[Congressional Record (Bound Edition), Volume 152 (2006), Part 13]
[Senate]
[Pages 17663-17666]
[From the U.S. Government Publishing Office, www.gpo.gov]




                    REDUCING FOREIGN ENERGY RELIANCE

  Mr. LUGAR. Mr. President. I rise today to request that my remarks, 
delivered in the keynote address to the Richard G. Lugar-Purdue 
University Summit on Energy Security, at Purdue University, West 
Lafayette, IN, on August 29, 2006, be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

       I am honored to address this assembly, which will explore 
     an aggressive agenda to reduce our nation's dependence on 
     foreign energy sources. I appreciate the opening words of my 
     good friend, Governor Mitch Daniels. He and his 
     administration have given priority to energy issues in 
     Indiana. They are attempting to maximize the opportunities 
     that our state has to become a leader in a broad gamut of 
     energy technologies. I also want to thank our host, Purdue 
     University, and President Martin Jischke for promoting this 
     energy summit. President Jischke has provided brilliant 
     direction to this university. His advice on energy, 
     agriculture, education, and many other topics has been of 
     great benefit to me personally. I will deeply miss his 
     leadership at Purdue when he steps down as President next 
     June, but I look forward to a very productive year 
     immediately ahead and many mutual endeavors in years to come. 
     I am also delighted that Congressman Pete Visclosky, will 
     address the summit conference this noon. Pete has been a 
     great partner on numerous issues, ranging from local projects 
     of special importance to Hoosiers, to the global search for 
     an AIDS vaccine.
       It is exciting to be surrounded by so many talented 
     individuals who are committed to the objective of greater 
     energy independence for the United States. I believe that in 
     the future, the United States can be energy self sufficient 
     or nearly so. Over the long term, we have the resources and 
     the ingenuity to achieve this goal.
       The crucial question is what happens between now and then. 
     Will we achieve this goal rapidly through a coherent and 
     resolute national policy that takes advantage of America's 
     natural assets to create new economic opportunities, a 
     cleaner environment, and improved national security? Or will 
     we achieve our objective only after many years of widespread 
     economic pain and national vulnerability caused by scarcity, 
     terrorist attacks, market shocks, and foreign manipulation of 
     our energy supplies?
       We must move now to address our energy vulnerability 
     because sufficient investment cannot happen overnight, and it 
     will take years to build supporting infrastructure and to 
     change behavior. In other words, by the time a sustained 
     energy crisis fully motivates market forces, we are likely to 
     be well past the point where we can save ourselves from 
     extensive suffering. Our motivation will come too late and 
     the resulting investment will come too slowly to prevent the 
     severe economic and national security consequences of our oil 
     dependence. This is the very essence of a problem requiring 
     citizen, business, and governmental action.
       I will describe our energy dilemma as a six-pronged threat 
     to national security. First, oil supplies are vulnerable to 
     natural disasters, wars, and terrorist attacks that can 
     disrupt the lifeblood of the international economy. Within 
     the last year, the international flow of oil has been 
     disrupted by hurricanes, unrest in Nigeria, and continued 
     sabotage in Iraq. In late February of this year, terrorists 
     penetrated the outer defenses of Saudi Arabia's largest oil 
     processing facility with car bombs before being repulsed. Al-
     Qaeda and other terrorist organizations have openly declared 
     their intent to attack oil facilities to inflict pain on 
     Western economies.
       Second, as large industrializing nations such as China and 
     India seek new energy supplies, oil and natural gas will 
     become more expensive. In the long run we will face the 
     prospect that the world's supply of oil may not be abundant 
     and accessible enough to support continued economic growth in 
     both the industrialized West and in large rapidly growing 
     economies. As we approach the point where the world's oil-
     hungry economies are competing for insufficient supplies of 
     energy, oil will become an even stronger magnet for conflict.
       Third, adversarial regimes from Venezuela, to Iran, to 
     Russia are using energy supplies as leverage against their 
     neighbors. We are used to thinking in terms of conventional 
     warfare between nations, but energy is becoming a weapon of 
     choice for those who possess it. Nations experiencing a 
     cutoff of energy supplies, or even the threat of a cutoff, 
     may become desperate, increasing the chances of armed 
     conflict, terrorism, and economic collapse.
