Set America Free …

Set America Free                                                                      9/27/2004




                 AN OPEN LETTER TO THE AMERICAN PEOPLE

        For decades, the goal of reducing the Nation's dependence upon foreign energy
sources has been a matter on which virtually all Americans could agree. Unfortunately,
differences about how best to accomplish that goal, with what means, how rapidly and at
what cost to taxpayers and consumers have, to date, precluded the sort of progress that
might have been expected before now.

        Today, we can no longer afford to allow such differences to postpone urgent
action on national energy independence. After all, we now confront what might be called
a "perfect storm" of strategic, economic and environmental conditions that, properly
understood, demand that we effect over the next four years a dramatic reduction in the
quantities of oil imported from unstable and hostile regions of the world.

       America consumes a quarter of the world's oil supply while holding a mere 3% of
global oil reserves. It is therefore forced to import over 60% of its oil, and this
dependency is growing. Since most of the world's oil is controlled by countries that are
unstable or at odds with the United States this dependency is a matter of national security.

        At the strategic level, it is dangerous to be buying billions of dollars worth of oil
from nations that are sponsors of or allied with Islamists who foment hatred against the
United States. The petrodollars we provide such nations contribute materially to the
terrorist threats we face. In time of war, it is imperative that our national expenditures on
energy be redirected away from those who use them against us.

        Even if the underwriting of terror were not such a concern, our present
dependency creates unacceptable vulnerabilities. In Iraq and Saudi Arabia, America's
enemies have demonstrated that they can advance their strategic objective of inflicting
damage on the United States, its interests and economy simply by attacking critical
overseas oil infrastructures and personnel. These targets are readily found not only in the
Mideast but in other regions to which Islamists have ready access (e.g., the Caspian Basin
and Africa). To date, such attacks have been relatively minor and their damage easily
repaired. Over time, they are sure to become more sophisticated and their destructive
effects will be far more difficult, costly and time-consuming to undo.

        Another strategic factor is Communist China's burgeoning demand for oil. Last
year, China's oil imports were up 30% from the previous year, making it the world' No.   s
2 petroleum user after the United States. The bipartisan, congressionally mandated U.S.-
China Economic and Security Review Commission reported that: "China's large and
rapidly growing demand for oil is putting pressure on global oil supplies. This pressure is
likely to increase in the future, with serious implications for U.S. oil prices and supplies."

       Oil dependence has considerable economic implications. Shrinking supply and
rising demand translate into higher costs. Both American consumers and the U.S.
economy are already suffering from the cumulative effect of recent increases in gas
prices. Even now, fully one-quarter of the U.S. trade deficit is associated with oil

                                              1
Set America Free                                                                      9/27/2004


imports. By some estimates, we lose 27,000 jobs for every billion dollars of additional
oil imports. Serious domestic and global economic dislocation would almost certainly
attend still-higher costs for imported petroleum and/or disruption of supply.

        Finally, environmental considerations argue for action to reduce imports of
foreign oil. While experts and policy-makers disagree about the contribution the burning
of fossil fuels is making to the planet's temperatures, it is certainly desirable to find ways
to obtain energy while minimizing the production of greenhouse gases and other
pollutants.

        The combined effects of this "perfect storm" require concerted action, at last,
aimed at reducing the Nation's reliance on imported oil from hostile or unstable sources.
Fortunately, with appropriate vision and leadership, we can make major strides in this
direction by exploiting currently available technologies and infrastructures to greatly
diminish oil consumption in the transportation sector, which accounts for two thirds of
our oil consumption.

        The attached Blueprint for Energy Security: "Set America Free" spells out
practical ways in which real progress on "fuel choice" can be made over the next four
years and beyond. To be sure, full market transformation will take a longer time. In the
case of the transportation sector, it may require 15-20 years. That is why it is imperative
to begin the process without delay.

