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CNN LIVE EVENT/SPECIAL

Running on Empty: What's Next?

Aired July 18, 2008 - 20:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


CAMPBELL BROWN, CNN ANCHOR: We're looking for some answers tonight.
When it comes to the price of gas, everything seems to be running on empty, our gas tanks, our pocketbooks, and especially Washington's ability to do something about the problem. So, how did we get into this mess and how are we going to get out of it?

In this special ELECTION CENTER hour, we're looking for real answers, with no bias and no bull.

So, let's get into this quickly with our senior business correspondent, Ali Velshi, joining me right now with the very latest -- Ali.

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Campbell, let's take a walk down memory lane.

If you think things have been moving a little quickly in terms of gas prices, you would be absolutely right. Remember back about 10 years ago, 1999. Gas was still just a little over $1. In 2001, it popped up to almost $1.50, $1.48. In 2001, it was back down just a little bit.

By 2002, it was even lower. So, gas prices don't always go up. But look at that. In 2003, it started to go up, back to $1.56. By 2004, the average price that year was $1.85. In 2005, we had jumped to $2.27. But that chart was still going the same way. In 2006, $2.57. And in 2007, just last year, the average price of a gallon of gasoline was $2.80.

But look at that. All of a sudden, it takes a big jump, and now we're at $4 plus per gallon. Those are the numbers. Here's the backstory.

(BEGIN VIDEOTAPE)

VELSHI (voice-over): The world doesn't produce much more oil every day than we consume. And with fast-growing economies like China and India using more and more of it every day, the search for more oil has become desperate.

JEFF SPITTEL, OIL ANALYST: There are issues particularly on the supply side where non-OPEC producers really can't keep up with oil demand, and they're having a hard time replacing what they are losing every year. VELSHI: But some people from Wall Street all the way to Saudi Arabia and back to Washington say it's not just supply and demand. Instead, they blame excessive speculation by large oil investors. And, in this politically charged environment, Democrats say they want that to end.

REP. NANCY PELOSI (D-CA), SPEAKER OF THE HOUSE: Oil speculators are making money by betting against the American consumer at the pump. We want to help the American people here and now.

VELSHI: Oil analyst Fadel Gheit agrees that while demand has surged, it's not the main culprit.

FADEL GHEIT, OIL ANALYST: Oil prices have been inflated by excessive speculation. Speculation -- everybody is betting that oil prices will go higher. Guess what? They take oil prices higher.

VELSHI: The debate over the high price of oil doesn't end there. One of the reasons you need more dollars to pay for oil is that the dollar simply isn't worth as much. A series of interest rate cuts since last year has driven investors away from U.S. bonds and into those of countries which pay higher interest rates. When investors sell dollars to buy other currencies, the dollar drops.

Those who blame the dollar point to the steady rise in oil. A barrel costs seven times as much as it did just six years ago, in 2002. Look what the dollar's done against other major currencies in the same time period. The relationship seems obvious.

So, is it demand outstripping supply? Is it excessive speculation? Is it the low dollar? Or is it all of the above? Maybe the only question you want answered is, how high will it go?

GHEIT: Trees don't grow to the sky. And, at the end of the day, a bubble will burst, and this is another bubble. The question is, is not if the bubble will burst, in my view. It's when the bubble will burst and what is going to cause the bubble to burst.

(END VIDEOTAPE)

BROWN: Ali is joining us for tonight's panel.

And also with us tonight, Stephen Leeb. He is the research chairman at Leeb Capital Management, which provides investment advice to individuals and institutions. Pat Toomey, a former Republican congressman from Pennsylvania, he's now president and CEO of the Club For Growth, which works for limited government, low taxes and economic freedom. And also, Chrystia Freeland is the U.S. managing editor of "The Financial Times." And she leads editorial development of the paper's U.S. edition and of U.S. news on its Web site, FT.com.

Stephen, let me start with you.

As Ali just told us, demand for oil from China and India, huge part of the problem. How did we not anticipate this? STEPHEN LEEB, RESEARCH CHAIRMAN, LEEB CAPITAL MANAGEMENT: That's a very good question, because we didn't anticipate it because we don't like to admit that change is necessary and change is going to happen.

And we assume the world is just going to be like it was. We were the number-one economy, and basically the whole shebang for 20, 30, 40, 50 years. And we just were unwilling to admit now China and India combined are actually a bigger economy than the U.S. Their growth is not going to stop anytime soon. And that's exactly why we are in, or one of the major reasons we're in this kind of crisis.

BROWN: Pat, during the energy crisis in the '70s, Jimmy Carter was out there preaching conservation. And he was mocked for it, frankly. But if we had listened to him, would we be in the mess we're in today?

PAT TOOMEY, PRESIDENT, CLUB FOR GROWTH: Yes, absolutely.

I don't think the notion that we can sort of use government to impose constraints on our growth is a good idea. We're the only country in the world that actually has very large untapped resources that we could tap, which would help enormously.

But I also think there's another factor here that's a very big part of it, and that's just the debasement of the currency. The decline of the dollar has been enormous. If the dollar had just retained its value against the euro from 2002, then oil would be at $85 a barrel. And gas then would be at $2.50.

(CROSSTALK)

LEEB: It's nuts.

TOOMEY: It's not nuts, Steve. Every commodity in the world...

