imported oil to the belief that a significant number of economic -- are captured by the current gas tax and chris sans looks at industrial policy in the auto industry and why it is not solved our energy problems sustain bly. new papers on energy are available at hudson.org and chris's paper is forthcoming. first now to fred smith. this is a very distinguished gr@ of individuals who have come together to talk about our nation's security. how would you say our nation's energy is insecure today? >> first, let me update a couple of numbers there. fedex, mention of that earlier, about a $43 @llih company that

operates about $95,000 and the reason i emphasize the number of vehicles we operate and your figure on the planes was pretty close, but they've gotten bigger over time. we came to this issue a long time ago. when fedex was first beginning operations in 1973, in shl order, we were faced with the first air boil em bar bobargo a fall of 19 where in response to u.s. actions in the middle east to support rael, oil was withheld from the market and united states had begun to be a significant importer and the government had to allocate oil.

for 40 years, we watched it and the significance is over this period of time is that every major economic attraction or recession was either coincident webbed or precipitate eby a significant run-up in fuel prices. beginning until 21st century, the labdscape changed as a result of the united states' imports of its petroleum needs reaching almost 60% at the zenith and the emergence of china and india as increasing users of petroleum as they had large percentages of their

population moving into the middle class and wanting to have the same lifestyle that we did. so, it has become over the last several years after nuclear proliferation and after weapons of mass destruction issued the largest single national security and a national economic risk that the united states faces. the energy security leadership counsel is an organipation as you noted that's composed of four star generals and admirals and ceos of companies like fedex and using a great deal of energy. we use over 1 billion 500 million gallons a year to put that into perspective. and we felt that the united states did not have a strategic

policy regard iing energy and t failure to have a strategic policy could lead the united states into a significant confrontation. and we came up with five recommendations as to what the united states should do to reduce its depend ens on imported petroleum, representing 58% of the u.s. balance of payments deficit and many of those dollars went to aountries which wish us ill, whose values are not the same in the united states, but who controlled all the oil markets and cartel.

our recommendations transcend political labels. number one was to maximize united states oil and gas production in whatever matter feasible. number two was to diversify transportation powered by electrifying short haul and light duty transportation with the vast improvements of lithium battery technology. three, to utilize natural gas as a power supply for heavy duty, over the road and central fuel vehicles. four, to reinstitute fuel efficiency standards, which was done in 2007 under dhe bush administration and last, continue biofuel and research to come up with cost effective

scaleable biofuel. so that sets the stage i think for the recommendations in the lc that you may want to discuss. >> before the recommend daation let's go back to the national security issue. let me ask general conway about how he would characterize the dependence on oil, particularly, the military's role of producting global oil simplies. >> let me answer your question by giving you just a brief history of our evolution. in 1936, united statesproduced 99% of its oil retirement. by 1986, when i was a young major and visited the middle east for the first time, we went

aboard the command ship. at that point, the commander in the middle east was a navy two-star and he and his staff were embarked aboard the u.s.s. la salle. at that point, our requirement was about 27%. today, as fred mentioned, it's somewhere between 50 and $ and it's that impact on our nation and particularly our nation's economy, our nation's decision make iing that puts us risk. the problem is our enemies ek nuys that and it is th strategy, the philosophy, of extremists who would attack our country and will cont o do so. they believe that they cannot beat us in the field, but that they can bring us to o news through manipulation. control, destruction, having impact on the cost of this nation.

to the degree they can bankrupt us, that would then make us unavailable to react. so it is that potential for manipulation that causes us concern from a national security perspective and i can assure you, because i've been there, when the joa chiefs of staff sit around the table and talk about various options in any scenario these days, it involves the middle east high on considerations as you look at courses of action. our impact on our national economic picture. that has never been the case before. previously, that's always been sort of a sigh and concern that we would have as military men. someone else will worry ability those factors. but today, it is front and center. now, youhl cover auess the problem without at least offering a recommendation and in addition to the things that fred has talked about, i think as americans, we've got to demand

that our country, our national ledge islators come together with a national energy strategy. i think it has to be a uniform strategy that all sides of the issue can agree on. that we can agree upon and will take us through the next 10 or 20 years. it's got to transcend in administrations and until that happens, i think we'll don't bounce around with a few policies, but we don't get to where we need to be in this transition period. >> if we do get to the energy security that we, that is so desired, can we really abandon missions that we have in terms of protecting global congress? >> i don't think we'll ever d that. we are a global pov. we will continue i think as the primary, at protecting the sea legs and international commerce. it's in the best interest of the world to do that. it's a responsibility that we

