SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 5939 words

COMMITTEE: HOUSE INTERNATIONAL RELATIONS

HEADLINE: OIL DIPLOMACY

BILL-NO:

 

H.R. 4             Retrieve Bill Tracking Report


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TESTIMONY-BY: AMBASSADOR STUART E. EIZENSTAT,, FORMER DEPUTY SECRETARY OF TREASURY AND PARTNER

AFFILIATION: COVINGTON AND BURLING

BODY:
Statement of Ambassador Stuart E. Eizenstat, Former Deputy Secretary of Treasury and Partner Covington and Burling

Committee on House International Relations

June 20, 2002

Chairman Hyde, Representative Lantos and members of the Committee, good morning. I have been asked to speak today on the national security implications of America's dependence on foreign oil and potential solutions to reduce that dependence. I am honored that you have asked me to address these issues. The questions that you will be asking today will have repercussions long beyond our lifetimes. These issues will impact generations to come, in terms of the effects on our national security, our standard of living and our commitment to the environment. Thus, this Committee is engaged in a critical task as it considers the impact of our dependency or foreign oil. The title of this hearing, "Oil Diplomacy: Facts and Myths Behind Foreign Oil Dependency," is uncannily appropriate. As you will no doubt hear today and have been hearing for months, a seemingly endless flow of numbers rushes out whenever the question of America's oil dependency is raised. We talk about production and consumption by the millions of barrels per day and oil reserves in the billions of barrels. Actual and potential reserves are discussed. And we look not only at actual reserves but at recoverable reserves. Whatever you make of the numbers you hear today, one fundamental point is clear: no matter how you look at it, the United States lacks the oil reserves to sustain its own growing rate of oil consumption. This is true whether we drill in ANWR or we do not; whether we drill offshore or we do not. Thus, it is inevitable that increased oil consumption will impose a greater reliance on foreign sources of oil. An energy policy that focuses only on supply and does not account for ever- increasing consumption levels will doom us to increased dependence on foreign oil, no matter what measures we may take to increase domestic sources of energy.

At the outset, I would like to commend the Bush Administration for compiling an energy plan that identifies many of the problems that our nation faces with regard to energy production. The administration's plan, which is largely reflected in H.R. 4, which was artfully titled the Securing America's Future Energy Act (SAFE) of 2001, aims to reduce our dependence on foreign oil by increasing domestic production through expanded nuclear power production, incentives for other energy producers, and drilling in the Arctic National Wildlife Refuge (ANWR). I support the administration's emphasis on increased capacity to harness nuclear power and encourage domestic fossil fuel producers to increase their capabilities.

But, for all of the attention that we lavish on the issue of drilling in Alaska, we lose sight of the overall mission -- to reduce our dependence on foreign oil. And, on that issue, the myths of increased production often blind us to the facts of our growing demand for oil. Those facts make it clear that no amount of controversial drilling or even of incentives to other energy- producing industries will be sufficient to reduce our dependency on foreign oil. And measures to stimulate domestic energy production must be combined with efforts to reduce consumption. It is in this area that the Administration plan is deficient.

My overriding concern is that, while the Bush Administration has pinpointed the issues that we must address with regard to our energy policy, it has been unwilling to craft a policy that recognizes that increased production alone will not address our growing dependency on foreign oil. Indeed, the single biggest factor in our ever-increasing dependency on foreign oil is our seemingly endless capacity to consume oil. And, on this subject the facts are overwhelmingly clear: increased capacity to supply energy from domestic sources cannot match the increased demand that American consumers will have for oil.

The chimera of energy independence in the short- and medium-term is little more than just that. The truth is that, at some level, we will always be dependent on foreign suppliers for oil. The question, then is: how can we reduce our dependence? A short-term answer is to increase domestic production and harness other domestic energy sources. But the benefit of increased oil production -- even in the best case scenarios of potential reserves in ANWR and in offshore wells -- is marginal at best. We have significant supplies of coal, but because of environmental concerns and the specter of global warming, coal is not presently a viable long-term energy solution, unless we can develop much cleaner, more emissions-friendly uses.

