[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


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                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

                              ----------                              
                                                                   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

                              ----------                              


                        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.]






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