Why America Needs Electrified Communities
By Fred Smith
The following is reprinted with permission of the Electrification Coalition
Testimony of Frederick W. Smith
Chairman, President and CEO, FedEx Corporation
Co-Chairman, Energy Security Leadership Council
Member, Electrification Coalition
Before the U.S. Senate
Committee on Energy and Natural Resources
June 22, 2010
Good morning, Chairman Bingaman, Ranking Member Murkowski, and members of the Committee. I would like to thank you for giving me this opportunity to speak to you regarding the Promoting Electric Vehicles Act of 2010, a bill that I think represents a tremendously important step forward in our nation’s effort to end the very real and pressing threats posed by our dependence on petroleum.
I am proud to serve both as co-Chairman of the Energy Security Leadership Council and as a member of the Electrification Coalition, two organizations dedicated to facing these threats head on.
The Energy Security Leadership Council, formed in 2006, is a coalition of business executives and retired national security leaders who believe that our dependence on oil, much of it imported from unstable and hostile regimes, poses an unacceptable economic and national security threat.
The Electrification Coalition was formed in 2009, and is made up of a group of business leaders who represent the entire value chain of an electrified transportation sector and who are committed to promoting policies and actions that facilitate the deployment of electric vehicles on a mass scale.
I became involved in these organizations for a single reason: it is my belief that after terrorism and the proliferation of weapons of mass destruction, our increased dependence on petroleum represents the biggest single threat to our nation’s economy and national security.
I can speak to this issue personally. FedEx delivers more than 7 million packages and shipments per day to more than 220 countries and territories. In a 24-hour period, our fleet of aircraft flies the equivalent of 500,000 miles, and our couriers travel 2.5 million miles. We accomplish this with more than 275,000 dedicated team members, 670 aircraft, and some 70,000 motorized vehicles worldwide.
FedEx’s reliance on oil reflects the reliance of the wider transportation sector, and indeed the entire U.S. economy. Oil is the lifeblood of a mobile, global economy. We are all dependent upon it, and that dependence brings with it inherent and serious risks.
In 2008, when oil prices spiked, Americans consumed nearly 20 million barrels of oil a day—one-fourth of the world’s total. We imported 58 percent of the oil we consumed, leading to a U.S. trade deficit in crude oil and petroleum products that reached $388 billion—56 percent of the total trade deficit.
A year later, with oil prices averaging just $62 per barrel and oil consumption down, the United States still ran a $200 billion trade deficit in crude oil and petroleum products. At current prices and demand levels, the trade deficit in crude oil and refined products is set to return to pre-crisis levels near $300 billion.
At the crux of America’s oil dependence is the energy demand of the transportation sector. Transportation accounted for almost 70 percent of American oil consumption in 2008. Cars and trucks were 94 percent reliant on oil-based fuel for their energy, with no substitutes immediately available in anything approaching sufficient quantities.
The volatility of oil prices affects every American. At the beginning of 2001, oil prices were steady at $30 per barrel. Over the subsequent five years, prices steadily rose, reaching $75 per barrel in June of 2006. After retreating slightly, benchmark crude prices jumped 50 percent in 2007, from $60 per barrel in January to more than $90 in December. In 2008, oil prices soared rapidly, eventually reaching their all-time high of more than $147 per barrel on July 3.
We are all aware of the sharp financial burden on U.S. households that faced—and still face—resets in their adjustable rate mortgages. But it is important to understand that increases in energy costs have been on an equivalent, or even greater, order of magnitude for the entire American economy. A typical subprime borrower with a poor credit history who bought a $200,000 house in 2006 with a 2 year/28 year ARM with a 4 percent teaser interest rate for the first two years would have seen monthly mortgage payments increase from about $950 a month before the reset to about $1,330 after the reset—an increase of about $4,500 a year. In the meantime, between 2001 and 2008, the average retail price of gasoline increased from $1.46 to $3.27, costing typical households $1,990 a year in increased fuel expenses. And that increase in energy costs affected all U.S. households—not just the one household in 20 that held a subprime mortgage.
