[Senate Hearing 111-78]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 111-78

     ENERGY SECURITY: HISTORICAL PERSPECTIVES AND MODERN CHALLENGES

=======================================================================

                                HEARING

                               BEFORE THE



                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 12, 2009

                               __________

       Printed for the use of the Committee on Foreign Relations


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                COMMITTEE ON FOREIGN RELATIONS         

             JOHN F. KERRY, Massachusetts, Chairman        
CHRISTOPHER J. DODD, Connecticut     RICHARD G. LUGAR, Indiana
RUSSELL D. FEINGOLD, Wisconsin       Republican Leader designee
BARBARA BOXER, California            BOB CORKER, Tennessee
ROBERT MENENDEZ, New Jersey          JOHNNY ISAKSON, Georgia
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   JIM DeMINT, South Carolina
JIM WEBB, Virginia                   JOHN BARRASSO, Wyoming
JEANNE SHAHEEN, New Hampshire        ROGER F. WICKER, Mississippi
EDWARD E. KAUFMAN, Delaware
KIRSTEN E. GILLIBRAND, New York
                  David McKean, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

                              (ii)        










                            C O N T E N T S

                              ----------                              
                                                                   Page

Carter, Hon. Jimmy, former President of the United States, 
  Plains, GA.....................................................     5
    Prepared statement...........................................    10
Kerry, Hon. John F., U.S. Senator from Massachusetts, opening 
  statement......................................................     1
Lugar, Hon. Richard G., U.S. Senator from Indiana................     4
Smith, Frederick W., chairman, president, and chief executive 
  officer, FedEx Corp., Memphis, TN..............................    28
    Prepared statement...........................................    30
Wald, Gen. Charles F., USAF (Ret.), senior fellow, Bipartisan 
  Policy Center, Washington, DC..................................    25
    Prepared statement...........................................    26

                                 (iii)

  

 
     ENERGY SECURITY: HISTORICAL PERSPECTIVES AND MODERN CHALLENGES

                              ----------                              


                         TUESDAY, MAY 12, 2009

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:03 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. John F. Kerry 
(chairman of the committee) presiding.
    Present: Senators Kerry, Cardin, Shaheen, Kaufman, Lugar, 
Isakson, Risch, and Barrasso.

  OPENING STATEMENT OF HON. JOHN F. KERRY, U.S. SENATOR FROM 
                         MASSACHUSETTS

    The Chairman. This hearing will come to order. And the 
record will reflect that this is the first time before a 
hearing that any witness that I can remember has been 
applauded, Mr. President.
    We are obviously very, very pleased to have with us today 
President Jimmy Carter.
    ``Why have we not been able to get together as a nation and 
resolve our serious energy problem?'' These were the words of 
President Jimmy Carter in 1979. And regrettably, despite the 
strong efforts of President Carter and others, here we are, in 
2009, still struggling to meet the same challenge today.
    It's a rare honor to welcome a former President of the 
United States to testify before this committee, and I'm very, 
very pleased to share this honor with my colleague, Senator 
Lugar, who will be here momentarily, and with other colleagues.
    Senator Lugar was sworn in 3 weeks before the Carter 
administration began, and he's been a leading voice on the 
issue of energy security ever since, and he is now the senior 
Republican in the U.S. Senate.
    This is the first in a series of hearings that will build 
on the important work that was done by Senator Lugar and then-
Senator Biden on the issue of energy security over the last 
several Congresses. From securing our natural gas pipelines 
globally to creating clean development pathways, this is 
obviously not just an important issue, but it's a broad issue 
that has implications well beyond just energy; it cuts across 
disciplines and across regions. We hope to use these hearings 
to gain insight and perspective on the current state of our 
challenge, and particularly to help understand this in the 
context of the global economy, global security threats, and the 
national security needs of our Nation.
    The downside of our continued dependence on oil is 
compelling, it is well known; and the downside is only growing. 
Economically, it results in a massive continuous transfer of 
American wealth to oil-exporting nations, and it leaves us 
vulnerable to price and supply shocks. But, the true cost of 
our addiction extends far beyond what we pay at the pump; its 
revenues and power and sustained despots and dictators, and it 
obliges our military to defend our energy supply in volatile 
regions of the world at very great expense.
    These were some of the problems that then-President Carter 
saw, understood, and defined, back in the latter part of the 
1970s. They remain problems today. And to this long list of 
problems, we now add two very urgent, and relatively new, 
threats: Global terror, funded indirectly by our expenditures 
on oil, and global climate change driven by the burning of 
fossil fuels.
    To make matters worse, we are adding billions of new 
drivers on the roads and consumers across the developing world, 
as India and China's population and other populations move to 
automobiles, as lots of other folks did, all of that will 
ensure that the supplies of existing energy sources will grow 
even tighter. All the trends are pointing in that wrong 
direction.
    According to the International Energy Agency, global energy 
demand is expected to increase approximately 45 percent between 
2006 and 2030, fueled largely by growth in the developing 
world. So, we're here today to discuss both the geostrategic 
challenges posed by our current energy supply and the need to 
find new and more secure sources of energy in the future.
    From development to diplomacy to security, no part of our 
foreign policy is untouched by this issue. Region by region, 
our energy security challenge is varied and enormous. In 
Europe, for example, the potential for monopolistic Russian 
control over energy supplies is a source of profound concern 
for our allies, with serious implications for the daily lives 
of their citizens. Too often, the presence of oil multiples 
threats, exacerbates conflicts, stifles democracy and 
development, and blocks accountability.
    In Nigeria, massive oil revenues have fueled corruption and 
conflict. In Venezuela, President Chavez has used oil subsidies 
to great effect to buy influence with neighbors. Sudan uses its 
energy supply to buy impunity from the global community for 
abuses. Iran uses petro dollars to fund Hamas and Hezbollah, 
and to insulate its nuclear activities from international 
pressure.
    We know that, at least in the past, oil money sent to Saudi 
Arabia has eventually found its way into the hands of 
jihadists. And, of course, oil remains a major bone of 
contention and a driver of violence in Kirkuk and elsewhere 
among Iraq's religious and ethnic groups.
    And alongside these security concerns, we must also 
recognize that access to energy is fundamental to economic 
development. Billions of people who lack access to fuel and 
electricity will not only be denied the benefits of economic 
development, their energy poverty leaves them vulnerable to 
greater political instability and more likely to take advantage 
of dirty or local fuel sources that then damage the local 
environment and threaten the global climate.
    Taken together, these challenges dramatically underscore a 
simple truth: Scarce energy supplies represent a major force 
for instability in the 21st century. That is why, even though 
the price of a barrel of oil is, today, $90 below its record 
high from last summer, we cannot afford to repeat the failures 
of the past. Ever since President Nixon set a goal of energy 
independence by 1980, price spikes and moments of crisis have 
inspired grand plans and Manhattan projects for energy 
independence, but the political will to take decisive action 
has dissipated as each crisis has passed. That is how steps 
forward have been reversed and efforts have stood still even as 
the problem has gotten worse.
    In 1981, our car and light-truck fleet had a fuel 
efficiency rate of 20.5 miles per gallon. Today, that number is 
essentially the same. The only difference? Back then we 
imported about a third of our oil; today we import 70 percent.
    The good news is that we are finally moving beyond the old 
paradigm in which crisis gives way to complacency. In recent 
years, Congress and the administration have made some progress, 
some real progress. In 2007, I was proud to be part of the 
effort that raised fleetwide fuel efficiency standards for the 
first time since the Carter administration. Then, in February 
we passed an economic recovery package which was America's 
largest single investment in clean energy that we have ever 
made. Though our progress has been impressive, the fact is--and 
President Carter will talk about this today--the lion's share 
of the hard work still lies in front of us. I'm hopeful that 
these hearings on energy security will illuminate the way 
forward, both in securing our existing resources and 
encouraging the growth of secure, affordable, and sustainable 
alternatives.
    It's a particular pleasure to have President Carter here, 
because President Carter had the courage, as President of the 
United States, to tell the truth to Americans about energy and 
about these choices, and he actually set America on the right 
path in the 1970s. He created what then was the first major 
effort for research and development into the energy future, 
with the creation of the Energy Laboratory, out in Colorado, 
and tenured professors left their positions to go out there and 
go to work for America's future. Regrettably, the ensuing years 
saw those efforts unfunded, stripped away, and we saw America's 
lead in alternative and renewable energy technologies, that we 
had developed in our universities and laboratories, transferred 
to Japan and Germany and other places, where they developed 
them. In the loss of that technology, we lost hundreds of 
thousands of jobs and part of America's energy future.
    President Carter saw that, knew and understood that future. 
He dealt with these choices every day in the Oval Office, and 
he exerted genuine leadership. He's been a student of these 
issues and a powerful advocate for change in the decades since, 
and we're very grateful that he's taken time today to share 
insights with us about this important challenge that the 
country faces.
    Senator Lugar.

 STATEMENT OF HON. RICHARD G. LUGAR, U.S. SENATOR FROM INDIANA

    Senator Lugar. Well, thank you very much, Mr. Chairman. I 
join you, welcoming President Carter, and, likewise, your very 
thoughtful comments about his leadership in the Oval Office, 
and we look forward to his perspectives today to be helpful to 
all of us.
    And I welcome, also, our second panel, Gen. Chuck Wald, 
former Deputy Commander of European Command, and Mr. Fred 
Smith, the chief executive officer of FedEx. In addition to 
their own substantial expertise on energy policy, General Wald 
and Mr. Smith are leaders in a coalition called Securing 
America's Future Energy, which advocates for energy policy 
reform that's broad in scope and aggressive in action.
    We're cognizant that, despite past campaigns for energy 
independence and the steady improvement in energy intensity per 
dollar of GDP, we are more dependent on oil imports today than 
we were during the oil shocks of the 1970s. And yet, I believe 
that the American public and elected officials are becoming 
much more aware of the severe problems associated with oil 
dependence, and are more willing to take aggressive action. 
Similarly, Americans are recognizing that we have the capacity 
to change how we generate electricity and how we heat and cool 
our buildings.
    This past weekend, I was thrilled to be a part of a 
participation in the groundbreaking for a unique and ambitious 
geothermal energy project at Ball State University, in Muncie, 
IN. Through this project, the biggest of its type in the 
country, the entire campus, more than 40 buildings, will be 
heated and cooled using geothermal energy. The project will 
allow the university to retire its coal-fired boilers, and it 
will save more than $2 million a year in doing so. The Ball 
State geothermal project provides a practical, real-world 
example of how large-scale alternative-energy projects are now 
economically viable today. I'm confident that when other 
universities, businesses, and institutions see what's happening 
in Muncie with American-built equipment, they'll be asking how 
can they put that technology to work for themselves.
    And even as I was encouraged by the geothermal project, 
another development last week pushed the United States further 
from energy independence. Proposed regulations offered by the 
Environmental Protection Agency could halt expansion of ethanol 
produced from cornstarch by imposing prejudicial greenhouse gas 
standards on ethanol qualifying under the renewable fuels 
mandate. By attempting to regulate ethanol through incomplete 
modeling of so-called life-cycle greenhouse gas emissions, the 
EPA seeks to blame corn farmers for shifting land-use patterns 
around the world. Accurately measuring such a complex 
phenomenon would also require accounting for varying trade 
barriers, distortional subsidy regimes, the decline of foreign-
assistance-targeted rural development, and many other factors.
    In 2006, I joined with President Obama and Senator Harkin 
to propose an expansive increase in the renewable fuels 
mandate. And the reason for doing so was clear; foreign oil 
dependency is a security threat to our Nation. Each of us 
working in this area recognizes the ultimate goal is for the 
United States to produce much larger quantities of advanced 
biofuels made from any plant material. Important advances have 
been made in cellulosic technology, and more will be achieved. 
But, the development of this technology will be much slower if 
we stifle existing corn-based ethanol production.
    The physical and financial infrastructure used to deploy 
today's ethanol are essential building blocks of the 
infrastructure necessary to deploy advanced biofuels on a mass 
scale. And moreover, reversing clear government policy that 
promotes corn ethanol may undermine the confidence of potential 
investors in advanced biofuels and perhaps other energy 
technologies. Our Nation cannot afford to turn its back on the 
primary oil substitute available today, and production of 9.2 
billion gallons of ethanol erased the need last year for 325 
million barrels of crude oil. In effect, ethanol production 
allowed the United States oil import free for an entire month 
last year. In this case, an EPA regulation carrying the force 
of law threatens to further entrench U.S. oil dependence.
    The President and Congress must make specific commitments 
to an array of technologies and ensure that our rhetoric is 
matched by our policies and our regulations. For example, in 
the summer of 2005, Congress passed a loan guarantee program 
aimed at speeding commercialization of emerging energy 
technologies, including and underlining cellulosic ethanol. 
Yet, due to bureaucratic inertia and disagreements over 
implementation, no loan guarantees were granted for more than 
3\1/2\ years, and only one has been granted to date. The United 
States needs a broad range of technology development, domestic 
energy production, and efficiency gains to make substantial 
progress toward energy independence.
    Having worked with President Obama and Vice President Biden 
on these issues during their tenure in the Senate, I believe 
they understand that urgency. Energy security is a national 
security priority. It must be given constant attention and 
support at all levels of government.
    I thank the chairman for calling this hearing and look 
forward to our distinguished witnesses.
    The Chairman. Thank you very much, Senator Lugar.
    Mr. President, again--I'd say to my colleagues, I had a 
chance to visit with the President briefly before we came here, 
and I will tell you that the work of the Carter Center, 
globally, is really quite extraordinary. This committee would 
do well to have some of our staff go down there and spend some 
time understanding how the Carter Center has been able to get 
services and efforts into a lot of countries. These services do 
enormous good for considerably less dollars than some of the 
USAID and other efforts, and we need to look hard at how that 
happens.
    Mr. President, thank you very, very much for being here 
with us today, and we look forward to your testimony, sir.

