There is no more fitting city to host a discussion about the future of energy, and the role of companies like General Motors in securing that future.
After all, this region was the birthplace of the modern petroleum industry. And we sell more vehicles to retail customers in Texas than in any other state.
Being in Houston brings to mind a quote from Larry L. King, the late author and playwright. “For a few precious moments, I am back in Old Texas under a high sky, where all things are again possible and the wind blows free.”
I don’t share these words out of nostalgia. I share them because past is prologue.
From the Spindletop gusher all the way through the mid-1960s, abundant, domestically sourced energy made all things possible for the United States and the winds blew free.
Since then, we have continued to move forward as a nation. But our “high sky” started to close in while I was a midshipman at Annapolis in the late 1960s.
We became constrained and, therefore, less free because demand outstripped supply and America became dependent on imported energy.
The first warning shot came in 1967 during the Arab-Israeli war, but the message wasn’t received until the embargo of 1973.
Ever since then, our vulnerability has been underscored every time a war or a natural disaster spikes prices or interrupts the flow of energy.
Nearly every president since Richard Nixon has grappled with these issues and their solutions have been remarkably similar: Curb demand using moral suasion and regulatory pressure, provide incentives to speed the adoption of alternative energy, and ask the scientists to invent a magic bullet.
But none of it amounted to a cohesive, long-term national energy policy. We were reactive, lurching from crisis to crisis. And before you knew it, we were all wearing sweaters and driving 55 mph (89 km/h).
To be sure, we have made progress. For example, the energy intensity of the U.S. economy declined 21% between 1980 and 2011. However, no president has been able to balance supply and demand.
Now, quite unexpectedly, the United States is on the cusp of achieving long-term energy security thanks to the rise of fuel-efficient vehicles, more energy-efficient homes and factories, and the revolution in domestic oil and gas production.
You all have seen the statistics. The U.S. Energy Information Agency reports that we could become a net exporter of natural gas by 2020, and net imports of energy could be cut roughly in half on a percentage basis by 2035.
The impact on our trade deficit could be enormous. According to Citigroup, achieving energy self-sufficiency could reduce the current account deficit by up to 2.4% of GDP.
At the same time, energy-related CO2 emissions, which peaked at 6 billion metric tons in the 2005 to 2008 timeframe, have fallen and may never again reach that level according to the EIA.
Then there is the impact on working men and women.
Our host, Dr. Daniel Yergin of (consultant) IHS, reports that the unconventional oil and gas industry now employs about 1.7 million people directly and indirectly – a number that could increase to 3 million by 2020.
During the same period, federal and state revenues from unconventional energy could increase more than 80% to $113 billion.
This kind of stimulus suggests to me that “all things may be possible” once again – if we play our cards right.
The question before us now is this: What should the public and private sectors do to ensure that this extraordinary energy gain pays dividends for generations to come?
Let’s start by looking at the role of GM and the auto industry.
Our industry rightfully should play a central role because light-duty vehicles account for about 60 percent of total transportation energy usage in the United States.
Much has already been accomplished. Since 1975, the EPA-estimated real-world fuel economy of cars and trucks has increased from about 13 mpg (18.1 L/100 km) on average to almost 23 mpg (10.2 L/100 km) today.
Consumer demand, competition and the corporate average fuel economy, or CAFE, laws all played a role. But CAFE, at least early on, was onerous for American auto makers.
It was a reactive policy that tried to kick-start the domestic auto makers into building lots of small cars before enough of our customers really wanted them.
It’s no secret that our small cars back then weren’t built to the standards of our other vehicles.
Mercifully, those vehicles have since been recycled into Energy Star refrigerators and other useful goods.
Now we are challenged to meet a new 54.5 mpg (4.3 L/100 km) CAFE standard. But this time around, past is not prologue, because we are deploying technology that will satisfy customers and make an enormous contribution to energy security at the same time.
I don’t want to tip my whole hand to our competitors, but I would like to share some highlights of our fuel economy plan through the 2016 model year.
First, we will reduce vehicle mass. A good rule of thumb is that a 10% reduction in curb weight will reduce fuel consumption by about 6.5%.
Our target is to reduce weight by up to 15%. But if you’re worried that we’re going to throw safety, comfort and performance out of the window to get there, you can breathe easy.
We are doing a much better job optimizing mass efficiency. For example, the new Cadillac ATS – the brand’s first North American Car of the Year – is actually lighter than a comparable BMW 3-Series.
We are also aggressively investing in advanced materials, including nano-steels, carbon fiber and resistance spot welding for aluminum structures.
Next, we are deploying clean diesel engines where they make business sense. For example, we will compete head-to-head with Volkswagen with our new B20-ready Chevrolet Cruze diesel.
We are also improving the thermodynamic efficiency of our gasoline engines using a suite of technologies, including turbocharging, direct injection, variable valve timing and cylinder deactivation.
The good news for Corvette, Camaro and GM pickup fans is that technologies like these mean the death of the V-8 engine has been greatly exaggerated.
It’s counterintuitive, but as our Corvette chief engineer explains, when one of GM’s all-new V-8s runs as a 4-cyl., it produces enough torque to stay in that mode for a very long time, which helps return better fuel economy than smaller engines.
