Testimony of Admiral Dennis Blair, USN (Ret.)

before the U.S. Senate Committee on Commerce, Science and Transportation

Hearing on Fuel-Economy Legislation

3 May 2007

 

I would like to thank the Committee for the opportunity to discuss fuel-economy legislation from the perspective of national security. I speak to you on behalf of the Energy Security Leadership Council (Council), a non-partisan group that brings together twenty business executives and retired senior military officers who are concerned about the perilous state of U.S. and global energy security. We are led by Frederick W. Smith, Chairman, President and CEO of FedEx, and General P.X. Kelley (Ret.), the 28th Commandant of the United States Marine Corps. And we are united in the belief that oil dependence severely threatens the economic and national security of the United States.

 

On December 13, 2006, the Council unveiled a set of Recommendations to the Nation on Reducing U.S. Oil Dependence. This report outlines a comprehensive energy security strategy. It replaces the false hope of domestic energy independence with strategies for better managing the reality of global energy interdependence. The suggested initiatives are aggressive while being balanced and credible. Where the market cannot be expected to provide solutions, government has been asked to apply workable standards capable of spurring the needed private-sector responses. The members of the Council have pledged to continue working until these policy recommendations are enacted into law.

 

During the last few months, the Council has collaborated with Senator Byron Dorgan and Senator Larry Craig to design legislation that incorporates the central elements of the Recommendations. This collaboration has given rise to the “Security and Fuel Efficiency Energy Act of 2007 (SAFE Energy Act),” which was formally introduced on March 14. Senators Dorgan and Craig recently introduced just the fuel economy sections of this bill as the “Fuel Efficiency Energy Act of 2007.” I want to commend Senators Dorgan and Craig for their leadership and commitment.

 

I also want to thank Chairman Inouye and Vice Chairman Stevens along with Senators Feinstein, Snowe, and all others who have recognized that increased transportation fuel efficiency is a vital national security imperative. Our nation consumes more than 20 million barrels of oil per day (mbd), more than 60% of it imported. Nearly 70 percent of our oil consumption goes to fuel the transportation sector. Transportation relies on oil for 97 percent of delivered energy with almost no substitutes available. By any measure that I know of, such extraordinary dependence is inconsistent with national security.

 

The Council’s approach tackles oil dependence through many policies, but none of these is more crucial than reformed and strengthened vehicle fuel economy standards. Standards are necessary because there is no free market for oil. Oil prices may be a function of supply and demand, but the oil market is well removed from the free-market ideal. As much as 90% of all oil and gas reserves are held by national oil companies (NOCs) that are either partially or fully controlled by governments, not public companies operating in the free market. Moreover, the market is highly cartelized, with one group – OPEC – setting prices and supply based on a variety of pressures including political concerns. The marketplace alone will also not act preemptively to mitigate the enormous damage that would be inflicted by a serious and sudden price increase. Thus, government must apply workable standards capable of spurring private-sector responses.

 

Under the Council’s proposal, the fleet of new passenger cars and light trucks sold in the United States each year will have to get 4% more miles per gallon than the fleet of cars and light trucks sold the year before. The same will be true of commercial trucks, which have never previously been subject to fuel efficiency standards. The proposal gives the National Highway Traffic Safety Administration (NHTSA) the discretion to require different percentage increases for different classes of vehicles in pursuit of 4-percent annual fuel-economy improvement for the entire new vehicle fleet.

 

These measures will help us reduce the oil intensity of this country. Oil intensity—the amount of oil needed to generate a dollar of GDP—has been cut in half since the oil shock of the1970s. The result is a U.S. economy that still sees steady growth despite high oil prices such as those experienced over the last few years. Unfortunately, progress in further lowering oil intensity has slowed noticeably in the last decade. We must do better.  

 

Four percent is not an arbitrarily chosen number. It is right in line with the historical annual gains that were achieved when the nation last committed itself to fuel economy. It is also perfectly consistent with scientifically-validated forecasts of cost-effective future fuel economy improvements.  Between 1975 and 1985, the miles-per-gallon (mpg) performance of passenger cars in the U.S. increased 5.5% per year. The figures for light trucks rose 4.2% per year over the same period.