have evolved to over time since the end of world war ii. i don't think that's going to change much and i don't think our country would want it to change much. i know certainly american business is very comfortable with us being there. it also brings aboard a lot of other values i think that come with it, not least of which is just the presence and the engagement with our friends and allies across the globe. so the united states military will always be a global military and i think it's the price we're going to have to pay with that kind of inference. >> you were critical to the creation of sun come and saw something decades ago that others didn't. would you care to say something about the creation? >> would you say that again? >> would you say something about sense com and your role in it. >> well, that's a good question. as some of you may recall when we were considering sun com, it

r started when harold brown realized we did not have a world force. a force that did not go globally. it's so narrowed down because of circumstances going on in the world today. it's so narrowed down to the middle east. but meanwhile, in searching for a commander in central commend after a lot of due diligence in the pentagon in one story that i do like to tell when my name was mentioned to the chairman of the joint chiefs, he didn't know me and said he'd like to meet me. i went over on a sunday morning and his secretary was there in his office and i told her i was here to see the chairman and she said, well, he's over in the white house. i said, well, how long is he

going to be there? she said, well, i really don't know. why? do you have a problem? i said, quite frankly, i do. she said would you mind telling me what it is? i said, not really, i promised by granddaughter i was going to take her to see snow white and the seven dwarfs and by golly, i'm going to take her. the chairman thought that was rather humorous. with the commander officer actually -- company in a unit that was stationed, aidan is a center, or was a center element to a middle east oil. and the facility was actually a

royal marine facility and i was the assistant operations officer of four or five commanders and our job was to protect the oil in aidan, which was considerable and also one of the main arteries of the u.s. or world navy operations in the middle east. going back to central command, that started out really as a worldwide command and the first thing that struck me was the fact that there was no central facility, no focus on middle east. it was worldwide, but it wasn't in the middle east and that was at the time when the middle east was really starting to flare up as you may recall. with that said, when we started to do our planning for the middle east, we realized that we're talking about an 8,000 mile zone between u.s.

facilities and the middle east, 8,000 miles where the airplanes had to go and ships had to go and this was a tremendous dema on oil. tremendous when we started to plan, we realized that this was a bigger problem than just having a small litter force of the middle east. so, that's when we started the wheels were in motion for the european commander rather than central command and that's what started the history of central command. was the fact that we had no unified commander actually in response, who was responsible for the middle east. in fact, the people who were in the middle east r were reporting through -- through the senior mldr in europe, which was a totally unworkable situation. that was the birth of central

command as you know today is the command that's in the middle and reasonable for the middle east. >> thank you. we're going to shift gears now and i'm going to turn it over to ask questions about the focus on this issue of electrify. let me ask you, talk a little about why you and gm chose to build the volt? the way the future looks for cars like these, obviously, this is the vehicle that we see significant amount of criticism. especially from political conservatives. as we noted today in our discussion. many say the government shouldn't be involved in this kind of technology. many question the readiness of this technology. what's your message to skeptics like this? >> let me start with popular

mission conceptions about the chevy volt? those of you who listen to fox news or listen to o'reilly or neil cavuto would believe that the volt catches fire allot. consumed $53 billion for only 6,000 bill was product of the obama administration. when in fact it is none of those things. chevrolet volt was conceived largely by very self-serving comment, largely by me because it was very promising technology which would link all of a advantages of a lightweight vehicle, which was 40 miles with no fuel consumption whatsoever with all the range of a conventional car beyond the depletion range of the battery and internal, small internal combustion action would provide electricity to the battery for

about another 300 miles. seemed like the ideal solution for most daily trips, it would be electrical, but if you have to go long distance, you're in limited by range. we had a concept car at the show in 2007 and history will show that obama was elected in november of 2008. so, in fact, an interesting fact when in the post subprime meltdown and $4.50 gasoline environment in the latter part of 2008 when the american awe automo market went from a going rate of 16 million a year down to 8 million a year and general motors and chrysler both had to go chapter 11, at that point, when the obama task force came in for the restructuring in early 2009, the obama task force

in fact recommended that the chevy volt program be dropped as somewhat too capital intensive, not a good enough payback and it was a marginal business proposition. there was in fact those of us at general motors who argued no, this is the vehicle of the future. this is the vehicle that can technologically leapfrog the prius and paves the way to the future. @e are probably a couple of months away from b mrmw announc the i3, which is volt technology. they hired most of the volt team to do it. audie is going to introduce the audi e tronic. mobile's going to have one.

