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[Senate Hearing 107-144]
[From the U.S. Government Publishing Office]

                                                S. Hrg. 107-144 (Pt. 2)

                         NATIONAL ENERGY ISSUES

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

    TO RECEIVE TESTIMONY ON LEGISLATIVE PROPOSALS RELATED TO ENERGY 
  EFFICIENCY, INCLUDING S. 352, THE ENERGY EMERGENCY RESPONSE ACT OF 
   2001; TITLE XIII OF S. 597, THE COMPREHENSIVE AND BALANCED ENERGY 
  POLICY ACT OF 2001; SECTION 602-606 OF S. 388, THE NATIONAL ENERGY 
SECURITY ACT OF 2001; S. 95, THE FEDERAL ENERGY BANK ACT, AND S.J. RES. 
 15, PROVIDING FOR CONGRESSIONAL DISAPPROVAL OF THE RULE SUBMITTED BY 
THE DEPARTMENT OF ENERGY RELATING TO THE POSTPONEMENT OF THE EFFECTIVE 
   DATE OF ENERGY CONSERVATION STANDARDS FOR CENTRAL AIR CONDITIONERS

 TO RECEIVE TESTIMONY ON LEGISLATIVE PROPOSALS RELATED TO REDUCING THE 
     DEMAND FOR PETROLEUM PRODUCTS IN THE LIGHT DUTY VEHICLE SECTOR

                               __________

                             JULY 13, 2001

                             JULY 17, 2001

                             JULY 18, 2001

                               __________

                                 PART 2

                       Printed for the use of the
               Committee on Energy and Natural Resources

                               __________

                  U.S. GOVERNMENT PRINTING OFFICE
71-521                     WASHINGTON : 2001

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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii              FRANK H. MURKOWSKI, Alaska
BYRON L. DORGAN, North Dakota        PETE V. DOMENICI, New Mexico
BOB GRAHAM, Florida                  DON NICKLES, Oklahoma
RON WYDEN, Oregon                    LARRY E. CRAIG, Idaho
TIM JOHNSON, South Dakota            BEN NIGHTHORSE CAMPBELL, Colorado
MARY L. LANDRIEU, Louisiana          CRAIG THOMAS, Wyoming
EVAN BAYH, Indiana                   RICHARD C. SHELBY, Alabama
DIANNE FEINSTEIN, California         CONRAD BURNS, Montana
CHARLES E. SCHUMER, New York         JON KYL, Arizona
MARIA CANTWELL, Washington           CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           GORDON SMITH, Oregon

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               Brian P. Malnak, Republican Staff Director
               James P. Beirne, Republican Chief Counsel
                         Deborah Estes, Counsel
                     Shirley Neff, Staff Economist
                    Bryan Hannegan, Staff Scientist

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearings:
    July 13, 2001................................................     1
    July 17, 2001................................................    75
    July 18, 2001................................................   141

                               STATEMENTS
                             July 13, 2001

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     1
Burns, Hon. Conrad, U.S. Senator from Montana....................    16
Emblem, Erik, Administrator, National Energy Management 
  Institute, Alexandria, VA......................................    29
Garman, David K., Assistant Secretary, Energy Efficiency and 
  Renewable Energy, Department of Energy.........................     4
Manoogian, Mary Ann, Director, Governor's Office of Energy and 
  Community Services, Concord, NH................................    20
Murkowski, Hon. Frank H., U.S. Senator from Alaska...............     2
Nadel, Steven, Executive Director, American Council for an 
  Energy-Efficient Economy.......................................    41
O'Hagan, Dr. Malcolm, President, National Electrical 
  Manufacturers Association, Rosslyn, VA.........................    63
Parks, David, President, Goodman Manufacturing Company, Houston, 
  TX.............................................................    58
Rees, Clifford, Jr., President, Air Conditioning and 
  Refrigeration Institute, Arlington, VA.........................    51
Wagner, Mark F., Director, Federal Government Relations, Johnson 
  Controls, Inc., on behalf of the Federal Performance 
  Contracting Coalition..........................................    33

                             July 17, 2001

Akaka, Hon. Daniel K., U.S. Senator from Hawaii..................   130
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................    75
Carper, Hon. Thomas R., U.S. Senator from Delaware...............   133
Dana, Gregory, Vice President, Environmental Affairs, Alliance of 
  Automobile Manufacturers.......................................   104
Feinstein, Hon. Dianne, U.S. Senator from California.............    92
Gibbens, Charles, Automotive Fleet Manager, on behalf of National 
  Association of Fleet Administrators............................    94
Hagel, Hon. Chuck, U.S. Senator from Nebraska....................    90
Johnson, Hon. Tim, U.S. Senator from South Dakota................    87
Kolodziej, Richard R., President, Natural Gas Vehicle Coalition..   109
Marshall, Gary, Vice Chairman, National Ethanol Vehicle Coalition   117
McCormick, Dr. J. Byron, Ph.D., Director, Global Alternative 
  Propulsion Center, General Motors Corporation..................    99
McNutt, Barry D., Senior Policy Analyst, Office of Domestic 
  Policy and International Affairs, Department of Energy.........    78
Murkowski, Hon. Frank H., U.S. Senator from Alaska...............    76
Shelton, L. Robert, Executive Director, National Highway Traffic 
  Safety Administrator, Department of Transportation.............    81
Zeltmann, Eugene, Co-Chairman, Electric Vehicle Association of 
  the Americas...................................................   121

                             July 18, 2001

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................   141
Blake, Francis, Deputy Secretary, Department of Energy...........   146
Bouchard, Jacques, Director, French Atomic Energy Commission, 
  Nuclear Energy Division, Paris, France.........................   212
Burns, Hon. Conrad, U.S. Senator from Montana....................   145
Carper, Hon. Thomas R., U.S. Senator from Delaware...............   146
Choppin, Dr. Gregory R., Florida State University, Department of 
  Chemistry, Tallahassee, FL.....................................   214
Cochran, Thomas B., Ph.D., Director, Nuclear Program Natural 
  Resources Defense Council......................................   203
Corradini, Dr. Michael L., University of Wisconsin, Madison, WI..   193
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............   142
Fri, Bob, Chairman, Committee on Benefits of DOE R&D on Energy 
  Efficiency and Fossil Energy...................................   182
Holdren, Dr. John P., Professor, Harvard University, Cambridge, 
  MA.............................................................   157
Hubbard, Dr. H.M., The Pacific Center for High Technology 
  Research (Retired), Lee's Summit, MO...........................   187
Moniz, Ernest J., Professor of Physics, Massachusetts Institute 
  of Technology..................................................   172
Murkowski, Hon. Frank H., U.S. Senator from Alaska...............   144
Richardson, Dr. Robert C., Physics Professor and Vice Provost for 
  Research, Cornell University...................................   170

                               APPENDIXES
                               Appendix I

Responses to additional questions................................   229

                              Appendix II

Additional material submitted for the record.....................   245

 
                         NATIONAL ENERGY ISSUES

                              ----------                              

                         FRIDAY, JULY 13, 2001

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:35 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

           OPENING STATEMENT OF HON. JEFF BINGAMAN, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. The hearing will come to order. Today's 
hearing will focus on proposals to expand existing programs to 
assist low income consumers to meet their energy needs and to 
weatherize their homes, also programs to encourage State energy 
plans and activities and proposals to improve the energy 
efficiency of buildings, particularly Federal buildings, 
appliances, and industry.
    Yesterday we took testimony on a number of oil and gas 
supply issues. We will continue the efficiency theme next 
Tuesday with a hearing on vehicle issues, discussing energy 
research and development on Wednesday and renewables, 
distributed power technologies, and hydroelectric relicensing 
on Thursday, so as we move forward toward a markup of a 
balanced and comprehensive energy bill, I believe we are trying 
to have hearings that reflect that same balance of the array of 
energy options we have before us.
    Increasing the efficient use of energy is the single most 
effective and least-cost policy for both the short term and the 
long term. Energy efficiency can reduce the demand for tight 
energy supplies and can reduce the upward pressure on energy 
prices. Energy efficiency allows us to maintain the same 
economic productivity and quality of life with less energy 
input, and efficiency helps us reduce pollution and 
environmental impacts associated with energy production and 
use.
    There are some interesting statistics that the Alliance to 
Save Energy, a group that I have been associated with for many 
years, has come up with. Their analysis shows that energy 
efficiency provided the Nation with 27 quadrillion Btu's, or 
quads, or about 22 percent of U.S. energy consumption in 1999. 
This made energy efficiency the second leading source of energy 
in 1999, trailing oil consumption, which was 38 quads, but 
contributing more than natural gas (22 quads), coal (22 quads), 
nuclear (8 quads), and hydro (4 quads).
    We have some excellent witnesses today, including the 
Assistant Secretary Garman, who is, of course, well-known and 
respected by all of us on this committee, so I will stop my 
remarks and defer to Senator Murkowski, Secretary Garman's 
former boss.

      STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Senator Bingaman. Although I 
think you and I both know that we usually work for our people, 
they seem to lay out our schedule and dictate the terms and 
conditions under which we come in, and I understand that it was 
your staff that set the hearing on Friday, as opposed to the 
usual procedure, but you have got a good crowd here, and 
obviously the Senate Energy Committee is working on Friday. The 
halls are a little hollow out there, but that is all right.
    I am pleased to join you here this morning. It seems like 
only yesterday that we were here, and we were here yesterday.
    [Laughter.]
    Senator Murkowski. In any event, we are going to hear from 
a number of witnesses, as you have already outlined. I want you 
to know I support the measures to improve the energy efficiency 
and assist those low income families that are facing high 
energy bills in this country, but in addition to addressing the 
symptoms of our energy crisis, high energy bills, I am firmly 
committed to the belief that we must commit ourselves to 
solving the underlying crisis.
    I stand certainly ready to work with you to move an energy 
bill to the full Senate for consideration, hopefully prior to 
the August recess, and I hope that we can collectively impress 
upon the Majority Leader the need to schedule time for the 
Senate floor. I would hope that we could have consideration for 
a comprehensive measure no later than the beginning of the week 
of July 30.
    I recognize there are other priorities as well. In any 
event, we will seek to make sure that any energy bill that 
leaves this committee will have a balanced approach to our 
energy security needs. Obviously, that includes increased 
supply of conventional fuels, energy efficiency, using more 
technology, and expanded use of alternative fuels and 
renewables.
    One of the things that I am rather interested in--evidently 
the second panel is going to focus on the debate for standards 
for central air conditioners and heat pumps. What has been lost 
in the debate is that, as I understand, the new Department of 
Energy standard will still increase energy efficiency by about 
20 percent, which certainly is encouraging. The administration 
has proposed a 12-SEER standard, standing for the seasonal 
energy efficiency ratio. Secretary Abraham recently noted that 
the new air conditioning standard will save enough electricity 
by 2030 to light all U.S. homes for more than 2 years. I do not 
know how much Alaska is going to contribute to that, but 
nevertheless, we will survive. We will make up for it some 
other way, perhaps chopping wood, but at the same time the 12-
SEER standard will be affordable for consumers, provide a wide 
array of manufacturers' models to meet consumer needs.
    The same is not true of the 30-percent increase proposed by 
the former administration's 13 SEER standard. The 13-SEER 
standard would have eliminated 84 percent of new air 
conditioner models and 66 percent of new heat pump models, 
which is a rather interesting comparison. In many instances, 
the installation of larger indoor coils required to meet the 
13-SEER standard would increase cost to consumers by many 
hundreds of thousands of dollars.
    I gather that the Justice Department found that the 13-SEER 
standard would impose disproportionate impacts on low income 
families, the same low income families that we are trying to 
help with the increased LIHEAP and weatherization funding. It 
would also drive many small manufacturers out of business, 
reduce consumer choice and competition. Perhaps this is just a 
plan to create additional demand for even more increases in 
LIHEAP and weatherization funding, but I do not want to make 
that inference. I will just refer to it.
    Clearly, the administration made the right decision to opt 
for a 12-SEER standard, reasonable cost-effectiveness with real 
benefits. I hope we can move beyond the inconsistencies on the 
issue designed perhaps for finger-pointing--and perhaps get on 
with the business of making the right choices for the American 
people: choices of balanced economic and environmental 
concerns, and our need for energy to grow in the next decade.
    I hope that we can act quickly on a comprehensive package, 
and I would certainly like, again, to reiterate since 1973 the 
economy has grown 126 percent but our energy has only grown 30 
percent. Clearly, advanced technology, American can-do spirit 
and ingenuity, have helped us to make great advances in 
efficiency, but even with these improvements we can expect that 
over the next 20 years, oil consumption will increase by one-
third. There is no other way to move America. Electricity 
demand will increase by 45 percent, and natural gas consumption 
will increase by 50 percent.
    Incidentally, I would like to thank my colleague, who was a 
floor manager late last night when Mr. Griles was voted by a 
voice vote, and there happened to be three Republicans there 
and two Democrats, and so it was a close vote, but he is out, 
and he is confirmed, so we are very pleased. I think it has 
been 53 days, but nevertheless perseverance does pay off, if 
you have got enough perseverance.
    In any event, I was propounding here on some realizations 
that oil consumption is going to increase by a third, 
electricity demand will increase by 45 percent, natural gas 
consumption will increase by 50 percent.
    Now, these are real figures from real people who I think 
call it as it is. Efficiency and conservation are crucial parts 
of a balanced, comprehensive energy plan. They are cornerstones 
of a bipartisan plan that we have worked on as well as the 
President's plan, but many believe efficiency is the only 
answer to future energy demand. As these numbers indicate, it 
is clearly not enough to rely on efficiency alone to power our 
economic progress. Efforts to increase domestic energy 
production must go hand-in-hand with efficiency and 
conservation in order to turn this crisis around.
    I would conclude with two thoughts. The standard of living 
in this country is based on the assumption that we are going to 
have an affordable and plentiful supply of energy. If we do 
not, that standard of living is going to change, and the 
economy is going to change, and our national security interests 
are going to change.
    I am very pleased to see Hon. David Garman here. I have a 
list of questions for him that were submitted by Alan 
Steinbeck, and so when we get through with your presentation 
this morning, then you can expect to have Alan--I guess it is 
called getting even, but in any event, welcome.
    [Laughter.]
    The Chairman. Secretary Garman, why don't you go right 
ahead, please.

   STATEMENT OF DAVID K. GARMAN, ASSISTANT SECRETARY, ENERGY 
     EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY

    Mr. Garman. Thank you, Mr. Chairman. Mr. Chairman and 
members of the committee, thank you for the opportunity to 
testify on a variety of legislative measures related to the 
improvement of energy efficiency. Energy efficiency is a very 
important part of the administration's overall energy policy.
    The national energy policy document released May 16 
dedicates an entire chapter to the subject of energy 
efficiency, and another entire chapter to the importance of 
renewable energy. Moreover, 54 of the national energy policy's 
105 recommendations relate directly or indirectly to the 
importance of increasing our energy efficiency or increasing 
our use of clean, renewable energy.
    I have a chart or two that I would like to use to 
illustrate the manner in which we intend to approach our goal 
of increasing system efficiency. The first chart looks at 
electricity flow, which represents about a third of our total 
energy use. As the energy inputs on the left flow toward end 
uses on the right, you can see graphically how efficiency loss 
is resulting from conversion, transmission, and distribution of 
energy.
    If we were to increase end-use efficiency--the next chart, 
please--by 20 percent, therefore saving the equivalent of 2.1 
quads of end-use energy, we would actually save 6.7 quads of 
energy input at the powerplant due to conversion losses in 
distribution and generation. This illustrates why increasing 
end-use efficiency is very important, but it is also why a 
focus on end use should not constitute the sum total of our 
efforts.
    If we can employ technologies that increase end use 
efficiency and supply efficiency by 20 percent, then we could 
save 14.7 quads of energy inputs resulting in lower cost and 
fewer emissions. That is something, Mr. Chairman, your 
committee clearly recognizes, as evidenced by your hearings 
today and those scheduled for next week. Although today's focus 
is on end-use efficiency, next week's hearing will look beyond 
that to distributed generation and other technologies that can 
make our overall efficiency much better.
    I commend you for this approach, which is in agreement with 
the approach embodied in the President's national energy 
policy. We are launching a new analytical effort at the 
Department of Energy to better understand and track trends in 
energy intensity. Surprisingly, while DOE has done this in the 
past on a one-time basis, it has never done this in a sustained 
and systematic manner.
    We envision that this effort can contribute to national 
goals for energy efficiency improvements, and the sorts of 
improvements that could be made possible through technology and 
cooperative efforts with industry, State, consumers, local 
governments, utilities, and others. We are doing this, again, 
in direct response to the recommendation in the national energy 
policy that we make energy efficiency a national priority.
    With respect to the specific provisions in legislation 
before the committee today, I would note that they are all 
well-intentioned, and with some modifications the 
administration is likely to be in a position to support many of 
them if they are part of a balanced, comprehensive approach 
that also addresses supply and infrastructure issues contained 
in the national energy policy document. My written testimony 
goes into specific detail on the measures before the committee, 
but in the small time I have got I would like to highlight just 
a few.
    First of all, weatherization. The President has proposed 
$1.4 billion in additional funding for weatherization over the 
next 10 years. We urge that Congress adopt this increase, and 
appreciate the efforts of several on this committee who are 
working to ensure that the President's budget request in this 
area are fully met.
    With respect to the State energy program, the President's 
budget request for the current fiscal year was $38 million, 
equal to the 2001 level. We are pleased that both the House and 
Senate committees fully funded this request in their Interior 
appropriations bills, and share the view embodied in 
legislation proposed by both the chairman and the ranking 
member that we can do more in this area.
    On the subject of energy-efficient schools, we believe 
there are substantial opportunities in increasing energy 
efficiency in schools, and we are working through our existing 
programs such as the rebuild America energy-smart schools 
campaign and a host of other works performed by States under 
the State energy program. We would like to work with you as you 
consider additional steps.
    With respect to the Federal energy management program, or 
FEMP, we recognize that the Federal Government is the country's 
largest energy user, spending almost $8 billion annually on 
energy costs. We operate 500,000 facilities and almost 600,000 
vehicles worldwide. President Bush in a May 3 directive to 
Federal agencies asked that immediate steps be taken to reduce 
energy use, particularly peak demand in supply-constrained 
areas such as California.
    Our efforts to promote energy efficiency in the Federal 
realm, however, will not be a short-term effort driven only by 
current concerns about energy supply. Instead, we would like to 
work with you to build a new culture of energy savings that 
pervades the way the Federal Government procures buildings, 
appliances, vehicles, and all of the other items we purchase.
    I will stop with that overview and submit to any questions 
you might have. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Garman follows:]

  Prepared Statement of David K. Garman, Assistant Secretary, Energy 
         Efficiency and Renewable Energy, Department of Energy

    Mr. Chairman and members of the Committee, thank you for this 
opportunity to testify on S. 352; Title XIII of S. 597; Sections 602-
606 of S. 388; S. 95; and S.J. Res. 15. These measures, of course, all 
relate to the improvement of energy efficiency.
    Energy efficiency is an important part of the Administration's 
overall energy policy. The National Energy Policy (NEP) document 
released May 16 dedicates an entire chapter to energy efficiency, and 
another chapter to the subject of renewable energy. Moreover, 54 of the 
NEP's 105 recommendations relate directly or indirectly to the 
importance of increasing our energy efficiency or increasing our use of 
clean, renewable energy.
    When thinking about efficiency, it is useful to consider the nature 
of our energy systems. The charts on display (see attached) * look at 
electricity flow, which represents about a third of our total energy 
use. If we were to increase end-use efficiency by 20%, thereby saving 
the equivalent of 2.1 quadrillion BTUs (quads) of end-use energy, we 
would actually save 6.7 quads of energy inputs at the power plant due 
to conversion losses in generation and the losses associated with 
transmission and distribution. This illustrates why increasing end-use 
efficiency is very important . . . but why it should not constitute the 
sum total of our efforts. If we can employ technologies that increase 
end-use efficiency and supply efficiency by 20%, then we could save 
14.7 quads of energy inputs, resulting in lower costs and fewer 
emissions.
---------------------------------------------------------------------------
    * The charts have been retained in committee files.
---------------------------------------------------------------------------
    This is something that your Committee recognizes, Mr. Chairman, as 
evidenced by your hearings today and those scheduled for next week. 
Although today's focus is on achieving end-use efficiency, next week 
the hearings will look beyond end-use savings to the removal of 
barriers to distributed generation and other technologies that can help 
us make our overall energy generation, transmission and distribution 
systems more efficient. I commend you for this approach, which is in 
close agreement with the approach embodied in the President's National 
Energy Policy.
    Today, I want to take this opportunity to announce that we are 
launching a new analytical effort at the Department of Energy to better 
understand and track trends in national energy intensity. Surprisingly, 
while DOE has done this on a one-time basis, it has never done this in 
a sustained and systematic manner. We envision that this effort can 
eventually contribute to national goals for energy efficiency 
improvements made possible through technological advances and 
cooperative efforts with industry, state and local governments, 
consumers, utilities, and others. We are doing this in direct response 
to the recommendation in the National Energy Policy that energy 
efficiency be pursued as a national priority.
    With respect to the specific provisions in legislation before the 
Committee today, I would note that they are all well intentioned, and 
with some modifications, the Administration is likely to be in a 
position to support many of them if they are part of a balanced, 
comprehensive approach that also addresses supply and infrastructure 
issues contained in the National Energy Policy document.
    However, I must add an important note of caution. It is, of course, 
relatively easy to authorize new funding, but relatively difficult to 
appropriate it. The most generous of the bills before us would 
authorize $500 million annually for weatherization, $230 million 
annually for energy efficient schools, $125 million annually for State 
Energy Programs, and would require an expenditure of roughly $180 
million in appropriated funds to create an Energy Bank to finance 
energy savings measures in federal agencies. That adds up to well above 
a billion dollars. The comparable level of appropriated funding in my 
office's 2001 budget was $153 million for weatherization and $38 
million for State Energy Programs, or about $191 million. (I am not 
including the $3.4 billion that would be authorized under one of the 
bills for Low Income Home Energy Assistance Program, as that is not one 
of DOE's programs.) As we work together in the weeks and months ahead 
to determine the appropriate authorization levels for these programs, I 
urge that there be some linkage between the authorized levels and a 
realistic expectation of the eventual appropriations that will follow. 
We also urge Congress to adopt the President's proposal to use $1.2b of 
ANWR bonus bids to fund R&D projects on solar power, wind energy, 
biomass power and fuels, geothermal energy and other alternative energy 
technologies.

                       WEATHERIZATION ASSISTANCE

    The Weatherization Assistance Program provides services to eligible 
low-income persons, with emphasis on elderly persons, persons with 
disabilities and children. States (including the District of Columbia) 
voluntarily participate. Up to an average of $2500 per dwelling unit 
may be spent for purchase and installation of eligible weatherization 
materials, and energy audits are used to ensure that the measures 
employed in a given home are cost-effective.
    The Weatherization Assistance Program has reduced the heating and 
cooling costs of low-income households by weatherizing more than 5 
million homes since the program's inception in 1976. The President has 
proposed $1.4 billion in additional funding for weatherization over the 
next ten years. The President's budget for FY 2002 proposed a $120 
million increase from $153 million to $273 million, which will 
weatherize 123,000 homes--an increase of at least 48,000 homes over the 
number weatherized in the prior fiscal year. In its markup of the 
Interior and Related Agencies appropriations bill, the Senate 
Appropriations Committee, has provided only half the President's 
requested increase $60 million to bring the program to a level of $213 
million. We hope that this shortfall will be addressed on the Floor.
    We support an authorization level that accommodates the President's 
requests for increases in this program. Our recommended ramp-up of the 
program anticipates spending levels for the program as outlined in the 
table below.

                                                 ($ in millions)
----------------------------------------------------------------------------------------------------------------
                            Fiscal year                               WAP base      Initiative       WAP total
----------------------------------------------------------------------------------------------------------------
2002..............................................................      $153          $120.0          $273.0
2003..............................................................      $153          $124.1          $277.1
2004..............................................................      $153          $128.2          $281.2
2005..............................................................      $153          $132.2          $285.6
2006..............................................................      $153          $137.1          $290.1
2007..............................................................      $153          $141.7          $294.7
2008..............................................................      $153          $146.5          $299.5
2009..............................................................      $153          $151.4          $304.4
2010..............................................................      $153          $156.6          $309.6
2011..............................................................      $153          $161.8          $314.8
----------------------------------------------------------------------------------------------------------------
    10 Year Total.................................................    $1,530          $1,400          $2,930
----------------------------------------------------------------------------------------------------------------

    Section 422 of the Energy Policy and Conservation Act statute 
authorizes ``sums as may be necessary'' for the Weatherization 
Assistance Program. Section 3 of S. 352 (Bingaman) would increase the 
weatherization program authorization to $310 million for each of the 
fiscal years through 2005.
    Section 603 of S. 389 (Murkowski) would also increase the program 
authorization levels to $250 million in FY 2002; ramping up to $500 
million in FY 2005. We note that the authorization levels in S. 389 for 
FY 2002 would fall $23 million short of the President's request. Unless 
modified, we would be unable to support this provision. Section 603 of 
S. 389 would also expand the eligibility of low-income households from 
125% of the poverty level to 150% of the poverty level. We are not 
certain that this change is needed since states may, under current law, 
elect to use LIHEAP eligibility criteria in administering the DOE 
weatherization program. The LIHEAP eligibility criteria gives states 
the option of using the 150% poverty level figure or a figure of 60% of 
a state's median income as a basis of eligibility.

                          STATE ENERGY PROGRAM

    States voluntarily participate in the State Energy Program (SEP) by 
submitting grant applications with energy plans to DOE. States are 
required to contribute 20% matching contributions, and SEP funds are 
used to finance a variety of projects, including building codes 
updates, installing eligible energy conservation measures, encouraging 
the use of clean fuel vehicles, and developing energy emergency plans.
    The President's budget request for FY 2002 for State Energy Program 
funding was $38 million, equal to the FY 2001 level. We are pleased 
that the Senate Committee fully funded his request in the Interior 
appropriations bill.
    Section 3 of S. 352 (Bingaman) would change the authorization 
levels for State Energy Conservation Grants from ``such sums as may be 
necessary'' to $75 million annually for fiscal years 2001-2005.
    Section 604 of S. 389 (Murkowski) would also increase authorization 
levels for State Energy Conservation Grants compared to past practice 
in Congressional appropriations. S. 389 also appears to change the 
State Plan approval cycle from once a year to once every three years, a 
change that would streamline program administration at both the Federal 
and State levels. Finally, the Murkowski provision would appear to 
establish a goal of 25% improvement in a state's energy efficiency by 
2010 (against a 1990 baseline).
    This is probably an appropriate place to comment on the use of 
numerical goals in statutory language. Goals that are clearly defined 
and measurable can be quite useful. In the case of energy savings goals 
expressed under the Federal Energy Management Program (FEMP), the goals 
are expressed in terms of energy use per square foot of building space. 
This is a goal we can measure, understand, and pursue.
    Unfortunately, the existing goal in section 364 of the Energy 
Policy and Conservation Act that S. 389 would amend has never been 
clearly defined. Is it per capita energy intensity? Is it energy use 
per unit of economic production? Should the goal be attributable to the 
actions of a State Energy Program, or should it also measure energy 
efficiency gains that occur as a consequence of market forces or 
structural changes in the economy? If the intent is to establish a goal 
that State Energy Programs can attribute to their activities, we can 
safely predict that you will hear the view from Governors and State 
Energy Officials that a 25% goal is unrealistic without substantial 
increases in appropriated funding.
    I cannot tell you today what we believe the funding levels should 
be in subsequent fiscal years, as this is a component of both our 
ongoing 2003 budget formulation and a top-to-bottom strategic funding 
and performance review that is now underway for each of the 31 programs 
in my office.

                        ENERGY EFFICIENT SCHOOLS

    Section 602 of the S. 389 (Murkowski) establishes an Energy 
Efficient Schools Program in the Department of Energy. Section 1302 of 
S. 597 (Bingaman) establishes a program within the Department of 
Education to promote energy efficient schools.
    My office has several existing programs that speak to this issue. 
Through the ``Rebuild America'' Energy Smart Schools campaign, my 
office provides technical assistance for design and financing as well 
as conservation technology. We also do work in areas of alternative 
fuel school transportation and a number of supply side management 
strategies such as micro-cogeneration, combined heat and power, 
renewable energy and alternative fuel sources. A great deal of what we 
do is applicable to schools, about $2-3 million worth of our work is 
directed specifically to schools, not including school-related 
expenditures under the State Energy Program.
    State Energy Programs can already use existing resources to promote 
energy efficient schools, and of course those efforts must be cost-
shared. We view cost sharing with our state partners as a good way to 
leverage federal resources and ensure that they are directed where they 
will do the most good. Therefore, it is our preference to use the 
existing State Energy Programs to promote energy-efficient schools 
rather than authorizing a new program whose chances of receiving 
significant funding from the appropriators are unclear. As funds are 
available, they should be directed to existing programs that can 
achieve the desired goals we share.
    If legislation is deemed necessary to provide greater federal 
emphasis on promoting energy-efficient schools, we recommend that the 
Department of Energy lead the effort in concert with the State Energy 
Offices. We do not believe that a Department of Education administered 
grant program as proposed in S. 597 would fully leverage the advantages 
that could be achieved through coordination with our existing energy 
efficiency programs and the ongoing efforts of the State Energy 
Offices.

          FEDERAL ENERGY MANAGEMENT PROGRAM (FEMP) PROVISIONS

    The Federal Government is the country's largest energy user, 
spending almost $8 billion annually on energy costs. We operate over 
500,000 facilities and almost 600,000 vehicles worldwide. The 
President's National Energy Plan calls on Federal agencies to conserve 
energy and to reduce energy use during peak hours in areas where 
outages are likely. Since 1985, the federal government as a whole 
reduced energy use in its buildings by more than 20 percent in 1999 
thereby achieving its year 2000 goal one year early. Our most recent 
figures for FY 2000 places our reduction at 22% over the 1985 baseline. 
This represents a $2.2 billion energy savings, expressed in year 2000 
dollars.
    President Bush, in a May 3rd directive to Federal Agencies, asked 
that immediate steps be taken to reduce energy use, particularly peak 
demand in supply-constrained areas such as California. Agencies 
achieved some important results, including participation in a load 
reduction exercise on May 24th. During that exercise, 114 Federal 
facilities, representing 20 different agencies and roughly 80% of the 
federal load in California, demonstrated reductions in peak demand 
approaching 10%. To reduce overall demand in California, we have 
dispatched teams to 25 of the larger sites in California to identify 
the immediate no-cost/low cost opportunities for reducing demand. These 
teams are at work now, and we have asked them to report by July 31.
    These efforts are important for practical reasons. But they are 
also important for symbolic ones. We can tell America it must use 
energy more efficiently . . . but if we fail to lead by example, we 
undermine our message.
    It is our hope that energy efficiency in the federal realm will not 
be a short-term effort driven by current concerns about energy supply. 
Instead, we would like to work with you to build a new culture of 
energy savings that pervades the way that the Federal Government 
procures buildings, appliances, vehicles, and all of the other items we 
purchase.
    Whenever the federal government builds a new building, we should 
strive to design and build it to achieve the ``Energy Star'' 
certification. When existing federal buildings are modernized, we 
should incorporate the energy and water conservation efforts that are 
cost effective over the life cycle of the facility.
    Recently in Kansas City, DOE hosted a Federal Energy Management 
conference where hundreds of federal procurement officials, building 
engineers, and program managers gathered to learn the latest approaches 
to saving energy and money for the taxpayer. We are working to develop 
that new culture of energy savings among federal government procurement 
and buildings officials because it makes sense for the taxpayer and it 
is good for the environment. As an additional benefit, we also find 
that our workers prefer to work in a building that incorporates the 
latest energy savings technologies.
    One of the keys to successful implementation of federal energy 
savings measures is through the use of Energy Savings Performance 
Contracts and Utility Energy Savings Contracts. These financed 
approaches are being employed to finance energy savings measures 
without using appropriated dollars. To date, Federal agencies have 
already leveraged more than $1.3 billion in private sector investment 
for projects that replace inefficient building systems with state-of-
the-art equipment.
    The Federal government can also make a difference by making smart 
purchasing decisions. The Federal government spends more than $10 
billion each year on energy-using equipment. The joint DOE/EPA ENERGY 
STAR  program identifies energy efficient products so that 
all consumers, including Federal purchasers, can make informed 
decisions that save energy and money.
    So we applaud the effort to address federal energy use in section 4 
of S. 352 (Bingaman) and sections 605 and 606 of S. 389 (Murkowski), 
and would like to work with you to fashion a workable approach in this 
area. With respect to specific comments, I would offer the following:
    Section 4 of S. 352 (Bingaman) would require federal agencies to 
undertake a comprehensive review of all practicable measures to 
conserve energy, water, or employ renewable energy resources and to 
implement measures to achieve 50% of the potential savings within 180 
days. Candidly, a comprehensive review of all practicable measures that 
we could employ in 500,000 federal buildings, followed by the 
implementation of steps to achieve 50% of identified potential savings, 
could simply not be done in 180 days. Moreover, sufficient funds have 
not been provided for this purpose. Our challenge is to change the 
acquisition planning efforts, and we believe that will be a long-term 
effort.
    S. 389 (Murkowski) would require agencies to reduce energy use per 
gross square foot by 30% by 2010 and 50% by 2020 relative to a 1990 
baseline. The current goals, contained in the National Energy 
Conservation and Production Act, the Energy Policy Act, and Executive 
Order 13123 are to reduce energy use per gross square foot by 20% in 
2000, 30% by 2005, and 35% by 2010 relative to a 1985 baseline. S. 389 
represents an acceleration of these targets and a shifting of the 
baseline. Thus, it is a very ambitious goal. We believe we might be 
able to support such a goal were it contained in comprehensive 
legislation that also addresses the supply and infrastructure issues 
identified in the National Energy Policy document.
    As mentioned earlier, Energy Savings Performance Contracts (ESPCs) 
are an important tool federal managers can use to achieve their energy 
savings goals. S. 389 (Murkowski) would extend authority for ESPCs five 
years, and S. 352 (Bingaman) would repeal the sunset provision 
entirely. At this time, we can support a five year extension of 
existing authority for ESPC's to allow us to further quantify the 
benefits they provide.
    S. 389 (Murkowski) would allow utility contracts, which are 
preferred -source energy savings contracts entered into between federal 
facilities and the utilities that serve them, to increase from a 
maximum 10-year term to a maximum 25-year term. This is in line with 
the 25-year terms allowed ESPCs. However, 25-year ESPC contracts 
contain performance guarantees as well as provisions to ensure 
measurement and verification of energy savings. We would like to 
continue to work with you to ensure that any expansion of utility 
contracting includes assurances of guaranteed energy savings.
    S. 352 (Bingaman) would allow ESPCs to be used for water 
conservation measures and for replacement facilities. The 
Administration has concerns regarding the use of ESPCs for replacement 
facilities. However, provided that it is included in comprehensive 
legislation that also addresses the supply and infrastructure issues 
identified in the Administration's National Energy Policy, we could 
support the use of ESPCs to conserve water, although we have some 
technical suggestions that we would like to work out with your staff.

                         ENERGY BANK PROVISIONS

    Both S. 95 (Kohl) and section 1301 of S. 597 (Bingaman) would 
create an ``energy bank'' to help in the funding of federal energy 
management projects. This is a well-intentioned effort, but I am 
concerned about the practical applications of this particular language. 
particularly when we haven't yet fully taken full advantage of the 
opportunities afforded by ESPCs and ``super ESPCs.''
    S. 95 and section 1301 of S. 597 would capitalize the energy bank 
by collecting 5% of the utility budgets of federal agencies, or roughly 
$180 million per year. Sharply higher energy prices have already 
stressed the operations and management (O&M) budgets of many federal 
agencies in the near term. Requiring agencies to capitalize a new 
energy bank in the near term, during these times of high energy prices, 
even if they might produce savings over the long term, would create 
operational hardships and impair the ability of federal agencies to 
fulfill their missions.
    Moreover, the language of S. 95 and section 1301 of S. 597 is 
directed at projects with relatively short payback periods of three and 
seven years. Thus, the Energy Bank projects might ``cherry pick'' the 
energy-savings opportunities and actually result in fewer comprehensive 
energy savings projects.
    We need to make sure we take full advantage of the opportunities 
afforded by ESPCs and Super ESPCs before we experiment with a new tool 
that could inadvertently result in fewer energy savings projects 
overall.

                       AIR CONDITIONING STANDARD

    Finally, Mr. Chairman, I will comment on Senate Joint Resolution 15 
(Boxer), a resolution of disapproval related to energy efficiency 
standards for residential air conditioners and heat pumps.
    The purpose of S.J. Res. 15 is to force the Department of Energy to 
adopt new residential air conditioning and heat pump efficiency 
standards at the 13 SEER (Seasonal Energy Efficiency Ratio) performance 
level . . . a performance level that represents a 30% improvement over 
the current standard. We oppose this resolution.
    The current efficiency standard is 10 SEER for split air 
conditioning and heat pump systems and 9.7 SEER for single-package 
systems. Today, 78% of air conditioning and heat pump sales are at the 
10 SEER performance level. Many consumers choose to purchase higher-
performing air conditioners and heat pumps, and in some areas of the 
country this makes very good sense.
    However, as a minimum, national standard, to be in effect for 
virtually all central air conditioners and heat pumps in all areas of 
the country, the Department of Energy intends to propose a 12 SEER 
performance level that represents a 20% improvement over the current 
standard.
    It should be noted that the current Administration reviewed and 
adopted, without change, efficiency standards covering washing 
machines, water heaters, and commercial heating and cooling systems. 
Only in the case of residential air conditioners and heat pumps are we 
proposing any variation from the prior Administration.
    We do not take this action lightly. In the current political 
atmosphere, the convenient and popular approach would have been to 
simply accept the 13 SEER standard. Our forthcoming supplemental notice 
of proposal will explain our reasons for withdrawing the 13 SEER 
standard and for proposing a 12 SEER standard as the maximum 
technologically feasible level that is economically justified.
    With that, Mr. Chairman, let me say that I look forward to working 
with you and your staff on legislation to promote energy efficiency in 
the weeks and months ahead. I am pleased to answer any questions the 
Committee may have.

    The Chairman. Well, thank you, and thanks for your 
relatively brief summary of things. We encourage that from all 
witnesses.
    Let me just ask first, one of the statements contained in 
your testimony that you repeated here gives me a little 
concern. It says that the administration is prepared to support 
more ambitious goals for the Federal Government related to 
energy use, and then you add this qualifier of saying, if it is 
contained in comprehensive legislation that also addresses 
supply and infrastructure issues.
    Now, we intend to do all that, but it sounds as though you 
think it is sort of, you will agree to go along with 
improvements in energy efficiency if we agree to do these other 
things that you want done, otherwise you will not. Am I reading 
something in there that is not intended to be there, I hope?
    Mr. Garman. No, sir, not precisely. What we are trying to 
stress is the importance of a balanced approach. It is because 
of the nature of the energy debate.
    I think it would be easy for us to go down the road, work 
together in this effort--candidly, some of the supply issues 
are not as politically popular as some of the demand issues, 
and if we were to get down to the end of the road where we were 
at a Rose Garden signing ceremony on an energy bill, and that 
bill was not a balanced bill, then we would have, I think, 
failed in our effort to really try to deliver a balanced 
package, and it might be, frankly, misleading to members of the 
public if they thought we had passed a bill that would 
accomplish goals and deliver us from our supply constraints 
when, in fact, it would not.
    The Chairman. Well, I certainly agree with your objective 
of getting a balanced, comprehensive effort, and including 
efforts to increase supply, as well as improve efficiency.
    I just do not want us to be into a quid pro quo kind of a 
situation where we are not willing to agree to something on the 
efficiency side unless someone else will agree to something we 
want in a way of opening ANWR, or something to that effect. I 
think that would be very destructive of an effort toward 
getting a comprehensive bill, and I just wanted to flag that.
    The Federal Energy Management Program you refer to in the 
budget that we got, recommended fairly severe cuts in that. 
What is the position of the administration at this point? 
Frankly, I am concerned. The bill we passed in the Senate 
yesterday did not have the funding it should have had for that.
    I cosponsored a bill with Senator Cantwell, an amendment 
with her that was intended to address that, and we were not 
able to get the support we needed to go ahead, but what is your 
view on the proper level of funding to support the Federal 
Energy Management Program?
    Mr. Garman. Let me address that also, in the context of 
making an overarching observation about the budget and the 
process we have gone through in both energy efficiency and 
renewable energy. Of course, the new administration had to 
submit a budget covering these items on or about February 27 or 
so without the benefit of the guidance that was contained in 
the national energy policy document. That document, of course, 
came out May 16.
    At the same time, the document asked us to undertake a 
strategic review of all of our programs, including FEMP, 
beginning with a pretty significant public outreach effort at 
the outset. We learned during that process, and we heard from 
stakeholders and the public about the importance of some of 
these programs. We also internally were beginning our strategic 
review.
    What you have seen in statements of administration position 
about both the Energy and Water Development and Interior 
appropriations document that contain these programs is that we 
believe that the increases that Congress has provided in these 
programs over and above what we asked for indeed may be 
consistent with the President's objectives, so we have watched 
and interacted with Congress as it has increased funding for 
some of these programs, including FEMP, over what we had asked 
for, and we believe that these are consistent with 
administration objectives.
    The Chairman. So you do not have a problem with the 
increases that Congress has adopted so far.
    Mr. Garman. As the overall number, no. We would like to 
reserve the right, if you will, to quibble with you on issues 
of priority and funding priorities within that overarching 
level, but that is a correct characterization, yes, sir.
    The Chairman. With regard to this residential air 
conditioning rule, that was one of the first items related to 
energy efficiency that the administration dealt with, or at 
least one of the first ones I became aware of, and I was 
concerned. I believe I spoke to Secretary Abraham about this 
and urged that they stick with the more stringent rule that the 
Clinton administration had adopted, rather than backing off of 
that.
    The decision was made by this administration to back off 
and require less of an improvement in residential air 
conditioning than the previous administration had intended to 
require. How do you explain that? I mean, particularly at a 
time when we are in the middle of a hot summer, and we are told 
that the biggest drain, or the biggest burden we are carrying 
in trying to keep the lights on in a place like California is 
the electricity being used in air conditioners. Why would we 
not want the highest possible level of efficiency in air 
conditioners?
    Mr. Garman. The quick answer, and I will start with that, 
is that the law prescribes us to look at a number of factors. 
Energy efficiency is one of them, but it is not the only 
factor, nor is it the absolute factor.
    I think it is important to start with the recognition that 
the incoming administration reviewed and adopted without change 
efficiency standards covering washing machines, covering water 
heaters, and covering commercial heating and cooling systems.
    Only in the case of residential air conditioners and heat 
pumps are we proposing any variation from the prior 
administration, and the reason we did that is, we showed 
through our analysis, and in fact it was the same analysis used 
in the prior administration, that the 13-SEER standard would 
represent an unreasonable burden on consumers, a majority of 
the consumers, under the 13-SEER, under our analysis would 
suffer increased life cycle cost. In other words, they would 
not get a payback for the up-front investment for the higher 
cost of the equipment.
    Based on that, and also based on concerns expressed by the 
Department of Justice, and borne up by our own analysis about 
the impacts on the industry, the 13-SEER would have the effect 
of accelerating the consolidation of the industry, already an 
industry where 97 percent of the business is controlled by 
seven large manufacturers. We do not think the consolidation of 
the industry over the long-term would be good for competition, 
good for consumers, or good for technological advancements 
leading to energy efficiency.
    So that is just, I guess an overview of some of our 
thinking that is leading us to propose that 12 is probably the 
correct number.
    The Chairman. Now, what is the status? You have not yet 
promulgated a rule at 12, is that right?
    Mr. Garman. That is correct.
    The Chairman. You are still looking at it?
    Mr. Garman. Yes, sir.
    The Chairman. I did submit some suggestions to Secretary 
Abraham and some figures that I would like also to get to you, 
which indicate to us that the decision was made by your 
administration here to back off of the more stringent standard 
that was based on the average cost of electricity in 1996, and 
that if you look instead at the cost of electricity at peak 
periods, that the standard that was adopted or agreed to by the 
previous administration is clearly a better choice.
    If you could look at those figures and maybe get back to 
us, and give us some response to that, because I do not think 
it is just a question of how good is good enough. I think that 
there are some substantial savings overall that can be realized 
if we were to stick with the more stringent standard.
    Mr. Garman. I can, in fact, in a broad-brush way address 
some of those issues now, if you care to, or we can do it 
later, whatever your preference is.
    The Chairman. All right. Well, I am told my time has 
expired. Let me ask Senator Murkowski to go ahead with his 
questions at this point. Maybe we will come back.
    Senator Murkowski. Thank you, Senator. I am curious, in 
your chart relative to energy loss, you indicate 33 quads of 
input, and generating loss of 22, is there technology available 
to reduce the tremendous loss associated with this, and why are 
we not making more progress there?
    Mr. Garman. Part of it has to do with just the nature of 
the way that our electricity system evolved. We have a 
centralized grid system, with centralized plants, and many of 
those plants, say, a coal plant, will have a conversion 
efficiency--in other words, convert the energy content of the 
coal, converting that to electricity--and lose two-thirds of 
the energy potential in that process.
    That is the large arrow, the conversion loss, as you see, 
going off at the top. You have those kinds of conversion 
efficiencies in many plants. A typical coal plant will have a 
conversion efficiency of around 35 percent. When you get into 
combined cycle natural gas, you start to approach 60 percent, 
so you are doing better there. When you start to look at 
combined heat and power, and distributed generation, you start 
to get towards 70 or more percent.
    Senator Murkowski. What is nuclear?
    Mr. Garman. Nuclear, I do not have a precise number on 
that, but it still suffers a conversion deficiency issue, but 
nuclear is a little different in that one of the things you are 
concerned about in the efficiency loss is the burning of fossil 
fuels, and we are less concerned about efficiency losses in the 
nuclear context, because it is emission-free.
    Senator Murkowski. I would like to pick up on a point 
Senator Bingaman made relative to your generalization of the 
effort to work towards a comprehensive bill, and it is 
certainly my position, and I think it reflects on the 
responsibility of this committee to not make this mistake we 
made in 1992, not that this committee made the mistake, but the 
Senate basically made the mistake, and I am going to refer to 
this chart behind me which Joe is going to hold up, and Senator 
Bingaman has seen it time and time again, but it reflects 
reality.
    And a little history relative to what we did in 1992, when 
Senator Bennett Johnson was chairman of the committee, we 
passed efforts to increase domestic production, reduce 
dependence on foreign oil, expedite infrastructure, develop 
alternatives, encourage renewables, promote conservation, and 
increase LIHEAP and weatherization, and I think we funded about 
$6 billion for renewables and alternatives.
    These all passed in this committee, but this is what we got 
on the floor: We got a little bit of funding for renewables and 
alternative fuels, energy efficiency, and LIHEAP, but we did 
not reflect the realities associated with why things are 
different now, and the next chart which Joe will run over and 
get will show you why things are different.
    The reason things are different this time is, we did not 
act in 1992 from the standpoint of the responsibility of the 
Congress, and now our foreign oil dependence is up 56 percent, 
and it was, what, 37 percent in 1973, when we had the Arab oil 
embargo. The Department of Energy says we will be in the low 
sixties by the year 2010. What does that mean to the national 
security of this country?
    Natural gas prices have soared as high as $10. We have seen 
no new nuclear plants in 10 years or more, no new gasoline 
refineries in nearly 20 years, no new coal-fired plants since 
1995, and now we are faced with the reality that our 
transmission capacity, whether it be gas or electric, is 
inadequate.
    And when we talk about how we are going to correct this, 
and you talk about a comprehensive bill, and we talk about the 
merits of ANWR, instead of just dismissing it, which was 
generalized yesterday, or suggesting that, well, we are not 
going to do it if you have this, there is as much justification 
for encouraging the merits of what ANWR can contribute as 
opposed to what ANWR offers as a distraction from the 
standpoint of the environmental community.
    So I hope as we develop a comprehensive bill we can 
recognize the objective here, and the objective is a balanced, 
comprehensive bill that provides relief for a number of the 
shortages associated with the fact that we do have a crisis, 
and we are going to have to do what is good for America, and 
good for Americans, not necessarily for one segment of the 
environmental community that has jumped on this issue as a 
major source of funding and a major source of membership.
    As you know, I feel very strongly about that, and we are 
going to be pursuing that in this committee, and we are going 
to be discussing the merits, as opposed to superficial 
discussion on it.
    I want to also reflect on another question relative to the 
anticipated proceeds of the bonus bid associated with the sale 
of Federal leases in ANWR. I think the estimate is somewhere in 
the area of $1.2 billion, and the administration's proposal is 
to use those funds for research and development for renewables, 
alternatives and so forth.
    Now, in your opinion, using these funds for renewables, 
efficiencies, alternatives, you know, we all talk about energy 
in general, but we really do not separate energy. We have two 
types of energy. We have energy that develops electric 
generation, and that is nuclear, it is coal, it is hydro, but 
America and the world moves on oil, and unfortunately we do not 
have much relief in the foreseeable future. We have fuel cells, 
and things coming on, but the reality indicates that hydrogen 
is a way off.
    We had in my office the other day a little hydrogen 
exhibit, and the uniqueness of it was that it worked, but it 
worked as a consequence of an electric fan being plugged in, so 
if you did not have the electric fan plugged in I am not sure 
what would happen. I suppose we would be looking at a 
stationary hydrogen plant.
    But can you tell us from the standpoint of any significant 
replacement for oil what we might look towards, and is there 
any estimate of a time sequence where, say, we could look to 15 
to 20, 25 percent of our transportation being dependent on 
something other than oil, or kerosene, or derivatives, that 
move our ships and our planes and our trucks?
    Mr. Garman. Well, the way we are approaching this problem 
is looking at the oil replacement issue as requiring really an 
R&D portfolio of both short-term and long-term technologies. 
Oil is a tricky problem in part because of the infrastructure. 
Clearly, there are things we can do in the short term with 
respect to hybrid gasoline-electric cars, and some other 
technologies that can serve as a bridge to fuel cells and the 
eventual hydrogen, so-called hydrogen economy.
    There are also some things we could do in the area of 
bioenergy with biologically based fuels such as ethanol, or 
derivatives of ethanol that might form a basis for a 
transportation fuel, again in the near term, as we keep our eye 
on the long-term prospective, which is really hydrogen over the 
long term.
    The difficult part, of course, is going to be cost. We 
estimate that a fuel cell in a car, to compete with the 
internal combustion engine, is to going to have to come down to 
the price of around $50 to $100 per kilowatt. Right now those 
costs are in the neighborhood of $3,000 or $4,000 per kilowatt, 
and so our R&D effort is driven at bringing down those costs to 
make that technology more affordable and bring it into the 
marketplace, but it is going to be an effort that spans, we 
think, decades.
    Senator Murkowski. Is it the process of converting to 
hydrogen that is the cost? Is there some mechanical process 
that is extremely complex?
    Mr. Garman. Creating hydrogen is not difficult. It is more 
expensive right now because of the energy you have to input 
into the process of separating the hydrogen from the natural 
gas, but it is also using that hydrogen effectively. 
Transporting it is an issue. It is corrosive, it is flammable, 
it has other issues that are tricky to deal with, so you have 
to have a portfolio approach to your research and development 
that tries to deal not only with the creation of hydrogen, but 
the transportation, distribution, and the final end use of the 
hydrogen.
    Also, hydrogen compared to oil does not have the same kind 
of energy density. You just do not have the same kind of Btus 
in any given volume of hydrogen that you have in a hydrocarbon. 
That is another thing we have to come to grips with.
    Senator Murkowski. Would you say as a rule of thumb, 
relative to how much we could relieve our dependence on oil, 
you said a couple of decades before we probably develop a 
replacement. I would assume, then, that the next 10 years or so 
we are still going to be pretty much 75 percent dependent on 
oil for the movement of America, or thereabouts?
    Mr. Garman. As a transportation fuel, unless we can find 
dramatic new ways to integrate more bio-based fuels, ethanols 
or similar derivatives into the system, then yes, we will 
continue to be dependent on oil and fossil fuels for the 
foreseeable future.
    Senator Murkowski. Thank you.
    The Chairman. Senator Burns.
    Senator Burns. Thank you, Mr. Chairman, and thank you for 
this hearing today, and I would ask that my full statement be 
made a part of the record
    [The prepared statement of Senator Burns follows:]

   Prepared Statement of Hon. Conrad Burns, U.S. Senator From Montana

    Mr. Chairman, thank you for calling this important hearing today on 
energy efficiency and energy assistance programs. LIHEAP, the 
Weatherization Assistance Program, and the Federal Energy Management 
Program are all very important initiatives. I look forward to hearing 
our witnesses testify today.
    Energy conservation and efficiency must be a part of a national 
strategy and the United States has come a long way on this already. 
Since 1973, the U.S. economy has grown nearly five times faster than 
energy use. Had we continued to use energy as intensively as in 1970, 
the U.S. would have consumed about 177 quadrillion Btus of energy last 
year, compared to about 99 quadrillion Btus actually consumed. The 
federal government has also made strong advancements in its energy 
consumption reductions. Largely by installing energy efficient 
technologies, the federal government has reduced its energy use by 
about 30 percent from 1990 levels.
    The backbone of America, our farmers and ranchers, have done their 
part to reduce energy as well. Our farmers have reduced their energy 
use by 41 percent from 1977-1998, while agricultural output grew by 
about 40 percent over the same period.
    What angers me now is that those same farmers are now forced to pay 
higher prices for irrigation, oil, gas, propane, and electric prices 
because we have had too many elected officials close off resources and 
create environmental regulations that hinder new electrical generation. 
I applaud President Bush for his proposal to double funding for the 
Weatherization Assistance Program. I applaud President Bush, Chairman 
Bingaman, and Ranking Member Murkowski's commitment to provide strong 
funding increases for the Low Income Home Energy Assistance Program 
(LIHEAP). But I stare in amazement at my colleagues in the U.S. 
Congress who can vote against allowing oil and gas drilling in areas 
where it can clearly be done in an environmentally sensitive manner, 
and still complain about high energy prices.
    The figures show how much progress this nation has seen when it 
comes to conservation. The recent energy crisis shows that conservation 
alone has not been enough. I say again that I proudly support LIHEAP 
and the increases for the Weatherization Assistance Programs. However, 
I think the issues before us today go back to pure philosophical 
differences. Allowing Americans to increase the energy supply for this 
country will lower prices for senior citizens and others on fixed 
incomes. Some members would rather fight every attempt to increase 
supply, and hold those same seniors and people on fixed incomes under 
their control and make them dependent on every check from Washington, 
DC.
    It is very clear that we have before us a mandate to conserve more 
energy, to become more energy efficient. Though we have made many 
gains, we can do much more. Aside from what we must do to increase 
energy supply, and what we can do to increase conservation; working on 
increased funding for LIHEAP and Weatherization Assistance are two 
things we must do to bring immediate assistance to senior citizens and 
folks on fixed incomes.
    I am confident that this committee will build the consensus to pass 
legislation needed to address our nations most pressing needs.

    Senator Burns. I want to pick up on a question that the 
ranking member made this morning about the efficiency of 
transmitting electricity in our transmission lines.
    I visited with a couple of companies that are doing a lot 
of work on their research on that, and particularly one company 
has made some real advances as far as making our present-day 
transmission lines more efficient, and not finding the drop-off 
that we have had in the past--it is not quite ready yet, but I 
think it will be ready very soon--about some demonstrations, 
working with the Department of Energy, I would assume, and 
working also with private transmission companies in order to 
see that happen, and also we have legislation now.
    I would ask that the Energy Department, or maybe this 
committee, look at our grid across the Nation. I have long said 
that we cannot really take advantage of electrical efficiencies 
unless we have a national grid where we can transfer power 
almost on a moment's notice, as compared with how we do it 
today.
    We have a tie in Miles City, Montana that does not allow us 
to move East or West, or West to East, on the northern tier of 
States, and that tie is at Miles City, Montana. I have 
legislation now that would address that situation to where it 
will bring us to a national grid, rather than to regional 
grids, and to seek out those areas where we have some 
inefficiencies.
    But I also want to reiterate the concerns we have in 
agriculture. Agriculture was asked to make their efficiencies 
in the use of energy on their farms and ranches across this 
country, were asked to do that some time ago, and they have 
made great strides. In fact, the number is phenomenal on what 
we have done as far as efficiency on irrigation, on how we 
power our equipment, everything that we have, and you have got 
to remember that we are energy-dependent on our farms and 
ranches, because we can produce the product.
    It takes energy to do that, but it also takes the energy to 
move that product, that food and fiber to market, so we are hit 
every way that we can be hit as far as energy is concerned, and 
I think they have done their share of tightening their belt.
    But what angers me now most, we are now forced to pay more 
for our transportation fuels and our electricity, which relates 
to our cost of irrigation, our cost of transportation, oil and 
gas, even our natural gas that, of course, increased the price 
of our fertilizers, because it is a base of fertilizer. It 
comes out from natural gas, our electrical prices, and yet we 
find that we are being closed off on certain avenues to 
increase production so that we might operate.
    Weatherization is important, I know, and the LIHEAP program 
is important, but they do not get us to the point where we can 
actually produce food and fiber for this country.
    I just stared in amazement--yesterday was a good example of 
that, that vote yesterday on Klamath Falls, and it was 
indicative of a mind set that we are going to put a sucker fish 
before farmers because right now that we are finally finding 
out that there is a flaw in the Endangered Species Act that is 
going to be very, very costly to this country, and what we have 
witnessed in the Klamath Falls area is just the tip of the 
iceberg, and we have to allow new production somewhere in this 
country, and make it available to people.
    Figures show that--I support LIHEAP, but if you look at 
it--it is still people on fixed incomes are elderly, are 
dependent on a government check so they can heat their houses, 
and fundamentally, that is wrong, is to be reliant on the 
Government to prop up, or to really subsidize the energy 
companies, because they have their cost of production, and they 
are tightened down with supplies, and of course the marketplace 
is going to drive the price.
    So mine is not a question, but I would ask Mr. Garman 
whether these companies--there are two companies primarily in 
the area of transmission that can increase the efficiency of 
our transmission--can sit down and visit with him one day and 
let us try, if we need more research dollars, some R&D dollars 
in order to take a look at that, I think it is time we looked 
at it, and I think it is also a time that we take a look at our 
grids and our transmission abilities across this country, 
because we are running into it in the Northwest, with the BPA, 
and everybody on this committee is familiar with that.
    But I think the general public--you know, I am still amazed 
that way last February, that a poll taken that said 54 percent 
of the people that live in California do not think they have a 
shortage problem. They filled out that poll in the dark. I have 
got to believe that. In other words, they just will not face 
reality that it is going to take more energy--our population is 
more. We do more with electricity now than ever before.
    I work in communications issues. The Internet servers, 
everything we touch now, we use electricity, a lot more 
electricity, maybe not in the industrial area, but I mean, our 
residential and home use of electricity has just--the demand 
for it has just gone up dramatically because of the things we 
do in our homes that we did not used to do in our homes and 
residences.
    So Mr. Chairman, thank you for this hearing, but I think 
those are the areas. When we really know how this grid works, 
and the efficiency of it, and the technologies out there in 
transmission, then I think we can start readdressing the 
problems of transmission of electricity.
    Thank you, Mr. Chairman.
    Mr. Garman. I wonder if I could just amplify on one or two 
remarks that you made, particularly with respect to the 
efficiency of transmission. We at the Department are trying to 
partner with some of the very people you are speaking about, 
and increasing the efficiency of our transmission system. 
Today, under the streets of Detroit, we have a test of a high-
temperature superconducting transmission wire, if you will, 
cable, if you will, that is increasing the throughput and 
reducing the losses associated with transmission.
    We are also working on ways to manage the grid through 
computer algorithms, and some other types of approaches to 
doing it.
    We are also looking at new technologies in distribution 
transformers and other components of the grid to increase their 
efficiency, and, of course, as we will talk about next week, we 
are looking at distributed generation.
    You know, you can look at the grid from a top-down 
approach, but you can also look at it from the bottom up. If we 
can put smaller distributed generation from the bottom up, we 
also increase efficiency and reliability. We put the source 
closer to the user so you have less of a loss. You can address 
peak issues, you can address reliability issues.
    The bottom line, I guess, with the time I have got, is that 
there is no one silver bullet to addressing these energy 
problems. We cannot say efficiency is going to do it. We cannot 
say supply is going to do it. We have to have a pretty broad 
approach, and if Americans are waiting for the magic technology 
that is going to solve all of our energy problems, then it is 
my observation that that technology does not exist. We are 
going to have to do a lot of relatively small things extremely 
well.
    Senator Burns. Well, I agree with you, and I have heard the 
chairman of this committee, Mr. Bingaman, say that very thing. 
It has to be a hand-in-glove situation, a cooperative 
situation, and especially, just to give you a case in Montana, 
we can really produce a lot of electricity because we have got 
the coal and we have got a very, very cheap way, low-cost way 
of producing electricity.
    Now, I can get that to my farmers, but we are not the only 
State in agriculture. We have got Iowa and the bread basket of 
this great country that also are feeling the effects of this 
energy crunch at the agricultural production level, and I guess 
I worry about that as much as anybody does, because I still 
think the basic purpose of this country is the production of 
food and fiber for our people.
    We cannot put that on the back burner, because I do not 
know what the first thing you do when you get up in the 
morning, but I know the second thing you do is, you eat, and 
you have got a lot of options, the first thing, but that second 
one you do not, and I worry about that, and the efficiency, and 
the way we can get food and fiber to our people.
    And then an attitude, an attitude that we can do, so it has 
to be a mix. I agree with my chairman wholeheartedly, it has to 
be a mix. It cannot be just one single thing, production or 
efficiency.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much. We have two additional 
panels with a total of eight witnesses, and with that in mind 
let me thank Secretary Garman very much for being here, and we 
will continue to talk with you and seek your advice as we move 
ahead. Thank you very much.
    Mr. Garman. Thank you, Mr. Chairman.
    The Chairman. Will the second panel please come forward. We 
have Ms. Mary Ann Manoogian, director of the Governor's Office 
of Energy and Community Services in New Hampshire, Ms. Joanne 
Choate, the LIHEAP manager for the State Housing Authority in 
Maine, Mr. Erik Emblem, the administrator with the National 
Energy Management Institute here in Virginia, and Mr. Mark 
Wagner, director of government relations with Johnson Controls.
    Thank you all very much for being here. Why don't we go 
right across, starting on the left here and just go across, and 
each of you, we will include your full statement in the record 
as if read, but if you could summarize the main points that you 
wish to make to us, we would be anxious to hear those, and then 
we will have some questions.
    Ms. Manoogian.

STATEMENT OF MARY ANN MANOOGIAN, DIRECTOR, GOVERNOR'S OFFICE OF 
           ENERGY AND COMMUNITY SERVICES, CONCORD, NH

    Ms. Manoogian. Thank you, Mr. Chairman, members of the 
committee. My name is Mary Ann Manoogian. I am pleased to 
testify today on behalf of the National Association of State 
Energy Officials, known as NASEO. I serve as director of the 
Governor's Office of Energy and Community Services in New 
Hampshire, where my responsibilities include the oversight of 
the State Energy Program, known as SEP, the Low Income 
Weatherization Program, and the Low Income Home Energy 
Assistance Program, also referred to as LIHEAP.
    As you know, NASEO represents 49 of the State energy 
offices, as well as the territories and the District of 
Columbia. NASEO's overall objective is to support balanced 
national energy policies, and to provide State perspectives on 
energy issues. NASEO members operate energy programs involving 
all sectors of the economy and all types of energy sources.
    As you move forward in addressing our Nation's energy 
policy needs, we are pleased to provide input on a nonpartisan 
basis to both the Senate and the House, as well as the 
administration, and my written testimony elaborates further on 
NASEO's support of S. 352, the Energy Emergency Response Act of 
2001. I would like to, however, highlight the importance for 
NASEO of the programs we support with respect to the increased 
authorization for the State energy program to $75 million, the 
base LIHEAP grant to $3.4 billion a year, and the 
weatherization program to $310 million per year.
    This would be a 4-year authorization, which is a more 
efficient way for the States to be able to operate these 
federally funded programs. The State Energy Program, the 
Weatherization and LIHEAP programs are all deserving of 
bipartisan support and generally we have received such support 
in the past.
    Recently, I understand S. 352 was added to the Senate-
passed bankruptcy reform bill. Provisions similar to S. 352 are 
included in Senator Murkowski's comprehensive bill, and I 
understand that if the committee were to begin the final 
drafting process for S. 352 by starting with provisions common 
to both Mr. Murkowski's bill and S. 352, that S. 352 would be 
included in its entirety, and that is a measure that we would 
support.
    As you may know already, SEP activities touch on every 
sector of the economy. The State energy offices work with 
residential consumers, the small business sector, 
manufacturing, industry, agricultural interests, our public 
schools and hospitals, and nonprofit entities, et cetera. SEP 
has documented the ability to leverage at least $4 in private 
sector funds for every Federal dollar that is spent, and that 
does not even include the State contribution.
    Unlike other energy programs funded by the U.S. Department 
of Energy, SEP is tailored to acknowledge State-by-State and 
regional differences, including diverse priorities and, in 
fact, in my written testimony I have been able to provide you 
with some examples of SEP activities going on in various States 
throughout the country, and I would encourage you to review 
that if possible.
    I would, however, like to highlight a program that was 
initiated by NASEO and included Louisiana, Alaska, New Mexico, 
Oklahoma, Colorado, Wyoming, and Montana, and the project was 
to increase the energy efficiency of marginal oil wells.
    I have provided a copy of NASEO's publication entitled 
Dashboard Guide to Energy Efficiency in the Oilfield to the 
committee. Ironically, many scoffed when NASEO began to work on 
this project, questioning why energy producers would want 
energy efficiency. Our efforts revealed that the highest cost 
of energy production is in removing it from the ground, higher 
than the associated equipment costs, and labor cost. A producer 
with marginal wells needs every little bit of savings he or she 
can put their hands on.
    As a result of implementation of the recommendations 
contained in NASEO's guide, a marginal well can expect to cut 
its lifting or production cost by $1 per barrel with little or 
no investment of additional funds.
    I would also like to call to your attention the value of 
the weatherization program, which is vital to addressing the 
disproportionate energy burdens that low-income citizens face. 
In addition to the meaningful energy conservation measures that 
help reduce energy bills, the program also addresses important 
health and safety measures of many families and vulnerable 
elderly and disabled persons.
    The weatherization program has been an essential long-term 
program that complements the critical short-term assistance 
provided by the LIHEAP program. One of the reasons that the 
program has been so effective is due to the fact that the 
delivery network responsible for implementing the cost-saving 
weatherization measures are highly skilled. In addition, 
weatherization program energy auditors play a key role in 
helping low income households respond to our present energy 
crisis while addressing their long-term needs as well.
    So the issue of the weatherization program is not in 
producing meaningful results. It has already been proven 
through a report with Oak Ridge National Laboratory. The issue 
is that the program does not have sufficient funding to meet 
the demands of our most vulnerable residents.
    For instance, in my State of New Hampshire, using both DOE 
funds and available LIHEAP funds last year, out of the 
approximately 7,493 New Hampshire fuel assistance recipients 
who requested weatherization of services, New Hampshire was 
able to complete 526 weatherization jobs, only 7 percent of the 
requests. Low income households know the value of energy 
conservation. They just do not have the means to get there. The 
weatherization provides the support to help them reduce their 
energy bills.
    NASEO strongly supports the authorization provided in 
Chairman Bingaman's bill and Senator Murkowski's bill. What I 
would like to say also is that if we are serious about dealing 
with our energy problems, substantial increased funding for 
weatherization would enable our States to plan for energy 
emergencies and, when possible, take preemptive action to avoid 
an energy crisis by promoting energy efficiencies.
    NASEO urges the committee to move forward not only on the 
authorized funding levels but also to support a funding level 
at least equal to the House-passed Interior Appropriations bill 
during conference, and although I have restricted my testimony 
to the State energy and weatherization programs, I would be 
rather remiss, as someone who is responsible for the oversight 
of the LIHEAP program in our State as well, to not underscore 
the importance and value of that program.
    This past year, our State had an 18-percent increase from 
the number of households served by LIHEAP, and at a funding 
level that is currently being discussed. What we know is that 
my office will have a harsh reality of having to deny 
assistance to more than 11,000 elderly, disabled, and working 
poor households in the upcoming winter season. What I can tell 
you is that as I am sitting here spewing these figures and 
numbers out to you, I also have the benefit, as being the 
director of a State agency, of telling you the value of these 
programs that have been implemented, and I am reminded of a 
story of the woman who is an employee at a well-known 
department chain and she never expected to be needing LIHEAP 
assistance.
    This past year she was one of the 3,848 requests that we 
received for emergency assistance, meaning she was in a 
dangerous situation of being with no heat, or low heat 
situation, and being out of heat in the middle of winter in New 
Hampshire is a serious issue. Had it not been for the LIHEAP 
program, she would not have made it through the winter months 
with her disability, and be able to support and keep her 
disabled son warm in her home. She was trying to do the best 
she could. She tried to do whatever she could do to provide for 
her son, and she was working full-time. It just was not enough 
to pay for the heating costs.
    Thank you. I appreciate your support, and we look forward 
to working with the committee.
    [The prepared statement of Ms. Manoogian follows:]

 Prepared Statement of Mary Ann Manoogian, Director, Governor's Office 
             of Energy and Community Services, Concord, NH

    Mr. Chairman, members of the Committee, my name is Mary Ann 
Manoogian, and I am pleased to testify today on behalf of the National 
Association of State Energy Officials (NASEO). I will be discussing our 
views on S. 352, introduced on February 15, 2001, and supported by a 
wide range of Senators. I serve as Director of the Governor's Office of 
Energy and Community Services in New Hampshire, where I am responsible 
for the oversight of the State Energy Program, the Low-Income 
Weatherization Program and the Low-Income Home Energy Assistance 
Program (LIHEAP).
    NASEO represents forty-nine of the state energy offices, as well as 
the territories and the District of Columbia. NASEO's overall objective 
is to support balanced national energy policies and to provide state 
perspectives on energy issues. NASEO members operate energy programs 
involving all sectors of the economy and all types of energy resources. 
The state energy officials are also generally our Governors' energy 
policy advisors, frequently called upon to advise our Governors and 
legislators on policy, programmatic, regulatory and legislative options 
to address our energy situation. As you move forward in addressing our 
Nation's energy policy needs, we are pleased to provide input on a non-
partisan basis to both the Senate and the House, as well as the 
Administration.
    S. 352, the Energy Emergency Response Act of 2001, would increase 
authorizations for: 1) the State Energy Program (SEP) to $75 million; 
2) base LIHEAP to $3.4 billion per year; and 3) the Weatherization 
Program to $310 million. This would be a four-year authorization, which 
is a more efficient way to operate these federally funded programs. The 
bill would also encourage expanded use of energy efficiency and 
renewable energy measures in federal buildings, permit expanded use of 
energy savings performance contracts in federal buildings, eliminate 
the ``sunset'' provision for energy savings performance contracts and 
expand federal energy efficiency performance contracts to include water 
efficiency. In light of the current energy needs of the country, these 
provisions provide a common sense approach to the challenges before us. 
These programs save money, save energy, and in many instances reduce 
air pollution, combat climate change and leverage enormous amounts of 
non-federal investment for meaningful projects that actually help 
people.
    The State Energy Program, Weatherization and LIHEAP are all 
deserving of bi-partisan support, and have generally received such 
support in the past. Recently, S. 352 was added to the Senate-passed 
bankruptcy reform bill. Provisions similar to S. 352 are included in 
Senator Murkowski's comprehensive bill (Sections 601, 603-604). I 
understand that if the Committee were to begin the final drafting 
process for S. 352 by starting with provisions common to both Mr. 
Murkowski's bill and S. 352; S. 352 would be included in its entirety.
    Our experience has taught us that, the State Energy Program, 
Weatherization, and LIHEAP are critical components of a balanced 
national energy policy. These programs are both under-valued and under-
funded. We applaud you for initiating a comprehensive look at energy 
programs and policy. We are also encouraged by the Administration's 
decision to conduct a complete review of the energy efficiency and 
renewable energy program of the U.S. Department of Energy. Assistant 
Secretary Garman is to be commended for his work in conducting these 
reviews. If the analysis is intended to focus on measures of success: 
energy saved, money saved, leverage of other resources, new 
technologies deployed, research and development stimulated, SEP would 
be a huge winner. It offers a balanced approach that recognizes the 
value of efficiency improvements and encourages development of both 
supply-side and demand-side resources is responsible and necessary.

                          STATE ENERGY PROGRAM

    SEP is the major state-federal partnership program in the energy 
area. While it makes up a small portion of overall funding for state 
energy activities, it is a critical nucleus for many of the states. For 
example, SEP funds are used to prepare for and respond to energy 
emergencies and supply disruptions. State energy offices have used 
these funds to help states effectively respond to these challenges, 
ranging from western electricity problems to Midwestern natural gas and 
gasoline price spikes, historically low inventory levels and multiple 
other problems across the country over the last few driving and heating 
seasons.
    SEP activities touch on every sector of the economy. The state 
energy offices work with low-income Americans, the small business 
sector, manufacturing industry, agricultural interests, our public 
schools and hospitals, non-profit entities, and so on. SEP has 
documented a leverage of at least $4 in private sector funds for every 
federal dollar, not even including the state contribution. Unlike other 
energy programs funded by the U.S. Department of Energy, SEP is 
tailored to acknowledge state-by-state and regional differences; 
including diverse priorities.
    Examples of innovative projects, funded in part by SEP, include the 
following:
    New Mexico--Assisted the community of Los Alamos in its rebuilding 
efforts after the Cerro Grande fire. Provided technical assistance and 
information at several forums to enhance awareness of the benefits of 
using renewable resources and applying energy efficiency measures in 
new construction. Sponsored a two-day workshop, ``Passive Solar Design 
Strategies and the Energy-10 Program,'' October 2000, at the Los Alamos 
branch of the University of New Mexico (UNM).
    Hawaii--The Hawaii energy office operates one of the most 
comprehensive energy emergency programs in the nation. The threat of 
typhoons and tsunamis pose a great risk to its citizens. Consequently, 
the energy office is constantly updating their energy emergency 
planning and conducting simulations that involve federal, state, and 
private sector representatives from the 5 big islands and even from the 
mainland. Hawaii's expertise in the area of energy emergency planning 
is recognized nationwide and, consequently, members of the state's 
energy office staff have made numerous presentations and even assisted 
in writing other state energy emergency plans.
    North Dakota--The North Dakota State Buildings Energy Conservation 
Program provides grant funding to state institutions and agencies for 
the installation and implementation of energy efficiency measures. 
Energy audits are required to identify potential energy conservation 
measures, respective costs, energy savings and payback periods.
    Awards have been made to many of the state-supported colleges and 
universities to match federal energy conservation funds. In addition, 
grants have gone to projects at the Capitol complex, the State 
Penitentiary, Department of Transportation buildings, and many others.
    Florida--Florida's Energy Office is involved in a number of 
efficiency and renewable energy activities. One of the most promising 
activities is in the area of building code development and upgrades. 
Primarily as a result of Hurricane Andrew, not to mention a number of 
relatively minor hurricanes since Andrew, the energy office has been 
working with members of the insurance and home building community to 
develop building codes that will enable new homes in Florida to 
withstand stronger winds and coastal flooding while reducing energy 
usage in the residential and commercial sector. These codes are near 
the implementation stage and a number of states are watching this 
process closely.
    Oregon--The State of Oregon has some of the most progressive 
efficiency programs in the nation. One of the most successful 
efficiency programs is in fact a tax rebate program. The state allows 
tax rebates on specified commercial business investments in efficiency. 
Once again, this is a program that is being watched closely by other 
states, particularly, those with peak electricity capacity problems, 
which are paying attention to the demand side energy savings resulting 
from the implementation of tax incentives.
    South Dakota--Electricity generated from wind turbines is proving 
to be a big winner in the Green Power arena. Cost-effective and 
environmentally sound, wind energy is expected to see tremendous growth 
over the next decade. South Dakota recently completed a wind farm 
project that is the subject of a great deal of national attention. The 
October 2000, conference on wind power in South Dakota was one of the 
most successful wind energy conferences to date.
    Louisiana, Alaska, New Mexico, Oklahoma, Colorado, Wyoming, and 
Montana were all participants in a project undertaken by NASEO designed 
to increase the energy efficiency of marginal oil wells. I have several 
copies of NASEO's publication entitled, Dashboard Guide to Energy 
Efficiency in the Oil Field, which I will leave with the Committee.
    Many scoffed when NASEO began to work on this project questioning 
why energy producers would want assistance in energy efficiency. Our 
efforts revealed that the highest cost of oil production is in removing 
it from the ground--higher than the associated equipment costs and 
labor costs. A producer with marginal wells needs every little bit of 
savings he or she can put their hands on. As a result of implementation 
of the recommendations contained in NASEO's guide, a marginal well can 
expect to cut its lifting or production costs by $1 per barrel with 
little or no investment of additional funds.
    Idaho--The State of Idaho has developed a CD that informs farmers, 
based upon soil and climate conditions, exactly when to apply 
irrigation to fields. Idaho also operates a successful low-interest 
loan program for residential, commercial, agricultural, government, and 
schools projects. To date, 1,973 loans totaling $13,338,371 have been 
issued. These loans generate $3,800,919 in annual savings.
    Indiana and Kentucky--Like our colleagues in Hawaii, the State of 
Indiana and Commonwealth of Kentucky operate exemplary energy emergency 
programs. The states are recognized throughout the Midwest for their 
work with the propane industry at mitigating the impacts of supply 
disruptions. On July 25, they will be hosting a regional meeting for 
the propane industry and major consumers to discuss current and 
anticipated propane issues.
    Illinois--Most recently, staff completed the oversight of the 
implementation of $20 million in energy-efficiency capital improvements 
through Energy Performance Contracting arrangements in seven state-
owned facilities. This pilot initiative is demonstrating the cost 
effectiveness of utilizing energy performance contracts in state 
buildings. In the first two years after implementation the pilot 
initiative is producing energy savings averaging greater than 27 
percent of the $9.4 million utility cost of the facilities and is 
generating over $2.6 million in annual savings at the seven 
participating state agency and university facilities.
    Like Illinois, my own state of New Hampshire uses SEP funds to 
support an ambitious performance contracting program. In 1998, Governor 
Shaheen launched the Building Energy Conservation Initiative, which 
when completed will save the state $6-$8 million annually in energy 
costs. The program is surveying 500 state buildings for energy and 
resource conservation opportunities and then using guaranteed energy 
savings as the equity to secure financing for building upgrades. Over 
the next several years, the State of New Hampshire will reduce its 
energy consumption by as much as 33 million kWh annually and carbon 
dioxide greenhouse emissions by 132,300 tons each year without 
incurring any capital expenses. In this example, SEP funds support a 
program that leverages as much as $25 million in financing.
    In addition to the project identified above, New Hampshire, due to 
Governor Shaheen's leadership and the support of SEP funds, has also 
reached businesses, public housing projects, schools and municipalities 
through our Renewable Energy Technology Grants Program, which provided 
funding for renewable energy demonstration projects at 27 schools, 
science centers, museums and affordable housing developments across the 
state. SEP funds have also been instrumental in the success of our 
Rebuild New Hampshire Program enabling us to conduct public workshops 
on energy efficiency, and environmentally sound new technologies to 
more than 90 school districts, public housing agencies, cities and 
towns in the last two years.
    The value of SEP throughout the nation is that it permits 
innovation over a wide variety of energy activities. The statutory 
language, which was substantially broadened in the State Energy 
Efficiency Programs Improvement Act of 1990, encourages states to take 
any action to improve efficiency, promote technology transfer and 
assist all types of energy consumers.
    The approach the states are taking to energy is to encourage 
economic development, increase the deployment of new technology, while 
increasing affordability for homeowners and improving the work 
environment for employees. This involves helping businesses reduce 
operating costs, enhancing productivity and reducing energy demand, 
while providing significant environmental benefits. One of the many 
roles of state energy offices is to achieve these goals within the 
framework of SEP. The work of these offices includes installation of 
cost-effective energy efficient technologies in public school 
buildings, building code upgrades, implementation of tax credits for 
energy efficient retrofits, promotion of transportation efficiency 
(telecommuting, ridesharing), alternative transportation fuels, 
operation of public benefits programs through restructuring, etc. Our 
offices promote the use of energy service performance contracts that 
utilize private financing to conduct energy efficiency programs. This 
has become a $1-$1.5 billion/year business.
    Another critical activity, which has become increasingly important, 
is the effort to coordinate energy and environmental programs, policies 
and regulations. A series of state pilot efforts are underway 
throughout the country. For example, in my region state and local 
energy and environmental officials are working to develop technical 
standards for distributed generation so that our environmental programs 
and our energy programs do not conflict. We have found that approaching 
these activities together, early on, tends to reduce cost and increase 
the ability of the private sector to implement energy projects.
    Finally, a program not subject to this authorization hearing but 
one we urge continued support for is the SEP Special Projects. This 
program provides leveraged funds on a competitive basis for state 
energy office-initiated projects with business, industry and the public 
such as the highly successful Industries of the Future Program. I 
personally know that in my state of New Hampshire, Industries of the 
Future would not exist without SEP Special Project Funds. In the 18 
months since New Hampshire launched our Industries of the Future 
program, the partnership between state and federal government and 
private industry has enabled 51 New Hampshire businesses to find high-
tech ways to cut their energy use, saving them money on their energy 
bills and protecting our environment. One example is a paper mill in 
the southwestern part of the state that is investing in cutting-edge 
energy efficient technologies. This investment will save this company, 
which employs 260 people and produces 100 tons a day of specialty paper 
products, about $500,000 a year on its electricity bills.
    We also urge the Committee to strongly endorse the schools energy 
efficiency program included in both Chairman Bingaman's (Section 1302) 
and Senator Murkowski's bill (Section 602). Representatives Mark Udall 
and Sherwood Boehlert first introduced H.R. 1129, which would initiate 
a new era in implementing energy efficiency projects for hard-pressed 
schools. This would be a good substitute for the Institutional 
Conservation Program (ICP) that is no longer is operation. It would 
encourage both public and private financing of school projects. We can 
all agree that not enough funding is going to our schools, and 
certainly wasteful, one-time energy costs do nothing to provide 
education to our children--we can and should implement this program. It 
will require authorization and we would urge that the program be 
implemented by the U.S. Department of Energy.

                   LOW-INCOME WEATHERIZATION PROGRAM

    The Weatherization Program is vital to addressing the 
disproportionate energy burdens that low-income citizens face. In 
addition to the meaningful energy conservation measures that help 
reduce energy bills, the program also addresses important health and 
safety measures of many families and vulnerable elderly and disabled 
persons.
    It has been an essential long-term program that complements the 
critical, short-term assistance provided by the LIHEAP program. In 
general, households that are poor use a dramatically higher percentage 
of annual income on heating and cooling than the average American 
family. While 4-5% of annual income is spent on all energy bills for 
the average American household, the households that are poor spend more 
than 20% on energy annually, depending upon the fuel source and 
location.
    The Weatherization Program has proven that it is effective and 
works for these low-income households. According to an Oak Ridge 
National Laboratory study conducted in the past few years, the average 
home saves over 20% on energy costs after Weatherization is completed. 
Obviously the recent increases in energy costs have created an even 
greater amount of energy savings. Keep in mind, too, that the work done 
by Weatherization specialists is permanent, providing a lasting savings 
over time, a savings that increases as energy costs increase. It is a 
gift that keeps on giving.
    One of the reasons the program has been so effective is that these 
specialists, the local delivery network responsible for implementing 
the cost-saving weatherization measures, are highly skilled. In 
addition, Weatherization Program energy auditors play a key role in 
helping low-income individuals respond to our present energy crisis 
while addressing the long-term needs as well. In addition to the energy 
savings produced, the Weatherization Program also positively impacts 
the health and safety of the numerous lives that are affected by the 
program, helping to keep families warmer, dryer, and healthier.
    So the issue is not whether the program is producing meaningful 
results. The issue is that the program does not have sufficient funding 
to meet the demands of our most vulnerable residents. For instance in 
New Hampshire, using both DOE funds and available LIHEAP funds last 
year, out of the approximate 7,493 New Hampshire Fuel Assistance 
recipients who requested weatherization services, New Hampshire was 
able to complete 526 weatherization jobs, only 7% of the requests.

                      BUDGET/APPROPRIATIONS ISSUES

    While we strongly support the authorization provided in Chairman 
Bingaman's bill (S. 352) and Senator Murkowski's bill (Section 603-
604), we are aware that an authorization does not mean appropriators 
will listen. The House Interior and Related Agencies Appropriations 
Subcommittee provided a $24 million increase for SEP to $62 million and 
a $96 million increase for Weatherization to $249 million. These 
funding levels were included in the House-passed bill. Unfortunately, 
on June 28, the Senate Appropriations Committee provided only a $60 
million increase for Weatherization to $213 million and a $0 increase 
for SEP. These are well below the proposed authorized levels and 
inadequate for the need. If we were serious about dealing with our 
energy problems, substantially increased funding for SEP and 
Weatherization would enable states to plan for energy emergencies and, 
when possible, take preemptive action to help avoid an energy crisis by 
promoting energy efficiencies.
    The President, during the campaign proposed a doubling of 
Weatherization and SEP to $306 million and $76 million respectively: 
``Double the funding for the Weatherization Program and State Energy 
Program.'' (See Energy Issues, at 11). By the time of the Budget 
submission, the proposed SEP doubling was wiped out and Weatherization 
was proposed to increase by $120 million. I would point out that while 
other DOE energy efficiency programs have increased since the early 
1980's, the combined SEP/ICP program peaked at $178 million in FY'81, 
while Weatherization peaked at $245 million in FY'83. These are in 
nominal dollars. These programs need to be substantially funded to 
enable states to continue to serve our communities while building upon 
meaningful public/private partnerships particularly during a time of 
fluctuating energy costs and volatile markets.
    NASEO urges the Committee to move forward not only on the 
authorized funding levels, but also to support a funding level at least 
equal to the House-passed Interior Appropriations bill during 
conference.

                               CONCLUSION

    Today, I have restricted my testimony to the State Energy and 
Weatherization Programs. However, I would like to note that we strongly 
support LIHEAP and recognize it has a critical, life-saving role to 
play. For the LIHEAP program, approximately one-half of the states are 
either out of funds or have very low balances. I also know that New 
Hampshire is not unique and that many states experienced a significant 
increase in the number of LIHEAP households served this past program 
year. In New Hampshire, the number of households served on the program 
increased by 18% from the prior year. At level funding, my office is 
confronted with the harsh reality of having to deny assistance to more 
than 11,000 elderly, disabled and working poor households in the 
upcoming winter season. Consequently, we desperately need a base 
funding of $3.4 billion for LIHEAP.
    While we are available to discuss other programs, we urge the 
Committee to support: 1) expanded appliance energy efficiency 
standards; 2) expanded use and increased funding for the EPA/DOE Energy 
Star Program; 3) Rebuild America, a DOE program that works with the 
states to promote energy efficiency in buildings; and 4) increased 
funding for international market development. We can certainly support 
targeted tax credits in the energy area, including energy efficiency 
tax credits for new and existing homes of the type recommended by 
Chairman Bingaman, Senators Feinstein/Bob Smith and Representative 
Weller. While each approach is slightly different we should work hard 
to develop a reasonable compromise.
    We look forward to working with the Committee. Thank you for the 
opportunity to appear before you today.

    The Chairman. Thank you very much.
    Ms. Choate, why don't you go right ahead.

STATEMENT OF JOANNE CHOATE, LIHEAP MANAGER, MAINE STATE HOUSING 
AUTHORITY, ENERGY AND HOUSING SERVICES, AUGUSTA, ME, ON BEHALF 
    OF THE NATIONAL ENERGY ASSISTANCE DIRECTOR'S ASSOCIATION

    Ms. Choate. Thank you. My name is Joanne Choate. I serve as 
manager of the LIHEAP program for low-income home energy 
assistance for the Maine State Housing Authority, as well as 
the vice chair of NEADA, the National Energy Assistant 
Directors Association. I am honored, at the request of the 
committee, to testify today on behalf of NEADA, which 
represents the State Directors of LIHEAP. We support the 
development and implementation of programs to help low income 
households afford the cost of home energy.
    Maine is a small New England State with long, cold winters, 
and we are one of the poorest States in New England. During the 
last winter heating season, heating oil prices rose sharply to 
$1.56 per gallon, bringing the average cost per household to 
$1,000 or more. While the average household spends about 4 to 5 
percent of their income on home energy cost, for the low income 
the total can reach as high as 20 percent.
    Without LIHEAP assistance, many of Maine's poorest 
households would have had to choose between staying warm and 
other vital household necessities such as food or medicine. 
Fortunately, LIHEAP was there this year to help over 60,000 
households in the State of Maine during the winter months. Many 
letters come across my desk, and I have brought a few to share 
with you today that I will leave after my testimony.
    From grateful recipients, an elderly recipient of northern 
Maine, wrote, ``thank you very much for fuel assistance. It is, 
indeed, a much-needed help. I am 82 years old, in poor health, 
and nearly desperate, with so many bills pushing for payment.'' 
A mother wrote, ``I want to take this opportunity to sincerely 
and humbly thank you for your assistance that you approved for 
my children and I. Things had been looking very bleak. Thank 
you for the ray of sunshine.''
    The elderly and the family with small children represent 
two of the most vulnerable groups in the rising energy costs. 
About 73 percent of LIHEAP funds in Maine are allocated to 
assist these groups. In light of the recent rise in energy 
prices, we have to ask, is LIHEAP funding adequate? 
Unfortunately, the answer is no. In spite of the fact that 
Federal funding was increased from $1.1 billion to $1.4 
billion, in addition to $855 million in emergency funds, it is 
still not enough to meet the need.
    The total number of households receiving assistance this 
year totaled 4.9 million, an increase of almost 1.1 million 
from the previous year. Still, on average the States were only 
serving about 17 percent of the eligible households. In my home 
State of Maine the total households receiving assistance 
increased by 32 percent this year, while the additional funds 
went a long way to helping address the needs this winter, 
unfortunately it was not enough.
    As a result of the rising prices, energy bills for the 
average households increased at least $400 to $500. Many 
households, not only in Maine but throughout the Nation, were 
not able to pay these bills. As a result, the States reported 
significant increases in arrears and shut-offs.
    A key indicator for the need for additional assistance is 
the number of households applying for emergency assistance. 
Since last year, the number has increased by 400 percent. These 
are households that exhausted all of their resources as well as 
their regular LIHEAP benefits and could not afford to purchase 
any additional fuel.
    The average annual income for a LIHEAP recipient in Maine 
is $10,262, and for an elderly household that applied this year 
the annual income was $7,200. The average cost of home heating 
was around $1,000 or more. About 30 percent of the average 
recipient's annual income is spent on home energy.
    We are also experiencing an increase in the number of 
households that have not applied for assistance before. 67 
percent of these households in Maine are frail, elderly 
households that applied this year. These are proud people who 
have always paid their taxes, and have never before asked for 
government assistance.
    NEADA did a survey of many utilities across the country and 
found that they are experiencing significant increases in bad 
debt. For example, the District of Columbia reported $6.6 
million in natural gas arrearages by over 14,000 households. 
Georgia reported approximately $147 million in arrearages owed 
by 479,000 households, and Louisiana reported $32.9 million in 
arrearages owed by about 76,000 households.
    We can expect that the problem of arrearages and shutoffs 
will get worse as the summer cooling season progresses, 
especially in Southern and Western States, and to a lesser 
degree in the Northeast. 28 States and the District of Columbia 
are now out of funds and no longer able to provide households 
with assistance to cover summer cooling bills and avert 
shutoffs.
    S. 352 would play a significant role in helping to address 
the needs for additional funds. By increasing the authorization 
to LIHEAP to $3.4 billion, it would send a signal to the 
Appropriations Committee that additional funding is necessary 
to address the needs that low income households face with their 
winter heating and summer cooling bills.
    With the additional money, we would increase outreach 
efforts to provide funds to underserved populations, take 
advantage of prepurchase and other payment arrangements to 
reduce the cost of home energy, and provide higher grant levels 
to offset the impact of higher prices on poor families.
    NEADA would also like to recommend that the committee 
consider an increase in the set-aside for training and 
technical assistance funds. Currently, the law limits the 
Federal Program Office from using more than $300,000 for these 
purposes. The amount is not sufficient to meet the growing 
needs to develop new and innovative methods for managing 
program funds, collecting data for program design and 
evaluation, and provide training to program managers. We would 
recommend that training and technical assistance be increased 
to $750,000.
    Mr. Chairman, we are also pleased to see the increased 
support provided in S. 352 for the State energy program and 
weatherization assistance. Across the Nation, LIHEAP works in 
close partnership with these two programs in helping to target 
assistance to those most in need. The State Energy Program 
plays an essential role in implementing energy programs at the 
State and local levels for all sectors of the economy and 
weatherization assistance delivers energy efficiency services 
to low income households to help reduce their energy bills.
    Taken together, the increased funding for LIHEAP, the 
weatherization assistance program, and the State energy program 
contained in S. 352 will go a long way in helping to meet the 
energy needs of low income households.
    Thank you for this opportunity to testify.
    The Chairman. Thank you very much.
    Erik, why don't you go right ahead. We are glad you are 
here, too.

   STATEMENT OF ERIK EMBLEM, ADMINISTRATOR, NATIONAL ENERGY 
              MANAGEMENT INSTITUTE, ALEXANDRIA, VA

    Mr. Emblem. Thank you, Mr. Chairman. My name is Erik 
Emblem. I am the executive director and administrator of the 
National Energy Management Institute, and I am enjoying 
testifying before this most distinguished committee today.
    NEMI is a not-for-profit joint labor management corporation 
created in 1981 by the Sheet Metalworkers International 
Association and the Sheet Metal and Air Conditioning 
Contractors National Association. Our mission is to identify 
emerging markets, employment, and commercial opportunities in 
the energy management, heating, ventilating, and air 
conditioning industry.
    Towards these ends, we develop and sponsor energy 
management and HVAC research information and education training 
programs. In this respect, NEMI sponsors and funds training, 
education, and provides instructional equipment for over 160 
training centers in the United States and Canada. We produce 
educational material to ensure that sheet metal workers and 
sheet metal contractors are on the cutting edge of the energy 
management and HVAC industry.
    Within the industry, NEMI is considered the leader in 
research and development in new HVAC technologies and markets. 
Within the United States, there are some 5 million commercial 
and public buildings, 90 million residential structures, and 
together these buildings account for 35 percent of the Nation's 
energy consumption.
    Most are affected by energy management building technology 
and indoor air quality issues. By 2003, we expect that $88 
billion per year will be spent on the construction and 
operation of heating, ventilation, and air conditioning systems 
alone. A consensus has developed within the professional energy 
management building technology and indoor air quality community 
that there is a need for a central organization to initiate, 
coordinate, and manage a number of important air quality and 
energy management functions that are currently not being 
fulfilled by either private industry or Government.
    In this respect, there exists an incomplete understanding 
and appreciation for the multidimensional nature and 
relationships of energy management and indoor quality, on 
public health employment and productivity and energy 
consumption within buildings. Reliable data on these 
relationships are incomplete, and major information gaps exist 
on the adverse occupational and environmental health effects of 
poor indoor air quality.
    Moreover, serious information gaps exist on questions 
concerning assessments of existing and emerging building 
technologies, employment and training and productivity, 
commercial market development for the new and improved building 
technologies, the science of constructing new buildings, and 
retrofitting older ones, public and consumer awareness of 
energy management issues, and the state of professional 
education and training in the emerging energy management and 
indoor air quality industries.
    The challenge, therefore, is to explore the feasibility and 
efficacy of a national center to gather, develop, pilot, 
evaluate, distribute data and information on the ways by which 
the Nation can improve its indoor air quality and at the same 
time achieve optimum levels of energy efficiency in its 
commercial and public buildings, industrial facilities, and 
residential housing units.
    The goal of such a center is to combine the economics of 
building performance for the fundamental functional needs of 
occupants with the need for more energy-efficient use to 
achieve a public benefit for the improved health, energy, 
security, employment, and productivity. Existing data and 
information on energy efficiency and indoor air quality are 
suggestive, with serious implications for employment, business, 
public health, and the environment, the economy and energy 
consumption.
    One of the major problems is, there is no structural 
mechanism to clearly organize and understand the various 
aspects of these issues and what effect they have on American 
society and the economy. In January 2000, NEMI was invited to 
submit a proposal jointly to the Environmental Protection 
Agency and the U.S. Department of Energy to undertake an 
initial assessment of the energy management and indoor air 
quality issues and the possible needs for a national center on 
energy management, building technology, and indoor air quality.
    Under NEMI's direction, a white paper was prepared and 
distributed on the specific conclusions and recommendations of 
the conferees. Mr. Chairman, I have a copy of that white paper 
with me, and I would like to submit it for the record.*
---------------------------------------------------------------------------
    * Retained in committee files.
---------------------------------------------------------------------------
    The Chairman. We would be glad to have it included.
    Mr. Emblem. Generally, the conference concluded that, given 
the fragmented state of energy management and indoor air 
quality issues, the logical next step would be to develop a 
comprehensive strategic plan exploring the feasibility of a 
national center for energy management and building 
technologies.
    If I may, Mr. Chairman, deviate slightly from the written 
record, I am here today to express my concern that this problem 
may be exacerbated by the renewed efforts to reduce energy use 
in buildings. NEMI and its sponsors have been involved in 
energy management and indoor air quality in buildings since the 
energy crisis years of the late seventies, and we have seen 
many mistakes made. We have taken a leadership position in the 
building construction industry towards resolving the conflicts 
and barriers of efficient and healthy buildings.
    We believe there is both a compelling need and broad 
support for a national center for energy management and 
building technologies to support, coordinate commercialization, 
public education, training in public technologies and building 
technologies that will provide buildings that are both energy 
efficient and healthy. We believe that the center should be 
supported under this legislation.
    With that, I thank you for the opportunity to testify.
    [The prepared statement of Mr. Emblem follows:]

   Prepared Statement of Erik Emblem, Administrator, National Energy 
                  Management Institute, Alexandria, VA

    Mr. Chairman, Members of the Committee.
    My name is Erik Emblem, and I am the Administrator of the National 
Energy Management Institute (NEMI). Thank you for inviting us to 
testify before you on proposed national energy legislation.
    NEMI is a not-for-profit, joint labor-management corporation 
created in 1981 by the Sheet Metal Workers'' International Association 
(SMWIA) and the Sheet Metal and Air Conditioning National Association 
(SMACNA).
    Our mission is to identify emerging markets, employment and 
commercial opportunities in the energy management and heating, 
ventilation and air conditioning (HVAC) industry. Towards these ends 
NEMI develops and sponsors energy management and HVAC research, 
information, education and training programs.
    In this respect, NEMI sponsors and funds training and education 
programs and provides instructional equipment for over 160 training 
centers in the United States and Canada. We produce educational 
material to ensure SMWIA and SMACNA members are on the cutting edge of 
the energy management and HVAC industry. Within the industry NEMI is 
also considered the leader in the research and development of new HVAC 
technologies and markets.

                             THE CHALLENGE

    Within the United States there are some 5 million commercial and 
public buildings and 90 million residential structures. Together these 
buildings account for 35% of the Nation's energy consumption, and most 
are affected by energy management, building technology and indoor air 
quality issues. By 2003, we expect that $88 billion per year will be 
spent on construction and operations of heating, ventilation and air 
conditioning (HVAC) systems alone.
    A consensus has developed within the professional energy 
management, building technology and indoor air quality community that 
there is a need for a central organization to initiate, coordinate and 
manage a number of important indoor air quality and energy management 
functions that are currently not being fulfilled by either private 
industry or government.
    In this respect, there exists an incomplete understanding and 
appreciation for the multi-dimensional nature and relationships of 
energy management and indoor air quality on public health, employment 
and productivity, and energy consumption within buildings.
    Reliable data on these relationships are incomplete and major 
information gaps exist on the adverse occupational and environmental 
health effects of poor indoor air quality. There is even less of an 
understanding of the relationships between improved indoor air quality, 
on the one hand, and energy efficiency, on the other. Indeed, one of 
the major policy questions that has yet to be addressed is ``What are 
the energy costs associated with improved indoor air quality, and are 
there potential building technology solutions to reduce energy 
consumption and, at the same time, improve air quality?''
    Moreover, serious information gaps exist on questions concerning 
assessments of existing and emerging building technologies; employment, 
training and productivity; commercial market development for new and 
improved building technologies; the science of constructing new 
buildings and retrofitting older ones; public and consumer awareness of 
energy management issues; and the state of professional education and 
training in the emerging energy management and indoor air quality 
industries.
    The challenge therefore is to explore the feasibility of a national 
center to gather, develop, pilot, evaluate, and distribute data and 
information on ways by which the nation can improve its indoor air 
quality and at the same time achieve an optimum level of energy 
efficiency in its commercial and public buildings, industrial 
facilities; and residential housing units.
    The goal of such a center is to combine the economics of building 
performance for the functional needs of occupants with the need for 
more efficient energy use to achieve a public benefit of improved 
health, energy security, employment and productivity.

                          STATEMENT OF PROBLEM

    Existing data and information on energy efficiency and indoor air 
quality are suggestive with serious implications for employment, 
business, public health and the environment, the economy and energy 
consumption. One of the major problems is that there is no structural 
mechanism to clearly organize and understand the various impacts these 
issues have on the American society and economy.
    Data available in the literature indicate the scope and nature of 
the problem, and include:

   Some 50 million American workers are adversely affected by 
        poor indoor air quality in commercial buildings. (Dorgan 1997, 
        Woods 1989, Fisk 2000)
   The annual health care cost associated with poor indoor air 
        quality in commercial buildings has been estimated at $8 
        billion. (Dorgan 2000, Woods 1989, Fisk 2000)
   The cost of productivity losses resulting from poor indoor 
        air quality in commercial buildings--due to absenteeism, short 
        work days, reduced worker output and lethargy--has been 
        estimated at $40-$80 billion annually. (Dorgan 2000, Woods 
        1989, Fisk 2000)
   About 50% to 80% of commercial buildings have been estimated 
        to not consistently achieve compliance with standards for 
        acceptable indoor air quality. (Dorgan 2000, Woods 1989, Fisk 
        2000, NIOSH 1998)
   A study commissioned by NEMI found that only 20% of 
        commercial buildings in the United States could be classified 
        as ``healthy''; another 40% were found to be ``generally 
        healthy; with the remaining 40% classified as ``unhealthy''; 
        unhealthy being defined as a building where a significant 
        number (20% or more) of the occupants reported an indoor air 
        quality-related symptom. (Dorgan 1997, 2000)
   Approximately 25% of the $6 billion annual energy 
        consumption by American schools are lost because of inefficient 
        heating, cooling, ventilation, and lighting systems. (GAO 1996)
   Some 15 million children attend American schools with 
        substandard heating, ventilation and air conditioning (HVAC) 
        systems. (GAO 1996)
   About 80% of the building stock that will be available in 25 
        years are in place today and will require rehabilitation and 
        HVAC retrofit construction. (Woods 1998)

                           INITIAL ASSESSMENT

    In January 2000, NEMI was invited to submit a proposal jointly to 
the Environmental Protection Agency (EPA) and the Department of Energy 
(DOE) to undertake an initial assessment of energy management and 
indoor air quality issues, and the possible need for a national center 
on energy management, building technologies and indoor air quality.
    The vehicle by which the initial assessment was conducted was a 
two-day conference attended by a small group of nationally recognized 
authorities on energy management and indoor air quality, representing 
business, labor, academia, government and the professional engineering 
and public health communities. The conference was held on September 13-
14, 2000 in Alexandria, VA.
    The focus of the conference was on six related subject areas 
including energy management and indoor air quality research, technology 
assessment and application, employment and training, commercial market 
development, public and professional education, and public policy.
    Under NEMI's direction, a ``White Paper'' was prepared and 
distributed on the specific conclusions and recommendations of the 
conferees.
    Mr. Chairman, I have a copy of that White Paper with me and ask 
that it be made a part of this hearing record.
    Generally, the conference concluded that given the fragmented state 
of energy management and indoor air quality issues, a logical next step 
would be to develop a comprehensive strategic plan exploring the 
feasibility of a national center for energy management and building 
technologies.
    NEMI is currently in the process of initiating such a strategic 
plan with its partners; the Sheet Metal and Air Conditioning 
Contractors National Association (SMACNA) and The Sheet Metal Workers 
International Association (SMWIA).
                      the consortium of interests
    For your information, Mr. Chairman, SMACNA represents some 4,000 
contractors engaged in the installation and maintenance of energy 
management and HVAC equipment and systems in the industrial, 
commercial, institutional and residential markets. By 2003, it is 
estimated that the annual HVAC market in the United States will 
approach $88 billion.
    SMWIA represents some 150,0000 members employed in the manufacture, 
installation and maintenance of energy management and HVAC equipment 
and systems. SMWIA members are highly skilled in the energy management 
and HVAC field and are products of apprenticeship training programs 
developed by the International Training Institute. Like NEMI, SMACNA 
and the SMWIA created the International Training Institute, which is a 
joint labor-management-training program dedicated to improving the 
employment skills of its members to meet new technological demands.