STATEMENT OF HON. JIMMY CARTER, FORMER PRESIDENT OF THE UNITED 
                       STATES, PLAINS, GA

    President Carter. Thank you, Mr. Chairman. I have already 
learned a lot from the two opening statements, and I'm very 
pleased to be here to accept Senator Kerry's request to relate 
my personal experiences, as President, in meeting the multiple 
challenges of a comprehensive energy policy and the 
interrelated strategic issues. They've changed very little 
during the last three decades.
    Fourteen years ago I responded to a similar invitation from 
Senator Sam Nunn to report on one of the peace missions I had 
made in 1994 to North Korea, Haiti, and Bosnia. At that time, I 
was the fifth President ever to testify before a Senate 
committee, and the first one since Harry Truman.
    Long before my inauguration as President, I was vividly 
aware of the interrelationship between energy and foreign 
policy. U.S. oil prices had quadrupled in 1973, when Mr. Nixon 
was President and I was Governor, with our citizens subjected 
to severe oil shortages and long gas lines brought about by a 
boycott of Arab OPEC countries. Even more embarrassing to a 
proud and sovereign nation was a secondary boycott that I 
inherited in 1977 against American corporations doing business 
with Israel. We overcame both challenges, but these were vivid 
demonstrations of the vulnerability that comes with excessive 
dependence on foreign oil.
    At that time, we were importing 50 percent of consumed oil, 
almost 9 million barrels per day, and were the only 
industrialized nation that did not have a comprehensive energy 
policy. Senators Dodd and Lugar will remember those days.
    It was clear that we were subjected to deliberately imposed 
economic distress and even political blackmail. A few weeks 
after I became President, I elevated this issue to my top 
domestic priority. In an address to the Nation, I said: ``Our 
decision about energy will test the character of the American 
people and the ability of the President and Congress to govern 
this Nation. This difficult effort will be the ``moral 
equivalent of war,'' except it will be uniting our efforts to 
build and not to destroy.''
    First, let me review our work with the U.S. Congress, which 
will demonstrate obvious parallels with the challenges that lie 
ahead and may be informative to the Foreign Relations 
Committee, and also to those of you who serve on other 
committees.
    Our efforts to conserve energy and to develop our own 
supplies of oil, natural gas, coal, and renewable sources were 
intertwined domestically with protecting the environment, 
equalizing supplies to different regions of the country, and 
balancing the growing struggle and animosity between consumers 
and producers. Oil prices then were controlled at very low, 
artificial levels, through an almost incomprehensible formula 
based on the place and time of the discovery of a particular 
oil well, and the price of natural gas was tightly controlled--
but only if it crossed a State line. Scarce supplies naturally 
went where prices were the highest, depriving some regions of 
needed fuel; like New England, for instance.
    Energy policy was set by more than 50 different Federal 
agencies, and I was determined to consolidate them into a new 
department. In April 1977, after just 90 days in office, we 
introduced a cohesive and comprehensive energy proposal, with 
113 individual components. We were shocked to learn that it was 
to be considered by 17 committees and subcommittees in the 
House and would have to be divided into five separate bills in 
the Senate.
    Speaker Tip O'Neill was able to create a dominant ad hoc 
House committee under Chairman Lud Ashley, but the Senate 
remained divided under two strong-willed, powerful, and 
competitive men: ``Scoop'' Jackson and Russell Long.
    In July, we pumped the first light crude oil into our 
strategic petroleum reserve in Louisiana, the initial stage in 
building up to my target of 115 days of imports. A historical 
note--we reached that goal in 1985. Less than a month after 
this, I signed a new Energy Department into law, with James 
Schlesinger as Secretary, and the House approved, that quickly, 
my omnibus proposal. In the Senate, however, the oil and 
automobile industries prevailed in Senator Long's committee, 
which produced unacceptable bills dealing with price controls 
and the use of coal. There was strong bipartisan support 
throughout the Congress, but many liberals then preferred no 
legislation to the high prices that were in prospect. Three 
other Senate bills encompassed my basic proposals on 
conservation, coal conversion, and electricity rates. They were 
under Senator Jackson's control.
    I insisted, however, on the maintenance of a comprehensive 
or omnibus bill, crucial--then and now--to hold this together 
to prevent fragmentation and control by oil company lobbyists, 
and the year ended in an impasse. As is now the case, enormous 
sums of money were involved, and the life of every single 
American was being touched. The House/Senate conference 
committee was exactly divided and stalemated. I could only go 
directly to the American people. I made three prime-time TV 
speeches, in addition to addressing a joint session of 
Congress, on this single issue: Energy. Also, we brought a 
stream of interest groups into the White House, several times a 
week, for direct briefings.
    The conferees finally reached agreement, but, under 
pressure, many of the conference committee members refused to 
sign their own report, and both Senators Long and Jackson 
threatened filibusters on natural gas and an oil windfall 
profits tax.
    In the meantime, as President I was negotiating to 
normalize diplomatic relations with China. I was bringing 
Israel and Egypt together in a peace agreement. I was sparring 
with the Soviets on a Strategic Arms Limitation Treaty. I was 
allocating, with Congress, vast areas of land in Alaska and I 
was trying to induce 67 Members of a reluctant Senate to ratify 
the Panama Canal treaties. Our closest allies were vocally 
critical of our profligate waste of energy, and OPEC members 
were exacerbating our problems every time they had a chance.
    Finally clearing the conference committee and a last-minute 
filibuster in the Senate, the omnibus bill returned to the 
House for a final vote just before the 1978 elections and, 
following an enormous White House campaign--I think I called 
every single Member of the House--it passed, 207 to 206.
    The legislation put heavy penalties on gas-guzzling 
automobiles; forced electric utility companies to encourage 
reduced consumption; mandated insulated buildings and efficient 
electric motors and heavy appliances; promoted ``gasohol,'' as 
it was known then; production and carpooling; decontrolled 
natural gas prices at a rate of 10 percent per year; promoted 
solar, wind, geothermal, and water power; permitted the feeding 
of locally generated electricity, even from small dams, into 
utility grids; and regulated strip mining and leasing of 
offshore drilling sites. We were also able to improve 
efficiency by deregulating our entire air, rail, and trucking 
transportation systems.
    What remained was decontrolling oil prices and the 
imposition of a windfall profits tax. This was a complex and 
extremely important issue, with hundreds of billions of dollars 
involved. The big question was how much of the profits would go 
to the oil companies and how much would be used for public 
benefit?
    This issue took on even more significance as the price of 
imported oil more than doubled after the outbreak of the 
Iranian Revolution. With deregulated prices, the oil companies 
would see more profit in their pockets with every price 
increase.
    We reached a compromise in the spring of 1980, with a 
variable tax rate of 30 percent to 70 percent on the oil 
companies' profits; the proceeds to go into the general 
treasury and be allocated by the Congress in each year's 
budget. The tax was scheduled to expire after 13 years or when 
$227 billion had been collected.
    Our strong actions regarding conservation and alternative 
energy sources resulted in a reduction of net oil imports by 50 
percent, from 8.6 to 4.3 million barrels per day by 1982, just 
28 percent of consumption then. Increased efficiency meant 
that, during the next 20 years, our gross national product 
increased four times as much as energy consumption increased. 
This shows what can be done.
    Unfortunately, there has been a long period of energy 
complacency, and our imports are now almost 13 million barrels 
a day. I dedicated solar collectors on the White House roof in 
1979 and set a reasonable national goal: 20 percent of energy 
from renewable sources by 2020. But, the 32 panels were 
removed, after my successor moved to the White House, with 
assurances to the American people that such drastic action 
would no longer be necessary.
    The United States now uses 2\1/2\ times more oil than 
China, and 7\1/2\ times more than India, or, on a per capita 
consumption basis, 12 times China's and 28 times India's.
    Although our rich Nation can afford these daily purchases, 
there's little doubt that, in general terms, we are constrained 
not to alienate our major oil suppliers, which puts a restraint 
on our Nation's foreign policy. And some of these countries are 
publicly antagonistic; they are known to harbor terrorist 
organizations or to obstruct America's strategic interest. When 
we are inclined to use restrictive incentives, as on Iran, we 
find other oil consumers reluctant to endanger their supplies. 
On the other hand, the blatant interruption of Russia's natural 
gas supplies to Ukraine has sent a warning signal to its 
European customers that they can be blackmailed in the future.
    Excessive oil purchases are the solid foundation of our net 
trade deficit, which creates a disturbing dependence on foreign 
nations that finance our debt. We still face criticism from 
some of our own allies, who are far ahead of us in energy 
efficiency and commitments to environmental quality, and we 
must also remember that the poorest people also pay the higher 
oil prices that result from our enormous per capita 
consumption.
    A major new problem was first detected while I was 
President. My science adviser, Dr. Frank Press, informed me of 
evidence found by scientists at Woods Hole that the Earth was 
slowly warming and that human activity was at least partially 
responsible. Now my wife, Rosalynn, and I have personally 
observed the shrinking of glaciers, the melting of Arctic ice, 
and the inundation of villages along the Alaska shorelines. The 
last time Rosalynn and I went to Anchorage, AK, the lead 
newspaper headline read ``Polar Bears To Be Extinct in 25 
Years.''
    There's no doubt that rejecting the Kyoto Accords incurred 
severe condemnation to our country, and damaged our overall 
status as a world leader.
    To address this challenge forthrightly should not create 
fear among us. A source of income for our Government that 
parallels the windfall profits tax back in 1980 is some means 
of auctioning carbon credits, and it is likely that many more 
jobs will be created than lost with new technologies derived 
from a comprehensive energy plan, if it's ever forthcoming.
    My wife and I have visited more than 125 nations since 
leaving the White House, and the Carter Center now has programs 
in about 70 of them. We know that the people in abject poverty 
are suffering most from expensive and uncertain energy 
supplies, and are destined for much greater despair with rising 
sea levels, increased pollution, and desertification. It's 
difficult for us to defend ourselves against accusations that 
our waste of energy contributes to their plight.
    Everywhere, we see the intense competition by China for 
present and future oil supplies and other commodities--we just 
were in South America last week and saw this. Chinese financial 
aid is going to other key governments, including Argentina, 
Venezuela, Ecuador, and others--three countries we visited--and 
their financial aid is very helpful and appreciated.
    Recently, I've found the Chinese to be very proud of their 
more efficient, less polluting coal powerplants. They're 
building about one of these each month, in addition to some 
nonefficient plants, while we delay our first full-scale model. 
You might want to read an article that was in the New York 
Times yesterday that describes this disparity between the 
Chinese coal-building plants and ours. We also lag far behind 
many other nations in the production and use of windmills, 
solar power, nuclear energy, and the efficiency of energy 
consumption.
    Last week, we found especially confident--almost 
exuberant--the business and political leaders in Brazil. Their 
banking and financial system is relatively stable. Worldwide 
popularity and influence is very high. Enormous new oil 
deposits have been discovered off their coast, and Brazil is 
now the world leader in producing cellulose, wood products, 
cotton, orange juice, soybeans, corn, and sugarcane. Brazil is 
poised to export products and technology from its remarkable 
biofuels industry using nonfood sources.
    In closing, let me emphasize that our inseparable energy 
and environmental decisions will determine how well we can 
maintain a vibrant economy, society, protect our strategic 
interests, regain world political and economic leadership, meet 
relatively new competitive challenges, and deal with the less 
fortunate nations. Collectively, nothing could be more 
important than this question of energy and strategic interests.
    Thank you, Mr. Chairman.
    [The prepared statement of President Carter follows:]

Prepared Statement of Hon. Jimmy Carter, Former President of the United 
                           States, Plains, GA