       Fourth, the revenues flowing to authoritarian regimes often 
     increase corruption in those countries and allow them to 
     insulate themselves from international pressure and the 
     democratic aspirations of their own peoples. We are 
     transferring hundreds of billions of dollars each year to 
     some of the least accountable regimes in the world. Some are 
     using this money to invest abroad in terrorism, instability, 
     or demagogic appeals to populism.
       Fifth, the threat of climate change has been made worse by 
     inefficient and unclean use of non-renewable energy. In the 
     long run this could bring drought, famine, disease, and mass 
     migration, all of which could lead to conflict and 
     instability.
       Sixth, much of the developing world is being hit hard by 
     rising energy costs, which often cancel the benefits of our 
     foreign assistance. Without a diversification of energy 
     supplies that emphasizes environmentally friendly energy 
     sources that are abundant in most developing countries, the 
     national incomes of energy poor nations will remain 
     depressed, with negative consequences for stability, 
     development, disease eradication, and terrorism.
       Each of these six threats from energy dependence is 
     becoming more acute as time passes. Any of them could be a 
     source of catastrophe for the United States and the world.
       The vulnerability of the United States rests on some basic 
     factors. With less than 5 percent of the world's population, 
     our nation consumes 25 percent of its oil. World demand for 
     oil and other forms of energy is rapidly increasing. Within 
     25 years, the world will need 50 percent more energy than it 
     does now. If oil prices average $60 a barrel through 2006--a 
     figure that we are currently well above--we will spend about 
     $320 billion on oil imports this year. This is roughly the 
     same amount that the United States has spent on the war and 
     reconstruction effort in Iraq during the first three years of 
     conflict.
       These conditions might be negotiable in the short and 
     medium terms if oil resided with responsible, secure 
     producers who maximize production during periods of elevated 
     demand. But just the opposite is true. According to PFC 
     Energy, about 79 percent of the world's oil supply is 
     controlled by state-run oil companies. These governments 
     profoundly affect prices through politicized investment and 
     production decisions. The vast majority of these oil assets 
     are afflicted by at least one of three problems: lack of 
     investment, political manipulation, or the threat of 
     instability and terrorism.
       As recently as four years ago, spare production capacity 
     exceeded world oil consumption by about ten percent. As world 
     demand for oil has rapidly increased in the last few years, 
     spare capacity has declined to less than two percent. Thus, 
     even minor disruptions of oil can drive up prices. Earlier 
     this month, a routine inspection found corrosion in a section 
     of BP's Prudhoe Bay oil pipeline that shut down 8 percent of 
     U.S. oil output, causing a $2 spike in oil prices. That the 
     oil market is this vulnerable to something as mundane as 
     corrosion in a pipeline is evidence of the precarious 
     conditions in which we live.
       Our current dependence on imported oil has put the United 
     States in a position that no great power should tolerate. Our 
     economic health is subject to forces far beyond our control, 
     including the decisions of hostile countries. We maintain a 
     massive military presence overseas, partly to preserve our 
     oil lifeline. One conservative estimate puts U.S. oil-
     dedicated military expenditures in the Middle East at $50 
     billion per year. But there is no guarantee that even our 
     unrivaled military forces can prevent an energy disaster. We 
     have lost leverage on the international stage and are daily 
     exacerbating the problem by participating in an enormous 
     wealth transfer to authoritarian nations that happen to 
     possess the commodity that our economy can least do without.
       Rising energy prices, news reports of hostile oil 
     producers, and the energy shocks experienced after the 
     Katrina and Rita hurricanes, have awakened Americans to our 
     energy vulnerability.
       Almost six months ago, I delivered an address at the 
     Brookings Institution in which I described ``a shifting 
     balance of realism'' from those who believe in the 
     immutability of oil domination of our economy and a laissez 
     faire approach to energy policy to those who recognize that 
     our nation has no choice but to seek a major reorientation in 
     the way we get our energy. With oil at $72 a barrel and 
     multiple crises flaring in the Middle East, fewer pro-oil 
     commentators still assert that dependence on oil is simply a 
     choice of the marketplace and government can and should do 
     little to change it.