                               CONCLUSION

    Mr. Chairman, NEMI and its partners have been in the energy 
management business for quite some time. As I indicated, we are the 
acknowledged leaders in our industry. After nearly two years of 
intensive study, we have come to the conclusion that in order to 
adequately meet the growing demand for energy security on the one hand, 
and safe and healthy buildings on the other, that a national center 
must be established to undertake and disseminate the kind of research 
and analysis required to achieve more energy efficient and more healthy 
buildings.
    Thank you, and I would be happy to answer any questions you may 
have.

    The Chairman. Thank you very much for your testimony.
    Mr. Wagner, why don't you go right ahead.

   STATEMENT OF MARK F. WAGNER, DIRECTOR, FEDERAL GOVERNMENT 
  RELATIONS, JOHNSON CONTROLS, INC., ON BEHALF OF THE FEDERAL 
               PERFORMANCE CONTRACTING COALITION

    Mr. Wagner. Thank you, Mr. Chairman. My company is Johnson 
Controls, but I am also here testifying on behalf of the 
Federal Performance Contracting Coalition. We are a group of 
energy service companies who upgrade Federal facilities. We do 
this by installing, designing, and servicing energy-efficient 
equipment such as monitoring control systems, heating 
ventilation systems, lighting, so that Federal buildings can be 
more energy-efficient.
    Mr. Chairman, last month, when you attended the energy 
efficiency forum sponsored by Johnson Controls and the U.S. 
Energy Association, you said energy efficiency is a bipartisan 
issue, and we could not agree with you more. You also talked 
about energy-saving performance contracting at Federal 
facilities, which is where I would like to concentrate my 
remarks.
    Assistant Secretary Garman mentioned that the Federal 
Government is the largest consumer of energy in the country, 
and that is true. We are spending billions in heating those 
500,000 buildings in the Federal inventory. This year, the 
Federal Government's energy electric bill is going to be higher 
than ever, just as it is for many consumers. The Department of 
Defense alone, their overbudget, or unanticipated electric bill 
is $500 million this fiscal year. That is where energy savings 
performance contracting comes in.
    As you know, you can see from the chart, energy service 
companies privately finance the investment of energy efficient 
equipment with no up-front cost to the Government. The building 
owner, the Government, then pays for those retrofits for this 
new equipment over time.
    The Chairman. Can you just turn that thing a little bit? 
There is a big glare on it, so we cannot see it. That is 
better, thanks.
    Mr. Wagner. The energy service company guarantees those 
savings. That means the Government does not pay more for 
utility costs than they would have paid under the ESPC, and 
they get the new equipment after the investment is paid off. 
The Government gets all the subsequent savings. It is truly a 
win-win situation. Energy service companies are helping Federal 
agencies all over the country do this.
    One new project that we just installed is at the Denver 
Federal Center, where we upgraded 27 buildings. This entire 
project will save the Government $450,000 per year in energy 
and operational cost, while reducing more than 6.6 million 
pounds of harmful emissions.
    There is a number of ESPC examples at Federal facilities. I 
am proud to say one of the first ones ever was in New Mexico at 
Los Alamos, where that ESPC is still saving the Government over 
$2 million a year, and has a 40-percent reduction in emissions, 
and so this is truly a great program, but it can be even 
better, and I would like to quickly mention six quick, specific 
legislative proposals to comment on. First of all, we support 
expanding authority of ESPC's to include water in addition to 
energy.
    Currently, water projects are not really allowed under 
civilian agency ESPC programs. Consequently, many Federal 
facilities miss out on tremendous potential cost savings, and 
water resources continue to be wasted. In contrast, water 
savings have been allowed at defense facilities, because they 
are authorized under a different statute.
    You can see from the Fort Polk project that we did at an 
Army military base the benefit of combining energy and water 
savings. When you change out and you save hot water as well and 
you can take those water savings you are much better able to 
finance projects and put together much more comprehensive 
projects. At non-defense facilities like veterans' hospitals, 
water savings often cannot get approved, and many Federal 
agencies could benefit by such change.
    Second, we advocate removing the sunset provision for 
ESPC's and grant permanent authority for this great program, 
because they are a proven, reliable method to save energy for 
the Federal Government.
    Third, the FPCC also supports expanding the ESPC authority 
for replacement authorities. Having this could open up new 
opportunities for energy savings. However, it could mean 
developing some projects where we do not have a lot of 
experience. I might suggest that the committee think about 
developing some pilot projects in this area, or authorizing 
some. This could do a number of interesting things.
    First, we could get off the ground quickly with some pilot 
projects where there is opportunities already identified 
without waiting for the Department to implement regulations and 
policy, which might take months, or maybe even longer.
    Second, we would get some lessons learned from those pilot 
projects that could help develop regulations, and then third, 
during those pilot projects we could inventory them to find out 
where else we could do these types of projects. That is just a 
suggestion.
    Fourth, the FPCC supports high performance school programs, 
insofar as grant funding could be used to help defray some of 
the contracting costs for ESPC.
    Fifth, the Federal Procurement Contracting Coalition 
strongly opposes any effort to extend the utility financed 
contracts currently beyond their 10-year time frame.
    ESPC contractors are required to guarantee their savings. 
In other words, if the savings do not materialize, we do not 
get paid, and we are required to perform measurement and 
verification methods. Unfortunately, under those utility 
projects they do not have to do that, so if there is any 
extension, we would encourage extending those requirements to 
utility contracts.
    Finally, we support the concept of an energy efficiency 
bank, or source of Federal funds that could be used to 
implement energy efficiency projects at facilities. Financing 
projects with ESPCs may not be the appropriate tool in every 
instance, and over the years there has been a lack of Federal 
funds to do projects directly rather than financing. The 
committee may also wish to consider making these funds 
available to buy down the ESPC projects that have longer terms, 
or to help make renewable energy projects more feasible under 
ESPC.
    On behalf of the FPCC, I appreciate the opportunity to 
speak before you today and provide testimony. Thank you, Mr. 
Chairman.
    [The prepared statement of Mr. Wagner follows:]

  Prepared Statement of Mark. F. Wagner, Director, Federal Government 
                   Relations, Johnson Controls, Inc.

    Mr. Chairman and members of the Subcommittee, thank you for 
inviting me to address the various legislative proposals related to 
energy efficiency. I am Mark Wagner, Director of Federal Government 
Relations for Johnson Controls, Inc. and am testifying today on behalf 
of the Federal Performance Contracting Coalition (FPCC), a group of 
Energy Savings Performance Contractors who upgrade federal facilities. 
I would like to concentrate my remarks on proposals that affect private 
sector financing of energy improvements in Federal government 
facilities.
    Johnson Controls is a global market leader in facility services and 
control systems. Since the 1880s when Warren Johnson invented the 
thermostat, Johnson Controls has been working with government 
facilities, schools, hospitals and commercial buildings to help create 
comfortable, productive and safe building environments that are energy 
efficient.
    Like other energy service companies that are members of the FPCC, 
we design, install and service new energy efficient equipment, such as 
monitoring and control systems, HVAC systems, chillers and lighting, so 
that buildings use less energy. Included in our service offering is 
energy savings performance contracting (ESPC) which I will discuss in 
more detail later.
    According to the U.S. Department of Energy, there are some 4.5 
million existing commercial buildings involving 55 billion square feet 
of space. These buildings consume 30-40% of all energy and use 60% of 
all electricity. It's estimated these facilities use 20-40% more energy 
than necessary.
    The largest single consumer of energy in the United States is the 
federal government, spending $4 billion a year for its 500,000 
buildings. According to the Department of Energy, the federal 
government has over three billion square feet of floor space, located 
in all climates. High-rise offices, research laboratories, aircraft 
hangars, libraries, hospitals, tourist areas, parks, and prisons must 
all be considered. In total they consume over 60 billion kilowatt-hours 
of electricity each year.
    This year, the federal government's electric bill will be even 
higher, just as it is for many consumers. For the Department of Defense 
alone, its unanticipated energy bill for this year is expected to be 
$500 million.
    Immediate conservation measures such as turning up the thermostats 
this summer and shutting down escalators are only temporary solutions, 
saving energy today but doing nothing about the problem tomorrow. True 
energy efficiency is achieved--not by fiddling with the thermostat, but 
by retrofitting existing building with energy efficient equipment.
    That is where Energy Savings Performance Contracting (ESPC) comes 
in.
    Under an ESPC, an energy services company like Johnson Controls, 
Honeywell, Duke Solution, Sempra Energy Services, NORESCO and others, 
privately finance the investment of installing energy efficient 
equipment with no up-front costs to the customer. The investment 
includes identifying building energy requirements and acquiring, 
installing, operating, and maintaining the energy-efficient equipment. 
The building owner pays for these retrofits and new equipment over time 
with dollars saved on energy and maintenance bills. The energy service 
company guarantees the savings. This means the government agency does 
not pay any more for utility costs than they would have paid without 
the ESPC and the new equipment. After the investment is paid off, the 
building owner gets all the subsequent savings. It's a win-win 
situation.
    Energy service companies are helping federal agencies all over the 
country save energy through ESPCs. For example, Johnson Controls, 
entered into an ESPC with the Denver Federal Center to upgrade 27 
buildings. New chillers, building controls and lighting are being 
installed, and we are re-commissioning an existing solar domestic hot 
water heating system. The entire project will save $450,000 per year in 
energy and operational costs for the next 11 years while reducing more 
than 6.6 million pounds of carbon dioxide emissions. As mentioned, 
other ESPC companies are making similar improvements to federal 
facilities all around the country--and at a cost to the government 
customer of only contracting and auditing.
    Other good examples of federal ESPCs are at:

   Los Alamos National Lab in New Mexico, saving $2.3 million 
        annually;
   Army National Training Center at Fort Irwin, California, 
        saving $169,000 per year;
   Veterans Affairs Medical Centers in San Francisco and Salt 
        Lake City, each saving $500,000 per year.

    ESPC is a great tool for the federal government. But it can be even 
better. I would like to outline several provisions included in pending 
legislation under this Committee's jurisdiction that enhance the 
program and save more energy and tax dollars.
1. Expand the Authority of ESPCs to Include Water, in Addition to 
        Energy
    Currently water saving projects are not allowed under civilian 
agency ESPC programs. Consequently, many federal facilities miss out on 
tremendous potential cost savings and water resources continue to be 
wasted by the government. DOE General Counsel has ruled that water 
savings are limited under the statute governing ESPCs at civilian 
agencies (42 USC 8287).
    In contrast, water savings have been allowed for years at DOD 
facilities. A different defense statute, (Title 10, Sections 2865 & 
2866) authorizes ESPCs for DOD facilities and it allows water savings. 
When the Defense Department originally passed Section 2865, it quickly 
realized that water savings were not allowed under the legislation. One 
year later Congress, through the Armed Services Committees, approved 
DOD's request to add water cost savings to ESPC under Section 2866.
    The Army's Fort Polk in Louisiana is a great example of an ESPC 
project which combines both energy and water savings. The project 
includes:

   Replacing bathroom equipment (toilets, flush valves, 
        showerheads and faucets) with water conserving models in the 
        barracks.

          Water Savings: 42 million gallons of water annually
          Energy Savings: 43,500 therms of natural gas annually

   Replacing all 450 washers and dryers on base with new 
        horizontal axis washers that use half the water and clean just 
        as well.

          Energy Savings: 46,000 therms of natural gas and 135,000 kWh 
        of electricity
          Water Savings: 14.4 million gallons of water and sewerage 
        annually

   Installing hot water loop controls brining water temperature 
        up only when needed.

          Energy Savings: 517,000 therms annually

    In total this project is saving Fort Polk over $500,000 per year in 
energy, water and operational costs.
    At non-defense sites like Veterans Hospitals, water savings often 
cannot get approved. Many federal agencies could benefit greatly from a 
change in the ESPC authority to allow water savings, such as the 
provision included in section 7 of S. 352.
2. Remove the Sunset ESPC Contractual Authority as Provided by S. 352
    ESPCs are a proven, reliable method to save energy, reduce 
operations and maintenance costs, provide new equipment for federal 
agencies and reduce pollution. Why would the federal government want to 
stop?
    Unless the statute is again extended, current authority for federal 
agencies to enter into ESPCs will expire in 2003. Certainly another 
four-year extension could be granted for the program as provided by S. 
388, but we would advocate removing the sunset provision completely and 
provide permanent authority for ESPCs. Experience has shown that when 
the sunset date approaches, some agencies become concerned and 
reluctant to begin developing projects for fear the authority may not 
last. Removing the sunset provisions would solve that problem.
3. Allow Replacement Facilities To Be Eligible for Federal ESPCs as 
        Provided by 
        S. 352 and S. 388
    The Federal Performance Contracting Coalition also supports 
expanding ESPC authority programs to allow them to be applied to 
replacement facilities. Having this new authority could open up new 
opportunities for energy savings. However, it would mean developing 
some projects for which there is little or no experience either in the 
government or commercial arena.
    The Committee may want to consider authorizing several pilot 
projects. This would have numerous advantages, including:

   Several projects that already have been identified could 
        begin immediately, without waiting for the Department of Energy 
        to spend months or longer developing regulations and policy 
        governing the implementation of this new authority.
   Government and industry would quickly gain from the lessons 
        learned at these sites, which could then aid in writing better 
        regulations and policy for broader authority.
   While the pilot projects are being developed, the Department 
        of Energy could identify other federal buildings that could be 
        candidates for projects and determine the magnitude of the 
        potential.

4. High Performance Schools Program in Section 1302 of S. 597
    The FPCC supports this legislation insofar as the grant funding for 
school facility improvements can be used for the contracting costs of 
Energy Savings Performance Contracts.
5. Oppose Extending Utility Contracts to 25 Years Without Safeguards
    The Federal Procurement Contracting Coalition strongly opposes any 
efforts to extend the term of utility financed contracts beyond their 
current 10-year time frame without requiring a guarantee of energy 
savings, a measurement and verification of those savings and a 
reporting requirement to Congress. When Congress passed the Energy 
Policy Act of 1992 providing authority for ESPC, it wisely required 
certain safeguards. Congress demanded that if agencies were allowed to 
commit future unappropriated dollars to pay for energy-financed 
contracts, the dollar savings would have to pay for the cost of the 
contract. To ensure that result, ESPC contractors are required to:

          1. Guarantee the energy savings. In other words, if the 
        savings don't materialize we don't get paid.
          2. Perform annual measurement and verification, which is the 
        method to prove the savings are real.

    Unfortunately, utility financed contracts currently do not have 
these same requirements and safeguards. But they should.
    Our position is also consistent with separate memorandums (June 
1999) from the DOE General Counsel and from the GSA Assistant 
Commissioner of the Office of Financial and Information Systems. Both 
memos call for guarantee of savings and measurement and verification 
for utility financed energy contracts. However, it is not clear that 
these requirements have been enforced consistently for utility 
contracts.
6. Federal Energy Efficiency Bank
    We support the concept of an energy efficiency bank or source of 
federal funds that could be used to implement energy efficiency 
projects at federal facilities. Financing projects with an ESPC may not 
be the appropriate tool in every instance. Over the years there has 
been a lack of federal dollars to directly pay for worthwhile energy 
efficiency projects. The committee may also wish to consider making 
funds from the bank available to ``buy down'' ESPC projects that have 
long terms or help make renewable energy measures more affordable under 
ESPCs.
    On behalf of the FPCC, I also want to mention two ``congressional 
actions'' that can assist in helping the Federal government get the 
maximum out of the ESPC process.
    First, the Department of Energy's Federal Energy Management Program 
(FEMP) provides technical assistance for many of these projects. Their 
appropriated funding must continue at a robust level. This assistance 
is critical to helping federal agencies implement ESPC projects.
    Second, congressional oversight could make all the difference in 
assuring that federal agencies are indeed taking advantage of the 
energy savings provided by ESPCs. A few years ago, a hearing on ESPCs 
by the Veterans Affairs Oversight Subcommittee sparked a dramatic 
increase in projects at VA Medical Centers. The Subcommittee asked the 
Department of Veterans Affairs to provide quarterly reports on ESPCs 
being implemented at medical centers throughout the country. Similar 
oversight could be very helpful in getting agencies to use these 
innovative types of energy efficiency and infrastructure improvement 
contracts. In other words, we should stop asking agencies, ``Where can 
you do an ESPC'' and begin asking, ``Why aren't you using them 
everywhere?''
    Thank you for the opportunity to testify today and I would be happy 
to answer any questions.

    The Chairman. Well, thank you, thank all of you very much 
for your testimony here. Let me just ask a few questions.
    Ms. Manoogian and Ms. Choate, maybe you could both respond 
to this. One of the differences that exist in our pending bills 
here is that in the proposal to increase the LIHEAP funding for 
the future we have two different ways we are proposing to do 
it. I have proposed in the bill that I have introduced to 
increase the base program more, and not really increase the 
emergency contingency fund authorization.
    Senator Murkowski's proposal was to increase the emergency 
level. Is there a preference on the part of LIHEAP 
administrators as to how this authorization ought to be 
accomplished, this increased authorization? Do either of you 
have a point of view on that?
    Ms. Manoogian. It would be preferable to have the base 
funding increased, only because, for example, it provides us 
with an opportunity to be able to establish what is necessary 
to operate the program for the program year. Instead of raising 
the contingency funds, then it is on an emergency basis, so it 
does not provide a meaningful tool to be able to identify what 
should your eligibility criteria be for an upcoming season, 
what should your benefit level be set at.
    I know that in the past 2 years we have relied heavily upon 
emergency funds to help us get through the winter season and 
avert any type of catastrophes for our households. The problem 
has been, it has been a crisis management approach, and it is 
after the fact, so our preference would be that the base level 
be increased and not just emergency contingency funds.
    The Chairman. Ms. Choate, did you have a point of view?
    Ms. Choate. I agree with Mary Ann that the base funding 
would be useful for the same reasons, not only that many States 
try to make plans in advance, such as Maine. We would borrow 
the money to start our program early to lock in prices in the 
summer months, where the Federal funds are not received until 
October, and we cannot do that if we do not know what the base 
funding is going to be, or how much it will be, so it would 
make a difference.
    The Chairman. The administration has proposed to direct a 
portion of Federal oil and gas royalties to the LIHEAP program 
during times of high oil and gas prices. Do either of you have 
a point of view on that proposal?
    Ms. Manoogian. Not specifically, and I do not know the 
details of the proposal. My only concern, again, is with 
respect to--is that it makes the program much more vulnerable 
and volatile to what is going to happen, the amount of funds 
received from the royalties, in addition to, it is not clear to 
me if it is, again, going to be able to enable us to do the 
important and necessary program management that Ms. Choate and 
I have already identified.
    The Chairman. Erik, let me ask you, obviously, in trying to 
move toward a more energy-efficient economy, one of the real 
obvious requirements which you are working on is this business 
of having an adequate workforce, a workforce that is adequately 
trained in how to do that. To what extent do you see that as a 
real bottleneck for getting from here to where we need to be?
    I mean, is the problem that we have not adopted the right 
policies at the Federal level, or do we really have a shortage 
of people in the field all around this country who are trained 
to put in place the energy efficiency measures that we all 
think make sense?
    Mr. Emblem. Mr. Chairman, the answer is yes to all three. 
We have had policies in the past that have exacerbated the 
problem, and we also have the issue of getting a workforce of 
trained individuals who are trained to implement these new 
technologies, and this energy-efficient equipment that is 
needed to properly ventilate the buildings.
    We also deal with the Government and regulatory issues. 
After the energy crisis of the seventies, the ventilation rates 
for buildings were reduced by 67 percent. In 1970, they were 50 
cfm per person. They were reduced to 5 cfm per person, and now 
they are back up to 20 cfm per person, but in the lag time, 
these buildings have been designed around changes in government 
regulations and government standards where we have to have 
people now that are able to go back into these buildings and 
assure that the proper ventilation rates and air conditioning 
is obtained, and it is through training.
    The Chairman. Mr. Wagner, let me ask you about, at the 
current time, there is an executive order that requires a 
certain level of energy efficiency to be built into new Federal 
energy, or Federal construction projects, is that right?
    Mr. Wagner. Yes, sir, and there is also a requirement to 
have sustainable type designs in buildings, yes, sir.
    The Chairman. How effective is that requirement, the way it 
is presently operated?
    Mr. Wagner. It is effective, because oftentimes designers 
try. The problem is, sometimes there is a limit in terms of 
funding, in terms of the building, so you have a push and pull 
in terms of the type of things that you can implement in a 
building up front when you design it, but those requirements 
are definitely there.
    The Chairman. Do you think there is a genuine effort by 
architects and others who are proceeding to construct new 
Federal buildings to build this in?
    Mr. Wagner. I think that there is a number of new ways of 
approaching buildings. We have seen it in the commercial sector 
a lot. I think it takes a lot of innovation that you do not see 
everywhere, but I think there are tremendous examples of 
buildings where you can build this in at a first cost, and it 
does not cost as much as you think it might.
    The Chairman. And does that extend in this area of schools? 
We give a lot of speeches about how we want energy-efficient 
schools. Is there really anything in place Nation-wide that 
causes that planning and thinking to be built in as new schools 
are designed?
    Mr. Wagner. Well, there is probably nothing real 
comprehensive, because most of those designs are at the local 
level.
    The Department of Energy does have some good school 
programs providing that type of assistance and guidance in 
that. The other thing we have got to think about is, we have 
got a huge inventory of schools out there, many old, that 
probably--well, we can concentrate on the few new ones being 
built, and many of them are--there are a lot of older buildings 
out there that are wasting 20 to 40 percent of the energy out 
there, and concentrating on trying to retrofit those for not 
only the indoor environment but also the energy savings I think 
is probably really where much of the focus needs to be.
    The Chairman. What role do you see this committee or the 
Federal Government playing in causing that to happen? I am 
persuaded that we are way behind in adequate school 
construction in this country, and that there is going to have 
to be a very substantial increase in that effort over the next 
decade or so. How do we ensure that that construction be 
designed and accomplished in a way that makes sense?
    Mr. Wagner. Well, I think if there is Federal funding that 
has been discussed in the past, that might be available to 
localities for school construction, or to assist in school 
construction, we may want to think about requiring that certain 
standards of efficiency are met, as opposed to providing 
assistance and say, build whatever type of building you want, I 
think, because it will continue to cost you in operation and 
maintenance cost throughout the future, and waste money in the 
future, so if you build them right the first time, that is 
extremely important.
    The Chairman. All right. Well, I think this is all useful 
testimony. We need to digest it all and try to understand it, 
and hopefully get it reflected in the legislation that we try 
to enact here. Thank you very much.
    Let us take a 5-minute break, and then we will have the 
next panel.
    [Recess.]
    The Chairman. Why don't we go ahead here. This is our third 
and final panel, and we are very glad to have them here. First, 
we have Mr. Steven Nadel, who is the executive director of the 
American Council for an Energy Efficient Economy here in 
Washington, thank you for being here. Mr. Clifford Rees, 
president of the Air Conditioning and Refrigeration Institute 
in Arlington, Virginia. We appreciate you being here.
    Mr. David Parks, president of Goodman Manufacturing Company 
in Houston, Texas--thank you for being here--and Dr. Malcolm 
O'Hagan, who is the president of the National Electrical 
Manufacturers Association in Rosslyn. Why don't you go ahead, 
and we will just go across in that order, if that works to 
everyone's satisfaction.

STATEMENT OF STEVEN NADEL, EXECUTIVE DIRECTOR, AMERICAN COUNCIL 
                FOR AN ENERGY-EFFICIENT ECONOMY

    Mr. Nadel. Thank you, Mr. Chairman. As you said, I am here 
representing the American Council for an Energy-Efficient 
Economy. We are a nonprofit organization dedicated to 
increasing energy efficiency as a means for both promoting 
economic prosperity and protecting the environment. I 
appreciate the opportunity to appear before this committee 
today.
    In specific, I have been asked by committee staff to talk 
about the Federal efficiency standards program. Federal 
appliance and equipment efficiency standards were first adopted 
in 1987 because many market barriers inhibit the purchase of 
efficient appliances in the unregulated market. These barriers 
include rush purchases, when the existing appliance breaks 
down, and purchases by builders and landlords, who pay for the 
initial cost but do not pay operating costs.
    Standards remove inefficient products from the market, but 
still leave consumers with a full range of products and 
services to choose among. These standards are one of the 
Federal Government's most effective energy-saving programs. 
They are already reducing peak electric demand by the 
equivalent of more than 200 powerplants, reducing consumer 
bills by about $9 billion annually.
    In order to provide additional cost-effective savings under 
this program, we recommend that Congress extends the standards 
program to several additional products. Congressional action is 
needed, because in many cases DOE lacks the authority to set 
new standards.
    Congress should take three specific actions. First, under 
current law, DOE has authority to adopt new standards on 
consumer products. The same authority should be extended to 
commercial products, since many of the best opportunities for 
new standards are in the commercial sector.
    Second, Congress should direct DOE to set standards on 
several products with large opportunities for energy savings, 
or for which additional technical work is needed before 
specific efficiency standards can be set. Products that fall 
into this category include residential ceiling fans, a 
residential furnace and heat pump circulation fans, and 
refrigerated vending machines.
    I would note that this provision is now included in 
legislation that passed the House Energy and Commerce 
subcommittee yesterday.
    Third, Congress should set standards on specific products 
in cases where standards already developed by States, as well 
as current voluntary standards such as Energy Star standards, 
FEM standards, and industry standards provide a sufficient 
foundation for Federal action.
    By adopting standards directly, instead of calling for a 
multiyear DOE rulemaking, Congress speeds up the date that 
savings begin to accrue. Also, direct congressional adoption 
frees up DOE resources for those products for which DOE data 
collection and analysis are truly needed. Products that fall 
into this category are distribution transformers, commercial 
refrigerators, exit signs, traffic lights, floor lighting 
fixtures for residences, ice-makers, commercial unit heaters, 
and consumer electronic equipment, and my written testimony 
provides written recommendations along these lines.
    Consumer electronic equipment merits a little further 
discussion. This equipment is the source of the energy-wasting 
vampires that President Bush discussed in his June 28 remarks 
at the Department of Energy. This equipment continuously uses 
electricity, even when switched off.
    President Bush has directed that Federal agencies only 
purchase equipment with standby power use of 1 watt or less. By 
adopting minimum efficiency standards at this same level, we 
can move these savings beyond the Federal Government to other 
users, and drive a stake through the heart of this energy 
waste.
    Analysis by my organization indicates that adopting 
reasonable and cost-effective standards on these products will 
reduce U.S. electric use in 2020 by about 5 percent of 
projected residential and commercial use, and will reduce peak 
electrical demand by the equivalent of about 40 to 50 
powerplants. We estimate that the benefits of these standards 
will be about five times greater than the cost, highly, highly 
cost-effective.
    In addition to new standards, I wanted to briefly mention 
two other issues. First, there has been a lot of controversy 
during the last 6 months about the new standard for residential 
air conditioners and heat pumps. We strongly support the SEER 
13 standard that was published in the Federal Register in 
January. The distance between a SEER 12 and a SEER 13 standard 
amounts to about 18,000 megawatts over the next 3 decades, 
equivalent to the production of 60 new powerplants.
    By our calculations, based on current electricity price 
structures and reasonable estimates of the cost of a SEER 13 
unit, the simple payback to the consumer to go from SEER 12 to 
SEER 13 is only about 3.8 years. It is quite cost-effective to 
consumers. As you noted in your initial remarks, part of the 
reason DOE came up with much higher numbers is, they are using 
1996 summer electricity prices.
    There has been a lot of changes in electricity markets over 
the last 5 years, and summer prices are higher. Winter prices 
may be lower, but summer prices are higher, and this needs to 
be reflected in the DOE analysis. Also, as I believe the 
representative from Goodman Manufacturing will report, that as 
this new equipment moves from a niche product to a mass-
produced product, cost should come down significantly relative 
to current cost, and therefore DOE has overestimated the cost. 
With reasonable cost estimates, with reasonable estimates of 
the electricity price, this SEER 13 standard is clearly cost-
effective for American consumers.
    Second, I wanted to note that DOE is many years behind the 
congressionally set schedule for revising some of the current 
efficiency standards. DOE does an annual process to set 
priorities for new rulemakings. We recommend that after DOE 
completes this process, in September or October of this year, 
that this committee schedule an oversight hearing to review 
DOE's standards plans for 2002. Such an oversight hearing 
should explore options for picking up the pace so that these 
rulemakings can be completed in a more timely manner, and 
perhaps also explore ways to have the rulemakings be a little 
bit less controversial.
    In conclusion, I want to note that according to our 
analyses, expanded appliance and equipment efficiency standards 
are one of the most effective policies Congress could adopt 
this year to reduce U.S. energy use over the next 2 decades. 
The only other policies that we have analyzed with greater 
potential energy savings are CAFE standards on passenger 
vehicles and the utility sector systems benefit fund.
    Efficiency standards can make a significant contribution 
towards bringing U.S. energy supply and demand into better 
balance, thereby improving the long-term reliability of our 
electric grid, also helping our environment, our rural economy, 
and individual consumer pocketbooks. Thank you very much.
    [The prepared statement of Mr. Nadel follows:]

   Prepared Statement of Steven Nadel, Executive Director, American 
                Council for an Energy-Efficient Economy

                              INTRODUCTION

    ACEEE is a non-profit organization dedicated to increasing energy 
efficiency as a means for both promoting economic prosperity and 
protecting the environment. We were founded in 1980 and have 
contributed in key ways to energy legislation adopted during the past 
20 years, including the Energy Policy Act of 1992 and the National 
Appliance Energy Conservation Act of 1987. I appreciate the opportunity 
to appear before this Committee. Specifically I have been asked to 
discuss the federal appliance and equipment standards program.

                     THE FEDERAL STANDARDS PROGRAM

    Federal appliance and equipment efficiency standards were signed 
into law by President Reagan in 1987 and expanded under President 
Reagan in 1988 and President Bush in 1992. Minimum efficiency standards 
were adopted in order to address market failures, replace a patchwork 
of state standards, save consumers money, and reduce energy use and 
peak electrical demand. Among the market failures addressed by 
standards are lack of consumer awareness, rush purchases when an 
existing appliance breaks down, and purchases by builders and landlords 
who do not pay appliance operating costs and hence have no financial 
incentive to value efficiency. Standards remove inefficient products 
from the market but still leave consumers with a full range of products 
and features to choose among. Since adoption, standards have sharply 
cut the energy use of major energy using appliances and equipment while 
not interfering with manufacturers' ability to offer excellent 
performance and a wide array of features. For example, the typical 
refrigerator manufactured today uses less than half the energy of an 
average 1987 model, but is bigger and offers more features.
    Appliance and equipment standards are clearly one of the federal 
government's most effective energy-saving programs. In 2000, standards 
on refrigerators and many other products reduced U.S. electricity use 
by 2.5% and total U.S. energy use by 1.3%, including displacing the 
need for 70,300 MW of generating capacity (the equivalent of 234 power 
plants, 300 MW each). These standards reduced consumer energy bills in 
2000 by approximately $9 billion with energy bill savings far exceeding 
any increase in product cost. Consumer energy bill savings to date 
total about $50 billion with a typical benefit-cost ratio of more than 
3:1. By 2020, standards already enacted will save 4.3 quads per year 
(3.5% of projected U.S. energy use), and reduce peak electric demand by 
120,000 MW (more than a 10% reduction).\1\
---------------------------------------------------------------------------
    \1\ Geller, Kubo, and Nadel. 2001. Overall Savings from Federal 
Appliance and Equipment Efficiency Standards. Washington, D.C.: 
American Council for an Energy-Efficient Economy.
---------------------------------------------------------------------------

         APPLIANCE STANDARDS IN THE ADMINISTRATION ENERGY PLAN

    The Bush/Cheney National Energy Policy devotes half-page to the 
federal standards program and notes that these ``standards will 
stimulate energy savings that benefit the consumer, and reduce fossil 
fuel consumption, thus reducing air emissions.'' The Plan then 
recommends that the Secretary of Energy: (1) ``support [the] appliance 
standards program for covered products, setting higher standards where 
technologically feasible and economically justified;'' and (2) ``expand 
the scope of the appliance standard program, setting standards for 
additional appliances where technologically feasible and economically 
justified.''

                    SUMMARY OF ACEEE RECOMMENDATIONS

    In order to provide additional cost-effective savings under this 
program, we recommend three actions:
    1. Congress should enact new efficiency standards for products now 
or soon to be covered by state efficiency standards and by several 
voluntary standards programs.
    2. The Bush Administration should permit a SEER 13 efficiency 
standard for residential central air conditioners and heat pumps to 
proceed.
    3. DOE, with adequate funding and encouragement from the Congress, 
should complete Congressionally-mandated rulemakings in a timely 
manner.
    In the balance of this testimony I will elaborate on these three 
recommendations.
  opportunities for new products to cover under the standards program
    The most recent federal legislation on standards, the Energy Policy 
Act, was passed in 1992. Since then there have been many technical and 
programmatic developments that make it possible and desirable to extend 
the federal standards program to additional products. These 
developments include work on new standards by several states, 
development of Energy Star specifications for many efficient products, 
and additional research on the amount of energy used for different 
energy end-uses. In particular, for the past year, the California 
Energy Commission (CEC) has undertaken a rulemaking to develop new 
standards for several products not currently covered by the federal 
standards program.
    Based on the work of the CEC and others, we recommend that the 
federal standards program be extended to cover eleven additional 
products. These products fall into two general categories: (1) eight 
products for which sufficient technical information is available for 
Congress to enact specific new standards; and (2) three products for 
which the U.S. Department of Energy (DOE) needs to conduct additional 
research before specific standards can be set. In our opinion, where 
possible, Congressional action is preferable to DOE action, since a DOE 
rulemaking takes at least three years, and often far longer (DOE is 
still working on several rulemakings called for in the 1992 Energy 
Policy Act). Furthermore, for the majority of the standards in both 
categories, Congressional action is needed because under current laws, 
DOE is only authorized to extend the standards program to ``consumer 
products'' and many of the opportunities for new standards involve 
products used by businesses and not consumers. In the paragraphs below, 
I briefly describe the eleven products which should be covered under 
the standards program. I list products in approximate order of likely 
energy savings.
    Torchiere lighting fixtures. Torchieres are portable lighting 
fixtures that aim light upward and bounce it off the ceiling to provide 
indirect lighting. In recent years they have become ubiquitous in 
American homes and apartments due to their high light levels and low 
purchase price. However, these products are major energy hogs, and can 
be fire hazards as well (more than 400 fires have been traced to 
halogen torchieres). The typical product consumes 300 Watts or more of 
power. Much more efficient torchieres based on high-output compact 
fluorescent designs use less than 100 Watts and provide the same or 
equal light output without creating a potential fire hazard. The simple 
payback for these more efficient units is typically less than two years 
(simple payback is the number of years for operating cost savings to 
offset the incremental cost of the efficiency improvements). The CEC 
has developed minimum efficiency standards for these products that cap 
energy use at 190 Watts and include other important technical 
details.\2\ These same standards should be adopted nationally.
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    \2\ California Energy Commission. ``Appliance Efficiency 
Regulations (draft of April 2001).'' Sacramento, CA.
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    Furnace and heat pump fans. The efficiency of residential furnaces 
and heat pumps is covered by current federal standards, but these 
standards don't include the energy consumed by the blower used to 
circulate conditioned air around the home. The typical furnace fan uses 
800-1000 kWh per year, but more efficient fans now on the market use 
less than 300 kWh, a saving of more than 60%.\3\ In high volume mass 
production the more efficient fans should cost on the order of $100 
more than a conventional fan, resulting in a simple payback to the 
homeowner of less than three years.\4\ Additional technical work is 
needed to decide how best to set a fan power limit (i.e., these limits 
need to take account of the heating capacity and airflow of the 
system), so responsibility for setting the standard should be delegated 
to DOE.
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    \3\ GAMA. October 2000 Consumers' Directory of Certified Efficiency 
Ratings. Arlington, VA: Gas Appliance Manufacturers Association.
    \4\ Kubo. Sachs and Nadel. 2001. Opportunities for New Appliance 
and Equipment Efficiency Standards: Energy and Economic Savings Beyond 
NAECA and EPAct (draft). Washington, DC: American Council for an 
Energy-Efficient Economy.
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    Electronic equipment and power supplies. Many types of electronic 
equipment used in the home continuously use small amounts of power, 
even when they are turned off. Examples include TVs, VCRs, microwave 
ovens, and many rechargeable products. Aggregated over the many hours 
in a year and the number of products in place in a typical home, this 
``standby'' power use amounts to about 5% of electricity use in a 
typical home according to analyses by Lawrence Berkeley National 
Laboratory and others.\5\ More efficient power supplies and other 
technical improvements can reduce this standby power use by an average 
of about 75% in the vast majority of cases, at a typical cost of no 
more than a couple of dollars per product.\6\ For some of these 
products, the Energy Star program awards special labels to identify 
power-stingy designs. We recommend that Congress adopt a standby power 
limit of one watt for all of these products, but to allow DOE to set 
looser standards where manufacturers can demonstrate that a one watt 
limit is not technically feasible or economically justified.
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    \5\ Rainer, Greenberg and Meier. 1996. ``You Won't Find These Leaks 
with a Blower Door: The Latest in `Leaking Electricity' in Homes.'' In 
Proceedings 1996 ACEEE Summer Study on Energy Efficiency in Buildings. 
Pp. 1.187-1.191. Washington, DC: American Council for an Energy-
Efficient Economy.
    \6\ Kubo et al. See note 4.
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    Commercial unit heaters. Unit heaters are used in open commercial 
and industrial spaces to provide heating. The typical system has a 
seasonal efficiency of about 63%, whereas systems with power or 
induced-draft burners typically have seasonal efficiencies of about 
82%. The more efficient systems reduce energy use an average of 23%, 
and have a simple payback of about two years.\7\ Due to the impact of 
federal standards, residential heating systems now predominantly use 
power or induced-draft burners and DOE has just adopted new regulations 
for commercial furnaces that require similar improvements.\8\ We 
recommend that Congress adopt requirements for unit heaters the same as 
those just adopted by DOE for commercial furnaces.
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    \7\ Calculations by ACEEE from incremental cost and energy savings 
estimates in Krauss, Hewett, and Lobenstein. 1992. Commercial Gas Space 
Heating Equipment: Opportunities to Increase Energy Efficiency. 
Minneapolis, MN: Center for Energy and the Urban Environment.
    \8\ DOE. 2001. ``Energy Efficiency Program for Commercial and 
Industrial Equipment: Efficiency Standards for Commercial Heating, Air 
Conditioning and Water Heating Equipment; Final Rule.'' Federal 
Register (66)9, Jan. 1 2, pp. 3336-3356.
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    Ceiling fans. Large ``Casablanca style'' ceiling fans are used in 
many homes to circulate air around the room and help occupants feel 
more comfortable. However, most of these fans have inefficient motors 
and blade designs, not to mention inefficient lighting systems (many of 
these fans also include lights). A major manufacturer has recently 
introduced an improved design that reduces energy use by 40%. The 
incremental cost of this efficient model relative to standard models 
with similar features is about $20, resulting in a simple payback to 
the consumer of about 3\1/2\ years.\9\ The Energy Star program is 
launching a program this fall for residential ceiling fans that will 
require better blade/motor designs and more efficient lighting.\10\ DOE 
should be directed to review the new Energy Star specification and set 
minimum efficiency standards that build upon this specification.
---------------------------------------------------------------------------
    \9\ E Source Tech News--5/15/01.
    \10\ Ecos Consulting. 2001. ``Final Draft Energy Star  
Specification for Residential Ceiling Fans. June.
---------------------------------------------------------------------------
    Distribution transformers. Distribution transformers are used in 
many commercial and industrial buildings to reduce voltage from line 
voltage to voltages used to power building systems. These systems are 
typically purchased on the basis of first costs, leaving significant 
opportunities for cost-effective energy savings. The National 
Electrical Manufacturers Association (NEMA) has developed a recommended 
standard that reduces the energy losses associated with this equipment 
by an average of about one-third, with the added cost of the more 
efficient equipment paying back in about three years.\11\ Massachusetts 
and Minnesota have adopted the NEMA standard as a mandatory standard 
and California and New York are now in similar adoption processes. DOE 
was instructed in the Energy Policy Act of 1992 to develop standards 
for these products but nine years later this process is still dragging 
on. We recommend that Congress adopt the NEMA standard, thereby saving 
the time and expense of continuing the DOE rulemaking process.
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    \11\ Barnes, Das, McConnell, and Van Dyke. 1997. Supplement to the 
`Determination Analysis'' and Analysis of the NEMA Efficiency Standard 
for Distribution Transformers. Oak Ridge, TN: Oak Ridge National 
Laboratory.
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    Vending machines. Vending machines are primarily purchased by 
beverage distributors and placed in a variety of locations at no cost 
to the property owner. However, the property owner does pay for the 
electricity to operate these machines. Since the purchaser does not pay 
operating costs, there is little incentive to purchase efficient 
machines and most vending machines are inefficient as a result. A study 
by Arthur D. Little Company for DOE estimated that the energy use of 
vending machines can be reduced by 44-51% using measures with an 
average simple payback of 2.4-3.2 years.\12\ However, there is 
insufficient information on the energy use of the full range of 
machines sold today, so further data collection is needed before 
standards can be set. The CEC is now planning to collect this data. DOE 
should be directed to set new standards based on this data and its own 
technical and economic analyses.
---------------------------------------------------------------------------
    \12\ Arthur D. Little Co. 1996. Energy Savings Potential for 
Commercial Refrigeration Equipment. Washington, DC: U.S. Dept. of 
Energy.
---------------------------------------------------------------------------
    Commercial refrigerators and freezers. Federal standards currently 
cover residential refrigerators and freezers but do not cover the 
larger commercial units used in restaurants, hotels, hospitals and 
other commercial applications. Research by Arthur D. Little Company for 
DOE found that the energy use of typical commercial refrigerators and 
freezers can be reduced by 45-55% using improvements with an average 
simple payback to the user of just over 2 years.\13\ The California 
Energy Commission (CEC) has developed minimum efficiency standards for 
these products based on the energy use of the average product on the 
market today.\14\ These same standards should be adopted as national 
standards.
---------------------------------------------------------------------------
    \13\ Ibid.
    \14\ CEC 2001. See note 2.
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    Traffic lights. Like exit signs, most traffic lights use 
incandescent bulbs, but new ``light emitting diode'' (LED) are now 
available that reduce energy use about 90% and have additional 
maintenance and safety benefits Unlike incandescent lamps, the LED 
lights operate for many years without bulb changes, and when LEDs age, 
they just get dimmer until they are replaced, avoiding the safety 
problems that can happen when a lamp in a traffic light burns out.\15\ 
The Energy Star program has established an energy and safety 
performance specification for the more-efficient traffic signals.\16\ 
California is in the process of adopting this specification as a 
mandatory minimum performance standard.\17\ A similar standard should 
be adopted at the national level. Such a standard should apply to red 
and green lights, since these account for the vast majority of traffic 
light energy use, and have the most favorable economics (typically 
simple payback periods of 1-4 years, depending on the application).\18\
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    \15\ Kubo et al. 2001. See note 4.
    \16\ EPA. ``Energy Star Program Requirements for Traffic Signals.'' 
Washington, DC: U.S. Environmental Protection Agency. Also, CEC 2001 
(see note 2).
    \17\ CEC 2001. See note 2.
    \18\ Kubo et al. 2001. See note 4.
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    Exit signs. Many exit signs use incandescent bulbs (40 Watts is 
typical), and since they are continuously illuminated, typically cost 
around $30 per year to operate. New exit sign designs use LEDs and 
consume on the order of 3 Watts, reducing energy use by more than 90% 
relative to an incandescent sign. The simple payback for using LED 
signs instead of incandescent signs is generally less than two years. 
In addition, the LED signs do not require periodic bulb changes, 
resulting in substantial maintenance cost savings.\19\ As with traffic 
lights, there is an Energy Star specification that California is now 
adopting as a mandatory state standard.\20\ A similar national standard 
should be adopted.
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    \19\ Kubo et al. 2001. See note 4.
    \20\ EPA. ``Energy Star Program Requirements for Exit Signs.'' 
Washington, DC: U.S. Environmental Protection Agency.
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    Ice-makers. Ice-makers are commonly used in hotels, motels, 
restaurants and hospitals to produce ice in large quantities. Ice-
makers use a substantial amount of energy in order to freeze water, and 
then keep the ice cold. Products now on the market vary substantially 
in efficiency, with the most efficient products typically using about 
30% less energy than the least efficient. Relative to the least 
efficient machines, the most efficient ones typically have a simple 
payback of one year or less.\21\ The Federal Energy Management Program 
(FEMP) has developed a specification that identifies the top performing 
units on the market today for each product category (features and 
size).\22\ This specification should be adopted as a national standard.
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    \21\ Kubo, Nadel and Suozzo. 2000. ``Commercial Packaged 
Refrigeration: An Untapped Lode for Energy Efficiency. In Proceedings 
2000 ACEEE Summer Study on Energy Efficiency in Buildings. Pp. 3.203-
3.218. Washington, DC: American Council for an Energy-Efficient 
Economy.
    \22\ FEMP. Commercial Ice-Maker Efficiency Recommendation. 
Washington, DC: Federal Energy Management Program, U.S. Dept. of 
Energy.
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    Energy and economic savings. My organization, ACEEE, is now 
completing an analysis of the energy and economic savings from adopting 
standards on these products. Our preliminary results indicate that 
these standards will save approximately 73 billion kWh of electricity 
in 2010 and 164 billion kWh in 2020. The savings in 2020 amount to 
about 5% of projected residential and commercial electricity use in 
that year, and reduce peak electrical demand by the equivalent of 40-50 
power plants (300 MW each). In addition, the unit heater standard by 
itself will reduce commercial building gas consumption by about 3% in 
2020, a remarkable achievement for a product with annual sales of only 
about 1/4 million units. These standards will also result in 
substantial economic savings to consumers and businesses. Our 
preliminary analysis indicates that for products purchased through 
2020, discounted net benefits (benefits minus costs) will total about 
$80 billion, with a benefit-cost ratio of more than 5:1. Furthermore, 
as noted in the Administration National Energy Policy, the energy 
savings will reduce air pollutant emissions. We estimate that these 
standards will reduce carbon emissions by more than 20 million metric 
tonnes (MMT) in 2020, which can be a useful component of U.S. efforts 
to reduce greenhouse gas emissions. Standards will also result in 
significant reductions in SO2, NOX, and mercury 
emissions, thereby helping power companies to meet new standards that 
might be set in near-term amendments to the Clean Air Act.

 NEW STANDARDS FOR RESIDENTIAL CENTRAL AIR CONDITIONERS AND HEAT PUMPS

    When Congress passed the National Appliance Energy Conservation Act 
of 1987, it established initial efficiency standards for residential 
central air conditioners and heat pumps and called for DOE to set 
revised standards no later than January 1, 1994. The rulemaking 
formally began in September 1993 and a final rule was published in 
January 2001 in the closing days of the Clinton Administration. This 
final rule was the result of more than seven years of effort, but was 
seven years behind schedule. In our opinion, while this rule fell short 
in several respects,\23\ it was a reasonable one. This rule established 
a new minimum efficiency standard of SEER 13, effective January 2006 
(SEER is the Seasonal Energy Efficiency Ratio, a measure of average 
unit efficiency over the full cooling season). There are now more than 
600 distinct models on the market that meet this standard, including 
models from most manufacturers. We estimate that a SEER 13 standard 
will cost the consumer an average of about $170,\24\ but that the more 
efficient models will reduce electricity bills by an average of about 
$50 per year, resulting in a simple payback to the consumer of about 
3\1/2\ years. Furthermore, this rule is an important part of efforts to 
avert future electric reliability problems. This rule will reduce peak 
electric demand by about 57,000 MW over the next three decades, 
averting the need for about 190 new 300-MW power plants.\25\
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    \23\ The rule fails to address two very important issues: high 
temperature performance (which affects utility peak loads) and the 
ability to maintain high efficiency across a broad range of outdoor 
temperatures and installation conditions. There are straightforward 
solutions to both of these issues, but unfortunately these were not 
included in the final rule.
    \24\ DOE estimates the incremental cost at about $340, but we 
reduce the DOE estimate by 50% to account for DOE's long history of 
overestimating incremental costs for new appliance standards (see note 
35).
    \25\ Our peak demand estimates are different from DOE's because DOE 
used only two field studies to estimate peak--demand savings, including 
one that is inconsistent with all other available data. ACEEE used five 
studies from various regions of the country.
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    Unfortunately, in April 2001, the Administration announced that it 
will soon propose rolling back the standard from SEER 13 to SEER 
12.\26\ We believe this action is misguided and may well be illegal. 
This action is misguided because it will substantially reduce the 
energy, peak demand, and economic savings achieved by the new standard. 
This decision is also misguided because it relies on several 
unreasonable analysis assumptions, assumptions which need to be 
corrected if DOE is going to proceed with a new rule. This decision is 
probably illegal because it ignores a Congressional directive in NAECA 
as well as several Court decisions.
---------------------------------------------------------------------------
    \26\ DOE. 2001. ``DOE to Propose New 20% Increase in Energy 
Efficiency Standards for Residential Air Conditioners and Heat Pumps.'' 
Press Release, April 13. Washington, DC: U.S. Dept. of Energy.
---------------------------------------------------------------------------
    The difference in energy, peak demand and financial savings between 
SEER 12 and SEER 13 is very substantial. According to analyses by 
ACEEE, relative to a SEER 12 standard, a SEER 13 standard will:

   Reduce peak demand by 13,000 MW by 2020 and 18,000 MW by 
        2030, the equivalent of 43 and 60 new power plants respectively 
        (300 MW each);
   Increase energy savings by 45% or more;
   Reduce consumer electric bills by more than $18 billion over 
        the next 30 years;
   Have a typical simple payback period to the consumer of less 
        than four years.\27\
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    \27\ This estimate is based on DOE's estimate of the cost 
difference between a SEER 12 and 13 unit, reduced by 50% (see note 24) 
divided by annual operating cost savings of $19 which reflects a 2.5 
cents/kWh summer electricity price differential not included in the DOE 
analysis.

    DOE estimates that a SEER 13 split air conditioner will cost the 
average consumer $122 more than a SEER 12 unit, which is 5% more than a 
SEER 12 unit. While we believe that DOE has overestimated the price 
increase, even the DOE cost estimate is small relative to the benefits 
I have just described.
    In recent statements before Congress, Administration officials have 
defended the Administration's decision to propose a SEER 12 standard, 
arguing that this decision was based on analyses by career staff that 
showed that low-income consumers would be disadvantaged by a SEER 13 
standards, that a SEER 13 standard could increase the use of electric 
resistance heat, and that a SEER 13 standard would adversely affect 
competition. However, such statements ignore the fact that only 21% of 
low-income households have central air conditioners in their homes and 
the majority of low-income households rent and do not own their 
homes.\28\ Renters will benefit from standards, for without standards 
most landlords will purchase a low-price unit for their tenants. For 
these and other reasons, many low-income advocacy organizations support 
the SEER 13 standard.\29\ If the Administration is truly concerned 
about low-income households, it should set up a program to help low-
income households replace their present air conditioners (recall that 
the difference between SEER 12 and 13 is only $122) rather than 
weakening standards for all American households.
---------------------------------------------------------------------------
    \28\ EIA. A Look at Residential Energy Consumption 1997. 
Washington, DC: Energy Information Administration, U.S. Dept. of 
Energy.
    \29\ Organizations that have written letters in support of the SEER 
13 standard include the Consumer Federation of America, National 
Consumers League, and several low-income weatherization agencies.
---------------------------------------------------------------------------
    Similarly, the Administration alleges that the difference in price 
between a SEER 12 and SEER 13 split heat pump ($188) will cause many 
households to switch from heat pumps to electric resistance heat, 
despite the fact that electric resistance heat will approximately 
double heating bills relative to use of a heat pump (such a doubling 
will increase average annual heating bills by about $350,\30\ making 
for a very poor return on the first cost savings).
---------------------------------------------------------------------------
    \30\ The average annual cost for space heating for homes with heat 
pumps was $352 in 1993 (EIA. Household Energy Consumption and 
Expenditures, 1993. Washington, DC: Energy Information Administration, 
U.S. Dept. of Energy).
---------------------------------------------------------------------------
    And with regard to competition, concerns about impacts on 
competition are contained in a Department of Justice (DoJ) letter, but 
this letter does not provide an explanation for these concerns nor does 
it state how DoJ arrived at its concerns.\31\ We do know that DoJ staff 
interviewed many manufacturers, but DoJ did not to our knowledge 
interview efficiency advocates, state government officials, or other 
interested parties. Thus, the DoJ process is a ``black box'' and a 
potentially biased process. DoJ needs a broader and better documented 
process for its concerns to receive the same weight as other data in 
this rulemaking that have been publically-vetted and documented.
---------------------------------------------------------------------------
    \31\ Nannes, John. Letter to Eric Fygi, Acting General Counsel, 
DOE, dated April 5, 2001. Washington, DC: U.S. Dept. of Justice.
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    From material published by DOE, concerns about impacts on 
manufacturers and competition primarily relate to the fact that many 
manufacturers make much of their profits on ``high-end'' units with 
extra features and above average efficiency. The concern is that a 
minimum standard at SEER 13 will make it hard to differentiate a higher 
efficiency unit for high-end sales. We disagree for two reasons. First, 
with new compressors, new heat exchangers, and other technical 
improvements it is possible to produce reasonably-priced SEER 14 and 
SEER 15 units. For example, just this week Amana announced a full line 
of SEER 15 units that use single-speed compressors (single-speed 
compressors are less expensive than the multi-speed compressors that 
many other manufactures use to achieve SEER 15).\32\ Second, we believe 
it is possible for manufacturers to develop and successfully market 
value-added SEER 13 and SEER 14 units that perform better in the field 
than baseline SEER 13 units. Due to common installation problems as 
well as optimization of many air conditioner designs for a single test 
temperature, many air conditioners perform at a lower efficiency in the 
field than in a laboratory. My organization is now working with 
utilities, federal, state and regional organizations, and some 
manufacturers to develop a voluntary program to promote ``robust'' air 
conditioners that warrant a price premium because they perform better 
in the field.\33\ It is products like these that will allow 
manufacturers to continue to sell high-end products and continue to 
earn the profits they depend on.
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    \32\ Schultz, Matt, Product Manager, Amana Heating and Air 
Conditioning. Email dated July 9, 2001.
    \33\ Sachs. 2001. ``Draft Prospectus: Sustained High Performance 
Central Air Conditioners and Heat Pumps: Delivering Energy Efficiency 
in Use.'' Washington, DC: American Council for an Energy-Efficient 
Economy.
---------------------------------------------------------------------------
    Statements by DOE officials also ignore several major errors in the 
DOE analysis. First, the DOE analysis is based on summer 1996 
electricity prices, adjusted downward for assumed long-term declines in 
electricity prices. In reality, as wholesale markets and many retail 
markets have restructured, electricity pricing is increasingly based on 
season of use (and often time of use as well). A December 2000 analysis 
of U.S. wholesale electricity prices in 1998-2000 by Synapse Energy 
Economics found that electricity prices in the summer afternoons and 
evenings when air conditioners are primarily used are 2-9 cents per kWh 
higher than the 1996 prices used by DOE.\34\ Second, the DOE analysis 
is based on today's technologies for achieving improved efficiencies. 
New technology developments and continuing productivity improvements 
will bring these costs down by 2006 when the new standard goes into 
effect, just as they substantially reduced the costs of the current 
SEER 10 standard relative to prior DOE and industry projections.\35\ If 
DOE is going to reassess the central air conditioner standard, it needs 
to correct these analysis errors before proceeding.
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    \34\ Woolf, Biewald, Allen, White and Johnston. 2000. Marginal 
Price Assumptions for Estimating Customer Benefits of Air Conditioner 
Efficiency Standards. Cambridge, MA: Synapse Energy Economics.
    \35\ In 1982, DOE estimated that the incremental cost to raise air 
conditioner efficiency to SEER 10 would be $349 (DOE, 1982, Consumer 
Products Efficiency Standards, Engineering Analysis Document). U.S. 
Census Bureau data shows that when the SEER 10 standard took effect, 
air conditioner prices did not go up at all (Current Industrial 
Reports, Refrigeration, Air Conditioning, and Warm Air Heating 
Equipment). Interestingly, the Air Conditioning and Refrigeration 
Institute (the industry trade association) was even farther off the 
mark; in the early 1980's they estimated that the incremental cost of a 
SEER 10 unit would be $762 (as cited in CEC. 1984. ``Staff Report on 
Proposed Revision of Appliance Efficiency Standards for Central Air 
Conditioners Under 65,000 Btu/Hour, P400-84-015. Sacramento, CA: 
California Energy Commission).
---------------------------------------------------------------------------
    The Administration's attempt to roll back the air conditioner 
standard also ignores clear language in NAECA that new standards cannot 
be set that are weaker than previous standards, and several court 
decisions that a new Administration faces a high burden of proof before 
it can roll back final rules of a previous Administration. When 
Congress passed NAECA it was concerned about administrative roll-backs 
of standard levels and added a specific provision that ``The Secretary 
may not prescribe any amended standard which increases the maximum 
allowable energy use, or decreases the minimum required energy 
efficiency of a covered product.'' The Bush Administration's proposal 
to roll back the air conditioner standard violates this provision. The 
Bush Administration proposal also is based on very limited technical 
arguments, and will probably have trouble getting past the Supreme 
Court decision that ``an agency changing its course by rescinding a 
rule is obligated to supply a reasoned basis for the change beyond that 
which may be required when an agency does not act in the first 
instance.'' \36\ Finally, all of the actions to date to roll back the 
standard have been made without any opportunity for public comment, 
which appears to be in violation of the Administrative Procedures Act. 
Several state attorney generals and environmental, consumer and low-
income advocacy organizations recently brought suit challenging these 
actions.\37\ Given the energy problems facing the U.S., it would be far 
more productive to put resources into developing and implementing new 
policies to save energy, rather than using large amounts of resources 
to pursue a legally-questionable action that will increase energy use.
---------------------------------------------------------------------------
    \36\ Motor Vehicle Manufacturers Association v. State Farm Mutual 
Ins Co. et al., 463 U.S. 29 (1983).
    \37\ State of New York and State of Connecticut, Petitioners 
against Spencer Abraham. June 18, 2001. ``Petition for Review.'' New 
York, NY: U.S. District Count, Southern District of New York. Also, a 
similar suit was filed the same day by Natural Resources Defense 
Council, Consumer Federation of America, and Public Utility Law 
Project.
---------------------------------------------------------------------------
    At today's hearing the President of the Air Conditioning and 
Refrigeration Institute (ARI) will also testify. Based on past ARI 
statements, in addition to some of the some arguments DOE is making, he 
is likely to argue that DOE underestimated the installation costs of 
meeting a new air conditioner standard, that a SEER 13 standard would 
be particularly burdensome in manufactured housing, that a SEER 13 
standard would eliminate approximately 85% of current units from the 
market, and that a SEER 13 standard will raise unemployment.\38\ In our 
opinion, most of these allegations are wrong and others are half-
truths. Specifically:
---------------------------------------------------------------------------
    \38\ ARI. ``ARI Asks DOE to Increase Efficiency by Fairer 20 
Percent,'' press release. April 6, 2001. Arlington, VA: Air 
Conditioning and Refrigeration Institute.

   DOE's analysis does consider installation costs. While some 
        SEER 13 units are significantly larger than current units, 
        others are not. For example, Goodman Manufacturing's SEER 13 
        units are only about three inches larger than basic units. The 
        size of the unit depends on the technologies that a 
        manufacturer uses to improve efficiency, and some of these 
        technologies do not increase unit size.
   DOE's final rule specifically treats ``space constrained 
        products,'' such as units for manufactured housing, as a 
        separate product class. Required efficiency levels for this 
        special class have yet to be decided.
   Manufacturers are correct that a substantial majority of 
        current products do not meet the SEER 13 standard. However, an 
        even higher percentage of then-current products did not meet 
        the SEER 10 standard when it was enacted and manufacturers had 
        little difficultly meeting that standard.\39\
---------------------------------------------------------------------------
    \39\ In 1986, when NAECA was negotiated, probably less than 10% of 
then-current models met the 1992/93 NAECA standards. ARI data from 1984 
(in ``ARI Comparative Study of Energy Efficiency Ratios'') indicate 
that 6.8% of unitary air conditioner shipments had a SEER of 10 or more 
while only 4.8% of heat pumps exceeded a SEER of 10. We do not have 
1986 data, but during the mid-1980s, SEER grew only modestly, hence our 
estimate that less than 10% of models in 1986 had a SEER of 10 or more.
---------------------------------------------------------------------------
   A SEER 13 standard will increase employment, not reduce it. 
        According to DOE's analysis, employment in the industry will 
        modestly increase since SEER 13 units require more materials 
        and labor than SEER 10 units.\40\ An old DOE analysis does find 
        that overall national employment will modestly decline with a 
        SEER 13 standard due to the impacts of higher air conditioner 
        costs on consumer purchases,\41\ but that analysis was based on 
        very high estimates of the extra cost to produce SEER 13 units. 
        DOE has substantially decreased its cost estimates but did not 
        revise the national employment analysis before publishing the 
        SEER 13 final rule.
---------------------------------------------------------------------------
    \40\ DOE. 2000. Technical Support Document: Energy Efficiency 
Standards for Consumer Products: Residential Central Air Conditioners 
and Heat Pumps. Oct. Washington, DC: U.S. Dept. of Energy.
    \41\ Ibid.

    Senator Barbara Boxer has introduced a resolution (S.J. Res. 15) 
calling for Congressional disapproval of the rule submitted by DOE 
relating to the postponement of the effective date of central air 
conditioner standards under the terms of the Congressional Review Act 
of 1995. We thank Senator Boxer for introducing this resolution and for 
bringing attention to this important issue. We recommend that this 
Committee should do all it can to encourage the Administration to drop 
its rollback proposal.
                  revisions to other current standards
    Under existing legislation, DOE is supposed to review and revise 
existing appliance and equipment efficiency standards every five years. 
Unfortunately, DOE is very far behind in this process. For example, DOE 
is just now starting a proceeding to revise the residential furnace 
standard, a proceeding that under current legislation should have been 
completed by Jan. 1, 1994. Similarly, DOE has not yet started the 
revision process for dishwashers, even though that process should have 
been completed in 1996. And I discussed earlier, DOE is still working 
on a rulemaking for distribution transformers that was originally 
called for in the Energy Policy Act of 1992. There is a need to work 
through this backlog which will require improved management at DOE as 
well as increased annual appropriations.
    According to our analysis, if DOE can complete the major scheduled 
rules, substantial energy and financial savings will result. Our 
analysis includes development of new standards on commercial air 
conditioners, dishwashers, commercial boilers, and reflector lamps over 
the next few years, and further revisions to refrigerator, water 
heater, and residential air conditioner standards in the longer term. 
We estimate that in 2020 these standard revisions can save 53 billion 
kWh of electricity and 187 trillion Btu's of natural gas. The 
electricity and gas savings together will reduce consumer energy bills 
by more than $4 billion annually by 2020.
    Under DOE's appliance standards ``Process Improvement Rule'' 
priorities are set in the summer for rulemakings for the new fiscal 
year. With the change in Administration, this annual process is 
modestly delayed but is scheduled to begin soon. We recommend that 
after this annual process is completed in September or October, that 
this Committee schedule an oversite hearing to review DOE plans for 
standards rulemakings in 2002, including any new rulemakings that may 
be called for under comprehensive energy legislation that will likely 
be pending at that time. Such an oversite hearing should explore 
options for ``picking up the pace'' so that rulemakings can be 
completed in a more timely manner, and perhaps also with less 
controversy than some of the recent rulemakings.

                               CONCLUSION

    Appliance and equipment efficiency standards have been one of the 
federal government's most effective energy-saving policies. These 
standards have also provided substantial net economic benefits to 
consumers and businesses and contributed to reduced emissions of air 
pollutants. It has been nearly a decade since the scope of the 
appliance and equipment standards program has changed. Based on state 
and voluntary standards developed over this past decade, Congress 
should expand the scope of the standards program to include 11 
additional products. These additional standards will reduce energy use 
in the residential and commercial sectors by about 5% in 2020, reduce 
peak electrical demand by the equivalent of 40-50 new power plants, and 
result in net savings to consumers and businesses of more than $80 
billion. The standards we recommend are primarily based on state and 
voluntary standards that are either now in effect or that are expected 
to be finalized in the next month or so. These state and voluntary 
standards have not been controversial. Hopefully these same standards 
can also be adopted at the national level without controversy. To the 
extent issues arise, ACEEE stands ready to provide technical 
information and to negotiate in good faith with affected trade 
organizations, similar to the role we played prior to the adoption of 
standards legislation in 1987, 1988, and 1992.
    With the savings from standards on new products, plus savings from 
existing standards (including the SEER 13 air conditioner standard) and 
from new standards now being considered by DOE, U.S. electricity use in 
2020 will be reduced by more than 10% relative to what use would be 
without the federal standards program. While these savings will not 
solve U.S. energy problems, they will make a significant contribution 
towards bringing U.S. energy supply and demand into better balance, 
helping our environment, our economy, and our pocketbooks.
    That concludes my testimony. Thank you for the opportunity to 
present these views.

    The Chairman. Thank you very much.
    Mr. Rees, go right ahead.

 STATEMENT OF CLIFFORD REES, JR., PRESIDENT, AIR CONDITIONING 
           AND REFRIGERATION INSTITUTE, ARLINGTON, VA

    Mr. Rees. Mr. Chairman, thank you very much for the 
opportunity to appear before the committee today. As you 
mentioned, I represent the Air Conditioning and Refrigeration 
Institute, or ARI, a national trade association of over 240 
manufacturers who produce over 90 percent of North American-
produced central air conditioners and commercial refrigeration 
products. I am here today to voice our support for the 
Department of Energy's proposed 20-percent increase in the SEER 
standards for central air conditioners and heat pumps.
    The industry has worked diligently over the last 20 years 
to improve the energy efficiency of residential air 
conditioners and heat pumps. We are proud that we have been 
able to provide our customers with equipment that is at least 
40 percent more efficient than 20 years ago. Concurrently, the 
industry is making a seamless transition to nonozone-depleting 
refrigerants, and has introduced new compressor technologies, 
while continuing to offer the consumer affordable choices for 
their comfort, for their health and safety.
    As you know, the current SEER standard is 10, and has been 
since it was initially set in 1992. For the past few years, DOE 
has conducted rulemaking procedures to determine new, more 
rigorous, and minimum standards for the industry to meet. I 
congratulate the U.S. Senate for encouraging the development of 
the Department of Energy's process improvement rule, which has 
created a balanced, rational, inclusive approach to rulemaking.
    I commend the Department's staff for their openness and 
diligence throughout the process, and their fairness in meeting 
the economically justified and technologically feasible 
standard set forth in the National Appliance Energy 
Conservation Act. Parenthetically, let me add that whoever the 
ultimate decisionmaker is in setting the standard, the 
decisionmaker would benefit greatly from analyzing carefully 
over $2 million of DOE analyses, including those done by 
independent contractors, which were developed during the 
residential air conditioner and heat pump rulemaking.
    During the rulemaking, the overwhelming majority of the 
air-conditioning industry, indeed, 237 of ARI's 240 members, 
came to support, I will admit, however, in some cases 
reluctantly, a 20-percent increase in the standard, and that is 
to say, a 12-SEER.
    I say reluctantly only because even a 20-percent increase 
will carry with it significant burdens in cost, and impact on 
consumers and considerable redesign and retooling cost in the 
industry. I want to assure the chairman, however, that while 
this appears to be a split within my own membership in my 
association, in fact we are unanimous in supporting the goal of 
improved conservation and energy efficiency. The split is a 
difference of opinion about how best to go about attaining that 
goal.
    I do not want to spend my time today speaking to you about 
the last-minute effort in January at DOE to impose a 30-percent 
increase in the standard, and I am not here to tell you that a 
13-SEER minimum standard cannot be implemented by the industry. 
Obviously, air conditioners with a 13-SEER are manufactured and 
sold today. So are 14's, 15's, and 16's. They cost a lot more 
to make, and we are very proud of these products, but they are, 
in fact, more expensive, yet they are made and sold to the 
fortunate few who can afford them and to those who believe they 
will recoup the added cost through energy savings.
    This latter group lives predominantly in the Southern tier 
of the United States, primarily Florida, Texas, Arizona, and 
southern California. Frankly, if the industry had only its 
immediate self-interest in mind, it would rally behind the 13-
SEER standard and take the money and run, but the short-term 
monetary boon to the industry from 13-SEER standard would be 
outweighed by the impact on the industry's customers, on jobs, 
and ultimately on the industry.
    I want to summarize briefly what a 30-percent increase in 
the SEER standard would mean to consumers, to jobs and, in the 
long run, the industry. First, as the map of the United States 
attached * to my testimony clearly demonstrates, there will be 
no meaningful economic payback for the overwhelming majority in 
this country. 75 percent of consumers purchasing of 13-SEER 
will incur a net cost.
---------------------------------------------------------------------------
    * Attachments have been retained in committee files.
---------------------------------------------------------------------------
    In other words, at the end of the lifetime of the product 
the savings and operating costs will not be sufficient to 
offset the incremental first cost of the product. The situation 
is even worse for low-income consumers. 83 percent of them will 
not benefit from the 13-SEER standard. In effect, the 13-SEER 
only makes clear economic sense in the tip of Florida and the 
tip of Texas. This simply makes no sense as a national policy.
    Indeed, it is economically dangerous to consumers and 
industry alike, and runs counter to our mutual goal of energy 
conservation, and there could be a significant health risk to 
senior citizens and lower income families who rely upon 
affordable air conditioning today not just for their comfort 
but for their health and for their safety.
    Second, the increased cost to the consumer going from a 10-
SEER product to a 13-SEER product will be over $700. In what I 
believe to be an incredibly, and in fact what is an incredibly 
price-sensitive market, I believe that the average consumer who 
still has a choice could very well make the choice of repairing 
and keeping the old equipment, which is quite often and could 
be even as low as a 6-SEER, but even with 9-SEER equipment 
retaining that old equipment is less energy-efficient, and it 
runs counter to our mutual goal, and God forbid that those who 
rely upon air conditioning not just for their comfort but for 
health and safety, but would make the decision that they could 
not afford to replace the equipment at all.
    The increased cost of a 13-SEER minimum standard will have 
a disproportionate impact on lower income homeowners and the 
elderly. It is simply inaccurate to suggest that those in low 
income brackets do not purchase homes and therefore would be 
unaffected by the cost of a 13-SEER standard. There are 13 
million homeowners with incomes below $21,000. There are 34.8 
million with incomes below $52,000, and $52,000 may sound like 
a lot of money, but if you are trying to house, feed, clothe, 
and education children, this additional cost without the return 
on the investment is a significant burden.
    For older Americans, there is a significant burden as well. 
Half the households headed by persons 65 and older live on less 
than $37,000 annually.
    Third, there are 9 million manufactured homes in this 
country. Most often, there is simply insufficient physical 
space to fit the indoor coil of a 13-SEER air conditioner with 
a cooling capacity of three times and up in the standard 20-
inch wide by 22-inch deep alcove or closet used to store the 
heating and cooling equipment in manufactured homes. Many of 
these homes are now built in two or three sections with cooling 
loads of as much as 5 tons. These manufactured houses will 
require extensive retrofits in addition to the added cost of 
the 13-SEER equipment.
    Contrary to the belief of some, air conditioners made for 
manufactured houses are conventional products and are, in fact, 
covered by the rule. They are not part of the space-constrained 
products exempted from this rule by DOE. Retrofitting these 
homes would require significant costly modifications.
    Fourth, a 13-SEER would eliminate 84 percent of all new 
central air-conditioning models in the market today. For some 
manufacturers, 100 percent of all their air conditioner product 
lines will not satisfy the 13-SEER standard.
    And fifth, according to DOE, thousands of jobs will be lost 
between the years 2006 and 2030 if a 13-SEER minimum standard 
is adopted.
    Consequently, here is what the 12-SEER standard achieves: a 
20-percent increase in current efficiency standards, affordable 
air conditioning for Americans, preservation of jobs in the 
United States, and preservation of competition in the industry.
    Our belief in the fairness and value of the 12-SEER is 
shared by others. In fact, the Department of Justice expressed 
a concern that a 30-percent increase in the standard to a 13-
SEER would have anticompetitive implications for the industry. 
Additionally, because thousands of jobs would be lost between 
2006 and 2030, the Small Business Administration opposed a 13-
SEER standard and supported a 12-SEER.
    Of significance, the Air Conditioning Contractors of 
America, representing top air conditioning and refrigeration 
contractors in this country, who best understand the dynamics 
of the marketplace, believe that the 12-SEER represents the 
best, fairest approach to increasing energy efficiency and 
achieving the greatest energy conservation. The Manufactured 
Housing Institute has voiced its concern regarding the 13-SEER 
because of the higher cost to residents of millions of homes. 
The National Association of Homebuilders opposes the 13-SEER 
standard, cautioning that each $1,000 added to the cost of new 
homes disqualifies up to $400,000 buyers.
    And finally, and perhaps most significantly, even the DOE 
staff did not support a 13-SEER during last year's rulemaking, 
believing a 12-SEER to be in the Nation's best interest.
    Additionally, there are alternative means to achieving the 
increased energy efficiencies desired without imposing the 
hardships of a 30-percent increase on consumers. Our studies 
reveal that poor installation and servicing of air conditioning 
equipment can result in up to a 40-percent loss in energy 
efficiency.
    As a result, the entire industry, contractors, wholesalers 
and manufacturers, banded together several years ago to develop 
the North American technician excellence program to voluntarily 
improve technician training, require certification for 
technicians, and improve the installed performance of our 
equipment through better installation and servicing.
    Wholesaler and contractor associations provide much of the 
training, distribution, and administration of the testing. 
Manufacturers, except for one, have provided over $6 million to 
date for the development and management of this independent 
nonprofit association, similar to what the automobile industry 
did some 20 years ago.
    Even if only 25 percent successful, when added to the 
enhanced consumer awareness of the benefits of periodic checkup 
and maintenance contracts, and the 12-SEER, the energy savings 
would exceed that of a mandated 13-SEER without having citizens 
bear the cost burden.
    Finally, Mr. Chairman, by 2030 the 12-SEER standard would 
save 3 quads of energy at a cost to the Nation of $1 billion. 
Increasing the SEER an additional 10 percent increases the cost 
to the Nation to $4 billion.
    In summary, we support the 20-percent increase in the SEER 
standards because it is fair, balanced, and economically 
justifiable. It meets our energy conservation needs without 
punishing those in working families, senior citizens, and the 
vast majority of the country who will never recover in energy 
savings the increased cost of a 13-SEER product. A 12-SEER 
product is beneficial to both consumers and industry, and 
represents a significant additional contribution to the 
Nation's goal of conserving our energy supplies. I appreciate 
the chairman's indulgence and my time, and I would be pleased 
to answer any questions, sir.
    [The statement of Mr. Rees follows:]

 Prepared Statement of Clifford Rees, Jr., President, Air Conditioning 
               and Refrigeration Institute, Arlington, VA

    Thank you Mr. Chairman for the opportunity to appear before the 
Committee today. I represent the Air-Conditioning & Refrigeration 
Institute (ARI), a national trade association that represents the 
manufacturers of over 90% of North American-produced central air 
conditioners and commercial refrigeration equipment. I am here to voice 
our support for the Department of Energy's (DOE) proposed 20% increase 
in the Seasonal Energy Efficiency Ratio (SEER) standards for central 
air conditioners and heat pumps.
    The industry has worked diligently over the last 20 years to 
improve the energy efficiency of residential central air conditioners 
and heat pumps. We are proud that we have been able to provide our 
customers with equipment that is at least 40% more efficient than 20 
years ago. Concurrently, the industry effected a seamless transition to 
non-ozone depleting refrigerants, and introduced new compressor 
technologies, while continuing to offer the consumer affordable choices 
for their comfort, health and safety.
    As you know, the current SEER standard is set at 10 SEER, and has 
been since it was initially set in 1992. For the past few years, DOE 
has conducted rulemaking procedures to determine new, more rigorous 
minimum standards for the industry to meet. I congratulate the U.S. 
Senate for encouraging the development of the Department of Energy's 
Process Improvement Rule, which has created a balanced, rational, 
inclusive approach to rulemaking. I commend the Department of Energy 
staff for their openness and diligence throughout the process, and 
their fairness in meeting the ``economically justified and 
technologically feasible'' standard set forth in the National Appliance 
Energy Conservation Act. Parenthetically, let me add that whoever the 
ultimate decision maker in setting this standard is--whether it be 
Congress or DOE--the decision maker would benefit greatly from 
analyzing carefully over $2 million of DOE analyses--including those 
done by independent contractors which were developed during the 
residential air-conditioner and heat pump rulemaking. During the rule-
making, the overwhelming majority of the air conditioning industry--
indeed 237 out of ARI's 240 members--came to support (I will admit, in 
some cases, somewhat reluctantly) a 20% increase in the standard, that 
is to say a 12 SEER. I say reluctantly only because even a 20% increase 
will carry with it significant burdens in cost and impact on consumers.
    I do not want to spend my brief time today speaking to you about 
the last minute effort in January at DOE to attempt to impose a 30% 
increase in the standard to a 13 SEER. And I am not here to tell you 
that a 13 SEER minimum standard could not be implemented by the 
industry. Obviously, air conditioners with a 13 SEER are manufactured 
and sold today. So are 14's, 15's and 16's. We like those products. 
But, they are more expensive--and for good reason. They cost a lot more 
to make. Yet they are made and sold today to the fortunate few who can 
afford them and to those who believe they will recoup the added cost 
through energy savings. This latter group lives predominantly in the 
southern tier states, primarily in Florida, Texas, Arizona and Southern 
California. Frankly, if the industry had only its immediate self 
interest in mind, it would rally behind a 13 SEER standard and take the 
money and run. But the short-term monetary boon to the industry from a 
13 SEER standard would be outweighed by the impact on consumers, jobs, 
and ultimately, in the long term, the industry.
    I do want to summarize briefly what a 30% increase in the SEER 
standard would mean to consumers, to jobs and, in the long run, to the 
industry:
    First, as the map of the United States attached to my testimony 
clearly demonstrates, there will be no meaningful economic payback for 
the overwhelming majority of the country. Seventy five percent (75%) of 
consumers purchasing a 13 SEER will incur a net cost. In other words, 
at the end of the lifetime of the product, the savings in operating 
cost will not be sufficient to offset the incremental first cost of the 
product. The situation is even worse for low-income consumers--83% will 
not benefit from a 13 SEER standard.
    In effect, a 13 SEER only makes clear economic sense in the tip of 
Florida and the tip of Texas. It simply makes no sense as a national 
policy. Indeed, it is economically dangerous to consumers and industry 
alike, and runs counter to our mutual goal of energy conservation. And, 
there could be significant increased health risks to senior citizens 
and lower income families who rely on affordable air conditioning today 
not just for their comfort, but for their health and safety.
    Second, the increased cost to the consumer going from a 10 SEER 
product to a 13 SEER product will be over $700.00.

   In what is an incredibly price-sensitive marketplace, what 
        do you think the average consumer will do when confronted with 
        that? Probably exactly what you or I would do . . . keep the 
        old one . . . which is likely to be a 6 to 9 SEER product 
        manufactured in the 1980's. This is less energy efficient. 
        Keeping older equipment operating longer runs counter to our 
        mutual goal of energy conservation.
   The increased costs of a 13 SEER minimum standard will have 
        a disproportionate impact on lower income homeowners and the 
        elderly. It is simply inaccurate to suggest that those in low 
        income brackets do not purchase homes and therefore would be 
        unaffected by the costs of a 13 SEER minimum standard. There 
        are 13.2 million homeowners with incomes below $21,920.00 per 
        year; another 9.8 million--or 23 million total--with incomes 
        below $35,072; and an additional 11.8 million--or 34.8 million 
        total--with incomes below $52,608 according to the National Low 
        Income Housing Coalition. $52,000 may sound like a lot of 
        money, but if you are trying to house, feed, clothe and educate 
        children, this additional cost--without a return on the 
        investment--is a significant burden.
   For older Americans, there is a significant burden too. Half 
        of the households headed by persons 65 and older live on less 
        than $37,000 annually.

    Third, there are 9 million manufactured homes. The 13 SEER standard 
will not allow sufficient physical space to fit the indoor coil of air 
conditioners with a cooling capacity of 3 tons and up in the standard 
2" wide x 22" deep alcove or closet used to store the heating and 
cooling equipment in manufactured houses. Many of these homes are now 
built in 2 or 3 sections, with cooling loads of as much as 5 tons. 
These manufactured houses will require expensive retrofits in addition 
to the added cost of the 13 SEER equipment. Contrary to the belief of 
some, air conditioners made for manufactured houses are conventional 
products and are, in fact, covered by the rule. They are not part of 
the ``space-constrained'' products exempted from this rule by DOE. 
Retrofitting these homes would require significant, costly 
modifications to house the larger 13 SEER equipment in addition to the 
greater cost of the 13 SEER equipment. The 13 SEER standard will have a 
significant impact on manufacturers selling to this market.
    Fourth, a 13 SEER would eliminate 84% of all new central air 
conditioning models in the market today and 86% of all new heat pumps, 
at a cost of $350 million to the industry for redesign and retooling. 
For some small manufacturers, 100% of all their air conditioner product 
lines will not satisfy the 13 SEER standard.
    Fifth, according to DOE, thousands of jobs will be lost between the 
years 2006 and 2030 if a 13 SEER minimum standard is adopted. 
Accordingly, the U.S. Small Business Administration supports the 20% 
increase in the SEER standard and opposes a 13 SEER minimum standard.
    By contrast, here is what a 12 SEER standard achieves:

          (1) A 20% increase over current energy efficiency standards;
          (2) Affordable air conditioning for many more Americans;
          (3) Preservation of jobs in the United States; and
          (4) Preservation of competition in the industry.

    Our belief in the fairness and value of the 12 SEER is shared by 
others. In fact, the Department of Justice expressed concerns that a 
30% increase in a standard to a 13 SEER will have anti-competitive 
implications for the industry. Additionally, because of the thousands 
of jobs which would be lost, between 2006 and 2030, the Small Business 
Administration opposed a 13 SEER standard and supported a 12 SEER. Of 
significance, the Air Conditioning Contractors of America (ACCA), 
representing top air conditioning and refrigeration contractors in this 
country, who understand the dynamics of the marketplace best of all, 
believes the 12 SEER represents the best, fairest approach to 
increasing energy efficiency and attaining the greatest energy 
conservation. The Manufactured Housing Institute has voiced its concern 
regarding a 13 SEER because of the higher costs to residents of 9 
million homes, mostly occupied by families on limited incomes. The 
National Association of Home Builders opposes a 13 SEER standard, 
cautioning that each $1,000 added to the cost of new homes disqualifies 
400,000 buyers. And finally, and perhaps most significantly, even the 
DOE staff did not support a 13 SEER during last year's rule-making, 
believing a 12 SEER to be in the nation's best interest.
    Additionally, there are alternative means to achieve the increased 
energy efficiencies desired, without imposing the hardships of a 13 
SEER minimum on the consumers. ARI studies reveal that poor 
installation and servicing of air conditioning equipment results in up 
to a 40% loss in energy efficiency. Consequently, the entire industry--
contractors, wholesalers and manufacturers--banded together several 
years ago to develop North American Technician Excellence (NATE) to 
voluntarily improve technician training, require certification for 
technicians and improve the installed performance of our equipment 
through better installation and servicing. Wholesaler and contractor 
associations provide much of the training, distributing and 
administering of the certification testing. Manufacturers--except for 
one--have provided over $6 million dollars to date for the development 
and management of this independent non-profit association similar to 
what the automobile industry did with Automotive Service Excellence 
(ASE) over 20 years ago. Even if only 25% successful, when added to 
enhanced consumer awareness of the benefits of periodic checkup 
maintenance contracts, and the 12 SEER, the energy savings would exceed 
that of a mandated 13 SEER without having the citizens bear the cost 
burden.
    Finally, by 2030, the 12 SEER standard would save 3 quads of energy 
at a cost to the nation of $1 billion dollars. Increasing the SEER an 
additional 10% increases the cost to the nation to $4 billion dollars.
    In summary, ARI supports a 20% increase in the SEER standards 
because it is fair, balanced, and economically justifiable. It meets 
our energy efficiency needs without punishing those in working 
families, senior citizens, and the vast majority of the country that 
will never recover in energy savings the increased costs of a 13 SEER 
product. A 12 SEER product is beneficial to both consumers and 
industry, and represents a significant additional contribution to the 
nation's goal of conserving our energy supplies.
    I would be pleased to answer any questions the Committee may have.

    The Chairman. Thank you for your testimony.
    Mr. Parks.

  STATEMENT OF DAVID PARKS, PRESIDENT, GOODMAN MANUFACTURING 
                      COMPANY, HOUSTON, TX

    Mr. Parks. Mr. Chairman, thank you for your invitation to 
testify here today. As you stated, my name is David Parks. I am 
president of Goodman Manufacturing in Houston, Texas. I have 
worked both on the supply side and the demand side of this 
equation.
    Let me start by giving you a brief background of our 
company. Goodman is the second largest residential heating and 
air conditioning manufacturer in the Nation. We produce a 
complete line of residential and light commercial air 
conditioning and heating products with facilities in Houston, 
Texas, as well as Fayetteville, Tennessee, and Dayton, 
Tennessee. Name brands sold by Goodman include Amana, Goodman, 
GmC, and Janitrol.
    The three major messages I would like to bring to the 
committee today, first of all, in America we are struggling to 
meet energy demand. Secondly, there are actions we can take 
towards solving these problems. By strengthening energy 
efficiency standards to the 13-SEER, we can avoid the need for 
more powerplants and also lower the bills of consumers across 
the Nation.
    Lastly, this debate contains several misconceptions. 
Stronger 13-SEER standards do not limit the consumer's choices, 
they do not impose unreasonable costs, and they do not hurt low 
income families.
    Let me expand on these points further. At the time when our 
Nation is struggling to meet increased energy demands, it is 
clear we must embrace the most effect energy efficiency 
measures available for consumer products. In the State of 
Texas, air-conditioning represents more than 50 percent of a 
homeowner's electric costs. The use of more efficient energy 
appliances, specifically air-conditioners and heat pumps, will 
significantly reduce energy consumption, cut utility costs for 
consumers, and improve air quality by reducing the number of 
pollutants emitted from our fossil fuel electric power 
generating facilities.
    Looking to the DOE's own data, it indicates that moving 
from a 13 standard, up from the current 10 level standard, will 
avoid the need for the equivalent of 53 new 400-megawatt 
powerplants by the year 2030. As you heard earlier in 
testimony, the ACEEE has estimated this number would actually 
be up to 41,000 megawatts, which is equivalent to 100 new 
powerplants.
    Goodman strongly recommends raising the minimum efficiency 
standard for air-conditioners to 13-SEER. Given the tremendous 
benefit associated with the 13-SEER standard, Goodman believes 
that the DOE decision to roll back the original standard to the 
newly proposed standard of 12-SEER lacks merit. In our opinion, 
the DOE appears to be basing its decision on several 
misconceptions surrounding this 13-SEER.
    First is the claim that not all manufacturers have 
capabilities to produce the more efficient equipment, thus 
limiting choice. In fact, the 13-SEER technology has been 
available to both large and small manufacturers for 
approximately 15 years. Based on the Air-Conditioning and 
Refrigeration Institute data, virtually all manufacturers 
produce 13-SEER equipment today. The chart to my right lists 
those companies.
    In reality, the only difference between a 10-SEER, a 12-
SEER, and a 13-SEER is a little more copper and a little more 
aluminum used in manufacturing coils. Given the fact that these 
units have equivalent technologies, at Goodman we run all of 
our equipment through the same facilities and same assembly 
lines.
    The second misconception is that the 13-SEER standard would 
cost consumers substantially more money than the proposed 12-
SEER standard. This is not true. According to DOE, the average 
difference in cost between a 13-SEER and a 12-SEER is 
approximately $122. Since a 13-SEER is 8 percent more efficient 
than a 12, consumers will save more on their electric bills 
each and every month for the life of the unit. Thus, over an 
average life of a unit, the savings will easily cover the cost.
    Moreover, Goodman is confident, with the implementation of 
the 13-SEER standard the market will drive down prices and make 
more efficient equipment even more affordable for all 
consumers. How do we know this? From experience.
    In 1992, when the Government implemented efficiency 
standards at the 10-SEER, the cost of 10-SEER air-conditioning 
dropped dramatically across the Nation. The reason for this 
change is simple. Once the standard is set, more sales of that 
type of unit will occur, and more volume is manufactured, 
thereby allowing the manufacturers to run their plants more 
efficiently and pass the savings on to the consumers.
    Since most consumers tend to purchase at the minimum 
standard, it is critically important to establish the standard 
at the correct level, the 13-SEER. This would allow for the 
most efficient equipment to be available at an affordable 
price.
    Some believe that this slight increase in cost will deter 
consumers from purchasing more efficient units. We believe the 
opposite is true. When considering the purchase of a unit, the 
cost difference between a 12 and a 13 is negligible. In any 
case, the additional cost of the 13 would only take a few years 
to recoup longer than the 12, according to DOE's Nation-wide 
analysis, and payback analysis occurs much faster in higher 
cooling zones. This is true even based upon the outdated 
electric cost used in this analysis. After that time, the 
consumer will profit continuously from the more efficient 13-
SEER.
    Critics of the 13-SEER have routinely expressed that this 
standard will negatively impact lower income families and the 
elderly. This, too, is a misconception. The Census Bureau has 
determined that most low-income families with central air-
conditioning rent their home.
    It is an assessment that this benefit from the energy 
savings and lower electricity bills associated with a 13, 
without bearing the up-front costs, would actually enhance low-
income families' purchasing power for other needed items. For 
these low income families who must purchase central air-
conditioning, the incremental costs of improved efficiency will 
be made up through lower utility bills.
    Goodman has a marketing philosophy of selling in volume, 
and the incremental cost to the manufacturer to produce 13-SEER 
is only about $100. We feel the most efficient technology 
should be made available to people of all income levels at 
affordable prices. Unfortunately, not all manufacturers have 
the same marketing philosophy. Instead, some manufacturers may 
be seeking protection of higher profit margins on their more 
efficient equipment, as a 13-SEER standard would force all 
manufacturers to be truly competitive and provide all consumers 
with the most affordable energy technology for air conditioners 
today.
    We believe there are actions that Congress can and should 
take to address the unfortunate decision by the DOE to roll 
back the higher standards. In fact, the 13-SEER standard we 
believe would be more consistent with the President's effort to 
promote energy efficiency and conservation.
    To provide long-term solutions to meet our energy and 
environmental goals, we need a national energy policy that 
promotes efficiency, conservation, and new supply technologies. 
Goodman urges Congress to focus attention on improving 
efficiency standards for these products.
    In conclusion, the most important message I bring, I feel, 
is that we are struggling to meet demand, there is a solution 
to this, and we strongly suggest that we strengthen energy 
standards for 13-SEER. If we act now, we can avoid the need for 
additional powerplants and reduce energy costs for all 
consumers, including the elderly and low-income families.
    Again, thank you for the opportunity to appear before you 
today. I have submitted my comments for the record, and am 
pleased to answer any questions.
    [The statement of Mr. Parks follows:]

  Prepared Statement of David Parks, President, Goodman Manufacturing 
                          Company, Houston, TX

    Goodman is the world's largest privately held air conditioning, 
heating and appliance manufacturer and the second largest manufacturer 
here in the United States. Founded in 1975 by the late Harold Goodman, 
Goodman remains entirely family-owned. We produce a complete line of 
residential and commercial air conditioning and heating equipment with 
facilities in Houston, Texas as well as Dayton and Fayetteville, 
Tennessee. Name brands sold by Goodman include Amana , 
Goodman , GmC , Janitrol , Caloric 
 and Modern Maid .
    At a time when our nation is struggling to meet increasing energy 
demand it seems clear that we must embrace the most effective energy 
efficiency measures available today for consumer products, including 
household appliances. Electricity used for heating and cooling accounts 
for the bulk of total electricity use in U.S. households. In the state 
of Texas, air conditioning represents more than 50 percent of a home's 
electricity cost.\1\ The use of more energy-efficient appliances, 
specifically air conditioners and heat pumps, will provide a 
significantly reduced energy consumption, cut utility costs for 
consumers, and decrease the amount of harmful pollutants emitted in the 
environment.
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    \1\ Public Utility Commission Release, ``PUC Urges Energy 
Conservation Hotter Temperatures Create Higher Demand for 
Electricity'', 7/31/99.
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    The simplest method for reaching these three goals is raising the 
minimum standard for air conditioners to a level of 13 SEER (seasonal 
energy efficiency ratio) from the current level of 10 SEER.
    Looking to the future, the Department of Energy's (DOE's) own data 
indicates that moving to a 13 SEER standard from the 10 SEER level will 
avoid the need for the equivalent of 53 new 400 megawatt power plants 
by 2030 \2\ (Attachment A). Other organizations such as the American 
Council for an Energy-Efficient Economy (ACEEE) estimate that DOE's 
analysis is extremely conservative and does not attribute the correct 
portion of peak demand to air conditioning use. In fact, ACEEE 
estimates indicate that 41,500 megawatts of energy would be saved which 
is equivalent to 103 new 400-megawatt power plants would be avoided by 
2030.\3\ Increased air conditioner efficiency would help provide both a 
short and long-term solution to energy shortages.
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    \2\ DOE Press Release, 1/18/01 and 4/13/01.
    \3\ American Council for an Energy-Efficient Economy (ACEEE) 
Website.
---------------------------------------------------------------------------
    Accordingly Goodman recommends raising the minimum efficiency 
standard for residential air conditioners to 13 SEER. Higher efficiency 
units save consumers more money on their monthly electricity bills and 
reduce harmful pollutants in the environment.
    Goodman has conducted studies showing that more efficient air 
conditioners reduce power plant emissions because each unit requires 
less electricity to operate. Research also shows that the deployment 
and use of high efficiency air conditioners significantly reduces air 
pollutant emissions including nitrogen oxides (NOX), sulfur 
dioxide (SO2) and greenhouse gases from fossil-fueled 
electric power plants.
    Given the tremendous benefits associated with the 13 SEER standard, 
Goodman believes that the Department of Energy's (DOE's) decision to 
rollback the original standard of 13 SEER to a newly proposed standard 
of 12 SEER lacks merit. In our opinion, DOE appears to be basing its 
decision on several misconceptions surrounding the 13 SEER standard. 
Let me explain.
    The first of these misconceptions by DOE is that not all 
manufacturers have the capability to produce the more efficient 
equipment, thus limiting consumer choice. In fact, the 13 SEER 
technology has been available to both large and small manufacturers for 
approximately 15 years. As you can see from this list (Attachment B) 
generated based on Air Conditioning and Refrigeration Institute data, 
virtually all manufacturers are able to and do produce 13 SEER 
equipment today. In reality, the only difference between a 10 SEER 
unit, a 12 SEER unit and a 13 SEER unit is a little more copper and 
aluminum used in manufacturing different sized evaporator coils. A 12 
SEER unit has a slightly larger coil than a 10 SEER unit, a 13 SEER 
unit slightly more than a 12 SEER unit. Given the fact that the units 
have equivalent technologies, at Goodman we run all of our equipment 
down the same assembly line.
    You will also note that what are considered to be small 
manufacturers are included in the list. Goettl Air Conditioning, a 
small manufacturer based in Arizona, supports the stronger standard. 
With respect to small manufactures of specialty products for markets 
like manufactured housing, where space constraints limit efficiency 
with conventional technology, DOE has said that the final rule would be 
open to exemptions. Here is a case where an exemption would make sense.
    A second misconception has been that the 13 SEER standard would 
cost consumers substantially more money than the proposed 12 SEER 
standard. This is not true. According to the DOE, the average 
difference in cost between a 13 SEER unit and a 12 SEER unit is 
approximately $122.\4\ The difference in costs for Goodman units is 
comparable to this estimate (Attachment C). Since a 13 SEER unit is 8 
percent more efficient than a 12 SEER unit, consumers will save more on 
their electric bills each and every month for the life of the unit. 
Thus, over the life of a home cooling unit, the savings will easily 
cover the increase in cost, between a 12 SEER unit and a 13 SEER unit.
---------------------------------------------------------------------------
    \4\ Department of Energy Press Release, 4/13/2001.
---------------------------------------------------------------------------
    Moreover, Goodman is confident that with the implementation of a 13 
SEER standard, the market will drive prices down and make the more 
efficient equipment even more affordable for all consumers. How do we 
know this? From experience. In 1992, when the government implemented 
the efficiency standard at 10 SEER , the cost of the 10 SEER air 
conditioning unit dropped dramatically across the nation. The reason 
for the change in price is simple. Once the standard is set, more sales 
of that type of unit will occur and more volume is manufactured, 
thereby allowing the manufacturers to run their plant more efficiently 
and pass the savings on to the consumer.
    Some believe that this slight increase in cost would deter a 
consumer from purchasing a more efficient unit. However, we believe 
that when considering the purchase of a unit that is between 2000 and 
5000 dollars, the difference in cost between a 12 SEER unit and a 13 
SEER unit is negligible and, in any case, the additional cost of the 13 
SEER unit would only take 1.2 years \5\ longer to recoup according to 
DOE. After that time, the consumer will profit continuously from the 
more efficient unit. It should be noted, however, that DOE's payback 
estimates took into account significantly reduced electricity prices of 
only 7.42 cents per kilowatt hour. Whereas today the nation is facing 
increasing energy costs greater than previously estimated.
---------------------------------------------------------------------------
    \5\ Department of Energy Press Release, 4/13/2001.
---------------------------------------------------------------------------
    In fact, the Public Utility Commission (PUC) of Texas issued a news 
release on June 20, 2001 stating that customers may face higher 
electricity bills this summer than last summer because of higher 
natural gas costs. The release went on to state that utilities surveyed 
by the PUC indicate a statewide average increase of approximately 18 
percent this summer over last for a typical household. Some customers 
can expect electric bills to increase as much as one-third this summer 
compared to last summer for the same amount of electricity. Thus taking 
updated energy cost information into account would yield shorter pay 
back periods of the more efficient equipment for consumers. It should 
also be noted that on November 16, 2000, the PUC of Texas sent former 
Secretary of Energy Bill Richardson a letter supporting the 13 SEER 
standard.\6\
---------------------------------------------------------------------------
    \6\ PUCT letter of support, 11/16/00.
---------------------------------------------------------------------------
    A third misconception has been that there is an enormous difference 
in the size of the units and a tremendously higher related cost for 
installation. It is clear that an increased efficiency standard will be 
established at least at a level of 12 over the current 10 SEER 
standard. When the decision is made to adopt the 12 SEER standard, the 
unit size will be slightly bigger and will require some structural 
modifications to install the indoor portion of the system including 
ductwork during installation of the unit. Once we acknowledge that 
there will be a standard that will likely require some structural 
modification, one must compare the 12 SEER unit to the 13 SEER unit. 
The difference between our 13 SEER and 12 SEER external equipment is 
only 3-5 inches in height. The internal equipment size for the 12 and 
13 are similar, and there is almost no difference in the installation 
costs associated with a 13 SEER unit and a 12 SEER unit.
    In addition, critics of the 13 SEER standard have routinely 
expressed that the 13 SEER standard will negatively impact lower income 
families and the elderly. This too is a misconception. The Census 
Bureau has determined that most low-income families with central air 
conditioning rent their homes.\7\ It is our assessment that they would 
benefit from the energy savings and lower electricity bills associated 
with a 13 SEER unit without bearing the actual up front equipment 
costs. For those low-income families who must purchase a central air 
conditioning unit, the incremental cost of improved efficiency will be 
made up through lower utility bills.
---------------------------------------------------------------------------
    \7\ Bureau of the Census, Annual Demographic Survey, March 
Supplement, 2001.
---------------------------------------------------------------------------
    Finally, in our opinion, Goodman has a marketing philosophy of 
selling in volume. The incremental cost to the manufacturer to produce 
a 13 SEER unit is only about a $100 and we feel that the most efficient 
technology should be available to people of all income levels at an 
affordable price. Unfortunately, not all manufacturers have this same 
marketing philosophy. Instead some manufacturers may be seeking 
protection of higher profit margins on their more efficient equipment. 
A 13 SEER standard would force all manufacturers to be truly price 
competitive and provide all consumers with the most affordable energy 
efficient technology for air conditioners that is available today.

                              CONCLUSIONS

    In conclusion, Goodman is a supporter of the 13 SEER standard 
because we believe it is a cost-effective way to reduce energy use, 
lower high energy costs for the consumer over the long-term and reduce 
emissions of harmful pollutants from power generating facilities.
    Goodman has been and will continue to support a higher energy 
efficiency standard as the ``right thing to do'' for the consumer, the 
environment, energy conservation and the industry. We believe that 
there are actions Congress can and should take to address the 
unfortunate decision by the Department of Energy to roll back the 
higher standard for central air conditioners and heat pumps to only a 
20 percent increase in efficiency. In fact the 13 SEER standard would 
be more consistent with the President's effort to promote energy 
efficiency and conservation.
    In addition to the air conditioner standard itself, it is also 
important to support both financial incentives and programs that 
promote the use of more efficient equipment. To this end, Goodman has 
been supportive of increasing efficiency requirements for the 
EnergyStar Program as well as providing incentives to consumers that 
use high efficiency appliances including air conditioners. Goodman has 
been supportive of legislation such as S. 207, ``The Building 
Incentives Act'', where the message can be reinforced that energy 
efficiency is a good investment for consumers, building owners and 
tenants, and the nation as a whole. These combined efforts provide 
incentives for higher levels of energy efficiency than would otherwise 
occur.
    To provide longer-term solutions, we desperately need a national 
energy policy that promotes energy efficiency, conservation, and new 
supply technologies. Goodman urges Congress to continue to focus 
attention on improving appliance efficiency standards for air 
conditioning and heating products.

    The Chairman. Thank you very much for your testimony.
    Dr. O'Hagan, why don't you go ahead.