       We call upon America's leaders to pledge to adopt this Blueprint. In so doing,
they can reasonably promise to: deny adversaries the wherewithal they use to harm us;
protect our quality of life and economy against the effects of cuts in foreign energy
supplies and rising costs; and reduce by as much as 50% emissions of undesirable
pollutants. In light of the "perfect storm" now at hand, we simply can afford to do no
less.




                                              2
       Set America Free                                                                   9/27/2004




                                  `SET AMERICA FREE'
                         A BLUEPRINT FOR U.S. ENERGY SECURITY


Introduction

Historically, the United States has pursued a three-pronged strategy for minimizing the vulnerabilities
associated with its dependency on oil from unstable and/or hostile nations: diversifying sources of oil,
managing inventory in a strategic petroleum reserve and increasing the efficiency of the transportation
sector's energy consumption. In recent years, the focus has been principally on finding new and larger
sources of petroleum globally.

Rapidly growing worldwide demand for oil, however, has had the effect of largely neutralizing this
initiative, depleting existing reserves faster than new, economically exploitable deposits are being
brought on line. Under these circumstances, diversification among such sources is but a stop-gap
solution that can, at best, have a temporary effect on oil supply and, hence, on national security.
Conservation can help, but with oil consumption expected to grow by 60% over the next 25 years,
conservation alone will not be a sufficient solution.

The `Set America Free' Project

Long-term security and economic prosperity requires the creation of a fourth pillar ­ technological
transformation of the transportation sector through what might be called "fuel choice." By leading a
multinational effort rooted in the following principles, the United States can immediately begin to
introduce a global economy based on next-generation fuels and vehicles that can utilize them:

   ·   Fuel diversification: Today, consumers can choose among various octanes of gasoline, which
       accounts for 45% of U.S. oil consumption, or diesel, which accounts for almost another fifth. To
       these choices can and should promptly be added other fuels that are domestically produced,
       where possible from waste products, and that are clean and affordable.

   ·   Real world solutions: We have no time to wait for commercialization of immature technologies.
       The United States should implement technologies that exist today and are ready for
       widespread use.

   ·   Using existing infrastructure: The focus should be on utilizing competitive technologies that
       do not require prohibitive or, if possible, even significant investment in changing our
       transportation sector's infrastructure. Instead, "fuel choice" should permit the maximum
       possible use of the existing refueling and automotive infrastructure.

   ·   Domestic resource utilization: The United States is no longer rich in oil or natural gas. It has,
       however, a wealth of other energy sources from which transportation fuel can be safely,
       affordably and cleanly generated. Among them: hundreds of years worth of coal reserves, 25%
       of the world' total (especially promising with Integrated Gasification and Combined Cycle
                     s
       technologies); billions of tons a year of biomass, and further billions of tons of agricultural and

                                                    3
       Set America Free                                                                    9/27/2004


       municipal waste. Vehicles that meet consumer needs (e.g., "plug-in" hybrids), can also tap
       America's electrical grid to supply energy for transportation, making more efficient use of such
       clean sources of electricity as solar, wind, geothermal, hydroelectric and nuclear power.

   ·   Environmentally sensible choices: The technologies adopted should improve public safety and
       respond to the public's environmental and health concerns.


Key Elements of the `Set America Free' Project

          Vehicles:

   ·   Hybrid electric vehicles: There are already thousands of vehicles on America's roads that
       combine hybrid engines powered in an integrated fashion by liquid fuel-powered motors and
       battery-powered ones. Such vehicles increase gas-consumption efficiency by 30-40%.

   ·   "Plug-in" hybrid electric vehicles: Plug-in hybrid electric vehicles are also powered by a
       combination of electricity and liquid fuel. Unlike standard hybrids, however, plug-ins draw
       charge not only from the engine and captured braking energy, but also directly from the electrical
       grid by being plugged into standard electric outlets when not in use. Plug-in hybrids have liquid
       fuel tanks and internal combustion engines, so they do not face the range limitation posed by
       electric-only cars. Since fifty-percent of cars on the road in the United States are driven 20 miles
       a day or less, a plug-in with a 20-mile range battery would reduce fuel consumption by, on
       average, 85%. Plug-in hybrid electric vehicles can reach fuel economy levels of 100 miles
       per gallon of gasoline consumed.