(CROSSTALK)

LEEB: Come on.

(CROSSTALK)

TOOMEY: Every commodity has gone through the roof because the dollar has lost so much value.

LEEB: Well, that's crazy.

(CROSSTALK)

TOOMEY: Which commodity is down?

LEEB: None.

TOOMEY: Exactly.

LEEB: But what does that have to do with China? Come on.

(CROSSTALK)

TOOMEY: It's because every commodity, including -- what does China have to do with real estate in America, which went through the roof?

(CROSSTALK)

BROWN: Let me hear from Chrystia.

CHRYSTIA FREELAND, "THE FINANCIAL TIMES": It is certainly true that a weak dollar means that the purchasing power of the dollar, of everything, is less.

TOOMEY: Certainly.

FREELAND: But it's also the case that the price of commodities in all currencies has been rising.

TOOMEY: Sure.

FREELAND: The price of oil in euros has been rising. The price of oil in Canadian dollars has been rising. So, that's only part of it. The world's getting richer.

(CROSSTALK)

BROWN: ... where we are going with all of this, which is, we see no end in sight. Most Americans right now who are really, you know, struggling to pay for gas at the pump, you know, happens to us when we're looking at $5, $6 a gallon gas? What's our breaking point?

LEEB: Well, our breaking point -- we're getting to the point where we're starting to notice. But we started to notice when oil prices rose about 100 percent in a 12-month period.

We will stop noticing if oil goes down to, let's say, $1.10. And that's the catastrophe. The reason we're in this fix is very simply because we have not done anything with regards to alternative energy. It accounts for next to nothing of our energy supply. And that is a sin. I mean, we have really sold short our future generations, because sooner or longer -- sooner or later...

(CROSSTALK)

TOOMEY: We would be poorer as a society if we were allocating resources to a less-efficient source of energy. The reason we put gasoline in our cars...

(CROSSTALK)

BROWN: Let Pat make his point.

Go ahead.

TOOMEY: The reason we put gasoline in our cars and use heating oil to heat our homes is because it is the most economically efficient way to do it.

(CROSSTALK)

BROWN: Give us a bit of a reality check here.

VELSHI: At $500 a barrel, there's oil underneath me right now, if I dig far enough. We have to be reasonable.

What is the thing -- if we're going to invest a great deal of money in having more energy, and more affordable energy, do we do this looking for oil in every last place where there's oil, or do we say invest it in something else?

(CROSSTALK)

BROWN: Go ahead, Chrystia.

FREELAND: The tar sands, for example, where I know you have seen recently...

(CROSSTALK)

BROWN: And we're going to be talking about that later in the show.

FREELAND: ... are now a place where it's cost-effective to be exploiting fuel -- $500 a barrel oil, we're not going to be looking for. But I think that what is interesting is there is a capitalist response.

(CROSSTALK)

FREELAND: We're starting to see both consumers adapt their behavior. People are buying fewer SUVs. People are driving fewer miles in the United States.

(CROSSTALK)

LEEB: Let me just make a point as far as conservation goes.

BROWN: Go ahead.

LEEB: We conserve here, then oil is otherwise cheaper than it would be, and that allows China to buy more oil and India to buy more oil. We cannot conserve enough.

The other point, take $500 oil. We're a dog chasing its tail, because you know what? If we get to $500 oil, do you how much it may cost to get that oil out of the ground? Six hundred dollars. Game over.

(CROSSTALK)

TOOMEY: Long before we get to $500 a barrel, alternatives become more competitive, and we switch. Wind is already competitive in some parts of America, because coal, natural gas, oil, every other commodity in the world...

(CROSSTALK)

TOOMEY: Wait, let me finish, Steve.

(CROSSTALK)

LEEB: Sorry.

(CROSSTALK)

LEEB: I'm sorry.

TOOMEY: And human innovation is just wonderful and it's breathtaking. And it's great that China is modernizing and growing, because the Chinese, and Americans, people all around the world are going to find the alternatives we need as oil becomes more and more...

(CROSSTALK)

FREELAND: The only issue is -- and this is where government does come in -- that some of these alternative sources of energy take years and years to develop, for example, nuclear. And so the structural question the government has to think about is, are there some sorts of guarantees for the building the nuclear power plants you to have? Are there some ways that you want to flatten out the cyclicality of the oil price?

(CROSSTALK)

BROWN: We are coming back to alternative energy a little bit later in the show. We are going to talk about that more specifically. Panel, stay with us.

Coming up next, so we have seen the snapshot of how we got here. Next, what do we do now? We are also going to look at how skyrocketing oil prices are affecting the cost of everything else we buy.

Plus, our representatives in Washington, is there anyone who isn't wondering why they haven't come up with a plan already?

Stay with us.

(COMMERCIAL BREAK)

BROWN: No surprise government inflation reports show higher energy costs are behind the biggest jump in consumer prices in 17 years. We know we're getting clobbered at the gas pump.

But we asked Joe Johns to show us how this is rippling all through our lives. And for some it's a life-and-death question.

(BEGIN VIDEOTAPE)

JOE JOHNS, CNN CONGRESSIONAL CORRESPONDENT (voice-over): West Virginia has weathered a lot of storms. But this one is no brief summer shower. Trucking is an economic linchpin here. And truck company owner Jeff Perkins says he's never seen it this bad.