This burden, multiplied across millions of households, was a major contributor to the ensuing economic slowdown. We saw an explosion in home ownership, with many purchases being made by people who had heretofore not qualified for mortgages. When the price of oil and the price of gasoline began to rise, and inflation on commodities began to take hold, and interest rates began to increase, you had a tremendous diminution in purchasing power and cash flow, which contributed to people having to walk away from their mortgages. The rise in oil prices was the match that lit the fuse of the mortgage mess and the subsequent recession. The U.S. economy lost more than 700,000 jobs between December 2007 and the beginning of September 2008, and the unemployment rate increased from 4.5 percent to 6.1 percent—all before the financial crisis truly hit later in September.
And the steps we usually would take to help strengthen the economy and create jobs in times of weakness are just as easily overcome by oil price volatility. The total effect of changes to the federal tax code from 2001 to 2008 code was a decrease in annual federal income and estate taxes by about $1,900 for the median household. But a typical household’s energy costs rose more than that. In other words, every penny that the most Americans saved due to federal income and estate tax cuts over those eight years was spent on higher gasoline bills.
All told, U.S. families and businesses spent more than $900 billion on refined oil products in 2008, representing 6.4 percent of GDP. Today, prices are off their highs. But for how long? Oil is back near $80 per barrel. Many of the underlying fundamentals that pushed oil prices up are still present today, and once demand—temporarily reduced due to the recession—begins to pick up again, prices are likely to follow. Our oil dependence could strangle an economic recovery just as it is beginning to take hold.
The threat to American national security is equally as urgent. The vulnerability of global oil supply lines and infrastructure has driven the United States to accept the burden of securing the world’s oil supply. Much of the infrastructure that delivers oil to the world market each day is exposed and vulnerable to attack in unstable regions of the world. According to the U.S. Department of Energy, each day more than 50 percent of the world’s oil supplies must transit one of six maritime chokepoints, narrow shipping channels like the Strait of Hormuz between Iran and Qatar. Even a failed attempt to close one of these strategic passages could cause global oil prices to skyrocket. A successful closure of even one of these chokepoints could bring economic catastrophe.
To mitigate this risk, U.S. armed forces expend enormous resources patrolling oil transit routes and protecting chronically vulnerable infrastructure in hostile corners of the globe. This engagement benefits all nations, but comes primarily at the expense of the American military and ultimately the American taxpayer. A 2009 study by the RAND Corporation placed the cost of this defense burden at between $67.5 billion and $83 billion annually.
Oil dependence also constrains U.S. foreign policy. Whether dealing with uranium enrichment in Iran or a hostile regime in Venezuela, American diplomacy is distorted by the need to minimize disruptions to the flow of oil. Too often, oil dependence requires us to accommodate hostile governments that share neither our values nor our goals, putting both the United States and its allies at risk.
Finally, petroleum consumption poses a long-term threat to global environmental sustainability.
Curbing emissions is a global issue, and there is not yet an international consensus on a long-term stabilization objective or on the changes in emissions trajectory needed to meet such a goal. International discussions are increasingly centered on a stabilization level that ranges between 450 and 550 parts per million (ppm) CO2 equivalent (CO2-eq). In a recently released report, the International Energy Agency assessed the make-up of U.S. new passenger vehicle sales that would be required to meet a 440 ppm target. The analysis found that by 2030, more than 60 percent of new vehicle sales would need to be based on some form of electrification, ranging from traditional hybrids to pure electric vehicles.
We cannot continue down this path. We cannot continue to send untold billions of dollars and jobs overseas to pay for our addiction. We cannot continue to send men and women into harm’s way to protect an increasingly vulnerable supply line. We cannot continue to put our future in the hands of hostile nations or fanatical terrorists who can turn off our crucial oil lifeline at the drop of a hat.
There is a solution. The lynchpin of any plan that is serious about confronting oil dependence must be the transformation of a transportation system that today is almost entirely dependent on petroleum. The solution can be found in something that nearly every single one of you has either on your belt or on the table in front of you. The lithium ion batteries that power our cell phones and laptop computers can one day form the nucleus of an electrified transportation sector that is powered by a wide variety of domestic sources: natural gas, nuclear, coal, hydroelectric, wind, solar, and geothermal. No one fuel source—or producer—would be able to hold our transportation system and our economy hostage the way a single nation can disrupt the flow of petroleum today.
