TOPIC: Oil & Alternative Fuels
September 15, 2005
Resources for the Future
1616 P Street, NW Washington, DC
As the flood waters recede in New Orleans and the survivors of Katrina
begin to rebuild their lives, one truth has become achingly clear
over the past few weeks:
wasn't ready to save its own citizens from a catastrophe of biblical
proportions. It wasn't even close.
of planning, preparing, and warnings from countless scientists,
experts, and government officials - that the levees would break,
that our first responders didn't have the best tools for communication,
that FEMA was under-funded and undervalued - despite all of this,
Katrina caught the government off-guard, flat-footed, and dangerously
The most tragic
consequence of this slow response was the incalculable loss of human
But miles off
the Gulf Coast, as the deadly storm first raged towards shore, another
frightening consequence emerged from our government's failure to
In the moments
before the hurricane hit, Gulf refineries that made up one-eighth
of our country's total capacity were evacuated and shut down. 95%
of oil production was immediately suspended in a region where we
find over a quarter of America's oil. And gas prices that were already
at record highs shot up even further all over the country - reaching
$6 a gallon in some places. Today, they're hovering over $3 - a
price that experts say will remain for the rest of the year. And
what we don't see on television is how in a few months, the price
of home heating oil and natural gas will reach new heights as well.
It would be one
thing if this storm struck at a time of stability. But over the
last few years, limited supplies and an unprecedented growth in
demand have sent the global oil market itself teetering towards
the edge of disaster. With our own Energy Department telling us
that U.S. demand for oil will jump 40% over the next twenty years
and countries like China and India adding millions of cars to their
roads, the price of oil is reaching levels we just can't handle
A few years ago,
we paid just $25 for a barrel of oil. Today, we're paying around
$63. Since this affects the price of everything from gas to airfare
to groceries, analysts at Global Insight, an economic consulting
firm, say that if we hit $100 a barrel, the U.S. economy could very
well tumble into recession.
Which brings me
to one of the central lessons of Katrina, one that goes far beyond
the gas hikes and the price gouging we're facing today:
The days of running
a 21st century economy on a 20th century fossil fuel are numbered
- and we need to realize that before it's too late.
dependence on oil is a danger our government has known about for
years. And despite constant warnings by researchers and scientists,
major corporations and our own government officials, it's a danger
they have failed to prepare for, listen to, or seriously try to
It's a danger
we can no longer afford to ignore. Katrina, after all, was a natural
disaster that affected only our domestic oil supply. But just imagine
the threat to our national security from a geopolitical disaster
- a war or an embargo - that cut off our supply from the rest of
the world, where we get most of our oil.
Right now, we
depend on some of the most politically volatile countries in the
Middle East and elsewhere to fuel our energy needs. It doesn't matter
if they're budding democracies, despotic regimes with nuclear intentions,
or havens for the madrassas that plant the seeds of terror in young
minds - they get our money because we need their oil.
What's worse -
it's oil that's not very well protected. Over the last few years,
we know that terrorists have stepped up their attempts to launch
attacks on the poorly defended oil tankers and pipelines of the
Middle East. And a former CIA agent tells us that if a terrorist
hijacked a plane in Kuwait and crashed it into an oil complex in
Saudi Arabia, it could take enough oil off the market to cause more
economic damage than a direct attack on the United States.
At that point,
$6 a gallon would look like a steal.
short-term, hurricane-induced oil crisis will subside. But the clear
and present danger to our economy and our security from America's
long-term dependency on oil will not subside - unless we act now.
In fact, it will only get worse.
As usual, the
American people are already way ahead of Washington. Whether it's
Galesburg farmers growing the corn that can fuel our cars or the
Chicago factory workers making the microchip that let's us plug
them in, people across the country have been taking America's energy
future into their own hands with the same sense of innovation and
optimism that sent the Wright brothers into the sky, led Dr. Salk
to a cure for polio, and fueled Henry Ford's confidence that his
workers could afford the cars they made.
But for too long
now, this can-do spirit has been stifled by a can't-do government
that seems to think it has no role in solving great national challenges
or rallying a country to a cause. One that's content with simply
giving more tax breaks to energy industries without asking for anything
in return. Content with sending $650 million a day to countries
like Saudi Arabia to pay for our fuel. And content with energy legislation
that takes on only the easiest parts of the problem.
