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    THE ROAD TO

    CLEANER & CHEAPERA Handbook of Transportation and Related Energy Choices

    2009 and Beyond

    Prepared for Consumer Watchdogby Judy Dugan

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    TABLE OF CONTENTS

    EXECUTIVE SUMMARY ...................................................................

    GRADING THE OPTIONS............................................................... ENERGY MARKET OVERSIGHT AND REGULATION ..................................

    RENEWABLE FUELS AND CLEAN VEHICLES ..........................................

    WHO PAYS, WHO BENEFITS ..............................................................

    INTRODUCTION ...............................................................................

    BIG-PICTURE POLICY ESSENTIALS .................................................

    REGULATE ENERGY TRADING MARKETS .............................................

    REGULATE U.S. REFINERIES AND FUEL SUPPLIES ..................................

    ALTERNATIVE TRANSPORTATION FUELS AND VEHICLES ............

    HYBRID/PLUG-IN HYBRID/ALL-ELECTRIC VEHICLES ...............................

    POLICY RECOMMENDATIONS ..................................................

    ETHANOL ....................................................................................

    POLICY RECOMMENDATIONS ................................................. BIODIESEL ...................................................................................

    POLICY RECOMMENDATIONS .................................................

    NATURAL GAS .............................................................................

    POLICY RECOMMENDATIONS ..................................................

    HYDROGEN ..................................................................................

    POLICY RECOMMENDATIONS ..................................................

    COAL-TO-LIQUID FUELS .................................................................

    POLICY RECOMMENDATIONS .................................................

    PAY FOR CHANGE FAIRLY ..............................................................

    END NOTES ....................................................................................

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    1. GRADING THE OPTIONS:

    In order to spend taxpayer money wisely and make smart

    choices about our transportation policy, policymakers must

    distinguish between policies, programs and technologies

    that have a broad public benet and those or which the

    benets are narrowly accrued by special interests. Consum-

    er Watchdog has graded many o the technologies and uels

    being debated in the planning or Americas energy uture.The details discussed in the handbook are important and o-

    er some caveats to these grades, but in summary:

    Grade A Hybrid, Plug-In Hybrid and All-Electric vehicles

    Grade B Ethanol and Biodiesel ueled vehicles

    Grade C Natural Gas ueled vehicles (higher grade or usein short-haul bus and truck feets)

    Grade D Hydrogen ueled vehicles

    Grade F Coal-based transportation uels

    2. ENERGY MARKET OVERSIGHT AND REGULATION:

    The neglect and demolition o reasonable government over-

    sight o the oil industry has cost motorists billions o dollars

    and wreaked havoc on the economy and the environment.

    Energy markets and renery operations in particular suer

    rom lack o modern regulation.

    There are two crucial sources o unreasonably high pump

    prices, both tied to the deregulatory ocus o national ener-

    gy policy over the past several decades: rapacious specula-

    tion o commodity traders both in and outside o oil compa-

    nies and market manipulations by oil reners.

    Energy commodity markets require a major regulatory

    overhaul to distinguish between pure nancial speculation

    and transactions involving actual buyers and sellers. All

    trading should be ar more transparent; nancial specula-

    tors, including nancial trading departments inside major oil

    companies, should also play by tougher rules. These include

    putting up more o the value o a trade in each transaction,

    limits on highly complex trading schemes that can be mis-

    used and overall limits on daily trades. In order to protect

    against a speculation-driven and distorted global commodity

    market or renewable uels, regulation o biouels must be

    established in concert with the expansion o the biouels

    market.

    EXECUTIVE SUMMARY

    This handbook oers solutionsor the most visible and perva-sive sector o the current oil/en-vironmental crisis: transportationby automobile. Americans travelmore than 3.5 trillion vehicle milesper year1 (not even including occa-sional long-distance drives). Theyace oten-staggering gasolinecosts and emit millions o tons opollutants. Our assessments andrecommendations aim at reduc-ing the use o oil as a personaltransportation uel while oer-ing consumers alternatives thatare ultimately both cleaner andcheaper.

    Consumer Watchdog agrees withproponents o energy efciencyand conservation that both areast, eective ways to reduce alltypes o ossil uel dependence.These solutions are intertwinedwith vehicle use, and addressedhere only in that context, or ex-ample in higher CAF standards.Similarly, attention to mass tran-sit is essential. But mass transitwill not address the problems omillions o Americans who lackaccess to robust urban transit sys-temsmeaning most Americans.

    In the handbook, we highlightpolicies aimed at more eectivelymonitoring and regulating the oilindustry and ensuring that theclean uels and technologies oour automobile uture dont be-come the next energy oligopoly.

    We also grade the various alterna-tive uels in order to help policy-makers and the public assess thechoices or the uture o automo-bile transportation.

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    Oil rening has become a tool or oil companies and other

    large players to manipulate uel supply to keep prices up.

    The regional gasoline price spikes accompanying 2008s

    Hurricane Ike were exaggerated by rener cutbacks that

    had already let the nation with its lowest gasoline supply in

    years. The price spikes ater Hurricane Katrina in 2005 were

    even more dramatic and lasting, needlessly so. The Depart-

    ment o Energy should have power to require an average

    30-day national supply o gasoline on hand rather than therecent 20-22 day supply average. Reners should be re-

    quired to report their cost o oil and their wholesale prices

    or nished products, such as gasoline and diesel, to enable

    regulators to prevent price-gouging at the wholesale level.

    Renery industry data should be publicly available down to

    the level o individual reneries, and ultimately renery pro-

    its should be regulated along the model o public utilities.

    3. RENEWABLE FUELS AND CLEAN VEHICLES:

    Policy choices can transition our transportation system to

    more ecient, cleaner and cheaper uels, without having to

    pick the exact ormula. However, policy should be guided

    by realistic, consumer-oriented thinking that does not en-

    courage wasteul projects such as transportation uel rom

    coal.

    Hybrid vehicles and the coming generation o plug-in hy-

    brid vehicles have ew environmental drawbacks; they can

    calmly coexist with, and be improved by, biouels. Electric

    hybrid-diesel vehicles, or instance, will be able to burnbiodiesel without modication and achieve higher mileage

    than gasoline-electric hybrids. All types o dual-uel hybrids

    should be encouraged.