    It is a pleasure to accept Senator Kerry's request to relate my 
personal experiences in meeting the multiple challenges of a 
comprehensive energy policy and the interrelated strategic issues. They 
have changed very little during the past three decades.
    Fourteen years ago I responded to a similar invitation from Senator 
Sam Nunn to report on one of the peace missions I had made in 1994 to 
North Korea, Haiti, and Bosnia. At that time I was the fifth President 
to appear before a Senate committee, and the first since Harry Truman.
    Long before my inauguration, I was vividly aware of the 
interrelationship between energy and foreign policy. U.S. oil prices 
had quadrupled in 1973 while I was Governor, with our citizens 
subjected to severe oil shortages and long gas lines brought about by a 
boycott of Arab OPEC countries. Even more embarrassing to a proud and 
sovereign nation was the secondary boycott that I inherited in 1977 
against American corporations doing business with Israel. We overcame 
both challenges, but these were vivid demonstrations of the 
vulnerability that comes with excessive dependence on foreign oil.
    At the time, we were importing 50 percent of consumed oil, almost 9 
million barrels per day, and were the only industrialized nation that 
did not have a comprehensive energy policy. Senators Dodd and Lugar 
will remember those days. It was clear that we were subject to 
deliberately imposed economic distress and even political blackmail 
and, a few weeks after becoming President, I elevated this issue to my 
top domestic priority. In an address to the Nation, I said: ``Our 
decision about energy will test the character of the American people 
and the ability of the President and the Congress to govern this 
Nation. This difficult effort will be the `moral equivalent of war,' 
except that we will be uniting our efforts to build and not to 
destroy.''
    First, let me review our work with the U.S. Congress, which will 
demonstrate obvious parallels with the challenges that lie ahead.
    Our effort to conserve energy and to develop our own supplies of 
oil, natural gas, coal, and renewable sources were intertwined 
domestically with protecting the environment, equalizing supplies to 
different regions of the country, and balancing the growing struggle 
and animosity between consumers and producers.
    Oil prices were controlled at artificially low levels, through an 
almost incomprehensible formula based on the place and time of 
discovery, etc., and the price of natural gas was tightly controlled--
but only if it crossed a State line. Scarce supplies naturally went 
where prices were highest, depriving some regions of needed fuel.
    Energy policy was set by more than 50 Federal agencies, and I was 
determined to consolidate them into a new department. In April 1977, 
after just 90 days, we introduced a cohesive and comprehensive energy 
proposal, with 113 individual components. We were shocked to learn that 
it was to be considered by 17 committees and subcommittees in the House 
and would have to be divided into five separate bills in the Senate. 
Speaker Tip O'Neill was able to create a dominant ad hoc House 
committee under Chairman Lud Ashley, but the Senate remained divided 
under two strong willed, powerful, and competitive men, ``Scoop'' 
Jackson and Russell Long.
    In July, we pumped the first light crude oil into our strategic 
petroleum reserve in Louisiana, the initial stage in building up to my 
target of 115 days of imports. Less than a month later, I signed the 
new Energy Department into law, with James Schlesinger as Secretary, 
and the House approved my omnibus proposal.
    In the Senate, the oil and automobile industries prevailed in 
Senator Long's committee, which produced unacceptable bills dealing 
with price controls and the use of coal. There was strong bipartisan 
support throughout, but many liberals, preferred no legislation to 
higher prices. Three other Senate bills encompassed my basic proposals 
on conservation, coal conversion, and electricity rates.
    I insisted, however, on the maintenance of a comprehensive or 
omnibus bill, crucial--then and now--to prevent fragmentation and 
control by oil company lobbyists, and the year ended in an impasse.
    As is now the case, enormous sums of money were involved, and the 
life of every American was being touched. The House-Senate conference 
committee was exactly divided and stalemated. I could only go directly 
to the people, and I made three primetime TV speeches in addition to 
addressing a joint session of Congress. Also, we brought a stream of 
interest groups into the White House--several times a week--for direct 
briefings.
    The conferees finally reached agreement, but under pressure many of 
them refused to sign their own report, and both Long and Jackson 
threatened filibusters on natural gas and an oil windfall profits tax.
    In the meantime, I was negotiating to normalize diplomatic 
relations with China, bringing Israel and Egypt together in a peace 
agreement, sparring with the Soviets on a Strategic Arms Limitation 
Treaty, allocating vast areas of land in Alaska, and trying to induce 
67 Members of a reluctant Senate to ratify the Panama Canal treaties. 
Our closest allies were vocally critical of our profligate waste of 
energy, and OPEC members were exacerbating our problems.
    Finally clearing the conference committee and a last-minute 
filibuster in the Senate, the omnibus bill returned to the House for a 
vote just before the 1978 elections, and following an enormous White 
House campaign it passed, 207-206.
    The legislation put heavy penalties on gas-guzzling automobiles; 
forced electric utility companies to encourage reduced consumption; 
mandated insulated buildings and efficient electric motors and heavy 
appliances; promoted gasohol production and car pooling; decontrolled 
natural gas prices at a rate of 10 percent per year; promoted solar, 
wind, geothermal, and water power; permitted the feeding of locally 
generated electricity into utility grids; and regulated strip mining 
and leasing of offshore drilling sites. We were also able to improve 
efficiency by deregulating our air, rail, and trucking transportation 
systems.
    What remained was decontrolling oil prices and the imposition of a 
windfall profits tax. This was a complex and extremely important issue, 
with hundreds of billions of dollars involved. The big question was how 
much of the profits would be used for public benefit.
    By this time, the Iranian revolution and the impending Iran-Iraq 
war caused oil prices to skyrocket from $15 to $40 a barrel ($107 in 
today's prices), as did the prospective deregulated price. We reached a 
compromise in the spring of 1980, with a variable tax rate of 30 
percent to 70 percent, the proceeds to go into the general treasury and 
be allocated by the Congress in each year's budget. The tax would 
expire after 13 years or when $227 billion had been collected.
    Our strong actions regarding conservation and alternate energy 
sources resulted in a reduction of net oil imports by 50 percent, from 
8.6 to 4.3 million barrels per day by 1982--just 28 percent of 
consumption. Increased efficiency meant that during the next 20 years 
our Gross National Product increased four times as much as energy 
consumption.
    This shows what can be done, but unfortunately there has been a 
long period of energy complacency and our daily imports are now almost 
13 million barrels. For instance, I dedicated solar collectors on the 
White House roof in 1979 and set a reasonable national goal of 
obtaining 20 percent of energy from renewal sources by 2020. The 32 
panels were soon removed, with assurances that such drastic action 
would no longer be necessary.
    The United States now uses 2\1/2\ times more oil than China and 
7\1/2\ times more than India or, on a per capita consumption basis, 12 
times China's and 28 times India's.
    Although our rich Nation can afford these daily purchases, there is 
little doubt that, in general terms, we are constrained not to alienate 
our major oil suppliers, and some of these countries are publicly 
antagonistic, known to harbor terrorist organizations, or obstruct 
America's strategic interests. When we are inclined to use restrictive 
incentives, as on Iran, we find other oil consumers reluctant to 
endanger their supplies. On the other hand, the blatant interruption of 
Russia's natural gas supplies to Ukraine has sent a warning signal to 
its European customers.
    Excessive oil purchases are the solid foundation of our net trade 
deficit, which creates a disturbing dependence on foreign nations that 
finance our debt. We still face criticism from some of our allies who 
are far ahead of us in energy efficiency and commitments to 
environmental quality, and we must also remember that the poorest 
people also pay the higher oil prices that result from our enormous per 
capita consumption.
    A major new problem was first detected while I was President, when 
science adviser Frank Press informed me of evidence by scientists at 
Woods Hole that the earth was slowly warming and that human activity 
was at least partially responsible. Now, my wife and I have personally 
observed the shrinking of glaciers, melting of Arctic ice, and 
inundation of villages along the Alaska shoreline. Top newspaper 
headlines greeted us on a recent visit to Anchorage: ``Polar Bears to 
be Extinct in 25 Years.''
    There is no doubt that rejecting the Kyoto Accords incurred severe 
condemnation of our country, and damaged our overall status as a world 
leader.
    To address this challenge forthrightly should not create fear among 
us. A source of income for our Government that parallels the windfall 
profit tax is some means of auctioning carbon credits, and it is likely 
that many more jobs will be created than lost with new technologies 
derived from a comprehensive energy plan.
    We have visited more than 125 nations since leaving the White 
House, and The Carter Center has programs in about 70 of them. We know 
that the people in abject poverty are suffering most from expensive and 
uncertain energy supplies, and are destined for much greater despair 
with rising sea levels, increased pollution, and desertification. It is 
difficult for us to defend ourselves against accusations that our waste 
of energy contributes to their plight.
    Everywhere, we see the intense competition by China for present and 
future oil supplies (and other commodities), and their financial aid 
going to other key governments. Recently I found the Chinese to be very 
proud of their more efficient, less polluting coal powerplants. They 
are building about one each month, while we delay our first full-scale 
model.
    We also lag far behind many other nations in the production and use 
of windmills, solar power, nuclear energy, and the efficiency of energy 
consumption. Last week, we found especially confident--almost 
exuberant--business and political leaders in Brazil. Their banking and 
financial system is relatively stable, worldwide popularity and 
influence is very high, enormous new oil deposits have been discovered, 
and Brazil is now the world leader in producing cellulose, wood 
products, cotton, orange juice, soybeans, corn, sugarcane, and are 
poised to export products and technology from their remarkable biofuels 
industry using nonfood resources.
    In closing, let me emphasize that our inseparable energy and 
environmental decisions will determine how well we can maintain a 
vibrant society, protect our strategic interests, regain worldwide 
political and economic leadership, meet relatively new competitive 
challenges, and deal with less fortunate nations. Collectively, nothing 
could be more important.

