Plug-In Hybrids Can Help Put U.S. on the Road to Energy-Independence, Senator Hatch Says

WASHINGTON – Plug-in hybrids can help put the nation on the road to energy-independence, Sen. Orrin Hatch (R-Utah) said today at the Brookings Institution and Google Conference on Plug-in Electric Vehicles 2008 in Washington, D.C.

While U.S. energy policy is mired in partisan debates regarding climate change, gas prices, energy futures or windfall profits taxes, Hatch noted, plug-in hybrids enjoy strong bipartisan support.

“You have to search hard in this city . . . to find even one negative comment about plug-in hybrids,” said Hatch, sponsor of the CLEAR and FREEDOM acts and other legislation that has paved the way for wider acceptance of plug-in hybrids.

" I see the day that plug-in hybrid electric vehicles become mass produced in this country, and your average citizen can drive to work and back using little or no gasoline," Hatch added. "By the time that occurs, we may have commercially viable hydrogen fuel cells and a hydrogen fuel infrastructure so that we can disconnect these vehicles from the grid and begin a new age in transportation with much greater freedom of movement and freedom from dependence of foreign oil.”

Sen. Hatch’s complete remarks follow:

I want to thank the Brookings Institution and Google for sponsoring this very important conference today and for inviting me to participate in it. And for those of you from out of town: Welcome to Washington!

When the conference sponsors began organizing this event, they probably didn’t count on it occurring with the backdrop of $4 gas prices, but these gas prices certainly contribute a level of urgency to our subject matter today. I think we all know that our 97 percent dependence on fossil fuels for transportation is not sustainable. The lack of diversity in our nation’s transportation fuels has been troubling me for a number of years now.

My first legislative effort to address it was in 1999, almost a decade ago, when I introduced the Alternative Fuels Promotion Act, along with Senator John Rockefeller. The bill offered tax incentives for dedicated alternative fuel vehicles, alternative fuels sold at retail, and alternative fuel infrastructure. At the time, the alternative transportation fuels most available were natural gas and E-85, and that appears to still be the case, today. At the time, the only hybrid electric vehicle commercially available was the Honda Insight. Because my initial focus was on fuel diversity, I only provided credits for hybrid electric vehicles if they ran on alternative fuels.

By the next Congress, environmental advocates convinced me of the benefits of hybrid electric vehicles. They argued that hybrids would reduce emissions, and reduce our dependency on foreign oil, but that they also promote some of the technologies that would make hybrid fuel cell vehicles more viable. I began to see hybrids as intrinsically good for their immediate benefits, but also for the bridging technologies they would bring to the transportation sector.

So I added hybrid electric vehicles to the legislation and introduced it as the CLEAR ACT, which stands for Clean Efficient Automobiles Resulting from Advanced Car Technologies. I certainly didn’t do it alone; Senators Rockefeller, Jeffords, and Kerry were among very early and strong cosponsors. My cosponsors and I worked hard at promoting it. We were able to get it into the Bush Administration’s National Energy Policy Report in 2001, and we were able to get it included in the omnibus energy bill considered in Congress that year. The omnibus didn’t pass, but we got it in the energy bill the next Congress, and then the next Congress after that, until finally the CLEAR ACT credits for vehicles and infrastructure passed as part of the Energy Policy Act of 2005, and the fuel credit passed in that year’s transportation bill.

From the beginning, I attempted align the CLEAR ACT with certain key principles. First, I chose market incentives over mandates. I believe that the success or failure of alternative fuels and technologies is best decided by the free market, and so I focused these incentives on the market, which I consider the most powerful engine in this country. In most cases, incentives cannot reverse market trends, but they can help to fuel a market that already exists, and it seemed that genuine interests existed among the people for better answers in transportation.

Second, I made sure the taxpayer was getting a bang for his or her buck. The incentives apply only to vehicles and fuels that are actually purchased by consumers and to infrastructure that is actually being installed. I also made sure the incentives provided were scaled to the level of benefit that was being provided to society. For instance, hybrid vehicles using the most and best technologies receive proportionally larger incentives under the CLEAR ACT.

Finally, I wanted to solve the chicken and egg problem with regard to attacking the market obstacles to alternative vehicles and fuels. For that reason, I made sure to cover the three legs of the stool: vehicles, fuels, and infrastructure all at once.