       I believe that there is a growing consensus behind the new 
     energy realism. There are clear signs that policy makers and 
     a majority of the public recognize that our oil dependence is 
     dangerously unsustainable.

[[Page 17664]]

       The media is filled with examples of enterprising 
     individuals who are making ethanol or biodiesel, erecting 
     windmills, installing solar panels, or otherwise establishing 
     personal control over their energy resources. A review of the 
     nation's five largest newspapers revealed that twice as many 
     energy-related stories appeared in July 2006 as appeared in 
     July 2003.
       Gasoline prices are beginning to have some effect on the 
     automobile choices of American consumers. Sales of SUV's were 
     down fifteen percent in the first half of 2006 compared with 
     the same period in 2005. Sales of compact cars, by 
     comparison, rose eight percent. These statistics were 
     reinforced by a May 2006 Consumer Reports survey, which found 
     that 37 percent of Americans were considering trading in 
     their current cars for more fuel efficient cars. Almost half 
     of these consumers were considering the purchase of a hybrid 
     car or another alternative to traditional gasoline powered 
     cars.
       Progress is also appearing in the investment world. The 
     entrepreneurial vanguard that brought us the internet and 
     transformed telecommunications is turning its attention to 
     alternative energy. According to data compiled by VentureOne, 
     venture capital targeted at alternative energy projects more 
     than tripled to $315 million in the first half of 2006 
     compared to the first half of 2005. Alternative energy 
     investment is no longer just a niche area for environmental 
     idealists and companies trying to improve their public image.
       As a political issue, energy has been elevated to a status 
     that is roughly equivalent to health care or education. A 
     check of all one hundred Senators' websites in early August 
     found that at least 85 of them had either issued a press 
     release on energy this summer or had an energy section 
     prominently displayed on their homepage. No politician on the 
     national scene can afford to ignore energy.
       Unfortunately, although many Americans are embracing the 
     idea of changing our energy destiny, they have not committed 
     themselves to the action steps required to achieve an 
     alternative future. This is an important distinction, because 
     although national acceptance that there is a problem is a 
     necessary condition for solving the problem, it does not 
     guarantee that the problem will be solved.
       In fact, advancements in American energy security have been 
     painfully slow during 2006, and political leadership has been 
     defensive, rather than pro-active. One can point with 
     appreciation to a few positive trends, as I have just done, 
     but these are small steps forward in the context of our 
     larger vulnerability. If our economy is crippled by an oil 
     embargo, if terrorists succeed in disrupting our oil 
     lifeline, or if we slide into a war because oil wealth has 
     emboldened anti-American regimes, it will not matter that 
     before disaster struck, the American public and its leaders 
     gained a new sense of realism about our vulnerability. It 
     will not matter that we were producing marginally more 
     ethanol than before or that consumers are more willing to 
     consider hybrids and other alternative vehicles.
       Not all indices and measures of energy progress are even 
     moving in the right direction. The American people are 
     angered by $3.00 gasoline, but they are still buying it in 
     record quantities. In a recent Business Week article, writer 
     Peter Coy points out that gasoline consumption during the 
     2006 July 4th holiday was up 2 percent from a year earlier 
     and consumers bought ten percent more gasoline in the first 
     half of 2006 than they did in the first half of 2000, even 
     though the price of gasoline was 75 percent higher.
       Neither American oil companies, nor American car companies 
     have shown an inclination to dramatically transform their 
     businesses in ways that will achieve the degree of change we 
     need to address a national security emergency. In fact, a 
     number of the major oil companies have written to me to 
     explain why they are not enthusiastic about installing pumps 
     that can accommodate E85--a blend of gasoline and up to 85 
     percent ethanol. Some are distinctly hostile to any such 
     idea.
       General Motors launched a new ``Live Green, Go Yellow'' ad 
     campaign to promote the purchase of flexible fuel vehicles. 
     But its strategy for overall corporate recovery appears to 
     depend on the sale of pickup trucks. Earlier this month, 
     General Motors CEO Richard Wagoner called a new redesigned 
     line of pickup trucks ``the most important part of our North 
     American turnaround plan.'' According to the New York Times, 
     to counter GM's new line, Ford Motors plans to cut the price 
     of its 2007 F-Series pickups, add two more body styles, and 
     increase towing capacity. Moreover, earlier in the summer, GM 
     attempted to tap into consumer worries about gasoline costs 
     by offering to subsidize gasoline for purchasers of certain 
     gas guzzlers in Florida and California. Under the deal, GM 
     would cap the price of gasoline at $1.99 per gallon for one 
     year for buyers of Hummers, Yukons, Tahoes, and other large 
     vehicles.
