Interview with Yossie Hollander and Eyal Aronoff

How does a $2 gallon of gas sound? Like a pipe dream? Two of Orange County’s smartest businessmen say it’s not only possible, but attainable in this decade.

Yossie Hollander, an entrepreneur and philanthropist who holds positions with the Weizmann Institute of Science, USC’s College of Letters, Arts and Sciences and the Cornell University Center for a Sustainable Future; and Eyal Aronoff, co-founder of Quest Software, say that right now, we have the technology, the fuels and certainly the good reasons to break our addiction to oil. An addiction they – and others – argue is crushing our economy, harming us and our environment and endangering American lives.

But they’re doing more than talking about it. They’re putting their money and energy where their beliefs are with their new joint venture, Fuel Freedom, a nonprofit, non-partisan campaign with a simple goal: remove the barriers to competition to promote the development of cheaper, cleaner, American-made fuels. In short, they would like to create a marketplace where all fuels – from ethanol and methanol to natural gas and as-yet-undeveloped fuels – get a fair shot at the consumer dollar, a market where gasoline stations become refueling stations with multiple fuel options, and your car’s computer regulates its own emissions and has the ability to run on a number of different fuels.

If it all sounds too good to be true, you might want to read on. These are not two wild-eyed dreamers fueled up on high-octane rhetoric. They’ve been working on this challenge for over 10 years and have the passion, drive and facts to support what they say. And what they say might make you think twice the next time you’re at the pump.

“There are two different possible futures for this country,” says Aronoff. “One future is where we do nothing and the oil price keeps rising and we eventually deteriorate into a Mad Max society, similar to what’s going on right now in many countries in Africa. And the opposite is our message of hope, where we address this concern and fix it over the next few years. In that direction there is a fantastic, very hopeful future waiting for us.”

So we sat down with both Hollander and Aronoff to find out how their organization, Fuel Freedom, plans to route us toward the future we all want.

How did you come to the conclusion that oil dependence is this country’s number one problem?
Aronoff What occurred to Yossie and me is that there’s not enough oil for all the people in the world to come into the transportation age. And the problem that we’re going to have is much bigger than the national security problem, and it’s much bigger than the environmental problem. We are going to have a huge, huge economic problem. In fact, we’re already having that problem today.

So you started Fuel Freedom. What’s your goal?
Hollander Our goal is to revive the American economy, make our air cleaner and our security better by getting oil down to $50 a barrel by using cheaper, cleaner American replacement fuels. That means $2-a-gallon fuel for the consumer. We think we can achieve it in this decade and it will trigger growth in the U.S. and the rest of the world. It will change everything.

Your  goal is a practical, economy-focused one. Why?
Hollander We think the issue is price. It affects the environment, national security, the economy, everything.
Aronoff We want an accelerated growth in the United States because that is what enabled people to move out of poverty and into the middle class. It’s been the engine of prosperity in our country since World War II. But now we are entering this phase where that engine is no longer working for the country. We want to reignite that engine.

And cheaper fuel is the answer?
Hollander We don’t believe there is any cause as big as getting us to $50 a barrel fuel. It will affect every aspect of our society, from poverty to growth to education to environment. We’ll finally have money to do the things we need to do.

You’ve said that we don’t have an energy problem, we have an oil problem. What do you mean?
Hollander When was the last time you paid an energy bill? Last week? Wrong. Never. You paid for electricity and you probably drove to the gas station and filled up gasoline. Those are the things you paid for; you don’t pay for energy. For instance, if you had breakfast, that’s energy. But you don’t call that energy. The point is, people are mixing up the term “energy.” They bundle together not all the energy forms, but only two: electricity and transportation. In reality, they’re not connected at all. Overall we don’t use oil to create electricity. So when you hear the smartest analysts say, “Energy prices are rising,” and then five minutes later they tell you natural gas is at its lowest price ever, it’s an insane conversation. It’s not energy prices that are rising. Oil prices are rising and will be close to $200 a barrel by the end of the decade by most estimates. Most other energy prices are going down.

What does that translate into for the economy?
Hollander Last year the U.S. spent $780 billion on oil products like gasoline and diesel, etc. Could you imagine if that price doubled? We’d be spending a trillion and a half dollars on oil. This will kill our economy. On the other hand, let’s look at $50 a barrel oil, which would translate into $2 a gallon at the pump. The cost to the consumers lowers by $300 billion. That’s $1,000 per person net every year. It’s like a tax cut.

But is $2 a gallon reasonable? Most people see that as just a pipe dream.
Hollander The reason we chose $50 a barrel is because this is the cost of most of the alternatives right now. Some are less. We don’t think we should choose one over the other but they are all cheaper, cleaner and are available very quickly.

