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$4 GASOLINE AND FUEL ECONOMY: AUTO 

INDUSTRY AT A CROSSROADS 

HEARING 

BEFORE THE

SELECT COMMITTEE ON 

ENERGY INDEPENDENCE 

AND GLOBAL WARMING 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

JUNE 26, 2008 

Serial No. 110–42 

( 

Printed for the use of the Select Committee on 

Energy Independence and Global Warming 

globalwarming.house.gov 
(II) 

SELECT COMMITTEE ON ENERGY INDEPENDENCE 

AND GLOBAL WARMING 

EDWARD J. MARKEY, Massachusetts, Chairman 

EARL BLUMENAUER, Oregon 

JAY INSLEE, Washington 

JOHN B. LARSON, Connecticut 

HILDA L. SOLIS, California 

STEPHANIE HERSETH SANDLIN, 

South Dakota 

EMANUEL CLEAVER, Missouri 

JOHN J. HALL, New York 

JERRY MCNERNEY, California 

F. JAMES SENSENBRENNER, JR., 

Wisconsin, Ranking Member 

JOHN B. SHADEGG, Arizona 

GREG WALDEN, Oregon 

CANDICE S. MILLER, Michigan 

JOHN SULLIVAN, Oklahoma 

MARSHA BLACKBURN, Tennessee 

PROFESSIONAL STAFF

GERARD J. WALDRON, Staff Director 

ALIYA BRODSKY, Chief Clerk 

THOMAS WEIMER, Minority Staff Director 
(III) 

C O N T E N T S 

Page 

Hon. Edward J. Markey, a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 1 

Prepared statement .......................................................................................... 3 

Hon. F. James Sensenbrenner, Jr., a Representative in Congress from the 

State of Wisconsin, opening statement .............................................................. 6 

Hon. Jay Inslee, a Representative in Congress from the State of Washington, 

opening statement ................................................................................................ 7 

Hon. Candice Miller, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 9 

Hon. John Hall, a Representative in Congress from the State of New York, 

opening statement ................................................................................................ 10 

Hon. Marsha Blackburn, a Representative in Congress from the State of 

Tennessee, opening statement ............................................................................ 11 

WITNESSES

The Honorable Tyler Duvall, Assistant Secretary for Policy, Department of 

Transportation; Accompanied by Steve Kratzke, National Highway Traffic 

Safety Administration .......................................................................................... 12 

Prepared Testimony ......................................................................................... 426 

Answers to submitted questions ...................................................................... 499 

Mr. Dominique Thormann, Senior Vice President, Nissan North America, 

Inc. ......................................................................................................................... 443 

Prepared Testimony ......................................................................................... 446 

Mr. Shai Agassi, Founder and CEO, Project Better Place ................................... 449 

Prepared Testimony ......................................................................................... 451 

Answers to submitted questions ...................................................................... 505 

Mr. Torben Holm, Consultant, DONG Energy A/S ............................................... 470 

Prepared Testimony ......................................................................................... 472 

Answers to submitted questions ...................................................................... 513 

Mr. Jeffrey R. Holmstead, Partner, Bracewell & Giuliani LLP ........................... 481 

Prepared Testimony ......................................................................................... 483 

SUBMITTED MATERIAL

Draft Environmental Impact Statement: Corporate Average Fuel Economy 

Standards, Passenger Cars and Light Trucks, Model Years 2011–2015 by 

the National Highway Traffic Safety Administration in June 2008 ................ 13 

(1) 

$4 GASOLINE AND FUEL ECONOMY: AUTO 

INDUSTRY AT A CROSSROADS 

THURSDAY, JUNE 26, 2008 

HOUSE OF REPRESENTATIVES, SELECT COMMITTEE ON ENERGY INDEPENDENCE

AND GLOBAL WARMING, Washington, DC. 

The committee met, pursuant to call, at 1:41 p.m. in room 210, 

Cannon House Office Building, Hon. Edward J. Markey (chairman 

of the committee) presiding. 

Present: Representatives Markey, Inslee, Hall, Blackburn and 

Miller. 

Staff present: Michal Freedhoff. 

The CHAIRMAN. This hearing of The Select Committee on Energy 

Independence and Global Warming is called to order, and we thank 

everyone for being here. Every day the news is filled with the stories of how $4-a-gallon 

gasoline hurts working people in this country. Every day we hear 

of some new societal impact, some new economic problem, some 

new forecast of even higher prices yet to come. The skyrocketing 

price of gas at the pump hits consumers all over the country, and 

high oil prices also send a shock wave through our economy that 

hurts businesses and threatens to inflate prices. Most experts do 

not believe that these prices will come down anytime soon. 

We are here today to discuss solutions to this latest energy crisis. 

Because 70 percent of oil goes into transportation, any solutions to 

the oil crisis must focus on the transportation sector. 

The Bush administration argues that we can drill our way out 

of this crisis. This is wrong. Forty-five percent of the world’s oil is 

located in Iraq, Iran and Saudi Arabia, and almost two-thirds of 

known oil reserves are in the Middle East. The United States is 

home to less than 3 percent of the world’s oil reserves, but we consume 25 percent of the world’s oil. Sixty percent of the oil that we 

use every day comes from overseas at an annual cost of hundreds 

of billions of dollars, much of which ends up in the hands of countries hostile to our interests. 

Even if we open the Arctic National Wildlife Refuge and the Atlantic and Pacific coastlines to drilling today, the Energy Department reports that the first drops of oil would not hit consumers’ 

gas tanks for 10 years. Peak production would not occur until 2030, 

and even then there would be no significant impact on prices at the 

pump. 

America’s strength lies not in the size of its oil reserves, but in 

our superior technological might. Our biggest single step we have 
2 

taken to curb our oil dependence is to raise the fuel economy standards of our automotive fleet. When CAFE was first passed in the 

mid-1970s in response to the first oil crisis, imported oil fell as a 

percentage of total consumption in the United States from 47 percent in 1977 to 27 percent in 1985. And last December, after my 

efforts in 2001, 2003, 2005 and 2006 were blocked, Congress passed 

the first mandated increase in fuel economy standards since 1975, 

requiring that the fleet of cars and light trucks average at least 35 

miles per gallon by 2020. This will save at least 2.5 million barrels 

of oil per day by the year 2030, when our entire fleet will have 

turned over. It will save consumers billions of dollars in gasoline 

they will not have to buy. 

Today the Department of Transportation, charged with implementing the energy bill, will discuss its proposal to increase the 

fleet fuel economy average to 31.6 miles per gallon by 2015. A 

major flaw in its analysis is that it uses outdated Energy Information Agency assumptions about gas prices that simply defy reality. 

At a time when gasoline prices are soaring well above $4 per gallon, almost $1 more than when we passed the energy bill just in 

December, NHTSA and the Energy Information Agency, that is the 

Department of Transportation and the Department of Energy, midrange forecast for gasoline prices that range from $2.42 a gallon in 

2016 to $2.51 a gallon in 2030. 

When compared to today’s prices at the pump, these numbers are 

nothing short of absurd, especially absurd in terms of what we 

should be planning for as a country technologically in terms of the 

vehicles which we drive. Buried at the back of its very long technical analysis, NHTSA documents the results of using EIA’s highprice gasoline projection of 3.14 in 2016 to 3.74 a gallon in 2030 

and found that technology is available to cost-effectively achieve a 

much higher fleetwide fuel economy of nearly 35 miles per gallon 

by 2015. 

On June 11th, Guy Caruso, Administrator of the Energy Information Agency, told this committee that he agreed that NHTSA 

should use EIA’s high-gas-price scenario in setting its final fuel 

economy standards. I agree and have been joined by dozens of my 

colleagues, sending a letter encouraging the Department of Transportation to do so. I look forward to hearing the Department’s 

views on this and other aspects of its proposal. 

We are also fortunate today to have with us some participants 

in the next generation of automotive technology development. Making cars and light trucks use less oil is enormously important, but 

ultimately to address our energy security and global warming challenges, we will need to develop vehicles that use no oil at all. Our 

second panel of witnesses will show us one way of getting to that 

better place. 

I thank you all for coming here today, and now I turn and recognize the Ranking Member of the select committee, the gentleman 

from Wisconsin Mr. Sensenbrenner. 

[The information follows:] 
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Mr. SENSENBRENNER. Thank you very much, Mr. Chairman. 

Your opening comments have inspired me so much, that rather 

than reading off the prepared statement that the staff has prepared for me to say, I am going to ask unanimous consent to put 

in it the record, and I will respond to my friend, the Chairman, extemporaneously. 

The CHAIRMAN. Without objection. 

Mr. SENSENBRENNER. The topic of this hearing, $4 gasoline and 

fuel economy, I think is symptomatic of why we have a problem in 

this country. We have $4-a-gallon gasoline today because we have 

deliberately not exploited our domestic resources. And while I am 

the first to say that we can’t drill our way out of high gas prices, 

locking up all of our domestic resources and not wanting to drill 

practically anywhere where it is economically feasible has contributed to the high gas prices. 

And while it will probably take 10 to 20 years for us to fully benefit from drilling in the Outer Continental Shelf and other places, 

and we started that 10 or 20 years ago, maybe we wouldn’t be 

about in the pickle that we are in today and our constituents and 

consumers are having to suffer the cost of the high gas prices. 

Now, overlaying all of this is the increase in the CAFE standards 

that the Chairman is very proud of. Listening to what he said 

today, when CAFE was first passed in 1975, we saw a huge decrease in the percentage of imported oil. Well, what has happened 

is that we passed CAFE; the percentage of imported oil has gone 

up, and meantime the Majority party two or three times has 

passed legislation that actually repeals the domestic production tax 

credit for developing domestic resources, which means it is cheaper 

for oil companies to buy more oil overseas. 

Now, the result of all of this is starting to show up in lost jobs 

and lost good-paying jobs. The major employer in Jamesville, Wisconsin, is General Motors. They make SUVs there. They are highly 

skilled, highly paid members of the United Auto Workers that will 

be losing their jobs between now and 2010 because GM has decided 

that the market is not going to support having a full-fledged production facility for SUV vehicles which are made in Jamesville, 

Wisconsin. All of these people are going to lose their jobs, and they 

are going to lose their jobs because of the short-sightedness of the 

people who say we can’t drill, we ought to increase taxes on domestic production of oil, we ought to raise CAFE standards so that 

these types of vehicles cannot meet them, and effectively are legislating themselves out of the market. This is the type of attitude 

where people go around saying Congress knows best, and we know 

what is good for you, rather than you know what is good for yourself in deciding how you are going to spend your dollars. 

Now, I guess I am particularly disturbed, given what has happened in Wisconsin. We have big GM plant closing and a lot of 

UAW members being thrown out of work. With all due respect to 

my colleague from Nashville Mrs. Blackburn, that we invite somebody from Nissan here to talk about this. Nissan is a Japanese 

company, and it seems to me if we want to keep production in the 

United States, and we want those profits to be patriated in the 

United States rather than being sent to a foreign country, we ought 

to be working with General Motors and Chrysler and with Ford to 
7 

developing solutions rather than providing a forum for a representative of a Japanese company. 

Now, there are all kinds of solutions that are on the table. Of one 

of the solutions that we have been discussing in this committee is 

cap and tax, and that is what it is, because it will be a tax on fossil 

fuel energy production, whether it is electricity, whether it is gasoline or whether it is natural gas. 

There have been several economic studies that the LiebermanWarner and the Markey bills, which impose a cap-and-tax regime, 

will increase the cost of gasoline by 150 percent, plus or minus. 

That is a $10-a-gallon cost for gas, and that is assuming that there 

is no inflation that will take place over the period of time that the 

study runs. 

If we all think our constituents are having a bad time at $4-agallon gas, imagine the consequences of $10-a-gallon gas, because 

raising the price of gas is a regressive way of raising money, 

whether it is through cap and tax or whether it is through market 

economics. 

So the solution that is being proposed on the other side is unacceptable. It is one that will really dislocate the American economy, 

and particularly poor people who have to commute to go to and 

from work. These are bad solutions. And no wonder the United 

Auto Workers and the United Mine Workers have come out against 

both the Lieberman-Warner bill and the Markey bill, which will effectively put their businesses and their workers, who are mostly 

Democratic voters I might add, out of jobs and out of business. 

So let us start using market economics rather than having hearings complaining about $4 gas, because what is being proposed on 

the other side is going to raise that 150 percent. 

I yield back. 

Mr. INSLEE [presiding]. The new Chair will recognize himself for 

5 minutes. 

I think the discussion we are having is obviously healthy with 

the pickle we are in, and I think there are two fundamental different routes that we are discussing. One is a route where we remain addicted exclusively to oil for our transportation purposes, 

and we do not use the scientific technological advances for efficiency in making them efficient. That is a status quo route, and it 

is one largely advocated by many of my colleagues across the aisle. 

The alternative route is to be one that looks to give Americans 

alternatives to oil so that we can once and for all break the addiction to oil that we suffer from and the monopoly we have from the 

oil and gas industry when we pull up to the pump. And while we 

are doing that, we use the new scientific technologies to make our 

cars that do run on oil, which they are going to do for decades because that is the dominant fuel force and will be for a decade or 

two—that we use cars that are more efficient. 

That is the fundamental two tracks that we were on. I want to 

suggest the second track is the preferred one for two reasons. One, 

if you look at what can actually deliver for the American people, 

we know one thing cannot deliver, and we know one thing that can 

deliver. We know one thing that cannot deliver, which is relying 

exclusively on domestic drilling. The reason we know that is that 

the dinosaurs, for reasons that escape all of us, decided to go die 
8 

under somebody else’s sand. The oil is not here. There are more dinosaur theme parks as a percentage of theme parks in the world 

than there are oil reserves in our domestic country relative to 

world oil reserves. 

Now, this isn’t a theory or a hypothesis or Democratic Communist thought, it is a simple fact of geology. We have 25 percent 

of the world’s usage, and we have 3 percent or less of all the reserves. If you drill—this is according to George Bush’s administration. If you drill in Yellowstone, Mount Rainier and the South 

Lawn of the White House, you will not increase world oil reserves 

by more than 1 percent, and it will take you a decade to do it. That 

route is doomed to failure to have any significant restraint on oil 

prices, any significant increase in our oil independence or any reduction of global warming gases. 

There is another route that is capable of success. The first is to 

do the obvious things, which are to manufacture cars that use existing oil drivetrains. They are more efficient. I talked to Jimmy 

Carter a couple years ago about this, and he pointed out something 

that I thought was kind of interesting. Talk about lost opportunities, if we had simply continued the rate of increase of gas mileage 

we were having from 1976 to 1982, if we simply had continued the 

path we were on, we would be free of Saudi Arabia oil today. 

Now, if we would have drilled in Mount Rainier National Park 

and the South Lawn of the White House, we would still be addicted 

to Saudi Arabia oil today. But if we had simply had CAFE standards during that period of time, we would have been free from 

Saudi Arabia oil today. That is number one. 

