Transcript: Winning the Oil Endgame

THE CNA CORPORATION

ENERGY:  A CONVERSATION
ABOUT OUR NATIONAL ADDICTION

“WINNING THE OIL ENDGAME”


SPEAKER:

AMORY LOVINS,
CEO, ROCKY MOUNTAIN INSTITUTE


TUESDAY, DECEMBER 12, 2006
6:00 P.M. TO 8:30 P.M.
Transcript by:
Federal News Service
Washington, D.C.

LISA WRIGHT:  Hi, and welcome.  I want to make sure that I thank the staff members of the Center for Naval Analysis, to whom we are indebted for organizing the Energy Conversation Series, and this energy conversation tonight.  And they greeted you as you came in, so thank you very much for making this evening possible.  I want to introduce you and make sure that you know that Terry Pudas is here at this front table from the office of force transformation.  It is Terry who provided the support and the critical funding that made the Energy Conversation Series possible, and made tonight a reality for us. 

I also want you to pull out your calendars and alert you to the fact that the next energy conversation will be on a Tuesday, January 12th, and the featured speaker will be Charles Zimmerman who is a vice president of Wal-Mart, and he will be speaking on the topic of why the world’s largest retailer is so obsessed with energy.  Charles Zimmerman made a presentation recently to the ongoing defense science board taskforce after which James Schlesinger said, if Wal-Mart is number two in employment, you put the Defense Department, which is number one to shame.  We in government obviously have a lot to learn from Wal-Mart and other private sector competitors, and we will have the opportunity to do so in January.  So I hope you will save that date.

It is a night nearly before Christmas, and all over this land most Americans are rushing from work to attend Christmas parties, perhaps some in this hotel, or to do some Christmas shopping before arriving home with their families – but not here.  Here we are one quarter-mile from the Pentagon.  We are across the Potomac River from our nation’s capital.

And a couple months ago, on August 1st, there was an article in Government Executive magazine that wrote that hundreds of bureaucrats, Congressional aides, energy company executives, environmentalists, think tank analysts, and consultants have willingly given up leisure time to hear speakers such as former CIA Director James Woolsey extol the virtues of hybrid engines, and investment banker Matthew Simmons argue that Middle East oil is running dry, says must about the thirst for substantive discussion in Washington about energy issues. 

More than 200 people RSVPed to attend tonight’s conversation, and most of the seats are filled.  And that speaks not just to a thirst, but also to an intense dedication to the fundamental importance of energy in our world and energy policy.  So thank you all very much for coming tonight.

We are approaching the one-year anniversary of President Bush’s 2006 State of the Union Address in which he asserted the obvious that our nation is addicted to oil.  President Bush urged that only by applying, quote, “the talent and technology of America,” unquote, can the nation really begin to grapple with the fundamental issues that underlay our national addiction to energy.  That was a spark that led to the first energy conversation with James Woolsey on March 27th of last year on the topic of energy, security, and the long war of the 21st century.  I am honored that my boss, Congressman Roscoe Bartlett, who is here tonight and who is the cofounder and cochairman of both the Congressional Peak Oil Caucus and the Defense Energy Working Group, spoke at the April 24th energy conversation. 

And that is an opportunity for me to introduce myself to you.  I am Lisa Lyons Wright, and I am Congressman Bartlett’s press secretary and also his energy legislative assistant in the Washington office.  And I’m also joined by my colleague, Dr. John Darnell who is a multi-disciplinary scientist.  So welcome.

I wanted to alert you to two new defense-related publications that may be of interest to us.  There is a DOD JASON paper entitled Reducing DOD Fossil Fuel Dependence.  It’s now available on the web.  It was published September 1st, and I just want to read to you its conclusion. 

“JASON finds compelling reasons for the Department of Defense to minimize fuel use both overall and in individual vehicles and carriers.  Fuel, even if it is currently a relatively small portion of the overall budget, is accompanied by large multipliers.  It takes fuel to deliver fuel and is accompanied by high costs in both infrastructure, operations, and maintenance, and in the battlefield, lives.  Price uncertainties compound budget planning and fuel costs may rise to represent a more significant factor for the Department of Defense in the future, even though current projections may indicate otherwise.  More importantly, the impacts of delivering fuel are evident in dictating tactics, operations costs, maintenance costs, and military capabilities,” unquote.

The U.S. Military Academy at West Point recently published a paper, Army Energy Strategy for the End of Cheap Oil, by professors on staff Kip Nygren and Darrell Massie, and retired four-star general Paul J. Kern, who served as the commander of the U.S. Material Command.  In that paper, they say, quote, “for the military to operate effectively in the coming age of very expensive liquid fuels, changes to our culture,” meaning the Army’s culture, “policies and technology are essential.  Increasing energy efficiency within the Department of Defense can have substantial value well beyond what current analyses would conclude due to a flawed energy accounting process.  It would provide a more effective expeditionary and campaign quality army for the same cost,” unquote.

There is clearly intense interest in military circles in resource maximization, which is the expertise of tonight’s speaker, Amory Lovins.  However, before I turn the mike over to him, I’m going to ask you to indulge me in turning the clock back nearly 50 years, and imagine that you are in a similar room but it’s the 1957 Annual Scientific Assembly of the Minnesota State Medical Association.  A speaker at that conference on the topic of energy resources and our future was one of the Navy’s most visionary leaders, Rear Admiral Hyman G. Rickover.  He presented a prescient explanation of the challenge that Amory Lovins is working to overcome today. 

Here are some excerpts.  Our civilization rests upon a technological base, which requires enormous quantities of fossil fuels.  What assurance do we then have that our energy needs will continue to be supplied by fossil fuels?  The answer is, in the long run, none.  Fossil fuels are not renewable.  In this respect, our energy base differs from that of all earlier civilizations.  They could have maintained their energy supply by careful cultivation; we cannot.  Fuel that has been burned is gone forever.  High energy consumption has always been a prerequisite of political power.  Ultimately, the nation which controls the largest energy resources will become dominant.  If we give thought to the problem of energy resources, if we act wisely and in time to conserve what we have and prepare well for necessary future changes, we shall ensure this dominant position for our own country.

So welcome to the ninth energy conversation.  Our speaker tonight is consultant, experimental physicist Amory Lovins.  And the energy conversation is cosponsored by the undersecretary for acquisition technology and logistics.  And as I explained earlier, Terry Pudas, representing the office of force transformation of the U.S. Department of Defense.

Just a couple of weeks ago, Amory announced that he is going to be moving up from his current position, which is chief executive officer of the Rocky Mountain Institute.  And the move up is to become chairman and chief scientist.  Amory co-founded the Rocky Mountain Institute in 1982.  It’s now an $8 million broad-based institution with approximately 55 fulltime staff.  Amory considers his new move a move up, because it is going to free him from management, and that way he will be able to focus solely on more important matters – thought leadership, strategies, influence, and special projects like “Winning the Oil Endgame” strategy, which he is going to describe for our benefit here tonight.

Amory’s biography is amazing, and you can read a little bit about it in the program, so I will not bore you by reading it for you.  It’s also posted at the Rocky Mountain Institute website, RMI.org, along with many other resources.  Amory’s work focuses on transforming the hydrocarbon automobile, real estate, electricity, water, semiconductor, and several other industrial sectors toward advanced resource productivity. 

Many might not be aware of the extensive consultation work that Amory has been involved with, and on behalf of the U.S. Department of Defense for more than 30 years.  Very recently, Amory served on the Defense Science Board Taskforce in 2001.  What became “Winning the Oil Endgame” was cosponsored by the Defense Department and the Office of Naval Research, ONR.  It was first published on September 20th, 2004, and tonight, Amory’s presentation is a continuing update of “Winning the Oil Endgame”.  Amory is currently serving on the U.S. Department of Defense’s Science Board Energy Strategy Taskforce, which was established in 2006 and is continuing its meetings today.  He also works with the office of the secretary of Defense and many other parts of the defense and the national security communities.  It is indeed an honor to introduce our speaker tonight, Amory Lovins.  Thank you so much.

At the conclusion, just to go through housekeeping of Amory’s presentation, we will have an extensive question and answer period.  We will have three people circulating in the audience, so if you have a question, please raise your hand, and before you ask your question, please introduce yourself with your name and the organization that you represent.  Tonight’s entire presentation is being taped.  It will be posed on the Energy Conversation website.  And there is also an ancillary website, the Energy Consensus, which is a clearinghouse to continue the collaboration that this conversation series has intended to produce.  And that is all hosted at the Cebrowski Institute of the Naval Postgraduate Institution.  Thank you very much.

(Applause.)

AMORY LOVINS:  Thank you very much and thank you for this opportunity to describe a strategy for more fight with less fuel, to get a safer world at lower cost.  I will be emphasizing the department’s role in “Winning the Oil Endgame”, but let me start with the thesis, which is arrestingly simple that by some time in the 2040s, this country can be using no oil and have a much stronger economy, and the transition will be led by business for profit.  But it can, and I think will, be accelerated by the Department of Defense for its own mission effectiveness. 

Soon after we published this work, the office of force transformation had it vetted by the Logistics Management Institute, which in its conclusions emphasized the primacy of energy efficiency techniques in solving the nation’s national security challenges and those of the department in particular.  And they put it above all other potential investment areas in that regard.

MITZI WERTHEIM:  Louder.

MR. LOVINS:  Well, I don’t control the volume.

MS. WERTHEIM:  That’s better.

MR. LOVINS:  Thank you.  Somebody, I hope, controls the volume?  Thank you.

I’d like to put this in a context suggested by Undersecretary Krieg.  We know the co-evolution of competition strategy capability technology and we’ve been getting good at the familiar strategic vectors of speed, stealth, precision, and networking.  But precisely because we’ve gotten good at them, we’ve now suffered from a lack of two other strategic vectors that are still missing, which I’ll call endurance and resilience.  I’ll concentrate mainly on endurance; I’ll get to resilience right at the end of my talk.

The existing force structure, really as Lord Cruzan said, was designed to float to victory on a sea of oil, which is what we did in World War II.  Six-sevenths of the oil used to fight the Axis in that war came from Texas.  And warfighting was about 15 times less energy intensive than it is now.  Now, also, we have a very different sort of adversary with pretty much the opposite attributes of what we had then.  So to an unprecedented degree, we need warfighting capabilities that emphasize the ability to conduct persistent operations, not just for a long time but over a wide area with great agility and autonomy and at low costs.  In other words, dispersed, long, affordable conflicts; that’s quite different from what we have built our legacy forces for, and they drag around with them a fat fuel logistics tail that is now an attractive nuisance for terrorists; it’s very vulnerable; and it’s very costly.  That much, I think, is generally recognized.

But this new strategic vector – endurance – needs to redesign radically how we get and use energy in military affairs to support these new requirements and affordably dominate this new sort of combat with little or no fuel logistics.  You might think of it as the military equivalent of a Manx cat, which is bred to be tailless.  There is probably a logo lurking in there somewhere. 