    Biouels promise is limited today not by the availability o

    vehicles but by lack o ueling inrastructure and the draw-

    backs o using crops as eedstocks. Policy decisions should

    ocus on second-generation biouels and regulated develop-

    ment o ueling stations at existing gasoline stations.

    Compressed natural gas and propane are cleaner than gaso-

    line and are useul transitional uels or urban bus and com-

    mercial feets, such as short-haul trucks. Policy decisions

    should encourage these appropriate uses, but not at the

    cost o increased liquid natural gas imports or higher utility

    rates.

    Hydrogen remains a chimera, because o vehicle cost and

    the energy cost o producing hydrogen as a uel. While its

    promise o emission-ree vehicles will continue to entice ad-

    EXECUTIVE SUMMARYCONTINUED

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    herents, the lack o even remotely near-term viability makes

    it a lower priority approach. Coal-to-liquid uel is no more

    than a pork magnet or the coal industry, more polluting

    than petroleum and a distraction rom better alternatives.

    3. WHO PAYS, WHO BENEFITS:

    Switching to a transportation economy that uses ar less pe-

    troleum does not come ree, but the transition can be air--sotening costs to consumers through direct and indirect

    subsidy and requiring corporations and shareholders to bear

    part o the burden.

    Congress must rst eliminate billions o dollars worth o

    unjustiable petroleum subsidies and tax excess petroleum

    prots, returning some o the proceeds to consumers and

    investing the rest in renewable energy.

    Carbon tax, auction and trade, or cap and trade systemsthat will be negotiated in Congress will garner billions in

    ederal revenue. While these alternatives are not speci-

    cally discussed in this handbook on transportation, oering

    substantial consumer credits and other direct incentives to

    oset the initial costs o reducing emissions will be impor-

    tant in reducing transportation use o ossil uels.

    EXECUTIVE SUMMARYCONTINUED

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    INTRODUCTION

    Transportation is the immediate and amiliar measure or consumers othe cost and quality o daily lie. Every driver knows the cost o a gallono gasoline. Every amily sees the strain o roller-coaster energy costs onits budget, while worries about global warming and pollution grow more

    important to their daily decisions. Consumers want solutions, but they dontwant to be pick-pocketed to get there.

    President Obama has stated that, despite the deep recession, a greenerenergy policy is among his top three priorities. The United States is ar moredependent than other developed nations on cars and roads, something thatcannot be switly undone. But it can become cleaner in aordable ways.

    That is the point o this plain-language handbook, which gives grades oA to F or vehicles and uel choices based on their balance o cleaner andcheaper.

    About 70% o the oil consumed in the United States is or transportation,which accounts or 30% o U.S. carbon dioxide emissions, second only topower generation. The U.S. goals o reducing oil dependence and slowingglobal warming will succeed or ail in large part on decisions by Congressand the president about transportation uels and vehicles.

    The 2008 U.S. fnancial meltdown was accelerated by oil prices over $145 abarrel and motor uels topping $4.00 a gallon. A temporary, dramatic dropin uel prices and the serious economic recession will tempt policymakers

    to delay action. But delay in developing strong transportation policies willurther weaken already shaky markets or alternative vehicles and uels,including new generations o biouels and plug-in hybrid vehicles. Stabilityis everything in sustaining new technology and creating the green jobs thatgo with it.

    Wearied by economic recession and greed-driven corporate implosions,Americans will not trust policies that aid only corporate master plans.Government must be visible as a protector against corporate excessand market manipulation, in new green markets as well as traditionalenergy. Policies must create green jobs and cushion the costs o change or

    individuals.

    I government visibly gets oil markets and oil companies under regulatorycontrol, i transition costs are airly and transparently shared, and i theenvironmental benefts are clear, consumers will embrace the goal o acleaner transportation system that ultimately will be cheaper than staying onthe petroleum roller-coaster.

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    REGULATE ENERGY TRADING MARKETS:

    Modernize regulation to account or and curb energytrades that are entirely speculative. Much o the 2008price spike in crude oil was driven by electronic trading mar-

    kets in which only a raction o sales involved physical oer

    or delivery o products. This nancial-only trading, known

    as noncommodity trading, has purely prot-seeking goals,

    unlike hedges against loss in the physical purchase and saleo energy products including oil and natural gas.2

    Require higher margins rom fnancial-only trades.Margins, meaning the amount o a trades value that trad-

    ers must pay up ront, are set as low as 5%-7% in energy

    utures markets, unlike the 50% o value required upront

    rom stock traders. The low margins were originally in-

    tended to help producers and buyers hedge their own sales

    and purchases without taking capital out o productive use.

    Today, low margins and regulatory loopholes allow nan-cial speculators to control too much actual product or too

    cheap a price. The margins on nancial-only trades should

    be raised to match the stock markets 50% requirement.

    Limit fnancial-only trades in size and requency. Regu-late and require ull disclosure o exotic energy trading

    schemes that may have the intended or unintended eect

    o increasing prices and price volatility. Set a hard daily limit

    (say, 3 million barrels) or holdings o petroleum products

    by the parent company o any trading entity across all trad-

    ing platorms, not just those, like the New York MercantileExchange (NYMEX), that are currently regulated. The limit

    must apply to the parent company to prevent a single owner

    rom spinning o multiple unds to evade the limits.

    Support dispersed markets or biouels. Oil and gaso-line operate as a worldwide integrated market because

    gasoline is made rom a single, capital intensive eedstock.

    That model alone will not nurture new generations o envi-

    ronmentally superior and cheaper biouels, in which a vari-

    ety o relatively bulky competing eedstocks with relatively

    low capital requirements, (such as cornstalks, algae, wood

    waste and switchgrass) can keep the new crude uels

    prices lower. The 2008 ederal arm bill made a step in the

    right direction in avoring small biodiesel producers (less

    than 150 million gallons) or certain subsidies.3 That creates

    more local jobs in the green economy and would tend to

    establish pricing on actual regional cost o production. Fuel

    rening and distribution must be integrated and centralized

    enough to reach consumers eciently, with a watchul

    1.BIG-PICTURE POLICY

    ESSENTIALS

    Regulation is essential in orderto create efcient markets thatprotect both investors and con-

    sumers, as the fnancial marketmeltdown so sharply illustrat-ed. In energy markets, oil pricesthat rose in the summer o 2008to more than $145 a barrel, thenplunged to less than one-thirdthat price, demolished the excusethat only supply and demandwere at work. Gasoline prices ol-lowed the price o oil up, yet ellmore slowly as refners and mar-keters sought to recoup profts.