The second, and more importantly—and we will hear some testimony from Shai Agassi and others here today about the possibilities and, I believe, probabilities that within the next decade or two 

Americans will be freed from the addiction to oil with a new technologies. Anybody want to know this and question me go up to Watertown, Massachusetts, and talk to the A 123 Battery Company, 

that I did, that is going to provide the battery for the Chevrolet 

Volt. If anybody doesn’t think Chevrolet is serious about that, read 

the article in the Atlantic Monthly. If anybody doesn’t think there 

is advanced biofuels that are possible on this, go talk to the venture capitalists who just put $50 million in the Sapphire Energy 

Company to produce gasoline, ATSM-certified gasoline, from algae 

without feeding it any sugar whatsoever, simply using photosynthesis. 

So we simply suggest on this side that when President Bush said 

2 years ago in a stunning statement for a Texas oilman, he said, 

we are addicted to oil, it was good for him to say that. It was not 

so hot when last week he came out and said, and, my fellow citizens, since we are addicted to oil, let us get more addicted. Let us 

go back and ask the pusher for just one more needle, and that is 

going to solve our problem. 

We think bolder on this side of this aisle. We think a bolder vision that ought to break this monopoly and give Americans a 

choice. When we do that, prices are going to come down, and we 

are going to be more secure and have a chance to beat global 

warming. That is the future we ought to have. 

I yield back. 
9 

Mrs. Miller. 

Mrs. MILLER. Thank you. Mr. Chairman, I am delighted to be at 

this hearing as we talk about how we implement the fuel economy 

standards or examine the recently proposed CAFE standards proposed by NHTSA. I certainly look forward to hearing from our 

panel. In fact, I principally sought a seat on this committee because 

I wanted to be a very strong advocate for the domestic auto industry, obviously, in full disclosure, being from Michigan. I think we 

should take a moment to consider the entire history of this cornerstone industry and really what it has meant for our Nation as well. 

In fact, during World War II southeast Michigan was known as 

the arsenal of democracy because we had the manufacturing capability that literally built the armaments that led the world to 

peace, I believe, keep our Nation free. There were 2 years during 

that time when the domestic autos didn’t even build cars because 

they were so busy building airplanes, jeeps, tanks. We were fully 

engaged in the war effort, protecting freedom, liberty and democracy. In fact, the domestic auto industry, I believe, absolutely 

helped to create—in fact, did create—the middle class in States like 

mine in Michigan and others as well. 

And then after 9/11, let us not forget the domestic autos immediately offered zero-interest financing, which kept plants running, 

and people kept buying cars, and our citizens were employed so 

that our national economy did not implode as the terrorists had 

hoped. 

And yet in spite of this very proud history of the domestic auto 

industry, it seems sometimes to us in Michigan and other areas 

that hosted domestic autos that many in this Congress seem to be 

focused on bankrupting the domestic auto industry and losing 

American jobs. 

Now, of course, Congress has passed and the President has 

signed what amounts to an $85 billion mandate on the domestic 

autos; that is, $85 billion now that is mandated in this industry, 

in an industry that is absolutely literally struggling to survive 

right now. This is money that has to be spent by the Big 3 over 

the next decade just to achieve the mandate that has been set forth 

in the law. 

And as has been mentioned already, the CAFE standards were 

set in place in 1973. They have not only devastated the American 

auto manufacturer, but they have done nothing—most importantly, 

they have done nothing to decrease our Nation’s dependence on foreign oil. When they were first established, the CAFE standards, 

the U.S. relied on—about 30 percent of our oil was imported from 

foreign sources, and now that number is closer to 60 percent. So 

I am not sure that anyone could really say with a straight face that 

Congress has helped here. 

And for the past 30 years, critics of the domestic auto industry 

have put forth CAFE as the simple solution to limit America’s demand for foreign sources of oil. I think all CAFE has really done 

is put on the brakes on innovation, because we agree that we have 

to get off of oil. But we should be, I think, as a government and 

a Nation incentivizing the domestic auto industry rather than mandates that cost literally hundreds of billions of dollars to comply 

with. I think we should be encouraging them to invest in new tech-
10 

nology, such as the lithium ion battery and other biodiesels, rather 

than mandating expenditures on very old and antiquated technology, and I think it is stifling American innovation. 

And as has been mentioned, we will be hearing from a Japanese 

company. I think it is of note that the Japanese Government 

spends a lot of money on incentivizing their companies not only for 

their automobiles, but for their electronics, for everything with lithium ion batteries and R&D strategies. Instead we expect are our 

industry to shoulder all of that on itself while we continue to mandate, as I say, for very old technology. 

Again, I thank the Chairman for calling the hearing. I certainly 

look forward to hearing from all the witnesses. 

I yield back the balance of my time. Thank you. 

Mr. INSLEE. Thank you. 

Mr. Hall. 

Mr. HALL. Thank you, Mr. Chairman. 

I regret that my colleague from Michigan feels that some of us 

on this side of the aisle are out to get the American domestic auto 

industry. Myself, I drive a Mercury Mariner hybrid and my wife 

drives a Chevrolet. I could have gotten better mileage had I gone 

for a Prius. It would have been a little bit of a waiting time involved. In fact, I understand from the literature before us that the 

average time a Prius spends on the lot is 17 hours right now. They 

sell as quick as they can make them. 

Some of the problem here is, unfortunately, that the CEOs and 

executives of the auto industries didn’t talk to their workers. I 

know that by talking to the workers myself. And had they done so, 

they might have known not to concentrate so much on big, heavy 

vehicles where the profit margin was maybe a little bit bigger, and 

advertise such ridiculous things as driving an SUV up to the top 

of a mountain and playing Frisbee across to another mountaintop, 

and then showing that this four-wheeler could do that and advertising power. 

To this day, to this day, power and speed. When I have watched 

TV and see the advertising that is going on, it is starting to 

change, but I think that you can’t judge the recent CAFE standard 

increase that was signed into law that we passed and was signed 

into law just last December—and it is not supposed to fully take 

effect until 2020—you certainly can’t blame that for the gas prices 

of today. I think what you can blame is the lack of doing anything 

like that for the last 32 years. 

Sometimes government needs to act to try to help the national 

interest when market forces or corporate interests don’t do so, 

when they diverge from the natural interests. I think the same 

goes with oil. The Ranking Member was talking about the need to 

open up land for drilling. Well, we have got 68 million acres of 

land, mostly public land, that is open on national lands, onshore 

and offshore, leased already by the oil companies, environmental 

studies done, ready for a drill bit to go into the ground, and they 

are not doing it. Well, why? At the same time asking us to open 

up more land and open up the Arctic preserve and so on. I would 

prefer to see those 68 million acres drilled on, but I suspect the 

reason that they are not being drilled on is because the oil is worth 

more left in the ground. So once again it may be necessary for the 
11 

government to do something like they use it or lose it proposal, 

which I think we will be discussing later this week, to change the 

interest and to incentivize the oil companies to actually pump oil 

out of lands they have already acquired the rights to. 

I will enter my written statement into the record and yield back. 

Mr. INSLEE. Thank you. 

Mrs. Blackburn. 

Mrs. BLACKBURN. Thank you, Mr. Chairman. 

What a feisty discussion we are having through our opening 

statements today. I want to thank you for the hearing. I want to 

welcome all of our witnesses. We are delighted that you are here, 

and we are looking forward to hearing from you as we work on the 

issue of gas prices and the auto industry. 

And I want to particularly introduce a member of the second 

panel, Mr. Thormann, who is from Nissan North America and is 

one of my constituents, and is one of our very proud Tennessee 

companies. We are delighted that he is here. 

We also know—and I hope he is going to talk a little bit today 

about the innovation that is being done on electric cars and good 

work that is being done by American engineers who are located in 

my district who are finding answers to all of these questions that 

obviously past Congresses have felt were insurmountable. You can 

go back to the Jimmy Carter era and go back to 1977 and look at 

what started happening with the EPA. You can look in the 1990s 

when Clinton vetoed drilling in ANWR, and Vice President Gore 

decided that the EPA needed to have even more ability to restrict 

American supply and focus on those items from the past. 

Today let us put our attention on what American innovators are 

doing to solve this problem and some of the work that is taking 

place with electric vehicles. And I hope that my colleagues will join 

me and say if we are going to do this, if this is going to be an option, then it behooves Congress to take a serious look with how we 

improve the electric power grid in this Nation. Are we going to consider nuclear, which works well in my area? What are we going to 

see happen in other areas? 

This is not a time for bickering, it is a time for action. We are 

going to have a panel before us who can help address this. I hope 

that we will welcome them, that we will listen attentively, and that 

we will put our focus on solving this problem. And I yield back. 

Mr. INSLEE. Thank you. 

We will start with our witnesses. Tyler Duvall is Assistant Secretary for Transportation Policy and acting Under Secretary for 

Policy at the United States Department of Transportation. He has 

been working in the development of transportation policy, has held 

the title for the past 2 years. He is a business and finance associate 

for 4 years at Hogan & Hartson, and he has a B.A. in economics, 

Washington and Lee University; J.D. from the University of Virginia. 

Mr. Duvall, thank you for joining us. 
12 

STATEMENT OF TYLER DUVALL, ASSISTANT SECRETARY FOR 

POLICY, DEPARTMENT OF TRANSPORTATION; ACCOMPANIED BY STEVE KRATZKE, NATIONAL HIGHWAY TRAFFIC 

SAFETY ADMINISTRATION 

Mr. DUVALL. Thank you, Mr. Chairman, members of committee. 

I appreciate the opportunity to appear before you to discuss the Department’s proposal to substantially increase fuel economy standards. 

To my right is Steve Kratzke, who is one of the leading experts 

on fuel economy in the United States, a technical expert and available for in-the-weeds questioning. 

A key component of the President’s 2010 proposal was a significant increase in fuel economy standards for cars and light trucks. 

By increasing standards beginning in model year 2010 for cars and 

in model year 2012 for light trucks, the President’s aggressive proposal was projected to save up to 8.5 billion gallons of gasoline in 

2017 alone and reduce consumption by 5 percent. 

Through the leadership of many of you on this committee, Congress opened the way last December to further increases in those 

standards, including in the car standards, when it enacted the Energy Information and Security Act. That legislation provided the 

framework for the first meaningful increases in fuel economy 

standards in decades. 

The proposed standards would increase fuel economy 4.5 percent 

per year over the 5-year period ending in 2015. This rate substantially exceeds not only the 3.3 percent needed on average to meet 

the 35-mile-per-gallon minimum established by Congress last year, 

but also the 4 percent per year increase called for in the President’s 

2010 proposal. We estimate achieving these levels of fuel economy 

would require nearly $50 billion of investments in fuel-saving technologies through 2015. 

These standards are tough, but achievable and necessary. All 

told, the proposal will save nearly 55 billion gallons of fuel and reduction in carbon dioxide emissions estimated at 521 million metric 

tons over the life of the affected vehicles. 

In addition to the rulemaking, the Department delivered to EPA 

about an hour ago a Draft Environmental Impact Statement. We 

expect that that statement will be published by EPA on July 3rd. 

I have a copy here for the record and available for public comment. 

In the meantime, it will be on our Web site. And, Mr. Chairman, 

the copy of the EIS, as I said, will be submitted for the record right 

now. 

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Mr. DUVALL. The comment period on our proposal will end next 

week. We will carefully analyze all of the comments and expect to 

issue a final decision this year, less than 1 year after the enactment of the EISA. This will be an accomplishment in which we can 

all take credit and pride. And I will be pleased to answer any questions on the rulemaking. 

[The statement of Mr. Duvall follows:] 
426 
427 
428 
429 

Mr. INSLEE. Would your colleague like to answer anything? He 

is certainly welcome to. 

Thank you. 

The Chair will recognize himself for 5 minutes. 

This may be clear to everyone, but I do want to make sure we 

are all on the same page. The recently enacted bill was billed as 

a 35-miles-per-gallon standard, but it actually is more than that. 

It required the maximum feasible rate to be achieved every year; 

is that right? 

Mr. DUVALL. Yeah. The law, EPCA, requires basically max feasible, and that was not changed in this. 

Mr. INSLEE. So I want to focus on fuel costs and your modeling 

and assumptions regarding new technology. First off, in your assumptions what percentage of the U.S. automobile fleet does your 

agency believe is reasonably attainable by the year of, let us say, 

2015 to be electric propulsion or at least partially electric propulsion? 

Mr. DUVALL. Congressman, we did not estimate in the rulemaking proposal percentage of electrified vehicles. Obviously the 

product plans that were submitted to us by the auto manufacturers 

included a percentage of hybrid vehicles. 

I am not sure, Steve, if we made that information public. These 

are confidential product plans, so I do not believe we published the 

precise automaker decisions with respect to hybrid vehicles; is that 

right? Yeah, that is right. 

Mr. INSLEE. I will tell you what causes me a little concern. We 

have cars driving around the country today, and I have driven one 

that gets 150 miles per gallon because it is a plug-in hybrid electric 

car. These are not hypothetical vehicles, they are real vehicles. You 

can buy one today from various vendors in the United States. 

Chevrolet certainly intends to have one on the road by 2010 or 

2011. 

Is it your understanding that you simply in your decisionmaking 

let the automakers tell you how many electric vehicles are going 

to be on the road, or don’t you think it is the Federal Government’s 

obligation under this bill to say, look, we have this technology 

available, our obligation is to figure out what is maximally achievable, what is feasible? It is clearly feasible to do this. Why are we 

not setting a goal for 2015 on what percentage of cars will be plugin hybrids, forgetting for the moment full-electric vehicles. 

Mr. DUVALL. Right. Good question, Congressman. The way the 

rule works and the structure of the rule is basically an input-output model in which basically the array of technologies, including 

hybrid technologies, which is, I think, the most expensive technology that could be applied—but there is a whole range and suite 

of technologies, lower costs than hybrids, that get applied basically 

directly to the automobiles through the model. We take the product 

plans that are submitted to us from the automobile companies who 

did not submit substantial numbers of plug-in hybrids. I will say 

those product plans will be updated very soon right after the close 

of the comment period—— 

Mr. INSLEE. I have to tell you this is not satisfactory to me. It 

is our job to decide what is maximally feasible, not the producers. 

We have been following their lead, frankly, for 30 years, and we 
430 

have fallen way behind the world in technology as a result. We 

have this known technology, we know it is technologically feasible, 

we know it is economically feasible. It is just a question of how fast 

to get it to market. 

Now, when I voted for that bill, I was of the understanding that 

the Federal Government, Uncle Sam, protecting consumers would 

start making some decisions. If we have a technically feasible electrical vehicle, why should we not expect our Federal agency to be 

assessing what percentage can be part of the fleet by what certain 

date using the best available evidence? I have no objection receiving evidence from the geniuses, and there are geniuses in this industry, but isn’t it our job, or don’t you think it should be our job, 

to be a little more aggressive in that regard? 