Over the longer term, our best hope for increased independence is three-fold. First, we must focus on oil conservation. Second, we must institute a major program for fuel cells and alternative sources of energy. To its credit, the Bush Administration has recognized the importance of technological advances in the automotive industry, but we need to increase the incentives for producers and consumers to move towards these alternative fuel technologies. And third, we must diversify our sources of foreign oil.

Before I turn to these additional solutions to our dependence on foreign oil, I would like to spend a brief time outlining the consequences of that dependence.

I. National Security Implications of Reliance on Oil Imports.

The lessons of the impact of our dependence on foreign oil supplies were first taught to us back in 1973 and 1974, when the initial Arab oil embargo (the "Arab Embargo") on the United States occurred. At that time, the federal government imposed domestic price and allocation controls on petroleum. The results of this policy, as many of you will remember, were widespread gasoline shortages and long gas lines, as well as rapid price increases. The economy as a whole suffered greatly as a result. One of the biggest mistakes I made during my tenure in the Carter Administration was agreeing to keep government price controls on gasoline, which created an artificial misallocation of resources and in turn led to the long lines at the pumps that so frustrated the American public.

At present, the United States imports more than 51% of its oil. The Department of Energy has projected that number to increase to 64% by 2020. Such heavy reliance on foreign oil places the United States in a precarious position. Already, oil has played a central role in one recent conflict -- the Gulf War -- and, over the past quarter century, it has been an influential ingredient of American foreign policy more broadly.

Each year, the United States imports 16% of its oil from Saudi Arabia and an additional 9% from other States in the Persian Gulf. As you all know, this is a consistently volatile region, and our dependence on oil from the Middle East is fraught with insecurity and danger. As we were so horribly reminded on September 11th, terrorist threats both at home and abroad have links, whether direct or indirect, with the oil-producing States in the Gulf region.

Our reliance on States that are unstable or, like Iraq, even hostile to the United States, presents a very real national security dilemma, a dilemma that must be addressed immediately. While we have a national security interest in the stability of these regimes, we must remain aware of the possibility that they will fall into hostile hands. I certainly can say that, given my experience with Iran during the Carter Administration, no one would have forecast that the Iranian Revolution would topple the Shah of Iran, given the military support he appeared to have.

Potential threats in Iran, Iraq, and elsewhere in the region constantly jeopardize the stability of the Persian Gulf. In 1972 the price of crude oil was about $3.00 per barrel and, by the end of 1974, the price of oil had quadrupled to $12.00. The price rise was almost exclusively the result of the embargo by Arab oil- producing states in response to Western support of Israel in the Yom Kippur War. The Yom Kippur War started with an attack on Israel by Syria and Egypt on October 5, 1973. The United States and many countries in the western world showed strong support for Israel. As a result of this support, Arab exporting nations imposed an embargo on any nations supporting Israel in the war. Arab nations curtailed production by 5 million barrels per day. Approximately 1 million barrels per day were recovered by increased production by other countries. The net loss of 4 million barrels per day extended through March of 1974 and represented 7 percent of the free-world production.

Our national security concerns are not restricted to regional action. Since the 1970s, Iran and Iraq have been involved in a number of cataclysmic events that have shaped not only their countries, but ours, as well. Indeed, our reliance on oil from Iran left us vulnerable to that nation's problems at the end of the 1970s. I was serving in the Carter White House at that time and lived through the implications of the Iranian revolution on our economy and, more broadly, our society.

The rise to power of Ayatollah Khomeini altered our relationship with Iran and led to one of the most difficult events of the last 25 years, the Iranian hostage crisis. At the time of the Iranian Revolution, oil production from Iran dropped precipitously and oil prices in the United States skyrocketed. The Iranian revolution resulted in the loss of 2 to 2.5 million barrels of oil per day between November of 1978 and June of 1979. Moreover, after the United States Embassy in Tehran was occupied in November 1979, President Carter halted all oil imports from Iran. During the one year period from the beginning of 1979 until the beginning of 1980, oil prices rose by 120%. That increase was a knockout blow to the U.S. economy, aggravating inflationary pressures and increasing unemployment at the same time. In fact, from 1978 to 1981, crude oil prices rose by two and a half times, from $14 per barrel to $35 per barrel.

