Energy Policy:

Luft calls for open fuel standard to break oil dependency, promote competition in fuel sector

Is an open fuel standard the answer to ending the United State's dependency on foreign oil? Should the market be given the opportunity to choose which fuel to use? During today's OnPoint, Gal Luft, executive director of the Institute for the Analysis of Global Security and co-founder of the Set America Free Coalition, explains why he believes an open fuel standard is the most viable option for our future transportation fuel policy. He discusses OPEC's influence on current energy prices and analyzes the energy plan recently proposed by oilman T. Boone Pickens. Luft explains why he believes relying on natural gas to fuel our vehicles, as Pickens has suggested, would essentially create a new dependency issue for the U.S..

Transcript

Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Gal Luft, executive director of the Institute for the Analysis of Global Security and cofounder of the Set America Free Coalition. Gal, it's great to have you on the show.

Gal Luft: Good to be here.

Monica Trauzzi: As congress gets ready to head into August recess not much has been done in terms of addressing high eneargy prices and taking steps to reduce dependence. And there are many ideas floating out there and you started off testimony recently at a homeland security committee hearing with a story about Osama bin Laden and a prediction he made years ago about the price of oil. Tell us that story because I think it's a good starting point for us.

Gal Luft: About 10 years ago he basically said that oil should be at $144 a barrel. At that time oil was $12 a barrel, so everybody thought he was a nut. Cambridge Energy and all of these energy assessment shops said that, in fact, by 2008, 2009 we were going to have a glut in the market. So they were wrong, he was right, and today oil is just about that level. And I think that it tells us something about our ability to predict oil prices in general, but the fact is that the Jihadist movement is very, very glad about this and they see it as part of their winning strategy, economic warfare strategy on the war on terrorism.

Monica Trauzzi: And you really point to OPEC as one of the main reasons why we're seeing such high energy prices. I mean are we being taken for a ride here? What's the situation there?

Gal Luft: In my view, by far, by far, OPEC is the main culprit behind everything we're seeing today. And the reason is if you look at this cartel that owns 78 percent of the world's reserves, if you look at OPEC's production today it's almost as it was 35 years ago. In other words, 35 years ago, in 1973, OPEC produced 30 million barrels a day. Today, 2008, it produces almost 32 million barrels a day. So in 35 years the world economy essentially doubled. Non-OPEC production doubled. OPEC produces as much as they did 35 years ago. This is outrageous!

Monica Trauzzi: What options does the U.S. have then in terms of OPEC?

Gal Luft: Well, we have to break the oil cartel. And the only way that we can break the oil cartel is by introducing competition to the transportation fuel market. Because as long as our cars, trucks, planes, ships can run only on petroleum, those who are own petroleum will rule the day. They will always be in the driver's seat of the world economy. And, therefore, it is essential that we begin to move into a transportation system in which oil is much less of a strategic commodity. It's a commodity that can compete against other sources of energy and let free-market forces decide who's going to win. But as long as we make cars that can run only on petroleum, and that's the kind of cars that we use today, and we put 16 million cars on the road every year only in the United States, we're not going to be able to break this oil dependence.

Monica Trauzzi: And so you're talking about an open fuel standard basically and there's legislation out there calling for this as well. Should something like this be mandated? Should we be mandating that the car companies make all vehicles flex fuels? How would we handle something like that?

Gal Luft: To make a car flex fuel cost you about $100 extra. It's like a CD player or an air bag or a seat belt. This is a tweak. That's not a technological revolution. All the cars that GM sells in Brazil are flex fuel, so there's no reason why that should not be a standard in every new car sold in America, not made, sold in America. In fact, we think that if we do it in America it will become an international standard, which means that flex fuel will be sold all over the world because no automaker will give up on the U.S. market. However, the legislation, the Open Fuel Standard Legislation that was introduced both in the Senate and in the House, in the Senate by Senator Salazar and Brownback and Lieberman and Thune, and in the House by Engel and Kingston and Steve Israel and others, Bob Inglis. This legislation requires 50 percent of new cars to be flex fuel by 2012. Why 50 percent? Because that's the number that the automakers came up themselves with this number. They said that they can do it. So all we do basically is we ask our legislators to do what the automakers said that they are willing to do anyway and just putting it into law.

Monica Trauzzi: Is drilling an option, a viable option you see to help bring those prices down, help decrease our dependence on foreign oil? It's something that is being discussed in Congress, amongst the presidential candidates, offshore drilling.

Gal Luft: All of the solutions, be it drilling or efficiency, solutions that perpetuate this petroleum standard, meaning that the cars can only run on petroleum are not going to be sufficient. At best, at best they're going to buy you a little bit of time. We don't want this time to be wasted by us shifting back into complacency. That would be a disaster, because we're going to wake up later on in a much bigger problem, much stronger dependence. So I don't think that solutions, what I call non-transformational solutions, are good enough. What we need is to focus on our transformation solutions that reshape the market and create a competition between oil and something else. You know, when you look at our electricity system we have many sources of energy that contribute to the grid, nuclear, solar, wind, coal, natural gas. They all make electricity. Transportation energy is only derived by oil. So that has to change. The flex fuel cars, by the way, they should not only run on ethanol, they should be truly flex fuel cars. They should also accommodate other alcohols and ethers, like methanol for example. That's what the Chinese are doing and now they're moving very fast into a methanol economy. So, there are many, many fuels that can compete against gasoline. We just need --

Monica Trauzzi: Ethanol is facing its own issues though. At this point there is a lot of bad PR.