mercedes is going to have one. in other words, this technology is going to be become generalized. to me, the unfortunate thing is that because electric cars are very closely associated with the left wing environmental green movement and to combat global warming and reduce co 2, the idea of vehicle -- triggers this visceral reaction on the parts of conservatives, which is if it's electric, it must be a product of the democratic left wing political machine, therefore, we hate it. this is an unfortunate knee jerk reaction because what the volt and other vehicles like it are about is and this is the first generation. we're in a period of transition, but what these vehicles are about is shifting portions of

the american sector on to a more efficient and domestically produced power source. and in conjunction with a lot of other measures and fred smith likes to say, we're for everything. more drills, use of coal. we're for use of much more use of natural gas. we're for all of the things that can be, that are domestic resource and can reduce a@erica's dependence on imported petroleum products. one component is the electric automo, which makes all kinds of sense and will make increasing sense in another five years when the cast cost of batteries and the technology will come way down. so it's part of, it's an important part of the overall mosaic of energy efficiency and by the way, reduce cost of

driving because driving an electric vehicle costs the fraction of petroleum powered vehicle. so, my plea to the right and i have written e-mails to rush limbaugh, who likes to describe me as my good friend, bob lutz, whom i never get an e-mail response from. who want me on the show, but i couldn't go because i'm a cnbc contributor. all these people i find frustrate me in the unwillingness to accept that electrify rification is a good g to do whether you're a conservative or liberal. one final thing on the volt. manyf you have heard that they catch fire.

my int lek cull chul idol charles krauthammer has described it as the flammable chevy volt, thus perpetuating the fiction d volt catches fire. in fact, one chevrolet volt caught fire in a government crash test which totally destroyed the vehicle. the vehicle caught fire three weeks after the test and i would say three weeks allows adequate time for survivors to exit the vehicle. other than that, no chevrolet volt has ever caught fire, but as we speak, there are three vehicle brands that were -- has issued recall notices or asked the man factturers to issue notices or they're under investigation, where meanwhile, the customers are asked to park the vehicles outside.

do not place vehicle in your garage, close to other vehicles. one is german. one is a jeep and one i've said to say is a chevrolet, but they're all internal combustion, conventional cars. one of which catches fire every 120,000s. 275,000 a year. no electric vehicle has ever caught fire, yet the political right is talking about the flammability, overheating, fire hazard and so forth of electric vehicle and it's a folks, it's a pure fiction. please get it out of your heads. thank you. >> thank you. let me turn you back to fred smith. in outlining the energy and leadership couns's policy agenda, you're known as a champion of deregulation of free markets.

ment mentioned you're a trustee of the cato ins tus. what government actions do you think are justified in this area and how do you justify the cost? >> i'm a member of the cato board, but you're right, i'm a conservative and i believe in the main and free market. solutions. the prop with the oil market is that it's not a free market. the oil market is controlled by opec. opec is a cartel which owns some place close to 90% of the proven oil reserves in the world. it meets a couple of times a year to set the price of oil. oec even though they own this tremendous amount of the world's resources, although we're starting to find additional significant reserves because of this new technology being developed here, but the opec

nations produce about 42% of the oil used by the world each year. so think about that. they own 80 to 90% of the reserves and produce 42%. that's not classical economics. they're not maximizing their economic return. in fact, if there's an intell t intellectual fight, but maximizes their income, they need about 94, $95 a barrel in sars to make their social payments these days. that's not my figures. that's the saudi government's figures. the iranian wod like to run the price up as high as possible in order to hurt the west. particularly during this period of time when the west is is put sanctions on the iranian regime.

and in 2001, the average american family spent about $1700 on fuel. last year, that figure was about $4,000 per family. huge size took place as we all watched in congress over weather t the payroll tax would be reduced in 2011 and continued to 2012. the value of that to the american public was about $110 billion. the cost of the american public of the increase price in fuel in 2011 was about $110 billion. so, the increase price of fuel served as a tax that took the increased economic activity, our increase in gnp and put at least

half of it into the hands of people who supply us, supply us oil. the geo political issu surrounding oil have been going on for a long time. the cause was when we embargoed their oil supplies from indonesia. the famous battle of the germans battle the russian was about oil. germans had gone to stahlengrad and going up the river which simplied the army. the biggest air raid that the united states ever conducted up to that time. certainly the most heroic was to try to knock out the oil refineries. the 1990 war in iraq was clearly about oil.

osama bin laden declared war on the united states. nobody paid much attention when he did it and i think 1998, because of the presence of american troops, have been left there after the first gulf war. so the united states has gotten ourselves into a position where importing now a little bit less because of these improved technologies. we are still dependent for half of our oil from foreign sources, so the only way that we can prevent the united states from being taxed if you will, every time we have any type of economic growth by increased oil prices that are set by cartel that would not be legally possible if it were operating inside the united states is to diversify our fuel simply along the lines that we mentioned.

so even though i'm a conservative and i support free market principles, this is not a free market problem. it is a military and national security problem and it should be looked at in the same vein as if we're buying another couple l squadrons of f 35 or another aircraft carrier and the technology that bob had talked about, this lithium ion battery technology, which is on a very good clip to become self-sustaining on its own, it is in our best interests as a nation to do all those things lest we move to another military con fill over this issue. >> let me ask you a follow up in this area about new alternative energy sources or new energy sources. given the recent boom in oilnd