 Okay, we're back. We're live. I'm Jay Fidel on ThinkTank and this is Energy in America and we are joined by Lucian Pulirisi, who is the CEO of EPRINC, which is an Energy Research and Energy Policy Research ThinkTank in Washington, D.C. Welcome back to the show, Lucian. It's great to have you here. Good to be here, Jay. You look great, by the way. Thanks. Anyway, so we're going to name this, what you need to know about high octane. It's important that we know about high octane. And this little trip is off of a paper that you presented Monday, Tuesday, in this big energy conference in Washington, attended by virtually thousands of people. And you presented this paper to tell them about octane, high octane. Of course, it's related. It means it's a somewhat boring double guy degree, except when you show up at the pump and the numbers are expensive. So let's do the background to this. About the time that we went into the Great Recession and the auto industry was in a massive tailspin. In fact, I have a short video, something I should find for you, where there are brand new Chrysler's in a church and the pastor is praying for the auto industry. That's how dire it was in Detroit. And as part of the bailout of the auto industry at the very beginning of the Obama administration, the auto industry signed up for, which has turned out to be very arduous, expensive and difficult requirements to meet the fuel efficiency standards called the corporate corporate average fuel efficiency standards, also known in the business as CAFE. This standard, which is kind of complicated the way it's implemented more or less requires all the auto manufacturers to both improve the fuel efficiency of their entire fleet year by year, and also the fuel efficiency of their individual automobiles. Now this standard, which moves the, what we call right passenger vehicles, everything but trucks, you know, like trucks up to about 52 to 54 miles per gallon, and like vehicles with your traditional sedans to, let me see, I don't remember on that year, to around 40 miles per gallon. That's impressive, isn't it? I mean, but how do you reach that without spending a ton of money? So what has happened is, that's a really good question. So what has happened is, of course, the first way you reach that is you quit selling sedans and start selling SUVs. So one of the reasons SUVs are very popular is, they don't have as rigorous a fuel economy standard as sedans, because they are viewed as light trucks. So that's why you see a lot of SUVs. The second part is to meet this standard, you can meet it in many ways. You can produce a number of zero emission vehicles, but those are turning to be quite problematical because the subsidies are slowly coming off, they're expensive, and there's a lot of consumer resistance, something called range anxiety. Someone gets an electric car and they have range anxiety, so, and they're worried that they can't go far. It should work fine in Hawaii, but apparently people don't buy just electric cars in Hawaii. And then you could meet it with a range of technologies. So the first thing is, if you want to go to the, but a final way you can meet this is by increasing the compression of your automobile. You know, instead of producing a lot of electric cars, a very advanced technology, you can build a higher compression engine, but you can't build a higher compression engine with today's gasoline. You need a gasoline which has more adverse in it, which resists what we call knocking. Or, you know, knocking is really when the chamber ignites before it should. And you hear this banging sound in your car called knocking. So in order to achieve the higher cafe standard, which is, you know, maybe in some ways very rigorous, maybe even too rigorous for the existing equipment, you have to not only, you have to not only build an engine that's different to achieve the higher compression, but you also have to change the fuel and have a refined engine. And this is where the politics come in in a little bit because the cheap way to meet the standards for the auto manufacturing is to build a higher compression engine because the other alternatives are very expensive. But that has an unusual effect. It makes the cost of gasoline quite expensive and might be under different scenarios to meet the higher octane standard could easily lift gasoline prices anywhere from 25 to 50 cents a gallon. So actually the automobile manufacturers feel well, we don't care, let's let the refiners pay for it. But they're also a little concerned because if you sell a car whose only use can be asked to buy the most expensive gasoline, people might not buy that car. Sure, sure. I mean, you know, and it strikes me that the, if you have two directions to go here, you know, assuming these new cafe standards, you can get off cafe completely and use electric. You can, you know, put your research and development. You can go to the higher compression and better quality fuel on the other side. And it strikes me that, you know, I mean, here in Hawaii, we're all focused on clean energy, renewable energy, and ostensibly, or at least ultimately, electric cars. So if we put our investment into building a car with better compression and finding better quality of fuel, we're going that direction instead of this direction. And it's a distraction from our stated mission of achieving renewable 100% by 2045. Yes, well, unfortunately, inexhaustible does it not necessarily mean inexpensive? This is the problem with these mandates and fixed goals that do not try to evaluate both not just the benefits, but also the costs. And so I think the, this octane paper that we did is sort of the final piece in this debate. There does not appear to be any cheap solutions to meet the fuel efficiency standard, which are now set for 2022. And oddly the government behavior in implementing standards back loaded down. So if you look at the, if you look at a slide on page 