This is a compelling presentation of energy and national security issues,
and a readable summary of the findings of the National Commission on Energy
Policy.

This document (including charts) is available in PDF form, along with other
individuals' testimony, at
http://reform.house.gov/ER/News/DocumentSingle.aspx?DocumentID=7505
Since PDFs are an impediment to some, I asked Adm. Woolsey for the text
version, which is below.
I encourage you to forward this message -- or, if you don't want to send
out a long message, point people to the text version:
http://autos.groups.yahoo.com/group/calcars-news/message/22

By the way, be sure to see the paragraph just before
II. Non-Petroleum Transportation Fuels,
where he discusses plug-in hybrids -- and mentions the New York 'Times
story on PHEVs and the PRIUS+ project.
Felix

Hon. R. James Woolsey,
National Commission on Energy Policy
Testimony Before the U.S. House of Representatives
Committee on Government Reform
Subcommittee on Energy and Resources
April 6, 2005
Rayburn Office Building (Room B-349-C)

Good afternoon, Chairman Issa and Members of the Committee. My thanks to
you for holding this hearing on a matter of great importance for our
country: The nexus between America's energy needs and our national security.

I am one of the members of the National Commission on Energy Policy. By way
of identification I am a former Director of Central Intelligence and am
currently a Vice President of Booz Allen Hamilton. The Commission is an
independent bi-partisan group of 16 persons who came together in 2002 with
support from the Hewlett Foundation and several other leading foundations:
The MacArthur Foundation, Packard Foundation, and the Pew Charitable
Trusts. The Commission released a report at the end of last year entitled
Ending the Energy Stalemate: A Bipartisan Strategy to Meet America's Energy
Challenges.

The first Chapter of this report is about enhancing oil security. The
placement of oil security first among all issues reflects the Commission's
view that improving our nation's oil security is the most significant near
term energy challenge we face. I'm pleased to have an opportunity to
summarize the Commission's recommendations on this subject, as well as some
of my own.

Rationale For Action

It is my personal opinion that there are at least seven major reasons why
dependence on petroleum for the lion's share of the world's transportation
fuel creates special dangers in our time.

1. The Current Transportation Infrastructure is Committed to Oil and
Oil-Compatible Products. This fact substantially increases the difficulty
of responding to oil price increases or disruptions in supply by
substituting other fuels. Moreover, it leads to the conclusion that to have
an impact on our vulnerabilities within the next decade or two, any new
types of vehicles and any fuel that would compete with products derived
from conventional oil for the transportation fuel market will need to be
compatible with the existing energy infrastructure and require only modest
additions or amendments to it. The time and cost required to make
substantial changes in the infrastructure and the urgent need for reduction
in reliance on conventional oil together suggest support for two
approaches: (a) increasing fuel efficiency using currently available
technologies that are compatible with the existing infrastructure, such as
gasoline-electric hybrid vehicles (and "plug-in" hybrids) rather than
fuel-cell vehicles, and (b) utilizing alternative fuels that are
affordable, available now or in the very near future, and can be used
within the existing infrastructure - e.g. cellulosic ethanol and compatible
biodiesel fuel rather than hydrogen.

2. The Greater Middle East Will Continue to be the Low-Cost and
Dominant Petroleum Producer for the Foreseeable Future. Home of around
two-thirds of the world's proven reserves of conventional oil -- 45% of it
in just Saudi Arabia, Iraq, and Iran -- the Greater Middle East will
inevitably have to meet a growing percentage of increasing world oil
demand. For the foreseeable future, as long as vehicular transportation is
dominated by oil as it is today, the Greater Middle East, and especially
Saudi Arabia, will remain in the driver's seat.

3. The Petroleum Infrastructure is Highly Vulnerable to Terrorist and
Other Attack. The Islamist movement, pre-eminently al Qaeda, has on a
number of occasions explicitly called for world-wide attacks on the
petroleum infrastructure and has carried some out in the Greater Middle
East. Successful hits on major refineries, oil pipelines, or
sulfur-cleaning towers could send oil prices much higher than even today's
elevated prices.

4. The Possibility Exists, Particularly Under Regimes That Could Come
to Power in the Greater Middle East, of Embargoes or Other Disruptions of
Supply. It is often said that whoever governs the oil-rich nations of the
Greater Middle East will need to sell their oil. This is, however, not
true if the rulers choose to try to live, for most purposes, in the seventh
century. There was a serious Islamist coup attempt in Saudi Arabia in 1979
and bin Laden has advocated, for example, major reductions in oil production.