    Neglect o regulation damagedconsumers, the economy and theenvironment. Roller-coaster pric-ing also creates start-and-stop de-velopment o renewable energysources.

    As U.S. markets in renewable uelsdevelop, government must over-see and regulate them to preventthe market concentration, gaming

    and profteering that surround thepetroleum industry.

    Consumers also view excessivetax breaks or highly proftableoil companies as a ailure o gov-ernment to balance corporate de-mands with the common good.Oil company subsidies must berecaptured to und renewable u-els and energy, as well as directconsumer subsidies or greener

    technology and reduced energyconsumption.

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    regulatory eye or market abuse as the systems grow.

    REGULATE U.S. REFINERIES AND FUEL SUPPLIES:

    A transition to cleaner, cheaper uels should not be an

    excuse or oil companies to reduce supplies and make

    higher prots rom selling less gasoline and diesel.

    Even as the oil industry is demanding the right to drill inmore coastal waters, the rening end o the industry has

    reduced production o uels, keeping national supplies low

    in historic terms and thus subject to sudden price spikes

    in the event o any interruption o production. In recent

    years, the oil industry has oten exported uels or reduced

    rening in order to maintain or increase upward pressure on

    gasoline and diesel prices.4 And, with virtually no regulatory

    oversight, the price o gasoline is easily disconnected rom

    the price o crude, which is why as oil prices ell rom their

    $145 a barrel peak in the autumn o 2008, gasoline pricesdropped much more slowly.

    Low supplies o rened product make uel prices

    excessively vulnerable to sharp price spikes in the event

    o natural disaster or renery outages. The aims o public

    policy should be to:

    Makemorerenerydataavailabletothepublic.The

    Energy Inormation Administration (EIA) already gathers

    substantial detailed inormation on renery operations,

    company by company. The EIA publishes days o supply o

    gasoline available nationally but not regionally,5 as it doeswith the rate at which reneries in aggregate are utilized.6

    Such inormation should be available by state, by region,

    by company and individual renery. Currently, there is no

    requirement that reneries even report outages, which

    switly aect prices.7 In an industry as concentrated and

    uncompetitive as petroleum and rening, this detailed

    inormation should not be shrouded as a trade secret.

    Intheeventoflowsuppliesandintheabsenceof

    natural disaster, the Secretary o Energy should have the

    power to require reners to produce uels at a rate that

    keeps a 30-day average supply o gasoline and ethanol-

    blended gasoline on hand nationally. This would return

    supplies to the average o the early 1990s8 and greatly

    reduce price volatility, under both normal conditions and

    during natural disasters. The current average supply is 20-22

    days and usually less in the West. Reneries nationwide

    have recently operated at well below their stated capacity,

    according to EIA data, even in periods o high prices,

    particularly in 2006 and 2007.

    1.BIG PICTURE POLICYESSENTIALS CONTINUED

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    Overseereneryoperationstopreventunjustied

    and unnecessary shutdowns. Inspect acilities more

    requently to assure adequate maintenance and saety and

    diminish accidental shutdowns.

    Requirereneriestoreporttheirrawmaterialand

    operating costs, to prevent de acto price-gouging. The

    public and policymakers should know reneries actual cost

    o uel production and have the right to protest excess protmargins.

    Overseeimportsandexportsoftransportationfuels.

    The Energy Secretary should have the power to slow uel

    exports or increase imports in times o price or supply

    emergency. For instance, as diesel uel prices were spiking

    in 2008 to records near $5.00 a gallon in the West, reners

    raised their exports o nished diesel uel.9 Government had

    no mechanism to curtail these exports to protect the U.S.

    economy.

    Ifgreatertransparencyandoversightofthefuel

    supply do not prevent rener gaming o supplies, institute

    utility-style regulation o rening. Instead o requiring

    regulatory approval o consumer prices, regulation should

    be aimed at renery prot margins. While regulated

    reneries would not suer long-term losses, they also

    could not increase margins above a set long-term average.

    Consumers would benet rom greater price stability.

    Reners, both independent and integrated, would reap

    an average prot based in part on their reinvestment inenvironmental upgrades.

    Eliminateundergroundtanksthatstillholdmidgrade

    uel at some stations. Midgrade is the lowest-demand uel,

    and eliminating a separate midgrade storage tank at stations

    that still have them would have the eect o increasing

    available supply and/or reeing up a storage tank or

    biouels. Stations could still blend midgrade gasoline with

    a pump that mixes rom two underground tanks, as many

    already do.

    Closelyoverseemarketsfornishedbiofuels,such

    as E85 and B90, as ueling inrastructure is developed and

    market share increases. Encourage regionalized production

    and distribution.

    Protectcleanfuelsfrompricewars.Usespot

    subsidies at the pump i necessary to keep renewable uel

    prices competitive with petroleum and suppress deliberate

    price undercutting by oil reners.

    1.BIG PICTURE POLICYESSENTIALS CONTINUED

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    Prohibitanycontractbetweenmajorbrandedoil

    companies and uel retailers that discourages the addition

    o biouel pumps under the same canopy as the branded

    uels. Current contract restrictions make the addition o

    biouel pumps costly and oten require the building o

    new tanks, new ueling areas and new canopies. Major oil

    companies say they are merely trying to prevent the sale o

    uels that they did not produce under their branded canopy;

    the regulatory removal o contract restrictions would thusencourage major brands to produce their own biouels.

    1.BIG PICTURE POLICYESSENTIALS CONTINUED

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    HYBRID/PLUG-IN HYBRID/ALL-ELECTRIC VEHICLES:Grade A

    PRO: Hybrid vehicles are the quickest path to highermileage and lower petroleum use on the road. Conventional

    hybrids established consumer popularity paves the way or

    plug-in hybrids, dual-uel hybrids and possibly or all-electric

    vehicles.

    The current Toyota 46-50 mpg Prius and the 43-mpg Honda

    Civic hybrid cost up to a ew thousand dollars more than

    similar conventional cars. But in times o high gas prices, as

    in 2007 and much o 2008, the time needed to pay back

    the buyer through gasoline savings is as short as two to

    three years, even without ederal tax incentives.10 Even the

    new Ford Fusion hybrid, larger than the Prius, will get near

    40 mpg.11

    Commercial plug-in hybrids are expected to get up todouble the miles per gallon o conventional hybrids.