       Within State governments, dropping speed limits or raising 
     gas taxes are non-starters almost everywhere. In fact, speed 
     limits are rising in some states. Recently, Texas raised 
     speed limits on some sections of rural interstate highways to 
     80 miles per hour, effectively ensuring that many motorists 
     will be traveling closer to 90 miles per hour on those 
     stretches and using more gasoline per mile.
       Most importantly, the Federal Government is not treating 
     energy vulnerability as a crisis, despite an increase in 
     energy related proposals. Consider that the only major energy 
     legislation taken up by Congress so far this year was 
     legislation to encourage offshore oil and gas production in 
     the Gulf of Mexico. I supported passage of the bill, but it 
     was offered in a format that did not allow for amendments, 
     and no bill has emerged from a House-Senate conference. If 
     the bill passes, we would be addressing only a small corner 
     of the energy picture. Issues such as energy efficiency, 
     renewable fuels, and alternative energy technology had no 
     chance to be discussed.
       Even when the Congress and the President establish programs 
     that would produce meaningful results, bureaucratic inertia 
     and turf-consciousness within the Federal agencies have added 
     delays. Groundbreaking for the first commercial-scale 
     cellulosic ethanol plant has been on hold for a year while 
     investors wait for the Federal government to establish the 
     regulations and application procedure for a loan guarantee 
     program that was passed last summer. The program was meant to 
     jump start the commercialization of cellulosic ethanol--a key 
     goal of President Bush and Congress. But despite the urgency 
     of this mission, the Energy Department's glacial 
     implementation of the program has frustrated potential 
     investors and those of us who are urging the transition to 
     gasoline alternatives. In fairness, Secretary Bodman 
     announced in early August that the Energy Department will 
     accept proposals this fall for cellulosic plant pilot 
     projects, even before regulations are complete. The 
     Department estimates that construction of the first plants 
     could begin early next year.
       We could all take our time if this were merely a matter of 
     accomplishing an industrial conversion to more cost effective 
     technologies. Unfortunately, in the absence of far-reaching 
     changes in energy policy, we are risking multiple disasters 
     for our country.
       The energy debate is afflicted with what writer Jonathan 
     Rauch has called ``Demosclerosis''--the phenomenon of 
     competing interest groups protecting their perceived 
     interests so effectively that policy can achieve only least 
     common denominator outcomes that do not solve the problem 
     threatening the whole nation. Rauch used the concept of 
     demosclerosis to describe the gridlock afflicting efforts to 
     cut the federal budget and restructure entitlement programs. 
     But it is also applicable to the energy debate. The competing 
     interests of oil companies, car companies, environmentalists, 
     truckers, farmers, consumers, and governmental agencies 
     cancel out initiatives or compromises that serve the broader 
     public interest.
       Even in California, where voters tend to be environmentally 
     sensitive and where pollution provides a strong extra impetus 
     to cut gasoline use, entrenched business interests have 
     succeeded in discouraging alternative fuels and 
     transportation technologies. Since 1979, California lawmakers 
     have tried a variety of approaches, only to be frustrated by 
     the oil and auto industries that resisted change. A proposal 
     there to cut oil use 15 percent by 2020 is supported by 
     Governor Schwarzenegger, but opposed by the major oil 
     companies, and has not made it through the legislature. 
     California consumes more gasoline than any other state. Yet 
     the number of E85 stations open to the public, after all the 
     conflicting cross-currents, is exactly one.
