Woolsey: Any Detroit Bailout Must Break US Oil Dependence

A mounting chorus of voices -- including President-elect Obama's -- are linking any economic stimulus or any related bailout of Detroit to environmental and energy independence objectives. Here, James Woolsey, a former CIA director an the energy adviser to John McCain during the campaign, adds his two cents a mile to the debate. There may indeed be a "green lining" to resolving America's economic crisis.

Nathan Gardels: After Citigroup, the next bailout crisis in the U.S. will involve the Big Three automakers in Detroit. What kind of deal should the government make with Detroit to ensure a retooling of the industry that puts America on the path to clean energy and energy independence?

James Woolsey: Any bailout money for Detroit should be used to maximize the speed of a shift toward the use of electric hybrids and flexible fuel vehicles. Both are necessary in breaking oil's monopoly on transportation in the U.S. Both would utilize existing infrastructure such as electric power grids and filling stations, and the technology is already there, and in use, for the engines themselves. So it can be done relatively quickly.

When I say electric, I don't necessarily mean all-electric cars. With an electric hybrid, you only need a battery than can take you 30-40 miles on an overnight charge -- along the lines of what the Chevy Volt (scheduled for 2010) can do. Three quarters of the cars in the U.S. go less than 40 miles a day. On three days out of four, you can use all electricity. For anything beyond that, with a hybrid, you'd have liquid fuel to take you the rest of the way where you need to go.

Flexible fuel vehicles should have an "open standard," which means they can use not only ethanol but methanol, butanol or other alcohol-based fuels. This can be done quickly. Brazil went in only three years from having 5 percent of its news cars using flexible fuel to 75 percent.

Putting this shift front and center will not only help save jobs in the auto industry but create news jobs -- for example in the production of batteries for electric hybrid vehicles. It will create a whole new set of suppliers.

Gardels: America has been through this cycle several times where we pledge to free ourselves from Mideast oil -- the first OPEC oil shock in the 1970s, the first Gulf War, 9/11 and the rise of oil to $140 a barrel a few months ago. What will be different this time?

Woolsey: First of all, the apparent need for an industry-wide restructuring in Detroit is an opportunity for intervention to set fuel and vehicle standards that we've not seen before.
Second is the cheap cost of electricity. If you are driving a car fueled by electricity and stored in batteries the cost is between 2 and 4 cents a mile. The electric hybrid car I have costs me 2 cents a mile on an overnight charge because my utility company charges less for energy use at night than at peak hours during the day.

No matter how cheap a barrel of oil becomes, it will never match this price of electricity. Last summer, gas was up to 10 cents a mile; perhaps it is now in the high single digits. This was not true in the past for alternatives like synfuels or hydrogen, which were even more expensive than oil.

Ultimately, this is why I believe electricity is the resource that will wean us from oil. For the average family, electric hybrid cars can reduce their fuel bill by one-third or more. That is a pretty good deal. And this is true independent of its other benefits -- reducing carbon output that causes climate change or stemming our indirect subsidy of terrorism in the Middle East by hemorrhaging cash to the likes of Saudi Arabia for their oil.

Gardels: In World War II, the U.S. retooled the auto and other industries in a matter of months to produce tanks, planes and other weaponry. Is there any reason we can't shift that quickly today from gas-guzzlers to electric and hybrid fuel cars as part of the managed bankruptcy of the auto industry?

Woolsey: As we geared up for World War II, the U.S. became a command economy under FDR. He simply ordered industries in the name of national security to mobilize for war after the attack on Pearl Harbor.

It would be more complicated today, and I think we'd want to preserve as much of the market as possible in a crisis, but not wartime, environment. But I do think that by changing the incentives for both the industry and consumers we can rapidly create a large enough market for electric and hybrid fuel vehicles that will challenge and then override oil-fueled transportation.

We need to make it easier for people to buy flex fuels and electric hybrid cars. There is already a $7,500 tax credit available.

And we need to mandate the automakers retool for flex-fuel capacity -- a minor manufacturing shift that costs only $100 per car or so, much simpler than the mandate for seatbelts or airbags. The government might even want to let the automakers write off capital expenditures for any move toward oil independence.

