Security Consequences of US Oil Dependency

Good afternoon welcome. I am John Fox Sullivan, I am with Atlantic. And, we are going to have an absolutely smashing panel here. This is part of the the energy track that Chevron is been supporting, you know. Thank them, thank all of you. Dov is going to the introductions. But let me just make an observation. Sitting on this panel we have the following experiences and I am sure I am going to miss some. Presidential Campaign, Senate Armed Services Committee, Intelligence Committee, CIA, Carter White House Domestic Policy that's some time ago. Current Department of Defense and Booz Allen, the consulting operation. But these four folks had done just about every thing that can be done over the last several decade, - that have anything to do with National Security. And so lets, Dov and it's a Fix the mic. Here we go. Good. Well, if I need to introduce Jane Harman or Jim Woolsey or Gary Hart to you; you probably should be at the parade. I thought this is the parade. Well okay, Jane thinks this is the parade. It's a very interesting subject for Independence Day because we are talking about "Energy Dependence." It actually says "Oil Dependency", but I think "Dependency" is not the word I think its "Dependence". But the real issue is not just that we are dependent. The real issue is why it is taken us so long to do something about it? When Jim and I met in the mid 70's, Jimmy Carter was soon going to grapple with the issue of Oil Dependence. And he shows up in his sweater on television and he tells us all to deal with the energy crisis. Here we are Jim had more hair then, I had more hair then, we are still dealing with. Why has it taken so long? Why is it different now? And what do we do about the fact that some of our friends can give us grief like those in the Gulf, and some of those who give use grief like the Venezuelans aren't even our friends. So I want to turn first to Jim, to talk a little bit about why it has taken as long as it has? What's different now? What do we do about what we all agree are threats to this country? Then are obvious ones, people carrying rifles or walking around with bombs or IEDs. But they are just as threatening. So, what do we do about it? I think to set the stage let me say that, for hundreds and hundreds of years before around the end of the 19th century, salt was the only way to preserve meat. And it was a strategic commodity. Believe it or not, people fought wars over salt mines. They fought wars over control over salt, - it was extremely valuable. It was a very big deal. By around the end of the 19th century, electricity and refrigeration had destroyed salt as a strategic commodity. They didn't destroy salt, still use it use it for different purposes. But nobody exerts power in the neighborhood of his Nation because he has salt mines, anymore. Today, oil is a strategic commodity at least with respect to transportation. Oil has comparators for heating, it has competitors for being used in Chemical Plants - natural gas is a comparators etc. But for transportation, it effectively has none. 97 percent of U.S. transportation runs on oil products. And as a result, most of the developed world few wise exceptions like Brazil. But, most of the developed world is not only total dependent, they are effectively totally dependent on oil for transportation, in the way that people were dependent on salt for centuries to preserve meat. That gives power to people who control oil, it gives power to [0:05:07] ____ to develop this nuclear weapons program and threatening issues, it gives power to Chavez to restructure the politics and economics of northern and Latin America, it gives power to Sudan, in keeping China, with its oil to use, from interfering with its genocide in Darfur and on and on. We need to decide, it is an important national objective to break oil as a strategic commodity, not to break oil, not to say we will never oil, oil is a useful substance, but this morning at the breakfast table, probably no body noticed, the salt when she put some on your scrambled eggs, and if so, you didn't care where it came from, and unless you work with Morton's you are probably never going to find out, were it came from and what the market price is, who cares? That's what this that's the fate, we want for oil, and if we are able to do that, by technology, I think it is going to be the way, the technology with changes in public policy of the sort that I am sure both Jane and Gary would talk about. If we are able to do that, we are going to be able to make some very substantial and important changes, and one of them is if we are not going to have to wake up every morning and wonder whether or not Al Qaeda has launched a successful attack on Abqaiq, the large production facility in Saudi Arabia, they attacked year ago February, had they succeeded in taking down the sole for clearing towers, they could have taken six million barrels a day offline for - well over a year, send a barrel up to well over $100 a barrel, probably over a 150, just with one gorilla attack, we could look to a day, in which not quite so many billions of dollars a year are diverted by the Saudi's, say of the Wahabi sector in Saudi Arabia to run world wide of Madrassas in which if you read the ____ of the Wahabi imams, the teachings are effectively genocidal with respect to Jews, Shiite Muslims, homosexuals and apostates and massively repressive of every one else, their essentially, the same teachings, as Al Qaeda's teaching, Al Qaeda and the Wahabi's don't disagree about the substance, they disagree that who should be in charge? So like the