    The Chairman. Well, thank you very much, Mr. President. We 
greatly appreciate those insights on the journey traveled and 
also on the challenge ahead. If you would be kind enough, I 
think we'd probably like to be able to ask a few questions, if 
we can.
    Mr. President, in the context of today's energy challenge, 
which is not all that dissimilar, what would your advice be to 
the Congress as it grapples with the global climate change and 
energy bills that we're about to undertake? Is there an order 
of priorities, in your judgment? Is there a way we should 
approach this, based on the lessons that you've learned and 
have observed over these years?
    President Carter. Senator, I think there would be two basic 
elements of it. One is an omnibus proposal that could be 
addressed collectively by the Congress. I don't know how many 
different committees would be involved now, but they need to be 
brought together in a common approach to the complex problem, 
because no single element of it can be separated from the 
others. I think it would also minimize the adverse influence of 
special interest groups who don't want to see the present 
circumstances changed or a new policy put into effect to deal 
with either energy or with the environment. So, that's an 
important thing.
    Another advantage in having an omnibus bill is it gives the 
President and other spokespersons for our Government, including 
all of you, an opportunity to address this so the American 
people can understand it. You know already, it's extremely 
complex. I think that it is almost necessary to see a single 
proposal come forward combining energy and environment, as was 
the case in 1977 to 1980, so that it can be addressed 
comprehensively.
    This is not an easy thing, because now, with inflation, I 
guess several trillion dollars are involved; back in those 
days, hundreds of billions of dollars. And the interest groups 
are extremely powerful.
    I had the biggest problem, at the time, with consumer 
groups who didn't want to see the price of oil and natural gas 
deregulated. It was only by passing the windfall profits tax 
that we could induce some of them to support the legislation, 
because they saw that the money would be used for helping poor 
families pay high prices on natural gas for heating their homes 
and for alternative energy sources.
    The Chairman. Mr. President, I know you don't have eyes in 
back of your head, but we've been joined by your wife, Rosalynn 
Carter.
    President Carter. Oh, good.
    The Chairman. We're delighted that she is here with us 
today. Thank you so much.
    Right in back of you, sir.
    President Carter. I understand.
    The Chairman. And your daughter, Amy. We're delighted to 
welcome----
    President Carter. I felt an aura of authority enter the 
room----
    The Chairman. You did? [Laughter.]
    President Carter [continuing]. A few minutes ago. I didn't 
know where--what it came from. [Laughter.]
    The Chairman. Well, I know that they're fresh from a 
luncheon with our current First Lady, and we're delighted to 
welcome them here.
    President Carter. Amy was a 9-year-old when she moved into 
the White House--an age right between those of the two Obama 
children.
    The Chairman. Well, I'm sure they shared stories. I hope 
they did. [Laughter.]
    The Chairman. Mr. President, is there any doubt in your 
mind about the urgency of the United States leading on the 
issue of climate change, particularly with respect to the 
Copenhagen negotiations that will occur in December?
    President Carter. No, there's no doubt in my mind about 
that. In fact, all the way through at least the George H.W. 
Bush administration, we were in the forefront of evolving the 
Kyoto Accords. In fact, George Bush, Sr., was one of the main 
spokespersons in Rio de Janeiro. When the followup meeting was 
held it was a surprise, I think, even to our country and to the 
rest of the world, when we abandoned the leadership toward 
taking action on environment and global warming.
    Global warming is a new issue that didn't exist when I was 
in office, although it was first detected then. I would hope 
that we would take the leadership role in accurately describing 
the problem, not exaggerating it, and tying it in with the 
conservation of energy. And the clean burning of coal, I think, 
is a very important issue, as well, for which we could take 
leadership.
    I was really surprised, when I was in China recently with 
Rosalynn, and we met with the Chinese leaders and engineers, 
who were very proud of their progress in burning coal cleanly. 
They haven't learned yet, and don't really want to the spend 
the extra price of burying the CO2 deep within the earth, maybe 
6 or 7 miles down, but I think they've made some tremendous 
strides. We ought not to abandon great improvements in order to 
seek for perfection, which might cost five or six times as much 
to build a plant.
    So, I would like for our country to be in the forefront, 
not only by saying we've got to do something, but by 
determining precisely, in an engineering and scientific way, 
the way we should move most effectively. I think we also could 
learn from the different countries that are ahead of us on 
solar panels, on wind production, and other means, and get them 
to cooperate in a generous way.
    The most important single issue for the future, Mr. 
Chairman, might be how the United States takes a leadership 
role to encourage, under tremendous international and domestic 
pressure, India and China to join with us in becoming much more 
efficient.
    The Carter Center plays a deep and penetrating and constant 
role in China. I normalized diplomatic relations with China 
almost exactly 30 years ago, and have been deeply involved in 
that country since then. We have seen there the pressure from 
China's own farmers and other citizens to correct environmental 
problems, because all their streams are polluted, basically. 
The Chinese Government is under great pressure, domestically. I 
would like to see the United States say, ``Follow us in making 
sure that you do something about global warming, as well as 
energy efficiency in the future.'' I think the Chinese and 
Indians would follow us, but they won't act unilaterally if we 
are the laggard country in the world.
    The Chairman. And finally, Mr. President, General Powell, 
and then-Secretary Powell, warned, in both roles, about the 
national security implications of this issue.
    President Carter. Yes.
    The Chairman. The former CIA chiefs, President Obama and 
other leaders have each similarly warned about the national 
security implications of climate change. Some people have 
talked about a twentyfold increase in refugees; struggles over 
water, drought; increases in poverty; and the spread of disease 
more easily. I wonder if you would share with us, from the 
perspective that you bring based on your years of work and your 
global travels to 120 countries plus the 70 countries the 
Center is in, and from the view of a former President making 
these choices about our security, how do you see this issue as 
we head into Copenhagen? Also what do the American people need 
to think about in terms of the consequences of this issue on 
our national security choices.
    President Carter. I mentioned very briefly, I think in one 
short paragraph, the constraints that are already on us. 
Whether we admit it or not, we are very careful not to 
aggravate our main oil suppliers. We don't admit it. But, we 
have to be cautious. And I'm not criticizing that decision. 
But, some of these people from whom we buy oil and enrich are 
harboring terrorists; we know it. Some of them are probably 
condemning America as a nation. They have become our most vocal 
public critics. We still buy their oil, and we don't want to 
alienate them so badly that we can't buy it. We also see our 
allies refraining from putting, I'd say, appropriate 
influence--I won't say ``pressure''--on Iran to change their 
policy concerning nuclear weapons because they don't want to 
interrupt the flow from one of their most important suppliers 
of oil.
    We have seen, also, as I mentioned earlier, the threat to 
Western Europe by their increasing dependence on fuel from 
Russia. We saw what they did when they interrupted, for weeks 
at a time, natural gas supplies to Ukraine, which also cut off 
supplies to other parts of Europe. That can happen in the 
future in a time of crisis. And I would guess that is one of 
the reasons that Europe has been in the forefront of 
accommodating Russia on their move into Georgia.
    So, I think, to the extent that the Western world and the 
oil-consuming world can reduce our demands, the less we will be 
constrained in our foreign policy to promote democracy and 
freedom and international progress.
    One of the things that surprised me, back in the 1970s, was 
that we even lost a good bit of our supplies from Canada. 
Because when we had the OPEC oil embargo, Canada sent their 
supplies to other countries, as well. So, we can't expect to 
depend just on oil supplies from Mexico and Canada.
    I would guess that our entire status as a leading nation in 
the world will depend on the role that we play in energy and 
environment in the future, not only removing our vulnerability 
to possible pressures and blackmail.
    The Chairman. Thank you very much, Mr. President.
    Senator Lugar.
    Senator Lugar. Well, thank you very much, Mr. Chairman.
    President Carter, in your State of the Union Address, 
January 23, 1980, which you have mentioned, you articulated 
what became known to many as the Carter Doctrine. That has 
several interpretations, but one of them was that the United 
States would use its military to protect, or to protect our 
access to Middle Eastern oil.
    President Carter. Exactly.
    Senator Lugar. At the same time, in the same speech, you 
went on to say, ``We must take whatever actions are necessary 
to reduce our dependence on foreign oil.'' You have illustrated 
in your testimony today all the actions you took, as a matter 
of fact, in the White House and in other rhetoric.
    It seems to me to be a part of our predicament, 
historically, at least often in testimony before this 
committee, the thought is that our relationship with Saudi 
Arabia has, implicitly or explicitly for 60 years, said, ``We 
want to be friends; furthermore, we want to make certain that 
you remain in charge of all of your oil fields, because we may 
need to take use of them. We would like to have those supplies, 
and in a fairly regular way.''
    Now, on the other hand, we have been saying, as you stated, 
and other Presidents, that we have an abnormal dependence on 
foreign oil. I suppose one could rationalize this relationship 
by saying that Saudi Arabia is reasonably friendly in 
comparison, now, to, say, Venezuela or Iran or Russia or 
various others. And so, we might be able to pick and choose 
among them.
    Perhaps regardless of Presidential leadership, throughout 
all this period of time, the American public has decided that 
it wants to buy oil or it wants to buy products, whether it be 
cars, trucks, and so forth that use a lot of oil. As our 
domestic supplies have declined, that has meant, almost 
necessarily, that the amount imported from other places has 
gone up. And so, despite the Carter Doctrine, say, back in 
1980s, we have a huge import bill. Increasingly, our balance-
of-payment structure has been influenced very adversely by 
these payments. And so, many of us try to think through this 
predicament, and each administration has its own iteration. 
President Bush, most recently, in one of his State of the Union 
messages, said we are ``addicted to oil.'' At the same time, I 
remember a meeting at the White House in which he said, ``A lot 
of my oil friends are very angry with me for making such a 
statement, said, `What's happened to you, George?' '' You know, 
there's this ambivalence in the American public about the whole 
situation.
    Now, what I want to ask, From your experience, how could we 
have handled the foreign policy aspect and/or the rhetoric or 
the developments, say, from 1980 onward, in different ways, as 
instructive of how we ought to be trying to handle it now? I'm 
conscious of the fact that many of us are talking about 
dependence upon foreign oil. We can even say, as we have in 
this committee, that you can see a string of expenditures, 
averaging about $500 million a year, even when we were at 
peace, on our military to really keep the flow going, or to 
offer assurance. Secretary Jim Baker once, when pushed on why 
we were worried about Iraq invading Kuwait, said of course it 
was the upset of aggression, but it's oil. And many people 
believe that was the real answer, that essentially we were 
prepared to go to war to risk American lives, and were doing 
so, all over oil so we could continue to run whatever SUVs or 
whatever else we had here with all the pleasures to which we've 
become accustomed.
    Why hasn't this dependence, the foreign policy dilemmas or 
the economic situation ever gripped the American public so 
there was a clear constituency that said, ``We've had enough, 
and our dependence upon foreign oil has really got to stop, and 
we are not inclined to use our military trying to protect 
people who are trying to hurt us''? Can you give us any 
instruction, from your experience?
    President Carter. In the first place, no one can do this 
except the President--to bring this issue to the American 
public, to explain to them their own personal and national 
interest in controlling the excessive influx of oil and our 
dependence on uncertain sources. And it requires some sacrifice 
on the part of Americans--lower your thermostat. We actually 
had a pretty good compliance with the 55-miles-per-hour speed 
limit for a while, and people were very proud of the fact that 
they were saving energy by insulating their homes and doing 
things of that kind. And we had remarkable success. I just gave 
you the----
    Senator Lugar. Yes.
    President Carter [continuing]. Results of that 4-year 
effort. I made three major televised prime-time addresses, and 
also spoke to a special session of Congress, just on energy; 
nothing else. That was just the first year. I had to keep it 
up.
    By the time 1980 came around, we had basically what I 
proposed at the beginning, with reconciliation between Senators 
Long and Jackson, which was another major achievement. The 
public joined in and gave us support. The oil companies still 
were trying to get as much as possible from the rapidly 
increasing prices. They were not able to do so because of the 
legislation passed.
    In 1979, at Christmastime, though, is when the Soviet Union 
invaded Afghanistan, and I looked upon that, as you pointed 
out, as a direct threat to the security of my country. I 
pointed out to the Soviet Union, in a speech, that we would use 
every resource at our command, not excluding nuclear weapons, 
to protect America's security, and if they moved out of 
Afghanistan to try to take over the oil fields in the Middle 
East, this would be a direct threat to our existence, 
economically, and we would not abide by it. And, secretly, we 
were helping the freedom fighters--some of whom are no longer 
our friends--in Afghanistan overcome the Soviet invasion. And 
it never went further down into Iran and Iraq.
    Unfortunately, though, that same area was then taken over 
by the war between Iran and Iraq, and all the oil out of those 
two countries stopped coming forward in those few months. 
That's when prices escalated greatly.
    It is surprising how much we were able to do, building on 
what President Ford and others had done. And I know that 
Senators Kerry and McCain recently have sponsored the increased 
mandatory efficiency of automobiles. When I became President, 
the average gas mileage on a car was 12 miles per gallon, and 
we mandated, by the time I went out of office, 27\1/2\ miles 
per gallon within 8 years. But, President Reagan and others 
didn't think that was important, and so, it was frittered away. 
We have gone back to the gas guzzlers, in effect, which I think 
has been one of the main reasons that Ford and Chrysler and 
General Motors are in so much trouble now. Instead of being 
constrained to make efficient automobiles, they made the ones 
upon which they made more profit.
    Of course, you have to remember, too, that the oil 
companies and the automobile companies have always been in 
partnership, because the oil companies want to sell as much oil 
as possible, even the imported oil--the profit goes to Chevron 
and others. I'm not knocking profit, but that's a fact. And the 
automobile companies knew they made more profit on gas 
guzzlers. So, there was kind of a subterranean agreement there.
    I would say that, in the future, we have to look forward to 
increasing pressures from all these factors. There's no doubt 
that, as China and India, just for instance, approach anywhere 
near the per capita consumption of oil that America is using 
now, the pressure on the international oil market is going to 
be tremendous, and we're going to, soon in the future, pass the 
$110-per-barrel figure again. And when that comes, we're going 
to be in intense competition with other countries that are 
emerging.
    I've just mentioned two of the so-called BRIC countries. 
I've mentioned Brazil and China. But, we know that India is 
also in there, and Russia is, too. I used the example of the 
increasing influence of Brazil in a benevolent way. That's 
going to continue. We're going to be competitive with Brazil, 
and we're also going to be competitive, increasingly, with 
China. Everywhere we go in Africa, you see the Chinese 
presence, a very benevolent presence and perfectly legitimate. 
But, anywhere that has coal or oil or copper or iron or so 
forth, the Chinese are there, very quietly buying the companies 
themselves if they're under stress, as they are in Australia 
right now, or they're buying the ability to get those raw 
materials in a very inexpensive way in the future. We're going 
to be competing with them. They have an enormous buildup now of 
capital because of our adverse trade balance and buying our 
bonds, and they're able to give benevolent assistance now, 
wisely invested in some of the countries that I mentioned 
earlier.
    So, I think the whole strategic element of our dealing with 
the poorest countries in the world, of our dealing with 
friendly competitors, like Brazil, of our dealing with 
potential competitors in the future, like China, our dependence 
on unsavory suppliers of oil, all of those things depend on 
whether or not we have a comprehensive energy policy that saves 
energy and cuts down on the consumption and also whether we 
deal with environment.
    Senator Lugar. Well, thank you so much. What a wonderful 
recitation of history, and it's from a perspective of somebody 
who has seen it.
    President Carter. Well, when you get my age, and almost 
your age, you have to look back on history more than the 
future.
    Thank you. [Laughter.]
    Senator Isakson. Mr. Chairman.
    The Chairman. Senator Isakson.
    Senator Isakson. With your permission and that of Senator 
Cardin, I have a very important place to go. But I also have a 
very important Georgian here whom I would like the chance to 
acknowledge for just 1 minute, with your permission.
    The Chairman. Absolutely.
    Senator Isakson. Mr. President, thanks to you and Rosalynn 
for your service to the State and to the country.
    President Carter. Thank you, Johnny.
    Senator Isakson. It is good to have you in Washington and 
good to see you again. I particularly want to acknowledge your 
remarks with regard to renewable energy and your notable focus 
on nuclear. I know you are a nuclear engineer by----
    President Carter. Right.
    Senator Isakson [continuing]. Profession in the service, 
and I think you are exactly right in that nuclear energy must 
be a part of the mix. Since our State, as you know, depends 
heavily on coal for electric generation, I, further, appreciate 
your acknowledgment that Georgia should be a national leader in 
clean coal technology. So, thank you for your service, thank 
you for being here, and thank you for both of those 
acknowledgments.
    President Carter. Thank you. It's a pleasure to be with you 
again.
    Senator Isakson. Thank you, sir.
    The Chairman. And, Senator Isakson, I can tell you with 
assurance that nuclear will be part of the mix, and therefore, 
you're going to say, in front of President Carter, that you're 
going to support this bill, right? [Laughter.]
    Senator Isakson. Nuclear in the mix, I'll guarantee you 
that.
    President Carter. Yes, we already use a lot of nuclear 
energy, and we're building a new plant now in Georgia, a very 
large nuclear plant.
    The Chairman. Thank you, Senator Isakson.
    Senator Cardin.
    Senator Cardin. Well, Mr. Chairman and Mr. President, thank 
you very much for----
    President Carter. Thank you, Senator.
    Senator Cardin [continuing]. Sharing your knowledge with 
this committee.
    We have really hard work to be done. I'm trying to get the 
benefit of what you went through in the late 1970s, to see how 
we can use that today and learn from what you did in the 1970s. 
You made an interesting observation that the interest groups 
will make it difficult for us to get the type of legislation 
passed that we need to get passed. I agree with your 
observation that the legislation needs to be a bill that deals 
with energy and the environment, that if we separate it, we're 
likely to get lost on both.
    What I find somewhat disappointing is our failure to get 
the interest groups that benefit from significant legislation 
active--as active as the opponents. It seems to me that if we 
do this right, we're going to create a lot of jobs, because if 
you're going to----
    President Carter. Sure.
    Senator Cardin [continuing]. Deal with alternative energy 
sources and increased efficiency in the way we use energy, it's 
going to create jobs. We can get the solar fields out in the 
rural areas as well as the wind farms and get them functioning. 
That's going to create a lot of new jobs; good jobs. And if we 
retrofit our buildings, and do it in the right way, it's going 
to create construction jobs. Building the transit systems--it's 
going to create job growth for America. If we do this in the 
right environmental way, as you have pointed out, it's going to 
be good for my State of Maryland. The Chesapeake Bay is 
critically important; we're seeing what global climate change 
is already meaning for the watermen in our State. So, it's 
going to help in that regard.
    You and Senator Lugar already had an excellent exchange on 
the security front. There's a lot of interest groups that want 
to make sure that we take care of our national security and we 
use our military only when we have to. And, as you pointed out, 
we've done that because of oil in too many cases.
    So, it seems to me that what we need to do is energize the 
interest groups that have so much to benefit.
    You talked about balance of payment. Senator Lugar talked 
about that. It's a huge issue. A lot of groups are very 
interested in what's happening with trade.
    So, is there any experience that you can share with us as 
to how we could do a better job in mobilizing these interest 
groups? I know there's a patriotism, everybody wants to do the 
right thing, but, when it gets down to it, they're also 
interested in what they think is in their best immediate 
interest. And it seems to me this is in their best immediate 
interest.
    President Carter. Well, I deliberately mentioned three 
different interest groups--one was oil, one was automobiles, 
and one was consumers--just to show that there's a disparity 
among them in their opposition to some elements of the 
comprehensive energy policy that I put forward.
    The oil companies didn't want to have any of their profits 
go to the general treasury and for renewable energy and that 
sort of thing. The consumers didn't want to see the price of 
natural gas and oil deregulated, because they wanted the 
cheapest possible supplies. The energy companies wanted to sell 
their natural gas, for instance, just in their own States where 
they were discovered, because the only price control on natural 
gas was if it crossed a State line. There was no restriction if 
they sold it in Texas or if they sold it in Oklahoma, where the 
gas was discovered. Those interest groups were varied, and they 
still are.
    You will find some interest groups that will oppose any 
single aspect of the multiple issues that comprise an omnibus 
package, and they'll single-shot it enough to kill it, and just 
the lowest common denominator is likely to pass if it's treated 
in that way.
    The only way you can get it passed is to have it all 
together in one bill so that the consumers will say, ``Well, I 
don't like to see the increase in price, but the overall bill 
is better for me'' and for the oil companies to say, ``Well, we 
don't like to see the government take some of our profits, but 
the overall bill is good for me.'' That's the only way you can 
hope to get it. It was what I had to deal with for 4 solid 
years under very difficult circumstances in the Congress and so 
forth.
    And I think that's a very important issue to make. And, to 
be repetitive, the only person that can do this is the 
President. The President has got to say, ``This is important to 
our Nation, for our own self-respect, for our own pride in 
being a patriot, for saving our own domestic economy--for 
creating new jobs and new technology, very exciting new jobs, 
and also for removing ourselves from the constraint of 
foreigners, who now control a major portion of the decisions 
made in foreign policy and who endanger our security.''
    So, the totality is the answer to your question. You've got 
to do it all together in order to meet these individual special 
interest groups' pressure that will try to preserve a tiny 
portion of it that's better from them and, one by one, they'll 
nibble the whole thing away.
    Senator Cardin. Well, I think that's good advice. President 
Obama has been very clear about this, and I think he will 
continue to focus on this. He clearly has a way of 
communicating with the American public that----
    President Carter. Much better than I did----
    Senator Cardin. Well, I don't know about that, but in 
today's market, he is, of course, inspirational ----
    President Carter. But, it's got to be a high priority for 
him. I'm not preaching to him, because he knows what he's 
doing.
    Senator Cardin. Well, I can tell you that he's expressed it 
to us, that this is of the highest priority. So I think we'll 
see that from the President.
    I congratulate you on getting the bill passed. I hope we 
have more than a one-vote margin in the House. That's cutting 
it a little close, Mr. President. But, we'll do our best to 
build the type of coalition here that we can get that type of 
bill passed, and I think your testimony has been very----
    President Carter. Thank you.
    Senator Cardin [continuing]. Helpful to us. And, by the 
way, I think you communicated very well today, so we might need 
to have your help also----
    President Carter. Always glad----
    Senator Cardin [continuing]. As we go forward.
    President Carter [continuing]. To help.
    Senator Cardin. Thank you very much.
    President Carter. Senator Cardin, all, let me say that I 
think that the fact that this Foreign Relations Committee is 
addressing this is extremely important, not just the 
Environmental Committee or the Energy Committee, but Foreign 
Relations, because it has so much to do with our 
interrelationship with almost every other country on Earth.
    Senator Cardin. And we're raising it with all of the 
parliamentarians in other countries. It's top on our list. So, 
I appreciate you saying that. Our chairman and ranking member 
make sure that this is brought up at every one of our meetings.
    President Carter. Well, they know what the other leaders 
think.
    Senator Cardin. Thank you.
    Thank you, Mr. Chairman.
    Senator Shaheen. Welcome, Mr. President, Rosalynn, and Amy. 
Thank you very much for being here.
    President Carter. Thank you. Thank you for helping me be 
President.
    Senator Shaheen. Well, I was going to say, I also need to 
thank you for my being here, because it was my involvement in 
your campaign in 1975 that got me into politics. So, thank you 
very much for that.
    And I can also speak as a consumer about the difference 
that that omnibus energy bill made for average people like me, 
because my husband and I built our home in Madbury in 1979, and 
we benefited from a lot of what was in that omnibus bill, 
because we built a passive solar-design house, and we put solar 
panels on the roof to heat our hot water, and we put in a 
furnace that burned wood and oil and garbage, and it's still 
there saving us money.
    President Carter. Right.
    Senator Shaheen. But, you talked about--from a very unique 
perspective, about the confluence of energy and security in 
foreign policy. Can you elaborate a little more on what you 
were just talking about with Senator Cardin, about what a 
difference it would make to our foreign policy if we are 
successful again in aggressively moving toward energy 
independence and continuing this kind of commitment that we're 
talking about needing to do now? What will that mean for this 
country in the future?
    President Carter. I'd say it would have two major effects. 
One, look at our allies and friends--all the European 
countries, Japan, and so forth. They would breath a sigh of 
relief if they knew, once again, that the United States was in 
the forefront of the whole world in dealing with energy 
efficiency, comprehensive use of energy, the advancement of 
technologies to create new jobs based on new discoveries and 
new ideas, and also reducing the restraints on themselves for 
moving toward global warming. They need some leadership on 
that.
    I would say that the independence that our own country 
would have in its foreign policy would be also greatly 
beneficial. Now the countries that supply us with oil are 
pretty certain that we're not going to do anything drastic that 
would alienate them. Even when you have some leaders--I'd say 
one of them south of here with whom I'm very well acquainted, 
who has made a profession the last number of years, of publicly 
attacking and derogating our country, and others that I need 
not name, that I mentioned just in passing in my talk--that are 
harboring terrorists. We can't really put tremendous pressure 
on them to change their policies on human rights, on the rights 
of women, and so forth, as long as they are the major suppliers 
of energy. When we meet in human rights forums in which the 
Carter Center quite often is involved, we have to be very 
careful not to aggravate our major suppliers of oil, even 
though they are some of the worst violators of human rights and 
are the most abusive, say, to Christians and others who want to 
worship differently or dress differently in their countries.
    We know, as well, that I'm being repetitive now--that the 
countries in Europe, they won't do anything, even in the U.N. 
Security Council, that would put a little bit of extra pressure 
on Iran. I really think that the United States ought to start 
dealing directly with Iran at as high a level as is possible 
with them because I think that they are fearful, in some ways, 
within Iran, that they're going to be attacked by outsiders.
    I think that, in many ways, the freedom of our country, our 
independence of action in foreign policy, the leadership that 
we can provide, and the support we get from our allies, would 
all be confluent in a bold new step to bring about a 
correlation between energy efficiency and reduction of 
excessive dependence on foreign oil and also to promote the 
beneficial effects of environmental quality.
    Senator Shaheen. Thank you.
    President Carter. Sure.
    The Chairman. Thank you, Senator Shaheen.
    Senator Kaufman.
    Senator Kaufman. Thank you, Mr. Chairman. Thank you for 
holding this meeting. Again, I think this is extremely 
important.
    And it's great to see you, Mr. President. How are you----
    President Carter. Good to see you, thank you.
    Senator Kaufman [continuing]. Doing? I think that we're 
about to have a peanut-brigade alumni association breakout 
right here. [Laughter.]
    I think one of the great things was working in your 
campaigns, both your campaigns, and clearly you've done a great 
job, not only as President, but as a post-President.
    I was listening to your testimony, and also answering 
Senator Cardin's question. I don't know whether it's my faulty 
memory at this age, but I seem to remember, on a talk show, a 
question somebody asked you, What was the single thing you 
learned from being President? And you said, ``Never offer 
comprehensive legislation.'' [Laughter.]
    President Carter. I don't remember saying that, but I don't 
deny it. [Laughter.]
    I might have said it. [Laughter.]
    Senator Kaufman. But, I did--you know, it just--and I 
thought about that, in terms of your two comments; one that, 
you know, how difficult it is to get comprehensive legislation 
through. If there was just----
    President Carter. But, I would say this is about the only 
issue that I thought had to be treated comprehensively. It took 
me an entire 4 years. And I made so many speeches to the 
American people--fireside chats, and so forth--that the 
American people finally got sick of it, of my talking. 
[Laughter.]
    And the Congress was--the Senate and the House were very 
reluctant to take this up the second year, but I kept on the 
pressure, and I would say that it was costly, politically, just 
to harp on this issue repetitively.
    Anyway, I think, in general, comprehensive legislation may 
not be good, but, in this case, I think it's absolutely 
necessary.
    Senator Kaufman. Well, faced with the problem we have right 
now, just to kind of clarify this a little bit----
    President Carter. All right
    Senator Kaufman [continuing]. If there was one thing you 
could do--in other words, if we--if there was one thing that we 
could do in order to deal with this problem--because you're 
right about how important energy is to our foreign policy--so 
that we didn't have to go to 173 committees, whatever--what 
would be the one thing you can think of that we could do that 
would most advance our effect to kind of control this energy 
thing?
    President Carter. That's a difficult one. I would guess, if 
you look at energy and environment together, I would say take 
the leadership role in Copenhagen and let the rest of the world 
know that the United States was, once more, going to be 
responsible, as the most powerful nation on Earth, for the 
future environmental quality of the Earth.
    Senator Kaufman. And on the same kind of idea, what is the 
one piece of alternative technology that you think, if you just 
could pick one, would be the one thing that we should 
emphasize?
    President Carter. That's a hard--I don't know quite whether 
you mean a brand new discovery of----
    Senator Kaufman. No, like solar energy, nuclear, wind----
    President Carter. I'd like--I like wind very much. We took 
our vacation this year in Spain, and you drive through Spain 
and all the way through you see, on top of the hills, these 
windmills. And they're going to soon be producing 15 percent of 
all their energy with windmills. And I think they're beautiful, 
because they kind of remind you of Don Quixote, the windmills. 
[Laughter.]
    But, that would be one thing. And the technology is 
available, and I think that's one thing that can be done.
    And I think that the subject that Senator Kerry and I 
discussed briefly at lunch, about the clean burning of coal--I 
would say the most important single long-term benefit to our 
country would be to learn how to burn coal cleanly. And I don't 
think it's beyond the possibility of engineering and science. 
The Chinese have made a major step forward, they've made--their 
coal-burning plants much more efficient and much cleaner 
burning than ours are.
    The ultimate is to get rid of all the sulfur dioxides and 
so forth and also the carbon dioxide, but the only way to get 
rid of all the carbon dioxide, that we know yet, is to pipe it 
5 to 6 miles deep in the earth and store it down there, under 
high pressure. That can be very expensive. In the meantime, I 
think that's the No. 1 technological advance that would help 
our country, because we have 300 or 400 years of coal-burning.
    When I was President, by the way, there was a difference in 
Western coal and Eastern coal. The Eastern coal, supported by 
Senator Byrd, held its own, just because of him. But, back in 
those days, we were worried about sulfur content. And the 
Western coal was much superior. But, nowadays, the Eastern coal 
has a lot higher energy quotient, and might be more attractive 
for carbon dioxide reductions. So, there's kind of a balance 
there. But, Western coal is still the No. 1 producer of 
electricity now, and to find a technology where they're burning 
it more cleanly and efficiently, and environmentally better, is 
the No. 1 technological breakthrough that I would like to see.
    Senator Kaufman. And, you know, you've watched this for so 
many years. What--and it's happening again. You know, the price 
of oil went up, everybody wanted a hybrid. Already----
    President Carter. It's going to go up again.
    Senator Kaufman. Yes. But, I'm just saying, right now it's 
back down----
    President Carter. Yes.
    Senator Kaufman [continuing]. It's down, and hybrid sales 
are going down.
    President Carter. I know.
    Senator Kaufman. Do you have any thoughts--I mean, I'm--on 
how we should deal with that, or just wait for it to go back up 
again?
    President Carter. I think, just take the best advantage of 
whatever market presents itself now. We're enjoying $50 oil 
now. It has been up to $130. When I was in the White House, it 
was up to $112, I think----
    Senator Kaufman. Right
    President Carter [continuing]. Based on present prices.
    You know, one thing, too, that that's been mentioned 
several times, is nuclear power. I was in favor of the Nevada 
storage facility--the majority leader is not, now. But, we--
somehow or other we've got to be able to go toward nuclear 
fuel. And we can continue burying nuclear waste material for a 
long time, just on local sites. It doesn't take much. But, 
there are new technologies that are available--and I'm not 
revealing any secrets when I say that. When I was a young naval 
officer I was in charge of building the second atomic submarine 
in Schenectady, NY, the powerplant. And at that time, and still 
in domestic powerplants, you have to refuel about every 3 
years. The finest warship on Earth now is named the USS Jimmy 
Carter, and----
    [Laughter.]
    President Carter [continuing]. And it has a nuclear 
powerplant that will never have to be refueled. It will--the 
nuclear powerplant fuel cells will last longer than the hull 
will last, longer than 45 years. So, you see, the point I'm 
making is that technological advances in coal-burning and in 
nuclear power, are there, provided our Nation's great 
scientific and engineering capability are marshaled and focused 
on those key opportunities.
    Senator Kaufman. Thank you, Mr. President.
    President Carter. Sure.
    Senator Kaufman. Thank you, Mr. Chairman.
    The Chairman. Mr. President, thank you----
    President Carter. Thank you.
    The Chairman [continuing]. Very, very much. We are 
enormously grateful to you. We just had a call from President 
George Herbert Walker Bush contesting--he wants to debate you 
on which is the finest aircraft carrier, his or yours. 
[Laughter.]
    President Carter. Well, I didn't say aircraft carrier. I 
didn't say aircraft carrier. I said warship. [Laughter.]
    The Chairman. Warship.
    President Carter. He'll still want to debate.
    The Chairman. Covered yourself like a good navy man. 
[Laughter.]
    President Carter. Thank you.
    The Chairman. Mr. President, we have a terrific second 
panel. The chairman, president, and CEO of FedEx, Fred Smith, 
and Gen. Chuck Wald, former Deputy Commander of European 
Command are going to come to the table. And we'll recess, just 
for 60 seconds, so that you can come out back here.
    President Carter. Thank you.
    I wish I could stay and hear the second panel, but we've 
got to get back.
    The Chairman. But, if we could just say, Mr. President, 
we're very grateful to you for coming today, and I want to 
express, on behalf of the whole committee, the admiration of 
all of us for your leadership around the world and for the 
courage with which you've given definition to the words 
``public citizen'' and ``public servant.'' And we're very, very 
grateful to you. Thank you, sir.
    Thank you.
    [Recess.]
    The Chairman. The hearing will come back to order.
    It's a great pleasure to welcome both of our witnesses. 
General Wald, as I mentioned, was the Deputy Commander of the 
European Command. He's now a senior fellow at the Bipartisan 
Policy Center and a pilot of great distinction. He flew over 
Bosnia and was a forward air controller in Vietnam. And we're 
very, very pleased to welcome you here today, General. Thank 
you for your work on this.
    It is also a great pleasure to welcome a personal friend, 
Fred Smith, who is the chief executive officer of one of 
America's remarkable companies, operating in some 220 or so 
countries, with an enormous aircraft fleet and tens of 
thousands of workers. He founded the FedEx company in 1971, and 
I might remark is currently embarking on a new program to 
significantly switch to 30 percent biofuels by 2030 in order to 
both deal with efficiency issues as well as reduce the carbon 
footprint. And I might comment, obviously I won't go into any 
details, but delighted to welcome a college classmate and 
personal friend of all these years. So, we're delighted to have 
you here.
    General, would you lead off, please. And we'll put the full 
statement in the record. If you want could you please just 
summarize and we'll put in as if read in full, and then we'll 
have a chance to have a little discussion.