    Diesel-electric hybrids engines get higher mileage

    than gas-electric hybrid engines (all diesel engines get

    comparatively higher mpg than gasoline engines) and would

    have the added environmental advantage o being able,

    without modication, to run on high-percentage blends o

    biodiesel, or 100% biodiesel. Manuacturers currently see

    diesel/electric passenger cars as too expensive or broad

    consumer production,12 but diesel-electric engines are now

    being produced by at least one heavy-equipment maker,Komatsu.13

    The next-generation lithium-ion battery or plug-in hybrids

    is expected to reduce the size, weight and cost o hybrid

    batteries. Lighter and smaller lithium batteries, as a bonus,

    are also showing crossover promise as power storage

    medium or solar and wind power: Lithium battery storage

    at power plants could thus recharge lithium car batteries at

    night.14

    Hybrids and electric vehicles will likely have lower lietime

    engine maintenance costs because the engine design

    has ewer moving parts, which reduces wear. This is an

    anecdotal observation and a ripe subject or study.

    The lie-cycle environmental benets o electric motors

    and batteries will continue to improve as more electric

    generation comes rom wind and solar, and less rom coal

    and other ossil uels.

    2.ALTERNATIVE

    TRANSPORTATION

    FUELS AND VEHICLES

    Any successul eort to reducepetroleum dependence in the U.S.

    will depend on cutting our use opetroleum uelsgasoline anddiesel. Heres an evaluation o al-ternative uel and vehicle possi-bilitieswhats good, whats bad,whats possible, and how to getthere.

    Alternative Fuels Hybrid/Plug-In

    Hybrid/All-Electric Vehicles

    Hybrid-electric vehicles run on con-

    ventional gasoline or diesel engines

    that are boosted or partially replaced

    by electric batteries that are more

    advanced than the amiliar lead-acid

    batteries in conventional autos. They

    are recharged while driving, especial-

    ly when the car brakes or slows. The

    more powerul the battery in relation

    to engine size, the greater the uel

    savings. Plug-in hybrids, which are

    nearing commercial introduction, run

    or at least tens o miles on batteryalone, urther reducing uel usage

    and nearly eliminating uel use or

    average urban commuters. Batteries

    are recharged during driving and with

    an exterior plug. All-electric vehicles

    skip the conventional engine and run

    on rechargeable batteries alone, but

    or a limited number o miles beore

    recharging.

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    CON: The clean-air and greenhouse benets o electric andplug-in hybrid vehicles are diminished to the extent that

    their recharging power comes rom coal and other ossil

    uel-burning power plants.

    Plug-ins and all-electric vehicles at this point carry a hety

    price premium, which may all with larger production.

    Large vehicles, including SUVs, that are marketed as hybridsoer a low percentage improvement in mpg because o

    small battery size in comparison to engine size. They are

    a marketing tool used as greenwash or carmakers overall

    low mpg and an excuse or oten ridiculously higher sticker

    prices.

    While plug-ins will recharge o o conventional household

    current, and run on gasoline as necessary, all-electric

    vehicles ace a dearth o public or corporate charging

    stations. One pilot commercial project may set up electric-car battery swap stations in Northern Caliornia and Israel,

    but most major auto manuacturers have so ar declined to

    participate, limiting the stations reach.

    Hybrid-vehicle batteries, i disposed o improperly, could

    pose an environmental threat. However, current hybrids

    nickel-metal-hydride batteries pose substantially less threat

    than conventional autos lead-based batteries.15 The next

    generation o lithium-ion batteries will pose even less

    environmental threat, according to Environmental Deense.

    POLICY RECOMMENDATIONS:

    Consumer tax credits. Restore purchaser tax credits andcarpool-lane incentives or the highest-mileage current

    hybrids. A $1,500 credit would make the current crop

    o hybrids competitive with gasoline engines. Transer

    the credits to plug-in hybrids as they become widely

    available. Develop consumer education about the longer-

    term gasoline savings that would pay back any remaining

    dierential in initial price.

    Federal incentives. Stabilize and extend ederal incentivesor U.S.-based hybrid vehicle development and production. In

    turn, require dened mpg goals or subsidies, and agreements

    to create extensive green-collar job training and hiring.

    Battery disposal. Follow Toyotas lead. Toyota has themost comprehensive battery recycling program, including

    a $200 bounty payment or batteries that slip through the

    recycling net.

    2.ALTERNATIVE TRANSPORTATIONFUELS AND VEHICLESCONTINUED

    Hybrid and Electric Vehicles

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    Diesel hybrids. Encourage diesel-electric hybrid enginedevelopment or public transit, heavy equipment and, as

    cost-appropriate, or passenger cars. Diesel hybrids get

    higher mileage than gasoline hybrids, and ultra-clean low-

    sulur diesel uels make such hybrids desirable even without

    biouels.

    Higher MPG standards. Further increase U.S. feetmileage requirements (CAFE standards) to at least 40mpg over the next 15 years to push development o better

    hybrids and lower-cost electric/plug-in vehicles.

    2.ALTERNATIVE TRANSPORTATIONFUELS AND VEHICLESCONTINUED

    Hybrid and Electric Vehicles

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    ETHANOL: Grade B

    PRO: Ethanol, which is made in the U.S. primarily romcorn, can also be made rom multiple renewable plant and

    even waste sources.

    Ethanol displaces petroleum and increases U.S. energy

    independence. The 2008 energy price crisis would have

    been even more painul without the small percentage oethanol that is already blended into conventional gasoline.

    Gasoline blended with up to 10% or 15% ethanol produces

    a cleaner-burning uel or use in any gasoline-powered

    vehicle. Commercially produced fex-uel vehicles run on

    either gasoline or a blend o 85% ethanol and 15% gasoline

    known as E85.

    The corn ethanol industry has created skilled U.S.-based

    industrial jobs, inrastructure and a business model oruture cellulosic ethanols made rom more desirable

    eedstocks, including agricultural and orest waste, even

    algae.