     STATEMENT OF DR. MALCOLM O'HAGAN, PRESIDENT, NATIONAL 
       ELECTRICAL MANUFACTURERS ASSOCIATION, ROSSLYN, VA

    Dr. O'Hagan. Good morning, Mr. Chairman. My name is Malcolm 
O'Hagan. I am president of the National Electrical 
Manufacturers Association. On behalf of the 450 members of NEMA 
who manufacture all of the products in the electricity supply 
chain from the generator to the light bulb, I thank you for 
this opportunity to share with this committee the good news on 
energy-efficient technologies.
    The President's energy report estimated that we could save 
the equivalent of 600 300-megawatt powerplants through the 
deployment of energy-efficient technologies and conservation 
measures. We agree, and that is a lot of energy.
    How is it possible to realize these savings? Let me offer a 
few examples. Lighting and HVAC upgrades in commercial 
buildings can cut energy consumption by up to 40 percent while 
saving $1 per square foot in electricity cost. This, Mr. 
Chairman, has been documented in a publication of 1,000 
upgrades, and I would like to submit this, with your 
permission, for the record.*
---------------------------------------------------------------------------
    * The publication has been retained in committee files.
---------------------------------------------------------------------------
    The Chairman. We would be glad to have it. Thank you.
    Dr. O'Hagan. Commercial buildings account for 22 percent of 
electricity consumption. Transformers that meet NEMA TP-1 
efficiency levels can greatly reduce power losses in getting 
electricity from the generating station to the outlet. NEMA 
Premium efficiency motors, combined with industrial control 
systems, can substantially reduce energy consumption in steel 
mills, water treatment plants, irrigation systems, and myriad 
other industrial applications which account for 51 percent of 
electricity consumption.
    Solutions exist to significantly cut transmission and 
distribution line losses, which currently account for 8 to 10 
percent of production.
    Mr. Chairman, the technology exists. NEMA members offer it, 
but that is not enough. The technology must be used. With 
efficient products unfortunately comes higher first costs, 
presenting an economic barrier. Consequently, there are three 
additional requirements to stimulate greater use of more 
efficient technologies.
    First, we need economic incentives to drive technology 
solutions, and let me stress that it is not enough to 
substitute high efficiency products and normal replacement 
times. We need to provide incentive for accelerated 
replacement. This is how the immediate and big savings will be 
realized.
    Second, we need the Government to lead by example, not by 
fiat. For example, all government buildings should be upgraded 
to meet Energy Star building requirements as soon as possible, 
and all government procurements should be based on industry 
consensus standards for energy efficiency.
    Third, and finally, we need the Government to spearhead a 
massive education campaign to promote the use of energy-
efficient technologies.
    Our specific comments on the legislation under 
consideration today are as follows. With respect to Federal 
building energy efficiency, we agree with the proposals in S. 
597 and S. 388 that would impose new energy efficiency 
requirements on Federal buildings and require agencies to 
undertake a review of and implement practical energy and water 
conservation and renewable energy measures. These goals should 
be met, and reviews undertaken by emphasizing a systems 
approach, not merely component change-outs.
    In addressing these proposals, we urge the committee to 
consider NEMA's specific recommendations as detailed in our 
written testimony for upgrading the Federal building energy 
code and requiring Energy Star rating for all Federal 
buildings.
    In upgrading Federal facilities, the Government should 
procure only products that meet or exceed NEMA Premium 
efficiency levels for motors, NEMA TP-1 efficiency levels for 
transformers, and ASHRAE 90.1-1999 efficiency levels for 
lighting and HVAC systems.
    I would like to point out that the State of Wisconsin now 
requires the use of TP-1 transformers in all State buildings. I 
would also like to note that the NEMA Premium efficiency levels 
for motors exceed the efficiency levels mandated by the Federal 
Government under the Energy Policy Act, and applied to more 
categories of motors. Recently, NEMA, with the support of DOE, 
the utilities, the Edison Electric Institute, and others, 
launched a major program to promote the use of NEMA Premium 
efficiency motors in the marketplace.
    In connection with financing for Federal energy efficiency 
programs, whether through the proposed Federal Energy Bank or 
through energy-saving performance contracts, we have two 
recommendations. First, as we have stated before, the projects 
that take a systems approach should have priority for 
assistance.
    Second, we support the 7-year-or-better payback period set 
forth in your legislation S. 597. It should be noted that 
comprehensive upgrade programs with correspondingly higher 
first cost but greater savings in the longer run may be ruled 
out by shorter payback periods. Programs targeting schools for 
energy efficiency improvement should also emphasize the systems 
approach that combine advanced controls with energy-efficient 
technologies to achieve the maximum benefits.
    NEMA believes greater attention needs to be paid to 
increasing energy efficiency and the industrial sector, which 
accounts for 51 percent of electricity consumption. To this 
end, the proposal in S. 597 to encourage voluntary commitments 
to reducing industrial energy intensity is most welcome.
    NEMA supports the low income home energy assistance, 
weatherization, and State energy programs. With respect to the 
weatherization program, we would suggest the committee consider 
including electricity efficiency retrofits as an eligible 
measure to permit the upgrading of air conditioners and water 
heaters, which will have long-term energy savings benefits. 
California has adopted a similar approach, and we would 
recommend it at the Federal level as well.
    Finally, with respect to energy efficiency standards, NEMA 
believes that it is critical that the Department of Energy 
fully adhere to all aspects of the Process Improvement Rule, 
which has three basic principles--one is technology 
feasibility, economic justification, and significant energy 
savings--and that it adhere to all aspects of its process 
improvement rule in every standards-related activity.
    In our written testimony, we expand on these comments, and 
we stand ready to provide the committee with whatever 
additional information would be helpful to its deliberations.
    Mr. Chairman, we thank you very much for the opportunity to 
testify this morning.
    [The statement of Dr. O'Hagan follows:]

    Prepared Statement of Dr. Malcolm O'Hagan, President, National 
           Electrical Manufacturers Association, Rosslyn, VA

                              INTRODUCTION

    Good morning Senator Bingaman, Senator Murkowski and members of the 
Committee on Energy and Natural Resources. I am Dr. Malcolm O'Hagan and 
I am President of the National Electrical Manufacturers Association 
(NEMA). NEMA, celebrating its 75th anniversary, is the leading trade 
association in the United States representing the interests of 
electroindustry manufacturers. Founded in 1926 and headquartered near 
Washington, D.C., our 450 member companies manufacture products used in 
the generation, transmission and distribution, control, and end-use of 
electricity. Annual shipments of these products total $100 billion.
    NEMA welcomes the opportunity to offer testimony on the energy 
efficiency legislative proposals pending before the Committee. My 
testimony today will focus on the following four main areas:
    1. The role of NEMA products and services to achieve energy 
efficiency and conservation in helping to meet out national energy 
needs;
    2. The federal government's role in promoting conservation and 
efficiency and the use of new technologies and innovative practices 
that use energy more efficiently.
    3. The barriers to the widespread application of energy efficient 
practices and technologies; and
    4. Our recommendations to encourage the greater use of energy 
efficient technologies.
    The issues of energy efficiency and conservation are crucial 
aspects of the energy policy debate and your attention to these matters 
is applauded by the 450 NEMA member companies. We have also been 
encouraged by the work of the Administration and its recommendations, 
as incorporated in the National Energy Policy Plan. NEMA has reviewed 
the President's recommendations, and I have attached our findings for 
your reference.* NEMA has also reviewed many other energy legislative 
proposals, including those that are the subject of today's hearing. 
NEMA is very encouraged about the prospects for a comprehensive, 
balanced and bipartisan national energy policy, and we are committed to 
supporting the development of that policy in every way possible.
---------------------------------------------------------------------------
    * Attachments to this statement have been retained in committee 
files.
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     NEMA ELECTRICAL ENERGY AND ENERGY EFFICIENCY POLICY PRINCIPLES

    NEMA has crafted a set of electrical energy and energy efficiency 
principles for your guidance and consideration as you and your 
colleagues proceed on a comprehensive national energy policy. I have 
included the principles for your reference, but let me take this 
opportunity to highlight the three main points from our principles:

   A comprehensive electrical energy policy should rely on 
        affordable, proven technology to address energy supply and 
        demand;
   Second, it is critical to understand that energy efficiency 
        and conservation don't mean sacrifice and reduced access, but 
        rather doing more with existing capacity by achieving reduction 
        in energy usage through the use of more efficient products and 
        systems; and
   Third, market-based incentives and solutions should be the 
        primary vehicle to enhance energy efficiency and conservation. 
        However, NEMA acknowledges that, on a case-by-case basis, there 
        is value in other interventions such as targeted government 
        research and development, incentives and standards.

    With regard to energy efficiency issues, NEMA specifically proposes 
the following concepts as guidelines:

   NEMA believes energy efficiency is a national concern that 
        should be driven by market forces to achieve energy efficiency 
        and conservation. The litmus test for efficient products and 
        control systems is technological feasibility, economic 
        justification, energy savings and commercial availability.
   NEMA acknowledges the key role the federal government should 
        play in fostering public use of energy efficient products and 
        systems. Specifically, NEMA believes that the federal 
        government should promote user education on energy efficiency; 
        support energy efficient upgrades through programs such as the 
        Federal Energy Management Program, encourage performance-based 
        incentives in the private sector; and promote the use of 
        economically sound energy efficient products and systems.

  NEMA MEMBER COMPANY PRODUCTS AND SERVICES ACHIEVE ENERGY EFFICIENCY 
                            AND CONSERVATION

    NEMA recognizes that a comprehensive national energy policy 
requires a mix of conservation and production, and the promotion of new 
technologies that promise greater efficiency and environmental 
protection. NEMA member products are at all stages of the electrical 
energy process, from generators, transformers, wire and cable, to 
lighting, motors, and switches at the consumer and end-user points. As 
an intriguing example of how technology can save energy, NEMA 
manufacturers have developed technology and products for Intelligent 
Transportation Systems (ITS), a project under the auspices of the 
Department of Transportation. This project is a highly cost-effective 
means of reducing transportation fuels consumption, associated air 
pollution, and also reduces the non-productive time workers spend 
commuting. As you will see in our recommendations, these and other NEMA 
products serve to make the system work better and faster without 
compromising availability. NEMA members are able to do this by taking 
the best of industry technology and standardizing those products so 
that they are available globally, delivered locally, competitively 
priced, able to perform predictably and are safe and environmentally 
sound.
    Industry experts estimate that the energy to run buildings in the 
United States costs about $70 billion a year. NEMA products can be 
found in a wide variety of projects and applications, and such 
technology has the potential to reduce energy costs 40 percent and save 
businesses $28 billion per year. A recent study in the trade journal 
Energy User News found that upgrades and retrofits of lighting, HVAC, 
motors and drives, and building automation can achieve energy savings 
of between $1.00 and $1.50 per square foot of floor space, especially 
when the project involves a combination of each eletrotechnology 
element. Moreover, the payback periods are attractive with the return 
on investment and energy savings lasting the entire span of the 
products, usually 10-20 years. As testimony to these findings, energy 
efficient products helped a government agency overhaul their lighting 
system as a result of a mandated relighting program. The agency 
installed energy saving occupancy sensors as well as new electronic 
ballasts, T-8 lamps and specular reflectors in 1.5 million square feet 
of working space. The effort has translated into an annual savings of 
$399,057.
    NEMA member companies also provide energy efficient technologies to 
help industrial energy users make the most of the electricity they 
consume. For instance, in Indiana, the Alcoa North American Extrusions 
aluminum extrusion plant reviewed eight areas for efficiency upgrades 
under the auspices of the Department of Energy's Office of Industrial 
Technology program. From motors and pumping systems to compressed air 
and variable speed drive systems, the review revealed that in a payback 
period of a little over one year, Alcoa could realize a potential 
annual savings of $1.9 million with an initial capital requirement of 
$2.3 million. NEMA member companies provided the motors, systems and 
services to help Alcoa meet its goal in Indiana and at other Alcoa 
plants around the United States. In Baton Rouge, Louisiana, ExxonMobil 
Corporation realized an annual savings of one million dollars and an 
annual energy savings of 43 million Btu with a cost payback of four 
million dollars over four years at its chemical plant. ExxonMobil 
modernized the plant control systems to recover these substantial 
savings. NEMA member company Thermadyne, a California-based 
manufacturer of inverter-type welding machines, recently found that 
welding machine power consumption can be reduced between 20% and 50% 
from the older transformer based designs. At Disney World in Florida, 
the complex used a metering company that identified ways to make 
hydraulic equipment run for shorter periods of time, time the operation 
of compressed air motors, and drop electricity consumption in a chiller 
plant by an amazing 28 percent. NEMA TP-1 quality transformers 
(manufactured by, among others, Square D) helped the Johnson & Johnson 
facility in New Jersey realize such significant energy savings that the 
corporation changed their purchasing specification to require nothing 
but Square D TP-1 Transformers (or its equivalent) in any future 
transformer purchases.
    NEMA company technologies can also make a significant contribution 
in improving the efficiency of electricity transmission and 
distribution. About 10% of the electricity generated is lost in 
inefficiencies in transmission and distribution. During peak load 
periods the losses are higher. The losses have a retail value of about 
$25 billion per year. Transmission line losses (70% of the transmission 
losses) may be reduced by, for example, upgrading conductors, 
increasing voltage, improving the power factor, or using high voltage 
DC transmission.
    Finally, NEMA-member software products, such as ABB Energy 
Interactive's Energy Profiler OnlineTM, facilitate energy 
load management for commercial and industrial customers, and are being 
used in California today to manage a variety of mandatory and voluntary 
utility load curtailment programs necessitated by California's current 
energy crisis. NEMA member companies have a track record of achieving 
energy cost savings and stand ready to help the nation continue to 
improve upon its strong record of achieving energy efficiency goals.

      THE FEDERAL GOVERNMENT'S ROLE IN PROMOTING ENERGY EFFICIENCY

    As mentioned earlier, NEMA acknowledges the key role the federal 
government should play in fostering public use of energy efficient 
products and systems. Industry appreciates those government programs 
that educate and inform business and the consumer about energy 
efficiency. Specifically, NEMA believes that the federal government 
should promote user education on energy efficiency; support energy 
efficient upgrades through programs such as the Federal Energy 
Management Program, the Department of Energy's Office of Industrial 
Technology, Building, Technology State and Community programs, and 
aspects of the Energy Star program; and promote the use of economically 
sound energy efficient products and systems.
    I have communicated with NEMA manufacturers about a variety of 
federal government programs. They recognize the value of several energy 
efficiency programs. In the motors and industrial controls area, the 
Department of Energy Office of Industrial Technology Best Practices 
program works to promote those industry practices that promote 
efficiency. The Motor Challenge program adds credibility to efficiency 
messages and broadens the communications efforts beyond industry. In 
the lighting area, industry appreciates the ``LightRight'' and the 
``Vision 2020'' programs. These and other programs, such as the Federal 
Energy Management Program, all serve to help American consumers and 
businesses use energy more efficiently and effectively.
    NEMA believes that the federal government can set the standard--and 
a good example--for energy efficiency by starting with the public's own 
facilities. In this regard, the cooperative Department of Energy and 
Environmental Protection Agency Energy Star Buildings Program has made 
significant advances in improving the efficiency of commercial 
buildings. However, the vast majority of Federal facilities have not 
yet achieved the Energy Star rating, a classification given only to the 
top 25% of buildings in terms of watts used per square foot. Therefore, 
NEMA recommends that existing Federal buildings be upgraded to meet the 
Energy Star Building Program requirements.
    A program to require energy efficient upgrades of building systems 
in existing Federal buildings offers the potential for significant 
energy savings. As the President and Congress have recognized, the 
Federal government is a major consumer of electrical energy. NEMA 
proposes that, with respect to existing buildings, an upgrade program 
should riot require adherence to a rigid standard, but rather should 
provide flexibility to agencies to adopt the most efficient systems 
that meet their needs. For new construction or buildings that undergo 
major renovation/remodeling, it is appropriate to require adherence to 
the most current consensus energy efficiency standards, which are 
contained in ASHRAE/IESNA 90.1-1999. The Federal government should move 
promptly to update Federal building energy codes, and to facilitate 
action by the States to update their building codes consistent with the 
latest update to the ASHRAE/IESNA standards.
    The Federal government also has important regulatory 
responsibilities, particularly in the area of energy efficiency 
standards for appliances and other consumer products. In setting such 
standards, the Department of Energy must fully adhere to the provisions 
of the so-called ``Process Improvement Rule.'' By way of background, in 
July 1996, the Department of Energy published an interpretive rule 
setting forth procedures for the consideration of new or revised energy 
conservation standards for consumer products (see 61 Fed. Reg. 36973 
(July 15, 1996)). The ``process improvement'' rule was produced with 
the input of all stakeholders in the appliance and consumer products 
efficiency standards program. Designed to remedy shortcomings in the 
standards process utilized by the Department of Energy, the process 
improvement rule is intended to encourage consensus on energy 
efficiency standards. To this end, the rule language includes a series 
of rebuttable presumptions, agreed to by all sectors of industry and 
the energy efficiency community, which provide a basis for mutual 
understanding and cooperation in the development of consensus 
standards.
    The process improvement rule incorporates critical principles for 
every stage of the energy efficiency standards setting process. Careful 
observance of these requirements is essential for any standards program 
to be effectively implemented. However, as good and practical as this 
rule is, it is not a binding requirement on the Department of Energy. 
NEMA manufacturers--and all of the regulated community--require 
additional assurance that there will be careful adherence to all 
aspects of the process improvement rule in all future standards setting 
rulemakings for consumer, commercial and industrial products. Greater 
certainty will be provided if the process improvement rule is formally 
incorporated into the Department of Energy's regulations governing the 
establishment of energy efficiency standards.
    The Federal government should also take the lead in the acquisition 
of energy efficient products. For example, an opportunity is presented 
for the government to take advantage of consensus standards developed 
by industry to increase energy efficiency in equipment including 
electric motors and distribution transformers. These two standards, 
NEMA PremiumTM for electric motors and NEMA TP-1 for 
distribution transformers, offer significant energy savings. Government 
should recognize these industry-led efforts to increase energy 
efficiency and provide for the most rapid possible integration of 
technologies meeting the latest efficiency standards into Federal 
facilities. Increasing the deployment of these technologies throughout 
the Federal government offers a ready means to significantly reduce 
energy consumption.

 BARRIERS TO THE WIDESPREAD APPLICATION OF ENERGY EFFICIENT PRACTICES 
                            AND TECHNOLOGIES

    While much good has been done to promote energy efficiency, there 
remains work to be finished. NEMA believes the primary barriers to 
investing in energy efficient technology include: (1) the cost of 
investment in energy efficient technologies and whom should receive the 
financial benefit of the energy efficient investment; (2) the lack of 
awareness of a systems and controls based approach for energy efficient 
cost effectiveness; (3) and issues surrounding codes and standards.
    Currently, the federal tax code does not fully encourage an 
investor to make energy efficient investments, upgrades or retrofits to 
facilities. To that end, NEMA recognizes the efforts to encourage the 
private sector use of energy efficient products and systems through a 
variety of tax incentives included in S. 596, S. 389 and other pending 
measures. While NEMA has not taken a position on the wide variety of 
incentive proposals currently being considered, we would generally 
emphasize the need to explore and promote those incentives that make 
the maximum use of energy efficient products and systems and delivers 
the incentive to the individual or entity that makes the investment.
    NEMA believes that energy efficiency should be evaluated and 
rewarded on a energy savings and systems basis. When creating 
incentives, the beneficiary of the cost incentive should be the 
investor in the equipment. Very simply put, if a building owner makes 
the capital investment, that owner should get the benefit. As a result 
the energy savings benefit can get passed on down the line in the form 
of savings to electricity consumers through lower bills.
    While the technology exists to achieve broad cost savings through 
energy efficient devices and controls, there is a lack of awareness of 
the benefits of a systems and control based approach. This is opposed 
to a piecemeal component approach, to achieve the maximum level of cost 
effective energy efficiency. To that end, NEMA proposes that the 
federal government move from strictly encouraging products or 
components, to promoting the implementation of systems and controls to 
efficiently manage energy on a wider basis. For example, California 
recently enacted legislation that would provide energy efficient 
upgrades for lighting systems. California recognized the large 
efficiency gains that would be realized by encompassing lighting 
controls, occupancy sensors, and luminaries added to any upgrade. 
Similar efficiency gains can be achieved at the commercial level with 
industrial and automated controls.
    Industry and government both strive to achieve the best 
performance. But for too long, the hopeful and anticipated approaches 
of both camps have been belied by the unintended consequences of 
mandated standards. Voluntary, consensus-driven codes and standards 
will achieve the greatest level of cooperation and distribution of 
energy efficient technology in the marketplace. Already, the 
marketplace recognizes industry-driven standards to achieve efficient 
products. In particular, the NEMA PremiumTM Motor program 
recognizes efficient motors above the standards contained in current 
law. The same can be said for distribution transformer consensus 
standards represented by NEMA TP-1. Industry believes that industry 
consensus building codes can be a valuable part of ensuring that 
cooperative goals are achieved and efficiency gained.

     RECOMMENDATIONS TO ENABLE THE GREATER USE OF ENERGY EFFICIENT 
                              TECHNOLOGIES

    NEMA believes that technological solutions combined with industry 
consensus and proven results will lead to enhanced energy efficiency. 
This formula is made even stronger if the cooperative efforts of 
industry and policymakers are joined. To that end, NEMA proposes the 
following reforms to further enhance energy efficiency and conservation 
as part of a comprehensive national energy policy.
Motors
    The NEMA PremiumTM motor program is a collaborative 
effort with the Department of Energy, motor manufacturers and electric 
utilities. It is an excellent model of how voluntary industry standards 
can improve efficiency thereby providing a benefit to consumers and the 
environment. It has broad support, as reflected in the recent 
endorsement from the Consortium for Energy Efficiency.
    The NEMA PremiumTM motor program expands high efficiency 
motors standards beyond current requirements. The program covers a 
broader range of motors than do minimum Federal energy efficiency 
standards (up to 500 horsepower, whereas Federal standards apply only 
up to 200 hp), and it is a more exacting standard. In fact, Department 
of Energy analyses shows that the NEMA PremiumTM motor 
program, including commercial and agricultural applications, would save 
5,800 gigawatt hours of electricity and prevent the release of nearly 
80 million metric tons of carbon into the atmosphere in the next ten 
years. Electric-motor-driven equipment consumes about 60% of all the 
electricity produced in the country, according to the Department of 
Energy.
    The NEMA PremiumTM motor program has real-life impact. 
The Cummins Engine Company's Columbus Engine Plant in Columbus, Indiana 
retrofitted energy efficient motors on to existing machining and 
transfer lines and installed the most efficient motors available onto 
the new lines. Cummins saw a 2.75 percent reduction in total energy 
costs for the Columbus plant and was hailed by company executives as a 
significant savings. The Department of Energy's Office of Industrial 
Technologies indicated that if every plant in the United States 
integrated motor system upgrades to the extent that Cummins did, 
American industry would save an estimated one billion dollars annually 
in energy costs. This would be the equivalent of the amount of 
electricity supplied to the State of New York for three months.
    President Clinton issued Executive Order 13123, which seeks to 
encourage the acquisition of energy efficient products by the federal 
government. In addition, programs such as the Federal Procurement 
Challenge encourage agencies to buy energy efficient products. However, 
while the Executive Order and the Federal Procurement Challenge have 
resulted in many efficient upgrades, many agency heads have not had 
their feet held to the fire to comply with such orders. Many 
opportunities still exist in Federal agency and Congressional offices 
to achieve energy efficiency.
    NEMA, therefore, recommends that the Federal government be required 
to purchase motors based on the NEMA PremiumTM motor 
standard. Doing so would enable all new equipment acquisitions to be 
based on current energy efficiency standards with the dual result of 
energy savings to the government and widespread market penetration of 
the most highly efficient technologies in energy-intensive equipment. 
It would also serve as a valuable demonstration of energy efficient 
savings to the private sector.
Distribution Transformers
    In 1996, the Transformers Products Section of NEMA developed 
voluntary energy efficiency standards for distribution transformers. 
Distribution transformers help move electricity on the grid and reduce 
loss. The basic efficiency standard, known as NEMA TP-1, and the 
associated test and labeling standards (TP-2. and TP-3, respectively) 
have gained widespread acceptance as the industry norm for energy 
efficient transformers.
    As another excellent example of industry led consensus standard 
making, if TP-1 were used nationwide, NEMA estimates an energy savings 
would be in the range of 2-3 quads over a 30-year period. This is an 
average energy savings of between 5 and 10 billion kilowatt-hours per 
year. By using NEMA Standard TP-1, the energy used by low-voltage 
transformers can be cut by one-third, and by twenty-five percent for 
medium voltage transformers. Better yet, the payback period for such 
transformer investments is relatively short--only three to five years.
    With these demonstrated savings in mind, NEMA recommends that the 
federal government should be required to use NEMA TP-1 transformers in 
its purchase specifications and be required to replace failed 
transformers with new units meeting TP-1 efficiencies. Acquisition of 
distribution transformers that meet the NEMA TP-1 standard will improve 
distribution transformer efficiency over the low first cost 
transformers that are typically selected for government procurement. 
Further, the Department of Energy's current rulemaking to consider 
energy efficiency standards for distribution transformers should use 
NEMA TP-1 as a benchmark for standards discussions.
Building Efficiency
    Energy efficient buildings achieve some of the greatest cost 
savings when it comes to energy efficiency. There is, perhaps, no 
better example to demonstrate these savings than energy efficient 
lighting systems.
    NEMA believes that lighting efficiency can be summed up in the 
following way: Efficient lighting means turning the lights off when 
your done, and using lighting at levels to complete the task at hand. 
NEMA manufacturers make products to do just that from systems and 
controls to draw the greatest light using the least amount of 
electricity all the while employing technologies to shut the lights off 
when no one is around.
    The Department of Energy estimates that technologies developed 
during the past 10 years can help us cut lighting costs 30% to 60%. 
Lighting accounts for 20% to 25% of all electricity consumed in the 
United States. The cost savings distinction is even greater when 
looking at residences and business. An average household dedicates 5% 
to 10% of its energy budget to lighting, while commercial 
establishments consume 20% to 40% of their total energy just for 
lighting.
    NEMA advocates a system approach to upgrading lighting efficiency 
in commercial buildings and, where feasible, residential housing. In a 
typical residential or commercial lighting installation, 50% or more of 
the energy is wasted by obsolete equipment, inadequate maintenance, or 
inefficient use. Where it is feasible, a systems approach is best, but 
components are just as important. Improved lighting quality makes 
visual tasks easier and saves 50% or more on energy costs. A dramatic 
example of how energy use for lighting can be reduced while improving 
the quality of lighting is the Jefferson Memorial relighting project. 
The energy use will be reduced from a current 126,000 watts to 16,000 
watts, while dramatically improving the visual impact of this majestic 
monument, its inscriptions, and the magnificent statute of Thomas 
Jefferson.
    That is why NEMA proposes the Federal government update its federal 
building energy code to the latest model building code for energy 
efficiency in commercial and multifamily high rise residential 
buildings. A new Federal code for energy efficiency in new commercial 
and multifamily high rise residential buildings will become effective 
in October of this year. However, this code is based on a 1989 ASHRAE/
IESNA Standard. The Department should move expeditiously to update the 
Federal code to reflect ASHRAE/IESNA Standard 90.1-1999. This would 
avoid a time consuming regulatory process to adopt the latest ASHRAE/
IESNA update, which was itself developed through a consensus process 
involving a consortium representing the full range of interests in 
building sector energy efficiency, including the Department of Energy.
    For existing buildings, NEMA recommends that all Federal agencies 
should be required to implement a program to evaluate the building 
systems of existing facilities constructed prior to 1996, using the 
whole building approach and Energy Star building evaluation criteria. 
This evaluation need not be required for facilities which have 
completed building system energy efficiency upgrades within the 
preceding 5 years, or which have attained the Energy Star Building 
Rating. Upon completion of such evaluations, agencies should be 
required to make all building system upgrades necessary to enable the 
building to attain the Energy Star Building Rating within 2 years after 
such upgrades are identified.
    Similarly, the Department should move expeditiously to issue a 
formal determination that the latest revision to ASHRAE/IESNA Standard 
90.1 will improve energy efficiency in commercial buildings. The 
Department of Energy has already performed a quantitative analysis and 
a detailed textual analysis of the estimated differences between the 
1989 and 1999 editions of Standard 90-1. No further analysis should be 
necessary for the Secretary to determine that the update will improve 
energy efficiency in commercial buildings. The issuance of this 
determination would trigger actions by the states, which have primary 
building code enforcement responsibility, to update state building 
codes accordingly. Any acceleration in the upgrading of state building 
codes to meet ASHRAE/IESNA Standard 90.1-1999 will increase energy 
savings.

                   COMMENTS ON LEGISLATIVE PROPOSALS

    NEMA offers the following comments for the Committee's 
consideration with respect to the specific legislative proposals under 
consideration at this hearing.
Federal Energy Bank (S. 95; Section 1301 of S. 597)
    As discussed above, NEMA recognizes the extent to which cost 
barriers stand in the way of the deployment of energy efficient 
technologies. The concept of a Federal Energy Bank has been offered as 
one potential mechanism for making additional resources available to 
Federal agencies to support energy efficiency projects that might not 
otherwise be undertaken. While NEMA takes no position at this time on 
the underlying proposal for a Federal Energy Bank, we are encouraged 
that S. 597 in subsection 1301(d)((2)(D) recognizes the need to 
encourage projects with a payback period longer than the three year 
payback included in S. 95 as introduced.
    In many cases, the greatest energy efficiency savings can be 
obtained through a systems approach, which features upgrades to energy 
consuming systems rather than mere change out of specific components. A 
payback period of at least 5 years is important to encourage such 
conversions, which typically have greater up-front costs, but which 
will produce increased energy savings over the lifetime of the 
building. For example, in many cases, lighting change outs are done on 
a component basis, whereas a systems approach to lighting upgrades can 
have achieve far greater efficiencies. Deploying electronic ballasts in 
combination with T8 lamps improves efficiency, but maximum efficiency 
gains will be achieved if lighting controls are also included. The 
addition of lighting controls, such as occupancy sensors, can save 
another 20% to 40% of energy usage. And when making changes designed to 
increase the energy efficiency of lighting, it often pays to redesign 
the building's entire lighting system, improving lighting quality, and 
saving even more on energy costs. But such a valuable project may not 
be feasible if a strict three year payback period is required.

Incentives for Energy Efficient Schools (Section 1302 of S. 597; 
        Section 602 of S. 388)
    As discussed above, while energy efficient devices and controls are 
available, there is sometimes inadequate recognition of the benefits of 
a systems approach that integrates advanced controls with energy 
efficient technologies to achieve the maximum benefits. High 
performance/energy efficient school buildings should be evaluated on a 
systems basis, and the enumerated criteria in the legislation for 
defining a high performance or energy efficient building should 
explicitly reference the adoption of systems approaches wherever 
feasible to maximize energy savings.
Voluntary Commitments to Reduce Industrial Energy Intensity (Section 
        1303 of 
        S. 597)
    Greater attention must be focused on the reduction of energy use in 
the industrial and commercial sectors. The potential for energy savings 
is significant, but cost barriers and lack of information too often 
prevent the adoption of new energy efficiency technologies and systems 
in industrial facilities and businesses of all sizes. NEMA encourages 
the Committee to explore additional means of supporting the deployment 
of highly efficient new technologies through programs targeted 
specifically to the industrial sector. Consideration might be given, 
for example, to a program modeled on the highly successful 
Weatherization Assistance Program but targeted to small businesses.
Low Income Home Energy Assistance Program (Section 601 of S. 388, 
        Section 3(a) of S. 352)
    NEMA supports the LIHEAP program.
Weatherization Assistance Program (Section 603 of S. 388, Section 3(b) 
        of S. 352)
    The Weatherization Assistance Program has been an important element 
in the nation's effort to assure that the burdens of high energy costs 
do not fall disproportionately hard on those least able to afford them. 
Including electricity efficiency retrofits as an element of the 
Weatherization program would have long term benefits for residents and 
property owners. For example, the State of California has recently made 
upgrades to major systems, such as the installation of high efficiency 
air conditioners and high efficiency water heaters, as well as other 
efficient technologies, including set-back thermostats, eligible for 
the State's residential upgrade program. Taking a similar approach at 
the Federal level could significantly increase the long term benefits 
of the Weatherization program. With the likelihood that substantially 
increased funding will be provided for the Weatherization program in 
forthcoming fiscal years, the eligibility of more capital-intensive 
measures should be fully considered.
State Energy Program (Section 604 of S. 388, Section 3(c) of S. 352)
    NEMA supports the concept of updating the State energy efficiency 
goals. As with the Federal government, state energy efficiency plans 
should not be limited to encouraging certain energy efficient products 
or components, but rather should focus on promoting the implementation 
of systems and controls that will enable more efficient energy 
management. States should also make special outreach to the commercial 
and industrial sector to reach the untapped energy conservation 
potential of those sectors.
Energy Saving Performance Contracts (Section 605 of S. 388, Sections 5-
        7 of S. 352)
    As with other efficiency upgrade programs, energy savings 
performance contracts should emphasize a system approach to achieve 
maximum energy savings, in lieu of simply providing for the change out 
of components. NEMA has no specific comments at this time on proposals 
to amend the authority for Federal energy saving performance contracts.
Federal Energy Efficiency Requirement (Section 606 of S. 388, Section 4 
        of S. 352)
    NEMA agrees that it is time to impose new energy efficiency 
requirements on Federal buildings, as proposed in section 606 of S. 
388. Further, NEMA endorses the principle behind section 4 of S. 352, 
which would require agencies to undertake a review of all practicable 
energy and water conservation and renewable energy measures and to 
implement measures to achieve at least 50% of the potential savings 
identified by such a review. With respect to both of these proposals, 
NEMA again urges that the Federal government emphasize the 
implementation of systems approaches, not merely component replacement, 
to achieve energy reduction requirements, along with the adoption of 
new technology, such as NEMA PremiumTM motors and 
distribution transformers that comply with the NEMA TP-1 standard, 
wherever possible.
S.J. Res. 15, Air Conditioner Standards Rule
    NEMA was not involved in the development of the air conditioner 
standards rule. With respect to the issuance of energy efficiency 
standards generally, as discussed above, NEMA believes that it is 
critical that the Department of Energy fully adhere to all aspects of 
the ``Process Improvement Rule'' in every standards-related activity.

                               CONCLUSION

    In conclusion, let me reiterate the three points I began with 
today. A comprehensive electrical energy policy should rely on 
affordable, proven technology to address energy supply and demand. 
Second, it is critical to understand that energy efficiency and 
conservation don't mean sacrifice and reduced access, but rather doing 
more with existing capacity by achieving reduction in energy usage 
through the use of more efficient products and systems. Third, market-
based solutions should be the primary vehicle to enhance energy 
efficiency and conservation. I thank the Committee and I am happy to 
answer your questions.

    The Chairman. Thank you very much, and thank all of you for 
your testimony. Let me just ask a very few questions here.
    Dr. O'Hagan, you recommend that all Federal buildings be 
upgraded to meet the Energy Star building program requirements. 
How do these requirements mesh with Executive Order 13123, the 
requirement there that agencies reduce energy consumption by 30 
percent in 2005, by 35 percent in 2010? Is there a meshing of 
those two requirements on Federal agencies and Federal 
facilities?
    Dr. O'Hagan. It is my understanding, Mr. Chairman, that the 
program is based on the old ASHRAE standard, and one of our 
recommendations is that the code and the standard for Energy 
Star buildings be upgraded to the 1999 version, which has 
higher efficiency levels, and using that, the goals would be 
accomplished.
    The Chairman. I see, so you believe if they upgrade the 
standards in this Energy Star building program, that these 
objectives set out in the executive order will be achieved?
    Dr. O'Hagan. Yes, Mr. Chairman.
    The Chairman. I guess, Mr. Parks, what occurred to me in 
hearing your testimony and reading it here, and trying to 
compare what you were saying to what Mr. Rees is saying, as Mr. 
Rees described things, the vast majority of the industry is in 
favor of the 12 standard rather than the 13 standard and your 
company--and you have come out strongly in favor of the 13. Do 
you consider yourself an outsider, or are there other companies 
with your point of view on this that just are not being heard 
from, or how do you explain your position relative to the 
industry position more generally, as Mr. Rees has described it?
    Mr. Parks. I think a couple of things. Mr. Rees did 
indicate that, as a group, we are all in favor of higher energy 
efficiency standards. There is no question about that. 
Ourselves along with two smaller other manufacturers have come 
out in favor of the 13-SEER simply because we really believe it 
is the right thing to do.
    Our company has had a history, in our opinion, of doing the 
right things. We have built the business over 20 years to 
become the second largest in our industry in the United States, 
and we have done it by providing a value, affordable product to 
consumers, giving them highly reliable, affordable products 
that meet their needs.
    We sincerely believe that what would happen if the standard 
were set at 13 SEER, that all manufacturers, as I indicated in 
my testimony, would step up much as what occurred in 1992, when 
the standard was set back in 1987, when, in fact, the standard 
was set at 10. The same arguments were propagated at that point 
that there would be $700 of price difference on the new, higher 
efficiency products. However, that simply was not the case.
    The Chairman. Setting the higher standard then causes the 
volume to increase and the price per unit come down?
    Mr. Parks. That is correct.
    The Chairman. That is your view?
    Mr. Parks. That is correct.
    The Chairman. This is a personal aside here, but we are 
doing some remodeling on a home we own out in New Mexico, and I 
told the contractor to be sure and put all compact fluorescent 
light bulbs in so we could save some energy, and he came back 
and said, well, that is $40 per light bulb as compared to $3 or 
$4 if you go with the regular kind.
    Now, why hasn't the same thing that you just predict in the 
air-conditioning area occurred in that area? Why hasn't the 
price of those come down to some kind of reasonable level?
    Mr. Parks. I think historically, where there are standards 
that must be met, people will purchase at the minimum standard 
level. There has been a pattern of that demonstrated and so, 
given a situation where there is no, essentially, regulatory 
requirement or mandate to purchase those types of high-
efficiency light bulbs, there is not a payback in the 
consumer's mind. Also, the amount of energy used by a light 
bulb is minuscule compared to what is used for an air-
conditioning product.
    The Chairman. Mr. Nadel, you agree that the price will come 
down substantially for this higher efficiency air conditioner 
if it is mandated, is that your view as well?
    Mr. Nadel. Yes, it is, and that is based on past 
experience. Before the SEER-10 standard was set, the ARI 
members estimated it would cost more than $700 in extra cost. 
DOE estimated it would cost--I cannot remember the exact 
figures, something like $340 extra. If you look at the U.S. 
Census Bureau data, in fact, the cost in 1992 did not go up at 
all, so when manufacturers sharpen their pencils, when the 
market share increases from the current roughly 5 percent for 
SEER-13 up to 100 percent, there will be dramatic cost 
reductions.
    The Chairman. This Energy Star labeling program that EPA 
and now DOE are both involved in, how effective is it? Is there 
something we should be doing to strengthen that program?
    Mr. Nadel, do you have a view as to whether there ought to 
be some statutory change that would strengthen or expand that 
program, or do you think it is working just the way it ought 
to?
    Mr. Nadel. I think the program is working very well. 
However, I think it will help some to actually establish a 
statutory base for the program. Now, there is no official 
statutory basis. There is general directives to DOE and EPA to 
improve energy efficiency, reduce pollution, but not a specific 
directive.
    I do know in the bill that the House Energy & Commerce 
Subcommittee reported out yesterday there are some specific 
provisions authorizing Energy Star and giving some directives 
to the programs that I think will be helpful.
    The Chairman. Dr. O'Hagan, did you have a view on that?
    Dr. O'Hagan. Yes, Mr. Chairman. We think that is a very 
good program as it applies to consumer products, and I think 
the focus ought to be kept in that area, and also Energy Star 
buildings. We do not think it is valuable, however, in the 
industrial area. It has been proposed to be extended, for 
example, to motors.
    We think that the NEMA Premium program which has been 
launched by the industry and has even higher standards than the 
Federal standards is a preferred approach, but certainly, as 
far as consumer products and commercial buildings is concerned, 
it is an excellent program. It also leads to the point, Mr. 
Chairman, and also to the question of the light bulbs that you 
mentioned, the need that we pointed out for education, and for 
people to understand the economics.
    It is very hard for a consumer to pay $15 for a compact 
fluorescent when they can get an incandescent lamp for 50 
cents, and that is a pretty hard sell without a real 
understanding of the long-term benefits of making that 
purchase, so it is for that reason that we think a lot of 
emphasis needs to be put in educating the public as to the 
benefits of energy-efficient products.
    The Chairman. Well, I think all of this testimony is very 
useful, and I appreciate you all being here, and we will try to 
learn from it as we put a bill together.
    Thank you very much. The hearing is adjourned.
    [Whereupon, at 11:50 a.m., the hearing was recessed, to be 
reconvened on July 17, 2001.]

 
                         NATIONAL ENERGY ISSUES

                              ----------                              

                         TUESDAY, JULY 17, 2001

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:38 a.m. in room 
SD-106, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

           OPENING STATEMENT OF HON. JEFF BINGAMAN, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. The purpose of today's hearing is to consider 
proposals to reduce the demand for petroleum products in the 
light duty vehicle sector. The committee has held several 
hearings on the subject of gasoline supply and price. Most 
recently was a field hearing in South Dakota chaired by Senator 
Johnson on renewable fuels. Today we are shifting the focus to 
the demand side of the equation.
    Although this committee does not have direct jurisdiction 
over vehicle fuel efficiency standards, it does have 
jurisdiction over research and development, over alternative 
fuels, and over overall energy policy. Several bills which have 
been referred to this committee propose strategies to reduce 
gasoline consumption, either through fuel diversification or 
increased efficiency. We have asked witnesses to review and 
comment on some of those bills. S. 597, S. 388, S. 883, S. 
1053, and S. 1006 are the ones that I currently am aware of.
    Witnesses should feel free to comment on any other measures 
referred to this or any other committee.
    The New York Times this morning reported on a draft of the 
National Academy of Sciences report on improving vehicle 
efficiency. According to that article in the Times, the report, 
which was requested by Congress last year, will find ``fuel 
economy of new vehicles, especially sport utility vehicles and 
pickup trucks, could be raised by as much as 10 to 11 miles per 
gallon over the next 6 to 10 years, with the extra cost offset 
by savings on gasoline.''
    The panel preparing this report did not include anyone from 
the environmental community. Yet the findings seem to be fairly 
consistent with a recent study by the Union of Concerned 
Scientists. We will have an opportunity this morning to explore 
the types of technologies that can be deployed in the near term 
and in the future to achieve greater efficiency.
    The Times story also follows up on the issue of sales of 
flexible fuel vehicles that can use either gasoline or ethanol 
to meet current fuel economy targets. Close to a million of 
these vehicles, mostly trucks and SUV's, are currently being 
manufactured. Yet very few actually burn ethanol.
    The committee has been a strong proponent of the use of 
alternative fuels. In fact, alternative fuel vehicles were a 
major focus of the Energy Policy Act, the last major 
legislation, energy legislation, passed by the Congress. 
Unfortunately, the goals of EPAct with respect to alternative 
fuels have not been met, in part due to the lack of available 
refueling infrastructure, but also due to the disincentive to 
use the alternative fuels inherent in flexible fuel vehicles.
    The goals of fuel diversification remain as valid today as 
they were 10 years ago. We will hear from some of the witnesses 
this morning on what we can do to increase the use of those 
fuels. There are numerous reasons we need to be serious about 
reducing our reliance on petroleum products, from energy 
security and economics to the global environment, and I hope 
the hearing will help give the committee guidance on how we can 
develop policies to both achieve greater efficiency and also 
greater fuel diversity in the vehicle sector.
    Senator Murkowski.

      STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Good morning, Senator Bingaman.
    Again, I think it is important that we have these continued 
hearings. Starting off the new week, we have had I think some 
21 weeks have gone by since we submitted in general the broad 
comprehensive energy bills, your bill and my bill before the 
committee. CAFE standards are high on everybody's agenda and 
you mentioned the article in the New York Times. It is rather 
misleading in the sense that one can assume it says that the 
panel urges higher fuel efficiency for automobiles as a final 
document.
    There is a letter that has gone out from Mr. Bill 
Colgazier, Executive Officer of the National Research Council 
of the National Academy of Science, July 16, concerning this 
draft report, and his indication is that: ``We believe it is 
critical for readers to understand that this document is not a 
final Research Council report. It does not carry the weight of 
a final peer reviewed study. Further, the study of the National 
Research Council undergoes significant changes during an 
anonymous peer review process. Moreover, in the case of this 
particular study the study committee will be meeting July 17 
and 18 to address comments made about the draft. More than 300 
comments have been received to date. More are anticipated. 
Therefore, it is important to understand that the study at this 
stage is still a work in progress.
    ``Once the committee has responded to review comments and 
documented its changes, the Academy's report review committee 
will determine whether the committee has been responsive to the 
review's comments. The final work is expected to be issued on 
July 31.''
    So I think we should reflect on the reality that this is 
still a draft, that the New York Times report does not 
necessarily reflect the final comments expected from the 
National Academy of Sciences on CAFE standards.
    You know, we have seen comments of many people that suggest 
that all we need to do to address our energy crisis is to 
initiate CAFE standards. We have seen over a period of time the 
reality that our cars are getting more fuel efficient, but this 
has not shown up in the faulty measure of automobile 
performance, that is miles per gallon. We have got a couple of 
charts here that I would like to have in evidence.
    The fact is that manufacturers have maintained fuel economy 
despite consumers' demand for performance. If you look at the 
scale, this is EPA's 2000 fuel economy trend reports and it is 
a rather complicated chart: weight, miles per gallon, manual, 
and zero to 60, in a time sequence. As shown on the right, the 
point is if we had kept cars of the 1980's and made the same 
improvements in vehicle technologies, fuel economy would have 
been well over 35 miles per gallon. But instead of choosing 
fuel economy--and I use the word ``choosing'' because I think 
it is appropriate--the American people by their own free will 
seem to have chosen vehicles with improved performance.
    It should not be the prerogative of this Congress in my 
opinion, or any radical environmental groups, the deprive the 
public of their choice. The automakers simply respond to the 
needs of their consumers and make the vehicles that people seem 
to want to buy.
    Now, that is the faulty logic of CAFE standards. You cannot 
regulate consumer behavior without trampling to some extent on 
individual freedoms and passenger safety. Automakers can make 
all the fuel efficient vehicles they can, but if no one buys 
them what have we accomplished? I think the indications are 
that of the ten most fuel efficient automobiles made in the 
United States today, they only constitute one-and-one-half of 
one percent of the automobile sales.
    Now, what does that say for America? Well, I think you can 
draw your own conclusions, but that is not what motivates the 
purchaser. So the question is at what point do we dictate this? 
Now, perhaps we should work to produce more vehicles running on 
alternative fuels or new technologies like fuel cells, vehicles 
that provide all of the performance characteristics consumers 
demand in the form that they can recognize, and provide them 
with tax incentives if that is necessary to choose these new 
technologies over established vehicle technologies.
    The energy bill that we have introduced, S. 389, contains 
these incentives as put forth by Senator Hatch and a number of 
others. I think this is the right way to proceed.
    Let us not be fooled into thinking that we need only 
tighten CAFE standards to solve our energy problems. We should 
instead focus on getting advanced vehicle technologies to 
market and into the hands of consumers. As we will hear from 
our third panel, exciting opportunities await us in the area of 
replacing gasoline with natural gas, ethanol, and electric 
vehicles. But there is a critical lack of refueling facilities. 
As we know, you just cannot drive up anywhere and fill up your 
tank, and there is not a mass market for these vehicles as yet.
    Perhaps it is worth asking whether maybe we have been 
keeping score of the wrong scorecard. The focus on miles per 
gallon of gasoline puts alternative fuels certainly at a 
disadvantage and certainly overlooks and ignores their 
potential. Perhaps it is time for a new metric that directly 
addresses the goal of reducing dependence, as an example, on 
foreign oil, one that would promote finding another alternative 
to gasoline.
    So I hope that our witnesses will also reflect and comment 
on the negative impact of CAFE standards on alternative fuels 
and their development, and ask whether there is a better way to 
provide for fuel diversity in our transportation sector. 
Reducing our needs for gasoline would reduce our dangerous 
dependence on imported oil and provide energy security to a 
greater degree for Americans. Energy security means job 
security, it means economic security, it means our American 
standard of living.
    We should be careful to foster this fuel diversity in a way 
which does not stifle innovation and technological development. 
We look forward to the suggestions on how we might do this as 
part of a comprehensive energy plan.
    Thank you, Mr. Chairman, and thanks for holding the chart 
so still for so long.
    The Chairman. Thank you very much.
    Why don't we start with our first panel. We have Mr. Barry 
McNutt, who is the Senior Policy Analyst with the Office of 
Domestic Policy and International Affairs in the U.S. 
Department of Energy; and Mr. Robert Shelton, who is the 
Executive Director of the National Highway Traffic Safety 
Administration. Mr. McNutt, why don't you go right ahead.

STATEMENT OF BARRY D. McNUTT, SENIOR POLICY ANALYST, OFFICE OF 
DOMESTIC POLICY AND INTERNATIONAL AFFAIRS, DEPARTMENT OF ENERGY

    Mr. McNutt. Mr. Chairman, members of the committee, good 
morning. Thank you for the opportunity to be here. As you said, 
my name is Barry McNutt. I am a Senior Policy Analyst with the 
Energy Department's Office of Policy and International Affairs. 
I have a brief oral statement I would like to make and I 
request that my written testimony be included as part of the 
record of this hearing.
    The topic of this hearing, reducing demand for petroleum 
products in the light duty vehicle sector, is a problem that we 
have worked on for a long time, starting with the Energy Policy 
and Conservation Act in 1975 and running most recently to the 
President's National Energy Policy and the Department's ongoing 
vehicle efficiency, alternative fuels, and renewable fuels 
efforts.
    That we have worked on this goal of reducing petroleum 
demand, almost three-quarters of which is in the transportation 
sector, for more than 25 years, we have passed numerous pieces 
of legislation, and we have a variety of ongoing programs I 
think is certainly telling as to how difficult the problem is.
    We have a limited number of options to reduce petroleum 
demand in any significant way in the light duty vehicle sector. 
Clearly, improving vehicle fuel economy has to be part of any 
serious effort to address that goal. We have the technology to 
make significant progress without sacrificing other attributes 
that are important to consumers. The challenge we face is 
getting this technology into vehicles to deliver increased 
miles per gallon for consumers at a reasonable price.
    With regard to alternative fuels as a pathway to reduce 
petroleum use in light duty vehicles, the challenge seems to be 
even greater. We have worked hard for more than a decade since 
the passage of the Alternative Motor Fuels Act in 1988, 
followed by the Energy Policy Act as was mentioned in 1992, to 
implement a variety of programs to increase the use of 
alternative fuels in highway vehicles. We have done this with 
both energy and clean air goals in mind.
    While a large number of alternative fuel capable vehicles 
are being produced, little real progress has been made in 
developing a commercially viable alternative fuels market. 
There are a lot of reasons for this, but the fundamental 
reality is that the conventional petroleum fuel system enjoys 
enormous powers of incumbency, has great and increasing 
investments in infrastructure, and is making impressive 
advances in producing cleaner petroleum-based fuels.
    If we want the next decade to end differently than the past 
vis-a-vis a competitive alternative fuels market, significant 
technology and policy changes would be required.
    The expanded use of non-petroleum components in gasoline 
and potentially diesel fuel is one area where notable progress 
has been made in the past decade. Oxygenates in gasoline like 
ethanol and MTBE now represent about 5 percent of the volume of 
the gasoline pool. While their use is not without controversy, 
and I am painfully familiar with that controversy, these 
replacement fuels, as they are characterized in the Energy 
Policy Act, bring added volume and improved air quality 
characteristics to the gasoline pool.
    Similar replacement fuels such as gas-derived liquids or 
biofuels for blending with diesel fuel may become available and 
may become economically competitive. Together all these actions 
can help reduce the growth in petroleum product demand from 
light duty vehicle. Nevertheless we are for the foreseeable 
future likely to see growing gasoline and diesel fuel demand. 
Addressing this reality requires we focus on increasing our 
capability to produce cleaner conventional petroleum-based 
fuels at the same time we work to increase fuel efficiency and 
increase the use of alternative and renewable fuels.
    That is the end of my prepared remarks and I will be glad 
to address any questions the committee may have. Thank you.
    [The prepared statement of Mr. McNutt follows:]

Prepared Statement of Barry D. McNutt, Senior Policy Analyst, Office of 
    Domestic Policy and International Affairs, Department of Energy

    Mr. Chairman and Members of the Committee, I welcome the 
opportunity to testify before you today on various legislative 
proposals currently pending before the Committee: S. 388, S. 597, S. 
883, S. 1006, and S. 1053 as they relate to reducing petroleum use in 
light duty vehicles.
    First, I would like to thank the Chairman and Members of the 
Committee for your leadership and commitment in addressing the nation's 
energy issues. The Department applauds the Committee's efforts in 
moving ahead to shape comprehensive long-term energy legislation and 
look forward to working with you to find areas of common ground between 
the Congress and President Bush's policy proposals outlined in the 
National Energy Policy (NEP). Mr. Chairman, we are confident that our 
best efforts will move us toward a consensus and commitment to action.
    Today, the U.S. transportation sector consumes over 13 million 
barrels a day of petroleum products and almost 60 percent of that is in 
our light duty vehicles--the passenger cars, light trucks and sport 
utility vehicles we all drive. Almost all of the fuel used by these 
vehicles is gasoline and we produce less, even with domestic refineries 
operating at maximum capacity, than we consume. The imbalance between 
our gasoline demand and domestic production is made up with imports, 
which this summer have averaged almost three quarters of a million 
barrels a day. Light duty vehicle fuel use estimated to increase over 
one third by the year 2020, despite an assumed 15 percent increase in 
new vehicle efficiency. Almost all of this fuel will be gasoline and 
over two million barrels a day of imported gasoline is estimated to be 
needed in 2020.
    We recognize that we need to do more to decrease petroleum product 
demand in the transportation sector and to increase U.S. refining 
capacity to make the clean gasoline and diesel fuel that our light duty 
vehicles will need. However, people who say that the President's energy 
policy does not focus sufficient attention on conservation simply 
haven't reviewed the basics of the Policy. It is important to note that 
more than 50 percent of the National Energy Policy focuses on energy 
efficiency, encouraging, in the light duty vehicle area, the 
development of fuel efficient vehicles, consumer attention to energy 
efficiency and greater use of alternative fuels. However, action on 
reducing demand alone will not be sufficient. You either have to accept 
an ever-widening gap between demand and domestic supply, with all the 
negative consequences that entails, or you also have to begin thinking 
about how we increase our own supply of clean vehicle fuels.
    To address these challenges, the President's National Energy Policy 
has adopted an approach that is comprehensive and strikes a balance 
among our priorities.
    First, our policy balances the need for increased supplies of 
energy with the need to accelerate conservation efforts by utilizing 
cutting edge technology. For example, increased utilization of advanced 
vehicle materials, hybrid drive-train technology and new, clean direct 
injection engine designs can provide significant efficiency 
improvements in light duty vehicle efficiency without sacrificing other 
attributes. The challenge we face is getting this technology into the 
vehicles for consumers at a reasonable price. The Administration looks 
forward to working with Congress to determine the best way to achieve 
this goal.
    Second, we believe energy security dictates more focus on the 
system that provides the clean petroleum products that serve our 
transportation needs. We have an enormous and complex transportation 
fuels refining, distribution and storage system in this country that, 
while significantly dependent on imported oil, does give us the broad 
mix of petroleum products needed to meet current demand and support 
energy security. Unfortunately, that system is having difficulty 
keeping up with growing demand and a product slate that is shifting 
towards greater demand for middle distillates. At the same time, new 
environmental requirements for ever cleaner products will require even 
greater investment. We need to spend more attention to improving and 
increasing that clean product capacity, and we need to redress the 
governmental policies that inhibit that.
    Third, our policy appropriately balances our essential requirements 
for traditional sources of transportation fuels with the need for 
renewable and alternative fuel sources. It also recommends tax 
incentives for the use of certain renewables and advanced technology 
vehicles and more focused research on next-generation sources like 
hydrogen, through fuel cells.
    The President's energy policy also harmonizes growth in domestic 
energy production with environmental protection. This commitment to 
conservation and environmental protection is not an afterthought; it is 
a commitment woven throughout. Transportation fuels production without 
regard to the environment is simply not an option.
    We support this balanced approach with a number of specific 
recommended actions. The Administration can carry out many of these 
recommendations on its own, either through executive orders or agency-
directed actions. We are moving ahead to implement proposals as quickly 
as possible. One day after the release of our National Energy Policy, 
the President issued two executive orders directing Federal agencies to 
accelerate approval of energy-related projects and directing Federal 
agencies to consider the effects of proposed regulations on energy 
supply, distribution or use. Both of these executive orders will affect 
fuels regulations and refinery operation critical to an adequate supply 
of transportation fuel.
    Moreover, where appropriate, Federal agencies, including the 
Department of Energy, are directed to take a variety of actions to 
reduce and diversify vehicle fuel use. Under existing Executive Order 
13149, Federal fleets have to reduce petroleum consumption by 20 
percent by 2005, using improved efficiency, reduced vehicle use and 
alternative fuels. This reduction in fuel use is equivalent to 
increasing the fuel economy of all the vehicles in the federal fleet by 
6 mpg. This is a significantly greater savings than that which would be 
required by section 704 of S. 597. The Executive Order, however, gives 
federal fleet managers a choice of how they achieve the savings; they 
are not limited to buying only higher fuel economy new vehicles.
    Some of the recommendations contained in the National Energy Policy 
report that relate to vehicle fuel use and production require 
legislative action and we can find several areas for concurrence with 
proposed legislation. For example, reauthorization of the Spark 
Matsunaga Hydrogen Research, Development and Demonstration Act of 1990, 
similar to what is called for by S. 1053, is supported in the NEP. 
However, we are concerned that legislative proposals that mandate use 
of specific technologies or fuels on a rigid timetable are not a good 
way to get us to our goals. Success of the technology development, 
adequacy of the fuel supply, or cost-effectiveness cannot be assured by 
legislation. Our goal should be to create the technology base and 
policy context in which the market can make cost-effective choices that 
respect our environmental goals and move us towards our energy security 
goals.
    We all recognize energy as a critical challenge. We recognize that 
the efficiency and fuel diversity of our light duty vehicle fleet can 
be improved. We also recognize that parts of our petroleum product 
supply and delivery system need enhancement or modernization. And we 
all recognize that conservation and stewardship must go hand in hand 
with achieving these objectives. This Committee has a long and proud 
tradition of developing bipartisan energy legislation. The 
Administration recognizes that all major energy bills have been 
bipartisan in nature and looks forward to working closely together with 
you to develop bipartisan energy legislation.
    In closing, let me say, Mr. Chairman, that I believe the Department 
of Energy is particularly well suited to make a serious contribution to 
finding solutions to the energy challenges we will face over the next 
twenty years. The Department is the single largest supporter of basic 
research in the physical sciences and manages major programs in basic 
energy science, high energy and nuclear physics, fusion energy 
sciences, environmental research, and advanced scientific computing 
research. In different ways, each of these areas will play a role in 
providing greater energy security for the American people. As the 
policy report notes, ``The President's goal of reliable, affordable and 
environmentally sound energy supplies will not be reached overnight. It 
will call forth innovations in science, research and engineering. It 
will require time and the best efforts of leaders in both political 
parties.''
    Mr. Chairman, this concludes my testimony and I would be happy to 
answer any questions the Committee may have at this time.

    The Chairman Thank you very much.
    Mr. Shelton.

 STATEMENT OF L. ROBERT SHELTON, EXECUTIVE DIRECTOR, NATIONAL 
     HIGHWAY TRAFFIC SAFETY ADMINISTRATION, DEPARTMENT OF 
                         TRANSPORTATION

    Mr. Shelton. Thank you, Mr. Chairman. On behalf of the U.S. 
Department of Transportation, I welcome the opportunity to 
contribute to the committee's consideration of measures to 
reduce the demand for petroleum products in the light duty 
vehicle sector. This is a matter of importance to the economy 
and to our national energy security.
    As its principal contribution to energy conservation in the 
light duty vehicle fleet, the Department administers the 
Corporate Average Fuel Economy program. Enacted in 1975 in 
response to the energy crisis caused by the 1973 to 1974 oil 
embargo, the CAFE program requires motor vehicle manufacturers 
to ensure that their new vehicle fleets meet a specified 
average level of fuel economy in each model year.
    The CAFE standard for passenger cars is set by statute at 
27.5 miles per gallon, whereas the CAFE standard for light 
trucks is set by the Department by regulation for each model 
year. The light truck CAFE standard has been frozen at the 
model year 1996 level of 20.7 miles per gallon by provisions in 
the Department's annual appropriations acts.
    The early years of the CAFE program were marked by 
significant improvements in fuel economy as public demand for 
energy efficient vehicles during the late 1970's and the early 
1980's continued to be strong. Since the mid-1980's, however, 
gasoline prices have typically been stable or declining and 
consumer demand has tended to favor vehicle utility, safety, 
and performance over fuel economy, with the result that the 
fuel efficiency level of the passenger car fleet has leveled 
off. At the same time, the arrival of new types of passenger 
vehicles, such as minivans and sport utility vehicles, has 
attracted buyers away from passenger cars into these less fuel 
efficient models.
    The result is that the average fuel economy for the new 
light duty vehicle fleet as a whole has declined from an all-
time high of 26.2 miles per gallon in model year 1987 to 24.5 
miles per gallon for this model year. This decline means that 
today's fleet is using more petroleum, an increasing percentage 
of which is imported, than it would have if fuel efficiency had 
continued to improve beyond the early years of the CAFE 
program.
    It is in this context that we must re-examine the CAFE 
program and other conservation measures. The Department 
welcomes lifting the restrictions on CAFE rulemaking Congress 
has imposed since fiscal 1996 to permit the Department to once 
again engage in rulemaking that will set the fuel economy 
standard for the light truck fleet.
    In a July 10 letter to the appropriations committees, 
Secretary Mineta urged them to consider legislation that would 
remove the restriction before the end of this fiscal year so 
that the Department would not need to wait until the start of 
the new fiscal year, but could begin work right away.
    Whenever the Department is free the go forward with 
rulemaking in the CAFE program, our rulemaking will be fully 
informed by the National Academy of Sciences report expected 
later this month, despite today's New York Times article, and 
our work will be consistent with the President's national 
energy policy considerations. We will have to overcome the 
effects of the 6-year freeze. The Department has not been able 
to collect data or conduct any analyses that will be needed to 
establish the statutorily required determination that a 
specified fuel economy level is a maximum feasible level.
    We believe that responsibly crafted CAFE standards under 
existing law should increase fuel economy without negatively 
impacting the automobile industry. As you know, the President's 
national energy policy report recommends the that standards 
should be based on sound science and should consider passenger 
safety, economic concerns, and the impacts on both domestic and 
non-domestic manufacturers.
    It is clear that there are many points of view about the 
best means to improve the fuel economy of the light duty 
vehicle fleet, as illustrated by the continuing debate in the 
Congress on whether to legislate higher CAFE standards or to 
require specific reductions in fuel consumption by certain 
segments of the fleet, such as light trucks. We are listening 
to these debates with interest because they offer an 
opportunity to explore alternative means of conserving 
petroleum.
    To achieve a specified CAFE level, a manufacturer must 
produce fuel efficient vehicles that the public will buy. If 
demand for fuel efficient vehicles slackens, whether because 
fuel prices decline or because consumer preferences change, 
manufacturers may need to provide incentives, such as rebates 
or lower prices, to meet required CAFE levels. If other cost 
effective measures can be devised to increase consumer demand 
for fuel efficient vehicles, those measures should be examined. 
In fact, the President's national energy policy report 
recommends that the Secretary of Transportation evaluate 
market-based approaches to increasing new motor vehicle fuel 
economy.
    We want to assure the committee that the Department will 
carry out its responsibilities under the CAFE law to the best 
of its ability, with the goal of improving fleet fuel economy, 
producing benefits to the economy, and to our national energy 
security.
    This concludes my statement. I will be pleased to answer 
your questions.
    The Chairman. Thank you very much.
    Let me start and ask a few questions about the process from 
here on as you see it. You referred to this, Mr. Shelton, in 
your comments already. But you are currently prohibited, the 
Department of Transportation is prohibited, from proceeding 
with any kind of analysis or investigation to determine what an 
appropriate fuel efficiency standard might be.
    Mr. Shelton. Yes, we are, Mr. Chairman, yes.
    The Chairman. Secretary Mineta has asked the appropriations 
committees of the two Houses to go ahead and relieve him of 
that prohibition so that he can get on with developing a new 
standard, is that right?
    Mr. Shelton. Yes, sir. He sent a letter up last week asking 
the Department to be relieved of that prohibition.
    The Chairman. So if he were relieved of that in the next 
couple of weeks, what is the time frame for getting from where 
we are today to an actual new standard being implemented by the 
Department of Transportation?
    Mr. Shelton. We have established standards for light trucks 
through model year 2003. We are required by statute to set 
standards at least 18 months in advance of a model year. So we 
have to set standards for model years 2004 and later light 
trucks and model year 2004 would start approximately October 1, 
2003, so we have to set the standard for 2004 18 months 
earlier, which would be approximately April 1, 2002.
    If the freeze were lifted, the Department would start right 
now on establishing light truck standards for at least 2004. We 
would need to get a standard in place for model year 2004 light 
trucks by April 1, so we would proceed to getting that 
rulemaking done, and that rulemaking might encompass model 
years also beyond 2004. We have that option.
    The Chairman. Did you see the article this morning in the 
New York Times that both Senator Murkowski and I referred to?
    Mr. Shelton. Yes, sir, I did, Mr. Chairman.
    The Chairman. Did you have any perspective you could give 
us on this issue of sales of flexible fuel vehicles that can be 
either gasoline or ethanol? I gather that the draft report, and 
it is still just a draft, but that it is critical of the whole 
notion for what they cite as the fact that very few of these 
vehicles actually burn ethanol. Even though they may be capable 
of using either fuel, they do not in fact wind up burning 
ethanol.
    Is that something that your Department has looked at, or do 
you have any view on that?
    Mr. Shelton. We are looking at that right now, sir. Under 
the 1988 Alternative Motor Fuels Act, manufacturers are given 
CAFE incentives to produce vehicles that will run on both 
gasoline and alcohol, and manufacturers have produced over one 
million of these vehicles to date. Very few of them actually do 
operate, though, on the alternative fuels, and a big problem is 
the infrastructure is not out there. There are very few ethanol 
refueling stations in this country.
    We are actually completing a report to the Congress in 
conjunction with the Department of Energy and the Environmental 
Protection Agency which is going to address this program and 
how it has--and the effects of this program since it has been 
established.
    The Chairman. Just to sort of finish this line of questions 
to you, as you see it, given the current authority that the 
Department of Transportation has to set these standards, if 
Congress were to back off of the prohibition on you proceeding 
in this area is there other legislative action that you also 
think would be useful?
    We have various bills pending here in the Senate and in the 
House which actually set higher vehicle fuel efficiency 
standards and do not just leave it to your rulemaking to do 
that. What is your position on those?
    Mr. Shelton. We have not taken any position on the 
legislative proposals. We have taken the position that we think 
the National Academy of Sciences report should be completed. We 
would like an opportunity to review that report before making 
recommendations as to what policy changes or legislative 
changes might be necessary to address CAFE.
    The Chairman. You cannot advise Congress as to what to 
enact or whether to enact anything in this area until you see 
that final report, is that your position?
    Mr. Shelton. We think it is very important that we all see 
that final report, Mr. Chairman. The Congress appropriated a 
million dollars for that report. The report was reported by the 
Congress and by the Department of Transportation. It is a very 
significant piece of work, piece of analysis, in looking at the 
program.
    We expect to have that report by the end of July and we 
think it should be considered very thoughtfully and thoroughly 
before we take further action.
    The Chairman. My time is up.
    Senator Murkowski.
    Senator Murkowski. Thank you, Senator Bingaman.
    We have been aware that the Department of Transportation 
was asked to put policies in place to limit fuel use in the 
light duty vehicle sector, and it is in some of the bills that 
are before us here. I am curious to know what policies and 
measures specifically you believe should be considered. I think 
among them there was the fuel use proposal to have as a goal 5 
percent below the 2000 levels by 2008 or thereabouts, and I 
think that time frame would be 5 to 7 years to accomplish that.
    Could you comment on any of these policies, and also 
comment on the effect of timeliness, how immediate would some 
of these likely be, what effect they might have on gasoline 
supplies, on prices, and so forth?
    Mr. Shelton. As to the first question, Senator, I think we 
really think it is important to get the National Academy of 
Sciences report before deciding whether we need legislative 
authority in this area. With regard to the second part of the 
question, clearly auto manufacturers face lead times in their 
product plans and if the goal is to influence those product 
plans significantly without causing undue negative effects on 
their plans they would need some lead time before they could 
start raising vehicle fuel economy.
    Senator Murkowski. When we talk about lead time, what are 
you talking about? Be a little more specific on policies. What 
policies? I know you are saying let us wait for the National 
Academy of Sciences, but for the benefit of the committee here 
can you share a few of the policies here? Are we looking at 5 
to 7 years as lead time?
    Mr. Shelton. Typically, sir, it would take 2, 3, 4, 
probably 3 or 4, model years before a manufacturer could make 
substantial changes in his product plans other than say 
restricting sales of planned products. So any legislation or 
other program which would require a substantial increase in 
fuel economy, for example, in the near term that was not 
considered in the manufacturer's product plans could be 
disruptive to those plans.
    Senator Murkowski. Well, how about policy specific 
recommendations? What policies?
    Mr. Shelton. There are a number of policies that have been 
proposed, such as the one you mentioned, which is simply to cap 
gasoline consumption at some level in the future. Typically we 
would have to work back to figure out what sort of new vehicle 
CAFE level that implied and then you would have to consider the 
manufacturer's ability to get to that CAFE level and whether it 
was achievable in that time frame.
    Senator Murkowski. Well, since we are talking about unknown 
time frames, I am often a little perturbed. We talk about the 
merits of opening ANWR and the time it would take to make a 
determination. These things all take time, whether you are 
talking about changing policies or significant changes in 
engineering or prospects of opening up an oil field. The bottom 
line is what the contribution is.
    Would the Department of Transportation also consider 
highway policies, mass transit, alternative fuels?
    Mr. Shelton. Yes, absolutely. We look at energy consumption 
in its totality that transportation uses to look at effective 
means to reduce that consumption. For example, we are looking 
at congestion mitigation as part of the President's national 
energy policy.
    Senator Murkowski. Now, with the development of engineering 
standards and weight and safety and the buying habits of the 
public, how do you explain how the ten most fuel efficient cars 
only constitute 1.5 percent of the automobile sales in this 
country? I mean, is there a problem with those cars? Is it 
buying habit? Is it safety? Is it weight? Is it performance?
    Mr. Shelton. I think clearly when CAFE standards are 
established you have to consider whether people will buy those 
vehicles. As you point out, many very fuel efficient vehicles 
are only sold in very small numbers, which implies that they do 
not meet the needs of many members of the public. When we set 
fuel economy standards, we are required by Congress to consider 
the economic practicability of achieving those levels, which 
includes the manufacturers' ability to afford to make these 
changes, but also whether consumers will buy those vehicles in 
quantities.
    Senator Murkowski. Do not leave me hanging there. 
Technically, you are talking about cost, you are talking about 
acceptability, you are talking about safety. I assume the 
higher up you go in demanding an SUV that will achieve what the 
automobiles currently are set at, what is it, 27 or 
thereabouts, you are talking about potentially a substantial 
change in the weight of that vehicle potentially. Are you 
talking about a significant breakthrough in an engine that will 
give you that kind of mileage? Then you are talking about 
potential higher costs as you achieve that squeeze.
    Is this just a process of a compromise of all the various 
considerations that go into achieving higher standards?
    Mr. Shelton. I am not sure it is a compromise, Senator. We 
have to consider all these factors certainly. In the short run, 
for example, if you were trying to raise SUV fuel economy by a 
large amount in a very few model years, the nearest, the most 
readily available approaches to do that are to sell more 
smaller SUV's and fewer large ones, which would certainly 
impact consumers that want larger SUV's, or perhaps they would 
have to sell less powerful SUV's, which would also have better 
fuel economy, which again may undermine other consumers' demand 
for such vehicles.
    So they are all certainly considerations when you set CAFE 
standards. You have to consider whether the manufacturers can 
sell those vehicles. If you set a CAFE level which demands that 
manufacturers produce vehicles that are not going to be sold, 
then there will not be fuel savings.
    Senator Murkowski. The last question. Why are not the 
public buying the most fuel efficient automobiles today? Why do 
those ten automobiles--either you, Mr. McNutt, or you, Mr. 
Shelton, tell us why they are not buying them? Clearly there is 
an incentive to buy them.
    Mr. Shelton. Clearly those vehicles have incentives to buy 
them, in that they are often inexpensive and they do not use a 
lot of gas. That is an incentive to buy them. But obviously, 
for the great majority of consumers those vehicles do not meet 
their needs. They do not have perhaps sufficient room, 
sufficient power, whatever else they need when they buy a new 
vehicle. Those vehicles are not meeting their needs.
    Senator Murkowski. That begs the question. If there is a 
need, fill it. Evidently you cannot fill that need because of 
technological challenges; is that what you are telling us?
    Mr. Shelton. In the longer term, it is easy to meet that 
need, because technologies become available to increase fuel 
economy without affecting the utility of the vehicle.
    Senator Murkowski. Mr. McNutt, do you want to try it?
    Mr. McNutt. We have had a decade of very low gasoline 
prices up until the last two summers and that has certainly 
affected consumers' interest in fuel efficiency per se and the 
tradeoffs they are willing to make. I think as Mr. Shelton 
says, you can change the fuel economy attributes of both small 
vehicles, the ones you are referring to, and the larger 
vehicles over time with technology, and so there is a time 
tradeoff in terms of how quickly you can do this.
    The manufacturers look at consumer demand, look at the 
competitive playing field that they are operating in, what the 
other manufacturers are going to do, and they have to operate 
within that competitive playing field. Today as things now 
stand, both because of policy and the market, there is not an 
incentive to make those improvements in the fuel efficiency of 
the other vehicles.
    So over time both the market can change, the policy can 
change, and the technology can change. We are now at a place 
where the vehicles that are being offered were designed and 
brought to market in the end of the 1990's when gasoline was at 
historic nominal low prices and I think the vehicles being 
offered are reflective of that. Over time that can change if 
the framework changes.
    I think really that is what we are getting at. The question 
you were asking is what is that time frame for change, and one 
has to respect both the design lead times that manufacturers 
face. I think Mr. Shelton said that 2004 would probably be the 
first model year you could seriously look at any sort of 
standard for light trucks, and I think as a practical matter 
changing the fuel efficiency of those vehicles is really a 2005 
or later proposition.
    The Chairman. Thank you.
    Senator Johnson.

          STATEMENT OF HON. TIM JOHNSON, U.S. SENATOR 
                       FROM SOUTH DAKOTA

    Senator Johnson. Thank you, Mr. Chairman.
    I want to ask consent to submit a full opening statement 
for the record.
    The Chairman. We will include that in the record.
    [The prepared statement of Senator Johnson follows:]

 Prepared Statement of Hon. Tim Johnson, U.S. Senator From South Dakota

    Mr. Chairman, thank you for holding this important hearing. I am 
pleased that we are holding a hearing on renewable fuels and fuel 
efficiency in the light duty vehicle sector. This hearing is timely, 
since it follows the field hearing that I chaired in Sioux Falls, SD on 
July 6 on S. 1006, the Rewewable Fuels for Energy Security Act, which I 
have introduced with my colleague, Sen. Chuck Hagel. S. 1006 is also 
one of the bills that will be discussed at today's hearing and I am 
grateful that the Chairman has placed it on the agenda.
    As you all know, there has been a great deal of discussion this 
year about the nation's energy situation. The increasing volatility in 
gasoline and diesel prices have affected all of us and left us grasping 
to determine the reasons for the changes. Tightness in oil refining 
capacity has been a major factor, as has the re-emergence of OPEC as a 
force in world oil markets. Those factors, in combination with high 
natural gas prices this past winter and the recent electricity problems 
in California and the West, have refocused attention on the need for 
energy policies that ensure long term planning, fuel diversity and a 
focus on new technologies.
    I expect to spend the next few months working with the Chairman and 
other members of the Committee to develop an energy strategy to 
mitigate the boom-bust cycles in energy markets. I believe a number of 
factors have come together to create a rare opportunity to shift our 
economy to greater reliance on renewable, domestic energy sources and 
away from the volatility of the world oil market.
    To this end, S. 1006 would ensure future growth for ethanol and 
biodiesel through the creation of a new, renewable fuels content 
standard in all motor fuel produced and used in the U.S. Senator Hagel 
and I will push for our legislation to establish an aggressive growth 
pattern for ethanol and biodiesel production and use in the United 
States.
    Today, ethanol comprises less than one percent of all 
transportation fuel in the U.S. My bill would require all motor fuels 
sold in the U.S. to be comprised of a certain quantity of renewable 
fuel (ethanol from corn, ethanol from biomass, and biodiesel). By 2008, 
2% of all transportation fuel in the U.S. would be from renewable 
fuels, increasing to 5% by 2016. I believe those are realistic targets.
    The Bush Administration recently affirmed its support for ethanol 
when it denied California's request to evade the oxygen requirement for 
reformulated gasoline (RFG) as required under the Clean Air Act. The 
Administration clearly recognizes that ethanol has important clean air 
benefits, without the dangers of groundwater contamination posed by 
MTBE. I applaud this decision to enforce the Clean Air Act and ensure 
clean fuels have a major role in the market.
    Based on current projections, construction of new plants will 
generate $900 million in capital investment and tens of thousand of 
construction jobs to rural communities. For corn farmers, the price of 
corn is expected to rise between 20-30 cents per bushel.
    Combine this with the provisions of our bill and the potential 
economic impact for rural economies is tremendous. Today, three ethanol 
plants in South Dakota produce nearly 30 million gallons per year. The 
production in South Dakota alone could grow substantially, with at 
least 3,000 farmers owning ethanol plants and producing 200 million 
gallons of ethanol per year or more.
    An important but under emphasized fuel is biodiesel. We all know 
that soybean prices are hovering near historic lows. Biodiesel 
production is small, but has been growing steadily. With the new EPA 
rules requiring dramatically lower amounts of sulfur in diesel fuel by 
2007, the market prospects for biodiesel, an intrinsically low sulfur 
fuel, are very bright. The increased usage of biodiesel would help to 
meet the goals of S. 1006 and would be beneficial for the nation.
    It is important the Congress take a serious look at these issues 
beyond just the economic impact for my region of the country. Bio-based 
fuels offer multiple benefits--from climate change to improving our 
trade balance. By increasing biofuels production, we can also reduce 
the need for new refineries and pipelines.
    Moreover, we need to find solutions to increase fuel efficiency for 
vehicles. The energy crisis of the 1970's moved us away from larger, 
gas-guzzling vehicles, to more efficient, energy-friendly vehicles. 
Even the SUVs of today get better mileage than many of the vehicles 30 
years ago. But the recent swings in gas prices make it clear that we 
need to take a serious look at new technologies and look at ways to 
improve the gas efficiency of our vehicles.
    The Senate plans to proceed with comprehensive energy legislation 
this session of Congress. In my view, a substantive bill that improves 
the nation's energy security can only be enacted if we work in a 
bipartisan manner. The problems and difficulties that our state and the 
nation face are too important to be bogged down in partisan rhetoric. I 
will work together with my colleagues to see that we produce policies 
to remedy real problems and real energy concerns for the nation. In my 
view, a viable renewable fuels component would go a long way towards 
making this happen. With your help and input, I believe we can make 
that happen.

    Senator Johnson. And also to thank you for authorizing a 
field hearing that I chaired in Sioux Falls, South Dakota, July 
6 dealing with alternative fuels, with particular focus on S. 
1006, the Renewable Fuels for Energy Security Act, which my 
good friend Senator Hagel and I have co-sponsored. The thrust 
of our legislation is to create a new renewable fuels content 
standard in all motor fuel produced and used in the United 
States. We would move the current consumption of alternative 
fuel, chiefly ethanol and biodiesel, from less than one percent 
of all transportation fuel today to an increase to 2 percent by 
2008 and 5 percent by 2016.
    Now, I believe that one of the issues that needs to be 
clarified, at least in the mind of the public, is when we talk 
about consuming ethanol we are not necessarily talking about 
the dual use technology changes that were required in Federal 
legislation. That involves burning 85 percent ethanol, E-85. 
That does require some technology changes in the vehicles. 
Unfortunately, the problem has not been with E-85, the problem 
has been with the access to E-85 and I think the public 
awareness that these vehicles in fact are able to consume that 
kind of fuel.
    I think E-85 has great promise. But that is a separate 
issue. The fact is that vehicles manufactured today with no 
technology changes are capable of burning up to about 10 
percent ethanol. Now, Senator Hagel and I are suggesting around 
a 5 percent use by the year 2016. I believe this is an 
achievable kind of level.
    I would suggest that my friend from Alaska I think made a 
good point when he talked about CAFE standards, that perhaps we 
ought to be also focusing a bit on not only mileage, but on 
displacement of petroleum consumption, which is again a 
function of greater ethanol and alternative fuel usage. Now, I 
do not think it is an either/or situation. I think we need to 
be examining improved CAFE standards, but I think we also need 
to keep in mind the possibility of significant displacement of 
petroleum consumption through alternative fuels, particularly 
when this does not require, necessarily require the kind of 
major technology changes in the vehicle industry that the E-85 
requires.
    I think we ought to continue to pursue dual use fuel 
involving E-85, but clearly we have our work cut out for us in 
terms of the chicken and egg problem of availability of that 
fuel throughout the country. That is something that it seems to 
me that the Department of Transportation is going to have to 
work on, rather than simply giving up on dual use fuels 
technology, to keep in mind that the problem is not with the 
fuel, the problem is with the access to the fuel and the 
information needed.
    The question I would suggest for Mr. Shelton in particular, 
I would guess, is do you agree that the displacement of 
petroleum usage is a key policy goal along with better gasoline 
mileage of American motor vehicles?
    Mr. Shelton. Yes. The idea is to reduce petroleum 
consumption. You can reduce petroleum consumption by raising 
fuel economy or you can reduce petroleum consumption by 
displacing it with alternative fuels.
    Senator Johnson. Or you can do both.
    Mr. Shelton. Or you can do both.
    Senator Johnson. That is what I would suggest maybe where 
we need to end up in this debate.
    Mr. Shelton. Yes. I was not trying to suggest it was an 
either/or. Absolutely, you should do both.
    Senator Johnson. One of the benefits, it would seem to me, 
of increased ramping up--and Senator Hagel and I are certainly 
looking at a long window of time. We are trying to be realistic 
about this. But it would seem to me that one of the benefits of 
increasing displacement of petroleum with alternative fuel is 
that it is a regime that can be begun now rather than later. It 
is not something that we have to wait ten years for in order to 
accomplish.
    Would you share that view?
    Mr. Shelton. Yes, sir, it certainly can be achieved in a 
shorter duration, absolutely.
    Senator Johnson. Is it your observation that existing 
automobile technology is very capable of burning blends up to 
10 percent ethanol without significant changes?
    Mr. Shelton. I am not entirely current on that, Senator, 
but that was my understanding based on historical knowledge, 
that typically a vehicle can burn up to 10 percent ethanol 
without modification.
    Senator Johnson. And blends of biodiesel as well, which is 
a soybean-based fuel?
    Mr. Shelton. I have to defer to Mr. McNutt on that.
    Senator Johnson. Mr. McNutt.
    Mr. McNutt. We have very little experience in the biodiesel 
side. The auto industry's view about ethanol is a proper 
blended ethanol, which is the language they use, at 10 percent 
has certainly been acceptable, and it is what we have in the 
marketplace now.
    The question about biodiesel I think, clearly it can be 
used. At what levels, what kind of equipment modification, if 
any, I think is something we are learning about now. So it is 
not a technological obstacle. It is learning how to do it 
properly.
    Senator Johnson. I would share with you the testimony from 
the supervisor of the Black Hills National Forest, of all 
people, who showed up for our hearing in Sioux Falls, who 
indicated that they have gone now to biodiesel in their Forest 
Service vehicles. It is a cleaner burning, easily used fuel, 
and this again is a technology that exists now, the potential 
for consumption is here now.
    My time is up. I thank the chairman.
    The Chairman. Thank you very much.
    Senator Hagel.

          STATEMENT OF HON. CHUCK HAGEL, U.S. SENATOR 
                         FROM NEBRASKA

    Senator Hagel. Mr. Chairman, thank you. I too have a 
statement that I would like to ask to be included in the 
record. Included in that statement, Mr. Chairman, is a thank 
you to you and to our chairman emeritus for your continued 
commitment to working on this issue, which I believe energy in 
itself and the wholeness of it is I believe the most pressing 
issue facing the future of this country. So thank you.
    [The prepared statement of Senator Hagel follows:]
   Prepared Statement of Hon. Chuck Hagel, U.S. Senator From Nebraska
    I want to thank Chairman Bingaman for continuing these important 
hearings on energy policy.
    Someday, technology will deliver new and diverse sources of energy. 
But in today's world and for the near future, fossil fuels power 
America. The 180 million gasoline and diesel-powered vehicles on 
America's roads are not going to be replaced overnight. With that in 
mind, the increased use of alternative fuels, including ethanol and 
biodiesel, can have an immediate and significant impact on reducing our 
dependence on foreign oil.
    The Renewable Fuels for Energy Security Act (S. 1006) that Senator 
Johnson and I introduced would ensure a one percent market share for 
fuels derived from renewable resources by 2008, a three percent market 
share by 2011, and a five percent market share by 2016--a ten-fold 
increase from today. A three percent market share for U.S. produced 
renewable fuel would replace between 500,000 to 600,000 barrels of 
crude oil a day, roughly the amount we now purchase from Iraq.
    Renewable fuels like ethanol and biodiesel afford us the 
opportunity to develop energy, environmental and economic policies that 
work together. They can help us improve air quality, strengthen our 
national security, reduce our trade deficit, and decrease U.S. 
dependence on foreign oil.
    Our nation needs a broader, deeper and more diverse energy 
portfolio--one that ensures we have clean, reliable and affordable 
domestic sources of energy. Expanding the market for renewable fuels is 
only part of the solution, but it is an important part. We must push 
harder for renewable fuels as a significant addition to any new energy 
policy that comes out of this Committee.
    Thank you, Mr. Chairman.

    Senator Hagel. Picking up on where Senator Johnson was 
going, his explanation and questions regarding our renewable 
fuels bill, which we think has some merit. Mr. McNutt, I 
understand yesterday that a senior representative from the 
White House, Mr. Melman, who you may or may not know, but just 
to inform you who he is, he is the Director of the Political 
Office at the White House, which you might want to get 
acquainted with him. He probably will have something to do with 
where all of this eventually winds up.
    He told the National Corn Growers that the President was 
focusing on renewable sources of energy, and I believe that is 
a quote from Mr. Melman. What do you think he means by that?
    Mr. McNutt. I will not be presumptuous. I do not know what 
his remarks were, but I can speak about what the Department is 
doing. Obviously, renewable energy includes what we are doing 
today with grain-based alcohols, soy-based diesel fuels, and 
longer term with cellulosic-based alcohol. All three of those 
fall into the category, in this light duty fuel context, motor 
fuel context, of renewables. Obviously, the renewable spectrum 
when you get to power production is much broader than that.
    Senator Hagel. Do you think he is talking about ethanol, 
biodiesel, some of the things that Senator Johnson talked 
about?
    Mr. McNutt. Again, I do not know----
    Senator Hagel. Hard to tell, is it not?
    Mr. McNutt [continuing]. What Mr. Melman was talking about, 
but in terms of when the Department speaks about renewables in 
the motor fuel area we certainly talk about ethanol from 
various sources and soy-based material for blending with diesel 
fuel.
    Senator Hagel. You think that is something we should 
continue to explore?
    Mr. McNutt. Yes, we are. We have active programs in those 
areas. Ethanol use in gasoline is growing. I noticed a press 
release from the Renewable Fuel Association yesterday reporting 
the tenth consecutive month of growth in output of ethanol 
production in the United States to over 100,000 barrels a day. 
So it is a growing industry, a growing utilization, and we are 
all pursuing that.
    Senator Hagel. In your testimony as well as Mr. Shelton's, 
both of you recognized the obvious, that we have talked a bit 
about this morning, that is the growing dependence on foreign 
source oil, which I do not think anyone feels particularly 
comfortable about that. It is something that we do need to 
address. The President is addressing it. This panel is 
addressing it. The Congress will continue to address it.
    We have not done a very good job with it over the last few 
years. Many of you remember, as I do, in the 1970's when we 
were about 36 percent dependent on foreign sources of oil at 
the height of the Arab oil embargo and we thought essentially 
our geopolitical, strategic, economic, energy policy had come 
apart. Now we are getting close to double that number. So we 
all have to take some responsibility for deferring the tough 
decisions in this business.
    But the question is, if that is a concern of all of us, how 
do you best believe we can deal with that? Renewable sources 
are a part of that. My numbers along with Senator Johnson's 
show rather conservatively from, as a matter of fact from your 
Department and others, that if you get to a 3 percent standard 
of renewable fuels in our transportation fuel inventory that 
you are now saving at the rate of about 600,000 barrels of 
foreign source oil a day. I believe that is somewhere in the 
range of what we import from Iraq.
    Now, you may quibble with those numbers, but they are not 
mine. They are the Department of Energy's and others. But that 
is beside the point.
    So do you believe renewable fuels play a role--can play a 
more significant role--if we do more than we are doing now to 
increase those uses and those standards versus other options?
    Mr. McNutt. The National Energy Policy is looking at a 
variety of ways of reducing the foreign oil dependence, 
including obviously greater domestic production of oil. How the 
various things play against each other depends on your 
assessment of them. You talked about 3 percent of motor fuels 
pool, which on a direct calculation is like 300,000 barrels a 
day. I understand we do not need to quibble about whether it is 
300,000 or 600,000 barrels a day.
    I think renewables' real advantage does not lie in oil 
displacement per se, but lies in the very fact that, one, it is 
renewable and has benefits in other areas. More specifically, 
as I mentioned in my opening statement, we have had success, as 
Senator Johnson was noting, in bringing what I call blend 
stocks into the gasoline stream because we do not have an 
infrastructure limitation. So that is a second advantage of 
pursuing that route, which is you do not have to build 
infrastructure, you can use more of them tomorrow, as we are 
seeing.
    So you have certain expanded environmental advantages for 
renewables as they are being used now in gasoline. You have 
blending advantages and the lack of infrastructure. You also 
add to the quality of the gasoline pool if they are blended 
correctly. So to me, I think we have to look at the full value 
of those renewables, not just their displacement value, because 
in the end game we are using, will be using in the time you are 
talking about, 20 million barrels a day of oil, and whether 
300,000 or 500,000 is the important number, the important thing 
about renewables is their ultimate benefits.
    Senator Hagel. Thank you.
    Mr. Chairman, thank you.
    The Chairman. Thank you.
    Senator Feinstein.

       STATEMENT OF HON. DIANNE FEINSTEIN, U.S. SENATOR 
                        FROM CALIFORNIA

    Senator Feinstein. Thanks very much, Mr. Chairman.
    Mr. McNutt and Mr. Shelton, welcome. For the last three 
Congresses I have been trying to work on fuel efficiency 
standards. I joined Senator Dick Bryan of Nevada and Senator 
Gorton of Washington to try to move fuel efficiency standards 
for SUV's and light trucks, and I saw how very difficult it 
was. We finally got the study from the National Academy of 
Sciences, which was a kind of big deal, if you will.
    Well, to make a long story short, in this Congress Senator 
Olympia Snowe, Senator Schumer, Senator Collins and I have 
introduced legislation which over the next 6 years would bring 
the fuel efficiency standards for light trucks and SUV's in 
compliance with sedans. So it would be a third every 2 years 
for 6 years. This saves about a million barrels of oil a day. 
It prevents 240 million tons of carbon dioxide, the largest 
global warming gas, from entering the atmosphere a year, and it 
cuts down on oil imports about 10 percent.
    Additionally, it would save the consumer anywhere from $300 
to $600 a year buying gasoline. To me, it sounds like a no-
brainer.
    Now, the one question was is it really doable. I went and 
had the opportunity to speak to the National Academy of 
Sciences when they were meeting here and then afterwards some 
representatives from the automobile companies talked to me and 
said: Oh, we cannot do this, we are very resistant to it, 
etcetera, etcetera. Then I got very worried because I heard 
that the National Academy's panel had no environmentalists, was 
apt to be very pro-automobile company.
    Well, this morning I saw the New York Times and my heart 
just jumped with delight, because what the draft report 
apparently said was that these standards are eminently doable, 
they are eminently meetable, and they probably can be done by 
different uses of existing technology. So I was just delighted. 
If that is the draft report, hopefully the Academy will back 
the draft report. I do not know whether they will or they will 
not.
    As you know, the House has taken some minimum baby steps 
forward. So as I look at this issue and as I watch the 
administration and Secretary--excuse me--Vice President 
Cheney's comments, I see the administration changing. As a 
matter of fact, I asked them whether they would support 
increased fuel efficiency standards--I do not mean to make you 
gentlemen uncomfortable--increased fuel efficiency standards 
and the response I got was: Well, we want to see the Academy's 
report first.
    Hopefully that report will be forthcoming very shortly, and 
hopefully we will be able to move this legislation. But what I 
wanted to ask you about was, as part of this legislation 
Federal fleets would have to reduce petroleum consumption and 
we would increase the fuel economy of new vehicles in the 
Federal fleet on the following schedule. Two years after the 
enactment of the bill, the average fuel economy of the new 
vehicles comprising the Federal fleet must be 3 miles higher 
than the baseline average fuel economy for that class, and 2 
years after the enactment the average fuel economy after that 
must be 6 miles per gallon higher than the baseline.
    My question to you is that, since the Federal Government 
purchases about 1 percent of all new vehicles, State vehicles 
make up another .65 percent and usually follow Federal 
standards, this can make a big difference. Would your 
Department be supportive of moving the Federal fleet in this 
direction?
    Mr. Shelton. Thank you, Senator. As you noted, the 
administration has taken the position that it wants to wait 
until the National Academy of Sciences study is completed 
before making policy recommendations on whether we need to 
change CAFE or pursue legislative changes. We, like you, are 
eagerly awaiting that report, which we expect to have by the 
end of this month.
    So at this point I honestly do not know the answer to your 
question. I do not know what the average fuel economy is of the 
Federal fleet. I have to check with the General Services 
Administration. So I am not sure how feasible they view it as 
to substantially increase the fuel economy of those vehicles.
    Senator Feinstein. I got my answer. Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    We have two additional panels here and I would propose that 
we go ahead and proceed to the second panel. In fact, it is 
just suggested that we combine the next two panels and just ask 
all six witnesses to come forward, please.
    Thank you both very much for your testimony.
    Mr. McNutt. Thank you.
    The Chairman. Well, thank you all very much for coming 
today. Let me just introduce the witnesses just starting on the 
left-hand side here going across. I do not know if that is the 
logical way to do it, but let me just do it that way. From the 
left, Mr. Charles Gibbens, who is automotive fleet manager, on 
behalf of National Association of Fleet Administrators; next is 
Mr. McCormick, Byron McCormick, the director of Global 
Alternative Propulsion Center, the Global Alternative 
Propulsion Center, General Motors Corporation. Thank you for 
being here.
    Next, Mr. Greg Dana, who is the vice president for 
environmental affairs with the Alliance of Automobile 
Manufacturers. Mr. Rich Kolodziej--is that about right?
    Mr. Kolodziej. Fairly close.
    The Chairman. Why do you not tell me what is right.
    Mr. Kolodziej. It is ``KOE-Loe-JAY.''
    The Chairman. ``KOE-Loe-JAY.''
    Who is president of the Natural Gas Vehicle Coalition. Mr. 
Gary Marshall, who is vice president of the National Ethanol 
Vehicle Coalition; Mr. Eugene Zeltmann, who is the co-chairman 
of the Electric Vehicle Association of the Americas. Thank you 
all very much. Why do we not just start and each of you take 5 
or 6 minutes and summarize your testimony. We will include in 
the record your full testimony and then we will have some 
questions.
    Mr. Gibbens.