Mr. DUVALL. The way the rule is structured, we do not mandate 

specific technologies. What we do is apply technologies based on 

their costs. At the point of which the cost of applying those technologies exceeds the benefit largely in the form of fuel savings, the 

model basically determines that it is no longer cost-beneficial to society to continue the technology. 

Mr. INSLEE. Right. That is my next question. What assumption 

did you make what fuel costs in deciding whether a plug-in hybrid 

should be produced or not? 

Mr. DUVALL. There is a range—we use the base case, the average 

case, EIA forecast as was noted in the Chairman’s opening statement. Obviously out through 2015 those prices as were indicated 

appeared to be somewhat off of current prices. 

Mr. INSLEE. First tell us what they are. 

Mr. DUVALL. 2.42 in 2015, and that is the EIA forecast for 2015. 

Mr. INSLEE. We hope to do some things to bring it down with our 

anti-excessive-speculation bills we passed today. That really appears to be—and I think that most of my constituents paying 4.15 

at the pump—kind of silly. Basing a major Federal policy on the 

assumption in 2015 gas is going to cost 2.42 a gallon with the 

emerging Chinese economy, the lack, isn’t that kind of a silly number to use? 

Mr. DUVALL. Not at all, Congressman. I think, as you noted, 

long-term oil prices are obviously inherently uncertain. I think, as 

you noted, a number of people are talking about the potential that 

speculation is driving up prices. Obviously there is an internal inconsistency to argue on the one hand that speculation is driving up 

prices, but that long-run prices should be significantly lower. 

We are dealing obviously in an extremely volatile oil price environment. Currently this is a long-term policy, however. We have 

taken comment on that exact question in the rulemaking, however, 

and if we receive substantial comments, and if EIA updates its oil 

price forecast, we will obviously take that into consideration. 

Mr. INSLEE. I would like to provide you a comment right now, if 

I may. It is ridiculous to assume the price will be 2.42 a gallon in 

the year 2015, number one. 

Number two, I believe it is Uncle Sam’s responsibility to use a 

reasonable gas price, and if you use a reasonable gas price, plugin, full-electric vehicles will be eminently economically feasible 

within just a few years. It is your job to be making that decision, 

and I hope you will do so. 
431 

With that I yield to Mrs. Miller. 

Mrs. MILLER. Thank you, Mr. Chairman. And I appreciate the 

witnesses being here today. 

Let me just ask you gentlemen, what is your opinion of how 

CAFE standards have worked since the 1970s since there seems to 

be some disagreement up here? Are you willing to bite on that one? 

Mr. DUVALL. Yes, Congresswoman, we are. We think obviously 

there were significant structural problems with the model for doing 

fuel economy requirements in previous years, and we believe we 

corrected that in 2006 with the light truck standard using an attribute-based system. 

We greatly appreciated that the Congress recognized the merits 

of that approach, which treats all manufacturers equally, and recognizes consumers have diverse preferences, and also recognizes 

the safety risks associated with a flat standard that will provide incentives for auto manufacturers not to deploy technologies, but 

simply to make lighter vehicles, which are more of a safety hazard. 

We believe the current approach proposed in the last rulemaking, 

which builds on the 2006 model, was a substantial improvement 

and remedied many of the failures I just talked about. 

Mrs. MILLER. If I understood what you just said, you are looking 

to apply uniformity across the industry with a new CAFE standards with the modeling that you are using right now. 

Mr. DUVALL. It is a size-based standard, so we take the product 

plans provided to us by the manufacturers, apply that into a model, 

which produces a curve. On the left-hand side of the curve is a 

smaller-footprint vehicle; on the right-hand of the curve is a largerfootprint vehicle. For the larger-footprint vehicle, obviously the corresponding fuel economy requirements are different. 

Basically the rule’s intent is to recognize the reverse product mix 

that our car makers have across the globe, not just in the U.S., and 

to really drive technologies across the board. I think the previous 

approach you are talking about really did not drive technologies efficiently and had a potentially serious safety impact if pursued aggressively. 

Mrs. MILLER. I am looking forward to hearing from the next 

panel, particularly the fellow from Nissan. And I appreciate the 

American jobs that they provide, but it has been said that Nissan 

requested and received a special interest exemption during the 

CAFE standards, sort of a loophole in the law that allows them to 

combine their domestic and import car fleets through 2013; is that 

correct? 

Mr. DUVALL. I am not going to characterize it as a loophole. 

There is a special provision, obviously, that impacts Nissan related 

to the combination of those fleets, yes. 

Mrs. MILLER. Now, how did that happen, and do you believe that 

that is fair? 

Mr. DUVALL. I am not sure how it happened. I was not up here, 

obviously, when the bill was being written. And as far as fairness, 

obviously the law, it was signed by the President and passed by the 

Congress, and we are going to implement it. 

Mrs. MILLER. Well, I think it is good for them that they were 

able to get that, but I think it would have been fair to have every-
432 

body in the industry, both domestic and foreign, all treated equally. 

I just point that out. I think that is something of note. 

The model, the proposed—in your notice of rulemaking that you 

sent out in April, your proposed standards as we looked at it are 

essentially resulting in the increase, I believe, of the CAFE standards, about 17 percent. And you heard me say in my opening statement we thought that that was—I am not sure if—so I guess it is 

part of my question. We are trying to figure it out in the office before I came over, what is the percentage of increase actually in 

this. But dollarwise you heard me say in my opening statement we 

think it interpolates to $85 billion on the domestic autos, and that 

is not a number that came out of my office. It is some of the fellows 

from the domestic autos have been saying that. 

Do you think the 17 percent is somewhere in the ballpark? And 

what about the $85 billion mandate? When you are doing your 

model, do you take into consideration job loss or the economics that 

you are foisting on an industry in a State in particular. 

Mr. DUVALL. Congresswoman, I think our estimate is approximately 25 percent increase over the time period. The overall statute requires by 2020 a 35 mpg standard across the board for trucks 

and light cars, and we put forward a proposal that exceeds that 

pace by a decent margin, but not too much, in our view. 

As far as total cost, we estimate basically across the board, not with respect to U.S. companies or non-U.S. companies, a $46.7 billion impact, which is among the most expensive rulemakings ever 

completed in the Federal Government’s history. It is an extremely 

aggressive proposal. We are very cognizant of the impacts of this 

proposal on the industry. 

The benefits of the proposal from a societal perspective do exceed 

those basically in a benefit-cost ratio of about 1.5 to 1.6. So from 

a societal perspective, the rulemaking makes a lot of sense, but we 

are extremely aware of the impacts on various manufacturers. 

I think the attribute-based system, as I indicated previously, is 

an extremely important element of the fairness of this proposal, 

and the distribution of cost is far more fair and efficient, frankly, 

from an economics perspective than would have been done under 

a flat standard increase. 

Mrs. MILLER. I appreciate that. 

My final question would be have you interpolated how much the 

special exemption for Nissan is saving that company or for the others? 

Mr. DUVALL. No, we have not estimated that, Congresswoman. 

Mrs. MILLER. Will that be part of your work as well? 

Mr. DUVALL. I do not believe we are going to estimate that, but 

I will check with our technical folks on that. 

Mrs. MILLER. Thank you. 

Thank you, Mr. Chairman. 

Mr. INSLEE. Mr. Hall. 

Mr. HALL. Thank you, Mr. Chairman. 

And I sympathize with my colleague’s concern about a level playing field for American manufacturers and those that are owned by 

foreign companies. 

I also have to say that as somebody who never got any subsidies 

or incentives or grants from the government to start a small busi-
433 

ness and try to produce a product that the public will buy—in my 

case it happened to be music—it certainly is a long shot. And it 

was my judgment or lack thereof that made some records that I 

made successful and some records that I made dogs, that sold only 

a few copies and disappeared into the cut-out bins rather quickly. 

So they are all downloads now, they are not records. 

Anyway, my point is that I read recently that GM and Ford have 

been—even as they are cutting back on the manufacturing of the 

SUVs and light trucks, that they have had to add shifts for some 

of their smaller cars because the demand has moved in that direction. So I would suggest that perhaps better management would 

have foreseen that coming. It is the kind of thing that it is hard 

to hear when it is your district and your company. It is hard for 

me to hear from people when I was being told why my record 

wasn’t a hit. 

I do think that there is a factor here regarding how many millions of dollars it costs or how many billions or millions of dollars 

it would have cost to tool up for hybrids, for fuel-efficient cars 10 

years ago or 20 years ago and not be in the situation now of having 

to have it legislated. 

But when President Kennedy issued his challenge to us as a 

country to go to the moon, he didn’t have NASA run a feasibility 

study on that goal. He just set an example of government setting 

a seemingly impossible mark and challenging the country to meet 

it, which is what we need to do here for our family budgets, for 

economy and for our national security. 

I thank you for your testimony. I wanted to ask in predicting feasibility, technological feasibility, is NHTSA attempting to factor in 

the potential market impact of plug-in hybrids like the Chevy Volt 

or other models that may be available, or other batteries that may 

be on the verge of coming into play, including some that I am 

aware of that are orders of magnitude more efficient and hold that 

much deeper a charge than those used today? 

Mr. DUVALL. There is little question, in our view, that there is 

enormous progress with respect to battery technologies and plugin hybrids. As I said to the then-Chairman, the structure of the 

rule basically takes the cost of all these technologies—and the technologies you have cited are obviously extremely expensive technologies, but produce potentially enormous benefits if they can be 

commercialized successfully—and inputs those into a model which 

basically says that at some point it is not cost-beneficial to society 

to apply a technology whose costs produce fewer amounts of fuel 

savings in basically dollar terms. 

So at some point it doesn’t make sense to impose costs on manufacturers if the fuel savings that are produced from those cost requirements do not produce obviously benefits equivalent to the 

cost. So it is a marginal cost and marginal benefit analysis. 

Now, as these technologies develop over the coming years, and as 

we absorb additional product plans, which is what we will do here 

soon, very soon actually, for the next round of product plans, it is 

important to note that the product plans we utilized for this NPRM 

were 2007 product plans. The next round of product plans may include precisely the types of technologies you are talking about, and 

those will then be included in the rulemaking. 
434 

Mr. HALL. Thank you so much. 

I only have a little bit of time. GM and Ford both have been 

making flex-fuel vehicles, E85-compatible vehicles, and there are a 

couple hundred thousand of them on the roads in my State of New 

York. However, there are only a few stations that carry E85, and 

none in my district. West Point has just agreed to put in a 5,000- 

gallon tank for their motor pool and commissary so that their concentrated population that buys a lot of product can get some flowing through the pipeline. 

Does the administration have an opinion on whether something 

should be done, and perhaps something needs to be legislated or 

a rule made so that these alternative or biofuel mixes can be made 

available since the cars are being sold ostensibly for that purpose. 

Mr. DUVALL. Congressman, actually the administration, the 

President, pushed extremely hard in the energy bill to not only increase the fuel economy requirements under our NPRM, but also 

for an alternative energy mandate that we will see a huge increase 

in ethanol-powered vehicles in the United States. So we had the 

push on the production side through the mandate included in the 

December act, and then on our side we have a huge push of technology requirements and obviously incentives through the structure 

of CAFE for flex-fuel vehicles. 

So the short answer is yes, mandates combined with marketbased regulations we think are going to push these very aggressively. 

Mr. HALL. Thank you, Mr. Chairman. 

The CHAIRMAN [presiding]. I thank the gentleman. 

The Chair recognizes the gentlelady from Tennessee Mrs. 

Blackburn. 

Mrs. BLACKBURN. Thank you, Mr. Chairman. 

Mr. Duvall, thank you for your testimony and your time. I want 

to ask you a question, end of page 22, top of page 3, on your testimony. You are talking about between now and 2015 you estimate 

that $50 billion of investment R&D is going to be necessary to develop fuel-saving technologies that we will need by 2015; is that 

correct? 

Mr. DUVALL. That is the cost that we have estimated on the 

manufacturers of the rulemaking. 

Mrs. BLACKBURN. Who is bearing that cost? 

Mr. DUVALL. The manufacturers will bear those costs. 

Mrs. BLACKBURN. The manufacturers. So that is all private-sector dollars that they are putting in to bring a better product to the 

American marketplace. 

Mr. DUVALL. Yes. Under the rule that is the requirement, yes. 

Mrs. BLACKBURN. All right. I just wanted to be certain we had 

that clarification on the record. 

Mr. DUVALL. Okay. 

Mrs. BLACKBURN. Now, as we look at the opportunities for those 

Americans working in the auto industry—and in my district we 

talked about Nissan, and we also have some wonderful folks at the 

Saturn GM plant that is in Spring Hill, we have some great 

innovators that are with Bodine that are working with Toyota. So 

the auto industry is very important to Tennessee. So let us talk 

about trade for just a minute, and are we going to see with our 
435 

next-generation vehicles—do you anticipate are we going to see any 

trade barriers with our electric vehicles and things that we are 

going to be trying to move into the global marketplace? 

Mr. DUVALL. Any sort of policy questions related to trade I would 

have to refer to the U.S. Trade Rep, but I will say it has been a 

strong push in the administration to reduce technology barriers, 

particularly in the environmental and climate change area. This 

has been one of our huge strategies in international negotiations to 

try to get other countries to reduce tariffs on environmentally 

friendly technologies. We had had some success, but I would expect 

that to continue with the next administration, too, hopefully. 

Mrs. BLACKBURN. Well, and we appreciate the work that has also 

been done on the intellectual property protections that are also a 

component of that. 

Looking at the electric vehicles, and considering that these will 

be a significant part of our U.S. fleet, why don’t you talk for a 

minute about the costs and then the improvements that are going 

to be needed for charging batteries, what we are going have—the 

burden on the grid for both at home and as people are away and 

traveling and trying to use these for longer distances. Can you 

touch on that for me? 

Mr. DUVALL. Yes. This is an area obviously that the Department 

of Energy is probably the expert witness to talk about. I will simply 

say that clearly the current battery technologies have not been sufficient to obviously allow the significant penetration of plug-in hybrids. There are some signs, obviously, that that is changing. And 

certainly as the marketplace gets more competitive, we would expect prices to come down and the quality of these batteries to come 

up. 

As far as the literature I have read and talked to with other folks 

in the administration, I think there is a lot of optimism that the 

balancing of the grid, off-beat charging basically can be a mechanism to ensure the stability of the electricity grid, but I would not 

want to go further in my testimony to opine on that. 

Mrs. BLACKBURN. All right. And then how long do you think it 

is going to be? What year do you expect to see these electric vehicles coming into the marketplace? 

Mr. DUVALL. I guess I would say to that question if fuel prices 

remain high, I would expect within the next few years we start to 

get a stronger penetration of certain vehicles. But as the Chairman 

noted, we are still some period away, I think, from a meaningful 

percentage of the auto fleet in the United States shifting to that. 