Now, I voted for
the last energy bill. Because it took some baby steps in the right
direction. It invests in the renewable, homegrown biofuels that
could turn out to be some of the most promising alternatives to
oil. It contains some provisions that would help us use alternative
energy sources, increase our refinery capacity, and invest in clean
coal technology. And recently, the administration made some executive
policy changes that make it more difficult to classify cars as "light
trucks," which would increase the production of more fuel-efficient
None of these
provisions do any harm - and a few do some good. But the energy
bill and the administration's reforms don't suffer from sins of
commission. Instead, they suffer from sins of omission. The solutions
are too timid - the reforms too small. A bill that reduces our dependency
on foreign oil by just 3% when our demand is about to jump 40% is
not a serious energy policy. We need to do more.
The truth is,
an oil future is not a secure future for America. Indeed, the rest
of the world is already moving away from oil, and the longer we
wait, the more difficult and painful it will be for our companies
and our workers to catch up. Countries like China and Japan are
creating jobs and slowing oil consumption by churning out and buying
millions of fuel-efficient cars. Brazil, a nation that once relied
on foreign countries to import 80% of its crude oil, will now be
entirely self-sufficient in a few years thanks to its investment
in biofuels. By getting more ethanol on the market and equipping
their cars with the flexible-fuel engines that allow them to run
on this fuel, Brazil has succeeded secured its energy supply while
still giving consumers a break at the pump.
So why can't we
do this? Why can't this be one of the great American projects of
the 21st century?
The answer is,
it can. We can do this with technology we have on the shelves right
now; we can do it by saving, not crippling, our ailing auto companies;
and we can do it by using the kind of clean, renewable sources of
energy that we can literally grow right here in America.
There's no silver
bullet. A solution to our energy dilemma won't come overnight. But
we don't have to accept the wait-and-see attitude anymore. It flies
in the face of our history and our founding principles. Katrina
has shown us what could happen if we don't move away from an oil
economy, but it has also provided us with a moment to challenge
that kind of a future. Now is the time to seize that moment.
In the short-term,
this probably means that we'll need to build even more refinery
capacity and create not just a Strategic Petroleum Reserve, but
also a Strategic Gasoline Reserve so that we can deal with the type
of shortages we saw from Katrina. It means that we'll need to invest
more in the clean technology that will allow us to burn more coal,
our country's most abundant fossil fuel. And it means that we should
continue to encourage the use of renewable fuels - by insisting
that they make up 20% of our energy use and making sure that every
new car in America has a flexible-fuel engine by 2010.
But we need to
take even greater steps than these short-term measures. We need
solutions that strike at the very heart of our dependence on oil.
Right now, the
largest consumers of oil in this country are the cars we drive.
And right now, we also have the technology to build cars that travel
much further on a gallon of gas. We already have thousands of gas-electric
hybrid cars driving around that can get 50 miles per gallon. Soon,
plug-in hybrids will be able to get 75 miles per gallon. And experts
believe that if we pump biofuels like E85 into a plug-in hybrid
car, we can actually get up to 500 miles per gallon of gasoline.
So the technology
is on the shelf. It's ready and available for our car companies
to use. If we made sure that all passenger vehicles built in the
U.S. got 40 miles per gallon, we would save consumers up to $5,000
at the pump over the life of their cars.
If we do this
alone, we could reduce our dependence on foreign oil by over 1 billion
barrels a year by 2020.
For years, we've
hesitated to raise fuel economy standards as a nation in part because
of a very legitimate concern - the impact it would have on Detroit.
The auto industry is right when they argue that transitioning to
more hybrid and fuel-efficient cars would require massive investment
at a time when they're struggling under the weight of rising health
care costs, sagging profits, and stiff competition from Europe and
But it's precisely
because of that competition that they don't have a choice. As the
demand and waiting lists for hybrid cars skyrocket, demand for SUVs
- American car companies' biggest source of profit - is expected
to plummet. The market is telling the auto industry to move away
from oil - but so far only foreign companies are listening.
