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Hearing of the House Select Energy Independence and Global Warming Committee - Shock and Oil: Where Military Concerns Meet Consumer, Climate Crises

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Location: Washington, DC

REP. MARKEY: Good morning. This hearing is called to order.

Forty-five percent of the world's oil is located in Iraq, Iran and Saudi Arabia, and almost two-thirds of known oil reserves are in the Middle East. Events in that part of the world have a dramatic impact on oil prices and on our national security.

In the late 1970s, the oil embargo, Iranian revolution and Iran- Iraq War sent the price of oil skyrocketing. Yesterday, oil surged to a new record of $97 a barrel amid government predictions of tightening domestic inventories, bombings in Afghanistan and an attack on a Yemeni pipeline that took 155,000 barrels of oil off the markets. And with al Qaeda threatening to attack Saudi Arabian oil, with our continuing struggles in Iraq and with yesterday's announcement that Iran now has 3,000 operating centrifuges for enriching uranium, each day carries with it the possibility of major oil supply disruptions leading to economic recession and political or military unrest.

The United States currently imports more than 60 percent of its oil. Oil has gone up more than $70 a barrel in the last six years from $26 a barrel in 2001. Each minute, the United States sends $500,000 abroad to pay for foreign oil imports. That's $30 million per hour, $5 billion per week. This analysis only considers oil prices through August. With the record prices of late, these figures will surely grow by year's end. Much of these funds end up in the pockets of Arab princes and potentates who then funnel the money to al Qaeda, Hezbollah, Hamas and other terrorist groups. With that kind of money at stake, it is no coincidence that we have 165,000 young men and women in Iraq right now, and it is no surprise that much of our foreign policy capital also happens to be spent in the Middle East.

Our energy policy has compromised our economic freedom, and the American people want action, because they know that the price has become much too high. Last week, a group of energy and military experts converged in Washington to conduct and energy security war game. But the truth is, the scenario that unfolded didn't really seem at all fictitious. Like today, the scenario began when oil prices had gone up to trade consistently in the $95-per-barrel range. Like yesterday's attack on a Yemeni pipeline, the first event leading to crisis involved an attack on the Baku pipeline. And also like today, Iran's nuclear ambitions and U.S. efforts to contain them proved to be a complicated endeavor that requires us to maximize all of our diplomatic, military and economic leverage.

The problem is with oil we have almost no leverage. The United States is home to less than 3 percent of the world's oil reserves. Sixty percent of the oil that we use each day comes from overseas. Global oil production levels are at about 85 million barrels per day with excess production capacity at only about 1.65 million barrels per day. Hurricane Katrina alone removed as much as 1.4 million barrels per day from supplies. The Strategic Petroleum Reserve has just over a month's worth of oil in it. The reality is that there are no good, short-term options to help us deal with oil addiction.

We have, however, at the same time, a piece of legislation which is now pending between the House and the Senate, which has the potential to raise the fuel economy standard to 35 miles per gallon, would have 15 percent of our electricity produced from renewable electricity sources, and it would also use cellulosic fuels to substitute for oil which we could import. That bill should be finished, if we can work hard on it between the House and the Senate, over the next four weeks. I look forward to learning more about Oil ShockWave from our witnesses as well as their views about what Congress can do to address our energy security challenges.

I now turn to recognize the ranking member of the select committee, the gentleman from Wisconsin Mr. Sensenbrenner.

BREAK IN TRANSCRIPT

REP. MARKEY: The gentleman's time has expired. The chair recognizes himself for a round of questions.

Under your scenario, only one percent of the world oil supply is taken off the market. It leads to $160 a barrel oil. It leads to a collapse of the economy. What is it that has led to the oil markets become so tight that they can have such a profound impact in such a short period of time?

MS. BROWNER: I think in the scenario it's a combination of factors. But certainly the failure of efficiency, the failure to drive down the amount of oil we use on a daily basis becomes pretty important. Because while the actual number is -- it ends up at about a billion barrels a day, that's not -- yeah, that's not an amount that can't be addressed through some prudent steps taken sooner rather than later.

ADM. BLAIR: That -- I agree with you, Mr. Chairman, that was sort of a surprising -- surprising effect. You would think on a percentage basis it wouldn't be that big.

The -- the game play for that result was done by an energy -- highly respected Canadian energy consulting company that we fed the information to and then asked them, okay, what did that do price of barrels. And they ran their quantitative models and their judgment. And what I think was at play was it was the oil market is so tight in the future, primarily because of the increases in non-U.S. production -- India and China are leading it -- you find that non-U.S. oil demand goes up 38 percent over maybe the next five years, whereas U.S. demand goes up about 24 percent. That's just making the oil market so tight that the power of expectations come to play. And even relatively small tremors make people worry about the future. Therefore they want to ensure their own supplies. They bid up prices. And so you're just in this trigger in which a relatively small rock in the pond has pretty big ripples.

REP. MARKEY: So you talk in your testimony, Admiral, about our ever-growing military presence in the Middle East. Could you give us some sense of how you feel, for example, that this growing dependence upon oil affects our relationship with Saudi Arabia?

ADM. BLAIR: I think it gives Saudi Arabia much greater leverage in its dealings with -- with us. And it's not secret that -- that there are a lot of aspects of Saudi Arabia in the future that we have real -- real concerns -- real concerns about. And when you are that much -- when a country with that sort of challenges has that much -- that much of a thumb on you, it causes concern.

So it's not a whole lot more complicated that, Mr. Chairman.