The key thing at this point in time, as I said, is battery reliability and durability as well as cost. And hopefully the private sector, as was noted, is starting to invest heavily in this. That is a 

great leading indicator in the optimism of the private sector for 

these technologies. So I guess cautious optimism would be the way 

I would assess that. 

Mrs. BLACKBURN. I will tell you, visiting with some of the 

innovators that are in my district working on the battery technologies and some of the different engineering applications for 

next-generation vehicles, I think it behooves us in Congress to pay 

attention to what is going to happen with the power grid, how we 

are going to handle our electric-generation sources, and to start to 
436 

give a little bit more forethought, if you will, than has been seen 

over the past 30 years as we look at fossil fuel and the application 

of that to the transportation fuels market. 

I will yield the balance of my time. 

The CHAIRMAN. The gentlelady’s time has expired. 

The Chair will now recognize himself for a round of questions. 

Mr. Duvall, first of all, I do want to commend you and your staff 

at NHTSA for taking a comprehensive approach to implementing 

the fuel economy provision of the energy bill and making many 

solid updates to the model you used to calculate the standards. But 

let me ask you the first question. Do you think that it is reasonable 

to really predict that it is going to average $2.42 a gallon for gasoline in 2016? 

Mr. DUVALL. Mr. Chairman, as was stated previously, I think we 

take the best estimates we have, and we use the best experts that 

we have available. In our view, the EIA is among the leaders and 

most accurate forecasters. They have been wrong on the upside and 

wrong on the downside in previous years. There is little question, 

obviously, given current fuel prices, that we are in a very volatile 

environment right now. 

The proposal is a long-term proposal. If I knew what oil prices 

would be in 2015, I would probably be in a different job than I am 

in now. We have a lot of uncertainty. We use the best information 

we have. I will say a number of other experts who are predicting 

extremely high oil prices in the short term have also predicted significant declines in those prices in the longer term. I know several 

analysts on Wall Street had predicted, you know, $150, $200. 

The CHAIRMAN. I appreciate that. See, here is the thing. You 

have the job; you are responsible. You personally are responsible 

for preparing our country for the oil and transportation status of 

our country 5 and 10 years from now. So it is on your shoulders 

because you are the responsible person. 

The question is do you think it is prudent for our country as a 

plan to assume that the price of gasoline is going to be $2.42 in 

2016 for planning purposes? 

Mr. DUVALL. Mr. Chairman, before I answer, I would say obviously there are a lot of people responsible for setting—— 

The CHAIRMAN. You are the guy. I asked the Bush administration to send us the guy. You are the guy, so you are the person responsible. Do you think it is responsive—— 

Mr. DUVALL. The wife doesn’t think I am the guy. 

The CHAIRMAN. Well, today is my 20th anniversary. If I am not 

home tonight, I won’t be the guy either, okay? That is a different 

situation for both of us. 

For the purposes of this conversation, I am the guy from the 

Congress, and you are the guy of the Bush administration. 

Mr. DUVALL. All right. 

The CHAIRMAN. So as the guy from the Bush administration representing President Bush and Vice President Cheney, do you believe that President Bush and Vice President Cheney actually believe that $2.42 a gallon is what the American people will be paying for gasoline in 2016? 

Mr. DUVALL. I think that, first of all, I am proud to be here representing both President Bush and Vice President Cheney, but I 
437 

think that basically all in the administration believe that the EIA 

is among the best and most competent forecasters of oil prices in 

the world, and in the face of extreme uncertainty about future oil 

prices, that obviously oil markets themselves have been proven to 

be incorrect. 

The CHAIRMAN. You have a high-price scenario as well. That is 

a high-price scenario as well that predicts $3.14 a gallon by 2016. 

Mr. DUVALL. Correct. 

The CHAIRMAN. In your opinion, do you think that that would be 

a better planning point for the American people? You are supposed 

to protect the American people from becoming excessively dependent upon imported oil. That is your principal responsibility. Do you 

think we should plan for $2.42 in planning the mileage for vehicles 

to be driven in America or $3.16 a gallon by 2016? 

Mr. DUVALL. Mr. Chairman, the brilliance of the rulemaking 

process is that we propose something, and then the public tells us 

what they think about the proposal, and then we take public comment and input and finalize the proposal. So we are in the phase 

where we are taking comments, yours among others. 

The CHAIRMAN. Which would you as the expert—you are President Bush’s expert on the issue. Would you use $2.46 a gallon for 

2016 or $3.14? Which would you use as the expert? 

Mr. DUVALL. I will not prejudge the rulemaking process. It is 

very important. Not to make light of this, it is very important. 

The CHAIRMAN. Oh, no, you can’t make light of this here. 

Mr. DUVALL. Well, I am not making light of it. 

The CHAIRMAN. We are in a crisis in America. The airline industry iscollapsing, Mr. Duvall. The trucking industry is collapsing. 

The American people are being tipped upside down at the gasoline 

pump every day. Bush sends his expert to testify before the Energy 

Independence Committee, and you are telling me you do not have 

a view on whether we should be planning for $2.42 a gallon for gasoline or $3.14 for gasoline in terms of what we tell the auto industry to build in as efficiencies in the vehicles in the years ahead. 

And so you are at a critical point here, because the next panel is 

going to be talking about electric vehicles and other new technologies. 

Now, I personally believe that the American people will embrace 

them if we put in place the kind of rulemaking that will incentivize 

all the auto manufacturers to move in that direction. But you are 

the one and President Bush is the one who has to make the decision as to whether or not we are going to be basing it upon a realistic or a dream world of assessment of what the price of oil is 

going to be. 

Mr. DUVALL. I guess I would say this is a proposal, we are taking 

comments, and if the comments are sufficient to inform the final 

rulemaking to change the proposal. I would not call the experts at 

the Department of Energy dreamers. I believe they know what they 

are doing and are among the leading in the world in this area. 

They are consistent with other forecasts with respect to this. The 

Department of Energy, in fact, is on the high side of other forecasts, not deviating substantially either from long-term market 

projections or—— 
438 

The CHAIRMAN. Mr. Caruso from the Energy Information Agency 

said in testimony before our committee just 2 weeks ago that we 

are on the higher side of that price path right now. If you would 

ask me today what I would use, I would use the higher price, says 

Mr. Caruso from the Department of Energy. 

So if the Department of Energy is saying to you, at the Department of Transportation, I would use the higher price, what weight 

are you going to place upon that as opposed to some testimony you 

might get from the oil industry or the gas industry or the automotive industry? How much are you going to rely upon your own 

Department of Energy, or is it just going to be ignored by President 

Bush, by Vice President Cheney, as every other warning has been 

ignored over the last decade in terms of what our planning should 

be? 

By the way, I didn’t even toss in there that the SUV marketplace 

has collapsed, so all of this planning was based upon a faulty 

premise, even though we were going up a percent and a half every 

single year in imported oil in our country. We have gone up from 

46 percent in 1995 to 61 percent today in imported oil. So it just 

seems to me that there is an inexorable increase in the amount of 

oil we are importing and, as a result, an inexorable decline in the 

control we have over the price because it is more and more set by 

the countries that have two-thirds of the oil in the world, OPEC; 

and that we should plan for that as a national security reason. 

So you see this testimony now by your Department of Energy; so 

again he felt free to be able to say, I would go on the higher side. 

Mr. DUVALL. Mr. Chairman, we are in an open rulemaking, and 

the comments made by the Department of Energy, anybody at the 

Department of Energy, will be taken into account and given significant weight in the decision process. 

I will say simultaneously, you have numerous Members and 

other commentators who are also arguing that the high prices are 

driven by speculation. Now, I don’t know what the price of oil will 

be in 2015; we rely on experts to do that. But I can assure you it 

is an internally inconsistent argument to, on the one hand, claim 

that speculation is driving high oil prices that fundamentally 

should be lower and, on the other hand, claiming that oil price forecasts should be higher. 

The CHAIRMAN. I will tell you that will drive a stake into the 

heart of speculation in the oil marketplace if you announce that the 

standard is 35 miles per gallon by 2016. 

You are right, this will say, Oh, my goodness, people are going 

to move to electric vehicles. People are going to move to hybrids. 

People are going to move to biofuels. 

Maybe the price of oil will finally come down. But why don’t we 

plan for that? Why don’t we take the offensive? Why don’t we, rather than speculating on some low, unbelievably low price of gasoline 

in 2016 and 2030, why don’t we as a nation, why don’t you as the 

person responsible for it, plan for a higher price? And if we get a 

lower price, everybody will be happy driving around with lowerpriced gasoline. But let’s at least be in control. 

Right now, we are on our hands and knees watching the President and Vice President go over and begging the Saudi Arabians 

to please produce more oil. What a sad state of affairs for our coun-
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try. When President Kennedy was faced with that from Khrushchev with Sputnik floating around in outer space, he told Khrushchev we were going to put a man on the moon in 8 years, invent 

new metals, new forms of propulsion. And 8 years later we did it. 

We were going to control the skies. 

Why don’t we make the announcement that we are going to assume there is going to be a high price of oil in the same way President Kennedy assumed the Russians would control the skies, but 

we are going to do something about it? Why don’t we announce 

that it will be 35 miles per gallon because we are going to assume 

the worst, and then if the best turns out, then we have an extra 

bonus for America because we have the technology and, plus, we 

have the lower energy price? Why don’t we think that way, rather 

than this mess that the Bush administration has allowed us to get 

in because we put 70 percent of the oil we consume in gasoline 

tanks? 

So if we keep assuming that where we put 70 percent of the oil— 

gasoline tanks—is going to be low, then of course we are going to 

be playing right into the hands of the countries that have twothirds of the oil in the world. They will be setting the agenda. 

Mr. DUVALL. Mr. Chairman, I guess I would say if you assume 

the worst and are wrong, the economic costs are significant in 

terms of lost jobs to the United States economy. We need to rely 

on experts, scientific experts—— 

The CHAIRMAN. We are not going to have any jobs left in the 

auto industry. Do you understand? We are seeing such a precipitous drop—General Motors just announced another 19,000 jobs are 

taking the buyout. Ford, the same way; Mr. Mulally at Ford Motor 

just announced last week that ‘‘We have moved permanently off the 

SUV and onto the smaller vehicle model.’’ 

So all of this is happening, okay, and the losses have already 

been absorbed; and there is more to go, but we are down to a very 

small handful of jobs left in America and people making automobiles. I think General Motors is down to 50- or 60,000 people 

making automobiles. 

So Starbucks has 125,000 people making latte, and General Motors has this—it is all a sad story. And to say we are not going to 

set the standards higher because we are going to lose jobs, well 

that is why we have lost jobs. We have lost jobs because there has 

been an assumption that the price of oil was going to stay at these 

unrealistically low levels, and people—and meanwhile, we were 

driving deeper and deeper and deeper into this hole. 

So again I say to you, Mr. Duvall, that the EIA told us 2 weeks 

ago that we should use the high estimate. Okay? At least they’re 

now thinking in national security terms, at least they’re now thinking in terms of energy independence terms. But it is about time 

that the Department of Transportation thought that way too. Ignoring it and pretending you are protecting jobs, protecting—tell 

the airline industry you are protecting their jobs. Tell the truckers 

you have been protecting their jobs. Tell the workers in all these 

auto factories you are protecting their jobs by using the mid and 

the low estimates for what the price of oil is going to be. 

You didn’t protect anybody. We have already lost a million jobs 

or more in America because of the wrong estimates. Okay? The 
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only way we are going to get the new job is if we create the new 

technologies. And that has not happened yet. 

So that is your responsibility, and it is about time that we had 

an administration, maybe this will be the going-away present that 

the administration gives to the American people, that there is really a man-on-the-moon plan here, that there will be a commitment 

that is made to this that actually can be looked back at as a legacy, 

that we technologically challenged the Saudi Arabians. 

But do you know what the sad thing is, Mr. Duvall? It is that 

on the day the President was there, begging the Saudi Arabians to 

produce more oil, they said they will think about it, but we want 

you, Mr. President, to sell us nuclear power plants here in Saudi 

Arabia; and he and Condoleezza Rice agreed to do that. 

Now, how much more volatile a region in the world can we have 

than Saudi Arabia to be selling nuclear power plants? That is how 

pathetic our relationship is now with these volatile Middle Eastern 

countries, to sell us oil. And it seems to me that if the President 

and Secretary of State had looked up into the sky, they would have 

seen a broiling sun on the desert and said, No, we will sell you 

solar technology, we will partner with you in a new technological 

revolution, but we are not going to be selling you nuclear technology. You have the most oil, the most gas, the most solar. 

And by the way, I remember Peter O’Toole as being kind of windblown in some of those scenes of ‘‘Lawrence of Arabia.’’ There is a 

lot of wind there, too. 

We shouldn’t be sending nuclear power. We shouldn’t be sending 

all these nuclear materials into the Middle East. It makes no sense 

whatsoever. That is how sad our state of affairs is. 

So rather than have that occur year after year, again, I say to 

you, as the Department of Transportation, this is a geopolitical, it 

is a defense, it is an energy, it is economic, it is environmental, but 

it is a moral issue as well, that we finally stand up and say, we 

are going to challenge OPEC, that we are technologically going to 

take them on. 

We have yet to make that announcement. And that would be the 

John F. Kennedy moment with Khrushchev for the Bush administration. And if they don’t do it, then they will have missed their 

one great opportunity during their 8 years. 

They will have sent a signal to the rest of the world that we are 

going to use our technological genius to solve this problem. 

Let me turn and recognize once again the gentleman from New 

York, Mr. Hall. 

Mr. HALL. Thank you, Mr. Chairman. I concur with your remarks about the sale of or transfer of nuclear materials and technology to Saudi Arabia, which, as we remember, is in a part of the 

world where other countries have taken supposedly peaceful nuclear programs and diverted materials to a bomb program, Iran 

being the one that we are talking about most recently. 

But every case of a country going from the nonnuclear to the nuclear club, it seems to be they started out with a peaceful nuclear 

weapons program and diverted it; and in this case, it would be the 

Sunni bomb to counteract what they see coming as the Shia bomb 

in Iran. And I think it is naive for the Secretary of Energy to state, 

as he did before this panel, Well, the President trusts the King, 
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and that is why he is not as worried about it as you are, Mr. Chairman. 

But, anyway, I had another question regarding battery technology that I wanted to ask and then that is it for me for today. 

But, Mr. Secretary, are there any significant technological obstacles 

to setting up the kind of battery switching that some witnesses 

have described, that—Israel, for instance, has a company that is involved in developing a car that will run on electricity, and rather 

than charging the battery, they will just exchange it, pull into a 

gas station, take the battery out and put another one in, and hook 

the wires up, and away you go in a few seconds; as opposed to however long it takes to fill a tank or to charge a battery. 

What are the obstacles technologically? What will be the most effective way for us in government to help make these stations as 

ubiquitous as gas stations? 

Mr. DUVALL. I am going to defer to Steve on the technology impediments question. He has more to add to that than I do. 