  STATEMENT OF CHARLES GIBBENS, AUTOMOTIVE FLEET MANAGER, ON 
     BEHALF OF NATIONAL ASSOCIATION OF FLEET ADMINISTRATORS

    Mr. Gibbens. Thank you, Mr. Chairman. The National 
Association of Fleet Administrators, or NAFA, appreciates the 
opportunity to testify at this hearing and share with the 
committee the perspective of fleet managers on strategies that 
you might consider for reducing demand for petroleum products 
in the light duty vehicle sector. NAFA is the association of 
professional fleet managers. Our 2,000 members manage more than 
3 million cars, vans, and trucks for corporations and 
government agencies.
    As already noted, I am Charles Gibbens, the automotive 
fleet manager for the county of Henrico, Virginia, and I manage 
a diverse fleet of about 2,500 vehicles.
    Reducing petroleum demand in the light duty vehicle sector 
was a goal of the Energy Policy Act of 1992 and one of the 
objectives of EPAct was that fleet mandates would jump-start 
the market for alternative fuel vehicles, stimulate AFE use by 
the general public, and result in a 10 percent replacement of 
petroleum by 2000 and 30 percent by 2010. Federal, State and 
fuel provider fleets are mandated to purchase AFVs when 
replacing light duty vehicles.
    The law provides for an exemption process if either 
vehicles or refueling facilities are not available. Since 1992 
fleet managers have faced the challenge of how to comply with 
the EPAct mandate. Fleet managers have been consistent in their 
message that any plan to move vehicles to alternative fuels 
will not be successful until the costs and operational issues 
are comparable with gasoline and diesel vehicles.
    Despite the optimism of many, AFVs are still costly, are 
not available in sufficient model lines, lack the requisite 
refueling infrastructure, and do not meet the operating needs 
of most fleets. At this moment, despite the best efforts and 
limited accomplishments, the economic and the operational 
situation is not promising for the majority of fleets or for 
the general public. These very practical real world conditions 
may explain why even the Federal Government has so consistently 
failed to meet its own mandate for AFV acquisition and 
operation.
    It seems clear from the experiences of the Federal fleet, 
fuel provider fleets and State fleets that fleets by themselves 
will not make any significant reduction in the Nation's use of 
fossil fuels. This is in part because of inherent limitations 
in existing AFV models, alternative fuels, refueling 
infrastructure, technology and costs.
    Mandates, however, were only part of the EPAct strategy. It 
was anticipated that the mandated fleets would provide the 
critical mass for the vehicle manufacturers and the fuel 
providers. In turn, the vehicle manufacturers and fuel 
providers would reach economies of scale necessary for 
substantial penetration of the light duty vehicle sector. It is 
important to point out that EPAct mandated AFV purchases, but 
only if the appropriate vehicles and fuels were readily 
available. It was of course never the intent that the mandated 
fleet would either build its own vehicles or build its own 
refueling facilities. In fact, the act provided specific 
exemptions if either the vehicles or the fuel were not 
available.
    It was assumed that AFVs would generate the refueling 
infrastructure because the alternative fuel would be more cost 
effective. Unfortunately, this is not always the case. Just 
last week, the fleet manager for the city of St. Louis, 
Missouri, refueled his dedicated CNG pickup at a cost of about 
$1.38 per gallon gasoline equivalent, when the city was only 
paying 98 cents per gallon for a gallon of gasoline after 
exemption for State and Federal tax.
    As a viable public policy, EPAct has failed. The 
marketplace has not risen to the challenge to address the 
economic barriers. Some are blaming fleet managers for EPAct's 
failure. The blame the fleet manager for failing to convince a 
mayor, a governor, a CEO that sound economics would be to 
acquire vehicles that cost more, are more expensive to operate, 
travel fewer miles, have limited cargo space, and can easily be 
refueled.
    The General Accounting Office has identified the real 
reasons for the failure of EPAct. In a February 2000 report, 
GAO found that the goals of the act were not being met 
``principally because alternative fuel vehicles have 
significant economic disadvantages compared to conventional 
gasoline vehicles.'' The report continues: ``Fundamental 
economic impediments, such as the relatively low price of 
gasoline, the lack of refueling stations for alternative fuels, 
and the additional cost to purchase these vehicles, explain 
much of why both mandated fleets and the general public are 
disinclined to acquire alternative fuel vehicles and use 
alternative fuels.''
    The Department of Energy concurs with this GAO assessment. 
According to DOE's section 506 technical policy analysis: 
``Fleet AFV use by itself will be insufficient to achieve large 
alternative fuel market share. Alternative fuel use by EPAct-
covered fleets, even with the contingent mandates for private 
and local government fleets, is unlikely to provide more than 
about 1.5 percent replacement fuel use.''
    The committee has an unenviable task. The simplest option 
would be to fix EPAct, declare victory, and revisit the 
failures in another 9 years. This simple option responds to 
those who would urge you to focus on the mandates without real 
concern for petroleum reduction. The alternative is to think 
outside of the box and consider a bolder strategy that includes 
efficiency, conservation, and use of both alternative fuels and 
alternative technologies.
    The Nation's energy situation seems to dictate a bold 
public policy. Accordingly, fleet managers recommend the 
following: One, amend EPAct to allow additional compliance 
options. This would include full credit for use of biodiesel, 
hybrid electric vehicles, and neighborhood electric vehicles. 
This fall 75 percent of new State vehicles and 90 percent of 
fuel provider vehicles must be AFVs, but these fleets may not 
get credit for hybrid electric vehicles or full credit for the 
use of biodiesel.
    Two, amend EPAct to provide credit for installing refueling 
infrastructure as included in S. 388.
    Three, strengthen voluntary programs such as DOE's Clean 
Cities program that focus on niche markets where fuels such as 
natural gas are most efficient.
    Four, encourage the use of and remove obstacles to the use 
of other renewable energy-based fuels and fuel blends, such as 
biodiesel and blends of biodiesel.
    Five, resist any further mandates on State fleets or fuel 
provider fleets. Again, as noted, squeezing every drop of 
petroleum from these fleets by the year 2010 would result in 
only about a 1 percent reduction in petroleum use.
    Six, because refueling infrastructure is such a problem, 
focus on those strategies that take advantage of the existing 
liquid refueling infrastructure. Specifically, grant incentives 
for the development of hybrid electric vehicles and the use of 
renewable fuels.
    Seven, provide significant economic incentives via grant 
programs and tax incentives. For example, pass and fund section 
705 of S. 388, which establishes a grant program for local 
governments for covering the incremental costs of qualified 
alternative fuel vehicles. It authorizes $100 million for each 
fiscal year 2002 through 2006 and limits individual grant 
awards to no more than $1 million.
    Also, many fleet managers support the intent of S. 760, the 
CLEAR ACT, which is a tax issue and is outside the jurisdiction 
of this committee. The CLEAR ACT would potentially help 
overcome the economic barriers facing vehicles, fuels, and 
refueling infrastructure. The CLEAR ACT, however, in its 
present form is of little benefit to government or nonprofit 
fleets. We are hopeful that this can be corrected before any 
House or Senate markup. If not corrected, NAFA questions 
whether Congress should pass the legislation.
    In closing, the challenge for the Senate Energy Committee 
is to think outside the box. Some will urge you to take the 
easy course of action, that is to force government agencies and 
companies to buy AFVs and use the fuels regardless of cost and 
regardless of the public policy benefit. Mandates have proven 
to be counterproductive. Too much time and resources have been 
spent by DOE, other Federal and State agencies, fleets, fuel 
providers, and manufacturers to make mandates work, all hoping 
that mandates will be the silver bullet. Too much has been 
spent for too little gain.
    Thank you again for this opportunity to participate and I 
would be most happy to answer any of your questions.
    [The prepared statement of Mr. Gibbens follows:]
  Prepared Statement of Charles Gibbens, Automotive Fleet Manager, on 
         Behalf of National Association of Fleet Administrators
    The National Association of Fleet Administrators, Inc. (NAFA) 
appreciates the opportunity to testify at this hearing and share with 
the Committee the perspective of fleet managers on strategies that you 
might consider for reducing demand for petroleum products in the light-
duty vehicle sector.
    NAFA is the association of professional fleet managers. Our 2,000 
members manage more than 3 million cars, vans, and trucks for 
corporations and government agencies.
    I am Charles Gibbens, the Automotive Fleet Manager for the County 
of Henrico Virginia. I manage a diverse fleet of about 2,500 vehicles.
    Reducing petroleum demand in the light-duty vehicle sector was a 
goal of the Energy Policy Act of 1992 (EPACT). One of the objectives of 
EPACT was that fleet mandates would jump-start the market for 
alternative fuel vehicles (AFVs), stimulate AFV use by the general 
public and result in a 10 percent replacement of petroleum by 2000 and 
30 percent by 2010.
    Federal, state, and fuel provider fleets are mandated to purchase 
AFVs when replacing light-duty vehicles. For model year 2002, the 
acquisition for state and fuel provider fleets is 75 percent and 90 
percent, respectively. The law applies to fleets in metropolitan areas 
with populations of more than 250,000. The law provides for an 
exemption process if either vehicles or refueling facilities are not 
available.
    Since 1992, fleet managers have faced the challenge of how to 
comply with the EPACT mandates. Fleet managers have been consistent in 
their message that any plan to move vehicles to alternative fuels will 
not be successful until the costs and operational issues are comparable 
with gasoline and diesel vehicles. Despite the optimism of many--AFVs 
are still costly, are not available in sufficient model lines, lack the 
requisite refueling infrastructure and do not meet the operating needs 
of most fleets.
    There has been some progress. There have been anecdotal successes 
attributed to fleet use of AFVs. Unfortunately, for every anecdote of 
success there are also anecdotes of dissatisfaction, frustration and 
failure. Many fleet managers, who are successfully using AFVs today in 
a specific niche segment of their fleets, have clearly stated that they 
will not be able to expand AFV use in other segments of their fleets 
because of overriding operational or expense barriers.
    On the positive side, vehicle manufacturers are beginning to make 
AFVs in a wider variety of vehicle types. On the negative side, 
however, many fuels are much less available than had been predicted and 
promised. Since 1992, methanol has disappeared from the marketplace and 
the natural gas industry has abandoned plans to build a public 
refueling infrastructure. Some of the more promising projects, such as 
CNG in Atlanta for the Olympics and CNG and propane on the Pennsylvania 
Turnpike, have failed.
    At this moment, despite the best efforts and limited 
accomplishments, the economic and the operational situation is not 
promising for the majority of fleets or for the general public. These 
very practical, real--world conditions may explain why even the Federal 
Government has so consistently failed to meet its own mandate for AFV 
acquisition and operation.
    It seems clear from the experiences of the federal fleet, fuel 
provider fleets, and state fleets that fleets by themselves will not 
make any significant reduction in the nation's use of fossil fuels. 
This is in part because of inherent limitations in existing AFV models, 
alternative fuels, refueling infrastructure, technology and costs.
    Mandates, however, were only part of the EPACT strategy. It was 
anticipated that mandated fleets would provide the critical mass for 
the vehicle manufacturers and the fuel providers. In turn, the vehicle 
manufacturers and fuel providers would reach economies of scale 
necessary for a substantial penetration of the light-duty vehicle 
sector.
    It is important to point out that AFV purchases were mandated by 
EPACT, but only if the appropriate vehicles and fuels were available. 
It was, of course, never the intent that a mandated fleet would either 
build its own vehicles or build its own fueling facilities. In fact, 
the Act provided specific exemptions if either the vehicles or the fuel 
were not available.
    It was assumed that AFVs would generate the refueling 
infrastructure because the alternative fuel would be more cost 
effective. Unfortunately, this is not always the case. Just last week, 
the fleet manager for the city of St. Louis refueled his dedicated CNG 
pickup at $1.38/GGE when the City was only paying $0.98 for a gallon of 
gasoline after exemption for Federal and State taxes.
    St. Louis is a good example. The city is not currently subject to 
any mandate, but the fleet manager has been an alternative fuel 
advocate for many years. Yet, as he says, ``We've tried almost 
everything and can't find any vehicle-fuel combination that comes close 
to break even on cost or on a lifecycle-cost basis not to mention the 
range/cargo space hits.''
    As a viable public policy, EPACT has failed. The marketplace has 
not risen to the challenge to address the economic barriers. Some are 
blaming fleet mangers for EPACT's failure. They blame the fleet manager 
for failing to convince a Mayor, a Governor, or a CEO that sound 
economics would be to acquire vehicles that cost more, are more 
expensive to operate, travel fewer miles, have limited cargo space, and 
can't be easily be refueled.
    The General Accounting Office has identified the real reasons for 
the failure of EPACT. In a February 2000 report, GAO found that the 
goals of the Act were not being met ``principally because alternative 
fuel vehicles have significant economic disadvantages compared to 
conventional gasoline vehicles.'' The report continued, ``Fundamental 
economic impediments--such as the relatively low price of gasoline, the 
lack of refueling stations for alternative fuels, and the additional 
cost to purchase these vehicles--explain much of why both mandated 
fleets and the general public are disinclined to acquire alternative 
fuel vehicles and use alternative fuels.''
    More importantly the GAO told the Senate Finance Committee just 
last week that ``alternative fuels and vehicles have not made much of a 
dent in the conventional fuel and vehicle dominance in the U.S. vehicle 
fleet.'' According to GAO's February 2000 report, ``If federal 
agencies, state governments, and alternative fuel providers fully 
complied with the act's mandates, the vehicles in their fleets would 
replace less than 1 percent of petroleum fuels in 2010.''
    The Department of Energy concurs with the GAO assessment. According 
to DOE's Section 506 Technical Policy Analysis: ``Fleet AFV use by 
itself will be insufficient to achieve large alternative fuel market 
share. Alternative fuel use by EPACT covered fleets, even with the 
contingent mandates for private and local government fleets, is 
unlikely to provide no more than about 1.5 percent replacement fuel use 
. . .''
   recommendation for reducing petroleum use in the light-duty sector
    The Committee has an unenviable task. The simplest option would be 
to ``fix'' EPACT, declare victory, and revisit the failures in another 
nine years. This simple option responds to those who would urge you to 
focus on the mandates without real concern for petroleum reduction.
    The alternative is to think outside of the box and consider a 
bolder strategy that includes efficiency, conservation and use of both 
alternative fuels and alternative technologies. The nation's energy 
situation seems to dictate a bold public policy.
    Fleet managers recommend the following:

          Amend EPACT to allow additional compliance options. This 
        would include full credit for use of biodiesel, hybrid electric 
        vehicles and neighborhood electric vehicles. This fall 75% of 
        new state vehicles and 90% of fuel provider vehicles must be 
        AFVs, but fleets may not get credit for hybrid electric 
        vehicles or full credit for the use of biodiesel.
          Amend EPACT to provide credit for installing refueling 
        infrastructure, as included in Senate Bill 388.
          Strengthen voluntary programs, such as DOE's Clean Cities 
        Program, that focus on niche markets where fuels such as 
        natural gas are most efficient.
          Encourage the use of and remove obstacles to the use of other 
        renewable energy-based fuels and fuel blends such as biodiesel 
        and blends of biodiesel.
          Resist any further mandates on state fleets or fuel provider 
        fleets. Again, as GAO noted squeezing every drop of petroleum 
        from these fleets by 2010 would result in only a 1% reduction 
        in petroleum use.
          Because refueling infrastructure is such a problem, focus on 
        strategies that take advantage of the existing liquid fuel 
        refueling infrastructure. Specifically, grant incentives for 
        the development of hybrid electric vehicles and use of 
        renewable fuels.
          Provide significant economic incentives via grant programs 
        and tax incentives.

                  For example, pass and fund SEC. 705 of Senate Bill 
                388, which establishes a grant program for local 
                governments for covering the incremental cost of 
                qualified alternative fuel vehicles. It authorizes $100 
                million for each of fiscal years 2002 through 2006, and 
                limits individual grant awards to no more than $1 
                million.
                  Also, many fleet managers support the intent of 
                Senate Bill 760, the CLEAR Act which is a tax issue and 
                outside the jurisdiction of this Committee. The CLEAR 
                Act could potentially help overcome the economic 
                barriers facing vehicles, fuels and refueling 
                infrastructure. The CLEAR Act, however, in its present 
                form, is of little benefit to government or nonprofit 
                fleets. We are hopeful that this can be corrected 
                before any House or Senate markup. If not corrected, 
                NAFA questions whether Congress should pass the 
                legislation.

    The challenge for the Senate Energy Committee will be to think 
outside the box. Some will urge you to take the easiest course of 
action, that is to force government agencies and companies to buy AFVs 
and use the fuels regardless of cost and regardless of the public 
policy benefit. Mandates have proven to be counterproductive. Too much 
time and resources have been spent by DOE, other federal and state 
agencies, fleets, fuel providers and manufacturers to make mandates 
work, all hoping that mandates will be the silver bullet. Too much has 
been spent for too little gain.
    Thank you again for the opportunity to participate. I will be happy 
to answer any questions.

    The Chairman. Thank you.
    Dr. McCormick, why don't you go right ahead.

 STATEMENT OF DR. J. BYRON McCORMICK, PH.D., DIRECTOR, GLOBAL 
   ALTERNATIVE PROPULSION CENTER, GENERAL MOTORS CORPORATION

    Dr. McCormick. I want to thank the members of the committee 
for the opportunity today to speak about General Motors' fuel 
cell initiative. I am Byron McCormick and I am responsible for 
GM's fuel cell program.
    Based on the recent rate of progress in fuel cell 
technology, we are on the threshold of an historic opportunity. 
Instead of the historical evolution of technology by 
incremental improvements, we now see our way to bold technology 
advances that will fundamentally change personal transportation 
for the new century.
    Fuel cell vehicles running on hydrogen fuel are the 
ultimate environmentally friendly vehicles because the only 
emission is water. Fuel cell vehicles are more than twice as 
efficient as internal combustion engines, have no pollutant 
emissions, and are quiet.
    Fuel cell vehicles promise two additional benefits; First, 
fuel cell vehicles will be supported by a broadly available, 
cost effective hydrogen refueling infrastructure. Such an 
infrastructure by its very nature would provide a single 
enduring framework for the evolutionary shift for personal 
transportation from petroleum to a mix of energy sources 
including renewables.
    Secondly, the development of this technology will create 
more environmentally compatible distributed power generation 
possibilities. Power on today's electric grid could be 
supplemented by the generating capacity of cars in every 
driveway. For example, if only one out of 25 cars in California 
today was a fuel cell vehicle their generating capacity would 
exceed that of the electric grid in place today.
    Recognizing the potential of fuel cells, approximately 4 
years ago GM leadership decided to take some rather bold action 
and consolidated our programs and accelerated them greatly. We 
did this based on the notion that there are over six billion 
people in the world today, most of these people are young, they 
are globally aware, web-connected, and residing in emerging 
economies.
    Secondly, we recognized that only 12 percent of the world's 
population have access to automobiles today. Therefore, a 
breakthrough in energy efficiency and emissions would 
absolutely be required to meet the demands of the future in a 
sustainable, high quality environment.
    So our vision is as follows. We see fuel cells as the 
automotive power source for the future and we see hydrogen as 
the long-term fuel. Now, since we have talked a fair amount 
today about renewables and infrastructure, let me expand on the 
hydrogen infrastructure for a moment. The creation of a new 
robust, readily available hydrogen refueling network for these 
vehicles is clearly necessary.
    Hydrogen in the infrastructure could be derived from a mix 
of sources, including hydrocarbons as well as any source of 
electricity. In the first case, hydrogen is extracted from 
petroleum, natural gas, and renewable hydrocarbons such as 
ethanol via reformers or fuel processors which catalytically 
decompose the hydrocarbons into hydrogen and carbon dioxide.
    Hydrogen can also be extracted from water using 
electrolysis, which uses electricity to dissociate the water. 
Electricity could come from conventional powerplants, renewable 
powerplants such as hydro, solar, wind, and geothermal sources. 
In this way, hydrogen fuel allows a transition for 
transportation from a reliance on petroleum to a robust 
diversity of energy sources including renewable energy.
    The blending of these energy sources is seamless to the 
driver of the vehicle. He sees only hydrogen fuel and not 
whether it came from petroleum, natural gas, nuclear, or 
renewable.
    To give you an idea of the rate of progress towards that 
vision, in the last 4 years the size and weight of our fuel 
cell stack technology has decreased by approximately a factor 
of ten. In the past year our gasoline fuel processor 
technology, which strips hydrogen from gasoline, has decreased 
by a size factor of three.
    Like today's gasoline cars, fuel cell vehicles must be able 
to handle a tremendous environmental range of conditions. We 
are now able to start fuel cells from freezing at minus 40 
degrees C. in substantially less than a minute and our Hydrogen 
1 demonstration fuel cell vehicle covered over 800 miles in one 
day in the Arizona heat, setting 15 performance and durability 
records earlier this summer.
    This progress is rapid and encouraging, but we are not 
there yet. We have not yet developed the full automotive 
performance levels, including reliability, durability, safety, 
and full compatibility to harsh weather extremes, including the 
ability to withstand all environmental and in-use abuse that 
automobiles and trucks are subjected to every day worldwide.
    Achieving full automotive performance and affordability 
targets is key to customer acceptance and enthusiasm. These 
targets require huge investments that can only be responsibly 
made if we believe that the hydrogen infrastructure will be 
there to allow us to introduce fuel cell vehicles to the 
public. On the other hand, selective demonstration vehicles or 
captive fleet tests will not suffice to encourage major timely 
investment by energy producers in that hydrogen infrastructure.
    Potential creators of the hydrogen infrastructure will not 
invest until they see a rapid expansion of hydrogen fuel cell 
vehicles, and even then there is an economic burden of 
supporting that infrastructure during the long period of 
transition from today's gasoline-powered fleets. Stewardship of 
this transition requires a carefully thought out plan which 
allows the automotive manufacturers, their materials and 
component suppliers, and potential hydrogen fuel providers and 
government regulatory bodies to progress hand in hand. This 
careful coordination must also take into account the technical, 
financial, and environmental realities that a successful 
transition requires.
    As a closing thought, I believe that fuel cells and 
hydrogen-based transportation are the future. The pace of 
technical progress is accelerating and we cannot be left behind 
sitting on the sidelines. Now is the time for the U.S. 
Government and U.S. industry to create a partnership that can 
lead the world in the change to this vision.
    Thank you and I look forward to responding to your 
questions.
    [The prepared statement of Dr. McCormick follows:]
 Prepared Statement of Dr. J. Byron McCormick, Ph.D., Director, Global 
       Alternative Propulsion Center, General Motors Corporation
    I appreciate the opportunity to be here today to testify on behalf 
of General Motors. I am Byron McCormick, the Director of GM's Global 
Alternative Propulsion Center. I head the team that is developing fuel 
cells to power vehicles that people will want to drive and buy.
    This is an exciting time in the automotive industry and for General 
Motors. Technology is clearly changing the way we live our lives for 
the better, and there's more to come. The subject today is fuel cell 
technology. This technology, when fully developed and deployed, will 
not only deliver revolutionary vehicles, but will change the way we 
think about the automobile and our environment.
    We are on the threshold of an historic opportunity. Instead of the 
historical evolution of technology by incremental improvements, we now 
see our way to bold technology advances that will fundamentally change 
personal transportation for the new century. These advances have the 
potential to lead to the creation of commercially viable zero-emission, 
fuel-efficient fuel-cell vehicles with the functionality that Americans 
expect. Not only will fuel cells essentially remove the auto from the 
environmental equation by reducing tailpipe emissions to only water 
vapor and potentially shifting vehicles to renewable fuels--they will 
also offer the performance required for every type of vehicle: heavy 
duty commercial, sport utilities, trucks, mass transit or cars.
    Fuel-cell vehicles running on hydrogen fuel are the ultimate 
environmentally friendly vehicles because the only emission is water. 
The fuel cell supplies electricity to an electric motor that powers the 
wheels. The fuel cell produces electricity by stripping electrons from 
hydrogen that travels through a membrane to combine with oxygen to form 
water. Fuel-cell vehicles are more than twice as energy efficient as 
the internal combustion engine, have no pollutant emissions, and are 
quiet.
    Beyond the advantages for vehicles, fuel cells in vehicles promise 
two additional benefits. First, once fully integrated into our daily 
lives, fuel-cell vehicles will be supported by a broadly available, 
cost-effective hydrogen-refueling infrastructure. Such an 
infrastructure by its very nature would provide an evolutionary shift 
of personal transportation from petroleum to a mix of energy sources 
including renewables.
    Secondly, the development of this technology will create new more 
environmentally compatible distributed electric power generation 
possibilities. The automobile will have the potential to provide 
electrical power to homes and worksites. Power on today's electrical 
grid could be supplemented by the generating capacity of cars in every 
driveway. For example, if only one out of every 25 cars in California 
today was a fuel-cell vehicle, their generating capacity would exceed 
that of the utility grid. A typical mid-size fuel-cell vehicle would 
produce 50 to 75 kilowatts of electrical power, where a typical 
household may use 7 to 10 kilowatts at peak load.
    Like any advancement that has the promise to completely change the 
dominant technology, fuel cell development is a major, costly, 
technical endeavor, which--if aggressively undertaken and sustained--
should allow significant implementation in the 10 to 20 year timeframe. 
Our rate of progress today is very rapid. With an uninterrupted focus, 
our technological momentum should make this fuel cell vision possible.
    It is clear that we are in an intense global competition for 
leadership in this race to establish and commercialize fuel cell 
technologies. Toyota, Honda, Daimler, Ford, Volkswagen, Nissan, PSA, 
Hyndai, GM and others all have large programs. In Japan the Kyogikai, 
which are companies operating under government auspices, is developing 
a program for the implementation of fuel cell technology. Now is the 
time for the U.S. government and U.S. industry to create a partnership 
that can lead the world in the charge to achieve this vision.
    Before I talk specifics, I should note for the record that the 
opportunity we are discussing today would not be possible without the 
long-term support of the Senators from New Mexico and the support of 
ERDA and then the DOE. The fledgling ``fuel cells for transportation 
program'' at Los Alamos National Laboratories--which I initiated, then 
headed from the mid 1970's through the 1980's--along with PEM fuel cell 
technology provided the technical spark for the recent worldwide 
explosion of PEM fuel cell activities.
    Recognizing this potential, approximately four years ago at General 
Motors fuel cell activities were consolidated and accelerated. We were 
given one mandate by our management: Take the automobile out of the 
environmental debate. Regardless of whether the environmental debate is 
focused on air quality, climate, or overall sustainability, GM 
leadership recognizes that global conditions inspire bold, thoughtful 
action.
    1. There are over 6 billion people in the world today with over 10 
billion expected later this century. Most of these people are young, 
globally aware, web-connected, and residing in emerging economies with 
escalating demand for personal transportation.
    2. Only 12 percent of the world's population has automobiles today. 
Therefore a breakthrough in energy efficiency and emissions will be 
required to meet the demands of the future in a sustainable high-
quality environment.
    Our vision is as follows:
    1. We see fuel cells as the long-term power source. The GM global 
fuel cell program seeks to create affordable, full-performance, fuel-
cell-powered vehicles that meet customer preferences and demands and 
emit only water vapor from their tailpipes. Such vehicles would be 50 
to 100 percent more energy efficient than today's vehicles depending on 
design and drive cycle.
    2. We see hydrogen as the long-term fuel. The creation of a robust, 
readily available hydrogen-refueling network for those vehicles will be 
accessible through refueling stations, as gasoline is dispensed today. 
Hydrogen in the infrastructure could be derived from a mix of sources 
including: 1) hydrocarbons; and 2) from any source of electricity.
    In the first case, hydrogen is extracted from petroleum, natural 
gas and renewable hydrocarbons, such as ethanol, via ``reformers'' or 
fuel processors, which catalytically decompose the hydrocarbons into 
hydrogen and carbon dioxide.
    Hydrogen can also be extracted from water using electrolysis, which 
uses electricity to dissociate water. Electricity would come from 
conventional power plants or renewable power such as hydro, solar, wind 
and geothermal sources. In this way hydrogen fuel allows a transition 
of transportation from reliance on petroleum to a robust diversity of 
energy sources including renewable energy. The blending of these energy 
sources is seamless to the driver of a vehicle; he sees only hydrogen 
fuel, not whether it came from petroleum, natural gas, nuclear or 
renewable energy.
    There are three major challenges that we need to overcome to make 
this hydrogen economy a reality:
    First, we need continued significant development in on-board 
hydrogen storage. Using hydrogen in a vehicle requires a completely new 
type of fuel tank. The challenge is to find a lightweight, compact tank 
that stores enough hydrogen at modest pressure for a lengthy drive.
    Last month we took a major step toward clearing this hurdle. GM is 
acquiring a substantial minority ownership in QUANTUM Technologies. 
They are the industry leader in automotive hydrogen storage. QUANTUM 
Technologies has achieved performance that could allow us to introduce 
a fuel-cell vehicle in the future that will have a range equal to 
today's vehicles.
    But we should not limit ourselves to partnerships between private 
companies. We need the government to partner with us on fundamental, 
long-term research and development as well. And not just on storage of 
hydrogen, but a full portfolio of technologies.
    And that includes our second major challenge to a hydrogen economy 
developing clean and efficient methods of producing hydrogen. There are 
many substances from which hydrogen can be released, but it takes 
energy to do it. Eventually, we want to use a method that is renewable, 
and that has no adverse environmental impact. We're working closely 
with energy suppliers to investigate the best solutions.
    The third challenge we have to overcome is developing business 
models for the deployment of a hydrogen infrastructure, and piloting 
technologies to support it. To address this GM joined with General 
Hydrogen's Geoffrey Ballard to announce last month a 25-year alliance 
between our companies.
    As for the reality of this vision, we at GM have invested 
aggressively in what are called ``enabling'' technologies: fuel cells, 
reformers, electrolyzers and automotive electric propulsion. Our 
commitment is clear in the significance of our investment--over $100 
million annually for several years to date, and growing. The 
acceleration has been spurred on by rapid technical progress.
    To give you an idea of that rate of progress, in the last 4 years 
the size and weight of our fuel cell stack for a given power has 
decreased by a factor of 10. In the past year, our gasoline fuel 
processor has decreased in size by a factor of 3.
    Like today's gasoline cars, fuel-cell vehicles must be able to 
handle a tremendous range of environmental conditions. We are now able 
to start fuel cells from freezing--minus 40 deg.C--in substantially 
less than a minute, and our Hydrogen One demonstration fuel-cell 
vehicle covered over 800 miles in one day in the Arizona heat, setting 
15 performance and durability records earlier this summer.
    These milestones represent remarkable progress. Our rate of 
progress encourages us, but it is crucial to recognize that the race 
for fuel cell development is a marathon, not a sprint. No one should 
overlook that there remain major technical obstacles that must be 
conquered before these vehicles can be brought to market and can become 
commercially successful.
    Let me be clear about the progress represented by fuel cell 
demonstration vehicles. The progress is rapid and encouraging, but we 
are not there yet. No one has achieved full automotive performance 
levels including reliability, durability, safety and full capability in 
harsh weather extremes including the ability to withstand all 
environment and in-use abuse that automobiles and trucks worldwide are 
subjected to every day. We must achieve these goals and affordability 
before this technology will be considered an option by our customers.
    Achieving full automotive performance and affordability targets is 
key to customer acceptance and enthusiasm. These targets require huge 
investments that can only be responsibly made if we believe the 
infrastructure will be there to allow us to introduce fuel-cell 
vehicles to the public. Government policy today must drive the 
development of the hydrogen economy by accelerated R&D in hydrogen 
storage, pilot scale distribution networks and refueling stations and 
incentives for their proliferation.
    Selective demonstration vehicles or captive fleet tests will not 
suffice to encourage major timely investment by the energy producers 
and the full automotive supply base before a hydrogen infrastructure is 
seen to be evolving. Nor will potential creators of the hydrogen 
infrastructure invest until they see a rapid expansion of hydrogen 
fuel-cell vehicles and even then, there is the economic burden of 
supporting that infrastructure during the long period of transition 
from today's gasoline-powered fleet.
    Stewardship of this transition requires a carefully thought out 
plan which allows the automotive manufacturers, their material and 
component suppliers, the hydrogen fuel providers and governmental 
regulatory bodies to progress hand-in-hand. This careful coordination 
must also take into account the technical, financial and environmental 
realities that a successful transition requires.
    This is the basis on which a government-industry partnership must 
be based.
    In General Motors, the magnitude of our fuel cell investment 
creates an intense business dilemma--the choice between using our 
resources to meet the expanding funding needs to achieve a 
revolutionary vision at the expense of short-term focused initiatives, 
or to fund the aggressive pursuit of more incrementally focused 
initiatives.
    To a large degree, the outcome of that internal debate will depend 
on the development of a long-term, stable set of governmental policies 
and initiatives upon which we can properly balance the investment of 
our finite financial and technical resources.
    As a closing thought, I believe that fuel cells and hydrogen-based 
transportation are the future. The pace of technical progress is 
accelerating. We cannot be left behind or sitting on the sidelines. Now 
is the time for the U.S. government and U.S. industry to create a 
partnership that can lead the world in the charge to achieve this 
vision.
    Thank you.
    I look forward to responding to your questions.

    The Chairman. Thank you very much.
    Mr. Dana, why don't you go right ahead.

   STATEMENT OF GREGORY DANA, VICE PRESIDENT, ENVIRONMENTAL 
         AFFAIRS, ALLIANCE OF AUTOMOBILE MANUFACTURERS

    Mr. Dana. Mr. Chairman and members of the committee: On 
behalf of the 13 members of the Alliance of Automobile 
Manufacturers, it is a pleasure to be here today to provide the 
committee with our position on the role of cars and light 
trucks in our national energy policy.
    Today I would like to make three basic points: First, 
existing energy policies are not delivering anticipated 
results. That is why we are sitting here today.
    Second, to be successful we must maintain consumer focus, 
because consumers determine fuel economy every day through 
their purchasing decisions on dealers' lots.
    Third, with your help, we can increase the fuel economy of 
the fleet and meet consumer demands by accelerating the 
introduction of advanced technology fuel efficient vehicles.
    Let me expand on these points. We are a mobile society. 
Today transportation accounts for nearly two-thirds of all oil 
consumption and it is almost 97 percent dependent on petroleum.
    Automakers are working to increase fuel efficiency. Auto 
manufacturers have consistently increased the fuel efficiency 
of their models since the 1970's. According to EPA data, fuel 
efficiency has increased steadily at nearly 2 percent a year on 
average from 1975 to 2001 for both cars and light trucks. This 
fuel efficiency is a measure of how effectively a vehicle uses 
energy from fuel.
    While car and light truck fuel efficiency continue to 
increase, their combined fuel economy has stabilized, for one 
reason: Consumers are in the driver's seat when it comes to 
determining fuel economy. This is the demand side of the 
equation.
    Today, you are in the role of policymakers, but you are 
also consumers. Like millions of consumers nationwide, you may 
also value advanced safety features, passenger room, towing 
capacity, cargo carrying capacity, utility, comfort and 
performance. In fact, most consumers want it all. In surveys, 
consumers indicate they want greater fuel economy, but in their 
purchases they do not want to sacrifice size, safety, cargo 
room, acceleration, or other vehicle attributes to get it.
    Today, manufacturers offer more than 50 models with fuel 
efficiency ratings above 30 miles per gallon. We also offer 
vehicles that achieve 40 miles per gallon or greater, but these 
highly fuel efficient vehicles account for less than 2 percent 
of sales.
    The auto industry strongly believes that technology will 
allow us to address energy conservation goals and still provide 
consumers with vehicles that meet their family and business 
needs. That is why we support the alternative fuel and advanced 
technology provisions in Vice President Cheney's national 
energy policy.
    We also support the tax credit provisions in Senator 
Hatch's bill, S. 760, the Clean, Efficient Automobiles 
Resulting from Advanced Car Technologies, or the CLEAR ACT of 
2001. The CLEAR ACT would provide tax incentives for fuel 
cells, hybrid electric vehicles, battery electric vehicles, and 
dedicated alternative fuel vehicles, along with alternative 
fuel and alternative fuel infrastructure tax incentives.
    We are working on slight modifications to the hybrid 
electric vehicle tax credits and we would like to see the tax 
credits for the introduction of advanced lean burn technology.
    The CLEAR ACT is timely legislation. New technologies have 
set the stage for transforming the auto industry. Today you can 
purchase alternative fuel vehicles from subcompacts to SUV's to 
pickups. Alliance members are developing and introducing hybrid 
electric cars, SUV's and pickups that can increase city fuel 
economy by up to 200 percent. Automakers are working on the 
next generation of lean burn technology to ensure compliance 
with new, more stringent emission standards, and major 
manufacturers are investing hundreds of millions of dollars in 
research and development to bring fuel cell vehicles to market 
within 5 to 10 years.
    Mr. Chairman, we support consumer tax credits for a limited 
time, 6 years, and we support extending the tax credit for fuel 
cells to 10 years. These credits will accelerate the market 
penetration of highly fuel efficient vehicles. As a result, 
manufacturers can increase production and lower costs for 
consumers. Consumers will have more fuel efficient vehicles 
with the attributes they desire and policymakers will see 
increases in fuel economy.
    In conclusion, as we go forward we must maintain consumer 
focus and tax credits will accelerate the market penetration of 
highly fuel efficient vehicles that consumers will buy.
    Thank you, Mr. Chairman. I would be happy to answer any 
questions.
    [The prepared statement of Mr. Dana follows:]

   Prepared Statement of Gregory Dana, Vice President, Environmental 
             Affairs, Alliance of Automobile Manufacturers

    Mr. Chairman, thank you for the opportunity to testify before your 
Committee regarding energy policy issues. My name is Gregory Dana and I 
am Vice President, Environmental Affairs of the Alliance of Automobile 
Manufacturers, a trade association of 13 car and light-truck 
manufacturers. Our member companies include BMW of North America, Inc., 
DaimlerChrysler Corporation, Fiat, Ford Motor Company, General Motors 
Corporation, Isuzu Motors of America, Mazda, Mitsubishi, Nissan North 
America, Porsche, Toyota Motor North America, Volkswagen of America, 
and Volvo.
    Alliance member companies have more than 620,000 employees in the 
United States, with more than 250 manufacturing facilities in 35 
states. Overall, a recent University of Michigan study found that the 
entire automobile industry creates more than 6.6 million direct and 
spin-off jobs in all 50 states and produces almost $243 billion in 
payroll compensation annually.
    The Alliance supports efforts to create an effective energy policy 
based on broad, market-oriented principles. Policies that promote 
research development and deployment of advanced technologies and 
provide customer based incentives to accelerate demand of these 
advanced technologies set the foundation. This focus on bringing 
advanced technologies to market leverages the intense competition of 
the automobile manufacturers worldwide. Incentives will help consumers 
overcome the initial cost barriers of advanced technologies during 
early market introduction and increase demand, bringing more energy 
efficient vehicles into the marketplace.
    Congress needs to consider new approaches for the 21st century. The 
Alliance and its 13 member companies believe that the best approach for 
improved fuel efficiency is to aggressively promote the development of 
advanced technologies--through cooperative, public/private research 
programs and competitive development--and incentives to help pull the 
technologies into the marketplace as rapidly as possible. We know that 
advanced technologies with the potential for major fuel economy gains 
are possible. As a nation, we need to get these technologies on the 
road as soon as possible in an effort to reach the national energy 
goals as fast and as efficiently as we can.
    The Alliance is pleased that Vice President Cheney's National 
Energy Policy report recommends and supports a tax credit for advanced 
technology vehicles (ATVs). Specifically, it proposes a tax credit for 
consumers who purchase a new hybrid or fuel cell vehicle between 2002 
and 2007. In addition, the report supported the broader use of 
alternative fuel and alternative vehicles. This is consistent with the 
Alliance's position of supporting enactment of tax credits for 
consumers to help offset the initial higher costs of advanced 
technology and alternative fuel vehicles until more advancements and 
greater volumes make them less expensive to produce and purchase.
    Senate legislation that has been crafted to spur the sale of 
advanced technology fuel-efficient vehicles is included in S. 389, 
introduced by Senator Murkowski. This legislation would (1) provide tax 
credits for the purchase of alternative fuel and hybrid vehicles, (2) 
modify the existing tax credit for electric vehicles, (3) extend the 
dual fuel CAFE credit, (4) provide a business tax credit for 
alternative fuels sold at retail, (5) extend for three years the tax 
deduction for alternative fuel refueling property and add a new 
deduction for this property, (6) allow states to open HOV lanes to 
alternative fuel vehicles, (7) allow DOE to provide equivalent 
alternative fuel vehicle credits to fleets or persons that invest in 
alternative fuel refueling infrastructure, (8) establish a federal 
grant program for local governments addressing the incremental cots of 
qualified alternative fuel vehicles, and (9) require federal agencies 
to increase the fuel efficiency of newly purchased federal vehicles.
    Many of the provisions in S. 389 are included in S. 760 introduced 
by Senator Hatch and others. The Alliance is in general support of S. 
760, but would like to see some minor, technical changes made to the 
hybrid-electric vehicle section of the bill and would also support the 
inclusion of tax credits for advanced lean burn technology. The 
Alliance believes that the overall concepts and provisions found in S. 
760 are the right approach and would benefit American consumers.
    The bill would ensure that advanced technology is used to improve 
fuel economy. Performance incentives tied to improved fuel economy are 
incorporated into the legislation in order for a vehicle to be eligible 
for the tax credits. These performance incentives are added to a base 
credit that is provided for introducing the technologies into the 
marketplace.
    Specifically, S. 760 has a number of important provisions 
addressing various types of advanced technologies. These include:
Fuel Cell Vehicles
    The most promising long-term technology offers breakthrough fuel 
economy improvements, zero emissions and a shift away from petroleum-
based fuels. A $4,000 base credit is included along with performance 
based fuel economy incentives of up to an additional $4,000. The credit 
is available for 10 years to accelerate introduction--extremely low 
volume production is expected to begin in the 2005-2007 timeframe.
Hybrid Vehicles
    Electronics that integrate electric drive with an internal 
combustion engine offer near term improvements in fuel economy. A 
credit of up to $1,000 for the amount of electric drive power is 
included along with up to $3,000 depending upon fuel economy 
performance. The credit is available for 6 years to accelerate consumer 
demand as these vehicles become available in the market and set the 
stage for sustainable growth. To be eligible for the credit, hybrid 
vehicles must meet or beat the average emission level for light duty 
vehicles.
Dedicated Alternative Fuel Vehicles
    Vehicles capable of running solely on alternative fuels, such as 
natural gas, LPG, and LNG, promote energy diversity and significant 
emission reductions. A base credit of up to $2,500 is included with an 
additional $1,500 for vehicles certified to ``Super Ultra Low 
Emission'' standards (SULEV).
Battery Electric Vehicles
    Vehicles that utilize stored energy from ``plug-in'' rechargeable 
batteries offer zero emissions. A base credit of $4,000 is included 
(similar to the fuel cell--both have full electric drive systems) and 
an incremental $2,000 is available for vehicles with extended range or 
payload capabilities.
Alternative Fuel Incentives
    Alternative fuels such as natural gas, LNG, LPG, hydrogen, B100 
(biomass) and methanol are primarily used in alternative fueled 
vehicles and fuel cell vehicles. To encourage the installation of 
distribution points to support these vehicle applications, a credit of 
$0.50 for every gallon of gas equivalent is provided to the retail 
distributor. This credit is available for 6 years and will support the 
distribution of these fuels as vehicle volume grows and may be passed 
on to the consumer by the retail outlet. Note that ethanol is not 
included in these provisions due to the existing ethanol credit.
Alternative Fuel Infrastructure
    Complementary to the credit for the fuel itself, the existing 
$100,000 tax deduction for infrastructure is extended for 10 years and 
a credit for actual costs up to $30,000 for the installation cost of 
alternative fuel sites available to the public is included. One of the 
key hurdles to overcome in commercializing alternative fuel vehicles is 
the lack of fueling infrastructure. For nearly a century, 
infrastructure has focused primarily on gasoline and diesel products. 
These infrastructure and fuel incentives will help the distributors 
overcome the costs to establish the alternative fuel outlets and 
support distributors during initial lower sales volumes as the number 
of alternative fuel vehicles increases.
    To reiterate, the way to improve vehicle and fleet fuel economy, 
one that is in tune with consumer preferences, is to encourage the 
development and purchase of advanced technology vehicles (ATVs). 
Consumers are in the driver's seat and most independent surveys show 
that Americans place a high priority on performance, safety, space and 
other issues with fuel economy ranking much lower even with today's gas 
prices. ATVs hold great promise for increases in fuel efficiency 
without sacrificing the other vehicle attributes consumers desire. Just 
as important, the technology is transparent to the customer.
    Member companies of the Alliance have invested billions of dollars 
in research and development of more fuel-efficient vehicles. Automobile 
companies around the globe have dedicated substantial resources to 
bringing cutting-edge technologies--electric, fuel cell, and hybrid 
electric vehicles as well as alternative fuel vehicles and powertrain 
improvements--to the marketplace. These investments will play a huge 
role in meeting our nation's energy and environmental goals.
    These advanced technology vehicles are more expensive than their 
gasoline counterparts during early market introduction. As I mentioned 
earlier, the Alliance is supportive of Congressional legislation that 
would provide for personal and business end-user tax incentives for the 
purchase of advanced technology and alternative fuel vehicles. Make no 
mistake: across the board, tax credits will not completely cover the 
incremental costs of new advanced technology. However, it will make 
consumers more comfortable with accepting the technology and begin to 
change purchasing behavior. In short, tax credits will help bridge the 
gap towards winning broad acceptance among the public leading to 
greater volume and sales figures throughout the entire vehicle fleet. 
This type of incentive will help ``jump start'' market penetration and 
support broad energy efficiency and diversity goals.
    Some of the discussion today has centered on the vehicles of the 
automobile manufacturers. But it is important not to forget about a 
vital component for any vehicle--the fuel upon which it operates. As 
automakers looking at the competing regulatory challenges for our 
products--fuel efficiency, safety and emissions--and attempting to move 
forward with advanced technologies, we must have the best possible and 
cleanest fuels. EPA has begun to address gasoline quality but it needs 
to get even cleaner. This is important because gasoline will remain the 
prevalent fuel for years to come and may eventually be used for fuel 
cell technology.
    Beyond gasoline, the auto industry is working with a variety of 
suppliers of alternative fuels. In fact, the industry already offers 
more than 25 vehicles powered by alternative fuels. More than 1 million 
of these vehicles are on the road today and more are coming. Today, we 
find vehicles that use:

   Natural gas, which reduces carbon monoxide emissions by 65 
        to 90 percent;
   Ethanol, which produces fewer organic and toxic emissions 
        than gasoline with the longer term potential to substantially 
        reduce greenhouse gases;
   Liquefied petroleum gas (propane), the most prevalent of the 
        alternative fuels, which saves about 60% VOC emissions; and
   For the future, hydrogen, which has the potential to emit 
        nearly zero pollutants.

    The Alliance has submitted comments to the DOT in support of an 
extension of the dual fuel vehicle incentives through 2008. Current law 
provides CAFE credits--up to 1.2 mpg--for manufacturers that produce 
vehicles with dual fuel capability. These vehicles can operate on 
either gasoline or domestically produced alternative and renewable 
fuels, such as ethanol. However, the dual fuel credits end in model 
year 2004 unless extended via rulemaking by the National Highway 
Traffic Safety Administration. The Alliance believes an extension is 
important so that these vehicles continue to be produced in high volume 
to help encourage the expansion of the refueling infrastructure and 
giving consumers an alternative to gasoline.
    In addition to alternative fuels, companies are constantly 
evaluating fuel-efficient technologies used in other countries to see 
if they can be made to comply with regulatory requirements in the 
United States. One such technology is diesel engines, using lean-burn 
technology, which have gained wide acceptance in Europe and other 
countries. Automakers have been developing a new generation of highly 
fuel-efficient clean diesel vehicles using turbocharged direct 
injection engines as a way to significantly increase fuel economy and 
reduce greenhouse gas emissions. However, their use in the U.S. must be 
enabled by significantly cleaner diesel fuel.
    Earlier this year, EPA promulgated its heavy-duty diesel rule that 
the Alliance supports, as far as it goes. The rule reduces the amount 
of sulfur in the fuel. Low sulfur diesel fuel is necessary to enable 
the new clean diesel technology to be used in future cars and light 
trucks. Providing cleaner fuels, including lowering sulfur levels in 
gasoline and diesel fuel, will provide emission benefits in existing 
on-road vehicles. Sulfur contaminates emissions control equipment, such 
as catalytic converters. Efforts to reduce sulfur content will provide 
environmental benefits and allow vehicles to operate more efficiently. 
Unless there are assurances that fuels will be available, companies 
will not invest in new clean diesel technologies.
    As you can tell, the automobile companies--from the top executives 
to the lab engineers--are constantly competing for the next 
breakthrough innovation. If I can leave one message with the Committee 
today, it is to stress that all manufacturers have advanced technology 
programs to improve vehicle fuel efficiency, lower emissions and 
increase motor vehicle safety. These are not ``pie in the sky'' 
concepts on a drawing board. In fact, many companies have advanced 
technology vehicles in the marketplace right now or have announced 
production plans for the near future. That's why now is the perfect 
time for the enactment of tax credits to help spur consumers to 
purchase these new vehicles which years of research and development 
have made possible.
    Thank you for the opportunity to testify before the Committee 
today. I would be happy to answer any questions you may have.

    The Chairman. Thank you very much.
    Mr. Kolodziej.

         STATEMENT OF RICHARD R. KOLODZIEJ, PRESIDENT, 
                 NATURAL GAS VEHICLE COALITION

    Mr. Kolodziej. Excellent.
    The Natural Gas Vehicle Coalition appreciates the 
opportunity to be here this morning to discuss our views on the 
actions that Congress can and should take to reduce America's 
use of foreign oil by accelerating the purchase and use of 
alternative fuel vehicles. The Natural Gas Vehicle Coalition is 
a national organization with more than 180 member companies 
ranging from natural gas utilities to major automobile 
manufacturers to other equipment and service providers to 
environmental organizations and government organizations.
    Mr. Chairman, it is vitally important that we increase the 
use of non-petroleum alternative motor fuels, especially 
natural gas, because doing so would help address at least two 
important national public policy priorities simultaneously. 
First is the issue that we have already talked about, 
dependence on foreign oil. Natural gas vehicles contribute 
directly to reducing our dependence on foreign oil. The U.S. 
imports significantly more petroleum today than it did in 1992 
when the Energy Policy Act was passed, and that is just not 
good public policy. It is not good for the country.
    The only way to break free of that reliance on petroleum 
fuels is to increase the use of non-petroleum alternative 
fuels. Efforts to increase fuel efficiency, while laudable and 
important and we have got to do that, will not by themselves 
improve energy security. A gasoline or diesel vehicle that gets 
60 or even 80 miles per gallon is still 100 percent dependent 
on petroleum.
    The second way America benefits from increased use of NGVs 
is the environment. Compared to similar gasoline vehicles, NGVs 
produce far less carbon monoxide and volatile organic compounds 
and nitrogen oxides. They even produce 20 percent less 
greenhouse gases. Meanwhile, heavy duty vehicles are not 
necessarily the focus of this session today, but heavy duty 
vehicles produce far less NOX and up to 90 percent 
less particulates than a comparable diesel vehicle. In fact, 
heavy duty natural gas vehicles already meet the particulate 
levels called for in EPA's emissions standards that do not even 
go into effect until 2007. They also produce significantly less 
air toxics, which may in fact become the air quality issue of 
this decade.
    Today, there are over 100,000 natural gas vehicles on 
America's roads. There are over a million and a half worldwide, 
and the vehicles in America displace more than 100 million 
gallons of gasoline a year. The United States produces the best 
and the cleanest NGVs in the world and right now we have more 
alternative fuel vehicle models available than ever before. We 
have made great progress, but we have a long way to go.
    Consumers continue, as you have heard, to be hesitant to 
buy these vehicles because of the additional costs involved and 
the lack of a fueling infrastructure. Both these problems would 
be resolved if vehicle demand reached a critical mass. If we 
reach the critical mass, we get economies of scale for the 
manufacturers. If we get economies of scale for the 
manufacturers, we would come down on our costs.
    Because of the substantial public benefits that NGVs offer, 
Congress could and should take steps to make this overall 
improvement happen, and in our written testimony we have 
indicated a number of recommendations. The single most 
important step would be the passage of the CLEAR ACT, S. 760. I 
loved hearing all those positive things earlier about S. 760. 
The CLEAR ACT would be a meaningful tax program, tax incentive 
program, that would provide a market-driven, non-regulatory 
approach to the purchase and use of alternative fuel vehicles.
    Now, we recognize that the CLEAR ACT is not within the 
jurisdiction of this committee. However, we believe that it is 
crucial that the energy policymakers on this committee send a 
clear and unambiguous message that enactment into law of the 
provisions of the CLEAR ACT is a critical part of our national 
energy strategy and is in the best interest of the country.
    The NGV Coalition also believes that the Energy Policy Act 
must be restructured. While that law has had a big impact on 
getting automakers to produce alternative fuel vehicle models, 
as was mentioned earlier, it has not achieved anywhere near the 
petroleum replacement goals envisioned. In our written 
testimony we indicate a program, a number of specific 
recommendations that would build on the positive achievements 
of EPAct, increase the amount of alternative fuel used and 
therefore foreign oil displaced, and increase the amount of 
flexibility available to the covered fleets to help them more 
effectively comply with the law.
    A third area is R&D. Federally sponsored NGV R&D has been 
critical to the NGV industry's technical advancements, and the 
industry has worked closely with the Department of Energy to 
develop a comprehensive 5-year NGV R&D strategic plan. 
Unfortunately, the Department has never requested sufficient 
funds to implement the Federal Government's part of that plan, 
instead focusing, we believe disproportionately, on funding 
diesel and gasoline projects.
    We urge the committee to instruct DOE to substantially 
expand the NGV program to bring it into line with the 5-year 
plan we have jointly developed, especially with respect to 
natural gas as a fuel for hybrid vehicles and as a hydrogen 
source for fuel cells.
    Mr. Chairman, that concludes my remarks. Our written 
comments include other recommendations concerning programs that 
would help further the use of alternative motor fuels and I 
look forward to working with you and the committee on 
implementing this program.
    [The prepared statement of Mr. Kolodziej follows:]

  Prepared Statement of Richard R. Kolodziej, President, Natural Gas 
                           Vehicle Coalition

                              INTRODUCTION

    Mr. Chairman and Members of the Committee, the Natural Gas Vehicle 
Coalition (NGVC) appreciates the opportunity to discuss our views on 
the actions Congress can and should take to reduce America's use of 
foreign oil by accelerating the purchase and use of alternative fuel 
vehicles. My name is Rich Kolodziej, and I am President of the NGVC. 
The NGVC is a national organization dedicated to the development of a 
growing, sustainable and profitable natural gas vehicle market. The 
NGVC represents more than 180 natural gas companies, equipment 
manufacturers and service providers, as well as environmental groups 
and government organizations.
    Reducing the use of petroleum by increasing the use of non-
petroleum alternative motor fuels should be among the highest policy 
priorities of the federal government for at least two fundamental 
reasons. First, the lack of stability and competition in oil markets 
and the continued growth in oil imports demonstrate beyond doubt that 
it is time to get serious about reducing our reliance on oil imports. 
The oil producing nations are in a monopoly position, and we are held 
hostage to their decisions about production levels. American consumers 
must be provided a choice.
    Second, too many Americans live in urban areas with poor air 
quality. It is estimated that more than 100 million Americans live in 
areas that are not in compliance with national ambient air quality 
standards. The result has been an alarming increase in the incidence of 
asthma and other respiratory ailments in children and the elderly. 
Increasing the use of alternative fuel vehicles--especially natural gas 
vehicles--helps address both these policy priorities simultaneously.
    Now is the time to take action. Today, there are more alternative 
fuel vehicles (AFVs) in operation and models available than at any time 
before. Domestic natural gas is readily available. State and local 
governments across the country are adopting legislative incentives that 
will help pave the way toward more AFVs. In addition to the 
introduction of these vehicles, federal, state and local incentives 
also have encouraged increased investment in alternative fuel 
infrastructure. However, no one state or group of states alone can 
significantly alter the direction of any major national industry, such 
as the motor vehicle industry.
    Therefore, while the future for alternative fuel transportation 
technologies appears bright, much more must be done at the national 
level if we are to significantly reduce this country's reliance on 
imported oil, improve our air quality and develop profitable 
alternative fuel vehicle markets. Since consumers continue to be 
hesitant to buy many AFVs because of the costs involved and the lack of 
infrastructure, Congress needs to expand incentives for all alternative 
fuels, including measures that will bring down the cost of acquiring 
AFVs and purchasing alternative fuels. Congress also should adopt 
incentives that support the expansion of the alternative fuel 
infrastructure and reduce the incremental costs involved.

  1. THE NEED TO REDUCE OUR DEPENDENCE ON FOREIGN OIL IS GREATER THAN 
                                  EVER

    The U.S. imports significantly more petroleum today than it did in 
1992 when the Energy Policy Act (EPAct) was enacted. Net imports are up 
more than 2.8 million barrels a day while domestic production has 
declined by nearly 1.3 million barrels a day. The combination of lower 
domestic production and increased demand means that oil imports also 
make up a larger share of total oil consumed in the US. In 1992, crude 
oil imports made up approximately 45 percent of domestic supply. Last 
year, crude oil imports accounted for 59 percent of total supply. The 
Energy Information Administration's (EIA) 2001 Annual Energy Outlook 
forecasts that oil imports will approach 61 percent of total supply 
this year. EIA's long-term forecast has oil imports making up 69 
percent of U.S. supply by 2010, and more than 71 percent by 2020.
    Persian Gulf and OPEC member countries supply an important part of 
U.S. crude oil and petroleum imports. The EIA reports that in 1999 the 
U.S. relied on OPEC members to provide approximately 46 percent of 
imported petroleum; Persian Gulf states alone provided approximately 23 
percent of total imports. While EIA's long-term forecast shows OPEC 
continuing to provide about 46 percent of U.S. petroleum demand in 
2020, the forecast shows Persian Gulf exports becoming a much more 
significant part of OPEC exports to the US, rising from 39 percent to 
50 percent.
    OPEC and Persian Gulf exports also make up a major component of 
world oil supply. OPEC members currently provide about 40 percent of 
worldwide supply. OPEC's share of the world oil market is expected to 
reach 51 percent by 2020, according to EIA's forecast. Persian Gulf oil 
is even more key to world oil supplies. Persian Gulf exports in 
particular are of concern since this region has generally been unstable 
and continues to be the source of geopolitical conflicts.
    Of particular concern is Iraq, which continues to be the wild card 
in international oil markets. Iraqi currently has an oil production 
capacity of 3.0 million barrels of oil per day. This represents nearly 
four percent of world oil production. This is a significant volume of 
oil and its removal from international markets at a time when reserve 
stocks are low could significantly affect world oil prices. Over the 
next two decades, the EIA projects that Iraq will more than double its 
oil production, ensuring that it continues to be an important player in 
international oil markets.
    The recent curtailment of world oil production by OPEC members 
demonstrates the serious consequences of even small disruptions in the 
supply of oil to international markets, and proves that OPEC is capable 
of acting cohesively to control international oil markets. It is 
precisely because of their growing market power that they have been 
able to affect world oil prices. As recent events demonstrate, the 
economic effect of supply disruptions is not limited to any one region 
but rather reverberates across international commodity markets. The 
notion that the U.S. can increase its energy security by reducing its 
overall reliance on OPEC oil simply is not true. Disruptions of oil 
supplies from the Persian Gulf and from OPEC members will still result 
in much higher prices being paid for oil imports regardless of their 
country of origin. In addition, while the market share for petroleum in 
the America's residential, commercial, industrial and power generation 
markets has declined substantially over the past 25 years, petroleum 
still has a virtual monopoly in our transportation sector.
    An additional concern is the growing demand for oil by developing 
nations. It is estimated that by 2020 demand for oil worldwide will 
increase by over 50 percent. Much of this will occur because of 
economic expansion and growing vehicle populations in developing 
nations, especially China. This increased demand is expected to place 
significant upward pressure on world oil prices.
    U.S. reliance on foreign oil has a significant impact on our 
economy. Petroleum imports result in fewer dollars spent at home and 
more sent overseas. Payments for imported petroleum jumped from $60 
billion in 1999 to more than $100 billion in 2000, according to EIA.

     2. EPACT'S PETROLEUM DISPLACEMENT GOALS HAVE NOT BEEN ACHIEVED

    To combat our reliance on oil imports, EPAct set a national goal of 
replacing 10 and 30 percent of the petroleum used in light duty 
vehicles with non-petroleum alternative fuels by 2000 and 2010, 
respectively. EPAct was intended to create a viable alternative fuels 
market. Its goal was to reduce U.S. petroleum and crude oil imports and 
increase energy security by promoting reliance on domestic fuels.
    A report released last year by the U.S. General Accounting (GAO) 
indicates that unfortunately today, even after almost nine years of 
EPAct implementation, alternative fuel use accounts for a very small 
amount of overall motor fuel demand. According to the 1998 figures 
compiled by the GAO, total alternative fuel use--including the 
oxygenated blending stocks for gasoline--accounts for less than 4 
percent of all highway gasoline use. This is far short of the EPAct 
goal of 10 percent displacement by 2000. The amount of alternative fuel 
that is used in AFVs is even less. GAO reports that alternative fuel 
use in AFVs displaced only about 334 million gallons of gasoline or 
less than 0.3 percent of total gasoline consumption. The vast majority 
of the remaining amounts of non-petroleum fuel used in the country are 
comprised of MTBE or ethanol that is added to gasoline to meet the 
reformulated gasoline requirements of the Clean Air Act.

        3. THE TRANSPORTATION SECTOR: THE KEY TO ENERGY SECURITY

    Concerns about energy security and the transportation sector's 
reliance on petroleum motor fuels led to the passage of EPAct. While 
the effort to increase alternative fuel use and to reduce the 
transportation sector's reliance on petroleum motor fuels has been 
disappointing, EPAct has nevertheless resulted in a number of positive 
developments. Today, the type and number of alternative fuel vehicles 
being sold, as well as the number of alternative fuel stations, has 
grown. The U.S. is the world leader in the field of alternative fuel 
vehicles and fueling infrastructure. The U.S. automakers should be 
commended for their impressive array of low polluting, AFVs. Yet, still 
more must be done.
    Since the 1970s, all major energy-consuming sectors other than 
transportation have significantly reduced their dependence on 
petroleum. Today, the transportation sector remains almost totally 
dependent on petroleum motor fuels. The U.S. transportation sector is 
responsible for more than two-thirds of all petroleum consumption and 
an astonishing 15 percent of world oil demand. The only way to break 
free of the reliance on petroleum fuels is to increase the use of 
alternative fuels. Efforts to increase fuel efficiency in gasoline and 
diesel vehicles are laudable and must be a continuing part of a 
national energy strategy. However, increased fuel efficiency for 
gasoline and diesel vehicles alone will not improve our country's 
energy security. Improving fuel efficiency will simply slow-down the 
current growth in oil consumption. Fuel efficiency does not provide 
energy consumers with options for fueling their vehicles. A gasoline or 
diesel vehicle that gets 60 or even 80 miles per gallon is still 100 
percent reliant on petroleum supplies.
    Increasing the use of alternative fuels will provide consumers with 
real options when it comes to supply disruptions or price hikes. We 
cannot wait for the next supply disruption or price spike to create the 
necessary fueling infrastructure. Those efforts must begin now. Given 
the significant amount of energy consumed by the domestic 
transportation sector, a strong U.S. market for alternative fuels would 
put downward pressure on international oil prices. In addition, exports 
of U.S. alternative fuels technologies would not only bolster our own 
economy but would further reduce world-wide dependence on foreign oil, 
further lessening the market power of certain oil exporting nations. 
News of growing international interest in alternative fuels increases 
daily. Countries such as Argentina, China, Chile, Egypt, India and 
Mexico increasingly are looking at alternative fuels to combat air 
pollution and reduce oil imports.

               4. THE CURRENT NATURAL GAS VEHICLE MARKET

    There are more than 100,000 natural gas vehicles in-use today. 
These vehicles are owned and operated by the federal government, local 
and state governments, and, increasingly, private fleets. These 
vehicles include passenger cars, light duty trucks, school buses, 
transit buses, refuse haulers, and many other types of vehicles. It is 
important to note that nearly all of the new NGVs placed in-service 
today are produced by original equipment manufacturers (OEMs). Such 
well-known companies as DaimlerChrysler, Ford Motor Company, General 
Motors, Honda, Toyota, Blue Bird, and Freightliner are manufacturing 
these vehicles. Nearly every manufacturer of transit buses now offers a 
line-up of natural gas buses. In addition, heavy-duty natural gas 
engines are now available from Caterpillar, Cummins, Detroit Diesel, 
John Deere and Mack.
    While the number of NGVs in-use is still small in terms of the 
overall vehicle population, it is growing. Since 1992, the number of 
NGVs in-use has increased four-fold. More impressive, the total amount 
of fuel consumed by these vehicles has increased more than six-fold. 
Today, NGVs displace more than 100 million gallons of gasoline a year, 
representing about 27 percent of all alternative fuel that is consumed 
in alternative fuel vehicles.

         5. THE ENVIRONMENTAL BENEFITS OF NATURAL GAS VEHICLES

    Natural gas is one of the cleanest alternative fuels. When compared 
to average petroleum vehicles, NGVs reduce exhaust emissions of carbon 
monoxide (CO) by 50%, non-methane organic gas (NMHC) by 88% and 
nitrogen oxides (NOX) by 66%, and produce 20% fewer 
greenhouse gases. NGVs have been certified to be substantially cleaner 
than traditionally fueled vehicles. Several models already meet or 
exceed California's ultra-low emissions vehicle (ULEV) and super ultra-
low emissions vehicle (SULEV) standards.
    Heavy-duty vehicles powered by natural gas generally reduce 
emissions of particulate matter by 90 percent and NOX by 
more than 50 percent. Natural gas engines also produce significantly 
less air toxic emissions. Regulatory agencies across the country 
increasingly are looking to natural gas engines to displace diesel 
engines as an effective strategy for reducing pollution. For example, 
officials in California have decided that natural gas or other 
alternative fuels should power most new government-owned heavy-duty 
vehicles. In addition, many transit agencies around the country have 
decided to exclusively rely on natural gas buses when purchasing new 
buses for their fleets.
    The Honda Civic GX illustrates the excellent emissions attributes 
that natural gas has as a vehicle fuel. Even though they have been 
working with natural gas for only a few years, Honda has been able to 
achieve truly remarkable results with the Civic GX. In fact, the 
natural gas Honda GX, which is certified as SULEV, is the cleanest 
internal combustion engine powered vehicle ever commercially produced, 
producing far less pollution than Honda's other low-polluting vehicles, 
including their hybrid electric vehicle. Initially, regulators had 
difficulty even measuring the emissions from the Honda GX. A gasoline 
vehicle certified to just the minimum current federal standards emits 
nearly 194 times more pollution than the dedicated natural gas Honda 
Civic GX. Vehicles produced by the DaimlerChrysler, Ford and General 
Motors also have met some of the most demanding emission standards in 
existence. For example, a one-mile trip to the corner grocery store and 
back in an average pickup truck emits as much smog forming hydrocarbons 
as is emitted by the Ford F-250 NGV in a 247 mile trip.
    More immediately, natural gas vehicles can provide critical 
emission reductions today. The recently announced EPA heavy-duty 
emission standards will not be fully implemented until 2010. Natural 
gas heavy-duty vehicles already meet the particulate matter levels 
called for in the proposed rules and are years ahead of diesel engines 
in terms of reducing NOX emissions. In addition, there are 
many uncertainties concerning the timing of EPA's proposed rules. 
Industry has indicated that they intend to fight the standards, 
especially the sulfur reductions for diesel fuel. It is possible that 
the emission benefits of the proposed rule will not be available until 
some time after 2010. In the meantime, natural gas vehicles are 
available now and they can deliver superior emissions performance with 
the added advantage of petroleum displacement.

            6. THE FUTURE OF THE NATURAL GAS VEHICLE MARKET

    The prospects for increased natural gas use for centrally fueled 
and other high fuel use fleet operations, such as taxicabs, refuse 
haulers, school and transit buses, airport shuttles and over-the-road 
trucks, are very good. The NGV industry has generally chosen to focus 
on high fuel use fleets and heavy-duty vehicles because their fuel 
consumption and refueling patterns make them the best choice for early 
introduction of alternative fuels. Initially, suppliers of natural gas 
are looking for customers that will use sufficient amounts of fuel to 
justify the capital investment in retail and private fueling. Another 
advantage of focusing on high fuel use fleets and operators of heavy-
duty vehicles is that replacing these vehicles with alternative fuels 
provides the greatest amount of emission reductions.
    While NGVs are commercially available, they generally cost more 
than their gasoline or petroleum counterparts. Light-duty NGVs for 
example, generally cost $3,500 to $5,000 more; heavy-duty NGVs cost 
from $25,000-$50,000 more. However, as more vehicles are sold, 
economies of scale will lower the incremental cost of NGVs. The 
Department of Energy estimates that light-duty NGVs will cost 
approximately $800 more than comparable gasoline models when mass-
produced. Unfortunately, we are still far from seeing the economies of 
scale that will result from mass production. For example, Ford Motor 
Company produced over 100,000 Crown Victoria Sedans last year. Of 
these, only 1,000 were natural gas-powered.
    Some people have questioned the continued need for alternative fuel 
vehicles, particularly since the U.S. EPA announced plans to make 
gasoline and diesel fueled vehicles of all sizes much cleaner. While 
there is no question that conventionally fueled vehicles have gotten 
cleaner and will continue to do so, natural gas vehicles too can 
continue to become cleaner. Alternative fuel vehicles will continue to 
be necessary to offset the increased number of vehicles and increased 
growth in vehicle miles traveled projected by the U.S. Department of 
Transportation.
    Many experts also believe that eventually hydrogen-based fuel cell 
vehicles will replace the internal combustion engine. It is important 
to understand that natural gas provides an excellent pathway to a 
hydrogen transportation future since natural gas can be used to supply 
the needed hydrogen for fuel cell vehicles. (In fact, almost all 
stationary fuel cells currently in commercial use derive their hydrogen 
from natural gas.) As the demand for hydrogen grows, natural gas could 
be converted into hydrogen at distribution centers or at refueling 
stations and supplied to hydrogen vehicles. The natural gas 
infrastructure that is in place today (including the existing 
pipelines, fueling stations, fuel storage systems and garages and 
maintenance facilities retrofitted to safely handle a gaseous fuel like 
natural gas) can be used to support the hydrogen future. In addition, 
because of the growing NGV market, there are an increasing number of 
mechanics, inspectors and other transportation professionals that are 
becoming familiar with servicing gaseous fuel vehicles. It is difficult 
to imagine how the nation could transition from a petroleum-based 
transportation system directly to a hydrogen system. Therefore, natural 
gas is not just an excellent pathway to a hydrogen transportation 
future; it may just be the only way to transition to that future.
    It also should be kept in mind that it will be decades before fuel 
cell vehicles could become a substantial percentage of the U.S. vehicle 
population. Internal combustion engines, whether used in traditional 
vehicles or hybrid electric vehicles, will continue to power most 
vehicles for the foreseeable future. Natural gas vehicles will always 
be cleaner than comparable gasoline or diesel vehicles using the same 
technology, including hybrid electric technology.

                            RECOMMENDATIONS

    There are a number of policies and programs that the federal 
government could and should put in place to accelerate the purchase and 
use of alternative fuel vehicles. Some are refinements of existing 
programs; some are new. Many fall within the purview of the U.S. 
Department of Energy or Environmental Protection Agency. However, all 
require congressional leadership in terms of continued authorizations 
and/or appropriations. The NGVC recommends that Congress support the 
following policies and programs:
a. Financial Incentives
    Support the CLEAR ACT. In April, Senators Hatch and Rockefeller 
introduced S. 760, a bipartisan bill titled Clean Efficient Automobiles 
Resulting from Advanced Car Technologies (CLEAR ACT). That bill 
currently has 11 cosponsors. A companion bill, H.R. 1864, was 
introduced in the House in May. S. 760 would provide meaningful tax 
incentives for the purchase of alternative fuel and advanced technology 
(fuel cell and hybrid) vehicles, the use of alternative fuels, and 
investments in alternative fuel infrastructure. These proposals are 
market-driven non-regulatory approaches to promoting AFVs and their 
use. A credit against income taxes is provided for individuals and 
businesses for the acquisition of alternative fuel vehicles. The amount 
of the credit depends on the environmental benefits the vehicle 
provides. A credit against income taxes also is provided to retail 
sellers nationwide for the sale of alternative motor fuels. We 
recognize that the CLEAR ACT is not in the jurisdiction of this 
Committee. However, we believe that it is critical that the energy 
policymakers on the Energy Committee send a clear and unambiguous 
message that enactment into law of the provisions the CLEAR ACT is a 
critical part of a national energy strategy and in the best interest of 
the country.
    Provide More Funding to State and Local Government Fleets. State 
and local government fleets are increasingly turning to alternative 
fuel vehicles as a strategy to help bring their communities into 
compliance with National Ambient Air Quality Standards. (Indeed, 75 
percent of covered state government fleets are required by EPAct to be 
capable of operating on alternative fuels.) Because of the financial 
pressure of other priorities, this transition to AFVs is proceeding 
slower than it could or should be. Congress should provide state and 
local governments matching funds for AFV acquisition for their fleets, 
with a higher level of matching for states that commit to a higher 
percentage of AFVs in the state's fleet than required by EPAct.
    Congress also should increase funding for the Department of 
Energy's Clean Cities Initiative. Over 80 cities across the country 
have established Clean Cities coalitions, which are public/private 
partnerships dedicated to in the increased use of AFVs. The Clean 
Cities program has been extraordinarily successful, and its efforts 
should be recognized and encouraged.
    Fund Local Government Model AFV Demonstration Projects. Last month, 
Rep. Sherwood Boehlert (R-NY), chairman of the House Science Committee, 
introduced the ``Alternative Fuel Vehicle Acceleration Act'' (H.R. 
2326). The bill would establish a nationwide alternative fuel vehicle 
energy demonstration and commercial application competitive grant 
program by providing $200 million in federal grants to up to 15 
communities. The grants could be used to deploy AFVs and connect them 
to existing transportation systems to help create AFV intermodal 
networks. Rep. Boehlert plans to include H.R. 2326 in the energy 
package being developed by the House Science Committee. The Energy 
Committee should consider similar legislation.
    Support the Green School Bus Program. Recent studies indicate that 
children riding on older school buses are exposed to potentially 
dangerous levels of emissions. We join with the Union of Concerned 
Scientists to urge passage of legislation to provide school districts 
with funding to replace diesel school buses with alternative fuel 
buses, especially older school buses that may not meet today's safety 
standards.

b. Research, Development and Demonstration (RD&D)

    Expand Funding for NGV RD&D. NGVs are good, but they can be made 
better. Significant R&D is still needed to (1) improve engine 
efficiency, (2) further reduce engine emissions, (3) reduce the cost 
and improve the reliability of fueling infrastructure, and (4) 
demonstrate natural gas systems in new applications. The Energy 
Committee should direct DOE to substantially expand its NGV RD&D 
program to bring it in line with the new Five-Year NGV RD&D Plan 
developed jointly by the NGV industry and DOE.
    Include NGVs in Advanced Automotive Technology R&D. As discussed 
above, from the perspective of energy security and the environment, 
natural gas is a superior fuel to gasoline and diesel for hybrids and 
fuel cells. Therefore, natural gas could and should play a very 
important role in the deployment of advanced automotive technologies 
such as hybrid electric and fuel cell vehicles. Existing federal 
advanced vehicle programs, however, have focused on liquid (primarily, 
petroleum-based) fuels for these vehicles. The Energy Committee should 
instruct DOE to include gaseous fuels in its advanced technology 
vehicle program.

c. Restructure EPAct

    EPAct includes specific goals for petroleum reduction through the 
use of non-petroleum alternative motor fuels. To help achieve these 
goals, the Act requires alternative fuel provider fleets, the federal 
fleet and state government-owned fleets to acquire light duty AFVs. The 
law allows these fleets to meet up to one-half of their AFV purchase 
requirements through the use of biodiesel. Each 450 gallons of 
biodiesel used (2,250 gallons of B-20) by a fleet equals one AFV. As 
discussed above, EPAct's success in encouraging OEMs to bring AFVs to 
the market stands in stark contrast, however, to its success in 
actually helping to displace petroleum with alternative fuels. Fuel 
provider fleets and the federal fleet are required to operate their 
AFVs on alternative fuel, but only if such fuel is reasonably 
available. Many fleets have met their EPAct requirements by acquiring 
flex-fuel vehicles (vehicles that can operate either on alternative 
fuel or conventional petroleum fuel), and then operating them on 
gasoline. Consequently, according to the recent General Accounting 
Office study discussed above, very little petroleum actually has been 
displaced through the use of alternative fuels in AFVs owned by these 
fleets. Congress should make the following modifications to EPAct to 
increase its effectiveness in reducing the use of petroleum:
    i. Create an Optional EPAct Compliance Alternative. Some state 
government and fuel provider fleets have expressed a desire for greater 
flexibility in meeting the AFV acquisition requirements. Congress 
should modify EPAct to provide state government and fuel provider 
fleets with an optional approach to meeting their EPAct requirements 
that offers them substantially greater flexibility. In exchange, the 
program would ask them to accept a voluntary commitment to actually 
reducing their use of petroleum fuel. Under this program, state 
government and fuel provider fleets would have the option to continue 
to meet EPAct requirements as they have in the past (i.e., by acquiring 
AFVs, meeting up to one-half their requirements through the use of 
biodiesel and, for fuel provider fleets, using alternative fuel where 
available). However, this proposal also would provide them the option 
of opting out of the vehicle acquisition and fuel use requirements by 
agreeing to reduce a percentage of the petroleum they use in their 
fleet operations. This percentage would be equal to the amount of 
petroleum that would be displaced if all AFVs they own and would be 
required to acquire under EPAct if they remained subject to the vehicle 
acquisition requirements operated on alternative fuel exclusively. The 
Department of Energy would be required to issue rules regarding the 
calculation of this amount.
    If a fleet elects this option, all actions it takes to reduce 
petroleum consumption would be counted under the rules DOE must issue. 
These actions could include:

   the use of biodiesel (every gallon of biodiesel used would 
        count),
   the use of hybrid electric vehicles and neighborhood 
        electric vehicles (based on the amount of petroleum displaced 
        compared to a conventional vehicle in the same weight class),
   the actual use of alternative fuel in all their vehicles, 
        including light-, medium- and heavy duty vehicles and
   the amount of fuel displaced as a result of substantial 
        contributions they make to getting other fleets or persons to 
        reduce petroleum consumption.

    This flexible approach would result in meaningful petroleum 
displacement, provide incentives for acquisition of AFVs, hybrid 
vehicles and neighborhood electric vehicles and encourage increased use 
of biodiesel. Since the option is voluntary, it would not constitute an 
unfunded mandate.
    ii. Credit for the acquisition of heavy-duty vehicles. Congress 
should permit fleets covered by EPAct to count dedicated medium and 
heavy-duty vehicles they acquire toward their EPAct requirements.
    iii. Enforcement. Congress should direct DOE to send a report to 
the Senate Energy and Natural Resources and House Energy and Commerce 
Committees within 90 days of the date of enactment regarding compliance 
with EPAct requirements by federal, state and fuel provider fleets. DOE 
should be instructed to detail the efforts it has made to enforce the 
requirements of the Act, as well as to promote the use of alternative 
fuels by these fleets. DOE also should be required to publish the 
report in the Federal Register as well as to publish enforcement 
actions under EPAct.
d. Other
    Accelerate Mobile-to-Stationary Credit Trading. Under current 
Environmental Protection Agency (EPA) regulations (open market trading 
guidance and the Federal NOX Budget Trading program), the 
use of mobile emission credits to offset stationary source emissions is 
either prohibited or discouraged by overly bureaucratic requirements. 
Where used, the process has been extremely burdensome. Congress should 
direct EPA to develop regulations to encourage and facilitate mobile to 
stationary source emissions trading, and to update its Mobile Emissions 
Model to include natural gas vehicles and other low-polluting 
technologies. EPA should be instructed to develop methodologies for 
ensuring that mobile source emission reductions are real and 
verifiable, and move expeditiously to ensure that mobile reduction 
credits are part of its regulatory programs.

                               CONCLUSION

    On behalf of the Natural Gas Vehicle Coalition, I appreciate the 
opportunity to provide our views on these critical issues. It is clear 
that the U.S. must take steps to lessen its dependence on foreign oil. 
Natural gas vehicles can help to significantly reduce dependence on 
foreign oil. It also is clear that America's urban areas must reduce 
their levels of air pollution. Natural gas vehicles are the cleanest 
vehicles commercially available today and will continue to be tomorrow. 
The U.S. currently has the best technology in the world for using 
alternative transportation fuels. It is critical for the U.S. to 
capitalize on this technological edge and begin to move alternative 
fuels into the marketplace. Government incentives continue to be 
necessary to make this happen. With government incentives and 
leadership, the private sector can greatly expand the market for 
alternative transportation fuels.

    The Chairman. Thank you very much.
    Mr. Marshall.

          STATEMENT OF GARY MARSHALL, VICE CHAIRMAN, 
               NATIONAL ETHANOL VEHICLE COALITION

    Mr. Marshall. Good morning, Mr. Chairman.
    The Chairman. Good morning.
    Mr. Marshall. Glad to be here today. I want to talk with 
you a little bit about the National Ethanol Vehicle Coalition, 
which is the primary advocacy group for the use of E-85, or 85 
percent ethanol, as a form of alternative transportation fuel. 
The NEVC is comprised of a number of different members, 
including the 26 members of the Governors Ethanol Coalition, 
the National Corn Growers Association, several State corn 
growers associations, which I actually work for the Missouri 
Corn Growers Association, as well as several automobile 
manufacturers, ethanol companies, and others.
    We are primarily interested in E-85 as an alternative fuel 
source, but we are obviously very supportive of the use of 
ethanol as E-10. We have other advocacy groups out there 
working on E-10 and certainly we are very supportive of efforts 
such as S. 1006, the Renewable Fuels Act. But we are going to 
focus our remarks today on E-85, and obviously the biggest 
challenge that we have had, as people have been talking about 
all morning, has been the development of infrastructure to fuel 
automobiles with E-85, 85 percent ethanol. We are hoping that 
we can help today to integrate E-85 into a broad-based national 
energy strategy.
    Today, most of the ethanol produced in the United States 
comes from corn. But as ethanol demand increases, we are going 
to see ethanol produced from a number of different feedstocks, 
including agricultural wastes, wood waste, and even municipal 
solid waste. We support and advocate all of these different 
forms of feedstocks, including biomass, agricultural waste, and 
feed grains.
    Briefly, the automakers have made significant investments 
to bring E-85 compatible vehicles to the marketplace at no 
additional cost to consumers. By the conclusion of market year 
2001 there will be approximately 1.9 million flexible fuel 
vehicles on the Nation's highways capable of consuming more 
than 1.5 billion gallons of ethanol annually if the 
infrastructure was available. The number of these vehicles 
continues to increase. We are going to see more this year, more 
introduced next year.
    Different styles of vehicles will be compatible to use 
alternative fuels, like E-85. These vehicles can run on 85 
percent ethanol, they can run on 10 percent ethanol, they can 
run on conventional gasoline. So if you do not have access to 
the 85 percent ethanol, you can use something else if you are 
traveling away.
    Again, the problem has been finding the infrastructure, 
putting the infrastructure together to produce E-85. We can use 
the existing infrastructure to deliver it. The gasoline tanks, 
we have to have a dedicated tank for the E-85, but the pumps, 
just like we see in many of the filling stations across the 
country today, we can utilize those directly for E-85. So there 
is an additional cost of putting in the different tanks and so 
forth, but the infrastructure could be made available 
relatively easily. It just has not been completed to this point 
in time.
    Now, just for a couple of brief interesting comments. If 
these 1.9 million flexible fuel vehicles were able to use E-85 
as its primary fuel source, we would displace 34 million 
barrels of imported petroleum, use an additional 530 million 
bushels of corn, generate an additional $3 billion in farm 
income, develop a marketplace for the production of ethanol 
from biomass and waste materials, significantly reduce the 
emissions of non-methane hydrocarbons, carbon monoxide, and air 
toxics, implement a reduction of more than 4.3 million tons per 
year of greenhouse gas emissions, and help establish a long-
term sustainable alternative domestic transportation fuel.
    As more of these automobiles come on line, obviously we 
believe there is no other form of transportation fuel that 
provides the broad range of environmental and economic benefits 
to the Nation as does E-85. But as I have been saying, 
obviously there are impediments to achieving those results. 
Lack of infrastructure--today we have only about 200 public E-
85 fueling stations in the United States.
    Ethanol contains less energy on a Btu basis than does 
gasoline and even with the existing blenders tax credit a 
gallon of gasoline equivalent E-85 often exceeds the cost of 
unleaded gasoline.
    The automakers have been criticized for producing flexible 
fuel vehicles that do not operate on alternative fuels, but we 
can change that with help. The Alternative Motor Fuel Act of 
1988 provided credits to the automakers to encourage the 
production of these alternative fuel vehicles and these 
credits, while limited, have assisted the automakers in 
achieving the corporate average fuel economy standards proposed 
and provided for by law.
    They have been criticized, again, for not taking advantage, 
or for taking advantage of the CAFE credits provided by 
Congress and that little of the alternative fuels have been 
used. The automakers have only been doing what has been 
available to them. The incentives were there for the production 
of the vehicles. The incentives have not been there for the use 
of the fuels. Congress obviously intended that these incentives 
be used to initiate and promote the production of the vehicles. 
Now we need these same types of things for the fuel.
    I would like to offer a very general set of conclusions and 
recommendations that the committee might want to consider. No. 
1, all forms of alternative fuels be products produced in North 
America and promote national energy security.
    No. 2, E-85 and biodiesel are the only alternative fuels 
that can significantly reduce emissions of greenhouse gases.
    No. 3, E-85 and biodiesel are the only forms of renewable 
transportation fuels available in a liquid form that could use 
the Nation's existing fuel delivery system.
    No. 4, renewable fuel production can be a cornerstone for 
important economic development and job creation across the 
country.
    We do support the development of a national energy 
strategy. You may want to consider a couple of other ideas. It 
might be appropriate to establish something like a national 
alternative fuel trust fund, where we could help provide 
incentives for the use of alternative fuels. The development of 
a financial mechanism that would provide gasoline gallon 
equivalency to all forms of alternative transportation fuels, 
so that the motoring public would not be faced with reductions 
in fuel mileage when utilizing alternative fuels. The 
establishment of new incentives or the extension of existing 
incentives available to the automakers to assist in offsetting 
the cost of producing the alternative fuel vehicles. 
Implementation of incentives to fuel providers across the 
Nation that would potentially change their existing paradigm 
from being a petroleum-based company to an energy-based company 
or a transportation fuel-based company.
    So with that, Mr. Chairman, I would like to thank you for 
the opportunity to provide these remarks. I would be happy to 
answer any questions that you might have.
    [The prepared statement of Mr. Marshall follows:]

 Prepared Statement of Gary Marshall, Vice Chairman, National Ethanol 
                           Vehicle Coalition

    Good morning Mr. Chairman, members of the Committee, ladies and 
gentlemen. My name is Gary Marshall and I serve as the CEO of the 
Missouri Corn Growers Association, which has offices in Jefferson City, 
MO. I am here today representing the National Ethanol Vehicle Coalition 
in which I also serve as the Vice-Chairman of the organization. Thank 
you for the opportunity to appear before the Committee and discuss the 
use of 85 % ethanol or E85, as a form of alternative transportation 
fuel. My comments will be very brief to allow the Committee an 
opportunity to ask any questions that you may have.
    The National Ethanol Vehicle Coalition is composed of state and 
local organizations, state and local elected officials, third-part 
stakeholders, ethanol producers, vehicle manufacturers, and 
agricultural interests. Our members include:

          The 26 members of the Governors' Ethanol Coalition
          National Corn Growers Association and several state 
        affiliates including:

                  Missouri Corn Growers Association
                  Colorado Corn Growers Association
                  Kansas Corn Growers Association
                  Maryland Corn Growers Association
                  General Motors Corporation
                  Ford Motor Company
                  DaimlerChrysler
                  Ethanol Management Corporation
                  Corn Plus
                  Nebraska Ethanol Board
                  BC International, and others

    The National Ethanol Vehicle Coalition (NEVC) is the nation's 
primary advocacy group promoting the use of 85% ethanol as a form of 
alternative transportation fuel. We do not engage in the debate and 
discussions regarding the use of ethanol as a form of oxygenate or fuel 
blend, however, it is important to note that we do support and advocate 
all uses of ethanol. Our focus is on high-level blends of ethanol and 
the opportunity that E85 has to supplement the existing use of ethanol 
and not supplant the use of E10.
    The NEVC and a broad range of project partners have been involved 
with the establishment of the E85 fueling infrastructure for the past 
several years, and are seeking to integrate E85 into a broad based 
national energy strategy. Today, most ethanol is produced from corn and 
other agricultural crops. As ethanol demand increases, future 
production will expand from grain based feedstocks to the use of 
agricultural wastes, wood wastes and even municipal solid waste. It is 
important to note that the NEVC supports and advocates the production 
of ethanol from all forms of feedstock's, including biomass, 
agricultural waste, and feed grains.
    U.S. automakers have made significant investments to bring E85-
compatible vehicles to the marketplace at no additional cost to the 
consumer. By the conclusion of Model Year 2001, there will be 
approximately 1.9 million flexible fuel vehicles on the nation's 
highways--capable of consuming more than 1.5 billion gallons of ethanol 
annually-if the infrastructure were available. The number of these 
vehicles will continue to increase as production of new E85 flexible 
fuel vehicle models are introduced. A flexible fuel vehicle is designed 
to operate on either gasoline or E85. There are no separate fueling 
tanks, no switches to flip, and if E85 is unavailable and fuel is 
needed, gasoline is introduced into the same filling tube and mixed 
into the same tank.
    Please allow me a moment to outline the impact that the use of an 
additional 1.5 billion gallons of ethanol would have beyond today's 1.8 
billion gallons of ethanol being utilized as a fuel oxygenate and 
octane enhancer.
    If each of these 1.9 million flexible fuel vehicles would use E85 
as its primary fuel, the impact would be to:

   Displace approximately 34 million barrels of imported 
        petroleum;
   Use of an additional 528 million bushels of corn to produce 
        ethanol (from the 2 billion bushel surplus);
   Generation of an additional $3 billion in farm income;
   Development of a marketplace for the production of ethanol 
        from biomass and waste materials;
   Significantly reduce the emissions of non-methane 
        hydrocarbons, carbon monoxide, and air toxics;
   Implement a reduction of more than 4.3 million tons per year 
        of greenhouse gas emissions; and,
   The establishment of a long-term sustainable, alternative 
        domestic transportation fuel.

    The source materials for the preceding calculations will be 
provided to your staff.
    These benefits could be realized today as the technology is 
available, the vehicles are on the street, and more vehicle models are 
being offered annually. There is no form of transportation fuel that 
provides the broad range of environmental and economic benefits to the 
nation, as does the use of E85.
    Clearly there are impediments to achieving the aforementioned 
results, including:

   A lack of infrastructure to fuel the vehicles. Approximately 
        200 public E85 fueling stations are currently in place across 
        the nation.
   Ethanol contains less energy on a BTU basis than does 
        gasoline, and even with the existing blenders credit, the cost 
        of a ``gasoline gallon equivalent'' of E85 exceeds unleaded 
        gasoline.
   The automakers are being criticized for producing flexible 
        fuel vehicles that do not operate on alternative fuels and 
        debate is pending to reduce or eliminate the CAFE Credits 
        provided for the production of these vehicles.

    The Alternative Motor Fuel Act of 1988 provided credits to 
automakers to encourage the production of alternative fuel vehicles. 
These credits, while limited, can assist an automaker in achieving the 
Corporate Average Fuel Economy standards provided by law. The 
automakers have been criticized by both the press and the environmental 
community for taking advantage of these CAFE Credits that were provided 
by the Congress, in that little alternative fuels are being used. I 
submit that the automakers have only used an incentive that was 
provided and promoted the United States Congress, which clearly 
intended these incentives to be used to initiate and promote the 
production of alternative fuel vehicles. The weakness of the 
Alternative Motor Fuel Act of 1988 was that the Act did not address the 
infrastructure needed to fuel these vehicles. It is our position that 
the automakers are being unfairly targeted and that it is appropriate 
to remember that General Motors, DaimlerChrysler, and Ford Motor 
Company are in the business of manufacturing motor vehicles, not 
selling or marketing transportation fuels.
    In order to allow adequate opportunity for questions, I will close 
by offering only a short and very general set of conclusions and 
recommendations that the Committee may wish to consider to bring 
alternative fuels into the nation's mainstream.
    The Committee may wish to consider that:

   All forms of alternative fuels are products of North America 
        and they will all promote national energy security.
   E85 and biodiesel are the only alternative fuels that can 
        significantly reduce the emissions of greenhouse gases.
   E85 and biodiesel are the only forms of ``renewable 
        transportation fuels'' available in a liquid form that could 
        use the nation's existing fuel delivery system.
   Renewable fuel production can be a cornerstone for important 
        economic development and job creation across the nation.

    Many, many legislative proposal have been and are being considered 
in this session of Congress. While time does not allow for us to 
comment on the details of these numerous bills, the NEVC does support 
the development of a national energy strategy. As you and the Congress 
deliberate, you may wish to consider the following options to implement 
a national energy strategy.

   It may be appropriate to establish a ``National Alternative 
        Fuel Trust Fund'' that is used to promote the use of all forms 
        of alternative transportation fuels. Such trust fund could 
        potentially be financed by major emitters of greenhouse gases 
        that could contribute to this fund in lieu of making costly and 
        inefficient modifications to manufacturing processes that would 
        otherwise reduce such emissions.
   Development of a financial mechanism that would provide 
        ``gasoline gallon equivalency'' to all forms of alternative 
        transportation fuels so that the motoring public would not be 
        faced with reductions in fuel mileage when using alternative 
        fuels.
   Establishment of new incentives or the extension of existing 
        incentives available to the automakers to assist in offsetting 
        the cost of producing alternative fuel vehicles.
   Implementation of incentives to fuel providers across the 
        nation that would potentially change their existing paradigm 
        from that of a ``petroleum company'' to that of a 
        ``transportation fuel'' company.

    Thank you for allowing the National Ethanol Vehicle Coalition to 
provide these comments today. We would like to ensure the Committee 
that we are available to provide assistance at your convenience and we 
look forward to working with the Committee and Congress in development 
of programs to promote all forms of alternative transportation fuels.

    The Chairman. Thank you very much.
    Mr. Zeltmann, why don't you go ahead.

  STATEMENT OF EUGENE ZELTMANN, CO-CHAIRMAN, ELECTRIC VEHICLE 
                  ASSOCIATION OF THE AMERICAS

    Mr. Zeltmann. Good morning, Mr. Chairman and members of the 
committee. I am Gene Zeltmann, President and Chief Operating 
Officer of the New York Power Authority. The Power Authority is 
America's largest State-owned public power enterprise, 
operating ten generating facilities and more than 1400 circuit 
miles of transmission lines in New York State.
    I appear today as co-chairman of the Electric Vehicles 
Association of the Americas, whose membership includes 
international vehicle and component manufacturers, energy 
providers, and technology developers. I thank you for this 
opportunity to discuss the role of the Federal Government in 
reducing the use of petroleum in the light duty vehicle sector.
    EVAA believes that reducing dependence on foreign oil 
demands that we transition the country's biggest consumer of 
this commodity, the transportation sector, to use of other 
fuels. Electricity is an attractive alternative. It is clean, 
efficient, relatively affordable, and is produced domestically 
from a variety of feedstocks. Use of electricity can greatly 
enhance our energy security since today the U.S. electric 
generation base is about 3 percent oil.
    EVAA encourages the development and use of several electric 
transportation modes, including vehicles powered solely by 
batteries, fuel cell vehicles, where the electricity of course 
is generated on board, and finally hybrid electric vehicles 
that rely upon a small internal combustion engine operating in 
conjunction with an electric motor.
    Mr. Chairman, my written statement details the benefits of 
using electric transportation and describes the challenges we 
face in commercializing these technologies. I will use my time 
this morning to highlight actions that the Government might 
take to assist in the transition of our transportation network 
to alternative fuels.
    New York State has moved boldly to promote electric and 
other means of clean fuel transportation, exemplifying the role 
that EVAA and its members believe that government should fill. 
Under the leadership of Governor George Pitaki, generous State 
incentives for purchase of vehicles have been enacted. A State 
environmental bond is providing financial support for clean 
fuel buses and fleet vehicles. The Governor has directed the 
State fleet, which already includes some 700 clean fuel 
vehicles, to operate solely on such fuels by the end of this 
decade.
    The Power Authority is assisting in this paradigm shift by 
deploying more than 200 electric vehicles for use by our 
customers and employees. We have initiated all-electric 
commuter programs and supported the acquisition of several 
hundred hybrid electric buses. Importantly, we are facilitating 
the conversion of 500 U.S. postal vans to electricity.
    With respect to the Federal Government's role, let me say 
first that EVAA supports tax incentives as the single most 
effective means of jump starting the market for ethanol and 
other clean fuel vehicles. EVAA supports the inclusion of such 
incentives as a critical component to an effective national 
energy policy.
    With respect to other matters within the jurisdiction of 
this committee, EVAA supports and urges the inclusion of 
several specific items in comprehensive energy legislation. 
First, a primary factor in the current high price of electric 
vehicles is the battery. Advanced batteries used to power 
hybrid electric vehicles are expensive, due largely to the 
materials, like nickel, cadmium, perhaps lithium, used in their 
manufacture. Increasing volume will assist somewhat in lowering 
the price, but automotive manufacturers believe the batteries 
will remain too expensive to allow for an affordable EV even at 
mass production.
    A second use subsequent to service in the vehicle is 
feasible because EV electric battery packs retain about 80 
percent of their rated capacity at the end of the useful life 
in a vehicle. Studies indicate that such batteries could be 
used effectively in stationary applications, like electricity 
storage and load leveling. We ask that the committee authorize 
a 3-year program so that electric utilities and other 
interested parties could cost-share with DOE in demonstrating 
the effectiveness and benefits of using spent EV battery packs 
in stationary applications.
    Second, the chairman of the House Sciences Committee, 
Sherwood Boehlert, has introduced legislation to create a 
program that would demonstrate a variety of electric and other 
alternative fuel technologies in cities across the country. 
This forward-thinking proposal will assist in creating seamless 
intermodal transportation systems in urban environments that 
are fueled exclusively by clean alternatives like electricity. 
Chairman Boehlert plans to include his bill as part of the 
Science Committee's energy package and we urge this committee 
to consider incorporating this proposal in comprehensive energy 
legislation as well.
    Third, we ask that you examine the Energy Policy Act of 
1992, those provisions that require governments and so-called 
fuel provider fleets, like electric and natural gas utilities 
to acquire clean fuel vehicles. The current program failed to 
meet the EPAct goal of reducing transportation sector petroleum 
use by 10 percent by the year 2000. EVAA has been working with 
other alternate fuel groups as well as representatives of 
government and commercial fleets to identify modifications to 
existing law.
    We seek flexibility in meeting the requirements of existing 
law in order to better ensure that EPAct's future petroleum 
displacement goal is indeed achieved.
    Finally, as we have heard this morning, hydrogen could 
become the fuel of choice in this century. Our interest in 
hydrogen is simple. It is the fuel required to power fuel cell 
vehicles. The committee will consider the reauthorization of 
existing hydrogen R&D legislation. As the committee considers 
questions about hydrogen, about fuel cell development, about 
the energy needed to power our mobile society, we urge you to 
find ways to establish public and private partnerships to 
jointly address these technological changes. The Federal 
Government can play a significant role in assuring that the 
vast amounts of human, technical, and financial resources now 
being spent on hydrogen and fuel cell development is optimized 
through integrated, cooperative programs and policies.
    As you examine existing law and create a new energy policy, 
we urge you to include the programs, policies, and incentives 
that I have outlined today to encourage the development and use 
of electric modes of transportation.
    That concludes my remarks, Mr. Chairman. I thank you again 
for the opportunity to appear and I will be happy to try to 
answer any questions.
    [The prepared statement of Mr. Zeltmann follows:]

 Prepared Statement of Eugene Zeltmann, Co-Chairman, Electric Vehicle 
                      Association of the Americas

                 INTRODUCTION AND OVERVIEW OF STATEMENT

    This testimony is submitted on behalf of the Electric Vehicle 
Association of the Americas (EVAA), a national non-profit organization 
that advocates the use of electric transportation technologies, 
including battery, hybrid and fuel cell electric vehicles, as a means 
of addressing national energy security, energy efficiency and air 
quality goals. Members of the organization include international 
automotive and other equipment manufacturers, energy providers, 
national associations and government entities. (A complete membership 
roster is attached to, and made a part of, this testimony.)
    EVAA applauds the Energy Committee's investigation to determine 
means by which the federal government might cause, or help to cause, a 
reduction in the use of petroleum by the light duty vehicle sector. A 
critical key to reducing U.S. dependence on foreign oil is to 
transition the transportation sector--particularly the light duty 
vehicle segment--to use of alternatives to gasoline and diesel fuels, 
like electricity and/or hydrogen. U.S. petroleum demand is projected to 
grow from 19.5 million barrels per day in 1999 to 25.8 million in 
2020--led by growth in the transportation sector, which accounts for 
about 70 percent of current U.S. petroleum consumption. And the 
consumption of energy by the transportation sector is growing at an 
alarming rate. By 2020, the Energy Information Administration (EIA) 
predicts that total energy demand for transportation in the U.S. will 
be 38.5 quadrillion Btu, compared with only 26.4 quadrillion Btu in 
1999.
    Electric transportation technologies present our nation with an 
important means for reducing our dependency on foreign petroleum and 
increasing the diversity of fuels relied upon in the transportation 
sector. This testimony highlights:

   the important national benefits accruing from the widespread 
        adoption of electric transportation technologies into our 
        transportation network;
   discusses the current technological, market-entry and 
        infrastructure challenges to such widespread deployment of 
        electric transportation technologies; and
   outlines federal policies and programs that EVAA's members 
        believe are critical to assuring that electric transportation 
        technologies can be a significant segment of the U.S. 
        transportation sector in the 21st century.
            benefits of electric transportation technologies
    There is a family of electric transportation technologies being 
developed and/or commercialized. EVAA defines an electric vehicle as 
any technology that employs an electric drive system to power the 
vehicles. Electric transportation technologies under development and/or 
commercially available today include battery electric vehicles (BEVs), 
hybrid electric vehicles (HEVs) that use both an electric motor and an 
internal combustion engine, and fuel cell electric vehicles (FCEVs). 
Each of these technology categories offer significant energy security 
and environmental benefits, and together represent the cleanest, most 
advanced alternatives to conventional vehicles on the road or under 
development.
Battery Electric Vehicles
    Battery electric vehicles (BEVs) charged off the Nation's electric 
utility grid use ``fuel'' created from a variety of feedstocks, from 
wind to nuclear. Importantly, petroleum represents a diminimus fuel 
feedstock for electricity production in the U.S. Less than 3% of the 
current U.S. generation base relies on petroleum. Electricity is a 
domestically produced, relatively stably priced fuel that affords us 
``fuel diversity'' for the transportation sector. Further, the primary 
charging for BEVs is expected to occur overnight, when electricity 
demand is at its lowest, allowing for widespread adoption of the 
technology without adding new capacity.
    In addition to significant energy security benefits, BEVs offer the 
opportunity for continued personal mobility without degradation to the 
environment. Nearly 100 cities across the U.S. fail to meet federal air 
quality standards, and approximately 62 million people live in counties 
where monitored data show unhealthy air for one or more of the six 
principal pollutants [carbon monoxide (CO), lead (Pb), nitrogen dioxide 
(NO2), ozone (O3), particulate matter (PM), and 
sulfur dioxide (SO2)]. For many urban areas, electric 
transportation can be a particularly important means to substantially 
reduce emissions of mobile source pollutants, including volatile 
organic compounds and oxides of nitrogen that are the precursors of 
smog. Battery electric cars and buses are truly ``zero emission'' 
transportation modes. They produce no tailpipe emissions and generate 
insignificant, ancillary emissions during operations. They also have 
the added benefit of mitigating noise pollution and using energy more 
efficiently than conventional modes.
Hybrid Electric Vehicles
    Hybrid electric vehicles, which combine the benefits of electric 
power with conventional gas-powered engines, can significantly improve 
the efficiency and environmental performance of vehicles, thereby 
reducing fuel use and contributing to improved air quality. HEVs on 
America's roadways today evidence the tremendous advantages that this 
technology provides. The Toyota Prius has a stated fuel economy of 67 
mpg, and a California environmental rating of ``SULEV'', or ``Super 
Ultra Low Emission Vehicle,'' with only about 1/2 of the carbon dioxide 
and 1/10 of the nitrogen oxide emissions associated with a comparable, 
gasoline powered vehicles; the Honda Insight is rated at 70+ mpg and 
meets California's ``ULEV'' emissions rating. All international auto 
manufacturers have announced plans to bring hybrid electric vehicles to 
the market place in the coming years.
Fuel Cell Electric Vehicles
    Fuel cell electric vehicles (FCEVs), which harness the chemical 
energy of hydrogen and oxygen to generate electricity, have the 
potential to change the way we think about energy. Fuel cells are more 
efficient than other technologies that rely on direct combustion, and 
they produce zero, or near zero emissions. When fueled directly by 
hydrogen, the only by-product of a fuel cell electric vehicle is water.
    Like electricity, hydrogen does not occur naturally in a usable 
form on Earth; it must be generated or produced by consuming fuels or 
other forms of energy. Yet, also like electricity, multiple feed stocks 
can be used, creating fuel diversity and thereby enhancing national 
energy security. Fuel processors ``on-board'' a vehicle can produce 
hydrogen from natural gas, methanol, ethanol, gasoline, or diesel. 
``Off-board'' processors can use all of these feedstocks and can also 
make hydrogen from the electrolysis of water.

     CHALLENGES TO WIDESPREAD ADOPTION OF ELECTRIC TRANSPORTATION 
                              TECHNOLOGIES

    Despite the significant societal benefits accruing from their use, 
years of research and development by companies and governments across 
the globe, and mandates for commercialization of such vehicles, 
electric transportation technologies have not yet become a meaningful 
part of the U.S. transportation network. Since 1996, a total of only 
4,339 battery electric vehicles have been leased and/or sold in the 
U.S. And, while sales of HEVs are growing quickly, there still have 
been only 17,773 put into service to date. In addition to these light 
duty automotive offerings, there have been about 200 electric and 
hybrid-electric buses and over 6,000 low-speed, battery electric 
vehicles placed into service.
    While the sum of all of these vehicles--which is less than 30,000 
as compared to 1999 vehicle sales in the U.S. of 16.5 million--may be 
insignificant statistically, they represent an enormous step toward 
development of a long-term and sustainable market for such vehicles in 
the U.S. The technology--with respect to battery and hybrid electric 
vehicles--is proven and maturing; customer reception to the vehicles 
has been tremendous and sales have been constrained more by product 
availability than by demand; and incentives to encourage consumer 
purchase are in place and/or being considered by government at all 
levels. However, more must be done if these vehicles are to become an 
integral part of our transportation network.
    Costs for immature and low-volume technologies will be higher than 
those of comparable, conventional vehicles. Until a supplier base can 
be built, the technology matured and volume production established, the 
incremental costs of electric transportation technologies must be 
addressed in order to assure consumer acceptance. Fortunately, battery, 
hybrid and fuel cell vehicles share a number of subsystems (e.g., power 
electronics, motors, regenerative brakes). Therefore establishing a 
supplier base for battery electric vehicles, for example, can help to 
lower the costs of early commercial fuel cell vehicles when they are 
brought forward.
    Infrastructure support systems, from re-fueling and charging to 
service and maintenance, must be put in place to support the convenient 
and safe operation of electric transportation technologies. Deploying 
the infrastructure systems--particularly those to support a hydrogen-
based economy represents a vast and expensive undertaking.
    Building markets for electric transportation will require consumer 
awareness and experience with the technology to establish confidence in 
the products.
    Finally, with respect to fuel cell electric vehicles, there is a 
continuing need for research and development of the subsystems and 
components that will allow industry to bring forward a consumer-
attractive FCEV.