The Carter Administration produced two major energy bills, one in 1977 and the other in 1979-80. We tried to address our problem of dependence by deregulating the price of natural gas, creating incentives for innovations in solar and alternative forms of energy, and establishing conservation programs (like CAFE). We also promoted a massive synthetic fuels program, which, unfortunately, was killed in the Reagan Administration. One important lesson I learned from this traumatic period was not to impose government controls but rather to allow the free market to control the allocation of resources in the energy sector. As I mentioned earlier, one of the worst mistakes that I made during my tenure in the Carter Administration was to oppose efforts to deregulate government controls of gasoline prices. It was those government controls that so aggravated the American people.

Another, smaller supply interruption occurred during the Iran- Iraq War from 1980 to 1988. During the Iran-Iraq War, Iraq's crude oil production fell by 2.7 million barrels per day, and Iran's production dropped by 600,000 barrels per day. The impact of this event was much milder, but still worrisome.

Iran presents a great policy dilemma for the United States, with its Janus-like policy towards us, with one part of the government advocating improved relations with the United States, while the other and more dominant faction supports positions that are inimical to America. In Iran, we are presented with a reformist president, Mohammad Khatami, who is supported by the majority of the people and appears to be sympathetic to some improved relations with the United States. However, he clearly does not have control of the security and defense apparatus in Iran, as well as other sectors of the Iranian government, which support terrorist organizations like Hezbollah, seek to destroy the Middle East Peace Process and are on a crash-course to develop medium-range missiles with potential chemical or nuclear warheads that will be able to reach Israel in a few years. There is no reason to think that the Iranians will stop there, and we must be concerned by the possibility that they will try to develop long- range missiles that can hit the United States. And, clearly, Iraq is not a reliable partner either. At present, we do not import any oil from Iran and, in 2001, we imported approximately 600,000 barrels per day from Iraq. To place these numbers in perspective, Iranian oil production capacity is estimated to amount to 3.9 million barrels per day and Iraqi production capacity is estimated to be 2.8 million barrels per day. In light of our relations with Iran and Iraq, we find ourselves largely dependent on others in the region for our oil.

Our dependence on oil from the Middle East profoundly influences our economy and our foreign policy. In fact, our decision to take military action against Iraq after the invasion of Kuwait was, at a minimum, heavily influenced by our dependence on oil from the Persian Gulf. The threat -- not only to Kuwait but to others in the Gulf region -- posed by Saddam Hussein's expansionist pretensions led us to commit more that 500,000 American service men and women during the Gulf War. More than 600 of our troops were killed or wounded in battle. Many more continue to suffer from a variety of illnesses since their return home.

At present, we have more than 4,500 troops stationed in Saudi Arabia, and more than 12,500 Navy personnel at sea in the Persian Gulf. The presence of these troops is intended to protect the governments in the region, but it also leads to resentment in the region. The United States now finds itself torn between its interest in supporting stable governments in the Persian Gulf and the hostility and danger attendant to the presence of American troops on foreign soil. In the end, our dependence on Persian Gulf oil in general and Saudi oil in particular leaves us vulnerable to attack, both abroad and at home.

The lesson of the past 25 years in the Persian Gulf is clear: regional instability there has real, tangible effects here, in the United States. If we do not take action at home to reduce our reliance on oil from abroad, we run the risk of falling prey to the very same problems we have lived through in the past. Indeed, we have seen fit to fight a war in effect to protect our oil interests. And, in placing the lives of American service men and women in harm's way in the Gulf War, we have signaled the dangers of our reliance on oil from that region.

Nonetheless, we remain dependent on a region where, in the past decade, we have fought two wars, where the tide of anti- Americanism continues to rise, and where the tension between modern and radical Islam threatens the ruling elites of the governing regimes. In spite of all of these risks -- each in itself sufficient to threaten our oil supply from the region -- we continue to import 25 percent of our daily supply of oil from the Persian Gulf. Strictly from a national security perspective, this policy does not make sense.