5. Wealth Transfers From Oil Have Been Used, and Continue to be Used,
to Fund Terrorism and Its ideological Support. Some $85-90 billion has
been spent by the Saudis in the last 30 years spreading Wahhabi beliefs
throughout the world. Some oil-rich families of the Greater Middle East,
further, fund terrorist groups directly. The Wahhabi doctrine -
fanatically hostile to Shi'ite and Suffi and many other Muslims, Jews,
Christians, women, modernity, and much else - plays a role with respect to
Islamist terrorist groups similar to that played in the decades after WW I
with respect to Nazism by angry German nationalism. Not all angry German
nationalists became Nazis and not all those educated in the Wahhabi
tradition become terrorists. But in each case the broader movement has
provided the soil in which the fully totalitarian movement has
grown. Whether in lectures in the madrassahs of Pakistan, in the textbooks
printed by Wahhabis for Indonesian schoolchildren, or on the bookshelves of
mosques in the US, the hatred spread by the Wahhabis, supported by private
oil wealth and by the Saudi government as well, is evident.

6. The Current Account Deficits for a Number of Countries Create Risks
Ranging from Major World Economic Disruption to Deepening Poverty and Could
be Substantially Reduced by Reducing Oil Imports. The US, in essence,
borrows about $13 billion per week, principally now from major Asian
states, to finance its consumption. Oil is an extremely large category of
imports; more than $2 billion per week of this borrowing is used to import
it. This degree of borrowing and the accumulated debt increases the risk
of a flight from the dollar or major increases in interest rates. Any such
development could have major negative economic consequences for both the US
and its trading partners. For developing nations the debt they incur to
import oil acts as a major drag on their ability to emerge from national
poverty.

7. Global Warming Gas Emissions From Man-made Source Create at Least
the Risk of Climate Change. Although the point is not universally accepted,
the weight of scientific opinion suggests that global warming gases (GWG)
produced by human activity are one important component of potential climate
change. Efforts to reduce oil use will also provide benefits to help
mitigate the impacts of climate change.

While the Commission recommended stronger U.S. action to increase global
oil production, and I support this recommendation strongly, I will direct
my remarks today to the Commission's proposals to reduce U.S. oil
consumption through enhanced vehicle fuel economy and increased production
of non-petroleum transportation fuels.

I. The Importance of Strengthening Fuel Economy Standards

During its deliberations, the Commission considered a variety of both major
and minor transportation policy measures. These included many of the usual
suspects: a gasoline tax, a CAFE increase, alternative fuels, as well as
some new ideas: heavy-duty tractor trailer fuel economy, efficiency
standards for replacement tires, congestion charges in urban areas. We
examined these policy measures against four criteria: (1) the ability of
each individual policy measure to save one million barrels per day of oil
by 2025, (2) the cost per barrel of oil saved, (3) administrative
complexity, and (4) political feasibility. Of all the policies reviewed by
the Commission, passenger vehicle fuel economy improvements represented the
largest opportunity for oil savings over the next 20 years.

Accordingly, the Commission recommended that Congress instruct the National
Highway Traffic Safety Administration (NHTSA) to significantly strengthen
CAFE standards, giving due consideration to vehicle performance, safety,
job impacts, and competitiveness concerns consistent with statutory
requirements. We recommended that new standards be phased in over a
five-year period beginning no later than 2010. The Commission did not
reach agreement on a specific increase in fuel economy (although in a
concurring note I recommended a 10-20 mpg improvement; 10 mpg would still
leave us well short of current fleet mileages for both the EU and Japan).

Of course, it would be naïve to make recommendations about a CAFE increase
without considering how to break the current political stalemate on fuel
economy standards. The Commission identified three issues that have
dominated past debates about raising CAFE standards and which we believe
are largely responsible for the current stalemate: (1) uncertainty over
impacts on the competitiveness of domestic manufacturers; (2) fear that
more stringent standards will lead to smaller, lighter vehicles and
increased traffic fatalities; and (3) concerns that higher standards will
lead to losses in domestic jobs.

Competitiveness and U.S Jobs

To address concerns about competitiveness impacts on U.S. domestic
manufacturers and U.S. auto workers, the Commission recommends that a
significant increase in CAFE standards be accompanied by reforms to the
current program that would increase compliance flexibility and reduce
compliance costs, together with manufacturer incentives designed to promote
the domestic manufacture of hybrid-electric and advanced diesel vehicles.

