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Nathan Gardels

Nathan Gardels

Posted: November 24, 2008 01:31 PM

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.


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