       Overlaying these elements of gridlock are memories of 
     President Jimmy Carter's unpopular energy program from the 
     1970s. His dour calls for sacrifice remain a cautionary 
     example for many office holders, editorial writers, and 
     political strategists. Conventional political wisdom holds 
     that the American public will punish anyone who forces 
     significant energy sacrifices on them. This is a major 
     oversimplification, but it is true that Americans are not 
     eager to pay higher prices for energy, wait in gas lines, or 
     see their driving or horsepower curtailed. A recent 
     Bloomberg/Los Angeles Times poll asked about 1,500 people 
     which of five options were ``the best way to reduce U.S. 
     reliance on foreign oil.'' Two percent chose increasing the 
     gas tax. Building new nuclear plants or enforcing stricter 
     mileage standards fared little better at 6 and 8 percent 
     respectively. Respondents gravitated toward general trends 
     that were unlikely to affect them personally, with 52 percent 
     endorsing increased government investments in alternative 
     energy sources and 20 percent choosing to relax environmental 
     standards for oil and gas drilling.
       Breaking through a political logjam often requires a crisis 
     that focuses the nation in a way that achieves a consensus. 
     But consider that the combination of September 11, 2001, the 
     war in Iraq, the conflict on the Israeli-Lebanese border, the 
     nuclear standoffs with Iran and North Korea, the Katrina and 
     Rita hurricanes, sustained $3.00 per gallon gasoline, and 
     several other severe problems have not created a consensus on 
     energy policy. This leads one to the sobering conclusion that 
     a disaster capable of sufficiently energizing public opinion 
     and our political structures will have to be something worse 
     than

[[Page 17665]]

     the collective maladies I just mentioned--perhaps extreme 
     enough to push the price of oil to triple digits and set in 
     motion a worldwide economic downturn. None of us want to 
     experience this or any of the nightmare scenarios that await 
     us. It is time to summon the political will to overcome the 
     energy stalemate.
       In most areas of national policy we are concerned far more 
     with trends than with a discernable national goal. For 
     example, we watch the effects of President Bush's ``No Child 
     Left Behind Act'' and debate whether more American school 
     children are reading at grade level than before. Despite the 
     name of that bill, we realize that not every school or every 
     child will succeed. We measure success or failure in trends 
     and those trends have meaning because they can be translated 
     into progress for real individuals. The same is true for most 
     aspects of health care policy, environmental protection, job 
     creation, highway construction, and numerous other policy 
     areas. Even when goals aren't met completely, we are rarely 
     disappointed if we achieve measurable improvements.
       Our energy dilemma is different. Although every gallon of 
     ethanol, every E-85 pump, every flex fuel vehicle that comes 
     on line moves us closer to safety, they do not necessarily 
     make us safer right now. Marginally reducing our reliance on 
     imported oil over the course of the next few decades will be 
     welcome, but we will still be vulnerable to disaster at any 
     time, and our national security and economic policy options 
     will be constrained accordingly.
       Our energy vulnerability is analogous to rowing a boat to 
     shore in rough seas. Each stroke moves us closer to safety, 
     but until we reach the shore, we can be capsized. We have to 
     measure progress not against where we have been, but against 
     the distance to our goals. Achieving a positive trend line is 
     almost inevitable as long as energy costs remain high, 
     because these costs will lead to some improvements in 
     investment and conservation. We need to have the discipline 
     to understand that a modestly positive trend line is not 
     enough. With the storm bearing down on them, the occupants of 
     a threatened boat do not put up their oars and relax because 
     the current has caused them to drift a little closer to 
     shore.
       To bolster public motivation and to connect our efforts to 
     rational outcomes, we must work much harder to establish 
     meaningful goals. Americans need to know exactly what the 
     plan is and how we will achieve it. We not only must 
     understand how to bring alternatives to the market, we must 
     establish what degree of change would improve our national 
     security situation, then tailor national policy to achieve 
     that goal.
       Although the energy debate is multifaceted, the heart of 
     our geostrategic problem is reliance on imported oil in a 
     market that is dominated by volatile and hostile governments. 
     This is where we must devote our national effort, because it 
     is our most intense short term vulnerability. It also could 
     bring the most collateral benefits, including reinvigorating 
     the American automobile and agricultural industries and 
     helping to reduce carbon emissions. This is not to minimize 
     the challenges facing our electricity grid or other energy 
     problems, but as we marshal our political capital for a 
     difficult task, this should be our first focus.
