U.S. dependence on oil creates problems, he said, including making the nation vulnerable to terrorists from politically unstable Middle Eastern countries, creating a huge trade imbalance with large purchases of imported oil, and fueling global warming from carbon emissions caused by burning oil for energy and transportation.
"The first thing we have to do is destroy oil as a strategic commodity," Woolsey said.
The only way to do that, he said, is to have affordable alternatives such as ethanol, biodiesel, biobutanol and other energy sources that can be made from U.S. agricultural products and natural resources like sun and wind.
Both corn ethanol and soy biodiesel should be seen as a beginning in the effort to replace oil, Woolsey said.
Other alternative energy sources also will be needed, he said, including cellulosic ethanol made from plant residues and electricity made from renewable sources like sun and wind.
Hybrid vehicles that can run on electricity and blends of 85 percent ethanol and 15 percent gasoline can cut the U.S. dependence on foreign oil, he said.
"If we work on it, we have the opportunity to lead the U.S. and the world away from oil and toward renewable fuels," Woolsey said.
Woolsey said an unlikely coalition is rallying around renewable fuels.
Either the government must give some incentives to renewable fuels or remove the subsidies that the oil industry has received for 100 years, Woolsey said.
"We need more of a level playing field" between oil and renewable fuels, he said.
James Woolsey discusses renewables - view video