I believe the CLEAR ACT has been a big success. Already, the move toward hybrid-electric vehicles has helped to reduce the demand for liquid fuel in this country. Today there are dozens of models of hybrids from which consumers can choose. And we’re already seeing mass production of hybrids, which was a central goal of the Act.

But one of the most exciting aspects of the success of hybrid electric vehicles is the groundwork they lay for the logical next step: plug-in hybrid vehicles. It seems to me that the progression from hybrids to plug-in hybrids is not a giant step. However, in terms of energy policy and the potential to shift transportation away from liquid fuels to the electric grid, plug-in hybrids may prove to be nothing short of revolutionary.

The idea was first brought to my attention by Raser Tech out of Provo, Utah. Raser Tech developed a new, very powerful AC induction motor that could be used in electric and hybrid vehicles. I had been working on the CLEAR ACT for a number of years, when Raser visited me here in Washington to tell me that I ought to be supporting incentives for hybrid-electric vehicles. They were so new that I hadn’t heard of them, and they didn’t even know that I was the sponsor of the CLEAR ACT.

It was during that first meeting in 2004 that they shared their vision of a plug-in electric vehicle that could average 100 miles per gallon. I was smitten by the possibility of shifting our transportation fuels away from liquid fuels and toward the electric grid.

During an early press conference on the introduction of the CLEAR ACT, I displayed a poster of a large oil vessel in the ocean heading into a gigantic storm. I argued that our nation was heading toward a global oil crunch, and finding alternatives was imperative for our nation’s economic health and national security.

We are in the middle of that storm right now, and I don’t see it breaking any time soon. We may not be facing actual oil shortages in the world, but we do have a very low level of spare capacity, and that's done a lot to raise speculation on the future's market. When spare capacity is so low, any major disruption in supply could actually lead to shortages. Investors need to know that we're finding a new barrel of oil for every barrel we sell, but that's not what they're seeing, at the same time they're seeing that ethanol has major limits as a replacement fuel.

Ethanol makes up only between 1.5 and 3 percent of our transportation fuels, and we’re learning that there are real costs to increasing that percentage. I don’t support mandates for ethanol, though, as you all know, I’ve led the fight to provide incentives for it through the CLEAR ACT. But I’m also a realist about the fact that ethanol cannot put a major dent in our need for fossil fuels.

Corn needs a lot of water. In fact, it needs about 780 barrels of water for a barrel of ethanol, and more than 1,000 barrels for the equivalent of a barrel of oil. Then it needs another 3 barrels to turn the corn into liquid fuel. That's a huge amount of water, but it works out alright, so far, because it’s grown in rainy areas. But if we want to increase the amount of ethanol available we're going to have to move into drier areas and rely more on irrigation, and there will be limits to how much more we can afford to grow.

It also uses a lot of land and potential wildlife habitat. One acre of corn produces 7 - 10 barrels of ethanol, or the equivalent of 5 -7 barrels of oil. That’s a lot of land, and it would take a lot more to make a real dent in our energy supply needs. A lot has been said about cellulosic ethanol, but a cellulosic ethanol plant would cost about 5 times as much as a corn ethanol plant of the same size. We are also learning that ethanol production has an energy balance that is not that attractive, and now some are saying it has a greenhouse gas footprint that is troubling. I’m not here to trash ethanol, because we need it, and I support it, but I do recognize that it has limits.

I may be the only one in this room who believes so, but I feel very strongly that we must also increase our domestic production of oil and natural gas to keep things running in this country. But it’s obvious to me that we must aggressively promote alternative transportation fuels at the same time. So where does that leave us if the most significant alternative transportation fuel has so many problems?....It leaves us with the alternative transportation fuel that has the greatest potential, but gets the least amount of attention. In other words, the electric grid.

The electric grid is so well established and has been around so long that it can seem like a pretty mundane topic. However, if you begin to add up the various benefits the grid could provide as an alternative transportation fuel, you can’t help but get excited.

I’ve heard plenty of policy makers and environmental groups point to the need to promote solar, wind, and geothermal energy as an answer to high gas prices. Well, obviously, cars and trucks don’t run on electricity, so their arguments don’t really follow. But what if we changed all that?

What if we could begin to apply hydroelectric, solar, wind, geothermal, nuclear, and natural gas generated electricity to our to transportation sector. Talk about adding diversity to our transportation fuels!

Even when it gets its electricity from a coal-fired power plant, a plug-in hybrid provides an environmental improvement over a conventional gasoline vehicle.