Fortunately, there is an impressive suite of new technologies to do exactly that – ultra-light, but affordable materials and manufacturing methods; ways to get rid of much of the aero- or hydrodynamic drag – drag accounts for about a sixth of total U.S. energy use – advanced propulsion techniques; ways of saving electricity even at the level of the smallest platform, the individual land warrior; radically simplified design, and highly integrated design – combining these and other techniques in a way that doesn’t trade off one key performance parameter for another, but makes them better simultaneously, and often at lower cost, and also distributed off in renewable ways to get electricity and fuels in the field.  So what this all can lead to is tripled or even quadrupled platform fuel efficiency with the same or usually better warfighting capabilities.

Now I want to give you another example that isn’t about platforms.  These images are courtesy of some of friends in DESI and the Army.  Here is a hot, sandy place and it has some un-insulated tents.  Hooked to each of them is an inefficient five-ton air conditioner.  Coming out of that is a little low-voltage wire because the step-down transformer is at the wrong end of the wire.  And a long ways off is an oil-fire jet set burning about a gallon of fuel per hour to air condition the desert just in this one tent.  About 95 percent of the genset (sp) electricity at this particular facility runs air conditioners, cooling the desert. 

Now, where does the oil come from?  That’s the sort of place it comes from in a theater, not necessarily the same theater, and the oil on this truck can cool about 120 tents for 24 hours done that way.  And then where do the trucks come from?  Well, they’re at the other end of, in this case, a three-mile line of those trucks.  Just think, if you were Special Forces, have you ever seen anything juicier than that?  And of course, often the trucks come through very difficult conditions.  This is a main pass in Afghanistan and it hasn’t even started seriously snowing yet.  This is only October.

So for the warfighter, the endurance strategic vector has even a much deeper significance.  Most of us set three conditions for success in war, and of those our adversaries now are attacking mainly the third one:  the will of the people.  But they’re starting to realize the second one, military capacity, is also fragile because of our vulnerable energy logistics.  And those vulnerabilities are being exploited in theater today.  Many of us are worried they’ll be exploited here in the continental United States next.

Colonel Nolan (sp), who is with us tonight, says about this threat that we’re in crisis now and if we don’t fix it we’ll be in catastrophe in five years, and also remarks aptly that we can up-gun our fuel convoys or we can down-truck – not need to haul so much stuff.  And the best way to defeat an IED is don’t be there.  The burden cost of fuel when we have too many of those fuel convoys isn’t just in dollars but in blood. 

So I’d like you to think about those un-insulated, inefficiently air-conditioned tents in the desert and inefficient vehicles as being at the other end of these sorts of scenes, and many more like them.  Is this trip necessary?  No.  Actually, we could keep the tent cool with probably zero electricity by other means. 

Now, for the peacemaker, bearing in mind that since November ’05, stability operations have comparable priority with combat operations in DOD doctrine, the endurance vector may be even more important because you’re going to be out in villages spread out very far for a long time and needing even more affordability than combat ops.  There is some evidence emerging in Iraq to suggest that areas with reliable electricity have a good deal less violence.  They’re less politically fertile for insurgents to take root in.  It’s worth figuring that one out. 

And certainly, the NGOs with extensive global development experience will tell you that just a 10-cent LED driven by a one-watt solar panel enabling girls to read at night is a very big step in building stability and democracy.

Unfortunately the requirements and acquisition process of the department grossly undervalues – indeed, hardly recognizes – fuel efficiency because it assumes that fuel logistics is free and invulnerable.  The fuel ”automagically” appears as required without cost, at least without cost considered when designing the thing that uses the fuel.  We actually have whole divisions hauling oil around and more divisions trying to guard them – a great distraction from their combat mission and a great burden on all of our goals, including recruitment and retention. 

However, much more efficient platforms would offer many kinds of benefits – warfighting, logistics, budget and others – and unlock multi-divisional level realignment potential – tail-to-tooth – and tens of billions of dollars a year. 

The force multiplier is partly that the trigger fellows do not get distracted by having to protect fuel.  This may be why we have, for example, a Marine two-star in Al-Anbar begging for efficiency and renewables to untether him from oil.  He’d rather be out hunting bad guys than protecting fuel convoys. 

The biggest win, I will suggest, is to be able to catalyze advances in civilian technology that are the key to getting us off oil.  So let me talk a bit about that and then come back to the military theme.

“Winning the Oil Endgame” was published 27 months ago.  It’s a business-based oil solution.  There are maybe 50 books on the oil problem; this is the only one I know of on a solution.  Forwards by George Schultz and Sir Mark Moody-Stuart, the former chairman of Shell.  Independent, peer-reviewed, transparent.  Nobody is arguing with it.  Generously co-sponsored by OSD and ONR, and written for business and military leaders.  I didn’t write it for political leaders.  They can hear about it later from their constituents.  But it’s built around competitive strategy cases for five sectors:  cars, trucks, planes, oil and military.  You can get the entire book and a couple of dozen technical annexes at oilendgame.com.  It’s all free. 

There is an economic history behind it as well.  In 1850, the fifth-biggest industry in our country was whaling, and most houses were lit by whale oil lamps.  But as whales started to get shy and scarce and the price of whale oil drifted up, this started to elicit competition, particularly from coal-based oil and gas.  And those and other competitors in the nine years before Drake struck oil in 1859 took away over five-sixths of whale oil’s lighting market.  This was a real shock to the whalers; they never expected to run out of customers before they ran out of whales.  But that’s what happened and they were soon reduced to begging for federal subsidies on national security grounds.  The remaining whale populations were saved by technological innovators and profit-maximizing capitalists.

Oil feels a little like this now.  We’ve spent over 30 years now amassing a very powerful portfolio of new ways to save oil or substitute for oil, but no one has bothered to add it up before.  And when we did so, we found it was enough to save all the oil we use and more at about a quarter of its current price, assuming that the externalities, the hidden costs of getting and using oil are worth zero, a conservatively low estimate.

The transition could look like this – rather than heading toward the Northeast corridor as officially forecasts, oil use and oil imports to the United States could turn down along these green curves.  If we redouble the efficiency of using oil – already doubled since ’75, but we can double it again at an average cost of $12 per saved barrel – we could then turn it down even more steeply along the blue curves by replacing the other half of the oil with a combination of saved natural gas and advanced biofuels.  Those turn out to have an average cost of $18 a barrel.  So average of 12 and 18 is 15; that’s $15 a barrel is what it would cost in 2000 dollars to get completely off oil.  And even the most expensive measure within that average would compete very nicely with $26 oil at the refinery gate on the short-run margin.

Now, we know this sort of thing works because we’ve done it before.  Look at how steeply oil use and imports fell the last time we paid attention, which was from 1977 to ’85.  In those eight years, the economy grew 27 percent while oil use fell 17 percent.  Oil imports fell by half.  Oil imports from the Persian Gulf fell by 87 percent.  They would have been gone in one more year if we’d kept that up.  And because we and others saved so much oil, it cut OPEC’s exports in half and it broke their pricing power for a decade.  We customers turned out to have more pricing power – more market power – than the oil supply cartel.  Our power was on the demand side, especially in America, the Saudi Arabia of mega-barrels.  We showed that we could save oil faster than they could conveniently sell us oil.  Well, that was then; this is now.  You are here.  But we could rerun that whole play all over again with much better technologies, and we could go a lot further. 

Suppose that over the next 19 years, we invested $180 billion once, half of it to retool the car, truck, and plane industries for tripled efficiency, as I’ll describe, half of it to build a modern biofuels industry.  And suppose that the oil we thereby didn’t buy would be priced in 2025 at only $26 a barrel, which was the official forecast two years ago and actually it’s conceivable we might get there if we save that much oil.  It would soften the market that much, and of course, everybody could buy those technologies too.  But if we did that, then compared with that $26 avoided oil, our $180 billion investment would by then be returning over $150 billion a year gross, and $70 billion a year net, a very handsome net return.  As a free byproduct, we would cut carbon emissions by a quarter, we’d get a million new jobs mainly in rural and small-town America – that’s the biofuels part – and we would get to save a million jobs now at risk, mainly in auto making where we have a really simple choice – we can continue to import efficient cars to displace oil or we can make efficient oils and import neither the oil nor the cars, which sounds like a better idea.

We found, by the way, that all this can be done with all the same economic growth and growth in driving and flying and huge houses and so on that is in the government forecast – no new invention and no changes in lifestyle.  And this could all be done without new taxes, mandates, subsidies, federal laws, or anything else either party doesn’t like or could mess up.  In fact, we’re not really asking them to do anything, because this could all be done administratively or at the state level.  And indeed, all we’re asking of public policy is that it support and not distort the underlying business logic, which is fundamentally what drives the transition.  If you can save oil for a quarter of the current price of buying it, you don’t need public policy to make that happen, but only to make that happen with higher confidence and a bit quicker.

The nub technologically is, of course, transport, which uses 70 percent of our oil.  However, if you make the cars very light and very slippery and moving through the air along the road, and give them advanced propulsion, you can triple the efficiency, save two-thirds of the fuel with cars with about a two-year payback, heavy trucks with a one-year payback, and planes with a four- or five-year payback, along with very big, cheap, and often negative cost savings in buildings and industry; that’s the other 30 percent of the oil use. 

You often get improved performance as well.  For example, this carbon fiber diesel hybrid roadster from Opal gets 155 miles an hour and 94 miles a gallon, although not at the same instant.  (Laughter.)  And the surprise to many is that the carbon fiber ultra-light construction that doubles the efficiency of these concept cars can actually be achieved without making them more expensive to produce, because the costs of your materials are paid for by simpler auto making and a two to three times smaller propulsion system.  More on that later, but as a general remark, the technology to do these dramatic oil savings is continuing to improve even faster for efficient use of energy than all the stunning advances in finding and lifting oil.  Therefore, unlike oil, efficiency is an ever bigger and cheaper resource; the technology is improving faster than we’re using it up.

Now, I want to challenge a basic assumption by many people who make cars or car policies that to make cars efficient, you have to make them squinchy, sluggish, unsafe, ugly, costly, and you wouldn’t really want one, so that is the government’s job to get you to buy one anyway through either stiff efficiency standards or high gasoline taxes.  Well, why is it that we buy digital media instead of vinyl phonograph records?  It’s not because somebody told us to; it’s because it’s a fundamentally better product.  We buy it because it’s better, not because it, for example, saves energy.  That’s just a byproduct of breakthrough engineering.  And we can do the same thing with cars.  Again, the same logic that makes us buy flat-panel televisions instead of cathode ray tubes today make it better with efficiency as a byproduct can apply to cars.  So that does an engineering end-run around the political gridlock of 20-odd years, and it means the auto makers can have a much more robust business model, depending only on whether they make better and cheaper cars than their rivals, not on random variables like oil price or public policy.

So to see how to do that, we just need to look at the physics of cars.  Your car probably uses every day about 100 times its own weight in ancient plants inefficiently converted to gasoline.  Where does that stuff go?  Well, of the fuel energy you put in the tank, seven-eights never gets to the wheels.  It’s lost in the engine idling, driveline, and accessories.  Of the one-eighth of the fuel energy that does reach the wheels, half of it either heats the tires and road or heats the air that the car pushes aside, and only the last 6 percent of the fuel energy – this aqua bit at the left end – actually accelerates the car and then heats the brakes when you stop.  And since only 5 percent of the mass you’re accelerating is you – 95 percent is the car – 6 percent of 5 percent, or 0.3 percent of the fuel energy actually ends up moving the driver.  This is not very gratifying after 120 years of devoted engineering effort.

