 Good afternoon. Welcome to Energy in America. I'm a guest host. My name is Ray Tsuchiyama, filling in for the usual J. Fadel. We have our guest today, a distinguished guest from Washington, D.C., via the wonders of Skype. His name is Lucien Puglia-Rissi, and he's president of the Washington, D.C. based Energy Policy Research Foundation, or EPRING. And it's a Beltway think tank on all things about energy in America and globally, Asia Pacific, Europe, Middle East, South America. And we are two months of the new Trump administration, and right now the cherry blossoms are diminished by snow in the D.C. area. But we have Lucien to give us continuing insights to the evolving energy policies of the new administration and things coming up. There he is. Lucien, how are things in D.C.? Well, they're still a bit chaotic with the new administration, and the appointments are going much slower. I believe the reason for that is because I'm pretty sure even President Trump did not expect to win. And so they didn't have the usual cadre of well vetted personnel to move quickly into the position. So a big issue right now is the slow pace of appointments below the level of the cabinet. But we have the EPA head, Scott Pruitt, in place. Am I correct? Yes. And what has he been talking about? What are the topics that he's been kind of focusing on? And do you see any strategy or roadmap that the administration is embarking upon? So I think we can talk about, you know, I think we can go up to like a $50,000 foot, 50,000 foot level and look at the sort of basic view of the Trump administration. I think, and particularly some of the more eccentric strategists, you might say, that there was this belief that a combination of elites, bureaucrats, academics with too much power, the IAMD, which we call the International Association of Name Droppers, the Davos attending experts, that all these people have gotten together and they have tried to protect us from all the downside risks in the world. And when they did that, they took away all the upside potential. I'm not saying that's true necessarily. That is a kind of theme. And that theme then works it through the energy and environmental policy. And so for Administrator Pruitt, he's got two or three things on his agenda. One is a more differential or critical view towards climate research. Open it up if you like to a broader scientific review. Second, a more hard-nosed view on costs and benefits. The CAFE standards is the first one. Right. And we're going to discuss that more in detail later. I think a third one is a kind of regulatory reform. Are we operating in an environment where a very minute concern for every kind of risk is preventing us from doing everything from building roads to repairing bridges to building factories. Now, this is a kind of stark contrast and the real world is somewhere in between. But this is the debate we're going to see in the coming months. So we see the EPA progressing this area and you just mentioned something, the CAFE, which has been around since I think the oil crisis. Am I correct? Exactly. 1973. And it's a way to get the automakers. I mean we tried to force people to conserve gas but it didn't happen that much. So we're trying to go to the automakers to design, make, and sell vehicles with higher mileage emission standards, goals. So like lots of things in the government, the facts are always complicated. So let's just start with a simple story. If you look at the 1968 film called Bullet, Steve McQueen, you might not be old enough to remember. Steve McQueen drove a 1968 Mustang, GT, I think about 275 horsepower, four-speed. That car produced about one ton of criteria pollutants for a hundred thousand miles. And my criteria pollutants, I don't mean Venus gas emissions. I mean things like carbon monoxide, lead, sulfur dioxide, volatile organic compounds. Today's Mustang across a hundred thousand miles produces about 10 pounds of criteria pollutants. So the first point to keep in mind is that the cars of today were enormously more efficient and cleaner than the cars of the past. So one debate is, are we on the cost curve of the law of diminishing returns such that we are opposing very high costs with little return? I think, and we did have, when they settled on this idea of moving the fuel efficiency from 20-something to 54.4 miles per gallon. Right, and that's for 2025, right? 2025. There was an agreement in 2008 that halfway through the process, we would do a mid-term review. Okay, we have a halfway through, and that's how the term, mid-term review stands for. Right, and this mid-term review would be partly based on a big study undertaken by the National Academy of Sciences, the Natural Resource Council. That study was issued in late 2016, and the agreement even told to me personally, because we do a lot of research in this area, by EPA, that that agreement would allow, that document and all the research would allow all the stakeholders to look at it between late 2016 until a decision would be made in 2018, early on in 2018, because much of the pathway was back loaded. So a lot of the achievement to get to the 54.1, and it may be a lesser number because the change of the fleet, but a lot of the heavy lifting took place in the last five years. President Obama did not wait