One further point bears mention: I do not mean to single out the Persian Gulf region as the only area where dependence on foreign oil renders the United States vulnerable. Obviously, that region has been, over the past quarter century, the primary source of national security concern with regard to foreign oil production. But other areas engender similar concerns. Nigeria, which boasts Africa's largest population and a wealth of religious and regional animosities, supplies the United States with 900,000 barrels of oil per day. The Caspian Sea region remains a relatively small producer, but its potential reserves make it one of the most anticipated oil resources worldwide. Indeed, the Caspian Sea region is generally considered to represent one of the largest untapped oil resources in the world. And yet, the region itself -- and the surrounding areas that would be essential for extraction of the oil -- like the Persian Gulf, has an uncertain future.

II. Impact of Oil Dependence on the U.S. Trade Deficit.

In addition to the national security concerns that I have just discussed, a reduction on our dependence on foreign oil would have a substantial effect on our foreign trade deficit. Oil is the United States' biggest natural resource import and one of the single largest contributors to our trade deficit. According to the Department of Energy, in 2001, the United States imported an estimated $110 billion in petroleum products. At the same time, our trade deficit last year was an estimated $350 billion. One year earlier, in 2000, our trade deficit reached an all-time high of $375 billion. Indeed, throughout the 1990s, our trade deficit rose each year, and our reliance on foreign oil was a primary cause of the rising deficit.

By way of example, I would point out that, in November 2001, our monthly trade deficit was $1.4 billion lower than our trade deficit one month earlier. The largest single contributor to that drop was a 17 percent reduction in oil imports. Even with that reduction, oil represented more than six percent of U.S. total imports in the month of November.

The volatility of the world oil market leaves the U.S. economy vulnerable to price fluctuations. For example, world oil prices tripled between January 1999 and September 2000 due to strong demand, OPEC production cutbacks, and other factors, including weather and low oil stock levels. Our reliance on foreign oil challenged our economy and increased our trade deficit. Thus, by raising CAFE standards and reducing domestic oil consumption, not only would we be reducing our dependence on volatile areas of the world, but we also would be contributing to the reduction of our trade deficit.

III. Impact of Oil Dependence on Global Warming and Pollution.

As the Chief U.S. Negotiator for the United States for the Kyoto Protocol on Global Warming, I have a particular interest in the environmental effects of our oil dependence. Therefore, I must also mention, at least briefly, the impact of our oil dependence on the environment. To the extent that we want to reduce the threat of greenhouse gases, a reduction in oil consumption is essential. Transportation is responsible for one-third of the release of greenhouse gases into the earth's atmosphere. And, although the United States accounts for three percent of the world's population, we are responsible for over 25% of greenhouse gases worldwide. Thus, by focusing on ways to reduce oil consumption, we will not only reduce our dependence on volatile foreign markets but we will be taking steps to reduce America's role in the decay of the environment. As I mentioned at the outset, our responsibility to tackle these difficult issues goes far beyond our own generation.

IV. Solutions to our Dependence on Foreign Oil: Production

A. Diversifying Sources of Oil.

Our dependence on foreign oil is exacerbated by our reliance on particular countries or regions, such as the Persian Gulf, for our oil supplies. This reliance leaves us vulnerable to regional and national political instability. One way to address this issue is to diversify our sources of oil imports. H.R. 4 and the Administration's energy plan do not fully address the potential for diversification of supply.

As President Bush emphasized at the May summit in Moscow with Russian President Vladimir Putin, the United States and Russia have entered into a new era of partnership. Russian oil supplies in Siberia and elsewhere in the country, coupled with Caspian Sea reserves, offer opportunities for the United States to diversify its base of sources. Soon after the summit, Presidents Bush and Putin launched a "new energy dialogue" as a result of the negotiations in Moscow. The joint statement announcing the dialogue discussed increased U.S. investment in oil and gas prospecting and extraction in Western Siberia and in Russia's Far East and Pacific coast regions. It also suggested that the United States would aid Russia in modernizing Russia's refining and transportation structures and advocated the joint development of energy resources in the Caspian.