    Such second-generation ethanols, which are in

    development in the U.S., have a higher uel eciency and

    a cleaner-than-corn environmental lie-cycle prolewhats

    called in the petroleum industry a well-to-wheels emission

    assessment. For instance, Brazilian ethanol made rom

    sugar cane produces more and cleaner ethanol per pound o

    eedstock than corn.

    CON: Corn ethanol uses a major world human and animalood crop (though the byproduct let ater ethanol is made

    can be blended with animal eed). Corn ethanols lie-cycle

    environmental benet, i it includes emissions rom plowing

    new cropland and industrial agriculture practices, is low.

    However, this can be a deceptive measurement in that it

    usually omits comparison with the dirtiest oil sources, such

    as tar sands.

    There is little ueling inrastructure or E85 ethanol uel.

    There are more than 1 million fex-uel vehicles on the

    road16 but only 1,200 to 1,800 E85 ueling stations out o

    140,000 lling stations in the U.S. Many o the E85 stations,

    however, are private or or feet cars only. Public stations are

    heavily concentrated in the Midwest corn belt. In Caliornia,

    or instance, there are only three public E85 stations.17

    Major oil companies have curbed the installation o biouel

    pumps at their branded stations with harsh restrictions in

    2.ALTERNATIVE TRANSPORTATIONFUELS AND VEHICLESCONTINUED

    Alternative Fuels Ethanol

    Ethanol is an alcohol uel, lighter than

    gasoline, that can be produced rom

    all kinds o plant sources and even

    household waste sources. Its the

    uel equivalent o moonshine, and is

    by nature high-octane. Most gaso-

    line engines, with modications to

    increase the compression ratio, can

    run on ethanol. It produces ar less

    tailpipe emissions, particularly o the

    greenhouse gas carbon dioxide, than

    petroleum uels. Ethanols overall

    emission reductions, however, de-

    pend in large part on what eedstock(crop or other biological source) is

    used to produce it.

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    their contracts with dealers- -or instance orcing stations

    seeking to test the alternative uel market to erect separate

    (and costly) ueling areas or biouels, including E85.18 Most

    U.S. fex-uel E85 vehicles run largely on gasoline or lack o

    a convenient place to uel up with ethanol.

    Ethanol gets up to 25% ewer miles per gallon than

    gasoline, though this depends on how the engine is tuned:

    Ethanol burns most eciently at higher engine compressionthan gasoline. Because fex-uel vehicles are tuned primarily

    or gasoline, their mileage on ethanol is markedly poorer.

    POLICY RECOMMENDATIONS:

    Federal credits: Continue and extend ederal unding orcellulosic ethanol technologies, but continue corn ethanol

    tax credits at a level that preserves inrastructure and green

    jobs. Shit unding rom corn to cellulosic technologies

    as they prove commercial scalability. Increase assistanceprovided in the 2008 arm bill to help corn ethanol

    companies retool or new eedstocks, preventing plant

    closures. Dont try to pick a winner, which would repeat

    the market distortion caused by backing corn ethanol

    exclusively in the 1990s.

    Fueling stations: Build ueling inrastructure or E85.Require that oil companies remove contractual barriers to

    sale o biouels at branded gas stations. Oer incentives,

    low-cost loans and grants to station operators.

    Flex-uel vehicles: As ueling inrastructure increases,allow and encourage actory and owner re-tuning o fex ue

    vehicles to avor more ecient use o E85. This may require

    modest Environmental Protection Agency and state-level

    changes in emission regulations.

    MPG standards: Increase U.S. vehicle feet mileagestandards (CAFE standards), while continuing mileage

    allowance or ethanol.

    Cane ethanol: In the short term, consider liting taris orlimited imports o more ecient Brazilian cane ethanol.

    Establish limits that prevent rainorest destruction and

    protect domestic cellulosic technologies.

    Also consider more ethanol imports rom Caribbean Basin

    nations. The ederal Caribbean Basin Initiative already allows

    substantial imports without tari, and transport costs would

    likely be lower than rom Brazil.

    2.ALTERNATIVE TRANSPORTATIONFUELS AND VEHICLESCONTINUED

    Alternative Fuels Ethanol

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    BIODIESEL: Grade B

    PRO: The diesel engines that run almost all heavy trucksand trains get substantially higher mpg than gasoline

    engines, and biodiesel is the cleanest renewable uel.

    Almost any diesel engine will run on a biodiesel mix up to

    B90.

    Like ethanol, biodiesel replaces petroleum, increasingenergy independence.

    There is promising research on producing biodiesel rom

    algae, which would ease pressure on soybeans, currently

    the chie commercial eedstock or biodiesel. The uel

    can also be produced rom animal at waste rom meat

    production, recycled used cooking oil or any plant-based oil.

    The production o biodiesel is less complicated than or

    ethanol, simple enough that make-it-yoursel instructions orthe dedicated and thrity are copious online.

    CON: Virgin diesel made rom soybeans, while simplestrom an industrial-production viewpoint, displaces a ood

    crop. Higher soybean use in uel, high oil prices and planting

    o corn in ormer soybean acreage all aect price.

    Soybean prices in spring o 2008 had near-tripled rom a

    year earlier, making soy diesel uneconomical to produce

    despite high diesel uel prices. Biodiesels price remained

    uncompetitive with petroleum diesel uel at the end o2008, though the price o soybeans had dropped ar o its

    high point.

    Biodiesel has a variably lower energy content than

    conventional diesel.

    Truckers are wary o variable uel quality and biodiesels

    higher gelling temperature, which makes it a dicult uel

    in cold climates.

    POLICY RECOMMENDATIONS:

    Encourage B20 Use: The 2008 arm bill encourages useo 20% biodiesel uel in government vehicles. Even when

    biodiesels price is above that o diesel, such blending is a

    clean-air boon and should be encouraged with long-term tax

    credits. A B20 mileage credit extension in the 2007 energy

    bill should not, however, be construed to extend CAFE

    standard credits to all diesel passenger cars and light trucks,

    2.ALTERNATIVE TRANSPORTATIONFUELS AND VEHICLESCONTINUED

    Alternative Fuels Biodiesel

    Biodiesel uel is usually a processed

    vegetable oil, and in act most diesel

    engines will run on Costco-sized cans

    o any cooking oil. Engines run better

    on rened biodiesel, which is simple

    enough to make that internet recipes

    or biodiesel are numerous. It can

    also be produced in large industrial

    quantities. The original diesel engines

    ran on peanut oil, until petroleum die-

    sel took over the market.