for that review to complete. He says I've seen enough, and in a so-called midnight rule at nine days before he left the office of the presidency, he issued a final determination. So there's a huge amount of uproar now, but all the Trump administration done so far is restore the ex-ante conditions, which is we said we would have a year to do this review. I'm restoring that so all the stakeholders can look at it for the next year. Now, but going back to the analogy here of Steve McQueen, and I'm old enough to remember even Iacocca who, you know, unleashed Mustang in 64, 65, and was a revolutionary car, and Chrysler became at the forefront of this new design, and so forth, and my uncle, Maui, even had a 65 Mustang. So I remember that, and of course mileage back in the late 60s, and the bigger cars, and so forth, Camaro's, and so forth had barely 15 miles per gallon. But I'll be a devil's advocate. I mean we live in a world where the Microsofts, the Amazons, the eBay's, and Google's, and so forth, are, you know, are the leaders in an innovation economy. And you look at Intel, and you look at the power of computing, you know, and it's like logarithmic, how advances have been made in computing power and so forth. And of course there must be, have been, R&D for 20, 30, 40 years in Detroit. But if Henry Ford was alive today, he would open up, you know, SUV, and say, oh wow, it's the same principle, it's the same kind of engine that I've seen back in the 20s with a lot of electronics. And, you know, there's a huge amount of electronics, a huge amount of sensors, and so forth, in a car which boosts, you know, with all the R&D. So my question is, why is it so hard to really make revolutionary steps in the car industry? So actually, that's a good question. I do think there are two issues. What do consumers want? If you actually, you know, if you think about it, when EPA did its original analysis, the technical advisory review, and the fundamental analysis of the CAFE standards, they justified the incremental cost of the more expensive cars by the fact that consumers would save enough so that it would be worth the extra cost. Now, put aside that public finance theory does not allow you to take account of private benefits. You're supposed to just count for the external benefits and costs. Consumers want a certain kind of vehicle. And the kind of vehicle they want depends upon a lot of factors, besides their family and how far they plan to travel, the comfort, how much money they have, and the cost of gasoline. And we are now in a period because the shale gas revolution and the oil revolution, the fact that we are producing from a ubiquitous resource called Source Rock, the long run price of oil is probably going to be very close to 50 or 55 dollars. It's right now 3840 for a barrel. And it's about 48. 48, 48 dollars. Okay. But about two or three years ago, it was over 100. Yes. Yes. Yes. And but you see, but you see low oil going out. I'm not worried about the long run price of oil. That leads me to a lot of discussions about Hawaii's utility sector, which we can talk about another time. Because as you know, we're paying about 32 cents per kilowatt hour. Yes. And that you're paying that because of your lots of reasons, including very high fixed costs for the because of a unusual view that renewables can be quite cheap. But you haven't solved the intermittency problem yet, which causes a lot of extra costs. Well, we're we're unusual. I don't agree. We're like experiment because we're an island. We're not part of a series of grids on a mainland where you can buy, you know, electricity or short and so forth. You don't have the dispatchable power you have is heavy fuel oil or oil. Right. Right. Yeah. It's all important. We burn it and then that's how it was made. And it's even worse on the neighbor islands. If it's 32 cents here, it's about four, six cents higher on Maui. And that's even higher on Molokai, even higher overnight. We've had this discussion. Maybe we're getting off track. Yes, I'm sorry. But I can talk to you about this in more detail. Okay. But coming back to think about Hawaii, this may not be the best place to put your climate. Okay. So but coming going back to cars and and so you you put out these factors in consumer preference and the market for cars. Right. So and I agree with you because I recently I went to my dealer. I have a Prius and I said, you know, and I want to trade it in. And then he says to me, my salesperson says, you know, I can give you below blue book. And I said, but it's a Prius. It's it's a, you know, I get a really good mileage. It's clean. It's a beautiful car. And he said that several years ago, he used to sell 40, 50 a month. Now he sells barely 15 because everybody for the same amount of money, they're buying, you know, SUVs and larger cars because the price of gasoline is not so high. Right. Relatively. And there's another issue in this public policy debate, debate. Two issues. One is if because consumer preferences are driving consumers to buy one kind of car and the government regulatory framer is causing them to produce a different mix of fleet. Right. The cost of the more gas guzzlers for a better term, the larger or bigger newer cars, they become more expensive. And so the rate at which the fleet, which