JEFF PERKINS, PERKINS TRUCKING: You know, when you pay $5 a gallon of fuel, that's all you're doing is, you're paying for the fuel and you're paying for the driver.

JOHNS: When the price of diesel jumped, he laid off a mechanic and a secretary. He stopped offering health insurance. Then he parked all but four of his trucks.

PERKINS: I'm not working seven days a week, you know, for the oil companies. I work hard, and I have worked hard all my life. Things are going to have to change.

JOHNS: Here, gas is $4.19 a gallon. And in this largely blue- collar state, that's the same as a crippling shock pulsing through every aspect of life.

UNIDENTIFIED FEMALE: Because everything goes up. When the gas goes up, everything else goes up.

JOHNS: At an ice cream shop along West Virginia's Interstate 79, single mom Mary McLean (ph) is treating her daughter. But the real extravagance is a trip in the car, their first in five days.

UNIDENTIFIED FEMALE: I can't afford to keep going and running, and doing things with my kids anymore.

JOHNS: McLean cut the extras and bought a hybrid. But many don't have those options.

For Dr. Rebecca Schmidt, gas prices are literally life and death.

DR. REBECCA SCHMIDT, WEST VIRGINIA UNIVERSITY MEDICAL CENTER: People are very, very reluctant to do anything that's not an absolute emergency when it involves driving somewhere.

JOHNS: West Virginia has a lot of roads and few clinics. If you're sick here, you have to drive. But some people who may need medical care are skipping it.

SCHMIDT: This is a real drain and really difficult for them. And they're going do without.

JOHNS: Schmidt herself drives hundreds of miles a month to check on patients, many of whom need kidney dialysis three times a week. Some of Dr. Schmidt's patients qualify for state transportation help. These days, that's life support.

JEFF STEELE, DIALYSIS PATIENT: I don't know what I would do, because, of course, if I wasn't getting dialysis, I would be dead.

JOHNS: Retirees Dennis and Jane Keller drive to the clinic. For them, it means 600 miles a month. JANE KELLER, DIALYSIS PATIENT: This inflation is just too high for everybody. And our incomes and our Social Security doesn't meet the demand.

JOHNS: Here in West Virginia, gas prices have set up the economic perfect storm.

Joe Johns, CNN.

(END VIDEOTAPE)

BROWN: That economic storm is casting a shadow nationwide. And many Americans are trying to ride it out by downsizing to a more fuel- efficient car.

Here again to tell us about that, senior business correspondent Ali Velshi.

And, Ali, this seems like a no-brainer, but it's not the only way to go, right?

VELSHI: We have spent a lot of time -- I don't know if I have told you this. I drive a truck that gets 17 miles to the gallon.

I'm like everybody else. I envy people who drive along in a little Prius. But if I were to sell my truck today, if I were to try and sell it, I would an ad, and people would skip right over it, and I would have to probably give somebody a big cut just to take it away from me.

That's what America is all about right now. We have got a culture that is built on cheap gas, living far away from home and being able to drive. We can't make the switch very easily. For everybody out there who is watching this who's stuck with a big gas guzzler, it's going to cost you money to get rid of it. It's going to cost you a premium to get a new car.

Now, the bottom line is, do you think these gas prices that we talked about are going up? If you do, it's the right thing you do now, take the hit, and don't spend as much gas for the next five years. But if you don't, if you're waiting it out, you're going to stick with your vehicle, this is not as easy a decision as it seems.

BROWN: Certainly not.

OK, Ali Velshi again for us tonight.

Up next, on this ELECTION CENTER special, the numbers keep going up. And, yes, we hear a lot from Washington about this, but have they really done anything useful to get us on track? The fact is, there is no detailed long-term solution from the president or from the presidential candidates, who want his job.

Then, later, the tradeoff between tapping new fuel sources and protecting the environment, that is ahead on this ELECTION CENTER special, "Running on Empty." (COMMERCIAL BREAK)

BROWN: If arguing, complaining and finger-pointing, in other words, politics as usual, could solve the energy crisis, then Washington must be close to a solution, right? Well, unfortunately, political heat seems to have no effect on energy prices. So what and who will?

We sent Ed Henry to look for answers.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Please rise and raise your...

ED HENRY, CNN WHITE HOUSE CORRESPONDENT (voice-over): Almost 100 congressional hearings on energy so far this year, hours and hours of talk, but little action. So, let's take a walk. There's Dick Durbin, the second most powerful Democrat in the Senate, riding the Senate subway.

(on camera): Do you mind if I sit with you?

It's 4:30 in the afternoon, the middle of the week, no votes, nothing happening.

SEN. RICHARD DURBIN (D), ILLINOIS: No, there is something happening. We're bringing a bill to the floor dealing with speculation in the oil markets.

HENRY: The speculation -- most experts say that going after speculators will only have a marginal impact.

DURBIN: A marginal impact is something.

HENRY (voice-over): Durbin, who is fiercely opposed to offshore drilling, promises Democrats will get an energy bill done.

(on camera): So, you're going to get it done in the next two weeks?

(CROSSTALK)

DURBIN: Well, that's my goal. And we have been working on it all day.

HENRY: A goal is one thing. You're in charge now.

(CROSSTALK)

HENRY: You're in charge now.

DURBIN: Well, we're in charge with 51 votes out of 100. So, it isn't exactly a hefty majority.

