methodology was equivalent in stringency to the original 
methodology. This was necessary to ensure an even playing field from 
year to year, and it prevents ``hidden'' changes to the standards.
    With respect to the CAFE data, the federal government recently 
noted that ``. . . these values are not intended to be used by the 
public for consumer information, as the government's best estimate of 
the fuel economy the public will actually achieve. Instead, the 
manufacturer fleet fuel economy values are used to determine compliance 
with the applicable average fuel economy standards.'' \1\
---------------------------------------------------------------------------
    \1\ Federal Register/Vol. 68, No. 198/October 14, 2003/page 59234.
---------------------------------------------------------------------------
    Question 2. Don't you think that auto manufacturers should be 
required to meet new CAFE standards using the new EPA testing and 
rating methods? If not, how do you justify allowing auto companies to 
have one standard for what they tell consumers is their cars' fuel 
economy and another, inaccurate standard they use to meet CAFE 
requirements?
    Answer. See response to question #1 above. The EPA ratings give 
consumers a reference to compare vehicle A to vehicle B under the exact 
same conditions which simulate one type of driving cycle. Consumers' 
driving styles are unique and variable, so their real world fuel 
economy may differ from the EPA values.
    Question 3. [For Panel] The Administration's FY 2007 budget request 
seeks $942-million for the Advanced Energy Initiative, $1.18-billion 
for energy efficiency and renewables and about ten times that amount 
for various nuclear energy programs. Is any of this going to do much of 
anything to address what President Bush calls our ``national oil 
addiction'' anytime soon?
    How much do we need to spend to make a difference? Is there 
anything that can be implemented in the next few years to start 
changing course?
    Answer. We believe that our nation must establish long-term energy 
policies and the resolve to remain committed to those policies to 
successfully reduce our energy dependence. Both near and long-term 
policies are needed to effect the transition. In the near term, energy 
sources like renewable fuels offer us a clear pathway to immediate 
reductions in fossil fuel use. Ethanol is in the market now as both El0 
and E85, and growth of that market, while currently ramping up, will be 
heavily dependent on the government's commitment to support expanding 
the infrastructure for this alternative to imported oil. In the longer-
term, advanced renewable fuels, including cellulosic ethanol and 
biodiesel, hold promise of even greater energy efficiencies, but 
government support by way of incentivization of research and 
development will be crucial to bring those fuels to fruition. On the 
far horizon, super advanced technologies like hydrogen powered fuel 
cells may offer a better solution, but these technologies and fuels 
will be extremely expensive to develop and will be successful only with 
the government's support along with public/private partnerships that 
will lead to their successful implementation.
    Question 4. The Japanese have been on a steady course to conserve 
energy and reduce their dependence on imported energy while their GDP 
continues to grow. They're turning down their thermostats and shutting 
off their idling car and truck engines to save energy. Opinion polls 
show that more than 75% of Japan's citizens view energy conservation as 
a personal responsibility. Many are willing to shell out extra cash for 
efficient appliances and office equipment. Do you think that Americans 
can gain energy independence without feeling a little pain? Are 
American consumers willing to accept some financial pain for energy 
independence gain?
    Answer. Yes, we believe consumers will have to make some 
adjustments. Events over the past year, including Hurricane Katrina, 
the war in Iraq, and threats to overseas refinery operations have 
combined to sensitize U.S. consumers to the increasing costs of energy. 
Energy price increases affect consumers' lives daily through escalating 
transportation and home heating costs, and eventually in the price of 
all goods. Still, gasoline prices in the U.S. are not aligned with the 
rest of the world. Europe and Japan, for example, have much stronger 
price signals as well as the cultural differences that drive behavior 
to conserve.
    American consumers have a certain ``rugged individualism'' about 
them that demands no compromises when it comes to their lifestyle. This 
differs from the European and Japanese cultures. We tend to believe 
that we can ``have it all'' through technology without lifestyle 
adjustment--a belief that will not be easy to change. Therefore, we 
need to consider ways to incentivize consumers to create a ``pull'' or 
shift toward increasing energy conservation.
    That being said, consumers in the U.S. are beginning to respond to 
higher transportation costs by altering their daily driving habits, and 
are reassessing non-essential trips such as vacations. This will lead 
to a reduction in vehicle miles traveled--a critical factor in 
conserving fuel. Consumers are also increasingly interested in 
advanced, fuel efficient technologies including hybrid electric 
vehicles, flexible fuel vehicles, and diesels which are available 
today. Whether these will be ``permanent'' changes depends on how the 
energy markets respond going forward.