This is a very big deal, especially for our truck customers who want the power of a V-8 when they need it for acceleration, hauling or towing, and the fuel efficiency of a smaller engine when they don’t.
Another major contributor will be vehicle electrification. You know, it’s a sport in some circles to poke fun at electric vehicles, especially at this early stage of their commercialization. But the era of using electricity to help improve performance and fuel economy is already here and the trend is only going to grow.
In fact, we expect to have an estimated 500,000 vehicles on the road with some form of electrification by 2017.
Our plan includes pure electric vehicles like the Chevrolet Spark, extended-range EVs like the Chevrolet Volt and Cadillac ELR and eAssist, a light-electrification technology that allows large cars like the Buick LaCrosse to achieve up to 36 mpg (6.5 L/100 km) on the highway.
So what does all of this mean for energy security? GM’s commitment will save 12 billion gallons (45.4 billion L) of fuel over the life of the vehicles we build between 2011 and 2017.
That’s 675 million barrels of oil we won’t need – a figure nearly equal to our oil imports from the Persian Gulf in 2011.
Importantly, these investments will make us a much more formidable global competitor because fuel economy and CO2 regulations are converging across mature and emerging markets.
Our contributions to energy security don’t end with the vehicles we produce. How we build them matters too, and we’re proud that just yesterday the EPA gave GM its 2013 Energy Star Partner of the Year “Sustained Excellence” award.
From 2005 to 2010, we reduced our energy intensity per vehicle produced by 28%. Going forward, we have committed to achieving a 20% reduction per vehicle in our global CO2 footprint by 2020.
We’re also going to expand our leadership in reuse and recycling. Worldwide, 90% of GM’s manufacturing waste is reused or recycled, and our goal is to have 125 landfill-free facilities by 2025, up from 104 today.
Through these activities we generate $1 billion in annual revenue, and in 2011 alone we diverted 2.5 million metric tons (2.8 million tons) of waste from landfills, which is the equivalent of 38 million garbage bags.
Before I move on, I’d like to say a few words about natural gas as a motor fuel, because I think it represents a huge and largely untapped opportunity for commercial fleets and long-haul truckers to save money and contribute to cleaner air.
The bigger the truck and the more it’s driven, the bigger the savings. For example, a typical 5,000-vehicle light-duty fleet could save $10 million or more annually by switching to compressed natural gas.
That’s a powerful demand stimulus, and a key reason why we recently expanded our portfolio to include three-quarter ton bi-fuel pickups and dedicated CNG-powered vans.
By contrast, a typical Class 8 operator could save $2,500 to $3,500 per month by switching to liquefied natural gas. That means the ROI can turn positive in as little as a year or two despite the higher cost of the equipment.
Companies will line up for savings like this – provided the fuels are accessible. For example, there are only about 1,200 CNG stations nationwide and half of them are in just five states. LNG is even scarcer: there are only about 66 stations in 10 states.
It’s very encouraging to see companies like Clean Energy Fuels take the initiative to build a nationwide LNG refueling infrastructure, because it’s going to encourage faster adoption.
But more work needs to be done to ensure that CNG and LNG aren’t relegated to niche status.
That would be a tragedy because big rigs burn some 25 billion gallons (94.6 L) of diesel annually, which require 2.5 billion barrels of crude to produce. That’s an amount equal to about one-third of our total crude imports.
Everywhere you look, there are opportunities to seize the energy high ground. Indeed, our leaders have been presented with an historic opportunity to create a national energy policy from a position of strength and abundance.
The pillars of such a plan must include energy diversity, so we do not become dependent on any one fuel or energy source. In other words, we must continue to develop all forms of domestic energy, including renewables.
Energy efficiency must remain a core component so we can absorb the impact of prosperity and population growth.
And we must continue to make meaningful, long-term investments in nascent technologies to drive CO2 emissions even lower.
GM’s own experience shows these pillars work. Enshrining them in a cohesive national energy policy would help the United States build a sustainable, long-term competitive advantage, just like it’s doing for GM.
How then should the country proceed?
I believe the president should immediately appoint a blue ribbon commission to develop a 30-year energy policy framework with checkpoints every five years.
The commission needs to include a broad cross-section of energy producers and energy consumers, and they should be given a straightforward charge: Develop a plan to improve our standard of living by extending the duration of the natural gas and tight oil “dividend” for as long as possible.
In my lexicon, “standard of living” means affordable energy with certainty of availability, cleaner air and water, lower CO2 emissions, a significantly lower trade deficit and balanced budgets.
As I have tried to stress here today, we are making progress on some of these fronts.
But imagine what could be accomplished if the oil, gas and mining industries, renewable energy companies, utilities, labor groups, and producers of consumer durable goods like GM worked together to negotiate the necessary trade-offs and emerged with clear targets and a timeline to advance our national energy agenda.
It would create our first sustainable consumer-driven energy policy, which in and of itself would raise the odds of success exponentially.
But even more than that, a 21st century energy policy would give us the freedom to focus on the needs of customers and the planet, under a high sky where all things are again possible and the wind blows free.
Thank you very much for your attention.
Daniel F. Akerson is Chairman and CEO of General Motors. He joined GM’s board of directors in July 2009 and took his current role in 2010.