STATEMENT OF GEN. CHARLES F. WALD, USAF (RET.), SENIOR FELLOW, 
            BIPARTISAN POLICY CENTER, WASHINGTON, DC

    General Wald. I'd be glad to. Thank you, Mr. Chairman and 
Senator Lugar, for all the support you give the U.S. military 
today and while I was in the military, to start off with. But--
I will provide the testimony for the record.
    And I'd just like to say that it's a true honor to be 
sandwiched between two great Americans this afternoon, 
President Carter and Fred Smith, and--I never had the privilege 
to know President Carter, but I do know Fred Smith, and he's an 
outstanding American. What he's doing for our security is--
should not go without notice. So--he'd be a lot more humble 
about that, but I've seen him in action for the last couple of 
years, so I just wanted to get that on the record, as well.
    Energy security, to me, has been an important issue for the 
last at least two decades in my career; and, ironically, the 
first time it really became apparent to me, I think, in a big 
way, was when I was in War College in 1990, here in Washington, 
DC. And at that time, we were talking about strategy, which 
plenty of us thought we knew what it was, but we were learning. 
And the Carter Doctrine came up. And, at that time, I think, 
even then, 10 years after President Carter declared his 
doctrine, it was, I think, a surprise to many people that 
President Carter had been the first one to say that we would 
use military force to ensure the free flow of oil in the Middle 
East. That's 38 years ago.
    Since then, I personally have spent years in the Persian 
Gulf, for example, and at least 16 years of my career overseas, 
much of it defending resources that are important to, not only 
us, but the rest of the global economy. And energy is, I think, 
paramount in that effort today and will continue to be.
    Our national security is definitely threatened by the fact 
that we are dependent upon oil and energy from places that 
don't like who we are and what we do. Independence is not in 
the cards, necessarily, but becoming less dependent on places 
that don't like us are certainly in the cards.
    No. 2, I think I learned over the years in my career that 
subtle things are very important in our part of the world, and 
our reputation in the world today is hugely important, and our 
actions on both energy security, but climate, as well, and how 
we react to the global economy is not trivial.
    Our leadership today is more important than ever on 
assuring the world finds alternative energy sources to assure 
the fact that we cannot be cut from that source and our economy 
affected, but also our reputation as a leader in the world on 
climate. And I think the SAFE--Securing America's Future 
Energy--plan for legislation to electrify the grid or robust 
the grid, turn to an alternate electric car as the main source 
of transportation in the United States, look to alternative 
energy sources and then work in our foreign policy, will bring 
us to a place in the world that will bring us back to 
predominance.
    So, I thank you for the time, and I'd be glad to take 
questions when the time's right.
    [The prepared statement of General Wald follows:]

  Prepared Statement of Gen. Charles F. Wald, U.S. Air Force (Ret.), 
       Member, Energy Security Leadership Council, Washington, DC