      Responses of Susan Cischke to Questions From Senator Johnson

    Question 1. How many FFVs is Ford scheduled to produce over the 
next 5 years? What are your immediate plans for 2006 and 2007?
    Answer. U.S. E85 FFV volume for the 2005 model year was 201,028 
units for the combined car and truck fleet or 7% of the fleet. The 
volume of FFVs for the last five years is about 250,000 units a year or 
about 9% of our light duty vehicle volume. We continue to produce FFVs 
(E-85) on a high volume basis on select models. The F-150, Crown 
Victoria, Mercury Grand Marquis and Lincoln Town Car are new for 2006. 
We will have the capacity to produce approximately 250,000 ethanol 
vehicles in 2006.
    Question 2. What would it take for Ford to convert substantially 
all new vehicles to FFVs and when could this begin?
    Answer. Applying technologies too fast, too soon (even those 
already on other vehicle lines in the fleet) can result in poor 
performance and ultimately customer rejection of promising 
technologies. Ford's typical engineering practices require that new 
technologies be phased into production over several years such that 
there is a cycle of manufacturing and customer service experience in 
the field. In the case of E85 FFVs, this experience has been limited 
due to the lack of fuel availability. With the recent rise in gasoline 
prices, coupled with new federal incentives to increase the use of 
ethanol, it is more attractive than ever for fueling providers to 
invest in E85 infrastructure.
    Moreover, because ethanol is a unique fuel with unique properties, 
these vehicles require unique hardware and engineering. For example, 
fuel tanks with low permeation characteristics are required. It also 
requires a special fuel pump and fuel lines to deliver the fuel to the 
engine. Unique injectors introduce the fuel into the engine where 
special calibrations programmed into the on-board computer determine 
how much ethanol is in the fuel and how best to set spark timing and 
fuel flow to ensure the engine operates properly and meets emission 
standards on all ethanol and gasoline mixtures. Because there is more 
than one fuel calibration within an FFV, costly development and 
certification testing is doubled. Many of the FFV parts and processes 
are patented by Ford and are the result of innovative ideas by our best 
engineers, and we're proud of them. The bottom line . . . making an FFV 
is a significant investment for auto manufacturers.
    Question 3. Ethanol contains fewer BTUs than gasoline. In a 
traditional FFV, this results in approximately 20% loss in MPG when the 
vehicle is running on E85 as compared to gasoline. Given the high price 
of gas, it is still cheaper to run an FFV on E85 than regular gasoline. 
I understand, however, that the technology exists to increase miles per 
gallon when run on E85. We know that the SAAB 9-5 is able to get equal 
or better mileage when using E85 as compared to gasoline. I understand 
that this is done through the use of a turbo charger. As I understand 
it, a turbo charger is able to increase the compression of the engine 
to transfer E85's higher octane (105 compared to 89 in regular 
gasoline) to better full efficiency. As you are aware, the current FFV 
CAFE program is under fire by some because of its negative impact on 
CAFE standards. It would appear to me that introducing this technology 
into more FFVs would make sense. Is Ford looking to introduce the turbo 
charger technology or any other technology into any new vehicles to 
increase mileage for FFVs running on E85 as compared to gasoline? What 
is the incremental cost of adding turbo changes to vehicles? What could 
be done to help you introduce this technology into more vehicles?
    Answer. It is certainly true that use of higher octane fuel would 
allow an increase in compression ratio, which will increase engine 
efficiency. So a dedicated E85 vehicle could be designed to have higher 
efficiency than our current FFVs with somewhat higher fuel economy. 
However, the point of the Flexible Fuel Vehicle is its flexibility to 
use both gasoline and E85. Under these conditions, when the fuel being 
used can change from tankful to tankful, the engine must be able to 
operate properly and without damage on either fuel. If the vehicle can 
be dedicated to use E85 only, then we can take these steps. For 
example, our ethanol vehicles in Brazil can be dedicated to operate 
only on ethanol and use higher compression ratios, but we do not have 
the extensive ethanol distribution in the U.S. that would enable such a 
specialty vehicle.
    Even with a dedicated E85 vehicle, the fuel economy improvement 
would only offset a portion of the energy content difference in the 
fuels, so full equivalence in miles per gallon would require other 
differences in the vehicles being compared. Reducing the engine size 
and adding the turbocharger to recover performance is another approach 
that can take advantage of the high octane of ethanol, but as 
suggested, the turbocharger is expensive and is generally used on 
specialty performance vehicles. The same issue, however, remains: that 
necessary use of gasoline some of the time prevents full optimum design 
for dedicated E85.
    Therefore, while a portion of the fuel economy can be recovered 
with such engine changes, this is only possible in situations where the 
vehicle will operate exclusively on E85. Until E85 is available at most 
U.S. retail fueling stations, FFVs must be designed to operate on 
ethanol and gasoline, and will incorporate engine designs to handle 
both fuels.
    Question 4. You introduced your Escape FFV Hybrid concept car at 
the Washington Auto Show in January. I commend you for this initiative. 
When can we expect to see this vehicle available to the public? What 
roadblocks do you have in front of you in order to make this a reality 
and what can we do to help?
    Answer. The Escape Hybrid E85 is a research vehicle that holds the 
potential to further expand the appeal of ethanol-capable vehicles. But 
even though the volume of ethanol-capable vehicles continues to grow 
rapidly, there are less than 600 E85 fueling stations in the U.S.--and 
that's out of over 170,000 retail gasoline fueling stations nationwide. 
For ethanol to compete as a motor fuel in the transport sector, we need 
strong, long-term focus on policies that increase U.S. ethanol 
production and accelerate E85 infrastructure development.
    Question 5. You announced a partnership with VeraSun Energy, the 
nation's second largest ethanol producer located in my home state of 
South Dakota. (Might consider having the Washington Post ad where Bill 
Ford is recognizing their partnership.) I commend you for reaching out 
to the ethanol industry. Can you tell me how this relationship is 
developing and what you look to achieve?
    Answer. We announced our partnership with VeraSun last November and 
are pleased to report that we are making important progress. In 
December 2005, VeraSun opened a new 110,000,000 gallon ethanol plant in 
Ft. Dodge, Iowa. In conjunction with the plant opening, Ford and 
VeraSun also announced four new E85 retail sites in the area; which 
began offering E85 this January. The bigger news is the recent 
announcement that Ford and VeraSun will be working together to create 
the nation's first ``Ethanol Corridor'' across Missouri and Illinois. 
Station sites are now being selected in locations that will allow a FFV 
driver to travel from Kansas City, MO to Chicago, IL using only E85. We 
are very excited about this project and our efforts to make E85 more 
readily available to FFV owners who choose to fill their vehicles with 
a fuel that enables the U.S. to reduce its dependence on imported oil.