ROLE FOR GOVERNMENT IN OVERCOMING THE TECHNOLOGY AND MARKET CHALLENGES 
                TO ELECTRIC TRANSPORTATION TECHNOLOGIES

Consumer Tax Incentives
    Targeted tax incentives can be an effective means by which 
government can help assure that electric drive technologies are 
successfully introduced into the marketplace. EVAA members believe that 
such incentives should be limited in their scope and duration, and 
available now and in the immediate future as these new and dramatically 
different technologies are introduced to consumers.
    EVAA supports the inclusion of tax incentives for electric and 
other alternative fuel vehicles (AFVs) as part of any national energy 
plan. Such incentives can help drive the biggest consumer of 
petroleum--the transportation sector--toward use of cleaner, 
domestically produced alternatives. We recommend that the Committee 
consider incorporating the principles of the ``Clean Efficient 
Automobiles Resulting from Advanced Car Technologies Act'' (``CLEAR 
ACT''), S. 760, in any comprehensive energy bill that it may report. 
The CLEAR ACT, introduced by Senators Jeffords, Hatch, Rockefeller and 
others, would set the stage for a consumer-based and technology driven 
transformation of the transportation sector. All major vehicle 
manufacturers are poised to bring battery, hybrid and/or fuel cell 
electric cars and buses to the market. Federal tax incentives, as 
called for in the CLEAR ACT, would allow the technology to spread 
quickly by lowering purchases prices and encouraging deployment of 
supporting infrastructure.
    We believe a very important feature of the CLEAR ACT is its 
recognition that vehicles which provide the greatest societal benefits 
in terms of environmental and efficiency performance are deserving of 
the most generous benefits. Also, the CLEAR ACT recognizes that fuel 
cell electric vehicles will be entering, the market later than other 
electric and alternative fuel vehicles, and has provided for incentives 
for this category of technology to continue for a longer period of time 
to ensure that the market has matured sufficiently before the 
incentives expire.
Federal Program to Introduce Advanced Vehicle Technologies to U.S. 
        Cities
    Cities and communities plagued with poor air quality and traffic 
congestion stand to be the greatest beneficiaries of the successful 
commercialization of electric and other alternative fuel vehicles; yet, 
to date, the technologies are largely unknown and ``untried''. 
Deploying electric transportation technologies, from battery-powered 
bikes to fuel cell electric buses, can result in the clean and 
efficient transport of people and goods in the urban environment.
    Legislation that has been introduced in the House of 
Representatives and is being considered for inclusion in that chamber's 
national energy plan creates a federal program to support the 
introduction of electric and other alternative fuel vehicles in linked 
transportation systems in up to 15 cities in the U.S. Introduced by the 
Chairman of the House Science Committee, Sherwood Boehlert (R-NY), H.R. 
2326, the ``AFV Acceleration Act of 2001,'' provides $200 million in 
federal cost-share funding to help communities deploy clean, efficient 
modes of transportation and to build the infrastructure that can assure 
the subsequent widespread adoption of these technologies. Creating 
these models of efficient and clean transportation will allow for 
transit operators, public officials and the citizens who experience the 
benefits of the technology in their daily lives to gain the experience 
and confidence necessary to transition to these radically new 
technologies.
    EVAA encourages this Committee to consider including the AFV 
Acceleration program, as envisioned in H.R. 2326, in any national 
energy package it may develop. Forming partnerships and alliances 
between governments at the local, state and federal levels, and 
leveraging federal dollars with those of industry and other levels of 
government, is an effective means of introducing and deploying 
alternative fuel vehicles to communities and citizens across the 
country.
Federal Program to Assist in Making Advanced EV Batteries Economically 
        Viable
    In addition to consumers' lack of familiarity with electric 
vehicles, other challenges to market penetration of the initial series 
of electric vehicles are high purchase prices and limited range. 
Manufacturers currently are not producing greater numbers of EVs, 
having reached conclusions that the costs are too high and the market 
too limited. The cycle of high costs and limited sales is broken only 
if costs are reduced and/or volume is increased dramatically. One of 
the primary contributors to the high costs of EVs is the advanced 
battery necessary to provide the minimum range deemed acceptable to 
consumers. While it is estimated that prices for batteries begin to 
fall when the volume reaches 10,000 packs (i.e., enough to power 10,000 
EVs) per year, auto manufacturers believe that volume alone cannot 
address the prohibitive costs of advanced technology batteries 
necessary to create consumer demand for EVs because the materials 
needed for such batteries (e.g., nickel) are expensive.
    To assure volume sales of EVs, a dramatic reduction in the cost of 
batteries is required. An innovative approach to addressing this issue 
may be to ``extend'' the life--or value--of the batteries beyond 
vehicular use. Once the batteries have been ``used'' in a vehicle, 
there is an opportunity to refurbish, then ``re-use'' the batteries in 
a stationary application. For example, electric utilities could ``re-
use'' EV battery packs in peak shaving, transmission deferral, back-up 
power and transmission quality improvement applications. If 
successfully demonstrated for secondary, stationary-use applications, 
the effective price of battery systems are projected to make EVs more 
competitive.
    Preliminary studies have shown that if a secondary market is 
created that pays $100 to $200/kWh for EV batteries, the costs of such 
batteries for use in the first application (i.e., the vehicle) could be 
reduced to $100 to $150/kWh--the price point where auto manufacturers 
believe is necessary to assure an affordable EV. Combining the value 
for using the battery in both a vehicle and then later a stationary 
application likely would cover the cost of producing the battery pack, 
even at low volume (estimated at $400/kWh).
    EVAA encourages this Committee to consider establishing a program 
within the Department of Energy to assist industry in demonstrating 
that ``spent'' EV batteries can be cost-effective and high-performing 
in secondary, stationary applications as part of any national energy 
package it develops. The program should be designed to demonstrate up 
to 1,000 kWh of ``used'' batteries (approximately 33 vehicle battery 
packs) in a minimum of 10 stationary use applications. These ``used'' 
batteries would demonstrate electric utility stand-by, peak-shaving and 
transmission quality improvements and would help to validate the value 
of ``used'' batteries as a means to store electricity for purposes 
beyond use in EVs.
Providing Flexibility in Compliance with EPACT Fleet Requirements
    EVAA requests that this Committee examine the existing provisions 
of the Energy Policy Act of 1992 (EPACT), P.L. 102-486, that require 
state and federal governments and the providers of alternative fuels 
(e.g., electric utilities, natural gas utilities, and other producers/
suppliers of fuels defined as alternatives to gasoline under the Act) 
to convert their vehicle fleets to alternative fuel vehicles. The 
rationale of building volume and market demand through government 
fleets and the fleets of those in the business of producing, supplying 
and/or selling alternative fuels is sound, though the execution of the 
program to date has not achieved the goals of the ACT, namely to 
replace 10% of the petroleum used in the light duty vehicle sector by 
2000, and fully 30% by the year 2010.
    While committed to building a long-term, self-sustaining market for 
electric vehicles, EVAA's electric utility members have found 
compliance with the existing EPACT alternative fuel providers' program 
difficult given the limited availability, high initial purchase price 
and limited performance of electric vehicles. These alternative fuel 
providers, as well as others struggling to meet the dictates of the 
DOE-administered program, are looking for flexibility in the program 
and recognition for actions taken that can help to develop the markets 
for electric and alternative fuel vehicles. For example, some electric 
utilities who are unable to incorporate so-called ``full function'' EVs 
due to limited availability, have begun to purchase and deploy low-
speed electric vehicles to replace the duty cycle of a conventional 
vehicle; others have made investments in EV charging infrastructure to 
help encourage the market; and still others have begun to deploy 
hybrid-electric vehicles to help build demand in that segment and 
thereby ``drive-down'' the costs of components that are shared with 
battery and fuel cell electric vehicles. These actions, EVAA believes, 
should be recognized under the EPACT alternative fuel providers' 
program.
    EVAA is working in partnership with other alternative fuel interest 
groups, representatives of the federal government, and commercial fleet 
representatives to craft a set of modifications to the EPACT 
alternative fuel vehicle programs that will create flexibility in 
meeting the goals of the law, while assuring that the goals of the 
existing law, i.e., displacement of petroleum use in the transportation 
sector, can be achieved. It is the hope of the working group that 
agreement might be reached, and that we might provide this Committee 
with a set of suggested modifications to EPACT for consideration as 
part of any comprehensive energy legislation that may be developed.
Integrating Federal Hydrogen and Fuel Cell Development Efforts
    The world's major automobile and heavy duty vehicle manufacturers 
who are engaged in efforts to commercialize fuel cell vehicles all face 
the same technically challenging issue: How can hydrogen be provided to 
the fuel cell that will power the vehicles? Whether hydrogen is 
produced elsewhere and then stored onboard the fuel cell vehicle or is 
produced on the vehicle by use of an onboard fuel processor, hydrogen 
is a key enabler to the success of these vehicles. And, not only can 
hydrogen fuel much of tomorrow's transportation systems, but its 
versatility could provide the clean energy needed to satisfy our 
electric as well as our mechanical and thermal energy needs--powering 
office buildings, homes, industrial complexes and shopping malls.
    The reality of the marketplace is that the role of hydrogen in the 
transportation sector, and to a large extent in the stationary 
applications sector, is coupled closely with fuel cell development. 
While hydrogen R&D is essential in its own right, the success of fuel 
cells is very dependent upon the success of hydrogen production, 
storage, transportation and use. The recently released report of the 
National Energy Policy Development Group, led by Vice President Cheney, 
specifically recommended that the President direct the Secretary of 
Energy to focus R&D efforts on integrating current programs regarding 
hydrogen, fuel cells and distributed energy.
    As this Committee considers reauthorization of the Hydrogen Future 
Act of 1996--separately or as part of a comprehensive energy package--
EVAA asks that the reauthorizing legislation recognize the need to 
integrate on-going hydrogen, fuel cell and distributed energy research 
and development programs and to consider specific mechanisms and 
programs to insure that coordination is achieved in government and 
industry efforts to pursue both hydrogen and fuel cell development. One 
means for organizing public and private partnerships to address the 
technical challenges might be to undertake a very significant, large-
scale demonstration that invites, under one tent, today's leading fuel 
cell and hydrogen participants to focus on maturing the technologies 
and deploying the infrastructure that will allow us to move to this 
renewable and clean energy resource as quickly as possible. An example 
of such a collaborative undertaking can be found in the California Fuel 
Cell Partnership (CaFCP), which includes participation by the federal 
government, and is organized to comprehend the infrastructure 
requirements within the state of California to support use of fuel cell 
electric vehicles.
Conclusion
    Electric transportation technologies, whether powered by batteries, 
fuel cells or a combination of batteries and an internal combustion 
engine, collectively represent our transportation future. Transitioning 
to electric drive systems ensures continued mobility without reliance 
on insecure and often costly sources of foreign oil, and importantly, 
without degradation to the environment. Federal partnerships--whether 
in the form of consumer tax incentives, cost-share for research, 
development and demonstration, and/or assistance in deployment--to 
assist industry in bringing electric transportation technologies to the 
marketplace is a wise and cost-effective investment in our future 
energy security and in our citizens' quality of life. EVAA encourages 
this Committee to consider the industry's recommendations for programs 
and policies made within this statement as national energy legislation 
is crafted.

    The Chairman. Well, thank you very much.
    Let me ask a few questions, first about the hybrid electric 
vehicles that are now on the market and that everyone 
indicates, each of the manufacturers indicate, they are 
developing for sale in the next few years. Is there something 
inherent in the construction of a hybrid electric vehicle that 
requires it to be more, significantly more expensive than a 
regular internal combustion engine-driven vehicle, or is it 
just a question of getting the volume up to a sufficient level 
that the price comes down? What is the answer to that?
    Mr. Dana. Mr. Chairman, in a hybrid electric vehicle what 
you have is a conventional engine along with electric motors to 
drive the wheels and a small battery pack. So you are 
essentially running two propulsion systems, which is why you 
have an added cost for a hybrid electric vehicle. Some of those 
parts in volume production we think can be thrifted somewhat. 
We do not know if we can ever get completely down to a 
conventional vehicle, even at volume, with a hybrid, but 
certainly there are some cost economies that will come.
    The Chairman. When will there be U.S. manufacturer-produced 
hybrid vehicles on the market other than the Toyota and the 
Honda vehicle that are already on the market?
    Mr. Dana. I believe Ford has announced that their Escape 
SUV will have a hybrid system in the 2003 model year. I know 
that GM is working on a Silverado pickup with a hybrid system, 
and Daimler Chrysler has announced a Durango that would be a 
hybrid. I believe those are 2004 model year, if I remember 
correctly.
    The Chairman. Am I right that hydrogen-powered automobiles 
also all contain an electric motor, that the hydrogen powers 
the electric motor, so it is essentially a hybrid electric 
vehicle driven by hydrogen instead of by gasoline? Is that an 
accurate description or not, Mr. McCormick?
    Dr. McCormick. You can certainly run hydrogen through 
internal combustion engines and some companies are looking at 
that, as are we. But the solution we are talking about with 
fuel cells allows us to get rid of the engine and transmission 
and replace it with a fuel cell that produces the electricity, 
and then you have the electric motors to drive the car.
    The Chairman. But the electric motor has to be there in any 
fuel cell-driven vehicle?
    Dr. McCormick. Absolutely, yes. So it is basically an 
electric vehicle with a fuel cell instead of batteries.
    The Chairman. It seems to me that whether the source of the 
power, the fuel used, is hydrogen through a fuel cell or is 
gasoline through an internal combustion engine or natural gas 
through a natural gas-powered combustion, adding the electric 
engine or the electric motor dramatically improves the 
efficiency of the vehicle. Am I right about that? Any of you 
have thoughts about that?
    Mr. Dana. Well, in a couple of ways. As Dr. McCormick says, 
they are seeing efficiencies twice as great in a fuel cell 
vehicle as a conventional vehicle just from the type of system 
that is used to drive it. In the hybrids that are being 
developed today, you get much greater efficiencies, mainly 
because you actually turn the engine off at idle and actually 
not use the engine at some times while the batteries and motors 
run the vehicle. So that is part of the greater efficiency of 
the hybrids. Actually, at idle you most of the time shut the 
engine off and do not use it.
    The Chairman. Mr. Zeltmann, you had a comment?
    Mr. Zeltmann. I had a thought, if I may. The beauty of what 
we are talking about with the hydrogen is it is a way to 
capture perhaps alternate forms of power generation such as 
solar or wind power or hydrogen power, because as you 
electrolyze the water and then capture the hydrogen and then 
use that to power the fuel cell-operated vehicle, for example, 
you in fact are able to get yourself away from dependence upon 
petroleum products imported from overseas.
    Now, that gets to the point that we have heard earlier this 
morning about the need for infrastructure for the hydrogen 
storage and transportation and the safety that is required with 
it. But the facts are that you have the ability to use green 
power generation forms in producing the hydrogen, which is an 
attractive alternative that might be considered as you go 
forward in these deliberations.
    The Chairman. Mr. Kolodziej.
    Mr. Kolodziej. Mr. Chairman, one of the confusions out 
there is that people refer to hybrid electric vehicles, they 
frequently just assume that means a gasoline or diesel engine 
that is driving it. If the focus is on displacing foreign oil, 
then I think we need to also look at alternative fuel engines 
to drive the hybrid vehicle in which you get 100 percent 
displacement.
    There is a lot, right now a lot of work being done through 
DOE and also in the private sector on large-scale buses, 
trucks, hybrid, natural gas engines and vehicles. With respect 
to hydrogen, the key is where do you get the hydrogen from. It 
is great to have a vehicle, but if you do not have a hydrogen 
source where do you go?
    Right now all the stationary fuel cells in the world as far 
as I know of that are in commercial operation get their 
hydrogen from natural gas. In addition most of the hydrogen 
that is commercially available is produced from natural gas and 
then shipped around in containers. Our strong belief is that a 
natural gas vehicle system now is blazing the trail and setting 
the stage for a hydrogen infrastructure. You have natural gas 
going to the filling station and then converted at the filling 
station into hydrogen and put on the vehicle. What you need for 
hydrogen is gaseous fuel storage, gaseous metering, gaseous 
dispensing. We are doing all that. You need mechanics that 
understand how to deal with gaseous fuel. You need buildings 
that are instrumented with sensors and whatever to handle 
gaseous fuel since it is lighter than air and it does not sit 
in the air, as opposed to petroleum fuels. We are doing that. 
You need a public that is comfortable dealing with gaseous 
fuels in their vehicle. We are doing that.
    So the more we are successful, the easier it will be to 
transition to a hydrogen future. We strongly believe that the 
only way you get there, to a hydrogen future, is through 
another gaseous fuel, in this case natural gas.
    The Chairman. Thank you.
    My time is up. Senator Hagel.
    Senator Hagel. Mr. Chairman, thank you. I am going to have 
to leave to get to another meeting, but I wanted to say that, 
first, I very much appreciate this panel coming before us this 
morning. This panel represents the future for our energy 
transportation technologies, fuels, vehicles, and our questions 
and concerns and problems that we have regarding this universe 
are going to be found in your testimony.
    There are pieces of that that you have all in your 
organizations you represent have put a lot of time into, and we 
will continue to work through the developments of each of your 
technologies and thoughts and ideas and innovations.
    So, Mr. Chairman, I want to thank you again and this panel 
in particular for sharing your thoughts and expertise.
    The Chairman. Thank you very much.
    Senator Akaka, you came and left. Did you want to go, or 
should Senator Carper, either one of you?

        STATEMENT OF HON. DANIEL K. AKAKA, U.S. SENATOR 
                          FROM HAWAII

    Senator Akaka. Thank you very much, Mr. Chairman. Thank 
you, and at this time I want to add my welcome to the panel 
before the committee.
    I would like to comment on S. 1053, a bill that 
reauthorizes the Hydrogen Future Act enacted in 1986. It 
directs the Department of Energy to continue to research and 
develop hydrogen technologies. The bill is important to the 
Nation because hydrogen has the potential to free our Nation 
from imported oil and provide a clean and abundant energy 
source.
    I have had an abiding interest in hydrogen as an energy 
source and have championed its advancement for a long time. The 
Hydrogen Future Act is a legacy of my friend and predecessor in 
the Senate, Senator Sparky Matsunaga. He was the first to focus 
attention on hydrogen by sponsoring hydrogen research 
legislation. The Matsunaga Hydrogen Act, as the legislation 
became known, was designed to accelerate development of 
hydrogen technologies.
    As a result of Senator Matsunaga's vision, the Department 
of Energy has been conducting research that will advance 
technologies for cost effective production, storage, and 
utilization of hydrogen. I am convinced that in the next few 
decades, hydrogen will join electricity as one of our Nation's 
primary energy carriers, and hydrogen will ultimately be 
produced from renewable sources.
    Technical and institutional challenges and barriers to 
wider use of hydrogen are being surmounted at an accelerating 
pace on a global scale. Iceland is making a strong bid to 
become the world's first hydrogen-based economy. In the United 
States, I am pleased that the State of Hawaii has enacted 
legislation that would facilitate a public-private partnership 
for promoting hydrogen as an energy source. In California, the 
State's zero emissions vehicle requirements favor early 
introduction of hydrogen-powered vehicle.
    Despite the progress, many challenges remain for hydrogen. 
Production costs remain high. Attractive low-cost storage 
technologies are not available and the infrastructure is 
inadequate. We need to address these barriers if we are to 
enjoy the fruits of an efficient and environmentally friendly 
energy source. An aggressive research, development, and 
demonstration program can help overcome many of these problems.
    Mr. Chairman, I hope the committee will move quickly on 
this bill and I look forward to asking questions to the panel. 
Hydrogen storage--this is my question--storage, transport, and 
distribution systems are critical to advancing widespread use 
of hydrogen for energy. Currently, the infrastructure needed 
for this purpose does not exist. Dr. McCormick smiles.
    Any of the panel members may respond to this. I have a 
three-part question for you. Is there a role for the Federal 
sector to help speed infrastructure development? What is the 
general time frame envisioned for the Nation to have a 
substantial hydrogen infrastructure? Third, what are the most 
critical barriers to the development of the hydrogen 
infrastructure for vehicular applications?
    As I mentioned his name, maybe I should ask Dr. McCormick 
first.
    Dr. McCormick. Thank you, Senator. First of all, as I noted 
in my written comments, both fuel cells and hydrogen storage 
and the reason we are here today really derive from previous 
investments and previous support by members of this committee 
for the Department of Energy programs. So I think that clearly 
as the first element of it we should continue the basic 
research on advanced hydrogen storage technologies and basic 
fuel cell technologies.
    The second role for the Federal sector, and it is one that 
will have to evolve over some time, and it really relates to 
the barriers, and that is that in order for people to place a 
hydrogen infrastructure in place there needs to be a consistent 
set of policies over an extended period of time to allow it to 
happen. I would ask you to recall that 60 percent of the 
gasoline dealers, the dispensers of gasoline to our cars, are 
small business people. They cannot afford to be flip-flopped 
around, nor can they afford to do five or six different 
options. Their economics just purely will not allow it.
    So consequently, I think there is a role in the Federal 
sector for developing consistent long-term policies that focus 
towards and direct us towards the hydrogen solution and fuel 
cells as well, because I think our payoff, as we have talked 
about earlier today, is huge. We have the payoff of displacing 
petroleum, and the really nice thing about the hydrogen 
economy--and I really like your notion of energy carriers. I 
believe there will be two, electricity and hydrogen. The 
advantage of both of them is they can be made from any source, 
and hydrogen is the logical one for cars. So I think it is a 
very logical approach.
    With respect to storage, we are making tremendous progress. 
We are working with technologies now in the compressed area 
which will put the vehicles out and have compatible range with 
the current generation of vehicles. We are working on 
electrolyzer technology, which I alluded to earlier today, 
which will decompose water from electricity to make hydrogen, 
but it will deliver that hydrogen directly at pressure. That is 
very important because if you need an efficient system you do 
not want to put an extra compressor in there cost and 
efficiency-wise.
    I think we are making tremendous progress, but I believe 
that we would like a breakthrough. We would like something 
beyond compressed, we would like something beyond liquid. We 
are investing worldwide in a number of different technologies, 
but I think it is one that could yield to some good fundamental 
science. So I would urge again very solid funding at national 
laboratories, universities, research organizations to do that.
    Relative to the time frame, that is a tough one because 
from our viewpoint we believe that we are going to break down 
the technical barriers for the fuel cell hydrogen vehicle 
within this decade. Our rate of progress is astounding, and I 
say that as somebody who has tracked the technology for a long 
time and I cannot believe how it is moving worldwide.
    But the time frame then really becomes one of dealing with 
the barriers to put in the infrastructure, and there it does 
become economic and policy-driven. So from my viewpoint, I 
think we have the opportunity to begin to see a major 
transition by the end of this decade. I think in order to do 
that we have to start getting consistent policies and 
consistent themes that focus around that issue so there is not 
confusion and then start working in an orderly fashion to do 
large demonstrations where we can understand what the flaws are 
and move it forward and demonstrate the safety, and ultimately 
put in place tax incentives, etcetera, for all of the people 
that have to be involved in doing this. That is, the small 
business people who have to put in the distributors, the people 
who would generate the hydrogen from a multiplicity of sources, 
as we heard today.
    So I think that the real barrier is going to be that 
infrastructure, and there we need policy.
    The Chairman. Thank you very much.
    Senator Carper.

       STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR 
                         FROM DELAWARE

    Senator Carper. Mr. Gibbens, I missed your testimony. I 
apologize for arriving late. Take just a minute and hit me with 
some of the most important things you said, please.
    Mr. Gibbens. Well, I think the most important thing is that 
any of the mandates, either on the current mandated fleets or 
on the proposed government or private fleet, simply will not 
give you the petroleum reduction that was envisioned in EPAct. 
Studies have indicated that all those fleets, if they fully 
complied, would only give about a 1.5 percent reduction. As 
much as we would like to comply, there are significant 
barriers, cost barriers in the acquisition of the vehicles, 
disposal of the vehicles, the kinds of vehicles, alternative 
fuel vehicles that might be available to meet our operational 
needs, and probably most significant, as everybody has 
mentioned here, is if I choose a particular alternative fuel 
type vehicle where do I get the fuel? In other words, where is 
the fuel infrastructure? Unless I choose to fund that, which is 
very expensive, the marketplace is just simply not there for us 
to pick any particular type of alternative fuel vehicle and 
then be guaranteed a place that I can go refuel that vehicle.
    So those are the major points in my presentation.
    Senator Carper. Thank you.
    Dr. McCormick, about a year and a half ago I was in 
Michigan for a wedding and I happened to spend some time 
visiting with Rick Wagner. He said: We are having an auto show 
in Detroit right about now. It was January 2000. He said: If 
you want to go, we will try to arrange it to get you in. I had 
about an hour or so and I went to the auto show.
    Among the things I saw there was a GM concept vehicle. I am 
trying to remember the name of it. I think it started with a 
``P''.
    Dr. McCormick. Precept.
    Senator Carper. Precept, yes. Precept, which I think was 
expected to be available for purchase maybe in 2004. I seem to 
recall that it is expected to realize 70 or 80 miles a gallon. 
It was a hybrid. I was excited about it at the time, thought 
about it often since then. Whatever happened to Precept?
    Dr. McCormick. Well, let us go through the history of 
Precept. It is a derivative of our PNGV program and it did 
achieve those remarkable mileages. I might add that we did a 
mockup fuel cell version which had fuel economies of over 100 
miles per gallon as well. That was not intended to be a for-
sale vehicle. It had a lot of very advanced technologies in it, 
many, many patents. But I think very rapidly you will see those 
begin to transition into more conventional cars. I agree with 
you it was an astounding car, and now we are trying to move the 
technologies as quickly as we can into our base vehicles.
    Senator Carper. You might be right, and a year and a half 
ago maybe there was no notion or interest at all in making that 
a vehicle widely available for distribution. That sure was not 
my understanding at the time, it really was not.
    Let me just ask--I am a guy who believes in buying domestic 
cars. We buy Ford, Chryslers, GM in our home. A little over a 
year ago a woman pulled up to my office, when I was Governor of 
Delaware, pulled up to our office and said: I bought a new car. 
I said: What did you get? She said: I bought a Toyota. After I 
chastised her, she said: Well, it is a Toyota, it gets 
exceptional gas mileage. She said: Come take a look at it.
    I did. It is their hybrid, and I was struck by the fact 
that it is actually a reasonably attractive vehicle, that the 
size of the battery pack was not all that great, it is four-
door and reasonable trunk space. The cost was I think maybe 
$20,000, which I am told that Toyota takes about a $10,000 loss 
on each vehicle they sell. I think they are building about 
20,000 of them this year. What I am told, they are selling 
basically all that they make.
    I think Honda has a hybrid out as well. But I am concerned. 
Here we are, the United States, leader of the free world, 
leader of the world, and we have got Toyota and Honda out there 
not just building these cars, but actually taking them to 
market and selling them in numbers which I think with Honda, I 
think they are going to expand their hybrids to not only go 
into the--what is their hybrid called?
    Mr. Zeltmann. Honda Insight.
    Senator Carper. Yes, Honda Insight. I hear they may be 
taking it to the Civic, putting it as a powerplant in some of 
the Civics, within a year or so. I am just troubled by the fact 
that--this goes back to my excitement with the Precept. I said, 
well, 2004 is a lot of time to wait for the Precept, but it is 
better than not at all. Yet we have got the folks from Honda 
and the people from Toyota with vehicles on the road, not in 
huge numbers but significant numbers, but in numbers that are 
going to grow rather substantially, getting 50, 60 miles per 
gallon, and we are looking forward to a vehicle in model year 
2003, maybe 2004.
    Why are they ahead of us? I do not mean to be 
argumentative. It is just troubling to me.
    Dr. McCormick. I feel I need to respond. I do not believe 
they are ahead of us. First of all, we did the EV-1 and drove 
the electric propulsion. We were the people that really broke 
the ground for a lot of this, and from that we learned a lot, 
one of which is for these vehicles to sell you have to bring 
them in at a very reasonable price. Also, we learned from the 
electric vehicle that we needed something other than an 
electric battery or we would not be able to sell them in 
quantity.
    We are developing the technology very aggressively and are 
bringing out a variety of vehicles in the 2004 time frame. They 
are focused particularly on the heavy duty vehicles, the 
trucks, because those are the vehicles that consume the most 
fuel and that is the place where we can get the most benefit in 
terms of imported petroleum.
    You correctly noted--and I would note that we have a deep 
partnership with Toyota, so we understand propulsion with 
them--that both of those two vehicle types are subsidized. So 
it is a matter of how much do you want to lose in putting those 
vehicles out there versus what you can learn. We actually 
believe that our 2004 pickup truck is actually a sound 
financial and business plan and will actually make money, and 
that is the key to these things. If you want them to be 
sustainable, you have to have the right product that consumers 
will buy and actually make money.
    So I think you will see these vehicles out there. We also 
have our Paradigm system coming about at that time, which will 
go across mid-sized vehicles. So I think we are right report 
with them. These early vehicles are matters of how much money 
are you willing to lose.
    Mr. Dana. Senator, may I make one point also?
    Senator Carper. Yes, please.
    Mr. Dana. The Precept, which is one of, as Dr. McCormick 
said, of the PNGV program, the manufacturers of PNGV focused on 
diesel hybrids. Right now EPA has put out a final rule that 
would clean up diesel fuel by 2006. That rule is in litigation, 
and there are also emissions standards----
    Senator Carper. What are you saying, that rule is in 
litigation?
    Mr. Dana. Yes, it is. EPA has also set emissions standards 
for 2004 and later vehicles where the ability of a diesel 
engine to meet those standards is somewhat questionable. It 
really depends upon this clean fuel that is being put out 
there. So in some ways I think it is fair to say that 
manufacturers who are looking at diesel have some roadblocks in 
the future years in terms of do you really want to commit to 
large volume production until these things are cleared up and 
what is going to happen in that future.
    Senator Carper. Thank you.
    Is my understanding about Honda putting the hybrid 
propulsion system in Civics, is that correct? Are they going to 
do that?
    Mr. Dana. That has been announced in the press.
    Senator Carper. Do you think they are doing it to lose 
money?
    Dr. McCormick. Well, at the end of the day let us see what 
they price it at and how many of them they sell. Again, we did 
not do the EV-1 to lose money either, but it is a tough 
proposition. You have got to see what the consumer is willing 
to pay.
    Mr. Kolodziej. Senator.
    Senator Carper. Yes, please.
    Mr. Kolodziej. Honda is a very smart company and it makes 
sense for them to do whatever they are doing. So if they are 
putting it in the Civic it makes sense somehow economically for 
them.
    The other important point for you is to keep in mind that 
the cleanest internal combustion vehicle ever commercially 
produced is being made right now in Ohio. It is a Honda. It is 
a Honda Civic GX natural gas vehicle. But every one of them are 
made in Ohio.
    Senator Carper. Marysville?
    Mr. Kolodziej. I believe it is Marysville.
    Senator Carper. Dr. McCormick, you talked about the truck 
that they are going to introduce the hybrid in. That was model 
year 2004. Any idea what the gas mileage would be without the 
hybrid?
    Dr. McCormick. I do not remember the exact numbers. That is 
about, over the drive cycles that we look at, that is about a 
15 percent improvement in the fuel economy of that vehicle.
    Senator Carper. Roughly what would its fuel economy be 
without the hybrid?
    Dr. McCormick. I do not know that I remember that off the 
top of my head.
    Senator Carper. Well, let us just say it is 16 miles per 
gallon. Let us say it is 20, let us say it is 20. 15 percent 
would go from 20 to 23 miles per gallon, right. I know there is 
a good explanation as to why that is better, to make that 3 
miles per gallon jump in a vehicle. What would you sell, half a 
million of them, 250,000?
    Dr. McCormick. We are expecting the number to be somewhat 
smaller because of the premium.
    Senator Carper. Because of?
    Dr. McCormick. We are expecting the number of vehicles to 
be sold to be smaller than that because of the premium price 
for it. We are going to find out.
    Senator Carper. Just refresh me again on why are we better 
off as a country to realize a 3 miles per gallon increase in 
the efficiency of that pickup truck as opposed to a Precept 
that would get twice the gas mileage?
    Dr. McCormick. I do not think we are. I think we want to 
get to twice the gas mileage, which is again why I am 
advocating fuel cells.
    Senator Carper. But in the near term. We realize and I 
applaud what you are doing in fuel cells and I think it is 
exciting, I am anxious to get there, anxious for us to adopt a 
policy that is supportive. But in the meantime, we are stuck 
with what we have. In the meantime, we have the potential for 
some of the alternative vehicles and fuels that we have talked 
about, and in the meantime we have this hybrid technology.
    I am intrigued to see somebody out there, Honda, thinks 
that they are onto something, and they are going to start 
expanding, not just into that one vehicle, but into maybe 
others. What I am having a hard time understanding--and I 
certainly do not mean to be picking on you, but I am having a 
hard time understanding why we are better off increasing the 
efficiency and one vehicle go from 20 to 23--and I have had the 
same conversation with my friends from Daimler Chrysler about 
the Durango, which is built in my State.
    Why are we better off going from 20 to 23 and why do we not 
find some vehicles that we could come closer to the Precept as 
well? Is it the fear that nobody will buy them?
    Dr. McCormick. Well, two comments. First of all, I want to 
make sure that you are clear that we are also bringing out a 
mid-sized car using the Paradigm system in that time frame. So 
it is not just the truck that we are looking at.
    But when you look at where the fuel is actually used, it 
turns out when you do the mathematics, actually sit down and do 
the calculation, a similar improvement on a high fuel usage car 
net gives you less fuel imported than a similar improvement on 
a higher mileage car percentage-wise.
    Senator Carper. I asked you earlier how many pickups you 
thought you would make with the hybrid system in them and I 
think you said probably fewer than 250,000 per year.
    Dr. McCormick. We are not sure quite what that number is, 
but we are being conservative going forward to make the 
business case for it.
    Senator Carper. Let us just assume for the moment that it 
is 200,000. Let me see if I can do any math in my head still at 
this advanced age. But if you have 200,000 vehicles that you 
sell and you get an increase in mileage of 3 miles per gallon, 
that would be what, 600,000. If you could sell, gosh, 20,000 
vehicles that got an extra 30 miles per gallon, the savings 
would be the same. Am I missing something there?
    Dr. McCormick. Yes. You have to look at miles driven and 
total miles used per year. So across a 10,000 mile annual drive 
something that gets 20 miles per gallon uses a lot more fuel 
and so consequently a small improvement in that really affects 
the bottom line amount of fuel. Remember, the people drive the 
same number of miles per year and so you get a disproportionate 
gain in the total fuel used.
    Senator Carper. Let me just carry out my example earlier. 
The same situation, 200,000 pickup trucks, 3 miles, increased 
miles per gallon. If we were able to--let us see. If you were 
able to build and sell 40,000 vehicles, 40,000 vehicles like a 
Precept, but even not nearly as good as a Precept, but if you 
were able to sell 40,000 vehicles that were only driven half as 
much, only half as much, but got an extra 30 miles per gallon, 
you would be at a break-even.
    Is part of what is not being said here that the reason why 
it makes sense to put them on the SUV's and the trucks is 
because that is where we make money when we build vehicles? We 
do not make money, if you are Chrysler, they do not make money 
selling Neons. They make money selling Jeeps.
    I do not know if you folks make much money on your 
Cavalier. You make money on your Tahoe. In terms of being able 
to do this in a way that makes sense for your company, trying 
to understand the logic and rationale for going with the trucks 
and the SUV's is in order for the free enterprise system to 
work and for you to make money doing this stuff you have got to 
put it into vehicles, because there is extra cost, you vehicle 
got to put them into vehicles that you can sell at a markup and 
will cover your costs.
    Is that part of it?
    Mr. Kolodziej. Senator, this is not my area, but I just 
cannot keep my mouth shut. The issue is fuel displacement. If 
you have got a vehicle that is getting 30 miles per gallon and 
mom and pop buys them, mom and pop is driving 12,000 miles a 
year using, what, 400 gallons, 400 gallons. Now, you have got a 
duty cycle on a pickup truck, you might be putting 60,000 miles 
on that vehicle at 20 miles to the gallon. That vehicle is 
using 3,000 gallons.
    If you can increase the fuel efficiency on that vehicle 15 
percent, you have got an increase of a lot. If you doubled it 
from mom and pop--you are actually getting more fuel 
displacement by going after the heavier duty vehicles. Even 
though it looks like a smaller number, because of the duty 
cycles you can get a bigger impact. A class A truck might go 
120,000 miles a year at 6 miles or 4 miles a gallon. So if you 
can get a small percentage increase improvement there, you can 
have a big impact on the total fuel use.
    As to the financial strategy, Byron, you want to answer 
your financial strategy?
    Dr. McCormick. Let me expand on that. Actually we have 
introduced hybrid buses and it turns out that if you did 
13,000, a very small number, 13,000 hybrid bus propulsion 
systems in the United States, that would be equivalent to a 
half a million Prius's in terms of fuel displaced. So I think 
the calculation that Rich talked about is very key and what you 
want to do is calculate how many gallons of fuel does a vehicle 
use per year and then how much can I improve that, and you find 
out that the average consumer driving an SUV, a bigger truck, 
consumes so much fuel that a percentage improvement there is 
very, very, very effective.
    Senator Carper. What I want to do is sit down with pen and 
paper and my calculator and run some numbers, not at a hearing 
but afterwards. Tom Davis was by, who runs your truck 
operation, last week and I spent some time with him. He talked 
about the buses. It is very promising, very promising, and I am 
encouraged by what you are doing there and hope that maybe in a 
later round of questioning if we have that that I can pursue 
that with you. Thank you.
    The Chairman. If you had another question, why do you not 
go ahead.
    Senator Carper. Mr. Chairman, I have got enough questions 
here to keep us here for 2 days.
    The Chairman. Well, maybe you should visit with some of the 
witnesses after the hearing, then, because we are about to 
adjourn the hearing. I think everyone----
    Senator Carper. Could I ask one more, then?
    The Chairman. Sure.
    Senator Carper. Thanks very much.
    In Delaware we raise--we build more cars, trucks, vans, 
automotive vehicles than any other State per capita. We also 
raise more chickens per capita than any other State. We raise 
more soybeans in Sussex County, Delaware, than any county in 
America, and we are real interested in trying to find ways to 
take the oil from soybeans and to turn it into a product that 
can be mixed maybe with diesel fuel and come up with something 
that is fuel efficient, good for the environment, and that 
helps commodity prices for soybeans as well.
    We are finding when we tested it in our DELDOT vehicles in 
Delaware for the last year, year and a half or so, and we find 
it does pretty well with respect to fuel efficiency. We find 
that it actually smells pretty good. It smells like french 
fries. But we find that on the emissions side the only area 
that it lets us down is on NOX. The NOX 
emissions are a little bit higher.
    I do not know who was testifying earlier, maybe it was Mr. 
Marshall, talking about ethanol and trying to encourage people 
to buy ethanol. But as I listened to you I think I heard you 
say that for folks to use ethanol to power their vehicles it 
costs a little bit more, the fuel efficiency is not quite as 
good, and it is harder to find, it is less convenient for the 
consumers, which probably explains why we do not use as much of 
it. If it costs more, it is less efficient, and it is harder to 
find, that would discourage me from using it, and that is from 
a guy where we raise a lot of corn and a lot of soybeans.
    Mr. Marshall. Senator, part of the problem is we can build 
an automobile that runs on almost any fuel, but the problem is 
with the infrastructure, the availability of fuel. The 
different fuels that are out there, none of them are quite as 
easily available as gasoline, which we have used for many, many 
years. That is part of the problem we have been talking about, 
all of us, about the infrastructure development that is 
necessary.
    Senator Carper. Go ahead, Mr. Marshall. Go ahead and make a 
comment, and then I will jump in.
    Mr. Marshall. You hit on a number of points. The key point 
is providing the incentives to utilize the product. Ethanol can 
compete very well with compressed natural gas, propane, or 
anything else provided the incentives are on a gasoline 
equivalent basis and the energy is as well. The big problem has 
been availability. Where we have been able to go in and 
specifically target areas around the country--Chicago, Denver, 
and some of the other places--and look at alternative fuels 
there, we have been able to provide it through some of the 
existing infrastructure and it is working very, very well. All 
we need to do is expand the program.
    Ethanol and E-85 is kind of in its infancy as compared to 
some of the other alternative fuels, but certainly, provided 
the opportunity, we have a lot of promise and a lot of 
potential to move forward.
    Senator Carper. Mr. Chairman, I think we have got all these 
gas stations around the country and they are on our block. 
Pretty much wherever we live, it is not too far to get to a gas 
station and we can buy the gasoline that we need for our cars, 
trucks, and vans. If we want to buy ethanol or soy diesel, if 
you want to buy some kind of natural gas--I am actually a 
Governor who used to have a vehicle that was powered by natural 
gas, a combination of natural gas and gasoline, so I believe in 
that stuff. But it was hard to find. I think we had three 
stations in all of Delaware where you could get the stuff, so 
it was not all that convenient.
    But part of the--and we do not expect GM or Chrysler or 
Ford or anybody to build vehicles that nobody is going to buy. 
We do not expect them to build vehicles that they are going to 
lose money on, at least for long.
    But this infrastructure, they put their fingers on a big 
one, and that is that this infrastructure, whether it is 
hydrogen or gasoline or alternative fuels or ethanol, unless we 
can somehow get our arms around that one and deal with it we 
are not going to be successful in this area.
    The other thing, if we were on a committee where we 
actually got to write tax bills, tax legislation, and we could 
put in place all these incentives, I think we could probably do 
that pretty well. Unfortunately, that is not our job. But we 
get to work with the folks who are in that business and 
hopefully we will have some success in moving them along.
    The last thing I would say is at the port of Wilmington we 
bring in, export GM products, and we are grateful for that 
business. We do a fair amount of business with Ford, some day 
maybe with Chrysler. We also do a lot of business with 
Volkswagen, and I visit with the folks up at Auburn Hills from 
time to time at Volkswagen America.
    They say: You know, back in Europe we do great things with 
diesel. We get terrific fuel performance with diesel, 40, 50 
miles per gallon, even better than that. They said they 
question why in America we do not do more with diesel. I said, 
well, it has something to do with the emissions. Someone talked 
earlier about I think it is the 2006 time target date.
    Just take a minute, somebody who is familiar with the 
emissions problem that we have with diesel. Why are we unable 
to make as effective use of diesel today in the twenty first 
century as they are doing over in Europe?
    Mr. Dana. That is something that we hope to be able to do, 
Senator. What has happened is diesel has always been used in 
Europe at a fairly substantial rate in the passenger automobile 
fleet, so a lot of the technological development has been 
driven in Europe. We now have very, very efficient diesels.
    Most people in this country do not realize you can build a 
diesel that is quiet, clean, no black smoke, and is very 
comfortable to ride in because the diesel penetration in any 
kind of light duty vehicle in this market is very, very small.
    The problem I mentioned earlier, we see diesel as one of 
the potential tools the industry has to improve fuel efficiency 
of the vehicle fleet, but because of the conundrum of the 
existing emissions standards for 2004 and later and the clean 
fuel that is supposed to be coming in 2006, I think it is 
difficult for a manufacturer to commit resources with an unsure 
future.
    If we can see a future out there that says this will be 
viable for the long term, I think they will make the 
commitment, the dollar commitment to make that technology 
available. Clearly, there have been very big advances in diesel 
technology and with the clean fuel we think they can meet most 
of the emissions standards that are being proposed.
    Senator Carper. The interesting thing, Mr. Chairman, about 
the diesel alternative is that the infrastructure is there. In 
most places where you buy gasoline, a lot of those places you 
can buy diesel as well. If we could figure out how to hit our 
emissions targets, that would certainly appear to have a fair 
amount of promise.
    I have gone too long. Thank you for your patience. To our 
witnesses, especially Dr. Mccormick, thank you very, very much 
for being here and sharing your thoughts. I appreciate the 
chance to come back to you later on with follow-up. Thank you.
    The Chairman. Well, thank you all very much. I think it has 
been very useful testimony, and we will adjourn the hearing.
    [Whereupon, at 11:58 a.m., the hearing was recessed, to be 
reconvened on July 18, 2001.]

 
                         NATIONAL ENERGY ISSUES

                              ----------                              

                        WEDNESDAY, JULY 18, 2001

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:30 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

           OPENING STATEMENT OF HON. JEFF BINGAMAN, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. We will now begin the legislative hearing we 
have scheduled this morning on research and development 
provisions of the various energy-related bills that have been 
introduced and referred to this committee. These bills include 
the Democratic and the Republican energy policy bills, numerous 
other specific bills, most of which have bipartisan co-
sponsorship.
    Energy research and development attracts broad bipartisan 
support in Congress precisely because most members believe that 
advancing our understanding of energy, science and technology 
is crucial to being able to meet the energy challenges of today 
and tomorrow. Our domestic energy, security, and our future 
economic prosperity depend upon our ability to use research and 
development to increase the efficiency of our energy use while 
at the same time producing the energy that we need more cleanly 
and economically. Given that reality, it was most unfortunate 
that the administration earlier this year decided in the 
context of their budget proposal to make substantial cuts in 
energy research and development in areas such as renewables and 
energy efficiency. While barely holding steady the funding on 
basic energy science, Congress has since rejected these cuts by 
broad bipartisan majorities, both in the interior 
appropriations bill and in the energy and water development 
appropriations bill that is now on the Senate floor.
    The Department of Energy is one of the most important 
science research agencies in the Federal Government. Its 
overall civilian research and development budget in energy, 
which is $4.8 billion in fiscal year 2001, is greater than that 
of the National Science Foundation, which was $3.4 billion. The 
Department of Energy operates unique scientific facilities that 
scientists supported by other Federal agencies use to carry out 
their research. For some scientific disciplines, the Department 
of Energy is nearly the sole source of Federal support. As we 
move forward in drafting energy legislation, it is crucial, in 
my view, that we increase both the size and effectiveness of 
the Department of Energy's research and development budget. We 
need to focus both on increasing support as well as increasing 
the effectiveness of that program.
    Both Senator Murkowski and I have introduced bills that 
exceed the administration's budget in energy research and 
development. I hope that in the days and weeks ahead, both the 
administration and the Congress will embrace a vision of the 
importance of energy research and development that is 
consistent with its scientific promise and the need for new 
energy technologies and the views of the American people.
    Before I start with our witnesses, let me call on Senator 
Murkowski for any comments he has.
    [A prepared statement from Senator Domenici follows:]

       Prepared Statement of Hon. Pete V. Domenici, U.S. Senator 
                            From New Mexico

    Mr. Chairman, thank you for holding this hearing today on energy-
related research and development issues. I appreciate that your goal is 
to develop comprehensive legislation later this month. As we do this, 
the guidance in the President's National Energy Policy should be 
carefully followed.
    It's certainly important that the Senate act quickly on the 
National Energy Policy in order to move ahead with its important 
recommendations. There should be no question that the nation is 
experiencing an energy crisis, and we need prompt action to improve the 
current situation. The actions outlined in the Policy will dramatically 
improve our long-term energy outlook.
    There is no single ``silver bullet'' that will address our nation's 
thirst for clean, reliable, reasonably priced, energy sources. That's 
why the National Energy Policy carefully reinforced the importance of 
many energy options. Energy is far too important to our economic and 
military security to rely on any small subset of the available options.
    As your hearing is being held, we're debating the Energy and Water 
Development Appropriations bill for Fiscal Year 2002. That bill 
determines the funding levels for many of the programs being discussed 
here today. I'm very proud that this bill makes immense progress in 
funding a diverse set of energy sources and significantly advances the 
agenda of the National Energy Policy. For example, that bill funds 
renewable programs at $435 million, even more than proposed in Senator 
Bingaman's energy bill.
    Despite the breadth of the Energy and Water bill, I'm going to 
focus my comments today on nuclear energy, which now provides about 22 
percent of our electricity from 103 nuclear reactors. The operating 
costs of nuclear energy are among the lowest of any source. That's why 
I, and 18 of my colleagues, have joined together to back Senate bill S. 
472, devoted to insuring that nuclear energy remains a strong 
contributor in our national energy mix.
    Nuclear energy is essentially emission free. We avoided the 
emission of 167 million tons of carbon last year or more than 2 billion 
tons since the 1970's. In 1999, nuclear power plants provided about 
half of the total carbon reductions achieved by U.S. industry under the 
federal voluntary reporting program. The inescapable fact is that 
nuclear energy is making an immense contribution to the environmental 
health of our nation.
    We can learn much from the French performance. France generates 76% 
of its electricity from nuclear. That helps them achieve spectacular 
results for minimal emissions of carbon dioxide. Their emissions per 
dollar of GDP are almost 3 times lower than ours. I look forward to the 
testimony of Mr. Jacques Bouchard from the French CEA to learn first-
hand about their experiences.
    Unfortunately, when it comes to nuclear energy, we're living on our 
past global leadership. Most of the technologies that drive the world's 
nuclear energy systems originated here. Much of our early leadership 
derived from our requirements for a nuclear navy; that work enabled 
many of the civilian aspects of nuclear power. Federal actions are 
required now to insure that nuclear energy continues its vital 
contributions.
    S. 472 has many features, and only some of them are included in 
today's hearing. One provision would designate an Assistant Secretary 
to lead the Department's nuclear energy and science programs. To me, 
it's not appropriate to have Assistant Secretaries leading all the 
other major energy categories except nuclear.
    Several of the provisions in S. 472 authorize important nuclear 
energy programs--programs which have been included within past Energy 
and Water Development bills. The Senate is now in final debate on the 
Fiscal Year 2002 version of this bill which would significantly 
increase funding for the Nuclear Energy Research Initiative, the 
Nuclear Energy Plant Optimization, and the Nuclear Energy Technology 
Program, and almost double funding for university programs.
    The bill includes key provisions to improve the ability of our 
uranium mining industry to compete in the future through research on 
improved technologies that will have less environmental impact.
    The hearing today also covers research toward new Generation IV 
plants. Technology to build these plants is close at hand. This bill 
not only supports research and development on these plants, it also 
helps develop the regulatory framework within the NRC that must be in 
place before they can be licensed.
    Generation IV plants would:

   be cost competitive with natural gas;
   have significantly improved safety features with the goal of 
        passive safety systems that would be immune to human errors;
   have reduced generation of spent fuel and nuclear waste; and
   have improved resistance to any possible proliferation.

    Many of the Generation IV concepts would involve small modular 
plants. With such plants, we should be able to dramatically cut the 
time required for bringing a plant on line, and do it for far less 
capital investment than the current very large plants. Small Generation 
IV plants may be useful in developing countries, where they could help 
these nations increase their standard of living without compromising 
clean air.
    In addition, we're considering Titles IV and V of S. 472 today. 
These Titles are devoted to exploring improved strategies for 
management of spent fuel. They establish an Office to manage research 
on these key questions. These studies would involve work on 
reprocessing and transmutation. I'm particularly looking forward to the 
views of our distinguished witnesses on these subjects today.
    Let me emphasize, Mr. Chairman, that I used the phrase ``spent 
fuel'' rather than ``waste'' to refer to the materials coming out of 
our reactors. Right now our national policy calls for disposing of 
those materials as waste in a future repository. But we need to 
remember that these materials still contain 95 percent of their initial 
energy content.
    I've been concerned for years that it highly debatable for us to 
decide that future generations will have no need for this rich energy 
source. With improved management strategies, possibly involving 
reprocessing and transmutation, we can recycle that material for 
possible later use, recover far more of the energy, and dramatically 
reduce the toxicity and volume of the materials that are finally 
declared to be waste.
    My speech at Harvard in 1997, which helped start the rebirth of 
interest in nuclear energy, was the first time I publicly questioned 
President Carter's decision to ban reprocessing. I believe that was a 
serious step backward for our country. I'd like to repeat some of the 
words from that speech:

          In 1977, President Carter halted all U.S. efforts to 
        reprocess spent nuclear fuel and develop mixed-oxide fuel 
        (MOX) for our civilian reactors on the grounds that 
        the plutonium could be diverted and eventually transformed into 
        bombs. He argued that the United States should halt its 
        reprocessing program as an example to other countries in the 
        hope that they would follow suit.
          The premise of the decision was wrong. Other countries do not 
        follow the example of the United States if we make a decision 
        that other countries view as economically or technically 
        unsound. France, Great Britain, Japan, and Russia all now have 
        MOX fuel programs.
          This failure to address an incorrect premise has harmed our 
        efforts to deal with spent nuclear fuel and the disposition of 
        excess weapons material, as well as our ability to influence 
        international reactor issues.

    In closing, Mr. Chairman, my S. 472 was designed to enable nuclear 
energy to be a viable option for our nation's electricity needs. It 
would help ensure that future generations continue to enjoy clean, 
safe, reasonably priced, reliable electricity from nuclear energy.

      STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you very much, Senator Bingaman. I 
want to thank you for holding the hearing today. We both have 
been long time supporters of energy research and development, 
whether it be fossil or nuclear, renewable or energy 
efficiency, and through the development of advanced energy 
technologies, I think we both agree we can avoid the false 
choices between energy and the environment. We want to make our 
decisions on sound science. I've said that time and time again, 
but I think it is most appropriate to reflect on this. So 
often, you know, we are expected to have the knowledge and 
background to make a decision. We have to make decisions. We 
vote yes or no. We can't vote maybe, so we have to depend on 
people who are willing to put their reputations as experts 
behind their recommendations. Otherwise, you're going to get 
what you would expect from pretty much a public forum. You can 
get expressions and motions but not sound science. In any 
event, what we are looking for today, through the development 
of advanced energy technologies, is to try and avoid those 
false choices. A choice that radical environmentalists from 
time to time seem very eager to force upon the American 
people--again without the science.
    Nowhere is the value of advanced energy technology more on 
display certainly in exploration than my State of Alaska, where 
one only needs to contemplate the rigors of 70, 80, 100, 120 
below zero working conditions in areas of permafrost where we 
have been able to maintain footprints that are extraordinarily 
compact. Ice roads, 3D seismic, all new technologies that 
reduce the disturbance on the tundra. Directional drilling, it 
has been indicated by the engineers that they could drill in 
this room and come out at Gate 8 at Reagan Airport. They have 
that degree of accuracy. R&D funded by the Department of Energy 
and industry has made it all possible and this will yield more 
benefits in the future. Energy R&D will give us the 
technologies of tomorrow that will provide a clean, safe and 
affordable energy supply. Cleaner fossil fuels, safe next-
generation nuclear power, affordable renewable energy 
technology, energy efficient technologies that will allow us to 
do more with less.
    We have to keep in mind that we just can't throw money at 
it. Money alone is not the answer. We must ensure that our R&D 
programs are oriented in the right direction with concrete 
goals and objectives and checks and balances. We can all 
justify more expenditure, but we have got to have measurements 
and successes. We must fund a portfolio of priority options 
just as you would invest in a portfolio of stocks to hedge your 
bets. And, most importantly, we must be ready to take on some 
risks--some high risks, high reward for breakthrough 
technologies. That is how they come about. An R&D program 
without some failure is not pushing the envelope hard enough, 
in my opinion. I know the National Academy of Science will have 
much to say about their recent review of Department of Energy 
energy R&D programs and I look forward to their suggestions as 
to what changes they would suggest to help energy R&D along.
    One of the frustrating problems that's been before this 
committee for as long as I have been a member, and that's over 
20 years, is what to do with our high level waste-spent nuclear 
fuel. Our spent waste, I should say. Reprocessing is one 
alternative, and I gather that we're going to have a third 
panel today of witnesses that will address the issue of 
reprocessing of spent nuclear fuel. I'm going to have to go 
down to the floor a little after 10 o'clock on energy and water 
but I hope to get back to participate in the third panel.
    Clearly, one of the issues with nuclear power is the 
storage of the high level radioactive waste. According to some 
in this Senate, Yucca Mountain is dead. That is pretty hard to 
take if you are a taxpayer and consider that we've spent over 
$8 billion so far on Yucca Mountain. I don't think it's dead. 
Even with Yucca, it makes sense to make as little waste as 
possible, and that is the advantage of the advanced technology.
    Reprocessing does offer a way to use more of the energy 
stored in the fuel to reduce the waste volume. Of course, there 
are risks involved, nuclear materials and proliferation, but 
there are large benefits to be gained if we can develop new 
technologies to reduce and reuse nuclear spent fuel.
    And finally, we must recognize that R&D funding alone is 
not a sufficient substitute for a comprehensive national energy 
policy when you look at what other countries are doing, France 
particularly and Japan in this area of high level nuclear waste 
reprocessing. In any event, while R&D can help us develop the 
technologies of tomorrow, it cannot solve the problems of today 
with the current energy crisis. We still need an increase in 
supply of conventional fuels, expanded energy efficiency, more 
renewables. And we need to invest heavily in the 
infrastructures needed to move the energy from the wellhead or 
powerplants to the consumers in both pipelines and electric 
transmission lines. Energy R&D does have a central role to play 
and I look forward to hearing from our witnesses on how we can 
better invest in our energy future. Thank you, Mr. Chairman.
    The Chairman. Senator Burns.

         STATEMENT OF HON. CONRAD BURNS, U.S. SENATOR 
                          FROM MONTANA

    Senator Burns. Thank you for holding this hearing. You 
know, today's attendance to this hearing is pretty indicative 
on how sexy an issue this is. If we were talking about the 
sucker fish, I'll guarantee you couldn't get another person in 
this place with a shoehorn. But R&D is important for our work 
over on the Commerce Committee when we worked with the NSF, 
being involved in EPSCOR, and the R&D that is going on in 
communications in our universities and even in our energy. No 
other committee and no other department has more to do with 
climate change in our high energy physics, our 
superconductivity, high performance computing. This is where it 
happens in this country in the high tech field. Now, we can 
talk about what's happening in the technology of 
communications, but as far as our every day life, this is where 
it's at. And yet, you know, we won't get now what is there over 
at the press table, a half a dozen over there that will write 
about this hearing today. And yet it's probably one of the most 
important hearings that we will hold in this committee, Mr. 
Chairman, and I appreciate your interest in this. I appreciate 
your holding this hearing.
    We have seen great things happening in wireless 
communications. I will tell you fuel cells is to the energy 
industry what wireless was to communications. And we have to 
look at these kind of different things to complete our work. 
Thank you, Mr. Chairman. If I can put my statement in, I would 
sure appreciate that.
    The Chairman. Senator Carper, would you like to make any 
statement?

       STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR 
                         FROM DELAWARE

    Senator Carper. I feel inspired by the comments of Senator 
Burns and Senator Murkowski. I would make a very brief comment. 
I received a memo, I think yesterday, from Robert Simon, our 
staff director on the Democratic side and Bryan Hannegan, staff 
scientist, and this goes back to a point that Senator Murkowski 
was making about not being able to throw money at problems, 
even though on the R&D side, and I was just reading this last 
night. It says studies of the areas supported by Department of 
Energy R&D funding suggest significant payoffs from the 
research funded according to Department of Energy and validated 
by a GAO study. Efficiency R&D programs have returned over $100 
billion to the U.S. economy for Federal investment of less than 
$13 billion since 1978. It goes on to mention a new report from 
the National Academy of Sciences. It reviews the Department of 
Energy's funding of DOE and fossil and energy efficiency areas 
and it looked at, I think, 17 R&D programs on energy efficiency 
that go back to 1978 and concluded that the Department of 
Energy's investment of $1.6 billion resulted in a return of 
about $30 billion. So, we're not just throwing money at these 
problems and issues but actually making some sound 
accomplishments. I would just want to put that on the record.
    The Chairman. Thank you very much. Why don't we go ahead 
then with Francis Blake who is Deputy Secretary of Energy. 
Thank you for being back here with us.

  STATEMENT OF FRANCIS BLAKE, DEPUTY SECRETARY, DEPARTMENT OF 
                             ENERGY

    Mr. Blake. Mr. Chairman and members of the committee. Thank 
you very much for inviting me this morning and also, thank you 
for moving on the nomination of Dan Brouillette. We are very 
much looking forward to getting him on board the team. As you 
know, all major energy legislation has been bipartisan in 
nature and we look forward to working with this committee under 
your leadership and moving forward on a number of the 
legislative proposals you are now considering. For today's 
topic on research and development, as you all have mentioned, 
there is an important role for the Government and for the 
Department of Energy to play on research and development.
    There are public benefits that exist that the private 
sector simply cannot capture and there is an important role for 
the Department in those areas. And in fact we are looking at 
technology to address some of the key challenges that we face. 
However, we can continue to improve our standard of living and 
also address the environmental and other concerns that we have.
    I would like to just submit my written testimony for the 
record and then briefly summarize the areas where I think we 
have agreement and then open my comments up for questions. I 
think the areas that are addressed in your legislation actually 
mirror fairly well the areas that the Department is spending 
research and development monies. You target renewables, 
hydropower, solar, wind, and we have activity in all of those 
areas. You have some legislation with recommendations on 
nuclear energy, particularly in the area of reprocessing. That 
is part of the President's national energy plan and we are 
supportive of that although we would note that even as we make 
progress there, that does not undermine the need for a deep 
geological repository for nuclear waste.
    We also support focused carbon-based fuels research and 
development. It is particularly important in the environmental 
area and in improving efficiencies for our installed base and 
then more basic research on technologies as Senator Murkowski 
was referencing in the areas of hydrogen, fusion and other 
varied significant new potential areas. We are at an 
interesting point as well because as was mentioned, the 
National Academy has come out with its study that has looked at 
some of the results from prior Department of Energy R&D 
efforts, and I think has concluded that the public has received 
a good payback from that investment. They also have made some 
suggestions. I haven't read the report but I have seen the 
executive summary. They have made some suggestions that are 
very much in line with the administration's own thinking on how 
we need to be approaching our research and development efforts. 
We need to have good performance measures and metrics so that 
the money we spend is wisely spent. And we understand what we 
are expecting and what the appropriate off-ramps are for our 
investments.
    We need to have a good understanding of the private public 
relationship, what the private sector will do better than the 
public sector, and how we can effectively join forces. And I 
think, as the NAS has emphasized, we do need a portfolio 
approach where we look at a number of different technologies 
that address different areas, a number of different stages of 
development, some basic research, some research and 
development, some demonstration, and also, different benefits 
that the research and development can address. Some 
environmental; some economic and some national security 
benefits. So, I think we are in large agreement with many of 
the recommendations that the NAS report is coming out with.
    We look forward to working with this committee and just to 
echo Senator Burns' comment, if you look at the contribution 
that research and development has made in a number of areas, we 
view this as one of the critical functions of the department 
and very much appreciate your leadership and guidance in these 
areas. Thank you.
    [The prepared statement of Mr. Blake follows:]

        Prepared Statement of Francis Blake, Deputy Secretary, 
                          Department of Energy

    Mr. Chairman and Members of the Committee, I welcome the 
opportunity to testify before you today on various legislative 
proposals pending before the Committee. These proposals include Senate 
bills, S. 388, S. 597, S. 90, S. 193, S. 242, S. 259, S. 472, S. 636, 
S. 1130 and S. 1166, the provisions of which address various aspects of 
the Department's scientific research and technology development 
programs.
    First, I would like to thank the Chairman and Members of the 
Committee for your leadership and commitment in addressing the Nation's 
energy issues. I applaud the Committee's efforts to craft comprehensive 
long-term energy legislation. This Committee has a long and proud 
tradition of developing bipartisan energy legislation, and the 
Administration recognizes that all major energy bills have been 
bipartisan in nature. I look forward to working with the Committee to 
find areas of common ground and interest between the Congress and 
President Bush's policy proposals, as outlined in the National Energy 
Policy.
    Turning to the matter at hand, the general focus of today's hearing 
is research and development (R&D). The Administration welcomes the 
Committee's interest in and support of the Department's scientific and 
research programs. America's energy challenge begins with our expanding 
economy, growing population and rising standard of living. Our 
prosperity and way of life are sustained by energy use. To meet our 
energy challenges of the future--promoting energy conservation, 
repairing and modernizing our energy infrastructure, and increasing our 
energy supplies in ways that protect and improve our environment--will 
require sound science, innovative R&D, and collaborative partnerships 
among all of our research organizations, public and private.
    The Department's R&D programs are an important part of this effort 
to address and meet many of the challenges facing our Nation's future. 
They have a long and proven track record of past scientific and 
technical contributions in this regard. On one timely note in this 
vein, just yesterday, the National Academy of Sciences released its 
study of the Department's twenty-year R&D programs in the technology 
areas of energy efficiency and fossil energy. The Academy reported that 
the benefits to the Nation of these R&D efforts are large and 
increasing over time.
    The Administration strongly supports research into advanced 
technologies and their underlying foundation of basic research. As the 
Academy's study suggests, Federal leadership in partnership with others 
can have a strong and beneficial influence on the advancement of 
technical solutions to many of Nation's greatest challenges.
    As part of my responsibilities as Deputy Secretary, it is my 
intention to ensure that the Department's scientific and research 
portfolio is both well focused on our nation's needs and efficiently 
managed. One of the Administration's management priorities is for the 
Department to establish performance metrics for R&D expenditures so 
that we can look across our portfolio of activities and distinguish 
programs that are well-targeted and successful from those that are 
performing poorly or could be better undertaken by others. I look 
forward to working with this Committee on that effort.

                              SENATE BILLS

    Mr. Chairman, the Senate bills and the particular titles and 
sections of these bills that are of interest to the Committee today 
cover a diverse mix of scientific interests, programs, enhancements to 
these programs, and related administrative actions. There are parts of 
ten bills, including eight mentioned in your letter of invitation and 
two bills added since then, of interest here today.
    I want to assure the Committee that the Administration is 
interested in each provision of these bills. I can provide today some 
general comments on the salient aspects of some of these bills, but in 
other cases the Administration has not yet developed a full or formal 
position. We look forward to working with you on this in the weeks and 
months ahead.
    With regard to S. 90 and S. 193, the Department has not yet taken 
any formal position. S. 90 would require the Secretary of Energy to 
support an R&D program in nanoscience and nanoengineering, and to 
establish similarly focused research centers, at authorizations 
totaling $1.36 billion over 5 years. S. 193 would require the Secretary 
to support a research program in advanced scientific computing, at 
authorizations totaling $1.15 billion over 4 years. Both bills are 
supportive of our ongoing programs in these areas, but the 
authorization levels are inconsistent with the Administration's budget 
requests and recent appropriations levels set by Congress.
    S. 242 and S. 472 represent the first major nuclear energy 
legislation since the passage of the Energy Policy Act of 1992. At the 
outset, I would like to express the Administration's general support 
for legislation that sets a direction to implement the nuclear 
components of the Administration's National Energy Policy. S. 242 would 
require the Secretary to support a program to maintain the Nation's 
human resource investment and infrastructure in the nuclear sciences 
and engineering, including a program supportive of student fellowships 
and university research and training reactors, and authorizes funding 
totaling $240 million over 5 years.
    S. 472, entitled the Nuclear Energy Electricity Supply Assurance 
Act of 2001, would promote expanded use of nuclear energy as a major 
component of our Nation's energy strategy. The particular sections and 
titles of S. 472 that are of interest to the Committee at this hearing 
pertain only to the related research programs (sections 111, 121, 122, 
123, 125, 127, 204 and 205), the development of a spent nuclear fuel 
strategy (title IV), and the application of advanced proton 
accelerators for the production of various isotopes and the 
transmutation of spent nuclear fuel and waste (title V). Authorizations 
for FY 2002 total $184.2 million for the research programs; $10 million 
for title IV; and $120 million for title V.
    Similarly, sections 107 and subtitle B of S. 388 require the 
development of a national spent nuclear fuel strategy (section 107), 
and authorize for FY 2002 a total of $95 million for the nuclear energy 
research initiative, nuclear energy plant optimization, and nuclear 
energy technology development programs. These nuclear energy bills are 
supportive of ongoing R&D programs at the Department, but the 
authorization levels are inconsistent with the Administration's budget 
request and recent appropriations levels set by Congress.
    In addition, S. 388 requires the Secretary to conduct a five-year 
program of research for natural gas technologies, including 
transportation and distribution infrastructure, and distributed energy 
resources and related natural gas-using equipment (section 115), and to 
establish an energy efficiency science initiative (title VI, section 
607), the latter authorized for $25 million in FY 2002--which is an 
amount inconsistent with the Administration's budget request.
    The pertinent sections of S. 597, the Comprehensive and Balanced 
Energy Policy Act of 2001, concern R&D programs in coal (title VIII); 
pipeline safety (for the Secretary of Transportation, in coordination 
with the Secretary of Energy, title XI); and a series of enhancements 
to R&D programs in energy efficiency, renewable energy, fossil energy, 
and nuclear energy, and to the fundamental research programs in energy 
sciences (Division E). These provisions, likewise, are generally 
supportive of our R&D programs in these areas. However, in light of the 
review of R&D investment criteria mentioned above, the Administration 
would prefer that the Committee not add new restrictions to funding 
allocations that might inhibit optimum allocation of research funds 
among basic materials, and development and demonstration in applied 
programs. The Department looks forward to working with the Committee on 
these matters.
    S. 1130, the Fusion Energy Science Act of 2001, requires the 
Secretary to develop a plan, to be reviewed by the National Academy of 
Sciences, for a magnetic fusion burning plasma experiment and 
authorizes a total of $655 million over two years for the fusion energy 
sciences program energy. These authorizations exceed current 
Administration budget requests and recent appropriations levels set by 
Congress. We will be assessing the appropriate funding level for the 
Fusion Energy Sciences program.
    S. 1166, the Next Generation Lighting Initiative Act of 2001, 
requires the Secretary to establish such an initiative, in conjunction 
with the establishment of a related research consortium and grant 
program, with annual reviews by the National Academy of Sciences. A 
total of $230 million is authorized over the first five years. This 
initiative is supportive of ongoing research at the Department, but 
adds funding and requires programmatic structure not currently 
envisioned by the Department.
  arkansas nuclear plant decontamination and decommissioning (s. 636)
    The Administration opposes S. 636, which directs the Secretary to 
establish a decommissioning pilot program to decontaminate and 
decommission the sodium-cooled fast breeder experimental test-site 
reactor located in northwest Arkansas. The Administration's position is 
that the Federal Government is not, and should not be, responsible for 
the decommissioning of this privately-owned reactor. The Department has 
investigated this situation in the past, in response to Congressional 
direction in 1997 and again in 1998. As we reported to Congress on 
these occasions, the legislative and contractual records are clear that 
the owner of the reactor is responsible for decommissioning. In 
addition, there are matters of precedent to weigh. There were 10 other 
similar privately-owned research reactor projects which were operated 
in coordination with the Atomic Energy Commission. All of these other 
privately-owned reactors have been or will be decommissioned by the 
owners.

       NATIONAL LABORATORIES PARTNERSHIP IMPROVEMENT ACT (S. 259)

    Finally, S. 259, the National Laboratories Partnership Improvement 
Act of 2001, would amend the Department of Energy Organization Act, 
among other provisions, in order to expand the Department's authorities 
and activities in the area of technology partnerships. Generally 
speaking, the Department already has the necessary and sufficient 
authority under current law. The bill's administrative provisions would 
unduly restrict the Secretary's discretion to organize the Department 
and conduct its activities in ways that are effective, complicate 
laboratory management of existing partnering programs, and add to 
growing concerns about unfunded mandates.
    We note that section 8 of S. 259 would provide DOE with authorities 
like those already available to the Department of Defense and other 
agencies with similar missions in science and technology, including the 
National Aeronautics and Space Administration. We support efforts to 
encourage innovative partnering arrangements and provide additional 
flexibility in dealing with entities such as R&D consortia. At the same 
time, we recognize that ``other transactions'' authority is a highly 
flexible authority outside the procurement framework that must be 
carefully and thoughtfully applied. While we will need to further 
consider the merits of applying other transactions authority to DOE, we 
think it is worthwhile to reevaluate current laws as may be necessary 
to ensure appropriate flexibility is afforded.

                               CONCLUSION

    In closing, the Administration welcomes the Committee's efforts to 
address our Nation's energy challenges and its strong support of the 
Department's energy science, research and technology development 
programs. The legislation under consideration by the Committee is 
ambitious and many of its provisions would have consequences that must 
be weighed carefully before enactment. In this regard, I request that 
the Department be given the opportunity to continue to work with the 
Committee towards a satisfactory resolution of differences.
    This concludes my testimony. I would be pleased to answer your 
questions.

    The Chairman. Thank you very much. Let me ask a very 
general question. In the 18 or 19 years that I've been here, 
I've noticed sort of a cyclical phenomenon going on where 
interest in energy issues, energy policy concerns obviously 
increase dramatically as the price of gas goes up and the price 
of electricity goes up and the price of natural gas goes up. 
And then when the price comes back down, the interest goes 
away. And that's a human kind of a reaction which I guess all 
of us sort of have come to expect. I have noticed, 
unfortunately though, that there is something similar that 
happens in the budgeting for energy related research and 
development, that the interest in maintaining our efforts in 
those areas at the Federal level comes into vogue and is 
obvious and then goes away again as soon as the problem recedes 
in the public consciousness. And I just wonder the extent to 
which, and I know we've had a rough spot here at the beginning 
of this administration before you ever came to work, where we 
got the request for major cuts in funding for some of the 
activities, research and developments activities, that many of 
us thought were important. We are correcting that in the 
appropriations bills and I think the administration and the 
President has made some statements to the effect that he 
believes higher levels of funding are appropriate. I'm just 
hoping we can see a sustained level of commitment to the higher 
levels of funding for research throughout the balance of the 
administration. Do you have any way to give us assurance on 
that at this stage?
    Mr. Blake. First, just on some of the energy efficiency and 
renewable budgetary issues, we are, as you know, undertaking a 
thorough review of those budgetary submissions. We do think 
that the increases in the House and in the Senate look like 
they are going to be in line with what we see as the outcome of 
that review. I think more generally your point is right. We 
have to, when we look at our R&D budget, we have to articulate 
what our objectives are in a way that everybody can understand 
and that aren't so susceptible to the fluctuations year over 
year to the price of gasoline and oil. We should be able to 
say, here's why we're doing it; it's a long payoff; and stick 
with it.
    The Chairman. I've been concerned. I got a briefing 2, 3 
weeks ago during our Fourth of July break from people at Sandia 
National Laboratory and about the state of the effort that was 
going on and the state of the technology in various of the 
emerging sources of energy, in wind energy, for example, and 
solar energy, and various of these areas, and, frankly, it's a 
bit disturbing to see how we have lost the lead internationally 
in use and development and perfecting these technologies and in 
putting them into application.
    My strong sense is that 10 years ago the United States did 
have the lead in these areas. Today, we do not, at least in 
some of these areas, and I hope that we can regain that lead 
and begin to put some real emphasis on energy related research 
and development that will help us do that. I don't know if that 
is something you have a change to focus on as to what has 
happened in some of these areas. Some of the specific examples, 
when you say, how about wind turbines, they say, well you have 
to buy those in Europe. They are the ones that make the wind 
turbines.
    Mr. Blake. I will say, in terms of my prior employment 
before the Department of Energy I had the opportunity to look 
at a number of wind companies. Your observation is correct that 
there are far more substantial wind companies in Europe than in 
the United States. I would say, though, that when you look at 
what are going to be the leading edge technologies for wind 
power going forward, turbine design, efficient motors, 
efficient gear structures, I believe the United States will in 
fact have a leading position on those cutting-edge 
technologies.
    The Chairman. Let me ask you, in your testimony you refer 
to--this is a quote from your testimony--performance metrics 
for R&D expenditures is one of the administration's management 
priorities. What do you have in mind as far as performance 
metrics? I have always thought of research and development as 
something that it was a little hard to measure performance 
until you actually--I mean, it is one of these things that, if 
you do too good a job of insisting on performance, you stifle a 
lot of what might prove to be very promising.
    Mr. Blake. I think that's a fair point. You have to look at 
your metrics, understanding that a lot of what you are doing is 
at the developmental stage by definition. I think the Academy 
report had an interesting suggestion in terms of how they 
developed a matrix. They looked at a matrix. Are you improving 
knowledge? Are you getting to commercialization and lower 
economic costs? Are you getting environmental benefits? You 
should at least be able to articulate what you think are the 
potential benefits from the program and then track how you are 
moving to those benefits. I think looking both to your current 
performance and at what point do you say, well, this isn't 
getting what we thought we were going to get and it is time to 
move on to a different program or change funding priorities.
    The Chairman. And you see the Department of Energy sort of 
performing this quantification, or this application of metrics 
each year when it puts together a budget? Is that what I am 
understanding?
    Mr. Blake. Ideally, what we should have is performance 
operational reviews where we understand and have agreement on 
what the appropriate metrics are, have those reflected in our 
budgetary priorities, and be able to engage in pretty 
straightforward conversation with the Congress and interested 
third parties, on how we see our priorities.
    The Chairman. Let me stop with that and defer to Senator 
Murkowski.
    Senator Murkowski. Thank you very much, Mr. Chairman. With 
reprocessing in the sense of the state of the art as we know it 
today, with what the French are doing and have done for some 
time with the Japanese and some other nations, what is your 
opinion on whether we will still need Yucca Mountain as 
predetermined by the Congress and as you and I both know, we 
have got about $8 billion of taxpayers money in that.
    There was a contract signed by the Federal Government with 
the nuclear industry back some time ago and the due date to 
take that waste was 1989. The Federal Government did not honor 
that contract. I do not know what the sanctity of the contract 
means to the Federal Government but in this case, clearly not 
much. It is my understanding that the ratepayers have paid in 
some $18 billion to the general fund, which was to enable the 
Federal Government to dispose of the waste. It is my 
understanding that there is somewhere in the area of $60 to $80 
billion in litigation potential to the Federal Government for 
non-performance of that contract. It seems to me that the 
taxpayer is looking at a pretty good hit, somewhere in the area 
of $100 billion--something of that nature. So, what about Yucca 
Mountain?
    Mr. Blake. Senator, we will still need Yucca Mountain or a 
deep geological repository even with reprocessing. By the 
nature of any recycling effort, you still have residues. The 
repository will still be needed.
    The Chairman. Would you use the word retrievable in 
describing the future use of Yucca Mountain?
    Mr. Blake. I am not sure I understand.
    The Chairman. Well, Yucca Mountain was to be a permanent 
repository. My question to you is, as science and technology 
changes, should it be structured to be retrievable--the waste 
retrievable--as opposed to not?
    Mr. Blake. Senator, let me provide an answer for the record 
on that. I don't know what the implications of that would be.
    Senator Murkowski. While it is not a new subject, it has 
been discussed.
    Mr. Blake. It is just not one I am personally aware of.
    Senator Murkowski. Well, I think it is probably appropriate 
that we dust it off again and see if there is any change in the 
position of our scientist on it because from time to time we 
have heard the argument, well, at some time this is going to be 
of value and it will be of value from the standpoint of 
reprocessing. And then you get into the discussion on whether 
the price of uranium is relatively inexpensive and then you 
question the need for it. But nevertheless, we have made a 
determination that this is a permanent repository and would 
suggest you put it away and keep it there forever and then 
others say, no, it should be convertible or retrievable if 
indeed that need arises.
    Mr. Blake. Senator, I've just been advised that yes we do 
believe it would be retrievable.
    Senator Murkowski. Okay. Well, I think it would be 
appropriate probably to review that and if you want to make it 
a policy statement, then I think that would be appropriate that 
we recognize that. Secondly, how will decisions on reprocessing 
and long term storage facilities like Yucca Mountain affect the 
future of the nuclear industry?
    Mr. Blake. I think it is very important for the future of 
the nuclear industry. Solving the waste issue, I think, is 
going to be key to the future development of the industry and 
without that, I think the industry obviously faces some severe 
and difficult issues.
    Senator Murkowski. Well, of course the difficult issue here 
is getting Congress to move. The last count we had, we had 66 
members basically supporting the proposal to put temporary 
waste at Yucca Mountain until we could get the licensing and 
the programs. I've got a chart in front of me that was made by 
a couple of Philadelphia lawyers that clearly shows the process 
that you have to go through and we are somewhere over in the 
middle here. In the year 2001 we are funded for a science and 
engineering report and supplemental drafts and NAS reports and 
so forth. But with the cut of funding proposed in the Energy 
and Water Appropriations Committee, this program is going to be 
set back for an extended period of time. It is very difficult 
to say how long. Can you comment on this?
    Mr. Blake. I've been briefed on that timeline and we need 
the funding to proceed. I cannot tell you exactly what would 
happen on the timeline for each dollar of loss but this 
activity is a difficult scientific study that needs to be 
undertaken now, to proceed with our obligations as you laid 
out.
    Senator Murkowski. It is my understanding this reduction 
would lay off 650 Federal contract personnel. It would 
indefinitely delay license application. It renders the 2010 
spent fuel receipt date unachievable. It would provide a loss 
of 75 percent of Federal staff performing oversight, a loss of 
quality assurance, a loss of ability to conduct independent 
technical reviews, termination of the early warning drilling 
program, elimination of university involvement and loss of 
modeling, loss of licensing application. This list goes on and 
on. And when you consider the investment we have here and the 
realization that, while I certainly appreciate the position of 
our friends from Nevada, which is that they don't want it, but 
it has to go somewhere and the taxpayer has a hundred--what is 
it, 80 to 90? Well, it just goes on. A billion dollars here, a 
hundred billion dollars in this thing and we cannot move it out 
of the constriction of the Congress, which is a sad state of 
affairs and by cutting it to the extent that it's cut, we're 
simply setting it back and saying, well, it's not going to 
happen on the watch of a few Senators from the State of Nevada. 
I don't know whether I could make it any more plain, and both 
of them are my good friends, and I don't have a constituency on 
this but I think we have an obligation in this committee to 
recognize that nobody wants the waste. We've created it. Twenty 
percent of our energy is dependent on it.
    My last question, and I would just leave you with that 
degree of frustration because, Senator Bingaman, this is 
something I inherited and now you've inherited. I wish you a 
little better luck than I had but we have simply got to address 
it. Given the broad authority of DOE, under the DOE 
Organization Act, are specific authorizations necessary for 
each and every R&D program?
    Mr. Blake. I would not think so. No, I think we can adjust 
within our R&D program.
    Senator Murkowski. Thank you.
    The Chairman. Senator Carper.
    Senator Carper. Thank you, Mr. Chairman and Mr. Blake, 
welcome. We appreciate your being here and appreciate your 
testimony. I want to follow up just a little bit on a somewhat 
different direction. The questioning was being pursued by 
Senator Murkowski. And if you don't know a whole lot of detail, 
that's fine. But with respect to nuclear energy, I'm an old 
Navy guy and in the Navy, we have ships that are powered by 
nuclear powerplants. We have submarines that are powered by 
nuclear powerplants and I told my colleagues at a Senate 
Democratic retreat earlier this year that I took a bunch of boy 
scouts down to the Norfolk Naval Station and we visited the 
Teddy Roosevelt, the big aircraft carrier. It is about a 
thousand feet long and about 25 stories high. Maybe 5,000 
people aboard when they deploy about 70 aircraft and it needs 
to refuel once every 25 years. I was struck by that and the 
kind of potential that I think nuclear power continues to offer 
to us in this country. I know some of the research that you do 
relates to what to do with the waste product that comes from 
nuclear powerplants. And I would just appreciate a little 
primer on what's the latest. What is going on in that area? Is 
there some promise; is there something new that we ought to 
know about and be mindful of?
    Mr. Blake. Well, I think the technology probably that this 
committee is aware of involves using accelerators to reprocess 
and render inert the residues. I am not, although I have had 
some experience with the nuclear industry, I am not a 
technologist. So, I'm going to need a primer as much as you do, 
Senator.
    Senator Carper. I thought you were talking about the 
accelerators on a car.
    [Laughter.]
    Senator Carper. Can you provide for the record just an 
update for me on what's going on, and I'm not looking for a 
tome or anything.
    Mr. Blake. I will.
    Senator Carper. Another issue. I presume that we have a 
fair amount of research that goes on within your own 
laboratories, your own employees, and I presume that we 
contract with folks in academia to do some research projects. 
And I presume there's a partnership. They exist in the private 
sector. I think that one of our friends from General Motors may 
have alluded yesterday to fuel cell research where the 
Government played a role. Can you just tell us how it works and 
how we try not to end up duplicating one another's efforts but 
are actually working together?
    Mr. Blake. I can tell you again from the experience I had 
in the private sector. The way that works is the Government 
suggests areas where further developments and enhancements 
would be appropriate. The Department will typically get bids in 
from the private sector, saying I can build a car of X-
efficiency or Y-efficiency. They will select the winning bidder 
and then the terms of the work is laid out. The Department and 
the private sector participant will sit down and they will map 
out a program saying this is what we are going to do. We need 
to develop these kinds of technologies, materials, and the 
like. The Government will typically retain some intellectual 
property in what's developed and there will be an agreement on 
cost sharing and a review of how costs are allocated to that 
contract.
    Senator Carper. Okay.
    Mr. Blake. And it does vary a bit contract to contract. 
Some, the Government share is relatively modest and in others 
it is the predominant share.
    Senator Carper. Maybe one other question, if I could ask. 
The appropriate role, it seems to me, of the Federal Government 
is research, R&D in these areas. I like to say the role of 
government is to steer the boat, not to row the boat, and I 
think that is probably true here. But having said that, I am 
also struck sometimes by our inability as a country to take 
some very good research and development information and to be 
able to commercialize that research and to put it in products 
or projects, in some cases products that people will buy.
    We had our auto folks here yesterday and we talked a bit 
about hybrids. We have hybrids but for the most part, we are 
not seeing hybrid cars, trucks, vans produced in this country. 
We're not going to see very many produced in this country that 
even take good advantage of that technology. However, we're 
seeing Toyota and Honda actually begin to work with it pretty 
well.
    Basically, my question is commercialization. What role does 
the Department of Energy play and I ask this as a new member of 
the committee. I've been here a week. What role does the 
Department play with respect to not just helping fund the R&D 
and direct the R&D, but actually to nurture and to encourage 
the commercialization of the most promising technologies so we 
will get a real payoff from the research that has been done?
    Mr. Blake. I think our bias, Senator, is similar to yours 
which is that the actual commercialization belongs in the 
private sector. There are some instances where the Department 
will participate in that but they are infrequent, and the 
history is that they haven't been very successful. The fuel 
cell is an interesting example in the sense that it was 
originally developed as part of a governmental program with 
NASA and that technology was not commercialized obviously for 
years and years but then when you get changes in energy prices, 
some constraints on the transmission grid, some interest in 
further fuel efficiency in vehicles, that spurs additional 
research and development that the Department participates in, 
and then hopefully commercialization. But in direct answer, I 
think we try not to involve ourselves too often in the direct 
commercialization but leave it that to the private sector.
    Senator Carper. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Burns.
    Senator Burns. Thank you, Mr. Chairman. I am interested in 
the statement of energy prices getting real high and it drives 
us to do different things in R&D. The other day I was out in 
Nebraska, I filled up on Sunday in North Platte, Nebraska for 
$1.21 a gallon and I come back here and all the pressure is off 
of us to do something about the cost of energy. Emotions go up 
and down like that. Nothing spurs conservation or R&D into 
conservation like $3 gas. That's what drives conservation.
    And we can do a lot of things here. We can go through the 
motions of trying to be more efficient and all of that but we 
just cannot get any steam behind it until gasoline is $3 a 
gallon, and so that's how that works. I was disappointed in it 
when we just finished with the Interior appropriations and of 
course much of our work that is being done in our fossil fuels 
making them more efficient and the impact that fossil fuels 
have on our environment. Those funds were cut back but we 
restored most of those funds as you well know and they are on 
their way. We will conference that. We hope we can hold that 
money together for you as time goes on.
    Let me ask you, if you had the magic wand on this, what 
direction should we be going in our R&D? I am a proponent. I am 
really a big proponent of fuel cells. I just believe that they 
will play a major role in our energy, and how we deliver it, 
and how we manufacture it, and how we store it. And I would 
just ask your opinion, is that the direction we should be going 
or tell us where do you think we should be going?
    Mr. Blake. I think first the right approach, as was 
suggested, is a portfolio approach where you look at a number 
of different technologies. Some nearer term, some longer term. 
You don't put all your bets on one technology. On fuel cells 
specifically, it's a very interesting technology. It has some 
significant hurdles as well. You have to be able to reform the 
fuel as it comes in if you're using natural gas or something 
like that. On the front end or on hydrogen, you obviously have 
to be able to make the hydrogen and store it. There are other 
larger fuel cell technologies where you can do them in combined 
applications with existing natural gas fired turbines that look 
very promising.
    So, there are a lot of interesting developments in that 
area. A lot of companies are working in that area. DOE is 
supporting that with research dollars, but I think the general 
answer is a portfolio approach.
    Senator Burns. We are seeing a lot of interest in coal bed 
methane right now in our part of the world. And it is a fuel 
that can be extracted from a fossil base basically, and once we 
figure out what to do with the water and after the extraction, 
why, I think it has a great future. Also, in the area of 
nuclear, as I looked at Le Hauge in France, where they vitrify 
and reprocess high-level nuclear waste and in particular those 
rods that come out of powerplants. We look and we're kind of 
shortsighted in this country, thinking that well, most of these 
rods come from our ability to produce electricity, and I think 
Senator Carper brought it up. We've got a Navy that's nuclear. 
It moves by nuclear power. We have to do something to deal with 
that situation and so I would imagine. Are we still doing some 
R&D on vitrification and reprocessing on another way to deal 
with high level nuclear waste?
    Mr. Blake. Yes, sir. I cannot respond on vitrification but 
on reprocessing, yes.
    Senator Burns. Well, that tour we took both at Avion and in 
Marseille in South of France and also there at Le Hague was 
very interesting, and it's my understanding that most of that 
technology was developed in this country. So, I'm saying that 
even if they don't want to store this in Yucca Mountain, we're 
still going to need a repository. There's no doubt about that 
and we must just realize that and move on.
    So, I appreciate what you do in the R&D area. I plan to be 
a very strong supporter of yours as far as dollars are 
concerned. There again, dollars as mentioned here is not the 
complete answer. But nonetheless our R&D plays an important 
role in our every day lives and I want to be a supporter of 
that. I thank you for coming today. I thank you for your 
testimony.
    The Chairman. Senator Craig, did you have questions of this 
witness?
    Senator Craig. I do not. Thank you, Mr. Chairman.
    The Chairman. Well, thank you very much, Secretary Blake. 
We appreciate your coming again today. Why don't we move right 
to the second panel. If they would come forward, please.
    Okay, why don't we go ahead with the second panel. We have 
a group of very eminent scientists who are here to testify. Dr. 
John Holdren, professor at Harvard University; Dr. Robert 
Richardson, vice-provost for research at Cornell University; 
Dr. Ernie Moniz, who is a professor at MIT and formerly with 
the Department of Energy; Mr. Bob Fri who is the Director of 
the Smithsonian Museum of Natural History; Dr. H.M. Hubbard. 
Thank you very much for being here. He is with the Pacific 
Center for High Technology Research, retired, Lee's Summit, 
Missouri; and also Dr. Mike Corradini, who is with the 
University of Wisconsin in Madison.
    Why don't you go ahead. We'll just take you in that order 
and we will include your full statement in the record. But if 
you could take 5 or 6 minutes each and summarize the main 
points you think we need to be aware of.
    Dr. Holdren.

     STATEMENT OF DR. JOHN P. HOLDREN, PROFESSOR, HARVARD 
                   UNIVERSITY, CAMBRIDGE, MA

    Dr. Holdren. Thank you, Mr. Chairman, members, ladies and 
gentleman. I am John Holdren. I am a professor at Harvard, both 
in the Kennedy School of Government and in the Department of 
Earth and Planetary Sciences. I was a member of President 
Clinton's Committee of Advisors on Science and Technology 
(PCAST) and in that connection, I served as chairman of three 
PCAST studies on energy R&D policy between 1995 and 1999. I am 
grateful indeed for the opportunity to testify this morning 
before this committee on what I believe and I know you believe 
is a very timely and important subject.
    The scope of the hearing this morning is very broad. It 
covers proposals related to energy and scientific research, 
development, technology deployment, education and training 
relating to eight different bills in the Senate, and I am going 
to focus my own comments more narrowly this morning, confining 
myself mainly to the energy research and development sections 
of S. 597 and the relation of those provisions to the 
recommendations of the PCAST energy R&D studies that I chaired.
    The 1997 PCAST study, in particular, was a comprehensive 
review of U.S. Federal energy research and development 
strategy. It examined the recent history of public and private 
energy R&D. It looked at the rationales for public involvement 
in this kind of activity. It looked at the existing R&D 
programs of the Department of Energy and it offered 
recommendations on the focus and targets and budgets for those 
Department of Energy R&D programs for the five fiscal years 
1999 to 2003. I want to mention that the study was carried out 
by a panel of 21 senior individuals who came from industry, 
from academia, from public interest organizations. Some had 
been previously in government service. It had members from a 
wide array of energy expertises, fossil fuels, renewables, 
nuclear energy, fusion, increased end-use efficiency and it 
included people of senior research and management experience, 
including a former chairman of the Council of Economic Advisors 
who had no particular brief for increasing Federal expenditures 
on energy R&D.
    That panel, based on its detailed review of the then-
existing portfolio of applied energy technology R&D efforts in 
the Department of Energy, concluded that those programs in DOE 
have been well focused and effective within the limits of 
available funding but that the programs have not been and are 
not commensurate in scope and in scale with the energy 
challenges and opportunities that the 21st century will 
present. It noted that this judgment takes into account the 
likely contributions of the private sector to energy R&D in the 
decades ahead, and it argued that the inadequacy of the current 
energy R&D is especially acute in relation to the challenge of 
responding prudently and cost-effectively to the risk of global 
climate change from society's greenhouse gas emissions.
    The panel recommended ramping up DOE's applied energy 
technology R&D spending from $1.3 billion a year, which is what 
it was in the fiscal year 1997 baseline for our study, baseline 
at the time the report was written, ramping up that R&D to $2.4 
million in as-spent dollars in fiscal year 2003, which would 
represent about a 50 per cent increase over a 5-year period in 
inflation-corrected dollars. The recommendations were very 
detailed in terms of how much should be spent in each area, how 
much for efficiency, for fission, for fusion, for renewables, 
for fossil fuels. And the budget recommendations were unanimous 
notwithstanding the diversity of the panel that produced them 
and notwithstanding the long-standing controversies about the 
allocation of resources in energy R&D. That unanimity of the 
panel emerged from detailed joint review and discussion of the 
content of existing programs, the magnitudes of the unaddressed 
needs and opportunities, the current and likely future role of 
private industry in each sector, and the size of the public 
benefits associated with advances that R&D could bring about.
    Efficiency and renewables receive the bulk of the 
recommended increment and increase their share of the total 
from 50 percent in fiscal year 1997 to about 64 percent in the 
recommended budget for FY 2003 because they scored high on 
potential public benefits and on R&D needs and opportunities 
not likely to be fully addressed by the private sector.
    Those recommendations of the 1997 PCAST study have been 
partly reflected in administration requests and to a somewhat 
lesser degree in congressional appropriations in the 
intervening years. In the most recent completed appropriations, 
those for fiscal year 2001, the total applied energy technology 
R&D budget reflects about half of the increment recommended in 
the PCAST study for that year over the fiscal year 1997 or 1998 
baseline. Broken down, 100 percent of the increment recommended 
by PCAST was appropriated for fossil fuels, 55 percent of the 
increment for nuclear, 50 percent for efficiency and for 
fusion, but only 30 percent for renewables.
    The Bush administration's fiscal year 2002 budget request 
for applied energy technology R&D totaled only about $1.3 
billion compared to the $1.7 billion appropriation in fiscal 
year 2001. That is the request proposed what I would 
characterize as a large step backward, one that would return 
the country to the fiscal year 1997-1998 R&D spending levels. 
That proposal is not consistent with the administration's 
recent statements about the importance it attaches to energy 
and to the role of technological innovation in addressing 
energy issues. In fairness, though, it has to be said that the 
fiscal year 2002 budget request had to be submitted before Vice 
President Cheney's Energy Task Force had completed its work. In 
any case, I hope that Congress's appropriation for fiscal year 
2002 will not follow the numbers in the administration's 
request but rather will substantially boost energy R&D spending 
toward the trajectory recommended by PCAST in 1997.
    That brings me to the bills under consideration in today's 
hearing, specifically S. 597 and let me say just a couple of 
words about that bill. Title XIV of S. 597, the comprehensive 
and balanced national energy policy act of which Mr. Chairman, 
of course, you were the principal sponsor, contains a great 
deal of the recommendations of the PCAST study. The specific 
focuses, the targets, the budget levels for the various 
components of applied energy technology R&D although slid back 
to 2006 from 2003 because of the gap that has materialized in 
the meantime, even the PCAST recommendations on the management 
of DOE's science and technology programs in title XV of the 
bill follow quite closely the PCAST recommendations on those 
points.
    I just want to say that my colleagues and I on the PCAST 
panel are very appreciative of the weight placed on our 
recommendations by you, Mr. Chairman, and your co-sponsors in 
the development of this bill. We did our best in that study to 
develop in our report a comprehensive and balanced Federal 
energy R&D program, and we're delighted to see so much of it 
reflected in the comprehensive and balanced national energy 
policy act that you wrote. As the authors of that bill and the 
other bills under consideration in this hearing are well aware, 
of course, a comprehensive energy policy has to include a lot 
more than R&D. Many of the other elements of a comprehensive 
policy--aspects of tax policy, regulatory policy, 
infrastructure development, performance standards, consumer 
protection--are addressed in the array of bills before the 
committee today. Other elements, though, such as an appropriate 
framework of incentives and/or regulations to work in 
combination with advanced energy technologies to adequately 
reduce greenhouse gas emissions remain to be developed. Also 
remaining to be developed, in my view, is an adequate approach 
to international cooperation in energy technology innovation so 
that needed improvements occur worldwide. That was the subject 
of the 1999 PCAST study which I am not going to talk about 
today.
    R&D, in any case, should be the easiest part of energy 
policy in respect to gaining approval and finding the money 
because it is relatively non-controversial and it is relatively 
inexpensive. With respect to cost, let me just note that the 
difference between the $1.7 billion being spent on Federal 
applied energy technology R&D in fiscal year 2001 and the $2.4 
billion recommended by PCAST for fiscal year 2003 amounts to 
about two-tenths of one percent of the U.S. military budget and 
it is equivalent to an extra 0.7 cents per gallon on the price 
of gasoline. Yet recent history makes it clear that even such 
modest investments in a secure and sustainable energy future 
are astonishingly difficult to attain. The chairman, the 
members and the staff of the Senate Committee on Energy and 
Natural Resources are to be commended for the major effort that 
you're investing as manifested in S. 597 and in this series of 
hearings, of which today's is just one, to address this 
problem. I thank you for the effort, for the confidence you've 
placed in the PCAST recommendations and for allowing me to 
present these views this morning.
    [The prepared statement of Dr. Holdren follows:]

         Prepared Statement of Dr. John P. Holdren, Professor, 
                   Harvard University, Cambridge, MA

    Mr. Chairman, members, ladies and gentlemen:
    I am John P. Holdren, a professor at Harvard in both the Kennedy 
School of Government and the Department of Earth and Planetary 
Sciences. Since 1996 I have directed the Kennedy School's Program on 
Science, Technology, and Public Policy, and for 23 years before that I 
co-led the interdisciplinary graduate program in Energy and Resources 
at the University of California, Berkeley. Also germane to today's 
topic, I was a member of President Clinton's Committee of Advisors on 
Science and Technology (PCAST) and served as chairman of the 1995 PCAST 
study of ``The U.S. Program of Fusion Energy Research and 
Development'', the 1997 PCAST study of ``Federal Energy Research and 
Development for the Challenges of the 21st Century'', and the 1999 
PCAST study of ``Powerful Partnerships: The Federal Role in 
International Cooperation on Energy Research, Development, 
Demonstration, and Deployment''. A more complete biographical sketch is 
appended to this statement.
    My work at Harvard on energy R&D policy over the past five years 
has been funded, at various times, by the U.S. Department of Energy, 
the Energy Foundation, the Heinz Family Foundation, the MacArthur 
Foundation, the Packard Foundation, and the Winslow Foundation. The 
opinions I will offer here are my own and not necessarily those of 
these funders or of the other organizations with which I am or have 
been associated. My statement draws in part on testimonies on energy 
policy that I presented to other Congressional hearings earlier this 
year and last year (1-3) and on a review of the PCAST energy studies 
and their impact that I wrote with a colleague for publication in 
Annual Review of Energy and the Environment this fall (4). I am 
grateful indeed for the opportunity to testify this morning before the 
Senate Committee on Energy and Natural Resources, at this timely and 
important hearing.
    The scope of this morning's hearing is very broad, covering 
proposals related to ``energy and scientific research, development, 
technology deployment, education, and training'' in portions of eight 
Senate bills (S. 388, S. 597, S. 472, S. 90, S. 193, S. 242, S. 259, 
and S. 636). I will focus my comments more narrowly, confining myself 
mainly to the energy R&D sections of S. 597 and the relation of those 
provisions to the recommendations of the energy R&D studies that I 
chaired for PCAST. The 1997 PCAST report (5), in particular, is so 
central to my observations here that I ask that its Executive Summary 
be included in the hearing record as an appendix to my statement.
    That study was a comprehensive review of U.S. federal energy 
research and development, examining the recent history of public and 
private energy R&D, the rationales for public involvement in this 
activity, and the existing energy R&D programs of the Department of 
Energy, and offering recommendations on the focus and budgets of these 
programs for the five Fiscal Years 1999-2003. The study was carried out 
by a panel of 21 senior individuals from industry, academia, and 
public-interest organizations. In addition to members with experience 
and expertise across the full range of energy options--fossil fuels, 
nuclear fission and fusion, renewable energy sources, and increased 
end-use efficiency--it included others of senior research, management, 
and policy-advising experience outside the energy field (including a 
former chair of the Council of Economic Advisors and a former CEO of 
Hewlett-Packard), who held no prior brief for increasing federal energy 
research. In what follows, I first summarize the key findings of the 
PCAST panel and then turn briefly to the related content of S. 597.

                     U.S. ENERGY R&D THROUGH FY1997

    In the FY1997 base year for the PCAST study, Federal budget 
authority for applied energy-technology R&D--that is, R&D focused 
specifically on developing or improving technologies for harnessing 
fossil fuels, nuclear fission, nuclear fusion, renewable energy 
sources, and increased efficiency of energy end use--totaled about $1.3 
billion.\1\ Correcting for inflation, this was precisely what the 
country had been spending for applied energy-technology R&D thirty 
years earlier, in FY1967, when real GNP was 2.5 times smaller and the 
reasons for concern about the adequacy of the nation's energy options 
were far less manifest (5, p 2-8). Federal applied energy-technology 
R&D ramped up sharply after the Arab-OPEC oil embargo of 1973-74, 
reaching a peak of over 6 billion 1997 dollars per year in FY1978 in 
the process of adding sizable investments in advanced fossil-fuel 
technologies, renewables, and end-use efficiency to the fission- and 
fusion-dominated portfolio of the 1960s. After Ronald Reagan assumed 
the Presidency in 1981, however, with his view that any energy R&D 
worth doing would be done by the private sector, applied energy-
technology R&D spending fell 3-fold in the space of 6 years. A Clean 
Coal Technology Program that was a joint venture of government and 
industry brought a brief and modest resurgence from 1988 to 1994, but 
thereafter the overall decline continued. Similar declines in 
government-funded energy R&D were also being experienced in most other 
industrial nations: the relevant expenditures fell sharply between 1985 
and 1995 in all of the other G-7 countries except Japan. Japan's 
governmental energy R&D budget in 1995 was nearly $5 billion, in an 
economy only half the size of that of the United States. (Nearly $4 
billion of the Japanese total was concentrated in nuclear fission and 
fusion, however, a pattern similar to that in the United States in the 
early 1970s.)
---------------------------------------------------------------------------
    \1\ The ``energy R&D'' line in DOE's budget contains a number of 
other categories that bring the FY1997 total to almost $2.9 billion. 
These include Basic Energy Sciences (which includes search in materials 
science, chemistry, applied mathematics, biosciences, geosciences, and 
engineering that is not directed at developing any particular class of 
energy sources), biomedical and environmental research, radioisotope 
power sources for spacecraft, and some energy management and 
conservation programs that are not actually R&D at all. The PCAST-97 
focus was primarily on the applied energy-technology R&D component, 
although one recommendation did address, in a general way, the Basic 
Energy Sciences part of the budget.
---------------------------------------------------------------------------
    Private-sector energy R&D in the United States had been estimated 
by a 1995 Secretary of Energy Advisory Board study (6) at about $2.5 
billion per year at that time. Complete and consistent R&D figures for 
the private sector are difficult to assemble, but it appears that these 
expenditures had, like those of the Federal government, been shrinking 
for some time: the Department of Energy estimated that U.S. industry 
investments in energy R&D in 1993 were $3.9 billion (1997 dollars), 
down 33 percent in real terms from 1983's level; a study at Battelle 
Pacific Northwest Laboratory showed U.S. private-sector energy R&D 
falling from $4.4 billion (1997 dollars) in 1985 to $2.6 billion in 
1994, representing a drop of about 40 percent in this period . Combined 
public and private investments in applied energy-technology R&D in the 
mid-1990s, at under $5 billion per year, amounted to less than one 
percent of the nation's expenditures on fuels and electricity. This 
meant that the energy business was one of the least research-intensive 
enterprises in the country measured as the percent of sales expended on 
R&D. Average industrial R&D expenditures for the whole U.S. economy in 
1994 were about 3.5 percent of sales; for software the figure was about 
14 percent, for pharmaceuticals about 12 percent, and for 
semiconductors about 8 percent.
    Why had energy R&D investments in the United States fallen so low? 
On the private-sector side, R&D incentives had been reduced by the 
rapid fall, since 1981, of the real prices of oil and natural gas 
(together constituting over 60 percent of U.S. energy supply) and by 
energy-sector restructuring (resulting in increased pressure on the 
short-term ``bottom line'', to the detriment of R&D investments with 
long time horizons and uncertain returns). Perennial factors limiting 
energy-industry R&D include the low profit margins that often 
characterize energy markets, the great difficulty and long time scales 
associated with developing new energy options and driving down their 
costs to the point of competitiveness, and the circumstance that much 
of the incentive for developing new energy technologies lies in 
externality and public-goods issues (e.g., air pollution, 
overdependence on oil imports, climate change) not immediately 
reflected in the balance sheets of energy sellers and buyers.
    As for the government side of low propensity to invest in energy 
R&D, the ``let the market do it'' philosophy of the Reagan years was 
certainly important in the steep declines from FY1981 through FY1987. 
It was augmented by the bad taste left in taxpayers' and policy-makers' 
mouths by the ill-fated government forays of the late 1970s into very-
large-scale energy development and commercialization ventures (notably 
the Synfuels Corporation and the Clinch River breeder reactor); by the 
overall Federal budget stringency characterizing the first Clinton 
term; by Congressional concerns about the effectiveness of DOE 
management; and by lack of voter interest, in the absence of gasoline 
lines or soaring energy bills or rolling blackouts, in energy policy.
    There was, finally, the ``eat your siblings'' character of energy-
supply constituencies: the tendency of advocates of each class of 
energy options (e.g., nuclear fission, fossil fuels, renewables, energy 
end-use efficiency) to disparage the prospects of the other options--a 
tendency aggravated by the zero- or declining-sum-game characteristics 
of energy R&D funding in this period . In the grip of this syndrome, 
segments of the energy community itself formulated the arguments 
(``renewables are too costly'', ``fossil fuels are too dirty'', 
``nuclear fission is too unforgiving'', ``fusion will never work'', 
``efficiency means belt-tightening and sacrifice or is too much work 
for consumers'') that were used by various factions in the government 
to cut energy R&D programs one at a time. There was no coherent energy-
community chorus calling for a responsible portfolio approach to energy 
R&D that seeks to address and ameliorate the shortcomings of all of the 
options.
    While investments in energy R&D had been falling, however, concerns 
about the future adequacy of the country's portfolio of energy options 
had been growing. Imports as a fraction of U.S. oil consumption, which 
had fallen from a high of 49% in 1977 to just 29% in 1985, had risen 
again to 51% by 1996 The rate of decline of energy intensity of the 
U.S. economy, which had averaged 2.8 percent per year from 1973 to 
1986, had averaged only 0.9 percent per year between 1986 and 1996. The 
1995 Second Assessment Report of the Intergovernmental Panel on Climate 
Change (IPCC) had concluded that ``the balance of evidence suggests a 
discernible human influence on global climate'' and that ``climate 
change is likely to have wide-ranging and mostly adverse impacts on 
human health'' as well as ``negative impacts on energy, industry, and 
transportation infrastructure; human settlements; the property 
insurance industry; tourism; and cultural systems and values''. The 
United States, one of 170 nations to sign and ratify the United Nations 
Framework Convention on Climate Change in the early 1990s, had pledged 
along with other industrial-nation signers to hold its year-2000 
greenhouse-gas emissions to 1990 levels; but by 1996 U.S. emissions of 
carbon dioxide, the most important anthropogenic greenhouse gas, were 
9% above 1990 levels and rising. These were among the factors that led 
to the President's request for the 1997 PCAST study.