       To this end, the United States should adopt a national 
     program that would make virtually every new car sold in 
     America a flexible fuel vehicle. We should ensure that at 
     least one quarter of filling stations in America have E85 
     pumps. We should expand ethanol production to 100 billion 
     gallons a year by 2025, a figure that could be achieved by 
     doubling output every five years. We should also create an 
     approximate $45 per barrel price floor on oil through a 
     variable ethanol tax credit to ensure that investments keep 
     flowing to alternatives. And we should enact stricter vehicle 
     mileage standards to point automobile innovation toward 
     conservation. The plan I am proposing today would achieve the 
     replacement of 6.5 million barrels of oil per day by volume--
     the rough equivalent of one third of the oil used in America 
     and one half of our current oil imports.
       I am aware that these are ambitious goals, and that 
     achieving them will take political breakthroughs and 
     intensive government oversight. But if we have the political 
     will, America can end its oil addiction through technology, 
     the new economics of energy, and targeted government 
     incentives and regulations to focus market forces on the 
     problem.
       As former Federal Reserve Chairman Alan Greenspan told the 
     Senate Foreign Relations Committee earlier this year, almost 
     one out of every seven barrels of oil produced in the world 
     is consumed on American highways. To break oil's monopoly on 
     American roads, some experts favor a giant leap in technology 
     to hydrogen. But that will require new engines, new 
     distribution systems, new production technologies, and is 
     decades away from commercialization. Instead, we can start to 
     break petroleum's grip right now. The key is making ethanol 
     as important as gasoline in our transportation fuel mix.
       To start with, every new car can be easily fitted with 
     proven technology that enables it to burn E85. Millions of 
     these cars are on the road today, and the factory cost of 
     making each vehicle capable of burning E85 is probably less 
     than $150. Because these flex-fuel cars can run on either 
     gasoline or E85, or any combination, the driver can fill up 
     with E85 when it is available, and with regular gasoline when 
     it is not. So the first step should be to require that all 
     new cars sold in America be flex-fuel vehicles.
       We applaud the efforts of American automakers to increase 
     their flexible fuel offerings. On June 28, Daimler-Chrysler, 
     Ford, and General Motors issued a statement announcing that 
     they will double their production of flexible fuel vehicles 
     by 2010. This pledge is significant within the context of the 
     auto company's business objectives, but it is inadequate in 
     the context of pursuing the national security benefits of 
     replacing a large share of gasoline with ethanol. The Federal 
     government should work with both foreign and domestic car 
     companies on a plan to rapidly achieve the goal of equipping 
     all new vehicles sold in America with flex-fuel technology. 
     The Federal government should be willing to offer incentives 
     to help make a voluntary plan work. But if car manufacturers 
     do not respond with a sufficient plan in a short time period, 
     Congress should mandate that all new autos sold in the United 
     States have flex-fuel capability.
       I do not suggest this lightly. But my observations of the 
     post-Katrina response by car companies, oil companies, and 
     consumers is that in the short run, the evolution of market 
     forces won't be capable of producing the progress that we 
     need to achieve our national security goals, particularly 
     since the car fleet turns over slowly.
       Next, we need to make E85 more widely available. Major oil 
     companies have resisted installing E85 pumps. Indeed, most of 
     the 897 E85 fuel stations in the country are independently-
     owned. As the profits of oil companies have increased with 
     the price of oil, members of Congress have discussed 
     increasing taxes on oil companies or requiring that a certain 
     percentage of profits be devoted to research, exploration, or 
     alternative energy sources.
       Some of these ideas may have merit. I would suggest, 
     however, that our first requirement of oil companies should 
     be to use some of their recent profits to install E85 pumps 
     in at least 25 percent of the nation's fuel stations within 
     ten years. Unfortunately, this may also require an outright 
     mandate. The majors have, thus far, shown little willingness 
     to take this step.
       The oil companies have argued that installing these pumps 
     is too expensive and should wait until sufficient supplies of 
     ethanol and flex-fuel vehicles are available. It does cost 
     money to turn a gas pump into an E85 pump, primarily to 
     replace the underground storage tank. But the cost is 
     generally far less than the oil companies have portrayed. A 
     recent Wall Street Journal article cited Chevron as 
     estimating that installing an E85 pump costs $200,000. In 
     fact, last year I helped inaugurate an E85 outlet in Terre 
     Haute, and the owner said it cost her less than five thousand 
     dollars to retrofit her station. Moreover, according to oil 
     industry sources, installing a new E85 pump costs only about 
     $5,000 more than installing a new gasoline pump. This 
     suggests that stations on the drawing board would be low-cost 
     candidates for E85 pumps. Conversion of some pumps will be 
     much more expensive, and there are numerous price variables 
     to consider. But by making use of retrofits and by devoting 
     one pump to E85 at newly constructed fuel stations, the 
     average conversion cost nationwide would be a fraction of 
     what oil companies have implied.