I will say, as a policy matter, clearly the regulation we are pursuing here, one of the key purposes, I think—contrary to the chairman’s comments—is to really drive the technology. This is the most 

aggressive rulemaking that has ever been done by our Department. 

The costs, as I said, are enormous. But one of the benefits of this 

proposal will be to drive technology in a technology-neutral way. 

And I think one of the key policies that we need to be careful 

about at the Federal level is that we are cherry-picking various 

technological outcomes. The history of energy policy and transportation policy has been, the government has done a fairly mediocre 

job, let’s just say, of picking technology winners. And what you 

want to do is create the right market incentives for the private sector and venture capitalists to come in and develop these technologies and come in and push breakthroughs. 

As a regulatory matter, this is a regulation, as I said, that imposes huge costs in a mandate, but it is done under a construct 

that recognizes manufacturer flexibility to deploy technologies in a 

neutral way or a cost-beneficial way for them. 

We have a very diverse car industry. I don’t think it is well understood how diversified this industry is right now. So we need to 

be very careful about specific technology mandates. But as far as 

the current technological impediments, I defer to Steve. 

Mr. KRATZKE. Thank you, Mr. Congressman. The battery is the 

single item that is the expensive and desirable thing on these vehicles. The older battery systems had very limited range, and so they 

had very limited appeal to people. 

One approach for getting around that could be the approach you 

suggested where you have a battery station every 15 miles. But in 

the U.S., the people who are now developing batteries are aiming 

for a range of about 100 miles so that people can commute roughly 

50 miles to do it, because that represents where we live and where 

we work now. 

Mr. HALL. In Israel, that is what they are aiming at also. 

Mr. KRATZKE. Yes. So those really are the things that we are 

looking at right now. 

If we can get to 100 miles as the range, then we don’t really need 

the refilling stations everywhere. If you get a battery that does 
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that, then trading it out, you are giving up a very expensive thing 

and you are imposing either a large cost or you need some sort of 

bond to make sure you get the battery back. 

Mr. HALL. A deposit. 

Mr. KRATZKE. It is an approach. But for the most part, in the 

market right now, trading out the battery isn’t something that 

looks like a viable model, but you could consider it. 

Mr. HALL. Thank you. 

I just wanted to remark that in the chairman’s district, A123 and 

their subsidiary, High Motion, are making an upgrade as many of 

you probably know, for Prius. And they are so busy making them 

because there is so much demand—it doubles the effect of mileage 

of the Prius—that they have postponed making the one for my car, 

the Mercury Mariner hybrid, which I read the other day is the 

most—the fastest car to recoup the difference between the cost of 

the hybrid version and the nonhybrid version. 

So I am glad I made a good choice without knowing that in advance, but I would really like to be able to upgrade it. 

And the city of Chicago has a fleet, I understand, of Ford Escape 

hybrids that they are converting to plug in hybrids. So somebody 

is developing batteries with deeper capacity to do this. And maybe 

Chicago can come here and tell us how they are doing it. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Mr. Hall, very much. 

And I am just going to conclude by saying this. In 1957, the Soviet Union had launched the first satellite into space, the Sputnik. 

In 1961, the Soviets sent the first man into space, Yuri Gagarin, 

a very important moment. And I was a boy in the United States. 

Since the same rocket technologies that enabled these achievements could also be applied to building nuclear missiles that could 

be launched against the United States, losing the space race with 

the Soviets was clearly unacceptable. 

President Kennedy responded to this challenge by calling on the 

Nation to send a man to the moon and return safely to Earth before 1970. He said, and I quote, ‘‘We choose to go to the moon in 

this decade and to do other things not because they are easy but 

because they are hard, because that goal will serve to organize and 

measure the best of our energies and skills, because that challenge 

is one that we are willing to accept, one that we are unwilling to 

postpone and one that we intend to win.’’ 

How hard was this going to be? President Kennedy said it would 

require us to ‘‘send to the moon 240,000 miles away from the control station in Houston a giant rocket more than 300 feet tall, the 

length of a football field, made of new metal alloys, some of which 

have not yet been invented, capable of withstanding heat and 

stresses several times more than have ever been experienced, fitted 

together with a precision better than the finest watch, carrying all 

the equipment needed for propulsion, guidance, control, communications, food and survival, on an untried mission to an unknown 

celestial body, and then to return it safely to earth reentering the 

atmosphere at speeds of over 25,000 miles per miles per hour causing heat about half that of the temperature of the sun.’’ 

He concluded by saying, ‘‘To do all this and to do it right and to 

do it first before this decade is out, then, we must be bold.’’ Eight 
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years later, Neil Armstrong became the first man to stand on the 

surface of the moon. 

Today we have another great political and technological challenge. It is the challenge posed by our addiction to imported oil and 

the danger of global warming. In order to make ourselves energy 

independent and stop producing the greenhouse gases that threaten to heat up our planet, we must take on these challenges, challenges that are hard, but which will organize and measure the best 

of our skills and our energies. 

But we are not talking about putting a man on the moon. We are 

talking about new batteries. We are not talking about rocket 

science. We are talking about auto mechanics. 

We can do this, and we can do it in a way that sends a very 

strong technological signal to OPEC and to the rest of the world 

that we do not intend to be dominated politically and economically 

by powers halfway around the world. 

That is sadly where we are today. That is where President Bush 

and Condoleezza Rice were 4 weeks ago when the Saudi Arabians 

said they will send us a little more oil if we start selling them nuclear power plants. It is not a position that any American can be 

proud of. 

Your Department, sir, has the responsibility for setting the challenge ahead. Do not use the lowest standards. Use the highest. 

America will respond. 

We know that we are in a crisis, and we want a way out. But 

we need to hear the words from the highest level. And I think our 

industries will respond, and the American people will as well. 

So we thank you for testifying here today with us. After your 

rulemaking is completed, we expect you to come back here, and we 

will talk to you again about the decisions. I thank you. 

Now if the other witnesses can come up and sit at the table, I 

would appreciate it. 

We welcome our second panel, and first we will recognize 

Dominique Thormann, who is the Senior Vice President of Nissan 

North America, where he oversees all finance, legal and business 

operations. He also serves as the Chief Financial Officer and Senior 

Vice President of Nissan Europe. 

We welcome you, sir, whenever you are ready, please begin. 

STATEMENT OF DOMINIQUE THORMANN, SENIOR VICE 

PRESIDENT, NISSAN NORTH AMERICA, INC. 

Mr. THORMANN. Thank you. Good afternoon, Mr. Chairman and 

members of the committee. I thank you for this opportunity to appear today to present Nissan’s views on gasoline prices and fuel 

economy and how it relates to energy independence and global 

warming. 

At Nissan we have a culture of establishing very challenging yet 

achievable goals. Mr. Chairman, I believe you would understand 

that culture well. You have asked me to address three significant 

and complex issues and to do so in 5 minutes. So here I go. 

In our most recent business plan, that we announced last April, 

we put forward three commitments that we want to achieve by 

2012. One of them is to lead the automotive industry in zero-emis-
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sion vehicles worldwide. Central to that commitment is our investment in the electric vehicle. 

If ever there was an industry where the word ‘‘globalization’’ was 

meaningful, that would be the automotive industry. Growth in car 

sales is occurring in virtually every country across all continents. 

This is a new and recent development. The desire for mobility is 

universal. In the United States, there are 800 cars per 1,000 inhabitants, 600 in Western Europe and Japan, but the same ratio in 

China and India reveals fewer than 50 vehicles per 1,000 people. 

At Nissan we have recognized the need to find a solution to cope 

with this apparent contradiction between the predicted global 

growth in car sales and energy independence and global warming. 

Mr. Chairman, I believe you have recognized these trends and see 

the issues before us are global. 

Coping with global warming and energy independence goes well 

beyond what a single company can do. It is together, by collectively 

pooling ideas and investments from the private and public sectors 

that actionable, meaningful solutions will emerge. Nissan’s views 

led us to intensify our research and development. We invested in 

technologies that would improve the efficiency of the internal combustion engine in all its forms. Our engineers are optimistic and 

while some innovations are significant, they are not sufficient to 

meet the rapidly evolving needs of our customers. 

In the United States, in the face of rapidly escalating energy 

prices, consumers are shifting abruptly from trucks to crossovers, 

from large cars to small cars, from V8 engines to V6, and now fourcylinder engines. Fuel efficiency is at the top of consumers’ concerns. Higher fuel prices, coupled with environmental concerns, 

means consumers are more willing to consider new forms of 

powering vehicles. This means an interest in diesel engines, flex 

fuels and biodiesels. 

But at Nissan, we believe that a more radical change of breakthrough technology, like the electric car, is needed. Electric vehicles 

will not only have zero tailpipe emissions, but they will also offer 

more flexibility in determining the source of energy to power them. 

Today, oil is the major source of energy to power a car. With electric cars, the electricity needed to charge the batteries can come 

from multiple sources, including, in the best of all worlds, renewable ones such as the wind, the sun or water. Clean coal furnaces 

and nuclear power will also be effective in combating CO2. 

Electric vehicles have always been limited by their battery as its 

size, driving range, cost and charge time made electric vehicles unacceptable to consumers. Nissan has been working on lithium ion 

batteries since 1992, and we have created a separate company 

which will be responsible for the manufacture and sale of batteries. 

We are satisfied with our advances and believe that we have the 

technical visibility today to bring these vehicles to market in short 

order. 

We will bring to the market in the United States a fully electric 

automobile before the end of 2010. But—first, the number of vehicles will be relatively small, but we plan to have a truly mass market vehicle available in the United States by 2012. 

These electric vehicles will be cars that consumers will be happy 

to drive. They will have a range that will get them comfortably to 
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work and back home with all the comfort and features that they 

are used to today. They will handle highway speeds and permit 

drivers to comfortably merge into highway traffic. The acceleration 

will surprise many and make the vehicles fun to drive. As the market grows, different types and sizes of vehicles will be launched. 

Nissan looks forward to working with Congress, regulators and 

government agencies in making this technological breakthrough a 

reality. The electric vehicle will transform the value chain of our 

industry as we know it today. 

In partnership with private industry, public policy will need to 

address the new infrastructure requirements, and we will need to 

work together in adapting the rules that govern the use of automobiles to this new reality and create the conditions of success. 

Mr. Chairman, I thank you and the committee for the opportunity to testify today. And I will be happy to answer your questions. 

The CHAIRMAN. Thank you, Mr. Thormann, very much. 

[The statement of Mr. Thormann follows:] 
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The CHAIRMAN. Our second witness is Shai Agassi. He is the 

founder and CEO of Project Better Place, a company working directly with governments and the finance community, the automotive manufacturers and technology companies to develop saleable and sustainable personal transportation systems. 

We welcome you, sir. Whenever you are ready, please begin. 

STATEMENT OF SHAI AGASSI, FOUNDER AND CHIEF 

EXECUTIVE OFFICER, PROJECT BETTER PLACE 

Mr. AGASSI. Thank you, Mr. Chairman. 

Mr. Chairman, thank you for your leadership on this critical 

issue for inviting me to testify in front of you today, and I request 

my full written statement to be made part of the hearing record. 

The CHAIRMAN. Without objection, so ordered. 

Mr. AGASSI. The electrification of the automobile is inevitable. I 

didn’t say that. Neither did my friend here from Nissan. It is Bob 

Lutz of GM. And, in reality, on January 21, 2008, it happened in 

Israel. 

We had, for the first time, the CEO of Renault/Nissan standing 

up and saying, We will make electric cars, we will make them fun 

to drive, and we will make them in high volume enough for the entire country to switch. 

We had Project Better Place stand up and declare that we will 

put a network, ahead of time, of charging infrastructure across the 

entire country. That network of infrastructure will include 500,000 

charge spots that will be put in parking lots at work, at downtown, 

before the first car shows up. It will include swap stations that enable us to swap batteries as we go through the freeways, and it will 

include scheduling software that enables us to charge these cars 

without needing to bring down the grid every time everybody connects to the grid. 

We also had a policy by government that decided to push this 

switch, this change from oil to oil independence, within less than 

a decade, a President who stood up and said, We will get off oil 

within this decade; and a policy that was put in place to actually 

make that happen faster than 10 years. 

The electric car has a secret. The secret is, you have to separate 

between the battery and the car if you want to make consumers 

adopt it faster. The battery is not part of the cost of the car. The 

battery is a consumable that is equivalent to crude oil. If you separate between the car and the battery and you put the infrastructure in place to charge, you open a menu of sources to generate the 

electricity, the energy required for that car. 

The battery is a consumable, plus the electricity for the car gets 

you to a price of 6 cents per mile. That is cheaper than the price 

you called absurd right now by the administration. It actually is 

relatively around the range of about $1.50 a gallon. 

If you build it in the right way, you build a service company that 

sits in between, almost like a mobile company—think of Verizon or 

Sprint for cars. That company can actually provide both the infrastructure and the cars, and as a mobile company, what we sell effectively is miles. 

That company can also provide rebates for the car, and as it happens in Israel and happens in other countries, the rebate structure 
450 

makes the electric car so affordable that we can actually offer these 

cars for free to the consumer. When you offer free cars with zero 

emission with zero oil to consumers, they usually go for that car. 

The question is, how much do you need to put in the ground in 

order to make that infrastructure happen and how fast can it happen? And the reality of the numbers is that it costs you about $500 

per car to put that infrastructure in the ground. 

In a sense, if we wanted to do this in the U.S., that is $100 billion of infrastructure, the equivalency of 2 months of oil imports, 

would get us off the addiction, 2 months of oil imports most of 

which would actually go as jobs. $80 billion will go as jobs in installing the infrastructure in the ground, jobs we cannot outsource 

outside this country. 

How fast can we do this is a question of policy in the country. 

Denmark, which is another country that adopted this model, had 

put a policy that sets the price of a car, gasoline-based cars, at 180 

percent tax to get off gasoline and a zero-emission car at zero. 

Hence, you get asked, do you want to buy a gasoline-based car at 

$60,000 or get an electric car pretty much close to free? 

And I think if you choose the $60,000, they actually would like 

you to leave the country. You failed the IQ test in that case. 

Every year we wait costs us $500 billion of oil imports and $300 

billion of the wrong cars coming onto our streets; that is, $800 billion is the cost of prolonging the decision of shifting to electricity. 

So the question that we have ahead of us right now is, would we 

actually want to shift off cars? Do we want to put that energy to 

play? 

$100 billion of infrastructure, $500 billion of generation—solar, 

wind, wave—would actually get us off oil forever. The cost of 1 year 

of oil would get us off oil forever. 

All government has to do is let business do what it needs to do, 

go back 100 years and let us do what Edison and Westinghouse did 

when they built the electric grid in this country. Cut away the red 

tape. Put in the incentives to actually accelerate this plan and 

probably call Detroit again. 