                    RATIONALE FOR FEDERAL ENERGY R&D

    The panel's report began with an overview of the energy-linked 
economic, environmental, and national-security challenges faced by the 
United States as it moves into the 21st century, noting that (5, p ES-
1)

          Our economic well-being depends on reliable affordable 
        supplies of energy. Our environmental well-being--from 
        improving urban air quality to abating the risk of global 
        warming--requires a mix of energy sources that emits less 
        carbon dioxide and other pollutants than today's mix does. Our 
        national security requires secure supplies of oil or 
        alternatives to it, as well as prevention of nuclear 
        proliferation. And for reasons of economy, environment, 
        security, and stature as a world power alike, the United States 
        must maintain its leadership in the science and technology of 
        energy supply and use.

    The report also noted at the outset that U.S. interests in energy 
are closely coupled to what is happening in the rest of the world, 
above all in developing countries. The panel wrote (5, p ES-1)

          The combination of population growth and economic development 
        in Asia, Africa, and Latin America is driving a rapid expansion 
        of world energy use, which is beginning to augment 
        significantly the worldwide emissions of carbon dioxide from 
        fossil fuel combustion, increasing pressures on world oil 
        supplies, and exacerbating nuclear proliferation concerns. 
        Means must be found to meet the economic aspirations and 
        associated energy needs of all the world's people while 
        protecting the environment and preserving peace, stability, and 
        opportunity.

    In addressing the rationale for federal government involvement in 
energy-technology innovation to help address these challenges, the 
panel stressed the large ``public benefits'' dimension of energy 
issues--the point that the interests of society as a whole in 
environmental quality, reliability of energy supply (in both its 
economic and national-security dimensions), meeting the basic energy 
needs of society's poorest members, and providing a sustainable energy 
basis for economic development considerably exceed the interests of 
private firms in these outcomes, as reflected in the returns they can 
expect to gain from investments in energy R&D. The panel also noted 
that a number of trends within energy industries themselves--such as 
deregulation, energy-sector and corporate restructuring, and increasing 
competitive pressures on the short-term ``bottom line''--were evidently 
combining to reduce private-sector investment in energy R&D, above all 
those components of energy R&D entailing substantial risks or long time 
horizons.
    Notwithstanding the force of these arguments, the panel recognized 
that the private sector has the dominant role in bringing advanced 
energy technologies into widespread use, that this will be even more 
true in the future than it has been in the past, and that, therefore, 
it is essential to shape the government's efforts in energy-technology 
innovation to complement and utilize the strengths of the private 
sector, not in any sense to replace them. The panel wrote, in this 
vein, that projects in the federal energy R&D portfolio (5, pp 7\1/2\)

        should be shaped, wherever possible, to enable relatively 
        modest government investments to effectively complement, 
        leverage, or catalyze work in the private sector. Where 
        practical, projects should be conducted by industry/national-
        laboratory/university partnerships to ensure that the R&D is 
        appropriately targeted and market relevant, and that it has a 
        potential commercialization path to ensure that the benefits of 
        the public R&D investment are realized in commercial products.

    Although it had not been asked to address the possibility of 
government efforts extending beyond R&D in the direction of 
commercialization of advanced energy technologies, the panel offered an 
argument that the same public-benefits rationale supporting government 
involvement in energy R&D, combined with the existence of a variety of 
barriers to private-sector commercialization of some of the advanced 
energy technologies offering very large public benefits, does justify a 
degree of government engagement in promoting commercialization in 
particular circumstances. It wrote (5, p ES-28)

          After consideration of the market circumstances and public 
        benefits associated with the energy-technology options for 
        which we have recommended increased R&D, the panel recommends 
        that the nation adopt a commercialization strategy in specific 
        areas complementing its public investments in R&D. This 
        strategy should be designed to reduce the prices of the 
        targeted technologies to competitive levels, and it should be 
        limited in cost and duration.

    The panel did not, however, propose either a magnitude or a source 
of funds for such a commercialization initiative, considering this too 
far beyond its mandate.

            PCAST BUDGETARY AND PROGRAMMATIC RECOMMENDATIONS

    From its detailed review of the then-existing portfolio of applied 
energy-technology R&D in DOE, in the context of the rationales for 
government involvement as just described, the PCAST panel concluded 
that these programs ``have been well focused and effective within the 
limits of available funding'' but that they ``are not commensurate in 
scope and scale with the energy challenges and opportunities the 
twenty-first century will present''. It noted that ``[t]his judgment 
takes into account the contributions to energy R&D that can reasonably 
be expected to be made by the private sector under market conditions 
similar to today's'', and it argued that ``the inadequacy of current 
energy R&D is especially acute in relation to the challenge of 
responding prudently and cost-effectively to the risk of global climate 
change from society greenhouse-gas emissions'' (5, p ES-1). It 
recommended ramping up DOE's applied energy-technology R&D spending 
from the $1.3 billion level of the FY1997 appropriation (and from the 
$1.4 billion level of the FY1998 request, not yet acted upon by 
Congress at the time the report was written) to $2.1 billion in FY2003 
(expressed in constant 1997 dollars). The following table shows the 
distribution of the proposed increases.

                   Table 1.--PCAST-RECOMMENDED DOE BUDGET AUTHORITY FOR ENERGY-TECHNOLOGY R&D
                                       [Millions of Constant 1997 Dollars)
----------------------------------------------------------------------------------------------------------------
                                                                           FY 2003
                                                      FY 1997   FY 2003   increment   Share of  FY  Share of  FY
                                                      actual   proposed    over FY      1997-2003    2003 total
                                                                             1997       increment
----------------------------------------------------------------------------------------------------------------
Efficiency.........................................    373       755         382         48.6%         36.5%
Fission............................................     42       102          60          7.6%          4.9%
Fossil.............................................    365       371           6          0.8%         17.9%
Fusion.............................................    232       281          49          6.2%         13.6%
Renewables.........................................    270       559         289         36.8%         27.0%
----------------------------------------------------------------------------------------------------------------
  Total............................................   1282      2068         786          100%          100%
----------------------------------------------------------------------------------------------------------------

    These budget recommendations were unanimous, notwithstanding the 
diversity of energy (and nonenergy) backgrounds represented on the 
panel and notwithstanding the history of disagreements among the 
different energy constituencies about funding priorities. The unanimity 
on the panel emerged from detailed joint review and discussion of the 
content of the existing programs, the magnitudes of unaddressed needs 
and opportunities, the current and likely future role of private 
industry in each sector, and the size of the public benefits associated 
with the advances that R&D could bring about. Efficiency and renewables 
received the great bulk of the increment--and increased their share of 
the total from 50% in FY1997 to almost 64% in the FY2003 
recommendation--because they scored high on potential public benefits 
and on R&D needs and opportunities unlikely to be fully addressed by 
the private sector.
    Among the key findings and recommendations about the main classes 
of energy technologies were the following.
    Energy End-Use Efficiency--The Panel found particular promise in 
enhancements to energy-efficiency R&D, which it found could bring 
relatively rapid and cost-effective reductions in local air pollution 
and greenhouse-gas emissions, oil imports, and energy costs for 
households and businesses. From 1975-1986, the panel noted, U.S. energy 
efficiency increased by almost one-third (measured as the ratio of real 
GNP to primary energy use); if the energy-intensity of the economy had 
remained constant from 1970 to 1997, by contrast, U.S. energy 
expenditures in 1997 would have been some $150-200 billion per year 
greater than they actually were. The improvements in energy efficiency 
that were achieved helped pull the U.S. economy out of the stagflation 
that followed the oil-price shocks of the 1970s, helped set the stage 
for sharply declining world oil prices, and gave the U.S. economy more 
than a decade and a half of opportunity to deal with the energy problem 
(an opportunity that, regrettably, went largely unused). The panel 
found that investments in advanced energy-efficiency technologies--
beyond those likely to be brought forth by the marketplace--offered the 
potential for further large gains in the future and recommended that 
the DOE's budget for energy-efficiency R&D be doubled in constant 
dollars from the 1997 actual level of $373 million for R&D to $755 
million in 2003 (which would be about $880 million in as-spent dollars, 
given inflation at the projected rates).\2\
---------------------------------------------------------------------------
    \2\ These figures do not include weatherization, state and local 
grants, and other non-R&D activities funded by DOE under the ``energy 
efficiency'' budget lines.
---------------------------------------------------------------------------
    The panel proposed a number of specific goals for efficiency-
improvement efforts in the various end-use sectors, including:

   development of the technologies for, and facilitating the 
        construction by 2010 of, 1 million zero-net-energy buildings, 
        and achievement in all new buildings of an average 25-percent 
        increase in energy efficiency as compared to new buildings in 
        1996;
   development, with industry, of a 40-percent efficient 
        microturbine by 2005 and a 50-percent efficient microturbine by 
        2010, initiation of new Industries of the Future programs in 
        agriculture and bio-based renewable products, and reduction of 
        the energy intensity of the major energy-consuming industries--
        forest products, steel, aluminum, metal casting, chemicals, 
        petroleum refining, glass--by one-fourth by 2010;
   cooperation with industry to achieve the goal, previously 
        established under the Partnership for a New Generation of 
        Vehicles, of developing an 80-mile-per-gallon production 
        prototype passenger car by 2004, as well as working with 
        industry to develop a production prototype of a 100-mpg 
        passenger car with zero equivalent emissions by 2010, high 
        efficiency (tripled fuel economy) Class 1-2 trucks and (doubled 
        fuel economy) Class 3-6 trucks by 2010, and a high efficiency 
        (10 mpg) heavy truck (Class 7 and 8) by 2005.

    The panel concluded that, overall, ``DOE research, complemented by 
sound policy, can help the country increase energy efficiency by a 
third or more in the next 15 to 20 years.
    Fossil Energy Technology--Fossil fuels supply more than three-
quarters of primary energy worldwide and 85 percent of primary energy 
in the United States,\3\ and they will remain a mainstay of energy 
supply for many decades to come. Recognizing the very large size of the 
private sector's fossil-energy activities, including R&D, the panel 
emphasized restructuring DOE's fossil-energy program towards activities 
with a higher public return. It recommended the phase-out of R&D on 
near-term coal power technologies, because there was relatively less 
public benefit to be expected from furthering this work than was the 
case for longer-term coal-technology programs underway in the 
Department--notably Vision-21 (28)--and because the market potential of 
these technologies was very limited given the significantly lower cost 
of advanced gas turbine cycles fueled by natural gas.\4\ Similarly, 
direct coal liquefaction was recommended for termination, on the 
grounds that it was not likely to be cost-effective in the foreseeable 
future, would significantly increase emissions of carbon dioxide, and 
offered no synergies with other technologies under development--in 
contrast to indirect coal liquefaction, which uses gasification 
technologies that are also relevant to advanced power generation and 
other programs. The panel recommended increased support, in the fossil-
fuel sector, for DOE's advanced power, carbon sequestration, fuel cell, 
hydrogen, and advanced oil and gas production programs, as these could 
increase the country's leverage against the greenhouse-gas/climate-
change and oil-import problems, among others. The initiation of 
research on methane hydrates was also recommended, both to better 
evaluate the resource and to determine if it could be tapped in the 
longer term to supplement conventional gas resources as a bridging fuel 
to low- or no-carbon energy systems. Continued support for advanced 
technologies for the low-cost recovery of oil and gas from lower margin 
resources was also recommended. Such programs have long been targets of 
government-spending critics concerned with ``corporate welfare''; but 
the panel's review found that those benefitting were small companies 
with little ability to conduct research, that advanced approaches 
helped maintain domestic production, and that to close these wells 
without such recovery would effectively foreclose further production 
from them permanently.
---------------------------------------------------------------------------
    \3\ These percentages account for the estimated contributions, 
often left out of official tabulations, from the ``traditional'' 
biomass energy sources (fuelwood, charcoal, crop wastes, and dung). 
Without these, the fossil-fuel percentage contributions would appear 
even larger.
    \4\ The Panel did not recommend cuts in R&D on pollution control 
technologies for current or near-term coal power systems, however.
---------------------------------------------------------------------------
    The panel's review of fossil-energy issues also clarified and 
highlighted the importance, for U.S. fossil-energy-technology R&D 
strategy, of international markets for these technologies. In the U.S. 
electric-power sector, most new capacity in recent years has been in 
the form of natural-gas-fired gas-turbine combined cycles, and this is 
likely to remain the case until natural gas prices experience sustained 
increases to levels that seem improbable in this country for some time 
to come. That would mean that the major markets for advanced coal-power 
technology will be outside the United States in the decades immediately 
ahead, above all in coal-intensive developing countries such as China 
and India where natural gas is in very limited supply. For the United 
States to maintain leadership in these technologies, they will need to 
be developed in forms suitable for those markets and U.S. companies 
will need to learn to operate successfully there. Altogether, the 
changes recommended by the panel would have resulted in DOE's fossil-
energy R&D budgets staying roughly level in constant dollars from 
FY1997 through FY2003.
    Nuclear Energy--Energy from nuclear fission supplies about 17 
percent of world electricity and 20 percent of that of the United 
States. But concerns about nuclear energy's cost, accident risks, 
radioactive-waste burdens, and potential links to nuclear proliferation 
have clouded its future. No new reactors have been ordered in the 
United States since 1978. Federal expenditures on R&D in fission 
energy, once as high as $2 billion per year in 1997 dollars, had fallen 
by FY1997 to just $40 million (and dropped to $7 million in FY1998). 
The panel concluded, however, that the potential role of an expanded 
contribution from nuclear energy in helping to address global carbon 
dioxide emissions justified a modest Nuclear Energy Research Initiative 
(NERI) to determine whether and how improved fission technologies might 
be able to address cost, safety, waste, and proliferation concerns. 
Whether or not such work led to a possibility of expanding nuclear 
energy's contribution in the United States, it would be useful in 
helping to maintain positive U.S. influence over the safety and 
proliferation resistance of nuclear-energy activities in other 
countries.
    The panel recommended, accordingly, that DOE funding for nuclear 
fission should increase in constant dollars from $42 million in FY1997 
to $102 million in FY2003 ($119 million in as-spent dollars in 2003). 
In addition to NERI, a small part of this funding--$10 million per 
year, to be matched by industry--would be used to investigate problems 
that otherwise might prevent the safe extension of the operating life 
of existing reactors. The NERI effort, in contrast to previous research 
efforts in DOE's Nuclear Energy Program, would be organized as a 
competitive solicitation for investigator-initiated R&D focused on the 
indicated key issues affecting fission's future.
    In the case of fusion energy, the panel endorsed the overall 
findings of the 1995 PCAST study of fusion R&D (7) and recommended that 
DOE funding for fusion be increased from $232 million in FY1997 to $281 
million in 2003 in constant dollars ($328 million in FY2003 in as-spent 
dollars). The Panel affirmed that the guiding principles for the U.S. 
fusion program should be maintaining a strong domestic base in plasma 
science and fusion technology; collaborating internationally on an 
experimental program for the next steps in ignition and moderately 
sustained burn, and participating in international efforts to develop 
practical low-activation materials for fusion energy systems.
    Renewable Energy--Few people disagree with the premise of renewable 
energy--tapping natural flows of energy from the sun, wind, and other 
sources to produce environmentally clean, non-depletable energy for 
people's use; the problem has been the high cost of successfully 
capturing these diffuse flows of energy and converting them to the 
needed end-use forms. Over the past two decades, however, remarkable 
progress has been made. The cost of energy from technologies such as 
photovoltaics and wind turbines has dropped as much as ten times. Based 
on the outstanding progress that has been made, the high potential of 
renewable-energy technologies in every sector of the energy economy 
(electricity, fuels, and heat for buildings, industry, and 
transportation), and the high public benefits of achieving such 
contributions, the Panel recommended that funding for DOE's renewable-
energy programs should be increased from $270 million in FY1997 to $559 
million in FY2003 in constant dollars ($652 million in FY2003 in as-
spent dollars).
    Priority areas identified by the panel for R&D increases included 
solar photovoltaics (particularly thin-film technologies and balance-
of-system issues), advanced wind turbines (particularly light-weight, 
variable-speed designs), and bioenergy (especially integrated power-
and-fuels systems), as well as solar thermal, geothermal, and hydrogen 
energy systems. As for much fossil and nuclear technology, the panel 
noted, international markets are critical for renewables. Roughly 
three-quarters of U.S. photovoltaics production is exported, and most 
of the wind-turbine market has likewise been outside the United States 
in recent years (domestic sales of wind-turbines, however, increased 
sharply in 1998 and 1999). And the modularity and small scale of many 
renewable-energy technologies match well the needs of developing 
countries, particularly in rural areas. A further advantage in 
developing-country applications is that the inherent cleanliness and 
safety of most renewable energy technologies minimizes the need for the 
complex regulatory controls that fossil- and nuclear-energy systems 
require.
    Other Recommendations--Besides the recommendations just summarized 
for the applied-energy-technology sectors in DOE's portfolio, the panel 
made a number of recommendations that cut across those sectors. In 
addition to the recommendation about commercialization strategy, 
mentioned above, these included:

   increased coordination between DOE's Basic Energy Sciences 
        (BES) program and its applied-energy-technology programs; \5\
---------------------------------------------------------------------------
    \5\ The PCAST-97 study did not review the content of the BES 
program, but it did recommend, in light of the close coupling between 
advances in BES and progress in the applied-energy-technology R&D, that 
DOE consider expanding its BES effort in parallel with the recommended 
increase in applied-energy-technology work and the proposed increase in 
coordination (5, p ES-2).
---------------------------------------------------------------------------
   more systematic efforts within DOE at integrated assessment 
        of its entire energy R&D portfolio ``in a way that facilitates 
        comparisons and the development of appropriate portfolio 
        balance, in light of the challenges facing energy R&D and in 
        light of the nature of private sector and international efforts 
        and the interaction of U.S. government R&D with them'' (5, p 
        ES-6);
   other improvements in DOE's management of its energy R&D 
        portfolio, including that overall responsibility for that 
        portfolio be assigned to a single person reporting directly to 
        the Secretary of Energy and that increased use be made of 
        industry/national-laboratory/university advisory and peer-
        review committees, while reducing internal process-oriented 
        reviews.

    The panel also recommended strongly that increased attention be 
devoted to the opportunities for strengthening international 
cooperation on energy-technology innovation--a recommendation that 
became the basis for a subsequent PCAST study with this focus (8).

               FEDERAL ENERGY R&D SINCE THE PCAST REPORT

    Table 2 shows the distribution, across the energy sectors, of 
PCAST's recommended budgets for FY1999-2003, Administration requests 
for FY1999-2002, and Congressional appropriations for FY1999-2001, 
along with the appropriations from FY1998. These figures show that the 
requests and appropriations rose, through 2001, in a pattern similar to 
that recommended by PCAST, but at a slower pace and with a particularly 
conspicuous shortfall in the renewable category. Notable instances of 
progress (or the lack of it), through the FY2001 budget year, on issues 
addressed by the 1997 PCAST report include the following:
    End-Use Efficiency--The administration launched in 1998 the 
Partnership for Advancing Technology in Housing, based in part on 
discussions with industry begun in 1994, which aims--with strong 
private-sector participation--to achieve an average 50-percent increase 
in energy efficiency in new homes by 2010. In concert with industry, 
DOE launched an Industries of the Future program for agriculture, 
building on DOE's success using this model in other industries. The 
Partnership for a New Generation of Vehicles (PNGV), which predated the 
PCAST report, has continued on track--the major participating 
automobile companies all demonstrated prototype vehicles in early 
2000--but a PNGV-2 focused on longer-term options such as fuel cells 
has not been initiated. The Twenty-First Century Truck initiative was 
launched in Spring 2000, with goals of doubling to tripling the fuel 
economy of trucks on a ton-mile basis. Activities in microturbines, 
fuel cells, and Combined Heat and Power have been strengthened.
    Fossil Fuels--The direct-coal-liquefaction program has been phased 
out and near-term clean-coal power-technology R&D has been reduced. The 
Vision-21 program, which predated PCAST-97, to develop cost competitive 
coal-fired power plants with low or no carbon or polluting emissions 
has been strengthened. Geological carbon sequestration and methane 
hydrate R&D programs have been launched.
    Fusion--Administration requests at $243 million and Congressional 
appropriations at $255 million for FY2001 have started to move in the 
direction of, but still fall short of, the PCAST recommendation of $290 
million (as spent dollars) for fusion energy in FY2001.

    Table 2.--FEDERAL ENERGY TECHNOLOGY R&D: CONGRESSIONAL APPROPRIATIONS, ADMINISTRATION REQUESTS, AND PCAST
                                           RECOMMENDATIONS FY1998-2003
                                            [Millions of as-spent-$]
----------------------------------------------------------------------------------------------------------------
                                                                  effic.  renew.   foss.   fiss.   fusn.   total
----------------------------------------------------------------------------------------------------------------
FY98 appropriation..............................................     437     272     356       7     223    1295
 
FY99 appropriation..............................................     503     336     384      30     222    1475
  Administration request........................................     598     372     383      44     228    1625
  PCAST recommendation..........................................     615     475     379      66     250    1785
 
FY00 appropriation..............................................     552     310     404      40     250    1559
  Administration request........................................     615     398     364      41     222    1640
  PCAST recommendation..........................................     690     585     406      86     270    2037
 
FY01 appropriation..............................................     600     375     433      59     255    1722
  Administration request........................................     630     410     376      52     247    1715
  PCAST recommendation..........................................     770     620     433     101     290    2214
 
FY02 Administration request.....................................     475     237     333      39     255    1339
  PCAST recommendation..........................................     820     636     437     116     320    2329
 
FY03 PCAST recommendation.......................................     880     652     433     119     328    2412
----------------------------------------------------------------------------------------------------------------
Notes: The values listed here may vary from other tabulations due to rescissions, uncosted obligations,
  inclusion or exclusion of other budget lines, and other factors. The efficiency line listed here does not
  include state and local grants, or the Federal Energy Management Program. The nuclear fission line includes
  only direct civilian energy-related R&D and University training support. The fossil energy line does not
  include expenditures for the clean coal program, which is a demonstration rather than a research
  anddevelopment effort.

    Nuclear Fission--The Administration launched and Congress funded 
both the Nuclear Energy Plant Optimization program (addressing issues 
related to license extension) and the Nuclear Energy Research 
Initiative (addressing the longer-term issues that will shape fission's 
future). These two initiatives form the basis of the current DOE 
Nuclear Energy program.
    Renewables--Administration budget requests and program direction 
have largely aligned with PCAST recommendations, but at lower funding 
levels, and appropriations have been well below the requests (even 
falling from FY1999 to FY2000 before recovering somewhat in FY2001). 
With strong bipartisan support, President Clinton issued Executive 
Order 13134 which launched an integrated bioproduct, biofuel, and 
biopower program with a goal of tripling U.S. bioenergy use by 2010. 
Congress passed and the President signed the Agricultural Risk 
Protection Act of 2000, Title III of which codified an integrated 
bioproduct and bioenergy research program. Principal focuses of 
increased renewables funding other than for biomass were for 
photovoltaics and advanced wind systems.
    Cross-Cutting Issues--Since the PCAST study, DOE has undertaken a 
major effort in integrated analysis of the Department's entire energy 
R&D portfolio, which reaffirmed the overall direction of the program 
while highlighting some key gaps, including energy-system reliability 
and international cooperation on energy-technology innovation. DOE has 
also made considerable effort at, and progress in, addressing its 
management challenges, which were pointed out not only in the 1997 
report but also in the 1995 SEAB study (6) and a 1999 review by the 
National Academy of Public Administrators. The critical question raised 
by PCAST about a role for government in the commercialization of high-
public-benefit energy technologies, moreover, has not yet been 
addressed by the Department or, more importantly, by Congress.
    As indicated in Table 2, the Bush Administration's FY2002 budget 
request for applied energy-technology R&D, totaling about $1.3 billion, 
proposed a large step backward--one that would return the country to 
essentially the FY1997-1998 spending levels. This proposal is 
completely inconsistent with the Administration's recent statements 
about the importance it attaches to energy issues and to the role of 
technological innovation in addressing them (although, in fairness, it 
must be said that the FY2002 budget request had to be submitted before 
Vice President Cheney's energy task force had completed its work). In 
any case, I hope that Congress's appropriation for FY2002 will ignore 
the numbers in the Administration's request and substantially boost 
energy R&D spending toward the trajectory recommended by PCAST in 1997. 
This brings me to the bills under consideration in today's hearing--
particularly S. 597--to which I now turn.

                    ENERGY R&D PROVISIONS OF S. 597

    The essence of the procedure used to develop the budget 
recommendations for applied energy-technology R&D in Title XIV of 
Division E of S. 597 (the Comprehensive and Balanced National Energy 
Policy Act) was, as I understand it, to shift to FY2006 the FY2003 
spending targets recommended in the 1997 PCAST study and then to 
provide annual increments above the FY2001 authorization levels so as 
to meet those targets by 2006.\6\ (This procedure reflected a concern, 
I believe, that the widening gap between the PCAST recommendations and 
the actual appropriations out to FY2001 has made it impractical to get 
back onto the PCAST-recommended trajectory by 2003.) The specific 
focuses and targets of the energy R&D efforts laid out in S. 597 also 
match quite closely the recommendations in the PCAST report, as do the 
recommendations on management of DOE science and technology programs in 
Title XV of the bill. My colleagues on the 1997 PCAST energy panel and 
I are most appreciative of the weight placed on our recommendations by 
Chairman Bingaman and his co-sponsors in the development of this bill. 
We did our best to develop and describe, in our report, a comprehensive 
and balanced Federal energy R&D program, and we are delighted to see so 
much of it reflected in the Comprehensive and Balanced National Energy 
Policy Act.
---------------------------------------------------------------------------
    \6\ This is apparent by direct comparison of the PCAST FY2003 and 
S. 597 FY2006 budgets in the renewables case but not in the efficiency, 
fossil, and nuclear cases, where the authors of the bill used different 
conventions than the PCAST panel did in deciding what programs to count 
as part of energy R&D. The fusion science budget is treated in the bill 
(as DOE also treats it) as part of the Fundamental Energy Science 
program rather than as applied energy-technology R&D, and I did not 
find a breakdown indicating what part of this program would be 
designated for fusion.
---------------------------------------------------------------------------
    The recommendations for R&D on nuclear fission in S. 597 combine 
programs related to commercial nuclear electricity generation with 
programs on nuclear medicine and nuclear power for satellite and space 
missions, among other categories, and the bill's budget totals for 
fission cannot be compared directly to the PCAST recommendations in 
which applications other than commercial electricity generation were 
not included. I believe it would be useful to disaggregate these budget 
categories in the final version of the bill.
    I have some concern, in any case, with the wording in the current 
version (Sec. 1405, part 7.b) characterizing the nuclear appropriation 
as being for ``demonstration and initial deployment assistance'' as 
well as for research and development. The PCAST recommendations on 
nuclear fission were for R&D relating to extending the operating 
lifetime of existing reactors and to exploring advanced approaches to 
improving the economics, safety, waste management, and proliferation 
resistance of nuclear energy systems in the future. In my personal 
view, the question of whether government resources should be allocated 
to demonstration and deployment (as opposed to research and 
development) of advanced fission technologies needs further 
exploration, and I am certainly not convinced that any of the advanced 
approaches warrant government expenditures for demonstration and 
deployment today.

                        CONCLUDING OBSERVATIONS

    As the authors of S. 597 and the other bills under consideration in 
this hearing are well aware, a comprehensive energy policy must include 
far more than energy R&D. Many of the other elements--including aspects 
of tax policy, regulatory policy, infrastructure development, 
performance standards, and consumer protection--are addressed in this 
array of bills. Other elements, such as an appropriate framework of 
incentives and/or regulations to work in combination with advanced 
energy technologies to adequately reduce greenhouse-gas emissions from 
energy supply, remain to be developed.
    R&D in any case should be the easiest part of the energy-policy 
equation with respect to gaining approval and finding the money, 
inasmuch as it is relatively noncontroversial and relatively 
inexpensive. With respect to cost, it may be noted that the difference 
between the $1.7 billion being spent of federal applied energy-
technology R&D in FY2001 and the $2.4 billion recommended by PCAST for 
FY2003 is about two tenths of a percent of the military budget and is 
equivalent to an extra 0.7 cents per gallon on the price of gasoline. 
Yet recent history reveals that even such modest investments in a 
secure and sustainable future energy supply are astonishingly difficult 
to attain.
    The Chairman, the members, and the staff of the Senate Committee on 
Energy and Natural Resources are to be commended for the major effort 
they are investing--as manifested in S. 597 and in the series of 
hearings of which today's is but one--to address this problem. I thank 
you for this effort, for the confidence you have placed in the PCAST 
recommendations, and for allowing me to present my views this morning.

                               REFERENCES

    (1) John P. Holdren. ``U.S. Vulnerability to Oil-price Shocks And 
Supply Constrictions . . . And How to Reduce It.'' Committee on 
Governmental Affairs, United States Senate, Oversight Hearings on 
Recent Oil-Price Increases. March 24, 2000. http://www.senate.gov/gov--
affairs/032400--holdren.htm.
    (2) John P. Holdren. ``Improving U.S. Energy Security and Reducing 
Greenhouse-Gas Emissions: What Role for Nuclear Energy?'' Hearing by 
the Subcommittee on Energy and Environment, Committee on Science, U.S. 
House of Representatives. July 25, 2000. http://ksgnotes1.harvard.edu/
BCSIA/Library.nsf/pubs/energysecurity.
    (3) John P. Holdren. ``Energy Efficiency and Renewable Energy in 
the U.S. Energy Future'', Committee on Science, U.S. House of 
Representatives, Hearing on The Nation's Energy Future--Roles of 
Renewable Energy and Energy Efficiency. February 28, 2001. http://
ksgnotes1.harvard.edu/bcsia/library.nsf/pubs/energy-future.
    (4) John P. Holdren and Samuel F. Baldwin, ``The PCAST Energy 
Studies: Toward a National Consensus on Energy RD3 Policy'', Annual 
Review of Energy and the Environment, 2001, in press.
    (5) President's Committee of Advisors on Science and Technology, 
Energy Research and Development Panel. Federal Energy Research and 
Development for the Challenges of the 21st Century. Washington, DC: 
Government Printing Office. November 1997. http://www.ostp.gov/Energy/
index.html.
    (6) Secretary of Energy Advisory Board, Task Force on Strategic 
Energy R&D. Energy R&D: Shaping Our Nation's Future in a Competitive 
World. Washington, DC: Government Printing Office. 1995.
    (7) President's Committee of Advisors on Science and Technology, 
Fusion Review Panel. The U. S. Program of Fusion Energy Research and 
Development. Washington, DC: Government Printing Office. July 1995. 
http://www.ostp.gov/PCAST/fusionenergypub.html.
    (8) President's Committee of Advisors on Science and Technology, 
Panel on International Cooperation in Energy Research, Development, 
Demonstration, and Deployment, Powerful Partnerships: The Federal Role 
in International Cooperation on Energy Innovation. Washington, DC: 
Government Printing Office. June 1999. http://www.ostp.gov/html/
p2epage.html.

    The Chairman. Thank you very much for your testimony, Dr. 
Richardson. Why don't you go right ahead.

 STATEMENT OF DR. ROBERT C. RICHARDSON, PHYSICS PROFESSOR AND 
         VICE PROVOST FOR RESEARCH, CORNELL UNIVERSITY

    Dr. Richardson. Mr. Chairman, Senator Craig, I am Bob 
Richardson, I am physics professor and vice provost for 
research at Cornell University. I also serve as chair of the 
physics policy committee of the American Physical Society, an 
organization of 40,000 people. I would like to thank you for 
the opportunity to testify today. My testimony principally 
concerns the administrative structure of the Department of 
Energy and the effect that the structure has had on the 
performance of the office of science and the energy research 
programs. But first I would like to comment briefly on the 
Department of Energy's research budgets for fiscal year 2002, 
particularly in the context of the public's renewed awareness 
about energy issues.
    The Vice-President's energy task force report highlights 
the important role that research must play in securing our 
energy future by creating and bringing to market new energy 
technologies, enhancing efficiency of energy production in use 
and mitigating environmental impact of existing technologies. A 
sustained commitment must be made to invest in both fundamental 
science and applied energy research. Even if energy were not on 
the policy front burner, the President's budget request would 
short change the Department of Energy's civilian research 
programs.
    As the chart over there shows, the Department of Energy, 
the lead agency for physical sciences, has seen its research 
budget decline steadily during the 1990's. Last year, 
recognizing that technology drives the economy and that today's 
science becomes tomorrow's high tech product, the Republican 
Congress and the Democratic White House reversed this trend 
with major increases in many of Department of Energy's research 
programs.
    The budget request submitted by the current administration 
turns the clock back. With energy on everybody's mind, that 
request is not only bad policy; it is bad politics. Admittedly, 
the administration submitted its request before the Vice-
President's energy task force had released its report and its 
amended budget. The administration has sought to remedy some of 
the deficiencies, but I believe that it has not gone nearly far 
enough nor have the House and Senate Appropriations bills. I 
hope this committee sends a clear signal through its 
authorization bill that the budgetary momentums established 
last year for Department of Energy's research programs must be 
sustained for fiscal year 2002. Our economic future requires it 
and our energy future depends on it and the technology 
workforce of the future will vanish without it.
    There are many reasons why Department of Energy's research 
programs have fared poorly in the budgetary process for some 
time. The end of the cold war reduced defense exigencies. Cheap 
fuel prices created a feeling of energy security and hazardous 
waste, and lax security at some of our national laboratories 
gave the Department a bad reputation. But the administrative 
structure within the Department of Energy has exacerbated 
matters. The highest level administrator with sole authority 
for science is the Director of the Office of Science who sits 
on three levels below the Secretary. Today, one Under Secretary 
oversees the national nuclear security agency and one oversees 
all other activities. Only rarely has an Under Secretary had a 
science background, with Department of Energy's weapons 
programs and environmental management activities absorbing 
major attention. Policymakers in the executive branch and in 
the Congress have often ignored the Department's research 
programs.
    I am here today speaking as a representative of a panel of 
ten other scientists who have had extensive administrative and 
policy experience with Department of Energy's scientific 
programs. The report from which the balance of my testimony is 
drawn, ``Department of Energy's Science in the Future'' was 
stimulated by discussions that took place at a meeting of the 
American Physical Society's Physics Policy Committee last year.
    With the Chairman's permission, I would like to have this 
report included in the record.*
---------------------------------------------------------------------------
    * The report can be found in the appendix.
---------------------------------------------------------------------------
    The Chairman. We would be glad to include that.
    Dr. Richardson. The report makes several observations 
specifically regarding the Office of Science. First, the office 
oversees outstanding national laboratories whose capabilities 
for solving complex interdisciplinary problems are not easily 
matched elsewhere. It builds and operates large-scale user 
facilities of importance to all areas of science and in large 
part has been enormously successful. And it supports a large 
array of university research programs that are responsible for 
educating and training the next generation of scientists.
    Second, as I noted earlier, for about a decade the 
Department of Energy's science budgets have been declining and 
have fared very badly compared to other agencies. These 
difficulties have been exacerbated by perceptions of 
mismanagement and security problems throughout the Department. 
In many areas, the budget situation has reached crisis 
proportions jeopardizing future U.S. leadership in many 
essential areas of science.
    Last, the Director of the Department of Energy's Office of 
Science has responsibilities comparable to those of the 
Director of NSF and not very different from those of the 
Directors of NIH and NASA, but does not have comparable 
authority or visibility.
    Mr. Chairman, our report proposed two alternative 
recommendations, one of which comes under the purview of this 
committee. It is also one that appears in division E, title XV, 
section 1503 of S. 597. That recommendation is to establish a 
position of Under Secretary for science and technology. I urge 
the committee to adopt this in its final mark-up.
    Our report also recommended that the Under Secretary serve 
as a science advisor to the Secretary as called for in S. 597, 
subsection B3. Although our report did not set out additional 
details for the Under Secretary, I think the panel would feel 
comfortable in endorsing the remaining duties described in 
subsection B.
    Additionally, as the Department moves toward stricter 
accountability for research performance, the Under Secretary 
will have an important role in ensuring that the Department of 
Energy strive for quality science as well as efficient program 
administration. Our report expressed the hope that a qualified 
Under Secretary would be an influential scientist who could be 
an effective leader and spokesperson for the Department of 
Energy science and energy and comparable visibility and 
authority to the Directors of NSF, NASA and NIH. I would be 
pleased to answer questions.
    The Chairman. Well, thank you very much for that testimony. 
Dr. Moniz, welcome back to the committee. We are glad to see 
you. We are aware of your title and name, so go right ahead.

      STATEMENT OF ERNEST J. MONIZ, PROFESSOR OF PHYSICS, 
             MASSACHUSETTS INSTITUTE OF TECHNOLOGY

    Dr. Moniz. Thank you, Mr. Chairman and Senator Craig. It is 
good to see you, as well, again. In fact, it is refreshing to 
be back here but not having my testimony cleared by the OMB or 
without Sherpas to carry the Q&A books that were always 
required. Thank you for inviting me to comment on the committee 
consideration of bills that can have a significant impact on 
energy, scientific research and technology development programs 
at the Department of Energy. My perspective is, of course, as a 
former Under Secretary and I am very pleased that the record 
will show that Bob at least implicitly acknowledged that I am 
still competent as a scientist.
    I will organize my remarks very briefly along four areas: 
science, education and training, R&D management, energy, all 
areas touched upon very deeply in the collection of bills 
before us. In science, the committee is very well aware of the 
Department's key role in American science and technology. The 
Department remains the largest supporter of basic and applied 
research in the physical sciences and I would like to use that 
statement simply to reinforce the importance of administration 
and congressional support for balanced Federal investment 
across science and engineering, and most specifically, 
reinforcing what Bob said, the need to maintain a momentum in 
having the physical science investments keep pace with need and 
with investments in other areas like life sciences.
    Secondly, the Department has had, and I want to emphasize, 
a very important role especially through its laboratories in 
developing what I would call enabling technologies that cut 
across the mission areas and that prove to be of broad and deep 
national value. Large scale scientific computing, advanced 
materials, accelerators, isotope applications, genomics, many 
of these. This context, I think, emphasizes the importance of 
some of the bills that the committee has before it. For 
example, those on scientific computing and nanoscience. On 
computing, for example, the nuclear weapons program has 
traditionally been a principal driver for super computer 
development. We need a vigorous and integrated push today in 
the civilian area. The benefits will be major to ASCI. They 
will also be very, very major to science broadly, combustion, 
global systems, plasmas infusion, subsurface transport of 
contaminants, quark structures of matter, advanced materials, 
functional genomics, etc. The convergence of technology and 
scientific community commitment has been there now for several 
years to drive this kind of enabling technology. The resources 
have not kept pace. It is time to get on with the task.
    Education and training. The committee has correctly pointed 
to the diminished state of university education in nuclear 
engineering and has proposed, for example, some human resource 
programs to help rectify that. Those are certainly in the right 
direction. However, I believe to be effective two other issues 
well known to the committee simply must be addressed.
    First, to attract young faculty to the field, there must be 
a forward looking robust research program. The NERI program 
that we started a few years ago, for example, has been a great 
stimulus in the field. Congress must now resolve issues about 
the program's trajectory, in particular. In my view, the 
program cannot sustain itself and attract new people without 
evolving into more costly laboratory work based upon the most 
promising concepts developed in the earlier phase. This will 
take significant increases in funding. The administration 
request actually cut the funding, but I think that is a key 
policy issue here. If we are to be committed to exploring the 
concepts for intrinsically safe, proliferation resistant, waste 
minimizing and economic new approaches, then we simply must 
make the commitment to move these programs into the laboratory 
stage.
    The second issue is that of research infrastructure, again 
without which human resource development will be ineffective. 
University reactors are an example of this and I believe that 
we need a systemwide evaluation of those reactors and an 
evaluation integrated with that for Department of Energy site 
infrastructure. The goal, in my view, should be a well 
structured hierarchy of teaching and research facilities on 
campuses at strengthened regional academic centers and at 
Department of Energy sites.
    The third issue: R&D management. Let me start with 
portfolio management, which has been a major topic today and 
will be, I am sure, later on. Starting in 1998, the Department 
did, in fact, substantially revise its approach to R&D 
portfolio management with four linked processes: portfolio 
development, portfolio analysis, strategic roadmapping and 
improved corporate R&D oversight. To a large extent, this is a 
realization of the portfolio process recommended by the PCAST 
panel on energy that John Holdren chaired. Very importantly, 
the products of this portfolio analysis were well integrated 
into the fiscal year 2000 and fiscal year 2001 budgets. The 
importance of it can be stated in a couple of ways. First of 
all, it is very important that portfolio architecture is not 
geared to organizational units. It is geared to strategic goals 
of the Department. The core of the process is a formal 
portfolio analysis that brings out key gaps and opportunities 
aligned with strategic goals. The value of the process can be 
seen just by giving you examples. In the first year, a focus on 
energy system reliability came out well before the problems in 
California, with now robust programs in electricity and gas 
system reliability. In the second year, the group raised a very 
interesting idea of using an environmental air quality multi-
attribute life cycle analysis as criteria for programs. My 
point simply is that this shows how a new cross-cutting 
perspective has been injected into portfolio management and has 
really evolved the portfolio to meet emerging strategic needs 
of the Nation. There is considerable buy-in. I believe we need 
support for this process. I would make, respectfully, a 
recommendation. The committee, for example, in its technology 
transfer bill, suggests getting an annual report. I would 
respectfully suggest considering asking for an annual report as 
well from the portfolio analysis activity. That will couple 
this committee very well to the process of aligning R&D with 
the strategic goals and help keep the process moving forward.
    Tech transfer. I'll be very brief given the time. This 
committee continues to show a very important interest in that 
area and, indeed, I believe leadership of this committee may be 
very important for providing stability and resources essential 
for engaging private sector partners. The partners are diverse; 
the spill-over effects are enormous. We did, in the last 2 
years, establish a formal corporate process that I believe 
helps the laboratories, helps the small businesses understand 
how to interact with the system. S. 259 could help to solidify 
these advances and, again, congressional support is essential 
if technology transfer and partnership programs are not only to 
be sustained but, frankly, are to be able to withstand success.
    A third area in R&D management is organization. Bob has 
just spoken about that, the consideration to establish the 
position of Under Secretary for Science and Technology. Given 
my last position, I must express concern with the proposal, a 
concern that can be relieved, certainly, with further 
elaboration. My concerns with the proposal would weaken or help 
advance the progress made in the last few years in achieving 
somewhat better integration and coordination across the 
science, energy and environmental quality business lines. The 
invigorated R&D council, chaired by the Under Secretary and 
particularly the R&D portfolio roadmapping process provided 
mechanisms to advance integration and coordination and to 
enhance the interception of technology policy with energy and 
environmental policy. So, the details are going to matter a lot 
here. I don't presume to offer a solution but to raise my 
concern in the spirit of a do-no-harm approach in the absence 
of greater detail on the overall partitioning of 
responsibilities among all Under Secretaries and the deputy 
secretary. Integration and coordination games are hard won and 
more easily lost.
    Finally, in energy, clearly the past year has brought great 
energy challenges and the committee has before it the 
consideration of many energy technology initiatives. I won't go 
through a number of them that have come out in the context of 
our portfolio analysis. They are in the written testimony. I 
would just conclude by reinforcing the earlier statements that 
the challenges and the opportunities being brought out through 
portfolio analysis require the kinds of increases in energy and 
technology development that John Holdren in particular has 
spoken of. Any increase must match the scale of the challenges 
and I strongly support the committee's commitment to, in fact, 
supporting these programs and to hopefully moving forward with 
the portfolio-based approach. Thank you and I will be happy to 
answer questions.
    [The prepared statement of Dr. Moniz follows:]

     Prepared Statement of Ernest J. Moniz, Professor of Physics, 
                 Massachusetts Institute of Technology

    Thank you for inviting me here today to discuss proposed 
legislative actions that can have a significant impact on energy, 
scientific research, and technology development programs at the 
Department of Energy. My perspective on these is informed by my recent 
service as Under Secretary in the Department.

                                SCIENCE

    This Committee is very well aware of the Department's key role in 
American science and energy technology development. Nevertheless, some 
aspects bear repeating. The Department remains the largest supporter of 
basic and applied research in the physical sciences, activities that 
not only underpin national security and economic growth in the 
information age, but also provide the technological basis for many 
stunning advances in the life and medical sciences. One need only look 
at some of the very recent developments to get the flavor of the DOE 
national laboratories' continuing importance to the nation's science 
and technology enterprise:

   a record 14.7 Tesla electromagnet at the Berkeley lab
   insight into particle-antiparticle asymmetry at SLAC
   creation of the second-hardest bulk substance (after 
        diamond) at Ames
   two Discover Magazine awards to Pacific Northwest, for a 
        landmine detector and for a combined optical and magnetic 
        resonance microscope for cellular research
   an experimental microbeam radiation therapy at Brookhaven 
        for brain tumors in infants and young children

    This reinforces the importance of Administration and Congressional 
support for balanced Federal research investments across science and 
engineering. The Administration FY02 budget request is very 
disappointing in this regard. Members of this Committee are to be 
commended for urging that the Congress restore a stronger investment 
approach to research in the physical sciences and engineering; this 
will serve both science and the nation well in the years ahead.
    More specifically, the Department of Energy, through its unmatched 
national laboratory system and its support of university researchers 
and educators, and because of the diversity of its missions in nuclear 
security, energy, and environmental remediation, has played a very 
strong role over many decades in developing enabling technologies that 
cut across the mission areas and have proved to be of broad and deep 
national value. Examples are well known, including large scale 
scientific computing, advanced materials, accelerators, nuclear isotope 
applications, genomics, and others. Beyond the evident metrics of 
success (such as over seventy Nobel prizes in science, or a third of 
the R&D100 Awards for technology), these sustained enabling technology 
developments associated with the Department's frontier research 
programs and national laboratories underpin a significant part of our 
economic productivity gains, year-in and year-out certification of the 
nuclear weapons stockpile, unparalleled medical diagnostics, a new 
generation of efficient energy technologies, and many more developments 
central to our nation's future.
    This context brings out the importance of the Committee's 
initiatives in advanced scientific computing and in nanoscience. The 
nuclear weapons program has traditionally been a principal driver for 
supercomputer development and the associated software and applications 
tools. This has never been more important to the weapons program than 
it is today, with the need to certify the nuclear stockpile without 
underground testing. Large scale simulation is the integrator of 
previous test data and continuing experimental tests of weapons 
subsystems. However, we are also reaching the level of computational 
power that will allow true discovery potential to be realized across 
numerous areas of basic science and technology development. Indeed, the 
DOE and NSF jointly sponsored a 1998 National Academy workshop on 
scientific simulation, and the ``friendly skeptic'' chairman, Professor 
James Langer of Santa Barbara ( former Director of the Institute for 
Theoretical Physics and President of the American Physical Society) 
concluded from the meeting that scientific simulation could in this 
decade take a place alongside traditional experimental and theoretical 
inquiry as a tool of discovery.
    The challenge to do so is considerable, but within grasp with 
strong support and leadership. The Accelerated Strategic Computing 
Initiative (ASCI) in Defense Programs is urgently stretching the 
hardware frontier, but much remains to be done in systems software, 
visualization, algorithm development, data storage and transmission, 
and other areas to most efficiently utilize the raw computational 
power. The task calls for large integrated teams of physical 
scientists, computer architects and engineers, and software designers. 
An equally vigorous and integrated push in the civilian applications 
areas (science, energy, environment) will bring a talented and much 
larger community in both labs and universities into developing the 
necessary tools for a major leap forward in scientific simulation 
during the next several years. This will be a major benefit to ASCI.
    The broader scientific rewards will be enormous. In 1998, the 
Department chartered groups drawn from the entire American research 
community to map out the potential impact of such a program in diverse 
scientific areas ( combustion, global systems and climate, plasmas and 
fusion, subsurface transport of contaminants, quark structure of 
matter, advanced materials, functional genomics, . . .). The conclusion 
was that several of the areas would immediately make major strides at 
the tens of tera-ops level if the integrated program were pursued; 
other areas (such as vadose zone science) would do so if the simulation 
program was coupled to a synergistic experimental and observational 
program.
    Permit me to elaborate slightly on one example of relevance to the 
energy theme of this hearing. Combustion is one of the areas primed for 
a major advance through simulation at the 10-100 tera-op scale. 
Quantitative analysis, led by Sandia lab, showed that scientists could 
for the first time link molecular level processes all the way to 
engineering scale devices. This is a pathway to significant advances 
within ten years in efficiency and emissions reductions for combustion 
devices. The implications are clear for meeting our expanding energy 
needs and stringent environmental demands simultaneously, while also 
advancing basic science in chemical reactive flow, turbulence, 
multiphase flow, and other areas that come together in a combustion 
device. This is why I strongly support the Committee's advancement of 
DOE's advanced computing proposals. It is part of the longstanding 
tradition of driving critical enabling technology through frontier 
research. The convergence of computer technology and scientific 
community commitment has been demonstrated over the last three years, 
without funding adequate to support that commitment. It is time to get 
on with the task.
    The nanoscience initiative at DOE and at other agencies (NSF, DOD, 
DOC, . . .) is another excellent example of such enabling science and 
technology, and the Spallation Neutron Source under construction at Oak 
Ridge will soon offer to a national community of university, lab, and 
industrial researchers a powerful frontier capability to study advanced 
materials. Nanoscience and nanotechnology, which essentially seek to 
design and engineer novel materials at the atomic level, will have 
profound implications, from communications to life sciences to robotics 
and intelligent machines (another area roadmapped by DOE, together with 
NSF, NASA, and DOD, in a multi-lab effort). These are all critical 
enabling science and technology areas where the national laboratories, 
in conjunction with universities, can put together the needed large 
interdisciplinary teams, can build upon decades of accomplishment, and 
do the work that drives future mission success.

                         EDUCATION AND TRAINING

    The Committee's evaluation of the diminished state of university 
education in nuclear engineering correctly suggests that the U.S. (and 
possibly other industrialized nations) may soon face a shortage of 
trained and creative personnel in this area. That manpower will be 
needed not only to satisfy DOE facility staffing and in the event that 
nuclear energy is expanded, but also to address the wide spectrum of 
nuclear science and technology needs throughout our society. Proposed 
programs, such as that for junior faculty research grants, can help 
attract talented young people. However, I wish to emphasize two issues, 
well known to the Committee, that must be resolved if such human 
resource development programs are to succeed.
    First, there must be a forward-looking, robust research program. 
The Nuclear Energy Research Initiative (NERI) and the associated 
Generation IV discussions are central. NERI, in its three year 
existence, has stimulated new thinking about advanced reactors, fuels, 
and fuel cycle concepts. I note that, at a small nuclear energy meeting 
held at MIT a few months ago, much of the discussion about new ideas 
had roots in NERI, despite its youth and modest funding. This modest 
funding to date has confined the sponsored work to studies, appropriate 
for the first few years. However, the Congress must soon resolve issues 
about the program's trajectory; in particular, it cannot sustain itself 
and attract new people without evolving into more costly laboratory 
work based on the most promising concepts developed in the earlier 
phase. In this regard, the Administration-proposed budget cut for NERI 
will clearly have the opposite effect to that intended by several 
members of the Committee. Significant increases in funding are needed 
in the years ahead if the nation is committed to exploring advanced 
concepts that are intrinsically safe, more proliferation-resistant, 
waste minimizing, and still economic. This is not to judge whether any 
of these new concepts will play an enhanced role in our future energy 
mix, but the time scales for a major impact are long, the constraints 
on fossil fuel emissions will become more severe, and exploration of 
advanced options belong in a balanced R&D portfolio. This is 
independent of whether or not there is an expansion of nuclear power 
based on current technology. Further, the NERI program should be 
broadened to include as much international collaboration as possible, 
consistent with policy and diplomatic constraints.
    Second, human resource development and execution of the next phase 
of NERI both require an adequate research infrastructure. The Nuclear 
Energy Research Advisory Committee (NERAC) has examined this question. 
The university reactors are, as a class, underfunded and underutilized. 
There are probably too many. An evaluation of the university reactors 
as a system is called for, and the evaluation should be integrated with 
that for nuclear infrastructure at the DOE sites. The goal should be a 
well structured hierarchy of teaching and research facilities on 
campuses, at strengthened regional academic centers, and at DOE sites. 
This is an area where strong and strategic collaboration between the 
DOE labs and facilities and the universities is essential for meeting 
long term goals.
    Another manpower issue raised by the Committee is that of mobility 
of contractor personnel, for example, between different laboratories. I 
would like to raise a slightly different point on mobility. The 
Department of Energy technical manager corps is in need of augmentation 
and rejuvenation. Such positions should be viewed as part of a possible 
career path for laboratory scientists and engineers. The Department, 
the laboratories, and the programs would benefit (the same holds true 
for production sites and cleanup sites). To accomplish this may require 
legislation that would permit the type of responsibilities in 
rotational assignments that would present the career opportunities 
attractively and on an appropriate scale.

                             R&D MANAGEMENT

Portfolio Management
    Starting in l998, the DOE substantially revised its approach to R&D 
portfolio management. The approach has been applied, with some 
variation, across all four business lines (science, national security, 
energy, environmental quality) under the umbrella of the R&D Council, 
chaired by the Under Secretary. The approach involves implementation of 
four linked processes: (1) portfolio development--identifying 
activities and mapping them to strategic goals; (2) portfolio 
analysis--identifying gaps and opportunities and defining ``corporate'' 
priorities; (3) strategic road-mapping--defining directions and 
milestones for selected corporate priorities together with 
stakeholders; (4) improved corporate R&D oversight--managing the 
portfolio and the research enterprise. To a large extent, this is a 
realization of the portfolio process recommended by the PCAST panel on 
energy R&D, chaired by John Holdren. Very importantly, the portfolio 
process was integrated into preparation of the Department and 
Administration budget proposals for FY00 and FY01 through active 
participation of the Chief Financial Officer.
    A few points are worth elaboration in the context of the Energy R&D 
Portfolio, which we will focus on for this hearing, and on the 
Portfolio Analysis (that is, the first two steps above). The first key 
point is that the portfolio architecture is not geared to 
organizational units but rather to strategic goals of the Department. 
This immediately breaks down some of the stovepipes and provides a 
language that interfaces more easily with broader policy makers. Thus, 
the portfolio:
    1. Describes and explains DOE's current R&D activities and 
showcases recent accomplishments.
    2. Provides a basis for evaluating portfolio balance vis-a-vis 
pursuit of strategic goals.
    3. Better aligns technology investments with policy goals.
    4. Provides the basis for planning future investments through 
portfolio analysis and roadmapping.
    The core of the entire process was an annual formal portfolio 
analysis exercise, carried out by an expert panel. The Laboratory 
Energy R&D Working Group (LERDWG), composed of senior laboratory 
personnel, played a key organizational role. The expert panel also had 
senior career technical people from DOE and private sector experts 
(universities, NGO's, industry groups). A specific analytical tool 
developed by the Sandia lab, called the Vital Issues Process, was 
applied to the portfolio with the PCAST strategic, diversity, project, 
and public-private partnership criteria in mind. The principal output 
is a set of priority gaps/opportunities in the portfolio when viewed 
from the perspective of strategic goals and a set of cross-cutting 
portfolio planning opportunities.
    The value of the process can be seen with a couple of examples 
(other elements of the output will appear in the next section of the 
testimony). In the first year, a strong focus emerged on energy system 
reliability (both electric and natural gas infrastructures); I note 
that this occurred well before the recent reliability problems 
surfaced, demonstrating the value of strategic thinking coupled to 
policy. Reliability R&D is an example of a crucial area that did not 
fit neatly into programs organized by fuel type. The strong FY00 
Department budget proposal in this area is the type of R&D investment 
that can have major beneficial consequences down the road.
    In the second year, a potentially important direction emerged when 
the analysis group raised the issue of using indoor environmental air 
quality and multi-attribute life-cycle analysis as important criteria 
for evaluating classes of R&D proposals. This interesting idea would 
take some time to implement effectively, but can also have significant 
benefits. I raise this and the earlier point on reliability here just 
to exemplify the type of new cross-cutting perspective injected into 
the portfolio management and portfolio evolution process (the Committee 
may be interested in the full analysis reports). This earned the 
process considerable ``buy-in'' from career professionals, from the 
labs, and from external participants and observers. An Executive 
Secretariat was set up in the Policy Office. There is considerably more 
to be done in advancing the process, such as further integrating the 
individual laboratory institutional plans with the portfolios, but 
substantial gain has been realized.
    As the Committee has considered asking for an annual report from a 
technology transfer oversight group (to be discussed below), I 
respectfully suggest consideration of requesting an annual report from 
the portfolio analysis activity. This can be a way to use a 
demonstrably successful process to more rapidly evolve the energy R&D 
agenda to meet new challenges associated with strategic goals and to 
spur further integration of the entire DOE R&D system.
Technology Transfer
    This Committee continues to show considerable interest in 
laboratory technology transfer and partnerships, as indicated by S. 259 
introduced by Senators Bingaman, Domenici, and Murray. Overall, 
Congressional support for partnerships has been very uneven over the 
last six or seven years, so the leadership of this Committee may be 
important for providing the stability and resources essential for 
engaging private sector technology partners. There are many scholarly 
discussions about the value of such partnerships and the mechanisms to 
be followed, but the value is perhaps made most clear by simply looking 
at a few recent examples:

   Partnership with Intel: an arrangement to provide a no-fee 
        license to DOE to redesign Intel's Pentium processor into a 
        radiation-hardened chip for space and defense uses
   Partnership with Celera Genomics: strategic framework for 
        advancing the state-of-the-art supercomputing and hardware 
        design for genome-based research in the life sciences
   Partnership with Columbia University: an innovative program 
        to explore the potential of establishing a joint Integrated 
        Analysis and Modeling of Earth Sciences and Engineering Center 
        at the unique Biosphere 2; this might provide unprecedented 
        opportunities for controlled ecological experiments on the 
        meso-scale
   Partnership with California Energy Commission: a model work-
        for-others agreement that has resulted in over $20 million in 
        increased joint research activities
   Partnership with ASML: first-of-a-kind cooperative agreement 
        with this foreign-based firm to join a $250 million U.S. effort 
        to develop next generation lithography equipment

    This is an extraordinarily diverse set of partners. In every case, 
the Department's laboratories bring unique expertise and/or facilities 
to the partnership and the project is important for DOE missions. The 
partners bring a mix of resources, unique facilities, and complementary 
expertise. The spillover effects beyond the partners can be 
substantial.
    During 1998-2000, the Department moved forward to assist the 
laboratories with more uniform corporate oversight of technology 
transfer. A variety of issues, such as inconsistent treatment of 
intellectual property issues at the field level, called for more high-
level corporate attention and centralized policy direction (while 
leaving individual CRADA decisions to the laboratories within the 
policy framework). A key step was establishing the multi-program 
Technology Transfer Working Group (TTWG) under the R&D Council chaired 
by the Under Secretary; an Executive Secretariat was established in the 
Policy Office, together with that for portfolio management. The TTWG 
coordinates policy and implements reforms; a partial list of steps 
taken include:

   streamlining DOE technology transfer procedures and 
        practices and, in particular, optimizing the process for 
        concluding cooperative research and development agreements 
        (CRADA's)
   promoting public awareness of opportunities and resources 
        available for technology partnerships
   developing clear guidance for stewardship of intellectual 
        property and assuring that international partnerships safeguard 
        U.S. economic interests
   implementing management reforms to assure coordination and 
        performance of DOE technology transfer activities
   drafting two new orders to promote technology transfer 
        within DOE, to establish DOE policy to leverage resources 
        through partnerships, and to define clear roles and 
        responsibilities for programs and field elements
   establishing ombudsman capability throughout all thirty DOE 
        facilities that engage in technology partnerships
   developing performance measures for inclusion in M&O 
        contracts
   developing model agreements to streamline process for lab 
        partnership with state research organizations

    A number of these steps particularly facilitate partnerships with 
small business.
    S. 259 can help solidify these advances and set the stage for new 
ones. The level of corporate oversight and systemization provided by 
the TTWG and R&D Council produces a reasonable degree of accountability 
and allows the Department to more easily facilitate complex CRADA's. 
Congressional support is essential if the technology transfer and 
partnership programs are to sustain (and withstand) success.
Organization
    The Committee is considering establishment of the position of Under 
Secretary for Science and Technology. This individual would monitor the 
Department's R&D programs. A number of my colleagues in the science 
community support such an idea. However, as one who has just served as 
Under Secretary for Energy, Science, and Environment and who, I 
believe, would generally be accepted as having the qualifications 
spelled out for the new position, I must express concern with the 
proposal, a concern that might be relieved with further elaboration. I 
should add that the nature of the ``customers'' and the agencies with 
which one deals does, in my view, support the current structure of two 
Under Secretaries, one for the national security mission, another for 
civilian missions. This discussion clearly addresses only the latter.
    My concern is whether the proposal would weaken or help advance the 
progress made in the last few years in achieving somewhat better 
integration and coordination across the Science, Energy and 
Environmental Quality business lines, in particular the science and 
technology programs. The current organization provided an opportunity 
to further infuse the energy and environmental quality programs with a 
science and technology perspective, to extend the use of competitive 
merit-review-based processes in those programs, and to bring a 
technically grounded perspective to broader policy discussions in the 
Department and within the Administration. The invigorated R&D Council 
chaired by the Under Secretary and particularly the R&D portfolio/
roadmapping process provided mechanisms to advance integration and 
coordination and to enhance the intersection of technology policy with 
energy and environmental policy. The details clearly matter. At one 
extreme, if the new Under Secretary had only one office in the line, 
the Office of Science, this stovepiping would be detrimental to the 
integration and coordination discussed above, since convening power for 
R&D monitoring would not match up well to the line organization. The 
discussion must be clarified in the context of the responsibilities of 
all the Under Secretaries and the Deputy Secretary (in particular, the 
COO responsibilities). For example, since most of the civilian R&D is 
in the Science and Energy business lines, while the Environmental 
Management program offers large scale ``COO-like'' challenges, a 
separation along those lines could be effective; this would still 
suggest the need to integrate the environmental quality business line 
into the overall R&D system, but clearly no organizational scheme can 
cleanly meet diverse management issues. I do not presume to offer an 
overall solution, but raise my concern in the spirit of a ``do no 
harm'' approach in the absence of greater detail on the overall 
partitioning of responsibilities. Integration and coordination gains 
are hard won, and more easily lost.

                                 ENERGY

    The past year is one that has brought energy challenges to the 
fore. The Administration's National Energy Policy correctly states that 
advanced energy technologies represent the ultimate answer to those 
challenges (although the Administration budget proposal for DOE energy 
technology programs appears to be inconsistent with that statement). 
This Committee's commitment to strong energy R&D will pay dividends 
well into the future, just as previous Federal investments have helped 
shape today's energy sector. The fact is that, while reliance on 
competitive markets is a bipartisan ``first principle'' of U.S. energy 
policy, Federal support for energy R&D, often in partnership with the 
private sector, is essential for moving energy technology forward at a 
competitive pace. The strong externalities in the energy business, the 
long time to technology commercialization, the significant R&D cost for 
some technologies, the aversion to a high degree of risk in a highly 
competitive environment, and the need for a diverse set of technologies 
conspire to keep the private sector from making investments 
commensurate with the public good benefits. Indeed, deregulation trends 
have reduced significantly the longer term, pre-competitive R&D 
investments made by industry-wide organizations such as the Electric 
Power Research Institute (EPRI) and the Gas Technology Institute (GTI). 
It is important that the contributions made by these organizations over 
the years be sustained.
    The Committee is considering numerous energy technology areas. I 
will highlight a few areas tied to the portfolio/roadmap process and 
organize my remarks around the preeminent challenges identified in the 
1998 Comprehensive National Energy Strategy and the September 2000 
Powering the New Economy:
1. Enhancing America's Energy Security
    World dependence on oil for transportation and the dependence of 
OECD countries on substantial oil imports contribute to volatility in 
oil prices and attendant economic and social disruptions for both 
consuming and producing nations. Similarly, volatility has been seen in 
natural gas markets over the last year. We have three basic strategies 
to address this concern:

   improved vehicle efficiency (automobiles and trucks)
   improved exploration and production technologies ( increased 
        access and lower cost)
   alternative fuels (biofuels, natural gas derived fuels, 
        hydrogen for oil replacement; natural gas alternatives for 
        electricity production e.g. renewables; . . .)

    All three paths have been vigorously pursued over the last years 
and should continue to be pursued aggressively. The first, improved 
automotive and truck efficiency, is the area that can have the greatest 
impact on oil import requirements in the relatively near term. PNGV has 
helped spur development of numerous technologies that can substantially 
improve auto efficiency, and hybrid autos may begin penetrating the 
market in appreciable numbers within a few years. Major gains are 
similarly realizable with trucks. Alternative fuels could have a 
similarly large impact in a somewhat longer time frame, as fuels 
infrastructure challenges are overcome for widespread use. Also, some 
alternative fuels may reduce oil import dependence but place a 
significant additional demand on domestic natural gas supply. This 
leads back to a continuing focus on cost-shared R&D for new exploration 
and production technologies. As one example, the DOE in calendar year 
2000 engaged with the private sector to develop a technology roadmap 
for ultradeep (5000 feet and substantially deeper) off-shore drilling 
technologies. This roadmap envisions fundamentally different 
architectures for environmentally sound oil and natural gas production, 
with expectations especially high for gas. This development would be 
costly, would extend over many years, but could also lead to large 
returns for the nation. This type of cost-sharing and risk-sharing with 
industry has led to substantial gains in the past. Ultradeep drilling 
technology is an example of a roadmap driven by strategic objectives.
2. Increasing the Competitiveness and Reliability of U.S. Energy 
        Systems
    As already noted, this was identified in 1998 as an important R&D 
focus area for the Department. The reliability initiative has three 
principal components:

   Electric reliability by focusing on regional grid control, 
        distributed resources and microgrids, information system 
        analysis, possible offsetting of peak summertime electric load 
        with distributed generation and natural gas cooling 
        technologies for example, and high capacity transmission
   Natural gas infrastructure reliability to include storage, 
        pipeline and distribution R&D
   Critical infrastructure protection, secure energy 
        infrastructures, vulnerability assessments, risk analysis, and 
        the development of protection and mitigation technologies

    The Committee is considering a variety of natural gas pipeline 
integrity and safety issues. The technology development is essential 
here, since the public must be assured in the wake of recent tragedies 
of pipeline safety if the large natural gas infrastructure expansion 
needed over the next decades is to be realized.
    We also note the importance of supportive regulation and 
legislation if some of these technologies are to be put into widespread 
use and thus provide maximal benefit. For example, distributed 
generation has enormous potential for enhancing electric system 
reliability and power quality and other public goods, but substantial 
regulatory and business barriers need to be removed or at least 
substantially lowered consistent with legitimate utility concerns. 
Here, comprehensive Federal restructuring legislation may be essential 
for providing national rules of the road.
3. Mitigating the Environmental Impacts of Energy Production and Use
    Energy production and use is the principal contributor to smog, 
acid rain, and greenhouse gas emissions that threaten our climate. 
Energy technology development is essential for addressing these 
problems at various length scales (urban, regional, global) and at 
various time scales. For the relatively short time frame, the R&D 
portfolio process led to an ultra-clean fuels initiative to address the 
need for cleaner fuels within the context of existing refining 
infrastructure. The initiative mobilizes industry and the national 
laboratories to develop and demonstrate new technologies for making 
large volumes of clean fuels from diverse fossil resources. The 
initiative is integrated with the PNGV and truck programs to ensure 
synergistic development of fuels and very efficient engines. This is 
another example of the portfolio process leading to a crosscutting 
initiative that addresses strategic goals in the context of an evolving 
regulatory environment.
    A key component of addressing all these environmental challenges is 
increased efficiency. This is applied across all sectors--buildings, 
vehicles, industry, energy production. For example, previous DOE 
sponsored work has already led to major gains in buildings compact 
fluorescent lights, optical coatings for windows, integrated building 
designs. These technologies can be advanced further, but new directions 
may also take hold, such as fuel cell driven combined heat and power 
systems for buildings. Similar successes could be recited for energy 
intensive industries (oxy-fuel glass making, . . .) or energy 
production (very high efficiency utility scale gas turbines, IGCC coal 
technologies, . . .).
    Another key ongoing focus is renewable technologies. Very 
substantial progress has been made in bringing down the costs of these 
clean technologies, for example, wind in the 3 to 7 cents/kWh range and 
photovoltaics less than 20 cents/kWh. Niche markets are readily 
available to these technologies today and market penetration will 
increase with further cost reduction. For the long term, these 
technologies can transform many aspects of energy supply in an 
environmentally sustainable fashion. Other technologies also have the 
potential to be transformative in the very long term. Carbon 
sequestration, for which an extensive roadmap was developed jointly by 
the Offices of Science and Fossil Energy, could radically change the 
prospects for coal use in a greenhouse gas constrained world. And 
fusion continues to hold out hope as a major electricity source with 
virtually no emissions and unlimited fuel. The increased focus on 
alternative concepts is very important, and a burning plasma experiment 
is an important step to carry out within the current decade or so, 
preferably in collaboration with international partners. It is by no 
means clear that these very long term options will realize their 
potential. However, it is the very nature of a portfolio approach to 
invest in technology developments that cover a range of risks and time 
scales, and efforts such as sequestration and fusion carry with them 
very substantial scientific gain as part of the integrated science and 
technology program. Indeed it is generally the case that the very long 
term programs have significant unresolved science questions (complex 
plasma behaviors for fusion, and fundamental carbon fixation questions 
for long term sequestration).
    The greatest international long term environmental challenge is 
clearly that of greenhouse gas emissions and climate change. It is 
clear that the energy infrastructure development in developing 
countries can have global consequences. The U.S. should, in my view, 
sponsor a much more extensive and coordinated program of clean energy 
development and deployment in such countries. In addition to the 
environmental and associated benefits, this would help stimulate the 
competitive position of American industry in these markets. In some 
cases, the opportunity to engage in technology ``leapfrogging'' there 
could have major unexpected benefits here.
4. Providing Diverse Energy Technologies for the Future
    We have already indicated the breadth of technologies needed to 
address our strategic energy goals and the process introduced into the 
Department in 1998 to align the R&D investments with those goals. The 
total energy R&D budget has declined dramatically (correcting for 
inflation) over the last two decades. I believe an increase would match 
the scale of the challenges discussed above and in the Administration 
National Energy Strategy. The portfolio process will help ensure that 
those additional resources are applied towards strategic goals with an 
appropriate balance of time scales and risk for a healthy overall 
return on taxpayer dollars.
    Thank you, and I would be happy to address any questions from the 
Committee.

    The Chairman. Thank you very much. Mr. Fri, why don't you 
go right ahead.

 STATEMENT OF BOB FRI, CHAIRMAN, COMMITTEE ON BENEFITS OF DOE 
              R&D ON ENERGY EFFICIENCY AND FOSSIL 
                             ENERGY

    Mr. Fri. Thank you, Mr. Chairman. While I do have a day job 
at the Smithsonian Institution, I am appearing here today as 
chair of the committee on benefits of the Department of Energy 
R&D and energy efficiency and fossil energy, the Academy report 
to which to you and others have already referred this morning. 
I have submitted my testimony for the record and since the 
report has in fact been discussed several times, let me just 
hit the high spots.
    The question we were asked was essentially this: Over the 
past 22 years the Department of Energy has spent in 1999 
dollars $22 billion on these two programs. We were asked, was 
it worth it and how can you tell? We developed a methodology 
for trying to be able to talk sensibly about the benefits and 
the core of it is in the chart across to my left, the matrix to 
which Secretary Blake referred earlier this morning, and is 
composed of two simple but very powerful ideas which have 
already been mentioned this morning. One, Dr. Moniz just 
mentioned and that is that the Department has some strategic 
goals that energy research and development is supposed to 
serve. We have characterized those in the rows of this matrix 
as economic, environmental, and security objectives. And the 
other is the notion that you mentioned that research and 
development has lots of different kinds of products, not 
necessarily just finished technologies. We characterize those 
in the columns of the matrix as realized benefits, technologies 
that are actually in place working and producing real benefits, 
options for the future that may be needed in a different 
economic and policy environment and very important knowledge 
benefits that almost all research and development should 
produce. This turns out to be a very useful way of discussing 
the benefits of energy research and development and in 
distinguishing public benefits--which is the purpose of Federal 
funding--from private benefits. Basically, private benefits are 
in the northwest corner of this matrix. You would expect the 
private sector to realize economic benefits and take advantage 
of them. That is important for the Government as well, but the 
Government is practically the exclusive player in the other 
eight types of benefits that are characterized by this matrix 
and that is why we are here talking about energy R&D.
    Was it worth it? On the whole, yes. Let me give you a few 
figures but first a cautionary note and that is, we were asked 
and indeed did look only at actual outcomes of research thus 
far. There's a lot of research in progress with benefits that 
can reliably be expected to be produced in the future. We did 
not count those. We got results, not expectations, but it is 
kind of nice to know that results actually prove the pudding as 
well.
    In terms of realized benefits, we calculated that something 
like $40 billion of realized economic benefits had resulted 
over this past period from energy R&D. Interestingly, three-
quarters of that benefit came from three small programs in the 
energy efficiency area, the sum total of which cost the 
Government around $15 million in the building sector. Three 
magnificent home runs. However, the results were positive in 
virtually all areas.
    In the realized environmental benefits, the shoe was on the 
other foot. The environmental benefits were of the same order 
of magnitude as the economic benefits, if you try to price them 
out, which is not easy, but it is possible. But most of those 
came from a couple of small programs in fossil energy, which 
helped produce particular savings, reductions in nitrogen oxide 
omissions in powerplants. Then, if you can do that in a few big 
powerplants, that has a big impact just like making 
improvements in glass in the building sector does.
    The story is less good in security benefits, while some 
have been produced. Basically getting at the major oil 
consuming sector of our economy, namely, the transportation 
sector, which is where the security benefits lie. It has not 
been particularly productive thus far. We would have great 
hopes for the Partnership for a New Generation of Vehicles 
program, but so far that has not been one of the big success 
stories.
    And finally, there are at least 3 important options that 
have been produced that we think are likely to produce very 
substantial benefits and very plausible futures. One is the 
PNGV program. The other two are the integrated gas fired 
combined cycle program and the advanced turbine systems 
program. We studied 39 programs, and I am clearly not going to 
go into all of that.
    Our recommendations boil down to these: One, fill in the 
whole matrix. Public funds should try to produce a balanced set 
of benefits and public benefits that are described by these 
nine boxes.
    Secondly, our observation of the actual results strongly 
endorses the portfolio approach to planning. Clearly, we had 
some fantastic home runs. We had some strike-outs in this 
package. We had a bunch of singles and doubles. You need to 
look at the whole package and decide whether you are getting 
the benefits in taking appropriate risks which will improve 
failures.
    Thirdly, we looked at a lot of different past evaluations 
of these programs, discovered that they were inconsistent, 
often overstated. We believe that is important for the 
Department and the administration and the Congress to have a 
consistent, accepted, uniform peer review method for evaluating 
benefits, both retrospectively and prospectively and while we 
know that the system that we have developed in our study for 
doing that needs a lot of improvement and refinement, we 
believe it serves the purpose and we are pleased with the 
interest that the Department has already shown and as Secretary 
Blake indicated this morning. In implementing that approach, we 
look forward to working with the Department to do that and 
certainly with the committee and the Congress if we can be 
helpful in that regard. Thank you and I would be happy to 
answer questions at the appropriate time.
    [The prepared statement of Mr. Fri follows:]

 Prepared Statement of Robert Fri, Chairman, Committee on Benefits of 
             DOE R&D on Energy Efficiency and Fossil Energy

    Good morning Mr. Chairman, Senator Murkowski, and members of the 
Committee. My name is Robert Fri. I am Director of the National Museum 
of Natural History and served as the Chair of the Committee on Benefits 
of DOE R&D on Energy Efficiency and Fossil Energy of the National 
Research Council. The Research Council is the operating arm of the 
National Academy of Sciences, National Academy of Engineering, and the 
Institute of Medicine, chartered by Congress in 1863 to advise the 
government on matters of science and technology. The committee I have 
chaired this last year was given the charge of assessing the benefits 
and costs of Department of Energy research and development in fossil 
energy and energy efficiency since 1978 by the U.S. Congress. The 
committee's report was released yesterday afternoon. I appreciate this 
opportunity to summarize it for you and to respond to your questions 
about our assignment.
    The executive summary of the report is attached * to my written 
testimony, and both the summary and the full report describe the 
analytic approach we adopted to carry out our work. This background 
provides essential context for our conclusions. Although I will not 
dwell today on these methodological details, it is important to point 
out that:
---------------------------------------------------------------------------
    * Retained in committee files.
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    1. We studied only the fossil energy and energy efficiency programs 
of the Department of Energy (DOE) because these programs fall within 
the jurisdiction of the House Interior Appropriations Subcommittee, 
which directed that the study be undertaken. Since 1978, DOE has spent 
about $22.3 billion on these programs, or about 26 percent of its total 
energy R&D expenditures.
    2. Our assignment was to assess the benefits actually realized 
since 1978 as a result of DOE-sponsored research in these programs. We 
did not account for benefits that might occur in the future. This focus 
on outcomes distinguishes our study from most other evaluations of 
DOE's research.
    3. Time and human resources constrained us to analyze in depth 
thirty-nine of DOE's research programs. We believe that this is a 
representative sample for purposes of this study, but falls well short 
of looking at all of the research conducted by DOE over the past two 
decades. This is particularly true for the energy efficiency area.
    4. We had a dual assignment. The more obvious one was to assess the 
benefits and costs of energy R&D. The second but equally important task 
was to develop an analytic framework for conducting such assessments in 
the future.
    This said, in the next few minutes I want to concentrate on the 
major messages of the report. In particular, I would like focus on four 
questions:

   What should we count as the benefits of energy research and 
        development?
   Did the benefits of the programs we analyzed exceed their 
        cost?
   What actions might improve the odds of successful energy 
        R&D?
   How can the evaluation of benefits be improved in the 
        future?

    The most fundamental issue we addressed was how to define and 
systematically capture the diverse benefits that result from publicly 
funded research. To answer this question, we developed an analytic 
framework designed to capture two dimensions of such research: 1) that 
DOE research is expected to produce public benefits that the private 
economy cannot reap, and 2) that some benefits may be created even when 
a technology does not immediately enter the marketplace to a 
significant degree.
    We identified the public benefits to be captured as those 
associated with DOE national energy mission:

   Economic benefits, measured by the change in the market 
        value of goods and services resulting from the introduction of 
        a technology stemming from DOE research.
   Environmental benefits, based on changes in the quality of 
        the environment that have occurred as a result of DOE research.
   Security benefits, measured by changes in the probability or 
        severity of abnormal energy-related events.

    To characterize the uncertainty about whether research will in fact 
produce benefits that can be captured, we defined three categories of 
research outcomes:

   Realized benefits; which are benefits almost certain to be 
        produced. An example is the cost saving resulting from the 
        development of electronic ballasts for fluorescent lights.
   Option benefits, which are associated with technologies that 
        are fully developed but for which economic and policy 
        conditions are not yet favorable for commercialization. 
        Integrated gasifier-combined cycle technology is an example of 
        research that has produced an option benefit.
   Knowledge benefits include all other benefits that we 
        identified, because all research produces some knowledge. We 
        recognize that this is a catch-all category, and that a more 
        refined analysis of knowledge benefits would improve our 
        methodology.

    Using these definitions, we created an accounting framework to 
provide a consistent, comprehensive assessment of the benefits and 
costs of the fossil energy and energy efficiency programs. The 
framework is a matrix, shown on the chart before you. We also defined a 
set of rules that provide a calculus for measuring the values to be 
entered in each of the yells. These rules are thoroughly documented in 
an appendix to our report.
    We successfully applied this analytic framework to thirty-nine 
technologies funded by DOE since 1978. We found that these programs 
yielded significant realized benefits, important technological options 
for potential application in the future, and useful additions to the 
stock of engineering and scientific knowledge. Tables 2 and 3 in the 
executive summary show how each technology we studied produced benefits 
in one or more elements of the matrix.
    Based on this analysis, we were able to address whether the 
benefits we identified exceed the cost of producing them. Our findings 
on this question are:
    1. The estimated total net realized economic benefits associated 
with the energy efficiency program we reviewed were about $30 billion, 
substantially exceeding both the $1.6 billion cost of the 
representative sample of programs that we analyzed and the $7 billion 
in DOE's total research investment in energy efficiency since 1978. 
Most of these benefits are attributable to three relatively modest 
projects in the buildings sector carried on in the late 1970s and 
1980s--more efficient refrigerators, electronic ballasts, and low-e 
glass.
    2. The estimated realized economic benefits associated with the 
fossil energy program amounted to nearly $11 billion, approximately 
equal to the cost of DOE's research investment. However, the benefits 
of fossil energy programs conducted from 1978 to 1986, which included 
several alternate fuels projects, produced benefits of $3.4 billion and 
cost $6 billion. From 1986 forward, the economic benefits of $7.4 
billion exceed the costs of $4.5 billion.
    3. Although quantifying environmental benefits is difficult, we 
estimate that both programs realized benefits of this type valued at 
between $60 billion and $90 billion. Fossil energy programs that 
reduced nitrogen oxide emission account for most of this benefit. Other 
environmental benefits came from reducing emissions through energy 
efficiency.
    4. Both programs produce important technologies that are viable 
options for reasonable policy and economic conditions that are likely 
to exist in the future. Chief among these option benefits are the 
Partnership for a New Generation of Vehicles, the Integrated Gasifier 
Combined Cycle program, and the Advanced Turbine Program.
    5. National security has been enhanced by a number of programs, 
notably fossil energy programs that increased domestic oil production 
and reserves additions and efficiency programs that reduced oil 
consumption. However, DOE's research programs designed to reduce 
dependence on oil in the transportation sector have been disappointing 
so far.
    Based on our analysis of these programs, we found that the benefits 
flowing from DOE's R&D programs were influenced by the structure and 
management of the programs. Among the useful lessons learned that can 
improve the odds of conducting successful research are the following:

   The largest realized benefits accrued in areas where public 
        funding would be expected to have considerable leverage. Thus, 
        the buildings sector is fragmented and the prevailing incentive 
        structure is not conducive to technological innovation. 
        Similarly, the nitrogen oxide reduction achieved in fossil 
        energy is an environmental benefit that the private markets 
        cannot easily capture. We believe, therefore, that DOE's 
        research should focus on achieving the department's national 
        public good goals.
   Important but smaller benefits were achieved in fossil 
        energy's oil and gas programs and energy efficiency's industry 
        programs. We concluded that DOE participation in these areas 
        took advantage of private sector activity to realize additional 
        public benefits. The lesson is that a clearly defined DOE role 
        is crucial to ensuring that public funding is likely to produce 
        appropriate benefits.
   It is particularly important that DOE manage a balanced 
        portfolio of research. Individual research projects may well 
        fail to achieve their goals, but DOE and Congressional 
        policymakers should not view these as symptoms of overall 
        program failure. Even failures generate considerable knowledge 
        and a well-designed R&D program will inevitably include such 
        failures.
   Where DOE seeks to develop technologies for near term 
        deployment (as in the industrial energy efficiency program, for 
        example), success is more likely when technological goals are 
        consistent with the economic incentives of users to adopt the 
        technologies. Standards can also serve as an important 
        incentive, and the committee saw cases of both success and 
        failure. Our case studies include a number of instances that 
        did not meet this condition and so failed to produce 
        significant economic benefits.
   Our case studies highlighted the need for periodic 
        reevaluation of goals against changes in the regulatory or 
        policy environment, projected energy prices and availability, 
        and the performance of alternative technologies. Similarly, DOE 
        should develop clear performance targets and milestones for 
        achieving program goals. To evaluate progress against goals, we 
        recommend that DOE expand its reliance of regular, independent, 
        peer reviews that enlist the participation of experts who are 
        not otherwise involved in DOE's programs.

    Finally, we addressed the question of how the evaluation of 
benefits can be improved in the future. We reviewed many other 
evaluations of DOE programs and found no consistent methodology or 
framework estimating and evaluating the benefits of research. This 
inconsistency was often associated with an overstatement of economic 
benefits and/or a tendency to assign too much weight to realized 
economic benefits (only one of the nine boxes in our matrix).
    On the other hand, we believe that the benefits matrix adopted for 
this study is a robust framework for evaluating program outcomes. Its 
application imposes a rigor on the evaluation process that clarifies 
the benefits achieved and the relationship among them. Accordingly, we 
recommend that DOE adopt an analytic framework similar to that used in 
our study as a uniform methodology for assessing the costs and benefits 
of its R&D programs. DOE should use this framework for reporting to 
Congress on its programs and goals under the terms of the Government 
Performance and Results Act.
    We recognize, however, that the framework we developed for this 
study requires refinement. Among other things, DOE should improve the 
guidelines for benefits characterization and adopt consistent 
assumptions to be used across programs. As a first step, DOE should 
convene a workshop of analysts, decision-makers, and members of our 
committee to discuss the problems we encountered in the application of 
our framework. Longer term, DOE should seek to enhance the transparency 
of the process by, among other things, providing external peer review 
of the application of the framework.
    That concludes my prepared remarks, Mr. Chairman. I want to thank 
the members of our committee for the extraordinary effort they put into 
this challenging assignment, and to express our collective appreciation 
to the DOE staff that so diligently worked to respond to our extensive 
requests for data and analysis. I would now be pleased to respond to 
any questions you may have.

    The Chairman. Thank you very much for that testimony. Dr. 
Hubbard, why don't you go right ahead.

  STATEMENT OF DR. H.M. HUBBARD, THE PACIFIC CENTER FOR HIGH 
        TECHNOLOGY RESEARCH (RETIRED), LEE'S SUMMIT, MO

    Dr. Hubbard. Mr. Chairman, thank you for the opportunity to 
be here. My name is H.M. Hubbard and maybe that is were the B 
came from. At the present, I call myself a semi-retired 
independent consultant. I am actually spending quite a bit of 
time with the University of Missouri system and as special 
advisor to the chancellor on engineering and computer science 
education. Before that, I had been through a lot of different 
kinds of operations. For about 50 years I worked for industry, 
the DuPont Company. I was part of their atomic energy division 
and part of one of their commercial divisions. I was executive 
vice president of a Midwest research institute in the process 
of which I ran what was then called SERI, you know, called
    The Chairman. You might just pull that microphone a little 
closer if you can.
    Dr. Hubbard. Is that better?
    The Chairman. That is a little better. Thanks.
    Dr. Hubbard. Where was I? Let's see. I was at the National 
Renewable Energy Laboratory for about 10 years. Since then, I 
spent 5 years in Hawaii with the University of Hawaii and with 
the Pacific International Center and since that time, I've 
spent some 6 years chairing the National Academy's committee 
Board for Energy and Environmental Systems and most recently, 
and I guess the reason you asked me here, is I chaired a study 
committee in the NRC which was looking at the programs for the 
Office of Power Technologies. Now, that is a pretty narrow 
slice of Department of Energy but it encompasses all renewable 
energy technologies, particularly looking at electricity 
production. And as you do that, it pretty much transcends that 
because you have to look at the connections. And in looking at 
those programs, we were looking primarily at the potential for 
electrical production and the state of those programs. In 
general, the technology itself I would rate as good to 
excellent and I am talking about solar radiation and a resource 
for biomass, wind, hydropower, geothermal and oceans. When I 
say it is excellent, I mean we pretty well understand what the 
resource is. And we have a pretty good concept of what you need 
to do to get at it. Of those programs, oceans have presently 
dropped by the way side, not because the potential is not 
there, but we understand it fairly well and in the next few 
decades it is unlikely to be economic except in a very few 
situations.
    We also looked at what I call enabling technology. Now, I 
mean storage, hydrogen, superconductivity, et cetera. Again, 
the technology is making progress. They need more attention 
than they're getting and they need better organization than 
they're getting. We began to look at what I would call systems 
issues from what Dr. Corradini was talking about. I think he 
was talking about cross-cutting issues. How do we integrate 
across the programs? What do we know about distributors' 
resources? What do we know about coordinating a cross-program 
and how about our planning and analytic capabilities? Things 
were not so good there. It was somewhat neglected and it needs 
a lot more attention.
    Let me go into my bottom line which are points that I 
really want to emphasize. The first is the importance to our 
country's future of having a renewable energy option available. 
Renewable energy alone will not solve our energy concerns but 
without it our chances and the world's chances of creating a 
sustaining energy supply system and distribution system we need 
are pretty close to zero. We need a diverse portfolio of 
energy, technologies, and energy resources. And there is that 
portfolio word again.
    The second is that in spite of its problems, and they have 
been considerable, the cooperative Federal industry program has 
been remarkably successful in developing a science and 
technology base and we understand that pretty well. And in many 
cases, one in particular, PV, in particular, biomass, to some 
degree, there has been pretty effective cooperation between 
industry and the Nation and the laboratories. When we talk 
about an R&D program, we always talk about it as an RD&D 
program, research, development and deployment, because making 
that transition from the laboratory to industry or Federal 
laboratories to implementation and deployment and 
commercialization is difficult and it requires direct contact. 
You don't just hand it over. You have got to work it over and 
that has sometimes been neglected.
    The third is that renewable energy R&D is a necessity, a 
long term effort, and we are not there yet. The core program 
requires stable funding at reasonable levels tied to program 
objectives. Stable funding, reasonable levels, defined program 
objectives. Since the early 1980's the program has generally 
been underfunded and subject to erratic fluctuation. And it is 
also true that in general the energy industry has never been 
notable for their investment in research and development. So, 
what the government does is really critical, important and 
essential.
    The fourth is that in general, energy RD&D needs stronger, 
more effective leadership than they have usually received. They 
need to do better planing, better metrics, clearer definition 
of program objectives and more effective coordination of 
program elements. Having sat in on some of the nomination 
hearings, maybe you need a few more drill sergeants in the 
Department. That might help.
    At the risk of embarrassing former Under Secretary Moniz, 
you need more Ernie Monizes in the Department. That orientation 
of one of the senior officials towards R&D and the 
understanding of it is critically important and at the time we 
looked at the OPT programs, which was in 1999, we looked at the 
programs as they were then operating and we saw these 
deficiencies more with respect to management and leadership 
than with respect to the technological capability. Parallel 
with that, the R&D council, which Dr. Moniz referred to, began 
to develop a process of strategic planning and a process of 
developing administration of the R&D programs by portfolio. We 
mentioned those deficiencies in our initial report and the 
Department of Energy said, well, we are working on those. And 
we said, well, prove it because we don't see the impact yet. In 
response to that, we were asked to do a follow-on study with a 
letter report in which we reviewed the progress that the R&D 
council were making and where they were in that process. That 
was very reassuring to us. Now, that needs to go on. It cannot 
be dropped at this point without a huge waste of effort and 
spinning of wheels. So, that needs to be picked up by the new 
Administration. And I think they can build on it, and they 
really need to do that.
    The fifth one is, as Dan Yergin once said, let's put the E 
back in DOE. Only about 20 percent of the budget in general, as 
you well know, really addresses energy and energy problems. And 
it is also true that sometimes, as has been said in the 
hearing, that as a result, the senior management at Department 
of Energy has very often been distracted from looking at energy 
research and very often, frankly, ignorant of it. So, that 
needs attention. And I think the idea of a single person not 
just for science but for research, energy research, development 
and deployment, responsibility for those programs, would be 
important. I think that can be done. And in the process, answer 
the legitimate concerns that Dr. Moniz has. And it would be 
consistent with a recommendation that was made by the Yergin 
study group in 1995; namely, that there should be a single 
person at the Under Secretary or Deputy Secretary level 
reporting directly to the Secretary of Energy, who has 
responsibility for strategy, budgeting, management and 
integration over these various energy research programmatic 
divisions. With that, I will subside and be happy to answer any 
questions. Thank you.
    [The prepared statement of Dr. Hubbard follows:]

  Prepared Statement of Dr. H.M. Hubbard, The Pacific Center for High 
            Technology Research (Retired), Lee's Summit, MO

    Mr. Chairman and members of the Committee thank you for inviting me 
to testify at this important hearing on legislative proposals related 
to energy and scientific research, development, technology deployment, 
education and training. I was specifically asked to testify on the 
condition and prospects for renewable energy.
    In May of last year the National Research Council (NRC) issued a 
report, Renewable Power Pathways. The report is the result of a study 
carried out by the NRC's Study Committee for the Programmatic Review of 
the Office of Power Technologies (OPT). this was followed, in late 
August, by a letter report of a follow-up study by the Committee on 
Recent Initiatives by the Office of Energy Efficiency & Renewable 
Energy and The Office of Power Technologies.
    The study committee which I had the privilege of chairing consisted 
of a group of energy experts coming from different sectors of the 
energy research community. The final reports were reviewed by a variety 
of reviewers according to the NRC's usual procedures. A list of 
committee members and the reviewers is appended to this testimony.
    The majority of the opinions and recommendations presented in this 
testimony are drawn from those reports and the discussions of the NRC 
Study Committee. In areas in which my testimony goes beyond the scope 
of the NRC study I have drawn on other sources and my own long 
experience in the energy and environmental research and development. 
While I believe that the opinions and conclusions presented here are 
consistent with the views and conclusions of the Committee, I take 
personal responsibility for the testimony as it stands.

                 ENERGY--A CRISIS OR A CHRONIC CONCERN?

    For the last three decades of the twentieth century energy has been 
a matter of continuing concern to the American public and hence to our 
elected representatives and business leaders. Will we have it--i.e., 
power and fuel--when we need it?
    Will it continue to be cheap? What is it doing to our air and 
water? And more recently, what is all this noise about ``global 
warming''? Is it a myth promoted by over-zealous scientists and over-
wrought environmentalists or do we need to be concerned about it?
    Believe me, we do need to be concerned about it and the majority of 
the American public understands that. Occasionally our chronic concerns 
develop into acute anxiety for good and sufficient reasons. Witness the 
impact of electricity blackouts and high prices in California as well 
as the high gasoline prices in the Midwest. In the past as a problem 
abated public attitudes and political priorities settled down and 
energy issues took a back seat but the chronic concern lingered.
    To date, energy concerns have rarely if ever reached a state that 
could be called a ``national crisis'' but we cannot be sure that this 
will always be so. We are confronted by an increasing dependence on 
imported fuel, concerns about the environmental damage and health risks 
associated with energy production and use. Also there are concerns 
arising from questions about economic security and geopolitical 
stability. We as a nation have good reason for a continuing anxiety 
about our energy supply.
    We face a promising but unpredictable future. In the face of these 
uncertainties and questions, we know that we need a more robust and 
flexible energy infrastructure with a diversity of fuel resources and 
energy conversion technologies.
    We need a diverse energy portfolio! Where will renewable energy 
technologies (RET) fit? Almost all energy planers and analysts from 
those of international organizations like the World Bank to the forward 
looking energy companies, public and private thank tanks, and non-
governmental (NGO) advocacy groups agree that renewable energy will 
play an increasing role over the next century in this portfolio. As the 
CEO of one of the world's largest natural gas producers and 
distributors remarked to me when we shared the platform at an Aspen 
Institute energy forum a decade ago: ``After sometime around 2025 the 
energy world will belong to you guys (renewable energy) but until then 
it belongs to us.'' That company is now busily engaged in developing 
renewable energy projects to complement its primary fossil energy 
business.

       RENEWABLE ENERGY TECHNOLOGIES--CURRENT STATUS AND PROMISE

    The federal government began a major R&D effort twenty-five years 
ago to develop the science and the advanced technologies necessary to 
provide electric power, transportation fuels and thermal energy from 
our domestic renewable resources. These resources include solar 
radiation, geothermal energy, hydropower, biomass, wind, and ocean 
energy. We have made remarkable progress and the result is a diverse 
set of renewable energy technologies several of which are already 
making a significant contribution to our energy supply and our economy.
    Over this period substantial improvements have been made in the 
performance and reductions in cost of these technologies. In fact, most 
of DOE's goals and objectives in performance and cost of production 
have been met or exceeded. The DOE technical managers and the 
laboratory researchers should take a bow. Photovoltaic and wind turbine 
technologies are outstanding examples of successful cooperation between 
industry and government research. There has been important progress in 
other areas as well, biomass conversion, hydrogen fuels, solar building 
design, and solar thermal systems, etc. In general the advantages and 
disadvantages associated with the different resources and conversion 
technologies are well understood.
    On the other hand the renewable technologies have disappointed 
their supporters. The deployment goals set by DOE and the industry have 
not been met and the use of renewable technologies in the U.S. economy 
is still limited. There are several reasons for this. Most importantly, 
the energy market has changed. Our economy has become much more energy 
efficient and the market more competitive. Conventional energy prices 
have remained lower than expected. DOE in concert with the emerging 
industry has often set deployment goals based on unreasonable 
expectations and unrealistic promises.
    Nevertheless as R&D continues to reduce costs and as conventional 
energy prices fluctuate up and down the new renewable technologies, 
i.e. those other than biomass combustion and conventional hydropower, 
are emerging in the market at a rapidly increasing rate. U.S. shipments 
of solar cell modules increased by 23 percent over the previous year. 
The approximately 2500 MW of wind energy capacity installed in the U.S. 
is expected to double by the end of this year. New wind farms are going 
up in southern California, west Texas, on the high plains of Kansas/
Colorado, in Minnesota and in Iowa. In a related development, a third 
or more of U.S. consumers can now choose some type of ``green power'', 
i.e. power from renewable sources, from either their regulated utility 
or in competitive markets.
    What can we expect from renewable energy in the future? Energy 
projections and forecasts are notoriously uncertain. But within a broad 
uncertainty band there seems to be some consistency among the fearless 
experts. Ten years ago the five National Laboratories most involved in 
renewable energy were asked to develop a ``consensus'' on the Potential 
of Renewable Energy. The resulting ``white paper'' issued in March of 
1990 projected a renewable energy contribution in 2030 of between 15 
and 28 percent. The lower number in the case of a business as usual 
scenario and the higher number if federal policy supports and 
``intensified'' Research, Development, and Deployment (R,D&D) scenario. 
Other attempts to estimate the RET contribution run in the range of 20 
to 50 per cent in the time period of 2025 to 2050.
    The Report to the President on Federal Energy Research and 
Development for the Challenges of the Twenty-First Century was issued 
in November of 1997 by the President's Committee of Advisors on Science 
and Technology (PCAST). In that report the Panel on Energy Research and 
Development stated that ``the Panel believes that with a strong R&D 
program coupled to appropriate demonstration and commercialization 
incentives that many of the renewable energy technologies in the (DOE) 
portfolio have good prospects of becoming fully competitive with 
conventional technologies in whole scale applications. The time to get 
there was projected at less than ten years for some (wind appears to be 
ahead of schedule), up to 20 to 25 for others, i.e. transportation 
fuels from energy crops. Shell International Petroleum Company has 
projected that by 2025 ``renewable energy sources could contribute to 
global energy one-half to two-thirds as much as fossil fuels do at 
present with new renewable sources (excluding hydropower and 
traditional biomass) accounting for one-third to one-half of the 
renewables total.'' The Intergovermental Panel on Climate Change (IPCC) 
has made similar statements concerning the energy contribution from 
rewnewables.
    There is a problem! In fact a couple of them that make it difficult 
for the program planners and the emerging RET industry to know how to 
proceed. It also makes achieving the potential of renewables difficult. 
The current director of the National Renewable Energy Laboratory, 
Admiral Truly, stated them clearly in a recent statement.

          ``Beginning in the 1970's, every administration and Congress 
        has had a different set of national goals, R&D investment 
        levels and policy actions for developing these technologies'' 
        resulting in ``1) the erratic up-and-down nature of annual 
        federal R&D investments for energy efficiency and renewable 
        energy, and 2) the confusing and inconsistent array of national 
        energy strategies, tax incentives, and regulatory policies 
        (superimposed on the program) since the programs began.''

    Hopefully this Committee can do something about these problems! We 
need more stability in the budget, and more consistency in policy 
direction. Under present conditions it is very difficult to develop and 
implement a coherent strategic plan for a long range research and 
development program. That however should not keep DOE from trying and 
recently they have begun to do so. Hopefully the process will be 
continued by the new administration.

                  RENEWABLE ENERGY PROGRAM MANAGEMENT

    The Study Committee was directed to do a ``programmatic'' review of 
DOE's office of renewable power technologies. The Office, a major unit 
of the Office of Energy Efficiency and Renewable Energy (EERE) conducts 
R&D programs for the production and distribution of electricity from 
renewable energy resources. The individual program elements dealing 
with production include: photovoltaics, wind, solar thermal, 
geothermal, biopower, and hydroelectric technologies: Others deal with 
``crosscutting'' issues; storage, transmission (including 
superconductivity) hydrogen, and distributed power. We began with an 
examination of the individual programs but were rapidly lead into the 
broader issues of program management, planning, and coordination with 
other R&D units in the Department doing related work.
    In the report there are recommendations for each of the individual 
Programs. I will not go into them here but in general the technical 
performance was excellent. The individual program plans varied in 
quality from nonexistent to well thought out. While we did not attempt 
to give formal ratings to the programs my own opinion that they varied 
from ``not bad'' to outstanding with the majority in the ``good to 
excellent'' range. We were, however, concerned by the apparent lack of 
coherence and coordination among the program elements and with other 
governmental organizations doing related work. This is reflected in our 
recommendations for the overall program as indicated below.

