The engine is here to stay

July 17, 2012, 5:37 PM UTC

FORTUNE — With schizophrenic energy prices and rapidly evolving green technology, the old, dirty internal combustion engine’s days are numbered, right? Not exactly.

Caterpillar (CAT) Chairman and CEO Doug Oberhelman, speaking at Fortune’s Brainstorm Tech conference in Aspen, Colorado, said that is most certainly not the case. “We see the internal combustion engine being here for a long, long time,” he said. “Even as energy costs rise, there will always be a need for and a place for [that technology].”

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Oberhelman pointed to the wide number of developments in the last few years that have helped make engines — from the small, light powerplants in passenger cars to the heavy-duty machinery Caterpillar sells around the globe — much more efficient. Technologies including lightweight materials, turbochargers, direct-injection and clean diesel have lengthened the lifetime of the typical combustion engine. “I am amazed,” Oberhelman said, “that we’re using a diesel engine that is largely the same as the one invented in the 1850s.”

Driving these gains? Software. Oberhelman told the tech-heavy gathering that software had become a vital component in driving innovations in even the heaviest industries. For example, software helps manage the precise timing required to make engines more fuel-efficient and pump out less carbon emissions. “We issue 500 patents a year — and many of those around software,” he said, noting that his company spends about $2.3 billion a year in research and development.

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“Peoria not as flashy as Palo Alto,” Oberhelman joked with the audience, “but we’re very much into software.” And that focus is rapidly changing Caterpillar’s business. “Not unlike Silicon Valley,” he added, “we’re on the verge of innovative breakthroughs in our industry [thanks to software].”

Oberhelman also lamented the immigration crisis in the United States. “We’re not generating enough science and math students in the lower grades,” he said, putting the country’s competitiveness in jeopardy. A few moments later, Caterpillar staff members rolled out a robot designed and built by high school students as part of an engineering program the company supports. A quizzical crowd lit up when the robot began shooting Nerf basketballs into the audience.

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