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January 7, 2005



PAUL GIGOT: One of the many good pieces of economic news these days is that oil prices, which hit record highs near 56 dollars a barrel two months ago, have fallen back into the low forties. Even at that level, figuring in inflation, oil prices are lower than they were 25 years ago. The bad news is that high demand for oil will continue to increase, while the supply may become more insecure, threatened by terrorism and instability in places like Saudi Arabia and Iraq. That means Americans may become less and less secure in oil production, unless it can reduce its thirst for that product. Our briefing is from correspondent Barry Serafin.

GEORGE W. BUSH: And this dependence on foreign oil is a matter of national security.

BARRY SERAFIN: The message is not new.

BILL CLINTON: -- alternative sources of fuel ..

GEORGE H.W. BUSH: -- improve our energy security...

RONALD REAGAN: -- closer to energy independence...

JIMMY CARTER: I know that we can meet this energy challenge...

GERALD FORD: ... invulnerable to foreign energy disruptions....

RICHARD NIXON: ... achieving self-sufficiency in energy.

BARRY SERAFIN: Over the past 30 years since the first oil crisis, seven presidents have all called for making this country more self-sufficient in its energy supplies. But over those 30 years, our dependence on foreign oil has doubled. What happened?


TIM WIRTH (ENERGY FUTURE COALITION): Thirty years ago, at the time of the Arab Oil Crisis, we made some real progress with fuel efficiency standards, with real standards for electric motors and that sort of thing. We did very well in terms of energy in our economy. Since then things have really ground to a halt.

BARRY SERAFIN: We now import nearly 60 percent of our oil, and two-thirds of that is used for cars and other transportation. Auto fuel economy standards have hardly budged in 20 years, and we have squandered decades of opportunity. How plausible is it that we could have a crisis tomorrow, next month, six months from now?

AMY JAFFE (ASSOCIATE DIRECTOR ENERGY PROGRAM, RICE UNIVERSITY): We are actually in a net situation in the world today that is actually worse than we were sitting in in 1973 and 1979.

BARRY SERAFIN: Worse, because we are more dependent than ever on Middle East countries such as Saudi Arabia, which are increasingly vulnerable to terrorist attacks.

AMORY LOVINS (CEO, ROCKY MOUNTAIN INSTITUTE): Of the Saudi oil, two-thirds goes through one processing plant and two terminals. So the whole economic system of the west based on oil hangs by that thread.

BARRY SERAFIN: The U.S. has only three percent of the world's oil reserves, but consumes 25 percent of the world's oil. That's why most experts agree we cannot drill our way to energy independence.

ROBERT EBEL: Until we find a substitute for the internal combustion engine to reduce our dependence on gasoline, we're stuck.

BARRY SERAFIN: Stuck with...?

ROBERT EBEL: Imported oil.

BARRY SERAFIN: This may someday be the substitute. This General Motors prototype vehicle runs on fuel cells. The fuel cells use hydrogen to produce electricity. That electricity powers motors that turn the wheels and move the car. Is this the beginning of the end of the internal combustion engine?

TIM VAIL (DIRECTOR, GM FUEL CELL ACTIVITIES): We feel it is. Our goal is to have the technology ready for retail marketplace in 2010.

BARRY SERAFIN: That would not mean that hydrogen cars would be readily available by then, or that there would be enough hydrogen filling stations to support them. President Bush is backing the technology with a 1.2 billion dollar development program.

GEORGE W. BUSH: that America can lead the world in developing clean, hydrogen powered automobiles. [APPLAUSE].

ROBERT EBEL: Remember what President Bush said in his State of the Union message?... He said he hoped that an American born that day, that the first car...

GEORGE W. BUSH: ... so that first car driven by a child born today could be powered by hydrogen and pollution free. [APPLAUSE]

ROBERT EBEL: Is that being realistic? I doubt it. The only way out to me seems to be to raise the driving age from sixteen. You'd have to raise it up to 30 or 40, because a hydrogen fuel cell vehicle is not going to be available in massive numbers in 2020.

BARRY SERAFIN: So while hydrogen cars seem to be coming as the main solution to oil dependency, it will not be soon. But there are other alternatives, such as more and more use of biomass, fuel made from corn and other plants.

BARRY SERAFIN: There's a scenario under which you think biomass could replace all of the oil currently being consumed for transportation in this country, is that what you're saying?



LEE LYND: We could shoot for a quarter of mobility demand being met from biomass in a quarter century.

BARRY SERAFIN: While hydrogen and biomass technology are developed, there is a viable interim technology available right now to reduce our consumption of oil. Consumers have been lining up to by gas/electric hybrids, such as the Toyota Prius.

AMORY LOVINS: It turns out that if, say, in 2025 every car and light truck were as efficient as today's hybrid cars and SUVs, that would displace two Gulf's worth of oil or a sixth of all the oil in the country.

BARRY SERAFIN: But Detroit has been slow to follow up with its own hybrid production.