   OPT should develop criteria and a systematic process for 
        selecting specific research and development programs.
   OPT should focus more on integrating its programs, 
        identifying common needs and opportunities for research, and 
        clarifying how the individual programs can further their 
        objective. Bench marking and other planning techniques used by 
        industry could be adapted for measuring progress and selecting 
        priorities.
   OPT should develop a robust rationale for its portfolio of 
        renewable energy technology projects. OPT and its individual 
        programs should de-emphasize short-term deployment goals (which 
        have often been unrealistic, overly optimistic, and which are 
        not within DOE control) as the metrics for defining success. 
        The stated objectives should be the development of a sound 
        science and engineering base. The metrics should be stated in 
        terms of technical performance, decreasing costs and the 
        development of technologies that meet the needs of industry and 
        the marketplace.
   OPT should institute a process of regular external peer 
        reviews (at least every two years) of its proposed and ongoing 
        projects and programs as well as its overall goals. As part of 
        the process OPT should report to the public and the Congress 
        how it responds to the recommendation of the reviewers.

                    REVIEW OF RECENT DOE INITIATIVES

    First a note of explanation: The OPT programmatic review was 
proposed in discussions between EERE and the NRC in the summer of 1988. 
The scope work was approved and the study funded in the late fall. The 
committee was first convened in March of 1999. A draft report was 
produced by the Committee with the help of the study director and his 
staff in December for appropriate review resulting in the issue of the 
final report in May. As you have seen the Study found a lot of merit in 
the programs (along with some deficiencies) but was quite critical of 
the renewable energy management because of a lack of leadership in the 
areas of coordination, planning, monitoring process, setting realistic 
goals and metrics.
    While the Study Committee was conducting it's review at the program 
level (a kind of bottom-up look at how OPT does it's work) DOE senior 
management under the leadership of the under secretary and the newly 
established DOE R&D Council was continuing its ``initiative to apply 
portfolio approaches to managing Departmental R&D''. This lead to 
initiatives by OERE and OPT which in the opinion of OERE management 
addressed many of the deficiencies and responded to many of the 
recommendations of the Study Committee as well as those contained in a 
``top-down'' Review of Management in the Office of Energy Efficiency 
and Renewable Energy by the National Academy of Public Administration 
(NAPA). As part of their response to the Study Committees report OPT 
asked the Study Committees to review those initiatives and recent 
managements steps. This review was conducted in June, July, and August 
during which time the Committee conducted a review of materials 
provided by EERE and OPT regarding those changes and initiatives and 
held a meeting to interact with DOE senior managers including the Under 
Secretary, the Assistant Secretary of EERE, the Deputy Assistant 
Secretary for OPT and the OPT Associate Deputy Assistant Secretary. An 
NRC letter report was issued in late August. The letter report should 
not be interpreted as a review of the findings, conclusions or 
recommendations of the earlier Committee report. Rather the letter 
report is strictly a consideration of recent action.
    What did the Study Committee conclude? The documents submitted, 
``taken together, are the major elements of a comprehensive management 
and planning system designed to identify R&D needs in EERE/OPT program 
areas, to establish visions, goals, and objectives, and to develop 
roadmaps and multi-year plans for achieving them. In addition, EERE and 
OPT have made numerous management changes to facilitate and promote 
communication, cooperation, coordination and collaboration across 
organizational lines, improve capabilities, and enhance management 
efficiency and effectiveness.''. . .
    ``The Committee recognizes that the completion and implementation 
of strategic and program plans is a work in progress--as is the 
implementation of the recently developed concept of a Strategic 
Management System (SMS). The Committee encourages EERE/OPT to complete 
the process and believes that the results will address many of the 
concerns identified in the recent NAPA and NRC reports.''
    Successful long-term implementation depends on the acceptance by 
DOE senior career personnel. For the full potential on the initiatives 
and management changes to be realized, they must become embedded in the 
way DOE/EERE/OPT conduct their business. Among the challenges EERE/OPT 
now face is clearly and unambiguously presenting the system and goals 
to the Congress and to the new administration along with the benefits 
that are expected to result.
    In the year 2001, if DOE/EERE/OPT can build on the encouraging 
start they made the previous year in improving their program planning 
they will clearly be ``moving in the right direction''.

                   FINAL REMARKS AND RECOMMENDATIONS

    In the conclusion there are several points that I would like to 
emphasize to the Committee:

   The first is the importance to our country's future of 
        having the renewable energy option available. Renewable energy 
        alone will not solve our energy concerns but without it our 
        chances and the world's chances of creating the sustainable 
        energy supply and distribution system are close to zero.
   The second is that in spite of its problems the cooperative 
        Federal/Industry program has been remarkably successful in 
        developing the science and technology base.
   The third is that renewable energy R&D is of necessity a 
        long term effort. We are not there yet. The core program 
        requires stable funding at reasonable levels tied to program 
        objectives. Since the early 1980's the program has been 
        generally under-funded and subjected to erratic fluctuations.
   The fourth is that energy R&D in general and renewable 
        energy programs in particular need stronger, more effective 
        leadership than they have usually received, including better 
        planning, metrics, clearer definition of program objectives and 
        more effective coordination of program elements.
   The fifth is put the E back in DOE. It is often pointed out 
        that only about twenty per cent of the DOE budget is devoted to 
        energy R&D and that the attention of senior DOE officials is 
        often directed to other responsibilities. In June of 1995 in 
        the Final Report of the task Force on Strategic Energy Research 
        and Development know as the Yergin report it was recommended 
        that ``responsibility for energy R&D portfolio strategy, 
        budgeting, management, and integration over existing 
        programmatic division be given to a single person at the Under 
        Secretary or Deputy Secretary level reporting directly to the 
        Secretary of Energy.'' The Study Committee in its discussions 
        endorsed that recommendation and urges its implementation.

    The Chairman. Thank you very much. The final witness on 
this panel is Dr. Mike Corradini. Why don't you go right ahead, 
Dr. Corradini?

STATEMENT OF DR. MICHAEL L. CORRADINI, UNIVERSITY OF WISCONSIN, 
                          MADISON, WI

    Dr. Corradini. Thank you. I want to thank the chair and the 
committee for inviting me. I have a lot of graphics.
    The Chairman. Okay. We are glad to see it.
    Dr. Corradini. Typical class. I wanted to thank you all. I 
am chair of the nuclear engineering and engineering physics 
program at the University of Wisconsin Madison and that is, I 
guess, the reason I was asked to be here. I was also chair of 
the nuclear energy research advisory committee's panel to study 
the future of nuclear engineering programs and university 
reactors. And about a year ago, we gave the NERAC our report. 
It was endorsed, passed on within the Department of Energy and 
from that, as I understand it, S. 242 has addressed a lot of 
these concerns. So that will probably be my main topic for my 
verbal comments. You have my written testimony which addresses 
some of the other Senate bills.
    A little history. Nuclear energy, or nuclear engineering, I 
should say, is really one of the first disciplines that spanned 
engineering systems from the macroscopic world to the 
microscopic world. Students learned many things at various 
levels and because of that, it really became a major 
contributor in three areas to the public good. Energy where it 
is a major source of electricity I think has been mentioned at 
least five times today. Over 20 percent of our electricity is 
from nuclear energy. Secondly, it is an enabling technology in 
medical sciences. This is probably not as well known. At 
Madison we actually have two departments of nuclear 
engineering, so to speak. One in the medical school, medical 
physics, and one in engineering, engineering physics. And 
third, it is really an underlying technology for national 
security. The difficulty is we really have some current threats 
and issues.
    So, the first thing I put up here is that over the last 20 
years, and particularly over the last 10 years, we've had a 
precipitous fall in the number of nuclear engineering programs, 
that is the degree-programs, approximately 50 percent of what 
we had about 20 years ago. Similarly, if I could have the next 
one. I am going to make the staff help me a bit here. We've had 
a precipitous drop in the number of university research 
reactors. Dr. Moniz made a mention of this earlier and I think 
this is another indication of our loss of infrastructure. And 
probably the most important thing, if you want to move on, so I 
can stay within my 5 minutes, is the human resource. The thing 
that most concerns me because I am at a university and what 
concerns me is education and people, is that we have had a very 
precipitous drop, particularly in the last 8 to 10 years of 
enrollment in nuclear engineering programs at the Ph.D. level, 
the masters level and the BS level. And that has led us to the 
final picture. I am used to PowerPoint these days. I apologize. 
I am back to posters. And this is a study from the American 
Society of Engineering Education, and I want to spend a bit of 
time on this. This was done for the ASEE and basically shows 
the deficit in employment where we look at bachelors and 
masters graduates in the industry. And this is primarily the 
nuclear industry. So, I think primarily utility industry is a 
sample case. And what you see here is a bar of red which is 
growing and something in the future estimated to be about 500 
individuals, which is at least three times the number of 
graduations we seen in the discipline. So, we have a real 
threat relative to the human resource. Okay? And that is really 
what I want to address today. The testimony talks abut a number 
of things. Our panel work gave a wide range of recommendations 
which you have in written form.
    I want to address three things. First of all, because I am 
interested in the human resource and how we can effectively 
change the direction, is that we recommend fellowships for 
masters and Ph.D. graduates in nuclear engineering. I focus on 
graduate because the masters degree is one of the silent 
successes in education. And what you find is we have a number 
of people that come from various disciplines--physics, 
mathematics, other branches of engineering--into nuclear 
engineering and what we are recommending is an increase of the 
masters and Ph.D. fellowships to essentially support these 
students. Secondly, increased funding for NERER grants. Dr. 
Moniz made mention of the NERI program, which is a unique 
program for university, industry and laboratory partnership. 
But the NERER grants are particularly the equivalent of the NSF 
grants for universities. Because it was mentioned earlier, 
nuclear engineering, or nuclear energy, is essentially 
precluded from support by NSF and so the NERER program is the 
only way in which basic research, innovative research, can be 
done at universities. So, we recommend and strongly support an 
increase in the NERER grant program. What it really does is 
really create knowledge and attracts talent. I am back to the 
human resource. It attracts talent of faculty going into the 
discipline and that to me is incredibly important for keeping 
the pipeline going.
    And the third thing is continuation and augmentation of 
what is called, I guess in the lingo of the DOE industry 
matching grant program. What that really is is something that 
was thought up about 10 years ago by my predecessor, the chair 
of nuclear engineering at Madison, Max Carbin, in where he 
suggested that the deal we support with the industry provide a 
match, fifty-fifty match, of essentially flexible funds for 
departments. Those funds could be used for scholarships, 
undergraduate scholarships, for improvement of infrastructure 
of the various departments which they have been used for, 
laboratories, etc. Also, they could be used for outreach. And 
that program has been enormously successful to the point that 
it is oversubscribed every year. And it really provides 
flexible funds for programs.
    And I think that is about it. I want to identify three 
things in particular and open it up for questions if you have 
any.
    [The prepared statement of Dr. Corradini follows:]

     Prepared Statement of Dr. Michael L. Corradini, University of 
                         Wisconsin, Madison, WI

    It is an honor to present testimony at this committee hearing on 
the current state and future of nuclear science and engineering 
programs. I would like to thank Chairman Bingaman for inviting me here 
today. I currently am chairman of the Engineering Physics Department at 
the University of Wisconsin, Madison and a Member of the National 
Academy of Engineering. I was also chairman of a seven-member 
subcommittee of the Nuclear Energy Research Advisory Committee. This 
subcommittee was tasked with examining the Future of Nuclear 
Engineering Programs and University Research and Training Reactors. It 
is in this capacity that I would like to address the senate committee 
today, on the particular issue of human resources and related nuclear 
energy topics.

                           CURRENT SITUATION

    Nuclear science and engineering was born from early discoveries of 
noted physicists in the late 1890's. These discoveries, along with the 
discovery of nuclear fission in the 1930's, convinced a group of 
leading physicists and engineers to recommend that the United States 
support nuclear research for the common good of the nation; i.e., 
nuclear science and engineering would provide for our nation's 
security, supply some of its power and contribute to medical advances 
enhancing human health. This promise from nuclear energy has come to 
pass. For example, over 20% of the electricity in our nation comes from 
nuclear fission power plants. In these times of energy shortages and 
electrical power outages, reliable, safe and economic fission power is 
a proven, valued and sustainable resource. Additionally, the use of 
nuclear science and engineering advances have been pivotal in the 
improvement of human health, by advances in medical imaging, nuclear 
medicine and radiation treatment of cancer. The key ingredient in all 
of these advances is talented people with the motivation, skill and 
dedication to innovate, educate and use the technology in a safe, 
economic and sustainable manner.
    Nuclear engineering programs and departments were originally formed 
in the late 1950's and 1960's from interdisciplinary efforts in many of 
the top research universities, providing the people for the emerging 
nuclear industry. In the same time period, university nuclear reactors 
were constructed and began operation, providing key facilities needed 
for research and training of students engaged in nuclear technology. 
Since the 1960's, U.S. universities have led the world in nuclear 
engineering with a commitment to furnish the necessary human resources 
and associated infrastructure.
    However, over the last decade, the U.S. nuclear science and 
engineering educational structure has not only stagnated but is in a 
state of serious decline. The number of nuclear engineering degree 
programs (Figure 1) and the number of operating university nuclear 
research and training reactors (Figure 2) has fallen by about half, and 
the enrollment in nuclear engineering degree programs has plummeted 
(Figure 3). Enrollment declines are particularly worrisome at the 
masters level, where many students from other engineering and science 
disciplines focus on nuclear engineering as a capstone professional 
degree. Only in the last year have enrollments nationwide seemed to 
stabilize, and a small increase is noted in undergraduate enrollments.
    On the other hand, the demand for nuclear-trained personnel is 
again on the rise. A study by the American Society of Engineering 
Education (G. Was, T. Quinn, D. Miller, 1999--see Figure 4) indicates 
that the shortfall in qualified nuclear engineers at the bachelor and 
masters level could reach over 500 professionals annually by 2003. 
Workforce requirements at operating U.S. nuclear power plants are 
increasing and will undoubtedly remain high, given the plans for plant-
life extension in the vast majority of operating U.S. light-water 
reactors. In addition, there is a continued growth of nuclear power in 
the Pacific Rim and continued advances in the design of a future 
generation of nuclear fission reactors. Moreover, new initiatives have 
begun in applied radiation sciences in collaboration with medical 
research as well as biotechnology. Finally, nuclear science and 
engineering expertise continues to be needed for national security, 
including technology related to arms reduction and verification and 
enforcement of international treaties as well as providing the U.S. 
Navy with effective, safe nuclear propulsion. There is a need to 
provide an adequate supply of professionals to meet the nation's needs 
in the coming decades.

  FUTURE OF NUCLEAR ENGINEERING PROGRAMS AND FACILITIES: PANEL CHARGE

    In November 1999, the DoE Office of Nuclear Energy, Science and 
Technology requested that Nuclear Energy Research Advisory Committee 
(NERAC) establish an ad hoc panel to consider educational issues 
related to the future of nuclear science and engineering; i.e., address 
the future of university nuclear engineering programs, establish a 
process toward support of university research and training reactors, 
and identify appropriate collaborations between DoE national 
laboratories and university programs. The panel consisted of myself, 
Marvin Adams of the Texas A&M University, Donald Dei, Chief Physicist 
of the U.S. Naval Nuclear Propulsion Program, Tom Isaacs, Senior 
Scientist at Lawrence Livermore National Laboratory, Glenn Knoll of the 
University of Michigan, Warren Miller, Senior Advisor to the Lab 
Director at Los Alamos National Laboratory, and Kenneth Rogers, Retired 
Commissioner of the U.S. Nuclear Regulatory Commission. The panel made 
a series of recommendations to the DoE.

        FUTURE OF NUCLEAR ENGINEERING PROGRAMS: RECOMMENDATIONS

    First, we recommended that DoE assist universities as they refocus 
nuclear engineering programs to enhance research activities in nuclear 
science and engineering, as well as to maintain the human resource 
necessary for continuing the discipline through the 21st century. It 
should be noted that the National Science Foundation has historically 
left support of nuclear engineering research and infrastructure to the 
DoE. Thus, our panel proposed that specific efforts of the DoE should 
focus on:
    1. Enhancing the graduate student pipeline to maintain the health 
of the discipline: This effort should be focused on providing a 
continuing supply of graduates with post-baccalaureate education and 
technical expertise that can be employed at our leading universities, 
the national laboratories and all parts of the industry; i.e., 
providing role models for future undergraduate and graduate students. 
This requires a coordinated effort for recruitment at each level in the 
university program as well as the proper resources for graduate student 
fellowships and scholarships. Currently, the DoE and the industry have 
limited programs for these fellowships; i.e., the current program of 
$0.8 million provides fewer than 5 new doctoral fellowships every year 
for the whole nation in fission and health physics. This effort needs 
to be augmented in size and scope for our future success in the 
discipline. This is particularly important at the masters level, where 
many undergraduates from various engineering and science disciplines 
can obtain advanced training in nuclear engineering. The panel 
recommended that the DoE consider the more historic Atomic Energy 
Commission traineeship model for doctoral fellowships and masters 
scholarships in nuclear science and engineering at a steady-state level 
of $5 million per year; i.e., awarding a steady-state of 20 doctoral 
fellowships each year and 40 masters scholarships.
    2. Recruiting and retaining new faculty in nuclear science and 
engineering fields: The panel recognized that nuclear engineering 
departments have had difficulties in attracting new faculty members 
into their programs. Future faculty need to see potential research 
opportunities and active research programs in their field before 
seeking an academic career. The panel recommended that a targeted 
research program for junior faculty (6 years or less from the time of 
their first academic appointment) would be of great benefit to the 
young faculty. In addition, it could benefit the nuclear engineering 
programs by demonstrating to their administrators that a program exists 
to provide new faculty the opportunity to begin their research careers. 
This ``Nuclear Engineering Junior Faculty Research Initiation Grant'' 
program would be run in a manner similar to the NSF or DoD Young 
Investigators program. It would be a competitive program in support of 
DoE basic research needs in nuclear science and engineering affiliated 
with the mission-oriented goals of the nation's energy policy.
    3. Enabling and enhancing research discoveries in nuclear science 
and engineering: A science-based research program, predicated on 
involvement of these universities, should be supported. It should also 
extend to the national laboratories and the nuclear industry in peer-
reviewed, pre-competitive research and development. To accomplish this, 
we recommend maintaining the Nuclear Engineering Education Research 
program (NEER), as well as significantly increasing the base funding 
for the NEER. Currently, this program involves a very modest investment 
in university research into basic nuclear science and engineering ($5 
million in FY2000). This program has allowed university researchers to 
be able to pursue high-risk ideas and make discoveries that can take us 
beyond our present understanding; i.e., provide the ``spark'' for 
innovation and future technologies. Since the NSF and other basic 
science programs generally believe that nuclear science and engineering 
basic research is the responsibility of the DoE mission-oriented 
office, the NEER program plays a very critical role in sustaining the 
intellectual growth and development of the discipline in our university 
research communities. The panel recommended that the NEER program funds 
be substantially increased to near $20 million per year. This program 
includes the Junior Faculty Research Initiation Grant program mentioned 
above. The panel also supported the Nuclear Energy Research Initiative 
program (NERI). The panel also recognized that this program should be 
synergistic but remain separate from the NEER program. NERI involves 
larger collaborative research and development tasks, which establishes 
a research partnership among universities, national laboratories and 
industry, and which places a larger emphasis on engineering 
applications and integrated technologies that respond to the DoE 
mission guidance.
    4. Improving the undergraduate nuclear science and engineering 
experience: The panel recognized that the undergraduate discipline will 
continue to evolve in the 21st century and this evolution will be 
different within various university programs. Nevertheless, the panel 
feels that the discipline should be preserved as a ``systems 
engineering core competency''. This belief is predicated on the need 
for our graduates to have professional training in nuclear fission 
engineering within the context of systems engineering and design. This 
may be one of the most important responsibilities of university nuclear 
engineering faculty as they reestablish the groundwork for a resurgence 
of the discipline in the future. This is a fertile area for innovation 
in which research advances can play a role in the reshaping of 
undergraduate and graduate curricula and their associated pedagogy. 
Curriculum development should be a key part of DoE resource investment 
in the future. The DoE can also partner with the NSF in this particular 
area since the NSF has historically been very active and quite 
effective in promoting improvement in undergraduate science and 
engineering education. The current program at the DoE that supports the 
core competency in ``nuclear systems engineering'' is the ``DoE/
Industry'' Matching Grant program. This program was begun in 1991 by 
the efforts of my predecessor as chair at the University of Wisconsin. 
Over the 10 years since its inception, it has become a powerful force 
in improving the educational infrastructure for undergraduates in 
nuclear science and engineering. It is a true ``public-private'' 
partnership, in which industry matches DoE contributions dollar for 
dollar, and needs to be maintained in the DoE at a level of at least $1 
million/yr. It provides flexibile funds for scholarships as well as 
infrastructure improvements for laboratories and curricular 
innovations, which are crucial for maintaining excellence of these 
educational programs.
    5. Enhancing national activity in nuclear science and engineering 
outreach. It is my personal opinion that nuclear engineering 
specifically (and probably the physical sciences in general) suffers 
from a distinct lack of understanding by the general public. One could 
contend that this is one of underlying reasons why the technology is 
viewed with uncertainty and apprehension. The panel felt that the 
university nuclear engineering programs may be in the best position to 
work with the DoE to develop an innovative approach to public outreach 
and education. Innovations in this area could have a major impact in 
regard to the image of the discipline and preserving its future human 
resource needs.

  FUTURE OF UNIVERSITY RESEARCH AND TRAINING REACTORS: RECOMMENDATIONS

    Since nuclear science and engineering is expected to be an 
important part of the research and development landscape in the 21st 
century, a lasting federal investment is needed to support this 
infrastructure at universities. University research and training 
reactors (URRs) are an important part of the nuclear engineering 
infrastructure that must be maintained. The panel felt that URRs:

   Are vital for advancement of knowledge in nuclear science 
        and engineering education at the graduate level and provide 
        powerful research tools for the advancement of many other 
        disciplines;
   Provide undergraduate and graduate students with an 
        otherwise unobtainable ``hands-on'' educational experience, 
        allowing for learning about nuclear fission reactor processes, 
        and understanding the interaction of radiation with matter 
        (also providing for enrichment courses for professional nuclear 
        engineers);
   Give the general public an opportunity through outreach 
        activities to better understand and become familiar with 
        nuclear processes and ionizing radiation as well as nuclear 
        fission power.

    The URRs have a major impact on research and development in the 
neutron sciences and technologies, and also provide necessary 
facilities for the education of future scientists and engineers who are 
critical to sustaining the nation's technological base in a diverse 
spectrum of fields. Research work at existing URRs is responsible for 
developing new radio-pharmaceuticals for diagnosis and treatment of 
cancers, for providing structural information on new high-technology 
materials, for developing critical data on the behavior of metals, 
ceramics, polymers, and reactor coolants in radiation environments, and 
for providing critical data from neutron activation analysis to make 
advances in a variety of diverse fields (e.g., allowing archaeologists 
to date prehistoric artifacts). Most of these areas of technology are 
uniquely in the domain of nuclear research reactors and not easily 
duplicated on accelerator-based radiation sources. The facilities that 
exist or can be developed at URRs for the study of materials, trace 
element analysis, and for producing isotopes are complementary rather 
than competitive to those found at the National Laboratories. This URRs 
are located in the highly creative and multidisciplinary environment of 
the university where a diversity of students can take advantage of 
these unique resources. In their role of providing graduate education 
and training for radiation scientists, URRs exploit these benefits of 
the university and provide educational advantages that are generally 
superior to those afforded by the national user facilities. This is the 
concept for ``feeder research reactors'' that has been highly 
successful in Europe and is an important factor in propelling these 
countries into their present dominant leadership roles in the nuclear 
sciences. With adequate support of URRs, this model can also be 
implemented here to help ensure that these technologies are not 
permanently lost by the U.S.
    The URRs also have a major impact in the realm of undergraduate 
education, outreach and training. Based on U.S. data collected by the 
panel for its report to NERAC, over 1000 students are enrolled in 
courses that use these URRs annually, and over 5000 visitors tour a URR 
or are given demonstrations at a URR annually. Beyond these educational 
activities, many URRs are used for nuclear reactor operator training 
with local nuclear utilities. The panel felt that these URRs and the 
university programs that support them are unique and may be in the best 
position to work with the DoE to develop innovative approaches to 
outreach and education.
    Currently, there are twenty-eight university reactors in the U.S. 
with total annual support of about $10 million from their individual 
university budgets and over $5 million from extramural research and 
services. These university expenditures are specifically for the 
operational, safety and licensing activities of these nuclear reactors; 
i.e., staff salaries as well as materials and supplies related to 
operation. The panel has recommended a competitive peer-reviewed 
program be instituted to provide the resources above a base program, 
that are needed to revitalize URRs as a key resource at universities in 
the U.S. The panel proposed to:
    Maintain a base program for University Research and Training 
Reactors: This panel recognized that the DoE Office of Nuclear Energy 
currently has the ``University Reactor Fuel Assistance and Support'' as 
an on-going program for university research and training reactors. 
These program funds are provided for reactor refueling, reactor 
instrumentation and reactor sharing for users of these facilities 
(i.e., researchers at universities with funded research in need of 
research reactor services). These current programs serve as the minimum 
external resource base that helps maintain this educational 
infrastructure for the operation of these university research and 
training reactors. Specifically, the DoE budget lines for reactor 
replacement fuel, reactor instrumentation upgrade and reactor user 
sharing total about $4.3 million for FY2000. Note that the bulk of 
these funds are for reactor refueling costs ( $2.8 million); the 
remaining $1.5 million represents less than 10% of the total 
operational costs.
    Establish a Competitive Peer-Reviewed Program for University 
Reactors: The panel proposes that a competitive peer-reviewed program 
augment current DoE financial support for these university research and 
training reactors. This program would focus on activities beyond 
operation and would support infrastructure costs associated with 
personnel and instrumentation upgrades in support of extramurally 
funded research (e.g., from DoE NEER or NERI grants) as well as 
facility upgrades and personnel costs that involve innovative training 
and educational outreach activities. This program would provide 
additional multi-year grants for reactor facilities that are part of 
focused proposals by groups of collaborators that can emphasize 
research, training and/or educational outreach. The panel believes that 
such a program can provide the needed financial support for qualified 
university research and training reactors. These resources are for 
activities that go beyond what is needed only for base operation and 
provide a competitive arena where innovative ideas can be nurtured. The 
total program cost would be $15 million per year, which is consistent 
with the proposals to DoE by the University Working Group in 1996 and 
with previous studies dating back to the 1988 study by the National 
Resource Council. The panel suggests that this program be instituted 
incrementally in FY02 and FY03 budgets to allow for development of the 
needed DoE administration that would accompany this new activity. The 
panel recommends the following elements for this expanded DoE program 
for URR support:
A. Key Elements of Competitive Program
    1) Multi-year funding awarded through peer-reviewed proposal 
process.
    2) Proposals encouraged for research, for education and for public 
outreach.
    3) Funding levels ranging from small outreach efforts to multi-
university teams.
    4) URR is required to ``qualify'' before its proposal is 
considered. (Specific qualifying criteria have been proposed by the 
panel see part C).
    5) University must provide cost-sharing (auditable using NSF-like 
procedures).
B. Suggested Guidelines to this Competitive Program
   Defined missions: The RFP would include suggestions for 
        missions for research, education/training and outreach, with a 
        university or university teams free to propose different 
        missions.
   Base infrastructure funding: The program would allow a 
        specified fraction of the budget to be used for personnel, 
        instrumentation upgrades and materials and supplies related to 
        the specific deliverables in the proposal. If DoE does not wish 
        to directly fund such items, then the cost sharing offered by 
        the universities could be used. Overhead (indirect costs) on 
        the contracts could also help the university with base and 
        infrastructure funding.
   Funding period: One to five years. (5 years would be needed 
        for a ``center'', but shorter periods should not be discouraged 
        for other projects.)
   Level of cost sharing: This needs to be consistent with 
        other federal agencies; e.g., NSF and NIH require a 33-50% cost 
        share (with a possible maximum instituted, so that universities 
        can afford to submit large proposals).
   Funding level: The panel proposed funding to ramp up to 
        $15M/yr (just for this program, without reducing other NEST 
        programs). This funding level was taken from the URR Center of 
        Excellence proposal (1996). It is similar to what was 
        originally proposed in the NRC study in 1988 and is also 
        consistent with general comments in the DoE 1994 report and the 
        proposal by the University Working Group in 1996. The panel 
        feels this is a minimum level of investment based on the basic 
        principle that annual infrastructure investments of about 5-10% 
        of the initial capital investment is needed to maintain a level 
        of competence; note that the capital investment for these URRs 
        is well over $250 million. The panel realizes this is a 
        preliminary estimate and may need to be increased as better 
        data become available once the competitive program is 
        operating.
C. Proposed Qualifying Criteria for University Nuclear Reactors
    The panel would propose the following criteria to qualify 
university nuclear reactors for research support from the Department of 
Energy Office of Nuclear Energy under the proposed competitive peer-
reviewed program for research, training and outreach.

   The university reactor must demonstrate an acceptable 
        operational and safety record over the last five years.
   The university reactor must demonstrate that it contributes 
        to the educational infrastructure of a suitable degree 
        program(s).
   The university reactor must demonstrate that substantial 
        financial support comes from the university and will continue 
        through at least the program support period.
   The university reactor must have a commitment from the 
        appropriate university official for its continued operation 
        through at least the program support period.
improvement of university--doe laboratory interactions: recommendations
    The first of the current DoE National Laboratories were created, 
staffed and managed by university personnel following World War II. 
Thus, these laboratories began with intimate ties to universities, and 
substantial interactions have continued between the laboratory and 
university communities. The panel surveyed several DoE Laboratories and 
the survey indicated unanimous agreement that university interactions 
are beneficial and should be expanded.
    There are a host of ways the laboratories and universities can 
continue to build upon their interactions, including collaboration on 
papers, student internships at labs, research subcontracts from labs to 
universities, large collaborative research projects (for example funded 
by NERI program), and many others. All of these are important and 
beneficial; however, the panel believes the most important interaction 
mechanism is to increase the engagement of faculty members (and thus 
their graduate students) in funded research that is of programmatic 
interest to the laboratories. Research funding in line with laboratory 
objectives is by far the best way to attract both faculty and 
laboratory interest; programmatic relevance ensures short-term benefit 
to the lab and produces graduates that are interested and expert in 
laboratory problems (which is a long-term benefit).
    The panel examined several specific approaches that could increase 
collaboration between universities and laboratories. Some of these 
strategies have a common theme that would require exercising some level 
of central authority within the DoE.

   Increased Nuclear Engineering and Health Physics 
        Fellowships: These are an excellent means of interacting with 
        top graduate students, since these students are required to 
        spend an intern period at the DoE national laboratories. And 
        this is directly in accord with our proposed increase of 
        graduate student fellowships.
   Increased personnel exchanges between Laboratories and 
        Universities: Laboratories could create programs such as a 
        ``Distinguished Visitor Program,'' under which university 
        faculty could spend extended periods (e.g. sabbaticals) at 
        laboratories. Laboratories could encourage its staff to give 
        seminars and/or spend time as visiting faculty at universities.
   Designated University Awards: Universities provide largely 
        untapped resources that could participate more fully in DoE 
        applied and basic research programs. To take more advantage of 
        this resource, DoE could negotiate a financial incentive for 
        subcontracting a certain percentage of the laboratory's budget 
        to universities. Laboratory management could also require 
        individual programs (or divisions or directorates) to 
        subcontract a set amount or percentage to universities each 
        year.
    senate bill 242: university nuclear science and engineering act
    I have read Senate Bill 242 in detail and am very supportive of its 
elements. It addresses all of the issues that I have outlined 
previously. It realistically augments the current DoE University 
Programs budget in a phased-fashion, and it is responsive to the needs 
of assuring a future that nurtures the human resources nuclear energy 
will need. Let me conclude my comments in support of S. 242 with two 
major points that I would like to emphasize:

   An important aspect of Senate Bill 242 is that it provides 
        for the enhancement of the human resource that nuclear science 
        and engineering will need to continue to contribute to the 
        common good of this nation. This ``people-focus'' supports all 
        aspects of nuclear science and engineering as the industry 
        decides to pursue additional nuclear electrical generating 
        capacity or the medical community uses new advances in medical 
        imaging and cancer treatments.
   In addition, Senate Bill 242 provides the infrastructure 
        support for the necessary facilities for the education of 
        future scientists and engineers. This support will provide 
        undergraduates and graduate students with an otherwise 
        unobtainable ``hands-on'' educational experience, allowing for 
        understanding of nuclear fission-reactor processes and 
        interaction of radiation with matter.

    Therefore, I fully support the authorization of $30 million in 
FY2002 with increased funding in a phased manner to $64 million by FY 
2006.
      senate bill 472: support for continued use of nuclear energy
    I have also read Senate Bill 472 in some detail and although I do 
not consider myself an expert in all of the aspects of this omnibus 
bill, I am quite supportive of its general approach and many of its 
specific recommendations, as well as the funding needed to accomplish 
these tasks. Let me provide comments on significant items:
1. Support for Nuclear Energy
    a. Renew Price-Anderson: This legislation provides the essential 
liability coverage for nuclear activities. It has been and continues to 
be a rational and reasonable way to assure for compensation from 
accidents if needed.
    b. Assistant Secretary for Nuclear Energy: This is necessary since 
it elevates the Director for Nuclear Energy to a position held in prior 
administrations.
    c. Nuclear Engineering Educational Support: I have commented on 
this.
    d. Nuclear Engineering Efficiency Improvement: This provision would 
provide funding for incentives to utilities to make capital investments 
that would increase the electricity output of nuclear power plants. In 
this time of rising energy costs and electricity shortages, such a 
provision provides a needed mechanism to rapidly provide more 
electrical power with this economic, safe and reliable technology.
    e. Nuclear Generation Study provides a status of new and re-
licensed plants.
2. Encourage New Nuclear Power Plant Construction
    a. Completion of Unfinished Plants: This is a mechanism that can 
provide for the industry to bring unfinished nuclear power plants on-
line by the end of 2004, following a careful review of their viability 
and reliability.
    b. Generation IV Reactor Program: This is an important program that 
will allow the DoE to develop a program plan with the needed industrial 
input and guidance. The program provides a roadmap for new evolutionary 
plant designs, research and development to supply future electrical 
energy needs, with improved economics, safety and sustainability.
    c. Early-site Permit Demonstration Program: This is an interesting 
concept to provide a ``bank'' of locations that are pre-approved by the 
Nuclear Regulatory Commission for nuclear power plant sites. This has 
the potential of taking several years off of the construction time for 
nuclear power plants and making them more economic.
3. Assure a Level Playing Field for Nuclear Power
    There are numerous improvements being proposed that will improve 
the competitive aspects of nuclear power production. I would endorse 
many of these; e.g., qualification for environmentally preferable 
purchase programs, consumer information disclosure standards, no 
discrimination for international programs.
4. Improve Nuclear Regulatory Commission Regulations
    Once again there are numerous improvements that need to be 
implemented, which will not compromise the general public health and 
safety, but are needed for process enhancement. I would also endorse 
many of these; e.g., remove duplicative antitrust review requirements, 
simplify hearings for licensing actions, give the NRC authority over 
decommissioning obligations of non-licensees.
5. Development of Nuclear Waste Solutions
    The stalemate over disposal of high-level waste that has existed 
for over three decades is totally unacceptable. This is one of the most 
important areas that require legislative attention to assure continued 
use of nuclear power in the 21st century. It is my view that this is 
primarily a political rather a technical issue. To quote a former 
governor and a former Secretary of the Interior, Bruce Babbitt, the 
disposal of nuclear waste is ``almost entirely a political issue. There 
is not much left to quarrel about'' at Yucca Mountain, Nevada, the site 
of the proposed repository for spent nuclear fuel. The former Secretary 
of the Interior called the site ``safe and solid'' at a recent Nuclear 
Energy Assembly Conference on May 22nd, 2001. Former Secretary Babbitt 
said that the political nature of waste disposal ``stems from the 
inability to appreciate the reality of geologic time and how stable 
land forms are over relatively short times geologically speaking.'' I 
am also aware that the proposed Yucca Mountain repository siting 
decision is being delayed due to political reasons. Therefore, I fully 
support the concept of an Office of Spent Nuclear Fuel Research as a 
backup. This proposal has as its charter, the development of a national 
strategy for spent fuel. This was part of the Title III interim storage 
bill proposed during the 106th Congress.
    In summary, the omnibus Senate Bill 472 has my full support.

    The Chairman. Thank you all very much. I think all the 
testimony has been very useful. Let me just ask a very few 
questions here and then we have one additional panel. Dr. 
Holdren, let me start with you. One of the things you focused 
on in this 1997 PCAST report was, or at least one of the things 
you raised there, was the role of government in commercializing 
these high public benefit energy technologies. Could you 
elaborate a little bit as to what you see as the appropriate 
governmental role in this?
    Dr. Holdren. Yes, I can do that, although to do so I will 
have to go somewhat beyond what the PCAST study 1997 itself 
addressed because our mandate was to look at research and 
development and not at demonstration and deployment. We went a 
little bit beyond that mandate in suggesting that in cases 
where there is a very high public benefit associated with a new 
technology, the Government's investment in research and 
development should be added to by an investment at the 
demonstration stage and perhaps in efforts to buy down the 
costs of the new technology to the point of commercial 
competitiveness with the justification that the high public 
benefit not realized in private returns justifies the 
Government's moving beyond R&D. In those kinds of cases, one 
could imagine, for example, a situation where you have a new 
technology whose cost would fall rapidly if you could get the 
total quantity of production up a bit. But there is this 
barrier to be overcome. The production will not rise under 
market conditions if the initial price is too high to compete 
with what else is out there. So, you get the Government 
involved, and there are various ways to do this, in subsidizing 
the incremental cost required to get production to the level 
where the new technology becomes competitive, and again the 
reason for it is the public benefit. For example, in reduced 
emissions of air pollutants, greenhouse gases, reduced 
dependence on foreign oil, and so on and so forth, a wide array 
of public benefits that might justify that sort of involvement.
    The second PCAST study in 1999 on international cooperation 
looked at this in more detail because it did have a mandate to 
look beyond R&D toward demonstration and deployment. It did 
look in more detail at specific mechanisms for doing this and 
also looked in more detail at the circumstances under which it 
would make sense.
    The Chairman. Let me ask Dr. Moniz a question that I asked 
Mr. Blake a little bit earlier. This whole problem of 
measuring, or metrics, in the expenditure of R&D funds--what do 
you believe the pitfalls are in going down that road? I mean I 
am concerned, I guess, that building too many metrics into this 
system can cause us to make some very shortsighted decisions, 
and I would just be interested in any comments you have as to 
how we avoid that.
    Dr. Moniz. Well, Mr. Chairman, I think the physicist's 
response is always, to quote Einstein, ``not everything that 
can be counted counts and not everything that counts can be 
counted.'' And I think that does apply to much of the research 
enterprise. Indeed, in 1996, I would just observe when I was 
serving at OSTP we did a multi-agency study of metrics in the 
GPRA context for basic research. And I think that report raises 
many of the cautions that you elude to. Indeed, it is complex 
analysis involving, as Bob said, both retrospective and 
prospective issues but when all was said and done, certainly 
especially in the research phase, we emphasized that there was 
simply no replacement for forums of merit review and peer based 
review to evaluate particularly prospective investments.
    Now, having said that, we certainly do not argue that R&D 
investments are somehow immune from accountability, from using 
measures. I believe the Academy report, for example, the matrix 
that Bob referred to, is the kind of approach which clearly has 
some subjective judgments in filling in the boxes which is 
very, very important and a way to go. It is also a case that 
when one takes a sensible system, and I will just finish with 
one example, that one has in some sense a mixed kind of 
approach appropriate to the job. It is not one size fits all. 
Let's take for example a major investment, and I will just pick 
an example. Let's say, at Fermilab to explore the Higgs boson. 
There are clearly very quantitative metrics that should be 
applied to the issue of building the facility on time, on 
schedule, on costs, et cetera. But those same metrics cannot 
sensibly be applied to the actual research outcome because the 
outcomes themselves are of course what you are trying to learn. 
So, the issue would be, and I would refer back to, and I would 
be happy to explain, at some other time, go into more detail, 
in the 1996 report together with the National Academy report. I 
believe it maps out what is fundamentally a sensible way of 
evaluating research programs and looking at progress.
    The Chairman. Well, I could ask questions here for several 
more hours and I am sure you folks could educate me on a lot of 
things, but let me just stop with that. And thank you very much 
for coming. We will take your testimony and do our best to 
learn from it and incorporate the lessons into what we wind up 
legislating here. Thank you very much.
    Let's take a 5-minute break and then we will do the third 
panel.
    [Recess.]
    The Chairman. If we go ahead with the third panel. We have 
three witnesses here in this third and last panel on 
reprocessing of nuclear fuel. First, Dr. Tom Cochran who is a 
senior scientist and nuclear program director with the NRDC 
here in Washington. Mr. Jacques Bouchard who is with the French 
Atomic Energy Commission. Thank you very much for being here. 
And Dr. Greg Choppin, who is with the Department of Chemistry 
at Florida State University in Tallahassee. Thank you very much 
for being here. Dr. Cochran, why don't you go ahead. And the 
full statement of each of you will be included in the record. 
If you could take just 5 or 6 minutes and summarize your main 
points, we would appreciate it.

   STATEMENT OF THOMAS B. COCHRAN, PH.D., DIRECTOR, NUCLEAR 
           PROGRAM NATURAL RESOURCES DEFENSE COUNCIL

    Dr. Cochran. Thank you, Mr. Chairman. My name is Thomas B. 
Cochran. I am director of nuclear program at the Natural 
Resources Defense Council. I am a member of the Department of 
Energy's Nuclear Energy Research Advisory Committee but I am 
testifying today on behalf of NRDC and not the advisory 
committee. I am pleased to be here today to testify about U.S. 
nuclear energy policy and proposals for funding, research and 
development by the Department of Energy's office of nuclear 
energy. My testimony will focus on research and development of 
advanced fuel processing technologies and whether the United 
States should abandon its long-standing nonproliferation policy 
and promote the development and deployment of pyroprocessing 
and transmutation technologies.
    Let me begin with a few general observations. Civilian 
nuclear activities have directly and indirectly contributed to 
the spread of nuclear weapons. In my written testimony I've 
given you several examples. Several non-weapons States have 
pursued nuclear weapons primarily through the plutonium 
production and reprocessing route. And again in my written 
statement I've given you the example of Taiwan's covert nuclear 
weapons program that was conducted under the cloak of its 
civilian nuclear energy program. Unfortunately, the nuclear 
nonproliferation threat stemming from civilian nuclear power 
technologies is still alive today as evidenced by Iran's 
pursuit of a nuclear weapons option by purchasing nuclear 
expertise and dual use technology from Russia.
    Because of the real proliferation risk associated with the 
separation of plutonium by reprocessing, the U.S. Government 
has long taken the position that it does not encourage the 
civilian use of plutonium and accordingly does not itself 
engage in commercial plutonium processing. The United States 
has also recognized as far back as the Ford administration, and 
largely because of the work of Mr. Fri who was on the previous 
panel, that the closed nuclear fuel cycle with reprocessing in 
plutonium separation and recycling is uneconomical and presents 
an unacceptable proliferation risk.
    Unfortunately, while the United States has actively sought 
to limit reprocessing in some regions of proliferation concern, 
it regrettably has taken the position that it will honor its 
existing commitments with regard to the use of plutonium in 
civilian nuclear programs in Western Europe and Japan, thus 
establishing an unworkable double standard in dealing with 
global nuclear weapons proliferation and leading to the 
stockpiling of huge quantities of weapons usable plutonium in 
Western Europe and Japan. Large reprocessing plants, plutonium 
stockpiles and advanced research on new fuel processing 
technologies in non-weapons States provide an ideal cover for 
nascent nuclear weapons States to pursue a nuclear weapons 
option while claiming their programs are entirely for peaceful 
purposes. Advanced reprocessing research even in weapons States 
provides the necessary justification for the nascent nuclear 
weapons States to pursue similar research ostensibly for 
peaceful purposes.
    The Bush administration's national energy policy has 
recommended that the United States should reexamine its 
policies to allow for research and development and deployment 
of fuel conditioning or reprocessing technologies such as 
pyroprocessing.
    In my view, implementation of the Bush plan and the 
supporting legislative proposals would be a grave mistake. Let 
me explain why.
    First, reprocessing light water reactor spent fuel is 
uneconomical today and will remain so for the foreseeable 
future. The issue then is whether there are new reactor 
concepts using new fuel cycles that are cheaper and more 
proliferation resistant than the light water reactor once-
through fuel cycle. The simple answer is that there are no 
known fuel cycles that are cheaper, and no known fuel cycles 
that rely on reprocessing that are more proliferation resistant 
than the once-through fuel cycle. In fact, neither 
pyroprocessing nor any other reprocessing scheme proposed to 
date is cleaner, less waste intensive or more proliferation 
resistant than the once-through fuel cycle, that is, direct 
disposal of spent fuel, the practice planned for use in the 
United States today.
    I will not go into the history of the pyroprocessing 
program. It is in my written remarks. The claim that 
pyroprocessing, which is an electro-refining technique, the 
claim that it is proliferation resistant is misleading. 
Pyroprocessing is less proliferation resistant than the once-
through fuel cycle in use today. It is more proliferation 
resistant than aqueous reprocessing, which the United States 
abandoned commercially more than 20 years ago because it was 
uneconomical and because it carries a high proliferation risk. 
Pyroprocessing appears less risky than aqueous reprocessing 
because the plutonium is not completely separated from other 
radioactive actinides and therefore an additional processing 
step is needed to obtain weapons-usable plutonium. This would 
make it very difficult for terrorists to steal the plutonium 
from a pyroprocessing plant or the Integral Fast Reactor fuel 
cycle which relied on pyroprocessing.
    However, the most serious nonproliferation threat 
associated with reprocessing technologies is not the terrorist 
threat, but the so-called State threat. The Integral Fast 
Reactor concept and the pyroprocessing technique that it 
utilized offers little in the way of reducing this State 
threat. If pyroprocessing facilities are located in non-weapons 
States, these States will have cadres of experts trained in 
plutonium chemistry and metallurgy along with hot cells and 
other facilities that can be readily used for the recovery of 
plutonium for weapons. In this regard, pyroprocessing cannot 
meet the so-called timely warning international safeguards 
criterion.
    In one respect, pyroprocessing is actually worse than 
aqueous reprocessing in terms of their respective proliferation 
risks. Pyroprocessing involves access to technologies for 
working with plutonium in metallic form, the form that is used 
for weapons. What is more, engaging in pyroprocessing research 
now will encourage or provide an excuse for non-weapons States 
to do the same, thus giving these States yet another avenue to 
get closer to a weapons option without declaring their true 
intention. No one would want to see Iran engaging in 
pyroprocessing research associated with the Bushehr reactor now 
under construction.
    Another problem with pyroprocessing, and this is the 
Achilles heel, is that there are no known fuel cycles that rely 
on pyroprocessing that show any promise of being economical in 
the foreseeable future. For the United States to pursue an 
expensive pyroprocessing R&D effort at this stage is simply a 
waste of taxpayers money.
    Now, I wish to turn to the issue of accelerator 
transmutation of waste.
    The Chairman. Could you do that fairly quickly for us, 
please?
    Dr. Cochran. Yes. The argument for transmutation of waste 
is that you will select out certain isotopes, burn them in 
accelerators or fast reactors, and thereby reduce the long-term 
health effects from radioactive release from a geologic 
repository and reduce the uncertainty in the long-term dose 
assessment as well.
    This proposal sounds worthy in theory but in practice, it 
is a ridiculous proposal. First, it is extremely expensive. The 
Department of Energy estimated that the life cycle cost would 
be something on the order of $280 billion. Secondly, even if 
you did not go back and process all of the existing spent fuel 
but say only process future spent fuel, you would only reduce 
the dose from the geologic repository, for example, Yucca 
Mountain, by a factor of 2. So, you would be paying hundreds of 
billions of dollars to reduce the dose tens of thousands or 
hundreds of thousand of years from now by a factor of 2. The 
argument is even worse in that there is not a shred of evidence 
in any of the accelerated transmutation of waste proposals that 
the collective dose reductions associated with the geological 
repository will in fact be less than the collective dose from 
operating all of the reprocessing facilities in transmutation 
facilities. So, in fact you would be spending tens to hundreds 
of billions of dollars most likely to give people more cancer 
rather than less.
    In closing, NRDC does not object to continued support of 
university nuclear research programs or the Department of 
Energy's Nuclear Energy Research Initiative or the study of 
Generation IV reactors and fuel technologies. Research on 
advanced fuel cycle technologies should be limited to paper 
studies until there is clear evidence that the new technology 
is cheaper, inherently safe and more proliferation resistant 
than the light water reactor operating on the once through fuel 
cycle. At this time, Congress should reject any legislative 
proposals to fund dual use technologies such as power 
processing and accelerated transmutation of waste beyond such 
paper studies. Thank you, Mr. Chairman.
    [The prepared statement of Dr. Cochran follows:]

   Prepared Statement of Thomas B. Cochran, Ph.D., Director, Nuclear 
               Program Natural Resources Defense Council

    My name is Thomas B. Cochran. I am the director of the Nuclear 
Program and hold the Wade Greene Chair for Nuclear Policy at the 
Natural Resources Defense Council (NRDC). I am a member of the 
Department of Energy's (DOE's) Nuclear Energy Research Advisory 
Committee (NERAC), but I am testifying today on behalf of NRDC, not 
NERAC. I am a fellow of the American Physical Society and the American 
Association for the Advancement of Science. I received my Ph.D. in 
nuclear physics from Vanderbilt University, where I also did my Masters 
research thesis in radiation chemistry. I was an AEC Health Physics 
Fellow at Vanderbilt and spent one month training at a pilot nuclear 
fuel reprocessing plant at Oak Ridge National Laboratory. I am the 
author of The Liquid Metal Fast Breeder Reactor: An Environmental and 
Economic Critique and co-author of several books on nuclear weapons and 
the nuclear weapons programs of the United States and the Soviet Union/
Russia.
    I am pleased to be here today to testify about U.S. nuclear energy 
policy and proposals for funding research and development by the DOE' 
Office of Nuclear Energy. My testimony will focus on research and 
development of advanced fuel processing technologies and whether the 
United States should abandon its longstanding non-proliferation policy 
and promote the development and deployment of pyroprocessing and 
transmutation technologies. Let me begin with a few general 
observations.
    Civilian nuclear activities have directly and indirectly 
contributed to the spread of nuclear weapons. India's first nuclear 
weapons test in 1974, for example, used plutonium produced in a 
Canadian-supplied research reactor using U.S.-supplied heavy water as a 
moderator, and the plutonium was separated in a reprocessing plant 
built from blueprints supplied by an American firm, Vitro 
International. This plant was nominally part of India's civilian 
breeder reactor research and development program. Between 1955 and 
1974, Argonne and other DOE national laboratories trained some 1100 
Indian scientists and engineers in nuclear fuel cycle technology, 
including techniques for plutonium separation. Some nations have 
established nominally civilian nuclear programs as a pretext to acquire 
technologies for military programs or have acquired materials, 
equipment, technologies or technical personnel from the civilian sector 
for their nuclear weapons programs. Israel's plutonium production 
reactor and reprocessing plant at Dimona were provided by France 
ostensibly for civilian purposes, but were actually used for military 
purposes.
    Several non-weapon states have pursued nuclear weapons primarily 
through the plutonium production and reprocessing route. For example, 
Taiwan's covert nuclear weapons program was conducted under the cloak 
of its civilian nuclear program. Under intense pressure from the United 
States Taiwan's program was shut down in the 1970s, restarted in the 
1980s, and shut down a second time under pressure by the United States. 
In the 1970s the United States had provided a small amount of plutonium 
to Taiwan for research purposes and some was fabricated into metal in 
what was claimed to be a civilian facility. Evidence strongly suggested 
that Taiwan planned to divert the plutonium from its safeguarded 
facility for weapons research. Subsequently, Taiwan provided assurances 
to the United States that it would not reprocess, dismantled its 
reprocessing research facility and sent the separated plutonium back to 
the United States. Similarly, South Korea began a secret nuclear 
weapons program based on plutonium production and reprocessing. Under 
pressure from the United States South Korea agreed to end its program.
    Unfortunately, the nuclear nonproliferation threat stemming from 
civilian nuclear power technologies is still alive today, as evidenced 
by Iran's pursuit of a nuclear weapons option by purchasing nuclear 
expertise and dual-use technology from Russia.
    Because of the very real proliferation risks associated with the 
separation of plutonium by reprocessing, the United States government 
has long taken the position that it does not ``encourage the civil use 
of plutonium and accordingly, does not itself engage in plutonium 
processing.'' The United States has also recognized as far back as the 
Ford Administration that the closed nuclear fuel cycle with 
reprocessing and plutonium separation and recycling, is uneconomical 
and presents unacceptable proliferation risks. In fact it was the Ford 
Administration, not the Carter Administration, which stopped commercial 
reprocessing in the United States by refusing to subsidize the 
completion of the Barnwell reprocessing plant in South Carolina. For 
existing light water reactors the closed fuel cycle has been, continues 
to be, and in the foreseeable future is projected to be more expensive 
than ``once-through'' utilization followed by direct disposal of spent 
fuel.
    Unfortunately, while the United States has actively sought to limit 
reprocessing in some regions of proliferation concern, it regrettably 
has taken the position that it will ``honor its existing commitments 
regarding the use of plutonium in civil nuclear programs in Western 
Europe and Japan,'' \1\ thus establishing an unworkable double standard 
in dealing with global nuclear weapons proliferation and leading to the 
stockpiling of huge quantities of weapon-usable plutonium in Western 
Europe and Japan.
---------------------------------------------------------------------------
    \1\ White House National Policy Statement of September 1993.
---------------------------------------------------------------------------
    Large reprocessing plants, plutonium stockpiles and advanced 
research on new fuel processing technologies in non-weapon states 
provide an ideal cover for nascent nuclear weapon states to pursue a 
nuclear weapons option while claiming their programs are entirely for 
peaceful purposes. Advanced reprocessing research, even in weapon 
states, provides the necessary justification for nascent nuclear weapon 
states to pursue similar research ostensibly for peaceful purposes. It 
is primarily for these reasons that NRDC believes the better course is 
to oppose all commercial use of nuclear weapon-usable materials, 
including separated plutonium and highly enriched uranium, and oppose 
the research, development and commercialization of nuclear fuel 
reprocessing technologies.
    The Bush Administration's National Energy Policy has recommended 
that ``"the United States should reexamine its policies to allow for 
research, development and deployment of fuel conditioning methods 
[i.e., reprocessing] (such as pyroprocessing) that reduce waste streams 
and enhance proliferation resistance,'' and ``[t]he United States 
should also consider technologies, in collaboration with international 
partners with highly developed fuel cycles and a record of close 
cooperation, to develop reprocessing and fuel treatment technologies 
that are cleaner, more efficient, less waste intensive, and more 
proliferation resistant.'' Some of the legislative proposals being 
considered by the Senate are designed to implement the Bush 
Administration proposal. In my view implementation of the Bush plan and 
these legislative proposals would be a grave mistake. Let me explain 
why.
    First, as noted above, reprocessing light water reactor spent fuel 
is uneconomical today and will remain so for the foreseeable future. 
The issue then is whether there are new reactor concepts using new fuel 
cycles that are cheaper and more proliferation resistant than the light 
water reactor once-through fuel cycle. The simple answer is that there 
are no known fuel cycles that are cheaper, and no known fuel cycles 
that rely on reprocessing that are more proliferation resistant, than 
the once through fuel cycle. In fact, neither pyroprocessing nor any 
other reprocessing scheme proposed to date is cleaner, less waste-
intensive or more proliferation-resistant than the once-through fuel 
cycle, i.e., direct disposal of spent fuel, the practice planned for 
use in the United States today.
    Why is there so much interest in pyroprocessing in the United 
States? Pyroprocessing is an outgrowth of the failed Liquid Metal Fast 
Breeder Reactor (LMFBR) program. After the Clinch River Breeder Reactor 
Demonstration Reactor was cancelled in 1983 in response to criticisms 
that the Liquid Metal Fast Breeder Reactor fuel cycle would have 
produced huge quantities of separated plutonium and posed a significant 
proliferation risk, Argonne National Laboratory began promoting the 
Integral Fast Reactor (IFR) concept. The IFR concept relied on 
pyroprocessing, an electro-refining technique, instead of aqueous 
reprocessing, the traditional method for separating plutonium from 
spent fuel. Also the IFR concept envisioned that a pryroprocessing 
facility would be located at each fast reactor site. The IFR concept, 
like its LMFBR predecessor is grossly uneconomical. When IFR R&D was 
terminated, the proponents of pryprocessing used the excuse that this 
was the best methodology for processing and disposing of EBR-II spent 
fuel. Now that this program has run its course Argonne and Argonne-West 
are seeking additional Congressional funding to preserve their program 
by suggesting that pryroprocessing R&D could be continued for some 
illusory ``proliferation-resistance'' benefit.
    The claim that pyroprocessing is ``proliferation resistant'' is 
misleading. Pyroprocessing is not more proliferation resistant than the 
once-through fuel cycle in use today. It is more proliferation 
resistant than aqueous reprocessing, which we abandoned more than 20 
years ago because it was uneconomical and because it carried a high 
proliferation risk. Pyroprocessing appears less risky than aqueous 
reprocessing because the plutonium is not completely separated from 
other radioactive actinides and therefore an additional processing step 
is needed to obtain weapon-usable plutonium. This would make it very 
difficult for terrorists to steal the plutonium from the IFR fuel 
cycle. However, the most serious nonproliferation threat associated 
with reprocessing technologies is not the terrorist threat, but the so-
called ``state threat.'' The IFR concept and the pyroprocessing 
technique offer little in the way of reducing this threat. If 
pyroprocessing facilities are located in non-weapon states, these 
states will have cadres of experts trained in plutonium chemistry and 
metallurgy along with hot cells and other facilities that can be 
readily used for the recovery of plutonium for weapons. In this regard 
pyroprocessing cannot meet the so-called ``timely warning'' 
international safeguards criterion.
    In one respect pyroprocessing is actually worse than aqueous 
reprocessing in terms of their respective proliferation risks. 
Pyroprocessing involves access to technologies for working with 
plutonium in metallic form, the form most often used for weapons.
    What is more, engaging in pryroprocessing research now will 
encourage or provide an excuse for non-weapons states to do the same, 
thus giving these states yet another avenue to get close to a weapon 
option without declaring their true intention. No one would want to see 
Iran engaging in pyroprocessing research associated with the Bushehr 
reactor now under construction.
    Another problem with pyroprocessing is that there are no known fuel 
cycles that rely on pyroprocessing that show any promise of being 
economical in the foreseeable future. For the United States to pursue 
an expensive pyroprocessing R&D effort at this stage is simply a waste 
of the taxpayers money.
    In sum, pyroprocessing R&D is a waste of money and an unnecessary 
proliferation risk. It is being promoted by entrenched interests that 
have lived off the taxpayer for decades and are now engaged in a last 
ditch effort to preserve their existence without substantive 
justification.
    I now wish to turn to the issue of accelerator transmutation of 
[nuclear] waste (ATW). This program has been combined with accelerator 
production of tritium, a proposal to develop a backup method for 
producing tritium, under a budget category called ``Advanced 
Accelerator Applications.'' The argument for transmutation of waste is 
that by reprocessing spent fuel, separating out selected isotopes and 
transmute these isotopes with accelerators and/or fast reactors, the 
long-term health effects from radioactivity released from a geologic 
repository can be reduced and the uncertainty in the long-term dose 
assessment would also be reduced. The proposal sounds worthy in theory, 
but in terms of practicality it is a ridiculous proposal. First, to 
have any significant impact on the first geologic repository, all the 
existing spent fuel would have to be reprocessed. This is such an 
extremely expensive proposition that it simply not credible. DOE 
estimated the life-cycle cost of the ATW program at approximately $280 
billion! \2\
---------------------------------------------------------------------------
    \2\ DOE, ``A Roadmap for Developing Accelerator Transmutation of 
Waste (ATW) Technology,'' October 1999, p. E-2.
---------------------------------------------------------------------------
    There are about 40,000 tonnes of power reactor spent fuel spent 
fuel in storage in the United States. Over the future lifetime of 
existing reactors another 40,000 tonnes or so will be generated. Even 
if only the future waste were transmuted, the theoretical impact at the 
geologic repository--at Yucca Mountain if it is licensed--would be to 
reduce the long-term dose from those isotopes transmuted only by about 
one-half. It is ridiculous to suggest that we should spend hundreds of 
billions of dollars today to reduce the radiation dose to people living 
tens to hundreds of thousands of years from now by a factor of two or 
less.
    It the arguments get even worse. There is not a shred of evidence 
in any of the ATW proposals that the collective dose reductions 
associated with the geologic repository, assuming ATW is implemented, 
will be less than the collective dose from operating the reprocessing 
facilities and the transmutation facilities. In fact everything we know 
about these facilities today suggests the opposite--ATW would result in 
a higher collective radiation dose to people than they would receive if 
ATW were not implemented. We should not spend hundreds of billions of 
dollars to give more people cancer. Finally, ATW provides yet another 
cover for non-weapon states to engage in reprocessing and the study of 
plutonium and actinide chemistry and metallurgy. It is a serious 
proliferation risk.
    With regard to backup tritium production, this apparently is not a 
request coming from the Administration. Rather, this request comes from 
a Los Alamos accelerator group which lost a bid to produce tritium for 
weapons when the Administration decided to qualify TVA reactors for 
this purpose in the event that the pace of nuclear arms reductions lags 
behind the decay curve of tritium. If the United States needs a second 
backup method for tritium production, we should use another reactor 
alternative. Reactors have reliably produced tritium for weapons for 40 
years.
    The NRDC does not object to continued support of university nuclear 
research programs, the DOE Nuclear Energy Research Initiative (NERI), 
and the study of Generation IV reactor/fuel cycle technologies. 
Research on advanced fuel cycle technologies should be limited to paper 
studies until there is clear evidence that the new technology is 
cheaper, inherently safe, and more proliferation resistant than the LWR 
operating on a once-through fuel cycle. At this time Congress should 
reject any legislative proposals to fund pyroprocessing or ATW R&D 
beyond such paper studies.

 COMMENTS ON SPECIFIC LEGISLATIVE PROPOSALS BEFORE THE 107TH CONGRESS, 
                              1ST SESSION

S. 193 Department of Energy Advanced Scientific Computing Act. 
        (Bingaman, et al.)
    The Department of Energy is already subsidizing the supercomputer 
industry through the Accelerated Strategic Computing Initiative (ASCI) 
program to the tune of some $5.2 billion for fiscal years 1992-2004. It 
should be made clear that funding under S193 should be for non-defense 
work, i.e., other than ASCI and other National Nuclear Security 
Administration (NNSA) activities, and that it should be accommodated by 
drawing down the ASCI weapons computing program to a more sensible 
level of funding. GAO has demonstrated in several reports that DOE is 
able to effectively utilize only a fraction of the new computing 
capacity it is rushing to install.
S. 242 Department of Energy University Nuclear Science and Engineering 
        Act. (Bingaman, et al.)
    I concur that university nuclear science departments are on the 
decline. Because of the wide range of nuclear activities in the United 
States, including environmental cleanup of sites contaminated by 
radioactivity, nuclear medicine and nuclear related national security 
programs, as a general matter university nuclear programs could benefit 
from federal support. Due to the lack of U.S. student interest in 
nuclear engineering, U.S. nuclear engineering departments are 
increasingly relying on foreign students to fill the student ranks in 
these departments. The Congress may wish to consider restrictions on 
nuclear training of foreign nationals, particularly in cases where the 
students are from countries that do not share U.S. nonproliferation 
policies and objectives. Consequently, I recommend that the 
undergraduate and graduate fellowships and faculty grants under this 
proposed legislation be limited to the support of U.S. citizens.
S. 259 National Laboratories Partnership Improvement Act of 2001. 
        (Bingaman, et al.)
    This legislative proposal should be rejected in that it is an 
unwarranted subsidy for small businesses that meets vague criteria, 
e.g., work that can ``support the missions of the National Laboratories 
or facilities,'' or encourage ``the exchange of scientific or 
technological expertise.''
S. 388 National Energy Security Act of 2001. (Murkowski, et al.)
    SEC. 106. Nuclear Generation Study--An NRC report on the state of 
nuclear power would be useful. As a regulatory agency NRC at least 
should maintain the semblance of independence and not take positions 
for or against the relicensing of nuclear power plants.
    SEC. 107. Development of a National Spent Nuclear Fuel Strategy and 
Establishment of an Office of Spent Nuclear Fuel Research--This 
legislative proposal should be rejected. To a large extent this 
proposal is an unnecessary duplication of the work of the DOE Office of 
Civilian Radioactive Waste Management. There is no evidence that 
reprocessing of spent fuel is economical so there is no merit to this 
aspect of the proposed activities. Moreover, establishment of this 
office and carrying out recycle research activities would be counter to 
the nonproliferation interest of the United States for reasons given in 
my general comments above.
    SEC. 410. Nuclear Energy Research Initiative--The NERI program of 
the department is a good program and deserves the support of the 
Congress
    SEC. 411. Nuclear Energy Plant Optimization Program--Plant 
optimization is in the interest of the nuclear industry. Congress 
should not subsidize a mature industry to do what is in their economic 
interest to do without federal subsidization.
    SEC. 412. Nuclear Energy Technology Development Program--A roadmap 
to design and develop a new energy facility is premature. There is 
nothing coming out of the NERI studies or GEN IV programs that is 
commercially attractive and justifies federal support at this time.
    SEC. 420. Nuclear Energy Production Initiatives--Congress should 
not subsidize a mature industry to do what is in their economic 
interest to do without federal subsidization.
    SEC. 830. Emission Free Control Measures Under at State 
Implementation Plan--Sec. 830 offers unwarranted federal subsidies to 
nuclear power plant operators in the form of emission credits, since 
the facilities do not emit air pollution causing acid rain (sulfur 
dioxide), ozone smog (nitrogen oxide), or mercury as do many fossil 
fuel-fired power plants. Under the Clean Air Act, fossil fuel-fired 
power plants are offered economic incentives to adopt the most 
efficient pollution control measures available for sulfur dioxide and 
nitrogen oxide emissions by requiring operators to have emission 
allowances equal to the amount of pollution emitted at each fossil 
fuel-fired power plant. This section would undermine the reductions in 
acid rain and ozone smog pollution achieved under these Clean Air Act 
programs at fossil fuel-fired power plants by giving nuclear power 
plant operators emission allowances that would flood the market, 
significantly lower the value of banked allowances and discourage 
continued investment in pollution control measures at fossil fuel-fired 
power plants. This is an unjustified and damaging federal subsidy.
S. 472 Nuclear Energy Electricity Supply Assurance Act of 2001. 
        (Domenici, et al.)
Title I--Support for Continued Use of Nuclear Energy
            Subtitle A--Price Anderson Amendments
    The Price Anderson Act should not be renewed. This is an 
unwarranted federal subsidy to a mature industry. Moreover, the 
industry and its supporters cannot have it both ways. They cannot claim 
nuclear reactors are safe, and that Generation IV reactors will be even 
safer, and then claim that Price Anderson is necessary. Asserting a 
requirement for Price Anderson coverage of supposedly ``inherently 
safer'' Generation IV reactors is disingenuous and unwarranted. The 
single criterion that will do most to insure that Generation IV designs 
are safe is for the Congress to explicitly exclude any Price Anderson 
coverage of new nuclear power plants.
            Subtitle C--Funding of Certain Department of Energy 
                    Programs
    SEC. 122. Nuclear Energy Research Initiative--The NERI program of 
the department is a good program and deserves the support of the 
Congress.
    SEC. 123. Nuclear Energy Plant Optimization Program--Plant 
optimization is in the interest of the nuclear industry. Congress 
should not subsidize a mature industry to do what is in their economic 
interest to do without federal subsidization.
    SEC. 124. Uprating of Nuclear Plant Operations--Whether to increase 
the power at a nuclear power plant is a decision to be made by the 
plant owner and the Nuclear Regulatory Commission. Congress should not 
by subsidizing a mature industry to do this.
    SEC. 125. University Programs--See comments under S. 242 Department 
of Energy University Nuclear Science and Engineering Act. (Bingaman, et 
al.) above.
    SEC. 126. Prohibition of Commercial Sales of Uranium and Conversion 
Held by the Department of Energy Until 2006--This legislative proposal 
should be supported so as not to jeopardize the HEU Purchase agreement 
with Russia.
    SEC. 127. Cooperative Research and Development and Special 
Demonstration Projects for the Uranium Mining Industry--This appears to 
be a sweet heart deal for Rio Algom and possibly other uranium mining 
companies. Congress should not by subsidizing the uranium mining 
industry which has been in business in the United States for more than 
50 years.
    SEC. 128. Maintenance of a Viable Domestic Uranium Conversion 
Industry--This appears to be a sweet heart deal for Converdyn, owned by 
Honeywell and General Atomics, to make them more profitable. General 
Atomics has been surviving off of this type of special interest 
legislation for 30 years. Congress should not by subsidizing General 
Atomics or the uranium conversion industry, a mature industry.
    SEC. 129. Portsmouth Gaseous Diffusion Plant--First Congress 
privatized the domestic uranium enrichment industry and is now stepping 
in to subsidize the maintenance of the Portsmouth gaseous diffusion 
plant. This has more to do with job security than nuclear energy 
security.
    SEC. 130. Nuclear Generation Report--An NRC report on the state of 
nuclear power would be useful.
Title II--Construction of New Nuclear Power Plants
    SEC. 203. Early Site Permit Demonstration Program--This is an 
unwarranted federal subsidy of the nuclear industry, a mature industry
    SEC. 204. Nuclear Energy Technology Study for Generation IV 
Reactors--The Generation IV studies deserve support. The primary goal 
should be to identify reactor concepts that are economically 
competitive, inherently safe and more proliferation resistant than 
light water reactors operation on a once through fuel cycle. The 
following goals should be deleted:

          (3) substantially reduce the production of high-level waste, 
        . . .;
          (5) sustainable energy generation . . .
          (6), substantially improve thermal efficiency . . .

    These goals will generally conflict with, the goals related to 
economics, safety and proliferation resistance, and have no independent 
utility
Title III--Evaluations of Nuclear Energy
    SEC. 302 offers unwarranted federal subsidies to nuclear power 
plant operators in the form of emission credits, since the facilities 
do not emit air pollution causing acid rain (sulfur dioxide), ozone 
smog (nitrogen oxide), or mercury as do many fossil fuel-fired power 
plants. Under the Clean Air Act, fossil fuel-fired power plants are 
offered economic incentives to adopt the most efficient pollution 
control measures available for sulfur dioxide and nitrogen oxide 
emissions by requiring operators to have emission allowances equal to 
the amount of pollution emitted at each fossil fuel-fired power plant. 
This section would undermine the reductions in acid rain and ozone smog 
pollution achieved under these Clean Air Act programs at fossil fuel-
fired power plants by giving nuclear power plant operators emission 
allowances that would flood the market, significantly lower the value 
of banked allowances and discourage continued investment in pollution 
control measures at fossil fuel-fired power plants. This is an 
unjustified and damaging federal subsidy.
Title IV--Development of National Spent Fuel Strategy
    This legislative proposal should be rejected. To a large extent 
this proposal is an unnecessary duplication of the work of the DOE 
Office of Civilian Radioactive Waste Management. There is no evidence 
that reprocessing of spent fuel is economical so there is no merit to 
this aspect of the proposed activities. Moreover, establishment of this 
office and carrying out advanced fuel recycle research activities would 
be counter to the nonproliferation interest of the United States for 
reasons given in my general comments above.
Title V--National Accelerator Site
    There is no redeeming social merit to this legislative proposal for 
reasons given under my general remarks above.
S. 597 Comprehensive and Balanced Energy Policy Act of 2001. (Bingaman, 
        et al.)
Title XIV--Research and Development Programs
    SEC. 1405. Enhanced Nuclear Energy Research and Development--The 
goals are very general authorization of appropriations lacks 
specificity. With respect to the goals see comments under S. 472 
Nuclear Energy Electricity Supply Assurance Act of 2001. (Domenici, et 
al.), Sec. 204 Nuclear Energy Technology Study for Generation IV 
Reactors, above.

    The Chairman. Thank you very much. Mr. Bouchard, why don't 
you go right ahead.

 STATEMENT OF JACQUES BOUCHARD, DIRECTOR, FRENCH ATOMIC ENERGY 
       COMMISSION, NUCLEAR ENERGY DIVISION, PARIS, FRANCE

    Mr. Bouchard. Mr. Chairman, thank you very much for giving 
me the opportunity to testify on the important issue of 
reprocessing for the future of nuclear energy. There are few 
doubts today that nuclear fission will still play a role in the 
satisfaction of future energy needs all around the world. It is 
among the solutions that are proposed in the recent NEPD report 
and it has been mentioned by both your President and your Vice 
President and it was also an important point of the European 
Union green report issued last November as well as it is part 
of the future plans for energy in Asian countries, in 
particular Japan and China.
    The results obtained with the 400 existing nuclear reactors 
show that nuclear electricity production is today economically 
competitive and with a very low impact on the environment. The 
safety records for the last 15 years are most satisfactory. The 
only problem that remains a real difficulty in some countries, 
France in particular, is the management of highly radioactive 
wastes. For most of the people, the actual concern is the long 
term behavior of long lived radioactive elements. In this 
respect, reprocessing of spent fuels is a key point as it 
allows a strong reduction of both the volume and the long term 
radio toxicity of wastes.
    Historically, reprocessing of spent fuels, followed by 
recycling of valuable materials, that means uranium and 
plutonium, was intended to increase the use of natural 
resources. It was part of a scheme which included breeders in 
order to extract most of the energy contained in the natural 
uranium. That remains a clear objective for the future. With 
existing light water reactors, we burn only 1 percent of the 
natural uranium and we let aside 99 percent either in 
provisional storage or in waste disposal. If we don't improve 
the situation, with increasing energy needs, we shall exhaust 
in a few decades the uranium resources, at least those which 
can be recovered at a reasonable price. Thus, reprocessing is a 
cornerstone for satisfying future energy needs.
    In shorter terms, it is also a key point for waste 
management. In any other activity, a good waste management 
policy includes selection of various types of wastes, recycling 
of what can be reused and disposal solutions adapted for each 
kind of product. Nuclear wastes should not be an exception to 
this basic rule.
    For France, we consider that nuclear spent fuel is not even 
a waste as it still contains a huge amount of energy valuable 
products. The way we treat it at the output of the reactor is 
of major importance for the waste management policy. With 
present technologies, the fuel unloaded from reactors still 
contains 95 percent of uranium and 1 percent of plutonium and 
it contains also four percent of actual wastes, fission 
products and minor actinides.
    Reprocessing allows us to separate uranium and plutonium 
from the actual wastes and then, with the vitrification 
process, to put these wastes in a robust containment for long 
term storage or final disposal. It is basically a wise policy 
for waste management. The main argument often opposed to this 
policy has been that by extracting the plutonium, we could open 
various possibilities of diversion and thus we may create a 
weakness in the nonproliferation policy. Let me try to bring 
some consideration in this discussion.
    First, we are certainly not underestimating the risk of 
proliferation and we're fully sustaining the various measures 
which are taken on an international basis to try to avoid this 
risk. The plutonium coming from light water reactors, a large 
majority of existing production facilities, is not at all 
suitable for nuclear weapons, but we agree on the fact that we 
cannot completely exclude a wrong use of it, even if it will be 
much more difficult than other proliferation routes. A 
reasonable way to limit the risk, while taking benefit of 
reprocessing, is to burn the plutonium as soon as possible 
after extracting it from spent fuels. It is what we are doing 
in France. The plutonium extracted at La Hauge is used to 
fabricate MOX fuels and we have presently 20 
reactors loaded partially with MOX fuel. That means 
that, except for the necessary hold up for recycle management, 
we have no plutonium on shelves.
    Therefore, the diversion risk is limited to the operations 
themselves, output of the reprocessing plant, transportation 
and fuel fabrication. There, we have very strict domestic and 
international controls, and we are fully convinced that they 
are suitable to avoid any significant diversion.
    Last but not least, we consider that from the 
nonproliferation point of view, it is better to burn plutonium 
rather than to keep it in store, even if it will be quite 
difficult to recover from stored spent fuel with existing 
technologies. In other words, we think it would not be easy to 
explain to French people, for instance, that we should have to 
dispose of hundreds or thousands of tons of plutonium 
underground somewhere in the country.
    Now, looking at the future, assuming that nuclear energy 
will still be needed, and very probably on a larger scale than 
presently, reprocessing will more than ever be necessary for 
both economy of resources and waste management. The existing 
technology of which we have now a large industrial experience--
I recall that we have reprocessed more than 18,000 tons of 
spent fuel in La Hauge--has proved to be efficient and 
economic. But progress should be made and we are working on it 
in the same way as we are working on future reactor designs.
    Taking the present concern on waste management, while 
assuming the problem of plutonium is completely solved by 
reprocessing and recycling, we should consider the possibility 
of destroying the other actinides, the so-called minor ones, 
neptunium, americium, et cetera. Several countries have 
important R&D programs on partitioning and transmutation. We 
have already succeeded in developing complementary processes 
which could be implemented in reprocessing plants to extract 
those minor actinides. We know how to burn them, either in 
reactors or in accelerator driven systems. For the future, we 
should try to develop an integrated approach based on the 
recycling of all the actinides in such a way that the actual 
wastes to be definitely disposed will only be the unavoidable 
fission products, the amount of which is directly related to 
the energy production.
    Other improvements should be considered. One, for instance, 
will be to limit as much as possible the transportation of 
radioactive materials. And there, an objective could be to have 
reprocessing and fuel fabrication on the same site and not too 
far from the reactors. Anyway, technical solutions can be 
developed, either improvement of existing technologies of 
reprocessing or developments of new ones such as, for instance, 
dry processing or pyroprocessing which has been successfully 
tested in your country in the frame of the Integral Fast 
Reactor studies developed by Argonne National Laboratory.
    Mr. Chairman, as a conclusion, I would say that 
reprocessing will be, in our view, sooner or later a necessity 
for use of nuclear energy as sustainable development. It is 
already an efficient tool for waste management and in some 
countries an industrial reality. It can certainly be improved 
to be still more efficient, more proliferation resistant and 
cheaper.
    Thank you for your attention.
    The Chairman. Thank you very much. Dr. Choppin, why don't 
you go right ahead.

STATEMENT OF DR. GREGORY R. CHOPPIN, FLORIDA STATE UNIVERSITY, 
            DEPARTMENT OF CHEMISTRY, TALLAHASSEE, FL

    Dr. Choppin. Thank you. A variety of radionuclides are 
present in the fuel elements of nuclear reactors after their 
irradiation. Many countries process this spent reactor fuel to 
recover the unburnt uranium and the plutonium that has been 
produced for recycle in a reactor for future power production. 
The United States has followed a ``once-through'' policy under 
which the spent fuel of power reactors is considered as waste 
for direct disposal without processing.
    The United States did develop aqueous processing systems in 
connection with the weapons production of the cold war. The 
spent fuel, whether from reactors for plutonium weapons 
production or for civilian power production is treated by the 
aqueous PUREX process in which solvent extraction removes the 
uranium and plutonium from the fission products. This is a 
primary international process for treatment of irradiated fuel 
for the recovery of these elements at present. Many of these 
radiochemical separations developed for processing and recovery 
of plutonium for weapons can be used in the treatment of the 
waste to minimize the amount that must be placed in permanent, 
long term storage.
    Our national policy of direct disposal was based on a 
concern over other nations recovering the plutonium from the 
irradiated fuel of their power reactors and using it to produce 
weapons. Unfortunately, this policy was not adopted by any 
other nation, so the nonproliferation intent of the policy must 
be considered a failure. A disadvantage of the direct disposal 
system is that it may result in the creation of repositories 
which can be mined in the future for the recovery of the 
plutonium for use as weapons material. Processing schemes that 
do not remove all the fission products from the uranium and 
plutonium to be recycled to power reactors for further burning 
can be a more effective nonproliferation approach than direct 
disposal.
    New aqueous technologies for handling spent fuels have been 
developed but have only been demonstrated in the laboratory or 
at the pilot plant level. While these new systems serve to 
complement the PUREX process, they do not overcome some of the 
disadvantages of that processing technology, such as a large 
amount of secondary waste that requires repository disposition. 
It is unlikely that any large scale processing of nuclear spent 
fuel will, in the future, be based on aqueous systems. Non-
aqueous processes being developed as replacements on properties 
such as differences in the volatility of the compounds being 
separated or differences in the oxidation-reduction behavior in 
molten salt media. The advantages of non-aqueous processing are 
that they have a much higher radiation resistance, use more 
compact equipment, produce smaller amounts of secondary waste 
volume, and are more proliferation-resistant than aqueous 
processes. The disadvantages of non-aqueous methods are the 
greater difficulty of conducting the separations and the 
smaller decontamination factors, in general, than aqueous 
processes.
    Based on the gaseous diffusion process, which uses the 
volatility of uranium hexafluoride for separation of the 
uranium isotopes, volatility techniques with fluorides have 
been studied for separation of uranium and plutonium from 
irradiated fuel. This separation is limited by the fact that 
volatile fluorides are formed by several fission products. 
Research continues on evaluation of volatility processes for 
uses in practical full scale separations. Greater interest in 
non-aqueous systems has been focused on the use of pyrochemical 
processes in which molten salts are used as the solvent 
systems. Such processes have been investigated for the 
treatment of the spent fuel from molten salt breeder and light 
water power reactors. The inherent radiation resistance of 
molten salts allows the processing of spent fuel after 
relatively short cooling periods. This is a major advantage in 
the consideration of processing methods that might be used in 
connection with transmutation of nuclear waste by irradiation 
in reactors or accelerators to destroy the longest lived 
nuclides.
    The electrometallurgical separation process for spent fuel 
developed at Argonne National Laboratory is based on a molten 
salt system that has been used successfully in a demonstration 
project in which stored experimental breeder reactor fuel is 
processed. It is also being studied as the processing system 
for use should the United States proceed with an accelerator 
transmutation program for the destruction of long lived 
isotopes and fission projects to reduce concerns over long term 
repository safety.
    There are problems with the application of non-aqueous 
systems to the legacy weapons wastes in this country because of 
the huge volume of these wastes. The millions of gallons of 
wastes stored in underground tanks at Department of Energy 
sites have high salt concentrations that make the application 
of non-aqueous systems much more difficult. Modifications of 
the PUREX-type solvent extraction system are likely to be the 
technologies used for these systems. However, for spent fuel 
from civilian reactors and the stored spent fuel from former 
weapons production, non-aqueous systems have many advantages 
and are expected to be the base for the next generation of 
technologies. An apparent disadvantage of the non-aqueous 
systems, their lower degree of separation of uranium and 
plutonium from some fission products is, in fact, an advantage 
since it leaves the separated uranium and plutonium with a 
higher level of residual radioactivity, reducing the 
possibility of its diversion by theft for clandestine weapons 
production.
    Thank you.
    [The prepared statement of Dr. Choppin follows:]

Prepared Statement of Dr. Gregory R. Choppin, Florida State University, 
                Department of Chemistry, Tallahassee, FL

    A variety of radionuclides are present in the fuel elements of 
nuclear reactors after their irradiation. Many countries process this 
spent reactor fuel in order to recover the unburnt uranium and the 
plutonium that has been produced for recycle in a reactor for further 
power production. The United States has followed a ``once-through'' 
policy under which the spent fuel of power reactors is considered as 
primary waste for direct disposal without processing.
    The United States developed aqueous processing systems in 
connection with the weapons production of the cold war. This processing 
resulted in the production of very large quantities of nuclear wastes 
which now require attention for final disposition. Many of the 
radiochemical separations developed for processing and recovery of the 
plutonium for weapons can be used in the treatment of the waste to 
minimize the amount that must be placed in permanent, long-term 
storage. The usefulness of such separation processes and the operating 
parameters for their optimum performance are strongly dependent on the 
concentration of the components to be removed, the physical state of 
the material, the availability of the processing agents, the nature and 
quantity of the secondary waste streams produced, and the capital 
costs. In a processing approach, the radionuclides in the waste can be 
separated into fractions for permanent storage, for use in industry, 
medicine, etc., or for transmutation by further irradiation into non-
radioactive or short-lived nuclides, reducing concerns over the safety 
of repository disposition which must extend into the far future.
    Our national policy of direct disposal was based on a concern of 
other nations recovering the plutonium from the irradiated fuel of 
power reactors and using it to produce weapons. Unfortunately, this 
policy was not adopted by other nations, so the non-proliferation 
intent of the policy must be considered a failure. A disadvantage of 
the direct disposal system is that it may result in the creation of 
repositories which could be mined in the future for the recovery of 
plutonium for use as weapons material. With time, such mining would get 
progressively simpler as the radioactivity level decreases greatly over 
the first 300-1000 years, while the plutonium can be considered to be 
useful by recovery over a period of about a quarter of a million years. 
Processing schemes that do not remove all the fission products from the 
uranium and plutonium to be recycled to power reactors for further 
burning can be a more effective non-proliferation approach than direct 
disposal. A strong interest in Europe in transmutation of the longest-
lived nuclides, including plutonium, requires processing in order to 
separate these nuclides prior to the destruction in either an 
accelerator or a reactor. A further disadvantage of the direct disposal 
policy is that it isolates the United States from other nuclear 
countries which employ processing and, consequently, reduces our 
influence on their national policies in relation the handling and 
disposition of potential weapons material.
    Now I discuss separation technologies and my view of the direction 
in which the development of such technologies should proceed. 
Dissolution of the spent fuel, whether from reactors designed for 
plutonium weapons production or from civilian power production, 
utilizes concentrated nitric acid systems. These aqueous solutions, 
since the late 1940's, have been treated by the PUREX process, which 
uses a solvent extraction system to remove the uranium and plutonium 
from the nitric acid solution in which the fission products remain. The 
uranium and plutonium are extracted into an organic solvent and 
subsequently, back-extracted into a second aqueous solution for further 
purification and separation of the uranium and plutonium. The PUREX 
process was developed in connection with the weapons program of the 
Manhattan Project in the United States and has remained the primary 
international process for treatment of irradiated fuel for the recovery 
of the uranium and plutonium.
    A variety of new aqueous technologies for handling spent fuel 
materials have been developed, both in the United States and in Europe. 
Thus far, most of those processes have only been demonstrated in the 
laboratory or at the pilot plant level. In many cases, the processes 
are designed primarily to improve the separation of specific fission 
product elements in order to allow separation of the shorter-lived 
radionuclides from the longer-lived ones. The shorter-lived elements 
could then be disposed of in short-term repository systems, and the 
longer-lived elements reserved for the million-year repository. While 
these new systems serve to compliment the PUREX process, they do not 
overcome some of the disadvantages of that processing technology. A 
major disadvantage of the PUREX and associated aqueous-based 
technologies is the large amount of secondary waste that is produced 
and which requires repository disposition, either for the short term 
(hundreds of years) or long term (hundreds of thousands of years).
    It is my strong conviction that any large scale processing of 
nuclear spent fuel will not use, in the future, a primary technology 
based on aqueous systems. This conviction has been formed as a result 
of interactions and collaborations with nuclear scientists and 
technologists in Europe, Russia, Japan and elsewhere. British Nuclear 
Fuels Ltd. is a leading processor of spent nuclear fuel, not only for 
English power plants, but also for those of several other nations. 
Frequent contacts with BNFL personnel over the last 5-6 years have 
involved discussions of their future processing plans, which emphasize 
non-aqueous systems. Similarly, there is extensive research being 
conducted in Japan and in France on non-aqueous systems as the main 
basis for future processing plants. It should be noted that the United 
States has been active in this field, and in particular, Argonne 
National Laboratory which completed last year a successful four-year 
demonstration program of the application of its electrochemical, molten 
salt technique to the processing of a quantity of spent fuel from the 
former Experimental Breeder Reactor in Idaho.
    Non-aqueous processes have been extensively used for uranium 
isotope enrichment in this country and elsewhere, and for 
electrorefining of plutonium metal and production of metallic fuel for 
advanced nuclear reactors. Such non-aqueous processes are based on 
properties such as differences in the volatility of the compounds being 
separated or the differences in the oxidation-reduction behavior of 
actinide elements in molten salt media. The advantages of non-aqueous 
processes are that they have a much higher radiation resistance, use 
more compact equipment, produce smaller amounts of secondary waste 
volume, and are more proliferation-resistant than aqueous processes. 
The disadvantages of non-aqueous methods are the greater difficulty of 
conducting the separations and smaller decontamination factors, in 
general, than aqueous processes. Most of these non-aqueous processes 
are very sensitive to even small amounts of moisture and/or oxygen, and 
must be operated in isolated cells under inert atmospheres.
    Based on the gaseous diffusion process, which uses the volatility 
of uranium hexafluoride for separation of the uranium isotopes, 
volatility techniques with fluorides have been used in test 
demonstrations for separation of uranium and plutonium from irradiated 
fuel. Volatility techniques were also studied for use in fuel 
processing in the molten salt reactor project at Oak Ridge National 
Laboratory. The separation of uranium and plutonium from the fission 
products in irradiated nuclear fuel is limited in these processes by 
the fact that volatile fluorides are formed by several fission products 
(e.g., iodine, technicium). Other volatile systems, which might be 
adaptable to use in the separation of actinides from other radioactive 
elements, are not as well developed as the fluoride volatility systems. 
Research is continuing in a number of national laboratories on 
evaluation of these volatility processes for use in practical full-
scale separation systems.
    Greater interest in non-aqueous systems has been focused on the use 
of pyrochemical processes in which molten salts are used as the solvent 
systems. Such processes have been investigated for the treatment of the 
spent fuel from reactors such as the Liquid Metal Fast Breeder Reactor 
and the Experimental Breeder Reactor, as well as spent fuel from light 
water reactors. The inherent radiation resistance of molten salts 
allows the processing of spent fuel after very short cooling periods. 
This is a major advantage in the consideration of processing methods 
that might be used in connection with transmutation of nuclear waste to 
destroy the longest-lived nuclides.
    The electrometallurgical separation process for spent fuel 
developed at Argonne National Laboratory is based on a molten salt 
electrochemical system. In this direct transport process, uranium fuel 
is anodically dissolved as U\3\+ from a pool of molten cadmium into a 
molten salt, where it is transported through the salt to a cathode 
where it is deposited as metallic uranium. As mentioned earlier, this 
system has been used in a demonstration project to process a portion of 
the stored Experimental Breeder Reactor fuel. It is also being studied 
presently as the processing system for use should the United States 
proceed with an accelerator transmutation program for the destruction 
of long-lived isotopes and fission projects. The transmutation concept 
has aroused considerable interest in Europe where an accelerator system 
is under serious study as part of a European Union research project. In 
the transmutation systems, it is important to be able to recycle the 
irradiated material repeatedly with relatively short intermission times 
between the cycles as only a small fraction of the long-lived 
radioactive nuclides are destroyed in a single cycle. The requirement 
for short times between the irradiation cycles essentially eliminates 
aqueous processes for processing the irradiated targets between the 
successive irradiations to isolate the long-lived nuclides for 
production of the target for the next irradiation cycle.
    There are problems with the application of non-aqueous systems to 
the legacy weapons wastes in this country because of the huge volume of 
those wastes. The many millions of gallons of wastes stored in the 
underground tanks at the Savannah River and Hanford sites have very 
high salt concentrations which would make the application of non-
aqueous systems much more difficult. For these wastes, it would seem 
that modifications of the PUREX-type solvent extraction systems would 
remain the more useful technologies. However, for spent fuel from 
civilian reactors and the stored spent fuel from former weapon 
production, non-aqueous systems have many advantages and most likely 
will be the base for the next generation of technologies. An apparent 
disadvantage of the non-aqueous systems, their lower degree of 
separation of uranium/plutonium from some fission products, is, in 
fact, an advantage since it leaves the separated uranium and plutonium 
to be recycled into fuel with a higher level of residual radioactivity, 
reducing the possibility of its diversion by theft for clandestine 
weapon production.