HENRY (voice-over): Then I find retiring Republican Pete Domenici. As former chair of the Energy Committee, he's expressing regret both parties have failed to find consensus on energy over the last quarter-century. He speaks of finding common ground. But he's as fiercely in support of offshore drilling as Durbin is against it.

SEN. PETE DOMENICI (R), NEW MEXICO: The people are going to fix it, because they understand this simple proposition that this huge Outer Continental Shelf is theirs. They're going to come out 75 percent in the next poll, and they're going to -- we will say to the Democrats, just defy them if you would like, at your peril.

HENRY (on camera): Well, not the next poll. A new one just found that more Californians than ever support offshore drilling, but it's still less than half, 43 percent of all Californians. So, what how about a blue-ribbon panel to try and find solutions while Congress is gridlocked?

UNIDENTIFIED MALE: Rallying his friends...

HENRY (voice-over): Here's one, a dream team of talking heads, everyone from Mack McLarty, President Clinton's former chief of staff, to Don Evans, a Texas oilman who was President Bush's commerce secretary.

UNIDENTIFIED MALE: You have so many great ideas in this report. Why haven't they been implemented over the last 25, 30 years?

HENRY: The panelists didn't really answer why they didn't do more when they were actually in government. But then Don Evans jumped in.

DON EVANS, FORMER COMMERCE SECRETARY: I think the simple answer to your simple question is, gas is $4.50 a gallon. It's amazing how that will focus the mind.

HENRY: We can all agree on that. We're all focused.

(END VIDEOTAPE)

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: Please rise and raise your...

HENRY (voice-over): Almost 100 congressional hearings on energy so far this year, hours and hours of talk, but little action. So, let's take a walk. There's Dick Durbin, the second most powerful Democrat in the Senate, riding the Senate subway.

(on camera): Do you mind if I sit with you?

It's 4: 30 in the afternoon, the middle of the week, no votes, nothing happening.

DURBIN: No, there is something happening. We're bringing a bill to the floor dealing with speculation in the oil markets.

HENRY: The speculation -- most experts say that going after speculators will only have a marginal impact. DURBIN: A marginal impact is something.

HENRY (voice-over): Durbin, who is fiercely opposed to offshore drilling, promises Democrats will get an energy bill done.

(on camera): So, you're going to get it done in the next two weeks?

(CROSSTALK)

DURBIN: Well, that's my goal. And we have been working on it all day.

HENRY: A goal is one thing. You're in charge now.

(CROSSTALK)

HENRY: You're in charge now.

DURBIN: Well, we're in charge with 51 votes out of 100. So, it isn't exactly a hefty majority.

HENRY (voice-over): Then I find retiring Republican Pete Domenici. As former chair of the Energy Committee, he's expressing regret both parties have failed to find consensus on energy over the last quarter-century. He speaks of finding common ground. But he's as fiercely in support of offshore drilling as Durbin is against it.

SEN. PETE DOMENICI (R), NEW MEXICO: The people are going to fix it, because they understand this simple proposition that this huge Outer Continental Shelf is theirs. They're going to come out 75 percent in the next poll, and they're going to -- we will say to the Democrats, just defy them if you would like, at your peril.

HENRY (on camera): Well, not the next poll. A new one just found that more Californians than ever support offshore drilling, but it's still less than half, 43 percent of all Californians. So, what how about a blue-ribbon panel to try and find solutions while Congress is gridlocked?

UNIDENTIFIED MALE: Rallying his friends...

HENRY (voice-over): Here's one, a dream team of talking heads, everyone from Mack McLarty, President Clinton's former chief of staff, to Don Evans, a Texas oilman who was President Bush's commerce secretary.

UNIDENTIFIED MALE: You have so many great ideas in this report. Why haven't they been implemented over the last 25, 30 years?

HENRY: The panelists didn't really answer why they didn't do more when they were actually in government. But then Don Evans jumped in.

DON EVANS, FORMER COMMERCE SECRETARY: I think the simple answer to your simple question is, gas is $4. 50 a gallon. It's amazing how that will focus the mind.

HENRY: We can all agree on that. We're all focused.

Ed Henry, CNN, Washington.

(END VIDEOTAPE)

BROWN: So, let's see. The first real oil crisis came in the early '70s. We all got a wakeup call, and we all pledged to become more self-sufficient. And yes? So, nothing's really changed. So, OK, how does Washington fix this mess. I'm going to get my panel's insights on that next.

And then, later, our love affair with the SUV, it could end in a very messy divorce.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I think it was in the Rose Garden where I issued this brilliant statement: If I had a magic wand -- but the president doesn't have a magic wand. You just can't say, low gas. It took us awhile to get here, and we need to have a good strategy to get out of it.

(END VIDEO CLIP)

BROWN: There are no magic wands to solve the energy crisis.

But let's be honest. It's not like this challenge suddenly appeared and ambushed us.

So, what, if anything, can Washington do about gas prices? And why haven't they done it already.

Panel back with me again, Senior business correspondent Ali Velshi, Stephen Leeb, the research chairman of Leeb Capital Management, Club For Growth president Pat Toomey, and the U.S. managing editor for "The Financial Times," Chrystia Freeland.

Pat, the president did do one thing. He lifted the ban on offshore drilling. And I guess you think that's maybe as close to a magic wand as you can get, yes?