Electricity represents a diverse, domestic, stable, fundamentally scalable energy supply whose fuel inputs are almost completely free of oil. It would have clear and widespread advantages over the current petroleum-based system:
Electricity is Diverse and Domestic: Electricity is generated from a diverse set of largely domestic fuels. Among those fuels, the role of petroleum is negligible. In fact, just 1 percent of power generated in the United States in 2008 was derived from petroleum. An electricity-powered transportation system, therefore, is one in which an interruption of the supply of one fuel can be made up for by others. This ability to use different fuels as a source of power would increase the flexibility of an electrified light-duty vehicle fleet. As our national goals and resources change over time, we can shift transportation fuels without having to overhaul our transportation fleet again. In short, an electrified transport system would give us back the reins, offering much greater control over the fuels we use to support the transportation sector of our economy. Moreover, while oil supplies are subject to a wide range of geopolitical risks, the fuels that we use to generate electricity are generally sourced domestically. All renewable energy is generated using domestic resources. We are a net exporter of coal, which fuels about half of our electricity. Although we currently import approximately 16 percent of the natural gas we consume, more than 90 percent of those imports were from North American sources (Canada and Mexico) in 2008. And in fact, recent advancements in the recovery of natural gas resources from unconventional reservoirs like shale gas, coal bed methane, and tight gas sands have led to wide consensus that our domestic undiscovered technically recoverable reserves are well in excess of 1,000 trillion cubic feet. We do import a substantial portion of the uranium we use for civilian nuclear power reactors. Forty-two percent of those imports, however, are from Canada and Australia.
Electricity Prices are Stable: Electricity prices are significantly less volatile than oil or gasoline prices. Over the past 25 years, electricity prices have risen steadily but slowly. Since 1983, the average retail price of electricity delivered in the United States has risen by an average of less than 2 percent per year in nominal terms, and has actually fallen in real terms. Moreover, prices have risen by more than 5 percent per year only three times in that time period. This price stability, which is in sharp contrast to the price volatility of oil or gasoline, exists for at least two reasons. First, the retail price of electricity reflects a wide range of costs, only a small portion of which arise from the underlying cost of the fuel. The remaining costs are largely fixed. In most instances, the cost of fuel represents a smaller percentage of the overall cost of delivered electricity than the cost of crude oil represents as a percentage of the cost of retail gasoline. Second, although real-time electricity prices are volatile (sometimes highly volatile on an hour-to-hour or day-to-day basis), they are nevertheless relatively stable over the medium and long term. Therefore, in setting retail rates, utilities or power marketers use formulas that will allow them to recover their costs, including the occasionally high real-time prices for electricity, but which effectively isolate the retail consumer from the hour-to-hour and day-to-day volatility of the real-time power markets. By isolating the consumer from the price volatility of the underlying fuel costs, electric utilities would be providing to drivers of grid-enabled vehicles (GEVs) —vehicles propelled in whole or in part by electricity drawn from the grid and stored onboard in a battery—the very stability that oil companies cannot provide to consumers of gasoline.
The Power Sector has Substantial Spare Capacity: Because large-scale storage of electricity has historically been impractical, the U.S. electric power sector is effectively designed as an ‘on-demand system.’ In practical terms, this has meant that the system is constructed to be able to meet peak demand from existing generation sources at any time. However, throughout most of a 24-hour day—particularly at night—consumers require significantly less electricity than the system is capable of delivering. Therefore, the U.S. electric power sector has substantial spare capacity that could be used to power electric vehicles without constructing additional power generation facilities, assuming charging patterns were appropriately managed.
The Network of Infrastructure Already Exists: Unlike many proposed alternatives to petroleum-based fuels, the nation already has a ubiquitous network of electricity infrastructure. No doubt, electrification will require the deployment of charging infrastructure, additional functionality, and increased investment in grid reliability, but the power sector’s infrastructural backbone—generation, transmission, and distribution—is already in place.
