This is a partial transcript from "On the Record," March 12, 2007, that has been edited for clarity.

GRETA VAN SUSTEREN, HOST: The president is on a five-nation tour of Latin America. Why? We went to find out. We traveled with the president first in Brazil and then in Uruguay. That is where we sat down with him to discuss this important trip.

President Bush went "On the Record."

(BEGIN VIDEO CLIP)

VAN SUSTEREN: Nice to see you, Mr. President.

GEORGE WALKER BUSH, PRESIDENT OF THE UNITED STATES: Greta, thanks.

VAN SUSTEREN: Mr. President, I don't know if I'm supposed to welcome you or you welcome me because neither one of us is a citizen here.

BUSH: Well, we're in Uruguay. And it is a fantastic country that is strategically located and is a good friend of America. And I've just come from a fantastic visit with the president, President Vasquez, on his — what's called estancia, which is similar to a ranch, and we really had a good time.

VAN SUSTEREN: Is that sort of his Camp David to his country?

BUSH: It is his Camp David. And he loves going there. He was very gracious to host us. Venezuela's got fantastic meats — I mean, Uruguay's got fantastic meats, and we had a wonderful — wonderful time eating — eating beef.

VAN SUSTEREN: Your trip here to South America, you're set to go to a number of countries. If you're sitting at home watching, what's sort of the message you want to send to the citizens back home all across the country? Why are you here?

BUSH: I'm here to remind the people of this part of the world that a prosperous and peaceful neighborhood is in the interest of the American people. I'm also here to remind them that the American people are very generous with their taxpayers' money about helping improve the human condition, and so like the education programs that we support, I try remind people. Here in Uruguay, we're helping educate people in the English language.

I'm also here to talk bio-fuels and ethanol. Yesterday, I was in Brazil. I saw you there. And in Brazil, there's an industry that has sprung up that is helping fuel their economy by alternative uses of energy. And so there's a lot of reasons. But the main reason is just to say a healthy, prosperous neighborhood is in the interests of our country.

VAN SUSTEREN: I want to talk bio-fuels mostly, but you mentioned this generosity. I heard you yesterday say that we give $1.6 billion to help Brazil.

BUSH: No, all countries.

VAN SUSTEREN: All countries.

BUSH: Yes, in bilateral aid. That does not include all the faith-based programs, all the business programs that aim to help the citizens in the countries in which they do business or the NGOs. This is just straight traditional bilateral aid. Nor does it include the Millennium Challenge account money we've spent. My only point is, look, money is one thing, but it is the — it is the results of the expenditure of money that's important. And we believe in social justice program, in other words programs that go to help people become educated or get the health care they need so they can realize their God-given potential.

VAN SUSTEREN: All right. Bio-fuel.

BUSH: Yes.

VAN SUSTEREN: That was the big discussion yesterday, it's why you came down. You've got a strong interest in it. Why?

BUSH: Because — for three reasons. One, environmental reasons. In other words, if we burn less gasoline, we're better stewards of the environment. Two, national security reasons. When you're dependent upon oil — and oil obviously is the main feedstock of gasoline, and we use a lot of gasoline — but when you're dependent upon oil, your oil sometimes comes from parts of the world that can be unstable, for example, or subject to a terrorist attack.

Three — and by the way, that instability or that terrorist attack could disrupt the supply of oil, which would then raise the price of gasoline. And finally, for economic security reasons. When the demand for crude oil goes up in China or India because of their growing economies and the supply of hydrocarbons remains relatively flat or doesn't keep up with demand, then the price goes up. And when the price goes up worldwide, it affects the price at the gas pump.

So — and the less gasoline we use, the less oil we therefore consume and the more we have national security and economic security.

VAN SUSTEREN: All right, let's talk national security first. You have a 20/10 program, meaning that in 10 years that we are going, according to your program, we'll be 20 percent less dependent.

BUSH: Less gasoline.

VAN SUSTEREN: Less gasoline-dependent. How does that — I mean, how does that profoundly jump us forward, in terms of national security? I mean, I guess, ideally, we'd like to be 100 percent liberated from this.