       In addition, gasoline companies can take advantage of an 
     existing tax credit for the installation of renewable fuel 
     pumps. I would support increasing this tax credit if a 
     mandate were enacted. Gasoline companies also would be able 
     to hold costs down by selecting the least expensive locations 
     for adding E85 pumps, as long as they met geographic 
     distribution requirements.
       If the six largest gasoline companies installed E85 pumps 
     in half of their stations, we would get to the 25 percent 
     fuel station goal. For the sake of argument, if we estimated 
     that the average marginal cost of opening an E85 pump after 
     tax credits was $15,000, then establishing the pumps at one 
     quarter of the nation's 170,000 fuel stations would cost 
     approximately $637 million over ten years. That is just one 
     percent of the combined $64 billion profit made during 2005 
     alone by the three largest American oil companies--Exxon-
     Mobil, Chevron, and Conoco-Phillips. Even if the average cost 
     is somewhat more than $15,000, these figures illustrate that 
     the cost of a nationwide E85 pump conversion for the major 
     oil companies would be far from prohibitive.
       My intent here is not to punish the oil companies. As a 
     Senator who has favored new drilling and other initiatives 
     designed to help the oil companies produce more domestic oil, 
     I am suggesting that they need to alter their thinking. In 
     the best circumstances, they would embrace ethanol and work 
     hard to diversify their investments and operations--partly 
     for the good will they would receive from Congress and the 
     public--but also to prepare for the coming decades of greater 
     American prosperity and security.
       If the mandate can be effectively linked to the increasing 
     availability of ethanol, so

[[Page 17666]]

     much the better. But to achieve our larger goal, we must be 
     prepared to tolerate a certain level of disconnect between 
     cars, pumps, and ethanol in the early stages of this effort. 
     Some pumps may be underutilized at first, but this cannot be 
     an excuse not to move forward.
       Incidentally, virtually every gas-powered vehicle in 
     America today can run on gasoline blended with 10 percent 
     ethanol, or E10. By requiring that all gasoline be E10 as 
     ethanol supplies become available, we could accommodate 
     significantly more ethanol production even before most flex-
     fuel vehicles and E85 pumps are in place. Our neighbors in 
     Illinois have passed such legislation, and I have urged my 
     friends in Indianapolis to follow suit.
       Now how do we produce enough ethanol to supply these 
     stations and fuel these cars? The good news is we can let the 
     market do a lot of the work. When oil is above $70 a barrel, 
     making ethanol from corn or sugar, even before subsidies, is 
     less costly than producing gasoline. That is true even if oil 
     drops substantially from today's level.
       But the long term advancement of ethanol as a national 
     transportation fuel requires a focused effort to perfect and 
     commercialize cellulosic technology, which will enable us to 
     make ethanol from switch grass, agricultural waste and other 
     inexpensive biomass. The addition of cellulosic ethanol has 
     the potential to substantially reduce the overall production 
     cost of ethanol, while greatly expanding the volume produced. 
     Although scientists and technicians are confident of the 
     possibilities for cellulosic ethanol, efforts at 
     commercialization have lagged behind basic research. The time 
     is long past due for the Federal government to step in and 
     prime the pump for commercial production through an 
     aggressive loan program. The experience gained by the first 
     production plants will provide the knowledge we need to 
     rapidly expand the cellulosic industry.
       Studies have shown that we will have enough land for energy 
     crops, given the expected increases in yields and 
     improvements in processing efficiency. If we could reach a 
     target of 100 billion gallons of ethanol a year--a 13-fold 
     increase over current capacity in operation or under 
     construction--that would be equivalent to 71 percent of 
     current gasoline consumption by volume. The two are not 
     directly comparable because ethanol has lower energy content 
     than gasoline, but over time, I expect automakers will 
     improve the efficiency of their engines for E85 fuel.