    Mr. Chairman, members of the committee, thank you for inviting me 
to be here today.
    As you are all acutely aware, our country is now confronting a 
range of pressing challenges, both at home and abroad. The financial 
crisis, health care reform, and climate change are all serious issues 
that demand leadership and careful attention.
    But based on my career and professional experience, I can think of 
no more pressing threat, no greater vulnerability, than America's heavy 
dependence on a global petroleum market that is unpredictable, to say 
the least.
    In 2006, I retired from the United States Air Force after 35 years 
of service. In my final assignment, I served as the Deputy Commander of 
United States European Command. Currently, EUCOM's jurisdiction covers 
more than 50 countries and over 20 million square miles spanning the 
region north of the Middle East and subcontinent from the North Sea all 
the way to the Bering Strait. Though EUCOM is no longer responsible for 
Africa, it included that continent during my tenure.
    During my tenure at EUCOM, I saw firsthand the dangers posed by our 
Nation's dependence on oil. And those dangers have only become more 
acute in the time since.
    The implicit strategic and tactical demands of protecting the 
global oil trade have been recognized by national security officials 
for decades, but it took the Carter Doctrine of 1980, proclaimed in 
response to the Soviet Union's invasion of Afghanistan, to formalize 
this critical military commitment.
    President Carter--whom I am honored to speak after--can, of course, 
explain the Carter Doctrine better than anyone in this room. In short, 
it committed the United States to defending the Persian Gulf against 
aggression by any ``outside force.'' President Reagan built on this 
foundation by creating a military command in the gulf and ordering the 
U.S. Navy to protect Kuwaiti oil tankers during the Iran-Iraq war. The 
gulf war of 1991, which saw the United States lead a coalition of 
nations in ousting Iraq from Kuwait, was an expression of an implicit 
corollary of the Carter Doctrine: the United States would not allow 
Persian Gulf oil to be dominated by a radical regime--even an ``inside 
force''--that posed a dangerous threat to the international order.
    The United States military has been extraordinarily successful in 
fulfilling its energy security missions, and it continues to carry out 
those duties with great professionalism and courage. But, ironically, 
this very success may have weakened the Nation's strategic posture by 
allowing America's political leaders and the American public to believe 
that energy security can be achieved by military means alone. In the 
case of our oil dependence problem, however, military responses are by 
no means the only effective security measures, and in some case are no 
help at all.
    The United States now consumes nearly 20 million barrels of 
petroleum a day. About 11 million barrels--or 60 percent of the total--
are imported. In 2008, we sent $386 billion overseas to pay for oil. 
Our oil and refined product, in fact, accounted for 57 percent of the 
entire U.S. trade deficit. This is an unprecedented and unsustainable 
transfer of wealth to other nations.
    Our transportation system accounts for 70 percent of the petroleum 
we consume, and 97 percent of all fuel used for transport is derived 
from oil. In other words, we have built a transportation system that is 
nearly 100 percent reliant on a fuel that we are forced to import and 
whose highly volatile price is subject to geopolitical events far 
beyond our control.
    In my time as a military leader, I labored to develop a proactive 
risk-mitigation strategy for just those kinds of geopolitical events. 
It was an unwieldy challenge. Petroleum facilities in the Niger Delta 
were subject to terrorist attacks, kidnappings and sabotage on a 
routine basis--just as they are today. Export routes in the Gulf of 
Guinea were plagued by piracy, just as routes in the Gulf of Aden have 
been more recently. We can share intelligence and train security 
forces, but our military reach is limited by cost, logistics, and 
national sovereignty.
    In 2008, the 1-million-barrel-per-day BTC pipeline--which runs from 
the Caspian Sea in Azerbaijan to the Turkish port of Ceyhan--was 
knocked offline for 3 weeks after Turkish separatists detonated 
explosives near a pumping station, despite the best efforts of local 
security forces. The pipeline spewed fire and oil for days. The 
following week, Russian forces launched a month-long incursion into the 
Republic of Georgia during which the pipeline was reportedly targeted a 
number of times.
    And sitting in the heart of the Middle East is the greatest 
strategic challenge facing the United States at the dawn of a new 
century: The regime in Tehran. We cannot talk about energy security, 
national security, or economic security without discussing Iran. From 
nuclear proliferation to support for Hezbollah, oil revenue has 
essentially created today's Iranian problem. I recently participated in 
a study group sponsored by the Bipartisan Policy Center that produced a 
report titled, ``Meeting the Challenge: U.S Policy Toward Iranian 
Nuclear Development.'' I encourage you and your staff to review the 
report in its entirety. It is entirely possible that events related to 
Iran could produce an unprecedented oil price spike in the future, a 
spike that--given the fragility of the domestic and global economy--
could very well be catastrophic.
    With 90 percent of global oil and gas reserves held by state-run 
oil companies, the marketplace alone will not act preemptively to 
mitigate the enormous damage that would be inflicted by a serious and 
sudden increase in the price of oil. What is required is a more 
fundamental, long-term change in the way we use oil to drive our 
economy.
    The Energy Security Leadership Council has advocated for a 
transformation of our transportation sector from one almost entirely 
dependent on oil to one powered by the domestic sources of energy that 
fuel our electric system.
    Some may be surprised to hear a former general talk about electric 
cars, but they shouldn't be. In the military, you learn that force 
protection isn't just about protecting weak spots; it's about reducing 
vulnerabilities before you get into harm's way. That's why reducing 
America's oil dependence is so important. If we can lessen the oil 
intensity of our economy, making each dollar of GDP less dependent on 
petroleum, we would be less vulnerable if and when our enemies do 
manage to successfully attack elements of the global oil 
infrastructure. The best ways to reduce oil intensity are to bring to 
bear a diversity of fuels in the transportation sector, and this is 
best achieved by the electrification of transportation.
    That's not all. The United States needs a comprehensive policy for 
achieving genuine energy security. This policy should include (1) 
increases in oil and natural gas production in places like the Outer 
Continental Shelf along with strict new environmental protections; (2) 
implementing fuel efficiency standards for all on-road transport that 
were signed into law last year; and (3) electricity infrastructure 
upgrades, particularly to our transmission grid, that will be required 
for a new energy future.
    Oil dependence is a very real threat. But it is a threat we can 
confront. It will take a great effort, and most of all, it will take 
leadership on the part of the people in this room and all of your 
colleagues. I thank you for allowing me to address this committee, and 
more importantly, I thank you for your attention and action on this 
crucial issue.

    The Chairman. Well, we do look forward to asking you some, 
for sure.
    Fred.

STATEMENT OF FREDERICK W. SMITH, CHAIRMAN, PRESIDENT, AND CHIEF 
          EXECUTIVE OFFICER, FEDEX CORP., MEMPHIS, TN

    Mr. Smith. Mr. Chairman, good to see you. Senator Lugar, 
always good to see you, as well.
    I think it's important to recap, just briefly, what brought 
the military officers and the CEOs of the Energy Security 
Leadership Council together. As General Wald said, and as he so 
ably represents, our military members spent a big part of their 
careers protecting the oil lanes that allow America's 
industrial economy to exist. On the commercial side, companies 
like FedEx, UPS, Southwest Airlines, Royal Caribbean, Waste 
Management, companies that had a big dependence on petroleum, 
recognized that our continuing importation of over 60 percent 
of our daily oil needs represents, after nuclear proliferation 
and weapons of mass destruction and terrorism, the largest 
security and economic threat that this country deals with.
    I'm fond of pointing out to all my friends who are in the 
financial services business that the logs of the bonfire may 
have been laid with the credit derivatives and the speculation 
and the subprime mortgages, but the match that lit off our 
current economic travails was the runup in oil prices last July 
to $147 per barrel. And I personally have been through five of 
these things now, and every major recession that the United 
States has had since 1973 has been precipitated by a 
significant runup in oil prices, including the ones that 
President Carter mentioned. In fact, FedEx, which is now almost 
a $40-billion company that employs 300,000 folks, was almost 
killed in its cradle by the original oil embargo.
    But, there is a very significant difference in where we are 
today than where we have been in the previous episodes, and 
that is because, on the price-runup side, on the demand side, 
it has not been in the main runup because of producers 
withholding supply, it has been because of the increase in 
demand from the so-called brick countries. And on the other 
side of the house, on the supply side, for the first time that 
I've been involved with this, it seems to us that there is a 
very real prospect of coming up with a national policy that 
makes sense, and that's where the Energy Security Leadership 
Council's recommendations come in. And they are fourfold.
    First is, on the foreign policy area, it's important to 
recognize that about half of our substantial military budget 
goes, one way or another, to protecting our oil trade, and 
there's just no doubt about the fact that we're in two shooting 
wars in the Middle East, in large measure, because of our 
dependence on imported petroleum.
    The second recommendation that we have is to maximize U.S. 
production, to the extent that it can be done in an 
environmentally appropriate way. The reason for that is, quite 
simply, that oil is a fungible product, and it's a lot better 
for our balance of payments and for our national security to 
have it produced in North America than it is to have it 
imported from half a world away, where it may not be produced 
in an environmentally efficient way, and while we all want to 
reduce our dependence on imported petroleum, the facts of the 
matter are we're going to be using a fair amount of it for many 
decades to come.
    The third recommendation is to develop new generations of 
advanced biofuels. And you mentioned, Mr. Chairman, our own 
goal inside FedEx, and we are a significant user of petroleum. 
In the last year before the recession, to put that into 
perspective, we used about 1.6 billion gallons of jet fuel and 
diesel fuel for about 700 aircraft and 85,000 vehicles. U.S. 
Air Force is the largest single user, at about 2.4 billion 
gallons per year.
    And it's very exciting for those of us who are in aviation 
today that in the recent past have been for demonstrations of 
advanced biofuels based on algae, Jatropha, and Camelina, 
which, unlike the alcohol-based fuels of ethanol, actually have 
the same molecular structure as oil itself. And in these 
demonstration flights with commercial aircraft, where the 
advanced biofuel has been mixed with Jet-A, you actually have 
an improvement in efficiency between a 50- and 60-percent 
reduction in CO2 emissions over the cycle of production. So, 
it's not as if this is pie-in-the-sky, no pun intended; it's 
simply a matter of, How do you take these biofuels to scale- 
production?
    And then, last and probably the most important of the 
recommendations, which is quite different, again, than the 
preceding periods of time, is that there is a feasible solution 
for a great deal of our oil dependency in the transportation 
sector. And bear in mind, transportation burns 70 percent of 
our petroleum and it--98 percent of all transportation is 
produced with petroleum.
    And the breakthrough, of course, is the development of the 
lithium-ion-type batteries in our laptops and our cell phones. 
And so, for the first time it is feasible to develop plug-in 
hybrid electric vehicles, either all electric or with a small 
reciprocating engine that acts as a generator, on a single 
electric charge to get a range of between 40 and 100 miles 
between charges. And about 80 percent of all personal 
automotive travel in this country takes place with a range of 
less than 40 miles per day.
    So, the Energy Security Leadership Council has as its 
centerpiece the electrification of short-haul transportation 
with the concomitant construction of a smart grid, where the 
electrical power can be made from many different sources--from 
nuclear, from hydroelectric, from coal--clean coal, from gas, 
from geothermal, from wind, and from solar. And this type of 
power production is domestic in its origin. There is, with the 
appropriate government incentives and policies, the prospect, 
in our opinion, to put 150 million of these vehicles on the 
road by 2030. And it would have a dramatic effect on our daily 
oil consumption and our dependency on these foreign powers that 
President Carter mentioned a moment ago.
    And I'd just close with this. You know, the issue of our 
dependency on imported petroleum being an enormous national 
security and national economic threat precedes President 
Carter's tenure in the White House. And, in fact, in 1956 
President Eisenhower, who knew a thing or two, I would say, 
about national security, issued a statement after a Cabinet 
meeting, that, in the opinion of his administration, that if 
the United States imported more than 16 percent of its oil, it 
would be a grave national security threat. So, here we are, you 
know, a half a century later, with 60 percent of our oil being 
imported, 90 percent of the world's oil reserves owned, not by 
our own integrated oil companies, but by the nationalized oil 
companies of countries around the world, often in inhospitable 
locations and certainly within inhospitable intentions toward 
the United States.
    So, we think that the recommendations we've made, which are 
thoughtful, which have been done with the best possible 
scholarship, and which have been verified by some outstanding 
work by econometric folks at the University of Maryland, form a 
very good set of recommendations for the Congress to move 
forward on this issue.
    [The prepared statement of Mr. Smith follows:]

Prepared Statement of Frederick W. Smith, Chairman, President and CEO, 
     FedEx Corp., Cochairman, Energy Security Leadership Council, 
                             Washington, DC