The Congresswoman from Michigan, who is not here with us 

right now, said it correctly: We owe a debt to Detroit. In 1942, the 

President called them up and said, Please stop making cars and 

start making tanks. Maybe it is time the President called Detroit 

again and said, Stop making tanks; please make the right cars. 

If we did it, and we put the right investment in place, and we 

opened up for businesses like Project Better Place and others to put 

this infrastructure in the ground, we could get the American public 

to drive on electricity and save our country from oil. 

Thank you. 

The CHAIRMAN. Thank you, Mr. Agassi. 

[The statement of Mr. Agassi follows:] 
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The CHAIRMAN. And next we are going to hear from Torben 

Holm. He is a consultant with DONG Energy A/S, one of the leading energy groups in the Scandinavian region. 

We welcome you, sir. Whenever you are ready, please begin. 

STATEMENT OF TORBEN V. HOLM, DONG ENERGY A/S 

Mr. HOLM. Thank you very much, Mr. Chairman. Thank you for 

giving me the opportunity to appear here today on the dual challenges of oil dependency and climate change. 

I am coming from Denmark, one of the countries that were hardest hit when the oil got its first set of wake-up calls regarding oil 

dependency back in the 1970s. At that time, Denmark was almost 

totally dependent on imported fuel, and 94 percent of fuel consumed was oil. 

In order to offset the risks associated with this delicate situation, 

numerous programs were started. As a result, we are now in a situation where we are a net exporter of oil, we run some of the 

world’s most efficient power plants, fueled partly by coal, partly by 

biomass; and close to 20 percent of our electricity production is 

based on windmills. 

Finally, a good number of activities have been initiated with a 

view to save energy. 

Over the last 20 years, Denmark has achieved an increase in 

GDP of about 75 percent with almost no corresponding increase in 

energy consumption. But within this overall positive picture, one 

sector, namely transportation, stands out by showing a constant 

growth in energy consumption and CO2 emissions. That curve has 

to be broken both from an energy security point of view and in 

order to make sure that Denmark can meet its international climate policy obligations. And this is where Project Better Place 

comes into the picture. 

Denmark’s transportation system is organized in a way that 

ought to be mentioned. As Shai said, we have a realistically high 

density of private cars, and that is in spite of heavy car registration 

tax. We also have a comparatively high gasoline cost, also as a result of taxation. Both owning and driving a conventional car are, 

therefore, blessings you have to share to a high degree with the 

rest of society. On the other hand, we are in a situation where electric vehicles are enjoying a quite beneficial tax treatment. And, finally, all of the electrical power needed to fuel the car fleet could 

come from renewable sources. 

As I mentioned, Denmark was an early mover on wind energy 

and has now one of the highest ratios of wind to other energy 

sources in the world. To put these matters in correct proportions, 

we have estimated that one medium-sized 2-megawatt windmill 

can, on average, supply the energy needed for 3,000 cars. 

In a country—— 

The CHAIRMAN. Can you say that again? 

Mr. HOLM. One medium-sized 2-megawatt windmill can, on average, supply the energy needed for 3,000 cars. 

The CHAIRMAN. Thank you. 

Mr. HOLM. In a country with 5.4 million inhabitants and some 

2 million passenger cars, the entire passenger car fleet could, 

thereby, run on electricity produced by less than 750 windmills. 
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The CHAIRMAN. Say that again. 

Mr. HOLM. It is correct. In a country with 5.4 million inhabitants 

and some 2 million passenger cars, the entire passenger car fleet 

could thereby run on electricity produced by less than 750 windmills. 

The CHAIRMAN. And what is the megawattage of those windmills? 

Mr. HOLM. Two megawatts apiece. 

The CHAIRMAN. So that would be 750 times 2? Is that what you 

are saying? 

Mr. HOLM. Yes 1.5 gigawatt. 

The CHAIRMAN. Would power the entire automotive fleet for how 

many vehicles? 

Mr. HOLM. Two million passenger cars. On top of that, we have 

another 500,000 lorries and vans. 

The CHAIRMAN. Please continue. 

Mr. HOLM. Wind is not always blowing, so we have also estimated that even if all the electrical charging of cars were sourced 

from coal-fired power plants, net CO2 emissions will still decline by 

half because electric motors are three to four times more efficient 

than either gasoline or diesel ones. However, the more wind power 

we have and our production makes at any given time, the higher 

the CO2 emissions improvement will be. 

An additional benefit will come from the fact that most charging 

will take place at night when wind power is in excess supply. This 

means that Denmark will be able to use wind energy that otherwise would have to be exported to neighboring countries, typically 

at relatively low prices. 

Finally, we have made calculations on what this would mean for 

the individual driver. Based on conservative estimates of the anticipated cost of both vehicles and batteries, the results are that consumers who migrate from gas to electric cars can expect to enjoy 

substantial savings. This is in terms of total cost of both owning 

and driving a car, and it comes without sacrifice of convenience and 

without sacrifice of driving experience. 

In summary, we see this project as one with very big upside potential and very little downside risks, both from a consumer and 

from a public perspective, and both from an energy security point 

of view and in relation to reduction of CO2 emissions. We, therefore, hope and ask for all the support we can get from everybody 

involved, that is from car manufacturers to policy makers. 

Our contribution, on the other hand, is to roll out the necessary 

infrastructure, and to that we are fully committed. Thank you, Mr. 

Chairman; and I will now be happy to address any questions you 

might have. 

The CHAIRMAN. Thank you, Mr. Holm, very much. 

[The statement of Mr. Holm follows:] 
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The CHAIRMAN. And our final witness is Mr. Jeffrey Holmstead. 

He heads the environmental strategy section at Bracewell and 

Giuliani. He was the head of the EPA Office of Air and Radiation 

from 2001 to 2005 during the administration of President Bush. 

We welcome you, sir. Whenever you are ready, please begin. 

STATEMENT OF JEFFREY R. HOLMSTEAD, PARTNER AND 

HEAD OF THE ENVIRONMENTAL STRATEGIES GROUP, 

BRACEWELL AND GIULIANI 

Mr. HOLMSTEAD. Thank you very much for having me. As you 

mentioned, I am—my name is Jeff Holmstead. I am a partner in 

the law firm of Bracewell and Giuliani, but today I am not appearing on behalf of my firm or any of the law firm’s clients. I am here 

in my personal capacity as a former EPA official who has spent almost 20 years working on climate change and air quality issues. 

I feel kind of like I am on the wrong panel. I am not a technology 

expert, but I do know a fair amount about regulatory policy and 

regulatory programs. And I want to make just a few observations 

about that. 

As you well know, last year Congress passed an energy bill that 

will require a substantial increase in fuel economy for motor vehicles, an increase of at least 40 percent by 2020. NHTSA estimates 

that during the first 5 years that this lies in place it will save approximately 55 billion gallons of fuel and reduce greenhouse gas 

emissions by over 500 million metric tons. Not surprisingly, there 

is a significant upfront cost that must be paid to achieve these improvements. 

Again, NHTSA estimates that in model year 2015 new car buyers 

can expect to pay between about $650 and $2,000 more for a car 

and between about $1,000 and $1,400 more for a new light truck 

because of the new CAFE program. It is important to note that 

buyers will more than recover these costs through greater fuel savings, but even so, they will have to pay more upfront when they 

want to purchase a new car or light truck. This is the price that 

must be paid to achieve greater energy security and reductions in 

greenhouse gas gases. 

As you are all aware, the new CAFE program was extensively 

debated in Congress and the final product passed with large bipartisan majorities in both Houses. This law represents a careful balancing of regional and ideological differences. For example, the 

CAFE law was carefully drafted to ensure that safety would not be 

jeopardized by mandating an attribute-based system. This law also 

ensures that other economic factors such as job loss, consumer 

choice and market demand would also be considered in designing 

and implementing a new fuel economy standard. 

As I understand it, compromise agreements were also reached to 

protect union jobs in the manufacturing sector and to extend the 

flex-fuel credit until model year 2019. 

Notwithstanding the extensive debate in Congress and the compromises reached between many competing interests in order to secure passage of the new CAFE program, there are now a number 

of advocacy groups who argue that Congress did not intend the 

new CAFE program to be the final word on fuel economy. In their 

view, provisions added to the Clean Air Act back in the 1970s actu-
482 

ally require a much more aggressive fuel economy program than 

the one that Congress designed and adopted last year. 

I, as someone who has spent more than 5 years at EPA, have 

enormous respect for EPA officials in their ability to develop effective regulatory programs, but it seems odd to me that Congress 

would debate a contentious national policy issue like fuel economy 

for many years, reach a compromise on an approach that garners 

broad support, and then expect EPA to immediately develop a completely separate program which makes that compromise entirely irrelevant. 

Supporters of the view that EPA in California should be setting 

policy in this area argue that CAFE is about fuel economy and that 

the Clean Air Act is about emissions. But Congress certainly understood, at least by 2007, that when it comes to CO2 emissions, 

they are exactly the same thing. 

As I think you know, NHTSA is responsible for implementing the 

CAFE program, and how does NHTSA determine whether car companies are meeting the program’s fuel economy requirements? Well, 

they do it by having EPA measure the CO2 emissions that come out 

of those cars. As a matter of basic science, there is no difference 

between fuel economy and CO2 emissions. You can control CO2

emissions by regulating fuel economy, or you can control fuel economy by regulating CO2 emissions; but no one should pretend that 

they can be viewed as two different things. 

I would think that most Members of Congress would find it troubling to have EPA or California or both establish their own regimes 

for regulating fuel economy because neither EPA nor California is 

required to conform their programs to the CAFE system that was 

so carefully designed by Congress. For example, California is clearly under no legal stricture to adopt an attribute-based system as 

Congress commanded NHTSA to do, and under the Clean Air Act, 

EPA does not have to balance the competing interests of fuel economy, safety and jobs. 

Considering the costs of the new CAFE law, I think it is legitimate to ask if it is wise to have EPA also regulate fuel economy 

or, in some States, have California rules compete with Federal 

rules. It just doesn’t make any sense to have two separate Federal 

agencies, NHTSA and EPA, governed under two separate statutes, 

the Energy Policy and Conservation Act and the Clean Air Act regulating the exact same activity, fuel economy or CO2 emissions, 

which are the same things. It makes even less sense when you add 

a separate California program which may then be adopted by any 

other State that chooses to follow it rather than following either 

EPA or NHTSA. 

This afternoon, I simply would like to urge the members of this 

committee to be sure that Congress sets clear, uniform national 

policy and does it in a way that is sensible for the manufacturing 

sector and for American consumers. 

Thank you very much. I would be happy to answer any questions: 

The CHAIRMAN. Thank you Mr. Holmstead. 

[The statement of Mr. Holmstead follows:] 
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The CHAIRMAN. Mr. Holmstead, do you think it is wise for the 

Department of Transportation to use $2.40 a gallon by 2016 as a 

basis for what they are planning on using in their cost-benefit analysis for new vehicles by 2016? 

Mr. HOLMSTEAD. I am not qualified to predict fuel economy, and 

I think what you have to do is depend on people who are the experts in this area. So if that is what EIA says the price is expected 

to be, then I don’t know that NHTSA really has any choice. 

But, again, I don’t know very much about this. 

The CHAIRMAN. The Energy Information Agency actually recommends that we use a much higher level, but the Department of 

Transportation uses a midlevel $2.40 a gallon. And I don’t know 

how much of an expert you have to be in order to predict that gasoline won’t be at $2.40 a gallon 8 years from now. 

Mr. HOLMSTEAD. The law that was passed today, how much is 

that predicted to reduce the price of a barrel of oil? I have heard 

very significant predictions; through the antispeculation bill, some 

people are saying 50 percent. 

Again, I don’t know about that, but I know there are lots of people looking at those issues. 

The CHAIRMAN. We don’t have to worry about it, because the 

President is promising to veto it. So it is not anything that is actually likely to happen since the President isn’t going to sign it. 

So what I am saying is, given all of the things that have happened, doesn’t it make sense to plan for the worst? 

And, Mr. Agassi, you are working in Israel. They seem to be 

planning for the worst in Israel, that is, planning for a world in 

which oil is used as a weapon against Israel and against the rest 

of the world. So what is their response in terms of planning, going 

forward into the future? 

Mr. AGASSI. Well, the assumption in Israel is that, given the 

right infrastructure, given the right pricing, the consumer will actually make the choice to go with no oil. And so I think they are 

planning for the best in that sense; that all of us, given the opportunity to disconnect from oil and connect to electricity, we will 

choose to do the right thing. I think the American consumer will 

do the same. 

The CHAIRMAN. Well, that is not an assumption, however, that 

has been made inside the Bush administration. They don’t plan for 

the worst, but they also, taking your comment in quotes, they also 

don’t plan for the best. They don’t plan for the American people to 

respond to the challenge in the same way that President Kennedy 

expected the American people to respond to the challenge of the Soviets in outer space with this nuclear capacity attached to it. So I 

think that is still a real problem in our country. 

So you heard what Mr. Holm said about the amount of wind that 

would have to be generated in order to provide for all of the electricity for the vehicles in his country. 

And, by the way, last year in the United States, we actually installed 5,400 new megawatts of wind in the United States. Now 

what would 5,400 megawatts of wind mean in your country, Mr. 

Holm, in terms of your automotive industry? 

Mr. HOLM. It is a matter of simple math: 4500 megawatts. That 

is three times the amount I mentioned, so it is 6 million cars. 
487 

The CHAIRMAN. Six million cars can be powered? 

Mr. HOLM. Yes. Provided that you had the same wind pattern 

here as we have in my country. 

The CHAIRMAN. We will assume—we will accept the challenge— 

that we will at least be able to match your country in terms of the 

efficiency of our wind system. 

Mr. Agassi, can you extrapolate that for the United States of 

America? What would you think might be possible here in our 

country looking at what Mr. Holm is talking about, looking at what 

the Israelis are planning? What could happen in the United States 

if your vision took hold? 

Mr. AGASSI. I think if you looked at the U.S., roughly at a cost 

of any source, the average source—wind, solar, wave—of about 

$2,500 per car, we would be able to install capacity that would 

drive that car for the next 6 years without a single molecule of CO2

coming into the atmosphere and without a single drop of oil coming 

into our system. 

In effect, if you took the U.S. and you put 200 gigawatts of generation in any source, in any mix, over the next, let’s say, 10 years, 

the 200 gigawatt being 200,000 megawatts, we would get every car 

in the U.S. going forever. And we could do that at a cost of about 

$500 billion spread over the next 10 years of which 80 percent is 

labor that stays in America. 

So we can replace oil imports with jobs at a scope of about 1 year 

of oil imports. We could get off oil. 

The CHAIRMAN. Now, right now, President Bush is threatening 

a veto of a bill that would extend the wind and solar and other renewable tax breaks that generate electricity in our country, hopefully, in the years ahead. And at the same time, I hate to say this, 

but it is the Republicans in the Senate that blocked our passage 

just by one vote of legislation that would have established a minimal goal for new renewable electricity generation by 2020 in our 

country. 