the fleet turns over. Right. Because yes, we might sell 17 million new cars in a year, but we have 250 million in the fleet now. Well, we'll come back to that point and explore this question further after this short break for Think Tech Energy in America. Good afternoon, Howard Wigg, codegreenthinktechhawaii.com. I appear on Mondays at three o'clock and my gig is energy efficiency doing more with less. It's the most cost effective way that we in Hawaii are going to achieve 100% clean energy by the year 2045. I look forward to being with you. Aloha. Thanks for watching Think Tech Hawaii and look forward to seeing you at Education Matters on Tuesdays with me, Carol Mon Lee. Hey, everybody. It's me, Ian Davidson, host of a new show here at Think Tech called On The Go. What are you going to get during that show? I can't tell you. I can only tell you that it's going to be fun and it's going to be sometimes and I'm going to have a good time and I hope that you do too. There's a bunch of stuff here at Think Tech. This is just another one. Take a chance on it. See how you like it. Thanks for watching. We're back on this afternoon of Energy in America. We were talking via Skype to our guest in Washington, DC, who is in the middle of all kinds of policy alignments and also keeps his tab, his eye close to what's happening with consumers and cars and prices and so forth, Lucien Bagliadesi. And go ahead, Lucien. We were continuing about a couple of things. And one, you just said that there's evidence that people drive more in fuel-efficient cars. Yeah. So there's two issues to think about. And that's why I think this midterm review. So if you read the press, you feel that the Trump administration has somehow removed the regulatory program to reduce the CAFE standards to 2025. In fact, that is not the case. They've just restored the original review process, which was supposed to take place throughout 2017. So it's back on track. That's what you're saying. Back on the original track. So there are three or four issues that you need to think about. First, we need to talk about the health of the U.S. auto industry. U.S. auto industry, if you just take the production of automobiles and the dealerships, it's about a million people working. And it's about 3.5 percent of GNP. And even the National Academy talked or was concerned that if the technology uptake was not fast enough to meet the mileage standard, there would be something called stranded capital. Now, stranded capital is a buzzword for it's too costly. You're producing a structure that's not really working. I mean, you've got my capital structure is not producing the cars people want to buy. And I have to lay people off. That's so there's the health of the auto industry. And it's a legitimate concern. OK, it's something we should talk about. Second, it's not just the new cars we have to think about, but the fleet. The United States probably has somewhere around 250, 270 cars and light duty trucks in the fleet now. If the new cars become more expensive, the turnover of the fleet slows down. And if you think about something, what's more important, the efficiency of the new cars or the pace at which the fleet turns over and adopts more new cars, you have to think about that. And it's even more serious because it appears that to the extent that the cafe standards raises the price of the gas guzzlers or the least fuel efficient cars that are new, those least efficient cars, that quartile, actually, which has been studied carefully recently, people hang on to them, they become more valuable. And then third, third, a quick one, OK, is if people buy when people buy more efficient cars, they drive them more. That's called the rebound effect. So though all of those factors should allow us to be a very reasoned and careful approach on how we set the standard. So given those, well, ways in that you're saying that uptake could be affected by what you just said, those factors, that the goal is to replace the gas guzzlers with more efficient cars in a timely manner. So given all of that, and we know certain factors are in play with the psychology of consumers and also with with with with with money, you know, how to spend money wisely efficiently. Can the government or automakers get together to somehow develop incentives to do the right thing? So I think actually I think this is the problem. Right now, the whole debate is highly polarized. And so one of the things we ought to do is get all the stakeholders together and see if we if some kind of kind of global arrangement can be made up right now. Of course, you know, California has a special status right and can get a waiver, but that waiver actually was based more on local pollution concerns because air quality conditions in California had historically been quite severe, L.A. based and and other places. And that's a leader in in in some standards, right? I mean, their standards become American standards after one. Yeah, but the interesting thing now is that the big fight is not over local air pollution, but GHG or greenhouse gas emissions, right? And so here it's hard to argue that's a local problem. That's a global problem. And we know from the modeling of the IPCC and others that even if you eliminated all emissions of greenhouse gases from the