     Responses of Susan Cischke to Questions From Senator Feinstein

    Question 1. In your opinion, what is the most important step that 
the United States could take today to help reduce our dependence on 
oil?
    Answer. There is no single step that is most important. Our 
nation's energy challenges must be addressed with an integrated 
approach--a partnership of all stakeholders that includes the 
automotive and fuel industries, government, and end users. We must all 
accept that the long-term challenges needed to move us closer to energy 
independence can be solved only through the collaborative efforts of 
all stakeholders.
    Consistent implementation of an integrated approach will allow us 
to achieve much more in a shorter timeframe and at a significantly 
lower cost than if each stakeholder were to unilaterally pursue its own 
agenda. There is an enormous amount we can achieve if we act in harmony 
towards the same common goals.
    We are clearly excited about the potential role of renewable fuels. 
However, the fact is that without the whole-hearted involvement of the 
fuel industry, we cannot move forward far enough or fast enough. We 
need key partners like the oil industry to invest in developing and 
marketing renewable fuels like E85. We support government incentives to 
encourage the industry or others to accelerate this investment.
    There is a great deal that policy makers can do at all levels as 
well. We would like to see more R&D support for vehicle technologies 
and renewable fuels. Government incentives for advanced technology 
vehicles and E85 infrastructure can accelerate the introduction of 
these vehicles and fuels into the marketplace. Government must play a 
critical role to promote U.S. innovation and can do so by expanding and 
focusing R&D tax credits for a broad range of energy efficient 
technologies. We would also like to see greater investment in improved 
road traffic management infrastructure in order to reduce congestion 
and save fuel.
    Government can also educate the public on how to drive in an energy 
efficient manner. In the end, it will ultimately be the size of the car 
fleet, and consumers' choices of vehicles, the number of miles they 
drive, and how they drive that will determine how much motor fuel we 
consume. A person who drives in an energy-conscious way--by avoiding 
excessive idling, unnecessary bursts of acceleration and anticipating 
braking--can enjoy much better fuel consumption, today. Government can 
play a key role to raise public awareness.
    Question 2. What are some ways that you believe we can make oil 
play a less critical role in the American economy?
    Answer. We believe there are many opportunities for the U.S. to 
reduce the amount of oil we use in transportation today. Advanced 
alternative technologies including flexible fuel vehicles, hybrid 
electric vehicles, fuel cell vehicles, advanced diesel vehicles, and 
others can all play a part in reducing the amount of petroleum used in 
the U.S. by either displacing petroleum or by achieving breakthrough 
improvements in fuel efficiency. These technologies either exist or are 
under development by the auto industry.
    Renewable fuels such as biodiesel and ethanol blends of El0 and E85 
directly displace petroleum and should be considered an essential part 
of transportation fueling going forward.
    Drivers can also reduce the amount of petroleum they use by 
adopting driving styles that are more fuel efficient. ``Eco-driving''--
operating a vehicle in a more environmentally responsible manner--can 
achieve up to a 25% improvement in fuel economy.
    Question 3. What do you believe are the largest barriers to the 
entry of new vehicle technology into the market?
    Answer. We are working to accelerate the commercial application of 
all areas of advanced vehicle technologies, including hybrids, flexible 
fuel vehicles, advanced clean diesels, hydrogen-powered internal 
combustion engines and fuel cell vehicles. As you can imagine, the R&D 
investment that goes with all of this work is a very big number--
certainly in the billions, not the millions--and it will only grow in 
the future. Government has a role to play in overcoming cost barriers 
to new technology implementation. See answer to Question # 1 above.
    Question 4. Would it make sense to focus the nation's technological 
energy on rapidly developing and commercializing plug-in hybrids that 
could both take energy from the electric grid at night, when 
electricity is practically free, and then hopefully give energy back to 
the grid during the day when electricity use is the greatest? If so, 
what could the Federal government do to help promote plug-in hybrids?
    Answer. We believe that a portfolio approach is the best way to 
offer consumers a range of products that meet their specific needs and 
circumstances. That is why at Ford, we are moving ahead with a range of 
technological solutions simultaneously. We know that when customers 
consider purchasing a vehicle, they are concerned with numerous 
attributes including price, quality, safety, performance, comfort and 
utility. There is simply no single solution or ``silver bullet.'' As we 
have said, government incentives for advanced technology vehicles and 
fueling infrastructure development can accelerate the introduction of 
these vehicles and fuels into the marketplace. Government must play a 
critical role to promote U.S. innovation and can do so by expanding and 
focusing R&D tax credits for a broad range of energy efficient 
technologies. It is possible that plug-in hybrids could play a future 
role, although there is much more research and development to be done 
to determine if these vehicles can in fact provide the benefits that 
supporters widely claim. The environmental and energy factors for the 
source of electricity used to charge plug-in hybrids will have to be 
considered very carefully before any conclusion can be drawn about the 
benefits of this technology.
    Question 5. What percentage of the total Ford fleet will the 
250,000 hybrids represent?
    Answer. Ford's commitment to increase global hybrid production 
capacity ten-fold, to approximately 250,000 units annually by 2010, 
could represent almost 4% of Ford's current global volume (based on 
consumer demand).
    Question 6. How many flex-fueled vehicles does Ford sell in Brazil?
    Answer. Ford began selling vehicles that operate on alcohol 
(``E93'') in 1979 as Brazil's ethanol program was implemented. In 1985, 
Brazil began to produce an ``E22'' ethanol/gasoline blend. Ford has 
produced vehicles capable of running on either of those two blends 
using dedicated engine designs. In 2004 Ford began to market flexible 
fuel vehicles in Brazil that can operate on either blend or mixes of 
the two (over 40,000 units to date). In total, since the start of these 
programs, Ford has produced nearly 3,000,000 units with the ability to 
operate on ethanol.