Today, Russia presents an outstanding opportunity for the United States to diversify its sources of oil. However, ongoing concerns about the investment climate and the condition of pipelines and other basic infrastructure will impede our ability to tap into the full potential of Russia's resources. Thus, we cannot assume that Russia is a sure-fire partner for future oil supply.

The best new source of oil reserves is located in the Caspian Sea. The Caspian Sea is located in northwest Asia, landlocked between Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan. Since the breakup of the Soviet Union in 1991, the Caspian Sea -- as well as the region surrounding it -- has became the focus of much international attention due to its huge oil and gas reserves. The Caspian Sea, which is 700 miles long, contains six separate hydrocarbon basins, and most of the oil and gas reserves in the Caspian region have not been developed yet. Ongoing legal wrangling over rights to the oil continues to stunt the development of the reserves.

To give some sense of the potential importance of the Caspian oil fields, I would note that, in May 2001, oil industry officials reported sizable oil deposits in an area known as East Kashagan, in the Caspian Sea off the Kazakhstan coast. Initial estimates indicate that that field alone could contain as much as 50 billion barrels, and at least 20 billion barrels, of crude oil. By comparison, the United States has known reserves of 21 billion barrels.

Aside from ongoing issues over who retains the rights in the Caspian, U.S. national security is threatened by instability in the areas surrounding the Caspian. Getting the Caspian oil to international markets will require overcoming enormous obstacles since it must travel by pipeline through one of the most politically volatile areas of the world. Because the Caspian Sea is landlocked, oil and natural gas must be transported by pipeline to a terminal on the open sea, where it would be pumped into tankers and shipped to customers. Long distances over often inhospitable mountain and desert terrain, prone to earthquakes, and vulnerable to attack, would make pipeline construction and operation extremely difficult. Proposed pipelines might run through Chechnya, Georgia, Armenia and Iran, among other hot spots. Recent instability in those areas is only one concern. We must also consider the potential for upheaval after the pipeline has been constructed. As our reliance on particular oil deposits grows, our vulnerability to such upheaval grows apace.

Therefore, we need to continue to play an active role in resolving the ongoing disputes involving exploration, production and extraction of Caspian oil. In that vein, we should continue to seek a binding resolution to the boundary issues surrounding the Caspian Sea. The Caspian resources are a potential crucial new source of oil and natural gas for the United States. It would be wise to support a resolution of the boundary issues that have impeded full development of the Caspian resources. Similarly, we should continue to fully support the Baku-Tblisi-Ceyhan pipeline project, while simultaneously looking at other pipelines in the region to fully exploit the Caspian potential.

In addition to Russia and the Caspian region, increased efforts to collaborate with producers in Africa, Asia, and Latin America would allow the United States to reduce its dependence on a single region as the primary source of oil. Of course, whether we are talking about the Caspian Sea, Russia, Nigeria, Venezuela or any other oil-producing State or region, each presents foreign policy and other concerns to us, as well. But, the point of diversification is to reduce the impact that instability in any one country or region will have on our economy. By diversifying the sources of our oil imports, we are certain to attain greater independence.

I would be remiss if I did not point out that, at the end of the day, it would be folly to believe that we can somehow ignore our continued need for the oil resources of the Middle East. This, in turn, suggests a need for some creative thinking in dealing with Iran. However, the fundamental focus in terms of diversification is not to move all imports away from the Middle East but rather to provide a softer cushion to protect against price fluctuations that may result from regional or national insecurity in any one location.

B. Increasing Domestic Production

As I mentioned at the outset, H.R. 4 and the Bush Administration's energy plan provide much needed incentives for increased domestic production through expanded nuclear power production and incentives for other energy producers. The simple fact, though, is that, even with increased nuclear power and improved domestic fossil fuel production, we will still not be able to address our increasing dependence on foreign oil. As it stands, the United States is already the world's single largest producer of oil (9 million barrels per day, according to the Department of Energy). Only Saudi Arabia and Russia produce comparable amounts of oil. But, unlike Saudi Arabia and many of its Persian Gulf neighbors, our oil resources are severely limited. Thus, the proposed solutions for increasing domestic fossil fuel production are stop-gap measures that do not provide a long-term solution to our current dependence dilemma. And the nuclear power measures by themselves are insufficient to meet many of the most basic energy demands.