BUSH: Well, we won't be. I mean, that's a — you know, that's a very difficult goal to attain. So we've set goals that are reasonable. But for example, if we're able to attain that goal, it would mean we'd be nearly less dependent on oil from the Middle East. We get a lot of oil from Canada, a lot of oil from Mexico. And therefore, if we're able to achieve the 20/10 goal — in other words, 20 percent less gasoline over a 10-year period of time — it reduces our dependence on Middle Eastern oil a lot.

VAN SUSTEREN: All right. And Venezuela — we don't want — and we get a lot of oil from them, as well.

BUSH: We do. But it's — Venezuelan crude is a little different. It's a strange quality crude that requires special refinery capacities. That's what Citgo — an American company owned by Venezuela — now does. They refine Venezuelan crude. So it takes a specialty refining capacity to deal with their crude.

VAN SUSTEREN: I suppose nothing's ever perfect. If we go forward on at least our ethanol in the United States, it's corn-based, that means the price of corn goes up...

BUSH: Right.

VAN SUSTEREN: ... so that — you know, that the more we use — the more we use the ethanol from corn, the more our prices go up that way.

BUSH: It does. And you're absolutely right there. There's a consequence, obviously, for this action of trying to become less dependent on gasoline, and that is, so long as we maintain our dependence on corn, it's going to put pressure on those who use corn, like hog growers, unless people plant more corn. In other words, if people plant more corn to meet the price, the higher price, it should relieve price somewhat.

But the ultimate solution is to develop other feed stocks for ethanol, like switchgrass, or you know, agricultural refuse. And that's why we're spending a lot of taxpayers' money to try to find the breakthroughs in the technologies that will enable to us use other feedstocks, other types of materials. It's called cellulosic ethanol.

VAN SUSTEREN: That'd be perfect. But we're not — I assume that your plan is sort of one step, hoping to get to that direction. We're not yet there.

BUSH: We're not there yet.

VAN SUSTEREN: But that would be ideal.

BUSH: Well, our plan — our plan...

VAN SUSTEREN: Or pretty close.

BUSH: Our plan recognizes we're going to have to have technological breakthroughs in the out years. In other words, for five years, we think we can live on ethanol or in the short term.

VAN SUSTEREN: Corn-based.

BUSH: Based upon corn. That's right. And in out years, we're going to have to have some breakthroughs in technology, and yet people are optimistic we can achieve those breakthroughs, and that's why we're focusing a lot of research money on cellulosic ethanol.

VAN SUSTEREN: Now, Brazil makes its ethanol from sugar cane.

BUSH: Right.

VAN SUSTEREN: And they've been doing this since 1975?

BUSH: Right.

VAN SUSTEREN: Why were we so slow to sort of jump on this?

BUSH: Well, first of all, we use our cane for other purposes. Now, sugar cane is the most cost-effective way to make ethanol. And if you have a lot of sugar cane, you're going to be a cost-effective ethanol producer.

Secondly, Brazil, by the way, was on ethanol for a period of time, and then when the price of crude oil dropped to low numbers in the early '90s, they switched back to gasoline. As a matter of fact, they had very little ethanol usage. And it was until recently that ethanol's begun to climb because the automobile manufacturers have brought flex-fuel vehicles onto the market. And a flex-fuel vehicle means that you can either use gasoline or ethanol to power your vehicle, your choice. And so when ethanol is competitive with gasoline, the consumer will go to ethanol. When gasoline's more competitive, the consumer can switch to gasoline.

VAN SUSTEREN: So oil prices had to really rise in the United States, the cost of corn be low, subsidies from Congress to the corn growers or to the ethanol-based creators in the United States, to make it — to motivate people?

BUSH: Well, you know, look, there's no question that the high price of oil has caught the attention not only of government but also of private investors. There's a lot of private capital now moving into the energy sector, alternative energy sector, because of the high price of crude oil. I mean, not only are we talking about a lot of money going into research on ethanol, but we're also talking about a lot of money going in on hybrid batteries, for example — batteries for hybrid vehicles, lithium ionic batteries that will — that you can put in your car, hopefully, some day and drive your first 20 to 40 miles on electricity. And there's a lot of research and a lot of money headed into that field, as well.