Electric Miles are Cleaner Than Gasoline Miles: Vehicle miles fueled by electricity emit less CO2 than those fueled by gasoline. Several well-to-wheels analyses conclude that vehicles powered by the full and proportionate mix of fuel sources in the United States today would result in reduced carbon emissions. As renewable power increases its share of the electricity portfolio, and to the extent that new nuclear power comes on line, which I believe is important, the emissions profile of the U.S. power sector and the GEVs powered by it will continue to improve over time. Moreover, to the extent that GEVs are charged overnight using power from baseload nuclear or off-peak renewable power, their emissions footprint can be nearly eliminated. In 2007, the Natural Resources Defense Council and the Electric Power Research Institute published a well-to-wheels analysis of several different automotive technologies fueled by a range of sources commonly used to generate power. Their analysis concluded that using a PHEV would reduce carbon emissions as compared to a petroleum-fueled vehicle even if all of the exogenous electricity used to charge the PHEV was generated at an old coal power plant. Whereas a conventional gasoline vehicle would be responsible for emissions, on average, of 450 grams of CO2 per mile, a PHEV that was charged with power generated at an old coal plant would be responsible for emissions of about 325 grams of CO2 per mile, a reduction of about 25 percent. Emissions attributable to the vehicle could be reduced to as low as 150 grams of CO2 per mile if the exogenous power was generated at a plant without carbon emissions and ranged between 200 and 300 grams of CO2 per mile if the power used was generated using other fossil fuel generation technologies. In other words, no matter where the power consumed by a PHEV is generated, the overall level of emissions attributable to its operation is lower than that of a conventional gasoline vehicle. The EPRI/NRDC study findings were consistent with a 2007 MIT study that examined the same issue.
In short, high penetration rates of GEVs could radically minimize the importance of oil to the United States, strengthening our economy, improving national security, and providing much-needed flexibility to our foreign policy while clearing a path toward dramatically reduced economy-wide emissions of greenhouse gases.
No other alternative to petroleum can claim these widespread advantages. This is not to say that other alternatives have no role to play in a post-petroleum transportation sector. On the contrary. Natural gas, for example, may be used successfully in fleet vehicles, particularly those that can be centrally refueled, such as taxis, buses, specialized harbor and airport vehicles, and refuse-collection trucks. Even more importantly, natural gas will play a crucial role in providing electricity, a role in which it can be far more efficiently deployed than in actual vehicles. Other alternatives may also offer advantages in niche uses. But none offers the array of advantages that electricity does.
The logical next question is how we can successfully devise and deploy an electrified transportation system.
Here’s what we need to avoid: it has now been more than 10 years since traditional hybrids were first introduced in the United States. And despite government support and record high gas prices for part of that time, there are still only 1.6 million of them on the road out of more than 250 million vehicles in the light duty fleet.
We cannot let electric vehicles turn into another niche product. We cannot allow their use to be limited to environmentalists and technological enthusiasts. To make our nation’s investment worthwhile—and, more importantly, to truly combat our oil dependence—we must put ourselves on the pathway toward millions, then tens of millions, and then hundreds of millions of electric cars and trucks.
It is not as simple as flipping a switch. Electrification on a mass scale is an enormously complex undertaking. The issue is not simply one of putting electric cars into showrooms. At the most basic level, the first commercially available EVs and PHEVs will be significantly more expensive than their internal combustion engine counterparts. The existing tax credits help offset that cost, but they hardly represent a transformative policy framework that will give consumers the necessary confidence to adopt a fundamentally new technology. For electrification to appeal to consumers, it will truly ‘take a village.’
For example, drivers will want to know that installing a charger in their garage will be a seamless and simple process that isn’t bogged down by weeks of red tape. For EV drivers, they will want access to some amount of public charging infrastructure so that they can feel confident as they complete a Saturday full of errands and shopping—or take the family on the highway for the great American road trip.
The proactive engagement and support of utilities will be absolutely critical. Smart charging will make EVs and PHEVs an asset for the grid, but dumb charging will make them a liability. One analysis by EPRI found that plugging in just one PHEV to charge at 220 volts overloaded 36 of 53 transformers examined during peak hours and 5 of 53 transformers during off-peak hours. We are all excited about the benefits of using EVs and PHEVs to fill valleys in utility load curves, but this will only work if consumers have the ability to receive information that incentivizes them to charge their cars at night. Yet, most public utility commissions don’t encourage or allow time of use pricing.
The bottom line is that, for this technology to succeed, the vehicles will need a network of support—both in terms of regulations and infrastructure. Without that, they will be relegated to niche product status. Consumers will have poor experiences, many of the 3,000 utilities in the U.S. will play an absentee role—at best—in the process, and we will have invested billions of dollars in a battery industry that finds stronger roots in Europe (where fuel prices are higher) and in China (where the public imperative is already stronger). We have to recognize that such a network of support does not currently exist in most places in the U.S.
