ITS: The Next Generation 18 th Annual Conference & Exposition March 19, 2012 James Blatchford, Securing America

1. ITS: The Next Generation 18th Annual Conference & Exposition March 19, 2012 James Blatchford, Securing America’s Future Energy

2. overview Background Reducing America’s dependence on oil and improving U.S. energy security. Since 2005 Securing America’s Future Energy (SAFE) is a nonpartisan, not-for-profit organization committed to reducing America’s dependence on oil and improving U.S. energy security in order to bolster national security and strengthen the economy. The Energy Security Leadership Council (ESLC), a project of SAFE, brings together some of America’s most prominent business and military leaders to support comprehensive, long-term policy to reduce U.S. oil dependence and improve energy security. The ESLC works aggressively to build bipartisan support. The ESLC is led by Co-Chairmen Frederick W. Smith, Chairman, President, and CEO of FedEx Corporation, and General P.X. Kelley (Ret.), former Marine Corps Commandant and member of the Joint Chiefs of Staff.

3. energy security and oil dependence U.S. Oil Dependence Petroleum fuels account for approximately 40 percent of U.S. primary energy demand—more than any other fuel. Approximately 70 percent of U.S. oil consumption occurs in the transportation sector, with 40 percent in light-duty vehicles. Transportation is 94 percent reliant on oil-based fuel for energy, with no scaled substitutes. At more than 6 percent of GDP, consumer spending on petroleum fuels reached levels typically associated with recession in 2011. U.S. Primary Energy Demand, 2009 Petroleum Fuel Demand by Sector, 2009

4. energy security and oil dependence U.S. Oil Dependence – Price Volatility The volatility of liquid fuels is the key threat from an economic security perspective. This volatility is driven by events beyond our control. Oil price volatility is driven by events in the global oil market, and oil is priced at the margin—meaning that even if the United States produces more domestically, it cannot avoid spikes in price. All liquid fuels are affected, including biofuels. The economic costs of U.S. oil dependence reached nearly $500 billion in 2008. Since 1970, total economic damage exceeds $5 trillion (real dollars). Fuel Volatility Index (Historical)

5. energy security and oil dependence U.S. Oil Dependence – Household Impact The average U.S. household spent a record $4,000 on gasoline in 2011. Since 2000, the increase in spending has offset numerous stimulus efforts. Income tax cuts between 2001 and 2008 increased household income by $1,900. Thus, rising fuel prices fully offset the benefit of tax cuts. The same effect was observed in 2011 with the payroll tax cut, which increased Americans income by $110 billion, while spending on gasoline increased by $104 billion. Gasoline prices have increased by more than 10 percent since January 1st and are at their highest level ever for this time of year. Average Household Spending on Gasoline, 2000-2011 Household spending on gasoline increased by $2,008 between 2001 and 2008.

6. energy security and oil dependence U.S. Oil Dependence – National Security Costs The importance of oil in the U.S. economy has given it a position of prominence in foreign and military policy. The vulnerability of global oil supply lines and infrastructure has driven the United States to accept the burden of securing the world’s oil supplies. A 2009 study by the RAND Corporation placed the ongoing cost of this burden at between $67.5 billion and $83 billion annually. Approximately half of global production is moved by tankers on fixed maritime routes. Even temporary blockage (terrorist attack, piracy, hostilities, accident) of a transit chokepoint can lead to substantial increases in prices. Global Oil Shipping Chokepoints

7. overview Priorities Improving energy security requires a set of integrated, balanced measures that pursue the long-term vision of a post-oil transportation sector while protecting our nation in the interim. Electrification of U.S. Ground Transportation The electrification of transportation is the most effective way to end the nation’s dependence on oil. Increased Energy Access Through Expanded Domestic Supply Domestic supply of oil and natural gas is crucial during the transition to an electrified transportation sector. Reduced Demand for Oil Through Improved Vehicle Efficiency The United States must curb its demand for oil while it transitions away from using oil as its primary transportation fuel. Strengthening U.S. Transportation Infrastructure Policy Addressing inefficiencies in the system and enabling the free flow of traffic to reduce oil consumption. Management of Risks and Global Issues While policy and innovation play a role in U.S. energy security, all aspects of national power need to be mobilized. Accelerated Development of New Energy-Related Technology Investments in U.S. energy R&D is paltry compared to investments made in other sectors of the economy.