Could you comment upon that, Mr. Agassi, in terms of long-term 

planning? And where do you think we should be going in terms of 

nonpolluting electricity being used by nonpolluting automobiles 

that the American people could rely upon? 

Mr. AGASSI. I think one of the critical issues that people have to 

remember is putting cars on the grid, putting cars on the road that 

have batteries in them, creates a different economic model for renewable generation. Cars park 22 hours in a day; they drive 2 

hours in a day. When they are parked, the batteries are available 

to absorb electricity that comes from renewable sources. So if you 

have a lot of cars, if you have 200 million batteries parked most 

of the day, you can take a lot of electricity that come from renewable sources, especially wind. 

Wind is a great example because wind blows mostly at night. So 

the perfect appliance that matches to wind generation is a car, because a car is parked mostly at night. If you put the two together 

and you actually replace oil with wind, that is the only way to replace oil with wind. 

We talk a lot about taking oil out of the equation and putting renewable sources, if we don’t put the electric wire that connects the 

two, we won’t be able to get there. 
488 

The CHAIRMAN. When I was a boy, I worked my way through 

Boston College driving an ice cream truck. So I would get the truck 

in the morning, fill it up with Popsicles and Fudgesicles, but then 

when I got home at night, I had to plug it into the side of the house 

so that I would be using the electricity overnight to keep all of my 

Fudgesicles and Popsicles very, very cold, so I could sell them all 

day long. 

Now, that is essentially what the American people will be asked 

to do. And maybe you, Mr. Thormann, can talk about how much 

less expensive it is to use electricity overnight trying to, as you recharge your battery either for ice cream or to drive the vehicle, 

rather than in the middle of the day. That is a concept a lot of people don’t quite understand, how it is less expensive if you use it 

when most people are not, in fact, using electricity. 

Mr. THORMANN. I think Mr. Agassi quoted a number. The working assumption order of magnitude between peak hours and offpeak rates currently would be a factor of—— 

The CHAIRMAN. What does that mean for ordinary people? When 

you say ‘‘peak’’ and ‘‘off-peak’’ hours, what does that mean in laymen’s terms? 

Mr. THORMANN. Day and night. Very simply. 

The CHAIRMAN. Day and night. If you are using electricity during 

the day—— 

Mr. THORMANN. It is expensive. 

The CHAIRMAN. And if you use it from midnight to 6:00 a.m.? 

Mr. THORMANN. It is cheap. 

The CHAIRMAN. It is cheap. And how long would it take to charge 

one of these batteries? 

Mr. THORMANN. Less than you sleep at night. 

The CHAIRMAN. And how much less expensive is it to use it at 

night rather than during the day? 

Mr. THORMANN. Well, I have numbers that would show that it 

would be a factor of one to seven. So it would be seven times cheaper to take electricity from the grid at night when people sleep than 

in the daytime when—— 

Mr. HOLMSTEAD. How it would be affected if the demand for 

nighttime goes up? Would those numbers stay roughly similar if, 

all of a sudden, there are 200 million cars that are using electricity 

at night? 

Mr. THORMANN. A lot of it is going to depend. 

Mr. Agassi made a good point. If it comes from wind that blows 

at night, it is wasted energy, and you can’t store it anywhere, and 

the car serves as sort of a reservoir. It is like a big tank where you 

would store oil; our automobile becomes just a receptacle to store 

energy, and it becomes available for the driving needs during the 

day, which is when most of the driving occurs. 

Not predicting, of course, what prices would be when supply and 

demand—— 

Mr. HOLMSTEAD. But the other key factor that I think all of us 

are aware of—and certainly the chairman is—to get the wind energy to where we need it, we are going to need a fair amount of 

new transmission, aren’t we? 

Mr. AGASSI. Actually, one of the studies by the administration 

that was put out today, without any changes to transmission, no 
489 

changes to the grid, and effectively no changes to generation, we 

could drive 86 percent of the cars in America on zero change, zero 

infrastructure investment. 

The grid in America is actually designed for the high-end peak, 

not for average peaks, not for average consumption. So we could actually—especially if you use overnight, you could effectively, with 

today’s infrastructure, with today’s grid, you could drive probably 

about 150 to 170 million electric cars in America. 

Now you would then be using coal. What we are proposing is 

that, as you make that change, you also make the change to clean 

generation, because you are effectively removing the usage of $140 

barrel of oil. Instead of saving the last cents on using coal, put the 

last cent in and use wind, use solar, use renewable sources. 

Mr. HOLMSTEAD. That is my point about transmission. The 

places where you have good wind and good solar resources are not 

the places where we have transmission infrastructure. 

Mr. AGASSI. We have 20 million cars in California. We can put 

solar plants in the Mojave Desert, and you will lose less than 3 percent in transmission of those electrons from the desert to every 

major metropolitan area in California. That is 10 percent of cars. 

You look at Texas; we have a lot of wind and a lot of sun. The 

beauty of wind and sun is usually, if you have a lot of sun, you can 

use that; and if you don’t have sun, you usually have a lot of wind. 

So the mix is very much in place for both of them. 

In some places, as one of the Congresswomen here mentioned, 

they have nuclear. A nuclear plant, to put it in perspective, can 

drive 3.5 million cars, if you already built that nuclear plant. So 

France, as an example, could actually turn off every single car to 

electrons and not need to add any single source of generation and 

drive all their cars on their nuclear plant infrastructure today, 

what they have today. 

The CHAIRMAN. So, Mr. Agassi, thank you so much. We had 

United States President Kennedy could rely upon Wernher von 

Braun to help him with the space program. And we can rely upon 

you to help us solve this technological problem here in the United 

States. 

So—Mr. Holmstead has already stipulated he is not a technologist, so a lot of this depends upon kind of the game-changing 

aspect of technology. So if we get the regulation correct, then everything else changes, you know, in a very dramatic way. 

So—AT&T in the year 1980 predicted we would have 1 million 

people using cell phones in the United States in the year 2000, so 

AT&T was off by a lot because they missed a whole bunch of other 

decisions that got made from 1980 on that changed everything. 

And they were right; some people would probably not walk around 

with something that weighed 4 pounds and required them to have 

a direct view of some cell phone tower or satellite in order to deliver a message. 

So you have to basically have a little bit of confidence in the 

technology. 

So what Mr. Agassi is saying and Mr. Holm and Mr. Thormann 

is saying is that if we use the electricity that is wasted in the middle of the evening, overnight, we are actually taking an unused resource; we are charging the batteries, and we are not affecting the 
490 

grid during the day when it is needed in order to keep businesses 

going and industry churning. So you have that as an asset. 

And I think what Mr. Agassi is saying is that if you move to 

wind and solar—let’s just say for the sake of discussion that the 

5,400 megawatts that we installed in 2007 in the nascent part of 

this industry—by the way, Mr. Holm, 2,500 new megawatts of wind 

in Texas in 2007, that would power every vehicle, all 2 million vehicles in Denmark, just what was installed in one State in 1 year. 

So obviously something big is happening here. And experts predict that we will have a minimum of 100,000 megawatts of wind 

by the year 2016. 

So now let’s go to—and give me your analysis—let’s go to our 

first panelist again. 

The Department of Transportation and President Bush have to 

make a decision by 2016 on what kind of standards we can establish for the vehicles that we drive. And if we want to use that decision to enhance our technological superiority, break our dependence 

upon imported oil, and create more jobs in our country, now—if we 

factor in that 100,000 new megawatts of wind will be constructed 

in our country, most of it not used overnight—give us a little vision 

of what might be possible in terms of the miles-per-gallon standard 

established for the average of the vehicles in our country that year. 

Mr. AGASSI. One of the factors I would plug in, maybe, instead 

of focusing on the number before the miles per, we focus on the gallon. If we get off the gallon, we get to infinity—which might have 

actually the reason the Nissan called their high-end brand Infiniti. 

We need to get to a point where we are driving on infinity miles 

per gallon because we are not using any gallons whatsoever. 

I think the assumption that we need to put in place is that oil 

is not going to become cheaper, it is not going to become more 

abundant. I don’t see any new sources showing up. The sources 

that are showing up will take a long time before we drill into them. 

I think the reality of the number is pretty fixed in front of us right 

now. 

Given that number, we are looking at $4 to $5 per gallon right 

now, and we are seeing that electricity, including all costs, all loaded costs, are at $1, $1.50. That means unless we suddenly find oil 

that we can bring out of the ground at $10 a gallon, electricity is 

here to stay. That trend line has happened. 

This is like trying to fight the Internet by sending letters faster. 

It is not going to happen. We are going to electrons, and in the 

transition, we are sort of going between the world of physical 

atoms, like sending letters around, to the world of sending e-mails. 

We had this very short period in which we turned molecules into 

electrons and called it fax and turned it back into molecules at the 

other end; that is the hybrid model. We had a hybrid model, and 

it is a short period of time in which hybrid models survived. 

But then when you get to full electrons, nobody comes back from 

full electrons. It doesn’t happen. In every industry in our history 

we went from physical molecules to electrons. 

It happened in the early 20th century when we converted 

light—— 

The CHAIRMAN. Say that again? You went from what to what? 
491 

Mr. AGASSI. From molecules to electrons. Oil went to zero historically after it was very expensive. Oil was discovered to light up 

houses; it was kerosene. When we discovered oil, it was used mainly to light up houses; and then Edison and Westinghouse put lights 

made out of electrons in every house, and kerosene was useless and 

oil became useless; and we effectively had a period of time in which 

oil was pouring into rivers and nobody would put it into barrels because barrels were more expensive than oil. 

We have to go back to that model. 

Today, if we stop using oil for cars, oil will become useless again. 

The price will go down below $10 a barrel. The world will be safer. 

We will be independent. 

The CHAIRMAN. In the same way we didn’t have to go out and 

kill those whales anymore for their oil. Let them out there, swimming along, don’t need their oil. 

And wouldn’t that be a great day? Wouldn’t it be a wonderful day 

if the United States could say to Saudi Arabia, we don’t need your 

oil any more than we need your sand? 

You can keep it all over there, just be a wonderful, wonderful 

day. 

So Mr. Thormann, can you talk here a little bit about what Mr. 

Agassi was mentioning, about going all electric we will go through 

the hybrid period and hit the all electric period. What is Nissan 

planning? 

Mr. THORMANN. We have, simply put, we are planning for the ultimate stake which is the all-electric vehicle. The hybrids that we 

know of today are transitioned between internal combustion engine 

and all-electric vehicle. 

One factor that you must remember is that the requirements or 

that the measures that have been put forward by the IPCC to reduce CO2, so by 2050, so that global warming has a chance of stopping. We have to reduce current output by 80 percent, CO2 output 

of automobiles by 80 percent. The only way we know how to get 

there is by the electric vehicle. Hybrid cars will not allow you to 

do that. And if we put an electric car at the end of the renewable 

source of energy that we just talked about, we achieve that goal. 

So you have an economic factor, your oil independence and so our 

car, our proposition is that you kill 2 birds with one stone. We get 

off of the oil and the dependency of a single source of energy, and 

at the same time, you accomplish the second goal, which is obviously critical to future generations, which is to reduce CO2 and prevent global warming. And that the electric car allows you to envisage that future. 

The CHAIRMAN. A lot of this requires us to get the policies correct 

in the United States. We have to create the wind power, solar 

power, the LJ power. We have to go through the whole thing, the 

wave power, we are creating the electricity. But once we create 

that, this automotive technology is moving along, the batteries will 

follow. The vehicles will be put together. The system can be put in 

place in order to accomplish this goal. 

Back in 1993, basically all cell phones were analog, and it cost 

about $0.50 a minute, at $0.50 a minute we probably won’t have 

a lot of people using cell phones in the United States. I was the 

chairman of the subcommittee with jurisdiction over it, I was able 
492 

to move over 200 megahertz of spectrum for a third, fourth, fifth 

and sixth license in every community in the United States. 

Now those third, fourth, fifth and sixth licenses could not be bid 

on by the first two licensees that were analog, the big companies. 

And what did the new companies do? They all went digital. 

And within a couple years they all dropped their price down to 

$0.40, 0.30, 0.20, 0.15, 0.10 cents a minute and lower and everyone 

said this is great. What the first two companies do? They moved 

to digital and they started lowering their prices. So by 1996, 1997 

everyone is walking around with a phone because they moved over 

to this better technology, this lower cost and very affordable. But 

you had to change the policy. 

In 1996, again something on the telecommunication subcommittee we were able to create a dynamic where not one home 

in America at that point had broadband technology, not one home 

in America. So we had to change the policies so that we could create a brand new telecom world. So that if we moved from this old, 

again, analog world to a broadband world. Once we passed the 

1996 Telecommunications Act by 2000, 2001 we were in a world of 

Googles, of Amazons, of thousands of companies who no one ever 

heard of before because broadband is going into all these people’s 

homes. And we become a YouTube world that no one would have 

ever envisioned 10 years ago because now the technology is unleashed. Not that it hadn’t already been invented. 

You know, the broadband had already been invented as the DSL 

in the laboratories of the Bell Laboratories 15, 20 years before. So 

here we have to get this policy right because it will turn all the 

economists thinking on their head, because all they can use is the 

old models. But if you put the technologists in charge and you say 

to them, you know, ah, now the conditions are there where I can 

deploy my new technology and sell it to consumers, then things 

change more rapidly than anyone would have ever thought. We 

have seen it happen over and over and over again with technology 

in American society. 

So Mr. Agassi, could you just tell us a little bit about what the 

Israelis said when they made their announcement about breaking 

their dependence upon oil and why they did it. 

Mr. AGASSI. The policy they set was extremely simple, it was so 

simplistic everybody could get it. They basically set a deferential 

tax on buying a new car. They said a gasoline car will cost 72 percent more than the cost of making it and the electric car will cost 

10 percent tax. And then they said if we see a lot of people switching to the electric car, we will shift both prices up, but we will keep 

it always 60 percent delta until 2019. 

So they created a visibility of 10 years out and are basically telling people, the more people will shift to electric, the more expensive it will get, but gasoline will also get expensive. Then they said 

we will create standards and force you, Better Place, to abide by 

open standards so that you can’t block people from coming into this 

market. You can’t block everybody to buy just one type of car from 

one maker. Open standards using plugs that are made standards 

by the ISO organization. 

Then they basically said, we are going to put regulations so that 

there is competition in the market. Just like you said, we are going 
493 

to make it so that you are competing. And then they told me in the 

back room, we hope you are very, very successful, because we are 

going to tax you. The more successful you are, the more we are 

going to tax you. Well, first we want you to be successful. Now I 

think we need to do the same thing here. You said it absolutely 

correctly, this is like the mobile industry. 

The CHAIRMAN. I think we are going to go from Mobil, 

ExxonMobil to Mobil. And if we do then we have a whole new era. 

Mr. AGASSI. Absolutely. We need to do auction and basically 

come up and say we want to put this infrastructure in the ground. 