Gardels: The Japanese have spent years refining hybrid vehicles, including the Toyota Prius, which is widely driven in the U.S. If we want to be free of Middle East oil, why not just import Japanese cars or buy cars made in the U.S. by Japanese companies?

Woolsey: The health of the U.S. economy over the long run is tied up with having a viable auto industry. We can certainly be open to giving the Japanese or others incentives to locate their production in the U.S. -- perhaps with tax write-offs -- if they moved rapidly to electric drive.
This would reduce their transport costs of shipping from abroad and create jobs in the U.S. But that is in addition to, not as a substitute for, an American industry.

Gardels: The incoming Obama team has been talking a lot about a "green stimulus" for the economy. Perhaps the bailout or managed bankruptcy of the Big Three can be linked to that stimulus -- for example, the construction of electric fueling stations around the country for consumers who shift to electric cars.

Woolsey: Any stimulus that moves us toward a green economy should be structured so it can operate even if credit markets are frozen up for a time. A direct fiscal stimulus can be aimed at weatherizing buildings so they are more energy efficient or installing solar units. That would employ people. The more we can move toward distributed generation of energy and away from central power plants the better we are. That kind of decentralization of power production will create jobs.

Denmark, for example, gets a third of its electricity from co-generation -- the recycling of waste heat in homes, offices and factories. In the U.S., co-generation is a tiny source of electricity.
Moving to Denmark's level on this front alone could employ those very people who have lost their jobs because of the downturn in the housing construction industry.

In many states and localities, simply changing the rules set by the public utility commissions, which favor the large centralized producers of energy, would allow this to go forward. No big, huge government program from Washington is required.

Gardels: So there may be a "green lining" to America's economic crisis?

Woolsey: Yes, possibly so.

Read More:

Should the Government Bail Out the Big Three U.S. Automakers? HuffPost Bloggers Weigh In

Comments

[quiviran]

"Woolsey: As we geared up for World War II, the U.S. became a command economy under FDR. He simply ordered industries in the name of national security to mobilize for war after the attack on Pearl Harbor.

It would be more complicated today, and I think we'd want to preserve as much of the market as possible in a crisis, but not wartime, environment. "

I thought we were at war. Isn't Bush a war president? We know the enemy is foreign oil producers. Why don't we take the domestic action required to defeat them. Holding territory is not the only way to win, for us or them.

[hoopesaz]

It needs to break the unions in the process. If GM were selling Toyota's cars, it would still be in the same position because it simply cannot compete with their cost structure.

[LBA7895]

WOULD SOMEONE PLEASE EXPLAIN TO ME WHY BRAZIL ACHIEVES 100% ENERGY INDEPENDENCE USING CARS MADE BY US AUTOMAKERS AND YET THOSE SAME CARS ARE NOT BEING SOLD IN THE US RIGHT NOW?????

WHAT THE HECK IS GOING ON HERE???/

[StellaDuBois]

E85 ethanol capable cars are being sold in the US. They have been for over ten years now.

A better question is why is E85 not readily available on the coasts and why aren't other alternative fuels available much of anywhere?

It couldn't be because the oil companies control the fuel distribution in the US and there's an oilman in the White House, now could it?

The reason E85 has taken hold and grown as it has in the Midwest is because the politicians of those states pushed for it and actively bypassed the major oil companies when necessary, but fer cryin' out loud Texas has more E85 stations that California does!

http://e85vehicles.com/e85-stations.htm

[MattInVA]

I'll do my best:

First off, Brazil is a much poorer country than the US. It's GDP per capita is $9,500, while the US's is $45,800. As such, Brazil does not have nearly as many cars as the US. Not because the people of Brazil are ecologically minded, but because they can't afford them. It takes a lot less energy to power Brazil.

Secondly, Brazil is able to produce sugar cane to create Ethanol. I believe it is roughly 5 times as efficient to produce ethanol from sugar cane as it is corn. Sugar cane will not grow in most areas of the US due to the climate. Plus Brazil's government is lax in enforcing protection of their rain forests which are cut down to produce this ethanol. As bad as the EPA has been over the last 8 years, I doubt even they would have allowed the leveling of millions of acres of rain forest to produce sugar cane for ethanol.

[StellaDuBois]

Sugar cane is not grown purely for use in ethanol. It's actually what's left over after the cane harvest that gets used.