Fortunately, however, three-quarters of the fuel use it takes to move the car is actually caused by its weight, both the acceleration and the rolling resistance are caused by weight.  And every unit of fuel you can save at the wheels will save another seven units you don’t need to waste getting it to the wheels.  So there is enormous leverage in making the car radically lighter weight.  This used to mean just light metals.  I drive an aluminum hybrid at 62 miles a gallon; it’s good stuff; it’s a bit more expensive.  Now, it can also mean ultra-light steels. 

The strongest and lightest solution is carbon fiber composites; that’s what this half million dollar SLR McLaren car is made of from Mercedes.  The poor thing got T-boned by a Golf, which was totaled.  All that happened to the McLaren is it popped of a side panel, which they popped back on and they’ll fix the scratch later.  What’s even more fun is if you look under the hood, you will find in each of the front corners a 3.5 kilogram woven carbon fiber crush cone like this.  So together those 15 pounds of cones weigh 0.4 percent as much as the car, and yet they can absorb its entire energy hitting a wall at 65 miles an hour, because these materials can absorb 6 to 12 times the crush energy per pound of steel – these are Mercedes’ numbers; Daimler-Chrysler – and can do so more smoothly, thus using the crush stroke up to twice as efficiently.  So with such light but strong materials, we can make cars that are big, which is comfortable and protective, without also making them heavy, which is hostile and inefficient.  Therefore, we can save oil and lives at the same time – and indeed money.

We don’t need weight for strength; Henry Ford taught us that.  We then forgot; but of course, if you did need weight for strength, your bicycle helmet would be made out of steel, not carbon fiber.  And we’re all familiar from sporting goods with how amazing these materials are.  Just as a reminder, Katherine Legg recently ran into a wall at 180 miles an hour.

(Video segment in German.)

MR. LOVINS:  Now remember, there is a person in there.  This doesn’t look very promising, does it? 

(Video segment in German.) 

MR. LOVINS:  A lot of energy at 180 miles an hour.  However –

(Video segment.)

INTERVIEWER:  And the best news is that Katherine Legg has walked out of the medical center under your own power; how are you feeling? 

KATHERINE LEGG:  I’m a bit shaken, but I’m okay, as you can see.  Oh, sorry.  All my bits are intact, so that’s good.  Goes to show how strong the cars are.

INTERVIEWER:  Where do you have some injuries?

MS. LEGG:  Oh, I just banged my knee.  With the car upside down, you bang your legs on the bulkhead and on the steering column and stuff, so just a bit of bruising, which won’t look too attractive in my dress at the Atlantic banquet tonight.

(End video segment.)

MR. LOVINS:  And that’s a carbon fiber ultra-light car made with epoxy resin.  If you use the thermoplastics I’ll be talking about, they’re a lot tougher.  Now, the problem, of course, is cost.  How do we migrate these materials from military and aerospace use to auto making, which requires about 1,000 times higher volume than lower cost?

I started to get suspicious that maybe we could start bridging that gap, but I met a young Lockheed Martin skunk works engineer Dave Taggart.  In the mid-90s, he had designed an advanced tactical fighter airframe that was 95 percent carbon – one-third lighter but two-thirds cheaper because it was designed on a clean sheet to be made optimally out of carbon not metal – and indeed, because it was so weird, he couldn’t find a military customer out of it, and it activated the joint strike fighter community’s immune system.  So he quit, and one bounce later, I was able to hire him to do the same thing for cars, which we did.  And that was published in 2004. 

What we ended up with was a complete virtual design, and this show car for your basic uncompromised midsized suburban assault vehicle.  This SUV can handle five adults in comfort, up to 69 cubic feet of cargo, haul a half ton up a 44 percent grade, do 0-60 miles an hour in about seven or eight seconds, and it weighs less than half as much as the standard steel version, but is safer even if they collide.  And the fuel cell version, we figured would do about 114 miles a gallon equivalent.  A gasoline hybrid version with a Prius-like power train would do about 67 miles a gallon.  And from putting out a nearly 500 line-item bill of materials to anonymous bidding, we discovered in the supply chain that it would be priced on the sticker at an extra $2,500 because it’s a hybrid, not because it’s ultra-light.  The ultra-light part is free.  And that $2,500 extra cost for such a dramatic fuel saving would pay for itself in less than two years, or one year in most of the world.

It can look like whatever you want.  This is what, in the trade, is called a Gen X/Gen Y active outdoor lifestyle crossover vehicle, at a time when crossover designs were very new and rather daring.  It’s pretty cavernous inside; a little more space than an Explorer.  If you fold down the right seats instead of the rear seats, you could actually put in two full size kayaks and two people.  It steers and controls with a right or a left side stick, which is safer than a wheel and pedals.  If you’re British, you can stick them on the right.  Virtual display – everything by wire or by fiber, all functionality in software so you can upgrade and customize it ad lib – really a computer with wheels, not a car with chips – Sony PlayStation 10, way cool.

But what’s even more fun is how you make it.  You notice that the heritage of its body is that of an airframe.  It’s suspended from rings, not built up from a tub, which is our horse and buggy legacy in the automotive business.  This makes it very light, strong, and stiff.  Each of the parts, as you’ll see in a minute with regard to this big side part can be lifted with one hand and no hoist.  Each part is made with a single low-pressure die set.  Now a steel body, to do the same thing, normally has 10 or 20 times more parts, each with an average of about four different die sets for progressive steel stamping.  So you just saved about 99 percent of the tooling costs.  And then the parts snap precisely together for adhesive bonding – that is, gluing – and it snaps together like a kid’s toy.  So we don’t need no stinkin’ jigs, drill bits, and welders.  That is, you got rid of the body shop, and if you lay color in the mold, you also got rid of the paint shop.  These are the two hardest and most costly parts of making the car.  So altogether you end up with a capital intensity at least two-fifths lower than the leanest plant in the industry, quite a disruptive technology.  It’s also quite a tough material.  Tom Friedman did a feature last June, and here’s what happened with the most –

(Video segment with Mr. Lovins interjecting.)

MR.    :  – the car companies with the most interest in ultra-light car bodies.

MR. LOVINS:  Complex body parts.

MR.    :  – folks at Fiber Ford (?) say we could see these on the road in five to six years.

TOM FRIEDMAN:  Get a feel for how light –

MR.    :  These are the materials.

TOM FRIEDMAN:  I can’t lift this.

MR.    :  Sure you could.  It’s not steel.  It’s carbon fiber.

MR. FRIEDMAN:  Whoa, I’m strong.  I’m not that strong.

MR. LOVINS:  Then he tried to do some damage to a piece I brought along.  It’s a hemispherical test piece for some helmets we’re shipping.

MR.    :  – so here’s the part we just formed, Tom.  And once it’s trimmed, it can look just like these other parts.

MR. FRIEDMAN:  You say these things are tough, right?

MR.    :  Oh absolutely, very tough.

MR. FRIEDMAN:  I’m going to see just how tough.  I’m going to break one of these.  It’s just plastic!

MR.    :  You want to try jumping on it? 

MR. FRIEDMAN:  Sure.

MR.    :  Here, why don’t you try jumping on it on the floor?

MR. FRIEDMAN:  Has somebody got a bigger hammer?  Here, give me that.  Darnit.

(End video segment.)

MR. LOVINS:  You get the idea.  And I actually brought along that piece, which is made of a special aerospace thermoplastic that I’m told is used on stealth fighter landing gear doors because it’s tougher than titanium in taking stone strikes, and you can tell from the sound how stiff it is. 

Plastics have changed since “The Graduate.” Don’t worry about dropping it.  (Laughter.)  And of course there are a lot of people working on this sort of thing.  BMW reportedly has 60 folks perfecting their composite process.  They are a making over thousand a year, some big parts.  Their website says some very undramatic things about these materials.

Honda and Toyota put their best automotive innovators in charge of their carbon fiber airplane divisions. Why do you suppose they would do that if it is all about airplanes?  And then there is our little company.  To declare an interest, I’m a small shareholder in it.  And it’s a spin-off from RMI that has figured out how to make structures, like, say, auto bodies, out of these thermoplastic advanced composites with automotive cost and speed.  That is, you can get upwards of 80 percent of the performance of hand lay-up aerospace composites at 10 or 20 percent of the costs.

It also has some interesting ballistic features that can save about half to two-thirds of the spectra in a kind of Oreo sandwich for small arms protection.  And now the company is selling to four or five automakers and some aerospace customers.  It has done some licensed deals.  It does things like backpack frames, skateboards, laptop cases, the car seat that was shown in the Detroit show of January ’05 by Johnson Controls.  And the technology is moving very, very quickly.  In fairness to the automakers, it has only been validated in the past one-and-a-half to two years, so if they aren’t all making cars out of it, that is partly why; it’s really quite new.

But it’s one of the stages in the automotive revolution now underway.  If you make a really good hybrid, like a Prius, and you drive it properly, which is not the way Consumer Reports tells you to drive it, you’ll get roughly twice the miles per gallon of an equivalent non-hybrid.  You could do even better with diesels.  We didn’t include them in our analysis because we weren’t sure they will be able to keep meeting the ever-stricter fine particulate standards.  If you then ultra-lighted everything that goes with that, you can double the efficiency again. 

A good plug-in hybrid – and those are now moving very rapidly with also GM just getting into the business again – that can redouble your miles-per-oil gallon with fairly common driving patterns.  And the batteries are expensive, but maybe it will make money if you sell the onboard storage capacity to the grid on hot afternoons.  This is a precursor of a larger play, where fuel cell vehicles like that would have six to 12 times the generating capacity of the national grid and the first 2 million of us to buy such cars will earn back the entire cost of the car by selling power to the utility when the car is parked 96 percent of the time on the occasions where it is most valuable – power plant on wheels sort of deal.

But meanwhile, if you just combine ultra-light, hybrid, and maybe plug-in hybrid, you cut your oil use eight-fold.  That has got to use cheaper oil.  And if at any stage you go to, say, E-85, you have quadrupled your miles per oil gallon, and you can also take carbon out of the air and stick it back in the soil to produce the prairie grass, let’s say, that you make this stuff out of.

So, let’s see, so far, factor eight times a factor – four – that is a factor of 32, so you just cut your oil use per gallon by 97 percent.  I was recently in a seminar on this with a Saudi ambassador sitting there who was realizing what he would have to compete with.  He was not that pleased.  And you can also, if you want, go to hydrogen fuel cells as another route, reduce carbon, or even to zero if you make renewable hydrogen – have cheaper driving costs per mile.  The hydrogen play is not essential to getting off oil, but it does actually become very sensible and profitable if and only if you have efficient cars to put it in.