TIM WIRTH: They've introduced this Escape at Ford Motor Company. They're advertised heavily but I went to two Ford dealerships last weekend and I said, ¤You know, I'd like to buy an EscapeË and they said, ¤What's that?Ë

BARRY SERAFIN: Energy efficiency expert Amory Lovins says cars could also get far greater mileage now if they were built out of stronger and safer lightweight carbon fiber instead of steel.

AMORY LOVINS: You could get, for example, a 66 mile a gallon mid-size SUV that will do everything you expect an SUV to do.

BARRY SERAFIN: In the meantime, there is widespread agreement that new technologies and energy sources collectively could reduce our oil dependence, or at least slow its growth. But it cannot happen overnight. For now, we remain hostages to, and guardians of, foreign oil.

AMY JAFFE: The Middle East oil is so important for the international economy that the United States will be having to protect the flow of oil for a long time.

BARRY SERAFIN: For the Journal Editorial Report, I'm Barry Serafin.

PAUL GIGOT: Joining us for this part of the program is Senior Editorial Page writer, Kim Strassel, who covers energy issues. Kim, if there's one thing that's clear from piece it's that energy independence, so-called, is not going to be achieved any time soon. How much should we really worry about this, and the regular supply of oil?

KIM STRASSEL: We shouldn't. I mean, this is one of those issues that people love to wring their hands about, but it's been totally overstated. I mean, what we -- the global economy, we live in it and we get a lot of things from different countries, and oil is just one of them. We get them from all over the place, too. And there isn't any evidence that it necessarily has stopped, as many of our foreign policy objectives in the past.

What we should care about is that we're never too dependent on one source of oil, and we should also care about the fact that America have a consistent and steady and growing supply to cushion us in case there ever are supply disruptions. That's why, when Republicans go to take up an energy bill this year, the hope is that we do have some sort of thoughtful debate about supply in this country.

PAUL GIGOT: Particularly drilling in Alaska. How much of foreign oil imports would that displace, if any?

KIM STRASSEL: Well it could be really significant. I mean, people like to talk about our dependence on the Middle East. The reality is that if we got ANWR up and running, most of the estimates are that it could replace the oil that we currently get from Saudi Arabia from anywhere from 20 to 30 years. That's not insignificant.

PAUL GIGOT: There's also some good news on energy consumption, in the sense that our economy now is much less dependent on oil as a general matter than it was 30 years ago because of technology, because of the growth in services, that sort of thing.

Rob, what about these alternative energy sources? Do you see any of them coming down? The piece was reasonably optimistic about some of them. There's still a small portion of electrical production in our country. Do you see any of them yielding fruit down the road?

ROB POLLOCK: The only one that has so far proven to be practical is nuclear energy. And we haven't built a nuclear plant in this country for at least 25 years, I think, for political reasons. It's not as if the whole world feels badly about nuclear energy. The Europeans love nuclear energy. The French have tons of it. It's all over Europe.

PAUL GIGOT: In fact, if you tour the French countryside, you'll see the smokestacks. They're not smokestacks, excuse me, the water cooling towers for nuclear energy. They use it. Japan uses it quite a bit.

KIM STRASSEL: And this is good news too. If you are looking for things to be happy about, that one of the things the Bush Administration has done over the past four years is really tried to give a lot more certainly in the regulatory arena for nuclear, which is why we are, for the first time, talking about making some new nuclear power plants.

PAUL GIGOT: Are we really? Is that a real possibility?

KIM STRASSEL: It is. I mean, people are looking at it. There's going to be some time there, some questions about raising capital and whether or not there is enough certainly in the future for investors to go ahead. But it is finally on the table again.

ROB POLLOCK: And there's a lot of new nuclear technologies that are much safer than the old ones that we could use to build the new plants, if they were allowed to be built.

PAUL GIGOT: So we don't necessarily have to fear another Three Mile Island.

KIM STRASSEL: And if you're an environmentalist, you should love nuclear energy because it's pollution free.

PAUL GIGOT: No global warming at any rate.

DANIEL HENNINGER: You know, I think there's an 800 pound gorilla that's entered this debate which is going to totally change the terms of the debate about alternative fuels, and that's China. It's not that China has all these needs. It's the fact that just this past week the Wall Street Journal reported that China is thinking of taking over buying Unocal, the ninth largest American oil company, all right? China is doing deals with Canada to explore their oil sands fields. China is doing deals with Iran. India is doing deals with Iran. China is going to buy a piece of Russia's oil company. Now, if you think that the United States is going to saddle itself with expensive alternative fuels while China and India are roaring ahead on cheap oil, it ain't going to happen. It just isn't.

PAUL GIGOT: We don't have a lot of time left, Kim. But Congress has been debating and debating and debating an energy bill. Maybe this year they'll finally get it passed. Just quickly, what are two or the three things that could really help in that bill?

KIM STRASSEL: Well, it should all be focused on supply. And the main thing should be ANWR, opening up ANWR. But also taking a serious look at some of the restrictions that currently stop needlessly energy companies from doing the kind of exploration and development we need here.

PAUL GIGOT: Okay, great, thank you Kim. Next subject.