REP. MARKEY: So the language that you each made reference to, the 35 miles per gallon by 2020, actually backs out the equivalence of all of the oil that we import from the Persian Gulf on a daily basis by 2020.

How important is that, Admiral?

ADM. BLAIR: I think that would just -- that would just put us in a lot better position to be able to deal in a more balanced manner with -- with Saudi Arabia. I think it would -- it would have made the people of those people in the shock wave much -- much easier.

REP. MARKEY: Ms. Browner, can you talk to this issue of the 35 mile per gallon standard by 2020 and how important you think it is for the Congress to pass that this year?

MS. BROWNER: It's absolutely essential. We have got to get on with doing this. And as I said in my opening statement, this is the second time I've participated in one of these. The last was several years ago. The message from both of them was identical, that taking steps sooner rather than later is key to these problems.

In the case of CAFE and the proposal that the Senate has passed, it would have solved the problem that we were confronting. And it wasn't as if this scenario was designed to then conclude with, you should have passed CAFE. It is just a fact that when you go back and look at how it all unfolded, that's one of the easiest ways actually to have solved the problem.

REP. MARKEY: And Admiral, are you convinced that we can improve the efficiency without compromising the safety of American people in terms of the vehicles which they drive?

ADM. BLAIR: Yes, sir, I am. The -- the -- I'd say the strongest technical support for that judgment was our updating of a study done back in 2002 by the -- by the National Academy of Sciences, which looked at existing -- and we, the Securing America's Future Energy project asked the authors of that to update it to about 2005. Are there available technologies which can influence -- which can improve efficiency without sacrificing safety?

And the answer from these technical experts was unambiguously yes, it could. And that was even without considering hybrids and some other more recent technology.

So I think the technical answer is, yes, it can be -- it can be done, and it should be done.

Another part of our proposal was that, what if we're wrong? What if this is resulting in unsafe vehicles? And we provided in our -- in our recommendations that the National Highway Traffic and Safety Administration have the authority to be able to waive standards based on sound technical arguments having to do with safety and with -- and with economy.

But we think the burden of proof ought to be put on -- on people saying why they can't do it, rather than why they -- why they can, which is sort of where it is now, what you hear from the auto companies, you know, American consumers don't want it, blah blah blah.

So we think we ought to shift the burden in the other direction.

REP. MARKEY: Ms. Browner?

MS. BROWNER: You know at EPA I obviously got the chance to regulate the automotive industry. And they always said no no no no. And then they always turned around and did it. And I think, you know, Mr. Chairman, your leadership on CAFE, and your proposal on CAFE, the Senate proposal, there is no doubt in my mind that they can do it. They will complain loudly, but they will end up being able to do it.

REP. MARKEY: My time has expired.

Let's do this. I apologize to you. President Sarkozy of France is about to address the House, and that's why the members have been leaving, because he is going to come out on the House floor in the next 15 to 20 minutes. So the members have been leaving for that purpose, and we had to move the hearing up in order to accommodate that as well.

So what I'd like from each of you, if you could give us your takeaway message, what it is that you want us to remember over this next four weeks especially as we consider this energy bill which is pending before the House and Senate, as we have this opportunity to pass the largest and most important energy bill in the last 30 years in the United States Congress, as the world convenes in Bali in one month to talk about the relationship between energy and climate, as Al Gore goes to Oslo to receive the Nobel Peace Prize.

So the world is speaking to the United States in a lot of ways with that prize. Could you each give us your takeaway message for the Congress as we reach this final four weeks? Admiral Blair?

ADM. BLAIR: Mr. Chairman, my takeaway message would be, pass this bill with conservation members, pop the champagne, but please don't stop there; go on to the other aspects of a comprehensive solution having to do with -- having to do with supply, having to do with alternatives, and keep on steady pressure to have a comprehensive strategy.

But nail down that first step, which is passing this bill which the Senate has passed.

REP. MARKEY: Ms. Browner.

MS. BROWNER: I ask you to please pass the bill. You know this is a great important moment I think in our history. And I agree with the admiral; it is a first step. There will be other steps we need to take, but it is an absolutely essential step. We need to get started. We need to get started on more fuel efficient cars. We need to get started on renewable electricity standards.

And Mr. Chairman, the leadership that you and the members of this committee have brought to this debate is remarkable. And I feel like we're just sort of sitting on the edge of something really great beginning.

There will be a lot more to do. Obviously greenhouse gas emissions, carbon, are going to be important. But if we could get this done, if we could say to the American people, you know, our leaders want to do something; they want to work with you for a better future, it would be wonderful.

REP. MARKEY: Thank you, Ms. Browner.

This issue really is reaching the point of decision. Speaker Pelosi in January of this year created this select committee on energy independence and global warming as her only select committee during the two years that she will be in her first term as speaker. So clearly this is something that is very important to her.

It's now, as each day goes by, becoming increasingly important to the American economy as well, in addition to the security of our country and the climate.

On Monday of this week, we had 5,500 young people, young leaders from across the country come to Washington, presidents of their senior class, the head of their environmental movements on campus. We had that hearing in the Ways and Means Committee room; 700 young people packing that room with thousands of others surrounding the Longworth Building as they were testifying about the responsibilities that this generation has to their generation, the green generation, to solve this problem, to play our part in passing this first step in beginning the process of reversing this dependence upon imported oil and fossil fuel.

We thank you both for your leadership on this issue.

With that, this hearing is adjourned.


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