    Good afternoon, Chairman Kerry, Senator Lugar, and members of the 
committee. I would like to thank you for giving me this opportunity to 
speak to you regarding one of the great challenges facing our country 
today: Providing secure, sustainable and affordable energy to power the 
American economy.
    I am proud to serve as chairman of the Energy Security Leadership 
Council, alongside many distinguished business and military leaders, 
including my good friend, Gen. Chuck Wald.
    I am also honored to appear here after former President Carter. 
Very few understand the history of our Nation's energy challenges--and 
the urgency with which we must face them--better than he.
    I can speak to this issue personally. FedEx delivers more than 6 
million packages and shipments per day to over 220 countries and 
territories. In a 24-hour period, our fleet of aircraft flies the 
equivalent of 500,000 miles, and our couriers travel 2.5 million miles. 
We accomplish this with more than 275,000 dedicated employees, 670 
aircraft, and some 70,000 motorized vehicles worldwide.
    FedEx's reliance on oil reflects the reliance of the wider 
transportation sector, and indeed the entire U.S. economy. Oil is the 
lifeblood of a mobile, global economy. We are all dependent upon it, 
and that dependence brings with it inherent and serious risks.
    The danger is clear, and our sense of urgency must match it. This 
threat, however, comes coupled with a truly unique opportunity. Energy 
is in the headlines. It is being discussed both here in the Congress as 
well as down the street at the White House. Today, perhaps for the 
first time, there is a strong bipartisan understanding that something 
must be done.
    That is my message to you today: This Senate can pass 
comprehensive, bipartisan legislation this year that will set the 
Nation on a course to effectively eliminating our dependence on oil.
    We can do this.
    The lynchpin of any bill that is serious about confronting oil 
dependence must be a transportation system that today is almost 
entirely dependent on petroleum. The solution can be found in something 
that nearly every single one of you has either on your belt or on the 
table in front of you. The lithium ion batteries that power our cell 
phones and laptop computers can one day form the nucleus of an 
electrified transportation sector that is powered by a wide variety of 
domestic sources: Natural gas, nuclear, coal, hydroelectric, wind, 
solar, and geothermal. No one fuel source--or producer--would be able 
to hold our transportation system and our economy hostage the way a 
single nation can disrupt the flow of petroleum today.
    And if our cars are to run on electricity, any bill we pass must 
guarantee it can get to them. We must improve the planning, siting, and 
cost-allocation process for a nation that has built only 14 interstate 
transmission lines subject to FERC's jurisdiction between 2000 and 
2007. We must implement time-of-day pricing and build a smart grid. We 
must encourage companies to build those electric cars and consumers to 
buy them.
    Each of these elements make up a highly integrated system, in which 
every part depends on the other. We would see few results if we 
improved transmission in the Northeast, created a smart grid in the 
Northwest, and introduced more electric cars in the Deep South. Indeed, 
it would be preferable to develop all of these elements simultaneously 
even in a limited geographic area, creating electric transportation 
``ecosystems'' where the concept can take root and grow.
    Finally, it would be impossible to pursue those goals, and 
irresponsible to try, without safeguarding our economy and our Nation 
in the short and medium term. We will still be using oil and other 
liquid fuels for many years even as we make this transformation. 
Increasing the domestic production of oil and natural gas, as well as 
advanced biofuels, is among the most effective near-term steps for 
improving American energy security.
    I understand that this may seem contradictory. We talk about ending 
our dependence on oil, and in the next sentence about drilling for more 
oil. But the reason for this is simple: Our safety and our security 
must be protected throughout the entire process. It would be ideal if 
we could simply snap our fingers and stop using petroleum today. But 
that is a pipe dream, not a policy. There are no silver bullets, and we 
cannot allow the perfect to be the enemy of the good--especially when 
faced with very real dangers to our economic and national security.
    I realize, of course, that there are many other legitimate concerns 
relating to energy right now. Climate change, for example, is a high 
priority for many in this room and across the country.
    Energy and climate change are, as you all know, related issues. 
That said, it is important to emphasize that the fundamental goal of 
reducing oil intensity is a distinct one that needs to be considered 
based on its own merits and the very real dangers of inaction. Put 
simply, pricing carbon as a stand-alone policy, whether through a tax 
or a cap-and-trade system, will not allow us to reach that goal. Carbon 
pricing will almost automatically target the power industry in general 
and coal in particular. The power industry, however, is responsible for 
a fairly small percentage of the petroleum we consume as a nation. So 
pricing carbon will not meaningfully affect the price of oil, the 
demand for oil, and therefore oil dependence.
    On the other hand, the comprehensive plan to reduce oil dependence 
that I have described today will have a positive impact on our 
environment. Because electrification of transportation plugs energy 
demand from cars and trucks into the electric power system, it also 
consolidates emissions from millions of dispersed tailpipes into a 
finite number of large-point power stations. We do not pretend that 
this can or will solve the climate change problem alone, but it can act 
as an important table-setter to put us on the right path.
    The opportunity before all of you, and before our Nation, is 
enormous. The investors and innovators who power the energy world, and 
those businesses like FedEx that are dependent on it, are waiting for 
an enduring, bipartisan plan. They crave a stable regulatory 
environment. They know that any policies forced into place by one party 
may very well be overturned in 5 or 10 years by the other. A 
comprehensive solution passed by a bipartisan majority, however, will 
create the confidence to move forward.
    We cannot afford to develop sudden amnesia about what happened only 
a year ago. Indeed, we may not have to worry. Oil prices are up by 70 
percent since February. Can we continue tempting fate?
    The policies I have laid out today have the potential to undo our 
oil policy gridlock by offering a bipartisan, achievable, comprehensive 
solution. That is not just an opportunity. It is a necessity. We have 
before us a responsibility, a mandate to put our Nation on a pathway 
toward once and for all ending our dangerous dependence on petroleum 
and leaving a stronger, safer America in its place.
    Our challenges are great, but so are our opportunities. It is time 
for America to act.

