Letter from the President
Energy, Oil and Independence
IIn September 2004 economist Amory Lovins and the Rocky Mountain Institute published a study for the Secretary of Defense and the Chief of Naval Research detailing how the United States can be completely off oil by 2040. The report, Winning the Oil End Game: Innovations for Profits, Jobs and Security, has withstood intense peer review and has been aggressively updated since.
Lovins’ transition from oil occurs in two parts. First, America can save half the oil we use by redoubling efficiency. We’ve already doubled our efficiency since 1975, but we can double productivity again at an average cost of only $12 per saved barrel.
We can replace the remaining half of oil demand with a combination of natural gas and advanced biofuels at an average cost of $18 a barrel. Thus we can end our oil addiction completely by replacing our current $60 per barrel oil with new supplies costing on average $15 per barrel.
Lovins’ report shows how, with a one-time investment of $180 billion — less than half of what we’ve already shoveled down the mole hole in Iraq — we can retool the car, truck and aviation industries, improve efficiency in our buildings and industry, and wean ourselves entirely from our destructive and costly oil addiction. This transition would generate a million new jobs, three-quarters of them in rural and small town America and save the million jobs now at risk in the American auto-making industry.
We know from past experience that green investment is good for America’s economy, not to mention our national security. Between 1977 and 1985, U.S. investments in conservation and alternative fuels, inspired by the 1976 oil crisis, raised automobile fuel economy from 18 miles per gallon to 27.5 miles per gallon. Oil use shrank 17 percent during those eight years and the economy grew 27 percent. We cut oil imports in half. Imports from the Persian Gulf fell by 87 percent. Had we stayed the course, we would not have had to import a single drop of Persian Gulf oil after 1986.
Then Ronald Reagan came in and ordered Jimmy Carter’s solar panels torn off the White House roof. He rolled back automobile efficiency standards and killed incentives for wind and a $130 million solar power research program. These and other Reagan favors to the oil barons and Detroit doubled our oil imports in 1987 and launched the runaway oil addiction that now has us acting like a crackhouse junkie rolling old ladies for drug money. Our jones for petrodrugs has embroiled us in the Mesopotamian quagmire, helped make America a pariah among nations and damaged the cause of democracy across the globe.
The good news is that a revolution in technologies and materials has equipped us to run the same strategy that liberated us in the late 1970s, but this time we can get off oil altogether, and for good. Lovins shows how using off-the-shelf technologies, America can triple the efficiency of cars, trucks and planes, halve electricity demand and walk away more prosperous for our efforts.
And aggressive government action could advance our transition from oil dramatically, far faster than Lovins’ most optimistic predictions. If, for example, we made national investments in liquid hydrogen fuels, which have more than double the efficiency of hydrocarbons, America could be exporting energy from the Great Plains — the “Saudi Arabia of wind.” The Dakotas alone have sufficient wind to make all the hydrogen necessary to run every highway vehicle in America, at nearly triple the efficiency of gasoline.
Since we are on a war footing, government ought to do everything in its power to accelerate adoption of existing energy technologies and development of new ones. Government can achieve this best not by command and control schemes but by opening up congested market arteries to stimulate the atmosphere of innovation.
The fossil fuel industry pretends that their product dominates the energy sector because efficiency and low price give it an advantage in the free market. This is a myth. Their dominance is the result of corporate welfare and crony capitalism. Their greedy and malevolent attacks on our national interests have included an illegal conspiracy to destroy clean public transportation in America.
Between 1920 and 1955, the oil companies systematically purchased and destroyed electric rail street car systems in 45 U.S. cities, including New York, Philadelphia, St. Louis and Los Angeles, with the methodical purpose of eliminating clean mass transit and forcing the public authorities to purchase their products. They tore up the rail lines or buried them beneath asphalt tarmac from their refineries. In a gratuitous demonstration of ruthlessness and resolve, they burned Los Angeles’ famous red cars — an otherwise forgotten scandal dramatized in the cartoon movie Who Killed Roger Rabbit. In each city they replaced streetcars with filthy diesel buses, which were far more expensive to operate. They were convicted of anti-trust conspiracy by President Harry Truman’s Justice Department but were allowed to walk after paying a one dollar fine. The crime was done. In the 1990s the Justice Department didn’t even bother to prosecute when Big Oil conspired with automobile manufacturers to kill the electric car. The stunning documentary Who Killed the Electric Car shows how the conspirators destroyed GM’s popular fully electric Saturn — which, mandated by California law, had shocked Detroit and its oil patch cronies with its runaway popularity. Worried that other states would follow California’s example, GM forcibly recalled and crushed every electric Saturn. Chevron purchased the patents on GM’s brilliant nickel battery system to make sure that the idea would stay dead.