Obviously, one of the major differences between the House and Senate energy bills involves the controversial drilling in the Arctic National Wildlife Refuge ("ANWR") in Alaska. The House version, in line with the Administration's energy policy, would open ANWR to drilling, while the Senate version would not. While the House bill proposal would not provide for drilling of the entire region, it is noteworthy that, even if drilling took place in the entire ANWR reserve, according to a Department of Energy report, there is a 95 percent probability that at least 5.7 billion barrels of oil are technically recoverable. At the other end, there is only a 5 percent probability that there are more than 16 billion barrels of oil that are recoverable. The mean estimate is that 10.3 billion barrels of oil are recoverable. To place those numbers in perspective, the United States consumes about 19.4 million barrels of oil per day, meaning that the ANWR reserves would only be able to supply full consumption for less than a year-and-a-half. Of course, the reserves would not be used to supply full consumption, but the fact is that ANWR would only add 0.3% to the world oil supply. Thus, the Administration's Plan with regard to ANWR simply does not itself resolve our dependence on foreign oil supplies, but it does come at a significant environmental cost.

V. Solutions to Our Dependence on Foreign Oil: Conservation

A. Fuel Economy (CAFE Standards)

I must tell you that, to my mind, both H.R. 4 and its counterpart legislation in the Senate, missed out on an ideal opportunity to reduce our dependency when they failed to adopt increased Corporate Average Fuel Economy ("CAFE") standards. Why are the CAFE standards so important? Because, according to the Department of Energy, 42 percent of the oil we consume in America goes straight into the gas tanks of the cars and trucks in our garages.

Just to give you a sense of the impact that increased fuel economy could have, according to the Union of Concerned Scientists, CAFE has already saved 60 billions of gasoline (3.9 million barrels per day). A rise in the minimum CAFE standards to 40 miles per gallon ("MPG") would save 125 billion gallons of gasoline by 2012. This represents approximately 1.9 million barrels per day, or more than the total amount of oil we import from Saudi Arabia. And, at the end of the day, by reducing our consumption of foreign oil, we will shield ourselves from many of the threats posed by our current level of dependency.

Opposition to conservation measures has been a constant feature of government efforts to encourage fuel efficiency. In 1975, in large measure spurred by the Arab Embargo, Congress passed the Energy Policy and Conservation Act ("EPCA"). The EPCA included provisions that established the CAFE standards for new passenger cars. Given the oil crisis at that time, it appeared that the CAFE standards would be quickly implemented. However, in spite of the obvious merits of the standards, the American automobile manufacturers were opposed to the regulations. I remember their opposition well. In my role as Domestic Policy Advisor to President Carter, I was part of the team that developed the first CAFE standards. Those standards set the necessary fuel economy levels for the period from 1977 to 1985, starting at 18 miles per gallon ("MPG") in 1977 and rising to 27.5 MPG in 1985. I specifically remember a meeting in the Cabinet office with President Carter and the heads of the big three automobile manufacturers -- Ford, General Motors and Chrysler -- in which all three strongly opposed the imposition of fuel economy standards. They claimed that their companies lacked the technology to reach the standards that the Administration had in mind. And yet, once the CAFE standards were implemented, all three companies met and exceeded the standards. The capacity exists to continue to raise the bar on fuel efficiency.

Simple steps to improve automotive fuel efficiency would pay enormous dividends. Closing the loophole under which SUVs are allowed to meet lower standards than other passenger cars would, by early in the next decade, save roughly one million barrels of oil per day, helping to provide clean air and protecting Americans from disruptions in oil supply. According to a recent study by the National Academy of Sciences, this advance could be accomplished with available technology and at no cost to consumers over the life of a car.