     Responses of Susan Cischke to Questions From Senator Menendez

    Question 1. Could you comment on what technologies are available 
now that could be used to improve the fuel economy of passenger cars, 
light trucks, and SUVs?
    Answer. Globally, Ford is incorporating fuel-efficient technologies 
such as five- and six-speed transmissions, electronic power-assisted 
steering, variable cam timing, greater use of light-weight materials 
and improvements in aerodynamics. We introduced our first hybrid 
vehicle, the Escape Hybrid, in 2004. We are also investing in new 
vehicle segments as a strategy to improve fuel efficiency. We continue 
to expand our offerings of cars and ``crossovers'' in North America--
vehicles that combine the features of cars and SUVs while generally 
achieving better fuel economy than traditional SUVs. Continued 
implementation of actions such as these will be necessary to comply 
with NHTSA's newly-promulgated light truck standards, which represent a 
significant challenge for Ford.
    The fact that a given technology is available on a particular 
product does not mean that it can be instantly applied to all products. 
Some technologies, such as hybrid electric powertrains, require an 
enormous investment of financial and engineering resources, as well as 
considerable development time to integrate into a new vehicle platform. 
It is not possible to deploy such technologies across a wide range of 
vehicles in a short period of time. Moreover, applying technologies too 
fast, too soon throughout the vehicle fleet can result in poor 
performance and ultimately customer rejection of promising 
technologies. Ford's typical engineering practices require that new 
technologies be phased into production gradually in order to gain 
experience with consumer acceptance and customer service issues before 
expanding the availability of the technology.
    Question 2. Could you tell me how much more it costs, on average, 
to produce a flexible-fueled vehicle over an equivalent one that is not 
an FFV?
    Answer. It is estimated that Ford and the industry have invested 
over a billion dollars to produce the more than five million flexible-
fueled vehicles that are on the road today. Currently, FFV capability 
on Ford vehicles costs between $100 and $200 depending on the model, 
but this has been an option offered at no additional cost to Ford 
customers.
    The added cost is driven by many factors. First of all, because 
ethanol is a unique fuel with unique properties, these vehicles require 
unique hardware and engineering. For example, fuel tanks with low 
permeation characteristics are required. It also requires a special 
fuel pump and fuel lines to deliver the fuel to the engine. Unique 
injectors introduce the fuel into the engine where special calibrations 
programmed into the on-board computer determine how much ethanol is in 
the fuel and how best to set spark timing and fuel flow to ensure the 
engine operates properly and meets emission standards on all ethanol 
and gasoline mixtures. Because there is more than one fuel calibration 
within an FFV, costly development and certification testing is doubled. 
Many of the FFV parts and processes are patented by Ford and are the 
result of innovative ideas by our best engineers, and we're proud of 
them. The bottom line . . . making an FFV is a significant investment 
for auto manufacturers.
    In order to continue to make FFVs a value proposition for 
consumers, we fully support government incentives to further accelerate 
investment in developing and marketing an E85 infrastructure.
    Question 3. Would Ford support replacing the current CAFE credit 
for producing dual-fuel vehicles with a system that provided credits 
based on the actual amount of ethanol used?
    Answer. No. First of all, it would be impractical to incorporate a 
fuel usage approach into the CAFE program, because manufacturers must 
plan for CAFE compliance years in advance, and they cannot plan to a 
moving target. Second, and even more importantly, the purpose of the 
dual-fuel incentives is to create a market that will accelerate the 
development of alternative fuel sources. Ford and other automakers have 
responded by producing more than five million alternative fuel vehicles 
and have absorbed significant costs to provide FFVs, most at no 
additional cost to consumers. And we see customer interest growing. The 
focus now needs to turn to increasing the availability of ethanol 
through infrastructure development.
                                 ______
                                 