Big Oil protects its monopoly by sharing its profits with politicians. According to the Center for Responsible Politics, oil and gas companies contributed more than $186 million to U.S. political candidates between 1996 and 2006. These contributions helped the industry win vast influence in Washington, D.C., including the current White House, which slid into power on a slick of oil industry cash. The President, Vice President and most of their top advisers came from the oil industry and its supporters. Condoleezza Rice has a Chevron tanker named for her. Andrew Card, a General Motors lobbyist, made his bones by repeatedly derailing CAFE fuel efficiency standards. The President’s chief environmental adviser, Philip Cooney, was formerly chief lobbyist for the American Petroleum Institute.
This government has done everything in its power to impede efforts to free us from oil addiction. On his first day in office, President Bush signed into law a $100,000 tax deduction for Hummers and other SUVs that weigh over 6,000 pounds. (The tax credit for hybrid buyers is measly by comparison.) Dick Cheney dismissed energy conservation in April 2001 as a mere “personal virtue,” while Congress make it illegal for EPA to even study improving auto efficiency standards, loaded up energy companies with billions in tax breaks and dismantled environmental laws. A federal court only recently declared illegal Bush’s refusal to improve efficiency standards already mandated under the 1992 Energy Policy Act. When asked if President Bush would encourage Americans to reduce our profligate gasoline use in May 2001, his spokesman, Ari Fleischer said, “That’s a big no. The President believes that it’s an American way of life… The American way of life is a blessed one.”
The oil barons get returns of roughly 1,000 to 1 on their political and lobbying investments. This includes direct federal subsidies of $16 billion annually to Big Oil. This public largesse takes the form of everything from research and development support and loan guarantees to accelerated capital depreciation schedules in the tax code, waiver of royalty payments, the absurd oil depletion allowance and other direct subsidies and tax breaks given to the oil industry. It seems doubly absurd to give such subsidies to an industry that reported record earnings of over $137 billion in profit in 2006. The Wall Street Journal recently reported that Big Oil is so awash in profits that it is having difficulty finding ways to spend all its money.
In reality, true subsidies to the industry are much higher. The Institute for Transportation Studies at the University of California at Davis estimates the minimum costs of damages to crops and forests, water quality and buildings and monuments from petroleum use at $24.3 billion each year. Health care costs caused by petroleum use are roughly $67.3 billion annually. U.S. taxpayers spend between $55 billion and $100 billion annually to defend our oil supply around the world. This does not include over $100 billion of Pentagon expenditures in Iraq since that war began — an expense that should also appear on Big Oil’s tally sheet.
It also does not include taxpayer losses associated with global warming, lost productivity of workers, early deaths of loved ones and destruction of national monuments like the Statue of Liberty. Nor does it account for the costs we incur from funding terrorists in the Mideast, or drug cartels in Colombia and the enormous damage to our national prestige, political integrity and moral authority when we befriend tyrants who rig elections, torture their opponents and stifle democracy from Kazakhstan to Nigeria to Saudi Arabia. Add to these costs the destruction of our oceans and beaches, the obliteration of indigenous cultures and the erosion of our humanity, which are all part of the price we pay for oil.
The true costs of our oil dependence, according to author and former California EPA Director Terry Tamminen, run from $135 billion to $1 trillion annually — or $2,700 for every U.S. citizen. These subsidies allow oil companies to artificially lower the price of gasoline.
Americans are still paying the true cost of that gas, but not at the pump, where they can control their costs. We are paying it in federal taxes. If we were paying the true costs at the pump we would be paying around $7 to $9 a gallon, which would force the industry to pay the fair cost of its product. Then, American consumers would be screaming at Detroit to produce cars that get 40 miles per gallon. Subsidies distort the marketplace and send the wrong signals to Detroit, which assumes that fuel efficiency is not important to consumers and largely ignores that feature in automobile design.
The fact is, that if we simply removed subsidies, renewables would out-compete oil on the level playing field of a truly free market. It is only through these giant subsidies that gasoline has a prayer of competing with biofuels, and wind and solar, which can produce energy more efficiently without polluting, and at far less cost. w