Trotskites and the Stalinists in the 20s and 30s. But if you wonder where today, that all that instruction of eight year boys to become suicide bombers is coming from, who is paying for it? Next time you pull into a filling station, to get up charge, gas system, turn the mirror, a few inches, so you are looking into your own eyes, now you know, who is paying for this suicide bombers education, so the only war the US or the west is a whole has ever fought in which we pay for both sides, not a good strategic plan, well moving away from oil dependence, toward independence, may be not achieving total independence in the sense of never buying any thing abroad, that's not really objective, the objective is to break oil as a strategic commodity, I think there are two keys, one is to begin to use the power of the Federal government to introduce competition into the transportation of fuel market, part of that is flexible fuel vehicles, very simple change to a vehicle, there is no reason that it shouldn't be done and all the vehicles are relatively quickly, so they can use ethanol or butanol or methanol or ethanol or gasoline in in a mixture, the other is to, incentives the beginnings, of these alternative liquid fuels, so that there is competition, and increasingly importantly, I think he is again to use federal incentives in any other policies we need, to move as quickly as possible, what General Motors announced few weeks ago, they were going into production with some 2010 which is plug in hybrid gasoline electric vehicles, hybrids that have an adding capacity, in their batteries, so you can charge them over night, drive 20, 30, 40 miles as an electric car, no gasoline being used, and then at the end of that time of the battery charge, you just become a regular hybrid, you don't have to go plug in some place or do it at night, but if you need power for a longer day, you can use gasoline and it becomes a regular hybrid going back and forth between gasoline - and the like an electric one. That should shift the mileage one gets from let's say hybrid from 40 miles up to around a 100 miles a gallon. And if the tank in that hybrid is 85 percent ethanol because it's a flexible fuel vehicle best of all, let's say it's cellulosic ethanol. So, now you are getting something in the ballpark of 500 miles per gallon of gasoline because you are driving almost all on electricity and alternative fuel. 500 miles a gallon of gasoline ought to be enough to make a Wahabi afraid. Oh, thank Jim. And thanks on two accounts. First, I asked Jim to speak for seven minutes and he spoke exactly seven minutes. So that hinted to the other two politicians on the stage. The other is, if they go over seven minutes I want you to start hissing. Because I want to give you guys the time to ask questions and interact. Jane, obviously the Federal Government needs to play a role. But the story of salt is really that, the market drove salt where it got to. So, how do you harness, what is a growing sense in this country that we have got to do something and actually make it happen in a City where everything seems to be totally grid locked? Well, first let me say Dov that in the Senate they speak for unlimited amounts of time. In the House we have a one minute role. So, don't worry about it. You don't want me to hold you a minute do you? So don't worry about it no, but I It's a really good arrangement. Its its its not bad. There there is actually an answer to why nothing has been done up till now. Why there has been a a total lack of political will? Why the only things at least the Congress has done in my view have been to pass bills. So, like the one the House in 2005 to promote fossil fuels exactly the wrong direction. And some of us call that the anti-energy bill. And I probably voted against it. But the the difference now, what had what makes political will is that I think people can actually see that there is climate change problem. Have any of you been up to Maroon Bells this summer? Who has seen snow on Maroon Bells? That's the first time in three decade of my coming here that I have seen that. How about the 90 degrees weather outside? Unrelenting 90 degree weather not so bad at eight in the morning but pretty bad now. Regardless of whether you think that men and women did this or that it was done naturally, its here. And it has a huge effect on how we live. And everyone is getting the fact that the ice caps melting etc. and that drought is expanding. And drought could cause at least I heard this on Henry the other day. I forget what it was. A huge numbers of people would be homeless in a a decade or so. I mean, this is major stuff. And the result is that not only has the public tuned in, I don't think there is a person sitting here, otherwise why would you be here who doesn't get this? But because of you, politicians are also tuning in. And that is why miracle of miracles Gary, the Congress is actually beginning to act on climate change. And there are two different bills that are moving through the Senate and the House, now. But I though I could just briefly summarize them and there will be more action as fallen. I do predict that something that's more positive than negative can exactly know what we have begin at. But something we cannot easily called the anti-energy bill will pass sometime pass the Congress and be signed into law by this President Bush by the end of this calendar year. I know, I am an optimist, or other wise why would I say in politics? But I actually think it's going to happen. On the House side, the house energy and commerce committee on which I serve just reported a pretty dawn good