That is, if you have this 1889-pound SUV, say, which takes only a third the normal power to make it go, that means it can cruise at   55 miles an hour on the highway on the same power to the wheels that a current SUV uses on a hot afternoon to run the air conditioner.  Well, using only a third the normal power means that the hydrogen tanks to take you 330 miles will be three-times smaller than usual.  So they package well.  There is plenty of room left for people in cargo.  You don’t need any breakthrough in storage, as commonly assumed.  And the fuel cell gets three-times smaller, so on normal assumptions, you need 30-some times less production volume to get it cheap enough to compete, and that will take a decade or two off the deployment time.

So automakers will be smart to spend their money making the car lighter rather than the fuel cell cheaper and the tank smaller because they will get to the same place faster with much less cost from risk, and the first of them to do that will win the fuel cell race.

So we went through that sort of analysis for everything that uses oil, particularly cars, trucks, and planes.  Let me skip to the supply side.  I mentioned part of the solution there is to save half of the natural gas and substitute it back for oil.  We are told that we will need lots more gas, mainly from new liquefied natural gas terminals, which are of course costly, controversial, and vulnerable.  Whoever builds those risks losing their shirts because meanwhile half of the gas in the country can be saved at about a 15th of the recent or an eighth of the current price.  And the most important way to save it is by using electricity efficiently, especially at peak hours because we make our peak electricity out of natural gas so inefficiently that every 1 percent of the electricity you save, including peak hours, will save 2 percent of all of the natural gas in the country and cut the price of the gas by 3 or 4 percent.  You can save a lot of other gas in other ways, but at any rate, this is a quite conservative approach with well-proven techniques.

Now, the advanced bio-fuel gets into stuff that is now in pilot plans rather than in full commercial production, because I am not talking about corn ethanol, an improving but still rather small, expensive, and heavily subsidized resource, competing with food production; rather, I’m talking about making ethanol or other bio-fuels out of woody, weedy stuff like switch grass, elephant grass, poplar, forest waste, crop waste with twice the yield of corn ethanol with less investment and up to eight times better than that energy yield, and it turns out you can get close to 4 million barrels a day of this stuff with some left over to displace petrochemicals, at a very attractive price, under $26-a-barrel-equivalent.

Just to show the maturation of the bio-fuels sectors, Brazil has displaced 41 percent of its gasoline gallons, and 26 percent of its gasoline energy with very competitive, unsubsidized sugarcane ethanol, which they would love to sell to us, but they can’t because of an illegal 100-percent tariff imposed to protect our corn farmers, so they ship it to Asia instead.   What is our tariff on Saudi oil imports?  Zero.  Go figure.

Sweden has a good policy for getting off oil by 2020 through mainly forest waste-based celluostic ethanol.  Europe, although not as great in agricultural power as the U.S., is a much bigger bio-fuel producer, most of it sold as branded product by oil companies as part of a deliberate European strategy to shift farmers from temporary subsidies to durable revenues.  We could do the same thing.

And here is how all of the moving parts fit together.  Instead of needing 28 million barrels a day of petroleum products in 2025, we could by then have executed the first a little more than half of the $12-a-barrel efficiency.  So we could by then be saving almost 8 million barrels a day with another seven still to go as we complete the turnover of the vehicle stocks.

And to get the net 20 million barrels a day following thereafter, we could almost get almost of six of bio-fuels and the like, almost two of no-brainer substitutions by saved natural gas, almost eight in forecast domestic oil output from areas already allowed two years ago, and we would still need 5 million barrels a day from some place else.  Where could that be?  Well, efficiency is so cheap, maybe we should by even more of it, or wait longer and get the other 7 million barrels a day that wasn’t yet bought by then, or we could continue importing oil from Canada and Mexico, or by then, WTO will doubtless have made our ethanol tariff go away, so we could buy it from Brazil.

Oh, I haven’t yet accounted for the other two-thirds of the saved natural gas.  That would be enough directly substituted for oil to cover this balance term, or if you put it to its most profitable use, which is making hydrogen that you can use two or three times more efficiently, then you could also displace all of the domestic oil.  We could even be a net exporter for a while if we wanted.

And I’m not counting other stuff.  For example, unused windy land available in just the Dakotas could make enough wind power to run cost effectively by then every highway vehicle in the country at these levels of efficiency – lots of options, good menu.  And there are five ways government could help it happen faster to reinforce the already compelling business case.  The most effective way we found to get the very efficient vehicles on the road faster is “feebates.”  That is, when you go to the dealer to buy a car or a light truck of the size you want, you’re offered a fee or a rebate.  Within the size class that you want, there are more or less efficient models.  You find the less efficient ones are charged a fee.  The fee is used to pay a rebate for buying the more efficient ones. 

Naturally automakers want their cars to be in the rebate zone, not the fee zone.  So about 90 percent of the effective of feebate is to shift product offerings towards greater efficiency within each size class, and you’re only incentivized to buy something more efficient of the size you want; not a different size than you want.  It turns out the automakers make more money this way, and for you as a buyer, the effect is that you’ll look at the full 14-year lifecycle savings of fuel, not just at the first couple of years as now.  So you will make an economically efficient decision for society.

A lot of Americans can’t afford to buy an efficient car or a reliable car to get to work in, so we figured out some financial engineering, perhaps based on the way we do student loans, that can get low-income households at no or almost-no cost into a very efficient reliable new car that they can afford to run.  This has huge social implications.  If, for example, African-American households had the same car ownership as white households, it would cut the employment disparity about in half. 

And if we couple this financing method with scrapping the clunkers a little early to clean up the air faster, the combination makes a new million-car-a-year market that Detroit was never going to get otherwise from these non-credit-worthy customers who could never dream of buying a new car before.  So Detroit likes that idea.

We figured out how smart a procurement of non-tactical military fleets and other government fleets at all levels could help speed innovation, along with some other methods, one of which has since come to be called the automotive X prize.  We figured out where information could by demand pull, get triple-deficiency trucks into the marketplace with a 60-percent internal rate of return, and how bankrupt legacy airlines could get federal loan guarantees designed so there is no net cost to Treasury for buying very efficient new planes on the condition that for everyone so financed, will scrap one of the efficient old planes parked in the dessert.

The worst 5th of the fleet is parked, and if those inefficient planes ever get back in the air, they will waste more oil and block the purchase and development of even more efficient new ones.  So they are worth more dead than alive; let’s just take them outback and shoot them.  (Laughter.)

I’ll say more later about the critical role of military science and technology, especially in advanced materials development.  There are also important contributions to be made by some nice techniques for helping automakers with weak balance sheets to retool and retrain, helping shift farmers rapidly from hydrocarbons to carbohydrates.  So as has been said, we rely less on the Mid-East and more on the Midwest, and getting out of own way in other respects.

The way we are implementing this at RMI is through an inconspicuous but very systematic effort at institutional acupuncture.  That means we figure out where the business logic is congested, not flowing properly, and we still little needles in it to get it flowing.  (Laughter.)  So we really need to flip the behavior of six sectors to get off oil, namely planes, trucks, military, fuels, finance, and cars.

And aviation came first because Boeing is already beating Airbus very satisfactorily with an efficiency strategy.  You will have noticed that the 787 Dreamliner uses a fifth less fuel than its predecessor, but costs no more than the same, maybe less, and is better in a lot of ways.  Those improvements are being rolled out through the whole Boeing fleet of offerings.  And the key to the whole thing is that half of this airplane by weight is made of advanced palmer composites, for the first time used really on a dramatic scale, up from 9 percent in the triple seven.

In the case of heavy trucks, when my MBAs brought the spreadsheet showing the 60-percent internal rate of return for triple deficiency, I was a little puzzled that the trucking industry hadn’t already done that.  They are competitive; they have sharp pencils; they are smart.  Gee, I wonder if maybe they don’t know they can do it.  So I started calling the heads of some big companies we work with that each by 1 percent of the heavy truck fleet, the class-18 wheelers, and asking, did you know you could do this?  And they said, no.  The truck makers said we could save maybe a 10th of the fuel and it would cost a lot.  How do you save two-thirds?  So I told them.  And they said basically, well, it sounds simple enough.  Let’s build it and test it, and if it does what you say, we’ll tell the truck makers that is what we want.

So my colleague – (inaudible) – started facilitating conversations between one such company and its suppliers, and it didn’t take him long to figure out that the first 25 percent saving is free, and then the main truck buyer said, free is not good enough; I want to invest for return; what can you do for me.  Now they are arguing about how high can they go?  Sixteen, 18, 20 miles a gallon?  Who knows?  They are now at six-and-a-half. 

And the company is Wal-Mart.  So every mile per gallon by which they improve their gigantic truck fleet drops $42 billion a year to their bottom line.  So a year ago, they announced that by next January, next months, their new heavy trucks must be a quarter more efficient than they were this month, and within 10 years, their whole fleet must be twice as efficient as now.  Well, that will take them from six-and-a-half to 13 miles a gallon.  They figure that is $330 million a year extra profit.  So they will make billions net present value on the deal.  They are highly motivated.  The supply chain is responding magnificently, and we’re helping figure out some other ways to speed that up and add more buyers to this informal consortium that by demand pull gets these advanced trucks on the market faster.

When everybody is driving those double-deficiency heavy trucks, that will save 6 percent of U.S. oil, which happens to be over three times what the Defense Department uses for everything.

Military sector is emerging.  I think this will become clear in the months ahead as the federal leader in getting the country off oil – more about that in a minute.  And there is a lot of interest in the fuel sector and in finance.  There is $63 billion this year invested in the clean energy space. 

We all knew that the slowest and toughest sector to change would be cars and light trucks.  But do you notice who is the new CEO of Ford Motor Company?  Alan Mulally.  Do you know his previous job?  He was head of Boeing Commercial Airplanes.  So guess what?  He is the guy that led this Airbus-beating strategy of an efficiency leapfrog based on advanced ultra-light materials.  So all of the skills and cultural DNA it takes to do that has now been injected into Dearborn with transformational intent, and that is indeed just what Ford has in mind, acting like Boeing, which is right out of our playbook.  And there is very strong support from the United Auto workers and the dealers who are crying out for this kind of innovation to save the industry.  What is going on in the car business is what Schumpeter called, “Gales of creative destruction,” at a level that will rapidly change either the managers’ minds or the manager, whichever comes first.

And the depth of that change was impressed on the – a little over a year ago when I met with the heads of advanced engineering at each of the big three.  They knew that I had met with their Japanese counterparts – competition is good.  And I asked the most conservative of them what he would do if he became convinced that there is a strategically advantageous new way to make cars, which however, would require abandoning their steel-stamping capacity.  And to my delight, he looked me in the light and said we would adopt it immediately and fearlessly.  That is the right answer.  If there is a disruptive technology, you have to do it first and get inside your rivals’ uda-loop (ph), and sell them your steel-stamping equipment to slow them down before they figure it out.  (Laughter.)

But I’m pretty sure he wouldn’t have given me that answer six or 12 months earlier.  I think gazing into the abyss concentrates the mind wonderfully.  (Laughter.)  So we are in a three-year $4-million effort to make the journey beyond oil irreversible by such means and others, and we’re almost halfway through, and I would say we are ahead of schedule.  It’s going quite well.  I think we’re past the tipping point in the aviation heavy truck, and thanks to many of you military sectors, still a lot to do, but the hardest part is probably behind us, and fuels finance and light vehicles are coming along very well.