That is where this crucial legislation comes in.
This bill would initiate a competition in which specific geographic areas would vie to be selected as large-scale deployment communities: areas in which all of the elements of an electrified transportation system are deployed simultaneously and at scale, thereby providing a crucial first step toward moving electrification beyond a niche product into a dominant, compelling, and ubiquitous concept. These deployment communities would be selected on a competitive basis. The most attractive regional bids would demonstrate a clear path to successful integration of GEVs, including:
A supportive regulatory environment that facilitates concepts like utility investment in upgraded physical and IT assets; time of use pricing; and a seamless process for permitting and installing level II EVSEs in residential consumer garages.
Support and participation from a broad swath of stakeholders, including state and local governments, utilities, utility regulators, large local employers, universities and others.
A diversity of business plans, allowing innovators and entrepreneurs to explore the most effective and efficient models for deployment.
In sum, successful bids should be those in which all of pieces have been brought together—autos, infrastructure, favorable regulatory environment, interested consumers—to ensure that large scale deployment of GEVs has the best chance of success.
Once selected, deployment communities would be eligible for amplified, targeted, and temporary financial incentives for consumers, infrastructure providers and utilities. The bill envisions in between five and 15 deployment communities in the first phase of the program. Within five years of the bill’s enactment, the Secretary of Energy would be required to produce a report evaluating its success and justifying a decision to either expand to a second phase of additional cities or end the program. If fully implemented, the legislation would aim to deploy a total of 700,000 grid-enabled electric vehicles and their infrastructure in the first deployment communities over a five-year period.
We believe this approach is critical to avoiding the pitfalls of the past. These deployment communities would:
Drive Economies of Scale: Concentrating resources in a limited number of geographic areas will allow participants in the GEV value chain to take advantage of economies of scale, particularly with respect to the deployment of charging infrastructure. Utilities will incur fixed costs to support the operation of GEVs; those costs will be more affordable if spread over a greater number of vehicles. Power providers also can reduce the cost of charging infrastructure through economies of scale. While it is unclear how many public vehicle chargers will be necessary for a GEV transportation system to operate smoothly in a given community, it is clear that some public charging facilities will be needed. Previous pilot studies demonstrate that the cost of installing charging facilities can be reduced significantly when groups of facilities are installed at once. Furthermore, these geographic concentrations will stimulate demand for grid-enabled vehicles at a rate that is likely to be far greater than if the vehicles are simply purchased by early adopters scattered around the United States. Early on in the process, this higher level of demand will simply be the result of magnified consumer incentives. Subsequently, as individual metropolitan areas gain exposure to GEVs and confidence increases, adoption rates should be measurably expedited.
Demonstrate Proof of Concept Beyond Early Adopters: By demonstrating the benefits of grid-enabled vehicles in a real world environment, this deployment plan will make consumers, policymakers and industry aware of the tremendous potential of electrification of transportation. In general, consumers are probably unaware that GEVs have evolved to the point where they can meet most individuals’ daily driving needs. In addition, electric drive vehicles generally have faster acceleration and operate more quietly than internal combustion engine vehicles. They hold out the promise of offering drivers a wide range of features, based on the electronic package in the vehicle, that are beyond our imagination today in the same way that iPhone applications would have been beyond our imagination a decade ago. The problem is that consumers are not aware of the opportunities presented by GEVs and are not yet convinced that they can operate reliably and affordably at scale. Concentrating investments and other efforts in a limited number of communities will accelerate the opportunity to demonstrate that grid-enabled vehicles can meet drivers’ needs. In addition, these projects will demonstrate that a community is capable of putting the infrastructure in place, operating the vehicles over their lifetimes, and disposing of them after their useful life has ended, all in a manner that profits the participants in the value chain.