Brazil also has a rather large slave labor issue in the cane fields.

[Amalek]

I see that GM has fired Tiger Woods. I guess they got the message that having people flying around in private jets is not popular. But do they have to fire the only black man on the payroll who makes more than $100,000 per year? And, it was his own jet.

[slemay]

We can build more efficient cars and trucks. We can also build light rail systems that are connected to the electrical grid. We can build vehicles that run on alternative fuels. All of these will cut our dependence on foreign oil and cut our carbon emissions.

But the easiest thing we can do--something some of us already do--is to slow down. Eighty-five miles an hour is unpatriotic. It costs almost twice as much to 85 as to go 50, and about 20% more to 85 instead of 70. That doesn't take new fuels, government programs, or anything else--just a little personal responsibility, some planning, and some patience.

[canuckmoose]

Concur, slemay. Moreover, the big slowdown should be formalized, as it was in the 70's, with 55 mph speed limits. Meanwhile, simply enforcing current limits would go a long way toward self-sufficiency. The money saved in oil can be used to create jobs in law enforcement.

This is win-win. And a political rainbow. The left saves the earth. The center saves money. The right can take comfort, as you indicated, in patriotism.

[FloaterBall]

By the way, has anyone noticed the effect a minor effort at conservation has had on gas prices? Sure, there may be other factors at play (I'm no economist) but surely a drop in consumption due to $4 gas had some effect. Think what we could do if we really tried.

[Amalek]

1. Getting rid of Bush and not electing McCain.
2. Laying off 10% of the workforce so they don't have to drive to work.
3. China shutting down factories because nobody is buying stuff or going to the mall.

No, none of those had any effect.

Yea, just inflate those tires some more.

[FloaterBall]

All this jabber about this fuel and that fuel and flex fuels and tax incentives and re-tooling, thermodynamics, blah, blah, blah. My head is spinning. All I know is if Detroit built a pickup that got 50 mpg on good ol' gasoline, I'd buy it, you'd buy it, and I venture to say they'd make a profit.
We put a man on the moon in 1969 (that's THIRTY NINE YEARS AGO!) for chrissakes.

[SolarPowerGuy]

"All I know is if Detroit built a pickup that got 50 mpg on good ol' gasoline, I'd buy it, you'd buy it..."

No I wouldn't. I would rent it, on the three or four days a year that I needed a pickup truck. Just like I do now. And if everyone did what I did, it wouldn't matter so much that the pickup truck didn't get stellar mileage. Most of us shouldn't be driving pickup trucks every day.

The rest of the time, I would tool around in my 150 MPG two-seater. For surely, if there were a 50 MPG pickup truck, there would have to be a passenger car that far outclasses my Prius.

What do you know, 150 MPG two-seaters are available now:

http://aptera.com/

http://www.rqriley.com/xr3.htm

The 50 MPG pickup truck, on the other hand, is Middle America's favorite pipe dream.

[Paul]

Energy independence isn't going to come from tinkering with automobile engines and what they can use as fuel. Or even converting to hybrids or electric cars.

Energy independence - not to mention financial independence - will come by replacing the automobile with mass transit.

It will take time to build up the infrastructure, and the system won't be able to reach everyone, but when 80% of Americans can get where they want to go, when they want to go, for $1, we will achieve energy independence.

[SolarPowerGuy]

Your cost figure is unrealistic. Right now, it costs much more than $1 to go where you want, when you want.

Americans may BELIEVE that's about what they pay to travel by car, but they're lying to themselves. Most people see only the price at the gas pump. But add in the cost of auto maintenance, depreciation, and insurance. The IRS recognizes this. When you use your personal car for business, you can deduct 48.5 cents per mile traveled. Most business trips, I think you'll agree, are rather longer than two miles.

Then there are the costs we don't pay for at the showroom, repair shop, or gas pump. Only part of the cost of maintaining our road network is covered by gas taxes. We pay for pollution-related illness, when we buy health insurance. Finally, we pay a pretty penny for a petroleum supply volatility insurance plan. It's called the United States Defense Department.

Car travel costs us something more like a dollar per MILE, not a dollar per trip.