Almost immediately after the CLEAR ACT was enacted into law, I began the effort to draft S. 1617, the FREEDOM Act, which stands for – are you ready for this – The Fuel Reduction using Electrons to End Dependence on the Mid-East Act of 2007.

It became quickly apparent to me, that in terms of technology and industry focus, the United States is positioned to lead the world into the future with plug-in electric motor vehicles. The FREEDOM Act would help our nation to take up that position by helping to develop the market, the technology, and the domestic production capacity needed to fulfill that role.

The FREEDOM Act’s goals would be achieved through four strong tax incentives: First, a tax credit for consumers who purchase plug-in electric or plug-in hybrid electric vehicles; second, for a limited time, a tax credit for consumers who convert their hybrid vehicles to high quality plug-in hybrid vehicles; third, a strong tax incentive for the U.S. manufacture of plug-in vehicles and of major components of plug-in vehicles, such as batteries, electric motors, and electronic controllers; and finally, a tax credit for electric utilities that provide rebates to customers who purchase plug-in electric drive vehicles.

Freedom Act consumer credits would promote the consumer purchase of vehicles which use batteries and which plug into the electric grid for at least part of their power. This would include plug-in electrics, plug-in hybrids, and others. The amount of the credit would be based on the kilowatt hours of the vehicle’s battery pack, with a cap of $7,500 for passenger vehicles. The same is true for heavier duty vehicles, except that the caps are scaled up for each vehicle weight class.

Freedom Conversion Credits would go to hybrid-electric vehicle owners who choose to convert their existing hybrid vehicle to a high quality plug-in hybrid electric vehicle. These credits would also be scaled to the kilowatt hours of the new battery installed in their vehicle. Only high quality conversion kits, which are certified to meet all highway safety and emissions standards would qualify for a Freedom Conversion Credit, and the credits would be available until the market transitions to commercially available plug-in hybrid vehicles.

This particular provision is strongly supported by Senator John Kerry, who was planning to speak to you following my remarks. As you have probably heard, due to important personal matters, he won’t be able to make it today. In his absence, let me just say that Senator Kerry has been one of my strongest allies on the Senate Finance Committee on all of proposals we have discussed this morning.

The FREEDOM Act also offers first-year expensing for companies setting up production capacity in the United States for plug-in electric drive vehicles and for major components of those vehicles.

Finally, in the case that an electric utility in the U.S. chooses to offer rebates to customers who purchase plug-in electric drive vehicles, the FREEDOM Act would reimburse the utility for part of that rebate in the form of a Freedom Utility credit. The amount of the government reimbursement would be based on the rate of greenhouse gas emissions for each utility.

Based on our recent findings about ethanol, there really isn’t a major alternative transportation fuel that can reduce greenhouse gases. But the electric grid is 30 percent renewable today! It’s going to take some work to continue to make the electric grid cleaner and greener, but it is already way ahead of transportation fuels, and it has much more potential for further improvements.

An element of the national grid that I really appreciate is that it is domestic. You won’t see our President flying to the Middle East begging the Saudis to send us more electrons. We’ll just make them ourselves. And we can make a lot of them. The grid does not suffer from the same supply constraints faced by conventional oil development.

Finally, in terms of energy policy, plug-in hybrids have one of the most important elements you can find: and that’s strong, bipartisan support.
In Washington, these days, energy policy is mired in partisan debates, whether it’s about climate change, gas prices, energy futures, or windfall profits, it’s mostly about pitting one group against another and demonizing American oil companies.

You have to search pretty hard in this city, though, to find even one negative comment about plug-in hybrids. If the Freedom Act were brought up today as a stand-alone bill, it would pass easily, but it hasn’t had that chance, yet, because it keeps getting lumped in with these other very controversial issues. I am very confident that political acceptance of the FREEDOM Act will lead to its eventual passage.

The consumer acceptance of the hybrid electric vehicle has already proven a benefit to our nation’s energy security, and now I believe that consumer acceptance can also be transferred to plug-in hybrid vehicles. I see the day that plug-in hybrid electric vehicles become mass produced in this country, and your average citizen can drive to work and back using little or no gasoline. By the time that occurs, we may have commercially viable hydrogen fuel cells and a hydrogen fuel infrastructure so that we can disconnect these vehicles from the grid and begin a new age in transportation with much greater freedom of movement and freedom from dependence of foreign oil.

You in this room are leading our nation in this direction. And for that I congratulate you, and I thank you, and you can be that I’ll be here in Washington supporting you.

Thank you very much.