An open letter to the Honorable Nancy Pelosi, Speaker of the US House of Representatives, from Cal Hodge, Pres. A 2^nd Opinion Inc.

March 16, 2007                    

Subject: Punishing the Energy Industry     

Madame Speaker:

It has been reported that you want to punish the energy industry by taxing them.  If you tax them without relieving the supply tightness, you will be taxing your constituents.  Following the election, you said, "we are ready to govern".  I want to challenge you to do both while solving America's energy crisis.  Also, I am going to suggest how you can do all three.

America needs an energy policy that promotes both domestic production and conservation in an environmentally responsible manner.  If the Congress adopts such a policy, our grandchildren will prosper.

To do this energy legislation has to do three things:

1. Let the oil and gas industry drill any place they think they can find energy as long as they clean up after themselves.         
2. Make our vehicle fleet consume less gasoline and diesel fuel.
3. Encourage the production and use of renewable fuels.

To do the first one Congress has to placate the NIMBYs (Not In My Back Yard people) and the NIYBYs (Not In Your Back Yard people).  To placate the NIMBYs I suggest Congress share the tax revenue from the energy produced in their back yard.  Earmark 25 to 50% of that tax revenue for local schools, hospitals, roads, tax rollbacks etc.  As for the NIYBY people we have to convince them that our need to reduce America's dependence on energy sources controlled by people who do not share our beliefs or values outweighs their esthetic desires.  Linking production increases to demand reductions should placate the NIYBYs.

To make our vehicles more efficient, you need to discard the Corporate Average Fleet Economy (CAFÉ) program and replace it with one in which a buyer of an inefficient vehicle makes a transfer payment to a buyer of an efficient vehicle.  Because the auto industry uses price to convince buyers to purchase more efficient vehicles CAFÉ has had the unintended consequence of making the vehicles America needs the least the most profitable to make and sell.  We need to change that by using transfer payments to reward voters who chose to drive more efficient vehicles.

Successful implementation of steps 1 and 2 will make alternative fuels more uneconomic.  With great reluctance, I have to encourage Congress to enact uniform nation wide mandates and possibly subsidies to protect the capital that has been invested in the renewable fuels industry with Congress's encouragement.   Under a mandate program the most efficient renewable fuels technologies will eventually prevail.  Therefore, I recommend Congress increase the Renewable Fuels Standard to 10 billion gallons of gasoline equivalent and eliminate the subsidies.  Because ethanol contains much less energy than gasoline this is a significant increase.  Because renewable diesel, both biodiesel (mono alkyl esters) and non-ester renewable diesel contain more energy than gasoline this will also stimulate the renewable diesel sector.  It has always bothered me that America would spend about $1.25 per bushel of corn to subsidize ethanol and the farmer only got a dime a bushel.  Therefore, if Congress chooses to grant a subsidy, I recommend a feedstock subsidy program in which a renewable fuel producer gets a voucher, based upon gasoline displaced and the least efficient renewable fuel production technology, which can only be exchanged or used to pay for feedstock.   The subsidy should vary inversely with the price of oil prices and should decline over time to force the renewable fuel technologies to become more efficient.    

Also, if you are interested A 2nd Opinion, Inc. will donate $50,000 worth of my time to helping you sell these concepts to your colleagues.

Now that you have the majority power, I urge you to use it wisely.  Given President Bush's interest in energy, I am sure you can exchange legislation for an effective energy program like I have outlined for some of the social programs that interest you.

For A 2nd Opinion, Inc.

Cal Hodge (signed)

Additional thoughts from the author:

Hodge has been involved in making cleaner motor fuels since he began working for Standard Oil of Indiana in 1967.  During his career pollution from automobiles has decreased 99% due to changes in fuel quality and automotive technology.   He made unleaded gasoline before the 1970 Clean Air Act mandated its use.  He helped formulate Amoco's first unleaded regular gasoline.  He became interested in today's cleaner burning gasoline technology in the eighties when he noticed that the changes being proposed to make gasoline burn cleaner were the same changes he learned to make to improve customer satisfaction with Amoco's 96 octane super unleaded premium in the late sixties.   It is logical that if a vehicle runs better it pollutes less.   While at Valero, he was actively involved in the gasoline reformulation that has reduced cancer risk, carbon monoxide and ozone pollution. More recently, he has become involved in non-ester renewable diesel (NERD) technology.  NERD fuel, a recent advance in technology, is hydrocarbons made from vegetable oil or animal fat.  Adding it to or substituting it for conventional ultra low sulfur diesel fuel reduces NOx, PM, HC, CO and TAP emissions and is a smart choice.  It is fully compatible with the existing diesel fuel blending, distribution and consumption infrastructure and can be made with a minus 30° C. cloud point so it can be used in cold climates.  It is stable so it can be used in standby, emergency and tactical equipment.  Now that diesel engines have to be as clean as gasoline engines, a consumer who chooses to buy a comparable gasoline vehicle rather than a diesel vehicle increases CO2 emissions 25% over the life of the vehicle.  If someone really needs a big vehicle, it should be diesel powered.  He hopes this 2nd Opinion will inspire Congress to improve America's energy future. 

About the author: A 1968 BS/Chemical Engineering graduate of University of Kansas, Hodge is  President of A 2ND Opinion Inc, which advises on regulatory, clean fuels and economic issues. He has 35 years experience in refining and petrochemical economics; strategic planning, fuel formulations, government affairs litigation, product distribution, industry analysis and regulatory compliance.  Hodge also participated in regulatory negotiations that resulted in the US federal reformulated gasoline regulations.  Hodge has held positions with Standard Oil (Ind.), Amoco Corp., Pace Consultants & Engineers and Valero Energy Corp. with a focus on specialization of unleaded premium gasoline blending.   

Contact:  Cal Hodge,  A 2nd Opinion Inc, telephone: (281) 844-4162, email:  a2ndopinioninc@aol.com