    Responses of R. James Woolsey to Questions From Senator Domenici

    Question 1. You have spoken on a number of occasions about the 
security threats with respect to potential disruptions to foreign 
energy infrastructure and thus to our own energy security. As you look 
out on the areas from which we import, where are the potential threats 
located and what are the resulting potential price spikes?
    Answer. I believe the most dangerous are in the Middle East, due to 
the high (appx. 2/3) share of the world's proven reserves of oil being 
located there, the processing infrastructure, and the ease of access 
for terrorist groups. I would put Saudi Arabia's processing facilities 
in Northeastern Saudi Arabia front and center. A successful attack 
there could send oil well over $100/bbl for months.
    Question 2. What are your views on the possibilities of oil shale 
and other unconventional resources replacing much of our foreign 
dependence? What kind of timetable would you put on that?
    Answer. Oil shale is especially promising because of the large 
volume of oil contained therein in the Western U.S. (several Saudi 
Arabias-worth). I have no good estimate of the time required to 
develop, but although development could begin relatively soon it would 
probably take a number of years to reach substantial volume.
    Question 3. Is energy self-sufficiency a positive goal worth 
pursuing? Do you think some recent improvements have been made in 
shifting our reliance to allies such as Canada, for example?
    Answer. I believe that, for the U.S., the issue is not so much 
energy self-sufficiency as our overall dependence on oil. Most of our 
natural gas comes from Canada and, given the diversity of sources, 
moving toward importing some LNG from elsewhere does not seem to me to 
raise the kinds of issues for us that oil does. This is especially so 
given the promise of IGCC coal together with CO2 
sequestration, quite possibly in deep saline aquifers. There is 
basically one world-wide market for oil so we do little by shifting the 
locus of our purchases--the objective should be to move to replace 
conventional oil with relatively inexpensive fuels from widely-
available and inexpensive feedstocks and to require as little change in 
the infrastructure as possible. I would thus emphasize replacing oil 
with off-peak electricity (plug-in hybrids), ethanol (increasingly 
cellulosic), methanol, and diesel derived from agricultural and other 
wastes.
    Question 4. In your view, what are the most immediate steps we can 
take to reduce oil prices?
    Answer. Little will work in the very short run. We should instead 
focus on the steps set out in answer to Q3, supra, and even consider a 
floor for oil around $35/bbl or so so that the Saudis cannot increase 
production from their reserves, drop the price below the cost of 
alternatives, and undercut the alternatives' development--as occurred 
in 1985 and again in the late 90's. In order to have alternatives to 
oil we probably need to ensure that the price cannot be temporarily 
dropped too far.
    Question 5. What are the most immediate steps we can take to reduce 
our reliance on foreign sources of oil?
    Answer. See answer to Q3, supra: move toward plug-in hybrids, 
ethanol (esp. cellulosic), methanol, and diesel from agricultural and 
other waste.
    Question 6. In the State of the Union speech, President Bush set 
the goal of cutting reliance on Middle East oil 75% by 2025. Is this a 
worthy goal? An attainable goal? And, if so, what is the most effective 
way to achieve this goal?
    Answer. I believe a somewhat more ambitious goal is reasonable: by 
a combination of fuel efficiency and alternative fuel development and 
commercialization, I believe producing 25% of our transportation fuel 
from alternative fuels by 2025 is plausible, perhaps more.
    Question 7. Do you think that conservation is a significant 
component to energy policy? What is the most effective way to convince 
the public that it is?
    Answer. Yes, but the most attractive form of conservation is one 
that will let people continue to use the size cars they need for the 
purposes they require. One excellent idea is to move quickly toward 
producing vehicles from the same type of carbon composites that are now 
used for Formula 1 racers. Since these are more than ten times as 
crash-resistant as steel and weigh half as much or less, one can 
separate safety from size and have safe small vehicles that are 
extremely fuel efficient, or, for those who need large vehicles these 
can be much lighter and thus much more fuel efficient as well.
    Question 8. Please comment on your views on raising CAFE standards.
    Answer. I believe that such is reasonable, but would be willing to 
replace them with incentives for plug-in hybrids, carbon-composite 
vehicles, and alternative fuels.
    Question 9. What additional steps need to be taken to develop fuel 
cell technology?
    Answer. We are spending far too much today on this far-out 
technology. The National Energy Policy Commission found in 2004 that 
there would be no substantial effect on oil use from automotive 
hydrogen fuel cells for 20 years. This is in part because of the 
expense of fuel cells and in part because of the massive changes to the 
energy infrastructure that their use would entail. The vast majority of 
the funds now devoted to automotive hydrogen fuel cells should be 
transferred to uses for which there will be a much earlier benefit.
    Question 10. Do you view increasing our domestic supply of oil and 
gas as a necessary part of achieving what you have called, ``energy 
security''?
    Answer. See answer to Q3, supra.
    Question 11. Please comment specifically on the impact that the 
biofuels provisions in the recently passed Energy Policy Act will have 
on reducing reliance on foreign oil and strengthening energy security.
    Answer. I believe that substantially greater encouragement for 
commercialization is needed in order for the impact to be timely, along 
the lines of the legislation introduced by Senators Lieberman, 
Brownback, and others (S. 2025).

   Responses of R. James Woolsey to Questions From Senator Murkowski

    Question 1. Coming from a state that has the lion's share of gas 
hydrate potential, what is the likelihood of gas hydrate production 
both on shore and under the seafloor coming into its own within the 
next two decades? It is said that America has a 1,000 year energy 
supply of hydrates out there waiting to be tapped. Should we be 
focusing more on developing that resource?
    Answer. I have read only a bit on this interesting issue--the 
current estimates are on the order of 21,000 trillion cubic meters, or 
about 100 times our current proven gas reserves. My understanding is 
that very large R&D investments will be necessary before these can be 
regarded as an affordable source, however. I would classify these as a 
fascinating and potentially important but distant energy source.
    Question 2. DOE last year issued a report that indicated we should 
be able to coax up to 40 billion barrels of additional conventional oil 
from aging oil fields by injecting carbon dioxide into the fields to 
squeeze out more oil. How important is more widespread use of 
CO2 likely to prove to be to aid shorter-term energy 
production, especially since the same technology--CO2 
injection--results in sequestering carbon from the environment, cutting 
greenhouse gas emissions?
    Answer. This is certainly not a negligible total--it is about 25% 
more than the world's annual oil production today. If CO2 
sequestration is shown to be successful for the long term when it is 
injected into wells, this could be a very valuable step. Over the long 
run I believe CO2 sequestration will require its being 
inserted into deep saline aquifers, however.
    Question 3. Coal Gasification: We all know that America is the 
Saudi Arabia of coal. My state alone has about 15% of the planet's coal 
reserves, 160 billion short tons. I am really interested in pushing 
coal gasification to produce coal without emissions and to help 
sequester carbon. What can we do on top of what we did in last year's 
Energy Bill, to further clean coal technology and production economics?
    Answer. The key problem, as I understand it, is that IGCC coal with 
carbon sequestration is still more expensive by perhaps 25% or more 
than just burning coal with pollution abatement but not CO2 
capture and sequestration. In my view once the technology of 
sequestration is sufficiently proven we should move, through federal 
financial incentives, to remove this difference. A mandatory carbon 
cap-and-trade system would be a good method to provide the needed 
incentives to move us in this direction.
    Question 4. If we do everything that we think we can do in terms of 
fuel efficiency, stimulating production of conventional fuels and 
alternative fuels from wind, geothermal, biomass, solar and ocean 
current energy and also further nuclear, do we have the ability to be 
truly energy independent by 2025?
    Answer. Although in the 1970's some 20 per cent of our electricity 
was produced from oil, today only 2-3% is. Thus our methods of 
producing electricity, while important for a number of reasons, are 
largely unrelated to our dependence on oil, about 2/3 of which is used 
for transportation and the rest for industrial and heating uses. Wind, 
geothermal, solar, ocean current, and nuclear energy all have the major 
advantage (with hydro) of not contributing to global warming gas 
emissions. As noted above, since our principal foreign source of 
electricity-producing feedstocks is natural gas from Canada, I do not 
believe that the decisions about electricity production should be 
driven by the question of foreign sources. Oil, however, is a different 
matter--still, the key issue (since there is basically one world-wide 
market for oil) is how can we reduce our reliance on conventional oil 
overall. The best near-term options here, I believe, are to move 
toward: plug-in hybrids so that inexpensive off-peak electricity can be 
used for transportation; ethanol (especially cellulosic); methanol; 
diesel from agricultural and other wastes; and construction of vehicles 
out of carbon composites, supra. Such steps could, I believe, move us 
toward producing 25% or more of our transportation fuels from 
alternative sources by 2025. Together with our domestic oil production 
and other fuel efficiency steps we could conceivably come close to 
importing no oil around 2025 or a few years later.