B. Alternative Sources of Energy: Exploring New Technology

I am not one who believes in an either/or proposition between conservation and production. I believe that we need conservation, increased domestic production, and increased research and development on new technologies. On this point, I should mention that I recently test drove the new Toyota Prius hybrid that gets 52 miles per gallon of gas in the city. The engine is part fuel cell and part internal combustion engine. I found the car to be very impressive. If you will allow me to mix transportation metaphors, U.S. automakers must jump on the hybrid-fuel train before it has left the station. Already Japanese automakers have begun developing the technology at a faster rate than their American counterparts. In addition, the Germans have revealed a diesel-powered car that will get 35-40 miles per gallon. Simply put, U.S. automakers must be able to compete with their foreign counterparts. Having a fleet that is more fuel efficient will allow our automakers to do just that.

The NAS has estimated that the introduction of a widespread fleet of gas-electric hybrid automobiles over the next decade would save, cumulatively, 590 billion gallons of gas by 2020. The NAS estimates that we would save 4.8 billion barrels in 2020 alone; that represents nearly double the amount of oil we import from the Persian Gulf annually. We are talking about real steps to gain a measure of independence from foreign oil dependence. Similarly, if we were to develop fuel cell technology over the next 25 years and market the technology to consumers in a meaningful way, the NAS has estimated that we would save as much as 2.5 billion barrels of oil per day in 2030 (40 billion gallons per year).

I believe that it is important to take into account the findings of the recent NAS report (issued in July 2001), particularly with regard to the long lead times that are required for technology changes to be implemented. The NAS report concluded that the widespread penetration of already-existing technologies will require 4 to 8 years. For emerging technologies that require additional research and development, the lag time could be considerably longer. Thus, while the Committee should move forward aggressively in its pursuit of new CAFE standards, it is important to maintain the long-term vision that new technology demands.

The Administration's energy plan and H.R. 4 back a step?by?step plan with firm time tables to reconfigure our vehicles with hybrid and other new technologies to make them substantially less dependent on oil. The Senate version -- while still falling short of the ideal mark -- at least provides a significant financial incentive plan to encourage the development of new fuel technologies for automobiles.

At the same time, both bills fail to recognize the potential of other technological advances. For example, much as the House and Senate bills include incentives for energy producers, the bills should incorporate more incentives for conservation. For example, innovations in the light bulb industry provide tremendous conservation potential. Some estimates have suggested that the energy savings that could come from the installation of technologically advanced light bulbs in office buildings across the country could rival the benefits that we derive from offshore drilling activities. This is just one example. The point is that we must not be afraid to invest the resources in longer term projects that may yield sustainable benefits down the road.

I would reiterate that we must learn the lessons of the past. In the 1970s and 80s, Japanese automakers succeeded in gaining a foothold in the U.S. auto market by providing a benefit to consumers that American auto manufacturers had simply overlooked. Starting in the 1970s, while American automakers stood on the sidelines, Japanese manufacturers introduced smaller, more economical vehicles to the U.S. market. By the time American manufacturers entered that market, the Japanese makers had already cornered it. The U.S. auto industry continues to suffer from the failure of American manufacturers to recognize the trend in the market before it happened. Cars that require less gas are the wave of the future. We must ride that wave. We should not wait until the next run-up in oil prices or until Japanese manufacturers have arrived before we take action. There is no lack of technology to meet higher standards. The issue is whether the will to implement change exists.

VI. Conclusion

To sum up: America's reliance on foreign oil imports presents an ongoing threat to the stability of our economy and continues to exert undue influence our foreign policy. The national security costs of our petroleum dependence have never been more clear. What I do advocate, however, is a reduced dependence on foreign oil, both for its effects on our economy and on our national security. The benefits of a reduced dependence will be felt not only by us but also by future generations. An energy policy that focuses only on supply will doom us to an ever-increasing dependence on foreign oil. Simply put, the benefits of fuel economy are too great to ignore.

Thank you very much. It is a pleasure to be here and to contribute to the Committee's work. I would be happy to answer your questions.



LOAD-DATE: June 21, 2002