8. policy recommendations energy security and oil dependence Electrification Electrification of transportation is the best solution for reducing U.S. oil dependence, and insulating consumers and businesses from oil price volatility. Electricity is generated from a diverse portfolio of domestic fuels. The power sector has substantial spare capacity. Electricity prices are stable. The network of infrastructure already exists. U.S. Electricity Generation by Fuel, 2010 U.S. Electricity Demand by Sector, 2010

9. policy recommendations energy security and oil dependence Fuel Economy Standards Recently finalized fuel economy standards are likely to have a profound impact on U.S. oil demand going forward. By 2030, the 2010-2016 fuel-economy rule will have reduced oil demand in the light-duty vehicle fleet by nearly 3 million barrels per day compared to the 2007 Department of Energy baseline. The 2017-2025 rule, yet to be finalized, will have an even larger impact on oil demand. The process includes midstream review opportunities to ensure the rules are not damaging. Impact of Fuel Economy Standards on Light-Duty Oil Demand

10. the u.s. transportation system policy recommendations overview Transportation Infrastructure Transportation Policies for America’s Future and Congestion in America 2010 – Present paper summaries and guiding principles Transportation Policies for America’s Futurewas released by the ESLC in February 2011. Congestion in America—a follow-up report—was released in January 2012. This report outlines a set of policy recommendations that aims to reduce U.S. oil consumption through transportation policymaking reform, and provide a vision for a more efficient, analytically-rigorous, and market-driven approach to national policy. This report highlights the wasteful fuel use associated with traffic congestion and several key solutions intended to reverse this effect.

11. policy recommendations Summary of Recommendations These are specifically intended to promote reduced sectoral oil consumption through a recognition of the important link between oil use and the transportation system. • Establish the reduction of oil consumption as a principal metric at the U.S. Department of Transportation • Create a new federal formula program focused on improving system performance in urban areas using pricing strategies and single-occupancy internal combustion vehicle alternatives • Create a competitive program that makes funds available for congestion-mitigation proposals that seek to deploy dynamic tolling, performance-based technology improvements, transit solutions, and TDM initiatives • Establish a program to fund nationally-significant projects that improve the efficiency of freight and goods movement, and have a substantial impact on interstate commerce • Remove federal legal restrictions on tolling road capacity that could bring about congestion relief • Actively promote the long-term deployment of a comprehensive, privacy-protective VMT fee • Pilot approaches to pre-development regulations for projects expected to achieve sustainable oil savings

12. policy recommendations Congestion – Problem The transportation system increasingly suffers from debilitating congestion that wastes fuel, increases delays, and raises costs for private individuals and businesses. Wasteful oil consumption threatens the potential future oil-saving benefits associated with more efficient vehicles and alternative fuels. In 2010, drivers in U.S. urban areas were estimated to have wasted 1.9 billion gallons of fuel due to congestion. The Department of Transportation estimates that traffic congestion costs the United States $200 billion each year. Congestion Fuel Waste, Historical and Forecast 2010-2030 65% Increase

13. policy recommendations Congestion – Solutions Transportation infrastructure policies must be flexible and multi-dimensional to properly address local and/or regional conditions. The diverse nature of U.S. cities and the transportation system presents many possibilities for addressing the growing gridlock. Road Traffic Management Aligning supply and demand for travel using pricing in addition to flow management techniques and technologies Public Transit and Other Alternatives Raising load factors and improving efficiency and coverage of high-quality transit where local conditions warrant, plus non-road based solutions Accident/Incident Resolution Preventing and responding to unexpected and highly variable incidents that can result in immediate, severe, and long-lasting road congestion Urban Planning and Development Increasing physical system capacity and promoting higher density urban infrastructure development

14. co-chairs General P.X. Kelley, U.S. Marine Corps (Ret.) Frederick W. Smith 28th commandant, u.s. marine corps chairman, president &ceo, fedex corporation members Admiral Dennis C. Blair, U.S. Navy (Ret.) former director of national intelligence and commander in chief, u.s. pacific command General Bryan “Doug” Brown, U.S. Army (Ret.) former commander, special operations command Admiral Vern Clark, U.S. Navy (Ret.) former chief of naval operations General Richard A. Cody, U.S. Army (Ret.) former vice chairman, u.s. army General James T. Conway, U.S. Marine Corps (Ret.) 28th commandant, u.s. marine corps Adam M. Goldstein president &ceo, royal carribean international Sam Gilliland chairman &ceo, sabre holdings General John A. Gordon, U.S. Air Force (Ret.) former homeland security advisor to the president Maurice R. Greenberg chairman &ceo, c.v. starr& co., inc General John W. Handy, U.S. Air Force (Ret.) former commander of the u.s. transportation and air mobility command Admiral Gregory G. Johnson, U.S. Navy (Ret.) former commander, u.s. naval forces, europe General John M. Keane, U.S. Army (Ret.) former vice chief of staff of the u.s. army Admiral Timothy J. Keating, U.S. Navy (Ret.) former commander, u.s. pacific command Herbert D. Kelleher founder & chairman emeritus, southwest airlines John F. Lehman former secretary to the u.s. navy General Michael E. Ryan, U.S. Air Force (Ret.) 16th chief of staff, u.s. air force Eric S. Schwartz former co-ceo, goldmansachs asset management Michael R. Splinter president &ceo, applied materials, inc. Jeffrey C. Sprecher chairman &ceo, intercontinental exchange David P. Steiner ceo, waste management, inc. Michael T. Strianese president, ceo& director, l-3 communications General Charles F. Wald, U.S. Air Force (Ret.) former deputy commander, u.s. european command Josh S. Weston honorary chairman, automatic data processing, inc.