 

In its 2002 study of CAFE, the National Academy of Sciences (NAS) concluded that the fuel economy of large U.S. passenger cars could be cost-effectively raised by as much 27 percent within a decade using available and emerging technologies. For the largest light trucks, the potential improvement was 42 percent. The implied potential fuel economy for the entire fleet given the existing mix of vehicles was 30.3 mpg, more than 25 percent above the current figures. Significantly, these improvements were premised on the use of existing and emerging technologies without altering the average weight, size-mix, or performance of the fleet. The 2002 study was conducted on the basis of gasoline prices of $1.50 per gallon. One of the principal authors of the 2002 study, Dr. David L. Greene of Oak Ridge National Laboratory, has incorporated today’s higher fuel prices into the NAS model while holding technology assumptions constant. A retail gasoline price of $2.50 per gallon raises the expected cost-effective fuel economy of the entire fleet to 33.9 mpg. Even these projections may be too pessimistic in light of accelerating technological progress. Indeed, since diesels and hybrids did not figure in the cost curves utilized for the 2002 study, but are now viewed as promising candidates for large-scale introduction in the U.S. marketplace, Dr. Greene is optimistic that current fuel-economy levels can be raised by as much as 50 percent—even after applying the same weight and performance constraints used in the 2002 study.

 

The new standards are designed to be very flexible. For instance, pickup trucks may not be able to obtain the same fuel-economy levels as SUVs or minivans, but the ESLC proposal does not require them to do so. To reiterate, NHTSA will have the discretion to require different percentage increases for different classes of vehicles in pursuit of 4-percent annual fuel-economy improvement for the entire new vehicle fleet. Vehicle classes will be determined by key attributes, and under this approach it would be perfectly justifiable to hold primarily freight-hauling vehicles to a lesser fuel-economy standard than would be applied to vehicles designed first and foremost for transporting passengers. By assessing multiple attributes, NHTSA can constructively classify vehicles to maximize fuel economy while tailoring the standards so that pick-ups will not be forced to compete with sedans that are roughly as long and as wide. 

 

Flexibility is further ensured by “off-ramps” that may be employed if NHSTA finds 4-percent improvement in a given year to be technically infeasible, unsafe, or not cost-effective. These are not loopholes, since expert opinion and data will be required to invoke them. But, together, the 4-percent annual improvement standard and the off-ramps give credit to American ingenuity and technological prowess while protecting business from unachievable or value-destroying mandates.

 

Finally, the proposed legislation contains a variety of consumer and manufacturing tax credits that will help car-makers and car-buyers adjust to greater fuel economy.

 

Overall, this approach aims for two highly desirable outcomes: improved energy security and a competitive domestic automotive industry. To improve energy security, America needs to get millions of fuel efficient cars on the road. But we will not have a secure source of these vehicles without public policies that expedite the needed transition of U.S.-based manufacturing capacity. In order to level the playing field and enable domestic manufacturers to effectively compete in the growing market for advanced-technology vehicles, we support tax incentives for the retooling of domestic automobile parts and manufacturing facilities.

 

Let me say that I recognize and respect the historical contribution that car companies like GM and Ford have made to our defense. More than half a million GMC "Deuce and a half" trucks gave U.S forces in World War II unmatched logistical support. Ford’s Willow Run plant by itself produced nearly 9,000 B-24 bombers that provided the U.S. Army Air Corps with much of its strategic punch. I am asking these companies to continue this legacy of service to the nation by embracing the mission of improved fuel economy.

 

Having outlined the fuel-economy legislation we support, I’d like to devote the rest of my time to describing why improvement is so necessary. I will do this from a military vantage point, since this is where my expertise and knowledge are concentrated. Put simply:  the increasing U.S. dependence on oil imported from underdeveloped volatile regions of the world is putting a strain on our military forces and it is assigning them expensive missions for which they're really the wrong instrument of national power.

 

This problem is best understood by looking at the Persian Gulf which is home to the five countries with the greatest proven conventional petroleum reserves.  When I first joined the Navy in '68, the entire U.S. military presence in that part of the world was a one star Navy admiral and two destroyers that would deploy to hold simple exercises with Gulf countries. As I recall gas at that time ran 30 to 40 cents a gallon for my Austin Healey 3000, and the Persian Gulf was a rare duty station for members of the armed forces.

 

In the late 1970s two serious threats to Persian Gulf oil were identified by the Carter Administration, which became seized by the issue. The first was a potential Soviet invasion from the north into the oil regions around the Gulf, a concern heightened by the Soviet occupation of Afghanistan. The second was an aggressive and fundamentalist Iran, which was led by a regime that had permitted and then exploited the takeover of the American Embassy in Tehran. In response, the department of defense created the Rapid Deployment Joint Task Force, the RDJTF, a planning headquarters and contingency force that could quickly deploy to the Gulf to defeat a major land invasion.  In 1983 as part of its general military build up against the Soviet Union, the Reagan administration upgraded this task force to a regional command like the European Command and the Pacific Command, where I served and where I ultimately commanded. So this Central Command had full time responsibility for U.S. interests in the region.