Can you give us a solid, currently available example?
Hollander Sure. Last year the increase in natural gas production in the U.S. was $1.7 trillion cubic feet. If you convert that to what you could get for it at the current price, it’s $3.5 to $4 billion. If we took that natural gas and converted it [costing about $2 billion dollars] to methanol, just one of the options, it would replace 10 billion gallons of gasoline. That’s about $30 billion at today’s prices. So that’s the difference in price if we had a real market working.

So what are the barriers? Why isn’t it a free market system?
Hollander We found three barriers. One is that most cars cannot run on anything but gasoline. The second issue is the actual distribution system. It’s very similar to any franchise system: When you go to McDonald’s, you can’t get a Burger King Whopper. You go to a gasoline station that’s owned by the gasoline companies, you’re going to get gasoline. The third one, which is the largest barrier, is regulation. It prevents it all from moving ahead.

How does regulation stop innovation?
Aronoff The Clean Air Act was put together in the 1970s and it was written with one fuel in mind: petroleum. No one conceived of the fact that there would be many fuels that one day would compete with petroleum. The second thing was the cars of that age did not have any capacity to modify the way the fuel was burned in the car, so once the car left the factory, that was it. The third reason the regulation is stopping progress is that over the years more and more little additions were added to the Act based on data provided by the oil and car companies. When lawmakers want to make a change, the only entities giving data to them are the oil and car companies. As a result, every time a new regulation was adopted, the barrier for new entrance to the market kept rising and rising.

You use the example of the AT&T monopoly of the 1980s to show how allowing a true fuel market would benefit consumers. Can you walk us through that?
Hollander Originally, there was one large company that provided local and long distance phone service at a very high price. It was AT&T; they had a monopoly. When Sprint and MCI came up with better long distance technology, they didn’t have access to the local loop because AT&T wouldn’t allow it. So AT&T and all the market pundits said, “Well, they should build their own local loop.” But it was too costly and the market would not have financed it. So a judge ruled that AT&T had to allow access to the local loop. That opened the market and within three years the price of long distance went down from $3 to 30 cents, because there was competition.

How exactly does that relate to fuel?
Hollander It’s like saying to alternative fuels, “Go out and build another 200,000 gasoline stations in the U.S.” It’s not going to happen; it takes 10 years to license one. So we need an open market where alternative fuels can use the existing distribution system.

What alternatives are there to gasoline?
Aronoff Right now we know about ethanol, methanol and natural gas. But if we open the market, people will come up with new engine designs, new fuels, all kinds of new things, because they know there’s an open market in which they can compete. Once the markets are opened up, I trust American innovation.

How does the price of oil affect its environmental impact?
Hollander When the price of oil is high, you’re opening larger and dirtier sources of oil. If the price of oil was low you wouldn’t be able to open many of them because it would cost too much. For instance, Russia just found a lot of oil in the Arctic, but the price of getting it is $120 a barrel. So they’re only going to do it when the price is higher than that. So a lot of the dirtier oil that the environmental movement is fighting would be shut down if the price was $50 a barrel.

Do you have a preference for any one type of alternative fuel?
Aronoff No. However, when people look at fuels, they look mainly at the output that comes from exhaust. But you have to look at the entire life cycle of the fuel. And when you look at oil, you have drilling, then refining, which is the most polluting industry there is in the world, and the fact that the product itself is not biodegradable, so you have big spills that take an incredible effort to clean up. Further, in order to improve the octane of gasoline, they add BTEX, which is benzene, toluene, ethylbenzene, and xylenes, known carcinogens. By contrast, ethanol and methanol, to name a couple, are biodegradable, don’t require BTEX and burn cleaner.

Is your approach to creating awareness different than what’s been tried in the past?
Aronoff Yes. We are product people, so we are looking at fuel freedom as a product. Yes, the product is an ideology, not an actual thing that you buy, but we look at it as the launch of a product. It’s goi ng to involve advertising, public campaigns, a full-feature movie, and recruiting leaders to join us. We even have labs in which we are conducting research. It’s a very comprehensive effort and it’s all managed here from Orange County.

What can the public do?
Hollander First, it’s awareness. If Americans knew they could actually get $2 a gallon fuel, that all that stood in their way was government regulation, they would get angry and force change. So we need people to join us in the knowledge campaign. Another thing is to start demanding. If you buy a car, demand a flex fuel car, so if next year gasoline goes up to $5 a gallon, you may have an alternative.

What makes you so passionate about it?
Aronoff Yossie and I came to the United States with nothing and we made our fortunes here. We believe in the American dream and we want to sustain it. We believe going down to $50 a barrel or less on fuel will ignite the American spirit of innovation and creativity and all the things that come when a bottleneck gets removed. The numbers all add up. It is absolutely doable.
Hollander Yes, our message is one of hope, because this is a huge problem, but it’s also a source of great hope. We can really change America and make it great again.