energy efficiency bill. It has basically four parts, each of which matters. Appliance Efficiency Standards, everybody understands what those are ways to help promote plug in hybrid technology. Jim has just mentioned how important that is and to promote it on a on a retrofit basis; so that you can actually take existing cars and add bigger batteries, and because that's necessary in order to hold enough electricity and then create this plug in feature. I have seen these things. They look like giant electric plugs in the frontier cars. And they can as Jim explained, save a ton of energy. And not just a ton of energy, but save a whopping amount in your energy bills, so that's the second thing we are doing, the third thing we were doing is promoting some thing called the smart grid, this is the key to making plug in technology work, it gives you the option, when you see in your own house, that energy consumption, that energy is cheaper, this would be in the middle of the night in a state like California. To use energy and when you see that energy is more expensive, just stop using energy, to unplug your devices, to not plug in your car etcetera, so you become the person, who regulates home energy use? This includes solar - this will promote all kinds of renewable, that's an another wonderful thing, and finally the house bill has a feature, that I am particularly passionate about, that has to do with light bulbs, did you know that a huge amount of energy consumption could be reduced, if we just threw away, the old incandescent light bulb, and started to use, much more efficient light bulbs, that are on the market and also start to build in more efficient incandescent bulb, this is not out of the question, but every one get what fluorescent lighting can do and every one gets, I think with these new Led's can do and the goal would be to promote US production of efficient light bulbs, so these four things are in the House bill which will according to the propaganda, lets see would be the equivalent, but would keep 300 million tons of carbon dioxide from entering our atmosphere each year, the equivalent of taking every single car, light truck, and SUV in America of the road for good, not too shabby. On the Senate side, they are dealing café standards, every body knows those are few efficiency standards on a voice vote, imagine this, that would be a total, bi partisan vote, the Senate passed a a higher café standard for the first time in decades, a 35 miles per gallon, it excludes heavy trucks, but it is a big big advance. I am afraid about my time, So I just want to say that those two trains have left the station, clean trains, hopefully House will act on café and the Senate will act on the efficiency measures and we will put together some thing that will be a positive step forward and then later not this year, we have to tackle harder questions, and they involve really making clean coal and making safe nuclear, both of which, I think have to be a part of our energy future, we can do them right. I see this as a big opportunity, and I see it finally as a chance for congress to prove that may be we deserve our pay. Thanks Jane, Gary, I know you wrote a book, or rather published one a few months back on National Security, but you are also pushing what you call a Manhattan project for energy, correct and my question I guess would be is what Jane has just discussed, enough, what else needs to be done, and what about the cost, I remember when you were in the Senate, you were always worrying about doing defense more efficiently at less cost. You know can this be done, how much money, do we add to the deficit, how much money do we throw at this thing, to make this real? Actually I wrote another book on National Security last night, so Good. So let me address the question some what differently, Dov's original question was why is it taking so long? And the question that all of us have heard and many of you heard for decades now as why doesn't America have an energy policy? And the fact to the matter is we have an energy policy and we have had it for quite a long time. I will state it you and you will understand why no political leaders are saying it? It is the policy of the United States of America to continue to depend on foreign supplies of oil, for up wards of two thirds of our oil consumption to fuel energy inefficient vehicles, and if that oil gets cut off to sacrifice the life's of our sons and daughters to get the oil, that is America's energy policy, some of us predicted 20 - 25 years ago, that if you pursued that policy, we would be fighting wars in the Persian Gulf, we are now engaged in the second war in the Persian Gulf and though our leaders won't say it, oil has some thing to do with it, Americans don't want to believe that, but I can tell you, absolutely there is no one out side, the territory of the United States, who does not believe that as the leading consumer of energy and oil. The United States is in the Persian Gulf or very much else except to protect oil's price. There is a doctrine in the law, called the assumption of risk. The year that I first ran for office and was elected in 1974, was best known as the Watergate year. But it was also the year of the OPEC oil embargo. And we have assumed the risks since 1974 for 33 years of relying on unstable dangerous supplies of oils. And we will continue if you continue that policy, you I can guarantee you will fight Gulf War III, IV, V and VI. I would like to take the occasion, if I may now when I worked back around may be to the answer of the question about economics to philosophize a bit. I think there are three, - where