China now has
a higher fuel economy standard than we do, and it's got 200,000
hybrids on its roads. Japan's Toyota is doubling production of the
popular Prius to sell 100,000 in the U.S. this year, and it's getting
ready to open a brand new production plant in China.
are running circles around their American counterparts. Ford is
only making 20,000 Escape Hybrids this year, and GM's brand won't
be on the market until 2007. This isn't just costing us energy efficiency
- it's decimating American businesses and costing American workers
There is now no
doubt that fuel-efficient cars represent the future of the auto
industry. These cars will be built and bought and mass quantities.
The only question is where and by who?
If American car
companies hope to be a part of that future, if they hope to compete
- if they hope to survive - they must make the necessary adjustments
so that they can start building these cars. And we must help them
There are many
ways to do this and many good conversations that already taking
place. One option is to provide direct subsidies to the auto industries
so that it can transition its production to more fuel-efficient
vehicles. Others have suggested providing tax credits for consumers
to buy these cars.
Today I'd like
to give you another example of a deal that Washington could make
with Detroit. We'd start by raising the fuel economy standards in
this country by 3% a year over the next fifteen years. But to help
our auto industry make the transition - to give them the competitive
edge they need against their foreign counterparts - we'd pay for
part of the biggest costs they face today: retiree health care.
Right now, health care costs represent $1,500 of the price of every
GM car that's made. By picking up part of the tab for the health
care costs of their retirees, we'd be lifting a huge burden off
the auto industry so that they'll invest in the technology that
will finally reduce America's dependence on foreign oil.
- investing in more hybrids and renewable energy sources; raising
CAFE standards and helping our auto industry transition to a fuel-efficient
future - represent a road to energy independence that will require
some tough decisions and difficult politics, but as we look toward
the future, it's the road we must travel as a nation. We could open
up every square inch of America to drilling and we still wouldn't
even make a dent in our oil dependency. We could open up ANWR today,
and at its peak, which would be more than a decade from now, it
would give us enough oil to take care of our transportation needs
for about a month. Clearly, this is not a solution.
At the dawn of
the Internet Age, Andy Grove of Intel famously said that there are
two kinds of businesses: those that use email and those that will.
Today, there are two kinds of car companies: those who make fuel-efficient
cars and those that will. We can't follow the world anymore. We
must lead. And if we don't act now, the economic and societal benefits
that have always been the hallmark of American innovation will find
a home somewhere else.
There are few
issues in American politics that have such a far-reaching effect
on almost every aspect of our well-being as a nation, yet remain
so absent from public interest and action. But as we cut through
all the talk and the politics in the energy debate, we can see what
the debate is really about.
We see the family
that thinks twice about what they'll spend at the grocery store
this week, because they've been paying $40 to fill up the tank for
the last month. We see the grandmother who isn't sure how she'll
make her Social Security check cover January's heating bill. The
autoworker who isn't sure what the future at Ford holds for him.
And the mother who sees turmoil in the Middle East and worries that
someday her son might have to fight to secure our oil supply.
see a nation that cannot control its future as long as it cannot
control the source of energy that keeps it running.
Recently, I returned
from a trip to Ukraine, where I had the opportunity to meet the
nation's third president, Viktor Yushchenko. Since the country first
broke away from the Soviet Union more than a decade earlier, Ukraine
has been trying to forge its own identity and assert its own independence
from Russia. This culminated earlier this year in the Orange Revolution,
a mass demonstration from thousands of protestors who stood by Yushchenko
and his promise to move his country further from the sphere of Russian
finally won. But today, Ukraine remains almost entirely dependent
on - guess who -- Russia - for all it's oil and gas supplies. And
it is widely expected that in anticipation of next year's parliamentary
elections, Russia will triple the prices of both. Despite all the
soaring rhetoric, the demonstrations and the courage, Ukraine still
finds itself at the mercy of its former patron - a nation that can
now influence every political and economic decision they make -
all because of oil.
This will not
be America's future - but this is the stranglehold that fossil fuels
can have on a nation's freedom. Ukraine may have little choice in
the matter. The most powerful and wealthy nation on earth, teeming
with brilliant minds and cutting-edge technology, surely does. The
genius of the American people has already shown us the path towards
energy independence, now they're just waiting for their government
to take them there. Let's finally get it done. Thank you.