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    any more than use o 10% or 15% ethanol would extend

    such mileage credits to gasoline vehicles.

    Require that vehicle warranties extend to use o biodiesel

    blends. Currently, manuacturer warranties are construed to

    orbid use o a blend above B5 in diesel passenger vehicles

    without breaking the warranty. Legislation is necessary to

    require that new-vehicle warranties remain in eect with

    at least B20 blends immediately, with a brie phase-in orhigher biodiesel blends.

    New sources: Intensive publicly unded university andother eorts are needed to determine i completely

    renewable and nonood sources, including algae, can be a

    successul commercial eedstock or biodiesel. Feedstocks

    not linked to arm and energy commodity prices would tend

    to stabilize uel prices.

    Other sources: Animal at biodiesel lags in commercialproduction. Private commercial projects, such as a much-trumpeted but now dormant deal between chicken producer

    Tyson Foods and oil company Conoco Phillips, appear

    to be based entirely on the availability o $1.00-a-gallon

    ederal credits. These credits are now uncertain. Such joint

    ventures research and production results should be made

    available to government and university researchers on the

    basis o ederal subsidies already provided.

    Waste oil rom restaurant ryers, once ree or the taking,

    remained at about hal the cost o soy eedstock in 2008.But localized rening acilities need encouragement in

    areas where this waste oil, known commercially as yellow

    oil, remains underused. Las Vegas, Nev., or instance, has

    a municipal policy to reap and rene this yellow oil rom

    casino restaurants, and uses it to help run a school bus

    feet.19

    2.ALTERNATIVE TRANSPORTATIONFUELS AND VEHICLESCONTINUED

    Alternative Fuels Biodiesel

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    NATURAL GAS: Grade C

    PRO: Natural gas is more abundant domestically thanpetroleum; 80% o current U.S. usage is domestically

    produced.

    Compressed natural gas (CNG) is much cleaner at the

    tailpipe than gasoline or diesel or smog-causing pollutants.

    CNG is a suitable cleaner-air alternative or certain large

    diesel feets. This includes urban package delivery trucks,

    municipal buses and short-haul trucking, or instance

    at ports and grocery distribution centers, where gas

    compression and vehicle ueling are easily centralized.

    CNG, while highly variable in price even within regions, is

    oten cheaper per gallon-equivalent than diesel uel.

    CON: Natural gas is a ossil uel and releases more carbonemissions than other alternatives including current gas-electric hybrid vehicles.

    The use o natural gas as a transportation uel will compete

    with its use in electric generation, increasing the potential

    or a new dependence on oreign energy sources. U.S.

    natural gas imports are already increasing year over year.

    Increased CNG use will raise natural gas prices (which hit

    records in 2008) and increase pressure or imports o high-

    sulur, less-clean liqueed natural gas. Such imports wouldrequire building controversial industrial LNG terminals and

    storage along coastlines.

    Higher prices or natural gas will raise consumers electric

    bills. This could press utilities to turn back to coal.

    There are ew public CNG lling stations nationwide. Fueling

    requires special tanks and complex high-pressure saety

    connections that are incompatible with current gas stations.

    Home ueling or private cars requires a costly compressor

    that takes up to 16 hours to ll an auto tank with a 200-mile

    range.

    POLICY RECOMMENDATIONS:

    Encourage compressed natural gas as a transitionaluel or large engines. Shit appropriate bus and truck feetsto compressed natural gas as wind and solar utility power

    generation increases, reeing natural gas supplies.

    2.ALTERNATIVE TRANSPORTATIONFUELS AND VEHICLESCONTINUED

    Alternative Fuels Natural Gas

    The natural gas that powers electric-

    ity production and household stoves

    can also be compressed and used

    as a vehicle uel, in special high-

    pressure vehicle tanks. Some propo-

    nents, including natural gas uel pro-

    ducer T. Boone Pickens, are urging

    widespread use o compressed nat-

    ural gas (CNG) to reduce petroleum

    imports.

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    2.ALTERNATIVE TRANSPORTATIONFUELS AND VEHICLESCONTINUED

    Alternative Fuels Natural Gas

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    Control vehicle use o CNG to prevent natural gas pricespikes. A controlled shit will also reduce pressure to build

    new liqueed natural gas import terminals, which undercut

    the goal o increased energy independence.

    Discourage production o private autos and light trucksthat run on CNG. The commercial CNG ueling apparatus,

    which requires large compressors, is largely incompatible

    with current ueling inrastructure, unlike that or renewableethanol and biodiesel.

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    2.ALTERNATIVE TRANSPORTATIONFUELS AND VEHICLESCONTINUED

    Alternative Fuels Hydrogen

    While Caliornia Gov. Arnold Schwar-

    zenegger is a big an o hydrogen

    uel, and even has a Hummer cus-

    tom-converted to run on hydrogen,

    he cant drive it outside Los Angeles

    or lack o ueling stations. Hydrogen,

    i it ueled a commercially competi-

    tive vehicle and was produced with-

    out ossil uel energy, would truly be

    a zero-emission uel. But that goal is

    distant.

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    HYDROGEN: Grade D

    PRO: Hydrogen uel produces zero tailpipe emissions inuel-cell vehicles.

    Researchers see promise in producing hydrogen rom water

    with solar power.

    CON: The prediction o a hydrogen highway is mostly hotair, defecting attention rom more developed and aordable

    alternatives.

    Commercial hydrogen production currently requires natural

    gas as eedstock, requires copious energy and high-

    temperature steam, and emits CO2. The process requires

    nearly two times the energy that the hydrogen uel will

    produce.

    The technology required or current hydrogen productionavors large corporate inrastructure, as in vertically

    integrated oil companies. A concentrated production

    inrastructure may lead to an uncompetitive, high-cost

    market.

    The cost o the engine is prohibitive. Hydrogen vehicles

    are currently handed out or testing to celebrities,

    or on money-losing leases with complicated servicing

    agreements.

    Fueling stations are rare and hydrogen vehicles rangeremains somewhat limited.

    POLICY RECOMMENDATION:

    Continue research, particularly o solar- or wind-powered

    production o hydrogen uel rom water. Put urther

    incentives on hold.

