Chairman Domenici, Senator Bingaman and members of the Committee, thank you for having this hearing today on an issue so crucial to the well-being of our country.  The United States’ dependence on oil is the preeminent challenge of our generation.  U.S. oil consumption affects more than just prices at the pump.  It impacts our national security, our economy, our fiscal health and our environment.

The United States uses 25% of the world’s oil but has only 3% of the world’s proven oil reserves.  U.S. demand for oil is expected to increase from nearly 21 million barrels a day to 28 million barrels per day in 2030, of which nearly 70% will be imported.  While demand in the U.S. will grow by approximately 25%, demand in China, India and other developing countries is projected to grow by 66%.  To meet the projected world demand, global output would have to expand by 57% in 2025.

EIA’s most recent forecast states that the price of crude is expected to remain high at $57 per barrel in 2030.  The International Energy Agency price forecast is even more dire.  If oil producing countries in the Middle East and Africa do not make immediate investments to increase production, the price will rise to $86 barrel in 2030.  Even if the region does make the necessary investments, prices could average $65 a barrel.

These forecasts assume the current projections for supply and demand but do not address the consequences of a supply disruption caused by terrorism, political unrest, or weather.  Last summer, the National Commission on Energy Policy and Securing America’s Energy Future conducted a simulation called Oil ShockWave to explore the potential security and economic consequences of an oil supply crisis.  The event started by assuming that political unrest in Nigeria combined with unseasonably cold weather in North America contributed to an immediate global oil supply shortfall.  This sent prices to over $80 barrel. 

The simulation then assumed that three terrorist attacks occur in important ports and processing plants in Saudi Arabia and Alaska which sent oil prices immediately soaring to $123 a barrel and $161 barrel six months later.  At these prices, the country goes into a recession, millions of jobs are lost as a result of sustained oil prices, and the average household would pay almost $3,000 more each year for gasoline.

This simulation almost became reality with the failed attack on Abqaiq in Saudi Arabia.  Had the attack been successful, it would have removed four to six million barrels per day from the global market sending prices soaring around the world and would likely have had a devastating impact on our economy.

Even without the risk of a major supply disruption, the U.S. and the rest of the world will increasingly rely on unstable nations like Saudi Arabia, Iran, Russia, and Venezuela to supply the oil needed to meet future demand.  Oil production is projected to increase by nearly 50% in the former Soviet Union and by 33% in OPEC countries over the next twenty years, while production is projected to decrease by more than 6% in the United States and other industrialized countries.  U.S. national security will continue to be vulnerable to the political unrest, conflict and terrorism in the producing regions.

In addition to the threat to our security that oil dependence creates, our economy is at risk.  Our economy is vulnerable to the price volatility of the oil market and we must do what we can to build resilience into our economy. The U.S. uses half as much oil to produce the same amount of gross domestic product (GDP) as it did in the 1970s. Decreasing the oil intensity of our economy will help us weather price shocks and make us more secure.  We can reduce oil intensity by reducing our demand for oil.

The risks faced above ground by depending on unstable suppliers and good weather are too great and to a certain extent out of our control.  If the attack on Abqaiq would have been successful, there is little that we could do to moderate its impact on our economy and lower the prices which is why it is urgent that Congress act now to start reducing our dependence on oil.  There is no magic bullet to address a major shock to the oil market and we must take the steps necessary to reduce our dependence on oil which will make our nation stronger.

There already exists a bi-partisan, bi-cameral framework to address U.S. dependence on oil.  In November 2005, I, along with Senators Brownback, Lieberman Coleman and others, introduced the Vehicle and Fuel Choices Act for American Security Act.  My bill would reduce projected oil use by 2.5 million barrels per day in 2016 and 7 million barrels per day in 2026. The bill also provides tools to meet these aggressive targets by improving the efficiency of vehicles and increasing the production and use of biofuels.    The bill includes new approaches for manufacturers, the federal government, scientists and consumers, all designed to encourage greater energy security.

The bill requires that in 2012, 10% of vehicles manufactured be flexible fuel vehicles, alternative fueled vehicles, hybrids, plug-in hybrids, advanced diesels and other oil saving vehicle technologies. This percentage rises each year until 50% of the new vehicle fleet will be one of these oil saving technologies.  My bill also provides tax incentives for U.S. manufacturing facilities to retool existing facilities to produce advanced technology vehicles which will help shift the vehicle fleet to more efficient vehicles like hybrids and diesels while minimizing the job impact of an increased market share of advanced technology vehicles.  The bill builds on the Energy Policy Act (EPAct) of 2005 by expanding the number of consumers that can take advantage of the tax credit available for the purchase of more efficient vehicles.  It offers a tax credit to private fleet owners who invest in more efficient vehicles.

The bill contains robust research provisions in the areas of electric drive transportation, including battery research, lightweight materials and cellulosic biofuels.  Each of these technologies hold great potential to play a key role in reducing our dependence on oil.  For instance, lightweight materials, such as carbon composites and steel alloys, hold the promise of being able to double automotive fuel economy while improving safety without increasing the cost of the vehicle.  Cellulosic biofuels, which the President mentioned in the State of the Union, have the promise to be cheaper than gasoline and produce seven to fourteen times more energy than is used in its production. 

My bill doubles the funding for bioenergy research contained in EPAct and provides additional funding for production incentives for the production of cellulosic biofuels. 
Additionally, the legislation provides the tools to expand the alternative fueling infrastructure so that all vehicles that can run on alternative fuels like E85 are able to fill up at the pump with E85.  Although there are approximately 5 million vehicles capable of running on E85, very few actually run on E85 because there are only 615 gas stations with E85 pumps.  My bill expands the alternative fueling infrastructure tax credit in EPAct to 50% to drive investment in this vital infrastructure.

The legislation directs CAFE penalties already collected by the government to fund grants to finance the alternative fueling infrastructure.  These fines vary each year depending on CAFE compliance for that year but range from $21 million to $52 million a year.  Since 1999, the Department of Energy has only given out $6.9 million in grants since 1999 – in one year, the amount of money awarded could triple.  One DOE grantee, the National Ethanol Vehicle Coalition, will able to build 300 stations with its $2 million grant this year.  With at least 10 times that amount of funding available, we should be able to build at least 3,000 stations per year.

Addressing our dependence on oil is a challenge that we cannot wait any longer to address.  Events in the world from September 11th to Hurricane Katrina to the recent attempted attack in Saudi Arabia continue to show us how urgent it is that we act.  I look forward to working with the Committee to address this crucial issue.