Gal Luft: Every solution has its own problems. There's not a perfect solution and, quite frankly, gasoline -- our system today is not perfect as well, otherwise we wouldn't be talking about this. So, the key is to enable competition. And once the car becomes the platform on which fuels can compete, then free-market forces will take us to a very different playing field. And later on we can also lift tariffs and allow poor countries of the world to produce alternative fuels. Quite frankly, we have all these discussions today about high oil prices, but think what that is doing to the poor people of the world. These are people that are paying $130 a barrel as well, but their economy is $1000 per capita GDP. And they are suffering greatly and this is the biggest regressive tax in the world economy in history I think. So we need to break the oil cartel by breaking the monopoly of oil in the transportation sector and it has to start with fuel flexibility.

Monica Trauzzi: I want to get your take on T. Boone Pickens' plan that he recently introduced. It's getting a lot of coverage in the press. What do you agree with him on and what do you disagree with him on?

Gal Luft: I agree with him on the urgency of the issue. I think he's dead right. We are facing economic ruin and, therefore, we have to do a lot to move into the right direction. I also agree with him that renewable energy and particularly wind is very important and we need to increase the role of wind in our renewable energy portfolio. I don't think that shifting our transportation sector from oil and natural gas is a good idea because if you look at where the gas is coming from, 63 percent of world's gas reserves are in the hands of Russia, Iran, Saudi Arabia, Qatar, United Arab Emirates, the same players that are -- and these countries are already talking about creating a gas cartel like OPEC. So, jumping from the frying pan to the fire is not a good idea. Also, I'm highly skeptical about his ability to control the market in the sense that he says basically if we do more wind, we're going to free natural gas for the transportation sector. But if we do more wind, how can he guarantee that this will displace natural gas? It could displace solar. It could displace coal. It could displace nuclear. It could displace -- so the energy system is not like Legos, you know, that you take one piece and you replace it with another. It doesn't work that way. So, yes, let's do a lot of wind, but it doesn't mean it will free up natural gas and it doesn't mean that natural gas would be able to displace oil in the transportation sector.

Monica Trauzzi: But should natural gas play a role in the transportation sector? I mean you're talking about having more competition there; can natural gas be one of those things?

Gal Luft: Of course! I'm the last one to say what competes. Once you have a free market, once you advocate free-market, you cannot pick and choose. But if you listen to what Pickens is saying, he's saying, "I want the federal government to mandate natural gas cars." And he's talking about replacement of 30 percent of our fleet with natural gas vehicles. And I think that in the long run it will create much bigger problems. In fact, if you want to increase the role of natural gas in our transportation system, the best way of doing it is to make methanol from natural gas and this methanol can compete against ethanol and gasoline at the pump, because methanol is primarily made from natural gas as well as other sources of energy like coal, like biomass, like garbage, and even CO2.

Monica Trauzzi: Isn't methanol more corrosive than ethanol?

Gal Luft: It is more corrosive, slightly more corrosive and, therefore, the flex fuel cars will have to be made -- the fuel line will have to be made with materials that are able to resist this corrosion. It's being done in China. It was done in California.

Monica Trauzzi: We saw recent reports that people are opting to buy 100 percent gasoline because they're afraid about the impacts that ethanol might be having on their engines, so they may be even more concerned about methanol.

Gal Luft: But these are conventional engines. That's where you need flex fuel.

Monica Trauzzi: OK.

Gal Luft: Flex fuel is like coffee and milk. You decide how much of each goes into your tank, based on your preferences, based on the daily economics. And all it does is basically gives you the right to choose what kind of energy you want to use in order to move from one place to another. We don't want to force any choice on you. We just want you to have the ability to choose.

Monica Trauzzi: Final question here. You want people to have the ability to choose. Are they really going to be choosing ethanol with this PR blitz that we've seen recently? What do you make of this mess with corn ethanol and the amount of negative attention that it's been getting?

Gal Luft: Corn ethanol is not the only ethanol, as we know, and ethanol is not the only alcohol. Now, with all the publicity about ethanol, let's just remember one thing, you know, you may like the subsidies, you may not like the subsidies. We're talking about four or five or $6 billion a year that are going to American farmers and other Americans. Merrill Lynch and others, including guests on your show, said that this is saving us about 15 percent that otherwise would have -- the price of oil would have been about 15 percent higher if not for the biofuels program. Fifteen percent is about $80 or $90 billion a year that would have gone to the oil cartel. So we have $4 billion a year that is going to American farmers that is saving us $80 billion that otherwise would have gone to Hugo Chavez, to the Saudis, to the Iranians, God knows who. And I think it's not a bad deal.

Monica Trauzzi: OK. We'll end it right there on that note. Thanks for coming on the show.

Gal Luft: Thank you.

Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.

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