    Responses of R. James Woolsey to Questions From Senator Bunning

    Question 1. Many of you focus on biodiesel and transportation 
fuels. But coal is our most abundant domestic fossil fuel and it 
accounts for half of our electricity generation. The Energy Information 
Administration predicts coal will continue to be the centerpiece of our 
energy production for the next 25 years. Do you think we could lessen 
our dependence on imports by using clean coal power and nuclear energy 
to replace the natural gas and oil that currently goes to the 
electricity production?
    Answer. IGCC coal with carbon sequestration is especially promising 
and nuclear energy has an important role as well in future electricity 
production. But only 2-3% of our electricity is now produced from oil 
so moving further in these directions for electricity production will 
have only a minimal effect on oil use or imports (until there are tens 
of millions of plug-in hybrid vehicles on the road). Most of our 
natural gas imports now come from Canada, which does not present a 
substantial risk in my view.
    Question 2. I have been impressed with new Coal-to-Liquids 
technology that can turn coal into a synthetic liquid fuel. Other parts 
of the world, like South Africa, have been using this technology for 
decades. I know there are several pilot facilities here in America, but 
what do we need to do to push this industry into full commercial-scale 
operations?
    Answer. My understanding is that environmental concerns and cost, 
in comparison with alternatives, are major hurdles to overcome, but as 
you suggest this technology has been improved in recent years and it 
deserves fair consideration.
    Question 3. In some parts of the world--and a few places in Western 
Kentucky--people drive their cars and trucks on a blend of fuel that is 
85% ethanol. That means only 15% of the fuel is based on oil. Some of 
you on the panel have mentioned that the best case scenario for 
biodiesel is that it will only replace 10% of gasoline used for 
transportation. What are the limiting factors? Can the government help 
address problems like infrastructure and efficiency?
    Answer. Some types of biodiesel can be used only in mixtures of 10-
20% with ordinary diesel fuel. Other types of alternative diesel 
(called ``renewable diesel'' as distinct from ``biodiesel'' in the 
statutes) have no such problem, according to the report in late 2004 of 
the National Energy Policy Commission. Consultation with the Commission 
staff (www.energycommission.org) would provide a more complete answer.
    Question 4. In your testimony before this Committee you summarize 
your overall recommendations by stating that:

        government policies in the United States and other oil-
        importing countries should: (1) encourage a shift to 
        substantially more fuel-efficient vehicles within the existing 
        transportation infrastructure, including promoting both battery 
        development and a market for existing battery types for plug-in 
        hybrid vehicles; and (2) encourage biofuels and other 
        alternative and renewable fuels that can be produced from 
        inexpensive and widely-available feedstocks--wherever possible 
        from waste products.

    Do you have any suggestions about specific legislation that could 
be adopted by Congress to at least begin the process of implementing 
any of your recommendations?
    Answer. S. 2025, introduced by Senators Lieberman and Brownback and 
a number of co-sponsors implements most of these suggestions.

     Responses of R. James Woolsey to Questions From Senator Wyden

    Question 1. Your testimony makes a compelling case why energy 
security should be a top national security priority. What do you 
suggest we do to make the case for the billion-dollar funding levels 
that we need for energy independence and security at a time when 
national priorities are focused on the war on terror?
    Answer. In my view reducing our dependence on conventional oil is 
an integral part of the war on terror. I believe we will be in this war 
for decades, much like the Cold War, and that one key to winning it is 
to cease funding the ideology of hatred that our enemies feed upon. We 
borrow $250 billion/year to import oil--an increasing share it will 
come from the Middle East as the years go on. The Saudis then, to take 
one example, provide around $4 billion/year to the Wahhabis who then 
use much of it to run, e.g., madrassas in Pakistan and elsewhere that 
teach this hatred. Indeed one could say that, other than the Civil War, 
this is the only war the U.S. has fought in which we pay for both 
sides.
    Question 2. In your written testimony, you say that estimates of 
the amount spent by the Saudis in the last 30 years spreading Wahhabi 
beliefs throughout the world vary from $70 billion to $100 billion and 
that some oil-rich families of the Greater Middle East fund terrorist 
groups directly. How can we persuade the Administration and Congress 
that this backdoor funding of terrorist with oil revenues, what I call 
the ``terror tax'' we pay on Middle East oil, is helping to fund 
terrorism and that cutting off this funding source should be part of 
the war on terror?
    Answer. To avoid these funds going to the Wahhabis and to avoid 
them and oil-rich families funding this ideological aspect of terrorism 
I believe we must move away from the use of conventional oil, and do so 
quickly and decisively. Our resolution, if clear and decisive, can have 
an effect on the psychology of this conflict even before our reduction 
in oil use is large.
    Question 3. Do you think that we should have an account in the DOD 
budget for energy security?
    Answer. DOD can play a major role in reducing its own use of 
conventional oil through the design of its platforms and the logistical 
arrangements at its facilities. It can also help move the civilian 
economy in useful directions by its purchases of conventional vehicles 
that are fuel-efficient (e.g. plug-in hybrids) and alternative fuels. I 
don't know whether a separate account is the best way to increase this 
emphasis or not.
    Question 4. The Administration's FY 2007 budget request seeks $942-
million for the Advanced Energy Initiative, $1.18-billion for energy 
efficiency and renewables and about ten times that amount for various 
nuclear energy programs. Is any of this going to do much of anything to 
address what President Bush calls our ``national oil, addiction'' 
anytime soon?
    Answer. Nuclear energy may be one good way to produce electricity, 
especially because it does not emit global warming gases. But it is 
largely irrelevant to the question oil addiction because only 2-3% of 
our electricity comes from oil.
    Question 5. How much do we need to spend to make a difference? Is 
there anything that can be implemented in the next few years to start 
changing course?
    Answer. Yes, I believe that S. 2025, introduced by Senators 
Lieberman and Brownback and co-sponsored by a number of Senators would 
help move us promptly in the direction of efficient vehicles and 
alternative transportation fuels.
    Question 6. The Japanese have been on a steady course to conserve 
energy and reduce their dependence on imported energy while their GDP 
continues to grow. They're turning down their thermostats and shutting 
off their idling car and truck engines to save energy. Opinion polls 
show that more than 75% of Japan's citizens view energy conservation as 
a personal responsibility. Many are willing to shell out extra cash for 
efficient appliances and office equipment. Do you think that Americans 
can gain energy independence without feeling a little pain? Are 
American consumers willing to accept some financial pain for energy 
independence gain?
    Answer. I would hope so, but one interesting aspect of moving away 
from oil addiction is that many of the steps we need to take are 
relatively painless. We can have high-performance and even large 
vehicles, e.g., for those who need them--if they are plug-in hybrids 
and run on cheap off-peak electricity, as well as being Flexible Fuel 
Vehicles that carry E-85, methanol, or diesel made from waste in their 
tanks, and are constructed from carbon composites it is possible to 
have sports cars or SUVs that get many hundreds of miles per gallon (of 
conventional oil products).