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    2.ALTERNATIVE TRANSPORTATIONFUELS AND VEHICLESCONTINUED

    Alternative Fuels Coal-To-Liquid

    Fuels

    The production o liquid uels rom

    coal is a longstanding technology;

    such uel was intensively produced

    by Germany during World War II

    when its oil imports were curbed.

    However, even the costly process o

    turning coal into uel releases about

    hal o the coals C02 into the atmo-

    sphere.

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    COAL-TO-LIQUID FUELS: Grade F

    PRO: U.S.-produced, replaces petroleum as a uel.

    CON: Coal-to-uel production emits substantial greenhousegases even beore the uel is used.20

    The uel itsel is not cleaner than gasoline.

    The mining o coal causes wide environmental damage,

    including mountaintop removal, stream destruction, water

    pollution and even more CO2 emissions.

    POLICY RECOMMENDATION:

    Forget it as a transportation uel. Coal-to-liquid hasno benet to equal its environmental damage. Continue

    research on carbon sequestration or coal-red electricity

    generation, but make realistic decisions about whether thetechnology can be commercially viable.

    Eliminate all ederal subsidies and incentives or researchon and production o liquid uel rom coal.

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    The shit rom a petroleum-based transportation economy

    to a cleaner mix comes with start-up costs, including

    subsidies or new technologies and uels. The end result

    could be big savings or the majority o Americans

    compared to a petroleum-based transportation uture i:

    Speculativeenergymarketsareintelligentlyregulatedand

    made more transparent;

    Energy market prices are stabilized to dampen the boom and

    bust cycle in green energy investment;

    Current ossil uel subsidies are redirected to green

    technologies and to individual consumers;

    Subsidies or development o greener uels and vehicles are

    unded through broad-based ederal and state revenues rather

    than markedly higher uel taxes, which proportionately burden

    the middle and working classes;

    Green uel markets are kept honestly competitive and

    domestic job creation is emphasized; and

    Subsidies or politically popular but unpromising technologies,

    such as hydrogen vehicles and coal-to-uel, are eliminated.

    Subsidies: Elimination o ederal oil royalty relie,particularly contracts issued in error in the late 1990s

    without oil-price thresholds or royalty payment, would cut

    taxpayer aid to the oil industry by up to tens o billions o

    dollars over 25 years, depending on oil prices, according to

    the Government Accountability Oce.21 Royalty contracts

    are currently under litigation in ederal courts, but should be

    settled more quickly by Congress with orced renegotiation.President Obama has also proposed a new tax on Gul o

    Mexico oil production to oset the unjustied royalty relie.

    Elimination o other subsidies, including production and

    depletion credits and research and development credits that

    have not produced visible results, would reap in the single

    billions. The record prots reported by major integrated oil

    companies since 2003 have let them with cash hoards that

    obviate any need or taxpayer unds. Petroleum subsidies

    should be redirected to green uels and vehicles, including

    direct purchaser subsidies.

    Market Regulations: Price stability or ossil-uel energysources, particularly petroleum, is key to keeping up

    momentum or greener vehicles and uels. Futures markets

    that rose to $145 or a barrel o crude oil, then dropped to

    $35-$40 in a matter o months are unhinged rom supply

    and demand. At the bottom end, crashing prices cut o

    investment in renewable uels and energy sources, and

    even uel defation. At the top end, high energy prices

    damage consumers and the economy.

    3.PAY FOR CHANGE

    FAIRLY

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    Eective utures market controls, including transparent

    reporting o trades in real time and limits on the trading o

    parent companies, would cut o the top and the bottom o

    the oil price/energy price roller coaster, with more taken o

    the top than the bottom. Relative price stability would result

    in lower average uel prices but also allow more stable

    investment in both traditional and green markets.

    Regulation has little direct cost. It requires smart design,resistance to nancial lobbies and commitment to

    enorcement. Futures market enorcement will required

    added sta at the Securities and Exchange Commission,

    the Commodity Futures Trading Commission and other

    bodies, proposals that are already beore Congress.

    Refning Regulation: Regulation o petroleum reningwould also dampen roller-coaster prots. Recently, as in

    much o 2006 and 2007, reners have deliberately cut

    production aster than demand has dropped, to increasetheir prot margin. Federal law should set a baseline or

    regulation and allow the states to carry it out, with locally

    specic variations. In highly concentrated markets like the

    Western states, ull utility-style regulation o rening, like

    that o electric utilities, could produce the best outcome or

    both consumers (who would pay more stable and overall

    lower prices) and reners, who could earn a lower but more

    stable prot margin.

    VEHICLES AND FUELS

    Hybrid and electric: Direct but temporary costs totaxpayers and government in subsidies or development

    o high-mpg plug-in hybrids and electric vehicles will be

    temporary. Conventional hybrid vehicle prices are stable or

    dropping, and a renewed purchaser tax credit would keep

    the market viable during the current recession and its lower

    uel prices. In times o higher uel prices, hybrids higher

    purchase costs are recouped in a ew years through uel

    savings, and owners save substantially more over the lie o

    the vehicle.

    The longer-term cost o encouraging plug-in hybrids and all-

    electric vehicles is in reducing use o ossil uels, particularly

    coal, or generating the electricity that will run the cars.

    Switching to green-generated power is a broader issue than

    auto battery recharging, but electric cars cannot reach their

    potential without clean power.

    The simplest saving is reduction or elimination o lavish

    direct coal subsidies, including nearly $2.9 billion in the

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    2007 energy bill. (See Coal section below) Such subsidies

    or the dirtiest power source make coal appear cheaper than

    it actually is, and make green power look too expensive.

    The barrier to recouping these subsidies is not logic or

    necessity but the power o the coal-states lobby, particularly

    in the Senate.

    The costs o coal-plant replacement will be high but one-

    time costs, and subsidies now given to the industry shouldlargely be redirected to utility customers to oset their

    higher utility costs.

    Wind power is already competitive with natural gas; thin-

    lm solar may be price-competitive at commercial scale.

    The use o small-scale solar generation in and close to

    urban centers would also save billions o dollars on the

    building o costly new transmission lines.22

    In almost any scenario, however, electric recharging ovehicles would remain cheaper than purchasing gasoline or

    diesel uel.