In other words, the high price of crude has spurred a lot of research and development. And technology is going to be that which enables us to, you know, achieve national security and economic security and good environmental stewardship all at the same time.

VAN SUSTEREN: Going back, the ideal is this cellulosic ethanol. That would be ideal because that's the waste. That's the corn stalk we don't eat. That's the switchgrass we don't eat. Do you have any idea that — any of your experts give you some sort of idea when will we be there? Because that really — that's so much better than corn-based ethanol.

BUSH: No, you're right, it is. It is — unless you're a corn grower right now.

VAN SUSTEREN: Right. Exactly.

(LAUGHTER)

BUSH: But — and you brought up an interesting problem, and that is the more corn you use relative to the amount produced, the price will go up, and all of a sudden, the hog farmer is getting a little nervous about the price of feed. And we've got to be conscious of that. And so the idea of spending money to get breakthroughs on cellulosic ethanol makes a lot of sense. And it's hard for me, as a non-scientist, to predict. I can just tell you people who are in the field are very optimistic.

I went to Delaware, to a DuPont place, and they are optimistic about breakthroughs in cellulosic ethanol. These are the Ph.Ds. These are the scientists. These are the people who know what they're talking about. And I was — I left optimistic that our goal of 35 billion gallons of alternative fuels is an achievable goal.

VAN SUSTEREN: You know, you talked yesterday about how some people don't even know they have a flex-fuel car.

BUSH: Right.

VAN SUSTEREN: We went to Wisconsin, and the person who drove us around while we went to an ethanol plant was surprised to learn, as he was waiting for us, that his car was flex-fuel.

BUSH: Yes.

VAN SUSTEREN: That's — people don't even pay much attention to this, do they.

BUSH: Not yet because you're following an industry that is on the verge of breakthrough. In other words, first of all, the ethanol industry, the production industry and those who use ethanol are mainly confined to the Midwest. It's not — I'm not surprised you were in Wisconsin and talked to somebody who is involved in the ethanol industry, even they that person didn't know they had a flex-fuel automobile.

Secondly, the car companies are beginning to advertise because there's about two million — as I understand it, two million flex-fuel vehicles on the road today. And again, flex fuel means you can either use ethanol or gasoline, your choice. And I think I've seen some advertising where the automobile manufacturers are beginning to say, here's a — you may have a flex-fuel vehicle, and here are the advantages of owning one.

VAN SUSTEREN: One of the criticisms of using corn-based ethanol for fuel for cars is that it takes a lot of energy to produce, whereas gasoline is relatively easy to produce — it's easier. That's the complaint. Is that just one we have to live with until we get to the cellulosic ethanol? Is that...

BUSH: No, I think that — well, first of all, cellulosic ethanol's also going to take some energy to produce it. In other words, the least energy needed to produce ethanol is from sugar cane. And then as you head toward different varieties of feedstock, it gets more expensive.

But the fundamental rationale for ethanol is going to be, what's the price of crude oil? And does it make sense to hedge against a terrorist attack, for example, or a significant disruption in supply? And I made the decision, I think it does. It also happens to have the benefit of dealing with, you know, greenhouse gases.

VAN SUSTEREN: Meaning that — you know, that we may have to pay an extra price for corn-based ethanol because we're buying security and reducing our dependency.

BUSH: Well, that, but also, you may have to have a little — some tax incentives, like there is in place now, until the industry gets up and running full-steam and we're able to continue to wring costs out of the system to make it as cost-effective as gasoline.

In other words — in other words, look, this is a new industry, and it's really beginning to grow and change and evolve. And all the time, the producers are figuring out ways to be more cost-effective so that the price, the ultimate price of ethanol at the gas pump can compete with gasoline. It's not there yet, but if crude oil stays high or goes higher, and efficiencies are continuing to be made in the ethanol field, the consumer will be able to get a good deal from using ethanol.

VAN SUSTEREN: You were in the oil industry before you became president.

BUSH: Yes.

(LAUGHTER)

VAN SUSTEREN: Does it strike you as, you know, unusual — did you ever think back when you were an oil guy that you would be a corn ethanol guy?