Specifically, the Commission recommends that the current program be altered
to allow manufacturers to trade compliance credits with one another and
across their car and light truck fleets. The Congressional Budget Office
has estimated that this reform alone would reduce the cost of the CAFE
program by about 17 percent. An additional reform that should be considered
in concert with higher standards is a cost-capping mechanism similar to the
"safety valve" the Commission is recommending in connection with a tradable
permits system for greenhouse gas emissions. In this case, the government
could make additional CAFE compliance credits available to manufacturers at
a pre-determined price. Such a mechanism would have the effect of
protecting automakers and consumers if the regulatory estimates used to set
new standards understate true costs and thus holds promise for overcoming
the inevitable and inherently irresolvable disagreements about future
technology development that have stymied past CAFE debates.

With respect to manufacturer incentives, the Commission is specifically
recommending a program of tax incentives for U.S manufacturing facilities
that are re-tooled to produce hybrid-electric and advanced diesel vehicle
with superior fuel economy. Consistent with international trade agreements,
the incentive would be available to both domestic and foreign companies,
including both assembly plants and parts supplies. The recommended subsidy
level would total $1.5 billion over ten years, with the amount of credit
set to reflect up to 50 percent of the capital investment associated with
producing vehicles or vehicle components. Commission analysis indicates
that federal outlays under such a program would be more than offset by
increased tax receipts as a result of maintaining domestic manufacturing jobs.
Relationship between Safety and Fuel Economy

A paramount concern for us when seeking to improve vehicle fuel economy has
been to ensure that there is no reduction in overall vehicle safety. The
concern often expressed is that mandating higher fuel economy will require
production of less safe, lighter vehicles and compromise vehicle
performance. Our Commission considered this concern and tested it against
currently marketed hybrid and passenger diesel vehicles. Hybrids and clean
diesels offer the potential to boost fuel economy while maintaining vehicle
size and performance. The Ford Escape hybrid, Honda Civic hybrid, the Honda
Accord hybrid, and the forthcoming Toyota Highlander hybrid, all have
conventional counterparts - all achieve substantial fuel economy
improvements while maintaining or increasing horsepower (by as much as 17
percent) compared to their conventional counterparts, and without
reductions in weight or size. These vehicles clearly demonstrate that
substantial fuel economy improvements can be achieved using
already-available technologies and without compromising vehicle performance
and safety.

I would add that the Rocky Mountain Institute has recently published a
report, "Winning the Oil End Game" which emphasizes the promise of using in
automobile construction less expensive versions of the very strong carbon
composites now used in aircraft construction - a step that could further
contribute to our having vehicles that are lighter and substantially more
fuel efficient but also stronger and safer than existing vehicles.

Finally, the Commission noted the potential importance of adding a
"plug-in" feature to hybrid vehicles. Adding such a feature to hybrids
would, without interfering with the hybrid's ability to operate without
grid electricity, give car owners the option of plugging the vehicle's
batteries in when convenient, such as at night, and storing enough power to
drive several miles without using gasoline at all. In their fascinating
new book on energy (The Bottomless Well) Messrs Huber and Fall point out
that with today's nickel-metal-hydride batteries trips of around 6 miles
are possible for plug-ins without using liquid fuel at all and that with
lithium batteries in the future 20-mile trips should be feasible before the
vehicle would need to use any liquid fuel. From the point of view of
consumers, as Huber and Fall point out, average residential electricity
costs are 8.5 cents/kwh in the US and in many areas off-peak power is sold
at night for 2-4 cents/kwh. Two-cent- per-kilowatt-hour electricity
equates approximately to 12-cent-per-gallon gasoline. This extraordinarily
low cost is probably the reason individuals are beginning to modify their
hybrids themselves to add a plug-in feature (see "Hybrid-Car Tinkerers
Scoff at No-Plug-In Rule", NYT Mar. 31, 2005, p. B-1). I have also met with
Mr. Roger Duncan, deputy general manager of Austin Energy (a utility owned
by the city of Austin, Texas) who is seeking to assemble a group of
utilities to agree to give $1000 credits to purchasers of plug-in hybrids,
in order to be able to sell power at off-peak hours.

II. Non-Petroleum Transportation Fuels

The Commission seeks to encourage development of a suite of domestically
produced transportation fuels that can collectively help to diminish U.S.
vulnerability to high oil prices and oil supply disruptions while reducing
the transportation sector's greenhouse gas emissions. Those non-petroleum fuels
that are compatible with existing infrastructure and vehicle technology
enjoy a significant advantage over those that require a wholly new
distribution system or vehicle fleet. Two prominent examples are ethanol,
preferably from cellulosic biomass, and biodiesel.