TOOMEY: I think, on the margin, more supply definitely helps the situation. But the Democrats in Congress can't go there. They have got an environmentalist segment of their base that is adamantly opposed, because they're just opposed to carbon.

And, so, Nancy Pelosi has promised she will not have a vote on the House floor on this because she knows she would lose the vote.

VELSHI: Our recent polling here at CNN indicates that the public sentiment has shifted away from it. So, the American public is not...

TOOMEY: Away from the ban.

(CROSSTALK)

VELSHI: ... is in favor of drilling.

TOOMEY: Exactly.

VELSHI: But the bottom line is, do we -- we have seen public sentiment shift as the price of gasoline has gone up. So, it's kind of a tricky situation. What do we do? How do we make the right policy decisions just because people are mad at $5 gasoline?

TOOMEY: I think that is what makes is possible. But I think we should have opened up drilling off the coast and in Alaska long ago. At least we could do it now.

LEEB: The whole thing is, even if we were successful and we brought this one, we would still be importing about 60 percent of our oil.

You're not going to get any more than two or three million barrels at most from all the oil that is out there, two million or three million barrels a day, which is still going to leave us dependent on undeveloped countries that are extremely volatile. It makes no sense.

(CROSSTALK)

BROWN: Which makes it a national security issue, to a certain extent.

LEEB: Yes, it is. We have got to treat this like a war, exactly.

We still think we can solve the oil crisis with oil. That's ridiculous. We have to solve it with alternatives.

BROWN: What can, if anything, Congress be doing?

LEEB: The first thing to do, in my opinion, would be to authorize $100 billion in research into alternative energy.

Washington right now -- and this is a number that is staggering -- spends $4 billion on energy research. And you just said, Campbell, a minute ago, this is a national security issue -- $4 billion a year, that's cab fare. We are spending no money on research. We just have these...

(CROSSTALK)

TOOMEY: The idea that the same federal government that pays for bridges to nowhere and teapot museums and an indoor tropical rain forest in Iowa is going to figure out how to solve this problem I think is absurd.

(CROSSTALK) BROWN: ... gets angry enough and starts demanding action...

(CROSSTALK)

TOOMEY: They don't know how to do this.

(CROSSTALK)

TOOMEY: They don't know the technology. I served there. I know these guys. They're not experts on this. And the money will go to their buddy and their favorite lobbyist and the guy who's got some crazy idea, but he gives them a lot of campaign contributions.

The market will figure this out.

BROWN: I want to bring it back to politics, because that's what we're focused on, on this program. And John McCain and Barack Obama -- again, you're telling me Congress can't do anything about it. You have got two presidential candidates who want to at least be able to tell the American public they're going to try to do something about it.

Is there a politically viable case you can make for a president, for Congress taking some action, Chrystia?

FREELAND: Well, I think we have seen John McCain and Barack Obama both try to come up with their own sort of Band-Aid solutions.

BROWN: John McCain talking about a gas tax holiday?

(CROSSTALK)

FREELAND: John McCain's line has been the gas tax holiday and talking about offshore drilling. So, he's been talking about ways of trying to increase the supply and making the immediate pain at the pump a tiny bit smaller.

From Barack Obama, what we have seen is him talking about how it's the oil companies and the speculators who are to blame, and talking about how there should be a windfall tax on the oil companies, and we need to cut down on speculation.

What I think is the real problem with the positions of both of them is, this is a long-term structural issue. And the long-term point is, these American consumers who are finding $4 a gallon really, really hard to bear, have to get used to the fact that energy is more expensive.

BROWN: Ali, and you've been preaching this on this program every night.

VELSHI: That's exactly right.

BROWN: And this is not a short-term problem.

VELSHI: It is not. And really, the candidates should be banned from saying things that are short-term fixes. You're right. Both sides have done this. The bottom line is, I think we all agree, money needs to be spent.

We need to figure this out and we need to understand that this pain will be with us if we don't come up with a solution. That's not about two years from now, it's about 10, 15 and 30 years.

(CROSSTALK)

FREELAND: And also whatever the solution is, it's going to be in a higher energy price environment.

TOOMEY: I think that's right. But let's not pretend that there's no difference between the substantive policies. McCain is for increasing --

BROWN: I don't think anybody is.

TOOMEY: Increasing development.

BROWN: It's very clear.

TOOMEY: And increasing nuclear power. On the margin, new nuclear power plants are natural gas-fired plants. If they were nuclear powered instead, natural gas would be available.

(CROSSTALK)

BROWN: We got to take another break. Stay with me.

TOOMEY: Where do you get the uranium?

BROWN: Stay with me. We are coming back with the panel once again. Washington isn't the only place that missed opportunities to head off the oil crisis. Coming up why Detroit has been asleep at the wheel, turning out gas guzzlers. How soon can we get gas sippers?

And then later, the real story about alternative energy sources like wind, solar and nuclear. "No Bias, No Bull." Stay with us.

(COMMERCIAL BREAK)

ERICA HILL, CNN CORRESPONDENT: I'm Erica Hill. Back to "Running on Empty: What's Next?" in just a moment. But first, here's "The Briefing."

Breaking news out of John McCain's campaign. Campaign co-chair, former Senator Phil Gramm, stepping down late today after igniting a storm of criticism last week when he called Americans whiners on the economy. In a statement today, Gramm said, "It is clear to me that Democrats want to attack me rather than debate Senator McCain on important economic issues facing the country."

