[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
$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
$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
U.S. GOVERNMENT PRINTING OFFICE
62-524 WASHINGTON : 2010
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20402-0001
SELECT COMMITTEE ON ENERGY INDEPENDENCE
AND GLOBAL WARMING
EDWARD J. MARKEY, Massachusetts, Chairman
EARL BLUMENAUER, Oregon F. JAMES SENSENBRENNER, Jr.,
JAY INSLEE, Washington Wisconsin, Ranking Member
JOHN B. LARSON, Connecticut JOHN B. SHADEGG, Arizona
HILDA L. SOLIS, California GREG WALDEN, Oregon
STEPHANIE HERSETH SANDLIN, CANDICE S. MILLER, Michigan
South Dakota JOHN SULLIVAN, Oklahoma
EMANUEL CLEAVER, Missouri MARSHA BLACKBURN, Tennessee
JOHN J. HALL, New York
JERRY McNERNEY, California
------
Professional Staff
Gerard J. Waldron, Staff Director
Aliya Brodsky, Chief Clerk
Thomas Weimer, Minority Staff Director
C O N T E N T S
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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
$4 GASOLINE AND FUEL ECONOMY: AUTO INDUSTRY AT A CROSSROADS
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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 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 high-price 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:]
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 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
Lieberman-Warner 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-a-gallon 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 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.
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 technology, 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
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.
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.
[The information follows:]
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:]
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-hour 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 plug-in 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 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, plug-in, 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.
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 larger-footprint 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 everybody 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 business 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 plug-in 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.
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 market-
based 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 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 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 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----
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 lower-priced 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 country. 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 two-thirds 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 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, 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 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 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-emission 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 four-cylinder 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 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:]
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 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:]
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.
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:]
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 actually 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:]
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.
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 CO 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.
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
off-peak 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 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 Werhner 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 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?
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 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 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 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?
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.
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 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 be 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.
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.]