 

Every commander of the Central Command, which was what the new organization was called, has had the mission of ensuring the security of oil from the Persian Gulf since that time. In response to the 1987 attacks on tankers by Iran and Iraq as part of their war, the United States gave Kuwaiti tankers U.S. registry and provided naval escorts for them as well as for tankers of allied nations. So, by 1990 America had a functioning military command structure, had deployed major forces to the Gulf both for exercises and for combat operations, and had established a military commitment to oil security.  The military component of American security policy in the Gulf region had greatly increased, and—as we saw—it crowded out diplomacy, reliance on the market, and more indirect instruments of national power.

 

U.S. security policy in the Gulf since then has been in the headlines, familiar to everyone, and dominated by the use of major military force: operations Desert Shield and Desert Storm in 1991; during the course of the 1990s the maintenance of Air Force and Navy air wings in the Gulf on a full time basis to enforce no-fly zones in the north and the south of Iraq; an Army brigade full time in Kuwait; periodic bombings of Iraq during that period. And then following 9/11, the intervention in Afghanistan and invasion and occupation of Iraq. For those of us in the armed forces the operations in this region of the world are expensive and tactically problematic.

 

As a general rule, the use of large scale military force in volatile regions of underdeveloped countries is difficult to do right, has major unintended consequences and rarely turns out to be quick, effective, controlled and short lived. The Persian Gulf is just about on the other side of the world from the United States. It takes more than 3 ships in the U.S. Navy to keep one ship on station: one there, one going, one coming. Pretty much the same ratio holds for airplanes and, as we're learning in Iraq, for soldiers and Marines.  You just got back, you're there or you're getting ready to go again. A major military presence in the Gulf region raises local resentments and dangers that work against what we're trying to achieve. This is not just a post-9/11 phenomenon. It was true well before 9/11 in terms of the effect of major U.S. military forces staged or spending large amounts of time in the Gulf region. So after all this major military effort, what's the bottom line?  Gas is pushing $3 a gallon, we're extending the tours of soldiers in the Gulf region to 15 months, and we’re more subject to events in the Persian Gulf than we ever were in the past.

 

Now, why has American security policy developed in this way? The fast pace of operations in the region has given little pause for reflecting on overall trends and effectiveness. American forces have been engaged in the Middle East since the tanker wars of 1987, and events have seemed to demand increasing our military force, not reducing it. But driving this engagement is America’s ever growing dependence on overseas petroleum. This dependence has influenced successive administrations to strengthen military engagement rather than to search for other means—perhaps politically more difficult but in the long run more cost-effective means—for boosting energy security.

 

This expensive and somewhat clumsy model is shaping our energy security approach in other regions of the world outside the Gulf. Consider Central Asia, home to an increasing share of the world's oil and natural gas reserves in the future. Already we see recourse to some of the early chapters to the same play book we followed in the Persian Gulf 20 and 30 years ago.

 

In conclusion, let me tie things back to the policy objectives of the Committee:  improved security will require greater conservation as well as increased production of petroleum and alternatives here at home.  Put another way, improved vehicle fuel economy will increase our military flexibility and our overall national security, not just our energy security. We'll be less susceptible to being whip-sawed by events in the Persian Gulf, Central Asia and West Africa. We will not have to be on a hair-trigger for major military involvements in these regions with their great expense and all the difficulties of successful mission execution and withdrawal of forces. And we will be in position to break the cycle of increasing oil dependence followed by increased deployments of major U.S. forces into volatile and underdeveloped regions where they are often poorly matched to the mission of oil security.

 

So let me conclude by encouraging you to support amendments that ensure an aggressive but flexible approach for increasing the fuel economy of the entire U.S. transportation fleet. In keeping with the Council’s fuel-economy proposal as it is embodied in the SAFE Energy Act and the Fuel Efficiency Energy Act of 2007, future fuel-economy provisions should: 

 

(1) require 4% annual increases in vehicle fuel economy,

 

(2) be applied to all on-road vehicles, including medium and heavy trucks, and

 

(3) contain “off-ramps” that will protect consumers and manufacturers by relaxing the 4% annual increases if they prove to be too costly, unsafe, or technically infeasible. These are not loopholes, since expert opinion and data will be required to invoke them.

 

The Council is committed to working with you in true bipartisan fashion to achieve these goals. Our nation deserves no less.