Moments ago the Obama campaign responded with this statement. "The question for John McCain isn't whether Phil Gramm will continue as chairman of his campaign, but whether he will continue to keep the economic plan that Gramm authored."

The Mexican Navy captured a drug submarine yesterday off the country's West Coast. According to the U.S. Coast Guard, an American surveillance plane spotted the sub and notified the Mexicans. The crew was taken into custody along with an estimated seven tons of cocaine.

And the price of crude oil down for the fourth straight day today on news of a possible thaw in U.S./Iranian relations. Today's price is the lowest since the beginning of June. Prices began falling earlier this week after Fed Chair Ben Bernanke said high gas prices were beginning to affect consumer demand.

"Running on Empty: What's Next?" continues right here in just a moment.

(COMMERCIAL BREAK)

BROWN: Gasoline accounts for nearly half, 45 percent of our oil use. So you'd think that better mileage would have been one of Detroit's priorities for at least the last three decades. Well, not so much.

In fact, the big U.S. automakers have been concentrating on minivans, SUVs, Hummers, and other gas guzzlers. What were they thinking? And what are they thinking now?

Well, we sent Tom Foreman to find out.

(BEGIN VIDEOTAPE)

TOM FOREMAN, CNN CORRESPONDENT (voice-over): The Tesla is sleek, sporty, fast, all-American and all-electric. It runs for 2 cents a mile and even at $100,000, there is a backlog of orders.

DIARMUID O'CONNELL, TESLA: It's 227 miles on a single charge. No emissions whatsoever.

FOREMAN: That's good.

O'CONNELL: It's absolutely so.

FOREMAN: So why aren't the big American car companies making such wonder cars themselves?

DAVID LAZARUS, "LOS ANGELES TIMES": You know, I put that question to automakers. And the answer I got was that they're only giving consumers what they want.

FOREMAN: David Lazarus covers business for the "L.A. Times" and says for decades, big, fast, powerful cars have made billions of dollars for Detroit. Even as more fuel-efficient imports have eaten away at the overall market.

LAZARUS: The reality is you will always be behind the curve in terms of meeting these changes in the marketplace, because more often than not, it will be too late by the time the marketplace has shifted in terms of demand, which is exactly what's happening now.

FOREMAN: Carmakers in other countries have largely avoided this trap because in many nations, gas has been so expensive for so long, fuel efficiency has been a top priority more than the style or quiet ride Americans crave. A more ambitious efforts have been surprise hits here.

CSABA CSERE, "CAR AND DRIVER" MAGAZINE: Well, the Prius was a great success.

FOREMAN: Csaba Csere, editor-in-chief at "Car and Driver" says Detroit had good reason to be skeptical.

CSERE: But let's remember, a year ago, Toyota actually had to put some rebates and incentives to sell Priuses because sales had slowed down. The vast majority of buyers want to buy fuel efficient vehicles only when gas is expensive.

FOREMAN (on camera): So it's a chicken and egg problem. Consumers can't buy more fuel efficient cars if Detroit won't make them, and Detroit won't make them unless lots of people are ready to buy.

FOREMAN (voice-over): For now, American carmakers are steering hard toward change. More hybrids, more flex fuel cars, even an electric Chevy heading to market. But if gas prices drop again, who knows which way the road will turn.

Tom Foreman, CNN, Washington.

(END VIDEOTAPE)

BROWN: For years, the American dream has been a home and a car. Well, turns out people in huge countries like China and India want their own version of the American dream.

Next, how they are getting a lot of the gas that we used to count on.

Then later, Ali Velshi again. He's there with enormous trucks in a far-away place. We couldn't stop talking about how far they are going and how much they are spending simply for this new way to produce oil. It is very interesting. Stay with us.

(COMMERCIAL BREAK)

BROWN: When you're standing at the gas pump and you're watching those numbers fly, and feeling, frankly, like a helpless victim, well, it may give you some pause, at least to see how your situation compares to consumers around the world.

And that's what Nic Robertson did for us.

(BEGIN VIDEOTAPE)

NIC ROBERTSON, SR. INTERNATIONAL CORRESPONDENT (voice-over): If you want to know what's helping push oil prices through the roof, just take a look at who's using more than they used to.

LAWRENCE EAGLES, IEA: From China, from India, but it's also coming from other highly populous countries in Asia, and also South America as well.

ROBERTSON: And the Middle East, too. Analysts say it's not rocket science to figure out why their economies are growing, their population is booming.

KONA HAQUE, COMMODITIES ANALYST: Well, we're talking about millions and millions of people who are now at the stage where they can start owning cars, maybe even two cars. They're moving away from bicycles, moving away from riches (ph), and they're owning cars. They want air conditioning units. All of this is heavily oil intensive in terms of consumption.

ROBERTSON: China's consumption has gone up half a million barrels a day, and we help them do it.

TODD BENJAMIN, CNN FINANCIAL ANALYST: We can't have it both ways. You want cheap TV sets from China, you can't blame them for rising oil prices. They want to develop their economy just as we've had the chance in the West to develop ours.

ROBERTSON: The only country offering relief, Saudi Arabia, increasing output from nine million barrels a day to 9.7. Russia, the other top producer, is maxed out. Talk of offshore drilling notwithstanding, the U.S. can't do it either.