    The Chairman. Thank you very much. Let me just ask a couple 
of questions here. Dr. Cochran, I take it that your view is 
that in addition to all the nonproliferation concerns that you 
folks have about opening this area up again, you think that 
there's just no evidence that it is economical to go forward 
with any of this reprocessing or to go forward with any of this 
transmutation of nuclear waste. Is that the bottom line from 
your perspective?
    Dr. Cochran. That is correct. These are dual-use 
technologies that can be used for civilian and weapons purposes 
and none of them have a shred of a chance of being economical. 
Mr. Bouchard claims that reprocessing in France is economical. 
What is true, what I would agree is that COGEMA could make a 
profit on reprocessing foreign spent fuel because countries 
such as Japan and Germany had either legal impediments to 
continuing to use nuclear powerplants or public opposition that 
forced them to seek a reprocessing option as a solution to 
their legal or political problems. That allowed France and also 
the U.K. to make money on reprocessing other people's fuel. 
However, that fuel cycle is not less expensive than the once-
through fuel cycle. The United States uses the cheaper fuel 
cycle and even in France today they are recognizing that the 
cost of reprocessing is more than the once-through fuel cycle 
and there is pressure on the French to back off on reprocessing 
at least the domestic fuel.
    The issue before this committee is whether we should 
promote dual purpose technologies and you will be promoting 
this around the world by bringing in nuclear programs in other 
countries, non-weapons countries, whether we should be 
promoting this when there's not a shred of a chance of it ever 
being economical. If Mr. Bouchard is right that reprocessing is 
economical, give him all of our excess plutonium from weapons. 
Give it to him for free. He will not take it because it is not 
economical even to make the plutonium into MOX if it 
is given to him. It is more expensive.
    The Chairman. Now, when you are saying is non-economical, 
you mean that in comparison to the direct deposit.
    Dr. Cochran. Exactly. Now, take the pyroprocessing, the 
fuel cycles that use pyroprocessing are really fast reactor 
fuel cycles. That means you have to have a reactor hooked up to 
this fuel cycle. It is like the liquid metal fast breeder 
reactor that we started to build here and they built in France 
and it turned out to be all over the world uneconomical. The 
electricity price from operating that reactor and that fuel 
cycle on a commercial basis would have been two and a half, 
three times what it would be to operate an existing light water 
reactor fuel cycle on the once through test.
    Mr. Bouchard also made another statement about running, if 
we expand nuclear power in the future, and there's no evidence 
that it is expanding on a global basis, but if we did, we would 
run out of low cost uranium. He and many people in the nuclear 
industry do not understand some fundamental concepts about 
mining metals, minerals. Historically, the increasing 
efficiency in the extracting of metals has always outpaced the 
depletion, the increase in price due to the depletion of the 
low cost resources. Uranium today on the global market is one-
third in today's dollars of what it was when the AEC started 
the uranium industry by offering people $7 a pound to go out 
and discover and produce yellowcake uranium, even after running 
the nuclear industry for the entire life of most of the 
reactors in this country. We now are relicensing for another 20 
years. After running the entire life of the industry, the price 
of uranium has gone down even though we mine the low cost 
resources. It goes down; it doesn't go up. It is true of every 
mineral resource.
    The Chairman. You are saying there's plenty of the resource 
particularly as you get better systems for refining.
    Dr. Cochran. For extraction. That is the history of every 
gold, platinum, iron, you name it. Go to Resources For The 
Future, over on Massachusetts Avenue and ask them, give us the 
history of mineral prices in constant dollars. Look at all of 
them. It goes down; it does not go up.
    The Chairman. Let me ask if Mr. Bouchard wished to make any 
comment, or Dr. Chopin.
    Mr. Bouchard. Yes, thank you Mr. Chairman. I would like to 
comment on the economy. In fact, let me say, that it is best is 
to look to the figures and we have first, an OECD report which 
is not very old. It is 2 years ago which made the comparison on 
an international business between the cost of reprocessing and 
recycling as compared to a direct cycle and for the part of the 
cost which is related to the end of the cycle, they got 0.21 
cents, U.S. cents, for the reprocessing and recycling and 0.13, 
thirteen, for the direct cycle. So, it is clear that there is a 
difference. That does not mean it is exactly equivalent but the 
difference is quite low as compared to the cost of the kilowatt 
hour. There are more recent studies in France which has been 
done by Mr. Charpin deChapella and at least two of them are not 
well known as in favor of nuclear energy.
    So, let me say that they got similar figures and in the 
case of the recycling and reprocessing story, they go through 
all the end of the recycle cost 0.23, which is close to the 
0.21 of the OECD study. There is only a small difference on the 
perimeter of the account. And this is compared to a cost of a 
kilowatt hour, which is around 2 cents, U.S. cents, which is 
what we got presently in France. And so, we have a difference 
which is between the reprocessing and recycling scenario and 
the direct cycle. We have a difference, which is on the order 
of five percent of the cost of the kilowatt hour. But, but we 
know everything on the reprocessing and recycling scenario 
because we applied it every day. We have reprocessed a lot. We 
have recycled all of the plutonium we got from the reprocessing 
and so we know completely all the figures. We know everything.
    It is not the same under the direct cycle. We have not yet 
solved the problem of direct final disposal of spent fuel and 
in our country we are considering today that it will be a dead 
end. We have no real solution to a direct final disposal of the 
spent fuel. So, in fact, I think that for the economy, there is 
no matter today to discuss. We can discuss 0.01 cents on 
something. It is not the main problem. The problem is what do 
we do with the spent fuel; what do we do with the plutonium and 
when Dr. Cochran said that we cannot avoid to recycle and we 
can use for a long time, very long times, only 1 percent of the 
natural uranium, I say that we don't solve the problem in fact. 
Not only, we don't use the resource. But we keep the plutonium 
and recoup the plutonium as Dr. Choppin said as a mine. If we 
put it in the underground, we keep the plutonium as a mine for 
the future.
    So, it is certainly not the solution we would prefer on our 
side. So, it is clear that on both economy and in the use of 
the resources, it is for us, there is no real discussion today 
on what is important or what is the benefit. I agree on the 
fact that we can discuss some of the values and techniques 
according to their proliferation resistance and so on. This is 
a matter for development, clearly.
    The Chairman. Let me defer to Senator Domenici here. This 
is an issue he's spent a lot of time on. Go right ahead.
    Senator Domenici. Thank you very much, Mr. Chairman. And I 
first apologize for the lateness and I will not take a lot of 
time. I want to thank you for the kinds of hearings you are 
holding. I've looked at the areas you are covering and I 
commend you. It is kind of boring when everybody tells you what 
you ought to be doing and then when you do it, nobody shows up. 
If there were a few of my brethren here on this side, I would 
say that also in front of them. In any event, you are bound and 
determined to get the witnesses to tell us about these issues, 
and I want to say to the three witnesses, we are glad to have 
you here.
    Mr. Bouchard, I want Senator Bingaman to know that I have 
been to your country and you were my host and Senator it was 
truly an experience to see how France is treating nuclear power 
and the waste that comes from it. I am reminded that somebody 
in high offices in France just recently lectured our President 
about Kyoto and it was interesting as I listened to the 
exchange. Our President seemed to be asking if the great leader 
from France understood that we don't have 75 percent of our 
electricity produced by nuclear but rather we have a great deal 
of it produced by coal and by sources that pollute the air.
    Maybe it would be easier to comply with Kyoto if we had 70 
or 80 percent of our powerplants nuclear. On the other hand, to 
see their reprocessing and the way they handle the entire cycle 
caused me to conclude first, Mr. Chairman, that there is no 
real urgency that we immediately find a way to permanently 
dispose of nuclear waste. I mean, the nuclear waste in this 
country is a small quantity, I am led to believe, that it is 
about an American football field, 8 foot high, and that is the 
whole thing. That is the whole accumulation. And I would hope 
that as a result of these hearings and your bill that we would 
say we ought to proceed with ways to resolve this problem and 
it might take a little while to do it but in the meantime, we 
ought to explore the value of another generation of nuclear 
powerplants because they are on the horizon.
    And I would hope that soon, Dr. Cochran, you will be able 
to sit down with those who are thinking of a small reactor 
modular in form and easily licensable because of a duplication 
capability that would change dramatically the physical premise 
upon which it is built so you can't have a meltdown and a lot 
of other things that are going to be happening. And I would 
hope we would look at those and say, maybe the world could use 
those so we don't have to worry about global warming. And I 
note that your organization is concerned occasionally about 
growth in the world, economic growth and the production of more 
energy, and I commend it for those stands. But I do believe 
that we must proceed on both fronts, that is the non-nuclear 
and the nuclear in an effort to help really solve the problem 
of economic growth and jobs for poor countries and rich 
countries. So, let me say to you, or ask you, Mr. Bouchard, in 
a brief summary, what advice do you give us with reference to a 
spent fuel program?
    Mr. Bouchard. Thank you, Senator. I do not think I have to 
give advice. I should only say that at the present time once 
more we have had some experience with reprocessing in several 
countries now. We know the limit and the advantage of the 
present technology. It can be used and it is used on an 
industrial basis already. And we also see what kind of new 
developments can be done in the future. That there is room for 
R&D it is clear, room for R&D both on the reactors and on the 
fuel cycle which is used with these reactors and I mentioned in 
my presentation one or two routes or one or two axis which 
seems to us important for the future. One is to try to have a 
more integrated fuel cycle, the other reactor, and the other 
the fabrication, everything if possible on the same site.
    And this is clearly an objective. Another one is to limit 
the definite disposal of waste to only that which is completely 
unavoidable. That means the fission products themselves. But to 
try to recycle everything else, that means uranium, plutonium 
and other actinides. And these are roots for the future. I 
think that we have a program of development on that and we are 
ready to cooperate. We have already had some discussion with 
the Department of Energy and we are ready to cooperate on such 
programs with your country, clearly.
    Senator Domenici. Let me be a little specific. I think we 
all understand that in 1977 the then-President of the United 
States, President Carter, halted by executive decree United 
States efforts to reprocess spent fuel and developed mixed 
oxide MOX for our civilian reactors on the ground 
that plutonium could be diverted and eventually transformed 
into bombs. He argued that the United States should halt its 
program of reprocessing as an example to the world to follow. 
Now, as I understand it, I am not criticizing what the 
President did all those many years ago but the truth of the 
matter is, the world did not follow the example and proceeded 
with reprocessing such that France, Great Britain, Japan and 
Russia all now have some kind of MOX fuel program. 
So, it would seem to me that those countries, including yours, 
do not believe that reprocessing is a serious adjunct to 
proliferation. Would you address that?
    Mr. Bouchard. Yes, certainly. I am considering that in the 
proliferation route itself it is certainly not the way to a 
reprocess light water reactors and to use the plutonium coming 
from there. It is certainly not the best proliferation route. 
Nevertheless, we have to take precautions to avoid, as I said, 
the diversion of plutonium even if it's not good plutonium, the 
diversion of plutonium from any step. But the best way for that 
is to burn it and there is a reason why we have MOX 
fuel. There is a reason why we try to fabricate the 
MOX as soon as possible after the reprocessing of 
the spent fuel in order to avoid to avoid to keep plutonium on 
shelves. It is clear. So, we have only to consider as a risk 
the diversion during the operations themselves. And as matter 
of fact we have done this, since the time of the decision you 
mentioned 25 years ago. Now, there has been no case of 
diversion which has been observed on any reprocessing route, 
civilian, reprocessing business. So, I mean we have an 
experience which is showing that the risk is not so big and we 
have many, many controls organized both on domestic and on 
international business to be sure that we are following every 
gram of plutonium everywhere on the route. So, I mean we 
certainly can still improve the situation but it is clear that 
we have a solution today which is quite robust and it is clear, 
as you said, that if we reprocess, we have to fabricate 
MOX fuel as soon as possible in order to burn the 
plutonium.
    Senator Domenici. I just want to make one more point and I 
will ask you all three on the environment on the issue of 
plutonium. Let me talk for just a minute and ask you a 
question, then I will ask Dr. Cochran a question. Testimony 
before the committee seems to try to maintain that reprocessing 
is not economic. I am fully aware and the chairman asked the 
right question a while ago. Uranium is very cheap and as a 
consequence at this particular time in our history if we just 
took this reprocessing all by itself, it probably would not be 
economic. But let me just say I think there's a debate on the 
floor of the Senate right now that talks about the fact that we 
have spent $9 billion and have collected $21 billion from 
ratepayers to try to establish a permanent underground storage 
facility at Yucca Mountain. Now, we cannot discard that as a 
cost of a policy that says the only thing we ought to do is 
bury it forever. That has got to be built in or it has to be 
built in on the other side of the ledger in terms of 
reprocessing and what reprocessing does to simplify the waste 
disposition issues. So, could I ask you, Dr. Bouchard, and then 
I will yield to you on all three questions, Doctor. Does not 
reprocessing if it is part of a country or an international 
approach, doesn't it simplify the waste disposition issue if 
you had before that only considered permanent storage of the 
total spent fuel content as they come out of the reactor?
    Mr. Bouchard. You're right. Let's say first that 
reprocessing simplifies the waste management because it reduces 
both the volume, both the volume and the radiotoxicity, the 
long-term radiotoxicity of waste and the reason is simple. In 
the spent fuel, the main contributor to the long-term 
radiotoxicity is the plutonium itself. And so, if you extract 
the plutonium and burn it, you have reduced what you have to 
put in the waste. It is clear. And on the other hand, as I 
said, we are more and more convinced that the final disposition 
of spent fuel is not at all easy to manage. Besides the 
drawback I mentioned on the creation of the mining of 
plutonium, there is also the practical aspect of who will 
accept to put all these fuels underground in the final 
repository. It is not at all the position in our country, by 
the way.
    Senator Domenici. Now, Dr. Cochran, if you would like to 
address the three things that have come out that I've asked 
about, we'd be pleased to hear you.
    Dr. Cochran. Yes, I would like to elaborate on the history 
that you began with President Carter. In fact, Mr. Bob Fri, who 
was on the previous panel, previously served under the Ford 
administration at ERDA, and it was in fact the Ford 
administration, and Bob Fri played an important part in this, 
that stopped the reprocessing industry in the United States 
when the Ford administration, after India exploded its first 
nuclear test in 1974 and Taiwan had been conducting its covert 
nuclear weapons program with reprocessing, decided not to 
subsidize the completion of the Barnwell plant in South 
Carolina. So, you should always give the Ford administration at 
least equal credit for foreseeing the problems, the economic 
problems and the nonproliferation problems associated with 
reprocessing in this country.
    Senator Domenici. If you would permit me, I will correct 
the record and say that both the Carter administration and the 
Ford administration did it, and I will add to that I think even 
though there were two, they both made a mistake.
    Dr. Cochran. That is where you and I would disagree. Now, 
you mention France, the U.K. and Russia. I would think you 
would join me in advocating a moratorium on reprocessing in 
Russia and in fact in the last administration, Dr. Moniz, also 
on the previous panel, tried to get a 20 year moratorium and 
actually got Minister Damov, the Minister of Atomic Energy, to 
agree to a 20 year moratorium but the deal fell through over 
the Iranian problems. The reason you should join me in seeking 
a moratorium on reprocessing in Russia is, in fact, first the 
Ministry of Atomic Energy is like our old AEC and military 
plutonium production and materials production and weapons 
production and civil programs are entirely integrated both in 
terms of their management and in terms of their facilities. And 
it is not in the U.S. national security interests for Russia to 
continue a large commercial reprocessing program at their 
military facilities.
    Secondly, they are awash in excess plutonium and as you 
know they have 30 tons of plutonium from civilian reprocessing 
which they could not use, recycle, unlike the French program, 
and it is in storage with inadequate physical security. There 
was a statement about reprocessing simplifying the waste 
disposition issue. That is extremely misleading. First of all, 
you do not create less waste by reprocessing in terms of shear 
volume of materials because you create a lot of other waste 
streams in the process. Secondly, you do not reduce the 
problems associated at the repository in any significant extent 
other than delaying when you have to build a repository. The 
French still have to bury their spent fuel and in fact they are 
behind the United States in siting and building a repository. 
They simply do not have a site yet. We at least have Yucca 
Mountain site. So, they have a lot of fission products. They 
are stuck in a vault and they're forcing air over them to cool 
them because they do not have a solution to their waste 
problem.
    Now Mr. Bouchard says, you take the plutonium out and burn 
it. In fact, he's going to take the plutonium out and burn from 
the first cycle but the economics gets progressively worse on 
recycling and he has no plans to continue to recycle and so 
forth. And so all of the plutonium doesn't come out of his 
waste and he still puts plutonium in the mines. He mentions 
that light plutonium from light water reactor fuel is not so 
good for weapons. In fact, maybe he does not know it, the 
French tested a nuclear weapon with reactor grade plutonium and 
in fact it is useful for weapons. It is just not as good for 
weapons programs but it was good enough for the Taiwanese. It 
was good enough for the South Koreans and that is why they 
sought a reprocessing facility.
    In fact, the French tried to sell South Korea a 
reprocessing plant in 1975 and the United States shut that 
program down for national security reasons. So, the issue here 
is very simple. We are talking about dual use technologies that 
can be used for weapons and for civil research. The civil 
aspects look sort of interesting but the weapons aspects look 
very dangerous and before you embark on bending metal and 
building R&D facilities you ought to think very hard about the 
implications of spreading this technology around in non-nuclear 
weapons States. I totally agree with you. We should support 
university nuclear programs. They are in decline. We have a lot 
of use for nuclear engineers and scientists because of our 
waste programs, our national security programs, our medical 
programs. I support R&D on Generation IV technology. Let's do 
the paper studies. But let's don't go out and promote these 
programs like pyroprocessing at Argonne which are totally 
uneconomical and frankly I do not support your constituents at 
Los Alamos developing accelerator transmutation of waste.
    I mean, most of us think that that program is being pushed 
by people who lost their bid to get the tritium production 
facility and they're looking for jobs and they're promoting 
this technology as a way to maintain their accelerator program 
at Los Alamos and it is an uneconomical program. It will never 
go anywhere, Senator, and you should not support it despite the 
fact that they're your good friends and constituents. Thank you 
very much.
    Senator Domenici. Well, let me make sure that for the 
record and that you know I am not supporting it for the reasons 
you have talked about. I thank you very much for attributing my 
tremendous concern for my constituents. But frankly I think it 
is a rather exciting idea and you and I will disagree. But 
actually, all waste produced in these various processes is not 
the same waste. Waste produced by reprocessing is not the same 
waste that we are contemplating burying at Yucca Mountain.
    Dr. Cochran. It is pretty close.
    Senator Domenici. It is less toxic than what we are going 
to put underground and plan to leave there for 10,000 years. 
There is no question about that and transmutation not only 
yields a less toxic but it is so less toxic that there's no 
problem with disposing of the residual waste from 
transmutation. It is very simple to do. Now, I know we 
disagree. I can make my statement and then we will hear you as 
an expert. I do not want to leave in any antagonistic mode 
because I am thrilled to hear that we ought to proceed with 
third and fourth generation nuclear reactor research. I think 
that we ought to take the lead in saying that America should do 
that with the world and I told my friend, the chairman, I think 
America with the world on that would be talking about a post-
Kyoto environment that would permit us to no longer worry about 
global warming. It would be a rather exciting concept.
    Now, let me ask--there's been a synthesis on the economy. 
And I think we have to look at the other issues. For example, 
if you look at the fuel cycle, the most dangerous for the 
general public, the most dangerous part of it is the uranium 
mining. So, that if we do not reprocess, we will have more 
uranium mining, not in the United States for quite a while, 
maybe 300 years, but eventually. But in the rest of the world, 
they will have it right now because they have to keep mining to 
produce it and therefore you are exposing the public to more 
danger than you are by reprocessing and storing in a 
repository.
    In our country, we have to look at the fact that we have 
one heck of a lot of uranium 235 and plutonium 239. Now, what 
are going to do with it from the weapons? We can bury it, and 
how do we know what kind of government we will have in a 
thousand years, 300 years, ten thousand years. We are burying 
stuff that is going to be a tremendous mine. They could go up 
and they can start making weapons and devastate the world. And 
we are leaving that for a future generation. I do not think 
that is moral even. So, we want to burn it. Well, how are we 
going to burn it? By making MOX fuel and that 
requires fabrication. It requires some kind of recycling. We 
can also involve the transmutation. I was on the stats 
committee that looked at transmutation sometime ago in the 
United States. We recommended against it. Since that time, 
there have been better developments, better methodologies. I 
was on the international committee that the Department of 
Energy had 2 years ago to re-look at the issue.
    I have also been very involved in European meetings and so 
forth, and I still have concerns about transmutation. I am not 
sure it is a proper process but I think it deserves extensive 
study and extensive investigation because it could certainly 
reduce the long-term problem. It could also reduce the stored 
plutonium and uranium problem. And I do not think as the United 
States is involved we can ignore those. So, we have a little 
different problem. One other aspect, I think that is important 
in the question of reprocessing, is that if we reprocess, we 
are in line with the rest of the world and therefore we then 
can interact and influence their policies. What we have done 
with the direct once-through process is to isolate ourselves 
from the rest of the world and have no impact on their national 
policies with regard to reprocessing and disposition. So, I 
think, again for our national welfare independent of economics, 
we should be involved to a sufficient extent to share with them 
and participate in their discussions. Thank you.
    Senator Domenici. Mr. Bouchard, you were shaking your head 
negatively while Dr. Corcoran was speaking with reference to 
what kind of waste comes out of this stream if you reprocess. 
Would you care to express your view in words because we cannot 
record your head shaking?
    Mr. Bouchard. Thank you very much. I apologize because in 
the written testimony we gave some figures with some graphs 
showing what happens, but we had no time to prepare the 
necessary presentation for the audition. But, if you have time 
to look to the written testimony, you will see that we have put 
one graph, which is the volume of waste produced by the 
reprocessing and comparing the volume of waste for direct cycle 
with the various types of waste we create at the reprocessing 
and the main part, which is the high level waste, for those who 
contains most of the fission products corresponds to something 
which is approximately 8 percent of the volume of waste of the 
direct cycle. And in addition to that, we create two other 
kinds of waste which are less toxic as you said, Senator, and 
which are still in low volume. I can show the figure to Dr. 
Corcoran, which are still in low volume as compared to the 
direct fuel cycle. We have made progress during the last 10 
years as you can see on these figures.
    Senator Domenici. Mr. Chairman, I want to thank you very 
much for staying over and taking this time to let me ask a few 
questions. I would make one observation and share it with you 
with reference to Russia. This same visit that I spoke of in 
France took me to Russia and the result of that trip was that 
the U.S. Government put up $2 million within 6 months in the 
supplemental appropriation at the request of myself and Senator 
Stevens to begin implementing an agreement with Russia so that 
the plutonium that they had which was unstored and was 
available far more than any of us would ever think should be 
the case. And we have started down a path of using that money 
to see if we cannot turn that plutonium into something that 
could not be used for weapons again.
    But I would tell you, what you learn in the meantime is 
that you are going to wait for a new generation of Russian 
leaders, if ever, to agree with us with reference to the value 
of spent fuel. It is valuable to them. They are not one, 
they're not even a miniscule interested in getting rid of it. 
They want to keep it because they're going to use it. And you 
do not have any of their leaders that look at like we do, that 
wouldn't it be nice to put in the ground for 10,000 years. 
They're saying if you want to be crazy, you be crazy. We are 
not going to do that. In fact, they wonder why we do not go to 
the breeder reactors. That is what they think about nuclear 
activities.
    So, I do not think we can stop them from doing what you 
suggested we stop them from doing. But I think we have a very 
big obligation to work to try to get some of that plutonium 
that is part of their military converted and stored so it can 
never be used. But to ask for a moratorium there in that 
country that would not produce plutonium from reprocessing and 
the like, I really do not believe. In many things we ought to 
try to get agreements. That one would not work.
    And could I close by saying to Dr. Cochran, I do appreciate 
your statements. I do not appreciate very much the insinuation, 
which you said with a smile on your face, which I will now 
record with my words, that I am for transmutation because of 
Los Alamos. I am for a lot of things as Los Alamos is for. I am 
for a lot of things Sandia is for and Argonne and our great 
laboratory in California, but essentially I think the 
contribution to this very onerous problem by Los Alamos in 
looking at transmutation is a good contribution, and it may not 
come out as the technology but I believe the scientists are 
doing some real thinking when they work on that. Thank you very 
much, Mr. Chairman. It is good to be here.
    The Chairman. Thank you very much. Let me thank all three 
witnesses very much and indicate that we will keep the record 
open on this hearing through next Tuesday to permit anyone to 
submit an additional statement if they have a statement to make 
or any additional information they think we should be aware of. 
Thank you very much for testifying. The hearing is concluded.
    [Whereupon, at 12:35 p.m., the hearing was recessed, to be 
reconvened on July 19, 2001.]

                               APENDIXES

                              ----------                              

                               Appendix I

                   Responses to Additional Questions

                              ----------                              

                            State of New Hampshire,
           Governor's Office of Energy & Community Service,
                                                    August 2, 2001.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, Dirksen Senate 
        Office Building, Washington, DC.
Re: Response to Questions--July 13, 2001 Hearing

    Dear Chairman Bingaman: On behalf of the National Association of 
State Energy Officials (NASEO), the following constitutes my response 
to the questions provided in your letter of July 20, 2001.
                       LIHEAP (Questions 1 and 2)
    Senator Murkowski's question concerned the appropriate split 
between base and emergency funding for LIHEAP. The National Energy 
Assistance Directors' Association (NEADA) will be responding to this 
question on behalf of the states. As a general matter, both the 
approach of Senator Murkowski ($3 billion base funding and $1 billion 
emergency funding) and your approach ($3.4 billion base funding and 
$600 million emergency funding) would be a tremendous step in a 
positive direction. LIHEAP funds are vastly insufficient to respond to 
the needs of the public at this time. In general, the states have 
strongly supported significant increases in the base funds, with 
advanced funding to enable the states to efficiently plan for the 
upcoming heating/cooling season. Emergency funds are also critical. We 
look forward to the opportunity to work with the Committee to ensure 
that appropriations for LIHEAP are significantly increased, consistent 
with the proposed authorizations.
            STATE ENERGY PROGRAM FUNDING (Questions 5 and 6)
    In response to both questions 5 and 6, NASEO and the state energy 
offices are strongly supportive of regional energy planning efforts. 
With increasing funds regional efforts could expand and permit more 
creative solutions to our energy problems. Language on regional efforts 
included in Senator Murkowski's bill and in Chairman Bingaman's bill 
recognize the importance of these regional efforts. While, in many 
cases, states are undertaking activities within their own borders, this 
would permit the expansion of those efforts. As you know, many of our 
energy markets are not limited to the borders of our own states.
    Increased funding would enable states to expand efforts in energy 
emergency preparedness. Last December, my office sponsored a meeting in 
Manchester, New Hampshire, between all the Northeastern and Mid-
Atlantic states with all relevant industry representatives and federal 
agencies (e.g., Coast Guard, Department of Energy, Department of 
Transportation, Environmental Protection Agency) to discuss our 
response efforts and coordinated pre-planning. In light of increasing 
price and supply volatility of critical fuels these regional efforts 
need to be expanded.
    We have begun to integrate our energy and environmental efforts at 
the state and regional level, bringing together NASEO representatives 
with those of the National Association of Regulatory Utility 
Commissioners (NARUC), Environmental Council of the States (ECOS state 
environmental commissioners), State and Territorial Air Pollution 
Program Administrators/Association of Local Pollution Control Officials 
(STAPPA/ALAPCO), to jointly work on policies, programs and regulations. 
This type of regional activity will be supported by expanded SEP funds. 
For example, the Western Regional Air Partnership, being led by Utah, 
is attempting to respond to the requirements of the Grand Canyon 
Visibility Task Force, in a creative and cost-effective manner, by 
utilizing energy programs to help deal with environmental imperatives. 
This involves both supply-side and demand-side responses. The state 
energy offices in the western states, working together and with the 
Western Interstate Energy Board and the Western Governors' Association, 
are attempting to help the region address complicated siting issues for 
energy infrastructure and coordinate transmission and generation 
issues. This requires extensive regional cooperation.
    In the Southeast, the energy offices working with the Southern 
States Energy Board and the Southern Governors' Association are 
attempting to develop unique programs on such issues as alternative 
fuels, siting, etc. In my region, we are working together with our 
environmental officials and our utility commissioners on technical 
standards for distributed generation. In each of the regions we are 
attempting to learn from each other and coordinate our efforts in 
expending our public benefits funds. State Energy Program funds help 
facilitate these efforts. They need to be expanded.
    One of the great benefits of SEP funding is the enormous leverage 
provided from both private and non-federal public funds. Greater 
expansion of program funds will allow even more leverage. For example, 
most of the state energy offices facilitate private financing of energy 
projects both in the public and private sectors. Our most recent 
estimates are that the energy service company industry conducts up to 
$1.5 billion/year in energy efficiency projects. The energy offices 
facilitate these efforts. We hope, in the future, to expand the 
regional efforts to embrace greater cost-effectiveness and reduce 
transaction costs in project implementation.
    In short, the state energy offices are planning on expanding 
regional cooperative efforts. We look forward to working with the 
Committee in providing creative solutions. We hope this is responsive 
to your questions.
            Sincerely,
                                         MaryAnn Manoogian,
                                                          Director.
                                 ______
                                 
                     Maine State Housing Authority,
                               Energy and Housing Services,
                                       Augusta, ME, August 2, 2001.
Senator Jeff Bingaman,
U.S. Senate, Committee on Energy and Natural Resources, Washington, DC.
    Dear Senator Bingaman: The purpose of this letter is in response to 
your letter dated July 20, 2001, regarding follow-up questions based on 
my testimony for the Committee on Energy and Natural Resources on July 
13th.
    On behalf of the National Energy Assistance Directors Association, 
I have responded to questions 1 through 4 regarding the Low Income Home 
Energy Assistance Program, (LIHEAP) and Weatherization Assistance 
Program, (WAP) submitted by the Office of Senator Murkowski.
    If you have any other questions or concerns, please feel free to 
call me at (207) 624-5708 or by email at [email protected]. 
Thank you for inviting me to speak before the committee.
            Sincerely,
                                          Jo-Ann L. Choate,
                                                    LIHEAP Manager.

    Question 1. What is the virtue of increasing the base LIHEAP 
funds--which get distributed to states using a formula--verses 
increasing the emergency funds which can go to where they are most 
needed?
    Answer. Formula grant funds and emergency funds serve different 
purposes. Formula grant funds are used to provide planned direct 
assistance to approximately 5 million households per year. These are 
very low-income households that need program assistance on an ongoing 
basis to pay their heating and cooling bills. Emergency funds are 
primarily designed to offset higher that expected demand as a result of 
lower than average temperatures during the winter months and warmer 
than average temperatures during the summer months. In addition, funds 
are also used to offset higher than expected energy prices due to 
changing market prices.
    Question 2. Given that most LIHEAP funds have been spent in 
regional areas that experienced extreme weather, wouldn't it make more 
sense to set aside more funds for emergency programs?
    Answer. While emergency funds are needed to address changes in 
temperature and price spikes in energy prices, formula grants are 
needed to address on-going needs of low-income households to pay their 
home energy bills. As such, setting aside more funds for emergency 
programs at the expense of the regular grant program would cause 
reduced funding for millions of low income households in areas that did 
not experience severe temperature or price increases.
    Question 3. Given the wide variance in percentage of households 
served by existing LIHEAP funds, doesn't this suggest the need for a 
change to the allocation formula?
    Answer. The intent of the current law formula is to distribute a 
higher relative percentage of funds to states with relatively colder 
temperatures when the appropriations level is less than $1.975 billion. 
At higher funding levels, funds shift to warmer weather states. As 
result, as shown in the following table, at a funding level of $3.4 
billion, the total allocation for Maine would increase by 43.9%, while 
the allocation for Alabama would increase by 379.2%. A copy of the 
allocation table is attached.
    Question 4. How much funding would it take to fully fund all needs 
under the LIHEAP program--and how many of those homes could be 
Weatherized for the same amount of money?
    Answer. The LIHEAP program is currently serving approximately 5.0 
million households or about 17% of the eligible population. Assuming 
that program assistance was expanded to serve 50% of the eligible 
population at the current basic level of $225 per household, the total 
cost would be approximately $6.6 billion per year.
    The weatherizing of homes does not eliminate the need for LIHEAP. 
Even if program funds were quadrupled to $612 million, at an average 
cost of $1,750 per unit, total funding would only serve 300,000 
households or about 6% of total eligible LIHEAP households. At the same 
time, by targeting WAP funds to households with the highest energy 
burdens and energy consumption levels, the program helps to reduce a 
household's energy burden, thereby reducing a least a portion of the 
family's need for energy assistance.
    The Oak Ridge National Laboratory report entitled ``State Level 
Evaluations of the Weatherization Program in 1990-1996: A Meta-
evaluation That Estimates National Savings'' found that the WAP has 
significantly improved its energy savings results during the past 
several years. In 1996, WAP showed savings of 33.5 percent of gas used 
for space heating--up from 18.3 percent savings in 1989. The increase 
in savings was based in large part on the introduction and use of more 
sophisticated diagnostic tools and audits.
    Each family receiving weatherization services can reduce their 
energy use by an average of 22 percent, making their energy costs more 
affordable. By reducing energy use, each family can realize average 
savings of $300 or more each year. More importantly, these savings will 
occur each year for several years after the weatherization work has 
been provided. The savings achieved as a result of this year's 
investment will reach more than $369 million during the life of the 
conservation services installed in the homes. More than $72 million is 
expected to be saved this year alone in those households weatherized 
using DOE and other leveraged funds.
    The Oak Ridge Meta-Evaluation report also concluded that the WAP 
possessed a favorable cost-benefit ratio of 2.40 to 1.0. Simply stated, 
the federal funds provided to support the Program have a 140% return on 
investment or nearly $2.50 in benefits for every dollar invested. This 
positive ratio of benefits continues to increase as state and local 
agencies integrate advanced technologies and constantly improve their 
return on investment.
                                 ______
                                 
             National Electrical Manufacturers Association,
                                       Rosslyn, VA, August 3, 2001.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, Dirksen Senate 
        Office Building, Washington, DC.
    Dear Chairman Bingaman: Thank you for the Committee's thoughtful 
questions on our testimony forwarded with your letter of July 20, 2001. 
Attached are the responses to the questions you submitted for Senator 
Murkowski.
    We look forward to working with you, the Committee, and Committee 
staff in the months ahead as energy efficiency legislation and 
legislation on the electric transmission infrastructure proceed through 
the Senate. We believe our members, the manufacturers of electrical 
products for our homes, commerce and industry, are stakeholders that 
provide unique and valuable perspectives on our Nation's technology 
needs.
            Sincerely,
                                        Malcolm E. O'Hagen,
                                                         President.
[Attachment.]
 NEMA Responses to Additional Questions Submitted by Senator Murkowski
    Question 9. You mentioned in your testimony that NEMA generally 
favors market mechanisms--and favors standards only on a case-by-case 
basis. How, then, would you respond to Dr. Nadel's call to broaden the 
standards process to include more appliances?
    Answer. NEMA supports the National Appliance Energy Conservation 
Act (NAECA) requirements to set efficiency levels for covered products 
at the level that is technologically feasible and economically 
justified, Under existing law, the Secretary of Energy has the 
authority to add additional types of consumer products to the list of 
products for which mandatory energy efficiency standards are required 
under the NAECA and the Energy Policy and Conservation Act. 
Specifically, section 322(b) of EPCA authorizes the Secretary of Energy 
to classify a consumer product as a covered product, and therefore 
subject to efficiency standards requirements, if the Secretary 
determines that such a classification is necessary or appropriate in 
carrying out the purposes of the Act and that the product in household 
use consumes at least 100 kilowatt hours of electricity. Similarly, 
section 341(a) of EPCA authorizes the Secretary, by rule, to include 
additional types of industrial equipment as covered equipment to be 
subject to energy efficiency standards requirements if doing so is 
necessary to carry out the purposes of the Act.
    Voluntary, consensus-driven codes and standards will achieve the 
greatest level of cooperation and distribution of energy efficient 
technology in the marketplace. Industry consensus energy efficiency 
standards offer an important, cost-effective alternative to government-
imposed standards and provide for more rapid introduction of compliant 
technologies. An excellent example is the NEMA PremiumTM 
motors program, which illustrates the efforts already undertaken by 
industry to accelerate the market penetration of highly efficient 
motors. Under the NEMA PremiumTM program, highly efficient 
motors of up to 500 horsepower that can comply with stringent energy 
efficiency standards receive the NEMA PremiumTM designation.
    The NEMA PremiumTM program was a collaborative effort 
with the Department of Energy, motor manufacturers end electric 
utilities. It has broad support, and has been endorsed by the 
Consortium for Energy Efficiency. When compared to existing Federal 
regulations, NEMA PremiumTM covers a broader range of motors 
than do minimum Federal energy efficiency standards (up to 500 
horsepower, where Federal standards apply only up to 200 hp). Moreover, 
NEMA PremiumTM is a far more exacting technical standard, 
determined by using NEMA MG1 standards, which include over 30 critical 
motor operating characteristics in addition to motor efficiency. 
Introduction of NEMA PremiumTM motors in the agricultural 
and commercial sectors would save 5.8 gigawatts of energy and prevent 
the release of nearly 80 million metric tons of CO2 over 10 
years.
    These and similar market based solutions should be relied upon 
wherever possible to expedite the introduction of the most highly 
energy efficient equipment. The Federal government can play an 
important leadership role and take advantage of the work done to 
produce the NEMA PremiumTM standards, by acquiring only 
motors that have the NEMA PremiumTM designation, and by 
assuring that failed motors are not rewound, but are replaced with 
motors that have the NEMA PremiumTM designation.
    Before expanding mandatory standards requirements, Congress should 
consider carefully DOE's existing workload in the standards-setting 
area and the availability of resources. Recognizing that its statutory 
mandates exceed the resources available, the Department of Energy has 
adopted a prioritization process for meeting its regulatory 
responsibilities. NEMA believes that the priority setting process is a 
reasonable response by the Department to the many demands it faces. 
Expansion of mandatory standards requirements would necessarily impose 
additional burdens on the Department of Energy. Congress should be sure 
that DOE can meet its existing responsibilities in a timely manner 
before increasing those responsibilities.
    In all cases, before Congress mandates the issuance of test 
procedures, labeling requirements or efficiency standards for any 
additional products, it should be assured that such standards are 
technically and economically feasible and would contribute to 
substantial energy savings. Before new standards are required a study 
of the need for such standards should be conducted by the Secretary of 
Energy.
    Question 10. What other options would you suggest to improve the 
rate at which out appliances become more energy efficient? ``Smart'' 
technology?
    Answer. Appliances on the market now are vastly more efficient than 
in the past. The appliance industry is highly competitive, and 
extremely responsive to consumer demand. Therefore, if consumers place 
a value on the energy efficiency of a product, industry can be expected 
to respond.
    Developing a market demand for energy efficient products has long 
been the challenge. With the experience of the State of California in 
these last months, the marketplace may be primed to consider energy 
efficiency in purchasing decisions. Consumer education and increased 
energy efficiency awareness among the general public are essential to 
take advantage of this opportunity.
    The replacement of older, less efficient appliances with new 
efficient ones will save significant amounts of energy. Congress may 
wish to consider encouraging the voluntary retirement of less efficient 
appliances through the Weatherization program or the Low Income Home 
Energy Assistance program. Federal housing programs also should 
emphasize early changeout of high energy consumption appliances. For 
the public at large, consideration might also be given to a 
collaborative incentive program with industry.
    Question 11. I was intrigued by a number of your suggestions on the 
appropriate Federal role in energy efficiency and energy policy in 
general. How many of your suggestions can be accomplished through 
administrative action as opposed to legislation?
    Answer. A blend of legislative and administrative action is 
necessary. For example, DOE can, and does, promote user education on 
energy efficiency under its existing authorities. DOE also can, and 
does, support energy efficiency upgrades through programs such as FEMP. 
There is widespread agreement, however, that some of these programs 
will be more effective if certain changes are made to the underlying 
statutes, such as the extension and clarification of energy saving 
performance contracting authorities. And there are other areas where 
statutory limitations, suck as spending limits in the Weatherization 
program, may limit the effectiveness of Federal programs in stimulating 
the deployment of energy efficient technologies, and need to be 
reexamined.
    DOE promotion of economically sound energy efficient consumer 
products and systems, particularly in collaboration with industry, is 
possible under existing authorities, but may be enhanced through 
statutory changes, such as the formal authorization of the Energy Star 
program and provisions for allocation of responsibilities for this 
program between DOE and the Environmental Protection Agency.
    NEMA believes that further legislative direction to increase energy 
efficiency in Federal facilities is necessary. Many of the existing 
federal building energy efficiency authorities date from the Energy 
Policy Act of 1992 and before, and need refreshing. With respect to the 
procurement of energy efficient products, for example, the Federal 
government should lead by example, and specific statutory directives to 
assure that the government seeks out the most efficient products on the 
market are appropriate. An example is the NEMA PremiumTM 
program for motors. NEMA recommends that Congress require the Federal 
government to use the NEMA PremiumTM standard as the 
specification for the acquisition of new motors, and require that 
failed motors not be rewound, but be replaced with motors meeting 
carrying the NEMA PremiumTM designation.
    Statutory requirements to increase Federal building energy 
efficiency would be more effective in achieving results than 
Administrative directives or even Executive Orders issued by the 
President. While important in expressing the commitment to and 
establishing the framework for Federal government energy conservation 
efforts, these have not in the past always produced concrete results. 
For example, NEMA has recommended specifically that Federal facilities 
should be required by law to achieve the Energy Star building rating. 
The Department of Energy's Energy Star Buildings Program has made 
significant advances in improving the efficiency of commercial 
buildings. However, the vast majority of Federal facilities have not 
yet achieved the Energy Star rating, a classification given only to the 
top 25% of buildings in terms of watts used per square foot. It is time 
to assure that Federal facilities measure up. A statutory mandate would 
be critical to assuring that agencies treat this as a priority and 
devote the necessary resources to implementing all practical efficiency 
upgrades.
    DOE already has statutory responsibilities with respect to the 
adoption and updating of Federal building energy codes, and in 
rendering determinations about the energy efficiency of code updates 
that then trigger responsive action by the States. NEMA has proposed 
that new construction or buildings that undergo major renovation or 
remodeling should adhere to the most current consensus energy 
efficiency standards, as contained in ASHRAE/IESNA 90.1-1999. An 
explicit direction from Congress to the Department of Energy to update 
the Federal building energy code to reflect the latest standard update 
would be beneficial in expediting the Federal code revision process.
    DOE also is required to make a determination as to whether the 
ASHRAE/IESNA Standard 90.1-1999 will save energy in commercial 
buildings. The issuance of this determination triggers important 
requirements that states review and update their building codes 
accordingly. Congress should direct DOE to issue this determination 
immediately. The 1999 update was developed over 10 years through a 
process involving all interested stakeholders. It is ready for 
consideration by the states, and that consideration should be 
expedited.
    With respect to the process by which appliance standards are set, 
as indicated in the written testimony, NEMA believes that is essential 
that DOE closely follow the ``process improvement rule'' in every 
standards-setting activity. The energy efficiency standards program was 
stalled for several years before the process improvement rule was 
issued in 1996. Since that time, and pursuant to the process 
improvement rule, consensus has been reached and new standards 
promulgated for products including clothes washers and ballasts. If the 
process improvement rule is not utilized and applied fully to every 
consumer, industrial and commercial product, however, there is a risk 
that the gridlock that characterized the standards program prior to 
1996 will return. Direction from Congress to DOE to formally 
incorporate the process improvement rule into the department's 
regulations would provide additional assurance to industry that the 
requirements of the rule would be strictly enforced, and thereby lay 
the groundwork for further consensus standards development activities.
                                 ______
                                 
                       Goodman Manufacturing Company, L.P.,
                                       Houston, TX, August 3, 2001.
Hon. Jeff Bingaman,
U.S. Senate, Committee on Energy and Natural Resources, Dirksen 
        Building, Washington, DC.
Re: Committee Hearing held July 13, 2001

    Dear Senator Bingaman: Recently, I received your request, to 
respond to follow-up questions from the July 13th hearing before the 
Energy and Natural Resources Committee submitted for the record by the 
office of Senator Murkowski. Please see my responses to Senator 
Murkowski's questions below.
          Questions for Third Panel--Air Conditioning Standard
Mr. Parks--you indicated that Goodman supports the 13 SEER standard

    Question 5. Given your market share and status as the second 
largest U.S. manufacturer, wouldn't the 13 SEER standard put you at a 
significant advantage relative to your smaller competitors?
    Answer. Goodman does not have a significant advantage given the 13 
SEER air conditioner is manufactured today and has been for almost 15 
years by virtually all manufacturers. 13 SEER technology has been 
available to both large manufacturers like Goodman and to small 
manufacturers like Goetl Air Conditioning for approximately 15 years. 
The Air Conditioner and Refrigeration Institute's own data shows that 
virtually all manufacturers including small and large produce 13 SEER 
equipment today and most have been for several years. Thus, all 
manufacturers would certainly be capable of continuing to produce 13 
SEER equipment five years from now when the rule would go into effect.
    In addition, we believe that everyone stands to gain from adopting 
13 SEER as the new standard. Lower electricity bills for the consumer, 
less electricity consumption relieving some of the pressure on utility 
companies, our environment gets a break and the HVAC industry has the 
opportunity to better meets the needs of our customers. In fact, 
raising the minimum efficiency standard to 13 SEER is goad for our 
industry because we believe consumers will begin replacing older, lower 
efficiency air conditioning units before they break down in order to 
save money on their electric bills. When production volumes increase 
due to market demand for a higher SEER product, consumer prices for 
those units will come down.
    Question 6. Given a 12 SEER standard, wouldn't there still be 
significant demand for 13+ SEER units among those consumers who 
benefit?
    Answer. Most often consumers opt to purchase the lowest minimum 
energy efficiency product they can find. This is especially true in the 
case of property owners that are not responsible for monthly utility 
costs leaving the renter with no choice in the matter. As a result, 
often those who can least afford it are most effected by high utility 
costs. ``We did sell a 10 SEER [current minimum SEER] unit to a lady 
with a rental unit. She didn't care if it was a 10 because she wasn't 
paying the electric cost.'' This is a quote from a recent article 
discussing the importance of increased energy efficiency standards for 
air conditioners, the Dallas Morning News, June 19, 2001.
    Rather than a select few, Goodman believes that persons of all 
income levels should enjoy this benefits by owning the most efficient 
equipment available at a reasonable price. The 13 SEER equipment 
translates to a 30 percent savings over present standards on consumers' 
air conditioning bills and would prevent the need to build at least 53 
(400 megawatt) power plants by the year 2020, thereby improving air 
quality across the nation.
    Establishing a 13 SEER standard is the most cost-effective way to 
reduce harmful emissions, keep electric bills more affordable and 
reduce the need for new generating plants--all accomplished with 
technology that has been available for several years and is in use 
today.
    On behalf of Goodman Manufacturing, I hope this information is 
useful as you consider the role of energy efficiency as part of the 
nation's energy solution. We hope you will consider the significant 
benefits associated with increased energy efficiency standard for air 
conditioners and urge Congress to strengthen air conditioning 
efficiency standards to the 13 SEER level. Please feel free to contact 
me if you have any further questions.
            Sincerely,
                                     David R. Parks, Ph.D.,
                                                         President.
                                 ______
                                 
                Air-Conditioning & Refrigeration Institute,
                                     Arlington, VA, August 3, 2001.
Senator Jeff Bingaman,
Chairman, Senate Energy and Natural Resources Committee, Washington DC.
    Dear Mr. Chairman: Enclosed please find a copy of my responses to 
your questions on the National Appliance Energy Conservation Act 
rulemaking covering residential central air conditioning and heat pump 
products. I appreciate the opportunity to add to the Senate Energy 
Committee's record on this important subject.
    If you or your staff have any further questions, please do not 
hesitate to contact me.
    Thank you.
            Very sincerely,
                             Clifford H. ``Ted'' Rees, Jr..
                                                         President.
[Enclosure.]
     Responses of Clifford H. ``Ted'' Rees, Jr., to Questions From 
                            Senator Bingaman
    Question 1. Why, then, would we require a less cost-effective 13 
SEER standard, particularly when those consumers who need a more 
efficient air conditioner can go out and buy one?
    Answer. There are customers for whom a 13 SEER product makes good 
economic sense. They are primarily in the southern half of the country, 
particularly in southern Florida and the southern tip of Texas, where 
air conditioning is needed virtually all year. Many of the members of 
ARI market 13 SEER products--they are more expensive, and for good 
reason--they cost more to make. And there certainly would be economic 
benefits for those manufacturers who make 13 SEER products to sell more 
of them. But those short-term benefits would be outweighed in the long 
run by a reduction in overall sales because the 13 SEER standard does 
not make good economic or energy efficiency sense for the vast majority 
of the country. A 13 SEER standard is simply not a reasonable national 
standard.
    I should point out, contrary to what the Committee has been told, 
that nearly half of the original equipment manufacturers in the United 
States today do not make 13 SEER equipment, and risk being put out of 
business if a 13 SEER minimum is imposed. The Department of Justice 
expressed particular concerns about the anti-competitive impact of such 
a standard on smaller manufacturers.
    But, as the question suggests, consumers can purchase 13 SEER 
equipment today--as well as 14, 15, and 16 SEER products--if they can 
afford it and if they believe it makes economic sense. To impose a 13 
SEER standard on all American consumers, however, would cause profound 
and disproportionate hardship on lower income consumers, the elderly on 
fixed incomes, and smaller equipment manufacturers, without justifiable 
energy savings.
    Question 2. Doesn't it make sense to spend some time reviewing why 
the previous Administration despite all advice for a 12 SEER standard--
changed to a less-economic 13 SEER standard at the last minute?
    Answer. One of the legal challenges raised by ARI to the last-
minute 13 SEER standard (which was sent to the Federal Register on the 
last day of the previous Administration and published on January 22, 
2001) is that there was not sufficient time to analyze and respond to 
the purported support for a 13 SEER standard. And this is one of the 
primary reasons that the current Administration withdrew the rule 
published on January 22, 2001--to take the appropriate time to analyze 
the potential energy savings and the technological feasibility and 
economic justifications for a 13 SEER standard, as DOE is required to 
do under the applicable statute. Upon reviewing the millions of dollars 
of data in the record at DOE relating to a new SEER standard, DOE has 
issued a supplemental proposed rule in the Federal Register on July 25, 
2001 which would increase the SEER by 20 percent to a 12 SEER. It is 
apparent from the DOE notice of July 25, 2001, that after a more 
thorough review DOE believes that there is economic justification in 
the record to support raising the standard to a 12 SEER, not a 13 SEER. 
Our analysis agrees with their conclusion.
    Question 3. Why should consumers in Alaska or Minnesota--where 
payback period is more than 20 years--be forced to purchase an 
uneconomic air conditioner or heat pump?
    Answer. Consumers in most of America--not just Alaska or 
Minnesota--should not be forced to purchase a 13 SEER air conditioner. 
The attached map of the United States demonstrates that the payback for 
such equipment does not make economic sense in energy costs savings in 
most of the country. There are other methods of achieving energy 
savings without penalizing the customer. For example, ARI members, 
except for one, have developed and participated in the North American 
Technician Excellence program, which is a program to improve 
installation and service of air conditioners and will increase 
efficiency enormously. Additionally, service maintenance contracts 
would assure continuing efficiency of installed equipment.
    Question 4. Wouldn't it be more prudent to promote the 12 SEER 
standard, and let consumers in Texas and Florida purchase a more 
efficient air conditioner based on their needs?
    Answer. Yes. The cost differential between a 12 and 13 SEER product 
is simply too extreme to impose the 13 standard on everyone. Although 
one manufacturer has claimed that the cost differential between the 2 
standards is only $100.00, that estimate was based on a very limited 
survey of 3 contractors from 2 states. ARI's estimates, which are based 
on variances in equipment costs and nationwide surveys, demonstrate 
that the average differential between a 12 and 13 SEER product is 
$407.00. (For example, the differential between the installed price 
from a contractor in Dumfries, Virginia and one in Riverdale, New 
Jersey is $2,577.00!)
    Moreover, some critics of the proposed 12 SEER standard allege that 
ARI's predictions of increased costs are inflated because predictions 
of cost increases in 1992 when the 10 SEER standard was imposed were 
not accurate. There is a significant difference in the 1992 predictions 
and the current ones, however: (1) in 1992, compressor manufacturers, 
independently--as a result of long standing research--introduced a new 
scroll compressor technology, at very little cost; and (2) the average 
product shipped in 1987 (when the rule was first drafted) was 
approximately a 9 SEER product, only one point below the proposed 10 
SEER standard; whereas, in the current situation, there is no 
compressor technology on the horizon to provide efficiency gains at 
minimal cost, and the average product shipped today is close to an 11 
SEER product which is two points below a 13 SEER.
    And finally, advocates for a 13 SEER standard have claimed that ARI 
had inaccurately predicted a $700 increase in cost in 1992 when the 10 
SEER standard was imposed, but as the attached transcript of the DOE's 
November 16, 2000 hearing clarifies, Steven Nadel of the Association 
for Energy Efficiency Economy admits that the $700 ARI estimate 
pertained only to a California Energy Commission rulemaking as an 
estimate for a California only standard.
    In short, the 12 SEER standard is economically justifiable after 
taking into appropriate account the climatic, regional and economic 
differences in our nation, whereas a 13 SEER minimum standard would 
impose unjustifiably harsh punishment on certain consumers and regions 
of our country.
    2 Attachments: 1. Cooling Hours Payback Map, and 2. Nov. 16, 2000 
DOE Hearing Transcript have been retained in committee files.
                                 ______
                                 
                      National Energy Management Institute,
                                     Alexandria, VA, July 31, 2001.
Hon. Jeff Bingaman,
Committee on Energy and Natural Resources, U.S. Senate, Washington DC.
    Dear Senator Bingaman: I have just arrived back in town and am in 
receipt of your letter dated July 20, 2001 relating to Senator 
Murkowski's questions.
    As I reviewed the list of questions asked by the Senator, I 
realized they were out of the scope of my testimony. I have no further 
comment on the issues he proposed.
            Sincerely yours,
                                            Erik S. Emblem,
                                                Executive Director.
                                 ______
                                 
  Responses of Steven Nadel, American Council for an Energy Efficient 
              Economy to Questions From Senator Murkowski
    Question 1. The 13 SEER standard will save 4 quads of energy at a 
cost of $4 billion to consumers; the 12 SEER standard will save 3 quads 
of energy at a cost of $1 billion to consumers. In other words, the 12 
SEER standard gives consumers 3/4 of the energy savings at 1/4 the 
cost. Why then would we require a less cost-effective 13 SEER standard, 
particularly when consumers who need a more efficient air conditioner 
can go out and buy one?
    Answer. This question contains points about energy savings, costs, 
and net financial savings. I will attempt to answer each of these. 
Regarding energy savings, according to DOE's analysis, a 12 SEER 
standard will save 2.9 quads, a 13 SEER standard 4.2 quads, so a SEER 
12 standard will have 69% of the savings of the 13 SEER standard. Or 
stated another way, a 13 SEER standard will increase savings 45% 
relative to a 12 SEER standard. Regarding costs, according to DOE's 
analysis, for the most common unit (a split air conditioner), 12 SEER 
has an incremental cost to the consumer of $213 and 13 SEER has an 
incremental cost of $335, so 12 SEER is 64% of the cost of 13 SEER, not 
1/4 of the cost. I am not clear what the $4 billion figure is you refer 
to, but the $1 billion I believe is the net savings (benefits minus 
costs) for 13 SEER. According to DOE's analysis, the comparable figure 
for 12 SEER is $2 billion. In the opinion of my organization, ACEEE, 
DOE's estimates of net savings are unrealistically low for both 12 SEER 
and 13 SEER and in fact net savings for both standards will be 
significantly higher (our rationales are briefly explained below in my 
response to question 3).
    The reasons to require 13 SEER in our opinion are several-fold. 
First, when the economic analysis is corrected, benefits for consumers 
are greater at 13 SEER than 12 SEER. Second, energy savings are 45% 
higher for 13 SEER than 12 SEER, and given the energy problems facing 
the U.S., we need to pursue all cost-effective energy savings. Third, 
there are very substantial peak demand savings associated with the 
increase from 12 to 13 SEER. Reducing peak demand will improve system 
reliability and will reduce summer electricity prices for all consumers 
(reduced peak demand increases supply relative to demand, reducing 
market-clearing prices). Fourth, the larger energy savings from 13 SEER 
translate into larger emissions reductions from the new standard, 
helping to reduce the cost of Clean Air Act reforms for ``3 
pollutants'' and for likely eventual steps to reduce greenhouse gas 
emissions.
    Question 2. Doesn't is make sense to spend some time reviewing why 
the previous Administration despite all advice for a 12 SEER standard--
changed to a less-economic 13 SEER standard at the last minute?
    Answer. In our opinion, given the energy problems facing the 
country and the need of the nation to both improve energy efficiency 
and increase energy supplies, available Congressional and DOE time 
should be devoted to these endeavors and not to a look back at actions 
that have already been taken. For example, in the National Energy 
Policy, the President has directed that DOE look into opportunities for 
setting new standards that are technically feasible and economically 
justified. In an effort to help achieve this objective, in my testimony 
I suggested a look forward to investigate ways to make the standards-
setting process more effective in the future.
    Regarding the statement in the above question, I would like to note 
that advice went both ways. Relative to the original proposal for a 12 
SEER air conditioner standard and a 13 SEER heat pump standard, some 
parties advocated a weaker standard (e.g. 12 SEER on both products) and 
some a stronger standard (e.g. 13 SEER on both products). The final 
rule was based on comments on the draft rule. It is fairly common for a 
final rule to include changes from a draft rule; if changes weren't 
sometimes made, then the final hearing and comments would be a charade. 
Also, this rulemaking took 7\1/3\ years, and under DOE procedures there 
was no proposed rule until more than 7 years had passed, so even the 
proposed rule was relatively ``last minute'' with the final rule 
following three months later.
    Question 3. As the chart shown by Mr. Rees tells us, there are vast 
parts of the country where the payback period for a 13 SEER air 
conditioner will be too long to allow the consumer to recover their 
extra costs. Why should consumers in Alaska or Minnesota--where the 
payback period is more than 20 years--be forced to purchase an 
uneconomic air conditioner or heat pump?
    Answer. There are several responses to your question. First, the 
data provided by Mr. Rees are based on ARI cost estimates and are 
higher than the incremental cost of these products in many markets 
today, even though SEER 13 is presently a niche product today and not a 
mass-market product. For this reason, DOE has de-emphasized use of the 
ARI cost estimates. Using the DOE cost estimates, payback periods in 
northern states would be lower than shown by ARI.
    Second, even the DOE analysis doesn't account for two very 
important factors: (a) the fact that past experience shows that the 
actual cost of standards, once implemented, are substantially less than 
a priori DOE estimates; and (b) the fact that summertime electricity 
prices (when air conditioning is used) have risen substantially since 
1996 (DOE's analysis is based on summer 1996 electric bills). These 
issues were discussed in my written testimony. When we correct for 
these two factors, even a 13 SEER air conditioner used only 300 hours 
per year (a typical figure for the far-north) will have a payback 
period of approximately 8 years relative to a 12 SEER unit.
    Third, in the far north relatively few homes have central air 
conditioners, so relatively few homes are affected relative to the much 
larger number of homes in warm climates that have central air 
conditioners.
    Fourth, there are benefits for northern regions in addition to 
direct consumer benefits. These benefits include reduced summertime 
peak demand, reduced summertime electricity prices for all consumers 
(due to the effect of reduced demand on market prices), and reduced 
emissions of air pollutants from power plants. For example, there is 
strong support for the 13 SEER standard in Oregon and Washington due to 
the impacts of reduced peak demand on summertime electricity prices and 
because freeing up power in Oregon and Washington allows them to sell 
excess power to California at a profit. And finally, under the federal 
standards program as currently implemented, there is a single national 
standard, that applies equally in every state. For most products this 
works fine, but for climate-sensitive products such as air conditioners 
and furnaces, there is always a need to compromise given substantially 
different energy use in the northern and southern states. For these 
products, it might make sense to split the country into two regions and 
set separate standards for each.
    Question 4. Wouldn't it be more prudent to promote the 12 SEER 
standard, and let consumers in Texas and Florida purchase a more 
efficient air conditioner based on their needs?
    Answer. Under standards, consumers are always free to buy more 
efficient products than the standards require. However, experience 
shows that most sales are at or near the standard level and only a 
limited number of consumers buy more efficient products due to the many 
market barriers that led to the establishment of standards in the first 
place. Currently, 13 SEER units have only about a 5% market share 
nationally, and while the market share for 13 SEER is higher in Florida 
and Texas, my understanding is that even in these states 13 SEER 
accounts for a minority of product sales. By setting the federal 
standard at 13 SEER, the market share of these units will be much 
higher, increasing energy savings, peak demand savings and net economic 
benefits (the latter is true with reasonable economic assumptions). 
Looked at another way, my understanding is that sales of 12 SEER (but 
not 13 SEER) units are already quite high in Florida and Texas, so 
without a 13 SEER standard, these states will not receive significant 
benefits. One possible compromise might be to set a 12 SEER national 
standard but permit warm states to set higher standards. However, for 
this option to work, manufacturer support will be needed, as 
manufacturers have traditionally opposed such arrangements, insisting 
on a uniform national standard.
    Question 7. Mr. Nadel, you made several recommendations as to other 
appliances that could be covered by an expanded appliance standard 
process. Some of your recommendations follow standards adopted by the 
California Energy Commission--did they evaluate the costs to consumers 
and impacts on consumer choice in setting their standards?
    Answer. Yes, California evaluates both of these factors in setting 
state standards. The California process to set these standards includes 
(1) an initial hearing and data collection/analysis; (2) publication of 
draft standards, an energy savings and economic analysis, and a hearing 
on these materials; (3) publication of revised materials and a hearing 
on these materials; and (4) publication of a final proposal, a hearing 
on this proposal, and adoption of a final standard. At this point steps 
1-3 are completed and the final step is scheduled to take place 
shortly. In general, the California standards are set at levels that 
many existing products can meet since the California market is much 
smaller than the national market and because the California standards 
are typically scheduled to go into effect one year after adoption 
rather than the 3 years typically used for federal standards.
    Question 8. Will your upcoming report on the effects of these 
standards also evaluate consumer costs and other market impacts in 
addition to energy savings?
    Answer. Yes, our report will fully evaluate consumer costs and 
benefits. In the table on the next page I provide our preliminary 
results. In addition, we look at other market impacts by reviewing 
available data and interviewing industry experts.

         ESTIMATED NATIONAL SAVINGS FROM STANDARDS ON PRODUCTS NOT COVERED BY EXISTING FEDERAL STANDARDS
----------------------------------------------------------------------------------------------------------------
                                                     National energy     National energy
                                                    savings in 2010     savings in 2000     NPV for
                                       Effective                                           purchase    Benefit-
              Products                   date    ----------------------------------------  thru 2020  cost ratio
                                        (year)               (Tril.              (Tril.      ($)
                                                   (Twh)      Btu)     (Twh)      Btu)
----------------------------------------------------------------------------------------------------------------
Torchieres..........................     2005       28.8      293.9     52.4      522.0     22,789        4.4
Ceiling fans........................     2008       12.0      122.6     48.1      479.1     15,953        4.7
Furnace and heat pump fans..........     2008        9.2       94.0     46.1      459.0     20,658        6.5
Electronic equip. & power supplies..     2005       22.5      229.3     28.6      285.1     13,822        5.0
Unit and duct heaters...............     2005       NA         53.1     NA        149.7      4,241        6.2
Dry type transformers...............     2005        1.9       19.7      5.4       54.1      2,796        5.8
Vending machines....................     2008        1.2       12.1      4.0       40.0      1,198        4.5
Commercial refrigerators & freezers.     2005        1.9       19.9      3.2       31.8      1,375        6.8
Traffic lights......................     2005        0.3        3.6      2.6       26.2        710        2.6
Exit signs..........................     2005        0.8        8.5      2.3       23.3      1,179        7.5
Commercial clothes washers..........     2008        0.7        6.8      2.1       21.3      2,000        6.7
Beverage merchandisers..............     2008        0.6        6.1      2.0       20.2        621        5.1
Ice-makers..........................     2005        1.1       10.9      1.7       16.5        564        3.0
Packaged large HVAC.................     2008        0.3        2.9      1.4       14.2        387        3.4
  Total.............................                81.4      883.2    199.9    2,142.4     88,293        5.0
----------------------------------------------------------------------------------------------------------------

    [Senator Larry E. Craig submitted the following technical 
response of Argonne National Laboratory to the testimony of 
Thomas B. Cochran and asked that this response be printed in 
the hearing record.]

                      ARGONNE NATIONAL LABORATORY

            Responses to the Testimony of Thomas B. Cochran
    Cochran. ``My testimony will focus on research and development of 
advanced fuel processing technologies and whether the United States 
should abandon its longstanding non-proliferation policy and promote 
the development and deployment of pyroprocessing and transmutation 
technologies.''
    Response. The United States government position that it does not 
``. . . encourage the civil use of plutonium and accordingly, does not 
itself engage in plutonium processing'' is based on proliferation risks 
associated with the separation of pure plutonium by reprocessing. The 
pyroprocess is an advanced technology that cannot separate pure 
plutonium. In fact, the product of the pyroprocess is a highly 
radioactive mixture of uranium, plutonium, minor actinides, and some 
fission products. This material is not suitable for use as weapons 
materials. The implication that promoting development and deployment of 
pyroprocessing and transmutation technologies is abandonment of 
longstanding nonproliferation policy is false. Indeed, pyroprocessing 
provides a proliferation resistant alternative to traditional PUREX 
reprocessing that-strongly supports U.S. nonproliferation objectives.
    Cochran. ``Civilian nuclear activities have directly and indirectly 
contributed to the spread of nuclear weapons.
    . . .
    Unfortunately, the nuclear nonproliferation threat stemming from 
civilian nuclear power technologies is still alive today, as evidenced 
by Iran's pursuit of a nuclear weapons option by purchasing nuclear 
expertise and dual-use technology from Russia.''
    Response. In the history of more than 50 years of civilian nuclear 
energy deployment, neither a single commercial electricity generating 
reactor plant nor any commercial reprocessing facility has been 
utilized to obtain weapons materials. In all cases, the weapons 
materials were acquired through uranium enrichment or from plutonium 
produced in special purpose small reactors.
    In countries that do not already nave nuclear weapons, all 
commercial nuclear facilities are under the international safeguards 
regime. The economic penalty and the energy security compromise 
resulting from safeguards violations are so great that these commercial 
nuclear facilities would not be the choice for weapons materials 
production, even in the future.
    Cochran. ``Advanced processing research, even in weapon states, 
provides the necessary justification for nascent nuclear weapon states 
to pursue similar research ostensibly for peaceful purposes. It is 
primarily for these reasons that NRDC believes the better course is to 
oppose all commercial use of nuclear weapon-usable materials, including 
separated plutonium and highly enriched uranium, and oppose the 
research, development and commercialization of nuclear fuel 
reprocessing technologies.''
    Response. If a nascent weapons state wishes to produce weapons 
material, relatively straightforward chemical reprocessing methods are 
already available. Research on advanced technologies such as 
pyroprocessing does not increase the already existing proliferation 
risks. In fact, developing proliferation-resistant alternatives to 
replace already existing aqueous reprocessing will support the U.S. 
nonproliferation policy goals.
    Since current commercial reactors produce about 40% of their energy 
over the life of the fuel by fissioning plutonium, opposing all 
commercial use of nuclear weapon-usable materials requires elucidation. 
Plutonium is, in fact, simply a natural part of nuclear energy, even in 
the once-through uranium fuel cycle. Further, fissioning plutonium in a 
fast reactor will reduce the inventory of plutonium already contained 
in spent LWR fuel.
    Worldwide, nuclear power deployment and R&D is driven by a need for 
energy. History has shown that we can guide development in other 
countries through technical leadership, but that trying to lead by 
abstinence has failed.
    Cochran. ``The simple answer is that there are no known fuel cycles 
that are cheaper, and no known fuel cycles that rely on reprocessing 
that are more proliferation resistant, than the once-through fuel 
cycle.''
    Response. The once-through fuel cycle may not be cheaper in the 
long run if the waste management implications are factored in. The 
once-through fuel cycle would add to the accumulation of plutonium 
contained in the spent fuel at the rate of about 80 tons of plutonium 
per year around the world indefinitely, and at a greater rate if 
nuclear enegy expands as expected. After long cooling period, the 
plutonium contained in the spent fuel can be more easily accessed, 
creating real proliferation concerns, or worse, creating a source of 
plutonium that is not a concern because it has been forgotten by the 
international community.
    Cochran. ``However, the most serious nonproliferation threat 
associated with reprocessing technologies is not the terrorist threat, 
but the so-called `state threat.' The IFR concept and the 
pyroprocessing technique offer little in the way of reducing this 
threat.''
    Response. This argument is irrelevant to the merits of the IFR 
concept and pyroprocessing. Having decided to become a weapons state, a 
country would pursue facilities and technologies relevant to that end, 
not those that are irrelevant. The IFR has features that ameliorate, 
and in large measure eliminate, concerns about nuclear proliferation. 
Advantages for nonproliferation are, in fact, a major asset of the IFR.
    The IFR is compatible with the most rigorous safeguards provisions, 
and it provides a basis for dealing with the most egregious concerns 
about safeguards: excess weapons plutonium and the long-term 
accumulation of plutonium, both separated and in waste inventories. IFR 
technology does not involve separating plutonium. The IFR pyroprocess 
that separates fission product wastes cannot produce pure plutonium. 
Plutonium is always codeposited with other actinides (neptunium, 
americium, curium) and uranium. The product carries enough highly 
radioactive fission products to necessitate remote handling of even the 
refabricated fuel. All processing steps, including fuel fabrication, 
are conducted remotely in a small hot cell. Unauthorized access is 
impossible and any attempt would be easy to detect. The compactness of 
the fuel cycle facility means that transportation of spent fuel and 
refabricated fuel can be eliminated by locating the facility at the 
power plant site. IFR products would still need aqueous reprocessing 
for any use other than in the IFR (e.g., after covert diversion), just 
as does spent LWR fuel. Furthermore, IFR can consume stocks of 
plutonium that currently are increasing daily. And finally, by 
integrating the latest safeguards technologies into the IFR fuel cycle, 
an unprecedented level of nonproliferation transparency can be 
achieved.
    Nations that choose to pursue nuclear reprocessing presently have 
one technology available, called PUREX. This technology was designed 
specifically to produce highly purified plutonium for the construction 
of nuclear weapons. Introduction of IFR technology would provide a 
proliferation-resistant alternative that strongly supports U.S. 
nonproliferation objectives.
    Cochran. ``In one respect pyroprocesing is actually worse than 
aqueous reprocessing in terms of their respective proliferation risks. 
Preprocessing involves access to technologies for working with 
plutonium in metallic form, the form most often used for weapons.''
    Response. This assertion is not true. In the aqueous reprocessing, 
plutonium is recovered as plutonium nitrate, which is easily converted 
to plutonium metal. In pyroprocessing, pure plutonium metal is never 
produced. The product is a highly radioactive mixture of uranium, 
plutonium, minor actinides and some fission products, that is 
unsuitable as weapons material.
    Cochran. ``There is not a shred of evidence in any of the ATW 
proposals that the collective dose reductions associated with the 
geologic repository, assuming ATW is implemented, will be less than the 
collective dose from operating the reprocessing facilities and the 
transmutation facilities. In fact everything we know about these 
facilities today suggests the opposite--ATW would result in a higher 
collective radiation dose to people than they would receive if ATW were 
not implemented.''
    Response. The radiological toxicity of the spent fuel consists of 
two components: fission products which decay to the background 
radiological toxicity level of the original uranium ore in about 300 
years, and actinides which have long half lives and hence take millions 
of years to decay to that extent. With pyroprocessing, the actinides 
are recovered collectively and can be transmuted or fissioned in the 
ATW or in the fast reactor. The dose from operating the transmutation 
facility is the same as the standard nuclear power plant. The dose from 
operating a pyroprocessing facility is expected to be a small fraction 
of that from a power plant.
    On the other hand, the benefits of removing actinides from the 
repository are tremendous and would allow the following specific 
contributions toward a solution to the nuclear waste problem:

   Removal of actinides, which have long half lives hence long-
        term radiological toxicity, from the waste, thereby reducing 
        the effective lifetime of the waste from hundreds of thousands 
        of years to a few hundred years. Actinides can be recycled as 
        fuel in the fast reactor.
   Since the source for long-term radiological release from the 
        repository is essentially eliminated, the EPA standard for 
        long-term release and NRC regulatory requirements can be met 
        more easily.
   The amount of waste stored in the repository can ue 
        increased by a factor of about 10 because the long-term heat 
        source is eliminated.
   The lower heat source leads to a cooler repository resulting 
        in higher confidence in superior repository performance 
        modeling involving ground water movement.

    Pyroprocessing does not obviate the need for the Yucca Mountain 
repository. The above technical attributes will allow the technical 
performance requirements for such a permanent repository to be met more 
easily and reduce the burden of long-term stewardship, resulting in 
significant improvements in the licensing process and economics.
    As for the transmutation, it can be done more effectively and 
economically in fast reactors because the engineering complexity and 
cost penalties associated with the accelerator driven spallation 
neutron source are eliminated. Furthermore, actinides are valuable 
resources for electricity generation. Current commercial reactors 
utilize less than 1% of uranium resources. Fast reactors can accomplish 
a full utilization of uranium resources increasing the nuclear energy 
potential by a factor of 100. This will enable nuclear energy to have a 
significant impact on reducing the greenhouse gas emission.
    In fact, the fast reactor with pyroprocessing is the only advanced 
reactor concept that can answer all of the five crucial questions 
raised by the New York Times editorial on May 29, 2001, namely: (1) 
impact on global warming, (2) weapons risks, (3) waste disposal, (4) 
rector safety, and (5) economics.

                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

                 Statement of Chevron Energy Solutions
    Chevron Energy Solutions appreciates the opportunity to discuss the 
need for energy efficiency in our country, and barriers we have 
encountered in trying to do business with the Federal government to 
increase energy efficiency in public buildings. We believe that some 
small, but critical changes to current law would help increase the use 
of Energy Savings Performance Contract provisions which we, as well as 
many others, believe are underutilized. These changes would help both 
public officials and contractors cut through the ``red tape'', and get 
the job done of increasing energy efficiency in our public buildings.
    By way of background, Chevron Energy Solutions is an energy 
services company headquartered in San Francisco, California, with 12 
offices nationwide. In July 2000, Chevron acquired the retail energy 
services business of PG&E Corporation, and integrated the expertise 
into Chevron's own proven capabilities in this area. Chevron Energy 
Solutions has programs for energy management, energy efficiency, power 
quality, and power reliability to meet the ever-changing and growing 
demand of both private companies and public agencies. With the Federal 
government, over the past several years, we have done and continue to 
do a substantial amount of contract work for the Department of the Navy 
and other Federal agencies (many high security agencies) in both energy 
efficiency and infrastructure improvement upgrades. In the State of 
California alone, we have implemented energy performance contracts for 
community colleges and school districts, municipalities and other 
government agencies in an effort to assist them in meeting the 
challenges associated with energy shortages and escalating energy 
costs. We are also under contract with the Metropolitan Washington 
Council of Governments to make energy performance contracts available 
to their member agencies and departments throughout the greater 
metropolitan Washington area.
    Energy Savings Performance contracts are an important and 
innovative tool for government agencies to fund energy efficiency 
measures. We estimate a savings of over $175 million in energy costs 
could be saved in Federal buildings alone under existing law--and 
substantially more if some changes are made to existing law. Government 
facilities represent a significant opportunity to help us meet our 
national energy goals. Our experience has shown that many of these 
facilities have aging and energy inefficient equipment and 
infrastructure that requires modernization to allow them to operate at 
peak efficiency. To help address these needs, and provide a financial 
mechanism to obviate the necessity of a large capital outlay, Congress 
included ``performance contracts'' as part of the Energy Policy Act of 
1992 to allow energy upgrades to be paid for through savings obtained 
through energy efficiency.
    We are very supportive of the energy contracting provisions in 
current law, but we have learned that ``one size does not fit all'', 
and increased flexibility is needed. We strongly advocate that changes 
be made in existing law to provide for some of this additional 
flexibility. If these changes were made, we believe that these 
provisions would be more workable and utilized by more Federal 
departments and agencies and could result in energy cost savings of 
greater than $500 million. In addition, State and local government 
agencies are adopting and implementing similar provisions, which mirror 
the Federal statute.
    The focus of current law is on ``cost savings'' and not necessarily 
on ``energy savings''--and it is important that we also address 
conservation as a means to help us meet our national energy goals. 
Reducing energy use does not always correlate with cost savings, 
although in many instances it does. The rising cost per unit of energy 
may also mean that a performance contracting initiative may result in a 
reduction in the total amount of energy consumed, yet there may be no 
cost savings at all. Therefore broadening the scope of the law is not 
only desirable, but it is entirely appropriate.
    We would recommend that the following changes be made to existing 
law and added to the Senate bill S. 352:
    (1) Broaden the definition of energy savings measures to include 
infrastructure improvements that contribute to energy conservation, 
including operational efficiency of building heating, ventilation and 
air conditioning systems, lighting systems, building envelopes, 
domestic and hot water systems, measures that result in verifiable 
operational efficiencies within the building, and other comparable 
measures. Certainly, these measures should be a part of the overall 
definition because they represent the breadth of what energy efficiency 
is about--that certainly operational changes are key to achieving this 
goal. Efficiencies do not arise solely from one piece of equipment 
within a facility, but from the interrelationship of systems within the 
facility.
    (2) Allow for a single contract to cover work that is related to 
implementing energy efficiency measures. In order to install energy 
efficiency measures, often times other incidental work must be done 
first. For example, asbestos may need to be removed prior to revamping 
a building's electrical system or a roof repaired prior to revamping 
the heating system. Under current law, the agency must let a separate 
contract for this work although the work is related to installation of 
the energy efficiency measures. This work could very well be done, and 
should be done by the same contractor. If the Federal agency had the 
option to provide one umbrella contract for all work related to 
implementing the energy savings contracts, then this would eliminate 
``red tape'', and the energy efficiency measures could be installed 
faster and less expensively. In addition, Federal agencies should have 
the option to finance these costs from their capital budgets.
    (3) Expand provision to cover ``energy usage'' as a factor that can 
be counted in determining the ``savings.'' This would provide 
incentives for conservation, and not restrict the ``savings'' solely to 
costs. We recommend that changes would provide for being able to 
account for a corresponding reduction or change in energy use. With 
rising energy costs, there may be no decrease in funds but yet energy 
is being conserved.
    (4) Provide incentives and educate school districts regarding 
performance contracting. Public schools are continually plagued with 
aging inefficient energy systems, and lack funds up front to pay for 
the upgrades. Performance contracting is a tool that would allow public 
schools to do the necessary upgrades without expending capital funds up 
front. We recommend that DOE and the Department of Education work 
together to develop incentives for public schools to use performance 
contracts.
    (5) Provide some flexibility in the methodology in how the energy 
savings are verified. In current law, an ``annual energy audit'' is 
required. An ``annual audit'' is not always necessary because energy 
efficiency standards are in place and the use of these conventional 
standards (which have already been verified) is accurate measurement. 
For example, if there is a lighting retrofit, the specifications for 
those lights include energy use and costs--therefore, ``an annual 
energy audit'' performed by the contractor to verify energy savings is 
unnecessary and redundant.
    Again, we appreciate the opportunity to submit testimony for the 
record and believe that these changes are needed to add flexibility to 
this provision so that it will be more fully utilized and ultimately 
increase energy efficiency at our government facilities. We are hopeful 
that Congress will include these changes in the energy legislation now 
being considered.
    Thank you for your consideration.
                                 ______
                                 
       Statement of Craig G. Goodman, President, National Energy 
                         Marketers Association

                            I. INTRODUCTION

    My name is Craig G. Goodman. I am submitting this testimony as 
President of the National Energy Marketers Association (NEM). NEM is a 
national, non-profit trade association representing a regionally 
diverse cross-section of both wholesale and retail marketers of energy 
and energy-related products, services, information and technology 
throughout the United States. NEM members include: small regional 
marketers, large traditional international wholesale and retail energy 
suppliers (as well as wind and solar power), billing and metering 
firms, Internet energy providers, energy-related software developers, 
risk managers, energy brokerage firms, information technology providers 
and manufacturers and suppliers of advanced distributed generation. 
Membership includes both affiliated and unaffiliated companies. 
Affiliated and independent marketers have come together under the NEM 
auspices to forge consensus and to help eliminate as many issues as 
possible that would delay competition.
    NEM members urge lawmakers and regulators to implement: 1) laws and 
regulations that open markets for natural gas and electricity in a 
competitively neutral fashion; 2) rates, tariffs, taxes and operating 
procedures that unbundle competitive services from monopoly services 
and encourage true competition on the basis of price, quality of 
service and provision of value-added services; 3) standards of conduct 
that protect consumers; and 4) policies that encourage investments in 
new technologies, including the integration of energy, 
telecommunications and Internet services to lower the cost of energy 
and related services.
    As a national trade organization, NEM brings a wide range of 
experiences, as well as broad perspectives to its testimony in this 
proceeding that should aide the United States Senate Committee on 
Energy and Natural Resources and enhance the quality of the record to 
be developed here. NEM currently participates in more than 50 
restructuring proceedings around the country and at FERC. The testimony 
and recommendations presented here represent major issues and barriers 
to price competition that are most often confronted in proceedings 
around the country.

                             II. BACKGROUND

    Electricity represents the last vestige of 60 years of the most 
complicated price and allocation controls known to man. The retail U.S. 
energy business is one of the largest single businesses in the world. 
It represents nearly a trillion dollars a year, of which, energy is 
only about $300 billion. Currently, however, utility bills include all 
manner of products, services, information and technologies which are 
truly separate and very competitive businesses.
    In the U.S., there are very few true supply monopolies or demand 
monopsonies. But between competitive sources of supply and demand there 
are two, full-blown, government sanctioned monopolies. One is an 
interstate transmission monopoly, and one is a local distribution 
monopoly. Current rules governing these monopolies are incredibly 
complex, hard to audit and impose enormously unnecessary costs on 
consumers in many different ways.
    To help consumers and to lower energy prices quickly, monopoly 
barriers to new energy supplies must be repealed, and aggressive 
conservation and load reduction incentives must be implemented 
immediately. At the same time, both state and federal policies must 
squeeze the monopoly profits out of the two monopolies between supply 
and demand so that more competitive supplies can meet demand at lower 
prices.
    Utilities should not have a monopoly or competitive advantage to 
provide competitive products, services, information and technologies. 
Utilities should perform solely natural monopoly functions. Regulated 
utilities should sell transportation services on a ``no frills'' cost 
of service basis. Needed infrastructure investments should be given 
targeted, performance-based incentives. Regulations, tariff structures, 
interconnection rules, back up rates and operational protocols should 
be uniform and designed to permit competitive suppliers to provide all 
other energy-related products, services, information and technologies 
at competitive, not monopoly, prices.

                          III. RECOMMENDATIONS

    There are a number of actions that federal and state governments 
need to take to encourage new investments in distributed generation 
technologies as an important part of the competitive restructuring of 
U.S. energy markets. NEM members operate in virtually every market that 
has opened for competition, and their broad base of experience was the 
basis for the attached document entitled, ``National Guidelines for 
Implementing Distributed Generation and Related Services.'' * In this 
document, NEM recommends fair and uniform business practices for 
interconnection, reasonable regulation of emissions, balanced planning 
and distributed generation valuation, fair tariffs for regulated 
services, and the ability to sell excess power.
---------------------------------------------------------------------------
    * The document has been retained in committee files.
---------------------------------------------------------------------------
    NEM also recommends the expansion of existing energy and 
environmental tax credits to include Qualified Restructuring 
Investments such as advanced metering, computer system upgrades, and 
distributed generation and the provision of tax and performance based 
regulatory incentives for infrastructure upgrades, congestion 
management, maintenance and streamlined interconnection procedures.
A. Implementation of Distributed Generation Technology
    Electric demand is increasing as a result of economic expansion and 
the 21st century digital revolution. As congestion on the existing grid 
mounts, investment in distributed generation can provide significant 
relief to consumers quickly and cost effectively. Accordingly, NEM 
urges the adoption of five principles to encourage implementation of 
distributed generation.
    As a general matter, regulators should unbundle and redesign 
distribution rates, eliminate penalties, redundant charges, and 
barriers to entry and implement tariffs that encourage investments. As 
currently designed, utility tariffs represent significant economic 
barriers to consumers that wish to invest in distributed generation and 
related technologies. NEM maintains that utility tariffs, operating 
practices and procedures must be rewritten to recognize that 
distributed generation can increase en orgy supplies, enhance system 
reliability and lower energy costs to both the utility and the 
consumer.
    Utilities must provide equal, non-discriminatory access to markets 
for power and auxiliary services. Interconnection of distributed 
generation, in and of itself, does not provide distributed generation 
investors with equal and open access to either wholesale or retail 
markets. Distributed generation must have access to markets for the 
sale of generation and capacity as well as ancillary services. 
Distributed generators must also be able sell the output of their 
generation to the wholesale market and trade demand or energy reduction 
as a replacement for generation (``negawatt market''). Additionally, 
uniform and reasonable retail wheeling rates should be developed to 
maximize customer choice and permit a market for the local sale of 
power.
    Federal and state governments must adopt uniform technical 
requirements and procedures for the interconnection of distributed 
generation technology. National, or at a minimum, statewide technical 
safety and reliability requirements, application procedures, forms, 
standards agreements, related testing and certification requirements 
and the elimination of existing penalties can reduce the costs and 
risks of investments by consumers in competitive new distributed 
generation technology. Uniform interconnection standards, policies and 
practices must be implemented to lower the costs of installation.
    Consistent siting requirements and reasonable environmental 
permitting of distributed generation will reduce the cost and 
uncertainty associated with compliance for all parties. Similarly, 
local siting and environmental permitting requirements must allow 
investors in distributed generation technologies to comply in a 
realistic and timely fashion. At a minimum, emissions requirements 
should be phased in to provide manufacturers time to meet unrealistic 
or overly stringent emissions targets.
    Finally, utilities should not be granted a monopoly or competitive 
advantage to provide competitive products, services, information or 
technology. Utilities should perform solely natural monopoly functions. 
Essentially, regulated utilities should sell regulated distribution 
services on a ``no frills'' cost of service basis. Regulations, tariff 
structures, interconnection rules, back-up rates and operational 
protocols should be designed to permit competitive, non-utility 
suppliers to provide each of the products, services, information and 
technologies that are not natural monopoly functions. The provision of 
distributed generation technology can and should be opened immediately 
to competition.
B. Federal and State Tax and Regulatory Incentives are Needed 
        Immediately for Investments in New Energy Supplies, 
        Conservation, Technology, and Infrastructure Immediately
    The United States has entered the digital age with an energy 
infrastructure constructed for the industrial revolution. The United 
States is operating on a level of reliability that cannot support 
digital power quality needs. A flicker of the lights in Silicon Valley 
has global impacts.
    One of the lowest cost, highest yield policy solutions is to create 
targeted tax incentives to encourage all forms of new energy supply, 
technology and conservation investments. This includes investments in 
new pipes and wires to reduce congestion, advanced metering systems, 
new computer systems, new energy supplies as well as distributed 
generation. Both the state and federal governments have powerful and 
effective tools to encourage new investments in energy supply and 
conservation. The federal tax code already contains a myriad of 
targeted energy, environmental and efficiency tax credits that should 
be updated to increase the supply of electricity and natural gas and 
reduce consumption. Either or both the existing energy tax credits 
contained in Section 48 of the Internal Revenue Code (IRC), or the 
existing credit for research contained in Section 41 of the IRC, could 
be expanded to include ``qualified energy restructuring investments.'' 
The credit should be available to both regulated and unregulated 
entities. To ensure that restructuring tax credits and regulatory 
incentives are targeted and effective, investments that are not 
``qualified'' should also not qualify for stranded cost recovery.

                               CONCLUSION

    Our country is urgently in need of new generation investments, and 
it is in the public interest that customers be incented to make these 
investments as soon as practicable. Toward that end, competitive 
barriers to entry must be removed to create a hospitable market for 
distributed generation investments including the adoption of uniform 
technical requirements and interconnection procedures as well as the 
elimination of redundant fees and charges. Furthermore, reasonable 
emissions standards and environmental permitting and siting 
requirements for distributed generation should be adopted.
    At the wholesale level, distributed generation investors must have 
equal and open access to the markets for power and ancillary services. 
At the retail level, utilities' tariffs must be fully unbundled, and 
the utilities' role in the market should be defined as that of a no-
frills, wires-only distribution company. All other competitive 
functions and products, including the installation and supply of 
distributed generation, should be provided by the competitive 
marketplace.
    Additionally, existing tax and regulatory incentives must be 
expanded to encourage new investments in energy supply, technology and 
conservation. NEM experts are available to work with Committee staff to 
draft appropriate language to implement these recommendations.
                                 ______
                                 
 Statement of Rone Lewis III, Senior Vice President of Ingersoll-Rand 
          (IR) and President of IR's Independent Power Sector
    Thank you for giving me the opportunity to submit for the Senate 
Energy and Natural Resource hearing record my testimony on the role of 
microturbine technology and distributed power generation in addressing 
America's growing energy crisis.
    First, let me begin by giving you some background information on 
Ingersoll-Rand and its Independent Power Sector. Ingersoll-Rand is an 
$8.8 billion company with more than 50,000 employees operating in over 
100 countries. We serve four major global markets: climate control, 
industrial productivity, infrastructure and security and safety. In the 
area of Industrial Productivity, I am president of IR's Independent 
Power sector, which focuses on identifying, developing and marketing 
alternative-power and energy-management solutions.
    As you may be aware, Chairman Bingaman and Members of the 
Committee, a new type of electrical generator, called a microturbine, 
is rapidly becoming available to fit the electricity and heating needs 
of typical commercial buildings and industrial plants. About the size 
of a commercial refrigerator, microturbins hold great promise in 
supplying America's facilities with reliable and affordable power.
    Microturbines are small combustion turbines that produce anywhere 
from 25 to 500 kilowatts of electric power. They burn a variety of 
fuels such as natural gas or diesel to produce the same kind of 
electricity provided by a utility electrical grid. Because the gas 
turbine engine has relatively few moving parts, it is quite reliable 
and can operate for long periods--typically 8,000 hours or more--with 
little maintenance. Microturbines produce very low emissions as they 
burn fuel. They are designed to easily meet stringent environmental 
regulations, including California's strict emission standards. 
Microturbines are also relatively quiet emitting low noise levels.
    Our PowerWorks brand of microturbines, which has been in 
development for more than 10 years, will provide 70 kilowatts of energy 
to customers. They are designed to be placed in or near facilities such 
as hotels, supermarkets, hospitals, laundries, multi-family dwellings, 
schools and greenhouses, to name a few. These are locations that need a 
reliable, cost-effective and efficient energy source for electricity 
and heat.
    A $1.4 million research grant from the U.S. Department of Energy 
contributed to the development of the PowerWorks microturbine, which is 
designed to meet the same high standards found in chillers, boilers and 
furnaces. Our microturbines are manufactured to operate for 
approximately 10 years under typical operating conditions. Through 
their cogeneration capability, the PowerWorks microturbines can also 
fulfill a facility's hot water and other heating requirements.
    PowerWorks connects directly to the electrical distribution system 
of a facility to provide high quality electricity. Our microturbines 
work 24 hours a day, seven days a week for long periods with low 
maintenance. Designed to help satisfy electric power needs by producing 
electricity at the point of consumption, the PowerWorks microturbine 
also supports peak shaving applications. This means that microturbines 
can enable businesses and consumers to reduce their reliance on the 
power grid, especially during costly peak use hours.
    IR began the field-testing phase of its microturbine development 
program last fall in several kinds of facilities located throughout the 
United States. We plan to introduce our first commercial production 
units this fall.
    There is no argument that this country's need for this type of 
energy is increasing at a steady rate. California's energy crisis 
underscores the need for increased energy efficiency, cleaner 
technologies and more reliable production. Deregulation, volatile 
energy pricing and tighter emission regulations have all prompted an 
interest in energy alternatives, such as ``green'' technologies like 
the microturbines. And there is probably no better way to get reliable 
and affordable energy than from your own, on-site generating equipment.
    Distributed energy holds great promise in the United States for 
improving the generation of electricity. The report released this 
spring by Vice President Dick Cheney's energy task force revealed that 
this Administration is committed to the use of renewable and 
alternative energy, and specifically that ``microturbines could easily 
capture a significant share of the distributed generation market.''
    Furthermore, the Cheney Report was absolutely accurate in noting 
several challenges to the use of distributed energy. First, there is a 
lack of national, uniform standards governing interconnection of 
distributed energy to the local power grids, which is hampering the 
roll-out of the technology into the local marketplace. The microturbine 
industry needs a consistent, reliable process for grid interconnection 
approval that focuses on practical and cost effective safety 
requirements; a timely approval process that prevents foot dragging on 
distributed power projects; and no punitive charges from the utility 
for either disconnecting from the grid or using the grid as a backup. 
The industry is also interested in support for selling unused power 
back to the power grid.
    Long-standing regulatory policies that support monopoly supplies 
also must be reversed. This will increase competition, and encourage 
the development and environmentally-friendly alternative energy 
technologies. The Cheney Report correctly states, ``The tools that form 
the necessary interface between distributed energy systems and the grid 
need to be less expensive, faster, more reliable and more compact.''
    We are pleased that the report recommends that the President direct 
Energy Secretary Abraham to focus R&D efforts on integrating current 
alternative technology programs regarding distributed energy, hydrogen 
and fuel cells. Fuel cell technology is of particular interest to IR 
because several of our industrial products currently utilize diesel 
engines. Fuel cell technology promises a more environmentally sound 
alternative and continued federal research programs can accelerate the 
development of these programs.
    All developers of microturbine technology would be interested in 
Congressional and Administration support for tax credits for companies 
who install or use microturbine technology. Tax credits are essential 
to helping businesses finance their utilization of this technology, 
just as they have with other alternative energy sources, such as solar 
power. In addition, continued investment in our nation's natural gas 
infrastructure will help to ensure that a ready supply of natural gas 
is available.
    We look forward to working with the Senate Energy and Natural 
Resources Committee, the rest of the Congress, and the Bush 
Administration to develop the necessary regulatory and legislative 
support that would make power from microturbine technology more readily 
available. We believe that once the technical, business and regulatory 
barriers are removed, distributed power generation will be able to 
fulfill its promise to America.
    Thank you.
                                 ______
                                 
 Statement of Robert C. Richardson, Cornell University, Chair, Physics 
   Policy Committee, American Physical Society, and Member, National 
                             Science Board

            [DOE Science for the Future--A Discussion Paper]

                              INTRODUCTION

    The role of science and technology in maintaining the well being of 
our nation is growing and changing rapidly. Because of the extent and 
speed of these changes, it is essential to reexamine the ways in which 
support for scientific research is organized within the U.S. 
government. The advent of a new Administration and Congress provides an 
opportunity to address emerging problems in ways that may not be 
possible at other times.
    We, the authors of this discussion paper, are especially concerned 
about the future of the scientific research supported by the Department 
of Energy. The DOE is the federal government's third largest sponsor of 
basic research, and the largest sponsor of research in the physical 
sciences.
    The DOE Office of Science oversees outstanding national 
laboratories whose capabilities for solving complex interdisciplinary 
problems are not easily matched elsewhere. It also builds and operates 
large-scale user facilities of importance to all areas of science. In 
large part, it has been enormously successful in these efforts. Thus, 
the vitality of the U.S. scientific enterprise is strongly dependent 
upon DOE support.
    For about a decade, however, DOE Science budgets have been 
declining in purchasing power, and have fared significantly less well 
than those of other agencies. These difficulties have been exacerbated 
by weakness in overall federal support for the physical sciences (as 
compared to biology and medicine) and by the perception of management 
and security problems throughout the Department.
    The decline in funding for DOE Science implies that our nation has 
seriously underinvested in the research that it will need to sustain 
its health, security, and economic prosperity in the 21st Century.
    We believe that this situation has reached crisis proportions, and 
that future U.S. leadership in many essential areas of science is in 
jeopardy. Our purpose in these remarks is to suggest actions to 
strengthen DOE Science that might be taken jointly by the new 
Administration and Congress.
    We have considered alternatives ranging from keeping the status quo 
to major rearrangements of the existing science agencies. Of these 
various alternatives, we believe that two kinds of solutions to these 
problems--depending upon circumstances--may be feasible and effective.

                     THE PROBLEMS OF SCIENCE AT DOE

    The DOE Science budget has stagnated and declined, in part, because 
the DOE roles in civilian basic research and in the support of 
university faculty and students are neither adequately understood in 
Washington nor appreciated by the public at large.
    DOE as a whole has four main missions: national security, 
environmental restoration, science and technology, and energy. Its role 
in national security is to maintain our nuclear deterrent. The 
environmental role is to correct problems left behind under the 
pressures of the Cold War. The mission in science and technology 
uncovers new knowledge and propels the growth of our economy. The 
energy mission is to secure some degree of independence from 
fluctuations in the fossil fuel supply, and to develop environmentally 
sound energy technologies for sustainable development. In principle, 
the four missions can support each other.
    It is inevitable in a complex national-security program as large as 
that of the DOE that there will be problems from time to time. It is 
also inevitable that new environmental problems will be uncovered. 
These problems in the DOE weapons and environmental programs have given 
the overall agency a negative image that, in practice, has proved 
damaging to all of DOE, including its missions in science and energy. 
In particular, DOE Science has not received the support that it badly 
needs.
    The question of leadership is an essential part of the problem. The 
Director of the DOE Office of Science has responsibilities comparable 
to those of the director of the NSF and not very different from those 
of the directors of NIH and NASA; but he or she does not have 
comparable authority or visibility. Without that authority, it has 
become very difficult for DOE Science to make its case for necessary 
long-term investments in research.
    In considering responses to this situation, we have agreed upon the 
following guidelines:

   The DOE missions in national security, environmental clean-
        up, science and energy are each important in their own ways. 
        Any solution to present problems within DOE should tailor 
        management, facilities, and budgets so as to optimize the 
        performance of each of these missions rather than applying 
        ``one-size'' solutions to all.
   Science and technology in the United States has prospered 
        greatly from diversity of funding sources and modes of support. 
        For example, the fact that the NSF differs from the mission 
        agencies in both purpose and style has made it possible for 
        U.S. scientists to take risks and tackle challenging and 
        important problems. Similarly, the DOE has developed great 
        expertise in building and operating large facilities, and in 
        overseeing important interdisciplinary national laboratories. 
        That expertise has been extremely valuable throughout all of 
        the U.S. scientific and technological community--in government, 
        industry, and universities. The diversity of funding sources 
        should be maintained.
   The primary responsibility of the DOE's science and energy 
        programs should be to provide the new knowledge needed for 
        ensuring the scientific and technological base of our nation's 
        economic prosperity in the 21st Century. The mode in which 
        those programs assume this responsibility should take advantage 
        of the DOE's experience with large facilities and multi-
        disciplinary research efforts.

                         ALTERNATIVE STRATEGIES

    Starting from these guidelines, we propose two alternative kinds of 
solutions, without indicating a preference for one over the other. 
Alternative A is a restructuring of the DOE based on the assumption 
that the Department will remain essentially intact in the next 
Administration. Alternative B is based on the assumption that it may 
become feasible or inevitable that some or all of the present 
responsibilities of DOE be shifted to other agencies. After discussing 
both of these alternatives, we mention, for the sake of completeness, 
two other strategies that we believe are highly undesirable.
Alternative A--Enhance the leadership and visibility of DOE science and 
        energy by revising the management structure within the 
        Department
    One way to accomplish this goal would be to elevate the Director of 
the DOE Office of Science to the rank of Under Secretary for Science 
and Energy, with additional responsibilities as Science Adviser to the 
Secretary. This scheme would improve the visibility and influence of 
science in DOE, and would place the person in charge of science at a 
level above the large number of staff offices that are inevitable in 
such a complex agency. A primary objective would be to have a widely 
respected and influential scientist in a position where he or she can 
be an effective leader and spokesperson for DOE science and energy.
    A variant of this scheme, which goes part of the way toward our 
more ambitious Alternative B described below, would be to remove some 
administrative and regulatory responsibilities from DOE and convert it 
into a subcabinet agency. The director of this agency, like the 
directors of NSF and NASA, would be chosen for scientific and technical 
leadership, and would have clear responsibility for guiding the agency 
in directions consistent with long-term national goals.
Alternative B--Combine DOE science and energy programs with NIST, NOAA, 
        and possibly USGS to form the major part of a new 21st Century 
        Department of Commerce
    The idea here is to create a ``National Institutes of Science and 
Advanced Technology'' (NISAT) within a cabinet-level department in 
analogy to the Natibnal Institutes of Health within HHS. An alternative 
would be to combine these same entities; that is, ``NISAT,'' into an 
independent sub-cabinet agency analogous to NASA in structure and 
governmental status.
    The major feature of Alternative B is that it would simultaneously 
reorganize both DOE and DOC in a way that would be consistent with the 
scientific and technological challenges of the next decades. The new 
agency would be a visible recognition by the U.S. government that long-
term research drives economic progress. Its primary mission would be 
the initiation and management of large-scale and/or multidisciplinary 
research.
    While many of the specific responsibilities of this agency would be 
closely related to national needs, its style of operation would reflect 
our modern understanding of the essential connections between 
applications and fundamental new knowledge; thus this agency would 
support both basic and applied research. The existence of such an 
agency might provide a sharpened focus on the needs of the physical 
sciences in federal budgeting processes. As before, scientific 
leadership at the highest level would be necessary for the success of 
this new agency.
    Finally, we mention two alternatives that have been suggested by 
others that we consider to be highly UNDESIRABLE.
Move DOE Science into NSF
    Merging DOE Science and the NSF would double the size and 
complexity of the NSF. There would be a serious mismatch between the 
science and management activities, and it might be difficult to 
establish a culture that would maintain the strength of the national 
laboratories and that would allow both single-investigator ``small 
science'' and multidisciplinary, multi-investigator ``big science'' to 
thrive.
    Whether this merger could happen without degrading what works very 
well in DOE or NSF is highly questionable. Diversity of funding sources 
for research would be substantially reduced. Many scientific fields 
would be limited to one possible federal funding source, and innovative 
scientists whose research projects did not fit into NSF programs would 
have no other sponsors to whom to appeal.
    Most importantly, the NSF is the only federal agency whose sole 
responsibility is the support of science, unconstrained by specific 
missions. In its fifty years of existence, the NSF has served this 
nation extraordinarily well. We believe that it is essential to 
maintain the unique quality of this agency.
Create a Department of Science, including all Federal R&D programs
    The creation of a federal Department of Science has been proposed 
several times in recent years as a means for concentrating federally 
funded research and development and making it easier to track and 
manage. Presumably, a Department of Science would be a civilian agency, 
perhaps including the 6.1, 6.2. and 6.3 programs of the Department of 
Defense. This consolidation would have the very major disadvantage of 
completely eliminating the diversity of funding sources as well as 
destroying the unique nature of the NSF. Other serious disadvantages 
have been discussed in previous analyses of this proposal.
                                 ______
                                 
   Statement of Arpad A. Bergh, President, Optoelectronics Industry 
                        Development Association
    On behalf of the Optoelectronics Industry Development Association 
(``OIDA''), I would like to offer support for a government-industry 
initiative to develop a new form of energy efficient lighting based on 
solid state optoelectronics. In particular, OIDA endorses legislation 
recently introduced by Senators Jeff Bingaman and Mike DeWine--S. 
1166--that would establish a government-industry initiative to 
accelerate the development of solid state lighting.
    The ``Next Generation Lighting Initiative Act'' would create a 10-
year program for the Department of Energy and a consortium of the solid 
state lighting industry for the purposes of conducting the research and 
development necessary to enable solid state lighting to become a 
primary source for the nation's general lighting needs.
    OIDA is a non-profit association of optoelectronics companies, 
national laboratories and universities established to strengthen and 
advance optoelectronics technology. OIDA members are leaders in the 
research and development of new enabling optoelectronics technologies 
for areas such as fiber optic communications, digital imaging, and 
optical storage.
    Optoelectronics involves the merging of optics and electronics into 
various complementary devices and has become a strategic enabling 
technology in today's information-based economy. Optoelectronics 
applications extend broadly through society, including the fields of 
computing, communication, entertainment, education, electronic 
commerce, health care and transportation. Optoelectronics defense 
applications include military command and control functions, imaging, 
radar, aviation sensors, and optically-guided weapons.
    OIDA urges the Congress to pass S. 1166 expeditiously in order to 
achieve the considerable benefits of energy savings, productivity 
gains, and consumer advancements that would come from full scale 
development of solid state lighting.

                     DOMINANT LIGHTING TECHNOLOGIES

    Lighting technology is currently dominated by the incandescent 
light bulb and the fluorescent light tube. These two light sources are 
the primary means for general lighting in the United States and 
throughout the world. Despite the dominant role of these lighting 
technologies, neither has achieved significant advancements in energy 
efficiency over the past several decades. This is all the more 
noteworthy given that approximately 70 percent of the energy used by 
these lighting technologies is wasted as heat.
    Incandescent and fluorescent lighting, as well as certain other 
forms of lighting currently available, are very energy-inefficient. 
These forms of lighting convert only a small portion of the consumed 
electric energy into visible light. A 100 watt incandescent light bulb, 
for instance, emits only 5 percent of the energy it uses as useful 
light, while the equivalent figure for the more efficient fluorescent 
tube is less than 30 percent. These inefficiencies are dictated by 
physics and are not subject to significant improvement.
    Lighting consumes a significant portion of the energy generated in 
the United States--approximately 20 percent--and this share is growing. 
It is widely accepted that the United States must pursue strategies for 
limiting the growth of its energy consumption devoted to lighting 
needs. Conservation and improved electronic controls alone will not be 
sufficient for limiting this energy need. The solution lies with new 
technologies, principally solid state lighting.

                          SOLID STATE LIGHTING

    Solid state lighting technology utilizes inorganic and organic 
semiconductor devices known as light emitting diodes (``LEDs'') and 
organic light emitting diodes (``OLEDs'') to convert electricity to 
light. LEDs have existed for over 30 years and today are used in 
applications such as digital displays, instrument panel lighting, 
signage, and traffic signals. LEDs' primary advantages include 
significantly longer-life and energy efficiency. LEDs' use in highway 
signs and signals, for example, require 80-90 percent less energy than 
incandescent signals and have significantly longer running lives. It 
has been estimated that replacing all existing incandescent traffic 
signals in the United States with LED signals would save nearly 2.5 
billion kilowatt hours annually. OLEDs have the promise of highly 
efficient low cost, large area, flexible light sources that can be 
mounted on walls and ceilings or even on furniture.
    Unlike incandescent and fluorescent technology, solid state 
lighting technology is not subject to the same laws of physics that 
result in the conventional lighting sources' poor energy efficiency. In 
theory, solid state lighting could achieve near 100 percent 
electricity-to-light conversion ratio. While actual ratios for solid 
state lighting have not yet approached such high levels, technological 
advancements are consistently raising the energy efficiency of solid 
state lighting.
    The adoption of solid state lighting for more general illumination, 
such as residential and office lighting, has been stymied by the 
inability to produce solid state ``white light'', the most common form 
of lighting used by the general public. This barrier, however, has now 
been overcome. Several types of white light LEDs have been developed 
and efforts are on-going to improve on existing white light technology 
for solid state applications. Nevertheless, the industry faces 
significant challenges in bringing to market cost-effective white light 
LEDs.
      solid state lighting as a primary source of general lighting
    Adoption of solid state lighting as a primary source of general 
lighting in the United States holds the promise of significant and far-
reaching benefits:
    Energy, Efficiency. It is estimated that significant adoption of 
solid state lighting over the next twenty years could reduce global 
electricity usage for lighting by 5O percent, and reduce total global 
electricity consumption by 10 percent. These changes equate to an 
overall reduction in annual global energy needs of 1,000 terawatt-
hours.
    Cost Efficiency. Solid state lighting using LEDs will be more cost 
efficient in terms of product maintenance and replacement. Unlike 
incandescent bulbs and fluorescent tubes, LEDs are durable, long-
lasting, and easier to program and operate.
    Environmental Impact. The energy efficiency of LEDs could translate 
into major cuts in carbon emissions if solid state lighting is adopted 
broadly. It has been estimated that the United States could avoid 276 
metric tons of carbon emissions by 2020 if solid state lighting could 
garner a significant share of the general lighting market.
    Economic Impact. A flourishing solid state lighting industry would 
have important economic benefits to the United States in terms of 
employment, growth in supplier and equipment industries, research and 
development and new applications. Furthermore, as solid state lighting 
becomes a leading source for general lighting outside the United 
States, the U.S. solid state lighting and related industries will reap 
expanded economic benefits for the nation.
    Improved Quality and Flexibility. Solid state lighting promises 
better quality and more versatile sources of lighting, including the 
ability to tune colors to virtually any shade or tint. In addition, 
solid state lighting offers other desirable qualities, such as light-
weight, thinness, flexibility in deployment, and compatibility with 
integrated circuits to produce ``smart'' light.
    Based on these important qualities and benefits of solid state 
lighting, a government-industry solid state lighting initiative would 
be in the United States' economic and energy security interests. The 
United States would benefit not only from major energy and cost 
savings, improved quality, and a positive environmental impact, but 
also from the ability to enhance and maintain the competitiveness of 
the U.S. solid state lighting industry at a time when this technology 
is being aggressively pursued by other nations. These benefits 
represent a solid foundation and justification for proceeding with a 
solid state lighting initiative as set forth in S. 1166.

   FOREIGN DEVELOPMENT EFFORTS AND THE CHALLENGE TO THE UNITED STATES

    Efforts are underway in other countries to rapidly develop solid 
state lighting as a viable alternative to conventional lighting 
technologies. Government-sponsored industry consortia have been 
established in Japan, Europe, Korea, and Taiwan to develop more 
efficient solid state lighting technologies. It is generally believed 
that without a substantial government/industry commitment in the United 
States competitors such as Japan and Europe will come to dominate solid 
state lighting and become the standard-bearers of this important 
technology.
    A national investment is necessary to further develop solid state 
lighting and to ensure that the United States can obtain a leadership 
position. This can best be achieved through the cooperation of 
industry, government, and academia.
    The optoelectronics industry, the Department of Energy, and several 
National Laboratories have been working to develop a coordinated 
approach to solid state lighting. OIDA itself has put much effort into 
addressing the necessary requirements for full scale development of 
solid state lighting. These include much basic research, which is 
especially suited for universities, harnessing work at the National 
Laboratories, and the development of an infrastructure of supplier and 
equipment firms that can be available for the commercialization of this 
new technology.
    The potential for solid state lighting was thoroughly reviewed this 
spring at a National Academies of Science workshop. Based largely on 
work from many sources, Senators Jeff Bingaman and Mike DeWine have 
formulated legislation that reflects the most promising approach to 
this type of broad-based technology development.

          THE NEXT GENERATION LIGHTING INITIATIVE ACT--S. 1166

    The Next Generation Lighting Initiative Act was introduced on July 
11, 2001 and is designed to establish a national research and 
development infrastructure for bringing about the types of advances in 
solid state lighting that will allow this technology to become more 
broadly applied and eventually available as a primary source of general 
lighting.
    The legislation would involve two types of funding for research and 
development on solid state lighting: 1) direct sponsored research from 
the Department of Energy, and 2) grants to universities, National 
Laboratories and infrastructure providers that would be administered by 
an industry-led consortium.
    Industry Consortium. The ``Next Generation Lighting Initiative 
Consortium'' would be composed of companies, National Laboratories, and 
other research entities and would provide basic and manufacturing 
related research contracts. The consortium would be funded through both 
membership fees and Department of Energy grants. Entities receiving 
funding directly from the Department of Energy would obtain full 
intellectual property rights, while consortium members would have 
royalty-free access to research results from universities, National 
Laboratories, and infrastructure providers.
    The consortium would provide the framework for the entire program 
in that it would coordinate with the Department of Energy in assessing 
technology requirements, maintain a technology roadmap, and administer 
the efforts of participating universities, National Laboratories, and 
supplier and equipment infrastructure firms. All efforts would involve 
cost sharing.
    The consortium is to be broadly representative of entities engaged 
in solid state lighting research and development. It would have a 
participation agreement applicable to all members and would be open to 
all U.S. companies.
    The initiative is designed to result in the commercialization of 
solid state lighting technology. As such, it would involve extensive 
industry participation. To facilitate such participation, the grants 
under the research and development funding program would not be subject 
to the Federal Acquisition Regulations, but rather subject to review by 
commercial auditors to ensure that funds are expended in a manner 
consistent with the program's objectives.
    Planning Board. The initiative would also establish a Planning 
Board that would include seven members representative of solid state 
lighting activity generally. Four members would be appointed by the 
Secretary of Energy and three members would be nominated by the 
consortium. It is not intended that the Planning Board would function 
as a federal advisory committee. Rather, it would have a specific task 
of developing strategies for solid state lighting. These strategies 
would be made available to the Department of Energy, the consortium, 
Congress, and the public.
    Annual Review. In addition, the initiative would be subject to an 
independent annual review by a federal advisory committee or under the 
auspices of the National Academy of Sciences. In particular, the Board 
on Science, Technology and Economic Policy of the National Academy of 
Sciences would be well qualified to conduct such annual reviews.
    Funding. The Department of Energy Initiative would authorize up to 
$480 million in grants for solid state lighting research and 
development over a period of ten years. The objective of the initiative 
is to develop by 2011 white LEDs that, compared to incandescent 
lighting technologies, are longer lasting, more energy efficient, and 
cost-competitive.
    Studies indicate that technology development necessary for 
commercializing solid state lighting could be achieved within ten 
years. To realize this goal, however, it will be necessary to make 
substantial investments in research and development. Based on the 
critical tasks identified in the solid state lighting industry's 
roadmaps, it appears that annual funding of approximately $50 million 
will be necessary to complement current industry efforts. Funding would 
not continue beyond the point at which this technology is readily 
avail4ble for broad-based applications.
    OIDA strongly endorses the Next Generation Lighting Initiative Act 
and urges the Congress to enact this important technology development 
initiative. This legislation offers the best approach for combining the 
resources of industry, government, and academia in an effort to bring 
to the commercial marketplace the next generation of lighting 
technology and to maintain a leadership role for the United States in 
this important field.

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