When mass transit is proposed, it's amazing how many car drivers become armchair macroeconomists and ask, rhetorically, "Will transit fares cover ALL of transit costs? We won't be SUBSIDIZING this social engineering project, will we?" They never ask the same question about their cars.

[rixter1965]

1. A bridge-loan is very different from a bailout, and Big Three execs should have a forward-program to merit that bridge-loan. And bad execs -- as in banks, etc. -- should be outsted and/or prosecuted under civil/criminal laws.
2. Just as Americans do not SAVE (oblivous to the consequences), Americans as informed citizens and consumers should realize their desire for more, cheaper "stuff" has consequences.
3. Economic decisions are not always rational or logical (read the graph, analyze the data), but based on perception, rumor, culture, trends, etc. Also true of "quality" in US-made autos.
4. Americans like simple: Big Three problems not just attributable to the UAW.
5. Americans bought fuel-inefficient SUVs, trucks, etc. and, while their low gas mileage is not in debate, their quality is not.
6. The Prius was not a "green initiative" by a "green company" (Toyota), but a strategy to increase the MPG of a fleet. Evidence: Sequoia, Tundra, and Land Cruiser.
7. One theme of US history has been challenges, loopholes, and outright treason by Southern states toward the United States: it's time to counteract anti-union ("right to work") legislation in Southern states by countermeasures that are Constitutional (not sure they are given "right to assembly" and the Wagner Act, but...). How about a compact of Northern and Midwestern states that make registration of Toyotas, etc., made in the South to pay extra or cars from countries with universal health insurance to do likewise!?!

[Deaninphilly]

Your statement that Americans do not save is because most people can not as they have no money left after bills are paid to save. Housing cost in this country are entirely too high compared to 20-30 years ago. Housing should only be 25% of ones income yet in the real world of today it is approaching 60-70% of ones income. That in and of itself is bad economic news in the long run as we are now seeing some of the consquences of playing with the housing market to make a quick profit.

Hate to break it to you, but the southern states are not the only "right to work" states. There are plenty of northern and western states that have the exact same laws which make it a right to work state.

"Americans bought fuel-inefficient SUVs, trucks, etc. and, while their low gas mileage is not in debate, their quality is not."

I don't even know what you are trying to say here.

I do agree that too many cheap imports have also contributed to the downfall of the economy with unforeseen consquences at least by many.

[LHoney]

I think any company/bank/whatever that receives bailout money should immediately go into the "Ben and Jerry" style of management - The top earner cannot make more than 7 times what the lowest earner makes. If you want the money, take the deal, otherwise, buh-bye! And I think ALL of the employees should be able to vote on it!

[schatsie]

Yes I sure would like to see these big wigs take a hike,,, If they are not satisfied with what they have managed to grab, then they are not good managers, they are not good team players, they are not taking care of the shareholders or their customers... They are hand in glove with the Boards who are totally greedy as well...see the interlinking board representation that Graef Crystal has documented for the last 30 years.

[katherine2]

First of all, Detroit is asking for a bridge loan, not a bailout. I'm all for greening the auto industry, but the Big 3 are expected, unrealistically so, to come up with a green plan in less than two weeks. I certainly applaud preconditions for a bail out, but why isn't this the case with the financial sector? The 25 billion loan is miniscule to the recent 700 billion bail. If the auto industry does receive assistance, whether by loan or bailout, I hope the stringency of the terms set a precedent which offset the previous gifting to the financial giants.

[anniegirl9]

The 25 billion would come form the 700 billion that isn't being used to buy the mortgage securities that it was supposed to in the first place.

Why are we so willing to hand $ over to banks which arguably set the economy up for this crisis, but bulk at helping potentially millions of blue collar workers?

I'm not completely sold on the bail out/loan either, but I can clearly see the double standard applied to the auto industry.

[SolarPowerGuy]

"The Big 3 are expected, unrealistically so, to come up with a green plan in less than two weeks."

Well, first of all, let them take longer than two weeks if they need it. But the handwriting has been on the wall for decades. Why doesn't Detroit ALREADY have a plan for greening the auto industry, sitting in a file drawer somewhere?

Back in the early 1990's the Clinton Administration drew up a plan called the Program for Next Generation Vehicles (PNGV). Now, every major auto manufacturer fought the implications of that plan. But in response to PNGV, Honda built the Insight, Toyota the Prius and the Rav4 EV. GM built the EV1. Clearly, the auto companies WERE thinking about the future, and were testing out new car models. They all ought to have PLANS already.