But let's take a look at the Saudis. The desert kingdom still has plenty of spare capacity. It could produce another 1.5 to two million barrels a day. And you would feel it.

EAGLES: If they did, that would have the effect of easing prices.

ROBERTSON: So why don't the Saudis help us all out and up production? Here's what they say.

There aren't enough refineries for their type of crude. But many analysts don't buy that. They say Saudis benefit from high oil prices, investing in jobs for their booming population. Not only that, oil means power. So the Saudis don't want to run out of oil.

HAQUE: If it loses its bear capacity, it has no control of the market because they can't then suddenly say, actually, it's a cartel, I want to control prices at this level.

ROBERTSON (on camera): Reality is, no one is giving up what they've got, oil or a better standard of living just to ease U.S. and European pain. The cheaper rates of a few years ago seem unlikely to come back. The price hikes for the most part are here to stay.

Nic Robertson, CNN, London.

(END VIDEOTAPE) BROWN: The U.S. uses 10,000 gallons of oil a second. I'm going to say that again. The U.S. uses 10,000 gallons of oil every second. As for all that hopeful talk about renewable energy sources, biofuel, wind, solar, geothermal, and all of that will combine. It will account for only about two percent of global energy supply in 2030. Literally a drop in the bucket.

So the bottom line is that for the foreseeable future, we need oil. And we may be getting it from some very unusual sources and places. We're going to show you next.

(COMMERCIAL BREAK)

BROWN: When you think of oil imports, you probably think of Saudi Arabia. But most of our imported oil actually comes from Canada. And Canada has the biggest known oil reserve in the world. But it isn't where you think.

Now, all those drills and pumps, forget it. This doesn't look like you would expect.

Ali Velshi went to check it out.

(BEGIN VIDEOTAPE)

VELSHI (voice-over): One-third of the world's known oil deposits are right here, in the dirt. So that's where we headed, to Fort McMurray, Alberta.

(on camera): This is it. We are literally walking on black gold. This is what we came here to see. This is oil sand. It's sand that's encased in water and oil. In fact, this is about 10 percent crude oil.

(voice-over): Giant shovels scoop up 100 tons of oil-laden dirt at a time. Hundreds of trucks move across the landscape all day and night every single day.

(on camera): You need a lot of earth to make oil. It takes about two tons of oil sands to make one barrel of oil. Now, this big hauler holds 400 tons of oil sands. So once that's all filled up, and made into oil, you'll have about 200 barrels of oil.

(voice-over): That's right. Two tons of oil sand makes one barrel of oil. But in today's oil prices, it's wildly profitable. That's why major players like Exxon Mobil, Shell, Chevron and others squeeze 1.5 million barrels of oil out of this land every day.

It's costlier than getting it from a simple land well, because the tar-like oil has to be separated from the sand. That uses lots of natural gas and warm water.

The result is a heavy molasses-like oil which has to be upgraded into a lighter, high-quality form of crude that can then be easily refined into gasoline, home heating oil and other petroleum products. Canada produces much more oil than it needs. So the excess oil is sold and sent by pipeline to its best customer, the United States.

Critics say the upgrading process emits three times as much carbon dioxide as drilling for conventional oil and transporting it to market. Shell disputes that, saying it's only twice as polluting.

And then there's the land. The oil sands are under 54,000 square miles, an area the size of Florida. And some of that area woodland (ph) has to be clear cut to be surface mined, creating the largest industrial zone on earth.

And then there's the water, taken from the local river used to wash the oil from the sand. The used water is then left to evaporate in huge-lined ponds required by law to ensure it doesn't leak back into the earth. After it's gone, a fine sand blows across a vast, surreal, devastated landscape.

CHIEF GEORGE POITRAS, MIKISEW CREE FIRST NATION: Like any kind of resource, boom, anywhere in the world, people will come and exploit and then they'll leave. And we'll be here with land that is decimated.

VELSHI: The oil companies are required to replant the land that they displace. They show off this former mine, complete with bison as an example of what the land can look like once it's reclaimed. It's a process that can take up to 50 years.

(END VIDEOTAPE)

BROWN: And Ali, it seems like the Canadians are asking many of the same questions or having a lot of the same concerns that Americans are having about offshore drilling when it comes to oil sands.

VELSHI: That's exactly right. And any of these options, whether it's offshore drilling or oil sands or nuclear, whatever it is, even if it's wind, they have environmental impacts to them, and we have to figure out what the tradeoff is. As the price of all forms of energy get higher, we are forging ahead with looking for them, and there is a costly environment.

So we're going to have to come to terms with both sides of that issue right now. As these prices get higher, some of the environmental concerns are getting pushed to the side and the oil sands to 1.5 million barrels a day they produce now, within a decade, could be up to five just because it's worth it.

BROWN: All right, Ali. Once again, Ali Velshi.

And oil sands aren't our only options. Next, wind, solar, nuclear and biofuels. Stay with us for the real take on alternative fuels, "No Bias, No Bull" on this ELECTION CENTER special, "Running on Empty."

(COMMERCIAL BREAK)

BROWN: We hear lots of talk about a man-to-moon type of project to end America's addiction to oil. Al Gore wants the U.S. to generate all of its electricity from earth-friendly sources within 10 years.