Now, the bigger picture though is even more interesting.  In 1976, I suggested in a very controversial article in Foreign Affairs that U.S. energy use over the next 50 years, instead of following the official forecast, but actually level off and come down along this blue curve as we run more work out of our energy.  The black curve is what has actually happened so far.  We are not doing too badly, and indeed, the reduced energy intensity of our economy is already providing over twice as much energy each year as we get from oil.  Not bad when you consider we have just scratched the surface of energy efficiency.  We can save half of our oil and gas and over three-quarters of our electricity cheaper than producing in existing facilities without even building new ones.

For electricity, for example, using over a thousand technologies measured data in the late-’80s, and retrofitting the stuff wherever it fits, I showed you could save about three-quarters of U.S. electricity at an average cost in today’s dollars, about one cent a kilowatt hour.  The utilities think tank found a somewhat smaller potential, only 40 to 60 percent savings.  I’ll take it.  Actually, the difference is methodological, not substantive.  Similar results in some very efficient European countries, and as with oil, the savings keep getting bigger and cheaper faster than we are using them up.  Now, the low-hanging fruit keeps mushing up around the ankles, while the tree pelts our head with more fruit.  That is what trees do.

And also in a large scale, this stuff actually works.  The per-capita use of electricity in California is held flat for 30 years, while they kept drifting up in most of the rest of the country.  We’re actually starting to see similar results in New England now.  In California alone, this avoided upwards of $100 billion of power system investment.  Half of these savings came from appliance and building efficiency standards, half from the radical idea, practiced only by California and Oregon so far, of rewarding utilities for cutting your bills, rather than for selling more energy as we do in the other 48 states that mostly behave like the green curve.

There is also quite a revolution going on, on the supply side of electricity, and that is important because about two-fifths of carbon dioxide emissions in the world come from burning oil, and the other – and two-fifths from running power plants with almost no overlap between the two.  So these graphs refer to what the economist magazine calls micro power.  The upper graph is the electricity they produce worldwide; the lower graph is their installed capacity worldwide.  Actual data are to the left of the vertical line, energy projections to the right.  The big part, the 10 part is co-generation, or combined heat and power, which is about two-thirds gas powered.  So it saves at least half the carbon compared to what it replaces.

The colored wedges at the bottom are all of the distributed or decentralized renewables: geo-thermals, solar cells, biomass waste, small hydro and wind, but no big hydro.  You’ll notice that the total of these has just passed in recent months the output of nuclear power worldwide, and it passed it in capacity four years ago. In fact, last year, micro power added four-times the output and eight to 11 times the capacity that nuclear added worldwide.  Micro power provides a sixth of the world’s total electricity, and a third of its new electricity.

And in 13 industrial countries, anywhere from a sixth to over half of the all of the electricity comes from micropower.  That is not bad for resources that we are often told will be nice and we should welcome them, but they will never amount to much.  They are slow, small, futuristic, and won’t be competitive for decades.  Hey, wake up, folks.  Micro power plus megawatts, electric savings – not shown here – probably account today for over half of the world market in electrical services.  In other words, the central thermals, big coal, nuclear, gas plants, probably have less than half the market, and they don’t even know what happened to them because they don’t know who their competitors are; they think it’s other big stations.

Why is micro power winning?  Well, it costs less, and it has less financial risk, which may help explain why it’s financed almost entirely by private risk capital, which is not true of any new nuclear project in the world – they are only brought by central planners.  So to check the costs-less part, I redid an analysis with the latest U.S. empirical data on what does it cost to make and deliver a new kilowatt-hour to your meter from either remote resources, which require a delivery charge.  I took a 10-year-old one that I know is low, or resources that are already where you are so they don’t need delivery, so no delivery charge for ones that are on site.  Your actual costs may vary, but I have done the analysis in a way that favors the central stations, the big ones.  And for those, I used the classical MIT analysis of 2003, which bakes in all of the subsidies those sources got then, and doesn’t account for their at least 15-percent reserve margin in case they fail.

So the MIT folks figured that a new nuclear plant can produce electricity for about 7 cents a kilowatt hour, which means by the time it gets to your meter, it’s close to 10 cents delivered.  The capital costs have since gone up by a fifth, as we know from a French order, so add another cent for that.

Now, the MIT group said that if you had really dramatic success with huge nuclear subsidies to take away perceived risk and actual cost and construction time, you might get down another two or three cents, which would take you to almost where a coal plant is now.  Actually, we are trying this experiment because August in 2005 voted new subsidies on top of the old ones, essentially equal to the entire capital cost of the next six nuclear plants, whereupon Standard & Poor’s put out two reports saying this would not materially improve the builder’s credit ratings because the risks the capital market is worried about are still there.  I think this experiment will have about the same effect as defibrillating a corpse; it will jump, but it will not revive.  (Laughter.)

Now, a coal plant looks cheaper, but if you put on a $100 a ton carbon tax, it would get more expensive, and similarly for combined cycle gas plants.  So the policymakers keep juggling taxes and subsidies to try to get the answer they want.  Meanwhile, the market is going elsewhere.  For example, to distributed renewables, let’s take wind power as an example, and let’s assume that wind plants cost the median of what they have cost for the last six years, but that is over twice what the cheapest ones cost.  And let’s firm up the wind with enough backup that you can dispatch it whenever you want whether the wind is blowing or not, so it is fully comparable to the central plants.

Well, if you took away it’s production tax credit, its subsidy, it would be up there.  Of course, if you took away nuclear subsidies, you would be up in the ceiling somewhere, and meanwhile wind keeps getting cheaper.  Co-generation, garden variety or combined with cooling in buildings, or with recovered industrial waste heat is cheaper still in general.  Cheapest of all – efficient use of electricity and business – if you get into houses, it can cost a little more, or if you’re really good at it, it can cost less than zero.

At any rate, I’m just inviting you to conclude that maybe the reason the stuff on the right is getting bough in preference to central stations is that it’s cheaper.  And that has an interesting implication for climate protection.  If I were o spend 10 cents, or maybe 11 cents now, on a new nuclear kilowatt-hour, I could make it, deliver it to my meter, and use it to displace one kilowatt hour of coal power; that sounds good for climate until you realize that if I had spent he same dime buying cheaper stuff, I would have gotten more of it.  That is what cheaper means.  For the same money, I could have had two to 10 times as much climate solution buying cheaper things instead, and I could have gotten them sooner.  So if climate is a problem, we need the most solution per dollar and the most solution per year, and if we don’t buy it, we’re making things worse.

Of course renewables meanwhile keep getting relentlessly cheaper.  These are the government projections, and I have just put in, for example, two illustrations of the kinds of breakout technologies that entrepreneurs have been developing, more all of the time.  In fact, I have just heard of one at the naval post-graduate school on Thursday that is even more dramatic than that red curve.

And there is another thing that can change the game.  If you go to smallisprofitable.org, you’ll find my four-year-old economist book of the year showing 200-odd respects in which decentralized electric production can be worth about 10 times more money than we thought mainly because of the financial economics benefits like lower risk from building small fast plants instead of big slow plants, or no financial risk from volatile fuel prices if you’re renewable because then you don’t have any fuels.  The first one of those is worth about a factor of three of the extra value.  The second one will add about two cents a kilowatt-hour value to a wind farm.

And as the market tries, or starts to count these kinds of so-called distributed benefits, we are finding that even with handmade-by-Ph.D.s-on-a-lab-bench fuel cells at thousands of dollars a kilowatt, you can make money right now if you put them in the right place and use them in the right way.  Now, these distributed benefits other than the use of waste heat were no counted in my earlier cost comparison.  And there roughly factor of 10 advantage to the small stuff that the markets are just starting to count.

Another way you can make renewables even better is to bundle them with efficiency.  We build a lot of jails in this country, and here is one in California that has three acres of photo voltaics on the roof, added on, however, over a white roof to keep away solar heat.  And they made the jail a lot more electrically efficient.  So on the hot afternoons, when the cells produce the most power, the jail is using rather little of the electricity, and you have the most net surplus ready to sell to the grid at the best price because that is when everybody is trying to run their air conditioner.

So this $9-million project would have made sense even without the state’s $5- million subsidy because the savings were 15 million by bundling the supposedly uneconomic solar cells with efficiency in load management, and easily beat the county hurdle rate.  And if that works for solar cells, you can imagine it works even better for cheaper kinds of micro power.  It works even better for houses.  My house uses 1 percent the normal about of space in water heating energy, and 10th the normal electricity, so if I didn’t have solar, I would pay $5 a month for electricity for 4,000 square feet.  That was a 10th-month pay back in 1983.

And it turned out that the 120 average watts of demand is actually so little that I could meet that with three-square meters of photovoltaics.  It is cheaper to put that in with storage than to connect to the wires 20 or 30 meters away.  And if I built the house now, it would be about three-times more efficient; it would use one-square meter of solar cells to run it.  That is cheaper to put in than to connect to the wires already on the side of the house.  So the break-even distance drops to zero when you get really efficient. 

Now, of course whatever way you make electricity, whatever you buy, you might have a dry hole.  Maybe it won’t work for some reason.  So what can we learn from actual market behavior.  California actually had a four-year period, a pretty level playing field between always to make or save electricity.  And in those four years, the utilities bought or were firmly offered savings and alternative, mainly renewable supply equal to 143 percent of their total peak load.  They had to stop the bidding.  If it had gone on one more year, they would have had to shut down every thoughts of the nuclear plant in the state, which in hindsight might not have been such a bad idea.

So when you really want to rip on competition, you’re more likely to have too many options than too few.  And notice, this is with 20-year-old technology.  Today’s is a lot better and cheaper.  Also, the alternatives are really big.  If you believe the utilities think tank, efficiency alone can save two or three times the electricity nuclear makes, 20 percent in this country, and cheaper than running a free plant.  COGEN is about as big as nuclear’s installed capacity, not even counting buildings.  Wind in the U.S. and in China can provide over twice the country’s electric needs, six times in Britain, nine times globally.  Other renewables are even bigger.

But you might ask what happens when you have all of those little plants?  You know, we are told that we need big power plants to run a big economy.  Now, if I were tell you that a lot of people make phone calls, so we need giant telephone switching centers, exchanges with lots of copper wires and relays, you would think I was nuts.  Haven’t I heard of distributed packet switching?  And if I said lots of people do computing; we need giant super computer centers to do it with, you would say, wait a minute, we do all of that almost all with network PCs nowadays.  Super computers are a real specialized business, and not many people need them.

But if I told you, you could do the same job with a lot of little sources of electricity that we now do with a few hundred big ones, you might have some question about it, until you think about it.  A thousand megawatt unit sends out the same electrons as a million one-kilowatt units, but they are equivalent only arithmetically.  The small units are actually a lot more reliable for two reasons.  One is that 98 or 99 percent of power failures originate in the grid.  So if the power is already where you are, you cut out the grid, and almost all of the failures.  And secondly, if you have a lot of little units, they probably all won’t fail at the same time like a single big unit does.