18, I don't know if you guys have that. Let's look at slide 18 and see. I think that's really the critical one. If you look at that, you can see that you go out to 2017 or 2018. The way the government wrote us is that politicians like to write regulations that don't occur during their term. This way they don't have to explain why it's so expensive. So they, and if you look at, if you look at the cafe required versus the achieved miles per gallon, you can see that of this regulation, which is supposed to be finished by 2022, most of the heavy lifting is before us. See, the curves are quite steep. Those steep curves in achieving mile efficiency goals for each year's fleet is going to be extremely expensive. Hence, EPA has taken back the Obama decision and is now spending a full year or something called the midterm evaluation to look at the cafe standard and to see if it should be changed. Why would expect that? Wouldn't you, I mean, you know, from Trump's, you know, position on regulations and the things like cafe standards. And on everything that Obama did, he'd be looking to roll it back and take the pressure. It might be, but the problem with this is that this particular standard has historically allowed some states to go their own way. But there's a huge benefit to the American auto industry to have a single standard. Yes, if you have multiple state standards, or California, New York have one standard, then the cost of producing automobiles for the non compl- so called less compliant and the more compliant states goes up in both cases, because you beat down your economies of scale. So most economists, if you really think this is valuable, you should just put a tax on gasoline and let the consumers decide. Yes. Politicians don't like to do that. It might be efficient, but they like to hide the ball. And how you hide the ball is you pass a regulation and you tell everyone it's free. But of course, it's not free. No. So I just want to get one thing straight, and that is that some states are making more ambitious standards, despite whatever the federal government wants to do in terms of So there was a provision in the Clean Air Act, right? This regulations are promulgated under a piece of legislation passed in the 1970s called the Clean Air Act. And the Clean Air Act initially started with California seeking a special waiver to the law saying, look, the smog is so bad in LA, we can't have the same standards as the rest of the country. So when they got a provision to meet local air pollution standards, and as we discussed in the past, so called tailpipe emissions have gone way down. So if you take a 1968 Mustang, it produced about one ton of criteria pollutants for 100,000 miles. Still a great car. The pollutants are lead, sulfur, nitrogen oxide. Today's Mustang does 10 pounds. So the waiver that California is seeking, and which the Obama administration has not yet decided what to do about is for climate, not for smog or air quality. But as we discussed many times, California will have no effect on the world's climate or the California climate. So this is a looming fight. Who should prevail? A single standard for the US set by the federal government or local standards, which in this case are largely symbolic, and have no effect on climate, but could be quite disruptive to the auto industry. So what is what's the bottom line of the paper you presented? You know, the paper I presented was that I didn't present Max, because there are downstream exit presented was that, well, you look at electric cars, you look at all these other alternatives. And everyone was under the assumption that well, this could be fixed with high compression engines, which are not that expensive, and higher octane fuel. But the bottom line of this paper is higher octane fuel is very expensive. So that stands in the way of a market process to allow this to happen. You could either take you can get the higher octane to the addition of ethanol, but you would have to put about 70% of the farmland US and divert it from food to moonshine to use an automobiles. Or you can build a lot of what's so called reforming or octalation units, which are also extremely expensive. So building, putting that all together, Lou, you have, you know, the expense involved in in making in in achieving these standards. And you have on the other hand, the Trump administration and energy department would like to reduce the standards. And then some states would like to maintain the high standards for their own environmental considerations, individually, state by state. Where this is not an easy question. Where is it all going to go? What is a consumer going to want to do? What is what is Trump able to do? What are these states able to do? How are we going to reach a balance here? Yeah, so it's a very good question. And I was I so far have a very poor record of political forecasting. But you always say that your audience doesn't remember. But I think that the I don't think EPA, which is the agency in the federal government will really decide that not deal. I don't think EPA has decided what to do. They're spending this period to take it on. It's also a political decision. I would not put it past Trump to say in 2018, you know, I tried to issue a normal standard, which would not kill the auto industry, but California and New York, and their fellow travelers insisted on the higher standard. And that's why the auto industry in trouble. And that's why you should kick out of office these senators from Michigan. I wouldn't put it past him to do that. And if I were an advisor, I might encourage him to do that. But I'm saying, this is a classic political problem. We keep having this country. We have these people who live in California, New York, some might call elites. I'm the educator. They know it's better for everybody else. And they can be very disruptive, actually, to the traditional constituents of the Democratic Party, which are the