    The Chairman. Well, we appreciate those thoughts and effort 
very much. It is a little startling, so many years later, that 
we're still struggling with the same issues that President 
Carter faced and reminded to us in his stark testimony today.
    Fred, share with us, if you would--some more details about 
how FedEx plans to achieve the 30-percent biofuels target by 
2030. As much as we'd like to transition rapidly, we're just 
not going to see that immediately, we're going to do this in a 
process, I guess. The question I would ask you is, What step or 
what incentive or measure could we put in place that would have 
the greatest impact in terms of taking us the farthest and the 
fastest, in your judgment?
    Mr. Smith. I think the biggest single elements are the 
appropriate incentives for the purchase and operation of plug-
in hybrids and plug-in hybrid electrics, and appropriate 
legislation to build a smart grid with Federal authorities to 
require time-of-day pricing and the various support 
accoutrements, if you will, to a highly electrified short-haul 
transportation system. Those would be the two things that would 
have the biggest effect, in terms of reducing our use of 
petroleum, in general.
    And, of course, we did not come together to address climate 
change in the environment, per se, although all of us are 
concerned about it as citizens and the science that's out 
there. But, you get that as a byproduct of the recommendations 
that we have. In fact, I would say that there are few 
recommendations that I've seen that would have a more dramatic 
effect, short of the power-generation issues that you're 
dealing with, with clean coal and things like that, to reduce 
carbon emissions in the air, to move to a short-haul 
electrified transportation system and to begin using advanced 
biofuels in long-haul transportation, where the battery 
technology doesn't offer the same advantages.
    The Chairman. Well, I don't disagree with you. I think, in 
terms of impact, it would be very dramatic. But, it's striking 
that Roger Smith, the former CEO of General Motors, built a 
terrific electric car. I drove in one in California a few years 
ago and was not aware at that time, that they just completely 
discontinued this car. Frankly, I am told this was because of 
pressure from other interests that saw their profits and stream 
of revenue threatened as a consequence.
    So, here was this shortsighted impact. But I'm currently 
driving a Prius that has one of these lithium batteries in it 
that you can get through the dealer, it's not a retrofit 
anymore. You actually get upward of 170 miles to the gallon if 
you drive thoughtfully, with a combination of the plugging in 
and so forth. So, these are things that are available. If more 
of America was suddenly grabbing onto that, you'd have a huge 
reduction, obviously, in the import piece.
    But, speak, if you would for a moment, about the global 
climate change piece. Do you both share--and does the coalition 
share--a sense of urgency with respect to the global climate 
change component of this?
    General.
    General Wald. As Fred said, SAFE didn't come together for 
that purpose; it was basically national security. But, from a 
personal perspective, speaking from my own self now, I was on a 
study last year with the Center for Naval Analysis, National 
Security and Climate Change, with 14 retired four-star and 
three-star generals, and--I mean, I care about the environment, 
I always have, but I wasn't a climate-concerned person at that 
time, although I thought it was a real issue. After a year of 
study with top scientists in the United States, and some 
deniers, as well, the panel came to the conclusion that it is a 
problem. Now, how much it's being exacerbated, I'm not a 
scientist, but I think we exacerbate it through man-made 
emissions.
    At that time--and I've seen things around the world--
Mozambique, in 1996, two typhoons flooded the entire country; 
the only people that could respond to that type of disaster 
were military, because the size of--the number of equipment 
that--what we had for equipment. I think we'll see more of 
that. And Bangladesh comes to mind, one of the areas that we 
are concerned with, 17 million people displaced; I think you 
mentioned that in your opening statement, Senator, about 
displaced personnel.
    The Chairman. Right.
    General Wald. Huge issues that will continue to grow over 
time. The Navy will have a big problem with the littoral, with 
their bases potentially being inaccessible if the water rises 
even a couple 2 or 3 feet.
    So, yes, I think that's an issue. And if there's--like 
General Sullivan, the leader of the Center for Naval Analysis 
study that we did, said, in the military we work on risk, risk 
mitigation, and a 50-percent risk of something happening is 
something we'd probably address in the military.
    So, I guess my point would be--I'm not a scientist, but my 
visceral is there's an issue there. And I think the SAFE 
recommendations, as Fred mentioned, will elegantly address, not 
only our national security issue, but the climate, as well. So, 
I consider it the way to go.
    The Chairman. I would assume that given your experience, 
you worked on considerably less than 50 percent. I mean, if you 
were told by your flight line mechanic or whoever, that there's 
a 5-percent or 10-percent chance that the fighter you're 
getting into is going to crash, you'd probably want to have a 
revision on that maintenance system or on those evaluations.
    General Wald. Yes, I mean, you're right, it's--you know, we 
were talking about it earlier today with some other folks, and 
the issue about the spectrum of threat in the United States 
today from low end to high end, low end being the peace or 
peacekeeping and potentially--in the old days, potentially 
talking about terrorism was toward the low end, because it was 
a one-off occurrence usually. Today, that low end of the 
spectrum, like Fred said, WMD in the hands of a terrorist, is a 
high-risk issue, the highest there is. That may be a 1-percent 
issue, but you've got to address it. So, anything that's 
catastrophic, yes, you have to address, and I think if there's 
a catastrophic chance of climate change doing something to our 
grandchildren, we need to address it today.
    The Chairman. I think that's a very important statement, 
and I appreciate your saying that, or acknowledging it.
    Fred, share with us, from a company perspective, 
competitiveness perspective--we're going to hear a lot from 
different companies who are going to say, ``It's all well and 
good that this is a security challenge, but I've got a survival 
challenge. I've got to compete in the marketplace. You know, 
I've got X amount of capital costs to try to make this 
transition.'' Are there steps we should also take that are 
particularly capable of addressing those concerns from fellow 
CEOs and others who looked at this transformation, but they're 
just holding back because right now it's easier to compete with 
the status quo?
    Mr. Smith. Well, I think that's a big part of it. I'll give 
you some examples inside FedEx that will make this, I think, 
demonstrably clear.
    We, along with the Eaton Corporation and the Environmental 
Defense Fund, which some people might say we're strange 
bedfellows, but we came together because of our mutual interest 
in the subject--developed the first walk-in pickup-and-delivery 
vans, a walk-in Prius, if you will. And those vehicles have 
about 43 percent more fuel efficiency, versus the conventional 
diesel-powered unit, and they're over 90 percent more emission 
efficient and have less emissions to address the climate change 
that you mentioned.
    The problem with the vehicles is, because they're not 
produced at scale, the capital cost of one of those vehicles is 
about $90,000 versus about $60,000 for the conventional 
vehicle.
    Now, in California, within the next 2 or 3 years, our fleet 
of several thousand vehicles in California will be comprised 
largely of hybrids, because California regulations will require 
you to meet certain standards.
    So, the point you're getting at is, while we can do this on 
a demonstration basis and buy a few hundred of them and 
demonstrate the efficacy--and, by the way, our couriers and our 
mechanisms and all love this equipment, so it's not as if 
there's any stepdown in terms of utility--but, you can't 
unilaterally disarm, so to speak. So, the government, as a 
matter of policy, needs to set goals.
    And we strongly believe, I might mention, Senator, that the 
issues about climate change, which are very important, as 
you've mentioned here, and the issues about dependence on 
petroleum, are related, but they are separate issues. I mean, 
you're going to have to have goals and policies that achieve 
what you want to do on both sides. And they'll clearly connect, 
but I think if you try to put something together in too broad a 
spectrum here, you have the real risk that meaningful reduction 
in the national security risk and in the national economic risk 
of reducing our use of imported petroleum, or petroleum in 
general, will be traded off, or whatever the case may be. So, 
that's why I applaud you in the Foreign Affairs Committee 
looking at this issue for what it really is; it's a major 
national security and foreign affairs risk, as well as being a 
climate change risk and a balance-of-payments issue, and so 
forth.
    The Chairman. This next question is for both of you--
besides the somewhat obvious dilemma of being hamstrung a 
little bit in what you can do because somebody's your supplier 
and you can't necessarily leverage your supplier if you're 
completely dependent on it and your economy is dependent on it; 
you're in trouble. But, besides that, which is sort of up front 
and obvious, what other national security implications do you 
see in this question of our current use and dependency on 
energy?
    General Wald. Well, I mean, it's kind of related to that, 
but--I mean, this idea--if you look at Afghanistan today, for 
example, there are lots of issues there, as you're both well 
aware, but one of the major issues is resupplying the troops 
with fuel, for example. And it's ironic that in Iraq we have 
ready access to readily available fuel out of Saudi Arabia, for 
example; even Iraq, for that matter. Today, there is no fuel 
whatsoever made in Afghanistan, there's no pipelines that go in 
there. So, our troops have to be resupplied by convoy, which is 
problematic. You've seen what's happened there. And then we fly 
in with airplanes that aren't able to refuel; they can fly it 
back to Baku, so now we're dependent on Azerbaijan, for 
example, or other places. So, that, in itself, is a huge 
strategic issue for us.
    And as the military goes down the road of--we have a report 
coming out next week from the Center for Naval Analysis again, 
on DOD energy use, that I'd commend you read if you have a 
chance sometime. But, the issue there is, What is the 
Department of Defense going to do to move to an alternative 
fuel of some sort? And as you do that, I think, as Fred's 
articulated very clearly, there are some alternatives you can 
go to. It takes time. But, whatever that alternative is, I 
personally believe, is going to have to be similar to what the 
commercial world uses, because of the availability of the 
fuels.
    And what we shouldn't do is go from one dilemma to another. 
So, whenever we go to an alternative, we need to have readily 
available someplace, preferably in our own country.
    So, I think the issue--and Fred mentioned it a minute ago--
is very complex. And if I were--if I were able to sit here 
today and say, ``I'm going to make a law that would move 
America toward the next step,'' the first thing I would do is 
solve our energy-use problem first, because we can do something 
about that.
    Again, I mean, I personally believe the second step will be 
taken care of, and that's the climate. But, I think a 
comprehensive energy bill, based on what SAFE has said today, 
is the best thing we can do; it's in our own hands, and we can 
make a difference.
    The Chairman. Well, let me just say to you that there is no 
solution to climate change without energy policy. I mean, it is 
the fundamental solution. You can decide what your source is 
going to be, but if your emissions are coming out of 
transportation or out of buildings, the energy used and the way 
you build, et cetera, or your transportation or utilities, 
those are the keys. And I personally think that the 
technologies are moving fast enough behind the scenes with 
various university efforts--such as MIT, Carnegie Mellon, 
Caltech, that different people who are deeply involved in this, 
together with venture capitalists, who are beginning to see the 
potential, such as the future Googles out there, or future 
FedExes, they're going to be racing to this technology. And I 
think once we've sent a signal to the marketplace, I'm not sure 
that the amount is as critical as sending the signal. I think 
you're going to see a whole series of changes in behavior that 
are going to stun people because of the rate at which they're 
going to take over.
    And you can see this in the 1990 Clean Air Act experience 
on sulfur, SOX which we did for acid rain, where we 
created a trading scheme, and we, in fact, have traded very 
effectively now approximately 19 years. And incidentally, we 
did this much more efficiently than anybody ever imagined and 
at a much lower price. Plus the whole transition took place 
with less competitive drag and at a lower price than people 
thought.
    So, I'm very optimistic about it, as I really think there's 
a brilliant future out there in solar, in wind and various 
alternatives, and even in nuclear, conceivably, in certain 
places, depending on what the market sends as a signal to those 
costs.
    General Wald. Could I just add one----
    The Chairman. Yes, please.
    General Wald. I couldn't agree more on the--from the 
standpoint of--the United States is the most entrepreneurial 
place in the world. I was lucky enough, in my years in the 
service, to travel to 135 countries; in the last assignment, to 
90. And last week we went to California--Robbie Diamond, who is 
sitting behind me, who is the head of SAFE--and we visited a 
place called Applied Materials, a company called Solazone, and 
another one called Bloom Energy. And I will guarantee you I've 
never seen anything like that in any other country around the 
world, where people, based on the creative thought, can do some 
things--the algae--one was solar and one was a special kind of 
a generator that--by the way, Google uses now at their 
headquarters in California.
    Mr. Smith. And FedEx----
    General Wald. And FedEx, too. Yes, exactly. And so, I think 
incentives for that type of activity is where I think we're 
really going to make a lot of headway.
    The Chairman. Great.
    Senator Lugar.
    Senator Lugar. Thank you, Mr. Chairman.
    With the nostalgia today about Presidential campaigns of 
the past, I noted our distinguished Senators from Delaware, New 
Hampshire, identified with the Carter campaign; I want to 
identify with the Howard Baker campaign. [Laughter.]
    I was honored to be his national chairman, Fred Smith was 
his national treasurer, back 30 some years ago. And, although 
that campaign was not successful, per se, it at least has led 
to survival for both of us, in the meanwhile, attempting to do 
meaningful things, on most days.
    My imagination is triggered by your testimony, Fred, to 
think through two things that you pointed out, one of which is 
that the current economic dilemma in our country and the world 
may not have been entirely triggered by the $147 price of oil. 
But, as you say, you've been through five of these situations 
in the past, survived them; barely, on one occasion. It was not 
only oil--clearly many analysts believe it was overreaching in 
the housing market, the subprime loans, and then all of the 
slicing-and-dicing derivatives and other strange financial 
instruments. But, this is a fascinating thing, all by itself, 
which really hasn't been studied, how oil got to $147; and, for 
that matter, how corn in Indiana got to $9 a bushel; soybeans 
to $15. Within 6 months, the oil was down to one-third of that, 
and so was the corn, slightly above $3; the soybeans, slightly 
above $8. These were huge changes in a remarkably short period 
of time. And it's not at all clear to any of us exactly how the 
world works that way. One can say, ``Well, this is supply and 
demand, these are markets,'' and so forth.
    What also happened during this same period of time was the 
wars in Afghanistan and Pakistan not going particularly well. 
We've had testimony today from Richard Holbrooke. We get back, 
once again, to this thought that you made as point one of your 
four points. For the better part of 50 or 60 years, our foreign 
policy had been deeply entwined with oil, in one form or 
another. In fact, some would say--this is, once again, sort of 
speculative theory, almost like why oil went to $147--that 
essentially the al-Qaeda group was disturbed, likewise people 
in Saudi Arabia, by the fact that, after the war in Kuwait, we 
continued to leave troops in Saudi Arabia. They were a source 
of disturbance for many persons who did not want us there. And, 
as a matter of fact, a number of people in the Middle East have 
not wanted our troops in any of the places that they have been 
recently.
    Now, we could have made a case for bringing democracy and 
human rights and education for children, and so forth, to a 
number of countries, but some would say, ``This is, at best, 
sort of a second or third order of rationalization as to why 
you were there to begin with and what sort of wars you 
engendered by your physical presence.'' And why were we there? 
Well, in large part because we were attempting, as President 
Carter expressed in the Carter Doctrine, to make certain we 
cannot be displaced from oil sources that were vital to our 
economy throughout that period of time.
    So, we put people in harm's way to make sure that all of 
those vital things occurred, did the best we could to 
rationalize that we were doing a lot of other good things while 
we were in the area. And that still is the case. As we heard 
today in testimony, with all the complexities of how in the 
world the Government of Pakistan is to come to some cohesion, 
quite apart from Afghanistan after a long history, we get back 
once again to the oil problem.
    I suppose that this is a part of leadership, whether it's 
business or political, for some of us to try to do a better 
explanation to our constituents of what the stakes are of all 
of this, because I'm not sure any of us have ever gotten it. We 
have sort of trundled on in life as usual. But, the points 
you've made today are very stark.
    You've also made an interesting point about California and 
your own equipment. That California has some rules with regard 
to this, and so, as a result, you're going to have to conform 
to that. They're not national rules now, but they do make a 
difference in energy for those vehicles that you have to run in 
California.
    Just thinking hypothetically, as we're in now what seems to 
be an unfortunate revolution in our whole transportation 
predicament, whether it's General Motors or Chrysler or 
whatever may occur to Ford or others, here we're at a point in 
our history in which we're not selling very many vehicles. One 
can say, ``Well, the market finally will work. Somebody will 
find something out there and begin to buy cars again, because 
some will wear out.'' But, at the same time you're pointing 
out, as is Chairman Kerry, that we have all sorts of what 
really are revolutionary ways of powering vehicles now, and 
they bring about huge changes, in terms of energy efficiency, 
enough that we finally really might make an impact upon 
imported oil, for example, a big impact, if we were serious 
about it. And we have to be serious about resurrecting our 
transportation business and getting our goods and services 
around the country, quite apart from transporting ourselves.
    What we're inclined to do is to say, ``This is a different 
problem altogether.'' And we sort of work through the 
bankruptcy court, and we work through supply and demand, for 
whatever it may be, all sort of oblivious, on the other hand, 
of the energy thing, national security, troops abroad, and all 
the rest. We talk about it in a different forum.
    I suppose, you know, what I'm grasping for is people like 
yourselves who are visionary and say, ``Now, here is a 
prescription as to how you try to solve at least two or three 
things at the same time.'' And you've tried to solve several, 
in the testimony you've had today.
    The leadership that the two of you have given has been 
exemplary, But the fact is that still a lot of people in the 
industries that you're involved in don't get it, they're not 
moving in the same direction that I can see you are. Maybe 
California or others demand certain things happen. Yet as a 
country, we're not even picking up, say, on the example of 
Brazil, where the ordinary motorist can drive into a filling 
station, and 75 percent of them offer ethanol from sugar, as 
opposed to petroleum, and consumer's make a choice. And Brazil 
is energy independent. They are, of course, producing oil 
offshore, which you suggested as one of your points, that you 
at least take advantage of the resources you still have in your 
country. But, that example is out there now. It's a whole 
country. It took 20 years to get there.
    But, why, for instance, in your own leadership in the group 
that you head now, has there not been more acceptance? Or, 
maybe we haven't seen the acceptance--maybe you've actually had 
a rush of people to follow your lead. And if so, give us the 
good news. How do you discern your own influence and who you're 
influencing?
    Mr. Smith. Well, Senator, I think there's reason to be 
optimistic. And I say that for several reasons. The initial 
report that the Energy Security Leadership Council put out, 
based on excellent scholarship and demonstrated in a number of 
simulations, where a number of very noted people, including 
Secretary Gates, played one of the roles, Secretary Rubin, I 
think even Richard Holbrooke may have been in one; I can't 
remember, but--that demonstrated the national security and 
economic risk of relatively small withdrawals of supply. Well, 
then, obviously, we saw it last summer, which was far beyond 
what was in the simulation.
    But, because of that excellent scholarship and the work of 
ESLC, I think we played a very important role, in 2007, when 
the Congress passed the energy legislation late that year, that 
reinstituted, for the first time, new fuel efficiency 
standards. And, of course, I have many very free-market friends 
that accuse me of being an apostate. But, if you look at it 
just from the market standpoint, you miss the issue that 
General Wald and his colleagues bring to the table, that this 
isn't a free market, it's not just an economic issue; it's a 
national security issue.
    So, you had increased regulation. Then, at the same time, 
you had technology coming along. And I would submit to my 
friend Senator Kerry, the big difference between the electric 
car, that Chairman Roger Smith of General Motors pioneered 
several years ago, and the new generation of electric and plug-
in electric cars that have been introduced just since the 2007 
legislation--the Chevy Volt, the new Honda hybrid, which I just 
saw, today in the Financial Times, is the No. 1 selling hybrid 
in Japan, and which is now available in this country; Nissan, 
in 2010, will be offering a new plug-in hybrid; MIT scientists 
have announced that they think they can take the recharge cycle 
of these plug-ins down from hours to minutes--you can clearly 
do it if you have high-power plugs, you know, 440 or 220. So, I 
think you had a convergence of the regulations inherent in the 
2007 bill, which required new fuel efficiency standards, 
different than the old types; you know, they were category-
specific, not averages. And, at the same time, you had 
technology coming together that said there really is a way to 
get to these points.
    Senator Kerry mentioned that if you drive your hybrid 
properly and all, you can get upward of 150, 170 miles per 
gallon equivalent. That's what you're looking at, not 35 
gallons per hour.
    Now, aviation, for years, has made huge progress. We're re-
equipping our narrow-body airplanes with equipment that'll have 
a 47-percent unit improvement, in terms of fuel per ton 
carried. We're beginning the process of refleeting our long-
distance airplanes with the new triple-7 200 long-range 
freighter, which has these fantastic General Electric engines, 
some of the components of which are built in Lynn, MA, and they 
have about a 20-percent improvement and about a 30-percent 
improvement in range.
    So, technology is coming along, and regulation, because of 
the environmental, national security, economic risk, have been 
put in place, and there's, of course, excellent bills out there 
now, with Senator Dorgan and Senator Voinovich's bill--there's 
another one over on the House--that I think recognizes that 
it's a combination of regulation--the stick, if you will--and 
the carrot of incentives and credits and so forth, that will 
get us to where we need.
    But, as I said in my opening remarks, for the first time 
since I've watched this, this is a different situation, because 
20 years ago there really wasn't any alternative to the 
internal combustion engine. And the internal combustion engine 
will be around a long time, and it, too, will become more 
efficient, the same way diesels will become more efficient. 
But, I think the plug-in hybrid electrics and the all-electrics 
for the short-haul transportation that makes up the vast 
majority of our daily utilization of our automobiles has the 
real chance to change this equation, for the first time. But, 
to get from here to there, it's got to be in light regulation 
and appropriate incentives to get people to produce and buy 
this equipment and get it into scale production.
    Senator Lugar. Just one further question. Why, if this is 
the case, would you approach this as incrementally, say, as the 
legislation you've suggested or that we've passed? In other 
words, why wouldn't you go to, say, 50 miles a gallon in 3 
years or something of this sort? Now, everybody will say, 
``Well, by golly, we don't have the technology to do that,'' 
or, ``We can't produce that many efficient cars. We're just 
getting there.'' But, isn't the urgency of this such that a 
more dramatic push is really in the national interest?
    Mr. Smith. Well, I think that you have to be mindful just 
of the scope of the problem too, Senator. I think I'm correct, 
it takes about 15 years to turn over the automotive fleet. But, 
in the report which we produced, the recommendations we have, 
which, again, are largely incorporated in the legislation here, 
including the smart grid and so forth, it begins to have very 
dramatic effects, on a cumulative basis. And the reason for 
that is that oil markets, like any commodity markets, as you 
demonstrated in your remarks about the huge runup in fuel 
prices of soybeans and corn, it's always on the margin; that 
last 1 or 2 percent of demand can make the price go up by two 
or three times. So, as you begin to take demand down by 
improving the efficiency as these new quantumly more efficient 
vehicles come into the fleet, and the lesser efficient vehicles 
go out, you begin to have a real effect on the total amount of 
petroleum consumed, a very big part of the petroleum imported, 
particularly if you develop advanced biofuels and maximize 
domestic production. And now you've changed the national 
security equation, the balance of payments equation, and you 
have a very different situation than we find ourselves in 
today, or have been for the last 45 or 50 years.
    Senator Lugar. Thank you.
    The Chairman. Thank you, Senator Lugar.
    General, if you had 30 seconds to convince a fellow 
American of why energy is such a critical national security 
issue, what would you say to them?
    General Wald. First of all, I'd say that if we don't do--we 
have a window, here, of vulnerability in America, and I don't 
know if it's 10 years or 15. If we had an epiphany today and 
have the leadership, which I think we potentially do, to decide 
that we're going to go where we think we should go, it will 
take us probably a decade.
    And I think the biggest threat we face today, personally, 
in America is the Iranian situation, and I think that's a 
difficult wild card. And if that situation goes in a direction 
that we don't want it to be, we are going to be in a 
significant problem here in America, from an economic 
standpoint, as well as a security standpoint.
    So, I think there is a way for people to articulate this 
problem, and I think every time we seem to go someplace and 
talk about this, it resonates. So, I--frankly, I believe it 
starts right here in Washington. And I don't think we should 
overly frighten people, but they need to be aware of the fact 
that we are severely threatened today and vulnerable.
    The Chairman. Fred Smith. Thirty seconds, 1 minute, 
whatever----
    Mr. Smith. Well, I--as I said a moment ago, I'm optimistic. 
I mean, we participated in the debates. In fact, I think I 
testified before you in 2007----
    The Chairman. But, if somebody doesn't understand it or 
didn't yet believe it, what would you say to them to convince 
them?
    Mr. Smith. Well, I think what I would say is--all you have 
to do is to watch the nightly news and look at the enormous 
human cost and the cost in national wealth of prosecuting these 
wars in the Middle East. And any way you slice it, in large 
measures they are related to our dependence on foreign 
petroleum. There are other issues, to be sure; but, just as 
Alan Greenspan said in his book, ``neat,'' you know, the 
situation was about oil. And if we continue along the road 
we've been on these last 40 years, we're going to get into a 
major national security confrontation that makes these things 
that we've been in, here the last few years, pale in 
comparison.
    So, I think every American can understand that issue by 
just simply relating to what we've been involved in, the last 
few years, and watching the enormous human cost of these 
involvements that we have in areas of the world which we 
wouldn't necessarily be involved in if we weren't as dependent 
on foreign petroleum. We have other issues and other interests, 
but I think they would not require the level of boots on the 
ground that we've been forced to get into there in these last 
two wars.
    The Chairman. Well, that's a good way to bring this to a 
close. We're really appreciative to both of you. First of all 
thank you both for your service to our country in uniform, and 
thank you for what you're doing now. We're very appreciative 
and glad you could be with us today.
    Senator Lugar, do you have any----
    Take care. Thank you very much.
    We stand adjourned.
    [Whereupon, at 4:10 p.m., the hearing was adjourned.]

                                  
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