    Ethanol and biodiesel: Flex-uel vehicles capable orunning on E85 ethanol uel are generally priced the same

    as gasoline models. E85 is also generally cheaper than

    gasolinein agricultural states like Iowa, oten 20% or

    more cheaper, osetting any loss o mpg. Virtually any

    diesel engine can run on biodiesel, but the price o pure

    soy biodiesel at the pump has generally been a ew to

    tens o cents higher than petroleum diesel. This price gapshould diminish i all uel prices are stabilized and biodiesel

    availability increases.

    Thus the costs associated with ethanol and biodiesel

    are mostly related to research, development o non-crop

    eedstocks or the uels, direct subsidies to producers and

    increasing retail availability.

    Research and development subsidies already are ocused

    on non-corn ethanol, though commercial development has

    slowed due to the sagging economy and the lower price

    o oil and uels. Stabilization o energy utures markets and

    uel prices through oversight and regulation will encourage

    private investment in clean uels, reducing direct public

    costs.

    Compressed natural gas: Taxpayers should not subsidizedevelopment o CNG-ueled personal vehicles or mass-

    market ueling stations. Temporary subsidies should

    be limited to urban public transit and short-range truck

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    feets that can uel at central yards. Wider subsidies or

    CNG vehicles would raise natural gas utility rates, tempt

    utilities to buy more coal power, increase production

    o environmentally destructive coalbed methane and

    encourage imports o dirtier-burning liquid natural gas. CNG,

    as an automobile uel, is not on the path to cleaner and

    cheaper.

    Hydrogen: The high dollar cost o hydrogen uel cellsand the environmental cost o producing hydrogen uel

    rom ossil uels should rule out subsidies or hydrogen

    vehicles, which are not much closer to market-competitive

    commercial production than they were in the 1970s.

    Taxpayer dollars would be better spent on less splashy but

    cheaper and more immediate uels and technologies.

    Coal: Fuels derived rom coal are all cost and no benet,the purest denition o industrial pork. Federal coal

    subsidies--not just or coal-to-uel but or coal productionand coalbed methane --should be redirected to consumers

    and to environmentally saer uels and technologies. Current

    subsidiesare driven by the coal industry in the same way

    that corn-only ethanol subsidies were driven by industrial

    agriculture.

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    1 Bureau o Transportation Statistics. National Household Travel Survey, 2001, Table 8.

    http://www.bts.gov/publications/highlights_o_the_2001_national_household_travel_survey/html/table_a08.html

    2 Commodity Markets Oversight Coalition, Letter to President-elect Barack Obama, Dec. 3, 2008

    http://www.stopoilspeculators.com/PDF/120308-CMOCLtrObama2008DEC03FINAL.pd

    3 Biodiesel.org, Biodiesel provisions in 2008 arm bill, undated

    http://www.biodiesel.org/resources/legissues/armbill/pds/Issue%20Brie%20-%20Biodiesel%20and%20the%202008%20

    Farm%20Bill.pd

    4 $5 Diesel Fuel, the Economy-Killer, Tim Hamilton, July2, 2008 or Consumer Watchdog

    http://www.consumerwatchdog.org/resources/Diesel0608pricereport.pd

    5 U.S. average days o gasoline supply since 1990. U.S. Energy Inormation Administration (EIA).

    http://tonto.eia.doe.gov/dnav/pet/hist/w_epm0_vsd_nus_days.htm

    6 Renery utilization and capacity. EIA,.

    http://tonto.eia.doe.gov/dnav/pet/pet_pnp_unc_dcu_nus_m.htm

    7 Renery Outages Can Impact Petroleum Product Prices, but No Federal Requirements to Report Outages Exist GAO-09-87

    October 7, 2008

    http://www.gao.gov/new.items/d0987.pd

    8 U.S. average days o gasoline supply since 1990. EIA, above.

    9 Tim Hamilton, The Causes and Eects o the Record-Breaking Price o Diesel, July 2, 2008, page 10, chart 5

    http://www.consumerwatchdog.org/resources/Diesel0608pricereport.pd

    10 Hybrid vehicle payback time and gasoline prices, USA Today, May 11, 2008

    http://www.usatoday.com/money/autos/environment/2008 -05 -11-hybrids-gas-prices_N.htm

    11 2010 Ford Fusion Hybrid: 52 mpg and the darkness beore dawn, Los Angeles Times, December 19, 2008

    http://www.latimes.com/classied/automotive/highway1/la--neil19-2008dec19,0,2503132.story

    12 Volkswagen Gol Turbo-Diesel Hybrid Too Expensive or Production, Treehugger.com, April 25, 2008

    http://www.treehugger.com/les/2008/04/vw-gol-turbo-diesel-hybrid-dead-tsi.php

    13 Australian Mining, World rst hybrid excavator debuts, June 23, 2008

    http://www.miningaustralia.com.au/Article/World-rst-hybrid-excavator-debuts/174710.aspx

    14 Lithium battery will reduce hybrid payback time, create possible storage solution or solar power, CNET.com

    http://news.cnet.com/8301-11128_3-9960585-54.html

    15 Hybrid vehicle comparative battery toxicity. Hybridcars.comhttp://www.hybridcars.com/battery-toxicity.html

    16 Light-Duty Vehicle Stock by Technology Type, 2009. EIA

    http://www.eia.doe.gov/oia/aeo/supplement/pd/suptab_48.pd

    17 E85reueling.com, interactive

    http://www.e85reueling.com/locations.php?state=CACaliornia

    18 Chevron Talks Green, Yet Prevents Retailers From Selling Renewable Fuels. March29, 2007, OilWatchdog.org

    http://www.oilwatchdog.org/articles/?storyId= 4117

    19 National Renewable Energy Laboratories Clean Cities report. June 2004, U.S. Department o Energy

    http://www.nrel.gov/docs/y04osti/35773.pd

    20 Coal to Liquid Fuels: Carbon, Robert H. Socolow, June 2005 Scientic American (as quoted by the Montana

    Environmental Inormation Center,)

    http://www.meic.org/energy/coals-to-liquid-uels/coal-to-liquid-uels-carbon

    21 The Federal System or Collecting Oil and Gas Revenues Needs Comprehensive Reassessment

    GAO-08-691 September 3, 2008 http://www.gao.gov/new.items/d08691.pd

    22 Think Solar, Think Small, Craig D. Rose, Feb 16, 2009. Nation Magazine

    http://www.thenation.com/doc/20090216/rose

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