workers in the auto policy. I don't think this one is going to be interesting to watch. Well, it just it comes to mind, as we say, from time to time, that energy and politics are inextricably intertwined. Don't you think? Exactly. Lou, let's take a short break. That's Lou Pugirisi. He's the CEO of E-PRINC and Energy Policy Research Think Tank in Washington, DC. Here we are on energy in America. And we're talking, among other things, about what you need to know about high octane. But we'll talk about other things now. We'll talk about the energy research funding bill, which is also very important for research and development in clean energy. We'll be right back. You're watching Think Tech Hawaii, which streams live on thinktechhoaee.com, uploads to YouTube and broadcasts on cable OC16 and Ollello 54. Great content for Hawaii from Think Tank. Aloha, my name is Steven Phillip Katz. I'm a license marriage and family therapist, and I'm the host of Shrink Wrap Hawaii, where I talk to other shrinks. Did you ever want to get your head shrunk? Well, this is the best place to come to pick one. I've been doing this. We must have 60 shows with a whole bunch of shrinks that you can look at. I'm here on Tuesdays at three o'clock every other Tuesday. I hope you are too. Aloha. Okay, we're back. We're live here on Energy in America on Think Tech, and we're talking to Lucy and Pugirisi. He's the CEO of EPRINC, an energy policy research think tank in Washington, DC. And we've talked about, you know, a paper they delivered on octane and the implications of the cafe standards that are supposed to go into effect. The question is whether they actually will. But now we'd like to cover another area, and that is the Energy Research Funding Bill, because this has an effect on the development of clean energy around the country. So tell us about this bill and tell us its status. Will you, Lou? So as you recall, as you may not know, the United States government, largely through the Department of Energy spends a great deal of money on something through an agency called the Advanced Research Project Agency-Energy. And this agency provides guarantee grounds for cutting edge demonstration facilities, factories. It's not a traditional way the government funds science, which is traditionally government funds money and basic research. And then that information, those findings are disseminated widely. And they allow the capital markets, entrepreneurs, to decide how to take that research and use it to make something useful for society, right? So, and the standard thinking about that is that basic research, it really doesn't make sense for any individual company often to do it. But they're huge benefits to disseminating those results broadly. But in the, and I'm not saying that's always the case, the government likes them. So but under the Advanced Research Project Agency, they began to provide guaranteed loans for like automobile companies. For example, Elon Musk, hundreds of millions of dollars of guaranteed loans. A company called Fisker, which went bankrupt, got them. Another company called Cylindra. Do you remember Cylindra? Yes, there was a manufacturer of solar panels. And they went bankrupt in California. And so this created a lot of concern along the Congress where some people believe like it's any sort of hedge fund or any kind of research, most of the projects were doing well, but others have to have a few failures, right? The idea was you would expect some things. But it was a big political fight. But to put it in perspective, though, Lou, this is not direct funding, right? This is not funding where the government just pays one of these companies to R&D. This government was picking winners and losers. This was the real part. So the legislation is now the Trump administration set their proposal for funding to Capitol Hill. Congress tore that up and did their own work. And so because they're all the ones are going to decide what we're going to spend. And so they have started on this. And they have already decided that, for example, the Office of Energy Efficiency and Energy is going to see its budget cut from about $2 billion to $1 billion. That's a big cut. People at the University of why I'm sure worried about this. They probably have some projects there. So that would be worth to look at to see on it. In addition, the House of Representatives is going to completely zero out the Advanced Research Project Agency. Zero down to nothing. I do believe the Senate won't have quite as generous of you. They may try to put some more money into it. Oddly enough, the core of engineers will get a little bit more money. And I know people know, you know, why you like this, but the core engineers is the basic agency that issues something called the 404 permit. And if you want to build a road, or a pipeline, or anything that crosses a so-called Navadol of Water, which under the interpretation of the EPA is a puddle in the middle of your backyard, that you have to get a permit from the United States core of engineers. And so there's lots of complaining that getting that permit is very difficult, takes too long. The Congress is going to give them a bit more money. They're going to sort of keep the nuclear program constant. So this beginning of the budget process is quite interesting. It tells us where we're headed. And other members of Congress are also trying to increase or stabilize the budget for basic science research. So fundamental more conservative views, okay, let's put money into basic research, maybe even more, but cut out the stuff of picking winners and losers. Yeah, so what does this mean? You know, to the people who are developing technology for clean energy? Because I mean, in Hawaii, that's really a mainstream kind of thing. And in fact, we have an energy accelerator here that, you know, is dedicated just to that kind of research and startup entrepreneurial, you know, best practices, R&D. So the question