And by the way, there are a lot of instances where big plants can lose their output for extended periods.  The average nuclear outage is about five weeks, and it happens every 17 months, mostly for refueling.  Unfortunately, many units can fail simultaneously and unpredictably.  For example, 14 August 2003, you have got nine nuclear plants in the Northeast providing 100-percent output working perfectly – good job.  Then we have a power failure in the Northeast.  They all have to shut down for safety.  But then efficient products like Zenon and samarium that soak up neutrons like a sponge, and it’s either impossible or unwise to restart the core until they have decade. 

So you have some days where you really can’t restart.  This is an anti-peaker attribute.  The plants are guaranteed unavailable when you most need them.  And look at this, for the first 12 days of the outage, over the half the capacity on average was lost.  It took them two weeks to get them all back up, and longer in Canada.  Not a very good attribute for a reliable resource, and there isn’t any renewable I can think of that would ever have behavior like that.

But of course there are times when the wind doesn’t blow and the sun doesn’t shine, although other renewables tend to be quite reliable.  But this variability can of course be reduced by using a diversity of sources of technologies – so the weather that is bad for one is good for another.  And you put them in different places.  If you spread them out over a few hundred kilometers, the wind is essentially always blowing somewhere.  You can forecast their variability; we call it weather forecasting.  And then you can integrate them with your existing supply-side resources, some of which like hydro are easy to adjust, and with demand response, especially if you have a smart grid.  And the result is their variability is less of a problem than we have already solved dealing with the intermittence of the big thermal plant, which fail about 5 to 8 percent of the time unpredictably, usually for a long time and in thousand-megawatt chunks.

So we have already bought the backup capacity needed to handle that intermittence, and it’s more than we would need with even a very high facture of solar and wind power.  So that is a non-problem.  I think, though, that nuclear power’s dying of an incurable attack of market forces, as it’s been doing all around the world, is very good both for climate protection and for national security.

For climate protection, obviously because you get two to 10 times more climate solution per dollar, and more per year, but also, if you invest, say, in a compact fluorescent lamp factory in Mumbai, or a window coating factory in Bangkok, you’ll need about 10,000 times less capital than expanding the supply of electricity to provide the same light and comfort in the usual inefficient way.  So that means the power sector, which now gobbles a quarter of the world’s development capital, can turn into a net exporter of capital to fund other development needs, huge leverage.

I agree with the president that the biggest threat to our national security is the threat of nuclear bombs.  So I think it’s a good thing that the market is trying to stop the main facilitator of that spread and source an innocent-looking disguise for it.  See, with any method for making bombs, there are 20 or so, other than sealing military bombs or their components, you need materials, technology, equipment skills and knowledge, which all happen to be innocently and widely available in international commerce, and often heavily subsidized by the exporters.  It is called the civilian nuclear commerce enterprise.  The new reactor types are worse in this respect, but basically the enterprise provides do-it-yourself bomb kits wrapped in a pink ribbon that says we are just making electricity, which is what, say, Iran claims.

Now, if we took economics seriously, these bomb kit ingredients would become harder to get, more conspicuous to try to get, and politically very much costlier to be caught trying to get, costly for both the recipient and the supplier, because for the first time, you couldn’t pretend you were just making electricity; there would be no doubt you were making bombs.  That wouldn’t make proliferation impossible, but it would make it a lot harder, especially for the countries we are most worried about.  And we would be more likely to detect those activities timely because we could concentrate intelligence resources on needles, not haystacks.

Obviously, if a country with our wealth and technological prowess and fuels says that we need nuclear power for our energy supply, we’re inviting everybody else in the world, whatever their situation, to draw the same conclusion.  So I’m afraid at the moment we are leading in the wrong direction.

This leads me back to the last part of my talk on how this department can help lead the nation off oil and should – and is starting to just for its own mission success.  Admiral Truly led a study I served on in ’01, more capable war fighting through reduced fuel burden.  Unfortunately, joint concurrence came just 18 days before 9/11, so there have been some distractions since then.

But we found, for example, that the department spends about a third of its money and half of its people moving stuff around, and about 70 percent of the tonnage moved when the Army deploys is fuel, most of it then wasted by inefficient platforms because when designing building – requiring the things that use the fuel, we assume the fuel logistics is free.  So the tank designers assumed about a buck a gallon, although it can be tens or hundreds of times more than that, probably tens of times routinely, hundreds if you are really in a hurry.

So the whole system is not set up to require or reward efficiency, even though we desperately need it for many reasons.  And the prize here is to get better at war fighting and have much better force protection, the potential for multi-division scale realignment, tail-to-tooth, better able to get and keep good people, saving a lot of money and speeding the move beyond legacy platforms.

    Now, after that report came out, I noticed that we actually hadn’t pulled all the numbers together, so we sat down in my shop and went through all briefs and added a couple of things, like Dreamliner technology, where applicable from the civilian world, used some things from other experts, and found that, indeed, you could probably about triple the services platform fuel efficiency by 2025 with the then-forecast rates of stock turnover.  And I think what we’re hearing now is, if anything, more favorable because the technologies are even better.

    We’re not counting any avoided fuel used to lift fuel or platforms.  Obviously, if you make platforms lighter, you need less fuel to lift them.  And I’ll be the first to tell you these data are very weak, but I think they’re conservative. 

    Little example of what we found:  Of the top 10 battlefield fuel users in an armored unit, number five is the Abrams tank.  Number 10 is the Apache helicopter.  The other eight top users are non-combatants, which are even easier to make efficient.  And by the way, some of them haul fuel around.

    When we deliver a gallon of fuel forward to the tips of the Army’s sphere, it takes about 1.4 gallons to get it there.  This is a little behind where I think we were in the Civil War where about half of what the mule teams hauled was their own feed. 

    In Desert Storm, in the run up, it took over a month extra just to stockpile the additional fuel required by the halved efficiency of Abrams tanks, which have these late ’60s vintage 1,500 horse gas turbines that spend about three-quarters of the time idling and less than one percent efficiency to run a five kilowatt hotel load.  That cuts the tank from about one to 0.5 miles a gallon. 

Why didn’t they put in an auxiliary power unit like they do, say, in airplanes?  Well, because the designers didn’t think it was worthwhile because they didn’t count delivery costs and because they didn’t leave room under RBRA (ph).  When we heard that, some of us said, gee, why don’t you do what the Russians would do?  Go down to Home Depot.  Buy a Honda genset.  Strap it on the back.  Most of the time, nobody’s shooting at you and you’ll save all this fuel.  If somebody shoots the thing your way, you’re only back to the status quo.  (Laughter.)

Well, here’s an example of the sort of thinking that’s emerging.  A remarkable Detroit and NASCAR and Formula One engineer, Scott Badenoch, his briefs and materials recently, when Admiral Cohen was leading ONR, he got a few million bucks for Scott to try making a replacement for an up-armored Humvee.  And you notice it has this multifaceted composite pod here which can be anywhere from, say, two to eight people.  You can drop it onto different kinds of vehicles to protect the people.  You don’t so much care about protecting the vehicle.  And it has this sort of cockroach multifaceted architecture so blast waste (ph) from IEDs don’t have anything to grab onto.  They roll around and bounce off.

So, this is, instead of a 14,000 up-armored Humvee – of 6 (thousand) – 8 thousand pounds – an enormous amount of protection; the Army has had a terrible time trying to damage this thing – much increased fuel efficiency, upwards of factor two; very stable, agile platform; about the same cost as an up-armored Humvee and extremely fast acceleration.  It’s almost a sports car compared with the present affair that you can clock with a sundial.  (Laughter.)

So, just think about what it takes to deliver this to theater and for sustainment and you start to see the level of transformation.  It’s possible, doing the sort of thing that I showed with the hypercar.      

Naval hotel loads:  We did some work for SecNav Danzig on a typical Aegis cruiser finding that, for hotel loads, what you do to look after people – which is almost a third of the navy’s non-aviation fuel – you can save probably close to 40-50 percent, even in a fairly efficient ship.  And because it’s made in an inefficient gas turbine out of oil, it’s pretty expensive electricity; of course, much higher now.

Those savings were probably understated because we figured, at those old oil prices, it was only worth 20 bucks to save a watt, but that doesn’t count the space or the weight of the power systems or fuel, and those snowball. 

So, if we properly counted the value of saving a watt or a pound or a cubic foot, and then those savings compound, we would end up with much lighter, faster, cheaper ships to carry weapons systems optimized that way.  There was a little hint this way that,  you know, when one of the DDX design variants turned out to go faster if you put in three engines instead of four because the mass and size compounding of the fourth engine was more of a penalty than the power you got out of it.

Well, we recently helped design a 58 meter luxury yacht that’s now under construction.  In fact, the hull’s all finished.  Originally speced (sp) for 1.64 megawatts of diesels, and we couldn’t improve the very good hull much, but we could improve the prop and the diesels and do the Navy trick of make it all electric with common bus.  Save half the hotel load electricity in about 96 percent of the potable water and we ended up with 1.22 megawatts, instead of 1.64, to do the same thing.  All fairly small units that can be easily replaced without cutting the ship apart have common spares.  And if you drag the props, sacrificing one knot, whenever you’re under sail, you would store up, every hour you did that, 10 hours of hotel load function. 

So, you may never turn on the generators and you save a third of the volume previously occupied by engines and fuel, so the packaging is much nicer and she costs less to build.

By the way, the next thing we may do is some innovative propulsors based on the spiral mathematics you find in things like seashells and those may be quieter or more efficient than our existing props.

So the big picture here is that when the Department of Defense starts to invest in these advanced energy efficiency technologies – especially the advance ultra-light materials and how to make things out them – maybe we can do again what happened when DARPA and Air Force and other research created what became the internet, the global positioning system, the chip industry, the jet engine industry; doing all of the transformational things I’ve described, but also leading the transformation of the car, truck and plane industries. 

Notice that the civilian economy uses 60 times the oil that DOD uses, so a little leverage goes a long way in saving oil.  Therefore, the prize is much bigger than we thought.  We get better at war fighting, but we need less of it in a world that doesn’t care about oil anymore.  We get a stronger economy, cheaper oil. 

Think about just the diplomatic version of this:  being able to treat countries with oil the same as countries without oil or giving others no reason to suppose everything we do is about oil.  It’s a much safer world.  Nega (ph) missions in the Gulf, mission unnecessary, are a very good goal. 

And to do that, we’re going to need top level leadership and also all other levels leadership.  All of you will be leading this effort.  By doctrine, we need to align our incentives, reward what we want, reduce a culture and structure that will yield that result.  Use fully burdened fuel cost, delivered to platform in theater.  Turn on damage when we do war gaming, so we actually play fuel.  Red team can after your fuel logistics as they will in the real world, as they do in the real world.  Then you discover what resilience is worth.

Require, reward, insist on whole system design and get out of our mentality of design:  concepts like trade offs, incrementalism, diminishing returns.  We don’t need to make our KPP’s worse.  We can make them all better.

This is going to take, though, some basic reforms in design practice and how teach it and how we reward it, but I think this could be department’s greatest ever contribution to its national security mission.  There are some supporting actions needed:  retrofitting the force, allowing third party financiers to do that, realigning, more structure to be more effective, diversifying fuels. 