Facilitate Learning by Doing: While GEVs present a great opportunity, their deployment also raises a number of questions. Deploying large numbers of GEVs in concentrated areas will allow for the collection of information and experience that is needed to successfully deploy GEVs nationwide. It will help automakers learn how much consumers are willing to pay up front for a car that costs less to operate and has a lower total cost of ownership over its lifetime. It will allow utilities and charging station providers to learn when and where drivers want to charge their vehicles. It will allow utilities and other aggregators to learn who can best sell power to drivers and what types of rate structures meet both drivers’ and utilities and aggregators’ needs. It will help determine whether there is a viable business model for public charging infrastructure. It is clear that for GEVs to succeed there must be a model in which each party in the value chain is able to operate profitably, or in which the government determines that, as a matter of public policy, certain aspects of the system should be publicly supported in a manner that facilitates further competition. Deploying GEVs in a series of geographic regions around the country where resources can be concentrated and data can be collected and studied will ultimately accelerate wide-scale GEV deployment. Therefore, rather than allowing the market to develop scattershot across the country, it is critical that the market be encouraged to develop at a deliberate pace in clearly identified geographic regions in which a large number of vehicles can be deployed in a relatively short period of time.
Now, let me go into this idea of deployment communities a little more in depth.
First, I’d like to talk about the competition.
In order to be selected, a community will need to present a comprehensive proposal, similar to bids to host the Olympic Games. Such a proposal would need to show capability and buy-in from a wide range of public and private players, including local governments, utilities, major employers, and more.
Cities and communities throughout the nation will be eligible to compete for selection as a deployment community. And the bill makes it clear that in selecting deployment communities, DOE should seek areas that are diverse regionally, geographically, climactically, in terms of their urban and suburban composition, size, typical commuting patterns, and type of electric utility.
We believe we would also see an important diversity in the business models that innovators and entrepreneurs would present to explore the most effective and efficient models for deployment. Again, the advantage of a competitive, market-based plan like this is that the best ideas have the opportunity to rise to the top.
We believe the result of passing this legislation will be a great competition, a race to the top as communities fight to present the most fertile ground for an exciting new technological rollout. Even those that are not ultimately selected will have, in order to compete, taken steps that will ultimately make the adoption and deployment of electric vehicles and infrastructure more achievable within their borders.
We’ve already seen cities and other localities across the country taking the first steps toward electrification, whether it is installing charging infrastructure, buying the vehicles for city fleets, or some combination of both and more. They see the benefits and are eager to take the next step. If we pass this legislation, I think we will see cities once again, as they have in the past, playing the role of experimenters and leaders in this exciting new technology.
Incidentally, let me address a concern that others have brought up about this very aspect of the deployment community idea: that it overly concentrates resources in a small number of communities.
I strongly disagree with this criticism.
First, these plans do nothing that would limit or impede the current nationwide incentives for electric vehicles. Today, a maximum tax credit of $7,500 on qualified electric drive vehicles exists nationwide. Additional credits exist for infrastructure. This bill does not in any way impact the maximum vehicle tax credit available to consumers nationwide. What we are talking about is added incentives, which will spur added demand. In fact, the goal of this legislation—700,000 vehicles—represents higher penetration rates than the total currently announced North American electric vehicle production capacity for 2015.
Second, the benefits accrue far beyond the deployment communities themselves. While money will flow into these communities, they should more correctly be thought of as funnels through which a substantial portion of the funds will flow on their way elsewhere around the country. Much of the money that flows through deployment communities will end up in the towns and cities where the vehicles and charging infrastructure and their components are manufactured. When a factory reopens in a depressed area to build or support these vehicles—as we’ve already seen in places like Elkhart, Indiana and Livonia, Michigan—that is a real and tangible benefit for hardworking Americans.
Third, if this program succeeds, it will drive down costs for electric vehicles for consumers throughout the nation. It will also set the nation on a path toward greater energy security and economic prosperity through sharply reduced oil dependence. This effort is about building a new transportation system from the ground up in a fiscally responsible, competitive fashion. That’s good for the entire nation.
This leads us to another criticism: that what this bill proposes is just another demonstration project that may in fact end up being counterproductive, showing that electric vehicles and plug-in hybrid electric vehicles are not ready for prime time.
My response to that is simply that it will not happen.
Again, we are talking about 700,000 electric vehicles here, representing a significant percentage of all vehicles within the deployment communities. That is not a pilot project. That is a carefully-planned rollout for a major new technology at scale. All of the major automakers who have committed to electrification have adopted similar targeted rollouts, choosing specific communities, so clearly they see the value in careful planning.