The auction will give you a build or lose type of agreement just as 

you said before. If you don’t build this network up front, we are 

going to take away your rights to build a network in that region, 

give it to number 2. And then make that happen within a very 

short time span. 

If we don’t have the wire connecting the grid to the parking lot, 

nobody will be able to plug. And so put these wires in by companies 

that are running very, very fast, much faster than government organizations would run, auction it off and then tell them. When you 

start to make profit, we are going to tax you. 

The CHAIRMAN. Now again, tell us why the Israelis said that 

they wanted to do this, what is the reason? 

Mr. AGASSI. Well, in Israel, it is pretty obvious, Israel is a transportation island surrounded by countries that have oil. Israel has 

no oil. Israel knows viscerally that getting off oil it is not a question of when but how fast can you do it. 

So when you talk to the President of Israel, President Peres, his 

only question is do you think you can really do it, and is there anything else in the world that could be more important. Now, from 

their perspective, it is a topic that touches on geopolitical security, 

environment, budget. Israel pays $7 billion a year to import oil. So 

those $7 billion disappear off the country. They don’t even come 

back and buy anything in Israel, it is just $7 billion that disappears. In our country in the U.S. we send out $50 billion a month to 

buy oil, it comes back to buy us. So we sent President Bush to ask 

for more oil and the next month we sent Secretary Paulson to bring 

the money back and to buy some U.S. companies with it. So we are 

in kind of a situation today where we have to figure out in Israel 

they figured out they want to get off oil as quickly as possible. I 

think in the U.S., we have to figure out the same model. 

The CHAIRMAN. We are in a situation, not quite like Israel, Israel 

has almost no oil and has to import it all. 

In the United States we have 2 percent of the world’s oil reserves, but we consume 25 percent of the world’s oil on a daily 

basis. 

Mr. AGASSI. Right. 

The CHAIRMAN. That is not quite as bad as Israel, but it is pretty 

bad in terms of our long-term prospects. You can’t ever find 25 percent of the world’s oil on 2 percent of the world’s oil reserves, that 

is just a mathematical and geological impossibility. 

Now many people, including the White House are now saying 

let’s drill, drill, drill our way to energy independence, but again it 

doesn’t add up. You can never get up to that 25 percent of the oil 
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in the world in terms of the percentage that we need in order to 

say we are energy independent. 

So what you are proposing here is something that we are either 

going to have to do sooner or we will wind up doing later anyway, 

because it is just a finite amount of resources that we have in 

America. And there is no geologist that says all of a sudden we will 

end up with 5 percent or 10 percent of the world’s oil reserves. 

That is all we have and it is just a geological misfortune the same 

way Israel’s is, but at the same time, both countries have a technological capacity. 

Mr. AGASSI. That’s right. 

The CHAIRMAN. To be able to create this independence. 

Mr. AGASSI. There is one more interesting point here, and that 

is if we know that it is inevitable that we are going to get off oil 

and get on to the electric car, we need to look at whether we want 

to be leaders or followers in this market. And if we follow, that 

means the entire supply chain, including the batteries, will probably not happen in the U.S. 

Now all things remaining equal as they are right now, that supply chain will most likely migrate either to Europe where gasoline 

is priced at $9 a gallon, or to China and Japan where the expertise 

in building the batteries are right now. That is where most of these 

batteries are made right now. 

And so if we wait and not stimulate this industry, we are actually going to find ourselves off addiction to oil from one country and 

on addiction to lithium ion batteries from a different country. I 

think we are in an interesting period where if we did the right 

things in the U.S. and stimulated this industry so the incentives 

drive the factories to Boston where A 123 is and other companies 

around this Nation, we may find ourselves off the addiction completely and not getting addicted to some other substance that we 

can’t bring in from this country. 

The CHAIRMAN. I could not agree with you more. You know the 

Bush administration will testify before us and they will say that 

we have the capacity to produce rockets that can be shot at 2:00 

a.m. in the morning on a moment’s notice because a Russian incoming missile is coming towards the United States, and going 

10,000 miles an hour, and in 3 minutes, reach, hit and destroy the 

incoming Soviet missile in order to protect the United States of 

America. They say we can do that technologically. 

Then if you turn to the very same people and say do you think 

we can invent a way that we increase the fuel economy standards 

of the vehicles that we drive? They say, oh, that is not rocket 

science, that is auto mechanics, we can’t do that. That is almost too 

simple for them to try to figure out because they don’t attach the 

same level of urgency to it. But the reality is that the constant increase in our addiction to oil undermines our national security and 

undermines our defense posture just as surely as the deployment 

of Soviet nuclear weapons. The problem is that we are sinking 

deeper and deeper into the hole. 

Mr. Thormann, what do you think is a reasonable goal for Nissan 

in terms of the production of electric vehicles in the years ahead 

without divulging any proprietary information for your company? 
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Mr. THORMANN. Our intention is not to—this is not a PR gimmick, this is real business, it is a real business proposition. We will 

satisfy the mandates that we have in California and a number of 

States to have a certain number of zero-emission vehicles in 2010. 

In 2012 we will mass market them, which means that we have to 

come with an object, a vehicle and a series of vehicles that will 

meet several different needs and different requirements and different driving circumstances. 

So the adoption, depending on the speed at which consumers 

adopt these vehicles, will depend on how many we can sell, but we 

are preparing to sell many thousands of them. 

The CHAIRMAN. And Mr. Holm, let me ask you this, do you think 

that it is inevitable that the United States goes down this route 

and it is no longer a question of if, but when? 

Mr. HOLM. I would certainly hope that the United States will follow this route and go electric. 

You had a comment before where you have a reference back to 

what happened in the mobile industry here in the United States, 

and I would like to use that analogy a little further. Both the original NNT system, which was an analog system and DTSM system 

was born out of relatively small economies in Europe. And we built 

up the mobile industry significantly faster than it happened over 

here. 

The difference between the mobile industry and what we talk 

about here is that the small countries in Europe cannot create a 

market that will make the auto makers change rapidly. We need 

big markets to pull this. And for that reason, I would certainly 

hope that the United States would jump on the bandwagon and 

start pulling. 

The CHAIRMAN. And Mr. Homestead, you have heard all the testimony today from these technologists. Do you think we should 

jump on this bandwagon? 

Mr. HOLMSTEAD. It certainly sounds fabulous, it has been interesting to be on the panel. I guess the only question I have sort of 

given everything we have heard is given the economic case for this, 

why do you need a government mandate? If you can do electric cars 

at roughly equivalent to a buck 50 a gallon and gasoline is now 4 

bucks a gallon. As a regulatory policy guy, I say why do you need 

a more stringent CAFE standard? 

The CHAIRMAN. I can tell you the answer. 

Mr. HOLMSTEAD. Look at the mobile phone industry. I don’t 

think that came about because of government mandates, it came 

about because of market demands. 

The CHAIRMAN. No, no, no, not at all. Not at all. It came about 

because—amongst other things, I was completely frustrated with 

the fact that the two incumbent companies were moving so slowly, 

the price was so high, the technology was so clunky that we needed 

a new policy. The only way to do it is to allow the third, fourth, 

fifth and sixth companies, that is Mr. Thormann, Mr. Agassi, Mr. 

Holm, whomever, everyone who is not AT&T, everyone who is not 

the big company to come in and start to innovate. And once that 

innovation happened then you had the big change. 
496 

The same thing is true with narrow band versus broadband. If 

you have only got Verizon and Comcast and they are dividing the 

market in half, then they don’t have any real incentive. 

Mr. HOLMSTEAD. I still don’t see how the mandate was involved. 

The CHAIRMAN. Well, there was no mandate that you had to 

go—— 

Mr. HOLMSTEAD. You just had to let people—— 

The CHAIRMAN. It was basically that I kept having hearings 

where everyone would say digital is the key word. And the two cell 

companies would say, well, we are analog and we are not changing 

because it will be too expensive to change and it was. And it was 

at $0.50 a minute because they divided the markets in half all 

across America. But somehow or another, it lowered down to $0.08 

or $0.09 a minute and they lost their entire market to the four digital companies, somehow or other they could then afford to move 

over to digital. 

So the same thing is true and happened in broadband. Once we 

reshifted the market, which we did in the 1996 Telecom Act in 

order to have—what you have to create is a paranoia inducing Darwinian set of market conditions. Once that happens, you can get 

out of the way, the innovation will happen. But as long as the 

whole thing is controlled by a couple of companies, they are never 

going to change, because the inexorable investment of time and career are already made in the old idea is a very hard thing to dislodge. 

So what you have to get are the new players on the field, and 

the only way that happens is if policymakers find a way to create 

the aperture whereby the smaller are out there and they are able 

to thrive. So without our help, that as policymakers, you are not 

going to see massive wind and solar electricity development across 

the country that really makes what Mr. Agassi and Mr. Thormann 

and Mr. Holm were talking about affordable, and something that 

is compatible with the global warming agenda as well that we have 

for our country. 

A CEO of an existing company does have that responsibility. We 

accept that. I accept the fact that Exxon, I accept the fact that 

Chevron are the big auto manufacturers, that is not their job. It 

is our job to set the national plan. So to have a national plan to 

back out all the oil or cut the greenhouse gases by 80 percent, that 

is our job sitting here. We are the board of directors for America, 

so we have to set that plan. Then we say to the private sector go 

and do it. And here is the new playing field, and it is wide open 

to you, and it is going to have a lot of wind and solar and biomass, 

it will have a lot of electric/gas stations all across America that you 

are going to be able to switch batteries at and then whatever happens, happens. Otherwise we will just stay right where we are, and 

dig the hole deeper and deeper. We are in violation of the first law 

of holes, when you are in one stop digging. And every year we go 

another percent and a half deeper into this hole of imported oil dependence. 

That is after 32 years on in Congress, that has been my experience if you want the technological change. If you want to move 

from the black rotary dial phone era that lasted 80 years, you have 

to break up AT&T because they will sell you a black rotary dial 
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phone. They had each of us renting it at $3 bucks a month. My 

mother paid $1,200 bucks for that black rotary dial phone. And she 

couldn’t go down to another store to buy another phone that was 

white and only costs 90 bucks because it wouldn’t go into the phone 

jack. Right? Well, what happened once you changed the laws, well, 

black rotary dial phone just went away in about 3 or 4 years. Everyone moved on to the new technologies, but it took the government to do it. 

Mr. HOLMSTEAD. It is opening new markets. I still don’t understand the role that a government mandate played with respect to 

mobile or broadband. I don’t think Congress ever mandated those. 

It just allowed the competition to flourish to develop those technicians. 

The CHAIRMAN. Right. 

Mr. HOLMSTEAD. I just wanted to make sure. 

The CHAIRMAN. But once we passed the 1996 Telecom Act, if you 

were still selling narrowband, then you weren’t going to be a company anymore. We are not going to tell Nissan or General Motors 

or Ford or anyone else exactly what they have to do after this. But 

once we make it possible for this to happen, once we create a new 

policy, then I have every confidence it will happen. In fact, my own 

opinion is this is the last revolution, that we had the telecommunications revolution. We finally broke up AT&T and unleashed that 

revolution that was sitting there with young people and technologists all across America and across the planet. 

This is the same kind of revolution that will be unleashed. We 

will create millions of jobs. We are going to revolutionize the prize 

of energy. The sources from which it comes. It is all out there ready 

to be unleashed, but we need to put the new policies on the books 

and then we just have to get out of the way. But the overarching 

goal has to be to say to OPEC we are looking at you in a rearview 

mirror. This is too unhealthy for our country to have aircraft carriers floating around over in the Middle East to protect the flow of 

oil coming into our country. It is a very unseemly for our country 

to be in that situation. So it is a national security context too. 

Maybe think of it that way. 

I am going to give each one of you to a minute and a half to summarize what you want our committee to remember from your testimony as we are going forward trying to put together a national energy policy in our country. We will begin with you, Mr. Holmstead. 

Mr. HOLMSTEAD. Well, I thank you again for allowing me to participate. And my thought is, and this conversation has been very 

interesting, is we need to make sure that there is an availability 

for all of these technologies to compete on a level playing field. I 

do think we need to do it in a way that was done before, which is 

to remove regulatory barriers to innovation as opposed to having 

additional government mandates. 

The CHAIRMAN. Mr. Holm. 

Mr. HOLM. I would simply reflect a little bit on the fact that 

what we have been talking about this afternoon is nothing about 

new inventions. It is about meeting together existing technologies 

a new way in order to achieve something big. I would certainly 

hope that your committee and the House and the Senate can find 

ways to support that. 
498 

The CHAIRMAN. So unlike President Kennedy who said we had 

to discover new alloys, new metals, new forms of propelling these 

missiles in outer space, here we don’t have to invent anything, it 

is all there. 

Mr. HOLM. The basics are all there. 

The CHAIRMAN. It is all ready to go. 

Mr. Agassi. 

Mr. AGASSI. I think Mr. Holm was right, we took 8 years. Over 

the last 8 years, we found all the science that is required to go over 

to electric. I think now it is time to put it all together with the 

right policy. I think that we’re here in Project Better Place, we are 

available to your committee, we stand ready to work with you and 

determine the right policies. 

There has been a lot of talk about ending our addiction to oil. I 

think it is time to take a model like Better Place, scale it to the 

needs of the Nation, save our environment, work on our national 

security, retool Detroit, bring this as an opportunity not as an end 

of Detroit but actually as an opportunity to grow Detroit and bring 

more jobs back to America. And I think we can ensure this would 

be the project of our generation, the one that we will remember forever as the one that put America back on a leading track as technologists and the economy will be a force in the next century. 

The CHAIRMAN. Thank you, Mr. Agassi. 

Mr. Thormann. 

Mr. THORMANN. Mr. Chairman, I would like to, first of all, thank 

you because representing a company that is 7 percent of the car 

market in the United States, I am very honored by the faith that 

you put in us and in our testimony today and I would like to thank 

you for the words that you spoke just a few minutes ago about creating conditions of success. We will do our part, and I commit to 

you that our company is very focused on this project and it is something that we will deliver for you. 

The CHAIRMAN. I thank you, Mr. Thormann. And I agree with 

Mr. Agassi, this is a tremendous opportunity for the American 

automotive industry. There is going to be a huge transition that 

takes place over the next 10 years. My father always said it is better to start out where you are going to be forced to wind up anyway, it is a better place to be. We are heading there, it is inevitable. This happened in Denmark, it is happening in Israel and it 

is better for us to be the leaders. 

By the way, I think the world wants us to be the leader, not the 

lagger. They want American technology, they want us to give that 

leadership. And hopefully, we can do this in a way that creates 

those additional millions of jobs here in America that are creating 

these products, exporting them around the planet rather than importing them and having the jobs be overseas. I think its our great 

challenge and I think our country will respond. I thank each of you 

for your excellent testimony today. This hearing is adjourned. 

[Whereupon, at 4:08 p.m., the committee was adjourned.] 
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