   ·   Flexible fuel vehicles (FFVs): FFVs are designed to burn on alcohol, gasoline, or any mixture
       of the two. About four million FFV' have been manufactured since 1996. The only difference
                                              s
       between a conventional car and a flexible fuel vehicle is that the latter is equipped with a
       different control chip and some different fittings in the fuel line to accommodate the
       characteristics of alcohol. The marginal additional cost associated with such FFV-associated
       changes is currently under $100 per vehicle. That cost would be reduced further as volume of
       FFVs increases, particularly if flexible fuel designs were to become the industry standard.

   ·   Flexible fuel/plug-in hybrid electric vehicles: If the two technologies are combined, such
       vehicles can be powered by blends of alcohol fuels, gasoline, and electricity. If a plug-in vehicle
       is also a FFV fueled with 80% alcohol and 20% gasoline, fuel economy could reach 500 miles
       per gallon of gasoline.

       If by 2025, all cars on the road are hybrids and half are plug-in hybrid vehicles, U.S. oil
       imports would drop by 8 million barrels per day (mbd). Today, the United States imports
       10 mbd and it is projected to import almost 20 mbd by 2025. If all of these cars were also
       flexible fuel vehicles, U.S. oil imports would drop by as much as 12 mbd.




                                                    4
    Set America Free                                                                   9/27/2004



        Fuels:

·   Fuel additives: Fuel additives can enhance combustion efficiency by up to 25%. They can be
    blended into gasoline, diesel and bunker fuel.

·   Electricity as a fuel: Less than 2% of U.S. electricity is generated from oil, so using electricity
    as a transportation fuel would greatly reduce dependence on imported petroleum. Plug-in hybrid
    vehicles would be charged at night in home garages -- a time-interval during which electric
    utilities have significant excess capacity. The Electric Power Research Institute estimates that
    up to 30% of market penetration for plug-in hybrid electric vehicles with 20-mile electric
    range can be achieved without a need to install additional electricity-generating capacity.

·   Alcohol fuels: ethanol, methanol and other blends:

    Ethanol (also known as grain alcohol) is currently produced in the U.S. from corn. The industry
    currently has a capacity of 3.3 billion gallons a year and has increased on the average of 25% per
    year over the past three years. Upping production would be achieved by continuing to advance
    the corn-based ethanol industry and by commercializing the production of ethanol from biomass
    waste and dedicated energy crops. P-Series fuel (approved by the Department of Energy in
    1999) is a more energy-efficient blend of ethanol, natural gas liquids and ether made from
    biomass waste.

    Methanol (also known as wood alcohol) is today for the most part produced from natural gas.
    Expanding domestic production can be achieved by producing methanol from coal, a resource
    with which the U.S. is abundantly endowed. The commercial feasibility of coal-to-methanol
    technology was demonstrated as part of the DOE's "clean coal" technology effort. Currently,
    methanol is being produced from coal at the Eastman Chemical Company's Kingsport,
    Tennessee plant for under 50 cents a gallon.

    It only costs about $60,000 to add a fuel pump that serves one of the above fuels to an existing
    refueling station.

·   Non-oil based diesel: Diesel can be produced from coal and from organic waste of all sorts,
    including animal carcasses, waste products such as tires and animal byproducts. Currently diesel
    is being commercially produced from the offal from a Conagra turkey processing plant at
    Carthage, Mo.




                                                 5
    Set America Free                                                                      9/27/2004



       Policy Recommendations:

·   Provide incentives to auto manufacturers to produce and consumers to purchase, hybrid vehicles,
    plug-in hybrid electric vehicles and FFVs across all vehicle models.