   Responses of R. James Woolsey to Questions From Senator Feinstein

    Question 1. In your opinion, what is the most important step that 
the United States could take today to help reduce our dependence on 
oil?
    Answer. Provide incentives to move into commercial use quickly of 
transportation fuels that are either cheap and environmentally 
attractive today (i.e. off-peak electricity via plug-in hybrids) or 
that are predictably cheap and environmentally attractive (cellulosic 
ethanol and diesel from waste products). The less need for 
infrastructure change the better, but where necessary incentives for 
change (e.g. tax credits for E-85 pumps) should be part of the package.
    Question 2. What are some ways that you believe we can make oil 
play a less critical role in the American economy?
    Answer. In addition to the answer to Question 1, supra, encourage 
with loan guarantees or tax credits the saving of oil in other 
sectors--heavy trucking, heating, and industrial uses--and the 
substitution of other fuels, such as IGCC coal with carbon 
sequestration, biomass-derived products for industrial uses, etc.
    Question 3. What do you believe are the largest barriers to the 
entry of new vehicle technology into the market?
    Answer. Investment cost and uncertainty in the market. The latter 
may be mitigated by encouraging orders for new types of vehicles (e.g. 
plug-in hybrids) by fleet purchasers.
    Question 4. Would it make sense to focus the nation's technological 
energy on rapidly developing and commercializing plug-in hybrids that 
could both take energy from the electric grid at night, when 
electricity is practically free, and then hopefully give energy back to 
the grid during the day when electricity use is the greatest? If so, 
what could the Federal government do to help promote plug-in hybrids?
    Answer. Most definitely. The vehicle-to-grid possibility can help 
reduce the need for new generating capacity for peak power and 
``regulation''. Federal regulatory encouragement of such steps could 
substantially hasten the adoption of plug-ins.

     Response of R. James Woolsey to Question From Senator Menendez

    Question 1. Could you comment on what technologies are available 
now that could be used to improve the fuel economy of passenger cars, 
light trucks, and SUVs?
    Answer. The most dramatic, I believe, would be the increased 
utilization of carbon composites for vehicle construction. Since these 
(now used in Formula 1 racing cars) are ten times more crash-resistant 
than steel they can provide substantial safety even for small vehicles. 
Since the weight is half or less that of steel vehicles, they would 
improve fuel efficiency by 100% or more. More such ideas are included 
in the excellent 2004 report by the Rocky Mountain Institute, ``Winning 
the Oil End-game.'' (www.rmi.org).

    [Responses to the following questions were not received at 
the time this hearing went to press:]

          Questions for Frank Verrastro From Senator Domenici

    Question 1. In your written testimony you state that the rise in 
oil import levels over the next twenty years carries important 
infrastructure implications. Please explain what you mean by this.
    What in your view is the best way to address these potential 
problems?
    Question 2. Please comment on the effects of the 7.5 billion gallon 
ethanol mandate in the energy bill combined with the possibility of a 
moderate increase in CAFE standards and the opening of areas like 181 
and ANWR. Would the combination of all of these policies significantly 
strengthen our energy security? Would they substantially reduce our 
dependence on foreign sources?
    Question 3. Please tell us your views on what a windfall profits 
tax would do to oil prices as well as its impact on our reliance on 
foreign sources.
    Question 4. In your written testimony you say that, ``the Stone Age 
did not end because we ran out of rocks--something better came along. 
The Oil Age will similarly be overtaken when a better solution of a 
series of solutions emerge.''
    What do you think the most reasonable policies are to strengthen 
our energy security until the Oil Age is overtaken? In other words, 
where should our focuses lie and what have we been concentrating too 
much on?
    Question 5. At what price levels for oil do you think we will start 
to see a significant decrease in consumption?