BUSH: No, I didn't, to be frank with you. And I don't think anybody in the early '80s really began to seriously consider that we would be consuming seven — or five billion gallons of ethanol within, you know, a 10-year period or a 20-year period of time. And yet we are because everybody began to realize that these high prices — and by the way, the price of oil spiked in the '80s, you might recall. There was a lot of conservation measures that took place. There were some heading toward alternative fuels. And then the price of oil went straight down.

When I first became president in the late — or in 2000, but in the late 1990s and 2000, the price of crude oil was very low. And since then, it's gone up by four times. And as a result, people are now beginning to say — and the other thing that changed, by the way, is that China and India now have become big consumers of crude oil on the world market. In other words, these growing economies will continue to use more oil as they continue to expand their economies.

And therefore, I believe — and I think a lot of smart money believes — that the price of crude oil, the low price we used to see is not going to happen again. And therefore, you're going to see a lot of capital heading into the research and development for the private sector. And I have made the decision, in working with Congress, to fund — to use taxpayers' moneys to fund research because I am convinced it's in the country's interest to become less dependent on gasoline.

VAN SUSTEREN: How do you convince the American people that — you know, that they should pay a little bit more for this, have taxpayers go to subsidies, we — in order to sort of reduce our dependency, when a lot of people sort of worry more about when they gas their car, the actual dollar amount? I mean, how do you drive home the point of this?

BUSH: Well, no, look. The — there is no question that consumers, you know, shop for energy based upon price. No question about that. And what the tax credit does to the ethanol producer, it means that the ethanol price is competitive with gasoline. And so the consumers — you know, don't — they — in other words, they don't pay a higher price at the pump in order to subsidize.

VAN SUSTEREN: Well, in theory, the big picture, they may because you're not giving a credit someplace else. So I mean, they might — but I mean, how do you drive home the point that this is really important? I mean, it's — you know, it's — when you hear ethanol, you think high school chemistry or...

BUSH: Yes!

(LAUGHTER)

VAN SUSTEREN: ... you think, like, oh, brother, what's that, you know? But I mean, like, you know, how do you get it to matter to the — you know, to the families sitting around the kitchen table or the college student?

BUSH: No, that's a great question. First of all, there's a lot of people who are concerned about greenhouse gases, and therefore, they can — if they have an ethanol plant nearby that produces ethanol, so they can put it in their car, they should use it because there — there — you know, the — look, consumers want good price, good performance and convenience. And the ethanol industry is going to have to learn to compete on all three.

In other words, somebody's not going to want to drive 40 miles to fill up their car or 20 miles or 40 minutes to fill up their car on ethanol when they can get gasoline right around the corner. Nor does somebody want to pay exorbitant prices for ethanol rather than gasoline. In other words, all three of those have to work in order for this industry to take off.

And in other words, the consumer is still the king in America. It's a market-oriented economy, where the consumers will make the decisions. My point is, is that the government can help make ethanol price-competitive, can make it more convenient for consumers all across the country. See, the breakthrough in cellulosic will mean that ethanol can be, you know, manufactured in other parts of the country, other than just the Midwest. So we can become switchgrass growers throughout the Southwest.

VAN SUSTEREN: If we get there on the technology.

BUSH: If we get the technology.

VAN SUSTEREN: Or when we do.

BUSH: When we do.

VAN SUSTEREN: When we do.

BUSH: When. Please.

VAN SUSTEREN: Yes. No, I'll tell you when, because, I mean, I agree, that would be profoundly, you know, significant, if we could get to that point on that.

BUSH: Look, all I can tell you is the scientists tell me they're very optimistic.

(END VIDEO CLIP)

VAN SUSTEREN: Much more with our talk with President Bush is still ahead.

(COMMERCIAL BREAK)

VAN SUSTEREN: We traveled with President Bush for the beginning of his five-nation Latin American tour. We were with the president in Brazil, where the United States signed an agreement about ethanol. But what is the big deal about ethanol? For one, it's an alternative energy source that can directly affect almost every American. But ethanol has been around for many years, so we wondered, Why now?

We sat down with the president in Uruguay, where he went "On the Record."