(BEGIN VIDEO CLIP)

AL GORE, FORMER VICE PRESIDENT OF THE UNITED STATES: Scientists have confirmed that enough solar energy falls on the surface of the earth every 40 minutes to meet 100 percent of the entire world's energy needs for a full year. And enough wind power blows through the Midwest corridor every day to also meet 100 percent of U.S. electricity demand.

(END VIDEO CLIP)

BROWN: But every alternative to oil and coal does have drawbacks. Nuclear power plants take a long time to build and generate deadly radioactive waste. Companies can't make turbines fast enough to fill the demand for wind mills. Solar panels take up lots of room. And of course, they need lots of sunshine, which can be a problem in cloudy places.

Biofuels like corn-based ethanol affect food prices. A large biofuels plant in the U.S. produces in a year what an oil refinery produces in a single week.

So back again to talk about alternative energy, once again, senior business correspondent Ali Velshi; Stephen Leeb, the research chairman of Leeb Capital Management; Club for Growth president, Pat Toomey; and the U.S. managing editor for the "Financial Times," Chrystia Freeland.

And Ali, we just saw your piece a moment ago on oil sands. And I know we need more oil in the short term. But isn't it ultimately just prolonging our addiction to fossil fuel?

VELSHI: Yes. I mean, even if we cut our usage of oil, and we've been doing that. Demand has started to break down in the United States. We know that. We still are going to have to produce more oil until we really wean ourselves off of oil.

So we need to do both. It's not an either/or, but we definitely do have to start looking at alternatives while we're still finding more oil.

BROWN: And Pat, one of our most successful oilmen, T. Boone Pickens, is launching this huge initiative for green energy.

TOOMEY: Right.

BROWN: And he's going to spend $10 billion to build this massive wind farm down in Texas. Why shouldn't our government be out in front of stuff like this?

TOOMEY: We don't need the government to do it. Somebody who develops a competitive alternative source of energy, whether it's to generate electricity or to power a motor vehicle, is going to become spectacularly wealthy. Actually many thousands or tens of thousands of people will become wealthy along the way. We don't need the government to misallocate a bunch of resources, force us to use more expensive -- you know, we didn't leave the Stone Age because we ran out of stones. We left the Stone Age because we figured out better ways to make tools.

(CROSSTALK)

VELSHI: There may be a bigger capitalist in the country than you, and that's T. Boone Pickens.

TOOMEY: Yes.

VELSHI: He doesn't like government and he's saying to the government, you have to declare a national emergency.

TOOMEY: Emergency, yes.

VELSHI: He told -- he's saying the president has to do that. So there's a rich man. He's a very rich man.

(CROSSTALK)

FREELAND: He just has a vested interest in government support for the alternative energy.

TOOMEY: Sure he does.

VELSHI: Absolutely.

BROWN: Chrystia, let me ask you, you've said that you think we're way behind other countries in terms of our emphasis on alternatives. Why is that? And what do we have to do to catch up?

FREELAND: Because gas has been very cheap in the United States is the short answer. You know, Americans right now are feeling a lot of pain at the pumps, but gas prices in the United States are barely half of the prices in Europe. And that means that structurally Americans drive bigger cars that consume more fuel.

BROWN: Right.

FREELAND: They have longer commutes. And so, it does mean that the transition to higher fuel prices is harder. The American economy is geared up for cheap gas. And it looks like we're coming to the end of the era of cheap gas.

BROWN: Go ahead, Stephen.

LEEB: Campbell, I just want to point out that this is a very, very tricky, difficult problem to solve. Boone Pickens talks about wind turbines. And everybody thinks wind is a technology where it's getting cheaper.

Well, you know what, the cost of wind turbines has gone up 20 percent in the past couple of years. Why is it going up? Because steel prices have gone up faster than the technology has improved. Now, if you start talking about putting this country on wind, you're talking about probably using all the steel there is in the world. These are the sorts of problems that we have to sort out. And Pat keeps telling us about government not being able to do it.

I'm no great fan of government, but government helped win the Second World War the last I read. And I think that this crisis absolutely rises to the level of a war.

BROWN: Ali, bottom line this for us?

VELSHI: Well, the bottom line is, we are destroying things for ourselves with these prices. So, in fact, it wasn't the government that decided to increase. The government couldn't get its act together on fuel standards on cars. Americans ran away from SUVs and cars when gas hit $3.50 a gallon, and then $4.

So on some level, I have to agree with Stephen that the best thing that happens to us right now as these prices stay high for a little while and force us into a corner and we'll come out fighting. We'll make changes.

And I think it's a combination of government intervention and the free market. They're both working toward it, but we've got to be focused on it. The government can have some hand in promoting that.

FREELAND: Should the government use taxes to set a floor for gas prices?

VELSHI: You know, there are a lot of people who say the best thing that has happened to this country in terms of saving us 15 years from now is the price of gas today.

TOOMEY: And that totally disregards the costs of a forgone prosperity, and the forgone jobs and higher wages and more opportunities and better standard of living that we don't have if we put these artificial constraints and new costs.

BROWN: Guys, we got end it there. We're out of time. But many, many thanks, to Stephen, to Pat, Chrystia, and as always, our own Ali Velshi.

And thank you for joining us, everybody. Appreciate it.

"LARRY KING LIVE" starts right now.