[Senate Hearing 111-78]
[From the U.S. Government Printing 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
Available via the World Wide Web: http://www.access.gpo.gov/congress/
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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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