we are today raises three issues. What is nature of security? For 50 years the second half of the 20th centuries, Security was defined by two words, containment and deterrence. We had a single enemy over so we proceed the Soviet Union. And through containing the Soviet Union politically inside the war so packed boundaries and their Iron Curtain and deterring the Soviet Union from using military force. That was our security policy and it was largely Dov and many others over the years have played a a role in that. And that was the policy the United States under seven or eight Presidents. I believe very strongly, the 21st century, National Security means, a lot more than it used to be mean a century a few a few years ago. Franklin Roosevelt in time of crisis based American Domestic and Foreign Policy on what he called the Four Freedoms. I think we ought to adopt the four securities; security of our boarders, security of livelihood, security of the environment and climate, and security of energy supplies. That should be the definition of security as far into the future as we can see. So, long as we continue to confine security to the military realm, I think will continue also to fight Gulf Wars. The second question, I think is why do we not learn to anticipate. Now I was reminded of this problem by sharing lunch with Lee Hamilton, a great former member of Congress. And, Lee was he served down the U.S. Commission on National Security for the 21st Century as I did. And then of course, when they had to chair the 9/11 Commission, the first Commission predicted the terrorist attacks and that one paid much attention. America is brilliant at responding to crisis, we are not very good at anticipating crisis. And I don't think the 21st century will be as forgiving as the 20th century and 19th were to us. We are going to have to learn to look ahead. And we are going to have to learn to anticipate and change our practices and policies before crisis occurs, we simply do not have the luxury of time. The which raises the third question. And that is, how does America recapture its moral authority? I think we can solve the energy crisis and climate change and lot of others, if we have leaders who have moral authority. I am affiliated with the new defense start up called the American Security project. We commissioned, and in that poll, 2000 Americans Americans, just compliments the recent Pew research. And 70 percent of Americans say that our moral authority in the world has declined substantially. It's not just Iraq. It is a lot of other factors. It is greed; it is exportation of our commercial culture and so on. I think America has to recapture its moral authority if we are to lead, if if our leaders are to lead us and we are to help to lead the world. That's not an easy thing to do but it has to be done in my judgment. And it seems to me on the occasion of the 220th anniversary of the founding of this country, we might look back for some instruction in that regard. Some ideas that's says how to do that. I reread this morning the Preamble of the Constitution. And, I would just like to read those few words to you, 220 years ago. "We the People of the United States, in Order to form a more perfect Union, establish justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America." And our Posterity, we are not just making policy on energy today or climate or anything else for ourselves and our generation. We are making it for generations yet to come, if we resort to the principles laid down by our founders 220 years ago, I think we will recapture that moral authority, and I think we will become much more secure in the process. Thank you, let me start encouraging people to come up to the mics and while you are doing that, I will ask Jane and Jim, the question that I ask Gary, okay, we have got these plans plans in hand, we have got legislation moving through congress, how much that we are talking about? We have got a huge deficit, we were financing a war, when I left the Pentagon, we were spending 3.9 billion a month on Iraq and Afghanistan, we are now spending about eight to nine billion a month, that's a awful lot of money. And the deficit is getting larger, the question there fore is, do we have the money for this? What kind of money we are talking about? I am a money guy, I would like to know. And we will start with you Jane. Well, its not a zero-sum game, our Al Gore has urged as and I think Al Gore is the most powerful voice on this issue, any where in the world, I hope every one read his op-ed, New York times on Sunday calling this the moral challenge of our time and obviously Al Gore gets that that this is a about our prosperity, Gary, our world as we know it ends if we don't this, and it does have a climate change to mention and also security to mention, I totally great you but it's not a zero-sum game, Al has suggested that we try to quantify the cost of staying dirty and there are health cost, obviously, environmental cost, that are huge, and in fact its welcome news that in the private equity world, so I read there is going green is now its acquiring a an economic value and the acquisitions of firms, that are green are going for more money, than the ones that are not, so how much is this cost of I would ask, how much is the cost, we don't do it? As far the federal legislation, I am talking about the efficiency bill that, I try to describe that is going through the house, there are many millions of dollars attached, I don't know exactly how many it will net out to be, but remember that there is a huge, energy savings that comes with, so you have more efficient