"I certainly applaud preconditions for a bail out, but why isn't this the case with the financial sector?"

Oh heck yes, I agree with you here. There is a double standard. The banks are fleecing the taxpayers. But the solution is to impose conditions favorable to taxpayers on the banks -- not to relax demands on the auto industry.

[Overtone]

Unconventional energy conversion systems may tap never previously commercialized, renewable, abundant sources of energy. They are inherently cost-competitive. They will make practical electric cars that need no batteries or recharge and will soon be capable of producing torque and/or electricity on a self-sustaining basis. Devices without moving parts are comparable to an inexhaustible electric battery. One Proof-of-Concept prototype was analogous to the early work on the transistor, which eventually led to a Nobel Prize and the creation of Silicon Valley.

Generators we are developing are expected to demonstrate replacement of the plug needed by a plug-in hybrid car, within a year. This will be a harbinger of automobiles that need no conventional fuel. With normal progress, prototype new energy conversion systems are anticipated to replace an automobile engine within three years. Vehicles powered by these technologies will never require conventional fuel of any kind.

Cars can become a source of income. Vehicle to grid (V2G) power was demonstrated during 2007. It was recently estimated that selling power to the grid from future production hybrid electric cars might earn the vehicles" owner $4,000 each year. This assumes that power will be drawn by utilities from the car"s batteries, using a two-way plug. Future cars powered by new energy conversion systems are expected to earn much more, as these generators are anticipated to replace both batteries and car engines. No plug will be required.

[KillTheMessenger]

Where did you come from???

[radiojunkie]

2108

[meemu]

Sounds pretty darn good to me!

[schatsie]

and no taxes on that income..That can be used for Health insurance which will be totally deductible at 50% of the cost...but of course I dream of a new world....

[PierreLeClerke]

The 100% Incentive program

Our position is clear; Immediate Tax Rebates should range from $2,500-15,000 per vehicle in direct relationship to the vehicle performance.

Vehicles offering 35-50 MPG without alternative/green propulsion systems would be subject to rebates of no greater than $5,000 on a sliding scale.
Vehicles attaining rating over 50 mpg but under 75 mpg would be entitled to rebates of up to $10,000 per vehicle purchased, again on a sliding scale.
Vehicles who's performance exceeds 75mpg and who's recharge range if electric Hy bred, is in excess of 100 miles minimum, will be granted the 100/100/100 Rating and entitled up to a $15,000 instant rebate at the time of purchase.

Codify these incentives for domestically manufactured or retrofitted vehicles and stand back. The industry will be rolling units off their assembly lines within 120 days!

Now thats an economic stimulus we can believe in.

Make it happen!

[KillTheMessenger]

Rebates are arbitrary and ineffective because they make the industry lazy to reduce cost. Why work hard if the government has a cost-plus program for you?

Simply tax gasoline with $4-6/gallon and you will see the same net effects... enforced by the market at a price we can believe in, not one that some bored blogger has made up.

[SolarPowerGuy]

I'm with you. It's time for a petroleum tax. But my recent posts have been more modest than what you proposed. I proposed a new tax of $5.50 per barrel of oil, which we could use to fund the Detroit bailout, on the condition that they immediately retool for a greener future.

A $5.50/barrel petroleum tax would boost the price of gasoline by $0.20/gallon. Recent history shows we can handle that price increase. And politically, that level of taxation might just fly. I'd go with $4.00/gallon, if it had a prayer of passing.

Yeah, I'm a bored (well, maybe not bored, but frustrated) blogger too.

[Mildmannered]

any bailout of GM must include the resignation of its managers, officers and directors

[Overd0g]

The big 3 are businesses, not government programs. Businesses, unlike government, are supposed to be competitive or go bankrupt. Mandating that they produce this or that technology presupposes that the government knows what will be competitive in the market place, which of course it doesn't. The government has decided that alternative energy is best for the country, but that has nothing to with a business analysis. After they produce all the hyper expensive alternative energy vehicles that nobody buys, they will be back for more "charity" (delivered by extracting the life savings of taxpayers at gunpoint of course).