And let’s look at the alternatives. Vehicles deployed in small pilot programs will likely end up solely in the hands of enthusiasts, whether environmentalists or people simply interested in new technology. While they should be able to get these vehicles, it is not enough. These vehicles must penetrate the market sufficiently to demonstrate that they can meet the needs of average drivers or they risk being relegated to niche status, as happened to hybrids, in which case their deployment would be too limited to make any meaningful headway toward our shared goal of reducing oil dependence. On the other hand, a widespread national rollout without careful planning will stall electrification before it has a chance to succeed. This approach is the happy medium, the one that allows us to build toward true penetration and scale in a responsible manner.
The bill we are discussing today recognizes a simple fact: electrification will not move past niche product status without careful policy coordination designed to overcome early obstacles. Grid-enabled vehicles require a network to thrive—a network that includes regulatory support, some amount of infrastructure, and progressive utilities. There are very few communities where such an environment exists today. And this says nothing of the higher costs of purchasing a GEV and consumers’ general uncertainty in adopting an unfamiliar technology.
A targeted regional deployment program featuring a competitive selection process will sharply increase the number of places where a supportive GEV network exists. Strong financial incentives for vehicles and infrastructure in these regions will drive high concentrations of cars onto the road in a short period of time and help achieve scale in battery manufacturing. The program will drive businesses and investment into deployment communities and help create jobs. The consequences of this approach will be to associate GEVs with renewed economic growth in deployment communities while setting the stage for a broader rollout in phase two.
Finally, let me say this: we understand that this is a challenging time for suggesting increased government expenditures for any project, no matter how worthwhile. We also, however, believe that certain aspects of the threat of oil dependence and the solutions we recommend make this a unique issue.
First is the urgent national security threat posed by our dependence on oil. While we cannot and should not ignore costs, threats to national security have always occupied a unique place of priority in our budget considerations. And make no mistake: the dangers posed by our oil dependence are not theoretical. Our safety and security are threatened by oil dependence, and every single day that we do not act is another day that we remain vulnerable.
Second is the economic cost of inaction. In the midst of a well-supplied oil market and weak oil demand growth in developed economies, the United States is still on pace to run a $300 billion deficit in crude oil and petroleum products in 2010. At the same time, most analysts expect the medium and long term to be characterized by rapid oil demand growth in emerging markets coupled with weak increases in global oil production capacity. The result will be a return to tight oil markets and volatile oil prices in the future. The IEA expects this scenario to play out by 2014. Other analysts expect the crunch to come by 2011. In either case, the United States cannot wait to act.
Finally, the environmental catastrophe unfolding in the Gulf of Mexico is making clear once again yet another aspect of the danger posed by our dependence. The longer we remain addicted, the more oil we will have to produce from more and more technically and environmentally challenging areas. The only way to turn from that dangerous path is to end our dependence. And the only way to do that is by ending oil’s chokehold on our transportation system.
Other energy policies have their strengths and may very well be worthwhile on their own merits and in the pursuit of their own goals, but if they do not include a detailed, well-defined pathway to a post-petroleum transportation sector, then—for all of their other potential benefits—they will not have a significant impact on the economic and national security dangers posed by our oil dependence. If we do not answer that crucial question, then we are not addressing energy security in the way that we must to secure our future.
The public is demanding action. Electrification is truly bipartisan not just here in Washington but across the country. Americans often agree on challenges more than solutions, but that is not the case here. This proposal is popular, and it is popular for a reason.
This is no longer a question of technology. The technology is here, which is not something we can say with as much confidence about many of the other potential alternatives to petroleum. People are rushing to sign up to get in on the first wave of Nissan LEAFs. The Chevy Volt, the CODA, and other electric vehicles are on their way as well. But the technology is not enough. What we really need is the sustained commitment that will lead to a true transformation. It’s simply a matter of organization, and—more importantly—a matter of national will and a matter of execution.
Here is what I know, as the leader of a company that both depends on and helps to strengthen the mobility upon which our global economy is built: If we support this new path, if we build these deployment communities that are so crucial to jumpstarting a new, national transportation system, then that is a game changer. It is a game changer for businesses like mine, for employees, for consumers, for the economy, and for the country. A new future is ours for the taking, but only if we choose it and support it.
Thank you for your attention.
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