          Questions for Frank Verrastro From Senator Murkowski

    Question 1. Coming from a state that has the lion's share of gas 
hydrate potential, what is the likelihood of gas hydrate production 
both on shore and under the seafloor coming into its own within the 
next two decades? It is said that America has a 1,000 year energy 
supply of hydrates out there waiting to be tapped. Should we be 
focusing more on developing that resource?
    Question 2. DOE last year issued a report that indicated we should 
be able to coax up to 40 billion barrels of additional conventional oil 
from aging oil fields by injecting carbon dioxide into the fields to 
squeeze out more oil. How important is more widespread use of 
CO2 likely to prove to be to aid shorter-term energy 
production, especially since the same technology--CO2 
injection--results in sequestering carbon from the environment, cutting 
greenhouse gas emissions?
    Question 3. Coal Gasification: We all know that America is the 
Saudi Arabia of coal. My state alone has about 15% of the planet's coal 
reserves, 160 billion short tons. I am really interested in pushing 
coal gasification to produce coal without emissions and to help 
sequester carbon. What can we do on top of what we did in last year's 
Energy Bill, to further clean coal technology and production economics?
    Question 4. If we do everything that we think we can do in terms of 
fuel efficiency, stimulating production of conventional fuels and 
alternative fuels from wind, geothermal, biomass, solar and ocean 
current energy and also further nuclear, do we have the ability to be 
truly energy independent by 2025?

           Questions for Frank Verrastro From Senator Bunning

    Question 1. Many of you focus on biodiesel and transportation 
fuels. But coal is our most abundant domestic fossil fuel and it 
accounts for half of our electricity generation. The Energy Information 
Administration predicts coal will continue to be the centerpiece of our 
energy production for the next 25 years. Do you think we could lessen 
our dependence on imports by using clean coal power and nuclear energy 
to replace the natural gas and oil that currently goes to the 
electricity production?
    Question 2. I have been impressed with new Coal-to-Liquids 
technology that can turn coal into a synthetic liquid fuel. Other parts 
of the world, like South Africa, have been using this technology for 
decades. I know there are several pilot facilities here in America, but 
what do we need to do to push this industry into full commercial-scale 
operations?
    Question 3. In some parts of the world--and a few places in Western 
Kentucky--people drive their cars and trucks on a blend of fuel that is 
85% ethanol. That means only 15% of the fuel is based on oil. Some of 
you on the panel have mentioned that the best case scenario for 
biodiesel is that it will only replace 10% of gasoline used for 
transportation. What are the limiting factors? Can the government help 
address problems like infrastructure and efficiency?
    Question 4. On page 1 of your testimony before this Committee you 
list a variety of issues our nation must consider if it is to begin 
addressing the energy challenges we face. These include: i) stimulating 
additional supplies of conventional and traditionally non-conventional 
fuel sources, including renewables and alternatives; ii) improving 
energy efficiency and conservation efforts; iii) promoting research and 
development and deployment of useful technologies; iv) addressing 
infrastructure needs to facilitate the development of fuel choices and; 
v) pursuing the development of a more comprehensive energy development 
strategy.
    Question 5. Do you have any suggestions about specific legislation 
that could be adopted by Congress to at least begin the process of 
implementing any of your recommendations?

          Questions for Frank Verrastro From Senator Bingaman

    Question 1. Your testimony notes that the deployment of proven 
technologies in the auto fleet can over time make a substantial 
contribution to reducing transportation demand. Can you give us a few 
examples of what these ``existing technologies'' are that you are 
referring to?
    Question 2. What policies do you recommend we adopt that could help 
use existing technologies to reduce the amount of oil that we use in 
the transportation sector within the next 5 to 10 years? What concrete 
steps can you suggest?
    Question 3. Is there anything that we should do to encourage more 
multilateral cooperation in the international oil trading and 
investment market places to try to lessen governments' pursuits of 
specific narrow interests?

            Questions for Frank Verrastro From Senator Wyden

    Question 1. As a recognized expert in international energy markets, 
and given your view that expanding domestic oil production alone won't 
get us very far down the road towards energy independence, are there 
other countries that could be models for our national efforts?
    Question 2. I agree with your call to accelerate new energy 
technology deployment, especially those that cut transportation fuel 
demand. Critics complain that this puts the government in the business 
of picking winners and losers. In my view, we're already dependent on 
the losers. How do you suggest that we do this so that we can be 
successful?
    Question 3. The Administration's FY 2007 budget request seeks $942-
million for the Advanced Energy Initiative, $1.18-billion for energy 
efficiency and renewables and about ten times that amount for various 
nuclear energy programs. Is any of this going to do much of anything to 
address what President Bush calls our ``national oil addiction'' 
anytime soon?
    How much do we need to spend to make a difference? Is there 
anything that can be implemented in the next few years to start 
changing course?
    Question 4. The Japanese have been on a steady course to conserve 
energy and reduce their dependence on imported energy while their GDP 
continues to grow. They're turning down their thermostats and shutting 
off their idling car and truck engines to save energy. Opinion polls 
show that more than 75% of Japan's citizens view energy conservation as 
a personal responsibility. Many are willing to shell out extra cash for 
efficient appliances and office equipment. Do you think that Americans 
can gain energy independence without feeling a little pain? Are 
American consumers willing to accept some financial pain for energy 
independence gain?

          Questions for Frank Verrastro From Senator Feinstein

    Question 1. In your opinion, what is the most important step that 
the United States could take today to help reduce our dependence on 
oil?
    Question 2. What are some ways that you believe we can make oil 
play a less critical role in the American economy?
    Question 3. What do you believe are the largest barriers to the 
entry of new vehicle technology into the market?
    Question 4. Would it make sense to focus the nation's technological 
energy on rapidly developing and commercializing plug-in hybrids that 
could both take energy from the electric grid at night, when 
electricity is practically free, and then hopefully give energy back to 
the grid during the day when electricity use is the greatest? If so, 
what could the Federal government do to help promote plug-in hybrids?

           Question for Frank Verrastro From Senator Domenici

    Question 1. Could you comment on what technologies are available 
now that could be used to improve the fuel economy of passenger cars, 
light trucks, and SUVs?

                                    

      
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