(BEGIN VIDEOTAPE)

VAN SUSTEREN: In the mid-'70s, we had those horrible gas lines because OPEC — we had an oil embargo. Why didn't we start focusing then? There was some attention on solar, some, you know, nuclear. But, like, it never — I mean, I don't recall hearing much about ethanol. And ethanol's been around forever.

BUSH: Yes. No, most of it was conservation talk. As a matter of fact, our economy became very conservation-oriented. Believe it or not, our economy has expanded dramatically since then. Well, obviously, it's expanded dramatically since then. And our usage of oil hadn't increased that much relative to the economic expansion. So we became better conservationists. But you know, I don't know. I can't answer your question, why didn't this — why didn't those high prices spur innovation?

VAN SUSTEREN: Well, more like why didn't we look at it? I mean, I can say — you know, we — you know, you look at Brazil, where you were yesterday, and you see, you know, they've been doing this since 1975, far more than we have. You know, that was sort of a benchmark with the prices of — I mean, with the embargo, is that, you know, why were we — why being sort of...

BUSH: Well, you know, I suspect part of it is because, again, if I want — I may be off on this a little bit, but it's three times more efficient to use sugar cane than corn in making ethanol, and it may have just been during that period of time that the shortage of sugar cane for energy purposes really discouraged people from trying to foster a full ethanol industry in the United States.

VAN SUSTEREN: Are you going to buy a flex-fuel car yourself when you buy your next car?

BUSH: Yes. I'm not sure when that's going to be. But I'm an alternative fuels guy, and I'm not going to buy a flex-fuel car, however, if I can't fuel up my vehicle in Crawford, Texas. I will buy one if the — if it's convenient to fuel up my car and it's price-competitive.

VAN SUSTEREN: SUVs — we see them all over the road all the time. And people certainly have a right to buy them. But they're gas guzzlers and there are lots of maybe environmental and fuel, national security reasons perhaps not to buy it because of gasoline. How do we convince consumers that maybe they ought to take a second look at what they drive?

BUSH: Well, you know, obviously, if — one is price. I mean, as the price of gasoline goes up as a result of higher crude oil, if it does, people are going to have to make the decision, can they afford this kind of automobile relative to others? Secondly, I believe we ought to change the CAFE standards based upon size and weight in order to get better fuel efficiency fleet-wide.

The reason I believe that we ought to do it upon weight and size, as opposed to, you know, fleet-wide, is what the current law is, is because I don't want to have our automobile manufacturers sacrifice safety, as opposed to achieve fuel efficiencies.

And so the plan I put forward is one that we used on light trucks. It's actually worked. In other words, CAFE standards have gone up for light trucks, and yet, consumers have been able to purchase that which they want.

VAN SUSTEREN: The tariffs in Brazil — we're going to have those in place.

BUSH: Yes.

VAN SUSTEREN: The Brazilian president would like to see those go away.

BUSH: He would, but — and I reminded him that the Congress makes the decision, that they — the tariffs is in place until 2009, and then we'll see what the state of our respective industries is, and then the Congress can make the decision.

But one thing that's interesting is, is that we consume — we use five billion — we produce five billion gallons of ethanol, and so do they. And so I'm not so sure they have that much excess capacity yet to get into our marketplace. But I told him the tariff's in place until 2009.

VAN SUSTEREN: But you're excited about the corn ethanol.

BUSH: I'm excited about ethanol total. I like corn ethanol. I think it makes a lot of sense. I think that policies we put in place that have encouraged the production of ethanol is good for the country. But I recognize what you recognize, that corn ethanol has got its limitations and that for this country to meet the goal of reduction of 20 percent of our gasoline usage over 10 years, we're going to have to have technological breakthroughs.

And having said that, I believe that the country has got some of the greatest minds in the world that are capable of developing new technologies on a variety of fronts that will change life for our citizens for the better. And this is an exciting period. It's interesting and exciting for me to be involved with the beginning of what I think is going to be a viable energy industry and an alternative to the way we've driven our cars for years.

VAN SUSTEREN: Mr. President, thank you, sir.

BUSH: Thank you, Greta.

(END VIDEOTAPE)

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