is, how much of that money that might have been funded or guaranteed to these startups who are doing research or these academic organizations that are doing research on renewables? For example, we had a show last week about HNEI's efforts, that's the White Natural Energy Institute efforts at developing fuel cell technology. And they're pretty well advanced. They have scientists here from all over the place. And I wonder if these changes, you know, in the funding bill are going to affect them. So it would be good at some point to maybe do a program with them or to talk to them because fuel cells, fuel cell technology is heavily funded by Toyota, basic research grants in Japan, even in the US. Some advanced, even a Ramco, the Saudi Arabian oil company, is doing a lot of research in the US on automobile technology. So, you know, we have to look to each of these programs and see how much of this is based on federal money? How much is it based on state and private sector grants? And then finally, is it basic research or the funding and enterprise? If you're involved in fundamental research to advance fuel cell technology, and you're disseminating that research, I think those programs are nothing to get that hard. Yeah, well, that's, you know, because Trump himself and his ideological peer group, they've said that they, you know, they're not going to try to change climate change. They're pulling out of the Paris Peace Accord and all that. And the flip side of that is they don't care too much about renewable energy either. And I guess I have some concern that that will filter down through the government, through the Department of Energy and everywhere else, and we'll see less research money for developing renewables. There is a legitimate concern that some of the funding is, I don't want to resort wasteful, but it's not really directed at the most effective. Let's take something that's, that's probably no one who I care about coal, right? Today, the camper, carbon capture and storage coal plant, right, announced that it was shutting down. And the camper facility, which I think might be in Texas, I'm not sure it's shutting down, and it's going to be replaced by a gas facility. Now, is that a good or a bad thing? My view is carbon capture and storage might be a good idea, but it's the people keep trying to deploy it before it's ready, because they get all this either get feed-in tariffs from the local PUC or they get money from from the government. But the evidence is there that CCS is too expensive, given the alternative fuels. So that's probably something it's time to kind of put us, you know, put a stake in it. It's done, you know, it's, we have to accept that everything we're working on is not necessary going to make it. Yeah, well, absolutely true. But let me offer that sometimes, when you have a high profile, high priority project, and a lot of people in Hawaii feel that clean energy is just that, you throw money at it, you know that it's not going to be totally efficient. You know there's going to be some slippage, some waste, but but in order to solve the problem and move ahead, you spend the money and try it out, you take risks, as a business concern would take risks in order to move the needle ahead. The government is going to take it out of the laboratory and deploy it as a commercial entity. That should be a much different standard. Then basic research allows you to try a lot of different things. But if you're going to deploy it, and build a constituency around that commercial enterprise, and it loses money year in year out. I mean, here's the basic problem with I'm going to send you some other information. These things work, they don't get too expensive. But you cannot grow wind and solar with subsidies where the middle class has to spend $500 billion transferring money to the upper class. That's what sort of elective that's why electric car subsidies have to go away. Not because they're you can't keep spending money, but that the people that are taxed are going to stop giving you the money. Okay, $50 billion, I got that. I'm not giving you, I must $500 billion. He needs to make this thing work. It's got to be limits on it for sure. Let me let me ask you this. They're not considered. When you when you put together, you know, the the existing momentum, especially in states like Hawaii, and then you put in the new administration, and then you put in the sensitivity of funding bills, and sort of the leverage of funding bills, how they can affect R&D going forward, both at government levels, utility levels, and for that matter, private entrepreneurs. What is going to happen here? Do you think we will have a slowdown in the development of renewables? Or will it be just fine? You may have a slowdown in government support for renewables. But if renewables are cost effective, I don't think you'll have a slowdown in there. I mean, look, if you can get if you can get the customer base of HECO to pay for this stuff. Why do you need taxpayers across the country to send you on? Yeah, I suppose that's a big question. And it's also a big question as to whether these guaranteed loans have worked so far, or whether they've just been a drain on the on the budget. I'll tell you that if you look at the history of rooftop solar in Hawaii, it's not exactly covered in the morning. I mean, there's a lot of money right down the tubes on that. Well, the good news is you'll be here in August. I will come in and in the studio directly. Absolutely. And I want to take you around and put you together with people to take you to every corner of the energy industry. All the activities we can find so completely exposed you to everything that's going on and a lot is going on. I'm very interested. Well, thanks very much. We'll talk to you again in two weeks hence. And thanks for discussing these two issues with us. And we'll look forward to more. And next time. Thank you so much. Lou, pull your AC.