·   Provide incentives for auto manufacturers to increase fuel efficiency of existing, non-FFV auto
    models.

·   Conduct extensive testing of next-generation fuels across the vehicle spectrum to meet auto
    warranty and EPA emission standards.

·   Mandate substantial incorporation of plug-ins and FFVs into federal, state, municipal and
    covered fleets.

·   Provide investment tax incentives for corporate fleets and taxi fleets to switch to plug-ins,
    hybrids and FFVs.

·   Encourage gasoline distributors to blend combustion enhancers into the fuel.

·   Provide incentives for existing fueling stations to install pumps that serve all liquid fuels that can
    be used in the existing transportation infrastructure, and mandate that all new gas stations be so
    equipped.

·   Provide incentives to enable new players, such as utilities, to enter the transportation fuel market,
    and for the development of environmentally sound exploitation of non-traditional petroleum
    deposits from stable areas (such as Canadian tar sands).

·   Provide incentives for the construction of plants that generate liquid transportation fuels from
    domestic energy resources, particularly from waste, that can be used in the existing
    infrastructure.

·   Allocate funds for commercial scale demonstration plants that produce next-generation
    transportation fuels, particularly from waste products.

·   Implement federal, state, and local policies to encourage mass transit and reduce vehicle-miles
    traveled.

·   Work with other oil-consuming countries towards distribution of the above-mentioned
    technologies and overall reduction of reliance on petroleum, particularly from hostile and
    potentially unstable regions of the world.




                                                  6
       Set America Free                                                                   9/27/2004




A New National Project

In 1942, President Roosevelt launched the Manhattan Project to build an atomic weapon to be ready by
1945 because of threats to America's and to explore the future of nuclear fission. The cost in today's
prices was $20 billion. The outcome was an end to the war with Japan, and the beginning of a wide new
array of nuclear-based technologies in energy, medical treatment, and other fields.

In 1962, President Kennedy Launched the Man to the Moon Project to be achieved by 1969 because of
mounting threats to U.S. and international security posed by Soviet space-dominance and to explore
outer space. The cost of the Apollo program in today's prices would be well over $100 billion. The
outcome was an extraordinary strategic and technological success for the United States. It engendered a
wide array of spin-offs that improved virtually every aspect of modern life, including but not limited to
transportation, communications, health care, medical treatment, food production and other fields.

The security of the United States, and the world, is no less threatened by oil supply disruptions, price
instabilities and shortages. It is imperative that America provide needed leadership by immediately
beginning to dramatically reduce its dependence on imported oil. This can be done by embracing the
concepts outlined above with a focus on fuel choice, combined with concerted efforts at improving
energy efficiency and the increased availability of energy from renewable sources.

The estimated cost of the `Set America Free' plan over the next 4 years is $12 billion. This would
be applied in the following way: $2 billion for automotive manufacturers to cover one-half the costs of
building FFV-capability into their new production cars (i.e., roughly 40 million cars at $50 per unit); $1
billion to pay for at least one out of every four existing gas stations to add at least one pump to supply
alcohol fuels (an estimated incentive of $20,000 per pump, new pumps costing approximately $60,000
per unit); $2 billion in consumer tax incentives to procure hybrid cars; $2 billion for automotive
manufacturers to commercialize plug-in hybrid electric vehicles; $3 billion to construct commercial-
scale demonstration plants to produce non-petroleum based liquid fuels (utilizing public-private cost-
sharing partnerships to build roughly 25 plants in order to demonstrate the feasibility of various
approaches to perform efficiently at full-scale production); and $2 billion to continue work on
commercializing fuel cell technology.

Since no major, new scientific advances are necessary to launch this program, such funds can be applied
towards increasing the efficiencies of the involved processes. The resulting return-on-investment ­ in
terms of enhanced energy and national security, economic growth, quality of life and environmental
protection ­ should more than pay for the seed money required.




                                                    7