car, perfect example plug in hybrid and a guy I met in the parking lot out side of Toyotas green facility in Torrance California, my congressional district tells me that with his electro fitted plug in Toyota and his solar powered house, his energy cost per year, I am not making this up, a $44 think about that, so as I said, when you net the out, I would like to think there is the cost savings, and surely and protecting our posterity is price less. Let me I see folks have lined up, I cannot see that side, because the light, so its going to be honor system, I am going to start on this side, and let just keep going back and forth, and please don't cheat on me, so over that just who you are and very sorry, Jim wanted to say some thing. Let me say a word on this, because the money is important here and the important thing to know is it neither the technology nor the money is the problem. The problem is the rigidity of various institutions and incentive systems that have been created in the past, just a few examples, couple of things I didn't have time to mention in the first round both Emory Levin's Rocky mountain institute ideas, feed based cost the government nothing and cost and cost you nothing if you buy the right kind of cars, you taken a car of a certain size and if its mileage is the car you are interested in, is below average, for that size car, you are going to pay a bit extra, that money goes over to give rebates to the people who buy the more efficient cars, of that size, so its revenue neutral, all right not going to cost any body anything unless you keep buying cars within that size area, that are inefficient, the other is light weight carbon based materials its 12 times the crash resistant to steel but half the weight and there by coming close to doubling the mileage, these are in production now, beginning to be in production being picked up by proportions of high end cars and the and the like. Flexible fuel vehicles, do we need a big massive program in order to be able to use ethanol, butanol, methanol, and make a your. Well, you be the judge, how massive it is. It is slightly over a $100 per car and by the changes you need to make in the fuel lines and so forth, to have a flexible fuel vehicle. A millions of them on the road, most people don't even know that they have them. And if you forget about some of the sensors that are are, they are also for other purposes. They are like $30 or $40 a car. Brazil in 2003 said, we want all our imports to be flexible fuel vehicles and with two years, - within two years all the major manufacturers are shipping only flexible fuel vehicles to Brazil. The so the investment there say $30 a a car, I think not huge. One does need to get going with the alternative liquid fuels. But I would say that you can do that within the range of subsidies that now exist. There are some subsidies for oil; there are some subsidies for ethanol that are probably not effectively designed. Its possible within the framework of the subsidies that now exists, I think for Congress to move money around in order to give some of these start up. But Brazilian ethanol is now no longer subsidized. It's a quarter of a third of Brazil's transportation is fueled by ethanol and they have got and passed the subsidies and and we could too. Electricity, this is the last one. Electric vehicles plug-in hybrids today the added capacity of the batteries is going to cost you probably something like $4000 additional for the vehicle in addition to the cost of a hybrid; not negligible. Going over this with some very Senior Cooperate Representatives of major American Institutions have been looking at this. Everybody believes within two to three years, those battery cost cost will be half down to something like $250 of kilo watt hours. That means you are in the ballpark the couple of thousand dollars extra. Something that is easily dealt with by a simple tax credit unless you want to take account of the following; which is that if you are driving on electricity, off peak over night electricity, you are driving at roughly five cents kilo watt hour or roughly a penny a mile, the conservative say, $0.02 a mile. On gasoline today, you are driving at $0.10, $0.12, $0.14 a mile. So you are not going to be paying something extra, you got a $2000 extra battery in the car, that is that you or the government has to pay for but you are doing that. You are driving at a tenth of the cost of what you are driving at now. And, infrastructure investment well, for things like hydrogen car it's a huge one, if you should be so crazy as to want to continue to pursue this hydrogen highway stuff. The infrastructure investment of hydrogen fueling stations in the country would be according to one former secretary of energy; well, over a trillion dollars to the United States. You know, a trillion here and a trillion there it adds up. So infrastructure would be huge if you go the hydrogen route. If you go the plug-in hybrid route, there is an infrastructure investment. Every family would absolutely have to have an extension cord. Gary. There is one additional subsidy that we you almost never consider; and that's the amount of our military budget that goes into protecting oil imports. I think an argument could be made that about $500 billion annual military budget, half of that goes to protecting oil supplies particularly from the Persian Gulf region. If that is added into the cost of gasoline, that drives the price up to $5 or $6 a gallon. And I think we are to consider that. That again does not include the loss of the American lives. Certainly gave you a feel for the money. So let's start there