Alternatives to Gasoline for the Passenger Vehicle Fleet

Among the variety of alternative fuel options potentially available for the
light-duty vehicle fleet, the Commission believes that ethanol produced
from cellulosic biomass (i.e. fibrous or woody plant materials) should be
the focus of near-term federal research, development, and demonstration
efforts. Cellulosic ethanol offers substantial energy security,
environmental, and long-term cost advantages compared to corn-based
ethanol. Indeed, Commission-sponsored analysis indicates that with steady
though unremarkable progress to reduce production costs and increase crop
yields, cellulosic ethanol has the potential to make a meaningful
contribution to the nation's transportation fuel supply over the next two
to three decades.

I would add that cellulosic ethanol requires very little fuel input for its
production: as Senator Lugar and I wrote in an article in Foreign Affairs
over 6 years ago ("The New Petroleum") it takes only about a gallon of oil
to produce seven of cellulosic ethanol, whereas for corn-based ethanol
(because of the petroleum products required for cultivation, fertilization,
etc.) it takes about seven gallons of oil to produce eight of ethanol.
Indeed the Commission found that the cultivation and use of cellulosic
ethanol requires so little fuel (and releases, net, such a small amount of
global warming gases) that when cellulosic residues are used to co-generate
electricity the total fuel cycle for cellulosic ethanol makes possible a
reduction in global warming gas generation of more than 100 per cent
compared to the use of gasoline. Using cellulosic ethanol for vehicles can
thus in some cases be a carbon sink.

These advantages of cellulosic ethanol are what underlay my statement in
September of 2002 in Commentary ("Defeating the Oil Weapon") that: "[u]sing
85 percent [cellulosic] ethanol, a full-sized hybrid passenger car that
gets 40 mpg would be realizing the equivalent of about 250 mpg of
gasoline." (Actually 160 mpg would have represented a better calculation in
this case.) Recent restatements this year of this sort of comparison by Mr.
Gal Luft of the Institute for the Analysis of Global Security (IAGS), and
columnists Fareed Zakaria in Newsweek and Thomas Friedman in the NY Times
have come under fire from commentators such as Mr. Alan Reynolds ("Blowing
Smoke on Gas Savings", Wash. Times, Ap. 3, 2005) because of the alleged
energy requirements of ethanol production. Mr. Reynolds clearly does not
understand the comparatively small amount of fuel required to produce
cellulosic ethanol as the Commission has confirmed and as Senator Lugar and
I described it six years ago.


Alternatives to Diesel for Heavy-Duty Trucks and Buses
Just as cellulosic ethanol represents a more promising long-term
alternative to gasoline than corn-based ethanol, newer technologies are
emerging that can produce clean, low-sulfur synthetic diesel fuels from
biomass or other organic materials. The Commission found promising
technologies that can utilize a wide variety of organic wastes as
feedstocks. One process in particular, known as thermal depolymerization,
is now being demonstrated on a commercial-scale to produce lowsulfur diesel
fuel from wastes generated by a turkey processing facility. This technology
and other advanced bio-diesel options merit further research, development,
and early deployment efforts. (I have reiterated with respect to thermal
depolymerization only what the Commission found. This Committee should be
aware that for some years I have been an adviser to the company that
invented this process.)

Commission Recommendations
The Commission proposes a ten-year, $1.5 billion effort to reduce the costs
of biomass and waste-derived fuel production through a combination of
targeted support for research and development and incentives for pioneer
commercial production facilities. The primary goal of this proposal is to
bring the cost of cellulosic ethanol below that of corn-based ethanol and
within striking distance of gasoline over the next two decades.

Conclusion

Advanced technology vehicles, such as hybrids, plug-in hybrids, and clean
diesels, and alternative fuels like cellulosic ethanol and biodiesel have
the potential to change the game. They offer the uncompromised features of
conventional vehicles while improving dramatically automobile fuel economy
and reducing our dependence on oil. It should be national policy to foster
early introduction on a significant scale of these vehicle technologies and
non-petroleum transportation fuels for they promise to make a major
contribution to U.S. energy security.


Figures from Ending the Energy Stalemate: A Bipartisan Strategy to Meet
America's Energy Challenges, National Commission on Energy Policy (2005).








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Felix Kramer fkramer@...
Founder California Cars Initiative
http://www.calcars.org
http://groups.yahoo.com/group/calcars-news
http://groups.yahoo.com/group/priusplus
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