       Although many investors are currently lining up to jump 
     into the ethanol business, many are still hesitating to take 
     the plunge. They fear that foreign oil producers might, as 
     they have before, manipulate the oil market to temporarily 
     cut the price and drive ethanol producers out of business. 
     Therefore, another step we should take is to ensure market 
     certainty for investors by setting a price floor for crude 
     oil at about $45 a barrel through a variable ethanol tax 
     credit that would rise as the price of oil dropped. I am 
     developing legislation to achieve this goal and have 
     benefited from the contributions of Dr. Wallace Tyner of 
     Purdue University, who will appear in the afternoon panel.
       Finally, it will be far easier to alter the mix of fuel 
     supplies if we can slow or stop the growth in overall fuel 
     demand. It has been more than twenty years since there was a 
     change in the Corporate Average Fuel Efficiency standards for 
     cars. Over that time, American gas mileage has largely 
     stagnated. In 1987, the average light duty vehicle got 22.1 
     miles per gallon, according to the EPA. Nineteen years later, 
     in 2006, the figure has fallen to 21 miles per gallon. Yet 
     during that time, automobile technology has greatly advanced, 
     only in other directions. For instance, today a family car 
     like the Toyota Camry has faster acceleration than a muscle 
     car of the 1970s.
       We need to channel the technical prowess of America's auto 
     industry in the direction of greater fuel efficiency so that 
     we can grow our economy without growing our fuel consumption. 
     Therefore, Congress should enact modern mileage standards 
     that set a target of steadily improving fuel economy every 
     year. It should also continue to encourage research, 
     development, and deployment of hybrids, plug-in technology, 
     ultra-light auto materials, biodiesel, and coal-based 
     transportation fuels, among other promising technologies.
       This package of proposals would dramatically improve 
     America's security posture. It would not dismantle the 
     automobile culture that Americans cherish, nor would it 
     create a vast bureaucracy with a bottomless appetite for 
     taxpayer dollars. In fact, if it is accompanied by strong 
     leadership and thoughtful explanation, I am confident that 
     Americans will recognize that this is the way that we will 
     preserve our cars and our economy over the long run. It would 
     provide more jobs for Americans instead of sending a deluge 
     of money to hostile countries, support our farmers instead of 
     foreign terrorists, and promote green fuels over fossil 
     fuels.
       It should not surprise you to learn that I have proposed or 
     co-sponsored legislation on these ideas. But this is just a 
     start. None of these bills has passed, or even been put to a 
     vote in the Senate. For instance, the Fuel Economy Reform 
     Act, which I co-sponsored with my friend Sen. Barack Obama 
     and other Democrats and Republicans, seeks a four percent 
     annual increase in fuel economy. Last month, Sen. Obama tried 
     to amend the offshore oil drilling bill with our legislation, 
     but Senate procedures prevented him from doing so. While we 
     are asking for greater statesmanship from our automobile and 
     oil companies, we must demand the same from our Federal 
     legislators and administrators.
       Far in the future, historians may point to the energy 
     policy of the last several decades as the major national 
     security failing of the American government in this era. In 
     the absence of decisive policy changes, historians will 
     rightly ask how the wealthiest and most powerful nation on 
     earth with abundant land, a magnificent industrial 
     infrastructure, and the world's best universities and 
     research institutions simply would not reorient itself over 
     the course of decades despite repeated warning signs. Our 
     failure to act will be all the more unconscionable given that 
     success would bring not only relief from the geopolitical 
     threats of energy-rich regimes, but also restorative economic 
     benefits to our farmers, rural areas, automobile 
     manufacturers, high technology industries, and many others.
       We must be very clear that this is a political problem. We 
     now have the financial resources, the industrial might, and 
     the technological prowess to shift our economy away from oil 
     dependence. What we are lacking is coordination and political 
     will. We have made choices, as a society, which have given 
     oil a near monopoly on American transportation. Now we must 
     make a different choice in the interest of American national 
     security and our economic future. As the vanguard of 
     concerned and informed experts in this field, I call upon 
     each of you to apply your talents and energies to solving 
     this fundamental problem threatening the well-being of our 
     nation. I look forward to working with you as we achieve this 
     goal.

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