Here, though, I must confess I have some confusion about why it’s thought desirable for the Air Force and Navy to try to create a domestic synthetic fuels industry by buying a lot at a high price for a long time, because I can’t figure out to what question this is the answer.  If we’re concerned about supply chain interruptions, the logical answer to that is to stockpile end use fuel near where you’ll need it, rotate it and guard it carefully.

If you’re worried more about peak oil sorts of arguments and the long-term unavailability of oil or very high prices, remember that the department is 0.4 percent of a competitive world market in a fungible commodity and it has legal purchasing priority over the whole civilian sector.  So, considered in that market context and remembering that coal to liquids cost more gas to liquids cost more than advanced bio-fuels cost much more than efficient end use, obviously the cheapest and fastest way to get our military fuel reserve is civilian efficiency.  Or, as the jacent (ph) said, make the post office more efficient in its delivery vehicles.  So, remember my Wal-Mart example?  Just the truck improvements save what the department uses.

So, I think there are some things the department could very usefully do, say to speed up cellulosic ethanol, like running a fly off.  The big problem here is there are 10 or 12 competing processes and nobody knows which horse to back.  Build one of each.  Publish the numbers.  Cut 10 years off the process.

We also need to reform the building process, because buildings are around for a century.  We’re building a whole bunch of them.  Many are not nearly as efficient as they could and should be.  And if we do it right, they’ll cost less to build and we can make onsite renewables for them cost effective and have a resilient base.

Which leads me to the last bit here, about the sixth strategic vector:  resilience.  Remember what happened when a tree limb in Oregon sagged into power line?  People did dumb things.  Four million unhappy campers, about 35 seconds later.  Or remember the blackout in August 2003?  Interesting thing here where we lost 71 gigawatts in nine seconds in areas with 50 million people in them is what stayed on.  Not everything went off. 
These are island distributed generation, backup generators and local grids, co-ops, munis that were able to cut loose from the collapsing grid and isolate and keep going with enough supply demand balance.  Many were not allowed to that, but some were.

If you look at our report to DOD in 1981, “Brittle Power:  Energy Strategy for National Security,” you’ll find its lessons being repeated.

We do need some transmission modernization, better switches running the thing better.  But when we build more and better transmission lines that means that will cause more and bigger blackouts because it continues the over-concentrated grid architecture that fundamentally is at the root of these big power failures. 

There are three things we can do that are faster, cheaper and ample for making the grid resilient:  Use the stuff efficiently, use it at the right time, and distributed generation to make more of those islands of light when the lights to out, and also help nucleoid (?) restart.  But the Federal Energy Regulatory Commission and the power pools don’t yet let these things compete fairly with transmission and they don’t give reliability credit to small units near the load, as they should.

So, I’m afraid that someone’s going to start exploiting this vulnerability and we could be showing, very quickly, a lot more Seventh Century solidarity with the Iraqi civilians than we actually intended to; not only in the civilian economy but on our military bases.  The system architecture is vulnerable for many reasons that we laid out.  I did even write about flying big airplanes in buildings and things and these are just built into our traditional electricity systems are. 

Power grids are worse than that because you don’t store power in bulk.  It has very vulnerable controls that are being attacked daily.  A lot of spare parts have very long lead times.  You can knock out transmission lines and such with rifle fire.  There are special vulnerabilities to nuclear facilities.  And yet, that has other consequences.  This is something I wrote in 1981.  Think we’re there yet?

And there’s a military history here, too.  When I wrote that book, there were significant attacks taking place somewhere in the world on centralized energy systems every few days, not counting a few places like El Salvador where it was every few hours.  The Nazi leaders told us after World War II we could have shortened the war two years by bombing their electric system earlier.  Well, we got that right in Japan, except wrong place.  There were 78 percent small hydro and we just couldn’t get at it.  It was essentially invulnerable. 

Well, attacks on energy systems, often quite sophisticated, are now standard tactics.  Some countries respond accordingly.  We do not.  We assume nobody will do to us what we do to them.  But resilience is cheaper.  We don’t need to have this insecurity problem – maybe even bigger than our oil problem – of a grid that can go down any time for a long time.  Resilience costs less.  It works better.  It puts trillions of dollars back in our pockets.

And, in “Brittle Power,” we synthesized 20 principles of how to make things resilient.  Some major failures that are now inevitable by design become impossible by design.  Here’s how you do it:  small fine grain parts, dispersed; low cost of failure to each one.  They’re substitutable.  They’re richly interconnected by short redundant lengths.  If something breaks, you can find it and fix it properly. 

Components are organized so you can interconnect them as needed, but be apart when necessary.  Each level of function doesn’t much depend on other levels.  You design systems for slow graceful failure and you design components so you can understand them and fix them.  You know, folks in pickup trucks can fix them.  And you can make them at a variety of scales.  They evolve fast and they’re socially compatible.  Those are still good principles.

And efficiency gives you the most bounce per buck.  It replaces the most vulnerable supplies.  It makes failure slower and more graceful; easier to fix, less severe.  And most precious, it buys time to improvise substitutes.  It stretches the job they can do. 

If we had, for example, those 67 mile a gallon light vehicles, like our SUV design, that would triple the oil stocks, in effect.  The half-filled tanks tooling around would run the vehicles for three weeks.  The buffer stocks we used have in ’81, smaller now, would last for almost a year, buying time to mend what’s broken or improvise new supplies.  And yet, there’s a lot of friendly fire that knocks down energy resilience, because over the last 25 years since I wrote that book, federal policy has continued to take us the wrong direction and the opposite of where the market is trying to take us.

So in conclusion, I’d suggest that the biggest threat to our energy security is our energy policy.  It perpetuates our oil dependence in many ways.  We thoughtfully bailed out the bankrupt Iranian and the nearly bankrupt Saudi treasury.  Ahmadinejad and Chavez and Putin are, in a sense, monsters of our creation.  We fund them.

We fund both sides of the war, losing a lot of moral stature in the process.  We’re warping our foreign policy, as Secretary Rice says, and others’ attitudes about us.  Getting a weaker and more vulnerable economy and vulnerable not just to oil ructions (ph), but also to natural disaster or malice.

We’re creating fat terrorist targets near our cities.  The centerpiece of our energy policy is still creating an all American Strait of Hormuz on the northern slope of Alaska, the gravest threat to our energy security.  One Strait of Hormuz is quite enough.  And since we’re so worried about proliferation, we’re trying to drive more of it.

If these are not the security outcomes that you, as national security professionals, want, I think it’s your duty to say so, so that the Department of Energy will stop undercutting the Pentagon’s mission.

We’re the people we’ve been waiting for to get all this done.  If you think any of this is too good to be true, just remember that nice saying that Marshall McLuhan who said “Only puny secrets need protection.  Great discoveries are protected by public incredulity.”  (Laughter.)  Thank you for your kind attention.

(Applause.)

MS. WRIGHT:  Just to repeat the ground rules, raise your hand if you have a question, and we’ve got three microphones that will be circulating to get to you.  And please introduce yourself with your name and the organization that you come from before asking your question.  Here we go.

Q:  Just trying to make sure it’s on.  My name is Rod Adams, and I am the owner and founder of a company called Adams Atomic Engines.  And I’m glad that you focused on endurance.  My warfighting vehicle was able to operate for 15 years without refueling using 1970s technology.  Virginia-class submarines today operate with a core that lasts the life of the ship.  And those vessels are quite small, off the grid.  They used nuclear power – the same power that Admiral Rickover suggested in his 1957 speech was the only real way to overcome the effects of fossil fuel depletion.  You have been fighting against nuclear power since 1973 or something.  Can you tell me why you do not accept the fact that there are technological advances in nuclear energy that have overcome many of your reasons for opposition?

MR. LOVINS:  I actually used to think civilian nuclear power was a good idea in the ‘60s until I learned more about it.  And I actually think fission reactors are a pretty sensible way to run nuclear subs and carriers with the missions that they have.  Our military principal at RMI, Captain Scott Pugh was commanding one of those ships for quite a while – attack sub – and I greatly admire the Navy nuclear culture that Admiral Rickover started.  I think many people would feel better about it if more of that culture were exhibited systematically in civilian versions.  But the requirements for a civilian power reactor are very different than those for a nuclear submarine, and one of them is that it’s supposed to compete in the private marketplace.  I don’t see any prospect that nuclear power can attract private risk capital, because of its competitors.  If you think it’s a good idea, please put your capital into it.

Q:  I told you what my job is.

MR. LOVINS:  Good.  Well, then we’ll find out in the marketplace who’s right.  But for me, the showstopper is the uncompetitiveness of the technology at such a fundamental level that if a nuclear steam supply systems were free, the rest of the plant would still cost too much to compete with micro-power and electric efficiency. 

I think my data are empirical.  If you have other empirical data, your investments should do well, and I wish you well with them.  You see, I’m just going from the principle that in a market economy, if a technology is unnecessary and uneconomic, we don’t need to argue about whether it’s safe.  If it didn’t have the economic problem, the other real showstopper for me would be proliferation.  Having written three books and a whole bunch of professional papers on that, I take it very seriously.  Again, the president is absolutely right – that is our greatest security threat.  And as long as we have civilian nuclear technology with any fuel cycle and any safeguards arrangements, I don’t see a technical answer to that problem.  I can imagine in some circumstances much better safety and waste solutions than we have, although perhaps not from the institutions we have.  But we’ll never get past the first two hurdles in my estimation, and hence the views I’ve expressed.

I might add, by the way, I think this is a tragedy for many talented people who devoted their careers to this technology, hoping it would work out better.  But things we do in the market don’t always work as we hope.  Sometimes competitors get there first.

Q:  Don Erbach, U.S. Department of Agriculture, Agricultural Research Service, retired.  You mentioned cellulosic ethanol.  And we’ve got a sizable boom in ethanol and biodiesel production in the country, but in order to really take a significant share of our liquid fuel, a lot is being placed on cellulose.  Unfortunately, there is at this time, basically zero commercial ethanol production from cellulose in the world.  This morning, an article in the Post indicated that there is possibly going to be one facility built by 2012.  I guess what will it take to get this off the rock?  We’ve got several technologies, I believe, that would work, but the business interests are not such that they’re willing to pursue it.

MR. LOVINS:  If you talk to the venture capitalists trying to do the either venture a project finance for the pioneer scale-ups of cellulosic ethanol, whether thermo-chemical or enzymatic, they – people like – (inaudible) – will tell you the big obstacle is in the capital market.  It’s not that we don’t have credible processes or credible sources of feed stocks or credible economics, but that each venture capitalist is trying to handicap a horse race with 10 or 12 main horses and others coming up on the sides, and trying to figure out which one to back rather than backing the whole portfolio in a normally diversified fashion.  And therefore, they spend all their time researching each process exhaustively and the entrepreneurs spend all their time talking to venture capitalists about the merits of their versus other processes.  I get a little impatient with that process.  If this is a matter of such national urgency, I would give DARPA about a half billion dollars to build one of each and do the flyoff, so within a couple years, we’ll all have good information about how each process performs.  And then, people can make much better informed investment decisions to take it to scale.