United States, it has no effect on predicted global temperatures or sea level rise, right? Well, we have continuing rise of cars in India and China and emerging markets. So the question is, should California be given a special waiver because somehow their leadership on this role will induce the Chinese and the Indians to behave differently? Maybe that's true. But that's the debate we ought to have. Right. Well, California does have, you know, I think a 45 million. It's a large population. It's a large population. Yeah, it is quite large. And the other interesting thing about California is that's where the most innovative designs for cars also take place. Am I correct? I don't know. We are, of course, you're talking about the electric car. So you're talking, are you talking about? All kinds of cars that California consumers, but I've seen where I think Nissan, other Ford and others have, have like outposts for their R&D looking at consumer preferences. That's actually true. There's a Mercedes has a facility, Audi has a facility. You're absolutely right. There's several advanced research facilities in California for automobiles. And so, but going back, Kevin, so you see this happening, this midterm review that should have happened is happening now. Right. It's just being restored. Yeah, so it's been restored to his rightful kind of pacing and so forth. So what do you think will happen? Will there be more? Do you foresee or your goal seems to be more of people getting together and really discussing how to, you know, create the right incentives or, or directions? You know, I think all the players, if it were me, if I were king of the United States, I would say, look, the, the order, if you think about, think about the politics for a second, right? You might notice that there were a lot of upset voters in the industrial heartland of the United States. That's correct. Yes. They're the ones that put to employer in those things. That's actually where they make the automobiles. Right. Why don't we start there and say, OK, is there a way we can sustain the health and the economic well-being of the employment and the profitability of the automobile industry and all the parts manufacturers in the U.S. And at the same time, move along a gradient, right, which gets California and more, let's say, environmentally conscious parts of the country satisfied that we're making enough progress. And by the way, making some modest tweaks to the standard might even allow the fleet to turn over a bit quicker, might allow us to do some other things. Maybe we should explore, even God forbid, an increase in the gasoline tax as an alternative strategy for some of this. In other words, we need to fund this corporate tax reform. So I think if we can get both sides to be a little less polarized over this and think about the fact that there are a lot of stakeholders who have a lot, you know, are really concerned about that. And in good faith, they're trying to do the right thing. I suspect we can make some progress on this. But this is Washington. It's not easy. But you're correct that if you go back to the election, you're absolutely right that a lot of the red states or the so-called Rust Belt states or states that had heavy manufacturing saw a very bleak future for themselves. And they saw a Silicon Valley world where they were being outpaced or, you know, kind of put placed aside. And that feeling of alienation came out that America does have a strong manufacturing base. And automobiles is really a part of it. It has been historically. Right. And I don't think it's just, and of course, I'm not a person who believes it's all caused by unfair trade. This is automation. This is shifting consumer preferences. This is, you know, inventory management. We just don't need as many people to produce the manufacturing the manufactured goods that we used to. Right. Right. No, it is a different world, you know. And of course, but the other thing that happened in the early days of the administration was the appearance of Prime Minister Abe to to see Trump. And and of course, there's has been great investment in Smyrna, Tennessee, and Indiana and Kentucky and so forth, of Honda and in Ohio and so forth, Nissan and Toyota in the United States. Do you see more of that happening in the Japanese? Absolutely. I think a major initiative I expect to see from the Japanese, including a personal initiative of Abe-san, is that he wants to see exports of liquefied natural gas expand from the US and for those supplies to move to the Pacific Rim, not just to Japan, but throughout other parts of the Pacific Rim in which Japan plans to take an active role with incentives, technical assistance and soft, soft money to try to encourage greater use of gas as a substitute for coal. So this is the interesting thing. And on one hand, you could argue that Trump is a very anti-climate person. On the other hand, if he succeeds in expanding the manufacturing base, gets more efficient automobiles, we expand natural gas and that gas, as it is doing now in Mexico, replacing heavy fuel oil and begins to replace coal. That can have a substantial improvement to the end. And we're coming to the end with a substantial improvement in our program. Thank you very much, Lucien in DC, for your time and comments.