Q:  What would it take to make that happen?

MR. LOVINS:  About a half billion dollars and some leadership.

Q:  It seems to me like it’s a policy situation.  How can that policy be formed?

MR. LOVINS:  I’m not a politician, but I would even dare say this would be a better use of Department of Defense money than some of the other uses lately suggested like the coal synfuels, which will be a major carbon source rather than sink (?), and have water issues and have really intractable economic issues in the sort of world I described, where it is competing with stuff that costs a quarter as much.  I think there are a lot of other things we need to do, and some of them are in USDA’s purview. 

I’m told, for example, that – maybe you can correct me on this – that the last farm bill did actually have language correcting the prohibition on farmers from harvesting stuff off conservation reserve land, planted annual cover crops.  Of course, if you planted perennial, deep-rooted crops like switch grass, they would hold the soil better and you never cultivate them because they come up every year – perennial.  Then you can harvest them off the top.  But apparently there was no money appropriated to actually execute this policy.  Is that right?  So what should we do about that?  That’s also a political question.  Any ideas?

Q:  (Inaudible.)

MR. LOVINS:  Congressman Bartlett?  (Laughs.)

REPRESENTATIVE ROSCOE BARTLETT (R-MD):  What was the question, sir?

Q:  Oh, well – are we on?  My name is Robert Eberth (sp), Sanderline (sp) Research.  The one thing that you’ve cited tonight that came out of the State of the Union address was President Bush stating our national addiction to oil.  And I think the word addiction is particularly fitting, not just dependency.  Of all these suggestions you’ve made, and I really applaud your presentation, I didn’t hear any that I think would treat the addiction part of the problem.  I’m an energy addict.  Neither my Jeep, my Harley, or my Jag are particularly energy efficient, but they’re great performers.  If you hold the cost of oil down, I will continue my addiction, and I think still will most of the people within this nation.  I find as I have attended each one of these – I’ve missed about two – I’ve become fixated on a different aspect of what I think is the solution.  May of the things you’ve suggested I think go along with it. 

But along with all the free market, why not set a floor – a high floor – on gasoline prices?  In the examples you gave, whether the whale oil market diminishment, whether the ’77 drop in demand, last year’s extraordinary market fell off – just dropped off – SUVs when we saw gas go over $3 a gallon.  Why not start - $3.50 a gallon for regular; that’s as low as it’s ever going to go.  Each year, it’s going to increase 10 percent.  Overnight, I suggest, you would begin to affect that addiction.  You would drive the price to where it is no longer affordable to be an addict.  You would have to make up ways, like you’ve suggested, for those who can’t afford to adapt.  But that’s easily done, much as we do with food stamps.  Why not?

MR. LOVINS:  Well, I’ll give you a few reasons why not.  One, as I’ve just been driving around in rural Norway and rural Britain where you actually pay about $7.00 a gallon.  And if you look at what else is on the road, you find it’s maybe 10, at most 15 percent more efficient than what’s on our road, even though you’re in a culture that has less addiction to high performance and large size than ours, and has in many ways less dispersed settlement patterns and more public transport – in other words, more alternative ways to get around. 

I think the reason for that isn’t hard to find.  The fuel price that you send in a gasoline tax is about the weakest signal you can imagine to buy an efficient car for two reasons. First, it’s diluted at least 5-to-1 by the other costs of owning and running the car.  And second, it’s been heavily discounted at a consumer discount rate that is implicitly usually upwards of 60 percent a year.  So the consumers take a very short-term view of the future.  They’ll only look at the first year or two, generally, of the fuel savings in buying an efficient car.  It’s about as important as whether to buy floor mats.  That’s why feebates which widen the price spread between more and less efficient models are more effective than gasoline taxes.  They can bridge that gap in discount rate between the consumer and the societal rate.  Does that help? 

And I think all the evidence we have from a lot of international analysis and experience is that high fuel prices do modestly discourage driving and increase the use of other ways of getting around or more sensible settlement patterns where those options are offered, which is seldom in this country.  But it is still a very weak signal to buy an efficient car.  And it’s important to have efficient vehicles and to have the cost of driving them properly signaled.

Actually, there is a lovely alternative that I think any of us could do as a kind of guerilla tactic without requiring any government policy.  And I just need to find it – there we are – and that is from the great engineer Paul MacCready, who suggests that this sign be posted by every gasoline pump in the country.  So if you think that you can stand the political difficulty of trying to make gasoline prices higher so that Treasury rather than OPEC collects the rent, something Congress has seemed unwilling to do so far, be my guest.  But I think feebates piloted at a state and regional level will have a much bigger and faster effect and can actually enlist the enthusiasm of car companies and possibly oil companies. 

Remember, what we’ve had for 20-odd years is car companies saying go for a higher gasoline tax; oil companies saying go for different CAFÉ standards; and these two titanic lobbies fight each other to a draw.  We can’t stand another 20 years of that.  That’s why I proposed an end run that also happens to work better.

Sir?

Q:  Len Gollobin, NDIA.  I think it’s clear there is no silver bullet.  I think you’ve discussed some very interesting technologies that are emerging.  I would also point out that the venture capitalists are very risk-averse.

MR. LOVINS:  As Jim Woolsey says, capital is a coward.

Q:  Well, but capital has got to make money.  This is still, after all – we have a society, a capitalist society.  But recognizing that fact and the very high costs of commercializing technology and scaling up all of these different processes, what we inevitably end up with is a balance between let’s say technologies that we have in hand and which we can bring to bear quickly, and technologies which represent excellent investments in the future.  So it’s going to be a mixed strategy no matter what. 

I think that’s where the nuclear part of this fits, because it is a demonstrated technology.  If we need any proof, just look at the renewed applications for licenses in the United States.  Take a look at where nuclear power is going in China, where it has gone in France.  And so I think the answer to this is just let’s not beat down nuclear power; let’s just put it in its proper place.  But at the same time, let’s be very careful about picking and choosing and investing in our technologies for the future, because there are so many possibilities.

MR. LOVINS:  What puzzles me a bit about that view is I don’t understand what it has to do with oil.  Perhaps you could help me with this.  Less than 3 percent of our –

Q:  (Inaudible.)

MR. LOVINS:  How so, because there’s less than a 3 percent overlap between electricity and oil.

Q:  Yes, but in 1970, before the nuclear power plants were built in the U.S., it was an 18 percent market.  In France, before they built 78 percent of their electricity from nuclear power, they were consuming about 70 percent of their lights through oil.

MR. LOVINS:  It’s quite true that both nuclear and coal in this country – coal more – did substitute for the larger amount of oil that we did burn in those days to make oil, but we don’t do that any more.  You can’t do that substitution twice.  And in fact, it was much less important than oil efficiency.  Oh, yes; if you go back, you’ll find that over two-thirds of the oil savings were from more productive use of oil rather than substitution by either gas or electricity or other sources of electricity.  No, it’s IAEA data.  Just go look at the numbers.

The other thing I think you ought to look at in the cases you cited is the rest of the history.  France actually would have been economically better off running those oil-fired power plants than building the nuclear system they built.  They would have lower electricity prices today.  That wasn’t the alternative I would have recommended or did recommend to the cabinet at the time.  I recommended efficiency, and it turns out renewables, which were very abundant in France.  The cabinet was split down the middle at that time on whether nuclear was a good idea, and there is still a great deal of unease on the subject.  If you look at some of the bid up here that added another set of kilowatt hours, I think you’ll understand why even Électricité de France, privately, you’ll not find a great deal of enthusiasm for something that expensive.

In China, yeah, there’s a 30-gigawatt nuclear goal on paper; there is a 30-gigawatt wind goal on paper.  The wind goal is much more likely to be achieved for two basic reasons.  First is that the nuclear ministry, which has always had an unlimited call on the public purse, will have to face a more open decision making process.  And secondly, it will have to deal with the emerging competitive wholesale power market in China.  Both of those are very bad news for nuclear power, which has never been bid into any competitive market for wholesale power – I’m talking about new plants, not old plants – anywhere in the world.  And that’s because the owners know perfectly well it can’t compete.

In fact, in Japan, Tokyo Electric, as soon as competition and customer choice started to enter the market, promptly lost about a third of its big customers to cheaper industrial cogeneration.  Therefore, Japanese utility executives that had any enthusiasm for more nuclear build have now lost it, because they understand they can’t compete that way.  In other words, working in about 50 countries, I see this competition in action all over the place.  And it leads to the conclusion that shows up in the world data for micropower and efficiency that I showed earlier.  This is not a theoretical matter; this is how world markets actually are behaving.

Q:  (Inaudible.)

MR. LOVINS:  Yeah, only if it’s co-generating; not if it’s simply an electricity-only turbine.  These are all co-gen.

Q:  Co-gen or combined cycle?

MR. LOVINS:  Not combined cycle for producing electricity; only for producing electricity together with useful and used heat, high or low temperature.  That’s why this is different than just conventional power plants.

MS. WRIGHT:  I’m got to intervene and tell everyone that we are approaching the magic end time – advertised end time of 8:30 p.m., so we will make this be the last formal question so that we can keep everyone’s schedule.  And I want to remind everyone again that the next energy conversation will be Tuesday, January 12th.

MS. WERTHEIM:  (Inaudible.)  We’ll get the right date up.  Marge (?) says that’s a Sunday.

MR. LOVINS:  Let me take this patient gentleman.  And any of the rest of you, I’d be happy to visit with you afterwards.

Q:  Charlie Garlow, Electric Vehicle Association.  We’re a consumer group.  I look forward to the day when I can buy a plug-in hybrid electric car and get American energy – electricity in my tank instead of foreign oil at about 75 cents or 80 cents per gallon equivalent for the electricity.  I’m also very much in favor of your idea of feebates.  And I’m wondering, are there places in the rest of the world, like Japan or Europe, where feebates have been experimented with, and what’s been the result?  Surely, with their higher energy or oil prices, they would have been leading the way as opposed to us.

MR. LOVINS:  There have been weak feebates in Quebec and Ontario, a strong one – quite nicely designed, especially from the French point of view – was proposed in France to be implemented from last January.  It’s been held up by objections from German automakers, and we’ll see what happens, but it’s a good idea.  And something that kind of waddles and quacks like a fee bait is enforced right across the river.  If you live in the District of Columbia and you buy a new car, the excise tax which is normally – I think – 7 percent or thereabouts, drops to zero if it’s very efficient, but goes up a point or two if it’s inefficient and very heavy, because that tends to increase street wear – a quintessentially local concern that is not federally preemptible; a nice illustration we had a little to do with of how a non-state jurisdiction, let alone a sub-federal jurisdiction, can do the right thing without federal leadership or permission.  Let’s see a lot more like that bloom, and I think we will have many better experiments to talk about.  Thank you very much.

(Applause.)

MS. WRIGHT:  We will get you the correct date, but the speaker will be Charles Zimmerman, vice president of Wal-Mart who will be explaining in detail why Wal-Mart is obsessed with energy and how they are saving money by saving energy.  Thank you.

(END)

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